COLLABORATION AGREEMENT

<PAGE>

EXHIBIT 10.26

*** TEXT OMITTED AND FILED SEPARATELY

PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST

UNDER 17 C.F.R. SECTION 200.80(b)(4)

AND RULE 406 UNDER THE SECURITIES

ACT OF 1933, AS AMENDED

CONFIDENTIAL

COLLABORATION AGREEMENT

THIS COLLABORATION AGREEMENT (the "AGREEMENT") is effective as of March

18, 2004 (the "EFFECTIVE DATE") by and between STRUCTURAL GENOMIX, INC., a

Delaware corporation located at 10505 Roselle Street, San Diego, CA 92121

("SGX"), and SERONO INTERNATIONAL SA, a corporation organized under the laws of

Switzerland, located at 15bis chemin des Mines, 1202 Geneva, Switzerland

("SERONO"). SGX and Serono may be referred to herein individually as a "Party"

and collectively as the "Parties."

BACKGROUND

WHEREAS, SGX has expertise in the field of structure directed drug

discovery; and

WHEREAS, Serono is in the business of, and has expertise in, developing,

manufacturing and commercializing biotechnology products; and

WHEREAS, SGX and Serono wish to enter into a collaborative research

program to develop early lead compounds against certain Serono drug targets;

NOW, THEREFORE, in consideration of the foregoing premises and the

covenants, agreements and promises contained in this Agreement, the Parties

hereby agree as follows:

1. DEFINITIONS

1.1 "Affiliate" means, with respect to a Party hereto, a corporation,

company or other entity that controls, is controlled by or under common control

with such Party. The term "control" means the direct or indirect possession of

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

party, whether through the ownership of voting securities, by contract or

otherwise. Control will be presumed if a party owns, either of record or

beneficially, more than fifty percent (50%) of the outstanding shares or

securities (representing the right to vote for the election of directors or

other managing authority) of a corporation, company or other entity. Such

corporation, company or other entity shall be deemed to be an Affiliate only so

long as such control exists.

1.2 "Collaboration" means the research collaboration performed by the

Parties pursuant to Section 2.1.

1.3 "Collaboration Plan" shall have the meaning ascribed in Section 2.1.

1.4 "Collaboration Product" means any Product that incorporates an Early

Lead Compound.

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1.5 "Collaboration Technology" means Patents and Know-How which are

made, conceived or reduced to practice or otherwise discovered or developed by

or on behalf of Serono or SGX, or jointly by or on behalf of Serono and SGX,

during and in the performance of the Collaboration.

1.6 "Commercially Reasonable Efforts" means efforts to develop or

commercialize a product consistent with those efforts Serono would devote, with

the exercise of prudent scientific and business judgment, to a product at a

similar stage of development resulting from its own research efforts, that has

similar commercial potential, a similarly sized market and faces a similar

competitive environment, based on conditions then prevailing.

1.7 "Confidential Information" shall have the meaning ascribed in

Section 6.1.

1.8 "Controls" or "Controlled" means possession of the legal right of a

Party to grant the licenses or sublicenses as provided for herein or to

otherwise disclose proprietary or trade secret information to the other Party,

without violating the terms of any agreement or other arrangement with a Third

Party or misappropriating or infringing the proprietary or trade secret

information of a Third Party.

1.9 "Early Lead Compound" means (a) the [...***...] identified in the

course of the Collaboration from an [...***...] or an [...***...], with the

following characteristics: [...***...], which have been identified in the course

of the Collaboration from an [...***...] or an [...***...], with the

characteristics ([...***...]) through ([...***...]) above, and which the

[...***...]; and (c) [...***...] identified in the course of the Collaboration

from the same [...***...] to which the [...***...] in clauses (a) and (b) belong

that have the characteristics described in clauses ([...***...]) through

([...***...]) above.

1.10 "Early Lead Patent" shall have the meaning ascribed in Section

5.2(b).

1.11 "Elaborated Fragment" means a compound identified in the course of

the Collaboration from an Initial Fragment Hit with the following

characteristics: (i) [...***...]; and (ii) [...***...].

1.12 "First Commercial Sale" means the first sale of a Product to a Third

Party in any country after all required marketing and pricing and/or pricing

reimbursement approvals for such country have been obtained, other than a

transfer or disposition (whether or not for consideration) of such Product for

charitable or promotional purposes or for preclinical, clinical, manufacturing,

regulatory or governmental purposes.

