AMENDED AND RESTATED COLLABORATION AND LICENSE AGREEMENT

Collaboration Agreement

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LEXICON GENETICS INC/TX

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Title: AMENDED AND RESTATED COLLABORATION AND LICENSE AGREEMENT
Governing Law: California Date: 3/12/2004
Industry: Biotechnology and Drugs Sector: Healthcare

AMENDED AND RESTATED

COLLABORATION AND LICENSE AGREEMENT
, Parties: lexicon genetics inc/tx

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EXHIBIT 10.14

Confidential materials omitted and filed separately with the Securities and

Exchange Commission. Asterisks denote omissions.

AMENDED AND RESTATED

COLLABORATION AND LICENSE AGREEMENT

This Amended and Restated Collaboration and License Agreement (the

"Agreement") is executed as of the 19 day of November, 2003 and made effective

as of the 17 day of December, 2002 (the "Effective Date") between Genentech,

Inc., a Delaware corporation having its principal place of business at 1 DNA

Way, South San Francisco, California 94080 ("Genentech"), and Lexicon Genetics

Incorporated, a Delaware corporation having its principal place of business at

8800 Technology Forest Place, The Woodlands, TX 77381-1160 ("Lexicon"). The

Agreement amends and restates that certain Collaboration and License Agreement

between Genentech and Lexicon dated as of December 17, 2002 (the "Original

Agreement"). Throughout the Agreement, Genentech and Lexicon are sometimes

referred to individually as a "Party" and collectively as "Parties."

RECITALS

WHEREAS, Genentech is in the business of using human genetic

information to discover, develop, manufacture and market pharmaceutical

products; and

WHEREAS, Lexicon possesses certain knowledge and experience in the

design, generation, and phenotypic analysis of Knock-Out Mice and ES Cell Lines;

and

WHEREAS, Genentech desires, on the terms and conditions contained

herein, for Lexicon to generate Knock-Out Mice and ES Cell Lines for Genentech

based on human gene sequences provided by Genentech and then to analyze such

Knock-Out Mice and ES Cell Lines, and Lexicon desires, on the terms and

conditions, and for the consideration, contained herein, to undertake such

activities; and

NOW THEREFORE, in consideration of the foregoing premises and the

mutual covenants contained in this Agreement, the Parties agree as follows:

ARTICLE 1

DEFINITIONS

Terms defined in this Article 1 and parenthetically elsewhere, including in the

introductory paragraph and recitals, will have the same meaning throughout this

Agreement, unless otherwise specified. Defined terms are capitalized and may be

used in the singular or plural.

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1.1 "ACADEMIC COLLABORATOR" means a principal investigator, employed at a

university or other not-for-profit academic research institution that has

entered into a material transfer agreement with Genentech pursuant to Section

5.10, who is performing collaborative research with Genentech involving use of a

Knock-Out Mouse or Progeny.

1.2 "ACTUAL KNOWLEDGE" of a Party means [**].

1.3 "AFFILIATE" of a Party means any person or corporation, joint venture,

or other business entity which directly (or indirectly through one or more

intermediaries) controls, is controlled by, or is under common control with such

Party, as the case may be. For purposes of this definition only, the terms

"controls," "controlled," and "control" mean the direct or indirect ability or

power to direct or cause the direction of the management and policies of an

entity or otherwise direct the affairs of such entity, whether through ownership

of equity, voting securities, or beneficial interest, by contract, or otherwise.

Notwithstanding the foregoing, F. Hoffmann-La Roche Ltd and its affiliates shall

not be considered Affiliates of Genentech for purposes of this Agreement.

1.4 "APPLICABLE LAWS" means all applicable statutes, ordinances,

regulations, rules, or orders of any kind whatsoever of any government authority

or court of competent jurisdiction.

1.5 "BLA" means a Biologics License Application filed with the FDA in the

United States or a corresponding application filed with a governmental authority

in any other country, together with all additions, deletions and supplements

thereto.

1.6 "CALENDAR QUARTER" means a period of three (3) consecutive calendar

months ending on either March 31, June 30, September 30, or December 31.

1.7 "CALENDAR YEAR" means the respective period of a year commencing on

January 1 and ending on December 31.

1.8 "COMMERCIALLY REASONABLE EFFORTS" or "commercially reasonable efforts"

means [**]. With regard to the creation and generation of Knock-Out Mice for a

Project, such efforts shall be deemed to have been exhausted if Lexicon has

[**].

1.9 "CONFIDENTIAL INFORMATION" means Lexicon Confidential Information,

Project Confidential Information and/or Genentech Confidential Information, as

applicable.

1.10 "CONTRACT SERVICE PROVIDER" means [**].

1.11 "DERIVATIVE PROTEIN" means [**].

1.12 "DOLLARS" means United States dollars.

1.13 "EFFECTIVE DATE" has the meaning set forth in the introductory

paragraph of the Agreement.

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1.14 "ES CELL LINE" means the embryonic stem cell line used to produce a

line of Knock-Out Mice containing within their genome the corresponding mutated

gene. [**]

1.15 "FDA" means the U.S. Food and Drug Administration or corresponding

governmental authority in another country.

1.16 "FIELD" means any human or animal healthcare applications including,

without limitation, the diagnosis, prevention and treatment of diseases or

conditions.

1.17 "FIRST PASS PHENOTYPIC ANALYSIS" means the tests, observations, and

analyses listed on Exhibit A that Lexicon will use Commercially Reasonable

Efforts to perform, under Section 3.3, on the Knock-Out Mice of each Project.

1.18 "FORCE MAJEURE" means acts of God, strikes, civil disturbances,

earthquakes, fires, floods, explosions, riots, war, rebellion, sabotage, acts or

failure to act of governmental authority, or any other cause beyond the

reasonable control and without negligence of the defaulting Party, provided that

the Party claiming force majeure has exerted all reasonable efforts to promptly

remedy such force majeure.

1.19 "GAAP" shall mean United States generally accepted accounting

principles, consistently applied.

1.20 "GENENTECH CONFIDENTIAL INFORMATION" means all proprietary discoveries,

trade secrets, inventions (whether or not patentable), data, materials and

information disclosed or provided by, or on behalf of, Genentech to Lexicon or

its designees in connection with this Agreement (including, but not limited to,

Genentech Gene Patents and Know-How) other than Project Confidential

Information, whether provided prior to, or after, the Effective Date and whether

provided orally, electronically, visually, or in writing, except such

discoveries, trade secrets, inventions, data, materials or information that

Lexicon can demonstrate, through its contemporaneous written records:

(i) was known to Lexicon or to the public prior to Genentech's

disclosure hereunder;

(ii) became known to the public, after Genentech's disclosure

hereunder, other than through an unauthorized act of Lexicon

or of any person to whom Lexicon disclosed such information;

(iii) was subsequently disclosed to Lexicon by a person having

lawful possession of, and a legal right to disclose without

any restrictions, such information; or

(iv) was developed by Lexicon without use, and independent, of

Genentech Confidential Information.

