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Licensing Agreement - Eli Lilly and Co. and Tularik Inc.

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                              LICENSING AGREEMENT

     This Licensing Agreement ("Agreement"), effective as of September 24, 1999,
by and between Eli Lilly and Company, an Indiana corporation with its
principal office located at Lilly Corporate Center, Indianapolis, Indiana
46285 ("Lilly"), and Tularik, Inc., a Delaware corporation with its principal
offices located at Two Corporate Drive, San Francisco, California 94080
("Tularik").

                                   RECITALS

     1. Whereas, Lilly is engaged, among other things, in the business of
manufacturing, marketing and selling oncolytic pharmaceutical products;

     2. Whereas, Lilly has entered into a prior agreement with Princeton
University ("Princeton") establishing a research program relating to
antimetabolite compounds, which has led to a drug candidate known as
lometrexol which is an oncolytic agent in the therapeutic class known as
antifolates;

     3. Whereas, Lilly holds an exclusive license, with the right to sublicense,
under certain patents and patent applications held by Princeton relating to
lometrexol and, in addition, Lilly owns certain patents and patent applications,
and has generated certain regulatory filings and related know-know, for
lometrexol; and

     4. Whereas, subject to the terms and conditions set forth in this
Agreement, Lilly wishes to exclusively license to Tularik and Tularik wishes
to exclusively license from Lilly rights under patents and patent applications
related to lometrexol; and

     5. Whereas, subject to the terms and conditions set forth in this
Agreement, Lilly also wishes to sell to Tularik and Tularik wishes to purchase
from Lilly the regulatory data, know-how and inventory related to lometrexol.

     Now Therefore, the Parties hereto, intending to be legally bound, hereby
agree as follows:

                                   SECTION 1
                                  DEFINITIONS

     1.1  Definitions. For purposes of this Agreement, the following terms shall
          -----------
have the meanings set forth below:

     "Affiliates" shall mean, with respect to a Party to this Agreement, any
      ----------
Persons directly or indirectly controlling, controlled by, or under common
control with, such other Person. For purposes hereof, the term "controlled"
(including the terms "controlled by" and "under common control with"), as used
with respect to any Person, shall mean the direct or indirect ability or power
to direct or cause the direction of management policies of such Person or
otherwise direct the affairs of such Person, whether through ownership of equity
participation, voting securities,
<PAGE>

beneficial interest, by contract or otherwise. Affiliate shall specifically
exclude third parties to which Tularik has granted a sublicense pursuant to
authority granted by this Agreement where Tularik has no relationship to the
sublicensee other than a licensor-licensee relationship.

     "Assumed Liabilities" shall have the meaning set forth in Section 2.3
      -------------------
hereof.

     "Calendar Quarter" shall mean a calendar quarter (i.e., period of three (3)
      ----------------
consecutive months) ending on March 31, June 30, September 30 or December 31.

     "Calendar Year" shall mean any period of twelve (12) consecutive months
      -------------
ending on December 31.

     "Compulsory License" means a compulsory license under the Licensed Patents
      ------------------
obtained by a third party through the order, decree, or grant of a competent
governmental authority, authorizing such third party to manufacture, use, sell,
offer for sale or import the Product in a particular territory.

     "Damages" shall mean any and all costs, losses, claims, liabilities, fines,
      -------
penalties, damages and expenses, court costs, and reasonable fees and
disbursements of counsel, consultants and expert witnesses incurred by a Party
hereto (including any interest payments which may be imposed in connection
therewith).

     "Effective Date" shall be the date set forth in the first paragraph of this
      --------------
Agreement.

     "EU" shall mean the European Union, including the following countries:
      --
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, Netherlands, Portugal, Spain, Sweden and the United Kingdom.

     "FDA" shall mean the United States Food and Drug Administration, or any
      ---
successor thereto.

     "GAAP" shall mean United States generally accepted accounting principles,
      -----
consistently applied.

     "Indemnified Party" shall have the meaning given in Section 7.2 hereof.
      -----------------

     "Indemnifying Party" shall have the meaning given in Section 7.2 hereof.
      ------------------

     "Licensed Patents" shall mean all patents, both foreign and domestic,
      ----------------
including without limitation, all extensions, reissues, renewals,
reexaminations, patents of addition, supplementary protection certificates and
inventors' certificates thereof and pediatric data package or other exclusivity
extensions, and all pending patent applications (including substitutions,
provisionals, divisionals, continuations and continuations-in-part) heretofore
filed or having any legal force in any country together with any patents that
have issued or in the future issue therefrom, which are owned, controlled, or
licensed in (with the right to sublicense and subject to the rights of Third
Parties as of the Effective Date), including, without limitation, the Princeton
Patents, in whole or in part, by Lilly or any Affiliate of Lilly, and which
would be infringed by the developing, making, using, or selling of Product,
absent the license herein, including, without limitation, those patents and
patent applications listed in Exhibit A attached hereto, and any divisionals,
                              ---------
continuations, refilings, extensions, and international counterparts thereof. A
complete description of the patents and patent applications in existence as of
the Effective Date are listed in Exhibit A attached hereto.
                                 ---------

     "Major Countries" shall mean Canada, France, Germany, Italy, Japan, Spain,
      ---------------
United Kingdom and the United States.

[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      2.
<PAGE>

     "Manufacturing Information" shall mean all existing information in written
      -------------------------
and electronic form that relates to: (1) synthetic chemical processes for the
production of [ * ] the active pharmaceutical ingredient in the Product, and
intermediates in the preparation of the Product, including the synthetic
methods and development reports generated by or for [ * ] but excluding the
synthetic methods and development reports generated by or for [ * ] (2) the in-
process analytical controls for production of each of: (a) the active
pharmaceutical ingredient in the Product; and (b) the Product; (3) the process,
formulation and development reports generated for the preparation of the
Product; (4) the analytical methods and validation for the quality control
release of each of: (a) the active pharmaceutical ingredient in the Product; and
(b) the Product; and (5) the stability protocols, stability indicating methods
and stability data for each of: (a) the active pharmaceutical ingredient in the
Product; and (b) the Product.

     "Net Sales" shall mean, with respect to the Product, the gross amount
      ---------
billed or invoiced by Tularik, its Affiliates, and sublicensees to unrelated
third parties (excluding any sublicensee) for the Products, less

          (a)  credits or allowances, if any, given or made on account of
rejection or return of delivered Products;

          (b)  trade and quantity discounts actually allowed and taken in such
amounts as are customary in the trade; and

          (c)  duties, sales taxes, and excise taxes and transportation charges
to third party carriers actually paid by or on behalf of the party making the
sale.

     Such amounts shall be determined from books and records maintained in
accordance with GAAP. In the event the Product is sold as part of a combination
product, or as part of bundled products or as part of a delivery system, the Net
Sales from the combination product, bundled product or delivery system, for the
purposes of determining royalty payments, shall be determined by multiplying the
Net Sales (as defined above) of the combination product by the fraction, A/(A+B)
where A is the average sale price of the Product when sold separately in
finished form and B is the average sale price of the other product(s) or system
sold separately in finished form or where A+B is the average sales price of the
product(s) and the delivery system together. In the event that such average sale
price cannot be determined for both the Product and such other product(s) or
system in combination, Net Sales for purposes of determining royalty payments
shall be calculated by multiplying the Net Sales of the combination products by
the fraction C/(C+D) where C is the Tularik's cost of goods of the Product and D
is Tularik's cost of goods for the other product(s) or system, determined in
accordance with the method of accounting normally employed by Tularik in
computing cost of goods.

     "Party" or "Parties" shall mean either Lilly or Tularik or both.
      -----      -------

     "Person" shall mean a natural person, a corporation, a partnership, a
      ------
trust, a joint venture, a limited liability company, any governmental authority
or any other entity or organization.

     "Phase III Clinical Trial" shall mean large scale or pivotal human clinical
      ------------------------
trials conducted in patients in accordance with Good Clinical Practice and
intended to generate data concerning the safety and efficacy of the Product in
the particular indication tested sufficient to support registration of the
Product with health regulatory authorities.

     "Princeton Agreement" shall mean the Agreement dated December 19, 1985,
      -------------------
pursuant to which Lilly obtained an exclusive license under the Princeton
Patents.

     "Princeton Patents" shall mean those patents both foreign and domestic,
      -----------------
including, without limitation, all substitutions, extensions, reissues,
renewals, reexaminations, patents of addition, supplementary protection
certificates and inventors' certificates thereof and pediatric data package or
other exclusivity extensions and all pending patent applications (including,
without limitation, all substitutions, provisionals, divisionals, continuations
and continuations-in-part) which have been licensed by Lilly from Princeton, as
indicated in Exhibit A attached hereto.
             ---------

     "Product" shall mean a finished pharmaceutical composition containing the
      -------
compound lometrexol, [ * ] which may be included in any supplement, modification
or addition to the filings for Regulatory Approval of the foregoing compound.