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1.13 "GLP" means the standards set forth in the current Good Laboratory

Practices regulations promulgated by the U.S. Food and Drug Administration,

published at C.F.R. Part 58, as such regulations may be amended from time to

time, and equivalent foreign regulations or standards as applicable.

1.14 "IND" means an Investigational New Drug application filed with the

U.S. Food and Drug Administration pursuant to 21 C.F.R. Part 312, or any

corresponding foreign application, registration or certification.

1.15 "Initial Fragment Hit" means a compound from the SGX FAST(TM)

screening library shown in a co-crystal structure determined in the course of

the Collaboration to be bound to a Serono Target.

1.16 "Initial Structure" means a [...***...] of a Serono Target which has

the following characteristics: [...***...].

1.17 "Joint Patent" shall have the meaning ascribed in Section 5.2(b).

1.18 "JSC" shall have the meaning ascribed in Section 2.7.

1.19 "Know-How" means all inventions (whether patentable or not),

instructions, designs, formulas, software, materials, compositions, methods,

processes, techniques, improvements, trade secrets, information and data.

1.20 "Milestone" means any or each of the milestone events described in

Sections 3.2 and 3.4.

1.21 "Net Sales" means the total amount received by Serono or its

Affiliates or sublicensees, as the case may be, for sales of Products to Third

Parties (other than sublicensees) in arm's length transactions, less: (i)

ordinary and customary prompt payment and other trade or quantity discounts

actually allowed and taken; (ii) credits or allowances actually granted for

damaged goods, recalls, returns or rejections of Products or for retroactive

price reductions; (iii) charge back payments, reimbursements and rebates,

including government-mandated rebates (including Medicaid rebates); (iv)

freight, postage and duties (including insurance premiums) actually incurred;

and (v) excise taxes, other consumption taxes, customs duties and compulsory

payments to governmental authorities actually paid and separately identified on

the invoice or other documentation maintained in the ordinary course of

business. A "sale" shall include any transfer or other disposition for

consideration, and Net Sales shall include the fair market value of all other

consideration received by Serono or its Affiliates or sublicensees in respect of

any grant of rights to make, use, sell or otherwise distribute Products, whether

such consideration is in cash, payment in kind, exchange or other form.

Transfers or dispositions, whether or not for consideration, of Products for

charitable or promotional purposes or for preclinical, clinical, manufacturing,

regulatory or governmental purposes shall not be deemed "sales." For

clarification, sale of a Product by Serono, its Affiliates

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or sublicensees to another of these entities for resale by such entity to a

Third Party shall not be deemed a sale for purposes of calculating "Net Sales"

hereunder, but the sale of such Product by such entity to such Third Party shall

be deemed to be a sale by such entity of a Product for purposes of calculating

Net Sales hereunder.

If a Product is sold in the form of a combination product containing one or more

products or active ingredients, devices, equipment or components which are

themselves not Products (a "Combination Product"), then for the purpose of

calculating royalties owed under this Agreement on sales of the Combination

Product, Net Sales shall be calculated as follows: first, Serono shall determine

the actual Net Sales of such Combination Product (calculated using the above

described deductions) and then such amount shall be multiplied by the fraction

A/(A+B), where A is the invoice price or fair market value, whichever is

greater, of the actual Product component of such Combination Product, and B is

the total invoice price(s) or fair market value, whichever is greater, of the

other product(s) or active ingredients, devices, equipment or components of such

Combination Product.

1.22 "Patents" means patent applications filed in any country worldwide,

including provisionals, utilities, continuations, continuations-in-part,

divisionals, and substitutions thereof, any patents issued on such applications

as well as any reissue, reexamination, and renewal thereof, any extensions of

term, registrations or confirmation of such patents or patent of addition based

on any such patent, and all foreign counterparts of any of the foregoing.

1.23 "Phase II Trial" and "Phase III Trial" means Phase II and Phase III

human clinical trials conducted in conjunction with the U.S. Food and Drug

Administration marketing approval process for a product, as more fully defined

in 21 C.F.R. Section 312.21(b) and (c), respectively, and (ii) equivalent human

clinical trials conducted pursuant to similar requirements in other countries in

the world.

1.24 "Product" means any product developed by or on behalf of Serono or

its permitted sublicensees that incorporates or is derived from an Early Lead

Compound.

1.25 "Project Team" shall have the meaning ascribed in Section 2.7.

