S-1

As filed with the Securities and Exchange Commission on September 2, 2005

Registration No. 333-               

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

SGX Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	2834	06-1523147
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

10505 Roselle Street

San Diego, CA 92121

(858) 558-4850

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Michael Grey

President and CEO

SGX Pharmaceuticals, Inc.

10505 Roselle Street

San Diego, CA 92121

(858) 558-4850

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

Copies to:

Frederick T. Muto, Esq.
J. Patrick Loofbourrow, Esq.
Charles S. Kim, Esq.
Cooley Godward LLP
4401 Eastgate Mall
San Diego, CA 92121
(858) 550-6000 Annette North, Esq.
Vice President, Legal Affairs and
Corporate Secretary
SGX Pharmaceuticals, Inc.
10505 Roselle Street
San Diego, CA 92121
(858) 558-4850 Ora T. Fisher, Esq.
Cheston J. Larson, Esq.
Latham & Watkins LLP
135 Commonwealth Drive
Menlo Park, CA 94025
(650) 328-4600

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.     o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o                     

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o                     

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.     o                     

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.     o

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities	Proposed Maximum Aggregate	Amount of
to be Registered	Offering Price(1)	Registration Fee
Common Stock, $0.001 par value per share	$80,500,000	$9,475

(1)  Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. Includes shares that the underwriters have the option to purchase to cover over-allotments.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED SEPTEMBER 2, 2005

                             Shares

Common Stock

      This is our initial public offering and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $          and $           per share.

      We have applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol “SGXP.”

      Investing in our common stock involves risks. See “Risk Factors” beginning on page 8.

	Per Share	Total
Initial public offering price	$	$
Underwriting discount	$	$
Proceeds, before expenses, to SGX	$	$

      The underwriters may also purchase up to an additional                 shares from us at the initial public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments.

      The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities or determined if this preliminary prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

      The underwriters expect to deliver the shares against payment in New York, New York on                     , 2005.

CIBC World Markets Piper Jaffray

JMP Securities

Table of Contents

	Page
Prospectus Summary		1
Risk Factors		8
Forward-Looking Statements		30
Use of Proceeds		31
Dividend Policy		31
Capitalization		32
Dilution		33
Selected Consolidated Financial Data		35
Management’s Discussion and Analysis of Financial Condition and Results of Operations		37
Business		48
Management		68
Related Party Transactions		88
Principal Stockholders		92
Description of Capital Stock		95
Shares Eligible for Future Sale		100
Underwriting		102
Legal Matters		105
Experts		105
Where You Can Find More Information		105
Index to Financial Statements		F-1
EXHIBIT 1.1
EXHIBIT 3.1
EXHIBIT 3.2
EXHIBIT 3.3
EXHIBIT 3.4
EXHIBIT 4.2
EXHIBIT 4.6
EXHIBIT 4.7
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 10.5
EXHIBIT 10.6
EXHIBIT 10.7
EXHIBIT 10.8
EXHIBIT 10.9
EXHIBIT 10.10
EXHIBIT 10.11
EXHIBIT 10.12
EXHIBIT 10.13
EXHIBIT 10.14
EXHIBIT 10.15
EXHIBIT 10.16
EXHIBIT 10.17
EXHIBIT 10.18
EXHIBIT 10.19
EXHIBIT 10.20
EXHIBIT 10.21
EXHIBIT 10.22
EXHIBIT 10.23
EXHIBIT 10.24
EXHIBIT 10.25
EXHIBIT 10.26
EXHIBIT 10.27
EXHIBIT 10.28
EXHIBIT 10.29
EXHIBIT 10.30
EXHIBIT 10.31
EXHIBIT 23.1

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with different information. We are offering to sell shares of common stock and seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock. Our business, financial condition, results of operations and prospectus may have changed since that date.

In this prospectus “we,” “us,” “our” and “SGX” refer to SGX Pharmaceuticals, Inc. and its subsidiaries, unless explicitly noted otherwise.

Reference in this prospectus to our certificate of incorporation and bylaws refer to the certificate of incorporation and bylaws that will be in effect upon completion of this offering.

Industry and market data used throughout this prospectus is based on independent industry publications, reports by market research firms and other published independent sources. Some data is also based on our good faith estimates, which are derived from our review of internal surveys and independent sources. Although we believe these sources are reliable, we have not independently verified the information from these third party sources and cannot guarantee their accuracy or completeness.

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Prospectus Summary

This summary highlights information contained in other parts of this prospectus. It does not contain all of the information that you should consider before investing in our common stock and it is qualified in its entirety by the information appearing elsewhere in this prospectus. You should read the entire prospectus carefully, especially “Risk Factors,” before deciding to invest in our common stock.

SGX Pharmaceuticals, Inc.

We are a biotechnology company focused on the discovery, development and commercialization of innovative cancer therapeutics. We are developing Troxatyl, a novel compound which is currently in a pivotal Phase II/ III clinical trial for the third-line treatment of Acute Myelogenous Leukemia, or AML, a blood cancer. There is no approved therapy or standard of care for the third-line treatment of AML. If the results of our ongoing Phase II/ III clinical trial are positive, we expect to submit a New Drug Application, or NDA, to the U.S. Food and Drug Administration, or FDA, in late 2006 or early 2007, leading to a potential product launch during 2007. We also plan to develop Troxatyl in combination with cytarabine, a generic compound often known as Ara-C, for the second-line treatment of AML. In addition, we are developing Troxatyl for the treatment of various solid tumors and are planning on developing Troxatyl for the treatment of Myelodysplastic Syndromes, or MDS. We licensed exclusive worldwide rights to Troxatyl from Shire BioChem Inc. in July 2004.

We are also building an internal oncology product pipeline and generating lead compounds for multiple partners through the application of our proprietary fragment-based drug discovery platform, Fragments of Active Structures, or FAST. We have successfully applied FAST to generate novel, potent and selective small molecule compounds in a matter of months for many well-validated but challenging targets. We expect to begin clinical development in 2006 for our first lead compound discovered using FAST, an inhibitor of an enzyme known as BCR-ABL. We designed and are developing a lead compound as a treatment for Chronic Myelogenous Leukemia, or CML, which is resistant to treatment with the current standard of care, Gleevec® (imatinib mesylate) marketed by Novartis Pharmaceuticals Corporation. An additional internal program is at the lead optimization stage and is focused on the targets MET and RON, two closely related proteins, known as receptor tyrosine kinases, implicated in a range of solid tumors. We believe that FAST is capable of producing at least one new Investigational New Drug, or IND, candidate per year, starting in 2006. Based on FAST and related technologies, we generated aggregate revenues from collaborations, commercial agreements and grants of approximately $55.2 million in 2003, 2004 and the first six months of 2005.

The chart below summarizes the status of our most advanced ongoing and currently planned clinical and preclinical development programs:

Program/ Indication			Status
Troxatyl
	•	Third-line AML	Pivotal Phase II/III trial ongoing (data expected 2H06)
	•	Second-line AML	Phase I/II Ara-C combination trial (initiate 1H06)
			Phase III Ara-C combination trial (initiate 4Q06)
	•	MDS	Phase I/II trial (initiate 2006)
	•	Solid tumors	Phase I/II trial ongoing (data expected 4Q05)
BCR-ABL
	•	Gleevec-resistant CML	Preclinical development (IND expected 4Q06)
MET and RON
	•	Solid tumors	Lead optimization
AurA, Hsp90, K-RAS and PDK-1
	•	Various cancers	Lead optimization

1

Troxatyl

Troxatyl is a novel analog of cytidine, one of the four nucleosides that are the building blocks of deoxyribonucleic acid, or DNA. Nucleoside analogs such as Troxatyl inhibit synthesis of DNA in dividing cells, thereby causing those cells to die. Based on preclinical studies and clinical trials, we believe Troxatyl has a number of unique properties and advantages for the treatment of various cancers. More than 700 patients were enrolled in Phase I and Phase II clinical trials conducted by Shire, in which Troxatyl was administered in the majority of cases by intravenous injection, or IV, to treat blood cancers and solid tumors. However, based on our recent clinical trials and preclinical studies, we now believe that neither the dose nor the IV mode of administration utilized in those trials was optimal. In May 2005, we completed a Phase I/ II AML clinical trial in which Troxatyl was administered by continuous intravenous infusion, or CI, over several days. Based on data from this trial, we believe Troxatyl is more active when administered by CI compared to IV, and we believe we have identified the optimal dose of Troxatyl for the single-agent treatment of AML.

     Acute Myelogenous Leukemia

We are initially developing Troxatyl for the treatment of AML, a blood cancer that increases in incidence with age. According to the American Cancer Society, in the United States, approximately 16,000 adult patients have AML with approximately 12,000 new patients diagnosed each year. Long-term survival rates are less than 20%. Approximately 8,000 patients per year receive second-line treatment for this disease. The vast majority of these patients are either non-responsive or relapse within six months. There is no approved therapy or standard of care for the third-line treatment of AML and, based on a recent M. D. Anderson Cancer Center study, the historical response rate for patients we are targeting in our current pivotal Phase II/III clinical trial is less than 5%.

Phase I/ II CI Trial. We completed our first clinical trial evaluating CI Troxatyl dosing in the second quarter of 2005. This 48 patient dose-escalation trial enrolled various types of relapsed AML patients, including patients who had failed two or more prior chemotherapy regimens, patients who had also failed bone marrow transplantation and patients who were refractory to prior treatment. Five patients achieved a complete response, or CR, of their disease and four patients achieved a complete response with partial platelet recovery, or CRp, for an overall response rate of 19%. For the 15 patients who met the enrollment criteria for our current pivotal Phase II/ III trial and received Troxatyl for at least four days, the overall response rate was 27%. Importantly, the low-level toxicities we observed were not age-related. The duration of response has ranged from one to over 12 months. Several patients remain in active remission and median survival time was seven months. On the basis of these results, we have concluded the safety and response data in these patients compare favorably to the M. D. Anderson Cancer Center historical data and support further development of Troxatyl for the treatment of AML.

Current Phase II/ III Clinical Trial. In July 2005, we initiated a pivotal Phase II/ III clinical trial of Troxatyl for the third-line treatment of AML, with targeted enrollment of 211 patients. We are conducting a single-arm, open-label clinical trial. Following discussions with the FDA in connection with our End-of-Phase II Meeting in May 2005, we designed this trial with CR as the primary clinical endpoint and CRp and duration of response as secondary endpoints. Because there is currently no approved therapy or standard of care that can be used as a control therapy for this patient population, we will compare the results of this trial to results observed in M. D. Anderson Cancer Center’s historical data in similar patients. The clinical trial has been powered to detect a doubling of the historical CR rate of 4.7% derived from the M. D. Anderson Cancer Center database. The Phase II/ III patient population is similar to that studied in our recently completed Phase I/ II CI Troxatyl clinical trial. Clinical response will be measured up to approximately 60 days after dosing in each patient. We expect to complete enrollment in the trial in the third quarter of 2006 and announce the results shortly thereafter. If the results of this trial are positive, we intend to submit an NDA to the FDA in late 2006 or early 2007. We have applied for fast track designation for Troxatyl which may qualify us for a six-month review period by the FDA.

2

Market Expansion Trials for AML. We are initially developing Troxatyl for the third-line treatment of AML because we believe this indication will provide the fastest route to market. However, we also plan to develop Troxatyl for the second-line treatment of AML. Additionally, we plan to evaluate Troxatyl in combination with the cancer drugs daunorubicin or mitoxantrone for the potential first-line treatment of AML.

Other Indications

Based on IV Troxatyl data obtained by Shire, we are investigating Troxatyl as a potential product candidate for treatment of other cancers. IV Troxatyl has shown promising activity in various Phase I and Phase II clinical trials against MDS, and solid tumors such as pancreatic cancer and renal cell carcinoma, the most common form of kidney cancer.

Myelodysplastic Syndromes. MDS represents a group of cancers in which bone marrow does not make enough mature, healthy blood cells. In 2006, we plan to initiate a single-arm, open-label Phase I/ II clinical trial of CI Troxatyl in MDS patients who have failed Vidaza® (azacitidine), marketed by Pharmion Corporation, the only approved drug for this disease. If results of this trial are positive, we would then conduct a larger Phase II CI Troxatyl clinical trial in high-risk patients as first-line therapy in combination with Vidaza. We believe that combination treatment of MDS with CI Troxatyl and Vidaza has the potential to delay transformation of MDS to AML, increase overall survival, reduce blood transfusion frequency and improve overall quality of life for these patients.

Solid Tumors. We are conducting a Phase I/ II dose ranging clinical trial of CI Troxatyl in patients with refractory solid tumors. No new or unexpected toxicities have been observed at exposure levels that now exceed those achieved in the previous IV Troxatyl administration trials. We expect to complete this trial by the end of 2005. We plan to initiate Phase I/II clinical trials in 2006 of CI Troxatyl for one or more solid tumor indications, including liver cancer. We expect to announce initial response data from the first of these trials in the second half of 2007 with one-year survival data being announced thereafter.

Research Programs

We are also building an internal oncology product pipeline and generating lead compounds for multiple partners through application of our drug discovery platform, FAST. We are focusing on targets where we believe FAST could provide a distinct advantage over conventional methods of lead discovery, and we have identified a portfolio of approximately 20 oncology targets that we believe are both well-validated and suited for lead discovery using our FAST platform. Our principal areas of focus in oncology drug discovery are on well-validated protein and enzyme targets, including BCR-ABL, MET and RON, AurA, Hsp90, K-RAS and PDK-1.

Our most advanced program based upon FAST is focused on compounds that inhibit both wild type and Gleevec-resistant mutant forms of BCR-ABL tyrosine kinase, the enzyme that is responsible for CML. Treatment of CML patients with Gleevec results in complete remission in greater than 95% of patients. However, we believe approximately 3% to 4% of patients develop resistance every year, and we estimate approximately 16% of CML patients are currently Gleevec-resistant. There is no approved pharmaceutical treatment for patients who develop Gleevec-resistant CML. The goal of our BCR-ABL program is to develop a once-daily oral therapy for the treatment of both first-line and Gleevec-resistant CML.

3

Our Strategy

Our goal is to create a leading biotechnology company that discovers, develops and commercializes novel cancer drugs. Key elements of our strategy are to:

•  obtain regulatory approval of Troxatyl for AML;

•  develop Troxatyl for other cancer indications;

•  develop and expand our cancer pipeline;

•  continue to generate revenue through strategic partnering;

•  develop sales and marketing capabilities; and

•  expand our portfolio of product candidates through acquisitions and in-licensing.

Corporate Information

We were incorporated in Delaware in July 1998, and our principal executive offices are located at 10505 Roselle Street, San Diego, California 92121. We changed our name to SGX Pharmaceuticals, Inc. from Structural GenomiX, Inc. in August 2005. Our telephone number is (858) 558-4850 and website address is http://www.sgxpharma.com. Information contained in, or accessible through, our website does not constitute a part of this prospectus.

Troxatyl® is a U.S. registered trademark owned by Shire Biochem Inc., a company within Shire Pharmaceuticals Group plc, for the anti-cancer agent troxacitabine. Both troxacitabine and the Troxatyl® trademark are licensed to our company. FAST^tm is our trademark for our proprietary fragment-based drug discovery platform. We have applied for registration of our SGX Pharmaceuticals logo with the United States Patent and Trademark Office and have applications to register our SGX trademark in the United States, Australia, Canada, the European Union, Japan, Mexico and Switzerland. This prospectus also contains trademarks and tradenames of other companies, and those trademarks and tradenames are the property of their respective owners.

4

The Offering

Common stock offered by SGX Pharmaceuticals, Inc.	shares
Common stock to be outstanding after this offering	shares
Use of proceeds	We intend to use the net proceeds from this offering for the clinical development of Troxatyl; further development of our research programs and initial clinical development stemming from our internal programs; working capital and general corporate purposes; and potential acquisition and in-licensing activities. See “Use of Proceeds.”
Proposed Nasdaq National Market symbol	SGXP

The number of shares of common stock that will be outstanding after this offering is based upon 1,198,514 shares outstanding as of June 30, 2005, and excludes the following:

•  2,391,843 shares of common stock subject to outstanding options under our 2000 equity incentive plan, with a weighted average exercise price of $1.15 per share;

•  414,633 shares of common stock reserved for future issuance under our 2000 equity incentive plan;

•  2,400,000 shares of common stock reserved for future issuance under our 2005 equity incentive plan, 2005 non-employee directors’ stock option plan and 2005 employee stock purchase plan, each of which will become effective upon the completion of this offering; and

•  266,726 shares of common stock subject to outstanding warrants, with a weighted average exercise price of $2.31 per share.

Unless otherwise stated, information in this prospectus assumes:

•  the conversion of all our outstanding shares of preferred stock into 15,192,354 shares of common stock upon the completion of this offering;

•  the automatic issuance of                     shares of our common stock upon the completion of this offering under a $6.0 million convertible note;

•  the filing of our amended and restated certificate of incorporation and adoption of our amended and restated bylaws upon the completion of this offering; and

•  no exercise of the over-allotment option granted to the underwriters.

5

Summary Consolidated Financial Data

The following tables present our summary consolidated financial data and should be read together with our consolidated financial statements and accompanying notes, “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus. The summary consolidated financial data for the years ended December 31, 2002, 2003 and 2004 are derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. The summary consolidated financial data for the years ended December 31, 2000 and 2001 are derived from our audited consolidated financial statements, which are not included in this prospectus. The summary consolidated financial data at June 30, 2005 and for the six months ended June 30, 2004 and 2005 are derived from our unaudited consolidated financial statements, which are included elsewhere in this prospectus. Our historical results are not necessarily indicative of our future results. The pro forma as adjusted balance sheet data reflects the balance sheet data at June 30, 2005 as adjusted for the sale of                      shares of our common stock in this offering at an assumed initial public offering price of $           per share, after deducting the underwriting discount and estimated offering expenses payable by us and the automatic conversion of all preferred stock into an aggregate of 15,192,354 shares of common stock upon the completion of this offering.

																	Six Months Ended
		Years Ended December 31,															June 30,
		2000			2001			2002			2003			2004			2004			2005
																	(unaudited)
		(in thousands, except per share data)
Statement of Operations Data:
Revenue:
	Grants	$	–		$	–		$	350		$	3,344		$	6,380		$	1,742		$	429
	Grants — subcontractor reimbursements		–			–			–			4,599			4,976			1,520			2,666
	Collaborations and commercial agreements		–			1,338			2,986			10,135			15,941			8,597			6,763
Total revenue			–			1,338			3,336			18,078			27,297			11,859			9,858
Expenses:
	Research and development		6,616			17,831			25,573			28,587			31,444			15,255			16,742
	General and administrative		4,053			7,682			10,122			7,353			6,719			3,337			4,749
	In-process technology		–			1,500			–			–			4,000			–			–
Total operating expenses			10,669			27,013			35,695			35,940			42,163			18,592			21,491
Loss from operations			(10,669	)		(25,675	)		(32,359	)		(17,862	)		(14,866	)		(6,733	)		(11,633	)
Interest income			2,424			2,729			622			320			175			44			115
Interest expense			(126	)		(302	)		(932	)		(1,219	)		(669	)		(382	)		(190	)
Interest expense associated with debenture			–			–			–			–			(3,392	)		–			(1,188	)
Net loss			(8,371	)		(23,248	)		(32,669	)		(18,761	)		(18,752	)		(7,071	)		(12,896	)
Accretion to redemption value of redeemable convertible preferred stock			(274	)		(329	)		(329	)		(329	)		(329	)		(165	)		(165	)
Net loss attributable to common stockholders		$	(8,645	)	$	(23,577	)	$	(32,998	)	$	(19,090	)	$	(19,081	)	$	(7,236	)	$	(13,061	)
Basic and diluted net loss attributable to common stockholders per share(1):
	Historical	$	(32.38	)	$	(42.95	)	$	(39.42	)	$	(22.43	)	$	(19.91	)	$	(8.34	)	$	(12.39	)
	Pro forma (unaudited)													$	(6.61	)				$	(1.17	)
Shares used to compute basic and diluted net loss attributable to common stockholders per share(1):
	Historical		267			549			837			851			958			867			1,054
	Pro forma (unaudited)														2,887						11,157

(1) Please see Note 1 to our consolidated financial statements for an explanation of the method used to calculate the historical and pro forma net loss per share and the number of shares used in the computation of the per share amounts.

6

	As of June 30, 2005
				Pro Forma
	Actual			As Adjusted
	(unaudited)
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	10,428
Working capital		4,689
Total assets		25,272
Long-term debt obligations (including current portion)		2,372
Redeemable preferred stock		40,200
Accumulated deficit		(118,826	)
Total stockholders’ deficit		(26,458	)

7

Risk Factors

An investment in shares of our common stock involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this prospectus, before deciding to invest in our common stock. If any of the following risks actually occur, our business, financial condition, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stock.

Risks Relating to Our Business

We are dependent on the success of our product candidate, Troxatyl, and we cannot give any assurance that it will receive regulatory approval or be successfully commercialized.

Troxatyl, which is our only product candidate in clinical development, is in a pivotal Phase II/III clinical trial for the third-line treatment of Acute Myelogenous Leukemia, or AML. We are conducting or planning additional clinical trials of Troxatyl for other indications. All of our other compounds or potential product candidates are in preclinical development or the discovery stage. Troxatyl may never receive regulatory approval or be successfully commercialized. In July 2004, we in-licensed worldwide rights to Troxatyl from Shire BioChem Inc. Shire has conducted substantially all of the preclinical and clinical development of Troxatyl to date. However, Troxatyl will require additional clinical trials and regulatory clearances which may never be obtained. Our clinical development program for Troxatyl may not lead to a commercial drug either because we fail to demonstrate that it is safe and effective in clinical trials and we therefore fail to obtain necessary approvals from the U.S. Food and Drug Administration, or FDA, and similar foreign regulatory agencies, or because we have inadequate financial or other resources to advance this product candidate through the clinical trial process. Any failure to obtain approval of Troxatyl would have a material and adverse impact on our business.

We cannot be certain that our clinical trial design for our ongoing pivotal Phase II/III clinical trial of Troxatyl for the third-line treatment of AML will be sufficient to lead to regulatory approval.

The clinical trial protocol and design for our pivotal Phase II/III clinical trial of Troxatyl for the third-line treatment of AML may prove to be insufficient for product approval. We discussed our clinical development plan and the details of the Phase II/III clinical trial protocol with the FDA in connection with an End-of-Phase II Meeting following our recently concluded Phase I/ II clinical trial. We posed specific questions regarding the proposed design, conduct and data analysis approach for our Phase II/III clinical trial to the FDA and received answers to each question and additional comments on other aspects of the protocol design. For example, the FDA suggested that we consider a randomized trial design. However, we have decided to conduct the single-arm, open-label clinical trial as originally proposed and discussed with the FDA. We believe that a more traditional prospective, randomized, double-blind, controlled clinical trial is not viable because there currently is no standard of care for the third-line treatment of AML. We intend to compare the data from our single-arm clinical trial design to a selected group of 422 patients described in the M. D. Anderson Cancer Center’s recently published analysis of its experience with third-line treatment of 594 adult AML patients utilizing a variety of cancer drugs. The FDA has indicated that the results of our Phase II/III clinical trial and the published results from M. D. Anderson cannot be directly compared due to differences in the populations enrolled, but that the adequacy of the M. D. Anderson data and other literature to serve as a historical control will be considered during review of the New Drug Application, or NDA, for Troxatyl, if one is submitted. In addition, even if we achieve our desired endpoints for the trial, the results may not be sufficient to demonstrate compelling efficacy to the level required by the FDA for product approval.

The FDA also suggested that we submit a Special Protocol Assessment, or SPA, which drug development companies sometimes use to obtain an agreement with the FDA concerning the design and size of a clinical trial intended to form the primary basis of an effectiveness claim. However, we have not submitted and do not plan to submit an SPA for our ongoing Phase II/III clinical trial in part because a complete draft of our

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Phase II/III clinical protocol was submitted to and discussed with the FDA as part of the End-of-Phase II Meeting. However, without the FDA’s concurrence on an SPA, we cannot be certain that the design, conduct and data analysis approach for our ongoing Phase II/III clinical trial will be sufficient to allow us to submit or receive approval of an NDA for Troxatyl. We are currently in the process of enrolling patients in our Troxatyl Phase II/III clinical trial with targeted enrollment of approximately 211 third-line AML patients. If the FDA requires, or we otherwise determine, to amend our protocol, change our clinical trial design, increase enrollment targets or conduct additional clinical trials, our ability to obtain regulatory approval on the timeline we have projected would be jeopardized and we could be required to make significant additional expenditures related to clinical development. Any failure to obtain approval for Troxatyl would have a material and adverse impact on our business.

While we may seek to take advantage of various regulatory mechanisms intended to accelerate drug development and approval for Troxatyl for the third-line treatment for AML, there is no guarantee that the FDA will permit us to do so.

If the results of our ongoing pivotal Phase II/ III clinical trial of Troxatyl are positive, we plan to file an NDA for Troxatyl on the basis of this single study and seek FDA review under the accelerated approval regulations. Accelerated approval provides the opportunity for regulatory approval based on surrogate endpoints. However, there is no guarantee that we will successfully complete this Phase II/III clinical trial. Even if the Phase II/III trial is successfully completed, there are no assurances that the FDA will accept an NDA on the basis of a single Phase II/III study or review the NDA under the accelerated approval regulations. Failure to obtain review on the basis of a single study or accelerated approval could require us to complete additional and more extensive clinical trials, which would be costly and time consuming and delay potential FDA approval of Troxatyl for several years. If we do not obtain FDA agreement on these matters, we would not be able to submit an NDA for Troxatyl until the third quarter of 2009, at the earliest. Any failure to obtain accelerated approval of Troxatyl would have a material and adverse impact on our business. Even if we are able to obtain accelerated approval of Troxatyl from the FDA, the FDA still may not grant Troxatyl full approval for commercial sale. The FDA will likely require that we conduct additional post-approval clinical studies as a condition of any approval.

If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address an unmet medical need for this condition, the drug sponsor may apply for FDA fast track designation. We have applied for fast track designation for Troxatyl for the third-line treatment of AML. In addition to the benefits of accelerated approval, fast track designation may lead to a shorter FDA review period, which can be as short as six months, and the ability to submit portions of an NDA as they become available for required FDA review. We may not receive such designation from the FDA and even if the FDA grants fast track designation to Troxatyl, such designation may not actually lead to a faster development or regulatory review or approval process. Any fast track designation we may obtain may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data from our clinical development program or if a competitor’s product is approved for the indication we are seeking. Any fast track designation we may obtain will not guarantee that we will qualify for or be able to take advantage of the priority review procedures following the submission of an NDA. Additionally, if fast track designation were to be withdrawn for any product for which we obtain such designation, our ability to receive FDA approval could be delayed considerably.

Because the results of preclinical studies and early clinical trials are not necessarily predictive of future results, Troxatyl or any other product candidate we advance into clinical trials may not have favorable results in later clinical trials, if any, or receive regulatory approval.

Positive results from preclinical studies and early clinical trials should not be relied upon as evidence that later-stage or large-scale clinical trials will succeed. We will be required to demonstrate through clinical trials that our product candidates are safe and effective for use in a diverse population before we can seek regulatory approvals for their commercial sale. Success in preclinical testing and early clinical trials does not

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mean that later clinical trials will be successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy despite having progressed through initial clinical testing. Companies frequently suffer significant setbacks in advanced clinical trials, even after earlier clinical trials have shown promising results. In addition, there is typically an extremely high rate of attrition from the failure of drug candidates proceeding through clinical trials.

Our ongoing pivotal Phase II/III clinical trial of Troxatyl may not be successful for a variety of reasons, including the clinical trial design, the failure to enroll a sufficient number of patients, safety concerns and inability to demonstrate sufficient efficacy. In clinical trials to date, Troxatyl has been studied in more than 730 patients. However, most of the patients studied were enrolled in trials conducted by Shire under different dosing regimens and with different clinical endpoints than those we have conducted. Since licensing rights to Troxatyl from Shire in July 2004, we have completed only one Phase I/II clinical trial, our continuous intravenous infusion, or CI, trial completed in the second quarter of 2005, in which we administered doses of Troxatyl to 48 relapsed AML patients. This represents only a portion of the number of patients that will need to be studied to gain regulatory approval of Troxatyl for the third-line treatment of AML. We are currently in the process of enrolling patients in our pivotal Troxatyl Phase II/III clinical trial, with targeted enrollment of approximately 211 third-line AML patients. The data collected from clinical trials with larger patient populations may not demonstrate sufficient safety and efficacy to support regulatory approval of Troxatyl or any other product candidate we advance into clinical trials. If Troxatyl or any other product candidate we advance into clinical trials fails to demonstrate sufficient safety and efficacy in any clinical trial we are able to undertake, we would experience potentially significant delays in, or be required to abandon, development of that product candidate.

Troxatyl or any other product candidate we advance into clinical trials may cause undesirable side effects that could delay or prevent its regulatory approval or commercialization.

Common side effects resulting from CI dosing of Troxatyl include mucositis, hand and foot syndrome, and rash, and Troxatyl can also result in prolonged aplasia and sepsis, often leading to death. Because Troxatyl has been tested in relatively small populations under our current CI dosing regime, additional side effects may be observed as its development progresses.

Undesirable side effects caused by Troxatyl or any other product candidate we advance into clinical trials could interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications. This, in turn, could prevent us from commercializing Troxatyl or any other product candidate we advance into clinical trials and generating revenues from its sale. In addition, if Troxatyl or any other product candidate receives marketing approval and we or others later identify undesirable side effects caused by the product:

•  regulatory authorities may withdraw their approval of the product;

•  we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product; or

•  our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase the costs and expenses of commercializing the product, which in turn could delay or prevent us from generating significant revenues from the sale of the product.

Delays in the commencement or completion of clinical testing could result in increased costs to us and delay our ability to generate significant revenues.

Delays in the commencement or completion of clinical testing could significantly impact our product development costs. We do not know whether planned clinical trials will begin on time or be completed on

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schedule, if at all. The commencement of clinical trials can be delayed for a variety of reasons, including delays in:

•  obtaining regulatory approval to commence a clinical trial;

•  reaching agreement on acceptable terms with prospective contract research organizations and trial sites;

•  manufacturing sufficient quantities of a product candidate;

•  obtaining institutional review board approval to conduct a clinical trial at a prospective site; and

•  recruiting and enrolling patients to participate in a clinical trial.

In addition, once a clinical trial has begun, patient recruitment and enrollment may be slower than we anticipate. Further, a clinical trial may be suspended or terminated by us, our collaborators, the FDA or other regulatory authorities due to a number of factors, including:

•  failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;

•  inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;

•  unforeseen safety issues; or

•  lack of adequate funding to continue the clinical trial.

If we experience delays in the completion of, or termination of, any clinical trial of Troxatyl or any other product candidate we advance into clinical trials, the commercial prospects for product candidates we may develop will be harmed, and our ability to generate product revenues from any product candidate we may develop will be delayed. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. Even if we are able to ultimately commercialize Troxatyl or any other product candidates, other therapies for the same indications may have been introduced to the market during the period we have been delayed and such therapies may have established a competitive advantage over our products.

We rely on third parties to conduct our clinical trials, including our ongoing pivotal Phase II/III clinical trial for Troxatyl. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates.

The targeted enrollment for our recently initiated pivotal Phase II/ III Troxatyl clinical trial is 211 patients, and we expect to conduct this clinical trial in approximately 40 trial centers in the United States and Europe. We intend to rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories, to conduct this clinical trial and clinical trials for any other product candidate that we advance into clinical trials. We may not be able to control the amount and timing of resources that third parties devote to our Phase II/III Troxatyl clinical trial. In the event that we are unable to maintain our relationship with any of our selected clinical trial sites, or elect to terminate the participation of any of these clinical trial sites, we may experience the loss of follow-up information on patients enrolled in our ongoing clinical trial unless we are able to transfer the care of those patients to another qualified clinical trial site. In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be jeopardized. Moreover, for Troxatyl, we rely on third parties to transport bone marrow samples to the control laboratory and conduct sample evaluation. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, or if the quality or accuracy of the clinical data obtained by the control laboratory is compromised due to the failure to adhere to our clinical protocols or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates.

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Troxatyl and any other product candidates we advance into clinical trials are subject to extensive regulation, which can be costly and time consuming, cause unanticipated delays or prevent the receipt of the required approvals to commercialize our product candidates.

The clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing and distribution of Troxatyl or any other product candidates we advance into clinical trials are subject to extensive regulation by the FDA in the United States and by comparable governmental authorities in foreign markets. In the United States, neither we nor our collaborators are permitted to market our product candidates until we or our collaborators receive approval of a New Drug Application, or NDA, from the FDA. The process of obtaining NDA approval is expensive, often takes many years, and can vary substantially based upon the type, complexity and novelty of the products involved. Approval policies or regulations may change. In addition, as a company, we have not previously filed an NDA with the FDA. This lack of experience may impede our ability to obtain FDA approval in a timely manner, if at all, for our product candidates for which development and commercialization is our responsibility. Despite the time and expense invested, regulatory approval is never guaranteed. In addition, we expect to conduct a portion of the pivotal Phase II/III clinical trial for Troxatyl in Italy, France and Germany. As a result, we are subject to regulation by the European Medicines Agency, as well as the regulatory agencies in Italy, France and Germany, and have established a legal representative in the European Union, or E.U., to assist us in our interactions with these regulatory bodies. The FDA or any of the applicable European regulatory bodies can delay, limit or deny approval of a product candidate for many reasons, including:

•  a product candidate may not be safe and effective;

•  regulatory agencies may not find the data from preclinical testing and clinical trials sufficient;

•  regulatory agencies may not approve of our third party manufacturers’ processes or facilities; or

•  regulatory agencies may change their approval policies or adopt new regulations.

Also, recent events implicating questions about the safety of marketed drugs, including those pertaining to the lack of adequate labeling, may result in increased cautiousness by the FDA in reviewing new drugs based on safety, efficacy or other regulatory considerations and may result in significant delays in obtaining regulatory approvals. Any delay in obtaining, or inability to obtain, applicable regulatory approvals would prevent us from commercializing our product candidates.

Even if Troxatyl or any other product candidate we advance into clinical trials receives regulatory approval, our product candidates may still face future development and regulatory difficulties.

If Troxatyl or any other product candidate we advance into clinical trials receives U.S. regulatory approval, the FDA may still impose significant restrictions on the indicated uses or marketing of the product candidate or impose ongoing requirements for potentially costly post-approval studies. In addition, regulatory agencies subject a product, its manufacturer and the manufacturer’s facilities to continual review and periodic inspections. If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, our collaborators or us, including requiring withdrawal of the product from the market. Our product candidates will also be subject to ongoing FDA requirements for the labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information on the drug. If our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:

•  issue warning letters;

•  impose civil or criminal penalties;

•  withdraw regulatory approval;

•  suspend any ongoing clinical trials;

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•  refuse to approve pending applications or supplements to approved applications filed by us or our collaborators;

•  impose restrictions on operations, including costly new manufacturing requirements; or

•  seize or detain products or require a product recall.

Moreover, in order to market any products outside of the United States, we and our collaborators must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks described above regarding FDA approval in the United States. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others. Failure to obtain regulatory approval in other countries or any delay or setback in obtaining such approval could have the same adverse effects detailed above regarding FDA approval in the United States. As described above, such effects include the risk that our product candidates may not be approved for all indications requested, which could limit the uses of our product candidates and adversely impact potential royalties and product sales, and that such approval may be subject to limitations on the indicated uses for which the product may be marketed or require costly, post-marketing follow-up studies.

If we or our collaborators fail to comply with applicable domestic or foreign regulatory requirements, we and our collaborators may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Because we exclusively licensed our product candidate, Troxatyl, from Shire and our rights are subject to certain licenses to Shire from third parties, any dispute with Shire or between Shire and any of these third parties may adversely affect our ability to develop and commercialize Troxatyl.

In late July 2004, we licensed exclusive worldwide rights to our product candidate, Troxatyl, from Shire. If there is any dispute between us and Shire regarding our rights under the license agreement, our ability to develop and commercialize Troxatyl may be adversely affected. In addition, our exclusive license to Troxatyl is subject to the terms and conditions of a license from Yale University and the University of Georgia Research Foundation, Inc. to Shire. If Shire breaches the terms or conditions of any of these underlying licenses to Shire or otherwise is engaged in a dispute with any of these third party licensors, such breaches by Shire or disputes with Shire could result in a loss of, or other material adverse impact on, our rights under our exclusive license agreement with Shire. Any loss of our rights from Shire or through Shire from these third parties could delay or completely terminate our product development efforts for Troxatyl.

We are at an early stage of development, particularly in our internal development programs, and we may never attain product sales.

The technologies on which we rely are unproven and may not result in the discovery or development of commercially viable products. There are currently no drugs on the market and no drug candidates in clinical development that have been discovered or developed using our proprietary technologies. We have only recently transitioned our business strategy from focusing on our protein structure determination capabilities and developing our technology infrastructure, to focusing on drug discovery and development activities in the field of oncology. Our goal is to internally develop oncology product candidates and to leverage our drug discovery platform, Fragments of Active Structures, or FAST, and related technologies, to form lead generation collaborations. Our most advanced development program based on our internal development efforts using FAST is at the preclinical development stage. The process of successfully discovering product candidates is expensive, time-consuming and unpredictable, and the historical rate of failure for drug candidates is extremely high. Research programs to identify product candidates require a substantial amount of our technical, financial and human resources even if no product candidates are identified. Data from our

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current research programs may not support the clinical development of our lead compounds or other compounds from these programs, and we may not identify any compounds suitable for recommendation for clinical development. Moreover, any compounds we recommend for clinical development may not be effective or safe for their designated use, which would prevent their advancement into clinical trials and impede our ability to maintain or expand our clinical development pipeline. If we are unable to identify new product candidates or advance our lead compounds into clinical development, we may not be able to establish or maintain a clinical development pipeline or generate product revenue. Our ability to identify new compounds and advance them into clinical development also depends upon our ability to fund our research and development operations, and we cannot be certain that additional funding will be available on acceptable terms, or at all. There is no guarantee that we will be able to successfully develop Troxatyl or any other product candidate we advance into clinical trials for commercial sale, attract the personnel and expertise required to be engaged in drug development or secure new lead generation collaborations.

If we fail to establish new collaborations and other commercial agreements, we may have to reduce or limit our internal drug discovery and development efforts.

Revenue generation utilizing our FAST drug discovery platform and related technologies will continue to be important to us in the near term by providing us with funds for reinvestment in our internal drug discovery and development. If we fail to establish a sufficient number of additional collaborations on acceptable terms, we may not generate sufficient collaborative revenue to support our internal discovery efforts. In addition, since our existing collaborations and commercial agreements are generally not long-term contracts, we cannot be sure we will be able to continue to derive comparable revenues from these or other collaborations or commercial agreements in the future. Even if we successfully establish collaborations or commercial agreements, these relationships may never result in the successful development or commercialization of any product candidates or the generation of sales or royalty revenue. Finally, although we refer to many of our commercial arrangements with other pharmaceutical and biotechnology companies as “partnerships” or “collaborations,” in many cases we are providing specific services for fees and milestone payments without any interest in future product sales or profits. While we believe these commercial arrangements help to offset the expenses associated with our drug discovery efforts, we may under some circumstances find it necessary to divert valuable resources from our own development efforts in order to fulfill our contractual obligations to our collaborators.

We are dependent on our collaborations, and events involving these collaborations or any future collaborations could prevent us from developing or commercializing product candidates.

The success of our current business strategy and our near and long-term viability will depend in part on our ability to successfully establish new strategic collaborations. Since we do not currently possess the resources necessary to independently develop and commercialize all of the product candidates that may be discovered through our drug discovery platform including lead compounds in our BCR-ABL program and other preclinical programs, we may need to enter into additional collaborative agreements to assist in the development and commercialization of some of these product candidates or in certain markets for a particular product candidate. Establishing strategic collaborations is difficult and time-consuming. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position. And our discussions with potential collaborators may not lead to the establishment of new collaborations on acceptable terms.

We have a collaboration with Pierre Fabre Médicament for the development and commercialization of small molecule inhibitors in our solid tumor program targeting MET and RON, two closely related receptor tyrosine kinases, and have entered into other drug discovery collaborations with the Cystic Fibrosis Foundation, F. Hoffmann La Roche Ltd. and Serono International S.A. With the exception of Pierre Fabre Médicament, where we have agreed to share costs of development, our collaborators have agreed to finance the clinical trials for product candidates resulting from these collaborations and, if they are approved, manufacture and market them. Accordingly, we are dependent on our collaborators to gain regulatory approval of, and to

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commercialize, product candidates resulting from most of our collaborations. The success of our current business strategy and our near and long-term viability will depend in part on our ability to successfully establish new strategic collaborations. Since we do not currently possess the resources necessary to independently develop and commercialize all of the product candidates that may be discovered through our drug discovery platform including lead compounds in our BCR-ABL program and other preclinical programs, we may need to enter into additional collaborative agreements to assist in the development and commercialization of some of these product candidates or in certain markets for a particular product candidate. Establishing strategic collaborations is difficult and time-consuming. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position. And our discussions with potential collaborators may not lead to the establishment of new collaborations on acceptable terms.

We have limited control over the amount and timing of resources that our other current collaborators or any future collaborators devote to our programs or potential products. These collaborators may breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities successfully and in a timely manner. Further, our collaborators may not develop products that arise out of our collaborative arrangements or devote sufficient resources to the development, manufacture, marketing or sale of these products.

We and our present and future collaborators may fail to develop or effectively commercialize products covered by our present and future collaborations if:

•  we do not achieve our objectives under our collaboration agreements;

•  we or our collaborators are unable to obtain patent protection for the product candidates or proprietary technologies we discover in our collaborations;

•  we are unable to manage multiple simultaneous product discovery and development collaborations;

•  our potential collaborators are less willing to expend their resources on our programs due to their focus on other programs or as a result of general market conditions;

•  our collaborators become competitors of ours or enter into agreements with our competitors;

•  we or our collaborators encounter regulatory hurdles that prevent commercialization of our product candidates; or

•  we develop products and processes or enter into additional collaborations that conflict with the business objectives of our other collaborators.

If we or our collaborators are unable to develop or commercialize products as a result of the occurrence of any of these events, we will be prevented from developing and commercializing product candidates.

Conflicts may arise between us and our collaborators that could delay or prevent the development or commercialization of our product candidates.

Conflicts may arise between our collaborators and us, such as conflicts concerning the interpretation of clinical data, the achievement of milestones, the interpretation of financial provisions or the ownership of intellectual property developed during the collaboration. If any conflicts arise with existing or future collaborators, they may act in their self-interest, which may be adverse to our best interests. Any such disagreement between us and a collaborator could result in one or more of the following, each of which could delay or prevent the development or commercialization of our product candidates, and in turn prevent us from generating sufficient revenues to achieve or maintain profitability:

•  disagreements regarding the payment of research funding, milestone payments, royalties or other payments we believe are due to us under our collaboration agreements or from us under our licensing agreements;

•  uncertainty regarding ownership of intellectual property rights arising from our collaborative activities, which could prevent us from entering into additional collaborations;

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•  actions taken by a collaborator inside or outside a collaboration which could negatively impact our rights under or benefits from such collaboration;

•  unwillingness on the part of a collaborator to keep us informed regarding the progress of its development and commercialization activities or to permit public disclosure of the results of those activities; or

•  slowing or cessation of a collaborator’s development or commercialization efforts with respect to our product candidates.

Our drug discovery efforts are dependent on continued access to and use of our beamline facility, which is subject to various governmental regulations and policies and a user agreement with the University of Chicago and the U.S. Department of Energy. If we are unable to continue the use of our beamline facility, our ability to pursue our drug discovery efforts and perform under our collaborations, commercial agreements and grants may be adversely affected.

We generate protein structures through our beamline facility, housed at the Advanced Photon Source at the Argonne National Laboratory, a national synchrotron-radiation facility funded by the U.S. Department of Energy, or DOE, Office of Science, and Office of Basic Energy Sciences, located in Argonne, Illinois. Accordingly, our access to and use of the facility is subject to various government regulations and policies. In addition, our access to the beamline facility is subject to a user agreement with the University of Chicago and the DOE with an initial five year term expiring in January 1, 2009. Although the term of our user agreement automatically renews for successive one-year periods, the University of Chicago may terminate the agreement and our access to the beamline facility by providing 60 days’ notice prior to the beginning of each renewal period. In addition, the University of Chicago may terminate the agreement for our breach, subject to our ability to cure the breach within 30 days. In the event our access to or use of the facility is restricted or terminated, we would be forced to seek access to alternate beamline facilities. However, we cannot be certain that additional beamline facilities will be available on acceptable terms, or at all. If alternate beamline facilities are not available, we may be required to delay, reduce the scope of or abandon some of our early drug discovery efforts. We may also be deemed to be in breach of certain of our commercial agreements. Even if alternate beamline facilities are available, we cannot be certain that the quality of or access to the alternate facilities will be adequate and comparable to those of our current facility. Failure to maintain adequate access to and use of beamline facilities may materially adversely affect our ability to pursue our own discovery efforts and perform under our collaborations, commercial agreements and grants, which are our current primary source of revenue.

If our competitors develop drug discovery technologies that are more advanced than ours, or treatments for AML, CML or any other therapeutic area for which we develop potential drug candidates that are approved more quickly, marketed more effectively or demonstrated to be more effective, our commercial opportunity will be reduced or eliminated.

The biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face competition from many different sources, including commercial pharmaceutical and biotechnology enterprises, academic institutions, government agencies, and private and public research institutions. There is also intense competition for fragment-based lead discovery collaborations. And due to the high demand for treatments for AML, CML and other oncology therapeutic areas, research is intense and new treatments are being sought out and developed by our competitors.

Most cancer indications for which we are developing products have a number of established therapies with which our candidates will compete. Most major pharmaceutical companies and many biotechnology companies are aggressively pursuing new cancer development programs, including both therapies with traditional as well as novel mechanisms of action.

We are aware of competitive products and technologies in each of the markets we target. The competitive products include approved and marketed products as well as products in development. We expect Troxatyl, if

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approved for the treatment of AML, to compete with: cytarabine, a generic compound often known as Ara-C, which is also used in combination with the anthracyline agents daunorubicin, idarubicin, and mitoxantrone; Mylotarg® (gemtuzumab ozogamicin), marketed by Wyeth Pharmaceuticals Inc.; and Clolar^tm (clofarabine), marketed by Genzyme Corporation in the United States and under regulatory review in the E.U. In addition, we are aware of a number of other potential competing products, including: cloretazine (VNP40101M), which is being developed by Vion Pharmaceuticals, Inc. and is currently in a Phase III clinical trial in AML patients; Zarnestra® (tipifarnib), under development by Johnson & Johnson Pharmaceutical Research and Development, LLC; Vidaza® (azacitidine), under development for this indication by Pharmion Corporation; and Dacogen^tm (decitabine), under development by MGI Pharma, Inc. and SuperGen, Inc. Numerous other potential competing products are in clinical treatment and preclinical development. Significant competitors in the area of fragment-based drug discovery include Astex Therapeutics Limited, Plexxikon Inc., Evotec AG and Sunesis Pharmaceuticals, Inc. In addition, many large pharmaceutical companies are exploring the internal development of fragment-based drug discovery methods.

Many of our competitors have significantly greater financial, product development, manufacturing and marketing resources than us. Large pharmaceutical companies have extensive experience in clinical testing and obtaining regulatory approval for drugs. These companies also have significantly greater research capabilities than us. In addition, many universities and private and public research institutes are active in cancer research, some in direct competition with us. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

Our competitors may succeed in developing technologies and products for the treatment of AML, CML or other diseases in oncology therapeutic areas in which our drug discovery programs are focused that are more effective, better tolerated or less costly than any which we may offer or develop. Our competitors may succeed in obtaining approvals from the FDA and foreign regulatory authorities for their product candidates sooner than we do for ours. We will also face competition from these third parties in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, and in acquiring and in-licensing technologies and products complementary to our programs or advantageous to our business.

We have limited experience in identifying, acquiring or in-licensing, and integrating third parties’ products, businesses and technologies into our current infrastructure. If we determine that future acquisition or in-licensing opportunities are desirable and do not successfully execute on and integrate such targets, we may incur costs and disruptions to our business.

An important part of our business strategy is to continue to develop a broad pipeline of product candidates. These efforts include potential licensing and acquisition transactions. For example, our product candidate, Troxatyl, was initially developed by Shire and licensed to us in July 2004. Although we are not currently a party to any other agreements or commitments and we have no understandings with respect to any such opportunities other than our agreement with Shire, in addition to our internal drug development efforts, we may seek to expand our product pipeline and technologies, at the appropriate time and as resources allow, by acquiring or in-licensing products, businesses or technologies that we believe are a strategic fit with our business and complement our existing product candidates, research programs and technologies. Future acquisitions, however, may entail numerous operational and financial risks including:

•  exposure to unknown liabilities;

•  disruption of our business and diversion of our management’s time and attention to the development of acquired products or technologies;

•  incurrence of substantial debt or dilutive issuances of securities to pay for acquisitions;

•  higher than expected acquisition and integration costs;

•  increased amortization expenses;

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•  difficulties in and costs of combining the operations and personnel of any acquired businesses with our operations and personnel;

•  impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and

•  inability to retain key employees of any acquired businesses.

Finally, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed or fail to realize the anticipated benefits of such efforts.

We do not have internal manufacturing capabilities, and if we fail to develop and maintain supply relationships with collaborators or other third party manufacturers, we may be unable to develop or commercialize our products.

All of our manufacturing is outsourced to third parties with oversight by our internal managers. For Troxatyl, we currently rely on Raylo Chemicals Inc., a third party supplier for clinical trial quantities of troxacitabine, the active pharmaceutical ingredient in Troxatyl. In addition, the final pharmaceutical presentation of Troxatyl in the form of vials is manufactured by Ben Venue Laboratories, Inc., with whom we have an agreement covering immediate clinical trial needs. We currently do not have long-term supply arrangements with either of these suppliers. We intend to continue this practice of outsourcing our manufacturing services to third parties for any future clinical trials and large-scale commercialization of Troxatyl, and for any other product candidate we advance into clinical trials.

Our ability to develop and commercialize Troxatyl and any other products depends in part on our ability to arrange for collaborators or other third parties to manufacture our products at a competitive cost, in accordance with regulatory requirements and in sufficient quantities for clinical testing and eventual commercialization. We have not manufactured commercial batches of Troxatyl. These collaborators and third-party manufacturers may encounter difficulties with the small- and large-scale formulation and manufacturing processes required to manufacture Troxatyl or any other product candidate we advance into clinical trials. Such difficulties could result in delays in our clinical trials and regulatory submissions, in the commercialization of Troxatyl or another product candidate or, if Troxatyl or any other product candidate is approved, in the recall or withdrawal of the product from the market. Further, development of large-scale manufacturing processes may require additional validation studies, which the FDA must review and approve. Our inability to enter into or maintain agreements with collaborators or capable third party manufacturers on acceptable terms, including our current efforts relating to the production of Troxatyl, could delay or prevent the commercialization of our products, which would adversely affect our ability to generate revenues and could prevent us from achieving or maintaining profitability. Even if we are able to establish additional or replacement manufacturers, the effort to identify these sources and enter into definitive supply agreements may take a substantial amount of time and may not be available on acceptable economic terms.

In addition, we, our collaborators or other third party manufacturers of our products must comply with current good manufacturing practice, or cGMP, requirements enforced by the FDA through its facilities inspection program. These requirements include quality control, quality assurance and the maintenance of records and documentation. We, our collaborators or other third party manufacturers of our products may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. We have little control over third party manufacturers’ compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of any quantities supplied by third-parties is compromised due to their failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize Troxatyl or any other product candidates that we may develop.

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If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell any products we may develop, we may not be able to generate product revenue.

We do not currently have a sales organization for the sales, marketing and distribution of pharmaceutical products. In order to commercialize any products, we must build our sales, marketing, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. In North America, we currently expect to commercialize our product candidate, Troxatyl, if it is approved, and certain other potential product candidates for other indications that are of strategic interest to us, and plan to establish internal sales and marketing capabilities for those product candidates. We plan to seek third party partners for indications and in territories, such as outside North America, which may require more extensive sales and marketing capabilities. The establishment and development of our own sales force to market any products we may develop in North America will be expensive and time consuming and could delay any product launch, and we cannot be certain that we would be able to successfully develop this capacity. If we are unable to establish our sales and marketing capability or any other non-technical capabilities necessary to commercialize any products we may develop, we will need to contract with third parties to market and sell any products we may develop in North America. If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able to generate product revenue and may not become profitable.

The commercial success of Troxatyl or any other product that we may develop depends upon market acceptance among physicians, patients, health care payors and the medical community.

Even if Troxatyl or any other product we may develop obtains regulatory approval, our products, if any, may not gain market acceptance among physicians, patients, health care payors and the medical community. The degree of market acceptance of any of our approved products will depend on a number of factors, including:

•  our ability to provide acceptable evidence of safety and efficacy;

•  relative convenience and ease of administration;

•  the prevalence and severity of any adverse side effects;

•  availability of alternative treatments;

•  pricing and cost effectiveness;

•  effectiveness of our or our collaborators’ sales and marketing strategies; and

•  our ability to obtain sufficient third party coverage or reimbursement.

If Troxatyl or any of our other product candidates is approved but does not achieve an adequate level of acceptance by physicians, healthcare payors and patients, we may not generate sufficient revenue from these products and we may not become profitable. Furthermore, to the extent Troxatyl fails to gain market acceptance for its initial proposed indication, the third-line treatment of AML, it may be more difficult for us to generate sufficient credibility with physicians and patients to commercialize Troxatyl for other indications.

We are subject to uncertainty relating to health care reform measures and reimbursement policies which, if not favorable to our product candidates, could hinder or prevent our product candidates’ commercial success.

The continuing efforts of the government, insurance companies, managed care organizations and other payors of health care costs to contain or reduce costs of health care may adversely affect:

•  our ability to set a price we believe is fair for our products;

•  our ability to generate revenues and achieve profitability;

•  the future revenues and profitability of our potential customers, suppliers and collaborators; and

•  the availability of capital.

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In certain foreign markets, the pricing of prescription drugs is subject to government control and reimbursement may in some cases be unavailable. In the United States, given recent federal and state government initiatives directed at lowering the total cost of health care, Congress and state legislatures will likely continue to focus on health care reform, the cost of prescription drugs and the reform of the Medicare and Medicaid systems. For example, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 provides a new Medicare prescription drug benefit beginning in 2006 and mandates other reforms. While we cannot predict the full outcome of the implementation of this legislation, it is possible that the new Medicare prescription drug benefit, which will be managed by private health insurers and other managed care organizations, will result in decreased reimbursement for prescription drugs, which may further exacerbate industry-wide pressure to reduce prescription drug prices. This could harm our ability to market our products and generate revenues. It is also possible that other similar proposals will be adopted.

Our ability to commercialize our product candidates successfully will depend in part on the extent to which governmental authorities, private health insurers and other organizations establish appropriate coverage and reimbursement levels for the cost of our products and related treatments. Third party payors are increasingly challenging the prices charged for medical products and services. Also, the trend toward managed health care in the United States, which could significantly influence the purchase of health care services and products, as well as legislative proposals to reform health care or reduce government insurance programs, may result in lower prices for our product candidates or exclusion of our product candidates from coverage and reimbursement programs. The cost containment measures that health care payors and providers are instituting and the effect of any health care reform could significantly reduce our revenues from the sale of any approved product.

We will need to increase the size of our organization, and we may experience difficulties in managing growth.

As of June 30, 2005, we had 105 full-time employees. We will need to continue to expand our managerial, operational, financial and other resources in order to manage and fund our operations and clinical trials, continue our research and development and collaborative activities, and commercialize our product candidates. It is possible that our management and scientific personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively manage our operations, growth and various projects requires that we:

•  manage our clinical trials effectively;

•  manage our internal research and development efforts effectively while carrying out our contractual obligations to collaborators and other third-parties;

•  continue to improve our operational, financial and management controls, reporting systems and procedures; and

•  attract and retain sufficient numbers of talented employees.

We may be unable to successfully implement these tasks on a larger scale and, accordingly, may not achieve our research, development and commercialization goals.

If we fail to attract and keep key management and scientific personnel, we may be unable to successfully develop or commercialize our product candidates.

We will need to expand and effectively manage our managerial, operational, financial and other resources in order to successfully pursue our research, development and commercialization efforts for Troxatyl and our future product candidates. Our success depends on our continued ability to attract, retain and motivate highly qualified management and chemists, biologists, and preclinical and clinical personnel. The loss of the services of any of our senior management, particularly Michael Grey, our President and Chief Executive Officer, or Stephen Burley, our Chief Scientific Officer and Senior Vice President, Research, could delay or prevent the commercialization of our product candidates. We do not maintain “key man” insurance policies on the lives

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of these individuals or the lives of any of our other employees. We employ these individuals on an at-will basis and their employment can be terminated by us or them at any time, for any reason and with or without notice. We will need to hire additional personnel as we continue to expand our manufacturing, research and development activities.

We have scientific and clinical advisors who assist us in formulating our research, development and clinical strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, our advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with ours.

We may not be able to attract or retain qualified management and scientific personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in the San Diego, California area. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that will impede significantly the achievement of our research and development objectives, our ability to raise additional capital and our ability to implement our business strategy. In particular, if we lose any members of our senior management team, we may not be able to find suitable replacements and our business may be harmed as a result.

Risks Relating to our Finances and Capital Requirements

We expect our net operating losses to continue for at least several years, and we are unable to predict the extent of future losses or when we will become profitable, if ever.

We have incurred substantial net operating losses since our inception. For the year ended December 31, 2004, we had a net loss attributable to common stockholders of $19.1 million. For the six months ended June 30, 2005, we had a net loss attributable to common stockholders of $13.1 million. As of June 30, 2005, we had an accumulated deficit of approximately $118.8 million. We expect our annual net operating losses to increase over the next several years as we expand our research and development activities, and incur significant preclinical and clinical development costs. In particular, we expect our research and development expenses to increase substantially in connection with the further clinical development of Troxatyl. Because of the numerous risks and uncertainties associated with our research and development efforts and other factors, we are unable to predict the extent of any future losses or when we will become profitable, if ever. We will need to obtain regulatory approval and successfully commercialize Troxatyl or another future product candidate before we can generate revenues which would have the potential to lead to profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on an ongoing basis.

We currently lack a significant continuing revenue source and may not become profitable.

Our ability to become profitable depends upon our ability to generate significant continuing revenues. To obtain significant continuing revenues, we must succeed, either alone or with others, in developing, obtaining regulatory approval for, and manufacturing and marketing Troxatyl or any other product candidates with significant market potential. We have received revenues from collaborations, commercial agreements and grants totaling $9.9 million and $11.9 million for the six months ended June 30, 2005 and 2004, respectively, and revenues from collaborations, commercial agreements and grants totaling $27.3 million, $18.1 million, and $3.3 million, for the years ended December 31, 2004, 2003, and 2002, respectively. Though we anticipate that our collaborations, commercial agreements and grants will continue to be our primary source of revenues for the next several years, we do not expect these revenues alone to be sufficient to lead to profitability.

Our ability to generate continuing revenues depends on a number of factors, including:

•  obtaining new collaborations and commercial agreements;

•  performing under current and future collaborations, commercial agreements and grants, including achieving milestones;

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•  successful completion of clinical trials for Troxatyl and any other product candidate we advance into clinical trials;

•  achievement of regulatory approval for Troxatyl and any other product candidate we advance into clinical trials; and

•  successful sales, manufacturing, distribution and marketing of our future products, if any.

If we are unable to generate significant continuing revenues, we will not become profitable, and we may be unable to continue our operations.

We will need substantial additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our research and development programs or commercialization efforts.

We believe that our existing cash, cash equivalents and short-term investments, together with the net proceeds from this offering, will be sufficient to meet our projected operating requirements at least through mid-2007. Because we do not anticipate that we will generate significant continuing revenues for several years, if at all, we will need to raise substantial additional capital to finance our operations in the future. Our additional funding requirements will depend on, and could increase significantly as a result of, many factors, including the:

•  terms and timing of any collaborative, licensing and other arrangements that we may establish;

•  rate of progress and cost of our clinical trials and other research and development activities;

•  scope, prioritization and number of clinical development and research programs we pursue;

•  costs and timing of regulatory approval;

•  costs of establishing or contracting for sales and marketing capabilities;

•  costs of manufacturing;

•  extent to which we acquire or in-license new products, technologies or businesses;

•  effect of competing technological and market developments; and

•  costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

Until we can generate significant continuing revenues, if ever, we expect to satisfy our future cash needs through public or private equity offerings, debt financings, or collaborations, commercial agreements and grants. We cannot be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our research and development programs or our commercialization efforts.

Raising additional funds by issuing securities or through licensing arrangements may cause dilution to existing stockholders, restrict our operations or require us to relinquish proprietary rights.

We may raise additional funds through public or private equity offerings, debt financings or licensing arrangements. To the extent that we raise additional capital by issuing equity securities, our existing stockholders’ ownership will be diluted. Any debt financing we enter into may involve covenants that restrict our operations. These restrictive covenants may include limitations on additional borrowing, specific restrictions on the use of our assets as well as prohibitions on our ability to create liens, pay dividends, redeem our stock or make investments. In addition, if we raise additional funds through licensing arrangements, it may be necessary to relinquish potentially valuable rights to our potential products or proprietary technologies, or grant licenses on terms that are not favorable to us.

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Our quarterly operating results may fluctuate significantly.

We expect our operating results to be subject to quarterly fluctuations. The revenues we generate, if any, and our operating results will be affected by numerous factors, including:

•  our addition or termination of research programs or funding support;

•  variations in the level of expenses related to our product candidates or research programs;

•  our execution of collaborative, licensing or other arrangements, and the timing of payments we may make or receive under these arrangements;

•  any intellectual property infringement lawsuit in which we may become involved; and

•  changes in accounting principles.

Quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

We may incur substantial liabilities from any product liability claims if our insurance coverage for those claims is inadequate.

We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials, and will face an even greater risk if we sell our product candidates commercially. An individual may bring a liability claim against us if one of our product candidates causes, or merely appears to have caused, an injury. If we cannot successfully defend ourselves against the product liability claim, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

•  decreased demand for our product candidates;

•  injury to our reputation;

•  withdrawal of clinical trial participants;

•  costs of related litigation;

•  substantial monetary awards to patients or other claimants;

•  loss of revenues; and

•  the inability to commercialize our product candidates.

We have product liability insurance that covers our clinical trials, up to an annual aggregate limit of $3.0 million in the United States, and other amounts in other jurisdictions. We intend to expand our insurance coverage to include the sale of commercial products if marketing approval is obtained for any of our product candidates. However, insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost and we may not be able to obtain insurance coverage that will be adequate to satisfy any liability that may arise.

We use biological and hazardous materials, and any claims relating to improper handling, storage or disposal of these materials could be time consuming or costly.

We use hazardous materials, including chemicals, biological agents and radioactive isotopes and compounds, that could be dangerous to human health and safety or the environment. Our operations also produce hazardous waste products. Federal, state and local laws and regulations govern the use, generation, manufacture, storage, handling and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our drug development efforts.

In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. If one of our employees was accidentally injured from the use, storage, handling or disposal of these

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materials or wastes, the medical costs related to his or her treatment would be covered by our workers’ compensation insurance policy. However, we do not carry specific biological or hazardous waste insurance coverage and our property and casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.

Risks Relating to our Intellectual Property

Our success depends upon our ability to protect our intellectual property and our proprietary technologies.

Our commercial success depends on obtaining and maintaining patent protection and trade secret protection for our product candidates, proprietary technologies and their uses, as well as successfully defending these patents against third party challenges. There can be no assurance that our patent applications will result in additional patents being issued or that issued patents will afford protection against competitors with similar technology, nor can there be any assurance that the patents issued will not be infringed, designed around, or invalidated by third parties. Even issued patents may later be found unenforceable, or be modified or revoked in proceedings instituted by third parties before various patent offices or in courts.

The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in the interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third party patents.

The degree of future protection for our proprietary rights is uncertain. Only limited protection may be available and may not adequately protect our rights or permit us to gain or keep any competitive advantage. For example:

•  we might not have been the first to file patent applications for these inventions;

•  we might not have been the first to make the inventions covered by each of our pending patent applications and issued patents;

•  others may independently develop similar or alternative technologies or duplicate any of our technologies;

•  the patents of others may have an adverse effect on our business;

•  it is possible that none of our pending patent applications will result in issued patents;

•  our issued patents may not encompass commercially viable products, may not provide us with any competitive advantages, or may be challenged by third parties;

•  our issued patents may not be valid or enforceable; or

•  we may not develop additional proprietary technologies that are patentable.

Proprietary trade secrets and unpatented know-how are also very important to our business. Although we have taken steps to protect our trade secrets and unpatented know-how, including entering into confidentiality agreements with third parties, and confidential information and inventions agreements with employees, consultants and advisors, third parties may still obtain this information or we may be unable to protect our rights. Enforcing a claim that a third party illegally obtained and is using our trade secrets or unpatented know-how is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secret information. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how, and we would not be able to prevent their use.

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The intellectual property protection for Troxatyl is dependent primarily on third parties and our long term protection is primarily focused on methods of manufacturing and use and formulations.

With respect to Troxatyl, Shire retains the right to prosecute and maintain patents covering composition of matter, methods of manufacturing, specific methods of use, formulations, intermediates and modes of administration for this product candidate, while the University of Georgia Research Foundation, Inc. and Yale University are responsible for the patent portfolio related to methods of use for Troxatyl. We only have the right to comment on the patent prosecution. If Shire fails to appropriately prosecute and maintain patent protection for Troxatyl, or the University of Georgia Research Foundation, Inc. and Yale University fail to protect methods of use for Troxatyl, our ability to develop and commercialize Troxatyl may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products. This failure to properly protect the intellectual property rights relating to Troxatyl could have a material adverse effect on our financial condition and results of operation.

Various patent applications and patents are directed to Troxatyl and its methods of manufacturing and use, along with Troxatyl formulations, intermediates and modes of administration. For example, one U.S. patent claims a generic class of dioxolanes, that includes Troxatyl, and another U.S. patent claims Troxatyl itself as a composition of matter. These U.S. patents are due to expire in 2008 and there are corresponding applications pending in various other countries, including a granted European and Japanese patent. Additional U.S. patents encompass methods of treating cancer using Troxatyl, and, for example, methods of treating CML or AML with Troxatyl in patients previously treated with Ara-C, which patents are due to expire in 2015 and 2020, respectively.

We cannot guarantee that lack of composition of matter protection after 2008 will not adversely impact our patent estate with respect to Troxatyl or that any of these patents will be found valid and enforceable, or that third parties will be found to infringe any of our issued patent claims. There can be no assurance that any of the patent applications will issue in any jurisdiction. Moreover, we cannot predict the breadth of claims that may be allowed or the actual enforceable scope of the Troxatyl patents.

If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business.

Our commercial success also depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we and our collaborators are developing products. Because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issued patents that our product candidates or proprietary technologies may infringe.

We may be exposed to, or threatened with, future litigation by third parties having patent, trademark or other intellectual property rights alleging that we are infringing their intellectual property rights. If one of these patents was found to cover our product candidates, proprietary technologies or their uses, or one of these trademarks was found to be infringed, we or our collaborators could be required to pay damages and could be unable to commercialize our product candidates or use our proprietary technologies unless we or they obtain a license to the patent or trademark, as applicable. A license may not be available to us or our collaborators on acceptable terms, if at all. In addition, during litigation, the patent or trademark holder could obtain a preliminary injunction or other equitable right which could prohibit us from making, using or selling our products, technologies or methods. In addition, we or our collaborators could be required to designate a different trademark name for our producers, which could result in a delay in selling those products.

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There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries generally. If a third party claims that we or our collaborators infringe its intellectual property rights, we may face a number of issues, including, but not limited to:

•  infringement and other intellectual property claims which, with or without merit, may be expensive and time-consuming to litigate and may divert our management’s attention from our core business;

•  substantial damages for infringement, including treble damages and attorneys’ fees, which we may have to pay if a court decides that the product or proprietary technology at issue infringes on or violates the third party’s rights;

•  a court prohibiting us from selling or licensing the product or using the proprietary technology unless the third party licenses its technology to us, which it is not required to do;

•  if a license is available from the third party, we may have to pay substantial royalties, fees and/or grant cross licenses to our technology; and

•  redesigning our products or processes so they do not infringe, which may not be possible or may require substantial funds and time.

We have not conducted an extensive search of patents issued to third parties, and no assurance can be given that third party patents containing claims covering our products, technology or methods do not exist, have not been filed, or could not be filed or issued. Because of the number of patents issued and patent applications filed in our technical areas or fields, we believe there is a significant risk that third parties may allege they have patent rights encompassing our products, technology or methods. In addition, we have not conducted an extensive search of third party trademarks, so no assurance can be given that such third party trademarks do not exist, have not been filed, could not be filed, or issued, or could not exist under common trademark law.

Other product candidates that we may develop, either internally or in collaboration with others, could be subject to similar risks and uncertainties.

We may not be able to obtain patent term extension/restoration or other exclusivity for our products.

In some of the major territories, such as the United States, Europe and Japan, patent term extension/restoration may be available to compensate for time taken during aspects of the product’s regulatory review. However, we cannot be certain that an extension will be granted, or if granted, what the applicable time period or the scope of patent protection afforded during any extended period will be. In addition, even though some regulatory agencies may provide some other exclusivity for a product under its own laws and regulations, we may not be able to qualify the product or obtain the exclusive time period.

Risks Relating to the Securities Markets and Investment in our Common Stock

Market volatility may affect our stock price and the value of your investment.

Following this offering, the market price for our common stock is likely to be volatile, in part because our shares have not been traded publicly. In addition, the market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including:

•  changes in the development status of or clinical trial results for our product candidates, including the results for our ongoing pivotal Phase II/III trial of Troxatyl;

•  announcements of new products or technologies, commercial relationships or other events by us or our competitors;

•  events affecting our collaborations, commercial agreements and grants;

•  variations in our quarterly operating results;

•  changes in securities analysts’ estimates of our financial performance;

•  regulatory developments in the United States and foreign countries;

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•  fluctuations in stock market prices and trading volumes of similar companies;

•  sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders;

•  additions or departures of key personnel;

•  discussion of us or our stock price by the financial and scientific press and in online investor communities; and

•  changes in accounting principles generally accepted in the United States.

An active public market for our common stock may not develop or be sustained after this offering. We will negotiate and determine the initial public offering price with representatives of the underwriters and this price may not be indicative of prices that will prevail in the trading market after the offering. As a result, you may not be able to sell your shares of common stock at or above the offering price. In addition, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Any such litigation brought against us could result in substantial costs and a diversion of management’s attention and resources, which could hurt our business, operating results and financial condition.

We may allocate the net proceeds from this offering in ways that you and other stockholders may not approve.

We intend to use the net proceeds from this offering for:

•  the clinical development of Troxatyl;

•  further development of our research programs and initial clinical development stemming from our internal programs;

•  working capital and general corporate purposes; and

•  potential acquisition and in-licensing activities.

Our management will, however, have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not necessarily improve our operating results or enhance the value of our common stock.

Investors purchasing common stock in this offering will incur substantial dilution as a result of this offering and future equity issuances, and, as a result, our stock price could decline.

The initial public offering price for this offering is substantially higher than the pro forma, net tangible book value per share of our outstanding common stock. As a result, investors purchasing common stock in this offering will incur immediate dilution of $           per share. This dilution is due in large part to earlier investors having paid substantially less than the initial public offering price when they purchased certain of their shares. Investors purchasing shares of common stock in this offering will contribute approximately      % of the total amount we have raised since our inception, but will own only approximately      % of our total common stock immediately following the completion of this offering.

We believe that our existing cash, cash equivalents and short-term investments, together with the net proceeds from this offering, will be sufficient to meet our projected operating requirements through at least mid-2007. Because we will need to raise additional capital to fund our clinical development and research programs, among other things, we may conduct substantial additional equity offerings. These future equity issuances, together with the exercise of outstanding options and warrants and any additional shares issued in connection with acquisitions, will result in further dilution to investors.

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Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our amended and restated certificate of incorporation and bylaws, both of which will become effective upon the completion of this offering, may delay or prevent an acquisition of us or a change in our management. These provisions include a classified board of directors, a prohibition on actions by written consent of our stockholders, and the ability of our board of directors to issue preferred stock without stockholder approval. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which, subject to certain exceptions, prohibits stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us. Although we believe these provisions collectively provide for an opportunity to receive higher bids by requiring potential acquirors to negotiate with our board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.

We may incur increased costs as a result of changes in laws and regulations relating to corporate governance matters.

Changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and Exchange Commission and by the Nasdaq Stock Market, will result in increased costs to us as we respond to their requirements. These laws and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. We are presently evaluating and monitoring developments with respect to these laws and regulations and cannot predict or estimate the amount or timing of additional costs we may incur to respond to their requirements.

If our executive officers, directors and largest stockholders choose to act together, they may be able to control our operations and act in a manner that advances their best interests and not necessarily those of other stockholders.

After this offering, our executive officers, directors and holders of 5% or more of our outstanding common stock will beneficially own approximately      % of our common stock. As a result, these stockholders, acting together, will be able to control all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. The interests of this group of stockholders may not always coincide with our interests or the interests of other stockholders, and they may act in a manner that advances their best interests and not necessarily those of other stockholders.

Future sales of our common stock may cause our stock price to decline.

Our current stockholders hold a substantial number of shares of our common stock that they will be able to sell in the public market in the near future. In addition, we have outstanding warrants to purchase up to approximately 266,726 shares of common stock that, if exercised, will result in these additional shares becoming available for sale. Also, upon completion of this offering                      shares of our common stock will be automatically issued under a $6.0 million convertible note. A large portion of these shares are held by a small number of persons and investment funds. Sales by these stockholders of a substantial number of shares after this offering could significantly reduce the market price of our common stock. Moreover, after this offering, the holders of                      shares of common stock and warrants to purchase up to 4,673 shares

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of common stock will have rights, subject to some conditions, to require us to file registration statements covering the shares they currently hold or may acquire upon exercise of the warrants, or to include these shares in registration statements that we may file for ourselves or other stockholders. The holders of substantially all of the shares of our outstanding capital stock have agreed with the underwriters of this offering to be bound by a 180-day lock-up up agreement that prohibits these holders from selling or transferring their stock, other than in specific circumstances. These lock-up agreements are subject to limited extension under certain circumstances as more fully described in “Underwriting.” However, CIBC World Markets Corp. and Piper Jaffray & Co., on behalf of the underwriters, at their discretion, can waive the restrictions of the lock-up agreements at an earlier time without prior notice or announcement and allow our stockholders to sell their shares of our common stock in the public market. If the restrictions contained in the lock-up agreements are waived, shares of our common stock will be available for sale into the market, subject only to applicable securities rules and regulations, which may cause our stock price to decline.

We also intend to file registration statements under the Securities Act as promptly as possible after the effective date of this offering to register all shares of common stock that we may issue under our 2000 equity incentive plan, 2005 equity incentive plan, 2005 non-employee directors’ stock option plan and 2005 employee stock purchase plan. Effective upon the completion of this offering, our 2000 equity incentive plan will terminate and an aggregate of 1,500,000 shares of our common stock, plus the number of shares remaining available for future issuance under our 2000 equity incentive plan that are not covered by outstanding options as of such date, will be reserved for issuance under our 2005 equity incentive plan. In addition, effective upon the completion of this offering, an aggregate of 150,000 and 750,000 shares of our common stock will be reserved for issuance under our 2005 non-employee directors’ stock option plan and 2005 employee stock purchase plan, respectively. These share reserves will be subject to automatic annual increases in accordance with the terms of the plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described in “Underwriting.” If any of these events cause a large number of our shares to be sold in the public market, the sales could reduce the trading price of our common stock and impede our ability to raise future capital. See “Shares Eligible for Future Sale” for a more detailed description of sales that may occur in the future.

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Forward-Looking Statements

This prospectus contains forward-looking statements, including statements regarding the progress and timing of our clinical trials, the goals of our research and development activities, the safety and efficacy of our product candidates, the potential success of our existing and future collaborations, our expected future revenues, operations and expenditures and our projected cash needs, that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Forward-looking statements relate to future events or our future financial performance and include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and competition. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or the negative of those terms, and similar expressions.

Forward-looking statements include, but are not limited to, statements about:

•  our ability to successfully complete preclinical and clinical development of Troxatyl and any future product candidates and demonstrate the safety and efficacy of Troxatyl and any future product candidates in clinical trials within anticipated time frames, if at all;

•  the trial design for our ongoing pivotal Phase II/III clinical trial for Troxatyl;

•  the success of the development and commercialization efforts of our existing and future collaborators and our ability to enter into new collaborations and strategic alliances;

•  our ability to obtain, maintain and successfully enforce adequate patent and other intellectual property protection of any of our product candidates that may be approved for sale;

•  the content and timing of submissions to and decisions made by the FDA and other regulatory agencies;

•  our ability to manufacture, or otherwise secure the manufacture of, sufficient amounts of our product candidates for clinical trials and, if approved, products for commercialization activities;

•  our ability to develop a sufficient sales and marketing force or enter into agreements with third parties to market and sell any of our product candidates that may be approved for sale;

•  the success of our competitors; and

•  our ability to raise additional funds in the capital markets, through arrangements with collaborators or from other sources.

Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in “Risk Factors.” Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements represent our management’s beliefs and assumptions only as of the date of this prospectus. You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. The forward-looking statements contained in this prospectus are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995.

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Use of Proceeds

We estimate that the net proceeds from the sale of the shares of common stock we are offering will be approximately $           million, based upon an assumed initial public offering price of $           per share and after deducting the underwriting discount and estimated offering expenses. If the underwriters fully exercise the over-allotment option, we estimate that our net proceeds from this offering will be approximately $           million.

We intend to use the majority of the net proceeds from this offering to fund research and development activities, including the clinical development of Troxatyl, and further development of our research programs and initial clinical development stemming from our internal programs. In particular, we anticipate that a portion of the net proceeds will be used to complete our pivotal Phase II/III clinical trial of Troxatyl for the third-line treatment of AML. However, due to the risks inherent in the clinical trial process and given the early stage of development of our programs, we are unable to estimate with any certainty the total costs or when we will incur these costs in the continued development of our product candidates for potential commercialization. In addition, we cannot forecast with any degree of certainty which drug candidates will be subject to future collaborative or licensing arrangements, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

We anticipate using the remaining balance of the net proceeds from this offering for working capital and general corporate purposes. In particular, we expect to allocate the balance of the net proceeds for increased general and administrative expenses, increased costs associated with potential further expansion of our employee base and facilities, additional equipment purchases and miscellaneous working capital and general corporate purposes, which may include repayment of a portion of our debt.

We may also use a portion of the net proceeds for potential acquisition and in-licensing activities. In particular, we may acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies or products. To the degree that we pursue any of these transactions, the amount of proceeds that we have available for working capital and general corporate purposes may decrease. We have no present plans or commitments relating to any of these types of transactions.

Pending the use of the net proceeds from this offering, we intend to invest these funds in short-term, interest-bearing investment-grade securities.

We believe that the net proceeds from this offering, together with our existing cash, cash equivalents and short-term investments, will be sufficient to meet our projected operating requirements through at least mid-2007.

Dividend Policy

We have never declared or paid any cash dividends on our common stock and do not expect to pay cash dividends in the foreseeable future. The payment of dividends by us on our common stock is limited by our debt agreements. Any future determination related to dividend policy will be made at the discretion of our board of directors.

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Capitalization

The following table sets forth our capitalization as of June 30, 2005:

•  on an actual basis; and

•  on a pro forma as adjusted basis to give effect to (1) the filing of an amended and restated certificate of incorporation to authorize 75,000,000 shares of common stock and 5,000,000 shares of undesignated preferred stock, (2) the sale of                      shares of common stock in this offering at an assumed initial public offering price of $           per share, after deducting the underwriting discount and estimated offering expenses, (3) the conversion of all of our outstanding shares of preferred stock into 15,192,354 shares of common stock upon the completion of this offering and (4) the automatic issuance of                      shares of our common stock upon the completion of this offering under a $6.0 million convertible note.

You should read the information in this table together with our financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.

				As of June 30, 2005
							Pro Forma
				Actual			As Adjusted
				(unaudited)
				(in thousands except share
				and per share amounts)
Cash and cash equivalents				$	10,428
Long-term debt obligations (including current portion)				$	2,372		$	2,372
Redeemable convertible preferred stock, $0.001 par value: 19,000,000 shares authorized and 15,192,354 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma as adjusted					40,200			–
Stockholders’ (deficit) equity:
	Preferred stock, $0.001 par value: no shares authorized, issued or outstanding, actual; 5,000,000 shares authorized and no shares issued and outstanding, pro forma as adjusted				–			–
	Common stock, $0.001 par value: 50,000,000 shares authorized and 1,198,514 shares issued and outstanding, actual; 75,000,000 shares authorized and         shares issued and outstanding, pro forma as adjusted				1
	Notes receivable from stockholders				(67	)		(67	)
	Additional paid-in capital				94,707
	Common stock issuable				6,000			–
	Deferred compensation				(8,273	)		(8,273	)
	Accumulated deficit				(118,826	)		(118,826	)
		Total stockholders’ deficit			(26,458	)
			Total capitalization	$	16,114		$

The number of shares of common stock to be outstanding immediately after this offering is based on the number of shares outstanding as of June 30, 2005 and excludes, as of that date:

•  2,391,843 shares of common stock subject to outstanding options under our 2000 equity incentive plan, with a weighted average exercise price of $1.15 per share;

•  414,633 shares of common stock reserved for future issuance under our 2000 equity incentive plan;

•  2,400,000 shares of common stock reserved for future issuance under our 2005 equity incentive plan, 2005 non-employee directors’ stock option plan and 2005 employee stock purchase plan, each of which will become effective upon the completion of this offering; and

•  266,726 shares of common stock subject to outstanding warrants, with a weighted average exercise price of $2.31 per share.

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Dilution

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share of our common stock after this offering. The historical net tangible book deficiency of our common stock as of June 30, 2005 was approximately $(30.0) million, or approximately $(25.01) per common share, based on the number of common shares outstanding as of June 30, 2005. Historical net tangible book value per share is determined by dividing the number of outstanding shares of our common stock into our total tangible assets (total assets less intangible assets) less total liabilities. Pro forma net tangible book value of approximately $10.2 million, or $0.62 per share of our common stock, represents our historical net tangible book value, taking into account the automatic conversion of our preferred stock upon completion of this offering.

Investors participating in this offering will incur immediate, substantial dilution. After giving effect to the sale of common stock offered in this offering at an assumed initial public offering price of $           per share, and after deducting the underwriting discount and estimated offering expenses payable by us, and after giving effect to the conversion of all outstanding shares of preferred stock as of June 30, 2005 into 15,192,354 shares of common stock upon completion of this offering, and after giving effect to the automatic issuance of                      shares of our common stock upon the completion of this offering under a $6.0 million convertible note, our pro forma as adjusted net tangible book value as of June 30, 2005 would have been approximately $           million, or approximately $           per share of common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $           per share to existing common stockholders, and an immediate dilution of $           per share to investors participating in this offering. The following table illustrates this per share dilution:

Assumed initial public offering price per share				$
Historical net tangible book value per share as of June 30, 2005	$	(25.01	)
Pro forma increase in net tangible book value per share attributable to conversion of convertible preferred stock		25.63
Pro forma net tangible book value per share before this offering		0.62
Pro forma increase in net tangible book value per share attributable to investors participating in this offering, including the automatic issuance of            shares of our common stock upon the completion of this offering under a $6.0 million convertible note
Pro forma as adjusted net tangible book value per share after this offering
Pro forma dilution per share to investors participating in this offering				$

The following table summarizes, on a pro forma as adjusted basis as of June 30, 2005, the differences between the number of shares of common stock purchased from us, the total consideration and the average price per share paid by existing stockholders and by investors participating in this offering, the automatic issuance of                      shares of our common stock upon the completion of this offering under a $6.0 million convertible note, after deducting the underwriting discount and estimated offering expenses, at an assumed initial public offering price of $           per share:

		Shares Purchased					Total Consideration
												Average Price
		Number		Percent			Amount		Percent			Per Share
		(in thousands)
Existing stockholders before this offering			16,391			%	$	105,621			%	$	6.44
Investors participating in this offering
	Total				100	%	$			100	%

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The discussion and tables above assume no exercise of the underwriters’ over-allotment option and no exercise of any outstanding options or warrants. If the underwriters’ over-allotment option is exercised in full, the number of shares of common stock held by existing stockholders will be reduced to      % of the total number of shares of common stock to be outstanding after this offering, and the number of shares of common stock held by investors participating in this offering will be increased to                      shares or      % of the total number of shares of common stock to be outstanding after this offering.

As of June 30, 2005, there were:

•  2,391,843 shares of common stock subject to outstanding options under our 2000 equity incentive plan, having a weighted average exercise price of $1.15 per share;

•  414,633 shares of common stock reserved for future issuance under our 2000 equity incentive plan; and

•  266,726 shares of common stock subject to outstanding warrants, having a weighted average exercise price of $2.31 per share.

Effective upon the completion of this offering, our 2000 equity incentive plan will terminate and an aggregate of 1,500,000 shares of our common stock, plus the number of shares remaining available for future issuance under our 2000 equity incentive plan that are not covered by outstanding options as of such date, will be reserved for issuance under our 2005 equity incentive plan. In addition, effective upon the completion of this offering, an aggregate of 150,000 and 750,000 shares of our common stock will be reserved for issuance under our 2005 non-employee directors’ stock option plan and our 2005 employee stock purchase plan, respectively. These share reserves will be subject to automatic annual increases in accordance with the terms of the plans. Furthermore, we may choose to raise additional capital through the sale of equity or convertible debt securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that any of these options or warrants are exercised, new options are issued under our equity incentive plans or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering.

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Selected Consolidated Financial Data

The following selected consolidated financial data should be read together with our consolidated financial statements and accompanying notes, “Selected Consolidated Financial Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus. The selected consolidated statement of operations data for the years ended December 31, 2002, 2003 and 2004, and the selected balance sheet data as of December 31, 2003 and 2004, are derived from our audited consolidated financial statements, which are included in this prospectus. The selected consolidated statement of operations data for the years ended December 31, 2000 and 2001, and the selected consolidated balance sheet data as of December 31, 2000, 2001 and 2002, are derived from our audited consolidated financial statements, which are not included in this prospectus. The selected consolidated statement of operations data for the six months ended June 30, 2004 and 2005, and the selected consolidated balance sheet data as of June 30, 2005, are derived from our unaudited consolidated financial statements, which are included elsewhere in this prospectus. Our historical results are not necessarily indicative of our future results.

																	Six Months Ended
		Years Ended December 31,															June 30,
		2000			2001			2002			2003			2004			2004			2005
																	(unaudited)
		(in thousands, except per share data)
Statement of Operations Data:
Revenue:
	Grants	$	–		$	–		$	350		$	3,344		$	6,380		$	1,742		$	429
	Grants — subcontractor reimbursements		–			–			–			4,599			4,976			1,520			2,666
	Collaborations and commercial agreements		–			1,338			2,986			10,135			15,941			8,597			6,763
Total revenue			–			1,338			3,336			18,078			27,297			11,859			9,858
Expenses:
	Research and development		6,616			17,831			25,573			28,587			31,444			15,255			16,742
	General and administrative		4,053			7,682			10,122			7,353			6,719			3,337			4,749
	In-process technology		–			1,500			–			–			4,000			–			–
Total operating expenses			10,669			27,013			35,695			35,940			42,163			18,592			21,491
Loss from operations			(10,669	)		(25,675	)		(32,359	)		(17,862	)		(14,866	)		(6,733	)		(11,633	)
Interest income			2,424			2,729			622			320			175			44			115
Interest expense			(126	)		(302	)		(932	)		(1,219	)		(669	)		(382	)		(190	)
Interest expense associated with debenture			–			–			–			–			(3,392	)		–			(1,188	)
Net loss			(8,371	)		(23,248	)		(32,669	)		(18,761	)		(18,752	)		(7,071	)		(12,896	)
Accretion to redemption value of redeemable convertible preferred stock			(274	)		(329	)		(329	)		(329	)		(329	)		(165	)		(165	)
Net loss attributable to common stockholders		$	(8,645	)	$	(23,577	)	$	(32,998	)	$	(19,090	)	$	(19,081	)	$	(7,236	)	$	(13,061	)
Basic and diluted net loss attributable to common stockholders per share(1):
	Historical	$	(32.38	)	$	(42.95	)	$	(39.42	)	$	(22.43	)	$	(19.91	)	$	(8.34	)	$	(12.39	)
	Pro forma (unaudited)													$	(6.61	)				$	(1.17	)
Shares used to compute basic and diluted net loss attributable to common stockholders per share(1):
	Historical		267			549			837			851			958			867			1,054
	Pro forma (unaudited)														2,887						11,157

(1) Please see Note 1 to our consolidated financial statements for an explanation of the method used to calculate the historical and pro forma net loss per share and the number of shares used in the computation of the per share amounts.

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	As of December 31,
																As of
	2000			2001			2002			2003			2004			June 30, 2005
																(unaudited)
	(in thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	71,175		$	50,615		$	24,255		$	13,635		$	11,512		$	10,428
Working capital (deficit)		69,201			38,548			15,656			1,042			(8,634	)		4,689
Total assets		75,736			72,095			47,721			35,943			28,332			25,272
Long-term debt obligations (including current portion)		1,645			7,707			12,789			9,487			17,420			2,372
Redeemable preferred stock		82,981			87,648			87,977			88,306			74,850			40,200
Accumulated deficit		(11,019	)		(34,596	)		(67,594	)		(86,684	)		(105,765	)		(118,826	)
Total stockholders’ deficit		(10,779	)		(30,882	)		(57,237	)		(74,044	)		(72,782	)		(26,458	)

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion and other parts of the prospectus may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.

Overview

We are a biotechnology company focused on the discovery, development and commercialization of innovative cancer therapeutics. We are developing Troxatyl, a novel compound which is currently in a pivotal Phase II/ III clinical trial for the third-line treatment of Acute Myelogenous Leukemia, or AML. In addition, we are developing Troxatyl for the treatment of earlier stage AML as well as for various solid tumors, and plan to develop Troxatyl for the treatment of Myelodysplastic Syndromes, or MDS. We are also building an internal cancer product pipeline and generating lead compounds for multiple partners through the application of our proprietary fragment-based drug discovery platform, Fragments of Active Structures, or FAST. We have successfully applied FAST to generate novel, potent and selective small molecule compounds in a matter of months for many well-validated but challenging targets. We believe that FAST is capable of producing at least one new Investigational New Drug, or IND, candidate per year, starting in 2006.

We currently have ten active revenue-generating collaborations, commercial agreements and grants based upon FAST and related technologies with pharmaceutical and biotechnology companies, including Eli Lilly & Company, Serono International S.A., and F. Hoffmann La Roche Ltd., as well as government and other agencies. We generated approximately $9.9 million in revenues from collaborations, commercial agreements and grants during the six months ended June 30, 2005 and generated approximately $27.3 million, $18.1 million and $3.3 million in revenues from collaborations, commercial agreements and grants during the years ended December 31, 2004, 2003 and 2002, respectively. We have incurred significant losses since our inception in 1998, as we have devoted substantially all of our efforts to research and development activities, including clinical trials. As of June 30, 2005, our accumulated deficit was approximately $118.8 million. We expect to incur substantial and possibly increasing losses for the next several years as we:

•  continue the clinical trials and prepare for the commercialization of our product candidate, Troxatyl;

•  develop and expand our oncology pipeline; and

•  acquire or in-license oncology products or discovery technologies that are complementary to our own.

We were incorporated in Delaware in July 1998. To date, we have not generated any revenues from the sale of therapeutic drugs. We have financed our operations and internal growth through private placements of our preferred stock, our collaboration, commercial agreement and grant revenue, and debt financings.

Financial Operations Overview

Collaboration, Commercial Agreement and Grant Revenue

Collaboration, commercial agreement and grant revenue has primarily been a result of various collaborations, commercial agreements and grants with pharmaceutical companies and biotechnology companies, as well as government and other agencies. We also periodically receive non-refundable payments for achieving certain milestones during the term of our agreements.

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Research and Development Expense

Research and development expense consists primarily of costs associated with clinical trials of Troxatyl, compensation, including stock-based, and other expenses related to research and development personnel, facilities costs and depreciation.

We charge all research and development expenses to operations as they are incurred. Our research and development activities are primarily focused on the development of Troxatyl. We initiated our pivotal Phase II/III clinical trial for the third-line treatment of AML in July 2005. We expect to complete enrollment in our Phase II/III clinical trial in the third quarter of 2006 and to announce results shortly thereafter. We completed our first clinical trial evaluating continuous intravenous infusion, or CI, Troxatyl dosing in the second quarter of 2005 and are conducting a Phase I/II dose ranging clinical trial of CI Troxatyl in patients with refractory solid tumors that we expect to complete by the end of 2005.

We expect our research and development expense to increase as we advance Troxatyl and new product candidates into later stages of clinical development. We are unable to estimate with any certainty the costs we will incur in the continued development of Troxatyl and of other product candidates for commercialization. We expect to continue to expand our research and development activities relating to the clinical development and preclinical research of treatments in the oncology area.

Clinical development timelines, likelihood of success and associated costs are uncertain and therefore vary widely. Although we are currently focused primarily on Troxatyl for the treatment of AML, we anticipate that we will make determinations as to which research and development projects to pursue and how much funding to direct toward each project on an on-going basis in response to the scientific and clinical success of each product candidate and each additional indication for Troxatyl.

At this time, due to the risks inherent in the clinical trial process, development completion dates and costs vary significantly for each product candidate and are difficult to estimate. The lengthy process of seeking regulatory approvals and the subsequent compliance with applicable regulations require the expenditure of substantial additional resources. Any failure by us to obtain, or any delay in obtaining, regulatory approvals for our product candidates could cause our research and development expenditures to increase and, in turn, have a material adverse effect on our results of operations. We cannot be certain when any cash flows from our current product candidates will commence.

General and Administrative Expense

General and administrative expense consists primarily of compensation, including stock-based, and other expenses related to our corporate administrative employees, legal fees and other professional services expenses. After this offering, we anticipate increases in general and administrative expense as we add personnel, become subject to reporting obligations applicable to publicly-held companies and continue to develop and prepare for commercialization of our product candidates.

As a public company, we will operate in an increasingly demanding regulatory environment which will subject us to the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the Securities and Exchange Commission, or SEC, expanded disclosures, accelerated reporting requirements and more complex accounting rules. Company responsibilities required by the Sarbanes-Oxley Act include establishing corporate oversight and adequate internal control over financial reporting. As a result of these factors, until we are able to implement comprehensive accounting policies and procedures, we may not be able to prepare and disclose, in a timely manner, our financial statements and other required disclosures or comply with existing or new reporting requirements.

Stock-Based Compensation Expense

Stock-based compensation expense represents the amortization of deferred compensation resulting from the difference between the exercise price and the deemed fair value, as estimated by us for financial reporting

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purposes, of our common stock on the date stock options were granted to employees and non-employee directors.

Interest Income

Interest income consists of interest earned on our cash and cash equivalents.

Interest Expense

Interest expense represents interest on our debt and secured promissory notes in an aggregate principal amount of $13.4 million that we issued in two tranches in a secured bridge financing in July and September 2004, which were converted into redeemable convertible preferred stock in April 2005.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures. Actual results could differ from those estimates. While our significant accounting policies are described in more detail in Note 1 of the Notes to Consolidated Financial Statements included elsewhere in this prospectus, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements:

Revenue Recognition

Our collaboration agreements contain multiple elements, including non-refundable upfront fees, payments for reimbursement of research costs, payments for ongoing research, payments associated with achieving specific milestones and royalties based on specified percentages of net product sales, if any. We apply the revenue recognition criteria outlined in Staff Accounting Bulletin No. 104, Revenue Recognition and Emerging Issues Task Force, or EITF, Issue 00-21, Revenue Arrangements with Multiple Deliverables, or EITF 00-21. In applying these revenue recognition criteria, we consider a variety of factors in determining the appropriate method of revenue recognition under these arrangements, such as whether the elements are separable, whether there are determinable fair values and whether there is a unique earnings process associated with each element of a contract.

Cash received in advance of services being performed is recorded as deferred revenue and recognized as revenue as services are performed over the applicable term of the agreement.

When a payment is specifically tied to a separate earnings process, revenues are recognized when the specific performance obligation associated with the payment is completed. Performance obligations typically consist of significant and substantive milestones pursuant to the related agreement. Revenues from milestone payments may be considered separable from funding for research services because of the uncertainty surrounding the achievement of milestones for products in early stages of development. Accordingly, these payments could be recognized as revenue if and when the performance milestone is achieved if they represent a separate earnings process as described in EITF 00-21.

In connection with certain research collaborations, revenues are recognized from non-refundable upfront fees, which we do not believe are specifically tied to a separate earnings process, ratably over the term of the agreement. Research services provided under some of our collaboration agreements are on a fixed fee basis. Revenues associated with long-term fixed fee contracts are recognized based on the performance requirements of the agreements and as services are performed.

Revenues derived from reimbursement of direct out-of-pocket expenses for research costs associated with grants are recorded in compliance with EITF Issue 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent, and EITF Issue 01-14, Income Statement Characterization of Reimbursements Received for

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“Out-of-Pocket” Expenses Incurred. According to the criteria established by these EITF Issues, in transactions where we act as a principal, with discretion to choose suppliers, bear credit risk and perform part of the services required in the transaction, we record revenue for the gross amount of the reimbursement. The costs associated with these reimbursements are reflected as a component of research and development expense in the statements of operations.

None of the payments that we have received from collaborators to date, whether recognized as revenue or deferred, is refundable even if the related program is not successful.

     Stock-Based Compensation Expense

Stock-based compensation expense for stock options granted to employees and directors has been determined as the difference between the exercise price and the fair value of our common stock on the date of grant, as estimated by us for financial reporting purposes, on the date those options were granted. It also includes stock-based compensation for options granted to consultants that has been determined in accordance with Statement of Financial Accounting Standards, or SFAS, No. 123, Accounting for Stock-Based Compensation, or SFAS 123, and EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods and Services, as the fair value of the equity instruments issued and is periodically revalued as the options vest. Stock-based compensation expense depends on the amount of stock options and other equity compensation awards we grant to our employees, consultants and directors and the exercise price of those options.

Deferred stock compensation, which is a non-cash charge, results from employee stock option grants at exercise prices that, for financial reporting purposes, are deemed to be below the estimated fair value of the underlying common stock on the date of grant. Given the absence of an active market for our common stock through 2004, our board of directors considered, among other factors, the liquidation preferences, anti-dilution protection and voting preferences of the preferred stock over the common stock in determining the estimated fair value of the common stock for purposes of establishing the exercise prices for stock option grants.

As a result of initiating this offering, we have revised our estimate of the fair value for financial reporting purposes of our common stock for the last six months of 2004 and the six months ended June 30, 2005. This valuation was done retrospectively by management, a related party, and we did not obtain contemporaneous valuations from an independent valuation specialist. In reassessing the value of our common stock in 2004 and 2005, we considered the price we received in April 2005 for our Series B preferred stock of $4.71, since this was an arms-length transaction. Starting on July 1, 2004, we reduced the value that we originally attributed to the preferences on the preferred stock mentioned above by 10% of the price of the preferred stock. Accordingly, we estimated the fair value at 90% of the Series B preferred stock price, or $4.24 per share. We kept this value constant until April 2005 when we steadily increased the estimated fair value to $6.10 per common share based on an assessment of market considerations, including discussions with the underwriters in this offering. This valuation method was selected because we believe it reflects the change in value held by the common stockholders that will result from a successful public offering, which includes the conversion of our preferred stock into common stock and thereby eliminates the preferences and rights attributable to the preferred stock. Furthermore, we believe this valuation approach is consistent with valuation methodologies applied to other similar companies pursuing an initial public offering.

For stock option grants to employees and non-employee directors, we recorded deferred stock compensation, net of forfeitures, totaling $0 in 2004 and $10.5 million in the six months ended June 30, 2005, which represent the difference between the revised fair value for financial reporting purposes of our common stock and the option exercise price at the date of grant. Deferred compensation will be amortized to expense over the vesting period of the related options using an accelerated method. Based upon stock option grants through June 30, 2005, the expected future amortization expense for deferred stock compensation is $5.8 million, $3.4 million, $1.2 million, $127,000 and $4,000 for the years ending December 31, 2005, 2006, 2007, 2008, and 2009, respectively.

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Deferred Tax Asset Valuation Allowance

Our estimate for the valuation allowance for deferred tax assets requires us to make significant estimates and judgments about our future operating results. Our ability to realize the deferred tax assets depends on our future taxable income as well as limitations on utilization. A deferred tax asset must be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized prior to its expiration. The projections of our operating results on which the establishment of a valuation allowance is based involve significant estimates regarding future demand for our products, competitive conditions, product development efforts, approvals of regulatory agencies and product cost. We have recorded a full valuation allowance on our net deferred tax assets as of December 31, 2003 and 2004 due to uncertainties related to our ability to utilize our deferred tax assets in the foreseeable future. These deferred tax assets primarily consist of certain net operating loss carryforwards and research and development tax credits.

Results of Operations

Six Months Ended June 30, 2004 Compared to 2005

Collaboration, Commercial Agreement and Grant Revenue. Collaboration, commercial agreement and grant revenue declined from $11.9 million for the six months ended June 30, 2004 to $9.9 million for the six months ended June 30, 2005. The decrease of $2.0 million, or 16.9%, was due to the timing of revenue recognition as we were able to recognize $2.0 million of revenue under a collaborative research agreement in April 2004 due to the expiration of certain provisions within the agreement.

Research and Development Expense. Research and development expense increased from $15.3 million for the six months ended June 30, 2004 to $16.7 million for the six months ended June 30, 2005. The increase was primarily attributable to an increase in stock-based compensation. We expect our research and development costs to increase in the future as we conduct clinical development of Troxatyl for the treatment of AML and other indications, as well as advance other preclinical product candidates into clinical development.

General and Administrative. General and administrative expense increased from $3.3 million for the six months ended June 30, 2004 to $4.7 million for the six months ended June 30, 2005. The increase was primarily attributable to an increase in equity-based compensation of $2.2 million, partially offset by a decrease of $800,000 due to lower salaries and related expenses as a result of personnel reductions. We expect our general and administrative expense to increase in the future due to our responsibilities as a publicly-held company and the related requirements of the Sarbanes-Oxley Act.

Amortization of Stock-Based Compensation. Deferred stock-based compensation for stock options has been determined as the difference between the exercise price as determined by our board of directors on the date of grant and the deemed fair value of our common stock for financial reporting purposes. In connection with the grant of stock options to employees and non-employee directors, we recorded deferred stock-based compensation of $10.5 million for the six months ended June 30, 2005. We recorded these amounts as components of stockholders’ equity and are amortizing the amounts, on a straight-line basis, as a non-cash charge to operations over the vesting period of the options. We recorded amortization of stock-based compensation of $2.2 million for the six months ended June 30, 2005. We anticipate recording additional amortization of deferred stock-based compensation related to employee stock option grants of approximately $3.6 million for the second half of 2005 and $3.4 million, $1.2 million, $127,000 and $4,000 for the years ending December 31, 2006, 2007, 2008 and 2009, respectively. In April 2005, we agreed to issue warrants to purchase 230,000 shares of our common stock to two former employees and recorded a related compensation expense of $1.3 million.

Interest Income. Interest income increased from $44,000 for the six months ended June 30, 2004 to $115,000 for the six months ended June 30, 2005. The increase was due primarily to higher cash and cash equivalent balances in the first half of 2005 compared to the first half of 2004.

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Interest Expense. Interest expense (excluding interest expense associated with our bridge notes issued in July and September 2004) decreased from $382,000 for the six months ended June 30, 2004 to $190,000 for the six months ended June 30, 2005. The decrease was due primarily to the lower debt levels in 2005 versus 2004 (excluding indebtedness under our bridge notes issued in July and September 2004).

Interest Expense Associated with Bridge Notes

We also recorded interest expense of $1.2 million in the six months ended June 30, 2005 related to the bridge notes issued in July and September 2004. Included in the bridge note interest expense is the amortization of the fair value of warrants issued in connection with the bridge notes. We determined the fair value of the warrants on the grant date using the Black-Scholes pricing model. This resulted in aggregate expense of approximately $1.7 million, which is recorded against the principal balance. The remaining $363,000 was recognized as interest expense in the six months ended June 30, 2005.

Also included in the bridge note interest expense is an additional non-cash charge of approximately $1.7 million against the principal balance of the bridge notes. This amount represents the difference between the conversion price of the bridge notes and the underlying value of the stock to be issued upon conversion of the bridge notes. The remaining $363,000 of this non-cash charge was recognized as interest expense in the six months ended June 30, 2005.

Year Ended December 31, 2003 Compared to 2004

Collaboration, Commercial Agreement and Grant Revenue. Collaboration, commercial agreement and grant revenue increased from $18.1 million for the year ended December 31, 2003 to $27.3 million for the year ended December 31, 2004. The increase of $9.2 million, or 51%, was due to an increase in research grant revenue of $3.4 million and an increase in revenue from collaborations and commercial agreements of $5.8 million.

Research and Development Expense. Research and development expense increased from $28.6 million for the year ended December 31, 2003 to $31.4 million for the year ended December 31, 2004. The increase of $2.8 million, or 10%, was due primarily to expenses incurred to support increased research and development activity, commensurate with higher Troxatyl related development costs.

General and Administrative. General and administrative expense decreased from $7.4 million for the year ended December 31, 2003 to $6.7 million for the year ended December 31, 2004. The decrease of $0.7 million, or 8.6%, was due primarily to personnel reductions.

In-process Technology. In 2004, we acquired the exclusive worldwide rights to Troxatyl from Shire BioChem Inc. Under the terms of the agreement, we made an upfront payment of $3.0 million and a payment of $1.0 million on the one-year anniversary of the agreement. We are also required to make milestone payments based on successful development and approval of Troxatyl, and we will also be required to make royalty payments based on net sales. We recorded a one-time charge of $4.0 million for purchased in-process research and development related to the upfront and one-year anniversary payments in 2004 based on the fact that the technology acquired did not have established feasibility and had no alternative future use.

Interest Income. Interest income decreased from $320,000 for the year ended December 31, 2003 to $175,000 for the year ended December 31, 2004. The decrease was due primarily to lower average cash and cash equivalent balances in 2004 than in 2003.

Interest Expense. Interest expense (excluding interest expense associated with our bridge notes issued in July and September 2004) decreased from $1.2 million for the year ended December 31, 2003 to $669,000 for the year ended December 31, 2004. The decrease was due primarily to repayment of some of our lease lines resulting in lower debt levels in 2004 compared to 2003 (excluding indebtedness under our bridge notes issued in July and September 2004).

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Interest Expense Associated with Bridge Notes

We also recorded interest expense of $3.4 million in 2004 related to the bridge notes issued in July and September 2004. Included in the bridge note interest expense is the amortization of the fair value of warrants issued in connection with the bridge notes resulting in aggregate expense of approximately $1.7 million, which was recorded against the principal balance and was being amortized over the term of the bridge notes. Of the bridge note discount, approximately $1.4 million was recognized as interest expense in 2004.

Also included in the bridge note interest expense is an additional non-cash charge of approximately $1.7 million against the principal balance of the bridge notes. This amount represents the difference between the conversion price of the bridge notes and the underlying value of the stock to be issued upon conversion of the bridge notes. Approximately $1.4 million of this non-cash charge was recognized as interest expense in 2004.

Year Ended December 31, 2002 Compared to 2003

Collaboration, Commercial Agreement and Grant Revenue. Research and development revenue increased from $3.3 million for the year ended December 31, 2002 to $18.1 million for the year ended December 31, 2003. The increase of $14.8 million, or 441.9%, was due primarily to an increase in research grant revenue of $7.6 million and an increase in revenue from collaborations and commercial agreements of $7.2 million.

Research and Development Expense. Research and development expense increased from $25.6 million for the year ended December 31, 2002 to $28.6 million for the year ended December 31, 2003. The increase of $3.0 million, or 11.8%, was due primarily to additional expenses to support higher revenue levels resulting from increased collaboration activity.

General and Administrative. General and administrative expense decreased from $10.1 million for the year ended December 31, 2002 to $7.4 million for the year ended December 31, 2003. The decrease of $2.7 million, or 27.4%, was due primarily to personnel reductions.

Interest Income. Interest income decreased from $622,000 for the year ended December 31, 2002 to $320,000 for the year ended December 31, 2003. The decrease was due primarily to lower average cash and cash equivalent balances in 2003 than in 2002.

Interest Expense. Interest expense increased from $932,000 for the year ended December 31, 2002 to $1.2 million for the year ended December 31, 2003. The increase was due primarily to new lease lines.

Liquidity and Capital Resources

Sources of Liquidity

We have historically funded our operations primarily through the sale of our equity securities, funds received from our collaborations, commercial agreements and grant revenue and debt financings. For the six months ended June 30, 2005, we received net proceeds from the sale of Series B preferred stock of approximately $6.7 million. Certain of our existing investors have irrevocably committed to purchase on December 15, 2005 additional shares of Series B preferred stock, which will result in net proceeds of $6.8 million if the offering contemplated by this prospectus has not been completed prior to that date.

We have received revenues from collaborations, commercial agreements and grants totaling $9.9 million and $11.9 million for the six months ended June 30, 2005 and 2004, respectively, and revenues from collaborations, commercial agreements and grants totaling $27.3 million, $18.1 million, and $3.3 million, for the years ended December 31, 2004, 2003, and 2002, respectively. We anticipate existing collaborations, commercial agreements and grants will provide approximately $13.0 million of additional proceeds in 2005 and approximately $14.0 million in 2006. These additional proceeds are subject to us performing certain services and achieving certain milestones under the existing agreements. If we were to fail to perform these services or achieve these milestones, we would not receive the additional proceeds under these agreements.

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During the year ended December 31, 2004, we borrowed approximately $14.1 million pursuant to the bridge notes issued in July and September 2004 and from our line of credit and notes payable. During the years ended December 31, 2003 and 2002, we borrowed approximately $1.3 million and $10.0 million from our line of credit and notes payable. We made debt repayments of $1.9 million for the six months ended June 30, 2005, and debt repayments of $3.9 million, $3.9 million, and $2.0 million for the years ended December 31, 2004, 2003, and 2002, respectively. In April 2005, the $13.4 million of indebtedness under our bridge notes issued in July and September 2004 was converted into shares of Series A-2 preferred stock. As of June 30, 2005, an aggregate of $2.4 million was outstanding under our line of credit. The debt agreements subject us to certain financial and non-financial covenants. As of June 30, 2005, we were in compliance with these covenants. These obligations are secured by our assets, excluding intellectual property, and are due in monthly installments through 2008. They bear interest at effective rates ranging from approximately 9.14% to 10.60% and include terminal payments at the end of the loans ranging from 0% to 5%.

In August 2005, we signed a non-binding term sheet with Silicon Valley Bank and Oxford Finance Corporation setting forth general agreed upon terms relating to $8.0 million of general purpose working capital financing and $2.0 million of equipment and leasehold improvements financing. The proposed terms include, among others, the debt bearing interest at a rate of approximately 10% due in monthly installments over three years and an issuance to the lenders of warrants to purchase shares of our Series B preferred stock, with the number of shares being based on the draw amount at an exercise price of $4.71 per share. We expect to enter into a definitive agreement governing this financing arrangement in September 2005.

Cash Flows

As of June 30, 2005, cash and cash equivalents totaled approximately $10.4 million as compared to $11.5 million at December 31, 2004, a decrease of approximately $1.1 million. The decrease resulted primarily from $5.8 million of net cash used in operations, $1.9 million of debt repayments and approximately $131,000 of purchases of property and equipment and other items, partially offset by net proceeds of $6.7 million from our Series B preferred stock financing. The net cash used in operating activities reflected the net loss occurring for the six months ended June 30, 2005 of $12.9 million, prepayment of expenses of $267,000 and reduction of accruals of $592,000, partially offset by non-cash charges for depreciation and amortization of $2.3 million, stock-based compensation of $3.6 million, deferred revenue of $1.0 million and interest accruals and other items totaling approximately $1.2 million.

As of December 31, 2004, cash and cash equivalents totaled approximately $11.5 million compared to $13.6 million as of December 31, 2003, a decrease of approximately $2.1 million. The decrease resulted primarily from net cash used in operations of $11.0 million and purchases of property and equipment of $1.2 million, partially offset by proceeds from debt financings, net of repayments, of approximately $10.0 million as described above. The net cash used in operating activities primarily reflected the net loss for 2004 of $18.8 million, partially offset by non-cash charges for depreciation and amortization of $5.0 million and $2.8 million of discount on warrants associated with the bridge notes.

Net cash used in operating activities was approximately $6.3 million and $29.4 million for the years ended December 31, 2003 and 2002, respectively. The net cash used in operating activities during those years was primarily to fund our operating losses, partially offset by non-cash charges for depreciation and amortization and deferred revenue.

     Funding Requirements

Our future capital uses and requirements depend on numerous factors, including but not limited to the following:

•  terms and timing of any collaborative, licensing and other arrangements that we may establish;

•  rate of progress and cost of our clinical trials and other research and development activities;

•  scope, prioritization and number of clinical development and research programs we pursue;

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•  costs and timing of regulatory approval;

•  costs of establishing or contracting for sales and marketing capabilities;

•  costs of manufacturing;

•  extent to which we acquire or in-license new products, technologies or businesses;

•  effect of competing technological and market developments; and

•  costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

We believe that the net proceeds from this offering, together with interest thereon and our existing cash and cash equivalents, will be sufficient to meet our projected operating requirements through at least mid-2007.

Until we can generate significant cash from our operations, we expect to continue to fund our operations with existing cash resources that were primarily generated from the proceeds of offerings of our equity securities, our collaboration, commercial agreement and grant revenue, and debt financing. In addition, we may finance future cash needs through the sale of other equity securities, strategic collaboration agreements and debt financing. However, we may not be successful in obtaining additional collaboration agreements, or in receiving milestone or royalty payments under existing agreements. In addition, we cannot be sure that our existing cash and cash equivalents will be adequate or that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or our stockholders. Having insufficient funds may require us to delay, scale back or eliminate some or all of our research or development programs or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. Failure to obtain adequate financing may also adversely affect our ability to operate as a going concern. If we raise additional funds by issuing equity securities, substantial dilution to existing stockholders would likely result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business.

     Off-Balance Sheet Arrangements

As of June 30, 2005, and December 31, 2002, 2003 and 2004, we have not invested in any variable interest entities. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships. We do not have relationships or transactions with persons or entities that derive benefits from their non-independent relationship with us or our related parties other than as described in the Notes to Financial Statements included elsewhere in this prospectus.

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Contractual Obligations

The following summarizes our long-term contractual obligations as of December 31, 2004:

				Payments Due by Period
				Less than		1 to		4 to		More than
Contractual Obligations		Total		1 Year		3 Years		5 Years		5 Years
				(in thousands)
Bridge notes payable(1)		$	13,154	$	13,154		–		–		–
Long-term debt obligations			4,319		2,958	$	1,029	$	280	$	52
Operating lease obligations			4,757		2,194		958		898		707
License obligations			1,000		1,000		–		–		–
	Total	$	23,230	$	19,306	$	1,987	$	1,178	$	759

(1)  The principal and interest under the bridge notes converted into shares of our preferred stock in April 2005.

We also enter into agreements with clinical sites that conduct our clinical trials. We make payments to sites based upon the number of patients enrolled. For the six months ended June 30, 2005 and the year ended December 31, 2004, we had made aggregate payments of $198,000 and $156,000, respectively, to clinical sites in connection with our clinical trials. At this time, due to the variability associated with these agreements, we are unable to estimate with certainty the future patient enrollment costs we will incur and therefore have excluded these costs from the above table. We do, however, anticipate that these costs will increase significantly in future periods as a result of the commencement of the pivotal Phase II/ III trial for Troxatyl in July 2005.

As of December 31, 2004, we had approximately $367,000 in restricted cash associated with our facility lease.

Related Party Transactions

For a description of our related party transactions, see “Related Party Transactions.”

Income Taxes

As of December 31, 2004, we had federal and California net operating loss carryforwards of $78.9 million and $40.4 million, respectively, which begin to expire in 2019 and 2009, respectively, if not utilized. We also had federal and California research and development tax credit carryforwards totaling $3.3 million and $2.3 million, respectively. The federal research and development tax credit carryforward will begin to expire in 2019, unless previously utilized.

Pursuant to Internal Revenue Code Sections 382 and 383, and similar state provisions, use of our net operating loss and tax credit carryforwards may be limited as a result of certain cumulative changes in our stock ownership. The annual limitations may result in the expiration of net operating losses and credits prior to utilization.

At December 31, 2004 and 2003, we had deferred tax assets primarily representing the benefit of net operating loss carryforwards. We did not record a benefit for the deferred tax assets because realization of the deferred tax assets was uncertain and, accordingly, a valuation allowance has been provided to completely offset the deferred tax assets.

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Quantitative and Qualitative Disclosures about Market Risk

The primary objective of our cash management activities is to preserve our capital for the purpose of funding operations while at the same time maximizing the income we receive from our investments without significantly increasing risk. As of June 30, 2005, we had cash equivalents consisting primarily of money market investments. Due to the liquidity of our money market investments, a 1% movement in market interest rates would not have a significant impact on the total value of our cash equivalents. We do not have any holdings of derivative financial or commodity instruments, or any foreign currency denominated transactions.

Recently Issued Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board, or FASB, issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” This statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of unallocated overhead resulting from abnormally low production (or idle capacity), freight, handling costs, and wasted material (spoilage). This statement requires that those items be recognized as current-period charges. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this statement will be effective for inventory costs during the fiscal years beginning after June 15, 2005. We do not believe that the adoption of this statement will have a material impact on our financial condition or results of operations.

On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004),“Share-Based Payment,” or SFAS 123R, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS 123R supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS 95, “Statement of Cash Flows.” Generally, the approach in SFAS 123R is similar to the approach described in SFAS 123. However, SFAS 123R requires all share-based payments to employees or directors, including grants of employee and director stock options, to be recognized as an expense on the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS 123R must be adopted no later than January 1, 2006. Early adoption will be permitted in periods in which financial statements have not yet been issued. We expect to adopt SFAS 123R on January 1, 2006.

As permitted by SFAS 123, we currently account for share-based payments to employees using the intrinsic value method under APB Opinion No. 25 and, as such, generally recognize no compensation cost for employee stock options issued at fair market value. Accordingly, the adoption of the fair value method under SFAS 123R will have a significant impact on our results of operations, although it will have no impact on our overall financial position. The impact of adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net loss and loss per share in Note 1 to our consolidated financial statements.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets — An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions,” or SFAS 153. SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for the fiscal periods beginning after June 15, 2005 and is required to be adopted beginning January 1, 2006. We are currently evaluating the effect that the adoption of SFAS 153 will have on our consolidated results of operations and financial condition but do not expect it to have a material impact.

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Business

We are a biotechnology company focused on the discovery, development and commercialization of innovative cancer therapeutics. We are developing Troxatyl, a novel compound which is currently in a pivotal Phase II/III clinical trial for the third-line treatment of Acute Myelogenous Leukemia, or AML, a blood cancer. There is no approved therapy or standard of care for the third-line treatment of AML. If the results of our ongoing Phase II/III clinical trial are positive, we expect to submit a New Drug Application, or NDA, to the U.S. Food and Drug Administration, or FDA, in late 2006 or early 2007, leading a potential product launch during 2007. While Troxatyl has not been compared to other chemotherapeutic agents in head-to-head studies, based on preclinical data and clinical data gathered from more than 730 patients, we believe that Troxatyl may be superior, in terms of both efficacy and tolerability, to currently utilized therapies for the second- and third-line treatment of AML, as well as other cancers. We licensed exclusive worldwide rights to Troxatyl from Shire BioChem Inc. in July 2004.

We are also building an internal oncology product pipeline and generating lead compounds for multiple partners through the application of our proprietary fragment-based drug discovery platform, Fragments of Active Structures, or FAST. We have successfully applied FAST to generate novel, potent and selective small molecule compounds in a matter of months for many well-validated, but challenging targets. We expect to begin clinical development in 2006 for our first product candidate discovered using FAST, an inhibitor of an enzyme known as BCR-ABL. We designed and are developing this product candidate as a treatment for Chronic Myelogenous Leukemia, or CML, which is resistant to treatment with the current standard of care, Gleevec® (imatinib mesylate) marketed by Novartis Pharmaceuticals Corporation. An additional internal program is focused on the targets MET and RON, two closely related proteins, known as receptor tyrosine kinases, implicated in a range of solid tumors, and is at the lead optimization stage, in which we seek to improve the potency, specificity and in vivo efficacy of lead compounds and reduce their toxicity. We believe that FAST is capable of producing at least one new Investigational New Drug, or IND, candidate per year, starting in 2006. Based on FAST and related technologies, we have generated aggregate revenues from collaborations, commercial agreements and grants of approximately $55.2 million in 2003, 2004 and the first six months of 2005.

The chart below summarizes the status of our most advanced ongoing and currently planned clinical and preclinical development programs:

Program/Indication		Status	Marketing Rights
Troxatyl			SGX (Worldwide)
	• Third-line AML	Pivotal Phase II/III trial ongoing (data expected 2H06)
	• Second-line AML	Phase I/II Ara-C combination trial (initiate 1H06) Phase III Ara-C combination trial (initiate 4Q06)
	• MDS	Phase I/II trial (initiate 2006)
	• Solid tumors	Phase I/II trial ongoing (data expected 4Q05)
BCR-ABL			SGX (Worldwide)
	• Gleevec-resistant CML	Preclinical development (IND expected 4Q06)
MET and RON			SGX (U.S.)/Pierre
	• Solid tumors	Lead optimization	Fabre (Europe)/Shared (ROW)
AurA, Hsp90, K-RAS and PDK-1			SGX (Worldwide)
	• Various cancers	Lead optimization

Troxatyl

Troxatyl is a novel analog of cytidine, one of the four nucleosides that are the building blocks of deoxyribonucleic acid, or DNA. Nucleoside analogs such as Troxatyl inhibit synthesis of DNA in dividing cells, thereby causing those cells to die. Several nucleoside analogs have been used for many years as anti-cancer and anti-viral treatments. Troxatyl has a markedly different chemical structure and different biochemical properties than the commonly used cytidine analogs Gemzar® (gemcitabine), marketed by Eli

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Lilly and Company, and cytarabine, a generic compound often known as Ara-C. For example, some cancer cells develop resistance to Ara-C, by using an enzyme to break it down. Troxatyl is not broken down by this enzyme. In addition, based on preclinical studies, Troxatyl is effective against cancer cells which have become resistant to other cancer drugs by rapidly pumping them out of the cell.

Based on preclinical studies and clinical trials, we believe the unique properties and advantages of Troxatyl include:

•  activity against tumors that are resistant to multiple cancer drugs, including Ara-C, anthracyclines, another class of drugs commonly used in the treatment of AML, and Gemzar, which is often used for the treatment of certain solid tumors;

•  entrance into cells by slow, passive diffusion, which is a different route than many other cancer drugs and may provide the basis for improved safety and activity profiles;

•  a more manageable and transient side effect profile, including absence of significant central nervous system and liver toxicity in patients, as compared to Ara-C; and

•  synergy in combination with Ara-C, Gemzar and Gleevec.

Based on these characteristics, we believe Troxatyl has the potential to improve overall survival rates and quality of life for patients and therefore be an effective therapy for various cancers.

More than 700 patients were enrolled in Phase I and Phase II clinical trials conducted by Shire, in which Troxatyl was administered in the majority of cases by intravenous injection, or IV, to treat blood cancers and solid tumors. Promising early clinical results were observed in AML, where treatment with Troxatyl resulted in an 18% overall response rate in relapsed or refractory disease patients.

However, based on our recent clinical trials and preclinical studies, we now believe that neither the dose nor IV mode of administration utilized in those trials was optimal. Because Troxatyl enters cells by passive diffusion, cancer cells require longer exposure to achieve desired intracellular concentrations of Troxatyl than can be achieved by periodic IV administration. This conclusion was corroborated by preclinical studies such as one that showed the concentration of Troxatyl required to kill cancer cells was reduced by approximately ten-fold when time of exposure was increased from one to three days. These considerations provided the basis for the design of our Phase I/ II clinical trial in which Troxatyl was administered for the third-line treatment of AML by continuous intravenous infusion, or CI, over several days. Based on data from this trial completed in May 2005, we believe Troxatyl is more active when administered by CI compared to IV, and we believe we have identified the optimal dose of Troxatyl for the single-agent treatment of AML.

Based on clinical experience and preclinical data, we also believe Troxatyl in combination with Ara-C for the second-line treatment of AML may provide efficacy superior to Ara-C alone, which is widely used for this indication. In addition to our ongoing pivotal Phase II/ III clinical trial of Troxatyl for the third-line treatment of patients with AML, we intend to initiate a Phase III clinical trial of Troxatyl for the second-line treatment of AML in 2006.

Troxatyl has also shown promising activity in Phase I and Phase II clinical trials in the treatment of various other cancers, such as Myelodysplastic Syndrome, or MDS, and solid tumors such as pancreatic cancer and renal cell carcinoma. Based on these results, we are conducting a Phase I/ II clinical trial for the treatment of solid tumors, and intend to initiate clinical trials for the treatment of MDS and other solid tumor indications.

In July 2004, we licensed exclusive worldwide rights to Troxatyl from Shire. Under the terms of the agreement, we made upfront payments and will make development-based milestone payments, sales milestone payments and royalty payments based on net product sales. At the time, we received an exclusive license to 16 issued U.S. patents, 254 issued foreign patents, 31 pending U.S. applications and 92 pending foreign applications covering composition of matter, method of use and treatment, formulation and process. We believe that this intellectual property estate will provide the basis for patent protection of the composition of matter until 2008 in the United States and for combinations of Troxatyl and other compounds, methods of use

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and treatment, and formulation and process until at least 2015 in the United States and the E.U. Certain of these patents may be eligible for extension by up to an additional five years in the United States.

Acute Myelogenous Leukemia

We are initially developing Troxatyl for the treatment of AML, a blood cancer that increases in incidence with age. According to the American Cancer Society, AML represents approximately 90% of all acute leukemias in adults. In the United States, approximately 16,000 adult patients have AML with approximately 12,000 new patients diagnosed each year. Although induction chemotherapy, typically with Ara-C and an anthracycline such as daunorubicin or idarubicin, results in complete remission in an average of 65% of patients, relapse is common and long-term survival rates are less than 20%. Second-line treatment of AML often involves re-treatment with high dose Ara-C, and may also involve an anthracycline. In addition, the FDA has approved Mylotarg® (gemtuzumab ozogamicin), marketed by Wyeth Pharmaceuticals Inc., as second-line treatment for certain AML patients. We estimate approximately 8,000 patients per year receive second-line treatment for this disease. The vast majority of these patients are either non-responsive or relapse within six months. There is no approved therapy or standard of care for the third-line treatment of AML and, based on a recent M. D. Anderson Cancer Center study, the historical response rate for patients we are targeting in our current pivotal Phase II/ III clinical trial is less than 5%. Because of the high relapse rate and poor long-term survival of AML patients after treatment with cancer drugs, the treatment goal for healthier patients is tumor eradication for at least three months to permit time for the identification of a suitable bone marrow donor and preparation of patients for this potentially curative, life-saving procedure.

Phase I/ II CI Clinical Trial. We completed our first clinical trial evaluating CI Troxatyl dosing in May 2005. This 48 patient dose-escalation trial enrolled various types of relapsed AML patients, including patients who had failed two or more prior chemotherapy regimens, patients who had also failed bone marrow transplantation and patients who were refractory to prior treatment. Eight cohorts of patients received varying treatment regimens, ranging from 8.4 to 14.0 mg/m²/day of Troxatyl, for two to six days. Five patients achieved a complete response, or CR, of their disease and four patients achieved a complete response with partial platelet recovery, or CRp, for an overall response rate of 19%. Importantly, the low-level toxicities we observed were not age-related. The duration of response has ranged from one to over 12 months. Several patients remain in active remission and median survival time was seven months.

Results from this Phase I/ II clinical trial include:

•  at optimal dosing in this trial, the CI dose of Troxatyl (12 mg/m²/day for five consecutive days, or a total dose of 60 mg/m²) is 50% higher than that obtained via consecutive daily IV dosing in a previous trial conducted by Shire (8 mg/m²/day for five consecutive days, or a total dose of 40 mg/m²);

•  for the 18 patients treated at this optimal dosing schedule, no severe or life-threatening toxicities were observed; and

•  all nine patients who responded to Troxatyl achieved sustained levels of Troxatyl in the blood of approximately 80 ng/mL or higher and received dosing for greater than three days.

On the basis of these results, we have concluded that the safety and response data in these patients compare favorably to the M. D. Anderson Cancer Center historical data and support further development of Troxatyl for the treatment of AML. As part of our analysis of this Phase I/ II clinical trial to determine the optimal strategy for further clinical development, we evaluated tumor response, side effect profiles and levels of Troxatyl in the blood across the different dose cohorts.

Because Troxatyl is primarily removed from the body by the kidneys, we evaluated the effect of kidney function on patient tumor response and side effect profile. Patients with the lowest kidney function achieved the highest levels of Troxatyl in the blood, and generally experienced a greater likelihood of severe Troxatyl-related side effects. Conversely, patients with the best kidney function were much less likely to achieve the drug levels of 80 ng/mL that we found closely associated with overall response. Consequently, for our pivotal

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Phase II/ III clinical trial, we have chosen to exclude the approximately 20% of AML patients with the highest and lowest kidney function.

Summary data from our Phase I/ II clinical trial are highlighted in the table below. In this table, “Phase II/ III eligible” consists of those patients who both met our inclusion criteria for kidney function for our current pivotal Phase II/ III clinical trial and were patients whose duration of response to second-line therapy was less than six months.

			Dosed> 3 Days and
	All Patients	Dosed> 3 Days	Phase II/III Eligible
Patients	48	41	15
CR	5 (10%)	5 (12%)	2 (13%)
CRp	4  (8%)	4 (10%)	2 (13%)
Overall Response	9 (19%)	9 (22%)	4 (27%)
Severe or Life-Threatening Toxicity	10 (21%)	9 (22%)	1  (7%)

In August 2005, physicians at the M. D. Anderson Cancer Center published in Cancer an analysis of their experience with the third-line treatment of 594 adult AML patients utilizing a variety of cancer drugs and therapies. This is the largest set of historical data that has been published for this patient group. To further evaluate the results of our Phase I/II clinical trial, we compared the responses of the subset of patients that would have been eligible for inclusion in our current pivotal Phase II/III clinical trial to a subset of 422 similar patients in the M. D. Anderson database. For this subset of patients in our Phase I/II trial, we observed a CR rate of 13% and a CRp rate of 13%, with an overall response rate of 27%. By contrast, the historical comparison group had a CR rate of 4.7%. The median survival time for Troxatyl treated patients who achieved either a CR or a CRp was seven months (with several patients remaining in active remission), which is greater than the historical data of approximately 2.1 months.

Current Phase II/ III Clinical Trial. Based on the results of our Phase I/II CI clinical trial, in July 2005 we initiated a pivotal Phase II/III clinical trial of Troxatyl for the third-line treatment of AML, with targeted enrollment of 211 patients. We are conducting a single-arm, open-label clinical trial. Because there is currently no approved therapy or standard of care that can be used as a control therapy for this patient population, we will compare the results of this trial to results observed in M. D. Anderson Cancer Center’s historical data in similar patients. The enrollment criteria specify that patients must have received at least two previous regimens of induction chemotherapy to be considered third-line. In addition, they either must not have achieved a remission with two prior chemotherapy regimens, or must have relapsed after a first remission and failed to respond to a first salvage treatment or relapsed less than six months after a second CR. Following discussions with the FDA in connection with our End-of-Phase II Meeting in May 2005, we designed our pivotal Phase II/III clinical trial with CR as the primary clinical endpoint and CRp and duration of response as secondary endpoints. The clinical trial has been powered to detect a doubling of the historical CR rate of 4.7% derived from the M. D. Anderson Cancer Center database.

The Phase II/III patient population is similar to that studied in our recently completed Phase I/II CI Troxatyl clinical trial. However, in contrast to the Phase I/II CI Troxatyl clinical trial, all patients will receive what we believe to be the optimal dosing of 12 mg/m²/day for five days. Clinical response will be measured up to approximately 60 days after dosing in each patient. Our data and safety monitoring board will perform interim safety and efficacy evaluations during this trial. We expect to complete enrollment in the trial in the third quarter of 2006 and announce the results shortly thereafter.

To support the planned NDA submission and to further evaluate the relationship between kidney function and the level of Troxatyl in patients’ blood, we will carry out two parallel Phase I/II CI Troxatyl clinical trials. In one trial, we will target AML patients with high kidney function and, in the other, AML patients with poor kidney function, both patient groups that are being excluded from enrollment in our current pivotal Phase II/III trial. If the results of this pivotal Phase II/III trial are positive, we intend to submit an NDA to

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the FDA in late 2006 or early 2007. We have applied for fast track designation for Troxatyl which may qualify us for a six-month review period by the FDA.

Market Expansion Trials for AML. We are initially developing Troxatyl for the third-line treatment of AML, because we believe this indication will provide the fastest route to market. However, we also plan to develop Troxatyl for the second-line treatment of AML. In the first half of 2006, we plan to initiate a Phase I/II clinical trial of Troxatyl in combination with Ara-C to determine optimal combination dosing. Later in 2006, we plan to initiate a controlled Phase III clinical trial of Troxatyl in combination with Ara-C versus Ara-C alone in the second-line treatment of AML. Additionally, we plan to evaluate Troxatyl in combination with the cancer drugs daunorubicin or mitoxantrone for the potential first-line treatment of AML. We believe this clinical development path may lead to combination therapy with Troxatyl and currently utilized cancer drugs, which may be more effective than monotherapy for the treatment of earlier stage AML patients.

Myelodysplastic Syndromes

MDS represents a group of cancers in which bone marrow does not make enough mature, healthy blood cells. MDS occurs when blood cells remain in an immature stage within the bone marrow and never develop into mature cells capable of performing their necessary functions. MDS patients often need frequent blood transfusions to help fight fatigue and anemia. According to the Aplastic Anemia & MDS International Foundation, more than 80% of MDS cases occur in persons over 60 years old. Although the exact number of cases of MDS in the United States is unknown as there is no registry tracking this information, most estimates are between 12,000 and 20,000 new cases each year, with similar incidence and prevalence rates in Europe.

A commonly used classification system groups MDS patients into one of five risk groups, depending on the severity of disease, and has proven useful in identifying rates of survival and the likelihood of transformation to AML. MDS survival times range from four months to six years. MDS often causes death from bleeding and infection, while transformation to AML occurs in up to 35% of patients in the two lowest risk MDS patient groups. In the three highest risk MDS patient groups, which together account for approximately 70% of the MDS population, transformation to AML is common (ranging from 40% to up to 100%) with a median survival time ranging from four to 32 months. In 2004, the FDA approved Vidaza® (azacitidine), marketed by Pharmion Corporation, the first pharmaceutical treatment approved for this disease. This drug achieved a 16% overall response rate in its pivotal trial for MDS and did not provide a statistically significant improvement in survival.

IV Troxatyl has shown promising activity against MDS in various Phase I and Phase II clinical trials conducted by Shire. For example, in a trial evaluating IV Troxatyl in combination with Ara-C or idarubicin, three of eight MDS patients achieved a CR, with durations of response ranging from at least five to 14 months.

In 2006, we plan to initiate a single-arm, open-label Phase I/II clinical trial of CI Troxatyl in MDS patients who have failed Vidaza. We will conduct a dose-escalation trial in an attempt to identify a Phase II CI Troxatyl dose and dosing regimen for MDS. If results of this trial are positive, we would then conduct a larger Phase II CI Troxatyl clinical trial in high-risk patients as first-line therapy in combination with Vidaza. Specifically, following treatment with CI Troxatyl, patients would be treated with Vidaza. Such a combination cancer treatment regimen would use CI Troxatyl to clear the patient’s bone marrow of leukemic immature stage blood cells in order to achieve a CR, and Vidaza to stimulate bone marrow production of healthy blood cells to reduce blood transfusion frequency and potentially improve survival. We believe that combination treatment of MDS with CI Troxatyl and Vidaza has the potential to delay transformation of MDS to AML, increase overall survival, reduce blood transfusion frequency and improve overall quality of life for these patients.

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Solid Tumors

Based on IV Troxatyl data obtained by Shire, we are investigating Troxatyl as a potential product candidate for treatment of solid tumors. IV Troxatyl has shown promising activity against pancreatic cancer and renal cell carcinoma, the most common form of kidney cancer.

Pancreatic Cancer. According to the American Cancer Society, pancreatic cancer currently ranks as the fourth leading cause of cancer death in the United States. Survival rates for pancreatic cancer are extremely low, and the American Cancer Society estimates that there will be approximately 32,180 new cases of pancreatic cancer and 31,800 deaths in 2005. The disease is often resistant to chemotherapy and radiation therapy and tends to spread quickly to other parts of the body. According to the American Cancer Society, only 4% of all patients are alive five years after a diagnosis of pancreatic cancer. Currently, Gemzar is the standard of care for the first-line treatment for patients with advanced pancreatic cancer that cannot be removed by surgery.

IV Troxatyl has demonstrated promising activity in pancreatic cancer as a single agent. IV Troxatyl was evaluated in a Phase I clinical trial and subsequently in two Phase II open label, single-arm clinical trials in patients with advanced pancreatic cancer. In the first Phase II clinical trial, a total of 15 patients were enrolled, nine of whom were previously treated with either Gemzar or 5-fluorouracil, a widely used cancer drug. Clinical benefit response, an index including decreased pain, weight gain and performance status following chemotherapy, was the primary endpoint and two patients attained a clinical benefit response. In this Phase II clinical trial, median survival time was 22.9 months for patients who had not been previously treated with cancer drugs and 18.4 months for patients who had been previously treated. In the second Phase II clinical trial, 55 patients with generally more advanced disease were dosed with IV Troxatyl. Four-week cycles of treatment were repeated until disease progression. Time to treatment failure was the primary endpoint and overall survival was the secondary endpoint. In this Phase II clinical trial, time to treatment failure was 3.5 months and median survival time was 5.6 months. We believe these results compare favorably to Gemzar. In its pivotal Phase III clinical trial for the treatment of pancreatic cancer, Gemzar showed time to treatment failure of 2.3 months and median survival time of 5.7 months.

In preclinical studies, Troxatyl has shown synergistic activity in combination with Gemzar. A Phase I/II clinical trial showed that Troxatyl combined well with Gemzar for treatment of various solid tumors, including pancreatic cancer, with the two agents showing additive activity.

Renal Cell Carcinoma. According to the National Comprehensive Cancer Network, renal cell carcinoma comprises about 90% of kidney cancer. This cancer develops within the kidney’s microscopic filtering systems, the lining of tiny tubes that ultimately lead to the bladder. The American Cancer Society estimates that, in the United States in 2005, approximately 36,160 new cases of kidney cancer will be diagnosed, and an estimated 12,660 deaths will occur. According to the American Cancer Society, the overall five-year relative survival rate is 64%.

In previous clinical trials conducted by Shire, IV Troxatyl as a single agent demonstrated activity in renal cell carcinoma, for which the only approved treatment is interleukin-2. IV Troxatyl was studied in a Phase II open label, single-arm clinical trial in 35 patients with advanced or metastatic renal cell carcinoma. Prolonged survival was seen in both intermediate and high risk populations. In the intermediate risk group, median survival time was approximately 18 months compared with approximately ten months seen in certain historical data. In the high risk group, median survival time was approximately eight months compared with approximately four months seen in certain historical data.

Development Plan. We are conducting a Phase I/II dose ranging clinical trial of CI Troxatyl in patients with refractory solid tumors. No new or unexpected toxicities have been observed at exposure levels that now exceed those achieved in the previous IV Troxatyl administration trials. We expect to complete this trial by the end of 2005. We plan to initiate Phase I/II clinical trials of CI Troxatyl in 2006 for one or more solid tumor indications, including liver cancer. We expect to announce initial patient response data from the first of these trials in the second half of 2007 with one-year survival data being announced thereafter. In preclinical studies, Troxatyl inhibits the hepatitis B virus and has demonstrated activity against liver cancer. Because

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liver cancer is often associated with hepatitis B infection, we believe the combined anti-viral and anti-cancer properties of Troxatyl may provide additional benefits to these patients.

Research Programs

We are also building an internal oncology product pipeline and generating lead compounds for multiple partners through application of our drug discovery platform, FAST. We are focusing on targets where we believe FAST could provide a distinct advantage over conventional methods of lead discovery, and we have identified a portfolio of approximately 20 oncology targets that we believe are both well-validated and suited for lead discovery using our FAST platform. Our principal areas of focus in oncology drug discovery are on well-validated protein and enzyme targets, including BCR-ABL, MET and RON, AurA, Hsp90, K-RAS and PDK-1.

BCR-ABL Kinase Inhibitor Program

Our most advanced program based upon FAST is focused on compounds that inhibit both wild type and Gleevec-resistant mutant forms of BCR-ABL tyrosine kinase, the enzyme that is responsible for CML. Treatment of CML patients with Gleevec, a drug that generated sales of over $1.6 billion in 2004, results in complete remission in greater than 95% of patients. However, we believe approximately 3% to 4% of patients develop resistance every year, and we estimate approximately 16% of CML patients are currently Gleevec-resistant. There is no approved pharmaceutical treatment for patients who develop Gleevec-resistant CML, although some patients are eligible to undergo bone marrow or stem cell transplants, which are risky and expensive compared to treatment with a targeted therapy such as an inhibitor of BCR-ABL. The goal of our BCR-ABL program is to develop a once-daily oral therapy for the treatment of both first-line and Gleevec-resistant CML.

There are four mutations in the kinase domain of BCR-ABL that represent the most common mechanisms of resistance. We have identified several novel chemical series that are inhibitors of both the wild type and the most common mutant forms of the BCR-ABL enzyme, including the T315I mutation. Currently, both Bristol-Myers Squibb, or BMS, and Novartis are conducting Phase II clinical trials with second generation BCR-ABL inhibitors. Although each of their product candidates inhibits some Gleevec-resistant BCR-ABL mutants, neither inhibits the T315I mutant, and T315I resistance to the new BMS inhibitor has already been observed in a Phase I clinical trial.

We believe that new BCR-ABL inhibitors, such as the one we are developing, will be used both in combination with Gleevec in the first-line treatment of Gleevec-susceptible CML and as monotherapy or in combination with agents other than Gleevec in the second-line treatment of Gleevec-resistant CML. We plan to initiate toxicity studies at the end of 2005 and seek to identify a development candidate in early 2006 for formal pre-IND studies. We intend to begin clinical trials in 2006 in Gleevec-resistant CML patients with the T315I mutation.

MET and RON Solid Tumor Program

We have a joint drug discovery and development agreement with Pierre Fabre Médicament for discovery and clinical development of novel cancer drugs for solid tumors. We are applying our FAST lead discovery technology to MET and RON, two closely related proteins, known as receptor tyrosine kinases, implicated in a range of solid tumors. The primary objective of the program is to generate a single inhibitor of both targets. Under the terms of the agreement, we will jointly develop small molecule inhibitors against solid tumor targets. We will have exclusive commercialization rights in North America to drugs developed under the agreement, and Pierre Fabre will have exclusive commercialization rights in Europe. Commercialization rights in the rest of the world will be shared equally.

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FAST—Our Drug Discovery Platform

FAST is our proprietary fragment-based drug discovery platform for rapid identification of novel, potent and selective small molecule inhibitors of drug targets. Through the application of FAST, we are building an internal oncology product pipeline and discovering lead compounds for our strategic partners. FAST can be applied to a wide range of drug discovery targets by utilizing the rapid determination of protein structures to allow both the identification and rapid optimization of small molecule fragments that bind to specific targets. FAST addresses many of the limitations of traditional approaches utilized by large pharmaceutical companies to find lead compounds, making it an attractive technology for targets that have not yielded promising leads from high-throughput screening, or HTS. Unlike traditional lead discovery approaches, which require ultra HTS of large numbers of random compounds, FAST optimizes the likelihood of developing a successful drug candidate by focusing on a very small number of low molecular weight, water-soluble fragments, that once identified, can be optimized rapidly by further focused synthesis to enable the delivery of novel, potent and selective modulators of drug targets.

FAST is based upon our proprietary fragment library of approximately 1,000 structurally diverse, low molecular weight compounds. We developed FAST through the integration of a series of technology capabilities, including:

•  a high-throughput capability to generate many different crystals of a target protein in parallel;

•  the evaluation of our library of fragments and direct visualization of bound fragments utilizing X-ray crystallography; and

•  the use of novel computational design methods and iterative synthetic chemistry to optimize these fragments into drug-like lead compounds.

We have combined these technologies to generate an efficient platform for drug discovery that delivers lead compounds active against a wide range of targets, while accessing high chemical diversity and the potential for good drug-like properties.

We have invested significant resources in the development of technology to produce large numbers of protein variants and to evaluate their ability to produce high quality protein crystals. We have developed customized, robotic technologies for setup, storage, retrieval and imaging of protein crystallization experiments. Our current instrumentation supports in excess of 40,000 crystallization experiments per day. We generate protein structures through our beamline facility, housed at the Advanced Photon Source at the Argonne National Laboratory, a national synchrotron-radiation facility funded by the U.S. Department of Energy, Office of Science, and Office of Basic Energy Sciences, located in Argonne, Illinois. This facility produces an extremely intense, highly focused X-ray beam to generate high-resolution data from approximately 50 crystals per day. We believe we are the only drug discovery company with continuous access to such a high powered X-ray source.

Our FAST drug discovery platform provides us with the capacity to pursue many different targets to the early lead stage and beyond. Internally, we have identified a portfolio of approximately 20 oncology targets that we believe are both well-validated and suited for lead discovery using our FAST platform. We believe that FAST could provide a distinct advantage over conventional methods of lead discovery for these and other targets. Our most advanced programs based upon FAST are focused on compounds that inhibit BCR-ABL and MET and RON. We are applying FAST to generate novel and potent lead compounds for well-validated protein and enzyme targets, including AurA, Hsp90, K-RAS and PDK-1. Our goal in each of these programs is to develop small molecule drugs with improved efficacy and reduced side effect profiles compared to current therapies or development compounds. We believe that FAST is capable of producing at least one IND candidate per year, starting in 2006.

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Collaborations, Commercial Agreements and Grants

We currently have ten active revenue-generating collaborations, commercial agreements and grants based upon FAST and related technologies with pharmaceutical and biotechnology companies, as well as government and other agencies. We generated aggregate revenues from collaborations, commercial agreements and grants of approximately $55.2 million in 2003, 2004 and the first six months of 2005. We are using FAST to identify lead compounds for our strategic partners in their therapeutic areas of interest. Our internal drug discovery activities are focused on oncology targets. Our active agreements are summarized in the tables below:

Collaborations and Grants:

Partner	Scope	Start Date	Terms
Cystic Fibrosis Foundation Therapeutics, Inc.	Drug discovery	July 2005	Upfront payment; technology access fees; research funding; milestones; royalties
Eli Lilly & Company	Structural data on Eli Lilly targets and compounds	April 2003	Upfront payment; research funding; technology access fees
F. Hoffmann-La Roche Ltd.	Lead compounds for Roche targets	Oct. 2004	Upfront payment; research funding; research milestones; royalties on sales
National Institutes of Health	Protein Structure Initiative	July 2005	Research funding
OSI Pharmaceuticals, Inc.	Structural data on OSI targets and compounds	Aug. 2003	Upfront payment; research funding; research milestones
Serono International S.A.	Lead compounds for Serono targets	Mar. 2004	Upfront payment; milestones; royalties on sales

Commercial Agreements:

Partner	Scope	Start Date	Terms
Amgen, Inc.	Structural data on Amgen targets and compounds	Feb. 2005	Annual payments
Eli Lilly & Company	Structural data on Eli Lilly targets and compounds	Dec. 2003	Upfront payment; funding
Exelixis Inc.	Structural data on Exelixis targets and compounds	Aug. 2005	Upfront payment; funding
Millennium Pharmaceuticals, Inc.	Structural data on Millennium targets and compounds	Oct. 2004	Upfront payment; funding

Cystic Fibrosis Foundation Therapeutics, Inc.

In July 2005, we entered into a drug discovery collaboration agreement with Cystic Fibrosis Foundation Therapeutics, Inc., or CFFT, the drug discovery and development arm of the Cystic Fibrosis Foundation. Under the collaboration, we will employ our proprietary FAST lead generation technology with the objective

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of generating novel small molecule therapies that function as “correctors” of the F508 deletion mutation found in the cystic fibrosis transmembrane conductance regulator, or CFTR. The F508 deletion mutation is the most commonly observed mutation in patients with cystic fibrosis. Individuals with the mutation fail to transport the CFTR protein to the cell surface, resulting in impaired function of the lung epithelium. Correctors of the mutant protein are expected to increase the amount of the mutant protein that is transported to the cell surface, resulting in more rapid clearing of lung infections and improved lung function. Over the term of the collaboration, CFFT may provide to us over $15.0 million in an upfront payment and in technology access, research payments and research milestones. CFFT will be responsible for product development and we will be eligible for clinical development milestones and royalties on product sales. The research term of this collaboration agreement continues until July 2008. Our drug discovery agreement with CFFT may be terminated earlier by either party in the event of a material breach by the other party, subject to prior notice and the opportunity to cure. In addition, CFFT has the right to terminate the drug discovery agreement without cause upon certain specified circumstances, at which time it must make a termination payment to us. Furthermore, CFFT may terminate the drug discovery agreement without cost at any time within 60 days following our failure to successfully complete a key milestone. In July 2005, CFFT paid us $1.0 million pursuant to this agreement.

Eli Lilly & Company

In April 2003, we entered into a research collaboration and technology agreement with Eli Lilly, which was extended in April 2005. Within the research collaboration, we apply our target-to-structure technology to key Eli Lilly drug targets to determine their three-dimensional structures. Our researchers subsequently generate data on Eli Lilly compounds that bind to the drug targets, providing input for their lead generation and optimization efforts. In parallel with the first two years of the research collaboration, we conducted a comprehensive program of technology transfer involving installation of components of our technology in a high-throughput structural biology facility for Eli Lilly, which includes modular automation systems and process technology we developed for protein engineering, crystallization and structure determination. As of June 30, 2005, we had received a total of approximately $18.6 million under the collaboration agreement in the form of research fees, technology access fees and technology installation fees. From April 2005 forward, we are entitled to receive research funding of up to approximately $4.5 million per year, approximately $1.1 million of which has been received as of June 30, 2005.

The research term of this collaboration agreement continues until April 2008. The general terms of this collaboration agreement continue until the later of the expiration of the last to expire of the patent rights covering technology developed under the agreement or April 2018, unless the agreement is earlier terminated. Either party may terminate the collaboration agreement in the event of material breach by the other party, subject to prior notice and the opportunity to cure. In addition, Eli Lilly may terminate the agreement if a certain of our key employees leaves our employment and significantly curtails participation in the collaboration, or in the event we are acquired by one of the top 25 pharmaceutical companies ranked by worldwide sales.

In December 2003, we also expanded our research collaboration and technology agreement with Eli Lilly to provide Eli Lilly with long-term access to our beamline facility at the Advanced Photon Source in Argonne, Illinois, to support Eli Lilly drug discovery programs. Expansion of our collaboration with Eli Lilly to include a strategic beamline access arrangement was the result of the significant progress we made under the research and technology transfer collaboration. Under the terms of our beamline services agreement with Eli Lilly, we generate crystal structure data on Eli Lilly drug targets and compounds in exchange for upfront access fees and maintenance fees paid by Eli Lilly. Upon execution of the agreement, we received a $2.0 million upfront access fee payment and will receive payments for annual operating costs in future years. Eli Lilly also has the option to extend the term of its access to our beamline facility in the future for additional payments. The term of this beamline agreement continues until January 2012, unless Eli Lilly exercises its option to extend the term of its access to our beamline facility or the agreement is earlier terminated. Either party may terminate the agreement in the event of a material breach by the other party, subject to prior notice and the opportunity to cure. In addition, Eli Lilly may terminate the agreement at any time, subject to prior notice.

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F. Hoffmann-La Roche Ltd.

In August 2004, we entered into a collaboration agreement with F. Hoffmann-La Roche Ltd., or Roche, for the discovery and development of anti-viral therapeutics. Under the terms of the agreement, we will seek to discover novel small molecule inhibitors against a viral drug target using our proprietary FAST drug discovery platform. Roche will be responsible for worldwide development and commercialization of product candidates arising from the collaboration. Roche paid us an upfront fee and research funding and will be further obligated to pay us additional research funding, milestone payments upon the occurrence of specified preclinical and clinical development milestones and royalties on sales of products licensed to Roche under the agreement.

The research term of this collaboration agreement continues until October 2005. Roche may choose to extend the term for an additional six months at its sole discretion. On a country-by-country basis, the general terms of this collaboration agreement continue until the later of the expiration of the last to expire of the patent rights covering a collaboration product in the applicable country or ten years from the first commercial sale of a collaboration product in the applicable country, unless the agreement is earlier terminated. Either party may terminate the collaboration agreement in the event of material breach by the other party, subject to prior notice and the opportunity to cure. In addition, subject to certain provisions, Roche may terminate the agreement upon the expiration of the collaboration term by giving us 90 days’ prior written notice.

NIH Cooperative Agreement Award

In July 2005, we received a $48.5 million National Institutes of Health Cooperative Agreement Award from the National Institute of General Medical Sciences, or NIGMS. The award is part of the NIH Protein Structure Initiative, which aims to facilitate discovery of three dimensional structures of proteins to help reveal their role in disease and aid in the design of new medicines. The award provides five years of funding for a consortium administered by us. We anticipate retaining approximately 50% of the funding under the award, with the remainder being distributed to academic collaborators.

OSI Pharmaceuticals, Inc.

In August 2003, we entered into a research collaboration agreement with OSI to determine the three-dimensional structure of multiple OSI drug targets using our large-scale protein structure determination technologies and seek to generate co-crystal data to determine how OSI drug leads bind to their targets. The research collaboration was extended in February 2005. Terms of the collaboration agreement include upfront payments, research funding and success payments upon achievement of research milestones. As of June 30, 2005, we had received aggregate payments of approximately $1.9 million, consisting of upfront payments, research milestone payments and research funding.

The research term of this collaboration agreement continues until February 2006. The general terms of this collaboration agreement continue until the later of the expiration of the last to expire of the patent rights covering technology developed under the agreement or August 2008, unless the agreement is earlier terminated. Either party may terminate the collaboration agreement in the event of a material breach by the other party, subject to prior notice and the opportunity to cure.

Serono International S.A.

In March 2004, we entered into a research collaboration agreement with Serono International S.A., or Serono, for the discovery and development of novel small molecule therapeutics. Under the terms of the agreement, we apply our proprietary FAST technology to generate novel lead compounds for selected targets provided by Serono. Serono will be responsible for development and commercialization of drug candidates arising from the collaboration. The agreement includes an upfront payment and success-based research payments together with clinical development milestones and royalties. We may also receive milestone payments upon the achievement of certain research objectives and clinical development milestones and royalties on net sales generated by any products derived from the collaboration.

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The research term of this collaboration agreement continues until March 2006. On a country-by-country basis, the general terms of this collaboration agreement continue until the later of the expiration in the applicable country of the last to expire of the patent rights covering technology developed under the agreement or ten years after the first commercial sale in the applicable country of a product that incorporates or is derived from certain compounds identified in the collaboration, unless the agreement is earlier terminated. Either party may terminate the collaboration agreement in the event of a material breach by the other party, subject to prior notice and the opportunity to cure.

Beamline Services

In addition to our beamline services arrangement with Eli Lilly, we also have similar agreements with Amgen, Inc., Exelixis Inc. and Millennium Pharmaceuticals, Inc. Typically, under the terms of our beamline services agreements, we generate crystal structure data on partner drug targets and compounds. The terms of the agreement generally include upfront access fees and annual operating costs. In addition, each partner retains the option to further expand its access to our beamline facility in the future for additional payments.

The terms of the Amgen, Exelixis and Millennium beamline agreements continue until February 2010, August 2007 and March 2010, respectively, unless the agreements are earlier terminated. Amgen, Exelixis and Millennium may terminate their respective agreements at any time, subject to prior notice. In addition, all of these beamline agreements provide that either party to the agreement may terminate the agreement in the event of a material breach by the other party, subject to prior notice and the opportunity to cure.

Shire

In July 2004, we licensed exclusive worldwide rights to Troxatyl from Shire, including an exclusive sublicense under rights Shire has to certain patents and patent applications in the field of the treatment of cancer from Yale University and the University of Georgia Research Foundation. Under the terms of the agreement, we made an upfront payment of $3.0 million and a payment of $1.0 million on the one-year anniversary of the agreement. We are also required to make milestone payments based on successful development and approval of Troxatyl, and will be required to make royalty payments based on net sales. We recorded a one-time charge of $4.0 million for purchased in-process research and development related to the upfront and one-year anniversary payments in 2004.

On a country-by-country basis, the term of this license agreement continues until the later of the expiration in the applicable country of the last to expire of the patents licensed to us under the agreement or ten years from the date of first commercial sale in the applicable country, unless the agreement is earlier terminated. Either party may terminate the license agreement in the event of a material breach by the other party, subject to prior notice and the opportunity to cure. In addition, subject to certain provisions, Shire may terminate the license agreement if we fail to make any payments due under the agreement, cease to carry on our business relating to oncology products, do not take certain actions relating to the drug approval process for Troxatyl by certain dates, or, subject to certain exceptions, if we are acquired by a party that owns or licenses a product that competes with Troxatyl.

Our Strategy

Our goal is to create a leading biotechnology company that discovers, develops and commercializes novel cancer drugs. Key elements of our strategy are to:

•  Obtain regulatory approval of Troxatyl for AML. We are currently focusing much of our resources on Troxatyl. Because there is no approved therapy and no standard of care for the third-line treatment of AML, we are initially targeting FDA approval of Troxatyl for this indication through an accelerated approval process and fast track designation. We believe that Troxatyl could be approved in 2007 on the basis of a pivotal Phase II/III clinical trial that we initiated in July 2005, with targeted enrollment of

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	211 patients. By early 2006, we also intend to begin clinical trials evaluating Troxatyl for use in combination therapy and in the first- and second-line treatment of AML.
•	Develop Troxatyl for other cancer indications. We have considerable clinical data which shows that Troxatyl is active against numerous cancer indications. We will continue to explore potential opportunities to further expand the market for Troxatyl in MDS and in solid tumors.
•	Develop and expand our cancer pipeline. We consider drug development for the cancer markets attractive because relatively small clinical trials of short duration can provide meaningful data on patient outcomes. We have initially targeted blood cancer indications because we believe they typically involve clear, objective response measurements that can be made within 30 to 60 days of treatment. We will seek to further enhance our pipeline by advancing our BCR-ABL and MET and RON programs into the clinic, and by applying FAST to high-value cancer targets with the objective of discovering a series of additional clinical candidates.
•	Continue to generate revenue through strategic partnering. Revenue generation utilizing our FAST drug discovery platform and related technologies will continue to be important to us in the near term by providing funds for reinvestment in internal drug discovery and development. Our business development activities will involve both strategic partnering in the oncology area and revenue generation through high-value partnerships focused on FAST and other elements of our technology platform. We will remain open to opportunities to apply FAST to partner targets outside the oncology area, particularly where there are attractive financial or strategic opportunities.
•	Develop sales and marketing capabilities. There are approximately 3,000 hematologist/oncologists and approximately 5,000 oncologists practicing in the United States. Of these physicians, a small number of opinion leaders significantly influence the types of drugs prescribed by this group. We believe that we can effectively reach hematology and oncology markets in the United States with a relatively small sales organization focused on these and other targeted opinion leaders and physicians. We will seek marketing partners for indications and in territories, such as outside North America, which may require more extensive sales and marketing capabilities. We believe our drug discovery programs will provide us with product candidates in oncology which will serve as the basis for future sales and marketing.
•	Expand our portfolio of product candidates through acquisitions and in-licensing. We may further augment our internal discovery efforts through strategic acquisitions and by in-licensing novel therapeutics. We believe this approach combined with internal drug discovery and development will enable us to accelerate the expansion of our portfolio of product candidates.

Manufacturing and Supply

All of our manufacturing is outsourced to third parties with oversight by our internal managers. We rely on third party manufacturers to produce sufficient quantities of Troxatyl for use in clinical trials. We intend to continue this practice for any future clinical trials and large-scale commercialization of Troxatyl and for any other potential products for which we retain significant development and commercialization rights. All of our current product candidates are small molecule drugs. Historically these drugs have been simpler and less expensive to manufacture than biologic drugs.

Specifically, for Troxatyl, we currently rely on Raylo Chemicals Inc. to supply clinical trial quantities of troxacitabine, the active pharmaceutical ingredient. The final pharmaceutical presentation of Troxatyl in the form of vials is manufactured by Ben Venue Laboratories, Inc., with whom we have an agreement covering immediate clinical trial needs. For both troxacitabine and the final pharmaceutical presentation of Troxatyl, we are discussing longer term supply agreements to address future clinical trial and large-scale commercialization needs. We believe there are also alternate sources of supply that can satisfy our clinical trial requirements without significant delay or material additional costs.

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Intellectual Property

Troxatyl

Overview. We have an exclusive license to 16 issued U.S. patents, 254 issued foreign patents, 31 pending U.S. applications and 92 pending foreign applications, covering composition of matter, method of use and treatment, formulation and process. Composition of matter patents claim a generic class of dioxolanes, including Troxatyl, and have been granted in the United States, Europe and other major territories. Method of treatment patents claiming methods of treatment for cancer have been issued in the United States and Europe, are pending in Japan and have been filed in over 50 countries. Synthesis process patents have also been issued in the United States and Europe, and have been filed in more than 40 countries. Certain patent terms may be extended up to five additional years as a result of patent term extension to compensate for time taken in review by regulatory agencies. In addition, patents and patent applications for specific applications of Troxatyl have the potential to provide for patent protection with later patent-term expiration dates.

Troxatyl Patent Portfolio. Various patent applications and patents are directed to Troxatyl and its methods of manufacturing and use, along with Troxatyl formulations, intermediates, and modes of administration. For example, one U.S. patent claims a generic class of dioxolanes, that includes Troxatyl, and another U.S. patent claims Troxatyl itself as a composition of matter. These U.S. patents are due to expire in 2008 and there are corresponding applications pending in various other countries, including a granted European and Japanese patent.

Additional U.S. patents encompass methods of treating cancer using Troxatyl, and methods of treating CML or AML with Troxatyl in patients previously treated with Ara-C, which patents are due to expire in 2015 and 2020 respectively.

We cannot be certain that our patents will be found valid and enforceable, or that third parties will be found to infringe any of our issued patent claims. There can be no assurance that any of our patent applications will issue in any jurisdiction. Moreover, we cannot predict the breadth of claims that may be allowed or the actual enforceable scope of our patents. In the United States, we may lose our patent rights if we were not the first to invent the subject matter covered by each of our issued patents or pending patent applications.

Data Exclusivity. The use of Troxatyl in the treatment of AML has been granted orphan drug status in the United States and similar protection is being sought in Europe. Such protection typically affords seven years of market exclusivity in the United States and ten years in Europe.

Other Intellectual Property

We intend to protect our novel lead compounds, lead scaffolds, drug discovery programs and proprietary technologies by filing appropriate patent applications. We have approximately 40 pending patent applications covering compositions of matter, novel lead scaffolds, drug discovery methods and assays, protein structures and elements of our high-throughput structure determination platform. We intend to continue to file patent applications on novel lead series and novel drug discovery methods, including FAST and novel assays to support our drug discovery platform. We also intend to file applications relating to novel proprietary protein structure determination technologies. We currently have two issued U.S. patents directed to aspects of our high-throughput structure determination platform.

Although we have taken steps to protect our trade secrets and unpatented know-how, including entering into confidentiality agreements with third parties, and confidential information and inventions agreements with employees, consultants and advisors, third parties may still obtain this information or we may be unable to protect our rights. Enforcing a claim that a third party illegally obtained and is using our trade secrets or unpatented know-how is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secret information. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how, and we would not be able to prevent their use.

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      Patent Term Extension/Restoration

Once a product is approved, patent term extension/restoration may be available in major territories, including the United States, Europe and Japan, to compensate for time taken in review by regulatory agencies. Typically only one patent per product can be extended and we are considering our strategy for patent term extension/restoration in each territory to identify the optimal combination of breadth of coverage and length of term.

Third Party Intellectual Property

Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we and our collaborators are developing products. Because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issued patents that our product candidates or proprietary technologies may infringe.

We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our product candidates and/or proprietary technologies infringe their intellectual property rights. If one of these patents was found to cover our product candidates, proprietary technologies or their uses, we or our collaborators could be required to pay damages and could be restricted from commercializing our product candidates or using our proprietary technologies unless we or they obtain a license to the patent. A license may not be available to us or our collaborators on acceptable terms, if at all. In addition, during litigation, the patent holder could obtain a preliminary injunction or other equitable right, which could prohibit us from making, using or selling our products, technologies or methods.

There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries generally. If a third party claims that we or our collaborators infringe its intellectual property rights, we may face a number of issues, including but not limited to:

•  infringement and other intellectual property claims which, with or without merit, may be expensive and time-consuming to litigate and may divert our management’s attention from our core business;

•  substantial damages for infringement, including treble damages and attorneys’ fees, which we may have to pay if a court decides that the product or proprietary technology at issue infringes on or violates the third party’s rights;

•  a court prohibiting us from selling or licensing the product or using the proprietary technology unless the third party licenses its technology to us, which it is not required to do;

•  if a license is available from the third party, we may have to pay substantial royalties, fees and/or grant cross licenses to our technology; and

•  redesigning our products or processes so they do not infringe, which may not be possible or may require substantial funds and time.

We have not conducted an extensive search of patents issued to third parties, and no assurance can be given that such patents do not exist, have not been filed, or could not be filed or issued, which contain claims covering our products, technology or methods. Because of the number of patents issued and patent applications filed in our technical areas or fields, we believe there is a significant risk that third parties may allege they have patent rights encompassing our products, technology or methods.

Sales and Marketing

We currently have no marketing, sales or distribution capabilities. In order to commercialize any of our drug candidates, we must develop these capabilities internally or through collaborations with third parties. For Troxatyl and certain of our other product development programs, we intend to maintain all commercial rights in the United States and to build our own sales force to market these products. As there are only approximately 3,000 hematologist/oncologists and approximately 5,000 oncologists practicing in the United States, and a small number of opinion leaders significantly influence the types of drugs prescribed by this group, we believe that we can effectively reach hematology and oncology markets in the United States with a

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relatively small sales organization focused on these opinion leaders and other targeted physicians. For other programs, we have entered into, or intend to pursue, strategic collaborations to commercialize our product candidates.

Competition

We operate in highly competitive segments of the biotechnology and biopharmaceutical markets. We face competition from many different sources, including commercial pharmaceutical and biotechnology enterprises, academic institutions, government agencies, and private and public research institutions. There is also intense competition for fragment-based lead discovery collaborations. Many of our competitors have significantly greater financial, product development, manufacturing and marketing resources than us. Large pharmaceutical companies have extensive experience in clinical testing and obtaining regulatory approval for drugs. These companies also have significantly greater research capabilities than us. In addition, many universities and private and public research institutes are active in cancer research, some in direct competition with us. We also compete with these organizations to recruit scientists and clinical development personnel. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

Each cancer indication for which we are developing products, other than Troxatyl for the third-line treatment of AML, has a number of established therapies with which our candidates will compete. Most major pharmaceutical companies and many biotechnology companies are aggressively pursuing new cancer development programs, including both therapies with traditional, as well as novel, mechanisms of action.

We are aware of competitive products and technologies in each of the markets we target. The competitive products include approved and marketed products as well as products in development. We expect Troxatyl, if approved for the treatment of AML, to compete with: cytarabine, a generic compound often known as Ara-C, which is also used in combination with the anthracyline agents daunorubicin, idarubicin, and mitoxantrone; Mylotarg marketed by Wyeth; and Clolar^tm (clofarabine), marketed by Genzyme Corporation in the United States and under regulatory review in the E.U. In addition, we are aware of a number of other potential competing products, including: cloretazine (VNP40101M), which is being developed by Vion Pharmaceuticals, Inc. and is currently in a Phase III clinical trial in AML patients; Zarnestra® (tipifarnib), under development by Johnson & Johnson Pharmaceutical Research and Development, LLC; Vidaza® (azacitidine), marketed by Pharmion Corporation; and Dacogen^tm (decitabine), under development by MGI Pharma, Inc. and SuperGen, Inc. Numerous other potential competing products are in clinical treatment and preclinical development.

In each of our development programs addressing indications for which there are therapies available, we intend to complete clinical trials designed to evaluate the potential advantages of our drug candidates as compared to or in conjunction with the current standard of care. Key differentiating elements affecting the success of all of our drug candidates are likely to be their efficacy, safety and side-effect profile compared to commonly used therapies.

Significant competitors in the area of fragment-based drug discovery include Astex Therapeutics Limited, Plexxikon Inc., Evotec AG and Sunesis Pharmaceuticals, Inc. In addition, many large pharmaceutical companies are exploring the internal development of fragment-based drug discovery methods.

Government Regulation and Product Approvals

The clinical development, manufacturing and potential marketing of our products are subject to regulation by various authorities in the United States, the E.U., and other countries, including, in the United States, the FDA, and, in the E.U., the EMEA. The Federal Food, Drug, and Cosmetic Act, or FDC Act, and the Public Health Service Act in the United States, and numerous directives, regulations, local laws, and guidelines in the E.U. govern testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising

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and promotion of our products. Product development and approval within these regulatory frameworks takes a number of years, and involves the expenditure of substantial resources.

Regulatory approval will be required in all major markets in which we, or our licensors, seek to test our products in development. At a minimum, such approval requires evaluation of data relating to quality, safety and efficacy of a product for its proposed use. The specific types of data required and the regulations relating to these data differ depending on the territory, the drug involved, the proposed indication and the stage of development.

In general, new chemical entities are tested in animals to determine whether the product is reasonably safe for initial human testing. Clinical trials for new products are typically conducted in three sequential phases that may overlap. Phase I trials typically involve the initial introduction of the pharmaceutical into healthy human volunteers and the emphasis is on testing for safety, dosage tolerance, metabolism, distribution, excretion and clinical pharmacology. In the case of serious or life-threatening diseases, such as AIDS and refractory cancer, initial Phase I trials are often conducted in patients directly, with preliminary exploration of potential efficacy. Phase II trials involve clinical trials to evaluate the effectiveness of the drug for a particular indication or indications in patients with the disease or condition under study and to determine the common short-term side effects and risks associated with the drug. Phase II trials are typically closely monitored and conducted in a relatively small number of patients, usually involving no more than several hundred subjects. Phase III trials are generally expanded, well-controlled clinical trials. They are performed after preliminary evidence suggesting effectiveness of the drug has been obtained, and are intended to gather the additional information about effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of the drug and to provide an adequate basis for physician labeling.

In the United States, specific preclinical data, chemical data and a proposed clinical study protocol, as described above, must be submitted to the FDA as part of an Investigational New Drug application, or IND, which, unless the FDA objects, will become effective 30 days following receipt by the FDA. Phase I trials may commence only after the IND application becomes effective. Prior regulatory approval for human healthy volunteer studies is also required in member states of the E.U. Currently, in each member state of the E.U., following successful completion of Phase I trials, data are submitted in summarized format to the applicable regulatory authority in the member state in respect of applications for the conduct of later Phase II trials. The regulatory authorities in the E.U. typically have between one and three months in which to raise any objections to the proposed clinical trial, and they often have the right to extend this review period at their discretion. In the United States, following completion of Phase I trials, further submissions to regulatory authorities are necessary in relation to Phase II and III trials to update the existing IND. Authorities may require additional data, before allowing the trials to commence and could demand discontinuation of studies at any time if there are significant safety issues. In addition to regulatory review, a clinical trial involving human subjects has to be approved by an independent body. The exact composition and responsibilities of this body differ from country to country. In the United States, for example, each clinical trial is conducted under the auspices of an Institutional Review Board at the institution at which the clinical trial is conducted. This board considers among other things, the design of the clinical trial, ethical factors, the safety of the human subjects and the possible liability risk for the institution. Equivalent rules apply in each member state of the E.U., where one or more independent ethics committees that typically operate similarly to an Institutional Review Board, will review the ethics of conducting the proposed research. Other authorities elsewhere in the world have slightly differing requirements involving both execution of clinical trials and import or export of pharmaceutical products. It is our responsibility to ensure that we conduct our business in accordance with the regulations of each relevant territory.

Information generated in this process is susceptible to varying interpretations that could delay, limit, or prevent regulatory approval at any stage of the approval process. Failure to demonstrate adequately the quality, safety and efficacy of a therapeutic drug under development would delay or prevent regulatory approval of the product. There can be no assurance that if clinical trials are completed, either we or our collaborative partners will submit applications for required authorizations to manufacture or market potential

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products, including a marketing authorization application or an NDA, or that any such application will be reviewed and approved by appropriate regulatory authorities in a timely manner, if at all.

In order to gain marketing approval, we must submit a dossier to the relevant authority for review, which is known in the United States as an NDA and in the E.U. as a marketing authorization application, or MAA. The format is usually specified by each authority, although in general it will include information on the quality of the chemistry, manufacturing and pharmaceutical aspects of the product and non-clinical and clinical data. The FDA undertakes such reviews for the United States. In the E.U., there is, for many products, a choice of two different authorization routes: centralized and decentralized. Under the centralized route, one marketing authorization is granted for the entire E.U., while under the decentralized route a series of national marketing authorizations are granted. In the centralized system, applications are reviewed by members of the Committee for Medicinal Products for Human Use, or the CHMP, on behalf of the EMEA. The EMEA will, based upon the review of the CHMP, provide an opinion to the European Commission on the safety, quality and efficacy of the product. The decision to grant or refuse an authorization is made by the European Commission. In circumstances where use of the centralized route is not mandatory, we can choose to use the decentralized route, in which case the application will be reviewed by each member state’s regulatory agency. If the regulatory agency grants the authorization, other member states’ regulatory authorities are asked to “mutually recognize” the authorization granted by the first member state’s regulatory agency. Approval can take several months to several years or be denied. The approval process can be affected by a number of factors. Additional studies or clinical trials may be requested during the review and may delay marketing approval and involve unbudgeted costs. Regulatory authorities may conduct inspections of relevant facilities and review manufacturing procedures, operating systems and personnel qualifications. In addition to obtaining approval for each product, in many cases each drug manufacturing facility must be approved. Further, inspections may occur over the life of the product. An inspection of the clinical investigation sites by a competent authority may be required as part of the regulatory approval procedure. As a condition of marketing approval, the regulatory agency may require post-marketing surveillance to monitor adverse effects, or other additional studies as deemed appropriate. After approval for the initial indication, further clinical studies are usually necessary to gain approval for additional indications. The terms of any approval, including labeling content, may be more restrictive than expected and could affect product marketability.

The FDA has implemented fast track programs to facilitate the development and expedite the review of drugs intended to treat serious and life-threatening conditions so that an approved product can reach the market expeditiously. The FDA’s fast track programs, as enacted by the 1997 FDAMA, further expanded the FDA’s existing programs to facilitate development of products for serious and life threatening diseases, from 21 C.F.R. Part 312 Sub-part E, 21 C.F.R. 314 Sub-part H and priority review. We have applied for formal fast track designation of Troxatyl for the third-line treatment of AML patients and we may qualify for a six-month review period by the FDA. We anticipate that if full standard approval is granted under 21 C.F.R. Part 314 for this indication, that a post-approval commitment to complete the Phase II/III clinical trial with regard to overall survival, a secondary endpoint, would be required. The FDA may also require additional studies be conducted to further determine the safety and efficacy of Troxatyl in earlier stages of the disease or other leukemias.

The FDA offers an accelerated approval procedure for certain drugs under Subpart H of the agency’s NDA approval regulations and the fast track provisions of the FDC Act. Subpart H provides for accelerated NDA approval for new drugs intended to treat serious or life-threatening diseases, where the drugs provide a meaningful therapeutic advantage over existing treatment or show the potential to address unmet medical needs. Under this accelerated approval procedure, the FDA may approve a drug based on evidence from adequate and well-controlled studies of the drug’s effect on a surrogate endpoint that reasonably suggests clinical benefit, or on evidence of the drug’s effect on a clinical endpoint other than survival or irreversible morbidity. This approval is conditioned on favorable completion of trials to establish and define the degree of patient clinical benefits. These post-approval clinical trials, known as Phase IV trials, would usually be underway when a product obtains accelerated approval. If after approval, a Phase IV trial establishes that the drug does not perform as expected, or if post-approval restrictions are not adhered to or are not adequate to

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ensure safe use of the drug, or other evidence demonstrates that the product is not safe or effective under its conditions of use, the FDA may withdraw approval in an expedited manner. This accelerated approval procedure for expediting the clinical evaluation and approval of certain drugs may shorten the drug development process by as much as two to three years. The E.U. rules relating to marketing authorizations permit, in “exceptional circumstances,” the regulatory authorities to grant a marketing authorization where the applicant is not able to provide the usual comprehensive set of data relating to safety and efficacy because the targeted disease state is rarely encountered or because there is a lack of scientific knowledge about the disease, or because it would be unethical to collect such data. Marketing authorizations granted on an exceptional circumstances basis are normally subject to the holder fulfilling certain obligations, such as completion by the applicant of particular clinical studies. Depending on the results of our ongoing pivotal Phase II/III clinical trial of Troxatyl, we may seek to file an NDA for Troxatyl on the basis of this single study and may seek to obtain FDA review under the accelerated approval regulations.

In many markets outside of the United States, regulations exist that permit patients to gain access to unlicensed pharmaceuticals, particularly for severely ill patients where other treatment options are limited or non-existent. Generally, the supply of pharmaceuticals under these circumstances is termed “compassionate use” or “named patient” supply. In the E.U., each member state has developed its own system under an E.U. directive that permits exemptions from traditional pharmaceutical regulation of “medicinal products supplied in response to a bona fide unsolicited order, formulated in accordance with specifications of an authorized health care professional, and for use by his individual patients on his direct personal responsibility.” Essentially, two systems operate among E.U. member states: approval can be given for “cohort” supply, meaning more than one patient can be supplied in accordance with an agreed treatment protocol; or, alternatively, as is the case in the majority of E.U. member states, supply is provided on an individual patient basis. Some countries, such as France, have developed other systems, where a Temporary Authorization of Use, or ATU, involves a thorough review and approval by the regulator of a regulatory data package. In France, the company then receives an approval to supply. All E.U. member states require assurance of the quality of the product, which is usually achieved by provision of current good manufacturing practice, or cGMP, certification. In the majority of markets, the prescribing physician is responsible for use for the product and in some countries the physician in conjunction with the pharmacist must request regulator approval to use the unlicensed pharmaceutical. Outside of the E.U., many countries have developed named patient systems, similar to those prevalent in Europe. The United States and the E.U. may grant orphan drug designation to drugs intended to treat a “rare disease or condition,” which, in the United States, is generally a disease or condition that affects fewer than 200,000 individuals nationwide. In the E.U., orphan drug designation can be granted if:

•  the disease affects no more than 50 in 100,000 persons in the E.U. or the drug is intended for a life-threatening, seriously debilitating, or serious and chronic condition;

•  without incentive it is unlikely that the drug would generate sufficient return to justify the necessary investment; and

•  no satisfactory method of treatment for the condition exists or, if it does, the new drug will provide a significant benefit to those affected by the condition.

If a product that has an orphan drug designation subsequently receives the first regulatory approval for the indication for which it has such designation, the product is entitled to orphan exclusivity, meaning that the applicable regulatory authority may not approve any other applications to market the same drug for the same indication, except in certain very limited circumstances, for a period of seven years in the United States, and ten years in the E.U. orphan drug designation does not prevent competitors from developing or marketing different drugs for an orphan indication or the same drug for a different indication. Orphan drug designation must be requested before submitting an NDA or MAA. After orphan drug designation is granted, the identity of the therapeutic agent and its designated orphan indication are publicly disclosed. Orphan drug designation does not convey an advantage in, or shorten the duration of, the review and approval process. The use of Troxatyl in the treatment of AML has been granted orphan drug status in the United States and similar protection is being sought in Europe.

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Holders of an approved NDA are required to report certain adverse reactions and production problems, if any, to the FDA, and to comply with certain requirements concerning advertising and promotional labeling for their products. Moreover, quality control and manufacturing procedures must continue to conform to cGMP after approval, and the FDA periodically inspects manufacturing facilities to assess cGMP compliance. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance. We continue to rely upon third party manufacturers to produce our products. We cannot be sure that those manufacturers will remain in compliance with applicable regulations, or that future FDA inspections will not identify compliance issues at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct.

For both currently marketed and future products, failure to comply with applicable regulatory requirements after obtaining regulatory approval can, among other things, result in suspension of regulatory approval, and possible civil and criminal sanctions. Renewals in Europe may require additional data, which may result in a license being withdrawn. In the United States and the E.U., regulators have the authority to revoke, suspend or withdraw approvals of previously approved products, to prevent companies and individuals from participating in the drug-approval process, to request recalls, to seize violative products, to obtain injunctions to close manufacturing plants not operating in conformity with regulatory requirements and to stop shipments of violative products. In addition, changes in regulation could harm our financial condition and results of operation.

Legal Proceedings

We are not currently involved in any material legal proceedings. We may be subject to various claims and legal actions arising in the ordinary course of business from time to time.

Facilities

We lease approximately 60,568 square feet of laboratory and office space in San Diego, California under two lease agreements that terminate this year and a third lease agreement that terminates in September 2008. We are in the process of negotiating an extension of the two leases to our San Diego facilities that terminate this year to June 30, 2007. We also sublease approximately 10,000 square feet of laboratory and office space in San Diego, California under a sublease that terminates in September 2006. We believe that our facilities will adequately meet our present research and development needs.

Employees

As of June 30, 2005, we had 105 employees, including 43 who hold Ph.D. or M.D. degrees. We had 79 employees engaged in research and development, and our remaining employees are management or administrative staff. None of our employees is subject to a collective bargaining agreement. We believe that we have good relations with our employees.

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Management

Executive Officers, Directors and Key Employees

The following table sets forth information regarding our executive officers, key employees and directors as of June 30, 2005:

Name	Age		Position
Executive Officers and Directors
Michael Grey		52	President, Chief Executive Officer and Director
Stephen K. Burley, M.D., D.Phil.		47	Chief Scientific Officer and Senior Vice President, Research
James A. Rotherham, C.P.A.		40	Chief Financial Officer
Annette North, Esq.		39	Vice President, Legal Affairs and Corporate Secretary
Christopher S. Henney, Ph.D., D.Sc.(1)(2)		64	Director and Chairman
Louis C. Bock(3)		40	Director
Karin Eastham, C.P.A.(1)(3)		55	Director
Jean-Francois Formela, M.D.(2)(3)		49	Director
Vijay Lathi(1)		32	Director
Stelios Papadopoulos, Ph.D.(2)		57	Director
Key Employees
Peter Myers, Ph.D.		61	Vice President, Drug Discovery
Sean McCarthy, D.Phil.		38	Vice President, Business Development
Julie Cooke		39	Vice President, Human Resources

(1)	Member of the audit committee.
(2)	Member of the corporate governance and nominating committee.
(3)	Member of the compensation committee.

Executive Officers and Directors

Michael Grey, joined us in September 2001 as our Executive Vice President and Chief Business Officer and as a member of our board of directors. He became our President in June 2003 and our Chief Executive Officer in January 2005. Prior to joining us, Mr. Grey served as a director of Trega Biosciences, Inc., a biopharmaceutical company acquired by Lion bioscience AG in 2001, from December 1998 to March 2001. He was also the President and Chief Executive Officer of Trega from January 1999 to March 2001. Prior to joining Trega, Mr. Grey was the President of BioChem Therapeutic, Inc., the pharmaceutical operating division of BioChem Pharma Inc., from 1994 to 1998. In that role, he was responsible for all company operations including research, development, sales and marketing, finance and human resources. During 1994, Mr. Grey was the President and Chief Operating Officer for Ansan, Inc. From 1974 to 1993, Mr. Grey served in various roles with Glaxo Inc. and Glaxo Holdings, plc, culminating in his position as Vice President, Corporate Development. Mr. Grey serves as a director of Achillion Pharmaceuticals, Inc. and IDM Pharma, Inc. (formerly known as Epimmune Inc.). Mr. Grey received a B.Sc. in Chemistry from the University of Nottingham, United Kingdom.

Stephen K. Burley, M.D., D.Phil., joined us in February 2002 as our Chief Scientific Officer and Senior Vice President, Research. Dr. Burley has been an Adjunct Professor at The Rockefeller University since February 2002, where he was also the Richard M. and Isabel P. Furlaud Professor from June 1997 to January 2002. He was an Investigator at the Howard Hughes Medical Institute from September 1994 to January 2002. He was previously the Principal Investigator of the New York Structural Genomics Research Consortium. Dr. Burley is a Fellow of the Royal Society of Canada and of the New York Academy of Sciences. His research focused

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on the macromolecular machines responsible for mRNA transcription, splicing and translation in eukaryotes and on the problem of antibiotic resistance. Dr. Burley received an M.D. degree from Harvard Medical School and, as a Rhodes Scholar, he received a D.Phil. in Molecular Biophysics from Oxford University. His clinical training combined a residency in Internal Medicine at the Brigham and Women’s Hospital with postdoctoral work in protein crystallography under the direction of William N. Lipscomb at Harvard University. He received a B.Sc. in Physics from the University of Western Ontario. In 1999, Dr. Burley co-founded Prospect Genomics, Inc., a San Francisco-based drug discovery company that we acquired in May 2001.

James A. Rotherham, C.P.A., joined us as Chief Financial Officer in June 2005. Prior to joining us, Mr. Rotherham was Chief Financial Officer of Kintera, Inc., a provider of Internet solutions for nonprofit organizations, from October 2001 to May 2005. Prior to joining Kintera, he was Chief Financial Officer of Copiers Now, Inc., an Internet company, from July 2000 until October 2001. Mr. Rotherham was Chief Financial Officer of Epidemic Marketing, Inc. from 1999 to 2000. Mr. Rotherham was employed by the accounting firm Ernst & Young LLP from 1986 until 1999. Mr. Rotherham holds a B.S. from The Wharton School at the University of Pennsylvania.

Annette North, Esq., joined us in November 2000 as our Corporate Counsel and was appointed Vice President, Legal Affairs in January 2004. Prior to joining us, she was Senior Director of Operations and Legal at Axys Pharmaceuticals, Inc., a small molecule drug discovery company, from 1998 to 1999 and Legal Counsel and Director of Legal Affairs at Sequana Therapeutics, Inc., a biotechnology company, from 1995 to 1998. From 1991 to 1994, Ms. North was employed by Nabarro Nathanson plc, a national law firm in London, England, focusing primarily on commercial litigation, and from 1989 to 1990 she worked at Corrs, Chambers, Westgarth, a national law firm in Melbourne, Australia. She is a member of the State Bar of California, a Solicitor of the Supreme Court of England and Wales and a Barrister and Solicitor of the Supreme Court of Victoria, Australia. Ms. North received both her Bachelor of Commerce and her Bachelor of Laws from the University of Melbourne, Australia.

Christopher S. Henney, Ph.D., D.Sc., became our Chairman in December 2003 and has served as a member of our board of directors since May 2000. From 1995 to January 2003, he served as the Chairman and Chief Executive Officer of Dendreon Corporation, a publicly held biotechnology company. Dr. Henney co-founded ICOS Corporation, another publicly held biotechnology company, where he served as Executive Vice President, Scientific Director and a director from 1989 to 1995. He also co-founded Immunex Corporation, which was a publicly held biotechnology company until its acquisition by Amgen Corporation in May 2002, where he held various positions, including Director, Vice Chairman and Scientific Director from 1981 to 1989. Dr. Henney is also a former academic immunologist. He currently serves as chairman of Xcyte Therapies, Inc., and as a director of Biomira, Inc. and Bionomics Ltd. Dr. Henney received a D.Sc. for his contributions to Immunology, a Ph.D. in Experimental Pathology and a B.Sc. with Honors, from the University of Birmingham, United Kingdom.

Louis C. Bock has served as a member of our board of directors since September 2000. Mr. Bock is a Managing Director of BA Venture Partners, a venture capital firm. Mr. Bock joined BA Venture Partners in September 1997 from Gilead Sciences, Inc., a biopharmaceutical company, where he held positions in research, project management, business development and sales from September 1989 to September 1997. Prior to Gilead, he was a research associate at Genentech, Inc. from November 1987 to September 1989. He currently serves as a director of Ascenta Therapeutics, Cellective Therapeutics, Inc., diaDexus Inc., Orexigen Therapeutics and Somaxon Pharmaceuticals and is responsible for BA Venture Partners’ investments in Dynavax Technologies, Seattle Genetics and Prestwick Pharmaceuticals. Mr. Bock received his B.S. in Biology from California State University, Chico and an M.B.A. from California State University, San Francisco.

Karin Eastham, C.P.A., has served as a member of our board of directors since August 2005. Since May 2004, Ms. Eastham has been Executive Vice President, Chief Operating Officer and a member of the board of trustees of The Burnham Institute, an independent not-for-profit biomedical research institution. Prior to

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joining The Burnham Institute, Ms. Eastham was senior Vice President and Chief Financial Officer of Diversa Corporation from April 1999 to May 2004. She previously held similar positions with CombiChem, Inc., Cytel Corporation, and Boehringer Mannheim Corporation. She also serves as a director of Illumina, Inc. and Tercica, Inc., public biotechnology companies, Cyntellect, Inc., a private biotechnology company, as well as UCSD Athena. Ms. Eastham received B.S. and M.B.A. degrees from Indiana University and is a Certified Public Accountant.

Jean-François Formela, M.D., is a Senior Partner in the life sciences sector for Atlas Venture, a venture capital firm, and has served as a member of our board of directors since June 1999. Prior to joining Atlas Venture in 1993, Dr. Formela was Senior Director, Medical Marketing and Scientific Affairs at Schering-Plough Corporation in the United States. During his tenure at Schering-Plough, he was responsible for the marketing of Intron A, Schering-Plough’s alpha-interferon. In his last position at Schering-Plough, he directed the U.S. Phase IV studies in all therapeutic areas, as well as the health economics, medical information, and biotechnology pre-marketing groups. As a medical doctor, Dr. Formela practiced emergency medicine at Necker University hospital in Paris. Since joining Atlas Venture, he has been involved in the formation of companies such as ArQule, Inc., MorphoSys, Exelixis, Inc., deCODE genetics, Inc., Nuvelo, Inc., Cellzome AG, Archemix Corp. and Aureon Biosciences Corporation. Dr. Formela currently serves as a director of Achillion Pharmaceuticals, Inc., Cellzome Inc., Compound Therapeutics, Exelixis, Inc., NxStage Medical, Inc. and Phylogix, Inc. He holds an M.D. degree from the Paris University School of Medicine and an M.B.A. from Columbia University.

Vijay Lathi has served as a member of our board of directors since May 2002. Mr. Lathi is a Managing Director at New Leaf Venture Partners, a venture capital firm focused on healthcare technology investments, which also manages the healthcare portfolio of funds invested by The Sprout Group. Prior to his position at New Leaf Venture Partners, Mr. Lathi was a Partner at The Sprout Group, where he focused on healthcare technology investments. Before joining the Sprout Group in 1998, Mr. Lathi was an analyst in the life science venture capital group at Robertson Stephens and Co. Prior to Robertson Stephens and Co., he was an analyst with Cornerstone Research, an economic consulting firm. Mr. Lathi currently serves as a director of Kalypsys, Inc., Labcyte, Inc., Illypsa, Focus Technologies, Inc. and Expression Diagnostics Inc. He received a B.S. in Chemical Engineering from M.I.T. and an M.S. in Chemical Engineering from Stanford University.

Stelios Papadopoulos, Ph.D., has served as a member of our board of directors since July 2001. Dr. Papadopoulos is a Vice Chairman of SG Cowen in the investment banking division focusing on the biotechnology and pharmaceutical sectors. Prior to joining SG Cowen in February 2000, he spent 13 years as an investment banker at PaineWebber, where he was most recently Chairman of PaineWebber Development Corp., a PaineWebber subsidiary focusing on biotechnology. He joined PaineWebber in April 1987 from Drexel Burnham Lambert where he was a vice president in the Equity Research Department covering the biotechnology industry. Prior to Drexel, he was a biotechnology analyst at Donaldson, Lufkin & Jenrette. Before coming to Wall Street in 1985, Dr. Papadopoulos was on the faculty of the Department of Cell Biology at New York University Medical Center. He continues his affiliation with NYU Medical Center as an Adjunct Associate Professor of Cell Biology. Dr. Papadopoulos is a co-founder and Chairman of the Board of Exelixis, Inc., and he is a co-founder and director of Cellzome Inc. and Anadys Pharmaceuticals, Inc. He also serves as a director of GenVec, Inc. and BG Medicine, Inc. Dr. Papadopoulos holds a Ph.D. in Biophysics and an M.B.A. in Finance, both from New York University.

Key Employees

Peter Myers, Ph.D., joined us as Vice President, Drug Discovery in January 2005. From May 2003 to January 2005, he has served as a consultant to various life sciences companies. From June 2002 to May 2003, Dr. Myers was Chief Executive Officer of Libraria, Inc. (now Eidogen-Sertanty), a drug discovery technology and development company. From February 2002 to May 2002, Dr. Myers served as Executive Vice President and Site Director of Deltagen Research Laboratories, formerly BMS/ DuPont Pharmaceuticals Research Laboratories, a provider of drug discovery tools and services to the biopharmaceutical industry. From November 1999 to February 2002, he served as the Chief Operating Officer/ Chief Scientific Officer of

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CombiChem, Inc., a biotechnology company that was acquired by DuPont in 1999. Dr. Myers also served as Vice President of Drug Discovery and Development at Onyx Pharmaceuticals, Inc. and Vice President of Chemistry Research at the Glaxo Research Institute in Research Triangle, North Carolina, where he served as Worldwide Therapeutic Head for all of Glaxo’s Inflammation Research and Deputy Chairman for Cancer Research from 1991 to 1992, and in 1993 assumed worldwide responsibility for Glaxo’s new therapeutic area of metabolic diseases (diabetes, osteoporosis and obesity). He previously served as Director of Medicinal Chemistry for Glaxo Group Research in the UK, and Director of Chemistry at G.D. Searle & Co. Ltd. in the United Kingdom. Dr. Myers also serves as the Chairman of the Queensland Biocapital Fund Science Advisory Board. Dr. Myers obtained both his B.Sc. in Chemistry and Ph.D. in Organic Chemistry from the University of Leeds, United Kingdom Dr. Myers has committed approximately fifty percent of his time to us.

Sean McCarthy, D.Phil, joined us in 2000 as Director of Business Development, and currently serves as our Vice President of Business Development. Prior to joining us, Dr. McCarthy was a senior scientist and program director at Millennium Pharmaceuticals, Inc., a biopharmaceutical company, where he managed biotherapeutic programs for the company. Prior to that, he was a post-doctoral research fellow at DNAX Research Institute, where he analyzed oncogene-related gene expression. He received a D.Phil. from St. Johns College, University of Oxford, United Kingdom and a B.Sc. in Biochemistry and Pharmacology from Kings College, University of London, United Kingdom.

Julie Cooke joined us as Vice President of Human Resources in January 2002. Prior to joining us, from January 2001 to January 2002, Ms. Cooke was director of Human Resources at Gateway Computers. From August 2000 to November 2000, she was the Vice President of Human Resources for Digital Walker West. From July 1988 to August 2000, Ms. Cooke was employed by PepsiCo/ Pepsi Bottling Group in various positions, including Director of Compensation for Pepsi Cola North America and Director of Human Resources for the Texoma Business Unit. Ms. Cooke earned her B.A. in Economics at the Colorado College.

Board Composition

Our business and affairs are organized under the direction of our board of directors, which currently consists of seven members. The primary responsibilities of our board of directors are to provide oversight, strategic guidance, counseling and direction to our management. Our board of directors meets on a regular basis and additionally as required. Written board materials are distributed in advance of meetings as a general rule, and our board of directors schedules meetings with and presentations from members of our senior management on a regular basis and as required.

Our board of directors has determined that six of our seven directors, Drs. Henney, Formela and Papadopoulos, Messrs. Bock and Lathi, and Ms. Eastham are independent directors, as defined by Rule 4200(a)(15) of the National Association of Securities Dealers.

Effective upon the completion of this offering, we will divide our board of directors into three classes, as follows:

•  Class I, which will consist of Messrs. Bock, Grey and Lathi and whose term will expire at our annual meeting of stockholders to be held in 2006;

•  Class II, which will consist of Ms. Eastham and Dr. Formela, and whose term will expire at our annual meeting of stockholders to be held in 2007; and

•  Class III, which will consist of Drs. Papadopoulos and Henney, and whose term will expire at our annual meeting of stockholders to be held in 2008.

At each annual meeting of stockholders to be held after the initial classification, the successors to directors whose terms then expire will serve until the third annual meeting following their election and until their successors are duly elected and qualified. The authorized size of our board is currently seven members. The authorized number of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed between the three

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classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of the board of directors may have the effect of delaying or preventing changes in our control or management. Our directors may be removed for cause by the affirmative vote of the holders of at least 66²/3% of our voting stock.

Board Committees

Our board of directors has an audit committee, a compensation committee and a corporate governance and nominating committee.

     Audit Committee

Our audit committee consists of Ms. Eastham, Dr. Henney and Mr. Lathi. Ms. Eastham chairs the audit committee. The functions of this committee include, among other things:

•  evaluating the performance and qualifications of our independent auditors and determining whether to retain our existing independent auditors or engage new independent auditors;

•  reviewing and pre-approving the engagement of our independent auditors to perform audit services and any permissible non-audit services;

•  reviewing our annual and quarterly financial statements and reports and discussing the statements and reports with our independent auditors and management;

•  monitoring the rotation of partners of our independent auditors on our engagement team as required by law;

•  reviewing with our independent auditors and management significant issues that arise regarding accounting principles and financial statement presentation, and matters concerning the scope, adequacy and effectiveness of our financial controls;

•  establishing procedures for the receipt, retention and treatment of complaints received by us regarding financial controls, accounting or auditing matters; and

•  reviewing and evaluating, at least annually, the performance of the audit committee and its members, including compliance of the audit committee with its charter.

We have appointed Ms. Eastham as our audit committee financial expert. Both our independent auditors and management periodically meet with our audit committee.

Compensation Committee

Our compensation committee consists of Mr. Bock, Ms. Eastham and Dr. Formela. Dr. Formela chairs the compensation committee. The functions of this committee include, among other things:

•  evaluating and recommending to our board of directors the compensation and other terms of employment of our executive officers and reviewing and approving corporate performance goals and objectives relevant to such compensation;

•  evaluating and recommending to our board of directors the type and amount of compensation to be paid or awarded to board members;

•  evaluating and recommending to our board of directors the equity incentive plans, compensation plans and similar programs advisable for us, as well as modification or termination of existing plans and programs;

•  administering our equity incentive plans;

•  establishing policies with respect to equity compensation arrangements;

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•  reviewing and approving the terms of any employment agreements, severance arrangements, change-in-control protections and any other compensatory arrangements for our executive officers; and

•  reviewing and evaluating, at least annually, the performance of the compensation committee.

Corporate Governance and Nominating Committee

Our corporate governance and nominating committee consists of Drs. Formela, Henney and Papadopoulos. Dr. Papadopoulos chairs the corporate governance and nominating committee. The functions of this committee include, among other things:

•  developing and maintaining a current list of the functional needs and qualifications of members of our board of directors;

•  evaluating director performance on the board and applicable committees of the board and determining whether continued service on our board is appropriate;

•  interviewing, evaluating, nominating and recommending individuals for membership on our board of directors;

•  evaluating nominations by stockholders of candidates for election to our board;

•  considering and assessing the independence of members of our board of directors;

•  developing, reviewing and amending a set of corporate governance policies and principles, including a code of ethics;

•  considering questions of possible conflicts of interest of directors as such questions arise;

•  recommending to our board of directors the establishment of such special committees as may be desirable or necessary from time to time in order to address ethical, legal, business or other matters that may arise; and

•  evaluating at least annually, the performance of the nominating and corporate governance committee.

Compensation Committee Interlocks and Insider Participation

No member of our compensation committee has ever been an executive officer or employee of ours. None of our executive officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other entity that has one or more executive officers serving as a member of our board of directors or compensation committee.

Director Compensation

In January 2004, we entered into an agreement with Dr. Henney, under which we agreed to pay Dr. Henney $60,000 per year in consideration for his services as chairman of our board of directors. In addition, in January 2004, we granted Dr. Henney a stock option under our 2000 equity incentive plan to purchase 15,174 shares of our common stock. In May 2005, Dr. Henney was granted a restricted stock award under our 2000 equity incentive plan of 140,000 shares of our common stock. Twenty-five percent of the shares subject to the award were immediately vested as of the date of grant and the remaining shares subject to the award vest in equal monthly installments over the following two years. In May 2005, Dr. Henney was also paid a cash bonus of $60,000 for his service as chairman of our board of directors.

In April 2001, we entered into a non-employee director agreement with Dr. Papadopoulos under which we agreed to pay Dr. Papadopoulos $8,000 per year in consideration for his services as a member of our board of directors, granted him stock options under our 2000 equity incentive plan to purchase 22,761 shares of our common stock at an exercise price of $6.72 per share, and, subject to stockholder approval, offered him the opportunity to purchase 12,645 shares of our Series C convertible preferred stock at a purchase price of $66.82 per share. Dr. Papadopoulos did not purchase any shares of Series C convertible preferred stock pursuant to this agreement. Under the terms of a 2003 amendment to this agreement, we agreed to raise the

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per year consideration for Dr. Papadopoulos’ services as a member of our board of directors from $8,000 to $10,000, commencing in the fourth quarter of 2003, and also agreed to pay him $2,000 per year in consideration for his services as a member of our audit committee.

Other than with respect to Dr. Henney and Dr. Papadopoulos, we have not provided cash compensation to directors for their services as directors or members of committees of the board of directors. However, following the completion of this offering, we intend to provide cash compensation in the form of an annual retainer for our chairman of the board and for each other director, as well as for the chairman of our audit committee and for the other members of our audit committee and other committee members. The amount of this compensation will be determined by our board of directors prior to the completion of this offering. We have reimbursed and will continue to reimburse our non-employee directors for their reasonable expenses incurred in attending meetings of our board of directors and committees of the board of directors.

In August 2005, Ms. Eastham was granted a stock option under our 2000 equity incentive plan to purchase 25,000 shares of our common stock at an exercise price of $0.50 per share. The option vests in equal monthly installments over three years. We have agreed to pay Ms. Eastham an annual retainer of $25,000 for her service as a member of our board of directors and $15,000 for her service as the chair of our audit committee.

Effective upon the completion of this offering, we will adopt our 2005 non-employee directors’ stock option plan to provide for the automatic grant of options to purchase shares of common stock to our non-employee directors. In addition, following the completion of this offering, all of our directors will be eligible to participate in our 2005 equity incentive plan and our employee directors will be eligible to participate in our 2005 employee stock purchase plan. For a more detailed description of these plans, see “Employee Benefit Plans.”

Executive Compensation

The following table provides information regarding the compensation earned during the fiscal year ended December 31, 2004 by our chief executive officer and each of our other executive officers whose combined salary and bonus exceeded $100,000 during that fiscal year. We refer to our chief executive officer and these other executive officers as our “named executive officers” elsewhere in this prospectus.

Summary Compensation Table (1)

						Long-Term
						Compensation
		Annual Compensation
						Securities Underlying
Name and Principal Position(s)		Salary		Bonus(2)		Options(3)		All Other Compensation
Michael Grey		$	332,800	$	37,700		4,767	$	81,893	(4)
	President, Chief Executive Officer and Member of the Board of Directors
Stephen K. Burley		$	312,000	$	31,687		4,006	$	100,000	(5)
	Chief Scientific Officer and Senior Vice President, Research
Annette North		$	194,999	$	11,779		1,489	$	3,856	(4)
	Vice President, Legal Affairs and Corporate Secretary
Timothy Harris		$	351,520	$	43,940		5,556		–
	Former Chief Executive Officer(6)
Herbert Mutter		$	232,545	$	18,168		2,297	$	9,040	(4)
	Former Chief Financial Officer(7)

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(1)	In accordance with the rules of the SEC, the compensation described in this table does not include medical, group life insurance or other benefits which are generally available to all of our salaried employees and certain perquisites and other personal benefits received by a named executive officer which do not exceed the lesser of $50,000 or 10% of that named executive officer’s salary and bonus disclosed in this table.
(2)	Bonuses paid in 2004 were earned by the respective named executive officer in 2003. Amounts reflect the cash portion of the bonuses awarded to the named executive officers in 2004. The named executive officers were also granted fully vested stock options at an exercise price of $1.98 per share. The stock options were fully vested as of the date of grant. See note (3) below.
(3)	Amounts reflect stock options granted in 2004 for performance in 2003. The stock options were fully vested as of the date of grant.
(4)	Represents forgiveness of indebtedness income as discussed under the heading “Note Settlement Agreements” below.
(5)	In March 2005, we paid a bonus of $100,000 to Dr. Burley.
(6)	Dr. Harris resigned as our Chief Executive Officer effective December 31, 2004.
(7)	Mr. Mutter resigned as our Chief Financial Officer on May 20, 2005.

Stock Option Grants in Last Fiscal Year

In February 2000, our board of directors adopted our 2000 equity incentive plan. All options granted prior to the closing of this offering are and will continue to be governed by the terms of the 2000 equity incentive plan. For the fiscal year ended December 31, 2004, we granted options to purchase a total of 62,320 shares of our common stock, with a weighted average exercise price of $1.98 per share, to our employees, including grants to our named executive officers. Under the terms of our 2005 equity incentive plan, any options to purchase shares of our common stock granted under our 2000 equity incentive plan that expire or are otherwise terminated in accordance with the terms of the 2000 equity incentive plan shall be added to the option pool for our 2005 equity incentive plan and become available for future grant under the 2005 equity incentive plan. Options granted under our 2000 equity incentive plan generally expire ten years from the date of grant. See “—Employee Benefits Plans—2000 Equity Incentive Plan.”

All options granted to our named executive officers are incentive stock options, to the extent permissible under the Internal Revenue Code of 1986, as amended. The exercise price per share of each option granted to our named executive officers was equal to the fair market value of our common stock as determined by our board of directors on the date of the grant. In determining the fair market value of our common stock granted on the grant date, our board of directors considered many factors, including:

•  the rate of progress and cost of our clinical trials and other research and development activities;

•  the terms of our collaborative, licensing and other arrangements;

•  the fact that our options involved illiquid securities in a non-public company;

•  prices of preferred stock issued by us to outside investors in arm’s-length transactions;

•  the senior rights, preferences and privileges of our preferred stock over our common stock; and

•  the likelihood that our common stock would become liquid through an initial public offering, an acquisition of us or another event.

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The following table provides information regarding grants of options under our 2000 equity incentive plan to purchase shares of our common stock made to our named executive officers during the fiscal year ended December 31, 2004. No stock appreciation rights covering our common stock were granted to our named executive officers in 2004.

	Individual Grants(1)
			% of Total							Potential Realizable
			Options							Value at Assumed
	Number of		Granted to							Annual Rates of Stock
	Securities		Employees in							Price Appreciation for
	Underlying		the Year Ended							Option Term(3)
	Options		December 31,			Exercise or Base		Expiration
Name	Granted		2004(2)			Price ($/Sh)		Date		5%	10%
Michael Grey		4,767		7.6	%		1.98		1/13/2014
Stephen K. Burley		4,006		6.4	%		1.98		1/13/2014
Annette North		1,489		2.4	%		1.98		1/13/2014
Timothy Harris(4)		5,556		8.9	%		1.98		1/1/2010
Herbert Mutter(5)		2,297		3.7	%		1.98		8/20/2005

(1)	These options, which were fully vested and exercisable as of the grant date, were issued in January 2004 to each of the named executive officers as a bonus awarded to the named executive officer for performance in 2003.
(2)	Based on 62,320 options granted to employees during the fiscal year ended December 31, 2004 under our 2000 equity incentive plan, including grants to executive officers.
(3)	Potential realizable values are computed by (a) multiplying the number of shares of common stock subject to a given option by an assumed initial public offering price of $         per share, (b) assuming that the aggregate stock value derived from that calculation compounds at the annual 5% or 10% rate shown in the table for the entire term of the option and (c) subtracting from that result the aggregate option exercise price. The 5% and 10% assumed annual rates of stock price appreciation are mandated by the rules of the SEC and do not represent our estimate or projection of future common stock prices.
(4)	Dr. Harris resigned from his position as our Chief Executive Officer effective December 31, 2004. These options remain exercisable until January 1, 2010.
(5)	Mr. Mutter resigned from his position as our Chief Financial Officer effective May 20, 2005.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

No options granted under our 2000 equity incentive plan were exercised by our named executive officers during 2004. The following table provides information concerning the unexercised options held as of December 31, 2004, by each of our named executive officers.

					Number of Securities				Value of Unexercised In-the-
					Underlying Unexercised				Money Options at Fiscal
	Shares				Options at Fiscal Year-End				Year-End(1)
	Acquired on
Name	Exercise		Value Realized		Exercisable		Unexercisable		Exercisable	Unexercisable
Michael Grey		–		–		8,561		6,322	$	$
Stephen K. Burley		–		–		76,860		3,161	$	$
Timothy Harris		–		–		18,201		–	$		–
Annette North		–		–		7,139		2,567	$	$
Herbert Mutter		–		–		9,093		790	$	$

(1) The value of an unexercised in-the-money option as of December 31, 2004 is equal to the excess of an assumed initial public offering price of $        per share over the exercise price for the option, multiplied by the number of shares subject to the option, without taking into account any taxes that may be payable in connection with the transaction.

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Employment, Termination of Employment and Change-in-Control Arrangements

Employment Agreements

We currently have employment agreements with Mr. Grey, our President and Chief Executive Officer, and Dr. Burley, our Chief Scientific Officer and Senior Vice President of Research. We also have a letter agreement with Mr. Rotherham, our Chief Financial Officer, relating to his employment.

In September 2001, we entered into an employment agreement with Mr. Grey, which was most recently amended and restated effective January 1, 2005. This agreement expires on January 1, 2006, but is renewable automatically for successive one-year periods unless terminated by the parties.

The employment agreement sets forth Mr. Grey’s initial base salary of $350,000 per year, subject to adjustment at his annual review, and an annual cash bonus equal to 35% of his base salary, or $122,500, payable at the discretion of our board of directors. The agreement entitles Mr. Grey to receive all customary and usual fringe benefits provided to our other executives. Mr. Grey is entitled to be reimbursed for all out-of-pocket business expenses incurred on our behalf and to participate in our incentive compensation bonus plan, the terms, amount and payment of which are determined at our discretion. Pursuant to the agreement, in May 2005, Mr. Grey was granted options to purchase an aggregate of 727,726 shares of our common shares at an exercise price of $0.50 per share, the fair market value of our common stock on the date of grant. Twenty-five percent of the shares subject to such stock options were fully vested as of the date of grant and the remaining shares subject to such options vest over three years in equal monthly installments, subject to acceleration of vesting under certain circumstances described in Mr. Grey’s employment agreement.

The agreement provides that we may terminate Mr. Grey’s employment at any time for cause and upon 30 days’ written notice without cause (as defined in the agreement). Similarly, Mr. Grey may voluntarily resign at any time on 30 days’ written notice. If we terminate his employment or he resigns, he is entitled to receive any unpaid prorated base salary along with all benefits and expense reimbursements to which he is entitled by virtue of his past employment with us. In addition, if Mr. Grey is terminated without cause, he is also entitled to a severance payment equal to 12 months of his base salary then in effect and the vesting of any of his outstanding stock options will be accelerated by 12 months (24 months if such termination occurs within one year of a change in control), provided he executes a waiver and general release in favor of us, agrees to consult for us for a period of up to 60 days with no further compensation and complies with any provisions of the agreement that survive termination.

In January 2002, we entered into an employment agreement with Dr. Burley, our Senior Vice President of Research and Chief Scientific Officer. The term of this agreement was for three years, but renews automatically for successive one-year periods unless terminated by the parties.

The employment agreement sets forth Dr. Burley’s initial base salary of $300,000 per year, subject to adjustment at his annual review, and an annual cash bonus equal to 30% of his base salary, or $90,000 in one year, provided that he meets certain eligibility and performance objectives. Dr. Burley’s current salary is $324,500 per year. The agreement entitles Dr. Burley to receive all customary and usual fringe benefits provided to our other executives. Dr. Burley is entitled to be reimbursed for all out-of-pocket business expenses incurred on our behalf and to participate in our incentive compensation bonus plan, the terms, amount and payment of which are determined at our discretion. Pursuant to the agreement, in January 2002, Dr. Burley received a one time up front signing bonus of $100,000 and relocation benefits related to his relocation to San Diego, California. In addition, pursuant to the agreement, in January 2002, Dr. Burley was granted options to purchase an aggregate of 33,903 shares of our common stock at an exercise price of $6.72 per share, the fair market value of our common stock on the date of grant. Options to purchase 5,058 shares were vested as of the of grant. Options to purchase 6,322 shares vested on the one-year anniversary of the date of grant with options to purchase 18,968 vesting in equal monthly installments over the three years thereafter. Options to purchase 3,555 shares vested upon the completion of certain conditions described in the agreement.

The agreement provides that we may terminate Dr. Burley’s employment at any time for cause and upon 30 days’ written notice without cause (as defined in the agreement). Similarly, Dr. Burley may voluntarily

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resign at any time on 30 days’ written notice. If we terminate his employment or he resigns, he is entitled to receive any unpaid prorated base salary along with all benefits and expense reimbursements to which he is entitled by virtue of his past employment with us. In addition, if Dr. Burley is terminated without cause (or, within one year of a change in control, he resigns because we have substantially changed his duties or responsibilities which existed prior to the change in control), he is also entitled to a severance payment equal to 12 months of his base salary then in effect (including continuation of his benefits in accordance with our regular payroll deductions) and the vesting of any of his outstanding stock options will be accelerated by 12 months (24 months if such termination or resignation occurs within one year of a change in control), provided he executes a waiver and general release in favor of us, agrees to consult for us for a period of up to 60 days with no further compensation and complies with any provisions of the agreement that survive termination.

Pursuant to Dr. Burley’s employment agreement, in July 2002, we made an interest-free relocation loan of $300,000 to Dr. Burley pursuant to a relocation loan agreement dated as of July 29, 2002. The loan is generally payable in four equal payments of $75,000, on each of four consecutive semi-annual payment dates commencing on January 1, 2012 or immediately upon an event of default (as defined in the relocation loan agreement). The relocation loan is secured by a deed of trust on Dr. Burley’s residence. To date, Dr. Burley has repaid $75,000 of the original principal balance under this note.

In May 2001, we entered into an employment agreement with Dr. Harris, our then Chief Executive Officer, which was amended effective November 12, 2004. Pursuant to the amended agreement, Dr. Harris’ employment was terminated effective December 31, 2004 and he was entitled to receive any unpaid prorated base salary along with all benefits (including incentive pay, cash bonuses, stock options and health coverage) and expense reimbursements to which he was entitled by virtue of his past employment with us. In addition, Dr. Harris was entitled to a severance payment equal to up to 12 months of his base salary of $351,520 per year (six months guaranteed), a one-time $7,394 payment, accelerated vesting of 8,293 shares of common stock subject to outstanding options and an obligation to grant an additional stock option upon the closing of the next round of equity financing for shares representing 1% of our fully diluted capitalization on an as-converted basis at that time. Dr. Harris was paid a total of six months of severance. In July 2005, in satisfaction of this obligation to issue additional stock options to Dr. Harris, Dr. Harris was issued a warrant to purchase 200,000 shares of our common stock at an exercise price of $0.50 per share. The warrant includes a net exercise provision and has a five-year term.

In June 2005, we entered into a letter agreement relating to Mr. Rotherham’s employment with us. The letter agreement sets forth Mr. Rotherham’s base salary of $235,000 per year and an annual cash bonus of up to 40% of his base salary, or $94,000, payable at the discretion of the Board. The agreement entitles Mr. Rotherham to receive all customary and usual fringe benefits provided to our other executives. Pursuant to the agreement, in August 2005, Mr. Rotherham was granted a stock option to purchase an aggregate of 190,000 shares of our common stock at an exercise price of $0.50 per share, the fair market value of our common stock on the date of grant. Twenty-five percent of the shares subject to such stock options will become fully vested on June 12, 2006, the first anniversary of the vesting commencement date, and the remaining shares subject to such options vest over the next three years in equal monthly installments.

The letter agreement provides that we may terminate Mr. Rotherham’s employment at any time for cause and upon 30 days’ written notice without cause, as defined in the agreement. Similarly, Mr. Rotherham may voluntarily resign at any time on 30 days’ written notice. If we terminate his employment or he resigns, he is entitled to receive any unpaid prorated base salary along with all benefits and expense reimbursements to which he is entitled by virtue of his past employment with us. In addition, following a change in control, the vesting of any of his outstanding stock options will be accelerated by 12 months (24 months if Mr. Rotherham is terminated without cause within one year of a change in control), provided he executes a waiver and general release in favor of us and complies with any provisions of the letter agreement that survive termination.

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     Stock Option Agreements

In May 2005, we granted the following stock options under our 2000 equity incentive plan to purchase shares of our common stock to the following executive officers: 727,726 shares to Mr. Grey; 350,000 shares to Dr. Burley; and 100,000 shares to Ms. North. In August 2005, we granted Mr. Rotherham a stock option under our 2000 equity incentive plan to purchase 190,000 shares of common stock. The exercise price for each of the stock options was $0.50 per share, the fair market value of our common stock on the date of grant. The stock options granted to Mr. Grey, Dr. Burley and Ms. North are subject to three-year vesting with 25% of the shares subject to vesting on the grant date and the remaining shares subject to vesting in equal monthly installments for three years thereafter. Mr. Rotherham’s option is subject to four-year vesting with 25% of the shares subject to his option vesting on the one-year anniversary of his vesting commencement date and the remaining shares vesting in equal monthly installments for three years thereafter. In addition, in the event of a change in control, the vesting of any outstanding stock options held by Ms. North, Ms. Cooke, or Drs. Myers or McCarthy will be accelerated by 12 months (24 months if such individual is terminated without cause). In May 2005, Mr. Mutter was granted a fully vested option to purchase 25,000 shares of our common stock, with an exercise price of $0.50 per share. Mr. Mutter exercised this stock option in August 2005.

     Note Settlement Agreements

In August 2004, Messrs. Grey and Mutter, Dr. Harris and Ms. North entered into note settlement agreements with us pursuant to which they tendered to us 69,549 shares, 12,645 shares, 56,903 shares and 2,529 shares, respectively, of our common stock in satisfaction of outstanding indebtedness under promissory notes in the principal amounts of $466,950, $76,150, $314,300 and $16,980, respectively. These promissory notes were previously issued in connection with the early exercise of stock options granted to them in 2000 and 2001. All outstanding indebtedness under these promissory notes was repaid in full by tendering these shares to us for cancellation. We forgave a portion of the interest under the promissory notes held by Messrs. Grey and Mutter and Ms. North in the following amounts: $81,893, $17,745, and $3,836, respectively. Under all note settlement agreements entered into in August, September and November 2004 between us and our executive officers and employees, an aggregate of approximately 262,488 shares of common stock were tendered to us in satisfaction of approximately $1.8 million of indebtedness and we forgave an aggregate of approximately $131,000 of interest accrued under the promissory notes.

     Confidential Information and Inventions Agreement

Each of our named executive officers has also entered into a standard form agreement with respect to confidential information and inventions. Among other things, this agreement obligates each named executive officer to refrain from disclosing any of our confidential information received during the course of employment and, with some exceptions, to assign to us any inventions conceived or developed during the course of employment.

Employee Benefit Plans

     2000 Equity Incentive Plan

In February 2000, our board of directors adopted our 2000 equity incentive plan, or 2000 plan. Our stockholders most recently approved an amendment of the plan in July 2005. The 2000 plan provides for the grant of the following:

•  incentive stock options, or ISOs, as defined under the Internal Revenue Code, which may be granted solely to our employees, including executive officers; and

•  nonstatutory stock options, or NSOs, stock bonuses and rights to purchase restricted stock, which may be granted to our directors, consultants or employees, including executive officers.

The 2000 plan will terminate on the effective date of this offering.

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Share Reserve. As of June 30, 2005, an aggregate of 2,391,843 shares of our common stock were reserved for issuance upon exercise of outstanding options under the 2000 plan and 414,633 shares of our common stock remained available for future issuance under our 2000 plan. We expect to grant options to purchase substantially all of the remaining shares of our common stock available for issuance under our 2000 plan prior to the effective date of this offering. Following the effective date of this offering, all shares of our common stock reserved but not ultimately issued or subject to options that have expired or otherwise terminated under the 2000 plan without having been exercised in full will become available for issuance under our 2005 equity incentive plan. The 2000 plan will terminate on the effective date of this offering, and we intend to grant all future stock option awards under our 2005 equity incentive plan and 2005 non-employee directors’ stock option plan. However, all stock options outstanding on the termination of the 2000 plan will continue to be governed by the terms of the 2000 plan.

Administration. Our board of directors administers the 2000 plan, and it may in turn delegate authority to administer the plan to a committee.

At such time as our common stock becomes publicly traded, our board has the power to delegate administration of the 2000 plan to a committee that, in the Board’s discretion, may be composed of two or more outside directors. Our board will also have the power to delegate the administration of the plan to one or more directors, who are also our officers or employees.

Stock Options. Stock options are granted under the 2000 plan pursuant to option agreements. Options granted under the 2000 plan vest at the rate specified in the option agreement. The 2000 plan also allows for the early exercise of unvested options, if that right is set forth in an applicable option agreement. All remaining unvested shares of our common stock acquired through early exercised options are subject to repurchase by us.

In general, the term of stock options granted under the 2000 plan may not exceed ten years. Unless the terms of an optionholder’s option agreement provide for earlier or later termination, if an optionholder’s service relationship with us, or any affiliate of ours, ceases due to disability or death, the optionholder, or his or her beneficiary, may exercise any vested options up to 12 months, or 18 months in the event of death, after the date such service relationship ends, unless the terms of the stock option agreement provide for earlier or later termination. If an optionholder’s service relationship with us, or any affiliate of ours, ceases for any reason other than disability or death, the optionholder may exercise any vested options up to three months from cessation of service, unless the terms of the option agreement provide for earlier or later termination. In no event may an option be exercised after its expiration date.

Acceptable forms of consideration for the exercise of options granted under the 2000 plan are determined by our board of directors or its authorized committee and may include cash or common stock previously owned by the optionholder, or payment through a deferred payment arrangement and other legal consideration or arrangements approved by our board of directors.

Generally, an optionholder may not transfer his or her stock option other than by will or the laws of descent and distribution unless the optionholder holds a nonstatutory stock option that provides otherwise. However, an optionholder may designate a beneficiary who may exercise the option following the optionholder’s death.

Limitations. The aggregate fair market value, determined at the time of grant, of shares of our common stock subject to ISOs that are exercisable for the first time by an optionholder during any calendar year under all of our stock plans may not exceed $100,000. The options or portions of options that exceed this limit are treated as NSOs. No ISO, and before our stock is publicly traded, no NSO, may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or any affiliate unless the following conditions are satisfied:

•  the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant; and

•  the term of any incentive stock option award must not exceed five years from the date of grant.

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Restricted Stock Purchase Awards. Restricted stock purchase awards are granted under the 2000 plan pursuant to a restricted stock purchase agreement. Shares of our common stock awarded under the restricted stock purchase agreement may, but need not, be subject to a repurchase option in our favor in accordance with a vesting schedule determined by our board of directors or its authorized committee. In the event of termination of the service relationship between a recipient of a restricted stock purchase award and us, or any affiliate of ours, we have the right to repurchase or reacquire all of the unvested shares of our common stock held by such restricted stock purchase award recipient. A recipient of a restricted stock purchase award that is granted before our stock becomes publicly traded may not transfer his or her restricted stock purchase award other than by will or the laws of descent and distribution. A recipient of a restricted stock purchase award that is granted while our stock is publicly listed may transfer his or her restricted stock purchase award only as expressly authorized by the terms of the applicable restricted stock purchase agreement.

Corporate Transactions. In the event of certain corporate transactions, all outstanding stock awards under the 2000 plan may be assumed, continued or substituted for by any surviving entity. If the surviving entity elects not to assume, continue or substitute for such awards, the vesting provisions of such stock awards generally will be accelerated in full and such stock awards will be terminated if and to the extent not exercised at or prior to the effective time of the corporate transaction and our repurchase rights will generally lapse.

Plan Amendments. Our board of directors has authority to amend or terminate the 2000 plan. However, no amendment or termination of the plan will adversely affect any rights under awards already granted to a participant unless agreed to by the affected participant.

     2005 Equity Incentive Plan

We adopted our 2005 equity incentive plan, or 2005 plan, in August 2005, to become effective upon completion of this offering. The plan will terminate in August 2015, unless our board of directors terminates it earlier. The 2005 plan provides for the grant of the following:

•  ISOs, which may be granted solely to our employees, including officers; and

•  NSOs, stock purchase awards, stock bonus awards, stock unit awards, stock appreciation rights and other stock awards, which may be granted to our directors, consultants or employees, including officers.

Share Reserve. An aggregate of 1,500,000 shares of our common stock are authorized for issuance under our 2005 plan, plus the number of shares remaining available for future issuance under our 2000 plan that are not covered by outstanding options as of the termination of the 2000 plan on the effective date of this offering. In addition, this amount will be automatically increased annually on the first day of our fiscal year, from 2007 until 2015, by the lesser of (a) 3.5% of the aggregate number of shares of common stock outstanding on December 31 of the preceding fiscal year or (b) 1,000,000 shares of common stock. However, our board of directors has the authority to designate a smaller number of shares by which the authorized number of shares of common stock under the 2005 plan will be increased. In addition, the share reserve under the 2005 plan will be increased from time to time by a number of shares of common stock equal to those shares of common stock that are issuable pursuant to options and other stock awards outstanding under the 2000 plan or shares of our common stock issued under the 2000 plan, as of the effective date of this offering and that, but for the termination of the 2000 plan as of the effective date of this offering, would otherwise have reverted to the share reserve of the 2000 plan upon the termination or expiration of those stock options or other awards or, in the case of shares issued under the 2000 plan, that would have been repurchased or required by us under the terms of the 2000 plan.

Shares of our common stock subject to options and other stock awards that have expired or otherwise terminate under the 2005 plan without having been exercised in full again will become available for grant under the plan. Shares of our common stock issued under the 2005 plan may include previously unissued shares or reacquired shares bought on the market or otherwise. If any shares of our common stock subject to a stock award are not delivered to a participant because such shares are withheld for the payment of taxes or the stock award is exercised through a net exercise, then the number of shares that are not delivered to the participants shall again become available for grant under the 2005 plan. If the exercise of any stock award is

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satisfied by tendering shares of our common stock held by the participant, then the number of shares tendered shall again become available for grant under the 2005 plan. The maximum number of shares of our common stock that may be issued under the 2005 plan subject to ISOs is 10,000,000 shares plus the automatic annual increases described above.

Administration. The 2005 plan will be administered by our board of directors, which may in turn delegate authority to administer the plan to a committee. Subject to the terms of the 2005 plan, our board of directors or its authorized committee determines recipients, the numbers and types of stock awards to be granted and the terms and conditions of the stock awards, including the period of their exercisability and vesting. Subject to the limitations set forth below, our board of directors or its authorized committee will also determine the exercise price of options granted under the 2005 plan and may reprice those options, including by reducing the exercise price of any outstanding option, canceling an option in exchange for cash or another equity award or any other action that is treated as a repricing under generally accepted accounting principles. Subject to the terms of the 2005 plan, our board of directors may delegate to one or more of our officers the authority to grant stock awards to our other officers and employees. Such officer would be able to grant only the total number of stock awards specified by our board of directors and such officer would not be allowed to grant a stock award to himself or herself.

Stock Options. Stock options will be granted pursuant to stock option agreements. Generally, the exercise price for an ISO cannot be less than 100% of the fair market value of the common stock subject to the option on the date of grant, and the exercise price for an NSO cannot be less than 85% of the fair market value of the common stock subject to the option on the date of grant. Options granted under the 2005 plan will vest at the rate specified in the option agreement. A stock option agreement may provide for early exercise, prior to vesting. Unvested shares of our common stock issued in connection with an early exercise may be repurchased by us.

In general, the term of stock options granted under the 2005 plan may not exceed ten years. Unless the terms of an optionholder’s stock option agreement provide for earlier or later termination, if an optionholder’s service relationship with us, or any affiliate of ours, ceases due to disability or death, the optionholder, or his or her beneficiary, may exercise any vested options up for to 12 months, or 18 months in the event of death, after the date the service relationship ends, unless the terms of the stock option agreement provide for earlier termination. If an optionholder’s service relationship with us, or any affiliate of ours, ceases without cause for any reason other than disability or death, the optionholder may exercise any vested options for up to three months after the date the service relationship ends, unless the terms of the stock option agreement provide for a longer period to exercise the option. If an optionholder’s relationship with us, or any affiliate of ours, ceases with cause, the option will terminate at the time the optionholder’s relationship with us ceases. In no event may an option be exercised after its expiration date.

Acceptable forms of consideration for the purchase of our common stock issued under the 2005 plan will be determined by our board of directors and may include cash, common stock previously owned by the optionholder, deferred payment arrangement or payment through a broker assisted exercise or, after we have adopted certain accounting standards, a net exercise feature, or other legal consideration approved by our board of directors.

Generally, an optionholder may not transfer a stock option other than by will or the laws of descent and distribution or a domestic relations order. However, an optionholder may designate a beneficiary who may exercise the option following the optionholder’s death.

Limitations. The aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to ISOs that are exercisable for the first time by an optionholder during any calendar year under all of our stock plans may not exceed $100,000. The options or portions of options that exceed this limit are treated as NSOs. No ISO may be granted to any person who, at the time of the grant, owns or is deemed to

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own stock possessing more than 10% of our total combined voting power or that of any affiliate unless the following conditions are satisfied:

•  the option exercise price must be at least 110% of the fair market value of the stock subject to the option on the date of grant; and

•  the term of any ISO award must not exceed five years from the date of grant.

In addition, no employee may be granted options or stock appreciation rights under the 2005 plan covering more than 750,000 shares of our common stock in any calendar year, subject to an exception for new hires who may be granted an additional 500,000 shares of our common stock during the calendar year of initial employment.

Stock Purchase Awards. Stock purchase awards will be granted pursuant to stock purchase award agreements. A stock purchase award may require the payment of at least the par value of the stock. The purchase price for a stock purchase award may be payable in cash or any other form of legal consideration approved by our board of directors. Shares of our common stock acquired under a stock purchase award may, but need not, be subject to a share repurchase option in our favor in accordance with a vesting schedule to be determined by our board of directors. Rights to acquire shares of our common stock under a stock purchase award may be transferred only upon such terms and conditions as are set forth in the stock purchase award agreement.

Stock Bonus Awards. Stock bonus awards will be granted pursuant to stock bonus award agreements. A stock bonus award may be granted in consideration for the recipient’s past or future services performed for us or an affiliate of ours. Shares of our common stock acquired under a stock bonus award may, but need not, be subject to forfeiture to us in accordance with a vesting schedule to be determined by our board of directors. Rights to acquire shares of our common stock under a stock bonus award may be transferred only upon such terms and conditions as are set forth in the stock bonus award agreement.

Stock Unit Awards. Stock unit awards will be granted pursuant to stock unit award agreements. A stock unit award may require the payment of at least the par value of the stock. Payment of any purchase price may be made in any form permitted under applicable law; however, we will settle a payment due to a recipient of a stock unit award by cash or by delivery of shares of our common stock, a combination of cash and stock as deemed appropriate by our board of directors, or in any other form of consideration determined by our board of directors and set forth in the stock unit award agreement. Additionally, dividend equivalents may be credited in respect of shares of our common stock covered by a stock unit award. Except as otherwise provided in the applicable stock unit award agreement, stock units that have not vested will be forfeited upon the participant’s termination of continuous service for any reason.

Stock Appreciation Rights. Stock appreciation rights will be granted through a stock appreciation rights agreement. Each stock appreciation right is denominated in common stock share equivalents. The strike price of each stock appreciation right will be determined by our board of directors or its authorized committee at the time of grant. Our board of directors or its authorized committee may also impose any restrictions or conditions upon the vesting of stock appreciation rights that it deems appropriate. Stock appreciation rights may be paid in our common stock or in cash or any combination of the two, or any other form of legal consideration approved by our board of directors. If a stock appreciation right recipient’s relationship with us, or any affiliate of ours, ceases for any reason, the recipient may exercise any vested stock appreciation right up to three months from cessation of service, unless the terms of the stock appreciation right agreement provide that the right may be exercised for a longer or shorter period.

Other Stock Awards. Other forms of stock awards valued in whole or in part with reference to our common stock may be granted either alone or in addition to other stock awards under the 2005 plan. Our board of directors will have sole and complete authority to determine the persons to whom and the time or times at which such other stock awards will be granted, the number of shares of our common stock to be granted and all other conditions of such other stock awards.

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Changes to Capital Structure. In the event that there is a specified type of change in our capital structure not involving the receipt of consideration by us, such as a stock split or stock dividend, the number of shares reserved under the 2005 plan and the number of shares and exercise price or strike price, if applicable, of all outstanding stock awards will be appropriately adjusted.

Corporate Transactions. Unless otherwise provided in the stock award agreement, in the event of certain corporate transactions, all outstanding stock awards under the 2005 plan may be assumed, continued or substituted for by any surviving entity. If the surviving entity elects not to assume, continue or substitute for such awards, the vesting provisions of such stock awards generally will be accelerated in full and such stock awards will be terminated if and to the extent not exercised at or prior to the effective time of the corporate transaction and our repurchase rights will generally lapse. In the event options outstanding under the 2005 plan are assumed, continued or substituted for by a surviving entity, all of the unvested shares subject to those options will become fully vested as of the change of control.

Plan Amendments. Our board of directors will have the authority to amend or terminate the 2005 plan. However, no amendment or termination of the plan will adversely affect any rights under awards already granted to a participant unless agreed to by the affected participant. We will obtain stockholder approval of any amendment to the 2005 plan as required by applicable law.

     2005 Non-Employee Directors’ Stock Option Plan

We adopted and our stockholders approved our 2005 non-employee directors’ stock option plan, or directors’ plan, in August 2005, to become effective upon the completion of this offering. The directors’ plan will terminate at the discretion of our board of directors. The directors’ plan provides for the automatic grant of NSOs to purchase shares of our common stock to our non-employee directors.

Share Reserve. An aggregate of 150,000 shares of our common stock are reserved for issuance under the directors’ plan. This amount will be increased annually on the first day of our fiscal year, from 2007 until 2015, by the aggregate number of shares of our common stock subject to options granted as initial grants and annual grants under the directors’ plan during the immediately preceding year. However, our board of directors will have the authority to designate a smaller number of shares by which the authorized number of shares of our common stock will be increased.

Shares of our common stock subject to stock options that have expired or otherwise terminated under the directors’ plan without having been exercised in full shall again become available for grant under the directors’ plan. Shares of our common stock issued under the directors’ plan may be previously unissued shares or reacquired shares bought on the market or otherwise. If the exercise of any stock option granted under the directors’ plan is satisfied by tendering shares of our common stock held by the participant, then the number of shares tendered shall again become available for the grant of awards under the directors’ plan.

Administration. The directors’ plan will be administered by our board of directors, which in turn may delegate authority to administer the plan to a committee.

Stock Options. Stock options will be granted pursuant to stock option agreements. The exercise price of the options granted under the directors’ plan will be equal to 100% of the fair market value of our common stock on the date of grant. Initial grants vest in equal monthly installments over three years after the date of grant and annual grants vest in equal monthly installments over 12 months after the date of grant.

In general, the term of stock options granted under the directors’ plan may not exceed ten years. Unless the terms of an optionholder’s stock option agreement provide for earlier termination, if an optionholder’s service relationship with us, or any affiliate of ours, ceases due to disability or death, the optionholder, or his or her beneficiary, may exercise any vested options up to 12 months, or 18 months in the event of death, after the date such service relationship ends. If an optionholder’s service relationship with us, or any affiliate of ours, ceases without cause for any reason other than disability or death, the optionholder may exercise any vested

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options up to three months from cessation of service, unless the terms of the stock option agreement provide for earlier or later termination.

Acceptable consideration for the purchase of our common stock issued under the directors’ plan may include cash, common stock previously owned by the optionholder or a program developed under Regulation T as promulgated by the Federal Reserve Board.

Generally, an optionholder may not transfer a stock option other than by will or the laws of descent and distribution. However, an optionholder may transfer an option under certain circumstances with our written consent if a Form S-8 registration statement is available for the exercise of the option and the subsequent resale of the shares. In addition, an optionholder may designate a beneficiary who may exercise the option following the optionholder’s death.

Automatic Grants.

•  Initial Grant. Any person who becomes a non-employee director after the completion of this offering will automatically receive an initial grant of an option to purchase 25,000 shares of our common stock upon his or her election. These options will vest in equal monthly installments over three years.

•  Annual Grant. In addition, any person who is a non-employee director on the date of each annual meeting of our stockholders automatically will be granted, on the annual meeting date, beginning with our 2006 annual meeting, an option to purchase 10,000 shares of our common stock, or the annual grant. However, the size of an annual grant made to a non-employee director who is elected after the completion of this offering and who has served for less than 12 months at the time of the annual meeting will be reduced by 25% for each full quarter prior to the date of grant during which such person did not serve as a non-employee director. These options will vest in equal monthly installments over 12 months.

Changes to Capital Structure. In the event there is a specified type of change in our capital structure not involving the receipt of consideration by us, such as a stock split or stock dividend, the number of shares reserved under the directors’ plan and the number of shares and exercise price of all outstanding stock options will be appropriately adjusted.

Corporate Transactions. In the event of certain corporate transactions, all outstanding options under the directors’ plan may be assumed, continued or substituted for by any surviving entity. If the surviving entity elects not to assume, continue or substitute for such options, the vesting of such options held by non-employee directors whose service has not terminated prior to the corporate transaction generally will be accelerated in full and all options outstanding under the directors’ plan will be terminated if not exercised prior to the effective date of the corporate transaction.

Plan Amendments. Our board of directors will have the authority to amend or terminate the directors’ plan. However, no amendment or termination of the directors’ plan will adversely affect any rights under awards already granted to a participant unless agreed to by the affected participant. We will obtain stockholder approval of any amendment to the directors’ plan as required by applicable law.

     2005 Employee Stock Purchase Plan

We adopted and our stockholders approved our 2005 employee stock purchase plan, or the purchase plan, in August 2005, to become effective upon the completion of this offering. The purchase plan will terminate at the time that all of the shares of our common stock then reserved for issuance under the purchase plan have been issued under the terms of the purchase plan, unless our board of directors terminates it earlier. The purchase plan provides a means by which employees may purchase our common stock through payroll deductions, and is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code.

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Share Reserve. An aggregate of 750,000 shares of our common stock are reserved for issuance under the purchase plan. This amount will be increased annually on the first day of our fiscal year, from 2007 until 2015, by the lesser of (i) 1% of the fully-diluted shares of our common stock outstanding on January 1 of the current fiscal year or (ii) 300,000 shares of our common stock. However, our board of directors has the authority to designate a smaller number of shares by which the authorized number of shares of our common stock will be increased.

Administration. The purchase plan will be administered by our board of directors, who may in turn delegate authority to administer the purchase plan to a committee.

Offering. The purchase plan is implemented by offerings of rights to eligible employees. Under the purchase plan, we may specify offerings with a duration of not more than 24 months, and may specify shorter purchase periods within each offering. The first offering will begin on the effective date of this offering and continue for approximately 24 months with purchases occurring approximately every six months.

Unless otherwise determined by our board of directors or its authorized committee, common stock is purchased for accounts of employees participating in the plan at a price per share equal to the lower of (1) 85% of the fair market value of a share of our common stock on the date of commencement of participation in the offering or (2) 85% of the fair market value of a share of our common stock on the date of purchase. However, in the event the fair market value of a share of our common stock on the date of purchase is lower than the fair market value of a share of our common stock on the date of commencement of participation in the offering, the offering period automatically restarts on the date of such purchase. The price at which we sell shares in this offering will be used as the fair market value of a share of our common stock on the date of commencement of the initial offering under the purchase plan.

Generally, all regular employees, including executive officers, who work more than 20 hours per week may participate in the purchase plan and may authorize payroll deductions of up to 15% of their earnings for the purchase of our common stock under the purchase plan.

Limitations. Eligible employees may be granted rights only if the rights, together with any other rights held under our equity incentive plans and the purchase plan, do not permit the employee’s rights to purchase our common stock to accrue at a rate that exceeds $25,000 of the fair market value of our common stock for each calendar year in which such rights are outstanding. In addition, no employee will be eligible for the grant of any rights under the purchase plan if immediately after such rights are granted such employee would have voting power over five percent or more of our outstanding capital stock.

Corporate Transactions. In the event of certain corporate transactions, all outstanding purchase rights under the purchase plan may be assumed, continued or substituted for by any surviving entity. If the surviving entity elects not to assume, continue or substitute for such purchase rights, then the purchase rights will be exercised prior to the corporate transaction and the purchase rights will terminate immediately following such exercise.

Plan Amendments. Our board of directors will have the authority to amend or terminate the purchase plan. If the board determines that the amendment or termination of an offering is in our best interests and the best interests of our stockholders, then the board may terminate any offering on any purchase date, establish a new purchase date with respect to any offering then in progress, amend the purchase plan and the ongoing offering to reduce or eliminate a detrimental accounting treatment or terminate any offering and refund any money contributed back to the participants. We will obtain stockholder approval of any amendment to the purchase plan as required by applicable law.

     401(k) Plan

We maintain a defined contribution employee retirement plan for our employees. The plan is intended to qualify as a tax-qualified plan under Section 401(k) of the Internal Revenue Code so that contributions to the 401(k) plan, and income earned on such contributions, are not taxable to participants until withdrawn or

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distributed from the 401(k) plan. The 401(k) plan provides that each participant may contribute up to 100% of his or her pre-tax compensation, up to a statutory limit, which is $14,000 for calendar year 2005. Participants who are at least 50 years old can also make “catch-up” contributions, which in calendar year 2005 may be up to an additional $4,000 above the statutory limit. Under the 401(k) plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the plan’s trustee. The 401(k) plan also permits us to make discretionary contributions and matching contributions, subject to established limits and a vesting schedule. To date, we have not made any discretionary or matching contributions to the plan on behalf of participating employees.

Limitation of Liability and Indemnification

Our amended and restated certificate of incorporation, which will become effective upon the completion of this offering, limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability for any:

•  breach of their duty of loyalty to the corporation or its stockholders;

•  act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

•  unlawful payment of dividends or redemption of shares; or

•  transaction from which the directors derived an improper personal benefit.

These limitations of liability do not apply to liabilities arising under federal securities laws and do not affect the availability of equitable remedies such as injunctive relief or rescission.

Our amended and restated bylaws, which will become effective upon the completion of this offering, provide that we will indemnify our directors and executive officers, and may indemnify other officers, employees and other agents, to the fullest extent permitted by law. Our amended and restated bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in connection with their services to us, regardless of whether our amended and restated bylaws permit indemnification in connection with any such actions. We have obtained a policy of directors’ and officers’ liability insurance.

We intend to enter into separate indemnity agreements with our directors and executive officers, in addition to the indemnification provided for in our amended and restated bylaws. These agreements, among other things, require us to indemnify our directors and executive officers for certain expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of their services as one of our directors or executive officers, or any of our subsidiaries or any other company or enterprise to which the person provides services at our request.

At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, executive officers or persons controlling us, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

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Related Party Transactions

The following includes a description of transactions since January 1, 2002 and certain transactions prior to that date to which we have been a party, in which the amount involved in the transaction exceeds $60,000, and in which any of our directors, executive officers or holders of more than 5% of our capital stock had or will have a direct or indirect material interest, other than equity and other compensation, termination, change-in-control and other arrangements, which are described under “Management.” We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions. All share and per share amounts have been retroactively adjusted to give effect to the 0.126453-for-1 reverse stock split effected in April 2005.

Stock Issuances

     Initial Issuances of Preferred Stock

From our inception through May 2001, we issued shares of our preferred stock private placements as follows:

•  541,593 shares of our previously outstanding Series A preferred stock at a price of $14.23 per share between June and October 1999 for aggregate gross proceeds of approximately $7.7 million;

•  809,299 shares of our previously outstanding Series B preferred stock at a price of $39.54 per share in March 2000 for aggregate gross proceeds of approximately $32.0 million;

•  673,418 shares of our previously outstanding Series C preferred stock at a price of $66.82 per share in September 2000 for aggregate gross proceeds of approximately $45.0 million; and

•  129,692 shares of our previously outstanding Series D preferred stock valued at $41.68 per share in connection with the acquisition of Prospect Genomics in May 2001.

The following table sets forth the names of our directors, executive officers or holders of more than 5% of our capital stock who participated in our previous Series A, Series B and Series C preferred stock financings in 1999 and 2000:

	Series A		Series B		Series C		Series D
	Preferred Stock		Preferred Stock		Preferred Stock		Preferred Stock
Investor	Purchased(1)		Purchased(1)		Purchased(1)		Purchased(1)
Atlas Venture Fund IV, LP and affiliates		219,536		153,378		59,859		–
Prospect Venture Partners, LP		199,046		54,796		32,131		–
Sprout Capital VIII, LP and affiliates		–		227,615		47,475		–
Index Ventures I, LP and affiliates		–		50,581		51,544		–
BAVP, LP		–		–		178,455		–
Stelios Papadopoulos(2)		–		2,529		5,710		–
Christopher Henney		–		–		7,482		–
Stephen K. Burley		–		–		–		9,263

(1)

These share numbers reflect the 0.126453-for-1 reverse stock split effected in April 2005 even though these shares had been exchanged for shares of Series A-1, Series B-1 and Series C-1 preferred stock or converted to common stock and were no longer outstanding prior to the reverse stock split.

(2)

Excludes 19,454 shares of our previous Series C preferred stock previously held of record by SGC Partners I LLC. SG Cowen & Co., LLC is the managing member of SG Capital Partners L.L.C. which is the general partner of SG Merchant Banking Fund L.P. which is the sole member of SGC Partners I LLC. Because of the relationship, SGC Partners I LLC may be deemed to be an affiliate of SG Cowen & Co., LLC. Dr. Papadopoulos disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein, if any.

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In each of these preferred stock financings, we entered into or amended various stockholder agreements with the holders of our preferred stock relating to voting rights, information rights and registration rights, among other things. The rights, preferences and privileges of each series of preferred stock included a liquidation preference, dividend provisions and antidilution protective provisions, among other rights.

     Secured Bridge Financing and Recapitalization

In July 2004, as part of a secured loan financing, we issued convertible promissory notes in an aggregate principal amount of approximately $13.4 million to certain investors in two tranches.

The notes were secured by substantially all of our assets, accrued interest at 10% per year and were automatically convertible into shares of our preferred stock in the event we completed a preferred stock financing of at least $30.0 million, in the event of our sale or in certain other circumstances. In connection with the secured loan financing, the lenders were then permitted to exchange their existing shares of Series A, Series B, Series C or Series D preferred stock for an equal number of shares of a newly designated Series A-1, Series B-1, Series C-1 and Series D-1 preferred stock, respectively. All remaining outstanding shares of Series A, Series B, Series C or Series D preferred stock, including those held by Dr. Burley, were converted into an equal number of shares of common stock. All convertible promissory notes were subsequently amended in connection with our Series B preferred stock financing in April 2005 to convert all principal and unpaid interest accrued under the notes into shares of Series A-2 preferred stock.

In connection with the 2004 secured loan financing, we issued warrants to the investors that were exercisable for a number of shares of common stock determined based on the conversion price at which the notes were to be converted. These warrants were terminated in April 2005 in connection with the recapitalization effected in connection with our Series B preferred stock financing.

The following table sets forth the names of our directors, executive officers or holders of more than 5% of our capital stock who participated in our secured loan financing, the principal amount of each loan, the accrued interest as of April 21, 2005, the number of shares of Series A-2 preferred stock issued upon conversion of the debt and the number of shares of Series A-1, Series B-1 and Series C-1 preferred stock issued upon the exchange of Series A, Series B and Series C preferred stock:

					Shares of
					Series A-2
					Preferred		Shares Issued Upon Exchange
	Principal				Issued Upon
	Loan		Accrued		Debt		Series		Series		Series
Investor	Amount		Interest		Conversion		A-1(1)		B-1(2)		C-1(3)
Atlas Venture Fund IV, LP and affiliates	$	3,031,743	$	198,747		685,879		219,536		153,378		59,859
Prospect Venture Partners, LP	$	1,500,000	$	98,333		339,349		199,046		54,796		32,131
Sprout Capital VIII, LP and affiliates	$	1,915,674	$	125,583		433,388		–		227,615		47,475
Index Ventures I, LP and affiliates	$	1,500,000	$	98,333		339,478		–		101,162		60,999
BAVP, LP	$	3,000,000	$	196,666		678,698		–		–		178,455
Stelios Papadopoulos(4)	$	57,378	$	3,761		12,981		–		2,529		5,710
Christopher Henney	$	52,106	$	3,415		11,788		–		–		7,482

(1)	Shares of Series A-1 preferred stock issued upon exchange of shares of Series A preferred stock.
(2)	Shares of Series B-1 preferred stock issued upon exchange of shares of Series B preferred stock.
(3)	Shares of Series C-1 preferred stock issued upon exchange of shares of Series C preferred stock.

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(4) Excludes $250,000 principal amount, $16,388.89 of accrued interest, 56,558 shares of Series A-2 preferred stock issued upon conversion of the outstanding note to SGC Partners I LLC and 19,454 shares of Series C-1 preferred stock previously held of record by SGC Partners I LLC. Dr. Papadopoulos is a Vice Chairman of SG Cowen & Co., LLC. SG Cowen & Co., LLC is the managing member of SG Capital Partners L.L.C. which is the general partner of SG Merchant Banking Fund L.P. which is the sole member of SGC Partners I LLC. Because of the relationship, SGC Partners I LLC may be deemed to be an affiliate of SG Cowen & Co., LLC. Dr. Papadopoulos disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein, if any.

     Series B Financing and Recapitalization

In April 2005, we sold in a private placement 1,592,354 shares of Series B preferred stock at $4.71 per share for an aggregate purchase price of approximately $7.5 million in cash. The shares of Series B preferred stock were sold and issued under a Series B Preferred Stock Purchase Agreement dated April 21, 2005 which also provides for the investors’ irrevocable commitment to purchase an additional $7.5 million of our Series B preferred stock in December 2005, provided that no initial public offering or change of control of us has occurred prior to that date. As a result of the offering contemplated by this prospectus, the investors’ obligation to fund the second tranche will lapse. In connection with the private placement, purchasers of Series B preferred stock were allowed to exchange their aggregate shares of our Series A-1, Series A-2, Series B-1, Series C-1 and Series D-1 preferred stock into a newly designated Series A preferred stock pursuant to an exchange formula set forth in the purchase agreement. Non-participants’ outstanding shares of Series A-1, Series A-2, Series B-1, Series C-1 and Series D-1 preferred stock were converted into an equal number of shares of common stock. In addition, we effected a 0.126453-for-1 reverse stock split of all outstanding capital stock prior to closing the private placement.

The following table sets forth the names of directors, executive officers or holders of more than 5% of our capital stock who participated in our Series B preferred stock financing and the number of shares they each purchased or exchanged:

	Series A Preferred Stock		Series B Preferred
Investor	Received in Exchange		Stock Purchased
Atlas Venture Fund IV, LP and affiliates		3,352,837		391,984
Prospect Venture Partners, LP		1,141,795		133,574
Sprout Capital VIII, LP and affiliates		2,118,568		247,684
Index Ventures I, LP and affiliates		1,361,164		159,237
BAVP, LP		3,317,734		387,880
Stelios Papadopoulos(1)		58,234		6,813
Christopher Henney		31,730		6,187

(1) Excludes 276,362 shares of Series A preferred stock and 32,310 shares of Series B preferred stock held of record by SGC Partners I L.L.C. Dr. Papadopoulos is a Vice Chairman of SG Cowen & Co., LLC. SG Cowen & Co., LLC is the managing member of SG Capital Partners L.L.C. which is the general partner of SG Merchant Banking Fund L.P. which is the sole member of SGC Partners I LLC. Because of the relationship, SGC Partners I LLC may be deemed to be an affiliate of SG Cowen & Co., LLC. Dr. Papadopoulos disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein, if any.

Some of our directors are associated with our principal stockholders as indicated in the table below:

Director	Principal Stockholder
Dr. Jean-Francois Formela	Atlas Venture Fund IV, LP and affiliates
Louis C. Bock	BAVP, LP
Vijay Lathi	Sprout Capital VIII, LP and affiliates

In connection with our Series B preferred stock financing, we entered into or amended various stockholder agreements with the holders of our preferred stock relating to voting rights, information rights, and

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registration rights, among other things. These stockholder agreements will terminate upon the completion of this offering, except for the registration rights granted under our amended and restated investor rights agreement, as more fully described in “Description of Capital Stock—Registration Rights.”

Amended and Restated Investor Rights Agreement

Under our amended and restated investor rights agreement entered into in connection with our Series B preferred stock financing, some of our preferred stockholders have registration rights. See “Description of Capital Stock—Registration Rights” for a description of these registration rights. These registration rights have been waived with respect to this offering. Further, we agreed with our stockholders on restrictions on the issuance and transfer of shares of our capital stock and voting rights relating to the election of directors. These restrictions are not applicable to, and will terminate upon the closing of, this offering.

Separation Agreement

In June 2005, we entered into a separation agreement with Neill Giese, our former Vice President of Drug Development. Pursuant to the terms of the separation agreement, Dr. Giese is entitled to severance in the form of his base salary for a period of 12 months following his separation date, which was June 14, 2005. In exchange for his severance benefits under the separation agreement, Dr. Giese has released all claims against us.

Indemnity Agreements

We intend to enter into indemnity agreements with each of our directors and executive officers prior to the completion of this offering, as described in “Management—Limitation of Liability and Indemnification.”

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Principal Stockholders

The following table sets forth information regarding beneficial ownership of our capital stock by:

•  each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock;

•  each of our directors;

•  each of our named executive officers; and

•  all of our directors and executive officers as a group.

The percentage ownership information shown in the table is based upon (1) 1,199,446 shares of common stock outstanding as of August 15, 2005, (2) the conversion of all outstanding shares of our preferred stock into 15,192,354 shares of common stock upon the completion of this offering, (3)                 shares of our common stock automatically issuable upon the completion of this offering under a $6.0 million convertible note and (4) the issuance of                 shares of common stock in this offering. The percentage ownership information assumes no exercise of the underwriters’ over-allotment option.

Each individual or entity shown in the table has furnished information with respect to beneficial ownership. We have determined beneficial ownership in accordance with the SEC’s rules. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of common stock issuable pursuant to the exercise of stock options or warrants that are either immediately exercisable or exercisable on or before October 14, 2005, which is 60 days after August 15, 2005. These shares are deemed to be outstanding and beneficially owned by the person holding those options or warrants for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. All of the options in this table are exercisable at any time but, if exercised, are subject to a lapsing right of repurchase until the options are fully vested. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws.

Except as otherwise noted below, the address for each person or entity listed in the table is c/o SGX Pharmaceuticals, Inc., 10505 Roselle Street, San Diego, California 92121.

				Percentage of Shares
				Beneficially Owned
		Number of Shares		Before			After
Name and Address of Beneficial Owner		Beneficially Owned		Offering			Offering
Atlas Venture Associates IV, Inc. and its affiliates(1)			3,744,821		22.85	%
	890 Winter Street, Suite 320
	Waltham, MA 02451
BAVP, L.P.(2)			3,705,614		22.61
	950 Tower Lane, Suite 700
	Foster City, CA 94404
Sprout Capital VIII, L.P. and its affiliates(3)			2,366,252		14.44
	1 Madison Avenue
	New York, NY 10010
Index Ventures Associates I Limited and its affiliates(4)			1,520,401		9.28
	No. 1 Seaton Place, St. Helier
	Jersey, Channel Islands JE48YJ
Prospect Venture Partners, L.P.			1,275,369		7.78
	435 Tasso Street, Suite 200
	Palo Alto, CA 94301
Michael Grey(5)			268,404		1.61
Stephen K. Burley(6)			213,333		1.29

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			Percentage of Shares
			Beneficially Owned
	Number of Shares		Before		After
Name and Address of Beneficial Owner	Beneficially Owned		Offering		Offering
James A. Rotherham		–		*		*
Annette North(7)		44,003		*		*
Timothy Harris(8)		255,833		1.54
Herbert Mutter(9)		34,224		*		*
Louis C. Bock(2)		3,705,614		22.61
Jean-François Formela(1)		3,744,821		22.85
Karin Eastham(10)		694		*		*
Christopher Henney(11)		193,091		1.18
Vijay Lathi(3)		2,366,252		14.44
Stelios Papadopoulos(12)		87,808		*		*
All directors and executive officers as a group (12 persons)(13)		10,914,077		63.52

* Represents beneficial ownership of less than 1%.

(1)	Atlas Venture Fund III, L.P. (“Atlas III”) is the record holder of 55,468 shares of common stock issuable upon conversion of preferred stock (the “Atlas III Shares”). Atlas Venture Entrepreneurs’ Fund III, L.P. (“AVE III”) is the record holder of 1,205  shares of common stock issuable upon conversion of preferred stock (the “AVE III Shares”). Atlas Venture Fund IV, L.P. (“Atlas IV”) is the record holder of 2,823,021 shares of common stock issuable upon conversion of preferred stock (the “Atlas IV Shares”). Atlas Venture Parallel Fund IV-A, C.V. (“Atlas IV-A”) is the record holder of 819,578 shares of common stock issuable upon conversion of preferred stock (the “Atlas IV-A Shares”). Atlas Venture Entrepreneurs’ Fund IV, L.P. (“AVE IV,” and together with Atlas III, AVE III, Atlas IV and Atlas IV-A, the “Funds”), is the record holder of 45,549 shares of common stock issuable upon conversion of preferred stock (the “AVE IV Shares”, and together with the Atlas III Shares, the AVE III Shares, the Atlas IV Shares and the Atlas IV-A Shares, the “Shares”). As general partner of certain of the Funds, and by virtue of the Funds relationship as affiliated limited partnerships, each of Atlas Venture Associates III, L.P. (“AVA III LP”) and Atlas Venture Associates IV, L.P. (“AVA IV LP”) may also be deemed to beneficially own the Shares. As the general partner of AVA III LP and AVA IV LP, respectively, Atlas Venture Associates III, Inc. (“AVA III Inc.”) and Atlas Venture Associates IV, Inc. (“AVA IV Inc.”) may also be deemed to beneficially own the Shares. AVA III LP, AVA IV LP, AVA III Inc. and AVA IV Inc. disclaim beneficial ownership of the Shares except to the extent of their pecuniary interest therein. In their capacities as directors of AVA III Inc. and AVA IV Inc. each of Messrs. Axel Bichara, Jean-Francois Formela and Christopher Spray may be deemed to beneficially own the Shares. Each of Messrs. Bichara, Formela and Spray disclaim beneficial ownership of the Shares except to the extent of his pecuniary interest therein.
(2)	The voting and disposition of the shares held by BAVP, L.P. is determined by the sole managing member of BA Venture Partners VI, LLC, the ultimate general partner of BAVP, L.P. Louis C. Bock is a member of our board of directors and one of four managing members of BA Venture Partners VI, LLC. As such, he may be deemed to share voting and investment power with respect to these shares beneficially owned by BA Venture Partners IV, Inc. Mr. Bock disclaims beneficial ownership of these shares, except to the extent of his proportionate pecuniary interest therein. Mr. Bock disclaims beneficial ownership of the securities beneficially owned by BA Venture Partners VI, LLC, and has advised us that the beneficial ownership of these securities should not be attributed to him.
(3)	Includes 2,095,218 shares held by Sprout Capital VIII, L.P., 125,704 shares held by Sprout Venture Capital, L.P., 27,781 shares held by Sprout Plan Investors, L.P., 110,685 shares held by DLJ ESC II, L.P. and 6,864 shares held by DLJ Capital Corporation. Vijay K. Lathi is a member of our board of directors and is a Managing Director of New Leaf Venture Partners, L.L.C., or NLV. NLV has entered into an agreement with DLJ Capital Corporation, or DLJCC, whereby NLV provides sub-management services for the Sprout investment portfolio. DLJCC is the managing general partner of Sprout Capital VIII, L.P., the general partner of Sprout Venture Capital, L.P., which is affiliated with DLJ LBO Plans Management Corporation, the general partner of DLJ ESC II, L.P., and of DLJ LBO Plans Management Corporation II, which is the general partner of Sprout Plan Investors, L.P., Mr. Lathi disclaims beneficial ownership of these shares except to the extent of his pecuniary interest in these entities.
(4)	Includes 835,016 shares held by Index Ventures I (Jersey) L.P., 530,203 shares held by Index Ventures I (Delaware) L.P., 28,862 shares held by Index Ventures I Parallel Entrepreneur Fund (Jersey) L.P., 116,435 shares held by Index Ventures I GmbH & Co. KG and 9,885 shares held by Index Venture Management SA on behalf of Index Employee Investment Plan.