1.21 "GENENTECH GENE PATENTS AND KNOW HOW" means (i) all Patents which are

owned, controlled or licensed by Genentech as of the Effective Date or which are

created

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or acquired by Genentech during the course of this Agreement and which claim a

Project Gene, polypeptides encoded by such genes and/or antibodies directed

toward such polypeptides and/or methods of treatment employing such genes,

polypeptides and/or antibodies (also referred to herein as a "Genentech Gene

Patent") and (ii) all Know-How which is owned, controlled or licensed by

Genentech as of the Effective Date or which is created or acquired by Genentech

during the course of this Agreement which relates to any of the Project Genes

(also referred to herein as "Genentech Gene Know-How"); provided that Genentech

Gene Patents and Know-How shall not include Project Patents and Know-How. [**]

1.22 "GROSS SALES" means, with respect to a Licensed Product, the gross

amount invoiced by Genentech, its Affiliates and Product Licensees, as

applicable, for sales of such Licensed Product to Third Persons.

1.23 "IND" means an Investigational New Drug Application filed with the FDA

in the United States, or a corresponding application filed with a regulatory

agency in any other country, together with all additions, deletions, and

supplements thereto.

1.24 "KNOCK-OUT MOUSE" means a mouse made by Lexicon pursuant to this

Agreement in which Lexicon has interrupted, disrupted, or deleted a specific

gene or portion thereof, homologous to a Project Gene, to inactivate the

function of such gene in such mouse.

1.25 "KNOW-HOW" means all proprietary information, trade secrets, techniques

and data (including Confidential Information) of a Party that are owned,

controlled or licensed by such a Party as of the Effective Date or thereafter

during the term of this Agreement, including but not limited to, discoveries,

formulae, materials, practices, methods, knowledge, processes, experience, test

data (including pharmacological, toxicological and clinical information and test

data), analytical and quality control data, marketing, pricing, distribution,

cost and sales data or descriptions. Know-How may be made prior to the Effective

Date or after the Effective Date whether or not during the course of, in

furtherance of, and as a direct result of the activities of one or more Parties

hereunder. Know-How may be made by employees of Lexicon, solely or jointly with

a Third Person, by employees of Genentech, solely or jointly with a Third

Person, or jointly by employees of Lexicon and Genentech, alone or together with

a Third Person. Know-How does not include Patents.

1.26 "LEXICON CONFIDENTIAL INFORMATION" means all proprietary discoveries,

trade secrets, inventions (whether or not patentable), data, materials, and

information disclosed or provided by, or on behalf of, Lexicon to Genentech or

its designees in connection with this Agreement (including, but not limited to,

Lexicon Knock-Out Technology), other than Project Confidential Information,

whether provided prior to, or after, the Effective Date and whether provided

orally, electronically, visually, or in writing, except such discoveries, trade

secrets, inventions, materials, data, or information that Genentech can

demonstrate, through its contemporaneous written records:

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(i) was known to Genentech or to the public prior to Lexicon's

disclosure hereunder;

(ii) became known to the public, after Lexicon's disclosure

hereunder, other than through an unauthorized act of Genentech

or of any person to whom Genentech disclosed such information;

(iii) was subsequently disclosed to Genentech by a person having

lawful possession of, and a legal right to disclose without

any restrictions, such information; or

(iv) was developed by Genentech without use, and independent, of

Lexicon Confidential Information.

1.27 "LEXICON KNOCK-OUT TECHNOLOGY" means all Patents and Know How which are

(i) owned, controlled or licensed by Lexicon as of the Effective Date or created

or acquired by Lexicon during the course of this Agreement and (ii) related to a

process or method used in the creation or generation of Knock-Out or transgenic

mice, including the process for creating Knock-Out Mice [**]. "Lexicon Knock-out

Technology" shall also include (A) the Know-How consisting of the Knock-Out Mice

[**]; the Know-How consisting of ES Cell Lines; and the Know-How consisting of

biological materials (such as nucleic acid sequences, RNA, DNA, organisms,

proteins, polypeptides, plasmids and vectors) used for the creation of such

Knock-Out Mice [**], but not the Know-How related to the biological materials

and/or sequence information provided by Genentech to Lexicon or known to

Genentech (as evidenced by written records) prior to the Effective Date; and (B)

Patents claiming such Know How. [**]

1.28 "LEXICON PRE-EXISTING PATENTS AND KNOW-HOW" means all Patents ("Lexicon

Pre-Existing Patents") and Know-How ("Lexicon Pre-Existing Know-How") which are

(i) owned, controlled or licensed by Lexicon as of the Effective Date, or

involve a Project Gene for which Lexicon [**] and (ii) related to a Pre-Existing

Project, a Project Gene, a Protein Candidate or a Licensed Product, provided in

each case that Lexicon Pre-Existing Patents and Know-How shall not include (a)

Lexicon Knock-Out Technology, (b) Genentech Gene Patents and Know How, (c)

Project Patents and Know How, (d) Restricted Rights Project Patents and

Know-How, (e) general Patents that cover inventions that could be used for

products other than products under which Genentech has a license pursuant to

Article 5, including, without limitation, Patents covering manufacturing or

process inventions, or (f) that portion of any such Patent or Know-How which is

beyond the scope of the work performed by Lexicon for Projects other than

Pre-Existing Projects.

1.29 "LICENSED PRODUCT" means a pharmaceutical preparation other than a

Small Molecule Drug that is ready for administration to the ultimate consumer

and that (i) contains as the active pharmaceutical ingredient a Protein

Candidate or (ii) that directly modulates a Protein Candidate, or the gene that

encodes a Protein Candidate.

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1.30 "NDA" means a New Drug Application filed with the FDA in the United

States, or a corresponding application filed with a regulatory agency in any

other country, together with all additions, deletions, and supplements thereto.

1.31 "NET SALES" means, with respect to a Licensed Product, Gross Sales of

such Licensed Product less Sales Returns and Allowances for such Licensed

Product.

1.32 "NOTE AGREEMENT" shall have the meaning set forth in Section 7.14.

1.33 [**]

1.34 [**]

1.35 "PATENT" means:

(i) a U.S. and corresponding foreign patent application (including

provisional application, division, refiling, continuation,

continuation-in-part, reissue and re-examination thereof); and

(ii) any patent (including without limitation, any substitution,

extension, reissue, renewal, re-examination, patent of

addition, supplementary protection certificate and inventors'

certificate) that has issued or may issue in the future from

any patent application described in Subsection (i).

1.36 "PHASE III CLINICAL TRIAL" means, as to a specific Licensed Product, a

controlled and lawful study in humans of the efficacy and safety of such

Licensed Product, which is prospectively designed to demonstrate statistically

whether such Licensed Product is effective and safe for use in a particular

indication in a manner sufficient to file a BLA or NDA to obtain regulatory

approval to market and sell that Licensed Product in the United States or

another country for the indication being investigated by the study, as further

defined in Federal Regulation 21 C.F.R. 312.21.