     "Product Data Package" shall include the following information and data
      --------------------
directly related to the Product in the tangible possession or control of Lilly
as of the Effective Date: (a) the Regulatory Documents; [ * ]; and (e) such
other information and data specifically identified in Exhibit B attached hereto.
                                                      ---------
Exhibit B shall represent a complete listing of the information and data
---------
included in Product Data Package, as such term is used in this Agreement.

     "Product Inventory" shall mean the Product inventory, in bulk or finished
      -----------------
form, which Lilly owns or controls as of the Effective Date, as identified in
Exhibit C attached hereto.
---------

[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      3.
<PAGE>

     "[ * ] Diligence" shall mean commercially reasonable efforts to develop and
            ---------
obtain Regulatory Approval in the Territory, consistent with accepted business
practices and legal requirements, and comparable to efforts in the
pharmaceutical industry applicable to development of compounds at an equivalent
stage of development and similar market potential.

     "Regulatory Approval" shall mean (a) in the United States, approval by the
      -------------------
FDA of an NDA, or equivalent application, for marketing approval and
satisfaction of any related applicable FDA registration and notification
requirements (if any) and (b) in any country other than the United States,
approval by the Regulatory Authority in such country of a single application or
set of applications comparable to an NDA.

     "Regulatory Authority" shall mean the FDA in the United States or the
      --------------------
equivalent governmental agency having jurisdiction in any other country in the
Territory.

     "Regulatory Documents" shall mean the (a) United States investigational new
      --------------------
drug application (IND) [ * ], and all amendments and annual reports to same, and
(b) Clinical Trial Exemption for the United Kingdom (CTX) [ * ], and all
amendments related to same.

     "Royalty Term" shall mean, with respect to each country in which Product is
      ------------
sold, the period of time equal to the longer of (i) ten (10) years from the date
of first sale of the Product in such country, or (ii) the expiration of the
last-to-expire Licensed Patent listed in Exhibit A in such country that claims
such Product.

     "Territory" shall mean the world, unless Tularik's license terminates with
      ---------
respect to a Major Country or Major Countries pursuant to Section 6.5, in which
case the Territory shall exclude any Major Country in which Tularik's license so
terminated.

     "Transferred Assets" shall mean the Manufacturing Information, the Product
      ------------------
Inventory and the Product Data Package.

     "Tularik Improvements" shall mean any inventions (including, without
      --------------------
limitation, [ * ] identified and/or discovered by Tularik), patentable or not,
information and/or data relating to the Product, including, without limitation,
[ * ] necessary for the manufacture, use or sale of the Product, which are
developed or acquired by Tularik during the term of this Agreement and are owned
or controlled (with the ability to grant licenses or sublicenses, as the case
may be) by Tularik.

                                   SECTION 2
GRANT OF LICENSES, TRANSFER OF TRANSFERRED ASSETS AND ASSUMPTION OF LIABILITIES

     2.1  Grant of License. During the term of the Agreement and except as
          ----------------
expressly reserved by Lilly herein, Lilly hereby grants to Tularik an exclusive
sublicense under the Princeton Patents and an exclusive license under the Lilly
Patents to make, have made, use, sell, offer to sell and import the Product in
the Territory. The foregoing exclusive licenses shall be exclusive even as to
Lilly.

     2.2  Transferred Assets. As of the Effective Date, Lilly hereby assigns,
          ------------------
transfers and conveys to Tularik all of Lilly's right, title and interest in and
to the Transferred Assets and Tularik hereby accepts such assignment, transfer
and conveyance. Within [ * ] following the Effective Date, Lilly shall transfer
to Tularik possession of the Transferred Assets. The [ * ] portion of
the Product Data Package shall be provided to Tularik [ * ]. Exhibit C shall
                                                             ---------
include a notation indicating the format in which all other portions of the
Product Data Package shall be provided. Lilly shall be under no obligation to
[ * ]. In the event that Tularik is

[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      4.
<PAGE>

unwilling or unable to assume physical possession of the Transferred Assets by
the end of the initial [ * ] period, Lilly shall be entitled to [ * ] beyond
such [ * ] period. Lilly shall ship the Transferred Assets to Tularik F.O.B to
Tularik's designated facilities. Following the receipt by Tularik of the
Transferred Assets, Lilly shall provide technical information or assistance
regarding the Product to Tularik as is reasonably requested by Tularik: (a)
[ * ]. Tularik acknowledges that Lilly makes no representations or warranties
with respect to the Transferred Assets (other than as expressly set forth in
Section 5 below) and that [ * ].

     2.3  Liabilities Assumed by Tularik. Except as otherwise provided in this
          ------------------------------
Agreement, Tularik hereby assumes and agrees to bear and be responsible for and
to perform and satisfy all responsibilities, duties (including, without
limitation, compliance with all applicable laws and regulations), obligations
(including payment obligations), claims, Damages, liabilities, burdens and
problems of any nature whatsoever (collectively, the "Obligations") associated
directly or indirectly with Tularik's licensing and/or practice of the Licensed
Patents from and after the Effective Date and possession, use, ownership and
transport of the Transferred Assets from and after the Effective Date, as well
as those Obligations associated directly or indirectly with the manufacture,
development, marketing and sale of the Products from and after the Effective
Date, including, without limitation, [ * ] arising in connection with Products
on or after the Effective Date, except for (1) those Obligations with respect to
which [ * ] of this Agreement, and (2) the [ * ], which items shall remain the
responsibility of Lilly. All of the foregoing are hereinafter collectively
referred to as the "Assumed Liabilities."

     2.4  Liabilities Not Assumed by Tularik. Anything herein to the contrary
          ----------------------------------
notwithstanding, Tularik shall not be deemed to assume any of the following
(collectively, the "Excluded Liabilities"):

          (a) Any Obligations arising out of a claim of any third party relating
to the Product and arising out of or relating to [ * ].

          (b) Any Obligations arising out of a claim by a government entity or
regulatory body relating to the Product and arising out of or relating to [ * ];
or

          (c) Any Obligations arising out of a claim under the Princeton
Agreement or NCI Agreement arising out of or relating to [ * ].

     2.5  Sublicenses. Subject to the terms and conditions herein and Section
          -----------
2.6 below, Tularik shall have the right to sublicense the licenses granted to it
by Lilly. Any sublicenses granted by Tularik under this Agreement shall provide
for termination or assignment to Lilly, at the option of Lilly, of Tularik's
interest therein upon termination of this Agreement and contain provisions which
obligate the sublicensee to Tularik to at least the same extent that Tularik is
obligated to Lilly under this Agreement. Lilly shall not terminate any of
Tularik's sublicensees rights pursuant to this section 2.5 without first
conferring in good faith with such sublicensee regarding such sublicensees
desire to continue to practice its sublicense hereunder.

     2.6  Lilly Right to Match Offers. In the event that Tularik seeks at any
          ---------------------------
time to license a third party to market, promote, sell, offer to sell or
otherwise commercialize (any of the foregoing, a "Commercialization
Opportunity") Product in [ * ], whether together with or independent of Tularik,
Lilly shall have the right to match any bona fide offer Tularik receives in
writing from such third party regarding the Commercialization Opportunity (the
"Right to Match"). To ensure that Lilly has adequate time to consider whether it
should match the offer of a third party, Tularik shall provide Lilly written
notification of its intent to sign a letter of intent with respect to such
Commercialization Opportunity with such third party at least [ * ] days before
Tularik actually signs such letter of intent. Tularik agrees that it shall not
execute any

[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      5.
<PAGE>

letter of intent with any third party until expiration of the [ * ] day period
following Tularik's written notification to Lilly of its intent to execute a
letter of intent with such third party. Such written notice shall set forth all
material terms of the proposed offer, including, without limitation, the [ * ]
that is the subject of the offer, and the financial terms of the offer (for
example, the amount and timing of any milestone payments and the nature and
amount of any royalties to be paid). During the [ * ] day notice period, Lilly
shall have an opportunity to [ * ] with respect to such Commercialization
Opportunity to assess whether Lilly desires to exercise its Right to Match. If
Lilly decides to exercise its Right to Match and in so doing agrees to
incorporate all of the material terms of the third party offer, Tularik shall
[ * ]. If the third party resubmits another offer in response to the offer
submitted by Lilly, then Tularik must provide Lilly, as appropriate, with the
material terms of such revised third party offer and another [ * ] period during
which Lilly shall review the revised offer and determine whether to submit its
own respective revised offer.