1.26 "Regulatory Approval" means the approval of a Regulatory Authority

necessary for the marketing and sale of a pharmaceutical or biotechnology

product in the United States, one or more countries in the European Union or

Japan.

1.27 "Regulatory Authority" means (a) the U.S. Food and Drug

Administration or (b) any regulatory body with similar regulatory authority in

any other jurisdiction anywhere in the world.

1.28 "Royalty Term" shall have the meaning ascribed in Section 3.6.

1.29 "Serono Background Technology" means all Patents and Know-How owned

or Controlled by Serono which are: (a) existing on the Effective Date or

discovered or developed during the Term of the Collaboration (i) outside of the

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Collaboration or (ii) within the Collaboration but are of general application

(for example, have application to other proteins in addition to the Serono

Targets); and (b) necessary for the conduct of the Collaboration. Any Serono

Background Technology shall be deemed Confidential Information of Serono subject

to the rights and obligations set forth in Article 6 hereunder.

1.30 "Serono Co-Crystal Structure" means the [...***...] of the

[...***...] of a [...***...] with a [...***...], made in the course of the

Collaboration, which has the following characteristics: (i) [...***...] (i.e.,

the last [...***...] or is [...***...]); (ii) [...***...] in the [...***...];

(iii) [...***...]% [...***...] and [...***...]% in the [...***...]; (iv)

[...***...]; (v) [...***...] ([...***...]) [...***...] and (vi) [...***...] of

the [...***...] of the [...***...] is [...***...] a [...***...].

1.31 "Serono Compound" means an active small molecule ligand that is

provided by Serono to SGX for inclusion in the Collaboration that is not

publicly known to bind to, inhibit or modulate the Serono Target to which it is

intended to be bound under the Collaboration.

1.32 "Serono Materials" means the biological and chemical materials

embodying Serono Targets, Serono Compounds and any protein, clone or vector used

to express Serono Targets, in each case, which are owned or Controlled by

Serono. Any Serono Materials shall be deemed Confidential Information of Serono

subject to the rights and obligations set forth in Article 6 hereunder.

1.33 "Serono Target(s)" means the protein targets listed in the attached

Exhibit A, as this Exhibit may be amended from time to time under Section 2.4.

1.34 "SGX Background Technology" means all Patents and Know-How owned or

Controlled by SGX which are (a) existing on the Effective Date or discovered or

developed during the Term of the Collaboration (i) outside of the Collaboration

or (ii) within the Collaboration but are of general application (for example,

have application to other proteins in addition to the Serono Targets); and (b)

necessary for the conduct of the Collaboration. Any SGX Background Technology

shall be deemed Confidential Information of SGX subject to the rights and

obligations set forth in Article 6 hereunder.

1.35 "SGX Co-Crystal Structure" means a [...***...] of the [...***...] of

a [...***...] with an [...***...], an [...***...] or an [...***...], made in the

course of the Collaboration, which has the following characteristics: (i)

[...***...] (i.e., the [...***...] or is [...***...]); (ii) [...***...] in the

[...***...]; (iii) [...***...]% [...***...]and [...***...]% in the [...***...];

(iv) [...***...]; (v) [...***...] ([...***...]) [...***...] and (vi) the

[...***...] of the [...***...] of the [...***...], [...***...] or [...***...] is

[...***...] in a [...***...].

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1.36 "SGX Materials" means the biological and chemical materials

embodying any Initial Structure, SGX Co-Crystal Structure, Serono Co-Crystal

Structure or Early Lead Compound, in each case which are owned or Controlled by

SGX and are developed in the course of the Collaboration. Any SGX Materials

shall be deemed Confidential Information of SGX subject to the rights and

obligations set forth in Article 6 hereunder.

1.37 "Term of the Collaboration" means the period commencing on the

Effective Date, and terminating twenty-four (24) months thereafter, unless

extended by mutual agreement of the Parties.

1.38 "Third Party or Third Parties" means any individual, corporation,

limited liability company, partnership, association, trust, unincorporated

organization, other entity or government or political subdivision thereof other

than Serono or SGX or their respective Affiliates.

1.40 "Valid Claim" means a claim of an issued and unexpired patent, which

has not been held invalid or unenforceable by a court or other governmental

agency of competent jurisdiction, after any applicable appeal, or time for

appeal, is concluded, and which has not lapsed, been abandoned, withdrawn,

canceled, disclaimed or admitted to be invalid or unenforceable through reissue,

reexamination or otherwise.