1.37 "PIPELINE PROJECT" means a Project involving a Project Gene for which

Lexicon [**].

1.38 "PRE-EXISTING PROJECT" means a Pipeline Project involving a Project

Gene for which Lexicon [**].

1.39 "PRODUCT LICENSEE" means any Third Person which enters into an

agreement with Genentech or its Affiliates involving the grant to such Third

Person of a license to sell a Licensed Product.

1.40 "PROGENY" means mice, including successive generations thereof, that

are produced or developed by Genentech, its Affiliates or Academic Collaborators

by breeding a Knock-Out Mouse with any other mouse (including, without

limitation, any other Knock-Out Mouse).

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1.41 "PROJECT" has the meaning set forth in Section 3.1(e).

1.42 "PROJECT CONFIDENTIAL INFORMATION" means all discoveries, trade

secrets, inventions (whether or not patentable), data, materials, and

information created by either Party, or created jointly by both Parties, in

connection with this Agreement (including, but not limited to, Project Patents

and Project Know How) and that are created during the course of performing the

activities contemplated by this Agreement, and whether provided orally,

electronically, visually or in writing, except such discoveries, trade secrets,

inventions, materials, data, or information that a Party can demonstrate,

through its contemporaneous written records:

(i) was known to such Party or to the public prior to its creation

hereunder;

(ii) became known to the public, after its creation hereunder,

other than through an unauthorized act of such Party or of any

person to whom such Party disclosed such information;

(iii) was subsequently disclosed to such Party by a person having

lawful possession of, and a legal right to disclose without

any restrictions, such information; or

(iv) was developed by such Party without use, and independent, of

the Project Confidential Information.

1.43 "PROJECT GENE" has the meaning set forth in Section 3.1(e); provided

that a Rejected Proposed Gene shall not be a Project Gene.

1.44 "PROJECT MATERIALS" means, with respect to a Project, [**].

1.45 "PROJECT PATENTS AND KNOW-HOW" means all Patents (also referred to

herein as "Project Patents") and Know How (also referred to herein as "Project

Know How") (i) created or acquired by either Party during the course of and in

connection with this Agreement and (ii) which are based upon data and other

information reviewed by the Steering Committee related to a Project Gene or

Protein Candidate; provided in each case that Project Patents and Know How shall

not include (A) Lexicon Knock-Out Technology, (B) Genentech Gene Patents and

Know-How, (C) Lexicon Pre-Existing Patents and Know-How, (D) Restricted Rights

Project Patents and Know-How, (E) general Patents that cover inventions that

could be used for products other than a Licensed Product, including, without

limitation, Patents covering manufacturing or process inventions, or (F) any

Patent or Know-How arising from work performed not in relation to this

Agreement. [**].

1.46 "PROPOSED GENE" means a human gene sequence proposed by Genentech under

Section 3.1(a), (i) that Genentech believes is the full-length gene sequence for

a Protein and (ii) for which a patent application owned or controlled by

Genentech has been filed

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claiming such full-length human gene sequence and the Protein believed to be

produced by such gene.

1.47 "PROTEIN" means [**].

1.48 "PROTEIN CANDIDATE" has the meaning set forth in Section 3.5, and shall

include Derivative Proteins.

1.49 "REGULATORY APPROVAL" means any and all approvals (including pricing

and reimbursement approvals), licenses, registrations or authorizations of any

kind of the FDA (or foreign equivalent) necessary for the marketing and sale of

a Licensed Product in any country or other regulatory jurisdiction. "Regulatory

Approval" shall include, without limitation, approval granted with respect to

any BLA, NDA or other foreign equivalent.

1.50 "REJECTED PROJECT GENE" means a Project Gene whose Protein is not

designated as a Protein Candidate under Section 3.5(c).

1.51 "REJECTED PROPOSED GENE" means a Proposed Gene (i) that is rejected

under Section 3.1(b), (c) or (d), (ii) that is removed from the collaboration

under Section 3.1(f), (iii) that is deemed a Rejected Gene pursuant to Section

3.2(a), (iv) for which the Steering Committee does not vote, under Section

3.2(b), to proceed or (v) that is designated a Rejected Proposed Gene under

Section 3.3(a).

1.52 "RESTRICTED RIGHTS PROJECT" means a Project involving a Project Gene

[**].

1.53 "RESTRICTED RIGHTS PROJECT PATENTS AND KNOW-HOW" means all Patents

(also referred to herein as "Restricted Rights Project Patents") and Know How

(also referred to herein as "Restricted Rights Project Know How") which are (i)

owned, controlled or licensed by Lexicon as of the Effective Date or created or

acquired by Lexicon during the course of and in connection with this Agreement

and (ii) which are based upon data and other information reviewed by the

Steering Committee related to a Project Gene or Protein Candidate in connection

with a Restricted Rights Project; provided in each case that Restricted Rights

Project Patents and Know How shall not include (A) Lexicon Knock-Out Technology,

(B) Genentech Gene Patents and Know-How, (C) general Patents that cover

inventions that could be used for products other than a Licensed Product,

including, without limitation, Patents covering manufacturing or process

inventions, or (D) any Patent claims or Know-How arising from work performed not

in relation to this Agreement.

1.54 "SALES RETURNS AND ALLOWANCES" means, with respect to a Licensed

Product, the sum of (a) and (b), where: (a) is a provision, [**] for sales of

such Licensed Product under GAAP as provided hereinabove for (i) cash and

quantity discounts or rebates on such Licensed Product (other than price

discounts granted at the time of invoicing and which are included in the

determination of Gross Sales), (ii) credits or allowances given

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or made for rejection or return of previously sold Licensed Product or for

retroactive price reductions (including Medicare and similar types of rebates

and chargebacks), (iii) sales taxes, duties or other governmental charges levied

on or measured by the billing amount for such Licensed Product, as adjusted for

rebates and refunds, (iv) charges for freight and insurance directly related to

the distribution of such Licensed Product, to the extent included in the invoice

to the customer, and (v) credits for allowances given or made for wastage

replacement, indigent patient and any other sales programs agreed to by the

Parties for such Licensed Product; and (b) is a periodic adjustment of the

provision determined in (a) to reflect amounts actually incurred by Genentech,

its Affiliates and Product Licensees, as applicable, for items (i), (ii), (iii),

(iv) and (v) in clause (a).

1.55 "SMALL MOLECULE DRUG" means any pharmaceutical compound for the

treatment of any human or animal disease or condition, the active ingredient of

which is a synthetically prepared, or a naturally derived chemical compound

[**]; provided, however, that "Small Molecule Drug" specifically excludes any

compound which consists of or incorporates as an active ingredient a Protein, a

Derivative Protein, a nucleic acid oligomer, or an antibody or any fragment

thereof.