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(5)	Represents 268,404 shares that Mr. Grey has the right to acquire from us within 60 days of August 15, 2005 pursuant to the exercise of stock options.
(6)	Includes 201,871 shares that Dr. Burley has the right to acquire from us within 60 days of August 15, 2005 pursuant to the exercise of stock options.
(7)	Represents 44,003 shares that Ms. North has the right to acquire from us within 60 days of August 15, 2005 pursuant to the exercise of stock options.

(8) Includes 218,201 shares that Dr. Harris has the right to acquire from us within 60 days of August 15, 2005 pursuant to the exercise of stock options and a warrant.

  (9) Includes 34,303 shares that Mr. Mutter has the right to acquire from us within 60 days of August 15, 2005 pursuant to the exercise of stock options.

(10)	Represents 694 shares that Ms. Eastham has the right to acquire from us within 60 days of August 15, 2005 pursuant to the exercise of stock options.
(11)	Includes 193,091 shares of common stock, of which 90,417 shares are subject to repurchase as of 60 days after August 15, 2005.
(12)	Includes 22,761 shares that Dr. Papadopoulos has the right to acquire from us within 60 days of August 15, 2005 pursuant to the exercise of outstanding options. Excludes 308,672 shares of common stock held of record by SGC Partners I L.L.C. Dr. Papadopoulos is a Vice Chairman of SG Cowen & Co., LLC. SG Cowen & Co., LLC is the managing member of SG Capital Partners L.L.C. which is the general partner of SG Merchant Banking Fund L.P. which is the sole member of SGC Partners I LLC. Because of the relationship, SGC Partners I LLC may be deemed to be an affiliate of SG Cowen & Co., LLC. Dr. Papadopoulos disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein, if any.
(13)	Includes the shares referred to in footnotes (5), (6), (7), (8), (9), (10), (11) and (12) above.

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Description of Capital Stock

Upon completion of this offering and the filing of our amended and restated certificate of incorporation, our authorized capital stock will consist of 75,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share.

The following is a summary of the rights of our common stock and preferred stock. This summary is not complete. For more detailed information, please see our amended and restated certificate of incorporation and bylaws, which are filed as exhibits to the registration statement of which this prospectus is a part.

Common Stock

     Outstanding Shares

Based on 1,198,514 shares of common stock outstanding as of June 30, 2005, the conversion of all outstanding shares of preferred stock into 15,192,354 shares of common stock upon the completion of this offering, the automatic issuance of                     shares of our common stock upon the completion of this offering under a $6.0 million convertible note, the issuance of shares of common stock in this offering, and no exercise of options or warrants, there will be                      shares of common stock outstanding upon completion of this offering.

As of June 30, 2005, there were 2,391,843 shares of common stock subject to outstanding options under our 2000 equity incentive plan, and 266,726 shares of common stock subject to outstanding warrants.

As of June 30, 2005, we had approximately 201 record holders of our common stock.

     Voting Rights

Each holder of common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors. Our amended and restated certificate of incorporation and bylaws do not provide for cumulative voting rights. Because of this, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election.

     Dividends

Subject to preferences that may be applicable to any then outstanding shares of preferred stock, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by our board of directors out of legally available funds.

     Liquidation

In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any outstanding shares of preferred stock.

     Rights and Preferences

Holders of common stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which we may designate in the future.

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     Fully Paid and Nonassessable

All of our outstanding shares of common stock are, and the shares of common stock to be issued in this offering will be, fully paid and nonassessable.

Preferred Stock

Upon the closing of this offering, our board of directors will have the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon, and to increase or decrease the number of shares of any such series (but not below the number of shares of such series then outstanding).

Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in our control and may adversely affect the market price of the common stock and the voting and other rights of the holders of common stock. We have no current plans to issue any shares of preferred stock.

Warrants

As of June 30, 2005, there were outstanding warrants to purchase the following shares of our capital stock:

				Weighted				Weighted
		# of Shares		Average		# of Shares		Average
		Before		Exercise Price		of Common		Exercise Price
		This		Before This		Stock After		After This
Description		Offering		Offering		This Offering		Offering
Series B Preferred Stock(1)			25,038	$	4.71		25,038	$	4.71
Common Stock(2)			241,688	$	2.06		241,688	$	2.06
	Total:		266,726	$	2.31		266,726	$	2.31

(1)	This warrant will automatically net exercise and terminate if not exercised prior to the completion of this offering. Assumes exercise of all shares prior to the completion of this offering.
(2)	Includes warrants issued in July 2005 to purchase 230,000 shares of our common stock.

In July 2005, we issued warrants to purchase an aggregate of 230,000 shares of our common stock to two former employees at an exercise price of $0.50 per share with a five year term.

The remaining warrants to purchase an aggregate of 11,690 shares of our common stock were issued to lenders in connection with our credit arrangements and currently have exercise prices ranging from $4.71 per share to $66.82 per share. All of these warrants expire no later than five years after our initial public offering.

Each of these warrants has a net exercise provision under which its holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of our common stock at the time of exercise of the warrant after deduction of the aggregate exercise price. Each of these warrants also contains provisions for the adjustment of the exercise price and the aggregate number of shares issuable upon the exercise of the warrant in the event of stock dividends, stock splits, reorganizations and reclassifications and consolidations.

The holders of certain of these warrants are entitled to registration rights under our amended and restated investor rights agreement, as described in “—Registration Rights” below.

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Registration Rights

Under an amended and restated investor rights agreement, following the completion of this offering, the holders of 15,192,354 shares of common stock, the holder of                      shares of our common stock automatically issuable upon the completion of this offering under a $6.0 million convertible note and the holder of warrants to purchase 4,673 shares of common stock have the right to require us to register their shares with the SEC so that those shares may be publicly resold, or to include their shares in any registration statement we file.

     Demand Registration Rights

At any time beginning 180 days after the completion of this offering, the holders of at least 66²/3% of the shares having registration rights have the right to demand that we file up to two registration statements, subject to specified exceptions.

     Form S-3 Registration Rights

If we are eligible to file a registration statement on Form S-3, holders of shares having registration rights have the right to demand that we file a registration statement on Form S-3 so long as the aggregate amount of securities to be sold under the registration statement on Form S-3 is at least $1,000,000, subject to specified exceptions.

     “Piggyback” Registration Rights

If we register any securities for public sale, stockholders with registration rights will have the right to include their shares in the registration statement. The underwriters of any underwritten offering will have the right to limit the number of shares having registration rights to be included in the registration statement, but not below 35% of the total number of shares included in the registration statement, except for this offering in which the underwriters have excluded any sales by existing investors.

     Expenses of Registration

We will pay all expenses relating to up to two demand registrations, all Form S-3 registrations and all piggyback registrations, other than underwriting discounts and commissions. However, we will not pay for the expenses of any demand registration if the request is subsequently withdrawn by the stockholders initiating the demand registration, subject to specified exceptions.

     Expiration of Registration Rights

The registration rights described above will expire five years after the completion of this offering.

Delaware Anti-Takeover Law and Provisions of our Amended and Restated Certificate of Incorporation and Bylaws

     Delaware Anti-Takeover Law

We are subject to Section 203 of the Delaware General Corporation Law. Section 203 generally prohibits a public Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:

•  prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

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•  the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (a) shares owned by persons who are directors and also officers and (b) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

•  on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66²/3% of the outstanding voting stock which is not owned by the interested stockholder.

Section 203 defines a business combination to include:

•  any merger or consolidation involving the corporation and the interested stockholder;

•  any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;

•  subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; and

•  the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.

     Amended and Restated Certificate of Incorporation and Bylaws

Provisions of our amended and restated certificate of incorporation and bylaws, which will become effective upon the completion of this offering, may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our amended and restated certificate of incorporation and bylaws:

•  permit our board of directors to issue up to 5,000,000 shares of preferred stock, with such rights, preferences and privileges as they may designate (including the right to approve an acquisition or other change in our control);

•  provide that the authorized number of directors may be changed only by resolution of the board of directors;

•  provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

•  divide our board of directors into three classes;

•  require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent;

•  provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner, and also specify requirements as to the form and content of a stockholder’s notice;

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•  do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election); and

•  provide that special meetings of our stockholders may be called only by the chairman of the board, our chief executive officer or by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors.

The amendment of any of these provisions would require approval by the holders of at least 66²/3% of our then outstanding common stock.

Nasdaq National Market Listing

We are applying to have our common stock included for quotation on the Nasdaq National Market under the symbol “SGXP.”

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is U.S. Stock Transfer Corporation. The transfer agent and registrar’s address is 1745 Gardena Avenue, Glendale, CA 91204-2991.

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Shares Eligible for Future Sale

Immediately prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of common stock in the public market could adversely affect prevailing market prices. Furthermore, since only a limited number of shares will be available for sale shortly after this offering because of contractual and legal restrictions on resale described below, sales of substantial amounts of common stock in the public market after the restrictions lapse could adversely affect the prevailing market price for our common stock as well as our ability to raise equity capital in the future.

Based on the number of shares of common stock outstanding as of June 30, 2005, upon completion of this offering,            shares of common stock will be outstanding, assuming no exercise of the underwriters’ over-allotment option and no exercise of options or warrants. All of the shares sold in this offering will be freely tradable unless held by an affiliate of ours. Except as set forth below, the remaining shares of common stock outstanding after this offering will be restricted as a result of securities laws or lock-up agreements. These remaining shares will generally become available for sale in the public market as follows:

•  no restricted shares will be eligible for immediate sale upon the completion of this offering;

•  restricted shares, less shares subject to a repurchase option in our favor tied to the holders’ continued service to us, which will be eligible for sale upon lapse of the repurchase option, will be eligible for sale upon expiration of lock-up agreements 180 days after the date of this prospectus; and

•  the remainder of the restricted shares will be eligible for sale from time to time thereafter upon expiration of their respective one-year holding periods, but could be sold earlier if the holders exercise any available registration rights.

Rule 144

In general, under Rule 144 under the Securities Act, as in effect on the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:

•  1% of the number of shares of our common stock then outstanding, which will equal approximately                      shares immediately after this offering; or

•  the average weekly trading volume of our common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 144(k)

Under Rule 144(k) under the Securities Act as in effect on the date of this prospectus, a person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell the shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.                   shares of our common stock will qualify for resale under Rule 144(k) within 180 days of the date of this prospectus.

Rule 701

Rule 701 under the Securities Act, as in effect on the date of this prospectus, permits resales of shares in reliance upon Rule 144 but without compliance with certain restrictions of Rule 144, including the holding period requirement. Most of our employees, executive officers, directors or consultants who purchased shares under a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701,

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but all holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling their shares.

However, substantially all Rule 701 shares are subject to lock-up agreements as described below and under “Underwriting” and will become eligible for sale at the expiration of those agreements.

Lock-Up Agreements

We, along with our directors, executive officers and substantially all of our other stockholders, optionholders and warrantholders, have agreed with the underwriters that for a period of 180 days following the date of this prospectus, we or they will not offer, sell, assign, transfer, pledge, contract to sell or otherwise dispose of or hedge any shares of our common stock or any securities convertible into or exchangeable for shares of common stock, subject to specified exceptions. CIBC World Markets Corp. and Piper Jaffray & Co. on behalf of the underwriters may, in their sole discretion, at any time without prior notice, release all or any portion of the shares from the restrictions in any such agreement. We have been advised by CIBC World Markets Corp. and Piper Jaffray & Co. that, when determining whether or not to release shares from the lock-up agreements, they will consider, among other factors, the stockholder’s reasons for requesting the release, the number of shares for which the release is being requested and market conditions at the time. There are no agreements between CIBC World Markets Corp., Piper Jaffray & Co. and any of our stockholders, optionholders or affiliates releasing them from these lock-up agreements prior to the expiration of the 180-day period. All of these lock-up agreements are subject to limited extension under certain circumstances to allow analysts to publish reports about us.

Registration Rights

Upon completion of this offering, the holders of 15,192,354 shares of our common stock and the holder of            shares of our common stock automatically issuable upon the completion of this offering under a $6.0 million convertible note and the holders of warrants to purchase an aggregate of 4,673 shares of our common stock will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to the 180-day lock-up arrangement described above. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates, immediately upon the effectiveness of any such registration. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock. See “Description of Capital Stock — Registration Rights.”

Equity Incentive Plans

We intend to file with the SEC a registration statement under the Securities Act covering the shares of common stock reserved for issuance under our 2000 equity incentive plan, our 2005 equity incentive plan, our 2005 non-employee directors’ stock option plan, and our 2005 employee stock purchase plan. The registration statement is expected to be filed and become effective as soon as practicable after the completion of this offering. Accordingly, shares registered under the registration statement will be available for sale in the open market following its effective date, subject to Rule 144 volume limitations and the 180-day lock-up arrangement described above, if applicable.

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Underwriting

We have entered into an underwriting agreement with the underwriters named below. CIBC World Markets Corp., Piper Jaffray & Co. and JMP Securities LLC are acting as the representatives of the underwriters.

The underwriting agreement provides for the purchase of a specific number of shares of common stock by each of the underwriters. The underwriters’ obligations are several, which means that each underwriter is required to purchase a specified number of shares, but is not responsible for the commitment of any other underwriter to purchase shares. Subject to the terms and conditions of the underwriting agreement, each underwriter has severally agreed to purchase the number of shares of common stock set forth opposite its name below:

Underwriter		Number of Shares
CIBC World Markets Corp.
Piper Jaffray & Co.
JMP Securities LLC
	Total

The underwriters have agreed to purchase all of the shares offered by this prospectus (other than those covered by the over-allotment option described below) if any are purchased. Under the underwriting agreement, if an underwriter defaults in its commitment to purchase shares, the commitments of non-defaulting underwriters may be increased or the underwriting agreement may be terminated, depending on the circumstances.

The shares should be ready for delivery on or about                     , 2005 against payment in immediately available funds. The underwriters are offering the shares subject to various conditions and may reject all or part of any order. The representatives have advised us that the underwriters propose to offer the shares directly to the public at the public offering price that appears on the cover page of this prospectus. In addition, the representatives may offer some of the shares to other securities dealers at such price less a concession of $           per share. The underwriters may also allow, and such dealers may reallow, a concession not in excess of $           per share to other dealers. After the shares are released for sale to the public, the representatives may change the offering price and other selling terms at various times.

We have granted the underwriters an over-allotment option. This option, which is exercisable for up to 30 days after the date of this prospectus, permits the underwriters to purchase a maximum of  additional shares from us to cover over-allotments. If the underwriters exercise all or part of this option, they will purchase shares covered by the option at the public offering price that appears on the cover page of this prospectus, less the underwriting discount. If this option is exercised in full, the total price to the public will be $                    and the total proceeds to us will be $                    . The underwriters have severally agreed that, to the extent the over-allotment option is exercised, they will each purchase a number of additional shares proportionate to the underwriter’s initial amount reflected in the foregoing table.

The following table provides information regarding the amount of the discount to be paid to the underwriters by us:

		Total Without	Total With Full
		Exercise of Over-	Exercise of Over-
	Per Share	Allotment Option	Allotment Option
SGX	$	$	$

We estimate that the total expenses of the offering, excluding the underwriting discount, will be approximately $          .

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.

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We, our officers and directors and substantially all of our other stockholders have agreed to a 180-day “lock-up” with respect to our shares of common stock and other of our securities that they beneficially own, including securities that are convertible into shares of common stock and securities that are exchangeable or exercisable for shares of common stock. This means that, subject to certain exceptions, for a period of 180 days following the date of this prospectus, we and such persons may not offer, sell, pledge or otherwise dispose of these securities without the prior written consent of CIBC World Markets Corp. and Piper Jaffray & Co. The 180-day lock-up period is subject to extension if (i) during the last 17 days of the lock-up period we issue an earnings release or material news or a material event relating to us occurs or (ii) prior to the expiration of the lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the lock-up period, in which case the restrictions imposed in these lock-up agreements shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. The lock-up provisions do not prevent us from selling shares under any trading plan under Rule 10b5-1 of the Securities and Exchange Act of 1934, as amended. The lock-up provisions do not prevent security holders from transferring their shares or other securities as gifts, to a trust for the benefit of themselves of member of their immediate family, for corporations to wholly-owned subsidiaries, for limited liability companies to their members or affiliated limited liability companies or for partnerships to their partners or affiliated partnerships, provided in each case, that the transferee of such shares of other securities agree to be locked-up to the same extent as the security holder from whom they received the shares.

The representatives have informed us that they do not expect discretionary sales by the underwriters to exceed five percent of the shares offered by this prospectus.

There is no established trading market for the shares. The offering price for the shares has been determined by us and the representatives, based on the following factors:

•  the history and prospects for the industry in which we compete;

•  our past and present operations;

•  our historical results of operations;

•  our prospects for future business and earning potential;

•  our management;

•  the general condition of the securities markets at the time of this offering;

•  the recent market prices of securities of generally comparable companies;

•  the market capitalization and stages of development of other companies which we and the representatives believe to be comparable to us; and

•  other factors deemed to be relevant.

Rules of the SEC may limit the ability of the underwriters to bid for or purchase shares before the distribution of the shares is completed. However, the underwriters may engage in the following activities in accordance with the rules:

•  Stabilizing transactions—The representative may make bids or purchases for the purpose of pegging, fixing or maintaining the price of the shares, so long as stabilizing bids do not exceed a specified maximum.

•  Over-allotments and syndicate covering transactions—The underwriters may sell more shares of our common stock in connection with this offering than the number of shares that they have committed to purchase. This over-allotment creates a short position for the underwriters. This short sales position may involve either “covered” short sales or “naked” short sales. Covered short sales are short sales made in an amount not greater than the underwriters’ over-allotment option to purchase additional shares in this offering described above. The underwriters may close out any covered short position either by exercising their over-allotment option or by purchasing shares in the open market. To determine how they will close the covered short position, the underwriters will consider, among other things, the price of shares

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	available for purchase in the open market, as compared to the price at which they may purchase shares through the over-allotment option. Naked short sales are short sales in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that, in the open market after pricing, there may be downward pressure on the price of the shares that could adversely affect investors who purchase shares in this offering.
•	Penalty bids—If the representatives purchase shares in the open market in a stabilizing transaction or syndicate covering transaction, they may reclaim a selling concession from the underwriters and selling group members who sold those shares as part of this offering.
•	Passive market making—Market makers in the shares who are underwriters or prospective underwriters may make bids for or purchases of shares, subject to limitations, until the time, if ever, at which a stabilizing bid is made.

Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales or to stabilize the market price of our common stock may have the effect of raising or maintaining the market price of our common stock or preventing or mitigating a decline in the market price of our common stock. As a result, the price of the shares of our common stock may be higher than the price that might otherwise exist in the open market. The imposition of a penalty bid might also have an effect on the price of the shares if it discourages resales of the shares.

Neither we nor the underwriters makes any representation or prediction as to the effect that the transactions described above may have on the price of the shares. These transactions may occur on the Nasdaq National Market or otherwise. If such transactions are commenced, they may be discontinued without notice at any time.

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Legal Matters

The validity of the shares of common stock being offered by this prospectus will be passed upon for us by Cooley Godward LLP, San Diego, California. Certain legal matters relating to the offering will be passed upon for the underwriters by Latham & Watkins LLP, Menlo Park, California. As of the date of this prospectus, GC&H Investments, LLC, an investment partnership composed of certain partners and persons associated with Cooley Godward LLP, beneficially owned approximately 13,144 shares, or approximately      %, of our common stock (on an as-converted basis).

Experts

Ernst & Young LLP, independent registered public accounting firm, have audited our consolidated financial statements at December 31, 2004 and 2003, and for each of the three years in the period ended December 31, 2004, as set forth in their report. We have included our consolidated financial statements in this prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.

Where You Can Find More Information

We have filed with the SEC a registration statement on Form S-1 under the Securities Act of 1933, as amended, with respect to the shares of common stock being offered by this prospectus. This prospectus does not contain all of the information in the registration statement and its exhibits. For further information with respect to SGX and the common stock offered by this prospectus, we refer you to the registration statement and its exhibits. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.

You can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at http://www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.

Upon completion of this offering, we will be subject to the information reporting requirements of the Securities Exchange Act of 1934, as amended, and we will file reports, proxy statements and other information with the SEC. These reports, proxy statements and other information will be available for inspection and copying at the public reference room and web site of the SEC referred to above. We also maintain a website at http://www.sgxpharma.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not part of this prospectus.

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SGX Pharmaceuticals, Inc.

Index to Financial Statements

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2003 and 2004 and June 30, 2005 (unaudited)	F-3
Consolidated Statements of Operations for the years ended December 31, 2002, 2003 and 2004 and the six months ended June 30, 2004 and 2005 (unaudited)	F-4
Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2002, 2003 and 2004 and the six months ended June 30, 2005 (unaudited)	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2003 and 2004 and the six months ended June 30, 2004 and 2005 (unaudited)	F-8
Notes to Consolidated Financial Statements	F-9

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

SGX Pharmaceuticals, Inc.

We have audited the accompanying consolidated balance sheets of SGX Pharmaceuticals, Inc. as of December 31, 2003 and 2004 and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of SGX Pharmaceuticals, Inc., at December 31, 2003 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

San Diego, California

April 3, 2005,

except for paragraphs 3 through 6 of Note 10 as to which the date is

April 21, 2005

F-2

SGX Pharmaceuticals, Inc.

Consolidated Balance Sheets

(in thousands, except par value and share data)

											Pro Forma
		December 31,									Stockholders’
								June 30,			Equity at June 30,
		2003			2004			2005			2005
								(unaudited)			(unaudited)
Assets
Current assets:
	Cash and cash equivalents	$	13,635		$	11,512		$	10,428
	Accounts receivable		2,081			919			1,379
	Prepaid expenses and other current assets		1,169			1,229			1,036
Total current assets			16,885			13,660			12,843
Property and equipment, net			13,285			9,663			7,590
Goodwill and intangible assets, net			3,820			3,615			3,525
Other assets			1,953			1,394			1,314
Total assets		$	35,943		$	28,332		$	25,272
Liabilities and stockholders’ deficit
Current liabilities:
	Accounts payable	$	900		$	652		$	775
	Accrued liabilities and other current liabilities		4,298			2,866			2,151
	Accrued liability for the acquisition of Troxatyl		–			1,000			1,000
	Current portion of line of credit		3,851			2,958			1,611
	Note payable		1,981			–			–
	Bridge notes payable		–			13,154			–
	Deferred revenue		4,813			1,664			2,617
Total current liabilities			15,843			22,294			8,154
Deferred rent			293			266			218
Line of credit, net of current portion			3,655			1,308			761
Deferred revenue, long-term			1,890			2,396			2,397
Redeemable convertible preferred stock, par value $.001; Authorized shares— 18,245,351 and 34,391,054 at December 31, 2003 and 2004, respectively, and 19,000,000 at June 30, 2005 (unaudited); issued and outstanding shares 2,154,002 and 1,765,900 at December 31, 2003 and 2004, respectively, and 15,192,354 at June 30, 2005 (unaudited); aggregate liquidation preference and redemption amount— $90,114 and $75,690 at December 31, 2003 and 2004, respectively, and $41,000 at June 30, 2005 (unaudited)			88,306			74,850			40,200		$	–
Stockholders’ deficit:
	Common stock, par value $.001; Authorized shares— 27,000,000 and 35,000,000 at December 31, 2003 and 2004, respectively, and 50,000,000 at June 30, 2005 (unaudited); issued and outstanding shares— 854,312 and 1,000,873 at December 31, 2003 and 2004, respectively, and 1,198,514 at June 30, 2005 (unaudited); 16,390,769 shares of outstanding pro forma (unaudited)		1			1			1			16
	Notes receivable from stockholders		(1,997	)		(138	)		(67	)		(67	)
	Additional paid-in capital		11,226			27,120			94,707			140,892
	Common stock issuable		4,000			6,000			6,000			—
	Deferred compensation		(590	)		–			(8,273	)		(8,273	)
	Accumulated deficit		(86,684	)		(105,765	)		(118,826	)		(118,826	)
Total stockholders’ deficit			(74,044	)		(72,782	)		(26,458	)	$	13,742
Total liabilities and stockholders’ deficit		$	35,943		$	28,332		$	25,272

See accompanying notes.

F-3

SGX Pharmaceuticals, Inc.

Consolidated Statements of Operations

(in thousands, except per share data)

											Six Months Ended
		Years Ended December 31,									June 30,
		2002			2003			2004			2004			2005
											(unaudited)
Revenue:
	Grants	$	350		$	3,344		$	6,380		$	1,742		$	429
	Grants— subcontractor reimbursements		–			4,599			4,976			1,520			2,666
	Collaborations and commercial agreements		2,986			10,135			15,941			8,597			6,763
Total revenue			3,336			18,078			27,297			11,859			9,858
Expenses:
	Research and development		25,573			28,587			31,444			15,255			16,742
	General and administrative		10,122			7,353			6,719			3,337			4,749
	In-process technology		–			–			4,000			–			–
Total operating expenses			35,695			35,940			42,163			18,592			21,491
Loss from operations			(32,359	)		(17,862	)		(14,866	)		(6,733	)		(11,633	)
Interest income			622			320			175			44			115
Interest expense			(932	)		(1,219	)		(669	)		(382	)		(190	)
Interest expense associated with bridge notes			–			–			(3,392	)		–			(1,188	)
Net loss			(32,669	)		(18,761	)		(18,752	)		(7,071	)		(12,896	)
Accretion to redemption value of redeemable convertible preferred stock			(329	)		(329	)		(329	)		(165	)		(165	)
Net loss attributable to common stockholders		$	(32,998	)	$	(19,090	)	$	(19,081	)	$	(7,236	)	$	(13,061	)
Basic and diluted net loss per share attributable to common stockholders:
	Historical	$	(39.42	)	$	(22.43	)	$	(19.91	)	$	(8.34	)	$	(12.39	)
	Pro forma (unaudited)							$	(6.61	)				$	(1.17	)
Shares used to compute basic and diluted net loss per share attributable to common stockholders:
	Historical		837			851			958			867			1,054
	Pro forma (unaudited)								2,887						11,157

See accompanying notes.

F-4

SGX Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ Deficit

Years Ended December 31, 2002, 2003 and 2004 and the Six Months Ended June 30, 2005 (unaudited)

(in thousands, except share data)

Common Stock

Notes

Accumulated

Receivable

Additional

Common

Other

Total

Earnout

from

Paid-In

Deferred

Stock

Comprehensive

Accumulated

Stockholders’

Shares

Shares

Amount

Stockholders

Capital

Compensation

Issuable

Income (Loss)

Deficit

Deficit

Balance at December 31, 2001

692,222

85,293

$

1

$

(1,116

)

$

7,443

$

(2,612

)

$

–

$

(2

)

$

(34,596

)

$

(30,882

)

Issuance of warrant to lender

–

–

–

–

212

–

–

–

–

212

Issuance of common stock upon exercise of stock options

148,947

–

–

(970

)

1,001

–

–

–

–

31

Repurchase of unvested restricted stock

(37,436

)

–

–

113

(326

)

210

–

–

–

(3

)

Repayment of notes receivable from stockholders

–

–

–

101

–

–

–

–

–

101

Accrued interest on notes receivable from stockholders

–

–

–

(117

)

–

–

–

–

–

(117

)

Deferred compensation for issuance of equity instruments

–

–

–

–

758

(758

)

–

–

–

–

Stock-based compensation, including amortization of deferred compensation

–

–

–

–

246

1,511

–

–

–

1,757

Release of earnout shares upon achievement of milestones

56,862

(56,862

)

–

–

1,778

–

–

–

–

1,778

Cancellation of unearned earnout shares

–

(28,431

)

–

–

–

–

–

–

–

–

Issuance cost incurred in equity financing

–

–

–

–

(118

)

–

–

–

–

(118

)

Conversion of note payable

–

–

–

–

–

–

3,000

–

–

3,000

Deemed dividend and accretion to redemption value of redeemable convertible preferred stock

–

–

–

–

–

–

–

–

(329

)

(329

)

Unrealized gain on available–for–sale securities

–

–

–

–

–

–

–

2

–

2

Net loss

–

–

–

–

–

–

–

–

(32,669

)

(32,669

)

Comprehensive loss

–

–

–

–

–

–

–

–

–

(32,667

)

Balance at December 31, 2002

860,595

–

1

(1,989

)

10,994

(1,649

)

3,000

–

(67,594

)

(57,237

)

Issuance of warrant to lender

–

–

–

–

15

–

–

–

–

15

Issuance of common stock upon exercise of stock options

615

–

–

–

5

–

–

–

–

5

Repurchase of unvested restricted stock

(14,155

)

–

–

91

(86

)

–

–

–

–

5

Issuance of common stock to former employee

7,257

–

–

–

–

–

–

–

–

–

Repayment of notes receivable from stockholders

–

–

–

25

–

–

–

–

–

25

Accrued interest on notes receivable from stockholders

–

–

–

(124

)

–

–

–

–

–

(124

)

Deferred compensation for issuance of equity instruments

–

–

–

57

(57

)

–

–

–

–

Stock-based compensation, including amortization of stock-based compensation

–

–

–

–

123

1,116

–

–

–

1,239

Write-off of issuance costs incurred in equity financing

–

–

–

–

118

–

–

–

–

118

Conversion of note payable

–

–

–

–

–

–

1,000

–

–

1,000

Deemed dividend and accretion to redemption value of redeemable convertible preferred stock

–

–

–

–

–

–

–

–

(329

)

(329

)

Net loss and comprehensive loss

–

–

–

–

–

–

–

–

(18,761

)

(18,761

)

Balance at December 31, 2003

854,312

–

$

1

$

(1,997

)

$

11,226

$

(590

)

$

4,000

$

–

$

(86,684

)

$

(74,044

)

F-5

SGX Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ Deficit (continued)

Years Ended December 31, 2002, 2003 and 2004 and the Six Months Ended June 30, 2005 (unaudited)

(in thousands, except share data)

Common Stock

Notes

Accumulated

Receivable

Additional

Common

Other

Total

Earnout

from

Paid-In

Deferred

Stock

Comprehensive

Accumulated

Stockholders’

Shares

Shares

Amount

Stockholders

Capital

Compensation

Issuable

Income (Loss)

Deficit

Deficit

Balance at December 31, 2003

854,312

–

$

1

$

(1,997

)

$

11,226

$

(590

)

$

4,000

$

–

$

(86,684

)

$

(74,044

)

Issuance of common stock upon exercise of stock options

22,393

–

–

–

62

–

–

–

–

62

Repurchase of unvested restricted stock

(1,488

)

–

–

–

(10

)

–

–

–

–

(10

)

Repurchase of common stock in exchange for settlement of notes and accrued interest from stockholders

(262,448

)

–

–

1,764

(1,764

)

–

–

–

–

–

Forgiveness of a portion of principal on notes and accrued interest on note settlement

–

–

–

131

651

–

–

–

–

782

Repayment of notes receivable from stockholders

–

–

–

42

–

–

–

–

–

42

Accrued interest on notes receivable from stockholders

–

–

–

(78

)

–

–

–

–

–

(78

)

Deferred compensation for issuance of equity instruments

–

–

–

6

(6

)

–

–

–

–

Amortization of stock-based compensation

–

–

–

–

(147

)

596

–

–

–

449

Issuance costs incurred in equity financing

–

–

–

–

(166

)

–

–

–

–

(166

)

Conversion of note payable

–

–

–

–

–

–

2,000

–

–

2,000

Conversion of redeemable preferred stock into common stock for non- participation in the bridge financing

388,104

–

–

–

13,785

–

–

–

–

13,785

Issuance of warrants to bridge note lenders

–

–

–

–

3,477

–

–

–

–

3,477

Deemed dividend and accretion to redemption value of redeemable convertible preferred stock

–

–

–

–

–

–

–

–

(329

)

(329

)

Net loss and comprehensive loss

–

–

–

–

–

–

–

–

(18,752

)

(18,752

)

Balance at December 31, 2004

1,000,873

–

$

1

$

(138

)

$

27,120

$

–

$

6,000

$

–

$

(105,765

)

$

(72,782

)

F-6

SGX Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ Deficit (continued)

Years Ended December 31, 2002, 2003 and 2004 and the Six Months Ended June 30, 2005 (unaudited)

(in thousands, except share data)

Common Stock

Notes

Accumulated

Receivable

Additional

Common

Other

Total

Earnout

from

Paid-In

Deferred

Stock

Comprehensive

Accumulated

Stockholders’

Shares

Shares

Amount

Stockholders

Capital

Compensation

Issuable

Income (Loss)

Deficit

Deficit

Balance at December 31, 2004

1,000,873

–

$

1

$

(138

)

$

27,120

$

–

$

6,000

$

–

$

(105,765

)

$

(72,782

)

Issuance of common stock upon exercise of stock options

358

–

–

–

1

–

–

–

–

1

Conversion of preferred stock into common stock for non- participation in the Series B financing

57,459

–

–

–

1,233

–

–

–

–

1,233

Repayment of notes receivable from stockholders

–

–

–

71

–

–

–

–

–

71

Deferred compensation for issuance of equity instruments

–

–

–

–

9,863

(9,863

)

–

–

–

–

Amortization of stock-based compensation

–

–

–

–

–

1,590

–

–

–

1,590

Repurchase of unvested restricted stock

(176

)

–

–

–

(3

)

–

–

–

–

(3

)

Issuance of restricted stock

140,000

–

–

–

654

–

–

–

–

654

Issuance of equity instruments to former employees and consultants

–

–

–

–

1,309

–

–

–

–

1,309

Deemed dividend and accretion to redemption value of redeemable convertible preferred stock

–

–

–

–

–

–

–

–

(165

)

(165

)

Reduction of redemption value on redeemable preferred stock

–

–

–

–

54,530

–

–

–

–

54,530

Net loss and comprehensive loss

–

–

–

–

–

–

–

–

(12,896

)

(12,896

)

Balance at June 30, 2005 (unaudited)

1,198,514

–

$

1

$

(67

)

$

94,707

$

(8,273

)

$

6,000

$

-

$

(118,826

)

$

(26,458

)

See accompanying notes.

F-7

SGX Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(in thousands)

												Six Months Ended
			Years Ended December 31,									June 30,
			2002			2003			2004			2004			2005
												(unaudited)
Operating activities:
Net loss			$	(32,669	)	$	(18,761	)	$	(18,752	)	$	(7,071	)	$	(12,896	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization			4,327			5,110			5,002			2,512			2,294
	Imputed interest expense on convertible debenture			291			239			18			18			–
	Stock-based compensation			1,757			1,239			449			326			3,553
	Compensation related to earnout shares			1,778			–			–			–			–
	Amortization of discount on warrants			41			84			64			32			32
	Amortization of discount on warrants associated with bridge notes			–			–			2,753			–			727
	Deferred rent			42			169			(27	)		(17	)		(48	)
	Non-cash receipt of fixed assets			(350	)		–			–			–			–
	Accrual of interest on notes receivable from stockholders			(117	)		(124	)		(78	)		49			–
	Accrual of interest on bridge notes payable			–			–			467			–			411
	Forgiveness of principal and accrued interest on note settlement			–			–			782			–			–
	Changes in operating assets and liabilities:
		Prepaid expenses and other current assets		(281	)		(2,185	)		1,102			132			(267	)
		Accrued interest on marketable securities		70			–			–			–			–
		Accounts payable and accrued liabilities		(3,657	)		1,968			(680	)		(607	)		(592	)
		Deferred revenue		187			5,865			(2,643	)		(1,822	)		954
		Other assets		(806	)		84			559			398			80
Net cash used in operating activities				(29,387	)		(6,312	)		(10,984	)		(6,050	)		(5,752	)
Investing activities:
Purchases of property and equipment, net				(5,327	)		(1,313	)		(1,175	)		(896	)		(131	)
Purchase of short term investments				(20,093	)		–			–			–			–
Sale and maturity of short-term investments				30,002			–			–			–			–
Net cash provided by (used in) investing activities				4,582			(1,313	)		(1,175	)		(896	)		(131	)
Financing activities:
Proceeds from lines of credit and notes payable				9,952			1,302			643			642			–
Principal payments on lines of credit and notes payable				(1,991	)		(3,912	)		(3,946	)		(2,003	)		(1,926	)
Proceeds from repayment of notes receivable from stockholders				101			25			42			–			71
Issuance of common stock for cash, net of repurchases				28			10			52			45			(2	)
Issuance of preferred stock, net				(118	)		118			(166	)		–			6,656
Issuance of bridge notes				–			–			13,411						–
Net cash provided by (used in) financing activities				7,972			(2,457	)		10,036			(1,316	)		4,799
Net decrease in cash and cash equivalents				(16,833	)		(10,082	)		(2,123	)		(8,262	)		(1,084	)
Cash and cash equivalents at beginning of period				40,550			23,717			13,635			13,635			11,512
Cash and cash equivalents at end of period			$	23,717		$	13,635		$	11,512		$	5,373		$	10,428
Supplemental schedule of cash flow information:
Cash paid for interest			$	600		$	890		$	587		$	332		$	159
Supplemental schedule of noncash investing and financing activities:
Issuance of common stock for notes receivable			$	970		$	–		$	–		$	–		$	–
Issuance of warrant related to line of credit			$	212		$	15		$	–		$	–		$	–
Deferred compensation			$	758		$	57		$	–		$	–		$	9,863
Conversion of note payable to stock issuable			$	3,000		$	1,000		$	2,000		$	–		$	–
Conversion of bridge notes and redeemable convertible preferred stock to equity			$	–			–			–		$	13,785		$	54,530

See accompanying notes.

F-8

SGX Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

(in thousands, except share and per share data)

1. Organization and Summary of Significant Accounting Policies

     Organization and Business

SGX Pharmaceuticals, Inc. (“SGX” or the “Company”), was incorporated in Delaware on July 16, 1998. SGX is a biotechnology company focused on the discovery, development and commercialization of innovative cancer therapeutics.

     Principles of Consolidation

The consolidated financial statements include the assets, liabilities, and results of operations of the Company and its wholly-owned subsidiary. All material intercompany balances and transactions have been eliminated in consolidation.

     Interim Financial Information

The financial statements as of June 30, 2005 and for the six months ended June 30, 2004 and 2005 are unaudited. The unaudited financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial information therein in accordance with U.S. generally accepted accounting principles. The results of operations for the six months ended June 30, 2005 are not necessarily indicative of the results that may be reported for the year ending December 31, 2005.

     Stock Split

In April 2005, the Company’s board of directors authorized a .126453-for-1 reverse stock split for all outstanding preferred and common shares. All share information has been retroactively restated to reflect the reverse stock split.

     Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

     Unaudited Pro Forma Stockholders’ Equity

The Company’s board of directors has authorized the filing of a registration statement with the Securities and Exchange Commission to register shares of its common stock in an initial public offering. Upon the closing of the initial public offering, all of the shares of preferred stock will be converted into 15,192,354 shares of common stock. The unaudited pro forma stockholders’ equity reflects the conversion of all outstanding preferred stock into common stock as if such conversion had occurred at June 30, 2005. In addition to the conversion of preferred stock upon an initial public offering, the unaudited pro forma stockholders’ equity at June 30, 2005 reflects the conversion of the common stock issuable balance of $6,000 into additional paid in capital as if such conversion had occurred at June 30, 2005.

     Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of less than three months when purchased to be cash equivalents. Cash equivalents are recorded at cost, which approximate market value.

F-9

SGX Pharmaceuticals, Inc.—(Continued)

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

     Stock-Based Compensation

The Company has elected to follow Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related Interpretations in accounting for its employee and director stock options. Under APB 25, if the exercise price of the Company’s employee and director stock options equals or exceeds the estimated fair value of the underlying stock on the date of grant, no compensation expense is recognized.

Options or stock awards issued to non-employees are recorded at their fair value as determined in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), and Emerging Issues Task Force (“EITF”) 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods and Services, and are periodically revalued as the options vest and are recognized as expense over the related service period.

The Company’s board of directors estimates the fair value of the Company’s common stock for purposes of establishing exercise prices of stock options. Given the absence of an active market for the Company’s common stock through 2004, the board of directors considered, among other factors, the liquidation preferences, anti-dilution protection and voting preferences of the preferred stock over the common stock in determining the estimated fair value of the common stock for purposes of establishing the exercise prices for stock option grants.

In preparation for an initial public offering, the Company has revised its estimate of the fair value for financial reporting purposes of common stock for the last six months of 2004 and the six months ended June 30, 2005. This valuation was done retrospectively by management, a related party, and the Company did not obtain contemporaneous valuations from an independent valuation specialist. In reassessing the value of common stock in 2004 and 2005, the Company considered the price it received in April 2005 for its Series B preferred stock of $4.71 per share, since this was an arms-length transaction. Starting on July 1, 2004, the Company reduced the value originally attributed to the preferences on the Series B preferred stock to 10% of the price of the preferred stock. Accordingly, the Company estimated the fair value of the common stock to be 90% of the Series B preferred stock price, or $4.24 per share. The Company kept this value constant until April 2005, when the Company steadily increased the estimated fair value to $6.10 per common share based on an assessment of market considerations, including discussions with the underwriters in the initial public offering. This valuation method was selected because the Company believes it reflects the change in value held by the common stockholders that will result from a successful public offering, which includes the conversion of preferred stock into common stock thereby eliminating the preferences and rights attributable to the preferred stock. Furthermore, the Company believes this valuation approach is consistent with valuation methodologies applied to other similar companies pursuing an initial public offering.

The Company recorded deferred stock compensation, net of forfeitures, for employee and non-employee directors stock option grants within stockholders’ deficit of $0 in 2004 and $10,517 in the six months ended June 30, 2005, which represents the difference between the revised fair value of the common stock for financial reporting purposes and the option exercise price at the date of grant. The weighted-average exercise price and the weighted-average revised fair value were $0.50 and $4.62 for the options granted during the six months ended June 30, 2005, respectively. Deferred compensation will be amortized to expense over the vesting period of the related options using an accelerated method in accordance with FASB Interpretation (“FIN”) No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.

F-10

SGX Pharmaceuticals, Inc.—(Continued)

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

The Company recorded amortization of deferred stock compensation of $0 during the year ended December 31, 2004 and $2,244 during the six months ended June 30, 2005. The expected future amortization expense for deferred stock compensation for stock option grants is as follows:

For the Years Ending December 31,
2005	$	5,804
2006		3,401
2007		1,181
2008		127
2009		4
	$	10,517

Below is a summary of employee stock option grant and restricted stock award activity, net of forfeitures, and related fair value information for the six months ended June 30, 2005. There were no employee stock option grants during the period July 1 to December 31, 2004:

							Fair Value of
			Shares		Exercise		Common Stock on		Intrinsic Value
Grant Date			Granted		Price		Date of Grant		Per Share
2005:
	May			1,682,500	$	0.50	$	5.17	$	4.67
	June			471,188	$	0.50	$	6.10	$	5.60
		Total		2,153,688

The table below illustrates the effect on net loss and net loss per share had the Company applied the fair value provisions of SFAS No. 123 to employee stock compensation.

	December 31,									June 30,
	2002			2003			2004			2004			2005
Net loss attributable to common stockholders, as reported	$	(32,998	)	$	(19,090	)	$	(19,081	)	$	(7,236	)	$	(13,061	)
Add: Stock-based employee compensation expense included in net loss attributable to common stockholders		759			334			121			95			2,244
Deduct: Stock-based employee compensation determined under the fair value method		(911	)		(475	)		(262	)		(166	)		(2,265	)
Pro forma net loss attributable to common stockholders	$	(33,150	)	$	(19,231	)	$	(19,222	)	$	(7,307	)	$	(13,082	)
Basic and diluted net loss attributable to common stockholders per share, as reported	$	(39.42	)	$	(22.43	)	$	(19.91	)	$	(8.34	)	$	(12.39	)
Pro forma basic and diluted net loss attributable to common stockholders per share	$	(39.61	)	$	(22.60	)	$	(20.06	)	$	(8.43	)	$	(12.41	)

F-11

SGX Pharmaceuticals, Inc.—(Continued)

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

The fair value of these stock option and restricted stock grants were estimated at the date of grant, using a Black-Scholes option pricing model, using a risk-free interest rate of 3% and the following weighted average assumptions: volatility factor of 63%, dividend yield of 0%; and a weighted-average life of the stock option and restricted stock grants of four years.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions. Because the Company’s employee stock option and restricted stock grants have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimates, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options and restricted stock grants.

Property and Equipment

Property and equipment are stated on the basis of cost less accumulated depreciation and amortization. Depreciation and amortization is calculated using the straight–line method over the shorter of the estimated useful lives of the assets (3¹/2 to 15 years) or the term of the applicable lease.

Long-Lived Assets

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, if indicators of impairment exist, the Company assesses the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through the undiscounted future operating cash flows. If impairment is indicated, the Company measures the amount of such impairment by comparing the carrying value of the asset to the present value of the expected future cash flows associated with the use of the asset. Although the Company has accumulated losses since inception, the Company believes the future cash flows to be received from the long-lived assets will exceed the assets’ carrying value, and accordingly, the Company has not recognized any impairment losses through December 31, 2004.

Income Taxes

The Company accounts for income taxes using the liability method in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of the Company’s assets and liabilities and are estimated using enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided when the Company determines that it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Net Loss Per Share Attributable to Common Stockholders

The Company computes net loss per share attributable to common stockholders in accordance with SFAS No. 128, Earnings Per Share (“SFAS 128”). Under the provisions of SFAS 128, basic net loss per share attributable to common stockholders (“Basic EPS”) is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. Diluted net loss per share attributable to common stockholders (“Diluted EPS”) is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares and dilutive common share equivalents then outstanding. Common share equivalents consist of the incremental common shares issuable upon the conversion of preferred stock, shares issuable upon the exercise of stock options and shares issuable

F-12

SGX Pharmaceuticals, Inc.—(Continued)

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

upon the exercise of warrants. For the periods presented, Diluted EPS is identical to Basic EPS because common share equivalents, including all of the Company’s preferred stock, outstanding stock options and outstanding warrants, are excluded from the calculation, as their effect is antidilutive. Had the Company been in a net income position, these securities may have been included in the calculation. These potentially dilutive securities consist of the following on a weighted average basis:

	Years Ended December 31,						Six Months Ended June 30,
	2002		2003		2004		2004		2005
Redeemable convertible preferred stock		2,158,216		2,154,004		1,987,522		2,154,004		6,958,451
Outstanding common stock options		252,276		278,885		367,762		375,813		940,185
Outstanding warrants		17,193		20,553		20,958		20,844		124,199
Total		2,427,685		2,453,442		2,376,242		2,550,661		8,022,835

The unaudited pro forma basic and diluted net loss per share calculations assume the conversion of all outstanding shares of preferred stock into shares of common stock using the as-if-converted method, as if such conversion had occurred as of January 1, 2004 or, in the case of a portion of the new Series A and the Series B preferred stock, the original issuance date since it was later. The unaudited pro forma basic and diluted net loss per share calculations do not assume the conversion of the common stock issuable balance of $6,000, as the number of shares are determined based on the price per share in the initial public offering.

Fair Value of Financial Statements

The carrying value of cash equivalents, accounts receivable, accounts payable, accrued expenses and liabilities and notes payable are considered to be reasonable estimates of their respective fair values due to their short-term nature.

Deferred Rent

Rent expense is recorded on a straight-line basis over the term of the lease. The difference between rent expense accrued and amounts paid under the lease agreement is recorded as deferred rent in the accompanying consolidated balance sheets.

Research and Development

Research and development costs are expensed as incurred.

Revenue Recognition

The Company’s collaboration agreements contain multiple elements, including non-refundable upfront fees, payments for reimbursement of research costs, payments for ongoing research, payments associated with achieving specific milestones and royalties based on specified percentages of net product sales, if any. The Company applies the revenue recognition criteria outlined in Staff Accounting Bulletin No. 104, Revenue Recognition and EITF Issue 00-21, Revenue Arrangements with Multiple Deliverables (“EITF 00-21”). In applying these revenue recognition criteria, the Company considers a variety of factors in determining the appropriate method of revenue recognition under these arrangements, such as whether the elements are

F-13

SGX Pharmaceuticals, Inc.—(Continued)

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

separable, whether there are determinable fair values and whether there is a unique earnings process associated with each element of a contract.

Cash received in advance of services being performed is recorded as deferred revenue and recognized as revenue as services are performed over the applicable term of the agreement.

When a payment is specifically tied to a separate earnings process, revenues are recognized when the specific performance obligation associated with the payment is completed. Performance obligations typically consist of significant and substantive milestones pursuant to the related agreement. Revenues from milestone payments may be considered separable from funding for research services because of the uncertainty surrounding the achievement of milestones for products in early stages of development. Accordingly, these payments could be recognized as revenue if and when the performance milestone is achieved if they represent a separate earnings process as described in EITF 00-21.

In connection with certain research collaborations, revenues are recognized from non-refundable upfront fees, which the Company does not believe are specifically tied to a separate earnings process, ratably over the term of the agreement. Research services provided under some of the Company’s collaboration agreements are on a fixed fee basis. Revenues associated with long-term fixed fee contracts are recognized based on the performance requirements of the agreements and as services are performed.

Revenues derived from reimbursement of direct out-of-pocket expenses for research costs associated with grants are recorded in compliance with EITF Issue 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent (“EITF 99-19”), and EITF Issue 01-14, Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred (“EITF 01-14”). According to the criteria established by these EITF Issues, in transactions where the Company acts as a principal, with discretion to choose suppliers, bears credit risk and performs part of the services required in the transaction, the Company records revenue for the gross amount of the reimbursement. The costs associated with these reimbursements are reflected as a component of research and development expense in the statements of operations.

None of the payments that the Company has received from collaborators to date, whether recognized as revenue or deferred, is refundable even if the related program is not successful.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Comprehensive Income (Loss)

SFAS No. 130, Reporting Comprehensive Income, requires that all components of comprehensive income, including net income, be reported in the financial statements in the period in which they are recognized. Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss), including foreign currency translation adjustments and unrealized gains and losses on investments, are to be reported, net of their related tax effect, to arrive at comprehensive income (loss).

F-14

SGX Pharmaceuticals, Inc.—(Continued)

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

Recently Issued Accounting Standards

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” This statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of unallocated overhead resulting from abnormally low production (or idle capacity), freight, handling costs, and wasted material (spoilage). This statement requires that those items be recognized as current-period charges. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this statement will be effective for inventory costs during the fiscal years beginning after June 15, 2005. The Company does not believe that the adoption of this statement will have a material impact on its financial condition or results of operations.

On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004),“Share-Based Payment” (“SFAS 123R”) which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS 123R supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS 95, “Statement of Cash Flows.” Generally, the approach in SFAS 123R is similar to the approach described in SFAS 123. However, SFAS 123R requires all share-based payments to employees or directors, including grants of employee and director stock options, to be recognized as an expense on the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS 123R must be adopted no later than January 1, 2006. Early adoption will be permitted in periods in which financial statements have not yet been issued. The Company expects to adopt SFAS 123R on January 1, 2006.

As permitted by SFAS 123, the Company currently accounts for share-based payments to employees using the intrinsic value method under APB Opinion No. 25 and, as such, generally recognize no compensation cost for employee stock options issued at fair market value. Accordingly, the adoption of the fair value method under SFAS 123R will have a significant impact on our results of operations, although it will have no impact on the Company’s overall financial position. The impact of adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net loss and loss per share in this note 1 to our financial statements.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets — An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for the fiscal periods beginning after June 15, 2005 and is required to be adopted beginning January 1, 2006. The Company is currently evaluating the effect that the adoption of SFAS 153 will have on its consolidated results of operations and financial condition but does not expect it to have a material impact.

F-15

SGX Pharmaceuticals, Inc.—(Continued)

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

2. Balance Sheet Details

Property and Equipment

Property and equipment consist of the following:

			December 31,
	Estimated								June 30,
	Life in Years		2003			2004			2005
									(unaudited)
Lab equipment		5-7	$	10,918		$	11,851		$	11,945
Computers and equipment		3-5		7,381			7,629			7,665
Leasehold improvements		4-15		4,795			4,795			4,935
Furniture		10		411			411			411
Construction in progress		NA		772			766			627
				24,277			25,452			25,583
Accumulated depreciation and amortization				(10,992	)		(15,789	)		(17,993	)
			$	13,285		$	9,663		$	7,590

Total depreciation expense of property and equipment was $4,079, $4,884, and $4,797 for the years ended December 31, 2002, 2003 and 2004, respectively, and $2,406 and $2,204 for the six months ended June 30, 2004 and 2005, respectively. Cost and accumulated depreciation of assets under capital leases was $12,482 and $3,244, respectively, at December 31, 2003, $13,425 and $5,978, respectively, at December 31, 2004, and $14,426 and $9,127, respectively, at June 30, 2005. Depreciation of assets under capital leases is included in depreciation expense.

A majority of the Company’s property and equipment collateralizes the outstanding obligation under the existing line of credit agreements as of December 31, 2004 and June 30, 2005.

Goodwill and Intangible Assets

Intangible assets include the following:

			December 31, 2003
			Gross
	Estimated		Carrying		Accumulated
	Life in Years		Amount		Amortization
Goodwill		Indefinite	$	3,914	$	(522	)
Licenses		3– 5		977		(549	)
Total intangible assets			$	4,891	$	(1,071	)

			December 31, 2004
			Gross
	Estimated		Carrying		Accumulated
	Life in Years		Amount		Amortization
Goodwill		Indefinite	$	3,914	$	(522	)
Licenses		3– 5		977		(754	)
Total intangible assets			$	4,891	$	(1,276	)

F-16

SGX Pharmaceuticals, Inc.—(Continued)

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

				June 30, 2005
				(unaudited)
				Gross
		Estimated		Carrying		Accumulated
		Life in Years		Amount		Amortization
Goodwill			Indefinite	$	3,914	$	(522	)
Licenses			3– 5		977		(844	)
	Total intangible assets			$	4,891	$	(1,366	)

The amortization expense of intangible assets, excluding goodwill, for the years ended December 31, 2002, 2003 and 2004 and the six months ended June 30, 2004 and 2005 was approximately $256, $205, $226, $138 and $90, respectively.

Estimated amortization of intangibles (in thousands) for the years ended:

2005	$	176
2006		47
Thereafter		–
	$	223

3. Equipment Lines of Credit

In July 2002, the Company entered into a line of credit agreement under which it could borrow up to $6,000 to finance equipment. During 2002, the Company borrowed the entire $6,000 of this line of credit in one drawdown. The borrowing under the line of credit bears interest at 9.7% per annum and is collateralized solely by the financed equipment. Principal and interest are payable monthly over 36 months, and the Company is required to make a final balloon payment equal to approximately 5% of the original principal amount of the drawdown.

In September 2002, the Company entered into a line of credit agreement under which it could borrow up to $6,500 to finance equipment. Borrowings under the line of credit bear interest at rates ranging between 9.14% and 10.60% per annum and are collateralized solely by the financed equipment. Principal and interest are payable monthly over either 35 months or 47 months depending on the type of equipment financed. The line of credit requires the Company to execute a letter of credit in favor of the finance company in the amount of $150. As of December 31, 2004, there are no amounts available for future draws under this line of credit.

Future minimum principal payments due on the above equipment lines of credit as of December 31, 2004 are as follows (in thousands):

2005	$	2,958
2006		1,029
2007		280
2008		52
Total	$	4,319

F-17

SGX Pharmaceuticals, Inc.—(Continued)

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

The Company issued a warrant in connection with the equipment lines of credit, which has an unamortized amount of $53 as of December 31, 2004 and $21 as of June 30, 2005. This amount is offset with the corresponding debt line item in the balance sheet as of December 31, 2004 and June 30, 2005.

4. Commitments and Collaborative Research and Development Agreements

The Company leases its office and research facilities and certain office equipment under noncancelable operating leases, which expire at various dates from 2005 to 2008. The leases include escalation clauses beginning on the first anniversary of the respective lease and continuing through the end of the leases. The leases require the Company to pay for all maintenance, insurance and property taxes. In addition to a cash security deposit, one of the leases required the Company to execute a letter of credit in favor of its landlord in the amount of $88.

In accordance with the letter of credit agreements, the Company is required to restrict cash equal to the amount of the letters of credit. As of December 31, 2004, restricted cash of $367 was included in cash and cash equivalents since restriction on this amount lapsed in January 2005.

Future minimum lease payments are as follows at December 31, 2004:

2005	$	2,194
2006		958
2007		898
2008		707
Total minimum lease payments	$	4,757

Rent expense for the years ended December 31, 2002, 2003, and 2004 was $2,065, $1,986 and $2,075, respectively. Rent expense for the six months ended June 30, 2004 and 2005 was $1,030 and $1,130, respectively.

Bridge Financing

In July and September 2004, the Company entered into a Loan and Security Agreement (the “Loan and Security Agreement”) whereby the Company borrowed from certain preferred stockholders an aggregate principal amount of approximately $13,411 under Secured Convertible Promissory Notes (the “Secured Bridge Notes”) and issued to those preferred stockholders warrants (the “Bridge Warrants”) to purchase shares of common stock of the Company (the “Bridge Financing”). In conjunction with the Bridge Financing, the Company concurrently entered into an Intellectual Property Security Agreement pursuant to which the Company granted and pledged a security interest in its intellectual property as collateral.

The Secured Bridge Notes had an annual interest rate of 10%. The principal and accrued interest under the Secured Bridge Notes converted into shares of Series A-2 preferred stock in connection with the initial closing of the Series B preferred stock financing. (See Notes 5 and 10)

The shares of preferred stock of any preferred stockholder that did not participate at least 50% of their pro rata amount in the Bridge Financing was automatically converted into shares of common stock upon the closing of the Bridge Financing. An aggregate of 388,104 shares of Series A, B, C and D preferred stock were converted into common stock as a result of nonparticipation in the Bridge Financing by certain preferred stockholders. For those preferred stockholders that did participate in the Bridge Financing, their shares of Series A, B, C and D preferred stock were exchanged for shares of Series A-1, B-1, C-1 and D-1 preferred

F-18

SGX Pharmaceuticals, Inc.—(Continued)

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

stock, respectively, on a one-for-one basis. As a result, the Company’s outstanding capital stock at December 31, 2004 consisted of common stock, Series A-1, B-1, C-1 and D-1 preferred stock. (See Notes 5 and 10)

The Company determined the fair value of the Bridge Warrants on the grant date, using the Black-Scholes pricing model with a resulting aggregate expense of approximately $1,739, which was recorded against the principal balance and was amortized over the term of the Secured Bridge Notes. Of the debt discount, approximately $1,376 was recognized as interest expense during the year ended December 31, 2004 and $363 for the six months ended June 30, 2005.

Pursuant to EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features, and EITF Issue No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments, the Company recorded an additional non-cash charge of approximately $1,739 against the principal balance of the Secured Bridge Notes. This amount represents the difference between the conversion price of the Secured Bridge Notes and the underlying value of the stock issuable upon conversion of the Secured Bridge Notes. Of this noncash charge, approximately $1,376 has been recognized as interest expense during the year ended December 31, 2004 and $363 for the six months ended June 30, 2005.

Sponsored Research and Drug Discovery Collaboration Agreements with Cystic Fibrosis Foundation Therapeutics, Inc.

In January 2001, the Company entered into a sponsored research agreement with Cystic Fibrosis Foundation Therapeutics, Inc. (“CFFT”), the drug discovery and development arm of the Cystic Fibrosis Foundation. Through December 31, 2004, the Company recognized revenue of $6,439 related to research funding and $775 related to the achievement of five milestones. In July 2005, the Company entered into a new three-year drug discovery collaboration agreement with CFFT. Over the term of the collaboration, CFFT may provide over $15,000 in an upfront payment and in technology access, research payments and research milestones, and the Company will be eligible for clinical development milestones and royalties on product sales.

Collaboration and License Agreement with Eli Lilly and Company

In April 2003, the Company entered into a two-year research collaboration and technology agreement with Eli Lilly and Company (“Eli Lilly”). Under the terms of the agreement, the Company has received upfront research and technology fees of $18,625 through June 30, 2005. These payments were initially recorded as deferred revenue and recognized as services were performed pursuant to the agreement.

In April 2005, the research term of the collaboration and technology agreement was extended for an additional three years. The Company is entitled to receive research funding of approximately $4,500 per year, approximately $1,100 of which has been received as of June 30, 2005.

In December 2003, the Company also expanded its research collaboration and technology agreement with Eli Lilly to provide Eli Lilly with long-term access to its beamline facility at the Advanced Photon Source in Argonne, Illinois, to support Eli Lilly drug discovery programs. Under the terms of the Company’s beamline services agreement with Eli Lilly, the Company generates crystal structure data on Eli Lilly drug targets and compounds in exchange for upfront access fees and maintenance fees paid by Eli Lilly. Upon execution of the agreement, the Company received a $2,000 upfront access fee payment and will receive payments for annual operating costs in future years.

F-19

SGX Pharmaceuticals, Inc.—(Continued)

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

In-Licensing of Troxatyl^tm

In July 2004, the Company licensed exclusive worldwide rights to Troxatyl from Shire BioChem Inc. (“Shire”). Troxatyl is a novel compound currently in clinical trials for the treatment of acute myelogenous leukemia. Under the terms of the agreement, the Company made an upfront payment of $3,000 and a payment of $1,000 on the one-year anniversary of the agreement. The Company is also required to make milestone payments based on successful development and approval of Troxatyl and will be required to make royalty payments based on net sales. A one-time charge of $4,000 for purchased in-process research and development related to the upfront and one-year anniversary payments has been reflected in the Statement of Operations for the year ended December 31, 2004, based on the fact that the technology acquired did not have established feasibility and had no alternative future use.

5. Redeemable Convertible Preferred Stock

Redeemable Convertible Preferred Stock

A summary of redeemable convertible preferred stock issued and outstanding as of December 31, 2003 is as follows:

			Aggregate Liquidation
	Shares Issued and		Preference and
	Outstanding		Redemption Value
Series A		541,594	$	7,709
Series B		809,299		32,000
Series C		673,419		45,000
Series D		129,692		5,405
		2,154,004	$	90,114

A summary of redeemable convertible preferred stock issued and outstanding as of December 31, 2004 is as follows:

			Aggregate Liquidation
	Shares Issued and		Preference and
	Outstanding		Redemption Value
Series A-1		427,435	$	6,084
Series B-1		641,615		25,370
Series C-1		604,213		40,375
Series D-1		92,637		3,861
		1,765,900	$	75,690

As of December 31, 2004 the Series A-1, B-1, C-1 and D-1 preferred stock are convertible at the option of the holder on a one-for-one basis, subject to adjustment for dilution, into a total of 1,765,900 shares of common stock. In addition, the preferred stock will automatically convert into common shares upon the closing of an underwritten public offering of equity securities which results in a minimum per share purchase price of $16.90 with net proceeds of at least $25,000, or upon a vote of the holders of more than 50% of the preferred stock then outstanding. The holder of each share of preferred stock is entitled to one vote for each share of common stock into which it would convert. On any date after September 12, 2005 and on each of the first and second anniversaries thereof, upon approval of at least 66 ²/3% of the then outstanding shares of preferred stock, such shares may be redeemed in three equal annual installments. The Company was required

F-20

SGX Pharmaceuticals, Inc.—(Continued)

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

to affect redemptions by paying cash in an amount equal to $14.23, $39.54, $66.82 and $41.68 per share for Series A-1, B-1, C-1 and D-1 preferred stock, respectively, plus any declared but unpaid dividends.

Holders of the preferred shares shall be entitled to receive non-cumulative dividends at an annual rate of $1.14, $3.16, $5.35 and $0.44 per share of Series A-1, B-1, C-1 and D-1 preferred stock, respectively, as adjusted for stock splits, stock combinations and stock dividends. To date, the Company has not declared any dividends.

In the event of liquidation, the preferred stockholders receive a liquidation preference equal to the original issuance price plus declared but unpaid dividends. The liquidation preference has priority over all distributions to common stockholders. After payment of the liquidation preference, all remaining assets from liquidation are to be paid to the preferred stockholders and common stockholders according to the number of shares held. However, the total amounts that may be distributed (including all amounts payable under the liquidation preference) to the holders of Series A-1, B-1, C-1 and D-1 preferred stock shall not exceed $42.70, $118.62, $200.47 and $125.00 per share, respectively. All remaining amounts shall be distributed ratably to the holders of common stock.

As of June 30, 2005, the Company completed a Series B preferred stock financing and recapitalization (See Note 10). A summary of redeemable convertible preferred stock issued and outstanding as of June 30, 2005 is as follows:

			Aggregate Liquidation
	Shares Issued and		Preference and
	Outstanding		Redemption Value
Series A (New)		13,600,000	$	33,500
Series B (New)		1,592,354		7,500
		15,192,354	$	41,000

As of June 30, 2005, the Series A (new) and Series B (new) preferred stock are convertible into a total of 15,192,354 shares of common stock and have a redemption value of $2.46 and $4.71 per share for Series A (new) and Series B (new) preferred stock, respectively, plus any declared but unpaid dividends.

6. Stockholders’ Deficit

Common Stock

The majority of the outstanding shares of common stock have been issued to the founders, directors, employees and consultants of the Company. In connection with certain stock purchase agreements, the Company has the option to repurchase, at the original issuance price, the unvested shares in the event of termination of employment or engagement. Shares under these agreements vest over periods of up to four years. At December 31, 2004 and June 30, 2005, 115,262 shares and 1,526,981 shares, respectively, were subject to repurchase by the Company.

Common Stock Issuable

In December 2001, the Company entered into a research program agreement with Millennium Pharmaceuticals, Inc. (“Millennium”). Concurrent with the signing of the research program agreement, the Company issued to Millennium a convertible note with a term of three years in exchange for $6,000. As of

F-21

SGX Pharmaceuticals, Inc.—(Continued)

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

December 31, 2003, $4,000 of the note was converted into the right to receive common stock upon the closing of an initial public offering at a conversion price equal to the price per share in the offering.

During 2004, the Company issued an amended and restated convertible promissory note to Millennium and the remaining balance on the note was converted into the right to receive common stock upon the closing of an initial public offering at a conversion price equal to the price per share in the offering.

Stock Options

In June 1999, the Company adopted its 1999 Stock Option Plan under which employees, directors, and consultants may be granted options and stock purchase rights to purchase common shares. In February 2000, the Company adopted its 2000 Equity Incentive Plan (the “Equity Incentive Plan”). The Equity Incentive Plan replaced the Company’s 1999 Stock Option Plan under which no stock options were granted. The Equity Incentive Plan provides for the grant of up to 3,100,000 shares pursuant to incentive and non–statutory stock options, stock bonuses or sales of restricted stock. Options granted under the Equity Incentive Plan generally expire no later than ten years from the date of grant (five years for a 10% stockholder). Options generally vest over a period of four years. The exercise price of incentive stock options must be equal to at least the fair value of the Company’s common stock on the date of grant, and the exercise price of non-statutory stock options may be no less than 85% of the fair value of the Company’s common stock on the date of grant. The exercise price of any option granted to a 10% stockholder may not be less than 110% of the fair value of the Company’s common stock on the date of grant.

The following table summarizes activity related to options to purchase shares of the Company’s common stock:

					Weighted-Average
		Shares			Exercise Price
Outstanding at December 31, 2001			296,672		$	6.41
	Granted		167,821		$	6.96
	Exercised		(148,947	)	$	6.72
	Canceled		(56,975	)	$	7.28
Outstanding at December 31, 2002			258,571		$	6.41
	Granted		93,955		$	5.06
	Exercised		(615	)	$	6.72
	Canceled		(23,486	)	$	6.72
Outstanding at December 31, 2003			328,425		$	6.01
	Granted		79,894		$	2.37
	Exercised		(22,394	)	$	2.77
	Canceled		(56,881	)	$	6.01
Outstanding at December 31, 2004			329,044		$	5.30
	Granted		2,071,750		$	0.50
	Exercised		(358	)	$	7.50
	Canceled		(8,593	)	$	0.66
Outstanding at June 30, 2005			2,391,843		$	1.15
Exercisable at December 31, 2004			262,885		$	5.33

F-22

SGX Pharmaceuticals, Inc.—(Continued)

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

Selected information regarding stock options as of December 31, 2004:

									Weighted
			Weighted						Average
Range of			Average		Weighted				Exercise Price
Exercise	Options		Remaining		Average		Options		of Options
Price	Outstanding		Life in Years		Exercise Price		Exercisable		Exercisable
$0.79		14,041		5.71	$	0.09		12,925	$	0.79
$1.98		78,591		9.05	$	1.98		61,856	$	1.98
$6.72		236,412		7.31	$	6.72		188,007	$	6.72
Total		329,044		7.66	$	5.30		262,788	$	5.33

At December 31, 2004, 241,112 shares were vested.

At December 31, 2004, exercise prices of outstanding stock options ranged between $0.79 and $6.72 per share. The weighted-average fair value of options granted (as determined through the use of the Black-Scholes pricing model) during 2004, 2003, and 2002 were $0.95, $1.98, and $5.61, respectively. At December 31, 2004, options to purchase 241,113 shares were vested. The weighted-average remaining contractual life of the options outstanding at December 31, 2004 was 7.66 years.

During the years ended December 31, 2002 and 2001, in connection with the grant of certain stock options to employees, the Company recorded deferred stock compensation totaling approximately $500 and $1,200, respectively, representing the difference between the exercise price and the estimated fair value of the Company’s common stock on the date such stock options were granted. Deferred compensation is included as a reduction of stockholders’ equity and is being amortized to expense over the vesting period of the options in accordance with FIN No. 28, which permits an accelerated amortization methodology. During the years ended December 31, 2004, 2003 and 2002, the Company recorded amortization of deferred stock compensation expense of approximately $121, $302 and $756, respectively.

At December 31, 2004, 1,033,376 shares remain available for future issuance or grant under the 2000 Equity Incentive Plan.

Notes Receivable

From 1999 to 2002, the board of directors authorized the issuance of an aggregate of approximately $2,000 in loans to employees and consultants, related to the exercise of their stock options and purchase of their restricted stock. The notes are full recourse and are also secured by the underlying stock. The notes bear interest at 7%. The principal amount of the notes and the related interest are required to be repaid on the earlier of five years from the origination date of the loans, upon termination of employment by or association with the Company or upon the sale of the underlying stock securing the note.

During 2004, the compensation committee of the board of directors authorized the Company to repurchase vested and unvested shares of common stock in settlement of the principal and accrued interest on the outstanding notes (the “Note Settlement”). The Company repurchased 33,187 shares of common stock in settlement of approximately $1,113 in aggregate principal and accrued interest on the notes. The Company also forgave approximately $782 of principal and accrued interest related to those notes whose principal balance had been partially repaid in the Note Settlement. As of December 31, 2004, approximately $138 of aggregate principal and accrued interest remained outstanding on the notes and are being marked-to-market until such notes are extinguished.

F-23

SGX Pharmaceuticals, Inc.—(Continued)

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

Warrants

In 2000, in conjunction with its equipment line of credit agreement, the Company issued a warrant to purchase up to an aggregate of 4,672 shares of the Company’s Series A-1 preferred stock at an exercise price of $14.23 per share. The warrant is exercisable through 2007. The Company determined the fair value on the grant date, using the Black-Scholes pricing model, with a resulting aggregate expense of $33, which was recorded against the principal balance and has been fully amortized as interest expense in prior years.

In 2000, in conjunction with the issuance of its Series C preferred stock, the Company issued a warrant to purchase up to an aggregate of 7,581 shares of the Company’s common stock at an exercise price of $8.45 per share to the placement agent. The warrant expired unexercised in 2004.

In 2001, in conjunction with an executive recruiting agreement, the Company issued a warrant to purchase up to an aggregate of 2,529 shares of the Company’s common stock at an exercise price of $6.72 per share to the executive recruiting agency. The warrant is exercisable through 2011. The Company determined the fair value on the grant date, using the Black-Scholes pricing model, with a resulting aggregate expense of $22.

In conjunction with the line of credit agreement entered into in July 2002, the Company issued warrants to purchase up to an aggregate of 4,489 shares of the Company’s Series C-1 preferred stock at an exercise price of $66.82 per share. If the Company issues preferred stock in an equity financing at a price less than $66.62 per share in the future (“Qualified Financing”), the exercise price of the warrants will be adjusted to the price per share of the Qualified Financing. Also, the number of shares to be issued upon exercise of the warrant will be adjusted accordingly and the securities issuable upon exercise of the warrants will be securities issued in the Qualified Financing. The warrants are exercisable through the later of July 2012 or 5 years after the closing of the Company’s initial public offering of its common stock. The Company determined the fair value on the grant date, using the Black-Scholes pricing model, with a resulting aggregate expense of $168, which is recorded against the principal balance and is being amortized over the term of the line of credit. Of the debt discount, approximately $64 has been recognized as interest expense during the year ended December 31, 2004.

In conjunction with the line of credit agreement entered into in September 2002, the Company issued warrants to purchase up to an aggregate of 192 shares and 390 shares of the Company’s Series C-1 preferred stock at an exercise price of $66.82 per share during 2004 and 2003, respectively. If the Company issues preferred stock in a Qualified Financing, the exercise price of the warrants will be adjusted to the price per share of the Qualified Financing. Also, the number of shares to be issued upon exercise of the warrants will be adjusted accordingly and the securities issued upon exercise of the warrants will be the securities issued in the Qualified Financing. The warrants are exercisable through the earlier of September 2009 or the closing of the Company’s initial public offering of its common stock. The Company determined the fair value on the grant date, using the Black-Scholes pricing model, and has recognized the fair value as interest expense.

In July 2005, the Company issued fully-vested warrants to purchase 230,000 shares of common stock with exercise prices ranging from $.20 to $.50 per share to two former employees of the Company. The warrants were contractually committed to be issued in June 2005 and therefore, the Company recorded stock compensation expense of $1.3 million during the six months ended June 30, 2005. The Company determined the fair value using the Black-Scholes pricing model with the following assumptions: volatility factor of 63%, dividend yield of 0% and a five year life.

F-24

SGX Pharmaceuticals, Inc.—(Continued)

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

Shares Reserved for Future Issuance

The Company has reserved shares of common stock for future issuance as follows:

	December 31,		June 30,
	2004		2005
Conversion of convertible preferred stock		1,765,900		15,192,354
2000 Equity Incentive Plan		1,332,421		2,946,476
Warrants		13,455		266,726
		3,111,776		18,405,556

7. Income Taxes

Significant components of the Company’s deferred tax assets as of December 31, 2004 and 2003 are shown below. A valuation allowance of $40,692, of which $7,551 relates to 2004, has been recognized to offset the deferred tax assets, as realization of such assets is uncertain.

		December 31,
		2004			2003
Deferred tax assets:
	Net operating loss carryforwards	$	29,954		$	24,655
	Research and development credits		4,783			3,954
	Capitalized research and development		1,742			1,739
	License		1,630			–
	Accrued vacation		258			246
	Deferred revenue		1,655			2,731
	Other		236			210
	Depreciation and amortization		434			–
Total deferred tax assets			40,692			33,535
Valuation allowance for deferred tax assets			(40,692	)		(33,141	)
Net deferred tax assets			–			394
Deferred tax liabilities:
	Depreciation and amortization		–			(394	)
Net deferred taxes		$	–		$	–

At December 31, 2004, the Company had federal and California tax net operating loss carryforwards of approximately $78,949 and $40,407, respectively. The federal and California tax loss carryforwards will begin to expire in 2019 and 2009, respectively, unless previously utilized. The Company also has federal and California research and development tax credit carryforwards totaling approximately $3,300 and $2,281, respectively. The federal research and development tax credit carry forward will begin to expire in 2019, unless previously utilized.

Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company’s net operating loss and tax credit carryforwards may be limited as a result of certain cumulative changes in the Company’s stock ownership which occurred during 1999 and 2001. However, the Company believes that the limitations will not have a material impact on the utilization of the carryforwards.

F-25

SGX Pharmaceuticals, Inc.—(Continued)

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

8. Employee Benefit Plan

Effective October 1, 1999, the Company adopted a defined contribution 401(k) profit sharing plan (the “Plan”) covering substantially all employees that meet certain age requirements. Employees may contribute up to 100% of their compensation per year (subject to a maximum limit by federal law). The Plan does allow for employer matching.

9. Reductions In Force

During June 2002, the Company eliminated approximately 30% of its workforce (39 employees) and closed its San Francisco office. The Company recorded a charge related to this reduction in force of approximately $2,000, of which approximately $1,700 was paid as of December 31, 2004. The charge consisted of approximately $1,100 for severance expenses and approximately $900 for the anticipated net rental payments due over the remaining term of the Company’s facility lease in San Francisco. The remaining accrual for this reduction in force is approximately $282 as of December 31, 2004, and it is related to the lease and is expected to be paid over the remaining period of the lease (approximately two years).

During August 2004, the Company eliminated approximately 11% of its workforce (17 employees). The Company recorded a charge related to this reduction in force of approximately $278, all of which has been paid as of December 31, 2004.

10. Subsequent Events

Extension of Maturity Date of Secured Bridge Notes

In January 2005, the Company, the agent and the lenders party to the Loan and Security Agreement holding a majority in interest of the outstanding principal amount under all of the Secured Bridge Notes (the “Majority Lenders”) agreed to extend the maturity date of the Secured Bridge Notes from January 27, 2005 to March 31, 2005, or such earlier date as may be determined by the Majority Lenders. Subsequently, the Company, the agent and the Majority Lenders agreed to further extend the maturity date of the Secured Bridge Notes from March 31, 2005 to April 22, 2005, or such earlier date as may be determined by the Majority Lenders.

Reduction in Force

In April 2005, the Company terminated 14 of its employees. The Company provided severance benefits to all such terminated employees who executed a severance agreement and release. The total costs associated with the severance benefits were approximately $230.

Equity Financing and Recapitalization

On April 21, 2005, the Company completed the initial close of a private placement of equity securities (the “Series B Financing”). The total amount committed by the investors in the Series B Financing (“Series B Investors”) was approximately $15,000 of which approximately $7,500 was received by the Company in the initial close and the remaining $7,500 was irrevocably committed by the Series B Investors to be funded no later than December 15, 2005 unless the Company has completed an initial public offering or sale of the Company prior to that date.

F-26

SGX Pharmaceuticals, Inc.—(Continued)

Notes to Consolidated Financial Statements

(Information subsequent to December 31, 2004 and pertaining to June 30, 2005

and the six months ended June 30, 2004 and 2005 is unaudited)

Immediately prior to the Series B Financing, the Company effected a reverse stock split whereby each share of common and preferred stock then outstanding was converted into 0.126453 of one share of common stock or the applicable series of preferred stock. The principal and accrued interest under the Secured Bridge Notes were converted into 3,034,095 shares of Series A-2 preferred stock at a conversion rate of $4.71 per share. The remaining rights and obligations under the Secured Bridge Notes, including the Bridge Warrants, were terminated in their entirety.

The holders of Series A-1, A-2, B-1, C-1 and D-1 preferred (“Existing Preferred”) stock who participated to a certain minimum extent in the Series B Financing were given the right to exchange all of such holder’s outstanding shares of Existing Preferred stock together with the shares of Series A-2 preferred stock issued upon conversion of the Second Bridge Notes for an aggregate number of shares of new Series A preferred stock. Immediately following the closing of the Series B Financing, each then outstanding share of Existing Preferred stock (i.e., shares that were not exchanged for shares of new Series A preferred stock) was automatically converted into one share of common stock.

As a result of the Series B Financing, a warrant to purchase 1,765 shares of the Company’s Series C-1 preferred stock at an exercise price of $66.82 were adjusted pursuant to their terms and became exercisable for 25,038 shares of Series B preferred stock at an exercise price of $4.71 per share. The Company calculated the fair value of the modification under SFAS 123 and determined it to be immaterial.

F-27

                                Shares

Common Stock

PROSPECTUS

          , 2005

CIBC World Markets Piper Jaffray

JMP Securities

Until                     , 2005 (25 days after the commencement of the offering), all dealers that buy, sell or trade the common stock may be required to deliver a prospectus, regardless of whether they are participating in this offering. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth all costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of the common stock being registered. All amounts shown are estimates except for the SEC registration fee, the NASD filing fee and the Nasdaq National Market filing fee.

		Amount to be
		Paid
SEC registration fee		$	9,475
NASD filing fee			8,550
Nasdaq National Market filing fee			100,000
Blue sky qualification fees and expenses			*
Printing and engraving expenses			*
Legal fees and expenses			*
Accounting fees and expenses			*
Transfer agent and registrar fees and expenses			*
Miscellaneous expenses			*
	Total	$	*

* To be provided by amendment.

Item 14. Indemnification of Directors and Officers.

We are incorporated under the laws of the State of Delaware. Section 145 of the Delaware General Corporation Law provides that a Delaware corporation may indemnify any persons who are, or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person was an officer, director, employee or agent of such corporation, or is or was serving at the request of such person as an officer, director, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporation may indemnify any persons who are, or are threatened to be made, a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses which such officer or director has actually and reasonably incurred. Our amended and restated certificate of incorporation and amended and restated bylaws, each of which will become effective upon the completion of this offering, provide for the

II-1

indemnification of our directors and officers to the fullest extent permitted under the Delaware General Corporation Law.

Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, except for liability for any:

•  transaction from which the director derives an improper personal benefit;

•  act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

•  unlawful payment of dividends or redemption of shares; or

•  breach of a director’s duty of loyalty to the corporation or its stockholders.

Our amended and restated certificate of incorporation and amended and restated bylaws include such a provision. Expenses incurred by any officer or director in defending any such action, suit or proceeding in advance of its final disposition shall be paid by us upon delivery to us of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified by us.

Section 174 of the Delaware General Corporation Law provides, among other things, that a director, who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption, may be held liable for such actions. A director who was either absent when the unlawful actions were approved, or dissented at the time, may avoid liability by causing his or her dissent to such actions to be entered in the books containing minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts.

As permitted by the Delaware General Corporation Law, we intend to enter into indemnity agreements with each of our directors and executive officers, that require us to indemnify such persons against any and all expenses (including attorneys’ fees), witness fees, damages, judgments, fines, settlements and other amounts incurred (including expenses of a derivative action) in connection with any action, suit or proceeding, whether actual or threatened, to which any such person may be made a party by reason of the fact that such person is or was a director, an officer or an employee of the registrant or any of its affiliated enterprises, provided that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to our best interests and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The indemnity agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder.

At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

We have an insurance policy covering our officers and directors with respect to certain liabilities, including liabilities arising under the Securities Act or otherwise.

II-2

Reference is made to the following documents filed as exhibits to this registration statement regarding relevant indemnification provisions described above and elsewhere herein:

Exhibit Document	Number
Form of Underwriting Agreement		1.1
Form of Registrant’s Amended and Restated Certificate of Incorporation to become effective upon completion of this offering		3.2
Form of Registrant’s Amended and Restated Bylaws to become effective upon completion of this offering		3.4
Amended and Restated Investor Rights Agreement dated April 21, 2005 between Registrant and certain of its stockholders		4.7
Form of Indemnity Agreement		10.1

II-3

Item 15. Recent Sales of Unregistered Securities.

The following list sets forth information regarding all securities sold by us since January 2002. All share amounts have been retroactively adjusted to give effect to a 0.126453-for-1 reverse stock split of our common stock and preferred stock and the related recapitalization that was effected in April 2005.

(1) In July 2002, in connection with a line of credit agreement, the registrant issued three warrants to two lenders to purchase approximately $300,000 of (i) shares of the registrant’s then outstanding Series C preferred stock, at an initial exercise price of $8.45 per share, subject to adjustment, or (ii) shares of preferred stock issued in a subsequent qualified equity financing at a price per share less than $8.45, as adjusted, with the exercise price of the warrants to be adjusted in such event to the price per share of the shares of preferred stock issued in the subsequent qualified equity financing. The warrants are exercisable through July 2012. These warrants were amended and restated in January 2005 to be exercisable for shares of the registrant’s previously outstanding Series C-1 preferred stock or shares of preferred stock issued in a subsequent qualified equity financing. In April 2005, these warrants were adjusted by the reverse stock split and recapitalization and are currently exercisable for an aggregate of 4,488 shares of common stock at an exercise price of $66.82 per share.

(2) In August 2002, in connection with a line of credit agreement, the registrant issued a warrant to a lender to purchase approximately $118,000 of (i) shares of the registrant’s then outstanding Series C preferred stock, at an initial exercise price of $8.45 per share, subject to adjustment, or (ii) shares of preferred stock issued in a subsequent qualified equity financing at a price per share less than $8.45 per share, as adjusted, with the exercise price of the warrants to be adjusted in such event to the price per share of the shares of preferred stock issued in the subsequent qualified equity financing. The warrants are exercisable through the closing of this offering and will automatically be net exercised upon the closing of the offering if not exercised prior to that time. This warrant was amended and restated in January 2005 to be exercisable for shares of the registrant’s Series C-1 preferred stock or shares of preferred stock issued in a subsequent qualified equity financing. In April 2005, this warrant was adjusted by the reverse stock split, recapitalization and Series B preferred stock financing and is exercisable for 25,038 shares of the registrant’s Series B preferred stock at an exercise price of $4.71 per share prior to the completion of this offering.

(3) In July and September 2004, the registrant issued $13.4 million principal amount of secured convertible promissory notes in a private placement to 56 accredited investors pursuant to a loan and security agreement. The notes accrued interest at a rate of 10% per year. In April 2005, the principal and accrued interest under the notes was converted into 3,034,095 shares of the registrant’s series A-2 preferred stock. In July 2004, in connection with the issuance of the notes, the registrant issued (i) an aggregate of 427,429 shares of the registrant’s previously outstanding Series A-1 preferred stock to 9 accredited investors upon exchange of an aggregate of 427,429 shares of the registrant’s previously outstanding Series A preferred stock, (ii) an aggregate of 641,599 shares of the registrant’s previously outstanding Series B-1 preferred stock to 28 accredited investors upon exchange of an aggregate of 641,599 shares of the registrant’s previously outstanding Series B preferred stock, (iii) an aggregate of 604,182 shares of the registrant’s previously outstanding Series C-1 preferred stock to 53 accredited investors upon exchange of an aggregate of 604,182 shares of the registrant’s previously outstanding Series C preferred stock, (iv) an aggregate of 92,635 shares of the registrant’s previously outstanding Series D-1 preferred stock to 4 accredited investors upon exchange of an aggregate of 92,635 shares of the registrant’s previously outstanding Series D preferred stock and (v) an aggregate of 493,331 shares of common stock to 21 accredited investors upon conversion of the previously outstanding preferred stock not exchanged in connection with the loan and security agreement. In September 2004, in connection with the issuance of the notes, the registrant also issued warrants to purchase shares of common stock to each of the 56 accredited investors, with a exercise price of $0.01 per share. These warrants were terminated in April 2005 in connection with the Series B preferred stock financing.

II-4

(4) In December 2004, the registrant issued an amended and restated convertible promissory note in a private placement to Millennium Pharmaceuticals, Inc. (as successor in interest to mHOLDINGS Trust) in the aggregate principal amount of $6 million. No interest accrues on the principal unless a payment towards the principal becomes overdue. Upon completion of this offering, this note will convert in a private placement into                      shares of common stock at a conversion price equal to $          , the price per share in this offering.

(5) In April 2005, in connection with the registrant’s Series B preferred stock financing and recapitalization, the registrant (i) issued and sold an aggregate of 1,592,354 shares of Series B preferred stock in a private placement to 53 accredited investors for aggregate consideration of approximately $7.5 million, (ii) issued an aggregate of 13,600,000 shares of the registrant’s Series A preferred stock to 51 accredited investors upon the exchange of an aggregate of 427,429 shares of the registrant’s previously outstanding Series A-1 preferred stock, 3,034,095 shares of the registrant’s previously outstanding series A-2 preferred stock, 641,599 shares of the registrant’s previously outstanding Series B-1 preferred stock, 604,182 shares of the registrant’s previously outstanding Series C-1 preferred stock, and 92,635 shares of the registrant’s previously outstanding Series D-1 preferred stock. Upon completion of this offering, these shares of Series A preferred stock and Series B preferred stock will convert into an aggregate of 15,192,354 shares of common stock.

(6) In July 2005, the registrant issued two warrants to purchase up to an aggregate of 230,000 shares of common stock having an exercise price of $0.50 per share to two accredited investors as consideration for past services to the registrant.

(7) As of June 30, 2005, the registrant had granted options under the registrant’s 2000 equity incentive plan to purchase 2,391,843 shares of common stock (net of expirations and cancellations) to employees, directors and consultants, having exercise prices ranging from $0.79 to $6.72 per share. In May 2005, the registrant also granted 140,000 shares of restricted common stock under its 2000 equity incentive plan to one of the registrant’s directors.

The offers, sales, and issuances of the securities described in paragraphs (1), (2), (3), (4), (5), and (6) were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act in that the issuance of securities to the recipients did not involve a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited or sophisticated person and had adequate access, through employment, business or other relationships, to information about us.

The offers, sales, and issuances of the securities described in paragraphs (1), (3), (4), (5) and (6) were deemed to be exempt from registration under the Securities Act in reliance on Rule 506 of Regulation D in that the issuance of securities to the accredited investors did not involve a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited investor under Rule 501 of Regulation D.

The offers, sales and issuances of the securities described in paragraph (7) were deemed to be exempt from registration under the Securities Act in reliance on Rule 701 in that the transactions were under compensatory benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of such securities were our employees, directors or bona fide consultants and received the securities under our 2000 equity incentive plan. Appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions had adequate access, through employment, business or other relationships, to information about us.

II-5

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits.

Exhibit
Number			Description of Document
	1	.1	Form of Underwriting Agreement.
	3	.1	Registrant’s Amended and Restated Certificate of Incorporation, as amended and as currently in effect.
	3	.2	Form of Registrant’s Amended and Restated Certificate of Incorporation to become effective upon completion of this offering.
	3	.3	Registrant’s Bylaws, as currently in effect.
	3	.4	Form of Registrant’s Amended and Restated Bylaws to become effective upon completion of this offering.
	4	.1†	Form of Common Stock Certificate of Registrant.
	4	.2	Form of Warrant to Purchase Common Stock issued by Registrant in July 2005 to Timothy Harris and Linda Grais.
	4	.3†	Form of Amended and Restated Warrant issued by Registrant in January 2005 to GATX Ventures, Inc.
	4	.4†	Amended and Restated Warrant issued by Registrant in January 2005 to Oxford Finance Corporation.
	4	.5†	Amended and Restated Warrant issued by Registrant in January 2005 to Silicon Valley Bank.
	4	.6	Amended and Restated Convertible Promissory Note dated December 16, 2004 between Registrant and Millennium Pharmaceuticals, Inc.
	4	.7	Amended and Restated Investor Rights Agreement dated April 21, 2005 between Registrant and certain of its stockholders.
	5	.1†	Opinion of Cooley Godward LLP.
	10	.1+	Form of Indemnity Agreement by and between Registrant and its directors and executive officers.
	10	.2+	2000 Equity Incentive Plan and Form of Option Agreement and Form of Stock Option Grant Notice thereunder.
	10	.3+	2005 Equity Incentive Plan and Form of Stock Option Agreement and Form of Stock Option Grant Notice thereunder.
	10	.4+	2005 Employee Stock Purchase Plan and Form of Offering Document thereunder.
	10	.5+	2005 Non-Employee Directors’ Stock Option Plan and Form of Stock Option Agreement and Form of Stock Option Grant Notice thereunder.
	10	.6+	Amended and Restated Executive Employment Agreement dated January 1, 2005 between Registrant and Michael Grey.
	10	.7+	Executive Employment Agreement dated January 1, 2002 between Registrant and Stephen Burley, M.D., D.Phil. and related relocation loan agreement dated July 29, 2002.
	10	.8+	Separation Letter Agreement dated November 12, 2004 between Registrant and Tim Harris, Ph.D.
	10	.9+	Offer Letter Agreement dated June 3, 2005 between Registrant and James A. Rotherham.
	10	.10+	Separation Agreement dated June 14, 2005 between Registrant and Neill Giese.
	10	.11+	Chairmanship Letter Agreement dated January 16, 2004 between Registrant and Christopher Henney, Ph.D., DSc
	10	.12+	Non-Employee Director Compensation Letter Agreement dated April 13, 2001 between Registrant and Stelios Papadopolous, Ph.D., as amended.
	10	.13	Lease Agreement dated September 20, 1999 between Registrant and ARE-10505 Roselle Street, LLC, as amended.
	10	.14	Lease Agreement dated May 18, 2000 between Registrant and ARE-3770 Tansy Street, LLC.
	10	.15	Lease Agreement dated June 1, 2001 between Registrant and BRS Torrey I, LLC.
	10	.16*	Patent and Know How License dated July 23, 2004 between Registrant, Shire Biochem Inc., Tanaud Ireland Inc. and Tanaud International B.V., as amended, and related novation agreements.
	10	.17*	Collaboration and License Agreement dated April 14, 2003 between Registrant and Eli Lilly and Company.
	10	.18*	Amendment to Agreement dated July 1, 2003 between Registrant and Eli Lilly and Company.

II-6

Exhibit
Number			Description of Document
	10	.19*	Amendment to Agreement dated January 30, 2004 between Registrant and Eli Lilly and Company.
	10	.20*	Amendment to Agreement dated November 11, 2004 between Registrant and Eli Lilly and Company.
	10	.21*	Amendment to Agreement dated March 31, 2005 between Registrant and Eli Lilly and Company.
	10	.22*	Collaboration Agreement dated August 20, 2004 between Registrant, F. Hoffmann-La Roche Ltd. and Hoffmann-La Roche Inc.
	10	.23*	Collaboration Agreement dated August 1, 2003 between Registrant and OSI Pharmaceuticals, Inc.
	10	.24	Amendment to Agreement dated January 11, 2004 between Registrant and OSI Pharmaceuticals, Inc.
	10	.25*	Amendment to Agreement dated February 1, 2005 between Registrant and OSI Pharmaceuticals, Inc.
	10	.26*	Collaboration Agreement dated March 18, 2004 between Registrant and Serono International SA.
	10	.27*	Collaboration Agreement dated December 1, 2003 between Registrant and UroGene, S.A.
	10	.28*	Amendment to Agreement dated December 16, 2004 between Registrant and UroGene, S.A. and related assignment agreements.
	10	.29*	Drug Discovery Agreement dated July 1, 2005 between Registrant and Cystic Fibrosis Foundation Therapeutics, Inc.
	10	.30	Memorandum of Understanding dated July 26, 2000 between the Advanced Photon Source and the Structural GenomiX Collaborative Access Team and related Collaborative Access Team User Agreement dated May 15, 2001 between Registrant, The University of Chicago and United States Department of Energy.
	10	.31	Master Loan and Security Agreement No. 2081008 dated August 28, 2002 between Registrant and Oxford Finance Corporation, as amended.
	23	.1	Consent of Independent Registered Public Accounting Firm.
	23	.2†	Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
	24	.1	Power of Attorney. Reference is made to the signature page hereto.

† To be filed by amendment.

+ Indicates management contract or compensatory plan.

* Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

(b) Financial Statement Schedules.

No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or the notes thereto.

Item 17. Undertakings.

The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question

II-7

whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-8

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California, on the 2nd day of September 2005.

SGX PHARMACEUTICALS, INC.

By:  /s/ Michael Grey

Michael Grey

President and Chief Executive Officer

KNOW ALL BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael Grey and James Rotherham, and each of them, as his or her true and lawful attorneys-in-fact and agents, each with the full power of substitution, for him or her and in his or her name, place or stead, in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments), and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their, his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Michael Grey Michael Grey	President, Chief Executive Officer and Member of the Board of Directors (Principal Executive Officer)	September 2, 2005
/s/ James A. Rotherham, C.P.A. James A. Rotherham, C.P.A.	Chief Financial Officer (Principal Financial and Accounting Officer)	September 2, 2005
/s/ Christopher S. Henney, Ph.D., D.Sc. Christopher S. Henney, Ph.D., D.Sc.	Chairman of the Board of Directors	September 2, 2005
/s/ Louis C. Bock Louis C. Bock	Member of the Board of Directors	September 2, 2005
/s/ Karin Eastham, C.P.A. Karin Eastham, C.P.A.	Member of the Board of Directors	September 2, 2005

II-9

Signature	Title	Date
/s/ Jean-Francois Formela, M.D. Jean-Francois Formela, M.D.	Member of the Board of Directors	September 2, 2005
/s/ Vijay K. Lathi Vijay K. Lathi	Member of the Board of Directors	September 2, 2005
/s/ Stelios Papadopoulos, Ph.D. Stelios Papadopoulos, Ph.D.	Member of the Board of Directors	September 2, 2005

II-10

EXHIBIT INDEX

Exhibit
Number			Description of Document
	1	.1	Form of Underwriting Agreement.
	3	.1	Registrant’s Amended and Restated Certificate of Incorporation, as amended and as currently in effect.
	3	.2	Form of Registrant’s Amended and Restated Certificate of Incorporation to become effective upon completion of this offering.
	3	.3	Registrant’s Bylaws, as currently in effect.
	3	.4	Form of Registrant’s Amended and Restated Bylaws to become effective upon completion of this offering.
	4	.1†	Form of Common Stock Certificate of Registrant.
	4	.2	Form of Warrant to Purchase Common Stock issued by Registrant in July 2005 to Timothy Harris and Linda Grais.
	4	.3†	Form of Amended and Restated Warrant issued by Registrant in January 2005 to GATX Ventures, Inc.
	4	.4†	Amended and Restated Warrant issued by Registrant in January 2005 to Oxford Finance Corporation.
	4	.5†	Amended and Restated Warrant issued by Registrant in January 2005 to Silicon Valley Bank.
	4	.6	Amended and Restated Convertible Promissory Note dated December 16, 2004 between Registrant and Millennium Pharmaceuticals, Inc.
	4	.7	Amended and Restated Investor Rights Agreement dated April 21, 2005 between Registrant and certain of its stockholders.
	5	.1†	Opinion of Cooley Godward LLP.
	10	.1+	Form of Indemnity Agreement by and between Registrant and its directors and executive officers.
	10	.2+	2000 Equity Incentive Plan and Form of Option Agreement and Form of Stock Option Grant Notice thereunder.
	10	.3+	2005 Equity Incentive Plan and Form of Stock Option Agreement and Form of Stock Option Grant Notice thereunder.
	10	.4+	2005 Employee Stock Purchase Plan and Form of Offering Document thereunder.
	10	.5+	2005 Non-Employee Directors’ Stock Option Plan and Form of Stock Option Agreement and Form of Stock Option Grant Notice thereunder.
	10	.6+	Amended and Restated Executive Employment Agreement dated January 1, 2005 between Registrant and Michael Grey.
	10	.7+	Executive Employment Agreement dated January 1, 2002 between Registrant and Stephen Burley, M.D., D.Phil. and related relocation loan agreement dated July 29, 2002.
	10	.8+	Separation Letter Agreement dated November 12, 2004 between Registrant and Tim Harris, Ph.D.
	10	.9+	Offer Letter Agreement dated June 3, 2005 between Registrant and James A. Rotherham.
	10	.10+	Separation Agreement dated June 14, 2005 between Registrant and Neill Giese.
	10	.11+	Chairmanship Letter Agreement dated January 16, 2004 between Registrant and Christopher Henney, Ph.D., DSc
	10	.12+	Non-Employee Director Compensation Letter Agreement dated April 13, 2001 between Registrant and Stelios Papadopolous, Ph.D., as amended.
	10	.13	Lease Agreement dated September 20, 1999 between Registrant and ARE-10505 Roselle Street, LLC, as amended.
	10	.14	Lease Agreement dated May 18, 2000 between Registrant and ARE-3770 Tansy Street, LLC.
	10	.15	Lease Agreement dated June 1, 2001 between Registrant and BRS Torrey I, LLC.
	10	.16*	Patent and Know How License dated July 23, 2004 between Registrant, Shire Biochem Inc., Tanaud Ireland Inc. and Tanaud International B.V., as amended, and related novation agreements.
	10	.17*	Collaboration and License Agreement dated April 14, 2003 between Registrant and Eli Lilly and Company.
	10	.18*	Amendment to Agreement dated July 1, 2003 between Registrant and Eli Lilly and Company.
	10	.19*	Amendment to Agreement dated January 30, 2004 between Registrant and Eli Lilly and Company.
	10	.20*	Amendment to Agreement dated November 11, 2004 between Registrant and Eli Lilly and Company.

Exhibit
Number			Description of Document
	10	.21*	Amendment to Agreement dated March 31, 2005 between Registrant and Eli Lilly and Company.
	10	.22*	Collaboration Agreement dated August 20, 2004 between Registrant, F. Hoffmann-La Roche Ltd. and Hoffmann-La Roche Inc.
	10	.23*	Collaboration Agreement dated August 1, 2003 between Registrant and OSI Pharmaceuticals, Inc.
	10	.24	Amendment to Agreement dated January 11, 2004 between Registrant and OSI Pharmaceuticals, Inc.
	10	.25*	Amendment to Agreement dated February 1, 2005 between Registrant and OSI Pharmaceuticals, Inc.
	10	.26*	Collaboration Agreement dated March 18, 2004 between Registrant and Serono International SA.
	10	.27*	Collaboration Agreement dated December 1, 2003 between Registrant and UroGene, S.A.
	10	.28*	Amendment to Agreement dated December 16, 2004 between Registrant and UroGene, S.A. and related assignment agreements.
	10	.29*	Drug Discovery Agreement dated July 1, 2005 between Registrant and Cystic Fibrosis Foundation Therapeutics, Inc.
	10	.30	Memorandum of Understanding dated July 26, 2000 between the Advanced Photon Source and the Structural GenomiX Collaborative Access Team and related Collaborative Access Team User Agreement dated May 15, 2001 between Registrant, The University of Chicago and United States Department of Energy.
	10	.31	Master Loan and Security Agreement No. 2081008 dated August 28, 2002 between Registrant and Oxford Finance Corporation, as amended.
	23	.1	Consent of Independent Registered Public Accounting Firm.
	23	.2†	Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
	24	.1	Power of Attorney. Reference is made to the signature page hereto.

† To be filed by amendment.

+ Indicates management contract or compensatory plan.

* Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

EX-1.1

                                                                     EXHIBIT 1.1

                                  ____ Shares

                            SGX Pharmaceuticals, Inc.

                                  Common Stock

                             UNDERWRITING AGREEMENT

                                                                  ________, 2005


CIBC World Markets Corp.
Piper Jaffray & Co.
JMP Securities LLC
c/o CIBC World Markets Corp.
300 Madison Avenue
New York, New York 10017

Ladies and Gentlemen:

      SGX Pharmaceuticals, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions contained herein, to sell to you
and the other underwriters named on Schedule I to this Agreement (the
"Underwriters"), for whom you are acting as Representatives (the
"Representatives"), an aggregate of ____ shares (the "Firm Shares") of the
Company's common stock, $0.001 par value per share (the "Common Stock"). All of
the Firm Shares are to be issued and sold by the Company. The respective amounts
of the Firm Shares to be purchased by each of the several Underwriters are set
forth opposite their names on Schedule I hereto. In addition, the Company
proposes to grant to the Underwriters an option to purchase up to an additional
____ shares (the "Option Shares") of Common Stock from the Company for the
purpose of covering over-allotments in connection with the sale of the Firm
Shares. The Firm Shares and the Option Shares are collectively called the
"Shares."

      The Company has prepared and filed in conformity with the requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and the published
rules and regulations thereunder (the "Rules") adopted by the Securities and
Exchange Commission (the "Commission") a Registration Statement (as hereinafter
defined) on Form S-1 (No. 333-_________), including a preliminary prospectus
relating to the Shares, and such amendments thereof as may have been required to
the date of this Agreement. Copies of such Registration Statement (including all
amendments thereof) and of the related Preliminary Prospectus (as hereinafter
defined) have heretofore been delivered by the Company to you. The term
"Preliminary Prospectus" means any preliminary prospectus included at any time
as a part of the Registration Statement or filed with the Commission by the
Company pursuant to Rule 424(a) of the Rules. The term "Registration Statement"
as used in this Agreement means the initial registration statement (including
all exhibits and financial schedules thereto), as amended at the time and on the
date it becomes effective (the "Effective Date"), including the information (if
any) contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) of the Rules and deemed to be part thereof at the time
of effectiveness pursuant to Rule 430A of the Rules. If the Company has filed an
abbreviated registration statement to register additional Shares pursuant to
Rule 462(b) under the Rules (the "462(b) Registration Statement"), then any
reference herein to the Registration Statement shall also be deemed to include
such 462(b) Registration Statement. The term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement at the time of effectiveness or, if Rule 430A of the Rules is relied
on, the term Prospectus shall also include the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Rules.

                                       1

      The Company understands that the Underwriters propose to make a public
offering of the Shares, as set forth in and pursuant to the Prospectus, as soon
after the Effective Date and the date of this Agreement as the Representatives
deem advisable. The Company hereby confirms that the Underwriters and dealers
have been authorized to distribute or cause to be distributed each Preliminary
Prospectus in connection with the offering of the Shares and are authorized to
distribute the Prospectus (as from time to time amended or supplemented if the
Company furnishes amendments or supplements thereto to the Underwriters) in
connection with the sale of the Shares.

      1.    Sale, Purchase, Delivery and Payment for the Shares. On the basis of
the representations, warranties and agreements contained in, and subject to the
terms and conditions of, this Agreement:

            (a) The Company agrees to issue and sell to each of the
      Underwriters, and each of the Underwriters agrees, severally and not
      jointly, to purchase from the Company, at a purchase price of $____ per
      share (the "Initial Price"), the number of Firm Shares set forth opposite
      the name of such Underwriter under the column "Number of Firm Shares to be
      Purchased" on Schedule I to this Agreement, subject to adjustment in
      accordance with Section 8 hereof.

            (b) The Company hereby grants to the several Underwriters an option
      to purchase, severally and not jointly, all or any part of the Option
      Shares at the Initial Price. The number of Option Shares to be purchased
      by each Underwriter shall be the same percentage (adjusted by the
      Representatives to eliminate fractions) of the total number of Option
      Shares to be purchased by the Underwriters as such Underwriter is
      purchasing of the Firm Shares. Such option may be exercised only to cover
      over-allotments in the sales of the Firm Shares by the Underwriters and
      may be exercised in whole or in part at any time on or before 12:00 noon,
      New York City time, on the business day before the Firm Shares Closing
      Date (as defined below), and from time to time thereafter within 30 days
      after the date of this Agreement, in each case upon written, facsimile or
      telegraphic notice, or verbal or telephonic notice confirmed by written,
      facsimile or telegraphic notice, by the Representatives to the Company no
      later than 12:00 noon, New York City time, on the business day before the
      Firm Shares Closing Date or at least two business days before the Option
      Shares Closing Date (as defined below), as the case may be, setting forth
      the number of Option Shares to be purchased and the time and date (if
      other than the Firm Shares Closing Date) of such purchase.

            (c) Payment of the purchase price for, and delivery of certificates
      for, the Firm Shares shall be made at the offices of CIBC World Markets
      Corp., 300 Madison Avenue, New York, New York 10017, at 10:00 a.m., New
      York City time, on the third business day following the date of this
      Agreement or at such time on such other date, not later than ten (10)
      business days after the date of this Agreement, as shall be agreed upon by
      the Company and the Representatives (such time and date of delivery and
      payment are called the "Firm Shares Closing Date"). In addition, in the
      event that any or all of the Option Shares are purchased by the
      Underwriters, payment of the purchase price, and delivery of the
      certificates, for such Option Shares shall be made at the above-mentioned
      offices, or at such other place as shall be agreed upon by the
      Representatives and the Company, on each date of delivery as specified in
      the notice from the Representatives to the Company (such time and date of
      delivery and payment are called the "Option Shares Closing Date"). The
      Firm Shares Closing Date and any Option Shares Closing Date are called,
      individually, a "Closing Date" and, together, the "Closing Dates."

            (d) Payment shall be made to the Company by wire transfer of
      immediately available funds or by certified or official bank check or
      checks payable in New York Clearing House (same day) funds drawn to the
      order of the Company against delivery of the respective certificates to
      the Representatives for the respective accounts of the Underwriters of
      certificates for the Shares to be purchased by them.

                                       2

            (e) Certificates evidencing the Shares shall be registered in such
      names and shall be in such denominations as the Representatives shall
      request at least two full business days before the Firm Shares Closing
      Date or, in the case of Option Shares, on the day of notice of exercise of
      the option as described in Section 1(b) and shall be delivered by or on
      behalf of the Company to the Representatives through the facilities of the
      Depository Trust Company ("DTC") for the account of such Underwriter. The
      Company will cause the certificates representing the Shares to be made
      available for checking and packaging, at such place as is designated by
      the Representatives, on the full business day before the Firm Shares
      Closing Date (or the Option Shares Closing Date in the case of the Option
      Shares).

      2. Representations and Warranties of the Company. The Company represents
and warrants to each Underwriter as of the date hereof, as of the Firm Shares
Closing Date and as of each Option Shares Closing Date (if any), as follows:

            (a) On the Effective Date, the Registration Statement complied, and
      on the date of the Prospectus, the date any post-effective amendment to
      the Registration Statement becomes effective, the date any supplement or
      amendment to the Prospectus is filed with the Commission and each Closing
      Date, the Registration Statement and the Prospectus (and any amendment
      thereof or supplement thereto) will comply, in all material respects, with
      the requirements of the Securities Act and the Rules and the Securities
      Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
      regulations of the Commission thereunder. The Registration Statement did
      not, as of the Effective Date, contain any untrue statement of a material
      fact or omit to state any material fact required to be stated therein or
      necessary in order to make the statements therein not misleading; and on
      the Effective Date and the other dates referred to above neither the
      Registration Statement nor the Prospectus, nor any amendment thereof or
      supplement thereto, will contain any untrue statement of a material fact
      or will omit to state any material fact required to be stated therein or
      necessary in order to make the statements therein not misleading. When the
      Preliminary Prospectus was first filed with the Commission (whether filed
      as part of the Registration Statement or any amendment thereto or pursuant
      to Rule 424(a) of the Rules) and when any amendment thereof or supplement
      thereto was first filed with the Commission, such Preliminary Prospectus
      as amended or supplemented complied in all material respects with the
      applicable provisions of the Securities Act and the Rules and did not
      contain any untrue statement of a material fact or omit to state any
      material fact required to be stated therein or necessary in order to make
      the statements therein not misleading. If applicable, each Preliminary
      Prospectus and the Prospectus delivered to the Underwriters for use in
      connection with this offering was identical to the electronically
      transmitted copies thereof filed with the Commission pursuant to EDGAR,
      except to the extent permitted by Regulation S-T. If Rule 434 is used, the
      Company will comply with the requirements of Rule 434 and the Prospectus
      shall not be "materially different," as such term is used in Rule 434,
      from the Prospectus included in the Registration Statement at the time it
      became effective. Notwithstanding the foregoing, none of the
      representations and warranties in this paragraph 2(a) shall apply to
      statements in, or omissions from, the Registration Statement or the
      Prospectus or any amendments thereof or supplements thereto made in
      reliance upon, and in conformity with, information herein or otherwise
      furnished in writing by the Representatives on behalf of the several
      Underwriters for use in the Registration Statement or the Prospectus. With
      respect to the preceding sentence and Section 5(b), the Company
      acknowledges that the only information furnished in writing by the
      Representatives on behalf of the several Underwriters for use in the
      Registration Statement or the Prospectus or any amendments thereof or
      supplements thereto is the statements contained in the tenth, thirteenth
      and fourteenth paragraphs under the caption "Underwriting" in the
      Prospectus.

                                       3

            (b) The Registration Statement is effective under the Securities Act
      and no stop order preventing or suspending the effectiveness of the
      Registration Statement or suspending or preventing the use of the
      Prospectus has been issued by the Commission and, to the Company's
      knowledge, no proceedings for that purpose have been instituted or are
      threatened under the Securities Act. Any required filing of the Prospectus
      and any supplement thereto pursuant to Rule 424(b) of the Rules has been
      or will be made in the manner and within the time period required by such
      Rule 424(b).

            (c) The financial statements of the Company (including all notes and
      schedules thereto) included in the Registration Statement and Prospectus
      present fairly, in all material respects, the financial position of the
      Company and its consolidated subsidiaries at the dates indicated and the
      statement of operations, stockholders' equity and cash flows of the
      Company and its consolidated subsidiaries for the periods specified; and
      such financial statements and related schedules and notes thereto, and the
      unaudited financial information filed with the Commission as part of the
      Registration Statement, have been prepared in conformity with generally
      accepted accounting principles, consistently applied throughout the
      periods involved (provided that non-year-end financial statements are
      subject to normal recurring year-end audit adjustments that are not
      expected to be material in the aggregate and do not contain all footnotes
      required by generally accepted accounting principles). The summary and
      selected consolidated financial data included in the Prospectus present
      fairly, in all material respects, the information shown therein as at the
      respective dates and for the respective periods specified and have been
      presented on a basis consistent with the consolidated financial statements
      set forth in the Prospectus and other financial information.

            (d) Ernst & Young LLP (the "Auditor"), whose reports are filed with
      the Commission as a part of the Registration Statement, are and, during
      the periods covered by their reports, were independent public accountants
      as required by the Securities Act and the Rules.

            (e) The Company and each of its subsidiaries is duly organized,
      validly existing and in good standing under the laws of their respective
      jurisdictions of incorporation or organization and is duly qualified to do
      business and is in good standing as a foreign corporation in each
      jurisdiction in which the nature of the business conducted by it or
      location of the assets or properties owned, leased or licensed by it
      requires such qualification, except for such jurisdictions where the
      failure to so qualify or be in good standing, individually or in the
      aggregate, would not have a material adverse effect on the assets,
      properties, condition, financial or otherwise, or in the results of
      operations, business affairs or business prospects of the Company and its
      subsidiaries considered as a whole (a "Material Adverse Effect"); and to
      the Company's knowledge, no proceeding has been instituted in any such
      jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit
      or curtail, such power and authority or qualification.

            (f) The Company and each of its subsidiaries has all requisite
      corporate power and authority, and all necessary authorizations,
      approvals, consents, orders, licenses, certificates and permits of and
      from all governmental or regulatory bodies or any other person or entity
      (collectively, the "Permits"), to own, lease and license its assets and
      properties and conduct its business, all of which are valid and in full
      force and effect, except where the lack of such Permits, individually or
      in the aggregate, would not have a Material Adverse Effect. The Company
      and each of its subsidiaries has fulfilled and performed in all material
      respects all of its material obligations with respect to such Permits and,
      to the Company's knowledge, no event has occurred that allows, or after
      notice or lapse of time would allow, revocation or termination thereof or
      results in any other material impairment of the rights of the Company
      thereunder. Except as may be required under the Securities Act, the rules
      of the National Association of Securities Dealers, Inc. (the "NASD") and
      state and

                                       4

      foreign Blue Sky laws, no other Permits are required to enter into,
      deliver and perform this Agreement and to issue and sell the Shares.

            (g) The Company and each of its subsidiaries owns or possesses
      legally enforceable rights to use all patents, patent rights, inventions,
      trademarks, trademark applications, trade names, service marks,
      copyrights, copyright applications, licenses, know-how and other similar
      rights and proprietary knowledge necessary for the conduct of its business
      (collectively, "Intangibles") as conducted on the date hereof and
      described in the Registration Statement and Prospectus. Neither the
      Company nor any of its subsidiaries has received any written notice of and
      neither the Company nor any of its subsidiaries has any knowledge of any
      infringement of or conflict with asserted rights of others with respect to
      any Intangibles.

            (h) The Company and each of its subsidiaries has good and marketable
      title in fee simple to all real property, and good and marketable title to
      all tangible personal property owned by it, in each case free and clear of
      all liens, encumbrances, claims, security interests and defects, except as
      are disclosed in the Prospectus or such as are not material to the Company
      and its subsidiaries, taken as a whole, and do not materially interfere
      with the use made or proposed to be made of such property, as of the date
      hereof, by the Company and its subsidiaries. All property held under lease
      by the Company and its subsidiaries is held by them under valid, existing
      and enforceable leases, with only such exceptions as are not material and
      do not materially interfere with the use made or proposed to be made of
      such property by the Company and its subsidiaries. Subsequent to the
      respective dates as of which information is given in the Registration
      Statement and the Prospectus, (i) there has not been any Material Adverse
      Effect; (ii) neither the Company nor any of its subsidiaries has sustained
      any loss or interference with its assets, businesses or properties
      (whether owned or leased) from fire, explosion, earthquake, flood or other
      calamity, whether or not covered by insurance, or from any labor dispute
      or any court or legislative or other governmental action, order or decree
      which would have a Material Adverse Effect; and (iii) since the date of
      the latest balance sheet included in the Registration Statement and the
      Prospectus, except as otherwise disclosed in the Prospectus, neither the
      Company nor its subsidiaries has (A) incurred any liability or obligation,
      direct or contingent, for borrowed money, except such liabilities or
      obligations incurred in the ordinary course of business, (B) entered into
      any transaction not in the ordinary course of business or (C) declared or
      paid any dividend or made any distribution on any shares of its stock or
      redeemed, purchased or otherwise acquired or agreed to redeem, purchase or
      otherwise acquire any shares of its capital stock.

            (i) There is no document, contract or other agreement required to be
      described in the Registration Statement or Prospectus or to be filed as an
      exhibit to the Registration Statement which is not described or filed as
      required by the Securities Act or Rules. Each description of a contract,
      document or other agreement in the Registration Statement and the
      Prospectus accurately reflects in all material respects the terms of the
      underlying contract, document or other agreement. Each contract, document
      or other agreement described in the Registration Statement and Prospectus
      or listed in the Exhibits to the Registration Statement is in full force
      and effect and is valid and enforceable by and against the Company or its
      subsidiaries, as the case may be, in accordance with its terms. Neither
      the Company nor any of its subsidiaries, if a subsidiary is a party, nor
      to the Company's knowledge, any other party is in default in the
      observance or performance of any term or obligation to be performed by it
      under any such contract, document or other agreement and no event has
      occurred which with notice or lapse of time or both would constitute such
      a default, in any such case which default or event, individually or in the
      aggregate, would have a Material Adverse Effect. No default exists, and no
      event has occurred which with notice or lapse of time or both would
      constitute a default, in the due performance and observance of any term,
      covenant or condition, by the Company or its subsidiary, if a subsidiary
      is a party thereto, of any other

                                       5

      agreement or instrument to which the Company or any of its subsidiaries is
      a party or by which Company or its properties or business of a subsidiary
      or its properties or business may be bound or affected which default or
      event, individually or in the aggregate, would have a Material Adverse
      Effect.

            (j) The statistical and market related data included in the
      Registration Statement are based on or derived from sources that the
      Company believes to be reliable and accurate.

            (k) Neither the Company nor any of its subsidiaries is in violation
      of any term or provision of its charter or bylaws or of any franchise,
      license, permit, judgment, decree, order, statute, rule or regulation,
      where the consequences of such violation, individually or in the
      aggregate, would have a Material Adverse Effect.

            (l) This Agreement has been duly authorized, executed and delivered
      by the Company.

            (m) Neither the execution, delivery and performance of this
      Agreement by the Company nor the consummation of any of the transactions
      contemplated hereby (including, without limitation, the issuance and sale
      by the Company of the Shares) will give rise to a right to terminate or
      accelerate the due date of any payment due under, or conflict with or
      result in the breach of any term or provision of, or constitute a default
      (or an event which with notice or lapse of time or both would constitute a
      default) under, or require any consent or waiver under, or result in the
      execution or imposition of any lien, charge or encumbrance upon any
      properties or assets of the Company or its subsidiaries pursuant to the
      terms of, any indenture, mortgage, deed of trust or other agreement or
      instrument to which the Company or any of its subsidiaries is a party or
      by which either the Company or its subsidiaries or any of their properties
      or businesses is bound, or any franchise, license, permit, judgment,
      decree, order, statute, rule or regulation applicable to the Company or
      any of its subsidiaries, expect where it would not have a Material Adverse
      Effect, or violate any provision of the charter or by-laws of the Company
      or any of its subsidiaries, except for such consents or waivers which have
      already been obtained and are in full force and effect.

            (n) On the date set forth therein, the Company had the authorized
      and outstanding capital stock as set forth under the caption
      "Capitalization" in the Prospectus. The certificates evidencing the Shares
      are in due and proper legal form and have been duly authorized for
      issuance by the Company. All of the issued and outstanding shares of
      Common Stock have been duly and validly issued and are fully paid and
      nonassessable. Except as disclosed in the Registration Statement and the
      Prospectus or as set forth in the Amended and Restated Investor Rights
      Agreement dated April 21, 2005 by and among the Company and the parties
      named therein, there are no statutory preemptive or other similar rights
      granted by the Company to subscribe for or to purchase or acquire any
      shares of Common Stock of the Company or any of its subsidiaries or any
      such rights pursuant to its Certificate of Incorporation or bylaws or any
      agreement or instrument to or by which the Company or any of its
      subsidiaries is a party or bound, other than such rights that have been
      properly waived. The Shares, when issued and sold pursuant to this
      Agreement, will be duly and validly issued, fully paid and nonassessable
      and none of them will be issued in violation of any preemptive or other
      similar right granted by the Company. Except as disclosed in the
      Registration Statement and the Prospectus, there is no outstanding option,
      warrant or other right calling for the issuance of, and there is no
      commitment, plan or arrangement to issue, any share of stock of the
      Company or any of its subsidiaries or any security convertible into, or
      exercisable or exchangeable for, such stock. The Common Stock and the
      Shares conform in all material respects to all statements in relation
      thereto contained in the Registration Statement and the Prospectus. All
      outstanding shares of capital stock of each of the Company's subsidiaries
      have been duly authorized and validly issued, and are fully paid and
      nonassessable and are owned directly by the Company or by another

                                       6

      wholly-owned subsidiary of the Company free and clear of any security
      interests, liens, encumbrances, equities or claims, other than those
      described in the Prospectus.

            (o) No holder of any security of the Company has any right, which
      has not been waived, to have any security owned by such holder included in
      the Registration Statement or to demand registration of any security owned
      by such holder for a period of 180 days after the date of this Agreement.
      Each director and executive officer of the Company and each stockholder of
      the Company listed on Schedule II has delivered to the Representatives his
      enforceable written lock-up agreement in the form attached to this
      Agreement as Exhibit A hereto ("Lock-Up Agreement").

            (p) All necessary corporate action has been duly and validly taken
      by the Company and to authorize the execution, delivery and performance of
      this Agreement and the issuance and sale of the Shares by the Company.
      This Agreement has been duly and validly authorized, executed and
      delivered by the Company and constitute and will constitute legal, valid
      and binding obligations of the Company enforceable against the Company in
      accordance with their respective terms, except as the enforceability
      thereof may be limited by bankruptcy, insolvency, reorganization,
      moratorium or other similar laws affecting the enforcement of creditors'
      rights generally and by general equitable principles.

            (q) Neither the Company nor any of its subsidiaries is involved in
      any labor dispute nor, to the knowledge of the Company, is any such
      dispute threatened, which dispute would have a Material Adverse Effect.
      The Company is not aware of any existing or imminent labor disturbance by
      the employees of any of its principal suppliers or contractors which would
      have a Material Adverse Effect. The Company is not aware of any threatened
      or pending litigation between the Company or its subsidiaries and any of
      its executive officers which, if adversely determined, could have a
      Material Adverse Effect.

            (r) No transaction has occurred between or among the Company and any
      of its officers or directors, stockholders or any affiliate or affiliates
      of any such officer or director or stockholder that is required to be
      described in and is not described in the Registration Statement and the
      Prospectus.

            (s) The Company has not taken, nor will it take, directly or
      indirectly, any action designed to or which might reasonably be expected
      to cause or result in, or which has constituted or which might reasonably
      be expected to constitute, the stabilization or manipulation of the price
      of the Common Stock or any security of the Company to facilitate the sale
      or resale of any of the Shares.

            (t) The Company and each of its subsidiaries has filed all Federal,
      state, local and foreign tax returns which are required to be filed
      through the date hereof, which returns are true and correct in all
      material respects or has received valid extensions thereof, and has paid
      all taxes shown on such returns and all assessments received by it to the
      extent that the same are material and have become due. To the Company's
      knowledge, there are no tax audits or investigations pending, which if
      adversely determined would have a Material Adverse Effect; nor to the
      Company's knowledge are there any material proposed additional tax
      assessments against the Company or any of its subsidiaries.

            (u) The Shares have been duly authorized for quotation on the
      National Association of Securities Dealers Automated Quotation ("Nasdaq")
      National Market System, subject to official Notice of Issuance. A
      registration statement has been filed on Form 8-A pursuant to Section 12
      of the Exchange Act, which registration statement complies in all material
      respects with the Exchange Act.

                                       7

            (v) The Company has taken no action designed to, or likely to have
      the effect of, terminating the registration of the Common Stock under the
      Exchange Act or the quotation of the Common Stock on the Nasdaq National
      Market, nor has the Company received any notification that the Commission
      or the Nasdaq National Market is contemplating terminating such
      registration or quotation.

            (w) The books, records and accounts of the Company and its
      subsidiaries accurately and fairly reflect, in reasonable detail, the
      transactions in, and dispositions of, the assets of, and the results of
      operations of, the Company and its subsidiaries. The Company and each of
      its subsidiaries maintains a system of internal accounting controls
      sufficient to provide reasonable assurances that (i) transactions are
      executed in accordance with management's general or specific
      authorizations, (ii) transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles and to maintain asset accountability, (iii) access
      to assets is permitted only in accordance with management's general or
      specific authorization and (iv) the recorded accountability for assets is
      compared with the existing assets at reasonable intervals and appropriate
      action is taken with respect to any differences.

            (x) The Company is actively taking steps to establish disclosure
      controls and procedures (as such term is defined in Rule 13a-15 under the
      Exchange Act), which: (i) are designed to ensure that material information
      relating to the Company is made known to the Company's principal executive
      officer and its principal financial officer by others within the Company,
      particularly during the periods in which the periodic reports required
      under the Exchange Act are required to be prepared; (ii) provide for the
      periodic evaluation of the effectiveness of such disclosure controls and
      procedures at the end of the periods in which the periodic reports are
      required to be prepared; and (iii) are effective in all material respects
      to perform the functions for which they were established.

            (y) Based on the evaluation of its disclosure controls and
      procedures as established to date, the Company is not aware of (i) any
      significant deficiency in the design or operation of internal controls
      which could adversely affect the Company's ability to record, process,
      summarize and report financial data or any material weaknesses in internal
      controls; or (ii) any fraud, whether or not material, that involves
      management or other employees who have a role in the Company's internal
      controls.

            (z) Except as described in the Prospectus, there are no material
      off-balance sheet arrangements (as defined in Item 303 of Regulation S-K)
      that have or are reasonably likely to have a material current or future
      effect on the Company's financial condition, revenues or expenses, changes
      in financial condition, results of operations, liquidity, capital
      expenditures or capital resources.

            (aa) Except as described in the Prospectus and as preapproved in
      accordance with the requirements set forth in Section 10A of the Exchange
      Act, the Auditor has not been engaged by the Company to perform any
      "prohibited activities" (as defined in Section 10A of the Exchange Act).

            (bb) The Company's Board of Directors has validly appointed an audit
      committee whose composition satisfies the requirements of Rule 4350(d)(2)
      of the Rules of the National Association of Securities Dealers, Inc. (the
      "NASD Rules") and the Board of Directors and/or the audit committee has
      adopted a charter that satisfies the requirements of Rule 4350(d)(1) of
      the NASD Rules.

            (cc) The Company is actively taking steps to ensure that it will be
      in compliance with all other applicable provisions of the Sarbanes-Oxley
      Act of 2002, any related rules and regulations

                                       8

      promulgated by the Commission and corporate governance requirements under
      the NASD Rules upon the effectiveness of such provisions as may be
      applicable.

            (dd) The Company and its subsidiaries are insured by insurers of
      recognized financial responsibility against such losses and risks and in
      such amounts as are customary in the businesses in which they are engaged
      or propose to engage after giving effect to the transactions as described
      in the Prospectus; all policies of insurance insuring the Company or any
      of its subsidiaries or the Company's or its subsidiaries' respective
      businesses, assets, employees, officers and directors are in full force
      and effect; the Company and each of its subsidiaries are in compliance
      with the terms of such policies and instruments in all material respects;
      and neither the Company nor any subsidiary of the Company has any reason
      to believe that it will not be able to renew its existing insurance
      coverage as and when such coverage expires or to obtain similar coverage
      from similar insurers as may be necessary to continue its business.
      Neither the Company nor any of its subsidiaries has been denied any
      insurance coverage which it has sought or for which it has applied.

            (ee) Each approval, consent, order, authorization, designation,
      declaration or filing of, by or with any regulatory, administrative or
      other governmental body necessary in connection with the execution and
      delivery by the Company of this Agreement and the consummation of the
      transactions herein contemplated required to be obtained or performed by
      the Company (except such additional steps as may be required by the NASD
      or may be necessary to qualify the Shares for public offering by the
      Underwriters under the state securities or Blue Sky laws) has been
      obtained or made and is in full force and effect.

            (ff) There are no affiliations with the NASD among the Company's
      officers, directors or, to the best of the knowledge of the Company, any
      five percent or greater stockholder of the Company, except as set forth in
      the Registration Statement or otherwise disclosed in writing to the
      Representatives.

            (gg) (i) Neither the Company nor any of its subsidiaries are in
      violation of any applicable rules, laws and regulation relating to the
      use, treatment, storage and disposal of toxic substances and protection of
      health or the environment ("Environmental Law") which are applicable to
      its business except for any violation which would not have a Material
      Adverse Effect; (ii) neither the Company nor its subsidiaries has received
      any notice from any governmental authority or third party of an asserted
      claim under Environmental Laws; (iii) each of the Company and each of its
      subsidiaries has received all permits, licenses or other approvals
      required of it under applicable Environmental Laws to the conduct its
      business and is in compliance with all terms and conditions of any such
      permit, license or approval, except for where non-compliance would not
      have a Material Adverse Effect; (iv) to the Company's knowledge, no facts
      currently exist that will require the Company or any of its subsidiaries
      to make future material capital expenditures to comply with Environmental
      Laws; and (v) no property which is or has been owned, or to the Company's
      knowledge, leased or occupied by the Company or its subsidiaries has been
      designated as a Superfund site pursuant to the Comprehensive Environmental
      Response, Compensation of Liability Act of 1980, as amended (42 U.S.C.
      Section 9601, et. seq.) ("CERCLA") or otherwise designated as a
      contaminated site under applicable state or local law. Neither the Company
      nor any of its subsidiaries has been named as a "potentially responsible
      party" under CERCLA.

            (hh) The Company is not and, after giving effect to the offering and
      sale of the Shares and the application of the net proceeds therefrom as
      described in the Prospectus, will not be subject to registration as an
      "investment company" within the meaning of the Investment Company Act of
      1940, as amended (the "Investment Company Act").

                                       9

            (ii) Neither the Company nor any other person associated with or
      acting on behalf of the Company including, without limitation, any
      director or officer or, to the Company's knowledge, any agent or employee
      of the Company or its subsidiaries, has, directly or indirectly while
      acting on behalf of the Company or its subsidiaries, (i) used any
      corporate funds for unlawful contributions, gifts, entertainment or other
      unlawful expenses relating to political activity; (ii) made any unlawful
      payment to foreign or domestic government officials or employees or to
      foreign or domestic political parties or campaigns from corporate funds;
      (iii) violated any provision of the Foreign Corrupt Practices Act of 1977,
      as amended; or (iv) made any other unlawful payment.

            (jj) The operations of the Company and its subsidiaries are and have
      been conducted at all times in material compliance with applicable
      financial recordkeeping and reporting requirements of the Currency and
      Foreign Transactions Reporting Act of 1970, as amended, the money
      laundering statutes of all jurisdictions applicable to the Company, the
      rules and regulations thereunder and any related or similar rules,
      regulations or guidelines, issued, administered or enforced by any
      governmental agency (collectively, the "Money Laundering Laws") and no
      action, suit or proceeding by or before any court or governmental agency,
      authority or body or any arbitrator involving the Company or any of it
      subsidiaries with respect to the Money Laundering Laws is pending, or to
      the best knowledge of the Company, threatened.

            (kk) Neither the Company nor any of its subsidiaries nor, to the
      knowledge of the Company, any director, officer, agent, employee or
      affiliate of the Company or any of its subsidiaries is currently subject
      to any U.S. sanctions administered by the Office of Foreign Assets Control
      of the U.S. Treasury Department ("OFAC"); and the Company will not
      directly or indirectly use the proceeds of the offering, or lend,
      contribute or otherwise make available such proceeds to any subsidiary,
      joint venture partner or other person or entity, for the purpose of
      financing the activities of any person who, to the Company's knowledge, is
      currently subject to any U.S. sanctions administered by OFAC.

            (ll) The clinical, pre-clinical and other trials, studies and tests
      conducted by or on behalf of or sponsored by the Company or in which the
      Company or its products or product candidates have participated that are
      described in the Registration Statement and Prospectus or the results of
      which are referred to in the Registration Statement or Prospectus were
      and, if still pending, are being conducted in all material respect in
      accordance with medical and scientific protocols and research procedures
      that the Company reasonably believes are appropriate. The descriptions in
      the Registration Statement and Prospectus of the results of such trials,
      studies and tests are accurate in all material respects and fairly present
      the data derived from such trials, studies and tests, and the Company has
      no knowledge of any other trials, studies or tests the results of which
      are materially inconsistent with or otherwise materially call into
      question the results described or referred to in the Registration
      Statement and Prospectus. The Company has operated and currently is in
      compliance in all material respects with applicable statutes and
      implementing regulations administered or enforced by the United States
      Food and Drug Administration ("FDA"), except where the failure to so
      comply would not have a Material Adverse Effect. Except to the extent
      disclosed in the Registration Statement and the Prospectus, the Company
      has not received any notices or other correspondence from the FDA or any
      other governmental agency requiring the termination, suspension or
      modification of any clinical trials or pre-clinical studies or tests that
      are described in the Registration Statement or Prospectus or the results
      of which are referred to in the Registration Statement or Prospectus.

            (mm) Except as described in the Prospectus and the Registration
      Statement, the Company has not sold or issued any shares of Common Stock
      during the six-month period preceding the date of the Prospectus,
      including any sales pursuant to Rule 144A under, or Regulations D or S of,
      the

                                       10

      Securities Act, other than shares issued pursuant to employee benefit
      plans, equity incentive plans or other employee compensation plans or
      pursuant to outstanding options, rights or warrants.

            (nn) The Company has fulfilled its obligations, if any, in all
      material respects, under the minimum funding standards of Section 302 of
      the U.S. Employee Retirement Income Security Act of 1974 ("ERISA") and the
      regulations and published interpretations thereunder with respect to each
      "plan" as defined in Section 3(3) of ERISA and such regulations and
      published interpretations in which its employees are eligible to
      participate and each such plan is in compliance in all material respects
      with the presently applicable provisions of ERISA and such regulations and
      published interpretations. No "Reportable Event" (as defined in 12 ERISA)
      has occurred with respect to any "Pension Plan" (as defined in ERISA) for
      which the Company would have any material liability.

            (oo) Each of the Company, its directors and officers has not
      distributed or contributed to the distribution, and will not distribute or
      contribute to the distribution prior to the later of (i) the Firm Shares
      Closing Date, or the Option Shares Closing Date, and (ii) completion of
      the distribution of the Shares, any offering material in connection with
      the offering and sale of the Shares other than any Preliminary Prospectus,
      the Prospectus, the Registration Statement and other materials, if any,
      permitted by the Securities Act.

      3. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters under this Agreement are several and not joint. The respective
obligations of the Underwriters to purchase the Shares are subject to each of
the following terms and conditions:

            (a) Notification that the Registration Statement became effective on
      the Effective Date shall have been received by the Representatives and the
      Prospectus shall have been timely filed with the Commission in accordance
      with Section 4(a) of this Agreement.

            (b) No order preventing or suspending the use of any preliminary
      prospectus or the Prospectus shall have been or shall be in effect and no
      order suspending the effectiveness of the Registration Statement shall be
      in effect and no proceedings for such purpose shall be pending before or
      threatened by the Commission, and any requests for additional information
      on the part of the Commission to be included in the Registration Statement
      or the Prospectus or otherwise shall have been complied with to the
      satisfaction of the Commission and the Representatives. If the Company has
      elected to rely upon Rule 430A, Rule 430A information previously omitted
      from the effective Registration Statement pursuant to Rule 430A shall have
      been transmitted to the Commission for filing pursuant to Rule 424(b)
      within the prescribed time period and the Company shall have provided
      evidence satisfactory to the Underwriters of such timely filing, or a
      post-effective amendment providing such information shall have been
      promptly filed and declared effective in accordance with the requirements
      of Rule 430A. If the Company has elected to rely upon Rule 434, a term
      sheet shall have been transmitted to the Commission for filing pursuant to
      Rule 424(b) within the prescribed time period.

            (c) The representations and warranties of the Company contained in
      this Agreement and in the certificates delivered pursuant to Section 3(d)
      shall be true and correct when made and on and as of each Closing Date as
      if made on such date. The Company shall have performed all covenants and
      agreements and satisfied all the conditions contained in this Agreement
      required to be performed or satisfied by them at or before such Closing
      Date.

            (d) The Representatives shall have received on each Closing Date a
      certificate, addressed to the Representatives and dated such Closing Date,
      of the chief executive or chief operating officer and the chief financial
      officer or chief accounting officer of the Company to the effect that: (i)
      the

                                       11

      representations and warranties and agreements of the Company in this
      Agreement were true and correct when made and are true and correct as of
      such Closing Date; (ii) the Company has performed all covenants and
      agreements and satisfied all conditions contained herein required to be
      performed or satisfied by it at or prior to the Closing Date; (iii) they
      have examined the Registration Statement and the Prospectus and, in their
      opinion (A) as of the Effective Date, the Registration Statement did not,
      and as of its date, the Prospectus did not include any untrue statement of
      a material fact and did not omit to state a material fact required to be
      stated therein or necessary to make the statements therein, in light of
      the circumstances under which they were made, not misleading, and (B)
      since the Effective Date no event has occurred which should have been set
      forth in a supplement or an amendment to the Registration Statement or the
      Prospectus; and (iv) to their knowledge, no stop order suspending the
      effectiveness of the Registration Statement has been issued and no
      proceedings for that purpose have been instituted or are pending under the
      Securities Act.

            (e) The Representatives shall have received, at the time this
      Agreement is executed and on each Closing Date a signed letter from the
      Auditor addressed to the Representatives and dated, respectively, the date
      of this Agreement and each such Closing Date, in form and substance
      reasonably satisfactory to the Representatives containing statements and
      information of the type ordinarily included in accountants' "comfort
      letters" to underwriters with respect to the financial statements and
      certain financial information contained in the Registration Statement and
      the Prospectus.

            (f) The Representatives shall have received on each Closing Date
      from Cooley Godward LLP, counsel for the Company, an opinion, addressed to
      the Representatives and dated such Closing Date containing the opinions
      substantially as set forth in Exhibit B attached hereto.

            (g) The Representatives shall have received on each Closing Date
      from Hyman, Phelps & McNamera, P.C., special counsel for the Company with
      respect to United States Food and Drug Administration ("FDA") regulatory
      matters, an opinion, addressed to the Representatives and dated such
      Closing Date, containing the opinions substantially as set forth in
      Exhibit C attached hereto.

            (h) The Representatives shall have received on each Closing Date
      from Townsend and Townsend and Crew LLP and Millen, White, Zelano &
      Branigan, P.C., intellectual property counsel for the Company, opinions,
      addressed to the Representatives and dated such Closing Date, containing
      the opinions substantially as set forth in Exhibits D and E, respectively,
      attached hereto.

            (i) The Representatives shall have received on each Closing Date
      from Latham & Watkins LLP, counsel for the Representatives, an opinion,
      addressed to the Representatives and dated such Closing Date, containing
      the opinions substantially as set forth in Exhibit F attached hereto.

            (j) All proceedings taken in connection with the sale of the Firm
      Shares and the Option Shares as herein contemplated shall be reasonably
      satisfactory in form and substance to the Representatives with respect to
      the Shares, the Registration Statement and the Prospectus, and such other
      related matters, as the Representatives may reasonably request, and the
      Company shall have furnished to Underwriters counsel such documents as
      they may reasonably request for the purpose of enabling them to pass upon
      such matters.

            (k) The Representatives shall have received copies of the Lock-up
      Agreements executed by each entity or person listed on Schedule II hereto.

            (l) The Shares shall have been approved for quotation on the Nasdaq
      National Market, subject only to official notice of issuance.

                                       12

            (m) The Company shall have furnished or caused to be furnished to
      the Representatives such further certificates or documents as the
      Representatives shall have reasonably requested.

      4. Covenants of the Company.

            (a) The Company covenants and agrees as follows:

                  (i) The Company will use its reasonable efforts to cause the
            Registration Statement, if not effective at the time of execution of
            this Agreement, and any amendments thereto, to become effective as
            promptly as possible. The Company shall prepare the Prospectus in a
            form reasonably approved by the Representatives and file such
            Prospectus pursuant to Rule 424(b) under the Securities Act not
            later than the Commission's close of business on the second business
            day following the execution and delivery of this Agreement, or, if
            applicable, such earlier time as may be required by the Rules.

                  (ii) The Company shall promptly advise the Representatives in
            writing after it receives notice thereof (A) when any post-effective
            amendment to the Registration Statement shall have become effective
            or any supplement to the Prospectus shall have been filed, (B) of
            any request by the Commission for any amendment of the Registration
            Statement or the Prospectus or for any additional information, (C)
            of the issuance by the Commission of any stop order suspending the
            effectiveness of the Registration Statement or of any order
            preventing or suspending the use of any preliminary prospectus or
            the institution or threatening of any proceeding for that purpose
            and (D) of the suspension of the qualification of the Shares for
            sale in any jurisdiction or the initiation or threatening of any
            proceeding for such purpose. The Company shall not file any
            amendment of the Registration Statement or supplement to the
            Prospectus unless the Company has furnished the Representatives a
            copy for its review prior to filing and shall not file any such
            proposed amendment or supplement to which the Representatives
            reasonably object. The Company shall use its best efforts to prevent
            the issuance of any such stop order and, if issued, to obtain as
            soon as possible the withdrawal thereof.

                  (iii) If, at any time when a prospectus relating to the Shares
            is required to be delivered under the Securities Act and the Rules,
            any event occurs as a result of which the Prospectus as then amended
            or supplemented would include any untrue statement of a material
            fact or omit to state any material fact necessary to make the
            statements therein in the light of the circumstances under which
            they were made not misleading, or if it shall be necessary, in the
            Company's reasonable judgment, to amend or supplement the Prospectus
            to comply with the Securities Act or the Rules, the Company promptly
            shall prepare and file with the Commission, subject to the second
            sentence of paragraph (ii) of this Section 4(a), an amendment or
            supplement which shall correct such statement or omission or an
            amendment which shall effect such compliance.

                  (iv) The Company shall make generally available to its
            security holders and to the Representatives as soon as practicable,
            but not later than 45 days after the end of the 12-month period
            beginning at the end of the fiscal quarter of the Company during
            which the Effective Date occurs (or 90 days if such 12-month period
            coincides with the Company's fiscal year), an earning statement
            (which need not be audited) of the Company, covering such 12-month
            period, which shall satisfy the provisions of Section 11(a) of the
            Securities Act or Rule 158 of the Rules.

                                       13

                  (v) The Company shall furnish to the Representatives and
            counsel for the Underwriters, without charge, such number of the
            following documents as the Representatives shall reasonably request:
            conformed copies of the Registration Statement (including all
            exhibits thereto and amendments thereof) and to each other
            Underwriter a copy of the Registration Statement (without exhibits
            thereto) and all amendments thereof and, so long as delivery of a
            prospectus by an Underwriter or dealer may be required by the
            Securities Act or the Rules, as many copies of any preliminary
            prospectus and the Prospectus and any amendments thereof and
            supplements thereto as the Representatives may reasonable request.
            If applicable, the copies of the Registration Statement and
            Prospectus and each amendment and supplement thereto furnished to
            the Underwriters will be identical to the electronically transmitted
            copies thereof filed with the Commission pursuant to EDGAR, except
            to the extent permitted by Regulation S-T.

                  (vi) The Company shall cooperate with the Representatives and
            their counsel in endeavoring to qualify the Shares for offer and
            sale in connection with the offering under the laws of such
            jurisdictions as the Representatives may designate and shall
            maintain such qualifications in effect so long as required for the
            distribution of the Shares; provided, however, that the Company
            shall not be required in connection therewith, or as a condition
            thereof, to qualify as a foreign corporation or to execute a general
            consent to service of process in any jurisdiction or subject itself
            to taxation as doing business in any jurisdiction.

                  (vii) The Company, during the period when the Prospectus is
            required to be delivered under the Securities Act and the Rules or
            the Exchange Act, will file all reports and other documents required
            to be filed with the Commission pursuant to Section 13, 14 or 15 of
            the Exchange Act within the time periods required by the Exchange
            Act and the regulations promulgated thereunder.

                  (viii) Without the prior written consent of CIBC World Markets
            Corp. and Piper Jaffray & Co., for a period of 180 days after the
            date of this Agreement, the Company shall not issue, sell or
            register with the Commission (other than on Form S-8 or on any
            successor form), or otherwise dispose of, directly or indirectly,
            any equity securities of the Company (or any securities convertible
            into, exercisable for or exchangeable for equity securities of the
            Company), except for (A) the issuance of the Shares pursuant to the
            Registration Statement, and (B) the issuance of equity securities of
            the Company (or any securities convertible into, exercisable for or
            exchangeable for equity securities of the Company), (i) pursuant to
            the Company's existing equity plans or bonus plan as described in
            the Registration Statement and the Prospectus, (ii) pursuant to
            currently outstanding options, warrants or convertible notes as
            described in the Registration Statement, (iii) upon the conversion
            of the Company's Series A or Series B Preferred Stock, (iv) in
            connection with a strategic partnership, joint venture,
            collaboration, lending or other similar arrangement, or (v) in
            connection with the acquisition or license by the Company of any
            business, products or technologies; provided, however, that the
            shares issuable under clauses (iv) and (v) shall not exceed, in the
            aggregate during such 180-day period, ten percent (10.0%) of the
            Company's outstanding capital stock measured as of the Firm Shares
            Closing Date, including the Shares to be issued and sold hereunder.
            In the event that during this period, (A) any such shares are issued
            or (B) any registration is effected on Form S-8 or any successor
            form relating to shares that are exercisable within such 180-day
            period, the Company shall obtain the written agreement of such
            grantee or purchaser or holder of such registered securities that,
            for a period of 180 days after the date of this Agreement, such
            person will not, without the prior written consent of CIBC World
            Markets Corp. and Piper Jaffray & Co., offer for sale, sell,
            distribute, grant any option for the sale of, or otherwise dispose
            of, directly or indirectly, or exercise any registration rights with
            respect to, any shares

                                       14

            of Common Stock (or any securities convertible into, exercisable
            for, or exchangeable for any shares of Common Stock) owned by such
            person. Notwithstanding the foregoing, (i) the Company represents
            and warrants that each such grantee or purchaser or holder of such
            registered securities shall be subject to lockup restrictions
            materially consistent with those set forth on Exhibit A attached
            hereto and the Company shall enforce such rights and impose
            stop-transfer restrictions on any such sale or other transfer or
            disposition of such shares until the end of the period set forth in
            the applicable lock-up restrictions, and to the extent such grantee
            or purchaser or holder of such registered securities is subject to
            the lock-up attached hereto as Exhibit A (ii) if (x) during the last
            17 days of the 180 day period described in this Section 4(a)(viii)
            the Company issues an earnings release or material news or a
            material event relating to the Company occurs; or (y) prior to the
            expiration of such 180 day period, the Company announces that it
            will release earnings results during the 16-day period beginning on
            the last day of the 180 day period; the restrictions imposed in this
            Section 4(a)(viii) shall continue to apply until the expiration of
            the 18-day period beginning on the issuance of the earnings release
            or the occurrence of the material news or material event; provided,
            however, that this sentence shall not apply if the research
            published or distributed on the Company is compliant under Rule 139
            of the Securities Act and the Company's securities are actively
            traded as defined in Rule 101(c)(1) of Regulation M of the Exchange
            Act.

                  (ix) On or before completion of this offering, the Company
            shall make all filings required to be made by the Company under
            applicable securities laws and by the Nasdaq National Market
            (including any required registration under the Exchange Act).

                  (x) Prior to the Closing Date, the Company will issue no press
            release or other communications directly or indirectly and hold no
            press conference with respect to the Company, the condition,
            financial or otherwise, or the earnings, business affairs or
            business prospects of any of them, or the offering of the Shares
            without giving prior notification and a copy or summary of such
            press release or other communication to legal counsel for the
            Representatives, not less than two business days prior to the
            intended release date of such press release or other communication,
            and discussing with the Representative and its counsel promptly and
            in good faith any modifications or amendments thereto requested by
            the Representative unless in the judgment of the Company and its
            counsel, and after notification to the Representatives, such press
            release or communication is required by law; provided, however, that
            any such press release or other communication which refers to any of
            the Representatives shall require the prior written consent of the
            Representatives.

                  (xi) The Company will apply the net proceeds from the offering
            of the Shares in the manner set forth under "Use of Proceeds" in the
            Prospectus.

            (b) The Company agrees to pay, or reimburse if paid by the
      Representatives, whether or not the transactions contemplated hereby are
      consummated or this Agreement is terminated, all costs and expenses
      incident to the public offering of the Shares and the performance of the
      obligations of the Company under this Agreement including those relating
      to: (i) the preparation, printing, filing and distribution of the
      Registration Statement including all exhibits thereto, each Preliminary
      Prospectus, the Prospectus, all amendments and supplements to the
      Registration Statement and the Prospectus and the printing, filing and
      distribution of this Agreement; (ii) the preparation and delivery of
      certificates for the Shares to the Underwriters; (iii) the registration or
      qualification of the Shares for offer and sale under the securities or
      Blue Sky laws of the various jurisdictions referred to in Section
      4(a)(vi), including the reasonable fees and disbursements of counsel for
      the Underwriters in connection with such registration and qualification
      and the preparation, printing, distribution and shipment of preliminary
      and supplementary Blue Sky memoranda; (iv) the furnishing (including

                                       15

      costs of shipping and mailing) to the Representatives and to the
      Underwriters of copies of each preliminary prospectus, the Prospectus and
      all amendments or supplements to the Prospectus, and of the several
      documents required by this Section to be so furnished, as may be
      reasonably requested for use in connection with the offering and sale of
      the Shares by the Underwriters or by dealers to whom Shares may be sold;
      (v) the filing fees of the NASD in connection with its review of the terms
      of the public offering and reasonable fees and disbursements of counsel
      for the Underwriters in connection with such review; (vi) inclusion of the
      Shares for quotation on the Nasdaq National Market; and (vii) all transfer
      taxes, if any, with respect to the sale and delivery of the Shares by the
      Company to the Underwriters. Subject to the provisions of Section 7, the
      Underwriters agree to pay, whether or not the transactions contemplated
      hereby are consummated or this Agreement is terminated, all costs and
      expenses incident to the performance of the obligations of the
      Underwriters under this Agreement not payable by the Company pursuant to
      the preceding sentence, including, without limitation, the fees and
      disbursements of counsel for the Underwriters.

      5. Indemnification.

            (a) The Company agrees to indemnify and hold harmless each
      Underwriter and each person, if any, who controls any Underwriter within
      the meaning of Section 15 of the Securities Act or Section 20 of the
      Exchange Act against any and all losses, claims, damages and liabilities,
      joint or several (including any reasonable investigation, legal and other
      expenses incurred in connection with, and any amount paid in settlement
      of, any action, suit or proceeding or any claim asserted), to which they,
      or any of them, become subject under the Securities Act, the Exchange Act
      or other Federal or state law or regulation, at common law or otherwise,
      insofar as such losses, claims, damages or liabilities arise out of or are
      based upon any untrue statement or alleged untrue statement of a material
      fact contained in any preliminary prospectus, the Registration Statement
      or the Prospectus or any amendment thereof or supplement thereto, or in
      any Blue Sky application or other information or other documents executed
      by the Company filed in any state or other jurisdiction to qualify any or
      all of the Shares under the securities laws thereof (any such application,
      document or information being hereinafter referred to as a "Blue Sky
      Application") or arise out of or are based upon any omission or alleged
      omission to state therein a material fact required to be stated therein or
      necessary to make the statements therein not misleading; provided,
      however, that such indemnity shall not inure to the benefit of any
      Underwriter (or any person controlling such Underwriter) on account of any
      losses, claims, damages or liabilities if such untrue statement or
      omission or alleged untrue statement or omission was made in (i) the
      Preliminary Prospectus, which untrue statement or omission or alleged
      untrue statement or omission was corrected in the Prospectus and (x) the
      Company sustains the burden of proving that any Underwriter sold Shares to
      the person alleging such loss, claim, damage or liability without sending
      or giving, at or prior to written confirmation of such sale, a copy of the
      Prospectus, if required by law to have so delivered it, (y) the Company
      had previously furnished sufficient quantities of the Prospectus to the
      Underwriters within a reasonable amount of time prior to such sale or such
      confirmation and (z) such delivery would have been a complete defense
      against the person asserting such loss, claim, damage or liability; and
      (ii) the preliminary prospectus, the Registration Statement or the
      Prospectus, or such amendment or supplement thereto, or in any Blue Sky
      Application, in reliance upon and in conformity with information furnished
      in writing to the Company by the Representative specifically for use
      therein. This indemnity agreement will be in addition to any liability
      which the Company may otherwise have.

            (b) Each Underwriter agrees to indemnify and hold harmless the
      Company, and each person, if any, who controls the Company within the
      meaning of Section 15 of the Securities Act or Section 20 of the Exchange
      Act, each director of the Company, and each officer of the Company who
      signs the Registration Statement, against any losses, claims, damages or
      liabilities, joint or several

                                       16

      (including any reasonable investigation, legal and other expenses incurred
      in connection with, and any amount paid in settlement of, any action, suit
      or proceeding or any claim asserted), to which such party may become
      subject, under the Securities Act or otherwise, insofar as such losses,
      claims, damages or liabilities (or actions in respect thereof) arise out
      of or are based upon any untrue statement or alleged untrue statement of a
      material fact contained in any preliminary prospectus, the Registration
      Statement or the Prospectus, or any amendment or supplement thereto, or
      arise out of or are based upon 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, in each case to the extent, but
      only to the extent, that such untrue statement or alleged untrue statement
      or omission or alleged omission was made in any preliminary prospectus,
      the Registration Statement or the Prospectus or any such amendment or
      supplement in reliance upon and in conformity with written information
      furnished to the Company by or through the Representative expressly for
      use therein; provided, however, that the obligation of each Underwriter to
      indemnify the Company (including any controlling person, director or
      officer thereof) shall be limited to the net proceeds received by the
      Company from such Underwriter. This indemnity agreement will be in
      addition to any liability which any Underwriter may otherwise have.

            (c) Any party that proposes to assert the right to be indemnified
      under this Section will, promptly after receipt of notice of commencement
      of any action, suit or proceeding against such party in respect of which a
      claim is to be made against an indemnifying party or parties under this
      Section, notify each such indemnifying party of the commencement of such
      action, suit or proceeding, enclosing a copy of all papers served. No
      indemnification provided for in Section 5(a) or 5(b) shall be available to
      any party who shall fail to give notice as provided in this Section 5(c)
      if the party to whom notice was not given was unaware of the proceeding to
      which such notice would have related and was prejudiced by the failure to
      give such notice but the omission so to notify such indemnifying party of
      any such action, suit or proceeding shall not relieve it from any
      liability that it may have to any indemnified party for contribution or
      otherwise than under this Section. In case any such action, suit or
      proceeding shall be brought against any indemnified party and it shall
      notify the indemnifying party of the commencement thereof, the
      indemnifying party shall be entitled to participate in, and, to the extent
      that it shall wish, jointly with any other indemnifying party similarly
      notified, to assume the defense thereof, with counsel reasonably
      satisfactory to such indemnified party, and after notice from the
      indemnifying party to such indemnified party of its election so to assume
      the defense thereof and the approval by the indemnified party of such
      counsel (not to be unreasonably withheld or delayed), the indemnifying
      party shall not be liable to such indemnified party for any legal or other
      expenses, except as provided below and except for the reasonable costs of
      investigation subsequently incurred by such indemnified party in
      connection with the defense thereof. The indemnified party shall have the
      right to employ its counsel in any such action, but the fees and expenses
      of such counsel shall be at the expense of such indemnified party unless
      (i) the employment of counsel by such indemnified party has been
      authorized in writing by the indemnifying parties, (ii) the indemnified
      party shall have been advised by counsel that there may be one or more
      legal defenses available to it which are different from or in addition to
      those available to the indemnifying party (in which case the indemnifying
      parties shall not have the right to direct the defense of such action on
      behalf of the indemnified party) or (iii) the indemnifying parties shall
      not have employed counsel to assume the defense of such action within a
      reasonable time after notice of the commencement thereof, in each of which
      cases the fees and expenses of counsel to the indemnified party shall be
      at the expense of the indemnifying parties. An indemnifying party shall
      not be liable for any settlement of any action, suit, and proceeding or
      claim effected without its written consent, which consent shall not be
      unreasonably withheld or delayed.

      6. Contribution. In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in Section 5(a) or
5(b) is due in accordance with its terms but for any reason

                                       17

is unavailable to or insufficient to hold harmless an indemnified party in
respect to any losses, liabilities, claims, damages or expenses referred to
therein, then each indemnifying party shall contribute to the aggregate losses,
liabilities, claims, damages and expenses (including any investigation, legal
and other expenses reasonably incurred in connection with, and any amount paid
in settlement of, any action, suit or proceeding or any claims asserted, but
after deducting any contribution received by any person entitled hereunder to
contribution from any person who may be liable for contribution) incurred by
such indemnified party, as incurred, in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Shares pursuant to this
Agreement or, if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to above but also the relative fault of the Company on the one hand and the
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations. The Company and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 6 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above.
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission. Notwithstanding the provisions of
this Section 6, no Underwriter (except as may be provided in the Agreement Among
Underwriters) shall be required to contribute any amount in excess of the amount
by which the total price at which the shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of damages which
such underwriter has otherwise been required to pay by reason of any such untrue
or alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each person, if any, who controls an Underwriter within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act shall have the same
rights to contribution as such Underwriter, and each director of the Company,
each officer of the Company who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company. Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect of which a claim for contribution may be made
against another party or parties under this Section 6, notify such party or
parties from whom contribution may be sought, but the omission so to notify such
party or parties from whom contribution may be sought shall not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have hereunder or otherwise than under this Section 6. No party
shall be liable for contribution with respect to any action, suit, proceeding or
claim settled without its written consent. The Underwriter's obligations to
contribute pursuant to this Section 6 are several in proportion to their
respective underwriting commitments and not joint.

      7. Termination.

            (a) This Agreement may be terminated with respect to the Shares to
      be purchased on a Closing Date by the Representatives by notifying the
      Company at any time at or before a Closing Date in the absolute discretion
      of the Representatives if: (i) there has occurred any material adverse
      change in the securities markets or any event, act or occurrence that has
      materially disrupted, or in the opinion of the Representatives, will in
      the future materially disrupt, the securities markets or there shall be
      such a material adverse change in general financial, political or economic
      conditions or the effect of

                                       18

      international conditions on the financial markets in the United States is
      such as to make it, in the judgment of the Representatives, inadvisable or
      impracticable to market the Shares or enforce contracts for the sale of
      the Shares; (ii) there has occurred any outbreak or material escalation of
      hostilities or other calamity or crisis the effect of which on the
      financial markets of the United States is such as to make it, in the
      judgment of the Representatives, inadvisable or impracticable to market
      the Shares or enforce contracts for the sale of the Shares; (iii) trading
      in the Shares or any securities of the Company has been suspended or
      materially limited by the Commission or trading generally on the New York
      Stock Exchange, Inc., the American Stock Exchange, Inc. or the Nasdaq
      National Market has been suspended or materially limited, or minimum or
      maximum ranges for prices for securities shall have been fixed, or maximum
      ranges for prices for securities have been required, by any of said
      exchanges or by such system or by order of the Commission, the National
      Association of Securities Dealers, Inc., or any other governmental or
      regulatory authority; or (iv) a banking moratorium has been declared by
      any state or Federal authority; or (v) in the judgment of the
      Representatives, there has been, since the time of execution of this
      Agreement or since the respective dates as of which information is given
      in the Prospectus, any material adverse change in the assets, properties,
      condition, financial or otherwise, or in the results of operations,
      business affairs or business prospects of the Company and its subsidiaries
      considered as a whole, whether or not arising in the ordinary course of
      business.

            (b) If this Agreement is terminated pursuant to any of its
      provisions, the Company shall not be under any liability to any
      Underwriter, and no Underwriter shall be under any liability to the
      Company, except that (y) if this Agreement is terminated by the
      Representatives or the Underwriters because of any failure, refusal or
      inability on the part of the Company to comply with the terms or to
      fulfill any of the conditions of this Agreement, the Company will
      reimburse the Underwriters for all out-of-pocket expenses (including the
      reasonable fees and disbursements of their counsel) incurred by them in
      connection with the proposed purchase and sale of the Shares or in
      contemplation of performing their obligations hereunder and (z) no
      Underwriter who shall have failed or refused to purchase the Shares agreed
      to be purchased by it under this Agreement, without reason sufficient
      hereunder to justify cancellation or termination of its obligations under
      this Agreement, shall be relieved of liability to the Company or to the
      other Underwriters for damages occasioned by its failure or refusal.

      8. Substitution of Underwriters. If any Underwriter shall default in its
obligation to purchase on any Closing Date the Shares agreed to be purchased
hereunder on such Closing Date, the Representatives shall have the right, within
36 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase such Shares on the terms
contained herein. If, however, the Representatives shall not have completed such
arrangements within such 36-hour period, then the Company shall be entitled to a
further period of thirty-six hours within which to procure another party or
other parties satisfactory to the Underwriters to purchase such Shares on such
terms. If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by the Representatives and
the Company as provided above, the aggregate number of Shares which remains
unpurchased on such Closing Date does not exceed one-eleventh of the aggregate
number of all the Shares that all the Underwriters are obligated to purchase on
such date, then the Company shall have the right to require each non-defaulting
Underwriter to purchase the number of Shares which such Underwriter agreed to
purchase hereunder at such date and, in addition, to require each non-defaulting
Underwriter to purchase its pro rata share (based on the number of Shares which
such Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default. In any such case, either the Representatives or the Company shall have
the right to postpone the applicable Closing Date for a period of not more than
seven days in order to effect any necessary changes and arrangements (including
any necessary amendments or

                                       19

supplements to the Registration Statement or Prospectus or any other documents),
and the Company agrees to file promptly any amendments to the Registration
Statement or the Prospectus which in the opinion of the Company and the
Underwriters and their counsel may thereby be made necessary.

      If, after giving effect to any arrangements for the purchase of the Shares
of a defaulting Underwriter or Underwriters by the Representatives and the
Company as provided above, the aggregate number of such Shares which remains
unpurchased exceeds 10% of the aggregate number of all the Shares to be
purchased at such date, then this Agreement, or, with respect to a Closing Date
which occurs after the First Closing Date, the obligations of the Underwriters
to purchase and of the Company, as the case may be, to sell the Option Shares to
be purchased and sold on such date, shall terminate, without liability on the
part of any non-defaulting Underwriter to the Company, and without liability on
the part of the Company, except as provided in Sections 4(b), 5, 6 and 7. The
provisions of this Section 8 shall not in any way affect the liability of any
defaulting Underwriter to the Company or the nondefaulting Underwriters arising
out of such default. The term "Underwriter" as used in this Agreement shall
include any person substituted under this Section 8 with like effect as if such
person had originally been a party to this Agreement with respect to such
Shares.

      9. Miscellaneous. The respective agreements, representations, warranties,
indemnities and other statements of the Company and the several Underwriters, as
set forth in this Agreement or made by or on behalf of them pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or the Company or any of their respective officers, directors
or controlling persons referred to in Sections 5 and 6 hereof, and shall survive
delivery of and payment for the Shares. In addition, the provisions of Sections
4(b), 5, 6 and 7 shall survive the termination or cancellation of this
Agreement.

      This Agreement has been and is made for the benefit of the Underwriters,
the Company and their respective successors and assigns, and, to the extent
expressed herein, for the benefit of persons controlling any of the
Underwriters, or the Company, and directors and officers of the Company, and
their respective successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser of Shares from any Underwriter merely
because of such purchase.

      All notices and communications hereunder shall be in writing and mailed or
delivered or by telephone or telegraph if subsequently confirmed in writing, (a)
if to the Representatives, c/o CIBC World Markets Corp., 300 Madison Avenue, New
York, New York 10017 Attention: Legal Department, and Piper Jaffray & Co., U.S.
Bancorp Center, 800 Nicollet Mall, Minneapolis, Minnesota 55402, Attention:
Legal Department, with a copy to Latham & Watkins LLP, 135 Commonwealth Drive,
Menlo Park, CA 94025-3656, Attention: Ora T. Fisher, Esq. and (b) if to the
Company, to its agent for service as such agent's address appears on the cover
page of the Registration Statement with a copy to Cooley Godward LLP, 4401
Eastgate Mall, San Diego, CA 92121, Attention: Frederick T. Muto, Esq.

      THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.

      This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.

      Please confirm that the foregoing correctly sets forth the agreement among
us.

                                        Very truly yours,

                                        SGX Pharmaceuticals, Inc.

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

                                        Print Name:
                                                   -----------------------------

                                        Title:
                                              ----------------------------------

                                       20

CONFIRMED:

CIBC World Markets Corp.
Piper Jaffray & Co.
JMP Securities LLC

Acting severally on behalf of itself and as representative of the several
Underwriters named in Schedule I annexed hereto.

CIBC World Markets Corp                   Piper Jaffray & Co.

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

Print Name:                               Print Name:
           ---------------------------               ---------------------------

Title:                                    Title:
      --------------------------------          --------------------------------

                                       21

                                   SCHEDULE I



                                                                   NUMBER OF
                                                                 FIRM SHARES TO
NAME                                                              BE PURCHASED
- ----                                                              ------------
                                                              
CIBC World Markets Corp.
Piper Jaffray & Co.
JMP Securities LLC
                                                                  ------------
      Total


                                   SCHEDULE II

                                    EXHIBIT A

                            FORM OF LOCK-UP AGREEMENT

                                                                          , 2005
                                                                 _________

CIBC World Markets Corp.
Piper Jaffray & Co.
JMP Securities LLC
As Representative of the Several Underwriters
c/o CIBC World Markets Corp.
300 Madison Avenue
New York, New York  10017

      Re:   Public Offering of SGX Pharmaceuticals, Inc.

Ladies and Gentlemen:

      The undersigned, a holder of common stock, par value $0.001 per share
("Common Stock") or rights to acquire Common Stock of SGX Pharmaceuticals, Inc.
(the "Company"), understands that you, as Representative of the several
Underwriters, propose to enter into an Underwriting Agreement (the "Underwriting
Agreement") with the Company, providing for the public offering (the "Public
Offering") by the several Underwriters named in Schedule I to the Underwriting
Agreement (the "Underwriters"), of shares of Common Stock of the Company (the
"Securities"). Capitalized terms used herein and not otherwise defined shall
have the meanings set forth in the Underwriting Agreement.

      In consideration of the Underwriters' agreement to enter into the
Underwriting Agreement and to proceed with the Public Offering of the
Securities, and for other good and valuable consideration receipt of which is
hereby acknowledged, the undersigned hereby agrees for the benefit of the
Company, you and the other Underwriters that, without the prior written consent
of CIBC World Markets Corp. on behalf of the Underwriters, the undersigned will
not, during the period ending 180 days after the date of the prospectus relating
to the Public Offering (the "Lock-Up Period"), directly or indirectly (1) offer,
pledge, assign, encumber, announce the intention to sell, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, any shares of Common Stock of the Company or any securities
convertible into or exercisable or exchangeable for Common Stock owned either of
record or beneficially (as defined in the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) by the undersigned on the date hereof or hereafter
acquired or (2) enter into any swap or other agreement that transfers, in whole
or in part, any of the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise, or publicly announce an intention to do any of the foregoing. In
addition, the undersigned agrees that, without the prior written consent of CIBC
World Markets Corp. on behalf of the Underwriters, it will not, during the
Lock-Up Period, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock. The foregoing shall not apply to:
(i) the sale of the Securities to be sold pursuant to the prospectus relating to
the Public Offering; (ii) sales under any 10b-5 plan; or (iii) transfers of
Common Stock (A) as a bona fide gift or gifts, (B) to any trust

for the direct or indirect benefit of the undersigned or the immediate family of
the undersigned, (C) if the undersigned is a corporation, to any wholly-owned
subsidiary of such corporation, (D) if the undersigned is a limited liability
company, to a member or affiliated limited liability company, or (E) if the
undersigned is a partnership, to a partner or affiliated partnership; provided,
however, that in each such case under clause (iii) above, (1) it shall be a
condition to the transfer that the donee or transferee execute an agreement
stating that the donee or transferee is receiving and holding such capital stock
subject to the provisions of this Lock-Up Agreement and there shall be no
further transfer of such capital stock except in accordance with this Lock-Up
Agreement, (2) any such transfer shall not involve a disposition for value, (3)
no filing by any party (donor, donee, transferor or transferee) under the
Exchange Act shall be required or shall be voluntarily made in connection with
such transfer (other than a filing on a Form 5, Schedule 13D or Schedule 13G
made after the expiration of the Lock-Up Period), (4) each party (donor, donee,
transferor or transferee) shall not be required by law (including without
limitation the disclosure requirements of the Securities Act of 1933, as amended
(the "Securities Act"), and the Exchange Act) to make, and shall agree to not
voluntarily make, any public announcement of the transfer or disposition, and
(5) the undersigned notifies CIBC World Markets Corp. at least two business days
prior to the proposed transfer or disposition. For purposes of this Lock-Up
Agreement, "immediate family" shall mean any relationship by blood, marriage or
adoption, not more remote than first cousin.

      Notwithstanding the foregoing, if (1) during the last 17 days of the
Lock-Up Period the Company issues an earnings release or material news or a
material event relating to the Company occurs; or (2) prior to the expiration of
the Lock-Up Period, the Company announces that it will release earnings results
during the 16-day period beginning on the last day of the Lock-Up Period, the
restrictions imposed in this Lock-Up Agreement shall continue to apply until the
expiration of the 18-day period beginning on the issuance of the earnings
release or the occurrence of the material news or material event; provided,
however, that this sentence shall not apply if the research published or
distributed on the Company is compliant under Rule 139 of the Securities Act and
the Company's securities are actively traded as defined in Rule 101(c)(1) of
Regulation M of the Exchange Act.

      In furtherance of the foregoing, the Company, and any duly appointed
transfer agent for the registration or transfer of the securities described
herein, are hereby authorized to decline to make any transfer of securities if
such transfer would constitute a violation or breach of this Lock-Up Agreement.

      The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into this Lock-Up Agreement. All authority
herein conferred or agreed to be conferred and any obligations of the
undersigned shall be binding upon the successors, assigns, heirs or personal
representatives of the undersigned.

      The undersigned understands that, if the Underwriting Agreement does not
become effective, or if the Underwriting Agreement (other than the provisions
thereof which survive termination) shall terminate or be terminated prior to
payment for and delivery of the Common Stock to be sold thereunder, the
undersigned shall be released form all obligations under this Lock-Up Agreement.

      The undersigned, whether or not participating in the Public Offering,
understands that the Underwriters are entering into the Underwriting Agreement
and proceeding with the Public Offering in reliance upon this Lock-Up Agreement.

                            [signature page follows]

      This Lock-Up Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to the conflict of laws
principles thereof.

                                        Very truly yours,

                                        [STOCKHOLDER]

                                        By:
                                           -------------------------------------
                                           Name:
                                           Title:

                                    EXHIBIT B

                                    EXHIBIT C

                                    EXHIBIT D

                                    EXHIBIT E

                                    EXHIBIT F

EX-3.1

                                                                     EXHIBIT 3.1

                AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
                                       OF
                            STRUCTURAL GENOMIX, INC.

      Structural GenomiX, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:

      A.    The corporation was originally incorporated under the name Protarch,
Inc., and the date of filing the original Certificate of Incorporation of this
corporation with the Secretary of State of the State of Delaware is July 16,
1998.

      B.    Pursuant to sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Amended and Restated Certificate of Incorporation
amends and restates the provisions of the Amended and Restated Certificate of
Incorporation of this corporation.

      C.    The Amended and Restated Certificate of Incorporation of this
corporation is hereby amended and restated to read in its entirety as follows:

      ONE. The name of the corporation is Structural GenomiX, Inc. (the
"CORPORATION").

      TWO. The address of the registered office of the Corporation in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New
Castle County, Delaware 19801 and the name of the registered agent at that
address is The Corporation Trust Company.

      THREE. The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.

      FOUR.

      A.    AUTHORIZED CAPITAL; DESIGNATION OF PREFERRED STOCK INTO SERIES.

            1.    The Corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is Fifty Million
(50,000,000) shares of Common Stock (the "COMMON STOCK") and Nineteen Million
(19,000,000) shares of Preferred Stock (the "PREFERRED STOCK"), of which Fifteen
Million (15,000,000) shares of Preferred Stock are designated Series A Preferred
Stock (the "SERIES A PREFERRED") and Four Million (4,000,000) shares of
Preferred Stock are designated Series B Preferred Stock (the "SERIES B
PREFERRED" and, together with the Series A Preferred, the "SERIES PREFERRED").
The Preferred Stock shall have a par value of one tenth of one cent ($0.001) per
share, and the Common Stock shall have a par value of one tenth of one cent
($0.001) per share.



      B.    RIGHTS, PREFERENCES AND PRIVILEGES OF PREFERRED STOCK.

      The rights, preferences, privileges and restrictions granted to or imposed
upon the Preferred Stock and the holders thereof are as follows in this Section
B and as stated elsewhere in this Amended and Restated Certificate of
Incorporation. Such rights, preferences and privileges, as well as those of the
Common Stock and the holders thereof, are expressly subject to the rights,
preferences and privileges of any other series of Preferred Stock that may be
authorized or designated and issued in the future which may have rights,
preferences and privileges that are senior to or on parity with those of
existing series of Preferred Stock.

            1.    DIVIDENDS. The holders of Series B Preferred shall be entitled
to receive dividends out of funds legally available therefor, at the annual rate
of $0.3768 per share of Series B Preferred held by them (as adjusted for stock
splits, stock combinations, stock dividends, recapitalizations, and similar
events), prior and in preference to the declaration or payment of any dividend
or other distribution (payable other than in Common Stock) with respect to the
Series A Preferred and Common Stock, when, as and if declared by the
Corporation's Board of Directors (the "BOARD OF DIRECTORS"). After payment to
the holders of the Series B Preferred of the full amount of any dividend
declared by the Board of Directors out of funds legally available therefor to
which such holders of Series B Preferred are entitled hereunder, the holders of
the Series A Preferred shall be entitled to receive dividends out of funds
legally available therefor, at the annual rate of $0.1971 per share of Series A
Preferred held by them (as adjusted for stock splits, stock combinations, stock
dividends, recapitalizations, and similar events), prior and in preference to
the declaration or payment of any dividend or other distribution (payable other
than in Common Stock) with respect to the Common Stock, when, as and if declared
by the Board of Directors. Such dividends shall not be cumulative and no right
to such dividends shall accrue to holders of Series Preferred unless declared by
the Board of Directors. No dividends or other distributions shall be made with
respect to the Series A Preferred, other than dividends payable solely in Common
Stock, unless dividends shall have been paid or declared and set apart for
payment, on account of all shares of Series B Preferred then issued and
outstanding, at the aforesaid rate for such calendar year. No dividends or other
distributions shall be made with respect to the Common Stock, other than
dividends payable solely in Common Stock, unless dividends shall have been paid
or declared and set apart for payment, on account of all shares of Series
Preferred then issued and outstanding, at the aforesaid rate for such calendar
year. After payment of dividends at the annual rate set forth above, any
additional dividends declared shall be distributed among all holders of Series
Preferred and Common Stock in proportion to the number of shares of Common Stock
which would be held by such holder if all shares of Series Preferred were
converted into Common Stock at the then effective and applicable Conversion
Price (as defined in Section B.3(a) below).

            2.    LIQUIDATION PREFERENCE.

                  (a)   SERIES PREFERRED PREFERENCES.

                        (i)   In the event of any liquidation, dissolution or
winding up of the corporation, either voluntary or involuntary (each a
"LIQUIDATION EVENT"), the holders of Series B Preferred shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the corporation to the holders of Series A Preferred and

                                       2.


Common Stock by reason of their ownership thereof, the amount of $4.71 per share
(as adjusted for any stock dividends, combinations or splits, recapitalizations
or other similar events with respect to such shares) for each share of Series B
Preferred then held and, in addition, an amount equal to all declared but unpaid
dividends on the Series B Preferred. If the assets and funds thus distributed
among the holders of the Series B Preferred are insufficient to permit the
payment to such holders of their full preferential amount, then the entire
assets and funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of Series B Preferred in proportion to the
preferential amount each such holder is otherwise entitled to receive, prior and
in preference to any distribution of any of the assets or surplus funds of the
corporation to the holders of Series A Preferred and Common Stock by reason of
their ownership thereof.

                        (ii)  In the event of any Liquidation Event, after
payment to the holders of the Series B Preferred of the full amounts set forth
in Section B.2(a)(i) above, the holders of Series A Preferred shall be entitled
to receive, prior and in preference to any distribution of any of the assets or
surplus funds of the corporation to the holders of Common Stock by reason of
their ownership thereof, the amount of $2.4632352 per share (as adjusted for any
stock dividends, combinations or splits, recapitalizations or other similar
events with respect to such shares) for each share of Series A Preferred then
held and, in addition, an amount equal to all declared but unpaid dividends on
the Series A Preferred. If the assets and funds thus distributed among the
holders of the Series A Preferred are insufficient to permit the payment to such
holders of their full preferential amount, then the entire assets and funds of
the Corporation legally available for distribution shall be distributed ratably
among the holders of Series A Preferred in proportion to the preferential amount
each such holder is otherwise entitled to receive, prior and in preference to
any distribution of any of the assets or surplus funds of the corporation to the
holders of Common Stock by reason of their ownership thereof.

                  (b)   REMAINING ASSETS. After payment to the holders of the
Series Preferred of the amounts set forth in Sections B.2(a)(i) and B.2(a)(ii)
above, the remaining assets and funds of the Corporation legally available for
distribution, if any, shall be distributed ratably among the holders of Common
Stock and Series Preferred in proportion to the shares of Common Stock then held
by each such holder on an as-converted to Common Stock basis.

                  (c)   REORGANIZATION OR MERGER. A Liquidation Event within the
meaning of this Section B shall be deemed to be occasioned by, or to include,
(i) any consolidation or merger of the Corporation with or into any other
corporation or other entity or person, or any other corporate reorganization, in
which the stockholders of the Corporation immediately prior to such
consolidation, merger or reorganization, own less than fifty percent (50%) of
the Corporation's voting power (or of the surviving or resulting entity's voting
power or of the voting power of the parent entity of such Corporation or
surviving or resulting entity immediately after such consolidation, merger or
reorganization), or any transaction or series of related transactions to which
the Corporation is a party in which in excess of fifty percent (50%) of the
Corporation's voting power is transferred, excluding any equity financing in
which the Corporation is the surviving corporation and any consolidation or
merger effected exclusively to change the domicile of the Corporation; or (ii) a
sale or lease of all or substantially all of the assets of this Corporation.

                                       3.


                  (d)   NON-CASH CONSIDERATION. If the consideration received by
this Corporation is other than cash, its value will be deemed its fair market
value as determined in good faith by the Board of Directors. Any securities
shall be valued as follows:

                        (i)   Securities not subject to investment letter or
other similar restrictions on free marketability covered by (ii) below:

                              (A)   if traded on a securities exchange or
through the Nasdaq National Market, the value shall be deemed to be the average
of the closing prices of the securities on such quotation system over the thirty
(30) day period ending three (3) days prior to the closing;

                              (B)   if actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period ending three (3) days
prior to the closing; and

                              (C)   if there is no active public market, the
value shall be the fair market value thereof, as mutually determined by the
Board of Directors and the holders of at least a majority of the voting power of
all then outstanding shares of Series Preferred.

                        (ii)  The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (i)(A), (B) or (C) to reflect the approximate fair
market value thereof, as mutually determined by the Board of Directors and the
holders of at least a majority of the voting power of all then outstanding
shares of such Series Preferred.

            3.    CONVERSION. The holders of Series Preferred shall have
conversion rights as follows (the "CONVERSION RIGHTS"):

                  (a)   RIGHT TO CONVERT. Each share of Series Preferred shall
be convertible, at the option of and without the payment of any additional
consideration by the holder thereof, at any time into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing the
applicable Issuance Price (as defined below) by the applicable Conversion Price
(as defined below) in effect at the time of conversion. The "ISSUANCE PRICE" for
the Series A Preferred shall be $2.46 and for the Series B Preferred shall be
$4.71. The "CONVERSION PRICE" for the Series A Preferred shall initially be
$2.46 and for the Series B Preferred shall initially be $4.71, each subject to
adjustment as provided below. The number of shares of Common Stock into which a
share of Series A Preferred is convertible is hereinafter referred to as the
"SERIES A CONVERSION RATE" and the number of shares of Common Stock into which a
share of Series B Preferred is convertible is hereinafter referred to as the
"SERIES B CONVERSION RATE." The Series A Conversion Rate and the Series B
Conversion Rate are each referred to herein as a "CONVERSION RATE."

                  (b)   AUTOMATIC CONVERSION. Each share of Series Preferred
shall automatically be converted into shares of Common Stock at the then
effective applicable Conversion Rate: (i) immediately prior to the closing of a
firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as

                                       4.


amended (the "ACT") covering the offer and sale of Common Stock for the account
of the Corporation to the public at a minimum per share purchase price of $5.00
(as adjusted for stock splits, dividends, combinations and the like) with net
proceeds to the Corporation (after deduction of underwriters commissions and
expenses) of not less than $25,000,000 (a "QUALIFIED INITIAL PUBLIC OFFERING"),
or (ii) the date specified by the written consent or vote of the holders of more
than fifty percent (50%) of the Series Preferred then outstanding.

                  (c)   MECHANICS OF CONVERSION. Before any holder of Series
Preferred shall be entitled to convert the same into full shares of Common Stock
and to receive certificates therefor, the holder shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the Corporation or of
any transfer agent for the Series Preferred, and shall give written notice to
the Corporation at such office that such holder elects to convert the same;
provided, however, that in the event of any automatic conversion pursuant to
Section B.3(b) above, the outstanding shares of Series Preferred shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; provided further, that the Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon any automatic conversion pursuant to Section B.3(b) above
unless the certificates evidencing such shares of Series Preferred are either
delivered to the Corporation or its transfer agent as provided above, or the
holder notifies the Corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement reasonably
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with the loss of such certificates. The Corporation
shall, as soon as practicable after such delivery, or such agreement and
indemnification in the case of a lost certificate, issue and deliver at such
office to such holder of Series Preferred, a certificate or certificates for the
number of shares of Common Stock to which the holder shall be entitled and a
check payable to the holder in the amount of any cash amounts payable as the
result of a conversion into fractional shares of Common Stock. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of such surrender of the shares of Series Preferred to be converted, or
in the case of automatic conversion pursuant to Section B.3(b) above,
immediately prior to the closing of the offering or on the date specified by the
written consent or vote of the holders of more than fifty percent (50%) of the
Series Preferred then outstanding, as applicable, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date.

                  (d)   ADJUSTMENTS TO CONVERSION PRICE OF SERIES PREFERRED FOR
DILUTIVE ISSUES.

                        (i)   SPECIAL DEFINITIONS. For purposes of this Section
B.3(d), the following definitions shall apply:

                              (A)   "ADDITIONAL SHARES OF COMMON STOCK" shall
mean all shares of Common Stock issued (or, pursuant to Section B.3(d)(ii),
deemed to be issued) by the Corporation, other than:

                                       5.


                                    (1)   shares of Common Stock issued upon
conversion of the Series Preferred;

                                    (2)   up to 3,510,000 shares (or such
greater number of shares as may be approved in writing by the holders of a
majority of the then outstanding shares of Series Preferred, voting together as
a single class) of Common Stock, or the grant of options therefor, including
shares issued after the Original Issue Date upon exercise of options outstanding
on the date of filing of this Amended and Restated Certificate of Incorporation
(such number to be proportionately adjusted in the event of any stock splits,
stock dividends, recapitalizations or similar events occurring after the
Original Issue Date) to officers, directors, consultants and employees of the
Corporation or any subsidiary pursuant to any stock option plan or restricted
stock plan approved by a vote of not less than a majority of the Board of
Directors, and shares of Common Stock issued or issuable upon exercise of the
warrant issued to Russell Reynolds Associates, Inc. dated November 13, 2001 in
connection with services provided to the Corporation;

                                    (3)   shares of Common Stock issued in
connection with any stock split or stock dividend by the Corporation;

                                    (4)   up to 200,000 shares (or such greater
number of shares as may be approved in writing by the holders of a majority of
the then outstanding shares of Series Preferred, voting together as a single
class) of Common Stock issued (or, pursuant to Section B.3(d)(ii), deemed to be
issued) after the Original Issue Date in connection with strategic transactions
involving the Corporation and other entities, including (i) joint ventures,
manufacturing, marketing or distribution arrangements or (ii) technology
transfer, licensing, development or similar arrangements; provided that such
strategic transactions and the issuance of shares therein, has been approved by
the Board of Directors;

                                    (5)   shares of Common Stock issued (or,
pursuant to Section B.3(d)(ii), deemed to be issued) in connection with any
equipment leasing or loan arrangement, or debt financing from a bank or similar
financial or lending institution, including but not limited to the warrant
issued to General Electric Capital Corporation in 2000, warrants issued to GATX
Ventures, Inc. and Silicon Valley Bank each dated July 15, 2002, the warrant
issued to Oxford Finance Corporation dated August 28, 2002 (and in each case any
amendments thereof or warrants issued in exchange therefor) and in each case the
shares issuable upon exercise and conversion thereof; provided that such
transactions and amendments (and any warrants issued in exchange therefor) and
the issuance of shares therein, have been approved by the Board of Directors;

                                    (6)   up to 7,256 shares of Common Stock
issued in August 2003 to a former employee and up to 230,000 shares of Common
Stock issued (or, pursuant to Section B.3(d)(ii), deemed to be issued) upon
exercise of the warrants issued to Tim Harris and Linda Grais in July 2005; or

                                    (7)   shares of Common Stock issued (or,
pursuant to Section B.3(d)(ii), deemed to be issued) upon conversion of shares
of Series A Preferred, Series

                                       6.


B Preferred or other securities issued pursuant to the Series B Preferred Stock
Purchase Agreement (as defined below).

                              (B)   "CONVERTIBLE SECURITIES" shall mean any
evidences of indebtedness, shares (other than the Common Stock) or other
securities convertible into or exchangeable for Common Stock.

                              (C)   "OPTIONS" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.

                              (D)   "ORIGINAL ISSUE DATE" shall mean the date
shares of Series B Preferred are first issued pursuant to the Series B Preferred
Stock Purchase Agreement.

                        (ii)  DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK.
In the event the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto assuming the
satisfaction of any conditions to exercisability, including, without limitation,
the passage of time and without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such record date, provided that Additional Shares of Common Stock shall not be
deemed to have been issued, with respect to the Series Preferred, as applicable,
unless the consideration per share (determined pursuant to Section B.3(d)(iv)
hereof) of such Additional Shares of Common Stock would be less than the
Conversion Price for the Series Preferred, as applicable, in effect on the date
of and immediately prior to such issue, or such record date, as the case may be,
and provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:

                              (A)   no further adjustment in the applicable
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;

                              (B)   if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the applicable Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities;

                                       7.


                              (C)   upon the expiration of any such Options or
any rights of conversion or exchange under such Convertible Securities which
shall not have been exercised, the applicable Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:

                                    i.    in the case of Convertible Securities
or Options for Common Stock, the only Additional Shares of Common Stock issued
were shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and

                                    ii.   in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;

                              (D)   no readjustment pursuant to clause (B) or
(C) above shall have the effect of increasing the applicable Conversion Price to
an amount which exceeds the lower of (i) the applicable Conversion Price on the
original adjustment date just prior to such adjustment, or (ii) the applicable
Conversion Price that would have resulted, had the original adjustment not taken
place, from an issuance(s) of Additional Shares of Common Stock, with respect to
the applicable series of Series Preferred, between the original adjustment date
and such readjustment date; and

                              (E)   in the case of any Options which expire by
their terms not more than 90 days after the date of issue thereof, no adjustment
of the applicable Conversion Price shall be made until the expiration or
exercise of all such Options.

                        (iii) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event this Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section B.3(d)(ii)) after the Original Issue
Date without consideration or for consideration per share less than the
Conversion Price for the Series Preferred, as applicable, in effect on the date
of and immediately prior to such issue, then and in such event, the Conversion
Price for the Series Preferred, as applicable, shall be reduced, concurrently
with such issue, to a price determined by multiplying such applicable Conversion
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issue (including shares
issuable upon conversion of the outstanding Series Preferred) plus the number of
shares of Common Stock which the aggregate consideration received by the

                                       8.


Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such applicable Conversion Price; and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue (including shares issuable upon conversion of the outstanding Series
Preferred) plus the number of such Additional Shares of Common Stock so issued.
For the purpose of this Section, the number of shares of Common Stock
outstanding shall be deemed to include the Common Stock issuable upon conversion
of all outstanding Series Preferred, upon conversion of all other outstanding
Convertible Securities and upon exercise of all outstanding Options (and
assuming conversion of Convertible Securities issuable upon exercise of
Options).

                        (iv)  DETERMINATION OF CONSIDERATION. For purposes of
this Section B.3(d), the consideration received by the Corporation for the issue
of any Additional Shares of Common Stock shall be computed as follows:

                              (A)   CASH AND PROPERTY: Such consideration shall:

                                    (1)   insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation;

                                    (2)   insofar as it consists of property
other than cash, be computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board irrespective of any accounting
treatment; and

                                    (3)   in the event Additional Shares of
Common Stock are issued together with other shares or securities or other assets
of the Corporation for consideration which covers both, be the proportion of
such consideration so received, computed as provided in clauses (1) and (2)
above, as determined in good faith by the Board of Directors.

                        (v)   OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section B.3(d)(ii), relating
to Options and Convertible Securities, shall be determined by dividing:

                              (A)   the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by

                              (B)   the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.

                                       9.


                        (vi)  SPECIAL MANDATORY CONVERSION.

                              (A)   For purposes of this Section B.3(d)(vi), the
following definitions shall apply:

                                    (1)   An "AFFILIATE" of a Holder (i) shall
mean any person, association or entity that, directly or indirectly, through one
or more intermediaries, has voting control of, has its voting controlled by, or
is under common voting control with, such Holder and (ii) shall also include,
without limitation, (a) any partner or retired partner of such Holder, if such
Holder is a partnership, (b) any member or former member of such Holder, if such
Holder is a limited liability company, (c) all related funds, affiliated funds,
sister funds, predecessor and successor funds, annex funds and associate funds,
if such Holder is a venture capital fund and (d) any immediate family member of
such Holder and any trust for the benefit of such Holder or any immediate family
of such Holder. For purposes of this Section B.3(d)(iv), "IMMEDIATE FAMILY"
shall mean any relationship by blood, marriage or adoption, not more remote than
first cousin.

                                    (2)   "HOLDER" shall mean any purchaser of
shares of Series B Preferred pursuant to the Series B Preferred Stock Purchase
Agreement (as defined below) and any transferee of shares of Series Preferred
from such purchaser.

                                    (3)   "INITIAL CLOSING" shall mean the
Initial Closing as defined in the Series B Preferred Stock Purchase Agreement.

                                    (4)   "INITIAL CLOSING DATE" shall mean the
Initial Closing Date as defined in the Series B Preferred Stock Purchase
Agreement.

                                    (5)   "NON-PARTICIPATING HOLDER" shall mean
any Holder that is not a Participating Investor (as defined below); provided,
however, that notwithstanding anything to the contrary set forth herein, a
Holder shall not be deemed a "Non-Participating Holder" if such Holder and its
Affiliates collectively acquire at the Second Closing (as defined below) at
least the Second Closing Commitment Dollar Amount of such Holder collectively
with the Second Closing Commitment Dollar Amount of its Affiliates;

                                    (6)   "PARTICIPATING INVESTOR" shall mean
any Holder that purchases such Holder's full Second Closing Commitment Dollar
Amount of shares of Series B Preferred at the Second Closing (each as defined
below) pursuant to the Series B Preferred Stock Purchase Agreement.

                                    (7)   "SECOND CLOSING" shall mean the Second
Closing as defined in the Series B Preferred Stock Purchase Agreement.

                                    (8)   "SECOND CLOSING COMMITMENT DOLLAR
AMOUNT" shall mean the Second Closing Commitment Dollar Amount set forth on
Exhibit A to the Series B Preferred Stock Purchase Agreement.

                                    (9)   "SECOND CLOSING DATE" shall mean the
Second Closing Date as defined in the Series B Preferred Stock Purchase
Agreement.

                                      10.


                                    (10)  "SECOND CLOSING NOTICE" shall mean the
Second Closing Notice as defined in the Series B Preferred Stock Purchase
Agreement.

                                    (11)  "SERIES B FINANCING" shall mean the
sale of up to approximately 3,200,000 shares of Series B Preferred at a purchase
price of $4.71 per share pursuant to the Series B Preferred Stock Purchase
Agreement.

                                    (12)  "SERIES B PREFERRED STOCK PURCHASE
AGREEMENT" shall mean that certain Series B Preferred Stock Purchase and
Recapitalization Agreement relating to the Series B Financing, dated as of April
21, 2005, entered into by and among the Corporation and the Holders named
therein, as such may be amended from time to time.

                              (B)   In the event:

                                    (1)   after the completion of the Initial
Closing and delivery by the Corporation of the Second Closing Notice to each
Holder as set forth in Section 2.2(a) of the Series B Preferred Stock Purchase
Agreement not less than ten (10) nor more than forty-five (45) calendar days
prior to the proposed Second Closing Date;

                                    (2)   the Corporation does not receive or
has not received from such Holder on or prior to the Second Closing Date such
Holder's Second Closing Commitment Dollar Amount (each such Holder that fails to
deliver or has not delivered to the Corporation such funds being deemed a
Non-Participating Holder);

then all of such Non-Participating Holder's shares of Series Preferred (and any
right to any dividend, payment or other distribution thereon) shall
automatically and without further action on the part of such holder be
converted, effective immediately following such Second Closing into shares of
Common Stock at the applicable Conversion Price then in effect.

                              (C)   The holder of any shares of Series Preferred
converted into shares of Common Stock pursuant to this Section B.3(d)(vi) shall
deliver to the Corporation during regular business hours at the office of any
transfer agent of the Corporation for the Series Preferred, or at such other
place as may be designated by the Corporation, the certificate or certificates
for the shares so converted, duly endorsed or assigned in blank or to the
Corporation. As promptly as practicable thereafter, the Corporation shall issue
and deliver to such Non-Participating Holder, at the place designated by such
Non-Participating Holder, a certificate or certificates for the whole number of
shares of Common Stock to be issued hereunder. Such conversion shall be deemed
to have occurred, and such Non-Participating Holder shall be deemed to have
become a stockholder of record of Common Stock, immediately upon the
consummation of the Second Closing. Upon such conversion of any shares of Series
Preferred to Common Stock pursuant to this Section B.3(d)(vi), all rights of the
holder of such shares as a holder of Series Preferred shall cease and terminate
with respect to such shares so converted even if the holder fails to deliver the
certificate or certificates for the shares so converted duly endorsed or
assigned in blank or to the Corporation. Immediately following such conversion
to Common Stock and until such time as the holder surrenders to the Corporation
the duly endorsed and assigned certificate or certificates for the shares so
converted, the certificate

                                      11.


or certificates representing such holder's shares of Series Preferred shall be
deemed a certificate representing that number of shares of Common Stock into
which such shares of Series Preferred were converted pursuant to this
B.3(d)(vi). Following the Second Closing, the Corporation shall provide written
notice to each Non-Participating Holder whose shares of Series Preferred were
converted to Common Stock pursuant to this Section B.3(d)(vi).

                  (e)   FRACTIONAL SHARES. In lieu of any fractional shares to
which the holder of Series Preferred would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the fair market
value of one share of such Series Preferred as determined by the Board of
Directors. Whether or not fractional shares are issuable upon such conversion
shall be determined on the basis of the total number of shares of Series
Preferred of each holder at the time converting into Common Stock and the number
of shares of Common Stock issuable upon such aggregate conversion.

                  (f)   ADJUSTMENT OF CONVERSION PRICE. The Conversion Price of
each share of Series Preferred shall be subject to adjustment from time to time
as follows:

                        (i)   If the number of shares of Common Stock
outstanding at any time after the date hereof is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then, on the date such payment is made or such change is
effective, the Conversion Prices applicable to the Series Preferred shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of any shares of Series Preferred shall be increased in proportion to
such increase of outstanding shares.

                        (ii)  If the number of shares of Common Stock
outstanding at any time after the date hereof is decreased by a combination of
the outstanding shares of Common Stock, then, on the effective date of such
combination, the Conversion Prices applicable to the Series Preferred shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of any shares of Series Preferred shall be decreased in proportion to
such decrease in outstanding shares.

                        (iii) In case the Corporation shall distribute to
holders of its Common Stock shares of its capital stock or other property of the
Corporation other than Common Stock (excluding any distribution in which the
Series Preferred participate on an as-converted basis, and any distribution for
which adjustment is otherwise made pursuant to this Section), then in such case
the holders of the Series Preferred shall, concurrent with the distribution to
holders of Common Stock, receive a like distribution based upon the number of
shares of Common Stock into which such Series Preferred is then convertible.

                        (iv)  In case, at any time after the date hereof, of any
capital reorganization, or any reclassification of the stock of the corporation
(other than as a result of a stock dividend or subdivision, split-up or
combination of shares), or the consolidation or merger of the Corporation with
or into another person (other than a consolidation or merger in which the
corporation is the continuing entity and which does not result in any change in
the Common Stock), the shares of Series Preferred shall, after such
reorganization, reclassification, consolidation, merger, sale or other
disposition, be convertible into the kind and number of

                                      12.


shares of stock or other securities or property of the Corporation or otherwise
to which a holder of such Series Preferred would have been entitled if
immediately prior to such reorganization, reclassification, consolidation,
merger, sale or other disposition such holder had converted its shares of such
Series Preferred into Common Stock. The provisions of this clause C.3(f)(iv)
shall similarly apply to successive reorganizations, reclassification,
consolidations, mergers, sales or other dispositions.

                        (v)   All calculations under this Section B.3(f) shall
be made to the nearest cent or to the nearest one hundredth (1/100) of a share,
as the case may be.

                  (g)   MINIMAL ADJUSTMENTS. No adjustment in the Conversion
Price for any series of Series Preferred need be made if such adjustment would
result in a change in the Conversion Price of less than $0.01. Any adjustment of
less than $0.01 which is not made shall be carried forward and shall be made at
the time of and together with any subsequent adjustment which, on a cumulative
basis, amounts to an adjustment of $0.01 or more in the Conversion Price.

                  (h)   NO IMPAIRMENT. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section B.3 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Series Preferred against impairment. This
provision shall not restrict the Corporation's right to amend its Certificate of
Incorporation with the requisite board and stockholder consent.

                  (i)   CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to Section
B.3(d), the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
applicable holder of Series Preferred a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon written request
at any time of any holder of Series Preferred, furnish or cause to be furnished
to such holder a like certificate setting forth (i) all such adjustments and
readjustments, (ii) the Series A Conversion Rate and the Series B Conversion
Rate (as applicable) at the time in effect, and (iii) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of such holder's shares of Series Preferred.

                  (j)   NOTICES OF RECORD DATE. In the event the Corporation
shall propose at any time to (i) declare any dividend or other distribution upon
its Common Stock, (ii) other than with respect to a transaction contemplated by
Section B.3(d)(vi), which transaction shall be governed by the provisions of
Section B.3(d)(vi), declare any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or property,
(iii) effect any capital reorganization, reclassification of its Common Stock,
consolidation or merger with or into any other corporation or transfer of all or
substantially all of its assets or (iv) liquidate, dissolve or wind up the
Corporation, the Corporation shall mail to each holder of

                                      13.


Series Preferred at least twenty (20) days prior to the date on which a record
shall be taken for such dividend, distribution or subscription rights or the
effective date of such reorganization, reclassification, consolidation, merger,
liquidation, dissolution or winding up, as applicable, a notice containing such
record date or effective date, as applicable.

                  (k)   NOTICES. Any notice required by the provisions of this
Section B.3 to be given to any holder of Series Preferred shall be deemed given
if deposited in the United States mail, postage prepaid, and addressed to each
holder of record at such holder's address appearing on the Corporation's books;
provided, however that any notice required by the provisions of Section
B.3(d)(vi) shall also be deemed effectively given when sent by confirmed
electronic mail or facsimile if sent during normal business hours of the
recipient (or, if not, then on the next business day), or one (1) day after
deposit with a nationally recognized overnight courier, specifying next day
delivery.

      C.    VOTING RIGHTS.

            1.    Except as otherwise required by law or as set forth herein,
the holder of each share of Common Stock issued and outstanding shall have one
vote for each share of Common Stock held by such holder, and the holder of each
share of Series Preferred shall be entitled to the number of votes equal to the
number of shares of Common Stock into which such share of Series Preferred could
be converted at the record date for determination of the stockholders entitled
to vote on such matters, or, if no such record date is established, at the date
such vote is taken or any written consent of stockholders is solicited, such
votes to be counted together with all other shares of stock of the Corporation
having general voting power and not counted separately as a class, except with
respect to those matters required by law to be submitted to a class vote and
except as otherwise set forth herein. Holders of Series Preferred, voting
together as a separate class, shall be entitled to elect four (4) members of the
Board of Directors and the holders of Series Preferred and Common Stock, voting
together on an as-converted basis, shall elect the remaining directors. Holders
of Common Stock and Series Preferred shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of the Corporation.
Fractional votes by the holders of Series Preferred shall not, however, be
permitted and any fractional voting rights shall (after aggregating all shares
into which shares of Series Preferred held by each holder could be converted) be
rounded to the nearest whole number.

            2.    In the case of any vacancy (other than a vacancy caused by
removal) in the office of a director occurring among the directors elected by
the holders of a series and/or class or classes (as applicable) of stock
pursuant to this Section C, the remaining directors so elected by that series
and/or class or classes (as applicable) may by affirmative vote of a majority
thereof (or the remaining director so elected if there be but one, or if there
are no such directors remaining, by the affirmative vote of the holders of a
majority of the shares of that class and/or series), elect a successor or
successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the holders of a series and/or class or classes (as applicable) of stock or
by any directors so elected as provided in the immediately preceding sentence
hereof may be removed during the aforesaid term of office, either with or
without cause, by, and only by, the affirmative vote of the holders of the
shares of the series and/or class or classes (as applicable) of stock entitled
to elect such

                                      14.


director or directors, given either at a special meeting of such stockholders
duly called for that purpose or pursuant to a written consent of stockholders,
and any vacancy thereby created may be filled by the holders of that class
and/or classes or series (as applicable) of stock represented at the meeting or
pursuant to unanimous written consent.

      D.    REDEMPTION.

            1.    If requested by the holders of not less than sixty-six and two
thirds percent (66 2/3%) of the outstanding shares of Series Preferred, the
Corporation shall, on any date after April 21, 2008 and on each of the first and
second anniversaries thereof, redeem the Series Preferred in three annual
installments (the date of each such annual installment a "REDEMPTION DATE"),
from any funds legally available for such purpose. The number of shares to be
redeemed from each holder on each Redemption Date shall equal the total number
of shares of Series Preferred held by such holder on the date of the Redemption
Notice (as defined below), divided by the number of Redemption Dates remaining
as of the date of the Redemption Notice, minus the number of shares of Series
Preferred that such holder converts into Common Stock after the date of the
Redemption Notice and prior to such Redemption Date, provided that for a holder
of more than one series of Series Preferred, such number of shares to be
redeemed shall be allocated pro rata to each such series of Series Preferred in
proportion to the total number of shares of each such series of Series Preferred
held by such holder just prior to the Redemption Date. The Corporation shall
effect redemptions by paying cash in an amount equal to $2.4632352 per share of
Series A Preferred and $4.71 per share of Series B Preferred (each as adjusted
for any stock dividends, combinations, splits, recapitalizations, or other
similar events with respect to such shares) plus declared but unpaid dividends
on such shares (the "REDEMPTION PRICES"). Upon the Corporation's default in the
payment of any required redemption of an installment hereunder, the unpaid
balance shall accrue interest at the rate of eight percent (8%) per annum,
payable quarterly in arrears.

            2.    If the funds of the Corporation legally available for
redemption of shares of Series Preferred on any Redemption Date are insufficient
to redeem the total number of shares of Series Preferred to be redeemed on such
date, those funds which are legally available will be used to redeem shares from
the holders of Series Preferred ratably in proportion to the aggregate
Redemption Prices that would be payable to each holder if all shares required to
be redeemed were being redeemed. The shares of Series Preferred not redeemed
shall remain outstanding and entitled to all the rights and preferences provided
herein, including the rights of conversion set forth herein. If any time
thereafter additional funds become legally available for the redemption, such
funds will immediately be used to redeem the balance of the shares which the
Corporation has become obliged to redeem on any Redemption Date but which it has
not redeemed.

            3.    At least thirty (30) days prior to each Redemption Date, the
Corporation shall mail a Redemption Notice, first class postage prepaid, to each
holder of record of Series Preferred as of the close of business two business
days preceding the mailing date, at the address last shown on the records of the
Corporation for such holder. The Redemption Notice shall specify the number of
shares to be redeemed from such holder, the Redemption Date, the Redemption
Price and the place at which payment may be obtained, and shall call upon such
holder to surrender to the Corporation, in the manner and at the place
designated, the certificate or certificates representing the shares to be
redeemed. On or after the Redemption Date, each

                                      15.


holder of Series Preferred to be redeemed shall surrender to the Corporation the
certificate or certificates representing such shares, in the manner and at the
place designated in the Redemption Notice. Each surrendered certificate shall be
canceled, and the Redemption Price for such shares shall then be payable to the
order of the person whose name appears on such certificate or certificates as
the owner thereof. If less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares. Nothing herein shall be deemed to prevent a holder of Series
Preferred from converting all or part of such holder's shares into Common Stock
in accordance with the terms of Section B.3(a) hereof at any time prior to a
Redemption Date covering such shares, and the provisions of this section shall
not apply to any shares so converted.

            4.    From and after the Redemption Date, unless there has been a
default in payment of the Redemption Price, the shares of Series Preferred
designated for redemption in the Redemption Notice shall cease to be outstanding
and shall no longer be transferred on the books of the Corporation, and all
rights of the holders with respect to such shares shall cease, except the right
to receive the Redemption Price without interest upon surrender of their
certificate or certificates.

      E.    PROTECTIVE PROVISIONS.

            1.    In addition to any other class vote that may be required by
law and without limiting any such required vote, so long as at least thirty-five
percent (35%) of the Series Preferred outstanding as of the Original Issue Date
remains outstanding, this Corporation shall not (by amendment, merger,
consolidation or otherwise) without first obtaining the approval (by vote or
written consent, as provided by law) of the holders of a majority of the then
outstanding shares of Series Preferred, voting together as a single class:

                  (a)   create any new class or series of shares having any
rights, preferences, or privileges senior to or on a parity with the Series
Preferred;

                  (b)   adversely alter or change the rights, preferences or
privileges of the Series Preferred or amend the Corporation's Certificate of
Incorporation or Bylaws in a manner that would have such effect;

                  (c)   increase or decrease the aggregate number of authorized
shares of Series Preferred;

                  (d)   sell, convey, or otherwise dispose of all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of this corporation is disposed of;

                  (e)   redeem, repurchase, or make other distributions with
respect to Common Stock or Series Preferred (except for acquisitions of Common
Stock by the Corporation pursuant to agreements which permit the Corporation to
repurchase such shares upon termination of services to the Corporation or in
exercise of the Corporation's right of first refusal upon a proposed transfer or
redemptions under the terms of the Corporation's Certificate of Incorporation,
as amended from time to time);

                                      16.


                  (f)   declare any dividends on the Common Stock or Series
Preferred;

                  (g)   increase or decrease the size of the Board of Directors;
or

                  (h)   voluntarily liquidate or dissolve.

            2.    The consent of the holders of a majority of the outstanding
shares of a particular series of the Series Preferred, voting as a separate
series, shall be required to amend or repeal any provision of, or add any
provision to, the Corporation's Certificate of Incorporation or Bylaws that
adversely changes the rights, preferences or privileges of such series of the
Series Preferred in a manner different from other series of Series Preferred.

      F.    STATUS OF CONVERTED STOCK. In the event any shares of Series
Preferred shall be converted pursuant to Section B.3 hereof, the shares so
converted shall be canceled and shall not be issuable by the Corporation.

      G.    COMMON STOCK. The rights, preferences, privileges and restrictions
granted to and imposed on the Common Stock are as set forth below:

            1.    DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of this corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.

            2.    LIQUIDATION RIGHTS. Upon the liquidation, dissolution or
winding up of this Corporation, the assets of this corporation shall be
distributed as provided in Section B hereof.

            3.    REDEMPTION. The Common Stock is not redeemable.

            4.    VOTING RIGHTS. The holder of each share of Common Stock shall
have the right to one vote for each such share, and shall be entitled to notice
of any stockholders' meeting in accordance with the bylaws of this Corporation,
and shall be entitled to vote upon such matters and in such manner as may be
provided by law.

      FIVE. The Corporation is to have perpetual existence.

      SIX. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the Corporation.

      SEVEN. The number of directors which will constitute the whole Board of
Directors of the Corporation shall be as specified in the Bylaws of the
Corporation.

      EIGHT. The election of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.

                                      17.


      NINE. Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provisions contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.

      TEN. To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
The Corporation may indemnify to the fullest extent permitted by law any person
made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that
such person or his or her testator or intestate is or was a director, officer or
employee of the Corporation, or any predecessor of the Corporation, or serves or
served at any other enterprise as a director, officer or employee at the request
of the Corporation or any predecessor to the Corporation. Neither any amendment
nor repeal of this Article, nor the adoption of any provision of this Amended
and Restated Certificate of Incorporation inconsistent with this Article, shall
eliminate or reduce the effect of this Article in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.

      ELEVEN. Advance notice of new business and stockholder nomination for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.

      TWELVE. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.

                                       18.


      IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by its President and Chief Executive
Officer in San Diego, California, this 25th day of July 2005.

                                          /s/ Michael Grey
                                          ______________________________________
                                          Michael Grey
                                          President and Chief Executive Officer

                                       19.


                           CERTIFICATE OF AMENDMENT OF
                          CERTIFICATE OF INCORPORATION
                                       OF
                            STRUCTURAL GENOMIX, INC.

            STRUCTURAL GENOMIX, INC., a Delaware corporation (the
"CORPORATION"), does hereby certify that:

      FIRST: The name of the Corporation is Structural GenomiX, Inc.

      SECOND: The date on which the Certificate of Incorporation of the
Corporation was originally filed with the Secretary of State of the State of
Delaware is July 16, 1998.

      THIRD: The Board of Directors of the Corporation, acting in accordance
with the provisions of Sections 141 and 242 of the General Corporation Law of
the State of Delaware, adopted resolutions amending its Certificate of
Incorporation as follows:

      Article ONE of the Company's Amended and Restated Certificate of
      Incorporation shall be amended and restated to read in its entirety as
      follows:

            "The name of the corporation is SGX Pharmaceuticals, Inc. (the
            "CORPORATION")."

      FOURTH: Thereafter, pursuant to a resolution of the Board of Directors,
this Certificate of Amendment was submitted to the stockholders of the
Corporation for their approval, and was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.

      IN WITNESS WHEREOF, Structural GenomiX, Inc. has caused this Certificate
of Amendment to be signed by its President and Chief Executive officer this 30th
day of August, 2005.


                                       STRUCTURAL GENOMIX, INC.


                                       By: /s/ Michael Grey
                                           -------------------------------------
                                           Michael Grey
                                           President and Chief Executive Officer

EX-3.2

                                                                     EXHIBIT 3.2

                              AMENDED AND RESTATED
                         CERTIFICATE OF INCORPORATION OF
                            SGX PHARMACEUTICALS, INC.

      SGX Pharmaceuticals, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:

      FIRST: The name of this corporation is SGX Pharmaceuticals, Inc. The
corporation was originally incorporated under the name Protarch, Inc.

      SECOND: The date of filing of its original Certificate of Incorporation
with the Secretary of State of the State of Delaware was July 16, 1998.

      THIRD: The Certificate of Incorporation of said corporation shall be
amended and restated to read in full as follows:

                                       I.

      The name of this corporation is SGX Pharmaceuticals, Inc. (the "COMPANY").

                                      II.

      The address of the registered office of the Company in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801 and the name of the registered agent of the Company in
the State of Delaware at such address is The Corporation Trust Company.

                                      III.

      The purpose of the Company is to engage in any lawful act or activity for
which a corporation may be organized under the Delaware General Corporation Law
("DGCL").

                                      IV.

      A.    The Company is authorized to issue two classes of stock to be
            designated, respectively, "Common Stock" and "Preferred Stock." The
            total number of shares of all classes of capital stock which the
            Company shall have authority to issue is 80,000,000, of which
            75,000,000 shares shall be Common Stock, having a par value of
            $0.001 per share (the "COMMON STOCK"), and 5,000,000 shares shall be
            Preferred Stock, having a par value of $0.001 (the "PREFERRED
            STOCK").

      B.    The Preferred Stock may be issued from time to time in one or more
            series. The Board of Directors of the Company (the "BOARD OF
            DIRECTORS") is hereby expressly authorized to provide for the issue
            of any or all of the remaining unissued and undesignated shares of
            the Preferred Stock in one or more series, and to fix the number of
            shares and to determine or alter for each such series, such

                                       1.


            voting powers, full or limited, or no voting powers, and such
            designation, preferences, and relative, participating, optional, or
            other rights and such qualifications, limitations, or restrictions
            thereof, as shall be stated and expressed in the resolution or
            resolutions adopted by the Board of Directors providing for the
            issuance of such shares and as may be permitted by the DGCL. The
            Board of Directors is also expressly authorized to increase or
            decrease the number of shares of any series subsequent to the
            issuance of shares of that series, but not below the number of
            shares of such series then outstanding. In case the number of shares
            of any series shall be decreased in accordance with the foregoing
            sentence, the shares constituting such decrease shall resume the
            status that they had prior to the adoption of the resolution
            originally fixing the number of shares of such series. The number of
            authorized shares of Preferred Stock may be increased or decreased
            (but not below the number of shares thereof then outstanding) by the
            affirmative vote of the holders of a majority of the Common Stock,
            without a vote of the holders of the Preferred Stock, or of any
            series thereof, unless a vote of any such holders is required
            pursuant to the terms of any certificate of designation filed with
            respect to any series of Preferred Stock.

      C.    Each outstanding share of Common Stock shall entitle the holder
            thereof to one vote on each matter properly submitted to the
            stockholders of the Company for their vote; provided, however, that,
            except as otherwise required by law, holders of Common Stock shall
            not be entitled to vote on any amendment to this Amended and
            Restated Certificate of Incorporation (including any certificate of
            designation filed with respect to any series of Preferred Stock)
            that relates solely to the terms of one or more outstanding series
            of Preferred Stock if the holders of such affected series of
            Preferred Stock are entitled, either separately or together as a
            class with the holders of one or more other series of Preferred
            Stock, to vote thereon by law or pursuant to this Amended and
            Restated Certificate of Incorporation (including any certificate of
            designation filed with respect to any series of Preferred Stock).

                                       V.

      For the management of the business and for the conduct of the affairs of
the Company, and in further definition, limitation and regulation of the powers
of the Company, of its directors and of its stockholders or any class thereof,
as the case may be, it is further provided that:

      A.    The management of the business and the conduct of the affairs of the
            Company shall be vested in its Board of Directors. The number of
            directors that shall constitute the Board of Directors shall be
            fixed exclusively by resolutions adopted by a majority of the
            authorized number of directors constituting the Board of Directors.

      B.    Subject to the rights of the holders of any series of Preferred
            Stock to elect additional directors under specified circumstances,
            the directors shall be divided into three classes designated as
            Class I, Class II and Class III, respectively.

                                       2.


            Directors shall initially be assigned to each class in accordance
            with a resolution or resolutions adopted by the Board of Directors.
            At the first annual meeting of stockholders following the filing
            date of this Amended and Restated Certificate of Incorporation (the
            "FILING DATE"), the term of office of the Class I directors shall
            expire and Class I directors shall be elected for a full term of
            three years. At the second annual meeting of stockholders following
            such Filing Date, the term of office of the Class II directors shall
            expire and Class II directors shall be elected for a full term of
            three years. At the third annual meeting of stockholders following
            such Filing Date, the term of office of the Class III directors
            shall expire and Class III directors shall be elected for a full
            term of three years. At each succeeding annual meeting of
            stockholders, directors shall be elected for a full term of three
            years to succeed the directors of the class whose terms expire at
            such annual meeting.

      Notwithstanding the foregoing provisions of this section, each director
shall serve until his or her successor is duly elected and qualified or until
his or her death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.

      C.    Neither the Board of Directors nor any individual director may be
            removed without cause. Subject to any limitation imposed by law, any
            individual director or directors may be removed with cause by the
            affirmative vote of the holders of at least 66-2/3% of the voting
            power of all then-outstanding shares of capital stock of the Company
            entitled to vote generally at an election of directors, voting
            together as a single class.

      D.    Subject to the rights of the holders of any series of Preferred
            Stock that may come into existence from time to time, any vacancies
            on the Board of Directors resulting from death, resignation,
            disqualification, removal or other causes and any newly created
            directorships resulting from any increase in the number of
            directors, shall, unless the Board of Directors determines by
            resolution that any such vacancies or newly created directorships
            shall be filled by the stockholders, except as otherwise provided by
            law, be filled only by the affirmative vote of a majority of the
            directors then in office, even though less than a quorum of the
            Board of Directors, and not by the stockholders. Any director
            elected in accordance with the preceding sentence shall hold office
            for the remainder of the full term of the director for which the
            vacancy was created or occurred and until such director's successor
            shall have been elected and qualified.

      E.    Subject to the rights of the holders of any series of Preferred
            Stock that may come into existence from time to time, the Board of
            Directors is expressly empowered to adopt, amend or repeal the
            Bylaws of the Company. Any adoption, amendment or repeal of the
            Bylaws of the Company by the Board of Directors shall require the
            approval of a majority of the authorized number of directors. The
            stockholders shall also have power to adopt, amend or repeal the
            Bylaws of the Company, subject to any restrictions which may be set
            forth in this Amended and

                                       3.


            Restated Certificate of Incorporation (including any certificate of
            designation that may be filed from time to time); provided, however,
            that, in addition to any vote of the holders of any class or series
            of stock of the Company required by law or by this Amended and
            Restated Certificate of Incorporation, the affirmative vote of the
            holders of at least 66 2/3% of the voting power of the
            then-outstanding shares of the capital stock of the Company entitled
            to vote generally at an election of directors, voting together as a
            single class, shall be required to adopt, amend or repeal any
            provision of the Bylaws of the Company.

      F.    The directors of the Company need not be elected by written ballot
            unless the Bylaws of the Company so provide.

      G.    No action shall be taken by the stockholders of the Company except
            at an annual or special meeting of stockholders called in accordance
            with the Bylaws of the Company. No action shall be taken by the
            stockholders of the Company by written consent.

      H.    Advance notice of stockholder nominations for the election of
            directors and of business to be brought by stockholders before any
            meeting of the stockholders of the Company shall be given in the
            manner provided in the Bylaws of the Company.

                                      VI.

      A.    The liability of a director of the Company for monetary damages
            shall be eliminated to the fullest extent under applicable law. If
            the DGCL is amended to authorize corporate action further
            eliminating or limiting the personal liability of directors, then
            the liability of a director of the Company shall be eliminated to
            the fullest extent permitted by the DGCL, as so amended.

      B.    Any repeal or modification of this Article VI shall be prospective
            and shall not affect the rights under this Article VI in effect at
            the time of the alleged occurrence of any act or omission to act
            giving rise to liability or indemnification.

                                      VII.

      A.    The Company reserves the right to amend, alter, change or repeal any
            provision contained in this Amended and Restated Certificate of
            Incorporation, in the manner now or hereafter prescribed by statute,
            except as provided in Section B of this Article VII, and all rights
            conferred upon the stockholders herein are granted subject to this
            reservation.

      B.    Notwithstanding any other provisions of this Amended and Restated
            Certificate of Incorporation or any provision of law which might
            otherwise permit a lesser vote or no vote, but in addition to any
            affirmative vote of the holders of any particular class or series of
            the Company required by law or by this Amended and Restated
            Certificate of Incorporation or any certificate of designation filed
            with respect to a

                                       4.


            series of Preferred Stock that may come into existence from time to
            time, the affirmative vote of the holders of at least 66 2/3% of the
            voting power of all of the then-outstanding shares of capital stock
            of the Company entitled to vote generally at an election of
            directors, voting together as a single class, shall be required to
            alter, amend or repeal Article V, VI or VII of this Amended and
            Restated Certificate of Incorporation.

                                     * * * *

      FOURTH: This Amended and Restated Certificate of Incorporation has been
duly adopted and approved by the Board of Directors.

      FIFTH: This Amended and Restated Certificate of Incorporation has been
duly adopted and approved by written consent of the stockholders in accordance
with sections 228, 245 and 242 of the DGCL and written notice of such action has
been given as provided in section 228.

                                       5.


      IN WITNESS WHEREOF, SGX Pharmaceuticals, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by its Chief Executive
Officer in San Diego, California, this ___ day of ___________, 2005.

                                SGX PHARMACEUTICALS, INC.

                                _____________________________________________
                                Michael G. Grey
                                President and Chief Executive Officer

EX-3.3

                                                                     EXHIBIT 3.3

                            SGX PHARMACEUTICALS, INC.

                           INCORPORATED UNDER THE LAWS
                             OF THE SATE OF DELAWARE

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

                                     BY-LAWS

                                  (AS AMENDED)

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

                                                     AS ADOPTED ON JULY 16, 1998



                                     BY-LAWS

                                       OF

                            SGX PHARMACEUTICALS, INC.

                                   ARTICLE I
                                  Stockholders

     Section 1.1. Annual Meetings. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as may be designated by resolution of the
Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.

     Section 1.2. Special Meetings. Special meetings of stockholders may be
called at any time by the Chairman of the Board, if any, the Vice Chairman of
the Board, if any, the President or the Board of Directors, to be held at such
time and place either within or without the State of Delaware as may be stated
in the notice of the meeting. A special meeting of stockholders shall be called
by the Secretary upon the written request, stating the purpose of the meeting,
of stockholders who together own of record 25% of the outstanding stock of any
class entitled to vote at such meeting.

     Section 1.3. Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.

     Section 1.4. Adjournments. Any meeting of stockholders, annual or special,
may adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.

     Section 1.5. Quorum. At each meeting of stockholders, except where
otherwise provided by law or the certificate of incorporation or these by-laws,
the holders of a majority of the outstanding shares of each class of stock
entitled to vote at the meeting, present in person or by proxy, shall constitute
a quorum. In the absence of a quorum, the stockholders so present



                                      -2-

may, by majority vote, adjourn the meeting from time to time in the manner
provided in Section 1.4 of these by-laws until a quorum shall attend.

     Section 1.6. Organization. Meetings of stockholders shall be presided over
by the Chairman of the Board, if any, or in his absence by the Vice Chairman of
the Board, if any, or in his absence by the President, or in his absence by a
Vice President, or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may appoint any person
to act as secretary of the meeting.

     Section 1.7. Voting: Proxies. Unless otherwise provided in the certificate
of incorporation, each stockholder entitled to vote at any meeting of
stockholders shall be entitled to one vote for each share of stock held by him
which has voting power upon the matter in question. Each stockholder entitled to
vote at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
years from in date, unless the proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary of the corporation. Voting at meetings of
stockholders need not be by written ballot and need not be conducted by
inspectors unless the holders of a majority of the outstanding shares of all
classes of stock entitled to vote thereon present in person or by proxy at such
meeting shall so determine. At all meetings of stockholders for the election of
directors, a plurality of the votes cast shall be sufficient to elect. All other
elections and questions shall, unless otherwise provided by law or by the
certificate of incorporation or these by-laws, be decided by the vote of the
holders of a majority of the outstanding shares of all classes of stock entitled
to vote thereon present in person or by proxy at the meeting.

     Section 1.8. Fixing Date for Determination of Stockholders of Record. In
order that the corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than sixty
nor less than ten days before the date of such meeting, nor more than sixty days
prior to any other action. If no record date is fixed: (1) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held, (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed; and
(3) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A



                                      -3-

determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.

     Section 1.9. List of Stockholders Entitled to Vote. The Secretary shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. Upon the willful
neglect or refusal of the directors to produce such a list at any meeting for
the election of directors, they shall be ineligible for election to any office
at such meeting. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list of stockholders or
the books of the corporation, or to vote in person or by proxy at any meeting of
stockholders.

     Section 1.10. Consent of Stockholders in Lieu of Meeting. Any action
required by law to be taken at any annual or special meeting of stockholders of
the corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.

                                   ARTICLE II
                               Board of Directors

     Section 2.1. Number; Qualifications. The authorized number of directors of
the corporation shall be fixed by the Board of Directors from time to time.
Directors need not be stockholders.

     Section 2.2. Election; Resignation; Removal; Vacancies. Until the first
annual meeting of stockholders or until successors or additional directors are
duly elected and qualified, the Board of Directors shall consist of the persons
elected as such by the incorporator. At the first annual meeting of stockholders
and at each annual meeting thereafter, the stockholders shall elect directors,
each to hold office until the next succeeding annual meeting or until his
successor is elected and qualified or until his earlier resignation or removal.
Any director may resign at any time upon written notice to the corporation. The
stockholders may remove any director with or without cause at any time. Except
as otherwise provided in the Certificate of Incorporation, any vacancy occurring
in the Board of Directors for any cause may be filled by a majority of the
remaining members of the Board of Directors, although such majority is less than
a quorum, or by a plurality of the votes cast at a meeting of Stockholders, and
each director so elected shall



                                      -4-

hold office until the next succeeding annual meeting of stockholders or until
his successor is elected and qualified or until his earlier resignation or
removal.

     Section 2.3. Regular Meetings. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware and at such
times as the Board of Directors may from time to time determine, and if so
determined notices thereof nerd not be given.

     Section 2.4. Special Meetings. Special meetings of the Board of Directors
may be held at any time or place, within or without the State of Delaware
whenever called by the Chairman of the Board, if any, by the Vice Chairman of
the Board, if any, by the President or by any one (1) member of the Board of
Directors. Reasonable notice thereof shall be given by the person or persons
calling the meeting.

     Section 2.5. Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
by-law shall constitute presence in persons at such meeting.

     Section 2.6. Quorum: Vote Required for Action. At all meetings of the Board
of Directors sixty percent (60%) of the entire Board shall constitute a quorum
for the transaction of business. Except in cases in which the certificate of
incorporation or these by-laws otherwise provide, the vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.

     Section 2.7. Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
their absence by a chairman chosen at the meeting. The Secretary shall act as
secretary of the mating, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.

     Section 2.8. Informal Action by Directors. Unless otherwise restricted by
the certificate of incorporation or these by-laws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
such committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or committee.

                                  ARTICLE III
                                   Committees

     Section 3.1. Committees. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. Unless otherwise prohibited by a resolution of the Board of
Directors, in the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or



                                      -5-

they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have power or authority
in reference to amending the certificate of incorporation of the corporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of dissolution, or amending these
by-laws, declaring a dividend or authorizing the sale, offering or issuance of
stock.

     Section 3.2. Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these by-laws.

                                   ARTICLE IV
                                    Officers

     Section 4.1. Executive Officers; Election; Qualifications; Term of Office;
Resignation; Removal; Vacancies. The Board of Directors shall choose a Chief
Executive Officer, a President and a Secretary, and it may, if it so determines,
choose a Chairman of the Board and a Vice Chairman of the Board from among its
members. The Board of Directors may also choose one or more Vice Presidents, one
or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers.
Each such officer shall hold office until the first meeting of the Board of
Directors after the annual meeting of stockholders next succeeding this
election, and until his successor is elected and qualified or until his earlier
resignation or removal. Any officer may resign at any time upon written notice
to the corporation. The Board of Directors may remove any officer with or
without cause at any time, but such removal shall be without prejudice to the
contractual rights of such officer, if any, with the corporation. Any number of
offices may be held by the same person. Any vacancy occurring in any office of
the corporation by death, resignation, removal or otherwise may be filled for
the unexpired portion of the term by the Board of Directors at any regular or
special meeting.

     Section 4.2. Powers and Duties of Executive Officers. The officers of the
corporation shall have such powers and duties in the management of the
corporation as may be prescribed by the Board of Directors and, to the extent
not so provided, as generally pertain to their respective offices, subject to
the control of the Board of Directors. The Board of Directors may require any
officer, agent or employee to give security for the faithful performance of his
duties.

                                   ARTICLE V
                                     Stock

     Section 5.1. Certificates. Every holder of stock shall be entitled to have
a certificate signed by or in the name of the corporation by the Chairman or
Vice Chairman of the Board of Directors, if any, or the President or a Vice
President, and by the Treasurer or an Assistant



                                      -6-

Treasurer, or the Secretary or an Assistant Secretary, of the corporation,
certifying the number of shares owned by him in the corporation. Any of or all
of the signatures on the certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.

     Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. The corporation may issue a new certificate of stock in the place
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.

                                   ARTICLE VI
                                 Miscellaneous

     Section 6.1. Fiscal Year. The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.

     Section 6.2. Seal. The corporate seal shall have the name of the
corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.

     Section 6.3. Waiver of Notice of Meetings of Stockholders, Directors and
Committees. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, not the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.

     Section 6.4. Indemnification of Directors, Officers and Employees. The
corporation shall indemnify to the full extent authorized by law any person
made, or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he,
his testator or intestate is or was a director, officer or employee of the
corporation or any predecessor of the corporation or serves or served any other
enterprise as a director, officer or employee at the request of the corporation
or any predecessor of the corporation.

     Section 6.5. Interested Directors; Quorum. No contract or transaction
between the corporation and one or more of its directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting



                                      -7-

of the Board or committee thereof which authorizes the contract or transaction,
or solely because his or their votes are counted for such purpose, if: (1) the
material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or (2)
the material facts as to this relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (3) the contract or transaction is fair as to
the corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof, or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.

     Section 6.6. Form of Records. Any records maintained by the corporation in
the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.

     Section 6.7. Amendment of By-laws. These by-laws may be altered or
repealed, and new by-laws made, by the Board of Directors with the approval of
the majority of the outstanding shares of capital stock of the corporation.

EX-3.4

                                                                     EXHIBIT 3.4

                              AMENDED AND RESTATED
                                     BYLAWS
                                       OF
                            SGX PHARMACEUTICALS, INC.

                                   ARTICLE I

                                     OFFICES

      SECTION 1. REGISTERED OFFICE. The registered office of the corporation in
the State of Delaware shall be in the City of Wilmington, County of New Castle.

      SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.

                                   ARTICLE II

                                 CORPORATE SEAL

      SECTION 3. CORPORATE SEAL. The Board of Directors may adopt a corporate
seal. The corporate seal shall consist of a die bearing the name of the
corporation and the inscription, "Corporate Seal-Delaware." Said seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.

                                  ARTICLE III

                             STOCKHOLDERS' MEETINGS

      SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation may be held at such place, either within or without the State of
Delaware, as may be determined from time to time by the Board of Directors. The
Board of Directors may, in its sole discretion, determine that the meeting shall
not be held at any place, but may instead be held solely by means of remote
communication as provided under the Delaware General Corporation Law (the
"DGCL").

      SECTION 5. ANNUAL MEETINGS.

            (a)   The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors. Nominations of persons for election
to the Board of Directors of the corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting of stockholders:
(i) pursuant to the corporation's notice of meeting of stockholders; (ii) by or
at the direction of the Board of Directors; or (iii) by any stockholder of the
corporation who was a


                                       1.


stockholder of record at the time of giving the stockholder's notice provided
for in the following paragraph, who is entitled to vote at the meeting and who
complied with the notice procedures set forth in this Section 5.

            (b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (iii) of Section 5(a) of these Amended and
Restated Bylaws, (i) the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation, (ii) such other business must be a
proper matter for stockholder action under DGCL, (iii) if the stockholder, or
the beneficial owner on whose behalf any such proposal or nomination is made,
has provided the corporation with a Solicitation Notice (as defined in clause
(iii) of the last sentence of this Section 5(b)), such stockholder or beneficial
owner must, in the case of a proposal, have delivered a proxy statement and form
of proxy to holders of at least the percentage of the corporation's voting
shares required under applicable law to carry any such proposal, or, in the case
of a nomination or nominations, have delivered a proxy statement and form of
proxy to holders of a percentage of the corporation's voting shares reasonably
believed by such stockholder or beneficial owner to be sufficient to elect the
nominee or nominees proposed to be nominated by such stockholder, and must, in
either case, have included in such materials the Solicitation Notice, and (iv)
if no Solicitation Notice relating thereto has been timely provided pursuant to
this section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the 90th day nor earlier than the close of business on the 120th day
prior to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced more
than 30 days prior to or delayed by more than 30 days after the anniversary of
the preceding year's annual meeting, notice by the stockholder to be timely must
be so delivered not earlier than the close of business on the 120th day prior to
such annual meeting and not later than the close of business on the later of the
90th day prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made. In no event shall
the public announcement of an adjournment of an annual meeting commence a new
time period for the giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth: (A) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "1934 ACT") and Rule 14a-4(d) thereunder (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); (B) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (C) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (X) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner, (Y) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial

                                       2.


owner, and (Z) whether either such stockholder or beneficial owner intends to
deliver a proxy statement and form of proxy to holders of, in the case of the
proposal, at least the percentage of the corporation's voting shares required
under applicable law to carry the proposal or, in the case of a nomination or
nominations, a sufficient number of holders of the corporation's voting shares
to elect such nominee or nominees (an affirmative statement of such intent, a
"SOLICITATION NOTICE").

            (c) Notwithstanding anything in the third sentence of Section 5(b)
of these Amended and Restated Bylaws to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the corporation
is increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
corporation at least 100 days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Section 5 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the corporation.

            (d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Amended and
Restated Bylaws and, if any proposed nomination or business is not in compliance
with these Amended and Restated Bylaws, to declare that such defective proposal
or nomination shall not be presented for stockholder action at the meeting and
shall be disregarded.

            (e) Notwithstanding the foregoing provisions of this Section 5, in
order to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholders' meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Amended and Restated Bylaws shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the corporation
proxy statement pursuant to Rule 14a-8 under the 1934 Act.

            (f) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the 1934 Act.

            SECTION 6. SPECIAL MEETINGS.

            (a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total

                                       3.


number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is presented
to the Board of Directors for adoption).

            (b) If a special meeting is properly called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by certified or registered mail, return receipt
requested, to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than 35 nor more than 120 days after the date of the
receipt of the request. Upon determination of the time and place of the meeting,
the officer receiving the request shall cause notice to be given to the
stockholders entitled to vote, in accordance with the provisions of Section 7 of
these Amended and Restated Bylaws. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.

            (c) Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors are to be
elected pursuant to the corporation's notice of meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Amended and Restated Bylaws who shall be entitled to vote at the
meeting and who complies with the notice procedures set forth in this Section
6(c). In the event the corporation calls a special meeting of stockholders for
the purpose of electing one or more directors to the Board of Directors, any
such stockholder may nominate a person or persons (as the case may be), for
election to such position(s) as specified in the corporation's notice of
meeting, if the stockholder's notice required by Section 5(b) of these Amended
and Restated Bylaws shall be delivered to the Secretary at the principal
executive offices of the corporation not earlier than the close of business on
the 120th day prior to such special meeting and not later than the close of
business on the later of the 90th day prior to such meeting or the 10th day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.

      SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law,
notice, given in writing or by electronic transmission, of each meeting of
stockholders shall be given not less than 10 nor more than 60 days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, if any, date and hour, in the case of special
meetings, the purpose or purposes of the meeting, and the means of remote
communications, if any, by which stockholders and proxy holders may be deemed to
be present in person and vote at any such meeting. If mailed, notice is deemed
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
corporation. If sent via electronic transmission, notice is deemed given as of
the sending time recorded at the time of transmission. Notice of the time,
place, if any, and purpose of any meeting of stockholders may be waived in
writing, signed by the person entitled to notice thereof, or by electronic
transmission by such person, either before or after such meeting, and

                                       4.


will be waived by any stockholder by his attendance thereat in person, by remote
communication, if applicable, or by proxy, except when the stockholder attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Any stockholder so waiving notice of such meeting shall be bound by
the proceedings of any such meeting in all respects as if due notice thereof had
been given.

      SECTION 8. QUORUM. At all meetings of stockholders, except where otherwise
provided by statute or by the Amended and Restated Certificate of Incorporation,
or by these Amended and Restated Bylaws, the presence, in person, by remote
communication, if applicable, or by proxy duly authorized, of the holders of a
majority of the outstanding shares of stock entitled to vote shall constitute a
quorum for the transaction of business. In the absence of a quorum, any meeting
of stockholders may be adjourned, from time to time, either by the chairman of
the meeting or by vote of the holders of a majority of the shares represented
thereat, but no other business shall be transacted at such meeting. The
stockholders present at a duly called or convened meeting, at which a quorum is
present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law or by applicable stock exchange or Nasdaq Stock Market
rules, or by the Amended and Restated Certificate of Incorporation or these
Amended and Restated Bylaws, in all matters other than the election of
directors, the affirmative vote of a majority of shares present in person, by
remote communication, if applicable, or represented by proxy at the meeting and
entitled to vote generally on the subject matter shall be the act of the
stockholders. Except as otherwise provided by statute, the Amended and Restated
Certificate of Incorporation or these Amended and Restated Bylaws, directors
shall be elected by a plurality of the votes of the shares present in person, by
remote communication, if applicable, or represented by proxy duly authorized at
the meeting and entitled to vote on the election of directors. Where a separate
vote by a class or classes or series is required, except where otherwise
provided by the statute or by the Amended and Restated Certificate of
Incorporation or these Amended and Restated Bylaws, a majority of the
outstanding shares of such class or classes or series, present in person, by
remote communication, if applicable, or represented by proxy duly authorized,
shall constitute a quorum entitled to take action with respect to that vote on
that matter. Except where otherwise provided by statute or by the Amended and
Restated Certificate of Incorporation or these Amended and Restated Bylaws, the
affirmative vote of the majority (plurality, in the case of the election of
directors) of the outstanding shares of such class or classes or series present
in person, by remote communication, if applicable, or represented by proxy duly
authorized at the meeting shall be the act of such class or classes or series.

      SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
present in person, by remote communication, if applicable, or represented by
proxy duly authorized. When a meeting is adjourned to another time or place, if
any, notice need not be given of the adjourned meeting if the time and place, if
any, thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than 30 days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.

                                       5.


      SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Amended and Restated Bylaws, shall be entitled to vote at any meeting of
stockholders. Every person entitled to vote shall have the right to do so either
in person, by remote communication, if applicable, or by an agent or agents
authorized by a proxy granted in accordance with Delaware law. An agent so
appointed need not be a stockholder. No proxy shall be voted after three years
from its date of creation unless the proxy provides for a longer period.

      SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two or more persons have the same fiduciary
relationship respecting the same shares, unless the Secretary is given written
notice to the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, their
acts with respect to voting shall have the following effect: (a) if only one
votes, his act binds all; (b) if more than one votes, and the vote is not evenly
split on a particular matter, the act of the majority so voting binds all; (c)
if more than one votes, but the vote is evenly split on any particular matter,
each faction may vote the securities in question proportionally, or may apply to
the Delaware Court of Chancery for relief as provided in the DGCL, Section
217(b). If the instrument filed with the Secretary shows that any such tenancy
is held in unequal interests, a majority or even-split for the purpose of clause
(c) shall be a majority or even-split in interest.

      SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at
least 10 days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, (a) on a reasonably
accessible electronic network, provided that the information required to gain
access to such list is provided with the notice of the meeting, or (b) during
ordinary business hours, at the principal place of business of the corporation.
In the event that the corporation determines to make the list available on an
electronic network, the corporation may take reasonable steps to ensure that
such information is available only to stockholders of the corporation. The list
shall be open to examination of any stockholder during the time of the meeting
as provided by law.

      SECTION 13. ACTION WITHOUT MEETING. No action shall be taken by the
stockholders except at an annual or special meeting of stockholders called in
accordance with these Amended and Restated Bylaws, and no action shall be taken
by the stockholders by written consent.

      SECTION 14. ORGANIZATION.

            (a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy
duly authorized, shall act as chairman. The Secretary, or, in his

                                       6.


absence, an Assistant Secretary directed to do so by the President, shall act as
secretary of the meeting.

            (b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at the meeting shall be announced
at the meeting. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.

                                   ARTICLE IV

                                    DIRECTORS

      SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors
of the corporation shall be fixed in accordance with the Amended and Restated
Certificate of Incorporation. Directors need not be stockholders unless so
required by the Amended and Restated Certificate of Incorporation. If for any
reason, the directors shall not have been elected at an annual meeting, they may
be elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Amended and
Restated Bylaws.

      SECTION 16. POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Amended and Restated
Certificate of Incorporation.

      SECTION 17. CLASSES OF DIRECTORS. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Initially, directors shall be
assigned to each class in accordance with a resolution or resolutions adopted by
the Board of Directors. At the first annual meeting of stockholders following
the initial classification of the Board of Directors, the term of office of the
Class I directors shall expire and Class I directors shall be elected for a full
term of three years. At the second annual meeting of stockholders following such
initial classification, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following such initial
classification, the term of office of the Class III

                                       7.


directors shall expire and Class III directors shall be elected for a full term
of three years. At each succeeding annual meeting of stockholders, directors
shall be elected for a full term of three years to succeed the directors of the
class whose terms expire at such annual meeting.

      Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
earlier death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.

      SECTION 18. VACANCIES. Unless otherwise provided in the Amended and
Restated Certificate of Incorporation and subject to the rights of the holders
of any series of Preferred Stock, any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal or other causes and
any newly created directorships resulting from any increase in the number of
directors shall, unless the Board of Directors determines by resolution that any
such vacancies or newly created directorships shall be filled by stockholders,
be filled only by the affirmative vote of a majority of the directors then in
office, even though less than a quorum of the Board of Directors. Any director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the director for which the vacancy was created or
occurred and until such director's successor shall have been elected and
qualified. A vacancy in the Board of Directors shall be deemed to exist under
this Section 18 in the case of the death, removal or resignation of any
director.

      SECTION 19. RESIGNATION. Any director may resign at any time by delivering
his or her notice in writing or by electronic transmission to the Secretary,
such resignation to specify whether it will be effective at a particular time,
upon receipt by the Secretary or at the pleasure of the Board of Directors. If
no such specification is made, it shall be deemed effective at the pleasure of
the Board of Directors. When one or more directors shall resign from the Board
of Directors, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office for the unexpired portion of the term of the director whose place shall
be vacated and until his successor shall have been duly elected and qualified.

      SECTION 20. REMOVAL.

            (a) Subject to the rights of any series of Preferred Stock to elect
additional directors under specified circumstances, neither the Board of
Directors nor any individual director may be removed without cause.

            (b) Subject to any limitation imposed by law, any individual
director or directors may be removed with cause by the affirmative vote of the
holders of at least 66 2/3% of the voting power of all then outstanding shares
of capital stock of the corporation entitled to vote generally at an election of
directors, voting together as a single class.

      SECTION 21. MEETINGS.

            (a) REGULAR MEETINGS. Unless otherwise restricted by the Amended and
Restated Certificate of Incorporation, regular meetings of the Board of
Directors may be held at

                                       8.



any time or date and at any place within or without the State of Delaware which
has been designated by the Board of Directors and publicized among all
directors, either orally or in writing, by telephone, including a
voice-messaging system or other system designed to record and communicate
messages, facsimile, telegraph or telex, or by electronic mail or other
electronic means. No further notice shall be required for regular meetings of
the Board of Directors.

            (b) SPECIAL MEETINGS. Unless otherwise restricted by the Amended and
Restated Certificate of Incorporation, special meetings of the Board of
Directors may be held at any time and place within or without the State of
Delaware whenever called by the Chairman of the Board, the President or a
majority of the authorized number of directors.

            (c) MEETINGS BY ELECTRONIC COMMUNICATIONS EQUIPMENT. Any member of
the Board of Directors, or of any committee thereof, may participate in a
meeting by means of conference telephone or other communications equipment by
means of which all persons participating in the meeting can hear each other, and
participation in a meeting by such means shall constitute presence in person at
such meeting.

            (d) NOTICE OF SPECIAL MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least 24 hours before the date and time of the meeting. If notice is sent by
U.S. mail, it shall be sent by first class mail, charges prepaid, at least three
days before the date of the meeting. Notice of any meeting may be waived in
writing, or by electronic transmission, at any time before or after the meeting
and will be waived by any director by attendance thereat, except when the
director attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.

            (e) WAIVER OF NOTICE. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present who did not receive notice shall
sign a written waiver of notice or shall waive notice by electronic
transmission. All such waivers shall be filed with the corporate records or made
a part of the minutes of the meeting.

      SECTION 22. QUORUM AND VOTING.

            (a) Unless the Amended and Restated Certificate of Incorporation
requires a greater number, a quorum of the Board of Directors shall consist of a
majority of the exact number of directors fixed from time to time by the Board
of Directors in accordance with the Amended and Restated Certificate of
Incorporation; provided, however, at any meeting whether a quorum be present or
otherwise, a majority of the directors present may adjourn from time to time
until the time fixed for the next regular meeting of the Board of Directors,
without notice other than by announcement at the meeting.

                                       9.


            (b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Amended and Restated Certificate of Incorporation or these Amended and
Restated Bylaws.

      SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Amended and Restated Certificate of Incorporation or these Amended and Restated
Bylaws, any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting, if all
members of the Board of Directors or committee, as the case may be, consent
thereto in writing or by electronic transmission, and such writing or writings
or transmission or transmissions are filed with the minutes of proceedings of
the Board of Directors or committee. Such filing shall be in paper form if the
minutes are maintained in paper form and shall be in electronic form if the
minutes are maintained in electronic form.

      SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.

      SECTION 25. COMMITTEES.

            (a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one or more members of the Board of Directors.
The Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to (i) approving or adopting, or recommending to
the stockholders, any action or matter expressly required by the DGCL to be
submitted to stockholders for approval, or (ii) adopting, amending or repealing
any bylaw of the corporation.

            (b) OTHER COMMITTEES. The Board of Directors may, from time to time,
appoint such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one or more members of the
Board of Directors and shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committees, but in no
event shall any such committee have the powers denied to the Executive Committee
in these Amended and Restated Bylaws.

            (c) TERM. The Board of Directors, subject to any requirements of any
outstanding series of Preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member

                                      10.



and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.

            (d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon notice to the members of such committee of the time and place of
such special meeting given in the manner provided for the giving of notice to
members of the Board of Directors of the time and place of special meetings of
the Board of Directors. Notice of any special meeting of any committee may be
waived in writing at any time before or after the meeting and will be waived by
any director by attendance thereat, except when the director attends such
special meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Unless otherwise provided by the Board of Directors in the
resolutions authorizing the creation of the committee, a majority of the
authorized number of members of any such committee shall constitute a quorum for
the transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.

      SECTION 26. ORGANIZATION. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President (if a director), or if the President is absent, the most
senior Vice President (if a director), or, in the absence of any such person, a
chairman of the meeting chosen by a majority of the directors present, shall
preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.

                                    ARTICLE V

                                    OFFICERS

      SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one

                                      11.



person may hold any number of offices of the corporation at any one time unless
specifically prohibited therefrom by law. The salaries and other compensation of
the officers of the corporation shall be fixed by or in the manner designated by
the Board of Directors.

      SECTION 28. TENURE AND DUTIES OF OFFICERS.

            (a) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.

            (b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to the office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. If there is no President or Chief Executive
Officer, unless otherwise determined by the Board of Directors, then the
Chairman of the Board of Directors shall also serve as the President of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.

            (c) DUTIES OF PRESIDENT. The President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. Unless
some other officer has been elected Chief Executive Officer of the corporation,
the President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to the office and shall
also perform such other duties and have such other powers, as the Board of
Directors shall designate from time to time.

            (d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.

            (e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Amended and Restated Bylaws of all meetings
of the stockholders and of all meetings of the Board of Directors and any
committee thereof requiring notice. The Secretary shall perform all other duties
provided for in these Amended and Restated Bylaws and other duties commonly
incident to the office and shall also perform such other duties and have such
other powers, as the Board of Directors shall designate from time to time. The
President may direct any Assistant Secretary to assume and perform the duties of
the Secretary in the absence or disability of the Secretary, and each Assistant
Secretary shall perform other duties commonly incident to the

                                      12.



office and shall also perform such other duties and have such other powers as
the Board of Directors or the President shall designate from time to time.

            (f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to the office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to the office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.

      SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.

      SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
notice in writing or by electronic transmission to the Board of Directors or to
the President or to the Secretary. Any such resignation shall be effective when
received by the person or persons to whom such notice is given, unless a later
time is specified therein, in which event the resignation shall become effective
at such later time. Unless otherwise specified in such notice, the acceptance of
any such resignation shall not be necessary to make it effective. Any
resignation shall be without prejudice to the rights, if any, of the corporation
under any contract with the resigning officer.

      SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.

                                   ARTICLE VI

           EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
                            OWNED BY THE CORPORATION

      SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these

                                      13.



Amended and Restated Bylaws, and such execution or signature shall be binding
upon the corporation.

      All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.

      Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.

      SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.

                                  ARTICLE VII

                                 SHARES OF STOCK

      SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Amended and Restated Certificate of Incorporation and applicable law. Every
holder of stock in the corporation shall be entitled to have a certificate
signed by or in the name of the corporation by the Chairman of the Board of
Directors, the Chief Executive Officer, the President or any Vice President and
by the Chief Financial Officer, Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class

                                      14.



of stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights.

      SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or the owner's
legal representative, to agree to indemnify the corporation in such manner as it
shall require or to give the corporation a surety bond in such form and amount
as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.

      SECTION 36. TRANSFERS.

            (a) Transfers of record of shares of stock of the corporation shall
be made only upon its books by the holders thereof, in person or by attorney
duly authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.

            (b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the DGCL.

      SECTION 37. FIXING RECORD DATES.

            (a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall, subject to applicable law, not be more than 60 nor less than 10 days
before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.

            (b) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than 60 days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall

                                      15.



be at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto.

      SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.

                                  ARTICLE VIII

                       OTHER SECURITIES OF THE CORPORATION

      SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, the
Chief Executive Officer, the President or any Vice President, or such other
person as may be authorized by the Board of Directors, and the corporate seal
impressed thereon or a facsimile of such seal imprinted thereon and attested by
the signature of the Secretary or an Assistant Secretary, or the Chief Financial
Officer or Treasurer or an Assistant Treasurer; provided, however, that where
any such bond, debenture or other corporate security shall be authenticated by
the manual signature, or where permissible facsimile signature, of a trustee
under an indenture pursuant to which such bond, debenture or other corporate
security shall be issued, the signatures of the persons signing and attesting
the corporate seal on such bond, debenture or other corporate security may be
the imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.

                                   ARTICLE IX

                                    DIVIDENDS

      SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Amended and Restated
Certificate of Incorporation and applicable law, if any, may be declared by the
Board of Directors pursuant to law at any regular or special meeting. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the Amended and Restated Certificate of Incorporation and
applicable law.

                                      16.



      SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.

                                    ARTICLE X

                                   FISCAL YEAR

      SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.

                                   ARTICLE XI

                                 INDEMNIFICATION

      SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.

            (a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the DGCL or any
other applicable law; provided, however, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
executive officers; and, provided, further, that the corporation shall not be
required to indemnify any director or executive officer in connection with any
proceeding (or part thereof) initiated by such person unless (i) such
indemnification is expressly required to be made by law, (ii) the 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 DGCL or any other applicable
law or (iv) such indemnification is required to be made under subsection (d).

            (b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the DGCL or any other applicable law. The Board of Directors shall
have the power to delegate the determination of whether indemnification shall be
given to any such person to such officers or other persons as the Board of
Directors shall determine.

            (c) EXPENSES. The corporation shall advance to any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly

                                      17.



following request therefor, all expenses incurred by any director or executive
officer in connection with such proceeding provided, however, that if the DGCL
requires, an advancement of expenses incurred by a director or executive officer
in his or her capacity as a director or executive officer (and not in any other
capacity in which service was or is rendered by such indemnitee, including,
without limitation, service to an employee benefit plan) shall be made only upon
delivery to the corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section 43 or otherwise.

      Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Section 43, no advance shall be made by the corporation to
an executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation, in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of directors who
were not parties to the proceeding, even if not a quorum, or (ii) by a committee
of such directors designated by a majority vote of such directors, even though
less than a quorum, or (iii) if there are no such directors, or such directors
so direct, by independent legal counsel in a written opinion, that the facts
known to the decision-making party at the time such determination is made
demonstrate clearly and convincingly that such person acted in bad faith or in a
manner that such person did not believe to be in or not opposed to the best
interests of the corporation.

            (d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Section 43 to a director or executive officer shall
be enforceable by or on behalf of the person holding such right 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
90 days of request therefor. The claimant in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting the claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
DGCL or any other applicable law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because the officer or director has met the
applicable standard of conduct set forth

                                      18.



in the DGCL or any other applicable law, nor an actual determination by the
corporation (including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct. In any suit brought by a director or
executive officer to enforce a right to indemnification or to an advancement of
expenses hereunder, the burden of proving that the director or executive officer
is not entitled to be indemnified, or to such advancement of expenses, under
this Section 43 or otherwise shall be on the corporation.

            (e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any applicable statute, provision of the Amended and
Restated Certificate of Incorporation, Amended and Restated Bylaws, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in such person's official capacity and as to action in another capacity while
holding office. The corporation is specifically authorized to enter into
individual contracts with any or all of its directors, officers, employees or
agents respecting indemnification and advances, to the fullest extent not
prohibited by the DGCL, or by any other applicable law.

            (f) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director or executive
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.

            (g) INSURANCE. To the fullest extent permitted by the DGCL or any
other applicable law, the corporation, upon approval by the Board of Directors,
may purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Section 43.

            (h) AMENDMENTS. Any repeal or modification of this Section 43 shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.

            (i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Section 43 that
shall not have been invalidated, or by any other applicable law. If this Section
43 shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
executive officer to the full extent under any other applicable law.

            (j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:

                  (1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement,

                                      19.



arbitration and appeal of, and the giving of testimony in, any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative.

                  (2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.

                  (3) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Section 43 with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.

                  (4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.

                  (5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Section 43.

                                   ARTICLE XII

                                     NOTICES

      SECTION 44. NOTICES.

            (a) NOTICE TO STOCKHOLDERS. Written notice to stockholders of
stockholder meetings shall be given as provided in Section 7 herein. Without
limiting the manner by which notice may otherwise be given effectively to
stockholders under any agreement or contract with such stockholder, and except
as otherwise required by law, written notice to stockholders for purposes other
than stockholder meetings may be sent by U.S. mail or nationally recognized

                                      20.



overnight courier, or by facsimile, telegraph or telex or by electronic mail or
other electronic means.

            (b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), as otherwise
provided in these Amended and Restated Bylaws, or by overnight delivery service,
facsimile, telex or telegram, except that such notice other than one which is
delivered personally shall be sent to such address as such director shall have
filed in writing with the Secretary, or, in the absence of such filing, to the
last known post office address of such director.

            (c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, or other agent,
specifying the name and address or the names and addresses of the stockholder or
stockholders, or director or directors, to whom any such notice or notices was
or were given, and the time and method of giving the same, shall in the absence
of fraud, be prima facie evidence of the facts therein contained.

            (d) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all recipients of notice, but
one permissible method may be employed in respect of any one or more, and any
other permissible method or methods may be employed in respect of any other or
others.

            (e) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Amended and
Restated Certificate of Incorporation or Amended and Restated Bylaws of the
corporation, to any person with whom communication is unlawful, the giving of
such notice to such person shall not be required and there shall be no duty to
apply to any governmental authority or agency for a license or permit to give
such notice to such person. Any action or meeting which shall be taken or held
without notice to any such person with whom communication is unlawful shall have
the same force and effect as if such notice had been duly given. In the event
that the action taken by the corporation is such as to require the filing of a
certificate under any provision of the DGCL, the certificate shall state, if
such is the fact and if notice is required, that notice was given to all persons
entitled to receive notice except such persons with whom communication is
unlawful.

            (f) NOTICE TO STOCKHOLDERS SHARING AN ADDRESS. Except as otherwise
prohibited under the DGCL, any notice given under the provisions of the DGCL,
the Amended and Restated Certificate of Incorporation or the Amended and
Restated Bylaws shall be effective if given by a single written notice to
stockholders who share an address if consented to by the stockholders at that
address to whom such notice is given. Such consent shall have been deemed to
have been given if such stockholder fails to object in writing to the
corporation within 60 days of having been given notice by the corporation of its
intention to send the single notice. Any consent shall be revocable by the
stockholder by written notice to the corporation.

                                      21.



                                  ARTICLE XIII

                                   AMENDMENTS

      SECTION 45. BYLAW AMENDMENTS. Subject to Section 43(h), the Board of
Directors is expressly empowered to adopt, amend or repeal the Bylaws of the
corporation. Any adoption, amendment or repeal of the Bylaws of the corporation
by the Board of Directors shall require the approval of a majority of the Board
of Directors. The stockholders shall also have power to adopt, amend or repeal
the Bylaws of the corporation; provided, however, that, in addition to any vote
of the holders of any class or series of stock of the corporation required by
law or by the Amended and Restated Certificate of Incorporation, the affirmative
vote of the holders of at least 66 2/3% of the voting power of all of the
then-outstanding shares of the capital stock of the corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to adopt, amend or repeal any provision of the Bylaws of the
corporation.

                                   ARTICLE XIV

                         LOANS TO OFFICERS OR EMPLOYEES

      SECTION 46. LOANS TO OFFICERS OR EMPLOYEES. Except as otherwise prohibited
by applicable law, the corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiaries, including any officer or employee who is a
director of the corporation or its subsidiaries, whenever, in the judgment of
the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Amended and Restated Bylaws
shall be deemed to deny, limit or restrict the powers of guaranty or warranty of
the corporation at common law or under any statute.

                                      22.

EX-4.2

                                                                    EXHIBIT 4.2

THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

                            STRUCTURAL GENOMIX, INC.

                        WARRANT TO PURCHASE COMMON STOCK

NO. CW-[__]                                                     JULY [___], 2005

                           VOID AFTER JULY [__], 2010

      THIS CERTIFIES THAT, for value received, ________________, or ____ assigns
(the "HOLDER"), is entitled to subscribe for and purchase from STRUCTURAL
GENOMIX, INC., a Delaware corporation, with its principal office at 10505
Roselle Street, San Diego, CA 92121 (the "COMPANY") __________ Exercise Shares
at the Exercise Price (each subject to adjustment as provided herein).

      1. DEFINITIONS. As used herein, the following terms shall have the
following respective meanings:

            (a) "EXERCISE PERIOD" shall mean the period commencing on the date
hereof and ending five (5) years later, unless sooner terminated as provided
below.

            (b) "EXERCISE PRICE" shall mean $0.50 per Exercise Share subject to
adjustment pursuant to Sections 5 below.

            (c) "EXERCISE SHARES" shall mean shares of the Company's Common
Stock issuable upon exercise of this Warrant, subject to adjustment pursuant to
Section 5 below.

      2. EXERCISE OF WARRANT. The rights represented by this Warrant may be
exercised in whole or in part at any time during the Exercise Period, by
delivery of the following to the Company at its address set forth above (or at
such other address as it may designate by notice in writing to the Holder):

            (a)   An executed Notice of Exercise in the form attached hereto;

            (b)   If applicable, payment of the Exercise Price in cash or by
                  check; and

            (c)   This Warrant.

      Upon the exercise of the rights represented by this Warrant, a certificate
or certificates for the Exercise Shares so purchased, registered in the name of
the Holder or persons affiliated with the Holder, if the Holder so designates,
shall be issued and delivered to the Holder within a reasonable time after the
rights represented by this Warrant shall have been so exercised. In the event
that this Warrant is being exercised for less than all of the then-current
number of Exercise Shares purchasable hereunder, the Company shall, promptly
following the issuance by the

                                       1.