2. COLLABORATION.

2.1 Collaboration. Subject to the terms and conditions of this

Agreement, Serono and SGX will use commercially reasonable and diligent efforts

to conduct the Collaboration in accordance with the collaboration plan attached

to this Agreement as Exhibit A (the "Collaboration Plan") including the timeline

set forth therein. The Parties shall begin the performance of the Collaboration

promptly following the Effective Date but no later than thirty (30) days

thereafter. SGX shall have principal responsibility for the conduct of the

Collaboration, and Serono shall provide consultation, advice and such research

effort as may be deemed appropriate by the JSC and accepted by Serono. The JSC

shall review and coordinate each Party's activities with respect to the

Collaboration.

2.2 Provision of Serono Materials and Background Technology. At Serono's

discretion, promptly following the Effective Date and during the Term of the

Collaboration, Serono will provide SGX, at Serono's expense, with reasonable

quantities of such available Serono Materials and other Serono Background

Technology as are necessary for the conduct of the Collaboration by SGX;

PROVIDED, HOWEVER, that Serono is able to provide such Serono Materials and

Serono Background Technology without paying any royalties or other fees to Third

Parties.

2.3 Provision of SGX Materials, SGX Background Technology and

Collaboration Technology. Subject to payment by Serono to SGX under Sections

3.2(a), (d), (e) or (f) for achievement of the applicable Milestone, SGX will

promptly provide Serono with reasonable quantities of SGX Materials, and with

the SGX Background

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Technology and Collaboration Technology associated with such Milestone,

including those deliverables set forth on Exhibit B, to the extent reasonably

necessary for Serono to conduct research and development activities. SGX will

have no obligation to provide quantities of SGX Materials to Serono with respect

to the Initial Structures and SGX Co-Crystal Structures that are the subjects of

such Milestones beyond the quantities required for Serono to reproduce such

Initial Structures and SGX Co-Crystal Structures. Serono will not provide SGX

Materials to any Third Party without SGX's prior written consent. The SGX

Materials will be delivered to Serono Ex Works (Incoterms 2000). Nothing in this

Section 2.3 shall be construed as affecting in any way the scope of the licenses

granted to Serono under Section 4.1.

2.4 Designation of Additional Targets. Prior to the first anniversary of

the Effective Date, Serono may in its discretion, nominate by written notice to

SGX up to an additional [...***...] ([...***...]) protein targets which Serono

would like to include in The Collaboration. SGX will have a period of two (2)

weeks from receipt of such notice to reject (in writing) the inclusion of such

nominated proteins if any such protein is the subject of an existing research

program at SGX, if SGX has existing contractual obligations to a Third Party

with respect to such protein that would prevent its inclusion in the

Collaboration or otherwise reasonably determines in good faith that such

inclusion would present a conflict of interest for SGX, or if SGX reasonably

determines in good faith that determination of an Initial Structure with respect

to such protein is unlikely to be completed with the resources and timelines

contemplated under this Collaboration (and in such event, SGX will provide

Serono with an explanation of the basis for such determination). Any protein

nominated by Serono and not rejected by SGX under this Section 2.4 will be

deemed a Serono Target. In the event any protein is rejected by SGX, then Serono

may nominate a replacement protein target in accordance with the terms of this

Section 2.4; PROVIDED, HOWEVER, that such nomination may occur after the

[...***...] anniversary of the Effective Date.

2.5 Determination of Serono Co-Crystal Structures. In the event that

during the Term of the Collaboration Serono desires SGX to perform

co-crystallization of any Serono Targets with Serono Compounds, Serono will

provide SGX with at least thirty (30) days prior written notice and thereafter

will provide SGX with batches of at least [...***...] ([...***...]) Serono

Compounds per batch, which may be directed to any one or more of the Serono

Target(s) indicated in such notice, and upon receipt of each batch of

[...***...] ([...***...]) such Serono Compounds, SGX will use commercially

reasonable and diligent efforts to perform co-crystallization in accordance with

the Collaboration Plan within thirty (30) days of such receipt. Each Serono

Compound provided under this Section 2.5 wILL be provided in an amount of at

least five (5) milligrams and will have the following characteristics: (i)

solubility > 5mM in DMSO and (ii) potency against the Serono Target of <10mM.