1.56 "STEERING COMMITTEE" means the committee established and described in

Article 2.

1.57 "THIRD PERSON" means any person or entity other than Lexicon, Genentech

or any Affiliate of Lexicon or Genentech.

ARTICLE 2

GOVERNANCE OF RESEARCH

2.1 CREATION OF A STEERING COMMITTEE. Within [**] of the Effective Date,

the Parties shall establish a Steering Committee to oversee the Parties'

activities under Article 3 of this Agreement. The Steering Committee shall be

comprised of [**], but each Party may change its Steering Committee members at

any time by giving prior written notice to the other Party.

2.2 STEERING COMMITTEE RESPONSIBILITIES. The Steering Committee shall have

the following responsibilities, as well as any additional responsibilities

expressly set forth in this Agreement:

(i) receiving and reviewing reports and data received from a Party

from time to time as set forth herein, including without

limitation the submission of Proposed Genes, data related to

the murine homology of Proposed Genes, results of the First

Pass Phenotypic Analysis and [**];

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(ii) receiving notices from the Parties as set forth herein,

including without limitation notices of delays or stalled

research pursuant to Section 3.3(a);

(iii) the designation of Project Genes and Protein Candidates under

Sections 3.1 and 3.5, respectively;

(iv) coordinating the activities of the Parties hereunder;

(v) developing and implementing a publicity strategy and policy

for the review and approval of press releases and publications

in accordance with Section 9.4;

(vi) settling disputes or disagreements that arise between the

parties as set forth in Article 13; and

(vii) performing such other functions as appropriate to further the

purposes of this Agreement, as determined by the Parties.

2.3 STEERING COMMITTEE DECISIONS. All Steering Committee decisions will be

made by [**] of all the Steering Committee's members, except as expressly stated

otherwise in this Agreement. Each Steering Committee member will have one vote,

and a Steering Committee member need not be present in order to vote; the

Steering Committee member(s) of a Party that are present for, or participating

in, a decision shall have the authority to vote on behalf of the Steering

Committee member(s) of such Party who are not present for, or participating in,

such decision.

2.4 STEERING COMMITTEE MEETINGS. Within [**] after the Effective Date, the

Steering Committee will hold an in-person organizational meeting to establish

the Committee's operating procedures. After such initial meeting, the Steering

Committee will meet at such other times as are unanimously agreed to by the

Steering Committee members, but no less than once each Calendar Quarter. Such

meetings may be in-person, via videoconference, or via teleconference, provided

that at least one meeting per Calendar Year shall be held in person. The

location of in-person Steering Committee meetings will alternate between South

San Francisco, California and The Woodlands, Texas. Each Party will bear the

expense of its respective Committee members' participation in Steering Committee

meetings. Minutes will be kept of all Steering Committee meetings.

Responsibility for keeping minutes will alternate between the Parties, beginning

with Genentech. Meeting minutes will be sent to each member of the Steering

Committee for review as soon as practicable after a meeting.

2.5 DISSOLUTION OF THE STEERING COMMITTEE. Upon the expiration of [**]

after all of the activities of Lexicon that have been approved by the Steering

Committee have been completed, the Steering Committee will have no further

responsibilities or authority under this Agreement and will be considered

dissolved by the Parties.

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ARTICLE 3

KNOCK-OUT MICE PROJECTS

3.1 GENENTECH SUBMISSION OF PROPOSED GENES.

(a) Initial Submission of Proposed Genes. Genentech, within [**],

will provide the Steering Committee with a written list of [**] Proposed Genes,

together with the date of Genentech's initial Patent filing with regard to each

such Proposed Gene.

(b) Delivery of Notice by Lexicon. Within [**] of the delivery by

Genentech of the list of Proposed Genes (or, with respect to replacement

Proposed Genes proposed by Genentech under Section 3.1(b), (c) or (f) or Section

3.2(a), within [**] of the delivery by Genentech of notice to the Steering

Committee of such replacement), Lexicon will notify the Steering Committee in

writing as to whether or not: (i) to Lexicon's Actual Knowledge, Lexicon's

conducting the activities contemplated by this Agreement with regard to such

Proposed Gene would infringe patents or other intellectual property rights under

which Lexicon is not licensed through this Agreement or otherwise; or (ii) [**].

If so, Lexicon shall additionally notify Genentech which Proposed Gene(s) are

the subject of such patents or intellectual property rights [**].

Replacement Proposed Genes by Genentech. Lexicon shall not be obligated to

develop, produce or deliver a Knock-Out Mouse related to a Proposed Gene where

Lexicon reasonably believes, with the advice of its counsel and the Steering

Committee, that such action would infringe the intellectual property rights of a

Third Person. Such Proposed Gene shall become a Rejected Proposed Gene and the

Steering Committee shall adopt an acceptable solution including, but not limited

to, the identification by Genentech of an alternative Proposed Gene. Lexicon

shall further have the sole right, but not the obligation, to reject any

Proposed Gene for which Lexicon reasonably believes, with the advice of its

counsel and the Steering Committee, that Genentech was not the first to file a

patent application, but only in cases where the Steering Committee reasonably

believes [**], by notice to the Steering Committee within the period specified

in Section 3.1(b), in which case Lexicon shall have the right to designate such

Proposed Gene as a Rejected Proposed Gene. In such event, Genentech shall have

the sole right, but not the obligation, to propose another Proposed Gene in the

place of such Rejected Proposed Gene for the Steering Committee's review and

approval, by notice to the Steering Committee within [**] of Lexicon's notice.

(d) Removal of Proposed Genes by Genentech. Within [**] of

Genentech's receipt of Lexicon's notice under Section 3.1(b), Genentech shall

inform Lexicon which, if any, of the Proposed Genes referenced in Lexicon's

notice (and not automatically deemed a Rejected Proposed Gene under Section

3.1(b)) Genentech elects to remove from the collaboration and, thereafter, all

such removed Proposed Genes shall constitute Rejected Proposed Genes. Genentech

shall have no right to propose a replacement

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Proposed Gene for any Proposed Gene that it elects to remove from the

collaboration under this Section 3.1(d).

(e) Designation of Project Genes. Following Genentech's notice

pursuant to Section 3.1(d), the remaining Proposed Genes shall constitute

"Project Genes" (and the work performed hereunder with regard to such Project

Gene shall be deemed a corresponding "Project"), and be deemed to be submitted

to the collaboration for Lexicon to begin determining, as fully described in

Section 3.2(a), the murine gene that is homologous to each such Project Gene.

Except as set forth in this Section 3.1, Lexicon, acting through the Steering

Committee or otherwise, shall not have the ability to prevent the submission of

a Project Gene to the collaboration for Lexicon to conduct its activities under

Section 3.2(a) regarding such Project Gene. [**] following each designation of

Proposed Genes as Project Genes hereunder, Lexicon shall provide Genentech with

a list of the Projects, if any, that are Pipeline Projects and/or Pre-Existing

Projects, and the stage of each such Pipeline Project or Pre-Existing Project,

as the case may be.