Company of the number of Exercise Shares for which this Warrant is then being
exercised, issue a new Warrant exercisable for the remaining number of Exercise
Shares purchasable hereunder.

      The person in whose name any certificate or certificates for Exercise
Shares are to be issued upon exercise of this Warrant shall be deemed to have
become the holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Exercise Price was made, irrespective of the date
of delivery of such certificate or certificates, except that, if the date of
such surrender and payment is a date when the stock transfer books of the
Company are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open.

      2.1 NET EXERCISE. Notwithstanding any provisions herein to the contrary,
if the fair market value of one Exercise Share is greater than the Exercise
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant by payment of cash, the Holder may elect to receive shares equal to
the value (as determined below) of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with the properly endorsed Notice of Exercise in which event the
Company shall issue to the Holder a number of Exercise Shares computed using the
following formula:

                  X = Y (A-B)
                      -------
                         A

      Where  X   =      the number of Exercise Shares to be issued to the Holder

             Y   =      the number of Exercise Shares purchasable under the
                        Warrant or, if only a portion of the Warrant is being
                        exercised, that portion of the Warrant being canceled
                        (at the date of such calculation)

             A   =      the fair market value of one Exercise Share (at the date
                        of such calculation)

             B   =      Exercise Price (as adjusted to the date of such
                        calculation)

      For purposes of the above calculation, the fair market value of one
Exercise Share shall be determined by the Company's Board of Directors in good
faith; provided, however, that in the event that this Warrant is exercised
pursuant to this Section 2.1 in connection with the Company's initial public
offering of its Common Stock, the fair market value per share shall be the per
share offering price to the public of the Company's initial public offering.

      3. COVENANTS OF THE COMPANY.

            3.1 COVENANTS AS TO EXERCISE SHARES. The Company covenants and
agrees that all Exercise Shares that may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued and
outstanding, fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issuance thereof. The Company further covenants and
agrees that the Company will at all times during the Exercise Period, have
authorized and reserved, free from preemptive rights, a sufficient number of
shares of the series of equity securities comprising the Exercise Shares to
provide for the exercise of the rights

                                       2.


represented by this Warrant. If at any time during the Exercise Period the
number of authorized but unissued shares of such series of the Company's equity
securities shall not be sufficient to permit exercise of this Warrant, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of such series of
the Company's equity securities to such number of shares as shall be sufficient
for such purposes.

            3.2 NOTICES OF RECORD DATE. In the event of any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend which is the same as cash dividends paid in previous
quarters) or other distribution, the Company shall mail to the Holder, at least
ten (10) days prior to the date specified herein, a notice specifying the date
on which any such record is to be taken for the purpose of such dividend or
distribution.

      4. REPRESENTATIONS OF HOLDER.

            4.1 ACQUISITION OF WARRANT FOR PERSONAL ACCOUNT. The Holder
represents and warrants that it is acquiring the Warrant and the Exercise Shares
solely for its account for investment and not with a view to or for sale or
distribution of said Warrant or Exercise Shares or any part thereof. The Holder
also represents that the entire legal and beneficial interests of the Warrant
and Exercise Shares the Holder is acquiring is being acquired for, and will be
held for, its account only.

            4.2 SECURITIES ARE NOT REGISTERED.

                  (a) The Holder understands that the Warrant and the Exercise
Shares have not been registered under the Securities Act of 1933, as amended
(the "ACT") on the basis that no distribution or public offering of the stock of
the Company is to be effected. The Holder realizes that the basis for the
exemption may not be present if, notwithstanding its representations, the Holder
has a present intention of acquiring the securities for a fixed or determinable
period in the future, selling (in connection with a distribution or otherwise),
granting any participation in, or otherwise distributing the securities. The
Holder has no such present intention.

                  (b) The Holder recognizes that the Warrant and the Exercise
Shares must be held indefinitely unless they are subsequently registered under
the Act or an exemption from such registration is available. The Holder
recognizes that except as set forth in the Investor Rights Agreement, the
Company has no obligation to register the Warrant or the Exercise Shares of the
Company, or to comply with any exemption from such registration.

                  (c) The Holder is aware that neither the Warrant nor the
Exercise Shares may be sold pursuant to Rule 144 adopted under the Act unless
certain conditions are met, including, among other things, the existence of a
public market for the shares, the availability of certain current public
information about the Company, the resale following the required holding period
under Rule 144 and the number of shares being sold during any three month period
not exceeding specified limitations. Holder is aware that the conditions for
resale

                                       3.


set forth in Rule 144 have not been satisfied and that the Company presently has
no plans to satisfy these conditions in the foreseeable future.

            4.3 DISPOSITION OF WARRANT AND EXERCISE SHARES.

                  (a) The Holder further agrees not to make any disposition of
all or any part of the Warrant or Exercise Shares in any event unless and until:

                        (i) The Company shall have received a letter secured by
the Holder from the Securities and Exchange Commission stating that no action
will be recommended to the Commission with respect to the proposed disposition;

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

                        (iii) The 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 if
reasonably requested by the Company, the Holder shall have furnished the Company
with an opinion of counsel, reasonably satisfactory to the Company, for the
Holder to the effect that such disposition will not require registration of such
Warrant or Exercise Shares under the Act or any applicable state securities
laws. The Company agrees that it will not require an opinion of counsel with
respect to transactions under Rule 144 of the Securities Act of 1933, as
amended, except in unusual circumstances.

                  (b) Notwithstanding the provisions of subsection (a) above, no
such restriction shall apply to a transfer by the Holder to the Holder's family
member or trust for the benefit of the Holder; provided that in each case the
transferee will agree in writing to be subject to the terms of this Warrant to
the same extent as if ____ were an original Holder hereunder.

                  (c) The Holder understands and agrees that all certificates
evidencing the shares to be issued to the Holder may bear the following legend:

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

            4.4 ACCREDITED INVESTOR STATUS. The Holder is an "accredited
investor" as defined in Regulation D promulgated under the Act.

                                       4.


      5. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF EXERCISE SHARES.

            5.1 CHANGES IN SECURITIES. In the event of changes in the
outstanding Common Stock of the Company by reason of stock dividends, splits,
recapitalizations, reclassifications, combinations or exchanges of shares,
separations, reorganizations, liquidations, or the like, the number and class of
Exercise Shares available under the Warrant in the aggregate and the Aggregate
Exercise Price (as defined below) shall be correspondingly adjusted to give the
Holder of the Warrant, on exercise for the same Aggregate Exercise Price, the
total number, class, and kind of shares as the Holder would have owned had the
Warrant been exercised prior to the event and had the Holder continued to hold
such shares until after the event requiring adjustment. For purposes of this
Section 5.1, the "AGGREGATE EXERCISE PRICE" shall mean the aggregate Exercise
Price payable in connection with the exercise in full of this Warrant. The form
of this Warrant need not be changed because of any adjustment in the number of
Exercise Shares subject to this Warrant.

      6. FRACTIONAL SHARES. No fractional shares shall be issued upon the
exercise of this Warrant as a consequence of any adjustment pursuant hereto. All
Exercise Shares (including fractions) to be issued upon exercise of this Warrant
shall be aggregated for purposes of determining whether the exercise would
result in the issuance of any fractional share. If, after aggregation, the
exercise would result in the issuance of a fractional share, the Company shall,
in lieu of issuance of any fractional share, pay the Holder otherwise entitled
to such fraction a sum in cash equal to the product resulting from multiplying
the then current fair market value of one Exercise Share by such fraction.

      7. EARLY TERMINATION. In the event of, at any time during the Exercise
Period, an Acquisition or Asset Transfer (each as defined in the Company's
Amended and Restated Certificate of Incorporation, as such may be amended from
time to time), the Company shall provide to the Holder ten (10) days advance
written notice of such Acquisition or Asset Transfer, and this Warrant shall be
deemed exercised pursuant to Section 2.1 immediately prior to the date of
closing of such Acquisition or Asset Transfer.

      8. MARKET STAND-OFF AGREEMENT. Each Holder hereby agrees that such Holder
shall not sell, dispose of, transfer, make any short sale of, grant any option
for the purchase of, or enter into any hedging or similar transaction with the
same economic effect as a sale, 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. Holder agrees to execute and deliver such other
agreements as may be reasonably requested by the Company and/or the managing
underwriter(s) which are consistent with the foregoing or which are necessary to
give further effect thereto. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to such Common Stock
(or other securities) until the end of such period. The underwriters of the
Company's stock are intended third party beneficiaries of this Section 8 and
shall have the right, power and authority to enforce the provisions hereof as
though they were a party hereto.

                                       5.


      9. NO STOCKHOLDER RIGHTS. This Warrant in and of itself shall not entitle
the Holder to any voting rights or other rights as a stockholder of the Company.

      10. TRANSFER OF WARRANT. Subject to applicable laws and the restriction on
transfer set forth on the first page of this Warrant and in Section 4.3 hereof,
this Warrant and all rights hereunder are transferable, by the Holder in person
or by duly authorized attorney, upon delivery of this Warrant and the form of
assignment attached hereto to any transferee designated by Holder. The
transferee shall sign an investment letter in form and substance satisfactory to
the Company.

      11. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost,
stolen, mutilated or destroyed, the Company may, on such terms as to indemnity
or otherwise as it may reasonably impose (which shall, in the case of a
mutilated Warrant, include the surrender thereof), issue a new Warrant of like
denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed.
Any such new Warrant shall constitute an original contractual obligation of the
Company, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant shall be at any time enforceable by anyone.

      12. AMENDMENT. Any term of this Warrant may be amended or waived with the
written consent of the Company and the Holder.

      13. NOTICES, ETC. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) 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 Company
at the address listed on the signature page and to Holder at
[___________________________] or at such other address as the Company or Holder
may designate by ten (10) days advance written notice to the other parties
hereto.

      14. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute
acceptance of and agreement to all of the terms and conditions contained herein.

      15. ADDITIONAL TERMS/ACKNOWLEDGEMENTS. The Holder acknowledges receipt of,
and understands and agrees to, this Warrant. The Holder further acknowledges
that as of the date hereof, this Warrant sets forth the entire understanding
between the Holder and the Company regarding the acquisition of stock or options
or warrants to acquire stock in the Company and supersedes all prior oral and
written agreements on that subject, including without limitation any equity
compensation or stock options described or referenced in that certain letter
agreement dated ___________________, and the undersigned Holder further
acknowledges and agrees that this Warrant is in lieu of and represents
satisfaction in full of any equity compensation or stock options set forth in
such letter agreement or other prior oral or written agreement, with the
exception of (i) vested options previously granted and delivered to the Holder
in the amount of _________________, and (ii) __________ outstanding shares of
the Company's Common Stock previously issued to Holder.

                                       6.


      16. GOVERNING LAW. This Warrant and all rights, obligations and
liabilities hereunder shall be governed by and construed under the laws of the
State of California as applied to agreements among California residents, made
and to be performed entirely within the State of California without giving
effect to conflicts of laws principles.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       7.


      IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer as of July ___, 2005.

                                      STRUCTURAL GENOMIX, INC.

                                      By:_______________________________________

                                      Name:_____________________________________

                                      Title:____________________________________

ACKNOWLEDGED AND ACCEPTED:

__________________________________

                                [SIGNATURE PAGE]



                               NOTICE OF EXERCISE

TO: STRUCTURAL GENOMIX, INC.

      (1)   [ ] The undersigned hereby elects to purchase ________ shares of
Common Stock (the "EXERCISE SHARES") of STRUCTURAL GENOMIX, INC. (the "COMPANY")
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the exercise price in full, together with all applicable transfer taxes, if any.

            [ ] The undersigned hereby elects to purchase ________ shares of
Common Stock (the "EXERCISE SHARES") of STRUCTURAL GENOMIX, INC. (the "COMPANY")
pursuant to the terms of the net exercise provisions set forth in Section 2.1 of
the attached Warrant, and tenders herewith payment of all applicable transfer
taxes, if any.

      (2) Please issue a certificate or certificates representing said Exercise
Shares in the name of the undersigned or in such other name as is specified
below:

                          _____________________________
                                     (Name)

                          _____________________________

                          _____________________________
                                    (Address)

      (3) The undersigned represents that (i) the aforesaid Exercise Shares are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares;
(ii) the undersigned is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision regarding its investment in the Company;
(iii) the undersigned is experienced in making investments of this type and has
such knowledge and background in financial and business matters that the
undersigned is capable of evaluating the merits and risks of this investment and
protecting the undersigned's own interests; (iv) the undersigned understands
that Exercise Shares issuable upon exercise of this Warrant have not been
registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
by reason of a specific exemption from the registration provisions of the
Securities Act, which exemption depends upon, among other things, the bona fide
nature of the investment intent as expressed herein, and, because such
securities have not been registered under the Securities Act, they must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available; (v) the undersigned is aware that
the aforesaid Exercise Shares may not be sold pursuant to Rule 144 adopted under
the Securities Act unless certain conditions are met and until the undersigned
has held the shares for the number of years prescribed by Rule 144, that among
the conditions for use of the Rule is the availability of current information to
the public about the Company and the Company has not made such information
available and has no present plans to do so; and (vi) the undersigned agrees not
to make any disposition of all or any part of the aforesaid shares of Exercise
Shares unless and until there is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with said registration statement, or, if

                                       1.


reasonably requested by the Company, the undersigned has provided the Company
with an opinion of counsel satisfactory to the Company, stating that such
registration is not required, or as otherwise permitted by Section 4.3 of the
Warrant

______________________________________    ______________________________________
(Date)                                    (Signature)

                                          ______________________________________
                                          (Print name)

                                       2.


                                 ASSIGNMENT FORM

                 (To assign the foregoing Warrant, execute this form
                 and supply required information. Do not use this form
                 to purchase shares.)

      FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to

Name: __________________________________________________________________________
                                 (Please Print)

Address: _______________________________________________________________________
                                 (Please Print)

Dated: __________, 20__

Holder's
Signature: _______________________________________

Holder's
Address: _________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.

                                       3.

EX-4.6

                                                                     EXHIBIT 4.6

    THIS NOTE IS A RESTRICTED SECURITY WITHIN THE MEANING OF THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), AND ANY APPLICABLE STATE SECURITIES LAWS, AND
MAY NOT BE OFFERED, SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION
UNDER THE ACT OR THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN
EXEMPTION FROM REGISTRATION IS AVAILABLE OR THAT SUCH TRANSFER MAY OTHERWISE
LAWFULLY BE MADE.

                            STRUCTURAL GENOMIX, INC.
                AMENDED AND RESTATED CONVERTIBLE PROMISSORY NOTE

$6,000,000.00                                          Dated:  December 16, 2004

San Diego, California

      This Amended and Restated Convertible Promissory Note is made as of the
16th day of December, 2004, ("Restatement Date") by and between Structural
GenomiX, Inc., a corporation duly organized and existing under the laws of
Delaware (the "Company") and Millennium Pharmaceuticals, Inc. (as successor in
interest to mHOLDINGS TRUST) or registered assigns (the "Holder").

Preliminary Statements:

      1. Holder received from Company a Convertible Promissory Note dated
December 21, 2001 in the principal sum of USD $6,000,000, as previously amended
by Amendment No. 1 dated March 14, 2003, Amendment No. 2 dated August 29, 2003
and Amendment No. 3 dated February 5, 2004; (the "Note").

      2. Company and Holder now wish to amend and restate the Note to set out
fully their respective rights and obligations as set forth below.

      NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, each of the undersigned hereby
agrees as follows:

      Structural GenomiX, Inc., a corporation duly organized and existing under
the laws of Delaware (the "Company"), for value received, hereby promises to pay
to mHOLDINGS TRUST or registered assigns (the "Holder"), the principal sum of
$6,000,000.00. This Note is executed and delivered in connection with that
certain Convertible Promissory Note Purchase Agreement dated December 21, 2001
by and among the Company, the Holder and Millennium Pharmaceuticals, Inc.
("Millennium") (as the same may be amended, modified or supplemented or
restated, the "Purchase Agreement"). All capitalized terms used herein and not
otherwise defined herein shall have the respective meanings given to them in the
Purchase Agreement.


                                       1.

      1. Principal;. As of the Restatement Date, the full principal amount of
this Note has converted to the Convertible Amount pursuant to Section 5.

      2. Interest. No interest shall accrue on the unpaid principal balance of
this Note. Interest shall accrue on overdue payments of principal, unless such
payments have been extended by the Holder, at the annual rate of fifteen percent
(15%).

      3. Registration and Transfer of the Note. The Company will keep the
registration and transfer books for the Note. The Note may be transferred only
on the books of the Company. The Note may not be transferred without the prior
written consent of the Company, except to affiliates of mHoldings Trust (the
"Permitted Transferees"). The Note may be transferred to a Permitted Transferee
only if (a) prior to any such transfer, the Permitted Transferee enters into a
written agreement in form and substance acceptable to the Company pursuant to
which the Permitted Transferee agrees to be bound by all of the provisions of
the Note and the Purchase Agreement and (b) such transfer complies with all
applicable federal and state securities laws and prior to any such transfer, and
if requested by the Company, the Holder provides to the Company an opinion of
counsel satisfactory to the Company regarding compliance with applicable federal
and state securities laws. Upon surrender or transfer of the Note at the
principal office of the Company, duly endorsed for transfer or accompanied by a
proper assignment duly executed by the registered owner or such owner's attorney
duly authorized in writing, and accompanied by the documents described in the
preceding sentence, the Company will issue and deliver to the transferee a new,
fully registered Note in like principal amount. Any attempted transfer of the
Note, any portion thereof or any interest therein that is not in compliance with
the provisions of this Section 4 shall be null and void.

      4. No Prepayment. This Note may not be prepaid without the prior written
consent of the Holder, except as expressly provided herein.

      5.    Conversion.

      (a)   Subject to Sections 5(b) - (e) below, portions of the principal
on the Note will convert into the right of the Holder to receive shares of the
Company's equity securities as set forth below in this Section 5 (the
"Conversion Securities"). The amount so converted into the obligation to issue
shares of the Conversion Securities shall at any time be referred to as the
"Convertible Amount": As of the Restatement Date, the full principal amount of
this Note ($6,000,000) has converted to the Convertible Amount;

      (b) Actual conversion of the Convertible Amount into the Conversion
Securities shall occur immediately upon the closing of a firmly underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of the Company's
Common Stock, (the "Common Stock") or other class of stock for the account of
the Company and listing on a U.S. national securities exchange or admitted for
quotation on the Nasdaq National Market (the " IPO") or immediately prior to the
closing of any


                                       2.

Sale of the Company (as defined below) upon the following terms:

            (i) if the Convertible Amount converts pursuant to an IPO, then upon
the closing of the IPO, the Convertible Amount shall convert automatically,
without further action by the Company or the Holder, into Common Stock or such
other class or type of securities registered pursuant to the IPO (the "IPO
Stock") at the same price per share that the IPO Stock is first sold to the
public in the IPO and the Company shall promptly notify its transfer agent to
issue a certificate to the Holder for such IPO stock; and

            (ii) if the Convertible Amount converts pursuant to a Sale of the
Company, then immediately prior to the closing of the Sale of the Company, the
Convertible Amount shall convert automatically, without further action by the
Company or the Holder, into the same type(s) and class(es) of securities issued
at the Company's most recently completed round of financing which yielded at
least $5,000,000 in gross proceeds to the Company (a "Qualified Financing"). The
price at which the Convertible Amount converts into such Conversion Securities
shall be the Sale Value per share of such securities. The "Sale Value" per share
of the Conversion Securities shall be (i) if the Conversion Securities will be
sold for cash in the Sale of the Company, the amount of cash received per share
for the Conversion Securities; (ii) if the Conversion Securities will be
exchanged for property other than cash, the fair market value of the
consideration received per share in exchange for the Conversion Securities;
(iii) if all or substantially all of the assets of the Company will be sold,
leased or otherwise disposed (the "Asset Sale"), the net book value per share of
the Conversion Securities as measured by taking the total amount received in the
Asset Sale, subtracting any liabilities of the Company and the Convertible
Amount existing immediately prior to the Asset Sale, and dividing the result by
the Company's total issued and outstanding shares of Common Stock on an as
converted basis immediately prior to the Asset Sale; or (iv) any combination of
the foregoing, as applicable.

"Sale of the Company" shall mean (A) any consolidation or merger of the Company
with or into any other corporation or other entity or person, or any other
corporate reorganization, in which the stockholders of the Company immediately
prior to such consolidation, merger or reorganization, own less than fifty
percent (50%) of the voting power of the surviving entity immediately after such
consolidation, merger or reorganization; or (B) any transaction or series of
related transactions to which the Company is a party in which in excess of fifty
percent (50%) of the Company's voting power is transferred; or (C) any Asset
Sale; provided that, notwithstanding the foregoing, "Sale of the Company" shall
not include (x) any consolidation or merger effected exclusively to change the
domicile of the Company, or (y) any transaction or series of transactions
principally for bona fide equity financing purposes in which cash is receive by
the Company or indebtedness of the Company is cancelled or converted or a
combination thereof.

      (c) In no event shall the Convertible Amount convert into a total number
of Conversion Securities which on an as converted to Common Stock basis would
exceed 9.9% of the Company's total issued and outstanding shares of Common Stock
as of the date of such conversion (the "Applicable Conversion Date"); if
conversion of the Convertible Amount would exceed this 9.9% threshold, then only
that portion of the Convertible Amount that would convert into a total number of
Conversion Securities which on an as converted to Common Stock basis


                                       3.

would equal 9.9% of the Company's total issued and outstanding shares of Common
Stock as of the Applicable Conversion Date (including, for purposes of such
calculation, any Conversion Securities issued previously upon conversion of any
Convertible Amount and currently held by the Holder as of the Applicable
Conversion Date) shall be so converted. Once such maximum conversion limitation
has been met, no further portion of the principal under the Note shall convert
into the Convertible Amount, and the remainder of such unconverted Convertible
Amount under the Note shall be repaid in a security to be negotiated at that
time.

      (d) Once the principal under the Note, or any portion thereof, has
converted into the Convertible Amount, such portion of the Note that has so
converted and the Convertible Amount shall represent solely the right to receive
Convertible Securities pursuant to this Section 5. After the Convertible Amount
has been converted pursuant to the terms of this Section 5, the Holder shall
surrender the Note at the office of the Company. If converted, the Company
shall, as soon as practicable thereafter, cause to be issued and delivered to
the Holder of this Note a certificate or certificates in the name of the Holder
(unless otherwise designated in writing by the Holder or Millennium) for the
number and type of shares to which the Holder of this Note shall be entitled.
The person or persons entitled to receive the shares issued upon conversion
shall be treated for all purposes as the record holder or holders of such shares
as of such date. No fractional shares shall be issued upon conversion of this
Note. In lieu thereof, the Company shall pay to the Holder the amount of
outstanding principal that is not so converted by wire transfer to a bank and an
account designated by the Holder.

      (e) If the Company shall by reclassification of securities or otherwise
change any of the Conversion Securities into the same or a different number of
securities of any other class or classes, this Note shall thereafter represent
the right to acquire such number and kind of securities as would have been
issuable as the result of such change with respect to the Conversion Securities
immediately prior to such reclassification.

      (f) At the time(s) of any conversion of the Convertible Amount into
Conversion Securities, the Company shall deliver to the Holder on the date(s) of
any such conversion an opinion of counsel from the Company's outside counsel
(such counsel being reasonably satisfactory to the Holder) stating that such
Convertible Securities are duly authorized, validly issued, fully paid and
non-assessable.

      6. Persons Deemed Owners. The person in whose name the Note is registered
on the books and records of the Company shall be deemed to be the absolute owner
thereof for all purposes, and payment of any principal or interest on such Note
shall be made only to the registered owner thereof or such owner's legal
representative. All payments made to the registered owner or such owner's legal
representative shall be valid and effectual to discharge the liability of the
Company upon this Note to the extent of the sum or sums so paid.

      7. Subordination. The indebtedness evidenced by this Note is hereby
expressly subordinated, to the extent and in the manner hereinafter set forth,
in right of payment to the prior payment in full of the Senior Indebtedness.
"Senior Indebtedness" shall mean, unless expressly subordinated to or made on a
parity with the amounts due under this Note, the principal of, unpaid interest
on and amounts for reasonable fees, expenses, costs of enforcement and other


                                       4.

amounts due in connection with (a) indebtedness of the Company for borrowed
money to banks or commercial finance or other lending institutions regularly
engaged in the business of lending money (excluding venture capital, investment
banking or similar institutions and their affiliates which sometimes engage in
lending activities but which are primarily engaged in investments in equity
securities), and (b) any such indebtedness for borrowed money or any debentures
for borrowed money, notes or other evidence of indebtedness issued in exchange
for such Senior Indebtedness, or any indebtedness arising from the satisfaction
of such Senior Indebtedness by a guarantor.

      8. Insolvency Proceedings. If there shall occur any receivership,
insolvency, assignment for the benefit of creditors, bankruptcy, reorganization,
or arrangements with creditors (whether or not pursuant to bankruptcy or other
insolvency laws), sale of all or substantially all of the assets, dissolution,
liquidation, or any other marshaling of the assets and liabilities of the
Company, no amount shall be paid by the Company in respect of the principal of,
interest on or other amounts due with respect to this Note at the time
outstanding, unless and until the principal of and interest on the Senior
Indebtedness then outstanding shall be paid in full.

      9. Default on Senior Indebtedness. If there shall occur an event of
default which has been declared in writing with respect to any Senior
Indebtedness, as defined therein, or in the instrument under which it is
outstanding, permitting the holder to accelerate the maturity thereof and the
Holder shall have received written notice thereof from the holder of such Senior
Indebtedness, then, unless and until such event of default shall have been cured
or waived or shall have ceased to exist, or all such Senior Indebtedness shall
have been paid in full, no payment shall be made in respect of the principal of
or interest on this Note unless within one hundred eighty (1 80) days after the
happening of such event of default the maturity of such Senior Indebtedness
shall not have been accelerated and such payment blockage shall only continue so
long as collection of Senior Indebtedness is being diligently pursued. Not more
than one notice (in the aggregate) may be given to the Holder pursuant to the
terms of this Section 11 during any three hundred sixty day (360) day period.
Upon the cure, waiver or ceasing to exist of any such event of default, or upon
the payment in full of all such Senior Indebtedness, the Company shall
immediately pay to the Holder interest, at the rate set forth in Section 2 above
with respect to overdue amounts, on the outstanding amount hereunder from the
date of the happening of such event of default.

      10. Further Assurances. By acceptance of this Note, the Holder agrees to
execute and deliver customary forms of subordination agreement requested from
time to time by the holders of Senior Indebtedness and, as a condition to the
Holder's rights hereunder, the Company may require that the Holder execute such
forms of subordination agreement, provided that such forms shall not impose on
the Holder terms less favorable than those provided herein.

      11. No Impairment. Subject to the rights, if any, of the holders of Senior
Indebtedness under this Note to receive cash, securities or other properties
otherwise payable or deliverable to the Holder, nothing contained in this Note
shall impair, as between the Company and the Holder, the obligation of the
Company, subject to the terms and conditions hereof, to pay to the Holder the
principal hereof and interest hereon as and when the same become due and


                                       5.

payable, or shall prevent the Holder, upon default hereunder, from exercising
all rights, powers and remedies otherwise provided herein or by applicable law;
and notwithstanding such rights, if any, of the holders of Senior Indebtedness
under this Note, nothing contained in this Note shall impair the conversion of
the principal of this Note into the Convertible Amount or the conversion of the
Convertible Amount into the Conversion Securities, or the right of the Holder
(or its designee) to receive and retain, and not turn over to the holder of any
Senior Indebtedness, any Conversion Securities issued to the Holder or its
designee.

      12. Reliance of Holders of Senior Indebtedness. The Holder, by its
acceptance hereof, shall be deemed to acknowledge and agree that the foregoing
subordination provisions are, and are intended to be, an inducement to and a
consideration of each holder of Senior Indebtedness, whether such Senior
Indebtedness was created or acquired before or after the creation of the
indebtedness evidenced by this Note, and each such holder of Senior Indebtedness
shall be deemed conclusively to have relied on such subordination provisions in
acquiring and holding, or in continuing to hold, such Senior Indebtedness.

      13. Amendment. The terms of this Note may only be modified by the Holder
and the Company in writing.

      14. Additional Terms and Conditions. The Company (i) waives presentment,
demand, notice of demand, protest, notice of protest, and notice of nonpayment
and any other notice required to be given under the law to the Company, in
connection with the delivery, acceptance, performance, default or enforcement of
the Note, except for notice of proposed transfer of the Note in accordance with
the terms hereof and notices of default as provided herein or except as
otherwise expressly provided herein; (ii) agrees that any failure to act or
failure to exercise any right or remedy, on the part of the Holder shall not in
any way affect or impair the obligations of the Company or be construed as a
waiver by the Holder of, or otherwise affect, any of its rights under the Note;
and (iii) agrees to pay, on demand, all reasonable costs and expenses of
collection of the Note and for the enforcement of the Holder's right hereunder,
including reasonable attorney's fees and disbursements.

      15. Invalidity. In the event any one or more of the provisions of the Note
shall for any reason be held to be invalid, illegal or unenforceable, in whole
or in part or in any respect, or in the event that any one or more of the
provisions of the Note operate or would prospectively operate to invalidate the
Note, then and in either of those events, such provision or provisions only
shall be deemed null and void and shall not affect any other provision of the
Note and the remaining provisions of the Note shall remain operative and in full
force and effect and shall in no way be affected, prejudiced and disturbed
thereby.

      16. Governing Law. The General Corporation Law of the State of Delaware
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of California applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.


                                       6.

      17. Notices. All notices, requests, consents, and other communications
under this Note shall be in writing and shall be delivered by hand or mailed by
first class certified or registered mail, return receipt requested, postage
prepaid:

Notices to the Company shall be addressed to:

      Structural GenomiX, Inc.
      10505 Roselle Street
      San Diego, California  92121
      Attn: Vice President, Finance
      Telephone: (858) 558-4850
      Facsimile:  (858) 558-3402

Notices to Holder shall be addressed to:

      Millennium Pharmaceuticals, Inc.
      40 Landsdowne Street
      Cambridge, Massachusetts 02139-4815
      Attn:  General Counsel
      Telephone:  (617) 679-7000
      Facsimile:  (617-374-0074

      Notices provided in accordance with this Section 17 shall be deemed
delivered upon personal delivery or three (3) business days after deposit in the
mail or one (1) business day after deposit with a nationally recognized
overnight courier.


                                       7.

    IN WITNESS WHEREOF, this Note has been duly executed and delivered by the
Company as of the date first written above.

COMPANY:

STRUCTURAL GENOMIX, INC.

By:  /s/ Herbert G. Mutter
     -----------------------------

Print Name:  Herbert G. Mutter
             ---------------------

Title:  Vice President, Finance

HOLDER:

MILLENNIUM PHARMACEUTICALS, INC.

By:  /s/ Neil Exler
     -----------------------------

Print Name:  Neil Exler
             ---------------------

Title:  VP
        --------------------------


                                       8.

EX-4.7

                                                                     EXHIBIT 4.7


                            STRUCTURAL GENOMIX, INC.

                 AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT


                                                                               .
                                                                               .
                                                                               .

                               TABLE OF CONTENTS



                                                                                       PAGE
                                                                                    
SECTION 1.    GENERAL..............................................................    [ 2]

     1.1      Definitions..........................................................    [ 2]

SECTION 2.    REGISTRATION; RESTRICTIONS ON TRANSFER...............................    [ 3]

     2.1      Restrictions on Transfer.............................................    [ 3]

     2.2      Demand Registration..................................................    [ 5]

     2.3      Piggyback Registrations..............................................    [ 6]

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

     2.5      Expenses of Registration.............................................    [ 8]

     2.6      Obligations of the Company...........................................    [ 9]

     2.7      Termination of Registration Rights...................................    [10]

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

     2.9      Indemnification......................................................    [10]

     2.10     Assignment of Registration Rights....................................    [13]

     2.11     Amendment of Registration Rights.....................................    [13]

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

     2.13     "Market Stand-Off" Agreement; Agreement to Furnish Information.......    [13]

     2.14     Rule 144 Reporting...................................................    [14]

SECTION 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..........................................    [16]

     3.5      Proprietary Information and Inventions Agreement.....................    [16]

     3.6      Assignment of Right of First Refusal.................................    [16]

     3.7      Directors' Liability and Indemnification.............................    [16]

     3.8      Termination of Covenants.............................................    [16]

     3.9      Use of Proceeds......................................................    [16]

     3.10     Business Activity....................................................    [16]

     3.11     Compliance...........................................................    [16]

     3.12     Information for SBIC Investor........................................    [17]


                                       i.


                               TABLE OF CONTENTS
                                   (CONTINUED)



                                                                                       PAGE
                                                                                    
     3.13     Number of Holders of Voting Securities...............................    [17]

     3.14     Regulatory Problem...................................................    [17]

     3.15     Board Committees.....................................................    [17]

     3.16     Observer Rights......................................................    [18]

SECTION 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 and Waiver of Rights of First Refusal....................    [19]

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

     4.6      Excluded Securities..................................................    [19]

SECTION 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.................................................    [21]

     5.7      Delays or Omissions..................................................    [21]

     5.8      Notices..............................................................    [21]

     5.9      Attorneys' Fees......................................................    [21]

     5.10     Titles and Subtitles.................................................    [21]

     5.11     Additional Investors.................................................    [22]

     5.12     Counterparts.........................................................    [22]

     5.13     Termination of Prior Agreement.......................................    [22]


                                      ii.

                            STRUCTURAL GENOMIX, INC.

                 AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT


         This AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the "AGREEMENT")
is entered into as of April 21, 2005, by and among STRUCTURAL GENOMIX, INC., a
Delaware corporation (the "COMPANY"), and the investors listed on EXHIBIT A
hereto (the "INVESTORS" and each individually, an "INVESTOR").

                                    RECITALS

         WHEREAS, certain of the Investors are purchasing shares of the
Company's new Series B Preferred Stock (the "SERIES B STOCK"), pursuant to that
certain Series B Preferred Stock Purchase and Recapitalization Agreement (the
"PURCHASE AGREEMENT") of even date herewith (the "SERIES B FINANCING");

         WHEREAS, the obligations in the Purchase Agreement are conditioned upon
the execution and delivery of this Agreement;

         WHEREAS, certain of the Investors currently hold shares of the
Company's Common Stock issued upon conversion of the Company's previously
outstanding Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock (BRIDGE CONVERTED COMMON STOCK) in
connection with the Company's 2004 secured bridge note financing (the "2004
BRIDGE FINANCING");

         WHEREAS, certain of the Investors who participated in the 2004 Bridge
Financing currently hold shares of the Company's Series A-1 Preferred Stock,
Series A-2 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred
Stock and Series D-1 Preferred Stock (collectively, the "PRE-SERIES B CONVERSION
PREFERRED STOCK");

         WHEREAS, in connection with the Series B Financing, all shares of
Pre-Series B Conversion Preferred Stock will either be converted into shares of
the Company's Common Stock or exchanged for shares of the Company's new Series A
Common Stock (the "SERIES A STOCK");

         WHEREAS, the Company and the Investors who are parties to that certain
Restated Investor Rights Agreement dated September 12, 2000, as amended by that
First Amendment to Restated Investor Rights Agreement dated May 4, 2001 and that
Second Amended to Restated Investor Rights Agreement dated July 27, 2004 (the
"PRIOR AGREEMENT") desire to amend and restate the Prior Agreement in its
entirety and accept the rights and covenants hereof in lieu of their rights and
covenants thereunder; and

         WHEREAS, in connection with the consummation of the Series B Financing,
the Company and the Investors have agreed to the registration rights,
information rights, and other rights as set forth below.



                                       1.




         NOW, THEREFORE, in consideration of these premises and for other good
and valid consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:


SECTION 1. GENERAL.

         1.1 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 or similar registration form under
the Securities Act subsequently adopted by the SEC which 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.

                  "QUALIFIED OFFERING" means the closing of a firmly
underwritten public offering of shares of the Common Stock of the Company at a
per share purchase price of $5.00 (as adjusted for stock splits, dividends,
combinations and the like) with net proceeds to the Company (after deduction of
underwriters commission and expenses) of not less than $25 million.

                  "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 the (a) Common Stock of the
Company issued or issuable upon conversion of the Shares; (b) Bridge Converted
Common Stock; (c) Common Stock of the Company issued or issuable upon conversion
of the Conversion Securities (as those securities are defined in the Convertible
Promissory Note issued by the Company to mHoldings Trust ("MHOLDINGS") dated
December 21, 2001 (the "MILLENNIUM NOTE") (or in the event the Conversion
Securities (as those securities are defined in the Millennium Note) consist of
the Company's Common Stock, the Conversion Securities (as those securities are
defined in the Millennium Note)); (d) Common Stock of the Company issued or
issuable conversion of the Warrant Securities (or in the event the Warrant
Securities consist of the Company's Common Stock, the Warrant Securities); and
(e) 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



                                       2.




Rule 144 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 (a) are then issued and
outstanding or (b) 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.

                  "SHARES" shall mean (a) the Series A Stock and Series B Stock
now held or hereafter acquired by the Investors listed on EXHIBIT A hereto and
their permitted assigns; (b) the Pre-Series B Conversion Preferred Stock held by
the Investors listed on EXHIBIT A hereto and their permitted assigns; (c) the
Company securities issuable upon exercise of the Warrant (the "Warrant
Securities"); and (d) the Conversion Securities (as those securities are defined
in the Millennium Note) issued pursuant to the Millennium Note to mHoldings (or
its permitted assigns).

                  "SPECIAL REGISTRATION STATEMENT" shall mean a registration
statement relating to any employee benefit plan or with respect to any corporate
reorganization or other transaction under Rule 145 of the Securities Act.

                  "WARRANT" shall mean that certain warrant held by General
Electric Capital Corporation dated March 9, 2000, as such may be amended from
time to time.

SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER.

         2.1 RESTRICTIONS ON TRANSFER.

                  (a) Each Holder agrees not to make any disposition of all or
any portion of the Shares or Registrable Securities 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


                                       3.




                           (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, (D) an
affiliate that is actually controlled by or under common control with the
Holder, or (E) to the Holder's family member or trust 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):

                  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.



                                       4.




         2.2 DEMAND REGISTRATION.

                  (a) Subject to the conditions of this Section 2.2, if the
Company shall receive a written request from the Holders of at least sixty-six
and two-thirds percent (66-2/3%) of the Registrable Securities (the "INITIATING
HOLDERS") voting together as a single class that the Company file a registration
statement under the Securities Act covering the registration of certain of such
Registrable Securities, 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
expeditiously as reasonably possible, the registration under the Securities Act
of all Registrable Securities that the Holders request to be registered.

                  (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 to the extent provided herein. 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 (A) December 31, 2006 or
(B) one hundred eighty (180) days following the effective date of the
registration statement pertaining to the Initial Offering;

                           (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 reasonable good faith efforts to cause such
registration statement to become effective;



                                       5.




                           (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 good faith intention to make a
public offering, other than pursuant to a Special Registration Statement, within
ninety (90) days;

                           (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 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 once in any twelve (12) month period; or

                           (vi) if the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 2.4 below.

         2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders in
writing at least twenty (20) 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 Special Registration Statements) 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 fifteen (15) 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 the
above-described notice. 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 stockholder of the



                                       6.




Company (other than a Holder) on a pro rata basis. No such reduction shall (i)
reduce the securities being offered by the Company for its own account to be
included in the registration and underwriting; or (ii) reduce the amount of
securities of the selling Holders included in the registration below thirty-five
percent (35%) of the total amount of securities included in such registration,
unless such offering is the Initial Offering and such registration does not
include shares of any other selling stockholders, in which event any or all of
the Registrable Securities of the Holders may be excluded in accordance with the
immediately preceding sentence. If any Holder disapproves of the terms of any
such underwriting, such Holder may elect to withdraw therefrom by written notice
to the Company and the underwriter, delivered at least ten (10) business days
prior to the effective date of the registration statement. Any Registrable
Securities excluded or withdrawn from such underwriting shall be excluded and
withdrawn from the registration. For any Holder which is a partnership or
corporation, the partners, retired partners and shareholders of such Holder, or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing person shall be deemed to be a
single "Holder," and any pro rata reduction with respect to such "Holder" shall
be based upon the aggregate amount of shares carrying registration rights owned
by all entities and individuals included in such "Holder," as defined in this
sentence.

                  (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.

         2.4 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders 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; and

                  (b) use best efforts to effect, as soon as practicable, 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 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



                                       7.




                           (iii) if within thirty (30) days of receipt of a
written request from any Holder or Holders pursuant to this Section 2.4, the
Company gives notice to such Holder or Holders of the Company's good faith
intention to make a public offering within sixty (60) days, other than pursuant
to a Special Registration Statement, or

                           (iv) 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 once in
any twelve (12) month period, 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.

                  (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 within ninety (90) days after receipt
of the request of the Holder or Holders. Registrations effected pursuant to this
Section 2.4 shall not be counted as demands for registration or registrations
effected pursuant to Sections 2.2 or 2.3, respectively.

         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 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 were ultimately included in such registration. 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.



                                       8.




         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 its best 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 one hundred twenty (120) 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 for the period set forth in
paragraph (a) above.

                  (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.

                  (d) Use its best 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. The Company will use reasonable efforts to amend or supplement such
prospectus in order to cause such prospectus not to include any untrue statement
of a material fact or omit 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) Use its reasonable efforts to furnish, on the date that
such Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, (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 underwriters



                                       9.




in an underwritten public offering, addressed to the underwriters, if any, (and
with copies thereof provided 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, addressed to the underwriters.

         2.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted
under this Section 2 shall terminate and be of no further force and effect at
the earlier of (a) five (5) years after the date of the Company's Initial
Offering or (b) after the Company's Initial Offering, with respect to a
particular Holder, at such time as (i) the Holder is entitled to sell all of its
shares in any ninety (90) day period pursuant to SEC Rule 144 and (ii) the
Holder owns less than one percent (1%) of the Registrable Securities.

         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. Where a registration requested pursuant to Section 2.2
or Section 2.4 is not completed because 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, the request to initiate such registration shall
not count against the number of requests permitted to be made pursuant to
Section 2.2 or 2.4. Where a registration requested pursuant to Section 2.2 or
Section 2.4 is completed even though the number of shares of the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration is less than the number of shares or the anticipated aggregate
offering price required to originally trigger the Company's obligation to
initiate such registration, the request to initiate such registration shall
count against the number of requests permitted to be made pursuant to Section
2.2 or Section 2.4.

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



                                      10.




                  (a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers, directors and
shareholders of each Holder, legal counsel and accountants for 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 pay as incurred to
each such Holder, partner, officer, director, legal counsel, 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 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, officer, director, legal counsel, underwriter or
controlling person of such Holder.

                  (b) To the extent permitted by law, each Holder, severally and
not jointly, 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 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, 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 under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such Holder
will pay as incurred any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, underwriter or other
Holder, or partner, 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



                                      11.




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 net 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 to the extent of such prejudice,
but the omission so to deliver written notice to the 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 net 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, unless
such settlement (i) includes an unconditional release of



                                      12.




each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.

         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 (a) is a
subsidiary, parent, affiliate that is actually controlled by or under common
control with the Holder, general partner, limited partner, retired partner,
member, shareholder or retired member of a Holder, (b) is a Holder's family
member or trust for the benefit of an individual Holder, or (c) acquires at
least twelve thousand six hundred forty-five (12,645) shares of Registrable
Securities (as adjusted for stock splits and combinations); provided, however,
(i) 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 (ii) 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 and the Holders of at least sixty-six and
two-thirds percent (66-2/3%) of the Registrable Securities then outstanding. 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, the Holders hereby agree to be bound by the provisions
hereunder.

         2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. Other than as
provided in Section 5.11, after the date of this Agreement, the Company shall
not, without the prior written consent of the Holders of at least a majority of
the Registrable Securities then outstanding, enter into any agreement with any
holder or prospective holder of any securities of the Company that would grant
such holder registration rights pari passu or senior to those granted to the
Holders hereunder.

         2.13 "MARKET STAND-OFF" AGREEMENT; AGREEMENT TO FURNISH INFORMATION.
Each Holder hereby agrees that such Holder shall not, without the prior consent
of the managing underwriter, sell, transfer, make any short sale of, grant any
option for the purchase of, or enter into any hedging or similar transaction
with the same economic effect as a sale, 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, directors, and founders of the Company and
holders of at least one percent (1%) of the Company's voting securities enter
into similar agreements.


                                      13.




         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. In
addition, if requested by the Company or the representative of the underwriters
of Common Stock (or other securities) of the Company, each Holder shall provide,
within fifteen (15) days of such request, such information as may be required by
the Company or such representative in connection with the completion of any
public offering of the Company's securities pursuant to a registration statement
filed under the Securities Act. 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. Each Holder agrees that any transferee of any
shares of Registrable Securities shall be bound by this Section 2.13.

         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 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; and

                  (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.

SECTION 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) So long as an Investor (with its affiliates) shall own not
less than fifty thousand five hundred eighty-one (50,581) shares of Registrable
Securities (as adjusted for stock



                                      14.




splits and combinations and recapitalizations) (a "MAJOR INVESTOR"), the Company
will furnish each such Major Investor, as soon as practicable after the end of
each fiscal year of the Company, and in any event within one hundred twenty
(120) days thereafter, to the extent requested by such Major Investor, a balance
sheet of the Company and statement of shareholder's equity, as at the end of
such fiscal year, and a statement of income and a 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 ninety (90)
days thereafter, to the extent requested by such Investor a balance sheet of the
Company as of the end of each such quarterly period, and a statement of income
and a 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) The Company will furnish each Major Investor (i) at least
fifteen (15) days prior to the beginning of each fiscal year an annual budget
and operating plans for such fiscal year (and promptly after available, any
subsequent revisions thereto); and (ii) as soon as practicable after the end of
each month, and in any event within sixty (60) days thereafter, a balance sheet
of the Company as of the end of each such month, and a statement of income and a
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.

         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, including its books of account and records, 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, subsidiary or parent of
such Investor for the purpose of evaluating its investment in the Company as
long as such partner, subsidiary or parent is advised of and agrees to comply
with the confidentiality provisions of this Section 3.3.



                                      15.




         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 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The Company shall
require all employees and consultants to execute and deliver a Proprietary
Information and Inventions Agreement in the form substantially as attached to
the Purchase Agreement.

         3.6 ASSIGNMENT OF RIGHT OF FIRST REFUSAL. In the event the Company
elects not to exercise any right of first refusal or right of first offer the
Company may have on a proposed transfer of any of the Company's outstanding
capital stock pursuant to the Company's charter documents, by contract or
otherwise, the Company shall, to the extent it may do so, assign such right of
first refusal or right of first offer to each Investor. In the event of such
assignment, each Investor shall have a right to purchase its pro rata portion
(as defined in Section 4.1) of the capital stock proposed to be transferred.

         3.7 DIRECTORS' LIABILITY AND INDEMNIFICATION. The Company's Certificate
of Incorporation and Bylaws shall provide for (a) elimination of the liability
of director to the maximum extent permitted by law and (b) indemnification of
directors for acts on behalf of the Company to the maximum extent permitted by
law.

         3.8 TERMINATION OF COVENANTS. All covenants of the Company contained in
Section 3 of this Agreement shall expire and terminate as to each Investor upon
the earlier of (i) the effective date of the registration statement pertaining
to the Initial Offering; or (ii) upon (a) the sale, lease or other disposition
of all or substantially all of the assets of the Company or (b) an acquisition
of the Company by another corporation or entity by 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, provided
that this Section 3.8(ii)(b) shall not apply to a merger effected exclusively
for the purpose of changing the domicile of the Company (a "CHANGE IN CONTROL").

         3.9 USE OF PROCEEDS. The proceeds from the issuance and sale of the
Series B Stock pursuant to the Series B Purchase Agreement (the "PROCEEDS")
shall be used by the Company for its growth, modernization or expansion. The
Company shall provide each Investor which is a licensed Small Business
Investment Company (an "SBIC INVESTOR") and the Small Business Administration
(the "SBA") reasonable access to the Company's books and records for the purpose
of confirming the use of Proceeds.

         3.10 BUSINESS ACTIVITY. For a period of one (1) year following the
initial Closing under the Series B Purchase Agreement the Company shall not
change the nature of its business activity if such change would render the
Company ineligible as provided in 13 C.F.R. Section 107.720.

         3.11 COMPLIANCE. So long as any SBIC Investor holds any securities of
the Company, the Company will at all times comply with the non-discrimination
requirements of 13 C.F.R. Parts 112, 113 and 117.



                                      16.




         3.12 INFORMATION FOR SBIC INVESTOR. Within forty-five (45) days after
the end of each fiscal year and at such other times as an SBIC Investor may
reasonably request, the Company shall deliver to such SBIC Investor a written
assessment, in form and substance satisfactory to such SBIC Investor, of the
economic impact of such SBIC Investor's financing specifying the full-time
equivalent jobs created or retained in connection with such investment, and the
impact of the financing on the Company's business in terms of profits and on
taxes paid by the Company and its employees. Upon request, the Company agrees to
promptly provide each SBIC Investor with sufficient information to permit such
Investor to comply with their obligations under the Small Business Investment
Act of 1958, as amended, and the regulations promulgated thereunder and related
thereto; provided, however, each SBIC Investor agrees that it will protect any
information which the Company labels as confidential to the extent permitted by
law. Any submission of any financial information under this Section shall
include a certificate of the company's president, chief executive officer,
treasurer or chief financial officer.

         3.13 NUMBER OF HOLDERS OF VOTING SECURITIES. So long as any SBIC
Investor holds any securities purchased pursuant to the Stock Purchase Agreement
or issued by the Company with respect thereto, the Company shall notify each
SBIC Investor (i) at least 15 days prior to taking any action after which the
number of record holders of the Company's voting securities would be increased
from fewer than 50 to 50 or more; and (ii) of any other action or occurrence
after which the number of record holders of the Company's voting securities was
increased (or would increase) from fewer than 50 to 50 or more, as soon as
practicable after the Company becomes aware that such other action or occurrence
has occurred or is proposed to occur.

         3.14 REGULATORY PROBLEM. In the event that an SBIC Investor determines
that it has a Regulatory Problem (as defined below), it shall have the right to
transfer its shares of Series B Stock (or the Common Stock into which such
shares are convertible) without regard to any restrictions on transfer set forth
in this Agreement or the Series B Purchase Agreement (provided that the
transferee agrees to become a party to each such agreement), and the Company
shall take all such actions as are reasonably requested by such SBIC Investor in
order to (i) effectuate and facilitate any transfer by it of any securities of
the Company then held by it to any person designated by such SBIC Investor; (ii)
permit such SBIC Investor (or any of its affiliates) to exchange all or any
portion of any voting security then held by it on a share-for-share basis for
shares of a nonvoting security of the Company, which nonvoting security shall be
identical in all respects to the voting security exchanged for it, except that
it shall be nonvoting and shall be convertible into a voting security on such
terms as are requested by it in light of regulatory considerations then
prevailing; and (iii) amend this Agreement, the Company's Certificate of
Incorporation and Bylaws and to effectuate and reflect the foregoing. The
parties to this Agreement agree to vote all of the Company's securities held by
them in favor of such amendments and actions. For purposes of this Agreement, a
"REGULATORY PROBLEM" means any set of facts or circumstances wherein it has been
asserted by any governmental regulatory agency that such SBIC Investor is not
entitled to hold, or exercise any significant right with respect to, the
Registrable Securities.

         3.15 BOARD COMMITTEES. Any committee of the Company's Board of
Directors shall consist of at least one director selected by BAVP, L.P.



                                      17.




         3.16 OBSERVER RIGHTS. The Company shall invite a representative of
BAVP, L.P., (whether or not BAVP, L.P. has a representative on the Board of
Directors) to attend all meetings of its Board of Directors (and all committees
thereof) in a nonvoting 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.

SECTION 4. RIGHTS OF FIRST REFUSAL.

         4.1 SUBSEQUENT OFFERINGS. Each 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. Each Investor's pro rata share 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 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 any 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 security
of the Company; (ii) any security convertible, with or without consideration,
into any Common Stock, Preferred Stock or other 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 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 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 Investor shall have twenty
(20) 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 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 not all of the
Investors elect to purchase their pro rata share of the Equity Securities, then
the Company shall promptly notify in writing the Investors who do so elect and
shall offer such Investors the right to acquire such unsubscribed shares. The
Investors shall have ten (10) 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 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 Investor's rights were not exercised, at a price and
upon general terms and conditions materially no more favorable to the



                                      18.




purchasers thereof than specified in the Company's notice to the 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 Investors in the manner provided
above.

         4.4 TERMINATION AND WAIVER 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 Qualified OFFERING. The rights of first refusal established by
this Section 4 may be amended, or any provision waived, with the written consent
of Investors holding a majority of the Registrable Securities held by all
Investors and the agreement of the Company, or as permitted by Section 5.6.

         4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first refusal of
each 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 3,100,000 shares (or such greater number of shares
as may be approved in writing by the holders of a majority of the then
outstanding shares of Series Preferred (as defined in the Company's Certificate
of Incorporation), voting together as a single class) of Common Stock (and/or
options, warrants or other Common Stock purchase rights issued pursuant to such
options, warrants or other rights), as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like, issued or to be issued
after the Original Issue Date (as defined in the Company's Certificate of
Incorporation) to employees, officers or directors of, or consultants or
advisors to the Company or any subsidiary, pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board of Directors;

                  (b) any Equity Securities issued for consideration other than
cash pursuant to a merger, consolidation, acquisition or similar business
combination approved by the Board of Directors;

                  (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 or loan arrangement, or debt financing from a bank or similar financial
or lending institution approved by the Board of Directors;

                  (f) any Equity Securities that are issued by the Company
pursuant to the Company's Qualified Offering;


                                      19.




                  (g) up to 200,000 shares (or such greater number of shares as
may be approved in writing by the holders of a majority of the then outstanding
shares of Series Preferred (as defined in the Company's Certificate of
Incorporation), voting together as a single class) of Equity Securities issued
after the Original Issue Date in connection with strategic transactions
involving the Company and other entities, including (i) joint ventures,
manufacturing, marketing or distribution arrangements, or (ii) technology
transfer or development arrangements; provided that such strategic transactions
and the issuance of shares therein, has been approved by the Company's Board of
Directors; and

                  (h) any Series B Stock issued pursuant to the Purchase
Agreement.

SECTION 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 and Schedules
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 the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
been excluded.



                                      20.




         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 and the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the
Registrable Securities.

                  (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 written consent of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the Registrable Securities.

                  (c) Notwithstanding the foregoing, this Agreement may be
amended with only the written consent of the Company to include additional
purchasers of Series B Stock as "INVESTORS," "HOLDERS" and parties hereto.

                  (d) For the purposes of determining the number of Holder or
Investors entitled to vote or exercise any rights hereunder, the Company shall
be entitled to rely solely on the list of record holders of its stock as
maintained by or on behalf of the Company.

         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: (a) upon personal delivery to the
party to be notified; (b) when sent by confirmed electronic mail or facsimile if
sent during normal business hours of the recipient; if not, then on the next
business day; (c) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (d) 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 suit or action is instituted
to enforce any provision in this Agreement, 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.



                                      21.




         5.11 ADDITIONAL INVESTORS. Notwithstanding anything to the contrary
contained herein, if the Company shall issue additional shares of its Preferred
Stock pursuant to the Purchase Agreement or pursuant to the exercise of any
warrant to purchase shares of Preferred Stock, any purchaser of such shares of
Preferred Stock may become a party to this Agreement by executing and delivering
an additional counterpart signature page to this Agreement and shall be deemed
an "Investor" hereunder.

         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.

         5.13 TERMINATION OF PRIOR AGREEMENT. The Prior Agreement is hereby
terminated in its entirety and restated herein. Such termination and restatement
is effective upon the execution of this Agreement by the Company and the holders
of sixty-six and two-thirds percent (66-2/3%) in interest of the Series A Stock
and the holders of sixty-six and two-thirds (66-2/3%) in interest of the Series
B Stock held by the Prior Investors outstanding as of the date of this
Agreement. Upon such execution, all provisions of, rights granted and covenants
made in the Prior Agreement are hereby waived, released and terminated in their
entirety and shall have no further force and effect.



                      [THIS SPACE INTENTIONALLY LEFT BLANK]



                                      22.




         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:

STRUCTURAL GENOMIX, INC.


Signature: /s/ Herbert G. Mutter
          -------------------------------------------


Print Name: Herbert G. Mutter
           ------------------------------------------


Title: CFO
      -----------------------------------------------

Address:   10505 Roselle Street
           San Diego, CA 92121



                 [AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE]


INVESTOR:
Investor Name:                           ATLAS VENTURE FUND IV, L.P.
              -------------------------
                                         ATLAS VENTURE PARALLEL FUND V-A, C.V.
Signature:  /s/ Axel Bicham              ATLAS VENTURE PARALLEL FUND IV-B, C.V.
            ---------------------------
            Name:  Axel Bicham           ATLAS VENTURE ENTREPRENEURS' FUND V,
            Title:  VP                   L.P.
                                         By:  Atlas Venture Associates IV, L.P.
Address:    890 Winter Street                 its general partner
            ---------------------------
            Waltham, MA 02451            By:  Atlas Venture Associates IV, L.P.
            ---------------------------       its general partner


INVESTOR:

Investor Name:  Prospect Venture Partners
                --------------------------

Print Name:  /s/ A.E. Barkas
             -----------------------

Title:  CFO
        ----------------------------

Address: 10505 Roselle Street
         San Diego, CA 92121


                 [AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE]

INVESTOR:

DLJ Capital Corporation

/s/ Vijay K. Lathi
- ------------------------------
By:   Vijay K. Lathi
Its:  Director



Sprout Capital VIII, L.P.
By: DLJ Capital Corporation
Its: Managing General Partner

/s/ Vijay K. Lathi
- ------------------------------
By:   Vijay K. Lathi
Its:  Director



Sprout Venture Capital, L.P.
By: DLJ Capital Corporation
Its: General Partner

/s/ Vijay K. Lathi
- ------------------------------
By:   Vijay K. Lathi
Its:  Director



DLJ ESC II, L.P.
By: DLJ LBO Plans Management Corporation
Its: General Partner

/s/ Vijay K. Lathi
- ------------------------------
By:   Vijay K. Lathi
Its:  Attorney In Fact



Investor Name: Index Ventures/Parallel Entrepreneur Fund (Jersey) LP
               Index Ventures/(Delaware) LP
               Index Ventures/(Jersey) LP

Signature: /s/   Katherine Wilson
           --------------------------
           Name: Katherine Wilson
           Title: Director      on behalf of Index Ventures Associates I Limited
                                as General Partner
Address:   No. 1 Seaton Place
           St. Helier, Jersey


                 [AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE]

Investor Name:    Index Ventures/GMBH & Co. KG

Signature: /s/   Katherine Wilson
           --------------------------
           Name: Katherine Wilson
           Title: Director      on behalf of Index Ventures I (SLP) Limited As
                                Special Limited Partner
Address:   No. 1 Seaton Place
           St. Helier, Jersey



Investor Name: Index Ventures Management SA
               on behalf of
               Index Employee Investment Plan

Signature: /s/   David Rimer
           --------------------------
           Name: David Rimer
           Title: Partner
Address:



Investor Name: Vulcan Ventures Inc.

Signature: /s/   W. Lance Conn
           --------------------------
           Name: W. Lance Conn
           Title: Executive Vice President
Address:   505 5th Ave. S., Ste. 900
           Seattle, WA 98104



ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
a Delaware limited partnership
by:   ARE-QRS CORP.,
      a Maryland corporation, general partner

By:   /s/ Joel S. Marcus
   ----------------------------------
      Joel S. Marcus
      Chief Executive Officer

Joel Marcus and Etsuko Mason
135 N. Los Robles Avenue, Suite 250
Pasadena, CA 91101
Telephone: 626-578-0777
jmarcus@labspace.com and emason@labspace.com


                 [AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE]

Investor Name: Walter Dec

Signature: /s/   Walter Dec
           --------------------------
           Name:
           Title:
Address:   8 Marigold Lane
           Califon, NJ  07830



Investor Name: Coleman Swenson Hoffman Booth IV L.P.
               By: Its General Partner,
                   CSHB Ventures IV L.P.

Signature: /s/   Larry H.  Coleman
           --------------------------
           Name:  Larry H. Coleman
           Title: General Partner
Address:   237 Second Avenue South
           Franklin, TN  37064-2649



Investor Name: Spring Creek Partners

Signature: /s/   Duane R. Bach
           --------------------------
           Name: Duane R. Bach
           Title: GP
Address:      330 Spring Creek Road
              Rockford, IL  61107



Investor Name: Scinet Development & Holdings, Inc.

Signature: /s/   John E. Lamier
           --------------------------
           Name: John E. Lamier
           Title: President
Address:   3000 Carew Tower, 441 Vine Street
           Cincinnati, OH  45202



Investor Name: Stelios Papadapoulous

Signature: /s/ Stelios Papadapoulous
           --------------------------
           Name:
           Title:
Address:   3 Somerset Drive South
           Great Neck, NY 11020


                 [AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE]

Investor Name: John P. Schmidt

Signature: /s/   John P. Schmidt
           --------------------------
           Name: John P. Schmidt
           Title:
Address:   11 Honey Lake Drive
           Princeton, NJ 08540



Investor Name: Peter N. Reikes

Signature: /s/   Peter N. Reikes
           --------------------------
           Name: Peter N. Reikes
           Title:
Address:   200 East 64th Street, Apt. 23A
           New York, NY 10021



Investor Name: Frederick Frank

Signature: /s/   Frederick Frank
           --------------------------
           Name:
           Title:
Address:   109 East 91st Street
           New York, NY 10128



Investor Name: BAVP, L.P.

Signature: /s/   Louis C. Bock
           --------------------------
           Name: Louis C. Bock
           Title: Managing Partner
Address:   950 Tower Lane, Ste. 700
           Foster City, CA  94404



Investor Name: George E. Rossmann

Signature: /s/   George E. Rossmann
           --------------------------
           Name: George E. Rossmann
           Title:
Address:   219 Rosalie Court
           Los Gatos, CA 95032


                 [AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE]

Investor Name:     Amerindo Technology Growth Fund II Inc.

Signature: /s/   Gary Tanaka
           ---------------------------
           Name: Gary Tanaka
           Title: Director
Address:   c/o Amerindo Investment Advisors Inc.
           Attn: David Mainser
           399 Park Avenue, 22nd Floor
           New York, NY 10022



Investor Name: K. Flynn McDonald

Signature: /s/   K. Flynn McDonald
           --------------------------
           Name: K. Flynn McDonald
           Title:
Address:   67 Parker Avenue
           San Francisco, CA  94118



Investor Name: MDS Life Sciences Technology Barbados Investment Trust

Signature: /s/   Gillian R. Jordan
           --------------------------
           Name: Gillian R. Jordan
           Title: Trustee
Address:



Investor Name: MDS Life Sciences Technology Fund USA, L.P.
               By MDS Capital USA (GP) Inc., General Partner

Signature: /s/   Thomas E. Willett
           --------------------------
           Name: Thomas E. Willett
           Title: Director
Address:



Investor Name: MDS Life Sciences Technology Fund Limited Partnership, by its
               General Partner, MDS Sciences Technology Fund (GP) Inc.

Signature: /s/   G. Bedell/Anthony Flynn
           -----------------------------
           Name: G. Bedell/Anthony Flynn
           Title: Secretary/Vice President
Address:   100 International Boulevard
           Toronto Ontario M9W 6J6


                 [AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE]

Investor Name: For and on behalf of Cardinal Investments Limited
               Director of SC (GP) Inc., General Partner of
               SC Biotechnology Development Fund L.P.

Signature: /s/   William Walmsley and John Ackerley
           --------------------------------------------
           Name: William Walmsley and John Ackerley
           Title: Directors
Address:



Investor Name: OrbiMed Associates

Signature: /s/   Carl Gordon
           --------------------------
           Name: Carl Gordon
           Title: Partner
Address:   767 Third Avenue
           New York, NY 10017



Investor Name: Caduceus Private Investments, L.P.

Signature: /s/   Carl Gordon
           --------------------------
           Name: Carl Gordon
           Title: Partner
Address:   767 Third Avenue
           New York, NY 10017



Investor Name: SGC Partner I LLC

Signature: /s/   Christopher A. White
           --------------------------------------
           Name: Christopher A. White
           Title: Director
Address:   1221 Avenue of the Americas
           New York, NY  10020



VECTOR LATER-STAGE EQUITY FUND II, L.P.
By: Vector Fund Management II, L.L.C.
Its: General Partner

By:   /s/ Barclay A. Phillips
   ----------------------------------
      Barclay A. Phillips
      Its: Managing Director


                 [AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE]

VECTOR LATER-STAGE EQUITY FUND II (QP), L.P.
By: Vector Fund Management II, L.L.C.
Its: General Partner

By:   /s/ Barclay A. Phillips
   ----------------------------------
      Barclay A. Phillips
      Its: Managing Director



Investor Name: William Buchanan

Signature: /s/   William Buchanan
           --------------------------
           Name: William Buchanan
           Title:
Address:


                 [AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE]

Investor Name: John P. Dunphy

Signature: /s/   John P. Dunphy
           --------------------------
           Name: John P. Dunphy
           Title:
Address:   202 Bristol Road
           Wellesley, MA 02481



Investor Name: Kim Fennebresque

Signature: /s/   Kim Fennebresque
           --------------------------
           Name: Kim Fennebresque
           Title:
Address:



Investor Name: James M. Hesburgh

Signature: /s/   James M. Hesburgh
           --------------------------
           Name: James M. Hesburgh
           Title: Managing Director
Address:



Investor Name: Meriwether F. Lewis

Signature: /s/   Meriwether F. Lewis
           --------------------------
           Name: Meriwether F. Lewis
           Title:
Address:



Investor Name: David M. Malcolm

Signature: /s/   David M. Malcolm
           --------------------------
           Name: David M. Malcolm
           Title:
Address:


                 [AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE]

Investor Name: Charles E. Mather

Signature: /s/   Charles E. Mather
           ---------------------------
           Name: Charles E. Mather
           Title:
Address:   115 Central Park W.
           New York, NY 10023



Investor Name: Abi Subramanian

Signature: /s/   Abi Subramanian
           --------------------------
           Name: Abi Subramanian
           Title:
Address:   1221 Avenue of the Americas
           New York, NY  10020



Investor Name: Rutter Investments L.P.

Signature: /s/   William J. Rutter
           --------------------------
           Name: William J. Rutter
           Title: General Partner
Address:   One Market, Suite 1475, Steuart Tower
           San Francisco, CA 94105



Investor Name: William J. Rutter Revocable Trust U/A/D 04/11/02

Signature: /s/   William J. Rutter
           --------------------------
           Name: William J. Rutter
           Title: General Partner
Address:   One Market, Suite 1475, Steuart Tower
           San Francisco, CA 94105



Investor Name: Andrej Sali

Signature: /s/   Andrej Sali
           --------------------------
           Name: Andrej Sali
           Title:
Address:   694-A De Haro Street
           San Francisco, CA 94105


                 [AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE]

Investor Name: Wayne A. Hendrickson

Signature: /s/   Wayne A. Hendrickson
           --------------------------
           Name: Wayne A. Hendrickson
           Title:
Address:



Investor Name: Barry Honig

Signature: /s/   Barry Honig
           --------------------------
           Name:
           Title:
Address:   14 Castle Road
           Irvington, NY 10533



Investor Name: GC&H Investments

Signature: /s/   John L. Cardoza
           --------------------------
           Name: John L. Cardoza
           Title: Executive Partner
Address:   One Maritime Plaza, #2000
           San Francisco, CA 94111



Investor Name: Ken A Dill

Signature: /s/   Ken A Dill
           --------------------------
           Name: Ken A Dill
           Title: Professor
Address:   P.O. Box 593
           Montara, CA 94037



Investor Name: Christopher S. Henney

Signature: /s/   Christopher S. Henney
           ---------------------------
           Name: Christopher S. Henney
           Title:
Address:   414 39th Ave. East
           Seattle, WA 98112


                 [AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
                                 SIGNATURE PAGE]




                                    EXHIBIT A

                              SCHEDULE OF INVESTORS


                      INVESTORS
- ---------------------------------------------
BAVP, L.P.
c/o BA Ventures Partners LLC
950 Tower Lane, Suite 700
Foster City, CA  94404

- ---------------------------------------------
AMERINDO TECHNOLOGY GROWTH FUND
II INC.
c/o Amerindo Investment Advisors Inc.
399 Park Avenue, 22nd Floor
New York, NY  10022

- ---------------------------------------------
K. FLYNN MCDONALD
67 Parker Avenue
San Francisco, CA  94118

- ---------------------------------------------
MDS LIFE SCIENCES TECHNOLOGY FUND
USA, L.P.
44 Whippany Road
Morristown, NJ  07960

100 International Boulevard
Toronto Ontario M9W 6J6
Canada

- ---------------------------------------------
MDS LIFE SCIENCES TECHNOLOGY
BARBADOS INVESTMENT TRUST
P.O. Box 261, Bush Hill
Bay Street
Bridgetown, Barbados

100 International Boulevard
Toronto Ontario M9W 6J6
Canada

- ---------------------------------------------
MDS LIFE SCIENCES TECHNOLOGY FUND
LIMITED PARTNERSHIP
100 International Boulevard
Toronto Ontario M9W 6J6
Canada



                                      A-1.



                      INVESTORS
- ---------------------------------------------
SC BIOTECHNOLOGY DEVELOPMENT
FUND LP
One Capital Place
P.O. Box 897 GT
Grand Cayman
British Cayman Islands

100 International Boulevard
Toronto Ontario M9W 6J6
Canada

- ---------------------------------------------
CADUCEUS PRIVATE INVESTMENTS, LP
767 Third Avenue, 30th Floor
New York, NY 10017

- ---------------------------------------------
ORBIMED ASSOCIATES, LLC
767 Third Avenue, 30th Floor
New York, NY 10017

- ---------------------------------------------
SGC PARTNERS I LLC
1221 Avenue of the Americas, 15th Floor
New York, NY  10020

- ---------------------------------------------
VECTOR LATER-STAGE EQUITY FUND II
1751 Lake Cook Road, Suite 350
Deerfield, IL  60015

- ---------------------------------------------
VECTOR LATER-STAGE EQUITY FUND
(Q.P.) II
1751 Lake Cook Road, Suite 350
Deerfield, IL  60015

- ---------------------------------------------
ATLAS VENTURE FUND IV, L.P.
890 Winter Street
Suite 320
Waltham, MA  02451

- ---------------------------------------------
ATLAS VENTURE PARALLEL FUND IV-A
C.V.
890 Winter Street
Suite 320
Waltham, MA  02451



                                      A-2.




                      INVESTORS
- ---------------------------------------------
ATLAS VENTURE PARALLEL FUND IV-B,
C.V.
890 Winter Street
Suite 320
Waltham, MA  02451

- ---------------------------------------------
ATLAS VENTURE ENTREPRENEURS' FUND
IV, L.P.
890 Winter Street
Suite 320
Waltham, MA  02451

- ---------------------------------------------
PROSPECT VENTURE PARTNERS, L.P.
435 Tasso Street, Suite 200
Palo Alto, CA  94301

- ---------------------------------------------
DLJ CAPITAL CORP.
3000 Sand Hill Road, Bldg 3, Suite 170
Menlo Park, CA  94025

- ---------------------------------------------
SPROUT CAPITAL VIII, L.P.
3000 Sand Hill Road, Bldg 3, Suite 170
Menlo Park, CA  94025

- ---------------------------------------------
SPROUT VENTURE CAPITAL, L.P.
3000 Sand Hill Road, Bldg 3, Suite 170
Menlo Park, CA  94025

- ---------------------------------------------
INDEX VENTURES I (JERSEY) L.P.
c/o Mourant & Co.
P.O. Box 87
22 Grenville Street
St. Helier
Jersey JE4 8PX
Channel Islands


                                      A-3.



                      INVESTORS
- ---------------------------------------------
INDEX VENTURES I (DELAWARE) L.P.
c/o Mourant & Co.
P.O. Box 87
22 Grenville Street
St. Helier
Jersey JE4 8PX
Channel Islands

- ---------------------------------------------
INDEX VENTURES I PARALLEL
ENTREPRENEUR FUND (JERSEY)
L.P.
c/o Mourant & Co.
P.O. Box 87
22 Grenville Street
St. Helier
Jersey JE4 8PX
Channel Islands

- ---------------------------------------------
INDEX VENTURES I GMBH & CO. KG
c/o Mourant & Co.
P.O. Box 87
22 Grenville Street
St. Helier
Jersey JE4 8PX
Channel Islands

- ---------------------------------------------
INDEX VENTURES MANAGEMENT SA on
behalf of INDEX EMPLOYEE INVESTMENT
PLAN
c/o Index Venture Management
2 rue de Jargonnant
1207 Geneva
Switzerland

- ---------------------------------------------
VULCAN VENTURES INC.
110 110th Avenue Northeast, Suite 550
Bellevue, WA  98004

- ---------------------------------------------
ALEXANDRIA REAL ESTATE EQUITIES
135 N. Los Robles Avenue, Suite 250
Pasadena, CA  91101



                                      A-4.




                      INVESTORS
- ---------------------------------------------
COLEMAN SWENSON HOFFMAN BOOTH
IV L.P.
237 Second Avenue South
Franklin, TN  37064

- ---------------------------------------------
SPRING CREEK PARTNERS
330 Spring Creek Road
Rockford, IL  61107

- ---------------------------------------------
SCINET DEVELOPMENT & HOLDINGS,
INC.
3000 Carew Tower
441 Vine Street
Cincinnati, OH  45202

- ---------------------------------------------
STELIOS PAPADAPOULOUS
3 Somerset Drive South
Great Neck, NY  11020

- ---------------------------------------------
PETER REIKES
200 East 64th Street, Apt. 23A
New York, NY 10128

- ---------------------------------------------
JOHN P. SCHMIDT
11 Honey Lake Drive
Princeton, NJ 08540

- ---------------------------------------------
DR. CHRISTOPHER S. HENNEY
414 39th Ave. East
Seattle, WA 98112

- ---------------------------------------------
FREDERICK FRANK
109 East 91st Street
New York, NY 10128

- ---------------------------------------------
DR. JOSHUA LEDERBERG
The Rockefellar University
Suite 115
1230 York Avenue
New York, NY  10021
(212) 327-7809


                                      A-5.



                      INVESTORS
- -------------------------------------------------
DR. WAYNE HENDRICKSON
Columbia University
Department of Biochemistry & Molecular Biophysics
630 West 186th Street
New York, NY  10032
(212) 305-3456

- -------------------------------------------------
DR. BARRY HONIG
Department of Biochemistry and
Molecular Biophysics
College of Physicians and Surgeons
Columbia University
New York, NY  10032
(212) 305-7970

- -------------------------------------------------
GC&H INVESTEMENTS
One Maritime Plaza
20th Floor
San Francisco, CA  94111
Kenneth L. Guernsey Esq.
Jim Kindler
(415) 693-2000

- -------------------------------------------------
WALTER DEC
8 Marigold Lane
Califon, NJ  07830
(908) 832-6323

- -------------------------------------------------
GEORGE E. ROSSMAN
658 High Street
Palo Alto, CA  943011
(650) 330-0775

- -------------------------------------------------
WILLIAM BUCHANAN
SG Cowen Securities Corporation
1221 Avenue of the Americas
New York, NY  10020
(212) 278-6000

- -------------------------------------------------
JOHN P. DUNPHY
202 Bristol Road
Wellesley, MA 02481


                                      A-6.




                      INVESTORS
- ---------------------------------------------
KIM FENNEBRESQUE
SG Cowen Securities Corporation
1221 Avenue of the Americas
New York, NY  10020
(212) 278-6000

- ---------------------------------------------
JAMES M. HESBURGH
SG Cowen Securities Corporation
1221 Avenue of the Americas
New York, NY  10020
(212) 278-6000

- ---------------------------------------------
MERIWETHER F. LEWIS
SG Cowen Securities Corporation
1221 Avenue of the Americas
New York, NY  10020
(212) 278-6000

- ---------------------------------------------
DAVID M. MALCOLM
SG Cowen Securities Corporation
1221 Avenue of the Americas
New York, NY  10020
(212) 278-6000

- ---------------------------------------------
CHARLES E. MATHER
SG Cowen Securities Corporation
1221 Avenue of the Americas
New York, NY  10020
(212) 278-6000

- ---------------------------------------------
ABI SUBRAMANIAN
SG Cowen Securities Corporation
1221 Avenue of the Americas
New York, NY  10020

- ---------------------------------------------
RUTTER INVESTMENTS L.P.
c/o Synergenics, LLC
One Market, Suite 1475
Steuart Tower
San Francisco, CA 94105


                                      A-7.




                      INVESTORS
- ---------------------------------------------
WILLIAM J. RUTTER REVOCABLE TRUST
c/o Synergenics, LLC
One Market, Suite 1475
Steuart Tower
San Francisco, CA 94105

- ---------------------------------------------
ANDREJ SALI
694-A De Haro Street
San Francisco, CA 94105

- ---------------------------------------------
KEN A DILL AND JOLAND SCHREURS
P.O. Box 0593
Montara, CA 94037



                                      A-8.

EX-10.1

                                                                    EXHIBIT 10.1

                            SGX PHARMACEUTICALS, INC.

                               INDEMNITY AGREEMENT

      THIS INDEMNITY AGREEMENT (this "AGREEMENT") is made and entered into this
[__] day of [_______], 2005 by and between SGX PHARMACEUTICALS, INC., a Delaware
corporation (the "COMPANY"), and [_____________] ("AGENT").

                                    RECITALS

      WHEREAS, Agent performs a valuable service to the Company in [HIS/HER]
capacity as [_____________] of the Company;

      WHEREAS, the Company's Amended and Restated Bylaws (the "BYLAWS"), which
were approved by the stockholders of the Company, provide for the
indemnification of the directors, officers, employees and other agents of the
Company, including persons serving at the request of the Company in such
capacities with other corporations or enterprises, as authorized by the Delaware
General Corporation Law (the "DGCL");

      WHEREAS, the Bylaws and the DGCL, by their non-exclusive nature, permit
contracts between the Company 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 Company, the Company has determined and agreed to enter into this
Agreement with Agent.

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

                                    AGREEMENT

      1. SERVICES TO THE COMPANY. Agent will serve, at the will of the Company
or under separate contract, if any such contract exists, as [_____________] of
the Company or as a director, executive officer or other fiduciary of an
affiliate of the Company (including any employee benefit plan of the Company)
faithfully and to the best of Agent's ability so long as Agent is duly elected
and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Company 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 Company or any affiliate shall have no obligation
under this Agreement to continue Agent in any such position.

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

                                       1.


                                                                    EXHIBIT 10.1

      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 Company 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 Agent 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
Company) 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 the Company, or is or
was serving or at any time serves at the request of the Company 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 Company under the non-exclusivity provisions of the DGCL and Section 43 of
the Bylaws.

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

            (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 Company
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934, as amended, 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 Company 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
Company 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 Company or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Company, (iii) such indemnification is provided by the
Company, in its sole discretion, pursuant to the powers vested in the Company

                                       2.


                                                                    EXHIBIT 10.1

under the DGCL or any other applicable law, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.

      5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Company contained herein shall continue during the period Agent is a director,
officer, employee or other agent of the Company (or is or was serving at the
request of the Company 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 Company 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 Company shall indemnify Agent for the portion thereof to which Agent is
entitled.

      7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than 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 Company under this
Agreement, notify the Company of the commencement thereof; but the omission so
to notify the Company 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 Company of the commencement
thereof:

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

            (b) except as otherwise provided below, the Company 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 Company to Agent of its
election to assume the defense thereof, the Company 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 Company 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 Company, (ii)
Agent shall have reasonably concluded, and so notified the Company, that there
is an actual conflict of interest between the Company and Agent in the conduct
of the defense of such action or (iii) the Company shall not in fact have
employed counsel to assume the defense of such action, in each of which cases
the fees and expenses of Agent's separate counsel shall be at the expense of the
Company. The Company shall not be entitled to assume the defense of any action,
suit or proceeding brought by or on behalf of the Company or as to which Agent
shall have made the conclusion provided for in clause (ii) above; and

                                       3.


                                                                    EXHIBIT 10.1

            (c) the Company 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
Company 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 Company 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 DGCL 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
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
Agent's 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 Company) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Company (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 Company (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 Company
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 Company
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 Company's Amended and
Restated Certificate of Incorporation or Bylaws, each as may be amended from
time to time, agreement, vote of stockholders or directors, or otherwise, both
as to action in Agent's official capacity and as to action in another capacity
while holding office.

      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
Company or to serve at the request of the Company as a director, officer,
employee or other agent of another corporation,

                                       4.


                                                                    EXHIBIT 10.1

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 Company 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 Company expressly to assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company 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 Company shall nevertheless indemnify Agent to
the fullest extent provided by the Bylaws, the DGCL 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; FACSIMILE. 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. Facsimile signatures shall be as effective as original
signatures.

      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, (ii) when sent by confirmed electronic mail, with verification of
receipt, or by facsimile, in either case, if sent during regular business hours;
if not, then on the next business day; or (iii) upon the third business day
after the date on which such communication was mailed if mailed by certified or
registered mail, return receipt requested, with postage prepaid.

            (a) All communications shall be delivered to Agent at the address
indicated on the signature page hereof, or at such other address as Agent shall
designate by ten days' advance written notice to the Company.

            (b) All communications shall be delivered to the Company at 10505
Roselle Street, San Diego, California 92121, or such other address as may have
been furnished to Agent by the Company.

                                       5.


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

                                        SGX PHARMACEUTICALS, INC.

                                        By:_____________________________________

                                        Title:__________________________________

                                        AGENT

                                        ________________________________________

                                        Address:
                                        ________________________________________

                                        ________________________________________

                     [SIGNATURE PAGE TO INDEMNITY AGREEMENT]

EX-10.2

                                                                    EXHIBIT 10.2

                            STRUCTURAL GENOMIX, INC.

                        2000 EQUITY INCENTIVE PLAN
                                (AS AMENDED)

                      INITIALLY ADOPTED FEBRUARY 18, 2000
               INITIALLY APPROVED BY STOCKHOLDERS MARCH 29, 2000


                      TERMINATION DATE: FEBRUARY 17, 2010


1.    PURPOSES.

      (a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive Stock
Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.

      (b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a means
by which eligible recipients of Stock Awards may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of the
following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.

      (c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.


                                       1

2.    DEFINITIONS.

      (a) "AFFILIATE" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

      (b) "BOARD" means the Board of Directors of the Company.

      (c) "CODE" means the Internal Revenue Code of 1986, as amended.

      (d) "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).

      (e) "COMMON STOCK" means the common stock of the Company.

      (f) "COMPANY" means Structural GenomiX, Inc., a Delaware corporation.

      (g) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company for their services as Directors
or Directors who are merely paid a director's fee by the Company for their
services as Directors.

      (h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.

      (i) "COVERED EMPLOYEE" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.

      (j) "DIRECTOR" means a member of the Board of Directors of the Company.

      (k) "DISABILITY" means (i) before the Listing Date, the inability of a
person, in the opinion of a qualified physician acceptable to the Company, to
perform the major duties of that


                                        2

person's position with the Company or an Affiliate of the Company because of the
sickness or injury of the person.

      (l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.

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

      (n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:

            (i) If the Common Stock is listed on any established stock exchange
or traded on the NASDAQ National Market or the NASDAQ SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.

            (ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.

            (iii) Prior to the Listing Date, the value of the Common Stock shall
be determined in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations.

      (o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

      (p) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.

      (q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a Consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a


                                       3

business relationship as to which disclosure would be required under Item 404(b)
of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for
purposes of Rule 16b-3.

      (r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.

      (s) "OFFICER" means (i) before the Listing Date, any person designated by
the Company as an officer and (ii) on and after the Listing Date, a person who
is an officer of the Company within the meaning of Section 16 of the Exchange
Act and the rules and regulations promulgated thereunder.

      (t) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.

      (u) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.

      (v) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.

      (w) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.

      (x) "PARTICIPANT" means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding Stock
Award.

      (y) "PLAN" means this Structural GenomiX, Inc. 2000 Equity Incentive Plan.

      (z) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.

      (aa) "SECURITIES ACT" means the Securities Act of 1933, as amended.

      (bb) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.

      (cc) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.


                                       4

      (dd) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.

3.    ADMINISTRATION.

      (a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).

      (b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

            (i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.

            (ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.

            (iii) To amend the Plan or a Stock Award as provided in Section 12.

            (iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.

      (C) DELEGATION TO COMMITTEE.

            (i) GENERAL. The Board may delegate administration of the Plan to a
Committee or Committees of one (1) or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.

            (ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee


                                       5

may consist solely of two or more Outside Directors, in accordance with Section
162(m) of the Code, and/or solely of two or more Non-Employee Directors, in
accordance with Rule 16b-3. Within the scope of such authority, the Board or the
Committee may (1) delegate to a committee of one or more members of the Board
who are not Outside Directors the authority to grant Stock Awards to eligible
persons who are either (a) not then Covered Employees and are not expected to be
Covered Employees at the time of recognition of income resulting from such Stock
Award or (b) not persons with respect to whom the Company wishes to comply with
Section 162(m) of the Code and/or (2) delegate to a committee of one or more
members of the Board who are not Non-Employee Directors the authority to grant
Stock Awards to eligible persons who are not then subject to Section 16 of the
Exchange Act.

      (d) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.

4.    SHARES SUBJECT TO THE PLAN.

      (a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate Three Million Five
Hundred Ten Thousand (3,510,000) shares of Common Stock.

      (b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for any
reason expire or otherwise terminate, in whole or in part, without having been
exercised in full, the shares of Common Stock not acquired under such Option
shall revert to and again become available for issuance under the Plan. In
addition, if any shares of Common Stock issued under the Plan shall for any
reason be repurchased or reacquired by the Company because they have not vested
under the terms of the Stock Award Agreement governing such shares, then any and
all shares of Common Stock so repurchased or reacquired shall revert to and
again become available for issuance under the Plan for Stock Awards other than
Incentive Stock Options.

      (c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.

      (d) SHARE RESERVE LIMITATION. Prior to the Listing Date and to the extent
then required by Section 260.140.45 of Title 10 of the California Code of
Regulations, the total number of shares of Common Stock issuable upon exercise
of all outstanding Options and the total number of shares of Common Stock
provided for under any stock bonus or similar plan of the Company shall not
exceed the applicable percentage as calculated in accordance with the conditions
and exclusions of Section 260.140.45 of Title 10 of the California Code of
Regulations, based on the shares of Common Stock of the Company that are
outstanding at the time the calculation is made (generally thirty percent (30%)
of the then outstanding shares of the issuer, unless a higher percentage is
approved by at least two-thirds of the outstanding shares entitled to vote).


                                       6

5.    ELIGIBILITY.

      (a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may be
granted only to Employees. Stock Awards other than Incentive Stock Options may
be granted to Employees, Directors and Consultants.

      (b) TEN PERCENT STOCKHOLDERS.

            (i) A Ten Percent Stockholder shall not be granted an Incentive
Stock Option unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of the Common Stock at the date of
grant and the Option is not exercisable after the expiration of five (5) years
from the date of grant.

            (ii) Prior to the Listing Date, a Ten Percent Stockholder shall not
be granted a Nonstatutory Stock Option unless the exercise price of such Option
is at least (i) one hundred ten percent (110%) of the Fair Market Value of the
Common Stock at the date of grant or (ii) such lower percentage of the Fair
Market Value of the Common Stock at the date of grant as is permitted by Section
260.140.41 of Title 10 of the California Code of Regulations at the time of the
grant of the Option.

            (iii) Prior to the Listing Date, a Ten Percent Stockholder shall not
be granted a restricted stock purchase award unless the purchase price of the
restricted stock is at least (i) one hundred percent (100%) of the Fair Market
Value of the Common Stock at the date of grant or (ii) such lower percentage of
the Fair Market Value of the Common Stock at the date of grant as is permitted
by Section 260.140.41 of Title 10 of the California Code of Regulations at the
time of the grant of the restricted stock purchase award.

      (c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options covering more than six hundred thousand
(600,000) shares of Common Stock during any calendar year. This subsection 5(c)
shall not apply prior to the Listing Date and, following the Listing Date, this
subsection 5(c) shall not apply until (i) the earliest of: (1) the first
material modification of the Plan (including any increase in the number of
shares of Common Stock reserved for issuance under the Plan in accordance with
Section 4); (2) the issuance of all of the shares of Common Stock reserved for
issuance under the Plan; (3) the expiration of the Plan; or (4) the first
meeting of stockholders at which Directors are to be elected that occurs after
the close of the third calendar year following the calendar year in which
occurred the first registration of an equity security under Section 12 of the
Exchange Act; or (ii) such other date required by Section 162(m) of the Code and
the rules and regulations promulgated thereunder.

      (d) CONSULTANTS.

            (i) Prior to the Listing Date, a Consultant shall not be eligible
for the grant of a Stock Award if, at the time of grant, either the offer or the
sale of the Company's securities to such Consultant is not exempt under Rule 701
of the Securities Act ("Rule 701") because of the


                                       7

nature of the services that the Consultant is providing to the Company, or
because the Consultant is not a natural person, or as otherwise provided by Rule
701, unless the Company determines that such grant need not comply with the
requirements of Rule 701 and will satisfy another exemption under the Securities
Act as well as comply with the securities laws of all other relevant
jurisdictions.

            (ii) From and after the Listing Date, a Consultant shall not be
eligible for the grant of a Stock Award if, at the time of grant, a Form S-8
Registration Statement under the Securities Act ("Form S-8") is not available to
register either the offer or the sale of the Company's securities to such
Consultant because of the nature of the services that the Consultant is
providing to the Company, or because the Consultant is not a natural person, or
as otherwise provided by the rules governing the use of Form S-8, unless the
Company determines both (i) that such grant (A) shall be registered in another
manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or
(B) does not require registration under the Securities Act in order to comply
with the requirements of the Securities Act, if applicable, and (ii) that such
grant complies with the securities laws of all other relevant jurisdictions.

            (iii) Rule 701 and Form S-8 generally are available to consultants
and advisors only if (i) they are natural persons; (ii) they provide bona fide
services to the issuer, its parents, its majority-owned subsidiaries or
majority-owned subsidiaries of the issuer's parent; and (iii) the services are
not in connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the issuer's securities.

6.    OPTION PROVISIONS.

      Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:

      (a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Option granted prior to the Listing Date shall be
exercisable after the expiration of ten (10) years from the date it was granted,
and no Incentive Stock Option granted on or after the Listing Date shall be
exercisable after the expiration of ten (10) years from the date it was granted.

      (b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the provisions
of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of
each Incentive Stock Option shall be not less than one hundred percent (100%) of
the Fair Market Value of the Common Stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may
be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or


                                       8

substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

      (c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Nonstatutory Stock Option granted prior to the Listing Date shall
be not less than eighty-five percent (85%) of the Fair Market Value of the
Common Stock subject to the Option on the date the Option is granted. The
exercise price of each Nonstatutory Stock Option granted on or after the Listing
Date shall be determined by the Board. Notwithstanding the foregoing, a
Nonstatutory Stock Option may be granted with an exercise price lower than that
set forth in the preceding sentence if such Option is granted pursuant to an
assumption or substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.

(d) CONSIDERATION. The purchase price of Common Stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder, or (3) in any other form of legal
consideration that may be acceptable to the Board. Unless otherwise specifically
provided in the Option, the purchase price of Common Stock acquired pursuant to
an Option that is paid by delivery to the Company of other Common Stock
acquired, directly or indirectly from the Company, shall be paid only by shares
of the Common Stock of the Company that have been held for more than six (6)
months (or such longer or shorter period of time required to avoid a charge to
earnings for financial accounting purposes). At any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.

      In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.

      (e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.

      (f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option granted prior to the Listing Date shall not be transferable except by
will or by the laws of descent and distribution and, to the extent provided in
the Option Agreement, to such further extent as permitted by Section
260.140.41(d) of Title 10 of the California Code of Regulations at the time of
the grant of the Option, and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder or, if applicable, a permitted transferee.
A Nonstatutory Stock Option


                                       9

granted on or after the Listing Date shall be transferable to the extent
provided in the Option Agreement. If the Nonstatutory Stock Option does not
provide for transferability, then the Nonstatutory Stock Option shall not be
transferable except by will or by the laws of descent and distribution and shall
be exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing, the Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall thereafter be
entitled to exercise the Option.

      (g) VESTING GENERALLY. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.

      (h) MINIMUM VESTING PRIOR TO THE LISTING DATE. Notwithstanding the
foregoing subsection 6(g), to the extent that the following restrictions on
vesting are required by Section 260.140.41(f) of Title 10 of the California Code
of Regulations at the time of the grant of the Option, then:

            (i) Options granted prior to the Listing Date to an Employee who is
not an Officer, Director or Consultant shall provide for vesting of the total
number of shares of Common Stock at a rate of at least twenty percent (20%) per
year over five (5) years from the date the Option was granted, subject to
reasonable conditions such as continued employment; and

            (ii) Options granted prior to the Listing Date to Officers,
Directors or Consultants may be made exercisable, subject to conditions such as
continued employment or performance criteria, at any time or during any period
established by the Company.

      (i) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement, which period shall not be less than thirty (30) days for Options
granted prior to the Listing Date unless such termination is for "cause," as
defined in the Optionholder's Option Agreement), or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, after termination,
the Optionholder does not exercise his or her Option within the time specified
in the Option Agreement, the Option shall terminate.

      (j) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionholder's Continuous Service (other than upon the Optionholder's death or
Disability) would be prohibited


                                       10

at any time solely because the issuance of shares of Common Stock would violate
the registration requirements under the Securities Act or other applicable
securities law, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.

      (k) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement, which period shall not be less than six (6) months for
Options granted prior to the Listing Date) or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.

      (l) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
Option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement, which period shall not be less than six (6) months for
Options granted prior to the Listing Date) or (2) the expiration of the term of
such Option as set forth in the Option Agreement. If, after death, the Option is
not exercised within the time specified herein, the Option shall terminate.

      (m) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Subject to the "Repurchase Limitation" in subsection 10(h), any
unvested shares of Common Stock so purchased may be subject to a repurchase
option in favor of the Company or to any other restriction the Board determines
to be appropriate.

      (n) RIGHT OF REPURCHASE. Subject to the "Repurchase Limitation" in
subsection 10(h), the Option may, but need not, include a provision whereby the
Company may elect, prior to the Listing Date, to repurchase all or any part of
the vested shares of Common Stock acquired by the Optionholder pursuant to the
exercise of the Option.

      (o) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal


                                       11

following receipt of notice from the Optionholder of the intent to transfer all
or any part of the shares of Common Stock received upon the exercise of the
Option.

      (p) RE-LOAD OPTIONS.

            (i) Without in any way limiting the authority of the Board to make
or not to make grants of Options hereunder, the Board shall have the authority
(but not an obligation) to include as part of any Option Agreement a provision
entitling the Optionholder to a further Option (a "Re-Load Option") in the event
the Optionholder exercises the Option evidenced by the Option Agreement, in
whole or in part, by surrendering other shares of Common Stock in accordance
with this Plan and the terms and conditions of the Option Agreement. Unless
otherwise specifically provided in the Option, the Optionholder shall not
surrender shares of Common Stock acquired, directly or indirectly from the
Company, unless such shares have been held for more than six (6) months (or such
longer or shorter period of time required to avoid a charge to earnings for
financial accounting purposes).

            (ii) Any such Re-Load Option shall (1) provide for a number of
shares of Common Stock equal to the number of shares of Common Stock surrendered
as part or all of the exercise price of such Option; (2) have an expiration date
which is the same as the expiration date of the Option the exercise of which
gave rise to such Re-Load Option; and (3) have an exercise price which is equal
to one hundred percent (100%) of the Fair Market Value of the Common Stock
subject to the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option shall be subject to the same
exercise price and term provisions heretofore described for Options under the
Plan.

            (iii) Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on the exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.

7.    PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

      (a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:


                                       12

            (i) CONSIDERATION. A stock bonus may be awarded in consideration for
past services actually rendered to the Company or an Affiliate for its benefit.

            (ii) VESTING. Shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to an automatic unvested share
reacquisition right in favor of the Company in accordance with a vesting
schedule to be determined by the Board, as described further in Section
7(a)(iii) below. Stock bonus awards granted prior to the Listing Date to an
Employee who is not an Officer, Director or Consultant shall provide for vesting
of the total number of shares of Common Stock at a rate of at least twenty
percent (20%) per year over five (5) years from the date the stock bonus award
was granted, subject to reasonable conditions such as continued employment.
Stock bonus awards granted prior to the Listing Date to Officers, Directors or
Consultants may be made exercisable, subject to conditions such as continued
employment or performance criteria, at any time or during any period established
by the Company.

            (iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event
a Participant's Continuous Service terminates, the Company shall automatically
reacquire all of the shares of Common Stock held by the Participant which have
not vested as of the date of termination under the terms of the stock bonus
agreement.

            (iv) RIGHT OF REPURCHASE. The stock bonus award may, but need not,
include a provision whereby the Company may elect, prior to the Listing Date, to
repurchase all or any part of the vested shares of Common Stock granted to the
Participant pursuant to a stock bonus award.

      (b) RESTRICTED STOCK PURCHASE AWARDS. Each restricted stock purchase
agreement shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate. The terms and conditions of the restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate restricted stock purchase agreements need not be
identical, but each restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:

            (i) PURCHASE PRICE. Subject to the provisions of subsection 5(b)
regarding Ten Percent Stockholders, the purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. For restricted stock
awards made prior to the Listing Date, the purchase price shall not be less than
eighty-five percent (85%) of the Common Stock's Fair Market Value on the date
such award is made or at the time the purchase is consummated. For restricted
stock awards made on or after the Listing Date, the purchase price shall be
determined by the Board.

            (ii) CONSIDERATION. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other similar arrangement with the Participant; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion; provided, however, that at any time that the Company is


                                       13

incorporated in Delaware, the payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by deferred
payment.

            (iii) VESTING. Subject to the "Repurchase Limitation" in subsection
10(h), shares of Common Stock acquired under the restricted stock purchase
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board,
as described further in Section 7(b)(iv) below. Restricted stock purchase awards
granted prior to the Listing Date to an Employee who is not an Officer, Director
or Consultant shall provide for vesting of the total number of shares of Common
Stock at a rate of at least twenty percent (20%) per year over five (5) years
from the date the restricted stock purchase award was granted, subject to
reasonable conditions such as continued employment. Restricted stock purchase
awards granted prior to the Listing Date to Officers, Directors or Consultants
may be made exercisable, subject to conditions such as continued employment or
performance criteria, at any time or during any period established by the
Company.

            (iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject to the
"Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the restricted stock
purchase agreement.

            (v) RIGHT OF REPURCHASE. The restricted stock purchase agreement
may, but need not, include a provision whereby the Company may elect, prior to
the Listing Date, to repurchase all or any part of the vested shares of Common
Stock granted to the Participant pursuant a restricted stock purchase award.

            (vi) TRANSFERABILITY. For a restricted stock purchase award made
before the Listing Date, rights to acquire shares of Common Stock under the
restricted stock purchase agreement shall not be transferable except by will or
by the laws of descent and distribution and shall be exercisable during the
lifetime of the Participant only by the Participant. For a restricted stock
award made on or after the Listing Date, rights to acquire shares of Common
Stock under the restricted stock purchase agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the
restricted stock purchase agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the restricted stock purchase
agreement remains subject to the terms of the restricted stock purchase
agreement.

8.    COVENANTS OF THE COMPANY.

      (a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.

      (b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Stock Awards and to issue and sell shares of Common
Stock upon exercise of


                                       14

the Stock Awards; provided, however, that this undertaking shall not require the
Company to register under the Securities Act the Plan, any Stock Award or any
Common Stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of Common Stock under the Plan, the Company
shall be relieved from any liability for failure to issue and sell Common Stock
upon exercise of such Stock Awards unless and until such authority is obtained.

9.    USE OF PROCEEDS FROM STOCK.

      Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.

10.   MISCELLANEOUS.

      (a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest,
notwithstanding the provisions in the Stock Award stating the time at which it
may first be exercised or the time during which it will vest.

      (b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.

      (c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, for any reason or no
reason, (ii) the service of a Consultant pursuant to the terms of such
Consultant's agreement with the Company or an Affiliate or (iii) the service of
a Director pursuant to the Bylaws of the Company or an Affiliate, and any
applicable provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.

      (d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.

      (e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the


                                       15

Company as to the Participant's knowledge and experience in financial and
business matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced in financial
and business matters and that he or she is capable of evaluating, alone or
together with the purchaser representative, the merits and risks of exercising
the Stock Award; and (ii) to give written assurances satisfactory to the Company
stating that the Participant is acquiring Common Stock subject to the Stock
Award for the Participant's own account and not with any present intention of
selling or otherwise distributing the Common Stock. The foregoing requirements,
and any assurances given pursuant to such requirements, shall be inoperative if
(1) the issuance of the shares of Common Stock upon the exercise or acquisition
of Common Stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act or (2) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the Common
Stock.

      (f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of Common Stock.

      (g) INFORMATION OBLIGATION. Prior to the Listing Date, to the extent
required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to Participants at
least annually. This subsection 10(g) shall not apply to key Employees whose
duties in connection with the Company assure them access to equivalent
information.

      (h) REPURCHASE LIMITATION. The terms of any repurchase option shall be
specified in the Stock Award and may be either at Fair Market Value at the time
of repurchase or at not less than the original purchase price. To the extent
required by Section 260.140.41 and Section 260.140.42 of Title 10 of the
California Code of Regulations at the time a Stock Award is made, any repurchase
option contained in a Stock Award granted prior to the Listing Date to a person
who is not an Officer, Director or Consultant shall be upon the terms described
below:

            (i) FAIR MARKET VALUE. If the repurchase option gives the Company
the right to repurchase the shares of Common Stock upon termination of
employment at not less than the Fair Market Value of the shares of Common Stock
to be purchased on the date of termination of Continuous Service, then (i) the
right to repurchase shall be exercised for cash or cancellation of purchase
money indebtedness for the shares of Common Stock within ninety (90) days of


                                       16

termination of Continuous Service (or in the case of shares of Common Stock
issued upon exercise of Stock Awards after such date of termination, within
ninety (90) days after the date of the exercise) or such longer period as may be
agreed to by the Company and the Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock") and (ii) the right terminates when the shares
of Common Stock become publicly traded.

            (ii) ORIGINAL PURCHASE PRICE. If the repurchase option gives the
Company the right to repurchase the shares of Common Stock upon termination of
Continuous Service at the original purchase price, then (i) the right to
repurchase at the original purchase price shall lapse at the rate of at least
twenty percent (20%) of the shares of Common Stock per year over five (5) years
from the date the Stock Award is granted (without respect to the date the Stock
Award was exercised or became exercisable) and (ii) the right to repurchase
shall be exercised for cash or cancellation of purchase money indebtedness for
the shares of Common Stock within ninety (90) days of termination of Continuous
Service (or in the case of shares of Common Stock issued upon exercise of
Options after such date of termination, within ninety (90) days after the date
of the exercise) or such longer period as may be agreed to by the Company and
the Participant (for example, for purposes of satisfying the requirements of
Section 1202(c)(3) of the Code regarding "qualified small business stock").

11.   ADJUSTMENTS UPON CHANGES IN STOCK.

      (a) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common Stock
subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)

      (b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Stock Awards
shall terminate immediately prior to such event.

      (c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. In the event of (i) a sale, lease or other disposition of all or
substantially all of the assets of the Company, (ii) a merger or consolidation
in which the Company is not the surviving corporation or (iii) a reverse merger
in which the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, then any


                                       17

surviving corporation or acquiring corporation shall assume or continue any
Stock Awards outstanding under the Plan or shall substitute similar stock awards
(including an award to acquire the same consideration paid to the stockholders
in the transaction described in this subsection 11(c) for those outstanding
under the Plan). In the event any surviving corporation or acquiring corporation
refuses to assume or continue such Stock Awards or to substitute similar stock
awards for those outstanding under the Plan, then with respect to Stock Awards
held by Participants whose Continuous Service has not terminated, the vesting of
such Stock Awards (and, if applicable, the time during which such Stock Awards
may be exercised) shall be accelerated in full, and the Stock Awards shall
terminate if not exercised (if applicable) at or prior to such event. With
respect to any other Stock Awards outstanding under the Plan, such Stock Awards
shall terminate if not exercised (if applicable) prior to such event.

12.   AMENDMENT OF THE PLAN AND STOCK AWARDS.

      (a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any NASDAQ or securities exchange listing requirements.

      (b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.

      (c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.

      (d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.

      (e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.

13.   TERMINATION OR SUSPENSION OF THE PLAN.

      (a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company,


                                       18

whichever is earlier. No Stock Awards may be granted under the Plan while the
Plan is suspended or after it is terminated.

      (b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect except with the written consent of the Participant.

14.   EFFECTIVE DATE OF PLAN.

      The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be granted)
unless and until the Plan has been approved by the stockholders of the Company,
which approval shall be within twelve (12) months before or after the date the
Plan is adopted by the Board.

15.   CHOICE OF LAW.

      The law of the State of California shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.


                                       19

                            STRUCTURAL GENOMIX, INC.
                           2000 EQUITY INCENTIVE PLAN

                             STOCK OPTION AGREEMENT
                   (INCENTIVE AND NONSTATUTORY STOCK OPTIONS)

      Pursuant to your Stock Option Grant Notice ("Grant Notice") and this Stock
Option Agreement, Structural GenomiX, Inc. (the "Company") has granted you an
option under its 2000 Equity Incentive Plan (the "Plan") to purchase the number
of shares of the Company's Common Stock indicated in your Grant Notice at the
exercise price indicated in your Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.

      The details of your option are as follows:

      1. VESTING. Subject to the limitations contained herein, your option will
vest as provided in your Grant Notice, provided that vesting will cease upon the
termination of your Continuous Service.

      2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.

      3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in your
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of your option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:

            (a) a partial exercise of your option shall be deemed to cover first
vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;

            (b) any shares of Common Stock so purchased from installments that
have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement;

            (c) you shall enter into the Company's form of Early Exercise Stock
Purchase Agreement with a vesting schedule that will result in the same vesting
as if no early exercise had occurred; and

            (d) if your option is an incentive stock option, then, as provided
in the Plan, to the extent that the aggregate Fair Market Value (determined at
the time of grant) of the shares of Common Stock with respect to which your
option plus all other incentive stock options you hold are exercisable for the
first time by you during any calendar year (under all plans of the


                                        1

Company and its Affiliates) exceeds one hundred thousand dollars ($100,000),
your option(s) or portions thereof that exceed such limit (according to the
order in which they were granted) shall be treated as nonstatutory stock
options.

      4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or in any other manner PERMITTED BY YOUR
GRANT NOTICE, which may include one or more of the following:

            (a) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.

            (b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.

            (c) Pursuant to the following deferred payment alternative:

                  (i) Not less than one hundred percent (100%) of the aggregate
exercise price, plus accrued interest, shall be due five (5) years from date of
exercise or, at the Company's election, upon termination of your Continuous
Service.

                  (ii) Interest shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any portion of any amounts other than amounts stated to be interest
under the deferred payment arrangement.

                  (iii) At any time that the Company is incorporated in
Delaware, payment of the Common Stock's "par value," as defined in the Delaware
General Corporation Law, shall be made in cash and not by deferred payment.

                  (iv) In order to elect the deferred payment alternative, you
must, as a part of your written notice of exercise, give notice of the election
of this payment alternative and, in order to secure the payment of the deferred
exercise price to the Company hereunder, if the


                                       2

Company so requests, you must tender to the Company a promissory note and a
security agreement covering the purchased shares of Common Stock, both in form
and substance satisfactory to the Company, or such other or additional
documentation as the Company may request.

      5. WHOLE SHARES. You may exercise your option only for whole shares of
Common Stock.

      6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also comply
with other applicable laws and regulations governing your option, and you may
not exercise your option if the Company determines that such exercise would not
be in material compliance with such laws and regulations.

      7. TERM. You may not exercise your option before the commencement of its
term or after its term expires. The term of your option commences on the Date of
Grant and expires upon the EARLIEST of the following:

            (a) three (3) months after the termination of your Continuous
Service for any reason other than your Disability or death, provided that if
during any part of such three (3) month period your option is not exercisable
solely because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;

            (b) twelve (12) months after the termination of your Continuous
Service due to your Disability;

            (c) eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates;

            (d) the Expiration Date indicated in your Grant Notice; or

            (e) the day before the tenth (10th) anniversary of the Date of
Grant.

      If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times beginning on the date of grant of your option
and ending on the day three (3) months before the date of your option's
exercise, you must be an employee of the Company or an Affiliate, except in the
event of your death or Disability. The term Disability as used in this Agreement
and in the Plan exceeds the definition prescribed in Section 22(e)(3) of the
Code. The Company has provided for extended exercisability of your option under
certain circumstances for your benefit but cannot guarantee that your option
will necessarily be treated as an "incentive stock option" if


                                       3

you continue to provide services to the Company or an Affiliate as a Consultant
or Director after your employment terminates or if you otherwise exercise your
option more than three (3) months after the date your employment terminates.

      8.    EXERCISE.

            (a) You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.

            (b) By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.

            (c) If your option is an incentive stock option, by exercising your
option you agree that you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of your option that occurs within two (2) years after the
date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.

            (d) By exercising your option you agree that the Company (or a
representative of the underwriter(s)) may, in connection with the first
underwritten registration of the offering of any securities of the Company under
the Securities Act, require that you not sell, dispose of, transfer, make any
short sale of, grant any option for the purchase of, or enter into any hedging
or similar transaction with the same economic effect as a sale, any shares of
Common Stock or other securities of the Company held by you, for a period of
time specified by the underwriter(s) (not to exceed one hundred eighty (180)
days) following the effective date of the registration statement of the Company
filed under the Securities Act. You further agree to execute and deliver such
other agreements as may be reasonably requested by the Company and/or the
underwriter(s) that are consistent with the foregoing or that are necessary to
give further effect thereto. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to your shares of
Common Stock until the end of such period.

      9.    TRANSFERABILITY. Your option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.

      10.   RIGHT OF FIRST REFUSAL. Shares of Common Stock that you acquire upon
exercise of your option are subject to any right of first refusal that may be
described in the


                                       4

Company's bylaws in effect at such time the Company elects to exercise its
right. The Company's right of first refusal shall expire on the Listing Date.

      11.   RIGHT OF REPURCHASE. To the extent provided in the Early Exercise
Stock Purchase Agreement by which you acquired shares of Common Stock, the
Company shall have the right to repurchase all or any part of the shares of
Common Stock you acquire pursuant to the early exercise of your option.

      12.   OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.

      13.   WITHHOLDING OBLIGATIONS.

            (a) At the time you exercise your option, in whole or in part, or at
any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "same day sale"
pursuant to a program developed under Regulation T as promulgated by the Federal
Reserve Board to the extent permitted by the Company), any sums required to
satisfy the federal, state, local and foreign tax withholding obligations of the
Company or an Affiliate, if any, which arise in connection with your option.

            (b) Upon your request and subject to approval by the Company, in its
sole discretion, and compliance with any applicable conditions or restrictions
of law, the Company may withhold from fully vested shares of Common Stock
otherwise issuable to you upon the exercise of your option a number of whole
shares of Common Stock having a Fair Market Value, determined by the Company as
of the date of exercise, not in excess of the minimum amount of tax required to
be withheld by law. If the date of determination of any tax withholding
obligation is deferred to a date later than the date of exercise of your option,
share withholding pursuant to the preceding sentence shall not be permitted
unless you make a proper and timely election under Section 83(b) of the Code,
covering the aggregate number of shares of Common Stock acquired upon such
exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in connection
with such share withholding procedure shall be your sole responsibility.

            (c) You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no


                                       5

obligation to issue a certificate for such shares of Common Stock or release
such shares of Common Stock from any escrow provided for herein.

      14. NOTICES. Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.

      15. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your option, and
is further subject to all interpretations, amendments, rules and regulations
which may from time to time be promulgated and adopted pursuant to the Plan. In
the event of any conflict between the provisions of your option and those of the
Plan, the provisions of the Plan shall control.


                                       6

                            STRUCTURAL GENOMIX, INC.
                            STOCK OPTION GRANT NOTICE
                          (2000 EQUITY INCENTIVE PLAN)

Structural GenomiX, Inc. (the "Company"), pursuant to its 2000 Equity Incentive
Plan (the "Plan"), hereby grants to Optionholder an option to purchase the
number of shares of the Company's Common Stock set forth below. This option is
subject to all of the terms and conditions as set forth herein and in the Stock
Option Agreement, the Plan and the Notice of Exercise, all of which are attached
hereto and incorporated herein in their entirety.

Optionholder:                         EMPLOYEE
Date of Grant:
Vesting Commencement Date:
Number of Shares Subject to Option:
Exercise Price (Per Share):
Total Exercise Price:
Expiration Date:

TYPE OF GRANT:      [ ]  Incentive Stock Option     [ ]  Nonstatutory Stock
                                                         Option

EXERCISE SCHEDULE:  [ ]  Same as Vesting Schedule   [ ]  Early Exercise
                                                         Permitted

VESTING SCHEDULE:   [                                 ]

PAYMENT:            By one or a combination of the following items
                    (described in the Stock Option Agreement):

                          By cash or check
                          Pursuant to a Regulation T Program if the Shares are
                            publicly traded
                          By delivery of already-owned shares if the Shares are
                            publicly traded
                          By deferred payment

ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) stock awards previously
granted and delivered to Optionholder under the Plan, and (ii) the following
agreements only:

      OTHER AGREEMENTS:
                                    ------------------------------------------
                                    ------------------------------------------

STRUCTURAL GENOMIX, INC.                  EMPLOYEE:


- --------------------------------------    --------------------------------------
Michael G. Grey
President & Chief Executive Officer

Date:                                     Date:
      --------------------------------           -------------------------------

ATTACHMENTS: Stock Option Agreement, 2000 Equity Incentive Plan and Notice of
Exercise

EX-10.3

                                                                    EXHIBIT 10.3

                            SGX PHARMACEUTICALS, INC.

                           2005 EQUITY INCENTIVE PLAN

                      APPROVED BY BOARD ON: AUGUST 30, 2005
                    APPROVED BY STOCKHOLDERS: ________, 2005
                        TERMINATION DATE: AUGUST 29, 2015


1.    GENERAL.

      (a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive Stock
Awards are Employees, Directors and Consultants.

      (b) AVAILABLE STOCK AWARDS. The Plan provides for the grant of the
following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) Stock Purchase Awards, (iv) Restricted Stock Awards, (v) Stock
Appreciation Rights, (vi) Restricted Stock Unit Awards, and (vii) Other Stock
Awards.

      (c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to secure
and retain the services of the group of persons eligible to receive Awards as
set forth in Section 1(a), to provide incentives for such persons to exert
maximum efforts for the success of the Company and any Affiliate and to provide
a means by which such eligible recipients may be given an opportunity to benefit
from increases in value of the Common Stock through the granting of Stock
Awards.

2.    DEFINITIONS.

      As used in the Plan, the following definitions shall apply to the
capitalized terms indicated below:

      (a) "2000 PLAN" means the Company's 2000 Equity Incentive Plan.

      (b) "AFFILIATE" means, at the time of determination, any "parent" or
"subsidiary" as such terms are defined in Rule 405 of the Securities Act. The
Board shall have the authority to determine the time or times at which "parent"
or "subsidiary" status is determined within the foregoing definition.

      (c) "AWARD" means a Stock Award or a Performance Cash Award.

      (d) "BOARD" means the Board of Directors of the Company.

      (e) "CAPITALIZATION ADJUSTMENT" has the meaning ascribed to that term in
Section 11(a).

      (f) "CAUSE" means with respect to a Participant, the occurrence of any of
the following: (i) such Participant's commission of any felony or any crime
involving fraud, dishonesty or moral turpitude under the laws of the United
States or any state thereof; (ii) such


                                       1.



Participant's attempted commission of, or participation in, a fraud or act of
dishonesty against the Company; (iii) such Participant's intentional, material
violation of any contract or agreement between the Participant and the Company
or of any statutory duty owed to the Company; (iv) such Participant's
unauthorized use or disclosure of the Company's confidential information or
trade secrets; or (v) such Participant's gross misconduct. The determination
that a termination of the Participant's Continuous Service is either for Cause
or without Cause shall be made by the Company in its sole discretion. Any
determination by the Company that the Continuous Service of a Participant was
terminated by reason of dismissal without Cause for the purposes of outstanding
Awards held by such Participant shall have no effect upon any determination of
the rights or obligations of the Company or such Participant for any other
purpose.

      (g) "CHANGE IN CONTROL" means the occurrence, in a single transaction or
in a series of related transactions, of any one or more of the following events:

            (i) any Exchange Act Person becomes the Owner, directly or
indirectly, of securities of the Company representing more than fifty percent
(50%) of the combined voting power of the Company's then outstanding securities
other than by virtue of a merger, consolidation or similar transaction.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
(A) on account of the acquisition of securities of the Company by an investor,
any affiliate thereof or any other Exchange Act Person from the Company in a
transaction or series of related transactions the primary purpose of which is to
obtain financing for the Company through the issuance of equity securities or
(B) solely because the level of Ownership held by any Exchange Act Person (the
"SUBJECT PERSON") exceeds the designated percentage threshold of the outstanding
voting securities as a result of a repurchase or other acquisition of voting
securities by the Company reducing the number of shares outstanding, provided
that if a Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of voting securities by the Company, and after
such share acquisition, the Subject Person becomes the Owner of any additional
voting securities that, assuming the repurchase or other acquisition had not
occurred, increases the percentage of the then outstanding voting securities
Owned by the Subject Person over the designated percentage threshold, then a
Change in Control shall be deemed to occur;

            (ii) there is consummated a merger, consolidation or similar
transaction involving (directly or indirectly) the Company and, immediately
after the consummation of such merger, consolidation or similar transaction, the
stockholders of the Company immediately prior thereto do not Own, directly or
indirectly, either (A) outstanding voting securities representing more than
fifty percent (50%) of the combined outstanding voting power of the surviving
Entity in such merger, consolidation or similar transaction or (B) more than
fifty percent (50%) of the combined outstanding voting power of the parent of
the surviving Entity in such merger, consolidation or similar transaction, in
each case in substantially the same proportions as their Ownership of the
outstanding voting securities of the Company immediately prior to such
transaction;

            (iii) the stockholders of the Company approve or the Board approves
a plan of complete dissolution or liquidation of the Company, or a complete
dissolution or liquidation of the Company shall otherwise occur;


                                       2.



            (iv) there is consummated a sale, lease, exclusive license or other
disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries, other than a sale, lease, license or other
disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the
combined voting power of the voting securities of which are Owned by
stockholders of the Company in substantially the same proportions as their
Ownership of the outstanding voting securities of the Company immediately prior
to such sale, lease, license or other disposition; or

            (v) individuals who, on the date this Plan is adopted by the Board,
are members of the Board (the "INCUMBENT BOARD") cease for any reason to
constitute at least a majority of the members of the Board; provided, however,
that if the appointment or election (or nomination for election) of any new
Board member was approved or recommended by a majority vote of the members of
the Incumbent Board then still in office, such new member shall, for purposes of
this Plan, be considered as a member of the Incumbent Board.

      The term Change in Control shall not include a sale of assets, merger or
other transaction effected exclusively for the purpose of changing the domicile
of the Company.

      Notwithstanding the foregoing or any other provision of this Plan, the
definition of Change in Control (or any analogous term) in an individual written
agreement between the Company or any Affiliate and the Participant shall
supersede the foregoing definition with respect to Stock Awards subject to such
agreement where such agreement provides for acceleration of vesting of such
Stock Awards in the event of a Change in Control; provided, however, that if no
definition of Change in Control or any analogous term is set forth in such an
individual written agreement, the foregoing definition shall apply.

      (h) "CODE" means the Internal Revenue Code of 1986, as amended.

      (i) "COMMITTEE" means a committee of one (1) or more Directors to whom
authority has been delegated by the Board in accordance with Section 3(c).

      (j) "COMMON STOCK" means the common stock of the Company.

      (k) "COMPANY" means SGX Pharmaceuticals, Inc., a Delaware corporation.

      (l) "CONSULTANT" means any person, including an advisor, who is (i)
engaged by the Company or an Affiliate to render consulting or advisory services
and is compensated for such services, or (ii) serving as a member of the board
of directors of an Affiliate and is compensated for such services. However,
service solely as a Director, or payment of a fee for such service, shall not
cause a Director to be considered a "Consultant" for purposes of the Plan.

      (m) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. A change in the capacity in which the Participant
renders service to the Company or an Affiliate as an Employee, Consultant or
Director or a change in the entity for which the Participant renders such
service, provided that there is no interruption or termination of the
Participant's service with the Company or an Affiliate, shall not terminate a
Participant's Continuous Service. For example, a change in status from an
employee of the Company to a consultant to an Affiliate or

                                       3.


to a Director shall not constitute an interruption of Continuous Service. To the
extent permitted by law, the Board or the chief executive officer of the
Company, in that party's sole discretion, may determine whether Continuous
Service shall be considered interrupted in the case of any leave of absence
approved by that party, including sick leave, military leave or any other
personal leave. Notwithstanding the foregoing, a leave of absence shall be
treated as Continuous Service for purposes of vesting in a Stock Award only to
such extent as may be provided in the Company's leave of absence policy, in the
written terms of any leave of absence agreement or policy applicable to the
Participant, or as otherwise required by law.

      (n) "CORPORATE TRANSACTION" means the occurrence, in a single transaction
or in a series of related transactions, of any one or more of the following
events:

            (i) a sale or other disposition of all or substantially all, as
determined by the Board in its sole discretion, of the consolidated assets of
the Company and its Subsidiaries;

            (ii) a sale or other disposition of at least ninety percent (90%) of
the outstanding securities of the Company;

            (iii) the consummation of a merger, consolidation or similar
transaction following which the Company is not the surviving corporation; or

            (iv) the consummation of a merger, consolidation or similar
transaction following which the Company is the surviving corporation but the
shares of Common Stock outstanding immediately preceding the merger,
consolidation or similar transaction are converted or exchanged by virtue of the
merger, consolidation or similar transaction into other property, whether in the
form of securities, cash or otherwise.

      (o) "COVERED EMPLOYEE" shall have the meaning provided in Section
162(m)(3) of the Code and the regulations promulgated thereunder.

      (p) "DIRECTOR" means a member of the Board.

      (q) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.

      (r) "EMPLOYEE" means any person employed by the Company or an Affiliate.
However, service solely as a Director, or payment of a fee for such services,
shall not cause a Director to be considered an "Employee" for purposes of the
Plan.

      (s) "ENTITY" means a corporation, partnership, limited liability company
or other entity.

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

      (u) "EXCHANGE ACT PERSON" means any natural person, Entity or "group"
(within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that
"Exchange Act Person" shall not include (i) the Company or any Subsidiary of the
Company, (ii) any employee benefit plan of the Company or any Subsidiary of the
Company or any trustee or other fiduciary holding

                                       4.


securities under an employee benefit plan of the Company or any Subsidiary of
the Company, (iii) an underwriter temporarily holding securities pursuant to an
offering of such securities, (iv) an Entity Owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
Ownership of stock of the Company; or (v) any natural person, Entity or "group"
(within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of
the effective date of the Plan as set forth in Section 13, is the Owner,
directly or indirectly, of securities of the Company representing more than
fifty percent (50%) of the combined voting power of the Company's then
outstanding securities.

      (v) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:

            (i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the date in
question, as reported in The Wall Street Journal or such other source as the
Board deems reliable. Unless otherwise provided by the Board, if there is no
closing sales price (or closing bid if no sales were reported) for the Common
Stock on the date in question, then the Fair Market Value shall be the closing
selling price (or closing bid if no sales were reported) on the last preceding
date for which such quotation exists.

            (ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined by the Board in good faith.

      (w) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
"incentive stock option" within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

      (x) "IPO DATE" means the date of the underwriting agreement between the
Company and the underwriter(s) managing the initial public offering of the
Common Stock, pursuant to which the Common Stock is priced for the initial
public offering.

      (y) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current employee or officer of the Company or an Affiliate, does not receive
compensation, either directly or indirectly, from the Company or an Affiliate
for services rendered as a consultant or in any capacity other than as a
Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("REGULATION S-K")), does not possess an interest in any other transaction for
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship for which disclosure would be required
pursuant to Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.

      (z) "NONSTATUTORY STOCK OPTION" means any Option other than an Incentive
Stock Option.


                                       5.



      (aa) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

      (bb) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option to purchase shares of Common Stock granted pursuant to the Plan.

      (cc) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an Option grant. Each
Option Agreement shall be subject to the terms and conditions of the Plan.

      (dd) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if permitted under the terms of this Plan, such other person who
holds an outstanding Option.

      (ee) "OTHER STOCK AWARD" means an award based in whole or in part by
reference to the Common Stock which is granted pursuant to the terms and
conditions of Section 7(e).

      (ff) "OTHER STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of an Other Stock Award evidencing the terms and conditions
of an Other Stock Award grant. Each Other Stock Award Agreement shall be subject
to the terms and conditions of the Plan.

      (gg) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" who receives
compensation for prior services (other than benefits under a tax-qualified
retirement plan) during the taxable year, has not been an officer of the Company
or an "affiliated corporation," and does not receive remuneration from the
Company or an "affiliated corporation," either directly or indirectly, in any
capacity other than as a Director, or (ii) is otherwise considered an "outside
director" for purposes of Section 162(m) of the Code.

      (hh) "OWN," "OWNED," "OWNER," "OWNERSHIP" A person or Entity shall be
deemed to "Own," to have "Owned," to be the "Owner" of, or to have acquired
"Ownership" of securities if such person or Entity, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has
or shares voting power, which includes the power to vote or to direct the
voting, with respect to such securities.

      (ii) "PARTICIPANT" means a person to whom an Award is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Stock
Award.

      (jj) "PERFORMANCE CASH AWARD" means an award of cash granted pursuant to
the terms and conditions of Section 7(e)(ii).

      (kk) "PERFORMANCE CRITERIA" means the one or more criteria that the Board
shall select for purposes of establishing the Performance Goals for a
Performance Period. The Performance Criteria that shall be used to establish
such Performance Goals may be based on any one of, or combination of, the
following: (i) earnings per share; (ii) earnings before interest, taxes and
depreciation; (iii) earnings before interest, taxes, depreciation and
amortization; (iv) total

                                       6.


stockholder return; (v) return on equity; (vi) return on assets, investment, or
capital employed; (vii) operating margin; (viii) gross margin; (ix) operating
income; (x) net income (before or after taxes); (xi) net operating income; (xii)
net operating income after tax; (xiii) pre-tax profit; (xiv) operating cash
flow; (xv) sales or revenue targets; (xvi) increases in revenue or product
revenue; (xvii) expenses and cost reduction goals; (xviii) improvement in or
attainment of working capital levels; (xix) economic value added (or an
equivalent metric); (xx) market share; (xxi) cash flow; (xxii) cash flow per
share; (xxiii) share price performance; (xxiv) debt reduction; (xxv)
implementation or completion of projects or processes; (xxvi) customer
satisfaction; (xxvii); stockholders' equity; and (xxviii) other measures of
performance selected by the Board. Partial achievement of the specified criteria
may result in the payment or vesting corresponding to the degree of achievement
as specified in the Stock Award Agreement or the written terms of a Performance
Cash Award. The Board shall, in its sole discretion, define the manner of
calculating the Performance Criteria it selects to use for such Performance
Period.

      (ll) "PERFORMANCE GOALS" means, for a Performance Period, the one or more
goals established by the Board for the Performance Period based upon the
Performance Criteria. Performance Goals may be based on a Company-wide basis,
with respect to one or more business units, divisions, Affiliates, or business
segments, and in either absolute terms or relative to the performance of one or
more comparable companies or a relevant index. At the time of the grant of any
Award, the Board is authorized to determine whether, when calculating the
attainment of Performance Goals for a Performance Period: (i) to exclude
restructuring and/or other nonrecurring charges; (ii) to exclude exchange rate
effects, as applicable, for non-U.S. dollar denominated net sales and operating
earnings; (iii) to exclude the effects of changes to generally accepted
accounting standards required by the Financial Accounting Standards Board; (iv)
to exclude the effects of any statutory adjustments to corporate tax rates; and
(v) to exclude the effects of any "extraordinary items" as determined under
generally accepted accounting principles. In addition, the Board retains the
discretion to reduce or eliminate the compensation or economic benefit due upon
attainment of Performance Goals.

      (mm) "PERFORMANCE PERIOD" means the period of time selected by the Board
over which the attainment of one or more Performance Goals will be measured for
the purpose of determining a Participant's right to and the payment of a Stock
Award or a Performance Cash Award. Performance Periods may be of varying and
overlapping duration, at the sole discretion of the Board.

      (nn) "PERFORMANCE STOCK AWARD" means a Stock Award granted under the terms
and conditions of Section 7(e)(i).

      (oo) "PLAN" means this SGX Pharmaceuticals, Inc. 2005 Equity Incentive
Plan.

      (pp) "RESTRICTED STOCK AWARD" means an award of shares of Common Stock
which is granted pursuant to the terms and conditions of Section 7(b).

      (qq) "RESTRICTED STOCK AWARD AGREEMENT" means a written agreement between
the Company and a holder of a Restricted Stock Award evidencing the terms and
conditions of a Restricted Stock Award grant. Each Restricted Stock Award
Agreement shall be subject to the terms and conditions of the Plan.


                                       7.



      (rr) "RESTRICTED STOCK UNIT AWARD" means a right to receive shares of
Common Stock which is granted pursuant to the terms and conditions of Section
7(c).

      (ss) "RESTRICTED STOCK UNIT AWARD AGREEMENT" means a written agreement
between the Company and a holder of a Restricted Stock Unit Award evidencing the
terms and conditions of a Restricted Stock Unit Award grant. Each Restricted
Stock Unit Award Agreement shall be subject to the terms and conditions of the
Plan.

      (tt) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.

      (uu) "SECURITIES ACT" means the Securities Act of 1933, as amended.

      (vv) "STOCK APPRECIATION RIGHT" means a right to receive the appreciation
on Common Stock that is granted pursuant to the terms and conditions of Section
7(d).

      (ww) "STOCK APPRECIATION RIGHT AGREEMENT" means a written agreement
between the Company and a holder of a Stock Appreciation Right evidencing the
terms and conditions of a Stock Appreciation Right grant. Each Stock
Appreciation Right Agreement shall be subject to the terms and conditions of the
Plan.

      (xx) "STOCK AWARD" means any right granted under the Plan, including an
Incentive Stock Option, a Nonstatutory Stock Option, a Stock Purchase Award, a
Restricted Stock Award, a Stock Appreciation Right, a Restricted Stock Unit
Award, a Performance Stock Award or any Other Stock Award.

      (yy) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a Participant evidencing the terms and conditions of a Stock Award grant.
Each Stock Award Agreement shall be subject to the terms and conditions of the
Plan.

      (zz) "STOCK PURCHASE AWARD" means an award of shares of Common Stock which
is granted pursuant to the terms and conditions of Section 7(a).

      (aaa) "STOCK PURCHASE AWARD AGREEMENT" means a written agreement between
the Company and a holder of a Stock Purchase Award evidencing the terms and
conditions of a Stock Purchase Award grant. Each Stock Purchase Award Agreement
shall be subject to the terms and conditions of the Plan.

      (bbb) "SUBSIDIARY" means, with respect to the Company, (i) any corporation
of which more than fifty percent (50%) of the outstanding capital stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether, at the time, stock of any other class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time, directly or indirectly, Owned
by the Company, and (ii) any partnership in which the Company has a direct or
indirect interest (whether in the form of voting or participation in profits or
capital contribution) of more than fifty percent (50%).

                                       8.




      (ccc) "TEN PERCENT STOCKHOLDER" means a person who Owns (or is deemed to
Own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any Affiliate.

3.    ADMINISTRATION.

      (a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration of the Plan to a Committee or
Committees, as provided in Section 3(c).

      (b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

            (i) To determine from time to time (A) which of the persons eligible
under the Plan shall be granted Awards; (B) when and how each Award shall be
granted; (C) what type or combination of types of Award shall be granted; (D)
the provisions of each Award granted (which need not be identical), including
the time or times when a person shall be permitted to receive cash or Common
Stock pursuant to a Stock Award; and (E) the number of shares of Common Stock
with respect to which a Stock Award shall be granted to each such person.

            (ii) To construe and interpret the Plan and Awards granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Stock Award Agreement or in the written
terms of a Performance Cash Award, in a manner and to the extent it shall deem
necessary or expedient to make the Plan or Award fully effective.

            (iii) To settle all controversies regarding the Plan and Awards
granted under it.

            (iv) To accelerate the time at which a Stock Award may first be
exercised or the time during which an Award or any part thereof will vest in
accordance with the Plan, notwithstanding the provisions in the Award stating
the time at which it may first be exercised or the time during which it will
vest.

            (v) To suspend or terminate the Plan at any time. Suspension or
termination of the Plan shall not impair rights and obligations under any Stock
Award granted while the Plan is in effect except with the written consent of the
affected Participant.

            (vi) To amend the Plan, subject to the limitations, if any, of
applicable law. However, except as provided in Section 11(a) relating to
Capitalization Adjustments, no amendment shall be effective unless approved by
the stockholders of the Company to the extent stockholder approval is necessary
to satisfy applicable law or applicable exchange listing requirements. Rights
under any Award granted before amendment of the Plan shall not be impaired by
any amendment of the Plan unless (i) the Company requests the consent of the
affected Participant, and (ii) such Participant consents in writing.

            (vii) To submit any amendment to the Plan for stockholder approval,
including, but not limited to, amendments to the Plan intended to satisfy the
requirements of Section 162(m) of the Code and the regulations thereunder
regarding the exclusion of performance-based

                                       9.


compensation from the limit on corporate deductibility of compensation paid to
Covered Employees.

            (viii) To amend the Plan in any respect the Board deems necessary or
advisable to provide eligible Employees with the maximum benefits provided or to
be provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options or to bring the Plan or Incentive
Stock Options granted under it into compliance therewith.

            (ix) To amend the terms of any one or more Awards, including, but
not limited to, amendments to provide terms more favorable than previously
provided in the Award Agreement, subject to any specified limits in the Plan
that are not subject to Board discretion; provided, however, that the rights
under any Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the affected Participant, and (ii) such
Participant consents in writing.

            (x) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company and that are not in conflict with the provisions of the Plan or Awards.

            (xi) To adopt such procedures and sub-plans as are necessary or
appropriate to permit participation in the Plan by Employees, Directors or
Consultants who are foreign nationals or employed outside the United States.

            (xii) To effect, at any time and from time to time, with the consent
of any adversely affected Optionholder, (1) the reduction of the exercise price
of any outstanding Option under the Plan, (2) the cancellation of any
outstanding Option under the Plan and the grant in substitution therefor of (a)
a new Option under the Plan or another equity plan of the Company covering the
same or a different number of shares of Common Stock, (b) a Restricted Stock
Award (including a stock bonus), (c) a Stock Appreciation Right, (d) Restricted
Stock Unit, (e) an Other Stock Award, (f) cash and/or (g) other valuable
consideration (as determined by the Board, in its sole discretion), or (3) any
other action that is treated as a repricing under generally accepted accounting
principles.

      (c)   DELEGATION TO COMMITTEE.

            (i) GENERAL. The Board may delegate some or all of the
administration of the Plan to a Committee or Committees. If administration of
the Plan is delegated to a Committee, the Committee shall have, in connection
with the administration of the Plan, the powers theretofore possessed by the
Board that have been delegated to the Committee, including the power to delegate
to a subcommittee of the Committee any of the administrative powers the
Committee is authorized to exercise (and references in this Plan to the Board
shall thereafter be to the Committee or subcommittee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may be adopted
from time to time by the Board. The Board may retain the authority to
concurrently administer the Plan with the Committee and may, at any time, revest
in the Board some or all of the powers previously delegated.

                                      10.




            (ii) SECTION 162(M) AND RULE 16B-3 COMPLIANCE. In the sole
discretion of the Board, the Committee may consist solely of two or more Outside
Directors, in accordance with Section 162(m) of the Code, or solely of two or
more Non-Employee Directors, in accordance with Rule 16b-3. In addition, the
Board or the Committee, in its sole discretion, may (a) delegate to a Committee
of Directors who need not be Outside Directors the authority to grant Awards to
eligible persons who are either (i) not then Covered Employees and are not
expected to be Covered Employees at the time of recognition of income resulting
from such Stock Award, or (ii) not persons with respect to whom the Company
wishes to comply with Section 162(m) of the Code, or (b) delegate to a Committee
of Directors who need not be Non-Employee Directors the authority to grant Stock
Awards to eligible persons who are not then subject to Section 16 of the
Exchange Act.

      (d) DELEGATION TO AN OFFICER. The Board may delegate to one or more
Officers the authority to do one or both of the following (i) designate
Employees who are not Officers to be recipients of Awards and the terms thereof,
and (ii) determine the number of shares of Common Stock to be subject to such
Stock Awards granted to such Employees; provided, however, that the Board
resolutions regarding such delegation shall specify the total number of shares
of Common Stock that may be subject to the Stock Awards granted by such Officer
and that such Officer may not grant a Stock Award to himself or herself.
Notwithstanding anything to the contrary in this Section 3(d), the Board may not
delegate to an Officer authority to determine the Fair Market Value of the
Common Stock pursuant to Section 2(v)(ii) above.

      (e) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.

      (f) ARBITRATION. Any dispute or claim concerning any Awards granted (or
not granted) pursuant to the Plan or any disputes or claims relating to or
arising out of the Plan shall be fully, finally and exclusively resolved by
binding and confidential arbitration conducted pursuant to the Commercial
Arbitration Rules of the American Arbitration Association in San Diego,
California. The Company shall pay all arbitration fees. In addition to any other
relief, the arbitrator may award to the prevailing party recovery of its
attorneys' fees and costs. By accepting an Award, Participants and the Company
waive their respective rights to have any such disputes or claims tried by a
judge or jury.

4.    SHARES SUBJECT TO THE PLAN.

      (a) Subject to the provisions of Section 11(a) relating to Capitalization
Adjustments, the number of shares of Common Stock that may be issued pursuant to
Stock Awards shall not exceed, in the aggregate, one million five hundred
thousand (1,500,000) shares of Common Stock, plus the number of shares of Common
Stock remaining available for future issuance under the 2000 Plan that are not
covered by outstanding stock options under the 2000 Plan as of the IPO Date;
provided, however, that such share reserve shall be increased from time to time
by a number of shares equal to the number of shares of Common Stock that (i) are
or become issuable pursuant to options outstanding under the Company's 2000 Plan
as of the IPO Date, or were previously or become issued but remain subject to
the Company's repurchase right under the terms of the 2000 Plan, and (ii) but
for the termination of the 2000 Plan as of the effective date of the Plan, would
otherwise have reverted to the share reserve of the 2000 Plan pursuant to the
terms thereof. In addition, the number of shares of Common Stock available for
issuance under the Plan shall automatically increase on

                                      11.


January 1st of each year commencing in 2007 and ending on (and including)
January 1, 2015, in an amount equal to the lesser of (i) three and one half
percent (3 1/2 %) of the total number of shares of Common Stock outstanding on
December 31st of the preceding calendar year (rounded up to the nearest whole
share), or (ii) one million (1,000,000) shares of Common Stock. Notwithstanding
the foregoing, the Board or a Committee may act prior to the first day of any
calendar year, to provide that there shall be no increase in the share reserve
for such calendar year or that the increase in the share reserve for such
calendar year shall be a lesser number of shares of Common Stock than would
otherwise occur pursuant to the preceding sentence. Shares may be issued in
connection with a merger or acquisition as permitted by the applicable listing
exchange rules and such issuance shall not reduce the number of shares available
for issuance under the Plan.

      (b) REVERSION OF SHARES TO THE SHARE RESERVE. If any (i) Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, (ii) shares of Common Stock issued to a
Participant pursuant to a Stock Award are forfeited to or repurchased by the
Company, including any repurchase or forfeiture caused by the failure to meet a
contingency or condition required for the vesting of such shares, (iii) shares
of Common Stock are cancelled in accordance with the cancellation and regrant
provisions of Section 3(b), or (iv) Stock Award is settled in cash, then the
shares of Common Stock not issued under such Stock Award, or forfeited to or
repurchased by the Company, shall revert to and again become available for
issuance under the Plan. If any shares subject to a Stock Award are not
delivered to a Participant because the Stock Award is exercised through a
reduction of shares subject to the Stock Award (i.e., "net exercised") or an
appreciation distribution in respect of a Stock Appreciation Right is paid in
shares of Common Stock, the number of subject to the Stock Award that are not
delivered to the Participant shall remain available for subsequent issuance
under the Plan. If any shares subject to a Stock Award are not delivered to a
Participant because such shares are withheld in satisfaction of the withholding
of taxes incurred in connection with the exercise of an Option, Stock
Appreciation Right, or the issuance of shares under a Stock Purchase Award,
Restricted Stock Award, Restricted Stock Unit Award, or Other Stock Award, the
number of shares that are not delivered to the Participant shall remain
available for subsequent issuance under the Plan. If the exercise price of any
Stock Award is satisfied by tendering shares of Common Stock held by the
Participant (either by actual delivery or attestation), then the number of
shares so tendered shall remain available for subsequent issuance under the
Plan.

      (c) INCENTIVE STOCK OPTION LIMIT. Notwithstanding anything to the contrary
in this Section 4(b), subject to the provisions of Section 11(a) relating to
Capitalization Adjustments the aggregate maximum number of shares of Common
Stock that may be issued pursuant to the exercise of Incentive Stock Options
shall be ten million (10,000,000) shares of Common Stock.

      (d) SOURCE OF SHARES. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Company.

                                      12.




5.    ELIGIBILITY.

      (a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may be
granted only to Employees. Stock Awards other than Incentive Stock Options may
be granted to Employees, Directors and Consultants.

      (b) TEN PERCENT STOCKHOLDERS. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock on the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.

      (c) SECTION 162(M) LIMITATION ON ANNUAL GRANTS. Subject to the provisions
of Section 11(a) relating to Capitalization Adjustments, at such time as the
Company may be subject to the applicable provisions of Section 162(m) of the
Code, no Employee shall be eligible to be granted during any calendar year Stock
Awards whose value is determined by reference to an increase over an exercise or
strike price of at least one hundred percent (100%) of the Fair Market Value of
the Common Stock on the date the Stock Award is granted covering more than five
hundred thousand (500,000) shares of Common Stock; provided, however, that
solely in connection with the initiation of employment, an Employee may be
granted such Stock Awards covering an additional seven hundred fifty thousand
(750,000) shares of Common Stock in that calendar year.

      (d) CONSULTANTS. A Consultant shall not be eligible for the grant of a
Stock Award if, at the time of grant, a Form S-8 Registration Statement under
the Securities Act ("FORM S-8") is not available to register either the offer or
the sale of the Company's securities to such Consultant because of the nature of
the services that the Consultant is providing to the Company, because the
Consultant is not a natural person, or because of any other rule governing the
use of Form S-8.

6.    OPTION PROVISIONS.

      Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
shall be issued for shares of Common Stock purchased on exercise of each type of
Option. If an Option is not specifically designated as an Incentive Stock
Option, then the Option shall be a Nonstatutory Stock Option. The provisions of
separate Options need not be identical; provided, however, that each Option
Agreement shall include (through incorporation of provisions hereof by reference
in the Option Agreement or otherwise) the substance of each of the following
provisions:

      (a) TERM. Subject to the provisions of Section 5(b), no Option shall be
exercisable after the expiration of ten (10) years from the date of its grant or
such shorter period specified in the Option Agreement.

      (b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the provisions
of Section 5(b) regarding Ten Percent Stockholders, the exercise price of each
Incentive Stock Option shall be not less than one hundred percent (100%) of the
Fair Market Value of the

                                      13.


Common Stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, an Incentive Stock Option may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner consistent with the provisions of Section 424(a) of the Code.

      (c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price of
each Nonstatutory Stock Option shall be not less than one hundred percent (100%)
of the Fair Market Value of the Common Stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than one hundred percent
(100%) of the Fair Market Value of the Common Stock if such Option is granted
pursuant to an assumption or substitution for another option in a manner
consistent with the provisions of Section 424(a) of the Code.

      (d) CONSIDERATION. The purchase price of Common Stock acquired pursuant to
the exercise of an Option shall be paid, to the extent permitted by applicable
law and as determined by the Board in its sole discretion, by any combination of
the methods of payment set forth below. The Board shall have the authority to
grant Options that do not permit all of the following methods of payment (or
otherwise restrict the ability to use certain methods) and to grant Options that
require the consent of the Company to utilize a particular method of payment.
The methods of payment permitted by this Section 6(d) are:

            (i) by cash or check;

            (ii) bank draft or money order payable to the Company;

            (iii) pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board that, prior to the issuance of Common
Stock, results in either the receipt of cash (or check) by the Company or the
receipt of irrevocable instructions to pay the aggregate exercise price to the
Company from the sales proceeds;

            (iv) by delivery to the Company (either by actual delivery or
attestation) of shares of Common Stock;

            (v) by a "net exercise" arrangement pursuant to which the Company
will reduce the number of shares of Common Stock issued upon exercise by the
largest whole number of shares with a Fair Market Value that does not exceed the
aggregate exercise price; provided, however, that the Company shall accept a
cash or other payment from the Participant to the extent of any remaining
balance of the aggregate exercise price not satisfied by such reduction in the
number of whole shares to be issued; provided, further, that shares of Common
Stock will no longer be outstanding under an Option and will not be exercisable
thereafter to the extent that (a) shares are used to pay the exercise price
pursuant to the "net exercise," (b) shares are delivered to the Participant as a
result of such exercise, and (c) shares are withheld to satisfy tax withholding
obligations; or

            (vi) in any other form of legal consideration that may be acceptable
to the Board.

                                      14.




      (e) TRANSFERABILITY OF OPTIONS. The Board may, in its sole discretion,
impose such limitations on the transferability of Options as the Board shall
determine. In the absence of such a determination by the Board to the contrary,
the following restrictions on the transferability of Options shall apply:

            (i) RESTRICTIONS ON TRANSFER. An Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionholder only by the Optionholder;
provided, however, that the Board may, in its sole discretion, permit transfer
of the Option in a manner consistent with applicable tax and securities laws
upon the Optionholder's request.

            (ii) DOMESTIC RELATIONS ORDERS. Notwithstanding the foregoing, an
Option may be transferred pursuant to a domestic relations order.

            (iii) BENEFICIARY DESIGNATION. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
provided by or otherwise satisfactory to the Company, designate a third party
who, in the event of the death of the Optionholder, shall thereafter be entitled
to exercise the Option.

      (f) VESTING GENERALLY. The total number of shares of Common Stock subject
to an Option may vest and therefore become exercisable in periodic installments
that may or may not be equal. The Option may be subject to such other terms and
conditions on the time or times when it may or may not be exercised (which may
be based on the satisfaction of Performance Goals or other criteria) as the
Board may deem appropriate. The vesting provisions of individual Options may
vary. The provisions of this Section 6(f) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.

      (g) TERMINATION OF CONTINUOUS SERVICE. In the event that an Optionholder's
Continuous Service terminates (other than for Cause or upon the Optionholder's
death or Disability), the Optionholder may exercise his or her Option (to the
extent that the Optionholder was entitled to exercise such Option as of the date
of termination of Continuous Service) but only within such period of time ending
on the earlier of (i) the date three (3) months following the termination of the
Optionholder's Continuous Service (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination of Continuous Service, the
Optionholder does not exercise his or her Option within the time specified
herein or in the Option Agreement (as applicable), the Option shall terminate.

      (h) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement may
provide that if the exercise of the Option following the termination of the
Optionholder's Continuous Service (other than for Cause or upon the
Optionholder's death or Disability) would be prohibited at any time solely
because the issuance of shares of Common Stock would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of a period of three (3) months after the
termination of the Optionholder's Continuous Service during which the exercise
of the Option would not be in

                                      15.


violation of such registration requirements, or (ii) the expiration of the term
of the Option as set forth in the Option Agreement.

      (i) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination of Continuous
Service), but only within such period of time ending on the earlier of (i) the
date twelve (12) months following such termination of Continuous Service (or
such longer or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination of Continuous Service, the Optionholder does not exercise his
or her Option within the time specified herein or in the Option Agreement (as
applicable), the Option shall terminate.

      (j) DEATH OF OPTIONHOLDER. In the event that (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death, or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for a
reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder's death, but only within the period ending on the
earlier of (i) the date eighteen (18) months following the date of death (or
such longer or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of such Option as set forth in the Option Agreement. If,
after the Optionholder's death, the Option is not exercised within the time
specified herein or in the Option Agreement (as applicable), the Option shall
terminate.

      (k) TERMINATION FOR CAUSE. Except as explicitly provided otherwise in an
Optionholder's Option Agreement, in the event that an Optionholder's Continuous
Service is terminated for Cause, the Option shall terminate upon the termination
date of such Optionholder's Continuous Service, and the Optionholder shall be
prohibited from exercising his or her Option from and after the time of such
termination of Continuous Service.

      (l) NON-EXEMPT EMPLOYEES. No Option granted to an Employee that is a
non-exempt employee for purposes of the Fair Labor Standards Act shall be first
exercisable for any shares of Common Stock until at least six months following
the date of grant of the Option. The foregoing provision is intended to operate
so that any income derived by a non-exempt employee in connection with the
exercise or vesting of an Option will be exempt from his or her regular rate of
pay.

7.    PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

      (a) STOCK PURCHASE AWARDS. Each Stock Purchase Award Agreement shall be in
such form and shall contain such terms and conditions as the Board shall deem
appropriate. To the extent consistent with the Company's Bylaws, at the Board's
election, shares of Common Stock may be (x) held in book entry form subject to
the Company's instructions until any restrictions relating to the Stock Purchase
Award lapse; or (y) evidenced by a certificate, which certificate shall be held
in such form and manner as determined by the Board. The terms and

                                      16.


conditions of Stock Purchase Award Agreements may change from time to time, and
the terms and conditions of separate Stock Purchase Award Agreements need not be
identical, provided, however, that each Stock Purchase Award Agreement shall
include (through incorporation of the provisions hereof by reference in the
Agreement or otherwise) the substance of each of the following provisions:

            (i) PURCHASE PRICE. At the time of the grant of a Stock Purchase
Award, the Board will determine the price to be paid by the Participant for each
share subject to the Stock Purchase Award which amount shall not be less than
50% of the Fair Market Value of the Common Stock subject to such Stock Award on
the date such Stock Award is granted. To the extent required by applicable law,
the price to be paid by the Participant for each share of the Stock Purchase
Award will not be less than the par value of a share of Common Stock.

            (ii) CONSIDERATION. At the time of the grant of a Stock Purchase
Award, the Board will determine the consideration permissible for the payment of
the purchase price of the Stock Purchase Award. The purchase price of Common
Stock acquired pursuant to the Stock Purchase Award shall be paid either: (a) in
cash or by check at the time of purchase, (b) by past services actually
rendered, or future services to be rendered, to the Company or an Affiliate, or
(c) in any other form of legal consideration that may be acceptable to the Board
in its sole discretion and permissible under applicable law.

            (iii) VESTING. Shares of Common Stock acquired under a Stock
Purchase Award may be subject to a share repurchase right or option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.

            (iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event
that a Participant's Continuous Service terminates, the Company shall have the
right, but not the obligation, to repurchase or otherwise reacquire, any or all
of the shares of Common Stock held by the Participant that have not vested as of
the date of termination under the terms of the Stock Purchase Award Agreement.
At the Board's election, the price paid for all shares of Common Stock so
repurchased or reacquired by the Company may be at the lesser of: (a) the Fair
Market Value on the relevant date, or (b) the Participant's original cost for
such shares. The Company shall not be required to exercise its repurchase or
reacquisition option until at least six (6) months (or such longer or shorter
period of time necessary to avoid a charge to earnings for financial accounting
purposes) have elapsed following the Participant's purchase of the shares of
Common Stock acquired pursuant to the Stock Purchase Award unless otherwise
determined by the Board or provided in the Stock Purchase Award Agreement.

            (v) TRANSFERABILITY. Rights to purchase or receive shares of Common
Stock granted under a Stock Purchase Award shall be transferable by the
Participant only upon such terms and conditions as are set forth in the Stock
Purchase Award Agreement, as the Board shall determine in its sole discretion,
and so long as Common Stock awarded under the Stock Purchase Award remains
subject to the terms of the Stock Purchase Award Agreement.

      (b) RESTRICTED STOCK AWARDS. Each Restricted Stock Award Agreement shall
be in such form and shall contain such terms and conditions as the Board shall
deem appropriate. To the extent consistent with the Company's Bylaws, at the
Board's election, shares of Common

                                      17.


Stock may be (x) held in book entry form subject to the Company's instructions
until any restrictions relating to the Restricted Stock Award lapse; or (y)
evidenced by a certificate, which certificate shall be held in such form and
manner as determined by the Board. The terms and conditions of Restricted Stock
Award Agreements may change from time to time, and the terms and conditions of
separate Restricted Stock Award Agreements need not be identical, provided,
however, that each Restricted Stock Award Agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:

            (i) CONSIDERATION. A Restricted Stock Award may be awarded in
consideration for (a) past services actually rendered, or future services to be
rendered, to the Company or an Affiliate, or (b) any other form of legal
consideration that may be acceptable to the Board in its sole discretion and
permissible under applicable law.

            (ii) VESTING. Shares of Common Stock awarded under the Restricted
Stock Award Agreement may be subject to forfeiture to the Company in accordance
with a vesting schedule to be determined by the Board.

            (iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event
a Participant's Continuous Service terminates, the Company may receive via a
forfeiture condition, any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination of Continuous
Service under the terms of the Restricted Stock Award Agreement.

            (iv) TRANSFERABILITY. Rights to acquire shares of Common Stock under
the Restricted Stock Award Agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in the Restricted Stock
Award Agreement, as the Board shall determine in its sole discretion, so long as
Common Stock awarded under the Restricted Stock Award Agreement remains subject
to the terms of the Restricted Stock Award Agreement.

      (c) RESTRICTED STOCK UNIT AWARDS. Each Restricted Stock Unit Award
Agreement shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate. The terms and conditions of Restricted Stock
Unit Award Agreements may change from time to time, and the terms and conditions
of separate Restricted Stock Unit Award Agreements need not be identical,
provided, however, that each Restricted Stock Unit Award Agreement shall include
(through incorporation of the provisions hereof by reference in the Agreement or
otherwise) the substance of each of the following provisions:

            (i) CONSIDERATION. At the time of grant of a Restricted Stock Unit
Award, the Board will determine the consideration, if any, to be paid by the
Participant upon delivery of each share of Common Stock subject to the
Restricted Stock Unit Award. The consideration to be paid (if any) by the
Participant for each share of Common Stock subject to a Restricted Stock Unit
Award may be paid in any form of legal consideration that may be acceptable to
the Board in its sole discretion and permissible under applicable law.

                                      18.




            (ii) VESTING. At the time of the grant of a Restricted Stock Unit
Award, the Board may impose such restrictions or conditions to the vesting of
the Restricted Stock Unit Award as it, in its sole discretion, deems
appropriate.

            (iii) PAYMENT. A Restricted Stock Unit Award may be settled by the
delivery of shares of Common Stock, their cash equivalent, any combination
thereof or in any other form of consideration, as determined by the Board and
contained in the Restricted Stock Unit Award Agreement.

            (iv) ADDITIONAL RESTRICTIONS. At the time of the grant of a
Restricted Stock Unit Award, the Board, as it deems appropriate, may impose such
restrictions or conditions that delay the delivery of the shares of Common Stock
(or their cash equivalent) subject to a Restricted Stock Unit Award to a time
after the vesting of such Restricted Stock Unit Award.

            (v) DIVIDEND EQUIVALENTS. Dividend equivalents may be credited in
respect of shares of Common Stock covered by a Restricted Stock Unit Award, as
determined by the Board and contained in the Restricted Stock Unit Award
Agreement. At the sole discretion of the Board, such dividend equivalents may be
converted into additional shares of Common Stock covered by the Restricted Stock
Unit Award in such manner as determined by the Board. Any additional shares
covered by the Restricted Stock Unit Award credited by reason of such dividend
equivalents will be subject to all the terms and conditions of the underlying
Restricted Stock Unit Award Agreement to which they relate.

            (vi) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Except as
otherwise provided in the applicable Restricted Stock Unit Award Agreement, such
portion of the Restricted Stock Unit Award that has not vested will be forfeited
upon the Participant's termination of Continuous Service.

            (vii) COMPLIANCE WITH SECTION 409A OF THE CODE. Notwithstanding
anything to the contrary set forth herein, any Restricted Stock Unit Award
granted under the Plan that is not exempt from the requirements of Section 409A
of the Code shall contain such provisions so that such Restricted Stock Unit
Award will comply with the requirements of Section 409A of the Code. Such
restrictions, if any, shall be determined by the Board and contained in the
Restricted Stock Unit Award Agreement evidencing such Restricted Stock Unit
Award. For example, such restrictions may include, without limitation, a
requirement that any Common Stock that is to be issued in a year following the
year in which the Restricted Stock Unit Award vests must be issued in accordance
with a fixed pre-determined schedule.

      (d) STOCK APPRECIATION RIGHTS. Each Stock Appreciation Right Agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. Stock Appreciation Rights may be granted as stand-alone
Stock Awards or in tandem with other Stock Awards. The terms and conditions of
Stock Appreciation Right Agreements may change from time to time, and the terms
and conditions of separate Stock Appreciation Right Agreements need not be
identical; provided, however, that each Stock Appreciation Right Agreement shall
include (through incorporation of the provisions hereof by reference in the
Agreement or otherwise) the substance of each of the following provisions:

                                      19.




            (i) TERM. No Stock Appreciation Right shall be exercisable after the
expiration of ten (10) years from the date of its grant or such shorter period
specified in the Stock Appreciation Right Agreement.

            (ii) STRIKE PRICE. Each Stock Appreciation Right will be denominated
in shares of Common Stock equivalents. The strike price of each Stock
Appreciation Right granted as a stand-alone or tandem Stock Award shall not be
less than one hundred percent (100%) of the Fair Market Value of the Common
Stock equivalents subject to the Stock Appreciation Right on the date of grant.

            (iii) CALCULATION OF APPRECIATION. The appreciation distribution
payable on the exercise of a Stock Appreciation Right will be not greater than
an amount equal to the excess of (a) the aggregate Fair Market Value (on the
date of the exercise of the Stock Appreciation Right) of a number of shares of
Common Stock equal to the number of share of Common Stock equivalents in which
the Participant is vested under such Stock Appreciation Right, and with respect
to which the Participant is exercising the Stock Appreciation Right on such
date, over (b) the strike price that will be determined by the Board at the time
of grant of the Stock Appreciation Right.

            (iv) VESTING. At the time of the grant of a Stock Appreciation
Right, the Board may impose such restrictions or conditions to the vesting of
such Stock Appreciation Right as it, in its sole discretion, deems appropriate.

            (v) EXERCISE. To exercise any outstanding Stock Appreciation Right,
the Participant must provide written notice of exercise to the Company in
compliance with the provisions of the Stock Appreciation Right Agreement
evidencing such Stock Appreciation Right.

            (vi) PAYMENT. The appreciation distribution in respect to a Stock
Appreciation Right may be paid in Common Stock, in cash, in any combination of
the two or in any other form of consideration, as determined by the Board and
contained in the Stock Appreciation Right Agreement evidencing such Stock
Appreciation Right.

            (vii) TERMINATION OF CONTINUOUS SERVICE. In the event that a
Participant's Continuous Service terminates (other than for Cause), the
Participant may exercise his or her Stock Appreciation Right (to the extent that
the Participant was entitled to exercise such Stock Appreciation Right as of the
date of termination) but only within such period of time ending on the earlier
of (a) the date three (3) months following the termination of the Participant's
Continuous Service (or such longer or shorter period specified in the Stock
Appreciation Right Agreement), or (b) the expiration of the term of the Stock
Appreciation Right as set forth in the Stock Appreciation Right Agreement. If,
after termination, the Participant does not exercise his or her Stock
Appreciation Right within the time specified herein or in the Stock Appreciation
Right Agreement (as applicable), the Stock Appreciation Right shall terminate.

            (viii) TERMINATION FOR CAUSE. Except as explicitly provided
otherwise in an Participant's Stock Appreciation Right Agreement, in the event
that a Participant's Continuous Service is terminated for Cause, the Stock
Appreciation Right shall terminate upon the

                                      20.


termination date of such Participant's Continuous Service, and the Participant
shall be prohibited from exercising his or her Stock Appreciation Right from and
after the time of such termination of Continuous Service.

            (ix) COMPLIANCE WITH SECTION 409A OF THE CODE. Notwithstanding
anything to the contrary set forth herein, any Stock Appreciation Rights granted
under the Plan that are not exempt from the requirements of Section 409A of the
Code shall contain such provisions so that such Stock Appreciation Rights will
comply with the requirements of Section 409A of the Code. Such restrictions, if
any, shall be determined by the Board and contained in the Stock Appreciation
Right Agreement evidencing such Stock Appreciation Right. For example, such
restrictions may include, without limitation, a requirement that a Stock
Appreciation Right that is to be paid wholly or partly in cash must be exercised
and paid in accordance with a fixed pre-determined schedule.

            (x) NON-EXEMPT EMPLOYEES. No Stock Appreciation Right granted to an
Employee that is a non-exempt employee for purposes of the Fair Labor Standards
Act shall be first exercisable until at least six months following the date of
grant of the Stock Appreciation Right. The foregoing provision is intended to
operate so that any income derived by a non-exempt employee in connection with
the exercise of a Stock Appreciation Right will be exempt from his or her
regular rate of pay.

      (e) PERFORMANCE AWARDS.

            (i) PERFORMANCE STOCK AWARDS. A Performance Stock Award is a Stock
Award that may be granted, may vest, or may be exercised based upon the
attainment during a Performance Period of certain Performance Goals. A
Performance Stock Award may, but need not, require the completion of a specified
period of Continuous Service. The length of any Performance Period, the
Performance Goals to be achieved during the Performance Period, and the measure
of whether and to what degree such Performance Goals have been attained shall be
conclusively determined by the Committee in its sole discretion. The maximum
benefit to be received by any Participant in any calendar year attributable to
Stock Awards described in this Section 7(e) shall not exceed the value of one
million (1,000,000) shares of Common Stock.

            (ii) PERFORMANCE CASH AWARDS. A Performance Cash Award is a cash
award that may be granted upon the attainment during a Performance Period of
certain Performance Goals. A Performance Cash Award may also require the
completion of a specified period of Continuous Service. The length of any
Performance Period, the Performance Goals to be achieved during the Performance
Period, and the measure of whether and to what degree such Performance Goals
have been attained shall be conclusively determined by the Committee in its sole
discretion. The maximum benefit to be received by any Participant in any
calendar year attributable to cash awards described in this Section 7(e) shall
not one million dollars ($1,000,000).

      (f) OTHER STOCK AWARDS. Other forms of Stock Awards valued in whole or in
part by reference to, or otherwise based on, Common Stock may be granted either
alone or in addition to Stock Awards provided for under Section 6 and the
preceding provisions of this Section 7. Subject to the provisions of the Plan,
the Board shall have sole and complete authority to

                                      21.


determine the persons to whom and the time or times at which such Other Stock
Awards will be granted, the number of shares of Common Stock (or the cash
equivalent thereof) to be granted pursuant to such Other Stock Awards and all
other terms and conditions of such Other Stock Awards.

8.    COVENANTS OF THE COMPANY.

      (a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.

      (b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Stock Awards and to issue and sell shares of Common
Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority that counsel for the
Company deems necessary for the lawful issuance and sale of Common Stock under
the Plan, the Company shall be relieved from any liability for failure to issue
and sell Common Stock upon exercise of such Stock Awards unless and until such
authority is obtained.

9.    USE OF PROCEEDS FROM SALES OF COMMON STOCK.

      Proceeds from the sale of shares of Common Stock pursuant to Stock Awards
shall constitute general funds of the Company.

10.   MISCELLANEOUS.

      (a) CORPORATE ACTION CONSTITUTING GRANT OF STOCK AWARDS. Corporate action
constituting an offer by the Company of Common Stock to any Participant under
the terms of a Stock Award shall be deemed completed as of the date of such
corporate action, unless otherwise determined by the Board, regardless of when
the instrument, certificate, or letter evidencing the Stock Award is actually
received or accepted by the Participant.

      (b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.

      (c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan, any Stock
Award Agreement or other instrument executed thereunder or in connection with
any Award granted pursuant to the Plan shall confer upon any Participant any
right to continue to serve the Company or an Affiliate in the capacity in effect
at the time the Stock Award was granted or shall affect the right of the Company
or an Affiliate to terminate (i) the employment of an Employee with or without
notice and with or without cause, (ii) the service of a Consultant pursuant to
the terms of such Consultant's agreement with the Company or an Affiliate, or
(iii) the service of a Director pursuant to the Bylaws of the Company or an
Affiliate, and any

                                      22.


applicable provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.

      (d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
any Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof that exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options, notwithstanding
any contrary provision of the applicable Option Agreement(s).

      (e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (x) the issuance of the shares
upon the exercise or acquisition of Common Stock under the Stock Award has been
registered under a then currently effective registration statement under the
Securities Act, or (y) as to any particular requirement, a determination is made
by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to comply
with applicable securities laws, including, but not limited to, legends
restricting the transfer of the Common Stock.

      (f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Company may, in its sole discretion, satisfy any
federal, state or local tax withholding obligation relating to a Stock Award by
any of the following means (in addition to the Company's right to withhold from
any compensation paid to the Participant by the Company) or by a combination of
such means: (i) causing the Participant to tender a cash payment; (ii)
withholding shares of Common Stock from the shares of Common Stock issued or
otherwise issuable to the Participant in connection with the Stock Award; or
(iii) by such other method as may be set forth in the Stock Award Agreement.

      (g) ELECTRONIC DELIVERY. Any reference herein to a "written" agreement or
document shall include any agreement or document delivered electronically or
posted on the Company's intranet.

11.   ADJUSTMENTS UPON CHANGES IN COMMON STOCK; OTHER CORPORATE EVENTS.

      (a) CAPITALIZATION ADJUSTMENTS. If any change is made in, or other events
occur with respect to, the Common Stock subject to the Plan or subject to any
Stock Award after the

                                      23.


IPO Date without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company (each a "CAPITALIZATION ADJUSTMENT")), the Board shall appropriately
adjust: (i) the class(es) and maximum number of securities subject to the Plan
pursuant to Section 4(a), (ii) the class(es) and maximum number of securities by
which the share reserve is to increase automatically each year pursuant to
Section 4(a), (iii) the class(es) and number of securities subject to each stock
award under the 2000 Plan that are added from time to time to the share reserve
under the Plan pursuant to Section 4(a), (iv) the class(es) and maximum number
of securities that may be issued pursuant to the exercise of Incentive Stock
Options pursuant to Section 4(c), (v) the class(es) and maximum number of
securities that may be awarded to any person pursuant to Section 5(c) and
7(e)(i) , and (vi) the class(es) and number of securities and price per share of
stock subject to outstanding Stock Awards. The Board shall make such
adjustments, and its determination shall be final, binding and conclusive.
(Notwithstanding the foregoing, the conversion of any convertible securities of
the Company shall not be treated as a transaction "without receipt of
consideration" by the Company.)

      (b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, all outstanding Stock Awards (other than Stock
Awards consisting of vested and outstanding shares of Common Stock not subject
to the Company's right of repurchase) shall terminate immediately prior to the
completion of such dissolution or liquidation, and the shares of Common Stock
subject to the Company's repurchase option may be repurchased by the Company
notwithstanding the fact that the holder of such Stock Award is providing
Continuous Service, provided, however, that the Board may, in its sole
discretion, cause some or all Stock Awards to become fully vested, exercisable
and/or no longer subject to repurchase or forfeiture (to the extent such Stock
Awards have not previously expired or terminated) before the dissolution or
liquidation is completed but contingent on its completion.

      (c) CORPORATE TRANSACTION. The following provisions shall apply to Stock
Awards in the event of a Corporate Transaction unless otherwise provided in the
instrument evidencing the Stock Award or any other written agreement between the
Company or any Affiliate and the holder of the Stock Award or unless otherwise
expressly provided by the Board at the time of grant of a Stock Award.

            (i) STOCK AWARDS MAY BE ASSUMED. In the event of a Corporate
Transaction, any surviving corporation or acquiring corporation (or the
surviving or acquiring corporation's parent company) may assume or continue any
or all Stock Awards outstanding under the Plan or may substitute similar stock
awards for Stock Awards outstanding under the Plan (including but not limited
to, awards to acquire the same consideration paid to the stockholders of the
Company pursuant to the Corporate Transaction), and any reacquisition or
repurchase rights held by the Company in respect of Common Stock issued pursuant
to Stock Awards may be assigned by the Company to the successor of the Company
(or the successor's parent company, if any), in connection with such Corporate
Transaction. A surviving corporation or acquiring corporation (or its parent)
may choose to assume or continue only a portion of a Stock Award or substitute a
similar stock award for only a portion of a Stock Award.

                                      24.


the terms of any assumption, continuation or substitution shall be set by the
Board in accordance with the provisions of Section 3.

            (ii) STOCK AWARDS HELD BY CURRENT PARTICIPANTS. In the event of a
Corporate Transaction in which the surviving corporation or acquiring
corporation (or its parent company) does not assume or continue such outstanding
Stock Awards or substitute similar stock awards for such outstanding Stock
Awards, then with respect to Stock Awards that have not been assumed, continued
or substituted and that are held by Participants whose Continuous Service has
not terminated prior to the effective time of the Corporate Transaction
(referred to as the "CURRENT PARTICIPANTS"), the vesting of such Stock Awards
(and, if applicable, the time at which such Stock Awards may be exercised) shall
(contingent upon the effectiveness of the Corporate Transaction) be accelerated
in full to a date prior to the effective time of such Corporate Transaction as
the Board shall determine (or, if the Board shall not determine such a date, to
the date that is five (5) days prior to the effective time of the Corporate
Transaction), and such Stock Awards shall terminate if not exercised (if
applicable) at or prior to the effective time of the Corporate Transaction, and
any reacquisition or repurchase rights held by the Company with respect to such
Stock Awards shall lapse (contingent upon the effectiveness of the Corporate
Transaction).

            (iii) STOCK AWARDS HELD BY PERSONS OTHER THAN CURRENT PARTICIPANTS.
In the event of a Corporate Transaction in which the surviving corporation or
acquiring corporation (or its parent company) does not assume or continue such
outstanding Stock Awards or substitute similar stock awards for such outstanding
Stock Awards, then with respect to Stock Awards that have not been assumed,
continued or substituted and that are held by persons other than Current
Participants, the vesting of such Stock Awards (and, if applicable, the time at
which such Stock Award may be exercised) shall not be accelerated and such Stock
Awards (other than a Stock Award consisting of vested and outstanding shares of
Common Stock not subject to the Company's right of repurchase) shall terminate
if not exercised (if applicable) prior to the effective time of the Corporate
Transaction; provided, however, that any reacquisition or repurchase rights held
by the Company with respect to such Stock Awards shall not terminate and may
continue to be exercised notwithstanding the Corporate Transaction.

            (iv) PAYMENT FOR STOCK AWARDS IN LIEU OF EXERCISE. Notwithstanding
the foregoing, in the event a Stock Award will terminate if not exercised prior
to the effective time of a Corporate Transaction, the Board may provide, in its
sole discretion, that the holder of such Stock Award may not exercise such Stock
Award but will receive a payment, in such form as may be determined by the
Board, equal in value to the excess, if any, of (a) the value of the property
the holder of the Stock Award would have received upon the exercise of the Stock
Award, over (b) any exercise price payable by such holder in connection with
such exercise.

            (v) CHANGE IN CONTROL. A Stock Award may be subject to additional
acceleration of vesting and exercisability upon or after a Change in Control as
may be provided in the Stock Award Agreement for such Stock Award or as may be
provided in any other written agreement between the Company or any Affiliate and
the Participant, but in the absence of such provision, no such acceleration
shall occur.


                                      25.



12.   TERMINATION OR SUSPENSION OF THE PLAN.

      (a) PLAN TERM. Unless sooner terminated by the Board pursuant to Section
3, the Plan shall automatically terminate on the day before the tenth (10th)
anniversary of the date the Plan is adopted by the Board or approved by the
stockholders of the Company, whichever is earlier. No Awards may be granted
under the Plan while the Plan is suspended or after it is terminated.

      (b) NO IMPAIRMENT OF RIGHTS. Termination of the Plan shall not impair
rights and obligations under any Award granted while the Plan is in effect
except with the written consent of the affected Participant.

13.   EFFECTIVE DATE OF PLAN.

      This Plan shall become effective on the IPO Date, but no Stock Award shall
be exercised (or, in the case of a Stock Purchase Award, Restricted Stock Award,
Restricted Stock Unit Award, or Other Stock Award, shall be granted) under this
Plan unless and until this Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.

14.   CHOICE OF LAW.

      The law of the State of California shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.




                                      26.

                            SGX PHARMACEUTICALS, INC.
                           2005 EQUITY INCENTIVE PLAN

                             STOCK OPTION AGREEMENT
              (INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)


      Pursuant to your Stock Option Grant Notice ("GRANT NOTICE") and this Stock
Option Agreement, SGX Pharmaceuticals, Inc. (the "COMPANY") has granted you an
option under its 2005 Equity Incentive Plan (the "PLAN") to purchase the number
of shares of the Company's Common Stock indicated in your Grant Notice at the
exercise price indicated in your Grant Notice. Capitalized terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.

      The details of your option are as follows:

      1. VESTING. Subject to the limitations contained herein, your option will
vest as provided in your Grant Notice, provided that vesting will cease upon the
termination of your Continuous Service.

      2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments.

      3. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or in any other manner PERMITTED BY YOUR
GRANT NOTICE, which may include one or more of the following:

            (a) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.

            (b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six (6)
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender



                                       1.



would violate the provisions of any law, regulation or agreement restricting the
redemption of the Company's stock.

            (c) Provided that at the time of exercise the Company has adopted
FAS 123, as revised, by a "net exercise" arrangement pursuant to which the
Company will reduce the number of shares of Common Stock issued upon exercise of
your option by the largest whole number of shares with a Fair Market Value that
does not exceed the aggregate exercise price; provided, however, the Company
shall accept a cash or other payment from you to the extent of any remaining
balance of the aggregate exercise price not satisfied by such holding back of
whole shares; provided, however, shares of Common Stock will no longer be
outstanding under your option and will not be exercisable thereafter to the
extent that (1) shares are used to pay the exercise price pursuant to the "net
exercise," (2) shares are delivered to you as a result of such exercise, and (3)
shares are withheld to satisfy tax withholding obligations.

      4. WHOLE SHARES. You may exercise your option only for whole shares of
Common Stock.

      5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option also must comply
with other applicable laws and regulations governing your option, and you may
not exercise your option if the Company determines that such exercise would not
be in material compliance with such laws and regulations.

      6. TERM. You may not exercise your option before the commencement of its
term or after its term expires. The term of your option commences on the Date of
Grant and expires upon the earliest of the following:

            (a) immediately upon the termination of your Continuous Service for
Cause;

            (b) three (3) months after the termination of your Continuous
Service for any reason other than Cause, Disability, or death or as a result of
Termination After Change in Control (defined below), provided that if during any
part of such three- (3-) month period you may not exercise your option solely
because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;

            (c) twelve (12) months after the termination of your Continuous
Service due to your Disability;

            (d) eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates for any reason other than Cause;

            (e) the Expiration Date indicated in your Grant Notice; or

                                       2.




            (f) the day before the tenth (10th) anniversary of the Date of
Grant.

      If your option is an Incentive Stock Option, note that to obtain the
federal income tax advantages associated with an Incentive Stock Option, the
Code requires that at all times beginning on the date of grant of your option
and ending on the day three (3) months before the date of your option's
exercise, you must be an employee of the Company or an Affiliate, except in the
event of your death or your permanent and total disability, as defined in
Section 22(e) of the Code. (The definition of disability in Section 22(e) of the
Code is different from the definition of the Disability under the Plan). The
Company has provided for extended exercisability of your option under certain
circumstances for your benefit but cannot guarantee that your option will
necessarily be treated as an Incentive Stock Option if you continue to provide
services to the Company or an Affiliate as a Consultant or Director after your
employment terminates or if you otherwise exercise your option more than three
(3) months after the date your employment with the Company or an Affiliate
terminates.

      7. EXERCISE.

            (a) You may exercise the vested portion of your option during its
term by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.

            (b) By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, or (2) the disposition of shares of Common Stock acquired upon such
exercise.

            (c) If your option is an Incentive Stock Option, by exercising your
option you agree that you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of your option that occurs within two (2) years after the
date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.

      8. TRANSFERABILITY.

            (a) If your option is an Incentive Stock Option, your option is not
transferable, except by will or by the laws of descent and distribution, and is
exercisable during your life only by you. Notwithstanding the foregoing, by
delivering written notice to the Company, in a form satisfactory to the Company,
you may designate a third party who, in the event of your death, shall
thereafter be entitled to exercise your option.

            (b) If your option is a Nonstatutory Stock Option, your option is
not transferable, except (i) by will or by the laws of descent and distribution,
(ii) with the prior written approval of the Company, by instrument to an inter
vivos or testamentary trust, in a form accepted by the Company, in which the
option is to be passed to beneficiaries upon the death of

                                       3.


the trustor (settlor) and (iii) with the prior written approval of the Company,
by gift, in a form accepted by the Company, to a permitted transferee under Rule
701 of the Securities Act.

      9. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective stockholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.

      10. WITHHOLDING OBLIGATIONS.

            (a) At the time you exercise your option, in whole or in part, or at
any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision as instructed by the Company (including by
means of a "cashless exercise" pursuant to a program developed under Regulation
T as promulgated by the Federal Reserve Board to the extent instructed by the
Company), for any sums required to satisfy the federal, state, local and foreign
tax withholding obligations of the Company or an Affiliate, if any, which arise
in connection with the exercise of your option.

            (b) The Company may, in its sole discretion, and in compliance with
any applicable legal conditions or restrictions, withhold from fully vested
shares of Common Stock otherwise issuable to you upon the exercise of your
option a number of whole shares of Common Stock having a Fair Market Value,
determined by the Company as of the date of exercise, not in excess of the
minimum amount of tax required to be withheld by law (or such lower amount as
may be necessary to avoid variable award accounting). Any adverse consequences
to you arising in connection with such share withholding procedure shall be your
sole responsibility.

            (c) You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares of Common Stock or release such shares of Common Stock from any escrow
provided for herein unless such obligations are satisfied.

      11. NOTICES. Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.

      12. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your option, and
is further subject to all interpretations, amendments, rules and regulations,
which may from time to time be promulgated and adopted pursuant to the Plan. In
the event of any conflict between the provisions of your option and those of the
Plan, the provisions of the Plan shall control except as expressly provided
herein.

                                       4.

                            SGX PHARMACEUTICALS, INC.
                            STOCK OPTION GRANT NOTICE
                          (2005 EQUITY INCENTIVE PLAN)


SGX Pharmaceuticals, Inc. (the "COMPANY"), pursuant to its 2005 Equity Incentive
Plan (the "PLAN"), hereby grants to Optionholder an option to purchase the
number of shares of the Company's Common Stock set forth below. This option is
subject to all of the terms and conditions as set forth herein and in the Stock
Option Agreement, the Plan and the Notice of Exercise, all of which are attached
hereto and incorporated herein in their entirety.

      Optionholder:
                                                  --------------------
      Date of Grant:
                                                  --------------------
      Vesting Commencement Date:
                                                  --------------------
      Number of Shares Subject to Option:
                                                  --------------------
      Exercise Price (Per Share):
                                                  --------------------
      Total Exercise Price:
                                                  --------------------
      Expiration Date:
                                                  --------------------


TYPE OF GRANT:      [ ] Incentive Stock Option(1)  [ ] Nonstatutory Stock Option

EXERCISE SCHEDULE:  Same as Vesting Schedule

VESTING SCHEDULE:   [1/4th of the shares vest one year after the Vesting
                    Commencement Date and 1/48th of the shares vest monthly
                    thereafter over the next three years.]

                    [OTHER]

PAYMENT:            By one or a combination of the following items (described in
                    the Stock Option Agreement and/or the Plan):

                    [ ] By cash or check

                    [ ] Pursuant to a Regulation T Program if the Shares are
                        publicly traded

                    [ ] By delivery of already-owned shares if the Shares are
                        publicly traded

                    [ ] Net exercise if the Company has adopted FAS 123, as
                        revised, at the time of such exercise

ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Stock Option Grant Notice, the
Stock Option Agreement and the Plan. Optionholder further acknowledges that as
of the Date of Grant, this Stock Option Grant Notice, the Stock Option Agreement
and the Plan set forth the entire understanding between Optionholder and the
Company regarding the acquisition of stock in the Company and supersede all
prior oral and written agreements on that subject with the exception of (i)
options previously granted and delivered to Optionholder under the Plan, and
(ii) the following agreements only:

      OTHER AGREEMENTS:
                                        ----------------------------------------

SGX PHARMACEUTICALS, INC.                    OPTIONHOLDER:

By:
   -------------------------------------     ------------------------------
                 Signature                              Signature

Title:                                       Date:
      ----------------------------------          -------------------------

Date:
     -----------------------------------

ATTACHMENTS: Stock Option Agreement, 2005 Equity Incentive Plan and Notice of
             Exercise


- ----------

(1) If this is an Incentive Stock Option, it (plus other outstanding Incentive
Stock Options) cannot be first exercisable for more than $100,000 in value
(measured by exercise price) in any calendar year. Any excess over $100,000 is a
Nonstatutory Stock Option.







                                  ATTACHMENT I

                             STOCK OPTION AGREEMENT





                                  ATTACHMENT II

                           2005 EQUITY INCENTIVE PLAN





                                 ATTACHMENT III

                               NOTICE OF EXERCISE

EX-10.4

                                                                    EXHIBIT 10.4

                            SGX PHARMACEUTICALS, INC.
                        2005 EMPLOYEE STOCK PURCHASE PLAN

              ADOPTED BY THE BOARD OF DIRECTORS: AUGUST 30, 2005
                   APPROVED BY STOCKHOLDERS: ________, 2005

1.    PURPOSE.

      (a) The purpose of the Plan is to provide a means by which Employees of
the Company and certain designated Related Corporations may be given an
opportunity to purchase shares of the Common Stock of the Company.

      (b) The Company, by means of the Plan, seeks to secure and retain the
services of current and new Employees and to provide incentives for such persons
to exert maximum efforts for the success of the Company and its Related
Corporations.

      (c) The Company intends that the Purchase Rights be considered options
issued under an Employee Stock Purchase Plan.

2.    DEFINITIONS.

      As used in the Plan and any Offering, unless otherwise specified, the
following terms have the meanings set forth below:

      (a) "BOARD" means the Board of Directors of the Company.

      (b) "CODE" means the Internal Revenue Code of 1986, as amended.

      (c) "COMMITTEE" means a committee appointed by the Board in accordance
with Section 3(c) of the Plan.

      (d) "COMMON STOCK" means the common stock of the Company.

      (e) "COMPANY" means SGX Pharmaceuticals, Inc., a Delaware corporation.

      (f) "CONTRIBUTIONS" means the payroll deductions and other additional
payments that a Participant contributes to fund the exercise of a Purchase
Right. A Participant may make payments not through payroll deductions only if
specifically provided for in the Offering, and then only if the Participant has
not already had the maximum permitted amount withheld through payroll deductions
during the Offering.

      (g) "CORPORATE TRANSACTION" means the occurrence, in a single transaction
or in a series of related transactions, of any one or more of the following
events:

            (i) a sale, lease, license or other disposition of all or
substantially all of the consolidated assets of the Company;


                                     - 1 -

            (ii) a sale or other disposition of at least ninety percent (90%) of
the outstanding securities of the Company;

            (iii) a merger, consolidation or similar transaction following which
the Company is not the surviving corporation; or

            (iv) a merger, consolidation or similar transaction following which
the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger, consolidation or similar
transaction are converted or exchanged by virtue of the merger, consolidation or
similar transaction into other property, whether in the form of securities, cash
or otherwise.

      (h) "DIRECTOR" means a member of the Board.

      (i) "ELIGIBLE EMPLOYEE" means an Employee who meets the requirements set
forth in the Offering for eligibility to participate in the Offering, provided
that such Employee also meets the requirements for eligibility to participate
set forth in the Plan.

      (j) "EMPLOYEE" means any person, including Officers and Directors, who is
employed for purposes of Section 423(b)(4) of the Code by the Company or a
Related Corporation. Neither service as a Director nor payment of a director's
fee shall be sufficient to make an individual an Employee of the Company or a
Related Corporation.

      (k) "EMPLOYEE STOCK PURCHASE PLAN" means a plan that grants Purchase
Rights intended to be options issued under an "employee stock purchase plan," as
that term is defined in Section 423(b) of the Code.

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

      (m) "FAIR MARKET VALUE" means the value of a security, as determined in
good faith by the Board. If the security is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of the security, unless otherwise determined by the Board,
shall be the closing sales price (rounded up where necessary to the nearest
whole cent) for such security (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the greatest
volume of trading in the relevant security of the Company) on the Trading Day
that is immediately prior to the relevant determination date, as reported in The
Wall Street Journal or such other source as the Board deems reliable. Unless
otherwise provided by the Board, if there is no closing sales price (or closing
bid if no sales were reported) for the security on the date in question, then
the Fair Market Value shall be the closing selling price (or closing bid if no
sales were reported) on the last preceding date for which such quotation exists.

      (n) "IPO DATE" means the date of the underwriting agreement between the
Company and the underwriter(s) managing the initial public offering of the
Common Stock, pursuant to which the Common Stock is priced for the initial
public offering.

      (o) "OFFERING" means the grant of Purchase Rights to purchase shares of
Common Stock under the Plan to Eligible Employees.


                                       2.

      (p) "OFFERING DATE" means a date selected by the Board for an Offering to
commence.

      (q) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

      (r) "PARTICIPANT" means an Eligible Employee who holds an outstanding
Purchase Right granted pursuant to the Plan.

      (s) "PLAN" means this SGX Pharmaceuticals, Inc. 2005 Employee Stock
Purchase Plan.

      (t) "PURCHASE DATE" means one or more dates during an Offering established
by the Board on which Purchase Rights shall be exercised and as of which
purchases of shares of Common Stock shall be carried out in accordance with such
Offering.

      (u) "PURCHASE PERIOD" means a period of time specified within an Offering
beginning on the Offering Date or on the next day following a Purchase Date
within an Offering and ending on a Purchase Date. An Offering may consist of one
or more Purchase Periods.

      (v) "PURCHASE RIGHT" means an option to purchase shares of Common Stock
granted pursuant to the Plan.

      (w) "RELATED CORPORATION" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

      (x) "SECURITIES ACT" means the Securities Act of 1933, as amended.

      (y) "TRADING DAY" means any day on which the exchange(s) or market(s) on
which shares of Common Stock are listed, whether it be an established stock
exchange, the Nasdaq National Market, the Nasdaq SmallCap Market or otherwise,
is open for trading.

3.    ADMINISTRATION.

      (a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in Section 3(c). Whether or
not the Board has delegated administration, the Board shall have the final power
to determine all questions of policy and expediency that may arise in the
administration of the Plan.

      (b) The Board (or the Committee) shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

            (i) To determine when and how Purchase Rights to purchase shares of
Common Stock shall be granted and the provisions of each Offering of such
Purchase Rights (which need not be identical).


                                       3.

            (ii) To designate from time to time which Related Corporations of
the Company shall be eligible to participate in the Plan.

            (iii) To construe and interpret the Plan and Purchase Rights, and to
establish, amend and revoke rules and regulations for the administration of the
Plan. The Board, in the exercise of this power, may correct any defect, omission
or inconsistency in the Plan, in a manner and to the extent it shall deem
necessary or expedient to make the Plan fully effective.

            (iv) To amend the Plan as provided in Section 15.

            (v) Generally, to exercise such powers and to perform such acts as
it deems necessary or expedient to promote the best interests of the Company and
its Related Corporations and to carry out the intent that the Plan be treated as
an Employee Stock Purchase Plan.

            (vi) To adopt such procedures and sub-plans as are necessary or
appropriate to permit participation in the Plan by Employees who are foreign
nationals or employed outside the United States.

      (c) The Board may delegate administration of the Plan to a Committee of
the Board composed of one (1) or more members of the Board. If administration of
the Plan is delegated to a Committee, the Committee shall have, in connection
with the administration of the Plan, the powers theretofore possessed by the
Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board some or all
of the powers previously delegated. If administration is delegated to a
Committee, references to the Board in this Plan and in the Offering document
shall thereafter be deemed to be to the Board or the Committee, as the case may
be.

      (d) All determinations, interpretations and constructions made by the
Board in good faith shall not be subject to review by any person and shall be
final, binding and conclusive on all persons.

4.    SHARES OF COMMON STOCK SUBJECT TO THE PLAN.

      Subject to the provisions of Section 14(a) relating to adjustments upon
changes in Common Stock, the stock that may be sold pursuant to Purchase Rights
granted under the Plan shall not exceed in the aggregate seven hundred fifty
thousand (750,000) shares of Common Stock, plus an annual increase to be added
on the first day of each Company fiscal year, beginning in 2007 and ending in
(and including) 2015, equal to the lesser of: (i) one percent (1%) of the total
number of shares of Common Stock outstanding on December 31st of the preceding
year (rounded to the nearest whole share), (ii) three hundred thousand (300,000)
shares of Common Stock, or (iii) an amount determined by the Board or a
Committee.

5.    GRANT OF PURCHASE RIGHTS; OFFERING.

      (a) The Board may from time to time grant or provide for the grant of
Purchase Rights to purchase shares of Common Stock under the Plan to Eligible
Employees in an Offering (consisting of one or more Purchase Periods) on an
Offering Date or Offering Dates selected by


                                       4.

the Board. Each Offering shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate, which shall comply with the
requirement of Section 423(b)(5) of the Code that all Employees granted Purchase
Rights shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in Sections 6 through 9, inclusive.

      (b) If a Participant has more than one Purchase Right outstanding under
the Plan, unless he or she otherwise indicates in agreements or notices
delivered hereunder: (i) each agreement or notice delivered by that Participant
shall be deemed to apply to all of his or her Purchase Rights under the Plan,
and (ii) a Purchase Right with a lower exercise price (or an earlier-granted
Purchase Right, if different Purchase Rights have identical exercise prices)
shall be exercised to the fullest possible extent before a Purchase Right with a
higher exercise price (or a later-granted Purchase Right if different Purchase
Rights have identical exercise prices) shall be exercised.

6.    ELIGIBILITY.

      (a) Purchase Rights may be granted only to Employees of the Company or, as
the Board may designate as provided in Section 3(b), to Employees of a Related
Corporation. Except as provided in Section 6(b), an Employee shall not be
eligible to be granted Purchase Rights under the Plan unless, on the Offering
Date, such Employee has been in the employ of the Company or the Related
Corporation, as the case may be, for such continuous period preceding such
Offering Date as the Board may require, but in no event shall the required
period of continuous employment be greater than two (2) years. In addition, the
Board may provide that no Employee shall be eligible to be granted Purchase
Rights under the Plan unless, on the Offering Date, such Employee's customary
employment with the Company or the Related Corporation is more than twenty (20)
hours per week and/or more than five (5) months per calendar year.

      (b) The Board may provide that each person who, during the course of an
Offering, first becomes an Eligible Employee shall, on a date or dates specified
in the Offering which coincides with the day on which such person becomes an
Eligible Employee or which occurs thereafter, receive a Purchase Right under
that Offering, which Purchase Right shall thereafter be deemed to be a part of
that Offering. Such Purchase Right shall have the same characteristics as any
Purchase Rights originally granted under that Offering, as described herein,
except that:

            (i) the date on which such Purchase Right is granted shall be the
"Offering Date" of such Purchase Right for all purposes, including determination
of the exercise price of such Purchase Right;

            (ii) the period of the Offering with respect to such Purchase Right
shall begin on its Offering Date and end coincident with the end of such
Offering; and


                                       5.

            (iii) the Board may provide that if such person first becomes an
Eligible Employee within a specified period of time before the end of the
Offering, he or she shall not receive any Purchase Right under that Offering.

      (c) No Employee shall be eligible for the grant of any Purchase Rights
under the Plan if, immediately after any such Purchase Rights are granted, such
Employee owns stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or of any Related
Corporation. For purposes of this Section 6(c), the rules of Section 424(d) of
the Code shall apply in determining the stock ownership of any Employee, and
stock which such Employee may purchase under all outstanding Purchase Rights and
options shall be treated as stock owned by such Employee.

      (d) As specified by Section 423(b)(8) of the Code, an Eligible Employee
may be granted Purchase Rights under the Plan only if such Purchase Rights,
together with any other rights granted under all Employee Stock Purchase Plans
of the Company and any Related Corporations, do not permit such Eligible
Employee's rights to purchase stock of the Company or any Related Corporation to
accrue at a rate which exceeds twenty five thousand dollars ($25,000) of Fair
Market Value of such stock (determined at the time such rights are granted, and
which, with respect to the Plan, shall be determined as of their respective
Offering Dates) for each calendar year in which such rights are outstanding at
any time.

      (e) Officers of the Company and any designated Related Corporation, if
they are otherwise Eligible Employees, shall be eligible to participate in
Offerings under the Plan. Notwithstanding the foregoing, the Board may provide
in an Offering that Employees who are highly compensated Employees within the
meaning of Section 423(b)(4)(D) of the Code shall not be eligible to
participate.

7.    PURCHASE RIGHTS; PURCHASE PRICE.

      (a) On each Offering Date, each Eligible Employee, pursuant to an Offering
made under the Plan, shall be granted a Purchase Right to purchase up to that
number of shares of Common Stock purchasable either with a percentage or with a
maximum dollar amount, as designated by the Board, but in either case not
exceeding fifteen percent (15%), of such Employee's Earnings (as defined by the
Board in each Offering) during the period that begins on the Offering Date (or
such later date as the Board determines for a particular Offering) and ends on
the date stated in the Offering, which date shall be no later than the end of
the Offering.

      (b) The Board shall establish one (1) or more Purchase Dates during an
Offering as of which Purchase Rights granted pursuant to that Offering shall be
exercised and purchases of shares of Common Stock shall be carried out in
accordance with such Offering.

      (c) In connection with each Offering made under the Plan, the Board may
specify a maximum number of shares of Common Stock that may be purchased by any
Participant on any Purchase Date during such Offering. In connection with each
Offering made under the Plan, the Board may specify a maximum


                                       6.

aggregate number of shares of Common Stock that may be purchased by all
Participants pursuant to such Offering. In addition, in connection with each
Offering that contains more than one Purchase Date, the Board may specify a
maximum aggregate number of shares of Common Stock that may be purchased by all
Participants on any Purchase Date under the Offering. If the aggregate purchase
of shares of Common Stock issuable upon exercise of Purchase Rights granted
under the Offering would exceed any such maximum aggregate number, then, in the
absence of any Board action otherwise, a pro rata allocation of the shares of
Common Stock available shall be made in as nearly a uniform manner as shall be
practicable and equitable.

      (d) The purchase price of shares of Common Stock acquired pursuant to
Purchase Rights shall be not less than the lesser of:

            (i) an amount equal to eighty-five percent (85%) of the Fair Market
Value of the shares of Common Stock on the Offering Date; or

            (ii) an amount equal to eighty-five percent (85%) of the Fair Market
Value of the shares of Common Stock on the applicable Purchase Date.

8.    PARTICIPATION; WITHDRAWAL; TERMINATION.

      (a) A Participant may elect to authorize payroll deductions pursuant to an
Offering under the Plan by completing and delivering to the Company, within the
time specified in the Offering, an enrollment form (in such form as the Company
may provide). Each such enrollment form shall authorize an amount of
Contributions expressed as a percentage of the submitting Participant's Earnings
(as defined in each Offering) during the Offering (not to exceed the maximum
percentage specified by the Board). Each Participant's Contributions shall
remain the property of the Participant at all times prior to the purchase of
Common Stock, but such Contributions may be commingled with the assets of the
Company and used for general corporate purposes except where applicable law
requires that Contributions be deposited with an independent third party. To the
extent provided in the Offering, a Participant may begin making Contributions
after the beginning of the Offering. To the extent provided in the Offering, a
Participant may thereafter reduce (including to zero) or increase his or her
Contributions. To the extent specifically provided in the Offering, in addition
to making Contributions by payroll deductions, a Participant may make
Contributions through the payment by cash or check prior to each Purchase Date
of the Offering.

      (b) During an Offering, a Participant may cease making Contributions and
withdraw from the Offering by delivering to the Company a notice of withdrawal
in such form as the Company may provide. Such withdrawal may be elected at any
time prior to the end of the Offering, except as provided otherwise in the
Offering. Upon such withdrawal from the Offering by a Participant, the Company
shall distribute to such Participant all of his or her accumulated Contributions
(reduced to the extent, if any, such Contributions have been used to acquire
shares of Common Stock for the Participant) under the Offering, and such
Participant's Purchase Right in that Offering shall thereupon terminate. A
Participant's withdrawal from an Offering shall have no effect upon such
Participant's eligibility to participate in any other Offerings under the Plan,
but such Participant shall be required to deliver a new enrollment form in order
to participate in subsequent Offerings.


                                       7.

      (c) Purchase Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon a Participant ceasing to be an Employee for any
reason or for no reason (subject to any post-employment participation period
required by law) or other lack of eligibility. The Company shall distribute to
such terminated or otherwise ineligible Employee all of his or her accumulated
Contributions (reduced to the extent, if any, such Contributions have been used
to acquire shares of Common Stock for the terminated or otherwise ineligible
Employee) under the Offering.

      (d) Purchase Rights shall not be transferable by a Participant otherwise
than by will, the laws of descent and distribution, or a beneficiary designation
as provided in Section 13. During a Participant's lifetime, Purchase Rights
shall be exercisable only by such Participant.

      (e) Unless otherwise specified in an Offering, the Company shall have no
obligation to pay interest on Contributions.

9.    EXERCISE.

      (a) On each Purchase Date during an Offering, each Participant's
accumulated Contributions shall be applied to the purchase of shares of Common
Stock up to the maximum number of shares of Common Stock permitted pursuant to
the terms of the Plan and the applicable Offering, at the purchase price
specified in the Offering. No fractional shares shall be issued upon the
exercise of Purchase Rights unless specifically provided for in the Offering.

      (b) If any amount of accumulated Contributions remains in a Participant's
account after the purchase of shares of Common Stock and such remaining amount
is less than the amount required to purchase one share of Common Stock on the
final Purchase Date of an Offering, then such remaining amount shall be held in
such Participant's account for the purchase of shares of Common Stock under the
next Offering under the Plan, unless such Participant withdraws from such next
Offering, as provided in Section 8(b), or is not eligible to participate in such
Offering, as provided in Section 6, in which case such amount shall be
distributed to such Participant after the final Purchase Date, without interest.
If the amount of Contributions remaining in a Participant's account after the
purchase of shares of Common Stock is at least equal to the amount required to
purchase one (1) whole share of Common Stock on the final Purchase Date of the
Offering, then such remaining amount shall be distributed in full to such
Participant at the end of the Offering.

      (c) No Purchase Rights may be exercised to any extent unless the shares of
Common Stock to be issued upon such exercise under the Plan are covered by an
effective registration statement pursuant to the Securities Act and the Plan is
in material compliance with all laws applicable to the Plan. If on a Purchase
Date during any Offering hereunder the shares of Common Stock are not so
registered or the Plan is not in such compliance, no Purchase Rights or any
Offering shall be exercised on such Purchase Date, and the Purchase Date shall
be delayed until the shares of Common Stock are subject to such an effective
registration statement and the Plan is in such compliance, except that the
Purchase Date shall not be delayed more than twelve (12) months and the Purchase
Date shall in no event be more than twenty-seven (27) months from the Offering
Date. If, on the Purchase Date under any Offering hereunder, as delayed to the
maximum extent permissible, the shares of Common Stock are not registered and
the Plan is not


                                       8.

in such compliance, no Purchase Rights or any Offering shall be exercised and
all Contributions accumulated during the Offering (reduced to the extent, if
any, such Contributions have been used to acquire shares of Common Stock) shall
be distributed to the Participants.

10.   COVENANTS OF THE COMPANY.

      The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of Common Stock upon
exercise of the Purchase Rights. If, after commercially reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority that counsel for the Company deems necessary for the lawful issuance
and sale of shares of Common Stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell shares of Common Stock upon
exercise of such Purchase Rights unless and until such authority is obtained.

11.   USE OF PROCEEDS FROM SHARES OF COMMON STOCK.

      Proceeds from the sale of shares of Common Stock pursuant to Purchase
Rights shall constitute general funds of the Company.

12.   RIGHTS AS A STOCKHOLDER.

      A Participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, shares of Common Stock subject to
Purchase Rights unless and until the Participant's shares of Common Stock
acquired upon exercise of Purchase Rights are recorded in the books of the
Company (or its transfer agent).

13.   DESIGNATION OF BENEFICIARY.

      (a) A Participant may file a written designation of a beneficiary who is
to receive any shares of Common Stock and/or cash, if any, from the
Participant's account under the Plan in the event of such Participant's death
subsequent to the end of an Offering but prior to delivery to the Participant of
such shares of Common Stock or cash. In addition, a Participant may file a
written designation of a beneficiary who is to receive any cash from the
Participant's account under the Plan in the event of such Participant's death
during an Offering. Any such designation shall be on a form provided by or
otherwise acceptable to the Company.

      (b) The Participant may change such designation of beneficiary at any time
by written notice to the Company. In the event of the death of a Participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such Participant's death, the Company shall deliver such shares
of Common Stock and/or cash to the executor or administrator of the estate of
the Participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its sole discretion, may deliver
such shares of Common Stock and/or cash to the spouse or to any one or more
dependents or relatives of the Participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.


                                       9.

14.   ADJUSTMENTS UPON CHANGES IN SECURITIES; CORPORATE TRANSACTIONS.

      (a) If any change is made in the shares of Common Stock, subject to the
Plan, or subject to any Purchase Right, without the receipt of consideration by
the Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan shall be appropriately adjusted in the
type(s), class(es) and maximum number of shares of Common Stock subject to the
Plan pursuant to Section 4, and the outstanding Purchase Rights shall be
appropriately adjusted in the type(s), class(es), number of shares and purchase
limits of such outstanding Purchase Rights. The Board shall make such
adjustments, and its determination shall be final, binding and conclusive.
(Notwithstanding the foregoing, the conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")

      (b) In the event of a Corporate Transaction, then: (i) any surviving or
acquiring corporation may continue or assume Purchase Rights outstanding under
the Plan or may substitute similar rights (including a right to acquire the same
consideration paid to stockholders in the Corporate Transaction) for those
outstanding under the Plan, or (ii) if any surviving or acquiring corporation
does not continue or assume such Purchase Rights or does not substitute similar
rights for Purchase Rights outstanding under the Plan, then, the Participants'
accumulated Contributions shall be used to purchase shares of Common Stock
within ten (10) business days prior to the Corporate Transaction under the
ongoing Offering, and the Participants' Purchase Rights under the ongoing
Offering shall terminate immediately after such purchase.

15.   AMENDMENT OF THE PLAN.

      (a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 14 relating to adjustments upon changes
in securities and except as to amendments solely to benefit the administration
of the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory treatment for Participants or the
Company or any Related Corporation, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary for the Plan to satisfy the requirements of Section 423 of the Code
or other applicable laws or regulations.

      (b) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Employee Stock Purchase Plans
or to bring the Plan and/or Purchase Rights into compliance therewith.

      (c) The rights and obligations under any Purchase Rights granted before
amendment of the Plan shall not be impaired by any amendment of the Plan except:
(i) with the consent of the person to whom such Purchase Rights were granted, or
(ii) as necessary to comply with any laws or governmental regulations
(including, without limitation, the provisions of the Code and the regulations
promulgated thereunder relating to Employee Stock Purchase Plans).


                                      10.

16.   TERMINATION OR SUSPENSION OF THE PLAN.

      (a) The Board in its discretion may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate at the time that all of
the shares of Common Stock reserved for issuance under the Plan, as increased
and/or adjusted from time to time, have been issued under the terms of the Plan.
No Purchase Rights may be granted under the Plan while the Plan is suspended or
after it is terminated.

      (b) Any benefits, privileges, entitlements and obligations under any
Purchase Rights while the Plan is in effect shall not be impaired by suspension
or termination of the Plan except (i) as expressly provided in the Plan or with
the consent of the person to whom such Purchase Rights were granted, (ii) as
necessary to comply with any laws, regulations, or listing requirements, or
(iii) as necessary to ensure that the Plan and/or Purchase Rights comply with
the requirements of Section 423 of the Code.

17.   EFFECTIVE DATE OF PLAN.

      The Plan shall become effective on the IPO Date, but no Purchase Rights
shall be exercised unless and until the Plan has been approved by the
stockholders of the Company within twelve (12) months before or after the date
the Plan is adopted by the Board.

18.   MISCELLANEOUS PROVISIONS.

      (a) The Plan and Offering do not constitute an employment contract.
Nothing in the Plan or in the Offering shall in any way alter the at will nature
of a Participant's employment or be deemed to create in any way whatsoever any
obligation on the part of any Participant to continue in the employ of the
Company or a Related Corporation, or on the part of the Company or a Related
Corporation to continue the employment of a Participant.

      (b) The provisions of the Plan shall be governed by the law of the State
of California without resort to that state's conflicts of laws rules.


                                      11.

                            SGX PHARMACEUTICALS, INC.

                        2005 EMPLOYEE STOCK PURCHASE PLAN
                                    OFFERING

              ADOPTED BY THE BOARD OF DIRECTORS: AUGUST 30, 2005


      In this document, capitalized terms not otherwise defined shall have
the same definitions of such terms as in the SGX Pharmaceuticals, Inc. 2005
Employee Stock Purchase Plan.

1.    GRANT; OFFERING DATE.

      (a) The Board hereby authorizes a series of Offerings pursuant to the
terms of this Offering document.

      (b) The first Offering hereunder (the "Initial Offering") shall begin on
the closing date of the initial public offering of the Company's Common Stock
under a registration statement declared effective under the Securities Act (the
"IPO Date") and shall end approximately 24 months following IPO Date, unless
terminated earlier as provided below. After the Initial Offering, an additional
new Offering shall begin on the day after the first Purchase Date of the
immediately preceding Offering. The first day of an Offering is that Offering's
"Offering Date." Except as provided below, each Offering shall be approximately
twenty-four (24) months in duration, with four (4) Purchase Periods which shall
be six (6) months in length, except for the first and second Purchase Periods of
the Initial Offering which may be longer or shorter and shall be approximately
six (6) months in length. Except as provided below, a Purchase Date is the last
day of a Purchase Period or of an Offering, as the case may be. The Initial
Offering shall consist of four (4) Purchase Periods with the first Purchase
Period of the Initial Offering ending approximately 6 months following IPO date
and the second Purchase Period of the Initial Offering ending approximately 12
months following the IPO date.

      (c) Notwithstanding the foregoing: (i) if any Offering Date falls on a day
that is not a Trading Day, then such Offering Date shall instead fall on the
next subsequent Trading Day, and (ii) if any Purchase Date falls on a day that
is not a Trading Day, then such Purchase Date shall instead fall on the
immediately preceding Trading Day.

      (d) Prior to the commencement of any Offering, the Board may change any or
all terms of such Offering and any subsequent Offerings. The granting of
Purchase Rights pursuant to each Offering hereunder shall occur on each
respective Offering Date unless prior to such date (i) the Board determines that
such Offering shall not occur, or (ii) no shares of Common Stock remain
available for issuance under the Plan in connection with the Offering.

      (e) Notwithstanding anything in this Section 1 to the contrary, if on the
first day of a Purchase Period during an Offering the Fair Market Value of the
shares of Common Stock is less


                                       1.

than it was on the Offering Date for that Offering, that day shall become the
next Offering Date, the Offering that would otherwise have continued in effect
shall immediately terminate and the Employees who were enrolled in the
terminated Offering shall automatically be enrolled in the new Offering that
starts such day.

      (f) If the Company's accountants advise the Company that the accounting
treatment of purchases under the Plan will change or has changed in a manner
that the Company determines is detrimental to its best interests, then the
Company may, in its discretion, take any or all of the following actions: (i)
terminate each ongoing Offering as of the next Purchase Date (after the purchase
of stock on such Purchase Date) under such Offering; (ii) set a new Purchase
Date for each ongoing Offering and terminate each such Offering after the
purchase of stock on such Purchase Date; (iii) amend the Plan and each ongoing
Offering to reduce or eliminate an accounting treatment that is detrimental to
the Company's best interests and (iv) terminate each ongoing Offering and refund
any money contributed to the Participants.

2.    ELIGIBLE EMPLOYEES.

      (a) Each Eligible Employee who, on the date that is fourteen (14) days
prior to the Offering Date of an Offering hereunder, is (i) an employee of the
Company; (ii) an employee of a Subsidiary incorporated in the United States; or
(iii) an employee of a Subsidiary that is not incorporated in the United States,
provided that the Board or Committee has designated the employees of such
Subsidiary as eligible to participate in the Offering, shall be granted a
Purchase Right on the Offering Date of such Offering.

      (b) Notwithstanding the foregoing, the following Employees shall not be
Eligible Employees or be granted Purchase Rights under an Offering:

            (i) part-time or seasonal Employees whose customary employment is
twenty (20) hours per week or less;

            (ii) part-time or seasonal Employees whose customary employment is
five (5) months per calendar year or less;

            (iii) five percent (5%) stockholders (including ownership through
unexercised and/or unvested stock options) as described in Section 6(c) of the
Plan; or

            (iv) Employees in jurisdictions outside of the United States if, as
of the Offering Date of the Offering, the grant of such Purchase Rights would
not be in compliance with the applicable laws of any jurisdiction in which the
Employee resides or is employed.

      (c) Notwithstanding the foregoing, each person who first becomes an
Eligible Employee during an ongoing Offering shall not be able to participate in
such Offering.

3.    PURCHASE RIGHTS.

      (a) Subject to the limitations set forth herein and in the Plan, a
Participant's Purchase Right shall permit the purchase of the number of shares
of Common Stock purchasable with up to fifteen percent (15%) of such
Participant's Earnings paid during the period of such Offering


                                       2.

beginning immediately after such Participant first commences participation;
provided, however, that no Participant may have more than fifteen percent (15%)
of such Participant's Earnings applied to purchase shares of Common Stock under
all ongoing Offerings under the Plan and all other plans of the Company and
Related Corporations that are intended to qualify as Employee Stock Purchase
Plans.

      (b) For Offerings hereunder, "Earnings" means the base compensation paid
to a Participant, including all salary, wages and overtime pay (including
amounts elected to be deferred by the Participant, that would otherwise have
been paid, under any cash or deferred arrangement or other deferred compensation
program established by the Company or a Related Corporation), but excluding all
of the following: (i) all commissions, bonuses, and other remuneration paid
directly to such Participant, (ii) profit sharing, (iii) the cost of employee
benefits paid for by the Company or a Related Corporation, (iv) education or
tuition reimbursements, (v) imputed income arising under any Company or a
Related Corporation group insurance or benefit program, (vi) traveling expenses,
(vii) business and moving expense reimbursements, (viii) income received in
connection with stock options, (ix) contributions made by the Company or a
Related Corporation under any employee benefit plan, and (x) other similar items
of compensation.

      (c) Notwithstanding the foregoing, the maximum number of shares of Common
Stock that a Participant may purchase on any Purchase Date in an Offering shall
be such number of shares as has a Fair Market Value (determined as of the
Offering Date for such Offering) equal to (x) $25,000 multiplied by the number
of calendar years in which the Purchase Right under such Offering has been
outstanding at any time, minus (y) the Fair Market Value of any other shares of
Common Stock (determined as of the relevant Offering Date with respect to such
shares) that, for purposes of the limitation of Section 423(b)(8) of the Code,
are attributed to any of such calendar years in which the Purchase Right is
outstanding. The amount in clause (y) of the previous sentence shall be
determined in accordance with regulations applicable under Section 423(b)(8) of
the Code based on (i) the number of shares previously purchased with respect to
such calendar years pursuant to such Offering or any other Offering under the
Plan, or pursuant to any other Company or Related Corporation plans intended to
qualify as Employee Stock Purchase Plans, and (ii) the number of shares subject
to other Purchase Rights outstanding on the Offering Date for such Offering
pursuant to the Plan or any other such Company or Related Corporation Employee
Stock Purchase Plan.

      (d) The maximum aggregate number of shares of Common Stock available to be
purchased by all Participants under an Offering shall be the number of shares of
Common Stock remaining available under the Plan on the Offering Date. If the
aggregate purchase of shares of Common Stock upon exercise of Purchase Rights
granted under the Offering would exceed the maximum aggregate number of shares
available, the Board shall make a pro rata allocation of the shares available in
a uniform and equitable manner.

      (e) Notwithstanding the foregoing, the maximum number of shares of Common
Stock that an Eligible Employee may purchase on any Purchase Date shall not
exceed fifteen thousand (15,000) shares.


                                       3.

4.    PURCHASE PRICE.

      The purchase price of shares of Common Stock under an Offering shall be
the lesser of: (i) eighty-five percent (85%) of the Fair Market Value of such
shares of Common Stock on the applicable Offering Date, or (ii) eighty-five
percent (85%) of the Fair Market Value of such shares of Common Stock on the
applicable Purchase Date, in each case rounded up to the nearest whole cent per
share. For the Initial Offering, the Fair Market Value of the shares of Common
Stock at the time when the Offering commences shall be the price per share at
which shares are first sold to the public in the Company's initial public
offering as specified in the final prospectus for that initial public offering.

5.    PARTICIPATION.

      (a) An Eligible Employee may elect to participate in an Offering on the
Offering Date. An Eligible Employee shall elect his or her payroll deduction
percentage on such enrollment form as the Company provides. The completed
enrollment form must be delivered to the Company prior to the date participation
is to be effective, unless a later time for filing the enrollment form is set by
the Company for all Eligible Employees with respect to a given Offering. Payroll
deduction percentages must be expressed in whole percentages of Earnings, with a
minimum percentage of one percent (1%) and a maximum percentage of fifteen
percent (15%). Except as provided in paragraph (f) below with respect to the
Initial Offering, Contributions may be made only by way of payroll deductions.

      (b) A Participant may increase or decrease his or her participation level
at any time during an Offering with such change to be effective commencing as of
the next Purchase Period. Any such increase or decrease in participation level
shall be made by delivering a notice to the Company or a designated Subsidiary
in such form as the Company provides prior to the ten (10) day period (or such
shorter period of time as determined by the Company and communicated to
Participants) immediately preceding the next Purchase Period for which it is to
commence.

      (c) A Participant may decrease (including a decrease to zero percent (0%))
his or her participation level no more than twice during a Purchase Period (and
the second decrease in participation level must be to zero percent (0%)). Any
such change in participation level shall be made by delivering a notice to the
Company or a designated Related Corporation in such form as the Company provides
prior to the ten (10) day period (or such shorter period of time as determined
by the Company and communicated to Participants) immediately preceding the next
Purchase Date of the Purchase Period for which it is to be effective. Such
change will become effective as soon as administratively practicable following
the Company's receipt of the notice.

      (d) A Participant may withdraw from an Offering and receive a refund of
his or her Contributions (reduced to the extent, if any, such Contributions have
been used to acquire shares of Common Stock for the Participant on any prior
Purchase Date) without interest, at any time prior to the end of the Offering,
excluding only each ten (10) day period immediately preceding a Purchase Date
(or such shorter period of time determined by the Company and communicated to
Participants), by delivering a withdrawal notice to the Company or a designated
Subsidiary in such form as the Company provides. A Participant who has withdrawn
from an Offering shall


                                       4.

not again participate in such Offering, but may participate in subsequent
Offerings under the Plan in accordance with the terms of the Plan and the terms
of such subsequent Offerings.

      (e) Notwithstanding the foregoing or any other provision of this Offering
document or of the Plan to the contrary, neither the enrollment of any Eligible
Employee in the Plan nor any forms relating to participation in the Plan shall
be given effect until such time as a registration statement covering the
registration of the shares under the Plan that are subject to the Offering has
been filed by the Company and has become effective.

      (f) Notwithstanding the foregoing or any other provision of this Offering
document or of the Plan to the contrary, with respect to the Initial Offering
only, each Eligible Employee who is employed on the IPO Date automatically shall
be enrolled in the Initial Offering, with a Purchase Right to purchase up to the
number of shares of Common Stock that are purchasable with fifteen percent (15%)
of the Eligible Employee's Earnings, subject to the limitations set forth in
Section 3(c) - 3(e) above. Following the filing of an effective registration
statement pursuant to a Form S-8, such Eligible Employee shall be provided a
certain period of time, as determined by the Company in its sole discretion,
within which to elect to authorize payroll deductions for the purchase of shares
during the Initial Offering (which may be for a percentage that is less than
fifteen percent (15%) of the Eligible Employee's Earnings). If such Eligible
Employee elects not to authorize such payroll deductions, the Eligible Employee
instead may purchase shares of Common Stock under the Plan by delivering a
single cash payment for the purchase of such shares to the Company or a
designated Subsidiary prior to the ten (10) day period (or such shorter period
of time as determined by the Company and communicated to Participants)
immediately preceding the Purchase Date under the Initial Offering. If an
Eligible Employee neither elects to authorize payroll deductions nor chooses to
make a cash payment in accordance with the foregoing sentence, then the Eligible
Employee shall not purchase any shares of Common Stock during the Initial
Offering. After the end of the Initial Offering, in order to participate in any
subsequent Offerings, an Eligible Employee must enroll and authorize payroll
deductions prior to the commencement of the Offering, in accordance with
paragraph (a) above; provided, however, that once an Eligible Employee enrolls
in an Offering and authorizes payroll deductions (including in connection with
the Initial Offering), the Eligible Employee automatically shall be enrolled for
all subsequent Offerings until he or she elects to withdraw from an Offering
pursuant to paragraph (c) above or terminates his or her participation in the
Plan.

6.    PURCHASES.

      Subject to the limitations contained herein, on each Purchase Date, each
Participant's Contributions (without any increase for interest) shall be applied
to the purchase of whole shares, up to the maximum number of shares permitted
under the Plan and the Offering.

7.    NOTICES AND AGREEMENTS.

      Any notices or agreements provided for in an Offering or the Plan shall be
given in writing, in a form provided by the Company, and unless specifically
provided for in the Plan or this Offering, shall be deemed effectively given
upon receipt or, in the case of notices and


                                       5.

agreements delivered by the Company, five (5) days after deposit in the United
States mail, postage prepaid.

8.    EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.

      The Purchase Rights granted under an Offering are subject to the approval
of the Plan by the stockholders of the Company as required for the Plan to
obtain treatment as an Employee Stock Purchase Plan.

9.    OFFERING SUBJECT TO PLAN.

      Each Offering is subject to all the provisions of the Plan, and the
provisions of the Plan are hereby made a part of the Offering. The Offering is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of an Offering and those of the
Plan (including interpretations, amendments, rules and regulations which may
from time to time be promulgated and adopted pursuant to the Plan), the
provisions of the Plan shall control.


                                       6.

EX-10.5

                                                                    EXHIBIT 10.5

                            SGX PHARMACEUTICALS, INC.

                 2005 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

                  ADOPTED BY BOARD OF DIRECTORS AUGUST 30, 2005
                    APPROVED BY STOCKHOLDERS __________, 2005
                        EFFECTIVE DATE: __________, 2005

1. PURPOSES.

      (a) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options
are the Non-Employee Directors of the Company.

      (b) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.

      (c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of its current Non-Employee Directors, to secure and retain the
services of new Non-Employee Directors and to provide incentives for such
persons to exert maximum efforts for the success of the Company and its
Affiliates.

2. DEFINITIONS.

      (a) "AFFILIATE" means, at the time of determination, any "parent" or
"subsidiary" as such terms are defined in Rule 405 of the Securities Act. The
Board shall have the authority to determine the time or times at which "parent"
or "subsidiary" status is determined within the foregoing definition.

      (b) "ANNUAL GRANT" means an Option granted annually to all Non-Employee
Directors who meet the specified criteria pursuant to Section 6(b).

      (c) "ANNUAL MEETING" means the annual meeting of the stockholders of the
Company.

      (d) "BOARD" means the Board of Directors of the Company.

      (e) "CAPITALIZATION ADJUSTMENT" has the meaning ascribed to that term in
Section 11(a).

      (f) "CHANGE IN CONTROL" means the occurrence, in a single transaction or
in a series of related transactions, of any one or more of the following events:

            (i) any Exchange Act Person becomes the Owner, directly or
indirectly, of securities of the Company representing more than fifty percent
(50%) of the combined voting power of the Company's then outstanding securities
other than by virtue of a merger,


                                       1.


consolidation or similar transaction. Notwithstanding the foregoing, a Change in
Control shall not be deemed to occur (A) on account of the acquisition of
securities of the Company by an investor, any affiliate thereof or any other
Exchange Act Person from the Company in a transaction or series of related
transactions the primary purpose of which is to obtain financing for the Company
through the issuance of equity securities or (B) solely because the level of
Ownership held by any Exchange Act Person (the "SUBJECT PERSON") exceeds the
designated percentage threshold of the outstanding voting securities as a result
of a repurchase or other acquisition of voting securities by the Company
reducing the number of shares outstanding, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of voting securities by the Company, and after such share
acquisition, the Subject Person becomes the Owner of any additional voting
securities that, assuming the repurchase or other acquisition had not occurred,
increases the percentage of the then outstanding voting securities Owned by the
Subject Person over the designated percentage threshold, then a Change in
Control shall be deemed to occur;

            (ii) there is consummated a merger, consolidation or similar
transaction involving (directly or indirectly) the Company and, immediately
after the consummation of such merger, consolidation or similar transaction, the
stockholders of the Company immediately prior thereto do not Own, directly or
indirectly, either (A) outstanding voting securities representing more than
fifty percent (50%) of the combined outstanding voting power of the surviving
Entity in such merger, consolidation or similar transaction or (B) more than
fifty percent (50%) of the combined outstanding voting power of the parent of
the surviving Entity in such merger, consolidation or similar transaction, in
each case in substantially the same proportions as their Ownership of the
outstanding voting securities of the Company immediately prior to such
transaction;

            (iii) the stockholders of the Company approve or the Board approves
a plan of complete dissolution or liquidation of the Company, or a complete
dissolution or liquidation of the Company shall otherwise occur;

            (iv) there is consummated a sale, lease, exclusive license or other
disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries, other than a sale, lease, license or other
disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the
combined voting power of the voting securities of which are Owned by
stockholders of the Company in substantially the same proportions as their
Ownership of the outstanding voting securities of the Company immediately prior
to such sale, lease, license or other disposition; or

            (v) individuals who, on the date this Plan is adopted by the Board,
are members of the Board (the "INCUMBENT BOARD") cease for any reason to
constitute at least a majority of the members of the Board; provided, however,
that if the appointment or election (or nomination for election) of any new
Board member was approved or recommended by a majority vote of the members of
the Incumbent Board then still in office, such new member shall, for purposes of
this Plan, be considered as a member of the Incumbent Board.

      The term Change in Control shall not include a sale of assets, merger or
other transaction effected exclusively for the purpose of changing the domicile
of the Company.


                                       2.


      Notwithstanding the foregoing or any other provision of this Plan, the
definition of Change in Control (or any analogous term) in an individual written
agreement between the Company or any Affiliate and the Participant shall
supersede the foregoing definition with respect to Stock Awards subject to such
agreement where such agreement provides for acceleration of vesting of such
Stock Awards in the event of a Change in Control; provided, however, that if no
definition of Change in Control or any analogous term is set forth in such an
individual written agreement, the foregoing definition shall apply.

      (g) "CODE" means the Internal Revenue Code of 1986, as amended.

      (h) "COMMITTEE" means a committee of one (1) or more members of the Board
appointed by the Board in accordance with Section 3(c).

      (i) "COMMON STOCK" means the common stock of the Company.

      (j) "COMPANY" means SGX Pharmaceuticals, Inc., a Delaware corporation.

      (k) "CONSULTANT" means any person, including an advisor, who (i) is
engaged by the Company or an Affiliate to render consulting or advisory services
and is compensated for such services or (ii) is serving as a member of the Board
of Directors of an Affiliate and is compensated for such services. However,
service solely as a Director, or payment of a fee for such services, shall not
cause a Director to be considered a "Consultant" for purposes of the Plan.

      (l) "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. A change in the capacity in which the Optionholder
renders service to the Company or an Affiliate as an Employee, Consultant or
Director or a change in the entity for which the Optionholder renders such
service, provided that there is no interruption or termination of the
Optionholder's service with the Company or an Affiliate, shall not terminate a
Optionholder's Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a consultant to an Affiliate or an
Employee of the Company shall not constitute an interruption of Continuous
Service. To the extent permitted by law, the Board or the chief executive
officer of the Company, in that party's sole discretion, may determine whether
Continuous Service shall be considered interrupted in the case of any leave of
absence approved by that party, including sick leave, military leave or any
other personal leave. Notwithstanding the foregoing, a leave of absence shall be
treated as Continuous Service for purposes of vesting in an Option only to such
extent as may be provided in the Company's leave of absence policy, in the
written terms of any leave of absence agreement or policy applicable to the
Optionholder, or as otherwise required by law.

      (m) "CORPORATE TRANSACTION" means the occurrence, in a single transaction
or in a series of related transactions, of any one or more of the following
events:

            (i) a sale or other disposition of all or substantially all, as
determined by the Board in its sole discretion, of the consolidated assets of
the Company and its Subsidiaries;

            (ii) a sale or other disposition of at least ninety percent (90%) of
the outstanding securities of the Company;


                                       3.


            (iii) the consummation of a merger, consolidation or similar
transaction following which the Company is not the surviving corporation; or

            (iv) the consummation of a merger, consolidation or similar
transaction following which the Company is the surviving corporation but the
shares of Common Stock outstanding immediately preceding the merger,
consolidation or similar transaction are converted or exchanged by virtue of the
merger, consolidation or similar transaction into other property, whether in the
form of securities, cash or otherwise.

      (n) "DIRECTOR" means a member of the Board.

      (o) "DISABILITY" means the inability of a person, in the opinion of a
qualified physician acceptable to the Company, to perform the major duties of
that person's position with the Company or an Affiliate of the Company because
of the sickness or injury of the person.

      (p) "EMPLOYEE" means any person employed by the Company or an Affiliate.
However, service solely as a Director, or payment of a fee for such services,
shall not cause a Director to be considered an "Employee" for purposes of the
Plan.

      (q) "ENTITY" means a corporation, partnership or other entity.

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

      (s) "EXCHANGE ACT PERSON" means any natural person, Entity or "group"
(within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that
"Exchange Act Person" shall not include (i) the Company or any Subsidiary of the
Company, (ii) any employee benefit plan of the Company or any Subsidiary of the
Company or any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any Subsidiary of the Company, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, (iv) an Entity Owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their Ownership of stock of
the Company; or (v) any natural person, Entity or "group" (within the meaning of
Section 13(d) or 14(d) of the Exchange Act) that, as of the effective date of
the Plan as set forth in Section 14, is the Owner, directly or indirectly, of
securities of the Company representing more than fifty percent (50%) of the
combined voting power of the Company's then outstanding securities.

      (t) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:

            (i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the date in
question, as reported in The Wall Street Journal or such other source as the
Board deems reliable. Unless otherwise provided by the Board, if there is no
closing sales price (or closing bid if no sales were reported) for the Common
Stock on the date in question, then the Fair


                                       4.


Market Value shall be the closing selling price (or closing bid if no sales were
reported) on the last preceding date for which such quotation exists.

            (ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined by the Board in good faith.

      (u) "INITIAL GRANT" means an Option granted to a Non-Employee Director who
meets the specified criteria pursuant to Section 6(a).

      (v) "IPO DATE" means the date of the underwriting agreement between the
Company and the underwriter(s) managing the initial public offering of the
Common Stock, pursuant to which the Common Stock is priced for the initial
public offering.

      (w) "NON-EMPLOYEE DIRECTOR" means a Director who is not an Employee.

      (x) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

      (y) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

      (z) "OPTION" means a Nonstatutory Stock Option granted pursuant to the
Plan.

      (aa) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.

      (bb) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.

      (cc) "OWN," "OWNED," "OWNER," "OWNERSHIP" A person or Entity shall be
deemed to "Own," to have "Owned," to be the "Owner" of, or to have acquired
"Ownership" of securities if such person or Entity, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has
or shares voting power, which includes the power to vote or to direct the
voting, with respect to such securities.

      (dd) "PLAN" means this SGX Pharmaceuticals, Inc. 2005 Non-Employee
Directors' Stock Option Plan.

      (ee) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.

      (ff) "SECURITIES ACT" means the Securities Act of 1933, as amended.

      (gg) "SUBSIDIARY" means, with respect to the Company, (i) any corporation
of which more than fifty percent (50%) of the outstanding capital stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether, at the time,


                                       5.


stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, Owned by the Company, and (ii) any partnership in which
the Company has a direct or indirect interest (whether in the form of voting or
participation in profits or capital contribution) of more than fifty percent
(50%).

3. ADMINISTRATION.

      (a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration of the Plan to a Committee, as
provided in Section 3(c).

      (b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

            (i) To determine the provisions of each Option to the extent not
specified in the Plan.

            (ii) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.

            (iii) To effect, at any time and from time to time, with the consent
of any adversely affected Optionholder, (1) the reduction of the exercise price
of any outstanding Option under the Plan, (2) the cancellation of any
outstanding Option under the Plan and the grant in substitution therefor of (A)
a new Option under the Plan or another equity plan of the Company covering the
same or a different number of shares of Common Stock, (B) cash and/or (C) other
valuable consideration (as determined by the Board, in its sole discretion), or
(3) any other action that is treated as a repricing under generally accepted
accounting principles.

            (iv) To amend the Plan or an Option as provided in Section 12.

            (v) To terminate or suspend the Plan as provided in Section 13.

            (vi) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company and that are not in conflict with the provisions of the Plan.

      (c) DELEGATION TO COMMITTEE. The Board may delegate some or all of the
administration of the Plan to a Committee or Committees of one (1) or more
members of the Board, and the term "COMMITTEE" shall apply to any person or
persons to whom such authority has been delegated. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board that
have been delegated to the Committee, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to


                                       6.


time by the Board. The Board may retain the authority to concurrently administer
the Plan with the Committee and may, at any time, revest in the Board some or
all of the powers previously delegated.

      (d) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.

4. SHARES SUBJECT TO THE PLAN.

      (a) SHARE RESERVE. Subject to the provisions of Section 11(a) relating to
Capitalization Adjustments, the shares of Common Stock that may be issued
pursuant to Options shall not exceed in the aggregate one hundred fifty thousand
(150,000) shares of Common Stock plus an annual increase to be added on January
1st of each year commencing in 2007 and ending on (and including) January 1,
2015, equal to the lesser of: (i) the aggregate number of shares of Common Stock
subject to options granted under the Plan as Initial Grants and Annual Grants
during the immediately preceding fiscal year, or (ii) an amount determined by
the Board or a Committee.

      (b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for any
reason expire or otherwise terminate, in whole or in part, without having been
exercised in full, the shares of Common Stock not acquired under such Option
shall revert to and again become available for issuance under the Plan. If any
shares subject to an Option are not delivered to an Optionholder because such
shares are withheld for the payment of taxes or the Option is exercised through
a reduction of shares subject to the Option (i.e., "net exercised"), the number
of shares that are not delivered to the Optionholder as a result thereof shall
remain available for issuance under the Plan. If the exercise price of an Option
is satisfied by tendering shares of Common Stock held by the Optionholder
(either by actual delivery or attestation), then the number of shares so
tendered shall remain available for issuance under the Plan.

      (c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.

5. ELIGIBILITY.

      The Options, as set forth in Section 6, automatically shall be granted
under the Plan to all Non-Employee Directors who meet the criteria specified in
Section 6.

6. NON-DISCRETIONARY GRANTS.

      (a) INITIAL GRANTS. Without any further action of the Board, each person
who after the IPO Date is elected or appointed for the first time to be a
Non-Employee Director automatically shall, upon the date of his or her initial
election or appointment to be a Non-Employee Director, be granted an Initial
Grant to purchase twenty five thousand (25,000) shares of Common Stock on the
terms and conditions set forth herein.

      (b) ANNUAL GRANTS. Without any further action of the Board, on the date of
each Annual Meeting, commencing with the Annual Meeting in 2007, each person who
is then a Non-


                                       7.


Employee Director automatically shall be granted an Annual Grant to purchase ten
thousand (10,000) shares of Common Stock on the terms and conditions set forth
herein; provided, however, that if a person who is first elected as a
Non-Employee Director after the IPO Date has not been serving as a Non-Employee
Director for the entire period since the preceding Annual Meeting, then the
number of shares subject to such Annual Grant shall be reduced pro rata for each
full quarter prior to the date of grant during such period for which such person
did not serve as a Non- Employee Director.

7. OPTION PROVISIONS.

      Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:

      (a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date on which it was granted.

      (b) EXERCISE PRICE. The exercise price of each Option shall be one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Option on the date the Option is granted.

      (c) CONSIDERATION. The purchase price of Common Stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable law, either (i)
in cash at the time the Option is exercised or (ii) at the discretion of the
Board either at the time of the grant of the Option or subsequent thereto (1) by
delivery to the Company of other Common Stock at the time the Option is
exercised, (2) by a "net exercise" of the Option (as further described below),
(3) pursuant to a program developed under Regulation T as promulgated by the
Federal Reserve Board that, prior to the issuance of Common Stock, results in
either the receipt of cash (or check) by the Company or the receipt of
irrevocable instructions to pay the aggregate exercise price to the Company from
the sales proceeds or (4) in any other form of legal consideration that may be
acceptable to the Board. Unless otherwise specifically provided in the Option,
the purchase price of Common Stock acquired pursuant to an Option that is paid
by delivery to the Company of other Common Stock acquired, directly or
indirectly from the Company, shall be paid only by shares of the Common Stock of
the Company that have been held for more than six (6) months (or such longer or
shorter period of time required to avoid a charge to earnings for financial
accounting purposes).

      In the case of a "net exercise" of an Option, the Company will not require
a payment of the exercise price of the Option from the Optionholder but will
reduce the number of shares of Common Stock issued upon the exercise by the
largest number of whole shares that has a Fair Market Value that does not exceed
the aggregate exercise price. With respect to any remaining balance of the
aggregate exercise price, the Company shall accept a cash payment from the
Optionholder. Shares of Common Stock will no longer be outstanding under an
Option (and will therefore not thereafter be exercisable) following the exercise
of such Option to the extent of (i) shares used to pay the exercise price of an
Option under a "net exercise", (ii) shares actually


                                       8.


delivered to the Optionholder as a result of such exercise and (iii) shares
withheld for purposes of tax withholding.

      (d) TRANSFERABILITY. An Option is transferable by will or by the laws of
descent and distribution. An Option also may be transferable upon written
consent of the Company if, at the time of transfer, a Form S-8 registration
statement under the Securities Act is available for the exercise of the Option
and the subsequent resale of the underlying securities. In addition, an
Optionholder may, by delivering written notice to the Company, in a form
provided by or otherwise satisfactory to the Company, designate a third party
who, in the event of the death of the Optionholder, shall thereafter be entitled
to exercise the Option.

      (e) VESTING. Options shall vest as follows:

            (i) Initial Grants: 1/36th of the shares of Common Stock subject to
an Initial Grant shall vest monthly over three (3) years.

            (ii) Annual Grants: 1/12th of the shares of Common Stock subject to
an Annual Grant shall vest monthly over one (1) year.

      (f) TERMINATION OF CONTINUOUS SERVICE. In the event that an Optionholder's
Continuous Service terminates for any reason, the Optionholder may exercise his
or her Option (to the extent that the Optionholder was entitled to exercise such
Option as of the date of termination of Continuous Service) but only within such
period of time ending on the expiration of the term of the Option as set forth
in the Option Agreement. If, after termination of Continuous Service, the
Optionholder does not exercise his or her Option within the time specified in
the Option Agreement, the Option shall terminate.

8. SECURITIES LAW COMPLIANCE.

      The Company shall seek to obtain from each regulatory commission or agency
having jurisdiction over the Plan such authority as may be required to grant
Options and to issue and sell shares of Common Stock upon exercise of the
Options; provided, however, that this undertaking shall not require the Company
to register under the Securities Act the Plan, any Option or any Common Stock
issued or issuable pursuant to any such Option. If, after reasonable efforts,
the Company is unable to obtain from any such regulatory commission or agency
the authority which counsel for the Company deems necessary for the lawful
issuance and sale of Common Stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell Common Stock upon exercise of
such Options unless and until such authority is obtained.

9. USE OF PROCEEDS FROM STOCK.

      Proceeds from the sale of Common Stock pursuant to Options shall
constitute general funds of the Company.

10. MISCELLANEOUS.

      (a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which an Option may first be exercised or the
time during which an Option


                                       9.


or any part thereof will vest in accordance with the Plan, notwithstanding the
provisions in the Plan or the Option stating the time at which it may first be
exercised or the time during which it will vest.

      (b) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Option unless and until such Optionholder has
satisfied all requirements for exercise of the Option pursuant to its terms.

      (c) NO SERVICE RIGHTS. Nothing in the Plan, any Option Agreement or other
instrument executed thereunder or any Option granted pursuant thereto shall
confer upon any Optionholder any right to continue to serve the Company as a
Non-Employee Director or shall affect the right of the Company or an Affiliate
to terminate (i) the employment of an Employee with or without notice and with
or without cause, (ii) the service of a Consultant pursuant to the terms of such
Consultant's agreement with the Company or an Affiliate or (iii) the service of
a Director pursuant to the Bylaws of the Company or an Affiliate, and any
applicable provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.

      (d) INVESTMENT ASSURANCES. The Company may require an Optionholder, as a
condition of exercising or acquiring Common Stock under any Option, (i) to give
written assurances satisfactory to the Company as to the Optionholder's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option; and (ii) to give
written assurances satisfactory to the Company stating that the Optionholder is
acquiring the Common Stock subject to the Option for the Optionholder's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of
Common Stock upon the exercise or acquisition of Common Stock under the Option
has been registered under a then currently effective registration statement
under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.

      (e) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of an
Option Agreement, the Company may in its sole discretion, satisfy any federal,
state or local tax withholding obligation relating to an Option by any of the
following means (in addition to the Company's right to withhold from any
compensation paid to the Optionholder by the Company) or by a combination of
such means: (i) causing the Optionholder to tender a cash payment; (ii)
withholding shares of Common Stock from the shares of Common Stock issued or
otherwise issuable to the Optionholder in connection with the Option; or (iii)
via such other method as may be set forth in the Option Agreement.


                                      10.


11. ADJUSTMENTS UPON CHANGES IN COMMON STOCK.

      (a) CAPITALIZATION ADJUSTMENTS. If any change is made in, or other event
occurs with respect to, the Common Stock subject to the Plan, or subject to any
Option, without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company (each a "CAPITALIZATION ADJUSTMENT")), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject both to the
Plan pursuant to Section 4 and to the nondiscretionary Options specified in
Section 6, and the outstanding Options will be appropriately adjusted in the
class(es) and number of securities and price per share of Common Stock subject
to such outstanding Options. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (Notwithstanding the
foregoing, the conversion of any convertible securities of the Company shall not
be treated as a transaction "without receipt of consideration" by the Company.)

      (b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then all outstanding Options shall terminate
immediately prior to the completion of such dissolution or liquidation.

      (c) CORPORATE TRANSACTION. The following provisions shall apply to Options
in the event of a Corporate Transaction unless otherwise provided in the
instrument evidencing the Option or any other written agreement between the
Company or any Affiliate and the holder of the Option or unless otherwise
expressly provided by the Board at the time of grant of a Option. In the event
of a Corporate Transaction, any surviving corporation or acquiring corporation
may assume or continue any or all Options outstanding under the Plan or may
substitute similar stock options for Options outstanding under the Plan
(including options to acquire the same consideration paid to the stockholders of
the Company, as the case may be, pursuant to the Corporate Transaction). In the
event that any surviving corporation or acquiring corporation does not assume or
continue all such outstanding Options or substitute similar stock options for
all such outstanding Options, then with respect to Options that have been not
assumed, continued or substituted and that are held by Optionholders whose
Continuous Service has not terminated prior to the effective time of the
Corporate Transaction, the vesting of such Options (and, if applicable, the time
at which such Options may be exercised) shall (contingent upon the effectiveness
of the Corporate Transaction) be accelerated in full to a date prior to the
effective time of such Corporate Transaction as the Board shall determine (or,
if the Board shall not determine such a date, to the date that is five (5) days
prior to the effective time of the Corporate Transaction), and such Options
shall terminate on the effective time of the Corporate Transaction if not
exercised (if applicable) at or prior to such effective time. With respect to
any other Options outstanding under the Plan that have not been assumed,
continued or substituted, the vesting of such Options (and, if applicable, the
time at which such Options may be exercised) shall not be accelerated, unless
otherwise provided in a written agreement between the Company or any Affiliate
and the Optionholder, and such Options shall terminate if not exercised (if
applicable) prior to the effective time of the Corporate Transaction.


                                      11.


      (d) CHANGE IN CONTROL. An Option may be subject to additional acceleration
of vesting and exercisability upon or after a Change in Control as may be
provided in the Option Agreement for such Option or as may be provided in any
other written agreement between the Company or any Affiliate and the
Optionholder, but in the absence of such provision, no such acceleration shall
occur.

12. AMENDMENT OF THE PLAN AND OPTIONS.

      (a) AMENDMENT OF PLAN. Subject to the limitations, if any, of applicable
law, the Board, at any time and from time to time, may amend the Plan. However,
except as provided in Section 11(a) relating to Capitalization Adjustments, no
amendment shall be effective unless approved by the stockholders of the Company
to the extent stockholder approval is necessary to satisfy applicable law.

      (b) STOCKHOLDER APPROVAL. The Board, in its sole discretion, may submit
any other amendment to the Plan for stockholder approval.

      (c) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.

      (d) AMENDMENT OF OPTIONS. The Board, at any time, and from time to time,
may amend the terms of any one or more Options, including, but not limited to,
amendments to provide terms more favorable than previously provided in the
agreement evidencing an Option, subject to any specified limits in the Plan that
are not subject to Board discretion; provided, however, that the rights under
any Option shall not be impaired by any such amendment unless (i) the Company
requests the consent of the Optionholder and (ii) the Optionholder consents in
writing.

13. TERMINATION OR SUSPENSION OF THE PLAN.

      (a) PLAN TERM. The Board may suspend or terminate the Plan at any time. No
Options may be granted under the Plan while the Plan is suspended or after it is
terminated.

      (b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the Plan is in
effect except with the written consent of the Optionholder.

14. EFFECTIVE DATE OF PLAN.

      The Plan shall become effective on the IPO Date, but no Option shall be
exercised unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.

15. CHOICE OF LAW.

      The law of the state of California shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.


                                      12.



                            SGX PHARMACEUTICALS, INC.
                 2005 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

                             STOCK OPTION AGREEMENT
                           (NONSTATUTORY STOCK OPTION)

      Pursuant to your Stock Option Grant Notice ("Grant Notice") and this Stock
Option Agreement, SGX Pharmaceuticals, Inc. (the "Company") has granted you an
option under its 2005 Non-Employee Directors' Stock Option Plan (the "Plan") to
purchase the number of shares of the Company's Common Stock indicated in your
Grant Notice at the exercise price indicated in your Grant Notice. Defined terms
not explicitly defined in this Stock Option Agreement but defined in the Plan
shall have the same definitions as in the Plan.

      The details of your option are as follows:

      1. VESTING. Subject to the limitations contained herein, your option will
vest as provided in your Grant Notice, provided that vesting will cease upon the
termination of your Continuous Service. In addition, if the Company is subject
to a Change in Control before your Continuous Service terminates, then all of
the unvested shares subject to this option shall become fully vested and
exercisable immediately prior to the effective date of such Change in Control.

      2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.

      3. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or in any other manner PERMITTED BY YOUR
GRANT NOTICE, which may include one or more of the following:

            (a) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.

            (b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may


                                       1.


not exercise your option by tender to the Company of Common Stock to the extent
such tender would violate the provisions of any law, regulation or agreement
restricting the redemption of the Company's stock.

      4. WHOLE SHARES. You may exercise your option only for whole shares of
Common Stock.

      5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also comply
with other applicable laws and regulations governing your option, and you may
not exercise your option if the Company determines that such exercise would not
be in material compliance with such laws and regulations.

      6. TERM. You may not exercise your option before the commencement of its
term or after its term expires. The term of your option commences on the Date of
Grant and expires upon the earliest of the following:

            (a) three (3) months after the termination of your Continuous
Service for any reason other than your Disability or death (or in connection
with a Change in Control as provided in subsection (b) below), provided that if
during any part of such three- (3-) month period your option is not exercisable
solely because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;

            (b) twelve (12) months after the termination of your Continuous
Service in connection with a Change in Control where all of the unvested shares
subject to your option become fully vested and exercisable immediately prior to
the effective date of such Change in Control in accordance with the provisions
of Section 1 above;

            (c) twelve (12) months after the termination of your Continuous
Service due to your Disability;

            (d) eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates;

            (e) the Expiration Date indicated in your Grant Notice; or

            (f) the day before the tenth (10th) anniversary of the Date of
Grant.

      Notwithstanding the foregoing, if your sale of the shares acquired upon
exercise of your option would subject you to suit under Section 16(b) of the
Exchange Act, your option shall remain exercisable until the earlier of (i) the
expiration of a period of ten (10) days after the date on which a sale of the
shares by you would no longer be subject to such suit, (ii) the expiration of


                                       2.


the one hundred and ninetieth (190th) day after your termination of Continuous
Service, or (iii) the Expiration Date indicated in your Grant Notice.

      7. EXERCISE.

            (a) You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.

            (b) By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.

      8. TRANSFERABILITY. Your option is not transferable, except (i) by will or
by the laws of descent and distribution, (ii) with the prior written approval of
the Company, by instrument to an inter vivos or testamentary trust, in a form
accepted by the Company, in which the option is to be passed to beneficiaries
upon the death of the trustor (settlor) and (iii) with the prior written
approval of the Company, by gift, in a form accepted by the Company, to a
permitted transferee under Rule 701 of the Securities Act.

      9. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.

      10. WITHHOLDING OBLIGATIONS.

            (a) At the time you exercise your option, in whole or in part, or at
any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision as directed by the Company (including by means
of a "cashless exercise" pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board to the extent directed by the Company),
for any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Company or an Affiliate, if any, which arise in
connection with your option.

            (b) The Company may, in its sole discretion, and in compliance with
any applicable conditions or restrictions of law, withhold from fully vested
shares of Common Stock otherwise issuable to you upon the exercise of your
option a number of whole shares of Common Stock having a Fair Market Value,
determined by the Company as of the date of exercise, not in


                                       3.


excess of the minimum amount of tax required to be withheld by law. Any adverse
consequences to you arising in connection with such share withholding procedure
shall be your sole responsibility.

            (c) You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares of Common Stock or release such shares of Common Stock from any escrow
provided for herein.

      11. PARACHUTE PAYMENTS.

            (a) If any payment or benefit you would receive pursuant to a Change
in Control from the Company or otherwise ("Payment") would (i) constitute a
"parachute payment" within the meaning of Section 280G of the Code, and (ii) but
for this sentence, be subject to the excise tax imposed by Section 4999 of the
Code (the "Excise Tax"), then such Payment shall be equal to the Reduced Amount.
The "Reduced Amount" shall be either (x) the largest portion of the Payment that
would result in no portion of the Payment being subject to the Excise Tax or (y)
the largest portion, up to and including the total, of the Payment, whichever
amount, after taking into account all applicable federal, state and local
employment taxes, income taxes, and the Excise Tax (all computed at the highest
applicable marginal rate), results in your receipt, on an after-tax basis, of
the greater amount of the Payment notwithstanding that all or some portion of
the Payment may be subject to the Excise Tax. If a reduction in payments or
benefits constituting "parachute payments" is necessary so that the Payment
equals the Reduced Amount, reduction shall occur in the following order unless
you elect in writing a different order (provided, however, that such election
shall be subject to Company approval if made on or after the effective date of
the event that triggers the Payment): reduction of cash payments; cancellation
of accelerated vesting of Stock Awards; reduction of employee benefits. In the
event that acceleration of vesting of Stock Award compensation is to be reduced,
such acceleration of vesting shall be cancelled in the reverse order of the date
of grant of your Stock Awards (i.e., earliest granted Stock Award cancelled
last) unless you elect in writing a different order for cancellation.

            (b) The accounting firm engaged by the Company for general audit
purposes as of the day prior to the effective date of the Change in Control
shall perform the foregoing calculations. If the accounting firm so engaged by
the Company is serving as accountant or auditor for the individual, entity or
group effecting the Change in Control, the Company shall appoint a nationally
recognized accounting firm to make the determinations required hereunder. The
Company shall bear all expenses with respect to the determinations by such
accounting firm required to be made hereunder.

            (c) The accounting firm engaged to make the determinations hereunder
shall provide its calculations, together with detailed supporting documentation,
to you and the Company within fifteen (15) calendar days after the date on which
your right to a Payment is triggered (if requested at that time by you or the
Company) or such other time as requested by you or the Company. If the
accounting firm determines that no Excise Tax is payable with respect to a
Payment, either before or after the application of the Reduced Amount, it shall


                                       4.


furnish you and the Company with an opinion reasonably acceptable to you that no
Excise Tax will be imposed with respect to such Payment. Any good faith
determinations of the accounting firm made hereunder shall be final, binding and
conclusive upon you and the Company, except as specified below.

            (d) If, notwithstanding any reduction described in this Section 10,
the IRS determines that you are liable for the Excise Tax as a result of the
receipt of the payment of benefits as described above, then you shall be
obligated to pay back to the Company, within thirty (30) days after a final IRS
determination or in the event that you challenge the final IRS determination, a
final judicial determination, a portion of the payment equal to the "Repayment
Amount." The Repayment Amount with respect to the payment of benefits shall be
the smallest such amount, if any, as shall be required to be paid to the Company
so that your net after-tax proceeds with respect to any payment of benefits
(after taking into account the payment of the Excise Tax and all other
applicable taxes imposed on such payment) shall be maximized. The Repayment
Amount with respect to the payment of benefits shall be zero if a Repayment
Amount of more than zero would not result in your net after-tax proceeds with
respect to the payment of such benefits being maximized. If the Excise Tax is
not eliminated pursuant to this paragraph, you shall pay the Excise Tax.

            (e) Notwithstanding any other provision of this Section 10, if (i)
there is a reduction in the payment of benefits as described in this Section 10,
(ii) the IRS later determines that you are liable for the Excise Tax, the
payment of which would result in the maximization of your net after-tax proceeds
(calculated as if your benefits had not previously been reduced), and (iii) you
pay the Excise Tax, then the Company shall pay to you those benefits which were
reduced pursuant to this section contemporaneously or as soon as
administratively possible after you pay the Excise Tax so that your net
after-tax proceeds with respect to the payment of benefits is maximized.

      12. NOTICES. Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.

      13. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your option, and
is further subject to all interpretations, amendments, rules and regulations
which may from time to time be promulgated and adopted pursuant to the Plan. In
the event of any conflict between the provisions of your option and those of the
Plan, the provisions of the Plan shall control.


                                       5.



                            SGX PHARMACEUTICALS, INC.
                            STOCK OPTION GRANT NOTICE

                                  INITIAL GRANT
                (2005 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN)

SGX Pharmaceuticals, Inc. (the "Company"), pursuant to its 2005 Non-Employee
Directors' Stock Option Plan (the "Plan"), hereby grants to Optionholder an
option to purchase the number of shares of the Company's Common Stock set forth
below. This option is subject to all of the terms and conditions as set forth
herein and in the Stock Option Agreement, the Plan and the Notice of Exercise,
all of which are attached hereto and incorporated herein in their entirety.

Optionholder:___________________________________________________________________
Date of Grant:__________________________________________________________________
Number of Shares Subject to Option:_____________________________________________
Exercise Price (Per Share):_____________________________________________________
Total Exercise Price:___________________________________________________________
Expiration Date:       The day before the 10th anniversary of the Date of Grant

TYPE OF GRANT:         Nonstatutory Stock Option

EXERCISE SCHEDULE:     Same as Vesting Schedule

VESTING SCHEDULE:      1/36th of the shares vest each month following the Date
                       of Grant.

PAYMENT:               By one or a combination of the following items (described
                       in the Plan and/or Stock Option Agreement):

                       [ ]  By cash or check
                       [ ]  Pursuant to a Regulation T Program if the Shares are
                            publicly traded
                       [ ]  By delivery of already-owned shares if the Shares
                            are publicly traded
                       [ ]  Net exercise if the Company has adopted FAS 123, as
                            revised, at the time of such exercise

ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:

      OTHER AGREEMENTS:                  _______________________________________
                                         _______________________________________

SGX PHARMACEUTICALS, INC.                OPTIONHOLDER:


By:___________________________________   _______________________________________
            Signature                                   Signature

Title:________________________________   Date:__________________________________

Date:_________________________________

ATTACHMENTS:     Stock Option Agreement, 2005 Non-Employee Directors' Stock
                 Option Plan and Notice of Exercise

EX-10.6

                                                                    EXHIBIT 10.6

                              AMENDED AND RESTATED
                         EXECUTIVE EMPLOYMENT AGREEMENT

     This Amended and Restated Executive Employment Agreement ("Agreement") is
effective as of January 1, 2005 ("Effective Date"), by and between Structural
GenomiX, Inc., with its principal place of business at 10505 Roselle Street, San
Diego, California 92121 ("SGX"), a Delaware corporation, and Michael Grey, who
resides at ___________________________________________________ ("Executive").
This Agreement amends and restates and supercedes and terminates in its entirety
that certain Employment Agreement dated September 4, 2001 by and between SGX and
Executive, as amended by that certain letter agreement dated December 20, 2004
(together, the "Prior Agreement").

     The parties agree as follows:

     1. Employment. SGX hereby employs Executive, and Executive hereby accepts
such employment, upon the terms and conditions set forth herein.

     2. Duties.

          2.1. Position; Duties and Responsibilities. Executive is employed in
the position of President and Chief Executive Officer and shall have the duties
and responsibilities assigned by the Board of Directors of SGX (the "Board").
Executive is responsible for overseeing the business and operations of SGX and
doing and performing all services, acts, or things reasonably necessary or
advisable to accomplish the objectives and complete the tasks assigned to
Executive by the Board. Executive shall serve as the leader and principal
officer of the executive team and shall report directly to the Board. Executive
shall perform faithfully and diligently such duties, as well as such other
duties as the Board shall reasonably assign from time to time. SGX reserves the
right to modify Executive's position and duties at any time in its sole and
reasonable discretion.

          2.2. Best Efforts/Full-time. Executive will expend Executive's best
efforts on behalf of SGX, and will abide by all policies and decisions made by
SGX, as well as all applicable federal, state and local laws, regulations or
ordinances. Executive will act in the best interest of SGX at all times.
Executive shall devote Executive's full business time and efforts to the
performance of Executive's assigned duties, unless Executive notifies SGX in
advance of Executive's intent to engage in other paid work and receives SGX'
express written consent to do so. SGX consents to the continuing service by
Executive on the Boards of Directors of Achillion Pharmaceuticals, Inc. and
Epimmune, Inc. Executive must not engage in any work, paid or unpaid, that
creates an actual or potential conflict of interest with SGX. If SGX believes a
conflict exists, SGX may ask Executive to choose whether to discontinue the
other work or resign employment with SGX.

          2.3. Board Seat. Executive shall continue to serve as a member of the
Board.

          2.4. Work Location. Executive's principal place of work shall be
located in San Diego, California, at SGX' offices or as reasonably assigned by
SGX.

     3. Term. The employment relationship pursuant to this Agreement shall be
for an initial term commencing on the Effective Date set forth above and
continuing for the period of one (1) year and for consecutive one year terms
thereafter unless sooner terminated in accordance with paragraph 7 below.

     4. Compensation.

          4.1. Salary. As compensation for the proper and satisfactory
performance of all duties to be performed by Executive hereunder, SGX shall pay
to Executive an initial annualized Base Salary of Three Hundred Fifty Thousand
($350,000) per year, payable in accordance with the normal payroll practices of
SGX, less required deductions for state and federal withholding tax, social
security and all other employment taxes and payroll deductions. In the event
Executive's employment under this Agreement is terminated by either party, for
any reason, Executive will be entitled to receive the Base Salary prorated to
the date of termination.



          4.2. Incentive Compensation. Executive will be eligible to receive
incentive compensation. If SGX, in its sole and absolute discretion, grants
executive incentive compensation, the terms, amount and payment of such, if any,
will be determined solely by SGX.

          4.3. Stock Options. Executive will receive a stock option or stock
options to purchase that number of shares of SGX common stock that, together
with Executive's currently outstanding stock options, if any, is equal to 3.5%
of the Fully Diluted Capitalization (as defined below) of SGX after giving
effect to the Next Equity Financing (as defined below), at a price per share
equal to the fair market value of SGX' common stock on the date of grant of each
such stock option as shall be determined by the Board in its sole and absolute
discretion. 25% of the shares subject to such stock options shall be fully
vested as of the date of grant and the remaining shares subject to such stock
options shall vest over three years after the vesting commencement date in equal
monthly installments (subject to acceleration of vesting under certain
circumstances as set forth in subparagraphs 7.2 and 7.4(a) below). Such stock
options shall be subject to the terms and conditions of SGX' 2000 Equity
Incentive Plan (the "Incentive Plan") and SGX' form of stock option agreement.
The Board shall grant such stock options as soon as reasonably practicable after
the number of shares issuable in connection with such Next Equity Financing is
ascertainable and the vesting commencement date of all such stock options shall
be the Effective Date. The offer of such stock options is conditioned upon
Executive's acceptance of this Agreement and will be in accordance with the
terms and requirements of the Incentive Plan and SGX' form of stock option
agreement. "Fully Diluted Capitalization" as used in this subparagraph 4.3 shall
mean the fully-diluted capitalization of SGX calculated on an as-converted basis
and including all outstanding preferred stock, common stock, warrants, all
options authorized under equity incentive plans (whether or not granted or
vested), and securities issuable upon conversion of outstanding convertible
notes, if any (but excluding shares issuable upon conversion of the Millennium
convertible note). "Next Equity Financing" as used in this subparagraph 4.3
shall mean the next private equity financing of SGX primarily for capital
raising purposes that raises at least $5 million of new investment and occurs
prior to the completion of an initial public offering of SGX' securities, and
such Next Equity Financing shall include the aggregate number of shares to be
issued in connection with such financing (including, if the financing occurs in
multiple tranches, the aggregate number of shares that are issued in all
tranches for which there is a contractual commitment to fund on the part of the
investors in such Next Equity Financing as of the initial closing thereof). Any
obligation of SGX that remains outstanding under this subparagraph 4.3 to grant
any additional stock options to Executive shall terminate and be of no further
force or effect upon the earlier to occur of (i) immediately prior to the
closing of an initial public offering of SGX' securities or (ii) immediately
prior to the consummation of a Change of Control (as defined below).

          4.4. Cash Bonus Program. As Executive Vice President and Chief
Business Officer, Executive is eligible to earn a cash bonus equal to 35% of
Executive's base salary, or $122,500, provided Executive meets the eligibility
requirements and performance objectives set forth in SGX' bonus program, which
are determined in SGX' sole discretion.

          4.5. Performance and Salary Review. SGX will periodically review
Executive's performance. Executive's salary and/or other compensation will be
reviewed yearly and may be adjusted from time to time in SGX' sole and absolute
discretion.

     5. Customary Fringe Benefits. Executive will be eligible for all customary
and usual fringe benefits generally available to executives of SGX subject to
the terms and conditions of SGX' benefit plan documents. SGX reserves the right
to modify or eliminate the fringe benefits on a prospective basis, at any time,
effective upon notice to Executive.

     6. Business Expenses. Executive will be reimbursed for all out-of-pocket
business expenses reasonably incurred in the performance of Executive's duties
on behalf of SGX. To obtain reimbursement, expenses must be submitted promptly
with appropriate supporting documentation in accordance with SGX' policies.