Upon completion of each Serono Co-Crystal Structure, SGX will promptly provide

Serono with quantities of the SGX Materials associated with the Serono

Co-Crystal Structure, and with the SGX Background Technology and Collaboration

Technology associated with such Serono Co-Crystal Structure, including those

deliverables set forth on Exhibit B, to the extent reasonably necessary for

Serono to conduct research and development activities. SGX will have no

obligation to provide quantities of SGX Materials to Serono with respect to the

Serono Co-Crystal Structures

***CONFIDENTIAL TREATMENT REQUESTED

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beyond the quantities required for Serono to reproduce such Serono Co-Crystal

Structures. The Serono Co-Crystal Structures will be delivered to Serono Ex

Works (Incoterms 2000). Prior to the expiration of the Term of the

Collaboration, the Parties will discuss in good faith extending the

Collaboration for [...***...] ([...***...]) [...***...] after the Term of the

Collaboration to permit SGX to perform co-crystallization of the additional

Serono Targets designated pursuant to Section 2.4 with Serono Compounds to be

proVIDED bY Serono. Nothing in this Section 2.5 shall be construed as affecting

in any way the scope of the licenses granted to Serono under Section 4.1.

2.6 Records; Reports. SGX shall prepare and maintain complete and

accurate written records, accounts, notes, reports and data with respect to all

work conducted in the performance of the Collaboration in conformity with

standard industry practices. SGX shall notify Serono promptly upon the

completion of an Initial Structure for a Serono Target or upon the determination

of an SGX Co-Crystal Structure, and will provide the JSC, at its request, for

its review, all information regarding such SGX Co-Crystal Structures which is

reasonably required for the JSC to determine the achievement of Milestones.

Promptly upon completion of the Collaboration, SGX shall provide a final written

report of its activities during the Collaboration and the results thereof.

2.7 Joint Steering Committee.

(a) Establishment. SGX and Serono will establish a Joint Steering

Committee ("JSC") to oversee the Collaboration promptly following the Effective

Date but no later than fifteen (15) days thereafter.

(b) Membership; Decisions. The JSC shall comprise two (2)

representatives from Serono and two (2) representatives from SGX, designated by

the Parties promptly following the Effective Date but no later than fifteen (15)

days thereafter. Each Party may replace its JSC representatives at any time,

with written notice to the other Party. Each Party shall have one vote on the

JSC. The JSC will strive to reach consensus on any matters requiring a decision

by it; PROVIDED, HOWEVER, that in the event of any dispute, the decision shall

be made by [...***...] reasonably taking into consideration the position of

[...***...].

(c) Project Team. The JSC shall establish a project team (the

"Project Team") comprising at least two (2) representatives from Serono and two

(2) representatives from SGX, designated by the Parties promptly following the

Effective Date. The JSC may expand the size of the Project Team, in its sole

discretion, provided that the Project Team shall always comprise an equal number

of representatives from Serono and SGX. Each Party may replace its Project Team

representatives at any time, with written notice to the other Party. The Project

Team will direct the performance of the Collaboration and shall meet to

discharge its responsibilities from time to time via videoconference or in

person, as the Project Team may agree. Meetings of the Project Team may be held

only if a quorum of at least one (1) representative of each Party participates.

Within thirty (30) days of the end of each calendar quarter the Project Team

shall submit a quarterly report to the JSC describing the performance of the

Collaboration

***CONFIDENTIAL TREATMENT REQUESTED

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during such calendar quarter. Each Party will be responsible for paying its own

expenses in connection with participating in the meetings of the Project Team.

(d) Responsibilities. The JSC will review and supervise the

performance of the Collaboration and supervise the Project Team. The JSC will be

responsible for (i) monitoring research progress during the Collaboration and

ensuring open exchange between the Parties with respect to Collaboration

activities; (ii) designating compounds as Early Lead Compounds in accordance

with the criteria in Section 1.9 and (iii) determining the achievement of

Milestones under Section 3.2. Any changes to the Collaboration Plan which

materially alter the nature or scope of the Collaboration must be agreed in

writing by the Parties. SGX will not engage the services of any Third Party to

perform any activities under the Collaboration outside of the United States

without the prior approval of the JSC.