(f) Removal and Replacement of Project Genes by Genentech. At any

time prior to [**], Genentech shall have the sole right, but not the obligation,

to remove such Project Gene and/or propose another Proposed Gene for the

Steering Committee's review and approval, by delivering notice thereof to the

Steering Committee; provided, however, that Genentech shall not be permitted to

remove more than [**] Project Genes pursuant to this Section 3.1(f); and

provided, further, that Genentech shall reimburse Lexicon for all reasonable

costs and expenses, including allocable overhead, incurred by Lexicon under this

Agreement prior to the date of Genentech's notice under this subsection 3.1(f)

in respect of the Project Gene being removed (for purposes of which, "allocable

overhead" shall mean [**]. Any such removed Project Gene shall be considered a

Rejected Proposed Gene for purposes of this Agreement.

3.2 LEXICON IDENTIFICATION OF HOMOLOGOUS MURINE GENE; STEERING COMMITTEE

REVIEW AND APPROVAL OF PROJECTS.

(a) Lexicon Efforts to Determine Homologous Murine Gene. For each

Project Gene submitted to the collaboration under Section 3.1(e), Lexicon will

use Commercially Reasonable Efforts to identify the homologous murine gene as

soon as practicable, and in any event within [**], after such Project Gene was

submitted to it, and will provide Genentech with [**] reports regarding its

efforts. To identify the homologous murine gene, Lexicon will use its standard

resources and, if applicable, [**]. Upon identifying what it believes to be the

homologous murine gene(s) for a Project Gene, Lexicon will provide the Steering

Committee with written evidence of such gene's (or, if applicable, genes')

homology. If Lexicon is unable to identify a homologous murine gene for a

Project Gene, Lexicon will report all of the results related to such Project

Gene obtained during the course of its search to the Steering Committee as well,

and such Project Gene shall thereafter be deemed a Rejected Proposed Gene under

this Agreement. Genentech shall have the sole right, but not the obligation, to

propose another Proposed Gene in the place of such Rejected Proposed Gene for

the Steering

<PAGE>

Committee's review and approval, by notice to the Steering Committee within [**]

of Lexicon's report of its failure to identify a homologous murine gene.

(b) Steering Committee Review and Approval of Projects. The

Steering Committee will review the information provided by Lexicon under

Sections 3.2(a) with respect to a Project Gene and will confirm that Lexicon has

identified the homologous murine gene, and therefore to proceed with such

Project Gene under Section 3.3 hereof. If the Steering Committee determines that

Lexicon has not identified a homologous murine gene for a Project Gene, such

Project Gene shall thereafter be deemed a Rejected Proposed Gene under this

Agreement.

the information contemplated by Section 3.2(a), Lexicon will provide the

Steering Committee (i) for Pipeline Projects, information (as set forth in

Exhibit A) [**], and (ii) for Projects other than Pipeline Projects, [**].

3.3 LEXICON'S CREATION AND TESTING OF KNOCK-OUT MICE AND ES CELL LINES.

(a) Activities Performed by Lexicon. Once the Steering Committee

approves proceeding with a Project Gene under Section 3.2(b), Lexicon, in

accordance with the recommendation from Genentech as to desired priority, will,

at Lexicon's sole expense, use Commercially Reasonable Efforts to perform the

following activities on such Project: (i) create and generate, [**] Knock-Out

Mice using the Project Gene's homologous murine gene; (ii) conduct a First Pass

Phenotypic Analysis of such Knock-Out Mice; and (iii) [**]. Lexicon agrees to

use Commercially Reasonable Efforts to perform and complete such activities on a

Project within [**] after the approval of a Project Gene by the Steering

Committee under Section 3.2(b). If a Project is delayed or stalled due to

technological or scientific difficulties, Lexicon will so notify Genentech and

the Steering Committee. The Parties will consult with each other to determine

whether such difficulties can be resolved or remedied. The Steering Committee

shall decide, based on input from Lexicon, whether such Project's problems can

be remedied within the scope of commercially reasonable efforts for such Project

or whether to terminate such Project and designate such Project Gene a Rejected

Proposed Gene. Genentech shall have the right to terminate this Agreement under

certain circumstances, as set forth in Section 10.2.

(b) Reports; Consultation and Site Visits. Within [**] after the

end of [**], Lexicon will provide each Steering Committee member with a written

report describing the status of its work on each Project, and, [**], Lexicon

will provide a Genentech Steering Committee member with the same [**] report

generated for Lexicon's internal purposes. Upon reasonable advance written

notice from the Steering Committee or Genentech, Lexicon will make persons

working on its behalf on a Project available during normal business hours for a

reasonable number of consultations with the Steering Committee or Genentech

regarding such Project. Such consultations will either be in-person at such

person's place of employment or via videoconference or teleconference. Upon

reasonable notice, Genentech representatives may visit during normal business

<PAGE>

hours the facilities where Lexicon is performing services on Projects. All

Genentech representatives will be advised of, and be bound by, Genentech's

confidentiality obligations in Article 9 and will follow such security and

facility access procedures as are reasonably designated by Lexicon. Lexicon may

require that at all times the Genentech representatives be accompanied by a

Lexicon representative.

3.4 SAFEGUARDS TO PROTECT CONFIDENTIALITY OF PROJECTS.

(a) Lexicon hereby agrees that each person working on a Project on

its behalf (whether as an employee, subcontractor, or otherwise) has or will,

prior to commencing work on a Project, have executed an instrument:

(i) assigning to Lexicon all of his, her, or its rights, title,

and interest in inventions or intellectual property arising

during the course, and as a result, of his, her, or its

association with Lexicon; and

(ii) agreeing to abide by confidentiality and non-use restrictions

regarding Confidential Information and the existence and terms

of this Agreement no less stringent than Lexicon's

confidentiality and non-use obligations under Article 9.

Lexicon also agrees to maintain appropriate security measures no less stringent

than measures that are customary in the industry.

(b) Genentech hereby agrees that each person working on a Project

on its behalf (whether as an employee, subcontractor, or otherwise) has or will,

prior to commencing work on a Project, have executed an instrument:

(i) assigning to Genentech all of his, her, or its rights, title,

and interest in inventions or intellectual property arising

during the course, and as a result, of his, her, or its

association with Genentech; and

(ii) agreeing to abide by confidentiality and non-use restrictions

regarding Confidential Information and the existence and terms

of this Agreement no less stringent than Genentech's

confidentiality and non-use obligations under Article 9.

Genentech also agrees to maintain appropriate security measures no less

stringent than measures that are customary in the industry.

3.5 REVIEW OF FIRST PASS PHENOTYPIC ANALYSIS; DESIGNATION OF PROTEIN

CANDIDATES.