     7. Termination of Employment.

          7.1. Termination for Cause by SGX. Although SGX anticipates a mutually
rewarding employment relationship with Executive, SGX may terminate Executive's
employment immediately at any time for cause. Cause includes, but is not limited
to, one or more of the following: (a) acts or omissions deemed by SGX to



constitute gross negligence, recklessness, willful misconduct or dishonesty on
the part of Executive with respect to Executive's obligations under this
Agreement or otherwise relating to the business of SGX; (b) Executive's willful,
material breach of this Agreement; (c) Executive's conviction or entry of a plea
of guilty or nolo contendere for fraud, misappropriation or embezzlement, or of
any felony; (d) Executive's material breach of fiduciary duty toward SGX; (e)
Executive's material breach of any element of SGX' Confidential Information and
Invention Assignment Agreement, including without limitation, Executive's theft,
dilution, or other misappropriation or careless treatment of SGX' proprietary
information; (f) Executive's inability to perform all of the essential functions
and duties of Executive's position, with or without reasonable accommodation
other than for reason of temporary illness; or (g) Executive's death. In the
event Executive's employment is terminated in accordance with this subparagraph
7.1, Executive shall be entitled to receive only the Base Salary then in effect,
prorated to the date of termination, and any benefits, including any benefits
under the Bonus Plan and Incentive Plan, and expense reimbursements to which
Executive is entitled by virtue of his prior employment with SGX (collectively
referred to as "Standard Entitlements."). All other SGX obligations to Executive
pursuant to this Agreement will become automatically terminated and completely
extinguished. Executive will not be entitled to receive the Severance Payment or
any part thereof described in subparagraph 7.2 below.

          7.2. Termination Without Cause By SGX/Severance. SGX may terminate
Executive's employment under this Agreement without cause at any time on thirty
(30) days' advance written notice to Executive. In the event of such
termination, Executive will receive the Standard Entitlements, plus a severance
payment equivalent to twelve months of Executive's Base Salary then in effect on
the date of termination (the "Severance Payment") payable in accordance with
SGX' regular payroll cycle, and the vesting of any outstanding stock options
will be accelerated by 12 months, provided that Executive: (a) complies with all
surviving provisions of this Agreement as specified in subparagraph 16.7 below;
(b) executes a full general release, releasing all claims, known or unknown,
that Executive may have against SGX arising out of or any way related to
Executive's employment or termination of employment with SGX; and (c) agrees to
act as a consultant for SGX for up to a maximum of sixty (60) days, without
additional compensation, if requested to do so by SGX. All other SGX obligations
to Executive pursuant to this Agreement will become automatically terminated and
completely extinguished.

          7.3. Voluntary Resignation By Executive. Executive may voluntarily
resign Executive's position with SGX at any time on thirty (30) days advance
written notice. In the event of Executive's resignation, Executive shall be
entitled to receive only the Base Salary then in effect, prorated to the date of
resignation, and the Standard Entitlements. All other SGX obligations to
Executive pursuant to this Agreement will become automatically terminated and
completely extinguished. In addition, Executive will not be entitled to receive
the Severance Payment described in paragraph 7.2 above.

          7.4. Termination of Executive Following Change Of Control.

               (a) Severance Payment. If Executive's employment is terminated by
SGX without cause within one year after a Change of Control (as that term is
defined below), Executive shall be entitled to receive the Standard
Entitlements, plus the Severance Payment described in subparagraph 7.2 above,
and that the vesting of any outstanding stock options will be accelerated by 24
months, provided Executive complies with the conditions in subparagraph 7.2
above. All other SGX obligations to Executive pursuant to this Agreement will
become automatically terminated and completely extinguished.

               (b) 280G. If, due to the benefits provided under subparagraph
7.4(a) above, Executive is subject to any excise tax due to characterization of
any amounts payable under subparagraph 7.4(a) as excess parachute payments
pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), Executive may elect, in Executive's sole discretion, to reduce the
amounts payable under subparagraph 7.4(a) in order to avoid any "excess
parachute payment" under Section 280G(b)(1) of the Code.

               (c) Change of Control. A Change of Control is defined as any one
of the following occurrences:

                    (i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than a
trustee or other fiduciary holding securities of



SGX under an employee benefit plan of SGX, becomes the "beneficial owner" (as
defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of the securities of SGX representing more than 50% of (a) the
outstanding shares of common stock of SGX or (b) the combined voting power of
SGX' then-outstanding securities; or

                    (ii) The sale or disposition of all or substantially all of
SGX' assets (or any transaction having similar effect is consummated) other than
to an entity of which SGX owns at least 50% of the Voting Stock so long as the
sale or disposition is not under duress of SGX' financial hardship; or

                    (iii) SGX is party to a merger or consolidation that results
in the holders of voting securities of SGX outstanding immediately prior thereto
failing to continue to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) less than 50% of the
combined voting power of the voting securities of SGX or such surviving entity
outstanding immediately after such merger or consolidation.

     8. Competitive Employment. During the term of Executive's employment with
SGX and during any period in which Executive is receiving payments (other than
any dividends on stock) from SGX or acting as a consultant with or without
payment, Executive agrees that Executive will not directly or indirectly compete
with SGX in any way, and will not act as an officer, director, executive,
consultant, shareholder (other than stock of publicly held companies),
volunteer, lender, or agent of any business enterprise of the same nature as, or
which is in competition with, the business in which SGX is now engaged or in
which SGX becomes engaged during the term of Executive's employment with SGX, as
may be determined by SGX in its sole discretion. Further, Executive agrees not
to refer any client or potential client to competitors of SGX without SGX'
written consent during the term of Executive's employment with SGX or during any
period in which Executive is receiving payments (other than any dividends on
stock) from SGX or acting as a consultant with or without payment.

     9. Confidentiality and Proprietary Rights. Executive agrees to abide by
SGX' proprietary rights policies and to protect the intellectual property of
SGX. In accordance, Executive has signed, contemporaneously with the execution
of this Agreement, a Confidential Information and Invention Assignment
Agreement, which is incorporated herein by this reference.

     10. Non-Solicitation.

          10.1. Non-Solicitation of Employees and Independent Contractors.
Executive agrees that during Executive's employment with SGX and for a period of
one year after the termination of Executive's employment with SGX, Executive
will not directly or indirectly, separately or in association with others,
interfere with, impair, disrupt or damage SGX' relationship with any employee or
independent contractor; solicit, encourage or attempt to hire any of SGX'
employees or independent contractors; or cause others to solicit or encourage
any of SGX' employees or independent contractors to discontinue their employment
or services with SGX.

          10.2. Non-Solicitation of Customers. Executive acknowledges that
proprietary information about SGX' customers is confidential and constitutes
trade secrets of SGX. Executive agrees that during Executive's employment with
SGX and for a period of one year following the termination of Executive's
employment with SGX, Executive will not, either directly or indirectly,
separately or in association with others, do any of the following: (i) make
known, to any person, firm or corporation, the names and addresses of any of the
customers of SGX or contacts of SGX within the pharmaceutical or biotechnology
industry or any other information pertaining to such persons; (ii) call on,
solicit, take away, or attempt to call on, solicit or take away any of the
customers of SGX on whom Executive called or with whom Executive became aware or
acquainted during Executive's association with SGX, whether for Executive or for
any other person, firm or corporation; or (iii) use or make known to any person
or entity, the strategies, tactics, practices, and procedures by which SGX does
business.

     11. Injunctive Relief. Executive acknowledges that Executive's breach of
the covenants contained in paragraphs 8-10 (collectively "Covenants") would
cause irreparable injury to SGX and agrees that in the event of any such breach,
SGX shall be entitled to seek temporary, preliminary and permanent injunctive
relief without the necessity of proving actual damages or posting any bond or
other security.



     12. Accounting and Indemnification. In the event Executive breaches any of
the Covenants contained in paragraphs 8-10, SGX shall have the right and remedy
to require Executive to: (a) account for and pay over to SGX all compensation,
profits, monies, accruals, increments or other benefits derived or received by
Executive or any associated party deriving such benefits as a result of any such
breach of the Covenants; and (b) to indemnify SGX against any other losses,
damages (including special and consequential damages), costs and expenses,
including actual attorneys' fees and court costs, which may be incurred by them
and which result from or arise out of any such breach or threatened breach of
the Covenants. Both parties agree that the provisions of this paragraph 12 will
not adequately compensate SGX for SGX' injury in the event of Executive's breach
of any of the Covenants. Accordingly, the parties agree the provisions of this
paragraph 12 will not in any way limit or interfere with SGX' right to seek
injunctive relief under paragraph 11.

     13. Return of SGX Property. On termination of employment with SGX for
whatever reason, or at the request of SGX before termination, Executive agrees
to promptly deliver to SGX all records, files, computer disks, memoranda,
documents, lists and other information regarding or containing any Proprietary
Information (as defined in the Confidential Information and Invention Assignment
Agreement executed herewith), including all copies, reproductions, summaries or
excerpts thereof, then in Executive's possession or control, whether prepared by
Executive or others. Executive also agrees to promptly return, upon termination
or at any time upon SGX' request, any and all SGX property issued to Executive,
including but not limited to computers, facsimile transmission equipment,
cellular phones, keys and credits cards. Executive further agrees that should
Executive discover any SGX property or Proprietary Information in Executive's
possession after Executive's termination and departure from SGX, Executive
agrees to return it promptly to SGX without retaining copies or excerpts of any
kind.

     14. No Violation of Rights of Third Parties. Executive warrants that
Executive's performance of all the terms of this Agreement does not and will not
breach any agreement to keep in confidence proprietary information, knowledge or
data acquired by Executive prior to Executive's employment with SGX. Executive
agrees not to disclose to SGX, or induce SGX to use, any confidential or
proprietary information or material belonging to any previous employers or
others. Executive warrants that Executive is not a party to any other agreement
that will interfere with Executive's full compliance with this Agreement.
Executive further agrees not to enter into any agreement, whether written or
oral, in conflict with the provisions of this Agreement.

     15. Agreement to Arbitrate. Executive and SGX agree to arbitrate any
controversy, claim or dispute between them arising out of or in any way related
to this Agreement, the employment relationship between them, and any disputes
upon termination of employment, except as provided in subparagraph 15.1 below,
to the fullest extent permitted by law. This method of resolving disputes shall
be the sole and exclusive remedy of the parties. Accordingly, the parties
understand that, except as provided in this paragraph 15 or as otherwise
required by law, they are giving up their rights to have their disputes decided
in a court of law and, if applicable, by a jury, and instead agree that their
disputes shall be decided by arbitration.

          15.1. Scope of the Agreement. The disputes subject to this agreement
to arbitrate include all potential claims between Executive and SGX relating to
employment, such as breach of contract, tort, discrimination, harassment,
wrongful termination, demotion, discipline, failure to accommodate, family and
medical leave, compensation or benefits claims, constitutional claims and claims
for violation of any local, state or federal law, statute, regulation or
ordinance or common law to the fullest extent permitted by law. Claims for
workers' compensation or unemployment insurance benefits, if any, and SGX' right
to obtain injunctive relief pursuant to paragraph 11 above are excluded. For the
purposes of this agreement to arbitrate, references to "SGX" include SGX and all
subsidiary and related entities and their employees, supervisors, officers,
directors, owners, agents, benefit plans, benefit plan sponsors, fiduciaries,
administrators, affiliates and all successors and assigns of any of them, and
this agreement to arbitrate shall apply to them to the extent Executive's claims
arise out of or relate to their actions on behalf of SGX.

          15.2. Initiation of Arbitration. Either party may exercise the right
to arbitrate by providing the other party with written notice of any and all
claims forming the basis of such right in sufficient detail to inform the other
party of the substance of such claims.

          15.3. Arbitration Procedure. The arbitration will be conducted in
accordance with the then current rules for resolution of employment disputes of
the American Arbitration Association ("AAA") at its offices



in San Diego, California. If the parties cannot agree on the single neutral
arbitrator, such arbitrator shall be selected in accordance with the AAA rules.
The parties are entitled to representation by an attorney or other
representative of their choosing. The parties will also be permitted to conduct
discovery sufficient to present their respective cases. The arbitrator will be
required to issue a written arbitration decision that will reveal the essential
findings and conclusions on which an award is based, and shall have the power to
enter any award that could be entered by a judge of the Superior Court of the
State of California, and only such power, and shall follow the law. In the event
the arbitrator does not follow the law, the arbitrator will have exceeded the
scope of his or her authority and the parties may, at their option, file a
motion to vacate the award in court. Otherwise, the parties agree to abide by
and perform any award rendered by the arbitrator. Judgment on the award may be
entered in any court having jurisdiction thereof.

     16. General Provisions.

          16.1. Successors and Assigns. The rights and obligations of SGX under
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of SGX. Executive shall not be entitled to assign any of
Executive's rights or obligations under this Agreement other than to the estate
of Executive.

          16.2. Waiver. Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
or prevent that party thereafter from enforcing each and every other provision
of this Agreement.

          16.3. Severability. In the event any provision of this Agreement is
found to be unenforceable by an arbitrator or court of competent jurisdiction,
such provision shall be deemed modified to the extent necessary to allow
enforceability of the provision as so limited, it being intended that the
parties shall receive the benefit contemplated herein to the fullest extent
permitted by law. If a deemed modification is not satisfactory in the judgment
of such arbitrator or court, the unenforceable provision shall be deemed
deleted, and the validity and enforceability of the remaining provisions shall
not be affected thereby.

          16.4. Interpretation; Construction. The headings set forth in this
Agreement are for convenience only and shall not be used in interpreting this
Agreement. This Agreement has been drafted by legal counsel representing SGX,
but Executive has participated in the negotiation of its terms. Furthermore,
Executive acknowledges that Executive has had an opportunity to review and
revise the Agreement and have it reviewed by legal counsel, if desired, and,
therefore, the normal rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement.

          16.5. Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the United States and the State of California.
Each party consents to the jurisdiction and venue of the state or federal courts
in the State where Executive is employed, in any action, suit, or proceeding
arising out of or relating to this Agreement.

          16.6. Notices. Any notice required or permitted by this Agreement
shall be in writing and shall be delivered as follows with notice deemed given
as indicated: (a) by personal delivery when delivered personally; (b) by
overnight courier upon written verification of receipt; (c) by telecopy or
facsimile transmission upon acknowledgment of receipt of electronic
transmission; or (d) by certified or registered mail, return receipt requested,
upon verification of receipt. Notice shall be sent to the addresses set forth
below, or such other address as either party may specify in writing.

          16.7. Survival. Paragraphs 8 ("Competitive Employment"), 9
("Confidentiality and Proprietary Rights"), 10 ("Non-Solicitation"), 11
("Injunctive Relief"), 12 ("Accounting and Indemnification"), 13 ("Return of SGX
Property"), 15 ("Agreement to Arbitrate"), 16 ("General Provisions") and 17
("Entire Agreement") of this Agreement shall survive Executive's employment by
SGX.

     17. Entire Agreement. This Agreement, including SGX' Incentive Plan, bonus
program and Confidential Information and Invention Assignment Agreement herein
incorporated by reference, constitutes the entire agreement between the parties
relating to this subject matter and supersedes all prior or simultaneous
representations, discussions, negotiations, and agreements, whether written or
oral, including but not limited to the Offer Letter of July 16, 2001 and the
Prior Agreement. This Agreement may be amended or modified only with the written
consent of Executive and the Board. No oral waiver, amendment or modification
will be effective under any circumstances whatsoever.



THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY
UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES
HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.

                                                      Executive

Dated: February __, 2005                              /s/ Michael Grey
                                                      --------------------------
                                                      Michael Grey

                                                      Structural GenomiX, Inc.

Dated: February __, 2005                              By: /s/ Alex Barkas
                                                          ----------------------

                                                      Its: _____________________

EX-10.7

                                                                    EXHIBIT 10.7

                         EXECUTIVE EMPLOYMENT AGREEMENT

     This Executive Employment Agreement ("Agreement"), dated January 1, 2002,
by and between Structural GenomiX, Inc., with its principal place of business at
10505 Roselle Street, San Diego, California 92121 ("SGX"), a Delaware
corporation, and Stephen Burley, M.D., D. Phil., who resides at ________________
__________________________________________ ("Executive").

     The parties agree as follows:

     1. Employment. SGX hereby employs Executive, and Executive hereby accepts
such employment, upon the terms and conditions set forth herein.

     2. Duties.

          2.1. Position; Duties and Responsibilities. Executive is employed in
the position of Senior Vice President of Research and Chief Scientific Officer
and shall have the duties and responsibilities assigned by SGX. Executive is
responsible for directing all research and development strategies and programs
to insure that activities are carried out in accordance with established
specifications, schedules, and budgets. Executive shall serve as a key member of
the executive team, as the principal advisor to the team on the scientific
vision and direction for the Company, including overall management of the
Company's core technology and shall report directly to the Chief Executive
Officer. Executive shall perform faithfully and diligently such duties, as well
as such other duties as SGX shall reasonably assign from time to time. SGX
reserves the right to modify Executive's position and duties at any time in its
sole and reasonable discretion, provided that such modified position is an
executive position of at least the same general scope and responsibilities as
originally provided herein.

          2.2 Best Efforts/Full-time. Executive will expend Executive's best
reasonable efforts on behalf of SGX, and will abide by all policies and
decisions made by SGX, as well as all applicable federal, state and local laws,
regulations or ordinances. Executive will act in the best interest of SGX at all
times. Other than as provided in Exhibit "A" hereto, Executive shall devote
Executive's full business time and efforts to the performance of Executive's
assigned duties, unless Executive notifies SGX in advance of Executive's intent
to engage in other paid work and receives SGX' express written consent to do so.
Executive must not engage in any work, paid or unpaid, that creates an actual or
potential conflict of interest with SGX. If SGX believes a conflict exists, and
presents Executive with reasonable proof of the same, SGX may ask Executive to
choose whether to discontinue the other work or resign employment with SGX.

          2.3. Work Location and Effective Date. Executive's principal place of
work shall be located in San Diego, California, at SGX' offices or as reasonably
assigned by SGX. Executive will use his best efforts to take up residence at the
Work Location by January 1, 2002, but in any case shall arrive and start work no
later than January 29, 2002. This Agreement shall be effective ("Effective
Date") on Executive's start date of employment with SGX.

          3. Term. The employment relationship pursuant to this Agreement shall
be for an initial term commencing on the Effective Date set forth above and
continuing for the period of three (3) years and for consecutive one (1) year
terms thereafter unless sooner terminated in accordance with paragraph 7 below.

     4. Compensation.

          4.1. Salary. As compensation for the proper and satisfactory
performance of all duties to be performed by Executive hereunder, SGX shall pay
to Executive an initial annualized Base Salary of Three Hundred Thousand
($300,000), payable in accordance with the normal payroll practices of SGX, less
required deductions for state and federal withholding tax, social security and
all other employment taxes and payroll deductions. Other than as provided in
Article 7 herein, in the event Executive's employment under this Agreement is
terminated by either party, for any reason, Executive will be entitled to
receive the Base Salary prorated to the date of termination.



          4.2. Incentive Compensation. Executive will be eligible to receive
incentive compensation. If SGX, in its sole and absolute discretion, grants
executive incentive compensation, the terms, amount and payment of such, if any,
will be determined solely by SGX.

          4.3. Stock Options. Executive will receive an option to purchase
200,000 shares of SGX common stock at a price per share equal to its fair market
value as of first meeting of the Board of Directors (the "Board") immediately
following or contemporaneous with Executive's start date, as determined by the
Board in its sole and absolute discretion, with a four year vesting schedule
subject to the terms and conditions of the SGX 2000 Equity Incentive Plan (the
"Incentive Plan"). The effective grant date of the options is the start date of
employment. The offer of these shares is conditioned upon Executive's acceptance
of SGX' offer of employment and will be in accordance with the terms and
requirements of the Incentive Plan and the Company's form of stock option
agreement.

          4.4. Conditional Compensation. In recognition of Executive's
acceptance of employment with SGX under the terms and conditions of this
Agreement, Executive will receive a one-time payment of one hundred thousand
dollars $100,000 ("Payment"), included in Executive's first SGX paycheck, and
subject to appropriate federal, state, and payroll tax withholdings. This
Payment will be subject to the following conditions: (1) if prior to the first
anniversary of the Effective Date, Executive voluntarily terminates Executive's
employment pursuant to paragraph 7.3 below, or (2) Executive is terminated for
cause pursuant to paragraph 7.1 below, Executive will reimburse SGX the full
amount of the Payment at the time of termination.

          4.5. Bonus Stock Options. Executive will receive an additional option
to purchase 40,000 shares of SGX common stock at a price per share equal to its
fair market value as of the first meeting of the Board immediately following or
contemporaneous with Executive's start date, as determined by the Board in its
sole and absolute discretion. These options will vest as of the grant date and
otherwise be subject to the terms and conditions of the Incentive Plan. The
effective grant date is the start date of employment. The offer of these shares
is conditioned upon Executive's acceptance of SGX' offer of employment and will
be in accordance with the terms and requirements of the Incentive Plan and the
Company's form of stock option agreement.

          4.6. Additional Stock Options. To the extent that any of the options
Executive received in Executive's capacity as a Founder of Prospect Genomics,
Inc. do not vest as a result of some or all of the Earnout Milestones (as set
forth in Section 1.9(a) of the Agreement and Plan of Merger and Reorganization
among Structural GenomiX, Inc., SGX Acquisition Corp., and Prospect Genomics,
Inc. dated as of April 2, 2001) not being achieved, SGX will grant Executive an
option to purchase additional shares of common stock. The number of shares which
will be subject to this option will equal the number of shares which did not
vest as a result of the Earnout Milestones not being fully achieved, up to a
maximum of 112,168 shares. The grant of this option will be subject to approval
by the Board and the price per share will equal the fair market value of SGX'
common stock as of the first meeting of the Board immediately following or
contemporaneous with Executive's start date. The offer of these shares will be
subject to the terms and requirements of the Incentive Plan and the Company's
form of stock option agreement.

          4.7 Cash Bonus Program. As Senior Vice President of Research and Chief
Scientific Officer, Executive is eligible to earn a cash bonus equal to 30% of
Executive's base salary, or $90,000 in year one (1), provided Executive meets
the eligibility requirements and performance objectives set forth in SGX' bonus
program, which are determined in SGX' sole and absolute discretion.

          4.8 Performance and Salary Review. SGX will periodically review
Executive's performance. Executive's salary and/or other compensation will be
reviewed yearly by SGX and may be adjusted from time to time in SGX' sole and
absolute discretion.

          4.9. Loan Payment. SGX will provide to Executive the sum of three
hundred thousand dollars ($300,000) constituting an interest-free unforgivable
personal loan to Executive (the "Loan") subject to the terms and conditions of
the Burley Employee Loan Agreement ("Loan Agreement").

     5. Benefits.



          5.1  Fringe Benefits. Executive will be eligible for all customary and
usual fringe benefits generally available to executives of SGX subject to the
terms and conditions of SGX' benefit plan documents, including, but not limited
to, medical, dental, vision, life insurance, AD&D insurance, long-term and
short-term disability insurance and a 401(k) plan. SGX reserves the right to
modify or eliminate the fringe benefits on a prospective basis, at any time,
effective upon notice to Executive. Executive shall accrue vacation on a pay
period basis at the annual rate of one-hundred-twenty (120) hours. SGX shall
also provide Executive with five (5) days of sick time per year. SGX covenants
that it has, and at all times will maintain, adequate insurance, including
liability insurance and Director's and Officer's insurance to cover any claim or
obligation that Executive may reasonably be expected to incur as a result of his
employment by SGX. Further, SGX shall indemnify and defend Executive against any
claims, demands, liability, suits, losses, damages (including special, punitive,
incidental and consequential damages), costs and expenses, including actual
attorneys' fees and court costs, which may be incurred by him and which result
from his employment as an executive, officer and employee of SGX.

          5.2  Relocation Expenses and Benefits.

               (a)  SGX shall reimburse Executive for expenses related to the
                    relocation of Executive and his family to San Diego as
                    follows:

               (i)  Reasonable travel and living expenses associated with one
                    (1) trip of up to seven (7) days (including travel) to San
                    Diego for the purpose of securing a temporary place to live.
                    If needed, a second trip of like scope will be made
                    available upon reasonable request. Original receipts are
                    required for reimbursement.

               (ii) Reasonably documented moving expenses up to thirty-five
                    thousand dollars ($35,000) (including packing, shipping and
                    temporary storage of household goods and one family
                    vehicle).

               (iii) Up to six (6) months of temporary housing and costs
                    associated with a rental car until Executive's vehicle
                    arrives in San Diego.

               (iv) Normal and customary non-recurring closing costs, including
                    sales commissions, Coop Board Fees and attorney fees, for
                    the sale of Executive's apartment in New York City, up to
                    ten percent (10%) of the price of the apartment. Executive
                    shall provide SGX with reasonable documentation
                    substantiating the costs associated with the sale of
                    Executive's New York apartment.

               (v)  Normal and customary non-recurring closing costs, including
                    sales commissions and attorney fees, associated with the
                    purchase of Executive's new home in San Diego up to three
                    percent (3%) of the purchase price.

               (vi) Reasonable transportation costs for Executive and his family
                    associated with their final move trip to San Diego.

               (vii) SGX will provide Executive with a moving allowance of
                    twenty thousand dollars ($20,000), to be paid with
                    Executive's first paycheck, and subject to appropriate
                    federal, state, and payroll tax withholdings, from SGX.

               (viii) SGX will provide Executive with a company paid-for
                    relocation consultant to provide Executive with a variety of
                    relocation assistance, including, but not limited to,
                    finding a moving company, interim housing, real estate
                    professionals and information about the San Diego area.



               (b)  SGX will gross-up all of the reimbursements, payments and
                    costs of services described in 5.2(a) above, except for item
                    (vii), (to the extent such items are considered taxable
                    income) for income and employment taxes. The income tax
                    gross-up will be calculated using the supplemental wage
                    rates in effect when payment is made. SGX will be reimbursed
                    for the pro-rated portion of the above payments and costs
                    from Executive, other than the services provided by the
                    relocation consultant, should Executive's employment be
                    terminated prior to the completion of one (1) year of
                    service pursuant to subparagraphs 7.1 or 7.3 herein. SGX
                    shall withhold such amount from Executive's final paycheck.

          5.3  Interim Consultation. Prior to Executive's relocation and start
               date with SGX, Executive will continue to provide SGX with
               consulting services, and receive payment for the same, under the
               Executive's Founding Scientific Associate and Consulting
               Agreement with Prospect Genomics, Inc., of March 1, 2000, as
               amended on May 4, 2001. Executive's interim consultation will be
               for the exchange of ideas only. Under no circumstances, will
               Executive direct research at SGX prior to his start date of
               employment.

     6.   Business Expenses. Executive will be reimbursed for all out-of-pocket
business expenses reasonably incurred in the performance of Executive's duties
on behalf of SGX. Executive will be permitted to fly business class (or first
class if business class is not available) on any business flights with greater
than two (2) hours of flight time. To obtain reimbursement, expenses must be
submitted promptly with appropriate supporting documentation in accordance with
SGX' policies.

     7.   Termination of Employment.

          7.1. Termination for Cause by SGX. Although SGX anticipates a mutually
rewarding employment relationship with Executive, SGX may terminate Executive's
employment immediately at any time for cause. Cause includes, but is not limited
to, one or more of the following: (a) acts or omissions deemed by SGX to
constitute gross negligence, recklessness, willful misconduct or dishonesty on
the part of Executive with respect to Executive's obligations under this
Agreement or otherwise relating to the business of SGX; (b) Executive's willful,
material breach of this Agreement; (c) Executive's conviction or entry of a plea
of guilty or nolo contendere for fraud, misappropriation or embezzlement, or of
any felony; or engaging in any conduct which SGX, in its discretion, determines
has or may adversely impact SGX; (d) Executive's material breach of fiduciary
duty toward SGX; (e) Executive's material breach of any element of SGX'
Confidential Information and Invention Assignment Agreement, including without
limitation, Executive's theft, dilution, or other misappropriation or careless
treatment of SGX' proprietary information; (f) Executive's inability to perform
all of the essential functions and duties of Executive's position, with or
without reasonable accommodation other than for reason of temporary illness; or
(g) Executive's death. In the event Executive's employment is terminated in
accordance with this subparagraph 7.1, Executive shall be entitled to receive
only the Base Salary then in effect, prorated to the date of termination, and
any benefits, including any benefits under the bonus program and Incentive Plan,
and expense reimbursements to which Executive is entitled by virtue of his prior
employment with SGX (collectively referred to as "Standard Entitlements."). All
other SGX obligations to Executive pursuant to this Agreement will become
automatically terminated and completely extinguished. Executive will not be
entitled to receive the Severance Payment or any part thereof described in
subparagraph 7.2 below.

          7.2. Termination Without Cause By SGX/Severance. SGX may terminate
Executive's employment under this Agreement without cause at any time on thirty
(30) days' advance written notice to Executive, including the failure of SGX to
renew Executive's term of employment under paragraph 3 of this Agreement. In the
event of such termination, Executive will receive the Standard Entitlements,
plus a severance payment equivalent to twelve months of Executive's Base Salary
then in effect on the date of termination (the "Severance Payment") payable in
accordance with SGX' regular payroll cycle, including continuation of
Executive's benefits in accordance with SGX's regular payroll deductions. In
addition, the vesting of any outstanding stock options, including, but not
limited to, options granted under paragraphs 4.3 and 4.6, as well as any
subsequently granted incentive or evergreen stock options, will be accelerated
by 12 months, provided that Executive: (a) is in material compliance with all
surviving provisions of this Agreement as specified in



subparagraph 16.7 below; (b) executes a full general release, releasing all
claims, known or unknown, that Executive may have against SGX arising out of or
any way related to Executive's employment or termination of employment with SGX;
and (c) agrees to act as a consultant for SGX for up to a maximum of sixty (60)
days, without additional compensation, if requested to do so by SGX. All other
SGX obligations to Executive pursuant to this Agreement will become
automatically terminated and completely extinguished, except for obligations
accruing prior to termination, including SGX's obligation to indemnify, defend
and insure Executive pursuant to subparagraph 5.1 hereunder.

          7.3. Voluntary Resignation By Executive. Executive may voluntarily
resign Executive's position with SGX at any time on thirty (30) days advance
written notice. In the event of Executive's resignation, Executive shall be
entitled to receive only the Base Salary then in effect, prorated to the date of
resignation, and the Standard Entitlements. All other SGX obligations to
Executive pursuant to this Agreement will become automatically terminated and
completely extinguished, except for obligations accruing prior to termination,
including SGX's obligation to indemnify, defend and insure Executive pursuant to
subparagraph 5.1 hereunder. In addition, Executive will not be entitled to
receive the Severance Payment described in paragraph 7.2 above.

          7.4. Termination of Executive Following Change Of Control.

               (a)  Severance Payment. If Executive's employment is terminated
by SGX without cause, or if Executive resigns because SGX substantially changes
all of Executive's duties and responsibilities which existed prior to a Change
in control, within one (1) year after a Change of Control (as that term is
defined below), Executive shall be entitled to receive the Standard
Entitlements, plus the Severance Payment and other benefits described in
subparagraph 7.2 above, and the vesting of any outstanding stock options,
including, but not limited to, options granted under paragraphs 4.3 and 4.6, as
well as any subsequently granted incentive or evergreen stock options, will be
accelerated by twenty-four (24) months, provided Executive complies with the
conditions in subparagraph 7.2 above. All other SGX obligations to Executive
pursuant to this Agreement will become automatically terminated and completely
extinguished, except for obligations accruing prior to termination, including
SGX's obligation to indemnify, defend and insure Executive pursuant to
subparagraph 5.1 hereunder.

               (b)  280G. If, due to the benefits provided under subparagraph
7.4(a) above, and/or any other benefits, Executive is subject to any excise tax
due to characterization of any amounts payable under subparagraph 7.4(a) and/or
any other benefits, as excess parachute payments pursuant to Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), Executive may elect, in
Executive's sole discretion, to reduce the amounts payable under subparagraph
7.4(a)and/or any other benefits, in order to avoid any "excess parachute
payment" under Section 280G(b)(1) of the Code.

               (c)  Change of Control. A Change of Control is defined as any one
of the following occurrences:

                    (i)  Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other
than a trustee or other fiduciary holding securities of SGX under an employee
benefit plan of SGX, becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of the securities
of SGX representing more than 50% of (a) the outstanding shares of common stock
of SGX or (b) the combined voting power of SGX' then-outstanding securities; or

                    (ii) The sale or disposition of all or substantially all of
SGX' assets (or any transaction having similar effect is consummated) other than
to an entity of which SGX owns at least 50% of the Voting Stock so long as the
sale or disposition is not under duress of SGX' financial hardship; or

                    (iii) SGX is party to a merger or consolidation that results
in the holders of voting securities of SGX outstanding immediately prior thereto
failing to continue to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) less than 50% of the
combined voting power of the voting securities of SGX or such surviving entity
outstanding immediately after such merger or consolidation.



     8.   Competitive Employment. During the term of Executive's employment with
SGX and during any period in which Executive is receiving payments (other than
any dividends on stock) from SGX or acting as a consultant with or without
payment, Executive agrees that Executive will not knowingly directly compete
with SGX in any way, and will not, subject to subparagraph 2.2 and Exhibit A
herein, act as an officer, director, executive, consultant, shareholder (other
than stock of publicly held companies), volunteer, lender, or agent of any
business enterprise of the same nature as, or which is in direct competition
with, the business in which SGX is now engaged or in which SGX becomes engaged
during the term of Executive's employment with SGX, as may be determined by SGX
in its sole reasonable discretion. Further, Executive agrees not to refer any
client or potential client to competitors of SGX without SGX' written consent
during the term of Executive's employment with SGX or during any period in which
Executive is receiving payments (other than any dividends on stock) from SGX or
acting as a paid consultant.

     9.   Confidentiality and Proprietary Rights. Executive agrees to abide by
SGX' proprietary rights policies and to protect the intellectual property of
SGX. In accordance, Executive will sign, prior to the Effective Date of this
Agreement, a Confidential Information and Invention Assignment Agreement, which
is incorporated herein by this reference.

     10.  Non-Solicitation.

          10.1. Non-Solicitation of Employees and Independent Contractors.
Executive agrees that during Executive's employment with SGX and for a period of
one (1) year after the termination of Executive's employment with SGX, Executive
will not directly or indirectly, separately or in association with others,
knowingly interfere with, impair, disrupt or damage SGX' relationship with any
employee or independent contractor; solicit, encourage or attempt to hire any of
SGX' employees or independent contractors; or cause others to solicit or
encourage any of SGX' employees or independent contractors to discontinue their
employment or services with SGX.

          10.2. Non-Solicitation of Customers. Executive acknowledges that
proprietary information about SGX' customers is confidential and constitutes
trade secrets of SGX. Executive agrees that during Executive's employment with
SGX and for a period of one (1) year following the termination of Executive's
employment with SGX, Executive will not, either directly or indirectly,
separately or in association with others, knowingly do any of the following: (i)
make known, to any person, firm or corporation, the names and addresses of any
of the customers of SGX or contacts of SGX within the pharmaceutical or
biotechnology industries or any other information pertaining to such persons;
(ii) call on, solicit, take away, or attempt to call on, solicit or take away
any of the customers of SGX on whom Executive called or with whom Executive
became aware or acquainted during Executive's association with SGX, whether for
Executive or for any other person, firm or corporation; or (iii) use or make
known to any person or entity, the strategies, tactics, practices, and
procedures by which SGX does business.

     11.  Injunctive Relief. Executive acknowledges that Executive's breach of
the covenants contained in paragraphs 8-10 (collectively "Covenants") could
cause irreparable injury to SGX and agrees that in the event of any such breach,
SGX shall be entitled to seek temporary, preliminary and permanent injunctive
relief without the necessity of proving actual damages or posting any bond or
other security.

     12.  Accounting and Indemnification. In the event Executive breaches any of
the Covenants contained in paragraphs 8-10, SGX shall have the right and remedy
to require Executive to: (a) account for and pay over to SGX all compensation,
profits, monies, accruals, increments or other benefits derived or received by
Executive or any associated party deriving such benefits as a direct result of
any such breach of the Covenants; and (b) to indemnify SGX against any other
losses, damages (including special and consequential damages), costs and
expenses, including actual attorneys' fees and court costs, which may be
incurred by them and which directly result from or arise out of any such breach
or threatened breach of the Covenants. Both parties agree that the provisions of
this paragraph 12 will not adequately compensate SGX for SGX' injury in the
event of Executive's breach of any of the Covenants. Accordingly, the parties
agree the provisions of this paragraph 12 will not in any way limit or interfere
with SGX' right to seek injunctive relief under paragraph 11.

     13.  Return of SGX Property. On termination of employment with SGX for
whatever reason, or at the request of SGX before termination, Executive agrees
to promptly deliver to SGX all records, files, computer disks,



memoranda, documents, lists and other information regarding or containing any
Proprietary Information, including all copies, reproductions, summaries or
excerpts thereof, then in Executive's possession or control, whether prepared by
Executive or others. Executive also agrees to promptly return, upon termination
or at any time upon SGX' request, any and all SGX property issued to Executive,
including but not limited to computers, facsimile transmission equipment,
cellular phones, keys and credits cards. Executive further agrees that should
Executive discover any SGX property or Proprietary Information in Executive's
possession after Executive's termination and departure from SGX, Executive
agrees to return it promptly to SGX without retaining copies or excerpts of any
kind.

     14.  No Violation of Rights of Third Parties. Executive warrants that, to
the best of his knowledge, Executive's performance of all the terms of this
Agreement does not and will not breach any agreement to keep in confidence
proprietary information, knowledge or data acquired by Executive prior to
Executive's employment with SGX. Executive agrees not to disclose to SGX, or
induce SGX to use, any confidential or proprietary information or material
belonging to any previous employers or others. Executive warrants that, to the
best of his knowledge, Executive is not a party to any other agreement that will
interfere with Executive's full compliance with this Agreement. Executive
further agrees not to enter into any agreement, whether written or oral, in
conflict with the provisions of this Agreement.

     15.  Agreement to Arbitrate. Executive and SGX agree to arbitrate any
controversy, claim or dispute between them arising out of or in any way related
to this Agreement, the employment relationship between them, and any disputes
upon termination of employment, except as provided in subparagraph 15.1 below,
to the fullest extent permitted by law. This method of resolving disputes shall
be the sole and exclusive remedy of the parties. Accordingly, the parties
understand that, except as provided in this paragraph 15 or as otherwise
required by law, they are giving up their rights to have their disputes decided
in a court of law and, if applicable, by a jury, and instead agree that their
disputes shall be decided by arbitration.

          15.1. Scope of the Agreement. The disputes subject to this agreement
to arbitrate include all potential claims between Executive and SGX relating to
employment, such as breach of contract, tort, discrimination, harassment,
wrongful termination, demotion, discipline, failure to accommodate, family and
medical leave, compensation or benefits claims, constitutional claims and claims
for violation of any local, state or federal law, statute, regulation or
ordinance or common law to the fullest extent permitted by law. Claims for
workers' compensation or unemployment insurance benefits, if any, and SGX' right
to obtain injunctive relief pursuant to paragraph 11 above are excluded. For the
purposes of this agreement to arbitrate, references to "SGX" include SGX and all
subsidiary and related entities and their employees, supervisors, officers,
directors, owners, agents, benefit plans, benefit plan sponsors, fiduciaries,
administrators, affiliates and all successors and assigns of any of them, and
this agreement to arbitrate shall apply to them to the extent Executive's claims
arise out of or relate to their actions on behalf of SGX.

          15.2. Initiation of Arbitration. Either party may exercise the right
to arbitrate by providing the other party with written notice of any and all
claims forming the basis of such right in sufficient detail to inform the other
party of the substance of such claims.

          15.3. Arbitration Procedure. The arbitration will be conducted in
accordance with the then current rules for resolution of employment disputes of
the American Arbitration Association ("AAA") at its offices in San Diego,
California. If the parties cannot agree on the single neutral arbitrator, such
arbitrator shall be selected in accordance with the AAA rules. The parties are
entitled to representation by an attorney or other representative of their
choosing. The parties will also be permitted to conduct discovery sufficient to
present their respective cases. The arbitrator will be required to issue a
written arbitration decision that will reveal the essential findings and
conclusions on which an award is based, and shall have the power to enter any
award that could be entered by a judge of the Superior Court of the State of
California, and only such power, and shall follow the law. In the event the
arbitrator does not follow the law, the arbitrator will have exceeded the scope
of his or her authority and the parties may, at their option, file a motion to
vacate the award in court. Otherwise, the parties agree to abide by and perform
any award rendered by the arbitrator. Judgment on the award may be entered in
any court having jurisdiction thereof.



     16.  General Provisions.

          16.1. Successors and Assigns. The rights and obligations of SGX under
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of SGX. Executive shall not be entitled to assign any of
Executive's rights or obligations under this Agreement other than to the estate
of Executive.

          16.2. Waiver. Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
or prevent that party thereafter from enforcing each and every other provision
of this Agreement.

          16.3. Severability. In the event any provision of this Agreement is
found to be unenforceable by an arbitrator or court of competent jurisdiction,
such provision shall be deemed modified to the extent necessary to allow
enforceability of the provision as so limited, it being intended that the
parties shall receive the benefit contemplated herein to the fullest extent
permitted by law. If a deemed modification is not satisfactory in the judgment
of such arbitrator or court, the unenforceable provision shall be deemed
deleted, and the validity and enforceability of the remaining provisions shall
not be affected thereby.

          16.4. Interpretation; Construction. The headings set forth in this
Agreement are for convenience only and shall not be used in interpreting this
Agreement. This Agreement has been drafted by legal counsel representing SGX,
but Executive has participated in the negotiation of its terms. Furthermore,
Executive acknowledges that Executive has had an opportunity to review and
revise the Agreement and have it reviewed by legal counsel, if desired, and,
therefore, the normal rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement.

          16.5. Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the United States and the State of California.
Each party consents to the jurisdiction and venue of the state or federal courts
in the State where Executive is employed, in any action, suit, or proceeding
arising out of or relating to this Agreement.

          16.6. Notices. Any notice required or permitted by this Agreement
shall be in writing and shall be delivered as follows with notice deemed given
as indicated: (a) by personal delivery when delivered personally; (b) by
overnight courier upon written verification of receipt; (c) by telecopy or
facsimile transmission upon acknowledgment of receipt of electronic
transmission; or (d) by certified or registered mail, return receipt requested,
upon verification of receipt. Notice shall be sent to the addresses set forth
below, or such other address as either party may specify in writing.

          16.7. Survival. Paragraphs 5.1 ("Benefits", with respect to SGX's
insurance and indemnity obligations to Executive), 7.2 ("Termination without
Cause by SGX"), 7.4 (Termination of Executive Following Change of Control"), 8
("Competitive Employment"), 9 ("Confidentiality and Proprietary Rights"), 10
("Non-Solicitation"), 11 ("Injunctive Relief"), 12 ("Accounting and
Indemnification"), 13 ("Return of SGX Property") 15 ("Agreement to Arbitrate"),
16 ("General Provisions") and 17 ("Entire Agreement") of this Agreement shall
survive Executive's employment by SGX.

     17.  Entire Agreement. This Agreement, including the Incentive Plan, bonus
program, Employee Loan Agreement and Confidential Information and Invention
Assignment Agreement herein incorporated by reference, constitutes the entire
agreement between the parties relating to this subject matter and supersedes all
prior or simultaneous representations, discussions, negotiations, and
agreements, whether written or oral, including but not limited to the Offer
Letter of August 31, 2001. This Agreement may be amended or modified only with
the written consent of Executive and the Board of Directors of SGX. No oral
waiver, amendment or modification will be effective under any circumstances
whatsoever. Termination of Executive's employment and/or this Agreement, for any
reason, or under any of the provisions of Article 7, shall not impact any other
agreements between Executive and SGX, including, but not limited to, the
Founding Scientific Associate and Consulting Agreement of March 1, 2000 (with
Prospect Genomics, Inc.), as amended on May 4, 2001 (between Prospect Genomics,
Inc., Structural GenomiX, Inc. and Executive)("Founders Agreement"). Executive's
continuing employment with SGX shall satisfy all of his consulting obligations
to SGX pursuant to the Founders Agreement.



THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY
UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES
HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.

                                                Executive

Dated: January 28, 2002                         /s/ Stephen Burley
                                                --------------------------------
                                                Stephen Burley, M.D., D. Phil.

                                                Structural GenomiX Inc.

Dated: January 28, 2002                         By: /s/ Tim Harris
                                                    ----------------------------

                                                Its: President and CEO



                                    EXHIBIT A

    EXCEPTIONS TO EXECUTIVE'S FULL-TIME COMMITMENTS PURSUANT TO PARAGRAPH 2.2

1. Subject to the approval of the NIGMS, continue to serve as the Principal
Investigator on the NIGMS P50 Center Grant (the "Grant"), assuming that NIGMS
will allow the transfer of at least a part of the Grant to SGX (typical service
= TBD; may result in up to $3,000,000 in payments to SGX per year).

2. Continued service as the Chair, Scientific Advisory Board of the Protein Data
Bank (typical service = 1 meeting per year).

3. Continued service as the Chair, Scientific Advisory Board of Protein
Solutions Inc. (typical service = 1 meeting per year).

4. Continued service as a Member, Scientific Advisory Committee of the DIAMOND
Synchrotron Project in the UK (typical service = 2-3 meetings per year).

5. Continued service as a Member, Chemical Biology Advisory Board of the
American Association of Cancer Research (typical service = 1-2 meetings per
year).

6. Continued service as a Member, various Editorial Advisory Boards for
scientific journals (typical service = minimal).

                           Relocation Loan Agreement

      This Relocation Loan Agreement ("Agreement", also referred to as "Note")
is effective as of July 29, 2002 ("Effective Date"), by and between Structural
GenomiX, Inc., a Delaware corporation with its principal place of business at
10505 Roselle Street, San Diego, California 92121 ("SGX", also referred to as
"Holder"), and Stephen Burley, M.D., D. Phil., an individual who resides at
____________________________________ ("Burley", also referred to as "Maker")
(each a "Party" and collectively the "Parties").

                                    RECITALS

      A.    WHEREAS, SGX has employed Burley as Chief Scientific Officer and
            Senior Vice President of Research.

      B.    WHEREAS, Burley has relocated to San Diego to perform his duties as
            an SGX employee.

      C.    WHEREAS, SGX hereby provides a relocation loan of three hundred
            thousand dollars ($300,000) to Burley to be used solely for the
            purchase of his new principal residence, subject to the terms of
            this Agreement;

      NOW THEREFORE, in consideration of the mutual covenants and conditions set
forth hereunder, the Parties hereby agree as follows:

                                    AGREEMENT

1.    SGX'S OBLIGATIONS.

      1.1   Loan Payment. SGX will provide to Burley, for the purchase of a new
principal residence by Burley, three hundred thousand dollars ($300,000)
constituting an interest-free relocation loan to Burley (the "Loan").

2.    BURLEY'S OBLIGATIONS.

      2.1   Repayment Obligation. Burley, for value received, hereby promises to
pay SGX at its principle place of business, the principal sum of three hundred
thousand dollars ($300,000) consistent with this Agreement. Subject to the Early
Recall terms and conditions of paragraphs 2.2 and 2.3, Burley will pay to SGX
the full Loan amount of $300,000 (Non-Forgivable) in equal increments of
twenty-five percent (25%) or $75,000, on each of four consecutive semi-annual
payment dates commencing January 1, 2012 as follows:

                  (a)   $75,000 due on January 1, 2012 to SGX at 10505 Roselle
      Street, San Diego, California 92121, or at such other place as SGX may
      designate in writing, in lawful money of the United States of America and
      in immediately available funds.

                                  Page 1 of 7


                  (b)   $75,000 due on July l, 2012 so long as Burley is
      employed by SGX on that date. However, upon termination of Burley's
      employment at any time during the six (6) month period after January 1,
      2012 but prior to July 1, 2012, Burley will immediately pay the balance of
      the Loan principal, presumably $225,000, to SGX at 10505 Roselle Street,
      San Diego, California 92121, or at such other place as SGX may designate
      in writing, in lawful money of the United States of America and in
      immediately available funds.

                  (c)   $75,000 due on January 1, 2013 so long as Burley is
      employed by SGX on that date. However, upon termination of Burley's
      employment at any time during the six (6) month period after July 1, 2012
      but prior to January 1, 2013, Burley will immediately pay the balance of
      the Loan principal, presumably $150,000, to SGX at 10505 Roselle Street,
      San Diego, California 92121, or at such other place as SGX may designate
      in writing, in lawful money of the United States of America and in
      immediately available funds.

                  (d)   $75,000 due on July 1, 2013 so long as Burley is
      employed by SGX on that date. However, upon termination of Burley's
      employment at any time during the six (6) month period after January 1,
      2013 but prior to July 1, 2013, Burley will immediately pay the balance of
      the Loan principal, presumably $75,000, to SGX at 10505 Roselle Street,
      San Diego, California 92121, or at such other place as SGX may designate
      in writing, in lawful money of the United States of America and in
      immediately available funds.

      2.2   Early Recall. At any time within one year after the occurrence of an
event listed in this paragraph ("Recall Event"), and subject to the Default
provisions of paragraph 3, SGX shall have the right to demand repayment of the
Loan in accordance with paragraph 2.3 below. A Recall Event is deemed to have
occurred upon:

                  (a)   an initial public offering of SGX stock; or

                  (b)   a merger, acquisition, or sale ("Transaction") of SGX to
      or into any publicly traded company, or any subsidiary of a publicly
      traded company, whereby SGX stockholders receive publicly traded stock in
      connection with the Transaction; or

                  (c)   termination of Burley's employment pursuant to the
      Burley/SGX Employment Agreement.

      2.3   Early Recall Repayment of Loan. Immediately upon the date of SGX's
demand for repayment pursuant to paragraph 2.2 ("Recall Date"), Burley will pay
to SGX the full Loan amount of $300,000 (Non-Forgivable) in equal increments of
twenty-five percent (25%) or $75,000, on each of four consecutive semi-annual
payment dates commencing six (6) months after the Recall Date as follows:

                  (a)   $75,000 due six (6) months after the Recall Date, so
      long as Burley is employed by SGX on that date. However, upon termination
      of Burley's employment at any time during the first six (6) month period,
      Burley will immediately


                                  Page 2 of 7


      pay the full principal amount of the $300,000 to SGX at 10505 Roselle
      Street, San Diego, California 92121, or at such other place as SGX may
      designate in writing, in lawful money of the United States of America and
      in immediately available funds.

                  (b)   $75,000 due twelve (12) months after the Recall Date, so
      long as Burley is employed by SGX on that date. However, upon termination
      of Burley's employment at any time during the second six (6) month period,
      Burley will immediately pay the balance of the Loan principal, presumably
      $225,000 to SGX at 10505 Roselle Street, San Diego, California 92121, or
      at such other place as SGX may designate in writing, in lawful money of
      the United States of America and in immediately available funds.

                  (c)   $75,000 due eighteen (18) months after the Recall Date,
      so long as Burley is employed by SGX on that date. However, upon
      termination of Burley's employment at any time during the third six (6)
      month period, Burley will immediately pay the balance of the Loan
      principal, presumably $150,000, to SGX at 10505 Roselle Street, San Diego,
      California 92121, or at such other place as SGX may designate in writing,
      in lawful money of the United States of America and in immediately
      available funds.

                  (d)   $75,000 due twenty-four (24) months after the Recall
      Date, so long as Burley is employed by SGX on that date. However, upon
      termination of Burley's employment at any time during the fourth six (6)
      month period, Burley will immediately pay the balance of the Loan
      principal, presumably $75,000, to SGX at 10505 Roselle Street, San Diego,
      California 92121, or at such other place as SGX may designate in writing,
      in lawful money of the United States of America and in immediately
      available funds.

      2.4   Services. This Loan is conditioned upon the performance of Burley's
service as an employee of SGX. The benefits of the favorable interest on this
Loan cannot be transferred by Burley.

      2.5   Deductions. Burley hereby certifies that he reasonably expects to be
entitled to and will itemize deductions for each year this Loan is outstanding.

      2.6   Security. This Note is secured by a deed of trust ("Deed of Trust")
signed by Burley and his spouse ("Maker"), as trustor, naming Holder as
beneficiary and Chicago Title Company as trustee. Reference is made to the Deed
of Trust for a description of the security and for a statement of the terms and
conditions upon which this Note is secured. The Deed of Trust securing this Note
contains the following provision:

            If the Trustor shall convey, alienate or encumber the
            property or any portion thereof or any interest therein
            or shall be divested of title in any manner or way,
            whether voluntarily or involuntarily, any indebtedness
            or obligation secured hereby, at the option of
            Beneficiary

                                  Page 3 of 7


            and without demand or notice, shall be due and payable
            immediately.

      2.7   Payment of Taxes, Etc. on Collateral. Burley agrees to pay prior to
delinquency all taxes, charges, liens and assessments against the Collateral,
and upon failure of Burley to do so, SGX at its option may pay any of them and
Burley agrees that SGX shall be the sole judge of the legality or validity
thereof and the amount necessary to discharge the same.

3.    DEFAULT.

      3.1   Events Triggering Default Remedies. The occurrence of one or more of
the following events constitutes a default under this Agreement:

            (a)   Any termination with cause, other than termination caused
      solely by a Change of Control as defined in paragraph 3.2 below, of the
      employment relationship between SGX and Burley by either SGX or Burley;

            (b)   Failure by Burley to keep or perform any of the terms or
      provisions of this Agreement;

            (c)   Burley informs SGX of his intention not to perform or observe
      a term or provision of this Agreement;

            (d)   Levy of any attachment, execution or other process against the
      primary residence; or

            (e)   Insolvency, commission of an act of bankruptcy, general
      assignment for the benefit of creditors, filing of any petition in
      bankruptcy or for relief under the provisions of Title 11 of the United
      States Code of, by, or against Burley.

      3.2   Change of Control Defined. A "Change of Control" is defined as any
one of the following occurrences:

                  (a)   Any "person" (as such term is used in Sections 13(d) and
      14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other
      than a trustee or other fiduciary holding securities of SGX under an
      employee benefit plan of SGX, becomes the "beneficial owner" (as such term
      is defined in Rule 13d-3 promulgated under the Exchange Act), directly or
      indirectly, of the securities of SGX representing more than 50% of (1) the
      outstanding shares of common stock of SGX, or (ii) the combined voting
      power of SGX's then-outstanding securities;

                  (b)   The sale or disposition of all or substantially all of
      SGX's assets (or the consummation of any transaction having similar
      effect) other than to an entity of which SGX owns at least 50% of the
      voting stock;

                                  Page 4 of 7


                  (c)   SGX is party to a merger of consolidation that results
      in the holders of voting securities of SGX outstanding immediately prior
      thereto failing to continue to represent (either by remaining outstanding
      or by being converted into voting securities of the surviving entity) more
      than 50% of the combined voting power of the voting securities of SGX or
      such surviving entity outstanding immediately after such merger or
      consolidation; or

            3.2.1 Change of Control does not include any circumstance which is
not delineated above and specifically does not include any financial hardship
experienced by SGX, including but not limited to the sale of assets under
duress, any bankruptcy, liquidation, or dissolution.

      3.3   Default Remedies.

            3.3.1 Acceleration. On the occurrence of any event enumerated in
Paragraph 3.1 of this Agreement, the amount of the Loan principal remaining
pursuant to Paragraph 2 of this Agreement shall be immediately due and payable
without any action of SGX, Burley, or any other person.

            3.3.2 Other Recourse. If any deficiency remains on the unpaid
balance of the Loan after application of the security, then Burley shall remain
personally liable for payment for the full amount of such deficiency, and SGX
may exercise all rights and remedies available to it under law and in equity.

            3.3.3 Continuing Rights. Until repayment of the Loan in full by
Burley, the power of sale and all other rights, powers and remedies granted to
SGX hereunder shall continue to exist and may be exercised by SGX at any time
and from time to time irrespective any applicable statutes of limitations or
that the personal liability of Burley may have ceased.

                               GENERAL PROVISIONS

4.    EMPLOYMENT OBLIGATIONS UNAFFECTED. This Agreement in no way alters or
      changes the rights and obligations of Burley and SGX pursuant to the
      Employment Relationship. Specifically, the at-will employment relationship
      between SGX and Burley established continues and no term of this Agreement
      alters Burley's at-will relationship with SGX.

5.    STOCK OPTION AGREEMENT AND PLAN UNAFFECTED. This Agreement in no way
      alters or changes the rights and obligations of Burley and SGX pursuant to
      the stock option agreement and plan.

6.    OTHER RIGHTS UNAFFECTED. The rights, powers and remedies given to SGX by
      this Agreement shall be in addition to all rights, powers and remedies
      given to SGX by virtue of any other agreement, statute, or rule of law.

                                  Page 5 of 7


7.    NONWAIVER OF RIGHTS. Any forbearance, failure or delay by SGX in
      exercising any right, power or remedy hereunder shall not be deemed a
      waiver of such right, power or remedy, and any single or partial exercise
      of any right, power or remedy hereunder shall not preclude the further
      exercise thereof; and every right, power and remedy of SGX shall continue
      in full force and effect until such right, power or remedy is specifically
      waived by an instrument in writing executed by SGX.

8.    ASSIGNMENT AND DELEGATION. SGX can assign this Agreement at its
      discretion. This Agreement, however, may not be assigned or delegated in
      whole or in part by Burley without the prior express written consent of
      SGX. Specifically, Burley cannot assign or transfer the benefits of the
      interest arrangement of this loan.

9.    GOVERNING LAW. Principal and interest are payable in lawful money of the
      United States. This Note has been executed and delivered by Maker in the
      State of California and shall be governed by and construed in accordance
      with the laws of the State of California. In any action brought under or
      arising out of this Note, Maker hereby consents to the jurisdiction of any
      competent court within the State of California and consents to service of
      process by any means authorized by California law.

10.   WAIVER OF BREACH. Either Party's waiver of any breach or default by the
      other Party shall not constitute a waiver of any different or subsequent
      breach or default.

11.   COSTS OF COLLECTION. If the obligation is not paid when due, whether at
      maturity or by acceleration, Burley promises to pay all costs, including
      attorney's fees, incurred by SGX in collecting the amounts due.

12.   UNENFORCEABLE PROVISIONS. If any provision or part of a provision herein
      is held to be invalid, illegal or unenforceable for any reason, such
      invalidity, illegality or unenforceability shall be severed, but without
      in any way affecting the remainder of such provision or any other
      provision contained herein, which shall continue in full force and effect.

13.   ENTIRE AGREEMENT. This Agreement, including the schedules attached hereto,
      constitutes the entire Agreement between the Parties concerning the
      subject matter hereof, supercedes all prior and contemporaneous
      communications or agreements, written or oral, and is intended by the
      Parties to be a complete and exclusive statement of the terms of the
      agreement between them. This Agreement may only be modified by a writing
      signed by authorized representatives of both Parties.

                                  Page 6 of 7


IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
in duplicate by their duly authorized representatives.

Structural GenomiX, Inc.:                   Stephen K. Burley, M.D., D.Phil.:

By:         /s/ Tim Harris                        /s/ Stephen K. Burley
   -----------------------------------    --------------------------------------

Name:       Dr. Tim Harris
     ---------------------------------

Title:      CEO & President
      --------------------------------

                                Consent of Spouse

      I, SONIA ESPEJON-REYNES, spouse of Stephen K. Burley, M.D., D.Phil., the
party to this Agreement, acknowledge that I have read the foregoing Relocation
Loan Agreement between Stephen K. Burley, M.D., D.Phil., and Structural GenomiX,
Inc. and know its contents. I consent to, and am aware, that by its terms, the
Agreement is secured by our primary residence which is jointly held by Stephen
K. Burley, M.D., D.Phil. and myself. I agree to be bound by this Agreement and
the Deed of Trust, which I will separately execute, and I will take no action at
any time to hinder the parties' rights to this Agreement or the Deed of Trust.

        /s/ Sonia Espejon-Reynes
- ----------------------------------------
          SONIA ESPEJON-REYNES

                                   Page 7 of 7

EX-10.8

                                                                    EXHIBIT 10.8

                                                                  DR. TIM HARRIS

November 12, 2004

CONFIDENTIAL

Alex Barkas, Ph.D.
Chairman of the Compensation Committee
Structural GenomiX, Inc.
10505 Roselle Street
San Diego, CA 92121

   RE:  SEPARATION OF EMPLOYMENT OF SGX CEO DR. TIMOTHY HARRIS

Dear Alex,

This letter reflects the agreements we have reached regarding the termination of
my employment with SGX and our respective obligations under my Executive
Employment Agreement with the Company dated May 2001 (the "Employment
Agreement"). This letter modifies the Employment Agreement as set forth below.

     1. SEPARATION OF EMPLOYMENT FROM SGX

     My employment with the Company will terminate on December 31st 2004 or any
earlier date that I accept full time employment with another company. I will
also resign from the Board of Directors on that date.

     2. SEVERANCE COMPENSATION TO COMMENCE JANUARY 1, 2005

     SGX's contractual obligations based on termination without cause are
currently governed by my Employment Agreement. Pursuant to subparagraph 7.2 of
the Agreement, SGX is obligated to pay me my current base salary of $351,520.00
per year for a 12 month period following termination, and also to pay any and
all Standard Entitlements (as defined in the Employment Agreement), including
incentive pay, cash bonuses and/or stock options as defined by subparagraphs
4.2, 4.3 and 4.4 and 7.1 of the Agreement upon termination of my employment. It
is my understanding that a proportionate bonus will be owed to me if the SGX
Board of Directors determines, in its sole discretion, that the Company's 2004
bonus goals have been reached, and/or if other members of senior staff receive
bonus payments for 2004. This will be paid to me on the same schedule as if I
had still been in employment. Severance compensation shall commence on January
1, 2005 and continue until December 31, 2005. This



                                     PAGE 2

severance compensation is guaranteed until June 30th 2005. Thereafter, it will
continue on a month to month basis until December 31st 2005 only if I am not in
full-time employment or substantial equivalent elsewhere. If full time
employment is accepted before January 1st 2005 then the six month severance will
start from the date that the full time employment is accepted.

     I will continue to be bound by the provisions of the Employment Agreement
which specifically survive the termination of my employment as set forth in
Section 16.7 of the Employment Agreement. In addition, as contemplated by
Section 7.2 of the Employment Agreement, the severance compensation and other
benefits set forth in this letter are conditioned upon my execution of the full
general release contemplated by Section 7.2(b) on my last day of employment.

     3. HEALTH INSURANCE-COBRA - PAYMENT FOR 18 MONTHS

     If I am eligible under the applicable plans, SGX shall be responsible for
continuing to provide my existing health insurance benefits for 18 months. In
the event of my non-eligibility, SGX shall agree to pay the monthly cost of
COBRA commencing on January 1, 2005 for a period of eighteen (18) months unless
I begin full time employment elsewhere.

     4. STOCK OPTIONS TO VEST IMMEDIATELY WITH 5 YEAR EXERCISE TERM

     Any unvested stock options grants that I currently hold shall fully vest on
or before December 31, 2004 when I leave full time employment at SGX. I have
65,584 unvested shares (at $0.85/share) based on the 6/5/03 stock option grant
(# 434) that under my proposal would vest in this way. The aforementioned
options and an additional 43,940 vested options (at $0.25/share) pursuant to the
grant dated 1/1/04 (#458) shall be exercisable over five (5) years from January
1st 2005.

     5. NEW STOCK OPTION GRANT REPRESENTING 1% OF TOTAL OUTSTANDING EQUITY POST
FINANCING

     Within six months of closing the next equity financing or concomitantly
with the issue of stock options to senior management of the Company, the Company
will issue a stock option grant or warrant to me (at a price to be determined)
representing 1% of the fully diluted total outstanding equity. This stock option
grant will be fully vested and have a five year exercise term from date of
issue.

     6. REIMBURSEMENT OF EXPENSES INCURRED ON CANCELLED SHARES

On December 18, 2001 the Company issued me a 100,000 share stock option grant
(at $0.85 per share). The grant (#334) was subsequently cancelled by the Company
but not until after I had exercised the options. This cost me $5446.84 in
interest expenses. The Company has agreed to



                                     PAGE 3

pay me a (one time grossed up) payment of $7394.09 due December 31st 2004 to
cover this cost.

     7. CONSULTANT TO THE COMPANY

     I am available to act as a consultant to the Company for 60 days post
termination as stated in the Employment Agreement (see Section 7.2c)

Alex, I hope that this accurately reflects our conversation of November 4th
2004. In order to make sure that there are no misunderstandings it would be
helpful if you could sign this letter below and return a copy to me so that the
company can take the necessary steps to put the agreement in place.

It has been a pleasure working with you all and I hope we will be able to do so
again in the future.

Very Truly Yours,

/s/ Tim Harris                                     /s/ Alex Barkas
Tim Harris                                         ----------------------------
CEO SGX                                            Signed & Agreed:  Alex Barkas
                                                   Chairman, SGX Comp Committee

cc:     Fred Muto (Cooley-Godward)



                         EXECUTIVE EMPLOYMENT AGREEMENT

     This Executive Employment Agreement ("Agreement") is effective as of May 1,
2001 ("Effective Date"), by and between Structural GenomiX, Inc., with its
principal place of business at 10505 Roselle Street, San Diego, California 92121
(the "SGX"), a Delaware corporation, and Dr. Tim Harris, who resides at ________
___________________________________ ("Executive").

     The parties agree as follows:

     1. Employment. SGX hereby employs Executive, and Executive hereby accepts
such employment, upon the terms and conditions set forth herein.

     2. Duties.

          2.1. Position. Executive is employed in the position of Chief
Executive Officer and President reporting to the company's Board of Directors,
and shall have the duties and responsibilities assigned by SGX. Executive is
responsible for setting and ensuring that the strategic and financial position
of SGX is achieved; and overseeing all business and science related concerns of
SGX. Executive shall perform faithfully and diligently such duties, as well as
such other duties as SGX shall reasonably assign from time to time. SGX reserves
the right to modify Executive's position and duties at any time in its sole and
reasonable discretion.

          2.2. Best Efforts/Full-time. Executive will expend Executive's best
efforts on behalf of SGX, and will abide by all policies and decisions made by
SGX, as well as all applicable federal, state and local laws, regulations or
ordinances. Executive will act in the best interest of SGX at all times.
Executive shall devote Executive's full business time and efforts to the
performance of Executive's assigned duties, unless Executive notifies SGX in
advance of Executive's intent to engage in other paid work and receives SGX'
express written consent to do so. Executive must not engage in any work, paid or
unpaid, that creates an actual or potential conflict of interest with SGX. If
SGX believes a conflict exists, SGX may ask Executive to choose whether to
discontinue the other work or resign employment with SGX.

          2.3. Board Seat; Performance Expectations. Executive will continue to
have a seat on the Board of Directors of the Company.

          2.3. Work Location. Executive's principal place of work shall be
located in San Diego, California, at SGX' offices.

     3. Term. The employment relationship pursuant to this Agreement shall be
for an initial term commencing on the Effective Date set forth above and
continue until properly terminated in accordance with Section 7 below.

     4. Compensation.

          4.1. Salary. As compensation for the proper and satisfactory
performance of all duties to be performed by Executive hereunder, SGX shall pay
to Executive a Base Salary of Three Hundred Twenty Five Thousand Dollars
($325,000.00) per year, payable in accordance with the normal payroll practices
of SGX, less required deductions for state and federal withholding tax, social
security and all other employment taxes and payroll deductions. In the event
Executive's employment under this Agreement is terminated by either party, for
any reason, Executive will be entitled to receive the Base Salary prorated to
the date of termination.

          4.2. Incentive Compensation. Executive will be eligible to receive
incentive compensation. If SGX, in its sole and absolute discretion, grants
executive incentive compensation, the terms, amount and payment of such, if any,
will be determined solely by SGX.

          4.3. Stock Options. Executive may be granted stock options from time
to time in the discretion of SGX subject to the terms and conditions of SGX'
2000 Equity Incentive Plan (the "Incentive Plan") and the Company's form of
stock option agreement. Executive's present stock options and vesting schedule
are set forth in Exhibit A to this Agreement and incorporated herein.

                                     Page 1


          4.4. Cash Bonus Program. As President and CEO, Executive is eligible
to earn a cash bonus equal to 40% of Executive's base salary, or $130,000,
provided Executive meets the eligibility requirements and performance objectives
set forth in SGX' bonus program, which are determined in SGX' sole discretion.

          4.5. Performance and Salary Review. SGX will periodically review
Executive's performance on no less than an annual basis. Executive's salary
and/or other compensation will be reviewed yearly and may be adjusted from time
to time in SGX' sole and absolute discretion.

     5. Customary Fringe Benefits. Executive will be eligible for all customary
and usual fringe benefits generally available to executives of SGX subject to
the terms and conditions of SGX' benefit plan documents. SGX reserves the right
to modify or eliminate the fringe benefits on a prospective basis, at any time,
effective upon notice to Executive.

     6. Business Expenses. Executive will be reimbursed for all out-of-pocket
business expenses reasonably incurred in the performance of Executive's duties
on behalf of SGX. To obtain reimbursement, expenses must be submitted promptly
with appropriate supporting documentation in accordance with SGX' policies.

     7. Termination of Employment.

          7.1. Termination for Cause by SGX. Although SGX anticipates a mutually
rewarding employment relationship with Executive, SGX may terminate Executive's
employment immediately at any time for cause. Cause includes, but is not limited
to, one or more of the following: (a) acts or omissions deemed by SGX to
constitute gross negligence, recklessness, willful misconduct or dishonesty on
the part of Executive with respect to Executive's obligations under this
Agreement or otherwise relating to the business of SGX; (b) Executive's willful,
material breach of this Agreement; (c) Executive's conviction or entry of a plea
of guilty or nolo contendere for fraud, misappropriation or embezzlement, or of
any felony; or engaging in any conduct which SGX, in its discretion, determines
has or may adversely impact SGX. (d) Executive's material breach of fiduciary
duty toward SGX; (e) Executive's material breach of any element of SGX'
Confidential Information and Invention Assignment Agreement, including without
limitation, Executive's theft, dilution, or other misappropriation or careless
treatment of SGX' proprietary information; (f) Executive's inability to perform
all of the essential functions and duties of Executive's position, with or
without reasonable accommodation other than for reason of temporary illness; or
(g) Executive's death. In the event Executive's employment is terminated in
accordance with this subparagraph 7.1, Executive shall be entitled to receive
only the Base Salary then in effect, prorated to the date of termination, and
any benefits, including any benefits under the bonus program and Incentive Plan,
and expense reimbursements to which Executive is entitled by virtue of his prior
employment with SGX (collectively referred to as "Standard Entitlements."). All
other SGX obligations to Executive pursuant to this Agreement will become
automatically terminated and completely extinguished. Executive will not be
entitled to receive the Severance Payment or any part thereof described in
subparagraph 7.2 below.

          7.2. Termination Without Cause By SGX/Severance. SGX may terminate
Executive's employment under this Agreement without cause at any time on thirty
(30) days' advance written notice to Executive. In the event of such
termination, Executive will receive the Standard Entitlements, plus a severance
payment equivalent to twelve months of Executive's Base Salary then in effect on
the date of termination (the "Severance Payment") payable in accordance with
SGX' regular payroll cycle, and the vesting of any outstanding stock options
will be accelerated by twenty-four (24) months, provided that Executive: (a)
complies with all surviving provisions of this Agreement as specified in
subparagraph 16.7 below, (b) executes a full general release, releasing all
claims, known or unknown, that Executive may have against SGX arising out of or
any way related to Executive's employment or termination of employment with SGX;
and (c) agrees to act as a consultant for SGX for up to a maximum of sixty (60)
days, without additional compensation, if requested to do so by SGX. All other
SGX obligations to Executive pursuant to this Agreement will become
automatically terminated and completely extinguished.

          7.3. Voluntary Resignation By Executive. Executive may voluntarily
resign Executive's position with SGX at any time on thirty (30) days advance
written notice. In the event of Executive's resignation, Executive shall be
entitled to receive only the Base Salary then in effect, prorated to the date of
resignation, and the Standard Entitlements. In addition, Executive's stock
options, existing as of the date of resignation, will continue to vest as
scheduled pursuant to

                                     Page 2


the Incentive Plan for sixty (60) days. All other SGX obligations to Executive
pursuant to this Agreement will become automatically terminated and completely
extinguished. In addition, Executive will not be entitled to receive the
Severance Payment described in paragraph 7.2 above.

          7.4. Termination of Executive Following Change In Control.

               (a) Severance Payment. If Executive's employment is terminated by
SGX without cause within one year after a Change of Control (as that term is
defined below), Executive shall be entitled to receive the Standard
Entitlements, plus the Severance Payment described in subparagraph 7.2 above,
and that the vesting of any outstanding stock options will be accelerated by 24
months, provided Executive complies with the conditions in subparagraph 7.2
above. For the purpose of this section, termination without cause shall include
acts by SGX which substantially change all of Executive's duties and
responsibilities which existed prior to the Change in Control. All other SGX
obligations to Executive pursuant to this Agreement will become automatically
terminated and completely extinguished.

               (b) 280G. If, due to the benefits provided under subparagraph
7.4(a) above, Executive is subject to any excise tax due to characterization of
any amounts payable under subparagraph 7.4(a) as excess parachute payments
pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), Executive may elect, in Executive's sole discretion, to reduce the
amounts payable under subparagraph 7.4(a) in order to avoid any "excess
parachute payment" under Section 280G(b)(l) of the Code.

               (c) Change of Control. A Change of Control is defined as any one
of the following occurrences:

                    (i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), other than a
trustee or other fiduciary holding securities of SGX under an employee benefit
plan of SGX, becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of the securities
of SGX representing more than 50% of (a) the outstanding shares of common stock
of SGX or (b) the combined voting power of SGX' then-outstanding securities; or

                    (ii) The sale or disposition of all or substantially all of
SGX' assets (or any transaction having similar effect is consummated) other than
to an entity of which SGX owns at least 50% of the Voting Stock so long as the
sale or disposition is not under duress of SGX' financial hardship; or

                    (iii) SGX is party to a merger or consolidation that results
in the holders of voting securities of SGX outstanding immediately prior thereto
failing to continue to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) less than 50% of the
combined voting power of the voting securities of SGX or such surviving entity
outstanding immediately after such merger or consolidation.

     8. Competitive Employment. During the term of Executive's employment with
SGX and during any period in which Executive is receiving payments (other than
any dividend s on stock) from SGX or acting as a consultant with or without
payment, Executive agrees that Executive will not directly or indirectly compete
with SGX in any way, and will not act as an officer, director, executive,
consultant, shareholder (other than stock of publicly held companies),
volunteer, lender, or agent of any business enterprise of the same nature as, or
which is in competition with, the business in which SGX is now engaged or in
which SGX becomes engaged during the term of Executive's employment with SGX, as
may be determined by SGX in its sole discretion. Further, Executive agrees not
to refer any client or potential client to competitors of SGX without SGX'
written consent during the term of Executive's employment with SGX or during any
period in which Executive is receiving payments (other than any dividends on
stock) from SGX or acting as a consultant with or without payment.

     9. Confidentiality and Proprietary Rights. Executive agrees to abide by
SGX' Proprietary Rights policies and to protect the intellectual property of
SGX. In accordance, Executive has signed, contemporaneously with the execution
of this Agreement, a Confidential Information and Invention Assignment
Agreement, which is incorporated herein by this reference.

                                     Page 3


     10. Non-Solicitation.

          10.1. Non-Solicitation of Employees and Independent Contractors.
Executive agrees that during Executive's employment with SGX and for a period of
one year after the termination of Executive's employment with SGX, Executive
will not directly or indirectly, separately or in association with others,
interfere with, impair, disrupt or damage SGX' relationship with any employee or
independent contractor; solicit, encourage or attempt to hire any of SGX'
employees or independent contractors; or cause others to solicit or encourage
any of SGX' employees or independent contractors to discontinue their employment
or services with SGX.

          10.2. Non-Solicitation of Customers. Executive acknowledges that
proprietary information about SGX' customers is confidential and constitutes
trade secrets of SGX. Executive agrees that during Executive's employment with
SGX and for a period of one year following the termination of Executive's
employment with SGX, Executive will not, either directly or indirectly,
separately or in association with others, do any of the following: (i) make
known, to any person, firm or corporation, the names and addresses of any of the
customers of SGX or contacts of SGX within the biotechnology industry or any
other information pertaining to such persons; (ii) call on, solicit, take away,
or attempt to call on, solicit or take away any of the customers of SGX on whom
Executive called or with whom Executive became aware or acquainted during
Executive's association with SGX, whether for Executive or for any other person,
firm or corporation; or (iii) use or make known to any person or entity, the
strategies, tactics, practices, and procedures by which SGX does business.

     11. Injunctive Relief. Executive acknowledges that Executive's breach of
the covenants contained in paragraphs 8-10 (collectively "Covenants") would
cause irreparable injury to SGX and agrees that in the event of any such breach,
SGX shall be entitled to seek temporary, preliminary and permanent injunctive
relief without the necessity of proving actual damages or posting any bond or
other security.

     12. Accounting and Indemnification. In the event Executive breaches any of
the Covenants contained in paragraphs 8-10, SGX shall have the right and remedy
to require Executive to: (a) account for and pay over to SGX all compensation,
profits, monies, accruals, increments or other benefits derived or received by
Executive or any associated party deriving such benefits as a result of any such
breach of the Covenants; and (b) to indemnify SGX against any other losses,
damages (including special and consequential damages), costs and expenses,
including actual attorneys' fees and court costs, which may be incurred by them
and which result from or arise out of any such breach or threatened breach of
the Covenants. Both parties agree that the provisions of this paragraph 12 will
not adequately compensate SGX for SGX' injury in the event of Executive's breach
of any of the Covenants. Accordingly, the parties agree the provisions of this
paragraph 12 will not in any way limit or interfere with SGX' right to seek
injunctive relief under paragraph 11.

     13. Return of SGX Property. On termination of employment with SGX for
whatever reason, or at the request of SGX before termination, Executive agrees
to promptly deliver to SGX all records, files, computer disks, memoranda,
documents, lists and other information regarding or containing any Proprietary
Information (as defined in the Confidential Information and Invention Assignment
Agreement executed herewith), including all copies, reproductions, summaries or
excerpts thereof, then in Executive's possession or control, whether prepared by
Executive or others. Executive also agrees to promptly return, upon termination
or at any time upon SGX' request, any and all SGX property issued to Executive,
including but not limited to computers, facsimile transmission equipment,
cellular phones, keys and credits cards. Executive further agrees that should
Executive discover any SGX property or Proprietary Information in Executive's
possession after Executive's termination and departure from SGX, Executive
agrees to return it promptly to SGX without retaining copies or excerpts of any
kind.

     14. No Violation of Rights of Third Parties. Executive warrants that
Executive's performance of all the terms of this Agreement does not and will not
breach any agreement to keep in confidence proprietary information, knowledge or
data acquired by Executive prior to Executive's employment with SGX. Executive
agrees not to disclose to SGX, or induce SGX to use, any confidential or
proprietary information or material belonging to any previous employers or
others. Executive warrants that Executive is not a party to any other agreement
that will interfere with Executive's full compliance with this Agreement.
Executive further agrees not to enter into any agreement, whether written or
oral, in conflict with the provisions of this Agreement.

                                     Page 4


     15. Agreement to Arbitrate. Executive and SGX agree to arbitrate any
controversy, claim or dispute between them arising out of or in any way related
to this Agreement, the employment relationship between them, and any disputes
upon termination of employment, except as provided in subparagraph 15.1 below,
to the fullest extent permitted by law. This method of resolving disputes shall
be the sole and exclusive remedy of the parties. Accordingly, the parties
understand that, except as provided in this paragraph 15 or as otherwise
required by law, they are giving up their rights to have their disputes decided
in a court of law and, if applicable, by a jury, and instead agree that their
disputes shall be decided by arbitration.

          15.1. Scope of the Agreement. The disputes subject to this agreement
to arbitrate include all potential claims between Executive and SGX relating to
employment, such as breach of contract, tort, discrimination, harassment,
wrongful termination, demotion, discipline, failure to accommodate, family and
medical leave, compensation or benefits claims, constitutional claims and claims
for violation of any local, state or federal law, statute, regulation or
ordinance or common law to the fullest extent permitted by law. Claims for
workers' compensation or unemployment insurance benefits, if any, and SGX' right
to obtain injunctive relief pursuant to paragraph 11 above are excluded. For the
purposes of this agreement to arbitrate, references to "SGX" include SGX and all
subsidiary and related entities and their employees, supervisors, officers,
directors, owners, agents, benefit plans, benefit plan sponsors, fiduciaries,
administrators, affiliates and all successors and assigns of any of them, and
this agreement to arbitrate shall apply to them to the extent Executive's claims
arise out of or relate to their actions on behalf of SGX.

          15.2. Initiation of Arbitration. Either party may exercise the right
to arbitrate by providing the other party with written notice of any and all
claims forming the basis of such right in sufficient detail to inform the other
party of the substance of such claims.

          15.3. Arbitration Procedure. The arbitration will be conducted in
accordance with the then current rules for resolution of employment disputes of
the American Arbitration Association ("AAA") at its offices in San Diego,
California. If the parties cannot agree on the single neutral arbitrator, such
arbitrator shall be selected in accordance with the AAA rules. The parties are
entitled to representation by an attorney or other representative of their
choosing. The parties will also be permitted to conduct discovery sufficient to
present their respective cases. The arbitrator will be required to issue a
written arbitration decision that will reveal the essential findings and
conclusions on which an award is based, and shall have the power to enter any
award that could be entered by a judge of the Superior Court of the State of
California, and only such power, and shall follow the law. In the event the
arbitrator does not follow the law, the arbitrator will have exceeded the scope
of his or her authority and the parties may, at their option, file a motion to
vacate the award in court. Otherwise, the parties agree to abide by and perform
any award rendered by the arbitrator. Judgment on the award may be entered in
any court having jurisdiction thereof.

     16. General Provisions.

          16.1. Successors and Assigns. The rights and obligations of SGX under
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of SGX. Executive shall not be entitled to assign any of
Executive's rights or obligations under this Agreement.

          16.2. Waiver. Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
or prevent that party thereafter from enforcing each and every other provision
of this Agreement.

          16.3. Severability. In the event any provision of this Agreement is
found to be unenforceable by an arbitrator or court of competent jurisdiction,
such provision shall be deemed modified to the extent necessary to allow
enforceability of the provision as so limited, it being intended that the
parties shall receive the benefit contemplated herein to the fullest extent
permitted by law. If a deemed modification is not satisfactory in the judgment
of such arbitrator or court, the unenforceable provision shall be deemed
deleted, and the validity and enforceability of the remaining provisions shall
not be affected thereby.

          16.4. Interpretation; Construction. The headings set forth in this
Agreement are for convenience only and shall not be used in interpreting this
Agreement. This Agreement has been drafted by legal counsel representing SGX,
but Executive has participated in the negotiation of its terms. Furthermore,
Executive acknowledges that Executive

                                     Page 5


has had an opportunity to review and revise the Agreement and have it reviewed
by legal counsel, if desired, and, therefore, the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement.

          16.5. Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the United States and the State of California.
Each party consents to the jurisdiction and venue of the state or federal courts
in the State where Executive is employed, in any action, suit, or proceeding
arising out of or relating to this Agreement.

          16.6. Notices. Any notice required or permitted by this Agreement
shall be in writing and shall be delivered as follows with notice deemed given
as indicated: (a) by personal delivery when delivered personally; (b) by
overnight courier upon written verification of receipt; (c) by telecopy or
facsimile transmission upon acknowledgment of receipt of electronic
transmission; or (d) by certified or registered mail, return receipt requested,
upon verification of receipt. Notice shall be sent to the addresses set forth
below, or such other address as either party may specify in writing.

          16.7. Survival. Paragraphs 8 ("Competitive Employment"), 9
("Confidentiality and Proprietary Rights"), 10 ("Non-Solicitation"), 11
("Injunctive Relief"), 12 ("Accounting and Indemnification"), 13 ("Return of SGX
Property") 15 ("Agreement to Arbitrate"), 16 ("General Provisions") and 17
("Entire Agreement") of this Agreement shall survive Executive's employment by
SGX.

     17. Entire Agreement. This Agreement, including SGX' Incentive Plan, Bonus
Plan and Confidential Information and Invention Assignment Agreement herein
incorporated by reference, constitutes the entire agreement between the parties
relating to this subject matter and supersedes all prior or simultaneous
representations, discussions, negotiations, and agreements, whether written or
oral. This Agreement may be amended or modified only with the written consent of
Executive and the Board of Directors of SGX. No oral waiver, amendment or
modification will be effective under any circumstances whatsoever.

THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY
UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES
HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.

                                                            Executive
Dated:  August ____, 2001
                                                ________________________________
                                                Dr. Tim Harris

                                                Structural GenomiX Inc.

Dated:  August ____, 2001                       By:_____________________________

                                                      Its:______________________

                                     Page 6

EX-10.9

[SGX LOGO]

                                                                    EXHIBIT 10.9

June 3, 2005

                                                                    CONFIDENTIAL

Mr. James A. Rotherham


Dear James:

I am pleased to offer you the position of Chief Financial Officer with
Structural GenomiX, Inc. ("SGX" or the "Company") reporting to Mike Grey,
President & CEO. This position is categorized as full-time regular exempt.
Following are the details of our offer.

      -     The salary in this position is $235,000 on an annualized basis, or
            approximately $9,038.46 bi-weekly, subject to standard deductions
            and withholdings.

      -     Subject to approval by the Board of Directors (the "Board"), you
            will receive an option to purchase 190,000 shares of the Company's
            common stock at a price per share equal to its fair market value as
            determined by the Board. This option will have a vesting
            commencement date of your first day of employment with the Company.
            Twenty five percent (25%) of the granted shares will vest on the
            first anniversary of the vesting commencement date. The remaining
            options vest monthly thereafter until the fourth anniversary of the
            vesting commencement date. The offer of these shares is conditioned
            upon your acceptance of our offer of employment and subject to the
            terms and requirements of the Company's 2000 Equity Incentive Plan
            (the "Incentive Plan") and the Company's form of stock option
            agreement.

      -     You are also eligible to participate in the Company's cash bonus
            program. In your position, you are eligible to earn a cash bonus up
            to 40% of your base salary. In order to be eligible to receive this
            bonus, you must satisfy the eligibility requirements outlined in the
            Company's bonus program, including accomplishing the performance
            objectives set for your position. Participants in the bonus program
            who are employed for part of a calendar year will be eligible to
            receive a pro-rated bonus for that first partial year of employment.
            Employees hired in the fourth quarter of a calendar year are
            eligible to participate in the bonus program in the following year.

      -     Included in the compensation package is a benefits plan that offers
            medical, dental, vision, life insurance, Accidental Death and
            Dismemberment. (AD&D) insurance, long-term disability, short-term
            disability insurance; and a 401(k) plan. For full-time employees,
            vacation accrues on a pay period basis at the annual rate of 120
            hours (three weeks). The vacation accrual increases by one day after
            each anniversary with the Company, up to a maximum of 20 days per
            year. The Company also provides employees with five days of sick
            time per year.

As a condition of your employment, you will be required to sign a copy of our
Employment, Confidential Information and Invention Assignment Agreement, which
is attached for your information. In addition, to conform with the Immigration
Reform and Control Act of 1986, please bring with you on your start date the
original of one of the documents noted in List A on the I-9 form attached or one
document from List B and one document from List C. If you do not have the
originals of any of these documents, please call me immediately. Please do not
complete or sign the I-9 until you begin employment. This offer is contingent
upon your providing sufficient documentation to show proof of eligibility for
employment in the United States.

                   STRUCTURAL GENOMIX, INC. - WWW.STROMIX.COM

     Corporate Headquarters - 10505 Roselle Street - San Diego, CA 92121 -
  858.558.4850 - 858.558.4859 fax SGX Beamline - Argonne National Laboratory,
     Bldg. 438A - 9700 S. Cass Avenue - Argonne, IL 60439 - 630.252.0820 -
                                630.252.0835 fax



[SGX LOGO]

James A. Rotherham
Page 2 of 3

      It is the Company's policy to fully respect the proprietary and
      confidential information rights of your previous employers. You are not
      expected to disclose, nor are you allowed to use for the Company's
      purposes, any confidential or proprietary information you may have
      acquired as a result of previous employment.

      Your employment with the company is not for a specified term, but may be
      terminated by you or the company at any time, with or without cause. The
      nature of your employment as set forth in this paragraph cannot be
      modified in any way except by written agreement signed by you and an
      officer of SGX.

      In the event of a Change of Control (as that term is defined below) the
      vesting of any outstanding stock options described above will be
      accelerated by 12 months. In the event your employment is terminated by
      the Company without cause within one year after a Change of Control, the
      vesting of your outstanding stock options described above will be
      accelerated by a further 12 months, provided that you comply with all
      surviving provisions of this letter and the Employment, Confidential
      Information and Invention Assignment Agreement Agreement and execute a
      full general release, releasing all claims, known or unknown, that you may
      have against the Company arising out of or any way related to you
      employment or termination of employment with the Company. In the event of
      such termination all other obligations of the Company to you pursuant to
      this letter will become automatically terminated and completely
      extinguished.

      A Change of Control means any one of the following occurrences:

            (i) Any "person" (as such term is used in Sections 13(d) and 14(d)
      of the Securities Exchange Act of 1934 (the "Exchange Act"), other than a
      trustee or other fiduciary holding securities of SGX under an employee
      benefit plan of SGX, becomes the "beneficial owner" (as defined in Rule
      13d-3 promulgated under the Exchange Act), directly or indirectly, of the
      securities of SGX representing more than 50% of (a) the outstanding shares
      of common stock of SGX or (b) the combined voting power of SGX'
      then-outstanding securities; or

            (ii) The sale or disposition of all or substantially all of SGX'
      assets (or any transaction having similar effect is consummated) other
      than to an entity of which SGX owns at least 50% of the Voting Stock so
      long as the sale or disposition is not under duress of SGX' financial
      hardship; or

            (iii) SGX is party to a merger or consolidation that results in the
      holders of voting securities of SGX outstanding immediately prior thereto
      failing to continue to represent (either by remaining outstanding or by
      being converted into voting securities of the surviving entity) less than
      50% of the combined voting power of the voting securities of SGX or such
      surviving entity outstanding immediately after such merger or
      consolidation.

      I am pleased to extend this offer to you and look forward to your
      acceptance. Please sign and return the attached copy of this offer letter
      as soon as possible, but within at least five days of receipt, to indicate
      your agreement with the terms of this offer. Once signed by you, this
      letter and the Employment, Confidential Information and Invention
      Assignment Agreement will constitute the complete agreement between you
      and Structural GenomiX, Inc. regarding employment matters and will
      supersede all prior written or oral agreements or understandings on these
      matters. This letter may only be modified by a written agreement signed by
      you and an officer of SGX. We hope you will join us June 20, 2005 or
      sooner. Please contact me if you have any questions.

      I feel you will be able to make an immediate contribution to our efforts,
      and I think you will enjoy the rewards of working for an innovative,
      fast-paced organization.

      Sincerely,

      /s/ Mike Grey
      ---------------------

      Mike Grey
      President & CEO



[SGX LOGO]

James A. Rotherham
Page 3 of 3

Attachments:

      -     Copy of Offer Letter

      -     I-9

      -     Employment, Confidential Information And Invention Assignment
            Agreement

I accept the terms of employment as described in this offer letter and will
start my employment on 6/13/05.

Signature: /s/ James A. Rotherham                     Date: 6/12/05
           -----------------------------

EX-10.10

                                                                   EXHIBIT 10.10

                              SEPARATION AGREEMENT

June 14, 2005

Neill Giese


Dear Neill:

This letter sets forth the substance of the separation agreement (the
"Agreement") that STRUCTURAL GENOMIX, INC., (the "Company") is offering to you
to aid in your employment transition.

      1. SEPARATION. Your last day of work with the Company and your employment
termination date will be June 14, 2005 (the "Separation Date").

      2. ACCRUED SALARY AND VACATION. On the Separation Date, the Company will
pay you all accrued salary, and all accrued and unused vacation earned through
the Separation Date, subject to standard payroll deductions and withholdings.
You are entitled to these payments by law.

      3. SEVERANCE PAYMENT. If you sign this Agreement, the Company will pay you
severance in the form of salary continuation for 12 months following the
Separation Date. These payments will be made on the Company's regular payroll
cycle beginning on the first regularly-scheduled payroll date following the
Effective Date (as defined in paragraph 14 below), and will be subject to
standard payroll deductions and withholdings.

      4. HEALTH INSURANCE. To the extent provided by the federal COBRA law or,
if applicable, state insurance laws, and by the Company's current group health
insurance policies, you will be eligible to continue your group health insurance
benefits at your own expense following the Separation Date. Later, you may be
able to convert to an individual policy through the provider of the Company's
health insurance, if you wish. You will be provided with a separate notice
describing your rights and obligations under COBRA. If you elect continued
coverage under COBRA, the Company, as part of this Agreement, will pay your
COBRA premiums through June 30, 2006.

      5. STOCK OPTIONS. Under the terms of your stock option agreement and the
applicable plan documents, vesting of your stock options will cease as of the
Separation Date. Your right to exercise any vested shares, and all other rights
and obligations with respect to your stock options(s), will be as set forth in
your stock option agreement, grant notice and applicable plan documents.



      6. OTHER COMPENSATION OR BENEFITS. You acknowledge that, except as
expressly provided in this Agreement, you will not receive any additional
compensation, severance, or benefits after the Separation Date.

      7. EXPENSE REIMBURSEMENTS. You agree that, within ten (10) days of the
Separation Date, you will submit your final documented expense reimbursement
statement reflecting all business expenses you incurred through the Separation
Date, if any, for which you seek reimbursement. The Company will reimburse you
for these expenses pursuant to its regular business practice.

      8. RETURN OF COMPANY PROPERTY. By the Separation Date, you agree to return
to the Company all Company documents (and all copies thereof) and other Company
property that you have had in your possession at any time, including, but not
limited to, Company files, notes, drawings, records, business plans and
forecasts, financial information, specifications, computer-recorded information,
tangible property (including, but not limited to, computers), credit cards,
entry cards, identification badges, and keys; and, any materials of any kind
that contain or embody any proprietary or confidential information of the
Company (and all reproductions thereof). Your timely return of all such Company
documents and other property is a condition precedent to your receipt of the
severance benefits provided under this Agreement.

      9. PROPRIETARY INFORMATION OBLIGATIONS. You acknowledge your continuing
obligations under your Employment, Confidential Information and Invention
Assignment Agreement, a copy of which is attached hereto as Exhibit A.

      10. CONFIDENTIALITY. The provisions of this Agreement will be held in
strictest confidence by you and the Company and will not be publicized or
disclosed in any manner whatsoever; provided, however, that: (a) you may
disclose this Agreement in confidence to your immediate family; (b) the parties
may disclose this Agreement in confidence to their respective attorneys,
accountants, auditors, tax preparers, and financial advisors; (c) the Company
may disclose this Agreement as necessary to fulfill standard or legally required
corporate reporting or disclosure requirements; and (d) the parties may disclose
this Agreement insofar as such disclosure may be necessary to enforce its terms
or as otherwise required by law. In particular, and without limitation, you
agree not to disclose the terms of this Agreement to any current or former
Company employee.

      11. NONDISPARAGEMENT. You agree not to disparage the Company, its
officers, directors, employees, shareholders, and agents, in any manner likely
to be harmful to its or their business, business reputation, or personal
reputation; provided that you will respond accurately and fully to any question,
inquiry or request for information when required by legal process.

      12. NO ADMISSIONS. You understand and agree that the promises and payments
in consideration of this Agreement shall not be construed to be an admission of
any liability or obligation by the Company to you or to any other person, and
that the Company makes no such admission.

      13. RELEASE OF CLAIMS. In exchange for the consideration under this
Agreement, you hereby generally and completely release the Company and its
directors, officers, employees,



shareholders, partners, agents, attorneys, predecessors, successors, parent and
subsidiary entities, insurers, affiliates, and assigns from any and all claims,
liabilities and obligations, both known and unknown, that arise out of or are in
any way related to events, acts, conduct, or omissions occurring at any time
prior to and including the date you sign this Agreement. This general release
includes, but is not limited to: (a) all claims arising out of or in any way
related to your employment with the Company or the termination of that
employment; (b) all claims related to your compensation or benefits from the
Company, including salary, bonuses, commissions, vacation pay, expense
reimbursements, severance pay, fringe benefits, stock, stock options, or any
other ownership interests in the Company; (c) all claims for breach of contract,
wrongful termination, and breach of the implied covenant of good faith and fair
dealing; (d) all tort claims, including claims for fraud, defamation, emotional
distress, and discharge in violation of public policy; and (e) all federal,
state, and local statutory claims, including claims for discrimination,
harassment, retaliation, attorneys' fees, or other claims arising under the
federal Civil Rights Act of 1964 (as amended), the federal Americans with
Disabilities Act of 1990, the federal Age Discrimination in Employment Act of
1967, as amended ("ADEA"), and the California Fair Employment and Housing Act
(as amended).

      14. ADEA WAIVER. You acknowledge that you are knowingly and voluntarily
waiving and releasing any rights you may have under the ADEA ("ADEA Waiver").
You also acknowledge that the consideration given for the ADEA Waiver is in
addition to anything of value to which you were already entitled. You further
acknowledge that you have been advised by this writing, as required by the ADEA,
that: (a) your ADEA Waiver does not apply to any rights or claims that arise
after the date you sign this Agreement; (b) you should consult with an attorney
prior to signing-this Agreement; (c) you have twenty-one (21) days to consider
this Agreement (although you may choose to voluntarily sign it sooner); (d) you
have seven (7) days following the date you sign this Agreement to revoke the
ADEA Waiver (in a written revocation sent to me); and (e) the ADEA Waiver will
not be effective until the date upon which the revocation period has expired,
which will be the eighth day after you sign this Agreement (the "Effective
Date"). Nevertheless, your general release of claims, except for the ADEA
Waiver, is effective immediately and not revocable.

      15. SECTION 1542 WAIVER. In granting the release herein, which includes
claims which may be unknown to you at present, you acknowledge that you have
read and understand Section 1542 of the California Civil Code: "A GENERAL
RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO
EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." You hereby
expressly waive and relinquish all rights and benefits under that section and
any law or legal principle of similar effect in any jurisdiction with respect to
the releases granted herein, including but not limited to the release of unknown
and unsuspected claims granted in this Agreement.

      16. MISCELLANEOUS. This Agreement, including Exhibit A, constitutes the
complete, final and exclusive embodiment of the entire agreement between you and
the Company with regard to its subject matter. It is entered into without
reliance on any promise or representation, written or oral, other than those
expressly contained herein, and it supersedes any other such promises,
warranties or representations. This Agreement shall supersede and extinguish all
prior employment agreements, express or implied, verbal or written, between you
and the Company;



provided, however, that this Agreement shall have no effect on the Employment,
Confidential Information and Invention Assignment Agreement, previously signed
by you. This Agreement may not be modified or amended except in a writing signed
by both you and a duly authorized officer of the Company. This Agreement will
bind the heirs, personal representatives, successors and assigns of both you and
the Company, and inure to the benefit of both you and the Company, their heirs,
successors and assigns. If any provision of this Agreement is determined to be
invalid or unenforceable, in whole or in part, this determination will not
affect any other provision of this Agreement and the provision in question will
be modified so as to be rendered enforceable. This Agreement will be deemed to
have been entered into and will be construed and enforced in accordance with the
laws of the State of California as applied to contracts made and to be performed
entirely within California. Any ambiguity in this Agreement shall not be
construed against either party as the drafter. Any waiver of a breach of this
Agreement shall be in writing and shall not be deemed to be a waiver of any
successive breach. This Agreement may be executed in counterparts and facsimile
signatures will suffice as original signatures.

If this Agreement is acceptable to you, please sign below and return the
original to me.

We wish you the best in your future endeavors.

Sincerely,

STRUCTURAL GENOMIX. INC.

By:  /s/ Mike Grey
     ---------------------------------
         MIKE GREY
         PRESIDENT AND CEO

I HAVE READ, UNDERSTAND AND AGREE FULLY TO THE FOREGOING AGREEMENT:



/s/ Neill Giese
- --------------------------------------
NEILL GIESE

Date:     6/30/05
     ---------------------------------





                                    EXHIBIT A

                            STRUCTURAL GENOMIX, INC.

     EMPLOYMENT, CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT

      As a condition of my employment with Structural GenomiX, Inc., its
subsidiaries, affiliates, successors or assigns (together the "Company"), and in
consideration of my employment with the Company and my receipt of the
compensation now and hereafter paid to me by Company, I agree to the following:

      1. AT-WILL EMPLOYMENT. The Company and Employee acknowledge that
Employee's employment hereunder is and shall continue to be at-will (as defined
under applicable law), and may be terminated at any time, with or without cause,
at the option of either party. If Employee's employment terminates for any
reason, Employee shall not be entitled to any payments, benefits, damages,
awards or compensation other than as specifically provided by this Agreement, or
as may otherwise be available pursuant to other written agreements entered into
by and between the Company and the Employee. No provision of this Agreement
shall be construed as conferring upon Employee a right to continue as an
employee of the Company.

      2. CONFIDENTIAL INFORMATION.

            (a) COMPANY INFORMATION. I agree at all times during the term of my
employment and thereafter, to hold in strictest confidence, and not to use,
except for the benefit of the Company, or to disclose to any person, firm or
corporation without written authorization of the Board of Directors of the
Company, any Confidential Information of the Company. I understand that
"Confidential Information" means any Company proprietary information, technical
data, trade secrets or know-how, including, but not limited to, research,
product plans, products, services, customer lists and customers (including, but
not limited to, customers of the Company on whom I called or with whom I became
acquainted during the term of my employment), markets, software, developments,
inventions, processes, formulas, technology, designs, drawings, engineering,
hardware configuration information, marketing, finances or other business
information disclosed to me by the Company either directly or indirectly in
writing, orally or by drawings or observation of parts or equipment. I further
understand that Confidential Information does not include any of the foregoing
items which has become publicly known and made generally available through no
wrongful act of mine or of others who were under confidentiality obligations as
to the item or items involved.

            (b) FORMER EMPLOYER INFORMATION. I agree that I will not, during my
employment with the Company, improperly use or disclose any proprietary
information or trade secrets of any former or concurrent employer other person
or entity and that I will not bring onto the premises of the Company any
unpublished documents or proprietary information belonging to any such employer,
person, or entity unless consented to in writing by such employer, person or
entity.


                                       1.


            (c) THIRD PARTY INFORMATION. I recognize that the Company has
received and in the future will receive from third parties their confidential or
proprietary information subject to a duty on the Company's part to maintain the
confidentiality of such information and to use it only for certain limited
purposes. I agree to hold all such confidential or proprietary information in
the strictest confidence and not to disclose it to any person, firm or
corporation or to use it except as necessary in carrying out my work for the
Company consistent with the Company's agreement with such third party.

      3. INVENTIONS.

            (a) INVENTIONS RETAINED AND LICENSED. I have attached hereto, as
EXHIBIT A, a list describing all inventions, original works of authorship,
developments, improvements, and trade secrets which were made by me prior to my
employment with the Company (collectively referred to as "Prior Inventions"),
which belong to me, which relate to the Company's proposed business, products or
research and development, and which are not assigned to the Company hereunder;
or, if no such list is attached, I represent that there are no such Prior
Inventions. If in the course of my employment with the Company, I incorporate
into a Company product, process or machine a Prior Invention owned by me or in
which I have an interest, the Company is hereby granted and shall have a
nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make,
have made, modify, use and sell such Prior Invention as part of or in connection
with such product, process or machine.

            (b) ASSIGNMENT OF INVENTIONS. I agree that I will promptly make full
written disclosure to the Company, will hold in trust for the sole right and
benefit of the Company, and hereby assign to the Company, or its designee, all
my right, title, and interest in and to any and all inventions, original works
of authorship, developments, concepts, improvements or trade secrets, whether or
not patentable or registrable under copyright or similar laws, which I may
solely or jointly conceive or develop or reduce to practice, or cause to be
conceived or developed or reduced to practice, during the period of time I am in
the employ of the Company (collectively referred to as "Inventions"), except as
provided in Section 3(f) below. I further acknowledge that all original works of
authorship which are made by me (solely or jointly with others) within the scope
of and during the period of my employment with the Company and which are
protectable by copyright are "works made for hire," as that term is defined in
the United States Copyright Act.

            (c) INVENTIONS ASSIGNED TO THE UNITED STATES. I agree to assign to
the United States government all my right, title, and interest in and to any and
all Inventions whenever such full title is required to be in the United States
by a contract between the Company and the United States or any of its agencies.

            (d) MAINTENANCE OF RECORDS. I agree to keep and maintain adequate
and current written records of all Inventions made by me (solely or jointly with
others) during the term of my employment with the Company. The records will be
in the form of notes, sketches, drawings, and any other format that may be
specified by the Company. The records will be available to and remain the sole
property of the Company at all times.


                                       2.


            (e) PATENT AND COPYRIGHT REGISTRATIONS. I agree to assist the
Company, or its designee, at the Company's expense, in every proper way to
secure the Company's rights in the Inventions and any copyrights, patents, mask
work rights or other intellectual property rights relating thereto in any and
all countries, including the disclosure to the Company of all pertinent
information and data with respect thereto, the execution of all applications,
specifications, oaths, assignments and other instruments which the Company shall
deem necessary in order to apply for and obtain such rights and in order to
assign and convey to the Company, its successors, assigns, and nominees the sole
and exclusive rights, title and interest in and to such Inventions, and any
copyrights, patents, mask work rights or other intellectual property rights
relating thereto. I further agree that my obligation to execute or cause to be
executed, when it is in my power to do so, any such instrument or papers shall
continue after the termination of this Agreement. If the Company is unable
because of my mental or physical incapacity or for any other reason to secure my
signature to apply for or to pursue any application for any United States or
foreign patents or copyright registrations covering Inventions or original works
of authorship assigned to the Company as above, then I hereby irrevocably
designate and appoint the Company and its duly authorized officers and agents as
my agent and attorney in fact, to act for and in my behalf and stead to execute
and file any such applications and to do all other lawfully permitted acts to
further prosecution and issuance of letters patent or copyright registrations
thereon with the same legal force and effect as if executed by me.

            (f) EXCEPTION TO ASSIGNMENTS. I understand that the provisions of
this Agreement requiring assignment of Inventions to the Company do not apply to
any invention which qualifies fully under the provisions of California Labor
Code Section 2870 (attached hereto as EXHIBIT B). I will advise the Company
promptly in writing of any inventions that I believe meet the criteria in
California Labor Code Section 2870 and not otherwise disclosed on EXHIBIT A.

      4. CONFLICTING EMPLOYMENT. I agree that, during the term of my employment
with the Company, I will not engage in any other employment, occupation,
consulting or other business activity directly related to the business in which
the Company is now involved or becomes involved during the term of my
employment, nor will I engage in any other activities that conflict with my
obligations to the Company.

      5. RETURNING COMPANY DOCUMENTS. I agree that, at the time of leaving the
employ of the Company, I will deliver to the Company (and will not keep in my
possession, recreate or deliver to anyone else) any and all devices, records,
data, notes, reports, proposals, lists, correspondence, specifications, drawings
blueprints, sketches, materials, equipment, other documents or property, or
reproductions of any aforementioned items developed by me pursuant to my
employment with the Company or otherwise belonging to the Company, its
successors or assigns. In the event of the termination of my employment, I agree
to sign and deliver the "Termination Certification" attached hereto as EXHIBIT
C.

      6. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of
the Company, I hereby grant consent to notification by the Company to my new
employer about my rights and obligations under this Agreement.


                                       3.


      7. SOLICITATION OF EMPLOYEES. I agree that for a period of twelve (12)
months immediately following the termination of my relationship with the Company
for any reason, whether with or without cause, I shall not either directly or
indirectly solicit, induce, recruit or encourage any of the Company's employees
to leave their employment, or take away such employees, or attempt to solicit,
induce, recruit, encourage or take away employees of the Company, either for
myself or for any other person or entity.

      8. REPRESENTATIONS. I agree to execute any proper oath or verify any
proper document required to carry out the terms of this Agreement. I represent
that my performance of all the terms of this Agreement will not breach any
agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by the Company. I have not entered
into, and I agree I will not enter into, any oral or written agreement in
conflict herewith.

      9. ARBITRATION AND EQUITABLE RELIEF.

            (a) ARBITRATION. Except as provided in Section 9(b) below, I agree
that any dispute or controversy arising out of or relating to any
interpretation, construction, performance or breach of this Agreement, shall be
settled by arbitration to be held in San Diego, California, in accordance with
the rules then in effect of the American Arbitration Association. The arbitrator
may grant injunctions or other relief in such dispute or controversy. The
decision of the arbitrator shall be final, conclusive and binding on the parties
to the arbitration. Judgment may be entered on the arbitrator's decision in any
court having jurisdiction. The Company and I shall each pay one-half of the
costs and expenses of such arbitration, and each of us shall separately pay our
counsel fees and expenses.

            (b) EQUITABLE REMEDIES. I agree that it would be impossible or
inadequate to measure and calculate the Company's damages from any breach of the
covenants set forth in Sections 2, 3, and 5 herein. Accordingly, I agree that if
I breach any of such Sections, the Company will have available, in addition to
any other right or remedy available, the right to obtain an injunction from a
court of competent jurisdiction restraining such breach or threatened breach and
to specific performance of any such provision of this Agreement. I further agree
that no bond or other security shall be required in obtaining such equitable
relief and I hereby consent to the issuance of such injunction and to the
ordering of specific performance.

      10. GENERAL PROVISIONS.

            (a) GOVERNING LAW; CONSENT TO PERSONAL JURISDICTION. This Agreement
will be governed by the laws of the State of California. I hereby expressly
consent to the personal jurisdiction of the state and federal courts located in
California for any lawsuit filed there against me by the Company arising from or
relating to this Agreement.

            (b) ENTIRE AGREEMENT. This Agreement sets forth the ENTIRE agreement
and understanding between the Company and me relating to the subject matter
herein and merges all prior discussions between us. No modification of or
amendment to this Agreement, nor any waiver of any rights under this agreement,
will be effective unless in writing signed by the party


                                       4.


to be charged. Any subsequent change or changes in my duties, salary or
compensation will not affect the validity or scope of this Agreement.

            (c) SEVERABILITY. If one or more of the provisions in this Agreement
are deemed void by law, then the remaining provisions will continue in full
force and effect.

            (d) ASSIGNMENT. This Agreement may not be assigned by any party
hereto, except that the Company may assign this Agreement in connection with (1)
a merger or consolidation of the Company, (2) a sale or assignment of
substantially all its assets, or (3) any other transaction which results in
another entity or person owning substantially all of the assets of the Company;
provided that the entity or person receiving or succeeding to the assets of the
Company assumes the Company's obligations.


                                       5.



            (d) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will be for
the benefit of the Company, its successors, and its assigns.

Date:   04/09/04
      ---------------

                                         Signature

                                         /s/ Neill Giese

                                         Name of Employee (typed or printed)

                                               Neill Giese

Witness


                                       6.



                                    EXHIBIT A

                            LIST OF PRIOR INVENTIONS

                        AND ORIGINAL WORKS OF AUTHORSHIP



Title          Date                    Identifying Number of Brief Description
- -----          ----                    ---------------------------------------
                                 








___ No inventions or improvements

___ Additional Sheets Attached

Signature of Employee:
                       ------------------------------

Print Name of Employee:
                        -------------------------

Date:
      ---------------------






                                    EXHIBIT B

                       CALIFORNIA LABOR CODE SECTION 2870
                             EMPLOYMENT AGREEMENTS;
                              ASSIGNMENT OF RIGHTS

      "(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:

            (1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.

            (2) Result from any work performed by the employee for the employer.

      (b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable."





                                    EXHIBIT C

                            STRUCTURAL GENOMIX, INC.

                            TERMINATION CERTIFICATION

      This is to certify that I do not have in my possession, nor have I failed
to return, any devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items belonging to Structural GenomiX, its subsidiaries, affiliates, successors
or assigns (together, the "Company").

      I further certify that I have complied with all the terms of the Company's
Employment Confidential Information and Invention Assignment Agreement signed by
me, including the reporting of any inventions and original works of authorship
(as defined therein), conceived or made by me (solely or jointly with others)
covered by that agreement.

      I further agree that, in compliance with the Employment, Confidential
Information and Invention Assignment Agreement, I will preserve as confidential
all trade secrets, confidential knowledge, data or other proprietary information
relating to products, processes, know-how, designs, formulas, developmental or
experimental work, computer programs, data bases, other original works of
authorship, customer lists, business plans, financial information or other
subject matter pertaining to any business of the Company or any of its
employees, clients, consultants or licensees.

      I further agree that for twelve (12) months from this date, I will not
hire any employees of the Company and I will not solicit, induce, recruit or
encourage any of the Company's employees to leave their employment.

Date: 6/30/05

                                         (Employee's Signature)

                                         /s/  Neill Giese

                                         (Type/Print Employee's Name)

                                         Neill Giese

EX-10.11

                                                                   EXHIBIT 10.11

[SGX LOGO]

January 14, 2004

Christopher Henney Ph.D., DSc.
Dendreon Corporation
3005 First Avenue
Seattle, WA 98121

Dear Chris:

Further to your email message of December 15, 2003, I confirm that the terms of
your Chairmanship of the SGX Board of Directors, as approved by the Compensation
Committee of the Board at its meeting on January 13, 2004, is as follows:

      1.    For the duration of your Chairmanship, you will be paid $60,000 per
            year, payable quarterly in advance. You will also be eligible for an
            additional $60,000 bonus payment in 2004, in the event that SGX
            completes a private financing by September 30, 2004 with at least
            $10 million of money coming from new investors.

      2.    You will receive an option to purchase 120,000 shares of common
            stock of SGX at an exercise price of $0.25 per share, vesting on a
            monthly basis over 2 years subject to the continuation of your
            Chairmanship, with a vesting start date of December 4, 2003. This
            option will be subject to the terms and conditions of our standard
            stock option agreement, which we will forward to you shortly for
            signature.

      3.    At the discretion of the Compensation Committee of the Board, you
            will be eligible for additional bonus options based on performance.

If the above accords with your understanding, please sign where indicated below.
On behalf of the Board, we are delighted that you have assumed the role of
Chairman and look forward to an exciting 2004.

Best wishes,

Sincerely,

/s/ Tim Harris

Tim Harris
CEO

Agreed this 16 day of January, 2004

/s/ Christopher S. Henney
- --------------------------------
Christopher Henney Ph.D., DSc

                   STRUCTURAL GENOMIX, INC. - WWW.STROMIX.COM

      CORPORATE HEADQUARTERS - 10505 Roselle Street - San Diego, CA 92121
 - 858.558.4850 - 858.558.4859 fax SGX BEAMLINE - Argonne National Laboratory,
      Bldg. 438A - 9700 S. Cass Avenue, Argonne, IL 60439 - 630.252.0820 -
                                630.252.0835 fax
  SGX SAN FRANCISCO - 525 Brannan Street, Ste. 200 - San Francisco, CA 94107 -
                        415.777.0868 - 415.777.0975 fax

EX-10.12

[STRUCTURAL GENOMIX LOGO]
                                                                   EXHIBIT 10.12

April 13, 2001

                                  CONFIDENTIAL

Stelios Papadopoulos
c/o SG Cowen Securities Corporation
1221 Avenue of the Americas, 12th Floor
New York, NY  10020

            RE:  NON-EMPLOYEE DIRECTOR COMPENSATION

Dear Stelios:

Structural GenomiX, Inc. (the "Company") is very happy that you have expressed
an interest in joining our Board of Directors (the "Board"). The Board is
pleased to offer you the position on the Board ("Non-Employee Director"),
effective July 12, 2001 (the "Vesting Commencement Date"), on the following
terms:

Your compensation will be $2,000 for every three (3) months of service as a
Non-Employee Director. The Company will also reimburse reasonable out-of-pocket
expenses, which you incur in connection with your service as a Non-Employee
Director.

Subject to approval by the Board, you will be granted two compensatory stock
options ("Option A" and "Option B") to purchase one hundred twenty thousand
(120,000) shares and sixty thousand shares (60,000), respectively, of the common
stock of the Company (the "Common Stock") under the Company's 2000 Equity
Incentive Plan (the "Incentive Plan"). Both Options will be nonstatutory stock
options and are not intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended. The
shares covered by the Options will have an exercise price equal to $0.85 per
share, which represents the fair market value per share of the Common Stock on
the date of grant.

The shares covered by Option A will vest over four (4) years according to the
following schedule: 1/4th of the shares will vest on the first anniversary of
the Vesting Commencement Date and 1/48th of the shares will vest monthly
thereafter for the next three (3) years. The shares covered by Option B will
vest on the sixth anniversary of the Vesting Commencement Date; however, the
vesting on the shares covered by Option B may be accelerated upon the
achievement of certain objectives (e.g., direct involvement in the Company
closing a significant



Stelios Papadopoulos                                              April 13, 2001
                                                                          Page 2

collaboration, establishment of a relationship with EMBL, etc.), which will be
established by the Board. All vesting of shares covered by Option A and Option B
will cease upon termination of your service as a Non-Employee Director. All
other terms of both Options will be in accordance with the terms and
requirements of the Incentive Plan and the Company's form of stock option
agreement.

Subject to requisite approvals of existing stockholders of the Company, the
Company will also offer to you the opportunity to purchase one hundred thousand
(100,000) shares of Series C Preferred Stock. The purchase price of the shares
will be $8.45 per share.

The Company will cover you under its director and officers liability insurance
both during, and while potential liability exists, after your termination of
service with the Company in the same amount and to the same extent as the
Company covers its other Non-Employee Directors.

In your capacity as a Non-Employee Director of the Company, you will be expected
not to use or disclose any confidential information, including, but not limited
to, trade secrets of any former employer or other person to whom you have an
obligation of confidentiality. Rather, you will be expected to use only that
information which is generally known and used by persons with training and
experience comparable to your own, which is common knowledge in the industry or
otherwise legally in the public domain, or which is otherwise provided or
developed by the Company.

You acknowledge that as a result of your service as a Non-Employee Director you
will obtain confidential information as to the Company and its affiliates and
the Company and its affiliates will suffer substantial damage, which would be
difficult to ascertain, if you should use such confidential information. During
and after your service with the Company, you shall not use for your benefit or
disclose confidential information, knowledge or data relating to the Company and
its affiliates. In the event you disclose confidential information, you
acknowledge that the Company and its affiliates will be caused irreparable
injury and that money damages may not be an adequate remedy and agree that the
Company and its affiliates shall be entitled to injunctive relief (in addition
to its other remedies at law).

The terms of this letter supersede any other agreements or promises made to you
by anyone, whether oral or written.

The Company has exciting opportunities facing it, and we believe that your
experience and background can greatly assist the Company in meeting those
opportunities.

Sincerely,

/s/Tim Harris

Tim Harris, Ph.D.
President and CEO



                              STELIOS PAPADOPOULOS

May 15, 2001

Dr. Tim Harris
President and CEO
Structural GenomiX
10505 Roselle Street
San Diego, CA 92121

Dear Tim:

I am in receipt of your letter of April 27, 2001, regarding my joining the Board
of Directors of Structural GenomiX. I am honored by the invitation and I am
delighted to accept your offer to join the board on the basis of the terms you
outline in your letter.

Looking forward to a long and productive collaboration,

Sincerely,

/s/Stelios Papadopoulos

Stelios Papadopoulos

                    STRUCTURAL GENOMIX, INC. www.stromix.com
     CORPORATE HEADQUARTERS - 10505 Roselle Street - San Diego, CA 92121 -
                        858.558.4850 - 858.558.4859 fax
                  SGX BEAMLINE - Argonne Nactional Laboratory,
   Bldg. 438A - 9700 S. Cass Avenue, IL 60439-630.252.0820 - 630.252.0835 fax
  SGX SAN FRANCISCO - 525 Brannan Street, Ste. 200 - San Francisco, CA 94107 -
                        415.777.0868 - 415.777.0975 fax

EX-10.13

                                                                  EXHIBIT 10.13

Net Single-Tenant Laboratory        10505 Roselle Street/Protarch, Inc. - Page 1


                                 LEASE AGREEMENT

         THIS LEASE AGREEMENT is made this 20th day of September, 1999, between
ARE-10505 ROSELLE STREET, LLC, a Delaware limited liability company
("LANDLORD"), and PROTARCH, INC., a Delaware corporation ("TENANT").

ADDRESS: 10505 Roselle Street, San Diego, California

PREMISES: The real property described on EXHIBIT A together with the building
containing approximately 17,603 sq. ft. located thereon, and all appurtenances
thereto

SUITE A PREMISES: That portion of the building located on the Premises
containing approximately 7,471 rentable square feet ("RSF") as identified on
EXHIBIT A-1

SUITE B PREMISES: That portion of the building located on the Premises
containing approximately 10,132 RSF as identified on EXHIBIT A-2

BASE RENT:   $1.85 per RSF per month

RENTABLE AREA OF PREMISES:  Approximately 17,603 sq. ft.

SECURITY DEPOSIT:  $130,240

SUITE A PREMISES TARGET COMMENCEMENT DATE:  September 15, 1999

SUITE B PREMISES TARGET COMMENCEMENT DATE:  February 1, 2000

RENT ADJUSTMENT PERCENTAGE:  4.00%

TERM:           48 months from October 1, 1999

PERMITTED USE:  research and development laboratory, office and other related
                uses

ADDRESS FOR RENT PAYMENT:                   LANDLORD'S NOTICE ADDRESS:
135 N. Los Robles Avenue, Suite 250         135 N. Los Robles Avenue, Suite 250
Pasadena, CA 91101                          Pasadena, CA 91101
Attention: Accounts Receivable              Attention: General Counsel

TENANT'S NOTICE ADDRESS:
10505 Roselle Street
San Diego, California
Attention: President

The following Exhibits and Addenda are attached hereto and incorporated herein
by this reference:

[X] EXHIBIT A - PREMISES DESCRIPTION
[X] EXHIBIT B - SUITE B PREMISES WORK LETTER
[X] EXHIBIT C - COMMENCEMENT DATE    [X] EXHIBIT D - TENANT'S PERSONAL PROPERTY
[X] EXHIBIT E - ESTOPPEL CERTIFICATE [X] EXHIBIT F - NONDISTURBANCE AGREEMENT




Net Single-Tenant Laboratory        10505 Roselle Street/Protarch, Inc. - Page 2


                               EXHIBIT A TO LEASE

                             DESCRIPTION OF PREMISES

That certain real property located in the City of San Diego, County of San
Diego, State of California, having a street address of 10505 Roselle Street,
more particularly described as follows:

                                   [ATTACHED]







PARCEL 2 OF PARCEL MAP 6427, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO,
STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF FILED IN THE OFFICE OF THE COUNTY
RECORDER OF SAN DIEGO COUNTY, OCTOBER 7, 1977.





Net Single-Tenant Laboratory        10505 Roselle Street/Protarch, Inc. - Page 2

         1. LEASE OF PREMISES. Upon and subject to all of the terms and
conditions hereof, Landlord hereby leases the Premises to Tenant and Tenant
hereby leases the Premises from Landlord.

                  1.1. TERMINATION OF PRIOR LEASE. Landlord and Tenant entered
into that certain Lease Agreement dated as of July 12, 1999 (the "PRIOR LEASE")
pursuant to which Tenant leased a portion of the Premises. Upon the execution of
this Lease, the Prior Lease shall terminate and all rights and obligations
contained therein shall terminate, except for those obligations which explicitly
survive termination. The balance of any Security Deposit previously deposited by
Tenant with Landlord pursuant to the terms of the Prior Lease shall be applied
to the Security Deposit due under the terms of this Lease.

     2. DELIVERY; ACCEPTANCE OF PREMISES; COMMENCEMENT DATE. Landlord shall use
reasonable efforts to deliver the Suite A Premises to Tenant on or before the
Suite A Premises Target Commencement Date and the Suite B Premises to Tenant on
or before the Suite B Premises Target Commencement Date, with Landlord's Work,
if any, Substantially Completed. Landlord's delivery of either the Suite A
Premises or the Suite B Premises with Landlord's Work Substantially Completed
shall be referred to herein as "DELIVERY" or "DELIVER". If Landlord fails to
timely Deliver the Suite A Premises or the Suite B Premises, Landlord shall not
be liable to Tenant for any loss or damage resulting therefrom, and this Lease
shall not be void or voidable except as provided herein. If Landlord does not
Deliver the Suite A Premises or the Suite B Premises within 45 days of the Suite
A Premises Target Commencement Date or the Suite B Premises Target Commencement
Date, as applicable, for any reason other than Tenant Delays, this Lease shall
be voidable by Landlord or Tenant by written notice to the other, and if so
voided by either: (a) so long as Tenant is not in default hereunder, the
Security Deposit and any unearned Base Rent shall be returned to Tenant, and (b)
neither Landlord nor Tenant shall have any further rights, duties or obligations
under this Lease, except with respect to provisions which expressly survive
termination of this Lease. As used herein, the terms "TENANT DELAYS" and
"SUBSTANTIALLY COMPLETED" shall have the meanings set forth for such terms in
the Suite B Premises Work Letter. If neither Landlord nor Tenant elects to void
this Lease within 5 business days of the lapse of such 45 day period, such right
to void this Lease shall be waived and this Lease shall remain in full force and
effect.

         The "COMMENCEMENT DATE" shall be September 15, 1999, regardless of the
date this Lease is executed. The "SUITE B PREMISES RENT COMMENCEMENT DATE" shall
be the earliest of: (i) the date Landlord Delivers the Suite B Premises to
Tenant; (ii) the date Landlord could have Delivered the Suite B Premises but for
Tenant Delays; and (iii) the date Tenant conducts any business in the Suite B
Premises or any part thereof. Upon request of Landlord, Tenant shall execute and
deliver a written acknowledgment of the Commencement Date and the expiration
date of the Term when such are established in the form attached to this Lease as
EXHIBIT C; provided, however, Tenant's failure to execute and deliver such
acknowledgment shall not affect Landlord's rights hereunder.

         Except as set forth in the Suite B Premises Work Letter and that
certain Suite A Premises Work Letter dated as of August 18, 1999 (the "SUITE A
PREMISES WORK LETTER"), if applicable: (i) Tenant shall accept the Premises in
their condition as of the Commencement Date, subject to all applicable laws,
ordinances, regulations, covenants and restrictions; (ii) Landlord shall have no
obligation for any defects in the Premises; and (ii) Tenant's taking possession
of the Premises shall be conclusive evidence that Tenant accepts the Premises
and that the Premises were in good condition at the time possession was taken.
Any occupancy of the Premises by Tenant before the Commencement Date shall be
subject to all of the terms and conditions of this Lease, including the
obligation to pay Rent.

         Tenant agrees and acknowledges that neither Landlord nor any agent of
Landlord has made any representation or warranty with respect to the condition
of any or all of the Premises, and/or the suitability of the Premises for the
conduct of Tenant's business, and Tenant waives any implied warranty that the
Premises are suitable for the Permitted Use. This Lease constitutes the complete
agreement of Landlord and Tenant with respect to the subject matter hereof and
supersedes any and all prior representations, inducements, promises, agreements,
understandings and negotiations which are not contained herein. Landlord in
executing this Lease does so in reliance upon Tenant's representations,
warranties, acknowledgments and agreements contained herein.



Net Single-Tenant Laboratory        10505 Roselle Street/Protarch, Inc. - Page 3

         3. RENT.

         (a) BASE RENT. The first month's Base Rent and the Security Deposit
(less the balance of any Security Deposit previously deposited with Landlord
pursuant to the Prior Lease) shall be due and payable on delivery of an executed
copy of this Lease to Landlord. Tenant shall pay to Landlord in advance, without
demand, abatement (except as specifically provided for in Section 18), deduction
or set-off, monthly installments of Base Rent on or before the first day of each
calendar month during the Term hereof, in lawful money of the United States of
America, at the office of Landlord for payment of Rent set forth above, or to
such other person or at such other place as Landlord may from time designate in
writing. Payments of Base Rent for any fractional calendar month shall be
prorated and paid on the basis of a 30 day month. The obligation of Tenant to
pay Base Rent and other sums to Landlord and the obligations of Landlord under
this Lease are independent obligations. Tenant shall have no right at any time
to abate, reduce, or set-off any Rent due hereunder except for any abatement as
may be expressly provided in this Lease. Notwithstanding anything to the
contrary contained herein, Base Rent with respect to the Suite B Premises shall
not be payable until the Suite B Premises Rent Commencement Date.

         (b) ADDITIONAL RENT. In addition to Base Rent, Tenant agrees to pay to
Landlord as additional rent ("ADDITIONAL RENT"): (i) "Operating Expenses," and
(ii) any and all other amounts Tenant assumes or agrees to pay under the
provisions of this Lease, including, without limitation, any and all other sums
that may become due by reason of any default of Tenant or failure to comply with
the agreements, terms, covenants and conditions of this Lease to be performed by
Tenant, after any applicable notice and cure period.

         4. BASE RENT ADJUSTMENTS. Base Rent shall be increased on each annual
anniversary of the first day of the first full month following the Commencement
Date during the Term of this Lease by multiplying the Base Rent payable
immediately before such adjustment by the Rent Adjustment Percentage and adding
the resulting amount to the Base Rent payable immediately before such
adjustment. Base Rent, as so adjusted, shall thereafter be due as provided
herein. Base Rent adjustments for any fractional calendar month shall be
prorated.

         5. OPERATING EXPENSE PAYMENTS. Landlord shall deliver to Tenant a
written estimate of Operating Expenses for each calendar year during the Term in
reasonable detail by the type of expense (the "ANNUAL ESTIMATE"), which may be
revised by Landlord from time to time during such calendar year. During each
month of the Term, on the same date that Base Rent is due, Tenant shall pay
Landlord an amount equal to 1/12 of the annual cost, as reasonably estimated by
Landlord from time to time, of Operating Expenses. Payments for any fractional
calendar month shall be prorated.

         The term "OPERATING EXPENSES" means all costs and expenses of any kind
or description whatsoever incurred or accrued by Landlord with respect to the
Premises (including Taxes, reasonable reserves consistent with good business
practice for future replacements of capital items, capital repairs and
improvements amortized over the lesser of 7 years and the useful life of such
capital items and the costs of Landlord's third party property manager or, if
there is no third party property manager, administration rent in the amount of
3.0% of Base Rent), excluding only:

         (a)      the original construction costs of the Premises and renovation
                  prior to the date of the Lease and costs of correcting defects
                  in such original construction or renovation;

         (b)      completing, fixturing, improving, renovating, painting,
                  redecorating or other work, which Landlord pays for or
                  performs for tenants within the Premises and costs of
                  correcting defects in such work;

         (c)      capital expenditures for expansion of the Premises;

         (d)      ground lease payments, interest, financing costs and
                  amortization of funds borrowed by Landlord, whether secured or
                  unsecured;



Net Single-Tenant Laboratory        10505 Roselle Street/Protarch, Inc. - Page 4

         (e)      depreciation of the Premises (except for capital improvements,
                  the cost of which are includable in Operating Expenses);

         (f)      advertising, legal and space planning expenses, leasing
                  commissions and other costs and expenses incurred in procuring
                  tenants for the Premises, including any leasing office
                  maintained in the Premises;

         (g)      salaries, wages, benefits and other compensation paid to
                  officers and employees of Landlord who are not assigned in
                  whole or in part to the operation, management, maintenance or
                  repair of the Premises;

         (h)      any expenses otherwise includable within Operating Expenses to
                  the extent intended to be reimbursed by persons other than
                  Tenant;

         (i)      costs relating to maintaining Landlord's existence, either as
                  a corporation, partnership, or other entity;

         (j)      costs (including attorneys' fees and costs of settlement,
                  judgments and payments in lieu thereof) arising from claims,
                  disputes or potential disputes pertaining to Landlord, but not
                  the Premises, or from Landlord's failure to make any payment
                  required to be made by Landlord hereunder before delinquency;

         (k)      tax penalties incurred as a result of Landlord's negligence,
                  inability or unwillingness to make payment and/or to file any
                  tax or informational returns when due;

         (l)      overhead and profit increment paid to the Landlord or to
                  subsidiaries or affiliates of Landlord for goods and/or
                  services in or to the Premises to the extent the same exceeds
                  the costs of such goods and/or services rendered by
                  unaffiliated third parties on a competitive basis;

         (m)      costs arising from Landlord's charitable or political
                  contributions or fine art maintained at the Premises;

         (n)      costs incurred in the sale or refinancing of the Premises;

         (o)      net income, franchise, capital stock, estate or inheritance
                  taxes;

         (p)      costs of repairs and other work due to fire, windstorm, or
                  other casualty to the extent of any net insurance recovery;

         (q)      costs of correcting any building code or other violations
                  which were violations prior to the Commencement Date of this
                  Lease; and

         (r)      costs incurred by Landlord due to the violation by Landlord,
                  its employees, agents or contractors of any Legal Requirement.

         Within 90 days after the end of each calendar year (or such longer
period as may be reasonably required), Landlord shall furnish to Tenant a
statement (an "ANNUAL STATEMENT") showing in reasonable detail: (a) the total
actual Operating Expenses for the previous calendar year, and (b) the total of
Tenant's payments in respect of Operating Expenses for such year. If actual
Operating Expenses for such year exceed Tenant's payments of Operating Expenses
for such year, the excess shall be immediately due and payable by Tenant as
Rent. If Tenant's payments of Operating Expenses for such year exceed actual
Operating Expenses for such year Landlord shall, in its sole and absolute
discretion, either: (i) credit the excess amount to the next succeeding
installments of Operating Expenses due hereunder, or (ii) pay the excess to
Tenant within 30 days after delivery of such Annual Statement, except that after
expiration, or earlier termination of the Term, Landlord shall pay the excess to
Tenant after deducting all other amounts due Landlord.




Net Single-Tenant Laboratory        10505 Roselle Street/Protarch, Inc. - Page 5

         The Annual Statement shall be final and binding upon Tenant unless
Tenant, within 30 days after Tenant's receipt thereof, shall contest any item
therein by giving written notice to Landlord, specifying each item contested and
the reason therefor. If, during such 30 day period, Tenant reasonably and in
good faith questions or contests the correctness of Landlord's statement of
Operating Expenses, Landlord will provide Tenant with access to Landlord's books
and records relating to the operation of the Premises and such information as
Landlord reasonably determines to be responsive to Tenant's questions. If after
Tenant's review of such information, Landlord and Tenant cannot agree upon the
amount of Operating Expenses, then Tenant shall have the right to have an
independent public accounting firm selected from among the 6 largest in the
United States, hired by Tenant (at Tenant's sole cost and expense) and approved
by Landlord (which approval shall not be unreasonably withheld or delayed),
audit and/or review Landlord's books and records relating to the operation of
the Premises and such other information relating to the operation of the
Premises for the year in question (the "INDEPENDENT REVIEW"). The results of any
such Independent Review shall be binding on Landlord and Tenant. If the
Independent Review shows that the Operating Expenses actually paid by Tenant for
the calendar year in question exceeded Tenant's obligations for such calendar
year, Landlord shall at Landlord's option either (i) credit the excess amount to
the next succeeding installments of estimated Operating Expenses or (ii) pay the
excess to Tenant within 30 days after delivery of such statement, except that
after expiration or earlier termination of the Term, Landlord shall pay the
excess to Tenant after deducting all other amounts due Landlord. If the
Independent Review shows that Tenant's payments of Operating Expenses for such
calendar year were less than Tenant's obligation for the calendar year, Tenant
shall pay the deficiency to the Landlord within 30 days after delivery of such
statement. If the Independent Review shows that Tenant has overpaid Operating
Expenses by more than 10% then Landlord shall reimburse Tenant for all costs
incurred by Tenant for the Independent Review. Operating Expenses for the
calendar years in which Tenant's obligation to pay the same begins and ends
shall be prorated.

         Base Rent, Operating Expenses and all other amounts payable by Tenant
to Landlord hereunder are collectively referred to herein as "RENT".

         6. SECURITY DEPOSIT. The Security Deposit shall be held by Landlord as
security for the performance of Tenant's obligations under this Lease. The
Security Deposit is not an advance rental deposit or a measure of Landlord's
damages in case of Tenant's default. Upon each occurrence of a Default, Landlord
may use all or part of the Security Deposit to pay delinquent payments due under
this Lease, and the cost of any damage, injury, expense or liability caused by
such Default, without prejudice to any other remedy provided herein or provided
by law. Upon any such use of all or any portion of the Security Deposit, Tenant
shall pay Landlord on demand the amount that will restore the Security Deposit
to its original amount. Upon bankruptcy or other debtor-creditor proceedings
against Tenant, the Security Deposit shall be deemed to be applied first to the
payment of Rent and other charges due Landlord for periods prior to the filing
of such proceedings. Landlord's obligation respecting the Security Deposit is
that of a debtor, not a trustee; no interest shall accrue thereon. The Security
Deposit shall be the property of Landlord, but the balance remaining, if any,
after Tenant's obligations under this Lease have been completely fulfilled shall
be paid to Tenant. Landlord shall be released from any obligation with respect
to the Security Deposit upon transfer of this Lease and the Premises to a person
or entity assuming Landlord's obligations under this Section 6. Tenant hereby
waives the provisions of any law, now or hereafter in force, which provide that
Landlord may claim from a security deposit only those sums reasonably necessary
to remedy defaults in the payment of Rent, to repair damage caused by Tenant or
to clean the Premises, it being agreed that Landlord may, in addition, claim
those sums reasonably necessary to compensate Landlord for any other loss or
damage, foreseeable or unforeseeable, caused by the act or omission of Tenant or
any officer, employee, agent or invitee of Tenant. If Tenant shall fully perform
every provision of this Lease to be performed by Tenant, the Security Deposit,
or any balance thereof, shall be returned to Tenant (or, at Landlord's option,
to the last assignee of Tenant's interest hereunder) within 60 days after the
expiration or earlier termination of this Lease.

         7. USE. The Premises shall be used solely for the Permitted Use set
forth in the Basic Lease Provisions and for lawful purposes incidental thereto,
all in compliance with all laws, orders, judgments, ordinances, regulations,
codes, directives, permits, licenses, covenants and restrictions now




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or hereafter applicable to the Premises, and the use and occupancy thereof
(collectively, "LEGAL REQUIREMENTS"). Tenant shall, upon 5 days' written notice
from Landlord, discontinue any use of the Premises which is declared by any
governmental authority having jurisdiction to be a violation of any Legal
Requirement. Tenant will not use or permit the Premises to be used for any
purpose or in any manner that would void Tenant's or Landlord's insurance,
increase the insurance risk, or cause the disallowance of any sprinkler or other
credits. Tenant shall reimburse Landlord promptly upon demand for any additional
premium charged for any such insurance policy by reason of Tenant's failure to
comply with the provisions of this Section or otherwise caused by Tenant's use
and/or occupancy of the Premises. Tenant will use the Premises in a careful,
safe and proper manner and will not commit waste, overload the floor or
structure of the Premises, subject the Premises to use that would damage the
Premises or obstruct or interfere with the rights of Landlord or other tenants
or occupants of the Premises, including conducting or giving notice of any
auction, liquidation, or going out of business sale on the Premises, or using or
allowing the Premises to be used for any unlawful purpose. Tenant shall not
place any machinery or equipment weighing 500 pounds or more in or upon the
Premises or transport or move such items within the Premises or in the elevators
without the prior written consent of Landlord. Except as may be provided under
the Suite A Premises Work Letter and Suite B Premises Work Letter, Tenant shall
not, without the prior written consent of Landlord, use the Premises in any
manner which will require ventilation, air exchange, heating, gas, steam,
electricity or water beyond the existing capacity of the Premises. Landlord
shall be responsible for the compliance of the exterior of the Premises,
including access requirements, with the Americans With Disabilities Act, 42
U.S.C. Section 12101, et seq. (together with regulations promulgated pursuant
thereto, "ADA") as of the Commencement Date. Tenant, at its sole expense, shall
make any alterations or modifications, to the interior or exterior of the
Premises, that are required by Legal Requirements (including, without
limitation, compliance of the interior of the Premises with the ADA as of the
Commencement Date) related to Tenant's use or occupancy of the Premises.
Notwithstanding any other provision herein to the contrary, Tenant shall be
responsible for any and all demands, claims, liabilities, losses, costs,
expenses, actions, causes of action, damages or judgments, and all reasonable
expenses incurred in investigating or resisting the same (including, without
limitation, reasonable attorneys' fees, charges and disbursements and costs of
suit) (collectively, "CLAIMS") arising out of or in connection with Legal
Requirements and Tenant shall indemnify, defend, hold and save Landlord harmless
from and against any and all Claims arising out of or in connection with any
failure of Tenant to comply with the requirements of this Section.

         8. HOLDING OVER. If, with Landlord's express written consent, Tenant
retains possession of the Premises after the termination of the Term, (i) unless
otherwise agreed in such written consent, such possession shall be subject to
immediate termination by Landlord at any time, (ii) all of the other terms and
provisions of this Lease (including, without limitation, the adjustment of Base
Rent pursuant to Section 4 hereof) shall remain in full force and effect
(excluding any expansion or renewal option or other similar right or option)
during such holdover period, (iii) Tenant shall continue to pay Base Rent in the
amount payable upon the date of the expiration or earlier termination of this
Lease or such other amount as Landlord may indicate, in Landlord's sole and
absolute discretion, in such written consent, and (iv) all other payments shall
continue under the terms of this Lease. If Tenant remains in possession of the
Premises after the expiration or earlier termination of the Term without the
express written consent of Landlord, (A) Tenant shall become a tenant at
sufferance upon the terms of this Lease except that the monthly rental shall be
equal to 150% of the Rent in effect during the last 30 days of the Term, and (B)
Tenant shall be responsible for all damages suffered by Landlord resulting from
or occasioned by Tenant's holding over. No holding over by Tenant, whether with
or without consent of Landlord, shall operate to extend this Lease except as
otherwise expressly provided, and this Section 8 shall not be construed as
consent for Tenant to retain possession of the Premises. Acceptance by Landlord
of Rent after the Term Expiration Date or earlier termination of this Lease
shall not result in a renewal or reinstatement of this Lease.

         9. TAXES. Landlord shall pay, as part of Operating Expenses, all taxes,
levies, assessments and governmental charges of any kind (collectively referred
to as "TAXES") imposed by any federal, state, regional, municipal, local or
other governmental authority or agency, including, without limitation,
quasi-public agencies (collectively, "GOVERNMENTAL AUTHORITY") during the Term,
including, without limitation all Taxes: (i) imposed on or measured by or based,
in whole or in part, on rent payable to Landlord under



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this Lease and/or from the rental by Landlord of the Premises or any portion
thereof, or (ii) based on the square footage, assessed value or other measure or
evaluation of any kind of the Premises, or (iii) assessed or imposed by or on
the operation or maintenance of any portion of the Premises, including parking,
or (iv) assessed or imposed on the Premises or the rent payable to Landlord
under this Lease and/or from the rental by Landlord of the Premises or any
portion thereof by, or at the direction of, or resulting from statutes or
regulations, or interpretations thereof, promulgated by, any Governmental
Authority, or (v) imposed as a license or other fee on Landlord's business of
leasing space in the Premises. Landlord may contest by appropriate legal
proceedings the amount, validity, or application of any Taxes or liens securing
Taxes. Taxes shall not include any net income taxes or any corporate, franchise,
value-added, inheritance or similar taxes imposed on Landlord unless such taxes
are in substitution for any Taxes payable hereunder. If any such Tax is levied
or assessed directly against Tenant, then Tenant shall be responsible for and
shall pay the same at such times and in such manner as the taxing authority
shall require. Tenant shall pay, prior to delinquency, any and all Taxes levied
or assessed against any personal property or trade fixtures placed by Tenant in
the Premises, whether levied or assessed against Landlord or Tenant. If any
Taxes on Tenant's personal property or trade fixtures are levied against
Landlord or Landlord's property, or if the assessed valuation of the Premises is
increased by a value attributable to improvements in or alterations to the
Premises, whether owned by Landlord or Tenant and whether or not affixed to the
real property so as to become a part thereof, higher than the base valuation on
which Landlord from time-to-time allocates Taxes to all tenants in the Premises,
Landlord shall have the right, but not the obligation, to pay such Taxes.
Landlord's reasonable determination of any excess assessed valuation shall be
binding and conclusive, absent manifest error. The amount of any such payment by
Landlord shall constitute Additional Rent due from Tenant to Landlord
immediately upon demand.

         10. PARKING. Tenant shall have the right to park 18 cars prior to the
Suite B Premise Commencement Date, and an aggregate of 42 cars thereafter (2.4
cars per 1,000 RSF of the Premises), in those areas designated for parking
subject in each case to Landlord's rules and regulations.

         11. UTILITIES, SERVICES.

                  Tenant shall pay directly to the utility provider, prior to
delinquency, for all water, electricity, heat, light, power, telephone, sewer,
and other utilities (including gas and fire sprinklers to the extent the
Premises is plumbed for such services), refuse and trash collection and
janitorial services furnished to the Premises (collectively, "UTILITIES"). No
interruption or failure of Utilities, from any cause whatsoever other than
Landlord's willful misconduct, shall result in eviction or constructive eviction
of Tenant, termination of this Lease or the abatement of Rent.

         12. ALTERATIONS AND TENANT'S PROPERTY. Any alterations, additions, or
improvements made to the Premises by or on behalf of Tenant, including
additional locks or bolts of any kind or nature upon any doors or windows in the
Premises, but excluding installation, removal or realignment of furniture
systems (other than removal of furniture systems owned or paid for by Landlord)
not involving any modifications to the structure or connections (other then by
ordinary plugs or jacks) to building systems ("ALTERATIONS") shall be subject to
Landlord's prior written consent, which may be given or withheld in Landlord's
sole discretion if any such Alteration affects the structure or building
systems. Tenant shall be allowed to make alterations, additions or improvements
to the Premises without Landlord's prior consent provided that such alterations,
additions, or improvements do not exceed $25,000 in cost in any 12 month period
and do not affect the structure or building systems. If Landlord approves any
Alterations, Landlord may impose such conditions on Tenant in connection with
the commencement, performance and completion of such Alterations as Landlord may
deem appropriate in Landlord's reasonable discretion. Any request for approval
shall be in writing, delivered not less than 15 business days in advance of any
proposed construction, and accompanied by plans, specifications, bid proposals,
work contracts and such other information concerning the nature and cost of the
alterations as may be reasonably requested by Landlord, including the identities
and mailing addresses of all persons performing work or supplying materials.
Landlord's right to review plans and specifications and to monitor construction
shall be solely for its own benefit, and Landlord shall have no duty to ensure
that such plans and specifications or construction comply with applicable Legal
Requirements. Tenant shall cause, at its sole cost and




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expense, all Alterations to comply with insurance requirements and with Legal
Requirements and shall implement at its sole cost and expense any alteration or
modification required by Legal Requirements as a result of any Alterations.
Tenant shall pay to Landlord, as Additional Rent, on demand an amount equal to
10% of all charges incurred by Tenant or its contractors or agents in connection
with any Alteration to cover Landlord's overhead and expenses for plan review,
coordination, scheduling and supervision (and no charge in respect of such
services shall be included in Operating Expenses). Before Tenant begins any
Alteration, Landlord may post on and about the Premises notices of
non-responsibility pursuant to applicable law. Tenant shall reimburse Landlord
for, and indemnify and hold Landlord harmless from, any expense incurred by
Landlord by reason of faulty work done by Tenant or its contractors, delays
caused by such work, or inadequate cleanup.

         Tenant shall furnish security or make other arrangements satisfactory
to Landlord to assure payment for the completion of all Alteration work free and
clear of liens, and shall provide certificates of insurance for worker's
compensation and other coverage in amounts and from an insurance company
satisfactory to Landlord protecting Landlord against liability for personal
injury or property damage during construction. Upon completion of any
Alterations, Tenant shall deliver to Landlord: (i) a general contractor's
affidavit setting forth the names of all contractors and subcontractors who did
the work and final lien waivers from all such contractors and subcontractors;
and (ii) as built plans for any such Alteration in excess of $10,000.

         Other than (i) the items, if any, listed on EXHIBIT D attached hereto
and, (ii) any items agreed by Landlord in writing to be included on EXHIBIT D in
the future, and (iii) any trade fixtures, machinery, equipment and other
personal property not paid for out of the TI Fund (as defined in the Suite A
Premises Work Letter and Suite B Premises Work Letter) which may be removed
without material damage to the Premises, which damage shall be repaired by
Tenant during the Term (collectively, "TENANT'S PROPERTY"), all property of any
kind paid for with the TI Fund, all Alterations, real property fixtures,
built-in machinery and equipment, built-in casework and cabinets and other
similar additions and improvements built into the Premises so as to become an
integral part of the Premises, such as fume hoods which penetrate the roof or
plenum area, built-in cold rooms, built-in warm rooms, walk-in cold rooms,
walk-in warm rooms, deionized water system, glass washing equipment, autoclaves,
chillers, built-in plumbing, electrical and mechanical equipment and systems,
and any power generator and transfer switch (collectively, "INSTALLATIONS")
shall be and shall remain the property of Landlord during the Term and following
the expiration or earlier termination of the Term, shall not be removed by
Tenant at any time during the Term and shall remain upon and be surrendered with
the Premises as a part thereof following the expiration or earlier termination
of this Lease; provided, however, that Landlord shall, at the time its approval
of such Installation is requested notify Tenant if it has elected to cause
Tenant to remove such Installation upon the expiration or earlier termination of
this Lease. If Landlord so elects, Tenant shall remove such Installation upon
the expiration or earlier termination of this Lease and restore any damage
caused by or occasioned as a result of such removal, including, when removing
any of Tenant's Property which was plumbed, wired or otherwise connected to any
of the building systems, capping off all such connections behind the walls of
the Premises and repairing any holes. During any such restoration period, Tenant
shall pay Rent to Landlord as provided herein as if said space were otherwise
occupied by Tenant.

         Subject to the provisions of Section 15 herein, Landlord agrees (i)
that Tenant shall have the right, at its discretion, to hypothecate Tenant's
trade fixtures, equipment and other personal property within the Premises as
security for its obligations under any equipment lease or other financing
arrangement related to the conduct of Tenant's business, and (ii) to execute
within 10 business days of delivery to Landlord or as soon as reasonably
possible thereafter documentation reasonably required to waive any rights
Landlord may have in and to any such personal property, including trade fixtures
and equipment, which Tenant may wish to lease or finance.

         13. LANDLORD'S REPAIRS. Landlord shall maintain the exterior and
structural portions of the Premises, including the foundation, floor slab, roof
and curtain walls, in good repair, reasonable wear and tear and uninsured losses
and damages caused by Tenant, its agents, servants, employees, invitees and
contractors excluded. Losses and damages caused by Tenant, its agents, servants,
employees, invitees and contractors shall be repaired by Landlord, to the extent
not covered by insurance, at Tenant's sole



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cost and expense. Landlord shall have no responsibility or liability for any
maintenance, repair or interruption of Utility services from any cause
whatsoever, all of which shall be Tenant's responsibility pursuant to Section 14
hereof. Tenant shall promptly give Landlord written notice of any repair
required by Landlord pursuant to this Section, after which Landlord shall have a
reasonable opportunity to effect such repair. Landlord shall not be liable for
any failure to make any repairs or to perform any maintenance unless such
failure shall persist for an unreasonable time after Tenant's written notice of
the need for such repairs or maintenance. Tenant waives it rights under any
state or local law to terminate this Lease or to make such repairs at Landlord's
expense and agrees that the parties' respective rights with respect to such
matters shall be solely as set forth herein. Repairs required as the result of
fire, earthquake, flood, vandalism, war, or similar cause of damage or
destruction shall be controlled by Section 18.

         14. TENANT'S REPAIRS. Subject to Section 13 hereof, Tenant, at its
expense, shall repair, replace and maintain in good condition all interior
portions of the Premises, including, without limitation, entries, doors,
ceilings, interior windows, interior walls, the interior side of demising walls,
and all Utility systems including HVAC, plumbing, fire sprinklers, elevators and
all other building systems serving the Premises using contractors under service
agreements approved by Landlord. Such repair and replacements may include
capital expenditures and repairs whose benefit may extend beyond the Term.
Should Tenant fail to make any such repair or replacement or fail to maintain
the Premises, Landlord shall give Tenant notice of such failure. If Tenant fails
to commence cure of such default within 10 business days of Landlord's notice,
and thereafter diligently prosecute such cure to completion, Landlord may
perform such work and shall be reimbursed by Tenant within 10 business days
after demand therefor; provided, however, that if such default by Tenant creates
or could create an emergency, Landlord may immediately commence cure of such
default and shall thereafter be entitled to recover the costs of such cure from
Tenant. Subject to Sections 17 and 18, Tenant shall bear the full uninsured cost
of any repair or replacement to any part of the Premises that results from
damage caused by Tenant, its agents, contractors, or invitees and any repair
that benefits only the Premises.

         15. MECHANIC'S LIENS. Tenant shall discharge, by bond or otherwise, any
mechanic's lien filed against the Premises for work claimed to have been done
for, or materials claimed to have been furnished to, Tenant within 10 days after
the filing thereof, at Tenant's sole cost and shall otherwise keep the Premises
free from any liens arising out of work performed, materials furnished or
obligations incurred by Tenant. Should Tenant fail to discharge any lien
described herein, Landlord shall have the right, but not the obligation, to pay
such claim or post a bond or otherwise provide security to eliminate the lien as
a claim against title to the Premises and the cost thereof shall be immediately
due from Tenant as Additional Rent. If Tenant shall lease or finance the
acquisition of office equipment, furnishings, or other personal property of a
removable nature utilized by Tenant in the operation of Tenant's business,
Tenant warrants that any Uniform Commercial Code Financing Statement executed by
Tenant will upon its face or by exhibit thereto indicate that such Financing
Statement is applicable only to removable personal property of Tenant located
within the Premises. In no event shall the address of the Premises be furnished
on the statement without qualifying language as to applicability of the lien
only to removable personal property, located in an identified suite held by
Tenant.

         16. INDEMNIFICATION. Tenant hereby indemnifies and agrees to defend,
save and hold Landlord harmless from or and against any and all Claims for
injury or death to persons or damage to property occurring within or about the
Premises, arising directly or indirectly out of use or occupancy of the Premises
or a breach or default by Tenant in the performance of any of its obligations
hereunder, unless caused solely by the willful misconduct or gross negligence of
Landlord. Landlord shall not be liable to Tenant for, and Tenant assumes all
risk of damage to, personal property (including, without limitation, loss of
records kept within the Premises). Tenant further waives any and all Claims for
injury to Tenant's business or loss of income relating to any such damage or
destruction of personal property (including, without limitation, any loss of
records). Landlord shall not be liable for any damages arising from any act,
omission or neglect of any tenant in the Premises or of any other third party.

         17. INSURANCE. Landlord shall maintain all insurance against any peril
generally included within the classification "Fire and Extended Coverage,"
sprinkler damage (if applicable), vandalism and malicious mischief covering the
full replacement cost of the Premises or such lesser coverage amount as



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Landlord may elect provided such coverage amount is not less than 90% of such
full replacement cost. Landlord shall further carry commercial general liability
insurance with a single loss limit of not less than $2,000,000 for death or
bodily injury, or property damage with respect to the Premises. Landlord may,
but is not obligated to, maintain such other insurance and additional coverages
as it may deem necessary, including, but not limited to, flood, environmental
hazard and earthquake (if earthquake coverage is available at commercially
reasonable rates), loss or failure of building equipment, errors and omissions,
rental loss during the period of repair or rebuilding, workmen's compensation
insurance and fidelity bonds for employees employed to perform services and
insurance for any improvements installed by Tenant or which are in addition to
the standard improvements customarily furnished by Landlord without regard to
whether or not such are made a part of the Premises. All such insurance shall be
included as part of the Operating Expenses. The Premises may be included in a
blanket policy (in which case the cost of such insurance allocable to the
Premises will be determined by Landlord based upon the insurer's cost
calculations). Tenant shall also reimburse Landlord for any increased premiums
or additional insurance which Landlord reasonably deems necessary as a result of
Tenant's use of the Premises.

         Tenant, at its sole cost and expense, shall maintain during the Term:
all risk property insurance covering the full replacement cost of all property
and improvements installed or placed in the Premises by Tenant at Tenant's
expense; worker's compensation insurance with no less than the minimum limits
required by law; employer's liability insurance with such limits as required by
law; and commercial general liability insurance, with a minimum limit of not
less than $2,000,000 per occurrence for death or bodily injury and not less than
$1,000,000 for property damage with respect to the Premises. The commercial
general liability insurance policies shall name Landlord, its officers,
directors, employees, managers, agents, invitees and contractors (collectively,
"RELATED PARTIES"), as additional insureds; insure on an occurrence and not a
claims-made basis; be issued by insurance companies which have a rating of not
less than policyholder rating of A and financial category rating of at least
Class XII in "Best's Insurance Guide"; shall not be cancelable unless 30 days
prior written notice shall have been given to Landlord from the insuror; contain
a hostile fire endorsement and a contractual liability endorsement; and provide
primary coverage to Landlord (any policy issued to Landlord providing duplicate
or similar coverage shall be deemed excess over Tenant's policies). Such
policies or certificates thereof shall be delivered to Landlord by Tenant upon
commencement of the Term and upon each renewal of said insurance. Tenant's
policy may be a "blanket policy" which specifically provides that the amount of
insurance shall not be prejudiced by other losses covered by the policy. Tenant
shall, at least 20 days prior to the expiration of such policies, furnish
Landlord with renewals or binders. Tenant agrees that if Tenant does not take
out and maintain such insurance, Landlord may (but shall not be required to)
procure said insurance on Tenant's behalf and at its cost to be paid as
Additional Rent.

         In each instance where insurance is to name Landlord as additional
insured, Tenant shall upon written request of Landlord also designate and
furnish certificates so evidencing Landlord as additional insured to: (i) any
lender of Landlord holding a security interest in the Premises or any portion
thereof, (ii) the landlord under any lease wherein Landlord is tenant of the
real property on which the Premises is located, if the interest of Landlord is
or shall become that of a tenant under a ground lease rather than that of a fee
owner, and/or (iii) any management company retained by Landlord to manage the
Premises.

         The property insurance obtained by Landlord and Tenant shall include a
waiver of subrogation by the insurers and all rights based upon an assignment
from its insured, against Landlord or Tenant, and their respective Related
Parties, in connection with any loss or damage thereby insured against. Neither
party nor its respective Related Parties shall be liable to the other for loss
or damage caused by any risk insured against under property insurance required
to be maintained hereunder, and each party waives any claims against the other
party, and its respective Related Parties for such loss or damage. The failure
of a party to insure its property shall not void this waiver. Landlord and its
respective Related Parties shall not be liable for, and Tenant hereby waives all
claims against such parties for, business interruption and losses occasioned
thereby sustained by Tenant or any person claiming through Tenant resulting from
any accident or occurrence in or upon the Premises from any cause whatsoever. If
the foregoing waivers shall contravene any law with respect to exculpatory
agreements, the liability of Landlord or Tenant shall be deemed not released but
shall be secondary to the other's insurer.



Net Single-Tenant Laboratory       10505 Roselle Street/Protarch, Inc. - Page 11

         Landlord may from time to time require reasonable increases in
insurance policy limits or such increases as are necessary to conform with
requirements of Landlord's lender.

         18. RESTORATION. If at any time during the Term the Premises are
damaged by a fire or other insured casualty, Landlord shall notify Tenant as
soon as reasonably possible, but in any event within 60 days after discovery of
such damage as to the amount of time Landlord reasonably estimates it will take
to restore the Premises. If the restoration time is estimated to exceed 9
months, Landlord may, in such notice, elect to terminate this Lease as of the
date that is 75 days after the date of discovery of such damage or destruction;
provided, however, that if Landlord estimates the restoration period to be
greater than 9 months, then notwithstanding Landlord's election to restore the
Premises, Tenant may elect to terminate this Lease by written notice to Landlord
delivered within 5 business days of receipt of Landlord's notice electing to
restore the Premises. Unless either Landlord or Tenant elects to terminate this
Lease, Landlord shall, subject to receipt of sufficient insurance proceeds (with
any deductible to be treated as a current Operating Expense; provided, however
that with respect to the deductible for earthquake insurance the maximum amount
included in current Operating Expenses shall be 5% of the replacement value of
the Premises), promptly restore the Premises (excluding the improvements
installed by Tenant or by Landlord and paid for by Tenant), subject to delays
arising from the collection of insurance proceeds, from Force Majeure events or
as needed to obtain any license, clearance or other authorization of any kind
required to enter into and restore the Premises issued by any governmental or
quasi-governmental agency having jurisdiction over the use, storage, release or
removal of Hazardous Materials in, on or about the Premises (collectively
referred to herein as "HAZARDOUS MATERIALS CLEARANCES"); provided, however, that
if repair or restoration of the Premises is not Substantially Complete as of the
end of 9 months from the date of damage or destruction, Landlord may, in its
sole and absolute discretion, elect not to proceed with such repair and
restoration, or Tenant may by written notice to Landlord delivered within 5
business days of the expiration of such 9 month period, elect to terminate this
Lease, in which event Landlord shall be relieved of its obligation to make such
repairs or restoration and this Lease shall terminate as of the date that is 75
days after the later of: (i) discovery of such damage or destruction, or (ii)
the date all required Hazardous Materials Clearances are obtained.

         Tenant, at its expense, shall promptly perform, subject to delays
arising from the collection of insurance proceeds, from Force Majeure events or
to obtain Hazardous Material Clearances, all repairs or restoration to Tenant's
Alterations, personal property and trade fixtures not required to be done by
Landlord and shall promptly re-enter the Premises and commence doing business in
accordance with this Lease. Notwithstanding the foregoing, Landlord or Tenant
may terminate this Lease if the Premises are damaged during the last year of the
Term and Landlord reasonably estimates that it will take more than 3 months to
repair such damage, or if insurance proceeds are not available for such
restoration, by written notice to the other party delivered within 5 business
days of receipt of Landlord's notice to Tenant of such damage. Rent shall be
abated from the date all required Hazardous Material Clearances are obtained
until the Premises are repaired and restored, in the proportion which the area
of the Premises, if any, which is not usable by Tenant bears to the total area
of the Premises, unless Landlord provides Tenant with other space during the
period of repair that is suitable for the temporary conduct of Tenant's
business. Such abatement shall be the sole remedy of Tenant, and except as
provided herein, Tenant waives any right to terminate the Lease by reason of
damage or casualty loss.

         The provisions of this Lease, including this Section 18, constitute an
express agreement between Landlord and Tenant with respect to any and all damage
to, or destruction of, all or any part of the Premises, and any statute or
regulation which is now or may hereafter be in effect, shall have no application
to this Lease or any damage or destruction to all or any part of the Premises,
the parties hereto expressly agreeing this Section 18 sets forth their entire
understanding and agreement with respect to such matters.

         19. CONDEMNATION. If any part of the Premises is taken for any public
or quasi-public use under governmental law, ordinance, or regulation, or by
right of eminent domain, or by private purchase in lieu thereof (a "TAKING" or
"TAKEN"), and the Taking would in Landlord's reasonable judgment either prevent
or materially interfere with Tenant's use of the Premises or materially
interfere with or impair Landlord's ownership or operation of the Premises, then
upon written notice by Landlord or Tenant this



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Lease shall terminate and Rent shall be apportioned as of said date. If part of
the Premises shall be Taken, and this Lease is not terminated as provided above,
Landlord shall promptly restore the Premises as nearly as is commercially
reasonable under the circumstances to their condition prior to such partial
taking and the Rent payable hereunder during the unexpired Term shall be reduced
to such extent as may be fair and reasonable under the circumstances. Upon any
such Taking, Landlord shall be entitled to receive the entire price or award
from any such Taking without any payment to Tenant, and Tenant hereby assigns to
Landlord Tenant's interest, if any, in such award. Tenant shall have the right,
to the extent that same shall not diminish Landlord's award, to make a separate
claim against the condemning authority (but not Landlord) for such compensation
as may be separately awarded or recoverable by Tenant for moving expenses and
damage to Tenant's trade fixtures, if a separate award for such items is made to
Tenant. Tenant hereby waives any and all rights it might otherwise have pursuant
to any provision of state law to terminate this Lease upon a partial Taking of
the Premises.

         20. EVENTS OF DEFAULT. Each of the following events shall be a default
("DEFAULT") by Tenant under this Lease:

         (a) PAYMENT DEFAULTS. Tenant shall fail to pay any installment of Rent
or any other payment hereunder when due; provided, however, that Landlord will
give Tenant notice and an opportunity to cure any failure to pay Rent within 3
days of any such notice not more than once in any 12 month period and Tenant
agrees that such notice shall be in lieu of and not in addition to any notice
required by law.

         (b) INSURANCE. Any insurance required to be maintained by Tenant
pursuant to this Lease shall be canceled or terminated or shall expire or shall
be reduced or materially changed, or Landlord shall receive a notice of
nonrenewal of any such insurance and Tenant shall fail to obtain replacement
insurance at least 20 days before the expiration of the current coverage.

         (c) ABANDONMENT. Tenant shall abandon the Premises.

         (d) IMPROPER TRANSFER. Tenant shall assign, sublease or otherwise
transfer or attempt to transfer all or any portion of Tenant's interest in this
Lease or the Premises except as expressly permitted herein, or Tenant's interest
in this Lease shall be attached, executed upon, or otherwise judicially seized
and such action is not released within 90 days of the action.

         (e) LIENS. Tenant shall fail to discharge or otherwise obtain the
release of any lien placed upon the Premises in violation of this Lease within
10 days after any such lien is filed against the Premises.

         (f) INSOLVENCY EVENTS. Tenant or any guarantor or surety of Tenant's
obligations hereunder shall: (A) make a general assignment for the benefit of
creditors; (B) commence any case, proceeding or other action seeking to have an
order for relief entered on its behalf as a debtor or to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts or seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or of any substantial part of its property (collectively a
"PROCEEDING FOR RELIEF"); (C) become the subject of any Proceeding for Relief
which is not dismissed within 90 days of its filing or entry; or (D) die or
suffer a legal disability (if Tenant, guarantor, or surety is an individual) or
be dissolved or otherwise fail to maintain its legal existence (if Tenant,
guarantor or surety is a corporation, partnership or other entity).

         (g) ESTOPPEL CERTIFICATE OR SUBORDINATION AGREEMENT. Tenant fails to
execute any document required from Tenant under Sections 23 or 27 within 5 days
after a second notice requesting such document.

         (h) OTHER DEFAULTS. Tenant shall fail to comply with any provision of
this Lease other than those specifically referred to in this Section 20, and
except as otherwise expressly provided herein, such failure shall continue for a
period of 10 business days after written notice thereof from Landlord to Tenant.



Net Single-Tenant Laboratory       10505 Roselle Street/Protarch, Inc. - Page 13


Any notice given under Section 20 (h) hereof, shall: (i) specify the alleged
default, (ii) demand that Tenant cure such default, (iii) be in lieu of, and not
in addition to, or shall be deemed to be any notice required under any provision
of applicable law, and (iv) not be deemed a forfeiture or a termination of this
Lease unless Landlord elects otherwise in such notice; provided that if the
nature of Tenant's default pursuant to Section 20(h) is such that it cannot be
cured by the payment of money and reasonably requires more than 10 days to cure,
then Tenant shall not be deemed to be in default if Tenant commences such cure
within said 10 day period and thereafter diligently prosecutes the same to
completion; provided, however, that such cure shall be completed no later than
60 days from the date of Landlord's notice.

         21. LANDLORD'S REMEDIES.

         (a) PAYMENT BY LANDLORD; INTEREST. Upon a Default by Tenant hereunder,
Landlord may, without waiving or releasing any obligation of Tenant hereunder,
make such payment or perform such act. All sums so paid or incurred by Landlord,
together with interest thereon, from the date such sums were paid or incurred,
at the annual rate equal to 12% per annum or the highest rate permitted by law
(the "DEFAULT RATE"), whichever is less, shall be payable to Landlord on demand
as Additional Rent. Nothing herein shall be construed to create or impose a duty
on Landlord to mitigate any damages resulting from Tenant's Default hereunder.

         (b) LATE PAYMENT RENT. Late payment by Tenant to Landlord of Rent and
other sums due will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult and impracticable
to ascertain. Such costs include, but are not limited to, processing and
accounting charges and late charges which may be imposed on Landlord under any
Mortgage covering the Premises. Therefore, if any installment of Rent due from
Tenant is not received by Landlord within 5 days after the date such payment is
due, Tenant upon notice from Landlord shall pay to Landlord an additional sum of
6% of the overdue Rent as a late charge. The parties agree that this late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of late payment by Tenant. In addition to the late charge, Rent not paid
when due shall bear interest at the Default Rate from the 5th day after the date
due until paid.

         (c) REMEDIES. Upon the occurrence of a Default, Landlord, at its
option, without further notice or demand to Tenant, shall have in addition to
all other rights and remedies provided in this Lease, at law or in equity, the
option to pursue any one or more of the following remedies, each and all of
which shall be cumulative and nonexclusive, without any notice or demand
whatsoever.

                  (i) Terminate this Lease, or at Landlord's option, Tenant's
         right to possession only, in which event Tenant shall immediately
         surrender the Premises to Landlord, and if Tenant fails to do so,
         Landlord may, without prejudice to any other remedy which it may have
         for possession or arrearages in rent, enter upon and take possession of
         the Premises and expel or remove Tenant and any other person who may be
         occupying the Premises or any part thereof, without being liable for
         prosecution or any claim or damages therefor;

                  (ii) Upon any termination of this Lease, whether pursuant to
         the foregoing Section 21(c)(i) or otherwise, Landlord may recover from
         Tenant the following:

                           (A) The worth at the time of award of any unpaid rent
                  which has been earned at the time of such termination; plus

                           (B) The worth at the time of award of the amount by
                  which the unpaid rent which would have been earned after
                  termination until the time of award exceeds the amount of such
                  rental loss that Tenant proves could have been reasonably
                  avoided; plus

                           (C) The worth at the time of award of the amount by
                  which the unpaid rent for the balance of the Term after the
                  time of award exceeds the amount of such rental loss that
                  Tenant proves could have been reasonably avoided; plus



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                           (D) Any other amount necessary to compensate Landlord
                  for all the detriment proximately caused by Tenant's failure
                  to perform its obligations under this Lease or which in the
                  ordinary course of things would be likely to result therefrom,
                  specifically including but not limited to, brokerage
                  commissions and advertising expenses incurred, reasonable
                  expenses of remodeling the Premises or any portion thereof for
                  a new tenant and any special concessions reasonably made to
                  obtain a new tenant; and

                           (E) At Landlord's election, such other amounts in
                  addition to or in lieu of the foregoing as may be permitted
                  from time to time by applicable law.

         The term "RENT" as used in this Section 21 shall be deemed to be and to
         mean all sums of every nature required to be paid by Tenant pursuant to
         the terms of this Lease, whether to Landlord or to others. As used in
         Sections 21(c)(ii) (A) and (B), above, the "WORTH AT THE TIME OF AWARD"
         shall be computed by allowing interest at the Default Rate. As used in
         Section 21(c)(ii)(C) above, the "WORTH AT THE TIME OF AWARD" shall be
         computed by discounting such amount at the discount rate of the Federal
         Reserve Bank of San Francisco at the time of award plus 1%.

                  (iii) Landlord may continue this Lease in effect after
         Tenant's Default and recover rent as it becomes due. Accordingly, if
         Landlord does not elect to terminate this Lease following a Default by
         Tenant, Landlord may, from time to time, without terminating this
         Lease, enforce all of its rights and remedies hereunder, including the
         right to recover all Rent as it becomes due.

                  (iv) Whether or not Landlord elects to terminate this Lease
         following a Default by Tenant, Landlord shall have the right to
         terminate any and all subleases, licenses, concessions or other
         consensual arrangements for possession entered into by Tenant and
         affecting the Premises or may, in Landlord's sole discretion, succeed
         to Tenant's interest in such subleases, licenses, concessions or
         arrangements. Upon Landlord's election to succeed to Tenant's interest
         in any such subleases, licenses, concessions or arrangements, Tenant
         shall, as of the date of notice by Landlord of such election, have no
         further right to or interest in the rent or other consideration
         receivable thereunder.

                  (v) Independent of the exercise of any other remedy of
         Landlord hereunder or under applicable law, Landlord may conduct an
         environmental test of the Premises as generally described in Section
         30(d) hereof, at Tenant's expense.

         (d) EFFECT OF EXERCISE. Exercise by Landlord of any remedies hereunder
or otherwise available shall not be deemed to be an acceptance of surrender of
the Premises and/or a termination of this Lease by Landlord, it being understood
that such surrender and/or termination can be effected only by the express
written agreement of Landlord and Tenant. Any law, usage, or custom to the
contrary notwithstanding, Landlord shall have the right at all times to enforce
the provisions of this Lease in strict accordance with the terms hereof; and the
failure of Landlord at any time to enforce its rights under this Lease strictly
in accordance with same shall not be construed as having created a custom in any
way or manner contrary to the specific terms, provisions, and covenants of this
Lease or as having modified the same and shall not be deemed a waiver of
Landlord's right to enforce one or more of its rights in connection with any
subsequent default. A receipt by Landlord of Rent or other payment with
knowledge of the breach of any covenant hereof shall not be deemed a waiver of
such breach, and no waiver by Landlord of any provision of this Lease shall be
deemed to have been made unless expressed in writing and signed by Landlord. To
the greatest extent permitted by law, Tenant waives the service of notice of
Landlord's intention to re-enter, re-take or otherwise obtain possession of the
Premises as provided in any statute, or to institute legal proceedings to that
end, and also waives all right of redemption in case Tenant shall be
dispossessed by a judgment or by warrant of any court or judge. Any reletting of
the Premises or any portion thereof shall be on such terms and conditions as
Landlord in its sole discretion may determine. Landlord shall not be liable, nor
shall Tenant's obligations hereunder be diminished because of, Landlord's
failure to relet the Premises or collect rent due in respect of such reletting
or otherwise to mitigate any damages arising by reason of Tenant' Default.



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         22. ASSIGNMENT AND SUBLETTING.

         (a) GENERAL PROHIBITION. Without Landlord's prior written consent
subject to and on the conditions described in this Section 22, Tenant shall not,
directly or indirectly, voluntarily or by operation of law, assign this Lease or
sublease the Premises or any part thereof or mortgage, pledge, or hypothecate
its leasehold interest or grant any concession or license within the Premises
and any attempt to do any of the foregoing shall be void and of no effect. If
Tenant is a corporation, the shares of which are not actively traded upon a
stock exchange or in the over-the-counter market, a transfer or series of
transfers whereby 25% or more of the issued and outstanding shares of such
corporation are, or voting control is, transferred (but excepting transfers upon
deaths of individual shareholders and transfers in connection with one or more
public or private offerings of the capital stock of Tenant for the purpose of
raising capital for Tenant's ongoing operations) from a person or persons or
entity or entities which were owners thereof at time of execution of this Lease
to persons or entities who were not owners of shares of the corporation at time
of execution of this Lease, shall be deemed an assignment of this Lease
requiring the consent of Landlord as provided in this Section 22.

         (b) PERMITTED TRANSFERS. If Tenant desires to assign, sublease,
hypothecate or otherwise transfer this Lease or sublet the Premises, other than
pursuant to a Permitted Assignment (as defined below), then at least 15 business
days, but not more than 45 business days, before the date Tenant desires the
assignment or sublease to be effective (the "ASSIGNMENT DATE"), Tenant shall
give Landlord a notice (the "ASSIGNMENT NOTICE") containing such information
about the proposed assignee or sublessee, including the proposed use of the
Premises and any Hazardous Materials proposed to be used or stored in the
Premises, the Assignment Date, any relationship between Tenant and the proposed
assignee or sublessee, and all material terms and conditions of the proposed
assignment or sublease, including a copy of any proposed sublease in its final
form, and such other information as Landlord may deem reasonably necessary or
appropriate to its consideration whether to grant its consent. Landlord may, by
giving written notice to Tenant within 15 business days after receipt of the
Assignment Notice: (i) grant or refuse such consent, in its sole discretion with
respect to a proposed assignment, hypothecation or other transfer or subletting
of more than (together with all other then effective subleases) 50% of the
Premises, or grant or refuse such consent, in its reasonable discretion with
respect to a proposed subletting of up to (together with all other then
effective subleases) 50% of the Premises (provided that Landlord shall further
have the right to review and approve or disapprove the proposed form of sublease
prior to the effective date of any such subletting), or (ii) terminate this
Lease with respect to the space described in the Assignment Notice, as of the
Assignment Date (an "ASSIGNMENT TERMINATION"). If Landlord elects an Assignment
Termination, Tenant shall have the right to withdraw such Assignment Notice by
written notice to Landlord of such election within 5 days after Landlord's
notice electing to exercise the Assignment Termination. If Tenant withdraws such
Assignment Notice, this Lease shall continue in full force and effect. If Tenant
does not withdraw such Assignment Notice, this Lease, and the term and estate
herein granted, shall terminate as of the Assignment Date with respect to the
space described in such Assignment Notice. No failure of Landlord to exercise
any such option to terminate this Lease shall be deemed to be Landlord's consent
to the proposed assignment, sublease or other transfer. Tenant shall reimburse
Landlord for all of Landlord's reasonable out-of-pocket expenses in connection
with its consideration of any Assignment Notice.

         In addition, Tenant shall have the right to assign this Lease, upon 30
days prior written notice to Landlord but without obtaining Landlord's prior
written consent, to a corporation or other entity which is a
successor-in-interest to Tenant, by way of merger, consolidation or corporate
reorganization, or by the purchase of all or substantially all of the assets or
the ownership interests of the Tenant provided that (i) such merger or
consolidation, or such acquisition or assumption, as the case may be, is for a
good business purpose and not principally for the purpose of transferring the
Lease, and (ii) the net worth (as determined in accordance with generally
accepted accounting principles, consistently applied ("GAAP")) of the assignee
is not less than the net worth (as determined in accordance with GAAP) of Tenant
as of the Effective Date, (iii) such assignee shall agree in writing to assume
all of the terms, covenants and conditions of this Lease arising after the
effective date of the assignment, and (iv) the Rent to be paid by such assignee
to Landlord pursuant to this Lease will be treated as "rents from real property"
under Section 856 of the Internal Revenue Code (a "PERMITTED ASSIGNMENT").



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         (c) ADDITIONAL CONDITIONS. As a condition to any such assignment or
subletting, whether or not Landlord's consent is required, Landlord may require:

                  (i) that any assignee or subtenant agree, in writing at the
         time of such assignment or subletting, that if Landlord gives such
         party notice that Tenant is in default under this Lease, such party
         shall thereafter make all payments otherwise due Tenant directly to
         Landlord, which payments will be received by Landlord without any
         liability except to credit such payment against those due under the
         Lease, and any such third party shall agree to attorn to Landlord or
         its successors and assigns should this Lease be terminated for any
         reason; provided, however, in no event shall Landlord or its successors
         or assigns be obligated to accept such attornment; and

                  (ii) A list of Hazardous Materials, certified by the proposed
         assignee or sublessee to be true and correct, which the proposed
         assignee or sublessee intends to use or store in the Premises together
         with copies of all documents relating to the handling, storage,
         disposal and emission of Hazardous Materials by the proposed assignee
         or subtenant in the Premises or on the Premises, prior to the proposed
         assignment or subletting, including, without limitation: permits;
         approvals; reports and correspondence; storage and management plans;
         plans relating to the installation of any storage tanks to be installed
         in or under the Premises (provided, said installation of tanks shall
         only be permitted after Landlord has given its written consent to do
         so, which consent may be withheld in Landlord's sole and absolute
         discretion); and all closure plans or any other documents required by
         any and all federal, state and local governmental agencies and
         authorities for any storage tanks installed in, on or under the
         Premises for the closure of any such tanks. Neither Tenant nor any such
         proposed assignee or subtenant is required, however, to provide
         Landlord with any portion(s) of such documents containing information
         of a proprietary nature which, in and of themselves, do not contain a
         reference to any Hazardous Materials or hazardous activities.

         (d) NO RELEASE OF TENANT, SHARING OF RENT. Notwithstanding any
assignment or subletting, Tenant and any guarantor or surety of Tenant's
obligations under this Lease shall at all times remain fully and primarily
responsible and liable for the payment of Rent and for compliance with all of
Tenant's other obligations under this Lease. If the Rent due and payable by a
sublessee or assignee (or a combination of the rental payable under such
sublease or assignment plus any bonus or other consideration therefor or
incident thereto) exceeds the rental payable under this Lease, (excluding
however, any Rent payable under this Section), then Tenant shall be bound and
obligated to pay Landlord as Additional Rent hereunder 50% of such excess rental
and other excess consideration within 10 days following receipt thereof by
Tenant. If Tenant shall sublet the Premises or any part thereof, Tenant hereby
immediately and irrevocably assigns to Landlord, as security for Tenant's
obligations under this Lease, all rent from any such subletting and Landlord as
assignee and as attorney-in-fact for Tenant, or a receiver for Tenant appointed
on Landlord's application, may collect such rent and apply it toward Tenant's
obligations under this Lease; except that, until the occurrence of a Default,
Tenant shall have the right to collect such rent.

         (e) NO WAIVER. The consent by Landlord to an assignment or subletting
shall not relieve Tenant or any assignees of this Lease or any sublessees of the
Premises from obtaining the consent of Landlord to any further assignment or
subletting nor shall it release Tenant or any assignee or sublessee of Tenant
from full and primary liability under the Lease. The acceptance of Rent
hereunder, or the acceptance of performance of any other term, covenant, or
condition thereof, from any other person or entity shall not be deemed to be a
waiver of any of the provisions of this Lease or a consent to any subletting,
assignment or other transfer of the Premises.

         (f) TERMINATION OF LEASE. Notwithstanding any other provision of this
Section 22, if (i) the proposed assignee or sublessee of Tenant has been
required by any prior landlord, lender or governmental authority to take
remedial action in connection with Hazardous Materials contaminating a property,
where the contamination resulted from such party's action or use of the property
in question, or (ii) the proposed assignee or sublessee is subject to an
enforcement order issued by any governmental authority in connection with the
use, disposal or storage of Hazardous Materials, Landlord shall have the
absolute right to refuse to consent to any assignment or subletting to any such
party.





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         23. ESTOPPEL CERTIFICATE. Tenant shall within 10 business days of
written notice from Landlord, execute, acknowledge and deliver a statement in
writing substantially in the form attached to this Lease as EXHIBIT E with the
blanks filled in, and on any other form reasonably requested by a proposed
lender or purchaser, (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease as so modified is in full force and effect) and the
dates to which the rental and other charges are paid in advance, if any, (ii)
acknowledging that there are not any uncured defaults on the part of Landlord
hereunder, or specifying such defaults if any are claimed, and (iii) setting
forth such further information with respect to the status of this Lease or the
Premises as may be reasonably requested thereon. Any such statement may be
relied upon by any prospective purchaser or encumbrancer of all or any portion
of the real property of which the Premises are a part. Tenant's failure to
deliver such statement within such time shall, at the option of Landlord,
constitute a Default under this Lease, and, in any event, shall be conclusive
upon Tenant that the Lease is in full force and effect and without modification
except as may be represented by Landlord in any certificate prepared by Landlord
and delivered to Tenant for execution.

         24. QUIET ENJOYMENT. So long as Tenant shall perform all of the
covenants and agreements herein required to be performed by Tenant, Tenant
shall, subject to the terms of this Lease, at all times during the Term, have
peaceful and quiet enjoyment of the Premises against any person claiming by,
through or under Landlord.

         25. PRORATIONS. All prorations required or permitted to be made
hereunder shall be made on the basis of a 360 day year and 30 day months.

         26. [INTENTIONALLY OMITTED]

         27. SUBORDINATION. This Lease and Tenant's interest and rights
hereunder are and shall be subject and subordinate at all times to the lien of
any Mortgage, now existing or hereafter created on or against the Premises, and
all amendments, restatements, renewals, modifications, consolidations,
refinancing, assignments and extensions thereof, without the necessity of any
further instrument or act on the part of Tenant; provided, however that so long
as there is no Default hereunder, Tenant's right to possession of the Premises
shall not be disturbed by the Holder of any such Mortgage. Tenant agrees, at the
election of the Holder of any such Mortgage, to attorn to any such Holder.
Tenant agrees upon demand to execute, acknowledge and deliver a Subordination,
Non-disturbance and Attornment Agreement in the form attached hereto as EXHIBIT
F, or such other instruments, confirming such subordination and such instruments
of attornment as shall be requested by any such Holder, provided any such
instruments contain appropriate non-disturbance provisions assuring Tenant's
quiet enjoyment of the Premises as set forth in Section 24 hereof.
Notwithstanding the foregoing, any such Holder may at any time subordinate its
Mortgage to this Lease, without Tenant's consent, by notice in writing to
Tenant, and thereupon this Lease shall be deemed prior to such Mortgage without
regard to their respective dates of execution, delivery or recording and in that
event such Holder shall have the same rights with respect to this Lease as
though this Lease had been executed prior to the execution, delivery and
recording of such Mortgage and had been assigned to such Holder. The term
"MORTGAGE" whenever used in this Lease shall be deemed to include deeds of
trust, security assignments and any other encumbrances, and any reference to the
"HOLDER" of a mortgage shall be deemed to include the beneficiary under a deed
of trust.

         28. SURRENDER. Upon expiration of the Term or earlier termination of
Tenant's right of possession, Tenant shall surrender the Premises to Landlord in
the same condition as received, subject to any Alterations permitted by Landlord
to remain in the Premises, free of Hazardous Materials brought upon, kept or
used in or about the Premise by any person other than Landlord, its agents,
employees, contractors or invitees and released of all Hazardous Materials
Clearances, broom clean, ordinary wear and tear and casualty loss and
condemnation covered by Sections 18 and 19 excepted. Tenant shall immediately
return to Landlord all keys and/or access cards to parking, restrooms or all or
any portion of the Premises furnished to, or otherwise procured by Tenant. If
any such access card or key is lost, Tenant shall pay to Landlord, at Landlord's
election, either the cost of replacing such lost access card or key or the cost
of reprogramming the access security system in which such access card was used
or changing the lock or locks opened by such lost key. Any Tenant's Property,
Alterations and property not so



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removed by Tenant as permitted or required herein shall be deemed abandoned and
may be stored, removed, and disposed of by Landlord at Tenant's expense, and
Tenant waives all claims against Landlord for any damages resulting from
Landlord's retention and/or disposition of such property. All obligations of
Tenant hereunder not fully performed as of the termination of the Term,
including the obligations of Tenant under Section 30 hereof, shall survive the
expiration or earlier termination of the Term, including without limitation,
indemnity obligations, payment obligations with respect to Rent and obligations
concerning the condition and repair of the Premises.

         29. WAIVER OF JURY TRIAL. TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL
BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS
LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.

         30. ENVIRONMENTAL REQUIREMENTS.

         (a) PROHIBITION/COMPLIANCE/INDEMNITY. Tenant shall not cause or permit
any Hazardous Materials (as hereinafter defined) to be brought upon, kept or
used in or about the Premises in violation of applicable law by Tenant, its
agents, employees, contractors or invitees. If Tenant breaches the obligation
stated in the preceding sentence, or if the presence of Hazardous Materials in
or on the Premises during the Term of this Lease results in contamination of the
Premises, or any adjacent property or if contamination of the Premises, or any
adjacent property by Hazardous Materials brought into the Premises by anyone
other than Landlord and Landlord's employees, agents and contractors otherwise
occurs during the term of this Lease or any extension or renewal hereof or
holding over hereunder, Tenant hereby indemnifies and shall defend and hold
Landlord, its officers, directors, employees, agents and contractors harmless
from and against any and all claims, judgments, damages, penalties, fines,
costs, liabilities, or losses (including, without limitation, diminution in
value of the Premises or any portion of the Premises, damages for the loss or
restriction on use of rentable or usable space or of any amenity of the
Premises, damages arising from any adverse impact on marketing of space in the
Premises, and sums paid in settlement of claims, attorneys' fees, charges,
disbursements, consultants' fees and experts' fees) which arise during or after
the Lease term as a result of such contamination. This indemnification of
Landlord by Tenant includes, without limitation, costs incurred in connection
with any investigation of site conditions or any cleanup, remedial, removal,
materials, or restoration work required by any federal, state or local
governmental agency or political subdivision because of Hazardous Materials
present in the repair, soil or ground water above, on, or under the Premises.
Without limiting the foregoing, if the presence of any Hazardous Materials on
the Premises, or any adjacent property, caused or permitted by Tenant results in
any contamination of the Premises, or any adjacent property, Tenant shall
promptly take all actions at its sole expense and in accordance with applicable
law as are necessary to return the Premises, or any adjacent property, as near
to the condition existing prior to the time of such contamination as is
commercially practicable and in no event in a condition which could result in
any violation of any applicable federal, state or local law, rule, regulation or
administrative order or ruling, provided that Landlord's approval of such action
shall first be obtained, which approval shall not unreasonably be withheld so
long as such actions would not potentially have any material adverse long-term
or short-term effect on the Premises.

         (b) BUSINESS. Landlord acknowledges that it is not the intent of this
Article 30 to prohibit Tenant from using the Premises for the Permitted Use.
Tenant may operate its business according to the custom of the industry so long
as the use or presence of Hazardous Materials is strictly and properly monitored
according to all applicable governmental requirements. As a material inducement
to Landlord to allow Tenant to use Hazardous Materials in connection with its
business, Tenant agrees to deliver to Landlord prior to the Commencement Date a
list identifying each type of Hazardous Materials to be present on the Premises
and setting forth any and all governmental approvals or permits required in
connection with the presence of such Hazardous Materials on the Premises
("HAZARDOUS MATERIALS LIST"). Tenant shall deliver to Landlord an updated
Hazardous Materials List at least once a year and shall also deliver an updated
list before any new Hazardous Material(s) is brought onto the Premises. Tenant
shall deliver to Landlord true and correct copies of the following documents
(the "HAZ MAT



Net Single-Tenant Laboratory       10505 Roselle Street/Protarch, Inc. - Page 19

DOCUMENTS") relating to the handling, use, storage, disposal and emission of
Hazardous Materials prior to the Commencement Date, or if unavailable at that
time, concurrent with the receipt from or submission to a governmental agency:
permits; approvals; reports and correspondence; storage and management plans,
notice of violations of any laws; plans relating to the installation of any
underground storage tanks to be installed in or under the Premises (provided,
said installation of tanks shall only be permitted after Landlord has given
Tenant its written consent to do so, which consent may be withheld in Landlord's
sole and absolute discretion); and all closure plans or any other documents
required by any and all federal, state and local governmental agencies and
authorities for any storage tanks installed in, on or under the Premises for the
closure of any such tanks. Tenant is not required, however, to provide Landlord
with any portion(s) of the Haz Mat Documents containing information of a
proprietary nature which, in and of themselves, do not contain a reference to
any Hazardous Materials or hazardous activities. It is not the intent of this
Section to provide Landlord with information which could be detrimental to
Tenant's business should such information become possessed by Tenant's
competitors.

         (c) TENANT REPRESENTATION AND WARRANTY. Tenant hereby represents and
warrants to Landlord that (i) neither Tenant nor any of its legal predecessors
has been required by any prior landlord, lender or governmental authority at any
time to take remedial action in connection with Hazardous Materials
contaminating a property which contamination was permitted by Tenant of such
predecessor or resulted from Tenant's or such predecessor's action or use of the
property in question, and (ii) Tenant is not subject to any enforcement order
issued by any governmental authority in connection with the use, disposal or
storage of a Hazardous Materials. If Landlord determines that this
representation and warranty was not true as of the date of this lease, Landlord
shall have the right to terminate this Lease in Landlord's sole and absolute
discretion.

         (d) TESTING. Landlord shall have the right to conduct annual tests of
the Premises to determine whether any contamination has occurred as a result of
Tenant's use. Tenant shall be required to pay the cost of such annual test of
the Premises; provided, however, that if Tenant conducts its own tests of the
Premises using third party contractors and test procedures acceptable to
Landlord which tests are certified to Landlord, Landlord shall accept such tests
in lieu of the annual tests to be paid for by Tenant. In addition, at any time,
and from time to time, prior to the expiration or earlier termination of the
Term, Landlord shall have the right to conduct appropriate tests of the Premises
to determine if contamination has occurred as a result of Tenant's use of the
Premises. If contamination has occurred for which Tenant is liable under this
Section 30, Tenant shall pay all costs to conduct such tests. If no such
contamination is found, Landlord shall pay the costs of such tests (which shall
not constitute an Operating Expense). Landlord shall provide, without
representation or warranty of, subject to a confidentiality agreement, Tenant
with a copy of all third party, non-confidential reports and tests of the
Premises made by or on behalf of Landlord. Landlord's receipt of or satisfaction
with any environmental assessment in no way waives any rights that Landlord
holds against Tenant.

         (e) UNDERGROUND TANKS. If underground or other storage tanks storing
Hazardous Materials are located on the Premises as of the date hereof and used
at any time by Tenant or are hereafter placed on the Premises by Tenant, its
agents, servants, employees, invitees and contractors, Tenant shall monitor the
storage tanks, maintain appropriate records, implement reporting procedures,
properly close any underground storage tanks, and take or cause to be taken all
other actions necessary or required under applicable state and federal law, as
such now exists or may hereafter be adopted or amended.

         (f) TENANT'S OBLIGATIONS. Tenant's obligations under this Article 30
shall survive the expiration or earlier termination of the Lease. During any
period of time after the expiration or earlier termination of this Lease
required by Tenant or Landlord to complete the removal from the Premises of any
Hazardous Materials and the release and termination of any licenses or permits
restricting the use of the Premises, Tenant shall continue to pay the full Rent
in accordance with this Lease for any portion of the Premises not relet by
Landlord in Landlord's sole discretion, which Rent shall be prorated daily.

         (g) DEFINITION OF "HAZARDOUS MATERIALS." As used herein, the term
"HAZARDOUS MATERIALS" means and includes any substance, material, waste,
pollutant, or contaminant listed or defined as hazardous or toxic, or regulated
by reason of its impact or potential impact on humans, animals and/or the
environment under any Environmental Requirements, asbestos and petroleum,
including crude oil or




Net Single-Tenant Laboratory       10505 Roselle Street/Protarch, Inc. - Page 20

any fraction thereof, natural gas liquids, liquefied natural gas, or synthetic
gas usable for fuel (or mixtures of natural gas and such synthetic gas). As
defined in Environmental Requirements, Tenant is and shall be deemed to be the
"operator" of Tenant's "facility" and the "owner" of all Hazardous Materials
brought on the Premises by Tenant, its agents, employees, contractors or
invitees, and the wastes, by-products, or residues generated, resulting, or
produced therefrom.

         31. TENANT'S REMEDIES/LIMITATION OF LIABILITY. Landlord shall not be in
default hereunder unless Landlord fails to perform any of its obligations
hereunder within 30 days after written notice from Tenant specifying such
failure (unless such performance will, due to the nature of the obligation,
require a period of time in excess of 30 days, then after such period of time as
is reasonably necessary). Upon any default by Landlord, Tenant shall give notice
by registered or certified mail to any Holder of a Mortgage covering the
Premises and to any landlord of any lease of property in or on which the
Premises are located and Tenant shall offer such beneficiary, Holder and/or
landlord a reasonable opportunity to cure the default, including time to obtain
possession of the Premises by power of sale or a judicial action if such should
prove necessary to effect a cure; provided Landlord shall have furnished to
Tenant in writing the names and addresses of all such persons who are to receive
such notices. All obligations of Landlord hereunder shall be construed as
covenants, not conditions; and, except as may be otherwise expressly provided in
this Lease, Tenant may not terminate this Lease for breach of Landlord's
obligations hereunder.

         All obligations of Landlord under this Lease will be binding upon
Landlord only during the period of its ownership of the Premises and not
thereafter. The term "LANDLORD" in this Lease shall mean only the owner, for the
time being of the Premises, and upon the transfer by such owner of its interest
in the Premises, such owner shall thereupon be released and discharged from all
obligations of Landlord thereafter accruing, but such obligations shall be
binding during the Term upon each new owner for the duration of such owner's
ownership.

         32. INSPECTION AND ACCESS. Subject to Tenant's reasonable security and
safety requirements, Landlord and its agents, representatives, and contractors
may enter the Premises at any reasonable time to inspect the Premises and to
make such repairs as may be required or permitted pursuant to this Lease and for
any other business purpose. Landlord and Landlord's representatives may enter
the Premises during business hours on not less than 48 hours advance written
notice (except in the case of emergencies in which case no such notice shall be
required and such entry may be at any time) for the purpose of effecting any
such repairs, inspecting the Premises, showing the Premises to prospective
purchasers and, during the last year of the Term, to prospective tenants or for
any other business purpose. Landlord may erect a suitable sign on the Premises
stating the Premises are available to let or are available for sale. Landlord
may grant easements, make public dedications, designate common areas and create
restrictions on or about the Premises, provided that no such easement,
dedication, designation or restriction materially, adversely affects Tenant's
use or occupancy of the Premises for the Permitted use. At Landlord's request,
Tenant shall execute such instruments as may be necessary for such easements,
dedications or restrictions. Tenant shall at all times, except in the case of
emergencies, have the right to escort Landlord or its agents, representatives,
contractors or guests while the same are in the Premises, provided such escort
does not materially and adversely affect Landlord's access rights hereunder.

         33. SECURITY. Tenant acknowledges and agrees that security devices and
services, if any, while intended to deter crime may not in given instances
prevent theft or other criminal acts and that Landlord is not providing any
security services with respect to the Premises. Tenant agrees that Landlord
shall not be liable to Tenant for, and Tenant waives any claim against Landlord
with respect to, any loss by theft or any other damage suffered or incurred by
Tenant in connection with any unauthorized entry into the Premises or any other
breach of security with respect to the Premises. Tenant shall be solely
responsible for the personal safety of Tenant's officers, employees, agents,
contractors, guests and invitees while any such person is in, on or about the
Premises. Tenant shall at Tenant's cost obtain insurance coverage to the extent
Tenant desires protection against such criminal acts.

         34. FORCE MAJEURE. Landlord shall not be held responsible for delays in
the performance of its obligations hereunder when caused by strikes, lockouts,
labor disputes, weather, natural disasters,



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inability to obtain labor or materials or reasonable substitutes therefor,
governmental restrictions, governmental regulations, governmental controls,
delay in issuance of permits, enemy or hostile governmental action, civil
commotion, fire or other casualty, and other causes beyond the reasonable
control of Landlord ("FORCE MAJEURE"). Tenant shall not be held responsible for
delays in the performance of its obligations, excluding Tenant's monetary
obligations or any obligation that may be satisfied by the payment of any
commercially reasonable sum to any person, hereunder when caused by Force
Majeure delays.

         35. BROKERS, ENTIRE AGREEMENT, AMENDMENT. Landlord and Tenant each
represent and warrant that it has not dealt with any broker, agent or other
person (collectively, "BROKER") in connection with this transaction and that no
Broker brought about this transaction, other than CB Richard Ellis, Inc. and
John Burnham Real Estate Services, Inc., who will be paid a commission by
Landlord pursuant to a separate agreement. Landlord and Tenant each hereby agree
to indemnify and hold the other harmless from and against any claims by any
other Broker claiming a commission or other form of compensation by virtue of
having dealt with Tenant or Landlord, as applicable, with regard to this leasing
transaction. This Lease may not be amended except by an instrument in writing
signed by both parties hereto.

         36. LIMITATION ON LANDLORD'S LIABILITY. NOTWITHSTANDING ANYTHING SET
FORTH HEREIN OR IN ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT TO THE
CONTRARY: (A) LANDLORD SHALL NOT BE LIABLE TO TENANT OR ANY OTHER PERSON FOR
(AND TENANT AND EACH SUCH OTHER PERSON ASSUME ALL RISK OF) LOSS, DAMAGE OR
INJURY, WHETHER ACTUAL OR CONSEQUENTIAL TO: TENANT'S PERSONAL PROPERTY OF EVERY
KIND AND DESCRIPTION, INCLUDING, WITHOUT LIMITATION TRADE FIXTURES, EQUIPMENT,
INVENTORY, SCIENTIFIC RESEARCH, SCIENTIFIC EXPERIMENTS, LABORATORY ANIMALS,
PRODUCT, SPECIMENS, SAMPLES, AND/OR SCIENTIFIC, BUSINESS, ACCOUNTING AND OTHER
RECORDS OF EVERY KIND AND DESCRIPTION KEPT AT THE PREMISES AND ANY AND ALL
INCOME DERIVED OR DERIVABLE THEREFROM; (B) THERE SHALL BE NO PERSONAL RECOURSE
TO LANDLORD FOR ANY ACT OR OCCURRENCE IN, ON OR ABOUT THE PREMISES OR ARISING IN
ANY WAY UNDER THIS LEASE OR ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT WITH
RESPECT TO THE SUBJECT MATTER HEREOF AND ANY LIABILITY OF LANDLORD HEREUNDER
SHALL BE STRICTLY LIMITED SOLELY TO LANDLORD'S INTEREST IN THE PREMISES, AND IN
NO EVENT SHALL ANY PERSONAL LIABILITY BE ASSERTED AGAINST LANDLORD IN CONNECTION
WITH THIS LEASE NOR SHALL ANY RECOURSE BE HAD TO ANY OTHER PROPERTY OR ASSETS OF
LANDLORD OR ANY OF LANDLORD'S OFFICERS, EMPLOYEES, AGENTS OR CONTRACTORS. UNDER
NO CIRCUMSTANCES SHALL LANDLORD OR ANY OF LANDLORD'S OFFICERS, EMPLOYEES, AGENTS
OR CONTRACTORS BE LIABLE FOR INJURY TO TENANT'S BUSINESS OR FOR ANY LOSS OF
INCOME OR PROFIT THEREFROM.

         37. SEVERABILITY. If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or future laws, then and in that event,
it is the intention of the parties hereto that the remainder of this Lease shall
not be affected thereby. It is also the intention of the parties to this Lease
that in lieu of each clause or provision of this Lease that is illegal, invalid
or unenforceable, there be added, as a part of this Lease, a clause or provision
as similar in terms to such illegal, invalid or unenforceable clause or
provision as may be possible and be legal, valid and enforceable.

         38. SIGNS; EXTERIOR APPEARANCE. Tenant shall not, without the prior
written consent of Landlord, which may be granted or withheld in Landlord's sole
discretion: (i) attach any awnings, exterior lights, decorations, balloons,
flags, pennants, banners, painting or other projection to any outside wall of
the Premises, (ii) use any curtains, blinds, shades or screens other than
Landlord's standard window coverings, (iii) coat or otherwise sunscreen the
interior or exterior of any windows, (iv) place any bottles, parcels, or other
articles on the window sills, (v) place any equipment, furniture or other items
of personal property on any exterior balcony, (vi) paint, affix or exhibit on
any part of the Premises any signs, notices, window or door lettering, placards,
decorations, or advertising media of any type which can be viewed from the
exterior of the Premises. Interior signs on doors and the directory tablet shall
be inscribed, painted or affixed for Tenant by Landlord at the sole cost and
expense of Tenant, and shall be of a size,



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color and type acceptable to Landlord. Nothing may be placed on the exterior of
corridor walls or corridor doors other than Landlord's standard lettering. The
directory tablet shall be provided exclusively for the display of the name and
location of tenants. Notwithstanding anything contained in this Section to the
contrary, Tenant shall have the right to place one sign ("TENANT'S SIGN") with
Tenant's name on the exterior of the Premises, conforming to the size and design
of signs in the area in which the Premises are located, with the consent of
Landlord, which consent Landlord shall not unreasonably withhold. Tenant shall
be solely responsible for all costs, fees, charges, expense or other sums
related to Tenant's Sign, including without limitation, costs related to (i)
manufacture and installation of Tenant's Sign, (ii) removal of Tenant's Sign
upon the expiration or earlier termination of the Term, (iii) permits required
by any Governmental Authority with respect to Tenant's Sign, and (iv) conforming
Tenant's Sign to Legal Requirements. Tenant acknowledges that Landlord shall
have the right to place a monument sign on the Premises with respect to the
office park in which the Premises are located.

         39. RIGHT TO EXTEND TERM. Tenant shall have the right to extend the
Term of the Lease upon the following terms and conditions:

         (a) EXTENSION RIGHT. Tenant shall have the right ("EXTENSION RIGHT") to
extend the term of this Lease for 3 years ("EXTENSION TERM") on the same terms
and conditions as this Lease by giving Landlord written notice of its election
to exercise the Extension Right at least six months prior to the expiration of
the initial Term of the Lease.

         During the Extension Term, Base Rent shall be payable at the greater
of: (i) the Market Rate (as defined below), and (ii) 104% of the Base Rent
payable during the month immediately preceding the commencement of the Extension
Term. Base Rent shall be increased on each annual anniversary of the
commencement of such Extension Term by 4% of the Base Rent payable during the
last month of the immediately preceding Lease Year. As used herein, "MARKET
RATE" shall mean the then triple net market rental rate as determined by
Landlord and agreed to by Tenant, which shall in no event be less than the Base
Rent payable as of the date immediately preceding the commencement of such
Extension Term increased by the Rent Adjustment Percentage multiplied by such
Base Rent. In addition, to the extent not included in the Market Rate for the
Premises, Landlord may impose a market rent for the parking rights provided
hereunder. If, on or before the date which is 120 days prior to the expiration
of the initial Term of this Lease, Tenant has not agreed with Landlord's
determination of the Market Rate and the rent escalations during such subsequent
Extension Term after negotiating in good faith, Tenant may by written notice to
Landlord elect arbitration as described in Section 39(b) below. If Tenant does
not elect such arbitration, Tenant shall be deemed to have waived any right to
extend, or further extend, the Term of the Lease.

         (b) ARBITRATION.

             i.            Within 10 days of Tenant's notice to Landlord of its
                  election to arbitrate Market Rate and escalations, each party
                  shall deliver to the other a proposal containing the Market
                  Rate and escalations that the submitting party believes to be
                  correct ("EXTENSION PROPOSAL"). If either party fails to
                  timely submit an Extension Proposal, the other party's
                  submitted proposal shall determine the Base Rent for the
                  Extension Term. If both parties submit Extension Proposals,
                  then Landlord and Tenant shall meet within 7 days after
                  delivery of the last Extension Proposal and make a good faith
                  attempt to mutually appoint a single Arbitrator to determine
                  the Market Rate and escalations. If Landlord and Tenant are
                  unable to agree upon a single Arbitrator, then each shall, by
                  written notice delivered to the other within 10 days after the
                  meeting, select an Arbitrator. If either party fails to timely
                  give notice of its selection for an Arbitrator, the other
                  party's submitted proposal shall determine the Base Rent for
                  the Extension Term. The 2 Arbitrators so appointed shall,
                  within 5 business days after their appointment, appoint a
                  third Arbitrator. If the 2 Arbitrators so selected cannot
                  agree on the selection of the third Arbitrator within the time
                  above specified, then either party, on behalf of both parties
                  may request such appointment of such third Arbitrator by
                  application to any state court of general jurisdiction in the
                  jurisdiction in which the Premises are located upon 10 days
                  prior written notice to the other party of such intent.




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            ii.            The decision of the Arbitrator(s) shall be made
                  within 30 days after the appointment of a single Arbitrator or
                  the third Arbitrator, as applicable. The decision of the
                  single Arbitrator shall be final and binding upon the parties.
                  The average of the two closest Arbitrators in a three
                  Arbitrator panel shall be final and binding upon the parties.
                  Each party shall pay the fees and expenses of the Arbitrator
                  appointed by or on behalf of such party and the fees and
                  expenses of the third Arbitrator shall be borne equally by
                  both parties. If the Market Rate and escalations are not
                  determined by the first day of the Extension Term, then Tenant
                  shall pay Landlord Base Rent in an amount equal to the Base
                  Rent in effect immediately prior to the Extension Term and
                  increased by the Rent Adjustment Percentage until such
                  determination is made. After the determination of the Market
                  Rate and escalations, the parties shall make any necessary
                  adjustments to such payments made by Tenant. Landlord and
                  Tenant shall then execute an amendment recognizing the Market
                  Rate and escalations for the Extension Term.

           iii.            An "ARBITRATOR" shall be any person appointed by or
                  on behalf of either party or appointed pursuant to the
                  provisions hereof and: (i) shall be (A) a member of the
                  American Institute of Real Estate Appraisers with not less
                  than 10 years of experience in the appraisal of improved
                  office and high tech industrial real estate in the greater San
                  Diego metropolitan area, or (B) a licensed commercial real
                  estate broker with not less than 15 years experience
                  representing landlords and/or tenants in the leasing of high
                  tech or life sciences space in the greater San Diego
                  metropolitan area, (ii) devoting substantially all of their
                  time to professional appraisal or brokerage work, as
                  applicable, at the time of appointment and (iii) be in all
                  respects impartial and disinterested.

         (c) RIGHTS PERSONAL. The Extension Right is personal to Protarch, Inc.
and is not assignable without Landlord's consent, which may be granted or
withheld in Landlord's sole discretion, except that it may be assigned in
connection with any Permitted Assignment of this Lease.

         (d) EXCEPTIONS. Notwithstanding anything set forth above to the
contrary, the Extension Right shall not be in effect and Tenant may not exercise
the Extension Right:

                  (i) during any period of time that Tenant is in Default under
         any provision of this Lease; or

                  (ii) if Tenant has been in Default under any provision of this
         Lease 3 or more times, whether or not the Defaults are cured, during
         the 12 month period immediately prior to the date that Tenant intends
         to exercise the Extension Right, whether or not the Defaults are cured.

         (e) NO EXTENSIONS. The period of time within which the Extension Right
may be exercised shall not be extended or enlarged by reason of the Tenant's
inability to exercise the Extension Right.

         (f) TERMINATION. The Extension Right shall terminate and be of no
further force or effect even after Tenant's due and timely exercise of the
Extension Right, if, after such exercise, but prior to the commencement date of
the Extension Term, (i) Tenant fails to timely cure any Default by Tenant under
this Lease, or (ii) Tenant has Defaulted 3 or more times during the period from
the date of the exercise of the Extension Right to the date of the commencement
of the Extension Term, whether or not such Defaults are cured.

         40. MISCELLANEOUS.

         (a) NOTICES. All notices or other communications between the parties
shall be in writing and shall be deemed duly given upon delivery or refusal to
accept delivery by the addressee thereof if delivered in person, or upon actual
receipt if delivered by reputable overnight guaranty courier, addressed and sent
to the parties at their addresses set forth above. Landlord and Tenant may from
time to time by written notice to the other designate another address for
receipt of future notices.




Net Single-Tenant Laboratory       10505 Roselle Street/Protarch, Inc. - Page 24

         (b) JOINT AND SEVERAL LIABILITY. If and when included within the term
"TENANT," as used in this instrument, there is more than one person or entity,
each shall be jointly and severally liable for the obligations of Tenant.

         (c) FINANCIAL INFORMATION. Tenant shall furnish Landlord with true and
complete copies of (i) Tenant's most recent audited annual financial statements,
or unaudited annual financial statements if audited financial statements are not
prepared, within 30 days of the end of each of Tenant's fiscal years during the
Term, (ii) Tenant's most recent quarterly financial statements within 30 days of
the end of each of Tenant's first three fiscal quarters of each of Tenant's
fiscal year during the Term, (iii) at Landlord's request from time to time,
updated business plans, including cash flow projections and/or pro forma balance
sheets and income statements, all of which shall be treated by Landlord as
confidential information belonging to Tenant, (iv) corporate brochures and/or
profiles prepared by Tenant for prospective investors, and (v) any other
financial information or summaries that Tenant typically provides to its lenders
or shareholders. Such information shall be held in confidence by Landlord,
provided that Landlord shall be permitted to disclose such information if
required by applicable laws, regulations or Governmental Authorities, or to
Landlord's employees and consultants who have a need to know such information in
connection with the services rendered to Landlord.

         (d) RECORDATION. Neither this Lease nor a memorandum of lease shall be
filed by or on behalf of Tenant in any public record. Landlord may prepare and
file, and upon request by Landlord, Tenant will execute, a memorandum of lease.

         (e) INTERPRETATION. The normal rule of construction to the effect that
any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Lease or any exhibits or amendments
hereto. Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires. The captions inserted
in this Lease are for convenience only and in no way define, limit or otherwise
describe the scope or intent of this Lease, or any provision hereof, or in any
way affect the interpretation of this Lease.

         (f) NOT BINDING UNTIL EXECUTED. The submission by Landlord to Tenant of
this Lease shall have no binding force or effect, shall not constitute an option
for the leasing of the Premises, nor confer any right or impose any obligations
upon either party until execution of this Lease by both parties.

         (g) LIMITATIONS ON INTEREST. It is expressly the intent of Landlord and
Tenant at all times to comply with applicable law governing the maximum rate or
amount of any interest payable on or in connection with this Lease. If
applicable law is ever judicially interpreted so as to render usurious any
interest called for under this Lease, or contracted for, charged, taken,
reserved, or received with respect to this Lease, then it is Landlord's and
Tenant's express intent that all excess amounts theretofore collected by
Landlord be credited on the applicable obligation (or, if the obligation has
been or would thereby be paid in full, refunded to Tenant), and the provisions
of this Lease immediately shall be deemed reformed and the amounts thereafter
collectible hereunder reduced, without the necessity of the execution of any new
document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder.

         (h) CHOICE OF LAW. Construction and interpretation of this Lease shall
be governed by the internal laws of the state in which the Premises are located,
excluding any principles of conflicts of laws.

         (i) TIME. Time is of the essence as to the performance of Tenant's
obligations under this Lease.

         (j) INCORPORATION BY REFERENCE. All exhibits and addenda attached
hereto are hereby incorporated into this Lease and made a part hereof. If there
is any conflict between such exhibits or addenda and the terms of this Lease,
such exhibits or addenda shall control.

                            [Signature Page Follows]





Net Single-Tenant Laboratory       10505 Roselle Street/Protarch, Inc. - Page 25


         IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year first above written.

                                         TENANT:

                                  PROTARCH, INC.,
                                  a Delaware corporation



                                  By:  /s/ Tim Harris
                                       ---------------------------------
                                  Its: President & CEO
                                       ---------------------------------





                                  LANDLORD:

                                  ARE-10505 ROSELLE STREET, LLC,
                                  a Delaware limited liability company

                                  By:  ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
                                       a Delaware limited partnership,
                                       its managing member

                                       By:  ARE-QRS CORP.,
                                            a Maryland corporation,
                                            its general partner



                                  By:  /s/ Lynn Anne Shapiro
                                       ----------------------------------
                                  Its: General Counsel
                                       ----------------------------------






Net Single-Tenant Laboratory        10505 Roselle Street/Protarch, Inc. - Page 1

                              EXHIBIT A-1 TO LEASE

                         DESCRIPTION OF SUITE A PREMISES

                                   [ATTACHED]






Net Single-Tenant Laboratory        10505 Roselle Street/Protarch, Inc. - Page 2

                                  EXHIBIT A-1

                            (ROSELLE STREET GRAPHIC)





Net Single-Tenant Laboratory        10505 Roselle Street/Protarch, Inc. - Page 1

                              EXHIBIT A-2 TO LEASE

                         DESCRIPTION OF SUITE B PREMISES

                                   [ATTACHED]






Net Single-Tenant Laboratory        10505 Roselle Street/Protarch, Inc. - Page 2


                            (ROSELLE STREET GRAPHIC)







Major Construction - Landlord Build 10505 Roselle Street/Protarch, Inc. - Page 1


                               EXHIBIT B TO LEASE

                          SUITE B PREMISES WORK LETTER

         THIS WORK LETTER dated September 20, 1999 (this "WORK LETTER") is made
and entered into by and between ARE-10505 ROSELLE STREET, LLC, a Delaware
limited liability company ("LANDLORD"), and PROTARCH, INC., a Delaware
corporation ("TENANT"), with respect to the Suite B Premises, and is attached to
and made a part of the Lease dated September 20, 1999 (the "LEASE"), by and
between Landlord and Tenant. Any initially capitalized terms used but not
defined herein shall have the meanings given them in the Lease.

1.                GENERAL REQUIREMENTS

         1.1      TENANT'S AUTHORIZED REPRESENTATIVE. Tenant designates Tim
                  Harris ("TENANT'S REPRESENTATIVE") as the only person
                  authorized to act for Tenant pursuant to this Work Letter.
                  Landlord shall not be obligated to respond to or act upon any
                  request, approval, inquiry or other communication
                  ("COMMUNICATION") from or on behalf of Tenant in connection
                  with this Work Letter unless such Communication is in writing
                  from Tenant's Representative. Tenant may change Tenant's
                  Representative at any time upon not less than 5 business days
                  advance written notice to Landlord. No period set forth herein
                  for any approval of any matter by Tenant's Representative
                  shall be extended by reason of any change in Tenant's
                  Representative. Neither Tenant nor Tenant's Representative
                  shall be authorized to direct Landlord's contractors in the
                  performance of Landlord's Work (as hereinafter defined).

         1.2      LANDLORD'S AUTHORIZED REPRESENTATIVE. Landlord designates
                  Jeffrey Ryan ("LANDLORD'S REPRESENTATIVE") as the only person
                  authorized to act for Landlord pursuant to this Work Letter.
                  Tenant shall not be obligated to respond to or act upon any
                  request, approval, inquiry or other Communication from or on
                  behalf of Landlord in connection with this Work Letter unless
                  such Communication is in writing from Landlord's
                  Representative. Landlord may change Landlord's Representative
                  at any time upon not less than 5 business days advance written
                  notice to Tenant. No period set forth herein for any approval
                  of any matter by Landlord's Representative shall be extended
                  by reason of any change in Landlord's Representative.
                  Landlord's Representative shall be the sole person authorized
                  to direct Landlord's contractors in the performance of
                  Landlord's Work.

         1.3      DEVELOPMENT SCHEDULE. The schedule for design and development
                  of the Tenant Improvements (as defined below), including
                  without limitation the time periods for delivery of
                  construction documents and performance, shall be in accordance
                  with the Development Schedule attached hereto as Schedule A,
                  subject to adjustment as mutually agreed by the parties in
                  writing or as provided in this Work Letter (the "DEVELOPMENT
                  SCHEDULE").

         1.4      ARCHITECTS, CONSULTANTS AND CONTRACTORS. Landlord and Tenant
                  hereby acknowledge and agree that: (i) Landlord shall select
                  the architect (the "TI ARCHITECT") for the Tenant
                  Improvements, and (ii) the general contractor and any
                  subcontractors for the Tenant Improvements shall be selected
                  by Landlord, subject to Tenant's approval, which approval
                  shall not be unreasonably withheld, conditioned or delayed.

2.                TENANT IMPROVEMENTS.

         2.1      TENANT IMPROVEMENTS DEFINED. As used herein, "TENANT
                  IMPROVEMENTS" shall mean all improvements to the Suite B
                  Premises desired by Tenant of a fixed and permanent nature.
                  Other than funding the TI Allowance (as defined below) as
                  provided herein, Landlord shall not have any obligation
                  whatsoever with respect to the finishing of the Suite B
                  Premises for Tenant's use and occupancy.



Major Construction - Landlord Build 10505 Roselle Street/Protarch, Inc. - Page 2


         2.2      TENANT'S SPACE PLANS. Tenant shall deliver to Landlord and the
                  TI Architect schematic drawings and outline specifications
                  (the "TI DESIGN DRAWINGS") detailing Tenant's requirements for
                  the Tenant Improvements within 5 business days of the date
                  hereof. Not more than 5 business days thereafter, Landlord
                  shall deliver to Tenant the written objections, questions or
                  comments of Landlord and the TI Architect with regard to the
                  TI Design Drawings. Tenant shall cause the TI Design Drawings
                  to be revised to address such written comments and shall
                  resubmit said drawings to Landlord for approval within 5
                  business days thereafter. Such process shall continue until
                  Landlord has approved the TI Design Drawings.

         2.3      WORKING DRAWINGS. Not later than 5 business days following the
                  approval of the TI Design Drawings by Landlord, Landlord shall
                  cause the TI Architect to prepare and deliver to Tenant for
                  review and comment construction plans, specifications and
                  drawings for the Tenant Improvements ("TI CONSTRUCTION
                  DRAWINGS"), which TI Construction Drawings shall be prepared
                  substantially in accordance with the TI Design Drawings.
                  Tenant shall be solely responsible for ensuring that the TI
                  Construction Drawings reflect Tenant's requirements for the
                  Tenant Improvements. Tenant shall deliver its written comments
                  on the TI Construction Drawings to Landlord not later than 5
                  business days after Tenant's receipt of the same; provided,
                  however, that Tenant may not disapprove any matter that is
                  consistent with the TI Design Drawings without submitting a
                  Change Request. Landlord and the TI Architect shall consider
                  all such comments in good faith and shall, within 5 business
                  days after receipt, notify Tenant how Landlord proposes to
                  respond to such comments, but Tenant's review rights pursuant
                  to the foregoing sentence shall not delay the design or
                  construction schedule for the Tenant Improvements. Any
                  disputes in connection with such comments shall be resolved in
                  accordance with Section 2.4 hereof. Provided that the design
                  reflected in the TI Construction Drawings is consistent with
                  the TI Design Drawings, Tenant shall approve the TI
                  Construction Drawings submitted by Landlord, unless Tenant
                  submits a Change Request. Once approved by Tenant, subject to
                  the provisions of Section 2.4 below, Landlord shall not
                  materially modify the TI Construction Drawings except as may
                  be reasonably required in connection with the issuance of the
                  TI Permit.

         2.4      APPROVAL AND COMPLETION. It is hereby acknowledged by Landlord
                  and Tenant that the TI Construction Drawings must be completed
                  and approved not later than October 15, 1999, in order for the
                  Tenant Improvements to be Substantially Complete by the Suite
                  B Premises Target Commencement Date. Upon any dispute
                  regarding the design of the Tenant Improvements, which is not
                  settled within 5 business days after notice of such dispute is
                  delivered by one party to the other, Tenant shall make the
                  final decision regarding the design of the Tenant
                  Improvements, provided Tenant acts reasonably and such final
                  decision is either consistent with or a compromise between
                  Landlord's and Tenant's positions with respect to such
                  dispute, provided further that all costs and expenses
                  resulting from any such decision by Tenant shall be payable
                  out of the TI Fund, as defined in Section 5.4 below. Any
                  changes to the TI Construction Drawings following Landlord's
                  and Tenant's approval of same requested by Tenant shall be
                  processed as provided in Section 4 hereof.

3.                PERFORMANCE OF LANDLORD'S WORK.

         3.1      DEFINITION OF LANDLORD'S WORK. As used herein, "LANDLORD'S
                  WORK" shall mean the work of constructing the Tenant
                  Improvements.

         3.2      COMMENCEMENT AND PERMITTING OF LANDLORD'S WORK. Landlord shall
                  commence construction of the Tenant Improvements upon
                  obtaining a building permit (the "TI PERMIT") authorizing the
                  construction of the Tenant Improvements consistent with the TI
                  Construction Drawings approved by Tenant. The cost of
                  obtaining the TI Permit shall be payable from the TI Fund.
                  Tenant shall assist Landlord in obtaining the TI Permit. If
                  any Governmental Authority having jurisdiction over the
                  construction of Landlord's Work or



Major Construction - Landlord Build 10505 Roselle Street/Protarch, Inc. - Page 3

                  any portion thereof shall impose terms or conditions upon the
                  construction thereof which: (i) are inconsistent with
                  Landlord's obligations hereunder, (ii) increase the cost of
                  constructing Landlord's Work, or (iii) will materially delay
                  the construction of Landlord's Work, Landlord and Tenant shall
                  reasonably and in good faith seek means by which to mitigate
                  or eliminate any such adverse terms and conditions.

         3.3      COMPLETION OF LANDLORD'S WORK. On or before the Suite B
                  Premises Target Commencement Date (subject to Tenant Delays
                  and Force Majeure Delays), Landlord shall substantially
                  complete or cause to be substantially completed Landlord's
                  Work in a good and workmanlike manner, in accordance with the
                  TI Permit subject, in each case, to Minor Variations and
                  normal "punch list" items of a non-material nature which do
                  not interfere with the use of the Suite B Premises
                  ("SUBSTANTIAL COMPLETION"). Upon the Substantial Completion of
                  Landlord's Work, Landlord shall require the TI Architect and
                  the general contractor to execute and deliver, for the benefit
                  of Tenant and Landlord, a Certificate of Substantial
                  Completion in the form of the American Institute of Architects
                  document G704. For purposes of this Work Letter, "MINOR
                  VARIATIONS" shall mean any modifications reasonably required:
                  (i) to comply with all applicable Legal Requirements and/or to
                  obtain or to comply with any required permit (including the TI
                  Permit); (ii) to comply with any request by the Tenant for
                  modifications to Landlord's Work; (iii) to comport with good
                  design, engineering, and construction practices which are not
                  material; or (iv) to make reasonable adjustments for field
                  deviations or conditions encountered during the construction
                  of Landlord's Work.

         3.4      SELECTION OF MATERIALS, ETC. Where more than one type of
                  material or structure is indicated on the TI Construction
                  Drawings approved by Landlord and Tenant, the option will be
                  within Landlord's sole discretion. As to all building
                  materials and equipment which Landlord is obligated to supply
                  under this Work Letter, Landlord shall select the manufacturer
                  thereof in its sole discretion.

         3.5      DELIVERY OF THE SUITE B PREMISES. When Landlord's Work is
                  Substantially Complete, subject to the remaining terms and
                  provisions of this Section 3.5, Tenant shall accept the Suite
                  B Premises. Tenant's taking possession and acceptance of the
                  Suite B Premises shall not constitute a waiver of: (i) any
                  warranty with respect to workmanship (including installation
                  of equipment) or material (exclusive of equipment provided
                  directly by manufacturers), (ii) any non-compliance of
                  Landlord's Work with applicable building codes, or (iii) any
                  claim that Landlord's Work was not completed substantially in
                  accordance with the TI Construction Drawings (subject to Minor
                  Variations and such other changes as are permitted hereunder)
                  (collectively, a "CONSTRUCTION DEFECT"). Tenant shall have one
                  (1) year after Substantial Completion within which to notify
                  Landlord of any such Construction Defect discovered by Tenant,
                  and Landlord shall use reasonable efforts to remedy or cause
                  the responsible contractor to remedy any such Construction
                  Defect within sixty (60) days thereafter. Notwithstanding the
                  foregoing, Landlord shall not be in default under the Lease if
                  the applicable contractor, despite Landlord's reasonable
                  efforts, fails to remedy such Construction Defect within such
                  sixty (60) day period, in which case Landlord shall have no
                  further obligation with respect to such Construction Defect
                  other than to cooperate, at no cost to Landlord, with Tenant
                  should Tenant elect to pursue a claim against such contractor,
                  provided that Tenant indemnifies and holds Landlord harmless
                  from and against any liability, loss, cost damage or expense
                  in connection with any such claim.

Tenant shall be entitled to receive the benefit of all construction warranties
and manufacturer's equipment warranties relating to equipment installed in the
Suite B Premises. If requested by Tenant, Landlord shall attempt to obtain
extended warranties from manufacturers and suppliers of such equipment, but the
cost of any such extended warranties shall be borne solely out of the TI Fund.
Landlord shall diligently pursue any claims arising out of latent defects in the
Tenant Improvements. Landlord shall promptly undertake and complete, or cause to
be completed, all punch list items.




Major Construction - Landlord Build 10505 Roselle Street/Protarch, Inc. - Page 4

         3.6      COMMENCEMENT DATE DELAY. The Suite B Premises shall be
                  Delivered when Landlord's Work has been Substantially
                  Completed, except to the extent that completion of Landlord's
                  Work shall has been actually delayed by any one or more of the
                  following causes (a "TENANT DELAY"):

                  a.     Tenant's Representative was not available to give or
                         receive any Communication or to take any other action
                         required to be taken by Tenant hereunder;

                  b.     Tenant's request for Change Requests whether or not any
                         such Change Requests are actually performed;

                  c.     Construction of any Change Requests;

                  d.     Tenant's request for materials, finishes or
                         installations requiring unusually long lead times;

                  e.     Tenant's delay in reviewing, revising or approving
                         plans and specifications beyond the periods set forth
                         herein;

                  f.     Tenant's delay in providing information critical to the
                         normal progression of the project. Tenant shall provide
                         such information as soon as reasonably possible, but in
                         no event longer than one week after receipt of any
                         request for such information from Landlord;

                  g.     Tenant's delay in making payments to Landlord for
                         Excess TI Costs; or

                  h.     Any other act or omission by Tenant, its agents,
                         contractors or persons employed by any of such persons.

If the Delivery of the Suite B Premises is delayed for any of the foregoing
reasons, then Landlord shall cause the TI Architect to certify the date on which
the Tenant Improvements would have been completed but for such Tenant Delay and
such certified date shall be the date of Delivery of the Suite B Premises under
the Lease.

4.                CHANGES. Any changes requested by Tenant to the Tenant
         Improvements after the delivery and approval by Landlord of the TI
         Design Drawings, shall be requested and instituted in accordance with
         the provisions of this Section 4 and shall be subject to the written
         approval of Landlord and the TI Architect, such approval not to be
         unreasonably withheld, conditioned or delayed.

         4.1      TENANT'S RIGHT TO REQUEST CHANGES. If Tenant shall request
                  changes to Landlord's Work ("CHANGES"), Tenant shall request
                  such Changes by notifying Landlord in writing in substantially
                  the same form as the AIA standard change order form (a "CHANGE
                  REQUEST"), which Change Request shall detail the nature and
                  extent of any such Change. Such Change Request must be signed
                  by Tenant's Representative. Landlord shall, before proceeding
                  with any Change, use its best efforts to respond to Tenant as
                  soon as is reasonably possible with an estimate of: (i) the
                  time it will take, and (ii) the architectural and engineering
                  fees and costs which will be incurred to analyze such Change
                  Request (which costs shall be paid from the TI Fund to the
                  extent actually incurred, whether or not such change is
                  implemented). Landlord shall thereafter submit to Tenant in
                  writing, within 5 business days of receipt of the Change
                  Request (or such longer period of time as is reasonably
                  required depending on the extent of the Change Request), an
                  analysis of the additional cost or savings involved,
                  including, without limitation architectural and engineering
                  costs and the period of time, if any, that the Change will
                  extend the date on which Landlord's Work will be Substantially
                  Complete. Any such delay in the completion of Landlord's Work
                  caused by a Change, including any suspension of Landlord's
                  Work while any such Change is being evaluated and/or designed,
                  shall be a Tenant Delay.



Major Construction - Landlord Build 10505 Roselle Street/Protarch, Inc. - Page 5

         4.2      IMPLEMENTATION OF CHANGES. If Tenant: (i) approves in writing
                  the cost or savings and the estimated extension in the time
                  for completion of Landlord's Work, if any, and (ii) deposits
                  with Landlord any Excess TI Costs (as defined below) required
                  in connection with such Change, Landlord shall cause the
                  approved Change to be instituted. Notwithstanding any approval
                  or disapproval by Tenant of any estimate of the delay caused
                  by such proposed Change, the TI Architect's determination of
                  the amount of Tenant Delay in connection with such Change
                  shall be final and binding on Landlord and Tenant.

5.                COSTS

         5.1      BUDGET FOR TENANT IMPROVEMENTS. Before the commencement of
                  construction of the Tenant Improvements, Landlord shall obtain
                  a detailed breakdown, by trade, of the costs incurred or which
                  will be incurred, in connection with the design and
                  construction of Landlord's Work (the "BUDGET"). The Budget
                  shall be based upon the TI Construction Drawings approved by
                  Tenant and shall include a payment to Landlord, of
                  administrative rent ("ADMINISTRATIVE RENT") equal to 5% of the
                  TI Costs (as hereinafter defined) for monitoring and
                  inspecting the construction of Landlord's Work, which sum
                  shall be payable from the TI Fund. Such Administrative Rent
                  shall include, without limitation, all out-of-pocket costs,
                  expenses and fees incurred by or on behalf of Landlord arising
                  from, out of, or in connection with, such monitoring of the
                  construction of the Tenant's Improvements, and shall be
                  payable out of the TI Fund. If the Budget is greater than the
                  TI Allowance, Tenant shall deposit with Landlord the
                  difference, in cash, prior to the commencement of construction
                  of the Tenant Improvements, for disbursement by Landlord as
                  described in Section 5.4.

         5.2      TI ALLOWANCE. Landlord shall provide to Tenant a tenant
                  improvement allowance ("TI ALLOWANCE") of $550,000. The TI
                  Allowance shall be disbursed in accordance with this Work
                  Letter.

         5.3      COSTS INCLUDABLE IN TI FUND. The TI Fund shall be used solely
                  for the payment of design and construction costs in connection
                  with the construction of the Tenant Improvements, including,
                  without limitation, the cost of preparing the TI Design
                  Drawings and the TI Construction Drawings, all costs set forth
                  in the Budget, including Landlord's Administrative Rent,
                  Landlord's out-of-pocket expenses, costs resulting from Tenant
                  Delays and the cost of Changes (collectively, "TI COSTS").
                  Notwithstanding anything to the contrary contained herein, the
                  TI Fund shall not be used to purchase any furniture, personal
                  property or other non-building system materials or equipment,
                  including, but not be limited to, biological safety cabinets
                  and other scientific equipment not incorporated into the
                  Improvements.

         5.4      EXCESS TI COSTS. It is understood and agreed that Landlord is
                  under no obligation to bear any portion of the cost of any of
                  the Tenant Improvements except to the extent of the TI
                  Allowance. If at any time and from time-to-time, the remaining
                  TI Costs under the Budget exceed the remaining unexpended TI
                  Allowance, Tenant shall deposit with Landlord, as a condition
                  precedent to Landlord's obligation to complete the Tenant
                  Improvements, 100% of the then current TI Cost in excess of
                  the remaining TI Allowance ("EXCESS TI COSTS"). If Tenant
                  fails to deposit, or is late in depositing, any Excess TI
                  Costs amount with Landlord, Landlord shall have all of the
                  rights and remedies set forth in the Lease for nonpayment of
                  Rent (including, but not limited to, the right to interest at
                  the Default Rate and the right to assess a late charge), and
                  for purposes of any litigation instituted with regard to such
                  amounts the same will be considered Rent. Such deposit of
                  Excess TI Costs, together with the remaining TI Allowance, is
                  herein referred to as the "TI FUND". Funds so deposited by
                  Tenant shall be the first thereafter disbursed to pay TI



Major Construction - Landlord Build 10505 Roselle Street/Protarch, Inc. - Page 6


                  Costs. Notwithstanding anything to the contrary set forth in
                  this Section 5.4, Tenant shall be fully and solely liable for
                  TI Costs and the cost of Minor Variations in excess of the TI
                  Allowance. If upon Substantial Completion of the Tenant
                  Improvements and the payment of all sums due in connection
                  therewith there remains any undisbursed TI Fund, Tenant shall
                  be entitled to such undisbursed TI Fund solely to the extent
                  of any Excess TI Costs deposit Tenant has actually made with
                  Landlord.

6.                TENANT ACCESS.

         6.1      TENANT'S ACCESS RIGHTS. Landlord hereby agrees to permit
                  Tenant access, at Tenant's sole risk and expense, to the Suite
                  B Premises (i) thirty (30) days prior to the Suite B Premises
                  Rent Commencement Date to perform any work ("TENANT'S WORK")
                  required by Tenant other than Landlord's Work and provided
                  that such Tenant's Work is coordinated with the TI Architect
                  and the general contractor, and complies with the Lease and
                  all other reasonable restrictions and conditions Landlord may
                  impose, and (ii) prior to the completion of Landlord's Work,
                  to inspect and observe work in process; all such access shall
                  be during normal business hours or at such other times as are
                  reasonably designated by Landlord. Notwithstanding the
                  foregoing, Tenant shall have no right to enter onto the Suite
                  B Premises unless and until Tenant shall deliver to Landlord
                  evidence reasonably satisfactory to Landlord demonstrating
                  that any insurance reasonably required by Landlord in
                  connection with such pre-commencement access (including, but
                  not limited to, any insurance which Landlord may require
                  pursuant to the Lease) is in full force and effect. Any entry
                  by Tenant shall comply with all established safety practices
                  of Landlord's contractor and Landlord until completion of
                  Landlord's Work and acceptance thereof by Tenant.

         6.2      NO INTERFERENCE. Neither Tenant nor its employees,
                  consultants, agents, contractors, and suppliers shall
                  interfere with the performance of Landlord's Work, nor with
                  any inspections or issuance of final approvals by San Diego
                  County or the City of San Diego, and upon any such
                  interference, Landlord shall have the right to exclude Tenant
                  and Tenant's employees, consultants, contractors and agents
                  from the Suite B Premises until Substantial Completion of
                  Landlord's Work.

         6.3      NO ACCEPTANCE OF SUITE B PREMISES. The fact that Tenant may,
                  with Landlord's consent, enter into the Suite B Premises prior
                  to the date Landlord's Work is Substantially Complete for the
                  purpose of performing any Tenant's Work shall not be deemed an
                  acceptance by Tenant of possession of the Suite B Premises,
                  but in such event Tenant shall indemnify and hold Landlord
                  harmless from any loss of or damage to Tenant property,
                  completed work, fixtures, equipment, materials or merchandise,
                  and from liability for death of, or injury to, any person,
                  caused by the willful misconduct or negligence of Tenant or
                  its agents.

7.                NOTIFICATION OF DELAYS. Not less than once each calendar month
         from the date of this Work Letter through the Suite B Premises Rent
         Commencement Date, Landlord shall deliver to Tenant written
         notification of the number of days during the immediately preceding
         calendar month Landlord's performance under this Work Letter or the
         Lease was delayed as a result of Tenant Delays or delays arising by
         reason of any Force Majeure as defined in Section 34 of the Lease (a
         "FORCE MAJEURE DELAY"), which written notification shall also include a
         description of the nature of such Tenant Delay or Force Majeure Delay.

8.                MISCELLANEOUS

         8.1      CONSENTS. Whenever consent or approval of either party is
                  required under this Work Letter, that party shall not
                  unreasonably withhold, condition or delay such consent or
                  approval, except as may be expressly set forth herein to the
                  contrary.




Major Construction - Landlord Build 10505 Roselle Street/Protarch, Inc. - Page 7

         8.2      MODIFICATION. No modification, waiver or amendment of this
                  Work Letter or of any of its conditions or provisions shall be
                  binding upon Landlord or Tenant unless in writing signed by
                  Landlord and Tenant.

         8.3      COUNTERPARTS. This Work Letter may be executed in any number
                  of counterparts but all counterparts taken together shall
                  constitute a single document.

         8.4      GOVERNING LAW. This Work Letter shall be governed by,
                  construed and enforced in accordance with the internal laws of
                  the state in which the Suite B Premises are located, without
                  regard to choice of law principles of such State.

         8.5      TIME OF THE ESSENCE. Time is of the essence of this Work
                  Agreement and of each and all provisions thereof.

         8.6      DEFAULT. Notwithstanding anything set forth herein or in the
                  Lease to the contrary, Landlord shall not have any obligation
                  to perform any work hereunder or to fund any portion of the TI
                  Fund during any period Tenant is in Default under the Lease.

         8.7      SEVERABILITY. If any term or provision of this Work Letter is
                  declared invalid or unenforceable, the remainder of this Work
                  Letter shall not be affected by such determination and shall
                  continue to be valid and enforceable.

         8.8      MERGER. All understandings and agreements, oral or written,
                  heretofore made between the parties hereto and relating to
                  Landlord's Work are merged in this Work Letter, which alone
                  (but inclusive of provisions of the Lease incorporated herein
                  and the final approved construction drawings and
                  specifications prepared pursuant hereto) fully and completely
                  expresses the agreement between Landlord and Tenant with
                  regard to the matters set forth in this Work Letter.

         8.9      ENTIRE AGREEMENT. This Work Letter is made as a part of and
                  pursuant to the Lease and, together with the Lease,
                  constitutes the entire agreement of the parties with respect
                  to the subject matter hereof. This Work Letter is subject to
                  all of the terms and limitation set forth in the Lease, and
                  neither party shall have any rights or remedies under this
                  Work Letter separate and apart from their respective remedies
                  pursuant to the Lease.


Major Construction - Landlord Build 10505 Roselle Street/Protarch, Inc. - Page 8

         IN WITNESS WHEREOF, Landlord and Tenant have executed this Work Letter
to be effective on the date first above written.

                                  TENANT:

                                  PROTARCH, INC.,
                                  a Delaware corporation



                                  By:   /s/ Tim Harris
                                        ------------------------------------
                                  Its:  President & CEO
                                        ------------------------------------


                                  LANDLORD:

                                  ARE-10505 ROSELLE STREET, LLC,
                                  a Delaware limited liability company

                                  By:  ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
                                       a Delaware limited partnership,
                                       its managing member

                                       By:  ARE-QRS CORP.,
                                            a Maryland corporation,
                                            its general partner



                                            By:  /s/ Lynn Anne Shapiro
                                                 ---------------------------
                                            Its: General Counsel
                                                 ---------------------------






Major Construction - Landlord Build 10505 Roselle Street/Protarch, Inc. - Page 9

                            SCHEDULE A TO WORK LETTER

                              Development Schedule




Event                                                                   Date
                                                                     
Execution of lease                                                      09/20/99

Naming of Tenant's Representatives                                      09/20/99

Delivery of space plans for TI Design Drawings pursuant to              09/20/99
Section 2.2 of the Work Letter

Delivery of TI Construction Drawings pursuant to Section                09/25/99
2.3 of the Work Letter

Commence construction of Tenant Improvements                            11/01/99

Substantial Completion of Tenant Improvements                           01/31/00

Issuance of Temporary Certificate of Occupancy                          01/31/00









Commencement Date                   10505 Roselle Street/Protarch, Inc. - Page 1

                               EXHIBIT C TO LEASE

                       ACKNOWLEDGMENT OF COMMENCEMENT DATE


         This ACKNOWLEDGMENT OF COMMENCEMENT DATE is made this _______ day of
__________, _______, between ARE-10505 ROSELLE STREET LLC, a Delaware limited
liability company ("LANDLORD"), and PROTARCH, INC., a Delaware corporation
("TENANT"), and is attached to and made a part of the Lease dated September ___,
1999 (the "LEASE"), by and between Landlord and Tenant. Any initially
capitalized terms used but not defined herein shall have the meanings given them
in the Lease.

         Landlord and Tenant hereby acknowledge and agree, for all purposes of
the Lease, that the Commencement Date of the Term of the Lease is September 15,
1999 and the termination date of the Lease shall be midnight on _____________,
_______.

         IN WITNESS WHEREOF, Landlord and Tenant have executed this
ACKNOWLEDGMENT OF COMMENCEMENT DATE to be effective on the date first above
written.

                                   TENANT:

                                   PROTARCH, INC.,
                                   a Delaware corporation



                                   By:
                                         -------------------------------------
                                   Its:
                                         -------------------------------------

                                   LANDLORD:

                                   ARE-10505 ROSELLE STREET, LLC,
                                   a Delaware limited liability company

                                   By:  ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
                                        a Delaware limited partnership,
                                        its managing member

                                        By:  ARE-QRS CORP.,
                                             a Maryland corporation,
                                             its general partner


                                             By:
                                                   ---------------------------
                                             Its:
                                                   ---------------------------





Commencement Date                   10505 Roselle Street/Protarch, Inc. - Page 1



                               EXHIBIT D TO LEASE

                           TENANT'S PERSONAL PROPERTY




                                   [ATTACHED]













EQUIPMENT NAME           MANUFACTURER     MODEL NO.   VWR NO.      COMMENTS                                                NUMBER
                                                                                                            
Dishwasher               VWR              44004       66074-008                                                              1
Fridge                   Sears                                     115V, 60Hz, 4Amp                                          3
Freezer - 20             Sears                                     115V, 60Hz, ? Upright                                     2
Freezer - 20             Sears            3676                     115V, 60Hz, 15 ft3 chest                                  2
Deli fridge              Forma            3775                     115V, 9.6amp 49 ft3 hinged doors 115V 60Hz 9.6A           3
Ice machine              Scotsman                     35741-153    1/4" intake H2) floor drain 230V 50Hz single phase        1
Incubator for
  mol. Boil              VWR              1925        35962-095    40 ft3 upright incubator 115V, 60Hz                       2
Freezer - 80             Forma            958                      230V 60Hz, 24amp 20 ft3 chest                             1
Freezer - 80             Forma            8584                     230V 60Hz, 24amp 23 ft3 upright, double door              1
Shaker floor             Lab-line         3526        57019-337    120V, 50/60Hz, 800W or 240V, 50/60Hz, 800W                2
Autoclave + boiler                                                 208/230V, 3phase, water line, drain                       1
Centrifuge               Beckman          Avanti                                                                             1
Constant Temperature
  Rooms                  Haggarty                                  4,12 and 20 degree rooms                                  3
Ionics water purifier    Ionics                                    Wash room                                                 1
Millipore ultrapure
  water purifier         Millipore                                 Wash room                                                 1
PHAST gel systems        Pharmacia                                                                                           2
9700 PCR machines        PE Biosystems    9700                                                                               2
Akta FLPC
  chromatography         Pharmacia        Explorer                 Complete chromatography systems                           1
Akta FLPC
  chromatography         Pharmacia        FPLC                     Complete chromatography systems                           2
XK 26/100 columns        Pharmacia                                                                                           2
X-ray generator and
  associated             MSC                                       x-ray generator, chiller, detector, computer, cryo, etc.  1
Cubicles                                                           Office areas                                             12
Lab tables                                                         Constant temp rooms, lab, storage areas                   8
Lab shelving                                                       Constant temp rooms, lab, storage areas                   8
Sun computer
  server/system                                                    Mechanical room                                           2
Phone system             Mills                                     All rooms
Security system          Biostruct                                 All rooms




Estoppel Certificate                10505 Roselle Street/Protarch, Inc. - Page 1


                               EXHIBIT E TO LEASE

                              ESTOPPEL CERTIFICATE

         THIS TENANT ESTOPPEL CERTIFICATE ("CERTIFICATE"), dated as of
_________, __, is executed by ("TENANT") in favor of [BUYER], a
________________________, together with its nominees, designees and assigns
(collectively, "BUYER"), and in favor of ____________________, together with its
nominees, designees and assigns (collectively, "LENDER").

                                    RECITALS

         A. Buyer and ____________ ("LANDLORD"), have entered into that certain
Purchase and Sale Agreement and Joint Escrow Instructions, dated as of
__________, 19__ (the "PURCHASE AGREEMENT"), whereby Buyer has agreed to
purchase, among other things, the improved real property located in the City of
_____________, County of ___________, State of __________, more particularly
described on Exhibit A attached to the Purchase Agreement (the "PROPERTY").

         B. Tenant and Landlord have entered into that certain Lease Agreement,
dated as of ___________ (together with all amendments, modifications,
supplements, guarantees and restatements thereof, the "LEASE"), for a portion of
the Property.

         C. Pursuant to the Lease, Tenant has agreed that upon the request of
Landlord, Tenant would execute and deliver an estoppel certificate certifying
the status of the Lease.

         D. In connection with the Purchase Agreement, Landlord has requested
that Tenant execute this Certificate with an understanding that Lender will rely
on the representations and agreements below in granting to Buyer a loan.

         NOW, THEREFORE, Tenant certifies, warrants, and represents to Buyer and
Lender as follows:

1. LEASE. Attached hereto as Exhibit B is a true, correct and complete copy of
the Lease, including the following amendments, modifications, supplements,
guarantees and restatements thereof, which together represent all of the
amendments, modifications, supplements, guarantees and restatements supplements,
guarantees and restatements thereof:

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


- --------------------------------------------------------------------------------
(If none, please state "None.")

2. PREMISES. Pursuant to the Lease, Tenant leases those certain premises (the
"PREMISES") consisting of approximately ___________ rentable square feet within
the Property, as more particularly described in the Lease. In addition, pursuant
to the terms of the Lease, Tenant has the non-exclusive right to use ________
parking spaces located on the Property during the term of the Lease.

3. FULL FORCE OF LEASE. The Lease has been duly authorized, executed and
delivered by Tenant, is in full force and effect, has not been terminated, and
constitutes a legally valid instrument, binding and enforceable against Tenant
in accordance with its terms, subject only to applicable limitations imposed by
laws relating to bankruptcy and creditor's rights.

4. COMPLETE AGREEMENT. The Lease constitutes the complete agreement between
Landlord and Tenant for the Premises and the Property, and except as modified by
the Lease amendments noted above (if any), has not been modified, altered or
amended.

5. ACCEPTANCE OF PREMISES. Tenant has accepted possession and is currently
occupying the Premises.





Estoppel Certificate                10505 Roselle Street/Protarch, Inc. - Page 2


6. LEASE TERM. The term of the Lease commenced on ______________ and ends on
___________, subject to the following options to extend: _______________________
__________________________________________________________________.
(If none, please state "None.")

7. PURCHASE RIGHTS. Tenant has no option, right of first refusal, right of first
offer, or other right to acquire or purchase all or any portion of the Premises
or all or any portion of, or interest in, the Property, except as follows: _____
________________________________________________________________
(If none, please state "None.")

8. RIGHTS OF TENANT. Except as expressly stated in this Certificate, Tenant:

                  (a) has no right to renew or extend the term of the Lease;

                  (b) has no option or other right to purchase all or any part
         of the Premises or all or any part of the Property;

                  (c) has no right, title, or interest in the Premises, other
         than as Tenant under the Lease

9. RENT.

                  (a) The obligation to pay rent under the Lease commenced on
         _____________. The rent under the Lease is current, and Tenant is not
         in default in the performance of any of its obligations under the
         Lease.

                  (b) Tenant is currently paying base rent under the Lease In
         the amount of $ ________ per month Tenant has not received and IS not
         presently entitled to any abatement, refunds, rebates, concessions or
         forgiveness of rent or other charges, free rent, partial rent, or
         credits, offsets or reductions in rent, except as follows: ____________
         ______________________________________________________________________.
         (If none, please state "None.")

                  (c) There are no existing defenses or offsets against rent due
         or to become due under the terms of the Lease, and to Tenant's
         knowledge there presently is no default or other wrongful act or
         omission by Landlord under the Lease or otherwise in connection with
         Tenant's occupancy of the Premises, nor is there a state of facts which
         with the passage of time or the giving of notice or both could ripen
         into a default on the part of Tenant, or to the best knowledge of
         Tenant, could ripen into a default on the part of Landlord under the
         Lease, except as follows:______________________________________________
         ______________________________________________________________________.
         If none, please state "None.")

10. SECURITY DEPOSIT. The amount of Tenant's security deposit held by Landlord
under the Lease is $ ____________.

11. PREPAID RENT. The amount of prepaid rent, separate from the security
deposit, is $ ___________, covering the period from _________ to _________.

12. INSURANCE. All insurance, if any, required to be maintained by Tenant under
the Lease is presently in effect.

13. TENANT IMPROVEMENTS. As of the date of this Certificate, to the best of
Tenant's knowledge, Landlord has performed all obligations required of Landlord
pursuant to the Lease; no offsets, counterclaims, or defenses of Tenant under
the Lease exist against Landlord; and no events have. occurred that, with the
passage of time or the giving of notice, would constitute a basis for offsets,
counterclaims, or defenses against Landlord, except as follows:_____________
_________________________________________________________. (If none, please
state "None.")




Estoppel Certificate                10505 Roselle Street/Protarch, Inc. - Page 3

14. ASSIGNMENTS BY LANDLORD. Tenant has received no notice of any assignment,
hypothecation or pledge of the Lease or rentals under the Lease by Landlord.
Tenant hereby consents to an assignment of the Lease and rents to be executed by
Landlord to Buyer or Lender in connection with the Loan and acknowledges that
said assignment does not violate the provisions of the Lease. Tenant
acknowledges that the interest of the Landlord under the Lease is to be assigned
to Buyer or Lender solely as security for the purposes specified in said
assignment and Buyer or Lender shall have no duty, liability or obligation
whatsoever under the Lease or any extension or renewal thereof, either by virtue
of said assignment or by any subsequent receipt or collection of rents
thereunder, unless Buyer or Lender shall specifically undertake such liability
in writing. Tenant agrees that upon receipt of a written notice from Buyer or
Lender of a default by Landlord under the Loan, Tenant will thereafter pay rent
to Buyer or Lender in accordance with the terms of the Lease, provided that
Tenant has previously received Landlord's written consent to such payments upon
a default by Landlord under the Loan.

15. ASSIGNMENTS BY TENANT. Tenant has not sublet or assigned the Premises or the
Lease or any portion thereof to any sublessee or assignee, except as follows:
____________________. No one except Tenant and its employees will occupy the
Premises. The address for notices to be sent to Tenant is as set forth in the
Lease, or as follows: __________________________________________________________

16. SUCCESSION OF INTEREST. Tenant agrees that, in the event Buyer or Lender
succeeds to the interest of Landlord under the Lease:

                  (a) Buyer or Lender shall not be liable for any act or
         omission of any prior landlord (including Landlord);

                  (b) Buyer or Lender shall not be liable for the return of any
         security deposit;

                  (c) Buyer or Lender shall not be bound by any rent or
         additional rent which Tenant might have prepaid under the Lease for
         more than the current month;

                  (d) Buyer or Lender shall not be bound by any amendments or
         modifications of the Lease made without prior consent of Buyer or
         Lender;

                  (e) Buyer or Lender shall not be subject to any offsets or
         defenses which Tenant might have against any prior landlord (including
         Landlord); or

                  (f) Buyer or Lender shall not be liable under the Lease to
         Tenant for the performance of Landlord's obligations under the Lease
         beyond Buyer or Lender's interest in the Property.

17. NOTICE OF DEFAULT. Tenant agrees to give Buyer and Lender a copy of any
notice of default under the Lease served upon Landlord at the same time as such
notice is given to Landlord. Tenant further agrees that if Landlord shall fail
to cure such default within the applicable grace period, if any, provided in the
Lease, then Buyer or Lender shall have a reasonable period within which to cure
such default; provided however, that such period of time shall be extended so
long as Buyer or Lender has commenced and is diligently pursuing the remedies
necessary to cure such default (including, but not limited to, commencement of
foreclosure proceedings, if necessary to effect such cure), in which event the
Lease shall not be terminated while such remedies are being pursued.

         Tenant makes this Certificate with the knowledge that it will be relied
upon by Buyer and Lender in agreeing to purchase the Property.

         Tenant has executed this Certificate as of the date first written above
by the person named below, who is duly authorized to do so.



Estoppel Certificate                10505 Roselle Street/Protarch, Inc. - Page 4

TENANT                                 PROTARCH, INC.
                                       a Delaware corporation


                                       By:
                                           -------------------------------------
                                           Name:
                                                --------------------------------
                                           Its:
                                               ---------------------------------




Estoppel Certificate                10505 Roselle Street/Protarch, Inc. - Page 5


                       EXHIBIT A TO ESTOPPEL CERTIFICATE

                               LEGAL DESCRIPTION



Estoppel Certificate                10505 Roselle Street/Protarch, Inc. - Page 1

                       EXHIBIT B TO ESTOPPEL CERTIFICATE

                                 COPY OF LEASE




Subordination Agreement             10505 Roselle Street/Protarch, Inc. - Page 1


                               EXHIBIT F TO LEASE

                       SUBORDINATION, NON-DISTURBANCE AND
                              ATTORNMENT AGREEMENT

         THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT is made
and entered into as of _______________ _____, _______ ("AGREEMENT"), by and
between ARE-10505 ROSELLE STREET, LLC, a Delaware limited liability company
together with its nominees, designees and assigns (collectively, "LANDLORD"),
_________, a _________ ("TENANT"), and _________, a _________ ("MORTGAGEE").

         WHEREAS, Mortgagee is making a loan to Landlord and others evidenced by
a certain promissory note ("NOTE"), and secured by, among other things, a deed
of trust/mortgage to be recorded prior hereto in the public records of the City
of ____________, County of ____________, State of ____________, ("MORTGAGE")
constituting a lien upon the real property described in Exhibit A hereto (the
"REAL PROPERTY"); and

         WHEREAS, _____________________ and Tenant have entered into a Lease
Agreement dated as of _______________ _____, _______ ("LEASE"), for certain
leased premises encompassing _____________________________ located in
________________, containing approximately ______________________ net square
feet (hereinafter collectively referred to as "PREMISES"); and

         WHEREAS, the Lease is subordinate to the Mortgage and to the right,
title, and interests of Mortgagee thereto and thereunder; and

         WHEREAS, Mortgagee wishes to obtain from Tenant certain assurances that
Tenant will attorn to Mortgagee in the event of a foreclosure by Mortgagee or
the exercise of other rights under the Mortgage; and

         WHEREAS, Tenant wishes to obtain from Mortgagee certain assurances that
Tenant's possession of the Premises will not, subject to the terms and
conditions of this Agreement, be disturbed by reason of a foreclosure of the
lien of the Mortgage on the Real Property, and

         WHEREAS, Tenant and Mortgagee are both willing to provide such
assurances to each other upon and subject to the terms and conditions of this
Agreement.

         NOW, THEREFORE, in consideration of the above, the mutual promises
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto mutually
agree as follows:

         1. AFFIRMATION. Tenant hereby agrees that the Lease now is and shall be
subject and subordinate in all respects to the Mortgage and to all renewals,
modifications and extensions thereof until such time that the Mortgage is
released, satisfied or otherwise discharged, subject to the terms and conditions
of this Agreement. Landlord and Tenant hereby affirm that the Lease is in full
force and effect and that the Lease has not been modified or amended, except as
follows: _____________________________. Mortgagee hereby confirms that it is the
holder of the Note and the beneficiary of the Mortgage and has full power and
authority to enter into this Agreement.

         2. ATTORNMENT AND NON-DISTURBANCE.

         (a) So long as Tenant is not in default under the Lease (beyond
Tenant's receipt of notice from Landlord and any grace period granted tenant
under the Lease to cure such default) as would entitle the Landlord to terminate
the Lease or would cause without any further action of the Landlord, the
termination of the Lease or would entitle the Landlord to dispossess Tenant
thereunder, then Mortgagee agrees with Tenant that in the event the interest of
Landlord shall be acquired by Mortgagee or in the event Mortgagee comes into
possession of or acquires title to the Real Property by reason of foreclosure




Subordination Agreement             10505 Roselle Street/Protarch, Inc. - Page 2

or foreclosure sale or the enforcement of the Mortgage or the Note or other
obligation secured thereby or by a conveyance in lieu thereof, or as a result of
any other means then:

                  (i) Subject to the provisions of this Agreement, Tenant's
         occupancy and possession of the Premises and Tenant's rights and
         privileges under the Lease or any extensions, modifications or renewals
         thereof or substitutions therefor (in accordance with the Lease and the
         Mortgage) shall not be disturbed, diminished or interfered with by
         Mortgagee during the term of the Lease (or any extensions or renewals
         thereof provided for in the Lease);

                  (ii) Mortgagee will not join Tenant as a party defendant in
         any action or proceeding for the purpose of terminating Tenant's
         interest and estate under the Lease because of any default under the
         Mortgage; and

                  (iii) The Lease shall continue in full force and effect and
         shall not be terminated except in accordance with the terms of the
         Lease.

         (b) Tenant shall be bound to Mortgagee under all of the terms,
covenants and conditions of the Lease for the balance of the term thereof
remaining (and any extensions or renewals thereof which may be effected in
accordance with any option contained in the Lease) with the same force and
effect as if Mortgagee were the landlord under the Lease, and Tenant does hereby
agree to attorn to Mortgagee as its landlord, said attornment to be effective
and self-operative without the execution of any other instruments on the part of
either party hereto immediately upon Mortgagee's succeeding to the interest of
Landlord under the Lease. Upon request of Lender or such Purchaser, Tenant shall
execute and deliver to Lender or such Purchaser an agreement reaffirming such
attornment. Tenant hereby agrees that any right of first refusal or right of
first offer to purchase the Property which Tenant may have pursuant to the terms
of the Lease shall not be applicable to Mortgagee's or any Purchaser's
acquisition of the Property by foreclosure, deed in lieu of foreclosure, other
transaction related thereto or in substitution thereof, trustee sale or other
similar statutory conveyance. The foregoing shall not be construed as
diminishing or eliminating any of Tenant's Right of First Refusal or First Offer
to purchase the property that remain valid in the Lease after such Mortgagee's
or Purchaser's acquisition.

         (c) In the event that the Mortgage is foreclosed and any party
("PURCHASER") other than Mortgagee purchases the Premises and succeeds to the
interest of Landlord under the Lease, Tenant shall likewise be bound to
Purchaser and Tenant hereby covenants and agrees to attorn to Purchaser in
accordance with all of the provisions of this Agreement; provided, however, that
purchaser shall have transmitted to Tenant a written document in recordable
form, whereby Purchaser agrees to recognize Tenant as its lessee under the Lease
and agrees to be directly bound to Tenant for the performance and observance of
all the terms and conditions of the Lease required to be performed or observed
by Landlord thereunder, subject to and in accordance with the terms of this
Agreement.

         (d) Mortgagee agrees that if Mortgagee shall succeed to the interest of
Landlord under the Lease as above provided, Mortgagee shall be bound to Tenant
under all of the terms, covenants, and conditions of this Lease, and Tenant
shall, from and after Mortgagee's succession to the interest of Landlord under
the Lease, have the same remedies against Mortgagee that Tenant might have had
under the Lease against Landlord if Mortgagee had not succeeded to the interest
of Landlord; provided, however, that Mortgagee (and Purchaser, as the case may
be) shall not be:

                  (i) liable for any act or omission of any prior lessor
         (including Landlord) occurring prior to the date that Mortgagee or
         purchaser acquired title to the Premises; or

                  (ii) subject to any offsets, counterclaims or defenses which
         Tenant might have against any prior lessor (including Landlord); or

                  (iii) bound by any previous payment of rent or additional rent
         for a period greater than 1 month unless such prepayment shall have
         been consented to in writing by Mortgagee; or



Subordination Agreement             10505 Roselle Street/Protarch, Inc. - Page 3

                  (iv) bound by any amendment or modification of the Lease made
         prior to the date Mortgagee or Purchaser succeeds to the interest of
         Landlord without Mortgagee's written consent; or

                  (v) liable to Tenant for any loss of business or any other
         indirect or consequential damages from whatever cause; provided,
         however, no inference shall be drawn from this clause (v) that Tenant
         would otherwise be entitled (or not entitled) to recover for loss of
         business or any other indirect or consequential damages; or

                  (vi) liable for the return of any security deposit unless such
         deposit has been paid over to the Mortgagee.

