SC 13D

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

SCHEDULE 13D

Under the Securities Exchange Act of 1934
(Amendment No.    )¹

Aerogen, Inc. (Name of Issuer)

Common Stock (Title of Class of Securities)

007779309 (CUSIP Number)

Hope Flack
BVF Partners L.P.
227 West Monroe Street, Suite 4800
Chicago, Illinois 60606
(312) 263-7777(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)

January 18, 2005 (Date of Event Which Requires Filing of this Statement)

        If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of §§ 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box o.

        Note:    Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See§ 240.13d-7 for other parties to whom copies are to be sent.

(Continued on following pages)

(Page 1 of 11 Pages)

¹      The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

        The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

CUSIP No. 007779309 13D Page 2 of 11 Pages

1	NAME OF REPORTING PERSON: Biotechnology Value Fund, L.P. S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY):
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*	(a)  ý
		(b)  o
3	SEC USE ONLY
4	SOURCE OF FUNDS*
	WC
5	CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)	o
6	CITIZENSHIP OR PLACE OF ORGANIZATION
	Delaware

	7	SOLE VOTING POWER
NUMBER OF		0
SHARES
BENEFICIALLY	8	SHARED VOTING POWER
OWNED		500,000
BY
EACH	9	SOLE DISPOSITIVE POWER
REPORTING		0
PERSON
WITH:	10	SHARED DISPOSITIVE POWER
		500,000

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
	500,000
12	CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*	o
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
	7.63%
14	TYPE OF REPORTING PERSON*
	PN

*SEE INSTRUCTIONS BEFORE FILLING OUT!

CUSIP No. 007779309 13D Page 3 of 11 Pages

1	NAME OF REPORTING PERSON: Biotechnology Value Fund II, L.P. S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY):
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*	(a)  ý
		(b)  o
3	SEC USE ONLY
4	SOURCE OF FUNDS*
	WC
5	CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)	o
6	CITIZENSHIP OR PLACE OF ORGANIZATION
	Delaware

	7	SOLE VOTING POWER
NUMBER OF		0
SHARES
BENEFICIALLY	8	SHARED VOTING POWER
OWNED		316,663
BY
EACH	9	SOLE DISPOSITIVE POWER
REPORTING		0
PERSON
WITH:	10	SHARED DISPOSITIVE POWER
		316,663

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
	316,663
12	CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*	o
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
	4.83%
14	TYPE OF REPORTING PERSON*
	PN

*SEE INSTRUCTIONS BEFORE FILLING OUT!

CUSIP No. 007779309 13D Page 4 of 11 Pages

1	NAME OF REPORTING PERSON: BVF Investments, L.L.C. S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY):
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*	(a)  ý
		(b)  o
3	SEC USE ONLY
4	SOURCE OF FUNDS*
	WC
5	CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)	o
6	CITIZENSHIP OR PLACE OF ORGANIZATION
	Delaware

	7	SOLE VOTING POWER
NUMBER OF		0
SHARES
BENEFICIALLY	8	SHARED VOTING POWER
OWNED		766,664
BY
EACH	9	SOLE DISPOSITIVE POWER
REPORTING		0
PERSON
WITH:	10	SHARED DISPOSITIVE POWER
		766,664

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
	766,664
12	CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*	o
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
	11.70%
14	TYPE OF REPORTING PERSON*
	OO

*SEE INSTRUCTIONS BEFORE FILLING OUT!

CUSIP No. 007779309 13D Page 5 of 11 Pages

1	NAME OF REPORTING PERSON: Investment 10, L.L.C. S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY):
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*	(a)  ý
		(b)  o
3	SEC USE ONLY
4	SOURCE OF FUNDS*
	OO
5	CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)	o
6	CITIZENSHIP OR PLACE OF ORGANIZATION
	Illinois

	7	SOLE VOTING POWER
NUMBER OF		0
SHARES
BENEFICIALLY	8	SHARED VOTING POWER
OWNED		83,333
BY
EACH	9	SOLE DISPOSITIVE POWER
REPORTING		0
PERSON
WITH:	10	SHARED DISPOSITIVE POWER
		83,333

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
	83,333
12	CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*	o
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
	1.27%
14	TYPE OF REPORTING PERSON*
	OO

*SEE INSTRUCTIONS BEFORE FILLING OUT!

CUSIP No. 007779309 13D Page 6 of 11 Pages

1	NAME OF REPORTING PERSON: BVF Partners L.P. S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY):
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*	(a)  ý
		(b)  o
3	SEC USE ONLY
4	SOURCE OF FUNDS*
	OO
5	CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)	o
6	CITIZENSHIP OR PLACE OF ORGANIZATION
	Delaware

	7	SOLE VOTING POWER
NUMBER OF		0
SHARES
BENEFICIALLY	8	SHARED VOTING POWER
OWNED		1,666,660
BY
EACH	9	SOLE DISPOSITIVE POWER
REPORTING		0
PERSON
WITH:	10	SHARED DISPOSITIVE POWER
		1,666,660

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
	1,666,660
12	CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*	o
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
	25.44%
14	TYPE OF REPORTING PERSON*
	PN

*SEE INSTRUCTIONS BEFORE FILLING OUT!

CUSIP No. 007779309 13D Page 7 of 11 Pages

1	NAME OF REPORTING PERSON: BVF Inc. S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY):
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*	(a)  ý
		(b)  o
3	SEC USE ONLY
4	SOURCE OF FUNDS*
	OO
5	CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)	o
6	CITIZENSHIP OR PLACE OF ORGANIZATION
	Delaware

	7	SOLE VOTING POWER
NUMBER OF		0
SHARES
BENEFICIALLY	8	SHARED VOTING POWER
OWNED		1,666,660
BY
EACH	9	SOLE DISPOSITIVE POWER
REPORTING		0
PERSON
WITH:	10	SHARED DISPOSITIVE POWER
		1,666,660

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
	1,666,660
12	CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*	o
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
	25.44%
14	TYPE OF REPORTING PERSON*
	IA, CO

*SEE INSTRUCTIONS BEFORE FILLING OUT!

CUSIP No. 007779309 13D Page 8 of 11 Pages

ITEM 1. SECURITY AND ISSUER.

        This Statement on Schedule 13D (this "Statement") relates to warrants (the "Warrants") to purchase an aggregate of 1,666,660 shares of common stock, par value $0.001 per share (the "Common Stock", and collectively with the Warrants, the "Securities") of Aerogen, Inc., a Delaware corporation ("Aerogen"). The principal executive office of Aerogen is located at 2071 Stierlin Court, Suite 100, Mountain View, CA 94043.

ITEM 2. IDENTITY AND BACKGROUND.

        The persons filing this Statement, the persons enumerated in Instruction C of this Statement and, where applicable, their respective places of organization, principal office, general partners, managers, directors, executive officers, controlling persons and certain information regarding each of them, are as follows:

        (a)  Biotechnology Value Fund, L.P., a Delaware limited partnership ("BVF"), Biotechnology Value Fund II, L.P., a Delaware limited partnership ("BVF2"), BVF Investments, L.L.C., a Delaware limited liability company ("Investments"), Investment 10, L.L.C., an Illinois limited liability company ("ILL10"), BVF Partners L.P., a Delaware limited partnership ("Partners") and BVF Inc., a Delaware corporation ("BVF Inc.") specialize in holding biotechnology stocks for investment purposes. Together, BVF, BVF2, Investments, ILL10, Partners and BVF Inc. are referred to as the "Reporting Persons." Mark N. Lampert, an individual ("Lampert"), is the sole shareholder, sole director and an officer of BVF Inc.