(a) Review of First Pass Phenotypic Analysis. Once Lexicon

completes the First Pass Phenotypic Analysis on each of the Project Genes, it

will submit to Genentech, through the Steering Committee, the data from such

Projects. After reviewing this information from a Project, the Steering

Committee will determine by [**], within [**]

<PAGE>

following the submission of the First Pass Phenotypic Analysis on such Project,

whether Lexicon has [**] for such Project Gene.

(b) Designation of Protein Candidates. The Protein produced by

each such Project Gene for which the Steering Committee [**] votes that Lexicon

has [**] shall be designated as a "Protein Candidate." In the event that the

Steering Committee designates [**] Proteins produced by Project Genes as Protein

Candidates, then Lexicon shall have the right to designate an additional number

of Proteins produced by Project Genes as Protein Candidates, so that there are a

total of [**]; provided that Lexicon shall make such designations no later than

[**] following the submission to the Steering Committee of the last First Pass

Phenotypic Analysis to be submitted under this Agreement. Genentech shall have

the rights and obligations set forth in Article 4 and 6 with regard to such

Protein Candidates.

of which has not been designated as a Protein Candidate pursuant to subsection

(b) above, shall be deemed a Rejected Project Gene for purposes of this

Agreement. Genentech shall have the rights and obligations set forth in Articles

5 and 6 with regard to such Rejected Project Genes.

3.6 [**]

ARTICLE 4

LICENSED PRODUCTS

4.1 GENENTECH'S EXCLUSIVE RIGHT TO DEVELOP AND COMMERCIALIZE LICENSED

PRODUCTS. Genentech shall have the sole right and responsibility for, and

control over, developing and commercializing Licensed Products; provided,

however, that with regard to Restricted Rights Projects, nothing in this Section

will be deemed to grant Genentech rights beyond the scope of the licenses

granted to Genentech (or limit the rights of Lexicon, its collaborators or

licensees) with regard to such Restricted Rights Project.

4.2 TRANSFER TO GENENTECH OF LEXICON PRE-EXISTING KNOW-HOW AND PROJECT

KNOW-HOW RELATED TO PROTEIN Candidates. Within [**] after designation of a

Protein Candidate pursuant to Section 3.5, Lexicon will provide Genentech, to

the extent not previously provided, with a copy of all Lexicon Pre-Existing

Know-How, Project Know-How and Restricted Rights Know-How related to such

Protein Candidate in Lexicon's possession or control.

4.3 GENENTECH RESPONSIBLE FOR DEVELOPMENT COSTS. Genentech shall bear

all costs and expenses associated with, and shall have sole control over,

developing and commercializing Licensed Products.

<PAGE>

4.4 PRODUCT LICENSEES. Genentech agrees to notify Lexicon promptly of any

(sub)license that it enters into with a Product Licensee, and Genentech further

covenants that any such (sub)licence shall contain terms and conditions

consistent with Genentech's obligations under this Agreement.

ARTICLE 5

GRANT OF LICENSE RIGHTS

5.1 EXCLUSIVE LICENSE UNDER LEXICON PRE-EXISTING PATENTS AND KNOW-HOW AND

RESTRICTED RIGHTS PROJECT PATENTS AND KNOW-HOW FOR THE RESEARCH, DEVELOPMENT AND

COMMERCIALIZATION OF LICENSED PRODUCTS. Subject to the terms of this Agreement,

Lexicon hereby grants to Genentech (i) an exclusive (even as to Lexicon),

world-wide right and license under the Lexicon Pre-Existing Patents and Know-How

and (ii), to the extent specified in the Parties' designation(s) of Restricted

Rights Project(s), an exclusive (even as to Lexicon) or non-exclusive,

world-wide right and license under the Restricted Rights Project Patents and

Know-How, in each case to research, develop, make (or have made), use, sell,

offer for sale, and import Licensed Products in the Field. Such license includes

the right to grant sublicenses of all or part of such rights without Lexicon's

consent; provided that the grant of any such sublicense shall be consistent with

the terms and conditions of this Agreement and that no such sublicense to a

Product Licensee shall relieve Genentech of primary responsibility for all

payments and royalties due to Lexicon under Article 7 with respect to Licensed

Product(s) licensed to such Product Licensee.

5.2 LICENSE UNDER LEXICON PRE-EXISTING PATENTS AND KNOW-HOW AND RESTRICTED

RIGHTS PROJECT PATENTS AND KNOW-HOW FOR THE RESEARCH, DEVELOPMENT AND

COMMERCIALIZATION OF PRODUCTS OTHER THAN LICENSED PRODUCTS IN THE FIELD. Subject

to the terms of this Agreement, Lexicon hereby grants to Genentech a

royalty-free, worldwide right and license under the Lexicon Pre-Existing Patents

and Know-How and, to the extent specified in the Parties' designation(s) of

Restricted Rights Project(s), the Restricted Rights Project Patents and Know-How

to research, develop, make (or have made), use, offer for sale, sell, and import

products (including, but not limited to Small Molecule Drugs) other than

Licensed Products for use in the Field. Such right and license (i) shall be

exclusive (even as to Lexicon) under the Lexicon Pre-Existing Patents and

Know-How with respect to products in the Field other than Small Molecule Drugs,

(ii) shall be exclusive (even as to Lexicon) or non-exclusive under the

Restricted Rights Project Patents and Know-How, to the extent specified in the

Parties' designation(s) of Restricted Rights Project(s), with respect to

products in the Field other than Small Molecule Drugs and (iii) shall be

non-exclusive with regard to Small Molecule Drugs. Lexicon hereby grants

Genentech the right to grant sublicenses under the right and license granted by

Lexicon pursuant to this Section 5.2, on a Project Gene-by-Project Gene basis;

provided, however, that with respect to a Small Molecule Drug related to a

Project Gene, without the prior written consent of Lexicon, no such sublicense

under the Lexicon Pre-Existing Patents or Know-How or Restricted Rights Project

Patents or

<PAGE>

Know-How may be granted to any Third Person in the absence of (x) a

corresponding license or sublicense of right to a given Small Molecule Drug that

directly modulates the Protein produced by such Project Gene or Derivative

Protein thereof and discovered, researched and under bona fide commercial

development (at least through the stage of the demonstration of preclinical

efficacy in animal studies) by Genentech and (y) the license or sublicense of

Patent rights pertaining thereto owned by, licensed to or controlled by

Genentech.