     2.7  Princeton Rights. Tularik understands and acknowledges that the
          ----------------
Princeton Patents have been licensed by Lilly from Princeton and that Lilly has
preexisting obligations to Princeton with respect to such Princeton Patents,
which Lilly has separately disclosed to Tularik.

                                   SECTION 3
                                   PAYMENTS

     In consideration of the exclusive license granted herein and the transfer
of ownership of the Transferred Assets, Tularik shall pay the following amounts
to Lilly:

     3.1  Cash Payment Upon Signing. On the Effective Date, in consideration of
          -------------------------
the Transferred Assets, Tularik shall pay to Lilly the non-refundable sum of
[ * ] by Federal Reserve electronic wire transfer in immediately available funds
to an account designated by Lilly.

     3.2  Milestone Payments. Within [ * ] of Tularik and/or its sublicensees
          ------------------
achieving the first to occur of each of the milestone events listed below with
respect to the Product, Tularik shall pay the below specified non-refundable
fees to Lilly by Federal Reserve electronic wire transfer in immediately
available funds to an account designated by Lilly:

Milestone                                               Fee
---------                                               ---

 . [ * ]                                                 [ * ]

 . [ * ]                                                 [ * ]

 . [ * ]                                                 [ * ]

 . [ * ]                                                 [ * ]

     3.3  Royalties.
          ---------

          (a) Subject to subsections (b) and (c) below, during the Royalty Term
Tularik shall pay to Lilly running royalties ("Royalty Payments") for the
Product based upon Net Sales of Product in the Territory during a Calendar Year
as follows:

[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      6.
<PAGE>

Annual Net Sales                                         Royalty Rate (on that
----------------                                         ---------------------
                                                         portion of net sales)
                                                         ---------------------
[ * ]                                                    [ * ]
[ * ]                                                    [ * ]
**MM - million U.S. Dollars

          (b) In the event all Princeton Patents covering the Product in a
country expire during the Royalty Term and Lilly thereby no longer has a royalty
obligation to Princeton for the Product, the royalties otherwise payable to
Lilly for Net Sales of Product under Section 3.3(a) above shall be reduced to
[ * ] of that portion of annual Net Sales of Product less than or equal to
[ * ], or [ * ] of that portion of annual Net Sales of Product greater than
[ * ].

          (c) Tularik may credit against Royalty Payments [ * ] of any royalties
it must pay to any third party on the Product: (1) pursuant to any licenses
necessary to practice the licenses set forth in Section 2.1; or (2) resulting
from any litigation (including settlement thereof) under Section 6.11; provided,
                                                                       --------
however, for purposes of this subsection (c) that the Royalty Payments to Lilly
-------
shall not be reduced to less than [ * ] of that portion of annual Net Sales of
Product less than or equal to [ * ], or [ * ] of that portion of annual Net
Sales of Product greater than [ * ].

          (d) In the event that a generic form of Product receives market
authorization by a Regulatory Authority and is made commercially available in a
country, then the royalties otherwise payable to Lilly for Net Sales of Product
in such country under Section 3.3(a), as adjusted pursuant to subsections (b)
and (c) as applicable at the time of such commercial launch of such generic
form, shall be reduced by [ * ].

          (e) Royalty Payments shall be made within [ * ] after the end of each
Calendar Quarter for which royalties are due. All Royalty Payments shall be made
in U.S. Dollars and mailed to the attention of Lilly Royalty Administration,
Lilly Corporate Center, Indianapolis, Indiana 46285.

          (f) During the term of this Agreement and after the first sale of the
Product, Tularik shall furnish to Lilly on a quarterly basis a written report
covering each Calendar Quarter (each such Calendar Quarter being sometimes
referred to herein as a "reporting period") showing (1) the Net Sales of Product
in each country by Tularik or its Affiliates or sublicensees, and (2) the
Royalty Payments which have accrued under this Section 3.3 in respect of such
sales and the basis for calculating those royalties. With respect to sales of
the Product invoiced in a currency other than U.S. Dollars, the Net Sales and
amounts due to Lilly hereunder shall be expressed in the U.S. Dollar equivalent
calculated on a monthly basis in the currency of the country of sale and
converted to their dollar equivalent using the official rate of exchange as
determined by the European American Bank (or such other bank as may be regularly
relied upon by Tularik with respect to official exchange rates) in effect on the
last business day of the applicable month of the Calendar Quarter to which the
report relates. Tularik will, at Lilly's reasonable request but not more
frequently than once a year, inform Lilly as to the specific exchange rate
translation methodology used for a particular country or countries. Each
quarterly report shall be due [ * ] following the close of each reporting
period. Amounts shown to have accrued by each sales report shall be due and
payable on the date such sales report is due. Lilly shall have the right to
disclose sales reports to Princeton in compliance with its pre-existing
obligations.

          (g) Tularik shall keep accurate records in sufficient detail to enable
the Royalty Payments due to be determined and verified by the audit described in
Section 3.4 for at least (2) years following the period in which such
obligations arose. Additionally, if laws or regulations require the withholding
of taxes, the taxes will be deducted by Tularik from the Royalty Payments and

[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      7.
<PAGE>

remitted by Tularik to the proper tax authority. Proof of payment shall be
provided to Lilly within [ * ] after payment. Tularik will reasonably cooperate
in pursuing the refund of such tax, if such refund is appropriate in Lilly's
determination.

     3.4  Audits. Tularik and its Affiliates and sublicensees shall keep full
          ------
and accurate books and records relating to the financial performance of the
Product. During the term plus [ * ] after termination or expiration of this
Agreement, Lilly and/or Princeton shall have the right, during regular business
hours and upon reasonable advance notice, to have such books and records audited
by an independent certified accountant, so as to verify the accuracy of the
information previously reported to Lilly. Such information shall be Tularik
Proprietary Information and, as such, subject to confidentiality obligations
pursuant to Section 6.3. The independent certified account shall keep
confidential any information obtained during such audit and shall report to
Lilly and/or Princeton only the amounts of Royalty Payments due and payable. The
cost of such audit shall be borne by Lilly and/or Princeton, as appropriate;
however, in the event such audit reveals that the Royalty Payments to Lilly
constitute an underpayment of five percent (5%) or more from that revealed by
the audit to be actually owed, the cost of the audit shall be borne by Tularik.
Tularik shall include in all sublicenses granted as permitted under Section 2.5
an audit provision substantially similar to the foregoing requiring the
sublicensee to keep full and accurate books and records relating to the Product
and granting Lilly and Princeton the right to audit the accuracy of the
information reported by the sublicensee in connection therewith on the same
terms as apply to an audit of Tularik's records hereunder.

     3.5  Late Payments. Any amounts not paid by Tularik when due under this
          -------------
Agreement shall be subject to interest from and including the date payment is
due through and including the date upon which Lilly has collected immediately
available funds in an account designated by Lilly at a rate equal to [ * ]. No
special notice by Lilly to Tularik of such interest due shall be required.

     3.6  No Excuse. Tularik shall not be excused from or relieved of its
          ---------
obligations to pay the amounts described in this Section 3 by any claimed or
actual event of force majeure, commercial or other impracticability or
impossibility, or frustration of essential purpose, except to the extent
otherwise provided in this Agreement.

     3.7  Compulsory License. If in any country a third party obtains a
          ------------------
Compulsory License, then Lilly shall promptly notify Tularik. If the royalty
rate payable by the grantee of the Compulsory License is less than the royalty
rates applicable in such country set forth in Section 3.3, then such royalty
rates shall be [ * ] for so long as sales are made pursuant to the Compulsory
License.

                                   SECTION 4
                               TERM OF AGREEMENT

     4.1  Term. The term of this Agreement shall begin upon the Effective Date
          ----
and, unless sooner terminated as hereinafter provided, shall continue in full
force and effect on a country-by-country basis until Tularik, its Affiliates and
sublicensees have no remaining royalty obligations in a country as set forth in
Section 3.3(c), at which time the Agreement shall expire in such country.

                                   SECTION 5
                        REPRESENTATIONS AND WARRANTIES

     5.1  Corporate Existence and Power. As of the Effective Date, each Party
          -----------------------------
represents and warrants to the other that it (a) is a corporation duly
organized, validly existing and in good

[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      8.
<PAGE>

standing under the laws of the state in which it is incorporated, and (b) has
full corporate power and authority and the legal right to own and operate its
property and assets and to carry on its business as it is now being conducted
and as contemplated in this Agreement, including, without limitation, the right
to grant the licenses granted hereunder.