(e) Meetings. The JSC shall meet via videoconference or in person,

on a quarterly basis (alternating between San Diego, CA, U.S.A., and Geneva,

Switzerland or as the JSC may otherwise agree), to discharge its

responsibilities. Serono may also direct that any additional meetings are held

that it reasonably believes are necessary for the optimal conduct of the

Collaboration. Meetings of the JSC may be held only if a quorum of at least one

(1) representative of each Party participates. SGX will call the JSC meetings

and will prepare the initial draft of an agenda for each meeting, which shall

include the most recent report from the Project Team, and will submit the draft

to Serono for comments a reasonable period before the scheduled meeting date.

Except as provided above, each Party will be responsible for paying its own

expenses in connection with participating in the meetings of the JSC. SGX shall

prepare and deliver to the members of the JSC, within thirty (30) days after the

date of each meeting, minutes of such meeting setting forth, among other things,

all decisions of the JSC. Serono may suggest changes or amendments to the

minutes, and may provide a supplement addressing activities at the meeting which

are not reported in the minutes, which shall be distributed to the Parties and

filed with the meeting minutes.

3. CONSIDERATION

3.1 Technology Access Payment. Within thirty (30) days of the Effective

Date, Serono will pay, or cause to be paid, to SGX the sum of U.S.$100,000.

3.2 Research Milestone Payments. Within sixty (60) days of the date of

achievement of the applicable Milestone during the Term of the Collaboration,

Serono will pay, or cause to be paid, to SGX the following non-refundable

Milestone payments, on a Serono Target-by-Serono Target basis:

<TABLE>

<CAPTION>

MILESTONES AMOUNT

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

<S> <C>

(a) Completion of [...***...] for a Serono Target U.S. $[...***...] per Serono Target

</TABLE>

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<TABLE>

<S> <C>

(b) Determination of an [...***...] containing the first U.S. $[...***...] per Serono Target

[...***...] for a Serono Target

(c) Determination of an [...***...] containing the first U.S. $[...***...] per Serono Target

[...***...] for a Serono Target

(d) Determination of an [...***...] containing the first U.S. $[...***...] per Serono Target; PROVIDED,

[...***...] for a Serono Target HOWEVER, if an [...***...] for a Serono Target is

identified directly from an [...***...], the payment

under this Section 3.2(d) will be U.S. $[...***...]

(e) Determination of a [...***...] for a Serono Target U.S. $[...***...] per Serono Target

containing the [...***...] as described in Section

[...***...] ([...***...])

(f) Determination of a [...***...] for a Serono Target U.S. $[...***...] per Serono Target

containing the [...***...] as described in Section

[...***...] ([...***...])

</TABLE>

3.3 Serono Co-Crystal Payments. As consideration for the

co-crystallization activities to be performed by SGX pursuant to Section 2.5,

Serono will pay, or cause to be paid, to SGX U.S. $[...***...] for each batch of

[...***...] ([...***...]) Serono compounds delivered to SGX pursuant to Section

2.5. SGX will invoice Serono on a quarterly basis for this amount upon delivery

of the Serono Compounds, and Serono will pay SGX within sixty (60) days of

receipt of such invoice.

3.4 Development Milestones. Within sixty (60) days of achievement of

each of the applicable Milestones, in consideration of the rights granted

hereunder, Serono will pay, or cause to be paid, to SGX the following

non-refundable Milestone payments for each Product, on a Product-by-Product

basis:

<TABLE>

<CAPTION>

MILESTONES AMOUNT

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

<S> <C>

(a) Initiation of [...***...] U.S. $[...***...]

(b) [...***...] of [...***...] U.S. $[...***...]

(c) The [...***...] of the [...***...] in a [...***...] U.S. $[...***...]

(d) The [...***...] of the [...***...] in a [...***...] U.S. $[...***...]

(e) [...***...] of [...***...] U.S. $[...***...]

</TABLE>

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Each Milestone payment under this Section 3.4 shall be due only if the Product

achieving such Milestone is the first Product derived from its corresponding

Early Lead Compound to achieve the Milestone associated with such payment and is

either: (i) if directed primarily against a Serono Target, the first Product

directed primarily against the Serono Target in connection with which its

corresponding Early Lead Compound was identified, to achieve the Milestone

associated with such payment, or (ii) if directed primarily against another

target, the first Product directed primarily against such other target to

achieve the Milestone associated with such payment.