5.3 LICENSE UNDER PROJECT PATENTS AND KNOW-HOW FOR THE RESEARCH,

DEVELOPMENT AND COMMERCIALIZATION OF SMALL MOLECULE DRUGS IN THE FIELD. Subject

to the terms of this Agreement, Genentech hereby grants to Lexicon a

royalty-free, non-exclusive, worldwide right and license under the Project

Patents and Know-How to research, develop, make (or have made), use, offer for

sale, sell, and import Small Molecule Drugs for use in the Field. Such right and

license shall be exclusive; provided that Genentech retains rights under the

Genentech Project Patents and Know How (i) to research, develop, make (or have

made), use, offer for sale, sell, and import Small Molecule Drugs for use in the

Field and (ii) to grant licenses to Third Persons under the Genentech Project

Patents and Know How to research, develop, make (or have made), use, offer for

sale, sell, and import Small Molecule Drugs for use in the Field in connection

with (A) a corresponding license or sublicense of right to a given Small

Molecule Drug that directly modulates the Protein produced by a Project Gene or

Derivative Protein thereof and discovered, researched and under bona fide

commercial development (at least through the stage of the demonstration of

preclinical efficacy in animal studies) by Genentech and (B) the license or

sublicense of Patent rights pertaining thereto owned by, licensed to or

controlled by Genentech. Genentech hereby grants Lexicon the right to grant

sublicenses under the right and license granted by Genentech pursuant to this

Section 5.3, subject to the restrictions, if any, on Project Materials set forth

in Section 5.5.

5.4 NON-EXCLUSIVE RESEARCH LICENSE GRANT UNDER LEXICON KNOCK-OUT TECHNOLOGY

TO KNOCK-OUT MICE AND PROGENY. Subject to the terms of this Agreement and the

restrictions, if any, on Project Materials set forth in Section 5.5, Lexicon

hereby grants to Genentech a worldwide, non-exclusive right and license under

the Lexicon Knock-Out Technology to use, breed, cross-breed and have bred and

cross-bred Knock-Out Mice and Progeny, at the internal research facilities of

Genentech and its Academic Collaborators or Contract Service Providers, for

research directed toward the discovery, identification, selection,

characterization, development or commercialization of products for use in the

Field. Except as provided in Section 5.10, Genentech agrees to use Knock-Out

Mice and Progeny solely for its own internal research purposes in accordance

with the terms and conditions of this Agreement, and not to use any Knock-Out

Mice or Progeny for any purposes for any Third Person, or to transfer, license

the use of or make available to any Third Person any Knock-Out Mice or Progeny.

5.5 [**]

<PAGE>

5.6 [**]

5.7 RESERVATION OF RIGHTS. Notwithstanding the non-exclusive rights and

licenses granted to Genentech under Sections 5.2 and 5.4, but subject to the

exclusive rights and licenses granted to Genentech under Sections 5.1 and 5.2

[**]:

(a) Lexicon reserves the right under the Lexicon Knock-Out

Technology to make and use, and to permit others to use, (i) Project Materials

and (ii) other transgenic and Knock-Out Mice (including, without limitation,

transgenic and Knock-Out Mice with a mutation in the same gene as a Knock-Out

Mouse or Overexpression Mouse) and phenotypic data with respect thereto,

including the right to grant licenses with respect to any applicable

intellectual property rights for such purpose.

(b) Lexicon reserves the right under the Lexicon Pre-Existing

Patents and Know-How and Restricted Rights Project Patents and Know-How (i) to

discover, research, develop, make, have made, import, use, have used, offer for

sale, sell and have sold Small Molecule Drugs and (ii) to grant licenses to

Third Persons to discover, research, develop, make, have made, import, use, have

used, offer for sale, sell and have sold Small Molecule Drugs.

5.8 LIMITED LICENSE TO GENENTECH GENE KNOW-HOW. For each Project Gene,

Genentech hereby grants Lexicon a non-exclusive, royalty-free license under the

Genentech Gene Patents and Know-How related to such Project Gene solely for

Lexicon to perform the following activities under this Agreement:

(i) identify, under Section 3.2(a), the homologous murine gene;

(ii) create, under Section 3.3, Knock-Out Mice with such homologous

murine gene;

(iii) test, under Section 3.3 and, if applicable, Section 3.6, such

Knock-Out Mice;

(iv) conduct a First Pass Phenotypic Analysis on such Project Gene

under Section 3.3(a); and

(v) [**]

Lexicon has no right to sublicense under this license grant, which shall be

considered personal to Lexicon. Such license will terminate with regard to a

Project Gene upon the earliest to occur of such Project Gene becoming a Rejected

Proposed Gene, a Rejected Project Gene, a Protein Candidate, or the completion

of Lexicon's activities under this article 5.8.

5.9 NO GRANT OF OTHER TECHNOLOGY OR PATENT RIGHTS. Except as otherwise

expressly provided in this Agreement, under no circumstances shall a party

hereto, as a

<PAGE>

result of this Agreement, obtain any ownership interest in or other right to any

technology, know-how, patents, patent applications, gene or genomic sequence

data or information, products, or biological materials of the other party,

including items owned, controlled or developed by, or licensed to, the other

party, or transferred by the other party to said party, at any time pursuant to

this Agreement.

5.10 TRANSFERS TO ACADEMIC COLLABORATOR OR CONTRACT SERVICE PROVIDERS.

Genentech shall have the right to transfer a Knock-Out Mouse or Progeny made

pursuant to this Agreement to an Academic Collaborator or Contract Service

Providers, provided that such Academic Collaborator or Contract Service

Providers shall have entered into a material transfer agreement with Genentech

containing terms relating to the transfer of such material that expressly (i)

prohibit the use of such Knock-Out Mice or Progeny thereof for any purpose other

than such Academic Collaborator's collaborative research with, or Contract

Service Provider's service for, Genentech in the Field and (ii) prohibit the

transfer of such Knock-Out Mice thereof by such Academic Collaborator or

Contract Service Provider to any Third Party. Within [**] of entering into any

such material transfer agreement, Genentech shall provide Lexicon with a copy

thereof.

5.11 LICENSE TO LEXICON ISOGENIC TECHNOLOGY. On the Effective Date, Lexicon

and Genentech shall enter into the Sublicense Agreement attached hereto as

Exhibit B.

ARTICLE 6

REQUEST FOR AND DELIVERY OF KNOCK-OUT MICE

6.1 REQUESTS FOR PROJECT MATERIALS BY GENENTECH. During the period of [**]

following the submission to the Steering Committee of the data from the First

Pass Phenotypic Analysis for a Project Gene in accordance with Section 3.5(a),

Genentech shall have the option, subject to the terms and conditions of this

Agreement, to have Lexicon deliver to Genentech [**] the Knock-Out Mice for such

Project Gene, by delivering written notice of such request to Lexicon. During

the period beginning on the date of the submission to the Steering Committee of

the data from the First Pass Phenotypic Analysis for a Project Gene in

accordance with Section 3.5(a) and ending on [**], Genentech shall have the

option, subject to the terms and conditions of this Agreement, to have Lexicon

deliver to Genentech Project Materials and Project Know-How (to the extent not

already provided), including without limitation [**], for such Project Gene.

Genentech may also have, during such period, [**]. Lexicon shall have no further

obligation to deliver Project Materials to Genentech following such period;

provided that, following such period, Genentech may [**].