     5.2  Authority. As of the Effective Date, each Party represents and
          ---------
warrants to the other that it (a) has the corporate power and authority and the
legal right to enter into this Agreement and perform its obligations hereunder,
(b) has taken all necessary corporate action on its part required to authorize
the execution and delivery of the Agreement and the performance of its
obligations hereunder, and (c) the Agreement has been duly executed and
delivered on behalf of such Party, and constitutes a legal, valid and binding
obligation of such Party and is enforceable against it in accordance with its
terms.

     5.3  Absence of Litigation. As of the Effective Date, each Party represents
          ---------------------
and warrants to the other that it is not aware of any pending or threatened
litigation (and has not received any communication relating thereto) which
alleges that such Party's activities related to this Agreement have infringed,
or that by conducting the activities as contemplated herein such Party would
infringe, any of the intellectual property rights of any other person. Lilly's
represents and warrants that, to the best of Lilly's knowledge, there is no
material unauthorized use, infringement or misappropriation of any of its
intellectual property rights licensed hereunder.

     5.4  No Approvals or Consents. Except as otherwise described in this
          ------------------------
Agreement, each Party represents and warrants to the other that all necessary
consents, approvals and authorizations of all governmental authorities and other
persons or entities required to be obtained by such Party in connection with
this Agreement have been obtained.

     5.5  Patents. Lilly represents and warrants to Tularik that as of the
          -------
Effective Date, to the best of its knowledge, it has sufficient legal and/or
beneficial title and ownership under its intellectual property rights necessary
for it to fulfill its obligations under this Agreement and that it is not aware
of any communication alleging that it has infringed, or by conducting its
business as contemplated by this Agreement would infringe, any of the
intellectual property rights of any other person, and that to the best of its
knowledge there is no material unauthorized use, infringement or
misappropriation of any of its intellectual property rights relevant to this
Agreement. As used herein, "intellectual property rights" shall mean all patent
rights, copyrights, trademarks, trade secret rights, chemical and biological
material rights and know-how rights necessary or useful to make, use or sell the
Product.

     5.6  No Conflict. Each party represents and warrants to the other that the
          -----------
execution and delivery of the Agreement by such Party and the performance of
such Party's obligations hereunder (a) do not conflict with or violate any
requirement of applicable law or regulation or any provision of articles of
incorporation or bylaws of such Party in any material way, and (b) do not
conflict with, violate or breach or constitute a default or require any consent
under, any contractual obligation or court or administrative order by which such
Party is bound.

     5.7  Regulatory Documents. Lilly represents and warrants to Tularik that:
          --------------------
(a) Lilly has furnished Tularik with access to a complete copy of the United
States Regulatory Documents for the Product, including all material amendments
and supplements thereto; (b) Lilly is and was, at all times prior to the
Effective Date, the lawful holder of all rights under the Regulatory Documents;
(c) [ * ], Lilly has complied in all material respects with all applicable laws
and regulations in connection with the preparation and submission to the
relevant Regulatory Authorities of the Regulatory Documents; (d) the Regulatory
Documents have been accepted by, and nothing has come to the attention of Lilly
which has, or reasonably should have, led Lilly to believe that the Regulatory
Documents are not in good standing with, the relevant Regulatory

[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      9.
<PAGE>

Authorities; (e) Lilly has filed with the relevant Regulatory Authorities all
required notices, supplemental applications and annual or other reports,
including adverse experience reports, with respect to the Regulatory Documents
which are material; and (f) there is no pending or overtly threatened action by
the relevant Regulatory Authorities which will have a material adverse effect on
the Regulatory Documents. Except for the representations contained in this
Section 5.7, upon which Tularik is relying (which Lilly hereby acknowledges),
[ * ].

     5.8  Manufacturing Information. Lilly represents and warrants that it is
          -------------------------
transferring to Tularik as part of the Transferred Assets all of the
Manufacturing Information in Lilly's tangible possession as of the Effective
Date that is necessary for development and commercialization of the Product by
Tularik.

     5.9  No Debarment. Each Party represents and warrants to the other that it
          ------------
will comply at all times with the provisions of the Generic Drug Enforcement Act
of 1992 and will upon request certify in writing to the other that neither it,
its employees nor any person providing services to such Party in connection with
the Product have been debarred under the provisions of such Act.

     5.10 Year 2000 Compliance. Tularik represents and warrants that, to the
          --------------------
best of its knowledge after reasonable investigation, it has taken reasonable
steps to prevent its performance under Section 6.5(a) from being materially
delayed, materially interrupted or otherwise materially adversely affected due
to the failure of Tularik's business systems and/or computer systems to be "Year
2000 Compliant". For purposes of this paragraph, a system shall be considered
"Year 2000 Compliant" only if (1) the occurrence in or use by that system of
dates on or after January 1, 2000 ("Millennial Dates") does not adversely affect
that system's performance, including without limitation performance with respect
to date-dependent data, computations, output, or other functions (including,
without limitation, calculating, comparing and sequencing), and (ii) that system
creates, stores, processes and outputs information (as applicable) related to or
including Millennial Dates without material errors or omissions.

     5.11 Product Quality. Lilly hereby represents and warrants that to the
          ---------------
extent Product manufactured by or for Lilly that will be provided to Tularik
hereunder was required by law to be manufactured and packaged in compliance with
then current Good Manufacturing Practices or equivalent, as established and
revised from time to time by the relevant Regulatory Authority, applicable IND
applications and all other U.S. or other governmental rules and regulations
applicable to the Product and its manufacture, the Product was so manufactured
and packaged.

     5.12 No Outstanding Option or License. Lilly hereby warrants that it has
          --------------------------------
the unencumbered right to enter into this Agreement and to grant the licenses
contained herein.

     5.13  Implied Warranties. EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 5,
           ------------------
LILLY MAKES NO REPRESENTATION OR WARRANTY AS TO THE LICENSED PATENTS OR THE
TRANSFERRED ASSETS, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW,
BY STATUTE OR OTHERWISE, AND LILLY SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED OR
STATUTORY WARRANTIES. Without limiting the foregoing, Tularik acknowledges that
it has not and is not relying upon any implied warranty of merchantability,
fitness for a particular purpose or otherwise, or upon any representation or
warranty whatsoever as to the prospects (financial, regulatory or otherwise), or
the validity or likelihood of success, of the Product after the date of this
Agreement.

[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      10.
<PAGE>

                                   SECTION 6
              ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES

     6.1  Governmental Filings. Lilly and Tularik each agree to prepare and file
          --------------------
whatever filings, requests or applications are required to be filed with any
governmental authority in connection with this Agreement and to cooperate with
one another as reasonably necessary to accomplish the foregoing. Without
limiting the generality of the foregoing, prior to the assignment, transfer and
conveyance by Lilly to Tularik of the Transferred Assets pursuant to Section
2.2, Lilly shall have submitted to the relevant Regulatory Authorities the
information required of a former owner of regulatory filings with respect to the
Product, and Tularik shall submit to the relevant Regulatory Authorities the
information required of a new owner of regulatory filings with respect to the
Product.

     6.2  Compliance with Law. Tularik shall comply with all federal, state and
          -------------------
local laws and regulations related to Tularik's manufacture, development,
marketing and selling of the Product. Without limiting the generality of the
foregoing sentence, Tularik shall not promote the Product in any manner in
conflict with any applicable laws or regulations.

     6.3  Confidentiality. Tularik shall treat as confidential any unpublished
          ---------------
applications included in the Licensed Patents and all other information of Lilly
and/or Princeton of which Tularik becomes aware (whether in writing or orally or
by observation during visits to Lilly facilities) in connection with this
Agreement (collectively, "Lilly Proprietary Information"). Tularik shall neither
disclose Lilly Proprietary Information to any third party nor use Lilly
Proprietary Information for any purpose other than as set forth in this
Agreement. Lilly shall treat as confidential all information of Tularik
(including information received by Tularik from its Affiliates or sublicensees)
of which Lilly becomes aware (whether in writing or orally or by observation
during visits to Lilly facilities) in connection with this Agreement
(collectively, "Tularik Proprietary Information"). Lilly shall neither disclose
Tularik Proprietary Information to any third party nor use Tularik Proprietary
Information for any purpose other than as set forth in this Agreement. "Third
party" for purposes of this section shall not include a consultant of either
party with whom a party shares information on a need to know basis and which the
party binds to terms of confidentiality as outlined above. Both Tularik and
Lilly shall each undertake reasonable efforts to ensure that their respective
employees are aware of and comply with the obligations of confidentiality and
non-use set forth herein.