        (b)  The business address of BVF, BVF2, Investments, ILL10, and Partners is 227 West Monroe Street, Suite 4800, Chicago, Illinois 60606. The business address of BVF Inc. and Lampert is One Sansome Street, 31st Floor, San Francisco, California 94104.

        (c)  Partners is the general partner of BVF and BVF2, which are investment limited partnerships. Partners is the manager of Investments. ILL10 is a managed account, which Partners advises pursuant to an investment management agreement. BVF Inc. is an investment advisor to and general partner of Partners. For Lampert's occupation, please refer to (a) above.

        (d)  During the last five years, none of the Reporting Persons or Lampert has been convicted in a criminal proceeding (excluding traffic violations and similar misdemeanors).

        (e)  During the last five years, none of the Reporting Persons or Lampert has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction nor, as a result of such proceeding, was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.

        (f)    Lampert is a citizen of the United States of America. For the citizenship of each of BVF, BVF2, Investments, ILL10, Partners, and BVF Inc., please refer to (a) above.

CUSIP No. 007779309 13D Page 9 of 11 Pages

ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.

        On January 18, 2005, Partners, in its capacity as (i) general partner of BVF, purchased on behalf of such limited partnership beneficial ownership of Warrants to purchase 500,000 shares of Common Stock, (ii) general partner of BVF2, purchased on behalf of such limited partnership beneficial ownership of Warrants to purchase 316,663 shares of Common Stock; (iii) manager of Investments, purchased on behalf of such limited liability company beneficial ownership of Warrants to purchase 766,664 shares of Common Stock; and (iv) investment adviser to ILL10, purchased on behalf of such limited liability company beneficial ownership of Warrants to purchase 83,333 shares of Common Stock. Total consideration paid for items (i), (ii), (iii) and (iv) above is $441,665, purchased pursuant to a Securities Purchase Agreement ("Agreement") executed and delivered on January 18, 2005, by and among the Reporting Persons and The Convertible Fund Offshore Ltd., attached hereto as Exhibit 2. The terms and conditions of each Warrant are substantially similar. All of the Warrants expire on either March 11, 2009 or May 11, 2009. A form of Warrant is attached hereto as Exhibit 3. The Securities were purchased by the Reporting Persons, in the case of (i) BVF and (ii) BVF2, utilizing funds provided by BVF from its working capital pursuant to the terms of its limited partnership agreement with Partners, in case of (iii) Investments, utilizing funds provided by Investments from its working capital pursuant to terms of its operating agreement, and in the case of (iv) ILL10, utilizing funds provided by ILL10 from its own account.

ITEM 4. PURPOSE OF TRANSACTIONS.

        The sole purpose of the acquisitions of the Warrants reported herein was investment. The Reporting Persons did not at the time they acquired the shares of Securities, and do not now, have any plan to acquire control of Aerogen. The Reporting Persons may acquire or dispose of additional Securities from time to time.

ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.

        (a)  BVF beneficially owns Warrants to purchase 500,000 shares of Common Stock, BVF2 beneficially owns Warrants to purchase 316,663 shares of Common Stock, Investments beneficially owns Warrants to purchase 766,664 shares of Common Stock, ILL10 beneficially owns Warrants to purchase 83,333 shares of Common Stock and each of Partners and BVF Inc. beneficially owns Warrants to purchase 1,666,660 shares of Common Stock, representing approximately 7.63%, 4.83%, 11.70%, 1.27% and 25.44%, respectively, of the aggregate number of shares of Common Stock outstanding as of January 18, 2005. The number of shares for each Reporting Person as referred to in this Item 5(a) is based upon the beneficial ownership of Warrants, identified in Item 3 above, all of which are immediately exercisable.

        (b)  Each of BVF, BVF2, Investments, and ILL10 shares with Partners voting and dispositive power over the shares of the Securities each such entity beneficially owns. Partners and BVF Inc. share voting and dispositive power over the 1,666,660 shares of the Securities they beneficially own with BVF, BVF2, Investments and ILL10.

        (c)  There have been no transactions by BVF, BVF2, Investments, ILL10, Partners or BVF Inc. in securities of the Issuer during the last sixty days, other than those transactions described in Item 3 and Item 5(b) that are pursuant to the terms and conditions of the Agreement, attached hereto as Exhibit 2.

CUSIP No. 007779309 13D Page 10 of 11 Pages

ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER.

        Partners is the general partner of each of BVF and BVF2 pursuant to limited partnership agreements which authorize Partners, among other things, to invest the funds of BVF and BVF2 in shares of the Securities and to vote, exercise or convert and dispose of such shares. Pursuant to such limited partnership agreements, Partners is entitled to receive fees based on assets under management and allocations based on realized and unrealized gains on such assets. Pursuant to the operating agreement of Investments, Partners is authorized, among other things, to invest the funds of Ziff Asset Management, L.P., the majority member of Investments, in shares of the Securities and to vote, exercise or convert and dispose of such shares and is entitled to receive fees based on assets under management and allocations based on realized and unrealized gains on such assets. Pursuant to an investment management agreement with ILL10, Partners and BVF Inc. have authority, among other things, to invest funds of ILL10 in shares of the Securities and to vote, exercise or convert and dispose of such shares. Pursuant to such investment management agreement, Partners and BVF Inc. receive fees based on assets under management and realized and unrealized gains thereon. BVF Inc. is the general partner of Partners and may be deemed to own beneficially securities over which Partners exercises voting and dispositive power.

ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.

Exhibit 1 – Agreement Regarding Joint Filing

Exhibit 2 – Securities Purchase Agreement

Exhibit 3 – Form of Warrant

CUSIP No. 007779309 13D Page 11 of 11 Pages

        After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct.

Dated:	January 28, 2005
	BIOTECHNOLOGY VALUE FUND, L.P.
	By:	BVF Partners L.P., its general partner
		By:	BVF Inc., its general partner
			By:	/s/  MARK N. LAMPERT
				Mark N. Lampert President
	BIOTECHNOLOGY VALUE FUND II, L.P.
	By:	BVF Partners L.P., its general partner
		By:	BVF Inc., its general partner
			By:	/s/  MARK N. LAMPERT
				Mark N. Lampert President
	BVF INVESTMENTS, L.L.C.
	By:	BVF Partners L.P., its manager
		By:	BVF Inc., its general partner
			By:	/s/  MARK N. LAMPERT
				Mark N. Lampert President
	INVESTMENT 10, L.L.C.
	By:	BVF Partners L.P., its attorney-in-fact
		By:	BVF Inc., its general partner
			By:	/s/  MARK N. LAMPERT
				Mark N. Lampert President
	BVF PARTNERS L.P.
	By:	BVF Inc., its general partner
		By:	/s/  MARK N. LAMPERT
			Mark N. Lampert President
	BVF INC.
	By:	/s/  MARK N. LAMPERT
		Mark N. Lampert President

EX-1

EXHIBIT 1

AGREEMENT REGARDING JOINT FILING

        The undersigned, Biotechnology Value Fund, L.P., a Delaware limited partnership, Biotechnology Value Fund II, L.P., a Delaware limited partnership, BVF Investments, L.L.C., a Delaware limited liability company, Investment 10, L.L.C., an Illinois limited liability company, BVF Partners L.P., a Delaware limited partnership, and BVF Inc., a Delaware corporation, hereby agree and acknowledge that the information required by Schedule 13D, to which this Agreement is attached as an exhibit, is filed on behalf of each of them. The undersigned further agree that any amendments or supplements thereto shall also be filed on behalf of each of them.