3.5 Royalties. In consideration of the rights granted hereunder, Serono

shall pay, or cause to be paid, to SGX the greater of the following royalty

payments, as applicable, on Net Sales on a Product-by-Product and

country-by-country basis:

(a) [...***...] percent ([...***...]%) of Net Sales of Products in

the event that the use, import, offer for sale or sale of such Product is

covered in such country by an Early Lead Patent made, conceived or reduced to

practice solely by or on behalf of SGX; or

(b) [...***...] percent ([...***...]%) of Net Sales of Products in the

event that the use, import, offer for sale or sale of such Product is covered in

such country by a Joint Patent.

Notwithstanding the above, in the event that [...***...], [...***...],

[...***...], then Serono shall [...***...] to SGX [...***...] of the amounts

[...***...] in such country, and in the event that such a [...***...], upon such

[...***...], [...***...] percent ([...***...]%) of the amounts due under

[...***...] and, in the event Serono receives a [...***...] or [...***...] from

a Third Party with respect to the [...***...] including such [...***...] or

analogous [...***...], [...***...] to SGX the remaining [...***...] percent

([...***...]%) of the amounts [...***...] above during the period from the

[...***...] of the applicable Product to the date of the issuance of such

[...***...]. In addition, notwithstanding the foregoing, in the event that the

[...***...], [...***...], [...***...] is covered by an [...***...] in the United

States, Japan and all countries in the European Union, then [...***...] to

subsection [...***...] above for each country in which [...***...], [...***...],

[...***...] whether or not the [...***...], [...***...], [...***...] is covered

by an [...***...] in such country. Similarly, in the event that the [...***...],

[...***...], [...***...] by a [...***...] in the United States, Japan and all

countries in the European Union, then [...***...] to subsection [...***...]

above for each country in which [...***...], [...***...], [...***...] whether or

not the use, [...***...], [...***...] is covered by a [...***...].

3.6 Royalty Term. The obligation of Serono to pay royalties under

Section 3.5 with respect to a Product shall begin with the First Commercial Sale

of such Product

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and continue for such Product, on a country-by-country basis, until the later of

(i) such time as there are no Valid Claims of an Early Lead Patent or Joint

Patent in such country that would be infringed by the use, import, offer for

sale or sale of such Product in such country or (ii) [...***...] ([...***...])

years after the First Commercial Sale of such Product in such country (such

period the "Royalty Term").

3.7 Third Party Royalties. In the event that Serono, its Affiliates or

sublicensees are required to pay royalties to a Third Party for patent licenses

necessary to use or practice Collaboration Technology covering Early Lead

Compounds or SGX Co-Crystal Structures containing Early Lead Compounds for the

purpose of making, using, selling, offering to sell or importing Products,

Serono may offset up to [...***...] percent ([...***...]%) of such amounts due

Third Parties against payments due SGX under Section 3.5 above; PROVIDED,

HOWEVER, that Serono may not offset these amounts against more than [...***...]

percent ([...***...]%) of the royalties otherwise due SGX in any calendar

quarter. Any amount that has not been so offset may be offset against royalties

due in subsequent calendar quarters, subject to the limitation set forth in the

previous sentence.

3.8 Withholding Taxes. SGX shall be responsible for any and all income

or other taxes required to be withheld from any of the royalty and other

payments made by Serono under this Agreement and shall provide Serono any

information necessary to determine the taxes that should be withheld and paid.

Any tax that Serono, its Affiliates or sublicensees are required to withhold and

pay on behalf of SGX with respect to the royalties and other payments due under

Sections 3.1 through 3.5 shall be deducted from and offset against said payments

prior to remittance to SGX; PROVIDED, HOWEVER, that in regard to any tax so

deducted, Serono shall give or cause to be given to SGX such assistance as may

reasonably be necessary to enable SGX to claim exemption therefrom or credit

therefor, and in each case, Serono shall furnish to SGX proper evidence of the

taxes paid on its behalf. In the event that Serono [...***...] by a party

located in a [...***...] or [...***...] and as a result [...***...] incremental

to that which it would have incurred if such payments were made by a party

located in the United States or [...***...], then Serono shall [...***...] to be

[...***...] to the extent necessary so that the [...***...] after the

[...***...] the [...***...] without the imposition of such [...***...].