     Nothing contained herein will in any way restrict or impair the ability of
a Party to which Proprietary Information is disclosed (the "Using Party") to
use, disclose or otherwise deal with any Proprietary Information of the other
Party which:

          (a) at the time of disclosure is known to the public or thereafter
becomes known to the public by publication or otherwise through no fault of the
Using Party;

          (b) the Using Party can establish by competent written proof was in
its possession prior to the time of the disclosure and was not obtained directly
or indirectly from the other Party;

          (c) is independently made available as a matter of right to the Using
Party by a third party who is not thereby in violation of a confidential
relationship with the other Party; or

          (d) is information required to be disclosed by legal requirement or
regulatory process; provided, in each case that the Using Party timely informs
the other Party of such disclosure and uses reasonable efforts to limit the
disclosure and maintain confidentiality to the

[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      11.
<PAGE>

extent possible and permits the other Party to intervene and contest or attempt
to limit the disclosure.

     Tularik shall obtain no right or license of any kind under the Lilly
Proprietary Information except as set forth in this Agreement.  Lilly shall
obtain no right or license of any kind under the Tularik Proprietary Information
except as set forth in this Agreement.

     6.4  Expenses. Lilly and Tularik shall each bear their own direct and
          --------
indirect expenses incurred in connection with the negotiation and preparation of
this Agreement and, except as set forth in this Agreement, the performance of
the obligations contemplated hereby.

     6.5  Efforts.
          -------

          Tularik shall use [ * ] Diligence to develop and obtain Regulatory
Approval for the Product in the Territory and shall be solely responsible for
all related development efforts and costs; provided, however, with respect to
                                           --------  -------
countries in the Territory that are not Major Countries, Tularik shall have [ *
] Tularik shall provide Lilly with written notice of all decisions by Tularik to
not pursue Regulatory Approval in a country for any reason within [ * ] days of
such decision.

          (b) In the event Tularik or its sublicensees fail to undertake [ * ]
Diligence in developing and/or obtaining Regulatory Approval of the Product [ *
], such failure shall be considered a material default of this Agreement which
shall (a) automatically cause the license granted to Tularik in Section 2.1 to
terminate with respect to such Major Country(ies); and (b) may entitle Lilly to
terminate this Agreement for cause under Section 8.1(b) if such failure of
diligence applies to [ * ]; provided that Tularik (or its sublicensee) does not
                            -------- ----
cure such failure within [ * ] days of written notice from Lilly specifying its
belief that such failure has occurred and the reasons therefor. Lilly shall not
be entitled to exercise the foregoing termination rights if [ * ]. If Tularik's
license terminates in part pursuant to this Section 6.5(b), then (1) the Major
Countries in which Tularik has lost its license shall be automatically removed
from the Territory, and (2) Tularik shall and hereby does grant to Lilly a (i)
non-exclusive license, with right to sublicense, under the Tularik Improvements
to make, use, sell, offer to sell or import Product in the Major Country(ies) in
which Tularik's licenses terminate pursuant to this Section 6.5(b), and (ii) a
right to [ * ]. Any license granted to Lilly pursuant to this Section 6.5 shall
be subject to payment of a royalty to Tularik at a rate to be negotiated by the
parties [ * ] (i) if such license is granted to Lilly prior to Regulatory
Approval of Product in the relevant country, [ * ] of Lilly's net sales of
Product in such country; or (ii) if such license is granted to Lilly after
Regulatory Approval of Product in the relevant country, [ * ] of Lilly's net
sales of Product in such country.

          (c) Failure by Tularik to meet its [ * ] Diligence obligation under
this Section 6.5 due to [ * ] will not constitute lack of [ * ] Diligence for
purposes of this Agreement.

          (d) Lilly and Tularik each agree to use all reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary or proper to make effective the transactions contemplated by
this Agreement, including such actions as may be reasonably necessary to obtain
approvals and consents of governmental Persons and other Persons (including,
without limitation, all applicable drug listing and notifications to the
relevant Regulatory Authority identifying Tularik as the licensee of the
Product); provided that no Party shall [ * ].
          --------


[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      12.
<PAGE>

     6.6  Publicity and Disclosure of Agreement. The parties agree that upon
          -------------------------------------
execution of this Agreement or shortly thereafter either Party may prepare a
press release, which shall be subject to review and approval by the other Party.
The Parties agree that no future publicity release or announcement concerning
the transactions contemplated hereby shall be issued without the advance written
consent of the other Party, except as such release or announcement may be
required by law, in which case the Party making the release or announcement
shall, before making any such release or announcement, afford the other Party a
reasonable opportunity to review and comment upon such release or announcement
to the extent practicable. Tularik and Lilly recognize that disclosure of this
Agreement (including a copy) to the IRS and other tax authorities is likely to
be required, and each waives the requirements of this Section 6.6 with respect
to disclosure (and copies) to such entities; provided, however, that the
obligations of Section 6.3 continue to apply to any such disclosure to such tax
authorities. Tularik also agrees that Lilly may provide Princeton with a copy of
this Agreement in compliance with Lilly's preexisting obligation and subject to
an obligation of confidentiality and non-use of such copy by Princeton,
comparable in scope to the obligation set forth in Section 6.3. Each Party shall
have the further right to disclose the terms of this Agreement as required by
the rules and regulations promulgated by the Securities and Exchange Commission
and to disclose such information to shareholders or potential investors as is
customary in the industry, provided the disclosing Party provides to the other
Party, to the extent practicable, a copy of the information to be disclosed and
an opportunity to comment thereon prior to such disclosure, and, to the extent
practicable, consults within a reasonable time in advance of the proposed
disclosure with the other on the necessity for the disclosure and the text of
the proposed release. Any copy of this Agreement to be filed with the Securities
and Exchange Commission shall be redacted to the satisfaction of both Parties;
provided, however, in the event that the Securities and Exchange Commission
objects to the redaction of any portion of the Agreement after the initial
submission, the filing Party shall inform the other Party of the objections and
shall in good faith respond to the objections in an effort to limit the
disclosure required by the Securities and Exchange Agreement, but in any event
the filing Party shall be free to disclose any portions of the Agreement it
deems necessary to respond to the objections in any future filings.

     6.7  Cooperation. If either Party shall become engaged in or participate in
          -----------
any investigation, claim, litigation or other proceeding with any third party,
including any proceeding before a Regulatory Authority, relating in any way to
the Product or any of the Licensed Patents the other Party shall cooperate in
all reasonable respects with such Party in connection therewith, including,
without limitation, using its reasonable efforts to make available to the other
Party such Party's employees who may be helpful with respect to such
investigation, claim, litigation or other proceeding, provided that, for
purposes of this provision, reasonable efforts to make available any employee
shall be deemed to mean [ * ].

     6.8  Conflicting Rights.  Lilly shall not grant any right to any third
          ------------------
party relating to the Licensed Patents that would violate the terms of or
conflict with the rights granted to Tularik pursuant to this Agreement.

     6.9  Patent Prosecution and Maintenance.
          ----------------------------------

          (a) [ * ] oversee the patent prosecution and maintenance of Licensed
Patents. [ * ].

          (b) [ * ] regarding the preparation, filing, prosecution and
maintenance of the Licensed Patents and shall provide [ * ] sufficient
opportunity to comment thereon.


[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      13.
<PAGE>

          (c) Within thirty (30) days of receipt of a reasonably detailed
invoice from [ * ] for all costs incurred after the Effective Date related to
the filing, prosecution, and maintenance of the Licensed Patents for the
Product; provided, however, that [ * ] at least [ * ] for fees required to be
paid to a patent office in connection with maintenance of the Licensed Patents.

          (d) Upon receipt of approval to market Product in a country of a
Territory, [ * ] in obtaining patent extensions, supplementary protection
certificates, and the like for the Licensed Patents to the extent the laws of
the country provide it. It is understood that Tularik is responsible for
promptly notifying Lilly of receipt of Regulatory Approval.

     6.10 Infringement.
          -------------

          (a) Notice. Each Party shall promptly notify the other in writing of
              ------
any alleged infringement by third parties of any Licensed Patent and provide any
information available to that Party relating to such alleged infringement or
misappropriation.