Dated:	January 28, 2005
	BIOTECHNOLOGY VALUE FUND, L.P.
	By:	BVF Partners L.P., its general partner
		By:	BVF Inc., its general partner
			By:	/s/  MARK N. LAMPERT
				Mark N. Lampert President
	BIOTECHNOLOGY VALUE FUND II, L.P.
	By:	BVF Partners L.P., its general partner
		By:	BVF Inc., its general partner
			By:	/s/  MARK N. LAMPERT
				Mark N. Lampert President
	BVF INVESTMENTS, L.L.C.
	By:	BVF Partners L.P., its manager
		By:	BVF Inc., its general partner
		By:	/s/  MARK N. LAMPERT
			Mark N. Lampert President
	INVESTMENT 10, L.L.C.
	By:	BVF Partners L.P., its attorney-in-fact
		By:	BVF Inc., its general partner
			By:	/s/  MARK N. LAMPERT
				Mark N. Lampert President
	BVF PARTNERS L.P.
	By:	BVF Inc., its general partner
		By:	/s/  MARK N. LAMPERT
			Mark N. Lampert President
	BVF INC.
	By:	/s/  MARK N. LAMPERT
		Mark N. Lampert President

EX-2

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT, dated as of January 14, 2005 (this “Agreement”), is by and between The Convertible Fund Offshore, Ltd., a corporation duly organized under the laws of the British Virgin Islands (the “Seller”); and the undersigned purchasers (“Purchasers”)

WHEREAS, the Seller has the right to purchase AeroGen, Inc. warrants from Xmark Fund, Ltd. (the “Warrants”) to purchase an aggregate of 1,666,660 shares (the “Shares”) of Common Stock of Aerogen Inc. (the “Issuer”) having an exercise price of $3.25 and an expiration date of May, 2009; and

WHEREAS, the Seller wishes to exercise its right to purchase the Warrants from Xmark Fund, Ltd and sell the Warrants to the Purchasers and the Purchasers are willing to purchase the Warrants from the Seller.

NOW, THEREFORE, in consideration of the foregoing and the covenants, agreements and warranties contained herein, the sufficiency of which as consideration is hereby acknowledged, the parties agree as follows:

1.

Definitions.  When used herein, the following terms shall have the indicated meanings:

“Encumbrance” means any material pledge, hypothecation, assignment, lien, restriction, charge, claim, security interest, option, preference, priority or other preferential arrangement of any kind or nature whatsoever.

“Transfer Restriction” means, with respect to any security or other property, any condition to or restriction on the ability of the holder thereof to sell, assign or otherwise transfer such security or other property or to enforce the provisions thereof or of any document related thereto, whether set forth in such security or other property itself or in any document related thereto or arising by operation of law, including, without limitation, such conditions or restrictions arising under federal, state or foreign securities laws or under contract.

2.

Sale and Purchase.  The Seller will exercise its right to purchase the Warrants from Xmark Fund, Ltd. and sell to the Purchasers, and Purchasers will purchase from the Seller (the “Transaction”), on such day agreed by the parties (the “Settlement Date”) the Warrants for a Purchase Price per share as set forth below (the “Purchase Price”).  

a.

The Purchase Price will be $441,665.

3.

Representations, Warranties and Agreements of the Seller.

The Seller hereby represents and warrants and on the Settlement Date agrees as follows:

(a)

The Seller has full power and authority to enter into and deliver this Agreement and perform its obligations hereunder and consummate the Transaction.  This Agreement has been duly and validly executed and delivered by the Seller and constitutes the legal, valid and binding obligation of the Seller, enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws from time to time in effect that affect creditors’ rights generally, and by legal and equitable limitations on the availability of specific remedies.

(b)

The execution, delivery and performance by the Seller of this Agreement and consummation by the Seller of the Transaction do not and will not: (i) violate any decree or judgment of any court or other governmental authority applicable to or binding on the Seller; (ii) violate any provision of any federal or state statute, rule or regulation which is, to the Seller’s knowledge, applicable to the Seller; or (iii) violate any contract to which the Seller or any of its assets or properties are bound.  To the Seller’s knowledge, no consent or approval of, or filing with, any governmental authority or other person not a party hereto is required for the execution, delivery and performance by the Seller of this Agreement or the consummation of the Transaction, except for such consents or approvals of the Issuer required pursuant to the terms of the Warrant or any Transfer Restriction (or consent related thereto) to be obtained prior to the Settlement Date for each Transaction.

(c)

With respect to the Transaction, (a) the Warrant to be delivered is not and will not be as of the Settlement Date subject to any Transfer Restriction, other than the restriction that that the Warrants have not been registered under the Securities Act and, therefore, cannot be resold unless it is registered under the Securities Act or in a transaction exempt from or not subject to the registration requirements of the Securities Act (the “Permitted Securities Law Restriction”); and (b) upon the transfer of the Warrants to Purchasers, Purchasers will acquire good and marketable title thereto (assuming that Purchasers are bona fide purchasers within the meaning of Section 8-302 of the New York Uniform Commercial Code), and will be the legal and beneficial owner of such Warrants, free and clear of any Encumbrances or Transfer Restrictions, other than the Permitted Securities Law Restriction.

(d)

No proceedings relating to the Warrant are pending or, to the knowledge of the Seller after reasonable inquiry, threatened before any court, arbitrator or administrative or governmental body that would adversely affect the Seller’s right to transfer the Warrants to the Purchasers.

(e)

The Seller is not, as of the date of this representation, an “affiliate” of the Issuer  (“Affiliate”) for purposes of Rule 144 (“Rule 144”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”).  Without limiting the generality of the foregoing, (i) the Seller is not an officer or director of the Issuer and (ii) the Seller does not beneficially own (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) 10% or more of the issued and outstanding shares of Preferred Stock (or, if different, the aggregate voting securities) of the Issuer.  For purposes of this paragraph (f), “Seller” includes any person that would be included with the Seller for purposes of Rule 144(a)(2).

(f)

The Seller is not in possession of any material nonpublic information concerning the Issuer.

(g)

The Seller has provided or made available to the Purchasers  a copy of Warrants No. 4 and 38 (which account for 926,410 of the Warrant Shares to be purchased hereunder), as well as any other information and documents reasonably requested by the Purchasers, and such information provided to the Purchasers completely and accurately describes any Transfer Restrictions applicable to the Warrant.

(h)

If any opinion of counsel (or other instrument) is required to be delivered to the Issuer pursuant to any Transfer Restriction or otherwise in connection with the transfer of the Warrants hereunder, the Seller shall cause such opinion or instrument to be provided at its own expense. Notwithstanding anything herein or in any Escrow Agreement to the contrary, in the event that the Issuer has not transferred the Warrants to the Purchasers within twenty (20) days from the date of this agreement, at the request of Purchasers or the Seller, this agreement shall be terminated without any liability to the Purchasers or the Seller, as the case may be, and the Purchase Price shall be immediately returned to Purchasers pursuant to their instructions.

4.

Representations, Warranties and Agreement of the Purchasers.