                  The foregoing shall not be construed to modify or limit any
         right Tenant may have at law or in equity against Landlord or any other
         prior owner of the Real Property.

         3. NOTICES. All notices required or permitted to be given pursuant to
this Agreement shall be In writing and shall be sent postage prepaid, by
certified mail, return receipt requested or other nationally utilized overnight
delivery service. All notices shall be deemed delivered when received or refused
Rejection or other refusal to accept or inability to deliver because of changed
address of which no notice has been given shall constitute receipt of the
notice, demand or request sent. Any such notice if given to Tenant shall be
addressed as follows:

                               _________________
                               _________________
                               _________________
                               _________________
                               _________________

         if given to Landlord shall be addressed as follows:

                               c/o Alexandria Real Estate Equities, Inc.
                               135 N. Los Robles Avenue
                               Suite 250
                               Pasadena, California 91 101
                               Attention: General Counsel

         if given to Mortgagee shall be addressed as follows:

                               _________________
                               _________________
                               _________________
                               _________________
                               _________________

         4. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. The words "foreclosure" and "foreclosure sale" as used herein shall be
deemed to also include the acquisition of Landlord's estate in the Real Property
by voluntary deed, assignment or other conveyance or transfer in lieu of
foreclosure.

         5. MODIFICATIONS TO LEASE. Tenant shall not modify or amend the Lease
or terminate the same without Mortgagee's prior written consent. If Mortgagee
fails to provide Tenant with a written approval of the proposed modification,
amendment or termination within 10 business days after notice to Mortgagee of
such proposal, then Mortgagee shall be deemed to have rejected such proposal.

         6. ADDITIONAL AGREEMENTS. Tenant agrees that:

         (a) it shall give Mortgagee copies of all notices of default and
requests for approval or consent by Landlord that Tenant gives to Landlord
pursuant to the Lease in the same manner as they are



Subordination Agreement             10505 Roselle Street/Protarch, Inc. - Page 4


given to Landlord and no such notice or other communication shall be deemed to
be effective until a copy is given to Mortgagee;

         (b) Tenant shall name Mortgagee and any Purchaser as additional
insureds and loss payees, as applicable and appropriate, on all insurance
policies required by the Lease; and

         (c) this Agreement satisfies any condition or requirement in the Lease
relating to the granting of a non-disturbance agreement by Mortgagee, and in the
event that there are inconsistencies between the terms and provisions of this
Agreement and the terms and provisions of the Lease dealing with non-disturbance
by Mortgagee, the terms and provisions hereof shall be controlling; and

         (d) Mortgagee shall have no liability under the Lease until Mortgagee
succeeds to the rights of the Landlord under the Lease, and then only during
such period as Mortgagee is the Landlord. At all times during which Mortgagee is
liable under the Lease, Mortgagee's liability shall be limited to Mortgagee's
interest in the Real Property.

         7. MORTGAGEE CURE RIGHTS. If Landlord shall have failed to cure any
default within the time period provided for in the Lease (including any
applicable notice and grace periods), but not prior thereto Tenant exercises any
right to terminate the Lease, Mortgagee, shall have an additional 30 days within
which to cure such default, or if such default cannot by the exercise of
reasonable efforts by Mortgagee be cured within such period, then such
additional time as may be reasonable necessary to effect such a cure (including,
if necessary, sufficient time to complete foreclosure proceedings) provided that
within such 30-day period Mortgagee shall commence and thereafter diligently
pursue remedies to cure such default. The Lease shall not be terminated (i)
while such remedies are being diligently pursued or (ii) based upon a default
which is personal to Landlord and therefore not susceptible to cure by Mortgagee
or which requires possession of the Premises to cure. Mortgagee shall in no
event be obligated to cure any such default by Landlord unless it forecloses.
Nothing in this Section 7 shall affect any of Tenant's termination rights under
the Lease due to casualty or condemnation.

         8. DIRECTION TO PAY. Landlord hereby directs Tenant and Tenant agrees
to make all payments of amounts owed by Tenant under the Lease directly to
Mortgagee from and after receipt by Tenant of notice from Mortgagee directing
Tenant to make such payments to Mortgagee. (As between Landlord and Mortgagee,
the foregoing provision shall not be construed to modify any rights of Landlord
under or any provisions of the Mortgage or any other instrument securing the
Note).

         9. CONDITIONAL ASSIGNMENT. With reference to any assignment by Landlord
of Landlord's interest in the Lease, or the rents payable thereunder,
conditional in nature or otherwise, which assignment is made to Mortgagee,
Tenant agrees that the execution thereof by Landlord, and the acceptance thereof
by Mortgagee shall never be treated as an assumption by Mortgagee of any of the
obligations of Landlord under the Lease unless and until Mortgagee shall have
succeeded to the interest of Landlord. The foregoing sentence shall not affect
any of Tenant's rights against Landlord under the Lease.

                            [SIGNATURES ON NEXT PAGE]





Subordination Agreement             10505 Roselle Street/Protarch, Inc. - Page 5

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


TENANT:                            PROTARCH, INC.
                                   a Delaware corporation


                                   By:
                                         -----------------------------------
                                   Its:
                                         -----------------------------------

LANDLORD:                          ARE-10505 ROSELLE STREET, LLC,
                                   a Delaware limited liability company

                                   By:  ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
                                        a Delaware limited partnership,
                                        its managing member

                                        By: ARE-QRS CORP.,
                                            A Maryland corporation,,
                                            its general partner

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

                                            Its:
                                                ---------------------------

MORTGAGEE:
                                   -----------------------------------------
                                   a

                                   By:
                                        ------------------------------------
                                        Name:
                                             -------------------------------
                                        Its:
                                             -------------------------------






Subordination Agreement             10505 Roselle Street/Protarch, Inc. - Page 6

                      EXHIBIT A TO SUBORDINATION AGREEMENT

                                Legal description








                       FIRST AMENDMENT TO LEASE AGREEMENT


         THIS FIRST AMENDMENT TO LEASE AGREEMENT ("Amendment") is dated as of
May 31, 2000, between ARE-10505 ROSELLE STREET, LLC, a Delaware limited
liability company ("Landlord"), and STRUCTURAL GENOMIX, INC. (formerly known as
Protarch, Inc.), a Delaware corporation ("Tenant").

         A. Landlord and Tenant entered into that certain Lease Agreement dated
as of September 20, 1999 (the "Lease"), with respect to certain premises located
at 10505 Roselle Street, San Diego, California (the "Premises"). Unless
otherwise defined in this Amendment, initially-capitalized terms used herein
shall have the meanings set forth in the Lease.

         B. Pursuant to Section 5.4 of the Work Letter attached to the Lease,
Tenant is required to pay TI Costs in excess of the TI Allowance ("Excess TI
Costs"), as defined therein.

         C. Landlord is willing to pay Excess TI Costs, subject to Tenant
agreeing to pay Additional Rent to Landlord as provided herein.

         NOW THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree, and amend the Lease, as follows:

         1. Excess TI Costs.

         The parties agree that the amount of Excess TI Costs is $148,346.75.
Tenant acknowledges that Tenant is obligated under the terms of the Lease to pay
Excess TI Costs.

         2. Payment of Excess TI Costs by Landlord

         Notwithstanding the provisions of the Lease requiring Tenant to pay
Excess TI Costs, Landlord hereby agrees to pay Excess TI Costs, subject to the M
e r terms and conditions of this Amendment. Landlord agrees that Tenant shall
not be in default or breach of Tenant's obligations under the Lease to pay
Excess TI Costs so long as Tenant shall comply with the provisions of this
Amendment.

         3. Tenant's Payment of Excess TI Costs

         In consideration of Landlord's agreement to pay TI Costs, Tenant hereby
agrees to pay, as Additional Rent, the amount of $3,160.95 ("TI Additional
Rent") on the first day of each month for the period beginning July I, 2000 and
ending December 31,2005. Such payment of TI Additional Rent shall be in addition
to the obligations of Tenant to pay Base Rent and Additional Rent under the
Lease. All payment of TI Additional Rent shall be made as provided in Section 3
of the Lease.


         4. Counterparts.

         This Amendment may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts taken together shall constitute but one and the same
instrument. Signature pages may be detached from the counterparts and attached
to a single copy of this Amendment to physically form one document.

         5. Reaffirmation of Obligations.

         Tenant hereby acknowledges and reaffirms its obligations under the
Lease, as such Lease has been amended by this Amendment, and agrees that any
reference made in any other document to the Lease shall mean the Lease as
amended pursuant to this Amendment. Except as expressly provided herein, the
Lease remains unmodified and in full force and effect. Any breach by Tenant of
this Amendment, including any exhibit hereto, shall constitute a breach and
default by Tenant under the Lease.

         6. Time of Essence.

         Time is of the essence with respect to each provision of this
Agreement.




         IN WITNESS WHEREOF, Landlord and Tenant have caused this Amendment to
be duly executed and delivered as of the date first above written.

         LANDLORD

         ARE-10505 ROSELLE STREET, LLC,

         a Delaware limited liability company

         By:   Alexandria Real Estate Equities, L.P.,
         a Delaware limited partnership
         its managing member

               By:   ARE-QRS CORP.,
               a Maryland corporation,
               its general partner

                     By:   /s/ Lynn Anne Shapiro
                           ----------------------
                     Its:  General counsel
                           ----------------------




TENANT

STRUCTURAL GENOMIX,, WC.,
(formerly known as Protarch, Inc.),
a Delaware corporation


By:   /s/ Tim Harris
      ----------------------------
Its:  President and CEO
      ----------------------------






                       SECOND AMENDMENT TO LEASE AGREEMENT


         THIS SECOND AMENDMENT TO LEASE AGREEMENT ("Amendment") is dated as of
May 18, 2000, between ARE-10505 ROSELLE STREET, LLC, a Delaware limited
liability company ("Landlord), and STRUCTURAL GENOMIX, INC. (formerly known as
Protarch, Inc.), a Delaware corporation ("Tenant").

         A. Landlord and Tenant entered into that certain Lease Agreement dated
as of September 20, 1999 (the "Lease"), with respect to certain premises located
at 10505 Roselle Street, San Diego, California (the "Premises"). Unless
otherwise defined in this Amendment, initially-capitalized terms used herein
shall have the meanings set forth in the Lease.

         B. Landlord and Tenant amended the Lease by that certain First
Amendment to Lease Agreement dated as of May 31, 2000.

         C. Landlord and Tenant have negotiated a separate lease of space in a
property located at 3770 Tansy Street, San Diego, California, and a condition of
the effectiveness of that separate lease is that the Termination Date of the
Lease be extended to December 31, 2005, so that it will terminate on the same
date as the separate lease.

         C. Landlord and Tenant desire to amend the Lease again as set forth
herein.

         NOW THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree, and amend the Lease, as follows:

         1. Term.

         The parties agree that definition of "Term", as set forth on page 1 of
the Lease, is hereby deleted in its entirety, and is replaced with the
following.

                  Term The period from the date hereof until December 31, 2005
                  ("Termination Date").

         2. Counterparts.

         This Amendment may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts taken together shall constitute but one and the same
instrument. Signature pages may be detached from the counterparts and attached
to a single copy of this Amendment to physically form one document,

         3. Reaffirmation of Obligations.

         Landlord and Tenant hereby acknowledge and reaffirm their respective
obligations under the Lease, as such Lease has been amended by this Amendment,
and agrees that any reference




made in any other document to the Lease shall mean the Lease as amended pursuant
to this Amendment. Except as expressly provided herein, the Lease remains
unmodified and in full force and effect. Any breach by Landlord or Tenant of
this Amendment, including any exhibit hereto, shall constitute a breach and
default by that party under the Lease.

         4. Time of Essence.

         Time is of the essence with respect to each provision of this
Agreement.

                       SIGNATURES APPEAR ON FOLLOWING PAGE








         IN WITNESS WHEREOF, Landlord and Tenant have caused this Amendment to
be duly executed and delivered as of the date first above written.

         LANDLORD

         ARE-10505 ROSELLE STREET, LLC,

         a Delaware limited liability company

         By:  Alexandria Real Estate Equities, L.P.,
         a Delaware limited partnership
         its managing member

              By:   ARE-QRS CORP.,
              a Maryland corporation,
              its general partner

                    By:   /s/ Lynn Anne Shapiro
                          -------------------------------
                    Its:  General Counsel
                          ------------------------------



TENANT

STRUCTURAL GENOMIX,, INC.,
(formerly known as Protarch, Inc.),
a Delaware corporation

By:   /s/ Tim Harris
      -------------------------------------
Its:  President and CEO
      -------------------------------------

EX-10.14

                                                                   EXHIBIT 10.14

Net Single-Tenant Laboratory        3770 Tansy/Structural GenomiX, Inc. - Page 1

                                 LEASE AGREEMENT

      THIS LEASE AGREEMENT is made this 18th day of May, 2000, between ARE-3770
TANSY STREET, LLC, a Delaware limited liability company ("LANDLORD"), and
STRUCTURAL GENOMIX, INC., a Delaware corporation ("TENANT").

ADDRESS: 3770 Tansy Street, San Diego, California

PREMISES: The real property described on EXHIBIT A together with the building
containing approximately 15,410 rentable sq. ft. located thereon, and all
appurtenances thereto, and including Area A, Area B and Area C as follows:

AREA A PREMISES: That portion of the building located on the Premises containing
approximately 3,127 rentable square feet ("RSF") as identified on EXHIBIT A-1

AREA B PREMISES: That portion of the building located on the Premises containing
approximately 6,283 RSF as identified on EXHIBIT A-2

AREA C PREMISES: That portion of the building located on the Premises containing
approximately 6,000 RSF as identified on EXHIBIT A-3

BASE RENT: $2.03 per RSF per month

RENTABLE AREA OF PREMISES: Approximately 15,410 sq. ft.

TENANT'S PRO RATA SHARE OF THE PREMISES: Upon Area B Commencement Date, 40.77%;
                                         upon Area A Commencement Date, 61.06%;
                                         upon Area C Commencement Date, 100%.

SECURITY DEPOSIT: $125,129.20

AREA B COMMENCEMENT DATE: August 1, 2000

AREA A COMMENCEMENT DATE: November 1, 2000

AREA COMMENCEMENT DATE: March 1, 2001

RENT ADJUSTMENT PERCENTAGE: 4.00%

TERM: From the Area B Commencement Date until December 31, 2005

PERMITTED USE: research and development laboratory, office and other related
uses

ADDRESS FOR RENT PAYMENT:                  LANDLORD'S NOTICE ADDRESS:
135 N. Los Robles Avenue, Suite 250        135 N. Los Robles Avenue, Suite 250
Pasadena, CA 91101                         Pasadena, CA 91101
Attention: Accounts Receivable             Attention: General Counsel

TENANT'S NOTICE ADDRESS:
10505 Roselle Street
San Diego, California 92121
Attention: President

The following Exhibits and Addenda are attached hereto and incorporated herein
by this reference:



Net Single-Tenant Laboratory        3770 Tansy/Structural GenomiX, Inc. - Page 2

[X] EXHIBIT A - PREMISES DESCRIPTION (Includes Exhibits A-1, A-2 and A-3)
[X] EXHIBIT B - WORK LETTER
[X] EXHIBIT C - COMMENCEMENT DATE
[X] EXHIBIT D - TENANT'S PERSONAL PROPERTY
[X] EXHIBIT E - ESTOPPEL CERTIFICATE
[X] EXHIBIT F - NONDISTURBANCE AGREEMENT
[X] EXHIBIT G - CONDITION OF AREA B UPON TERMINATION

      1. LEASE OF PREMISES. Upon and subject to all of the terms and conditions
hereof, Landlord hereby leases the Premises to Tenant and Tenant hereby leases
the Premises from Landlord.

      1.1 10505 ROSELLE LEASE: Tenant is a tenant of Landlord's under a lease
      dated as of September 20th, 1999, for certain premises at a property
      located at 10505 Roselle Street, San Diego. California. As a condition
      precedent to the Commencement Date of this Lease, Landlord and Tenant
      shall have executed an amendment to the Roselle Street Lease under which
      the Term of the Roselle Street Lease shall be extended to December 31,
      2005.

      2. DELIVERY; ACCEPTANCE OF PREMISES; COMMENCEMENT DATE. Landlord shall use
reasonable efforts to deliver the Area A Premises to Tenant on or before the
Area A Commencement Date, the Area B Premises to Tenant on or before the Area B
Commencement Date, and the Area C Premises to Tenant on or before the Area C
Commencement Date. Landlord's delivery of the Area A Premises, the Area B
Premises or the Area C Premises shall be referred to herein as "DELIVERY" or
"DELIVER". If Landlord fails to timely Deliver any of the Area A Premises, the
Area B Premises or the Area C Premises, Landlord shall not be liable to Tenant
for any loss or damage resulting therefrom, and this Lease shall not be void or
voidable except as provided herein, but the payment of rent shall abate until
the date that Landlord shall actually Deliver any portion of the Premises.

      Notwithstanding anything to the contrary herein, (i) Tenant shall accept
the each portion of the Premises in their condition as of the Area A
Commencement Date, the Area B Commencement Date, and the Area C Commencement
Date respectively, subject to all applicable laws, ordinances, regulations,
covenants and restrictions; (ii) Landlord shall have no obligation for any
defects in the Premises; and (ii) Tenant's taking possession of the Premises
shall be conclusive evidence that that the Tenant accepts the Premises and that
the Premises were in good condition at the time possession was taken. Any
occupancy of Area A prior to the Area A Commencement Date, or Area C prior to
the Area C Commencement Date by Tenant before the any Commencement Date shall be
subject to all of the terms and conditions of this Lease, including the
obligation to pay Rent. Tenant shall be entitled to use all of the common areas
of the Premises after the Area B Commencement Date. Tenant shall have access to
the Premises prior to any Commencement Date for the purposes of installing
Tenant's equipment and preparing for occupancy as set forth in the Work Letter
attached as Exhibit B.

      Tenant agrees and acknowledges that neither Landlord nor any agent of
Landlord has made any representation or warranty with respect to the condition
of any or all of the Premises, and/or the suitability of the Premises for the
conduct of Tenant's business, and Tenant waives any implied warranty that the
Premises are suitable for the Permitted Use. This Lease constitutes the complete
agreement of Landlord and Tenant with respect to the subject matter hereof and
supersedes any and all prior representations, inducements, promises, agreements,
understandings and negotiations which are not contained herein. Landlord in
executing this Lease does so in reliance upon Tenant's representations,
warranties, acknowledgments and agreements contained herein.

      Upon the expiration or earlier termination of this Lease, upon the
election of Landlord, Tenant shall return the Area B Premises to Landlord in
substantially the condition shown on EXHIBIT G, "Condition of Area B Upon
Termination". Any alterations or improvements made by Tenant during the Term
which are not shown on EXHIBIT G will be removed by Tenant at Tenant's sole cost
prior to the Termination Date at Landlord's election.



Net Single-Tenant Laboratory        3770 Tansy/Structural GenomiX, Inc. - Page 3

      3. RENT.

      (a) BASE RENT. The first month's Base Rent for the Area B Premises and the
Security Deposit shall be due and payable on delivery of an executed copy of
this Lease to Landlord. Tenant's obligation to pay Base Rent for the Area A
Premises shall commence as of the Area A Commencement Date. Tenant's obligation
to pay Base Rent for the Area B Premises shall commence as of the Area B
Commencement Date. Tenant's obligation to pay Base Rent for the Area C Premises
shall commence as of the Area C Commencement Date. Tenant shall pay to Landlord
in advance, without demand, abatement (except as specifically provided for in
Section 18), deduction or set-off, monthly installments of Base Rent on or
before the first day of each calendar month during the Term hereof, in lawful
money of the United States of America, at the office of Landlord for payment of
Rent set forth above, or to such other person or at such other place as Landlord
may from time designate in writing. Payments of Base Rent for any fractional
calendar month shall be prorated and paid on the basis of a 30 day month. The
obligation of Tenant to pay Base Rent and other sums to Landlord and the
obligations of Landlord under this Lease are independent obligations. Tenant
shall have no right at any time to abate, reduce, or set-off any Rent due
hereunder except for any abatement as may be expressly provided in this Lease.

      (b) ADDITIONAL RENT. In addition to Base Rent, Tenant agrees to pay to
Landlord as additional rent ("ADDITIONAL Rent"): (i) Tenant's Pro Rata Share of
"Operating Expenses," and (ii) Tenant's Pro Rata Share of any and all other
amounts Tenant assumes or agrees to pay under the provisions of this Lease,
including, without limitation, any and all other sums that may become due by
reason of any default of Tenant or failure to comply with the agreements, terms,
covenants and conditions of this Lease to be performed by Tenant, after any
applicable notice and cure period.

      4. BASE RENT ADJUSTMENTS. Base Rent shall be increased on each annual
anniversary of the first day of the first full month following the Commencement
Date during the Term of this Lease by multiplying the Base Rent payable
immediately before such adjustment by the Rent Adjustment Percentage and adding
the resulting amount to the Base Rent payable immediately before such
adjustment. Base Rent, as so adjusted, shall thereafter be due as provided
herein. Base Rent adjustments for any fractional calendar month shall be
prorated.

      5. OPERATING EXPENSE PAYMENTS. Landlord shall deliver to Tenant a written
estimate of Tenant's Pro Rata Share of Operating Expenses for each calendar year
during the Term in reasonable detail by the type of expense (the "ANNUAL
ESTIMATE"), which may be revised by Landlord from time to time during such
calendar year. During each month of the Term, on the same date that Base Rent is
due, Tenant shall pay Landlord an amount equal to 1/12 of the annual cost, as
reasonably estimated by Landlord from time to time, of Operating Expenses.
Payments for any fractional calendar month shall be prorated.

      The term "OPERATING EXPENSES" means all costs and expenses of any kind or
description whatsoever incurred or accrued by Landlord with respect to the
Premises (including Taxes, reasonable reserves consistent with good business
practice for future replacements of capital items, capital repairs and
improvements amortized over the lesser of 7 years and the useful life of such
capital items and the costs of Landlord's third party property manager or, if
there is no third party property manager, administration rent in the amount of
3.0% of Base Rent), excluding only:

      (a)   the original construction costs of the Premises and renovation prior
            to the date of the Lease and costs of correcting defects in such
            original construction or renovation;

      (b)   completing, fixturing, improving, renovating, painting, redecorating
            or other work, which Landlord pays for or performs for tenants
            within the Premises and costs of correcting defects in such work;

      (c)   capital expenditures for expansion of the Premises;



Net Single-Tenant Laboratory        3770 Tansy/Structural GenomiX, Inc. - Page 4

      (d)   ground lease payments, interest, financing costs and amortization of
            funds borrowed by Landlord, whether secured or unsecured;

      (e)   depreciation of the Premises (except for capital improvements, the
            cost of which are includable in Operating Expenses);

      (f)   advertising, legal and space planning expenses, leasing commissions
            and other costs and expenses incurred in procuring tenants for the
            Premises, including any leasing office maintained in the Premises;

      (g)   salaries, wages, benefits and other compensation paid to officers
            and employees of Landlord who are not assigned in whole or in part
            to the operation, management, maintenance or repair of the Premises;

      (h)   any expenses otherwise includable within Operating Expenses to the
            extent intended to be reimbursed by persons other than Tenant;

      (i)   costs relating to maintaining Landlord's existence, either as a
            corporation, partnership, or other entity;

      (j)   costs (including attorneys' fees and costs of settlement, judgments
            and payments in lieu thereof) arising from claims, disputes or
            potential disputes pertaining to Landlord, but not the Premises, or
            from Landlord's failure to make any payment required to be made by
            Landlord hereunder before delinquency;

      (k)   tax penalties incurred as a result of Landlord's negligence,
            inability or unwillingness to make payment and/or to file any tax or
            informational returns when due;

      (I)   overhead and profit increment paid to the Landlord or to
            subsidiaries or affiliates of Landlord for goods and/or services in
            or to the Premises to the extent the same exceeds the costs of such
            goods and/or services rendered by unaffiliated third parties on a
            competitive basis;

      (m)   costs arising from Landlord's charitable or political contributions
            or fine art maintained at the Premises;

      (n)   costs incurred in the sale or refinancing of the Premises;

      (o)   net income, franchise, capital stock, estate or inheritance taxes;

      (p)   costs of repairs and other work due to fire, windstorm, or other
            casualty to the extent of any net insurance recovery;

      (q)   costs of correcting any building code or other violations which were
            violations prior to the Commencement Date of this Lease; and

      (r)   costs incurred by Landlord due to the violation by Landlord, its
            employees, agents or contractors of any Legal Requirement.

      Within 90 days after the end of each calendar year (or such longer period
as may be reasonably required), Landlord shall furnish to Tenant a statement (an
"ANNUAL STATEMENT") showing in reasonable detail: (a) the total actual Operating
Expenses for the previous calendar year, and (b) the total of Tenant's payments
in respect of Operating Expenses for such year. If actual Operating Expenses for
such year exceed Tenant's payments of Operating Expenses for such year, the
excess shall be immediately due and payable by Tenant as Rent. If Tenant's
payments of Operating Expenses for such year exceed actual



Net Single-Tenant Laboratory        3770 Tansy/Structural GenomiX, Inc. - Page 5

Operating Expenses for such year Landlord shall, in its sale and absolute
discretion, either: (i) credit the excess amount to the next succeeding
installments of Operating Expenses due hereunder, or (ii) pay the excess to
Tenant within 30 days after delivery of such Annual Statement, except that after
expiration, or earlier termination of the Term, Landlord shall pay the excess to
Tenant after deducting all other amounts due Landlord.

      The Annual Statement shall be final and binding upon Tenant unless Tenant,
within 30 days after Tenant's receipt thereof, shall contest any item therein by
giving written notice to Landlord, specifying each item contested and the reason
therefor. If, during such 30 day period, Tenant reasonably and in good faith
questions or contests the correctness of Landlord's statement of Operating
Expenses, Landlord will provide Tenant with access to Landlord's books and
records relating to the operation of the Premises and such information as
Landlord reasonably determines to be responsive to Tenant's questions. If after
Tenant's review of such information, Landlord and Tenant cannot agree upon the
amount of Operating Expenses, then Tenant shall have the right to have an
independent public accounting firm selected from among the 6 largest in the
United States, hired by Tenant (at Tenant's sole cost and expense) and approved
by Landlord (which approval shall not be unreasonably withheld or delayed),
audit and/or review Landlord's books and records relating to the operation of
the Premises and such other information relating to the operation of the
Premises for the year in question (the "INDEPENDENT REVIEW"). The results of any
such Independent Review shall be binding on Landlord and Tenant. If the
Independent Review shows that the Operating Expenses actually paid by Tenant for
the calendar year in question exceeded Tenant's obligations for such calendar
year, Landlord shall at Landlord's option either (i) credit the excess amount to
the next succeeding installments of estimated Operating Expenses or (ii) pay the
excess to Tenant within 30 days after delivery of such statement, except that
after expiration or earlier termination of the Term, Landlord shall pay the
excess to Tenant after deducting all other amounts due Landlord. If the
Independent Review shows that Tenant's payments of Operating Expenses for such
calendar year were less than Tenant's obligation for the calendar year, Tenant
shall pay the deficiency to the Landlord within 30 days after delivery of such
statement. If the Independent Review shows that Tenant has overpaid Operating
Expenses by more than 10% then Landlord shall reimburse Tenant for all costs
incurred by Tenant for the Independent Review. Operating Expenses for the
calendar years in which Tenant's obligation to pay the same begins and ends
shall be prorated.

      Base Rent, Operating Expenses and all other amounts payable by Tenant to
Landlord hereunder are collectively referred to herein as "RENT".

      6. SECURITY DEPOSIT. The Security Deposit shall be held by Landlord as
security for the performance of Tenant's obligations under this Lease. The
Security Deposit is not an advance rental deposit or a measure of Landlord's
damages in case of Tenant's default. Upon each occurrence of a Default, Landlord
may use all or part of the Security Deposit to pay delinquent payments due under
this Lease, and the cost of any damage, injury, expense or liability caused by
such Default, without prejudice to any other remedy provided herein or provided
by law. Upon any such use of all or any portion of the Security Deposit, Tenant
shall pay Landlord on demand the amount that will restore the Security Deposit
to its original amount. Upon bankruptcy or other debtor-creditor proceedings
against Tenant, the Security Deposit shall be deemed to be applied first to the
payment of Rent and other charges due Landlord for periods prior to the filing
of such proceedings. Landlord's obligation respecting the Security Deposit is
that of a debtor, not a trustee; no interest shall accrue thereon. The Security
Deposit shall be the property of Landlord, but the balance remaining, if any,
after Tenant's obligations under this Lease have been completely fulfilled shall
be paid to Tenant. Landlord shall be released from any obligation with respect
to the Security Deposit upon transfer of this Lease and the Premises to a person
or entity assuming Landlord's obligations under this Section 6. Tenant hereby
waives the provisions of any law, now or hereafter in force, which provide that
Landlord may claim from a security deposit only those sums reasonably necessary
to remedy defaults in the payment of Rent, to repair damage caused by Tenant or
to clean the Premises, it being agreed that Landlord may, in addition, claim
those sums reasonably necessary to compensate Landlord for any other loss or
damage, foreseeable or unforeseeable, caused by the act or omission of Tenant or
any officer, employee, agent or invitee of Tenant. If Tenant shall fully perform
every provision of this Lease to be performed by Tenant, the Security Deposit,
or any balance



Net Single-Tenant Laboratory        3770 Tansy/Structural GenomiX, Inc. - Page 6

thereof, shall be returned to Tenant (or, at Landlord's option, to the last
assignee of Tenant's interest hereunder) within 60 days after the expiration or
earlier termination of this Lease.

      7. USE. The Premises shall be used solely for the Permitted Use set forth
in the Basic Lease Provisions and for lawful purposes incidental thereto, all in
compliance with all laws, orders, judgments, ordinances, regulations, codes,
directives, permits, licenses, covenants and restrictions now or hereafter
applicable to the Premises, and the use and occupancy thereof (collectively,
"LEGAL REQUIREMENTS"). Tenant shall, upon 5 days' written notice from Landlord,
discontinue any use of the Premises which is declared by any governmental
authority having jurisdiction to be a violation of any Legal Requirement. Tenant
will not use or permit the Premises to be used for any purpose or in any manner
that would void Tenant's or Landlord's insurance, increase the insurance risk,
or cause the disallowance of any sprinkler or other credits. Tenant shall
reimburse Landlord promptly upon demand for any additional premium charged for
any such insurance policy by reason of Tenant's failure to comply with the
provisions of this Section or otherwise caused by Tenant's use and/or occupancy
of the Premises. Tenant will use the Premises in a careful, safe and proper
manner and will not commit waste, overload the floor or structure of the
Premises, subject the Premises to use that would damage the Premises or obstruct
or interfere with the rights of Landlord or other tenants or occupants of the
Premises, including conducting or giving notice of any auction, liquidation, or
going out of business sale on the Premises, or using or allowing the Premises to
be used for any unlawful purpose. Tenant shall not place any machinery or
equipment weighing 500 pounds or more in or upon the Premises or transport or
move such items within the Premises or in the elevators without the prior
written consent of Landlord. Except as may be provided under the Work Letter,
Tenant shall not, without the prior written consent of Landlord, use the
Premises in any manner which will require ventilation, air exchange, heating,
gas, steam, electricity or water beyond the existing capacity of the Premises.
Landlord shall be responsible for the compliance of the exterior of the
Premises, including access requirements, with the Americans With Disabilities
Act, 42 U.S.C. Section 12101, et seq. (together with regulations promulgated
pursuant thereto, "ADA") as of the Commencement Date. Tenant, at its sole
expense, shall make any alterations or modifications, to the interior or
exterior of the Premises, that are required by Legal Requirements (including,
without limitation, compliance of the interior of the Premises with the ADA as
of the Commencement Date) related to Tenant's use or occupancy of the Premises.
Notwithstanding any other provision herein to the contrary, Tenant shall be
responsible for any and all demands, claims, liabilities, losses, costs,
expenses, actions, causes of action, damages or judgments, and all reasonable
expenses incurred in investigating or resisting the same (including, without
limitation, reasonable attorneys' fees, charges and disbursements and costs of
suit) (collectively, "CLAIMS") arising out of or in connection with Legal
Requirements and Tenant shall indemnify, defend, hold and save Landlord harmless
from and against any and all Claims arising out of or in connection with any
failure of Tenant to comply with the requirements of this Section.

      8. HOLDING OVER. If, with Landlord's express written consent, Tenant
retains possession of the Premises after the termination of the Term, (i) unless
otherwise agreed in such written consent, such possession shall be subject to
immediate termination by Landlord at any time, (ii) all of the other terms and
provisions of this Lease (including, without limitation, the adjustment of Base
Rent pursuant to Section 4 hereof) shall remain in full force and effect
(excluding any expansion or renewal option or other similar right or option)
during such holdover period, (iii) Tenant shall continue to pay Base Rent in the
amount payable upon the date of the expiration or earlier termination of this
Lease or such other amount as Landlord may indicate, in Landlord's sale and
absolute discretion, in such written consent, and (iv) all other payments shall
continue under the terms of this Lease. If Tenant remains in possession of the
Premises after the expiration or earlier termination of the Term without the
express written consent of Landlord, (A) Tenant shall become a tenant at
sufferance upon the terms of this Lease except that the monthly rental shall be
equal to 150% of the Rent in effect during the last 30 days of the Term, and (B)
Tenant shall be responsible for all damages suffered by Landlord resulting from
or occasioned by Tenant's holding over. No holding over by Tenant, whether with
or without consent of Landlord, shall operate to extend this Lease except as
otherwise expressly provided, and this Section 8 shall not be construed as
consent for Tenant to retain possession of the Premises. Acceptance by Landlord
of Rent after the Term Expiration Date or earlier termination of this Lease
shall not result in a renewal or reinstatement of this Lease.



Net Single-Tenant Laboratory        3770 Tansy/Structural GenomiX, Inc. - Page 7

      9. TAXES. Landlord shall pay, as part of Operating Expenses, Tenant's Pro
Rata Share of all taxes, levies, assessments and governmental charges of any
kind (collectively referred to as "TAXES") imposed by any federal, state,
regional, municipal, local or other governmental authority or agency, including,
without limitation, quasi-public agencies (collectively, "GOVERNMENTAL
AUTHORITY") during the Term, including, without limitation all Taxes: (i)
imposed on or measured by or based, in whole or in part, on rent payable to
Landlord under this Lease and/or from the rental by Landlord of the Premises or
any portion thereof, or (ii) based on the square footage, assessed value or
other measure or evaluation of any kind of the Premises, or (iii) assessed or
imposed by or on the operation or maintenance of any portion of the Premises,
including parking, or (iv) assessed or imposed on the Premises or the rent
payable to Landlord under this Lease and/or from the rental by Landlord of the
Premises or any portion thereof by, or at the direction of, or resulting from
statutes or regulations, or interpretations thereof, promulgated by, any
Governmental Authority, or (v) imposed as a license or other fee on Landlord's
business of leasing space in the Premises. Landlord may contest by appropriate
legal proceedings the amount, validity, or application of any Taxes or liens
securing Taxes. Taxes shall not include any net income taxes or any corporate,
franchise, value-added, inheritance or similar taxes imposed on Landlord unless
such taxes are in substitution for any Taxes payable hereunder. If any such Tax
is levied or assessed directly against Tenant, then Tenant shall be responsible
for and shall pay the same at such times and in such manner as the taxing
authority shall require. Tenant shall pay, prior to delinquency, any and all
Taxes levied or assessed against any personal property or trade fixtures placed
by Tenant in the Premises, whether levied or assessed against Landlord or
Tenant. If any Taxes on Tenant's personal property or trade fixtures are levied
against Landlord or Landlord's property, or if the assessed valuation of the
Premises is increased by a value attributable to improvements in or alterations
to the Premises, whether owned by Landlord or Tenant and whether or not affixed
to the real property so as to become a part thereof, higher than the base
valuation on which Landlord from time-to-time allocates Taxes to all tenants in
the Premises, Landlord shall have the right, but not the obligation, to pay such
Taxes. Landlord's reasonable determination of any excess assessed valuation
shall be binding and conclusive, absent manifest error. The amount of any such
payment by Landlord shall constitute Additional Rent due from Tenant to Landlord
immediately upon demand.

      10. PARKING. At no additional cost, Tenant shall have the right to use
Tenant's Pro Rata Share of parking spaces at the Project in common with other
tenants of the Project, and to park passenger vehicles (including cars,
passenger vans, utility vehicles, and light trucks) only in those areas
designated for parking subject in each case to Landlord's rules and regulations.

      11. UTILITIES, SERVICES.

            Tenant shall pay directly to the utility provider, prior to
delinquency, for all water, electricity, heat, light, power, telephone, sewer,
and other utilities (including gas and fire sprinklers to the extent the
Premises is plumbed for such services), refuse and trash collection and
janitorial services furnished to the Premises (collectively, "UTILITIES"). No
interruption or failure of Utilities, from any cause whatsoever other than
Landlord's willful misconduct, shall result in eviction or constructive eviction
of Tenant, termination of this Lease or the abatement of Rent.

      12. ALTERATIONS AND TENANT'S PROPERTY. Any alterations, additions, or
improvements made to the Premises by or on behalf of Tenant, including
additional locks or bolts of any kind or nature upon any doors or windows in the
Premises, but excluding installation, removal or realignment of furniture
systems (other than removal of furniture systems owned or paid for by Landlord)
not involving any modifications to the structure or connections (other then by
ordinary plugs or jacks) to building systems ("ALTERATIONS") shall be subject to
Landlord's prior written consent, which may be given or withheld in Landlord's
sole discretion if any such Alteration affects the structure or building
systems. Tenant shall be allowed to make alterations, additions or improvements
to the Premises without Landlord's prior consent provided that such alterations,
additions, or improvements do not exceed $25,000 in cost in any 12 month period
and do not affect the structure or building systems. If Landlord approves any
Alterations, Landlord may impose such conditions on Tenant in connection with
the commencement, performance and completion of such Alterations as Landlord may
deem appropriate in Landlord's reasonable discretion. Any request for approval
shall be in writing, delivered not less than 15 business days in advance of any



Net Single-Tenant Laboratory        3770 Tansy/Structural GenomiX, Inc. - Page 8

proposed construction, and accompanied by plans, specifications, bid proposals,
work contracts and such other information concerning the nature and cost of the
alterations as may be reasonably requested by Landlord, including the identities
and mailing addresses of all persons performing work or supplying materials.
Landlord's right to review plans and specifications and to monitor construction
shall be solely for its own benefit, and Landlord shall have no duty to ensure
that such plans and specifications or construction comply with applicable legal
Requirements. Tenant shall cause, at its sale cost and expense, all Alterations
to comply with insurance requirements and with legal Requirements and shall
implement at its sale cost and expense any alteration or modification required
by legal Requirements as a result of any Alterations. Tenant shall pay to
Landlord, as Additional Rent, on demand an amount equal to 10% of all charges
incurred by Tenant or its contractors or agents in connection with any
Alteration to cover Landlord's overhead and expenses for plan review,
coordination, scheduling and supervision (and no charge in respect of such
services shall be included in Operating Expenses). Before Tenant begins any
Alteration, Landlord may post on and about the Premises notices of
non-responsibility pursuant to applicable law. Tenant shall reimburse Landlord
for, and indemnify and hold Landlord harmless from, any expense incurred by
Landlord by reason of faulty work done by Tenant or its contractors, delays
caused by such work, or inadequate cleanup.

      Tenant shall furnish security or make other arrangements satisfactory to
Landlord to assure payment for the completion of all Alteration work free and
clear of liens, and shall provide certificates of insurance for worker's
compensation and other coverage in amounts and from an insurance company
satisfactory to Landlord protecting Landlord against liability for personal
injury or property damage during construction. Upon completion of any
Alterations, Tenant shall deliver to Landlord: (i) a general contractor's
affidavit setting forth the names of all contractors and subcontractors who did
the work and final lien waivers from all such contractors and subcontractors;
and (ii) as built plans for any such Alteration in excess of $10,000.

      Other than (i) the items, if any, listed on EXHIBIT D attached hereto and,
(ii) any items agreed by Landlord in writing to be included on EXHIBIT D in the
future, and (iii) any trade fixtures, machinery, equipment and other personal
property not paid for out of the TI Fund (as defined in the Work Letter) which
may be removed without material damage to the Premises, which damage shall be
repaired by Tenant during the Term (collectively, "TENANT'S PROPERTY"), all
property of any kind paid for with the TI Fund, all Alterations, real property
fixtures, built-in machinery and equipment, built-in casework and cabinets and
other similar additions and improvements built into the Premises so as to become
an integral part of the Premises, such as fume hoods which penetrate the roof or
plenum area, built-in cold rooms, built-in warm rooms, walk-in cold rooms,
walk-in warm rooms, deionized water system, glass washing equipment, autoclaves,
chillers, built-in plumbing, electrical and mechanical equipment and systems,
and any power generator and transfer switch (collectively, "INSTALLATIONS")
shall be and shall remain the property of Landlord during the Term and following
the expiration or earlier termination of the Term, shall not be removed by
Tenant at any time during the Term and shall remain upon and be surrendered with
the Premises as a part thereof following the expiration or earlier termination
of this Lease; provided, however, that Landlord shall, at the time its approval
of such Installation is requested notify Tenant if it has elected to cause
Tenant to remove such Installation upon the expiration or earlier termination of
this Lease. If Landlord so elects, Tenant shall remove such Installation upon
the expiration or earlier termination of this Lease and restore any damage
caused by or occasioned as a result of such removal, including, when removing
any of Tenant's Property which was plumbed, wired or otherwise connected to any
of the building systems, capping off all such connections behind the walls of
the Premises and repairing any holes. During any such restoration period, Tenant
shall pay Rent to Landlord as provided herein as if said space were otherwise
occupied by Tenant. Nothing in this Section 12 shall be construed to eliminate
Tenant's obligation to return the Area Premises to Landlord at the expiration or
earlier termination of the Lease in substantially the condition shown on EXHIBIT
G if Landlord so elects.

      Subject to the provisions of Section 15 herein, Landlord agrees (i) that
Tenant shall have the right, at its discretion, to hypothecate Tenant's trade
fixtures, equipment and other personal property within the Premises as security
for its obligations under any equipment lease or other financing arrangement
related to the conduct of Tenant's business, and (ii) to execute within 10
business days of delivery to Landlord or as soon as reasonably possible
thereafter documentation reasonably required to



Net Single-Tenant Laboratory        3770 Tansy/Structural GenomiX, Inc. - Page 9

waive any rights Landlord may have in and to any such personal property,
including trade fixtures and equipment, which Tenant may wish to lease or
finance.

      13. LANDLORD'S REPAIRS. Landlord shall maintain the exterior and
structural portions of the Premises, including the foundation, floor slab, roof
and curtain walls, in good repair, reasonable wear and tear and uninsured losses
and damages caused by Tenant, its agents, servants, employees, invitees and
contractors excluded. Losses and damages caused by Tenant, its agents, servants,
employees, invitees and contractors shall be repaired by Landlord, to the extent
not covered by insurance, at Tenant's sole cost and expense. Landlord shall have
no responsibility or liability for any maintenance, repair or interruption of
Utility services from any cause whatsoever, all of which shall be Tenant's
responsibility pursuant to Section 14 hereof. Tenant shall promptly give
Landlord written notice of any repair required by Landlord pursuant to this
Section, after which Landlord shall have a reasonable opportunity to effect such
repair. Landlord shall not be liable for any failure to make any repairs or to
perform any maintenance unless such failure shall persist for an unreasonable
time after Tenant's written notice of the need for such repairs or maintenance.
Tenant waives it rights under any state or local law to terminate this Lease or
to make such repairs at Landlord's expense and agrees that the parties'
respective rights with respect to such matters shall be solely as set forth
herein. Repairs required as the result of fire, earthquake, flood, vandalism,
war, or similar cause of damage or destruction shall be controlled by Section
18.

      14. TENANT'S REPAIRS. Subject to Section 13 hereof, Tenant, at its
expense, shall repair, replace and maintain in good condition all interior
portions of the Premises, including, without limitation, entries, doors,
ceilings, interior windows, interior walls, the interior side of demising walls,
and all Utility systems including HVAC, plumbing, fire sprinklers, elevators and
all other building systems serving the Premises using contractors under service
agreements approved by Landlord. Such repair and replacements may include
capital expenditures and repairs whose benefit may extend beyond the Term.
Should Tenant fail to make any such repair or replacement or fail to maintain
the Premises, Landlord shall give Tenant notice of such failure. If Tenant fails
to commence cure of such default within 10 business days of Landlord's notice,
and thereafter diligently prosecute such cure to completion, Landlord may
perform such work and shall be reimbursed by Tenant within 10 business days
after demand therefor; provided, however, that if such default by Tenant creates
or could create an emergency, Landlord may immediately commence cure of such
default and shall thereafter be entitled to recover the costs of such cure from
Tenant. Subject to Sections 17 and 18, Tenant shall bear the full uninsured cost
of any repair or replacement to any part of the Premises that results from
damage caused by Tenant, its agents, contractors, or invitees and any repair
that benefits only the Premises.

      15. MECHANIC'S LIENS. Tenant shall discharge, by bond or otherwise, any
mechanic's lien filed against the Premises for work claimed to have been done
for, or materials claimed to have been furnished to, Tenant within 10 days after
the filing thereof, at Tenant's sole cost and shall otherwise keep the Premises
free from any liens arising out of work performed, materials furnished or
obligations incurred by Tenant. Should Tenant fail to discharge any lien
described herein, Landlord shall have the right, but not the obligation, to pay
such claim or post a bond or otherwise provide security to eliminate the lien as
a claim against title to the Premises and the cost thereof shall be immediately
due from Tenant as Additional Rent. If Tenant shall lease or finance the
acquisition of office equipment, furnishings, or other personal property of a
removable nature utilized by Tenant in the operation of Tenant's business,
Tenant warrants that any Uniform Commercial Code Financing Statement executed by
Tenant will upon its face or by exhibit thereto indicate that such Financing
Statement is applicable only to removable personal property of Tenant located
within the Premises. In no event shall the address of the Premises be furnished
on the statement without qualifying language as to applicability of the lien
only to removable personal property, located in an identified Area held by
Tenant.

      16. INDEMNIFICATION. Tenant hereby indemnifies and agrees to defend, save
and hold Landlord harmless from and against any and all Claims for injury or
death to persons or damage to property occurring within or about the Premises,
arising directly or indirectly out of use or occupancy of the Premises or a
breach or default by Tenant in the performance of any of its obligations
hereunder, unless caused solely by the willful misconduct or gross negligence of
Landlord. Landlord shall not be liable to Tenant for, and Tenant assumes all
risk of damage to, personal property (including, without



Net Single-Tenant Laboratory       3770 Tansy/Structural GenomiX, Inc. - Page 10

limitation, loss of records kept within the Premises). Tenant further waives any
and all Claims for injury to Tenant's business or loss of income relating to any
such damage or destruction of personal property (including, without limitation,
any loss of records). Landlord shall not be liable for any damages arising from
any act, omission or neglect of any tenant in the Premises or of any other third
party.

      17. INSURANCE. Landlord shall maintain all insurance against any peril
generally included within the classification "Fire and Extended Coverage,"
sprinkler damage (if applicable), vandalism and malicious mischief covering the
full replacement cost of the Premises or such lesser coverage amount as Landlord
may elect provided such coverage amount is not less than 90% of such full
replacement cost. Landlord shall further carry commercial general liability
insurance with a single loss limit of not less than $2,000,000 for death or
bodily injury, or property damage with respect to the Premises. Landlord may,
but is not obligated to, maintain such other insurance and additional coverages
as it may deem necessary, including, but not limited to, flood, environmental
hazard and earthquake (if earthquake coverage is available at commercially
reasonable rates), loss or failure of building equipment, errors and omissions,
rental loss during the period of repair or rebuilding, workmen's compensation
insurance and fidelity bonds for employees employed to perform services and
insurance for any improvements installed by Tenant or which are in addition to
the standard improvements customarily furnished by Landlord without regard to
whether or not such are made a part of the Premises. All such insurance shall be
included as part of the Operating Expenses. The Premises may be included in a
blanket policy (in which case the cost of such insurance allocable to the
Premises will be determined by Landlord based upon the insurer's cost
calculations). Tenant shall also reimburse Landlord for any increased premiums
or additional insurance which Landlord reasonably deems necessary as a result of
Tenant's use of the Premises.

      Tenant, at its sole cost and expense, shall maintain during the Term: all
risk property insurance covering the full replacement cost of all property and
improvements installed or placed in the Premises by Tenant at Tenant's expense;
worker's compensation insurance with no less than the minimum limits required by
law; employer's liability insurance with such limits as required by law; and
commercial general liability insurance, with a minimum limit of not less than
$2,000,000 per occurrence for death or bodily injury and not less than
$1,000,000 for property damage with respect to the Premises. The commercial
general liability insurance policies shall name Landlord, its officers,
directors, employees, managers, agents, invitees and contractors (collectively,
"RELATED PARTIES"), as additional insureds; insure on an occurrence and not a
claims-made basis; be issued by insurance companies which have a rating of not
less than policyholder rating of A and financial category rating of at least
Class XII in "Best's Insurance Guide"; shall not be cancelable unless 30 days
prior written notice shall have been given to Landlord from the insuror; contain
a hostile fire endorsement and a contractual liability endorsement; and provide
primary coverage to Landlord (any policy issued to Landlord providing duplicate
or similar coverage shall be deemed excess over Tenant's policies). Such
policies or certificates thereof shall be delivered to Landlord by Tenant upon
commencement of the Term and upon each renewal of said insurance. Tenant's
policy may be a "blanket policy" which specifically provides that the amount of
insurance shall not be prejudiced by other losses covered by the policy. Tenant
shall, at least 20 days prior to the expiration of such policies, furnish
Landlord with renewals or binders. Tenant agrees that if Tenant does not take
out and maintain such insurance, Landlord may (but shall not be required to)
procure said insurance on Tenant's behalf and at its cost to be paid as
Additional Rent.

      In each instance where insurance is to name Landlord as additional
insured, Tenant shall upon written request of Landlord also designate and
furnish certificates so evidencing Landlord as additional insured to: (i) any
lender of Landlord holding a security interest in the Premises or any portion
thereof, (ii) the Landlord under any lease wherein Landlord is tenant of the
real property on which the Premises is located, if the interest of Landlord is
or shall become that of a tenant under a ground lease rather than that of a fee
owner, and/or (iii) any management company retained by Landlord to manage the
Premises.

      The property insurance obtained by Landlord and Tenant shall include a
waiver of subrogation by the insurers and all rights based upon an assignment
from its insured, against Landlord or Tenant, and their respective Related
Parties, in connection with any loss or damage thereby insured against. Neither
party nor its respective Related Parties shall be liable to the other for loss
or damage caused by any risk insured against under property insurance required
to be maintained hereunder, and each party waives



Net Single-Tenant Laboratory       3770 Tansy/Structural GenomiX, Inc. - Page 11

any claims against the other party, and its respective Related Parties for such
loss or damage. The failure of a party to insure its property shall not void
this waiver. Landlord and its respective Related Parties shall not be liable
for, and Tenant hereby waives all claims against such parties for, business
interruption and losses occasioned thereby sustained by Tenant or any person
claiming through Tenant resulting from any accident or occurrence in or upon the
Premises from any cause whatsoever. If the foregoing waivers shall contravene
any law with respect to exculpatory agreements, the liability of Landlord or
Tenant shall be deemed not released but shall be secondary to the other's
insurer.

      Landlord may from time to time require reasonable increases in insurance
policy limits or such increases as are necessary to conform with requirements of
Landlord's lender.

      18. RESTORATION. If at any time during the Term the Premises are damaged
by a fire or other insured casualty, Landlord shall notify Tenant as soon as
reasonably possible, but in any event within 60 days after discovery of such
damage as to the amount of time Landlord reasonably estimates it will take to
restore the Premises. If the restoration time is estimated to exceed 9 months,
Landlord may, in such notice, elect to terminate this lease as of the date that
is 75 days after the date of discovery of such damage or destruction; provided,
however, that if Landlord estimates the restoration period to be greater than 9
months, then notwithstanding Landlord's election to restore the Premises, Tenant
may elect to terminate this Lease by written notice to Landlord delivered within
5 business days of receipt of Landlord's notice electing to restore the
Premises. Unless either Landlord or Tenant elects to terminate this Lease,
Landlord shall, subject to receipt of sufficient insurance proceeds (with any
deductible to be treated as a current Operating Expense; provided, however that
with respect to the deductible for earthquake insurance the maximum amount
included in current Operating Expenses shall be 5% of the replacement value of
the Premises), promptly restore the Premises (excluding the improvements
installed by Tenant or by Landlord and paid for by Tenant), subject to delays
arising from the collection of insurance proceeds, from Force Majeure events or
as needed to obtain any license, clearance or other authorization of any kind
required to enter into and restore the Premises issued by any governmental or
quasi-governmental agency having jurisdiction over the use, storage, release or
removal of Hazardous Materials in, on or about the Premises (collectively
referred to herein as "HAZARDOUS MATERIALS CLEARANCES"); provided, however, that
if repair or restoration of the Premises is not Substantially Complete as of the
end of 9 months from the date of damage or destruction, Landlord may, in its
sole and absolute discretion, elect not to proceed with such repair and
restoration, or Tenant may by written notice to Landlord delivered within 5
business days of the expiration of such 9 month period, elect to terminate this
Lease, in which event Landlord shall be relieved of its obligation to make such
repairs or restoration and this Lease shall terminate as of the date that is 75
days after the later of: (i) discovery of such damage or destruction, or (ii)
the date all required Hazardous Materials Clearances are obtained.

      Tenant, at its expense, shall promptly perform, subject to delays arising
from the collection of insurance proceeds, from Force Majeure events or to
obtain Hazardous Material Clearances, all repairs or restoration to Tenant's
Alterations, personal property and trade fixtures not required to be done by
Landlord and shall promptly re-enter the Premises and commence doing business in
accordance with this Lease. Notwithstanding the foregoing, Landlord or Tenant
may terminate this lease if the Premises are damaged during the last year of the
Term and Landlord reasonably estimates that it will take more than 3 months to
repair such damage, or if insurance proceeds are not available for such
restoration, by written notice to the other party delivered within 5 business
days of receipt of Landlord's notice to Tenant of such damage. Rent shall be
abated from the date all required Hazardous Material Clearances are obtained
until the Premises are repaired and restored, in the proportion which the area
of the Premises, if any, which is not usable by Tenant bears to the total area
of the Premises, unless Landlord provides Tenant with other space during the
period of repair that is suitable for the temporary conduct of Tenant's
business. Such abatement shall be the sole remedy of Tenant, and except as
provided herein, Tenant waives any right to terminate the Lease by reason of
damage or casualty loss.

      The provisions of this Lease, including this Section 18, constitute an
express agreement between Landlord and Tenant with respect to any and all damage
to, or destruction of, all or any part of the Premises, and any statute or
regulation which is now or may hereafter be in effect, shall have no application
to this Lease or any damage or destruction to all or any part of the Premises,
the parties



Net Single-Tenant Laboratory       3770 Tansy/Structural GenomiX, Inc. - Page 12

hereto expressly agreeing this Section 18 sets forth their entire understanding
and agreement with respect to such matters.

      19. CONDEMNATION. If any part of the Premises is taken for any public or
quasi-public use under governmental law, ordinance, or regulation, or by right
of eminent domain, or by private purchase in lieu thereof (a "TAKING" or
"TAKEN"), and the Taking would in Landlord's reasonable judgment either prevent
or materially interfere with Tenant's use of the Premises or materially
interfere with or impair Landlord's ownership or operation of the Premises, then
upon written notice by Landlord or Tenant this Lease shall terminate and Rent
shall be apportioned as of said date. If part of the Premises shall be Taken,
and this Lease is not terminated as provided above, Landlord shall promptly
restore the Premises as nearly as is commercially reasonable under the
circumstances to their condition prior to such partial taking and the Rent
payable hereunder during the unexpired Term shall be reduced to such extent as
may be fair and reasonable under the circumstances. Upon any such Taking,
Landlord shall be entitled to receive the entire price or award from any such
Taking without any payment to Tenant, and Tenant hereby assigns to Landlord
Tenant's interest, if any, in such award. Tenant shall have the right, to the
extent that same shall not diminish Landlord's award, to make a separate claim
against the condemning authority (but not Landlord) for such compensation as may
be separately awarded or recoverable by Tenant for moving expenses and damage to
Tenant's trade fixtures, if a separate award for such items is made to Tenant.
Tenant hereby waives any and all rights it might otherwise have pursuant to any
provision of state law to terminate this Lease upon a partial Taking of the
Premises.

      20. EVENTS OF DEFAULT. Each of the following events shall be a default
("DEFAULT") by Tenant under this Lease:

      (a) PAYMENT DEFAULTS. Tenant shall fail to pay any installment of Rent or
any other payment hereunder when due; provided, however, that Landlord will give
Tenant notice and an opportunity to cure any failure to pay Rent within 3 days
of any such notice not more than once in any 12 month period and Tenant agrees
that such notice shall be in lieu of and not in addition to any notice required
by law.

      (b) INSURANCE. Any insurance required to be maintained by Tenant pursuant
to this Lease shall be canceled or terminated or shall expire or shall be
reduced or materially changed, or Landlord shall receive a notice of nonrenewal
of any such insurance and Tenant shall fail to obtain replacement insurance at
least 20 days before the expiration of the current coverage.

      (c) ABANDONMENT. Tenant shall abandon the Premises.

      (d) IMPROPER TRANSFER. Tenant shall assign, sublease or otherwise transfer
or attempt to transfer all or any portion of Tenant's interest in this Lease or
the Premises except as expressly permitted herein, or Tenant's interest in this
Lease shall be attached, executed upon, or otherwise judicially seized and such
action is not released within 90 days of the action.

      (e) LIENS. Tenant shall fail to discharge or otherwise obtain the release
of any lien placed upon the Premises in violation of this Lease within 10 days
after any such lien is filed against the Premises.

      (f) INSOLVENCY EVENTS. Tenant or any guarantor or surety of Tenant's
obligations hereunder shall: (A) make a general assignment for the benefit of
creditors; (B) commence any case, proceeding or other action seeking to have an
order for relief entered on its behalf as a debtor or to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts or seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or of any substantial part of its property (collectively a
"PROCEEDING FOR RELIEF"); (C) become the subject of any Proceeding for Relief
which is not dismissed within 90 days of its filing or entry; or (D) die or
suffer a legal disability (if Tenant, guarantor, or surety is an individual) or
be dissolved or otherwise fail to maintain its legal existence (if Tenant,
guarantor or surety is a corporation, partnership or other entity).



Net Single-Tenant Laboratory       3770 Tansy/Structural GenomiX, Inc. - Page 13

      (g) ESTOPPEL CERTIFICATE OR SUBORDINATION AGREEMENT. Tenant fails to
execute any document required from Tenant under Sections 23 or 27 within 5 days
after a second notice requesting such document.

      (h) OTHER DEFAULTS. Tenant shall fail to comply with any provision of this
Lease other than those specifically referred to in this Section 20, and except
as otherwise expressly provided herein, such failure shall continue for a period
of 10 business days after written notice thereof from Landlord to Tenant.

Any notice given under Section 20 (h) hereof, shall: (i) specify the alleged
default, (ii) demand that Tenant cure such default, (iii) be in lieu of, and not
in addition to, or shall be deemed to be any notice required under any provision
of applicable law, and (iv) not be deemed a forfeiture or a termination of this
Lease unless Landlord elects otherwise in such notice; provided that if the
nature of Tenant's default pursuant to Section 20(h) is such that it cannot be
cured by the payment of money and reasonably requires more than 10 days to cure,
then Tenant shall not be deemed to be in default if Tenant commences such cure
within said 10 day period and thereafter diligently prosecutes the same to
completion; provided, however, that such cure shall be completed no later than
60 days from the date of Landlord's notice.

      21. LANDLORD'S REMEDIES.

      (a) PAYMENT BY LANDLORD; INTEREST. Upon a Default by Tenant hereunder,
Landlord may, without waiving or releasing any obligation of Tenant hereunder,
make such payment or perform such act All sums so paid or incurred by Landlord,
together with interest thereon, from the date such sums were paid or incurred,
at the annual rate equal to 12% per annum or the highest rate permitted by law
(the "DEFAULT RATE"), whichever is less, shall be payable to Landlord on demand
as Additional Rent. Nothing herein shall be construed to create or impose a duty
on Landlord to mitigate any damages resulting from Tenant's Default hereunder.

      (b) LATE PAYMENT RENT. Late payment by Tenant to Landlord of Rent and
other sums due will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult and impracticable
to ascertain. Such costs include, but are not limited to, processing and
accounting charges and late charges which may be imposed on Landlord under any
Mortgage covering the Premises. Therefore, if any installment of Rent due from
Tenant is not received by Landlord within 5 days after the date such payment is
due, Tenant upon notice from Landlord shall pay to Landlord an additional sum of
6% of the overdue Rent as a late charge. The parties agree that this late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of late payment by Tenant. In addition to the late charge, Rent not paid
when due shall bear interest at the Default Rate from the 5th day after the date
due until paid.

      (c) REMEDIES. Upon the occurrence of a Default, Landlord, at its option,
without further notice or demand to Tenant, shall have in addition to all other
rights and remedies provided in this Lease, at law or in equity, the option to
pursue anyone or more of the following remedies, each and all of which shall be
cumulative and nonexclusive, without any notice or demand whatsoever.

            (i) Terminate this Lease, or at Landlord's option, Tenant's right to
      possession only, in which event Tenant shall immediately surrender the
      Premises to Landlord, and if Tenant fails to do so, Landlord may, without
      prejudice to any other remedy which it may have for possession or
      arrearages in rent, enter upon and take possession of the Premises and
      expel or remove Tenant and any other person who may be occupying the
      Premises or any part thereof, without being liable for prosecution or any
      claim or damages therefor;

            (ii) Upon any termination of this Lease, whether pursuant to the
      foregoing Section 21 (c)(i) or otherwise, Landlord may recover from Tenant
      the following:

                  (A) The worth at the time of award of any unpaid rent which
            has been earned at the time of such termination; plus



Net Single-Tenant Laboratory       3770 Tansy/Structural GenomiX, Inc. - Page 14

                  (B) The worth at the time of award of the amount by which the
            unpaid rent which would have been earned after termination until the
            time of award exceeds the amount of such rental loss that Tenant
            proves could have been reasonably avoided; plus

                  (C) The worth at the time of award of the amount by which the
            unpaid rent for the balance of the Term after the time of award
            exceeds the amount of such rental loss that Tenant proves could have
            been reasonably avoided; plus

                  (D) Any other amount necessary to compensate Landlord for all
            the detriment proximately caused by Tenant's failure to perform its
            obligations under this Lease or which in the ordinary course of
            things would be likely to result therefrom, specifically including
            but not limited to, brokerage commissions and advertising expenses
            incurred, reasonable expenses of remodeling the Premises or any
            portion thereof for a new tenant and any special concessions
            reasonably made to obtain a new tenant; and

                  (E) At Landlord's election, such other amounts in addition to
            or in lieu of the foregoing as may be permitted from time to time by
            applicable law.

      The term "RENT" as used in this Section 21 shall be deemed to be and to
      mean all sums of every nature required to be paid by Tenant pursuant to
      the terms of this Lease, whether to Landlord or to others. As used in
      Sections 21(c)(ii) (A) and (B), above, the "WORTH AT THE TIME OF AWARD"
      shall be computed by allowing interest at the Default Rate. As used in
      Section 21(c)(ii)(C) above, the "WORTH AT THE TIME OF AWARD" shall be
      computed by discounting such amount at the discount rate of the Federal
      Reserve Bank of San Francisco at the time of award plus 1%.

            (iii) Landlord may continue this Lease in effect after Tenant's
      Default and recover rent as it becomes due. Accordingly, if Landlord does
      not elect to terminate this Lease following a Default by Tenant, Landlord
      may, from time to time, without terminating this Lease, enforce all of its
      rights and remedies hereunder, including the right to recover all Rent as
      it becomes due.

            (iv) Whether or not Landlord elects to terminate this Lease
      following a Default by Tenant, Landlord shall have the right to terminate
      any and all subleases, licenses, concessions or other consensual
      arrangements for possession entered into by Tenant and affecting the
      Premises or may, in Landlord's sale discretion, succeed to Tenant's
      interest in such subleases, licenses, concessions or arrangements. Upon
      Landlord's election to succeed to Tenant's interest in any such subleases,
      licenses, concessions or arrangements, Tenant shall, as of the date of
      notice by Landlord of such election, have no further right to or interest
      in the rent or other consideration receivable thereunder.

            (v) Independent of the exercise of any other remedy of Landlord
      hereunder or under applicable law, Landlord may conduct an environmental
      test of the Premises as generally described in Section 30(d) hereof, at
      Tenant's expense.

      (d) EFFECT OF EXERCISE. Exercise by Landlord of any remedies hereunder or
otherwise available shall not be deemed to be an acceptance of surrender of the
Premises and/or a termination of this Lease by Landlord, it being understood
that such surrender and/or termination can be effected only by the express
written agreement of Landlord and Tenant. Any law, usage, or custom to the
contrary notwithstanding, Landlord shall have the right at all times to enforce
the provisions of this Lease in strict accordance with the terms hereof; and the
failure of Landlord at any time to enforce its rights under this Lease strictly
in accordance with same shall not be construed as having created a custom in any
way or manner contrary to the specific terms, provisions, and covenants of this
Lease or as having modified the same and shall not be deemed a waiver of
Landlord's right to enforce one or more of its rights in connection with any
subsequent default. A receipt by Landlord of Rent or other payment with
knowledge of the breach of any covenant hereof shall not be deemed a waiver of
such breach, and no waiver by Landlord of any provision of this Lease shall be
deemed to have been made unless expressed in writing and signed by Landlord. To
the greatest extent permitted by law, Tenant waives the service of notice of



Net Single-Tenant Laboratory       3770 Tansy/Structural GenomiX, Inc. - Page 15

Landlord's intention to re-enter, re-take or otherwise obtain possession of the
Premises as provided in any statute, or to institute legal proceedings to that
end, and also waives all right of redemption in case Tenant shall be
dispossessed by a judgment or by warrant of any court or judge. Any reletting of
the Premises or any portion thereof shall be on such terms and conditions as
Landlord in its sale discretion may determine. Landlord shall not be liable, nor
shall Tenant's obligations hereunder be diminished because of, Landlord's
failure to relet the Premises or collect rent due in respect of such reletting
or otherwise to mitigate any damages arising by reason of Tenant Default.

      22. ASSIGNMENT AND SUBLETTING.

      (a) GENERAL PROHIBITION. Without Landlord's prior written consent subject
to and on the conditions described in this Section 22, Tenant shall not,
directly or indirectly, voluntarily or by operation of law, assign this Lease or
sublease the Premises or any part thereof or mortgage, pledge, or hypothecate
its leasehold interest or grant any concession or license within the Premises
and any attempt to do any of the foregoing shall be void and of no effect. If
Tenant is a corporation, the shares of which are not actively traded upon a
stock exchange or in the over-the-counter market, a transfer or series of
transfers whereby 25% or more of the issued and outstanding shares of such
corporation are, or voting control is, transferred (but excepting transfers upon
deaths of individual shareholders and transfers in connection with one or more
public or private offerings of the capital stock of Tenant for the purpose of
raising capital for Tenant's ongoing operations) from a person or persons or
entity or entities which were owners thereof at time of execution of this Lease
to persons or entities who were not owners of shares of the corporation at time
of execution of this Lease, shall be deemed an assignment of this Lease
requiring the consent of Landlord as provided in this Section 22.

      (b) PERMITTED TRANSFERS. If Tenant desires to assign, sublease,
hypothecate or otherwise transfer this Lease or sublet the Premises, other than
pursuant to a Permitted Assignment (as defined below), then at least 15 business
days, but not more than 45 business days, before the date Tenant desires the
assignment or sublease to be effective (the "ASSIGNMENT DATE"), Tenant shall
give Landlord a notice (the "ASSIGNMENT NOTICE") containing such information
about the proposed assignee or sublessee, including the proposed use of the
Premises and any Hazardous Materials proposed to be used or stored in the
Premises, the Assignment Date, any relationship between Tenant and the proposed
assignee or sublessee, and all material terms and conditions of the proposed
assignment or sublease, including a copy of any proposed sublease in its final
form, and such other information as Landlord may deem reasonably necessary or
appropriate to its consideration whether to grant its consent. Landlord may, by
giving written notice to Tenant within 15 business days after receipt of the
Assignment Notice: (i) grant or refuse such consent, in its sole discretion with
respect to a proposed assignment, hypothecation or other transfer or subletting
of more than (together with all other then effective subleases) 50% of the
Premises, or grant or refuse such consent, in its reasonable discretion with
respect to a proposed subletting of up to (together with all other then
effective subleases) 50% of the Premises (provided that Landlord shall further
have the right to review and approve or disapprove the proposed form of sublease
prior to the effective date of any such subletting), or (ii) terminate this
Lease with respect to the space described in the Assignment Notice, as of the
Assignment Date (an "ASSIGNMENT TERMINATION"). If Landlord elects an Assignment
Termination, Tenant shall have the right to withdraw such Assignment Notice by
written notice to Landlord of such election within 5 days after Landlord's
notice electing to exercise the Assignment Termination. If Tenant withdraws such
Assignment Notice, this Lease shall continue in full force and effect. If Tenant
does not withdraw such Assignment Notice, this Lease, and the term and estate
herein granted, shall terminate as of the Assignment Date with respect to the
space described in such Assignment Notice. No failure of Landlord to exercise
any such option to terminate this Lease shall be deemed to be Landlord's consent
to the proposed assignment, sublease or other transfer. Tenant shall reimburse
Landlord for all of Landlord's reasonable out-of-pocket expenses in connection
with its consideration of any Assignment Notice.

      In addition, Tenant shall have the right to assign this Lease, upon 30
days prior written notice to Landlord but without obtaining Landlord's prior
written consent, to a corporation or other entity which is a
successor-in-interest to Tenant, by way of merger, consolidation or corporate
reorganization, or by the purchase of all or substantially all of the assets or
the ownership interests of the Tenant provided that (i)



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such merger or consolidation, or such acquisition or assumption, as the case may
be, is for a good business purpose and not principally for the purpose of
transferring the Lease, and (ii) the net worth (as determined in accordance with
generally accepted accounting principles, consistently applied ("GAAP") of the
assignee is not less than the net worth (as determined in accordance with GAAP)
of Tenant as of the Effective Date, (iii) such assignee shall agree in writing
to assume all of the terms, covenants and conditions of this Lease arising after
the effective date of the assignment, and (iv) the Rent to be paid by such
assignee to Landlord pursuant to this Lease will be treated as "rents from real
property" under Section 856 of the Internal Revenue Code (a "PERMITTED
ASSIGNMENT").

      (c) ADDITIONAL CONDITIONS. As a condition to any such assignment or
subletting, whether or not Landlord's consent is required, Landlord may require:

            (i) that any assignee or subtenant agree, in writing at the time of
      such assignment or subletting, that if Landlord gives such party notice
      that Tenant is in default under this Lease, such party shall thereafter
      make all payments otherwise due Tenant directly to Landlord, which
      payments will be received by Landlord without any liability except to
      credit such payment against those due under the Lease, and any such third
      party shall agree to attorn to Landlord or its successors and assigns
      should this Lease be terminated for any reason; provided, however, in no
      event shall Landlord or its successors or assigns be obligated to accept
      such attornment; and

            (ii) A list of Hazardous Materials, certified by the proposed
      assignee or sublessee to be true and correct, which the proposed assignee
      or sublessee intends to use or store in the Premises together with copies
      of all documents relating to the handling, storage, disposal and emission
      of Hazardous Materials by the proposed assignee or subtenant in the
      Premises or on the Premises, prior to the proposed assignment or
      subletting, including, without limitation: permits; approvals; reports and
      correspondence; storage and management plans; plans relating to the
      installation of any storage tanks to be installed in or under the Premises
      (provided, said installation of tanks shall only be permitted after
      Landlord has given its written consent to do so, which consent may be
      withheld in Landlord's sole and absolute discretion); and all closure
      plans or any other documents required by any and all federal, state and
      local governmental agencies and authorities for any storage tanks
      installed in, on or under the Premises for the closure of any such tanks.
      Neither Tenant nor any such proposed assignee or subtenant is required,
      however, to provide Landlord with any portion(s) of such documents
      containing information of a proprietary nature which, in and of
      themselves, do not contain a reference to any Hazardous Materials or
      hazardous activities.

      (d) NO RELEASE OF TENANT, SHARING OF RENT. Notwithstanding any assignment
or subletting, Tenant and any guarantor or surety of Tenant's obligations under
this Lease shall at all times remain fully and primarily responsible and liable
for the payment of Rent and for compliance with all of Tenant's other
obligations under this Lease. If the Rent due and payable by a sublessee or
assignee (or a combination of the rental payable under such sublease or
assignment plus any bonus or other consideration therefor or incident thereto)
exceeds the rental payable under this Lease, (excluding however, any Rent
payable under this Section), then Tenant shall be bound and obligated to pay
Landlord as Additional Rent hereunder 50% of such excess rental and other excess
consideration within 10 days following receipt thereof by Tenant. If Tenant
shall sublet the Premises or any part thereof, Tenant hereby immediately and
irrevocably assigns to Landlord, as security for Tenant's obligations under this
lease, all rent from any such subletting and Landlord as assignee and as
attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlord's
application, may collect such rent and apply it toward Tenant's obligations
under this lease; except that, until the occurrence of a Default, Tenant shall
have the right to collect such rent.

      (e) NO WAIVER. The consent by Landlord to an assignment or subletting
shall not relieve Tenant or any assignees of this Lease or any sublessees of the
Premises from obtaining the consent of Landlord to any further assignment or
subletting nor shall it release Tenant or any assignee or sublessee of Tenant
from full and primary liability under the Lease. The acceptance of Rent
hereunder, or the acceptance of performance of any other term, covenant, or
condition thereof, from any other person or



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entity shall not be deemed to be a waiver of any of the provisions of this Lease
or a consent to any subletting, assignment or other transfer of the Premises.

      (f) TERMINATION OF LEASE. Notwithstanding any other provision of this
Section 22, if (i) the proposed assignee or sublessee of Tenant has been
required by any prior landlord, lender or governmental authority to take
remedial action in connection with Hazardous Materials contaminating a property,
where the contamination resulted from such party's action or use of the property
in question, or (ii) the proposed assignee or sublessee is subject to an
enforcement order issued by any governmental authority in connection with the
use, disposal or storage of Hazardous Materials, Landlord shall have the
absolute right to refuse to consent to any assignment or subletting to any such
party.

      23. ESTOPPEL CERTIFICATE. Tenant shall within 10 business days of written
notice from Landlord, execute, acknowledge and deliver a statement in writing
substantially in the form attached to this Lease as EXHIBIT E with the blanks
filled in, and on any other form reasonably requested by a proposed lender or
purchaser, (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease as so modified is in full force and effect) and the dates to
which the rental and other charges are paid in advance, if any, (ii)
acknowledging that there are not any uncured defaults on the part of Landlord
hereunder, or specifying such defaults if any are claimed, and (iii) setting
forth such further information with respect to the status of this Lease or the
Premises as may be reasonably requested thereon. Any such statement may be
relied upon by any prospective purchaser or encumbrancer of all or any portion
of the real property of which the Premises are a part. Tenant's failure to
deliver such statement within such time shall, at the option of Landlord,
constitute a Default under this Lease, and, in any event, shall be conclusive
upon Tenant that the Lease is in full force and effect and without modification
except as may be represented by Landlord in any certificate prepared by Landlord
and delivered to Tenant for execution.

      24. QUIET ENJOYMENT. So long as Tenant shall perform all of the covenants
and agreements herein required to be performed by Tenant, Tenant shall, subject
to the terms of this Lease, at all times during the Term, have peaceful and
quiet enjoyment of the Premises against any person claiming by, through or under
Landlord.

      25. PRORATIONS. All prorations required or permitted to be made hereunder
shall be made on the basis of a 360 day year and 30 day months.

      26. [INTENTIONALLY OMITTED]

      27. SUBORDINATION. This Lease and Tenant's interest and rights hereunder
are and shall be subject and subordinate at all times to the lien of any
Mortgage, now existing or hereafter created on or against the Premises, and all
amendments, restatements, renewals, modifications, consolidations, refinancing,
assignments and extensions thereof, without the necessity of any further
instrument or act on the part of Tenant; provided, however, that so long as
there is no Default hereunder, Tenant's right to possession of the Premises
shall not be disturbed by the Holder of any such Mortgage. Tenant agrees, at the
election of the Holder of any such Mortgage, to attorn to any such Holder.
Tenant agrees upon demand to execute, acknowledge and deliver a Subordination,
Non-disturbance and Attornment Agreement in the form attached hereto as EXHIBIT
F, or such other instruments, confirming such subordination and such instruments
of attornment as shall be requested by any such Holder, provided any such
instruments contain appropriate non-disturbance provisions assuring Tenant's
quiet enjoyment of the Premises as set forth in Section 24 hereof.
Notwithstanding the foregoing, any such Holder may at any time subordinate its
Mortgage to this Lease, without Tenant's consent, by notice in writing to
Tenant, and thereupon this Lease shall be deemed prior to such Mortgage without
regard to their respective dates of execution, delivery or recording and in that
event such Holder shall have the same rights with respect to this Lease as
though this Lease had been executed prior to the execution, delivery and
recording of such Mortgage .and had been assigned to such Holder. The term
"MORTGAGE" whenever used in this Lease shall be deemed to include deeds of
trust, security assignments and any other encumbrances, and any reference to the
"HOLDER" of a mortgage shall be deemed to include the beneficiary under a deed
of trust.



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      28. SURRENDER. Upon expiration of the Term or earlier termination of
Tenant's right of possession, Tenant shall surrender the Premises to Landlord in
the same condition as received, subject to any Alterations permitted by Landlord
to remain in the Premises, free of Hazardous Materials brought upon, kept or
used in or about the Premise by any person other than Landlord, its agents,
employees, contractors or invitees and released of all Hazardous Materials
Clearances, broom Clean, ordinary wear and tear and casualty loss and
condemnation covered by Sections 18 and 19 excepted. Nothing in this Section 28
shall be construed to eliminate Tenant's obligation to surrender the Area B
Premises to Landlord in substantially the condition shown on EXHIBIT G if
Landlord so elects. Tenant shall immediately return to Landlord all keys and/or
access cards to parking, restrooms or all or any portion of the Premises
furnished to, or otherwise procured by Tenant. If any such access card or key is
lost, Tenant shall pay to Landlord, at Landlord's election, either the cost of
replacing such lost access card or key or the cost of reprogramming the access
security system in which such access card was used or changing the lock or locks
opened by such lost key. Any Tenant's Property, Alterations and property not so
removed by Tenant as permitted or required herein shall be deemed abandoned and
may be stored, removed, and disposed of by Landlord at Tenant's expense, and
Tenant waives all claims against Landlord for any damages resulting from
Landlord's retention and/or disposition of such property. All obligations of
Tenant hereunder not fully performed as of the termination of the Term,
including the obligations of Tenant under Section 30 hereof, shall survive the
expiration or earlier termination of the Term, including without limitation,
indemnity obligations, payment obligations with respect to Rent and obligations
concerning the condition and repair of the Premises.

      29. WAIVER OF JURY TRIAL. TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY
JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS
LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.

      30. ENVIRONMENTAL REQUIREMENTS.

      (a) PROHIBITION/COMPLIANCE/INDEMNITY. Tenant shall not cause or permit any
Hazardous Materials (as hereinafter defined) to be brought upon, kept or used in
or about the Premises in violation of applicable law by Tenant, its agents,
employees, contractors or invitees. If Tenant breaches the obligation stated in
the preceding sentence, or if the presence of Hazardous Materials in or on the
Premises during the Term of this Lease results in contamination of the Premises,
or any adjacent property or if contamination of the Premises, or any adjacent
property by Hazardous Materials brought into the Premises by anyone other than
Landlord and Landlord's employees, agents and contractors otherwise occurs
during the term of this Lease or any extension or renewal hereof or holding over
hereunder, Tenant hereby indemnifies and shall defend and hold Landlord, its
officers, directors, employees, agents and contractors harmless from and against
any and all claims, judgments, damages, penalties, fines, costs, liabilities, or
losses (including, without limitation, diminution in value of the Premises or
any portion of the Premises, damages for the loss or restriction on use of
rentable or usable space or of any amenity of the Premises, damages arising from
any adverse impact on marketing of space in the Premises, and sums paid in
settlement of claims, attorneys' fees, charges, disbursements, consultants' fees
and experts' fees) which arise during or after the Lease term as a result of
such contamination. This indemnification of Landlord by Tenant includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any cleanup, remedial, removal, materials, or restoration work
required by any federal, state or local governmental agency or political
subdivision because of Hazardous Materials present in the air, sailor ground
water above, on, or under the Premises. Without limiting the foregoing, if the
presence of any Hazardous Materials on the Premises, or any adjacent property,
caused or permitted by Tenant results in any contamination of the Premises, or
any adjacent property, Tenant shall promptly take all actions at its sole
expense and in accordance with applicable law as are necessary to return the
Premises, or any adjacent property, as near to the condition existing prior to
the time of such contamination as is commercially practicable and in no event in
a condition which could result in any violation of any applicable federal, state
or local law, rule, regulation or administrative order or ruling, provided that
Landlord's approval of such action shall first be obtained,



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which approval shall not unreasonably be withheld so long as such actions would
not potentially have any material adverse long-term or short-term effect on the
Premises.

      (b) BUSINESS. Landlord acknowledges that it is not the intent of this
Article 30 to prohibit Tenant from using the Premises for the Permitted Use.
Tenant may operate its business according to the custom of the industry so long
as the use or presence of Hazardous Materials is strictly and properly monitored
according to all applicable governmental requirements. As a material inducement
to Landlord to allow Tenant to use Hazardous Materials in connection with its
business, Tenant agrees to deliver to Landlord prior to the Commencement Date a
list identifying each type of Hazardous Materials to be present on the Premises
and setting forth any and all governmental approvals or permits required in
connection with the presence of such Hazardous Materials on the Premises
("HAZARDOUS MATERIALS LIST"). Tenant shall deliver to Landlord an updated
Hazardous Materials List at least once a year and shall also deliver an updated
list before any new Hazardous Material(s) is brought onto the Premises. Tenant
shall deliver to Landlord true and correct copies of the following documents
(the "HAZ MAT DOCUMENTS") relating to the handling, use, storage, disposal and
emission of Hazardous Materials prior to the Commencement Date, or if
unavailable at that time, concurrent with the receipt from or submission to a
governmental agency: permits; approvals; reports and correspondence; storage and
management plans, notice of violations of any laws; plans relating to the
installation of any underground storage tanks to be installed in or under the
Premises (provided, said installation of tanks shall only be permitted after
Landlord has given Tenant its written consent to do so, which consent may be
withheld in Landlord's sale and absolute discretion); and all closure plans or
any other documents required by any and all federal, state and focal
governmental agencies and authorities for any storage tanks installed in, on or
under the Premises for the closure of any such tanks. Tenant is not required,
however, to provide Landlord with any portion(s) of the Haz Mat Documents
containing information of a proprietary nature which, in and of themselves, do
not contain a reference to any Hazardous Materials or hazardous activities. It
is not the intent of this Section to provide Landlord with information which
could be detrimental to Tenant's business should such information become
possessed by Tenant's competitors.

      (c) TENANT REPRESENTATION AND WARRANTY. Tenant hereby represents and
warrants to Landlord that (i) neither Tenant nor any of its legal predecessors
has been required by any prior landlord, lender or governmental authority at any
time to take remedial action in connection with Hazardous Materials
contaminating a property which contamination was permitted by Tenant of such
predecessor or resulted from Tenant's or such predecessor's action or use of the
property in question, and (ii) Tenant is not subject to any enforcement order
issued by any governmental authority in connection with the use, disposal or
storage of a Hazardous Materials. If Landlord determines that this
representation and warranty was not true as of the date of this lease, Landlord
shall have the right to terminate this Lease in Landlord's sole and absolute
discretion.

      (d) TESTING. Landlord shall have the right to conduct annual tests of the
Premises to determine whether any contamination has occurred as a result of
Tenant's use. Tenant shall be required to pay the cost of such annual test of
the Premises; provided, however, that if Tenant conducts its own tests of the
Premises using third party contractors and test procedures acceptable to
Landlord which tests are certified to Landlord, Landlord shall accept such tests
in lieu of the annual tests to be paid for by Tenant. In addition, at any time,
and from time to time, prior to the expiration or earlier termination of the
Term, Landlord shall have the right to conduct appropriate tests of the Premises
to determine if contamination has occurred as a result of Tenant's use of the
shall pay all costs to conduct such tests. If no such contamination is found,
Landlord shall pay the costs of such tests (which shall not constitute an
Operating Expense). Landlord shall provide, without representation or warranty
of, subject to a confidentiality agreement, Tenant with a copy of all third
party, non-confidential reports and tests of the Premises made by or on behalf
of Landlord. Landlord's receipt of or satisfaction with any environmental
assessment in no way waives any rights that Landlord holds against Tenant.

      (e) UNDERGROUND TANKS. If underground or other storage tanks storing
Hazardous Materials are located on the Premises as of the date hereof and used
at any time by Tenant or are hereafter placed on the Premises by Tenant, its
agents, servants, employees, invitees and contractors, Tenant shall monitor the
storage tanks, maintain appropriate records, implement reporting procedures,
properly close



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any underground storage tanks, and take or cause to be taken all other actions
necessary or required under applicable state and federal law, as such now exists
or may hereafter be adopted or amended.

      (f) TENANT'S OBLIGATIONS. Tenant's obligations under this Article 30 shall
survive the expiration or earlier termination of the Lease. During any period of
time after the expiration or earlier termination of this Lease required by
Tenant or Landlord to complete the removal from the Premises of any Hazardous
Materials and the release and termination of any licenses or permits restricting
the use of the Premises, Tenant shall continue to pay the full Rent in
accordance with this Lease for any portion of the Premises not relet by Landlord
in Landlord's sale discretion, which Rent shall be prorated daily.

      (g) DEFINITION OF "HAZARDOUS MATERIALS." As used herein, the term
"HAZARDOUS MATERIALS" means and includes any substance, material, waste,
pollutant, or contaminant listed or defined as hazardous or toxic, or regulated
by reason of its impact or potential impact on humans, animals and/or the
environment under any Environmental Requirements, asbestos and petroleum,
including crude oil or any fraction thereof, natural gas liquids, liquefied
natural gas, or synthetic gas usable for fuel (or mixtures bf natural gas and
such synthetic gas). As defined in Environmental Requirements, Tenant is and
shall be deemed to be the "operator" of Tenant's "facility" and the "owner" of
all Hazardous Materials brought on the Premises by Tenant, its agents,
employees, contractors or invitees, and the wastes, by-products, or residues
generated, resulting, or produced therefrom.

      31. TENANT'S REMEDIES/LIMITATION OF LIABILITY. Landlord shall not be in
default hereunder unless Landlord fails to perform any of its obligations
hereunder within 30 days after written notice from Tenant specifying such
failure (unless such performance will, due to the nature of the obligation,
require a period of time in excess of 30 days, then after such period of time as
is reasonably necessary). Upon any default by Landlord, Tenant shall give notice
by registered or certified mail to any Holder of a Mortgage covering the
Premises and to any landlord of any lease of property in or on which the
Premises are located and Tenant shall offer such beneficiary, Holder and/or
landlord a reasonable opportunity to cure the default, including time to obtain
possession of the Premises by power of sale or a judicial action if such should
prove necessary to effect a cure; provided Landlord shall have furnished to
Tenant in writing the names and addresses of all such persons who are to receive
such notices. All obligations of Landlord hereunder shall be construed as
covenants, not conditions; and, except as may be otherwise expressly provided in
this Lease, Tenant may not terminate this Lease for breach of Landlord's
obligations hereunder.

      All obligations of Landlord under this Lease will be binding upon Landlord
only during the period of its ownership of the Premises and not thereafter. The
term "LANDLORD" in this Lease shall mean only the owner, for the time being of
the Premises, and upon the transfer by such owner of its interest in the
Premises, such owner shall thereupon be released and discharged from all
obligations of Landlord thereafter accruing, but such obligations shall be
binding during the Term upon each new owner for the duration of such owner's
ownership.

      32. INSPECTION AND ACCESS. Subject to Tenant's reasonable security and
safety requirements, Landlord and its agents, representatives, and contractors
may enter the Premises at any reasonable time to inspect the Premises and to
make such repairs as may be required or permitted pursuant to this Lease and for
any other business purpose. Landlord and Landlord's representatives may enter
the Premises during business hours on not less than 48 hours advance written
notice (except in the case of emergencies in which case no such notice shall be
required and such entry may be at any time) for the purpose of effecting any
such repairs, inspecting the Premises, showing the Premises to prospective
purchasers and, during the last year of the Term, to prospective tenants or for
any other business purpose. Landlord may erect a suitable sign on the Premises
stating the Premises are available to let or are available for sale. Landlord
may grant easements, make public dedications, designate common areas and create
restrictions on or about the Premises, provided that no such easement,
dedication, designation or restriction materially, adversely affects Tenant's
use or occupancy of the Premises for the Permitted use. At Landlord's request,
Tenant shall execute such instruments as may be necessary for such easements,
dedications or restrictions. Tenant shall at all times, except in the case of
emergencies, have the right to escort Landlord or its agents, representatives,
contractors or guests while



Net Single-Tenant Laboratory       3770 Tansy/Structural GenomiX, Inc. - Page 21

the same are in the Premises, provided such escort does not materially and
adversely affect Landlord's access rights hereunder.

      33. SECURITY. Tenant acknowledges and agrees that security devices and
services, if any, while intended to deter crime may not in given instances
prevent theft or other criminal acts and that Landlord is not providing any
security services with respect to the Premises. Tenant agrees that Landlord
shall not be liable to Tenant for, and Tenant waives any claim against Landlord
with respect to, any loss by theft or any other damage suffered or incurred by
Tenant in connection with any unauthorized entry into the Premises or any other
breach of security with respect to the Premises. Tenant shall be solely
responsible for the personal safety of Tenant's officers, employees, agents,
contractors, guests and invitees while any such person is in, on or about the
Premises. Tenant shall at Tenant's cost obtain insurance coverage to the extent
Tenant desires protection against such criminal acts.

      34. FORCE MAJEURE. Landlord shall not be held responsible for delays in
the performance of its obligations hereunder when caused by strikes, lockouts,
labor disputes, weather, natural disasters, inability to obtain labor or
materials or reasonable substitutes therefor, governmental restrictions,
governmental regulations, governmental controls, delay in issuance of permits,
enemy or hostile governmental action, civil commotion, fire or other casualty,
and other causes beyond the reasonable control of Landlord ("FORCE MAJEURE").
Tenant shall not be held responsible for delays in the performance of its
obligations, excluding Tenant's monetary obligations or any obligation that may
be satisfied by the payment of any commercially reasonable sum to any person,
hereunder when caused by Force Majeure delays.

      35. BROKERS, ENTIRE AGREEMENT, AMENDMENT. Landlord and Tenant each
represent and warrant that it has not dealt with any broker, agent or other
person (collectively, "BROKER) in connection with this transaction and that no
Broker brought about this transaction, other than CB Richard Ellis, Inc. and
John Burnham Real Estate Services, Inc., who will be paid a commission by
Landlord pursuant to a separate agreement. Landlord and Tenant each hereby agree
to indemnify and hold the other harmless from and against any claims by any
other Broker claiming a commission or other form of compensation by virtue of
having dealt with Tenant or Landlord, as applicable, with regard to this leasing
transaction. This Lease may not be amended except by an instrument in writing
signed by both parties hereto.

      36. LIMITATION ON LANDLORD'S LIABILITY. NOTWITHSTANDING ANYTHING SET FORTH
HEREIN OR IN ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT TO THE CONTRARY:
(A) LANDLORD SHALL NOT BE LIABLE TO TENANT OR ANY OTHER PERSON FOR (AND TENANT
AND EACH SUCH OTHER PERSON ASSUME ALL RISK OF) LOSS, DAMAGE OR INJURY, WHETHER
ACTUAL OR CONSEQUENTIAL TO: TENANT'S PERSONAL PROPERTY OF EVERY KIND AND
DESCRIPTION, INCLUDING, WITHOUT LIMITATION TRADE FIXTURES, EQUIPMENT, INVENTORY,
SCIENTIFIC RESEARCH, SCIENTIFIC EXPERIMENTS, LABORATORY ANIMALS, PRODUCT,
SPECIMENS, SAMPLES, AND/OR SCIENTIFIC, BUSINESS, ACCOUNTING AND OTHER RECORDS OF
EVERY KIND AND DESCRIPTION KEPT AT THE PREMISES AND ANY AND ALL INCOME DERIVED
OR DERIVABLE THEREFROM; (B) THERE SHALL BE NO PERSONAL RECOURSE TO LANDLORD FOR
ANY ACT OR OCCURRENCE IN, ON OR ABOUT THE PREMISES OR ARISING IN ANY WAY UNDER
THIS LEASE OR ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT WITH RESPECT TO
THE SUBJECT MATTER HEREOF AND ANY LIABILITY OF LANDLORD HEREUNDER SHALL BE
STRICTLY LIMITED SOLELY TO LANDLORD'S INTEREST IN THE PREMISES, AND IN NO EVENT
SHALL ANY PERSONAL LIABILITY BE ASSERTED AGAINST LANDLORD IN CONNECTION WITH
THIS LEASE NOR SHALL ANY RECOURSE BE HAD TO ANY OTHER PROPERTY OR ASSETS OF
LANDLORD OR ANY OF LANDLORD'S OFFICERS, EMPLOYEES, AGENTS OR CONTRACTORS. UNDER
NO CIRCUMSTANCES SHALL LANDLORD OR ANY OF LANDLORD'S OFFICERS, EMPLOYEES, AGENTS
OR CONTRACTORS BE LIABLE FOR INJURY TO TENANT'S BUSINESS OR FOR ANY LOSS OF
INCOME OR PROFIT THEREFROM.

      37. SEVERABILITY. If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or future laws, then and in that event,
it is the intention of the parties hereto that the



Net Single-Tenant Laboratory       3770 Tansy/Structural GenomiX, Inc. - Page 22

remainder of this Lease shall not be affected thereby. It is also the intention
of the parties to this Lease that in lieu of each clause or provision of this
Lease that is illegal, invalid or unenforceable, there be added, as a part of
this Lease, a clause or provision as similar in terms to such illegal, invalid
or unenforceable clause or provision as may be possible and be legal, valid and
enforceable.

      38. SIGNS; EXTERIOR APPEARANCE. Tenant shall not, without the prior
written consent of Landlord which may be granted or withheld in Landlord's sole
discretion: (i) attach any awnings, exterior lights, decorations, balloons,
flags, pennants, banners, painting or other projection to any outside wall of
the Premises, (ii) use any curtains, blinds, shades or screens other than
Landlord's standard window coverings, (iii) coat or otherwise sunscreen the
interior or exterior of any windows, (iv) place any bottles, parcels, or other
articles on the window sills, (v) place any equipment, furniture or other items
of personal property on any exterior balcony, (vi) paint, affix or exhibit on
any part of the Premises any signs, notices, window or door lettering, placards,
decorations, or advertising media of any type which can be viewed from the
exterior of the Premises. Interior signs on doors and the directory tablet shall
be inscribed, painted or affixed for Tenant by Landlord at the sale cost and
expense of Tenant, and shall be of a size, color and type acceptable to
Landlord. Nothing may be placed on the exterior of corridor walls or corridor
doors other than Landlord's standard lettering. The directory tablet shall be
provided exclusively for the display of the name and location of tenants.
Notwithstanding anything contained in this Section to the contrary, Tenant shall
have the right to place one sign ("TENANT'S SIGN") with Tenant's name on the
exterior of the Premises, conforming to the size and design of signs in the area
in which the Premises are located, with the consent of Landlord, which consent
Landlord shall not unreasonably withhold. Tenant shall be solely responsible for
all costs, fees, charges, expenses or other sums related to Tenant's Sign,
including without limitation, costs related to (i) manufacture and installation
of Tenant's Sign, (ii) removal of Tenant's Sign upon the expiration or earlier
termination of the Term, (iii) permits required by any Governmental Authority
with respect to Tenant's Sign, and (iv) conforming Tenant's Sign to Legal
Requirements. Tenant acknowledges that Landlord shall have the right to place a
monument sign on the Premises with respect to the office park in which the
Premises are located.

      39. RIGHT TO EXTEND TERM. Tenant shall have the right to extend the Term
of the Lease upon the following terms and conditions:

      (a) EXTENSION RIGHT. Tenant shall have the right ("EXTENSION RIGHT") to
extend the term of this Lease for 3 years ("EXTENSION TERM") on the same terms
and conditions as this Lease by giving Landlord written notice of its election
to exercise the Extension Right at least six months prior to the expiration of
the initial Term of the Lease.

During the Extension Term, Base Rent shall be payable at the greater of: (i) the
Market Rate (as defined below), and (ii) 104% of the Base Rent payable during
the month immediately preceding the commencement of the Extension Term. Base
Rent shall be increased on each annual anniversary of the commencement of such
Extension Term by 4% of the Base Rent payable during the last month of the
immediately preceding Lease Year. As used herein, "MARKET RATE" shall mean the
then triple net market rental rate as determined by Landlord and agreed to by
Tenant, which shall in no event be less than the Base Rent payable as of the
date immediately preceding the commencement of such Extension Term increased by
the Rent Adjustment Percentage multiplied by such Base Rent. In addition, to the
extent not included in the Market Rate for the Premises, Landlord may impose a
market rent for the parking rights provided hereunder. If, on or before the date
which is 120 days prior to the expiration of the initial Term of this Lease,
Tenant has not agreed with Landlord's determination of the Market Rate and the
rent escalations during such subsequent Extension Term after negotiating in good
faith, Tenant may by written notice to Landlord elect arbitration as described
in Section 39(b) below. If Tenant does not elect such arbitration, Tenant shall
be deemed to have waived any right to extend, or further extend, the Term of the
Lease.

      (b) ARBITRATION.

            (i) Within 10 days of Tenant's notice to Landlord of its election to
      arbitrate Market Rate and escalations, each party shall deliver to the
      other a proposal containing the Market Rate



Net Single-Tenant Laboratory       3770 Tansy/Structural GenomiX, Inc. - Page 23

      and escalations that the submitting party believes to be correct
      ("EXTENSION PROPOSAL). If either party fails to timely submit an Extension
      Proposal, the other party's submitted proposal shall determine the Base
      Rent for the Extension Term. If both parties submit Extension Proposals,
      then Landlord and Tenant shall meet within 7 days after delivery of the
      last Extension Proposal and make a good faith attempt to mutually appoint
      a single Arbitrator to determine the Market Rate and escalations. If
      Landlord and Tenant are unable to agree upon a single Arbitrator, then
      each shall, by written notice delivered to the other within 10 days after
      the meeting, select an Arbitrator. If either party fails to timely give
      notice of its selection for an Arbitrator, the other party's submitted
      proposal shall determine the Base Rent for the Extension Term. The 2
      Arbitrators so appointed shall. within 5 business days after their
      appointment, appoint a third Arbitrator. If the 2 Arbitrators so selected
      cannot agree on the selection of the third Arbitrator within the time
      above specified, then either party, on behalf of both parties may request
      such appointment of such third Arbitrator by application to any state
      court of general jurisdiction in the jurisdiction in which the Premises
      are located, upon 10 days prior written notice to the other party of such
      intent.

            (ii) The decision of the Arbitrator(s) shall be made within 30 days
      after the appointment of a single Arbitrator or the third Arbitrator, as
      applicable. The decision of the single Arbitrator shall be final and
      binding upon the parties. The average of the two closest Arbitrators in a
      three Arbitrator panel shall be final and binding upon the parties. Each
      party shall pay the fees and expenses of the Arbitrator appointed by or on
      behalf of such party and the fees and expenses of the third Arbitrator
      shall be borne equally by both parties. If the Market Rate and escalations
      are not determined by the first day of the Extension Term, then Tenant
      shall pay Landlord Base Rent in an amount equal to the Base Rent in effect
      immediately prior to the Extension Term and increased by the Rent
      Adjustment Percentage until such determination is made. After the
      determination of the Market Rate and escalations, the parties shall make
      any necessary adjustments to such payments made by Tenant. Landlord and
      Tenant shall then execute an amendment recognizing the Market Rate and
      escalations for the Extension Term.

            (iii) An "ARBITRATOR" shall be any person appointed by or on behalf
      of either party or appointed pursuant to the provisions hereof and: (i)
      shall be (A) a member of the American Institute of Real Estate Appraisers
      with not less than 10 years of experience in the appraisal of improved
      office and high tech industrial real estate in the greater San Diego
      metropolitan area, or (B) a licensed commercial real estate broker with
      not less than 15 years experience representing landlords and/or tenants in
      the leasing of high tech or life sciences space in the greater San Diego
      metropolitan area, (ii) devoting substantially all of their time to
      professional appraisal or brokerage work, as applicable, at the time of
      appointment and (iii) be in all respects impartial and disinterested.

      (c) RIGHTS PERSONAL. The Extension Right is personal to Tenant and is not
assignable without Landlord's consent, which may be granted or withheld in
Landlord's sole discretion, except that it may be assigned in connection with
any Permitted Assignment of this Lease.

      (d) EXCEPTIONS. Notwithstanding anything set forth above to the contrary,
the Extension Right shall not be in effect and Tenant may not exercise the
Extension Right:

            (i) during any period of time that Tenant is in Default under any
      provision of this Lease; or

            (ii) if Tenant has been in Default under any provision of this Lease
      3 or more times, whether or not the Defaults are cured, during the 12
      month period immediately prior to the date that Tenant intends to exercise
      the Extension Right, whether or not the Defaults are cured.

      (e) NO EXTENSIONS. The period of time within which the Extension Right may
be exercised shall not be extended or enlarged by reason of the Tenant's
inability to exercise the Extension Right.

      (f) TERMINATION. The Extension Right shall terminate and be of no further
force or effect even after Tenant's due and timely exercise of the Extension
Right, if, after such exercise, but prior to the



Net Single-Tenant Laboratory       3770 Tansy/Structural GenomiX, Inc. - Page 24

commencement date of the Extension Term, (i) Tenant fails to timely cure any
Default by Tenant under this Lease; or (ii) Tenant has Defaulted 3 or more times
during the period from the date of the exercise of the Extension Right to the
date of the commencement of the Extension Term, whether or not such Defaults are
cured.

      40. MISCELLANEOUS.

      (a) NOTICES. All notices or other communications between the parties shall
be in writing and shall be deemed duly given upon delivery or refusal to accept
delivery by the addressee thereof if delivered in person, or upon actual receipt
if delivered by reputable overnight guaranty courier, addressed and sent to the
parties at their addresses set forth above. Landlord and Tenant may from time to
time by written notice to the other designate another address for receipt of
future notices.

      (b) JOINT AND SEVERAL LIABILITY. If and when included within the term
"TENANT," as used in this instrument, there is more than one person or entity,
each shall be jointly and severally liable for the obligations of Tenant.

      (c) FINANCIAL INFORMATION. Tenant shall furnish Landlord with true and
complete copies of (i) Tenant's most recent audited annual financial statements,
or unaudited annual financial statements if audited financial statements are not
prepared, within 30 days of the end of each of Tenant's fiscal years during the
Term, (ii) Tenant's most recent quarterly financial statements within 30 days of
the end of each of Tenant's first three fiscal quarters of each of Tenant's
fiscal year during the Term, (iii) at Landlord's request from time to time,
updated business plans, including cash flow projections and/or pro forma balance
sheets and income statements, all of which shall be treated by Landlord as
confidential information belonging to Tenant, (iv) corporate brochures and/or
profiles prepared by Tenant for prospective investors, and (v) any other
financial information or summaries that Tenant typically provides to its lenders
or shareholders. Such information shall be held in confidence by Landlord,
provided that Landlord shall be permitted to disclose such information if
required by applicable laws, regulations or Governmental Authorities, or to
Landlord's employees and consultants who have a need to know such information in
connection with the services rendered to Landlord.

      (d) RECORDATION. Neither this Lease nor a memorandum of lease shall be
filed by or on behalf of Tenant in any public record. Landlord may prepare and
file, and upon request by Landlord, Tenant will execute, a memorandum of lease.

      (e) INTERPRETATION. The normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Lease or any exhibits or amendments hereto. Words
of any gender used in this Lease shall be held and construed to include any
other gender, and words in the singular number shall be held to include the
plural, unless the context otherwise requires. The captions inserted in this
Lease are for convenience only and in no way define, limit or otherwise describe
the scope or intent of this Lease, or any provision hereof, or in any way affect
the interpretation of this Lease.

      (f) NOT BINDING UNTIL EXECUTED. The submission by Landlord to Tenant of
this Lease shall have no binding force or effect, shall not constitute an option
for the leasing of the Premises, nor confer any right or impose any obligations
upon either party until execution of this Lease by both parties.

      (g) LIMITATIONS ON INTEREST. It is expressly the intent of Landlord and
Tenant at all times to comply with applicable law governing the maximum rate or
amount of any interest payable on or in connection with this Lease. If
applicable law is ever judicially interpreted so as to render usurious any
interest called for under this Lease, or contracted for, charged, taken,
reserved, or received with respect to this Lease, then it is Landlord's and
Tenant's express intent that all excess amounts theretofore collected by
Landlord be credited on the applicable obligation (or, if the obligation has
been or would thereby be paid in full, refunded to Tenant), and the provisions
of this Lease immediately shall be deemed reformed and the amounts thereafter
collectible hereunder reduced, without the necessity of the execution of any new
document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder.



Net Single-Tenant Laboratory       3770 Tansy/Structural GenomiX, Inc. - Page 25

      (h) CHOICE OF LAW. Construction and interpretation of this Lease shall be
governed by the internal laws of the state in which the Premises are located,
excluding any principles of conflicts of laws.

      (i) TIME. Time is of the essence as to the performance of Tenant's
obligations under this Lease.

      (j) INCORPORATION BY REFERENCE. All exhibits and addenda attached hereto
are hereby incorporated into this Lease and made a part hereof. If there is any
conflict between such exhibits or addenda and the terms of this Lease, such
exhibits or addenda shall control.

                            [Signature Page Follows]



Net Single-Tenant Laboratory       3770 Tansy/Structural GenomiX, Inc. - Page 26

      IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
day and year first above written.

                                 TENANT:

                                 STRUCTURAL GENOMIX, INC.,
                                 a Delaware corporation

                                 By: /s/ Tim Harris
                                     --------------------------------
                                 Its: President and CEO

                                 LANDLORD:

                                 ARE-3770 TANSY STREET, LLC,
                                 a Delaware limited liability company

                                 By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
                                     a Delaware limited partnership,
                                     its managing member

                                     By: ARE-QRS CORP.,
                                         a Maryland corporation,
                                         its general partner

                                 By: /s/ Lynn Anne Shapiro
                                     --------------------------------
                                 Its: General Counsel



Net Single-Tenant Laboratory        3770 Tansy/Structural GenomiX, Inc. - Page 1

                               EXHIBIT A TO LEASE

                             DESCRIPTION OF PREMISES

That certain real property located in the City of San Diego, County of San
Diego, State of California, having a street address of 3770 Tansy Street, more
particularly described as follows:

                                   [ATTACHED]


Net Single-Tenant Laboratory        3770 Tansy/Structural GenomiX, Inc. - Page 1

                                   SCHEDULE A

Your Ref:

                                                   Policy No. B355637-P
                                                   Premium: $2,300.00

Amount of Insurance: $2,000,000.00
Date of Policy: September 2, 1998 at 10:39 AM

1.    Name of Insured:

ARE-3770 TANSY STREET, LLC., A DELAWARE LIMITED LIABILITY COMPANY

2.    The estate or interest in the land which is covered by this policy is:

A FEE

3.    Title to the estate or interest in the land is vested in:

ARE-3770 TANSY STREET, LLC., A DELAWARE LIMITED LIABILITY COMPANY

4.    The land referred to in this policy is situated in the State of
      California, County of and is described as follows:

PARCEL 1 IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, AS
SHOWN AT PAGE 6427 OF PARCEL MAPS FILED IN THE OFFICE OF THE COUNTY RECORDER OF
SAN DIEGO COUNTY, OCTOBER 7, 1977.

               This Policy valid only if Schedule B is attached.



Net Single-Tenant Laboratory        3770 Tansy/Structural GenomiX, Inc. - Page 2

                                   [SITE PLAN]



Net Single-Tenant Laboratory        3770 Tansy/Structural GenomiX, Inc. - Page 1

                              EXHIBIT A-1 TO LEASE

                         DESCRIPTION OF AREA A PREMISES

                                   [ATTACHED]



Net Single-Tenant Laboratory        3770 Tansy/Structural GenomiX, Inc. - Page 1

                                     AREA A

                                  [FLOOR PLAN]



Net Single-Tenant Laboratory        3770 Tansy/Structural GenomiX, Inc. - Page 1

                              EXHIBIT A-2 TO LEASE

                         DESCRIPTION OF AREA B PREMISES

                                   [ATTACHED]



Net Single-Tenant Laboratory        3770 Tansy/Structural GenomiX, Inc. - Page 1

                                     AREA B

                                  [FLOOR MAP]



Net Single-Tenant Laboratory        3770 Tansy/Structural GenomiX, Inc. - Page 1

                              EXHIBIT A-3 TO LEASE

                         DESCRIPTION OF AREA C PREMISES

                                   [ATTACHED]



Net Single-Tenant Laboratory        3770 Tansy/Structural GenomiX, Inc. - Page 1

                                     AREA C

                                  [FLOOR PLAN]



Major Construction - Tenant Build   3770 Tansy/Structural GenomiX, Inc. - Page 1

                               EXHIBIT B TO LEASE
                                 [Tenant Build]

                                   WORK LETTER

      THIS WORK LETTER dated May 19th, 2000, (this "WORK LETTER") is made and
entered into by and between ARE-3770 TANSY STREET, LLC, a Delaware limited
liability company ("LANDLORD"), and STRUCTURAL GENOMIX, INC., a Delaware
corporation ("TENANT"), and is attached to and made a part of the Lease dated
May 10, 2000 (the "LEASE"), by and between Landlord and Tenant. Any initially
capitalized terms used but not defined herein shall have the meanings given them
in the Lease.

      1. GENERAL REQUIREMENTS

      a. TENANT'S AUTHORIZED REPRESENTATIVE. Tenant designates Geneva Davis and
____________________ (either such individual acting alone, "TENANT'S
REPRESENTATIVE") as the only persons authorized to act for Tenant pursuant to
this Work Letter. Landlord shall not be obligated to respond to or act upon any
request, approval, inquiry or other communication ("COMMUNICATION") from or on
behalf of Tenant in connection with this Work Letter unless such Communication
is in writing from Tenant's Representative. Tenant may change either Tenant's
Representative at any time upon not less than 5 business days advance written
notice to Landlord. No period set forth herein for any approval of any matter by
Tenant's Representative shall be extended by reason of any change in Tenant's
Representative. Neither Tenant nor Tenant's Representative shall be authorized
to direct Landlord's contractors in the performance of Landlord's Work (as
hereinafter defined).

      b. LANDLORD'S AUTHORIZED REPRESENTATIVE. Landlord designates Jeffrey Ryan
and Vin Ciruzzi (either such individual acting alone, "LANDLORD'S
REPRESENTATIVE") as the only persons authorized to act for Landlord pursuant to
this Work Letter. Tenant shall not be obligated to respond to or act upon any
request, approval, inquiry or other Communication from or on behalf of Landlord
in connection with this Work Letter unless such Communication is in writing from
Landlord's Representative. Landlord may change either Landlord's Representative
at any time upon not less than 5 business days advance written notice to Tenant.
No period set forth herein for any approval of any matter by Landlord's
Representative shall be extended by reason of any change in Landlord's
Representative. Landlord's Representative shall be the sole persons authorized
to direct Landlord's contractors in the performance of Landlord's Work.

      c. ARCHITECTS, CONSULTANTS AND CONTRACTORS. Landlord and Tenant hereby
acknowledge and agree that the architect (the "TI ARCHITECT") for the Tenant
Improvements, the general contractor and any subcontractors for the Tenant
Improvements shall be selected by Tenant, subject to Landlord's approval, which
approval shall not be unreasonably withheld, conditioned or delayed.

      2. TENANT IMPROVEMENTS.

      a. TENANT IMPROVEMENTS DEFINED. As used herein, "TENANT IMPROVEMENTS"
shall mean all improvements to the Premises desired by Tenant of a fixed and
permanent nature. Other than funding the TI Allowance (as defined below) as
provided herein, Landlord shall not have any obligation whatsoever with respect
to the finishing of the Premises for Tenant's use and occupancy.

      b. TENANT'S SPACE PLANS. Tenant shall deliver to Landlord schematic
drawings and outline specifications (the "TI DESIGN DRAWINGS") detailing
Tenant's requirements for the Tenant Improvements within 15 business days of the
date hereof. Tenant shall give Landlord 5 days prior notice of the date on which
the TI Design Drawings shall be delivered. Not more than 10 business days
thereafter, Landlord shall deliver to Tenant the written objections, questions
or comments of Landlord and the TI Architect with regard to the TI Design
Drawings. Tenant shall cause the TI Design Drawings to be revised to address
such written comments and shall resubmit said drawings to Landlord for approval
within 10 business days thereafter. Such process shall continue until Landlord
has approved the TI Design Drawings.



Major Construction - Tenant Build   3770 Tansy/Structural GenomiX, Inc. - Page 2

      c. WORKING DRAWINGS. Not later than 20 business days following the
approval of the TI Design Drawings by Landlord, Tenant shall cause the TI
Architect to prepare and deliver to Landlord for review and comment construction
plans, specifications and drawings for the Tenant Improvements ("TI CONSTRUCTION
DRAWINGS"), which TI Construction Drawings shall be prepared substantially in
accordance with the TI Design Drawings. Tenant shall be solely responsible for
ensuring that the TI Construction Drawings reflect Tenant's requirements for the
Tenant Improvements. Landlord shall deliver its written comments on the TI
Construction Drawings to Tenant not later than 10 business days after Landlord's
receipt of the same; provided, however, that Landlord may not disapprove any
matter that is consistent with the TI Design Drawings. Tenant and the TI
Architect shall consider all such comments in good faith and shall, within 10
business days after receipt, notify Landlord how Tenant proposes to respond to
such comments. Any disputes in connection with such comments shall be resolved
in accordance with Section 2(d) hereof. Provided that the design reflected in
the TI Construction Drawings is consistent with the TI Design Drawings, Landlord
shall approve the TI Construction Drawings submitted by Tenant. Once approved by
Landlord, subject to the provisions of Section 2(d) below, Tenant shall not
materially modify the TI Construction Drawings except as may be reasonably
required in connection with the issuance of the TI Permit (as defined in Section
3(b) below).

      d. APPROVAL AND COMPLETION. Upon any dispute regarding the design of the
Tenant Improvements, which is not settled within 10 business days after notice
of such dispute is delivered by one party to the other, Tenant shall make the
final decision regarding the design of the Tenant Improvements, provided Tenant
acts reasonably and such final decision is either consistent with or a
compromise between Landlord's and Tenant's positions with respect to such
dispute, provided further that all costs and expenses resulting from any such
decision by Tenant shall be payable out of the TI Fund, as defined In Section
5(d) below. Any changes to the TI Construction Drawings following Landlord's and
Tenant's approval of same requested by Tenant shall be processed as provided in
Section 4 hereof.

      3. PERFORMANCE OF TENANT'S WORK

      a. DEFINITION OF TENANT'S WORK. As used herein, "TENANT'S WORK" shall mean
the work of constructing the Tenant Improvements.

      b. COMMENCEMENT AND PERMITTING OF TENANT'S WORK. Tenant shall commence
construction of the Tenant Improvements upon obtaining a building permit (the
"TI PERMIT") authorizing the construction of the Tenant Improvements consistent
with the TI Construction Drawings approved by Landlord. The cost of obtaining
the TI Permit shall be payable from the TI Fund. Landlord shall assist Tenant in
obtaining the TI Permit.

      c. SELECTION OF MATERIALS, ETC. Where more than one type of material or
structure is indicated on the TI Construction Drawings approved by Tenant and
Landlord, the option will be within Tenant's reasonable discretion.

      4. CHANGES. Any changes requested by Tenant to the Tenant Improvements
after the delivery and approval by Landlord of the TI Design Drawings, shall be
requested and instituted in accordance with the provisions of this Section 4 and
shall be subject to the written approval of Landlord, such approval not to be
unreasonably withheld, conditioned or delayed.

      a. TENANT'S RIGHT TO REQUEST CHANGES. If Tenant shall request changes
("CHANGES"), Tenant shall request such Changes by notifying Landlord in writing
in substantially the same form as the AIA standard change order form (a "CHANGE
REQUEST"), which Change Request shall detail the nature and extent of any such
Change. Such Change Request must be signed by Tenant's Representative. Landlord
shall review and approve or disapprove such Change Request within 10 business
days thereafter, provided that Landlord's approval shall not be unreasonably
withheld, conditioned or delayed.

      b. IMPLEMENTATION OF CHANGES. If Landlord approves such Change and Tenant
deposits with Landlord any Excess TI Costs (as defined in Section 5(d) below)
required in connection with such Change, Tenant may cause the approved Change to
be instituted.



Major Construction - Tenant Build   3770 Tansy/Structural GenomiX, Inc. - Page 3

      5. COSTS

      a. BUDGET FOR TENANT IMPROVEMENTS. Before the commencement of construction
of the Tenant Improvements, Tenant shall obtain a detailed breakdown, by trade,
of the costs incurred or which will be incurred, in connection with the design
and construction of Tenant's Work (the "BUDGET"). The Budget shall be based upon
the TI Construction Drawings approved by Landlord and shall include a payment to
Landlord of administrative rent ("ADMINISTRATIVE RENT") equal to 2% of the TI
Costs (as hereinafter defined) for monitoring and inspecting the construction of
Tenant's Work, which sum shall be payable from the TI Fund. Such Administrative
Rent shall include, without limitation, all out-of-pocket costs, expenses and
fees incurred by or on behalf of Landlord arising from, out of, or in connection
with, such monitoring of the construction of the Tenant's Improvements, and
shall be payable out of the TI Fund. If the Budget is greater than the TI
Allowance, Tenant shall deposit with Landlord the difference, in cash, prior to
the commencement of construction of the Tenant Improvements, for disbursement by
Landlord as described in Section 5(d).

      b. TI ALLOWANCE. With respect to the Area A Premises, Landlord shall
provide to Tenant a tenant improvement allowance ("AREA A TI ALLOWANCE") of
$38,000. The Area A TI Allowance shall be disbursed in accordance with this Work
Letter. With respect to the Area B Premises and the Area C Premises, Landlord
shall provide to Tenant a tenant improvement allowance ("AREA B AND AREA C TI
ALLOWANCE") of $412,667. The Area B and Area C TI Allowance shall be used only
in connection with improvements to the Area B Premises or the Area C Premises,
in accordance with plans and specifications submitted by Tenant and approved by
Landlord.

      c. COSTS INCLUDABLE IN TI FUND. The TI Fund shall be used solely for the
payment of design and construction costs in connection with the construction of
the Tenant Improvements, including, without limitation, the cost of preparing
the TI Design Drawings and the TI Construction Drawings, all costs set forth in
the Budget, including Landlord's Administrative Rent, and the cost of Changes
(collectively, "TI COSTS"). Notwithstanding anything to the contrary contained
herein, the TI Fund shall not be used to purchase any furniture, personal
property or other non-Building System materials or equipment, including, but not
be limited to, biological safety cabinets and other scientific equipment not
incorporated into the Improvements.

      d. EXCESS TI COSTS. It is understood and agreed that Landlord is under no
obligation to bear any portion of the cost of any of the Tenant Improvements
except to the extent of the TI Allowance. If at any time and from time-to-time,
the remaining TI Costs under the Budget exceed the remaining unexpended TI
Allowance, Tenant shall pay 100% of the then current TI Cost in excess of the
remaining TI Allowance ("EXCESS TI COSTS") before Landlord shall be obligated to
disburse any remaining part of the TI Allowance. If Tenant fails to pay any
Excess TI Costs, Landlord shall have all of the rights and remedies set forth in
the Lease for nonpayment of Rent (including, but not limited to, the right to
interest at the Default Rate and the right to assess a late charge), and for
purposes of any litigation instituted with regard to such amounts the same will
be considered Rent. Such Excess TI Costs, together with the remaining TI
Allowance, is herein referred to as the "TI FUND". Notwithstanding anything to
the contrary set forth in this Section 5(d), Tenant shall be fully and solely
liable for TI Costs and the cost of Minor Variations in excess of the TI
Allowance. If upon Substantial Completion of the Tenant Improvements and the
payment of all sums due in connection therewith there remains any undisbursed TI
Fund, Tenant shall be entitled to such undisbursed TI Fund solely to the extent
of any Excess TI Costs deposit Tenant has actually made with Landlord.

      e. PAYMENT FOR TI COSTS. Landlord shall pay TI Costs once a month against
a draw request in Landlord's standard form, containing such certifications, lien
waivers, inspection reports and other matters as Landlord customarily obtains,
to the extent of Landlord's approval thereof for payment, no later than 30 days
following receipt of such draw request.



Major Construction - Tenant Build   3770 Tansy/Structural GenomiX, Inc. - Page 4

      6. MISCELLANEOUS

      a. CONSENTS. Whenever consent or approval of either party is required
under this Work Letter, that party shall not unreasonably withhold, condition or
delay such consent or approval, except as may be expressly set forth herein to
the contrary.

      b. MODIFICATION. No modification, waiver or amendment of this Work Letter
or of any of its conditions or provisions shall be binding upon Landlord or
Tenant unless in writing signed by Landlord and Tenant.

      c. COUNTERPARTS. This Work Letter may be executed in any number of
counterparts but all counterparts taken together shall constitute a single
document.

      d. GOVERNING LAW. This Work Letter shall be governed by, construed and
enforced in accordance with the internal laws of the state in which the Premises
are located, without regard to choice of law principles of such State.

      e. TIME OF THE ESSENCE. Time is of the essence of this Work Letter and of
each and all provisions thereof.

      f. DEFAULT. Notwithstanding anything set forth herein or in the Lease to
the contrary, Landlord shall not have any obligation to perform any work
hereunder or to fund any portion of the TI Fund during any period Tenant is in
Default under the Lease.

      g. SEVERABILITY. If any term or provision of this Work Letter is declared
invalid or unenforceable, the remainder of this Work Letter shall not be
affected by such determination and shall continue to be valid and enforceable.

      h. MERGER. All understandings and agreements, oral or written, heretofore
made between the parties hereto and relating to Tenant's Work are merged in this
Work Letter, which alone (but inclusive of provisions of the Lease incorporated
herein and the final approved constructions drawings and specifications prepared
pursuant hereto) fully and completely expresses the agreement between Landlord
and Tenant with regard to the matters set forth in this Work Letter.

      i. ENTIRE AGREEMENT. This Work Letter is made as a part of and pursuant to
the Lease and, together with the Lease, constitutes the entire agreement of the
parties with respect to the subject matter hereof. This Work Letter is subject
to all of the terms and limitation set forth in the Lease, and neither party
shall have any rights or remedies under this Work Letter separate and apart from
their respective remedies pursuant to the Lease.



Major Construction - Tenant Build   3770 Tansy/Structural GenomiX, Inc. - Page 5

      IN WITNESS WHEREOF, Landlord and Tenant have executed this Work Letter to
be effective on the date first above written.

                                 TENANT:

                                 STRUCTURAL GENOMIX, INC.,
                                 a Delaware corporation

                                 By: /s/ Tim Harris
                                     -----------------------
                                 Its: President & CEO

                                 LANDLORD

                                 ARE-3770 TANSY STREET, LLC,
                                 a Delaware limited liability company

                                 By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
                                 a Delaware limited partnership,
                                 its managing member

                                     By: ARE-QRS CORP.,
                                         a Maryland corporation,
                                         its general partner

                                         By: /s/ Lynn Anne Shapiro
                                             ----------------------------
                                         Its: General Counsel



Commencement Date                   3770 Tansy/Structural GenomiX, Inc. - Page 1

                               EXHIBIT C TO LEASE

                       ACKNOWLEDGMENT OF COMMENCEMENT DATE

      This ACKNOWLEDGMENT OF COMMENCEMENT DATE is made this ___ day of
__________, ______, between ARE-3770 TANSY STREET LLC, a Delaware limited
liability company ("LANDLORD"), and STRUCTURAL GENOMIX, INC., a Delaware
corporation ("TENANT"), and is attached to and made a part of the Lease dated
May ____, 2000 (the "LEASE"), by and between Landlord and Tenant. Any initially
capitalized terms used but not defined herein shall have the meanings given them
in the Lease.

      Landlord and Tenant hereby acknowledge and agree, for all purposes of the
Lease, that the Commencement Date of the Term of the Lease is August 1, 2000 and
the termination date of the Lease shall be midnight on December 31, 2005.

      IN WITNESS WHEREOF, Landlord and Tenant have executed this ACKNOWLEDGMENT
OF COMMENCEMENT DATE to be effective on the date first above written.

                                 TENANT:

                                 STRUCTURAL GENOMIX, INC.,
                                 a Delaware corporation

                                 By: ________________________________
                                 Its: _______________________________

                                 LANDLORD:

                                 ARE-3770 TANSY STREET, LLC,
                                 a Delaware limited liability company

                                 By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
                                     a Delaware limited partnership,
                                     its managing member

                                     By: ARE-QRS CORP.,
                                         a Maryland corporation,
                                         its general partner

                                         By: ________________________________
                                         Its: _______________________________



Commencement Date                   3770 Tansy/Structural GenomiX, Inc. - Page 1

                               EXHIBIT D TO LEASE

                           TENANT'S PERSONAL PROPERTY

                       NONE (UNLESS OTHERWISE NOTED BELOW)



Estoppel Certificate                3770 Tansy/Structural GenomiX, Inc. - Page 1

                               EXHIBIT E TO LEASE

                              ESTOPPEL CERTIFICATE

      THIS TENANT ESTOPPEL CERTIFICATE ("CERTIFICATE"), dated as of
_____________, _____ is executed by __________________ ("TENANT") in favor of
[BUYER], a _________________________, together with its nominees, designees and
assigns (collectively, "BUYER"), and in favor of __________________, together
with its nominees, designees and assigns (collectively, "LENDER").

                                    RECITALS

      A. Buyer and _______________ ("LANDLORD"), have entered into that certain
Purchase and Sale Agreement and Joint Escrow Instructions, dated as of
_____________, 19____ (the "PURCHASE AGREEMENT"), whereby Buyer has agreed to
purchase, among other things, the improved real property located in the City of
______________, County of ______________, State of ______________, more
particularly described on Exhibit A attached to the Purchase Agreement (the
"PROPERTY").

      B. Tenant and Landlord have entered into that certain Lease Agreement,
dated as of ____________ (together with all amendments, modifications,
supplements, guarantees and restatements thereof, the "LEASE"), for a portion of
the Property.

      C. Pursuant to the Lease, Tenant has agreed that upon the request of
Landlord, Tenant would execute and deliver an estoppel certificate certifying
the status of the Lease.

      D. In connection with the Purchase Agreement, Landlord has requested that
Tenant execute this Certificate with an understanding that Lender will rely on
the representations and agreements below in granting to Buyer a loan.

      NOW, THEREFORE, Tenant certifies, warrants, and represents to Buyer and
Lender as follows:

1. LEASE. Attached hereto as Exhibit B is a true, correct and complete copy of
the Lease, including the following amendments, modifications, supplements,
guarantees and restatements thereof, which together represent all of the
amendments, modifications, supplements, guarantees and restatements thereof:

________________________________________________________________________________
________________________________________________________________________________
(If none, please state "None.")

2. PREMISES. Pursuant to the Lease, Tenant leases those certain premises (the
"PREMISES") consisting of approximately ___________ rentable square feet within
the Property, as more particularly described in the Lease. In addition, pursuant
to the terms of the Lease, Tenant has the non-exclusive right to use _______
parking spaces located on the Property during the term of the Lease.

3. FULL FORCE OF LEASE. The Lease has been duly authorized, executed and
delivered by Tenant, is in full force and effect, has not been terminated, and
constitutes a legally valid instrument, binding and enforceable against Tenant
in accordance with its terms, subject only to applicable limitations imposed by
laws relating to bankruptcy and creditor's rights.

4. COMPLETE AGREEMENT. The Lease constitutes the complete agreement between
Landlord and Tenant for the Premises and the Property, and except as modified by
the Lease amendments noted above (if any), has not been modified, altered or
amended.

5. ACCEPTANCE OF PREMISES. Tenant has accepted possession and is currently
occupying the Premises.



Estoppel Certificate                3770 Tansy/Structural GenomiX, Inc. - Page 2

6. LEASE TERM. The term of the Lease commenced on ___________ and ends on
___________, subject to the following options to extend:
__________________________________________________
_______________________________________________.

(If none, please state "None.")

7. PURCHASE RIGHTS. Tenant has no option, right of first refusal, right of first
offer, or other right to acquire or purchase all or any portion of the Premises
or all or any portion of, or interest in, the Property, except as follows:
________________________________________________________________________________
________________________________________________________________________________

(If none, please state "None.")

8. RIGHTS OF TENANT. Except as expressly stated in this Certificate, Tenant:

            (a) has no right to renew or extend the term of the Lease;

            (b) has no option or other right to purchase all or any part of the
      Premises or all or any part of the Property;

            (c) has no right, title, or interest in the Premises, other than as
      Tenant under the Lease.

9. RENT.

            (a) The obligation to pay rent under the Lease commenced on
      ________________. The rent under the Lease is current, and Tenant is not
      in default in the performance of any of its obligations under the Lease.

            (b) Tenant is currently paying base rent under the Lease in the
      amount of $_______ per month. Tenant has not received and is not presently
      entitled to any abatement, refunds, rebates, concessions or forgiveness of
      rent or other charges, free rent, partial rent, or credits, offsets or
      reductions in rent, except as follows: ___________________________________
      __________________________________________________________________________
      _____________________________________. (If none, please state "None.")

            (c) There are no existing defenses or offsets against rent due or to
      become due under the terms of the Lease, and to Tenant's knowledge there
      presently is no default or other wrongful act or omission by Landlord
      under the Lease or otherwise in connection with Tenant's occupancy of the
      Premises, nor is there a state of facts which with the passage of time or
      the giving of notice or both could ripen into a default on the part of
      Tenant, or to the best knowledge of Tenant, could ripen into a default on
      the part of Landlord under the Lease, except as follows:
      __________________________________________________________________________
      __________________________________________________________________________
      ________________________________. (If none, please state "None.")

10. SECURITY DEPOSIT. The amount of Tenant's security deposit held by Landlord
under the Lease is $ ____________.

11. PREPAID RENT. The amount of prepaid rent, separate from the security
deposit, is $__________ , covering the period from ____________ to ____________.

12. INSURANCE. All insurance, if any, required to be maintained by Tenant under
the Lease is presently in effect.

13. TENANT IMPROVEMENTS. As of the date of this Certificate, to the best of
Tenant's knowledge, Landlord has performed all obligations required of Landlord
pursuant to the Lease; no offsets, counterclaims, or defenses of Tenant under
the Lease exist against Landlord; and no events have



Estoppel Certificate                3770 Tansy/Structural GenomiX, Inc. - Page 3

occurred that, with the passage of time or the giving of notice, would
constitute a basis for offsets, counterclaims, or defenses against Landlord,
except as follows: _____________________________________________________________
________________________________________________________________________________
__________________________. (If none, please state "None.")

14. ASSIGNMENTS BY LANDLORD. Tenant has received no notice of any assignment,
hypothecation or pledge of the Lease or rentals under the Lease by Landlord.
Tenant hereby consents to an assignment of the Lease and rents to be executed by
Landlord to Buyer or Lender in connection with the Loan and acknowledges that
said assignment does not violate the provisions of the Lease. Tenant
acknowledges that the interest of the Landlord under the Lease is to be assigned
to Buyer or Lender solely as security for the purposes specified in said
assignment and Buyer or Lender shall have no duty, liability or obligation
whatsoever under the Lease or any extension or renewal thereof, either by virtue
of said assignment or by any subsequent receipt or collection of rents
thereunder, unless Buyer or Lender shall specifically undertake such liability
in writing. Tenant agrees that upon receipt of a written notice from Buyer or
Lender of a default by Landlord under the Loan, Tenant will thereafter pay rent
to Buyer or Lender in accordance with the terms of the Lease, provided that
Tenant has previously received Landlord's written consent to such payments upon
a default by Landlord under the Loan.

15. ASSIGNMENTS BY TENANT. Tenant has not sublet or assigned the Premises or the
Lease or any portion thereof to any sublessee or assignee, except as follows:
________________________________. No one except Tenant and its employees will
occupy the Premises. The address for notices to be sent to Tenant is as set
forth in the Lease, or as follows: _____________________________________________

16. SUCCESSION OF INTEREST. Tenant agrees that, in the event Buyer or Lender
succeeds to the interest of Landlord under the Lease:

            (a) Buyer or Lender shall not be liable for any act or omission of
      any prior landlord (including Landlord);

            (b) Buyer or Lender shall not be liable for the return of any
      security deposit;

            (c) Buyer or Lender shall not be bound by any rent or additional
      rent which Tenant might have prepaid under the Lease for more than the
      current month;

            (d) Buyer or Lender shall not be bound by any amendments or
      modifications of the Lease made without prior consent of Buyer or Lender;

            (e) Buyer or Lender shall not be subject to any offsets or defenses
      which Tenant might have against any prior landlord (including Landlord);
      or

            (f) Buyer or Lender shall not be liable under the Lease to Tenant
      for the performance of Landlord's obligations under the Lease beyond Buyer
      or Lender's interest in the Property.

17. NOTICE OF DEFAULT. Tenant agrees to give Buyer and Lender a copy of any
notice of default under the Lease served upon Landlord at the same time as such
notice is given to Landlord. Tenant further agrees that if Landlord shall fail
to cure such default within the applicable grace period, if any, provided in the
Lease, then Buyer or Lender shall have a reasonable period within which to cure
such default; provided however, that such period of time shall be extended so
long as Buyer or Lender has commenced and is diligently pursuing the remedies
necessary to cure such default (including, but not limited to, commencement of
foreclosure proceedings, if necessary to effect such cure), in which event the
Lease shall not be terminated while such remedies are being pursued.

      Tenant makes this Certificate with the knowledge that it will be relied
upon by Buyer and Lender in agreeing to purchase the Properly.



Estoppel Certificate                3770 Tansy/Structural GenomiX, Inc. - Page 4

      Tenant has executed this Certificate as of the date first written above by
the person named below, who is duly authorized to do so.

TENANT:                          STRUCTURAL GENOMIX, INC.,
                                 a Delaware corporation

                                 By: ___________________________________________
                                     Name: _____________________________________
                                     Its:  _____________________________________



Estoppel Certificate                3770 Tansy/Structural GenomiX, Inc. - Page 5

                        EXHIBIT A TO ESTOPPEL CERTIFICATE

                                LEGAL DESCRIPTION



Estoppel Certificate                3770 Tansy/Structural GenomiX, Inc. - Page 1

                        EXHIBIT B TO ESTOPPEL CERTIFICATE

                                  COPY OF LEASE



Subordination Agreement             3770 Tansy/Structural GenomiX, Inc. - Page 1

                               EXHIBIT F TO LEASE

                       SUBORDINATION, NON-DISTURBANCE AND
                              ATTORNMENT AGREEMENT

      THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT is made and
entered into as of ___________________, _______ ("AGREEMENT"), by and between
ARE-3770 TANSY STREET, LLC, a Delaware limited liability company together with
its nominees, designees and assigns (collectively, "LANDLORD"),
___________________, a _____________________ ("TENANT"), and __________________,
a ____________________ ("MORTGAGEE").

      WHEREAS, Mortgagee is making a loan to Landlord and others evidenced by a
certain promissory note ("Note"), and secured by, among other things, a deed of
trust/mortgage to be recorded prior hereto in the public records of the City of
____________, County of ____________, State of ____________ ("MORTGAGE")
constituting a lien upon the real property described in Exhibit A hereto (the
"REAL PROPERTY"); and

      WHEREAS, ________________________ and Tenant have entered into a Lease
Agreement dated as of ___________________, _______ ("LEASE"), for certain leased
premises encompassing ________________________ located in _____________________,
containing approximately ________ net square feet (hereinafter collectively
referred to as "PREMISES"); and

      WHEREAS, the Lease is subordinate to the Mortgage and to the right, title,
and interests of Mortgagee thereto and thereunder; and

      WHEREAS, Mortgagee wishes to obtain from Tenant certain assurances that
Tenant will attorn to Mortgagee in the event of a foreclosure by Mortgagee or
the exercise of other rights under the Mortgage; and

      WHEREAS, Tenant wishes to obtain from Mortgagee certain assurances that
Tenant's possession of the Premises will not, subject to the terms and
conditions of this Agreement, be disturbed by reason of a foreclosure of the
lien of the Mortgage on the Real Property; and

      WHEREAS, Tenant and Mortgagee are both willing to provide such assurances
to each other upon and subject to the terms and conditions of this Agreement.

      NOW, THEREFORE, in consideration of the above, the mutual promises
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto mutually
agree as follows:

      1. AFFIRMATION. Tenant hereby agrees that the Lease now is and shall be
subject and subordinate in all respects to the Mortgage and to all renewals,
modifications and extensions thereof until such time that the Mortgage is
released, satisfied or otherwise discharged, subject to the terms and conditions
of this Agreement. Landlord and Tenant hereby affirm that the Lease is in full
force and effect and that the Lease has not been modified or amended, except as
follows: _______________________ ______________________________. Mortgagee
hereby confirms that it is the holder of the Note and the beneficiary of the
Mortgage and has full power and authority to enter into this Agreement.

      2. ATTORNMENT AND NON-DISTURBANCE.

      (a) So long as Tenant is not in default under the Lease (beyond Tenant's
receipt of notice from Landlord and any grace period granted tenant under the
Lease to cure such default) as would entitle the Landlord to terminate the Lease
or would cause without any further action of the Landlord, the termination of
the Lease or would entitle the Landlord to dispossess Tenant thereunder, then
Mortgagee agrees with Tenant that in the event the interest of Landlord shall be
acquired by Mortgagee or in the event Mortgagee comes into possession of or
acquires title to the Real Property by reason of foreclosure



Subordination Agreement             3770 Tansy/Structural GenomiX, Inc. - Page 2

or foreclosure sale or the enforcement of the Mortgage or the Note or other
obligation secured thereby or by a conveyance in lieu thereof, or as a result of
any other means then:

            (i) Subject to the provisions of this Agreement, Tenant's occupancy
      and possession of the Premises and Tenant's rights and privileges under
      the Lease or any extensions, modifications or renewals thereof or
      substitutions therefor (in accordance with the Lease and the Mortgage)
      shall not be disturbed, diminished or interfered with by Mortgagee during
      the term of the Lease (or any extensions or renewals thereof provided for
      in the Lease);

            (ii) Mortgagee will not join Tenant as a party defendant in any
      action or proceeding for the purpose of terminating Tenant's interest and
      estate under the Lease because of any default under the Mortgage; and

            (iii) The Lease shall continue in full force and effect and shall
      not be terminated except in accordance with the terms of the Lease.

      (b) Tenant shall be bound to Mortgagee under all of the terms, covenants
and conditions of the Lease for the balance of the term thereof remaining (and
any extensions or renewals thereof which may be effected in accordance with any
option contained in the Lease) with the same force and effect as if Mortgagee
were the landlord under the Lease, and Tenant does hereby agree to attorn to
Mortgagee as its landlord, said attornment to be effective and self-operative
without the execution of any other instruments on the part of either party
hereto immediately upon Mortgagee's succeeding to the interest of Landlord under
the Lease. Upon request of Lender or such Purchaser, Tenant shall execute and
deliver to Lender or such Purchaser an agreement reaffirming such attornment.
Tenant hereby agrees that any right of first refusal or right of first offer to
purchase the Property which Tenant may have pursuant to the terms of the Lease
shall not be applicable to Mortgagee's or any Purchaser's acquisition of the
Property by foreclosure, deed in lieu of foreclosure, other transaction related
thereto or in substitution thereof, trustee sale or other similar statutory
conveyance. The foregoing shall not be construed as diminishing or eliminating
any of Tenant's Right of First Refusal or First Offer to purchase the property
that remain valid in the Lease after such Mortgagee's or Purchaser's
acquisition.

      (c) In the event that the Mortgage is foreclosed and any party
("PURCHASER") other than Mortgagee purchases the Premises and succeeds to the
interest of Landlord under the Lease, Tenant shall likewise be bound to
Purchaser and Tenant hereby covenants and agrees to attorn to Purchaser in
accordance with all of the provisions of this Agreement; provided, however, that
Purchaser shall have transmitted to Tenant a written document in recordable
form, whereby Purchaser agrees to recognize Tenant as its lessee under the Lease
and agrees to be directly bound to Tenant for the performance and observance of
all the terms and conditions of the Lease required to be performed or observed
by Landlord thereunder, subject to and in accordance with the terms of this
Agreement.

      (d) Mortgagee agrees that if Mortgagee shall succeed to the interest of
Landlord under the Lease as above provided, Mortgagee shall be bound to Tenant
under all of the terms, covenants, and conditions of this Lease, and Tenant
shall, from and after Mortgagee's succession to the interest of Landlord under
the Lease, have the same remedies against Mortgagee that Tenant might have had
under the Lease against Landlord if Mortgagee had not succeeded to the interest
of Landlord; provided, however, that Mortgagee (and Purchaser, as the case may
be) shall not be:

            (i) liable for any act or omission of any prior lessor (including
      Landlord) occurring prior to the date that Mortgagee or purchaser acquired
      title to the Premises; or

            (ii) subject to any offsets, counterclaims or defenses which Tenant
      might have against any prior lessor (including Landlord); or

            (iii) bound by any previous payment of rent or additional rent for a
      period greater than 1 month unless such prepayment shall have been
      consented to in writing by Mortgagee; or



Subordination Agreement             3770 Tansy/Structural GenomiX, Inc. - Page 3

            (iv) bound by any amendment or modification of the Lease made prior
      to the date Mortgagee or Purchaser succeeds to the interest of Landlord
      without Mortgagee's written consent; or

            (v) liable to Tenant for any loss of business or any other indirect
      or consequential damages from whatever cause; provided, however, no
      inference shall be drawn from this clause (v) that Tenant would otherwise
      be entitled (or not entitled) to recover for loss of business or any other
      indirect or consequential damages; or

            (vi) liable for the return of any security deposit unless such
      deposit has been paid over to the Mortgagee.

      The foregoing shall not be construed lo modify or limit any right Tenant
      may have at law or in equity against Landlord or any other prior owner of
      the Real Property.

      3. NOTICES. All notices required or permitted to be given pursuant to this
Agreement shall be in writing and shall be sent postage prepaid, by certified
mail, return receipt requested or other nationally utilized overnight delivery
service. All notices shall be deemed delivered when received or refused.
Rejection or other refusal to accept or inability to deliver because of changed
address of which no notice has been given shall constitute receipt of the
notice, demand or request sent. Any such notice if given to Tenant shall be
addressed as follows:

                       _________________________________
                       _________________________________
                       _________________________________
                       _________________________________
                       _________________________________

      if given to Landlord shall be addressed as follows:

                       c/o Alexandria Real Estate Equities, Inc.
                       135 N. Los Robles Avenue
                       Suite 250
                       Pasadena, California 91101
                       Attention:  General Counsel

      if given to Mortgagee shall be addressed as follows:

                       _________________________________
                       _________________________________
                       _________________________________
                       _________________________________
                       _________________________________

      4. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns. The words "foreclosure" and "foreclosure sale" as used herein shall be
deemed to also include the acquisition of Landlord's estate in the Real Property
by voluntary deed, assignment or other conveyance or transfer in lieu of
foreclosure.

      5. MODIFICATIONS TO LEASE. Tenant shall not modify or amend the Lease or
terminate the same without Mortgagee's prior written consent. If Mortgagee fails
to provide Tenant with a written approval of the proposed modification,
amendment or termination within 10 business days after notice to Mortgagee of
such proposal, then Mortgagee shall be deemed to have rejected such proposal.



Subordination Agreement             3770 Tansy/Structural GenomiX, Inc. - Page 4

      6. ADDITIONAL AGREEMENTS. Tenant agrees that:

      (a) it shall give Mortgagee copies of all notices of default and requests
for approval or consent by Landlord that Tenant gives to Landlord pursuant to
the Lease in the same manner as they are given to Landlord and no such notice or
other communication shall be deemed to be effective until a copy is given to
Mortgagee;

      (b) Tenant shall name Mortgagee and any Purchaser as additional insureds
and loss payees, as applicable and appropriate, on all insurance policies
required by the Lease; and

      (c) this Agreement satisfies any condition or requirement in the Lease
relating to the granting of a non-disturbance agreement by Mortgagee, and in the
event that there are inconsistencies between the terms and provisions of this
Agreement and the terms and provisions of the Lease dealing with non-disturbance
by Mortgagee, the terms and provisions hereof shall be controlling; and

      (d) Mortgagee shall have no liability under the Lease until Mortgagee
succeeds to the rights of the Landlord under the Lease, and then only during
such period as Mortgagee is the Landlord. At all times during which Mortgagee is
liable under the Lease, Mortgagee's liability shall be limited to Mortgagee's
interest in the Real Property.

      7. MORTGAGEE CURE RIGHTS. If Landlord shall have failed to cure any
default within the time period provided for in the Lease (including any
applicable notice and grace periods), but not prior thereto Tenant exercises any
right to terminate the Lease, Mortgagee, shall have an additional 30 days within
which to cure such default, or if such default cannot by the exercise of
reasonable efforts by Mortgagee be cured within such period, then such
additional time as may be reasonable necessary to effect such a cure (including,
if necessary, sufficient time to complete foreclosure proceedings) provided that
within such 30-day period Mortgagee shall commence and thereafter diligently
pursue remedies to cure such default. The Lease shall not be terminated (i)
while such remedies are being diligently pursued or (ii) based upon a default
which is personal to Landlord and therefore not susceptible to cure by Mortgagee
or which requires possession of the Premises to cure. Mortgagee shall in no
event be obligated to cure any such default by Landlord unless it forecloses.
Nothing in this Section 7 shall affect any of Tenant's termination rights under
the Lease due to casualty or condemnation.

      8. DIRECTION TO PAY. Landlord hereby directs Tenant and Tenant agrees to
make all payments of amounts owed by Tenant under the Lease directly to
Mortgagee from and after receipt by Tenant of notice from Mortgagee directing
Tenant to make such payments to Mortgagee. (As between Landlord and Mortgagee,
the foregoing provision shall not be construed to modify any rights of Landlord
under or any provisions of the Mortgage or any other instrument securing the
Note).

      9. CONDITIONAL ASSIGNMENT. With reference to any assignment by Landlord of
Landlord's interest in the Lease, or the rents payable thereunder, conditional
in nature or otherwise, which assignment is made to Mortgagee, Tenant agrees
that the execution thereof by Landlord, and the acceptance thereof by Mortgagee
shall never be treated as an assumption by Mortgagee of any of the obligations
of Landlord under the Lease unless and until Mortgagee shall have succeeded to
the interest of Landlord. The foregoing sentence shall not affect any of
Tenant's rights against Landlord under the Lease.

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Subordination Agreement             3770 Tansy/Structural GenomiX, Inc. - Page 5

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

TENANT:                          STRUCTURAL GENOMIX, INC.,
                                 a Delaware corporation

                                 By: ____________________________________
                                 Its: ___________________________________

LANDLORD:                        ARE-3770 TANSY STREET, LLC,
                                 a Delaware limited liability company

                                 By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
                                     a Delaware limited partnership,
                                     its managing member

                                     By: ARE-QRS CORP.,
                                         a Maryland corporation,
                                         its general partner

                                         By: ___________________________________
                                         Its: __________________________________

MORTGAGEE:

                                 a ______________________________________

                                 By: ____________________________________
                                     Name: ______________________________
                                     Its: _______________________________



Subordination Agreement             3770 Tansy/Structural GenomiX, Inc. - Page 6

                      EXHIBIT A TO SUBORDINATION AGREEMENT

                                Legal Description



Area B Diagram                      3770 Tansy/Structural GenomiX, Inc. - Page 1

                               EXHIBIT G TO LEASE

                      CONDITION OF AREA B UPON TERMINATION

                                  See Attached



                                   EXHIBIT G

                                  [FLOOR PLAN]

EX-10.15

                                                                   EXHIBIT 10.15

                                                                        EXECUTED
                                                                        ORIGINAL

                                      LEASE

                         TORREY SORRENTO I BUSINESS PARK
               (10575/10581 ROSELLE STREET, SAN DIEGO, CALIFORNIA)

                                BRS TORREY I, LLC
                      a Delaware limited liability company

                                  as Landlord,

                                       and

                            STRUCTURAL GENOMIX, INC.,
                             a Delaware corporation

                                    as Tenant

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]



                         TORREY SORRENTO I BUSINESS PARK
               (10575/10581 ROSELLE STREET, SAN DIEGO, CALIFORNIA)

                       SUMMARY OF BASIC LEASE INFORMATION

               The undersigned hereby agree to the following terms of this
Summary of Basic Lease Information (the "SUMMARY"). This Summary is hereby
incorporated into and made a part of the attached Lease (the "LEASE") which
pertains to the "Project," as that term is defined in the Lease, commonly known
as "10575/10581 ROSELLE STREET" located in San Diego, California. This Summary
and the Lease are collectively referred to herein as the "LEASE". Each reference
in the Lease to any term of this Summary shall have the meaning set forth in
this Summary for such term. In the event of a conflict between the terms of this
Summary and the Lease, the terms of the Lease shall prevail. Any capitalized
terms used herein and not otherwise defined herein shall have the meanings set
forth in the Lease.

           TERMS OF LEASE
      (REFERENCES ARE TO THE LEASE)             DESCRIPTION
1.    Date:                              6.1, 2001 ("EFFECTIVE DATE")

2.    Landlord:                          BRS TORREY I, LLC
                                         a Delaware limited liability company
                                         c/o Mr. Matt Root
                                         The Shidler Group
                                         4660 La Jolla Village  Drive, Suite 800
                                         San Diego, CA 92122

3.    Tenant:                            STRUCTURAL GENOMIX, INC.,
                                         a Delaware corporation

4.    Premises (Article 1).

      4.1  Addresses of Buildings:       10575/10581 Roselle Street
                                         San Diego, California 92121

      4.2  Premises:                     24,805 rentable square feet as further
                                         set forth in Exhibit "A" to the Lease.

5.    Lease Term (Article 2).

      5.1  Length of Term:               Seven (7) years.

      5.2  Lease Commencement Date:      The Lease Commencement Date shall occur
                                         as set forth in Article 2 of the Lease.
                                         The Lease Commencement Date is
                                         anticipated to be September 1, 2001.

      5.3  Lease Expiration Date:        The last day of the month in which the
                                         seventh (7th) anniversary of the Lease
                                         Commencement Date occurs.

6.    Base Rent and Ground Rent
      (Article 3)

      6.1  Ground Rent:                  $3,742.10 per month during the
                                         Pre-Commencement Period, as described
                                         in Section 3.

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      (i)


      6.2  Base Rent:



                                             Monthly       Monthly Rental Rate
                                         Installment of            Per
Lease Year           Annual Base Rent       Base Rent          Square Foot
- ----------           ----------------    --------------    -------------------
                                                  
    1                  $669,501.00         $58,291.75               $2.35
    2                  $723,313.80         $60,276.15               $2.43
    3                  $750,103.20         $62,508.60               $2.52
    4                  $776,892.60         $64,741.05               $2.61
    5                  $803,682.00         $66,973.50               $2.70
    6                  $830,471.40         $69,205.95               $2.79
    7                  $860,237.40         $71,686.45               $2.89


7.    Additional Rent (Article 4).

      7.1  Tenant's Share:               Sixty Five and ninety-four hundredths
                                         percent (65.94%)

8.    Security Deposit (Article 21);     $349,750.50

9.    Parking Pass Ratio                 Pro-rata basis.
      (Article 28):

10.   Broker(s) (Section 31.17):         Neil Fox, Phase 3 Properties
                                         (Landlord's Broker)

                                         Neil Fox, Phase 3 Properties (Tenant's
                                         Broker)

11.   Address of Tenant                  STRUCTURAL GENOMIX, INC.,
      (Section 31.12):                   10505 Roselle Street
                                         San Diego, California 92121
                                         Attention:  Ms. Geneva Davis
                                         (Prior to Lease Commencement Date)

                                                       and

                                         10505 Roselle Street
                                         San Diego, California 92121
                                         Attention:  Ms. Geneva Davis
                                         (After to Lease Commencement Date)

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      (ii)



The foregoing terms of this Summary are hereby agreed to by Landlord and Tenant.

           "LANDLORD"                    BRS TORREY I, LLC,
                                         a Delaware limited liability company

                                         By:           /s/ [Illegible]
                                               ---------------------------------
                                               _________________________________

                                         Its:            Member

                                               By:
                                                     ___________________________
                                                     Its:
                                                           _____________________

           "TENANT"                      STRUCTURAL GENOMIX, INC.,
                                         a Delaware corporation

                                         By:           /s/ Tim Harris
                                               ---------------------------------
                                               Name:        T. Harris
                                               Title:       Pres & CEO

                                         By:         /s/ [Illegible]
                                               ---------------------------------
                                               Name:        [Illegible]
                                               Title:       EVP

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                     (iii)



                         TORREY SORRENTO I BUSINESS PARK
               (10575/10581 ROSELLE STREET, SAN DIEGO, CALIFORNIA)

                                TABLE OF CONTENTS



ARTICLE                            SUBJECT MATTER                           PAGE
- -------                            --------------                           ----
                                                                      
ARTICLE 1     PREMISES, BUILDING, PROJECT, AND COMMON AREAS ................   1

ARTICLE 2     LEASE TERM ...................................................   2

ARTICLE 3     BASE RENT AND GROUND RENT ....................................   2

ARTICLE 4     ADDITIONAL RENT ..............................................   2

ARTICLE 5     USE OF PREMISES ..............................................   6

ARTICLE 6     SERVICES AND UTILITIES .......................................   7

ARTICLE 7     REPAIRS ......................................................   8

ARTICLE 8     ADDITIONS AND ALTERATIONS ....................................   8

ARTICLE 9     COVENANT AGAINST LIENS .......................................   9

ARTICLE 10    INSURANCE ....................................................   9

ARTICLE 11    DAMAGE AND DESTRUCTION .......................................  11

ARTICLE 12    NONWAIVER ....................................................  12

ARTICLE 13    CONDEMNATION .................................................  12

ARTICLE 14    ASSIGNMENT AND SUBLETTING ....................................  13

ARTICLE 15    SURRENDER OF PREMISES; REMOVAL OF TRADE FIXTURES .............  16

ARTICLE 16    HOLDING OVER .................................................  17

ARTICLE 17    ESTOPPEL CERTIFICATES ........................................  17

ARTICLE 18    SUBORDINATION ................................................  17

ARTICLE 19    DEFAULTS; REMEDIES ...........................................  18

ARTICLE 20    COVENANT OF QUIET ENJOYMENT ..................................  20

ARTICLE 21    SECURITY DEPOSIT .............................................  20

ARTICLE 22    INTENTIONALLY OMITTED ........................................  20

ARTICLE 23    SIGNS ........................................................  20

ARTICLE 24    COMPLIANCE WITH LAW ..........................................  21

ARTICLE 25    LATE CHARGES .................................................  21

ARTICLE 26    LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT .........  22

ARTICLE 27    ENTRY BY LANDLORD ............................................  22


                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      (iv)


                                                                        
ARTICLE 28    TENANT PARKING ...............................................  23

ARTICLE 29    EARLY TERMINATION AND CONFIDENTIALITY ........................  23

ARTICLE 30    RIGHT OF FIRST REFUSAL .......................................  23

ARTICLE 31    MISCELLANEOUS PROVISIONS .....................................  24



EXHIBIT "A"   OUTLINE OF FLOOR PLAN OF PREMISES
EXHIBIT "B"   NOTICE OF LEASE TERM DATES
EXHIBIT "C"   RULES AND REGULATIONS
EXHIBIT "D"   FORM OF TENANT'S ESTOPPEL CERTIFICATE
EXHIBIT "E"   TENANT WORK LETTER
EXHIBIT "F'   ENVIRONMENTAL DOCUMENTS

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      (v)


                         TORREY SORRENTO I BUSINESS PARK
               (10575/10581 ROSELLE STREET, SAN DIEGO, CALIFORNIA)

                             INDEX OF DEFINED TERMS

                                                                    
Additional Rent...................................................             3
Affiliate ........................................................            16
Alterations ......................................................             8
Approved Plans....................................................     Exhibit E
Architect.........................................................     Exhibit E
Arroyo Parkway Plaza .............................................             1
Base Building.....................................................     Exhibit E
Base Rent ........................................................             2
Brokers ..........................................................            26
Building .........................................................             1
Building Common Areas.............................................             1
Common Areas .....................................................             1
Construction Drawings ............................................     Exhibit E
Contract..........................................................     Exhibit E
Contractor .......................................................     Exhibit E
Control ..........................................................            16
Cost Pools........................................................             4
Delivery Date.....................................................     Exhibit E
Early Termination Date ...........................................            23
Effective Date ...................................................       Summary
Engineers ........................................................     Exhibit E
Environmental Documents ..........................................            28
Estimate..........................................................             6
Estimate Statement ...............................................             6
Estimated Amount .................................................             6
Excess............................................................             5
Existing Hazardous Materials .....................................            29
Expense Year .....................................................             3
Extraction Unit ..................................................            22
First Offer Commencement Date ....................................            24
First Offer Notice ...............................................            24
First Offer Rent .................................................            24
First Offer Space ................................................            24
Force Majeure-....................................................            26
Ground Rent.......................................................             2
Hazardous Material ...............................................            27
Landlord .........................................................             1
Landlord Consulting Fee ..........................................     Exhibit E
Landlord Indemnities .............................................            28
Landlord Parties .................................................             9
Landlord's Work ..................................................     Exhibit E
Lease.............................................................             1
Lease Commencement Date ..........................................             2
Lease Expiration Date ............................................             2
Lease Term .......................................................             2
Lease Year .......................................................             2
Losses ...........................................................            28
Monitoring Well(s) ...............................................            22
Notices...........................................................            26
number of days ...................................................     Exhibit E
Operating Expenses ...............................................             3



                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      (vi)


                                                                    
Option Notice ....................................................            23
Other Improvements ...............................................            29
Pre-Commencement Period ..........................................             2
Premises .........................................................             1
Project ..........................................................             1
Project Common Areas .............................................             1
Project Expenses .................................................             4
Proposition 13 ...................................................             4
Rent .............................................................             3
Security Deposit .................................................            20
Seller ...........................................................            23
Statement ........................................................             5
Subject Space ....................................................            13
Subleasing Costs .................................................            l4
Substances .......................................................            28
Substantial Completion ...........................................             2
Summary ..........................................................             1
Tax Expenses .....................................................             4
Tenant ...........................................................             1
Tenant Improvement Allowance .....................................     Exhibit E
Tenant Improvement Allowance Items ...............................     Exhibit E
Tenant Improvements ..............................................     Exhibit E
Tenant Notice ....................................................            24
Tenant Work ......................................................             2
Tenant's Agents ..................................................     Exhibit E
Tenant's Share ...................................................             5
Transfer Notice ..................................................            13
Transfer Premium .................................................            14
Transferee .......................................................            13
Transfers ........................................................            13
Violations .......................................................            28
Worker or Workers ................................................            28



                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                     (vii)


                         TORREY SORRENTO I BUSINESS PARK
               (10575/10581 ROSELLE STREET, SAN DIEGO, CALIFORNIA)

                                      LEASE

      This Lease, which includes the preceding Summary of Basic Lease
Information (the "SUMMARY") attached hereto and incorporated herein by this
reference (the Lease and Summary are sometimes collectively referred to herein
as the "LEASE"), dated as of the date set forth in Section 1 of the Summary is
made by and between BRS TORREY I, LLC, a Delaware limited liability company
("LANDLORD"), and STRUCTURAL GENOMIX, INC., a Delaware corporation ("TENANT").

                                    ARTICLE 1

                  PREMISES, BUILDING, PROJECT, AND COMMON AREAS

      1.1 Premises, Building, Project and Common Areas.

            1.1.1 The Premises. Upon and subject to the terms hereinafter set
forth in this Lease, Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord the premises set forth in Section 4.2 of the Summary (the
"PREMISES"), which Premises are located in the "Building," as that term is
defined in Section 1.1.2, below. The outline of the Premises is set forth in
Exhibit "A" attached hereto.

            1.1.2 The Building and the Project. The Premises are a part of the
buildings set forth in Section 4.1 of the Summary (the "BUILDING") located in
San Diego, California. The Building is part of a project known as "10575/10581
ROSELLE STREET". The term "PROJECT," as used in this Lease, shall mean (i) the
Buildings and the "Common Areas", as that term is defined in Section 1.1.3
below, (ii) the land (which is improved with landscaping, parking facilities and
other improvements) upon which the Building, parking facilities and the Common
Areas are located, and (iii) at Landlord's discretion, any additional real
property, areas, buildings or other improvements added thereto.

            1.1.3 Common Areas. Tenant shall have the non-exclusive right to use
in common with other tenants in the Project, and subject to the rules and
regulations referred to in Article 5 of this Lease, those portions of the
Project which are provided, from time to time, for use in common by Landlord,
Tenant and any other tenants of the Project, whether or not those areas are open
to the general public (such areas, together with such other portions of the
Project designated by Landlord, in its discretion are collectively referred to
herein as the "COMMON AREAS"). The Common Areas shall consist of the "Project
Common Areas" and the "Building Common Areas". The term "PROJECT COMMON Areas",
as used in this Lease, shall mean the portion of the Project designated as such
by Landlord. "BUILDING COMMON AREAS", as used in this Lease, shall mean the
portions of the Common Areas of the Buildings designated as such by Landlord.
The manner in which the Common Areas are maintained and operated shall be at the
sole discretion of Landlord. Landlord reserves the right to make alterations or
additions to, or to change the location of, elements of the Project and the
Common Areas.

      1.2 Number of Square Feet of Premises, Building, and Project. For purposes
of this Lease, and unless otherwise provided herein, "usable square feet" and
"rentable square feet" and any other statement of square footage set forth in
this Lease for the Premises, the Building, the Project, or any portion thereof,
or that may otherwise be used in calculating amounts owed Landlord by Tenant,
including but not limited to rental, security deposit, additional rental and/or
Tenant's Share of Operating Expenses, is an approximation which Landlord and
Tenant agree is reasonable and the rental and Tenant's Share based thereon is
not subject to revision whether or not the actual square footage is more or
less.

      1.3 Base, Shell and Core Work in the Premises. Except as specifically set
forth in this Lease and in the Tenant Work Letter attached hereto as Exhibit "E"
(if applicable), Landlord shall not be obligated to provide or pay for any
improvement work or services related to the improvement of the Premises. Tenant
also acknowledges that Landlord has made no representation or warranty regarding
the condition of the Premises or the Project except as specifically set forth in
this Lease and the Tenant Work Letter.

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]



                                    ARTICLE 2

                                   LEASE TERM

      2.1 Lease Term. The terms and provisions of this Lease shall be effective
as of the date of this Lease. The term of this Lease (the "LEASE TERM") shall be
as set forth in Section 5.1 of the Summary, shall commence on the date which is
the earlier to occur of (i) one hundred twenty (120) days from the Effective
Date, (ii) the date Tenant takes occupancy of the Premises, and (iii) the date
of "Substantial Completion", as that term is defined in this Article 2, of the
Premises ("LEASE COMMENCEMENT DATE"), and shall terminate on the date set forth
in Section 5.3 of the Summary (the "LEASE EXPIRATION DATE") unless this Lease is
sooner terminated as hereinafter provided. For purposes of this Lease, the term
"LEASE YEAR" shall mean each consecutive twelve (12) month period during the
Lease Term; provided, however, that the first Lease Year shall commence on the
Lease Commencement Date and end on the last day of the eleventh month thereafter
and the second and each succeeding Lease Year shall commence on the first day of
the next calendar month; and further provided that the last Lease Year shall end
on the Lease Expiration Date. For purposes of this Lease, "SUBSTANTIAL
COMPLETION" of the Premises shall occur upon the completion of construction, as
reasonably determined by Landlord, of the "Tenant Improvements," as that term is
defined in the Tenant Work Letter, in the Premises pursuant to the plans and
drawings which are prepared pursuant to the terms of the Tenant Work Letter,
with the exception of any punch list items and any tenant fixtures,
work-stations, built-in furniture, or equipment to be installed by Tenant in the
Premises pursuant to the terms of the Tenant Work Letter or to be installed
under the supervision of "Contractor" as that term is defined in the Tenant Work
Letter (the "TENANT WORK"). At any time during the Lease Term, Landlord may
deliver to Tenant a notice in the form as set forth in Exhibit "B", attached
hereto which notice Tenant shall execute and return to Landlord within five (5)
days of receipt thereof.

                                    ARTICLE 3

                            BASE RENT AND GROUND RENT

      Tenant shall pay, without notice or demand, to Landlord or Landlord's
agent at the management office of the Project, or at such other place as
Landlord may from time to time designate in writing, in currency or a check for
currency which, at the time of payment, is legal tender for private or public
debts in the United States of America, (i) base rent ("BASE RENT") as set forth
in Section 6 of the Summary, payable in equal monthly installments as set forth
in Section 6 of the Summary in advance on or before the first day of each and
every month during the Lease Term, without any setoff or deduction whatsoever;
and (ii) an amount equal to $3,742.10 per month (the "GROUND RENT") during the
period commencing upon the date Landlord becomes obligated to begin paying the
Ground Rent to the current owner of the property and ending upon the Lease
Commencement Date (the "PRE-COMMENCEMENT PERIOD"). The Base Rent for the first
full month of the Lease Term, together with the Ground Rent for the first month
of the Pre-Commencement Period, shall be paid at the time of Tenant's execution
of this Lease. If any Rent payment date (including the Lease Commencement Date)
falls on a day of the month other than the first day of such month or if any
payment of Rent is for a period which is shorter than one month, the Rent for
any fractional month shall accrue on a daily basis for the period from the date
such payment is due to the end of such calendar month or to the end of the Lease
Term at a rate per day which is equal to 1/365 of the Rent. All other payments
or adjustments required to be made under the terms of this Lease that require
proration on a time basis shall be prorated on the same basis.

                                    ARTICLE 4

                                 ADDITIONAL RENT

      4.1 General Terms. As set forth in this Article 4, in addition to paying
the Base Rent Specified in Article 3 of this Lease, Tenant shall pay "Tenant's
Share" of the annual "Project Expenses," as those terms are defined in Sections
4.2.5 and 4.2.3 of this Lease, respectively, allocated to the tenants of the
Building pursuant to the terms of Section 4.3 below. Such payments by Tenant,
together with any and all other amounts payable by Tenant to Landlord pursuant
to the terms of this Lease, are hereinafter collectively referred to as the
"ADDITIONAL RENT", and the Base Rent and the Additional Rent are sometimes
herein collectively referred to as "RENT." All amounts due under this Article 4
as Additional Rent shall be payable for the same periods and in the same manner
as the Base

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -2-


Rent. No Additional Rent shall be due or owing for the Pre-Commencement Period.
Without limitation on other obligations of Tenant which survive the expiration
of the Lease Term, the obligations of Tenant to pay the Additional Rent provided
for in this Article 4 shall survive the expiration of the Lease Term, and
Landlord shall use commercially reasonable efforts to deliver the Statement, as
defined below, of any Additional Rent to Tenant within six (6) months after the
expiration or termination of this Lease, as applicable.

      4.2 Definitions. As used in this Article 4, the following terms shall have
the meanings hereinafter set forth:

            4.2.1 "EXPENSE YEAR" shall mean each calendar year in which any
portion of the Lease Term falls, through and including the calendar year in
which the Lease Term expires.

            4.2.2 "OPERATING EXPENSES" shall mean all expenses, costs and
amounts of every kind and nature incurred in connection with the ownership,
management, maintenance, repair, replacement, restoration or operation of the
Project, including, without limitation, any amounts paid or incurred for (i) the
cost of supplying all utilities servicing the Project, the cost of operating,
maintaining, repairing, renovating, complying with conservation measures in
connection with, and managing the utility systems, mechanical systems, sanitary
and storm drainage systems, and elevator systems, and the cost of supplies and
equipment, maintenance, and service contracts in connection therewith; (ii) the
cost of licenses, certificates, permits and inspections and the cost of
contesting the validity or applicability of any governmental enactments which
may affect Operating Expenses, and the costs incurred in connection with the
implementation and operation of a transportation system management program or a
municipal or public shuttle service or parking program; (iii) the cost of all
insurance carried in connection with the Project, or any portion thereof; (iv)
the cost of landscaping, relamping, and all supplies, tools, equipment and
materials used in the operation, repair and maintenance of the Project, or any
portion thereof; (v) the cost of parking area repair, restoration, and
maintenance, including, but not limited to, resurfacing, repainting,
restripping, and cleaning; (vi) fees, charges and other costs, including
consulting fees, legal fees and accounting fees, of all contractors and
consultants; (vii) payments under any equipment rental agreements or management
agreements (including the cost of any management fee and the fair rental value
of any office space provided thereunder); (viii) wages, salaries and other
compensation and benefits of all persons engaged in the operation, maintenance,
management, or security of the Project, or any portion thereof, including
employer's Social Security taxes, unemployment taxes or insurance, and any other
taxes which may be levied on such wages, salaries, compensation and benefits;
(ix) payments under any easement, license, operating agreement, declaration,
covenant, conditions and restrictions, or any other instrument pertaining to the
sharing of costs by the Project, or any portion thereof; (x) the cost of
operation, repair, maintenance and replacement of all systems and equipment
which serve the Project in whole or part; (xi) exterior window cleaning, trash
removal, maintenance and replacement of curbs and walkways, repair to roofs and
re-roofing; and (xii) the cost of any capital improvements made to the Project
which are intended as a labor-saving device or to effect other economies in the
operation or maintenance of the Project, or any portion thereof, or made to all
or any portion of the Project, or any portion thereof, after the Lease
Commencement Date that are required under any governmental law or regulation
that was not applicable to the Project at the time that permits for the
construction of the Building were obtained; provided, however, that each such
permitted capital expenditure shall be amortized (including interest on the
unamortized cost) over its useful life as Landlord shall reasonably determine.
If the Building is not fully occupied during all or a portion of any Expense
Year, or if all Operating Expenses allocable to a particular Expense Year have
not been billed to Landlord or paid in such Expense Year, Landlord shall make an
appropriate adjustment to the variable components of Operating Expenses for such
year or applicable portion thereof, employing sound accounting and management
principles, to determine the amount of Operating Expenses that would have been
paid had the Building been fully occupied or if all Operating Expenses had been
billed or paid in such Expense Year. Landlord shall have the right, from time to
time, to equitably allocate some or all of the Operating Expenses among
different tenants of the Project and/or the Building (the "COST POOLS").

            Notwithstanding the foregoing, Operating Expenses shall not include:

                  (i) Legal fees incurred in negotiating and enforcing tenant
leases;

                  (ii) Real estate brokers' leasing commissions;

                  (iii) The cost of providing any service directly to and paid
directly by any tenant;

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -3-


                  (iv) Costs of any items to the extent Landlord receives
reimbursement from insurance proceeds or from a third party (such proceeds to be
credited to Operating Expenses in the year in which received, except that any
deductible amount under any insurance policy shall be included within Operating
Expenses);

                  (v) Costs arising from Landlord's charitable or political
contributions;

                  (vi) Depreciation, interest and principal payments on any
mortgage or mortgages, and rental under any ground or underlying lease or
leases, including without limitation, costs incurred in obtaining or refinancing
any such financing and any other debt costs:

                  (vii) All costs and expenses for which Tenant or other tenants
directly reimburse Landlord other than as part of Rent or Operating Expenses;

                  (viii) Costs incurred (including permit, license, and
inspection fees but excluding utilities) or cash consideration paid in
renovating otherwise improving, decorating, painting or redecorating space for
tenants, prospective tenants, other occupants, vacant space available for those
tenants, prospective tenants, or other occupants; however, this exclusion does
not apply to remove from Operating Expenses the costs of ordinary maintenance
supplied to the tenants of the Building or the costs of ordinary maintenance of
the common areas, or other modifications to the common areas of the Building
other than the scope of work currently being performed by the Landlord as
described herein.

            4.2.3 "PROJECT EXPENSES" shall mean the sum of "Operating Expenses"
and "Tax Expenses".

            4.2.4 "TAX EXPENSES" shall mean all federal, state; county, or local
governmental or municipal taxes, fees, charges or other impositions of every
kind and nature, whether general, special, ordinary or extraordinary (including,
without limitation, real estate taxes, general and special assessments, transit
taxes, leasehold taxes or taxes based upon the receipt of rent, including gross
receipts or sales taxes applicable to the receipt of rent, unless required to be
paid by Tenant, personal property taxes imposed upon the fixtures, machinery,
equipment, apparatus, systems and equipment, appurtenances, furniture and other
personal property used in connection with all or any portion of the Project),
which shall be paid during any Expense Year (without regard to any different
fiscal year used by such governmental or municipal authority) because of or in
connection with the ownership, leasing and operation of the Project, or any
portion thereof.

            4.2.4.1 Tax Expenses shall include, without limitation:

                  (i) Any assessment, tax, fee, levy or charge in addition to,
      or in substitution, partially or totally, of any assessment, tax, fee,
      levy or charge previously included within the definition of real property
      tax, it being acknowledged by Tenant and Landlord that Proposition 13 was
      adopted by the voters of the State of California in the June 1978 election
      ("PROPOSITION 13") and that assessments, taxes, fees, levies and charges
      may be imposed by governmental agencies for such services as fire
      protection, street, sidewalk and road maintenance, refuse removal and for
      other governmental services formerly provided without charge to property
      owners or occupants, and, in further recognition of the decrease in the
      level and quality of governmental services and amenities as a result of
      Proposition 13, Tax Expenses shall also include any governmental or
      private assessments or the Project's contribution towards a governmental
      or private cost-sharing agreement for the purpose of augmenting or
      improving the quality of services and amenities normally provided by
      governmental agencies. It is the intention of Tenant and Landlord that all
      such new and increased assessments, taxes, fees, levies, and charges and
      all similar assessments, taxes, fees, levies and charges be included
      within the definition of Tax Expenses for the purposes of this Lease;

                  (ii) Any assessment, tax, fee, levy, or charge allocable to or
      measured by the area of the Premises or the Rent payable hereunder,
      including, without limitation, any gross income tax with respect to the
      receipt of such rent, or upon or with respect to the possession, leasing,
      operating,

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -4-


      management, maintenance, alteration, repair, use or occupancy by Tenant of
      the Premises, or any portion thereof;

                  (iii) Any assessment, tax, fee, levy or charge, upon this
      transaction or any document to which Tenant is a party, creating or
      transferring an interest or an estate in the Premises; and

                  (iv) Any possessory taxes charged or levied in lieu of real
      estate taxes.

            4.2.5 "TENANT'S SHARE" shall mean the percentage set forth in
Section 7.1 of the Summary. Tenant's Share was calculated by multiplying the
number of rentable square feet of the Premises by 100, and dividing the product
by the total rentable square feet in the Building. It is understood and agreed
that the square footage figures set forth in the Basic Lease Provisions may not
be strictly calculated pursuant to BOMA standards and are approximations which
Landlord and Tenant agree are reasonable and shall not be subject to revision
except in connection with an actual change in the size of the Premises or a
change in the space available for lease in the Building or in the Project, as
determined by Landlord.

      4.3 Allocation of Project Expenses to Tenants of the Building. Except as
provided herein, Project Expenses (i.e., Operating Expenses and Tax Expenses)
are determined annually for the Project as a whole. If the Building is only one
of multiple buildings which constitute the Project, Project Expenses shall be
allocated by Landlord, in its reasonable discretion, to both the tenants of the
Building and the tenants of the other buildings in the Project, and the portion
of Project Expenses allocated to the tenants of the Building shall consist of
(i) all Project Expenses attributable solely to the Building and (ii) an
equitable portion of Project Expenses attributable to the Project as a whole and
not attributable solely to the Building or to any other building of the Project.
Landlord shall use commercially reasonable efforts to install separate metering
devices for all tenants for utility services utilized solely by such tenant and
in such event, the tenants shall pay the cost of such services directly to
Landlord or the utility company, as determined by Landlord, upon demand,
including the cost of the metering devices. So long as the separately metered
tenants pay such expenses, such costs shall be excluded from Operating Expenses.
Tenant shall not be obligated to pay, as Operating Expenses, any utility costs
solely attributable to any other tenant.

      4.4 Calculation and Payment of Additional Rent.

            4.4.1 Calculation of Excess. If for any Expense Year ending or
commencing within the Lease Term, Tenant's Share of Project Expenses allocated
to the tenants of the Building pursuant to Section 4.3 above for such Expense
Year exceeds Tenant's Share of the Project Expenses paid by Tenant, then Tenant
shall pay to Landlord, in the manner set forth in Section 4.4.2, below, and as
Additional Rent, an amount equal to Tenant's Share.

            4.4.2 Statement of Actual Project Expenses and Payment by Tenant.
Landlord shall endeavor to give to Tenant on or before the first day of April
following the end of each Expense Year, a statement (the "STATEMENT") which
shall state the Project Expenses incurred or accrued for such preceding Expense
Year and the amount thereof allocated to the tenants of the Building, and which
shall indicate the amount, if any, of any excess ("EXCESS"). Upon receipt of the
Statement for each Expense Year ending during the Lease Term, if an Excess is
present, Tenant shall pay, with its next installment of Base Rent due, the full
amount of the Excess for such Expense Year, less the amounts, if any, paid
during such Expense Year as "Estimated Amount," as that term is defined in
Section 4.4.3, below. The failure of Landlord to timely furnish the Statement
for any Expense Year shall not prejudice Landlord or Tenant from enforcing its
rights under this Article 4. Even though the Lease Term has expired and Tenant
has vacated the Premises, when the final determination is made of Tenant's Share
of Project Expenses allocated to the tenants of the Building for the Expense
Year in which this Lease terminates, if an Excess is present, Tenant shall
immediately pay to Landlord an amount as calculated pursuant to the provisions
of Section 4.4.1 of this Lease. The provisions of this Section 4.4.2 shall
survive the expiration or earlier termination of the Lease Term for six (6)
months. In the event Tenant's payment of Project Expenses for an Expense Year
exceeds Tenant's Share of Project Expenses for such year, Landlord shall credit
such excess to the amount of Project Expenses next becoming due from Tenant.

            4.4.3 Statement of Estimated Project Expenses. In addition, Landlord
shall endeavor to give Tenant a yearly expense estimate statement (the "ESTIMATE
STATEMENT") which shall set forth Landlord's reasonable

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -5-


estimate (the "ESTIMATE") of what the total amount of Project Expenses for the
then-current Expense Year shall be, the amount thereof to be allocated to the
tenants of the Building, and the estimated amount (the "ESTIMATED AMOUNT"). The
failure of Landlord to timely furnish the Estimate Statement for any Expense
Year shall not preclude Landlord from enforcing its rights to collect any
Estimated Amount under this Article 4. If pursuant to the Estimate Statement an
Estimated Amount is calculated for the then-current Expense Year, Tenant shall
pay, with its next installment of Base Rent due, a fraction of the Estimated
Amount for the then-current Expense Year (reduced by any amounts paid pursuant
to the last sentence of this Section 4.4.3). Such fraction shall have as its
numerator the number of months which have elapsed in such current Expense Year,
including the month of such payment, and twelve (12) as its denominator. Until a
new Estimate Statement is furnished (which Landlord shall have the right to
deliver to Tenant at any time), Tenant shall pay monthly, with the monthly Base
Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated
Amount set forth in the previous Estimate Statement delivered by Landlord to
Tenant.

      4.5 Taxes and Other Charges for Which Tenant Is Directly Responsible.
Tenant shall reimburse Landlord upon demand for any and all taxes required to be
paid by Landlord, excluding state, local and federal personal or corporate
income taxes measured by the net income of Landlord from all sources and estate
and inheritance taxes, whether or not now customary or within the contemplation
of the parties hereto, when:

            4.5.1 Said taxes are measured by or reasonably attributable to the
cost or value of Tenant's equipment, furniture, fixtures and other personal
property located in the Premises, or by the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, to the extent the cost
or value of such leasehold improvements exceeds the cost or value of a building
standard build-out as determined by Landlord regardless of whether title to such
improvements shall be vested in Tenant or Landlord;

            4.5.2 Said taxes are assessed upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair, use
or occupancy by Tenant of the Premises or any portion of the Project (including
the Project parking facility); or

            4.5.3 Said taxes are assessed upon this transaction or any document
to which Tenant is a party creating or transferring an interest or an estate in
the Premises.

                                    ARTICLE 5

                                 USE OF PREMISES

      Tenant shall use the Premises solely for biotechnology research and
general office and related purposes consistent with the character of the
Building, and Tenant shall not use or permit the Premises to be used for any
other purpose or purposes whatsoever. Tenant further covenants and agrees that
Tenant shall not use, or suffer or permit any person or persons to use, the
Premises or any part thereof for any use or purpose contrary to the provisions
of the Rules and Regulations set forth in Exhibit "C", attached hereto, or in
violation of the laws of the United States of America, the State of California,
or the ordinances, regulations or requirements of the local municipal or county
governing body or other lawful authorities having jurisdiction over the Project.
Tenant shall comply with all recorded covenants, conditions, and restrictions
now or hereafter affecting the Project. Tenant shall not use or allow another
person or entity to use any part of the Premises for the storage, use,
treatment, manufacture or sale of "Hazardous Material," as that term is defined
in Section 31.22 of this Lease, which is in violation of federal, state, or
local law.

                                    ARTICLE 6

                             SERVICES AND UTILITIES

      6.1 Standard Tenant Services. Except as set forth herein, Landlord shall
provide to the Building and the Project (subject to the reimbursement either
through Tenant's Share of Project Expenses or direct payment by Tenant either to
Landlord or to the service provider, all as may be provided herein) the
following services on all days (unless otherwise stated below) during the Lease
Term.

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -6-


            6.1.1 Landlord shall provide adequate electrical wiring and
facilities and power for normal general commercial use as determined by
Landlord. Tenant shall bear the cost of replacement of lamps, starters and
ballasts for lighting fixtures within the Premises.

            6.1.2 Landlord shall provide water for drinking, lavatory and toilet
purposes.

      6.2 Overstandard Tenant Use. Tenant shall have the right to install
separate metering devices, supplementary air conditioning units or other
facilities in the Premises, including supplementary or additional metering
devices, and the cost thereof, including the cost of installation, operation and
maintenance, increased wear and tear on existing equipment and other similar
charges, shall be paid by Tenant. If the Premises are not separately metered,
should Tenant use water, electricity, heat or air conditioning in excess of that
otherwise paid for by Tenant's Share of Operating Expenses pursuant to this
Lease, Tenant shall pay to Landlord, upon billing, the cost of such excess
consumption, the cost of the installation, operation, and maintenance of
equipment which is installed in order to supply such excess consumption, and the
cost of the increased wear and tear on existing equipment caused by such excess
consumption; and Landlord may install devices to separately meter any increased
use and in such event Tenant shall pay the increased cost directly to Landlord,
on demand, including the cost of such additional metering devices.

      6.3 Interruption of Use. Landlord shall use commercially reasonable
efforts to furnish services described in this section; provided, however, Tenant
agrees that Landlord shall not be liable for damages, by abatement of Rent or
otherwise, for failure to furnish or delay in furnishing any service (including
telephone and telecommunication services), or for any diminution in the quality
or quantity thereof, when such failure or delay or diminution is occasioned, in
whole or in part, by repairs, replacements, or improvements, by any strike,
lockout or other labor trouble, by inability to secure electricity, gas, water,
or other fuel at the Building or Project after reasonable effort to do so, by
any accident or casualty whatsoever, by act or default of Tenant or other
parties, or by any other cause beyond Landlord's reasonable control; and such
failures or delays or diminution shall never be deemed to constitute an eviction
or disturbance of Tenant's use and possession of the Premises or relieve Tenant
from paying Rent or performing any of its obligations under this Lease.
Furthermore, Landlord shall not be liable under any circumstances for a loss of,
or injury to, property or for injury to, or interference with, Tenant's
business, including, without limitation, loss of profits, however occurring,
through or in connection with or incidental to a failure to furnish any of the
services or utilities as set forth in this Article 6. However, should Tenant be
unable to use the Premises for the purpose set forth herein for a period of
greater than five (5) consecutive business days, and if such inability to use
the Premises for the purpose stated herein is solely due to Landlord's failure
to use commercially reasonable efforts to provide the services described in this
section, then Tenant shall be entitled to an equitable abatement of Base Rent
only. Landlord hereby agrees that Tenant shall be entitled to install, at
Tenant's sole cost and expense, and upon Landlord's further written approval as
to the size and location and installation of such generator, which approval
shall not be unreasonably withheld, conditioned or delayed, a generator or other
alternate provider of such utilities for purposes of providing alternate utility
service to the Premises.

                                    ARTICLE 7

                                     REPAIRS

      Tenant shall, at Tenant's own expense, keep the Premises, including all
improvements, fixtures and furnishings therein, in good order, repair and
condition at all times during the Lease Term. In addition, Tenant shall, at
Tenant's own expense and within any reasonable period of time specified by
Landlord, promptly and adequately repair all damage to the Premises and replace
or repair all damaged, broken, or worn fixtures and appurtenances; provided
however, that, if Tenant fails to make such repairs within a reasonable period
of time, Landlord may, but need not, make such repairs and replacements, and
Tenant shall pay Landlord the cost thereof, including a reasonable percentage of
the cost thereof sufficient to reimburse Landlord for all overhead, general
conditions, fees and other costs or expenses arising from Landlord's involvement
with such repairs and replacements forthwith upon being billed for same.
Landlord may, but shall not be required to, enter the Premises at all reasonable
times to make such repairs, alterations, improvements or additions to the
Premises or to the Project or to any equipment located in the Project as
Landlord shall desire or deem necessary or as Landlord may be required to do by
governmental or quasi-governmental authority or court order or decree. Tenant
hereby waives and releases its right to make repairs at

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -7-


Landlord's expense under Sections 1941 and 1942 of the California Civil Code or
under any similar law, statute, or ordinance now or hereafter in effect.

                                    ARTICLE 8

                            ADDITIONS AND ALTERATIONS

      8.1 Landlord's Consent to Alterations. Subsequent to the completion of the
Tenant Work, as described in the Tenant Work Letter, Tenant may not make any
improvements, alterations, additions or changes to the Premises (collectively,
the "ALTERATIONS") without first procuring the prior written consent of Landlord
to such Alterations, which consent shall be requested by Tenant not less than
ten (10) days prior to the commencement thereof, and which consent shall not be
unreasonably withheld or delayed by Landlord; provided however, that Tenant may
make non-structural, interior, non-penetrating modifications to the Premises,
not exceeding a threshold of $50,000 per instance, or $100,000 per year or
$200,000 during the Lease Term, upon fifteen (15) days prior notice to Landlord.
Tenant may, however, install power, cable and related equipment and make
non-structural, interior, non-penetrating modifications to the Premises not
exceeding $10,000 per instance without prior notice to Landlord. The
construction of the initial improvements to the Premises shall be governed by
the terms of the Tenant Work Letter and not the terms of this Article 8.

      8.2 Manner of Construction. Landlord may impose, as a condition of its
prior consent to any and all Alterations or repairs of the Premises or about the
Premises, such requirements as Landlord in its sole discretion may deem
desirable, including, but not limited to, the requirement that upon Landlord's
request, Tenant shall, at Tenant's expense, remove such Alterations upon the
expiration or any early termination of the Lease Term (such items to be removed
by Tenant shall be determined by Landlord concurrent with its prior consent to
the Alterations), and/or the requirement that Tenant utilize for such purposes
only contractors, materials, mechanics and materialmen reasonably approved by
Landlord. Tenant shall construct such Alterations and perform such repairs in
conformance with any and all applicable federal, state, county or municipal
laws, rules and regulations and pursuant to a valid building permit, issued by
the City of San Diego, all in conformance with Landlord's construction rules and
regulations. All work with respect to any Alterations must be done in a good and
workmanlike manner and diligently prosecuted to completion to the end that the
Premises shall at all times be a complete unit except during the period of work.
In performing the work of any such Alterations, Tenant shall have the work
performed in such manner so as not to obstruct access to the Project or any
portion thereof, by any other tenant of the Project, and so as not to obstruct
the business of Landlord or other tenants in the Project, or interfere with the
labor force working in the Project. In addition to Tenant's obligations under
Article 9 of this Lease, upon completion of any Alterations, Tenant agrees to
cause a Notice of Completion to be recorded in the office of the Recorder of the
County of San Diego in accordance with Section 3093 of the Civil Code of the
State of California or any successor statute, if required, and Tenant shall
deliver to the Project management office a reproducible copy of the "as built"
drawings of the Alterations.

      8.3 Payment for Improvements. In the event Tenant requests that any
Alterations or repair work be performed directly by Landlord, the charges for
such work shall be deemed Additional Rent under this Lease, payable within five
(5) days of billing therefor, either periodically during construction or upon
the substantial completion of such work, at Landlord's option. Upon completion
of such work, Tenant shall deliver to Landlord evidence of payment, contractors'
affidavits and full and final waivers of all liens for labor, services or
materials. Tenant shall pay to Landlord a percentage of the cost of such work
sufficient to compensate Landlord for all overhead, general conditions, fees and
other costs and expenses arising from Landlord's involvement with such work,
which amount shall not exceed five percent (5%) of the costs of such work.

      8.4 Construction Insurance. In the event that Tenant makes any Alterations
Tenant agrees to carry "Builder's All Risk" insurance in an amount approved by
Landlord covering the construction of such Alterations, and such other insurance
as Landlord may require, it being understood and agreed that all of such
Alterations shall be insured by Tenant pursuant to Article 10 of this Lease
immediately upon completion thereof. In addition, Landlord may, in its
discretion, require Tenant to obtain a lien and completion bond or some
alternate form of security satisfactory to Landlord in an amount sufficient to
ensure the lien-free completion of such Alterations and naming Landlord as a
co-obligee.

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -8-


      8.5 Landlord's Property. All Alterations, improvements, fixtures and/or
equipment which may be installed or placed in or about the Premises, and all
signs installed in, on or about the Premises, from time to time, shall be at the
sole cost of Tenant and shall be and become the property of Landlord, except
that Tenant may remove (i) any Alterations, improvements, fixtures and/or
equipment which Tenant can substantiate to Landlord have not been paid for with
any Tenant improvement allowance funds provided to Tenant by Landlord and (ii)
those items approved in writing by Landlord from time to time, provided Tenant
repairs any damage to the Premises and Building caused by such removal.
Furthermore, if Landlord, as a condition to Landlord's consent to any
Alteration, requires, as aforesaid, that Tenant remove any Alteration upon the
expiration or early termination of the Lease Term, Landlord may, by written
notice to Tenant prior to the end of the Lease Term, or given following any
earlier termination of this Lease, require Tenant, at Tenant's expense, to
remove such Alterations and to repair any damage to the Premises and Building
caused by such removal. If Tenant fails to complete such removal and/or to
repair any damage caused by the removal of any Alternations, Landlord may do so
and may charge the cost thereof to Tenant.

                                    ARTICLE 9

                             COVENANT AGAINST LIENS

      Landlord shall have the right at all times to post and keep posted on the
Premises any notice which it deems necessary for protection from such liens.
Tenant covenants and agrees not to suffer or permit any lien of mechanics or
materialmen or others to be placed against the Project, the Building or the
Premises, or any portion thereof, with respect to work or services claimed to
have been performed for or materials claimed to have been furnished to Tenant or
the Premises, and, in case of any such lien attaching or notice of any lien,
Tenant covenants and agrees to cause it to be immediately released and removed
of record. Notwithstanding anything to the contrary set forth in this Lease, in
the event that such lien is not released and removed on or before the date
occurring five (5) days after notice of such lien is delivered by Landlord to
Tenant, Landlord, at its sole option, may immediately take all action necessary
to release and remove such lien, without any duty to investigate the validity
thereof, and all sums, costs and expenses, including reasonable attorneys' fees
and costs, incurred by Landlord in connection with such lien shall be deemed
Additional Rent under this Lease and shall immediately be due and payable by
Tenant.

                                   ARTICLE 10

                                    INSURANCE

      10.1 Indemnification and Waiver. To the extent not prohibited by law,
Landlord, its partners, subpartners and their respective officers, agents,
servants, employees, and independent contractors (collectively, "LANDLORD
PARTIES") shall not be liable for, any damage either to person or property or
resulting from the loss of use thereof, which damage is sustained by Tenant.
Tenant shall, either prior to, during, or after the expiration of the Lease
Term, indemnify, defend, protect, and hold harmless Landlord Parties from any
and all loss, cost, damage, expense and liability (including without limitation
court costs and reasonable attorneys' fees) incurred in connection with or
arising from any cause in, on or about the Premises during the Lease Term,
provided that the terms of the foregoing indemnity shall not apply to the gross
negligence or willful misconduct of Landlord. The provisions of this Section
10.1 shall survive the expiration or sooner termination of this Lease with
respect to any claims or liability occurring prior to such expiration or
termination.

      10.2 Tenant's Compliance with Landlord's Fire and Casualty Insurance.
Tenant shall, at Tenant's expense, comply with all insurance company
requirements pertaining to the use of the Premises. If Tenant's conduct or use
of the Premises causes any increase in the premium for such insurance policies
then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant's
expense, shall comply with all rules, orders, regulations or requirements of the
American Insurance Association (formerly the National Board of Fire
Underwriters) and with any similar body.

      10.3 Tenant's Insurance. Tenant shall maintain the following coverages in
the following amounts.

            10.3.1 Comprehensive General Liability Insurance covering the
insured against claims of bodily injury, personal injury and property damage
arising out of Tenant's operations, assumed liabilities or use of the Premises,
including a Broad Form Comprehensive General Liability endorsement covering the
insuring provisions

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -9-


of this Lease and the performance by Tenant of the indemnity agreements set
forth in Section 10.1 of this Lease, for limits of liability not less than:

            Bodily Injury and
            Property Damage Liability         $3,000,000 each occurrence
                                              $3,000,000 annual aggregate
            Personal Injury Liability         $3,000,000 each occurrence
                                              $3,000,000 annual aggregate
                                              0% Insured's participation

            10.3.2 Physical Damage Insurance covering (i) all office furniture,
trade fixtures, office equipment, merchandise and all other items of Tenant's
property on the Premises installed by, for, or at the expense of Tenant, (ii)
the Tenant Improvements, and (iii) all other improvements, alterations and
additions to the Premises. Such insurance shall be written on an "all risks" of
physical loss or damage basis, for the full replacement cost value new without
deduction for depreciation of the covered items and in amounts that meet any
co-insurance clauses of the policies of insurance and shall include a vandalism
and malicious mischief endorsement, sprinkler leakage coverage and earthquake
sprinkler leakage coverage.

            10.3.3 Worker's Compensation and Employer's Liability Insurance,
with a waiver of subrogation endorsement, with minimum limits of $1,000,000 per
employee and $1,000,000 per occurrence.

            10.3.4 Loss of income and extra expense insurance in such amounts as
will reimburse Tenant for direct or indirect loss of earnings attributable to
all perils commonly insured against by prudent tenants or attributable to
prevention of access to the Premises or to the Building as a result of such
perils.

      10.4 Form of Policies. The minimum limits of policies of insurance
required of Tenant under this Lease shall in no event limit the liability of
Tenant under this Lease. All insurance shall (i) be issued by an insurance
company having a rating of not less than A-X in Best's Insurance Guide or which
is otherwise acceptable to Landlord and licensed to do business in the State of
California; and (ii) provide that said insurance shall not be canceled or
coverage changed unless thirty (30) days' prior written notice shall have been
given to Landlord and any mortgagee or ground or underlying lessor of Landlord.
In addition, the insurance described in Section 10.3.1 above shall (a) name
Landlord, and any other party specified by Landlord, as an additional insured;
(b) specifically cover the liability assumed by Tenant under this Lease
including, but not limited to, Tenant's obligations under Section 10.1 of this
Lease; (c) be primary insurance as to all claims thereunder and provide that any
insurance required by Landlord is excess and is non-contributing with any
insurance requirement of Tenant; and (d) contain a cross-liability endorsement
or severability of interest clause acceptable to Landlord. Tenant shall deliver
said policy or policies or certificates thereof to Landlord on or before the
Lease Commencement Date and at least thirty (30) days before the expiration
dates thereof. In the event Tenant shall fail to procure such insurance, or to
deliver such certificate, Landlord may, at its option, procure such policies for
the account of Tenant, and the costs of it shall be paid to Landlord as
Additional Rent within five (5) days after delivery to Tenant of bills therefor.

      10.5 Subrogation. Landlord and Tenant agree to have their respective
insurance companies issuing property damage and loss of insurance and extra
expense insurance waive any rights of subrogation that such companies may have
against Landlord or Tenant, as the case may be, so long as the insurance carried
by Landlord and Tenant, respectively, is not invalidated thereby. As long as
such waivers of subrogation are contained in their respective insurance
policies, Landlord and Tenant hereby waive any right that either may have
against the other on account of any loss or damage to the extent such loss or
damage is insurable under such policies of insurance.

      10.6 Additional Insurance Obligations. Tenant shall carry and maintain
during the entire Lease Term, at Tenant's sole cost and expense, increased
amounts of the insurance required to be carried by Tenant pursuant to this
Article 10, and such other reasonable types of insurance coverage and in such
reasonable amounts covering the Premises and Tenant's operations therein, as may
be reasonably requested by Landlord.

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -10-


                                   ARTICLE 11

                             DAMAGE AND DESTRUCTION

      11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly
notify Landlord of any damage to the Premises resulting from fire or any other
casualty. If the Premises or any Common Areas serving or providing access to the
Premises shall be damaged by fire or other casualty, Landlord shall promptly and
diligently, subject to reasonable delays for insurance adjustment or other
matters beyond Landlord's reasonable control, and subject to all other terms of
this Article 11, restore the Base, Shell, and Core of the Premises and such
Common Areas. Such restoration shall be to substantially the same condition of
the Base, Shell, and Core of the Premises and the Common Areas prior to the
casualty, except for modifications required by zoning and building codes and
other laws or by the holder of a mortgage on the Building or Project or any
other modifications to the Common Areas deemed desirable by Landlord; provided
that access to the Premises and any common restrooms serving the Premises shall
not be materially impaired. Upon the occurrence of any damage to the Premises,
Tenant shall repair any injury or damage to the Tenant Improvements installed in
the Premises and shall return such Tenant Improvements to their original
condition; provided that if the cost of such repair exceeds the amount of
insurance proceeds received by Tenant from Tenant's insurance carrier, the cost
of such repairs shall be paid by Tenant prior to repair of the damage. In
connection with such repairs and replacements, Tenant shall, prior to the
commencement of construction, submit to Landlord, for Landlord's review and
approval, all plans, specifications and working drawings relating thereto, and
Landlord shall reasonably approve the contractors selected by Tenant to perform
such improvement work. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or its visitors, or injury to Tenant's business resulting in
any way from such damage or the repair thereof; provided however, that if such
fire or other casualty shall have damaged the Premises or Common Areas necessary
to Tenant's occupancy, and if such damage is not the result of the negligence or
willful misconduct of Tenant or Tenant's employees, contractors, licensees, or
invitees, Landlord shall allow Tenant a proportionate abatement of Rent to the
extent Landlord is reimbursed from the proceeds of rental interruption insurance
purchased by Landlord as part of Operating Expenses, during the time and to the
extent the Premises are unfit for occupancy for the purposes permitted under
this Lease, and not occupied by Tenant as a result thereof.

      11.2 Option to Repair or Terminate. Notwithstanding the terms of Section
11.1 of this Lease, Landlord may elect not to rebuild and/or restore the
Premises, Building and/or Project; and either Landlord or Tenant may instead
elect to terminate this Lease by notifying the other party in writing of such
termination within ten (10) days after the date Landlord's architect notifies
each party pursuant to Subsection 11.2(i) below, such notice to include a
termination date of ninety (90) days after such written election to terminate,
but such party may so elect only if the Building or Project shall be damaged by
fire or other casualty or cause, whether or not the Premises are affected, and
one or more of the following conditions is present: (i) Landlord's architect
determines, and notifies both parties in writing, that repairs cannot reasonably
be completed within one hundred eighty (180) days after the date Landlord
receives or will receive insurance proceeds for such damages (when such repairs
are made without the payment of overtime or other premiums); (ii) the holder of
any mortgage on the Building or Project or ground lessor with respect to the
Building or Project is successful in requiring that the insurance proceeds or
any portion thereof be used to retire the mortgage debt, or shall terminate the
ground lease, as the case may be; (iii) the damage arises from flood, earthquake
or other events not customarily covered by standard replacement insurance
policies; or (iv) any owner of any other portion of the Project, other than
Landlord, does not intend to repair the damage to such portion of the Project.

      11.3 Waiver of Statutory Provisions. The provisions of this Lease,
including this Article 11, constitute an express agreement between Landlord and
Tenant with respect to any and all damage to, or destruction of, all or any part
of the Premises, the Building or the Project, and any statute or regulation of
the State of California, including, without limitation, Sections 1932(2) and
1933(4) of the California Civil Code, with respect to any rights or obligations
concerning damage or destruction in the absence of an express agreement between
the parties, and any other statute or regulation, now or hereafter in effect,
shall have no application to this Lease or any damage or destruction to all or
any part of the Premises, the Building or the Project.

      11.4 Damage Near End of Term. In the event that the Premises, the
Building, or the Project is destroyed or damaged to any substantial extent,
which would render the repair or replacement an undesirable, unreasonable, or
unsound investment decision taking into account financial feasibility and
timing, as reasonably

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -11-


determined by Landlord, during the last twelve (12) months of the Lease Term,
then notwithstanding this Article 11, Landlord shall have the option to
terminate this Lease by giving written notice to Tenant of the exercise of such
option within ninety (90) days after Landlord learns of the necessity for
repairs as the result of such damage or destruction, in which event this Lease
shall cease and terminate as of the date of such notice, Tenant shall pay the
Base Rent and Additional Rent, properly apportioned up to such date of damage,
and both parties hereto shall thereafter be freed and discharged of all further
obligations hereunder, except as provided for in provisions of this Lease which
by their terms survive the expiration or earlier termination of the Lease Term.

                                   ARTICLE 12

                                    NONWAIVER

      No waiver of any provision of this Lease shall be implied by any failure
of Landlord to enforce any remedy on account of the violation of such provision,
even if such violation shall continue or be repeated subsequently, and any
waiver by Landlord of any provision of this Lease may only be in writing.
Additionally, no express waiver shall affect any provision other than the one
specified in such waiver and then only for the time and in the manner
specifically stated. No receipt of monies by Landlord from Tenant after the
termination of this Lease shall in any way alter the length of the Lease Term or
of Tenant's right of possession hereunder, or after the giving of any notice
shall reinstate, continue or extend the Lease Term or affect any notice given
Tenant prior to the receipt of such monies, it being agreed that after the
service of notice or the commencement of a suit, or after final judgment for
possession of the Premises, Landlord may receive and collect any Rent due, and
the payment of said Rent shall not waive or affect said notice, suit or
judgment.

                                   ARTICLE 13

                                  CONDEMNATION

      13.1 Permanent Taking. If a substantial part of the Premises, Building or
Project shall be taken by power of eminent domain or condemned by any competent
authority for any public or quasi-public use or purpose, or if Landlord shall
grant a deed or other instrument in lieu of such taking by eminent domain or
condemnation, either party shall have the option to terminate this Lease upon
one hundred eighty (180) days' notice, provided such notice is given no later
than one hundred eighty (180) days after the date of such taking, condemnation,
reconfiguration, vacation, deed or other instrument. If more than twenty-five
percent (25%) of the rentable square feet of the Premises is taken, or if access
to the Premises is substantially impaired, Tenant shall have the option to
terminate this Lease upon ninety (90) days' notice, provided such notice is
given no later than one hundred eighty (180) days after the date of such taking.
Landlord shall be entitled to the entire award or payment in connection
therewith, except that Tenant shall have the right to file any separate claim
available to Tenant for any taking of Tenant's personal property and fixtures
belonging to Tenant and removable by Tenant upon expiration of the Lease Term
pursuant to the terms of this Lease, and for moving expenses, so long as such
claims do not diminish the award available to Landlord, its ground lessor with
respect to the Building or Project or its mortgagee, and such claim is payable
separately to Tenant. All Rent shall be apportioned as of the date of such
termination, or the date of such taking, whichever shall first occur. If any
part of the Premises shall be taken, and this Lease shall not be so terminated,
the Rent shall be proportionately abated. Tenant hereby waives any and all
rights it might otherwise have pursuant to Section 1265.130 of The California
Code of Civil Procedure.

      13.2 Temporary Taking. Notwithstanding anything to the contrary contained
in this Article 13, in the event of a temporary taking of all or any portion of
the Premises for a period of one hundred and eighty (180) days or less, then
this Lease shall not terminate but the Base Rent and the Additional Rent shall
be abated for the period of such taking in proportion to the ratio that the
number of rentable square feet of the Premises taken bears to the total number
of rentable square feet of the Premises. Landlord shall be entitled to receive
the entire award made in connection with any such temporary taking.

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -12-


                                   ARTICLE 14

                            ASSIGNMENT AND SUBLETTING

      14.1 Transfers. Tenant shall not, without the prior written consent of
Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to
attach to, or otherwise transfer, this Lease or any interest hereunder, permit
any assignment, or other transfer of this Lease or any interest hereunder by
operation of law, sublet the Premises or any part thereof, or permit the use of
the Premises by any persons other than Tenant and its employees (all of the
foregoing are hereinafter sometimes referred to collectively as "TRANSFERS" and
any person to whom any Transfer is made or sought to be made is hereinafter
sometimes referred to as a "TRANSFEREE"). If Tenant desires Landlord's consent
to any Transfer, Tenant shall notify Landlord in writing, which notice (the
"TRANSFER NOTICE") shall include (i) the proposed effective date of the
Transfer, which shall not be less than twenty (20) days nor more than one
hundred eighty (180) days after the date of delivery of the Transfer Notice,
(ii) a description of the portion of the Premises to be transferred (the
"SUBJECT SPACE"), (iii) all of the material terms of the proposed Transfer and
the consideration therefor (including calculation of the "Transfer Premium", as
that term is defined in Section 14.3 below, in connection with such Transfer),
the name and address of the proposed Transferee, and a copy of all existing
executed and/or proposed documentation pertaining to the proposed Transfer,
including all existing operative documents to be executed to evidence such
Transfer or the agreements incidental or related to such Transfer, and (iv)
current financial statements of the proposed Transferee certified by an officer,
partner or owner thereof, and any other information reasonably required by
Landlord to determine the financial responsibility, character, and reputation of
the proposed Transferee, nature of such Transferee's business and proposed use
of the Subject Space, and such other information as Landlord may reasonably
require. Any Transfer made without Landlord's prior written consent shall, at
Landlord's option, be null, void and of no effect, and shall, at Landlord's
option, constitute a default by Tenant under Section 19.1.7 of this Lease.
Whether or not Landlord consents to any proposed Transfer, Tenant shall pay
Landlord's review and processing fees, as well as any reasonable legal fees (up
to $2,500) incurred by Landlord, within thirty (30) days after written request
by Landlord.

      14.2 Landlord's Consent. Landlord shall not unreasonably withhold its
consent to any proposed Transfer of the Subject Space to the Transferee on the
terms specified in the Transfer Notice. Without limitation as to other
reasonable grounds for withholding consent, the parties hereby agree that it
shall be reasonable under this Lease and under any applicable law for Landlord
to withhold consent to any proposed Transfer where one or more of the following
apply:

            14.2.1 The Transferee is of a character or reputation or engaged in
a business which is not consistent with the quality of the Building or the
Project, or would be a significantly less prestigious occupant of the Building
than Tenant;

            14.2.2 The Transferee is either a governmental agency or
instrumentality thereof;

            14.2.3 The Transferee intends to use the Subject Space for purposes
which are not permitted under this Lease;

            14.2.4 The Transfer will result in more than a reasonable and safe
number of occupants per floor within the Subject Space;

            14.2.5 The Transferee is not a party of reasonable financial worth
and/or financial stability in light of the responsibilities involved under the
Lease on the date consent is requested;

            14.2.6 The proposed Transfer would cause a violation of another
lease for space in the Project, or would give an occupant of the Project a right
to cancel its lease;

            14.2.7 The terms of the proposed Transfer will allow the Transferee
to exercise a right of renewal, right of expansion, right of first offer, or
other similar right held by Tenant (or will allow the Transferee to occupy space
leased by Tenant pursuant to any such right); or

            14.2.8 Either the proposed Transferee, or any person or entity which
directly or indirectly, controls, is controlled by, or is under common control
with, the proposed Transferee, (i) occupies space in the

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -13-


Project at the time of the request for consent, (ii) is negotiating with
Landlord to lease space in the Project at such time, or (iii) has negotiated
with Landlord, for the Project, during the twelve (12)-month period immediately
preceding the Transfer Notice.

            If Landlord consents to any Transfer pursuant to the terms of this
Section 14.2 (and does not exercise any recapture rights Landlord may have under
Section 14.4 of this Lease), Tenant may within six (6) months after Landlord's
consent, but not later than the expiration of said six-month period, enter into
such Transfer of the Premises or portion thereof, upon substantially the same
terms and conditions as are set forth in the Transfer Notice furnished by Tenant
to Landlord pursuant to Section 14.1 of this Lease, provided that if there are
any material changes in the terms and conditions from those specified in the
Transfer Notice (i) such that Landlord would initially have been entitled to
refuse its consent to such Transfer under this Section 14.2, or (ii) which would
cause the proposed Transfer to be more favorable to the Transferee than the
terms set forth in Tenant's original Transfer Notice, Tenant shall again submit
the Transfer to Landlord for its approval and other action under this Article 14
(including Landlord's right of recapture, if any, under Section 14.4 of this
Lease). Notwithstanding any contrary provisions of this Lease, if Tenant or any
proposed Transferee claims that Landlord has unreasonably withheld or delayed
its consent to a proposed Transfer or otherwise has breached its obligations
under this Article, Tenant's and such Transferee's only remedy shall be to seek
a declaratory judgment and/or injunctive relief, and Tenant, on behalf of itself
and, to the extent permitted by law, such proposed Transferee, waives all other
remedies against Landlord, including without limitation, the right to seek
monetary damages or terminate this Lease.

      14.3 Transfer Premium.

            14.3.1 Definition of Transfer Premium. If Landlord consents to a
Transfer, as a condition thereto which the parties hereby agree is reasonable,
Tenant shall pay to Landlord 50% of any "Transfer Premium," as that term is
defined in this Section 14.3, received by Tenant from such Transferee. "TRANSFER
PREMIUM" shall mean all rent, additional rent or other consideration payable by
such Transferee in excess of the Rent and Additional Rent payable by Tenant
under this Lease on a per rentable square foot basis if less than all of the
Premises is transferred, after deducting the reasonable expenses incurred by
Tenant for (i) any changes, alterations and improvements to the Premises in
connection with the Transfer, and (ii) any brokerage commissions in connection
with the Transfer (collectively, the "SUBLEASING COSTS"). "Transfer Premium"
shall also include, but not be limited to, key money and bonus money paid by
Transferee to Tenant in connection with such Transfer, and any payment in excess
of fair market value for (A) services rendered by Tenant to Transferee, or (B)
for assets, fixtures, inventory, equipment, or furniture transferred by Tenant
to Transferee in connection with such Transfer. The payment of a Transfer
Premium shall not apply to those transfers set forth in Section 14.6 or 14.7
below.

            14.3.2 Payment of Transfer Premiums. The determination of the amount
of the Transfer Premium shall be made on an annual basis in accordance with the
terms of this Section 14.3.2, but an estimate of the amount of the Transfer
Premium shall be made each month and one-twelfth of such estimated amount shall
be paid to Landlord promptly, but in no event later than the next date for
payment of Base Rent hereunder, subject to an annual reconciliation on each
anniversary date of the Transfer. If the payments to Landlord under this Section
14.3.2 during the twelve (12) months preceding each annual reconciliation exceed
the amount of Transfer Premium determined on an annual basis, then Landlord
shall credit the overpayment against Tenant's future obligations under this
Section 14.3.2 or if the overpayment occurs during the last year of the Transfer
in question, refund the excess to Tenant. If Tenant has underpaid the Transfer
Premium, as determined by such annual reconciliation, Tenant shall pay the
amount of such deficiency to Landlord promptly, but in no event later than the
next date for payment of Basic Rent hereunder. For purposes of calculating the
Transfer Premium on an annual basis, Tenant's Subleasing Costs shall be deemed
to be offset against the first rent, additional rent or other consideration
payable by the Transferee, until such Subleasing Costs are exhausted.

            14.3.3 Calculations of Rent. In the calculation of the Rent, as it
relates to the Transfer Premium calculated under Section 14.3.1 above, the Rent
paid during each annual period for the Subject Space by Tenant, shall be
computed after adjusting such rent to the actual effective rent to be paid,
taking into consideration any and all leasehold concessions granted in
connection therewith, including, but not limited to, any rent credit and tenant
improvement allowance. For purposes of calculating any such effective rent, all
such concessions shall be amortized on a straight-line basis over the relevant
term.

      14.4 Intentionally Omitted.

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -14-


      14.5 Effect of Transfer. If Landlord consents to a Transfer, (i) the terms
and conditions of this Lease shall in no way be deemed to have been waived or
modified, (ii) such consent shall not be deemed consent to any further Transfer
by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord,
promptly after execution, an original executed copy of all documentation
pertaining to the Transfer in form reasonably acceptable to Landlord, (iv)
Tenant shall furnish upon Landlord's request a complete statement, certified by
an independent certified public accountant, or Tenant's chief financial officer,
setting forth in detail the computation of any Transfer Premium Tenant has
derived and shall derive from such Transfer, and (v) no Transfer relating to
this Lease or agreement entered into with respect thereto, whether with or
without Landlord's consent, shall relieve Tenant or any guarantor of the Lease
from liability under this Lease. Landlord or its authorized representatives
shall have the right at all reasonable times to audit the books, records and
papers of Tenant relating to any Transfer, and shall have the right to make
copies thereof. If the Transfer Premium respecting any Transfer shall be found
understated, Tenant shall, within thirty (30) days after demand, pay the
deficiency and Landlord's costs of such audit, and if understated by more than
ten percent (l0%), Landlord shall have the right to cancel this Lease upon
thirty (30) days' notice to Tenant.

      14.6 Additional Transfers. For purposes of this Lease, the term "Transfer"
shall also include (i) if Tenant is a partnership, the withdrawal or change,
voluntary, involuntary or by operation of law, of twenty-five percent (25%) or
more of the partners, or transfer of twenty-five percent or more of partnership
interests, within a twelve (12)-month period, or the dissolution of the
partnership without immediate reconstitution thereof, and (ii) if Tenant is a
closely held corporation (i.e., whose stock is not publicly held and not traded
through an exchange or over the counter), (A) the dissolution, merger,
consolidation or other reorganization of Tenant or, (B) the sale or other
transfer of more than an aggregate of twenty-five percent (25%) of the voting
shares of Tenant (other than to immediate family members by reason of gift or
death) within a twelve (12)-month period, or (C) the sale, mortgage,
hypothecation or pledge of more than an aggregate of twenty-five percent (25%)
of the value of the unencumbered assets of Tenant within a twelve (12)-month
period.

      14.7 Permitted Transfers. An "AFFILIATE" means any entity that (i)
controls, is controlled by, or is under common control with Tenant, (ii) results
from the transfer of all or substantially all of Tenant's assets or stock, or
(iii) results from the merger or consolidation of Tenant with another entity.
"CONTROL" means the direct or indirect ownership of more than fifty percent
(50%) of the voting securities of an entity or possession of the right to vote
more than fifty (50%) of the voting interest in the ordinary direction of the
entity's affairs. Notwithstanding anything to the contrary contained in the
Lease, Landlord's consent shall not be required for any assignment of this Lease
or sublease of all or a portion of the Premises to an Affiliate so long as the
following conditions are met: (a) at least thirty (30) business days before any
such assignment or sublease, Landlord receives written notice of such assignment
or sublease (as well as any documents or information reasonably requested by
Landlord regarding the proposed intended transfer and the transferee); (b)
Tenant is not then and has not been in default under this Lease; (c) if the
transfer is an assignment or any other transfer to an Affiliate other than a
sublease, the intended assignee assumes in writing all of Tenant's obligations
under this Lease relating to the Premises in form satisfactory to Landlord or,
if the transfer is a sublease, the intended sublessee accepts the sublease in
form satisfactory to Landlord; (d) the intended transferee has a tangible net
worth, as evidenced by financial statements delivered to Landlord and certified
by an independent certified public accountant in accordance with generally
accepted accounting principles that are consistently applied, at least equal to
the net worth of the original Tenant under the Lease as of the Effective Date ;
(e) the Premises shall continue to be operated solely for the use specified in
the Lease; and (f) Tenant shall pay to Landlord all costs reasonably incurred by
Landlord or any mortgagee or ground lessor for such assignment or subletting,
including, without limitation, reasonable attorneys' fees. No transfer to an
Affiliate in accordance with this subparagraph shall relieve Tenant named herein
of any obligation under this Lease or alter the primary liability of Tenant
named herein for the payment of Rent or for the performance of any other
obligation to be performed by Tenant, including the obligations contained in the
Lease with respect to any Affiliate.

                                   ARTICLE 15

                             SURRENDER OF PREMISES;
                            REMOVAL OF TRADE FIXTURES

      15.1 Surrender of Premises. No act or thing done by Landlord or any agent
or employee of Landlord during the Lease Term shall be deemed to constitute an
acceptance by Landlord of a surrender of the Premises unless such intent is
specifically acknowledged in a writing signed by Landlord. The delivery of keys
to the

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -15-


Premises to Landlord or any agent or employee of Landlord shall not constitute a
surrender of the Premises or effect a termination of this Lease, whether or not
the keys are thereafter retained by Landlord, and notwithstanding such delivery
Tenant shall be entitled to the return of such keys at any reasonable time upon
request until this Lease shall have been properly terminated. The voluntary or
other surrender of this Lease by Tenant, whether accepted by Landlord or not, or
a mutual termination hereof, shall not work a merger, and at the option of
Landlord shall operate as an assignment to Landlord of all subleases or
subtenancies affecting the Premises.

      15.2 Removal of Tenant Property by Tenant. Upon the expiration of the
Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject
to the provisions of this Article 15, quit and surrender possession of the
Premises to Landlord in as good order and condition as when Tenant took
possession and as thereafter improved by Landlord and/or Tenant, reasonable wear
and tear and repairs which are specifically made the responsibility of Landlord
hereunder excepted. Upon such expiration or termination, Tenant shall, without
expense to Landlord, remove or cause to be removed from the Premises all debris
and rubbish, and such items of furniture, equipment, free-standing cabinet work,
and other articles of personal property owned by Tenant or installed or placed
by Tenant at its expense in the Premises, and such similar articles of any other
persons claiming under Tenant, as Landlord may, in its sole discretion, require
to be removed, and Tenant shall repair at its own expense all damage to the
Premises and Building resulting from such removal.

      15.3 Removal of Tenant's Property by Landlord. Whenever Landlord shall
re-enter the Premises as provided in this Lease, any personal property of Tenant
not removed by Tenant upon the expiration of the Lease Term, or within five (5)
days after a termination by reason of Tenant's default as provided in this
Lease, shall be deemed abandoned by Tenant and may be disposed of by Landlord in
accordance with Sections 1980 through 1991 of the California Civil Code and
Section 1174 of the California Code of Civil Procedure, or in accordance with
any laws or judicial decisions which may supplement or supplant those provisions
from time to time.

      15.4 Landlord's Actions on Premises. Tenant hereby waives, and releases
Landlord from, all claims for damages or other liability in connection with
Landlord's or its agents' or representatives' reentering and taking possession
of the Premises or removing, retaining, storing or selling the property of
Tenant as herein provided, and Tenant hereby indemnifies and holds Landlord
harmless from any such damages or other liability, and no such re-entry shall be
considered or construed to be a forcible entry.

                                   ARTICLE 16

                                  HOLDING OVER

      If Tenant holds over after the expiration of the Lease Term hereof, with
or without the express or implied consent of Landlord, such tenancy shall be
from month-to-month only, and shall not constitute a renewal hereof or an
extension for any further term, and in such case Base Rent shall be payable at a
monthly rate not to exceed one and one-half (1 1/2) the Base Rent applicable
during the last rental period of the Lease Term under this Lease. Such
month-to-month tenancy shall be subject to every other applicable term, covenant
and agreement contained herein. Nothing contained in this Article 16 shall be
construed as consent by Landlord to any holding over by Tenant, and Landlord
expressly reserves the right to require Tenant to surrender possession of the
Premises to Landlord as provided in this Lease upon the expiration or other
termination of this Lease. The provisions of this Article 16 shall not be deemed
to limit or constitute a waiver of any other rights or remedies of Landlord
provided herein or at law. If Tenant fails to surrender the Premises upon the
termination or expiration of this Lease, in addition to any other liabilities to
Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold
Landlord harmless from all loss, costs (including reasonable attorneys' fees)
and liability resulting from such failure, including, without limiting the
generality of the foregoing, any claims made by any succeeding tenant founded
upon such failure to surrender (including such tenant's lost profits) and any
lost profits to Landlord resulting therefrom.

                                   ARTICLE 17

                              ESTOPPEL CERTIFICATES

      Within ten (10) days following a request in writing by Landlord, Tenant
shall execute and deliver to Landlord an estoppel certificate, which, as
submitted by Landlord, shall be substantially in the form of Exhibit "D,"
attached hereto (or such other form as may be required by any prospective
mortgagee or purchaser of the Project, or

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -16-


any portion thereof), indicating therein any exceptions thereto that may exist
at that time, and shall also contain any other information reasonably requested
by Landlord or Landlord's mortgagee or prospective mortgagee. Tenant shall
execute and deliver whatever other instruments may be reasonably required for
such purposes. Failure of Tenant to timely execute and deliver such estoppel
certificate or other instruments shall constitute an acceptance of the Premises
and an acknowledgment by Tenant that statements included in the estoppel
certificate are true and correct, without exception.

                                   ARTICLE 18

                                  SUBORDINATION

      This Lease shall be subject and subordinate to all present and future
ground or underlying leases of the Building or Project and to the lien of any
first mortgage or trust deed, now or hereafter in force against the Building or
Project, if any, and to all renewals, extensions, modifications, consolidations
and replacements thereof, and to all advances made or hereafter to be made upon
the security of such mortgages or trust deeds, unless the holders of such
mortgages or trust deeds, or the lessors under such ground lease or underlying
leases, require in writing that this Lease be superior thereto. Tenant covenants
and agrees in the event any proceedings are brought for the foreclosure of any
such mortgage or deed in lieu thereof, to attorn, without any deductions or
set-offs whatsoever, to the purchaser or any successors thereto upon any such
foreclosure sale or deed in lieu thereof if so requested to do so by such
purchaser, and to recognize such purchaser as the lessor under this Lease.
Tenant shall, within five (5) days of request by Landlord, execute such further
instruments or assurances as Landlord may reasonably deem necessary to evidence
or confirm the subordination or superiority of this Lease to any such mortgages,
trust deeds, ground leases or underlying leases. Tenant waives the provisions of
any current statute, rule or law which may give or purport to give Tenant any
right or election to terminate or otherwise adversely affect this Lease and the
obligations of the Tenant hereunder in the event of any foreclosure proceeding
or sale.

                                   ARTICLE 19

                               DEFAULTS: REMEDIES

      19.1 Defaults. The occurrence of any of the following shall constitute a
default of this Lease by Tenant:

            19.1.1 Any failure by Tenant to pay any Rent or any other charge
required to be paid under this Lease, or any part thereof, when due; or

            19.1.2 Any failure by Tenant to observe or perform any other
provision, covenant or condition of this Lease to be observed or performed by
Tenant where such failure continues for fifteen (15) days after written notice
thereof from Landlord to Tenant; or

            19.1.3 Abandonment or vacation of the Premises by Tenant; or

            19.1.4 To the extent permitted by law, a general assignment by
Tenant or any guarantor of the Lease for the benefit of creditors, or the filing
by or against Tenant or any guarantor of any proceeding under an insolvency or
bankruptcy law, unless in the case of a proceeding filed against Tenant or any
guarantor the same is dismissed within sixty (60) days, or the appointment of a
trustee or receiver to take possession of all or substantially all of the assets
of Tenant or any guarantor, unless possession is restored to Tenant or such
guarantor within thirty (30) days, or any execution or other judicially
authorized seizure of all or substantially all of Tenant's assets located upon
the Premises or of Tenant's interest in this Lease, unless such seizure is
discharged within thirty (30) days; or

            19.1.5 The hypothecation or assignment of this Lease or subletting
of the Premises, or attempts at such actions, in violation of Article 14 hereof.

      19.2 Remedies Upon Default. Upon the occurrence of any event of default by
Tenant, Landlord shall have, in addition to any other remedies available to
Landlord at law or in equity, the option to pursue any one or more of the
following remedies, each and all of which shall be cumulative and nonexclusive,
without any notice or demand whatsoever.

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -17-


            19.2.1 Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying the Premises or any part
thereof, without being liable for prosecution or any claim or damages therefor;
and Landlord may recover from Tenant the following:

                  (i) The worth at the time of award of any unpaid rent which
      has been earned at the time of such termination; plus

                  (ii) The worth at the time of award of the amount by which the
      unpaid rent which would have been earned after termination until the time
      of award exceeds the amount of such rental loss that Tenant proves could
      have been reasonably avoided; plus

                  (iii) The worth at the time of award of the amount by which
      the unpaid rent for the balance of the Lease Term after the time of award
      exceeds the amount of such rental loss that Tenant proves could have been
      reasonably avoided; plus

                  (iv) Any other amount necessary to compensate Landlord for all
      the detriment proximately caused by Tenant's failure to perform its
      obligations under this Lease or which in the ordinary course of things
      would be likely to result therefrom, specifically including but not
      limited to, brokerage commissions and advertising expenses incurred,
      expenses of remodeling the Premises or any portion thereof for a new
      tenant, whether for the same or a different use, and any special
      concessions made to obtain a new tenant: and

                  (v) At Landlord's election, such other amounts in addition to
      or in lieu of the foregoing as may be permitted from time to time by
      applicable law.

            The term "rent" as used in this Section 19.2 shall be deemed to be
and to mean all sums of every nature required to be paid by Tenant pursuant to
the terms of this Lease, whether to Landlord or to others. As used in Sections
19.2.l(i) and (ii), above, the "worth at the time of award" shall be computed by
allowing interest at the rate set forth in Article 25 of this Lease, but in no
case greater than the maximum amount of such interest permitted by law. As used
in Section 19.2.l(iii) above, the "worth at the time of award" shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent (1%).

            19.2.2 Landlord shall have the remedy described in California Civil
Code Section 1951.4 (lessor may continue lease in effect after lessee's breach
and abandonment and recover rent as it becomes due, if lessee has the right to
sublet or assign, subject only to reasonable limitations). Accordingly, if
Landlord does not elect to terminate this Lease on account of any default by
Tenant, Landlord may, from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease, including the right to recover
all Rent as it becomes due.

      19.3 Sublessees of Tenant. Whether or not Landlord elects to terminate
this Lease on account of any default by Tenant as set forth in this Article 19,
Landlord shall have the right to terminate any and all subleases, licenses,
concessions or other consensual arrangements for possession entered into by
Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed
to Tenant's interest in such subleases, licenses, concessions or arrangements.
In the event of Landlord's election to succeed to Tenant's interest in any such
subleases, licenses, concessions or arrangements, Tenant shall, as of the date
of notice by Landlord of such election, have no further right to or interest in
the rent or other consideration receivable thereunder.

      19.4 Form of Payment After Default. Following the occurrence of an event
of default by Tenant, Landlord shall have the right to require that any or all
subsequent amounts paid by Tenant to Landlord hereunder, whether in the cure of
the default in question or otherwise, be paid in the form of cash, money order,
cashier's or certified check drawn on an institution acceptable to Landlord, or
by other means approved by Landlord, notwithstanding any prior practice of
accepting payments in any different form.

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -18-


      19.5 Waiver of Default. No waiver by Landlord or Tenant of any violation
or breach of any of the terms, provisions and covenants herein contained shall
be deemed or construed to constitute a waiver of any other or later violation or
breach of the same or any other of the terms, provisions, and covenants herein
contained. Forbearance by Landlord in enforcement of one or more of the remedies
herein provided upon an event of default shall not be deemed or construed to
constitute a waiver of such default. The acceptance of any Rent hereunder by
Landlord following the occurrence of any default, whether or not known to
Landlord, shall not be deemed a waiver of any such default, except only a
default in the payment of the Rent so accepted.

      19.6 Efforts to Relet. For the purposes of this Article 19, Tenant's right
to possession shall not be deemed to have been terminated by efforts of Landlord
to relet the Premises, by its acts of maintenance or preservation with respect
to the Premises, or by appointment of a receiver to protect Landlord's interests
hereunder. The foregoing enumeration is not exhaustive, but merely illustrative
of acts which may be performed by Landlord without terminating Tenant's right to
possession.

                                   ARTICLE 20

                           COVENANT OF QUIET ENJOYMENT

      Landlord covenants that Tenant, on paying the Rent, charges for services
and other payments herein reserved and on keeping, observing and performing all
the other terms, covenants, conditions, provisions and agreements herein
contained on the part of Tenant to be kept, observed and performed, shall,
during the Lease Term, peaceably and quietly have, hold and enjoy the Premises
subject to the terms, covenants, conditions, provisions and agreements hereof
without interference by any persons lawfully claiming by or through Landlord.
The foregoing covenant is in lieu of any other covenant express or implied.

                                   ARTICLE 21

                                SECURITY DEPOSIT

      Concurrent with Tenant's execution of this Lease, Tenant shall deposit
with Landlord a security deposit (the "SECURITY DEPOSIT") in the amount set
forth in Section 8 of the Summary. The Security Deposit shall be held by
Landlord as security for the faithful performance by Tenant of all the terms,
covenants, and conditions of this Lease to be kept and performed by Tenant
during the Lease Term. If Tenant defaults with respect to any provisions of this
Lease, including, but not limited to, the provisions relating to the payment of
Rent, Landlord may, but shall not be required to, use, apply or retain all or
any part of the Security Deposit for the payment of any Rent or any other sum in
default, or for the payment of any amount that Landlord may spend or become
obligated to spend by reason of Tenant's default, or to compensate Landlord for
any other loss or damage that Landlord may suffer by reason of Tenant's default.
If any portion of the Security Deposit is so used or applied, Tenant shall,
within five (5) days after written demand therefor, deposit cash with Landlord
in an amount sufficient to restore the Security Deposit to its original amount,
and Tenant's failure to do so shall be a default under this Lease. If Tenant
shall fully and faithfully perform every provision of this Lease to be performed
by it, the Security Deposit, or any balance thereof, shall be returned to
Tenant, or, at Landlord's option, to the last assignee of Tenant's interest
hereunder, within sixty (60) days following the expiration of the Lease Term.
Tenant shall not be entitled to any interest on the Security Deposit. Tenant
hereby waives the provisions of Section 1950.7 of the California Civil Code, and
all other provisions of law, now or hereafter in force, which provide that
Landlord may claim from a security deposit only those sums reasonably necessary
to remedy defaults in the payment of rent, to repair damage caused by Tenant or
to clean the Premises, it being agreed that Landlord may, in addition, claim
those sums reasonably necessary to compensate Landlord for any other loss or
damage, foreseeable or unforeseeable, caused by the acts or omissions of Tenant
or any officer, employee, agent, contractor or invitee of Tenant.

                                   ARTICLE 22

                              INTENTIONALLY OMITTED

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -19-


                                   ARTICLE 23

                                      SIGNS

      Tenant's identifying signage shall be provided by Landlord, at Tenant's
cost, and such signage shall be comparable to that used by Landlord for other
similar tenants in the Building and shall comply with Landlord's Building
standard signage program. If applicable, Tenant shall also be entitled to have
Tenant's name be listed, at Tenant's sole cost and expense, on a directory sign
in the main lobby of the Building, and Tenant shall be entitled to a maximum of
three (3) lines on the building directory, at Tenant's sole cost and expense.
Any signs, notices, logos, pictures, names or advertisements which are installed
and that have not been separately approved by Landlord may be removed without
notice by Landlord at the sole expense of Tenant. Except as provided herein,
Tenant may not install any signs on the exterior or roof of the Project or the
Common Areas. Notwithstanding any contrary provision, Tenant may place any and
all safety-related signage as required by law. Any signs (even if the same are
located behind the Landlord-approved window coverings for the Building), or
other items visible from the exterior of the Premises or Building, shall be
subject to the prior approval of Landlord, in its sole discretion.

      Landlord agrees that, for so long as Structural GenomiX, Inc., as the
original Tenant under this Lease, leases and occupies at least 24,960 rentable
square feet of the Building, Structural GenomiX, Inc. may place its name on the
Building; and provided that: (1) such signage is not prohibited by any
applicable code, ordinance, statute, rule or regulation or by any action or rule
of any landmark commission having jurisdiction, (2) all consents necessary from
all governmental authorities and landmark commissions having jurisdiction are
reasonably obtainable and are first obtained and (3) the exact design, copy,
location, color, construction, and size of the proposed signage shall be
previously approved, in writing, by Landlord.

      Tenant will bear the costs associated with creating, designing,
manufacturing, and installing the signage set forth in the paragraph above.
Tenant shall bear the cost of illuminating said signage and all costs of
operating and maintaining said illumination (including bulbs and ballasts)
("Lighting Costs"). If any Lighting Cost is invoiced to Landlord, such cost
shall become additional rent due upon invoice therefor from Landlord. Landlord
shall otherwise insure and maintain the signage, the costs of which will be
includable in Project Expenses.

      Upon termination or expiration of this Lease or of Tenant's right to
possession of the Premises or if Tenant does not lease and occupy at least
24,960 rentable square feet in the Building, Tenant shall, at Tenant's sole
expense, remove such signage and restore and repair all parts of the Building
affected by the installation or removal of said signage, to the condition
existing prior to its installation or to a condition acceptable to Landlord.

      Landlord shall be permitted to grant to other Tenants of the Building the
right to install signage on the exterior of the Building.

                                   ARTICLE 24

                               COMPLIANCE WITH LAW

      Tenant shall not do anything or suffer anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
other governmental rule, regulation or requirement now in force or which may
hereafter be enacted or promulgated. At its sole cost and expense, Tenant shall
promptly comply with all such governmental measures, other than the making of
structural changes or changes to the Building's life safety system. Should any
standard or regulation now or hereafter be imposed on Landlord or Tenant by a
state, federal or local governmental body charged with the establishment,
regulation and enforcement of occupational, health or safety standards for
employers, employees, landlords or tenants, then Tenant agrees, at its sole cost
and expense, to comply promptly with such standards or regulations. The judgment
of any court of competent jurisdiction or the admission of Tenant in any
judicial action, regardless of whether Landlord is a party thereto, that Tenant
has violated any of said governmental measures, shall be conclusive of that fact
as between Landlord and Tenant.

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -20-


                                   ARTICLE 25

                                  LATE CHARGES

      If any installment of Rent or any other sum due from Tenant shall not be
received by Landlord or Landlord's designee within three (3) days after said
amount is due, then Tenant shall pay to Landlord a late charge equal to five
percent (5%) of the overdue amount plus any attorneys' fees incurred by Landlord
by reason of Tenant's failure to pay Rent and/or other charges when due
hereunder. The late charge shall be deemed Additional Rent and the right to
require it shall be in addition to all of Landlord's other rights and remedies
hereunder or at law and shall not be construed as liquidated damages or as
limiting Landlord's remedies in any manner. In addition to the late charge
described above, any Rent or other amounts owing hereunder which are not paid
within three (3) days after the date they are due shall bear interest from the
date when due until paid at a rate per annum equal to the lesser of (i) eighteen
percent (18%) per annum or (ii) the highest rate permitted by applicable law.

                                   ARTICLE 26

                        LANDLORD'S RIGHT TO CURE DEFAULT;
                               PAYMENTS BY TENANT

      26.1 Landlord's Cure. All covenants and agreements to be kept or performed
by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost
and expense and without any reduction of Rent. If Tenant shall fail to perform
any of its obligations under this Lease, within a reasonable time after such
performance is required by the terms of this Lease, Landlord may, but shall not
be obligated to, after reasonable prior notice to Tenant (except in the case of
an emergency), make any such payment or perform any such act on Tenant's part
without waiving its rights based upon any default of Tenant and without
releasing Tenant from any obligations hereunder.

      26.2 Tenant's Reimbursement. Except as may be specifically provided to the
contrary in this Lease, Tenant shall pay to Landlord, within thirty (30) days
after delivery by Landlord to Tenant of statements therefor: (i) sums equal to
expenditures reasonably made and obligations incurred by Landlord in connection
with the remedying by Landlord of Tenant's defaults pursuant to the provisions
of Section 26.1; (ii) sums equal to all losses, costs, liabilities, damages and
expenses referred to in Article 10 of this Lease; and (iii) sums equal to all
expenditures made and obligations incurred by Landlord in collecting or
attempting to collect the Rent or in enforcing or attempting to enforce any
rights of Landlord under this Lease or pursuant to law, including, without
limitation, all legal fees and other amounts so expended. Tenant's obligations
under this Section 26.2 shall survive the expiration or sooner termination of
the Lease Term.

                                   ARTICLE 27

                                ENTRY BY LANDLORD

      Landlord and its representatives and independent contractors reserve the
right at all reasonable times and upon reasonable notice to Tenant (except in
the case of an emergency) to enter the Premises with a representative of Tenant
to (i) inspect them; (ii) show the Premises to prospective purchasers,
mortgagees or tenants, or to the ground or underlying lessors; (iii) inspect
and/or maintain the monitoring well(s) located inside the Premises and in the
Common Area or parking area serving the Premises (the "MONITORING Well(s)") and
for purposes of servicing the extraction unit located in the parking area (the
"EXTRACTION UNIT"); (iv) post notices of nonresponsibility; or (v) alter,
improve or repair the Premises or the Building if necessary to comply with
current building codes or other applicable laws, or for structural alterations,
repairs or improvements to the Building. Notwithstanding anything to the
contrary contained in this Article 27, Landlord may enter the Premises at any
time to (A) perform services required of Landlord; (B) take possession due to
any breach of this Lease in the manner provided herein; and (C) perform any
covenants of Tenant which Tenant fails to perform. Tenant hereby acknowledges
that the Monitoring Well(s) and Extraction Unit have been placed within the
Project for the purposes of monitoring and assessing the Existing Hazardous
Materials, as the same is hereinafter defined, and Tenant has approved of the
location of the same and of Landlord's access to the same throughout the Lease
Term. Landlord may make any such entries without the abatement of Rent and may
take such reasonable steps as required to accomplish the stated purposes. Tenant
hereby waives any claims for damages or for any injuries or inconvenience to or
interference with

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -21-


Tenant's business, lost profits, any loss of occupancy or quiet enjoyment of the
Premises, and any other loss occasioned thereby. For each of the above purposes,
Landlord shall at all times have a key with which to unlock all the doors in the
Premises, excluding Tenant's vaults, safes and special security areas designated
in advance by Tenant. In an emergency, Landlord shall have the right to use any
means that Landlord may deem proper to open the doors in and to the Premises.
Any entry into the Premises by Landlord in the manner hereinbefore described
shall not be deemed to be a forcible or unlawful entry into, or a detainer of,
the Premises, or an actual or constructive eviction of Tenant from any portion
of the Premises.

                                   ARTICLE 28

                                 TENANT PARKING

      Tenant hereby rents from Landlord, commencing on the Lease Commencement
Date, a pro-rata share of the parking spaces, on a monthly basis throughout the
Lease Term, which parking spaces shall pertain to the Project parking facility.
Such rental shall permit Tenant and its employees to use, on a nonexclusive,
as-available basis, together with other tenants and their respective employees,
any undesignated, unreserved spaces available in such parking facility from time
to time. Tenant shall pay to Landlord for automobile parking spaces on a monthly
basis the prevailing rate charged from time to time for parking spaces in the
Project, which shall be $0 per pass per month for the initial Lease Term.
Landlord specifically reserves the right to change the size, configuration,
design, layout and all other aspects of the Project parking facility at any time
and Tenant acknowledges and agrees that Landlord may, without incurring any
liability to Tenant and without any abatement of Rent under this Lease, from
time to time, close-off or restrict access to the Project parking facility for
purposes of permitting or facilitating any such construction, alteration or
improvements. The parking spaces rented by Tenant pursuant to this Article 28
are provided to Tenant solely for use by Tenant's own personnel and such spaces
may not be transferred, assigned, subleased or otherwise alienated by Tenant
without Landlord's prior approval. Tenant's invitees and guests may use parking
spaces in such parking facility which are not allocated or reserved for Tenant
or other occupants or visitors of the Building or Project on a first-come,
first-serve basis, upon payment of Landlord's then prevailing parking rate. The
parking passes allocated to Tenant are not for long term storage of automobiles,
or for short or long term storage of boats, trailers, recreational vehicles,
motorcycles or other vehicles or equipment.

                                   ARTICLE 29

                      EARLY TERMINATION AND CONFIDENTIALITY

      29.1 Termination of Lease. Should Landlord not acquire insurable fee title
to the Project from the current owner ("SELLER") (and insurable leasehold
interests as to any ground leasehold portions of the Project) prior to sixty
(60) days after the Effective Date of this Lease, Landlord and Tenant shall have
the right to terminate this Lease by written notice (the "EARLY TERMINATION
NOTICE") from the party electing to terminate to the other party. If either
Landlord or Tenant exercises its right to terminate, the Lease Term shall
terminate on the date of the delivery of the Early Termination Notice (the
"EARLY TERMINATION DATE"). If either party exercises such right to terminate,
then Landlord shall reimburse Tenant for its actual out-of-pocket costs incurred
in connection with the negotiation and or upon reasonable reliance upon this
Lease; provided, however, such reimbursement shall not exceed $100,000.

      29.2 Confidentiality. The parties acknowledge and agree that the terms and
provisions of this Lease are confidential and such confidentiality shall remain
in effect before, on and after the execution and delivery of this Lease. In
furtherance of the foregoing, any documents, instruments, records or other
information delivered by one party to the other shall be deemed confidential
information. The provisions of this Section shall survive the expiration or
termination of this Lease. Without limiting the generality of the foregoing,
Tenant and its management, members, officers, directors and employees shall not
contact, disclose, discuss, or negotiate with the Seller in connection with any
matter relating to the Project.

      29.3 Existing Tenant. Landlord shall use commercially reasonable efforts
to obtain an early termination of the Lazer Armortech lease which expires on
December 31, 2002 and is not renewable at Lazer Armortech's option; provided,
however, Landlord shall not be required to offer concessions or consideration in
connection with such efforts.

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -22-


                                   ARTICLE 30

                             RIGHT OF FIRST REFUSAL

      30.1. Right of First Refusal. For so long as Structural GenomiX, Inc., as
the original Tenant under this Lease, or its Affiliates, leases and occupies at
least 24,000 rentable square feet, Structural GenomiX, Inc. shall retain a right
of first offer with respect to any and all additional available rentable area
located in the Project (the "FIRST OFFER SPACE"). Notwithstanding the foregoing,
such first offer right shall commence only following the expiration or earlier
termination of any existing lease (including renewals) in the First Offer Space,
Tenant's right of first offer shall be on the terms and conditions set forth in
this Article 30.

      30.2 Procedure. Landlord shall notify Tenant (the "FIRST OFFER NOTICE")
from time to time when the First Offer Space or any portion thereof becomes
available for lease to third parties. Pursuant to such First Offer Notice,
Landlord shall offer to lease to Tenant the then available First Offer Space for
the remainder of the term under this Lease for the existing Premises. The First
Offer Notice shall describe the space so offered to Tenant and shall set forth
the "First Offer Rent," as that term is defined below. The First Offer Space
shall be offered to Tenant on substantially the same material economic terms per
square foot as Tenant is then paying under this Lease, taking into account,
among other factors, the amount of time then remaining in the Lease Term and the
then unamortized portion of the Tenant Improvements for the Premises (the "FIRST
OFFER RENT"). The First Offer Rent shall be reasonably determined by Landlord
and, at Landlord's election, may include (i) a tenant improvement allowance per
square foot, or, alternatively, (ii) a lesser rent per square foot with no
tenant improvement allowance.

      30.3 Procedure for Acceptance. If Tenant wishes to exercise Tenant's right
of first refusal with respect to the space described in the First Offer Notice,
then within five (5) business days of delivery of the First Offer Notice to
Tenant, Tenant shall deliver notice to Landlord of Tenant's intention to
exercise its right of first offer with respect to the entire space described in
the First Offer Notice on the terms contained in such notice ("TENANT NOTICE").
If Tenant does not so notify Landlord within the five (5) business day period,
then Landlord shall be free to lease the space described in the First Offer
Notice to anyone to whom Landlord desires on any terms Landlord desires.
Notwithstanding anything to the contrary contained herein, Tenant must elect to
exercise its right of first refusal, if at all, with respect to all of the space
offered by Landlord to Tenant at any particular time, and Tenant may not elect
to lease only a portion thereof.

      30.4 Intentionally Omitted.

      30.5 Construction In First Offer Space. Unless Landlord agrees to
construct tenant improvements, Tenant shall take the First Offer Space in its
"as is" condition.

      30.6 Amendment to Lease. If Tenant timely exercises Tenant's right to
lease the First Offer Space as set forth herein, Landlord and Tenant shall
within fifteen (15) days thereafter execute a separate lease for such First
Offer Space upon the terms and conditions as set forth in the First Offer Notice
and this Article 30. Tenant shall commence payment of Rent for the First Offer
Space, and the term of the First Offer Space shall commence upon the date of
delivery of the First Offer Space to Tenant (the "FIRST OFFER COMMENCEMENT
DATE") and terminate on the date set forth in the First Offer Notice.

      30.7 Termination of Right of First Offer. The rights contained in this
Article 30 shall be personal to the Tenant named in the Summary, and its
Affiliates, and may only be exercised by Tenant and its Affiliates (and not any
assignee, sublessee or other transferee of Tenant's interest in this Lease) if
Tenant occupies the entire Premises. The right of first offer granted herein
shall terminate as to particular First Offer Space upon the failure by Tenant to
exercise its right of first offer with respect to such First Offer Space as
offered by Landlord. Tenant shall not have the right to lease First Offer Space,
as provided in this Article 30, if, as of the date of the attempted exercise of
any right of first offer by Tenant, or as of the scheduled date of delivery of
such First Offer Space to Tenant, Tenant is in default under this Lease or
Tenant has previously been in default under this Lease more than once.

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -23-


                                   ARTICLE 31

                            MISCELLANEOUS PROVISIONS

      31.1 Binding Effect. Subject to all other provisions of this Lease, each
of the provisions of this Lease shall extend to and shall, as the case may
require, bind or inure to the benefit not only of Landlord and of Tenant, but
also of their respective successors or assigns, provided this clause shall not
permit any assignment by Tenant contrary to the provisions of Article 14 of this
Lease.

      31.2 Modification of Lease. Should any current or prospective mortgagee or
ground lessor for the Building or Project require a modification or
modifications of this Lease, which modification or modifications will not cause
an increased cost or expense to Tenant or in any other way materially and
adversely change the rights and obligations of Tenant hereunder, then and in
such event, Tenant agrees that this Lease may be so modified and agrees to
execute whatever documents are reasonably required therefor and to deliver the
same to Landlord within ten (10) days following a request therefor. Should
Landlord or any such prospective mortgagee or ground lessor require execution of
a short form of Lease for recording, containing, among other customary
provisions, the names of the parties, a description of the Premises and the
Lease Term, Tenant agrees to execute and deliver such short form of Lease to
Landlord within ten (10) days following the request therefor.

      31.3 Transfer of Landlord's Interest. Tenant acknowledges that Landlord
has the right to transfer all or any portion of its interest in the Project or
Building and in this Lease, and Tenant agrees that in the event of any such
transfer, Landlord shall automatically be released from all liability under this
Lease and Tenant agrees to look solely to such transferee for the performance of
Landlord's obligations hereunder after the date of transfer. Tenant further
acknowledges that Landlord may assign its interest in this Lease to the holder
of any mortgage or deed of trust as additional security, but agrees that an
assignment shall not release Landlord from its obligations hereunder and Tenant
shall continue to look to Landlord for the performance of its obligations
hereunder.

      31.4 Prohibition Against Recording. Except as provided in Section 31.2 of
this Lease, neither this Lease, nor any memorandum, affidavit or other writing
with respect thereto, shall be recorded by Tenant or by anyone acting through,
under or on behalf of Tenant, and the recording thereof in violation of this
provision shall make this Lease null and void at Landlord's election.

      31.5 Captions. The captions of Articles and Sections are for convenience
only and shall not be deemed to limit, construe, affect or alter the meaning of
such Articles and Sections.

      31.6 Time of Essence. Time is of the essence of this Lease and each of its
provisions.

      31.7 Partial Invalidity. If any term, provision or condition contained in
this Lease shall, to any extent, be invalid or unenforceable, the remainder of
this Lease, or the application of such term, provision or condition to persons
or circumstances other than those with respect to which it is invalid or
unenforceable, shall not be affected thereby, and each and every other term,
provision and condition of this Lease shall be valid and enforceable to the
fullest extent possible permitted by law.

      31.8 No Warranty. In executing and delivering this Lease, Tenant has not
relied on any representations, including, but not limited to, any representation
as to the amount of any item comprising Additional Rent or the amount of the
Additional Rent in the aggregate or that Landlord is furnishing the same
services to other tenants, at all, on the same level or on the same basis, or
any warranty or any statement of Landlord which is not set forth herein or in
one or more of the exhibits attached hereto.

      31.9 Entire Agreement. It is understood and acknowledged that there are no
oral agreements between the parties hereto affecting this Lease and this Lease
supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understandings, if any, between the parties hereto or
displayed by Landlord to Tenant with respect to the subject matter thereof, and
none thereof shall be used to interpret or construe this Lease. This Lease and
any side letter or separate agreement executed by Landlord and Tenant in
connection with this Lease and dated of even date herewith, contain all of the
terms, covenants, conditions, warranties and agreements of the parties relating
in any manner to the rental, use and occupancy of the Premises and shall be
considered to be the only agreements between the parties hereto and their
representatives and agents. None of the

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -24-


terms, covenants, conditions or provisions of this Lease can be modified,
deleted or added to except in writing signed by the parties hereto.

      31.10 Right to Lease. Landlord reserves the absolute right to effect such
other tenancies in the Project as Landlord in the exercise of its sole business
judgment shall determine to best promote the interests of the Building or
Project. Tenant does not rely on the fact, nor does Landlord represent, that any
specific tenant or type or number of tenants shall, during the Lease Term,
occupy any space in the Building or Project.

      31.11 Force Majeure. Any prevention, delay or stoppage due to strikes,
lockouts, labor disputes, acts of God, inability to obtain services, labor, or
materials or reasonable substitutes therefor, governmental actions, civil
commotions, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, except with respect to the
obligations imposed with regard to Rent and other charges to be paid by Tenant
pursuant to this Lease (collectively, the "FORCE MAJEURE"), notwithstanding
anything to the contrary contained in this Lease, shall excuse the performance
of such party for a period equal to any such prevention, delay or stoppage and,
therefore, if this Lease specifies a time period for performance of an
obligation of either party, that time period shall be extended by the period of
any delay in such party's performance caused by a Force Majeure.

      31.12 Notices. All notices, demands, statements, designations, approvals
or other communications (collectively, "NOTICES") given or required to be given
by either party to the other hereunder shall be in writing, shall be sent by
United States certified or registered mail, postage prepaid, return receipt
requested, or delivered personally (i) to Tenant at the appropriate address set
forth in Section 11 of the Summary, or to such other place as Tenant may from
time to time designate in a Notice to Landlord; or (ii) to Landlord at the
following addresses, or to such other firm or to such other place as Landlord
may from time to time designate in a Notice to Tenant:

                         BRS TORREY I, LLC
                         c/o Mr. Matt Root
                         The Shidler Group
                         4660 La Jolla Village Drive, Suite 800
                         San Diego, CA 92122

                         with copies to:

                         Teel, Palmer & Roeper, LLP
                         8910 University Center Lane, Suite 630
                         San Diego, California 92122
                         Attn:  Dean E. Roeper, Esq.

Any Notice will be deemed given on the date it is mailed as provided in this
Section 31.12 or upon the date personal delivery is made. If Tenant is notified
of the identity and address of the holder of any deed of trust or ground or
underlying lessor, Tenant shall give to such mortgagee or ground or underlying
lessor written notice of any default by Landlord under the terms of this Lease
by registered or certified mail, and such mortgagee or ground or underlying
lessor shall be given a reasonable opportunity to cure such default prior to
Tenant's exercising any remedy available to Tenant.

      31.13 Joint and Several. If there is more than one Tenant, the obligations
imposed upon Tenant under this Lease shall be joint and several.

      31.14 Authority. If Tenant is a corporation or partnership, each
individual executing this Lease on behalf of Tenant hereby represents and
warrants that Tenant is a duly formed and existing entity qualified to do
business in California and that Tenant has full right and authority to execute
and deliver this Lease and that each person signing on behalf of Tenant is
authorized to do so.

      31.15 Governing Law. This Lease shall be construed and enforced in
accordance with the laws of the State of California.

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -25-


      31.16 Submission of Lease. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or an option for
lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.

      31.17 Brokers. Landlord and Tenant hereby warrant to each other that they
have had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease, excepting only the real estate brokers or agents
specified in Section 10 of the Summary (the "BROKERS"), and that they know of no
other real estate broker or agent who is entitled to a commission in connection
with this Lease. Each party agrees to indemnify and defend the other party
against and hold the other party harmless from any and all claims, demands,
losses, liabilities, lawsuits, judgments, and costs and expenses (including,
without limitation, reasonable attorneys' fees) with respect to any leasing
commission or equivalent compensation alleged to be owing on account of any
dealings with any real estate broker or agent, other than the Brokers, occurring
by, through, or under the indemnifying party.

      31.18 Independent Covenants. This Lease shall be construed as though the
covenants herein between Landlord and Tenant are independent and not dependent
and Tenant hereby expressly waives the benefit of any statute to the contrary
and agrees that if Landlord fails to perform its obligations set forth herein,
Tenant shall not be entitled to make any repairs or perform any acts hereunder
at Landlord's expense or to any setoff of the Rent or other amounts owing
hereunder against Landlord; provided, however, that the foregoing shall in no
way impair the right of Tenant to commence a separate action against Landlord
for any violation by Landlord of the provisions hereof so long as notice is
first given to Landlord and any holder of a mortgage or deed of trust covering
the Building or Project or any portion thereof, whose address has theretofore
been given to Tenant, and an opportunity is granted to Landlord and such holder
to correct such violations as provided above.

      31.19 Project or Building Name and Signage. Landlord shall have the right
at any time to change the name of the Project or Building and to install, affix
and maintain any and all signs on the exterior and on the interior of the
Project or Building as Landlord may, in Landlord's sole discretion, desire.

      31.20 Transportation Management. Tenant shall fully comply with all
present or future programs intended to manage parking, transportation or traffic
in and around the Project or Building, and in connection therewith, Tenant shall
take responsible action for the transportation planning and management of all
employees located at the Premises by working directly with Landlord, any
governmental transportation management organization or any other
transportation-related committees or entities. Such programs may include,
without limitation: (i) restrictions on the number of peak-hour vehicle trips
generated by Tenant; (ii) increased vehicle occupancy; (iii) implementation of
an in-house ridesharing program and an employee transportation coordinator; (iv)
working with employees and any Project, Building or area-wide ridesharing
program manager; (v) instituting employer-sponsored incentives (financial or
in-kind) to encourage employees to rideshare; and (vi) utilizing flexible work
shifts for employees.

      31.21 No Discrimination. Tenant covenants by and for itself, its heirs,
executors, administrators and assigns, and all persons claiming under or through
Tenant, and this Lease is made and accepted upon and subject to the following
conditions: that there shall be no discrimination against or segregation of any
person or group of persons, on account of race, color, creed, sex, religion,
marital status, ancestry or national origin in the leasing, subleasing,
transferring, use, or enjoyment of the Premises, nor shall Tenant itself, or any
person claiming under or through Tenant, establish or permit such practice or
practices of discrimination or segregation with reference to the selection,
location, number, use or occupancy, of tenants, lessees, sublessees, subtenants
or vendees in the Premises.

      31.22 Environmental Matters.

            31.22.1 Hazardous Material. As used herein, the term "HAZARDOUS
MATERIAL" means any hazardous or toxic substance, material or waste which is or
becomes regulated by, or is dealt with in, any local governmental authority, the
State of California or the Unites States Government. Tenant acknowledges that
Landlord may incur costs (i) for complying with laws, codes, regulations or
ordinances relating to Hazardous Material, or (ii) otherwise in connection with
Hazardous Material including, without limitation, the following: (a) Hazardous
Material present in soil or ground water, (b) Hazardous Material that migrates,
flows, percolates, diffuses or in any way moves onto or under the Project, (c)
Hazardous Material present on or under the Project as a result of any discharge,
dumping or spilling (whether accidental or otherwise) on the Project by other
tenants of the Project or their agents, employees, contractors or invitees, or
by others, and (d) material which becomes Hazardous

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -26-


Material due to a change in laws, codes, regulations or ordinances which relate
to hazardous or toxic material, substances or waste. Tenant agrees that the
costs incurred by Landlord with respect to, or in connection with, the Project
for complying with laws, codes, regulations or ordinances relating to Hazardous
Material shall be an Operating Expense, unless the cost of such compliance, as
between Landlord and Tenant, is made the responsibility of Tenant under this
Lease. To the extent any such Operating Expense relating to Hazardous Material
is subsequently recovered or reimbursed through insurance, or recovery from
responsible third parties, or other action, Tenant shall be entitled to a
proportionate share of such Operating Expense to which such recovery or
reimbursement relates.

            31.22.2 Representation and Warranties of Tenant.

                  31.22.2.1 Tenant has received and reviewed the environmental
documents listed in Exhibit "F" ("ENVIRONMENTAL DOCUMENTS"). Tenant acknowledges
that hazardous substances, hazardous materials, wastes, pollutants or
contaminants of the type and nature identified in the Environmental Documents,
or similar or related types or organic and or inorganic substances have been
used and are present or potentially present at the Project at the locations
identified in the Environmental Documents and, potentially, at other locations
at the Project that have not been identified (hereinafter referred to as
"SUBSTANCES").

                  31.22.2.2 Tenant shall inform and/or disclose, prior to the
commencement of Tenant Work under this Lease and the Tenant Work Letter attached
as Exhibit "E", in a manner reasonably approved by Landlord, to its employees,
contractors, subcontractors and anyone else conducting Tenant Work on the
Project under contract or the supervision or direction of the Tenant or its
Contractor, as defined in Exhibit "E" ("WORKER" or "WORKERS"), the content of
the Environmental Documents, including, without limitation, the type, location,
extent and magnitude and hazards associated with the Substances, present or
potentially present at the Project.

            31.22.3 Tenant Release and Indemnification of Landlord. Tenant shall
release, waive and forever discharge Landlord, and indemnify, defend and hold
Landlord and its owners, officers, directors, employees, agents, successors and
assigns ("LANDLORD INDEMNITEES") harmless from and against all losses, claims,
demands, liabilities, obligations, causes of actions, damages, costs, fees,
expenses, fines or penalties including, without limitation, reasonable attorney
fees and the cost and expense to the Landlord Indemnitees of enforcing the
foregoing indemnity obligation (collectively, "LOSSES") asserted against any
Landlord Indemnitee, or incurred by Landlord Indemnitee, arising from or related
to:

                  31.22.3.1 the performance of the Tenant Work by Tenant,
Contractor or Workers and their owner's officers, directors, employees, agents,
successors and assigns;

                  31.22.3.2 Tenant's breach of any representation or warranty
under this Subsection 31.22.3;

                  31.22.3.3 any personal injury or property damage attributable
to the presence of or exposure to Substances suffered by Tenant, Contractor or
any Worker and their owner's officers, directors, employees, agents, successors
and assigns;

                  31.22.3.4 any exacerbation of existing environmental
conditions, whether or not identified in the Environmental Documents, caused by
Tenant, Contractor or any Worker and their owner's officers, directors,
employees, agents, successors and assigns;

                  31.22.3.5 creation of environmental conditions not identified
in the Environmental Documents caused by Tenant, Contractor or Worker and their
owner's officers, directors, employees, agents, successors and assigns.