          (b) Enforcement of Licensed Patents Which Are Princeton Patents. In
              -----------------------------------------------------------
the event that, [ * ] after being notified by Lilly and/or Tularik of
infringement of a Licensed Patent which is a Princeton Patent, [ * ] of such
infringement or to enter suit against the infringer, [ * ] to enforce the
Princeton Patents as provided in Article 11 of the Princeton Agreement, to the
extent the infringement activities relate directly to the Product. To the extent
that Lilly is required by the law of the jurisdiction to be joined as a party,
[ * ] will join as a party plaintiff, in the same manner as [ * ] has agreed to
be joined as a party plaintiff as set forth in Article 11 of the Princeton
agreement. A copy of Article 11 of the Princeton Agreement is attached hereto as
Exhibit D.
---------

          (c) Allocation of Damages or other Monetary Awards with Respect to the
              ------------------------------------------------------------------
Princeton Patents. If [ * ] brings action under this Section 6.10, any damages
-----------------
or other monetary awards recovered by [ * ] shall be the property of [ * ].
If [ * ] fails to bring action with respect to the Princeton Patents and [ * ]
brings action, any damages or other monetary awards recovered by Tularik shall
be applied first to [ * ]. If any balance remains, [ * ] shall second pay to [ *
] a royalty of [ * ] on any such excess. If any balance remains after payment to
[ * ] shall third pay to [ * ] an amount equal to [ * ]. If any balance remains
after payment to [ * ]. If [ * ] fails to bring action with respect to the
Princeton Patents and [ * ] brings action, any damages or other monetary awards
recovered by [ * ] shall be applied first to [ * ]. If any balance remains, [ *
] shall second pay to [ * ] a royalty of [ * ] on any such excess. If any
balance remains after the payment to [ * ], [ * ] shall third retain as its own
property an amount equal to [ * ]. If any balance remains, such balance shall be
the property [ * ].

          (d) Enforcement of Licensed Patents Which Are Not Princeton Patents.
              ---------------------------------------------------------------
Where the infringement of a Licensed Patent involves a patent which is not a
Princeton Patent, [ * ] shall have the primary right, but not the obligation, to
take action to secure the cessation of the infringement or to enter suit against
the infringer. Any such action will be at [ * ] expense, employing counsel of
its own choosing. To the extent any recovery is obtained [ * ]. Notwithstanding
the foregoing, in the event that, [ * ] after being notified by [ * ] of
infringement of a Licensed Patent which is not a Princeton Patent, [ * ] fails
to secure the cessation of the infringement or to enter suit against the
infringer, [ * ] may take action on its own and at its own expense.


[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      14.
<PAGE>

          (e) Procedures. No settlement, consent judgment or other voluntary
              ----------
final disposition of the suit may be entered into without the consent of each
Party, which consent shall not be unreasonably withheld or delayed. In the event
of any infringement suit against a third party brought by any Party pursuant to
this Section 6.10, the Party so proceeding shall [ * ] in connection with such
action and such other Party shall join in and reasonably cooperate with respect
to such action to the extent necessary to initiate and maintain it (e.g., by
providing relevant documents, witnesses and testimony, etc.). It is further
understood that Lilly will use its reasonable efforts to obtain Princeton's
cooperation to the extent Princeton is a necessary party to the litigation in
any country.

     6.11 Infringement of Third Party's Rights. If a third party asserts that a
          ------------------------------------
patent or other right owned by it is infringed by the practice of the Licensed
Patents pursuant to the license granted to Tularik under Section 2.1, Tularik
may attempt to resolve the problem raised by the asserted infringement. The
matter shall be deemed resolved if Tularik obtains: [ * ]. If the practice of
the Licensed Patents results in a claim for patent infringement against Tularik,
the Party to this Agreement first having notice of that claim shall promptly
notify the other Party in writing. The notice shall set forth the facts of the
claim in reasonable detail. [ * ] shall have the primary right to defend any
such claim. [ * ] shall have the right, but not the obligation, to participate
in any such suit at its sole option and at its own expense. Each Party shall
reasonably cooperate with the Party conducting the defense of the claim. Neither
Party shall enter into any settlement that affects the other Party's rights or
interests without such other Party's written consent, not to be unreasonably
withheld. If [ * ] makes a payment to any third party in the course of
defending or settling any claim brought by a third party pursuant to this
Section 6.11, [ * ] shall be entitled to [ * ].

     6.12 Manufacturing. Tularik shall be solely responsible for the manufacture
          -------------
of Product following the Effective Date, including without limitation for
clinical trials and commercialization.

     6.13 Deemed Breach of Covenant. Neither Lilly nor Tularik shall be deemed
          -------------------------
to be in breach of any covenant contained in this Section 6 if such Party's
deemed breach is the result of any action or inaction on the part of the other
Party.

     6.14 Use of Names, Logos or Symbols. No Party hereto shall use the name,
          ------------------------------
trademarks, logos, physical likeness, employee names or owner symbol of the
other Party hereto for any purpose, including, without limitation, in connection
with any private or public securities placements, without the prior written
consent of the affected Party, such consent not to be unreasonably withheld or
delayed so long as such use of name is limited to objective statements of fact,
rather than for endorsement purposes. Nothing contained herein shall be
construed as granting either Party any rights or license to use any of the other
Party's trademarks or tradenames without separate, express written permission of
the owner of such trademark or tradename.

     6.15 Princeton License. Lilly expressly warrants and represents that the
          -----------------
Princeton Agreement is in full force and effect as of the Effective Date and
that Lilly is not in material breach of the Princeton Agreement and has not
received any notice of termination from Princeton under the Princeton Agreement.
Lilly expressly covenants and agrees that during the term of this Agreement it
shall take all reasonable steps to comply with all material terms and provisions
contained in the Princeton Agreement. In the event Lilly receives notice of an
alleged breach by Lilly of the Princeton Agreement, Lilly shall promptly so
notify Tularik. Tularik may cure any breach of the Princeton Agreement for the
benefit of Tularik if Lilly fails to cure such breach


[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
                                      15.
<PAGE>

reasonably in advance of the expiration of the cure period thereunder. [ * ].
Lilly shall use reasonable efforts to [ * ].

     6.16 Acknowledgement. Lilly acknowledges that Dr. Jackie Walling, a former
          ---------------
employee of Lilly employed by Tularik as of the Effective Date, may work on the
development of the Product on behalf of Tularik.

                                   SECTION 7
                                INDEMNIFICATION

     7.1  Indemnification.
          ---------------

          (a) Lilly shall indemnify, defend and hold Tularik (and its directors,
officers, employees, consultants, Affiliates or sublicensees) harmless from and
against any and all Damages incurred or suffered by Tularik (and its directors,
officers, employees, consultants, Affiliates or sublicensees) (excluding
incidental or consequential Damages suffered or incurred by Tularik directly (as
opposed to incidental or consequential Damages suffered or incurred by third
parties who are, in turn, seeking the same from Tularik, which shall be covered
by the indemnity set forth herein)) as a consequence of:

              (1) any breach of any representation or warranty made by Lilly in
this Agreement, provided that, in the case of a breach of any representation or
warranty made by Lilly in this Agreement, notice of a claim based upon any such
breach is received by Lilly prior to the expiration or termination of the
Agreement;

              (2) [ * ];

              (3) any failure to perform duly and punctually any covenant,
agreement or undertaking on the part of Lilly contained in this Agreement; and

              (4) any Excluded Liabilities.

          (b) Tularik shall indemnify, defend and hold Lilly (and its directors,
officers, employees, consultants and Affiliates) harmless from and against any
and all Damages incurred or suffered by Lilly (and its directors, officers,
employees, consultants and Affiliates) (excluding incidental or consequential
Damages suffered or incurred by Lilly directly (as opposed to incidental or
consequential Damages suffered or incurred by third parties who are, in turn,
seeking the same from Lilly, which shall be covered by the indemnity set forth
herein)) as a consequence of:

          (1) any breach of any representation or warranty made by Tularik in
this Agreement, provided that, in the case of a breach of any representation or
warranty made by Tularik in this Agreement, notice of a claim based upon any
such breach is received by Tularik prior to the expiration or termination of the
Agreement;

          (2) any failure to perform duly and punctually any covenant, agreement
or undertaking on the part of Tularik contained in this Agreement;

          (3) Assumed Liabilities; and

          (4) any action or inaction by Tularik (and its agents, directors,
officer, employees, consultants, Affiliates and sublicensees) after the
Effective Date related to the making, using, selling, offering for sale or
importing of the Product or the use, sale or import of the Transferred Assets,
[ * ].