The Purchasers hereby represent, warrant and agree as of the date hereof and on the Settlement Date and Settlement Date:

(a)

The Purchasers have been duly organized under the laws of the jurisdictions in which they were organized

(b)

The Purchasers have full power and authority to enter into this Agreement and to consummate the Transaction.  The execution, delivery and performance of this Agreement by the Purchasers have been duly authorized by all necessary corporate proceedings on the part of the Purchasers.  This Agreement has been duly and validly executed and delivered by the Purchasers and constitutes the legal, valid and binding obligation of the Purchasers, enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws in effect that affect the enforcement of creditors’ rights generally and by equitable limitations on the availability of specific remedies.

(c)

The execution, delivery and performance by the Purchasers of this Agreement and consummation by the Purchasers of the Transaction do not and will not: (i) violate any decree or judgment of any court or other governmental authority applicable to or binding on the Purchasers; (ii) violate any provision of any federal or state statute, rule or regulation which is, to the Purchasers’ knowledge, applicable to the Purchasers; (iii) violate any contract to which the Purchasers are a party or by which the Purchasers or any of their assets or properties are bound; or (iv) violate or conflict with any provision of the charter or by-laws of the Purchasers.  No consent or approval of, or filing with, any governmental authority or other person not a party hereto is required for the execution, delivery and performance by the Purchasers of this Agreement or the consummation of the Transaction except for consents from the Issuer.

(d)

Each of the Purchasers is an “accredited investor” within the meaning of Regulation D under the Securities Act.  Each of the Purchasers acknowledges that (i) the Warrant is a “restricted security” for purposes of Rule 144 and (ii) the Warrant has not been registered under the Securities Act and, therefore, cannot be resold unless it is registered under the Securities Act or in a transaction exempt from or not subject to the registration requirements of the Securities Act.

(e)

The Purchasers are aware of the Issuer’s business affairs and financial condition, and has acquired sufficient information about the Issuer to reach an informed and knowledgeable decision to acquire the Warrants.  The Purchasers acknowledge that no Seller or any of its agents, representatives, officers, directors, partners, members or affiliates thereof has made any representations and warranties of any nature or kind concerning the Shares and/or the Issuer.

(f)  Representation by each of the Purchasers that they are aware that Xmark Funds may have Confidential Information.

(i)

Each of the Purchasers are aware that Seller has the right to purchase the Warrants from the Xmark Funds and the Xmark Funds may be in possession of certain nonpublic information concerning the Issuer and the Warrants (the “Xmark Information”), and that the Xmark Funds have agreed with the Issuer to keep the Xmark Information confidential.  Each of the Purchasers acknowledges that a reasonable investor could deem that the Xmark Information is material to an investment decision, and that the Xmark Information could be of an adverse nature to an investor in the Warrants.  The Purchaser sare freely deciding to purchase the Warrants at the agreed-upon price for its own reasons based on the information they currently possesses, which they deem sufficient, notwithstanding that they may lack access to the Xmark Information, to make their  decision to participate in the purchase and sale of the Warrants.  The Purchasers do not and will not request, desire or require either of the Xmark Funds or the Seller, now or in the future, to disclose any or all of the Xmark Information to the Purchasers or any of their affiliates, agents or representatives.

(ii)

Each of the Purchasers is a sophisticated investor and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of their purchase of and investment in the Warrants.  Each of the Purchasers is aware that an investment in the Warrants involves a high degree of risk and that the Purchasers may lose the entire amount of their investment in the Warrants.  Each of the Purchasers is able to bear the economic risk of their investment in the Warrants and can afford the complete loss of such investment.

(g)  

Purchasers Release and Waiver.  Each of the Purchasers agrees not to pursue and to release fully any potential suits, claims, causes of action, remedies, damages and other actions whatsoever, at law or in equity, against Seller and any of the Xmark Funds and their respective affiliates, officers, directors, agents, employees, representatives and assigns, arising out of the purchase of the Warrants or the nondisclosure of the Xmark Information to the Purchasers, except for any breaches of covenants, warranties and representations hereunder or bad faith or willful misconduct.  Each of the Purchasers hereby acknowledges receipt of satisfactory consideration for the agreements set forth in this paragraph, including but not limited to the consummation of the purchase and sale of the Warrants at the agreed-upon purchase price.  Each of the Purchasers acknowledges and agrees that the Seller and e ach of the Xmark Funds is relying on this Section 4(g) in engaging in the sale herein, and would not engage in the sale of the Warrants  in the absence of this Section 4(g).

5.

Conditions Precedent to Obligations of the Purchasers.   The obligations of the Purchasers are subject to the satisfaction of the following conditions precedent:

(a)

The representations and warranties of each Seller contained herein shall be true and correct as of the Settlement Date.

(b)

Seller shall have complied with all of its covenants and agreements contained herein to be performed by it on or prior to the Settlement Date, and shall have delivered to each of the Purchasers and the Issuer an Assignment Form in the form attached to the Warrants, duly executed by an authorized representative of such Seller.

(c)

 Seller shall have received from the Issuer or its counsel a letter (the Issuer’s Letter”), in a form acceptable to counsel for Purchasers, stating that the Issuer (i) has no objection to the proposed transfer of the Warrants to the Purchasers,  and (ii) the Issuer will promptly record the transfer of the Warrants to Purchasers on its books.

(d)

The Issuer’s Letter shall also state (i) that upon transfer of the Warrants on the books of Issuer by the Issuer, the Purchasers shall be treated as Holders under and as defined in the Registration Rights Agreement by and between XMark Fund, Ltd. (and other Investors) and the Issuer dated March 22, 2004 ("RRA") and (ii) have the same registration rights and other rights with respect to the Registrable Securities (as defined in the RRA)  which Xmark Fund, Ltd had when it initially purchased the Registrable Securities covered by the RRA".  The Issuer’s Letter shall be in a form reasonably acceptable to Purchasers’ counsel.

6.

Conditions Precedent to Obligations of the Seller.   The obligations of the Seller are subject to the satisfaction of the following conditions precedent:

(a)

The representations and warranties of the Purchasers contained herein shall be true and correct as of the Settlement Date.

(b)

The Purchasers shall have complied with all of its covenants and agreements contained herein to be performed by it on or prior to the Settlement Date.

(c)

The Seller shall have received the wire transfer referred to in Section 7.

7.

Settlement.  

(a) Settlement of the Transaction shall take place on the date and at a time mutually agreed upon by the parties (the “Settlement Date”).  On the Settlement Date, subject to Sections 5 and 6 of this Agreement, the Seller shall deliver to the Purchasers the Warrants against payment by the Purchasers of the Purchase Price.

(b) The Warrants delivered to the Purchasers pursuant to this Agreement shall be free and clear of all Encumbrances and Transfer Restrictions other than the Permitted Securities Law Restriction.  The transfer of the Warrants to the Purchasers shall have been registered on the books of the Issuer and/or any applicable transfer agent.  Unless otherwise instructed by the Purchasers, the Warrants should be delivered to:

Biotechnology Value Fund, L.P.

1 Sansome Street

31^st Floor

San Francisco, CA 94104

Attn:  Mark Lampert

(c) The Purchase Price shall be paid by wire transfer of immediately available funds to a bank account designated by the Seller prior to the Settlement Date.

(d) Each of the Purchasers and the Seller will, upon the reasonable request of the other, execute and deliver all other such documents and instruments reasonably deemed necessary or desirable by the other party to fully effect the purchases and sales contemplated hereby.

8.

Amendment.  This Agreement may be amended, modified or supplemented but only in a writing signed by the Seller and the Purchasers.

9.