3.9 Reports; Payments. The royalties due under Section 3.5 shall be paid

quarterly within sixty (60) days after the close of each calendar quarter in

which such royalties are earned. With each such quarterly payment, Serono shall

furnish SGX a royalty statement setting forth in reasonable detail on a

country-by-country and Product-by-Product basis: (i) the total number of units

of each Product sold hereunder for the quarterly period for which the royalties

are due; (ii) the calculation of Net Sales pursuant to Section 1.19; (iii) the

royalties due SGX in such calendar quarter; and (iv) details of payments (if

any) to Third Parties pursuant to Third Party licenses as described in Section

3.7 above. For any calendar quarter after the First Commercial Sale of a

Product, if no royalties are due, Serono shall so report. Any such quarterly

report shall be deemed

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Confidential Information of Serono subject to the rights and obligations set

forth in Article 6.

3.10 Currency Conversion. All amounts required to be paid under this

Agreement shall be paid in United States dollars. Royalties earned shall first

be determined in the currency of the country in which they are earned and then

converted to their equivalent in United States currency using the standard

exchange rate methodology for the translation of foreign currency sales into

United States dollars customarily used by Serono in its accounting practice.

3.11 Late Payments. Any payments or portions thereof due hereunder which

are not paid on the date such payments are due shall bear interest until paid at

the rate equal to the lesser of the prime rate as reported by the Chase

Manhattan Bank, New York, New York, plus [...***...] percent ([...***...]%) or

the maximum amount permitted by law. This Section 3.11 shall in no way limit any

other remedies available to SGX.

3.12 Legal Restrictions. If at any time legal restrictions prevent the

remittance by Serono of all or any part of royalties on Net Sales in any

country, Serono shall have the right and option to make such payment by

depositing the amount thereof in local currency to an account in the name of SGX

in a bank or other depository in such country. Serono shall consult with SGX

regarding, and promptly notify SGX of, any and all such arrangements.

3.13 Audits. Serono shall maintain accurate books and records which

enable the calculation of royalties payable under this Agreement to be verified.

Serono shall maintain the books and records for each quarterly period for two

(2) years after the submission of the corresponding report under Section 3.9.

Upon [...***...] ([...***...]) [...***...] prior notice to Serono, independent

accountants selected by SGX, reasonably acceptable to Serono, may have access to

Serono's books and records after executing a reasonable confidentiality

agreement, during Serono's normal business hours at mutually agreed times to

conduct a review or audit no more than once per calendar year, for the sole

purpose of verifying the accuracy of Serono's payments and compliance with this

Agreement. Records for any calendar year may only be audited once. The

accounting firm shall report to SGX only whether there has been a royalty

underpayment or overpayment and, if so, the extent thereof. Any such inspection

shall be at SGX's expense; PROVIDED, HOWEVER, in the event that an inspection

reveals an underpayment of [...***...] percent ([...***...]%) or more for any

calendar year, Serono shall pay the costs of the inspection. Serono shall

promptly pay to SGX any underpayment identified in such audit, with interest

from the date such amount(s) were due at a rate equal to the lesser of the prime

rate reported by the Chase Manhattan Bank, New York, New York, plus [...***...]

percent ([...***...]%) or the maximum amount permitted by law. SGX shall

promptly pay to Serono any overpayment identified in such audit.

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4. LICENSES

4.1 License to Serono. Subject to the terms and conditions of this

Agreement, SGX hereby grants to Serono the following licenses:

(a) [...***...], [...***...], [...***...] license (with the right

to grant sublicenses in accordance with Section 4.3 below) under SGX's interest

in the Collaboration Technology (other than that which constitutes SGX

Background Technology) covering Early Lead Compounds and SGX Co-Crystal

Structures containing Early Lead Compounds to make, have made, use, import,

offer for sale and sell Products.

(b) [...***...], [...***...], [...***...], [...***...] license

(with the right to grant sublicenses in accordance with Section 4.3 below) under

SGX's interest in the Collaboration Technology (other than that which

constitutes SGX Background technology) covering Serono Co-Crystal Structures to

practice and use such Collaboration Technology for any purpose.

(c) [...***...], [...***...], [...***...] license (with the right

to grant sublicenses in accordance with Section 4.3 below) under SGX's interest

in the Collaboration Technology (other than that which constitutes SGX

Background Technology) covering Initial Structures to practice and use such

Collaboration Technology for any purpose.

(d) [...***...], [...***...], [...***...] license (with the right

to grant sublicenses in accordance with Section 4.3 below) under (i) SGX's

interest in all SGX Background Technology to practice and use the SGX Background

Technology solely to the extent necessary to reproduce Initial Structures,

Serono Co-Crystal Structures a