[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      16.
<PAGE>

     7.2  Notice and Opportunity To Defend. Promptly after receipt by a Party
          --------------------------------
hereto of notice of any claim which could give rise to a right to
indemnification pursuant to Section 7.1, such Party (the "Indemnified Party")
shall give the other Party (the "Indemnifying Party") written notice describing
the claim in reasonable detail. The failure of an Indemnified Party to give
notice in the manner provided herein shall not relieve the Indemnifying Party of
its obligations under this Section, except to the extent that such failure to
give notice materially prejudices the Indemnifying Party's ability to defend
such claim. The Indemnifying Party shall have [ * ], any such matter involving
the asserted liability of the Party seeking such indemnification, except as
provided below. The Indemnifying Party shall promptly (and in any event not less
than [ * ] after receipt of the Indemnified Party's original notice) notify the
Indemnified Party in writing of [ * ], and the Indemnified Party agrees to
cooperate fully with the Indemnifying Party and its counsel [ * ] incurred in
connection with such cooperation shall be borne by the Indemnifying Party. If
the Indemnifying Party elects in writing [ * ] the asserted liability, fails to
notify the Indemnified Party of its election [ * ] as herein provided, fails to
admit its obligation to indemnify under this Agreement with respect to the claim
following a written request of the Indemnified Party, or, if in the reasonable
opinion of counsel to the Indemnified Party, the claim could result in the
Indemnified Party becoming subject to injunctive relief or relief other than the
payment of money damages that could materially adversely affect the ongoing
business of the Indemnified Party in any manner, the Indemnified Party shall
have the right, at its option, to [ * ] such asserted liability by its own
counsel and its reasonable costs and expenses shall be included as part of the
indemnification obligation of the Indemnifying Party hereunder. Notwithstanding
the foregoing, neither the Indemnifying Party nor the Indemnified Party may
[ * ] any claim under this Section 7.2 over the written objection of the other
or any claim that could reasonably result in an adverse effect on the other
Party without such other Party's consent; provided, however, that consent
                                          --------  -------
to [ * ] shall not be unreasonably withheld. In any event, the Indemnified Party
and the Indemnifying Party may participate, at their own expense, in the defense
of such asserted liability. If the Indemnifying Party defends any claim, the
Indemnified Party shall make available to the Indemnifying Party any books,
records or other documents within its control that are necessary or appropriate
for such defense. Notwithstanding anything to the contrary in this Section 7.2,
(a) the Party conducting the defense of a claim shall [ * ], and (b) the
Indemnifying Party shall [ * ] without the prior written consent of the
Indemnified Party (which consent shall not be unreasonably withheld).

     7.3  Indemnification Payment Adjustments.  The amount of any Damages for
          -----------------------------------
which indemnification is provided under this Section 7 shall be reduced to take
account of any net tax benefit and shall be increased to take account of any net
tax detriment arising from the incurrence or payment of any such Damages or from
the receipt of any such indemnification payment and shall be reduced by the
insurance proceeds received and any other amount recovered, if any, by the
Indemnified Party with respect to any Damages; provided, however, that an
Indemnified Party shall [ * ].  If any Indemnified Party shall have received any
payment pursuant to this Section 7 with respect to any Damages and shall
subsequently have received insurance proceeds or other amounts with respect to
such Damages, then such Indemnified Party shall pay to the Indemnifying Party an
amount equal to the difference (if any) between (1) the sum of the amount of
those insurance proceeds or other amounts received and the amount of the payment
by such Indemnifying Party pursuant to this Section 7 with respect to such
Damages and (2) the amount necessary to fully and completely indemnify and hold
harmless such Indemnified Party from and against such Damages; provided,
                                                               --------
however, in no event [ * ].
-------


[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      17.
<PAGE>

     7.4  Indemnification Payment. Upon the final determination of liability and
          -----------------------
the amount of the indemnification payment under this Section 7, the appropriate
Party shall pay to the other in immediately available funds, within [ * ] after
such determination, the amount of any claim for indemnification made hereunder.

     7.5  Survival. The provisions of this Section 7 shall survive any
          --------
termination of this Agreement with respect to actions of the Parties during the
term of the Agreement or the term of any license to Tularik, whichever occurs
later. Each Indemnified Party's rights under this Section 7 shall not be deemed
to have been waived or otherwise affected by such Indemnified Party's waiver of
the breach of any representation, warranty, agreement or covenant contained in
or made pursuant to this Agreement, unless such waiver expressly and in writing
also waives any or all of the Indemnified Party's right under Section 7.

                                   SECTION 8
                                  TERMINATION

     8.1  Termination. Anything herein to the contrary notwithstanding, this
          -----------
Agreement may be terminated as follows:

          (a) Tularik Voluntary Termination. Tularik may terminate this
              -----------------------------
Agreement at any time by giving [ * ] written notice of its intention to
terminate.

          (b) Lilly Termination for Cause. Lilly may terminate this Agreement in
              ---------------------------
its entirety upon [ * ] written notice if Tularik breaches its obligation of
[ *] Diligence provided in Section 6.5(a) in [ * ] the Major Countries
concurrently.

          (c) Princeton Termination. Tularik understands and acknowledges that
              ---------------------
Princeton has the right to terminate the exclusive license to the Princeton
Patents granted to Lilly under the Lilly/Princeton Agreement in the event that
[ * ] and, therefore, Princeton also has the right to terminate the sublicense
to the Princeton Patents granted by Lilly to Tularik herein. Nothing in this
Section 8.1(c) shall affect Lilly's obligations under Section 6.15.

          (d) Termination for Insolvency. If either Tularik or Lilly (1) makes a
              --------------------------
general assignment for the benefit of creditors or becomes insolvent; (2) files
an insolvency petition in bankruptcy; (3) petitions for or acquiesces in the
appointment of any receiver, trustee or similar officer to liquidate or conserve
its business or any substantial part of its assets; (4) commences under the laws
of any jurisdiction any proceeding involving its insolvency, bankruptcy,
reorganization, adjustment of debt, dissolution, liquidation or any other
similar proceeding for the release of financially distressed debtors; or (5)
becomes a Party to any proceeding or action of the type described above in (3)
or (4) and such proceeding or action remains undismissed or unstayed for a
period of more than [ * ], then the other Party may by written notice terminate
this Agreement in its entirety with immediate effect.

          (e)  Termination for Default.
               -----------------------

               (1) Tularik and Lilly each shall have the right (except as
otherwise provided in Section 6.5) to terminate this Agreement in its entirety
with respect to the Product for default upon the other Party's uncured failure
to comply in any material respect with the terms and conditions of this
Agreement. At least [ * ] prior to any such termination for default, the Party
seeking to so terminate shall give the other written notice of its intention to
terminate this Agreement in accordance with the provisions of this Section
8.1(e), which notice shall set forth the default(s) which form the basis for
such termination. If the defaulting Party fails to correct such default(s)
within [ * ] after receipt of notification, or if the same cannot reasonably be


[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      18.
<PAGE>

corrected or remedied within [ * ], then if the defaulting Party has not
commenced curing said default(s) within said [ * ] and is not diligently
pursuing completion of same, then such Party immediately may terminate this
Agreement with respect to such Product.

              (2) This Section 8.1(e) shall not be an exclusive remedy and
shall not be in lieu of any other remedies available to a Party hereto for any
default hereunder on the part of the other Party.

         (f)  Rights Upon Termination.
              -----------------------

              (1) Lilly Rights Upon Termination. In the event of termination of
                  -----------------------------
this Agreement by Lilly under Section 8.1(b), 8.1(d) or 8.1(e) or termination by
Tularik under Section 8.1(a), [ * ]. Additionally, the [ * ]. Consequently,
notwithstanding anything else contained in this Agreement to the contrary but
subject to Tularik's rights in the Tularik Improvements, (A) [ * ] and (B)
[ * ].

              (2) Tularik Rights Upon Termination. In the event of termination
                  -------------------------------
of this Agreement by Tularik, Tularik shall [ * ]. In the event of termination
of this Agreement by Tularik under Sections 8.1(d) or 8.1(e), Tularik shall
[ * ].

              (3) Assistance Following Termination. In the event of termination
                  --------------------------------
of this Agreement pursuant to Section 8.1(b) or 8.1(d) and if Lilly so requests,
Tularik shall provide [ * ] to Lilly for a period of [ * ] days following the
date of notice of termination. Additionally, Tularik shall, and hereby does,
(and shall cause any subcontractors under contract with Tularik to) grant to
Lilly a non-exclusive, worldwide license, with the right to sublicense, under
the Tularik Improvements to make, use, sell, offer for sale and import Product.
Any [ * ].

              (4) Continuing Obligations. Termination of this Agreement for any
                  ----------------------
reason shall not relieve the Parties of any obligation accruing prior thereto or
any ongoing obligations hereunder with respect to the Product and shall be
without prejudice to the rights and remedies of either Party with respect to any
antecedent breach of the provisions of this Agreement. Without limiting the
generality of the foregoing, no termination of this Agreement, whether by lapse
of time or otherwise, shall serve to terminate the obligations of the Parties
hereto under subsections 3.4, 3.5, 6.3, 6.6, 6.7, 6.14, Section 7 (as provided
in Section 7.5), subsections 8.1(e), 8.1(f) and Section 9 (except for subsection
9.4, which shall expire as provided therein) hereof, and such obligations shall
survive any such termination.