Notices.  Any notice, request, instruction or other document to be given hereunder by a party hereto (other than the documents to be delivered by the Seller to the Purchasers pursuant to Section 7, which shall be delivered as described therein) shall be in writing and shall be deemed to have been given, (a) when received if given in person or by a courier or a courier service or (b) on the date of transmission if sent by facsimile transmission:

(a)

If to the Purchasers, addressed as follows:

Biotechnology Value Fund, L.P.

1 Sansome Street

31^st Floor

San Francisco, CA 94104

Attn:  Mark Lampert

Facsimile: ________________

(b)

If to the Seller, addressed as follows:

The Convertible Fund Offshore Ltd.

165 Beacon Lane

Jupiter, Florida 33469

Steve Seefeld

Facsimile: 203-286-1728

or to such other person or address as a party hereto may designate for itself by notice given as herein provided.

10.

Assignment.  The Warrant may be assigned by the Purchasers or issued in the name of a nominee designated by Purchasers.

11.

Counterparts.  This Agreement may be executed in any number of counterparts (including by facsimile transmission), each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.

12.

APPLICABLE LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO CHOICE OF LAW DOCTRINE). Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by m ailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.

13.

Expenses.  Except as otherwise expressly provided herein, each party hereto will bear its own expenses in connection with the purchase(s) and sale(s) of the Shares contemplated hereby, except that the Seller shall bear all transfer and issuance taxes imposed on such purchase and sale.

14.

Entire Agreement.  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings between such parties with respect to such subject matter.

15.

Severability.  If any provision of this Agreement shall be held invalid, illegal or unenforceable, the validity, legality and enforceability of the other provisions hereof shall not be affected thereby.

16.

Captions.  The Section captions herein are for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

17.

Specific Performance.  The parties acknowledge that money damages will not be a sufficient remedy for breach of this Agreement and that the parties hereto may obtain specific performance or other injunctive relief, without the necessity of posting a bond or security therefor.

 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written.

THE CONVERTIBLE FUND OFFSHORE LTD.

By:      /s/ Steven Seefeld         

Name

Title

BIOTECHNOLOGY VALUE FUND, L.P. (500,000 warrant shares)

By: BVF Partners L.P., its general partner

By: BVF Inc., its general partner

By:      /s/ Mark N. Lampert          

Name: Mark N. Lampert

Title: President

INVESTMENT 10 LLC (83,333 warrant shares)

By: BVF Partners L.P., as attorney-in-fact

By: BVF Inc., its general partner

By:      /s/ Mark N. Lampert          

Name: Mark N. Lampert

Title: President

BIOTECHNOLOGY VALUE FUND II, L.P. (316,663 warrant shares)

By: BVF Partners L.P., its general partner

By: BVF Inc., its general partner

By:      /s/ Mark N. Lampert          

Name: Mark N. Lampert

Title: President

BVF INVESTMENTS LLC (766,664 warrant shares)

By: BVF Partners L.P., its manager

By: BVF Inc., its general partner

By:     /s/ Mark N. Lampert          

Name: Mark N. Lampert

Title: President

EX-3

THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR EXEMPTION FROM REGISTRATION UNDER THE FOREGOING LAWS.

SUBJECT TO THE PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT SHALL BE VOID AFTER 5:00 P.M. EASTERN TIME ON [_________] (THE “EXPIRATION DATE”).

No. __

AEROGEN, INC

WARRANT TO PURCHASE [________] SHARES OF

COMMON STOCK, PAR VALUE $0.001 PER SHARE

FOR VALUE RECEIVED, [______________] (“Warrantholder”), is entitled to purchase, subject to the provisions of this Warrant, from AEROGEN, INC. a Delaware corporation (“Corporation”), at any time not later than 5:00 P.M., Eastern time, on the Expiration Date (as defined above), at an exercise price per share equal to $3.25 (the exercise price in effect being herein called the “Warrant Price”), [_________] shares (“Warrant Shares”) of the Corporation’s Common Stock, par value $0.001 per share (“Common Stock”).  The number of Warrant Shares purchasable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as described herein.  This Warrant has been issued pursuant to a certain Purchase Agreement, dated as of March 11, 2004, by and among the Corporation, Xmark Fund, L.P., Xmark Fund, Ltd., and the other Investors signatory thereto (the “Purchase Agreement”).  All capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Purchase Agreement.

Section 1.

Registration.  The Corporation shall maintain books for the transfer and registration of the Warrant.  Upon the initial issuance of this Warrant, the Corporation shall issue and register the Warrant in the name of the Warrantholder.

Section 2.

Transfers.  As provided herein, this Warrant may be transferred only pursuant to a registration statement filed under the Securities Act of 1933, as amended (“Securities Act”), or an exemption from such registration.  Subject to such restrictions, the Corporation shall transfer this Warrant from time to time upon the books to be maintained by the Corporation for that purpose, upon surrender thereof for transfer properly endorsed or accompanied by appropriate instructions for transfer and such other documents as may be reasonably required by the Corporation, including, if required by the Corporation, an opinion of its counsel to the effect that such transfer is exempt from the registration requirements of the Securities Act, to establish that such transfer is being made in accordance with the terms hereof, and a new Warrant shall be issued to the transf eree and the surrendered Warrant shall be canceled by the Corporation.

Section 3.

Exercise of Warrant.  

(a)

Subject to the provisions hereof, the Warrantholder may exercise this Warrant in whole or in part at any time prior to its expiration upon surrender of the Warrant, together with delivery of the duly executed Warrant exercise form attached hereto as Appendix A (the “Exercise Agreement”) and payment by cash, certified check or wire transfer of funds for the aggregate Warrant Price for that number of Warrant Shares then being purchased, to the Corporation during normal business hours on any business day at the Corporation’s principal executive offices (or such other office or agency of the Corporation as it may designate by notice to the holder hereof).  The Warrant Shares so purchased shall be deemed to be issued to the holder hereof or such holder’s designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered (or evidence of loss, theft or destruction thereof and security or indemnity satisfactory to the Corporation), the Warrant Price shall have been paid and the completed Exercise Agreement shall have been delivered.  Certificates for the Warrant Shares so purchased, representing the aggregate number of shares specified in the Exercise Agreement, shall be delivered to the holder hereof within a reasonable time, not exceeding three (3) business days, after this Warrant shall have been so exercised.  The certificates so delivered shall be in such denominations as may be requested by the holder hereof and shall be registered in the name of such holder or such other name as shall be designated by such holder.  If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Corporation shall, at its expense, at the time of delivery of such certificates, deliver to the holder a new Warrant representing the number of shares with res pect to which this Warrant shall not then have been exercised.  As used in this Agreement, “business day” means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business.

(b)

Notwithstanding anything herein to the contrary, in no event shall the Warrantholder be entitled to exercise any portion of this Warrant in excess of that portion of this Warrant upon exercise of which the sum of (1) the number of shares of Common Stock beneficially owned by the Warrantholder and its Affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unexercised portion of the Warrant or the unexercised or unconverted portion of any other security of the Warrantholder subject to a limitation on conversion analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the exercise of the portion of this Warrant with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Warrantholder and its Affiliates of more than 4.99% of the then ou tstanding shares of Common Stock. As used herein, the term “Affiliate” means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms are used in and construed under Rule 144 under the Securities Act.   For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso.  The Warrantholder may waive the limitations set forth herein by sixty-one (61) days written notice to the Corporation.