                  Notwithstanding anything contrary herein, Tenant's obligations
under this Section shall not extend to losses attributable to the negligence or
willful misconduct of Landlord. The foregoing indemnification obligations shall
survive the expiration or termination of this Lease.

            31.22.4 Baseline Environmental Report. Sixty (60) days prior to the
Lease Expiration Date or earlier termination hereof, Tenant shall, at its sole
cost and expense, perform such environmental site assessment of

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -27-


environmental conditions in connection with the Project as may be reasonably
required by Landlord, specifically including both a Phase I and/or Phase II
Environmental Report, to confirm to Landlord if any violation of the terms and
conditions of this Article 31 have occurred ("VIOLATIONS") (including, but not
limited to, sampling, testing and analysis of soil, water, air, building
materials and other materials and substances whether solid, liquid or gas), and
share with Landlord the reports and other results thereof, and Landlord shall be
entitled to rely on such reports and other results thereof. Tenant shall, at its
sole cost and expense, comply with all reasonable written requests of Landlord
to reasonably effectuate remediation of any condition (including, but not
limited to, a release of a Hazardous Material) in, on, under or from the Project
arising from or in connection with a Violation.

            31.22.5 Environmental Insurance; Assignment of Indemnity. In the
event Landlord acquires environmental insurance coverage insuring Landlord
against loss or damage caused by the contamination of the Project and arising
out of the presence of Hazardous Material, then Landlord shall add Tenant as an
additional insured to such policy of insurance but only for loss or injury
caused by the presence of Hazardous Material existing on the Project or the
Premises as of the Commencement Date (the "EXISTING HAZARDOUS MATERIALS"). Such
coverage shall insure Tenant against loss or damage caused by such Existing
Hazardous Material, but only to the extent that proceeds are available to
compensate Tenant after compensating Landlord for any of its losses. In other
words, Tenant's rights to any proceeds under such insurance shall be subrogated
and subordinated to Landlord's rights to such proceeds. In addition, if Landlord
acquires a contractual indemnity for loss or damage arising out of the presence
of any Existing Hazardous Material, from either the previous owner of the
Project or the prior tenant of the Project, then and only to the extent that
such indemnification obligation is assignable, Landlord shall, by execution of
such documents as Landlord may reasonably deem commercially reasonable, assign
the benefits of such indemnity to Tenant, but only to the extent that the
proceeds from such indemnity are available to compensate Tenant after
compensating Landlord for any of its losses. In other words, Tenant's rights to
any proceeds under such indemnity shall be subrogated and subordinated to
Landlord's rights to such proceeds.

            31.22.6 Landlord Release of Tenant. Landlord shall release, waive
and forever discharge Tenant for any responsibility for Losses arising from or
related to the Existing Hazardous Materials, provided that such Losses are not
as a result, in whole or in part, of any of the actions or inactions of Tenant
or other parties as described in Subsection 31.22.3 above or are otherwise
covered by the Tenant's obligation to indemnify Landlord.

      31.23 Development of the Project.

            31.23.1 Subdivision. Tenant acknowledges that the Project has been
subdivided. Landlord reserves the right to further subdivide all or a portion of
the buildings and Common Areas in the Project. Tenant agrees to execute and
deliver, upon demand by Landlord and in the form requested by Landlord, any
additional documents needed to conform this Lease to the circumstances resulting
from a subdivision and any all maps in connection therewith. Notwithstanding
anything to the contrary set forth in this Lease, the separate ownership of any
buildings and/or Common Areas of the Project by an entity other than Landlord
shall not affect the calculation of Project Expenses or Tenant's payment of
Tenant's Share of Project Expenses.

            31.23.2 The Other Improvements. If portions of the Project or
property adjacent to the Project (collectively, the "OTHER IMPROVEMENTS") are
owned by an entity other than Landlord, Landlord, at its option, may enter into
an agreement with the owner or owners of any of the Other Improvements to
provide (i) for reciprocal rights of access, use and/or enjoyment of the Project
and the Other Improvements, (ii) for the common management, operation,
maintenance, improvement and/or repair of all or any portion of the Project and
all or any portion of the Other Improvements, (iii) for the allocation of a
portion of the Project Expenses to the Other Improvements and the allocation of
a portion of the operating expenses and taxes for the Other Improvements to the
Project, (iv) for the use or improvement of the Other Improvements and/or the
Project in connection with the improvement, construction, and/or excavation of
the Other Improvements and/or the Project, and (v) for any other matter which
Landlord deems necessary. Nothing contained herein shall be deemed or construed
to limit or otherwise affect Landlord's right to sell all or any portion of the
Project or any other of Landlord's rights described in this Lease.

            31.23.3 Construction of Project and Other Improvements. Tenant
acknowledges that portions of the Project and/or the Other Improvements may be
under construction following Tenant's occupancy of -the Premises, and that such
construction may result in levels of noise, dust, obstruction of access, etc.,
which are in excess of that present in a fully constructed project. Tenant
hereby waives any and all rent offsets or claims of constructive eviction which
may arise in connection with such construction.

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -28-


      31.24 Landlord Exculpation. It is expressly understood and agreed that
notwithstanding anything in this Lease to the contrary, and notwithstanding any
applicable law to the contrary, the liability of Landlord hereunder (including
any successor landlord hereunder) and any recourse by Tenant against Landlord
shall be limited solely and exclusively to the lesser of (a) the equity interest
of Landlord in the Building or (b) the equity interest Landlord would have in
the Building if the Building were encumbered by third-party debt in an amount
equal to eighty percent (80%) of the value of the Building (as such value is
determined by Landlord), and neither Landlord, nor any of its constituent
partners or subpartners, shall have any personal liability therefor, and Tenant,
on behalf of itself and all persons claiming by, through or under Tenant, hereby
expressly waives and releases Landlord and such partners and subpartners from
any and all personal liability.

      31.25 Waiver of Redemption by Tenant. Tenant hereby waives for Tenant and
for all those claiming under Tenant, all rights now or hereafter existing to
redeem by order or judgment of any court or by any legal process or writ,
Tenant's right of occupancy of the Premises after any termination of this Lease.

      31.26 Attorneys' Fees. If either party commences litigation against the
other for the specific performance of this Lease, for damages for the breach
hereof or otherwise for enforcement of any remedy hereunder, the parties hereto
agree to and hereby do waive any right to a trial by jury and, in the event of
any such commencement of litigation, the prevailing party shall be entitled to
recover from the other party such costs and reasonable attorneys' fees as may
have been incurred, including any and all costs incurred in enforcing,
perfecting and executing such judgment.

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -29-


      IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed the day and date first above written.

            "LANDLORD":                BRS TORREY I, LLC,
                                       a Delaware limited liability company

                                       By:         /s/ [Illegible]
                                            ------------------------------------
                                            ____________________________________

                                       Its:              Member

                                            By:
                                                 _______________________________
                                            Its:
                                                 _______________________________

            "TENANT":                  STRUCTURAL GENOMIX, INC.,
                                       a Delaware corporation

                                       By:            /s/ Tim Harris
                                            ------------------------------------
                                            Name:         T. Harris
                                            Title:        Pres & CEO

                                       By:            /s/ [Illegible]
                                            ------------------------------------
                                            Name:      [Illegible]
                                            Title:          EVP

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                                      -30-


                                   EXHIBIT "A"

                        TORREY SORRENTO I BUSINESS PARK,
               (10575/10581 Roselle Street, San Diego, California)

                               OUTLINE OF PREMISES

                                  [FLOOR PLAN]

                              EXHIBIT "A" - Page 1

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]



                                   EXHIBIT "B"

                         TORREY SORRENTO I BUSINESS PARK
               (10575/10581 ROSELLE STREET, SAN DIEGO, CALIFORNIA)

                           NOTICE OF LEASE TERM DATES

To:
      _________________________________
      _________________________________
      _________________________________

      Re:   Lease dated ________________________, 2001 between BRS TORREY I,
            LLC, a Delaware limited liability company ("LANDLORD"), and
            STRUCTURAL GENOMIX, INC., a Delaware corporation ("TENANT")
            concerning Suite _________ on floor(s) ___________ of the office
            building located at 10575/10581 Roselle Street, San Diego,
            California.

Gentlemen:

      In accordance with the referenced Lease (the "LEASE"), we wish to advise
you and/or confirm as follows:

      1. The Substantial Completion of the Premises has occurred, and the Lease
Term shall commence on or has commenced on ________________________ for a term
of ____________________________ ending on ________________________________.

      2. Rent commenced to accrue on ________________________________, in the
amount of ________________________________.

      3. If the Lease Commencement Date is other than the first day of the
month, the first billing will contain a pro rata adjustment. Each billing
thereafter, with the exception of the final billing, shall be for the full
amount of the monthly installment as provided for in the Lease.

      4. Your rent checks should be made payable to _________________________ at
________________________________________________________________.

      5. The exact number of rental square feet within the Premises is
_________________________ square feet.

      6. Base Rent, as adjusted based upon the exact number of rentable square
feet within the Premises, is as follows:
_______________________________________________________________________________.

                              EXHIBIT "B" - Page 1

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]



      7. Tenant's Share, as adjusted based upon the exact number of rentable
square feet within the Premises, is ________%.

      "LANDLORD":                      BRS TORREY I, LLC,
                                       a Delaware limited liability company

                                       By: _____________________________________

                                       Its: ____________________________________

                                       By: _____________________________________

                                                Its: ___________________________

Agreed to and Accepted as
of ___________________, 2001

"TENANT":

STRUCTURAL GENOMIX, INC.,
a Delaware corporation

By: ______________________________

    Its: _________________________

                              EXHIBIT "B" - Page 2

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]



                                   EXHIBIT "C"

                         TORREY SORRENTO I BUSINESS PARK
               (10575/10581 ROSELLE STREET, SAN DIEGO, CALIFORNIA)

                              RULES AND REGULATIONS

      Tenant shall faithfully observe and comply with the following Rules and
Regulations. Landlord shall not be responsible to Tenant for the nonperformance
of any of said Rules and Regulations by or otherwise with respect to the acts or
omissions of any other tenants or occupants of the Project.

      1. Tenant shall not alter any lock or install any new or additional locks
or bolts on any doors or windows of the Premises without obtaining Landlord's
prior written consent. Tenant shall bear the cost of any lock changes or repairs
required by Tenant. Two keys will be furnished by Landlord for the Premises, and
any additional keys required by Tenant must be obtained from Landlord at a
reasonable cost to be established by Landlord.

      2. All doors opening to public corridors shall be kept closed at all times
except for normal ingress and egress to the Premises.

      3. Any requests of Tenant shall be directed to the management office for
the Project or at such office location designated by Landlord. Employees of
Landlord shall not perform any work or do anything outside their regular duties
unless under special instructions from Landlord.

      4. Tenant shall not disturb, solicit, or canvas any occupant of the
Project and shall cooperate with Landlord and its agents to prevent such
activities.

      5. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein. The expense of
any breakage, stoppage or damage resulting from the violation of this rule shall
be borne by the tenant who, or whose employees or agents, shall have caused it.

      6. Tenant shall not without the prior written consent of Landlord use any
method of heating or air conditioning other than that supplied by Landlord.

      7. Tenant shall not allow to escape any foul or noxious gas or substance
in or on the Premises, or permit or allow the Premises to be occupied or used in
a manner offensive or objectionable to Landlord or other occupants of the
Project by reason of noise, odors, or vibrations, or interfere in any way with
other tenants or those having business therein.

      8. No cooking shall be done or permitted on the Premises, nor shall the
Premises be used for the storage of merchandise, for lodging or for any
improper, objectionable or immoral purposes. Notwithstanding the foregoing,
Underwriters' laboratory-approved equipment and microwave ovens may be used in
the Premises for heating food and brewing coffee, tea, hot chocolate and similar
beverages for employees and visitors, provided that such use is in accordance
with all applicable federal, state and city laws, codes, ordinances, rules and
regulations.

      9. Landlord reserves the right to exclude or expel from the Project any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
these Rules and Regulations.

      10. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.

      11. Tenant shall assume any and all responsibility for protecting the
Premises from theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed.

                              EXHIBIT "C" - Page 1

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]



      12. No awnings or other projection shall be attached to the outside walls
of the Building without the prior written consent of Landlord. All electrical
ceiling fixtures hung in offices or spaces along the perimeter of the Building
must be fluorescent and/or of a quality, type, design and bulb color approved by
Landlord. Tenant shall abide by Landlord's regulations concerning the opening
and closing of window coverings which are attached to the windows in the
Premises, if any, which have a view of any interior portion of the Building or
Building Common Areas.

      Landlord reserves the right at any time to change or rescind any one or
more of these Rules and Regulations, or to make such other and further
reasonable Rules and Regulations as in Landlord's judgment may from time to time
be necessary for the management, safety, care and cleanliness of the Premises,
Building, the Common Areas and the Project, and for the preservation of good
order therein, as well as for the convenience of other occupants and tenants
therein. Tenant shall be deemed to have read these Rules and Regulations and to
have agreed to abide by them as a condition of its occupancy of the Premises.
Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular tenants, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of any other
tenant, nor prevent Landlord from thereafter enforcing any such Rules or
Regulations against any or all tenants of the Project.

                              EXHIBIT "C" - Page 2

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]



                                   EXHIBIT "D"

                         TORREY SORRENTO I BUSINESS PARK
               (10575/10581 ROSELLE STREET, SAN DIEGO, CALIFORNIA)

                      FORM OF TENANT'S ESTOPPEL CERTIFICATE

      The undersigned as Tenant under that certain Lease (the "LEASE") made and
entered into as of ______________, 2001 by and between BRS TORREY I, LLC, a
Delaware limited liability company, as Landlord, and the undersigned, as Tenant,
for Premises on the ________________ (______) floor(s) of the office building
located at 10575/10581 Roselle Street, San Diego, California, certifies as
follows:

      1. Attached hereto as Exhibit A is a true and correct copy of the Lease
and all amendments and modifications thereto. The documents contained in Exhibit
A represent the entire agreement between the parties as to the Premises.

      2. The undersigned currently occupies the Premises described in the Lease.

      3. The Lease Term commenced on ____________________________, and the Lease
Term expires on _________________________________.

      4. Base Rent became payable on __________________.

      5. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Exhibit A.

      6. Tenant has not transferred, assigned, or sublet any portion of the
Premises nor entered into any license or concession agreements with respect
thereto except as follows:

      7. Tenant shall not modify the documents contained in Exhibit A without
the prior written consent of the holder of the first deed of trust on the
Premises.

      8. All monthly installments of Base Rent, all Additional Rent and all
monthly installments of estimated Additional Rent have been paid when due
through __________________. The current monthly installment of Base Rent is
$________.

      9. All conditions of the Lease to be performed by Landlord necessary to
the enforceability of the Lease have been satisfied and Landlord is not in
default thereunder.

      10. The current amount of the Security Deposit held by Landlord is
$________.

      11. No rental has been paid more than thirty (30) days in advance and no
security has been deposited with Landlord except as provided in the Lease.

      12. As of the date hereof, there are no existing defenses or offsets that
the undersigned has against Landlord nor have any events occurred that with the
passage of time or the giving of notice, or both, would constitute a default on
the part of Landlord under the Lease.

      13. The undersigned acknowledges that this Estoppel certificate may be
delivered to Landlord or to a prospective mortgagee, or a prospective purchaser,
and acknowledges that said prospective mortgagee or prospective purchaser will
be relying upon the statements contained herein in making the loan or acquiring
the property of which the Premises are a part and that receipt by it of this
certificate is a condition of making of such loan or acquisition of such
property.

      14. If Tenant is a corporation or partnership, each individual executing
this Estoppel Certificate on behalf of Tenant hereby represents and warrants
that Tenant is a duly formed and existing entity qualified to do

                              EXHIBIT "D" - Page 1

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]



business in California and that Tenant has full right and authority to execute
and deliver this Estoppel Certificate and that each person signing on behalf of
Tenant is authorized to do so.

      Executed at __________________ on the _____ day of __________________,
2001.

      "TENANT":                         STRUCTURAL GENOMIX, INC.,
                                        a Delaware corporation

                                        By: ____________________________________
                                            Name: ______________________________
                                            Title:

                                        By: ____________________________________
                                            Name: ______________________________
                                            Title: _____________________________

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]

                              EXHIBIT "D" - Page 2



                                   EXHIBIT "E"

                         TORREY SORRENTO I BUSINESS PARK
               (10575/10581 ROSELLE STREET, SAN DIEGO, CALIFORNIA)

                               TENANT WORK LETTER

      This Tenant Work Letter shall set forth the terms and conditions relating
to the construction of the tenant improvements in the Premises. This Tenant Work
Letter is essentially organized chronologically and addresses the issues of the
construction of the Premises, in sequence, as such issues will arise during the
actual construction of the Premises. All capitalized terms used but not defined
herein shall have the meanings given such terms in the Lease. All references in
this Tenant Work Letter to Articles or Sections of "this Lease" shall mean the
relevant portion of Articles 1 through 31 of this Lease to which this Tenant
Work Letter is attached as Exhibit "E" and of which this Tenant Work Letter
forms a part, and all references in this Tenant Work Letter to Sections of "this
Tenant Work Letter" shall mean the relevant portion of Sections 1 through 6 of
this Tenant Work Letter.

                                    SECTION 1

                   DELIVERY OF THE PREMISES AND BASE BUILDING

      Upon the full execution and delivery of this Lease by Landlord and Tenant,
Landlord shall deliver the Premises and "Base Building," as that term is defined
below, to Tenant, and Tenant shall accept the Premises and Base Building from
Landlord in their presently existing, "as-is" condition ("DELIVERY DATE");
provided, however, Landlord shall (i) paint the exterior of the Building, (ii)
repair and/or replace certain portions of the roofing system, (iii) install
glass in all truck doors along the back of the Building, and (iv) repair certain
portions of the parking lot (collectively, the "LANDLORD'S WORK"). The "BASE
BUILDING" shall consist of those portions of the Premises which were in
existence prior to the construction of the Tenant Work. Landlord shall obtain a
bid from the Contractor, defined below, to construct the Landlord's Work. If
such bid is not competitive with Landlord's other bids for the Landlord Work, at
Tenant's option, Tenant may pay the difference between the Contractor's bid and
the most competitive bid for the Landlord's Work to Landlord, and Landlord shall
retain the Contractor to construct the Landlord's Work.

                                    SECTION 2

                               TENANT IMPROVEMENTS

      2.1 Tenant Improvement Allowance. Tenant shall be entitled to a one-time
tenant improvement allowance (the "TENANT IMPROVEMENT ALLOWANCE") in the amount
of up to One Million Eight Hundred Eighty-Five Thousand One Hundred Eighty
Dollars ($1,885,180.00) for reimbursement to Tenant for the costs relating to
the initial design and construction of Tenant's improvements which are
permanently affixed to the Premises (the "TENANT IMPROVEMENTS"). In no event
shall Landlord be obligated to make disbursements pursuant to this Tenant Work
Letter in a total amount which exceeds the Tenant Improvement Allowance.

      2.2 Disbursement of the Tenant Improvement Allowance. Except as otherwise
set forth in this Tenant Work Letter, the Tenant Improvement Allowance shall be
disbursed by Landlord (each of which disbursements shall be made pursuant to
Landlord's disbursement process) only for the following items and costs
(collectively, the "TENANT IMPROVEMENT ALLOWANCE ITEMS").

            2.2.1 Payment of the fees of the "Space Planner," "Architect" and
the "Engineers," as those terms are defined in Section 3.1 of this Tenant Work
Letter and payment of the fees incurred by, and the cost of documents and
materials supplied by, Landlord and Landlord's consultants in connection with
the preparation and review of the "Construction Drawings," as that term is
defined in Section 3.1 of this Tenant Work Letter;

            2.2.2 The payment of plan check, permit and license fees relating to
construction of the Tenant Improvements;

                              EXHIBIT "E" - Page 1

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]



            2.2.3 The cost of construction of the Tenant Improvements,
including, without limitation, testing and inspection costs, freight elevator
usage, hoisting and trash removal costs, and contractors' fees and general
conditions;

            2.2.4 The cost of any changes in the Base, Shell and Core work or
the Landlord Work when such changes are required by the Construction Drawings
(including if such changes are due to the fact that such work is prepared on an
unoccupied basis), such cost to include all direct architectural and/or
engineering fees and expenses incurred in connection therewith;

            2.2.5 The cost of any changes to the Construction Drawings, Tenant
Improvements or Landlord's Work required by Code;

            2.2.6 Sales and use taxes and Title 24 fees;

            2.2.7 "Landlord Consulting Fee", as that term is defined in Section
4.3 of this Tenant Work Letter; and

            2.2.8 All other costs to be expended by Landlord in connection with
the construction of the Tenant Improvements.

      2.3 Tenant Work. Any and all work performed by Tenant to the Premises or
the Building or Project shall be defined as "Tenant Improvements." Tenant shall
use its good faith efforts to complete the construction of the Tenant
Improvements on or before October 1, 2001. The Tenant Work shall also be
considered "Tenant Improvements" for purposes of this Tenant Work Letter.

      Any failure of Tenant to so complete the Tenant Work or otherwise comply
with the terms and provisions of this Tenant Work Letter shall be a default
under this Lease. Landlord and Tenant shall use commercially reasonable efforts
to concurrently construct the Landlord's Work and the Tenant Work.

                                    SECTION 3

                              CONSTRUCTION DRAWINGS

      3.1 Selection of Architect/Construction Drawings. Tenant shall retain an
architect reasonably acceptable to Landlord (the "ARCHITECT") to prepare any
"Construction Drawings," as that term is defined in this Section 3.1. Tenant
shall retain engineering consultants reasonably acceptable to and approved by
Landlord (the "ENGINEERS") to prepare any plans and engineering working drawings
relating to the structural, mechanical, electrical, plumbing, HVAC, lifesafety,
and sprinkler work in the Premises or otherwise, which work is not part of the
Base Building. The plans and drawings to be prepared by Architect and the
Engineers hereunder shall be known collectively as the "CONSTRUCTION DRAWINGS."
All Construction Drawings shall comply with the drawing format and
specifications determined by Landlord, and shall be subject to Landlord's
approval which will not be unreasonably withheld. Tenant and Architect shall
verify, in the field, the dimensions and conditions as shown on the relevant
portions of the base building plans, and Tenant and Architect shall be solely
responsible for the same, and Landlord shall have no responsibility in
connection therewith. Landlord's review of the Construction Drawings as set
forth in this Section 3, shall be for its sole purpose and shall not imply
Landlord's review of the same, or obligate Landlord to review the same, for
quality, design, Code compliance or other like matters. Accordingly,
notwithstanding that any Construction Drawings are reviewed by Landlord or its
space planner, architect, engineers and consultants, and notwithstanding any
advice or assistance which may be rendered to Tenant by Landlord or Landlord's
space planner, architect, engineers, and consultants, Landlord shall have no
liability whatsoever in connection therewith and shall not be responsible for
any omissions or errors contained in the Construction Drawings, and Tenant's
waiver and indemnity set forth in this Lease shall specifically apply to the
Construction Drawings.

      3.2 Approved Plans. Landlord shall approve or reasonably disapprove by
written notice to Tenant (with a detailed description of Landlord's reasons for
such disapproval) of any draft of the Construction Drawings within three (3)
business days after Landlord's receipt thereof. Landlord's failure to approve or
reasonably disapprove any draft of the Construction Drawings by written notice
to Tenant within said three (3) business day period shall be deemed to
constitute Landlord's approval thereof. If Landlord so notifies Tenant of its
disapproval

                              EXHIBIT "E" - Page 2

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]



of any draft of the Construction Drawings, Tenant shall cause the Architect to
revise the Construction Drawings and to resubmit the Construction Drawings for
Landlord's approval. This process shall continue until the Construction Drawings
have been approved or are deemed to have been approved by Landlord. The final
Construction Drawings shall be approved by Landlord (the "APPROVED PLANS") prior
to the commencement of construction of the Tenant Work by Tenant. After approval
by Landlord of the final Approved Plans, which consent may not be unreasonably
withheld or delayed, Tenant shall submit the same and shall acquire all
applicable permits and shall deliver a copy of all permits to Landlord. Tenant
hereby agrees that neither Landlord nor Landlord's consultants shall be
responsible for obtaining any permit regarding the Tenant Work and that
obtaining the same shall be Tenant's responsibility; provided, however, that
Landlord shall cooperate with Tenant in executing permit applications and
performing other ministerial acts reasonably necessary to enable Tenant to
obtain any such permit. No material, substantive changes, modifications or
alterations in the Approved Plans may be made without the prior written consent
of Landlord, which consent may not be unreasonably withheld or delayed. The
failure of Tenant to acquire all permits that are required by any governmental
agency shall be a default of Tenant hereunder.

                                    SECTION 4

                     CONSTRUCTION OF THE TENANT IMPROVEMENTS

      4.1 Tenant's Selection of Contractors.

            4.1.1 The Contractor. A contractor shall be retained by Tenant to
construct the Tenant Improvements. Such contractor ("CONTRACTOR") shall be
selected by Tenant from a list of contractors acceptable to Landlord, and Tenant
shall deliver to Landlord notice of its selection of the Contractor upon such
selection.

            4.1.2 Tenant's Agents. All subcontractors, laborers, materialmen,
and suppliers used by Tenant (such subcontractors, laborers, materialmen, and
suppliers, and the Contractor to be known collectively as "TENANT'S AGENTS")
must be approved in writing by Landlord, which approval shall not be
unreasonably withheld or delayed. If Landlord does not approve any of Tenant's
proposed subcontractors, laborers, materialmen or suppliers within three (3)
business days after Landlord's receipt thereof, Tenant shall submit other
proposed subcontractors, laborers, materialmen or suppliers for Landlord's
written approval.

      4.2 Construction of Tenant Improvements by Tenant's Agents.

            4.2.1 Construction Contract; Cost Budget. Prior to Tenant's
execution of the construction contract and general conditions with Contractor
(the "CONTRACT"), Tenant shall submit the Contract to Landlord for its approval,
which approval shall not be unreasonably withheld or delayed.

            4.2.2 Tenant's Agents.

                  4.2.2.1 Landlord's General Conditions for Tenant's Agents and
Tenant Improvement Work. Tenant's and Tenant's Agent's construction of the
Tenant Improvements shall comply with the following: (i) the Tenant Improvements
shall be constructed in strict accordance with the Approved Plans; (ii) Tenant's
Agents shall submit schedules of all work relating to the Tenant's Improvements
to Contractor and Contractor shall, within five (5) business days of receipt
thereof, inform Tenant's Agents of any changes which are necessary thereto, and
Tenant's Agents shall adhere to such corrected schedule; and (iii) Tenant shall
abide by all rules made by Landlord's Building manager with respect to the use
of freight, loading dock and service elevators, storage of materials,
coordination of work with the contractors of other tenants, and any other matter
in connection with this Tenant Work Letter, including, without limitation, the
construction of the Tenant Improvements.

                  4.2.2.2 Indemnity. Tenant's indemnity of Landlord as set forth
in this Lease shall also apply with respect to any and all costs, losses,
damages, injuries and liabilities related in any way to any act or omission of
Tenant or Tenant's Agents, or anyone directly or indirectly employed by any of
them, or in connection with Tenant's non-payment of any amount arising out of
the Tenant Improvements and/or Tenant's disapproval of all or any portion of any
request for payment. Such indemnity by Tenant, as set forth in this Lease, shall
also apply with respect to any and all costs, losses, damages, injuries and
liabilities related in any way to Landlord's performance of any ministerial acts
reasonably necessary (i) to permit Tenant to complete the Tenant Improvements,
and (ii) to enable Tenant to obtain any building permit or certificate of
occupancy for the Premises.

                              EXHIBIT "E" - Page 3

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]



                  4.2.2.3 Requirements of Tenant's Agents. Each of Tenant's
Agents shall guarantee to Tenant and for the benefit of Landlord that the
portion of the Tenant Improvements for which it is responsible shall be free
from any defects in workmanship and materials for a period of not less than one
(1) year from the date of completion thereof. Each of Tenant's Agents shall be
responsible for the replacement or repair, without additional charge, of all
work done or furnished in accordance with its contract that shall become
defective within one (1) year after the later to occur of (i) completion of the
work performed by such contractor or subcontractors and (ii) the Lease
Commencement Date. The correction of such work shall include, without additional
charge, all additional expenses and damages incurred in connection with such
removal or replacement of all or any part of the Tenant Improvements, and/or the
Building and/or common areas that may be damaged or disturbed thereby. All such
warranties or guarantees as to materials or workmanship of or with respect to
the Tenant Improvements shall be contained in the Contract or subcontract and
shall be written such that such guarantees or warranties shall inure to the
benefit of both Landlord and Tenant, as their respective interests may appear,
and can be directly enforced by either. Tenant covenants to give to Landlord any
assignment or other assurances which may be necessary to effect such right of
direct enforcement.

                  4.2.2.4 Insurance Requirements.

                        4.2.2.4.1 General Coverages. All of Tenant's Agents
shall carry worker's compensation insurance covering all of their respective
employees, and shall also carry public liability insurance, including property
damage, all with limits, in form and with companies as are required to be
carried by Tenant as set forth in this Lease.

                        4.2.2.4.2 Special Coverages. Tenant shall carry
"Builder's All Risk" insurance in an amount approved by Landlord covering the
construction of the Tenant Improvements, and such other insurance as Landlord
may require, it being understood and agreed that the Tenant Improvements shall
be insured by Tenant pursuant to this Lease immediately upon completion thereof.
Such insurance shall be in amounts and shall include such extended coverage
endorsements as may be reasonably required by Landlord including, but not
limited to, the requirement that all of Tenant's Agents shall carry excess
liability and Products and Completed Operation Coverage insurance, each in
amounts not less than $1,000,000 per incident, $3,000,000 in aggregate, and in
form and with companies as are required to be carried by Tenant as set forth in
this Lease.

                        4.2.2.4.3 General Terms. Certificates for all insurance
carried pursuant to this Section 4.2.2.4 shall be delivered to Landlord before
the commencement of construction of the Tenant Improvements and before the
Contractor's equipment is moved onto the site. All such policies of insurance
must contain a provision that the company writing said policy will give Landlord
thirty (30) days prior written notice of any cancellation or lapse of the
effective date or any reduction in the amounts of such insurance. In the event
that the Tenant Improvements are damaged by any cause during the course of the
construction thereof, Tenant shall immediately repair the same at Tenant's sole
cost and expense. Tenant's Agents shall maintain all of the foregoing insurance
coverage in force until the Tenant Improvements are fully completed and accepted
by Landlord, except for any Products and Completed Operation Coverage insurance
required by Landlord, which is to be maintained for ten (10) years following
completion of the work and acceptance by Landlord and Tenant. All policies
carried under this Section 4.2.2.4 shall insure Landlord and Tenant, as their
interests may appear, as well as Contractor and Tenant's Agents. All insurance,
except Workers' Compensation, maintained by Tenant's Agents shall preclude
subrogation claims by the insurer against anyone insured thereunder. Such
insurance shall provide that it is primary insurance as respects the owner and
that any other insurance maintained by owner is excess and noncontributing with
the insurance required hereunder. The requirements for the foregoing insurance
shall not derogate from the provisions for indemnification of Landlord by Tenant
under Section 4.2.2.2 of this Tenant Work Letter. Landlord may, in its
discretion, require Tenant to obtain a lien and completion bond or some
alternate form of security satisfactory to Landlord in an amount sufficient to
ensure the lien-free completion of the Tenant Improvements and naming Landlord
as a co-obligee.

            4.2.3 Governmental Compliance. The Tenant Improvements shall comply
in all respects with the following: (i) the Code and other state, federal, city
or quasi-governmental laws, codes, ordinances and regulations, as each may apply
according to the rulings of the controlling public official, agent or other
person; (ii) applicable standards of the American Insurance Association
(formerly, the National Board of Fire Underwriters) and the National Electrical
Code; and (iii) building material manufacturer's specifications.

                              EXHIBIT "E" - Page 4

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]



            4.2.4 Inspection by Landlord. Landlord shall have the right to
inspect the Tenant Improvements at all times, provided however, that Landlord's
failure to inspect the Tenant Improvements shall in no event constitute a waiver
of any of Landlord's rights hereunder nor shall Landlord's inspection of the
Tenant Improvements constitute Landlord's approval of the same. Should Landlord
disapprove any portion of the Tenant Improvements, Landlord shall notify Tenant
in writing of such disapproval and shall specify the items disapproved. Any
defects or deviations in, and/or disapproval by Landlord of, the Tenant
Improvements shall be rectified by Tenant at no expense to Landlord, provided
however, that in the event Landlord determines that a defect or deviation exists
or disapproves of any matter in connection with any portion of the Tenant
Improvements and such defect, deviation or matter might adversely affect the
mechanical, electrical, plumbing, heating, ventilating and air conditioning or
life-safety systems of the Building, the structure or exterior appearance of the
Building or any other tenant's use of such other tenant's leased premises,
Landlord may, take such action as Landlord deems necessary, at Tenant's expense
and without incurring any liability on Landlord's part, to correct any such
defect, deviation and/or matter, including, without limitation, causing the
cessation of performance of the construction of the Tenant Improvements until
such time as the defect, deviation and/or matter is corrected to Landlord's
satisfaction.

      4.3 Landlord Consulting Fee. Tenant shall pay (as part of the Tenant
Improvement Allowance) a construction consulting fee (the "LANDLORD CONSULTING
FEE") to Landlord in an amount equal to Forty Thousand Dollars ($40,000.00).

      4.4 Notice of Completion; Copy of "As Built" Plans. Within ten (10) days
after completion of construction of the Tenant Improvements, Tenant shall cause
a Notice of Completion to be recorded in the office of the county recorder's
office in accordance with Section 3093 of the Civil Code of the State of
California or any successor statute, and shall furnish a copy thereof to
Landlord upon such recordation. If Tenant fails to do so, Landlord may execute
and file the same on behalf of Tenant as Tenant's agent for such purpose, at
Tenant's sole cost and expense. At the conclusion of construction, (i) Tenant
shall cause the Architect and Contractor (A) to update the Approved Plans as
necessary to reflect all changes made to the Approved Plans during the course of
construction, (B) to certify to the best of their knowledge that the
"record-set" of as-built drawings are true and correct, which certification
shall survive the expiration or termination of this Lease, and (C) to deliver to
Landlord two (2) sets of copies of such as-built drawings within ninety (90)
days following issuance of a certificate of occupancy for the Premises, and (ii)
Tenant shall deliver to Landlord a copy of all warranties, guaranties, and
operating manuals and information relating to the improvements, equipment, and
systems in the Premises.

                                    SECTION 5

                                  MISCELLANEOUS

      5.1 Tenant's Representative. Tenant has designated Geneva Davis as its
sole representative with respect to the matters set forth in this Tenant Work
Letter, who shall have full authority and responsibility to act on behalf of the
Tenant as required in this Tenant Work Letter.

      5.2 Landlord's Representative. Landlord has designated Mr. Matt Root as
its sole representatives with respect to the matters set forth in this Tenant
Work Letter, who, until further notice to Tenant, shall have full authority and
responsibility to act on behalf of the Landlord as required in this Tenant Work
Letter.

      5.3 Time or the Essence in This Tenant Work Letter. Unless otherwise
indicated, all references herein to a "NUMBER OF DAYS" shall mean and refer to
calendar days. If any item requiring approval is timely disapproved by Landlord,
the procedure for preparation of the document and approval thereof shall be
repeated until the document is approved by Landlord.

      5.4 Tenant's Lease Default. Notwithstanding any provision to the contrary
contained in this Lease, if an event of default as described in this Lease or
this Tenant Work Letter has occurred at any time on or before the Substantial
Completion of the Premises, then (i) in addition to all other rights and
remedies granted to Landlord pursuant to this Lease, Landlord shall have the
right to cause Contractor to cease the construction of the Tenant Improvements
(in which case, Tenant shall be responsible for any delay in the substantial
completion of the Tenant Improvements caused by such work stoppage), and (ii)
all other obligations of Landlord under the terms of this Tenant Work Letter
shall be forgiven until such time as such default is cured pursuant to the terms
of this Lease (in which case, Tenant shall be responsible for any delay in the
substantial completion of the Tenant Improvements caused by such inaction by
Landlord).

                              EXHIBIT "E" - Page 5

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]



                                   EXHIBIT "F"

                         TORREY SORRENTO I BUSINESS PARK
               (10575/10581 Roselle Street, San Diego, California)

                             ENVIRONMENTAL DOCUMENTS

1.    Geosyntec Consultants Report entitled "Preliminary Risk Assessment" dated
      May 11, 2001

                              EXHIBIT "F" - Page 1

                                                      10581/10575 Roselle Street
                                                      [Structural GenomiX, Inc.]



                          TORREY SORRENTO BUSINESS PARK

                  NOTICE OF EXPANSION PREMISES LEASE TERM DATES

To:   Structural Genomix, Inc.
      10505 Roselle Street
      San Diego, CA 92121
      Attn: Ms. Geneva Davis

      Re:   Second Amendment to Lease dated November 5, 2002 between BRS TORREY
            I, LLC, a Delaware limited liability company ("LANDLORD"), and
            STRUCTURAL GENOMIX, INC., a Delaware corporation ("TENANT")
            concerning 10581 Roselle Street, San Diego, California.

Gentlemen:

      In accordance with the referenced Second Amendment to Lease (the "LEASE"),
we wish to advise you and/or confirm as follows:

      1. The Substantial Completion of the Premises has occurred, and the
Expansion Premises Commencement Date has commenced on February 15, 2003 and will
expire September 30, 2008.

      2. Rent commences to accrue on February 15, 2003, in the amount of
$4,537.50 per month.

      3. If the Lease Commencement Date is other than the first day of the
month, the first billing will contain a pro rata adjustment. Each billing
thereafter, with the exception of the final billing, shall be for the full
amount of the monthly installment as provided for in the Lease.

      4. Your rent checks should be made payable to BRS Torrey I, LLC c/o CB
Bank & Trust - Lockbox, 9775 Clairmont Mesa Boulevard, San Diego, CA 92124.

      5. The exact number of rentable square feet within the Premises is 2,750
square feet.

      6. Base Rent, as adjusted based upon the exact number of rentable square
feet within the Premises, is as follows:

                                      
2/15/03-3/14/03           $4,537.50

3/15/03-3/31/03           $2,268.75         Prorated

4/1/03-2/28/04            $4,537.50

3/1/04-2/28/05            $4,702.50

3/1/05-2/28/06            $4,867/50

3/1/06-2/28/07            $5,032.50

3/1/07-2/28/08            $5,197.50

3/1/08-9/30/08            $5,390.00





      7. Tenant's Share, as adjusted based upon the exact number of rentable
square feet within the Premises, is 73.37%.

      "LANDLORD":                      BRS TORREY I, LLC
                                       a Delaware limited liability company

                                       By:  JCR Manager, LLC
                                            a Delaware limited liability company
                                       Its: Manager

                                            By: /s/ Jim Reynolds
                                                --------------------------------
                                                Name: Jim Reynolds
                                                Title: Manager

Agreed to and Accepted as
of 3/13, 2003.

"TENANT":

STRUCTURAL GENOMIX, INC.
a Delaware corporation

By: /s/ Herbert G. Mutter
    -----------------------------------
    Its: Vice President, Finance



                            FIRST AMENDMENT TO LEASE

      THE FIRST AMENDMENT TO LEASE (the "First Amendment") is effective as of
April 23, 2002 (the "Effective Date"), by and between BRS TORREY I, L.L.C., a
Delaware limited liability company ("Landlord"), and STRUCTURAL GENOMIX, INC, a
Delaware corporation ("Tenant").

                                   WITNESSETH:

      WHEREAS, Landlord and Tenant entered into that certain Lease Agreement
(the "Original Lease"), dated June 1, 2001, covering premises commonly known as
10581 Roselle Street (the "Building") located at 10575/10581 Roselle Street, San
Diego, California 92121 ("Project");

      WHEREAS, Landlord and Tenant entered into that certain Acknowledgement of
Lease Term Dates and Agreement Regarding Performance of Landlord's Work dated
September 28, 2001;

      WHEREAS, Tenant currently occupies premises in the Building, which
consists of 24,805 rentable square feet;

      WHEREAS, Landlord desires to increase the tenant improvement allowance for
additional Landlord's work to the roof (plywood, coping, downspouts, crickets
and contractor's fees);

      NOW, THEREFORE, for and in consideration of the mutual terms and
conditions set forth herein and for Ten Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant agree as follows:

      1. Tenant Improvement Allowance. Landlord has agreed to increase the
amount of the Tenant Improvement Allowance, as provided under Exhibit E of the
Original Lease and Paragraph 8 of the Acknowledgement of Lease Term Dates and
Agreement Regarding Performance of Landlord's Work by $10.041.81 for additional
costs associated with Landlord's Work. The total amended Tenant Improvement
Allowance is $2,067,964.31.

      2. No Termination, Cancellation, Contraction, or Similar Rights.
Notwithstanding anything to the contrary contained in the Lease or this
Amendment, Tenant hereby agrees and acknowledges that Tenant has no termination
rights (except Article 11.2 Option to Repair or Terminate, Article 11.4 Damage
Near End of Term and Article 13.1 Permanent Taking), cancellation rights,
contraction rights, expense cap, first opportunity space, first refusal (except
Article 30 Right of First Refusal), or similar rights under the Lease or this
Amendment. Any and all provisions contained in the Lease regarding Tenant's
termination rights (except Article 11.2 Option to Repair or Terminate, Article
11.4 Damage Near End of Term and Article 13.1 Permanent Taking), cancellation
rights, contraction rights, expense cap, first opportunity or first refusal
(except Article 30 Right of First Refusal) or similar rights, if any, are hereby
deleted from the Lease and shall be of no further force or effect.

      3. Tenant Certification. By its execution of this First Amendment, Tenant
hereby certifies that as of the date of such execution, and to the best of
Tenant's knowledge, Landlord is not in default of the performance of its
obligations pursuant to the Lease, and Tenant has no offsets, claims against
Landlord or the rent payable by Tenant under the Lease and no defenses with
respect to the Lease.

      4. Continuing Effect. The Lease as amended by the Acknowledgement of Lease
Term Dates and Agreement Regarding Performance of Landlord's Work, and as
amended herein is hereby ratified and confirmed and shall continue in full force
and effect.



      5. Counterparts. This First Amendment may be executed in multiple
counterparts with the same effect as if all parties hereto had signed the same
document. All such counterparts shall be construed together and shall constitute
one and the same instrument.

      6. Authority. Tenant hereby warrants and represents that it has the
requisite authority and ability to enter into this First Amendment and to fully
perform all obligations of Tenant hereunder. Landlord hereby warrants and
represents that it has the requisite authority and ability to enter into this
First Amendment and to fully perform all obligations of Landlord hereunder.

      7. Defined Terms. All capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to those terms in the Lease.

      8. Conflicts; Incorporation by Reference. In the event of any conflict
between the terms of this First Amendment and either the Lease or the
Acknowledgement of Lease Term Dates and Agreement Regarding Performance of
Landlord's Work, the terms of this First Amendment shall control. All of the
exhibits attached to this First Amendment, if any, are by this reference
incorporated herein and made a part hereof for all purposes.

      9. Effect of Submission. Submission of this First Amendment for
examination does not constitute an offer, right of first refusal, reservation
of, or option for, the Building or any other premises at the Project. This First
Amendment shall become effective only upon the execution and delivery by both
Landlord and Tenant.

      IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date or dates set forth below but effective for all purposes as of the
Effective Date.

                                    LANDLORD:

                                    BRS TORREY I, L.L.C.,
                                    a Delaware limited liability company

                                    By: Shidler West Investment Corporation
                                        Its: Authorized Agent

                                        By: /s/ Jim Ingebritsen
                                            ------------------------------------
                                        Name: Jim Ingebritsen
                                        Title:     C.F.O.

                                    TENANT:

                                    STRUCTURAL GENOMIX, INC,
                                    a Delaware corporation,

                                    By: /s/ Herbert G. Mutter
                                        ----------------------------------------
                                    Name: Herbert G. Mutter
                                    Title: Vice President, Finance

                                    By: /s/ Tim Harris
                                        ----------------------------------------
                                    Name: T. Harris
                                    Title: Pres & CEO

                                      -2-


                            SECOND AMENDMENT TO LEASE

      This SECOND AMENDMENT TO LEASE (this "SECOND AMENDMENT") is entered into
as of the 5th day of November , 2002 (the "EFFECTIVE DATE"), by and between BRS
TORREY I, LLC, a Delaware limited liability company ("LANDLORD"), and STRUCTURAL
GENOMIX, INC., a Delaware corporation ("TENANT").

                                    RECITALS:

      A. Landlord and Tenant are parties to that certain Lease (the "ORIGINAL
LEASE") dated June 1, 2001, as amended by that certain First Amendment to Lease
(the "FIRST AMENDMENT"), dated April 23, 2002 (the First Amendment and Original
Lease will hereinafter be referred to collectively as the "ORIGINAL LEASE"),
regarding certain premises in the buildings commonly known as the Torrey
Sorrento I Business Park located in San Diego, California (the "ORIGINAL
PREMISES"). Initially capitalized terms used in this Second Amendment that are
defined in the Original Lease shall have the same meaning and definition when
used in this Second Amendment unless specifically set forth in this Second
Amendment.

      B. The provisions of the Original Lease grant to the Tenant a right of
first refusal to the First Offer Space. Consistent with such rights, the Tenant
and Landlord desire to amend the Original Lease to reflect the expansion of the
Premises to include a portion of the First Offer Space.

      C. Landlord and Tenant also desire to modify the additional terms and
provisions of the Original Lease as set forth herein.

      NOW, THEREFORE, in consideration of the mutual terms and conditions set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as set
forth below.

                                   AGREEMENT:

      1. Expansion Premises. Subject to the terms and conditions of this Second
Amendment, Landlord hereby leases to Tenant and Tenant leases from Landlord an
additional 2,750 rentable square feet of space, as the same is depicted on
EXHIBIT A to this Second Amendment (the "EXPANSION PREMISES"). Subject to the
existing environmental matters provisions in the Original Lease, including, but
not limited to, Sections 31.22.5 and 31.22.6, the Expansion Premises shall be
delivered to the Tenant in its "as-is" condition, it being agreed that the
Landlord shall have no obligation to perform, or pay for any alterations,
improvements or modifications to the Expansion Premises. The date that the
Landlord has delivered the Expansion Premises to the Tenant in the condition
required by this Paragraph is called the "EXPANSION PREMISES COMMENCEMENT DATE".
From and after the Expansion Premises Commencement Date, the Tenant will occupy
the Expansion Premises for the balance of the Lease Term on the terms and
conditions set forth in the Lease (as hereinafter defined).

      2. Delivery of the Expansion Premises. The Landlord will endeavor to cause
the Expansion Premises Commencement Date to occur on January 1, 2003 (the
"ESTIMATED DELIVERY DATE"). The Tenant acknowledges that, on the Effective Date,
the Expansion Premises is leased to another occupant. As a result, the Tenant
understands that the Expansion Premises Commencement Date may be delayed in the
event the current occupant fails to vacate the Expansion Premises and deliver
the same to the Landlord in time for the Landlord to deliver the same to the
Tenant on the Estimated Delivery Date. The parties agree that the failure of the
Landlord to deliver the Expansion Premises to the Tenant on the Estimated
Delivery Date shall not subject the Landlord to any liability provided such
failure is due to the current occupant failing to vacate and surrender the space
to the Landlord. In such case, the parties agree that the Landlord shall
endeavor to deliver the Expansion Premises to the Tenant as soon as reasonably
practicable after the Estimated Delivery Date, however in the event that the
Expansion Premises Commencement Date does not occur on or before April 1, 2003
(the "DELIVERY DEADLINE"), then the Tenant shall have the right to terminate
this Second Amendment and its obligation to lease the Expansion Premises by
providing written notice of the same to the Landlord on or before the date that
is ten (10) business days after the Delivery Deadline (such date being referred
to as the "NOTICE DEADLINE"). The failure of the Tenant to exercise its
foregoing termination right on or before the Notice Deadline, shall be deemed to
be a waiver by the Tenant of its termination right.



      3. Right of First Refusal. Nothing in this Second Amendment shall affect
Tenant's right of first refusal under Article 30 of the Original Lease. Tenant's
right of first refusal shall remain in effect and unimpaired with respect to any
and all rental spaces which may become available at the expiration or
termination of any lease in the Project including, but not limited to, any
future leases for the 10575 Roselle Street Building.

      4. Amendments to the Original Lease. From and after the Expansion Premises
Commencement Date, the Original Lease is amended in the following respects:

            (a) All references in the Original Lease to the term "Lease" or
"this Agreement" or to terms such as "herein", shall refer to the Original Lease
as amended by this Second Amendment.

            (b) All references in the Lease to the term "Premises" shall be
deemed to refer collectively to the Original Premises and the Expansion
Premises.

            (c) All references to the term "Base Rent" shall be deemed to refer
collectively to the Base Rent set forth in the Original Lease, and the Base Rent
For the Expansion Premises (as hereinafter defined).

            (d) All references to the term "Tenant's Share" shall mean 73.37%.

      5. Base Rent for Expansion Premises. Concurrent with the execution of this
Second Amendment, Tenant shall pay to Landlord the amount of $4,537.50
representing payment of the first (1st) month's Base Rent for the Expansion
Premises. Tenant shall otherwise pay to Landlord Base Rent for the Expansion
Premises in accordance with the schedule and in the amounts set forth below:



EXPANSION PREMISES                                          MONTHLY BASE RENT
    LEASE YEAR*     ANNUAL BASE RENT  MONTHLY BASE RENT  PER RENTABLE SQUARE FOOT
- ------------------  ----------------  -----------------  ------------------------
                                                
         1             $54,450.00         $4,537.50              $1.65
         2             $56,430.00         $4,702.50              $1.71
         3             $58,410.00         $4,867.50              $1.77
         4             $60,390.00         $5,032.50              $1.83
         5             $62,370.00         $5,197.50              $1.89
         6             $64,680.00         $5,390.00              $1.96


* The term "EXPANSION PREMISES LEASE YEAR" when used in this chart refers to
periods which contain twelve (12) consecutive months; however, notwithstanding
anything herein to the contrary, the final Expansion Premises Lease Year will
expire on the earlier of (i) the expiration of the Lease Term; or (ii) such
earlier date that this Lease is terminated in accordance with its terms. The
first Expansion Premises Lease Year shall commence on the Expansion Premises
Commencement Date. Each subsequent Expansion Premises Lease Year shall commence
on the annual anniversary of the Expansion Premises Commencement Date.

      6. Security Deposit. Concurrent with the execution of this Second
Amendment, Tenant shall increase the Security Deposit by an additional
$5,390.00. This amount shall be held by Landlord as the Security Deposit (in
accordance with Article 21 the Lease) for Tenant's obligations under the Lease.

      7. Tenant Certification. By its execution of this Second Amendment, Tenant
hereby certifies that as of the date of such execution, and to the best of
Tenant's knowledge, Landlord is not in default of the performance of its
obligations pursuant to the Lease, and Tenant has no offsets, claims against
Landlord or the rent payable by Tenant under the Lease and no defenses with
respect to the Lease.

      8. Brokers. Landlord and Tenant both represent and warrant to Landlord
that neither has dealt with any brokers in connection with the terms of this
Second Amendment. Each party agrees to indemnify, save, and hold the other party
harmless from and against any and all claims or demands made upon such party for
any commissions, fees or other compensation by any broker, agent or salesman in
connection with this Second Amendment. The provisions of this paragraph shall
survive the expiration or any earlier termination of the Lease.

                                       -2-


                         TORREY SORRENTO I BUSINESS PARK
               (10575/10581 ROSELLE STREET, SAN DIEGO, CALIFORNIA)

                ACKNOWLEDGEMENT OF LEASE TERM DATES AND AGREEMENT
                    REGARDING PERFORMANCE OF LANDLORD'S WORK

To:   Ms. Geneva Davis
      Structural Genomix. Inc.
      10505 Roselle Street
      San Diego, CA 92121

      Re:   Lease dated June 1, 2001 between BRS TORREY I, LLC, a Delaware
            limited liability company ("LANDLORD"), and STRUCTURAL GENOMIX,
            INC., a Delaware corporation ("TENANT") concerning 10581 Roselle
            Street, San Diego, California.

Ladies and Gentlemen:

      In accordance with the referenced Lease (the "LEASE"), we wish to advise
you and/or confirm, and request that you acknowledge as follows:

      1. The Lease Term shall commence on or has commenced on October 1, 2001
for a term of seven (7) years ending on September 30, 2008.

      2. Base monthly rent commenced to accrue on October 1, 2001, in the amount
of $58,291.75.

      3. If the Lease Commencement Date is other than the first day of the
month, the first billing will contain a pro rata adjustment. Each billing
thereafter, with the exception of the final billing, shall be for the full
amount of the monthly installment as provided for in the Lease.

      4. Your rent checks should be made payable to BRS Torrey I, LLC at c/o CB
Bank &Trust - Lockbox, 9775 Clairmont Mesa Boulevard, San Diego, CA 92124.

      5. The exact number of rentable square feet within the Premises is 24,805
square feet.

      6. Base Rent, as adjusted based upon the exact number of rentable square
feet within the Premises, is as follows: No adjustment necessary.

      7. Tenant's Share, as adjusted based upon the exact number of rentable
square feet within the Premises, is 65.94%.

      8. Tenant has elected to have its Contractor complete the Landlord's Work,
as defined in Exhibit E of the Lease, rather than have Landlord perform
Landlord's Work, and Tenant has agreed to (i) assume the responsibility
therefore, (ii) to complete the Landlord's Work, and (iii) to release Landlord
from its obligations to complete the same. Landlord has agreed to allow Tenant
to perform the Landlord's Work and has agreed to increase the amount of the
Tenant Improvement Allowance, as provided under Exhibit E, by the amount of
$172,742.50 (the "Additional Tenant Improvement Allowance") in consideration of
Tenant's completion of the Landlord's Work by Tenant's Contractor, and Tenant
has agreed to accept the Additional Tenant Improvement Allowance in
consideration thereof. The Additional Tenant Improvement Allowance Amount shall
be deemed to be part of the "Tenant Improvement Allowance" for purposes of the
Lease and Exhibit E and shall be disbursed as provided in Exhibit E.

                                       -1-


      "LANDLORD":                      BRS TORREY I, LLC
                                       a Delaware limited liability company

                                       By: JCR Manager, LLC
                                           -------------------------------------
                                       Its: Manager

                                            By: /s/ [Illegible]
                                                --------------------------------
                                                Its: Manager

Agreed to and Accepted as
of 9/28/01, 2001.

"TENANT":

STRUCTURAL GENOMIX, INC.
a Delaware corporation

By: /s/ Herbert G. Mutter
    -----------------------------------
    Its: Vice President, Finance

                                       -2-


      9. Continuing Effect. The Lease as amended herein is hereby ratified and
confirmed and shall continue in full force and effect.

      10. Counterparts. This Second Amendment may be executed in multiple
counterparts with the same effect as if all parties hereto had signed the same
document. All such counterparts shall be construed together and shall constitute
one and the same instrument.

      11. Authority. Tenant hereby warrants and represents that it has the
requisite authority and ability to enter into this Second Amendment and to fully
perform all obligations of Tenant hereunder. Landlord hereby warrants and
represents that it has the requisite authority and ability to enter into this
Second Amendment and to fully perform all obligations of Landlord hereunder.

      12. Defined Terms. All capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to those terms in the Lease.

      13. Conflicts; Incorporation by Reference. In the event of any conflict
between the terms of this Second Amendment and the Lease, the terms of this
Second Amendment shall control. All of the exhibits attached to this Second
Amendment are by this reference incorporated herein and made a part hereof for
all purposes.

      14. Effect of Submission. Submission of this Second Amendment for
examination does not constitute an offer, right of first refusal, reservation
of, or option for, the Premises or any other premises in the Building. This
Second Amendment shall become effective only upon the execution and delivery by
both Landlord and Tenant.

      15. Facsimile Signatures. Landlord and Tenant each (a) have agreed to
permit the use, from time to time where appropriate, of telecopied signatures in
order to expedite the transaction contemplated by this Second Amendment, (b)
intend to be bound by their respective telecopied signatures, (c) are aware that
the other will rely upon the telecopied signature, and (d) acknowledge such
reliance and waive any defense to the enforcement of the documents affecting
this transaction based on the fact that a signature was sent by telecopy only.

      IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
as of the date or dates set forth below but effective for all purposes as of the
Effective Date.

      "LANDLORD":                      BRS TORREY I, LLC,
                                       a Delaware limited liability company

                                       By: JCR Manager, LLC
                                           a  Delaware limited liability company
                                       Its: Manager

                                              By: /s/ [Illegible]
                                                  ------------------------------
                                                  Its: Manager

      "TENANT":                        STRUCTURAL GENOMIX, INC.
                                       a Delaware corporation

                                       By: /s/ Tim Harris
                                           -------------------------------------
                                           Name: Dr. Tim Harris
                                           Title: President - CEO

                                       By: /s/ Herbert G. Mutter
                                           -------------------------------------
                                           Name: Herbert G. Mutter
                                       Its: Vice President, Finance

                                       -3-


                                    EXHIBIT F

                              ESTOPPEL CERTIFICATE

      THIS TENANT ESTOPPEL CERTIFICATE ("CERTIFICATE"), dated as of 9 July ,
2002, is executed by STRUCTURAL GENOMIX, INC, a Delaware corporation ("TENANT")
in favor of ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation,
together with its nominees, designees and assigns (collectively, "BUYER").

                                    RECITALS

      A. Buyer and BRS Torrey I, LLC, a Delaware limited liability company
("LANDLORD"), have entered into that certain Purchase and Sale Agreement and
Joint Escrow Instructions, dated as of May 30, 2002 (the "PURCHASE AGREEMENT"),
whereby Buyer has agreed to purchase, among other things, the improved real
property located in the City of San Diego, County of San Diego, State of
California, more particularly described on Exhibit A attached to the Purchase
Agreement (the "PROPERTY")

      B. Tenant and Landlord have entered into that certain Lease Agreement
dated as of June 1, 2001 (together with all amendments, modifications,
supplements, guarantees and restatements thereof, the "LEASE"), for a portion of
the Property.

      C. Pursuant to the Lease, Tenant has agreed that upon the request of
Landlord, Tenant would execute and deliver an estoppel certificate certifying
the status of the Lease.

      D. In connection with the Purchase Agreement, Landlord has requested that
Tenant execute this Certificate with an understanding that Buyer will rely on
the representations and agreements below in acquiring the Property and
Landlord's interest under the Lease.

      NOW, THEREFORE, Tenant certifies, warrants, and represents to Buyer as
follows:

      SECTION 1. LEASE. Attached hereto as Exhibit 1 is a true, correct and
complete copy of the Lease, including the following amendments, modifications,
supplements, guarantees and restatements thereof, which together represent all
of the amendments, modifications, supplements, guarantees and restatements
thereof: Acknowledgement of Lease Terms and Agreement Regarding Performance of
Landlord Work dated 9/28/01; First Amendment to Lease dated 4/23/02; Connecting
Equipment License Agreement dated 9/27/01.
(If none, please state "None.")

      SECTION 2. LEASED PREMISES. Pursuant to the Lease, Tenant leases those
certain premises (the "LEASED PREMISES") consisting of approximately 24,805
rentable square feet within the Property, as more particularly described in the
Lease. In addition, pursuant to the terms of the Lease, Tenant has the
non-exclusive right to use its prorata share of parking spaces located on the
Property during the term of the Lease.

      SECTION 3. FULL FORCE OF LEASE. The Lease has been duly authorized,
executed and delivered by Tenant, is in full force and effect has not been
terminated.

      SECTION 4. COMPLETE AGREEMENT. The Lease constitutes the complete
agreement between Landlord and Tenant for the Leased Premises and the Property,
except as modified by the Lease amendments noted above (if any), has not been
modified, altered or amended.



      SECTION 5. ACCEPTANCE OF LEASED PREMISES. Tenant has accepted possession
and is currently occupying the Leased Premises.(1)

      SECTION 6. LEASE TERM. The term of the Lease commenced on October 1, 2001
and ends on September 30, 2008, subject to the following options to extend:
NONE. (If none, please state "None.")

      SECTION 7. PURCHASE RIGHTS. Tenant has no option, right of first refusal,
right of first offer, or other right to acquire or purchase all or any portion
of the Leased Premises or all or any portion of, or interest in, the Property,
except as follows: NONE.
(If none, please state "None.")

      SECTION 8. RIGHTS OF TENANT. Except as expressly stated in this
Certificate, Tenant:

      (a) has no right to renew or extend the term of the Lease;

      (b) has no right, title, or interest in the Leased Premises, other than as
Tenant under the Lease.

      SECTION 9. RENT.

      (a) The obligation to pay rent under the Lease commenced on July 5, 2001.
The rent under the Lease is current, and Tenant is not in default in the
performance of any of its obligations under the Lease.

      (b) Tenant is currently paying base rent under the Lease in the amount of
$58,291.75 per month. Tenant has not received and is not, presently, entitled to
any abatement, refunds, rebates, concessions or forgiveness of rent or other
charges, free rent, partial rent, or credits, offsets or reductions in rent,
except as follows: NONE.
(If none, please state "None.")

      (c) Tenant's estimated share of operating expenses, common area charges,
insurance, real estate taxes and administrative and overhead expenses is 65.94%
and is currently being paid at the rate of $5,854.62 per month, payable to: BRS
Torrey I, LLC.

      (d) There are no existing defenses or offsets against rent due or to
become due under the terms of the Lease, and there presently is no default or
other wrongful act or omission by Landlord under the Lease or otherwise in
connection with Tenant's occupancy of the Leased Premises, nor is there a state
of facts which with the passage of time or the giving of notice or both could
ripen into a default on the part of Tenant, or to the best knowledge of Tenant,
could ripen into a default on the part of Landlord under the Lease, except as
follows: NONE.
(If none, please state "None.")

      SECTION 10. SECURITY DEPOSIT. The amount of Tenant's security deposit held
by Landlord under the Lease is $349,750.50.

      SECTION 11. PREPAID RENT. The amount of prepaid rent separate from the
security deposit is $0, covering the period from N/A.

(1) For Structural Genomix: Upon completion of the following work to be
performed under the Lease, there shall be no more obligations or conditions
under the Lease that would prevent Tenant from accepting possession and
occupying the Leased Premises: NONE. Landlord's sole remaining obligation under
the Lease is to fund $1,175,227.07 toward the cost of such work. If none, Tenant
has accepted possession and is currently occupying the Leased Premises.



      SECTION 12. INSURANCE. All insurance, if any, required to be maintained by
Tenant under the Lease is presently in effect.

      SECTION 13. PENDING ACTIONS. There is not pending or, to the knowledge of
Tenant, threatened against or contemplated by the Tenant, any petition in
bankruptcy, whether voluntary or otherwise, any assignment for the benefit of
creditors, or any petition seeking reorganization or arrangement under the
federal bankruptcy laws or those of any state.

      SECTION 14. TENANT IMPROVEMENTS. As of the date of this Certificate, to
the best of Tenant's knowledge, Landlord has performed all obligations required
of Landlord pursuant to the Lease; no offsets, counterclaims, or defenses of
Tenant under the Lease exist against Landlord; and no events have occurred that,
with the passage of time or the giving of notice, would constitute a basis for
offsets, counterclaims, or defenses against Landlord, except as follows: NONE.
(If none, please state "None.")

      SECTION 15. ASSIGNMENTS BY LANDLORD. Tenant has received no notice of any
assignment, hypothecation or pledge of the Lease or rentals under the Lease by
Landlord. Tenant hereby consents to an assignment of leases and rents to be
executed by Landlord to Buyer in connection with the acquisition of the Property
by Buyer and acknowledges that said assignment docs not violate the provisions
of the Lease.

      SECTION 16. ASSIGNMENTS BY TENANT. Tenant has not sublet or assigned the
Leased Premises or the Lease or any portion thereof to any sublessee or
assignee. No one except Tenant and its employees will occupy the Leased
Premises. The address for notices to be sent to Tenant is as set forth in the
Lease.

      SECTION 17. ENVIRONMENTAL MATTERS. The operation and use of the Leased
Premises does not involve the generation, treatment, storage, disposal or
release into the environment of any hazardous materials, regulated materials
and/or solid waste, except: ATTACHED LIST , which are used in accordance with
all applicable laws.

      SECTION 18. SUCCESSION OF INTEREST. Tenant agrees that, in the event Buyer
succeeds to interest of Landlord under the Lease:

      (a) Buyer shall not be liable for any act or omission of any prior
landlord (including Landlord);

      (b) Buyer shall not be liable for the return of any security deposit
unless such security deposit has been transferred to Buyer;

      (c) Buyer shall not be bound by any rent or additional rent which Tenant
might have prepaid under the Lease for more than the current month;

      (d) Buyer shall not be bound by any amendments or modifications of the
Lease made without prior consent of Buyer;

      (e) Buyer shall not be subject to any offsets or defenses which Tenant
might have against any prior landlord (including Landlord); or

      (f) Buyer shall not be liable under the Lease to Tenant for the
performance of Landlord's obligations under the Lease beyond Buyer's interest in
the Property.

      SECTION 19. NOTICE OF DEFAULT. Tenant agrees to give Buyer a copy of any
notice of default under the Lease served upon Landlord at the same time as such
notice is given to the Landlord. Tenant



further agrees that if Landlord shall fail to cure such default within the
applicable grace period, if any, provided in the Lease, then Buyer shall have an
additional 60 days within which to cure such default, or if such default cannot
be cured within such 60-day period, such 60-day period shall be extended so long
as Buyer has commenced and is diligently pursuing the remedies necessary to cure
such default (including, but not limited to, commencement of foreclosure
proceedings, if necessary to effect (such cure), in which event the Lease shall
not be terminated while such remedies are being pursued.

      SECTION 20. NOTIFICATION BY TENANT. From the date of this Certificate and
continuing until on August 2, 2002, Tenant agrees to immediately notify Buyer at
the following address, in writing personally, by reputable overnight delivery
service or by facsimile transmission (with in the case of a facsimile
transmission, confirmation by reputable overnight delivery service) at the
following addresses, on the occurrence of any event or the discovery of any fact
that would make any representation contained in this Certificate inaccurate.

      If To Buyer:      Alexandria Real Estate Equities, Inc.
                        135 N. Los Robles Avenue
                        Suite 250
                        Pasadena, California 91101
                        Attention: Corporate Secretary
                                       RE: TORREY-SORRENTO INDUSTRIAL PARK
                        Telephone:     (626) 578-0777
                        Facsimile:     (626) 578-0770

      With A Copy To:   Mayer, Brown, Rowe & Maw
                        350 South Grand Avenue
                        25th Floor
                        Los Angeles, California 90071
                        Attention:     Todd Evan Stark, Esq.
                        Telephone:     (213) 229-9500
                        Facsimile:     (213) 625-0248

      Tenant makes this Certificate with the knowledge that it will be relied
upon by Buyer in agreeing to purchase the Property.

      Tenant has executed this Certificate as of the date first written above by
the person named below, who is duly authorized to do so.

TENANT:                      STRUCTURAL GENOMIX, INC.,
                             a Delaware corporation

                             By: /s/ Herbert G. Mutter
                             Name: Herbert G. Mutter
                             Its: Vice President, Finance

EX-10.16

                                                                   EXHIBIT 10.16

                                           *** TEXT OMITTED AND FILED SEPARATELY
                                    PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST
                                            UNDER 17 C.F.R. SECTION 200.80(b)(4)
                                               AND RULE 406 UNDER THE SECURITIES
                                                         ACT OF 1933, AS AMENDED


                                  23 JULY 2004



                           PATENT AND KNOW HOW LICENSE


                                     BETWEEN


                               SHIRE BIOCHEM INC.

                               TANAUD IRELAND INC.

                            TANAUD INTERNATIONAL B.V.


                                       AND


                            STRUCTURAL GENOMIX, INC.






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

                           PATENT AND KNOW HOW LICENSE
        Relating to the development, registration and sale of TROXATYL(R)

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





PATENT AND KNOW HOW LICENSE

DATE:    23 JULY 2004

PARTIES:

(1)  SHIRE BIOCHEM INC., a company incorporated in Canada, whose address is 275
     boul. Armand-Frappier, Laval, QC, Canada H7V 4A7 ("SHIRE BIOCHEM");

(2)  TANAUD IRELAND INC., a company incorporated in Ireland, whose address is
     Shannon Airport House, Shannon, County Clare, Ireland ("TANAUD IRELAND");

(3)  TANAUD INTERNATIONAL B.V., a company incorporated in the Netherlands, whose
     address is Fred Roeskestraat 123, First Floor, 1076 EE Amsterdam, The
     Netherlands ("TANAUD BV"); and

(4)  STRUCTURAL GENOMIX, INC., a company incorporated in Delaware, whose address
     is 10505 Roselle Street, San Diego, CA 92121, U.S.A. ("LICENSEE").

BACKGROUND

(A)  Shire BioChem (formerly BioChem Pharma Inc.) is a pharmaceutical company
     engaged in, among other things, the research and development of certain
     pharmaceutical products including the Licensed Product (as defined below).

(B)  During the course of its research and development of the Licensed Product,
     Shire BioChem generated the Compound Patents, the Background Patents and
     the Shire Know-How (each defined below) in connection with the Licensed
     Product.

(C)  On 3 January 1996, Shire BioChem entered into the License Agreement (as
     defined below) which, among other things, granted Shire BioChem the
     exclusive right to use the University Patents (as defined below).

(D)  The Licensee is engaged in, among other things, the research and
     development of certain pharmaceutical products.

(E)  The Licensee has requested, and Shire agrees to grant, an exclusive license
     to make, have made, use, supply and sell the Licensed Product in the
     Territory (as defined below) on the terms and conditions set out in this
     Agreement.

OPERATIVE PROVISIONS

1.   INTERPRETATION

1.1  In this Agreement:



                                       2





         "ACCELERATED APPROVAL" means approval for Marketing Authorisation of
         the Licensed Product in the United States of America on the basis of an
         application made to the FDA pursuant to the Code of Federal
         Regulations, Title 21, Part 314 (subpart H - accelerated approval of
         new drugs for serious or life threatening illnesses) or its equivalent
         in any jurisdiction;

         "AFFILIATE" means any firm, person or company which controls, is
         controlled by or is under common control with a Party to this Agreement
         and for the purpose of this definition the term "control" means the
         possession, directly or indirectly, of the power to direct or cause the
         direction of the management and policies of such firm, person or
         company, whether through the ownership of voting securities, by
         contract or otherwise or the ownership either directly or indirectly of
         more than 50% of the voting securities of such firm, person or company;

         "BACKGROUND PATENTS" means the patents and patent applications owned by
         or licensed to Shire Biochem, Tanaud Ireland or Tanaud BV as set out in
         Part I of Schedule 2;

         "BUSINESS DAY" means any day other than Saturday or Sunday on which the
         banks in New York are open for business;

         "CANADIAN TERRITORY" means Canada;

         "CHANGE OF CONTROL" means a transaction or series of related
         transactions (other than an equity financing the principal purpose of
         which is to raise new capital for the Licensee or an IPO or follow-on
         public offering), that result directly or indirectly in the change of:

         (a)      control of more than half of the voting power of the issued
                  share capital of the Licensee; or

         (b)      control of more than half of the issued share capital
                  (excluding any part thereof which carries no right to
                  participate beyond a specified amount in the distribution of
                  either profit or capital) of the Licensee; or

         (c)      control of the power to direct or cause the direction of the
                  management and policies of the Licensee, by virtue of any
                  power conferred under the articles of association or other
                  documents relating to the Licensee;

         "CLAIMS" shall have the meaning given in clause 14.1;

         "CLINICAL PROOF OF CONCEPT" means either (a) completion of the
         [...***...] patient phase II study of the Compound [...***...] Acute
         Myelogenous Leukemia (AML) patients with a complete response rate (CR
         and CRp in aggregate) [...***...] AML patients of at least [...***...]%
         with a CR rate of at least [...***...]%; or (b) continuation of such
         phase II study with additional patients or Initiation of a phase III
         study. For the purposes of this Agreement, "CR" shall have the meaning
         given to it in Journal of Clinical Oncology, Vol. 21, 2003: 4642-4649:
         "Morphologic complete remission: A CR designation requires that the
         patient achieve the morphologic leukemia-free state and have an
         absolute neutrophil count of more than 1,000/uL and platelets of
         100,000/uL. Hemoglobin concentration or hematocrit has no bearing on
         remission status, although the patient must be red cell and platelet
         transfusion



                                       3     ***CONFIDENTIAL TREATMENT REQUESTED


         independent (no red cell transfusion for 2 weeks and no platelet
         transfusion for 1 week). The bone marrow would have less than 5% blasts
         and no Auer rods. There is no requirement for bone marrow cellularity.
         There should be no residual evidence of extramedullary leukemia," and
         "CRp" means CR but with platelets of >25,000/uL and
         <100,000uL;

         "COMMERCIAL SALE" means any sale of the Licensed Product to a third
         party in any country in the Territory after the receipt of the
         Marketing Authorization for that country;

         "COMMITTEE MEMBERS" shall have the meaning given in clause 4.1;

         "COMPETING PRODUCT" means any pharmaceutical product (other than the
         Licensed Product) indicated for the treatment of acute myeloid leukemia
         that is marketed or near to market (phase II clinical development or
         later) which in Shire's reasonable opinion is likely to compete with
         the Licensed Product to the detriment of the Licensed Product, but
         excluding:

         (a)      any pharmaceutical product which is a kinase inhibitor owned
                  or licensed by the Licensee; and

         (b)      pharmaceutical products with scientifically documented
                  evidence, demonstrating the potential for use in combination
                  with the Licensed Product.

         "COMPOUND" means the compound troxacitabine;

         "COMPOUND PATENTS" means the patents and patent applications set out in
         Part II of Schedule 2;

         "CONFIDENTIAL INFORMATION" means any scientific, technical,
         formulation, process, manufacturing, clinical, non-clinical,
         regulatory, marketing, financial or commercial information or data
         relating to the business, projects or products of either Party and
         provided by one Party to the other by written, oral, electronic or
         other means in connection with this Agreement;

         "CONSULTANCY AGREEMENT" means the consultancy agreement dated 20
         February 1996 between BioChem Therapeutic Inc. and [...***...];

         "DEVELOPMENT COMMITTEE" means the committee set up by the Parties in
         accordance with clause 4.1;

         "DEVELOPMENT DATA" means any data, charts, studies, summaries,
         analyses, reports, know-how and other information created, generated or
         discovered in connection with the Development Plan or any other
         pre-clinical or clinical trials or studies of the Licensed Product
         conducted by or on behalf of the Licensee;

         "DEVELOPMENT PLAN" means the plan for the development of the Licensed
         Product by the Licensee as set out in Schedule 1 including the
         anticipated Timelines and development budget for the phase II study of
         the Licensed Product;

                                        4    ***CONFIDENTIAL TREATMENT REQUESTED





         "EFFECTIVE DATE" means the date of this Agreement;

         "EXCLUDED PATENTS" means the patents and patent applications identified
         in Schedule 9 which are excluded from the license granted to the
         Licensee under this Agreement;

         "FDA" means the United States Food and Drug Administration and any
         successor thereto;

         "FIELD" means all pharmaceutical uses of the Licensed Product except
         that in relation to the University Patents and University Technology,
         "Field" means the treatment of cancer only;

         "FORCE MAJEURE" means in relation to either Party any circumstances
         beyond the reasonable control of that Party;

         "GENERIC PRODUCT" means any pharmaceutical product that is recognized
         by a Regulatory Authority in a particular country in the Territory as
         "AA or AB" rated (or the equivalent rating in any jurisdiction) against
         the Licensed Product or is substitutable at the pharmacy by a
         pharmacist for a prescription written for the Licensed Product;

         "IMPROVEMENT" means any and all discoveries, developments, inventions,
         enhancements or modifications, patentable or otherwise, specifically
         relating to the Licensed Product and for use in the Field created,
         generated or discovered by or on behalf of either Party or its
         Affiliates during the term of this Agreement, but excluding the
         Development Data and any regulatory material generated in connection
         with an application for Marketing Authorization;

         "INTELLECTUAL PROPERTY RIGHTS" means patents, trade marks, service
         marks, logos, trade names, rights in designs, copyright, utility
         models, rights in know-how and other intellectual property rights, in
         each case whether registered or unregistered and including applications
         for registration, and all rights or forms of protection having
         equivalent or similar effect anywhere in the world;

         "INITIATION" means the date of first dosing of the first patient in the
         relevant clinical study;

         "IPO" means an initial public offering of the Licensee's equity
         securities for admission to listing or trading on a recognized
         securities exchange or listing or trading on a recognized securities
         market;

         "LAUNCH" means the commencement of Commercial Sale of the Licensed
         Product in any country of the Territory;

         "LICENSE AGREEMENT" means the license agreement dated 3 January 1996
         between the University of Georgia Research Foundation Inc., Yale
         University, Shire BioChem Inc. (formerly BioChem Pharma Inc.), Tanaud
         Holdings (Barbados) Limited and Tanaud LLC, as amended from time to
         time;



                                       5


         "LICENSED PRODUCT" means any pharmaceutical formulations that contain
         the Compound alone as a therapeutically active ingredient, or in
         combination with any other pharmaceutically active ingredient;

         "MARKETING AUTHORIZATION" means the grant of all necessary permits,
         authorizations, licenses, approvals (including pricing and
         reimbursement approvals, if applicable) or waivers from any relevant
         Regulatory Authority required for the research, development,
         manufacture, marketing, storage, import, export, transport, use or sale
         of the Licensed Product in any country of the Territory;

         "MARKETING PLAN" means the marketing plan for the Launch, marketing and
         commercialization of the Licensed Product in each country of the
         Territory prepared in accordance with clause 6.2;

         "MEMORANDUM OF UNDERSTANDING" means a memorandum of understanding
         between the University and the Licensee substantially in the form of
         Schedule 7;

         "MINIMUM SALES FORECASTS" means [...***...]% of the [...***...];
         [...***...]% of the [...***...]; [...***...]% of the [...***...]; and
         [...***...]% of the [...***...];

         "MILESTONE EVENT" means the event identified in Schedule 3 which
         triggers a payment under clause 7.2;

         "MILESTONE PAYMENT" means the payment by the Licensee to Shire of the
         sums identified in Schedule 3 on the occurrence of a Milestone Event;

         "MILESTONE PAYMENT TERMS" means the payment of any Milestone Payment or
         other applicable payment under clause 7, to Shire as follows:
         [...***...]% of such payment to Tanaud Ireland; [...***...]% of such
         payment to Tanaud BV; and [...***...]% of such payment to Shire
         BioChem;

         "NDA" means a new drug application and all supplements filed with the
         FDA, including all documents, data and other information concerning the
         Licensed Product which are necessary for, or included in, a Marketing
         Authorization to use, sell, supply or market the Licensed Product in
         the United States of America;

         "NET SALES" means the gross amount invoiced by the Licensee, its
         Affiliates or Sub-Licensees to third parties in respect of sales of the
         Licensed Product, less:

         (a)      trade, quantity and cash discounts or rebates actually allowed
                  and taken, provided that such discounts or rebates are not
                  applied disproportionately to the Licensed Product as compared
                  with similar products of the selling entity, including those
                  granted for rejected, damaged and recalled goods;

         (b)      freight, shipping and related insurance charges, provided that
                  such charges are no more than 1% of Net Sales;


                                       6     ***CONFIDENTIAL TREATMENT REQUESTED



         (c)      tax, tariff or customs duties or other government duties
                  (other than income tax) levied on the sale, transportation or
                  delivery of the Licensed Product; and

         (d)      credits, rebates, charge backs or similar payments granted or
                  given to wholesalers or other third party distributors, health
                  care insurance carriers, pharmacy benefit management companies
                  or health care organizations.

                  For the avoidance of doubt, sales or other transfers between
         the Licensee and its Affiliates or its Sub-Licensees are not sales to
         third parties, but Net Sales shall include any subsequent sales of the
         Licensed Product by such Affiliates or Sub-Licensees to any third
         parties. Where the Licensed Product is sold otherwise than on an arms
         length basis, the amount that would have been charged in an arms length
         sale shall be deemed to be the invoice price for such Licensed Product
         and where the Licensed Product is disposed of for consideration other
         than cash, such consideration shall be valued at the fair market value.

         "OTHER TERRITORIES" means throughout the world, except for the Canadian
         Territory and the US Territory;

         "PARTY" AND "PARTIES" means respectively Shire or the Licensee, or as
         the case may be, both such parties;

         "PREMIUM ON EQUITY" means in relation to the acquisition by any third
         party of any equity (or any form of security convertible into equity)
         in the Licensee or its Affiliates in connection with any Sub-License
         Agreement, the excess of actual purchase price paid for such equity
         over the fair market value of such equity. For clarity, if the fair
         market value of the equity is $8.00 and the amount paid by the third
         party is $10.00, the Premium on Equity is $2.00. Any dispute over the
         fair market value of the Licensee's stock shall be resolved through the
         dispute resolution procedure set out in clause 24.2;

         "PRINCIPAL MARKETS" means the United States of America, Canada, Japan,
         the United Kingdom, Germany, France, Italy and Spain;

         "QUARTER" means a three month period ending on the last day of March,
         June, September or December in any calendar year;

         "REASONABLE COMMERCIAL EFFORTS" means commercial efforts consistent
         with normal business practices and effort used by the Licensee in
         connection with other products of similar market size or importance
         which the Licensee intends to launch or has launched and sold in the
         Territory, or in the absence of any such similar products then such
         effort shall be assessed by reference to good business practice in the
         light of all the circumstances;

         "REGULATORY AUTHORITY" means any competent government agency,
         regulatory authority or other administrative body responsible for
         granting Marketing Authorization in a particular country or
         multinational group of countries in the Territory, including the FDA;

         "REMEDIES" shall have the meaning given in clause 12.2;


                                       7



         "SALES FORECASTS" means the sales of the Licensed Product anticipated
         by the Licensee for a 4 year period from Launch of the Licensed Product
         in the US Territory as set out in Schedule 4;

         "SEC" means the Securities Exchange Commission in the United States of
         America and any successor thereto;

         "SHIRE" means Shire BioChem, Tanaud Ireland or Tanaud BV or
         collectively Shire BioChem, Tanaud Ireland and Tanaud BV as the case
         may be;

         "SHIRE INTELLECTUAL PROPERTY" means the Shire Patents, the University
         Patents, University Technology and the Shire Know-How;

         "SHIRE KNOW-HOW" means all information, procedures, instructions,
         techniques, data, technical information (including toxicological,
         pharmaceutical, non-clinical, clinical and medical data, health
         registration data and marketing data), processing specifications,
         pricing studies and market evaluation materials owned by Shire or its
         Affiliates (other than Shire Laboratories Inc.) and reasonably
         necessary for the development, or in the case of pricing and market
         evaluation materials, for commercialization, of the Licensed Product in
         the Territory;

         "SHIRE MATERIALS" means the Compound and other materials identified in
         Schedule 5;

         "SHIRE PATENTS" means the Compound Patents and Background Patents and
         including, in each case, any divisionals, extensions, reissues,
         substitutions, renewals, continuations, continuations-in-part,
         provisionals, re-examinations and foreign counterparts thereof
         (including European supplementary protection certificates) and patents
         issuing thereon;

         "SUB-LICENSEE" means any non-Affiliate third party sub-licensee of the
         rights (or any part of the rights) granted to the Licensee under this
         Agreement;

         "SUB-LICENSE AGREEMENT" means any agreement between the Licensee and
         the Sub-Licensee granting the right or license under the Shire
         Intellectual Property (or any part of it) to develop, manufacture, have
         manufactured, use, sell, offer for sale, import or supply the Licensed
         Product;

         "SUB-LICENSE INCOME" means any consideration in any form received by
         the Licensee or its Affiliates in connection with a Sub-License
         Agreement, but excluding royalties on Net Sales and amounts received
         under arms length non-convertible debt instruments negotiated on
         standard commercial terms, including (a) upfront fees, milestone
         payments, license maintenance fees, distribution or joint marketing
         fees, development funding (in excess of the Licensee's cost of
         performing such development), and any investment in the Licensee, and
         (b) exchange products, cross-licensed products, options, marketing
         rights and such other forms of non-cash consideration that may be
         deemed to have value;

         "SUB-LICENSEE MOU" means a memorandum of understanding between Shire
         and a Sub-Licensee substantially in the form of Schedule 7;



                                       8


       "TERRITORY" means the Canadian Territory, the US Territory and the Other
       Territories;

       "THIRD PARTY ACTION" shall have the meaning given in clause 13.1;

       "TIMELINES" means the timelines for the research, development,
       registration and Launch of the Licensed Product as set out in the
       Development Plan;

       "TRADE MARKS" means the trade marks and applications for trade marks set
       out in Schedule 6;

       "UNIVERSITY" means each of the University of Georgia Research Foundation
       Inc. and Yale University;

       "UNIVERSITY PATENTS" means the patents and patent applications set out in
       Part III of Schedule 2 and including, any divisionals, extensions,
       reissues, re-examinations, continuations, and foreign counterparts
       thereof and patents issuing thereon;

       "UNIVERSITY TECHNOLOGY" means the "Licensed Technology" as defined in the
       License Agreement; and

       "US TERRITORY" means the United States of America and its territories and
       possessions.

1.2    In this Agreement, unless the context requires otherwise:

       (a)    the headings are included for convenience only and shall not
              affect its construction;

       (b)    references to "persons" includes individuals, bodies corporate
              (wherever incorporated), unincorporated associations and
              partnerships;

       (c)    words denoting the singular shall include the plural and vice
              versa;

       (d)    references to the word "including" are to be construed without
              limitation;

       (e)    words denoting one gender shall include each gender and all
              genders; and

       (f)    any reference to an enactment or statutory provision is a
              reference to it as it may have been, or may from time to time be
              amended, modified, consolidated or re-enacted.

1.3    The Schedules comprise part of and shall be construed in accordance with
       the terms of this Agreement. In the event of any inconsistency between
       the Schedules and the terms of this Agreement, the terms of this
       Agreement shall prevail.

2.     GRANT OF LICENSE

2.1    Subject to the terms of this Agreement, Shire hereby grants the Licensee:

                                       9


       (a)    an exclusive license under the Shire Patents and Shire Know-How to
              develop, manufacture, have manufactured, use, sell, offer for
              sale, import and supply the Licensed Product in the Territory and
              in the Field; and

       (b)    an exclusive sub-license under the University Patents and
              University Technology to develop, manufacture, have manufactured,
              use, sell, offer for sale, import and supply the Licensed Product
              in the Territory and in the Field.

2.2    Except to the extent necessary to enable Shire to perform its obligations
       under this Agreement and subject to the terms of the License Agreement
       (and in particular the University's rights under Articles 2.2 and 2.4 of
       the License Agreement) the term "exclusive" for the purposes of clause
       2.1, means to the exclusion of all others, including Shire and its
       Affiliates.

2.3    This Agreement and the grant of any license pursuant to clauses 2.1 and
       10.1 shall in all respects be conditional upon the Licensee receiving
       US$12 million in cash from its investors and providing documentary
       evidence, to Shire's reasonable satisfaction, of receipt of such sum by
       no later than September 30, 2004. If such condition subsequent is not
       fulfilled (or waived) on or before September 30, 2004, this Agreement
       shall automatically terminate, Shire shall be entitled to retain any
       upfront payment received and neither party shall have a claim of any
       nature whatsoever against the other party under this Agreement (except in
       respect of any rights or liabilities of the parties which have accrued
       prior to termination).

2.4    The Licensee undertakes to:

       (a)    use all reasonable efforts to ensure that the condition subsequent
              in clause 2.3 is fulfilled as soon as reasonably practicable and
              in any event by September 30, 2004; and

       (b)    keep Shire informed of the progress towards satisfaction of such
              condition precedent and in particular promptly disclose in writing
              to Shire anything which will or may prevent the condition
              subsequent from being satisfied.

3.     SUB-LICENSING

3.1    The Licensee shall have the right to sub-license the rights granted under
       this Agreement to its Affiliates or any third party, provided that:

       (a)    the Licensee provides Shire the opportunity to review the
              Sub-License Agreement (which, subject to the disclosure to the
              University to the extent required under the License Agreement and
              subject to the Universities' confidentiality obligations
              thereunder, Shire shall treat as Confidential Information of the
              Licensee) prior to its execution and considers in good faith any
              reasonable amendments to the Sub-License Agreement requested by
              Shire and subject to clause 3.1A, shall obtain the University's
              prior consent (such consent not be unreasonably withheld or
              delayed);


                                       10

       (b)    any Sub-License Agreement shall be in writing and, with the
              exception of the financial terms, be consistent with the terms of
              this Agreement (except that the Sub-Licensee shall not have the
              right to sub-license, unless Shire and the University have
              consented to such right, which consent, if requested by the
              Licensee, shall not be unreasonably withheld or delayed); and

       (c)    the Licensee shall remain responsible to Shire with respect to all
              the operations of its Sub-Licensee relevant to the use Licensed
              Product under this Agreement as if such operations were carried
              out by the Licensee, including the provision of Reasonable
              Commercial Efforts in the development, manufacture, registration
              and Launch of the Licensed Product, the making of any payments
              under this Agreement, the provision of indemnities, the provision
              of insurance and compliance with applicable law.

3.1A   The Licensee may enter into a Sublicense Agreement without the prior
       consent of the University if:

       (a)    the relevant territory of the Sub-License Agreement is outside the
              Principal Markets; or

       (b)    the relevant territory of the Sub-License Agreement is within the
              Principal Markets, provided that, the Sub-Licensee, at the time of
              grant:

              (i)    is listed on a recognized securities exchange and has
                     market capitalization of not less than U.S.$ [...***...]
                     million, or is a private company with cash of not less than
                     U.S.$ [...***...] million; and

              (ii)   has a current marketing authorization for at least one
                     other regulatory-approved pharmaceutical oncology product
                     in any country in the Principal Markets prior to the date
                     of the Sub-License Agreement.

3.2    Shire shall use reasonable endeavours to procure that the University
       signs a Memorandum of Understanding, and shall provide the same to the
       Licensee on the Effective Date for countersignature by the Licensee. Upon
       request by the Licensee, Shire shall consent (which consent shall not be
       unreasonably withheld or delayed) to signing a Sub-Licensee MOU, provided
       that, the reason for the termination of this Agreement does not relate in
       any way to any act or omission of the Sub-Licensee, its Affiliates,
       representatives or sub-licensees.

3.3    In the event that the Licensee enters a Sub-License Agreement pursuant to
       clause 3.1, the Licensee shall promptly after execution of such
       Sub-License Agreement, provide Shire with a copy of the final form of the
       Sub-License Agreement, which Shire shall treat as Confidential
       Information of Licensee.

3.4    The Licensee shall not, and shall procure that its Affiliates and
       Sub-Licensees shall not:

       (a)    utilize any part of the Shire Intellectual Property in the making
              of any patent application, except as otherwise agreed in writing
              by the Parties pursuant to the terms of this Agreement; or

                                       11    ***CONFIDENTIAL TREATMENT REQUESTED



         (b)      manufacture, supply, market or sell, or knowingly assist any
                  third party to manufacture, supply, market or sell any
                  Competing Product anywhere in the Territory; unless in the
                  event of a Change of Control of Licensee, the new controlling
                  party has a Competing Product and Shire does not terminate the
                  Agreement pursuant to clause 19.2(c), in which event, this
                  sub-clause 3.3(b) shall not apply.

3.5    Shire agrees not to terminate the License Agreement without the prior
       written consent of the Licensee (which consent shall not be unreasonably
       withheld or delayed). Shire further agrees that within 5 Business Days
       after a request from Licensee, Shire shall provide the University with
       the written notice under clause 2.2(a) of the Memorandum of
       Understanding, provided that the reason for the termination of the
       License Agreement by the University does not relate in any way to any act
       or omission of the Licensee, its Affiliates, representatives or
       Sub-Licensees.

4.     THE DEVELOPMENT COMMITTEE

4.1    The Parties shall establish a Development Committee consisting of 4
       individuals ("COMMITTEE MEMBERS"); 2 of whom shall be nominated by Shire;
       and 2 of whom shall be nominated by the Licensee. Either Party may
       replace its Committee Members by notice to the other Party. The Committee
       Members shall be appropriately qualified and experienced in order to make
       a meaningful contribution to Development Committee meetings.

4.2    The purpose of the Development Committee is to provide a forum for the
       Parties to share information and knowledge on the on-going research,
       development and commercialisation of the Licensed Product including
       monitoring the progress of non-clinical and clinical studies, reviewing
       clinical trial programmes, considering proposed regulatory filings,
       Launch plans, marketing and promotional plans, reviewing competitor
       activity and discussing any regulatory, technical, quality assurance or
       safety issues in relation to the Licensed Product. The Development
       Committee shall conduct its discussions in good faith with a view to
       operating to the mutual benefit of the Parties and in furtherance of the
       successful development and commercialisation of the Licensed Product.

4.3    The Development Committee shall meet as often as the Committee Members
       may determine, but in any event not less than once per calendar year. The
       Committee Members may invite individuals with special skills to attend
       such meetings where it is considered to be relevant and appropriate. The
       quorum for Development Committee meetings shall be 2 Committee Members,
       comprising 1 Committee Member from each Party.

5.     DEVELOPMENT AND MARKETING AUTHORIZATIONS

5.1    Shire shall use reasonable efforts within 90 days from the Effective
       Date:

       (a)    to deliver to the Licensee (or its nominee) the Shire Know-How to
              the extent that it is reasonably necessary for the research and
              development of the Licensed Product by the Licensee in accordance
              with the Development Plan, the University Technology under Shire's
              possession or control;

       (b)    to deliver to the Licensee (or its nominee) the Shire Materials;



                                       12



       (c)    transfer the investigational new drug application (filed with the
              FDA) relating to the development and use of Licensed Product to
              the Licensee; and

       (d)    transfer its rights and obligations to the Licensee under the
              clinical research services agreements relating to the phase I
              clinical studies ([...***...] and [...***...]) of the Licensed
              Product between Shire Pharmaceutical Development Inc. and
              Quintiles Inc. From the Effective Date, the Licensee shall bear
              the cost of and risk in such phase I studies.

5.2    For a period of 3 months following the Effective Date, Shire shall
       provide the Licensee with a reasonable amount of access during normal
       business hours to [...***...], and [...***...], as is reasonably
       necessary to teach the Shire Know-How to the Licensee, provided that, the
       personnel remain employed or engaged by Shire and such access is limited
       to no more than an aggregate of 25 person working days and no more than 2
       working days in any working week. Shire shall not terminate the
       employment or engagement of any of the above personnel for 3 months
       following the Effective Date. Shire shall promptly inform the Licensee
       if, during such period, any of the relevant personnel cease to work for
       Shire. In the event that the Licensee requires additional access to Shire
       personnel, the Parties shall in good faith negotiate the cost to the
       Licensee of such access.

5.3    The Licensee shall:

       (a)    at [...***...], use its Reasonable Commercial Efforts to perform,
              or procure the performance of, the activities and services in the
              Development Plan;

       (b)    perform, or procure the performance of, any such activities and
              services with reasonable care and skill and ensure that personnel
              employed or engaged by it in the provision of any such activities
              and services are competent and have appropriate professional
              qualifications, training and experience;

       (c)    complete the Development Plan as expeditiously as reasonably
              possible using its Reasonable Commercial Efforts to meet and
              comply with the Timelines; and

       (d)    update Shire at regular intervals, to be agreed between the
              Parties, on the progress of the Development Plan and submit a
              written report to Shire and the University every [...***...] as
              soon as reasonably practicable after [...***...] of each year and
              in any event by [...***...] respectively, detailing its progress
              of the research, development, registration and commercialisation
              of the Licensed Product and the amount of direct expenditures
              associated with the development of the Licensed Product for the
              previous [...***...] months.

5.4    Upon completion of the Development Plan, the Licensee shall, at
       [...***...], use, or cause its Affiliates and Sub-Licensees to use,
       Reasonable Commercial Efforts to prepare, file, prosecute and maintain
       all applications for Marketing Authorization and any other necessary
       licenses, permits, authorizations and approvals (or waivers) required by
       any Regulatory Authority for the Launch, use, promotion, import, sale,
       distribution or commercialisation of the Licensed Product in the
       Principal Markets. The Licensee shall file its application for


                                         13  ***CONFIDENTIAL TREATMENT REQUESTED





       NDA in the United States of America no later than [...***...] following
       completion of the Development Plan with respect to that country.

6.     LAUNCH AND MARKETING EFFORTS

6.1    The Licensee shall, at [...***...] use its Reasonable Commercial Efforts,
       or procure that its Affiliates or Sub-Licensees use their Reasonable
       Commercial Efforts, to:

       (a)    Launch the Licensed Product in the Principal Markets as soon as
              reasonably practicable following receipt of Marketing
              Authorization in the relevant country and in any event Launch the
              Licensed Product no later than [...***...] following receipt of
              Marketing Authorization in such country; and

       (b)    research, develop, manufacture, distribute and sell, or cause its
              Affiliates or Sub-Licensees (except for third party contract
              research organisations or pharmaceutical manufacturers) to
              research, develop, manufacture, distribute and sell the Licensed
              Product in the Principal Markets.

6.2    The Licensee shall, within [...***...] from filing the NDA for the
       Licensed Product, provide the Development Committee with its Marketing
       Plan setting out its strategy for the Launch of the Licensed Product
       including revised Sales Forecasts (if applicable), anticipated pricing
       levels and reimbursement levels, if appropriate, and marketing and
       promotion plans and spend, in relation to the Licensed Product for the
       calendar year following approval of the NDA. Thereafter, and on or before
       31 October of each calendar year, the Licensee shall provide the
       Development Committee with its Marketing Plan for the next calendar year.
       Each Marketing Plan shall include net sales targets, projections with
       respect to sales force staffing levels, marketing research strategies,
       marketing and promotion plans, physician education plans and general
       advertising and related budgets for sales of the Licensed Product in the
       relevant calendar year.

6.3    Licensee shall:

       (a)    perform, or procure the performance of, the activities set out in
              the Marketing Plan;

       (b)    use Reasonable Commercial Efforts to meet the Sales Forecasts; and

       (c)    on reasonable request from Shire, provide it with copies of the
              packaging, packaging inserts and any advertising or promotional
              materials (including translations, if necessary) used in
              connection with the sale of the Licensed Product in the Territory.

6.4    The Licensee acknowledges that the Sales Forecasts are its good faith
       estimates of sales of the Licensed Product in the Territory based on
       information available to the Licensee at the Effective Date.

6.5    The Licensee may, on submitting the first Marketing Plan and subject to
       the terms of this Agreement, revise the Sales Forecasts. Any reduction in
       the Sales Forecasts must be based on the following:


                                         14  ***CONFIDENTIAL TREATMENT REQUESTED





       (a)    an unexpected and materially adverse change in the market for the
              Licensed Product in the Territory;

       (b)    unexpected clinical data generated from the Development Plan or an
              unexpected pricing decision from a Regulatory Authority which, in
              each case, has an adverse effect on the anticipated sales of the
              Licensed Product; or

       (c)    advice from a Regulatory Authority which specifies restrictions to
              the use of the Licensed Product that reduces the anticipated
              market for the Licensed Product in the Territory.

6.6    Notwithstanding anything contained in clause 6.5, any such reduction in
       the Sales Forecast in the first Marketing Plan must:

       (a)    be supported by a written report explaining, to Shire's reasonable
              satisfaction, the reasons for such reduction;

       (b)    not be due to reasons which could have reasonably been foreseen by
              the Licensee at the Effective Date and shall not, in any event, be
              less than the [...***...] identified at the Effective Date; and

       (c)    be more than [...***...]% of the initial Sales Forecast before the
              Licensee shall be entitled to seek such a reduction.

6.7    In the event that the Licensee fails to meet a Minimum Sales Forecasts in
       any calendar year, the Licensee shall pay Shire, within 30 days from the
       end of the relevant calendar year, an additional payment representing
       [...***...] that [...***...] on the [...***...] the [...***...] for the
       [...***...] and the [...***...].

7.     ROYALTY AND MILESTONE PAYMENTS

7.1    In consideration of the rights granted under this Agreement, the Licensee
       shall pay Shire (or its nominee) the non-creditable and non-refundable
       sum of US$3 million within 3 Business Days from the Effective Date and
       the non-creditable and non-refundable sum of US$1 million within 5
       Business Days of the first anniversary of the Effective Date, in
       accordance with the Milestone Payment Terms.

7.2    Upon the occurrence of each Milestone Event, the corresponding
       non-refundable Milestone Payment shall be made by the Licensee to Shire
       in accordance with the Milestone Payment Terms. For the avoidance of
       doubt, each Milestone Payment shall be made no more than once with
       respect to the achievement of a Milestone Event, but shall be payable the
       first time the Milestone Event is achieved. [...***...]% of any
       development Milestone Payments (but not sales Milestone Payments) shall
       be creditable against royalties due to Shire under sub-clauses 7.3(a),
       7.3(b), 7.3(c), 7.3(d) (but not royalties under sub-clause 7.3(e)), and
       if applicable, sub-clauses 7.4(a), 7.4(b), 7.4(c), 7.4(d) (but not
       royalties under sub-clause 7.4(e)), provided that, in no event will the
       credit for such development Milestone Payments reduce the royalties
       payable to Shire in any Quarter by more than [...***...]%. Any amount
       that has not been so credited


                                       15    ***CONFIDENTIAL TREATMENT REQUESTED




       may be credited against royalties due in subsequent Quarters, subject to
       the limitation described in the previous sentence. For the avoidance of
       doubt, upon expiry or termination of this Agreement, Shire shall not be
       liable to the Licensee for any credit amount accrued and not credited.

7.3    Subject to clauses 7.4, 7.7(b) and 8.2, during the term of this
       Agreement, the Licensee shall pay Shire:

       (a)    a royalty of [...***...]% of the first US$[...***...] of Net Sales
              of the Licensed Product in the Territory in any calendar year;

       (b)    a royalty of [...***...]% of any Net Sales in excess of
              US$[...***...] and up to US$[...***...] in the Territory in any
              calendar year;

       (c)    a royalty of [...***...]% of any Net Sales in excess of
              US$[...***...] and up to US$[...***...] in the Territory in any
              calendar year;

       (d)    a royalty of [...***...]% of any Net Sales in excess of
              US$[...***...] in the Territory in any calendar year; and

       (e)    any royalties or other payments to be made by Shire or its
              Affiliates under the License Agreement or the Consultancy
              Agreement, incurred after the Effective Date, other than payments
              under Articles 4.5 and 4.6 of the License Agreement. [...***...]%
              of any payments made by the Licensee for milestone payments
              properly paid by the Licensee under Article 4.2(c) of the License
              Agreement shall be creditable against royalties in accordance with
              clause 7.2 above.

7.4    At any time during calendar year [...***...], Licensee shall have the
       right to pay to Shire the non-creditable and non-refundable sum of
       US$[...***...] in accordance with the Milestone Payment Terms and in such
       event, Licensee shall have no obligation to make any payments to Shire
       under clause 7.3, but instead shall pay Shire the following:

       (a)    a royalty of [...***...]% of the first US$[...***...] of Net Sales
              of the Licensed Product in the Territory in any calendar year;

       (b)    a royalty of [...***...]% of any Net Sales in excess of
              US$[...***...] and up to US$[...***...] in the Territory in any
              calendar year;

       (c)    a royalty of [...***...]% of any Net Sales in excess of
              US$[...***...] and up to US$[...***...] in the Territory in any
              calendar year;

       (d)    a royalty of [...***...]% of any Net Sales in excess of
              US$[...***...] in the Territory in any calendar year; and

       (e)    any royalties or other payments to be made by Shire or its
              Affiliates under the License Agreement or the Consultancy
              Agreement, incurred after the Effective Date, other than payments
              under Articles 4.5 and 4.6 of the License Agreement.

                                       16    ***CONFIDENTIAL TREATMENT REQUESTED




7.5    In the event that the Licensee supplies a Licensed Product to any
       customer as part of a package or combination of products, then the Net
       Sales of the Licensed Product shall be whichever is the higher of:

       (a)    [...***...] of such Licensed Product when sold [...***...]; or

       (b)    [...***...] the selling price of such package of products which is
              [...***...].

7.6    For the purposes of clause 7.5, [...***...] means the value of Licensed
       Product sold to similar customers in the Territory with similar pricing
       and reimbursement structures and for similar quantities. Any dispute as
       to the determination of [...***...] or proportion of the selling price of
       a package of products attributable to the Licensed Product shall be
       resolved through the dispute resolution procedure set out in clause 24.2.

7.7    Subject to clauses 7.9 and 8.2, in the event that Licensee or its
       Affiliates enters into a Sub-License Agreement in any Territory, then
       Licensee shall pay to Shire in addition to the Milestone Payments:

       (a)    subject to clause 7.10, [...***...]% of any Sub-License Income;
              and

       (b)    in lieu of royalties under clauses 7.3 or 7.4 applicable to Net
              Sales by such Sub-Licensee in its particular territory, the
              greater of:

              (i)    [...***...]% of any royalty payments received by Licensee
                     or its Affiliates from the Sub-Licensee or its Affiliates
                     for sales of Licensed Products by or on behalf of the
                     Sub-Licensee; or

              (ii)   [...***...]% of Net Sales by the Sub-Licensee and its
                     Affiliates.

7.8    In the event that Sub-License Income corresponds to a Milestone Payment
       under this Agreement which has not already been paid by the Licensee and
       such Sub-License Income is greater than the respective Milestone Payment,
       the Licensee shall pay Shire on the occurrence of the Milestone Event the
       full Milestone Payment plus [...***...]% of the difference between the
       Sub-License Income and the relevant Milestone Payment.

7.9    In addition to any payments made by the Licensee under clause 7.7, the
       Licensee shall pay any royalties or other payments to be made by Shire or
       its Affiliates under the License Agreement and the Consultancy Agreement,
       incurred after the Effective Date, other than payments under Articles 4.5
       and 4.6 of the License Agreement.

7.10   In the event that the Licensee or its Affiliates receives any Sub-License
       Income by way of cash consideration in relation to the acquisition of
       equity (or any form of security convertible into equity) in the Licensee
       or its Affiliates or non-cash consideration upon which payment would be
       due to Shire under clause 7.7, the Licensee shall pay Shire:

       (a)    in relation to the acquisition of equity (or any form of security
              convertible into equity) in the Licensee or its Affiliates the
              greater of:


                                       17    ***CONFIDENTIAL TREATMENT REQUESTED




              (i)    [...***...]% of the Premium on Equity; or

              (ii)   [...***...]% of the total amount received or to be received
                     by the Licensee or its Affiliates; or

       (b)    in relation to the payment of non-cash consideration, [...***...]%
              of the fair market cash value of such non-cash consideration at
              the date of receipt of the non-cash consideration by the Licensee
              or its Affiliate.

8.     PAYMENT TERMS

8.1    Unless otherwise expressly stated, payments due under this Agreement
       shall be made by the Licensee to Shire (or its nominee) as follows:

       (a)    in respect of any development Milestone Payments, within
              [...***...] days from identification of the occurrence of the
              development Milestone Event by the Licensee;

       (b)    in respect of any sales Milestone Payments, within [...***...]
              days from the end of the Quarter in which the relevant Milestone
              Event occurred;

       (c)    in respect of Net Sales royalty payments during any Quarter,
              within [...***...] days from the end of that Quarter;

       (d)    in respect of any payments under clause 7.7, within [...***...]
              days from receipt of the Sub-Licensing Income by the Licensee or
              its Affiliates from the Sub-Licensee, or in relation to royalties
              on Net Sales within [...***...] days from the end of the relevant
              Quarter; and

       (e)    in respect of any payments to be made under the License Agreement
              during any Quarter, within [...***...] days from the end of the
              Quarter.

8.2    The payment of all Net Sales royalty revenue from the Licensee, its
       Affiliates or its Sub-Licensees, to Shire shall:

       (a)    in respect of sales of the Licensed Product in the US Territory,
              be paid to Tanaud Ireland;

       (b)    in respect of sales of the Licensed Product in the Canadian
              Territory, be paid to Shire BioChem; and

       (c)    in respect of sales of the Licensed Product in the Other
              Territories, be paid to Tanaud BV.

8.3      All payment sums due under this Agreement to Shire shall be paid in US
         dollars. Net Sales shall be determined in the currency in which the
         Licensed Product was sold and shall be converted into US dollars using
         the spot rate on the last day of the relevant Quarter as

                                       18    ***CONFIDENTIAL TREATMENT REQUESTED



       published by the Wall Street Journal for the relevant Quarter for which
       such payment is being determined.

8.4    At the same time as payment of any Net Sales royalty falls due, the
       Licensee shall submit to Shire a statement in writing recording the
       calculation of the amounts payable and including:

       (a)    the number of Licensed Products which have been supplied in each
              country of the Territory during the previous Quarter;

       (b)    the Net Sales generated in each country of the Territory during
              the previous Quarter; and

       (c)    the amount of royalties due and payable to Shire in relation to
              sales of the Licensed Product in the US Territory, the Canadian
              Territory, the Other Territories, and the Territory as a whole
              (including where appropriate the exchange rate used).

8.5    Interest shall be payable by the Licensee on any amounts payable to Shire
       under this Agreement which are not paid by the due date for payment. All
       interest shall accrue and be calculated on a daily basis (both before and
       after any judgment) at the rate of [...***...]% per annum above the base
       rate of Barclays Bank plc from time to time, for the period from the due
       date for payment until the date of actual payment.

8.6    Notwithstanding any other provision of this Agreement, if at any time
       legal restrictions prevent the prompt remittance of part or all of the
       payments required hereunder in any country, payment shall be made through
       such lawful means as Shire may determine.

8.7    Any tax that the Licensee, its Affiliates or Sub-Licensees are required
       to withhold to comply with relevant laws with respect to the royalties
       and other payments due under this Agreement, shall be deducted from said
       payments prior to remittance; provided, however, that in regard to any
       tax so deducted, the Licensee shall give or cause to be given to Shire
       such assistance, including documentary evidence, as may reasonably be
       necessary to enable Shire to claim exemption therefrom or credit
       therefor, and in each case, the Licensee shall furnish to Shire proper
       evidence of the taxes paid on its behalf. Unless otherwise expressly
       stated, all sums due under this Agreement shall be paid without
       deduction, set-off or counterclaim.

8.8    The obligation of the Licensee to pay royalties and any other payments
       due under this Agreement, shall continue on a country-by-country basis
       for the term of this Agreement. Subject to clause 8.9, in the event that
       there are no issued Shire Patents or University Patents covering the use
       of the Licensed Product in a country in the Territory, the royalty
       payments due to Shire (but not those due to the University under the
       License Agreement) for Net Sales in such country shall be reduced by
       [...***...]%, provided that:

       (a)    one or more Generic Products have been granted marketing
              authorization and are being sold in such country; and


                                       18    ***CONFIDENTIAL TREATMENT REQUESTED




       (b)    IMS data demonstrates that the market share for the Licensed
              Product in such country has been reduced by [...***...]% or more
              in any two consecutive Quarters following the launch of the
              Generic Product in such country.

8.9    In the event that after the grant of marketing authorization of the
       Generic Product any Shire Patent or University Patent application is
       issued, and such patent is able to prevent the sale of the Generic
       Product in the relevant country the royalty payments due to Shire for Net
       Sales in such country shall return to the royalty rates set out in clause
       7.3 or 7.4 as applicable.

9.     RECORDS AND REPORTS

9.1    During the term of this Agreement, and for a period of [...***...] years
       after its expiry or termination, the Licensee shall, and shall procure
       that its Affiliates and Sub-Licensees shall, keep at its or their normal
       place of business detailed, accurate and up to date records and books of
       account showing the sales of the Licensed Product in each country in the
       Territory sufficient to ascertain:

       (c)    any Net Sales generated in connection with the sale of the
              Licensed Product and royalties payable to Shire under this
              Agreement; and

       (d)    the achievement or progress towards achievement of any Milestone
              Event, provided that, in the event that the Milestone Event
              relates to the development of the Licensed Product, the Licensee
              has failed to meet the Timelines and, in Shire's reasonable
              opinion, the Licensee has failed to adequately explain the reasons
              for the delay.

9.2    On no less than [...***...] Business Days notice from Shire, the Licensee
       shall make, or procure that its Affiliates or Sub-Licensees make, such
       records and books of account available for inspection by Shire (or its
       nominee) for the purpose of audit to confirm payments due under this
       Agreement, but not more than [...***...] in any calendar year in relation
       to royalties payable to Shire under this Agreement and not more than
       [...***...] in any calendar year in relation to the achievement of any
       Milestone Event. Shire (or its nominee) shall be entitled to take copies
       or extracts from such records or books of account during any such review
       or audit.

9.3    Shire shall be solely responsible for its costs and expenses in making
       any such review or audit, unless Shire identifies a discrepancy in the
       sums paid in any calendar year from those payable under this Agreement
       for that calendar year of greater than [...***...]%, in which event the
       Licensee shall pay Shire's costs and expenses incurred in connection with
       the review or audit, and make good the deficit in the payments (including
       any interest amount calculated in accordance with clause 8.5).

9.4    All information disclosed by the Licensee, its Affiliates or its
       Sub-Licensees pursuant to this clause 9 shall be deemed Confidential
       Information of Licensee, its Affiliates or its Sub-Licensees, as
       applicable.


                                       20    ***CONFIDENTIAL TREATMENT REQUESTED



10.      TRADE MARKS

10.1     Shire hereby grants the Licensee an exclusive license, with the right
         to sublicense, to use the Trade Marks in relation to the sale,
         promotion and marketing of the Licensed Product in the Territory for
         the term of this Agreement. The Licensee shall:

         (a)      use the Trade Marks only in a manner which conforms to the
                  reasonable directions and standards notified to it by Shire
                  from time to time;

         (b)      market the Licensed Product throughout the Territory under the
                  Trade Marks and ensure that all marketing materials for the
                  Product shall display the Trade Marks;

         (c)      not use, register or attempt to register any trade marks,
                  company, business or trading names or domain names which are
                  identical or similar to (or which incorporate) any of the
                  Trade Marks, any aspect of them, or any other trade marks or
                  trade names used by Shire, without Shire's prior written
                  consent; and

         (d)      not do anything which could, in Shire's reasonable opinion,
                  bring the Trade Marks or Shire into disrepute or which could
                  otherwise damage the goodwill attaching to the Trade Marks or
                  any other trade marks or trade names of Shire.

10.2     Shire shall, [...***...], maintain the registrations for the Trade
         Marks, and shall use reasonable efforts to prosecute any applications
         for registration of the Trade Marks through to grant in the Territory.

10.3     The Licensee acknowledges that:

         (a)      it shall not acquire, nor claim, any right, title or interest
                  in or to any of the Trade Marks or the goodwill attaching to
                  them by virtue of this Agreement or its use of the Trade
                  Marks, other than the rights specifically granted to it under
                  clause 10.1; and

         (b)      all goodwill arising from use of the Trade Marks by the
                  Licensee before, during or after the term of this Agreement
                  shall accrue and belong to Shire, and the Licensee shall, at
                  Shire's request and cost, promptly execute all documents
                  required by Shire to confirm this.

11.      INTELLECTUAL PROPERTY, IMPROVEMENTS AND PATENTS

11.1     Except as set out in this Agreement and the License Agreement, all
         right, title and interest in the Shire Intellectual Property and the
         Trade Marks shall belong to Shire, and the Licensee shall not have any
         right, title or interest in the Shire Intellectual Property or the
         Trade Marks.

11.2     All Intellectual Property Rights in the Development Data shall belong
         to the [...***...]. The Licensee shall disclose reasonably detailed
         summaries of the Development Data to Shire through the Development
         Committee.

11.3     Shire shall, at its sole option, file, prosecute, maintain or extend
         the Shire Patents. Subject to the terms of the License Agreement, Shire
         shall:



                                       21    ***CONFIDENTIAL TREATMENT REQUESTED




         (a)      keep the Licensee reasonably informed of any material
                  developments or notices in connection with the prosecution of
                  any Shire Patents or University Patent applications, but only
                  to the extent that the material developments or notices relate
                  to the Licensed Product;

         (b)      give the Licensee a reasonable opportunity to comment on any
                  Shire response to such developments or notices that are
                  intended to be filed in any patent office in relation to the
                  Compound Patents and consider in good faith any such comments;
                  and

         (c)      give the Licensee a reasonable opportunity to liaise and
                  cooperate with the University in the prosecution and
                  maintenance of the University Patents.

11.4     Any expenses incurred after the Effective Date in the filing,
         prosecution or maintenance of:

         (a)      the University Patents, shall borne by the [...***...];

         (b)      the Compound Patents shall be borne by the [...***...] and
                  shall be creditable (but non-refundable) against royalty
                  payments due from Licensee to Shire under clause 7 (including
                  for the avoidance of doubt, payments under clause 7.7(b)),
                  provided that, in no event will any credit amount under this
                  Agreement reduce the royalties payable to Shire in any Quarter
                  by more than [...***...]% (and any amount that has not been so
                  credited may be credited against royalties due in subsequent
                  Quarters, subject to the limitation described in the previous
                  sentence); and

         (c)      the Background Patents, shall be borne by [...***...].

11.5     In the event that Shire elects not to continue to file, prosecute or
         maintain patent protection for any of the Compound Patents, the
         Licensee shall have the right, at its option, to maintain such Compound
         Patents on behalf of Shire. Without limiting the generality of the
         foregoing, in no event shall Shire provide the Licensee with notice of
         abandonment of any Compound Patents less than 30 days prior to its date
         of lapse.

11.6     Shire shall maintain patent protection for all Background Patents
         identified as [...***...] and [...***...] in the Principal Markets.

11.7     Shire reserves all of its rights not expressly granted to the Licensee
         under this Agreement. The Licensee shall not, and shall not attempt or
         purport to file or prosecute in any country any patent application
         which claims, or purports to claim, any Shire Intellectual Property,
         except as permitted under clause 11.5. Additionally, the Licensee shall
         not, directly or indirectly prevent or attempt to prevent Shire from
         filing or prosecuting in any country any patent application which
         claims, discloses or uses or purports to claim, disclose or use any
         Shire Intellectual Property.

12.      INFRINGEMENT OF SHIRE INTELLECTUAL PROPERTY RIGHTS

12.1     Each Party shall promptly notify the other, with such details as it has
         in its possession, on becoming aware of any third party infringement,
         or suspected infringement, of any part of the Shire Intellectual
         Property or the Trade Marks in the Territory.


                                       22    ***CONFIDENTIAL TREATMENT REQUESTED




12.2     Subject to the terms of the License Agreement, Shire shall have the
         first right, but not the obligation, to take action in respect of any
         infringements of the Shire Intellectual Property or the Trade Marks,
         including any injunctive, compensatory or other remedies or relief
         (collectively "REMEDIES") as may be necessary or desirable to prevent
         such infringement and preserve the Shire Intellectual Property. The
         Licensee shall permit any such Remedies to be brought in its name if
         permitted or required by law. Shire may compromise or settle any of the
         Remedies at its sole discretion, provided that, Shire shall not make
         any settlement or compromise that adversely affects the interests of
         the Licensee in respect of the Licensed Products in the Territory
         without the prior written consent of the Licensee, such consent not to
         be unreasonably withheld or delayed.

12.3     In the event that Shire does not pursue any Remedies with respect to
         the Shire Intellectual Property or the Trade Marks within 60 days
         following notice of alleged infringement or 10 days before the time
         limit, if any, for the filing of any infringement action, whichever is
         sooner, then the Licensee shall, subject to the terms of the License
         Agreement, have the right but, not the obligation, to pursue the
         Remedies against such third party infringer at its sole cost, provided
         that, the Licensee does not make any settlement or compromise that
         adversely affects the interests of Shire without the prior written
         consent of Shire, such consent not to be unreasonably withheld or
         delayed. For the avoidance of doubt, the Licensee's right to pursue any
         Remedies with respect to the infringement, or suspected infringement,
         of any part of the Shire Intellectual Property is limited to the extent
         that such infringement, or suspected infringement relates to the
         Compound.

12.4     In the event that either Party pursues the Remedies under clauses 12.2
         or 12.3:

         (a)      the other Party shall provide reasonable assistance to and
                  cooperate with the Party pursuing such Remedies, including
                  providing access to relevant documents and personnel and
                  furnishing a power of attorney if required by law;

         (b)      the Party that pursues the Remedy shall keep the other Party
                  fully informed of the progress of, and developments in, any
                  proceedings including any settlement discussions with the
                  defendants or potential defendants of such proceedings;

         (c)      each Party shall bear its own costs and expenses relating to
                  its pursuit of the Remedies or in providing assistance and
                  cooperation; and

         (d)      any damages or other amounts awarded or obtained by either
                  Party shall, subject to the terms of the License Agreement, be
                  distributed as follows:

                  (i)      firstly to cover any legal costs and expenses
                           incurred by the Party that pursued the Remedies; and
                           then

                  (ii)     to cover those legal costs and expenses, if any,
                           incurred by the other Party relating to the pursuit
                           of such Remedies; and then

                  (iii)    any remaining amount identified as damages for lost
                           sales of the Licensed Product, after the deductions
                           set out above, shall be paid to Licensee except that



                                       23

                           Shire shall receive a portion equivalent to the
                           royalties it would have received under this Agreement
                           if such amount were deemed Net Sales; and then

                  (iv)     any remaining amount of damages awarded, other than
                           for damages for lost sales, shall be divided
                           [...***...], with Licensee receiving [...***...]% and
                           Shire receiving [...***...]%.

12.5     Notwithstanding anything contained in this Agreement, Shire reserves
         the right to control, at its sole expense, any opposition, protest,
         claim, proceedings, challenge or litigation relating to the validity of
         the Background Patents. The Licensee shall, and shall procure that its
         Affiliates and Sub-Licensees shall, provide such reasonable assistance
         and co-operation to Shire, at Shire's reasonable expense, as is
         necessary for the conduct of any such opposition, protest, claim,
         proceedings, challenge or litigation. The Licensee may participate in
         the defence or settlement of any opposition, protest, claim,
         proceedings, challenge or litigation relating to the validity of the
         Background Patents at its own cost with counsel of its choice, provided
         that:

         (a)      Shire has control of the conduct of such opposition, protest,
                  claim, proceedings, challenge or litigation relating to the
                  validity of the Background Patents; and

         (b)      the Licensee shall not, and shall procure that its Affiliates
                  and Sub-Licensees shall not, during the course of such
                  proceedings make any statement or admission that compromises
                  the validity of the Background Patents.

13.      INFRINGEMENT OF THIRD PARTY RIGHTS

13.1     In the event that any third party commences or threatens to commence
         patent, trade secret or other patent infringement action against the
         Licensee during the term of this Agreement, alleging that its use of
         the Licensed Product in the Territory infringes the third party's
         Intellectual Property Rights ("THIRD PARTY ACTION"), the Licensee shall
         by written notice promptly inform Shire of the Third Party Action,
         providing all such details of the Third Party Action as are in its
         possession. Upon receipt of the notice, the Parties shall promptly
         discuss the best way to respond to the Third Party Action.

13.2     The Licensee shall, [...***...] and in its sole discretion, defend and
         control the defence of any such Third Party Action using counsel of its
         own choice, provided that:

         (a)      Shire may participate in the defence or settlement of the
                  Third Party Action [...***...] with counsel of its choice; and

         (b)      the Licensee shall not settle the Third Party Action in a
                  manner adverse to Shire, except as agreed in writing by Shire,
                  such agreement not to be unreasonably withheld or delayed.

13.3     In any Third Party Action under this clause 13, the Parties shall
         cooperate with each other in connection with any such claim, suit or
         proceeding and shall keep each other reasonably informed of any
         material development in connection with the Third Party Action,
         including providing access to relevant documents, personnel or other
         evidence.


                                       24    ***CONFIDENTIAL TREATMENT REQUESTED




14.      INDEMNIFICATION AND INSURANCE

14.1     The Licensee shall defend, indemnify and hold harmless Shire, its
         Affiliates and its and their directors, officers, employees and
         contractors ("SHIRE PARTIES") from and against any and all claims,
         actions, demands, losses, damages, costs and reasonable expenses
         (including reasonable legal, counsel and expert fees) made or brought
         by any third parties ("CLAIMS") arising from or in connection with the
         research, development, testing, manufacture, marketing, distribution,
         sale or use of the Licensed Product by Licensee or its Affiliates or
         its or their Sub-Licensees, except to the extent that such Claims
         result from the negligence or willful default of the Shire Parties.

14.2     Shire shall promptly:

         (a)      inform the Licensee by written notice of any Claims or the
                  discovery of a fact upon which Shire intends to base a request
                  for indemnification;

         (b)      provide the Licensee with copies of all papers and official
                  documents received in respect of any Claims; and

         (c)      cooperate as reasonably requested by the Licensee in the
                  defence against any Claims.

14.3     The Licensee shall have the sole control over the defence of any
         Claims, provided that, the Licensee shall obtain the written consent of
         Shire, prior to settling or otherwise disposing of such Claims if as a
         result of the settlement or Claim disposal Shire's interests are in any
         way adversely affected. Any costs and expenses, incurred by Shire in
         connection with any Claims shall be reimbursed by the Licensee on a
         Quarterly basis, subject to an obligation of reimbursement if it is
         determined by a court of competent jurisdiction that such Claims are
         not subject to indemnification under clause 14.1.

14.4     Shire shall defend, indemnify and hold harmless Licensee, its
         Affiliates and its and their directors, officers, employees and
         contractors ("LICENSEE PARTIES") from and against any and all Claims
         resulting from a breach of clause 16.2.

14.5     Notwithstanding anything contained in this Agreement, in no event shall
         either Party or their respective Affiliates be liable for special,
         indirect, incidental or consequential loss or damage based on contract,
         tort or any other legal theory arising out of this Agreement. Nothing
         in this Agreement shall limit either Party's liability to any person
         for death or personal injury caused by negligence.

14.6     The Licensee shall, at its own cost, during the term of this Agreement
         and for a period of [...***...] thereafter, maintain insurance which is
         reasonable and customary in the United States of America pharmaceutical
         industry for companies of comparable size and activities, and in any
         event:

         (a)      listing Shire and the Indemnitees (as defined in the License
                  Agreement) as additional insureds on the policy by no later
                  than October 1, 2004;

                                       25    ***CONFIDENTIAL TREATMENT REQUESTED



         (b)      covering product liability in relation to the studies
                  undertaken in connection with the development of the Licensed
                  Product in amounts no less than US$[...***...] per incident
                  and US$[...***...] annual aggregate; and

         (c)      covering comprehensive product liability insurance and general
                  commercial liability insurance with respect to the
                  manufacture, use or sale Licensed Product from receipt of
                  Marketing Authorization in amounts not less than
                  US$[...***...] per incident and US$[...***...] annual
                  aggregate.

14.7     Upon reasonable request from Shire, the Licensee shall provide, or
         procure that its Sub-Licensees provide documents from its insurer
         confirming the existence and renewal of the relevant insurance policies
         conforming with the requirements of clause 14.6.


15.      CONFIDENTIALITY AND PUBLICATIONS

15.1     The Parties, their Affiliates and their respective directors, officers,
         employees, officers and consultants shall keep and maintain any
         Confidential Information supplied by the other Party during the term of
         this Agreement strictly confidential. The confidentiality obligations
         contained in this Agreement shall not apply to the extent that such
         Confidential Information is:

         (a)      at the time of disclosure by one Party to the other in the
                  public domain or otherwise publicly known;

         (b)      after disclosure by one Party to the other becomes part of the
                  public domain, other than by breach of any obligation of
                  confidentiality;

         (c)      information which the receiving Party can establish by
                  documentary evidence was already in its possession at the time
                  of receipt or was independently developed by the receiving
                  Party without use of the Confidential Information of the
                  disclosing Party; or

         (d)      received from a third party who was lawfully entitled to
                  disclose such information without an obligation of
                  confidentiality.

15.2     Notwithstanding clause 15.1, the Party receiving Confidential
         Information may disclose such Confidential Information:

         (a)      to Regulatory Authorities or other government agencies to gain
                  approval to conduct clinical trials in relation to the
                  Licensed Product or to file, prosecute and maintain the
                  Marketing Authorizations and any other required filings for
                  the Licensed Product, provided that, the disclosure is limited
                  to the extent reasonably necessary to obtain such
                  authorizations or approvals;

         (b)      to the extent that such disclosure is required by any
                  applicable law, regulation, court of competent jurisdiction or
                  governmental authority (including the FDA and the SEC),
                  provided that, the Confidential Information may be disclosed
                  only to the extent


                                       26    ***CONFIDENTIAL TREATMENT REQUESTED




                  required and wherever practicable, the disclosing Party has
                  been given sufficient written notice in advance to enable it
                  to seek protection or confidential treatment of such
                  Confidential Information;

         (c)      to Affiliates, actual or potential Sub-Licensees,
                  sub-contractors, employees, consultants and agents who have a
                  need to know the information for the purposes of this
                  Agreement, and are bound by obligations of confidentiality no
                  less protective than those contained in this Agreement; or

         (d)      to Third Parties in connection with due diligence
                  investigations in relation to the Licensee (for example,
                  potential investors), provided that, such Third Parties are
                  bound by confidentiality obligations no less protective than
                  those contained in this Agreement; or

         (e)      representatives of the University, provided that, such
                  representatives are bound by confidentiality obligations no
                  less protective than those contained in this Agreement.

15.3     The Parties shall consult with each other, in advance, with regard to
         the terms of all proposed press releases, public announcements and
         other public statements relating to any Confidential Information or the
         transactions contemplated under this Agreement. Shire acknowledges that
         in connection with any public offering of the stock of Licensee,
         Licensee may be required to file this Agreement with the SEC, subject
         to confidential treatment requests.

16.      WARRANTIES

16.1     Shire and the Licensee each warrant that:

         (a)      it has obtained all corporate authorisations required to enter
                  into and perform its obligations under this Agreement; and

         (b)      this Agreement is valid and binding obligation enforceable
                  against it in accordance with its terms and conditions.

16.2     At the Effective Date, Shire warrants that:

         (a)      the Shire Patents are owned by Shire and the University
                  Patents are exclusively licensed to Shire under the terms of
                  the License Agreement;

         (b)      all renewal and maintenance fees in relation to the Shire
                  Patents and University Patents have been paid on or before the
                  due date for payment;

         (c)      so far as it is aware, there are no current oppositions or
                  interferences relating to the Shire Patents or University
                  Patents;

         (d)      it has not received any notice from any third party in the
                  last [...***...] alleging that the Compound infringes any
                  third party Intellectual Property Rights;


                                       27    ***CONFIDENTIAL TREATMENT REQUESTED





         (e)      it has not sent any notice to any third party in the last
                  [...***...] alleging that the third party is infringing the
                  Shire Intellectual Property with respect to the Compound;

         (f)      so far as it is aware, Shire has no royalty or other license
                  payment obligations to third parties with respect to the
                  research, use, manufacture or sale of the Compound other than
                  under the License Agreement and Consultancy Agreement; and

         (g)      except for the Excluded Patents, the list of Licensed Patents
                  in Schedule 2 of this Agreement is a complete list of the
                  patents and patent applications owned by or licensed to Shire
                  containing claims relating to the Compound.

16.3     Notwithstanding anything contained in this Agreement, Shire gives no
         warranty and makes no representation that any patent application
         identified in Schedule 2 shall proceed to grant or will be valid and
         enforceable.

16.4     Except for the warranties set out in clause 16, no warranty, condition,
         term, undertaking or representation (express or implied, statutory or
         otherwise) is given by Shire to the Licensee in respect of the Shire
         Intellectual Property, the Licensed Product or any other products
         developed, manufactured, sold or supplied by the Licensee using the
         Shire Intellectual Property and all such warranties, conditions, terms,
         undertakings and representations are to the extent permitted by law
         expressly excluded.

17       COMPLIANCE WITH LAW

17.1     In exercising its rights and obligations under this Agreement, the
         Licensee shall comply with, or shall procure compliance by its
         Affiliates and Sub-Licensees with, all applicable national and local
         laws, rules and regulations including but not limited to the
         requirements of any Marketing Authorization s or any relevant laws,
         rules or regulations concerning the research, development, manufacture,
         delivery, transport, import, advertising, packaging, labelling,
         storage, sale or use of the Licensed Product in the Territory or any
         part of it.

17.2     The Licensee shall use reasonable efforts to promptly inform Shire of
         any new laws, rules or regulations in the Territory (or any part of it)
         or any amendments, or proposed amendments to the current laws, rules or
         regulations that may have material impact on the use, distribution or
         sale of the Licensed Product.

17.3     In performing any of their respective rights and obligations under this
         Agreement, each Party shall comply with all applicable data protection
         laws and regulations.

18       TERM

18.1     This Agreement commences on the Effective Date and, subject to earlier
         termination in accordance with clause 19, shall with respect to each of
         the countries in the Territory expire on the last to occur of:

         (a)      expiry of the last to expire of the issued Shire Patents or
                  the University Patents in the applicable country, including
                  patents issued on patent applications within Shire Patents or
                  University Patents as the case may be; or


                                       28    ***CONFIDENTIAL TREATMENT REQUESTED




         (b)      [...***...] from the date of first commercial sale in that
                  country.

19       TERMINATION

19.1     Either Party shall be entitled to terminate this Agreement by written
         notice to the other if:

         (a)      the other Party commits a material breach of this Agreement,
                  and in the case of a breach which is capable of remedy fails
                  to remedy it within 60 days of receipt of notice from the
                  first Party of such breach and of its intention to exercise
                  its rights under this clause; or

         (b)      an order is made or a resolution is passed for the winding up
                  of the other Party (other than voluntarily for the purposes of
                  solvent amalgamation or reconstruction) or an order is made
                  for the appointment of an administrator to manage the other
                  Party's affairs, business and property or if a receiver (which
                  expression shall include an administrative receiver) is
                  appointed over any of the other Party's assets or undertaking
                  or if circumstances arise which entitle the court or a
                  creditor to appoint a receiver or manager or which entitle the
                  court to make a winding-up order or if a voluntary arrangement
                  is proposed in respect of the other Party or if the other
                  Party takes or suffers any similar or analogous action in
                  consequence of debt, and such order, appointment or similar
                  action is not removed within 90 days.

19.2     This Agreement may be terminated by Shire by notice in writing to the
         Licensee at any time (except as provided in clause 19.2(a)) if:

         (a)      the Licensee fails to make the upfront payment of
                  US$3 million to Shire within 3 Business Days from the
                  Effective Date pursuant to clause 7.1, with immediate effect
                  from receipt of the notice from Shire; which right of
                  termination will terminate on the earlier of (i) payment by
                  Licensee of the upfront payment of US$3 million to Shire or
                  (ii) 28 days from the expiration of the 3 Business Days from
                  the Effective Date;

         (b)      the Licensee, its Affiliates or its Sub-Licensees fail to make
                  any Milestone Payments or other payments of any sums due under
                  this Agreement (other than the upfront payment pursuant to
                  clause 7.1) within 30 days of receiving notice from Shire
                  requiring such payment;

         (c)      the Licensee, its Affiliates or its Sub-Licensees, directly or
                  indirectly, challenge the validity of the Shire Intellectual
                  Property or the Trade Marks or the right of Shire to use or
                  license the use of any of such Shire Intellectual Property or
                  the Trade Marks, or the Licensee assists any third party to
                  challenge the validity of such Shire Intellectual Property or
                  the Trade Marks;

         (d)      subject to clause 19.3, in the event of a Change of Control
                  where the new controlling party of the Licensee owns or
                  licenses a Competing Product;

         (e)      the Licensee ceases or threatens by written notice to cease to
                  carry on its business relating to oncology products;


                                       29    ***CONFIDENTIAL TREATMENT REQUESTED




         (f)      in the event that the Licensee or its Affiliates or
                  Sub-Licensees has not commenced a [...***...] of the Licensed
                  Product in the United States of America within [...***...]
                  from the Effective Date;

         (g)      subject to clause 19.4, in the event that the Licensee or its
                  Affiliates or Sub-Licensees has not filed for [...***...] or
                  commenced a [...***...] of the Licensed Product in the United
                  States of America by [...***...];

         (h)      in the event that the Licensee or its Affiliates or
                  Sub-Licensees has not filed an [...***...] by [...***...],
                  provided that, Shire may not terminate this Agreement under
                  this sub-clause if the Licensee can reasonably demonstrate
                  that such delay or failure to file an [...***...] by
                  [...***...] is due to circumstances directly relating to
                  Development Plan and beyond its reasonable control, in which
                  event the Licensee shall have a further period of [...***...]
                  to achieve such event;

         (i)      in the event that for a reason attributable to the Licensee,
                  its Affiliates or its Sub-Licensees any [...***...] in the
                  Principal Markets lapses or is revoked by any competent
                  Regulatory Authority in the Territory; or

         (j)      in the event that the Licensee fails to provide Shire with any
                  [...***...] reports under clause 5.3(d).

19.3     In the event of Change of Control, where the new controlling party of
         the Licensee owns or licenses a Competing Product, the Licensee shall
         by written notice inform Shire of the Change of Control and Shire shall
         have 90 days from receipt of such notice to exercise its right of
         termination under clause 19.2(c). Notwithstanding anything contained in
         this clause, the Parties agree that Shire may not terminate this
         Agreement pursuant to clause 19.2(c) if the new controlling party
         agrees to divest such Competing Product and in fact so divests such
         Competing Product within 6 months from the date of completion of the
         Change of Control (subject to extension for an additional 3 months if
         the new controlling party has entered into a binding agreement with
         respect to such divestiture within such 6 month period). If the new
         controlling party is unable or unwilling to divest the Competing
         Product within such period, Shire shall be entitled to terminate this
         Agreement by 30 days written notice to the Licensee.

19.4     In the event that the [...***...] is unsuccessful, the Licensee shall
         have [...***...] from date of receipt of the [...***...] notice to
         commence a [...***...] of the Licensed Product in the United States of
         America, failing which, Shire may terminate this Agreement by written
         notice with immediate effect.

19.5     This Agreement may be terminated by Licensee by 90 days written notice
         to Shire, at any time after the second anniversary of the Effective
         Date, if:

         (a)      after making a reasonable evaluation of the safety, efficacy
                  or other data generated during the Development Plan, the
                  Licensee determines that the Licensed Product is not a
                  scientifically or commercially viable for further development
                  or commercialisation; or



                                       30    ***CONFIDENTIAL TREATMENT REQUESTED




         (b)      the Licensee reasonably believes it will be unable to obtain
                  [...***...] in the United States of America after diligent
                  pursuit of such [...***...].

19.6     If the Licensee, its Affiliates or any Sub-Licensee, after having
         Launched the Licensed Product in any country in the Territory,
         discontinues the sale of the Licensed Product in such country for a
         period of [...***...] or more for reasons unrelated to Force Majeure or
         regulatory or safety issues in relation to the use of the Licensed
         Product, and subsequently fails to resume sales of any Licensed Product
         in such country within [...***...] of having been notified in writing
         of the failure to supply by Shire, then Shire may terminate the rights
         granted to the Licensee under this Agreement and the Trade Mark license
         solely with respect to such country by written notice to the Licensee.
         For the purpose of this clause, sales of minimal or commercially
         insignificant quantities of Licensed Product in a country shall be
         deemed to constitute a discontinuation of sales in such country.

20       CONSEQUENCES OF TERMINATION

20.1     On termination of this Agreement by either Party the license and
         sub-license (subject to the terms of the Memorandum of Understanding
         and Sub-Licensee MOU) granted under this Agreement shall immediately
         cease and the Licensee shall, and shall procure that its Affiliates and
         Sub-Licensees shall:

         (a)      subject to clause 20.4, immediately cease to carry out any of
                  the activities permitted by this Agreement (or any relevant
                  Sub-License Agreement) and cease to use or exploit in any way
                  the Licensed Product, the Trade Marks or the Shire
                  Intellectual Property;

         (b)      within 60 days of the date of the termination notice make all
                  outstanding payments including any royalty payments due to
                  Shire at the date of termination; and

         (c)      promptly return, or at Shire's option, destroy any Shire
                  Know-How and any materials containing the Shire Know-How in
                  its possession, custody or power except for such records as
                  may be required to be retained by the Licensee by any national
                  or local laws, rules or regulations.

20.2     On termination of this Agreement by either Party for any reason, other
         than by the Licensee under clause 19.1, the Licensee shall, and shall
         procure that its Affiliates and, Sub-Licensees subject to the terms of
         the Sub-Licensee MOU, shall:

         (a)      promptly deliver up to Shire any Development Data,
                  Improvements or other materials generated by the Licensee, its
                  Affiliates or Sub-Licensees in the development, registration
                  or commercialization of the Licensed Product;

         (b)      within 90 days from the date of termination, assign to Shire
                  (or its nominated Affiliate) all right, title and interest in
                  any Marketing Authorization in the Territory; and



                                       31    ***CONFIDENTIAL TREATMENT REQUESTED



         (c)      grant Shire an exclusive, royalty free, worldwide, irrevocable
                  and perpetual license to use (with the right to sub-license)
                  the Development Data and any registration materials developed
                  or acquired by or on behalf of the Licensee its Affiliates or
                  Sub-Licensees during the term of this Agreement.

20.3     On expiry of this Agreement, Shire shall grant, the Licensee an
         exclusive, royalty-free, worldwide, irrevocable and perpetual license
         to use and exploit (with the right to sub-license) the Shire Know-How,
         including the right use the Shire Know-How to make, have made, use,
         offer for sale, sell and import the Licensed Products.

20.4     The Licensee, its Affiliates and Sub-Licensees shall be entitled to
         continue to sell existing stocks of the Licensed Products in the
         Territory for a period of not longer than 6 months following the date
         of termination, provided that, the Licensee pays Shire any royalties
         due in respect of such sales in accordance with the provisions of this
         Agreement.

20.5     Subject to clause 20.6, on termination of this Agreement by Shire under
         Sections 19.1 or 19.2, the Licensee hereby grants Shire an option to
         exclusively license any Intellectual Property Rights owned or licensed
         (with the right to sublicense) by the Licensee that claim or cover any
         Improvements generated by the Licensee during the term of this
         Agreement ("OPTION"). The Option shall be exercisable by Shire at any
         time within [...***...] from the date of notice of termination. Within
         15 days from receipt by the Licensee, of notice from Shire confirming
         the exercise of the Option, Shire and the Licensee shall negotiate in
         good faith for a period not to exceed [...***...] the grant to Shire of
         a exclusive, royalty bearing, worldwide, license to use (with the right
         to sub-license) the Improvement developed or acquired by or on behalf
         of the Licensee during the term of this Agreement, on commercially
         reasonable terms.

20.6     In the event that this Agreement is terminated as a result of the
         termination of the License Agreement by the University, and no license
         for the University Patents is granted to the Licensee pursuant to the
         Memorandum of Understanding, the Licensee shall grant the University
         the Option rights set out in clause 20.5 instead of to Shire under
         clause 20.6.

20.7     Subject to any separate agreement with the Sub-Licensee pursuant to
         clause 3.2, upon the termination or expiry of this Agreement, the
         Licensee shall, and shall procure that its Affiliates and Sub-Licensees
         shall execute such documents as Shire may reasonably require to record
         at all appropriate patent offices throughout the Territory that the
         Licensee or the relevant Sub-Licensee has ceased to be entitled to use
         and exploit the Licensed Patents.

20.8     In the event that the Licensee wishes to continue the use of the Trade
         Mark for the sale of the Licensed Product after the expiration of this
         Agreement, Shire shall grant to the Licensee an exclusive
         non-transferable license for the Trade Mark in the Territory on terms
         to be agreed between the Parties, provided that the Licensee notifies
         Shire within [...***...] of the date of such expiry that it wishes to
         take such a license and the Licensee shall pay Shire a perpetual Trade
         Mark royalty of [...***...]% of the Net Sales of the Licensed Product
         in accordance with clause 8.2.



                                       32    ***CONFIDENTIAL TREATMENT REQUESTED





20.9     The termination or expiry of this Agreement shall not release either of
         the Parties from any liability which at the time of termination or
         expiry has already accrued to the other Party, nor affect in any way
         the survival of any other right, duty or obligation of the Parties
         which is expressly stated elsewhere in this Agreement to survive such
         termination or expiry.

20.10    Clauses 1, 9, 14, 15.1, 15.2, 16.3, 16.4, 20, 22, 23, and 24 shall
         survive the termination or expiry of this Agreement.

21       FORCE MAJEURE

21.1     Neither Party shall be entitled to terminate this Agreement or shall be
         liable to the other under this Agreement for loss or damages
         attributable to any Force Majeure, provided that, the Party affected
         shall give prompt notice thereof to the other Party. Subject to clause
         21.2, the Party giving such notice shall be excused from such of its
         obligations hereunder for so long as it continues to be affected by
         Force Majeure.

21.2     If such Force Majeure continues unabated for a period of at least 90
         days, the Parties will meet to discuss in good faith what actions to
         take or what modifications should be made to this Agreement as a
         consequence of such Force Majeure in order to alleviate its
         consequences on the affected Party.

22       NOTICES

22.1     Any notice or other document given under this Agreement shall be in
         writing in the English language and shall be given by hand or sent by
         prepaid airmail or by fax transmission to the address of the receiving
         Party as set out in clauses 22.3 below unless a different address or
         fax number has been notified to the other in writing for this purpose.

22.2     Each such notice or document shall:

         (a)      if sent by hand, be deemed to have been given when delivered
                  at the relevant address;

         (b)      if sent by prepaid airmail, be deemed to have been given 7
                  days after posting; or

         (c)      if sent by fax transmission be deemed to have been given when
                  transmitted provided that a confirmatory copy of such
                  facsimile transmission shall have been sent by prepaid airmail
                  within 24 hours of such transmission.

22.3     The address for services of notices and other documents on the Parties
         shall be:

           TO SHIRE BIOCHEM                      TO THE LICENSEE
           275 boul. Armand-Frappier,            ADDRESS:   10505 Roselle Street
           Laval, QC,                                       San Diego, CA 92121
           Canada H7V 4A7                                   U.S.A.


           FAX:      +1 450 978 7767             FAX:       +1 858 558 3402



                                       33




           ATTENTION: Claude Perron              ATTENTION:  Michael Grey

           COPY TO:   Shire Legal Department     COPY TO:    Legal Department
                      +44 (0)1256 894 710                    +1 858 558 3402

           TO TANAUD IRELAND                     TO TANAUD BV

           Shannon Airport House,                Fred Roeskestraat 123,
           Shannon, Co Clare,                    First Floor, 1076 EE Amsterdam,
           Ireland                               The Netherlands

           FAX:       +353 61 472 060            FAX:         +31 20 577 1188

           ATTENTION: Alan Kane                  ATTENTION:   Dirk Stolp


23       ASSIGNMENT

23.1     Subject to clause 23.2, the Licensee shall not assign or transfer any
         of its rights or obligations under this Agreement without the prior
         written consent of Shire, such consent not to be unreasonably withheld
         or delayed; provided that the Licensee may assign or transfer this
         Agreement and its rights and obligations hereunder without Shire's
         consent in connection with the sale or transfer of all or substantially
         all of the Licensee's business to which this Agreement relates to a
         third party, whether by merger, sale of stock, sale of assets or
         otherwise. In the event of any such transaction however, Intellectual
         Property Rights of the acquiring party under such transaction shall not
         be included in the Intellectual Property Rights subject to this
         Agreement.

23.2     The Licensee may sub-license all or any of its rights under this
         Agreement provided that the Licensee complies with its obligations set
         out in clause 3.

23.3     Shire shall be entitled to assign all or any of its rights or
         obligations under this Agreement to an Affiliate.

24       GENERAL PROVISIONS

24.1     Nothing in this Agreement is deemed to constitute a partnership between
         the Parties nor constitute either Party the agent of the other Party
         for any purpose.

24.2     Any disagreement between Shire and the Licensee on the interpretation
         of this Agreement or any aspect of the performance by either Party of
         its obligations under this Agreement shall be resolved in accordance
         with the dispute resolution procedure set out in Schedule 8 provided
         that either Party shall have the right to seek urgent injunctive or
         other equitable relief in any court of competent jurisdiction.

24.3     Each of the Parties shall do execute and perform and shall procure to
         be done executed and performed all such further acts deeds documents
         and things as the other Party may reasonably require from time to time
         to give full effect to the terms of this Agreement.



                                       34


24.4     Each Party shall pay its own costs, charges and expenses incurred in
         connection with the negotiation, preparation and completion of this
         Agreement.

24.5     This Agreement sets out the entire agreement and understanding between
         the Parties in respect of the subject matter of this Agreement and
         supersedes any heads of agreement which shall cease to have any further
         force or effect. It is agreed that:

         (a)      no Party has entered into this Agreement in reliance upon any
                  representation, warranty or undertaking of the other Party
                  which is not expressly set out in this Agreement;

         (b)      no Party shall have any remedy in respect of misrepresentation
                  or untrue statement made by the other Party or for any breach
                  of warranty which is not contained in this Agreement; and

         (c)      this clause shall not exclude any liability for, or remedy in
                  respect of, fraudulent misrepresentation.

24.6     Nothing in this Agreement shall operate to:

         (a)      exclude any provision implied into this Agreement by law and
                  which may not be excluded by law; or

         (b)      limit or exclude any liability, right or remedy to a greater
                  extent than is permissible under law.

24.7     No variation of this Agreement shall be valid unless it is in writing
         and signed by or on behalf of both Parties.

24.8     Unless expressly agreed, no variation shall constitute a general waiver
         of any provisions of this Agreement, nor shall it affect any rights,
         obligations or liabilities under or pursuant to this Agreement which
         have already accrued up to the date of variation, and the rights and
         obligations of the Parties under or pursuant to this Agreement shall
         remain in full force and effect, except and only to the extent that
         they are so varied.

24.9     If and to the extent that any provision of this Agreement is held to be
         illegal, void or unenforceable, such provision shall be given no effect
         and shall be deemed not to be included in this Agreement but without
         invalidating any of the remaining provisions of this Agreement.

24.10    No failure or delay by either Party in exercising any right or remedy
         provided by law under or pursuant to this Agreement shall impair such
         right or remedy or operate or be construed as a waiver or variation of
         it or preclude its exercise at any subsequent time and no single or
         partial exercise of any such right or remedy shall preclude any other
         or further exercise of it or the exercise of any other right or remedy.



                                       35


24.11    The rights and remedies of each of the Parties under or pursuant to
         this Agreement are cumulative, may be exercised as often as such Party
         considers appropriate and are in addition to its rights and remedies
         under general law.

24.12    If in any jurisdiction the effect of any provision of this Agreement or
         the absence from this Agreement of any provision would be to prejudice
         the Licensed Patents or any remedy under the Licensed Patents, the
         Parties will make such amendments to this Agreement and execute such
         further agreements and documents limited to that part of the Territory
         which falls under such jurisdiction as may be necessary to remove such
         prejudicial effects.

24.13    This Agreement may be executed in any number of counterparts and by the
         Parties on separate counterparts, each of which is an original but all
         of which together constitute one and the same instrument.

24.14    The Licensee, or any Sub-Licensee or assignee, shall not create, assume
         or permit to exist any lien, pledge, security interest or other
         encumbrance on this Agreement or any Sub-License Agreement, provided
         that, Licensee or any Sub-Licensee shall be permitted to create, assume
         or permit to exist any lien, pledge, security interest or other
         encumbrance on this Agreement or any Sub-License Agreement:

         (a)      pursuant to obligations to its creditors outstanding as of the
                  Effective Date; and

         (b)      pursuant to the Loan and Security Agreement dated as of July
                  23, 2004 between the Licensee and its creditors thereto.

24.15    This Agreement and the obligations of the Parties shall be governed by
         and construed in accordance with the laws of the state of New York and
         subject to the jurisdiction of the New York courts.

         The rest of this page has been left intentionally blank.




                                       36





AS WITNESS this Agreement has been signed by the duly authorised representatives
of the Parties on the day and year first before written.


SIGNED for and on behalf of     )            /s/ Angus Russell
SHIRE BIOCHEM INC.              )            -----------------------------------
                                )
                                             Angus Russell, Director
                                             -----------------------------------
                                             PRINT NAME AND TITLE



SIGNED for and on behalf of     )            /s/ Joseph Rus
TANAUD IRELAND INC.             )            -----------------------------------
                                )
                                             Joseph Rus, Director
                                             -----------------------------------
                                             PRINT NAME AND TITLE



SIGNED for and on behalf of     )            /s/ Joseph Rus
TANAUD INTERNATIONAL B.V.       )            -----------------------------------
                                )
                                             Joseph Rus, Director
                                             -----------------------------------
                                             PRINT NAME AND TITLE




SIGNED for and on behalf of     )            /s/ M.G. Grey
STRUCTURAL GENOMIX, INC.        )            -----------------------------------
                                )
                                             M.G. Grey, President
                                             -----------------------------------
                                             PRINT NAME AND TITLE





                                       37



                                   SCHEDULE 1

                          DEVELOPMENT PLAN AND TIMELINE

ACTIVITY                                                      ANTICIPATED TIMING

Initiate Transition Plan                                           July 2004

AML

Complete Open Phase 1 Trial                                       [...***...]

Last cohort of patients dosed at [...***...] days
   [...***...] was [...***...] with [...***...]
   [...***...] had [...***...] the [...***...] of [...***...]
   An increase in [...***...]
   [...***...] to be [...***...] days)
   [...***...]
   [...***...]

Commence [...***...] Trial                                        [...***...]

Patient Population
   [...***...]
   [...***...]

Trial Size
   [...***...]
   [...***...]

Study Endpoints
   [...***...]
   [...***...]

Treatment Centers
   [...***...]

Complete [...***...] Trial                                        [...***...]

[...***...]                                                       [...***...]
   [...***...] for [...***...]
   [...***...] if [...***...] in the [...***...] is [...***...]
   [...***...] to [...***...]
   [...***...]



                                       38    ***CONFIDENTIAL TREATMENT REQUESTED





Complete [...***...] Trial                                        [...***...]

Commence [...***...] Trial ([...***...])                          [...***...]

Patient Population
   [...***...] over [...***...] of age
   [...***...]

Treatment and Trial Size
   [...***...] at [...***...]
   [...***...] at [...***...]

Treatment Centers
   [...***...]

Study Endpoints
   [...***...] is [...***...] of [...***...]
   [...***...] is [...***...] of [...***...]

Complete [...***...] Trial                                        [...***...]

BLAST PHASE CML

Based on review of clinical opportunities with CML experts:

Commence [...***...] Trial                                        [...***...]

Patient population
   [...***...] CML-BP [...***...] or [...***...]

   Treatment and trial size
        [...***...] at [...***...]
        ~[...***...]

   Study Endpoints
        [...***...] to [...***...] CML [...***...]
        [...***...] of [...***...]

Complete [...***...] Trial                                        [...***...]

Evaluate next steps                                               [...***...]

MDS

Based on review of clinical opportunities with MDS experts:


                                       39    ***CONFIDENTIAL TREATMENT REQUESTED





Commence [...***...] MDS Trial                                    [...***...]

SOLID TUMOR

Evaluate Open Phase 1 solid tumor
Continuous infusion study                                         [...***...]

Complete Phase 1 if existing data are supportive                  [...***...]

Initiate Phase 2                                                  [...***...]



                                       40    ***CONFIDENTIAL TREATMENT REQUESTED




                                   SCHEDULE 2

                                LICENSED PATENTS

PART I - BACKGROUND PATENTS

[...***...], SYNTHESIS AND USE THEREOF




SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]



                                       41    ***CONFIDENTIAL TREATMENT REQUESTED





[...***...] AND USE THEREOF



SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]



PROCESS FOR [...***...] SYNTHESIS OF NUCLEOSIDES



SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]


                                       42    ***CONFIDENTIAL TREATMENT REQUESTED








SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]




                                       43    ***CONFIDENTIAL TREATMENT REQUESTED








SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]



PROCESS FOR DIASTEREOSELECTIVE SYNTHESIS OF NUCLEOSIDES



DOCKET NUMBER       APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]




                                       44    ***CONFIDENTIAL TREATMENT REQUESTED






DOCKET NUMBER       APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]



STEREOSELECTIVE SYNTHESIS OF [...***...] USING [...***...] INTERMEDIATE



SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]




                                       45    ***CONFIDENTIAL TREATMENT REQUESTED






SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]



METHOD AND COMPOSITIONS FOR THE SYNTHESIS OF [...***...] WITH [...***...]



SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]




                                       46    ***CONFIDENTIAL TREATMENT REQUESTED






SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]




                                       47    ***CONFIDENTIAL TREATMENT REQUESTED







SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]



STEREOSELECTIVE SYNTHESIS OF [...***...]



SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]



PROCESS FOR PRODUCING [...***...]



SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]




                                       48    ***CONFIDENTIAL TREATMENT REQUESTED





[...***...]


STEREOSELECTIVE PROCESS FOR THE PRODUCTION OF [...***...]



SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]




PART II - COMPOUND PATENTS

METHOD OF TREATING [...***...]



SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]




                                       49    ***CONFIDENTIAL TREATMENT REQUESTED






SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]



METHODS OF TREATING CANCER USING A [...***...]



SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]



PHARMACEUTICAL [...***...] FOR THE TREATMENT OF CANCER



SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]




                                       50    ***CONFIDENTIAL TREATMENT REQUESTED






[...***...]


[...***...] FOR IMPROVED [...***...] DELIVERY



SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]



METHODS OF TREATING [...***...]



SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]




                                       51    ***CONFIDENTIAL TREATMENT REQUESTED





PHARMACEUTICAL [...***...] AND METHODS FOR THE TREATMENT OF [...***...]



SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]



METHODS OF [...***...] OF TROXACITABINE



SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]



METHOD FOR THE TREATMENT OF [...***...]



SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]




PART III - UNIVERSITY PATENTS

COMPOUNDS AND METHODS FOR THE TREATMENT OF CANCER




SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]




                                       52    ***CONFIDENTIAL TREATMENT REQUESTED






SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]




                                       53    ***CONFIDENTIAL TREATMENT REQUESTED






SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]



COMPOUNDS AND METHODS FOR THE TREATMENT OF CANCER



SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]




                                       54    ***CONFIDENTIAL TREATMENT REQUESTED




                                   SCHEDULE 3

                     MILESTONE EVENTS AND MILESTONE PAYMENTS






NO.           MILESTONE EVENT                                                       MILESTONE PAYMENT (US$)
- ----------    -------------------------------------------------------------------   ------------------------
                                                                              

              DEVELOPMENT MILESTONES

1.            On the Licensee obtaining [...***...]                                       $[...***...]


2.                                                                                        $[...***...]
              The earlier of:

              o      the [...***...] of the [...***...] of the [...***...]; or

              o      the [...***...] of the [...***...] after [...***...] for
                     the [...***...]; or

              o      [...***...] of [...***...] that the [...***...].


3.            The earlier of:

              o      the [...***...] the [...***...] of the [...***...] for
                     [...***...]; or

              o      the [...***...] the [...***...] of the [...***...] for the           $[...***...]
                     [...***...]; or

              o      [...***...] of [...***...] that the [...***...].


4.            File for Marketing Authorization for first indication
              ([...***...]) of the Licensed Product in any of the [...***...].            $[...***...]


5.            File for Marketing Authorization for [...***...] of the Licensed
              Product in any of the [...***...].                                          $[...***...]


6.            Receipt of Marketing Authorization from any Regulatory Authority
              for the first indication ([...***...]) of the Licensed Product in
              any of the                                                                  $[...***...]




                                       55    ***CONFIDENTIAL TREATMENT REQUESTED




                                                                              
              [...***...].


7.            Receipt of Marketing Authorization from any Regulatory Authority      $[...***...]
              for the [...***...] of the Licensed Product in any of the
              [...***...]


8.            Receipt of Marketing Authorization from any Regulatory Authority
              for the second indication ([...***...]) of the Licensed Product in    $[...***...]
              any of the [...***...]

8.            Receipt of Marketing Authorization from any Regulatory Authority
              for the [...***...] of the Licensed Product in any of the             $[...***...]
              [...***...]


              SALES MILESTONES


9.            The first time that Net Sales of the Licensed Product in the          $[...***...]
              Territory surpass US$[...***...] in any calendar year


10            The first time that Net Sales of the Licensed Product in the          $[...***...]
              Territory surpass US$[...***...] in any calendar year


11.           The first time that Net Sales of the Licensed Product in the          $[...***...]
              Territory surpass US$[...***...] in any calendar year


12.           The first time that Net Sales of the Licensed Product in the          $[...***...]
              Territory surpass US$[...***...] in any calendar year





                                       56    ***CONFIDENTIAL TREATMENT REQUESTED





                                   SCHEDULE 4

                        SALES FORECASTS AND MINIMUM SALES




   No.     YEAR                                     SALES FORECAST          MINIMUM SALES FORECAST
- -------    ------------------------------------     -------------------     ----------------------
                                                                   
    1.     First year following Launch              US$[...***...]               US$[...***...]

    2.     Second year following Launch             US$[...***...]               US$[...***...]

    3.     Third year following Launch              US$[...***...]               US$[...***...]

    4.     Fourth year following Launch             US$[...***...]               US$[...***...]





                                       57    ***CONFIDENTIAL TREATMENT REQUESTED





                                   SCHEDULE 5

                                 SHIRE MATERIALS




                                                                          EXPIRY
                                                                       DATE/RETEST
MATERIAL DESCRIPTION                 LOT NUMBER          QUANTITY          DATE          WAREHOUSE SITE
- -----------------------------        -----------       -----------      -----------     ----------------
                                              

Troxatyl 2 mg IMP                    [...***...]       [...***...]      [...***...]       [...***...]
Troxatyl 10 mg IMP                   [...***...]       [...***...]      [...***...]       [...***...]
Troxatyl 2 mg IMP                    [...***...]       [...***...]      [...***...]       [...***...]
Troxatyl 10 mg IMP                   [...***...]       [...***...]      [...***...]       [...***...]
Troxatyl API                         [...***...]       [...***...]      [...***...]       [...***...]
Troxatyl API                         [...***...]       [...***...]      [...***...]       [...***...]
Troxatyl API                         [...***...]       [...***...]      [...***...]       [...***...]
API Reference Standard               [...***...]       [...***...]      [...***...]       [...***...]
Ongoing Compound stability samples
including available impurities
standards (samples to remain at
stability testing site)





                                       58    ***CONFIDENTIAL TREATMENT REQUESTED





                                   SCHEDULE 6

                                   TRADE MARKS




NO.        TRADE MARK      OWNER                 COUNTRY          CLASS        NUMBER         APP/REG DATE    STATUS
- ---------- ------------    -----------------     -----------      ----------   -----------    ------------    ------------
                                                                                         

1.         TROXATYL        Shire BioChem         [...***...]      [...***...]                 [...***...]     [...***...]
2.         TROXATYL        Shire BioChem         [...***...]      [...***...]  [...***...]    [...***...]     [...***...]
3.         TROXATYL        Shire BioChem         [...***...]      [...***...]                 [...***...]     [...***...]
4.         TROXATYL        Shire BioChem         [...***...]      [...***...]                 [...***...]     [...***...]
5.         TROXATYL        Shire BioChem         [...***...]      [...***...]  [...***...]    [...***...]     [...***...]
6.         TROXATYL        Shire BioChem         [...***...]      [...***...]  [...***...]    [...***...]     [...***...]
7.         TROXATYL        Shire BioChem         [...***...]      [...***...]  [...***...]    [...***...]     [...***...]
8.         TROXATYL        Shire BioChem         [...***...]      [...***...]  [...***...]    [...***...]     [...***...]
9.         TROXATYL        Shire BioChem         [...***...]      [...***...]                 [...***...]     [...***...]
10.        TROXATYL        Shire BioChem         [...***...]      [...***...]  [...***...]    [...***...]     [...***...]
11.        TROXATYL        Shire BioChem         [...***...]      [...***...]  [...***...]    [...***...]     [...***...]
12.        TROXATYL        Shire BioChem         [...***...]      [...***...]  [...***...]    [...***...]     [...***...]
13.        TROXATYL        Shire BioChem         [...***...]                                  [...***...]     [...***...]
14.        TROXATYL        Shire BioChem         [...***...]      [...***...]  [...***...]    [...***...]     [...***...]
15.        TROXATYL        Shire BioChem         [...***...]      [...***...]  [...***...]    [...***...]     [...***...]
16.        TROXATYL        Shire BioChem         [...***...]      [...***...]  [...***...]    [...***...]     [...***...]
17.        TROXATYL        Shire BioChem         [...***...]      [...***...]  [...***...]    [...***...]     [...***...]
18.        TROXATYL        Shire BioChem         [...***...]      [...***...]                 [...***...]     [...***...]




                                       59    ***CONFIDENTIAL TREATMENT REQUESTED


                                   SCHEDULE 7

                           MEMORANDUM OF UNDERSTANDING

MEMORANDUM OF UNDERSTANDING

DATED:   23 JULY 2004

BETWEEN:

(1)      UNIVERSITY OF GEORGIA RESEARCH FOUNDATION, INC., a nonprofit Georgia
         corporation with offices located in Boyd Graduate Studies Research
         Center, The University of Georgia, Athens, Georgia 30602 ("UGARF");

(2)      YALE UNIVERSITY located in New Haven, Connecticut ("YALE"); and

(3)      STRUCTURAL GENOMIX, INC., a company incorporated in Delaware, whose
         address is 10505 Roselle Street, San Diego, CA 92121, U.S.A.
         ("SUB-LICENSEE").

BACKGROUND:

(A)      On 3 January 1996, UGARF and Yale entered into a license agreement with
         Shire BioChem Inc. (formerly BioChem Pharma Inc.), Tanaud Holdings
         (Barbados) Limited and Tanaud LLC (collectively "SHIRE") under which
         the University Patents and Licensed Technology (as defined below) were
         exclusively licensed to Shire ("HEAD LICENCE").

(B)      On 23 July 2004, Shire entered into a licence agreement with the
         Sub-Licensee under which certain patents and know how were exclusively
         licensed to the Sub-Licensee and the University Patents and Licensed
         Technology were sub-licensed to the Sub-Licensee ("SHIRE LICENCE").

(C)      Yale and UGARF have agreed to grant a licence under the University
         Patents and Licensed Technology to the Sub-Licensee on the same
         financial terms to the Head Licence in the event that the Head Licence
         is terminated as more specifically set out in this Memorandum of
         Understanding ("MEMORANDUM").

OPERATIVE PROVISIONS

1        DEFINITIONS


1.1      In this Memorandum:

         "AFFILIATE" means any firm, person or company which controls, is
         controlled by or is under common control with a Party to this Agreement
         and for the purpose of this definition the term "control" means the
         ownership either directly or indirectly of more than 50% of the voting
         securities of such firm, person or company;

                                       60


         "COMPOUND" means the compound troxacitabine;

         "FIELD" means use of the Licensed Product in the treatment of cancer;

         "LICENSED PRODUCT" means any pharmaceutical formulations that contain
         the Compound alone as a therapeutically active ingredient, or in
         combination with any other pharmaceutically active ingredient;

         "LICENSED TECHNOLOGY" shall mean all designs, technical information,
         know-how, knowledge, data, specifications, test results and other
         information, whether or not patented, which are licensed by UGARF and
         Yale under the Head Licence and are useful for the development,
         commercialization, manufacture, use or sale of any Licensed Product;

         "UNIVERSITY" means UGARF or Yale or collectively UGARF and Yale as the
         case may be; and

         "UNIVERSITY PATENTS" means the patents and patent applications set out
         in Part III of Schedule 2 and including, any divisionals, extensions,
         reissues, re-examinations, continuations, and foreign counterparts
         thereof and patents issuing thereon;

1.2      In this Memorandum, unless the context requires otherwise:

         (a)      the headings are included for convenience only and shall not
                  affect its construction;

         (b)      references to "persons" includes individuals, bodies corporate
                  (wherever incorporated), unincorporated associations and
                  partnerships;

         (c)      words denoting the singular shall include the plural and vice
                  versa;

         (d)      words denoting one gender shall include each gender and all
                  genders; and

         (e)      any reference to an enactment or statutory provision is a
                  reference to it as it may have been, or may from time to time
                  be amended, modified, consolidated or re-enacted.

2        AGREEMENT TO GRANT LICENCE

2.1      Subject to clause 2.2, the parties agree that, in the event the
         University terminates the Head Licence, and provided that the reason
         for such termination does not relate in any way to any act or omission
         of the Sub-Licensee, its Affiliates, representatives or sub-licensees,
         the University shall grant the Sub-Licensee (or its nominated
         Affiliate), from the date of such termination, an exclusive worldwide
         licence under the University Patents and Licensed Technology to
         develop, manufacture, have manufactured, use, sell, offer for sale,
         import and supply the Licensed Product in the Field on the same
         financial terms as the Head Licence and substantially similar due
         diligence and other terms as those contained in the Shire Licence ("NEW
         LICENCE").



                                       61






2.2      This Agreement and the grant of any licence under the University Patent
         and Licensed Technology pursuant to clauses 2.1, shall in all respects
         be conditional upon the University receiving the following:

         (a)      written notice from Shire, confirming that the Sub-Licensee is
                  in compliance with its obligations under the Shire Licence;

         (b)      copies of any arrangements, agreements or related transactions
                  (and any amendments thereto) between the Sub-Licensee and
                  Shire relating to the Licensed Product or any rights licensed
                  to the Sub-Licensee under the Shire Licence;

         (c)      written representation from Sub-Licensee, confirming that the
                  Sub-Licensee is in compliance with its obligations under the
                  Shire Licence;

         (d)      a detailed written update on the development and
                  commercialization of the Licensed Product that shall include,
                  without limitation, a summarized budget for development plan
                  expenses;

         (e)      documentary evidence confirming, to the University's
                  reasonable satisfaction, that the Sub-Licensee has sufficient
                  funds to carry on the development or commercialization of the
                  Licensed Product for not less than [...***...] months; and

         (f)      copies of agreements between the Sub-Licensee and any third
                  party relating to the sublicense of the rights granted to the
                  Sub-Licensee (or any part of such rights) under the Shire
                  Licence.

2.3      If each of the conditions precedent identified in clause 2.2 are not
         fulfilled (unless waived by the University) within 60 days of the
         termination of the Head Licence, the University shall have no
         obligation to the Sub-Licensee to grant the licence under clause 2.1,
         and neither party shall have a claim of any nature whatsoever against
         the other party under this Agreement.

2.4      The Sub-Licensee undertakes to use all reasonable efforts to ensure
         that the conditions precedent in clause 2.2 are fulfilled as soon as
         reasonably practicable following termination of the Head Licence, and
         in any event within 60 days from the date of termination of the Head
         Licence.

2.5      Yale and UGARF shall notify Sub-Licensee if a notice of termination of
         the Head Licence has been provided to Shire and the parties shall
         promptly meet to discuss in good faith to arrange for the finalisation
         and execution of the New Licence.

2.6      Yale and UGARF each agree that activities of the Sub-Licensee, its
         Affiliates and sublicensees shall constitute activities of Shire for
         the purposes of Article 3 of the Head License.



                                       62    ***CONFIDENTIAL TREATMENT REQUESTED




3        FURTHER ASSURANCES

3.1      Each party shall do all acts and execute all documents as may be
         reasonably necessary to give effect to the grant of the New Licence and
         the exercise of the rights granted therein.

4        LAW AND JURISDICTION

4.1      This Memorandum and the obligations of the Parties shall be governed by
         and construed in accordance with the laws of the state of New York and
         subject to the jurisdiction of the New York courts.

AGREED by the parties through their duly authorised representations on the date
written above:

SIGNED for and on behalf of      )       /s/ Gordhan L. Patel
UNIVERSITY OF GEORGIA            )       ---------------------------------------
RESEARCH FOUNDATION, INC.        )
                                         Gordhan L. Patel, Executive Vice
                                         President
                                         ---------------------------------------
                                         PRINT NAME AND TITLE


SIGNED for and on behalf of      )       /s/ Jon Soderstrom
YALE UNIVERSITY                  )       ---------------------------------------
                                 )
                                         Jon Soderstrom, Managing Director, OCR
                                         ---------------------------------------
                                         PRINT NAME AND TITLE



SIGNED for and on behalf of      )       /s/ Tim Harris
STRUCTURAL GENOMIX, INC.         )       ---------------------------------------
                                 )
                                         CEO
                                         ---------------------------------------
                                         PRINT NAME AND TITLE




                                       63


                                   SCHEDULE 1
                             THE UNIVERSITY PATENTS


COMPOUNDS AND METHODS FOR THE TREATMENT OF CANCER




SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]





                                       64    ***CONFIDENTIAL TREATMENT REQUESTED






SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]



COMPOUNDS AND METHODS FOR THE TREATMENT OF CANCER



SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]




                                       65    ***CONFIDENTIAL TREATMENT REQUESTED



                                   SCHEDULE 8

                          DISPUTE RESOLUTION PROCEDURE

1.       NEGOTIATION

1.1      Representatives of the Parties shall, within 10 Business Days of
         receipt of a written request from either Party, convene a meeting of
         the Development Committee (with additional members from each Party as
         appropriate for the particular dispute) to discuss and in good faith
         try to resolve any claim, dispute, controversy, or disagreement between
         the Parties arising out of or in connection with the terms (or
         interpretation of the terms) of this Agreement (DISPUTE) without
         recourse to legal proceedings.

1.2      If resolution of the Dispute does not occur within 20 Business Days
         from the Development Committee meeting, the matter shall be escalated
         for determination by the respective Group Legal Counsel or heads of
         applicable business units of the Parties (OFFICERS) who may resolve the
         matter themselves or jointly appoint a mediator. The Officers shall
         negotiate in good faith to achieve a resolution of the Dispute referred
         to them within 20 Business Days after such notice is received.

1.3      If the Officers are unable to settle the Dispute between themselves
         within 20 Business Days from referral, the Officers shall report to the
         Parties on the progress of the negotiations in writing and the Dispute
         shall then be referred to mediation in accordance with sections 2.1 -
         2.4.

2.       MEDIATION

2.1      If the Parties have failed to resolve the Dispute by negotiation
         pursuant to sections 1.1 - 1.3, the Dispute shall be referred to
         mediation to be resolved in accordance with the rules of the American
         Arbitration Association ("AAA"). The place of the mediation shall be
         New York, United States and the language of the mediation shall be
         English.

2.2      To initiate a mediation, either Party shall give notice in writing
         (NOTICE) to the other Party in accordance with the provisions of clause
         22, requesting.

2.3      If the Dispute is not resolved within 60 days (or such longer period as
         the parties may agree) from the giving of the Notice, or if one of the
         Parties refuses to participate in mediation, the dispute shall be
         referred to arbitration in accordance with the provisions of section 3.

2.4      If Notice is not given prior to the commencement of arbitration, the
         Party commencing the arbitration must serve Notice on the other party
         to the arbitration within 21 days.

3.       ARBITRATION



                                       66




3.1      If after the procedures set forth in sections 1 and 2, the Dispute has
         not been resolved, either Party may decide to institute arbitration
         proceedings by written notice to that effect to the other Party. Any
         unresolved Dispute shall be referred to and finally resolved by
         arbitration under the Rules of Arbitration of the International Chamber
         of Commerce (ICC) , which rules are deemed to be incorporated by
         reference into this clause.

3.2      The Tribunal shall consist of three arbitrators to be appointed having
         experience in the pharmaceutical industry: Shire and the Licensee shall
         each appoint one arbitrator and the third arbitrator, who shall be the
         Chairman of the tribunal, shall be appointed by the two-Party appointed
         arbitrators.

3.3      The place of arbitration shall be New York and the language of the
         arbitration shall be English.

3.4      Each Party shall bear its own costs and expenses incurred in connection
         with any arbitration proceeding and the Parties shall equally share the
         cost of the mediation and arbitration levied by the AAA or the ICC.




                                       67


                                   SCHEDULE 9

                                EXCLUDED PATENTS



STEREOSELECTIVE SYNTHESIS OF [...***...]



SHIRE REFERENCE     APPL'N DATE       COUNTRY        APPL'N NO.              GRANT DATE   PATENT NUMBER    STATUS       EXP. DATE
- ------------------- ----------------- -------------- ----------------------- ------------ ---------------  -----------  -----------
                                                                                                   
[...***...]
Any patents or patent applications owned or licensed by [...***...]





                                       68   ***CONFIDENTIAL TREATMENT REQUESTED




SHIRE BIOCHEM INC.
2250 Alfred-Nobel Blvd., Suite 500
Ville Saint-Laurent, Quebec  H4S 2C9 Canada
Tel. 514 787-2300  Fax 514 787-2427
www.shire.com

                                                                    (SHIRE LOGO)

                                                                   Claude Perron
                                              Vice President and General Manager
                                            Tel.: 514-787-2345 Fax: 514-787-2428
                                                    e-mail: cperron@ca.shire.com


March 8, 2005                                                         By Courier
                                                                      ----------

Structural GenomiX, Inc
Attention:  Mr. Michael Grey, President
10505 Roselle Street
San Diego, CA 92121
USA

Re: Amendment to the License Agreement
- --------------------------------------------------------------------------------

Dear Sir:

We refer to the patent and know how license between Shire BioChem Inc., Shire
Pharmaceutical Development Limited, Tanaud International BV (together SHIRE) and
Structural GenomiX, Inc. (SGX) dated 23 July 2004 as amended (LICENSE
AGREEMENT).

Shire and SGX desire to amend the License Agreement and this letter sets out the
agreed amendment to the License Agreement. All capitalised terms in this letter
shall, unless the context requires otherwise, have the meaning given to them in
the License Agreement.

Shire and SGX agree and acknowledge that from the date of this letter the
License Agreement shall be amended by deleting the definition of "Compound"
under clause 1.1 and replacing it with the following new definition:

         "COMPOUND" means the compound troxacitabine and its prodrugs;

Except as expressly amended by the terms of this letter, the terms and
conditions of the License Agreement shall remain in full force and effect,
unamended.

Please confirm your acceptance of the above amendment to the License Agreement
by signing, dating and returning to Shire a copy of this letter.

Yours faithfully,



/s/ Claude Perron
Claude Perron
Vice President and General Manager






Amendment to the License Agreement                                       Page 2
- --------------------------------------------------------------------------------




Agreed to:                              Agreed to:

/s/ Claude Perron                       /s/ Matthew Emmens
- ---------------------------------       ----------------------------------------
Claude Perron, Vice President and       Matthew Emmens
General Manager                         Director
For and on behalf of                    For and on behalf of
SHIRE BIOCHEM INC.                      SHIRE PHARMACEUTICAL DEVELOPMENT LIMITED


Agreed to:                              Agreed to:



/s/ Joseph Rus                          /s/ Stephen K. Burley
- ---------------------------------       ----------------------------------------
Joseph Rus                              Stephen K. Burley
Director                                CSO
For and on behalf of                    For and on behalf of
TANAUD INTERNATIONAL BV                 STRUCTURAL GENOMIX, INC.





THIS NOVATION AGREEMENT is made the 19th day of January, 2005

BETWEEN:

1.       Shire BioChem Inc. (formerly known as BioChem Pharma Inc.) of 2250
         Alfred-Nobel Blvd., Suite 500, Ville Saint-Laurent, Quebec, H4S 2C9,
         Canada ("SBI");

2.       Tanaud International B.V. of Fred Roekestraat 123, First Floor, 1076 EE
         Amsterdam, The Netherlands ("TANAUD BV");

3.       Structural Genomix, Inc. of 10505 Roselle Street, San Diego, CA 92121,
         U.S.A. ("GENOMIX"); and

4.       Tanaud Ireland Inc. of 2250 Alfred-Nobel Blvd., Suite 500, Ville
         Saint-Laurent, Quebec, H4S 2C9, Canada ("TII").

WHEREAS:

(A)      Pursuant to the Licence (as defined below) SBI, Tanaud BV and TII
         licensed certain patents, technology and know-how to Genomix.

(B)      TII wishes to be released and discharged from the Licence and the
         parties have agreed to release and discharge TII from the Licence upon
         the terms of SBI's undertaking to perform the Licence and be bound by
         its terms and conditions in place of TII.

NOW IT IS AGREED as follows.

1.       DEFINITIONS

         In this agreement:

         "COUNTERPARTIES"           means, together, Genomix and Tanaud BV;

         "EFFECTIVE DATE"           means 1 January 2005; and

         "LICENCE"                  means a patent and know-how licence between
                                    SBI, TII, Tanaud BV and Genomix, dated 23
                                    July 2004 a copy of which is annexed hereto
                                    and initialled by the parties for the
                                    purposes of identification only.

2.       SBI'S UNDERTAKING

         With effect from the Effective Date and in consideration of the
         undertakings given by the Counterparties in clause 3, SBI hereby
         undertakes to observe, perform, discharge, assume liabilities under and
         be bound by the Licence as if SBI had taken the place of TII under the
         Licence. Notwithstanding this undertaking, nothing in this agreement
         shall:

         (A)      require SBI to perform any obligation created by or arising
                  under the Licence falling due for performance, or which should
                  have been performed by TII, before the Effective Date or to
                  make any payments due or as otherwise would be incurred and
                  payable by Tll prior to the Effective Date; or

         (B)      make SBI liable for any act, neglect, default, omission or
                  liability in respect of the Licence committed or incurred by
                  TII or occurring before the Effective Date.




                                       2



3.       COUNTERPARTIES' UNDERTAKINGS AND RELEASE OF TII

3.1      With effect from the Effective Date and in consideration of and subject
         to the undertakings given by SBI in clause 2 and TII in clause 4, the
         Counterparties hereby:

         (A)      release and discharge TII from all liabilities under the
                  Licence and all obligations to observe, perform, discharge and
                  be bound by the Licence;

         (B)      accept SBI's undertaking to observe, perform, discharge,
                  assume liabilities under and be bound by the Licence (such
                  undertaking being set out in clause 2); and

         (C)      agree to observe, perform, discharge, assume liabilities under
                  and be bound by the Licence as if SBI had taken the place of
                  TII under the Licence.

3.2      Notwithstanding the provisions of sub-clause 3.1(A), nothing in this
         agreement shall affect or prejudice any claim or demand whatsoever
         which the Counterparties may have against TII in relation to the
         Licence and arising out of matters prior to the Effective Date.

4.       TII'S UNDERTAKING AND RELEASE OF COUNTERPARTIES

         With effect from the Effective Date and in consideration of the
         undertakings given by the Counterparties in clause 3, TII hereby
         releases and discharges the Counterparties from all liabilities under
         the Licence and all obligations to observe, perform, discharge and be
         bound by the Licence. Notwithstanding this undertaking and release,
         nothing in this agreement shall affect or prejudice any claim or demand
         whatsoever which TII may have against the Counterparties in relation to
         the Licence and arising out of matters prior to the Effective Date.

5.       COUNTERPARTS

5.1      This agreement may be executed in any number of counterparts, and by
         the parties on separate counterparts, but shall not be effective until
         each party has executed at least one counterpart.

5.2      Each counterpart shall constitute an original of this agreement, but
         all the counterparts shall together constitute but one and the same
         instrument.







                                       3



6.       GOVERNING LAW

         This agreement shall be governed by and construed in accordance with
         the laws of the state of New York and subject to the jurisdiction of
         the New York courts.

IN WITNESS WHEREOF the parties have entered into this agreement on the date
first written above.



/s/ [Illegible]
- -------------------------------------------------
For and on behalf of SHIRE BIOCHEM INC.



/s/ [Illegible]
- -------------------------------------------------
For and on behalf of TANAUD INTERNATIONAL B.V.



/s/ M. Grey
- -------------------------------------------------
For and on behalf of STRUCTURAL GENOMIX, INC.



/s/ [Illegible]
- -------------------------------------------------
For and on behalf of TANAUD IRELAND INC.





THIS NOVATION AGREEMENT is made the 19th day of January, 2005

BETWEEN:

1.       Shire BioChem Inc. (formerly known as BioChem Pharma Inc.) of 2250
         Alfred-Nobel Blvd., Suite 500, Ville Saint-Laurent, Quebec, H4S 2C9,
         Canada ("SBI");

2.       Tanaud International B.V. of Fred Roekestraat 123, First Floor, 1076 EE
         Amsterdam, The Netherlands ("TANAUD BV");

3.       Structural Genomix, Inc. of 10505 Roselle Street, San Diego, CA 92121,
         U.S.A. ("GENOMIX"); and

4.       Shire Intellectual Property SrI of Chancery House, High Street,
         Bridgetown, Barbados, West Indies ("SIP").

WHEREAS:

(A)      Pursuant to the Licence (as defined below) SBI, Tanaud BV and Tanaud
         Ireland Inc. ("TII") licensed certain patents, technology and know-how
         to Genomix.

(B)      By a prior novation effective as at 1 January 2005, the rights and
         obligations of TII under the Licence (the "TII INTERESTS") were novated
         to SBI, TII being released and discharged from the Licence upon the
         terms of SBI's undertaking to perform the Licence and be bound by its
         terms and conditions in place of TII.

(C)      SBI now wishes to be released and discharged from the Licence to the
         extent of its rights and obligations representing the TII Interests and
         the parties have agreed to so release and discharge SBI from the
         Licence upon the terms of SIP's undertaking to perform the Licence and
         be bound by its terms and conditions in place of SBI in respect of the
         TII Interests.

NOW IT IS AGREED as follows.

1.       DEFINITIONS

         In this agreement:

         "COUNTERPARTIES"           means, together, Genomix and Tanaud BV;

         "EFFECTIVE DATE"           means 4 January 2005; and

         "LICENCE"                  means a patent and know-how between SBI,
                                    TII, Tanaud BV and Genomix, dated 23 July
                                    2004 a copy of which is annexed hereto and
                                    initialled by the parties for the purposes
                                    of identification only.

2.       SIP'S UNDERTAKING

         With effect from the Effective Date and in consideration of the
         undertakings given by the Counterparties in clause 3, SIP hereby
         undertakes to observe, perform, discharge, assume liabilities under and
         be bound by the Licence as if SIP were a party to the Licence in place
         of SBI in respect of the TII Interests only. Notwithstanding this
         undertaking, nothing in this agreement shall:

         (A)      require SIP to perform any obligation created by or arising
                  under the Licence falling due for performance, or which should
                  have been performed, before the Effective Date or to




                                       2


                  make any payments due or as otherwise would be incurred and
                  payable prior to the Effective Date; or

         (B)      make SIP liable for any act, neglect, default, omission or
                  liability in respect of the Licence committed or incurred by
                  SBI or occurring before the Effective Date.

3.       COUNTERPARTIES' UNDERTAKINGS AND RELEASE OF SBI

3.1      With effect from the Effective Date and in consideration of and subject
         to the undertakings given by SIP in clause 2 and SBI in clause 4, the
         Counterparties hereby:

         (A)      release and discharge SBI, in respect of the TII Interests
                  only, from all liabilities under the Licence and all
                  obligations to observe, perform, discharge and be bound by the
                  Licence;

         (B)      accept SIP's undertaking to observe, perform, discharge,
                  assume liabilities under and be bound by the Licence (such
                  undertaking being set out in clause 2); and

         (C)      agree to observe, perform, discharge, assume liabilities under
                  and be bound by the Licence as if SIP were a party to the
                  Licence in the place of SBI in respect of the TII Interests.

3.2      Notwithstanding the provisions of sub-clause 3.1(A), nothing in this
         agreement shall affect or prejudice any claim or demand whatsoever
         which the Counterparties may have against SBI, in respect of the TII
         Interests, in relation to the Licence and arising out of matters prior
         to the Effective Date.

4.       SBI'S UNDERTAKING AND RELEASE OF COUNTERPARTIES

         With effect from the Effective Date and in consideration of the
         undertakings given by the Counterparties in clause 3, SBI hereby
         releases and discharges the Counterparties from all liabilities under
         the Licence and all obligations to observe, perform, discharge and be
         bound by the Licence. Notwithstanding this undertaking and release,
         nothing in this agreement shall affect or prejudice any claim or demand
         whatsoever which SBI may have against the Counterparties in relation to
         the Licence and arising out of matters prior to the Effective Date.

5.       NOTICES

         For the purposes of all provisions in the Licence concerning the
         service of notices, the address of SIP is its principal place of
         business set out above.

6.       COUNTERPARTS

6.1      This agreement may be executed in any number of counterparts, and by
         the parties on separate counterparts, but shall not be effective until
         each party has executed at least one counterpart.

6.2      Each counterpart shall constitute an original of this agreement, but
         all the counterparts shall together constitute but one and the same
         instrument.




                                       3


7.       GOVERNING LAW

         This agreement shall be governed by and construed in accordance with
         the laws of the state of New York and subject to the jurisdiction of
         the New York courts.

IN WITNESS WHEREOF the parties have entered into this agreement on the date
first written above.



/s/ [Illegible]
- -----------------------------------------------------
For and on behalf of SHIRE BIOCHEM INC.



/s/ [Illegible]
- -----------------------------------------------------
For and on behalf of TANAUD INTERNATIONAL B.V.



/s/ M. Grey
- -----------------------------------------------------
For and on behalf of STRUCTURAL GENOMIX, INC.



/s/ [Illegible]
- -----------------------------------------------------
For and on behalf of SHIRE INTELLECTUAL PROPERTY SRI





THIS NOVATION AGREEMENT is made the 19th day of January, 2005

BETWEEN:

1.       Shire BioChem Inc. (formerly known as BioChem Pharma Inc.) of 2250
         Alfred-Nobel Blvd., Suite 500, Ville Saint-Laurent, Quebec, H4S 2C9,
         Canada ("SBI");

2.       Tanaud International B.V. of Fred Roekestraat 123, First Floor, 1076 EE
         Amsterdam, The Netherlands ("TANAUD BV");

3.       Structural Genomix, Inc. of 10505 Roselle Street, San Diego, CA 92121,
         U.S.A. ("GENOMIX");

4.       Shire Intellectual Property SrI of Chancery House, High Street,
         Bridgetown, Barbados, West Indies ("SIP"); and

5.       Shire Pharmaceutical Development Limited to Hampshire International
         Business Park, Chineham, Basingstoke, Hampshire, RG24 8EP, U.K.
         ("SPD").

WHEREAS:

(A)      Pursuant to the Licence (as defined below) SBI, Tanaud BV and Tanaud
         Ireland Inc. ("TII") licensed certain patents, technology and know-how
         to Genomix.

(B)      By a prior novation effective as at 1 January 2005, the rights and
         obligations of TII under the Licence (the "TII INTERESTS") were novated
         to SBI, TII being released and discharged from the Licence upon the
         terms of SBI's undertaking to perform the Licence and be bound by its
         terms and conditions in place of TII.

(C)      By a prior novation effective as at 4 January 2005, SBI was released
         and discharged from the Licence to the extent of its rights and
         obligations representing the TII Interests and the parties agreed to
         release and discharge SBI from the Licence upon the terms of SIP's
         undertaking to perform the Licence and be bound by its terms and
         conditions in place of SBI in respect of the TII Interests.

(D)      SIP now wishes to be released and discharged from the Licence to the
         extent of its rights and obligations representing the TII Interests and
         the parties have agreed to release and discharge SIP from the Licence
         upon the terms of SPD's undertaking to perform the Licence and be bound
         by its terms and conditions in place of SIP in respect of the TII
         Interests.

NOW IT IS AGREED as follows.

1.       DEFINITIONS

         In this agreement:

         "COUNTERPARTIES"           means, together, Genomix and Tanaud BV;

         "EFFECTIVE DATE"           means 4 January 2005; and

         "LICENCE"                  means a patent and know-how licence between
                                    SBI, TII, Tanaud BV and Genomix, dated 23
                                    July 2004 a copy of which is annexed hereto
                                    and initialled by the parties for the
                                    purposes of identification only.






                                       2

2.       SPD'S UNDERTAKING

         With effect from the Effective Date and in consideration of the
         undertakings given by the Counterparties in clause 3, SPD hereby
         undertakes to observe, perform, discharge, assume liabilities under and
         be bound by the Licence as if SPD were a party to the Licence in place
         of SIP in respect of the TII Interests only. Notwithstanding this
         undertaking, nothing in this agreement shall:

         (A)      require SPD to perform any obligation created by or arising
                  under the Licence falling due for performance, or which should
                  have been performed, before the Effective Date or to make any
                  payments due or as otherwise would be incurred and payable
                  prior to the Effective Date; or

         (B)      make SPD liable for any act, neglect, default, omission or
                  liability in respect of the Licence committed or incurred by
                  SBI or occurring before the Effective Date.

3.       COUNTERPARTIES' UNDERTAKINGS AND RELEASE OF SIP

3.1      With effect from the Effective Date and in consideration of and subject
         to the undertakings given by SPD in clause 2 and SIP in clause 4, the
         Counterparties hereby:

         (A)      release and discharge SIP from all liabilities under the
                  Licence and all obligations to observe, perform, discharge and
                  be bound by the Licence;

         (B)      accept SPD's undertaking to observe, perform, discharge,
                  assume liabilities under and be bound by the Licence (such
                  undertaking being set out in clause 2); and

         (C)      agree to observe, perform, discharge and be bound by the
                  Licence as if SPD were a party to the Licence in the place of
                  SIP in respect of the TII Interests.

3.2      Notwithstanding the provisions of sub-clause 3.1(A), nothing in this
         agreement shall affect or prejudice any claim or demand whatsoever
         which the Counterparties may have against SIP in respect of the TII
         Interests, in relation to the Licence and arising out of matters prior
         to the Effective Date.

4.       SIP'S UNDERTAKING AND RELEASE OF COUNTERPARTIES

         With effect from the Effective Date and in consideration of the
         undertakings given by the Counterparties in clause 3, SIP hereby
         releases and discharges the Counterparties from all liabilities under
         the Licence and all obligations to observe, perform, discharge and be
         bound by the Licence. Notwithstanding this undertaking and release,
         nothing in this agreement shall affect or prejudice any claim or demand
         whatsoever which SIP may have against the Counterparties in relation to
         the Licence and arising out of matters prior to the Effective Date.

5.       FURTHER ASSURANCE

         The parties (including any successors in business or assignees under
         the Licence) agree, at their own cost, to enter into and execute a
         novation agreement in a form substantially similar to this agreement to
         effect the transfer of the TII Interests to SIP (or its nominee which
         shall be a subsidiary of Shire Pharmaceuticals Group plc), thereby
         discharging and releasing SPD from the effective date of such novation
         from its obligations and liabilities under the Licence and substituting
         SIP (or its nominee) as the primary obligor in respect of the TII
         Interests, such agreement to be executed on or to take effect from 1
         January 2010.







                                       3


5.2      In the event the TII Interests are novated to a nominee of SIP ("SIP
         Nominee") pursuant to clause 5.1 the parties (including any successors
         in business or assignees under the Licence) further agree, when
         requested to do so by SIP and at their own cost, to enter into and
         execute a further novation agreement in a form substantially similar to
         this agreement to effect the transfer of the TII Interests to SIP,
         thereby discharging and releasing the SIP Nominee from the effective
         date of such novation from its obligations and liabilities under the
         Licence and substituting SIP as the primary obligor in respect of the
         TII interests.

6.       NOTICES

         For the purposes of all provisions in the Licence concerning the
         service of notices, the address of SPD is its principal place of
         business set out above.

7.       COUNTERPARTS

7.1      This agreement may be executed in any number of counterparts, and by
         the parties on separate counterparts, but shall not be effective until
         each party has executed at least one counterpart.

7.2      Each counterpart shall constitute an original of this agreement, but
         all the counterparts shall together constitute but one and the same
         instrument.

8.       GOVERNING LAW

         This agreement shall be governed by and construed in accordance with
         the laws of the state of New York and subject to the jurisdiction of
         the New York courts.

IN WITNESS WHEREOF the parties have entered into this agreement on the date
first written above.



 /s/ [Illegible]
- ---------------------------------------------------------------
For and on behalf of SHIRE BIOCHEM INC.



/s/ [Illegible]
- ---------------------------------------------------------------
For and on behalf of TANAUD INTERNATIONAL B.V.



/s/ M. Grey
- ---------------------------------------------------------------
For and on behalf of STRUCTURAL GENOMIX, INC.



/s/ [Illegible]
- ---------------------------------------------------------------
For and on behalf of SHIRE INTELLECTUAL PROPERTY SRI



/s/ [Illegible]
- ---------------------------------------------------------------
For and on behalf of SHIRE PHARMACEUTICAL DEVELOPMENT LIMITED

EX-10.17

                                                                   EXHIBIT 10.17

                                           *** TEXT OMITTED AND FILED SEPARATELY
                                    PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST
                                            UNDER 17 C.F.R. SECTION 200.80(b)(4)
                                               AND RULE 406 UNDER THE SECURITIES
                                                         ACT OF 1933, AS AMENDED

                       COLLABORATION AND LICENSE AGREEMENT

      THIS RESEARCH COLLABORATION AND LICENSE AGREEMENT (the "AGREEMENT") is
made and entered into as of April 14, 2003 (the "EFFECTIVE DATE") by and between
STRUCTURAL GENOMIX, INC. a corporation organized and existing under the laws of
the State of Delaware and having its principal place of business at 10505
Roselle Street, San Diego, CA 92121 ("SGX"), and ELI LILLY AND COMPANY, a
corporation organized and existing under the laws of the State of Indiana and
having its principal place of business at Lilly Corporate Center, Indianapolis,
Indiana 46285 (together with its Affiliates, "LILLY"). SGX and Lilly may be
referred to herein individually as a "Party" and collectively as the "Parties."

                                   BACKGROUND

      WHEREAS, SGX is in the business of conducting research in the field of
high throughput protein structure determination and structure directed drug
discovery;

      WHEREAS, Lilly is in the business of discovering, developing,
manufacturing and commercializing pharmaceuticals;

      WHEREAS, SGX and Lilly wish to enter into a collaborative research program
to perform structure determination of Lilly drug targets and compounds provided
by Lilly; and

      WHEREAS, Lilly desires to obtain access and licenses to certain
technologies and processes of SGX and SGX is willing to grant such access and
licenses on the terms set forth in this Agreement.

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

1.    DEFINITIONS

      1.1 "Affiliate" means, with respect to a Party hereto, a corporation,
company or other entity that is owned or controlled by such Party by virtue of
such Party's direct or indirect ownership or control of more than fifty percent
(50%) of the outstanding shares or securities (representing the right to vote
for the election of directors or other managing authority) of such corporation,
company or other entity, but such corporation, company or other entity shall be
deemed to be an Affiliate only so long as such ownership or control exists.

      1.2 "Collaboration" means the activities conducted by the Parties in
connection with the Research Plan and the Technology Installation Plan.

                                  Page 1 of 68


      1.3 "Collaboration Target(s)" means the targets identified in the attached
Exhibit A, as may be modified from time to time in accordance with Section
2.6(b).

      1.4 "Collaboration Technology" means Patent Rights and Know-How which are
conceived or reduced to practice or otherwise developed by or on behalf of Lilly
or SGX, or jointly by Lilly and SGX during and in the performance of the
Research Collaboration; provided however, Collaboration Technology does not
include SGX Background Technology, SGX Process Technology, SGX Additional
Technology or Lilly Background Technology.

      1.5 "Controls" or "Controlled" means possession of the ability to grant
the licenses or sublicenses as provided for herein, without violating the terms
of any agreement or other arrangement with a Third Party.

      1.6 "[...***...]" means a [...***...] included in the Research
Collaboration in accordance with Section [...***...] and supplied by Lilly to
SGX (including [...***...]), which is [...***...], and which SGX agrees to use
reasonably diligent efforts to [...***...].

      1.7 "Eliminated Target" means a Collaboration Target as further defined in
Section 2.9.

      1.8 "FTE" means a full time equivalent person year (consisting of a total
of [...***...] ([...***...]) hours per year) of scientific or technical work
carried out by a qualified SGX Employee on or directly related to, the Research
Plan or the Technology Installation Plan.

      1.9 "IT Infrastructure" means the hardware and software listed in Part 2
of the attached Exhibit D.

      1.10 "JSC" has the meaning ascribed such term in Section 2.7.

      1.11 "Know-How" means all ideas, inventions, instructions, designs,
processes, formulas, software, materials, methods, processes, techniques, and
data and all intellectual property rights therein.

      1.12 "Licensed Technology" means (i) SGX Process Technology; and (ii) SGX
Improvements, Other Inventions, and SGX Research Stage Technology which Lilly
elects to have installed at a Lilly Facility pursuant to Section 3.6(a).

      1.13 "Lilly Background Technology" means Patent Rights and Know-How which
are: (a) owned or Controlled by Lilly on the Effective Date or during the Term
of the Research Collaboration; (b) developed by Lilly (i) outside of the
Research Collaboration or (ii) within the Research Collaboration but are of
general application (for example, have application to other proteins in addition
to the Collaboration Targets); and (c) necessary for the conduct of the Research
Collaboration. Lilly Background Technology includes Lilly Compounds.

                            Page 2 of 68     ***CONFIDENTIAL TREATMENT REQUESTED


      1.14 "Lilly Compound" means a [...***...] that is provided by Lilly to
SGX. Lilly Compound does not include Reference Compounds.

      1.15 "Lilly Facility" means the Lilly San Diego Facility or the Lilly
Indianapolis Facility.

      1.16 "Lilly Improvements" means Patent Rights and Know How owned or
Controlled by Lilly covering improvements, enhancements or modifications to SGX
Process Technology created by or on behalf of Lilly using SGX Process
Technology, during the Technology Awareness Period, that Lilly has installed at
and are in productive use by the protein crystallography group at Lilly using
the SGX Process Technology and are necessary or useful for the operation of the
SGX Process Technology.

      1.17 "Lilly Materials" means the [...***...] embodying Collaboration
Targets, Lilly Compounds, Lilly Reference Compounds and any [...***...] used to
express Collaboration Targets, in each case, which are owned or Controlled by
Lilly.

      1.18 "Lilly New Developments" means Patent Rights and Know-How owned or
Controlled by Lilly, covering methods, systems, programs, technology and
software created by or on behalf of Lilly during the Technology Awareness
Period, that are of application in the field of [...***...], that Lilly has
installed at and are in productive use by the [...***...] group at Lilly, but
that are not Lilly Improvements.

      1.19 "Lilly San Diego Facility" means either (i) the facility known as
10575 Roselle Street, San Diego, CA 92121 or (ii) the approximately 7,000 sq ft
of available space in SGX's premises at 10581 Roselle Street, San Diego, CA
92121, as mutually agreed by the Parties as soon as practicable following the
Effective Date.

      1.20 "Lilly Indianapolis Facility" has the meaning ascribed to such term
in Section 3.2(b).

      1.21 "Other Invention" means an invention made by a Party or jointly by
the Parties in the course of executing the Technology Installation Plan.

      1.22 "Operating Team" has the meaning ascribed to such term in Section 2.8

      1.23 "Patent Rights" means patent applications filed in any country
worldwide, including provisionals, utilities, continuations (in whole or in
part), divisionals, reissues, reexaminations and foreign counterparts thereof,
any patents issued on such applications and any extensions of term,
registrations or confirmations of such patents.

      1.24 "Phase IA Acceptance Criteria" means the criteria described in Part 1
of the attached Exhibit G.

      1.25 "Phase IB Acceptance Criteria" means the Phase IB(i) and Phase IB(ii)
criteria described in Part 2 of the attached Exhibit G.

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      1.26 "Phase II Acceptance Criteria" means the criteria described in Part 3
of the attached Exhibit G.

      1.27 "Platform" means the hardware, IT Infrastructure, Third Party
Technology and operating system configuration specified in Exhibit D that is
required for Lilly to have installed at the Lilly Facilities in order to operate
the SGX Process Technology.

      1.28 "Platform Changes" has the meaning ascribed such term in Section 3.8.

      1.29 "Reference Compound" means for each Collaboration Target, any
compound which is publicly known to be an inhibitor or other modulator of such
Collaboration Target and which is approved by the JSC for inclusion in the
Research Collaboration.

      1.30 "Research Collaboration" means the program of research conducted by
the Parties under the Research Plan.

      1.31 "Research Plan" means the plan of research attached as Exhibit B to
this Agreement, as may be amended from time to time by the JSC in accordance
with Section 2.7.

      1.32 "SGX Background Technology" means all Patent Rights and Know-How
which are: (a) owned or Controlled by SGX on the Effective Date or during the
Term of the Research Collaboration; (b) developed by SGX (i) outside of the
Research Collaboration or (ii) within the Research Collaboration but are of
general application (for example, have application to other proteins in addition
to the Collaboration Targets); and (c) necessary for the conduct of the Research
Collaboration.

      1.33 "SGX Bioinformatics Technology" means integrated software tools in
source code form and all documentation reasonably necessary for the use thereof,
(i) within SGX Process Technology which are identified in the attached Exhibit F
and (ii) within SGX Improvements, which are revisions to (i) above (including
for example, error corrections, modifications, improvements and enhancements)
made by SGX during the Technology Awareness Period that SGX has installed and
are in productive use by the relevant research group at SGX using SGX Process
Technology and are necessary or useful for the operation of the SGX Process
Technology, and associated software documentation in hard copy and/or electronic
format, in each case which are owned or Controlled by SGX, and all Patent Rights
and copyrights covering such software tools and documentation.

      1.34 "SGX Employee" means an employee or other individual engaged by SGX
who has a duty to assign inventions made by such person, to SGX.

      1.35 "SGX Improvements" means Patent Rights and Know How owned or
Controlled by SGX, covering improvements, enhancements or modifications to the
SGX Process Technology created by or on behalf of SGX using SGX Process
Technology, during the Technology Awareness Period, that SGX has installed at
and are in productive use by the research group at SGX using the SGX Process
Technology and are necessary

                            Page 4 of 68


or useful for the operation of the SGX Process Technology. SGX Improvements does
not include SGX Research Stage Technology.

      1.36 "SGX Materials" means (1) the [...***...] materials embodying any
Target Structure; and (2) any [...***...] used to express a Target Structure; in
each case which are owned or Controlled by SGX and are developed in the course
of the Research Collaboration.

      1.37 "SGX New Developments" means Patent Rights and Know-How owned or
Controlled by SGX, covering methods, systems, programs, technology and software
created by or on behalf of SGX during the Technology Awareness Period that are
of application in the field of high throughput structure determination, but that
are not SGX Improvements.

      1.38 "SGX Research Stage Technology" means Patent Rights and Know How
owned or Controlled by SGX, covering improvements, enhancements or modifications
to the SGX Process Technology, created by or on behalf of SGX using SGX Process
Technology during the Technology Awareness Period, that are: (i) in early stages
of development; (ii) not fully supported within SGX; (iii) not fully integrated
into the SGX Process Technology; or (iv) are not ready for supported transfer to
Third Parties, and (x) will be used by the research group at SGX using SGX
Process Technology and (y) are necessary or useful for the operation of the SGX
Process Technology.

      1.39 "SGX Process Technology" means Patent Rights and Know How owned or
Controlled by SGX as of the Effective Date, covering methods, systems, programs,
technology and software, listed in Exhibit F, and including all documentation
reasonably necessary for the use thereof. SGX Process Technology does not
include SGX Research Stage Technology, SGX Improvements, SGX New Technology or
Other Inventions.

      1.40 "Target Structure" means, on a [...***...] basis, the [...***...] of
a [...***...] determined by SGX in the course of the Research Collaboration,
either in the [...***...] and which has the following characteristics:
[...***...].

      1.41 "Technology Awareness Period" means the period commencing on the
Effective Date and terminating at the end of the Term of the Research
Collaboration.

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      1.42 "Technology Installation Plan" means the plan agreed by the Parties
in accordance with Section 3.1.

      1.43 "Term of the Research Collaboration" means the period commencing on
the Effective Date, and terminating on the second anniversary of the Effective
Date, unless extended by mutual agreement of the Parties in accordance with
Section 2.10.

      1.44 "Term of the Technology Collaboration" means the period commencing on
the Effective Date and terminating upon the expiration of SGX's support
obligations under Section 3.4.

      1.45 "Third Party or Third Parties" means any entity other than Lilly or
SGX or their respective Affiliates.

      1.46 "Third Party Technology" means software and other technology listed
on Exhibit E, licensed to SGX by a Third Party, which Lilly is likely required
to license directly from such Third Party and which is likely required to
operate fully the SGX Process Technology.

2.    RESEARCH COLLABORATION.

      2.1 Research Collaboration. Subject to the terms and conditions of this
Agreement Lilly and SGX will use commercially reasonable efforts to conduct the
Research Collaboration in accordance with the Research Plan. It is acknowledged
that in furtherance of the Research Collaboration, SGX commenced certain
research activities prior to the Effective Date. SGX will commit a total of at
least [...***...] FTEs to the Research Collaboration during the
period between March 26, 2003 and the [...***...] anniversary of the Effective
Date, with a minimum of [...***...] FTEs being used between March
26, 2003 and the [...***...] anniversary of the Effective Date.

      2.2 Provision of Lilly Compounds. During the Term of the Research
Collaboration, Lilly will, at its sole discretion, deliver Lilly Compounds to
SGX (in quantities for each Lilly Compound prescribed in the Research Plan) for
inclusion in the Research Collaboration. SGX will not attempt directly or
indirectly to determine the structure of Lilly Compounds unless agreed by the
JSC. Lilly Compounds will be deemed Confidential Information of Lilly pursuant
to Section 7.1. The Lilly Compounds that will be used in the Research
Collaboration shall be [...***...].

      2.3 Provision of Lilly Background Technology. During the term of the
Research Collaboration, Lilly will provide SGX with reasonable quantities of
such Lilly Materials and other Lilly Background Technology as agreed to by Lilly
that are necessary for the conduct of the Research Collaboration by SGX.

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      2.4 Provision of SGX Background Technology and Collaboration Technology.
During the Term of the Research Collaboration, SGX will provide Lilly with
reasonable quantities of available SGX Materials and other SGX Background
Technology and Collaboration Technology as agreed by the JSC and to the extent
reasonably necessary for Lilly to exercise its applicable rights under Article
5.

      2.5 Records; Reports. At least quarterly during the Term of the Research
Collaboration SGX will have the obligation to prepare and provide to the JSC a
detailed written report summarizing the progress of the work performed by SGX in
the course of the Research Collaboration during the preceding quarter. Promptly
upon completion of the Research Collaboration, SGX shall provide a final written
report summarizing its activities during the Research Collaboration and the
results thereof. In addition, during the Term of the Research Collaboration, SGX
will provide Lilly with quarterly reports of the time expended on the Research
Collaboration, within thirty (30) days after the close of each quarter. Such
report will include the names of SGX Employees working on the Research
Collaboration and the number of hours each such SGX Employee has allocated to
the Research Collaboration. Upon the written request of Lilly and not more than
once in each calendar year, SGX will permit Lilly, at Lilly's expense, to have
access during normal business hours to those records of SGX that may be
necessary to verify the accuracy of the FTE utilization under the Research
Collaboration and the basis for any other payments hereunder.

      2.6 Nomination of Collaboration Targets and Crystallizable Protein.

            (a) During the Term of the Research Collaboration, Lilly may
nominate to the JSC up to [...***...] ([...***...])[...***...] other than
Collaboration Targets, for which Lilly would like SGX to attempt to [...***...]
under the Research Plan. SGX will have two (2) weeks following receipt of notice
of nominated [...***...] from LillY to reject (by written notice to Lilly) the
inclusion of any such [...***...] in the Research Collaboration if any such
[...***...] is the subject of an existing research program at SGX or if SGX has
existing contractual obligationS to a Third Party with respect to such
[...***...]. Any [...***...] nominated by Lilly and not rejected by SGX in
accordance with this Section 2.6(a) will be deemed a [...***...].

            (b) During the Term of the Research Collaboration, subject to
Section 2.9, Lilly may nominate to the JSC additional [...***...] which Lilly
would like included in the Research Collaboration as Collaboration Targets. SGX
will have two (2) weeks following receipt of notice of any such nominated
[...***...] from Lilly to reject (by written notice to Lilly) the inclusion of
any such [...***...] in the Research Collaboration if such protein is the
subject of an existing research program at SGX or if SGX has existing
contractual obligations to a Third Party with respect to such [...***...]. Any
[...***...] nominated by Lilly and not rejected BY SGX in accordance with this
Section 2.6(b) will be deemed a Collaboration Target.

            (c) On or before the earlier of commencement of the Phase IA
Acceptance experiments described in Exhibit G or the start of the [...***...]
month following the Effective Date, the JSC will designate [...***...]
of the Collaboration Targets

                            Page 7 of 68     ***CONFIDENTIAL TREATMENT REQUESTED

 included in the Collaboration prior to such date, for inclusion in the Phase
IB(ii) validation experiments described in Exhibit G; [...***...] of which will
be Level 1, [...***...] of which will be Level 2 and [...***...] of which will
be Level 2(+) (as further described in the Research Plan), and such targets in
each Level will be of a similar level of difficulty as those targets in each
such Level in Exhibit A.

      2.7 Joint Steering Committee.

            (a) Formation. SGX and Lilly will establish a joint steering
committee ("JSC") to oversee the strategic and tactical aspects of the
Collaboration.

            (b) Membership. The JSC shall be comprised of three (3)
representatives from Lilly and three (3) representatives from SGX, designated by
the Parties promptly following the Effective Date. Each Party may replace its
JSC representatives at any time, with written notice to the other Party. The JSC
may name additional members to the JSC from time to time so long as each Party
has an equal number of members. In addition, each Party may at its discretion
invite non-voting employees, consultants or scientific advisors to attend
meetings of the JSC.

            (c) Decisions. Each Party shall have one vote on the JSC. All
decisions of the JSC shall be made by unanimous vote. Any matter which the JSC
is unable to agree upon shall be submitted to the Chief Executive Officer of SGX
and the Group Vice President, Lilly Research Laboratories of Lilly for
resolution. All decisions that cannot be agreed upon by the SGX CEO and Lilly
Group Vice President shall be made by Lilly reasonably taking into consideration
the position of SGX, excluding decisions under Sections 3.4(b), 3.4(d) and
3.6(c), which will be made by SGX reasonably taking into consideration the
position of Lilly.

            (d) Responsibilities. The JSC will review, direct and supervise the

performance of the Collaboration. The JSC will be responsible for (i)
determining the research strategy and time lines for the Research Plan and
allocating resources between Collaboration Targets (provided however, that SGX
will have the right to require that at least [...***...] FTEs are allocated to
the Phase IB validation experiments described in Exhibit G) and modifying or
amending the Research Plan as appropriate subject to the final sentence of this
Section 2.7(d); (ii) designating Collaboration Targets as Eliminated Targets in
accordance with Section 2.9; (iii) designating structures of Collaboration
Targets as Target Structures if they meet the criteria in Section 1.40; ; (iv)
determining whether to obtain licenses from Third Parties with respect to
intellectual property that may be necessary for the conduct of the Research
Collaboration; and (v) discussing patent matters relating to Research Plan
activities. Related to the Technology Installation Plan, the JSC will be
responsible for (i) reviewing and approving the Technology Installation Plan in
accordance with Section 3.1 and modifying or amending the Technology
Installation Plan as appropriate subject to the final sentence of this Section
2.7(d); (ii) determining whether any SGX Improvements, Other Inventions or SGX
Research Stage Technology will be included in the Technology Installation Plan
and supported under Section 3.4; (iii) determining which Licensed Technology
will not be supported in accordance with Section 3.4(d); (iv) agreeing on
additional support at the

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Lilly Indianapolis Facility in accordance with Section 3.4(b); and (v)
determining which Platform Changes or Lilly Improvements will be supported at
Lilly in accordance with Section 3.4. Any amendments to the Research Plan or the
Technology Installation Plan which materially alter the nature or scope of the
Research Collaboration or Technology Collaboration must be agreed in writing by
the Parties.

            (e) Meetings. The JSC shall meet at least quarterly. The Parties
shall mutually agree upon times and places for such meetings (alternating
between San Diego, CA and Indianapolis, IN, or as the JSC may otherwise agree),
to discharge its responsibilities. If mutually agreed by the Parties, such
meeting may be held via videoconference or teleconference. Each Party will be
responsible for paying its own expenses in connection with participating in the
meetings of the JSC. The JSC shall prepare written minutes of each meeting and a
written record of all JSC decisions, whether made at a JSC meeting or otherwise.

      2.8 Operating Teams. The JSC may appoint one or more other working teams
("Operating Teams") to perform the day-to-day implementation of the Research
Plan and Technology Installation Plan and such other functions as the JSC may
determine.

            (a) Membership. All Operating Teams shall have at least one (1)
representative of each Party. Operating Teams shall have such decision-making
authority as may be delegated to them by the JSC. Each Party may replace its
Operating Team representatives at any time, upon written notice to the other
Party. Operating Team leaders at their discretion can name additional team
members or form sub-teams.

            (b) Decisions. Each Party shall have one vote on an Operating Team.
All decisions of the Operating Teams shall be made by unanimous vote. Any matter
that the Operating Team is unable to agree upon shall be submitted to the JSC.

            (c) Meetings. Each Operating Team shall meet as agreed by its
members or as directed by the JSC. Each Party shall bear its own costs
associated with holding and attending such meetings.

            (d) Initial Operating Teams. The JSC shall establish the following
two (2) Operating Teams, with such number of representatives of each Party and
such decision-making authority as the JSC shall determine:

                  (i) the Research Operations Team, which shall be responsible
for matters relating to the tactical aspects of the Research Plan, including:

                        (x) coordinating, monitoring and reporting research
                        progress, resource allocation and ensuring open exchange
                        between the Parties with respect to Research
                        Collaboration activities; and (y) determining which
                        Reference Compounds or Lilly Compounds to include in the
                        Research Collaboration to aid in crystallization;

                            Page 9 of 68


                  (ii) the Technology Operations Team, which shall be
responsible for matters relating to the successful installation of the SGX
Process Technology and the Platform at the Lilly San Diego Facility and the
Lilly Indianapolis Facility, including:

                        (x) reviewing, directing and supervising the performance
                        of the Technology Installation Plan and revising the
                        Technology Installation Plan from time to time as
                        necessary; and (y) coordinating, monitoring and
                        reporting installation progress and ensuring open
                        exchange between the Parties with respect to Technology
                        Installation Plan activities;;

                  (iii) For avoidance of doubt, it is intended that the JSC will
delegate decision-making authority for day-to-day management of the
Collaboration to the Operating Teams described in this Section 2.8. While the
JSC retains the ability to review the decisions of the Operating Teams, it is
intended that the Operating Teams shall be given latitude to make decisions
without the need to first consult the JSC.

      2.9 Eliminated Targets. The JSC will remove a Collaboration Target from
the Research Collaboration and deem such Collaboration Target to be an
"Eliminated Target" for the purposes of Section 5.5(a), upon the occurrence of
any of the following:

            (a) either Party requests that the JSC agree to remove a
Collaboration Target from the Research Collaboration and the JSC so agrees;

            (b) Lilly determines not to pursue a Collaboration Target as a
[...***...]; notifies the JSC of such decision (which notification Lilly is
obligated to provide the JSC within thirty (30) days of such decision at Lilly)
and the JSC agrees to the removal of such Collaboration Target;

            (c) as determined by the JSC, (i) a Target Structure has not been
obtained for the Collaboration Target after reasonable effort, and (ii) it is
reasonable to conclude based on an assessment of technical feasibility, that a
Target Structure will not be obtained by SGX for such Collaboration Target
before the second anniversary of the Effective Date; or

            (d) at any time the total number of Collaboration Targets included
in the Research Collaboration for which Target Structure has not yet been
obtained exceeds [...***...] ([...***...]); in such event, the JSC will, within
thirty (30) days of a request by either Party, deem such number of Collaboration
Targets exceeding [...***...] ([...***...]) as Eliminated Targets in accordance
with this Section 2.9, as results in there being no more than [...***...]
([...***...]) Collaboration Targets included in the Research Collaboration for
which Target Structure has not been obtained. The JSC shall be responsible for
deciding which targets shall be excluded from Collaboration Targets under this
Section 2.9 (d).

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            2.10 Option to Extend Term of the Research Collaboration. On or
before the second anniversary of the Effective Date, Lilly will have the right
to extend the Term of the Research Collaboration for an additional [...***...]
period. In such event the Parties will negotiate in good faith the terms of such
extension, provided however, nothing in this Section 2.10 shall obligate the
Parties to enter into such extension.

3.    TECHNOLOGY TRANSFER

      3.1 Technology Installation Plan. Within three (3) months following the
Effective Date, SGX will prepare and the JSC will review and approve, a
Technology Installation Plan, based on the outline plan attached as Exhibit C.
The Technology Installation Plan may be updated or otherwise amended (in
accordance with Section 2.7(d)) as necessary from time to time by the JSC. Prior
to the approval by the JSC of the Technology Installation Plan, SGX may begin
ordering the equipment as described in Appendix D2. SGX shall supply any
existing validation documentation on SGX Process Technology, and will discuss
with Lilly the results of Lilly's gap analysis to be performed during the
Technology Installation Period. At Lilly's request, SGX will install the
components of the SGX Bioinformatics Technology listed in Appendix F at Lilly in
Indianapolis in advance of the installation of the SGX Process Technology at the
Lilly San Diego Facility. Upon installation, SGX will provide Lilly with a
reasonable amount of training on the use of this technology, provided however,
that any such training shall be included in the number of days allocated to
Initial Training under Section 3.4(a) below.

      3.2 Installation.

            (a) Installation at Lilly San Diego Facility. SGX will, at Lilly's
expense in accordance with Section 4.3, procure and install the Platform (other
than the IT Infrastructure) and install the SGX Process Technology on the
Platform at the Lilly San Diego Facility in accordance with the Technology
Installation Plan, provided that Lilly has purchased and installed, at its
expense, the IT Infrastructure at the Lilly San Diego Facility or at Lilly, as
agreed in the Technology Installation Plan (including in each case obtaining
from Third Parties the necessary licenses to Third Party Technology detailed in
Exhibit E). SGX will have no obligation to acquire or pay for any Third Party
Technology or any other part of the IT Infrastructure. SGX will provide the
Lilly San Diego Facility with access to certain components of SGX's IT
Infrastructure as described in the Technology Installation Plan. In the event of
any delay by Lilly in (i) approving the Technology Installation Plan, (ii)
obtaining a lease to the Lilly San Diego Facility and entering into a sublease
with SGX beyond one month after the Effective Date; (iii) approving the plans
and budget for the tenant improvements to the Lilly San Diego Facility,
including any revisions thereto, beyond one week after submission of such plans,
budgets or revisions thereto to Lilly by SGX, (iv) procuring and installing the
IT Infrastructure, or any other Platform components which the Parties agree
Lilly will procure, beyond the applicable timeline in the Technology
Installation Plan; or (v) procuring licenses to Third Party Technology required
for the Phase IA and Phase IB validation experiments as detailed in the
Technology Installation Plan, beyond the

                            Page 11 of 68    ***CONFIDENTIAL TREATMENT REQUESTED


applicable timeline in the Technology Installation Plan, then upon request by
either Party, the timelines for installation in the Technology Installation
Plan, will be adjusted correspondingly; provided however: (i) in the event such
delay results in the Phase IA validation experiments described in Exhibit G not
commencing before the start of the [...***...] ([...***...]) month following the
Effective Date, then (A) Lilly shall immediately pay SGX [...***...]
([...***...]%) of the payment under Section 4.2(b), notwithstanding that the
Phase IA Acceptance Criteria may not yet have been achieved, and (B) commencing
at the beginning of the [...***...] ([...***...]) month following the Effective
Date and continuing through the [...***...] ([...***...]) month after the
Effective Date, one Collaboration Target will be removed from the Phase IB(ii)
validation experiment each month with the order of removal of such Collaboration
Targets being from the most difficult (within Level 2+) to the least difficult
(within Level 1); and (ii) in the event such delay results in the Phase IA and
Phase IB validation experiments not commencing before the start of the
[...***...] ([...***...]) month following the Effective Date, Lilly shall
immediately pay SGX the remaining payments due under Section 4.2(b) and 4.2(c),
notwithstanding that the Phase IA Acceptance Criteria and Phase IB Acceptance
Criteria may not yet have been achieved, and notwithstanding that such payments
are made, SGX will conduct the Phase IA and Phase IB validation experiments at
the Lilly San Diego Facility using reasonable diligence, as soon as the Lilly
San Diego Facility becomes available for such activities, provided however, in
the case of the Phase IB(ii) experiments, that the Term of the Research
Collaboration has been extended to allow such activities, in accordance with
Section 2.10. SGX will assist Lilly in the procurement of the IT Infrastructure,
including without limitation, liaising with Third Party providers of hardware
and Third Party Technology, as agreed by the JSC.

            (b) Installation at the Lilly Indianapolis Facility. At a time
determined by Lilly, but in no event later than the earlier of (i) the
expiration of Lilly's lease to the Lilly San Diego Facility and (ii) [...***...]
([...***...]) years after the commencement of Lilly's lease to the Lilly San
Diego Facility (the "Cut-Off Date"), SGX will disassemble the Platform and
uninstall the Licensed Technology, at the Lilly San Diego Facility, and
reassemble and reinstall the Platform and Licensed Technology at a facility of
Lilly in Indianapolis designated by Lilly (the "Lilly Indianapolis Facility") in
accordance with the Technology Installation Plan. Notwithstanding anything to
the contrary in this Agreement, if Lilly relocates the Platform and/or the
Licensed Technology after the Cut-Off Date, SGX will have no further obligations
under Article 3 with respect to the Platform or the Licensed Technology. Lilly
will be responsible for: (i) the costs of Third Party vendors of Platform
components for repackaging, transportation and reinstallation of the Platform,
and all other reasonable costs associated with the transportation (collectively
the "Relocation") of the Licensed Technology and the Platform under this Section
3.2(b), in accordance with Section 4.3(c); (ii) Relocation of the IT
Infrastructure to the Lilly Indianapolis Facility prior to commencement of the
reinstallation of the Licensed Technology at the Lilly Indianapolis Facility and
(iii) making fully available the Lilly Indianapolis Facility, services and Lilly
personnel necessary for installation in accordance with the Technology
Installation Plan. SGX will use reasonable diligence in performing its
obligations under this Section 3.2(b).

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      3.3 Acceptance.

            (a) Phase IA. Promptly upon notification by SGX to Lilly that it has
installed the SGX Process Technology and Platform at the Lilly San Diego
Facility, Lilly, in consultation with the JSC, shall determine in good faith
whether such installation satisfies the Phase IA Acceptance Criteria.

            (b) Phase IB. Promptly upon notification by SGX to the JSC that it
has completed the Phase IB validation, Lilly, in consultation with the JSC,
shall determine in good faith whether such validation satisfies the Phase IB
Acceptance Criteria. Upon the determination by Lilly of achievement of the Phase
1B Acceptance Criteria but in no event later than the end of the Term of the
Research Collaboration, SGX will assign to Lilly its entire right, title and
interest in and to the Platform components procured by SGX on behalf of Lilly
under Section 3.2(a), installed at the Lilly San Diego Facility, including
without limitation, assignment of Third Party warranties and service contracts
where permitted.

            (c) Phase II. Promptly upon notification by SGX to Lilly that it has
installed the SGX Process Technology and Platform at the Lilly Indianapolis
Facility, Lilly, in consultation with the JSC, shall determine in good faith
whether such installation satisfies the Phase II Acceptance Criteria.

      3.4 Maintenance, Training and Technical Support. Once Lilly has determined
that the Phase IA Acceptance Criteria have been met, and payment has been made
by Lilly pursuant to Section 4.2(b), SGX will provide the following maintenance,
training and technical support services to Lilly:

            (a) Initial Training. SGX will provide, a training course at the
Lilly San Diego Facility (or at some other location as may be agreed by the JSC)
for Lilly personnel to receive detailed training on the operation of the
Licensed Technology (other than SGX Research Stage Technology) on the Platform
("Initial Training"). Such Initial Training will be conducted over a period of
no more than [...***...] ([...***...]) months and will comprise a total of at
least [...***...] ([...***...]) person months. Lilly will ensure that Lilly
personnel with appropriate technical skill are available at the Lilly San Diego
Facility to receive such training.

            (b) On-Site Training, Maintenance and Technical Support. During the
[...***...] ([...***...]) month period following completion of the Initial
Training, SGX will provide at least [...***...] ([...***...]) person days of
support for the Licensed Technology (other than SGX Research Stage Technology)
on the Platform at the Lilly San Diego Facility. If the required support results
from inherent problems with the Licensed Technology and is not due to Lilly's
action or inactions related thereto, then such support shall not count against
such [...***...] ([...***...]) person days. During the [...***...] ([...***...])
month period following payment by Lilly pursuant to Section 4.2(d), SGX will
provide at least [...***...] ([...***...]) person days of support for the
Licensed Technology (other than Research Stage Technology) on the Platform, at
the Lilly Indianapolis Facility. At Lilly's option, such support at the Lilly
Facilities may comprise: training, routine maintenance, and/or resolution of
defects or errors. Should

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additional assistance be required by Lilly beyond the [...***...] ([...***...])
days at the Lilly San Diego Facility or the [...***...] ([...***...]) days at
the Lilly Indianapolis Facility, SGX will provide such assistance as is agreed
by the JSC at a consulting rate comparable to reasonable commercial software
support service rates. Contact person(s) designated by each of the Parties shall
be the sole contacts for the coordination, delivery and receipt of the support
services under Sections 3.4(b) and (c) and shall be knowledgeable and trained in
the use of the applicable SGX Process Technology.

            (c) Support. For the [...***...] ([...***...]) month period
following the achievement of the Phase II Acceptance Criteria, SGX will provide
Lilly with a reasonable amount of electronic mail and telephone support for the
Licensed Technology (other than SGX Research Stage Technology), with email being
the primary means of support, for, among other things, problem determination,
verification and resolution, on a email-back basis, during SGX's normal business
hours of 8 am to 5 pm Pacific Standard Time, in accordance with the schedule
described in Exhibit H.

            (d) Limitations. The maintenance and technical support described
above shall be provided by SGX only for the Licensed Technology (other than SGX
Research Stage Technology) used in conjunction with the Platform. In the event
that Lilly (i) makes Platform Changes that are not agreed by the JSC, (ii) does
not accept a SGX Improvement, or Other Invention recommended by SGX, or (iii)
does not acquire additional Third Party Technology or implement other Platform
Changes recommended by SGX as necessary for the operation of the Licensed
Technology, or (iv) makes modifications to the Licensed Technology other than
those agreed by the JSC, SGX will have no obligation to provide maintenance or
technical support for the Licensed Technology modified or not modified by such
actions or inactions, respectively, of Lilly. Notwithstanding the previous
sentence, while a SGX Improvement or Other Invention is being installed at
Lilly, SGX shall continue to support the earlier release of the applicable
Licensed Technology only until the JSC determines that the SGX Improvement or
Other Invention has been successfully installed at Lilly. In addition, in the
event that any problem is the result of an action or inaction of Lilly as
described in (i) through (iv) above, SGX shall have the right to charge Lilly at
SGX's standard rates (comparable to reasonable commercial software support
rates), for the time spent resolving such problem. SGX will have no obligations
under this Section 3.4 with respect to SGX Research Stage Technology.

      3.5 Obligations. The Parties will:

            (i) ensure that the contact persons designated by each Party shall
be the sole contact for the coordination and receipt of the services provided
under Section 3.4; such person may be changed upon notice to the other Party;

            (ii) maintain during the Term of the Technology Collaboration,
adequate network connectivity as necessary to the systems of Lilly running the
SGX Process Technology, in a manner consistent with each Party's confidentiality
obligations to Third Parties, including to enable SGX to test and verify
reported problems; and

                            Page 14 of 68    ***CONFIDENTIAL TREATMENT REQUESTED


            (iii) provide reasonable supporting data to and aid each other in
the identification and correction of reported problems.

      3.6 SGX Additional Technology.

            (a) Notification and Acceptance. During the Technology Awareness
Period, SGX will provide the JSC with regular confidential updates (at least
quarterly) on the progress of development of SGX Improvements, Other Inventions
and SGX Research Stage Technology ("SGX Additional Technology") and SGX New
Developments, including without limitation, identification of (i) technology
which at the time of such update, SGX reasonably believes it could successfully
transfer to Lilly and (ii) technology which SGX recommends that Lilly have
installed at the Lilly Facilities. Lilly will have the right but not the
obligation to have any such SGX Additional Technology installed at the Lilly San
Diego Facility and/or the Lilly Indianapolis Facility, and if Lilly elects to
have such technology installed: Lilly will pay SGX for the reasonable costs of
such installation; such SGX Additional Technology will be deemed Licensed
Technology; and SGX will have the obligation to provide Lilly with support under
the terms of Sections 3.4(b) and (c) for such SGX Additional Technology (other
than SGX Research Stage Technology).

            (b) SGX New Developments. In the event that Lilly desires to obtain
a license to any SGX New Developments identified by SGX to the JSC in accordance
with Section 3.6(a), Lilly will provide written notice of such desire to SGX
within thirty (30) days of such identification by SGX and upon receipt of notice
by SGX, the Parties will negotiate in good faith the terms of a such license for
a period of up to ninety (90) days. Nothing in this Agreement will obligate SGX
to develop any SGX Additional Technology or SGX New Developments or will
obligate the Parties to enter into any license agreement under this Section
3.6(b).

            (c) Lilly Request for New Technology. In the event that Lilly
desires SGX to undertake any new development relating to the SGX Process
Technology, it shall present such request to the JSC which shall decide whether
SGX shall undertake such development. In the event that it is decided that SGX
shall undertake such developments, SGX and Lilly shall agree on the
specifications, development schedule and payments for such developments which
shall then be described in detail in the Technology Installation Plan. Any
technology developed by SGX, or jointly by SGX and Lilly under this Section
3.6(c) will be deemed SGX Improvements.

      3.7 Lilly New Developments and Improvements.

            (a) During the Technology Awareness Period, Lilly will provide the
JSC with regular confidential updates (at least quarterly) on the progress of
development of Lilly Improvements, Lilly New Developments and Other Inventions,
including without limitation, identification of technology, which at the time of
such update, Lilly reasonably believes it could successfully transfer to SGX.
SGX will have the right but not the obligation to have any such Lilly
Improvements licensed to SGX and if SGX

                            Page 15 of 68


elects to license such Lilly Improvements, Lilly will provide SGX with all
necessary documentation and materials to enable SGX to exercise such rights.

            (b) In the event that SGX desires to obtain a license to any Lilly
New Developments identified by Lilly to the JSC in accordance with Section
3.7(a), SGX will provide written notice of such desire to Lilly within thirty
(30) days of such identification by Lilly and upon receipt of notice by Lilly,
the Parties will negotiate in good faith the terms of a such license for a
period of up to ninety (90) days. Nothing in this Agreement will obligate Lilly
to develop any Lilly New Developments or will obligate the Parties to enter into
any license agreement under this Section 3.7(b).

      3.8 Platform Changes. During the Term of the Technology Collaboration, (i)
Lilly will inform the JSC in advance of any upgrades, modifications,
enhancements or changes it proposes making to the Platform during the Term of
the Technology Collaboration ("Platform Changes"); and (ii) SGX will inform the
JSC of any Platform Changes it has implemented at SGX or recommends Lilly
implement at the Lilly Facility.

      3.9 Use of the Lilly San Diego Facility.

            (a) By SGX Employees. During the Term of the Technology
Collaboration, SGX employees, consultants and agents involved in the
Collaboration, may use the Lilly San Diego Facility, and the Platform and
Licensed Technology installed at the Lilly San Diego Facility: (i) for any
purpose in connection with the Technology Installation Plan; (ii) for the
conduct of Research Plan activities as agreed by the JSC; and (iii) to fulfill
its support obligations under Section 3.4.

            (b) By Lilly Employees. During the Term of the Technology
Collaboration, Lilly employees and consultants may use the Lilly San Diego
Facility, and the Platform and Licensed Technology installed at the Lilly San
Diego Facility: (i) for the conduct of Technology Installation Plan activities
as agreed by the JSC; (ii) for the conduct of Research Plan activities as agreed
by the JSC; (iii) for any purpose permitted under Lilly's licenses in Section
5.1, provided, however that Lilly activities do not interfere with SGX's ability
to fulfill the Phase IB Acceptance Criteria; and (iv) upon the end of the Term
of the Research Collaboration and prior to transfer of the Platform and Licensed
Technology to the Lilly Indianapolis Facility, for any purpose permitted under
Lilly's licenses in Section 5.1, provided in each case that Lilly has first
obtained all necessary licenses, permits and permissions to use the Lilly San
Diego Facility, reasonably acceptable to SGX.

4.    CONSIDERATION

      4.1 Research Fee.

            (a) Within thirty (30) days after the Effective Date, Lilly will pay
to SGX a non-refundable research fee of two million US dollars ($2,000,000).

                            Page 16 of 68


            (b) Within forty five (45) days after the first anniversary of the
Effective Date, Lilly will pay to SGX a non-refundable research fee of
$[...***...], provided that SGX has met the FTE commitment set forth in Section
2.1 for the first year of the Research Collaboration.

            (c) Within forty five (45) days after the second anniversary of the
Effective Date, Lilly will pay to SGX a non-refundable research fee of
[...***...] US dollars ($[...***...]), provided however, that SGX has committed
a [...***...] ([...***...]) [...***...] to the Research Collaboration during the
period between March 26, 2003 and the [...***...] of the Effective Date. If SGX
has not honored such commitment, then Lilly will pay SGX a pro-rated amount
proportionate with the amount of FTEs that have actually been used as long as
the total number of FTEs committed by SGX during the period between March 26,
2003 and the [...***...] of the Effective Date exceeds [...***...]. In the event
that SGX did not receive payment under Section 4.1(b) but has committed a total
of [...***...] ([...***...])[...***...] to the Research Collaboration during the
period between March 26, 2003 and the second anniversary of the Effective Date,
Lilly will pay a further non-refundable research fee to SGX of [...***...]
dollars ($[...***...]) within forty-five (45) days after the second anniversary
of the Effective Date.

      4.2 Technology Access Fee.

            (a) Within thirty (30) days after the Effective Date, Lilly will pay
to SGX a technology access fee of four million US dollars ($4,000,000). If SGX
fails to substantially deliver and install the SGX Process Technology at the
Lilly San Diego Facility by December 31, 2006, then SGX agrees to refund
[...***...] percent ([...***...]%) of such fee.

            (b) Within forty five (45) days after determination by Lilly that
the Phase IA Acceptance Criteria have been met, Lilly will pay to SGX a
non-refundable technology access fee of [...***...] US dollars ($[...***...]),.

            (c) Within forty five (45) days after determination by Lilly of
achievement by SGX of the Phase IB(i) Acceptance Criteria, Lilly will pay to SGX
a non-refundable technology access fee of [...***...] US dollars ($[...***...]).
Within forty five (45) days after determination by Lilly of achievement by SGX
of the Phase IB(ii) Acceptance Criteria, Lilly will pay to SGX a further
non-refundable technology access fee of [...***...] US dollars ($[...***...]).

            (d) Within forty five (45) days after determination by Lilly that
the Phase II Acceptance Criteria have been met, Lilly will pay to SGX a
non-refundable technology access fee of [...***...] US dollars ($[...***...]);
provided however, if Lilly has not instructed SGX to commence [...***...] the
Platform and [...***...] the SGX Process Technology at the Lilly San Diego
Facility within [...***...] ([...***...]) months after Phase IA Acceptance
Criteria are achieved or by [...***...], whichever is later, and
SGX has achieved the Phase IB(i) Acceptance Criteria, Lilly will pay to SGX such
non-refundable technology access fee of [...***...] US dollars ($[...***...])
within four (4)

                            Page 17 of 68    ***CONFIDENTIAL TREATMENT REQUESTED


months thereafter, notwithstanding that the Phase II Acceptance Criteria has not
been met.

      4.3 Procurement and Installation Costs.

            (a) Procurement of the Platform. SGX will be responsible, at Lilly's
expense, for the procurement of the Platform (other than the IT Infrastructure)
in accordance with the Technology Installation Plan. An estimate of the costs
for the Platform, together with the expected delivery and payment dates, is
attached as Appendix D(1). A budget for such expense shall be proposed by SGX
and approved by the JSC as part of the Technology Installation Plan, based on
the estimate in Exhibit D(1), provided however, during the three (3) months
following the Effective Date, SGX will make reasonable efforts to obtain
detailed quotations from Third Party vendors of Platform components and will
update the estimate accordingly. SGX shall not exceed the agreed upon budget
without the further approval of the JSC. SGX will update the estimate on at
least a quarterly basis during the period during which the Platform is being
procured. Within thirty (30) days after the Effective Date and on a quarterly
basis thereafter, Lilly will pay SGX the amount estimated to be due Third
Parties during the following quarter. In the event of any overpayment in any
quarter, SGX will credit such overpayment towards the next quarterly payment due
from Lilly under this Section 4.3(a). In the event that Lilly has paid more than
SGX has spent after the final quarter of payments, SGX agrees to refund such
overpayment within forty-five (45) days of the end of the quarter.

            (b) Lilly San Diego Facility. Lilly will be responsible, at Lilly's
expense for (i) obtaining the necessary lease to the Lilly San Diego Facility
and making payments thereunder and (ii) obtaining and installing the IT
Infrastructure. SGX will be responsible for supervising the tenant improvements
to the Lilly San Diego Facility and Lilly will be responsible for the costs of
such tenant improvements; which shall be paid directly by Lilly to the appointed
architect and general contractor.

            (c) Installation. Lilly will pay SGX [...***...] US dollars
($[...***...]) within thirty (30) DayS of receipt of written notification that
the Technology Installation Plan has been approved. Such payment will cover (i)
installing the Platform and Licensed Technology at the Lilly San Diego Facility,
(ii) uninstallation of the Platform and Licensed Technology at the Lilly San
Diego Facility and reinstallation of the Platform and the Licensed Technology at
the Lilly Indianapolis Facility if completed prior to the third anniversary of
the Effective Date, and (iii) project management of the procurement of the Lilly
San Diego Facility (including without limitation, designing and supervising
tenant improvements). Lilly shall pay separately the reasonable costs of
Relocation of the Platform and Licensed Technology from San Diego to
Indianapolis as further described in Section 3.2(b). In the event that Lilly
decides to install the Licensed Technology and Platform at the Lilly
Indianapolis Facility under Section 3.2(b) and such installation is completed
after the third anniversary of the Effective Date, Lilly will pay SGX
[...***...] US dollars ($[...***...]) within thirty (30) days of completion of
such installation. Such payment will cover uninstallation of the Licensed
Technology at the Lilly San Diego Facility and reinstallation of the Licensed
Technology at the Lilly

                            Page 18 of 68    ***CONFIDENTIAL TREATMENT REQUESTED


Indianapolis Facility and support for such Licensed Technology in accordance
with Section 3.4(b).

5.    LICENSES

      5.1 Licenses to Lilly. Subject to the terms and conditions of this
Agreement, SGX hereby grants to Lilly, the following licenses:

            (a) [...***...],[...***...],[...***...],[...***...],[...***...]
license under SGX's interest in Collaboration technology relating to
Collaboration Targets, to use and modify such Collaboration Technology
[...***...]; and

            (b) [...***...],[...***...],[...***...],[...***...],[...***...]
under SGX's interest in Licensed Technology, to (i) use and duplicate the
Licensed Technology solely for Lilly's [...***...]; and (ii) to make derivative
works of the SGX Bioinformatics Technology, solely as necessary for [...***...]
the SGX Bioinformatics Technology with software of Lilly, provided however,
Lilly will not have the right to distribute such derivative works to Third
Parties and Lilly will only have the right to copy and distribute source code
within Lilly to the extent necessary to [...***...] the SGX Bioinformatics
Technology with software of Lilly.

      5.2 License Restrictions. Lilly shall not: (i) use, copy, modify or
distribute the Licensed Technology directly or indirectly, except as expressly
permitted under this Agreement; (iii) use the Licensed Technology for any
purpose for the benefit of any Third Party, provided however, this restriction
shall not prevent Lilly from doing internal research and development (on its own
behalf or on behalf of its collaborators), manufacturing or distributing any
compounds or other products developed using the Licensed Technology.

      5.3 License to SGX. Lilly hereby grants to SGX [...***...], [...***...],
[...***...], [...***...], [...***...] license under Lilly's interest in Lilly
Improvements, to (i) use and duplicate the Lilly Improvements solely for SGX's
[...***...] (on its own behalf or on behalf of its collaborators); and (ii) to
make derivative works of any software within the Lilly Improvements, solely for
the purpose of [...***...] such Lilly Improvements with SGX Process Technology,
provided however, SGX will not have the right to use any source code of such
software to prepare such derivative works. SGX will not decompile, disassemble,
or otherwise reverse engineer software within the Lilly Improvements.

      5.4 Cross Licenses. Each Party hereby grants to the other, [...***...],
[...***...],[...***...] license to use and practice Lilly Background Technology
and SGX Background Technology, solely to conduct the Research Collaboration.

                            Page 19 of 68    ***CONFIDENTIAL TREATMENT REQUESTED


      5.5 Non-Use and Retained Rights.

            (a) Non-Use. On a Collaboration Target by Collaboration Target
basis, SGX shall not use or practice, nor shall permit its Affiliates, or
sublicensees to use or practice, Collaboration Technology relating to such
Collaboration Target for any purpose other than the conduct of the Research
Collaboration or filing or prosecuting patent applications as permitted under
Section 6.2(b), for a period of [...***...] ([...***...]) months following the
delivery of the first Target Structure for each such Collaboration Target to
Lilly; provided however the provisions of this Section 5.5(a) shall not apply to
a Collaboration Target if either (i) no Target Structure is obtained for such
Collaboration Target by the end of the Term of the Research Collaboration; or
(ii) the JSC designates a Collaboration Target as an Eliminated Target in
accordance with Section 2.9. In the event that Crystallizable Protein is
included in the Research Collaboration in accordance with Section 2.6(a) and the
gene or expression constructs for such Crystallizable Protein are not publicly
known, the provisions of this Section 5.5(a) will apply to Collaboration
Technology relating to such Crystallizable Protein and the [...***...]
([...***...]) month period described above, will commence upon delivery by Lilly
to SGX of the expression construcTS for such Crystallizable Protein.
Notwithstanding anything to the contrary in this Agreement, this Section 5.5(a)
shall not apply to the Collaboration Target: [...***...].

            (b) Retained Rights. Subject to Section 5.5(a) with regards to
Collaboration Technology, SGX retains the right to use and exploit in any way,
Collaboration Technology, SGX Background Technology, SGX Process Technology, SGX
Improvements, Other Inventions, SGX Research Stage Technology and SGX New
Developments.

      5.6 Third Party Licenses. In the event that Lilly, in consultation with
the JSC, determines that it may be necessary to acquire a license from any Third
Party specifically for the conduct of the Research Collaboration, the Parties
shall discuss which Party shall acquire such license provided however, that the
[...***...] shall be at [...***...] sole expense.

      5.7 Mutual Covenants Not to Sue. In the event that during the term of this
Agreement, either Party (the "Developing Party") develops technology such that,
without granting the other Party (the "Other Party") a license to such
technology, the use by the Other Party of Licensed Technology would infringe the
intellectual property rights of the Developing Party, the Developing Party
agrees not to assert such intellectual property rights against the Other Party
in any legal proceedings or otherwise.

6.    INTELLECTUAL PROPERTY

      6.1 Ownership of Technology.

            (a) Ownership by SGX. Title to all SGX Process Technology, SGX
Background Technology, SGX Improvements, SGX Research Stage Technology, Other

                            Page 20 of 68    ***CONFIDENTIAL TREATMENT REQUESTED


Inventions, SGX New Developments and Collaboration Technology shall be owned by
SGX. Lilly hereby assigns to SGX and its successors and assigns all of Lilly's
rights, title, and interest in and to Collaboration Technology and Other
Inventions. Lilly will execute in a reasonably timely manner such documents as
SGX may request to document and perfect the assignment to SGX of any and all
rights in Collaboration Technology and Other Inventions. If the foregoing
assignment would be void or impermissible in a given country, then Lilly
automatically shall be deemed to have granted to SGX the perpetual, irrevocable,
fully paid-up, freely sublicensable license to use and practice such
Collaboration Technology and Other Inventions in such country for any and all
purposes consistent with this Agreement, which license shall be co-exclusive
with SGX to the maximum extent permitted in such country, and which license
shall survive any expiration or termination of this Agreement.

            (b) Ownership by Lilly. Title to all Lilly Background Technology,
Lilly Improvements and Lilly New Developments shall be owned solely by Lilly.

            (c) Law. Inventorship of inventions and, subject to the terms of
this Agreement, ownership rights with respect thereto, shall be determined in
accordance with the patent laws of the United States.

      6.2 Patent Prosecution.

            (a) Prosecution by SGX or Lilly. SGX shall be responsible, at its
sole discretion and expense, for the preparation, filing, prosecution and
maintenance of the patent applications and patents within Patent Rights within
SGX Background Technology, SGX Process Technology, SGX Improvements, SGX
Research Stage Technology and SGX New Developments, in countries selected by
SGX, and for conducting any interferences, reexaminations, reissues,
oppositions, or request for patent term extension relating thereto. Lilly shall
be responsible, at its sole discretion and expense, for the preparation, filing,
prosecution and maintenance of the patent applications and patents within Patent
Rights within Lilly Background Technology, Lilly Improvements and Lilly New
Developments, in countries selected by Lilly, and for conducting any
interferences, reexaminations, reissues, oppositions, or request for patent term
extension relating thereto.

            (b) Collaboration Technology. Lilly shall have the first right, at
its expense and sole discretion, for the preparation, filing, prosecution and
maintenance of the patent applications and patents claiming Collaboration
Technology. On a Collaboration Target by Collaboration Target basis, in the
event that Lilly elects not to file a patent application covering a Target
Structure within twelve (12) months of delivery of such Target Structure to
Lilly, SGX shall have the right to file, prosecute and maintain such patent
applications. Furthermore, in the event that Lilly elects not to pursue
prosecution or maintenance of any patent applications or patents claiming
Collaboration Technology, Lilly shall give SGX not less than sixty (60) days
notice before any relevant deadline or any permitted public disclosure, and SGX
shall have the right to pursue, at its sole discretion and expense, prosecution
and maintenance of such patent applications or patents. The Party responsible
for prosecution and maintenance

                            Page 21 of 68


(the "Responsible Party), shall keep the other Party (the "Non-Responsible
Party") fully informed as to the status of such patent matters, including,
without limitation, by providing the Non-Responsible Party the opportunity, at
the Non-Responsible Party's expense, to review and comment on any documents
relating to such patent applications and patents which will be filed in any
patent office at least thirty (30) days before such filing, and promptly
providing the Non-Responsible Party with copies of any documents relating to
such patent applications and patents which the Responsible Party receives from
such patent offices, including notice of all interferences, reissues,
reexaminations, oppositions or requests for patent term extensions. At the
Responsible Party's request and expense, the Non-Responsible Party will
reasonably cooperate and assist the Responsible Party in the preparation, filing
and prosecution of patent applications claiming Collaboration Technology and in
the event of an interference, reissue, reexamination, opposition or request for
patent term extension.

      6.3 Patent Enforcement. In the event either Party becomes aware of any
interference, opposition, or request for reexamination, or similar proceedings,
involving a patent application or patent filed in accordance with Section 6.2(a)
or 6.2(b), it shall promptly notify the other Party hereto, and the Parties
shall agree on the steps which shall be taken to protect the pertinent patent.
In the event either Party becomes aware of any possible infringement of a patent
filed in accordance with Section 6.2(a) or 6.2(b) or misappropriation of an
invention within the Collaboration, it shall promptly notify the other Party
hereto, providing a written description of the potentially infringing or
misappropriation activities. SGX shall have the right, but not the obligation to
institute, prosecute and control any action or proceeding with respect to
infringement of patents within SGX Background Technology, SGX Process
Technology, SGX Improvements, SGX Research Stage Technology, SGX New
Developments, and Other Inventions. Lilly shall have the right, but not the
obligation, to institute, prosecute and control any action or proceeding with
respect to infringement of patents within Lilly Background Technology, Lilly
Improvements, Lilly New Developments and Collaboration Technology. If a Party
given the right to enforce a patent pursuant to this Section fails to bring an
action or proceeding, or take other actions (e.g., commence settlement
discussions) against a suspected infringer within a period of ninety (90) days
after having notice of such infringement, the other Party shall have the right
to bring and control an action against such infringer by counsel of its own
choice, and the non-enforcing Party shall have the right to be represented in
any such action by counsel of its own choice at its own expense. The Party
controlling an action involving any infringement of a patent under this Section
shall consider in good faith the interests of the other Party in so doing, and
shall not settle or consent to an adverse judgment in any such action which
would have a material adverse effect on the rights or interests of the other
Party without the prior express written consent of such other Party. If one
Party brings any such action or proceeding, the other Party agrees to be joined
as a Party plaintiff if necessary to prosecute the action and to give the first
Party reasonable assistance and authority to file and prosecute the suit. In
each case relating to infringement of a patent under this Section, each Party
shall bear the costs of its enforcement of such rights discussed in this section
and retain for its own account any amounts received from Third Parties.

                            Page 22 of 68


      6.4 Notification of Potential Infringement. In the event that any Party
becomes aware of any claim that the practice of Licensed Technology infringes
the intellectual property rights of any Third Party, such Party will promptly
notify the other Party.

7.    CONFIDENTIALITY AND PUBLICITY

      7.1 Confidential Information. Except as expressly provided herein, the
Parties agree that, for the term of this Agreement and for five (5) years
thereafter, the receiving Party, or any Affiliate thereof, shall not publish or
otherwise disclose to Third Parties (other than consultants and agents of a
Party engaged in the Collaboration) and shall not use for any purpose, except as
expressly permitted herein any information or material furnished to it by the
other Party hereto pursuant to this Agreement ("Confidential Information").
Notwithstanding the foregoing, it is understood and agreed that Confidential
Information shall not include information or material that, in each case as
demonstrated by written documentation:

            (a) was already known to the receiving Party, or an Affiliate
thereof, other than under an obligation of confidentiality, at the time of
disclosure;

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

            (c) became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving Party, or an Affiliate thereof, in breach of this
Agreement; or (d) was subsequently lawfully disclosed to the receiving Party, or
an Affiliate thereof, by a person other than a Party hereto or independently
developed by the receiving Party or an Affiliate thereof without reference to
any Confidential Information disclosed by the disclosing Party.

      7.2 Permitted Disclosures. Notwithstanding the provisions of Section 7.1
above, each Party hereto may disclose the other's Confidential Information to
the extent such disclosure is reasonably necessary in filing or prosecuting
patent applications, prosecuting or defending litigation, complying with
applicable governmental regulations, or submitting information to tax or other
governmental authorities, provided that if a Party is required to make any such
disclosure of another Party hereto's Confidential Information, to the extent it
may legally do so, it will give reasonable advance written notice to the other
Party of such disclosure so that the other Party may attempt to secure
confidential treatment of such Confidential Information prior to its disclosure
(whether through protective orders or otherwise).

         7.3 Publication. Any public disclosure (oral, written or graphic) by
either Party describing the scientific results of the Research Collaboration
will require prior review and written approval of the other Party at least
thirty (30) days prior to its submission for publication or other public
disclosure. If the reviewing Party so requests,

                            Page 23 of 68


the proposed public disclosure will be delayed for forty-five (45) days from the
date of each request for the filing of patent application(s) related to the
proposed public disclosure.

      7.4 Publicity. The Parties agree to make a mutually agreed press release
regarding this Agreement promptly following the Effective Date. Neither Party
may make any public announcements relating to this Agreement without the other
Party's prior written consent, which consent will not be unreasonably withheld,
or delayed for a period of more than thirty (30) days after request for consent
is sought. Except as expressly provided in this Agreement, each Party agrees not
to disclose any terms of this Agreement to any Third Party without the prior
written consent of the other Party; provided however, that disclosures may be
made as required by securities or other applicable laws, or to actual or
prospective investors, or to a Party's professional advisors

      7.5 [...***...]. During the Term of the Technology Collaboration,
[...***...] with any [...***...] for purposes of [...***...] such [...***...].
[...***...] an [...***...] for the purpose of [...***...]: (i) [...***...];
or (ii) as a result of [...***...] (such as an [...***...]) not specifically
directed [...***...].

8.    INDEMNIFICATION

      8.1 Indemnification of SGX. Lilly shall indemnify, defend, and hold
harmless SGX, the directors, officers, and employees of SGX and the successors
and assigns of any of the foregoing (the "SGX Indemnitee(s)") from and against
all claims, losses, costs, and liabilities (including, without limitation,
payment of reasonable attorneys' fees and other expenses of litigation), and
shall pay any damages (including settlement amounts) finally awarded, with
respect to any claim, suit or proceeding (any of the foregoing, a "Claim")
brought by Third Party against a SGX Indemnitee, arising out of or relating to:
(a) the exercise by Lilly of the rights granted Lilly under Sections 5.1 and 5.4
of this Agreement including activities of its employees at the Lilly San Diego
Facility; (b) a material breach by Lilly of its obligations under this
Agreement; (c) a breach of Lilly's representations and warranties under Section
9; (d) any products developed, manufactured, used, sold or otherwise distributed
by or on behalf of Lilly or its Affiliates pursuant to Article 5, (including
without limitation, product liability claims); (e) the gross negligence or
willful misconduct of Lilly; (f) the use, handling, transfer or storage of the
SGX Materials received from SGX hereunder; (g) a claim that the use by SGX or by
Lilly of a Collaboration Target, DNA coding for a Collaboration Target,
Crystallizable Protein, Target Structures, Lilly Materials, Reference Compounds
or Lilly Compounds, infringes the intellectual property rights of a Third Party;
or (h) use of the Lilly Facilities by SGX employees or consultants as
contemplated under this Agreement except, in each case, to the extent caused by
the gross negligence or willful misconduct of a SGX Indemnitee.

                            Page 24 of 68    ***CONFIDENTIAL TREATMENT REQUESTED


      8.2 Indemnification of Lilly.

            (a) SGX shall indemnify, defend and hold harmless Lilly, the
directors, officers, and employees of Lilly, and the licensors, successors and
assigns of any of the foregoing (the "Lilly Indemnitee(s)") from and against all
Claims brought by Third Party against a Lilly Indemnitee, arising out of or
relating to: (a) the performance by SGX of the Research Collaboration, except to
the extent such Claim arises out of or relates to a claim the use by SGX of a
Collaboration Target, DNA coding for a Collaboration Target, Crystallizable
Protein, Lilly Materials, Reference Compounds, or Lilly Compounds, infringes the
intellectual property rights of a Third Party; (b) the exercise by SGX of the
rights granted SGX under this Agreement, including the activities of its
employees at the Indianapolis and San Diego Facilities; (c) a material breach by
SGX of its obligations under this Agreement; (d) a breach of SGX's
representations and warranties under Section 9; (e) the handling, transfer or
storage of Lilly Materials; (f) the negligence or willful misconduct of SGX;
except, in each case, to the extent due to the gross negligence or willful
misconduct of a Lilly Indemnitee.

            (b) SGX shall indemnify, defend and hold harmless the Lilly
Indemnitees from and against all Claims brought by a Third Party against a Lilly
Indemnitee claiming that the Licensed Technology (other than SGX Research Stage
Technology) when used by Lilly as authorized in this Agreement, infringes the
intellectual property rights of a Third Party; provided that SGX shall have no
liability or obligation with respect to actual or alleged infringements to the
extent resulting from (i) the use of the Licensed Technology other than with the
Platform, (ii) modifications to the Licensed Technology or the Platform made by
Lilly or (iii) a failure by Lilly to obtain Third Party Technology licenses or
other Third Party licenses which SGX has indicated to Lilly in writing are
necessary in order to practice the Licensed Technology. THE FOREGOING STATES
SGX'S ENTIRE LIABILITY AND OBLIGATION (EXPRESS, STATUTORY, IMPLIED, OR
OTHERWISE) WITH RESPECT TO INTELLECTUAL PROPERTY INFRINGEMENT OR CLAIMS
THEREFOR.

      8.3 Indemnification Procedures. An Indemnitee that intends to claim
indemnification under this Article 8 shall promptly notify the other Party (the
"Indemnitor") in writing of any claim in respect of which the Indemnitee intends
to claim such indemnification, and the Indemnitor shall have sole control of the
defense and/or settlement thereof, provided that the indemnified Party may
participate in any such proceeding with counsel of its choice at its own
expense. The indemnity agreement in this Article 8 shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the
consent of the Indemnitor, which consent shall not be withheld unreasonably. The
failure to deliver written notice to the Indemnitor within a reasonable time
after the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such Indemnitor of any liability to the
Indemnitee under this Article 8 but the omission so to deliver written notice to
the Indemnitor shall not relieve the Indemnitor of any liability that it may
have to any Indemnitee other than under this Article 8. The Indemnitee under
this Article 8, its employees and agents, shall cooperate fully with the
Indemnitor and its legal representatives and provide full information in the
investigation of any Claim covered by this indemnification. Neither

                            Page 25 of 68


Party shall be liable for any costs or expenses incurred by the other Party
without its prior written authorization.

9.    REPRESENTATIONS AND WARRANTIES

      9.1 Each Party. Each Party represents and warrants to the other (i) that
it has the legal power, authority and right to enter into this Agreement and to
perform its respective obligations under this Agreement; (ii) that it is not a
Party to any agreement or arrangement with any Third Party or under any
obligation or restriction which in any way limits or conflicts with its ability
to fulfill any of its obligations under this Agreement, (including without
limitation, the licenses granted in Article 5), and shall not enter into any
such agreement or arrangement during the term of this Agreement; (iii) each
employee or person engaged in the Collaboration on behalf of Lilly or SGX has
entered into a written agreement which provides for the assignment to Lilly or
SGX, respectively, of all inventions and discoveries made by such employee or
person during the course of his or her employment or engagement with Lilly or
SGX.