6.2 MAINTENANCE OF BACK-UP COLONIES. For a period of at least [**] after

the delivery of a particular Knock-Out Mouse requested by Genentech under

Section 6.1, Lexicon shall retain a small back-up colony of [**] such Knock-Out

Mice [**], for the purpose of replacing mice shipped to Genentech under this

Article 6 which die or are otherwise unable to breed during or within [**] after

shipment to Genentech hereunder.

<PAGE>

Thereafter, until the expiration of six (6) months following the submission to

the Steering Committee of the data from the last First Pass Phenotypic Analysis

to be submitted under this Agreement, Lexicon shall [**], if requested by

Genentech. In the event Genentech requests that Lexicon maintain any such colony

for a period of more than [**], Genentech shall pay Lexicon a storage and

maintenance charge of [**] for such requested line of Knock-Out Mice for each

[**] that Lexicon maintains such colony at Genentech's request.

6.3 DELIVERY TERMS AND CONDITIONS. Lexicon shall be responsible for making

shipping arrangements for all Knock-Out Mice to be shipped to Genentech from

Lexicon; provided that Genentech shall be responsible for (i) paying all

shipment and delivery charges in connection therewith and (ii) obtaining, if

desired, and paying for any insurance for Knock-Out Mice shipped to Genentech

from Lexicon. Genentech shall also be responsible for complying with all

customs, regulations, veterinary handling procedures and protocols, and

obtaining any and all permits, forms or permissions that may be required for

Genentech to accept shipment of Knock-Out Mice from Lexicon. Lexicon shall ship

to Genentech [**] Knock-Out Mice, [**], promptly following its receipt of

written notice that Genentech is prepared to accept shipment. Risk of loss with

respect to any Knock-Out Mice to be transferred under this Section 6.3 shall

pass to Genentech upon delivery thereof to the shipping company designated as

specified herein. If Genentech fails to complete the necessary arrangements to

accept shipment and provide such notice within [**] after delivery of its

request for such Knock-Out Mice pursuant to Section 6.1, Genentech shall pay

Lexicon a storage and maintenance charge of [**] for such requested line of

Knock-Out Mice for each week thereafter until Lexicon receives such notice.

ARTICLE 7

PAYMENTS

7.1 UP-FRONT FEE. As partial consideration for the work to be performed by

Lexicon under this Agreement, Genentech shall pay Lexicon a fee of [**], which

fee shall be payable within ten (10) days of the Effective Date.

7.2 PERFORMANCE PAYMENTS. Within [**] (of achieving each of the research

milestones listed below, Genentech shall pay to Lexicon the following amounts:

[**]

7.3 OPTION FEE. In the event Genentech exercises its option under [**] with

respect to a [**], Genentech shall pay Lexicon [**] concurrently with its

delivery of its notice exercising such option.

<PAGE>

7.4 [**] FUNDING. To the extent the Steering Committee elects to have

Lexicon produce [**], Genentech shall pay Lexicon funding of [**] for each

additional [**], which funding shall be payable within [**] of such election.

7.5 FEE FOR [**] KNOCK-OUT MICE. In the event Genentech requests, more than

[**] following the submission to the Steering Committee of the data from the

First Pass Phenotypic Analysis for a Project Gene in accordance with Section

3.5(a), that Lexicon [**], Genentech shall pay Lexicon a fee of [**]

concurrently with its delivery of such request.

7.6 FEE FOR DELIVERY OF MATERIALS [**]. In the event Genentech requests,

after the later of (i) the date of submission to the Steering Committee of the

data from the last First Pass Phenotypic Analysis to be submitted under this

Agreement and (ii) [**] following the date of submission to the Steering

Committee of the data from the First Pass Phenotypic Analysis for a Project

Gene, that [**], Genentech shall pay Lexicon a fee of [**] within [**] of

Lexicon's notice that [**].

7.7 MILESTONE PAYMENTS. With respect to the first Licensed Product relating

to a specified Protein Candidate to achieve the following development milestones

listed below, within [**] of achieving each such development milestones,

Genentech shall pay Lexicon the following amounts:

[**]

For purposes of clarification, with respect to each Project Gene whose Protein

is designated as a Protein Candidate, Genentech shall only be required to pay

Lexicon for each of the above development milestones once upon the first

occurrence of the respective event. All milestone payments hereunder are to be

made by wire transfer of immediately available funds. Such milestone payments

are non-refundable and non-creditable against any other payments hereunder.

Genentech shall give Lexicon written notice of the achievement of any milestone

event no later than [**] after such achievement.

7.8 ROYALTIES ON LICENSED PRODUCTS. As consideration for its exclusive

rights with respect to Licensed Products and the other rights provided and

activities performed by Lexicon hereunder, Genentech agrees to pay Lexicon a

royalty of [**] of Net Sales of each Licensed Product by Genentech, its

Affiliates and Product Licensees, on a country-by-country basis, during the

period commencing with the first sale for use or consumption by the general

public of a Product in a country after Regulatory Approval in such country and

ending on the date that is [**] from the date of such first commercial sale of

such Licensed Product in such country; provided that, in the event the worldwide

Net Sales of such Licensed Product for which a royalty is payable to Lexicon

hereunder exceeds [**] in any Calendar Year, Genentech shall pay Lexicon a

royalty of [**] on that portion of such Net Sales of such Licensed Product that

exceeds [**] in such Calendar Year. The royalty payable hereunder shall be

payable only once with respect to the same unit of Licensed Product.

<PAGE>

7.9 PAYMENT OF ROYALTY; REPORTING; EXCHANGE RATES. Within [**] after the

end of each [**], Genentech will pay (and/or cause its Affiliates and/or Product

Licensees to pay) the royalty owed under this Agreement, if any, on applicable

Net Sales invoiced during such just-ended [**]. Such payment will be accompanied

by the report showing: (i) the Gross Sales and Net Sales of Products sold during

the reporting period and the calculation of Net Sales from such Gross Sales;

(ii) the royalties payable in Dollars which shall have accrued hereunder in

respect of such Net Sales; (iii) withholding taxes, if any, required by law to

be deducted in respect of such royalties; (iv) the dates of the first commercial

sales of Licensed Products in any country during the reporting period, if

applicable; and (v) the exchange rates used in determining the amount of Dollars

payable hereunder. Royalties payable on sales in countries other than the United

States shall be calculated in accordance with the standard exchange rate

conversion practices used by Genentech, its Affiliates or the Product Licensee,

as applicable, for financial accounting purposes. If no royalty or payment is

due for any royalty period hereunder, Genentech shall so report. Genentech shall

keep, and shall require its Affiliates and Product Licensees to keep (all in

accordance with GAAP), complete and accurate records in sufficient detail to

properly reflect all gross sales and Net Sales and to enable the royalties

payable hereunder to be determined.

7.10 U.S. CURRENCY; WIRE TRANSFERS. All payments, including any interest

pursuant to Section 7.12, payable by Genentech, its Affiliates and Product

Licensees to Lexicon under this Agreement will be paid in Dollars

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