(c)

Subject to Section 3(b), if after March 11, 2005, the Market Price of the Common Stock for each day during any ninety (90) consecutive trading day period shall equal or exceed $7.00 per share, then, within ten (10) Business Days after receipt of written notice to the Warrantholder by the Corporation, which notice shall be delivered to the Warrantholder within five (5) Business Days of the end of the relevant ninety (90) consecutive trading day period, the Warrantholder shall exercise this Warrant to the fullest extent then permitted in accordance with the terms hereof (including in accordance with Section 19 below); provided, however, the Warrantholder shall not be obligated to exercise this Warrant pursuant to this Section 3(c) unless the Registration Statement covering the Warrant Shares has been effective during the entirety of such entire 90-day period and thereafter remains effective until all of the Warrant Shares issuable under this Warrant have been sold by the Warrantholder.  For purposes of clarification, the Company shall not be permitted to exercise its rights under this Section 3(c), and the Warrantholder shall not be obligated to exercise this Warrant pursuant to this Section 3(c), to the extent that this Warrant is not then exercisable by virtue of the provisions of Section 3(b).

Section 4.

Compliance with the Securities Act of 1933. The Corporation may cause the legend set forth on the first page of this Warrant to be set forth on each Warrant or similar legend on any security issued or issuable upon exercise of this Warrant, unless counsel for the Corporation is of the opinion as to any such security that such legend is unnecessary.

Section 5.

Payment of Taxes.  The Corporation will pay any documentary stamp taxes attributable to the initial issuance of Warrant Shares issuable upon the exercise of the Warrant; provided, however, that the Corporation shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for Warrant Shares in a name other than that of the registered holder of this Warrant in respect of which such shares are issued, and in such case, the Corporation shall not be required to issue or deliver any certificate for Warrant Shares or any Warrant until the person requesting the same has paid to the Corporation the amount of such tax or has established to the Corporation’s reasonable satisfaction that such tax has been paid.  The holder shall be responsible for income taxes due under federal, st ate or other law, if any such tax is due.

Section 6.

Mutilated or Missing Warrants.  In case this Warrant shall be mutilated, lost, stolen, or destroyed, the Corporation shall issue in exchange and substitution of and upon cancellation of the mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and for the purchase of a like number of Warrant Shares, but only upon receipt of evidence reasonably satisfactory to the Corporation of such loss, theft or destruction of the Warrant, and with respect to a lost, stolen or destroyed Warrant, reasonable indemnity or bond with respect thereto, if requested by the Corporation.

Section 7.

Reservation of Common Stock.  The Corporation hereby represents and warrants that there have been reserved, and the Corporation shall at all applicable times keep reserved until issued (if necessary) as contemplated by this Section 7, out of the authorized and unissued shares of Common Stock, sufficient shares to provide for the exercise of the rights of purchase represented by this Warrant.  The Corporation agrees that all Warrant Shares issued upon due exercise of the Warrant shall be, at the time of delivery of the certificates for such Warrant Shares, duly authorized, validly issued, fully paid and non-assessable shares of Common Stock of the Corporation.

Section 8.

Adjustments.  Subject and pursuant to the provisions of this Section 8, the Warrant Price and number of Warrant Shares subject to this Warrant shall be subject to adjustment from time to time as set forth hereinafter.

(a)

If the Corporation shall, at any time or from time to time while this Warrant is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares or issue by reclassification of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger in which the Corporation is the continuing corporation), then the number of Warrant Shares purchasable upon exercise of the Warrant and the Warrant Price in effect immediately prior to the date upon which such change shall become effective, shall be adjusted by the Corporation so that the Warrantholder thereafter exercising the Warrant shall be entitled to receive the number of shares of Common Stock or other capital stock which the Warrantholder would have received if the Warrant had been fully exercised immediately prior to such event upon payment of a Warrant Price that has been adjusted to reflect a fair allocation of the economics of such event to the Warrantholder.  Such adjustments shall be made successively whenever any event listed above shall occur.

(b)

If any capital reorganization, reclassification of the capital stock of the Corporation, consolidation or merger of the Corporation with another corporation in which the Corporation is not the survivor, or sale, transfer or other disposition of all or substantially all of the Corporation’s assets to another corporation shall be effected, then, the Corporation shall use its best efforts to ensure that lawful and adequate provision shall be made whereby each Warrantholder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of the Warrant, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of the Warrant, had such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of each Warrantholder to the end that the provisions hereof (including, without limitation, provision for adjustment of the Warrant Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise thereof.  The Corporation shall not effect any such consolidation, merger, sale, transfer or other disposition unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Corporation) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume the obligation to deliver to the holder of the Warr ant, at the last address of such holder appearing on the books of the Corporation, such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase, and the other obligations under this Warrant.  The provisions of this Section 8(b) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales, transfers or other dispositions.

(c)

In case the Corporation shall fix a payment date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Corporation is the continuing corporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends or distributions referred to in Section 8(a)), or subscription rights or warrants, the Warrant Price to be in effect after such payment date shall be determined by multiplying the Warrant Price in effect immediately prior to such payment date by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the Market Price (as defined below) per share of Common Stock immediately prior to such payment date, less the fair market value (as determined by th e Corporation’s Board of Directors in good faith) of said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such Market Price per share of Common Stock immediately prior to such payment date.  “Market Price” as of a particular date (the “Valuation Date”) shall mean the following: (p) if the Common Stock is then listed on a national stock exchange, the Market Price shall be the closing sale price of one share of Common Stock on such exchange on the last trading day prior to the Valuation Date, provided that if such stock has not traded in the prior ten (10) trading sessions, the Market Price shall be the average closing price of one share of Common Stock in the most recent ten (10) trading sessions during which the Common Stock has traded; (q) if the Common Stock is then included in The Nasdaq Stock Ma rket, Inc. (“Nasdaq”), the Market Price shall be the closing sale price of one share of Common Stock on Nasdaq on the last trading day prior to the Valuation Date or, if no such closing sale price is available, the average of the high bid and the low ask price quoted on Nasdaq as of the end of the last trading day prior to the Valuation Date, provided that if such stock has not traded in the prior ten (10) trading sessions, the Market Price shall be the average closing price of one share of Common Stock in the most recent ten (10) trading sessions during which the Common Stock has traded; (s) if the Common Stock is then included in the Over-the-Counter Bulletin Board, the Market Price shall be the closing sale price of one share of Common Stock on the Over-the-Counter Bulletin Board on the last trading day prior to the Valuation Date or, if no such closing sale price is available, the average of the high bid and the low ask price quoted on the Over-the-Counter Bulletin Board as of the end of the last trading day prior to the Valuation Date, provided that if such stock has not traded in the prior ten (10) trading sessions, the Market Price shall be the average closing price of one share of Common Stock in the most recent ten (10) trading sessions during which the Common Stock has traded, (t) if the Common Stock is then included in the “pink sheets,” the Market Price shall be the closing sale price of one share of Common Stock on the “pink sheets” on the last trading day prior to the Valuation Date or, if no such closing sale price is available, the average of the high bid and the low ask price quoted on the “pink sheets” as of the end of the last trading day prior to the Valuation Date, provided that if such stock has not traded in the prior ten (10) trading sessions, the Market Price shall be the average closing price of one share of Common Stock in the most recent ten (10) trading sessions during which the Common Stock has traded.  The Board of Directors of t he Corporation shall respond promptly, in writing, to an inquiry by the Warrantholder prior to the exercise hereunder as to the Market Price of a share of Common Stock as determined by the Board of Directors of the Corporation.  