      9.2 Intellectual Property. SGX represents and warrants to Lilly that as of
the Effective Date it is not aware of any claim made against it asserting the
invalidity, misuse, unenforceability or non-infringement of the SGX Process
Technology or challenging its right to use or ownership of the SGX Process
Technology.

      9.3 Disclaimer. SGX and Lilly specifically disclaim any guarantee that the
Research Collaboration or Technology Collaboration will be successful, in whole
or in part. Nothing in this Agreement shall be construed as a representation
made or warranty given by any Party that the Licensed Technology will be
operated without interruption or will be error-free. In addition, the Parties
acknowledge that notwithstanding any other provision in this Agreement, the SGX
Research Stage Technology, is licensed AS IS. EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN THIS AGREEMENT, LILLY AND SGX MAKE NO REPRESENTATIONS AND EXTEND NO
WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE
MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE OF THE SGX BACKGROUND
TECHNOLOGY, LILLY BACKGROUND TECHNOLOGY, LICENSED TECHNOLOGY OR COLLABORATION
TECHNOLOGY OF EACH PARTY, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT OF THE
INTELLECTUAL PROPERTY OR OTHER RIGHTS OF ANY THIRD PARTY.

      9.4 Limitation of Liability. SGX'S AGGREGATE LIABILITY UNDER SECTION
8.2(b) SHALL BE LIMITED TO [...***...] DOLLARS ($[...***...]). IN NO EVENT SHALL
EITHER PARTY BE LIABLE FOR COSTS OF SUBSTITUTE GOODS OR SERVICES, SPECIAL,
CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES (INCLUDING WITHOUT LIMITATION
LOSS OF PROFIT) WHETHER OR NOT THE OTHER PARTY HAS BEEN

                            Page 26 of 68    ***CONFIDENTIAL TREATMENT REQUESTED


ADVISED OF THE POSSIBILITY OF SUCH LOSS, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY, ARISING OUT OF THIS AGREEMENT, PROVIDED HOWEVER, THE PROVISIONS OF
THIS SECTION WILL NOT APPLY TO BREACHES OF CONFIDENTIALITY OBLIGATIONS UNDER
THIS AGREEMENT. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF
ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.

10.   TERM AND TERMINATION

      10.1 Term of the Agreement. The term of this Agreement shall commence on
the Effective Date and unless terminated earlier, will terminate upon the later
of (i) fifteen (15) years from the Effective Date or (ii) expiration of the last
to expire patent within the Patent Rights that cover Collaboration Technology or
Licensed Technology.

      10.2 Termination for Cause. Upon any material breach of this Agreement by
either Lilly or SGX (in such capacity the "Breaching Party"), the other Party
(in such capacity the "Non-Breaching Party") may terminate this Agreement by
ninety (90) days' written notice to the Breaching Party, specifying the material
breach. The termination becomes effective at the end of such ninety (90) day
period unless (i) the Breaching Party cures such breach during such ninety (90)
day period, or (ii) if such breach is not susceptible to cure within such ninety
(90) day period, the Breaching Party is diligently pursuing a cure (unless such
breach, by its nature is incurable, in which case this Agreement may be
terminated immediately). The Parties will use reasonable efforts to work
together to cure any breach.

      10.3 Rights upon Termination for Material Breach. If the Non-Breaching
Party terminates this Agreement pursuant to Section 10.2:

            (a) in the event that the Breaching Party is SGX:

                  (i) the licenses granted Lilly under Section 5.1 will continue
with respect to Collaboration Technology developed and Licensed Technology
installed at the Lilly San Diego Facility or Lilly Indianapolis Facility, prior
to the effective Date of termination, subject to the payment by Lilly of all
amounts earned by SGX under Article 4 prior to the effective date of
termination; and

                  (ii) SGX will have no obligation to provide training, support
or maintenance under Section 3.4, for Licensed Technology installed at a Lilly
Facility prior to the date of termination;

            (b) in the event the Breaching Party is Lilly:

                  (i) the licenses granted Lilly under Section 5.1 will
terminate concurrently.

                  (ii) the licenses granted SGX under Section 5.3 will continue;
and

                            Page 27 of 68


                  (iii) SGX will have no obligation to provide training, support
or maintenance under Section 3.4 for Licensed Technology installed at a Lilly
Facility prior to the date of termination.

      10.4 Termination Because of Loss of Key Personnel. Lilly may terminate the
Research Collaboration upon thirty (30) days written notice if [...***...]
leaves SGX as an employee and does not continue to constitute at least
[...***...] of an FTE devoted to the Research Program, and SGX, after reasonable
opportunity, has not been able to replace [...***...] with a replacement that
meets the reasonable satisfaction of Lilly.

      10.5 Termination Because of Change of Control. If SGX becomes subject to a
Change of Control, Lilly may terminate the Research Collaboration upon thirty
(30) days prior written notice only if the acquiring party is one of the top
[...***...] ([...***...]) pharmaceutical companies ranked in order of worldwide
sales, as published by Scrip in its then most recent ranking prior to the date
of the Change of Control, or the acquiring party does not agree to assume all
obligations of SGX under this Agreement. For purposes of this Section, "Change
of Control" means a transaction (other than an equity financing) under which the
shareholders of SGX just prior to the transaction, own less than 50% of the
voting power able to vote for directors and other matters of SGX after the
transaction.

      10.6 Effects of Termination of the Research Collaboration. In the event of
termination of the Research Collaboration under Section 10.4 or 10.5, (i) SGX
will have no further obligation to conduct the Research Collaboration, (ii)
Lilly will pay SGX a prorated amount under Sections 4.1(b) and (c) proportionate
with the amount of FTEs used by SGX prior to the effective date of termination;
(iii) SGX will have no further obligation to conduct the Phase IB(ii) Acceptance
Criteria experiments, provided however, SGX will continue to conduct the Phase
IB(i) Acceptance Criteria experiments if not already completed, and if SGX
achieves the Phase IB(i) Acceptance Criteria, Lilly will pay SGX the fee under
Section 4.2(c); (iv) the licenses granted Lilly under Section 5.1 and SGX under
Section 5.3 will continue and (v) the payment obligations of Lilly under Section
4.2 (subject to (iii) above), and 4.3 will continue.

      10.7 Effect of Termination.

            (a) Accrued Rights and Obligations. Termination of this Agreement
for any reason shall not release any Party hereto from any liability which, at
the time of such termination, has already accrued to the other Party or which is
attributable to a period prior to such termination nor preclude either Party
from pursuing all rights and remedies it may have hereunder or at law or in
equity with respect to any breach of this Agreement.

            (b) Return of Confidential Information. Upon any termination of this
Agreement, SGX and Lilly shall promptly return to the other Party or destroy all
Confidential Information received from the other Party, except to the extent
required to

                            Page 28 of 68    ***CONFIDENTIAL TREATMENT REQUESTED


exercise any continuing rights of such Party (and in any event, except one copy
of which may be retained solely for archival purposes).

            (c) Cross License. In the event of termination of this Agreement by
either Party pursuant to this Article 10, the licenses granted to SGX and Lilly
in Section 5.2 shall terminate concurrently.

            (d) Survival. The provisions of Articles 6, 7, 8, 9 and 11 shall
survive the expiration or termination of this Agreement for any reason.

      10.8 Rights in Bankruptcy. All rights and licenses granted under or
pursuant to this Agreement by SGX and Lilly are, and will otherwise be deemed to
be, for purposes of Section 365(n) of the United States Bankruptcy Code,
licenses of rights to "intellectual property" as defined under Section 101 of
the United States Bankruptcy Code. The Parties agree that the Parties, as
licensees of such rights under this Agreement, will retain and may fully
exercise all of their rights and elections under the United States Bankruptcy
Code. The Parties further agree that, in the event of the commencement of a
bankruptcy proceeding by or against a Party under the United States Bankruptcy
Code, the Party hereto that is not a Party to such proceeding will be entitled
to a complete duplicate of (or complete access to, as appropriate) any such
intellectual property and all embodiments of such intellectual property, which,
if not already in the non-subject Party's possession, will be promptly delivered
to it (a) upon any such commencement of a bankruptcy proceeding upon the
non-subject Party's written request therefor, unless the Party subject to such
proceeding continues to perform all of its obligations under this Agreement or
(b) if not delivered under clause (a) above, following the rejection of this
Agreement by or on behalf of the Party subject to such proceeding upon written
request therefor by the non-subject Party.

11    MISCELLANEOUS

      11.1 Governing Law. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the Parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Delaware,
without reference to rules of conflicts or choice of laws.

      11.2 Notices. Any notice required or permitted by this Agreement shall be
in writing and shall be sent by prepaid registered or certified mail, return
receipt requested, internationally recognized courier or personal delivery, or
by fax with confirming letter mailed under the conditions described above in
each case addressed to the other Party at the address shown below or at such
other address for which such Party gives notice hereunder. Such notice shall be
deemed to have been given when delivered:

      If to SGX:    Structural GenomiX, Inc.
                    10505 Roselle Street,
                    San Diego, CA  92121
                    Attn:  Chief Executive Officer
                    Copy to:  Corporate Counsel

                            Page 29 of 68


      If to Lilly:  Eli Lilly and Company
                    Lilly Corporate Center
                    Indianapolis, IN 46285
                    Attention:  General Counsel
                    Fax No.: (317) 277-1917
      Copy to:      Office of Alliance Management
                    Fax No.:  (317) 433-5900

      11.3 Force Majeure. Neither Party shall lose any rights hereunder or be
liable to the other Party for damages or losses (except for payment obligations)
on account of failure of performance by the defaulting Party if the failure is
occasioned by war, strike, acts of terrorism, fire, Act of God, earthquake,
flood, lockout, embargo, governmental acts or orders or restrictions, failure of
suppliers (including, without limitation, energy suppliers), or any other reason
where failure to perform is beyond the reasonable control and not caused by the
negligence, intentional conduct or misconduct of the nonperforming Party and the
nonperforming Party has exerted all reasonable efforts to avoid or remedy such
force majeure; provided, however, that in no event shall a Party be required to
settle any labor dispute or disturbance.

      11.4 No Implied Rights. Only the rights granted pursuant to the express
terms of this Agreement shall be of any legal force or effect. No other rights
shall be created by implication, estoppel or otherwise.

      11.5 Assignment. This Agreement shall not be assignable by either Party to
any Third Party hereto without the written consent of the other Party hereto,
except either Party may assign this Agreement, without such consent, to (i) an
Affiliate or (ii) an entity that acquires all or substantially all of the
business or assets of such Party to which this Agreement pertains, whether by
merger, reorganization, acquisition, sale, or otherwise. Any permitted assignee
shall assume all obligations of its assignor under this Agreement. Any purported
assignment or transfer in violation of this Section shall be void.

      11.6 Partial Invalidity. If any provision of this Agreement is held to be
invalid by a court of competent jurisdiction, then the remaining provisions
shall remain, nevertheless, in full force and effect. The Parties agree to
renegotiate in good faith any provision held invalid and to be bound by the
mutually agreed substitute provision in order to give the most approximate
effect originally intended by the Parties

      11.7 Independent Contractors. The relationship of Lilly and SGX
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to (i) give either Party the
power to direct or control the day-to-day activities of the other, (ii)
constitute the Parties as partners, joint venturers, co-owners or otherwise as
participants in a joint or common undertaking, or (iii) allow a

                            Page 30 of 68


Party to create or assume any obligation on behalf of the other Party for any
purpose whatsoever.

      11.8 No Waiver. No waiver of any term or condition of this Agreement shall
be valid or binding on either Party unless agreed in writing by the Party to be
charged. The failure of either Party to enforce at any time any of the
provisions of the Agreement, or the failure to require at any time performance
by the other Party of any of the provisions of this Agreement, shall in no way
be construed to be a present or future waiver of such provisions, nor in any way
affect the validity of either Party to enforce each and every such provision
thereafter.

      11.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

      11.10 Entire Agreement; Amendment. This Agreement, including the Exhibits
attached hereto, constitutes the entire agreement of the Parties with respect to
the subject matter hereof, and supersedes all prior or contemporaneous
understandings or agreements, whether written or oral, between Lilly and SGX
with respect to such subject matter. No amendment or modification hereof shall
be valid or binding upon the Parties unless made in writing and signed by the
duly authorized representatives of both Parties.

      IN WITNESS WHEREOF, the undersigned are duly authorized to execute this
Agreement on behalf of Lilly and SGX as applicable.

ELI LILLY AND COMPANY                    STRUCTURAL GENOMIX, INC.

By: /s/ August M. Watanabe, M.D.         By: /s/ Dr. Tim Harris
    -----------------------------            ---------------------------

Name: August M. Watanabe, M.D.           Name: Dr. Tim Harris

Title: Executive Vice President          Title: President & CEO
       Science & Technology

                                 Page 31 of 68


                                    EXHIBIT A

                              COLLABORATION TARGETS

Group 1 [...***...]

Group 2 [...***...]

Group 3 [...***...]

                             Page 32 of 68  *** CONFIDENTIAL TREATMENT REQUESTED



                                    EXHIBIT B

                                  RESEARCH PLAN

OVERVIEW

SGX and Lilly will carry out the Research Collaboration to [...***...] for
Collaboration Targets either in [...***...], or [...***...] with [...***...] or
[...***...], over a [...***...] period.

TARGETS

Year [...***...] Collaboration Targets are as follows:

      [...***...]
      [...***...]
      [...***...]

EXPERIMENTAL STRATEGY

[...***...]

Collaboration Targets will be assigned to [...***...] of [...***...] of
[...***...] and [...***...] based on the following criteria. Expected percentage
success rates for determining Target Structures for each level are given in
parentheses.

      [...***...], predicted to be [...***...] in [...***...] ([...***...]%) or
      [...***...] available in the [...***...] and [...***...] is clear.
      [...***...] in [...***...] and/or [...***...] to be [...***...]
      [...***...] to [...***...]
      [...***...] likely to be required ([...***...] to [...***...])

During the first [...***...] to [...***...] of the Research Collaboration,
[...***...] studies on [...***...] and [...***...] will be performed on each
Collaboration Target and, based on the outcome of these studies, Collaboration
Targets may be [...***...] to [...***...] The [...***...] will provide guidance
on the amount of effort to devote to Collaboration Targets [...***...] to
[...***...]

[...***...]                  Page 33 of 68  *** CONFIDENTIAL TREATMENT REQUESTED



As determined by the [...***...], approximately [...***...] Collaboration
Targets selected from the initial Target Structures will proceed to [...***...]
and [...***...]. At [...***...] request, [...***...] will provide [...***...]
for [...***...] undertaken at [...***...]. For the purpose of resource planning
the [...***...] will be categorized according to [...***...] of [...***...] and
[...***...]

      [...***...] or [...***...]. Many [...***...] fall into this category.

      [...***...]. Examples include most [...***...], which require [...***...]
      with [...***...] and/or [...***...] and some [...***...], which require
      [...***...]

      [...***...] Requires an initial period of effort to develop a system that
      can support consistent [...***...] efforts. An example would be
      [...***...], which would require [...***...] and [...***...] in
      [...***...] and/or [...***...]

[...***...] will provide a total of [...***...] or [...***...] per month for
each [...***...] to be [...***...] will be available in amounts of [...***...]
for [...***...] and [...***...] for [...***...]

For the purpose of the allocation of resources in the attached spreadsheet, each
[...***...] has been resourced for [...***...] following initial Target
Structure [...***...]

The [...***...] will be responsible for determining [...***...] and [...***...]
the level of [...***...] to be distributed between [...***...] and [...***...]

RESOURCES

A total of [...***...] will be devoted to the first [...***...] of the SGX-Lilly
Research Collaboration. The attached spreadsheet (Appendix B) outlines the
[...***...] of resource across the [...***...] The [...***...] have been
resourced according to the following projected levels

      [...***...]

      [...***...].

      [...***...].

                             Page 34 of 68  *** CONFIDENTIAL TREATMENT REQUESTED



The [...***...] will be responsible for determining which Collaboration Targets
will be subject to [...***...] at [...***...], whereupon [...***...] will
deliver [...***...] to [...***...], and which Collaboration Targets progress to
[...***...] at [...***...].

EXPECTED DELIVERABLES

[...***...]

[...***...] are expected in [...***...] based on the initial assessment of level
for each Collaboration Target and [...***...] between [...***...] and
[...***...] (see accompanying spreadsheet). [...***...] deliverables are
projected as a percent of [...***...] or [...***...] entered into [...***...],
assuming the Compounds are of the [...***...] and are available in the required
amounts:

      [...***...]
      [...***...]

[...***...]

[...***...] for [...***...] at [...***...] for approximately [...***...] in
[...***...] will be provided subsequent to [...***...] the [...***...] at
[...***...]. The deliverable includes [...***...], in amounts to be determined
by the [...***...] for each Collaboration Target, and [...***...] for
[...***...] the [...***...] to [...***...] in [...***...] with Compounds.

[...***...]

[...***...] for [...***...] of a Target Structure with a [...***...] for which
[...***...] will perform the [...***...] will be provided in
[...***...]:[...***...] ([...***...]) and [...***...]. [...***...] is defined as
[...***...] and [...***...] that have been processed with
[...***...] using [...***...] and [...***...] derived from the [...***...].

[...***...] will be further processed by [...***...] to [...***...],[...***...]
of [...***...] with the [...***...], whether or not [...***...] to a [...***...]
is present. When an experimentally significant [...***...] is present the
Complex Data will be sent to [...***...] for [...***...].

                             Page 35 of 68  *** CONFIDENTIAL TREATMENT REQUESTED



                                   APPENDIX B

                                  [...***...]

[...***...]

                             Page 36 of 68  *** CONFIDENTIAL TREATMENT REQUESTED



                                    EXHIBIT C

                          TECHNOLOGY INSTALLATION PLAN

This Outline Technology Installation Plan will form the basis of a definitive
Technology Installation Plan to be completed within [...***...] of the
collaboration Effective Date. This Plan outlines the various modules of the
Platform and SGX [...***...], and the proposed timelines for [...***...],
[...***...], and [...***...] at both the Lilly San Diego Facility and the Lilly
Indianapolis Facility.

[...***...]

This document describes, in outline terms, the plan for [...***...] and
[...***...] of a [...***...] for Lilly by SGX. Figure 1 provides an overview of
the [...***...] to be developed by [...***...]. The Process Technology and
underlying Platform will transferred to [...***...] in [...***...]. The
[...***...] will be [...***...] and [...***...] in modules, [...***...] the
Lilly San Diego Facility, and [...***...] at the Lilly Indianapolis Facility.

While the Lilly San Diego Facility is [...***...], the [...***...] comprising
the Platform (Hardware, IT Infrastructure, and 3rd Party Technology) will be
[...***...], [...***...], and [...***...] to [...***...]. [...***...] of the
Platform and SGX [...***...] will [...***...].

A comprehensive Technology Installation Plan will be developed by [...***...]
following the Effective Date and will be [...***...] in a [...***...]. Specific
timelines for each stage of the transfer will take into account the time
required to complete the [...***...] in San Diego.

[...***...]

                                                  FIGURE 1.  The SGX
                                                  [...***...] to be [...***...]
                                                  SGX [...***...] that
                                                  integrates the Platform
                                                  components (hardware, IT
                                                  infrastructure and 3rd party
                                                  technology).  The Lilly San
                                                  Diego Facility [...***...].

                             Page 37 of 68  *** CONFIDENTIAL TREATMENT REQUESTED



[...***...]

The Platform and SGX [...***...] will [...***...] be [...***...] in the Lilly
San Diego Facility. The facilitY will [...***...] for the installation.
[...***...] will [...***...] the [...***...] and [...***...] to [...***...]. A
separate document will outline the required [...***...].

[...***...] MODULES

For purposes of [...***...] and installation, the Platform and SGX [...***...]
have been broken down into [...***...] modules, plus the underlying [...***...]
for ease of [...***...] and [...***...]. These modules are:

      [...***...]
      [...***...] to [...***...]
      [...***...] to [...***...]
      [...***...]
      [...***...].

The Hardware and IT Infrastructure components of the Platform supporting each
module are outlined in Exhibit D. Third Party Technology is listed in
[...***...]. The processes enabled by each of these modules, as well as the
[...***...], are described in SGX [...***...], Exhibit F. Each [...***...]
module will be [...***...] and [...***...]. Once all modules are validated the
[...***...] will be [...***...] as described in Exhibit G.

[...***...] AND [...***...] STAGES

It is anticipated that transfer and [...***...] of SGX [...***...] and the
Platform will occur in [...***...] (see Figure 2).

[...***...] and [...***...] of [...***...].

[...***...] of [...***...].

[...***...] of the [...***...] and the SGX [...***...] at the [...***...].

[...***...] at the [...***...] ([...***...]).

[...***...] at the [...***...] ([...***...]).

[...***...] to [...***...].

                             Page 38 of 68  *** CONFIDENTIAL TREATMENT REQUESTED



[...***...] at the [...***...].

[...***...] at the [...***...] ([...***...]).

Between [...***...] and [...***...] ([...***...] at the [...***...] and the
[...***...] to the [...***...]), there will a period of [...***...] in
[...***...].

[...***...]

The Lilly San Diego Facility will need to be [...***...] prior to the
[...***...] the [...***...]. It is anticipated that this [...***...] will take
[...***...]. During this period [...***...],[...***...] and [...***...] of
[...***...], will occur. As shown below, [...***...] activities will include the
[...***...] of the [...***...], the [...***...] of the [...***...], the
[...***...] of the SGX [...***...] ([...***...]) and [...***...] modules.

It is anticipated that [...***...] will [...***...] the [...***...] of the
[...***...].

It is anticipated that [...***...] will [...***...] on or about the [...***...]
of the [...***...].


[...***...]

FIGURE 2: [...***...]

                             Page 39 of 68  *** CONFIDENTIAL TREATMENT REQUESTED



[...***...]

During the period of time in which the [...***...] is located in the Lilly San
Diego Facility, the Lilly San Diego Facility will have access to:

[...***...]of the [...***...].

[...***...] of the [...***...], as agreed by [...***...], and [...***...]
([...***...]).

OTHER SGX FACILITY USE

Lilly and SGX agree that Lilly may require access to certain SGX facilities
(i.e., [...***...]) to support work at the Lilly San Diego Facility. The details
of such access will be part of a seprate facilities use agreement, to be agreed
upon by Lilly and SGX.

                             Page 40 of 68  *** CONFIDENTIAL TREATMENT REQUESTED



EXHIBIT D

                                    PLATFORM

    D 1: LABORATORY EQUIPMENT (costs and timelines see attached Appendix D1)

     QUANTITY                               ITEM DESCRIPTION

ROBOTICS EQUIPMENT

[...***...] TO [...***...] MODULE

        2      [...***...]
        1      [...***...]
        1      [...***...]
        1      [...***...]
        1      [...***...]
        1      [...***...]
        1      [...***...]
        3      [...***...]
        3      [...***...]
        3      [...***...]
        3      [...***...]
        2      [...***...]
        1      [...***...]
        1      [...***...]

[...***...] TO [...***...] MODULE

        1      [...***...]
        1      [...***...]
        2      [...***...]
        2      [...***...]
        1      [...***...]
        1      [...***...]

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       QUANTITY                              ITEM DESCRIPTION

ANCILLARY LAB EQUIPMENT

[...***...] AND [...***...] (SOME ITEMS TO BE SHARED)

       1        [...***...]
       1        [...***...]
       1        [...***...]
       1        [...***...]
       1        [...***...]
       1        [...***...]
       2        [...***...]
       1        [...***...]
       1        [...***...]
       4        [...***...]
       4        [...***...]
       2        [...***...]
       3        [...***...]
       2        [...***...]
       1        [...***...]
      10        [...***...]
       1        [...***...]
       1        [...***...]
       1        [...***...]
       1        [...***...]
       1        [...***...]
      24        [...***...]
       1        [...***...]
       1        [...***...]
       6        [...***...]
       4        [...***...]
       1        [...***...]
       1        [...***...]
       1        [...***...]
       1        [...***...]
       1        [...***...]
       1        [...***...]
       1        [...***...]

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      QUANTITY                              ITEM DESCRIPTION

[...***...] AND [...***...] (CONTINUED)

      1         [...***...]
      2         [...***...]
      1         [...***...]
      2         [...***...]
      3         [...***...]
      2         [...***...]
      4         [...***...]
      3         [...***...]

[...***...]

       1        [...***...]
       1        [...***...]
       1        [...***...]
       5        [...***...]
       1        [...***...]
      15        [...***...]
       2        [...***...]
       4        [...***...]
       1        [...***...]
       5        [...***...]

[...***...] AND [...***...]

       2        [...***...]
       2        [...***...]
       5        [...***...]
      12        [...***...]
       3        [...***...]
       1        [...***...]
       1        [...***...]
       1        [...***...]
       1        [...***...]
       1        [...***...]
       1        [...***...]
       1        [...***...]
       3        [...***...]

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      QUANTITY                              ITEM DESCRIPTION

[...***...] AND [...***...] (CONTINUED)

       1        [...***...]
       1        [...***...]
       1        [...***...]
       1        [...***...]
       2        [...***...]
       1        [...***...]
       4        [...***...]
      30        [...***...]
       2        [...***...]
       2        [...***...]

GENERAL

      1         [...***...]
      3         [...***...]
      2         [...***...]

                             D 2: IT INFRASTRUCTURE

      QUANTITY                             ITEM DESCRIPTION

[...***...] & [...***...]

      2         [...***...]
      2         [...***...]
      4         [...***...]
      4         [...***...]

FACILITY INFRASTRUCTURE

      1         [...***...]
      2         [...***...]
      1         [...***...]
      1         [...***...]
      1         [...***...]

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       QUANTITY                             ITEM DESCRIPTION

TELECOM & RELATED

      1         [...***...]
      1         [...***...]

SERVERS AND RELATED ITEMS

      1         [...***...]
      4         [...***...]
      1         [...***...]
      1         [...***...]
      1         [...***...]
      1         [...***...]
      1         [...***...]
      1         [...***...]
      1         [...***...]

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                                  APPENDIX D-1

                   ESTIMATED TIMING OF LAB EQUIPMENT PURCHASES

[...***...]

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                             APPENDIX D1 (CONTINUED)

[...***...]

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                             APPENDIX D1 (CONTINUED)

[...***...]

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                                  APPENDIX D-2
                      EQUIPMENT TO BE ORDERED BY SGX PRIOR
                               TO APPROVAL OF THE
                          TECHNOLOGY INSTALLATION PLAN



   ITEM                     VENDOR
   ----                     ------
                       
[...***...]               [...***...]
[...***...]               [...***...]


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                                    EXHIBIT E

                             THIRD PARTY TECHNOLOGY

 VENDOR/INSTITUTION                                     ITEM

SGX [...***...] THIRD PARTY LICENCES

[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]

IT INFRASTRUCTURE THIRD PARTY LICENCES

[...***...]           [...***...]
[...***...]           [...***...]

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   VENDOR/INSTITUTION                                               ITEM

THIRD PARTY LICENSES TO VECTORS AND EXPRESSION SYSTEMS

[...***...]           [...***...]
[...***...]           [...***...]
[...***...]           [...***...]

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                                    EXHIBIT F
                                 SGX [...***...]

The SGX [...***...] is comprised of [...***...] modules, supported by the
[...***...]

      [...***...]
      [...***...] to [...***...]
      [...***...] to [...***...]
      [...***...]
      [...***...].

The [...***...] to [...***...] and [...***...] to [...***...] modules are
[...***...] modules, each of which have (i) [...***...] or [...***...] programs,
(ii) [...***...] for use in conjunction with [...***...] or [...***...], and
(iii) [...***...].

The [...***...] ([...***...] and [...***...]), and [...***...] modules are
[...***...] and [...***...], each of which have (i) [...***...] or [...***...],
(ii) [...***...] and/or [...***...], and (iii) [...***...] (see [...***...]
section for a description of [...***...]).

Each Module and [...***...] will be described in more detail below.

[...***...] MODULE

This module enables the user to [...***...] a [...***...] or [...***...] using
[...***...] and [...***...] a set of [...***...] for [...***...]. The
[...***...] to prepare these [...***...] using [...***...] are designed using
one of several [...***...]. The [...***...] is sent to the [...***...] along
with the [...***...] and [...***...] a record for this [...***...] and
[...***...] going forward. [...***...] can be formatted and sent to an external
vendor for synthesis using these tools.

The module includes a number of [...***...] and [...***...] and documentation
relating to use of the [...***...].

[...***...]:

      [...***...] AND [...***...]: Provides a [...***...] of all of the
      [...***...] that have been [...***...] and/or [...***...] for a
      [...***...]. Included in the [...***...] from [...***...] in the
      [...***...].

      [...***...]: ([...***...]for [...***...])[...***...] that, for a
      [...***...] or group of [...***...] provides [...***...] to [...***...],

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      [...***...], and [...***...]. The [...***...] can select [...***...] with
      which to [...***...] by simple [...***...] and [...***...] operations on
      individual [...***...].The [...***...] is automatically generated and
      [...***...] to [...***...] for [...***...].

      [...***...] of [...***...].[...***...] builds [...***...] and [...***...],
      predicts [...***...] ([...***...]), searches [...***...] for [...***...]
      to known [...***...], and uses [...***...] to classify [...***...].
      Results can be summarized on a [...***...] and [...***...] to [...***...].

      [...***...] to highlight the [...***...], and [...***...] in a [...***...]
      as defined by [...***...] and [...***...] ([...***...]). It operates as a
      [...***...] or from the [...***...] ([...***...]), and can include
      [...***...], and [...***...] in the output as an option. Output is in
      [...***...] or [...***...] ([...***...]).

      [...***...] that [...***...] the [...***...] of the [...***...] and
      [...***...] in [...***...] and [...***...] each [...***...] ([...***...]),
      and [...***...] that form the [...***...] or interact with the
      [...***...]. It also shows [...***...] and [...***...] from [...***...]
      and can include [...***...].

      [...***...] A [...***...] approach to [...***...] for [...***...] that may
      improve [...***...] and/or [...***...].[...***...] analyzes [...***...],
      [...***...], or [...***...] and suggests [...***...] based on variations
      found in [...***...]. The user can provide as much or as little
      intervention as is deemed necessary.

      [...***...] of [...***...] for [...***...] and [...***...].[...***...] and
      [...***...] that have previously been [...***...], [...***...],
      [...***...] and [...***...] with a related [...***...] ([...***...]),
      with the actual [...***...], the length of the [...***...] used to obtain
      the [...***...] and identification of all [...***...] in the [...***...].

[...***...] AND [...***...]:

        - Generating [...***...] from a [...***...].
        - Generating [...***...] from [...***...] for [...***...].
        - Generating [...***...] from a [...***...].
          Generating [...***...] from [...***...] for [...***...].

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      - Uploading of [...***...] material into the [...***...].
      - Updating the [...***...] of [...***...] already completed.
      - Generating [...***...] for a specific [...***...].
      - Use of [...***...] to generate [...***...].
      -
      - [...***...] and [...***...] in the [...***...].

[...***...]:

      [...***...]
            [...***...] and [...***...]
            [...***...]

[...***...] MODULE

This module enables the user to [...***...] for each target from the [...***...]
designed in the [...***...] MODULE. Once the [...***...] are prepared, they are
[...***...] and [...***...] into one or more of several [...***...] containing
[...***...] using [...***...]. These [...***...] are expressed in [...***...],
and for each [...***...] are chosen for [...***...]. [...***...] is achieved by
[...***...] of [...***...] for each [...***...] for [...***...] of [...***...]
to [...***...] in [...***...] and analyzing the output using [...***...].
[...***...] containing [...***...] that express [...***...] are [...***...] in
one of several [...***...] at a scale of [...***...] to [...***...]. The
resulting material is [...***...] and passed on for [...***...].

[...***...] is done via [...***...] by passing the [...***...] over [...***...]
and [...***...]. In some cases, [...***...] is also employed. The resulting
[...***...] is concentrated to on average [...***...] and passed on for
characterization of [...***...], [...***...], and [...***...] using
[...***...].[...***...] state is assessed by [...***...]. [...***...] judged to
be [...***...]%[...***...] and [...***...] is passed on for [...***...].

Other methods available within this [...***...] are [...***...] of [...***...],
[...***...] of [...***...] using [...***...] combined with [...***...], and
[...***...] of [...***...], [...***...] by [...***...]. Identification of
[...***...] for [...***...] is also available.

(i)   [...***...] PROGRAMS:

      [...***...]:[...***...] and/or [...***...] views of limited [...***...].
      Simultaneously view the effects of [...***...] as a function of
      [...***...]; also displays the [...***...], existing [...***...]
      boundaries as stored in the [...***...],[...***...], and [...***...].

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(ii)  METHODS AND PROTOCOLS:

      [...***...] AND [...***...]

         -     Calibration Procedure for [...***...]*.

         -     Setup of a [...***...] on a [...***...]*.

         -     Setup of a [...***...] on a [...***...]*.

         -     [...***...] from [...***...] on a [...***...]*.

         -     Operation of the [...***...].

         -     Operation of the [...***...].

         -     Sample [...***...] and [...***...] on a [...***...]*.

         -     [...***...] of [...***...] using [...***...] and [...***...],
               [...***...], [...***...], and/or [...***...].

         -     [...***...] using [...***...] on a [...***...]*.

         -     [...***...]:[...***...] stock creation and [...***...] on a
               [...***...].

         -     [...***...] screen preparation on a [...***...].

         -     [...***...] using [...***...] on a [...***...]*.

         -     [...***...] using [...***...] on a [...***...]*.

         -     [...***...] using [...***...] on a [...***...]*.

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

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

            *Or equipment of equivalent functionality.

[...***...]

         -     Growth of [...***...] in [...***...] w/[...***...].

         -     Growth of [...***...] in [...***...] w/ [...***...] and
               w/[...***...].

         -     Growth of [...***...] in [...***...] w/[...***...] +/-
              [...***...].

[...***...]

         -     [...***...] of [...***...] using [...***...] and [...***...].

         -     [...***...] and [...***...] of [...***...] or [...***...].

[...***...] AND [...***...]

         -     Protein [...***...] and [...***...] for [...***...].

         -     Protein [...***...] using [...***...] for [...***...] to
               [...***...].

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      -     Protein [...***...] using [...***...] and [...***...] for
            [...***...] samples.

      -     Protein [...***...] and [...***...] of [...***...] using
            [...***...].

      -     [...***...] and [...***...] of [...***...] proteins.

      -     Protein [...***...] using the [...***...] and [...***...].

      -     Protein [...***...] using a [...***...] and [...***...].

      -     [...***...] for protein [...***...] and [...***...]

      -     [...***...] of protein [...***...] for [...***...] and [...***...]
            using [...***...].

      -     Identification of proteins using [...***...] in [...***...] and
            analysis with [...***...].

      -     Protein [...***...] using [...***...] and [...***...].

(iii) [...***...] INTERFACES:

      MOLECULAR BIOLOGY

            [...***...]
                  Enter new [...***...].
            [...***...]
                  Enter [...***...] in [...***...] from [...***...].
            [...***...]
                  Order [...***...] and send email to [...***...] and
                  [...***...]
            [...***...]
                  [...***...] of [...***...]
            [...***...]
            [...***...].
                  Tool for entering and updating the [...***...] associated with
                  a given [...***...].
            [...***...]
                  Start [...***...] once the [...***...] are [...***...].

      [...***...]
            [...***...].

                  Enter [...***...] detail information and complete [...***...]
                  sending it to [...***...] in [...***...].
            [...***...]
                  Request [...***...].
                  Manage existing orders.
                  Query existing orders.

      PURIFICATION
            [...***...]

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                  Queries, inserts, and updates records.
            [...***...]
                  Queries, inserts, update, and delete steps.
            [...***...].

            [...***...]
                  Queries, inserts, update, and delete steps.

      [...***...] ANALYSIS
            [...***...] Records
                  Program - [...***...] information. Both [...***...] and
                  [...***...].

3.    [...***...] TO [...***...] MODULE

This module enables the user to [...***...] with the [...***...] prepared in the
[...***...]. [...***...] is tested for the [...***...] using the [...***...] and
[...***...]. Standard solutions for [...***...] are prepared and [...***...] for
use in [...***...]. [...***...] and [...***...] solutions are added to
[...***...], [...***...], and [...***...] in one of [...***...]. At pre-selected
times the [...***...] are [...***...] and the [...***...] are stored in the
database where they can be [...***...]. Solutions for [...***...] can be
selected using the [...***...] and set-up as before. Once [...***...] they are
collected, and a number of [...***...] conditions are tested for [...***...].

(i)   [...***...] PROGRAMS

      [...***...]: [...***...] interface that facilitates automated
      [...***...] of [...***...]. The method uses [...***...] based upon
      [...***...] from a set of [...***...]. The contents of the [...***...]
      are stored in the [...***...], and the [...***...] are automatically
      [...***...].

      [...***...]: [...***...] that allows [...***...] of [...***...]. The
      [...***...] is integrated into an overall [...***...] process where
      [...***...] are automatically [...***...] and [...***...]. The results
      are stored in the [...***...]. Scoring results are classified into
      [...***...] categories: [...***...], [...***...], [...***...]. All
      [...***...] and scores may be viewed interactively through a
      [...***...].

(ii)  METHODS AND PROTOCOLS:

         -     Protocols and Solutions for [...***...] and [...***...].

         -     Solution set-up for [...***...] using a [...***...].

         -     Solution set-up for [...***...] using a [...***...].

         -     [...***...] set-up via [...***...].

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      -     Entry/retrieval of [...***...] into/from [...***...].

      -     [...***...] viewing and [...***...].

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

(iii) [...***...] INTERFACES:

      [...***...]
            [...***...] tool
                  Query to find [...***...] of [...***...].
            [...***...]
                  Adds [...***...] to a [...***...].
            [...***...]
                  Allows [...***...] and[...***...].
            [...***...]
                  Marks [...***...] for [...***...].
            [...***...]
                  Adds [...***...] that [...***...] a [...***...].
            [...***...]
                  [...***...] for [...***...].
            Print [...***...]
                  Prints [...***...] of a [...***...].
            Print [...***...]
                  Prints [...***...] for the [...***...].
            View [...***...]
                  Allows viewing of [...***...].
            [...***...] Summary
                  Displays a summary of [...***...] by [...***...].
            Add a [...***...]
                  Adds a new [...***...] to be used in a [...***...].
            Add a [...***...]
                  Adds a new [...***...] to be used in a [...***...].
            Add a [...***...]
                  Enters information about a [...***...].
            [...***...] /update a [...***...]
                  Reports and prioritizes [...***...] for [...***...].
            Collect Data
                  Allows for [...***...] data collection.
            [...***...] a [...***...]
                  Allows for designation of [...***...].
            [...***...] a [...***...]
                  Allows user to designate a [...***...] as [...***...].
            [...***...] Summary
                  Shows summary of [...***...] for a [...***...].
            [...***...] editor
                  Supports [...***...].

            Reports
                  Reports by project and date range.

            [...***...]
                  [...***...] to [...***...].

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            Summary page
                  Provides summaries by [...***...] and [...***...].

4.    [...***...] MODULE

This module enables the user to take [...***...] collected at a [...***...] or
other [...***...] and produce [...***...] with minimal user input. Once the
[...***...] for a [...***...] is available, a single process automates
[...***...] and [...***...]. Following [...***...] completion, the completed
[...***...] and [...***...] are directed through the [...***...]. Once a
[...***...] passes [...***...] it may be deposited in the [...***...].

(i)   [...***...] PROGRAMS:

      [...***...] consists of a [...***...] of [...***...] that perform
      [...***...] specific tasks in the [...***...], requiring minimal user
      input.

      [...***...] consists of a highly automated [...***...] that performs
      [...***...] using both [...***...] components ([...***...], [...***...])
      from the [...***...] and [...***...] for additional tests and [...***...]
      into convenient form. This system also creates [...***...] ready for
      [...***...] into the [...***...] by [...***...] staff.

      [...***...] consists of [...***...] that [...***...] of [...***...]
      present after [...***...] that are large enough to potentially represent a
      [...***...]. The optimal conformation for the [...***...] is then fit to
      this [...***...] using an [...***...] that seeks to maximize the
      [...***...] value at each [...***...].

(ii)  METHODS AND PROTOCOLS:

      -     [...***...] processing.
            An [...***...] system for processing [...***...] collected on
            the [...***...] at [...***...].

      -     [...***...] using [...***...], [...***...], or [...***...] methods.
            A [...***...] for carrying out all data set to refined [...***...]
            within a single process. These operations include [...***...],
            [...***...], and [...***...]. These tasks may also be run separately
            via [...***...].

      -     [...***...].
            A [...***...] for running a variety of [...***...],
            with support for a variety of search parameters.

      -     [...***...].
            A [...***...] for [...***...] various types of
            [...***...], including [...***...] for improving [...***...].

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            -     [...***...].
                  [...***...] for running [...***...] methods applicable at both
                  [...***...] and [...***...] resolution

            -     [...***...].
                   A [...***...] for carrying out [...***...], [...***...],
                  [...***...] and [...***...], [...***...] of [...***...], and
                  [...***...] of the [...***...] within a single process. These
                  tasks can also be run individually. In normal operating modes,
                  initial [...***...] related to [...***...] is obtained as
                  [...***...] from the [...***...] system.

            -     [...***...].
                  A [...***...] for [...***...] using metrics related to
                  [...***...] and agreement with the [...***...]. This
                  [...***...] also checks [...***...] for [...***...], checks
                  [...***...] of the [...***...] sequence with the [...***...]
                  sequence, and collects [...***...] statistics. Output from
                  this [...***...] includes, a standardized [...***...], an
                  [...***...] containing [...***...], a list of [...***...],
                  various [...***...], and [...***...] files in [...***...]
                  format.

(iii) [...***...]:

            [...***...] REPOSITORY

                  Browse
                  Expert Search Form
                  Summary Report

5.    [...***...] MODULE

This module is an optional component that functions off-line. After the
[...***...] process, a series of structure analyses are available and run at the
discretion of the project and depends on the nature of the [...***...].

[...***...] can be analyzed using [...***...], [...***...], and [...***...] to
identify likely [...***...] and to provide [...***...] for [...***...]. By
comparing [...***...], these analyses can also be used in combination with
[...***...], to [...***...] that may [...***...] or [...***...] based on
[...***...] variation and prior experimental results. For detailed comparisons
to [...***...], [...***...] provides a [...***...]. This analysis is typically
performed with [...***...] to compare the [...***...] in a [...***...] and to
compare the [...***...] of a [...***...] to [...***...] to understand
[...***...].[...***...] is an [...***...] user program that provides an
independent method to [...***...] that does not require the [...***...] to be
[...***...] and, with [...***...] is used by the [...***...] to further
understand [...***...] across [...***...]. The results of these

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analyses, as well as the observations of the [...***...], [...***...] and
[...***...], can all be tracked using the [...***...].

(i)   [...***...] PROGRAMS:

      [...***...]:[...***...] tool for [...***...] of a user-selected group of
      [...***...] in the [...***...] and [...***...] databases (updated
      [...***...]). Information is stored in the [...***...] database to greatly
      accelerate future alignments and retrieve past results. Program identifies
      [...***...] and provides [...***...] output.

      [...***...]: Determines the [...***...] of all [...***...] on the
      [...***...] of a [...***...] structure and [...***...] them [...***...].
      About [...***...]% of the time the [...***...] represents the location of
      a [...***...]. Typically used in conjunction with [...***...], which
      improves the success rate to [...***...]%.

      [...***...]: A database of descriptors of [...***...] of [...***...] (from
      [...***...] structures) that bind [...***...] and [...***...] fragments.
      Can be used in conjunction with [...***...] to identify [...***...] of a
      given [...***...] or to identify [...***...] for a [...***...].

      [...***...]: Identifies [...***...] of [...***...], [...***...] in a
      structure. Such [...***...] are usually important [...***...] and
      typically the [...***...] is the [...***...]. Often used in conjunction
      with [...***...].

      [...***...]: A structure analysis program that evaluates the [...***...]
      of the [...***...] around each [...***...] in a [...***...] or
      [...***...]. The program can be used to [...***...] onto the [...***...],
      or evaluate the reliability of [...***...] of a [...***...]. It also
      highlights [...***...] that [...***...] with [...***...] and can display
      this information for a [...***...] of structures. Also used in protein
      engineering applications.

      [...***...]: Allows association of [...***...] and [...***...] with
      [...***...]. Documentation includes [...***...] for [...***...] of
      [...***...];[...***...] of [...***...];[...***...] of [...***...]; and
      [...***...] of [...***...].

      [...***...]: A program that overlays [...***...] of [...***...] by
      optimizing the [...***...] of [...***...]. Can be used to classify
      [...***...] by [...***...] similarities and to identify [...***...].

(ii)  METHODS AND PROTOCOLS:

      Since the [...***...] module operates as an optional module, there is no
      strict protocol for all [...***...].

            Novel [...***...] are:

                              Page 61 of 68 *** CONFIDENTIAL TREATMENT REQUESTED



            -     [...***...] to the [...***...] structure database

            -     [...***...] for the existence of [...***...]
                  ([...***...], [...***...])

            -     [...***...] using the [...***...] forum

(iii) [...***...] INTERFACES:

            STRUCTURE DEPOSITION TOOLS

                  A [...***...] for uploading [...***...] from the [...***...]
                  to the database. This tool lists [...***...] in a user
                  definable [...***...] and allows the user to [...***...] a
                  [...***...] to be uploaded. Some [...***...] are performed on
                  selection of a [...***...] and the user is informed as to
                  whether or not the [...***...] in the database. [...***...]
                  are solved on [...***...] or [...***...] systems, so the
                  [...***...] was intended to be run on these systems. It is
                  written in [...***...] with a [...***...].

6.    [...***...]

The SGX [...***...] is used to [...***...] and [...***...] and [...***...]
throughout the experimental and analytical processes. Each module has its own
workspace and interfaces as identified above. There are also general tools
available via [...***...] that are listed below.

      [...***...] TOOLS

            [...***...]
                  Calculates expected [...***...] for the [...***...] of
                  [...***...]. It implements logic to produce a [...***...],
                  calculating an [...***...] based on [...***...] when
                  necessary. The [...***...] is then analyzed for [...***...]
                  usage, [...***...], [...***...] content, [...***...],
                  [...***...] properties, and [...***...].

            [...***...]
                  [...***...] that updates the [...***...] tables

            [...***...]
                  A tool for entering and updating the [...***...] associated
                  with a [...***...].

            [...***...] Query
                  Simple web query tool available through [...***...] that only
                  allows select "m" statements. [...***...] not available
                  through this interface.

            [...***...]
                  [...***...] tool that allows users to assess the status of a
                  particular [...***...] within [...***...] using a variety of
                  [...***...].

            Change Password
                  Allows user to change [...***...] password.

                              Page 62 of 68 *** CONFIDENTIAL TREATMENT REQUESTED



      [...***...] TOOLS
            [...***...]
                  [...***...] tool that allows users to query the database for a
                  [...***...] of [...***...] available for [...***...]. Users
                  can add [...***...] to the database as well as edit existing
                  [...***...] records.

            [...***...]
                  [...***...] tool that allows users to query the database for
                  [...***...] as well as add [...***...] to the database and/or
                  edit existing [...***...] records.

            [...***...]
                  [...***...] tool that allows users to query the database for a
                  [...***...] available. Users can also add [...***...] to the
                  database and/or edit [...***...] records.

      [...***...] TOOLS
                  [...***...]
                  [...***...]
                  [...***...]

[...***...]: [...***...] system enabling quick [...***...] of [...***...] in the
[...***...] database. Users can find [...***...] in the pipeline based on the
[...***...], [...***...], or [...***...]. Links to key [...***...] interfaces,
[...***...], and [...***...] information facilitate quick lookup of information.

      [...***...] TOOLS: [...***...] tool suite that allows [...***...] of
[...***...] for management and reporting purposes. Project managers can
[...***...] to project related information by [...***...] to scientists in the
project. [...***...] interfaces integrate [...***...] information with
[...***...] so that [...***...] is protected. Targets can be assigned to
different projects. Reports detailing project progress summarize targets based
on project affiliation.

      [...***...]: [...***...] tool suite that allows project managers to
[...***...] progress of [...***...]. Scientists and project managers can easily
[...***...] and [...***...] key [...***...], [...***...], and [...***...] using
data entry forms.

      [...***...]: [...***...] data can be filtered and displayed using an SQL
based report system. The SQL based reports are generated and saved into the
database. Reports are then published so that users can [...***...], [...***...],
[...***...], and [...***...] the results into [...***...].

      [...***...]: [...***...] searches [...***...] at [...***...] nightly for
new literature related to [...***...], [...***...], or [...***...].

                              Page 63 of 68 *** CONFIDENTIAL TREATMENT REQUESTED



Note: Structural GenomiX, SGX, [...***...], [...***...], [...***...],
[...***...], [...***...], [...***...], [...***...], [...***...], [...***...],
[...***...], [...***...], [...***...], [...***...], [...***...], [...***...] and
[...***...] are all trademarks and/or service marks of Structural GenomiX, Inc.
Other trademarks and service marks are the property of their respective owners.

                              Page 64 of 68 *** CONFIDENTIAL TREATMENT REQUESTED



                                   APPENDIX F
                  SGX BIOINFORMATICS TECHNOLOGY TO BE INSTALLED
                       AT LILLY IN ADVANCE OF INSTALLATION
               OF SGX [...***...] AT THE LILLY SAN DIEGO FACILITY

[...***...] versions of the following:

[...***...]:  [...***...]

[...***...]:  [...***...], [...***...], [...***...], [...***...]

            [...***...]: [...***...], [...***...], [...***...], [...***...],
                        [...***...], [...***...],[...***...]

                              Page 65 of 68 *** CONFIDENTIAL TREATMENT REQUESTED



                                    EXHIBIT G
                               ACCEPTANCE CRITERIA

1.    [...***...]

The [...***...] of a [...***...],[...***...] target for which SGX has
[...***...] a [...***...] according to the Target Structure specifications in
Section 1.40(a) will be [...***...] using the Lilly San Diego Facility. This
experiment will comprise the following steps:

[...***...] and [...***...]
[...***...]
[...***...] and [...***...]
[...***...] and [...***...]
[...***...] at SGX-CAT at the APS
[...***...] and [...***...]

The experiment will be performed by an SGX employee or employees skilled in the
art but with [...***...] with the target in question. The target will be a
[...***...] nominated by SGX and approved by the [...***...]. Provided the
Target Structure specifications in Section 1.40(a) [...***...] for the target
the [...***...] ([...***...], [...***...] etc.) [...***...] to the structure
[...***...] to those that [...***...] the SGX structure.

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

[...***...] will be comprised of [...***...] parts:

[...***...]

The [...***...] of a [...***...] Collaboration Target (or as otherwise agreed by
the JSC) for which SGX has [...***...] a [...***...] according to the Target
Structure specifications in Section 1.40 will be [...***...] using the Lilly San
Diego Facility. This experiment will comprise the following steps:

[...***...] and [...***...]
[...***...]
[...***...] and [...***...]
[...***...] and [...***...]
[...***...] at SGX-CAT at the APS
[...***...] and [...***...]

The experiment will be performed by an SGX employee or employees skilled in the
art. The target will be a [...***...] nominated by SGX and approved by the
[...***...]. Provided the Target Structure specifications in Section 1.40(a) or,
if applicable, the

                              Page 66 of 68 *** CONFIDENTIAL TREATMENT REQUESTED



specifications of the structure which was utilized per Section 1.40(b) are
reached for the target, the [...***...] ([...***...], [...***...] etc.) that
[...***...] to the structure [...***...] to those that [...***...] the
collaboration structure.

[...***...]

Upon selection of the [...***...] ([...***...]) [...***...] Collaboration
Targets in accordance with Section 2.6(c), SGX will endeavor to determine the
[...***...] of such Collaboration Targets at the Lilly San Diego Facility for
[...***...] validation according to the Target Structure specifications in
Section 1.40. The target mix for this [...***...] validation will include the
following:

                        (i)  [...***...]
                        (ii)  [...***...]
                        (iii)  [...***...]
                        (each as further defined in the Research Plan.)

For successful completion of the [...***...] validation, SGX must demonstrate
that it has successfully determined Target Structures for at least [...***...]
([...***...]%) of such Collaboration Targets.

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

The [...***...] of a Collaboration Target for which SGX [...***...] a
[...***...] according to the Target Structure specification in Section 1.40 will
be [...***...] using the Lilly Indianapolis Facility. This experiment will
comprise the following steps:

[...***...] and [...***...]
[...***...]
[...***...] and [...***...]
[...***...] and [...***...]
[...***...] at SGX-CAT at the APS
[...***...] and [...***...]

The experiment will be performed by an SGX employee or employees skilled in the
art but with [...***...] with the target in question. The target will be a
[...***...] nominated by SGX and approved by the JSC. Provided the Target
Structure specifications in Section 1.40(a) or, if applicable, the
specifications of the structure which was utilized per Section 1.40(b) are
reached for the target, the [...***...] ([...***...], [...***...] etc.) that
[...***...] to the structure [...***...] to those that [...***...] the
collaboration structure.

                              Page 67 of 68 *** CONFIDENTIAL TREATMENT REQUESTED



                                    EXHIBIT H

                           LICENSED TECHNOLOGY SUPPORT

Requests for support under Section 3.4(c) must be submitted by Lilly employees
via email to a designated SGX group email address, which will deliver the
request to members of the SGX Bioinformatics Department and IT Department. A
first response to every email will be delivered via email to the initiating
Party, as well as the Bioinformatics Department and IT Department at SGX, during
business hours in accordance with the schedule below. Follow up emails will
continue until a resolution (final correction or work around) has been achieved.
If resolution or extent of problem cannot be determined via email then an SGX
personnel will follow up with call back to the specific Party to achieve better
clarity and final resolution of such problem. Resolution of such issues will be
finalized via email to the initiating Party, as well as the Bioinformatics
Department and IT Department at SGX.

          ERROR PRIORITY (1)       RESPONSE (2)

          Critical (A)             Within one (1) hour
          Non-Critical (B)         Within one (1) business day

      (1)   Priority:

            A. Problems that have been substantiated as resulting in substantial
impairment of functionality to users.

            B. All other problems which the user can easily avoid or detour and
for which there is no urgency for a resolution.

      (2) Response: Response consists of providing, as appropriate, one of the
following to Lilly: an existing correction; a new correction; a viable detour or
work around; a request for more information to complete analysis of the
problems, or a reasonable plan on how the problem will be corrected.

                              Page 68 of 68 *** CONFIDENTIAL TREATMENT REQUESTED

EX-10.18

                                                                 EXHIBIT 10.18

                                           *** TEXT OMITTED AND FILED SEPARATELY
                                    PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST
                                            UNDER 17 C.F.R. SECTION 200.80(b)(4)
                                               AND RULE 406 UNDER THE SECURITIES
                                                         ACT OF 1933, AS AMENDED


                             AMENDMENT TO AGREEMENT

         THIS AMENDMENT TO AGREEMENT (the "Amendment") is made and entered into
effective as of July 1, 2003 (the "Amendment Effective Date"), by and between
STRUCTURAL GENOMIX, INC., a corporation organized and existing under the laws of
the State of Delaware and having its principal place of business located at
10505 Roselle Street, San Diego, CA 92121 ("SGX") and ELI LILLY AND COMPANY., a
corporation organized and existing under the laws of the state of Indiana and
having its principal place of business at Lilly Corporate Center, Indianapolis,
Indiana 46285, ("Lilly"). Lilly and SGX may be referred to herein as a "Party"
or, collectively, as "Parties".

                                    RECITALS

         A. Lilly and SGX have entered into a Collaboration and License
Agreement (the "Agreement") effective April 14, 2003, under which the Parties
have agreed to conduct a collaborative research program.

         B. The Parties desire to amend the terms of the Agreement to provide,
among other things, for the transfer between the parties of additional
biological materials in furtherance of the research program, as provided in this
Amendment.

         NOW, THEREFORE, the Parties agree as follows:

1.       AMENDMENT OF THE AGREEMENT

         The Parties hereby agree to amend the terms of the Agreement as
provided below, effective as of the Amendment Effective Date. To the extent that
the Agreement is explicitly amended by this Amendment, the terms of the
Amendment will control where the terms of the Agreement are contrary to or
conflict with the following provisions. Where the Agreement is not explicitly
amended, the terms of the Agreement will remain in force. Capitalized terms used
in this Amendment that are not otherwise defined herein shall have the same
meanings as such terms are defined in the Agreement.

         1.1 AMEND SECTION 2.1. Section 2.1 of the Agreement is hereby amended
to delete the third sentence in its entirety and replace it with the following:
"SGX will commit a total of at least [...***...] ([...***...]) [...***...] to
the Research Collaboration during the period between March 26, 2003 and the
[...***...] of the Effective Date, with a minimum of [...***...] ([...***...])
[...***...] being used between March 26, 2003 and December 31, 2003."

         1.2 INSERT NEW SECTION 2.4A. The following Section 2.4A is inserted:
"2.4A Additional Materials. In addition to any SGX Materials and Lilly Materials
which may be provided by the parties under Sections 2.3 and 2.4, from time to
time during the Term of the Research Collaboration, SGX and Lilly (each a
"Disclosing Party") may, at the Disclosing Party's discretion, provide the other
Party (the "Receiving Party") with other biological and/or chemical materials,
which materials may be used by the Receiving Party solely for the purposes of
the Research Collaboration. For the purposes of Articles 8 and 9, materials
provided by SGX



                                       1.    ***CONFIDENTIAL TREATMENT REQUESTED



under this Section will be deemed SGX Materials, and materials provided by Lilly
under this Section will be deemed Lilly Materials.

         1.3 AMEND SECTION 4.1. Section 4.1 of the Agreement is hereby amended
to delete subsection (b) in its entirety and replace it with the following: "(b)
Within forty-five (45) days after December 31, 2003, Lilly will pay SGX a
non-refundable research fee of $[...***...], provided that SGX has met the FTE
commitment set forth in Section 2.1 for the period from March 26, 2003 to
December 31, 2003."

         1.4 AMEND SECTION 5.2. Section 5.2 of the Agreement is hereby amended
to add the following sentence: "Notwithstanding the rights granted in Section
5.1(a), Lilly may only use SGX Materials which include or are generated by SGX
using, reagents obtained by SGX from [...***...] Corporation and which are
identified by SGX in writing as "[...***...] Materials", for Lilly's internal
research purposes (on its own behalf or on behalf of its collaborators).

2. MISCELLANEOUS

         2.1 FULL FORCE AND EFFECT. This Amendment amends the terms of the
Agreement and is deemed incorporated into, and governed by all other terms of,
the Agreement. The provisions of the Agreement, as amended by this Amendment,
remain in full force and effect.

         2.2 COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.



         IN WITNESS WHEREOF, the Parties have executed this Amendment in
duplicate originals by their authorized officers as of the date and year first
above written.

                                    ELI LILLY AND COMPANY

                                    By: /s/ [Illegible]
                                        ----------------------------------

                                    Title: Vice President DCRT
                                           -------------------------------


                                    STRUCTURAL GENOMIX, INC.

                                    By: /s/ [Illegible]
                                        ----------------------------------

                                    Title: President
                                           -------------------------------




                                       2.    ***CONFIDENTIAL TREATMENT REQUESTED

EX-10.19

                                                                 EXHIBIT 10.19

                                           *** TEXT OMITTED AND FILED SEPARATELY
                                    PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST
                                            UNDER 17 C.F.R. SECTION 200.80(b)(4)
                                               AND RULE 406 UNDER THE SECURITIES
                                                         ACT OF 1933, AS AMENDED


                             AMENDMENT TO AGREEMENT

         THIS AMENDMENT TO AGREEMENT (the "Amendment") is made and entered into
effective as of January 30, 2004 (the "Amendment Effective Date"), by and
between STRUCTURAL GENOMIX, INC., a corporation organized and existing under the
laws of the State of Delaware and having its principal place of business located
at 10505 Roselle Street, San Diego, CA 92121 ("SGX") and ELI LILLY AND COMPANY.,
a corporation organized and existing under the laws of the state of Indiana and
having its principal place of business at Lilly Corporate Center, Indianapolis,
Indiana 46285, ("Lilly"). Lilly and SGX may be referred to herein as a "Party"
or, collectively, as "Parties".

         RECITALS

         A. Lilly and SGX have entered into a Collaboration and License
Agreement effective April 14, 2003 as amended July 1, 2003, (the "Agreement")
under which the Parties have agreed to conduct a collaborative research program.

         B. The Parties desire to amend the terms of the Agreement as provided
in this Amendment.

         NOW, THEREFORE, the Parties agree as follows:

1. AMEND SECTION 5.5(a). Section 5.5(a) of the Agreement is hereby amended to
delete the final sentence in its entirety and replace it with the following::
"Notwithstanding anything to the contrary in this Agreement: (i) this Section
5.5(a) shall not apply to the Collaboration Targets: [...***...], [...***...],
[...***...], [...***...], [...***...] and such other Collaboration Targets as
Lilly or any Lilly representative on the JSC may from time to time add to this
list on written notice to SGX; and (ii) SGX shall have the right at all times to
use and practice Collaboration Technology relating to any Collaboration Target
which Lilly or any Lilly representative on the JSC confirms in writing to SGX is
not a drug target, for drug discovery purposes on its own behalf or under
collaborations with third parties who are [...***...] for such activities."
Lilly hereby confirms to SGX that members of the [...***...] family and
[...***...] are not drug targets.

2. FULL FORCE AND EFFECT. This Amendment, effective as of the Amendment
Effective Date, amends the terms of the Agreement and is deemed incorporated
into, and governed by all other terms of, the Agreement. The provisions of the
Agreement, as amended by this Amendment, remain in full force and effect. To the
extent that the Agreement is explicitly amended by this Amendment, the terms of
the Amendment will control where the terms of the Agreement are contrary to or
conflict with the following provisions. Where the Agreement is not explicitly
amended, the terms of the Agreement will remain in force.

         IN WITNESS WHEREOF, the Parties have executed this Amendment in
duplicate originals by their authorized officers as of the date and year first
above written.

                                                           
ELI LILLY AND COMPANY                                         STRUCTURAL GENOMIX, INC.

By:  /s/ Steven M. Paul                                       By:  /s/ Herbert G. Mutter
     ---------------------------------------------------           --------------------------------------------------------

Title:  Executive Vice President, Science and Technology      Title: Vice President, Finance
     ---------------------------------------------------             ------------------------------------------------------






                                             ***CONFIDENTIAL TREATMENT REQUESTED

EX-10.20

                                                                 EXHIBIT 10.20

                                           *** TEXT OMITTED AND FILED SEPARATELY
                                    PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST
                                            UNDER 17 C.F.R. SECTION 200.80(b)(4)
                                               AND RULE 406 UNDER THE SECURITIES
                                                         ACT OF 1933, AS AMENDED

                             AMENDMENT TO AGREEMENT

         THIS AMENDMENT TO AGREEMENT (the "Amendment") is made and entered into
effective as of November 11, 2004 (the "Amendment Effective Date"), by and
between STRUCTURAL GENOMIX, INC., a corporation organized and existing under the
laws of the State of Delaware and having its principal place of business located
at 10505 Roselle Street, San Diego, CA 92121 ("SGX") and ELI LILLY AND COMPANY.,
a corporation organized and existing under the laws of the state of Indiana and
having its principal place of business at Lilly Corporate Center, Indianapolis,
Indiana 46285, ("Lilly"). Lilly and SGX may be referred to herein as a "Party"
or, collectively, as "Parties".

                                    RECITALS

         A. Lilly and SGX have entered into a Collaboration and License
Agreement effective April 14, 2003, as amended July 1, 2003 and January 30, 2004
(the "Agreement"), under which the Parties have agreed to conduct a
collaborative research program.

         B. The Parties desire to amend the terms of the Agreement as provided
in this Amendment.

         NOW, THEREFORE, the Parties agree as follows:

1.       AMENDMENT OF THE AGREEMENT

         The Parties hereby agree to amend the terms of the Agreement as
provided below, effective as of the Amendment Effective Date. To the extent that
the Agreement is explicitly amended by this Amendment, the terms of the
Amendment will control where the terms of the Agreement are contrary to or
conflict with the following provisions. Where the Agreement is not explicitly
amended, the terms of the Agreement will remain in force. Capitalized terms used
in this Amendment that are not otherwise defined herein shall have the same
meanings as such terms are defined in the Agreement.

         1.1 AMEND SECTION 4.1. Section 4.1 of the Agreement is hereby amended
to delete subsection (c) in its entirety and replace it with the following: "(c)
(i) Within forty-five (45) days after the Amendment Effective Date, Lilly will
pay SGX a non-refundable research fee of $2,500,000, provided however, that SGX
has committed a total of [...***...] ([...***...]) [...***...] to the Research
Collaboration during the period between March 26, 2003 and the Amendment
Effective Date; and (ii) within forty-five (45) days after the second
anniversary of the Effective Date, Lilly will pay SGX a non-refundable research
fee of $[...***...], provided however, that SGX has committed a total of
[...***...] ([...***...]) [...***...] to the Research Collaboration during the
period between March 26, 2003 and the [...***...] of the Effective Date. If SGX
has not honored such [...***...] ([...***...]) [...***...] commitment, then
Lilly will pay SGX a pro-rated amount under sub-paragraph (ii) above,
proportionate with the amount of FTEs that have actually been used as long as
the total number of FTEs committed by SGX during the period between March 26,
2003 and the second anniversary of the Effective Date exceeds [...***...]."


                                       1.   ***CONFIDENTIAL TREATMENT REQUESTED





2.       MISCELLANEOUS

         2.1 FULL FORCE AND EFFECT. This Amendment amends the terms of the
Agreement and is deemed incorporated into, and governed by all other terms of,
the Agreement. The provisions of the Agreement, as amended by this Amendment,
remain in full force and effect.

         2.2 COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.



         IN WITNESS WHEREOF, the Parties have executed this Amendment in
duplicate originals by their authorized officers as of the date and year first
above written.

                             ELI LILLY AND COMPANY

                             By: /s/ [illegible]
                                 -------------------------------------

                             Title: VP, DCRT
                                    ----------------------------------


                             STRUCTURAL GENOMIX, INC.

                             By: /s/ Herbert G. Mutter
                                 -------------------------------------

                             Title: Vice President, Finance
                                    ----------------------------------




                                       2.

EX-10.21

                                                                 EXHIBIT 10.21

                                           *** TEXT OMITTED AND FILED SEPARATELY
                                    PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST
                                            UNDER 17 C.F.R. SECTION 200.80(b)(4)
                                               AND RULE 406 UNDER THE SECURITIES
                                                         ACT OF 1933, AS AMENDED


                             AMENDMENT TO AGREEMENT


         THIS AMENDMENT TO AGREEMENT (the "Amendment") is made and entered into
effective as of March 31st, 2005 (the "Amendment Effective Date"), by and
between STRUCTURAL GENOMIX, INC., a corporation organized and existing under the
laws of the State of Delaware and having its principal place of business located
at 10505 Roselle Street, San Diego, CA 92121 ("SGX") and ELI LILLY AND COMPANY.,
a corporation organized and existing under the laws of the state of Indiana and
having its principal place of business at Lilly Corporate Center, Indianapolis,
Indiana 46285, ("Lilly"). Lilly and SGX may be referred to herein as a "Party"
or, collectively, as "Parties".

                                    RECITALS

         A. Lilly and SGX have entered into a Collaboration and License
Agreement effective April 14, 2003, as amended July 1, 2003, January 30, 2004
and November 11, 2004 (the "Agreement"), under which the Parties have agreed to
conduct a collaborative research program.

         B. The Parties desire to amend the terms of the Agreement as provided
in this Amendment.

         NOW, THEREFORE, the Parties agree as follows:

1.       AMENDMENT OF THE AGREEMENT

         The Parties hereby agree to amend the terms of the Agreement as
provided below, effective as of the Amendment Effective Date. To the extent that
the Agreement is explicitly amended by this Amendment, the terms of the
Amendment will control where the terms of the Agreement are contrary to or
conflict with the following provisions. Where the Agreement is not explicitly
amended, the terms of the Agreement will remain in force. Capitalized terms used
in this Amendment that are not defined herein shall have the same meanings as
such terms are defined in the Agreement.

         1.1 AMEND SECTION 1.43. Section 1.43 of the Agreement is hereby deleted
in its entirety and replaced with the following: "Term of the Research
Collaboration" means the period commencing on the Effective Date and terminating
on the fifth anniversary of the Effective Date.

         1.2 AMEND SECTION 2.6. Section 2.6 of the Agreement is hereby amended
by inserting in the second line, after "[...***...] ([...***...]) [...***...],"
the following: "per year of Term of the Research Collaboration."

         1.3 AMEND SECTION 2.10. Section 2.10 of the Agreement is hereby amended
by deleting in the second line "second anniversary of the Effective Date" and
substituting therefor the following: "end of the Term of the Research
Collaboration."

         1.4 AMEND SECTION 3.4. Section 3.4(b) of the Agreement is hereby
amended by deleting in the second line "completion of the Initial Training," and
substituting therefor the




                                       1.   ***CONFIDENTIAL TREATMENT REQUESTED




following: "the Term of the Research Collaboration," and in the third sentence
thereof by deleting "payment by Lilly pursuant lo Section 4.2(d)," and
substituting therefor the following: "determination by Lilly that the Phase II
Acceptance Criteria have been met."

         1.5 AMEND SECTION 3.5. Section 3.5(ii) of the Agreement is hereby
amended by inserting in front of "maintain" in the first line, the following:
"at Lilly's expense, make best efforts to conclude within three (3) months of
the Amendment Effective Date and"; and by deleting "Term of the Technology
Collaboration" and substituting therefor the following: "Term of the Research
Collaboration."

         1.6 AMEND SECTION 3.6(a). Section 3.6(a) of the Agreement is hereby
amended by deleting the last sentence and replacing it with the following: "In
the event that Lilly desires to obtain a license to any SGX Additional
Technology, Lilly will provide SGX with written notice of such desire to SGX
within thirty days of such identification by SGX and upon receipt of written
notice by SGX the Parties will negotiate in good faith the appropriate license
fee to be paid by Lilly to SGX for such SGX Additional Technology. In the event
that the Parties agree such amount, then upon payment by Lilly to SGX of such
amount, such SGX Additional Technology will be deemed to be Licensed Technology
and SGX will have the obligation to provide Lilly with support under the terms
of Sections 3.4(b) and (c) for such SGX Additional Technology (other than SGX
Research Stage Technology)."

         1.7 AMEND SECTION 3.9. Section 3.9(a) of the Agreement is hereby
deleted in its entirety and replaced with the following:

         "During the Term of the Research Collaboration, SGX employees,
consultants and agents involved in the Collaboration, may use the Lilly San
Diego Facility, and the Platform and Licensed Technology installed at the Lilly
San Diego Facility only to do work under this Agreement, unless given written
permission by Lilly. SGX will ensure that commencing on April 14, 2005 and
continuing throughout the remainder of the Term of the Research Collaboration, a
minimum of [...***...] will perform Research Plan activities in the Lilly San
Diego Facility."

         1.8 AMEND SECTION 4.1. Section 4.1 of the Agreement is hereby amended
as follows:

         (a) a new Section 4.1(d) is inserted as follows: "(d) Within thirty
(30) days after the second anniversary of the Effective Date, Lilly will pay to
SGX a non-refundable research fee of [...***...] US dollars ($[...***...]) in
consideration of which SGX hereby grants to Lilly a non-exclusive,
sub-licensable and perpetual license to SOPS for protein production generated
hereunder.

         (b) a new Section 4.1(e) is inserted as follows: "(e) Commencing on the
second anniversary of the Effective Date, Lilly will pay SGX research funding
for [...***...] ([...***...]) FTEs per year during the Term of the Research
Collaboration. For each such FTE, Lilly will pay SGX at an annualized rate of
[...***...] ($[...***...]) per FTE per year, which rate shall increase annually
beginning on the third anniversary of the Effective Date, to reflect any
increase in the CPI, using 2005 as the base year, up to a maximum of a
[...***...] percent ([...***...]%)



                                       2.   ***CONFIDENTIAL TREATMENT REQUESTED




increase annually. The amounts to be paid under this Section 4.1(e) shall be
paid quarterly in advance on the basis that there will be [...***...]
([...***...]) FTEs involved in the Research Collaboration in each twelve (12)
month period following the second anniversary of the Effective Date (each such
twelve (12) month period a "Collaboration Year"). The initial payment under this
Section 4.1(e) will be made within thirty (30) days of the second anniversary of
the Effective Date and subsequent payments will be made on or before July 14,
October 14, and January 14 during the Term of the Research Collaboration. Within
sixty (60) days following the end of each Collaboration Year, SGX will provide
Lilly with an accounting of the actual number of FTEs engaged in the Research
Collaboration during the previous Collaboration Year and will accord Lilly a
credit (or in the case of the last annual accounting, a refund) for any
deficiency in FTEs engaged in the Research Collaboration from the number of
[...***...] ([...***...])."

         1.9 AMEND SECTION 5.5(a). Section 5.5(a) of the Agreement is hereby
amended by inserting after the penultimate sentence the following:
"Notwithstanding the foregoing, if the combined number of Collaboration Targets
for which Target Structure has not yet been obtained and Crystallizable Proteins
is greater than [...***...] ([...***...]) at any given time, then this Section
5.5(a) shall not apply to Crystallizable Proteins in the amount greater than
[...***...] ([...***...]), as Lilly shall designate".

         1.10 AMEND SECTION 10.6. Section 10.6 of the Agreement is hereby
amended by deleting the words "Sections 4.1(b) and (c) from subsection (ii) and
replacing them with: "Sections 4.1(b), (c) and (e)".

2.       MISCELLANEOUS

         2.1 FULL FORCE AND EFFECT. This Amendment amends the terms of the
Agreement and is deemed incorporated into, and governed by all other terms of,
the Agreement. The provisions of the Agreement, as amended by this Amendment,
remain in full force and effect.

         2.2 COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.



                                       3.   ***CONFIDENTIAL TREATMENT REQUESTED






         IN WITNESS WHEREOF, the Parties have executed this Amendment in
duplicate originals by their authorized officers as of the date and year first
above written.

                               ELI LILLY AND COMPANY

                               By: /s/ Steven M. Paul
                                   ---------------------------------------------

                               Title:  Executive Vice President, Science and
                                       Technology
                                       -----------------------------------------



                               STRUCTURAL GENOMIX, INC.

                               By: /s/ M. Grey
                                   ---------------------------------------------

                               Title: President and CEO
                                      ------------------------------------------


                                       4.

EX-10.22

                                                                   EXHIBIT 10.22

                                           *** TEXT OMITTED AND FILED SEPARATELY
                                    PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST
                                            UNDER 17 C.F.R. SECTION 200.80(b)(4)
                                               AND RULE 406 UNDER THE SECURITIES
                                                         ACT OF 1933, AS AMENDED


                             COLLABORATION AGREEMENT

      THIS COLLABORATION AGREEMENT (the "AGREEMENT") is made and entered into as
of August 20, 2004 (the "SIGNING DATE") by and between STRUCTURAL GENOMIX, INC.
located at 10505 Roselle Street, San Diego, CA 92121 ("SGX"), and F. HOFFMANN-LA
ROCHE LTD, located at Grenzacherstrasse 124, 4070 Basel, Switzerland, and
HOFFMANN-LA ROCHE INC., located at 340 Kingsland Street, Nutley, New Jersey
07110, USA ( "ROCHE"). SGX and Roche may be referred to herein individually as a
"Party" and collectively as the "Parties."

                                   BACKGROUND

      WHEREAS, SGX is in the business of structure directed drug discovery;

      WHEREAS, Roche is in the business of discovering, developing,
manufacturing and commercializing pharmaceuticals;

      WHEREAS, SGX and Roche wish to enter into a collaborative research program
to identify and generate lead compounds against certain targets; and

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

1.    DEFINITIONS

      1.1   "Affiliate" means

            (a)   an organization, which directly or indirectly controls a party
to this Agreement;

            (b)   an organization, which is directly or indirectly controlled by
a party to this Agreement;

            (c)   an organization, which is controlled, directly or indirectly,
by the ultimate parent company of a party.

Control as per 1.1 (a) to 1.1(c) is defined as owning more than fifty percent of
the voting stock of a company or having otherwise the power to govern the
financial and the operating policies or to appoint the management of an
organization. With respect to Roche the term "Affiliate" shall not include
Genentech, Inc., 1 DNA Way, South San Francisco, California 94080-4990, U.S.A.
("Genentech") or Chugai Pharmaceutical Co., Ltd, 1-9, Kyobashi 2-chome, Chuo-ku,
Tokyo, 104-8301, Japan ("Chugai"), respectively,

unless Roche opts for such inclusion of Genentech and/or Chugai by giving
written notice to SGX.

      1.2   "Clinical Candidate Selection" means the first dose in an animal GLP
toxicology study.

      1.3   "Collaboration" means the activities conducted by the Parties in
connection with the Collaboration Plan.

      1.4   "Collaboration Plan" means the plan of research attached as Exhibit
A to this Agreement, as may be amended from time to time by the JSC in
accordance with Section 2.6.

      1.5   "Collaboration Product" means any product that comprises or contains
or is developed or manufactured based on a Licensed Compound.

      1.6   "Collaboration Target" means the protein target known as
[...***...], or the additional target selected pursuant to Section 2.4. D).

      1.7   "Commercially Reasonable Efforts" mean efforts consistent with those
generally utilized by companies of a similar size for their own internally
developed pharmaceutical products of similar market potential, at a similar
stage of their product life taking into account the existence of other
competitive products in the market place or under development, the proprietary
position of the product, the regulatory structure involved, the anticipated
profitability of the product and other relevant factors. With respect to Roche,
it is understood that such Product potential may change from time to time based
upon changing scientific, business and marketing and return on investment
considerations. Notwithstanding the foregoing, the Parties also acknowledge that
Roche (and its Affiliates) do not always seek to market its own products in
every such country or seek to obtain regulatory approval in every such country
or for every potential indication. As a result, the exercise by Roche of
Commercially Reasonable Efforts is to be determined by judging its efforts taken
as a whole.

      1.8   "Controls" or "Controlled" means possession of the ability to grant
the licenses or sublicenses as provided for herein, without violating the terms
of any agreement or other arrangement with a Third Party.

      1.9   "Derived Compound" means an analog, homolog, isomer, isostere or
other derivative that Roche makes from, derives from or bases upon any compound
within the Early Lead Series by one or more modifications that results in a
compound having a superior profile against an [...***...] target, in one or more
respects, as a candidate for further development than the compound within the
Early Lead Series from which it is derived and which is identified, by or on
behalf of Roche or any of its Affiliates or sub-licensEeS during the Term of the
Collaboration or within [...***...] ([...***...]) years after the Term of the
Collaboration ends. The term "Derivative" shall not include any derivatives made
by Roche or any of its Affiliates or sub-licensees without the use of SGX
BackgroUnD Technology.

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       2

      1.10  "Development Event" means any of the events described in Section
3.3.

      1.11  "Early Lead Series" means the collection of compounds within a
single chemical series identified in the course of the Collaboration either: (a)
(i) which contains compounds that satisfy the criteria described in Part 1 of
Exhibit B, (ii) in which each of the criteria in Part 2 of Exhibit B are covered
by compounds within the series taken as a whole (but not necessarily by any one
compound), and (iii) is designated by the JSC as an "Early Lead Series" under
Section 2.4(a); or (b) which is designated by the JSC as an "Early Lead Series"
under Section 2.4(b).

      1.12  "Effective Date" means October 1, 2004.

      1.13  "First Commercial Sale" means the first sale of a Collaboration
Product to a Third Party following the receipt of any Regulatory Approval
required for the sale of Collaboration Product.

      1.14  "Fragment" means a compound used in the SGX FAST(TM) screen.

      1.15  "Initiation" means the first dosing of the first patient in the
applicable clinical study.

      1.16  "JSC" has the meaning ascribed such term in Section 2.6.

      1.17  "Know-How" means all ideas, inventions, instructions, designs,
processes, formulas, software, materials, methods, processes, techniques, and
data and all intellectual property rights therein. 1.18 "Licensed Compound"
means a compound within an Early Lead Series or a Derived Compound.

      1.19  "Net Sales" "Adjusted Gross Sales" means the amount of gross sales
of the Product invoiced by Roche, its Affiliates and its sub-licensees to
independent third parties less deductions of returns (including allowances
actually given for spoiled, damaged, out-dated, rejected, returned Product sold,
withdrawals and recalls) and return reserves, rebates (price reductions, rebates
to social and welfare systems, charge backs and charge back reserves, government
mandated rebates and similar types of rebates e.g., P.P .R.S, Medicaid), cash
discounts, volume (quantity) discounts granted at the time of invoice, taxes
(value added or sales taxes, government mandated exceptional taxes and other
taxes directly linked to the gross sales amount). "Net Sales" means the amount
calculated by subtracting from the amount of Adjusted Gross Sales a lump sum
deduction of [...***...] percent ([...***...]%) of Adjusted Gross Sales in lieu
of those sales related deductions which are not accounted for on a product by
product basis (e.g. outward freights, postage charges, transportation insurance,
packaging materials for dispatch of goods, custom duties, bad debt, discounts
granted later than at the time of invoicing). Notwithstanding the foregoing,
amounts received by Roche, its Affiliates and sub-licensees for the sale of
Product among Roche, its Affiliates or sub-licensees for resale shall not be
included in the computation of Adjusted Gross Sales and Net Sales.


                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       3

      1.20  "Patent Rights" means patent applications filed in any country
worldwide, including provisionals, utilities, continuations (in whole or in
part), divisionals, reissues, reexaminations, and foreign counterparts thereof,
any patents issued on such applications and any extensions of term,
registrations or confirmations of such patents. 1.21 "Phase 1", "Phase 2" and
"Phase 3" means Phase 1, Phase 2 and Phase 3 clinical trials, respectively, in
each case as prescribed by the U.S. Food and Drug Administration or any
successor entity (the "FDA"), and agencies of other governments of other
countries having similar jurisdiction over the development, manufacturing and
marketing of pharmaceuticals.

      1.22  "Regulatory Approval" means the approval of the U.S. Food and Drug
Administration or any regulatory body with similar regulatory authority in any
other jurisdiction in the world, necessary for the marketing and sale of a
pharmaceutical or biotechnology product in the United States, one or more
countries in the European Union or Japan 1.23 "Roche Background Technology"
means Patent Rights and Know-How which are owned or Controlled by Roche on the
Effective Date or during the Term of the Collaboration and are necessary for the
conduct of the Collaboration, including without limitation, Roche Materials.

      1.24  "Roche Materials" means all biological and chemical materials,
including but not limited to the biological and chemical materials embodying the
Collaboration Target, any protein, clone or vector used to express the
Collaboration Target, assay protocols and materials, and any compounds provided
by Roche to SGX for the purpose of performing the Collaboration Plan.

      1.25  "Royalty Term" means the obligation of Roche to pay royalties under
Section 3.4 shall continue for each Collaboration Product on a Collaboration
Product-by-Collaboration Product and country-by-country basis, until the later
of (i) the expiry of the last Valid Claim in such country claiming such
Collaboration Product and (ii) [...***...] years after the First Commercial Sale
of such Collaboration Product. With regard to the calculation of the [...***...]
year period, the EU shall be considered as one country.

      1.26  "SGX Background Technology" means Patent Rights and Know-How which
are owned or Controlled by SGX on the Effective Date or during the Term of the
Collaboration and are necessary for the conduct of the Collaboration or the
exercise of Roche's license rights under Section 4.1(a), including without
limitation compounds within Early Lead Series, but excluding any methods or
technologies comprising SGX's fragment based FAST(TM) lead discovery
technologies, other than synthetic protocols required for the synthesis of
compounds contained within Early Lead Series.

      1.27  "SGX Materials" means (1) the biological and chemical materials
embodying compounds within an Early Lead Series or a structure of the
Collaboration Target; and (2) any protein, clone, or vector used to express the
Collaboration Target;


                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       4

in each case which are developed by SGX in the course of the Collaboration for
the purpose of performing the Collaboration Plan.

      1.28  "Term of the Collaboration" means the period commencing on the
Effective Date, and terminating on the [...***...] anniversary of the Effective
Date, which period may be extended by up to [...***...] ([...***...]) months at
Roche's discretion, upon writteN NOTICE.

      1.29  "Third Party or Third Parties" means any entity other than Roche or
SGX or their respective Affiliates.

      1.30  "Valid Claim" means a claim in any (i) unexpired and issued Patent
Right owned or Controlled by SGX or Roche claiming composition of matter of
compounds that has not been (x) held permanently revoked, unenforceable or
invalid by a final unappealable decision of a court or government agency of
competent jurisdiction over such claim or (y) admitted to be invalid or
unenforceable through disclaimers, consent decrees or otherwise, or (ii) pending
patent application that is a Patent Right owned or Controlled by SGX or Roche
claiming composition of matter of compounds.

2.    COLLABORATION.

      2.1   Collaboration. Subject to the terms and conditions of this Agreement
Roche and SGX will use commercially reasonable efforts to conduct the
Collaboration in accordance with the Collaboration Plan.

      2.2   Provision of Roche Background Technology. Promptly following the
Signing Date and during the Term of the Collaboration, Roche will provide SGX
with reasonable quantities of such Roche Materials and other Roche Background
Technology as agreed to by Roche that are necessary for the conduct of the
Collaboration by SGX.

      2.3   Provision of SGX Background Technology. During the Term of the
Collaboration, SGX will provide Roche with reasonable quantities of available
SGX Materials and other SGX Background Technology as agreed by the JSC necessary
for Roche to conduct the Collaboration and exercise its applicable rights under
Article 4.1(a).

      2.4   Early Lead Series.

            (a)   During the Term of the Collaboration, in accordance with the
Collaboration Plan, SGX will provide the JSC with details (and materials for
testing by Roche) of any collection of compounds identified in the Collaboration
which SGX believes to meet the criteria for an Early Lead Series in Section
1.10(a)(i) and (ii). Within thirty (30) days following review of the data by the
JSC, the JSC will formally designate any such collection of compounds as an
Early Lead Series if the collection meets the required criteria in Section
1.10(a)(i) and (ii) and if such collection of compounds is patentably distinct
from any previously designated Early Lead Series.


                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       5

Upon designation by the JSC of any such Early Lead Series, SGX will provide
Roche with any information or materials, generated under the Collaboration
concerning such Early Lead Series, including but not limited to X-ray
diffraction data, protocols for chemical synthesis, and all assay data, which
has not already been provided.

            (b)   In the event that a collection of compounds does not meet all
of the criteria in Part B of Exhibit B, upon the request of SGX, the JSC may
designate such collection as an Early Lead Series, notwithstanding that all of
the criteria have not been met.

            (c)   Roche shall have the right, but not the obligation to accept
more than three Early Lead Series under the Collaboration.

            (d)   If by the start of the [...***...] month, SGX has not
commenced Fragment elaboration for the Collaboration Target, Roche has the right
to nominate a substitute target in consultation with SGX. Upon acceptance of
such substitute target bY the JSC, such target shall be deemed a Collaboration
Target.

      2.5   Records; Reports. At least quarterly during the Term of the
Collaboration SGX will have the obligation to prepare and provide to the JSC a
detailed written report summarizing the progress of the work performed by SGX in
the course of the Collaboration during the preceding quarter. Promptly upon
expiry of the Term of the Collaboration, SGX shall provide a final written
report summarizing its activities during the Collaboration and the results
thereof. Upon the written request of Roche and not more than once in each
calendar year, SGX will permit Roche, at Roche's expense, to have access during
normal business hours to those records of SGX that may be necessary to verify
the basis for any other payments hereunder.

      2.6   Joint Steering Committee.

            (a)   Formation. SGX and Roche will establish a joint steering
committee ("JSC") to oversee the Collaboration.

            (b)   Membership. The JSC shall be comprised of three (3)
representatives from Roche and three (3) representatives from SGX, designated by
the Parties promptly following the Effective Date. Each Party may replace its
JSC representatives at any time, with written notice to the other Party. The JSC
may name additional members to the JSC from time to time so long as each Party
has an equal number of members. In addition, with prior mutual approval, either
Party may invite non-voting employees, consultants or scientific advisors to
attend meetings of the JSC. One of the three Roche representatives shall be the
appointed Roche Global Alliance Director. The Global Alliance Director will act
as the primary contact person for all non-scientific matters including payment,
third party license and patent related matters.

            (c)   Decisions. Each Party shall have one vote on the JSC. All
decisions of the JSC shall be made by unanimous vote. Any matter which the JSC
is unable to agree upon shall be submitted to the Chief Executive Officer of SGX
and the


                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       6

Head of Pharma Partnering of Roche for resolution. All decisions that cannot be
agreed upon by the SGX CEO and the Roche Head of Pharma Partnering shall be made
by [...***...] reasonably taking into consideration the position of [...***...],
excluding decisions relating to the activities carried out by [...***...] under
the Collaboration Plan, which will be made by [...***...] reasonably taking into
consideration the position of [...***...].

            (d)   Project Team. The JSC shall establish a project team (the
"Project Team") comprising at least three (3) representatives from Roche and
three (3) representatives from SGX, designated by the Parties promptly following
the Effective Date. The JSC may expand the size of the Project Team, in its sole
discretion, provided that the Project Team shall always comprise an equal number
of representatives from Roche and SGX. Each Party may replace its Project Team
representatives at any time, with written notice to the other Party. The Project
Team will direct the performance of the Collaboration and shall meet to
discharge its responsibilities via videoconference, teleconference or in person
on an at least bi-weekly basis, or as the Project Team may agree. Meetings of
the Project Team may be held only if a quorum of at least one (1) representative
of each Party participates. Within thirty (30) days of the end of each calendar
quarter the Project Team shall submit a quarterly report to the JSC describing
the performance of the Collaboration during such calendar quarter. Each Party
will be responsible for paying its own expenses in connection with participating
in the meetings of the Project Team.

            (e)   Responsibilities. The JSC will review, and monitor the
performance of the Collaboration. The JSC will be responsible for (i)
supervising the Project Team, (ii) modifying or amending the Collaboration Plan
as appropriate subject to the final sentence of this Section 2.6(e); (iii)
confirming the achievement of the event in Section 3.2(a) and designating
compound collections as Early Lead Series in accordance with Section 2.4. Any
amendments to the Collaboration Plan which alter the financial terms or
materially alter the nature or scope of the Collaboration must be agreed in
writing by the Parties.

            (f)   Meetings. The JSC shall meet at least quarterly. The Parties
shall mutually agree upon times and places for such meetings (alternating
between San Diego, CA and Palo Alto, CA, or as the JSC may otherwise agree), to
discharge its responsibilities. If mutually agreed by the Parties, such meeting
may be held via videoconference or teleconference. Each Party will be
responsible for paying its own expenses in connection with participating in the
meetings of the JSC. The JSC shall prepare written minutes of each meeting and a
written record of all JSC decisions, whether made at a JSC meeting or otherwise.

      2.8   Permitted Activities.

            (a)   By SGX. SGX agrees that SGX will not use any Confidential
Information of Roche to replicate any Roche Material for any purpose other than
as provided herein and shall destroy all proprietary Roche Materials after
expiry of the Term of the Collaboration.


                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       7

            (b)   By Roche. After the expiry of the Collaboration, Roche shall
destroy all chemical materials within the SGX Materials received from SGX and
not designated as Early Lead Series under this Agreement.

3.    CONSIDERATION

      3.1   Research Fees.

            (a)   Within thirty (30) days after the Effective Date Roche will
pay to SGX a non-refundable, non-creditable upfront fee of $[...***...].

            (b)   During the Term of the Collaboration, Roche will pay to SGX
research payments of $[...***...] per calendar quarter, payable on the first day
of each calendar quarter, commencing on the Effective Date.

      3.2   Research Events. Within thirty (30) days of the date of achievement
of the applicable research event described below during the Term of the
Collaboration, Roche will pay, to SGX the following non-refundable and
non-creditable event payments:

      (a)   The first crystal structure that reveals density of
            a Fragment bound to the Collaboration Target
            with at least [...***...] A resolution, where data
            completeness in the final resolution shell is
            greater than or equal to [...***...]%, and the fragment
            position and orientation is clearly interpretable       $[...***...]

      (b)   upon designation by the JSC of the first
            Early Lead Series                                       $[...***...]

      (c)   upon designation by the JSC of each subsequent
            Early Lead Series                                       $[...***...]
                                                                    per series

      3.3   Development Events. Within thirty (30) days of the date of
achievement of the applicable Development Event described below, Roche will pay
to SGX the following non-refundable event payments on a Collaboration
Product-by-Collaboration Product basis:

      (a)   Clinical Candidate Selection                            $[...***...]

      (b)   Initiation of Phase 1                                   $[...***...]

      (c)   Initiation of Phase 2                                   $[...***...]


                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       8

      (d)   Initiation of Phase 3                                   $[...***...]

      (e)   Receipt of first Regulatory Approval                    $[...***...]

Roche shall make each of such payments only once for the first occurrence of the
requisite event for the Collaboration Product regardless of how many times the
event may be subsequently achieved with the particular Collaboration Product.
Roche shall make each of such payments for the first Collaboration Product to
achieve the applicable event, provided that (i) if Roche ceases all development
of a particular Collaboration Product after having made one or more payments
with respect to such Collaboration Product under this Section 3.3 following
accomplishment of any Development Event, there shall be no payment due upon the
accomplishment of that same Development Event with respect to a subsequent
Collaboration Product; and (ii) if Roche has received Regulatory Approval for a
Collaboration Product and continues development of an additional Collaboration
Product ("Subsequent Product"), payments will be due under this Section 3.3 for
the achievement of Development Events by the Subsequent Product (including those
Development Events which may have been achieved by the Subsequent Product prior
to such receipt of Regulatory Approval).

      3.4   Royalties. Roche will pay to SGX during the Royalty Term the
following royalties on Net Sales of Collaboration Products by or on behalf of
Roche or its Affiliates or Sublicensees on a Collaboration
Product-by-Collaboration Product basis on the following tiers:

            Net Sales up to US $[...***...]                         [...***...]%
            Net Sales from US $[...***...] to US $[...***...]       [...***...]%
            Net Sales over US $[...***...]                          [...***...]%

      3.5   Combination Products. In the event the Collaboration Product is sold
as part of a combination product containing a Licensed Compound and one or more
other pharmaceutically active ingredients, the Net Sales of the Collaboration
Product shall be determined by multiplying the Net Sales (as determined in the
manner described above) of the combination product by the fraction A/B, where A
is the weighted average sale price of the Collaboration Product containing the
Licensed Compound alone as a pharmaceutically active ingredient (in the same
strength as contained in the combination product) when sold separately in
finished form, and B is the weighted average sale price of the Collaboration
Product sold as part of a combination product when sold separately in finished
form. In the event that such average sale price cannot be determined for the
Collaboration Product containing the Licensed Compound alone as a
pharmaceutically active ingredient, Net Sales shall be mutually agreed by the
parties based on the relative value contributed by each pharmaceutically active
ingredient contained in such Collaboration Product, and such agreement shall not
be unreasonably withheld.

      3.6   Third Party Royalties. In the event that Roche, is required to pay
royalties to a Third Party for licenses to composition of matter patents
claiming compounds within an Early Lead Series, Roche may offset up to
[...***...] percent ([...***...]%) of such amounts due


                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       9

Third Parties against payments due SGX under Section 3.4 above; PROVIDED,
HOWEVER, that Roche may not offset these amounts against more than [...***...]
percent ([...***...]%) of the royalties otherwise due SGX in any calendar
quarter. Any amount that has not been so offset may be offset against royalties
due in subsequent calendar quarters, subject to the limitation set forth in the
previous sentence.

      3.7   Withholding Taxes. All amounts due under this Agreement shall be
paid without deduction, set-off or counterclaim and shall be made in full
without deduction of income, value added or other taxes, charges or duties that
may be imposed. If any payment due under this Agreement is or will be subject to
any tax, including withholding tax, Roche shall pay to SGX the amount that will
ensure SGX receives and retains a net sum equal to the payment it would have
received had the payment not been subject to such tax.

      3.8   Reports; Payments. The royalties due under Section 3.4 shall be paid
quarterly within forty-five (45) days after the close of each calendar quarter,
or earlier if practicable, immediately following each quarterly period in which
such royalties are earned. With each such quarterly payment, Roche shall furnish
SGX a royalty statement setting forth in reasonable detail Collaboration
Product-by- Collaboration Product basis: (i) Adjusted Gross Sales; (ii) Net
Sales; and (iii) the royalties due SGX in such quarter.

      3.9   Currency Conversion. All amounts required to be paid under this
Agreement shall be paid in United States dollars. Whenever calculation of Net
Sales requires conversion from any foreign currency, Roche shall convert the
amount of Net Sales in foreign currencies as computed in the Roche's central
Swiss Francs Sales Statistics for the countries concerned. Roche shall first
convert the amount of Net Sales into Swiss Francs and then into United States
dollars, using the YTD average exchange rate, in accordance with Roche's then
current standard practices.

      3.10  Late Payments. Any payments or portions thereof due hereunder which
are not paid on the date such payments are due, shall bear interest at the rate
equal to the lesser of the prime rate as reported by the Chase Manhattan Bank,
New York, New York, plus [...***...] percent ([...***...]%) or the maximum
amount permitted by law, compounded monthly. This Section 3.10 shall in no way
limit any other remedies available to SGX.

      3.11  Audits. Roche shall maintain accurate books and records which enable
the calculation of royalties payable under this Agreement to be verified. Roche
shall maintain the books and records for each quarterly period for three (3)
years after the submission of the corresponding report under Section 3.8. Upon
thirty (30) days prior notice to Roche, Roche's independent accountants,
reasonably acceptable to SGX, may have access to Roche's books and records after
executing a reasonable confidentiality agreement, during Roche's normal business
hours at mutually agreed times to conduct a review or audit no more than once
per calendar year, and no more than once with respect to any time period, for
the sole purpose of verifying the accuracy of Roche's payments and compliance
with this Agreement. The accounting firm shall report to SGX only whether there
has been a royalty underpayment and, if so, the extent thereof. Any such
inspection shall be at SGX's expense, however, in the event that an inspection
reveals


                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       10

underpayment of 5% or more in any audit period, Roche shall pay the costs of the
inspection. Roche shall promptly pay to SGX any underpayment identified in such
audit, with interest from the date such amount(s) were due at the prime rate
reported by the Chase Manhattan Bank, New York, New York plus [...***...]
percent ([...***...]%). The failure of SGX to request verification of any
payment calculation during which corresponding records are required to be
retained under this Section 3.11 shall be considered acceptance of such
reporting by SGX.

4.    LICENSES

      4.1   Licenses to Roche. Subject to the terms and conditions of this
Agreement, SGX hereby grants to Roche, the following licenses:

            (A)   [...***...], [...***...], [...***...] license (with the right
to grant sublicenses in accordance with Section 4.3 below) under SGX's Patent
Rights and Know-How in Early Lead Series, to make, have made, use, import, offer
for sale and sell Collaboration Products.

            (B)   [...***...], [...***...], [...***...] license (with the right
to grant sublicenses in accordance with Section 4.3 below) under SGX's interest
in SGX Background Technology relating to Early Lead Series, to use and modify
such SGX Background Technology solely as necessary for Roche to exercise its
rights under Section 4.1(a) above.

      4.2   Cross Licenses. Each Party hereby grants to the other, a
non-exclusive, non-transferable, royalty-free license to use and practice Roche
Background Technology and SGX Background Technology, solely to conduct the
Collaboration.

      4.3.  Sublicenses. Roche may sublicense the rights granted in Section 4.1
to its Affiliates and to Third Parties who are bona fide collaborators of Roche
with respect to the Early Lead Series for which rights are being sublicensed.
Each such sublicense granted by Roche shall be consistent with all of the terms
and conditions of this Agreement. Roche as the sublicensor, shall remain
responsible for all of each such sublicensee's obligations under this Agreement.

      4.4   Product Development. During the term of this Agreement, Roche will
keep SGX informed of its activities in connection with the development of Early
Lead Series' and Collaboration Products, including without limitation, the
achievement of events under Section 3.3. On a half-yearly basis up to Initiation
of Phase 1 trials, and on a yearly basis thereafter during the term of the
Agreement, Roche will provide SGX with a written summary report detailing such
events and activities. When a registration package requesting approval for
commercial sale of any Collaboration Product is first filed in any country, and
when approval is received, Roche will immediately notify SGX in writing.


                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       11

      4.5   Diligence. Roche will use Commercially Reasonable Efforts to
discover and develop Early Lead Series and commercialize Collaboration Products
including using Commercially Reasonable Efforts to bring at least one
Collaboration Product to the market, to obtain Regulatory Approval to market
such Collaboration Product, to launch and market such Collaboration Product and
promote and meet the market demand therefor. Notwithstanding the above, Roche
will have the right at its sole discretion to discontinue development of an
Early Lead Series and/or commercialization of a Collaboration Product in any
country on written notice to SGX, subject to Section 4.6.

      4.6   Lack of Diligence. In the event that Roche fails to use or continue
to use diligent efforts to actively develop at least one Early Lead Series or at
least one Collaboration Product in accordance with Section 4.5 above, or
notifies SGX that it will not conduct further development or commercialization
with respect to a at least one Early Lead Series or at least one Collaboration
Product, then SGX may terminate Roche's rights under this Agreement with respect
to Early Lead Series upon written notice to Roche, provided that Roche will have
a period of [...***...] ([...***...]) months following receipt of such notice to
demonstrate to SGX's reasonable satisfaction that it has not failed to use or
continue to use diligent efforts in accordance with Section 4.5 or to initiate
diligent efforts in accordance with Section 4.5. In the event that Roche's
rights terminate pursuant to this Section 4.6, the Parties will negotiate in
good faith for a period of [...***...] days, immediately following the
termination of Roche's rights by SGX, (i) at Roche's option, an agreement under
which SGX would receive compensation from Roche and would not develop and
commercialize an Early Lead Series or Collaboration Products developed
therefrom, or (ii) the appropriate consideration for a license grant (as
described below) from Roche to SGX. In the event that the Parties do not reach
an agreement under subsection (i) above, SGX will thereafter have the exclusive
right to develop and commercialize Early Lead Series and corresponding
Collaboration Products alone or with Third Parties. and Roche shall grant to SGX
an exclusive, worldwide, royalty bearing license (with the right to sublicense)
under Roche's interest in any Patent Rights or Know How owned or Controlled by
Roche relating to such Early Lead Series and corresponding Collaboration
Products to the extent necessary to make, have made, import, offer for sale and
sell products. In addition, SGX will not sublicense such Patent Rights or
Know-How of Roche to a Third Party, without first offering Roche the opportunity
to enter into such an agreement with SGX on terms no more favorable to SGX as
those SGX proposes to offer to a Third Party.

5.    INTELLECTUAL PROPERTY

      5.1   Ownership of Technology.

            (a)   Ownership by SGX. Title to all SGX Background Technology,
shall be owned by SGX.

            (b)   Ownership by Roche. Title to all Roche Background Technology,
shall be owned solely by Roche.


                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       12

            (c)   Law. Inventorship of inventions and, subject to the terms of
this Agreement, ownership rights with respect thereto, shall be determined in
accordance with the patent laws of the United States.

      5.2   Patent Prosecution.

            (a)   Prosecution by SGX or Roche. SGX shall be responsible, at its
sole discretion and expense, for the preparation, filing, prosecution and
maintenance of the patent applications and patents within Patent Rights within
SGX Background Technology in countries selected by SGX, and for conducting any
interferences, reexaminations, reissues, oppositions, or request for patent term
extension relating thereto. Roche shall be responsible, at its sole discretion
and expense, for the preparation, filing, prosecution and maintenance of the
patent applications and patents within Patent Rights within Roche Background
Technology, in countries selected by Roche, and for conducting any
interferences, reexaminations, reissues, oppositions, or request for patent term
extension relating thereto.

            (b)   Early Lead Series. [...***...] shall have the first right, at
its sole expense, for the preparation, filing, prosecution and maintenance of
the patent applications and patents claiming Licensed Compounds. On an Early
Lead Series by Early Lead Series basis, in the event that [...***...] elects not
to file a patent application covering (i) compounds within an Early Lead Series
within twelve (12) months of delivery of such Early Lead Series to Roche, and
(ii) Derived Compounds within four (4) years after the expiry of the Term of the
Collaboration, [...***...] shall have the right, at its expense, to file,
prosecute and maintain such patent applications. Furthermore, in the event that
[...***...] elects not to pursue prosecution or maintenance of any patent
applications or patents claiming Licensed Compounds, [...***...] shall give
[...***...] not less than sixty (60) days notice before any relevant deadline or
any permitted public disclosure, and [...***...] shall have the right to pursue,
at its sole discretion and expense, prosecution and maintenance of such patent
applications or patents. The Party responsible for prosecution and maintenance
(the "Responsible Party), shall keep the other Party (the "Non-Responsible
Party") fully informed as to the status of such patent matters, including,
without limitation, by providing the Non-Responsible Party the opportunity, at
the Non-Responsible Party's expense, to review and comment on any documents
relating to such patent applications and patents which will be filed in any
patent office at least thirty (30) days before such filing, and promptly
providing the Non-Responsible Party with copies of any documents relating to
such patent applications and patents which the Responsible Party receives from
such patent offices, including notice of all interferences, reissues,
reexaminations, oppositions or requests for patent term extensions. At the
Responsible Party's request and expense, the Non-Responsible Party will
reasonably cooperate and assist the Responsible Party in the preparation, filing
and prosecution of patent applications claiming compounds within an Early Lead
Series and in the event of an interference, reissue, reexamination, opposition
or request for patent term extension.

      5.3   Patent Enforcement. In the event either Party becomes aware of any
interference, opposition, or request for reexamination, or similar proceedings,
involving a


                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       13

patent application or patent filed in accordance with Section 5.2(a) or 5.2(b),
it shall promptly notify the other Party hereto, and the Parties shall agree on
the steps which shall be taken to protect the pertinent patent. In the event
either Party becomes aware of any possible infringement of a patent filed in
accordance with Section 5.2(a) or 5.2(b) or misappropriation of an invention
within the Collaboration, it shall promptly notify the other Party hereto,
providing a written description of the potentially infringing or
misappropriation activities. SGX shall have the right, but not the obligation to
institute, prosecute and control any action or proceeding with respect to
infringement of patents within SGX Background Technology. Roche shall have the
right, but not the obligation, to institute, prosecute and control any action or
proceeding with respect to infringement of patents within Roche Background
Technology or compounds within Early Lead Series'. If a Party given the right to
enforce a patent pursuant to this Section fails to bring an action or
proceeding, or take other actions (e.g., commence settlement discussions)
against a suspected infringer within a period of ninety (90) days after having
notice of such infringement, the other Party shall have the right to bring and
control an action against such infringer by counsel of its own choice, and the
non-enforcing Party shall have the right to be represented in any such action by
counsel of its own choice at its own expense. The Party controlling an action
involving any infringement of a patent under this Section shall consider in good
faith the interests of the other Party in so doing, and shall not settle or
consent to an adverse judgment in any such action which would have a material
adverse effect on the rights or interests of the other Party without the prior
express written consent of such other Party. If one Party brings any such action
or proceeding, the other Party agrees to be joined as a Party plaintiff if
necessary to prosecute the action and to give the first Party reasonable
assistance and authority to file and prosecute the suit. In each case relating
to infringement of a patent under this Section, each Party shall bear the costs
of its enforcement of such rights discussed in this section and retain for its
own account any amounts received from Third Parties.

      5.4   Allegations of Infringement by Third Parties. Roche will be
responsible for any threatened or actual claims for Third Party patent
infringement or other Third Party intellectual property rights arising out of
the manufacture, use, sale or importation of Collaboration Products to which
Roche retains a license. Upon receiving notice of such actual or threatened
claims, Roche shall promptly meet with SGX to discuss the course of action to be
taken to resolve or defend such infringement litigation. If Roche is not named
as a Party in such claim, suit or proceeding ("Suit"), Roche may at its own
expense and through counsel of its own choice, seek leave to intervene in such
Suit. SGX agrees not to oppose such intervention. If Roche, and not SGX, is
named as a Party to such Suit, Roche shall have the right to control the defense
and settlement of such Suit, at its own expense, using counsel of its own
choice, however, SGX, at its own expense, and through counsel of its own choice,
may seek to intervene if the Suit relates to the commercialization of the
Collaboration Product and in such event, Roche agrees not to oppose such
intervention. If SGX shall at any time, tender its defense to Roche, then Roche
shall defend SGX in such Suit, at Roche's own expense and through counsel of its
own choice and Roche shall control the defense and settlement of such Suit;
provided Roche shall not enter into any agreement which makes any admission
regarding (i) wrongdoing on the part of SGX, or (ii) the invalidity,
unenforceability or absence of infringement of any Patent Rights owned by SGX,
without the prior written consent of

                                       14

SGX, which consent shall not be unreasonably withheld or delayed. The Parties
shall cooperate with each other in connection with any such Suit and shall keep
each other reasonably informed of all material developments in connection with
any such Suit.

6.    CONFIDENTIALITY AND PUBLICITY

      6.1   Confidential Information. Except as expressly provided herein, the
Parties agree that, for the term of this Agreement and for [...***...]
([...***...]) years thereafter, the receiving Party, or any Affiliate thereof,
shall not publish or otherwisE disclose to Third Parties (other than consultants
and agents of a Party engaged in the Collaboration) and shall not use for any
purpose, except as expressly permitted herein any information or material
furnished to it by the other Party hereto pursuant to this Agreement
("Confidential Information"). Notwithstanding the foregoing, it is understood
and agreed that Confidential Information shall not include information or
material that, in each case as demonstrated by written documentation:

            (a)   was already known to the receiving Party, or an Affiliate
thereof, other than under an obligation of confidentiality, at the time of
disclosure;

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

            (c)   became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving Party, or an Affiliate thereof, in breach of this
Agreement; or

            (d)   was subsequently lawfully disclosed to the receiving Party, or
an Affiliate thereof, by a person other than a Party hereto or independently
developed by the receiving Party or an Affiliate thereof without reference to
any Confidential Information disclosed by the disclosing Party.

      6.2   Permitted Disclosures. Notwithstanding the provisions of Section 6.1
above, each Party hereto may disclose the other's Confidential Information to
the extent such disclosure is reasonably necessary in filing or prosecuting
patent applications, prosecuting or defending litigation, complying with
applicable governmental regulations, or submitting information to tax or other
governmental authorities, provided that if a Party is required to make any such
disclosure of another Party hereto's Confidential Information, to the extent it
may legally do so, it will give reasonable advance written notice to the other
Party of such disclosure so that the other Party may attempt to secure
confidential treatment of such Confidential Information prior to its disclosure
(whether through protective orders or otherwise).

      6.3   Publication. Any public disclosure (oral, written or graphic) by
seither Party describing the scientific results of the Collaboration will
require prior review and written approval of the other Party at least thirty
(30) days prior to its submission for publication or other public disclosure. If
the reviewing Party so requests, the proposed


                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       15

public disclosure will be delayed for forty-five (45) days from the date of each
request for the filing of patent application(s) related to the proposed public
disclosure to seek appropriate patent protection for any material in such
publication or presentation which it reasonably believes is patentable. Roche
also shall have the right to require deletion of its Confidential Information
that may be in any such proposed publication, prior to such publication. In the
event that either Party submits any manuscript or other publication relating to
any scientific results of the Collaboration, it will consider and acknowledge
the contributions of the other Party, including, as appropriate, co-authorship.

      6.4   Publicity. The Parties agree to make a mutually agreed press release
regarding this Agreement promptly following the Effective Date. Neither Party
may make any public announcements relating to this Agreement without the other
Party's prior written consent, which consent will not be unreasonably withheld,
or delayed for a period of more than thirty (30) days after request for consent
is sought. Except as expressly provided in this Agreement, each Party agrees not
to disclose any terms of this Agreement to any Third Party without the prior
written consent of the other Party; provided however, that disclosures may be
made as required by securities or other applicable laws, or to actual or
prospective investors, or to a Party's professional advisors. Notwithstanding
the foregoing, Roche has the right to disclose a copy of this Agreement to
Chugai and/or Genentech for the sole purpose of assessing their interest therein
and provided that Chugai and/or Genentech are bound by confidentiality
obligations substantially similar to Roche's confidentiality obligations under
this Agreement.

7.    INDEMNIFICATION

      7.1   Indemnification of SGX. Roche shall indemnify, defend, and hold
harmless SGX, the directors, officers, and employees of SGX and the successors
and assigns of any of the foregoing (the "SGX Indemnitee(s)") from and against
all claims, losses, costs, and liabilities (including, without limitation,
payment of reasonable attorneys' fees and other expenses of litigation), and
shall pay any damages (including settlement amounts) finally awarded, with
respect to any claim, suit or proceeding (any of the foregoing, a "Claim")
brought by Third Party against a SGX Indemnitee, arising out of or relating to:
(a) the exercise by Roche of the rights granted Roche under this Agreement; (b)
a material breach by Roche of its obligations under this Agreement; (c) a breach
of Roche's representations and warranties under Section 8; (d) any products
developed, manufactured, used, sold or otherwise distributed by or on behalf of
Roche or its Affiliates (including without limitation, product liability
claims); (e) the gross negligence or willful misconduct of Roche; (f) the use,
handling, transfer or storage of the SGX Materials received from SGX hereunder;
or (g) a claim that the use by SGX or by Roche of the Collaboration Target, DNA
coding for the Collaboration Target, structures of Collaboration Targets, or
Roche Materials, infringes the intellectual property rights of a Third Party; or
except, in each case, to the extent caused by the gross negligence or willful
misconduct of a SGX Indemnitee.

                                       16

      7.2   Indemnification of Roche. SGX shall indemnify, defend and hold
harmless Roche, the directors, officers, and employees of Roche, and the
licensors, successors and assigns of any of the foregoing (the "Roche
Indemnitee(s)") from and against all Claims brought by Third Party against a
Roche Indemnitee, arising out of or relating to: (a) the performance by SGX of
the Collaboration, except to the extent such Claim arises out of or relates to a
claim the use by SGX of the Collaboration Target, DNA coding for the
Collaboration Target, the structure of the Collaboration Target or Roche
Materials, infringes the intellectual property rights of a Third Party; (b) the
exercise by SGX of the rights granted SGX under this Agreement; (c) a material
breach by SGX of its obligations under this Agreement; (d) a breach of SGX's
representations and warranties under Section 8; or (e) the handling, transfer or
storage of Roche Materials; (f) the negligence or willful misconduct of SGX;
except, in each case, to the extent due to the gross negligence or willful
misconduct of a Roche Indemnitee.

      7.3   Indemnification Procedures. An Indemnitee that intends to claim
indemnification under this Article 7 shall promptly notify the other Party (the
"Indemnitor") in writing of any claim in respect of which the Indemnitee intends
to claim such indemnification, and the Indemnitor shall have sole control of the
defense and/or settlement thereof, provided that the indemnified Party may
participate in any such proceeding with counsel of its choice at its own
expense. The indemnity agreement in this Article 7 shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the
consent of the Indemnitor, which consent shall not be withheld unreasonably. The
failure to deliver written notice to the Indemnitor within a reasonable time
after the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such Indemnitor of any liability to the
Indemnitee under this Article 7 but the omission so to deliver written notice to
the Indemnitor shall not relieve the Indemnitor of any liability that it may
have to any Indemnitee other than under this Article 7. The Indemnitee under
this Article 7, its employees and agents, shall cooperate fully with the
Indemnitor and its legal representatives and provide full information in the
investigation of any Claim covered by this indemnification. Neither Party shall
be liable for any costs or expenses incurred by the other Party without its
prior written authorization.

8.    REPRESENTATIONS AND WARRANTIES

      8.1   Each Party. Each Party represents and warrants to the other (i) that
it has the legal power, authority and right to enter into this Agreement and to
perform its respective obligations under this Agreement; (ii) that it is not a
Party to any agreement or arrangement with any Third Party or under any
obligation or restriction which in any way limits or conflicts with its ability
to fulfill any of its obligations under this Agreement, (including without
limitation, the licenses granted in Article 4), and shall not enter into any
such agreement or arrangement during the term of this Agreement; (iii) each
employee or person engaged in the Collaboration on behalf of Roche or SGX has
entered into a written agreement which provides for the assignment to Roche or
SGX,



                                       17

respectively, of all inventions and discoveries made by such employee or person
during the course of his or her employment or engagement with Roche or SGX.

      8.2   Disclaimer. SGX and Roche specifically disclaim any guarantee that
the Collaboration will be successful, in whole or in part. EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED IN THIS AGREEMENT, ROCHE AND SGX MAKE NO REPRESENTATIONS AND
EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE
MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE OF THE SGX BACKGROUND
TECHNOLOGY, ROCHE BACKGROUND TECHNOLOGY, SGX MATERIALS, ROCHE MATERIALS OR
LICENSED COMPOUNDS, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT OF THE
INTELLECTUAL PROPERTY OR OTHER RIGHTS OF ANY THIRD PARTY.

      8.3   Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE
FOR COSTS OF SUBSTITUTE GOODS OR SERVICES, SPECIAL, CONSEQUENTIAL, INCIDENTAL,
OR INDIRECT DAMAGES (INCLUDING WITHOUT LIMITATION LOSS OF PROFIT) WHETHER OR NOT
THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS, HOWEVER CAUSED
AND ON ANY THEORY OF LIABILITY, ARISING OUT OF THIS AGREEMENT, PROVIDED HOWEVER,
THE PROVISIONS OF THIS SECTION WILL NOT APPLY TO BREACHES OF CONFIDENTIALITY
OBLIGATIONS UNDER THIS AGREEMENT. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING
ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.

9.    TERM AND TERMINATION

      9.1   Term of the Agreement. The term of this Agreement shall commence on
the Effective Date and unless terminated earlier, will terminate upon the
expiration of the Royalty Term. Thereafter, the license shall be fully paid-up
and irrevocable.

      9.2   Termination by Roche. After the expiry of the [...***...], Roche
shall have the right to terminate this Agreement in its entirety with
[...***...] ([...***...]) days prior written notice to SGX.

      9.3   Termination for Cause. Upon any material breach of this Agreement by
either Roche or SGX (in such capacity the "Breaching Party"), the other Party
(in such capacity the "Non-Breaching Party") may terminate this Agreement by
ninety (90) days' written notice to the Breaching Party, specifying the material
breach. The termination becomes effective at the end of such ninety (90) day
period unless (i) the Breaching Party cures such breach during such ninety (90)
day period, or (ii) if such breach is not susceptible to cure within such ninety
(90) day period, the Breaching Party is diligently pursuing a cure (unless such
breach, by its nature is incurable, in which case this


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                                       18

Agreement may be terminated immediately). The Parties will use reasonable
efforts to work together to cure any breach.

      9.4   Rights upon Termination for Material Breach. If the Non-Breaching
Party terminates this Agreement pursuant to Section 9.3:

            (a)   in the event that the Breaching Party is SGX the licenses
granted Roche under Section 4.1 will continue with respect to Early Lead Series'
developed prior to the effective date of termination, subject to the payment by
Roche of all amounts earned by SGX under Article 3 prior to the effective date
of termination and continued payment by Roche of amounts earned by SGX under
Article 3;

            (b)   in the event the Breaching Party is Roche the licenses granted
Roche under Section 4.1 will terminate concurrently.

      9.5   Effect of Termination.

            (a)   Termination by Roche under 9.2. In case of a termination of
this Agreement by Roche in its entirety, Roche's rights and licenses under this
Agreement will terminate and the Parties will negotiate in good faith for a
period of [...***...] days, immediately following the notice of termination, (i)
at Roche's option, an agreement under which SGX would receive compensation from
Roche and would not develop and commercialize an Early Lead Series or
Collaboration Products developed therefrom, or (ii) the appropriate
consideration for a license grant (as described below) from Roche to SGX. In the
event that the Parties do not reach an agreement under subsection (i) above, SGX
will thereafter have the exclusive right to develop and commercialize Early Lead
Series and corresponding Collaboration Products alone or with Third Parties, and
Roche shall grant to SGX an exclusive, worldwide, royalty bearing license (with
the right to sublicense) under Roche's interest in any Patent Rights or Know How
owned or Controlled by Roche relating to such Early Lead Series and
corresponding Collaboration Products to the extent necessary to make, have made,
import, offer for sale and sell products.

            (b)   Accrued Rights and Obligations. Termination of this Agreement
for any reason shall not release any Party hereto from any liability which, at
the time of such termination, has already accrued to the other Party or which is
attributable to a period prior to such termination nor preclude either Party
from pursuing all rights and remedies it may have hereunder or at law or in
equity with respect to any breach of this Agreement.

            (c)   Return of Confidential Information. Upon any termination of
this Agreement, SGX and Roche shall promptly return to the other Party or
destroy all Confidential Information received from the other Party, except to
the extent required to exercise any continuing rights of such Party (and in any
event, except one copy of which may be retained solely for archival purposes).


                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       19

            (d)   Cross License. In the event of termination of this Agreement
by either Party pursuant to this Article 9, the licenses granted to SGX and
Roche in Section 4.2 shall terminate concurrently.

            (e)   Survival. The provisions of Articles 5, 6, 7, 8 and 10 and
Sections 3.3 - 3.11 shall survive the expiration or termination of this
Agreement for any reason..

      9.6   Rights in Bankruptcy. All rights and licenses granted under or
pursuant to this Agreement by SGX and Roche are, and will otherwise be deemed to
be, for purposes of Section 365(n) of the United States Bankruptcy Code,
licenses of rights to "intellectual property" as defined under Section 101 of
the United States Bankruptcy Code. The Parties agree that the Parties, as
licensees of such rights under this Agreement, will retain and may fully
exercise all of their rights and elections under the United States Bankruptcy
Code. The Parties further agree that, in the event of the commencement of a
bankruptcy proceeding by or against a Party under the United States Bankruptcy
Code, the Party hereto that is not a Party to such proceeding will be entitled
to a complete duplicate of (or complete access to, as appropriate) any such
intellectual property and all embodiments of such intellectual property, which,
if not already in the non-subject Party's possession, will be promptly delivered
to it (a) upon any such commencement of a bankruptcy proceeding upon the
non-subject Party's written request therefor, unless the Party subject to such
proceeding continues to perform all of its obligations under this Agreement or
(b) if not delivered under clause (a) above, following the rejection of this
Agreement by or on behalf of the Party subject to such proceeding upon written
request therefor by the non-subject Party.

10    MISCELLANEOUS

10.1  Governing Law, Dispute Resolution and Arbitration.

            (a)   This Agreement and all acts and transactions pursuant hereto
and the rights and obligations of the Parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Delaware,
without reference to rules of conflicts or choice of laws.

            (b)   Unless otherwise set forth in this Agreement, in the event of
any dispute in connection with this Agreement, such dispute shall be referred to
the respective executive officers of the parties designated below or their
designees, for good faith negotiations attempting to resolve the dispute. The
designated executive officers are as follows:

            For SGX:   CEO

            For ROCHE: Head of Pharma Partnering

            (c)   Should the parties fail to agree within [...***...]
([...***...]) months after such dispute has first arisen, it shall be finally
settled by arbitration in accordance with the commercial arbitration rules of
the International Chamber of Commerce as in force at the


                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       20

time when initiating the arbitration. Pre-trial discovery shall be conducted in
accordance with the arbitration rules of the ICC. The tribunal shall consist of
three arbitrators. The place of arbitration shall be New York City. The language
to be used shall be English.

      10.2  Notices. Any notice required or permitted by this Agreement shall be
in writing and shall be sent by prepaid registered or certified mail, return
receipt requested, internationally recognized courier or personal delivery, or
by fax with confirming letter mailed under the conditions described above in
each case addressed to the other Party at the address shown below or at such
other address for which such Party gives notice hereunder. Such notice shall be
deemed to have been given when delivered:

      If to SGX:        Structural GenomiX, Inc.
                        10505 Roselle Street,
                        San Diego, CA  92121
                        Attn:  Chief Executive Officer
                        Copy to:  Corporate Counsel

      If to Roche:      F. Hoffmann-La Roche Ltd
                        attn.: Legal Department
                        Grenzacherstrasse 124
                        4070 Basel
                        Switzerland

   With a copy to:      Hoffmann-La Roche Inc.
                        attn.: Corporate Secretary
                        340 Kingsland Street
                        Nutley, New Jersey 07110

      10.3  Force Majeure. Neither Party shall lose any rights hereunder or be
liable to the other Party for damages or losses (except for payment obligations)
on account of failure of performance by the defaulting Party if the failure is
occasioned by war, strike, acts of terrorism, fire, Act of God, earthquake,
flood, lockout, embargo, governmental acts or orders or restrictions, failure of
suppliers (including, without limitation, energy suppliers), or any other reason
where failure to perform is beyond the reasonable control and not caused by the
negligence, intentional conduct or misconduct of the nonperforming Party and the
nonperforming Party has exerted all reasonable efforts to avoid or remedy such
force majeure; provided, however, that in no event shall a Party be required to
settle any labor dispute or disturbance.

                                       21

      10.4  No Implied Rights. Only the rights granted pursuant to the express
terms of this Agreement shall be of any legal force or effect. No other rights
shall be created by implication, estoppel or otherwise.

      10.5  Assignment. This Agreement shall not be assignable by either Party
to any Third Party hereto without the written consent of the other Party hereto,
except either Party may assign this Agreement, without such consent, to (i) an
Affiliate or (ii) an entity that acquires all or substantially all of the
business or assets of such Party to which this Agreement pertains, whether by
merger, reorganization, acquisition, sale, or otherwise. Any permitted assignee
shall assume all obligations of its assignor under this Agreement. Any purported
assignment or transfer in violation of this Section shall be void.

      10.6  Partial Invalidity. If any provision of this Agreement is held to be
invalid by a court of competent jurisdiction, then the remaining provisions
shall remain, nevertheless, in full force and effect. The Parties agree to
renegotiate in good faith any provision held invalid and to be bound by the
mutually agreed substitute provision in order to give the most approximate
effect originally intended by the Parties

      10.7  Independent Contractors. The relationship of Roche and SGX
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to (i) give either Party the
power to direct or control the day-to-day activities of the other, (ii)
constitute the Parties as partners, joint venturers, co-owners or otherwise as
participants in a joint or common undertaking, or (iii) allow a Party to create
or assume any obligation on behalf of the other Party for any purpose
whatsoever.

      10.8  No Waiver. No waiver of any term or condition of this Agreement
shall be valid or binding on either Party unless agreed in writing by the Party
to be charged. The failure of either Party to enforce at any time any of the
provisions of the Agreement, or the failure to require at any time performance
by the other Party of any of the provisions of this Agreement, shall in no way
be construed to be a present or future waiver of such provisions, nor in any way
affect the validity of either Party to enforce each and every such provision
thereafter.

      10.9  Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.


                                       22

      10.10 Entire Agreement; Amendment. This Agreement, including the Exhibits
attached hereto, constitutes the entire agreement of the Parties with respect to
the subject matter hereof, and supersedes all prior or contemporaneous
understandings or agreements, whether written or oral, between Roche and SGX
with respect to such subject matter. No amendment or modification hereof shall
be valid or binding upon the Parties unless made in writing and signed by the
duly authorized representatives of both Parties.

      IN WITNESS WHEREOF, the undersigned are duly authorized to execute this
Agreement on behalf of Roche and SGX as applicable.


                        F. HOFFMANN-LA ROCHE LTD


                        By:     /s/ Rudolf W. Schaffner  /s/ Melanie Frey Wick
                                ----------------------------------------------
                        Name:   Dr. Rudolf W. Schaffner  Dr. Melanie Frey Wick
                                                             Legal Counsel

                        Title:  Vice President, Head Licensing & Alliances


                        HOFFMANN-LA ROCHE INC.


                        By:     /s/ Dennis E. Burns
                                ----------------------------------------------

                        Name:   Dennis E .Burns

                        Title:  Vice President, Global Head of Business
                                Development


                        STRUCTURAL GENOMIX, INC.


                        By:     /s/ M.G. Grey
                                ----------------------------------------------

                        Name:   M.G. Grey

                        Title:  President


                                       23

                                                                    CONFIDENTIAL

                         EXHIBIT A - COLLABORATION PLAN

1. OVERALL GOAL

The goal of the SGX-Roche collaboration is to generate Early Lead Series that
inhibit [...***...] and have the potential to be optimized and developed into
[...***...]. The Plan involves applying SGX FAST(TM) technology to find novel
small molecule structures that reversibly inhibit [...***...], and meet the
criteria specified in Exhibit B).

This project will be initiated with a [...***...] screen of the SGX FAST(TM)
Fragment Library (using compound mixtures) against [...***...], in conjunction
with [...***...] screening of the fragment library ([...***...]). Fragments
identified from the [...***...] screen, and possibly the [...***...] screen,
will be prioritized for elaboration into unprecedented [...***...].

2.  OVERVIEW OF THE FAST(TM) PROCESS

FAST(TM) begins with the establishment of robust methods for co-crystallization
and soaking to enable screening of the FAST(TM) fragment library against the
target. In addition, [...***...] assays for the target are developed, to enable
screening for very weaK binders (screen for [...***...] @ [...***...]), and to
allow for determination of [...***...] values for more potent elaborated
compounds.

Once the crystal soaking methods and [...***...] assays are [...***...],
[...***...], SGX, the FAST(TM) fragment library is screened. This includes both
a [...***...] screen of fragment mixtures ([...***...] fragments [...***...]),
plus a [...***...] screen of individual compounds to identify weak binders at
high ligand concentrations ([...***...]). Fragments identified as binding at the
active site, or a specific remote site on the target protein are then reviewed
and selected for elaboration, using criteria such as [...***...], [...***...],
[...***...], [...***...] and [...***...], and "[...***...]" in terms of chemical
elaboration.

The FAST(TM) Fragment library is a collection of ~1000 diverse low molecular
weight compounds that represent ring systems typically found in drugs and
drug-like molecules. These fragments have been selected using specific
"lead-like" criteria, including:

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

      -     [...***...] or [...***...]

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

      -     [...***...] for [...***...], [...***...], [...***...], [...***...],
            [...***...].)

Each member of the FAST(TM) fragment library is amenable to rapid chemical
elaboration at two or three sites to provide access to enormous potential
chemical diversity using parallel organic synthesis. Initial fragment
elaboration involves using knowledge of the structure of the [...***...] and
advanced [...***...] tools ([...***...], [...***...], [...***...], [...***...])
to guide synthesis of small, focused linear (one-dimensional) libraries. These
linearly elaborated fragments are then evaluated with [...***...] assays and
[...***...] analyses to provide a set of compounds with enhanced activity and
SAR. Thereafter, optimal variations at each point of chemical diversity are
combined to synthesize focused


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combinatorial (two- or three-dimensional) libraries that are again evaluated
with assays and [...***...]. These focused combinatorial libraries typically
contain multiple novel compounds of low molecular weight ([...***...]) that bind
the target protein with [...***...] values and considerable selectivity. The
deliverables from this process are compounds with defined lead-like properties,
target activity, SAR, selectivity profiles, and co-crystal structures. The
identified compounds can be further elaborated via parallel synthesis or
medicinal chemistry optimization to provide more optimized lead series. The
leads or lead series can be profiled and advanced based on cellular or
functional assays, animal efficacy models, in vitro and in vivo ADME and in
vitro toxicology studies in concert with structural information.



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                                                                    CONFIDENTIAL


FIGURE 1.  [...***...]

                                   [...***...]




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3. FAST(TM) APPLIED TO [...***...]

SGX and Roche will collaborate on the discovery of Early Leads Series (see
Exhibit B for definition) against [...***...]. The crystal structure of
[...***...] has been determined by several research groups, including the
[...***...]. At least [...***...] potential inhibitory binding sites are present
on the surface of the enzyme: the [...***...]. At present, all [...***...] of
these potential inhibitor binding sites are of interest for drug discovery.
Information gained from this collaboration, or from other sources, may modify
that assumption. Prioritization of the fragment selection and elaboration for
the various sites will occur through discussions with the Joint Steering
Committee (JSC) and/or the Project Team throughout the course of the
collaboration.

SGX will apply its experience and expertise in high-throughput crystallographic
studies of protein-ligand complexes and integrated small molecule design and
discovery to rapidly identify Early Lead Series against [...***...]. Roche will
contribute specific expertise and experience, including [...***...],
[...***...], [...***...], [...***...], [...***...], [...***...].

3.1 TIMELINE

The projected timeline for the FAST(TM) project directed against [...***...] is
[...***...] months (as illustrated in Figure 1), with the goal of identifying
one or more Early Lead Series as defined in Exhibit A.

3.2 SUMMARY OF RESPONSIBILITIES

[...***...]

3.3 FAST(TM) TARGET SELECTION AND FAST(TM) READINESS

3.3.1 Protein Production and Crystallography

Roche will provide purified [...***...] protein, crystallization/soaking
protocols, and relevant [...***...] assay methods and information, to facilitate
initiation of the [...***...] FAST(TM) campaign. It is anticipated that protein
supply and crystallization conditions will be sufficiently robust to support the
FAST(TM) effort, which could require [...***...] crystals. Roche will provide
[...***...] of [...***...] at the initiation of the collaboration, which is
anticipated to yield [...***...]. Roche will provide [...***...] as requested by
the JSC and/or Project Team. The first step


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                                                                    CONFIDENTIAL


for SGX in the project will be to reproduce [...***...] system and determine a
[...***...] at [...***...]. SGX will develop appropriate crystallization,
co-crystallization, soaking and mixture soaking methods in-house to enable
[...***...]. Activities will include:

- -        Reproduce [...***...] conditions

- -        Verification of [...***...],[...***...]

- -        Verification of [...***...]

- -        Development and optimization of [...***...]

3.3.2   Biochemistry

Roche will provide protocols and know how to support SGX in establishing a
[...***...] assay ([...***...] template) for [...***...] to permit [...***...]
screening of the fragment library at high concentration ([...***...]) and
subsequent fragment elaboration. SGX will perform assays at either a [...***...]
location that permits use of [...***...] or at [...***...]. If assays are
performed at [...***...], [...***...] will provide access to the necessary
laboratory space and equipment and will facilitate the execution of the
necessary documentation to permit an [...***...] employee or employees to
conduct experiments within the [...***...] facilities. [...***...] will be
responsible for all personnel expenses related to conducting experiments at
[...***...] facilities.

3.3.3  Reference and Control Samples:

As requested by the JSC and/or Project Team, Roche will provide appropriate
amounts of specified public [...***...] for use in crystallization methods
development and assay development and validation.

3.4  IDENTIFICATION OF INITIAL FRAGMENT HITS

- -     Crystallographic and biochemical screening of the SGX FAST(TM) Fragment
      library against [...***...] will be performed to provide initial Fragments
      for elaboration. A report containing results from the screen will be
      generated for review by the JSC and/or Project Team.

- -     Fragments may be identified as binding to multiple different sites on
      [...***...]. SGX will recommend the selection of up to [...***...] Initial
      Fragment Hits ([...***...]), present the recommendation rationale to the
      JSC and/or Project Team for endorsement, and SGX will generate plans to
      elaborate these fragments. The [...***...] Fragments will be distributed
      across the potential inhibitor binding sites (up to 3 sites). The
      elaboration plans will be reviewed by the JSC and/or Project Team and
      prioritized if necessary.

- -     SGX will conduct the following studies as needed: (1) [...***...] for
      [...***...] from [...***...], [...***...] in the [...***...], (2)
      [...***...] for [...***...], [...***...] in the [...***...].

- -     Based upon the success of the initial screen and identified set of
      fragments and discussion with the JSC and/or Project Team, Roche may
      request [...***...] of the [...***...], or may request that a [...***...].

3.5 IDENTIFICATION OF ELABORATED FRAGMENTS


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                                                                    CONFIDENTIAL


- -     The selected Initial Fragment Hits are computationally elaborated into
      virtual libraries with each [...***...] combination being elaborated
      independently to provide "linear libraries". The enumerated libraries are
      subjected to the SGX proprietary docking and scoring process (AGILE).

      The AGILE process involves:

      1.    Enumerating all possible [...***...] from [...***...] at each
            "[...***...]".

      2.    Generating all [...***...] of each [...***...] in the context of the
            [...***...] and [...***...], based on the observed [...***...] of
            the [...***...].

      3.    [...***...] each [...***...] in the context of the [...***...].

      4.    [...***...] with [...***...] ([...***...]) [...***...] or
            [...***...] ([...***...]).

      5.    Scoring [...***...] with [...***...] and prioritizing them for
            synthesis.

- -     The target library for the first round of synthesis is typically
      [...***...] compounds for each [...***...] that is elaborated.

- -     SGX will synthesize these small parallel libraries of Linear Elaborated
      Fragments, one library per "[...***...]", using the computationally
      selected fragments (i.e., for a fragment with [...***...] "[...***...]",
      [...***...] small libraries will be synthesized, [...***...] at each
      position - approximately [...***...] compounds per library).

- -     SGX will perform co-crystal structure determinations for selected Linear
      Elaborated Fragments.

- -     Assays will be performed as described in 3.8 below.

3.6 MULTIPLY ELABORATED FRAGMENTS (EARLY LEADS)

- -     Based on the results from the characterization of Linear Elaborated
      Fragments, with the guidance of the JSC and/or Project Team, SGX will
      generate plans for the second stage of fragment hit elaboration (Multiply
      Elaborated Fragments). The effort will focus on elaboration of inhibitors
      targeting a [...***...] (unless the JSC elects to the contrary) and will
      involve multiple elaborations of [...***...] Fragments. Via the JSC,
      [...***...] of any potential overlap of [...***...].

- -     SGX will computationally select (using the AGILE process described above)
      combinations of active Linear Elaborated Fragments for [...***...] of
      [...***...] ([...***...]) to design small, focused combinatorial
      libraries, for which [...***...] or [...***...] are [...***...]
      (approximately [...***...] compounds per library).

- -     SGX will synthesize small combinatorial libraries using parallel
      synthesis.

- -     SGX will perform co-crystal structure determinations for selected Multiply
      Elaborated Fragments.

- -     Assays will be performed as described in 3.8 below

- -     Depending on the results from these first Multiply Elaborated Libraries,
      it is anticipated that an additional round of elaboration/optimization
      will be performed (typically on [...***...] fragment scaffolds) to provide
      improved candidates for Early Lead Series.

3.7 OPTIMIZATION TO EARLY LEADS

- -     As determined by the JSC and/or Project Team, additional optimization will
      be undertaken in order to obtain an Early Lead Series meeting the target
      criteria in Exhibit B.


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                                       6

                                                                    CONFIDENTIAL

- -     Planswill be generated using a combination of structure based design and
      parallel synthesis, with additional consideration of properties and
      medicinal chemistry design to address any identified liabilities of the
      Early Lead Series. This effort may include [...***...] of smaller
      [...***...] with [...***...] and/or [...***...]. Design efforts will
      continue to draw on data from co-crystal structures of Elaborated
      Fragments.

- -     Via the JSC and/or Project Team, [...***...] of any potential overlap of
      [...***...].

- -     SGX will prepare the representative members of the Early Lead Series and
      provide [...***...] (up to [...***...]) to Roche. Note: prior to this
      point, SGX will typically provide [...***...] ([...***...] at [...***...]%
      [...***...]) to Roche for [...***...].

- -     SGX will conduct a [...***...] search around Early Lead series.

- -     The JSC will review [...***...] and compounds/series will be nominated as
      Early Lead Series meeting the defined criteria described in Exhibit B.

3.8  ASSAY RESPONSIBILITIES AND PROGRAM SCREENING CASCADE

The Project Team will establish a [...***...] as a general guide for assay
responsibilities of the parties. The cascade will take the following guidelines
into account:

      -     SGX will be responsible for [...***...] assays for compounds with
            [...***...].

      -     Roche will be responsible for [...***...] assays at biochemical
            compound [...***...]. Turn around on [...***...] assays performed at
            Roche is expected to be [...***...] weeks after sample receipt.
            Roche may choose to perform [...***...] assays on compounds with
            [...***...], but shall have no obligation to do so.

      -     Roche will perform [...***...] assays for compounds with biochemical
            compound [...***...] and [...***...] of [...***...]. Turn around on
            the [...***...] assays performed at Roche is expected within
            [...***...] from sample receipt. Roche may choose to perform
            [...***...] assays on compounds with > [...***...], but shall have
            no obligation to do so. [...***...]

      -     Turnaround time on all other assays performed by Roche, in
            accordance with the Program Screening Cascade, is expected to be
            [...***...] from sample receipt.

3.9 COMPOUND SHIPMENT

SGX will use best efforts to schedule compound shipments on days that are
compatible with Roche practices for compound acceptance and registration.

3.10  TRANSFER OF DATA AND INFORMATION

- -     SGX will transfer all reduced [...***...] ([...***...]) collected on
      [...***...] crystals and associated [...***...] ([...***...]) to Roche in
      electronic format. Transfer of [...***...] data will be timely to allow
      assessment of ongoing crystallographic effortS.

- -     All assay data generated by SGX or Roche will be shared with the other
      party in a format and within defined time to be determined by the JSC
      and/or Project Team.

- -     A mutually acceptable mechanism for electronic data sharing will be
      established (e.g. a shared drive) by the Project Team.


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                                       7

                                                                    CONFIDENTIAL


RELATED LITERATURE

1.    [...***...]. [...***...]. [...***...].

2.    [...***...]. [...***...] et. al., [...***...] [...***...].

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

4.    [...***...]. [...***...], et. al., [...***...].

5.    [...***...]. [...***...], et. al., [...***...], 32 pp.

6.    [...***...]. [...***...] et. al., [...***...].

7.    [...***...]. [...***...], et. al , [...***...].


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                                       8

                          EXHIBIT B - COMPOUND CRITERIA

Definition: Early Lead Series

A prototypical [...***...] or [...***...] that demonstrate activity and
selectivity in the relevant [...***...] and can form the basis a [...***...]
effort. A lead series has a distinct [...***...] and provides a [...***...] that
can form the basis for a [...***...] position.

1) EARLY LEAD SERIES CRITERIA

- -     Representative members of the [...***...] have been [...***...] and
      [...***...] and [...***...].

      -     [...***...] have been [...***...] and [...***...]

      -     [...***...] for [...***...] are [...***...]

- -     Representative members of the [...***...] the [...***...] in the
      [...***...] ([...***...]).

- -     [...***...] demonstrates [...***...] in the [...***...] ([...***...])

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

      -     [...***...] toward [...***...] has been assessed with relevant
            [...***...].

- -     [...***...] assessed (i.e. [...***...], [...***...], [...***...]).

- -     [...***...] issues assessed, [...***...] is [...***...]

2) [...***...] (TESTING TO BE PERFORMED BY [...***...])

      -     Specific criteria should be met for a representative set of
            [...***...] within the [...***...]; [...***...] is required to meet
            all the specified criteria.

      -     [...***...] to have ability to revise certain criteria as the
            project progresses

      -     [...***...] to have the ability to determine that the [...***...]
            has been met in certain circumstances where all criteria may not
            have been reached.

      1.    [...***...]; [...***...]

      2.    [...***...], [...***...] ([...***...])
            [...***...]
            [...***...] (to be [...***...] to [...***...] for [...***...])

      3.    [...***...], [...***...]
            [...***...]

      4.    [...***...] ([...***...]), [...***...]
            [...***...]


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                                       1

      5.    [...***...] ([...***...]), [...***...] [...***...]

      6.    a) [...***...]; [...***...]% [...***...]
            [...***...]
or
            b) [...***...] ([...***...]) [...***...]

      7.    [...***...]
            [...***...], [...***...], [...***...], [...***...]

      8.    [...***...]
            [...***...] ([...***...])

      9.    [...***...]
            [...***...] ([...***...])

      10.   [...***...]

      11.   [...***...] with [...***...]

            [...***...]

      12.   [...***...]
            [...***...]


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PROPOSED TIMELINE

[...***...]


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EX-10.23

                                                                   EXHIBIT 10.23

                                           *** TEXT OMITTED AND FILED SEPARATELY
                                    PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST
                                            UNDER 17 C.F.R. SECTION 200.80(b)(4)
                                               AND RULE 406 UNDER THE SECURITIES
                                                         ACT OF 1933, AS AMENDED

                             COLLABORATION AGREEMENT

      THIS COLLABORATION AGREEMENT (the "AGREEMENT") is effective as of August
1, 2003 (the "EFFECTIVE DATE") by and between STRUCTURAL GENOMIX, INC. a
Delaware corporation located at 10505 Roselle Street, San Diego, CA 92121
("SGX"), and OSI PHARMACEUTICALS, INC., and its Affiliates, a Delaware
corporation, with executive offices at 58 South Service Road, Melville, New York
11747 ("OSIP"). SGX and OSIP may be referred to herein individually as a "Party"
and collectively as the "Parties."

                                   BACKGROUND

      WHEREAS, SGX has expertise in the field of structure directed drug
discovery;

      WHEREAS, OSIP has expertise in the discovery, validation and development
of drugs for the treatment of cancer;

      WHEREAS, SGX and OSIP wish to enter into a collaborative research program
to perform high-throughput co-complex structure determination of OSIP drug
targets with compounds provided by OSIP.

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

1. DEFINITIONS

      1.1 "Affiliate" means, with respect to a Party hereto, a corporation,
company or other entity that is owned or controlled by such Party by virtue of
such Party's direct or indirect ownership or control of more than fifty percent
(50%) of the outstanding shares or securities (representing the right to vote
for the election of directors or other managing authority) of such corporation,
company or other entity, but such corporation, company or other entity shall be
deemed to be an Affiliate only so long as such ownership or control exists.

      1.2 "Co-Complex Structure" means the three dimensional atomic structure of
the bound combination of a OSIP Target with an OSIP Compound or Other Compound,
made in the course of the Collaboration, which has the following
characteristics: either (a) (i) [...***...] (i.e., the [...***...] or is
[...***...]); (ii) [...***...] in the [...***...]; (iii) [...***...]%[...***...]
and [...***...]% in the [...***...]; (iv) [...***...]; and (v) [...***...]; or
(b) (i) [...***...]; (ii) [...***...] in the [...***...]; (iii)
[...***...]%[...***...] and [...***...]% in the [...***...]; (iv) [...***...];
(v) [...***...]; and (vi) [...***...] in a [...***...] for the [...***...]
provided that the [...***...] of the [...***...] is [...***...] and [...***...].


                                  Page 1 of 16

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      1.3 "Collaboration" means the research collaboration performed by the
Parties pursuant to Section 2.1.

      1.4 "Collaboration Technology" means Patent Rights and Know-How which are
conceived or reduced to practice or otherwise developed by or on behalf of OSIP
or SGX or jointly by OSIP and SGX during and in the performance of the
Collaboration, including without limitation Co-Complex Structures; provided
however, Collaboration Technology does not include SGX Background Technology or
OSIP Background Technology.

      1.5 "Controls" or "Controlled" means possession of the ability to grant
the licenses or sublicenses as provided for herein, without violating the terms
of any agreement or other arrangement with a Third Party.

      1.6 "Know-How" means all ideas, inventions, instructions, designs,
processes, formulas, software, materials, methods, processes, techniques, and
data.

      1.7 "OSIP Background Technology" means all Patent Rights and Know-How
owned or Controlled by OSIP which are: (a) existing on the Effective Date or
developed during the Term of the Collaboration (i) outside of the Collaboration
or (ii) within the Collaboration but are of general application (for example,
have application to other proteins in addition to the OSIP Targets); and (b)
necessary for the conduct of the Collaboration.

      1.8 "OSIP Compound" means an active small molecule ligand that is provided
by OSIP to SGX for inclusion in the Collaboration that is not publicly known to
bind to, inhibit or modulate or to be likely to bind to, inhibit or modulate,
the OSIP Target to which it is intended to be bound under the Collaboration.

      1.9 "OSIP Materials" means OSIP Targets, OSIP Compounds, Other Compounds
and any protein, clone or vector used to express OSIP Targets in each case,
which are owned or Controlled by OSIP.

      1.10 "OSIP Target" means all forms of the target listed in the attached
Exhibit B, as may be amended from time to by agreement of the JSC in accordance
with Section 2.6.

      1.11 "Other Compound" means a small molecule ligand that the JSC agrees to
include in the Collaboration that is publicly known to bind to, inhibit or
modulate or to be likely to bind to, inhibit or modulate, the OSIP Target to
which it is intended to be bound under the Collaboration.

      1.12 "Patent Rights" means patent applications filed in any country
worldwide, including provisionals, utilities, continuations (in whole or in
part), divisionals, reissues, reexaminations and foreign counterparts thereof,
any patents issued on such applications and any extensions of term,
registrations or confirmations of such patents.

      1.13 "SGX Background Technology" means all Patent Rights and Know-How
owned or Controlled by SGX which are (a) existing on the Effective Date or
developed during the Term of the Collaboration (i) outside of the Collaboration
or (ii) within the Collaboration but are of general application (for example,
have application to other proteins in addition to the OSIP Targets); and (b)
necessary for the conduct of the Collaboration.

                                  Page 2 of 16




      1.14 "SGX Materials" means the biological and chemical materials embodying
any Co-Complex Structure, any protein, clone, or vector used to express a
Co-Complex Structure, in each case which are owned or Controlled by SGX and are
developed in the course of the Collaboration.

      1.15 "Term of the Collaboration" shall have the meaning set forth in
Section 2.2.

      1.16 "Third Party or Third Parties" means any entity other than OSIP or
SGX or their respective Affiliates.

2. COLLABORATION.

      2.1 Collaboration. Subject to the terms and conditions of this Agreement
OSIP and SGX will use commercially reasonable efforts to conduct the
Collaboration in accordance with the collaboration plan attached to this
Agreement as Exhibit A ("Collaboration Plan").

      2.2 Term of the Collaboration. The term of the Collaboration commences on
the Effective Date and terminates [...***...] ([...***...]) months thereafter,
unless extended by mutual agreement of the parties ("Term of Collaboration").

      2.3 Provision of OSIP Compounds.

            (a) Delivery of OSIP Compounds. Within three (3) months of the
inclusion of an OSIP Target in the Collaboration OSIP will deliver to SGX a
minimum of [...***...] ([...***...]) OSIP Compounds for such OSIP Target which
bind to, inhibit or modulate the OSIP Target to which they are intended to be
bound under the Collaboration; with each such OSIP Compound having: (i)
solubility [...***...]; (ii) molecular weight of [...***...]; and (iii) potency
againsT the OSIP Target of [...***...]; and being provided in volumes of at
least [...***...] ([...***...]) [...***...].

            (b) Consequences of Delay. On an OSIP Target by OSIP Target basis,
in the event that OSIP has not provided any OSIP Compounds as described in
Section 2.3(a) above, for such OSIP Target, during the Term of the
Collaboration, then OSIP's rights under Section 4.1(b) will not include any
structural data on such OSIP Target.

      2.4 Provision of OSIP Background Technology. Within 30 days following the
Effective Date and during the Term of the Collaboration OSIP will provide SGX
with reasonable quantities of such OSIP Materials and other OSIP Background
Technology which are necessary or useful for the conduct of the Collaboration by
SGX.

      2.5 Delivery of SGX Materials and Collaboration Technology. During the
Term of the Collaboration, upon reasonable request by OSIP, SGX will provide
OSIP with reasonable quantities of available SGX Materials and other
Collaboration Technology, to the extent necessary for OSIP to exercise its
rights under this Agreement.

                                  Page 3 of 16

                                             ***CONFIDENTIAL TREATMENT REQUESTED


      2.6 Designation of Additional Targets. During the Term of the
Collaboration the JSC may agree to include additional OSIP Targets in the
Collaboration and/or remove OSIP Targets from the Collaboration, provided
however, (i) there will be no more than [...***...] ([...***...]) OSIP Targets
included in the Collaboration at any one time, for which the Milestone in
Section 3.3(b) has not been achieved; and (ii) there will be no more than
[...***...] ([...***...]) OSIP Targets included in the Collaboration in total.

      2.7 Records; Reports. Monthly for the first six (6) months and quarterly
thereafter during the Term of the Collaboration the Parties will have the
obligation to prepare and provide to the JSC written reports summarizing the
progress of the work performed by such Party in the course of the Collaboration
during the preceding time period. Promptly upon completion of the Collaboration
SGX shall provide a final written report summarizing its activities during the
Collaboration and the results thereof.

      2.8 Joint Steering Committee.

            (a) Responsibilities. SGX and OSIP will establish a Joint Steering
Committee ("JSC") to oversee the strategic and tactical aspects of the
Collaboration.

            (b) Membership; Decisions. The JSC shall be comprised of two (2)
representatives from OSIP and two (2) representatives from SGX:



          OSIP                                         SGX
- ---------------------------                  ---------------------------
                                          
[...***...], Ph.D.                           [...***...], Ph.D.
Vice President, [...***...]                  Vice President, [...***...]

[...***...],Ph.D.                            [...***...], Ph.D.
Vice President,  [...***...]                 Vice President, [...***...]


Each Party may replace its JSC representatives at any time, with written notice
to the other Party. Each representative of SGX and OSIP shall have one vote on
the JSC, which vote may be cast by proxy. All decisions of the JSC shall be made
by unanimous vote. Any matter which the JSC is unable to agree shall be
submitted to the Chief Scientific Officer of SGX and the VP of Research of OSIP
for resolution.

            (c) Responsibilities. The JSC will review, direct and supervise the
performance of the Collaboration Plan. The JSC will be responsible for (i)
coordinating, monitoring and reporting research progress and ensuring open
exchange between the Parties with respect to Collaboration activities; (ii)
determining the research strategy and time lines for the Collaboration Plan;
(iii) confirming the achievement of Milestones under Section 3.3; and (iv)
including additional OSIP Targets or removing OSIP Targets from the
Collaboration in accordance with Section 2.6.

            (d) Meetings. The JSC shall meet via videoconference or in person,
monthly for the first six (6) months and on a quarterly basis thereafter
(alternating between San Diego, CA and Melville, NY or as the JSC may otherwise
agree), to discharge its responsibilities. Each Party will be responsible for
paying its own expenses in connection with participating in the meetings of the
JSC. The JSC shall prepare written minutes of each

                                  Page 4 of 16

                                             ***CONFIDENTIAL TREATMENT REQUESTED


meeting and a written record of all JSC decisions, whether made at a JSC meeting
or otherwise.

3. CONSIDERATION

      3.1 Upfront Payment. Within ten (10) days of the Effective Date, OSIP will
pay to SGX the sum of $100,000.

      3.2 Research Funding. During the Term of the Collaboration, OSIP will pay
$60,000 per month, payable quarterly in advance, commencing on the Effective
Date.

      3.3 Research Milestone Payments. within thirty (30) days of the date of
achievement of the applicable milestone during the Term of the Collaboration,
OSIP will pay to SGX the following non-refundable milestone payments; provided
however, that OSIP will not be required to pay under this Section 3.3 for more
than [...***...] ([...***...]) milestones (i.e. $[...***...]) prior to the first
anniversary of the Effective Date; or an aggregate of [...***...] ([...***...])
milestones during the Term of the Collaboration (i.e. $[...***...]):



MILESTONES                                                               AMOUNT
- -------------------------------------------------------------------      ----------------------------
                                                                      
(a) Completion of the first [...***...] for an OSIP Target.              $[...***...] per OSIP Target

(b) Completion of each additional [...***...] aggregated across all
OSIP Targets (not including the first                                    $[...***...] per [...***...]
[...***...] for each OSIP Target).


4. LICENSES

      4.1 License to OSIP. Subject to the terms and conditions of this
Agreement, SGX hereby grants to OSIP the following licenses:

            (a) an [...***...], [...***...], [...***...] license (with the right
to grant sublicenses in accordance with Section 4.3 below) under SGX'S interest
in Collaboration Technology covering [...***...] which contain OSIP Compounds,
to use such Collaboration Technology for any purpose.

            (b) a [...***...], [...***...], [...***...] license (with the right
to grant sublicenses in accordance with Section 4.3 below) under SGX'S interest
in Collaboration Technology other than that covering [...***...] containing OSIP
Compounds, to use such Collaboration Technology for any purpose.

                                  Page 5 of 16

                                             ***CONFIDENTIAL TREATMENT REQUESTED


      4.2 Cross Licenses. Each Party hereby grants to the other, a
non-exclusive, non-transferable, royalty-free license to use and practice OSIP
Background Technology, SGX Background Technology and such Party's interest in
Collaboration Technology, solely to conduct the Collaboration.

      4.3 Sublicenses. OSIP may sublicense the rights granted in Section 4.1 to
its Affiliates and to Third Parties. Each such sublicense granted by OSIP shall
be consistent with all of the terms and conditions of this Agreement. OSIP as
the sublicensor, shall remain responsible for all of each such sublicensee's
obligations under this Agreement.

5. INTELLECTUAL PROPERTY

      5.1 Ownership of Technology.

            (a) Ownership by SGX. Title to all SGX Background Technology and all
Collaboration Technology made solely by SGX, shall be owned solely by SGX.

            (b) Ownership by OSIP. Title to all OSIP Background Technology, and
Collaboration Technology made solely by OSIP, shall be owned solely by OSIP.

            (c) Joint Ownership. Title to all Collaboration Technology made
jointly by OSIP and SGX in connection with the Collaboration shall be jointly
owned by OSIP and SGX. Each Party agrees to execute in a timely manner such
documents as the other Party may request to document and perfect joint ownership
of such Collaboration Technology.

            (d) Law. Inventorship of inventions and, subject to the terms of
this Agreement, ownership rights with respect thereto, shall be determined in
accordance with the patent laws of the United States.

      5.2 Patent Prosecution.

            (a) Background Technology. SGX shall be responsible, at its sole
discretion and expense, for the preparation, filing, prosecution and maintenance
of the patent applications and patents within Patent Rights within SGX
Background Technology, in countries selected by SGX, and for conducting any
interferences, reexaminations, reissues, oppositions, or request for patent term
extension relating thereto. OSIP shall be responsible, at its sole discretion
and expense, for the preparation, filing, prosecution and maintenance of the
patent applications and patents within Patent Rights within OSIP Background
Technology, in countries selected by OSIP, and for conducting any interferences,
reexaminations, reissues, oppositions, or request for patent term extension
relating thereto.

            (b) Collaboration Technology. OSIP shall be responsible, at its
expense and sole discretion, for the preparation, filing, prosecution and
maintenance of patent applications and patents claiming Collaboration Technology
covering [...***...] ("OSIP Patents"). SGX shall be responsible, at its expense
and sole discretion, for the preparation, filing, prosecution and maintenance of
patent applications and patents claiming Collaboration Technology other than
that covering [...***...] ("SGX

                                  Page 6 of 16

                                             ***CONFIDENTIAL TREATMENT REQUESTED


Patents"). On an OSIP Target by OSIP Target basis, in the event that SGX elects
not to file a patent application for an SGX Patent within twelve (12) months of
determination of such structure, OSIP shall have the right to file, prosecute
and maintain such patent applications and SGX will reasonably assist OSIP in
such activities at OSIP's expense. Furthermore, in the event that SGX elects not
to pursue prosecution or maintenance of any patent applications or patents
claiming such Collaboration Technology, SGX shall give OSIP not less than sixty
(60) days notice before any relevant deadline or any permitted public
disclosure, and OSIP shall have the right to pursue, at its sole discretion and
expense, prosecution and maintenance of such patent applications or patents and
SGX will reasonably assist OSIP in such activities at OSIP's expense.

      5.3 Patent Enforcement. In the event either Party becomes aware of any
infringement or misappropriation of a patent filed in accordance with Section
5.2(b) (a "Collaboration Patent"), it shall promptly notify the other Party
hereto. OSIP shall have the sole right, at its sole discretion and expense, to
take any and all steps to abate infringement or misappropriation of OSIP
Patents. SGX shall have the sole right, at its sole discretion and expense, to
take any and all steps to abate infringement or misappropriation of SGX Patents.
The Parties will cooperate with each other, at the other's request, including
without limitation, by joining such proceeding as a party if required by
applicable law, with fees and costs specific to the litigation to be borne by
the Party responsible. In the event a Party elects not to pursue abatement of
infringement or misappropriation (the "Declining Party"), the Declining Party
shall give the other Party not less than sixty (60) days notice before any
relevant deadline and the other Party shall have the right to pursue, at its
sole discretion and expense, such activities. Should such other Party pursue
such activities, the Declining Party will cooperate with the other Party, at its
request, with fees and costs specific to the litigation to be borne by the other
Party.

6. CONFIDENTIALITY AND PUBLICITY

      6.1 Confidential Information. Except as expressly provided herein, the
parties agree that, for the term of this Agreement and for five (5) years
thereafter, the receiving Party, or any Affiliate thereof, shall not publish or
otherwise disclose and shall not use for any purpose, except as expressly
permitted herein any information or material furnished to it by the other Party
hereto pursuant to this Agreement which if disclosed in tangible form is marked
"Confidential" or with other similar designation to indicate its confidential or
proprietary nature, or if disclosed orally is confirmed as confidential or
proprietary by the Party disclosing such information at the time of such
disclosure or within thirty (30) days thereafter ("Confidential Information").
Notwithstanding the foregoing, it is understood and agreed that Confidential
Information shall not include information or material that, in each case as
demonstrated by written documentation:

            (a) was already known to the receiving Party, or an Affiliate
thereof, other than under an obligation of confidentiality, at the time of
disclosure;

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

                                  Page 7 of 16



            (c) became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving Party, or an Affiliate thereof, in breach of this
Agreement; or

            (d) was subsequently lawfully disclosed to the receiving Party, or
an Affiliate thereof, by a person other than a Party hereto or independently
developed by the receiving Party or an Affiliate thereof without reference to
any Confidential Information disclosed by the disclosing Party.

      6.2 Permitted Disclosures. Notwithstanding the provisions of Section 6.1
above, each Party hereto may disclose the other's Confidential Information to
the extent such disclosure is reasonably necessary in filing or prosecuting
patent applications, prosecuting or defending litigation, complying with
applicable governmental regulations, or submitting information to tax or other
governmental authorities, provided that if a Party is required to make any such
disclosure of another Party hereto's Confidential Information, to the extent it
may legally do so, it will give reasonable advance written notice to the other
Party of such disclosure so that the other Party may attempt to secure
confidential treatment of such Confidential Information prior to its disclosure
(whether through protective orders or otherwise).

      6.4 Publication. Any public disclosure (oral, written or graphic) by
either Party describing the scientific results of the Collaboration will require
prior review and approval of the other Party at least thirty (30) days prior to
its submission for publication or other public disclosure, PROVIDED HOWEVER, SGX
may publicly disclose information regarding the number of [...***...] completed
under the Collaboration and methods utilized by SGX in the course OF the
Collaboration provided OSIP is given the opportunity to review in advance any
such disclosure to ensure that no Confidential Information of OSIP is disclosed.
If the reviewing Party so requests, the proposed public disclosure will be
delayed for forty-five (45) days from the date of each request for the filing of
patent application(s) related to the proposed public disclosure. The Parties
will jointly discuss and agree on any statements to the public regarding the
execution and subject matter of this Agreement, except with respect to
disclosures required by law or regulation and provided further that
notwithstanding the above, SGX will have the right to disclose the terms of this
Agreement (other than the identity of the OSIP Targets) in confidence to
potential investors or strategic partners bound by obligations of
confidentiality.

7. INDEMNIFICATION

      7.1 Indemnification of SGX. OSIP shall indemnify, defend, and hold
harmless SGX, the directors, officers, and employees of SGX and the successors
and assigns of any of the foregoing (the "SGX Indemnitee(s)") from and against
all claims, losses, costs, and liabilities (including, without limitation,
payment of reasonable attorneys' fees and other expenses of litigation), and
shall pay any damages (including settlement amounts) finally awarded, with
respect to any claim, suit or proceeding (any of the foregoing, a "Claim")
brought by Third Party against a SGX Indemnitee, arising out of or relating to:
(a) the exercise by OSIP of the rights granted OSIP under this Agreement
relating to the Collaboration Technology; (b) a breach of OSIP's representations
and warranties under

                                  Page 8 of 16

                                             ***CONFIDENTIAL TREATMENT REQUESTED


Section 8; (c) any products developed, manufactured, used, sold or otherwise
distributed by or on behalf of OSIP, its Affiliates or permitted sublicensees,
utilizing any Collaboration Technology, (including without limitation, product
liability claims); (d) the gross negligence or willful misconduct of OSIP; (e)
the use, handling, transfer or storage of the SGX Materials received from SGX
hereunder; or (f) a claim that the use by SGX or by OSIP of an OSIP Target, DNA
coding for an OSIP Target, structures of OSIP Targets, Co-Complex Structures
(except if such claim arises solely from the use of SGX Background Technology),
OSIP Materials or an OSIP Compound, infringes the intellectual property rights
of a Third Party, except, in each case, to the extent caused by the gross
negligence or willful misconduct of a SGX Indemnitee.

      7.2 Indemnification of OSIP. SGX shall indemnify, defend and hold harmless
OSIP, the directors, officers, and employees of OSIP, and the licensors,
successors and assigns of any of the foregoing (the "OSIP Indemnitee(s)") from
and against all Claims, brought by Third Party against an OSIP Indemnitee,
arising out of or relating to: (a) a breach of SGX's representations and
warranties under Section 8; (b) the gross negligence or willful misconduct of
SGX; (c) the handling, transfer or storage of the OSIP Materials; or (d) a claim
that the use by OSIP of any Co-Complex Structures or SGX Materials infringes the
intellectual property rights of a Third Party if such claim arises solely from
the use of SGX Background Technology; except, in each case, to the extent due to
the gross negligence or willful misconduct of an OSIP Indemnitee.

      7.3 Indemnification Procedures. An Indemnitee that intends to claim
indemnification under this Article 7 shall promptly notify the other Party (the
"Indemnitor") in writing of any claim in respect of which the Indemnitee intends
to claim such indemnification, and the Indemnitor shall have sole control of the
defense and/or settlement thereof, provided that the indemnified Party may
participate in any such proceeding with counsel of its choice at its own
expense. The indemnity agreement in this Article 7 shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the
consent of the Indemnitor, which consent shall not be withheld unreasonably. The
failure to deliver written notice to the Indemnitor within a reasonable time
after the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such Indemnitor of any liability to the
Indemnitee under this Article 7 but the omission so to deliver written notice to
the Indemnitor shall not relieve the Indemnitor of any liability that it may
have to any Indemnitee other than under this Article 7. The Indemnitee under
this Article 7, its employees and agents, shall cooperate fully with the
Indemnitor and its legal representatives and provide full information in the
investigation of any Claim covered by this indemnification. Neither Party shall
be liable for any costs or expenses incurred by the other Party without its
prior written authorization.

8. REPRESENTATIONS AND WARRANTIES

      8.1 Each Party. Each Party represents and warrants to the other (i) that
it has the legal power, authority and right to enter into this Agreement and to
perform its respective obligations under this Agreement; (ii) that it is not a
Party to any agreement or arrangement with any Third Party or under any
obligation or restriction which in any way limits or conflicts with its ability
to fulfill any of its obligations under this Agreement, (including without
limitation, the licenses granted in Article 4), and shall not enter into any
such

                                  Page 9 of 16


agreement or arrangement during the term of this Agreement; (iii) each employee
or person engaged in the Collaboration on behalf of OSIP or SGX has entered into
a written agreement which provides for the assignment to OSIP or SGX,
respectively, of all inventions and discoveries made by such employee or person
during the course of his or her employment or engagement with OSIP or SGX.

      8.2 Disclaimer. SGX and OSIP specifically disclaim any guarantee that the
Collaboration will be successful, in whole or in part. The failure of the
parties to solve structures or to meet any of the estimated time lines in the
Collaboration Plan will not constitute a breach of any representation or
warranty or other obligation under this Agreement provided that a Party used
commercially reasonable efforts to conduct the Collaboration in accordance with
the collaboration plan. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS
AGREEMENT, OSIP AND SGX MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY
KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE MERCHANTABILITY, OR FITNESS
FOR A PARTICULAR PURPOSE OF THE SGX BACKGROUND TECHNOLOGY, OSIP BACKGROUND
TECHNOLOGY OR COLLABORATION TECHNOLOGY OF EACH PARTY, INCLUDING WITHOUT
LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY OR OTHER RIGHTS OF ANY THIRD
PARTY.

9. TERM AND TERMINATION

      9.1 Term of the Agreement. Subject to Section 9.3, the term of this
Agreement shall commence on the Effective Date and unless terminated earlier,
will terminate upon the later of (i) expiration of the last to expire patent
within the Patent Rights that covers Collaboration Technology or (ii)
[...***...] years after the Effective Date.

      9.2 Termination for Cause. Either OSIP or SGX may terminate this Agreement
by written notice, stating such Party's intent to terminate in the event the
other Party shall have materially breached or defaulted in the performance of
any of its obligations hereunder, and such default shall have continued for
thirty (30) days after written notice thereof was provided to the breaching
Party by the nonbreaching Party.

      9.3 Termination by OSIP. OSIP may terminate this Agreement by written
notice given during the [...***...] month following the Effective Date if OSIP
has delivered at least [...***...] ([...***...]) OSIP Compounds to SGX under
Section 2.3 prior to the start of the [...***...] month of the Collaboration and
if prior to the date of notice of termination, SGX has not completed both (i)
one [...***...] for each of [...***...] OSIP Targets and (ii) twenty [...***...]
in total, and SGX fails to complete (i) and (ii) above within thirty (30) days
after receipt of such notification from OSIP.

      9.4 Effect of Termination.

            (a) Accrued Rights and Obligations. Termination of this Agreement
for any reason shall not release any Party hereto from any liability which, at
the time of such

                                 Page 10 of 16

                                             ***CONFIDENTIAL TREATMENT REQUESTED


termination, has already accrued to the other Party or which is attributable to
a period prior to such termination nor preclude either Party from pursuing all
rights and remedies it may have hereunder or at law or in equity with respect to
any breach of this Agreement.

            (b) Return of Confidential Information. Upon any termination of this
Agreement, SGX and OSIP shall promptly return to the other Party or destroy at
the other parties' request all Confidential Information received from the other
Party, except to the extent required to exercise any continuing rights of such
Party (and in any event, except one copy of which may be retained solely for
archival purposes).

            (c) Licenses.

                  (i) In the event of termination of this Agreement by either
Party pursuant to this Article 9, the licenses granted to SGX and OSIP in
Section 4.2 shall [...***...].

                  (ii) In the event of termination of this Agreement by the
non-breaching Party pursuant to Section 9.2, the licenses granted the breaching
Party under Article 4 will [...***...].

            (d) Survival. The provisions of Articles 5, 6, 7, 8, and 10 shall
survive the expiration or termination of this Agreement for any reason.

10 MISCELLANEOUS

      10.1 Arbitration. If the Parties are unable to resolve any dispute,
controversy or claim between them arising out of or relating to the validity,
construction, enforceability or performance of this Agreement, including
disputes relating to alleged breach or to termination of this Agreement (each, a
"Dispute"), the Dispute shall be settled by binding arbitration pursuant to the
Commercial Arbitration Rules of the American Arbitration Association then in
effect by three (3) arbitrators appointed in accordance with such rules. The
decision and/or award rendered by the arbitrators shall be final and
nonappealable (except for an alleged act of corruption or fraud on the part of
the arbitrators) and may be entered in any court of competent jurisdiction. The
Parties agree that, any provision of applicable law notwithstanding, they will
not request, and the arbitrators shall have no authority to award, punitive or
exemplary damages against any Party. The arbitrators shall have the authority to
grant injunctive relief and order specific performance. The costs of any
arbitration, including administrative fees and fees of the arbitrators, shall be
shared equally by the Parties. Each Party shall bear the cost of its own
attorneys' fees and expert fees. Pending the establishment of the arbitral
tribunal or pending the arbitral tribunal's determination of the merits of the
controversy, either Party may seek from a court of competent jurisdiction any
interim or provisional relief that may be necessary to protect the rights or
property of that Party.

      10.2 Governing Law. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Delaware,
without reference to rules of conflicts or choice of laws.

                                 Page 11 of 16

                                             ***CONFIDENTIAL TREATMENT REQUESTED


      10.3 Notices. Any notice required or permitted by this Agreement shall be
in writing and shall be sent by prepaid registered or certified mail, return
receipt requested, internationally recognized courier or personal delivery, or
by fax with confirming letter mailed under the conditions described above in
each case addressed to the other Party at the address shown below or at such
other address for which such Party gives notice hereunder. Such notice shall be
deemed to have been given when delivered:

      If to SGX:

      Structural Genomix, Inc.
      10505 Roselle Street,
      San Diego, CA 92121
      Attn:  Chief Executive Officer
      Copy to: Corporate Counsel

      If to OSIP:

      OSI Pharmaceuticals, Inc.
      58 South Service Road
      Melville, NY 11747
      Attn: Corporate Counsel
      Copy to: Vice President, Research

      10.4 Force Majeure. Neither Party shall lose any rights hereunder or be
liable to the other Party for damages or losses (except for payment obligations)
on account of failure of performance by the defaulting Party if the failure is
occasioned by war, strike, acts of terrorism, fire, Act of God, earthquake,
flood, lockout, embargo, governmental acts or orders or restrictions, failure of
suppliers (including, without limitation, energy suppliers), or any other reason
where failure to perform is beyond the reasonable control and not caused by the
negligence, intentional conduct or misconduct of the nonperforming Party and the
nonperforming Party has exerted all reasonable efforts to avoid or remedy such
force majeure; provided, however, that in no event shall a Party be required to
settle any labor dispute or disturbance.

      10.5 No Implied Rights. Only the rights granted pursuant to the express
terms of this Agreement shall be of any legal force or effect. No other rights
shall be created by implication, estoppel or otherwise.

      10.6 Assignment. This Agreement shall not be assignable by either Party to
any third Party hereto without the written consent of the other Party hereto,
except either Party may assign this Agreement, without such consent, to (i) an
Affiliate or (ii) an entity that acquires all or substantially all of the
business or assets of such Party to which this Agreement pertains, whether by
merger, reorganization, acquisition, sale, or otherwise.

      10.7 Partial Invalidity. If any provision of this Agreement is held to be
invalid by a court of competent jurisdiction, then the remaining provisions
shall remain, nevertheless, in full force and effect. The Parties agree to
renegotiate in good faith any provision held invalid

                                 Page 12 of 16


and to be bound by the mutually agreed substitute provision in order to give the
most approximate effect originally intended by the Parties

      10.8 Independent Contractors. The relationship of OSIP and SGX established
by this Agreement is that of independent contractors, and nothing contained in
this Agreement shall be construed to (i) give either Party the power to direct
or control the day-to-day activities of the other, (ii) constitute the Parties
as partners, joint venturers, co-owners or otherwise as participates in a joint
or common undertaking, or (iii) allow a Party to create or assume any obligation
on behalf of the other Party for any purpose whatsoever.

      10.9 No Waiver. No waiver of any term or condition of this Agreement shall
be valid or binding on either Party unless agreed in writing by the Party to be
charged. The failure of either Party to enforce at any time any of the
provisions of the Agreement, or the failure to require at any time performance
by the other Party of any of the provisions of this Agreement, shall in no way
be construed to be a present or future waiver of such provisions, nor in any way
affect the validity of either Party to enforce each and every such provision
thereafter.

      10.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

      10.11 Entire Agreement; Amendment. This Agreement, including the Exhibit
attached hereto, constitutes the entire agreement of the Parties with respect to
the subject matter hereof, and supersedes all prior or contemporaneous
understandings or agreements, whether written or oral, between OSIP and SGX with
respect to such subject matter. No amendment or modification hereof shall be
valid or binding upon the parties unless made in writing and signed by the duly
authorized representatives of both Parties.

      IN WITNESS WHEREOF, the undersigned are duly authorized to execute this
Agreement on behalf of OSIP and SGX as applicable.

OSI PHARMACEUTICALS, INC.                STRUCTURAL GENOMIX, INC.

By:  /s/ Robert L. Van Nostrand          By:  /s/ Tim Harris
    --------------------------------         -----------------------------------
Name:    Robert  L. Van Nostrand         Name:    Dr. Tim Harris

Title:   Vice President and CFO          Title:   CEO

                                 Page 13 of 16


                         EXHIBIT A - COLLABORATION PLAN

          OSIP/SGX RESEARCH PLAN FOR CO-COMPLEX STRUCTURE DETERMINATION

- -     The goal of the collaboration is to determine initial [...***...] and
      [...***...] for OSIP Targets.

- -     SGX will apply its structure determination capabilities to [...***...]
      targets in parallel, up to a maximum of [...***...] targets over an
      [...***...]-month period (targets listed in Exhibit B). Appendix A
      provides a model for the progression of structure determination activities
      over this time period.

- -     Collaboration progress will be managed by a Joint Steering Committee
      (JSC). The model in Appendix A is intended only as a guideline and will be
      subject to overall management and modification by the JSC.

- -     The first [...***...] months of the Collaboration will be spent conducting
      [...***...] for [...***...] OSIP Targets, as listed in Exhibit B.

- -     At the end of the [...***...] month period, and based upon the outcome
      of these studies, the JSC will select [...***...] targets for [...***...]
      with the goal of [...***...] of each [...***...] as rapidly as possible.

- -     Initial [...***...] activities are expected to take from [...***...]
      months from the conclusion of [...***...]. In certain cases, [...***...]
      may not be successful, or changes in status may result in decreased
      priority, in which case projects may be [...***...] ("[...***...]" in the
      [...***...]).

- -     With the exception of the [...***...], no more than [...***...] projects
      will be active at SGX at any one time. The JSC may place an OSIP target
      [...***...] if [...***...] within [...***...] of commencing the
      [...***...] and this is the [...***...] to the OSIP target. Placing
      certain targets [...***...], or the [...***...] on a target, will
      [...***...] OSIP Targets to be [...***...], as modeled in Appendix A.

- -     For each OSIP Target, OSIP will provide [...***...] to SGX as specified in
      [...***...] of the Agreement.

- -     As determined by the JSC, [...***...] with [...***...] of [...***...] with
      which [...***...] and/or [...***...] to be transferred to SGX. As
      available, [...***...] will also [...***...] to enable the [...***...] of
      [...***...] by [...***...] for [...***...].

- -     It is anticipated that determination of each [...***...] will be followed
      by a period of approximately [...***...] during which OSIP will
      [...***...], [...***...] and [...***...]. These [...***...] will be
      provided to [...***...], [...***...] with the targets and [...***...]. As
      above, these [...***...] will be tested for [...***...] of the [...***...]

- -     The JSC may place OSIP Targets [...***...] while an [...***...] is being
      developed. Specific targets for which [...***...] earlier in the program
      may be [...***...] once [...***...] emerge from the [...***...] and
      [...***...]. Placing certain targets [...***...], or the

                                 Page 14 of 16

                                             ***CONFIDENTIAL TREATMENT REQUESTED

              [...***...] on a target, will allow for [...***...] OSIP Targets
              to be [...***...], as modeled in Appendix A.

        -     Dependent upon the progress of OSIP Targets [...***...], OSIP
              Targets [...***...] will be entered into the Collaboration and
              also subjected to a [...***...]. The timing of this work will be
              managed by the JSC.

        -     In certain cases [...***...] for a given target may [...***...],
              including certain [...***...] of the target (e.g. [...***...]). In
              such cases the first [...***...] that is determined will result in
              a [...***...] SGX. Subsequent [...***...] will be counted to
              towards the aggregate [...***...].

        -     Structures will be delivered to [...***...] in a format consistent
              with [...***...] to the [...***...] and will include a
              [...***...], [...***...], [...***...], [...***...] (OSIP Target
              and [...***...]),[...***...] and will
              [...***...],[...***...],[...***...],[...***...] outside the
              allowed [...***...] and any [...***...] and [...***...].

        -     Over the first [...***...] months of the Collaboration it is
              anticipated that at least [...***...] and [...***...] will be
              determined.

APPENDIX A - COLLABORATION MODEL

                                  [...***...]

                                 Page 15 of 16

                                             ***CONFIDENTIAL TREATMENT REQUESTED


                            EXHIBIT B - OSIP TARGETS

INITIAL [...***...] TARGETS

[...***...]

TARGETS [...***...]

To be nominated by OSI during collaboration and approved by JSC

                                 Page 16 of 16

                                             ***CONFIDENTIAL TREATMENT REQUESTED

EX-10.24

                                                                 EXHIBIT 10.24


                                                       OSI Pharmaceuticals, Inc.
                                                58 South Service Road, Suite 110
                                                              Melville, NY 11747
                                                   T 631.962.2000 F 631.752.3880
                                                                    www.osip.com


[(OSI)(TM) PHARMACEUTICALS LOGO)]

January 11, 2004

                                                             VIA FEDERAL EXPRESS

Sean A. McCarthy, D.Phil.
Vice President, Business Development
Structural GenomiX, Inc.
10505 Roselle Street
San Diego, CA  92121

Re:      Collaboration Agreement dated August 1, 2003 between Structural
         GenomiX, Inc. and OSI Pharmaceuticals, Inc.

Dear Sean:

This letter confirms acceptance by Structural GenomiX of an amendment to Section
2.8(b) of the above-referenced Collaboration Agreement whereby effective
immediately, OSI Pharmaceuticals shall have the option to increase its
membership on the Joint Steering Committee (JSC) to three (3) representatives,
one of whom shall be a non-voting representative.

Please indicate your agreement by signing two copies and returning one copy to
my attention at OSI Pharmaceuticals, Inc.

Regards,

/s/ Barbara A. Sawitsky

Barbara A. Sawitsky
Director, Corporate Development


Agreed and Accepted:

STRUCTURAL GENOMIX, INC.

Name:         /s/Herbert G. Mutter
     ----------------------------------------

Title:        Vice President, Finance
      ---------------------------------------

Date:         2/26/04
     ----------------------------------------


Copy:      N. Gibson
           L. Arnold
           A. Castelhano
           N. Pegg

EX-10.25

                                                                   EXHIBIT 10.25

                                           *** TEXT OMITTED AND FILED SEPARATELY
                                    PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST
                                            UNDER 17 C.F.R. SECTION 200.80(b)(4)
                                               AND RULE 406 UNDER THE SECURITIES
                                                         ACT OF 1933, AS AMENDED

                             AMENDMENT TO AGREEMENT

      THIS AMENDMENT TO AGREEMENT (the "Amendment") is made and entered into
effective this 1st day of February, 2005 (the "Amendment Effective Date"), by
and between STRUCTURAL GENOMIX, INC., a corporation organized and existing under
the laws of the State of Delaware and having its principal place of business
located at 10505 Roselle Street, San Diego, CA 92121 ("SGX") and OSI
PHARMACEUTICALS, INC., and its Affiliates, a Delaware corporation, with
executive offices at 58 South Service Road, Melville, New York 11747 ("OSIP").
OSIP and SGX may be referred to herein as a "Party" or, collectively, as
"Parties".

                                    RECITALS

      A. OSIP and SGX have entered into a Collaboration Agreement (the
"Agreement") effective August 1, 2003, under which the Parties have agreed to
conduct a collaborative research program.

      B. The Parties desire to amend the terms of the Agreement as provided in
this Amendment.

      NOW, THEREFORE, the Parties agree as follows:

1.    AMENDMENT OF THE AGREEMENT

      The Parties hereby agree to amend the terms of the Agreement as provided
below, effective as of the Amendment Effective Date. To the extent that the
Agreement is explicitly amended by this Amendment, the terms of the Amendment
will control where the terms of the Agreement are contrary to or conflict with
the following provisions. Where the Agreement is not explicitly amended, the
terms of the Agreement will remain in force. Capitalized terms used in this
Amendment that are not otherwise defined herein shall have the same meanings as
such terms are defined in the Agreement.

      1.1 AMEND SECTION 1.14. Section 1.14 of the Agreement is hereby amended to
add the words "an OSIP Target that has demonstrated biologic or enzymatic
activity or" after the word "express".

      1.2 AMEND SECTION 2.2. Section 2.2 of the Agreement is hereby amended by
deleting the words "[...***...] ([...***...])" and replacing them with
"[...***...] ([...***...])".

      1.3 AMEND SECTION 2.6. Section 2.6 is hereby amended to delete the words
"[...***...] ([...***...]) and replace with "[...***...] ([...***...]) to
[...***...] ([...***...]) and delete the words "[...***...] ([...***...])" and
replace them with "[...***...] ([...***...])".

      1.4 AMEND SECTION 3.1 Section 3.1 of the Agreement is hereby amended to
add the following sentence: "within thirty (30) days after February 1, 2005,
OSIP will pay to SGX an extension payment of one hundred thousand dollars
($100,000)."

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                       1.


      1.5 AMEND SECTION 3.2. Section 3.2 of the Agreement is hereby deleted in
its entirety and replaced with the following: "Research Funding. For the period
from the Effective Date through to January 31, 2005, OSIP will pay SGX research
funding of $60,000 per month, and for the period from February 1, 2005 through
to the end of the Term of the Collaboration, OSIP will pay SGX research funding
of $[...***...] per month, in each case payable quarterly in advance.

      1.6 AMEND SECTION 3.3. Section 3.3 of the Agreement is hereby amended to
delete the words: "; or an aggregate of [...***...] ([...***...]) milestones
during the Term of the Collaboration (i.e. $[...***...])" and replace them with
the following: "; or for more than [...***...] ([...***...]) milestones during
the period from February 1, 2005 through the end of the Term of the
Collaboration (i.e.$ [...***...]), unless otherwise agreed by the Parties."

      1.7 AMEND EXHIBIT A. Exhibit A of the Agreement will be amended by adding
the attached Exhibit A-1.

      1.8 AMEND EXHIBIT B. Exhibit B of the Agreement is deleted in its entirety
and replaced with the Exhibit B attached hereto.

2.    MISCELLANEOUS

      2.1 FULL FORCE AND EFFECT. This Amendment amends the terms of the
Agreement and is deemed incorporated into, and governed by all other terms of,
the Agreement. The provisions of the Agreement, as amended by this Amendment,
remain in full force and effect.

      2.2 COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

      IN WITNESS WHEREOF, the Parties have executed this Amendment in duplicate
originals by their authorized officers as of the date and year first above
written.

                                      OSI PHARMACEUTICALS, INC.

                                      By: /s/ [Illegible]
                                          --------------------------------------

                                      Title:  Vice President - Research

                                      STRUCTURAL GENOMIX, INC.

                                      By: /s/ M. Grey
                                         ---------------------------------------

                                      Title:  President and CEO

                                       2.   ***CONFIDENTIAL TREATMENT REQUESTED


                                   EXHIBIT A-1

                              SGX-OSI COLLABORATION
                             RESEARCH PLAN EXTENSION

With an extension of the collaboration, SGX will undertake the following
programs of experimental work:

1. Continue to provide structures of [...***...], and [...***...] as needed and
as long as compounds are supplied,

2. Continue research experiments on purification and crystallization of
[...***...] with the goal of solving a crystal structure. Further experiments
involving [...***...] can follow if [...***...] from [...***...] or [...***...],

3. Additional research experiments will be performed to identify constructs and
crystallization conditions that yield a crystallographic structure of
[...***...] in a [...***...].

Assuming that [...***...] and [...***...] continue as active targets, an
additional two targets will also be activated by the JSC. Upon finalization of
the contract amendment, [...***...], [...***...] and [...***...] on these
targets will commence immediately with the goal of [...***...]. As needed during
the term of the amendment, other targets may be nominated and approved by the
JSC.

POTENTIAL TARGETS

      -     [...***...]
            [...***...] will be made based on [...***...] of [...***...], and
            [...***...] to [...***...] will be used for the [...***...], since
            protein for all [...***...] of [...***...] have been [...***...] in
            [...***...]. If we [...***...], we may [...***...] and [...***...]
            the [...***...] will be tested in [...***...] and, in parallel,
            [...***...] to [...***...] followed by [...***...] to
            [...***...] the [...***...] such as [...***...] or
            [...***...] will be included in [...***...], as well as [...***...].
            The [...***...] of the [...***...] will be [...***...] at
            [...***...] prior to [...***...]

      -     [...***...]
            [...***...] will be [...***...] in [...***...] will be included
            during [...***...], and an [...***...] included in [...***...]
            and/or [...***...] will be evaluated. If [...***...] from such
            [...***...] using [...***...] will be [...***...] will be
            [...***...] in [...***...] and, in parallel, subjected to
            [...***...]to optimize the [...***...]

                                       3.    ***CONFIDENTIAL TREATMENT REQUESTED


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

            [...***...] will be attempted in [...***...] as a [...***...], with
            and without [...***...] will be evaluated, if necessary. [...***...]
            will start after the [...***...] and the [...***...] and [...***...]
            will be deleted. If needed, [...***...] will be [...***...].
            [...***...] will advise on the [...***...] to support [...***...]
            and [...***...] can also be started in parallel if [...***...] or
            [...***...] from [...***...] is a [...***...]

OTHER POTENTIAL TARGETS

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

                                       4.    ***CONFIDENTIAL TREATMENT REQUESTED


                            EXHIBIT B - OSIP TARGETS

Initial [...***...] targets:
[...***...]

Targets [...***...]:
[...***...]

Targets [...***...]:
[...***...]

ADDITIONAL TARGETS TO BE ADDED FROM TIME TO TIME AS AGREED UPON BY THE JSC.

                                       5.    ***CONFIDENTIAL TREATMENT REQUESTED

EX-10.26

                                                                   EXHIBIT 10.26

                                           *** TEXT OMITTED AND FILED SEPARATELY
                                    PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST
                                            UNDER 17 C.F.R. SECTION 200.80(b)(4)
                                               AND RULE 406 UNDER THE SECURITIES
                                                         ACT OF 1933, AS AMENDED

                                                                    CONFIDENTIAL

                             COLLABORATION AGREEMENT

      THIS COLLABORATION AGREEMENT (the "AGREEMENT") is effective as of March
18, 2004 (the "EFFECTIVE DATE") by and between STRUCTURAL GENOMIX, INC., a
Delaware corporation located at 10505 Roselle Street, San Diego, CA 92121
("SGX"), and SERONO INTERNATIONAL SA, a corporation organized under the laws of
Switzerland, located at 15bis chemin des Mines, 1202 Geneva, Switzerland
("SERONO"). SGX and Serono may be referred to herein individually as a "Party"
and collectively as the "Parties."

                                   BACKGROUND

      WHEREAS, SGX has expertise in the field of structure directed drug
discovery; and

      WHEREAS, Serono is in the business of, and has expertise in, developing,
manufacturing and commercializing biotechnology products; and

      WHEREAS, SGX and Serono wish to enter into a collaborative research
program to develop early lead compounds against certain Serono drug targets;

      NOW, THEREFORE, in consideration of the foregoing premises and the
covenants, agreements and promises contained in this Agreement, the Parties
hereby agree as follows:

1.    DEFINITIONS

      1.1   "Affiliate" means, with respect to a Party hereto, a corporation,
company or other entity that controls, is controlled by or under common control
with such Party. The term "control" means the direct or indirect possession of
the power to direct or cause the direction of the management and policies of a
party, whether through the ownership of voting securities, by contract or
otherwise. Control will be presumed if a party owns, either of record or
beneficially, more than fifty percent (50%) of the outstanding shares or
securities (representing the right to vote for the election of directors or
other managing authority) of a corporation, company or other entity. Such
corporation, company or other entity shall be deemed to be an Affiliate only so
long as such control exists.

      1.2   "Collaboration" means the research collaboration performed by the
Parties pursuant to Section 2.1.

      1.3   "Collaboration Plan" shall have the meaning ascribed in Section 2.1.

      1.4   "Collaboration Product" means any Product that incorporates an Early
Lead Compound.

                                  Page 1 of 41

                                                                    CONFIDENTIAL

      1.5   "Collaboration Technology" means Patents and Know-How which are
made, conceived or reduced to practice or otherwise discovered or developed by
or on behalf of Serono or SGX, or jointly by or on behalf of Serono and SGX,
during and in the performance of the Collaboration.

      1.6   "Commercially Reasonable Efforts" means efforts to develop or
commercialize a product consistent with those efforts Serono would devote, with
the exercise of prudent scientific and business judgment, to a product at a
similar stage of development resulting from its own research efforts, that has
similar commercial potential, a similarly sized market and faces a similar
competitive environment, based on conditions then prevailing.

      1.7   "Confidential Information" shall have the meaning ascribed in
Section 6.1.

      1.8   "Controls" or "Controlled" means possession of the legal right of a
Party to grant the licenses or sublicenses as provided for herein or to
otherwise disclose proprietary or trade secret information to the other Party,
without violating the terms of any agreement or other arrangement with a Third
Party or misappropriating or infringing the proprietary or trade secret
information of a Third Party.

      1.9   "Early Lead Compound" means (a) the [...***...] identified in the
course of the Collaboration from an [...***...] or an [...***...], with the
following characteristics: [...***...], which have been identified in the course
of the Collaboration from an [...***...] or an [...***...], with the
characteristics ([...***...]) through ([...***...]) above, and which the
[...***...]; and (c) [...***...] identified in the course of the Collaboration
from the same [...***...] to which the [...***...] in clauses (a) and (b) belong
that have the characteristics described in clauses ([...***...]) through
([...***...]) above.

      1.10  "Early Lead Patent" shall have the meaning ascribed in Section
5.2(b).

      1.11  "Elaborated Fragment" means a compound identified in the course of
the Collaboration from an Initial Fragment Hit with the following
characteristics: (i) [...***...]; and (ii) [...***...].

      1.12  "First Commercial Sale" means the first sale of a Product to a Third
Party in any country after all required marketing and pricing and/or pricing
reimbursement approvals for such country have been obtained, other than a
transfer or disposition (whether or not for consideration) of such Product for
charitable or promotional purposes or for preclinical, clinical, manufacturing,
regulatory or governmental purposes.

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                  Page 2 of 41

                                                                    CONFIDENTIAL

      1.13  "GLP" means the standards set forth in the current Good Laboratory
Practices regulations promulgated by the U.S. Food and Drug Administration,
published at C.F.R. Part 58, as such regulations may be amended from time to
time, and equivalent foreign regulations or standards as applicable.

      1.14  "IND" means an Investigational New Drug application filed with the
U.S. Food and Drug Administration pursuant to 21 C.F.R. Part 312, or any
corresponding foreign application, registration or certification.

      1.15  "Initial Fragment Hit" means a compound from the SGX FAST(TM)
screening library shown in a co-crystal structure determined in the course of
the Collaboration to be bound to a Serono Target.

      1.16  "Initial Structure" means a [...***...] of a Serono Target which has
the following characteristics: [...***...].

      1.17  "Joint Patent" shall have the meaning ascribed in Section 5.2(b).

      1.18  "JSC" shall have the meaning ascribed in Section 2.7.

      1.19  "Know-How" means all inventions (whether patentable or not),
instructions, designs, formulas, software, materials, compositions, methods,
processes, techniques, improvements, trade secrets, information and data.

      1.20  "Milestone" means any or each of the milestone events described in
Sections 3.2 and 3.4.

      1.21  "Net Sales" means the total amount received by Serono or its
Affiliates or sublicensees, as the case may be, for sales of Products to Third
Parties (other than sublicensees) in arm's length transactions, less: (i)
ordinary and customary prompt payment and other trade or quantity discounts
actually allowed and taken; (ii) credits or allowances actually granted for
damaged goods, recalls, returns or rejections of Products or for retroactive
price reductions; (iii) charge back payments, reimbursements and rebates,
including government-mandated rebates (including Medicaid rebates); (iv)
freight, postage and duties (including insurance premiums) actually incurred;
and (v) excise taxes, other consumption taxes, customs duties and compulsory
payments to governmental authorities actually paid and separately identified on
the invoice or other documentation maintained in the ordinary course of
business. A "sale" shall include any transfer or other disposition for
consideration, and Net Sales shall include the fair market value of all other
consideration received by Serono or its Affiliates or sublicensees in respect of
any grant of rights to make, use, sell or otherwise distribute Products, whether
such consideration is in cash, payment in kind, exchange or other form.
Transfers or dispositions, whether or not for consideration, of Products for
charitable or promotional purposes or for preclinical, clinical, manufacturing,
regulatory or governmental purposes shall not be deemed "sales." For
clarification, sale of a Product by Serono, its Affiliates

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                  Page 3 of 41

                                                                    CONFIDENTIAL

or sublicensees to another of these entities for resale by such entity to a
Third Party shall not be deemed a sale for purposes of calculating "Net Sales"
hereunder, but the sale of such Product by such entity to such Third Party shall
be deemed to be a sale by such entity of a Product for purposes of calculating
Net Sales hereunder.

If a Product is sold in the form of a combination product containing one or more
products or active ingredients, devices, equipment or components which are
themselves not Products (a "Combination Product"), then for the purpose of
calculating royalties owed under this Agreement on sales of the Combination
Product, Net Sales shall be calculated as follows: first, Serono shall determine
the actual Net Sales of such Combination Product (calculated using the above
described deductions) and then such amount shall be multiplied by the fraction
A/(A+B), where A is the invoice price or fair market value, whichever is
greater, of the actual Product component of such Combination Product, and B is
the total invoice price(s) or fair market value, whichever is greater, of the
other product(s) or active ingredients, devices, equipment or components of such
Combination Product.

      1.22  "Patents" means patent applications filed in any country worldwide,
including provisionals, utilities, continuations, continuations-in-part,
divisionals, and substitutions thereof, any patents issued on such applications
as well as any reissue, reexamination, and renewal thereof, any extensions of
term, registrations or confirmation of such patents or patent of addition based
on any such patent, and all foreign counterparts of any of the foregoing.

     1.23 "Phase II Trial" and "Phase III Trial" means Phase II and Phase III
human clinical trials conducted in conjunction with the U.S. Food and Drug
Administration marketing approval process for a product, as more fully defined
in 21 C.F.R. Section 312.21(b) and (c), respectively, and (ii) equivalent human
clinical trials conducted pursuant to similar requirements in other countries in
the world.

      1.24  "Product" means any product developed by or on behalf of Serono or
its permitted sublicensees that incorporates or is derived from an Early Lead
Compound.

      1.25  "Project Team" shall have the meaning ascribed in Section 2.7.

      1.26  "Regulatory Approval" means the approval of a Regulatory Authority
necessary for the marketing and sale of a pharmaceutical or biotechnology
product in the United States, one or more countries in the European Union or
Japan.

      1.27  "Regulatory Authority" means (a) the U.S. Food and Drug
Administration or (b) any regulatory body with similar regulatory authority in
any other jurisdiction anywhere in the world.

      1.28  "Royalty Term" shall have the meaning ascribed in Section 3.6.

      1.29  "Serono Background Technology" means all Patents and Know-How owned
or Controlled by Serono which are: (a) existing on the Effective Date or
discovered or developed during the Term of the Collaboration (i) outside of the


                                  Page 4 of 41

                                                                    CONFIDENTIAL

Collaboration or (ii) within the Collaboration but are of general application
(for example, have application to other proteins in addition to the Serono
Targets); and (b) necessary for the conduct of the Collaboration. Any Serono
Background Technology shall be deemed Confidential Information of Serono subject
to the rights and obligations set forth in Article 6 hereunder.

      1.30 "Serono Co-Crystal Structure" means the [...***...] of the
[...***...] of a [...***...] with a [...***...], made in the course of the
Collaboration, which has the following characteristics: (i) [...***...] (i.e.,
the last [...***...] or is [...***...]); (ii) [...***...] in the [...***...];
(iii) [...***...]% [...***...] and [...***...]% in the [...***...]; (iv)
[...***...]; (v) [...***...] ([...***...]) [...***...] and (vi) [...***...] of
the [...***...] of the [...***...] is [...***...] a [...***...].

      1.31  "Serono Compound" means an active small molecule ligand that is
provided by Serono to SGX for inclusion in the Collaboration that is not
publicly known to bind to, inhibit or modulate the Serono Target to which it is
intended to be bound under the Collaboration.

      1.32  "Serono Materials" means the biological and chemical materials
embodying Serono Targets, Serono Compounds and any protein, clone or vector used
to express Serono Targets, in each case, which are owned or Controlled by
Serono. Any Serono Materials shall be deemed Confidential Information of Serono
subject to the rights and obligations set forth in Article 6 hereunder.

      1.33  "Serono Target(s)" means the protein targets listed in the attached
Exhibit A, as this Exhibit may be amended from time to time under Section 2.4.

      1.34  "SGX Background Technology" means all Patents and Know-How owned or
Controlled by SGX which are (a) existing on the Effective Date or discovered or
developed during the Term of the Collaboration (i) outside of the Collaboration
or (ii) within the Collaboration but are of general application (for example,
have application to other proteins in addition to the Serono Targets); and (b)
necessary for the conduct of the Collaboration. Any SGX Background Technology
shall be deemed Confidential Information of SGX subject to the rights and
obligations set forth in Article 6 hereunder.

      1.35  "SGX Co-Crystal Structure" means a [...***...] of the [...***...] of
a [...***...] with an [...***...], an [...***...] or an [...***...], made in the
course of the Collaboration, which has the following characteristics: (i)
[...***...] (i.e., the [...***...] or is [...***...]); (ii) [...***...] in the
[...***...]; (iii) [...***...]% [...***...]and [...***...]% in the [...***...];
(iv) [...***...]; (v) [...***...] ([...***...]) [...***...] and (vi) the
[...***...] of the [...***...] of the [...***...], [...***...] or [...***...] is
[...***...] in a [...***...].

                                             ***CONFIDENTIAL TREATMENT REQUESTED

                                  Page 5 of 41

                                                                    CONFIDENTIAL

      1.36  "SGX Materials" means the biological and chemical materials
embodying any Initial Structure, SGX Co-Crystal Structure, Serono Co-Crystal
Structure or Early Lead Compound, in each case which are owned or Controlled by
SGX and are developed in the course of the Collaboration. Any SGX Materials
shall be deemed Confidential Information of SGX subject to the rights and
obligations set forth in Article 6 hereunder.

      1.37  "Term of the Collaboration" means the period commencing on the
Effective Date, and terminating twenty-four (24) months thereafter, unless
extended by mutual agreement of the Parties.

      1.38  "Third Party or Third Parties" means any individual, corporation,
limited liability company, partnership, association, trust, unincorporated
organization, other entity or government or political subdivision thereof other
than Serono or SGX or their respective Affiliates.

      1.40  "Valid Claim" means a claim of an issued and unexpired patent, which
has not been held invalid or unenforceable by a court or other governmental
agency of competent jurisdiction, after any applicable appeal, or time for
appeal, is concluded, and which has not lapsed, been abandoned, withdrawn,
canceled, disclaimed or admitted to be invalid or unenforceable through reissue,
reexamination or otherwise.

2.    COLLABORATION.

      2.1   Collaboration. Subject to the terms and conditions of this
Agreement, Serono and SGX will use commercially reasonable and diligent efforts
to conduct the Collaboration in accordance with the collaboration plan attached
to this Agreement as Exhibit A (the "Collaboration Plan") including the timeline
set forth therein. The Parties shall begin the performance of the Collaboration
promptly following the Effective Date but no later than thirty (30) days
thereafter. SGX shall have principal responsibility for the conduct of the
Collaboration, and Serono shall provide consultation, advice and such research
effort as may be deemed appropriate by the JSC and accepted by Serono. The JSC
shall review and coordinate each Party's activities with respect to the
Collaboration.

      2.2   Provision of Serono Materials and Background Technology. At Serono's
discretion, promptly following the Effective Date and during the Term of the
Collaboration, Serono will provide SGX, at Serono's expense, with reasonable
quantities of such available Serono Materials and other Serono Background
Technology as are necessary for the conduct of the Collaboration by SGX;
PROVIDED, HOWEVER, that Serono is able to provide such Serono Materials and
Serono Background Technology without paying any royalties or other fees to Third
Parties.

      2.3   Provision of SGX Materials, SGX Background Technology and
Collaboration Technology. Subject to payment by Serono to SGX under Sections
3.2(a), (d), (e) or (f) for achievement of the applicable Milestone, SGX will
promptly provide Serono with reasonable quantities of SGX Materials, and with
the SGX Background


                                  Page 6 of 41

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Technology and Collaboration Technology associated with such Milestone,
including those deliverables set forth on Exhibit B, to the extent reasonably
necessary for Serono to conduct research and development activities. SGX will
have no obligation to provide quantities of SGX Materials to Serono with respect
to the Initial Structures and SGX Co-Crystal Structures that are the subjects of
such Milestones beyond the quantities required for Serono to reproduce such
Initial Structures and SGX Co-Crystal Structures. Serono will not provide SGX
Materials to any Third Party without SGX's prior written consent. The SGX
Materials will be delivered to Serono Ex Works (Incoterms 2000). Nothing in this
Section 2.3 shall be construed as affecting in any way the scope of the licenses
granted to Serono under Section 4.1.

      2.4   Designation of Additional Targets. Prior to the first anniversary of
the Effective Date, Serono may in its discretion, nominate by written notice to
SGX up to an additional [...***...] ([...***...]) protein targets which Serono
would like to include in The Collaboration. SGX will have a period of two (2)
weeks from receipt of such notice to reject (in writing) the inclusion of such
nominated proteins if any such protein is the subject of an existing research
program at SGX, if SGX has existing contractual obligations to a Third Party
with respect to such protein that would prevent its inclusion in the
Collaboration or otherwise reasonably determines in good faith that such
inclusion would present a conflict of interest for SGX, or if SGX reasonably
determines in good faith that determination of an Initial Structure with respect
to such protein is unlikely to be completed with the resources and timelines
contemplated under this Collaboration (and in such event, SGX will provide
Serono with an explanation of the basis for such determination). Any protein
nominated by Serono and not rejected by SGX under this Section 2.4 will be
deemed a Serono Target. In the event any protein is rejected by SGX, then Serono
may nominate a replacement protein target in accordance with the terms of this
Section 2.4; PROVIDED, HOWEVER, that such nomination may occur after the
[...***...] anniversary of the Effective Date.

      2.5   Determination of Serono Co-Crystal Structures. In the event that
during the Term of the Collaboration Serono desires SGX to perform
co-crystallization of any Serono Targets with Serono Compounds, Serono will
provide SGX with at least thirty (30) days prior written notice and thereafter
will provide SGX with batches of at least [...***...] ([...***...]) Serono
Compounds per batch, which may be directed to any one or more of the Serono
Target(s) indicated in such notice, and upon receipt of each batch of
[...***...] ([...***...]) such Serono Compounds, SGX will use commercially
reasonable and diligent efforts to perform co-crystallization in accordance with
the Collaboration Plan within thirty (30) days of such receipt. Each Serono
Compound provided under this Section 2.5 wILL be provided in an amount of at
least five (5) milligrams and will have the following characteristics: (i)
solubility > 5mM in DMSO and (ii) potency against the Serono Target of <10mM.
Upon completion of each Serono Co-Crystal Structure, SGX will promptly provide
Serono with quantities of the SGX Materials associated with the Serono
Co-Crystal Structure, and with the SGX Background Technology and Collaboration
Technology associated with such Serono Co-Crystal Structure, including those
deliverables set forth on Exhibit B, to the extent reasonably necessary for
Serono to conduct research and development activities. SGX will have no
obligation to provide quantities of SGX Materials to Serono with respect to the
Serono Co-Crystal Structures

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beyond the quantities required for Serono to reproduce such Serono Co-Crystal
Structures. The Serono Co-Crystal Structures will be delivered to Serono Ex
Works (Incoterms 2000). Prior to the expiration of the Term of the
Collaboration, the Parties will discuss in good faith extending the
Collaboration for [...***...] ([...***...]) [...***...] after the Term of the
Collaboration to permit SGX to perform co-crystallization of the additional
Serono Targets designated pursuant to Section 2.4 with Serono Compounds to be
proVIDED bY Serono. Nothing in this Section 2.5 shall be construed as affecting
in any way the scope of the licenses granted to Serono under Section 4.1.

      2.6   Records; Reports. SGX shall prepare and maintain complete and
accurate written records, accounts, notes, reports and data with respect to all
work conducted in the performance of the Collaboration in conformity with
standard industry practices. SGX shall notify Serono promptly upon the
completion of an Initial Structure for a Serono Target or upon the determination
of an SGX Co-Crystal Structure, and will provide the JSC, at its request, for
its review, all information regarding such SGX Co-Crystal Structures which is
reasonably required for the JSC to determine the achievement of Milestones.
Promptly upon completion of the Collaboration, SGX shall provide a final written
report of its activities during the Collaboration and the results thereof.

      2.7   Joint Steering Committee.

            (a)   Establishment. SGX and Serono will establish a Joint Steering
Committee ("JSC") to oversee the Collaboration promptly following the Effective
Date but no later than fifteen (15) days thereafter.

            (b)   Membership; Decisions. The JSC shall comprise two (2)
representatives from Serono and two (2) representatives from SGX, designated by
the Parties promptly following the Effective Date but no later than fifteen (15)
days thereafter. Each Party may replace its JSC representatives at any time,
with written notice to the other Party. Each Party shall have one vote on the
JSC. The JSC will strive to reach consensus on any matters requiring a decision
by it; PROVIDED, HOWEVER, that in the event of any dispute, the decision shall
be made by [...***...] reasonably taking into consideration the position of
[...***...].

            (c)   Project Team. The JSC shall establish a project team (the
"Project Team") comprising at least two (2) representatives from Serono and two
(2) representatives from SGX, designated by the Parties promptly following the
Effective Date. The JSC may expand the size of the Project Team, in its sole
discretion, provided that the Project Team shall always comprise an equal number
of representatives from Serono and SGX. Each Party may replace its Project Team
representatives at any time, with written notice to the other Party. The Project
Team will direct the performance of the Collaboration and shall meet to
discharge its responsibilities from time to time via videoconference or in
person, as the Project Team may agree. Meetings of the Project Team may be held
only if a quorum of at least one (1) representative of each Party participates.
Within thirty (30) days of the end of each calendar quarter the Project Team
shall submit a quarterly report to the JSC describing the performance of the
Collaboration

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during such calendar quarter. Each Party will be responsible for paying its own
expenses in connection with participating in the meetings of the Project Team.

            (d)   Responsibilities. The JSC will review and supervise the
performance of the Collaboration and supervise the Project Team. The JSC will be
responsible for (i) monitoring research progress during the Collaboration and
ensuring open exchange between the Parties with respect to Collaboration
activities; (ii) designating compounds as Early Lead Compounds in accordance
with the criteria in Section 1.9 and (iii) determining the achievement of
Milestones under Section 3.2. Any changes to the Collaboration Plan which
materially alter the nature or scope of the Collaboration must be agreed in
writing by the Parties. SGX will not engage the services of any Third Party to
perform any activities under the Collaboration outside of the United States
without the prior approval of the JSC.

            (e)   Meetings. The JSC shall meet via videoconference or in person,
on a quarterly basis (alternating between San Diego, CA, U.S.A., and Geneva,
Switzerland or as the JSC may otherwise agree), to discharge its
responsibilities. Serono may also direct that any additional meetings are held
that it reasonably believes are necessary for the optimal conduct of the
Collaboration. Meetings of the JSC may be held only if a quorum of at least one
(1) representative of each Party participates. SGX will call the JSC meetings
and will prepare the initial draft of an agenda for each meeting, which shall
include the most recent report from the Project Team, and will submit the draft
to Serono for comments a reasonable period before the scheduled meeting date.
Except as provided above, each Party will be responsible for paying its own
expenses in connection with participating in the meetings of the JSC. SGX shall
prepare and deliver to the members of the JSC, within thirty (30) days after the
date of each meeting, minutes of such meeting setting forth, among other things,
all decisions of the JSC. Serono may suggest changes or amendments to the
minutes, and may provide a supplement addressing activities at the meeting which
are not reported in the minutes, which shall be distributed to the Parties and
filed with the meeting minutes.

3.    CONSIDERATION

      3.1   Technology Access Payment. Within thirty (30) days of the Effective
Date, Serono will pay, or cause to be paid, to SGX the sum of U.S.$100,000.

      3.2   Research Milestone Payments. Within sixty (60) days of the date of
achievement of the applicable Milestone during the Term of the Collaboration,
Serono will pay, or cause to be paid, to SGX the following non-refundable
Milestone payments, on a Serono Target-by-Serono Target basis:



MILESTONES                                                  AMOUNT
- ----------                                                  ------
                                                         
(a) Completion of [...***...] for a Serono Target           U.S. $[...***...] per Serono Target


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(b) Determination of an [...***...] containing the first    U.S. $[...***...] per Serono Target
[...***...] for a Serono Target

(c) Determination of an [...***...] containing the first    U.S. $[...***...] per Serono Target
[...***...] for a Serono Target

(d) Determination of an [...***...] containing the first    U.S. $[...***...] per Serono Target; PROVIDED,
[...***...] for a Serono Target                             HOWEVER, if an [...***...] for a Serono Target is
                                                            identified directly from an [...***...], the payment
                                                            under this Section 3.2(d) will be U.S. $[...***...]

(e) Determination of a [...***...] for a Serono Target      U.S. $[...***...] per Serono Target
containing the [...***...] as described in Section
[...***...] ([...***...])

(f) Determination of a [...***...] for a Serono Target      U.S. $[...***...] per Serono Target
containing the [...***...] as described in Section
[...***...] ([...***...])



      3.3   Serono Co-Crystal Payments. As consideration for the
co-crystallization activities to be performed by SGX pursuant to Section 2.5,
Serono will pay, or cause to be paid, to SGX U.S. $[...***...] for each batch of
[...***...] ([...***...]) Serono compounds delivered to SGX pursuant to Section
2.5. SGX will invoice Serono on a quarterly basis for this amount upon delivery
of the Serono Compounds, and Serono will pay SGX within sixty (60) days of
receipt of such invoice.

      3.4   Development Milestones. Within sixty (60) days of achievement of
each of the applicable Milestones, in consideration of the rights granted
hereunder, Serono will pay, or cause to be paid, to SGX the following
non-refundable Milestone payments for each Product, on a Product-by-Product
basis:



MILESTONES                                                  AMOUNT
- ----------                                                  ------
                                                         
(a) Initiation of [...***...]                               U.S. $[...***...]

(b) [...***...] of [...***...]                              U.S. $[...***...]

(c) The [...***...] of the [...***...] in a [...***...]     U.S. $[...***...]

(d) The [...***...] of the [...***...] in a [...***...]     U.S. $[...***...]

(e) [...***...] of  [...***...]                             U.S. $[...***...]


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Each Milestone payment under this Section 3.4 shall be due only if the Product
achieving such Milestone is the first Product derived from its corresponding
Early Lead Compound to achieve the Milestone associated with such payment and is
either: (i) if directed primarily against a Serono Target, the first Product
directed primarily against the Serono Target in connection with which its
corresponding Early Lead Compound was identified, to achieve the Milestone
associated with such payment, or (ii) if directed primarily against another
target, the first Product directed primarily against such other target to
achieve the Milestone associated with such payment.

      3.5   Royalties. In consideration of the rights granted hereunder, Serono
shall pay, or cause to be paid, to SGX the greater of the following royalty
payments, as applicable, on Net Sales on a Product-by-Product and
country-by-country basis:

            (a) [...***...] percent ([...***...]%) of Net Sales of Products in
the event that the use, import, offer for sale or sale of such Product is
covered in such country by an Early Lead Patent made, conceived or reduced to
practice solely by or on behalf of SGX; or

      (b)   [...***...] percent ([...***...]%) of Net Sales of Products in the
event that the use, import, offer for sale or sale of such Product is covered in
such country by a Joint Patent.

Notwithstanding the above, in the event that [...***...], [...***...],
[...***...], then Serono shall [...***...] to SGX [...***...] of the amounts
[...***...] in such country, and in the event that such a [...***...], upon such
[...***...], [...***...] percent ([...***...]%) of the amounts due under
[...***...] and, in the event Serono receives a [...***...] or [...***...] from
a Third Party with respect to the [...***...] including such [...***...] or
analogous [...***...], [...***...] to SGX the remaining [...***...] percent
([...***...]%) of the amounts [...***...] above during the period from the
[...***...] of the applicable Product to the date of the issuance of such
[...***...]. In addition, notwithstanding the foregoing, in the event that the
[...***...], [...***...], [...***...] is covered by an [...***...] in the United
States, Japan and all countries in the European Union, then [...***...] to
subsection [...***...] above for each country in which [...***...], [...***...],
[...***...] whether or not the [...***...], [...***...], [...***...] is covered
by an [...***...] in such country. Similarly, in the event that the [...***...],
[...***...], [...***...] by a [...***...] in the United States, Japan and all
countries in the European Union, then [...***...] to subsection [...***...]
above for each country in which [...***...], [...***...], [...***...] whether or
not the use, [...***...], [...***...] is covered by a [...***...].

      3.6   Royalty Term. The obligation of Serono to pay royalties under
Section 3.5 with respect to a Product shall begin with the First Commercial Sale
of such Product

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                                 Page 11 of 41

                                                                    CONFIDENTIAL

and continue for such Product, on a country-by-country basis, until the later of
(i) such time as there are no Valid Claims of an Early Lead Patent or Joint
Patent in such country that would be infringed by the use, import, offer for
sale or sale of such Product in such country or (ii) [...***...] ([...***...])
years after the First Commercial Sale of such Product in such country (such
period the "Royalty Term").

      3.7   Third Party Royalties. In the event that Serono, its Affiliates or
sublicensees are required to pay royalties to a Third Party for patent licenses
necessary to use or practice Collaboration Technology covering Early Lead
Compounds or SGX Co-Crystal Structures containing Early Lead Compounds for the
purpose of making, using, selling, offering to sell or importing Products,
Serono may offset up to [...***...] percent ([...***...]%) of such amounts due
Third Parties against payments due SGX under Section 3.5 above; PROVIDED,
HOWEVER, that Serono may not offset these amounts against more than [...***...]
percent ([...***...]%) of the royalties otherwise due SGX in any calendar
quarter. Any amount that has not been so offset may be offset against royalties
due in subsequent calendar quarters, subject to the limitation set forth in the
previous sentence.

      3.8   Withholding Taxes. SGX shall be responsible for any and all income
or other taxes required to be withheld from any of the royalty and other
payments made by Serono under this Agreement and shall provide Serono any
information necessary to determine the taxes that should be withheld and paid.
Any tax that Serono, its Affiliates or sublicensees are required to withhold and
pay on behalf of SGX with respect to the royalties and other payments due under
Sections 3.1 through 3.5 shall be deducted from and offset against said payments
prior to remittance to SGX; PROVIDED, HOWEVER, that in regard to any tax so
deducted, Serono shall give or cause to be given to SGX such assistance as may
reasonably be necessary to enable SGX to claim exemption therefrom or credit
therefor, and in each case, Serono shall furnish to SGX proper evidence of the
taxes paid on its behalf. In the event that Serono [...***...] by a party
located in a [...***...] or [...***...] and as a result [...***...] incremental
to that which it would have incurred if such payments were made by a party
located in the United States or [...***...], then Serono shall [...***...] to be
[...***...] to the extent necessary so that the [...***...] after the
[...***...] the [...***...] without the imposition of such [...***...].

      3.9   Reports; Payments. The royalties due under Section 3.5 shall be paid
quarterly within sixty (60) days after the close of each calendar quarter in
which such royalties are earned. With each such quarterly payment, Serono shall
furnish SGX a royalty statement setting forth in reasonable detail on a
country-by-country and Product-by-Product basis: (i) the total number of units
of each Product sold hereunder for the quarterly period for which the royalties
are due; (ii) the calculation of Net Sales pursuant to Section 1.19; (iii) the
royalties due SGX in such calendar quarter; and (iv) details of payments (if
any) to Third Parties pursuant to Third Party licenses as described in Section
3.7 above. For any calendar quarter after the First Commercial Sale of a
Product, if no royalties are due, Serono shall so report. Any such quarterly
report shall be deemed

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                                 Page 12 of 41

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Confidential Information of Serono subject to the rights and obligations set
forth in Article 6.

      3.10  Currency Conversion. All amounts required to be paid under this
Agreement shall be paid in United States dollars. Royalties earned shall first
be determined in the currency of the country in which they are earned and then
converted to their equivalent in United States currency using the standard
exchange rate methodology for the translation of foreign currency sales into
United States dollars customarily used by Serono in its accounting practice.

      3.11  Late Payments. Any payments or portions thereof due hereunder which
are not paid on the date such payments are due shall bear interest until paid at
the rate equal to the lesser of the prime rate as reported by the Chase
Manhattan Bank, New York, New York, plus [...***...] percent ([...***...]%) or
the maximum amount permitted by law. This Section 3.11 shall in no way limit any
other remedies available to SGX.

      3.12  Legal Restrictions. If at any time legal restrictions prevent the
remittance by Serono of all or any part of royalties on Net Sales in any
country, Serono shall have the right and option to make such payment by
depositing the amount thereof in local currency to an account in the name of SGX
in a bank or other depository in such country. Serono shall consult with SGX
regarding, and promptly notify SGX of, any and all such arrangements.

      3.13  Audits. Serono shall maintain accurate books and records which
enable the calculation of royalties payable under this Agreement to be verified.
Serono shall maintain the books and records for each quarterly period for two
(2) years after the submission of the corresponding report under Section 3.9.
Upon [...***...] ([...***...]) [...***...] prior notice to Serono, independent
accountants selected by SGX, reasonably acceptable to Serono, may have access to
Serono's books and records after executing a reasonable confidentiality
agreement, during Serono's normal business hours at mutually agreed times to
conduct a review or audit no more than once per calendar year, for the sole
purpose of verifying the accuracy of Serono's payments and compliance with this
Agreement. Records for any calendar year may only be audited once. The
accounting firm shall report to SGX only whether there has been a royalty
underpayment or overpayment and, if so, the extent thereof. Any such inspection
shall be at SGX's expense; PROVIDED, HOWEVER, in the event that an inspection
reveals an underpayment of [...***...] percent ([...***...]%) or more for any
calendar year, Serono shall pay the costs of the inspection. Serono shall
promptly pay to SGX any underpayment identified in such audit, with interest
from the date such amount(s) were due at a rate equal to the lesser of the prime
rate reported by the Chase Manhattan Bank, New York, New York, plus [...***...]
percent ([...***...]%) or the maximum amount permitted by law. SGX shall
promptly pay to Serono any overpayment identified in such audit.

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4.    LICENSES

      4.1   License to Serono. Subject to the terms and conditions of this
Agreement, SGX hereby grants to Serono the following licenses:

            (a)   [...***...], [...***...], [...***...] license (with the right
to grant sublicenses in accordance with Section 4.3 below) under SGX's interest
in the Collaboration Technology (other than that which constitutes SGX
Background Technology) covering Early Lead Compounds and SGX Co-Crystal
Structures containing Early Lead Compounds to make, have made, use, import,
offer for sale and sell Products.

            (b)   [...***...], [...***...], [...***...], [...***...] license
(with the right to grant sublicenses in accordance with Section 4.3 below) under
SGX's interest in the Collaboration Technology (other than that which
constitutes SGX Background technology) covering Serono Co-Crystal Structures to
practice and use such Collaboration Technology for any purpose.

            (c)   [...***...], [...***...], [...***...] license (with the right
to grant sublicenses in accordance with Section 4.3 below) under SGX's interest
in the Collaboration Technology (other than that which constitutes SGX
Background Technology) covering Initial Structures to practice and use such
Collaboration Technology for any purpose.

            (d)   [...***...], [...***...], [...***...] license (with the right
to grant sublicenses in accordance with Section 4.3 below) under (i) SGX's
interest in all SGX Background Technology to practice and use the SGX Background
Technology solely to the extent necessary to reproduce Initial Structures,
Serono Co-Crystal Structures and SGX Co-Crystal Structures containing Early Lead
Compounds and to utilize Early Lead Compounds as contemplated under this
Agreement and (ii) SGX's interest in SGX Background Technology developed in the
course of the Collaboration to make, have made, use, import, offer for sale and
sell Products.

      4.2   Cross Licenses. Each Party hereby grants to the other, a
non-exclusive, non-transferable, royalty-free license to practice and use the
Serono Background Technology, the SGX Background Technology and such Party's
interest in the Collaboration Technology solely to conduct the Collaboration;
PROVIDED, HOWEVER, that Serono is able to grant such license to the Serono
Background Technology without paying any royalties or other fees to Third
Parties.

      4.3   Sublicenses. Serono may sublicense the rights granted in Section
4.1(b), (c) and (d) with respect to Serono Co-Crystal Structures to its
Affiliates and to Third Parties. Serono may sublicense the rights granted in
Sections 4.1(a), (c) and (d) with respect to Products, Early Lead Compounds and
SGX Co-Crystal Structures containing Early Lead Compounds to its Affiliates and
to Third Parties. Each such sublicense granted by Serono shall be consistent
with all of the terms and conditions of this Agreement. Serono as the
sublicensor shall remain responsible for all of each such sublicensee's
obligations under this Agreement.

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      4.4   Product Development. On or before January 1 of each year during the
term of the Agreement, Serono will provide SGX with a written report summarizing
its activities in connection with the development of Products. Serono will
provide prompt written notice to SGX of the achievement of Milestones under
Section 3.4.

      4.5   Diligence. With respect to each [...***...], [...***...],
[...***...], [...***...] to bring at least [...***...] is [...***...] to
[...***...] or [...***...] of such [...***...] to the [...***...], (ii)
[...***...] to [...***...], and (iii) after obtaining [...***...] to
[...***...], to meet the [...***...] therefor; and will promptly notify
[...***...] upon the [...***...] of any such activities.

      4.6   Lack of Diligence.

            (a)   Termination of Rights. In the event that Serono (i)
[...***...] or [...***...] to [...***...] and [...***...] for at least
[...***...] for a particular [...***...] in accordance with [...***...] above,
or (ii) notifies SGX that it will not [...***...], [...***...], [...***...] with
respect to at least [...***...] for a particular [...***...] pursuant to
[...***...] above, then [...***...] and [...***...] under this Agreement with
respect [...***...] and corresponding [...***...].

            (b)   Sole Remedy. In such event, Serono will have [...***...] and
[...***...] to such [...***...] and [...***...] pursuant to this Agreement and
[...***...] the [...***...] to the [...***...] (subject to any [...***...]) as
its [...***...] and [...***...] or [...***...] have under [...***...] of this
Agreement or by law or in equity, [...***...] and corresponding [...***...],
[...***...].

            (c)   Collaboration Technology License. In addition to SGX's receipt
of the rights described in Section 4.6(b) above, at SGX's request, Serono shall
grant to SGX [...***...] (subject to [...***...] by [...***...]), [...***...],
royalty bearing license ([...***...]) under Serono's interest in any
Collaboration Technology (other than that which constitutes Serono Background
Technology) owned or Controlled by Serono to the extent necessary to make, have
made, use, import, offer for sale and sell an applicable Collaboration Product.
Such license shall be subject to a royalty obligation to Serono of [...***...]
percent ([...***...]%) of Net Sales (with SGX being substituted for Serono in
the definition of "Net Sales") that shall be payable with respect to each such
Collaboration Product on a country-by-country basis until the later of (i) such
time as there are no Valid Claims of an Early Lead Patent or Joint Patent in
such country that would be infringed by the use, import, offer for sale or sale
of such

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Product in such country, (ii) [...***...] ([...***...]) years after the First
Commercial Sale of such Product in such country or (iii) [...***...]
([...***...]) years after the grant of such license.

            (d)   Serono Intellectual Property License. In addition, at SGX's
request, the Parties shall negotiate in good faith a grant by Serono to SGX of
[...***...] (subject to [...***...] by [...***...]), [...***...], [...***...]
license under Serono's interest in any Patents or Know How (other than those
within the Collaboration Technology) owned or Controlled by Serono to the extent
necessary to make, have made, use, import, offer for sale and sell such
Collaboration Product. Such license shall contain such customary
representations, warranties, covenants and agreements satisfactory in form and
substance to the Parties and their legal advisors as are necessary or
appropriate for transactions of this type. For the avoidance of doubt, such
obligation to negotiate in good faith does not impose on either Party an
obligation to enter into an agreement for the grant of such a license, if the
Parties cannot agree through such good faith negotiation on the terms and
conditions of such license.

      4.7   Non-Use.

            (a)   Non-Kinases. For a period of [...***...] ([...***...])
[...***...] from the date of determination by SGX in the course of the
Collaboration of an Initial Structure of a Serono Target which is not a protein
kinase, SGX will not use, or permit any Third Party to use, any Collaboration
Technology covering such Initial Structure for any purpose other than the
conduct of the Collaboration; PROVIDED, HOWEVER, that in the event that prior to
the determination by SGX of the Initial Structure of such Serono Target or
during the [...***...] ([...***...]) [...***...] period after such
determination, a crystal structure of such Serono Target enters the public
domain other than through a breach of this Agreement by SGX, the provisions of
this Section 4.7(a) will not apply to such Serono Target.

            (b)   Kinases. For a period of [...***...] ([...***...]) [...***...]
from the date of determination by SGX in the course of the Collaboration of an
Initial Structure of a Serono Target which is a protein kinase, SGX will not
engage in any drug discovery or co-crystallization activities with or for the
benefit of a Third Party utilizing any Collaboration Technology covering such
Initial Structure, and for a period of [...***...] ([...***...]) [...***...]
from the date of determination by SGX in the course of the Collaboration of such
an Initial Structure, SGX will not, subject to existing contractual obligations,
permit a Third Party to use any Collaboration Technology covering such Initial
Structure for any purpose; PROVIDED HOWEVER, that in the event that prior to the
determination by SGX of the Initial Structure of such Serono Target or during
the [...***...] ([...***...]) [...***...] period after such determination, a
crystal structure of such Serono Target enters the public domain other than
through a breach of this Agreement by SGX, the provisions of this Section 4.7(b)
will not apply to such Serono Target.

            (c)   Elaborated Fragments. For so long as Serono is continuing to
use [...***...] in accordance with Section 4.5 to [...***...] for a particular
[...***...] that is [...***...]the activity of a specific [...***...], SGX
[...***...] from

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which the [...***...] was derived to develop [...***...], [...***...].

            (d)   Drug Discovery. During the Term of the Collaboration, SGX will
not conduct drug discovery directed at any Serono Target other than pursuant to
the Collaboration.

      4.8   Limitations. Notwithstanding anything to the contrary in this
Agreement, (i) SGX will have no obligation to provide Serono with any
information or materials relating to the Initial Structure of the Serono Target
[...***...] and (ii) the licenses granted by SGX to Serono under this Agreement
will not include any Collaboration Technology or SGX Background Technology
covering the Initial Structure of [...***...], until such time as SGX has
obtained the right to provide such information, materials and licenses to
Serono, at which point SGX will provide Serono with prompt written notice of
having obtained such right. In the event that SGX has achieved the Milestones
and Serono has paid SGX any or all of the applicable payments under Sections
3.2(b), (c) and (d) with respect to the Serono Target [...***...], SGX
represents that, as promptly as its Third-Party obligations in existence on the
Effective Date permit, SGX will obtain the right to provide Serono with SGX
Materials, Collaboration Technology and SGX Background Technology covering the
Initial Structure of [...***...] as described in Section 2.3 and to grant Serono
a license to Collaboration Technology and SGX Background Technology covering the
Initial Structure of [...***...] pursuant to Section 4.1, and upon provision to
[...***...] and [...***...] covering such [...***...] and the [...***...],
[...***...] under [...***...] with respect to [...***...].

5.    INTELLECTUAL PROPERTY

      5.1   Ownership of Technology.

            (a)   Ownership by SGX. Title to all Collaboration Technology made,
conceived, first reduced to practice or discovered or developed solely by or on
behalf of SGX shall be owned solely by SGX.

            (b)   Ownership by Serono. Title to all Collaboration Technology
made, conceived, first reduced to practice or discovered or developed solely by
or on behalf of Serono shall be owned solely by Serono.

            (c)   Joint Ownership. Title to all Collaboration Technology made,
conceived, first reduced to practice or discovered or developed jointly by or on
behalf of Serono and SGX shall be jointly owned by Serono and SGX, each with an
undivided one-half interest. Each Party agrees to execute in a timely manner
such documents as the other Party may request to document and perfect joint
ownership of such Collaboration Technology.

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            (d)   Law. Inventorship of inventions and, subject to the terms of
this Agreement, ownership rights with respect thereto shall be determined in
accordance with the patent laws of the United States.

      5.2   Patent Prosecution.

            (a)   Background Technology. SGX shall be responsible, at its sole
discretion and expense, for the preparation, filing, prosecution and maintenance
of the Patents within the SGX Background Technology, in countries selected by
SGX, and for conducting any interferences, reexaminations, reissues, and
oppositions, or requesting any patent term extensions relating thereto. Serono
shall be responsible, at its sole discretion and expense, for the preparation,
filing, prosecution and maintenance of the Patents within the Serono Background
Technology, in countries selected by Serono, and for conducting any
interferences, reexaminations, reissues, and oppositions, or requesting any
patent term extensions relating thereto.

            (b)   Collaboration Technology.

                  (i)   Joint Patents. [...***...] shall be responsible, at its
sole discretion and expense, for the preparation, filing, prosecution and
maintenance of Patents made, conceived or first reduced to practice jointly by
or on behalf of Serono and SGX that are within the Collaboration Technology or
that claim Know-How within the Collaboration Technology (other than that which
constitutes SGX Background Technology or Serono Background Technology) ("Joint
Patents"). Joint Patents include Patents on which at least one SGX Inventor is a
named inventor, and Patents that claim priority to an application on which at
least one SGX Inventor is a named inventor. An SGX Inventor is any person who
has a duty to assign inventions to SGX.

                  (ii)  Serono Patents. [...***...] shall also be responsible,
at its sole discretion and expense, for the preparation, filing, prosecution and
maintenance of Patents including Joint Patents within the Collaboration
Technology (other than that which constitutes SGX Background Technology or
Serono Background Technology) covering Serono Co-Crystal Structures ("Serono
Patents"). SGX shall assign all its right, title and interest in and to any
Serono Patents to Serono and shall execute such documents of transfer or
assignment and perform such acts as may be reasonably necessary to transfer
ownership of such Serono Patents to Serono and to enable Serono to file,
prosecute, and maintain the Serono Patents.

                  (iii) Early Lead Patents. [...***...] shall also be
responsible, at its expense, for the preparation, filing, prosecution and
maintenance of Patents (excluding Joint Patents) within the Collaboration
Technology (other than that which constitutes SGX Background Technology or
Serono Background Technology) covering Early Lead Compounds and SGX Co-Crystal
Structures containing Early Lead Compounds ("Early Lead Patents") in the United
States and in such other countries as it may determine in its sole discretion.

                  (iv)  SGX Patents. [...***...] shall be responsible, at its
sole discretion and expense, for the preparation, filing, prosecution and
maintenance of

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Patents (excluding Joint Patents) within the Collaboration Technology (other
than that which constitutes SGX Background Technology or Serono Background
Technology) with the exception of such Collaboration Technology covering Serono
Co-Crystal Structures, SGX Co-Crystal Structures containing Early Lead Compounds
or Early Lead Compounds ("SGX Patents").

            (v) Prosecution and Maintenance. The Parties will cooperate to
prepare and prosecute patent applications for Early Lead Patents with the goal
of obtaining a broad scope of protection for the relevant subject matter. Serono
will use commercially reasonable efforts to obtain a broad scope of protection
for Early Lead Compounds without compromising Serono's or SGX's interests in the
Collaboration and will consider in good faith all comments provided by SGX with
respect to the filing, prosecution and maintenance of Early Lead Patents. In the
event that Serono elects not to file a patent application for an Early Lead
Patent in the United States within [...***...] ([...***...]) [...***...] of the
date the underlying invention is reduced to practice, SGX shall have the right
to file, prosecute and maintain such patent application in any country. SGX
shall promptly notify Serono of the conception or reduction to practice of any
invention during and in the performance of the Collaboration. Furthermore, in
the event that Serono elects not to file any patent applications for an Early
Lead Patent in Japan or any country in Europe or to prosecute or maintain any
Patents that are Early Lead Patents in the United States, Japan or any country
in Europe, Serono shall give SGX not less than [...***...] ([...***...])
[...***...] notice before any relevant deadline, and SGX shall have the right to
pursue, at its sole discretion and expense, filing, prosecution and maintenance
of such Patents in such country. The Party responsible for prosecution and
maintenance of Patents under this Section 5.2(b) (the "Responsible Party"),
shall keep the other Party (the "Non-Responsible Party") informed as to the
status of such patent matters, including by providing the Non-Responsible Party
the opportunity, at the Non-Responsible Party's expense, to review documents
with respect to Early Lead Patents to be filed in any patent office at least
thirty (30) days before filing and to comment thereon, and the Responsible Party
shall consider in good faith any such comments. At the Responsible Party's
request and expense, the Non-Responsible Party will reasonably cooperate and
assist the Responsible Party in the preparation, filing and prosecution of
patent applications claiming Collaboration Technology and in the event of an
interference, reissue, reexamination, opposition or request for patent term
extension with respect to such patent applications or patents issuing therefrom,
including by making such Party's employees or agents available to the
Responsible Party and signing or causing to have signed all documents relating
to such Patents. At each Party's expense, patent counsel or any other
representative designated by each Party will meet (in person, by telephone or
videoconference) upon request by either Party, unless otherwise agreed in
writing, during the Term of the Collaboration, and the pendency of any Early
Lead Patents, to coordinate, discuss, review and implement patent filing and
prosecution strategy.

      5.3   Patent Enforcement. In the event either Party becomes aware of any
infringement of an Early Lead Patent or a Joint Patent or a claim that such
patent is invalid and unenforceable, it shall promptly notify the other Party
hereto. Serono shall have the sole right, at its sole discretion and expense, to
take any and all steps to abate the infringement or contest the challenge of
Early Lead Patents and Joint Patents. SGX will

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cooperate with Serono, at Serono's request, including by joining such proceeding
as a party if required by applicable law, with fees and costs related to the
litigation to be borne by Serono. In the event Serono elects not to pursue
abatement of infringement or challenge of an Early Lead Patent or Joint Patent,
Serono shall give SGX not less than [...***...] ([...***...]) [...***...] notice
before any relevant deadline and SGX shall have the right to pursue, at its sole
discretion and expense, such activitieS. Should SGX pursue such activities,
Serono will cooperate with SGX, at its request, with fees and costs related to
the litigation to be borne by SGX. Neither Party shall settle or otherwise
compromise any such proceeding in a way that adversely affects the other Party's
rights or interests with respect to Early Lead Compounds or Products without
such Party's prior written consent. [...***...] by the [...***...] pursuant to
this Section 5.3, [...***...], [...***...].

6.    CONFIDENTIALITY AND PUBLICITY

      6.1   Confidential Information. Except as provided herein, the Parties
agree that, for the term of this Agreement and for [...***...] ([...***...])
years thereafter, the receiving Party, or any Affiliate thereof, shall not
publish or otherwise disclose and shall not use except pursuant to this
Agreement, any information or material furnished to it by the other Party
pursuant to this Agreement which if disclosed in tangible form is marked
"Confidential" or with other similar designation to indicate its confidential or
proprietary nature, or if disclosed orally is confirmed as confidential or
proprietary by the Party disclosing such information at the time of such
disclosure or within thirty (30) days thereafter ("Confidential Information").
Collaboration Technology (other than that which constitutes SGX Background
Technology) covering Early Lead Compounds, SGX Co-Crystal Structures containing
Early Lead Compounds, and Serono Co-Crystal Structures shall be deemed to be
Confidential Information of Serono. Each Party shall have the right to disclose
Confidential Information to its Affiliates and shall obtain written agreements
from each of its and its Affiliates' employees and agents who perform the
Collaboration, which agreements shall obligate such persons to similar
obligations of confidentiality and non-use. Notwithstanding the foregoing, it is
understood and agreed that Confidential Information shall not include
information or material that, in each case as demonstrated by written
documentation:

            (a)   was already known to the receiving Party, or an Affiliate
thereof, other than under an obligation of confidentiality, at the time of
disclosure;

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

            (c)   became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving Party, or an Affiliate thereof, in breach of this
Agreement; or

            (d)   was subsequently lawfully disclosed to the receiving Party, or
an Affiliate thereof, by a person other than a Party hereto or independently
developed by the

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receiving Party or an Affiliate thereof, without reference to any Confidential
Information disclosed by the disclosing Party.

            6.2   Permitted Disclosures. Notwithstanding the provisions of
Section 6.1 above, each Party hereto may use and disclose the other's
Confidential Information to the [...***...] in [...***...] or [...***...],
[...***...], complying with applicable [...***...], submitting information to
[...***...] or other [...***...], making a [...***...] of its rights hereunder,
filing for [...***...] of a Product or otherwise performing its [...***...] or
[...***...] hereunder, including [...***...] with respect to the [...***...];
PROVIDED, HOWEVER, that if a Party is required to make any such disclosure of
the other [...***...], to the extent it may legally do so, it will give
[...***...] to the other Party of such disclosure so that the other Party
[...***...] of such Confidential Information [...***...] (whether through
[...***...]).

            6.3   Publication. Any public disclosure (oral, written or graphic)
by either Party describing the scientific results of the Collaboration will
[...***...] and [...***...] of the other Party [...***...] ([...***...])
[...***...] for publication or other public disclosure; PROVIDED, HOWEVER, SGX
may [...***...] information regarding the [...***...] under the Collaboration
and the [...***...] in the course of the Collaboration, provided Serono is given
the opportunity to review in advance any such disclosure to ensure that
[...***...]. If the reviewing Party so requests, the proposed public disclosure
[...***...] ([...***...]) [...***...] from the date of each request for the
[...***...] related to the proposed public disclosure. Promptly following the
Effective Date, the parties will jointly discuss and agree on a press release to
be made by SGX regarding the execution and subject matter of this Agreement.
Thereafter, the Parties will [...***...] on any further statements to the public
regarding the subject matter of this Agreement, except with respect to
disclosures required by [...***...], and provided further that notwithstanding
the above, [...***...] will have the right to disclose the terms of this
Agreement [...***...]. Any disclosure by either Party of the subject matter of
this Agreement other than the disclosures specifically permitted pursuant to
this Section 6.3 [...***...] in the performance of such Party's obligations
hereunder. If in the [...***...] of a [...***...] a public disclosure with
respect to this Agreement is [...***...], then the disclosing Party will provide
the other Party [...***...] of such intended announcement, and [...***...] under
the circumstances will [...***...] relative to the nature and scope of such
intended announcement. If either Party concludes that a copy of this Agreement
must be filed with the [...***...], it will provide the other Party a
[...***...], will provide the other Party an [...***...] on such proposal and
will give [...***...] by the other Party relating to such filing.

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7.    INDEMNIFICATION

      7.1   Indemnification of SGX. Serono shall indemnify, defend, and hold
harmless SGX, its directors, officers, and employees and the successors and
assigns of any of the foregoing (the "SGX Indemnitee(s)") from and against all
losses, costs, expenses (including payment of reasonable attorneys' fees and
other expenses of litigation), liabilities and damages (including settlement
amounts) finally awarded, with respect to any claim, suit or proceeding (any of
the foregoing, a "Claim") brought by a Third Party against an SGX Indemnitee, to
the extent arising out of or relating to: (a) a breach of [...***...] and
[...***...] under Section [...***...]; (b) any [...***...] by or on behalf of
[...***...] utilizing any [...***...]; (c) the use pursuant to this Agreement by
[...***...] (except to the extent such Claim arises from the use of
[...***...]), [...***...] coding for a [...***...], [...***...] or a
[...***...]; or (d) the [...***...] of [...***...], except, in each case, to the
extent caused by the [...***...].

      7.2   Indemnification of Serono. SGX shall indemnify, defend and hold
harmless Serono, its Affiliates, their directors, officers, employees and
licensees, and the successors and assigns of any of the foregoing (the "Serono
Indemnitee(s)") from and against any losses, costs, expenses (including payment
of reasonable attorneys' fees and other expenses of litigation), liabilities and
damages (including settlement amounts) finally awarded, with respect to any
Claims (as defined in Section 7.1 above) brought by a Third Party against a
Serono Indemnitee, to the extent arising out of or relating to: (a) a breach of
[...***...] and [...***...] under Section [...***...]; (b) the use pursuant to
this Agreement by [...***...] to the extent such Claim arises from the use of
[...***...]; or (c) the [...***...], except, in each case, to the extent due to
the [...***...].

      7.3   Indemnification Procedures. An SGX Indemnitee or a Serono Indemnitee
(either an "Indemnitee") that intends to claim indemnification under this
Article 7 shall promptly notify the indemnifying Party (the "Indemnitor") in
writing of any claim in respect of which the Indemnitee intends to claim such
indemnification, and the Indemnitor shall have sole control of the defense
and/or settlement thereof, provided that the Indemnitee may participate in any
such proceeding with counsel of its choice at its own expense. In no event,
however, may the Indemnitor compromise or settle any claim or suit in a manner
which admits fault or negligence on the part of any Indemnitee without the prior
written consent of such Indemnitee. The indemnity agreement in this Article 7
shall not apply to amounts paid in settlement of any Claim if such settlement is
effected without the consent of the Indemnitor, which consent shall not be
withheld

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unreasonably. The failure to deliver written notice to the Indemnitor within a
reasonable time after the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve such Indemnitor of any liability to
the Indemnitee under this Article 7 but the omission so to deliver written
notice to the Indemnitor shall not relieve the Indemnitor of any liability that
it may have to any Indemnitee other than under this Article 7. The Indemnitee
under this Article 7, its employees and agents or those of the affiliated Party,
as applicable, shall cooperate fully with the Indemnitor and its legal
representatives and provide full information in the investigation, defense or
settlement of any Claim covered by this indemnification. Neither Party shall be
liable for any costs or expenses incurred by the other Party without its prior
written authorization.

      7.4   No Consequential Damage. IN NO EVENT SHALL EITHER PARTY OR ANY OF
ITS AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY OF ITS AFFILIATES FOR
SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES,
WHETHER IN CONTRACT, WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE,
including loss of profits or revenue, or claims of customers of any of them or
other Third Parties for such or other damages; PROVIDED, HOWEVER, that the
foregoing limitation shall not apply to indemnification obligations under this
Article 7.

8.    REPRESENTATIONS AND WARRANTIES

      8.1   Each Party. Each Party represents, warrants and covenants to the
other (i) that it has the legal power, authority and right to enter into this
Agreement and to perform its respective obligations under this Agreement; (ii)
that it is not a Party to any agreement or arrangement with any Third Party or
under any obligation or restriction which in any way limits or conflicts with
its ability to fulfill any of its obligations under this Agreement (including
granting the licenses in Article 4), and that it shall not enter into any such
agreement or arrangement during the term of this Agreement; and (iii) that each
employee or person engaged in the Collaboration on behalf of Serono or SGX has
entered into a written agreement which provides for the assignment to Serono or
SGX, respectively, of all inventions and discoveries made, conceived or reduced
to practice by such employee or person during the course of his or her
employment or engagement with Serono or SGX.

      8.2   SGX. SGX represents and warrants to Serono that to its [...***...]
as of the Effective Date it [...***...] or other [...***...] and [...***...] and
to [...***...] hereunder and that the [...***...] by SGX will not [...***...]
the [...***...] of any [...***...].

      8.3   Disclaimer. SGX and Serono specifically disclaim any guarantee that
the Collaboration will be successful, in whole or in part. The failure of the
Parties to solve structures or to identify compounds will not constitute a
breach of this Agreement. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS
AGREEMENT, SERONO AND SGX MAKE NO REPRESENTATIONS AND EXTEND NO

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WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE SGX BACKGROUND
TECHNOLOGY, THE SERONO BACKGROUND TECHNOLOGY OR THE COLLABORATION TECHNOLOGY OF
EACH PARTY, INCLUDING ANY WARRANTY OF NON-INFRINGEMENT OF THE INTELLECTUAL
PROPERTY OR OTHER RIGHTS OF ANY THIRD PARTY.

9.    TERM AND TERMINATION

      9.1   Term of the Agreement. The term of this Agreement shall commence on
the Effective Date and, unless terminated earlier, will terminate upon the
expiration of the Royalty Terms for all Products under Section 3.6 at which time
the licenses granted to Serono under Section 4.1 shall become fully paid,
[...***...] and [...***...].

      9.2   Termination for Cause. Either Serono or, subject to Section 4.6, SGX
may terminate this Agreement by written notice stating such Party's intent to
terminate, in the event the other Party shall have materially breached or
defaulted in the performance of any of its obligations hereunder, and such
default shall have continued for [...***...] ([...***...]) [...***...] after
written notice thereof was provided to the breaching Party by the nonbreaching
Party.

      9.3   Effect of Termination.

            (a)   Accrued Rights and Obligations. Termination or expiration of
this Agreement for any reason shall be without prejudice to any rights which
shall have accrued to the benefit of a Party prior to such termination or
expiration. Termination or expiration of this Agreement for any reason shall not
release any Party hereto from any liability which, at the time of such
termination, has already accrued to the other Party, which is attributable to a
period prior to such termination or which is expressly indicated to survive
termination or expiration of this Agreement nor preclude either Party from
pursuing all rights and remedies it may have hereunder or at law or in equity
with respect to any breach of this Agreement, including rights under the United
States Bankruptcy Code.

            (b)   Return of Confidential Information. Upon any termination of
this Agreement, SGX and Serono shall promptly return to the other Party or
destroy all Confidential Information received from the other Party, except to
the extent required to exercise any continuing rights of such Party (and in any
event, except for one copy of such Confidential Information which may be
retained solely for archival purposes).

            (c)   Licenses.

                  (i)   In the event of termination of this Agreement by either
Party pursuant to [...***...], the [...***...] and [...***...] in Section
[...***...].

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                  (ii)  In the event of termination of this Agreement by
[...***...] pursuant to Section [...***...], the licenses granted [...***...]
under Sections [...***...] ([...***...]), ([...***...]) and ([...***...]) (other
than with respect to [...***...]) [...***...].

            (d)   Inventory. Upon any termination of this Agreement, Serono and
its Affiliates and sublicensees shall be entitled, during the next [...***...]
([...***...]) months, to sell any inventory of Products which remains on hand as
of the date of the termination, so long as Serono pays to SGX the royalties
applicable to said subsequent sales in accordance with the terms and conditions
set forth in this Agreement.

            (e)   Sublicenses. In the event this Agreement terminates for any
reason, each of Serono's sublicensees at such time shall continue to have the
rights and license set forth in their sublicense agreements; PROVIDED, HOWEVER,
that such sublicensee agrees in writing that SGX is entitled to enforce all
relevant terms and conditions of such sublicense agreement directly against such
sublicense.

            (f)   Survival. The provisions of Articles 5, 6, 7, 8, and 10 and
Sections 3.5, 3.7-3.13, 4.6, 4.8 and 9.3 and, subject to Section 9.3(c) above,
Section 4.1 shall survive the expiration or termination of this Agreement for
any reason.

      9.4   No Termination upon SGX's Bankruptcy. All licenses granted under
this Agreement by SGX are, and shall otherwise be deemed to be, for purposes of
Section 365(n) of the U.S. Bankruptcy Code, licenses of rights to "intellectual
property" as defined under Section 101 of the U.S. Bankruptcy Code. The Parties
agree that Serono, as licensee of such rights under this Agreement, shall retain
and may fully exercise all of its rights and elections under the U.S. Bankruptcy
Code. The Parties further agree that, in the event of the commencement of a
bankruptcy proceeding by or against SGX under the U.S. Bankruptcy Code, Serono
shall be entitled to a complete duplicate of (or complete access to, as
appropriate) any such intellectual property and all embodiments of such
intellectual property, and the same, if not already in its possession, shall be
promptly delivered to it (i) upon any such commencement of a bankruptcy
proceeding upon Serono's written request therefor, unless SGX elects to continue
to perform all of its obligations under this Agreement, or (ii) if not delivered
under (i) above, following the rejection of this Agreement by or on behalf of
SGX upon written request therefor by Serono. In the event of the commencement of
a bankruptcy proceeding by or against SGX under the Bankruptcy Code and so long
as such proceeding continues, SGX will not, without Serono's prior written
consent, sell, transfer, assign or otherwise dispose of, or purport to sell,
transfer, assign or otherwise dispose of, any right, title or interest in, to or
under the Collaboration Technology (other than that which constitutes the SGX
Background Technology) or the SGX Background Technology that is necessary for
Serono to exercise its rights under this Agreement, if those rights would be
impaired in any material respect by such sale, transfer, assignment or other
disposition.

10.   MISCELLANEOUS

      10.1  Governing Law. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the Parties hereto shall be governed,
construed

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and interpreted in accordance with the laws of the State of Delaware, without
reference to rules of conflicts or choice of laws. Any claim or controversy
arising out of or related to this Agreement or any breach hereof may be
submitted by either Party to a court of applicable jurisdiction in the State of
Delaware, and each Party hereby consents to the jurisdiction and venue of such
court

      10.2  Notices. Any notice required or permitted by this Agreement shall be
in writing and shall be sent by internationally recognized courier or personal
delivery, or by fax with confirming letter sent under the conditions described
above, in each case addressed to the other Party at the address shown below or
at such other address for which such Party gives notice hereunder. Such notice
shall be deemed to have been given when delivered:

      If to SGX:

      Structural Genomix, Inc.
      10505 Roselle Street
      San Diego, CA  92121
      Facsimile:  858 558 3402
      Attn:  Chief Executive Officer
      Copy to:  Corporate Counsel

      If to Serono:

      Serono International S.A.
      15 bis chemin des Mines
      1202 Geneva, Switzerland
      Facsimile:  41-22-739-3060
      Attn:  Senior Executive Vice President, Business Development
      Copy to:  General Counsel

      10.3  Force Majeure. Neither Party shall lose any rights hereunder or be
liable to the other Party for damages or losses (except for payment obligations)
on account of failure of performance by the defaulting Party if the failure is
occasioned by war, strike, civil commotion, acts of terrorism, fire, Act of God,
earthquake, flood, lockout, embargo, governmental acts or orders or
restrictions, failure or delay of transportation, failure of suppliers
(including energy suppliers), or any other reason where failure to perform is
beyond the reasonable control and not caused by the negligence, intentional
conduct or misconduct of the nonperforming Party and the nonperforming Party has
exerted all reasonable efforts to avoid or remedy such force majeure and to
resume performance of its obligations hereunder as soon as practicable;
PROVIDED, HOWEVER, that in no event shall a Party be required to settle any
labor dispute or disturbance.

      10.4  No Implied Rights. Only the rights granted pursuant to the express
terms of this Agreement shall be of any legal force or effect. No other rights
shall be created by implication, estoppel or otherwise.

                                 Page 26 of 41

                                                                    CONFIDENTIAL

      10.5  Assignment. This Agreement shall not be assignable by either Party
to any Third Party without the written consent of the other Party hereto, except
either Party may assign this Agreement, without such consent, to (i) an
Affiliate or (ii) an entity that acquires all or substantially all of the
business or assets of such Party to which this Agreement pertains, whether by
merger, reorganization, acquisition, sale, or otherwise.

      10.6  Partial Invalidity. When possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid by a court of
competent jurisdiction, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement, unless the invalid provision is of such essential importance to this
Agreement that it may be reasonably presumed that the Parties would not have
entered into this Agreement without the invalid provision. The Parties agree to
renegotiate in good faith any provision held invalid and to be bound by the
mutually agreed substitute provision in order to produce to the maximum extent
possible the effect originally intended by the Parties.

      10.7  Independent Contractors. The relationship of Serono and SGX
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to (i) give either Party the
power to direct or control the day-to-day activities of the other, (ii)
constitute the Parties as partners, joint venturers, or otherwise as
participants in a joint or common undertaking, or (iii) allow a Party to create
or assume any obligation on behalf of the other Party for any purpose
whatsoever.

      10.8  No Waiver. No waiver of any term or condition of this Agreement
shall be valid or binding on either Party unless agreed in writing by the Party
to be charged. The failure of either Party to enforce at any time any of the
provisions of the Agreement, or the failure to require at any time performance
by the other Party of any of the provisions of this Agreement, shall in no way
be construed to be a present or future waiver of such provisions, nor in any way
to affect the right of either Party to enforce each and every such provision
thereafter.

      10.9  Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

      10.10 English Language. This Agreement has been prepared in the English
language and the English language shall control its interpretation.

      10.11 Entire Agreement; Amendment. This Agreement, including the Exhibits
attached hereto, constitutes the entire agreement of the Parties with respect to
the subject matter hereof, and supersedes all prior or contemporaneous
understandings or agreements, whether written or oral, between Serono and SGX
with respect to such subject matter. No amendment or modification hereof shall
be valid or binding upon the Parties unless made in a writing referencing this
Agreement and signed by the duly authorized representatives of both Parties.

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                                                                    CONFIDENTIAL

      10.12 Exports. This Agreement is made subject to any restrictions
concerning the export of materials and technology from the United States which
may be imposed upon either Party to this Agreement from time to time by the
United States Government. SGX and Serono agree not to export or re-export,
directly or indirectly, any information, technical data, the direct product of
such data, samples or equipment received or generated under this Agreement in
violation of any applicable export control laws or governmental regulations.

      10.13 Rules of Construction. The use in this Agreement of the term
"including" means "including, without limitation." Unless the context otherwise
requires, the use in this Agreement of the term "or" means "and/or." The words
"herein," "hereof," "hereunder," and other words of similar import refer to this
Agreement as a whole, including the Exhibits, and not to any particular section,
subsection, paragraph, subparagraph or clause contained in this Agreement. All
references to sections and Exhibits mean those sections of this Agreement and
Exhibits attached to this Agreement, except where otherwise stated. The use
herein of the masculine, feminine or neuter forms shall also denote the other
forms and any reference to the singular or plural shall include the other, in
each case unless the context otherwise requires.

      IN WITNESS WHEREOF, the undersigned are duly authorized to execute and
deliver this Agreement on behalf of Serono and SGX as applicable as of the day
and year first above written.


SERONO INTERNATIONAL S.A.                   STRUCTURAL GENOMIX, INC.


By: /s/ Ernesto Bertarelli                By: /s/ Tim Harris
    ----------------------------------        ----------------------------------

Name: Ernesto Bertarelli                  Name: Tim Harris
      --------------------------------          --------------------------------

Title: Authorized Representative          Title: Chief Executive Officer
       -------------------------------           -------------------------------

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                         EXHIBIT A - COLLABORATION PLAN

OVERALL GOAL

The initial goal of the collaboration is to generate Early Lead Compounds for
three targets; [...***...], [...***...], and [...***...]. The three initial
projects will proceed in parallel. Serono may nominate an additional [...***...]
targets for year [...***...]. the research plans for these targets will be
established upon their selection and shall include such activities as Serono may
direct, following consultation with SGX, including all or any of the following:
generation of Early Lead Compounds, determination of Initial Structures, and
determination of Serono Co-Crystal Structures.

Details for each target are given below.

                                  TARGET PLANS

                                   [...***...]

The projected timeline for this project is [...***...] months as illustrated in
Figure 1.

PROTEIN PRODUCTION AND CRYSTALLOGRAPHY

The crystal structure of [...***...] has been determined by a number of research
groups. Many of these structures have been deposited into the Protein Data Bank
(PDB) with diffraction in the [...***...] range. SGX will use information from
these publications to reproduce this crystal structure. SGX already has isolated
a [...***...] for the [...***...] of this protein. Specifically, SGX plans to:

- -     Generate [...***...] with [...***...]. Since both [...***...] and
      [...***...] ([...***...]) [...***...], SGX believes it is essential to
      [...***...] in [...***...]. Based on [...***...], a [...***...]
      ([...***...]) [...***...] as the [...***...].[...***...] that end
      [...***...], [...***...] will also be chosen.

- -     [...***...] these [...***...] into [...***...].[...***...] will allow
      production of [...***...] and [...***...]. In this way [...***...] can be
      produced for [...***...] many of which will [...***...] to [...***...] in
      [...***...],

- -     Examine [...***...] and [...***...] of these [...***...].

- -     [...***...] for [...***...] and [...***...]. The latter will include
      [...***...] to monitor [...***...] and [...***...].

- -     Carry out [...***...] to obtain [...***...].

- -     Carry out [...***...] around published conditions to [...***...] for
      [...***...]; [...***...] may [...***...] this [...***...]

- -     [...***...] at SGX-CAT and [...***...].

- -     Determine [...***...] is most suited to [...***...] and [...***...] for
      [...***...].

BIOCHEMISTRY

SGX will establish and validate a [...***...] biochemical enzymatic assay(s).
Serono and SGX shall consult regarding the identification of appropriate assays
and reagents that are available Serono Materials. Assays under consideration for
[...***...] are:

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Continuous [...***...] Assay Using [...***...] Substrate

[...***...] will catalyze the hydrolysis of [...***...] to yield [...***...] and
[...***...] ([...***...]). The [...***...]-dependent production of [...***...]
can be monitored [...***...] by measuring the time-dependent increase of
fluorescence at [...***...]nm.

Fluorescence Polarization Assay

The availability of good commercial sources of [...***...] antibodies and
well-characterized substrate peptide should allow for the development of a
simple [...***...] assay for [...***...]. An efficient [...***...] substrate
such as [...***...] could be labeled at either the N- or C-terminus with a
[...***...] appropriate for [...***...] (i.e. [...***...] or [...***...]).
[...***...] antibody would then be added to measure the extent of [...***...] by
a decrease in the observed [...***...].

Commercial Assay Options

[...***...] sells a homogeneous [...***...] assay kit ([...***...], [...***...])
that uses their proprietary [...***...] technology with [...***...] as the
readout. This represents the fastest route to attaining an assay in the
short-term. This assay comes configured with purified enzyme from [...***...]
but that reagent could be substituted with SGX-produced protein. In addition,
SGX may opt to simply purchase the [...***...] reagent for use in SGX's
formatted [...***...] assay as described in the paragraph above. [...***...]
biotechnology sells a [...***...] based assay system for [...***...]. The
[...***...] and [...***...] reagent are both available from [...***...]
([...***...]).