                                   SECTION 9
                                 MISCELLANEOUS

     9.1 Successors and Assigns. This Agreement shall be binding upon and
         ----------------------
shall inure to the benefit of the Parties hereto and their respective successors
and assigns; provided, however, that neither Lilly nor Tularik may assign any of
             --------  -------
its rights, duties or obligations hereunder without the prior written consent of
the other, which consent may be withheld in the other's sole discretion, except
that no prior written consent shall be required in the event that a third party
acquires substantially all of the assets or outstanding shares of, or merges
with, Tularik or Lilly, as the case may be. No assignment of this Agreement or
of any rights hereunder shall relieve the assigning Party of any of its
obligations or liability hereunder.

     9.2 Notices. All notices or other communications required or permitted to
         -------
be given hereunder shall be in writing and shall be deemed to have been duly
given if delivered by hand, prepaid telex, cable, telegram or facsimile and
confirmed in writing, or mailed first class, postage


[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      19.
<PAGE>

prepaid, by registered or certified mail, return receipt requested (mailed
notices and notices sent by telex, cable or telegram shall be deemed to have
been given on the date received) as follows:

       If to Lilly, as follows:

            Eli Lilly and Company
            Lilly Corporate Center
            Indianapolis, Indiana 46285
            Facsimile: (317) 277-3354
            Attn: Vice President, Oncology Research

       With a copy to:

            Eli Lilly and Company
            Lilly Corporate Center
            Indianapolis, Indiana  46285
            Facsimile:  (317) 276-6221
            Attn:  General Counsel

       If to Tularik, as follows:

            Tularik Inc.
            Two Corporate Drive
            South San Francisco, California  94080
            Facsimile:  (650) 829-4303
            Attn:  President

            Tularik Inc.
            Two Corporate Drive
            South San Francisco, California  94080
            Facsimile:  (650) 829-4392
            Attn:  Secretary

or in any case to such other address or addresses as hereafter shall be
furnished as provided in this Section 9.2 by any Party hereto to the other
Party.

       9.3  Waiver; Remedies. Any term or provision of this Agreement may be
            ----------------
waived at any time by the Party entitled to the benefit thereof by a written
instrument executed by such Party. No delay on the part of Lilly or Tularik in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of either Lilly or Tularik of any
right, power or privilege hereunder operate as a waiver of any other right,
power or privilege hereunder nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder.

       9.4  Survival of Representations. Each of the representations and
            ---------------------------
warranties made in this Agreement shall survive the expiration or termination of
this Agreement only with respect to activities conducted or events occurring
prior to the expiration or termination of the Agreement.

       9.5  Entire Agreement. This Agreement, together with all exhibits,
            ----------------
constitute the entire agreement between the Parties with respect to the subject
matter hereof and supersedes all prior agreements or understandings of the
Parties relating thereto.


[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      20.
<PAGE>

       9.6  Amendment. This Agreement may be modified or amended only by written
            ---------
agreement of the Parties hereto.

       9.7  Counterparts. This Agreement may be executed in any number of
            ------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute a single instrument.

       9.8  Governing Law. This Agreement shall be governed and construed in
            -------------
accordance with the laws of the State of New York excluding any choice of law
rules, which may direct the application of the law of another state.

       9.9  Captions. All section titles or captions contained in this
            --------
Agreement, in any Exhibit referred to herein and the table of contents, if any,
to this Agreement are for convenience only, shall not be deemed a part of this
Agreement and shall not affect the meaning or interpretation of this Agreement.

       9.10 No Third Party Rights or Obligations. No provision of this Agreement
            ------------------------------------
shall be deemed or construed in any way to result in the creation of any rights
or obligation in any Person not a Party to this Agreement, other than the rights
and obligations contained in the Princeton Agreement.

       9.11 Severability. If any provision of this Agreement is found or
            ------------
declared to be invalid or unenforceable by any court or other competent
authority having jurisdiction, such finding or declaration shall not invalidate
any other provision hereof, and this Agreement shall thereafter continue in full
force and effect. In the event any such provision is so declared invalid or
unenforceable, the Parties shall negotiate an alternative provision that closely
approximates the Parties' intent, to the extent allowable under law.

       9.12 Attachments. All Exhibits and other attachments to this Agreement
            -----------
are by this reference incorporated herein and made a part of this Agreement.

       9.13 Disclaimer of Agency. This Agreement shall not constitute any Party
            --------------------
the legal representative or agent of another, nor shall any Party have the right
or authority to assume, create, or incur any third party liability or obligation
of any kind, express or implied, against or in the name of or on behalf of
another except as expressly set forth in this Agreement.

       9.14 Interpretation. This Agreement has been jointly prepared by the
            --------------
Parties and their respective legal counsel and shall not be strictly construed
against either Party.

       9.15 Force Majeure. Each of the parties hereto shall be excused from the
            -------------
performance of its obligations hereunder (except the payment of money) in the
event such performance is prevented by force majeure, provided that the
non-performing party promptly provides notice of the prevention to the other
party. Such excuse shall be continued so long as the condition constituting
force majeure continues and the non-performing party makes reasonable efforts to
remove the condition. For the purposes of this Agreement, force majeure shall
mean any act of God, fire, casualty, flood, war, earthquake, strike, failure of
public utilities, any act, exercise, assertion or requirement of governmental
authority, accident, epidemic, destruction of facilities, or such other similar
occurrences beyond the control of the party affected.

[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      21.
<PAGE>

       In Witness Whereof, the parties have caused this Agreement to be duly
executed and delivered on the day and year first above written.

ELI LILLY AND COMPANY                        TULARIK INC.

By:  /s/ August M. Watanabe                  By:  /s/  John P. McLaughlin
     ----------------------                       -----------------------
     August M. Watanabe                           John P. McLaughlin
     Executive Vice President                     President

Tularik/License Agreement


[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                      22.
<PAGE>

                                   Exhibit A

                                     [ * ]


[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>

                                                                   EXHIBIT 10.16

EXHIBIT B [*]

[*]
 1.  Lilly IND [*]

 2.  Annual Reports [*]

 3.  Correspondence [*]

 4.  [*]

 5.  Existing Communications [*]

 6.  SAE reports [*]
       - [*] SAE reports from [*]
       - [*]

 7.  Investigator's files [*]
       - [*]
       - [*]

 8.  Existing [*] Reports

 9.  [*] reports
       -  [*]
       -  [*]

10.  Clinical investigator brochure

11.  [*] systems data
       -  [*]

12.  CRFs [*]
       -  [*]
       -  [*]
       -  [*]

13.  Copies of [*] contract for [*] study

[*]
[*]
1.  Copies of manufacturing [*] for [*]
2.  Copies of manufacturing [*] for [*]
3.  CT File Folder Transfer Form [*]
4.  Bulk CT Material Manufacturing Review Form [*]
5.  Lot history [*]

<PAGE>

 6.  Batch record for API
 7.  Certificate of Analysis for API
 8.  QA release documents for API [*]
 9.  Analytical Methods for API [*]
10.  [*] stability information [*]
11.  [*] summaries
12.  Existing process hazard data
13.  Certificate of Analysis [*]

     Lometrexol

       [*]

Screen prints of [*] pages [*]

       Project          Investigator          Patient          Visits
       -------          ------------          -------          ------
         [*]                [*]                 [*]              [*]

Data printed and binder prepared by [*].

<PAGE>

                                   Exhibit C

                               Product Inventory

                                     [ * ]


[ * ]=Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>

EXHIBIT D

tion, nor extends any warranty, express or implied that anything made, used,
sold or otherwise disposed of under this Agreement by LILLY or its sublicensees
is now or hereafter will be free from infringement of patents of third parties.

11.  Enforcement
     -----------

     11.1  Decisions concerning the enforcement of any patent covering Licensed
Products shall be made solely by PRINCETON.

     11.2  In the event LILLY shall bring to the attention of PRINCETON any
infringement of any patent covering Licensed Products and PRINCETON shall not,
within six months

            (i)  secure cessation of the infringement, or

           (ii)  enter suit against the infringer, LILLY, shall have the right
and power to institute and prosecute, at its own expense, a suit with respect to
such infringement and if required by law, PRINCETON will join as party plaintiff
in such suit. All expenses in such suits shall be borne entirely by LILLY and
LILLY will pay to PRINCETON a royalty of [*] on any excess of recoveries over
expenses of such suit.

12.  Term of License and Termination of Agreement
     --------------------------------------------

     12.1  The License granted under this Agreement shall remain in full force
and effect until the earliest of (i) termination or cancellation as herein
provided; (ii) failure by