(d)

For the term of this Warrant, in addition to the provisions contained above, the Warrant Price shall be subject to adjustment as provided below. An adjustment to the Warrant Price shall become effective immediately after the payment date in the case of each dividend or distribution and immediately after the effective date of each other event which requires an adjustment.

(e)

Except as provided in Section 8(f) hereof, if and whenever the Corporation shall issue or sell, or is, in accordance with any of Sections 8(e)(l) through (e)(5) hereof, deemed to have issued or sold, any shares of Common Stock for a consideration per share less than the Warrant Price in effect immediately prior to the time of such issue or sale, then and in each such case (a “Trigger Issuance”), effective as of the close of business on the effective date of the Trigger Issuance the then-existing Warrant Price shall be reduced to the lowest price per share at which any share of Common Stock was issued or sold or deemed to be issued or sold in such Trigger Issuance.

For purposes of this Section 8(e), “Additional Shares of Common Stock” shall mean all shares of Common Stock issued by the Corporation or deemed to be issued pursuant to this Section 8(e), other than those excluded issuances set forth in Section 8(f) hereof.

For purposes of this Section 8(e), the following subsections (e)(l) to (e)(5) shall also be applicable (subject, in each such case, to the provisions of Section 8(f) hereof and to each other subsection contained in this Section 8(e)):

(e)(1)  Issuance of Convertible Securities; Issuance of Rights or Options.  In case at any time after the date hereof the Corporation shall in any manner grant, issue or sell any stock or security convertible into or exchangeable for Common Stock (“Convertible Securities”) or any warrants or other rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any Convertible Securities (such warrants, rights or options being called “Options”), whether or not the right to convert, exchange or exercise any such Convertible Securities or such Options are immediately exercisable, and the price per share for which Common Stock is issuable upon the conversion or exchange of such Convertible Securities or upon the exercise of such Options (determined by dividing (i) the sum of (x) the tota l amount, if any, received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities or the granting of such Options, plus (y) the aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange of all such Convertible Securities or the exercise of all such Options, plus (z), in the case of such Options to purchase Convertible Securities, the aggregate amount of additional consideration, if any, payable upon the conversion or exchange of such Convertible Securities, by (ii) the maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities, or upon the exercise of such Options, or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than the Warrant Price in effect immediately prior to the time of the issue or sale of such Convertible Securities or the granting of such Options, then the total number of shares of Common Stock issuable upon the conversion or exchange of such Convertible Securities, or the exercise of such Options, or upon the conversion or exchange of the maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of the issuance or sale of such Convertible Securities or the granting of such Options (including Options to purchase Convertible Securities) and thereafter shall be deemed to be outstanding for purposes of adjusting the Warrant Price.  Except as otherwise provided in Section 8(e)(2), no additional adjustment of the Warrant Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities or upon exercise of such Options.

(e)(2) Change in Option Price or Conversion Rate.  Upon the happening of any of the following events, namely, if the purchase price provided for in any Option referred to in Section 8(e)(l) hereof, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in Section 8(e)(l), or the rate at which Convertible Securities referred to in Section 8(e)(l) are convertible into or exchangeable for Common Stock shall change at any time (including, but not limited to, changes under or by reason of provisions designed to protect against dilution), the Warrant Price in effect at the time of such event shall forthwith be readjusted to the Warrant Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase pric e, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold, but only if as a result of such adjustment the Warrant Price then in effect hereunder is thereby reduced.   On the termination of any Option for which an adjustment was made pursuant to this Section 8(e) or any right to convert or exchange Convertible Securities for which an adjustment was made pursuant to this Section 8(e), the Warrant Price then in effect hereunder shall forthwith be changed to the Warrant Price which would have been in effect at the time of such termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such termination, never been issued.

(e)(3) Consideration for Stock.  In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the gross amount received by the Corporation therefor, before deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith.  In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors of the Corporation, before deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporat ion in connection therewith.  In case any Options shall be issued in connection with the issue and sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Corporation.  

(e)(4) Record Date.  In case the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.  Notwithstanding the foregoing, no anti-dilution adjustment shall be effected with respect to any transaction for which a record date is set by the Corporation if the transaction is abandoned by the Corporation prior to the time such transaction becomes effective.

(e)(5) Treasury Shares.  The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation or any of its Subsidiaries (as defined in the Purchase Agreement pursuant to which this Warrant was issued), and the disposition of any such shares (other than the cancellation or retirement thereof) shall be considered an issue or sale of Common Stock for the purpose of this subsection (e).

(f)

Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment to the Warrant Price or the number of Warrant Shares subject to this Warrant in the case of the following issuances of shares of Common Stock from and after the date of this Warrant, for: (i) issuances upon the exercise of any Options or Convertible Securities granted, issued and outstanding on the date hereof; (ii) issuances upon the grant or exercise of any stock or options which may hereafter be granted or exercised under any employee benefit plan, stock option plan or restricted stock plan of the Corporation in existence on the date hereof, so long as the issuance of such stock or options is approved by a majority of the independent members of the Board or a majority of the members of a committee of independent directors established for such purpose; (iii) issuances of securities as consideration for a merger or consolidation with, or purchase of assets from, a non-Affiliated third party or in connection with any strategic partnership or joint venture with a non-Affiliated third party with which the Corporation will enter into technology agreements (the primary purpose of any such action is not to raise equity capital); (iv) shares of Common Stock issuable upon conversion of Series A-1 Preferred Stock or as payment-in-kind dividends on the Series A-1 Preferred Stock in accordance with the terms thereof; and (v) shares of Common Stock issued or issuable as a result of any stock split, combination, dividend, distribution, reclassification, exchange or substitution for which an equitable adjustment is otherwise provided for in this Section 8.

(g)

In the event that, as a result of an adjustment made pursuant to this Section 8, the holder of this Warrant shall become entitled to receive any shares of capital stock of the Corporation other than shares of Common Stock, the number of such other shares so receivable upon exercise of this Warrant shall be subject thereafter to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in this Warrant.

Section 9.

Fractional Interest.  The Corporation shall not be required to issue fractions of Warrant Shares upon the exercise of this Warrant.  If any fractional share of Common Stock would, except for the provisions of the first sentence of this Section 9, be deliverable upon such exercise, the Corporation, in lieu of delivering such fractional share, shall pay to the exercising holder of this Warrant an amount in cash equal to the Market Price of such fractional share of Common Stock on the date of exercise.

Section 10.

Extension of Expiration Date.  If the Corporation fails to cause any Registration Statement covering “Registrable Securities” (as that term is defined in the Registration Rights Agreement) to be declared effective prior to the applicable dates set forth therein, or if any of the events specified in Section 2(c)(ii) of the Registration Rights Agreement occurs, and the “Blackout Period” (as that term is defined in the Registration Rights Agreement) (whether alone, or in combination with any other Blackout Period) continues for more than 30 days in any 12 month period, or for more than a total of 90 days, then the Expiration Date of this Warrant shall be extended one day for each day beyond the 30-day or 90-day limits, as the case may be, that the Blackout Period continues.

Section 11.

Benefits.  Nothing in this Warrant shall be construed to give any person, firm or corporation (other than the Corporation and the Warrantholder) any legal or equitable right, remedy or claim, it being agreed that this Warrant shall be for the sole and exclusive benefit of the Corporation and the Warrantholder.

Section 12.