IDENTIFICATION OF INITIAL FRAGMENT HITS

- -     SGX will [...***...] screen compounds from the SGX FAST(TM) library by
      soaking approximately [...***...] samples into [...***...] crystals.

- -     In parallel, SGX will screen the SGX FAST(TM) library (individually) at a
      compound concentration of [...***...] against [...***...] with a
      biochemical enzymatic assay. Hits will be followed up with [...***...]
      determination.

- -     SGX will conduct the following studies as needed: (1) [...***...] for
      [...***...] detected from [...***...] if not [...***...] in the
      [...***...], (2) [...***...] measurement for [...***...] detected from
      [...***...] if not [...***...] in the [...***...].

- -     A [...***...] search of the [...***...] will be conducted for a
      preliminary assessment of [...***...].

- -     The results of the [...***...] search will be discussed by the JSC which
      shall agree upon those [...***...] to be selected for further elaboration
      after consideration of the recommendation of the Project team.

IDENTIFICATION OF ELABORATED FRAGMENTS

- -     One or more [...***...] will be selected by the JSC for [...***...],
      [...***...], and [...***...] (appropriate presentation of [...***...]).

- -     [...***...] are [...***...] into [...***...] and [...***...] on the
      [...***...]:

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      1.    [...***...] from [...***...] at each [...***...] are [...***...].

      2.    [...***...] of each [...***...] are [...***...] in the [...***...]
            of the [...***...] and [...***...], based on the [...***...] of the
            [...***...].

      3.    Each [...***...] is [...***...] in the [...***...] of [...***...].

      4.    [...***...] with [...***...] ([...***...]) [...***...] or
            [...***...] ([...***...]) are [...***...].

      5.    [...***...] are [...***...] with [...***...] binding [...***...] and
            [...***...] for [...***...].

- -     SGX will [...***...], [...***...], using the [...***...] (for example, for
      a [...***...], [...***...], [...***...] - approximately [...***...] per
      [...***...]).[...***...] will be [...***...] ([...***...]) [...***...].

- -     SGX will [...***...] in the [...***...] at a compound concentration of
      [...***...] (the exact concentration will be based on the activity of the
      [...***...]) and follow up [...***...].

- -     SGX will [...***...] and [...***...] their [...***...] to [...***...] and
      [...***...] the [...***...] for [...***...] of [...***...] and
      [...***...].

- -     The results of the [...***...] search will be discussed by the JSC which
      shall agree upon those [...***...] to be selected for [...***...] after
      consideration of the recommendation of the [...***...].

- -     As appropriate, and after discussion and agreement at the JSC, the
      selected [...***...] will be [...***...] ([...***...]) [...***...]
      (determined by the JSC). The JSC shall determine whether the [...***...]
      will be run by [...***...], [...***...] or an [...***...].

OPTIMIZATION OF [...***...] TO [...***...]

- -     SGX will computationally select [...***...] for all points of [...***...]
      to design [...***...], [...***...] where [...***...] positions are
      [...***...] (approximately [...***...]).

- -     SGX will synthesize [...***...].

- -     SGX will test analogs against [...***...] at a compound concentration of
      [...***...] (the exact concentration will be based on the [...***...]) and
      follow up [...***...] and [...***...] for [...***...], as discussed and
      agreed upon by the JSC.

- -     The [...***...] will be [...***...] of up to [...***...] ([...***...])
      [...***...] (determined by the JSC). The JSC shall determine whether the
      [...***...] will be run by [...***...], [...***...]or an [...***...].

- -     SGX will conduct a [...***...] including [...***...] from [...***...]
      through [...***...].

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         [...***...]

         FIGURE 1. [...***...]

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                                   [...***...]

The projected timeline for this project is [...***...] to [...***...] months as
illustrated in figure 2.

PROTEIN PRODUCTION AND CRYSTALLOGRAPHY

The crystal structure of [...***...] is not in the [...***...]. However, SGX has
determined the structures of [...***...] and [...***...] at [...***...]. These
kinases, when compared to structures in the [...***...], are the closest to
[...***...], with identities in the kinase domain In the low [...***...]% range.
Based on this information, SGX believes that [...***...] and [...***...] are
likely to give good guidance both on the boundaries for [...***...] and on the
residues that likely will need to be deleted to remove the loop insert in the
[...***...] kinase domain.

SGX will use this information to attempt to produce the [...***...] crystal
structure. Specifically, SGX's goals will be to:

      -     [...***...] with [...***...] based on the [...***...] and
            [...***...]. Since both [...***...] and [...***...] for [...***...]
            are desired, it will be essential to test a [...***...] of
            [...***...] in [...***...],

      -     [...***...] for [...***...] based on the [...***...] and [...***...]
            shown below,

                                   [...***...]

      -     [...***...] and [...***...] into [...***...]. These [...***...] will
            allow production of [...***...]- and [...***...] and with
            [...***...]. In this way [...***...] of [...***...] for [...***...]
            and [...***...] and by so doing increase the likelihood of
            [...***...] a [...***...] of the [...***...] with [...***...] and
            [...***...],

      -     Examine [...***...] and [...***...] of [...***...],

      -     [...***...] for [...***...] and [...***...]. The latter will include
            [...***...] to monitor [...***...] and [...***...],

      -     [...***...] to obtain [...***...] for [...***...]. If none of the
            above [...***...] in a [...***...], [...***...], the effects of
            [...***...], for example, in the [...***...] of the [...***...],

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      -     [...***...] to [...***...] the [...***...]; [...***...] to
            [...***...],

      -     [...***...] at SGX-CAT and [...***...],

      -     Determine [...***...] is most suited to [...***...] and [...***...]
            for [...***...].

BIOCHEMISTRY

SGX will [...***...] and [...***...] a [...***...] assay. Serono and SGX shall
consult regarding the identification of [...***...] assays and [...***...] that
are available Serono Materials. Assays under consideration for [...***...] are:

Continuous [...***...] Coupled Assay

SGX will assess the feasibility of developing a continuous [...***...] assay for
[...***...] using the [...***...] ([...***...]) coupled system. SGX will first
determine which, if any, of [...***...] is [...***...]. It may be required for
[...***...] to use inactive [...***...] as the [...***...] in such a system.

[...***...] FRET Assay

SGX has developed a proprietary and [...***...] that does not require
[...***...]. SGX will initially evaluate the [...***...] by surveying
[...***...] under several [...***...] using several [...***...]. If suitable
conditions can be identified, a [...***...] will be employed.

IDENTIFICATION OF INITIAL FRAGMENT HITS

As described for [...***...]

IDENTIFICATION OF ELABORATED FRAGMENTS

As described for [...***...]

OPTIMIZATION OF ELABORATED FRAGMENTS TO EARLY LEAD COMPOUNDS

As described for [...***...]

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                                                                    CONFIDENTIAL

[...***...]

FIGURE 2. [...***...].

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                                                                    CONFIDENTIAL

[...***...]

The projected timeline for this project is [...***...] to [...***...] months as
illustrated in Figure 3.

PROTEIN PRODUCTION AND CRYSTALLOGRAPHY

To SGX's knowledge the crystal structure of [...***...] has not been previously
determined. Efforts are ongoing at SGX to obtain this structure. Once an initial
structure has been obtained SGX will determine if the crystal form is suited to
[...***...] and will [...***...]; if the [...***...] is [...***...] then
[...***...].

BIOCHEMISTRY

SGX will establish and validate an [...***...] assay. Serono and SGX shall
consult regarding the identification of [...***...] assays and [...***...] that
are available [...***...]. Assays under consideration for [...***...] are:

Continuous [...***...] Coupled Assay

SGX will assess the feasibility of developing a continuous enzymatic assay for
[...***...] using the [...***...] ([...***...]) coupled system. SGX will first
determine which, if any, of [...***...] is applicable. SGX will also assess the
ability of its [...***...] to [...***...] in the coupled assay system.

[...***...] FRET Assay

SGX will initially evaluate the feasibility of developing an [...***...] by
surveying our proprietary [...***...] under several [...***...] using
[...***...]. If suitable conditions can be identified, a [...***...] will be
employed.

Commercial Assay Options

[...***...] sells a homogeneous [...***...] ([...***...],[...***...]) that uses
their proprietary [...***...] technology with [...***...] as the readout. This
represents the fastest route to attaining an assay in the short-term. This assay
comes configured with [...***...] from [...***...] but that reagent [...***...]
with [...***...]. In addition, SGX may opt to simply [...***...] for use in
[...***...].

IDENTIFICATION OF INITIAL FRAGMENT HITS

As described for [...***...], subject to the section describing presentation to
the JSC below

IDENTIFICATION OF ELABORATED FRAGMENTS

As described for [...***...], subject to the section describing presentation to
the JSC below

OPTIMIZATION OF ELABORATED FRAGMENTS TO EARLY LEAD COMPOUNDS

As described for [...***...], subject to the section describing presentation to
the JSC below

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PRESENTATION OF INITIAL FRAGMENT HITS, ELABORATED FRAGMENTS AND EARLY LEAD
COMPOUNDS FOR [...***...] TO THE JSC

[...***...] will be communicated as [...***...]-[...***...], similar to
[...***...]: [...***...] for the [...***...] will be [...***...] and [...***...]
will be [...***...] with [...***...] including the [...***...] and [...***...]
([...***...], [...***...], [...***...]). The JSC will select [...***...] for
generating these [...***...], which may also include [...***...].

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[...***...]

FIGURE 3. [...***...].

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DETERMINATION OF SERONO [...***...]

Serono Compounds delivered to SGX by Serono will be [...***...] and/or
[...***...] with the [...***...], as appropriate, in order to [...***...] for
the [...***...] of [...***...].

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                            EXHIBIT B - DELIVERABLES

INITIAL STRUCTURES

- -     Protocols for [...***...] and [...***...] and [...***...], these protocols
      should be [...***...] to [...***...] of the [...***...] by [...***...].

- -     [...***...] (e.g., [...***...], [...***...]) [...***...] for [...***...]
      and [...***...].

- -     [...***...] and [...***...] with [...***...].

- -     [...***...] with [...***...] and [...***...]; [...***...], [...***...],
      etc.

- -     [...***...], with [...***...].

EARLY LEAD COMPOUNDS

- -     Protocols for [...***...] and [...***...], these protocols should be clear
      enough to [...***...] of the [...***...] ([...***...]).

- -     [...***...] (e.g., [...***...], [...***...]) [...***...] for [...***...]
      and [...***...] ([...***...]).

- -     [...***...] and [...***...] with [...***...] ([...***...] and [...***...])

- -     [...***...] with [...***...] and [...***...]; [...***...], [...***...],
      etc.

- -     [...***...] containing [...***...], with relevant [...***...].

- -     [...***...] (i.e. [...***...], [...***...], etc.).

- -     [...***...] with [...***...], [...***...], etc.

- -     [...***...] performed on [...***...] ([...***...], [...***...], etc.).

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SERONO CO-CRYSTAL STRUCTURES

- -     Protocols for [...***...] and [...***...], these protocols should be clear
      enough to [...***...] of the [...***...] ([...***...]).

- -     [...***...] (e.g., [...***...], [...***...]) [...***...] for [...***...]
      and [...***...] ([...***...]).

- -     [...***...] and [...***...] with [...***...] ([...***...] and
      [...***...]).

- -     [...***...] with [...***...] and [...***...]; [...***...], [...***...],
      etc).

- -     [...***...] containing [...***...], with [...***...].

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EX-10.27

                                                                 EXHIBIT 10.27

                                           *** TEXT OMITTED AND FILED SEPARATELY
                                    PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST
                                            UNDER 17 C.F.R. SECTION 200.80(b)(4)
                                               AND RULE 406 UNDER THE SECURITIES
                                                         ACT OF 1933, AS AMENDED

                                                                    CONFIDENTIAL

                             COLLABORATION AGREEMENT

      THIS COLLABORATION AGREEMENT (the "AGREEMENT") is made and entered into as
of December 1, 2003 (the "EFFECTIVE DATE") by and between STRUCTURAL GENOMIX,
INC. a Delaware corporation located at 10505 Roselle Street, San Diego, CA
92121, U.S.A., ("SGX"), and UROGENE, S.A., a corporation incorporated under the
laws of France with a principal place of business at 4 Rue Pierre Fontaine -
Genopole, 91058 Evry, Cedex, France, ("UG"). SGX and UG may be referred to
herein individually as a "Party" and collectively as the "Parties".

                                   BACKGROUND

      WHEREAS, SGX has expertise in the field of structure directed drug
discovery;

      WHEREAS, UG has research and development programs in the area of urology;

      WHEREAS, the Parties wish to collaborate in the development of therapeutic
products directed at inhibiting the protein kinase RON, primarily for
application in the field of bladder cancer;

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

1.    DEFINITIONS

      1.1 "Active Party" has the meaning ascribed to such term in Section 6.1.

      1.2 "Affiliate" means, with respect to a Party hereto, a corporation,
company or other entity that is owned or controlled by such Party by virtue of
such Party's direct or indirect ownership or control of fifty percent (50%) or
more of the outstanding shares or securities (representing the right to vote for
the election of directors or other managing authority) of such corporation,
company or other entity, but such corporation, company or other entity shall be
deemed to be an Affiliate only so long as such ownership or control exists.

      1.3 "Clinical Development" means development activities conducted on a
Collaboration Product commencing upon the filing of an IND, up to and including
generation of an International Registration Dossier.

      1.4 "Collaboration" means the activities conducted by the Parties under
the Research Plan and the Development Plan.

                                        1


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      1.5 "Collaboration Product" means any product that comprises or contains
or is developed or manufactured based on a Safety Assessment Candidate, and is
directed at inhibiting, modulating or altering the activity of the Target.
Collaboration Products do not include SGX Products or UG Products.

      1.6 "Collaboration Technology" means Patent Rights and Know-How which are
conceived or reduced to practice or otherwise developed by or on behalf of UG or
SGX, or jointly by UG and SGX, in each case during and in the performance of the
Collaboration, including without limitation, Collaboration Products and
Information but excluding SGX Compounds, UG Compounds, SGX Background
Technology, and UG Background Technology.

      1.7 "Collaboration Term" means the period commencing on the Effective Date
and ending on a Collaboration Product-by-Collaboration Product and
country-by-country basis, upon Registration of each such Collaboration Product.

      1.8 "Competing Product" means a product developed outside of the
Collaboration for application in the Therapeutic Field, which has activity in an
[...***...] against the Target.

      1.9 "Controls" or "Controlled" means possession of the ability to grant
the licenses or sublicenses as provided for herein, without violating the terms
of any agreement or other arrangement with a Third Party.

      1.10 "Development Budget" has the meaning ascribed to such term in Section
3.7.

      1.11 "Development Plan" means, with respect to a particular Collaboration
Product, the plan prepared by the JDC and approved by the Parties pursuant to
Section 3.7 setting forth the detailed plan, Development Budget and process for
the Parties' collaborative efforts to conduct development of, and seek
Registration for, such Collaboration Product in the UG Territory and SGX
Territory.

      1.12 "Drug Candidate" means a Safety Assessment Candidate selected by the
JDC for Clinical Development under Section 3.2(b).

      1.13 "Excess Expenses" means, with respect to a particular Collaboration
Product, the costs and expenses associated with such Collaboration Product that
the Parties have agreed pursuant to Section 3.9 shall be creditable against
certain royalty payments in accordance with Section 4.3.

      1.14 "Expanded Therapeutic Field" means the Therapeutic Field, [...***...]
cancer, [...***...] carcinomas, and [...***...] cancer.

      1.15 "FTE" means a full time equivalent person year (consisting of
[...***...] hours per year) of scientific or technical work carried out by or on
behalf of SGX or UG under the Collaboration.

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                                                                    CONFIDENTIAL

      1.16 "First Commercial Sale" means the first sale of a Collaboration
Product to a Third Party in a Territory after all Registrations required to
permit such sale have been granted, or such sale is otherwise permitted by the
regulatory authority in such country.

      1.17 "IND" means an Investigational New Drug application, as defined in
the U.S. Food, Drug and Cosmetic Act ("FDCA") and the regulations promulgated
thereunder or any corresponding foreign application, registration or
certification.

      1.18 "Inactive Party" has the meaning ascribed to such term in Section
6.1.

      1.19 "Information" means data specifically relating to research,
development, Registration, manufacture, sale or use of Collaboration Products,
including without limitation, pharmacological, toxicological and clinical test
data, analytical and quality control data, regulatory submissions,
correspondence and communications, and data relating to adverse events.

      1.20 "International Registration Dossier" means the collection of
Information comprising the requirements for applications for Registration of
Collaboration Products under the FDCA and any regulations promulgated
thereunder, and as required by the Committee for Proprietary Medicinal Products
representing the medicine authorities of the European Community member states.

      1.21 "Joint Research Committee" or "JRC" means the Joint Research
Committee established pursuant to Section 2.4.

      1.22 "Joint Development Committee or "JDC" means the Joint Development
Committee established pursuant to Section 3.2.

      1.23 "Know-How" means all ideas, data (including without limitation data
from clinical and preclinical studies and test data including pharmacological,
toxicological and clinical test data), inventions, information, (including
without limitation information related to compounds and their structure,
function and formulation, regulatory filings and submissions), instructions,
designs, processes, formulas, software, materials, methods, processes and
techniques.

      1.24 "Lead Compound" means a compound with the properties designated by
the JRC as required properties for a Lead Compound, which is designated by the
JRC as a Lead Compound in accordance with Section 2.4(b)(v).

      1.25 "Net Sales" means the total amount received by UG or SGX or their
respective Affiliates or sublicensees, as the case may be, for sales to third
parties (other than sublicensees) in arm's length transactions of Products less:
(i) ordinary and customary prompt payment and other trade or quantity discounts
actually allowed and taken; (ii) credits, rebates and returns (including, but
not limited to, wholesaler and retailer returns) actually extended and taken;
(iii) freight, postage and duties (including insurance premiums) actually
incurred; (iv) excise taxes, other consumption taxes, customs duties and
compulsory payments to governmental authorities actually paid and separately
identified on the invoice or other documentation maintained in the ordinary

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course of business. A "sale" shall include any transfer or other disposition for
consideration, and Net Sales shall include the fair market value of all other
consideration received by UG or SGX or their respective Affiliates or
sublicensees in respect of any grant of rights to make, use, sell or otherwise
distribute Products, whether such consideration is in cash, payment in kind,
exchange or other form.

      1.26 "NDA" means a New Drug Application, as defined in the U.S. Food, Drug
and Cosmetic Act and the regulations promulgated thereunder, and any
corresponding foreign application, registration or certification.

      1.27 "Patent Rights" means patent applications filed in any country
worldwide, including provisionals, utilities, continuations (in whole or in
part), divisionals, reissues, reexaminations and foreign counterparts thereof,
any patents issued on such applications and any extensions of term,
registrations or confirmations of such patents.

      1.28 "Phase 1", "Phase 2", "Phase 3" and "Phase 4" means Phase 1, Phase 2,
Phase 3 and Phase 4 clinical trials, respectively, in each case as prescribed by
the U.S. Food and Drug Administration or any successor entity (the "FDA"), and
agencies of other governments of other countries having similar jurisdiction
over the development, manufacturing and marketing of pharmaceuticals.

      1.29 "Phase 2A" means the Phase 2A or Phase 1/2 clinical trials, as
prescribed by the FDA and agencies of other governments of other countries
having similar jurisdiction over the development, manufacturing and marketing of
pharmaceuticals, designed to evaluate efficacy and initial clinical proof of
concept.

      1.30 "Preclinical Development" means drug development activities conducted
by the Parties from the nomination by the JRC of a Safety Assessment Candidate
for Preclinical Development, and up to but not including filing of an IND.

      1.31 "Product" means a Collaboration Product, SGX Product or UG Product.

      1.32 "Registration" means any approvals (including supplements, amendments
and post-approvals and price approvals), licenses, registrations or
authorizations of any national, supra-national (e.g., the European Commission or
the Council of the European Union), regional or local regulatory agency,
department, bureau, or other governmental entity, necessary for the manufacture,
distribution, use, sale, pricing or reimbursement, of Collaboration Products in
a regulatory jurisdiction.

      1.33 "Research Plan" has the meaning ascribed to such term in Section 2.1

      1.34 "Safety Assessment Candidate" or "SAC" means a Lead Compound with the
properties designated by the JRC as required properties for a SAC, which is
designated by the JRC as a SAC in accordance with Section 2.4(b)(vi).

      1.35 "SGX Background Technology" means all Patent Rights and Know-How
which are: (a) owned or Controlled by SGX prior to the Effective Date or during
the Collaboration Term; (b) developed by or on behalf of SGX (i) outside the
Collaboration

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or (ii) within the Collaboration and comprise methodologies, protocols or
technologies which have application to targets or compounds in addition to the
Target and compounds the subject of the Collaboration; and (c) necessary for the
conduct of the Collaboration.

      1.36 "SGX Compounds" means all Patent Rights and Know-How which are
conceived or reduced to practice or otherwise developed by or on behalf of SGX
during and in the performance of the Collaboration, covering compounds
identified and developed by SGX, which are not selected by the JRC as Lead
Compounds.

      1.37 "SGX Product" means any product that comprises or contains or is
developed or manufactured based on or utilizing or is derived from, a Lead
Compound or any part thereof which was selected by the JRC for lead
optimization, and which has primary application in the SGX Retained Field.

      1.38 "SGX Retained Field" means kinase inhibitors (other than MET)
developed for clinical indications other than the Expanded Therapeutic Field.

      1.39 "SGX Territory" means the United States, Canada and Mexico.

      1.40 "Sublicensee Information" has the meaning ascribed in Section 4.6.

      1.41 "Sublicensing Revenue" means all amounts (including, without
limitation, payments received for the purchase of equity in excess of the fair
market value of such equity, license fees, milestone and other time or event
based payments and royalties on sales of products, but excluding any research
funding payments received and actually used for such purpose) received by a
Party under an agreement or license attributable to Collaboration Products or
from sales of Collaboration Products to end users less any withholding tax or
other tax related reductions.

      1.42 "Target" means the human protein kinase RON.

      1.43 "Territory" means UG Territory or SGX Territory.

      1.44 "Therapeutic Field" means superficial and invasive bladder cancer.

      1.45 "Third Party" or "Third Parties" means any entity other that UG or
SGX or their respective Affiliates.

      1.46 "UG Background Technology" means all Patent Rights and Know-How which
are: (a) owned or Controlled by UG prior to the Effective Date or during the
Collaboration Term; (b) developed by or on behalf of UG (i) outside the
Collaboration or (ii) within the Collaboration and comprises methodologies,
protocols or technologies which have application to targets or compounds in
addition to the Target and compounds that are the subject of the Collaboration;
and (c) necessary for the conduct of the Collaboration.

      1.47 "UG Compounds" means all Patent Rights and Know-How which are
conceived or reduced to practice or otherwise developed by or on behalf of UG
during

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and in the performance of the Collaboration, covering compounds
identified and developed by UG, which are not selected by the JRC as Lead
Compounds.

      1.48 "UG Product" means any product that comprises or contains or is
developed or manufactured based on or utilizing or is derived from, a Lead
Compound or any part thereof which was selected by the JRC for lead
optimization, and which has primary application in the UG Retained Field.

      1.49 "UG Retained Field" means non-kinase inhibitors developed for
urological clinical application other than the Therapeutic Field.

      1.50 "UG Territory" means the countries listed in the attached Exhibit A
("Europe")


      1.51 "Valid Claim" means a claim of a pending patent application within
the Patent Rights or an issued and unexpired patent within the Patent Rights
which has not been held unenforceable or invalid by a court or other
governmental agency of competent jurisdiction, and which has not been disclaimed
or admitted to be invalid or unenforceable through reexamination, reissue,
opposition, or otherwise.

2.    RESEARCH COLLABORATION.

      2.1 Research Collaboration. Subject to the terms and conditions of this
Agreement UG and SGX will use commercially reasonable efforts to perform under
the Research Plan attached to this Agreement as Exhibit B ("Research Plan"),
based on the budget attached as Exhibit B1 ("Research Budget"). Research Plan
activities will be overseen by the JRC. The JRC will review the Research Plan on
an ongoing basis and may make changes to the Research Plan then in effect,
provided that the JRC may not increase the applicable Research Budget without
the written approval of each Party. On an annual basis commencing on the first
anniversary of the Effective Date and continuing until the conclusion of the
Parties' activities under the Research Plan, the JRC shall review the Research
Budget to ensure that the number of full time equivalent personnel (FTEs) of
each Party engaged under the Research Plan and the other costs of the Research
Plan activities, are being shared between the Parties on a 50/50 basis, and
shall make adjustments to each Party's responsibilities under the Research Plan
in order to effect such sharing to the greatest extent possible, taking into
account each Party's experience and expertise in the various Research Plan
activities.

      2.2 Performance Standards; Records. Each Party shall conduct its
activities under the Collaboration in good scientific manner, and in compliance
in all material respects with the requirements of applicable laws and
regulations, to attempt to achieve its objectives efficiently and expeditiously.
Each Party shall maintain laboratories, offices and other facilities reasonably
necessary to carry out the activities to be performed by such Party pursuant to
the Collaboration. In conformity with standard pharmaceutical and biotechnology
industry practices and the terms and conditions of this Agreement, each Party
shall prepare and maintain, or shall cause to be prepared and maintained,

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complete and accurate written records, accounts, notes, reports and data with
respect to activities conducted pursuant to the Research Plan and Development
Plan and all results (including without limitation any inventions, discoveries
and developments) made pursuant to its efforts under the Collaboration, and,
upon the other Party's written request, shall send legible copies of the
aforesaid to the other Party. Such records shall be complete and accurate and
shall fully and properly reflect all work done and results achieved in the
performance of the Collaboration in sufficient detail and in good scientific
manner. Upon reasonable advance notice, each Party agrees to make its employees
and non-employee consultants reasonably available at their respective places of
business to consult with the other Party on issues arising in connection with
any request from any regulatory agency with respect to activities under this
Agreement, including, without limitation, regulatory, scientific, technical and
clinical testing issues. At least quarterly during the performance of the
Research Plan, the Parties shall have the obligation to prepare and provide to
the JRC written reports summarizing the progress of the work performed by such
Party in connection with the Research Plan during the preceding quarter.

      2.3 Provision of Materials and Know-How. In the course of the
Collaboration, the Parties will provide each other, promptly upon request, with
materials and data within Collaboration Technology, as required for each Party
to perform its respective obligations under the Research Plan and Development
Plan. Neither Party will have the right to transfer or disclose materials
received from the other Party to any Third Party other than permitted
sublicensees or approved Third Party contractors under the Research Plan,
without the other Party's prior written consent.

      2.4 Joint Research Committee

            (a) Membership; Decisions. SGX and UG will establish a JRC to
oversee, review and recommend direction of the Research Plan. The JRC shall be
comprised of six (6) members, with three (3) members being appointed by SGX and
three (3) members being appointed by UG. Additional representatives of each
Party (for example the members of the individual project teams or consultants)
may attend JRC meetings at the election of each Party. The Parties may
subsequently agree to change the size of the JRC as appropriate to meet the
needs of the Parties' collaborative efforts under this Agreement. Each Party may
replace its JRC representatives at any time, with written notice to the other
Party. Each representative of SGX and UG shall have one vote on the JRC, which
vote may be cast by proxy. Decisions of the JRC shall be made by unanimous vote.
Any matter upon which the JRC is unable to agree shall be submitted to a senior
executive officer designated by each Party for such purpose.

            (b) Responsibilities. The JRC will review, direct and supervise the
performance of the Research Plan. The JRC will be responsible for (i)
coordinating, monitoring and reporting research progress and ensuring open
exchange between the Parties with respect to Collaboration activities; (ii)
determining the research strategy, budget and time lines for the Research Plan;
(iii) determining whether to obtain licenses from Third Parties with respect to
intellectual property useful for the conduct of the Research Plan; (iv)
determining the required properties for compounds to be deemed

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Lead Compounds, including without limitation, potency, selectivity, in vivo
efficacy and bioavailability; and (v) selecting Lead Compounds for entry into
lead optimization; provided that no more than four (4) Lead Compound series will
be pursued in lead optimization under the Collaboration at any one time; and
(vi) determining the required properties for Lead Compounds to be deemed Safety
Assessment Candidates and selecting Safety Assessment Candidates for entry into
Preclinical Development.

            (c) Meetings. During the term during which the Parties are
performing under the Research Plan, the JRC shall meet quarterly, in person or
via video-conference, or as the JRC may otherwise agree, to discharge its
responsibilities, with the expectation that meetings will alternate between
appropriate offices of each Party. Each Party will be responsible for paying its
own expenses in connection with participating in the meetings of the JRC. The
JRC shall prepare written minutes of each meeting and a written record of all
JRC decisions, whether made at a JRC meeting or otherwise.

3.    DEVELOPMENT

      3.1 Overview. SGX and UG agree that they will collaborate on development
of Collaboration Products pursuant to the terms of this Agreement, in a
coordinated international program aimed at producing an International
Registration Dossier and obtaining Registration of Collaboration Products in the
UG Territory and SGX Territory. All such collaborative development efforts of
the Parties, or either Party, shall be in accordance with the Development Plan
for each Collaboration Product. Except as otherwise provided in this Agreement,
each Party agrees that neither Party may conduct Preclinical Development or
Clinical Development on a Collaboration Product for sale or distribution, or
license any Third Party to do so, except collaboratively with the other Party or
as permitted by this Agreement. However, as discussed further in Article 6, it
is agreed that, if one Party determines that it does not wish to proceed with
such joint development of a particular Collaboration Product, the other Party
shall be permitted to do so on its own pursuant to the terms of Article 6.

      3.2 Joint Development Committee. On a Collaboration Product-by-
Collaboration Product basis, once a Safety Assessment Candidate is selected by
the JRC for progression to Preclinical Development, the Parties shall form a JDC
for the development of such SAC, comprised of six (6) members, with three (3)
members being appointed and replaced by SGX and three (3) members being
appointed and replaced by UG. Additional representatives of each Party (for
example members of the individual project teams or consultants) may attend JDC
meetings at the election of each Party. The Parties may subsequently agree to
change the size of each JDC, as appropriate to meet the needs of the Parties in
managing the joint efforts under this Agreement. The JDC shall (a) prepare the
Development Plan for the Preclinical Development of the SAC, and modify or amend
it as appropriate, based on the results of the development efforts on such SAC,
during the development process; (b) select one or more SACs for Clinical
Development and prepare the Development Plan for such Clinical Development, (c)
determine whether and when to commence Phase 1, Phase 2 and Phase 3 for each
Collaboration Product; (d) oversee the Parties' activities under the Development
Plan, including supervision of

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regulatory activities and (e) perform such other duties and obligations as the
Parties specifically delegate to it in writing by mutual written agreement of
the Parties.

      3.3 JDC Meetings. JDC meetings shall take place at such mutually
convenient times and places as determined by the JDC, with the expectation that
meetings will alternate between appropriate offices of each Party. Each Party
will be responsible for paying its own expenses in connection with participating
in JDC meetings. The JDC shall determine the frequency of its meetings and how
such meetings will be conducted and recorded.

      3.4 Decision-Making and Issue Resolution. All decisions of the JDC shall
be unanimous by the members of such committee. If the JDC fails to reach
unanimous agreement on an issue needing resolution, the matter shall be referred
for good faith discussion and resolution by a senior executive officer
designated by each Party for such purpose.

      3.5 Joint Development. For each SAC selected by the JRC for joint
development as a Collaboration Product hereunder by mutual written agreement,
SGX and UG agree that they will collaborate to generate an International
Registration Dossier, and will conduct, or have conducted, all Preclinical
Development and Clinical Development on such Collaboration Product in accordance
with the Preclinical and Clinical Development Plans developed by the JDC for
such Collaboration Product. The Parties will work together to develop a common
brand name for each Collaboration Product to be marketed under worldwide. Each
Party agrees not to incur any expenses or costs in excess of the Development
Budget (as defined below) within such Development Plan except as mutually agreed
in writing by the Parties. The collaborative development program will follow the
most expeditious path to the production of an International Registration Dossier
and Registration of Collaboration Products in the UG Territory and SGX
Territory, provided however it is understood that unless otherwise agreed by the
Parties, all commercialization activities with respect to such Collaboration
Product once Registration has been obtained, will be conducted by the Parties
independently, in each Party's respective Territory for such Collaboration
Product and that each Party will bear its own costs of such commercialization
activities. On a Collaboration Product-by-Collaboration Product basis, each
Party will be primarily responsible for regulatory activities in its applicable
Territories after Registration in such Territory, comprising regulatory
compliance, safety surveillance, adverse event reporting and all other necessary
support services, however the Parties will keep each other informed of such
activities and will work together in the conduct of such activities where
necessary or useful. The Parties will mutually agree on (i) the
commercialization strategy for countries outside of the Territories, including
outlicensing as necessary; and (ii) the engagement of a Third Party(ies) to
manufacture and supply bulk drug substance for Collaboration Product
development, and Collaboration Products for commercialization purposes, in the
Territories.

      3.6 Access to Information. During the term of this Agreement each Party
(the "Providing Party") will provide the other Party (the "Recipient") in
English, for use in the Recipient's development and commercialization efforts
relating to a Collaboration

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Product, all Information that the Providing Party owns or Controls regarding
such Collaboration Product (including, without limitation, Sublicensee
Information), necessary or useful for making regulatory filings and seeking and
maintaining Registration, for Collaboration Products in the Recipient's
Territory for such Collaboration Product, as such Information becomes available.
The Recipient will have a right of access, and the right to use and incorporate
all Information provided by the Providing Party in regulatory filings for such
Collaboration Products in the Recipient's Territory. The Parties will report and
take other actions in relation to, adverse events with Collaboration Products,
to each other in accordance with a reporting protocol in a form to be agreed by
the JDC. Each Party will be entitled to receive copies of all correspondence
with regulatory authorities and will be entitled to be present at all meetings
with regulatory authorities in any Territory related to Collaboration Products.

      3.7 Development Plans and Budgets. Promptly after the selection by the JRC
of a SAC for development as a Collaboration Product by the Parties, the JDC
shall prepare and provide to each Party for final approval a development plan
for such SAC (the "Development Plan"). The Development Plan shall include all
needed details regarding the Preclinical and Clinical Development, and other
work to be undertaken to develop and produce the International Registration
Dossier for such Collaboration Product, including an allocation of all such work
as appropriate to each Party (or to selected Third Party contractors, as
agreed), and shall establish a budget (the "Development Budget") for all costs
and expenses to be incurred by each Party in conducting the work allocated to it
under such Development Plan. The budget will be based on (i) an allocation of
Full Time Equivalent (FTE) personnel of each Party working under the Development
Plan, with each FTE costed at an annualized rate of U.S.$[...***...] (which rate
will be increased on each anniversary of the Effective Date by [...***...]%);
(ii) the actual extraordinary direct costs approved by the JDC, and (iii) the
actual costs of work performed by Third Parties as approved by the JDC. Each
Party shall diligently review the proposed Development Plan and shall either
approve the plan or provide the JDC any requested changes and comments. If a
Party provides such requested changes or comment to a proposed Development Plan,
the JDC shall review the proposed changes within thirty (30) days, and as
appropriate, thereafter prepare a revised draft of the Development Plan,
accommodating such changes and comments, and resubmit such revised Development
Plan for approval by the Parties as provided above. Once the Parties have agreed
on the Development Plan proposed by the JDC, such Development Plan shall be
effective and shall control and govern the Parties' development effort with
respect to the applicable Product, subject to any subsequent amendments or
modifications to such Development Plan as provided below. From time to time
during the development of such Collaboration Product, the JDC shall review the
Development Plan in light of the results of the development work and any other
relevant Information and shall amend or modify the Development Plan as
appropriate, provided that the JDC may not increase the applicable Development
Budget without the written approval of each Party. At least sixty (60) days
prior to January 1 of any year in which the Parties are developing a particular
Collaboration Product hereunder, the JDC shall review the applicable Development
Budget for such Collaboration Product and shall submit a revised and updated
Development Budget for the coming calendar year to each of the Parties for
approval as provided above. Upon such approval, the Development Budget shall be

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effective for the development of such Collaboration Product during such calendar
year, subject further to amendment of the applicable Development Plan.

      3.8 Costs of the Collaboration. All costs and expenses incurred or
expended by a Party hereunder under the Research Budget and Development Budget
("Collaboration Costs") shall initially be borne by the Party incurring such
costs and expenses, subject to creditability of Excess Expenses as provided in
Section 4.3, provided however, on a Collaboration Product-by-Collaboration
Product basis, the costs of any country specific regulatory requirement (outside
of the International Registration Dossier and any Phase 4 studies required by a
regulatory body in a Territory), will be borne by the Party whose Territory for
such Collaboration Product includes such country. Each Party shall calculate and
maintain records of all the Collaboration Costs incurred or expended by the
Party during its performance of development on a Collaboration Product, in
accordance with generally accepted accounting procedures consistently applied
throughout such Party's organization and such other procedures to be agreed upon
between the Parties. Commencing on the formation of the JDC, each Party shall
report quarterly to the other on the Collaboration Costs it has incurred in each
calendar quarter, on a Collaboration Product-by- Collaboration Product basis,
and the purpose (referencing the activities within the applicable Development
Plan) for which such costs were incurred or expended, with such reports to be
submitted within sixty (60) days after the end of each of the first three (3)
calendar quarters and ninety (90) days after the end of the calendar year. The
Parties shall seek to resolve promptly and in good faith any questions or issues
related to such accounting statements, and in any event within ninety (90) days
following receipt.

      3.9 Excess Expenses.

            (a) For each particular calendar year during which Collaboration
Costs are incurred hereunder, and promptly following the First Commercial Sale
of each Collaboration Product hereunder, each Party shall review the
Collaboration Costs report submitted by the other Party and compare such
submission to the applicable Research Budget and Development Budget. The Parties
will then meet, if necessary, via designated senior officers from each Party
with financial accounting responsibility, to discuss the reports and reach
agreement on the total amount of Collaboration Costs that each Party may
properly apply to the Collaboration activities hereunder. It is understood and
agreed that a Party will not be entitled to obtain credit for any Collaboration
Costs incurred by the Party in excess of the amount set forth in the applicable
Research Budget or Development Budget for accomplishing the relevant task or
objective unless approved by the JRC or JDC. If such officers cannot reach
agreement promptly, the matter will be submitted to senior executive officers of
each Party for prompt resolution, with the understanding that each Party will
provide access to any information relating to the Collaboration activities
undertaken by such Party, and the actual calculation of costs and expenses
incurred therefor, with respect to Collaboration Products during such calendar
year for which such Party seeks credit hereunder for the related Collaboration
Costs .

            (b) UG and SGX will share the total amount of Collaboration Costs
incurred by the Parties within the applicable Research Budget and Development
Budget

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for each Collaboration Product, up to and including the costs of Clinical
Development, on a 50/50 basis. Any Collaboration Costs incurred by a Party in
excess of [...***...]% of the total amount of Collaboration Costs incurred by
both Parties, will be deemed Excess Expenses of such Party (the "First Party")
and in the event that the Party which has not incurred Excess Expenses (the
"Second Party") does not elect to pay the First Party the amount of the Excess
Expenses in cash within [...***...] ([...***...]) months of the First Commercial
Sale of a Collaboration Product, the First Party may credit such Excess Expenses
in accordance with Section 4.3.

      3.10 Audit Rights. Each Party shall have the right to have an independent
accounting firm audit the other Party's relevant records to determine the
accuracy of the Collaboration Costs reported by such other Party under Section
3.8 above. Such audit right shall be exercised under the terms of the audit
provisions set forth in Section 4.11 below.

      3.11 Diligence. Each Party shall use commercially reasonable diligent
efforts to (i) develop and bring Safety Assessment Candidates nominated by the
JRC for Preclinical Development, to the market as Collaboration Products in such
Party's applicable Territory as soon as reasonably practicable, (ii) obtain such
Registrations as may be necessary to market such Collaboration Products in such
Territory, and (iii) after obtaining Registration for any such Collaboration
Products, launch such Collaboration Products and promote and meet the market
demand therefore. In connection with the above, each Party shall use efforts not
less than those efforts made by similarly situated companies in the
biotechnology industry with respect to comparable products of comparable
commercial potential, stage of development and patent protection.

      3.12 Lack of Diligence. In the event that either Party fails to use or
continue to use diligent efforts to actively develop and commercialize a
Collaboration Product in accordance with Section 3.11 above (the "First Party"),
and the First Party fails to initiate diligent efforts within sixty (60) days of
receipt of notice from the other Party (the "Second Party") of such failure,
then the Second Party may terminate the First Party's rights under this
Agreement with respect to such Collaboration Product and, in such event, the
Second Party shall have the exclusive right to commercialize any such
Collaboration Product in the First Party's Territory and the Second Party shall
make payments to the First Party in accordance with Section 6.3.

      3.13 Competing Products. During the period from the Effective Date to the
tenth anniversary of the Effective Date, each Party agrees not to, and to cause
its Affiliates not to, directly or indirectly, develop and commercialize a
Competing Product in any country in the other Party's Territory for the
applicable Collaboration Product. In the event that a Party (an "Acquiring
Party") purchases or otherwise takes control of a Third Party ("Acquisition")
which has developed or commercialized (and is continuing to produce or sell), or
is developing or commercializing a Competing Product (directly or indirectly) in
any such case, within the other Party's Territory for the applicable
Collaboration Product, the Parties will negotiate in good faith to agree on the
appropriate sharing between the Parties of the Acquiring Party's rights and
obligations in connection with the development and commercialization of the
Competing Product, and in the event

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that such agreement is not reached within twelve months after such Acquisition,
the Acquiring Party shall divest, or cause its applicable Affiliate to divest,
the Competing Product.

4.    ROYALTY PAYMENTS

      4.1 Royalties on Net Sales of Collaboration Products. No later than six
(6) months prior to the filing of the International Registration Dossier for the
first Collaboration Product, the Parties will negotiate in good faith a
commercialization plan for Collaboration Products including an agreement on the
appropriate royalty payments and shares of Sublicensing Revenue due to each
Party, recognizing the guiding principle of a 50/50 collaboration with equal
sharing of expenses and returns. In the event that no agreement is reached by
the Parties by the date that is six (6) months prior to the First Commercial
Sale of the first Collaboration Product, (i) UG will pay to SGX a royalty of
[...***...]% of Net Sales of Collaboration Products by or on behalf of UG in the
UG Territory or [...***...]% of Sublicensing Revenue received by UG in
connection with Collaboration Products; and (ii) SGX will pay to UG a royalty of
[...***...]% of Net Sales of Collaboration Products by or on behalf of SGX in
the SGX Territory or [...***...]% of Sublicensing Revenue received by SGX in
connection with Collaboration Products.

      4.2 Royalties on Net Sales of UG Products and SGX Products. In
consideration of the rights granted hereunder:


            (a) SGX shall pay to UG [...***...]% of Net Sales of SGX Products by
or on behalf of SGX in the SGX Territory or [...***...]%] of Sublicensing
Revenue received by SGX in connection with SGX Products; and

            (b) UG shall pay to SGX [...***...]% of Net Sales of UG Products by
or on behalf of UG worldwide or [...***...]% of Sublicensing Revenue received by
UG in connection with UG Products.

      4.3 Creditable Payments. Each Party may credit any Excess Expenses
(including interest calculated at the rate equal to the prime rate as reported
by the Chase Manhattan Bank, New York, New York, plus [...***...] percent
([...***...]%), compounded annually) it has incurred, as determined in
accordance with Section 3.9, against any royalty payments it is required to make
under Section 4.1, up to a maximum of [...***...]% of the royalties due from
such Party in any calendar quarter. In the event that a Collaboration Product
has been registered in one Party's Territory but the First Commercial Sale of a
Collaboration Product in the other Party's Territory is delayed or likely to be
delayed by more than twelve (12) months, and such delayed Party has Excess
Expenses the Parties will negotiate in good faith an agreement to ensure that
during such period until there is Registration and Net Sales of such
Collaboration Product in each Party's Territory, the Parties will share expenses
and returns under the Collaboration recognizing the guiding principle of a 50/50
collaboration with equal sharing of expenses and returns.

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      4.4 Royalty Term. The obligation of each Party to pay royalties under
Sections 4.1 and 4.2 shall continue for each Product on a Product-by-Product
basis, until the later of (i) such time as there are no Valid Claims in such
country covering such Product and (ii) [...***...] ([...***...]) years from the
First Commercial Sale of such Product.

      4.5 Third Party Royalties. UG shall be responsible for the payment of any
amounts due from UG to third parties for intellectual property necessary for the
manufacture, use, import or sale of Products in UG Territory and SGX shall be
responsible for the payment of any amounts due from SGX to third parties for
intellectual property necessary for the manufacture, use, import or sale of
Products in SGX Territory; provided that, in the event that Third Party licenses
are required for a particular Collaboration Product in the applicable UG
Territory and SGX Territory, the Parties will share the costs of obtaining such
licenses in accordance with Section 3.9(b).

      4.6 Sublicensees. Each Party shall include in each permitted sublicense
granted according to Article 5, a provision requiring the sublicensee to make
reports to the sublicensor, to exchange and permit each Party to use,
Information owned or Controlled by the sublicensee ("Sublicensee Information")
in accordance with Section 3.8, to keep and maintain records of sales made
pursuant to such sublicense and to grant access to such records by the other
Party's accounting firm to the same extent required of the sublicensor under
Section 4.8.

      4.7 Withholding Taxes. Any income or other tax that either Party is
required to withhold and pay on behalf of the other Party with respect to the
milestone and royalties payable under this Agreement, shall be deducted from and
offset against said milestone and royalty payments prior to remittance to the
receiving Party; provided however, that in regard to any tax so deducted, the
paying Party shall give or cause to be given to the receiving Party such
assistance as may reasonably be necessary to enable the receiving Party to claim
exemption or credit, and in each case, the paying Party shall furnish to the
receiving Party proper evidence of the taxes paid on its behalf.

      4.8 Reports; Payments. The royalties due under Sections 4.1 and 4.2 shall
be paid quarterly within sixty (60) days after the close of each calendar
quarter, or earlier if practicable, immediately following each quarterly period
in which such royalties are earned. With each such quarterly payment, the paying
Party shall furnish the receiving Party a royalty statement setting forth in
reasonable detail on a country-by-country and Product-by-Product basis: (i) the
total number of units of each Product sold hereunder for the quarterly period
for which the royalties are due; (ii) the calculation of Net Sales pursuant to
Section 1.23; (iii) the calculation of Excess Expenses pursuant to Section 3.9
and the amount of Excess Expenses to be credited against royalties pursuant to
Section 4.3; (iv) the royalties due the receiving Party in such quarter; and (v)
details of payments (if any) to third parties pursuant to third party licenses
as described in Section 4.5 above. If no royalties are due, the paying Party
shall so report.

      4.9 Currency Conversion. All amounts required to be paid under this
Agreement by UG to SGX shall be paid in United States dollars and all amounts
required to be paid by SGX to UG shall be paid in Euros. Royalties earned shall
first be

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determined in the currency of the country in which they are earned and then
converted to its equivalent in United States dollars or Euros, as applicable,
using the average daily exchange rate for the last month of the quarterly period
in which royalties were earned, as customarily used by each Party in its
respective accounting practice.

      4.10 Late Payments. Any payments or portions thereof due hereunder which
are not paid on the date such payments are due, shall bear interest at the rate
equal to the lesser of the prime rate as reported by the Chase Manhattan Bank,
New York, New York, plus [...***...] percent ([...***...]%) or the maximum
amount permitted by law, compounded monthly. This Section 4.10 shall in no way
limit any other remedies available to each Party.

      4.11 Audits. Each Party shall maintain accurate books and records which
enable the calculation of Excess Expenses and royalties payable under this
Agreement to be verified. Each Party shall maintain the books and records for
each quarterly period for three (3) years after the submission of the
corresponding reports under Sections 3.8 and 4.8. Upon thirty (30) days prior
notice, independent accountants selected by a Party (the "Inspecting Party"),
reasonably acceptable to the other Party, may have access to such Party's books
and records after executing a reasonable confidentiality agreement, during such
Party's normal business hours at mutually agreed times to conduct a review or
audit no more than once per calendar year, for the sole purpose of verifying the
accuracy of such Party's payments and compliance with this Agreement. The
accounting firm shall report to the Inspecting Party whether there has been a
royalty underpayment and, if so, the extent thereof. In the event such
accounting firm concludes that amounts were overpaid by the other Party during
such period, the Inspecting Party shall repay the other Party the amount of such
overpayment within ninety (90) days of the date the Inspecting Party delivers to
the other Party such accounting firm's written report so concluding. Any such
inspection shall be at the Inspecting Party's expense, however, in the event
that an inspection reveals underpayment of five percent (5%) or more in any
audit period or a similar discrepancy or deviance in any Excess Expenses, the
other Party shall pay the costs of the inspection. Any underpayments identified
in such an inspection shall be promptly paid to the Inspecting Party, with
interest calculated in accordance with Section 4.10.

5.    LICENSES

      5.1 License to UG. Subject to the terms and conditions of this Agreement,
SGX hereby grants to UG, the following licenses:

            (a) [...***...] license (with the right to grant sublicenses in
accordance with Section 5.4 below) under SGX'S interest in Collaboration
Technology to make, have made, use, import, offer for sale and sell
Collaboration Products in the UG Territory;

            (b) [...***...], [...***...] license (with the right to grant
sublicenses in accordance with Section 5.4 below) Under SGX's interest in
Collaboration Technology, to make, have made, use, import, offer for sale and
sell UG Products;

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            (c) [...***...], [...***...], [...***...] license under SGX's
interest in SGX Background Technology, solely as necessary to conduct the
Collaboration; and

            (d) solely in the event that UG becomes an Active Party under
Section 6.1, [...***...], [...***...] license (with the right to grant
sublicenses in accordance with Section 5.4 below) under SGX's interest in
Collaboration Technology, to make, have made, use, import, offer for sale and
sell Collaboration Products.

            (e) [...***...], [...***...], [...***...] license (with the right to
grant sublicenses under Section 5.4 below), under SGX's interest in UG
Compounds, to make, have made, use, import, offer for sale and sell products.

      5.2 License to SGX. Subject to the terms and conditions of this Agreement,
UG hereby grants to SGX, the following licenses:

            (a) [...***...] license (with the right to grant sublicenses in
accordance with Section 5.4 below) under UG's interest in Collaboration
Technology to make, have made, use, import, offer for sale and sell
Collaboration Products in the SGX Territory;

            (b) [...***...], [...***...] license (with the right to grant
sublicenses in accordance with Section 5.4 below) under UG's interest in
Collaboration Technology to make, have made, use, import, offer for sale and
sell SGX Products;

            (c) [...***...], [...***...], [...***...] license under UG's
interest in UG Background Technology, solely as necessary to conduct the
Collaboration; and

            (d) solely in the event that SGX becomes an Active Party under
Section 6.1, [...***...], [...***...] license (with the right to grant
sublicenses in accordance with Section 5.4 below) under UG's interest in
Collaboration Technology, to make, have made, use, import, offer for sale and
sell Collaboration Products.

            (e) [...***...], [...***...], [...***...] license (with the right to
grant sublicenses in accordance with section 5.4 below), under UG's interest in
SGX Compounds, to make, have made, use, import, offer for sale and sell
products.

      5.3 Cross Licenses. Each Party hereby grants to the other:

            (a) [...***...], [...***...], [...***...] license to use and
practice such Party's interest in Collaboration Technology solely to conduct the
Collaboration; and

            (b) subject to Section 5.6(d), [...***...], [...***...] license
(with the right to grant sublicenses in accordance with Section 5.4 below) under
each Party's interest in Collaboration Technology to make, have made, use,
import, offer for sale and

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sell products directed at inhibiting, modulating or altering the activity of MET
for application outside the Therapeutic Field.

      5.4 Sublicenses. Each Party may sublicense the rights granted in Sections
5.1(a), (b) and (d), 5.2(a), (b) and (d) and 5.3(b) to its Affiliates and to
Third Parties, provided that (i) prior to entering into any such sublicense with
a Third Party (other than under Sections 5.1(d) or (e) or 5.2(d) or (e)), the
other Party is first offered such rights on terms no less favorable than those
offered or proposed to be offered to the Third Party, and the Parties then
negotiate in good faith the terms of such agreement during the following
forty-five day period; and (ii) such sublicense granted is consistent with all
of the terms and conditions of this Agreement. The sublicensing Party shall
remain responsible for all of each such sublicensee's obligations under this
Agreement.

      5.5 No Unauthorized Use. UG hereby covenants to SGX that it will not use
or practice the SGX Background Technology or SGX Compounds for any purpose other
than as expressly permitted under this Agreement. SGX hereby covenants to UG
that it will not use or practice the UG Background Technology or UG Compounds
for any purpose other than as expressly permitted under this Agreement.

      5.6 Retained Rights. Notwithstanding anything in this Agreement to the
contrary:

            (a) SGX will have the right to develop and commercialize SGX
Compounds, without accounting to UG, for any therapeutic indication and UG will
have the right to develop and commercialize UG Compounds, without accounting to
SGX, for any therapeutic indication;

            (b) SGX will have the right to develop and commercialize any Lead
Compounds selected by the JRC for lead optimization, in the SGX Retained Field,
provided that: (i) such Lead Compound is at least [...***...] in an [...***...]
against another kinase (other than MET), as it is against RON; (ii) such lead
compound is not selected by the JRC as a SAC and (iii) SGX does not develop such
Lead Compound solely for application in the Expanded Therapeutic Field;

            (c) UG will have the right to develop and commercialize any Lead
Compounds selected by the JRC for lead optimization, in the UG Retained Field,
provided that: (i) such Lead Compound is at least [...***...] in an [...***...]
against a non-kinase target, as it is against RON; (ii) such lead compound is
not selected by the JRC as a SAC and (iii) UG does not develop such Lead
Compound solely for application in the Expanded Therapeutic Field;

            (d) Each Party (the "Developing Party") will have the right to
develop and commercialize any Lead Compound selected by the JRC for lead
optimization, as a MET inhibitor, provided that (i) such Lead Compound is at
least [...***...] in an [...***...] against MET as it is against RON; and (ii)
prior to commencing any preclinical development activities with such Lead
Compound, the Developing Party first offers the other Party (the "Other Party")
the right to collaborate with the Developing

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Party on the development of such Lead Compound, on substantially the same terms
and conditions as under this Agreement, which right the Other Party has sixty
(60) days to evaluate and accept or decline.

            (e) SGX and UG will jointly and equally own any Safety Assessment
Candidates and Drug Candidates identified under the Collaboration provided that
neither Party will have the right to develop or commercialize such SACs or Drug
Candidates outside of the Collaboration without the other Party's prior written
consent.

      5.7 Third Party Licenses. In the event that the JRC determines that it is
necessary or useful to acquire a license from any Third Party specifically for
the conduct of the Collaboration, the Parties shall discuss which Party shall
acquire such license provided however, that the costs of any such license shall
be shared equally by the parties.

      5.8 Reports. Each Party shall keep the other Party fully informed of its
activities subject to this Agreement, including its activities in connection
with the development and commercialization of SGX Products and UG Products and
the commercialization of Collaboration Products. On or before January 31 and
July 31 of each year during the term of this Agreement, each Party shall provide
the other with a written report summarizing such events and activities.

6.    SINGLE PARTY DEVELOPMENT

      6.1 Single Party Development. Subject to the terms of this Article 6, if
the JDC cannot agree on whether to clinically develop a particular Safety
Assessment Candidate pursuant to Section 2.4, or if a Party decides to terminate
its Preclinical or Clinical development activities with regard to a particular
Collaboration Product pursuant to Section 6.2, the Party which wants to proceed
with or continue such clinical development (the "Active Party") may do so, at
its discretion, without the financial support or involvement of the other Party
(the "Inactive Party"). If a Party becomes an Inactive Party, the Active Party
shall have the rights under Section 5.1(d) or 5.2(d), as applicable.

      6.2 Termination of Preclinical or Clinical Development. Each Party may
terminate in its sole discretion, its research, Preclinical Development or
Clinical Development obligations with regard to a particular Collaboration
Product upon written notice, within the ninety (90) day period immediately
following the completion of any of the events described in paragraphs (a)
through (g) below. Upon any such termination, the terms of Sections 6.1, 6.3 and
6.4 will apply and the Active Party shall have no further obligations to the
Inactive Party with regard to such Collaboration Product, except as set forth in
such Sections.

            (a) Failure to obtain, as determined by the JRC, a crystal structure
of the Target at better than [...***...] resolution within [...***...]
([...***...]) months following the Effective Date.

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            (b) Selection by the JRC of a [...***...] for entry into
[...***...].

            (c) Selection by the JRC of a [...***...] for [...***...].

            (d) Decision by the JDC to [...***...].

            (e) Completion of [...***...] for [...***...].

            (f) Decision of the JDC to [...***...].

            (g) [...***...] of a [...***...].

      6.3 Royalties. The Active Party shall pay the Inactive Party a royalty on
the sales of Collaboration Products as follows. No royalties will be payable to
the Inactive Party in the event that a Party becomes an Active Party under
Section 6.2(a):

            (a) Where a Party became an Active Party under Section 6.2(b):
[...***...]% of Net Sales by the Active Party or [...***...]% of Sublicensing
Revenue received by the Active Party in connection with such Collaboration
Product.

            (b) Where a Party became an Active Party under Section 6.2(c):
[...***...]% of Net Sales by the Active Party or [...***...]% of Sublicensing
Revenue received by the Active Party in connection with such Collaboration
Product.

            (c) Where a Party became an Active Party under Section 6.2(d):
[...***...]% of Net Sales by the Active Party or [...***...]% of Sublicensing
Revenue received by the Active Party in connection with such Collaboration
Product.

            (d) Where a Party became an Active Party under Section 6.2(e):
[...***...]% of Net Sales by the Active Party or [...***...]% of Sublicensing
Revenue received by the Active Party in connection with such Collaboration
Product.

            (e) Where a Party became an Active Party under Section 6.2(f):
[...***...]% of Net Sales by the Active Party or [...***...]% of Sublicensing
Revenue received by the Active Party in connection with such Collaboration
Product

            (f) Where a Party became an Active Party under Section 6.2(g):
[...***...]% of Net Sales by the Active Party or [...***...]% of Sublicensing
Revenue received by the Active Party in connection with such Collaboration
Product.

      6.4 Recovery of Investments. If a Party becomes the Inactive Party
pursuant to Section 6.2, the Active Party shall pay the Inactive Party, in
addition to the royalties set forth in Section 6.3, a royalty equal to
[...***...]% of the Net Sales based upon sales of the applicable Collaboration
Product sold by the Active Party, its Affiliates, or any of its

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Sublicensees in the Party's applicable Territory, or [...***...]% of
Sublicensing Revenue, until such time as the sum of the royalties paid to the
Inactive Party pursuant to this Section 6.4 is equal to the sum of any Excess
Expenses incurred by the Inactive Party in accordance with the applicable
Development Budget for the applicable Collaboration Product prior to such
Party's inactivity.

7.    INTELLECTUAL PROPERTY

      7.1 Ownership of Technology.

            (a) By SGX. SGX Background Technology, and Collaboration Technology
made solely by SGX will be owned solely by SGX.

            (b) By UG. UG Background Technology, and Collaboration Technology
made solely by UG will be owned solely by UG

            (a) Joint. Collaboration Technology made jointly by SGX and UG will
be owned jointly by SGX and UG. Notwithstanding any joint ownership of any
Collaboration Technology under this Agreement, neither Party will have the right
to exploit such Collaboration Technology other than as expressly permitted under
the terms and conditions of this Agreement.

            (d) Law. Inventorship of inventions and, subject to the terms of
this Agreement, ownership rights with respect thereto, shall be determined in
accordance with the patent laws of the United States.

      7.2 Patent Prosecution.

            (a) Background Technology. UG shall be responsible, at its expense,
for the preparation, filing, prosecution and maintenance of the patent
applications and patents claiming inventions within UG Background Technology, in
countries selected by UG, and for conducting any interferences, reexaminations,
reissues, oppositions, or request for patent term extension relating thereto.
SGX shall be responsible, at its expense, for the preparation, filing,
prosecution and maintenance of the patent applications and patents claiming
inventions within SGX Background Technology in countries selected by SGX, and
for conducting any interferences, reexaminations, reissues, oppositions, or
request for patent term extension relating thereto.

            (b) Collaboration Technology. The JRC or the JDC, as applicable
shall have initial responsibility for reviewing all potentially patentable
inventions and determining the strategy for the filing, prosecuting and
maintaining of inventions within Collaboration Technology, (collectively
"Collaboration Inventions"), and the JRC or JDC shall then recommend to the
Parties whether to file Collaboration Inventions applications, and in which
countries such Collaboration Inventions shall be first filed and will develop a
global filing strategy for each Collaboration Invention. Unless the JRC or JDC,
as applicable, otherwise agrees, SGX shall be responsible for filing,
prosecuting and maintaining such Collaboration Inventions and the cost and
expense of filing, prosecuting

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or maintaining patent application with respect to any Collaboration Inventions
shall be borne equally by the Parties. SGX shall provide UG with copies of all
documents, correspondence, materials and proof of costs relating to the
prosecution by SGX of such Collaboration Invention. Such copies shall be
provided promptly after receipt, with respect to communications to or from
applicable patent authorities, and sufficiently in advance of SGX's filing or
otherwise communicating any such documents to allow UG reasonable time to review
such materials and comment thereon prior to filing.

            (c) Cooperation. Each Party agrees to cooperate with the other and
take all reasonable additional actions as may be reasonably required to achieve
the intent of this Article 7, including, without limitation, the execution and
provision of necessary and appropriate instruments and documents.

            (d) Patent Enforcement. In the event either Party becomes aware of
any interference, opposition, or request for reexamination, or similar
proceedings, involving a patent application or patent filed in accordance with
Section 7.2(b) within Collaboration Technology (a "Collaboration Patent"), it
shall promptly notify the other Party hereto, and the Parties shall agree on the
steps which shall be taken to protect the pertinent Collaboration Patent. In the
event either Party becomes aware of any possible infringement of a Collaboration
Patent or misappropriation of an invention within the Collaboration Technology,
it shall promptly notify the other Party hereto, providing a written description
of the potentially infringing or misappropriation activities. SGX shall have the
right, but not the obligation to institute, prosecute and control any action or
proceeding with respect to infringement of Collaboration Patents in the SGX
Territory. UG shall have the right, but not the obligation, to institute,
prosecute and control any action or proceeding with respect to infringement of
Collaboration Patents in the UG Territory. If a Party given the right to enforce
a Collaboration Patent pursuant to this Section fails to bring an action or
proceeding against a suspected infringer within a period of ninety (90) days
after having notice of such infringement in the Party's Territory, the other
Party shall have the right to bring and control an action against such infringer
by counsel of its own choice, and the non-enforcing Party shall have the right
to be represented in any such action by counsel of its own choice at its own
expense. The Party controlling an action involving any infringement of a
Collaboration Patent shall consider in good faith the interests of the other
Party in so doing, and shall not settle or consent to an adverse judgment in any
such action which would have a material adverse effect on the rights or
interests of the other Party without the prior express written consent of such
other Party. If one Party brings any such action or proceeding, the other Party
agrees to be joined as a Party plaintiff if necessary to prosecute the action
and to give the first Party reasonable assistance and authority to file and
prosecute the suit. In each case relating to infringement of a Collaboration
Patent, each Party shall bear the costs of its enforcement of the Patent rights
discussed in this section and retain for its own account any amounts received
from Third Parties; provided, however, that any such recovery over the costs of
the enforcement of the Patent Rights shall be deemed Net Sales of the infringed
Collaboration Product, subject to a royalty of [...***...]%.

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8.    CONFIDENTIALITY AND PUBLICITY

      8.1 Confidential Information. Except as expressly provided herein, the
parties agree that, for the Term of the Agreement, the receiving Party shall not
publish or otherwise disclose and shall not use for any purpose, except as
expressly permitted herein, any information or material furnished to it by the
other Party hereto pursuant to this Agreement which if disclosed in tangible
form is marked "Confidential" or with other similar designation to indicate its
confidential or proprietary nature, or if disclosed orally is confirmed as
confidential or proprietary by the Party disclosing such information at the time
of such disclosure or within thirty (30) days thereafter ("Confidential
Information"). Notwithstanding the foregoing, it is understood and agreed that
Confidential Information shall not include information or material that, in each
case as demonstrated by written documentation:

            (a) was already known to the receiving Party, other than under an
obligation of confidentiality, at the time of disclosure;

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

            (c) became generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the receiving Party in breach of this Agreement; or

            (d) was subsequently lawfully disclosed to the receiving Party by a
person other than a Party hereto or developed by the receiving Party without
reference to any Confidential Information disclosed by the disclosing Party.

      8.2 Permitted Disclosures. The restrictions contained in Section 8.1 shall
not apply to Confidential Information that is (i) provided by the receiving
Party to a Third Party or sublicensee under confidentiality provisions at least
as stringent as those in this Agreement, for consulting, research, development,
manufacturing, external testing or marketing trials; or (ii) reasonably required
to be disclosed in filing or prosecuting patent applications within the Patent
Rights, prosecuting or defending litigation, complying with applicable
governmental regulations or conducting preclinical or clinical trials, or
submitting information to tax or other governmental authorities, provided that
if a Party is required to make any such disclosure of another Party hereto's
Confidential Information, to the extent it may legally do so, it will give
reasonable advance written notice to the other Party of such disclosure and
except to the extent inappropriate in the case of patent applications, will use
its reasonable efforts to secure confidential treatment of such Confidential
Information prior to its disclosure (whether through protective orders or
otherwise).

      8.3 Publication. Any public disclosure (oral, written or graphic) by
either Party describing the scientific results of the Research Collaboration
will require prior review and approval of the other Party at least thirty (30)
days prior to its submission for publication or other public disclosure. If the
reviewing Party so requests, the proposed

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public disclosure will be delayed for forty-five (45) days from the date of each
request for the filing of patent application(s) related to the proposed public
disclosure.

      8.4. Publicity. The parties agree to make a mutually agreed press release
regarding this Agreement promptly following the Effective Date. Except as
expressly provided in this Agreement, each Party agrees not to disclose any
terms of this Agreement to any third party without the prior written consent of
the other Party; provided however, that disclosures may be made as required by
securities or other applicable laws, or to actual or prospective investors or
strategic partners under obligations of confidence, or to a party's professional
advisors.

9.    INDEMNIFICATION

      9.1 Indemnification of SGX. UG shall indemnify, defend, and hold harmless
SGX, the directors, officers, and employees of SGX and the successors and
assigns of any of the foregoing (the "SGX Indemnitee(s)") from and against all
claims, losses, costs, and liabilities (including, without limitation, payment
of reasonable attorneys' fees and other expenses of litigation), and shall pay
any damages (including settlement amounts) finally awarded, with respect to any
claim, suit or proceeding (any of the foregoing, a "Claim") brought by Third
Party against a SGX Indemnitee, arising out of or relating to: (a) the
performance by UG of the Collaboration; (b) the exercise by UG of the rights
granted UG under this Agreement; (c) a material breach by UG of its obligations
under this Agreement; (d) a breach of UG's representations and warranties under
Section 10; (e) any Products developed, manufactured, use, sold or otherwise
distributed by or on behalf of UG, its Affiliates or permitted sublicensees
pursuant to Article 5, (including without limitation, product liability claims),
(f) the handling, storage or transfer by UG or UG's permitted transferee of
materials provided by SGX to UG hereunder, (g) the negligence or willful
misconduct of UG or (h) a claim that the use by SGX or UG of the UG Background
Technology, infringes the intellectual property rights of a Third Party, except,
in each case, to the extent caused by the gross negligence or willful misconduct
of a SGX Indemnitee.

      9.2 Indemnification of UG. SGX shall indemnify, defend and hold harmless
UG, the directors, officers, and employees of UG, and the licensors, successors
and assigns of any of the foregoing (the "UG Indemnitee(s)") from and against
all Claims (as defined in Section 9.1) brought by third Party against a UG
Indemnitee, arising out of or relating to: (a) the performance by SGX of the
Collaboration; (b) the exercise by SGX of the rights granted SGX under this
Agreement; (c) a material breach by SGX of its obligations under this Agreement;
(d) a breach of SGX's representations and warranties under Section 10; (e) any
Products developed, manufactured, use, sold or otherwise distributed by or on
behalf of SGX, its Affiliates or permitted sublicensees pursuant to Article 5,
(including without limitation, product liability claims) (f) the handling,
storage or transfer by SGX of materials provided by UG to SGX hereunder; (g) the
negligence or willful misconduct of SGX, or (h) a claim that the use by SGX or
UG of the SGX Background Technology, infringes the intellectual property rights
of a Third Party, except, in each case, to the extent due to the gross
negligence or willful misconduct of a UG Indemnitee.

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      9.3 Indemnification Procedures. An Indemnitee that intends to claim
indemnification under this Article 9 shall promptly notify the other Party (the
"Indemnitor") in writing of any claim in respect of which the Indemnitee intends
to claim such indemnification, and the Indemnitor shall have sole control of the
defense and/or settlement thereof, provided that the indemnified Party may
participate in any such proceeding with counsel of its choice at its own
expense. The indemnity agreement in this Article 9 shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the
consent of the Indemnitor, which consent shall not be withheld unreasonably. The
failure to deliver written notice to the Indemnitor within a reasonable time
after the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such Indemnitor of any liability to the
Indemnitee under this Article 9 but the omission so to deliver written notice to
the Indemnitor shall not relieve the Indemnitor of any liability that it may
have to any Indemnitee other than under this Article 9. The Indemnitee under
this Article 9, its employees and agents, shall cooperate fully with the
Indemnitor and its legal representatives and provide full information in the
investigation of any Claim covered by this indemnification. Neither Party shall
be liable for any costs or expenses incurred by the other Party without its
prior written authorization.

10.   REPRESENTATIONS AND WARRANTIES

      10.1 Each Party. Each Party represents and warrants to the other (i) that
it has the legal power, authority and right to enter into this Agreement and to
perform its respective obligations under this Agreement; (ii) that it is not a
Party to any agreement or arrangement with any Third Party or under any
obligation or restriction which in any way limits or conflicts with its ability
to fulfill any of its obligations under this Agreement, (including without
limitation, the licenses granted in Article 5), and shall not enter into any
such agreement or arrangement during the term of this Agreement; (iii) each
employee or person engaged in the Collaboration on behalf of UG or SGX has
entered into a written agreement which provides for the assignment to UG or SGX,
respectively, of all inventions and discoveries made by such employee or person
during the course of his or her employment or engagement with UG or SGX.

      10.2 Representations and Warranties of UG. UG represents and warrants that
to the knowledge of UG, (i) it is not aware of any asserted or unasserted
claims, interference, oppositions or demands of any Third Party against the
Target in existence as of the Effective Date and (ii) the Parties' use of the
Target as contemplated under this Agreement will not infringe any patent or any
other proprietary rights of any Third Party.

      10.3 Disclaimer. SGX and UG specifically disclaim any guarantee that the
Collaboration will be successful, in whole or in part. The failure of the
parties to develop Products or to meet any of the estimated time lines in the
Research Plan or Development Plan will not constitute a breach of any
representation or warranty or other obligation under this Agreement. EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, UG AND SGX MAKE NO
REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED,
WITH RESPECT TO THE SGX BACKGROUND TECHNOLOGY, UG BACKGROUND

                                       24


                                                                    CONFIDENTIAL

TECHNOLOGY, OR COLLABORATION TECHNOLOGY OR PRODUCTS OF EACH PARTY, INCLUDING
WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY OR OTHER RIGHTS OF ANY
THIRD PARTY.

11.   TERM AND TERMINATION

      11.1 Term of the Agreement. The term of this Agreement shall commence on
the Effective Date and unless terminated earlier, will terminate on a
Product-by-Product basis upon the later of (i) expiration of the last to expire
patent within the Patent Rights covering such Product and (ii) [...***...] years
after the First Commercial Sale of such Product.

      11.2 Termination for Cause. Either UG or SGX may terminate this Agreement
by written notice, stating such Party's intent to terminate in the event the
other Party shall have materially breached or defaulted in the performance of
any of its obligations hereunder, and such default shall have continued for
sixty (60) days after written notice thereof was provided to the breaching Party
by the nonbreaching Party.

      11.3 Termination for Insolvency. Either Party may terminate this
Agreement, if at any time the other Party files in any court or agency pursuant
to any statute or regulation of any state or country, a petition in bankruptcy
or insolvency or for reorganization or for any arrangement of for the
appointment of a receiver or trustee of the Party or of substantially all of its
assets, or if the other Party is served with an involuntary petition against it
in any insolvency proceeding and such petition is not dismissed within six (6)
months after the filing thereof, or if the other Party makes an assignment of
substantially all of its assets for the benefit of creditors.

      11.4 Bankruptcy Code Section 365(n). All rights and licenses granted under
or pursuant to this Agreement are, and will otherwise be deemed to be, for
purposes of Section 365(n) of the United States Bankruptcy Code, licenses of
rights to "intellectual property" as defined under Section 101 of the United
States Bankruptcy Code. The Parties agree that the Parties, as licensees of such
rights under this Agreement, will retain and may fully exercise all of their
rights and elections under the United States Bankruptcy Code. The Parties
further agree that, in the event of the commencement of a bankruptcy proceeding
by or against a Party under the United States Bankruptcy Code, the non-bankrupt
Party will be entitled to a complete duplicate of (or complete access to, as
appropriate) any such intellectual property and all embodiments of such
intellectual property, which, if not already in the non-bankrupt Party's
possession, will be promptly delivered to it unless the Party subject to such
proceeding continues to perform all of its obligations under this Agreement.

      11.5 Effect of Termination.

            (a) Accrued Rights and Obligations. Termination of this Agreement
for any reason shall not release any Party hereto from any liability which, at
the time of

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                                                                    CONFIDENTIAL

such termination, has already accrued to the other Party or which is
attributable to a period prior to such termination nor preclude either Party
from pursuing all rights and remedies it may have hereunder or at law or in
equity with respect to any breach of this Agreement.

            (b) Licenses. In the event of termination of this Agreement by the
non-breaching or non-bankrupt Party pursuant to Sections 11.2 or 11.3, the
licenses granted the breaching Party or bankrupt Party under Article 5 shall
terminate concurrently and the non-breaching Party or non-bankrupt Party shall
have an exclusive, royalty free right under Collaboration Technology, to make,
have made, use, sell and import, Collaboration Products in the non-breaching or
non-bankrupt Party's applicable Territory. The breaching or bankrupt Party will
assist the non-breaching or non-bankrupt Party in every proper way to effect the
license granted above. The breaching Party shall further deliver to the
non-breaching Party such relevant tangible materials embodying Collaboration
Technology as may be necessary or useful to the exercise by the non-breaching
Party of the license hereunder.

            (c) Survival. The provisions of Sections 3.9, 3.10, 3.13, 5.5, 5.6,
5.8, 6.3, 6.4, and Articles 4, 7, 8, 9, 10 and 12 shall survive the expiration
or termination of this Agreement for any reason.

12.   MISCELLANEOUS

      12.1 Arbitration. If the Parties are unable to resolve any dispute,
controversy or claim between them arising out of or relating to the validity,
construction, enforceability or performance of this Agreement, including
disputes relating to alleged breach or to termination of this Agreement (each, a
"Dispute"), the Dispute shall be finally settled under the Rules of Arbitration
of the International Chamber of Commerce by one or more arbitrators appointed in
accordance with the said Rules. Such arbitration shall be held in Geneva, and
shall be conducted in the English language. Pending the establishment of the
arbitral tribunal or pending the arbitral tribunal's determination of the merits
of the controversy, either Party may seek from a court of competent jurisdiction
any interim or provisional relief that may be necessary to protect the rights or
property of that Party.

      12.2 Governing Law. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Delaware,
without reference to rules of conflicts or choice of laws.

      12.3 Notices. Any notice required or permitted by this Agreement shall be
in writing and shall be sent by prepaid registered or certified mail, return
receipt requested, internationally recognized courier or personal delivery, or
by fax with confirming letter mailed under the conditions described above in
each case addressed to the other Party at the address shown below or at such
other address for which such Party gives notice hereunder. Such notice shall be
deemed to have been given when delivered:

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                                                                    CONFIDENTIAL

      If to SGX:

      Structural GenomiX, Inc.
      10505 Roselle Street,
      San Diego, CA  92121
      Fax: + 1 858 558 3402
      Attn:  Chief Executive Officer
      Copy to:  Corporate Counsel

      If to UG:

      UroGene S.A.
      4, Rue Pierre Fontaine - Genopole
      91058 Evry Cedex
      France
      Fax:  + 33 1 60 87 89 89
      Attn:  Chief Executive Officer

      12.4 Force Majeure. Neither Party shall lose any rights hereunder or be
liable to the other Party for damages or losses (except for payment obligations)
on account of failure of performance by the defaulting Party if the failure is
occasioned by war, strike, act of terrorism, fire, Act of God, earthquake,
flood, lockout, embargo, governmental acts or orders or restrictions, failure of
suppliers (including, without limitation, energy suppliers), or any other reason
where failure to perform is beyond the reasonable control and not caused by the
negligence, intentional conduct or misconduct of the nonperforming Party and the
nonperforming Party has exerted all reasonable efforts to avoid or remedy such
force majeure; provided, however, that in no event shall a Party be required to
settle any labor dispute or disturbance.

      12.5 No Implied Rights. Only the rights granted pursuant to the express
terms of this Agreement shall be of any legal force or effect. No other rights
shall be created by implication or otherwise.

      12.6 Assignment. This Agreement shall not be assignable by either Party to
any third Party hereto without the written consent of the other Party hereto,
except either Party may assign this Agreement, without such consent, to (i) an
Affiliate or (ii) an entity that acquires all or substantially all of the
business or assets of such Party to which this Agreement pertains, whether by
merger, reorganization, acquisition, sale, or otherwise.

      12.7 Partial Invalidity. If any provision of this Agreement is held to be
invalid by a court of competent jurisdiction, then the remaining provisions
shall remain, nevertheless, in full force and effect. The Parties agree to
renegotiate in good faith any provision held invalid and to be bound by the
mutually agreed substitute provision in order to give the most approximate
effect originally intended by the Parties. This Agreement has been prepared in
the English language and the English language shall control its interpretation

                                       27


                                                                    CONFIDENTIAL

      12.8 Independent Contractors. The relationship of UG and SGX established
by this Agreement is that of independent contractors, and nothing contained in
this Agreement shall be construed to (i) give either Party the power to direct
or control the day-to-day activities of the other, (ii) constitute the Parties
as partners, joint venturers, co-owners or otherwise as participates in a joint
or common undertaking, or (iii) allow a Party to create or assume any obligation
on behalf of the other Party for any purpose whatsoever.

      12.9 No Waiver. No waiver of any term or condition of this Agreement shall
be valid or binding on either Party unless agreed in writing by the Party to be
charged. The failure of either Party to enforce at any time any of the
provisions of the Agreement, or the failure to require at any time performance
by the other Party of any of the provisions of this Agreement, shall in no way
be construed to be a present or future waiver of such provisions, nor in any way
affect the validity of either Party to enforce each and every such provision
thereafter.

      12.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

      12.11. English Language. This Agreement has been prepared in the English
language and the English language shall control its interpretation.

      12.12 Entire Agreement; Amendment. This Agreement, including the Exhibits
attached hereto, constitutes the entire agreement of the Parties with respect to
the subject matter hereof, and supersedes all prior or contemporaneous
understandings or agreements, whether written or oral, between UG and SGX with
respect to such subject matter. No amendment or modification hereof shall be
valid or binding upon the parties unless made in writing and signed by the duly
authorized representatives of both Parties.

      IN WITNESS WHEREOF, the undersigned are duly authorized to execute this
Agreement on behalf of UG and SGX as applicable.

UROGENE S.A.                                      STRUCTURAL GENOMIX, INC.

By:  /s/ [Illegible]                              By: /s/ Mike Grey
    ----------------------------------               ---------------------------

Name:  [Illegible]                                Name: MG Grey

Title:  CEO Chairman of the Board                 Title: President

                                       28


                                                                    CONFIDENTIAL

                                    EXHIBIT A

                              [COUNTRIES IN EUROPE]


FRANCE
GERMANY
ITALY
BELGIUM
LUXEMBOURG
NETHERLANDS
UNITED KINGDOM
IRELAND
DENMARK
GREECE
SPAIN
PORTUGAL
AUSTRIA
SWEDEN
FINLAND
SWITZERLAND
TURKEY
ICELAND
NORWAY
ANDORRA
MONACO
LIECHTENSTEIN
MALTA
SAN MARINO
VATICAN
POLAND
CZECH REPUBLIC
SLOVAKIA
HUNGARY
MACEDONIA
ROMANIA
BULGARIA
SLOVENIA
ALBANIA
MONTENEGRO
LATVIA
ESTONIA
LITHUANIA
BELARUS
UKRAINE
MOLDAVIA
GEORGIA

                                       29


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                                    EXHIBIT B

                                  RESEARCH PLAN

         [...***...]ST, [...***...] - [...***...]ST [...***...] RESEARCH PLAN

GOALS FOR [...***...] (END [...***...])
The overall Project goal for [...***...] is to obtain [...***...] of the
[...***...] kinase for the treatment of bladder cancer. This will be
accomplished by:

1. Solving the [...***...] of [...***...], either in the "[...***...]" form or
with a [...***...] [...***...] or [...***...],

2. Screening for [...***...] using [...***...] and [...***...]

3. Employing an [...***...] and [...***...] guided by [...***...],[...***...]
and [...***...] assays

4. Optimizing [...***...] and [...***...]

[...***...] DETERMINATION

A [...***...] encompassing the [...***...] kinase [...***...] ([...***...]) has
been identified that produces modest yields of [...***...]. Since different
[...***...] of a kinase domain can show substantial differences in (i)
[...***...], (ii) [...***...], (iii) [...***...], (iv) [...***...], and (v)
[...***...], several new constructs will be examined in parallel. Various
versions of the isolated kinase domain of [...***...], produced in [...***...],
will be purified and submitted for [...***...] and [...***...] to determine the
structure (see appendix, Figure 1). The following scheme will be followed:

      -     [...***...] additional constructs of the [...***...] of [...***...]
            will be [...***...] and expressed using a [...***...] (see FIGURE
            1). Different [...***...] will be used to produce proteins with
            either [...***...]. This experiment will include one construct,
            [...***...], which represents the [...***...] of [...***...]
            ([...***...],[...***...][...***...], see Figure 1).

      -     All proteins will be tested for solubility after [...***...] and
            [...***...] on a small scale. All soluble proteins will be passed to
            [...***...].

      -     A [...***...] kinase domain will be identified using an SGX
            [...***...] and [...***...] ([...***...]) method, preferably using
            [...***...] if it proves soluble.

      -     Based on the combined data at this stage new constructs may be made
            to modify the exact [...***...] based on the [...***...] data and,
            if necessary, [...***...] will be tried to alter the [...***...]
            and/or solubility of the protein (see Figure 1).

      -     If necessary a variety of protocols to purify the most promising
            soluble proteins will be explored. At this stage the effect of
            parameters such as (i) [...***...], (ii) [...***...], and (iii)
            [...***...] on the [...***...] behavior will be

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                                                                    CONFIDENTIAL

            investigated. The optimal conditions will be used to generate
            sufficient [...***...] for [...***...] trials.

      -     Suitable protein samples will be subjected to a broad series of
            [...***...] to identify [...***...]. Information from these initial
            [...***...] is used in [...***...] to home in on a suitable set of
            conditions to produce [...***...].

      -     [...***...] that [...***...] to <[...***...] will be sent to SGX-CAT
            at the APS to collect [...***...] that will be used to determine the
            structure by [...***...] ([...***...]). Alternative strategies are
            available in the unlikely event that no suitable [...***...] search
            model is found.

      -     At this stage a validation set of [...***...] well-characterized
            [...***...] will be used in the development of [...***...] and
            soaking protocols. The [...***...] may include [...***...]
            identified at UG or SGX and may include [...***...] kinase
            [...***...] such as [...***...] and [...***...]. Such protocols will
            form the basis of our ability to rapidly determine the structures of
            [...***...] bound to (i) [...***...] (see below), (ii) [...***...]
            (or [...***...]) [...***...] and (iii) the [...***...].

[...***...] DETERMINATION

A plan similar to that detailed for [...***...] will be pursued. Figure 2 in the
appendix illustrates the construct plans.

[...***...] SCREENING

UG and SGX will share experience in establishing [...***...] and [...***...]
activity assays and in establishing a screening regimen to identify [...***...]
hits (see Figure 3). For the SGX-FAST(TM) library screening a suitable substrate
will be identified from the SGX kinase substrate library. [...***...] and,
potentially, "[...***...]"[...***...] and/or [...***...], will be developed.
Alternative proteins of both [...***...] and [...***...] will be evaluated as
well as various [...***...] of each in the assays. The JRC will determine which
assay format(s), including which protein forms, to employ at the two sites and
establish a work flow for testing collaboration compounds.

      -     SGX-FAST(TM)

The FAST(TM) method will be employed to identify potent lead compounds. Two
screening systems will be used to survey the SGX FAST(TM) scaffold deck
([...***...] compounds) for [...***...] (which may be [...***...] binders), a
[...***...] at [...***...] and a [...***...] with [...***...]. From these
[...***...] the JRC will select [...***...] to pursue with FAST(TM) chemistry.
[...***...] will be elaborated by an [...***...] of [...***...], [...***...],
[...***...] and [...***...]. [...***...] will be continued until the [...***...]
meet the specifications determined by the JRC as required for a Lead Compound
(see Table 1). The Lead Discovery process is schematically represented in the
appendix, Figure 3.

      -     [...***...] Screening

A [...***...] will be screened against [...***...] using the UG technology.

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                                                                    CONFIDENTIAL

CELL ASSAYS: [...***...], [...***...] AND [...***...] ASSAYS

[...***...] is an [...***...] form of [...***...] which is [...***...] of
[...***...] for activation. [...***...] has been shown to enhance the
[...***...] and [...***...] capacities of [...***...] cells, a human
[...***...]. When [...***...] meet criteria determined by the JRC, these
compounds will be tested on stable bladder cell lines expressing [...***...] or
[...***...] cell lines expressing [...***...]. Control cell lines will be
[...***...] that do not express [...***...]. Three assays will be employed:

      -     The [...***...] measures the capacity of [...***...] to [...***...]
            a [...***...] with [...***...] (a mixture of [...***...],
            [...***...] and [...***...]).

      -     The [...***...] determines the ability of cells to [...***...] a
            [...***...]

      -     [...***...] will be used to determine [...***...] levels by
            [...***...] of [...***...].

            The [...***...] activity of [...***...] in these assays will be
            measured and calculated as an [...***...].

To investigate broader opportunities for selected lead candidates we may employ
a panel of cell lines (e.g. the [...***...]) to identify [...***...] or
[...***...] systems [...***...] by the [...***...].

In addition to [...***...] assays, other assays may be employed to characterize
compounds. Examples include [...***...] assays, [...***...] assays, [...***...]
assays and [...***...] assays.

SELECTIVITY SCREENING

UG and SGX will determine the details of how, and at what stage, to investigate
the selectivity profiles of the collaboration [...***...]. Generally, the SGX
kinase biochemical selectivity screen, which comprises a collection of kinases
for which both [...***...] and [...***...] are established, will be employed.
The exact composition of the assay panel will be determined by the JRC. Third
party selectivity paneling may also be utilized (e.g. from [...***...]) to
obtain information of the activity of lead compounds against a broader selection
of protein kinases.

The "[...***...]" and [...***...] may also be employed to determine the
[...***...] of the [...***...]. These cell lines have been established to
determine the [...***...] of kinase [...***...] on [...***...]: [...***...],
[...***...] [...***...] and [...***...].

[...***...] AND [...***...]
The [...***...] and [...***...] activities will follow the scheme illustrated in
Figure 3.

IN VITRO [...***...]

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                                                                    CONFIDENTIAL

When [...***...] meet criteria determined by the JRC, these compounds will be
evaluated for their effects on [...***...] and [...***...],[...***...], and
[...***...].[...***...] will also be determined using [...***...],[...***...]
and [...***...] as appropriate. Stability will be determined at [...***...] and
[...***...]. [...***...] will be checked using the [...***...] assay and by
measuring the effects on the [...***...] and [...***...] of selected cell lines.
[...***...] and [...***...] will be examined in [...***...] ([...***...]) and
other [...***...].

[...***...] ASSAYS

1. [...***...] in [...***...] or [...***...]
The [...***...] expressing [...***...] (see "Cell Assays" above) and control
cell lines will be used to establish [...***...] in [...***...]. These
[...***...] will receive compounds after a period of [...***...] to allow tumors
to reach a certain size. [...***...] will be administered at [...***...],
[...***...] or by [...***...]. Tumor weight and size will be monitored. The
[...***...] will be [...***...] and [...***...] checked by Western blot of
[...***...] with [...***...] or by [...***...] on [...***...].

2. [...***...] in [...***...]

To estimate efficacy via the [...***...] expressing [...***...] (see "Cell
Assays" above) and control cell lines will be [...***...] inside the [...***...]
and, after tumors reach a suitable size, compounds will be administered by
[...***...]. Depending on the chosen [...***...], the [...***...] may be used in
place of the [...***...].

3. [...***...] models

[...***...] ([...***...]) and [...***...] ([...***...]) [...***...] will be
[...***...] inside the [...***...] of the [...***...] model. After tumors reach
A suitable size [...***...] will be tested in [...***...] with [...***...] or
[...***...] to check for [...***...] or [...***...] effects on tumor regression.

[...***...] models 2 and 3 will be developed according to the [...***...]
selected.

[...***...]

Standard [...***...] and [...***...] will be monitored during the process of
lead optimization as outlined in Figure 3. [...***...] will be evaluated by
standard [...***...] and [...***...] will be monitored using [...***...].
[...***...] determined will include [...***...], [...***...], [...***...],
[...***...] and [...***...], [...***...], [...***...], and [...***...].
[...***...] will be examined to check [...***...]. An [...***...] will be
determined in [...***...] and/or [...***...].

APPENDIX

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                                                                    CONFIDENTIAL

[...***...]

Figure 1. ([...***...])

[...***...]

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                                                                    CONFIDENTIAL

[...***...]

      Figure 1. [...***...] diagram of the [...***...] primary sequence (the
[...***...] of the [...***...] are not shown). The predicted [...***...] is in
white-on-black. Residues conserved in the kinase family are highlighted
red-on-grey and listed in the row labeled "conserved". The kinase domain
[...***...], as [...***...] by [...***...] ([...***...],[...***...]), are shown
on the row labeled "[...***...]". [...***...], based on the [...***...]
structure, is shown above the primary sequence (sheets are numbered, helices
alphabetized). Positions of forward (F) aND reverse (R) primers for [...***...]
constructs are shown green-on-grey (F) or red-on-grey (R) below the sequence.

         Construct Plan:

The following combination of [...***...] and [...***...] will be used to
generate the initial set of [...***...]: [...***...], [...***...], [...***...],
[...***...] and [...***...]. These will be tested for [...***...] and used to
determine the [...***...] of the [...***...] kinase [...***...] by [...***...]
as described in the research plan and for [...***...]. (Note: one of these, the
[...***...] construct has been tested and shows [...***...] and [...***...]).

Figure 2. ([...***...])

[...***...]

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                                                                    CONFIDENTIAL

[...***...]

                                          36 ***CONFIDENTIAL TREATMENT REQUESTED


                                                                    CONFIDENTIAL

[...***...]

Figure 2. [...***...] diagram of the [...***...] primary sequence (the first
[...***...] of the [...***...] are not shown). The predicted [...***...] is in
white-on-black. [...***...] in the kinase family are highlighted red-on-grey and
listed in the row labeled "conserved". The kinase domain [...***...], as defined
by [...***...] and [...***...] ([...***...] and [...***...],[...***...]), are
shown on the row labeled "[...***...]".[...***...], based on the [...***...]
structure, is shown above the primary sequence (sheets are numbered, helices
alphabetized). Positions of forward (F) and reverse (R) primers for [...***...]
constructs are shown green-on-grey (F) or red-on-grey (R) below the sequence.

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                                                                    CONFIDENTIAL

[...***...]

Figure 3. [...***...].

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                                                                    CONFIDENTIAL

[...***...]

Figure 3. [...***...].

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                                                                    CONFIDENTIAL

Table 1. Definition of a [...***...] (see also Figure 3).

[...***...]     [...***...] to [...***...]
[...***...]     [...***...]
[...***...]     [...***...]
[...***...]     [...***...]
[...***...]     [...***...]

         [...***...]
         [...***...]
         [...***...]
         [...***...]
         [...***...]
         [...***...]
         [...***...]
         [...***...]

Table 2. Definition of an [...***...] (see also Figure 3).

[...***...]     [...***...]available
[...***...]     [...***...]
[...***...]     [...***...]
[...***...]     [...***...] and [...***...]
[...***...]     [...***...]
[...***...]     [...***...]
[...***...]     [...***...] on [...***...])
[...***...]     [...***...]; no [...***...];
[...***...]     [...***...]
[...***...]     [...***...] on [...***...] and [...***...]
[...***...]     [...***...]; [...***...]

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Table 3. [...***...] Resources



   Goal                                  FTE ESTIMATE (UG)                    FTE ESTIMATE (SGX)
   ----                                  -----------------                    ------------------
                                                                        
[...***...]                                                                      [...***...]
[...***...]                                [...***...]                           [...***...]
[...***...]                                                                      [...***...]
[...***...]                                [...***...]
[...***...]                                                                      [...***...]
[...***...]                                [...***...]                           [...***...]
[...***...]                                [...***...]                           [...***...]
[...***...]                                [...***...]
[...***...]                                [...***...]                           [...***...]
[...***...]                                [...***...]
[...***...]                                [...***...]                           [...***...]
[...***...]                                [...***...]                           [...***...]


Table 4 [...***...] Resources



    Goal                                 FTE ESTIMATE (UG)                   FTE ESTIMATE (SGX)
    ----                                 -----------------                   ------------------
                                                                       
[...***...]                                                                      [...***...]
[...***...]                                [...***...]                           [...***...]
[...***...]                                                                      [...***...]
[...***...]                                [...***...]
[...***...]                                                                      [...***...]
[...***...]                                [...***...]                           [...***...]
[...***...]                                [...***...]                           [...***...]
[...***...]                                [...***...]
[...***...]                                [...***...]                           [...***...]
[...***...]                                [...***...]
[...***...]                                [...***...]                           [...***...]


Table 5. Goals and Timelines.



   Goal                            EXPECTED COMPLETION DATE (UG)         EXPECTED COMPLETION DATE (SGX)
   ----                            -----------------------------         ------------------------------
                                                                   
[...***...]                                                                      [...***...]
[...***...]                                [...***...]
[...***...]                                                                      [...***...]
[...***...]                                [...***...]                           [...***...]
[...***...]                                [...***...]                           [...***...]
[...***...]                                                 [...***...]
[...***...] of [...***...]                                  [...***...]
[...***...]                                                 [...***...]
[...***...]                                                 [...***...]


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EX-10.28

December 16, 2004                                                EXHIBIT 10.28

                                           *** TEXT OMITTED AND FILED SEPARATELY
                                    PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST
                                            UNDER 17 C.F.R. SECTION 200.80(b)(4)
                                               AND RULE 406 UNDER THE SECURITIES
                                                         ACT OF 1933, AS AMENDED

                             AMENDMENT TO AGREEMENT

      THIS AMENDMENT TO AGREEMENT (the "Amendment") is made and entered into
effective as of December 16, 2004 (the "Amendment Effective Date"), by and
between STRUCTURAL GENOMIX, INC., a corporation incorporated under the laws of
the State of Delaware and with its principal place of business located at 10505
Roselle Street, San Diego, CA 92121 ("SGX") and UROGENE S.A., a corporation
incorporated under the laws of France with a principal place of business at 4
Rue Pierre Fontaine - Genopole 91058 Evry, Cedex, France, ("UG"). UG and SGX may
be referred to herein as a "Party" or, collectively, as "Parties".

                                    RECITALS

      A. UG and SGX have entered into a Collaboration Agreement (the
"Agreement") effective December 1, 2003, under which the Parties have agreed to
conduct a collaborative research program with a view to identify and develop
products targeting the human protein kinase RON. Such program has been
progressively extended to inhibitors of MET, a human protein kinase receptor
sharing homologies with RON.

      B. As of the Amendment Effective Date, [...***...] ([...***...]) Lead
Compounds discovered using high throughput screening of SGX libraries of
compounds have been designated by the JRC.

      C. UG has informed SGX of its intent to sell substantially all of its
assets to Institut de Recherche Pierre Fabre S.A.S. ("IRPF") or any other
Company of the Pierre Fabre Group that may be substituted to IRPF for such
purposes (hereinafter called "Pierre Fabre") and has further informed SGX that
Pierre Fabre is engaged in a MET/RON program with biological and chemical
entities having a molecular weight exceeding [...***...] ([...***...]) Daltons
(hereinafter called the "Pierre Fabre program").

      NOW, THEREFORE, the Parties agree as follows:

1.    AMENDMENT OF THE AGREEMENT

      The Parties hereby agree to amend the terms of the Agreement as provided
below, effective as of the Amendment Effective Date. To the extent that the
Agreement is explicitly amended by this Amendment, the terms of the Amendment
will control where the terms of the Agreement are contrary to or conflict with
the following provisions. Where the Agreement is not explicitly amended, but
however subject to any future amendment that SGX and UG's assignee may further
agree to, the terms of the Agreement will remain in force. Capitalized terms
used in this Amendment that are not otherwise defined herein shall have the same
meanings as such terms are defined in the Agreement.

      1.1 Add two new definitions to the Agreement, reading as follows:

"COMPOUND" means any chemical entity, whether synthetic or natural, the
molecular weight (MW) of which is below [...***...] Daltons (MW<[...***...]), in
the possession or Control of a Party as of the Effective Date and included by
the JRC in the Collaboration or synthesized by either Party during and in the
course of the Collaboration.

                                          1. ***CONFIDENTIAL TREATMENT REQUESTED


"COLLABORATION COMPOUND" means any Compound that comprises or contains or is
synthesized based on a Lead Compound, and is directed at inhibiting, modulating
or altering the activity of the Target. Collaboration Compounds do not include
SGX Compounds or UG Compounds.

      1.2 AMEND SECTION 1.5. of the Agreement as follows : "COLLABORATION
PRODUCT" means any product that comprises or contains a Collaboration Compound
that has been designated by the JRC as a Safety Assessment Candidate or a Drug
Candidate. Collaboration Products do not include SGX Products or UG Products.

      1.3 AMEND SECTION 1.6 OF THE AGREEMENT AS FOLLOWS : "COLLABORATION
TECHNOLOGY" means Patent Rights and Know-How which are conceived or reduced to
practice or otherwise developed by or on behalf of UG or SGX, or jointly by UG
and SGX, in each case during and in the performance of the Collaboration,
including without limitation, Collaboration Compounds, Collaboration Products
and Information but excluding SGX Compounds, UG Compounds, SGX Products, UG
Products, SGX Background Technology, and UG Background Technology.

      1.4 AMEND SECTION 1.8. OF THE AGREEMENT AS FOLLOWS : "COMPETING PRODUCT"
means a product developed outside of the Collaboration for application in the
Therapeutic Field, containing a molecule the molecular weight of which is below
[...***...] Daltons (MW < [...***...]) and, which has activity in an [...***...]
against the Target.

      1.5 AMEND SECTION 1.19. OF THE AGREEMENT AS FOLLOWS : "INFORMATION" means
information derived from research activities during the Collaboration,
development, Registration, manufacture, sale or use of Collaboration Compounds
and Collaboration Products, including without limitation, information related to
Compounds and their structure, function and formulation, regulatory filings and
submissions, correspondence and communications.

      1.6 AMEND SECTION 1.23. OF THE AGREEMENT AS FOLLOWS : "KNOW-HOW" means all
data (including without limitation data from preclinical and clinical studies
and test data including analytical, pharmacological, toxicological, clinical
test, quality control and adverse events data), inventions, Information, ,
instructions, designs, formulas, software, materials, methods, processes and
techniques.

      1.7 AMEND SECTION 1.24. OF THE AGREEMENT AS FOLLOWS : "LEAD COMPOUND"
means a Compound with the properties designated by the JRC as required
properties for a Lead Compound, and which is designated by the JRC as a Lead
Compound in accordance with Section 2.4(b)(v) and Table 1 of the Research Plan.

      1.8 AMEND SECTION 1.35. OF THE AGREEMENT AS FOLLOWS : "SGX BACKGROUND
TECHNOLOGY" means Patent Rights and Know-How which are: (a) in the possession or
Control of SGX prior to the Effective Date, as listed in Annex A hereto; or (b)
developed by or on behalf of SGX (i) outside the Collaboration or (ii) within
the Collaboration and comprise methodologies, protocols or technologies which
have application to targets or compounds in addition to the Target and Compounds
that are the subject of the Collaboration; provided that such Patent Rights and
Know-How are necessary to the conduct of the Collaboration.

                                          2. ***CONFIDENTIAL TREATMENT REQUESTED


      1.9 AMEND SECTION 1.36. OF THE AGREEMENT AS FOLLOWS : "SGX COMPOUNDS"
means Compounds in the possession or Control of SGX identified and developed by
or on behalf of SGX from SGX's compound screening activities, prior to or during
the Collaboration, which are not designated by the JRC as Lead Compounds.

      1.10 AMEND SECTION 1.42. OF THE AGREEMENT AS FOLLOWS : "TARGET" means the
human protein kinase receptors RON and/or MET. All references in the Agreement
to "Target" shall mean either RON or MET or both RON and MET, as the context
requires.

      1.11 AMEND SECTION 1.46. OF THE AGREEMENT AS FOLLOWS : "UG BACKGROUND
TECHNOLOGY" means Patent Rights and Know-How which are: (a) in the possession or
Control of UG prior to the Effective Date, as listed in Annex B hereto; or (b)
developed by or on behalf of UG (i) outside the Collaboration or (ii) within the
Collaboration and comprise methodologies, protocols or technologies which have
application to targets or compounds in addition to the Target and Compounds that
are the subject of the Collaboration; provided that such Patent Rights and
Know-How are necessary to the conduct of the Collaboration.

      1.12 AMEND SECTION 1.47. OF THE AGREEMENT AS FOLLOWS : "UG COMPOUNDS"
means Compounds in the possession or Control of UG identified and developed by
or on behalf of UG from UG's compound screening activities, prior to or during
the Collaboration, which are not designated by the JRC as Lead Compounds.

      1.13 AMEND SECTION 3.13. of the Agreement by inserting the following at
the end of the section: "In the event that Pierre Fabre or any company
controlled by Pierre Fabre succeeds in interest to UG under this Agreement,
then, (i) notwithstanding anything to the contrary in the Agreement, SGX agrees
that any products arising from the Pierre Fabre Program shall not be considered
Competing Products under this Agreement, and (ii) Pierre Fabre agrees that
Pierre Fabre or such company controlled by Pierre Fabre will continue to
diligently conduct the Collaboration in accordance with the Research Plan and
Development Plan.

2.    RESTATEMENT OF THE AGREEMENT.

      Subject to the sale by UG of substantially all of its assets to Pierre
Fabre and consequently the assignment of the Agreement by UG to Pierre Fabre as
provided in Section 12.6 of the Agreement, SGX agrees to diligently enter into
good faith discussions with Pierre Fabre, to (i) amend certain provisions of the
Agreement, including but not limited to the following provisions : [...***...]
([...***...]), [...***...] ([...***...]), [...***...] ([...***...]), [...***...]
([...***...]), [...***...] ([...***...]), [...***...], [...***...] ([...***...])
and (ii) consider adding new provisions relating to [...***...], [...***...] and
[...***...], all with a view to amend and restate the Agreement by June 30, 2005
at the latest.

3.    MISCELLANEOUS

      3.1 FULL FORCE AND EFFECT. This Amendment amends the terms of the
Agreement and is deemed incorporated into, and governed by all other terms of,
the Agreement. The provisions of the Agreement, as amended by this Amendment,
remain in full force and effect.

                                          3. ***CONFIDENTIAL TREATMENT REQUESTED



      3.2 COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

      In Witness Whereof, the Parties have executed this Amendment in duplicate
originals by their authorized officers as of the date and year first above
written.

                             UROGENE S.A.

                             By: Ch. Grenier /s/ [Illegible]
                                 ------------------------------------

                             Title: CEO

                             STRUCTURAL GENOMIX, INC.

                             By: /s/ Mike Grey
                                 ------------------------------------

                             Title: M.G. Grey
                                    President

                                       4.


                                     ANNEX A
                            SGX BACKGROUND TECHNOLOGY
                             AS OF DECEMBER 1, 2003

1. [...***...] protein production for biochemical screening:

      - [...***...]for expression of [...***...] kinase domain in insect cells
      - [...***...] stock ([...***...]) for production in insect cells

2. [...***...] protein production for biochemical screening:

      - [...***...]for expression of [...***...] kinase domain in insect cells
      - [...***...] stock ([...***...]) for production in insect cells

3. Kinase [...***...], [...***...],[...***...] and [...***...] structure
   protocols for the kinase domains of various proteins for use in [...***...].

4. [...***...] kinase [...***...] methods

5. A [...***...] of diverse, [...***...] including kinase [...***...], as
   of December 1, 2003

                                          5. ***CONFIDENTIAL TREATMENT REQUESTED


                                     ANNEX B
                            UG BACKGROUND TECHNOLOGY

1.    A collection of bladder and [...***...], associated with the corresponding
clinical data.

2.    A [...***...] of [...***...], as of Dec. 1st 2003.

3.    [...***...] protein production for biochemical screening :

      - A [...***...] for expression of [...***...] kinase domain in insect
cells

      - A [...***...] stock ([...***...]) for production in insect cells

4.    [...***...] expression in [...***...] and [...***...] cells :

      - A [...***...] for expression of [...***...] kinase domain in [...***...]
and [...***...] cells
      - [...***...] cells stably expressing [...***...] kinase domain

5.    Bladder cell lines stably expressing [...***...] ([...***...]) or
[...***...] construct :

      - [...***...] overexpressing [...***...]
      - [...***...] overexpressing [...***...]
      - [...***...] overexpressing [...***...]
      - [...***...] overexpressing [...***...]
      - [...***...] overexpressing [...***...]
      - [...***...] overexpressing [...***...]

6.    Miscelaneous :

      - One [...***...] specific [...***...]
      - One [...***...] specific [...***...]
      - [...***...] specific [...***...] validated for [...***...]
      - [...***...] specific [...***...] validated for [...***...]

                                          6. ***CONFIDENTIAL TREATMENT REQUESTED


                        AMENDMENT No2 TO AGREEMENT

      THIS AMENDMENT No2 TO AGREEMENT (the "Amendment No2") is
made and entered into effective as of January 1, 2005 (the "Amendment Effective
Date"), by and between STRUCTURAL GENOMIX, INC., a corporation incorporated
under the laws of the State of Delaware and with its principal place of business
located at 10505 Roselle Street, SAN DIEGO, CA 92121 ("SGX") and PIERRE FABRE
UROLOGIE S.A.S.U., a corporation incorporated under the laws of France with a
principal place of business at 11 Avenue Albert Einstein-69100 VILLEURBANNE,
France, ("PFU"). SGX and PFU may be referred to herein as a "Party" or,
collectively, as "Parties".

                                    RECITALS

      A.    UROGENE S.A., a corporation incorporated under the laws of France
with a principal place of business at 4 Rue Pierre Fontaine - Genopole 91058
Evry, Cedex, France, ("UG") and SGX have entered into a Collaboration Agreement
effective December 1, 2003, under which the Parties have agreed to conduct a
collaborative research program with a view to identify and develop products
targeting the human protein kinase RON. Such program has been progressively
extended to inhibitors of MET, a human protein kinase receptor sharing
homologies with RON.

      B.    UG and SGX have entered into an Amendment to the Agreement effective
December 16, 2004.

      C.    By a letter dated January 5, 2005, UG has informed SGX of the
completion of the sale of substantially all of its assets to PFU, an Affiliate
of Institut de Recherche Pierre Fabre S.A.S. effective on January 1, 2005.

      NOW, THEREFORE, SGX and PFU agree as follows:

ARTICLE 1.  ASSIGNMENT OF THE AGREEMENT

      As provided in Section 12.6 of the Collaboration Agreement as amended on
December 16, 2004 (collectively the "Agreement"), SGX hereby acknowledges the
assignment of the Agreement to PFU effective as of January 1, 2005.

ARTICLE 2.  COUNTERPARTS

      This Amendment no2 may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.


                                       1.

      In Witness Whereof, the Parties have executed this Amendment No2 in
duplicate originals by their authorized officers as of the date and year first
above written.


                                              PIERRE FABRE UROLOGIE S.A.S.U.



                                                   /s/Jacques Kusmierek
                                              ----------------------------------
                                              By:    Jacques KUSMIEREK
                                              Title: President



                                              STRUCTURAL GENOMIX, INC.



                                                       /s/M.G. Grey
                                              ----------------------------------
                                              By:    M.G. GREY
                                              Title: President and CEO



                                       2.

                       (PIERRE FABRE UROLOGIE LETTERHEAD)


                                          STRUCTURAL GENOMIX INC.
                                          10505 Roselle Street
                                          SAN DIEGO CA 92121
                                          USA

                                          Attention: Mike GREY - President & CEO


                                          Castres, July 25, 2005




Re: Collaboration Agreement dated December 1, 2003


Dear Sirs:

We hereby confirm that, pursuant to Section 12.6 of the Collaboration Agreement
made and entered into as of December 1, 2003 by and between STRUCTURAL GENOMIX
INC. and UROGENE S.A., as further amended on December 16, 2004 and on January 1,
2005 (the "Agreement"), and effective on July 1, 2005, PIERRE FABRE UROLOGIE has
assigned all of its rights and obligations under the Agreement to its Affiliate
(as defined in the Agreement):

                          PIERRE FABRE MEDICAMENT S.A.

                         having a registered office at:

                              45, place Abel-Gance
                          92654 BOULOGNE CEDEX - FRANCE
                           RCS Nanterre SB 326.118.502

                     and a principal place of business at :

                        Parc Industriel de la Chartreuse
                          81106 CASTRES CEDEX - FRANCE


         Pierre Fabre Urologie S.A.S. au capital de 1 000 000.00 euros.
          no SIRET 48001135200014 - TVA FR 04480011352 - Code NAF 7312

PIERRE FABRE MEDICAMENT S.A. hereby accepts and agrees to such assignment as of
the aforesaid date.

As a consequence of the aforesaid assignment, all notices to be served according
to Section 12.3 of the Agreement shall be delivered to:

                  PIERRE FABRE MEDICAMENT S.A.
                  La Chartreuse I
                  81106 CASTRES CEDEX FRANCE
                  Attention:  Chief Operating Officer
                  Facsimile No.:  33 5 63 71 45 34

                  With a copy to: PIERRE FABRE MEDICAMENT
                                  La Chartreuse I
                                  81106 CASTRES CEDEX FRANCE
                                  Attention:  General Counsel
                                  Facsimile No.:  33 5 63 71 39 95

For the sake of good order, we thank you for acknowledging receipt of this
letter by returning to us one signed coy thereof, and remain,

Very Truly Yours,


PIERRE FABRE UROLOGIE S.A.S.U.                 PIERRE FABRE MEDICAMENT S.A.



      /s/ Jacques Kusmierek                          /s/Jean-Pierre Couzinier
- ----------------------------------------       ---------------------------------
By: Jacques KUSMIEREK                          By: Jean-Pierre COUZINIER
    President                                      Chief Operating Officer



         Pierre Fabre Urologie S.A.S. au capital de 1 000 000.00 euros.
          no SIRET 48001135200014 - TVA FR 04480011352 - Code NAF 7312

EX-10.29

                                                                   EXHIBIT 10.29

                                           *** TEXT OMITTED AND FILED SEPARATELY
                                    PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST
                                            UNDER 17 C.F.R. SECTION 200.80(b)(4)
                                               AND RULE 406 UNDER THE SECURITIES
                                                         ACT OF 1933, AS AMENDED

                            DRUG DISCOVERY AGREEMENT


         This Drug Discovery Agreement (the "Agreement") effective as of July 1,
2005 (the "Effective Date"), is entered into by and between Structural GenomiX,
Inc., a Delaware Corporation with principal offices at 10505 Roselle Street, San
Diego, California 92121 ("SGX"), and the Cystic Fibrosis Foundation
Therapeutics, Inc. ("CFFT"), (an Affiliate of the Cystic Fibrosis Foundation
("CFF")), with principal offices at 6931 Arlington Road, Bethesda, MD 20814.

                                    RECITALS

         WHEREAS, CFFT and SGX are currently engaged in collaborative research
pursuant to the Sponsored Research Agreement of December 31, 2000 (the "SRA");
and

         WHEREAS, the Parties wish to continue the research in the manner
specified and pursuant to the terms and conditions of this Agreement; and

         WHEREAS, upon the execution of this Agreement, except as provided in
Article 1, the SRA shall be null and void;

         NOW THEREFORE, the parties agree as follows:

                                 ARTICLE 1 - SRA

         CFFT will continue to pay SGX the SRA milestones indicated in Appendix
A that are successfully completed prior to January 1, 2006 or as otherwise
agreed by the JRC.





Except for any provisions relating to such milestone payments, the SRA shall be
null and void on the Effective Date.

                            ARTICLE 2 - DEFINITIONS

         2.1 "Affiliate" means an entity controlling, controlled by, or under
common control with the parties to this Agreement; and for purposes of SGX,
control shall mean ownership of at least fifty percent (50%) of the voting
stock; and for purposes of CFFT, control shall either mean such stock ownership
or the power to elect a majority of the members of the Board of Directors.

         2.2 "CFFT Intellectual Property" means: (i) Inventions existing as of
the Effective Date, necessary or useful for the performance of the Research,
which CFFT owns, controls or has a license to; and (ii) Inventions made,
created, developed, conceived or reduced to practice solely by CFFT after the
Effective Date.

         2.3 "CFTR" means cystic fibrosis transmembrane conductance regulator
protein in whole or part.

         2.4 "Collaboration Products" means a Lead Series, Early Lead Series or
Structure Data if any of them are sold or licensed as such and any products that
are derived from any or all of a Lead Series, Early Lead Series or the Structure
Data. Collaboration Products shall not include SGX Background Intellectual
Property except to the extent it is integrated into a Lead Series, Early Lead
Series or the Structure Data.

         2.5 "Completion Date" shall have the meaning set forth in Section 3.1.


                                       2



         2.6 Confidential Information" shall have the meaning set forth in
Section 6.1.

         2.7 "Donee" shall have the meaning set forth in Section 3.9(a).

         2.8 "Donor" shall have the meaning set forth in Section 3.9(a).

         2.9 "Early Lead Series" shall mean compounds that either (a) meet the
requirements of Section B.1 of Appendix B or (b) which the JRC designates as an
Early Lead Series.

         2.10 "Effective Date" shall mean July 1, 2005.

         2.11 "Field" shall mean the treatment of cystic fibrosis in humans.

         2.12 "FTE" shall have the meaning set forth in Section 3.2.

         2.13 "Grantees" shall mean Grantees of CFF who own Intellectual
Property and/or other rights that may be useful to the Research.

         2.14 "Hit" shall mean a compound used in the SGX FAST screen which is
shown in the course of the Research, to bind to CFTR or any of its domains as
demonstrated by a crystal structure of ligand bound to protein or by measurable
affinity in a solution phase method such as, but not limited to, isothermal
titrating calorimetry.

         2.15 "Inventions" means all tangible and intangible inventions (whether
or not patentable), discoveries, information, improvements, technology, data,
materials, samples, processes, methods, know-how, trade secrets, or
copyrightable material resulting from the Research.



                                       3




         2.16 "JRC" shall have the meaning set forth in Section 3.8.

         2.17 "Key Milestone Event" shall mean each of Appendix D milestones 7,
8, 9 and 10.

         2.18 "Lead Series" means the collection of compounds within a single
chemical series identified in the course of the Research either (a) which
contains compounds which satisfy the criteria B.2 in Appendix B; or (b) which
the JRC designates as a Lead Series.

         2.19 "Milestone Events" shall have the meaning set forth in Section
3.5(a).

         2.20 "Net Sales" with respect to any Collaboration Product shall mean
the gross amount invoiced by CFFT and any CFFT Affiliate, licensee or
sublicensee for that Collaboration Product sold in bona fide, arms-length
transactions to Third Parties, less (i) quantity and/or cash discounts from the
gross invoice price which are actually allowed or taken; (ii) freight, postage
and insurance included in the invoice price; (iii) amounts repaid or credited by
reasons of rejections or return of goods or because of retroactive price
reductions specifically identifiable to the Collaboration Product; (iv) amounts
payable resulting from government (or agency thereof) mandated rebate programs;
(v) third-party rebates to the extent actually allowed; (vi) invoiced customs
duties and sales taxes (excluding income, value-added and similar taxes), if
any, actually paid and directly related to the sale that are not reimbursed by
the buyer; and (vii) any other specifically identifiable amounts included in the
Collaboration Product's gross invoice price that should be credited for reasons
substantially equivalent to those listed above; all as determined in accordance
with generally accepted accounting principles.



                                       4




                  2.20.1 In the case of any sale or other disposal of a
Collaboration Product between or among CFFT and its Affiliates, licensees and
sublicensees, for resale, Net Sales shall be calculated as above only on the
value charged or invoiced on the first arm's-length sale thereafter to a Third
Party.

                  2.20.2 In the case of any sale which is not invoiced or is
delivered before invoice, Net Sales shall be calculated at the time of shipment
or when the Collaboration Product is paid for, if paid for before shipment or
invoice.

                  2.20.3 In the case of any sale or other disposal for value,
such as barter or counter-trade, of any Collaboration Product, or part thereof,
other than in an arm's length transaction exclusively for money, Net Sales shall
be calculated as above on the value of the consideration received or the fair
market price (if higher) of the Collaboration Product in the country of sale or
disposal.

                  2.20.4 In the event the Collaboration Product is sold in a
finished dosage form containing the Collaboration Product in combination with
one or more other active ingredients (a "Combination Product"), the Net Sales of
the Collaboration Product, for the purposes of determining royalty payments,
shall be determined by multiplying the Net Sales (as defined above in this
Section) of the Combination Product by the fraction, A/(A+B) where A is the
weighted (by sales volume) average sale price of the Collaboration Product when
sold separately in finished form and B is the weighted average sale price of the
other product(s) sold separately in finished form, provided that the above
formula in this Section 2.19.4 shall not apply if the Collaboration Product is
virtually always sold in combination form and if each of the active ingredients
in a



                                       5




Combination Product results from the Research Program and in each such event the
following sentence shall apply. In the event that such average sale price cannot
be determined for both the Collaboration Product and the other product(s) in
combination, Net Sales for purposes of determining royalty payments shall be
mutually agreed by the parties based on relative value contributed by each
component, and such agreement shall not be unreasonably withheld.

                  2.21 "Progress Report" shall have the meaning set forth in
Section 3.8(a).

                  2.22 "Research" shall have the meaning set forth in Section
3.1.

                  2.23 "Research Plan" shall mean the Research Plan attached to
this Agreement as Appendix C as it may be revised from time to time in
accordance with this Agreement.

                  2.24 "SGX Background Intellectual Property" means Inventions
made, created, developed, conceived or reduced to practice by SGX prior to or in
connection with the Research, relating to: (i) methodologies and practices for
protein over-expression, purification, crystallization, X-ray structure
determination, co-crystal structure determination, and compound screening,
including but not limited to, protocols and methodologies and/or instrumentation
relating to production of soluble membrane-bound proteins or their domains,
other than Inventions relating to CFTR or interactions of CFTR with small
molecules or other interactions of CFTR with interacting proteins; and (ii)
compounds within SGX's libraries, including without limitation Hits and linear
libraries, but excluding compounds developed in the course of the Research,
within combinatorial libraries, Structure Data, Early Lead Series and Lead
Series.



                                       6




                  2.25 "Structure Data" means any Inventions made, created,
developed, conceived or reduced to practice by SGX in the course of the Research
relating to the structure of CFTR or interactions of CFTR with other interacting
proteins or CFTR interactions with small molecules and compounds within
combinatorial libraries, developed in the course of the Research, but excluding,
Hits and compounds within linear libraries. For clarity, Structure Data does not
include SGX Background Technology.


                              ARTICLE 3 - RESEARCH

         3.1 Research. There is attached to this Agreement as Appendix C, the
applicable Research Plan describing the Research (the "Research") to be
conducted by SGX in accordance with this Agreement. The Research Plan may be
revised from time to time by the determination of the JRC. Any such revised
Research Plan shall be attached hereto as Appendix C. The term of the Research
will commence on the Effective Date and terminate on the third (3rd) anniversary
of the Effective Date (the "Completion Date") unless terminated earlier as
provided in this Agreement. SGX will exercise its good faith commercial efforts
to conduct the Research in a professional and diligent manner; provided however,
that SGX does not warrant that the Research will achieve any of the research
objectives contemplated by it. For the purposes of Sections 2.15, 2.23, 2.24,
4.1 and 6.5, the Research shall also include the "Research" (as defined in the
SRA) performed pursuant to the SRA. The Research is dependent upon the
availability of both biophysical and cell-based assays to be provided by CFFT.
It is envisioned that the biophysical assay will be based either on Isothermal
Titrating Calorimetry or Biacore(TM) analysis, both of which are capable of
measuring binding of low molecular weight




                                       7




compounds with affinities as low as 100uM. SGX will be responsible for providing
samples of both proteins and compounds for this assay. The cell-based assay
should be capable of detecting compounds with activities of less than 100uM. The
read-out from the assay should reflect activity of functional CFTR. CFFT will
bear the costs of all assays.

         3.2 Research Staffing. SGX will dedicate a minimum of [...***...] full
time equivalent researchers ("FTE's") to the Research per year during the term
of the Research, the exact number to be determined by the JRC on a quarterly
basis in advance of each calendar quarter during the term of the Research based
on the demands of the Research during the upcoming quarter. One FTE is
equivalent to [...***...] hours of work per year. It is anticipated that the
following researchers will be involved in the Research: [...***...], [...***...]
and [...***...] (collectively, the "Key Personnel"). [...***...] shall serve as
SGX's Research manager and shall be responsible for the overall management of
the Research and shall be the first point of contact with CFFT. SGX shall
endeavor to continue to assign the Key Personnel to the Research until the
Completion Date; provided however, that if SGX believes internal transfers are
necessary, SGX shall discuss with CFFT the reasons for such transfers, the
identity and qualification of the proposed substitute personnel, and the means
by which SGX proposes to prevent any such transfer resulting in a learning curve
loss detrimental to the progress of the Research. SGX shall secure CFFT's
written approval prior to implementing any transfer of the Key Personnel;
provided however, that such approval shall not be unreasonably withheld or
delayed.




                                       8     ***CONFIDENTIAL TREATMENT REQUESTED





         3.3 Research Funding. CFFT will pay SGX research funding during the
term of the Research based on the number of SGX FTEs involved in the Research as
provided in Section 3.2 above. For each such FTE, CFFT will pay SGX the rate of
[...***...] dollars ($[...***...]) per FTE per year, except that CFFT will pay
SGX for [...***...] of the FTE's for the Research from the Effective Date
through December 30, 2005 at the rate of [...***...] dollars ($[...***...]) per
FTE. Payments will be made by CFFT [...***...] beginning on the Effective Date,
based on the number of FTE's SGX estimates will be devoted to the Research
during the following fiscal quarter. With its invoice, SGX will provide CFFT
with evidence that the number and appropriate qualifications of FTE's covered by
the [...***...] were actually devoted to the Research and will respond promptly
to any CFFT questions regarding same. Within sixty (60) days following each
anniversary date during the term of the Research, SGX shall provide CFFT with an
annual accounting of the FTE's actually devoted to the Research during the
preceding year and accord CFFT a credit (or in the case of the last annual
accounting), a refund, for any deficiency in FTE's assigned to the Research from
the number of FTE's specified in Section 3.2 for such preceding annual period.
In no event shall CFFT be responsible during any annual period for FTE's
payments in excess of the number of FTE's specified in Section 3.2 for such
period.

         3.4 Technology Payments

                  (a) CFFT shall pay SGX a [...***...] of one million dollars
($1 million) after receipt of an invoice for same, which may be submitted by SGX
immediately after the Effective Date.



                                       9     ***CONFIDENTIAL TREATMENT REQUESTED




                  (b) CFFT shall pay SGX quarterly Technology Maintenance Fees
of [...***...] dollars ($[...***...]) each, billable by SGX on the first
anniversary date of the Effective Date and at the outset of each three (3) month
period thereafter during the term of the Research after receipt of invoices for
same.

         3.5 Milestone Payments.

                  (a) In addition to the FTE payments provided for in Section
3.3, CFFT shall pay to SGX the nonrefundable milestone payments for the
achievement of the Milestone Events set forth in Appendix D.


         (b) Appendix D is provided to direct the flow of the Research and to
offer incentives to SGX. The order and timing of these Milestone Events is
suggested by CFFT and its advisors on the JRC. However, these steps may be
performed out of order and in any year if such performance is determined by the
JRC to help to achieve the overall objectives of the Research at the time they
are performed. Failure to achieve any of the Milestone Events described in
Appendix A or D will not constitute a breach of this Agreement. However, the
failure to achieve a Key Milestone Event on or before its Anticipated Completion
Date (as defined in Appendix D) shall constitute grounds for a "No Cost
Termination" by CFFT in accordance with Section 7.2 of this Agreement.

         (c) Milestone payments shall be paid after the JRC confirms the
completion of each Milestone Event and the receipt of the SGX invoice
corresponding to the Milestone Event.



                                       10    ***CONFIDENTIAL TREATMENT REQUESTED



         3.6 Outsource Budget. In addition to the payments to SGX specified
hereinabove, CFFT will reimburse SGX for amounts SGX incurs for third party
services or materials specified in the Outsource Budget attached hereto as
Appendix E. The Outsource Budget may be amended from time to time with CFFT's
approval. Payments due to SGX under the Outsource Budget shall be invoiced to
CFFT with respect to the preceding quarter.

         3.7 Early Termination Bonus. In addition to the payments provided for
in Sections 3.3 through 3.6. CFFT shall pay to SGX, within sixty (60) days after
the termination of this Agreement, an additional bonus if, but only if,
Milestone Event numbered 10 has been successfully completed by SGX prior to the
termination, such bonus to be calculated as follows: (i) multiplying [...***...]
dollars ($[...***...]) by the number of FTE's specified in Section 3.2 for the
period from the date of such successful completion through the Completion Date,
provided that, if no final number of FTE's have been approved for any portion of
the period after successful completion and prior to the Completion Date, the
number of FTE's for such period for purposes of calculating the Early
Termination Bonus shall be [...***...]. Such bonus shall be in lieu of FTE
payments that otherwise might have been devoted to the Research after successful
completion had the Agreement not been terminated.

         3.8 Research Management.

                  (a) During the term of the Agreement, three or more
representatives of each party will be named to serve on the Joint Research
Committee (the "JRC"). The JRC shall meet regularly (at least two times per year
in person and more frequently at the call of a



                                       11    ***CONFIDENTIAL TREATMENT REQUESTED




representative from either party face to face, by telephone or video
conferencing) to oversee the progress of the Research. The timing and location
of such meetings will be agreed upon by the parties. SGX will provide a written
report (the "Progress Report") detailing the progress of the Research quarterly,
with the Progress Report scheduled for quarters immediately preceding meetings
of the JRC to be distributed to CFFT at least three (3) business days prior to
such meetings. Without limitation, SGX will include in the Progress Reports in
reasonable detail SGX's interpretation of the data.

                  (b) The JRC will be responsible for: approving the detailed
research plans for the first and subsequent years of the Research and any
revision thereto; coordinating and monitoring research progress; determining the
numbers of FTE's required to accomplish the tasks specified in the Research
Plan, determining the successful completion of Appendix A milestones and
Milestone Events; ensuring open and frequent exchanges between the parties with
respect to Research activities; and approving priorities of the Research and
allocations of tasks and resources required to carry out the goals of the
Research. All such decisions will be made by consensus of the JRC; provided
however, that CFFT will have the final decision as to the setting of priorities
for the Research and with respect to all decisions relating directly or
indirectly to payments (including the completion of Appendix A milestones and
Milestone Events) under this Agreement. Decisions of the JRC are [...***...].

         3.9 Proprietary Materials.

                  (a) In the course of the Research, a party ("Donor") may
transfer its proprietary materials to the other party ("Donee"). Substances made
by a Donee from proprietary materials of a Donor shall remain the property of
the Donor. Neither party shall



                                       12    ***CONFIDENTIAL TREATMENT REQUESTED





transfer the other party's proprietary materials to any third party without the
prior written consent of the Donor.

                  (b) CFFT shall exercise its good faith commercial efforts to
obtain from Grantees information and materials; provided however, that all
decisions regarding whether or not, and on what terms, to obtain such
information and materials from Grantees, will be CFFT's responsibility and at
its sole discretion.

                  (c) Upon termination of this Agreement, any remaining
proprietary materials supplied by a Donor will be returned to the Donor or
destroyed, as requested by the Donor.

                  (d) BOTH PARTIES ACKNOWLEDGE THAT THE PROPRIETARY MATERIALS
PROVIDED BY EITHER PARTY TO THE OTHER PARTY ARE EXPERIMENTAL IN NATURE AND THAT
THE DONOR MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, AS TO THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. In no
event shall either party be liable to the other party for any indirect or
consequential damages resulting from any use of the proprietary materials or any
derivatives thereof, by the other party.

         3.10 Exclusivity. During the term of the Research, SGX will not enter
into any agreement or conduct any research, with any commercial third party or
for any commercial purpose, in connection with the structure solution of CFTR
proteins or the development of modulators of CFTR.



                                       13




             ARTICLE 4 - - INTELLECTUAL PROPERTY RIGHTS AND PAYMENTS

         4.1 Ownership. SGX Background Intellectual Property is owned by SGX.
CFFT Intellectual Property is owned by CFFT. SGX will own any Lead Series, Early
Lead Series and Structure Data resulting from the Research; provided however,
that SGX hereby grants to CFFT (a) an exclusive (even as to SGX) worldwide,
sublicensable, perpetual license under all of its rights and interests in any
Lead Series and Early Lead Series to use, sell, license or otherwise transfer
any Lead Series and Early Lead Series to a third party; and (b) an exclusive
(even as to SGX) worldwide, sublicensable, perpetual license in the Structure
Data (other than an Early Lead Series and Lead Series) in the Field under all of
its rights and interests. At CFFT's request, SGX shall promptly furnish the
Structure Data, Early Lead Series and Lead Series to CFFT in such form as will
allow CFFT to exercise its rights hereunder. If CFFT determines that SGX's
retention of title hereunder in any way hinders commercialization, it may
request that SGX transfer title to CFFT. SGX shall not unreasonably withhold its
consent to such request. Without limitation of the foregoing in this Section
4.1, SGX's retention of title to any Lead Series, Early Lead Series and the
Structure Data shall not allow SGX to use the Structure Data in the Field or use
the Lead Series or Early Lead Series for any purposes other than the Research,
and shall not allow SGX to transfer the Structure Data to any third party for
use in the Field or transfer the Early Lead Series or Lead Series to any third
person, except in each case in conjunction with an assignment allowable under
Section 9.5 and then only if SGX's successor in interest in any such assignment
agrees to be bound by the terms of this Section 4.1. SGX shall execute such
agreements and/or documents as



                                       14





requested by CFFT as are necessary to implement CFFT's rights pursuant to this
Section 4.1. Inventorship of Inventions will be determined in accordance with
the laws of the United States and other applicable law.

         4.2 License to SGX of CFFT Intellectual Property. Subject to the terms
of this Agreement, CFFT grants to SGX and SGX accepts a non-exclusive, paid-up,
license of CFFT Intellectual Property to use and practice CFFT Intellectual
Property solely to conduct the Research to the extent that CFFT has the right to
grant such license.

         4.3 SGX Background Intellectual Property. CFFT will have no rights to
use or practice SGX Background Intellectual Property except to the extent it is
integrated into the Structure Data, Early Lead Series or a Lead Series.

         4.4 Commercial Efforts. CFFT will exercise its good faith commercial
efforts to (i) develop and bring on its own account or through sublicensees,
Collaboration Products to the market as soon as reasonably practicable, (ii)
obtain regulatory approvals to market Collaboration Products, and (iii) after
obtaining regulatory approvals for any Collaboration Products, launch
Collaboration Products and promote and meet the market demand therefor.

         4.5 Lack of Diligence. In the event that CFFT fails to exercise its
good faith efforts to develop and commercialize a Collaboration Product within
[...***...] years after the Completion Date, the rights to the Structure Data,
Early Lead Series and Lead Series granted to CFFT pursuant to Section 4.1 shall
revert to SGX and SGX thereafter shall have the right to develop, manufacture,
make, have made, import, use, distribute, offer for sale and sell Collaboration
Products. In the event of such reversion, SGX shall pay to



                                       15    ***CONFIDENTIAL TREATMENT REQUESTED




CFFT [...***...] percent ([...***...]%) of any amount SGX receives from the sale
of any Collaboration Product.

         4.6 Lump Sum Payments. It is anticipated that CFFT will seek a
sublicensee to aid in the further development and commercialization of a Lead
Series generated by SGX. SGX further acknowledges that CFFT may elect to invest
additional funds in the continued development of the Structure Data or a Lead
Series or Early Lead Series prior to seeking a sublicensee and that CFFT will
seek a sublicensee either directly or indirectly after delivery by SGX of a Lead
Series, Early Lead Series or Structure Data or at any point thereafter. Upon
entering into a sublicensing arrangement, CFFT will pay to SGX the cumulative
amounts indicated in the table below of the greater of the indicated percentage
of sublicensing proceeds or the indicated milestone and royalty payments for the
stages completed prior to sublicensing. Thereafter, CFFT shall pay to SGX the
greater of the indicated percentage of sublicensing proceeds or the milestone or
royalty amount corresponding to a stage when it is completed.

SUBLICENSING PROCEEDS, MILESTONES AND ROYALTIES:




                                  Lead Stage (no
                                  additional              From Lead Stage
       Stage of                   investment              up to IND filing        From IND approval
       Sublicensing               by CFFT)                Stage                   Stage on
       -------------------------- ----------------------- ----------------------- ---------------------------
                                                                         
       Percentage of              [...***...]% of the     [...***...]% of the     [...***...]% of the
       sublicensing proceeds      amounts received        amounts received        amounts received
       (including royalties)
       payable to SGX

       Development Candidate      $[...***...]            $[...***...]            $[...***...]

       IND Filing                 $[...***...]            $[...***...]            $[...***...]

       Completion Phase I         $[...***...]            $[...***...]            $[...***...]

       Completion Phase II (POC)  $[...***...]            $[...***...]            $[...***...]

       Initiation Phase III       $[...***...]            $[...***...]            $[...***...]





                                       16    ***CONFIDENTIAL TREATMENT REQUESTED

                                                                         
       1st Registration, US       $[...***...]            $[...***...]            $[...***...]

       1st Registration,          $[...***...]            $[...***...]            $[...***...]
       ex-US

       Royalties                  [...***...]% of Net     [...***...]% of Net     [...***...]% of Net Sales
                                  Sales                   Sales



         4.7 Royalty Accounting and Payments. The royalty payments due under
Section 4.6 will be paid quarterly within sixty (60) days after the close of
each calendar quarter beginning with the calendar quarter following the quarter
in which the first commercial sale of a Collaboration Product occurs. With each
such quarterly payment CFFT will furnish to SGX a written accounting in a format
agreed upon by the parties detailing the total number of units of each
Collaboration Product sold for the quarterly period for which payments under
Section 4.6 are due. Any payments due hereunder which are not paid by the date
due will bear interest at a rate equal to the prime rate as reported by Citibank
(or its successor) in New York, New York applicable to such period, plus
[...***...] percent ([...***...]%).

         4.8 Records; Inspection. CFFT will keep complete, true and accurate
books of account and records for the purpose of determining the amounts payable
under Section 4.6. Such books will be kept reasonably accessible for at least
three (3) years following the end of the calendar quarter to which they pertain.
Such records will be open for inspection during such three (3) year period with
reasonable notice by a representative or agent of SGX for the purpose of
verifying the written accounting. SGX shall bear the costs and expenses of any
such inspections conducted under this Section 4.8 unless a variation or error
producing an underpayment of [...***...] percent ([...***...]%) or more of the
amount payable for any inspection period is established, whereupon all costs and
expenses


                                       17    ***CONFIDENTIAL TREATMENT REQUESTED




relating to such inspection and any unpaid amounts discovered will be paid by
CFFT together with interest on such amounts at the rate specified in Section
4.7.

         4.9 Payments to CFFT. In the event section 4.5 is applicable, Sections
4.7 and 4.8 shall be applicable to SGX and CFFT by reversing the rights and
obligations of the parties specified therein.

                         ARTICLE 5 - PATENT PROSECUTION

         5.1 Prosecution by each party.


                  (a) SGX shall promptly notify CFFT of any Invention. During
the term of Research, SGX shall, at CFFT's expense, (i) direct the preparation,
filing, prosecution and maintenance of patent applications and patents relating
to the Research in such countries as CFFT deems appropriate and (ii) conduct any
interferences, re-examinations, reissues, oppositions or requests for patent
term extensions with respect to patents and patent applications; and (iii) keep
CFFT informed as to the status of patent matters relating to Inventions,
including, without limitation, by providing CFFT and its patent counsel the
opportunity, at CFFT's expense, to review and comment on any documents relating
to the Research which will be filed in any patent office at least thirty (30)
days before such filing, and promptly providing CFFT with copies of any
documents relating to the Inventions which SGX receives from such patent
offices, including notices of all interferences, reissues, reexaminations,
oppositions or requests for patent term extensions. After the term of the
Research, CFFT shall assume the aforementioned obligations with respect to
patents. CFFT



                                       18




shall reimburse SGX for the costs SGX incurs in undertaking the above patent
responsibilities on a monthly basis.

                  (b) SGX shall have the right at its sole expense to direct the
preparation, filing, prosecution and maintenance of patent applications and
patents relating to SGX Background Intellectual Property worldwide in such
countries as SGX deems appropriate, and conduct any interferences,
re-examinations, reissues, oppositions or requests for patent term extensions
with respect thereto.

         5.2 Prosecution by CFFT. In the event SGX declines to file or, having
filed, declines to further prosecute and maintain any patents or patent
applications on Inventions for which it is responsible under Section 5.1(a)
after a reasonable opportunity to do so, CFFT will have the right to conduct
such activities, at its own expense, in the name of the owner in any country, in
which event SGX shall provide all reasonable assistance requested by CFFT at
CFFT's expense.

         5.3 Cooperation. Each party will make available to the other such of
its employees, agents or consultants as are reasonably necessary or appropriate
to enable such party to file, prosecute and maintain patents and patent
applications as permitted under Section 5.1(a), including without limitation, by
providing the other with an opportunity to fully review and comment on any
documents as far in advance of filing dates as feasible, which documents will be
filed in any patent office, and providing the other with copies of any documents
that such party received from such patent offices promptly after receipt,
including notice of all interferences, reissues, reexaminations, oppositions or
requests for patent term extensions.



                                       19




                           ARTICLE 6 - CONFIDENTIALITY

         6.1 Confidential Information. Pursuant to the SRA and to this
Agreement, SGX and CFFT have and may supply each other with certain proprietary,
technical or business information or materials ("Confidential Information").
Confidential Information will mean all Confidential Information disclosed by the
parties to each other under the SRA and all information disclosed by a party to
the other party under this Agreement and designated as "Confidential" by the
disclosing party at the time of disclosure as follows: (i) Confidential
Information embodied in any tangible form or thing must be marked or labeled
clearly as "CONFIDENTIAL" or with a similar legend sufficient to notify the
receiving party that the Confidential Information is subject to the terms of
this Agreement; (ii) Confidential Information disclosed orally must be
identified as "CONFIDENTIAL" at the time of oral disclosure; (iii) Confidential
Information licensed to CFFT pursuant to Section 4.1 of this Agreement which
shall be the Confidential Information of CFFT pursuant to such license
notwithstanding the fact the information was initially disclosed to CFFT by SGX.

         6.2 Use of Confidential Information. SGX and CFFT agree that they will
not use any Confidential Information received from the other party except for
the purposes of this Agreement or to exercise the rights granted or retained by
such party under this Agreement. Each party agrees not to disclose any
Confidential Information received from the other party to any third parties,
except as provided in Sections 6.3 or 6.4, to the extent required for patent
filings, or otherwise to exercise its rights duties and obligations




                                       20




pursuant to this Agreement. SGX and CFFT agree to maintain and follow reasonable
procedures to prevent unauthorized disclosure or use of the Confidential
Information and to prevent it from falling into the public domain or the
possession of unauthorized persons. SGX and CFFT agree that subject to the first
two sentences of this Section 6.2, and to Sections 6.3 and 6.4, the recipient of
Confidential Information hereunder will not disclose such information other than
to those of its officers, employees, or consultants who require access to
Confidential Information to accomplish the purposes of this Agreement and that
all such disclosures will be subject to written contractual obligations of
confidentiality at least as restrictive as those in this Agreement. Each party
will immediately advise the other party of any disclosure, loss or use of
Confidential Information in violation of this Agreement. The obligations of the
parties with respect to Confidential Information under this Article 6 will
terminate [...***...] ([...***...]) years from the Completion Date except in the
case of Confidential Information exclusively licensed to CFFT pursuant to this
Agreement which confidentiality restrictions shall remain in force for SGX for
[...***...].

         6.3 Disclosure to Commercial Partner. In the event that either party
enters into an agreement with a third party in accordance with the terms of this
Agreement with respect to the further development or commercialization of any
Inventions, such party will have the right to disclose to that third party and
such third party will have the right to use such Confidential Information of the
other party as is necessary to accomplish the purposes of the agreement between
the contracting party and the third party.

         6.4 Exceptions. For purposes of Sections 6.1 through 6.3, Confidential
Information will not include information that the receiving party shows is:




                                       21    ***CONFIDENTIAL TREATMENT REQUESTED




                  (a) lawfully known or available to the receiving party from a
source other than the disclosing party without breach of this Agreement;


                  (b) already known to the receiving party, as shown by written
records, before its disclosure by the disclosing party;


                  (c) developed independently by the receiving party without the
use or consideration of or reference to the Confidential Information of the
disclosing party;


                  (d) within, or later falls within, the public domain without
breach of this Agreement by the receiving party;


                  (e) publicly disclosed with the written approval of the
disclosing party; or


                  (f) disclosed pursuant to the requirement or demand of a
lawful governmental or judicial authority, but only to the extent required by
operation of law, regulation or court order; provided however, prior to such
disclosure the party otherwise required to disclose shall notify the other party
as far in advance as is practicable to allow such other party to seek a
protective order; and


                  (g) the transfer of coordinate files that underlie milestones
4 and 5 of Appendix A and Milestone 5 of Appendix D, each of which files shall
be furnished to CFFT by SGX promptly upon the completion of each such milestone.

         6.5 Publication. In the event any of the parties hereto wish to publish
any papers relating to the Research, representatives of the other parties hereto
may be co-authors of such papers, subject to customary scientific practices;
provided, however, each



                                       22




party's contribution to the Research described in such papers will be
acknowledged in all such papers, regardless of authorship. To afford each party
an opportunity to determine that no Confidential Information of such party is
disclosed in any proposed publications, whether written or oral (including
without limitation, presentations to a journal or editor or other written
materials, abstracts, presentations to a seminar, meeting or other third party
or any other oral disclosure or abstract) and that patent filings will not be
jeopardized, and to keep each party informed of upcoming disclosures, each party
will provide the other with an advance copy of any proposed publication or
abstract relating to the Research at least thirty (30) days prior to submission
of such manuscript or thirty (30) days prior to presentation if such publication
is to be made orally. At the non-publishing party's request, the publishing
party will delay submitting such manuscripts for an additional ninety (90) days
to allow the non-publishing party to take such steps it deems necessary to file
patent applications or otherwise protect its Confidential Information.

         6.6 Publicity. Neither party may make any public announcement relating
to this Agreement including disclosure of the terms or status of Milestone
Events under this Agreement without the prior written consent of the other
party, which consent will not be unreasonably withheld. Upon execution of this
Agreement, the parties will issue a press release in the form mutually agreed
upon or a reasonable variant thereof. Any additional press releases or public
announcements with respect to this Agreement or the transactions and activities
contemplated herein will be published at such time and in such manner as the
parties will mutually agree upon.



                                       23




                             ARTICLE 7 - TERMINATION

         7.1 Without Cause Termination by CFFT. CFFT shall have the right to
terminate this Agreement without cause upon the [...***...] by providing SGX at
least thirty (30) days notice of such termination. In such event, CFFT shall pay
to SGX a termination payment of [...***...] dollars ($[...***...]), and except
for such termination payment and any outstanding accrued liabilities existing as
of the effective date of termination, no further amount shall be payable by CFFT
pursuant to this Agreement.

         7.2 No Cost Termination. CFFT may terminate this Agreement without cost
("No Cost Termination") on written notice, given at any time during the sixty
(60) day period immediately following a Key Milestone Event Anticipated
Completion Date only if SGX has failed to successfully complete such Key
Milestone Event by the Anticipated Completion Date, and only to the extent that
such failure is not due to a delay in the availability of the assays described
in Section 3.1. In the event of such termination, no further amount shall be
payable by CFFT to SGX except for any outstanding accrued liabilities existing
as of the effective date of termination.

         7.3 Automatic Termination. This Agreement shall terminate on the
Completion Date, or if earlier, on the date Milestone numbered [...***...]
specified in Appendix D has been successfully completed.

         7.4 Termination for Material Breach. Without limitation to other rights
available to a party, either party may terminate this Agreement in the event of
a material breach by the other party upon sixty (60) days written notice to the
other party setting



                                       24    ***CONFIDENTIAL TREATMENT REQUESTED




forth in reasonable detail the specifics of the material breach, provided
however, that within such sixty (60) day period, the party in material breach
may cure the deficiency or the parties may agree on a settlement in which case
the termination by SGX or CFFT shall not occur.

         7.5 Effect of Termination. In the event of termination of this
Agreement (other than by reason of CFFT's breach), the licenses granted by CFFT
to SGX pursuant to this Agreement will terminate. In the event of termination of
this Agreement by CFFT under Sections 7.2 or 7.4, or in the event of termination
under Section 7.3, SGX agrees that for a period of [...***...] ([...***...])
years from the date of termination, it will not work with any third party in the
field of CFTR structure determination. In the event of termination (other than
as a result of CFFT's breach), SGX shall transfer to CFFT in a format requested
by CFFT all processes and materials relevant to the Research other than SGX
Background Intellectual Property. , In addition to other licenses granted to
CFFT by SGX pursuant to this Agreement, (i) in the event of termination of this
Agreement by CFFT under Section 7.4 SGX will grant to CFFT an [...***...]
license in the Field, to any Hits and compounds within linear libraries,
identified in the course of the Research, and (ii) in the event of termination
of this Agreement under Sections 7.2 or 7.3, SGX will grant to CFFT a
[...***...] license in the Field to any Hits and compounds within linear
libraries, identified in the course of the Research.

         7.6 Survival. Articles 1, 2, 4, 5, 6, 7, 8 and 9 and Section 3.9 shall
survive expiration or termination of this Agreement for any reason, except that:
(a) in the event of termination by CFFT under Section 7.4, Sections 4.6 and 4.7
shall not survive; and (b) in the event of a termination by SGX under Section
7.4, sections 4.1(a) and (b) shall not



                                       25    ***CONFIDENTIAL TREATMENT REQUESTED




survive; and (c) in the event of termination by CFFT under Section 7.2, Sections
4.6 and 4.7 shall not survive, but in lieu of payments to SGX pursuant to those
sections, CFFT shall pay to SGX [...***...] percent ([...***...]%) of any amount
CFFT receives from the sale of any Collaboration Product.

                           ARTICLE 8 - INDEMNIFICATION

         8.1 CFFT Indemnification. CFFT agrees to defend, indemnify and hold
SGX, its directors, officers, employees, agents and Affiliates, harmless from
and against any losses, costs, claims, liabilities or expenses (including
reasonable attorney's fees and expenses of litigation) claimed by persons not
covered by this indemnification arising out of or in connection with (i) the use
or practice of an Early Lead Series, Lead Series or Structure Data by or on
behalf of CFFT, its Affiliates, licensees or sublicensees or (ii) the research
and development, manufacture, use, promotion, marketing, sale or other
distribution of any Collaboration Product by CFFT or its Affiliates, licensees
or sublicensees, except to the extent that such claims result from the
negligence or willful misconduct of SGX.

         8.2 SGX Indemnification. SGX agrees to defend, indemnify and hold CFFT
and its Affiliates and their officers, employees and agents, harmless from and
against any losses, costs, claims, liabilities or expenses (including reasonable
attorney's fees and expenses of litigation) claimed by persons not covered by
this indemnification arising out of or in connection with (i) the negligent
performance or willful misconduct of this Agreement by or on behalf of SGX; or
(ii) resulting from the use or practice of CFFT Intellectual Property by or on
behalf of SGX; or (iii) resulting from the use or practice of




                                       26    ***CONFIDENTIAL TREATMENT REQUESTED




SGX Background Intellectual Property by SGX; except to the extent that such
claims result from the negligence or willful misconduct of CFFT.

         8.3 Procedure. The parties agree to promptly notify each other of any
claim or liability subject to this Article 8. The indemnifying party will have
the right to control the defense thereof with counsel of its choice; provided
however, that the indemnified party will have the right to retain its own
counsel at its own expense for any reason. The indemnified party will cooperate
with the indemnifying party and its legal representatives in the investigation
of any action, claim or liability covered by this Article 8. The indemnified
party will not, except at its own cost, voluntarily make any payment or incur
any expense with respect to any claim or suit without the prior written consent
of the indemnifying party.


                            ARTICLE 9 - MISCELLANEOUS

         9.1 Representations and Warranties. Each party represents and warrants:


                  (a) each SGX scientist and employee involved in the Research
has entered into a contract which provides for assignment to the party of all
Inventions and discoveries made by the scientist or employee during the course
of his or her employment with the party;


                  (b) it has not previously granted and during the term of this
Agreement will not grant any option, license or interest in or to the
Intellectual Property subject to this Agreement or any portion thereof in
conflict with the rights granted to the other party herein;



                                       27




                  (c) it has the right to grant the rights granted herein and it
has the full power, right and authority to execute and deliver this Agreement
and perform its obligations hereunder; and


                  (d) it owns or has a license (with the right to grant
sublicenses) to the proprietary materials provided to the other party under this
Agreement

         9.2 Arbitration. The parties recognize the disputes as to certain
matters may from time to time arise during the term of this Agreement which
relate to either party's rights and/or obligations hereunder. It is the
objective of the parties to establish procedures to facilitate the resolution of
disputes arising under this Agreement in an expedient manner by mutual
cooperation and without resorting to arbitration. The parties agree that prior
to any arbitration concerning this Agreement, CFFT's President and SGX's
President will meet in person or by video conferencing in a good faith effort to
resolve any disputes concerning this Agreement. Within thirty (30) days of a
formal request by either party to the other, any party may, by written notice to
the other, have such dispute referred to their respective officers designated
for attempted resolution by good faith negotiations, such good faith
negotiations to begin within thirty (30) days after such notice is received. Any
dispute arising out of or relating to this Agreement which is not resolved
between the parties or the designated officers of the parties pursuant to this
Section 9 will be resolved by final and binding arbitration conducted in
Chicago, Illinois under the then current Commercial Arbitration Rules of the
American Arbitration Association ("AAA"). The arbitration will be conducted by
three (3) arbitrators who are knowledgeable in the subject matter which is at
issue in the dispute. One arbitrator will be selected by CFFT and one arbitrator
will be selected by SGX and the third arbitrator



                                       28




will be appointed by the AAA. In conducting the arbitration, the arbitrator will
determine what discovery will be permitted, consistent with the goal of limiting
the cost and time which the parties must expend for discovery (and provided that
the arbitrators will permit such discovery they deem necessary to permit an
equitable resolution of the dispute) and will be able to decree any and all
relief of an equitable nature, including but not limited to such relief as a
temporary restraining order, a preliminary injunction, a permanent injunction,
specific performance or replevin of property. The arbitrators will also be able
to award actual or general damages, but will not award any other form of damage
(e.g., consequential, punitive or exemplary damages). The parties will share
equally the arbitrator's fees and expenses pending the resolution of the
arbitration unless the arbitrators require the non-prevailing party to bear all
or any portion of the costs of the prevailing party. The decision of the
arbitrators will be final and binding and may be enforced by the party in whose
favor it runs in any court of competent jurisdiction at the option of such
party. Notwithstanding anything to the contrary in this Section 9.2, either
party may seek immediate injunctive or other interim relief from any court of
competent jurisdiction with respect to any breach of Section 6 hereof, or
otherwise to enforce and protect the patent rights, copyrights, trademarks, or
other intellectual property rights owned or controlled by such party. In no
event will a demand for arbitration be made after the date when the institution
of a legal or equitable proceeding based on such claim, dispute or other matter
in question would be barred by the applicable statute of limitations.

         9.3 Invoices. All invoices sent under this Agreement are payable within
thirty (30) days after the date of an invoice finally submitted. Each invoice
shall be submitted




                                       29



with sufficient backup information to allow CFFT to verify the invoice amounts.
SGX shall promptly respond to requests by CFFT for further information and SGX
shall cooperate with CFFT if CFFT determines that an audit of any invoice is
appropriate. In case of non- or late payments of any amounts owing by CFFT to
SGX, such amounts shall bear interest at the rate of [...***...]% per
[...***...] from the date on which such amounts shall become due and payable.

         9.4 Governing Law. This Agreement will be governed by the laws of the
State of Maryland, without reference to conflicts of laws principles.

         9.5 Assignment. This Agreement will not be assignable by either party
to any third party without the prior written consent of the other party; except
either party may assign this Agreement without such consent, to (i) an Affiliate
of such party; or (ii) an entity that acquires all or substantially all of the
business or assets of such party to which this Agreement relates, whether by
merger, acquisition, reorganization, sale or otherwise.

         9.6 No Implied License. No right or license under any patent
application, issued patent, know-how or other proprietary information is granted
or shall be granted by implication. All such rights or licenses are or shall be
granted only as expressly provided in the terms of this Agreement.

         9.7 Force Majeure. Neither party will be liable to the other for
failure or delay in the performance of any of its obligations under this
Agreement for the time and to the extent such failure or delay is caused by
earthquake, riot, civil commotion, war, hostilities between nations,
governmental law, order or regulation, embargo, action by the government or any
agency thereof, act of God, storm, fire, accident, labor dispute or



                                       30    ***CONFIDENTIAL TREATMENT REQUESTED




strike, sabotage, explosion, or other similar or different contingencies, in
each case, beyond the reasonable control of the respective party.

         9.8 Independent Contractors. The relationship between the parties will
be that of independent contracting parties and nothing in this Agreement will be
construed to create any other relationship between CFFT and SGX. No party will
have the right, power or authority to assume, create or incur any expense,
liability or obligation, express or implied, on behalf of any of the other
parties.

         9.9 Severability. If any provision(s) of this Agreement will be held
invalid, illegal or unenforceable by a court of competent jurisdiction, this
Agreement will continue in full force and effect without said provision.

         9.10 Notices. Any notices made pursuant to this Agreement will be in
writing and will be deemed effective when sent by nationally recognized
overnight express delivery service, registered or certified mail, return receipt
requested, postage prepaid, to the respective addresses specified below, or to
such other address as each party may specify by written notice:

         To SGX:           Structural GenomiX, Inc.
                           10505 Roselle Street
                           San Diego, CA 92121
                           Attention:  President and CEO
                           Copy to:    Legal Department

         To CFFT:          Cystic Fibrosis Foundation Therapeutics, Inc.
                           6931 Arlington Road
                           Bethesda, MD 20814
                           Attention: Dr. Robert Beall, President



                                       31




                           Copy to:  Kenneth I. Schaner, Esq.
                           Swidler Berlin LLP
                           3000 K Street, N.W., Suite 300
                           Washington, D.C. 20007



         9.11 Entire Agreement. This Agreement and its Appendices constitute the
entire Agreement between SGX and CFFT and except as provided in Article I
supersedes all prior communications, understandings and agreements with respect
to all subject matters covered by the Agreement.

         9.12 Modification; Waiver. This Agreement may not be altered, amended
or modified in any way except by a writing signed by both parties. The failure
of a party to enforce any provision of the Agreement will not be construed to be
a waiver of the right of such party to thereafter enforce that provision or any
other provision or right.

         9.13 Headings. The captions to the several sections hereof are not a
part of this Agreement, but are included merely for convenience of reference
only and shall not affect its meaning or interpretation.

         9.14 Counterparts. This Agreement may be executed in two counterparts,
each of which will be deemed an original and both of which together will
constitute one instrument.



                                       32




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


STRUCTURAL GENOMIX, INC.                    CYSTIC FIBROSIS FOUNDATION
                                            THERAPEUTICS, INC.


By: /s/ M.G. Grey                           By:  /s/ Robert J. Beall
    -------------------------------              -------------------------------





Title: President & CEO                      Title: President & CEO
       ----------------------------                -----------------------------


Date: June 23, 2005                         Date: 7/05/05
      -----------------------------               ------------------------------



                                       33




                                   APPENDIX A


                          SURVIVING MILESTONES FROM SRA




                                       Milestones                       Amount
- ----------------- ------------------------------------------ --------------------
                                                       
1                 [...***...]                                        $[...***...]

2                 [...***...]                                        $[...***...]

3                 [...***...]                                        $[...***...]

4                 [...***...]                                        $[...***...]

5                 [...***...]                                        $[...***...]

Total                                                                $[...***...]
                                                                      -----------





                                       34    ***CONFIDENTIAL TREATMENT REQUESTED





                                   APPENDIX B


                              LEAD SERIES CRITERIA


A Lead Series will comprise a set of structures that possess the properties
detailed below and can form the basis of a formal medicinal chemistry
optimization effort.


B.1      EARLY LEAD SERIES CRITERIA

(i)      [...***...].

(ii)     Total number of [...***...] and [...***...], number of [...***...]

(iii)    No [...***...] groups or [...***...] commonly associated with
         [...***...], as judged by an independent [...***...] agreed upon by
         [...***...]. No [...***...] of [...***...] to the [...***...] that
         would be [...***...] in [...***...].

(iv)     [...***...].

(v)      Proof of [...***...] in [...***...]; [...***...] an increase in the
         [...***...].

(vi)     [...***...] activity on [...***...] by a known [...***...]

(vii)    [...***...].

(viii)   [...***...] in [...***...] used for [...***...].

(ix)     One or more [...***...] meets criterion numbers [...***...],
         [...***...], [...***...], [...***...], [...***...], [...***...], and at
         least one member of the series meets criteria [...***...] without
         necessarily also meeting criteria [...***...], [...***...],
         [...***...], [...***...], [...***...], [...***...].(1)

B.2.     LEAD SERIES CRITERIA

         [...***...]:

(i)      [...***...].

(ii)     [...***...].

(iii)    [...***...].

(iv)     [...***...] in presence of [...***...]% [...***...].


- ----------
(1) While satisfaction of the specified criterion requires that [...***...],
[...***...], [...***...], [...***...], [...***...], the parties specifically
intend that [...***...]



                                       35    ***CONFIDENTIAL TREATMENT REQUESTED





(v)      [...***...].

(vi)     [...***...]:

                  a.       [...***...]

                           [...***...]

                  b.       [...***...]

(vii)    [...***...]

(viii)   [...***...], [...***...], [...***...].

(ix)     [...***...]

(x)      [...***...] should be met for a [...***...] within the [...***...];

(xi)     At least [...***...] is required to meet all the specified criteria.

(xii)    [...***...]:

                  o        [...***...]

                  o        [...***...]

                  o        [...***...]

                  o        [...***...]




                                       36    ***CONFIDENTIAL TREATMENT REQUESTED





                                   APPENDIX C

                                  Research Plan



3.8 1. OVERALL GOAL

The goal of the SGX-CFFT collaboration is to generate Lead Series that function
as "[...***...]" of (DELTA)F508 CFTR and have the potential to be optimized and
developed into therapeutics. The Plan involves applying SGX FAST( technology to
find novel small molecule structures that bind to []F508 NBD1 and that, when
optimized and tested in cells, reverse the effect of the F508 mutation.

This project will be initiated with parallel screens of the SGX FAST(TM)
Fragment Library (using compound mixtures) using [...***...] and [...***...]
with []F508 human NBD1 as the target. Fragments identified from the [...***...]
screen will be re-screened by [...***...]. All [...***...] hits will be
prioritized for elaboration into compounds with increased binding affinity to
[]F508 NBD1.


2. Overview of the FAST( Process

FAST(TM) begins with the establishment of robust methods for co-crystallization
and soaking to enable screening of the FAST(TM) fragment library against the
target.

Once the crystal soaking methods are developed at SGX, the FAST(TM) fragment
library is screened. This includes a crystallographic screen of fragment
mixtures ([...***...] fragments soaked with [...***...] crystal). Fragments
identified as binding to the target protein are reviewed and selected for
elaboration, using criteria such as [...***...], [...***...], [...***...] and
[...***...], and [...***...] in terms of chemical elaboration.

The FAST(TM) Fragment library is a collection of ~1000 diverse low molecular
weight compounds that represent ring systems typically found in drugs and
drug-like molecules. These fragments have been selected using specific
"lead-like" criteria, including:

         o [...***...]

         o [...***...]

         o [...***...]

         o [...***...], [...***...], [...***...], [...***...],
           [...***...].[...***...]

Each member of the FAST(TM) fragment library is amenable to rapid chemical
elaboration at two or three sites to provide access to enormous potential
chemical diversity using parallel organic synthesis. Initial fragment
elaboration involves using knowledge of the structure of the target-fragment
complex and advanced computational chemistry tools (MM/PBSA: Kollman et al, Acc.
Chem. Res. 2000, 33, 889-897) to guide synthesis of small, focused linear
(one-dimensional) libraries. Usually, these linearly elaborated




                                       37    ***CONFIDENTIAL TREATMENT REQUESTED




fragments are evaluated with in vitro biochemical assays and co-crystal
structure analyses to provide a set of compounds with enhanced activity and SAR.
In the case of (DELTA)F508 NBD1, however, [...***...]. Instead, we will use a
[...***...], and [...***...]) to assess [...***...]. Thereafter, optimal
variations at each point of chemical diversity are combined to synthesize
focused combinatorial (two- or three-dimensional) libraries that are again
evaluated with assays and X-ray crystallography. These focused combinatorial
libraries typically contain multiple novel compounds of low molecular weight
(<500Da) that bind the target protein with micromolar IC(50) values and
considerable selectivity. The deliverables from this process are compounds with
defined "lead-like" properties, target activity, SAR, and co-crystal structures.
The identified compounds can be further elaborated via parallel synthesis or
medicinal chemistry optimization to provide more optimized lead series. The
leads or lead series can be profiled and advanced based on cellular or
functional assays, animal efficacy models, in vitro and in vivo ADME and in
vitro toxicology studies in concert with structural information.

3. FAST(TM) APPLIED TO (DELTA)F508 NBD1

SGX and CFFT will collaborate on the discovery of Lead Series against
(DELTA)F508 NBD1 using the SGX FAST(TM) process. The crystal structure of
(DELTA)F508 human NBD1 has already been determined at SGX. A prime initial goal
of the collaboration will be to determine the [...***...] and [...***...] of
[...***...] on the [...***...] of the [...***...]. Information gained from this
early series of experiments will guide the selection of fragments for further
elaboration. Prioritization of the fragment selection and elaboration for the
various sites will occur through discussions with the Joint Research Committee
(JRC) throughout the course of the collaboration.

SGX will then apply its experience and expertise in high-throughput
crystallographic studies of protein-ligand complexes and integrated small
molecule design and discovery to rapidly identify one or more Early Lead Series
against (DELTA)F508 NBD1 which will subsequently be optimized to Lead Series as
defined in Appendix B.


3.1 TIMELINE

The projected timeline for the FAST(TM) project directed against (DELTA)F508
NBD1 is illustrated in the accompanying Project Timeline, with the goal of
identifying one or more Lead Series as defined in Appendix B.


3.2 FAST(TM) TARGET SELECTION AND FAST(TM) READINESS

3.2.1 Protein Production

SGX currently has established methods for producing a number of [...***...] and
[...***...] proteins in multi-milligram quantities. These quantities are
sufficient for all the crystallization trials and binding studies using mass
spectrometer analysis that are envisaged during the collaboration.

3.2.2 Screening for compounds that bind to (DELTA)F508 NBD1 using [...***...]

As there is no biochemical assay for compounds that bind to [...***...], we will
use an assay based on [...***...], in parallel with the crystallographic screen,
to detect FAST(TM) fragments that bind to (DELTA)F508 NBD1. For this, we will
[...***...] into [...***...] that are based on [...***...] and [...***...] by
[...***...]



                                       38    ***CONFIDENTIAL TREATMENT REQUESTED




[...***...] rather than on [...***...]. We will screen both wild type and
(DELTA)F508 NBD1 proteins in parallel in this assay as this will allow us to
determine, for the first time, whether there are differences in binding
properties between these proteins due to the loss of F508.

A brief description of the [...***...] process follows:

         o The [...***...]) is [...***...] from the FAST(TM) library, where each
           [...***...] of [...***...] (the number of [...***...] can be
           [...***...] if needed).

         o Appropriate [...***...] are [...***...].

         o [...***...] are [...***...] as the [...***...] of [...***...].

         o [...***...] to [...***...] are [...***...] by [...***...] and
           identified by [...***...].

         o [...***...] that [...***...] can be [...***...] in [...***...].

         o [...***...] will be followed up by [...***...].

We intend to use the [...***...] screen in parallel with the [...***...] screen.
Each approach will use [...***...]. However, the [...***...] will be different:
those for the [...***...] screen will be [...***...] based on the [...***...] of
the [...***...] while those used for [...***...] are [...***...] based on the
[...***...]. Following the [...***...] analysis on compound mixtures, we will
follow up hits with individual experiments on single compounds to confirm the
identity of the hits.

The JRC will review results and select [...***...] hits for follow-up in
crystallization trials to determine the precise location of the binding sites
and binding mode of the fragments.

3.2.3 Crystallization and Crystallography

SGX will develop appropriate crystallization, co-crystallization, soaking and
mixture soaking methods in-house to enable [...***...]. Activities will include:

         o Definition of [...***...] and [...***...] and [...***...]

         o Verification of [...***...], [...***...]

         o Development and optimization of [...***...]

The main goal is to be able to [...***...]. In the early stages of the work,
[...***...] will be attempted [...***...]. Our goal is to [...***...] from the
[...***...] (DELTA)F508 NBD1 protein, where [...***...]% of the [...***...] to
[...***...]. However, at a certain point the JRC may agree to move forward even
[...***...]%.


3.3 IDENTIFICATION OF INITIAL FRAGMENT HITS

>>       [...***...] of the SGX FAST(TM) Fragment library will be performed to
         provide initial Fragments for elaboration.

>>       Fragments may be identified as binding to multiple different sites on
         (DELTA)F508 NBD1. SGX will select [...***...] Initial Fragment Hits,
         distributed across the different binding sites, using criteria
         including [...***...]. SGX will generate plans to elaborate these
         fragments.

>>       Fragment hits identified by [...***...] will be tested by [...***...]
         and/or [...***...] to measure their binding affinity.



                                       39    ***CONFIDENTIAL TREATMENT REQUESTED





3.4  IDENTIFICATION OF ELABORATED FRAGMENTS

>>   The selected Initial Fragment Hits are computationally elaborated into
     virtual libraries with each segment/handle combination being elaborated
     independently to provide "linear libraries". The enumerated libraries are
     subjected to the SGX proprietary docking and scoring process (AGILE). The
     AGILE process involves:

     1.  Enumerating all possible [...***...] from [...***...] at each "handle".

     2.  Generating all [...***...] of each [...***...] in the context of the
         [...***...] and [...***...], based on the observed [...***...] of the
         [...***...].

     3.  [...***...] each [...***...] in the context of the [...***...].

     4.  Eliminating [...***...] with [...***...].

     5.  [...***...].

>>       The target library for the first round of synthesis is typically
         [...***...] compounds for each fragment / handle that is elaborated.

>>       SGX will synthesize these small parallel libraries of Linear Elaborated
         Fragments, [...***...] per "handle", using the computationally selected
         fragments (i.e., for a fragment with [...***...] "handles", [...***...]
         individual small libraries will be synthesized, one at each position -
         approximately [...***...] compounds per library).

>>       All linear library members will be tested by [...***...] and/or
         [...***...] to determine their binding affinity. Selected compounds
         with measurable affinity will be selected for cocrystal structure
         determination.

>>       SGX will perform co-crystal structure determinations for selected
         Linear Elaborated Fragments.

The fact that both [...***...] have [...***...] may be an issue. All [...***...]
will already have been [...***...] by their [...***...] in the [...***...] for
synthesis. We will need to obtain [...***...] for [...***...] and [...***...].
[...***...] will need to be compatible with the [...***...]; [...***...] will be
completed at a maximum rate of [...***...]. If [...***...] or [...***...]
threaten to become [...***...], one of the following alternative approaches will
be used:

i) If we have a [...***...] system, we will use [...***...] (we may need to
[...***...], just as with the FAST screening library; so [...***...] elaborated
compounds would be combined [...***...]) to identify [...***...] for follow-up
by [...***...] by [...***...] and/or [...***...]. The advantage of this approach
is that we will not [...***...] without [...***...]. We will also consider using
[...***...] as a [...***...] at the outset until we gain confidence in
[...***...] results. Or,

ii) Once the [...***...] of the [...***...] has been established, it will be
possible to [...***...] with [...***...] in a rapid fashion with a [...***...]
in a [...***...], and then select those compounds of interest for a [...***...].

3.5 COMBINATORIAL ELABORATED FRAGMENTS

                                       40    ***CONFIDENTIAL TREATMENT REQUESTED




>>       Based on the results from the characterization of Linear Elaborated
         Fragments, SGX will generate plans for the second stage of fragment
         elaboration (Combinatorial Elaborated Fragments). The effort will focus
         on elaboration of compounds targeting a single binding site (unless the
         JRC elects to the contrary) and will involve multiple elaborations of
         up to [...***...] Fragments subject to the outcome of the screening and
         linear library design experiments outlined above.

>>       SGX will computationally select (using the AGILE process described
         above) combinations of active Linear Elaborated Fragments for all
         points of diversity (handles) to design small, focused combinatorial
         libraries, for which two or more positions are varied simultaneously
         (approximately [...***...] compounds per library).

>>       SGX will synthesize small combinatorial libraries using parallel
         synthesis.

>>       All combinatorial library members will be tested by [...***...] and/or
         [...***...] to determine their binding affinity.

>>       [...***...] will perform [...***...] determinations for selected
         Combinatorial Elaborated Fragments.

>>       Depending on the results from these first Combinatorial Elaborated
         Libraries, we anticipate that [...***...].

The number of structure determinations, whether by [...***...] or by
[...***...], will depend on the answer to questions such as 3.4. We will submit
up to [...***...]% of [...***...]-active compounds per linear library for
soaking to obtain a representative sampling of the most active compounds.


3.6  OPTIMIZATION TO EARLY LEAD SERIES

>>       As necessary, additional optimization will be undertaken in order to
         obtain one or more Early Lead Series meeting the target criteria in
         Appendix B.

>>       Plans will be generated using a combination of structure-based design
         and parallel synthesis, with additional consideration of properties and
         medicinal chemistry design to address any identified liabilities of the
         Early Lead Series. This effort may include synthesis of smaller sets of
         compounds with specific functional group changes and/or replacements.
         Design efforts will continue to draw on data from co-crystal structures
         of Elaborated Fragments.

>>       SGX will prepare the representative members of the Early Lead Series
         and provide powder samples (up to 15mg) to CFFT for evaluation in
         cell-based assays.

>>       SGX will conduct a STN International search around Early Lead series.

>>       The JSC will review profiling data and compounds/series will be
         nominated as Early Lead Series meeting the defined criteria described
         in Appendix B.


3.7 [...***...] MEASUREMENT OF BINDING AFFINITIES AND CELL-BASED EVALUATION OF
COMPOUND ACTIVITY

The Research is dependent upon the availability of both [...***...] and
[...***...] assays to be provided by CFFT.

The [...***...] assay will be based either on [...***...] analysis, both of
which are capable of [...***...]. SGX will be responsible for providing samples
of both proteins and compounds for this assay.

The cell-based assay should be capable of detecting compounds with activities of
less than 10uM. Currently, the following types of assay, designed either to
demonstrate activity of compounds in cell lines expressing mutant CFTR or to
show specificity of action, are envisaged:



                                       41    ***CONFIDENTIAL TREATMENT REQUESTED




         o        [...***...] or [...***...] to [...***...] and and [...***...]

         o        [...***...] by [...***...] in [...***...]

         o        [...***...] assays [...***...]

         o        [...***...] in the [...***...] assay to [...***...] in
                  [...***...] in the [...***...]

Responsibilities for establishing these assays are set out in Appendix E.

Once active compounds have been identified, the JRC will discuss potential
mechanism of action studies for evaluation of these series. These studies may
include protein folding studies. It is anticipated that these studies will be
outsourced and provision for the funding of the studies will be made in the
budgets for Years 2 and 3 as applicable.


3.8  OPTIMIZATION OF EARLY LEAD SERIES TO LEAD SERIES

Several parameters will be optimized to convert the early leads into late stage
leads suitable for consideration as potential development candidates. Thus, in
addition to continuing optimization of potency in the biochemical and cellular
assays, we will be optimizing for selectivity against criteria agreed to by the
JSC.

From the perspective of in vitro ADME, we will be designing and selecting lead
structures with acceptable plasma protein binding and metabolic profiles to
attain acceptable human in vivo bioavailability, and lack of CYP interactions to
obviate any potential drug/drug interactions. There will be a clearly defined IP
position with supportive patent filings, and a proven synthetic route for
obtaining pure grade material on a multi-gram scale.

3.9  POTENTIAL ADDITIONAL TARGETS

Although work on this project will start with (DELTA)F508 NBD1 as the target, it
may be replaced, at some stage, by another target(s). Replacement targets are:

         o [...***...]

         o [...***...]

Both of these targets are currently in the Research stage at SGX. The decision
to replace (DELTA)F508 NBD1 with one of the other targets will be made by the
JRC.



                                       42    ***CONFIDENTIAL TREATMENT REQUESTED





                                   APPENDIX D

                               MILESTONE SCHEDULE

YEAR 1

1.       [...***...] screen on Target 1: Identification of [...***...] to
         [...***...].

                  $[...***...]

2.       [...***...] of [...***...] for [...***...] of [...***...] the
         appropriate [...***...] whose [...***...] is [...***...]. In this
         instance, "[...***...]" means that [...***...]% of [...***...] than or
         [...***...] shall be final arbiter in cases where [...***...].

[                 $[...***...]



3        FAST(TM) screen on Target 1: [...***...] of a [...***...].

                  $[...***...]



4.       [...***...]: Identification of a [...***...] with [...***...] than
         [...***...]. [...***...] to be measured using [...***...].

                  $[...***...]



5.       [...***...]:[...***...] is [...***...] per criteria defined in
         [...***...].

                  $[...***...]



YEAR 2

6.       [...***...]: Identification of an [...***...] with [...***...] than
         [...***...] from [...***...].

                  $[...***...]



7.       [...***...] - Anticipated Completion Date:- [...***...] days from
         Effective Date. Measurable efficacy for [...***...] in at least one of
         the [...***...] described in [...***...], as judged by [...***...]

                  $[...***...]



                                       43    ***CONFIDENTIAL TREATMENT REQUESTED





8.       [...***...] - Anticipated Completion Date: [...***...] days from
         Effective Date. Identification of an [...***...] in [...***...]

                  $[...***...]



9.       [...***...] -Anticipated Completion Date: [...***...] days from
         Effective Date.

         At least one compound meets [...***...] defined in [...***...].

                  $[...***...]



YEAR 3

10.      [...***...] - Due [...***...] days from Effective Date:

         Identification of a [...***...] meeting criteria defined in
         [...***...].

                  $[...***...]



         Wild-type and (DELTA)F508-NBD1 are assumed to be Target 1. Should
         Targets change, the new Target will assume the same milestones, as
         appropriate.



                                       44    ***CONFIDENTIAL TREATMENT REQUESTED




                                   APPENDIX E

                                OUTSOURCE BUDGET

YEAR 1

>>       ACCESS TO [...***...]

         o        Initial discussions indicated that CFFT will arrange these
                  assays through [...***...] on a fee for service basis. SGX to
                  supply compounds and to have access to all information for
                  analysis. Assume a cost of $[...***...] in Year 1.

>>       ACQUISITION OF [...***...] TECHNOLOGY - SGX

         o        Establish collaboration with [...***...]. Compounds from
                  elaborated hits will be assayed by [...***...] and by
                  [...***...]. Assume a cost of $[...***...] in Year 1.

YEAR 2*

>>       [...***...] method for [...***...] - [...***...]

         o        SGX to provide compounds for these assays

>>       [...***...] for [...***...] - [...***...] to provide [...***...] and an
         appropriate [...***...]

         o        SGX will conduct Western blot analysis

>>       using [...***...] - [...***...]

         o        SGX to provide compounds for these assays

>>       [...***...] - [...***...]

         o        SGX to provide compounds for these assays

>>       [...***...] - [...***...]

         o        SGX will carry out these assays

YEAR 3*

>>       [...***...] - [...***...]

         o        SGX will carry out these assays

>>       [...***...] - [...***...]

         o        SGX will carry out these assays

>>       [...***...] (TBD)

>>       [...***...] - [...***...]

         o        [...***...]

>>       [...***...] - [...***...]

         o        SGX will carry out these assays


* Proposed budget amounts shall be submitted by SGX to CFFT on or before
[...***...] in each of [...***...], and when budget amounts are approved by
CFFT, they shall be inserted in a replacement Appendix E.





                                       45    ***CONFIDENTIAL TREATMENT REQUESTED

EX-10.30

                                                                 EXHIBIT 10.30

ADVANCED PHOTON SOURCE
ARGONNE NATIONAL LABORATORY

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

                           MEMORANDUM OF UNDERSTANDING
                       BETWEEN THE ADVANCED PHOTON SOURCE
                                     AND THE
                  STRUCTURAL GENOMIX COLLABORATIVE ACCESS TEAM
                 FOR THE CONSTRUCTION AND OPERATION OF BEAMLINES
                          AT THE ADVANCED PHOTON SOURCE


                                   1. PURPOSE

The purpose of this Memorandum of Understanding (MOU) between the Advanced
Photon Source (APS) and the Structural GenomiX Collaborative Access Team
(SGX-CAT) is to provide SGC-CAT with access to sector number 31 for the
construction and operation of beamlines.

                                2. PREREQUISITES

SGC-CAT has met the four prerequisites for signing of this MOU:

o        Approval of the SGC-CAT proposal in accordance with the recommendations
         of the Proposal Evaluation Board.

o        Approval of the Conceptual Designs of the SGC-CAT beamlines.

o        Approval of the SGC-CAT Management Plan, the elements of which are
         subject to revision by mutual agreement of the parties as the project
         matures.

o        Receipt of appropriate documentation with respect to the funding intent
         of Structural GenomiX Inc.

         3. UNDERSTANDING BETWEEN THE ADVANCED PHOTON SOURCE AND SGC-CAT

During its tenure, SGC-CAT will develop and operate sector number 31, and it
will occupy the corresponding Laboratory/Office Module segment. SGC-CAT's tenure
begins on the date this MOU is signed, and will continue in accordance with the
provisions of the Advanced Photon Source User Policies and Procedures.







The APS and SGC-CAT will operate in accordance with the following:

o        The Advanced Photon Source User Policies and Procedures.

o        The SGC-CAT Management Plan.

o        The SGC-CAT Conceptual Design for the beamlines and insertion device.

o        The Collaborative Access Team User Agreement for the Advanced Photon
         Source that will be executed with Structural GenomiX Inc.

                                  4. SIGNATURES

                                                                                            
         /s/Kevin L. D'Amica                    7/26/00              /s/David E. Moncton
- ----------------------------------------     -------------     ----------------------------------    --------------

            Kevin L. D'Amico                      Date                  David E. Moncton                  Date
                Director                                          Asociate Laboratory Director
                 SGX-CAT                                                   for the APS




                                  WITNESSED BY:

                                                                                            
           /s/Yoon I. Chang                     7/26/00                  /s/Tim Harris                   7/26/00
- ----------------------------------------    --------------     ----------------------------------    --------------

              Yoon I. Chang                       Date                     Tim Harris                     Date
       Interim Laboratory Director                                      President and CEO
       Argonne National Laboratory                                   Structural GenomiX Inc.



       /s/Wayne Hendrickson                     7/26/00            /s/Don Micahel Randel                 7/26/00
- ----------------------------------------    --------------     ----------------------------------    --------------

            Wayne Hendrickson                     Date                 Don Michael Randel                 Date
      Professor of Biochemistry and                                         President
          Molecular Biophysics                                        University of Chicago
           Columbia University



          /s/Bill Richardson
- ----------------------------------------    --------------

             Bill Richardson                      Date
           Secretary of Energy
        U.S. Department of Energy








                            Collaborative Access Team
                                 User Agreement
                                     for the
                             Advanced Photon Source
                                       at
                           Argonne National Laboratory
                                Argonne, Illinois


This User Agreement is entered into by The University of Chicago, an Illinois
not-for-profit corporation, operator of Argonne National Laboratory and herein
also called "Argonne," acting under Prime Contract No. W-31-109-ENG-38, as
amended, with the United States Government (called "Government"), represented by
the U.S. Department of Energy (called "Department"); and Structural GenomiX,
Inc., an institutional member of the Structural GenomiX Collaborative Access
Team (SGX-CAT) and herein called "User."

In consideration of the mutual benefits flowing from this Agreement, the parties
agree as follows:

A.       DESCRIPTION OF WORK

         After securing prior Argonne approval, User shall be permitted to
         install beamlines and other equipment in designated areas of the
         Advanced Photon Source (APS) facility and in accordance with
         APS-approved designs, schedules, management plans, and safety
         practices; and to use those beamlines and supporting APS and Argonne
         facilities to perform experiments in accordance with APS-approved
         proposals and safety practices. Independent Investigators, selected by
         SGX-CAT in accordance with an APS-approved Independent Investigator
         Access Plan, shall be permitted to use designated SGX-CAT beamlines and
         supporting APS and Argonne facilities to perform research in accordance
         with APS-approved safety practices. The duration of each Independent
         Investigator's access to the designated beamline(s) will be specified
         by SGX-CAT. This Agreement shall apply to all future experiments which
         are totally funded by User and performed at APS facilities. This
         Agreement shall be incorporated by reference in each Supplemental
         Agreement which contains a nonproprietary statement describing an
         experiment authorized to be performed at the APS.

B.       PERSONNEL RELATIONSHIPS

         User shall be responsible for the acts or omissions of its employees
         and agents and of all other persons that User allows to participate in
         the activities under this Agreement except Independent Investigators,
         who are bound by another User Agreement.

         Individuals identified above for whom User is responsible and who are
         not actual employees of User shall be considered "employees" of User
         ONLY for the purposes of ownership of intellectual property in
         accordance with Attachment A. Such individuals will execute the
         Acknowledgment therefor.




                                       2




C.       PAYMENT OF EXPENSES

         Before commencing activities at the Argonne APS Facility, User shall
         establish an account at Argonne to enable the purchase of goods and
         services from Argonne. User shall be responsible for all authorized
         expenses incurred by Argonne in providing services and supplies to or
         on behalf of User and for all actual services and supplies used by
         User's employees and guests at the APS facility. At the time when the
         account is established, Argonne shall notify User of the mechanism for
         making payment. At that time and as Argonne's provisional and direct
         overhead rates which are established consistent with Argonne and DOE
         pricing policy are revised, User will be informed of those rates.
         Whenever Argonne adjusts its provisional rates to actual rates, the
         User account will be charged or credited accordingly. User shall pay in
         advance for capital equipment items and construction activities
         purchased through Argonne.

D.       RIGHTS IN PATENTS, TECHNICAL DATA, AND COPYRIGHTS

         With respect to rights in patents, technical data, and copyrights, the
         terms and conditions of Attachment A shall apply to this Agreement.

E.       INDEMNITY AND LIABILITY

         Except to the extent of their negligence or intentional misconduct,
         neither the Government, the Department, The University of Chicago, nor
         persons acting on their behalf will be responsible for any injury to or
         death of persons or other living things or damage to or destruction of
         property or for any other loss, damage or injury of any kind whatsoever
         resulting from the performance of services or furnishings of materials
         hereunder.

         NEITHER THE GOVERNMENT, THE DEPARTMENT, THE UNIVERSITY OF CHICAGO, NOR
         PERSONS ACTING ON THEIR BEHALF MAKES ANY WARRANTY, EXPRESS OR IMPLIED
         (1) WITH RESPECT TO THE ACCURACY, COMPLETENESS OR USEFULNESS OF ANY
         INFORMATION FURNISHED HEREUNDER, (2) THAT THE USE OF ANY SUCH
         INFORMATION MAY NOT INFRINGE PRIVATELY OWNED RIGHTS, (3) THAT THE
         SERVICES, MATERIALS, OR INFORMATION FURNISHED HEREUNDER WILL NOT RESULT
         IN INJURY OR DAMAGE WHEN USED FOR ANY PURPOSE, AND (4) THAT THE
         SERVICES, MATERIALS OR INFORMATION FURNISHED HEREUNDER WILL ACCOMPLISH
         THE INTENDED RESULTS OR ARE SAFE FOR ANY PURPOSE INCLUDING THE INTENDED
         PURPOSE.

         Neither the Government, the Department, The University of Chicago, nor
         persons acting on their behalf will be responsible, irrespective of
         causes, for failure to perform the services or furnish the materials or
         information hereunder at any particular time or in any specific manner.
         Notwithstanding the foregoing, The University of Chicago's only rights
         to terminate this Agreement are set forth in Article I. below.

         To the extent permitted by law and to the extent of its negligence or
         intentional misconduct, User agrees to indemnify and save harmless the
         Government, the Department, The University of Chicago, and persons
         acting on their behalf from (1) all liability, including costs and
         expenses incurred, resulting from the User's use or disclosure of any
         information in whatever form, furnished hereunder, and (2) all
         liability to any persons including the User for injury to or death of
         persons or other living things or injury to or destruction of property
         arising out of performance by the Government, the Department,




                                       3



         The University of Chicago, or persons acting on their behalf under this
         Agreement, or arising out of the use of the services performed,
         materials supplied, or information given hereunder by any person
         including the User, and not directly resulting from the fault or
         negligence of the Government, the Department, The University of
         Chicago, or persons acting on their behalf. The foregoing provisions
         shall have no application to public liability for nuclear incident as
         defined and provided for in the Atomic Energy Act of 1954, as amended.

         To the extent permitted by law, User agrees to indemnify the
         Government, the Department, The University of Chicago, and persons
         acting on their behalf against liability of any kind (including costs
         and expenses incurred) for the use, by or at the direction of User, of
         any invention or discovery and for the infringement of any Letters
         Patent (not including liability, arising pursuant to Section 183, Title
         35 (1952), U.S. Code, prior to the issuance of Letters Patent)
         occurring in the performance of this Agreement.

         User will be held liable for costs and expenses resulting from loss,
         damage, destruction, misuse, or alteration to or of Government property
         to the extent that such loss, damage, destruction, misuse, or
         alteration is caused or contributed to by the intentional or negligent
         act of User or its employees or representatives.

F.       SAFETY AND HEALTH

         User shall take all reasonable precautions in the installation of
         equipment and performance of experiments to protect the safety and
         health of others and to protect the environment, and shall comply with
         all applicable safety and health regulations and requirements of APS,
         Argonne, and the Department. In the event that User fails to comply
         with said regulations or requirements, Argonne may, without prejudice
         to any other legal or contractual rights, issue an order stopping all
         or any part of User's activities at the APS.

G.       THIRD-PARTY CONTRACTS

         Contracts between User and third parties for work on Argonne premises
         including, but not limited to, construction, installation, maintenance,
         and repair, will be subject to prior approval by the Department and
         Argonne. The Department and Argonne may require the insertion of
         specific terms and conditions into such contracts.

H.       OWNERSHIP AND DISPOSITION OF PROPERTY

         Property purchased with Argonne funds remains the property of Argonne
         unless the cost is fully reimbursed by User, in which case it becomes
         the property of User. Property purchased with User funds remains the
         property of User unless User formally transfers ownership of that
         property to Argonne. When this Agreement and all extensions thereof
         have terminated, User will have 60 days to remove its property from the
         APS facility at User's expense. Any User-owned property that is not
         removed from the APS facility by the end of this 60-day period will
         become the properly of Argonne or may be removed by Argonne at the
         expense of User.




                                       4



I.       TERM OF THIS USER AGREEMENT

         This Agreement shall be effective on the date it is executed by the
         last party to sign it and shall continue through the period ending five
         years after SGX-CAT receives Approval to Operate its insertion device
         beamline, at which time this Agreement shall extend automatically for
         successive periods of one year each, unless sixty (60) days before the
         beginning of any such one-year period The University of Chicago
         notifies User in writing that this agreement shall not be extended. The
         foregoing is subject to the following:

         1.       User may terminate this Agreement effective any time with
                  thirty (30) days prior written notice.

         2.       The University of Chicago may terminate this Agreement in the
                  event of a breach of this Agreement by User, provided that The
                  University of Chicago has first notified User of such breach
                  and has given User thirty (30) days to cure said breach.


User: Structural GenomiX, Inc.


                                                           
By  Linda Grais                                               Title    E.V.P.
   -------------------------------------------------------          -----------------------------------------------
          (Name of Authorized Officer, typed)


Signature   /s/  Linda Grais                                                 Date   5/15/01
          ---------------------------------------------------------------         ---------------------------------





Argonne:


                                                           
                                                                          Associate Laboratory Director for
By    Dr. David E. Moncton                                    Title          the Advanced Photon Source
   -------------------------------------------------------          -----------------------------------------------
          (Name of Authorized Officer)


Signature    /s/ [Illegible] for DEM                                         Date   5/15/01
          ---------------------------------------------------------------         ---------------------------------





Note: Each "employee" of User who will participate in activities at Argonne
under this Agreement must execute an Acknowledgment of the Agreement.






                                  ATTACHMENT A

1.   Patent Rights - User Facilities (Class Waiver)

(a)  Definitions

     (1) "User" means the person or entity with which this Agreement is made.

     (2) "Subject Invention" means any invention or discovery of the User,
conceived or first actually reduced to practice in the course of or under this
Agreement, and includes any art, method, process, machine, manufacture, design
or composition of matter or any new and useful improvement thereof, or any
variety of plants, whether patented or unpatented under the Patent Laws of the
United States of America or any foreign country.

     (3) "Facility Operator" means the operating contractor which manages and
operates the Government-owned, contractor-operated facility where the work under
this Agreement is to be performed.

     (4) "Patent Counsel" means the DOE Patent Counsel assisting the Facility
Operator.

(b)  Rights of the User

     (1)  Election to Retain Rights.

          Subject to the provisions of Paragraph (c)(2) of this clause, the User
may retain the entire right, title and interest in any patent application filed
in any country on a Subject Invention reported and elected in accordance with
paragraph (d) of this clause and in any resulting patent secured by the User.
Where appropriate, the filing of patent applications by the User is subject to
DOE security regulations and requirements.

     (2)  Minimum License.

          The User reserves an irrevocable, nonexclusive, paid-up license in
each patent application filed in any country on a Subject Invention and any
resulting patent in which the User does not elect to retain title or in which
the Government acquires title. The license shall extend to the User's domestic
subsidiaries and affiliates, if any, within the corporate structure of which the
User is a part and shall include the right to grant sublicenses of the same
scope to the extent the User was legally obligated to do so at the time this
Agreement was entered into. The license shall be transferable only with approval
of DOE except when transferred to the successor of that part of the User's
business to which the invention pertains.

(c)  Rights of Government

     (1)  Assignment to the Government.

          The User agrees to assign to the Government, upon request, the entire
right, title, and interest in any country to each Subject Invention of the User
except to the extent that Rights are retained by the User under Paragraph (b)(2)
of this clause, where the User:

          (i) Does not elect pursuant to this clause to retain such rights; or

          (ii) Fails to have a patent application filed in that country on the
Subject Invention or decides not to continue prosecution or not to pay any
maintenance fees covering the invention; or




                               Attachment A -- p.2


          (iii) At any time, the User no longer desires to retain title.

     (2) Terms and Conditions of Waived Rights.

          (i) To preserve the Government's residual Rights to Subject
Inventions, the User shall take all actions in reporting, electing, filing on,
prosecuting and maintaining invention Rights promptly, but in any event, in
sufficient time to satisfy domestic and foreign statutory and regulatory time
requirements, or, if the User decides not to take appropriate steps to protect
the invention rights, it shall notify DOE in sufficient time to permit the
Government to file, prosecute and maintain patent applications and any resulting
patents prior to the end of such domestic or foreign statutory or regulatory
time requirements.

          (ii) The User shall convey or assure the conveyance of any executed
instruments necessary to vest in the Government the rights set forth in this
clause.

          (iii) With respect to any Subject Invention in which the User retains
title, the Government shall have a nonexclusive, nontransferable, irrevocable,
paid-up license to practice or have practiced for or on behalf of the United
States the Subject Invention throughout the world.

          (iv) The User shall provide the Government a copy of any application
filed on a Subject Invention promptly after such application is filed, including
its serial number and filing date.

          (v) The User agrees to submit on request periodic reports no more
frequently than annually on the utilization of a Subject Invention or on efforts
at obtaining such utilization that are being made by the User or its licensees
or assignees. Such reports shall include information regarding the status of
development, date of first commercial sale or use, gross royalties received by
the User, and such other data and information as DOE may reasonably specify. The
User also agrees to provide additional reports as may be requested by DOE in
connection with any march-in proceeding undertaken by DOE in accordance with
paragraph (c)(2)(vii) of this clause. To the extent data or information supplied
under this paragraph is considered by the User, its licensee or assignee to be
privileged and confidential and is so marked, DOE agrees that, to the extent
permitted by 35 USC 202(c)(5), it will not disclose such information to persons
outside the Government.

          (vi) Notwithstanding any other provision of this clause, the User
agrees that neither it nor any assignee will grant to any person the exclusive
right to use or sell any Subject Invention in the United States unless such
person agrees that any products embodying the Subject Invention or produced
through the use of the Subject Invention will be manufactured substantially in
the United States. However, in individual cases, the requirement for such an
Agreement may be waived by DOE upon a showing by the User or its assignee that
reasonable but unsuccessful efforts have been made to grant licenses on similar
terms to potential licensees that would be likely to manufacture substantially
in the United States or that under the circumstances domestic manufacture is not
commercially feasible.

          (vii) The User agrees that with respect to any Subject Invention in
which it has acquired title, DOE has the right in accordance with the procedures
in 37 CFR 401.6 and any supplemental regulations of DOE to require the User, an
assignee or exclusive licensee of a Subject Invention to grant a nonexclusive,
partially exclusive, or exclusive license in any field of use to a responsible
applicant or applicants upon terms that are reasonable under the circumstances,
and if the User, assignee, or exclusive licensee refuses such a request, DOE has
the right to grant such a license itself if DOE determines that:




                               Attachment A -- p.3


          (1) Such action is necessary because the User or assignee has not
taken, or is not expected to take within a reasonable time, effective steps to
achieve practical application of the Subject Invention in such field of use;

          (2) Such action is necessary to alleviate health or safety needs which
are not reasonably satisfied by the User, assignee, or their licensees;

          (3) Such action is necessary to meet requirements for public use
specified by federal regulations and such requirements are not reasonably
satisfied by the User, assignee or licensee; or

          (4) Such action is necessary because the Agreement required by
paragraph (c)(2)(vi) of this clause has not been obtained or waived or because a
licensee of the exclusive right to use or sell any Subject Invention in the
United States is in breach of such Agreement.

(d)  Invention Identification, Disclosures, and Reports

     The User shall furnish the Patent Counsel a written report containing full
and complete technical information concerning each Subject Invention of the User
within 6 months after conception or first actual reduction to practice (or such
longer period as may be authorized by Patent Counsel for good cause shown in
writing by User), whichever occurs first, in the course of or under this
Agreement, but in any event prior to any on sale, public use or public
disclosure of the Subject Invention known to the User. The report shall identify
the Agreement and inventor and shall be sufficiently complete in technical
detail and appropriately illustrated by sketch or diagram to convey to one
skilled in the art to which the Subject Invention pertains a clear understanding
of the nature, purpose, operation, and to the extent known, the physical,
chemical, biological, or electrical characteristics of the Subject Invention.
The report should also include any election of patent rights under this clause.
When an invention is reported under this paragraph (d), it shall be presumed to
have been made in the manner specified in Section (a)(1) and (2) of 42 USC 5908
and protectable when marked as confidential under 35 USC 205.

(e)  Limitation of Rights

     Nothing contained in this patent rights clause shall be deemed to give the
Government any rights with respect to any invention other than a Subject
Invention except as set forth in the Facilities License of paragraph (f).

(f)  Facilities License

     In addition to the rights of the parties with respect to inventions or
discoveries conceived or first actually reduced to practice in the course of or
under this Agreement, the User agrees to and does hereby grant to the Government
an irrevocable, nonexclusive paid-up license in and to any inventions or
discoveries regardless of when conceived or actually reduced to practice or
acquired by the User, which at any time through completion of this Agreement are
owned or controlled by the User and are incorporated in the facility as a result
of this Agreement to such an extent that the facility is not restored to the
condition existing prior to the Agreement (1) to practice or to have practiced
by or for the Government at the facility, and (2) to transfer such license with
the transfer of that facility. The acceptance or exercise by the Government of
the aforesaid rights and license shall not prevent the Government at anytime
from contesting the enforceability, validity or scope of, or title to, any
rights or patents herein licensed.




                               Attachment A -- p.4


2.   Rights in Technical Data - Short Form

(a)  Definitions

     (1) The definitions of terms set forth in 48 CFR 52.227-14 apply to the
extent these terms are used herein.

     (2) "Contracting Officer" means the DOE entity having contract authority
over the Facility and Facility Operator.

(b)  Allocation of Rights

     (1)  The Government shall have:

          (i) Unlimited rights in technical data first produced in the
performance of this Agreement; unlimited rights in technical data not first
produced in the performance of this Agreement which is incorporated in technical
data delivered under this Agreement or which is not removed from the facility at
the termination of this Agreement;

          (ii) The right of the Contracting Officer or his representatives to
inspect at all reasonable times up to three years after final payment under this
Agreement all technical data first produced in the performance of this Agreement
(for which inspection the User or its subcontractor shall afford proper
facilities to DOE); and

          (iii) The right to have any technical data first produced in the
performance of this Agreement delivered to the Government as the Contracting
Officer may from time to time direct during the progress of the work, or in any
event as the Contracting Officer shall direct upon completion or termination of
this Agreement.

     (2)  The User shall have:

          The right to use for its private purposes, subject to patent, security
or other provisions of this Agreement, technical data it first produces in the
performance of this Agreement provided the data requirements of this Agreement
have been met as of the date of the private use of such data. The User agrees
that to the extent it receives or is given access to proprietary data or other
technical, business or financial data in the form of recorded information from
DOE or a DOE User or subcontractor, the User shall treat such data in accordance
with any restrictive legend contained thereon, unless use is specifically
authorized by prior written approval of the Contracting Officer.

(c)  Copyrighted Material

     (1) The User agrees to, and does hereby grant to the Government, and to its
officers, agents, servants and employees acting within the scope of their
duties:

          (i) A royalty-free, nonexclusive, irrevocable license to reproduce,
translate, publish, use, and dispose of and to authorize others so to do, all
copyrightable material first produced or composed in the performance of this
Agreement by the User, its employees or any individual or concern specifically
employed or assigned to originate and prepare such material; and

          (ii) A license as aforesaid under any and all copyrighted or
copyrightable works not first produced or composed by the User in the
performance of this Agreement but which are incorporated in the material
furnished under the Agreement, provided that such license




                               Attachment A -- p.5


shall be only to the extent the User now has, or prior to completion or final
settlement of the Agreement may acquire, the right to grant such license without
becoming liable to pay compensation to others solely because of such grant.

     (2) The User agrees that it will not knowingly include any material
copyrighted by others in any written or copyrightable material furnished or
delivered under this Agreement without a license as provided for in subparagraph
(l)(ii) hereof, or without the consent of the copyright owner, unless it obtains
specific written approval of the Contracting Officer for the inclusion of such
copyrighted material.

3.   Notice and Assistance Regarding Patent and Copyright Infringement

(a) The User shall report to the Government, promptly and in reasonable written
detail, each notice or claim of patent or copyright infringement based on the
performance of this Agreement of which the User has knowledge.

(b) In the event of any claim or suit against the Government on account of any
alleged patent or copyright infringement arising out of the performance of this
Agreement or out of the use of any supplies furnished or work or services
performed hereunder, the User shall furnish to the Government when requested by
the Government, all evidence and information in possession of the User
pertaining to such suit or claim. Such evidence and information shall be
furnished at the expense of the Government except where the User has agreed to
indemnify the Government.

EX-10.31

                                                                   Exhibit 10.31

                       MASTER LOAN AND SECURITY AGREEMENT

NO. 2081008                                               DATED: AUGUST 28, 2002

LENDER:                                       BORROWER:
         OXFORD FINANCE CORPORATION                    STRUCTURAL GENOMIX, INC.
         A Maryland corporation                        a Delaware corporation
Address:                                      Address:
         133 NORTH FAIRFAX STREET                      10505 ROSELLE STREET
         ALEXANDRIA, VIRGINIA 22314                    SAN DIEGO, CA 92121

      Borrower hereby agrees with Lender that, whenever Borrower shall be at any
time or times directly or contingently indebted, liable or obligated to Lender
in any manner whatsoever, Lender shall have the following rights:

      1. DEFINITIONS. To the extent not otherwise specifically defined in this
Agreement, unless the context otherwise requires, all other terms contained in
this Agreement shall have the meanings assigned or referred to them in the UCC.
The following terms shall have the following meanings:

      "Acceptance Date" with respect to each item of Equipment shall have the
meaning assigned to such term in Section 3 of this Agreement.

      "Affiliate" shall mean, with respect to any person, firm or entity, any
other person, firm or entity controlling, controlled by, or under common control
with such person, firm or entity; for the purposes hereof "control" shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of any such person, firm or entity,
whether through the legal or beneficial ownership of voting securities, by
contract or otherwise.

      "Agreement" shall mean this Master Loan and Security Agreement, as amended
or modified from time to time.

      "Attorneys' Fees and Expenses" shall mean all reasonable attorneys' fees
and legal costs and expenses (including, without limitation, those fees, costs
and expenses incurred in connection with bankruptcy proceedings, including
Relief from Stay Motions, Cash Collateral Motions and disputes concerning any
proposed disclosure statement and/or bankruptcy plan).

      "Collateral" shall mean all Equipment or other tangible or intangible
property ancillary to the Equipment and acquired in the same transaction as the
Equipment and all products, proceeds, rents and profits therefrom or thereof
including proceeds in the form of goods, accounts, chattel paper, documents,
instruments and insurance proceeds.

      "Default" shall have the meaning ascribed to such term in Section 7 of
this Agreement.

      "Equipment" shall mean one or more items or units of personal property now
owned or hereafter acquired by Borrower, as described in each Equipment
Schedule, wherever the same may be located, including all present and future
additions, attachments, accessions and accessories thereto and all replacements,
substitutions and a right to use license for any software related to any of the
foregoing and proceeds thereof, including all proceeds of insurance thereon.

      "Equipment Schedule" shall mean each Equipment Schedule, which
incorporates by reference the terms and conditions of this Agreement and
describes one or more items of Equipment and specific terms and conditions with
respect thereto.

      "Event of Default" shall have the meaning ascribed to such term in Section
7 of this Agreement.

      "Loan Agreement" shall mean the approval letter dated August 28, 2002 from
Lender to Borrower (the Approval Letter ) and this Agreement, as supplemented by
the applicable Equipment Schedules which incorporates the terms and conditions
of the Approval Letter and this Agreement, including all exhibits, addenda,
schedules, certificates, riders and all other documents and instruments executed
and delivered in connection therewith.

      "Note" shall mean a promissory note of Borrower in favor of Lender
evidencing Borrower's obligations to Lender with respect to the Loan Agreement.

      "Obligations" shall mean all liabilities in connection with the Loan
Agreement, absolute or contingent, joint, several or independent, of now or
hereafter existing, due or to become due to, or held or to be held by, Lender
for its

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                       MASTER LOAN AND SECURITY AGREEMENT


own account or as agent for another or others, whether created directly or
acquired by assignment or otherwise and howsoever evidenced, including, without
limitation, the Loan Agreement, and all interest, taxes, fees, charges, expenses
and Attorneys' Fees and Expenses chargeable to Borrower or incurred by Lender
under the Loan Agreement, or any other document or instrument delivered in
connection herewith.

      "Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust, or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.

      "Security Deposit" with respect to each item of Equipment shall have the
meaning assigned to such term in the Equipment Schedule applicable to such item
of Equipment.

      "UCC" shall mean the Uniform Commercial Code as enacted in the
Commonwealth of Virginia.

      2. LOAN; CONDITIONS; SECURITY INTEREST.

      (a) Loan. Lender shall, subject to compliance by Borrower with the terms
and conditions hereof, make advances to Borrow from time to time in an amount up
to $6,500,000 for the purchase of Equipment and as set forth in the Approval
Letter, other soft expenses related to such Equipment for the internal use of
Borrower.

      (b) Conditions. Lender shall not be obligated to make any loan hereunder
unless: (i) the Note or Equipment Schedule evidencing such loan shall have been
duly executed and delivered to Lender; (ii) Borrower shall have executed and
delivered to Lender the Equipment Schedule describing the Collateral and stating
the location thereof; (iii) Lender shall have received evidence that insurance
has been obtained in accordance with the provisions hereof; (iv) Lender shall
have received any and all third party consents, waivers or releases deemed
necessary or desirable in Lender's reasonable judgment in connection with the
loan and the Collateral being financed, including without limitation Uniform
Commercial Code lien releases and the consent and waiver, in form and substance
satisfactory to Lender, of each and every realty owner, landlord and mortgagee
holding an interest in or encumbrance on the real property where any of the
Collateral is to be located; (v) all filings, recordings and other actions
deemed necessary or desirable by Lender in order to establish, protect, preserve
and perfect its security interest in the Collateral being financed by such loan
as a valid perfected first priority security interest shall have been duly
effected, including without limitation the filing of financing statements and
the recordation of landlord (owners) and/or mortgagee waivers or disclaimers,
all in form and substance satisfactory to Lender, and all fees, taxes and other
charges relating to such filings and recordings shall have been paid by
Borrower; (vi) the representations and warranties of Borrower hereunder and
under the Loan Agreement shall be true and correct in all respects on and as of
the date of the making of any advance hereunder with the same effect as if made
on and as of such date; (vii) in the sole and good faith judgment of Lender,
there shall have been no material adverse change in the financial condition,
business, operations, prospects, product development, technology, or business or
contractual relations with third parties of Borrower from the date hereof and no
change or event shall have occurred which would impair the ability of Borrower
to perform its obligations hereunder or under any of the other Financing
Agreements to which it is a party or of Lender to enforce the Obligations or
realize upon the Collateral; (viii) all documents and agreements shall be
satisfactory to Lender and its attorneys; (ix) Lender shall have received, in
form and substance satisfactory to Lender, such other documents as Lender shall
require; and (x) no Default, Event of Default, or circumstance or facts that
would (with the giving of notice or the passage of time or both) become a
Default or Event of Default hereunder shall have occurred and be continuing.

      (c) Security Interest. As security for the due and punctual payment of any
and all of the present and future Obligations of Borrower to Lender, Borrower
hereby (i) grants to Lender with respect to each Loan Agreement and for the full
amount of all Obligations, a security interest in all of the Collateral and all
collateral securing any other lease or security agreement between Borrower and
Lender, whether now in existence or hereafter entered into, to the extent the
Obligations herein remain unsatisfied, and (ii) assigns to Lender all of its
rights, title and interest in surplus money to which Borrower may be entitled
upon the sale of all such Collateral, to the extent the Obligations herein
remain unsatisfied. The extent to which Lender's security interest in any item
of Collateral shall be entitled to purchase money priority shall be determined
by reference to the unpaid principal balance of any Note evidencing the
financing of the purchase price of such item of Equipment.

      3. ACCEPTANCE OF EQUIPMENT. The Equipment is to be delivered and installed
at the location specified or referred to in the applicable Equipment Schedule.
The Equipment shall be deemed to have been accepted by Borrower for all purposes
under this Agreement upon Borrower's execution of an Equipment Schedule (the
"Acceptance Date"). Lender shall not be liable or responsible for any failure or
delay in the delivery of the Equipment to Borrower for whatever reason.

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                       MASTER LOAN AND SECURITY AGREEMENT


      4. TERM; INTEREST RATE; PRINCIPAL AND INTEREST; PREPAYMENT; LATE CHARGES.

      (a) Term and Interest. The term and interest for any advance shall be as
specified in the applicable Equipment Schedule and in accordance with the
Approval Letter.

      (b) Payment Dates. Principal and interest payments for each advance shall
be paid monthly, in advance in accordance with the schedule set forth in the
applicable Equipment Schedule. The first and last monthly payments shall be made
on the day the funds are advanced to Borrower.

      (c) Prepayment. Provided that an Event of Default has not occurred or is
continuing to occur, and the Borrower has timely paid at least the first twelve
(12) monthly payments due under the Loan Agreement, Borrower shall have the
ability under the circumstances of a corporate merger or acquisition resulting
in a change of control of at least 50% of the outstanding voting stock, upon at
least (30) days prior written notice to Lender, to prepay any and all amounts
outstanding under the Loan Agreement on the periodic installment due date
designated in such notice by paying to the Lender, the sum of (i) the then
outstanding principal balance plus interest and all other amounts owing under
the Loan Agreement (calculated on a simple interest basis) plus (ii) a premium
of 5% if such prepayment shall occur in Year 2, a premium of 4% if such
prepayment shall occur in Year 3 and a premium of 3% if such prepayment shall
occur in Year 4 and thereafter. The premium applicable will be calculated on the
then outstanding principal balance. Year 1 will mean the period consisting of
the 1st through the 12th installments under the Loan Agreement and subsequent
years will refer to the subsequent twelve monthly payment periods. Principal and
interest payments shall be in the amounts and shall be due and payable as set
forth in the applicable Equipment Schedule.

      (d) Late Charge. If any payment of principal or interest or other amount
payable hereunder shall not be paid within 5 days of the date when due, Borrower
shall pay as an administrative and late charge an amount equal to 4% of the
amount of any such overdue payment. In addition, Borrower shall pay overdue
interest on any delinquent payment or other amounts due under the Loan Agreement
(by reason of acceleration or otherwise) from the due date until paid at the
rate of one percent (1.0%) per month or the maximum amount permitted by
applicable law, whichever is lower. All payments to be made to Lender shall be
made to Lender in immediately available funds at the address shown above, or at
such other place, as Lender shall specify in writing.

      5. REPRESENTATIONS, WARRANTIES AND COVENANTS. Borrower hereby represents
and warrants to and covenants with Lender (provided that if Borrower is an
individual or sole proprietorship, the representations, warranties and covenants
relating to corporate status shall not apply) that, as of the date hereof and
for so long as any Obligations shall remain outstanding:

      (a) Borrower is duly organized and is existing in good standing under the
laws of its jurisdiction of organization and is duly qualified and in good
standing in those jurisdictions where the conduct of its business or the
ownership of its properties requires qualification;

      (b) Borrower has the power and authority to own the Collateral, to enter
into and perform this Agreement and any other document or instrument delivered
in connection herewith and to incur the Obligations;

      (c) Borrower's chief executive office is located at the address set forth
above;

      (d) Borrower does not utilize, and has not in the last five years
utilized, any trade names in the conduct of its business except as set forth on
Schedule 1 hereto;

      (e) Borrower has not changed its name, been the surviving entity in a
merger, acquired any business or changed the location of its chief executive
office within the previous five years, except as set forth on Schedule 2 hereto;

      (f) Neither the execution, delivery or performance by Borrower of the Loan
Agreement nor compliance by it with the terms and provisions hereof, nor the
consummation of the transactions contemplated herein, (i) will contravene any
applicable provision of any law, statute, rule or regulation, or any order,
writ, injunction or decree of any court or governmental instrumentality, (ii)
will conflict or be inconsistent with or result in any breach of any of the
terms, covenants, conditions or provisions of, or constitute a default under, or
result in any lien upon any property, pursuant to the terms of any indenture,
mortgage, deed of trust, loan agreement or any other material agreement or
instrument to which Borrower is a party or by which it or any of its property or
assets are bound or to which it may be subject or (iii) will violate any
provision of its Certificate of Incorporation or By-Laws, or other governance
documents;

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                                  Page 3 of 13

                       MASTER LOAN AND SECURITY AGREEMENT


      (g) The Loan Agreement, the Note and any document or instrument delivered
in connection herewith and the transactions contemplated hereby or thereby are
duly authorized, executed and delivered, and the Loan Agreement, the Note and
such other documents and instruments constitute valid and legally binding
obligations of Borrower and are enforceable against Borrower in accordance with
their respective terms;

      (h) No order, consent, approval, license, authorization, or validation of,
or filing (except with respect to UCC filings), recording or registration with,
or exemption by any governmental or public body or authority, or any subdivision
thereof, is required to authorize or required in connection with (i) the grant
by Borrower of the security interest in connection with the Loan Agreement, (ii)
the execution, delivery and performance of the Loan Agreement, (iii) the
legality, validity, binding effect or enforceability of the Loan Agreement or
(iv) the perfection or maintenance of the aforementioned lien and security
interest;

      (i) Borrower has filed all federal, state and local tax returns and other
reports it is required to file, has paid or made adequate provision for payment
of all such taxes, assessments and other governmental charges, and shall pay or
deposit promptly when due all sales, use, excise, personal property, income,
withholding, corporate, franchise and other taxes, assessments and governmental
charges upon or relating to the manufacture, purchase, ownership, maintenance,
modification, delivery, installation, possession, condition, use, acceptance,
rejection, operation or return of the Equipment and, upon request by Lender,
Borrower will submit to Lender proof satisfactory to Lender that such payments
and/or deposits have been made;

      (j) There are no pending or threatened actions or proceedings before any
court or administrative agency, an unfavorable resolution of which could have a
material adverse effect on Borrower's financial condition or operations;

      (k) No representation, warranty or statement by Borrower contained in the
Loan Agreement or in any certificate or other document furnished or to be
furnished by Borrower pursuant to the Loan Agreement contains or at the time of
delivery shall contain any untrue statement of material fact, or omits, or shall
omit at the time of delivery, to state a material fact necessary to make it not
misleading;

      (1) All financial statements delivered and to be delivered by Borrower to
Lender in connection with the execution and delivery of the Loan Agreement are
true and correct in all material respects and have been prepared in accordance
with generally accepted accounting principles, and at all times since the date
of the most recent financial statements, there has been no material change in
Borrower's financial affairs or business operations. Borrower shall furnish
Lender: (i) within 120 days after the last day of each fiscal year of Borrower,
a financial statement including a balance sheet, income statement, statement of
shareholders equity and statement of cash flows, each prepared in accordance
with generally accepted accounting principles consistently applied with a report
signed by an independent certified public accountant satisfactory to Lender;
(ii) within 45 days after the close of each quarter of each fiscal year of
Borrower, a financial statement including a balance sheet, income statement and
statement of cash flows, each prepared by Borrower in accordance with generally
accepted accounting principles consistently applied by Borrower and certified by
the chief financial officer of Borrower; (iii) promptly upon the request of
Lender, such tax returns or financial statements regarding any guarantor, if
any, of the Obligations of Borrower as Lender may reasonably request from time
to time; (iv) promptly upon request of Lender, in form satisfactory to Lender,
such other and additional information as Lender may reasonably request from time
to time, and; (v) promptly inform Lender of any Defaults (defined below) or any
events or changes in the financial condition of Borrower occurring since the
date of the last financial statements of Borrower delivered to Lender which,
individually or cumulatively, when viewed in light of prior financial
statements, may result in a material adverse change in the financial condition
of Borrower;

      (m) Borrower shall permit Lender, through its authorized attorneys,
accountants and representatives, to inspect and examine the Equipment and the
books, accounts, records, ledgers and assets of every kind and description of
Borrower with respect thereto at all reasonable times; provided, however, that
the failure of Lender to inspect the Equipment or to inform Borrower of any
noncompliance shall not relieve Borrower of any of its Obligations hereunder;

      (n) Borrower is the owner of the Equipment free and clear of all rights,
title, security interests, encumbrances or liens of any other party, will defend
the Equipment against all claims and demands of all persons at any time claiming
any interest therein and shall deliver to Lender any and all evidence of
ownership of, and certificates of title to, any and all of the Equipment;

      (o) The Equipment is personal property and not a fixture under the law of
the jurisdiction in which the Equipment is located even though the Equipment may
hereafter become attached or affixed to real property;

      (p) Each site where Equipment is located, if not owned by Borrower, is
leased by Borrower pursuant to a valid lease or rental agreement which permits
the possession, use and operation of the Equipment at such location;

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                                  Page 4 of 13

                       MASTER LOAN AND SECURITY AGREEMENT


      (q) Borrower shall provide Lender with disclaimers and waivers from
landlords, mortgagees and other persons holding any interest or claim in and to
any premises where Equipment is located, acceptable in all respects to Lender,
which may be necessary or advisable in the sole discretion of Lender to confirm
that the first priority security interest and rights of Lender in the Equipment
are and will remain valid and superior against all other parties;

      (r) The Equipment is in the possession of Borrower at the location(s)
specified in the applicable Equipment Schedule, and shall not be removed from
such location without 30 days written notice to Lender and the subsequent prior
written consent of Lender, which consent shall not be unreasonably withheld and
shall in any event be conditioned upon Borrower having completed all
notifications, filings, recordings, and other actions in such new location as
Lender may require to protect and perfect Lender's interests in the Collateral;

      (s) Borrower shall not, without the prior written consent of Lender, sell,
offer to sell, lease, rent, hire or in any other manner dispose, transfer or
surrender use and possession of any Equipment;

      (t) Borrower will not, directly or indirectly, create, incur or permit to
exist any lien, encumbrance, mortgage, pledge, attachment or security interest
on or with respect to the Equipment other than in connection with the execution
and delivery of the Loan Agreement;

      (u) Borrower shall permit each item of Equipment to be used only within
the continental United States by qualified personnel solely for business
purposes and the purpose for which it was designed and, at its sole expense,
shall service, repair, overhaul and maintain each item of Equipment in the same
condition as when received, ordinary wear and tear excepted, in good operating
order, consistent with prudent industry practice (but, in no event less than the
same extent to which Borrower maintains other similar equipment in the prudent
management of its assets and properties) and in compliance with all applicable
laws, ordinances, regulations, and conditions of all insurance policies required
to be maintained by Borrower under the Loan Agreement and all manuals, orders,
recommendations, instructions and other written requirements as to the repair
and maintenance of such item of Equipment issued at any time by the vendor
and/or manufacturer thereof;

      (v) If any item of Equipment does not comply with the requirements of the
Loan Agreement, Borrower shall bring such Equipment into compliance with the
provisions hereof; and Borrower shall not use any Equipment, nor allow the same
to be used, for any unlawful purpose;

      (w) Borrower acknowledges that Lender has not selected, manufactured or
supplied the Equipment to Borrower and has acquired any Equipment subject hereto
solely in connection with this Loan Agreement and Borrower has received and
approved the terms of any purchase order or agreement with respect to the
Equipment; and

      (x) Borrower has all permits, licenses and other authorizations which are
required with respect to its business under Environmental Laws (as defined
below) and is in compliance with all terms and conditions of such permits,
licenses and other authorizations, including all limitations, restrictions,
standards, prohibitions, requirements, obligations, schedules and timetables.
The Borrower is not presently in violation of any Environmental Laws.
"Environmental Laws" shall mean any Federal, state or local law relating to
releases or threatened releases of Hazardous Substances; the manufacture,
handling, transport, use, treatment, storage or disposal of Hazardous Substances
or materials containing Hazardous Substances; or otherwise relating to pollution
of the environment or the protection of human health. "Hazardous Substances"
shall mean substances or materials which contain substances defined in or
regulated as toxic or hazardous materials, chemicals, substances, waste or
pollutants under any present or future Federal statutes and their state
counterparts, as well as any implementing regulations as amended from time to
time and as interpreted by administering agencies.

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                                  Page 5 of 13

                       MASTER LOAN AND SECURITY AGREEMENT


      6. RISK OF LOSS AND DAMAGE; INSURANCE. Borrower assumes all risk of loss,
damage or destruction to the Equipment from whatever cause and for whatever
reason. If all or a potion of an item of Equipment shall become lost, stolen,
destroyed, damaged beyond repair or rendered permanently unfit for use for any
reason, or in the event of any condemnation, confiscation, theft or seizure or
requisition of title to or use of such item of Equipment, Borrower shall
immediately pay to Lender an amount equal to the outstanding principal balance
of and accrued and unpaid interest on any Note with respect to such Equipment,
less the net amount of the recovery, if any, received by Lender from insurance
on the Equipment. For so long as any Obligations shall remain outstanding,
Borrower shall procure and maintain insurance in such amounts and with such
coverages, and upon such terms and with such companies, as Lender may reasonably
approve, consistent with normal/prudent industry practices, at Borrower's
expense; provided, however, that in no event shall such insurance be less than
the following coverages and amounts: (a) worker's compensation and Employer's
Liability Insurance, in the full statutory amounts provided by law; (b)
Comprehensive General Liability Insurance including product/completed operations
and contractual liability coverage, with minimum limits on a per occurrence
basis, as reasonably required by Lender, and Combined Single Limit Bodily Injury
and Property Damage on an aggregate basis, as reasonably required by Lender or,
in either case, as otherwise specified in any Equipment Schedule hereto; and (c)
All Risk Physical Damage Insurance, including earthquake and flood, on each item
of Equipment, in an amount not less than the greater of (i) the outstanding
principal balance owing under any Note with respect to such Equipment; or (ii)
its full replacement value. Borrower shall cause Lender to be included as an
additional insured on each such Comprehensive General Liability Insurance
policy. On each such All Risk Physical Damage Insurance policy Lender shall be
named as loss payee. Such policies shall be endorsed to provide that the
coverage afforded to Lender shall not be rescinded, impaired or invalidated by
any act or neglect of Borrower. Borrower agrees to waive Borrower's rights and
its insurance carrier's rights of subrogation against Lender for any and all
loss or damage. In addition to the foregoing minimum insurance coverage,
Borrower shall procure and maintain such other insurance coverage as Lender may
reasonably require, consistent with normal/prudent industry practices. All
policies shall be endorsed or contain a clause requiring the insurer to furnish
Lender with at least 30 days prior written notice of any material change,
cancellation or non-renewal of coverage. Upon execution of this Agreement, and
thereafter, 30 days prior to the expiration of each insurance policy required
hereunder, Borrower shall furnish Lender with a certificate of insurance or
other evidence satisfactory to Lender that the insurance coverages required
under such policy are and will continue in effect, provided, however, that
Lender shall be under no duty either to ascertain the existence of or to examine
such insurance coverage or to advise Borrower in the event such insurance
coverage should not comply with the requirements hereof. If Borrower shall at
any time or times hereafter fail to obtain and/or maintain any of the policies
of insurance required herein, or fail to pay any premium in whole or in part
relating to any such policies, Lender may, but shall not be obligated to, obtain
and/or cause to be maintained insurance coverage with respect to the Collateral,
including, at Lender's option, the coverage provided by all or any of the
policies of Borrower and pay all or any part of the premium therefor, without
waiving any Event of Default by Borrower, and any sums so disbursed by Lender
shall be additional Obligations of Borrower to Lender payable on demand. Lender
shall have the right to settle and compromise any and all claims under any of
the All Risk Physical Damage policies required to be maintained by Borrower
hereunder and Borrower hereby appoints Lender as its attorney-in-fact, with
power to demand, receive and receipt for all monies payable thereunder, to
execute in the name of Borrower or Lender or both any proof of loss, notice,
draft or other instruments in connection with such policies or any loss
thereunder and generally to do and perform any and all acts as Borrower, but for
this appointment, might or could perform.

      7. EVENTS OF DEFAULT. An "Event of Default" under this Agreement shall be
deemed to have occurred upon the occurrence or existence of any one or more of
the following events or conditions (each a "Default") and after the giving of
any required notice or the passage of any required period of time (or both)
specified below with respect to such Default: (a) Borrower shall fail to make
any payment due under any Note or as required under the Loan Agreement within 5
days of its due date; or (b) Borrower shall fail to obtain or maintain any of
the insurance required under the Loan Agreement; or (c) Borrower shall remove,
sell, transfer, encumber, or part with possession of any Equipment; (d) Borrower
shall fail to perform or observe any other covenant, condition or agreement
under the Loan Agreement, and such failure shall continue for 20 days after
notice thereof to Borrower; or (e) Borrower shall default in the payment or
performance of any Obligation owing to Lender, and such default shall continue
for 20 days after notice thereof to Borrower; or (f) any representation or
warranty made by Borrower herein or in any certificate, agreement, statement or
document heretofore or hereafter furnished Lender, including without limitation
any financial information disclosed to Lender, shall prove to be false or
incorrect in any material respect; or (g) the commencement of any bankruptcy,
insolvency, arrangement, reorganization, receivership, liquidation or other
similar proceeding by or against Borrower or any of its properties or
businesses, or the appointment of a trustee, receiver, liquidator or custodian
for Borrower or any of its properties or businesses, or if Borrower suffers the
entry of an order for relief under Title 11 of the United States Code; or (h)
the making by Borrower of a general assignment or deed of trust for the benefit
of creditors; or (i) Borrower shall default in any payment or other material
obligation to any other lender and such lender has accelerated the debt in
accordance with its terms; or (j) Borrower shall, without the prior written
consent of Lender, (i) merge with or consolidate into any other entity (other
than an acquisition by Borrower of the capital stock or assets of another entity
where (A) the aggregate cash consideration paid or to be paid in connection with
such acquisition does not exceed $1,500,000, and (B) the aggregate number of
shares of Borrowers capital stock issued or to be issued in connection with such
acquisition does not exceed (on a common stock as-if-converted basis) 20% of the
aggregate capital stock of

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                                  Page 6 of 13

                       MASTER LOAN AND SECURITY AGREEMENT


Borrower at the time of such transaction), if the resulting entity's overall
financial condition after the merger or consolidation is worse than the overall
financial condition of Borrower before the merger or consolidation in Lender's
sole but good faith opinion, or (ii) sell all or substantially all of its assets
or (iii) in any manner terminate its existence; or (k) if Borrower is a
privately held corporation and without the prior written consent of Lender, more
than 50% of Borrower's voting capital stock, or effective control of Borrower's
voting capital stock, issued and outstanding from time to time, is not retained
by the holders of such stock on the date the Loan Agreement is executed; or (1)
if Borrower is a publicly held corporation and without the prior written consent
of Lender, there shall be a change in the ownership of Borrower's stock such
that Borrower is no longer subject to the reporting requirements of the
Securities Exchange Act of 1934 or no longer has a class of equity securities
registered under Section 12 of the Securities Act of 1933; or (m) Lender shall
determine that there has been a material adverse change in the financial
condition or business operations of Borrower since the date of the execution of
the Loan Agreement, or that Borrower's ability to perform its obligations is
materially impaired; or (n) if Borrower leases the premises where any Equipment
is located, a breach by Borrower of any such lease and the commencement of an
action by the landlord to evict Borrower or to repossess the premises; or (o)
any event or condition set forth in subsections (e) through (m) of this Section
7 shall occur with respect to any guarantor or other person liable or
responsible, in whole or in part, for payment or performance of any Obligations.
Borrower shall promptly notify Lender of the occurrence of any Event of Default
or the occurrence or existence of any event or condition, which, upon the giving
of notice or lapse of time, or both, would constitute an Event of Default.

      8. RIGHTS AND REMEDIES; ACCELERATION. (a) Upon the occurrence of an Event
of Default, Lender shall have all of the rights and remedies enumerated herein
(all of which are cumulative and not exclusive of any other right or remedy
available to Lender) and Lender may, at its sole option and discretion, exercise
one or more of the following remedies with respect to any or all of the
Collateral: (i) by written notice to Borrower, terminate any or all Loan
Agreements as such notice shall specify, and, with respect to such terminated
Loan Agreements, declare immediately due and payable and recover from Borrower,
as liquidated damages for loss of Lender's bargain and not as a penalty, an
amount equal to the aggregate of all unpaid periodic installment payments and
other sums due under Loan Agreements to the date of default plus the charges set
forth in Section 4 hereof, if any, plus an amount equal to the outstanding
principal balances of and accrued and unpaid interest on any of the Notes with
respect to the Loan Agreements, (ii) Lender may declare, at its option, all or
any part of the Obligations immediately due and payable, without demand, notice
of intention to accelerate, notice of acceleration, notice of nonpayment,
presentment, protest, notice of dishonor, or any other notice whatsoever, all of
which are hereby waived by borrower and any endorser, guarantor, surety or other
party liable in any capacity for any of the Obligations; (iii) cause Borrower to
promptly ship, with insurance and freight prepaid by Borrower, any or all
Equipment to such location as Lender may reasonably designate, or Lender, at its
option, may enter upon the premises where the Equipment is located and take
immediate possession of and remove the same by summary proceedings or otherwise,
all without liability to Lender for or by reason of damage to property or such
entry or taking possession except for Lender's gross negligence or willful
misconduct; (iv) sell any or all Collateral at public or private sale or
otherwise dispose of, hold, use, operate, lease to others or keep idle the
Equipment, all as Lender in its sole discretion may determine and all free and
clear of any rights of Borrower; (v) remedy such default, including making
repairs or modifications to the Equipment, for the account and expense of
Borrower, and Borrower agrees to reimburse Lender for all of Lender's reasonable
costs and expenses; (vi) apply any security Deposit or other cash collateral or
sale or remarketing proceeds of the Equipment at any time to reduce any amounts
due to Lender, or (vii) exercise any other right or remedy which may be
available to Lender under applicable law, or proceed by appropriate court action
to enforce the terms hereof or to recover damages for the breach hereof,
including Attorneys' Fees and Expenses. Any notice required to be given by
Lender of a sale or other disposition or other intended action which is made in
accordance with the terms of the Loan Agreement at least ten (10) days prior to
such proposed action, shall constitute fair and reasonable notice to Borrower of
any such action. Lender shall be liable to Borrower only for its gross
negligence or willful misconduct in failing to comply with any applicable law
imposing duties upon Lender; Lender's liability for any such failure shall be
limited to the actual loss suffered by Borrower directly resulting from such
failure; and in no event shall Lender have any liability to Borrower for
consequential, punitive or exemplary damages. No remedy referred to in this
Section 8 shall be exclusive, but each shall be cumulative and in addition to
any other remedy referred to above or otherwise available to Lender at law or in
equity.

      (b) The exercise or pursuit by Lender of any one or more of such remedies
shall not preclude the simultaneous or later exercise or pursuit by Lender of
any or all such other remedies, and all remedies hereunder shall survive
termination of the Loan Agreement. In the event Lender takes possession and
disposes of the Collateral, the proceeds of any such disposition shall be
applied in the following order: (1) to all of Lender's costs, charges and
expenses incurred in taking, removing, holding, repairing and selling or leasing
the Equipment; (2) to pay the Lender the remaining amount of any Obligations
owed to Lender and (3) the balance, if any, to Borrower. A termination shall
occur only upon written notice by Lender and only with respect to such
Equipment, as Lender shall specify in such notice. Termination under this
Section 8 shall not affect Borrower's duty to perform Borrower's Obligations
under the Loan Agreement in full. Borrower agrees to reimburse Lender on demand
for any and all reasonable costs and expenses incurred by Lender in enforcing
its rights and remedies hereunder following the occurrence of an Event of
Default, including, without limitation, Attorneys' Fees and



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                                  Page 7 of 13



                       MASTER LOAN AND SECURITY AGREEMENT


Expenses, and the reasonable costs of repossession, storage, insuring,
reletting, selling and disposing of any and all Equipment.

      9. INDEMNITY. (a) Borrower agrees to indemnify, reimburse and hold Lender
and its successors, Affiliates, assigns, officers, directors, employees, agents
and servants (hereinafter in this Section 9 referred to individually as
"Indemnitee", and collectively as "Indemnitees") harmless from any and all
liabilities, obligations, damages, injuries, penalties, claims, demands,
actions, suits, judgments and any and all costs, expenses or disbursements,
including Attorneys' Fees and Expenses of whatsoever kind and nature imposed on,
asserted against or incurred by any of the Indemnitees in any way relating to or
arising out of the Loan Agreement or any other document executed in connection
herewith or therewith or in any other way connected with the administration of
the transactions contemplated hereby or thereby or the enforcement of any of the
terms of, or the preservation of any rights under any thereof, or in any way
relating to or arising out of the manufacture, ownership, ordering, purchase,
delivery, control, acceptance, lease, financing, possession, operation,
condition, sale, return or other disposition, or use of the Equipment
(including, without limitation, latent or other defects, whether or not
discoverable), the violation of the laws of any country, state or other
governmental body or unit, any tort (including, without limitation, claims
arising or imposed under the doctrine of strict liability, or for or on account
of injury to or the death of any Person (including any Indemnitee), or property
damage), or contract claim, or any claim based on patent, trademark or copyright
infringement or any obligation or liability to the manufacturer or supplier of
the Equipment under any Supply Contracts (referenced in the Equipment Schedule),
including purchase orders issued by Borrower or Lender or assigned to Lender,
provided, however, that no Indemnitee shall be indemnified pursuant to this
Section 9 for losses, damages or liabilities to the extent caused by the gross
negligence or willful misconduct of such Indemnitee. Borrower agrees that upon
written notice by any Indemnitee of the assertion of such a liability,
obligation, damage, injury, penalty, claim, demand, action, suit or judgment,
Borrower shall assume full responsibility for the defense thereof. Each
Indemnitee agrees to use its best efforts to promptly notify Borrower of any
such assertion of which such Indemnitee has knowledge and agrees to use
reasonable efforts to cooperate with Borrower respecting the defense of any
matter indemnified hereunder except insofar and to the extent that Lender's
interests with respect thereto may be adverse to Borrower's as determined by
Lender in Lenders sole discretion.

      (b) Without limiting the application of Section 9(a) hereof, Borrower
agrees to pay, or reimburse Lender for any and all reasonable fees, costs and
expenses (including Attorneys' Fees and Expenses) of whatever kind or nature
incurred in connection with the creation, preservation or protection of Lender's
liens on, and security interest in, the Collateral, including, without
limitation, all fees and taxes in connection with the recording or filing of
instruments and documents in public offices, payment or discharge of any taxes
or liens upon or in respect of the Collateral, premiums for insurance with
respect to the Collateral and all other fees, costs and expenses in connection
with protecting, maintaining or preserving the Collateral and Lender's interest
therein, whether through judicial proceedings or otherwise, or in defending or
prosecuting any actions, suits or proceedings arising out of or relating to the
Collateral.

      (c) Borrower shall, at its sole cost and expense, protect, defend,
indemnify, release and hold harmless the Indemnitees from and against any and
all Losses imposed upon or incurred by or asserted against any Indemnitees, and
arising out of or in any way relating to any one or more of the following,
except to the extent by the gross negligence or willful misconduct of any
Indemnitee: (i) any presence of Hazardous Substances in, on, above or under
Borrower's leased or owned real property (the "Property"); (ii) any past,
present or threatened Release of Hazardous Substances in, on, above, under or
from the Property; or (iii) any past or present violation of any Environmental
Laws. The term "Release" of any Hazardous Substance includes, but is not limited
to, any release, deposit, discharge, emission, leaking, spilling, seeping,
migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing
or other movement of Hazardous Substances. The term "Losses" includes any and
all claims, suits, liabilities (including, without limitation, strict
liabilities), actions, proceedings, obligations, debts, damages, losses, costs,
expenses, diminutions in value, fines, penalties, charges, fees, expenses,
judgments, awards, amounts paid in settlement, costs of remediating a Hazardous
Substance (whether or not performed voluntarily), engineers' fees, environmental
consultants' fees, and costs of investigation (including, but not limited to
sampling, testing and analysis of soil, water, air, building materials and other
materials and substances whether solid, liquid or gas) or punitive damages, of
whatever kind or nature (including, but not limited to Attorneys' Fees and
Expenses).

      (d) Without limiting the application of Section 9(a) or (b), or (c)
hereof, Borrower agrees to pay, indemnify and hold each Indemnitee harmless from
and against any loss, costs, damages and expenses (including Attorneys' Fees and
Expenses) which such Indemnitee may suffer, expend or incur in consequence of or
growing out of any misrepresentation or omission of a material fact by Borrower
in the Loan Agreement or in any writing contemplated by or made or delivered
pursuant to or in connection with the Loan Agreement.

      (e) If and to the extent that the obligations of Borrower under this
Section 9 are unenforceable for any reason, Borrower hereby agrees to make the
maximum contribution to the payment and satisfaction of such obligations which
is permissible under applicable law.


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                                  Page 8 of 13

                       MASTER LOAN AND SECURITY AGREEMENT


      10. MAINTENANCE; INSPECTION. During the term of the Loan Agreement,
Borrower shall, unless Lender shall otherwise consent in writing: (a) maintain
conspicuously on any Equipment such labels, plates, decals or other markings as
Lender may reasonably require, stating that Lender has a security interest in
such Equipment; (b) furnish to Lender such information concerning the condition,
location, use and operation of the Equipment as Lender may request; (c) permit
any person designated by Lender to visit and inspect any Equipment and any
records maintained in connection therewith, provided, however, that the failure
of Lender to inspect the Equipment or to inform Borrower of any noncompliance
shall not relieve Borrower of any of its obligations hereunder; and (d) make no
additions, alterations, modifications or improvements (collectively,
"Improvements") to any item of Equipment that are not readily removable without
causing material damage to such item of Equipment or which will cause the value,
utility or useful life of such item of Equipment to materially decline. If any
such Improvement is made and cannot be removed without causing material damage
or decline in value, utility or useful life (a "Non-Severable Improvement"),
then Borrower warrants that such Non-Severable Improvement shall immediately
become subject to Lender's security interest upon being installed and shall be
free and clear of all liens and encumbrances and shall become Equipment subject
to all of the terms and conditions of the Loan Agreement.

      11. FURTHER ASSURANCES. Borrower shall promptly execute and deliver to
Lender such further documents and take such further action as Lender may
reasonably require in order to more effectively carry out the intent and purpose
of the Loan Agreement. Borrower shall execute and deliver to Lender upon
Lender's request any and all schedules, forms and other reports and information
as Lender may deem necessary or appropriate to respond to requirements or
regulations imposed by any governmental authorities or to comply with the
provisions of the law of any jurisdiction in which Borrower may then be
conducting business or in which any of the Equipment may be located. Borrower
authorizes Lender to file financing statements and amendments thereto describing
the Collateral and containing any other information required by the applicable
Uniform Commercial Code.

Borrower shall execute and deliver to Lender upon Lender's request such further
and additional documents, instruments and assurances as Lender deems necessary
to acknowledge and confirm, for the benefit of Lender or any assignee or
transferee of any of Lender's rights, title and interests hereunder in
accordance with Section 12 hereof (an "Assignee"), all of the terms and
conditions of all or any part of the Loan Agreement and Lender's or Assignee's
rights with respect thereto, and Borrower's compliance with all of the terms and
provisions thereof.

      12. ASSIGNMENT. The provisions of the Loan Agreement shall be binding upon
and shall inure to the benefit of the heirs, administrators, successors and
assigns of Lender and Borrower, provided, however, Borrower may not assign any
of its rights, transfer any interest in the Equipment or delegate any of its
obligations under the Loan Agreement without the prior written consent of Lender
in its sole discretion. Lender may, from time to time, absolutely or as
security, without notice to Borrower, sell, assign, transfer, participate,
pledge or otherwise dispose of all or any part of a Loan Agreement, the
Obligations and/or the Collateral therefor, subject to the rights of Borrower
under the Loan Agreement for the use and possession of the Equipment. In such
event, each and every immediate and successive Assignee shall have the right to
enforce the Loan Agreement with respect to those Obligations and/or Collateral
transferred to the Assignee, by legal action or otherwise, for its own benefit
as fully as if such Assignee were herein by name specifically given such rights.
Borrower agrees that the rights of any such Assignee hereunder or with respect
to the related Obligations, shall not be subject to any defense, set off or
counterclaim that Borrower may assert or claim against Lender, and that any such
Assignee shall have all of Lender's rights hereunder but none of Lender's
obligations. Lender shall have an unimpaired right to enforce the Loan Agreement
for its benefit with respect to that portion of any Loan Agreement, Obligations
and/or Collateral that Lender has not sold, assigned, pledged or otherwise
transferred.

      13. GOVERNING LAW; THE LOAN AGREEMENT AND THE LEGAL RELATIONS OF THE
PARTIES HERETO SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA, WITHOUT REGARD TO PRINCIPLES
REGARDING THE CHOICE OF LAW. BORROWER AND LENDER HEREBY CONSENTS AND SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF VIRGINIA AND
THE FEDERAL DISTRICT COURT FOR THE COMMONWEALTH OF VIRGINIA FOR THE PURPOSES OF
ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF ITS OBLIGATIONS UNDER THE
LOAN AGREEMENT, AND EXPRESSLY WAIVE ANY OBJECTIONS THAT IT MAY HAVE TO THE VENUE
OF SUCH COURTS. BORROWER AND LENDER HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL
BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THE LOAN AGREEMENT

      14. NOTICES. Any demand or notice required or permitted to be given
hereunder shall be deemed effective (a) when deposited in the United States
mail, and sent by certified mail, return receipt requested, postage prepaid,
addressed to Lender or to Borrower at the addresses set forth herein, or to such
other address as may be hereafter provided by the party to be notified by
written notice complying with the provisions hereof or (b) when transmitted to
Lender or Borrower


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                                  Page 9 of 13

                       MASTER LOAN AND SECURITY AGREEMENT


by facsimile at the respective numbers provided for such purpose; provided, that
such facsimile notice is promptly followed by notice given in accordance with
the immediately preceding subsection (a).

      15. SECURITY DEPOSIT. Lender may, at its option, apply the Security
Deposit, if any is indicated in an Equipment Schedule, to cure any default of
Borrower, whereupon Borrower shall promptly restore such Security Deposit to its
original amount. Lender shall return to Borrower any unapplied Security Deposit,
without interest, upon full payment and performance of Borrower's Obligations
under the Loan Agreement.

      16. MISCELLANEOUS; GENERAL PROVISIONS. The Loan Agreement will not be
binding on Lender or Borrower until accepted and executed by Borrower and Lender
at its executive office in Alexandria, Virginia. All options, powers and rights
granted to Lender hereunder or under any promissory note, guaranty, letter of
credit agreement, depository agreement, instrument, document or other writing
delivered to Lender shall be cumulative and shall be in addition to any other
options, powers or rights which Lender may now or hereafter have under any
applicable law or otherwise. Time is of the essence in the payment and
performance of all of Borrower's and Lender's obligations under the Loan
Agreement. The captions in the Loan Agreement are for convenience only and shall
not define or limit any of the terms thereof.

      Any provisions of the Loan Agreement which are unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such unenforceability without invalidating the remaining provisions hereof, and
any such unenforceability in any jurisdiction shall not render unenforceable
such provisions in any other jurisdiction. To the extent permitted by applicable
law, Borrower hereby waives any provisions of law, which render any provision of
the Loan Agreement unenforceable in any respect.

      BORROWER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS LOAN AGREEMENT IS
A PART IS A COMMERCIAL TRANSACTION AND EXCEPT AS OTHERWISE PROVIDED IN THE LOAN
AGREEMENT BORROWER HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
NOTICE AND JUDICIAL HEARING IN CONNECTION WITH LENDER'S TAKING POSSESSION OR
LENDER'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION,
ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND
ANY SUCH RIGHT WHICH BORROWER WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY
STATUTE OF THE UNITED STATES OR OF ANY STATE, INCLUDING, WITHOUT LIMITATION, ITS
RIGHTS TO NOTICE AND HEARING UNDER CHAPTER 903A OF THE VIRGINIA GENERAL
STATUTES.

      THE LOAN AGREEMENT AND ANY OTHER WRITTEN AGREEMENT(S) BETWEEN THE PARTIES
EXECUTED SIMULTANEOUSLY HEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES CONCERNING THE SUBJECT MATTER HEREOF, AND SUPERSEDE AND MAY NOT BE
CONTRADICTED BY ANY PRIOR WRITTEN AGREEMENTS BETWEEN THE PARTIES, INCLUDING,
WITHOUT LIMITATION, PROPOSALS, LETTERS, COMMITMENT LETTERS OR BY ANY PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. BORROWER
ACKNOWLEDGES AND CERTIFIES THAT NO SUCH ORAL AGREEMENTS EXIST. THE LOAN
AGREEMENT MAY NOT BE AMENDED, NOR MAY ANY RIGHTS UNDER THE LOAN AGREEMENT BE
WAIVED, EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY THE PARTY AGAINST WHOM SUCH
AGREEMENT OR WAIVER IS ASSERTED. The failure of Lender at any time or times
hereafter to require strict performance by Borrower of any of the provisions,
warranties, terms and conditions contained in the Loan Agreement or in any other
agreement, guaranty, note, depository agreement, letter of credit, instrument or
document now or at any time or times hereafter executed by Borrower or an
Affiliate of Borrower and delivered to Lender shall not waive, affect or
diminish any right of Lender at any time or times hereafter to demand strict
performance thereof. The Loan Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument. Each reference herein
to "Lender" shall be deemed to include its successors and assigns, and each
reference to "Borrower" and any pronouns referring thereto as used herein shall
be construed in the masculine, feminine, neuter, singular or plural, as the
context may require, and shall be deemed to include the legal representatives,
successors and assigns of Borrower, all of whom shall be bound by the provisions
hereof.

      The Loan Agreement and all related documents, including (a) amendments,
addenda, consents, waivers and modifications which may be executed
contemporaneously or subsequently herewith, (b) documents received by Lender
from the Borrower, and (c) financial statements, certificates and other
information previously or subsequently furnished to Lender, may be reproduced by
Lender by any photographic, photostatic, microfilm, micro-card, miniature
photographic, compact disk reproduction or other similar process and Lender may
destroy any original document so reproduced. Borrower agrees, herein waives all
right to object to the admissibility of such reproduction and stipulates that
any such reproduction shall, to the extent permitted by law, be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original itself is in existence and whether or not the
reproduction was made by Lender in the regular course of


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                                 Page 10 of 13

                       MASTER LOAN AND SECURITY AGREEMENT


business) and that any enlargement, facsimile or further reproduction of the
reproduction shall likewise be admissible in evidence.

      17. SURVIVAL. Sections 1, 9, 12, 13, and 16 shall survive and continue in
full force and effect without regard to the payment in full of all Obligations
under the Loan Agreement.

      Executed and delivered by duly authorized representatives of the parties
hereto as of the date set forth below.

LENDER:                                  BORROWER:

OXFORD FINANCE CORPORATION               STRUCTURAL GENOMIX, INC.

By:      /s/ Karl Hefty                  By:      /s/ Herbert G. Mutter

Name:    Karl Hefty                      Name:    Herbert G. Mutter

Title:   VP & Portfolio Manager          Title:   Vice President, Finance

Date:    9/03/02                         Date:    8/28/02



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                                 Page 11 of 13



                       MASTER LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------


                                   SCHEDULE 1

TRADE NAMES

Structural GenomiX, Inc.
SGX
SGX Acquisition Corp.
Prospect Genomics, Inc.
PGI
Protarch, Inc.



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                                 Page 12 of 13



                       MASTER LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------


                                   SCHEDULE 2

NAME CHANGES; CHANGES IN CHIEF EXECUTIVE OFFICE

Name change: from Protarch, Inc. to Structural GenomiX, Inc.

Surving Entity in Merger: SGX Acquisition Corp. was merged with and into
Prospect Genomics, Inc.

Acquired business: Prospect Genomics, Inc.

Prior location of Chief Executive Office: New York, NY



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                                 Page 13 of 13



                              COLLATERAL MIX RIDER
- --------------------------------------------------------------------------------


                                       TO
                 MASTER LOAN AND SECURITY AGREEMENT NO. 2081008
                              DATED AUGUST 28, 2002
                                     BETWEEN
                    OXFORD FINANCE CORPORATION (the LENDER)
                                       AND
                     STRUCTURAL GENOMIX, INC. (the BORROWER)

Borrower, Structural GenomiX. Inc., on or before July 30, 2003 shall cause the
composition and mix of Equipment to conform to and meet the following
concentration requirements (hereinafter Concentration Requirement ) for each
class of Equipment (hereinafter Equipment Class) as identified and set forth
below. Borrower, Structural GenomiX, Inc., herein represents and warrants that
it shall maintain each such Equipment Class and its respective Concentration
Requirement from and after such above referenced date and continuing thereafter
to the end of the funding term:



EQUIPMENT CLASS                          CONCENTRATION REQUIREMENT
- ---------------                          -------------------------
                                      
Laboratory Equipment                     Minimum of 40%

Computer Equipment                       Maximum of 11%

Beam Line Equipment                      Maximum of 6%

Tenant Improvements and Software         Maximum of 43%



Dated as of: August 28,2002

OXFORD FINANCE CORPORATION               STRUCTURAL GENOMIX, INC.

By:      /s/ Karl Hefty                  By:      /s/ Herbert G. Mutter
         -----------------------------            ------------------------------

Name:    Karl Hefty                      Name:    Herbert G. Mutter
         -----------------------------            ------------------------------

Title:   VP & Portfolio Manager          Title:   Vice President, Finance
         -----------------------------            ------------------------------






                               EQUIPMENT SCHEDULE
                                       TO
                       MASTER LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------

MASTER LOAN AND SECURITY AGREEMENT NO. 2081008            DATED: August 28, 2002
EQUIPMENT SCHEDULE NO. 01

LENDER:                                  BORROWER:

OXFORD FINANCE CORPORATION               STRUCTURAL GENOMIX, INC.
133 NORTH FAIRFAX STREET                 10505 ROSELLE STREET
ALEXANDRIA, VIRGINIA 22314               SAN DIEGO, CA 92121


LENDER AND BORROWER HAVE ENTERED INTO MASTER LOAN AND SECURITY AGREEMENT NO.
2081008 DATED August 28, 2002 (THE "AGREEMENT") WHICH IS INCORPORATED HEREIN.
THIS IS AN EQUIPMENT SCHEDULE TO THE AGREEMENT. ALL WORDS AND TERMS USED HEREIN
AND NOT SPECIFICALLY DEFINED HEREIN SHALL HAVE THE SAME MEANINGS AS SET FORTH IN
THE AGREEMENT.

      1. EQUIPMENT LOCATION (if other than above address of Borrower): 10581
Roselle Street, San Diego, CA 92121 AND 3770 Tansy Street, San Diego, CA 92121
AND 9700 South Cass Avenue, Argonne, IL 60439.

      2. EQUIPMENT: (See attached Exhibit A)

      3. ACQUISITION COST OF THE EQUIPMENT: $1,448,029.34.

      4. SUPPLIER(S): See Attached.

      5. THE LOAN AND LOAN AGREEMENT REPAYMENT. As requested by Borrower
pursuant to the Agreement, Lender agrees to lend to Borrower the sum of
$1,448,029.34. Borrower agrees to repay the Loan Agreement in successive
installments (which installment payments are inclusive of interest) as set forth
in the following Schedule:

      SCHEDULE

      Advance Payment Amount: $73.632.30 (first and last payments up front)

      Number of Installments (Exclusive of Advance Payment):  46

      Payment Period:   [X] Monthly   [ ] Quarterly

      Periodic Installment Payment mount Per Period:  $36,816.15

      Commencement Date:  September 3, 2002

      Special provisions (if any):  Warrant

      6. SECURITY DEPOSIT: none.

      7. DISBURSEMENT OF PROCEEDS. Borrower hereby authorizes Lender to disburse
the $1,448,029.34 proceeds as follows:

            (a)   $1,448,029.34       to:      Structural GenomiX, Inc.

                  $1,448,029.34                TOTAL PROCEEDS


                                  Page 1 of 2

                               EQUIPMENT SCHEDULE
                                       TO
                       MASTER LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------


Borrower may direct the Lender in writing to withhold payments from Supplier(s),
either now or in the future. Lender shall be entitled to rely on such written
direction of Borrower as being conclusive as to the intent of the Borrower with
regard to withheld payments.

Borrower hereby acknowledges and agrees that it shall constitute an additional
Event of Default under the Loan Agreement if, for any reason, the Acquisition
Cost of the Equipment has not been fully paid to the appropriate Supplier(s)
thereof within ten (10) days after demand therefor by Lender. Borrower hereby
agrees to indemnify, and hold harmless Lender from and against any liability,
claim, loss or damage, including reasonable Attorneys' Fees and Expenses, that
may be incurred by Lender as a result of any amounts to be withheld hereunder,
including any claims of the Supplier(s) therefor.

      8. ADJUSTMENTS: Borrower acknowledges that payments under the Loan
Agreement herein are based upon the Acquisition Cost of the Equipment set forth
above, and as a result of authorized changes to the Equipment, the final
Acquisition Cost of the Equipment may increase or decrease by up to 10%. In such
event, the Loan Payments shall be adjusted accordingly, and Borrower authorizes
Lender to correct the Loan Agreement (and all related documentation) to reflect
such changes and Borrower, if requested by Lender, shall confirm such changes to
Lender in writing.

      9. SEE RATE ADJUSTMENT RIDER ATTACHED AND INCORPORATED BY REFERENCE.

By execution hereof, the signer certifies that he/she is a duly authorized
officer, partner or proprietor of Borrower and that he/she has read, accepted
and duly executed this Equipment Schedule to the Master Loan and Security
Agreement on behalf of Borrower.

ACCEPTED AT LENDER'S OFFICE AT ALEXANDRIA, VIRGINIA.

OXFORD FINANCE CORPORATION               STRUCTURAL GENOMIX, INC.
(LENDER)                                 (BORROWER)

By:    /s/ Karl Hefty                    By:    /s/ Herbert G. Mutter
       -------------------------------          --------------------------------

Name:  Karl Hefty                        Name:  Herbert G. Mutter
       -------------------------------          --------------------------------

Title: VP & Portfolio Manager            Title: Vice President, Finance
       -------------------------------          --------------------------------

Date:  9/03/02                           Date:  8/28/02
       -------------------------------          --------------------------------


                                  Page 2 of 2



                                    EXHIBIT A
                                       TO
                               EQUIPMENT SCHEDULE
- --------------------------------------------------------------------------------

                               LIST OF EQUIPMENT

The following list and description of Equipment supplements and forms a part of
Equipment Schedule No. 01 to Master Loan and Security Agreement No. 2081008
dated August 28, 2002 between Lender and Borrower and may be attached to said
Equipment Schedule and any related UCC Financing Statements, or other document
relating to the Master Loan and Security Agreement, the Equipment Schedule or
any other document describing the Equipment.

                SEE ATTACHED EQUIPMENT SCHEDULE DETAIL EXHIBIT A

All property listed above, together with any and all attachments, accessions,
additions, replacements, improvements, modifications and substitutions thereto
and therefor and a right to use license for any software related to any of the
foregoing now or hereafter acquired and all proceeds, in the form of goods,
accounts, chattel paper, documents, instruments and insurance proceeds.

OXFORD FINANCE CORPORATION               STRUCTURAL GENOMIX, INC.
(LENDER)                                 (BORROWER)

By:    /s/ Karl Hefty                    By:    /s/ Herbert G. Mutter
       -------------------------------          --------------------------------

Name:  Karl Hefty                        Name:  Herbert G. Mutter
       -------------------------------          --------------------------------

Title: VP & Portfolio Manager            Title: Vice President, Finance
       -------------------------------          --------------------------------

Date:  9/03/02                           Date:  8/28/02
       -------------------------------          --------------------------------



                             FORM OF PROMISSORY NOTE
________________________________________________________________________________

TO:   MASTER LOAN AND SECURITY AGREEMENT NO. 2081008

                              Dated August 28, 2002

                            EQUIPMENT SCHEDULE NO.___


U.S. $__________________                                    Alexandria, Virginia

Dated:    _________________________

            FOR VALUE RECEIVED, STRUCTURAL GENOMIX, INC. a DELAWARE corporation
(the "Borrower"), hereby promises to pay to the order of OXFORD FINANCE
CORPORATION, or its successors or assigns (the "Payee") at its offices located
at 133 North Fairfax Street, Alexandria, Virginia 22314, or at such other place
as the Payee or any holder hereof may from time to time designate, the principal
amount of U.S. _________________________________________________________________
____________ DOLLARS ($_______), with interest (based on a year of 360 days and
30 day months) on the principal amount hereof remaining from time to time
unpaid, such principal and interest to be paid in consecutive monthly
installments until fully paid, in the manner and at a rate of interest per annum
as determined and provided in the Loan Agreement. Anything in this Note to the
contrary notwithstanding, in the event that any payment of interest hereunder
shall exceed the legal limit, such amount in excess of such limit shall be
deemed a payment of principal hereunder.

This Note evidences a loan by the Payee to the undersigned, pursuant to the Loan
Agreement indicated above between the undersigned and the Payee as from time to
time may be amended, restated, replaced, supplemented, substituted for or
renewed, and the holder of this Note is entitled to the benefits thereof,
including without limitation, the security interest in the Equipment granted
therein. Each term defined in the Loan Agreement and not otherwise defined
herein shall have the same definition when used herein.

The principal hereof and accrued interest hereon shall become forthwith due and
payable as provided in the Loan Agreement. Payments hereunder not made when due
shall accrue late charges as provided in the Loan Agreement. This Note may not
be prepaid in whole or in part except as otherwise specifically provided in the
Loan Agreement.

The Borrower hereby waives diligence, demand, presentment, protest and notice of
any kind, and assents to extensions of the time of payment, release, surrender
or substitution of security, or forbearance or other indulgence, without notice.
No act or omission of the Payee, including without limitation any failure to
exercise any right, remedy or recourse, shall be deemed to be a waiver or
release of such right, remedy or recourse. Any waiver or release may be effected
only by a written document executed by Payee and then only to the extent
specified therein. The undersigned hereby promises to pay all reasonable
Attorneys Fees and Expenses that may be incurred in connection with the
enforcement and/or collection of this Note.

The undersigned authorizes the Payee to insert above as the date of the Note,
the date on which Payee disburses funds pursuant to the Loan Agreement.

This Note is freely assignable by the Payee, in whole or in part, and from time
to time. All of the terms and provisions of this Note inure to and are binding
upon the heirs, executors, administrators, successors, representatives,
receivers, trustees and assigns of the parties. None of the rights or
obligations of the Borrower hereunder may be assigned or otherwise transferred
without the prior written consent of the Payee.

THIS NOTE AND THE LEGAL RELATIONS OF THE PARTIES HERETO SHALL IN ALL RESPECTS BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
VIRGINIA, WITHOUT REGARD TO PRINCIPLES REGARDING THE CHOICE OF LAW. BORROWER
HEREBY CONSENTS AND SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF
THE COMMONWEALTH OF VIRGINIA AND THE FEDERAL DISTRICT COURT FOR THE

________________________________________________________________________________


                                   Page 1 of 2

                             FORM OF PROMISSORY NOTE
________________________________________________________________________________

COMMONWEALTH OF VIRGINIA FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER
PROCEEDING ARISING OUT OF ITS OBLIGATIONS HEREUNDER, AND EXPRESSLY WAIVES ANY
OBJECTIONS THAT IT MAY HAVE TO THE VENUE OF SUCH COURTS. BORROWER HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH
RESPECT TO THIS NOTE.

            IN WITNESS WHEREOF, the Borrower by its duly authorized officer has
executed and delivered this Note as of the date first above written.

                                                  STRUCTURAL GENOMIX, INC.

                                     By:    ____________________________________

                                     Name:  ____________________________________

                                     Title: ____________________________________

________________________________________________________________________________


                                   Page 2 of 2

                          SCHEDULE OF PROMISSORY NOTES



           NUMBER                DATE                   PRINCIPAL AMOUNT
           ------                ----                   ----------------
                                                  
              1                 9/3/2002                 $1,448,029.34
              2                 9/3/2002                 $1,803,395.89
              3               12/27/2002                   $700,515.67
              4                4/30/2003                   $347,347.10
              5                4/30/2003                   $235,678.50
              6                7/30/2003                   $270,590.10
              7                7/30/2003                    $89,645.08
              8               12/19/2003                   $180,631.41
              9               12/19/2003                   $178,554.85
             10                5/28/2004                   $420,400.68
             11                5/28/2004                   $221,667.20

EX-23.1

                                                                    EXHIBIT 23.1

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 3, 2005, except for paragraphs 3 through 6 of
Note 10 as to which the date is April 21, 2005, in the Registration Statement
(Form S-1) and related Prospectus of SGX Pharmaceuticals, Inc. for the
registration of its common stock expected to be filed on or about September 1,
2005.

                                          /s/    ERNST & YOUNG LLP

San Diego, California
August 29, 2005