Notices to Warrantholder.  Upon the happening of any event requiring an adjustment of the Warrant Price, the Corporation shall promptly give written notice thereof to the Warrantholder at the address appearing in the records of the Corporation, stating the adjusted Warrant Price and the adjusted number of Warrant Shares resulting from such event and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.  Failure to give such notice to the Warrantholder or any defect therein shall not affect the legality or validity of the subject adjustment.

Section 13.

Identity of Transfer Agent.  The Transfer Agent for the Common Stock is Mellon Investor Services LLC.  Upon the appointment of any subsequent transfer agent for the Common Stock or other shares of the Corporation’s capital stock issuable upon the exercise of the rights of purchase represented by the Warrant, the Corporation will mail to the Warrantholder a statement setting forth the name and address of such transfer agent.

Section 14.

Notices.  Unless otherwise provided, any notice required or permitted under this Warrant shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex or facsimile, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one day after delivery to such carrier.  All notices shall be addressed as follows: if to the Warrantholder, at its address as set forth in the Corporation 6;s books and records and, if to the Corporation, at the address as follows, or at such other address as the Warrantholder or the Corporation may designate by ten days’ advance written notice to the other:

If to the Corporation:

Aerogen, Inc.

2071 Stierlin Court

Mountain View, CA 94043

Attention:  Jane Shaw, Chairman/CEO

Fax:  650-864-7435 and 650-864-7433

With a copy to:

Cooley Godward LLP

Five Palo Alto Square

3000 El Camino Real

Palo Alto, CA  94306

Attn:  Robert J. Brigham, Esq.

Fax:  650-849-7400

Section 15.

Registration Rights.  The initial holder of this Warrant is entitled to the benefit of certain registration rights with respect to the shares of Common Stock issuable upon the exercise of this Warrant as provided in the Registration Rights Agreement, and any subsequent holder hereof shall be entitled to such rights to the extent provided in the Registration Rights Agreement.

Section 16.

 Successors.  All the covenants and provisions hereof by or for the benefit of the Warrantholder shall bind and inure to the benefit of its respective successors and assigns hereunder.

Section 17.

Governing Law.  This Warrant shall be governed by, and construed in accordance with, the internal laws of the State of New York, without reference to the choice of law provisions thereof.  The Corporation and, by accepting this Warrant, the Warrantholder, each irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Warrant and the transactions contemplated hereby.  Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Warrant.  The Corporation and, by accepting this Warrant, the Warrantholder , each irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court.  The Corporation and, by accepting this Warrant, the Warrantholder, each irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.  THE COMPANY AND THE WARRANTHOLDER HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATING TO OR ARISING OUT OF THIS WARRANT AND THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 18.

No Rights as Shareholder.  Prior to the exercise of this Warrant, the Warrantholder shall not have or exercise any rights as a shareholder of the Corporation by virtue of its ownership of this Warrant.

Section 19.

Cashless Exercise.  In the event (and only in the event) that (i) the Company sends a notice to the Warrantholder pursuant to Section 3(c) above of its obligation to immediately exercise the Warrant or (ii) at the time of exercise at least one (1) year after the date hereof, there is no effective registration statement covering the Warrant Shares filed under the Securities Act as a result of a breach of the Company’s obligations under the Registration Right Agreement, the Warrantholder may elect to receive, without the payment by the Warrantholder of the aggregate Warrant Price in respect of the shares of Common Stock to be acquired upon exercise hereof, shares of Common Stock equal to the value of this Warrant or any portion hereof being exercised pursuant to this Section 19 by the surrender of this Warrant (or such portion of this Warrant being so exercised) together with the Net Issue Election Notice annexed hereto as Appendix B duly executed, at the office of the Corporation.  Thereupon, and in no event later than three Business Days after the Corporation’s receipt of the Net Issue Election Notice, the Corporation shall issue to the Warrantholder certificate(s) for such number of fully paid, validly issued and nonassessable shares of Common Stock as is computed using the formula immediately below.  The certificates so delivered shall be in such denominations as may be requested by the holder hereof and shall be registered in the name of such holder or such other name as shall be designated by such holder.  If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Corporation shall, at its expense, at the time of delivery of such certificates, deliver to the holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised.  

X = Y (A - B)

A

where

X =

the number of shares of Common Stock to be issued to the Warrantholder upon exercise of this Warrant pursuant to this Section 19;

Y =

the total number of shares of Common Stock covered by this Warrant which the Warrantholder has surrendered at such time for cashless exercise (including both shares to be issued to the Warrantholder and shares to be canceled as payment therefor);

A =

the Market Price of one share of Common Stock as at the time the net issue election is made; and

B =

the Warrant Price in effect under this Warrant at the time the net issue election is made.

The Warrant Shares issued pursuant to this Section 19 shall be deemed to be issued to the exercising holder or such holder’s designee, as the record owner of such shares, as of the close of business on the date on which the Net Issue Election Notice shall have been surrendered (or evidence of loss, theft or destruction thereof and security or indemnity satisfactory to the Corporation) to the Corporation.  

Section 20.

Amendments.  This Warrant shall not be amended without the prior written consent of the Corporation and the Requisite Holders; provided, that (x) any such amendment or waiver must apply to all Warrants; and (y) the number of Warrant Shares subject to this Warrant, the Warrant Price and the Expiration Date may not be amended, and the right to exercise this Warrant may not be altered or waived, without the prior written consent of the Warrantholder.

Section 21.

Section Headings.  The section headings in this Warrant are for the convenience of the Corporation and the Warrantholder and in no way alter, modify, amend, limit or restrict the provisions hereof.

[Signature Page Follows]

IN WITNESS WHEREOF, the Corporation has caused this Warrant to be duly executed, as of the 24^th day of January, 2005.

AEROGEN, INC.

By:___________________________

Name:

Title:

APPENDIX A

AEROGEN, INC.

WARRANT EXERCISE FORM

To: AEROGEN, INC.

The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant (“Warrant”) for, and to purchase thereunder by the payment of the Warrant Price and surrender of the Warrant, _______________ shares of Common Stock (“Warrant Shares”) provided for therein, and requests that certificates for the Warrant Shares be issued as follows:

_______________________________

Name

________________________________

Address

________________________________

________________________________

Federal Tax ID or Social Security No.

and delivered by

q

certified mail to the above address, or

q

electronically (provide DWAC Instructions:___________________), or

q

other (specify: __________________________________________).

and, if the number of Warrant Shares shall not be all the Warrant Shares purchasable upon exercise of the Warrant, that a new Warrant for the balance of the Warrant Shares purchasable upon exercise of this Warrant be registered in the name of the undersigned Warrantholder or the undersigned’s Assignee as below indicated and delivered to the address stated below.

Dated: ___________________, ____

Note:  The signature must correspond with

the name of the registered holder as written

Signature:______________________

on the first page of the Warrant in every

______________________________

particular, without alteration or enlargement

Name (please print)

or any change whatever, unless the Warrant

has been assigned.

______________________________

______________________________

Address

______________________________

Federal Identification or

Social Security No.

Assignee:  

_______________________________

_______________________________

_______________________________

APPENDIX B

AEROGEN, INC.

NET ISSUE ELECTION NOTICE

To: AEROGEN, INC.

Date:_________________________

The undersigned hereby elects under Section 19 of this Warrant to surrender the right to purchase ____________ shares of Common Stock pursuant to this Warrant and hereby requests the issuance of _____________ shares of Common Stock.  The certificate(s) for the shares issuable upon such net issue election shall be issued in the name of the undersigned or as otherwise indicated below.

_________________________________________

Signature

_________________________________________

Name for Registration

_________________________________________

Mailing Address