DEVELOPMENT AGREEMENT

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                                                                    EXHIBIT 10.4


                                                                  EXECUTION COPY
                                                                    CONFIDENTIAL

                               DEVELOPMENT AGREEMENT

      THIS DEVELOPMENT AGREEMENT (the "Agreement") is made as of September 22,
2003 (the "Agreement Date"), by and between OMRIX BIOPHARMACEUTICALS, INC., a
corporation organized under the laws of Delaware (hereinafter referred to as
"Omrix"), and ETHICON, INC., a corporation organized under the laws of New
Jersey, acting by and through its Johnson & Johnson Wound Management division
(hereinafter referred to as "Ethicon," together with Omrix, the "Parties" and
each individually a "Party").

                                    RECITALS

      WHEREAS, Omrix has developed a fibrin sealant, Quixil(TM), including the
medical device applicator and other related devices;

      WHEREAS, Omrix is in the process of developing further, biological fibrin
sealant products and devices and intellectual property related thereto, such as
thrombin and a second generation fibrin sealant;

      WHEREAS, Ethicon desires to provide medical devices, and components of
such devices, for use in connection with certain of Omrix's biological fibrin
sealants in specific products;

      WHEREAS, Ethicon and Omrix desire to further develop specific fibrin
sealant products and thrombin products, and medical devices for use in
connection with such products;

      WHEREAS, Ethicon and Omrix desire to provide a mechanism for development
of certain improvements which may arise in the course of developing the
aforementioned products; and

      WHEREAS, Ethicon and Omrix are simultaneously entering to a Distribution
and Supply Agreement (the "Supply Agreement") for Ethicon to purchase and resell
Quixil(TM) and the products developed hereunder in specified territories;

      NOW, THEREFORE, in consideration of the premises and of the mutual
promises and covenants herein contained, effective upon the Effective Date, the
Parties hereto agree as follows:

      1. Definitions. The following terms, when used with initial capital
letters, shall have the meanings set forth below.

      PORTIONS OF THIS EXHIBIT MARKED BY AN *** HAVE BEEN OMITTED PURSUANT
        TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED SEPARATELY WITH THE
                       SECURITIES AND EXCHANGE COMMISSION.



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            1.1 "Affiliate" shall mean, in relation to either Party hereto, (a)
any entity in which the relevant Party directly or indirectly holds more than
50% of the voting stock or power, (b) any entity ("Holding Entity") which holds
directly or indirectly more than 50% of the voting stock or power of the
relevant Party, (c) any other entity in which more than 50% of the voting stock
or power is directly or indirectly held by any Holding Entity of the relevant
Party or (d) any entity in which the relevant Party directly or indirectly holds
less than 50% of the voting stock or power but has management control of such
entity in that it has the ability to appoint and remove the majority of the
Board of Directors (or other governing body) of such Party.

            1.2 "BAC" shall mean the substance that is a component of Quixil
that is manufactured from cryoprecipitate extracted from "Human Plasma for
Fractionation" the production processes for which include various combinations
of both tranexamic acid and arginine and/or their derivatives and meets the
specifications for BAC set forth on Exhibit B hereto.

            1.3 "BAC2" shall mean a different version of BAC identified by Omrix
in its sole discretion that contains different combinations of the same
components of BAC, but that is essentially free of plasminogen activity and
tranexamic acid.

            1.4 "Covered Improvement" shall mean an Improvement to a Development
Product, made or proposed to be made during the Term of this Agreement, for
which both (i) the primary indication for use is in the Field and (ii) the
Improvement includes, or results in an improved version of a Development Product
that includes, (A) in the case of an Improvement to FS2, an improved version of
BAC2 and/or an improved version of Thrombin delivered together through a device
functionally equivalent to the device first approved for use with FS2, (B) in
the case of Thrombin, an improved sterile solution or lyophilized version of
Thrombin and (C) in the case of the Hemostatic Pad Product, an improved version
of the substrate, BAC2 and/or Thrombin used in the Hemostatic Pad Product or the
process of incorporation of BAC2 and/or Thrombin with a substrate.

            1.5 "Development Costs" shall mean all reasonable costs and expenses
incurred by Omrix in connection with the Project (including, without limitation,
all costs and expenses relating to clinical studies and regulatory filing fees
and costs of subcontractors and consultants, provided that such subcontractors
or consultants do not replace full-time, permanent Omrix personnel positions) in
a manner consistent with parameters set forth in a budget approved by the DAB,
except for Labor Costs.

            1.6 "Development Plan" shall mean the development plan attached as
Exhibit A, as such Development Plan may be amended from time to time, pursuant
to Section 2.3 hereof.

            1.7 "Development Products" shall mean FS2, Thrombin, the Hemostatic
Pad Product and the Flowable Hemostat.

            1.8 "Development Intellectual Property" shall mean any Intellectual
Property arising from the performance of the Parties' obligations under this
Agreement during the Term.


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            1.9 "Effective Date" shall mean the date first set forth in the
introductory paragraph hereto.

             1.10 "Ethicon Components" shall mean a substrate supplied by Ethicon
meeting specifications mutually agreed by Omrix and Ethicon or approved by the
DAB.

            1.11 "Ethicon Intellectual Property" shall mean all Intellectual
Property of Ethicon other than any of its interests in the Development
Intellectual Property.

            1.12 "EU" shall mean the European Union as it may be expanded from
time to time.

            1.13 "EU Marketing Clearance" shall mean the receipt by Omrix or
Ethicon of a marketing authorization in all of the following countries: France,
Germany, Italy, United Kingdom and Spain.

            1.14 "Field" shall mean Non-Consumer Applications using human-plasma
derived products that are indicated for (A) hemostasis (with or without other
indications), or (B) sealing only; except that, notwithstanding anything to the
contrary in the foregoing, the Field does not include dentistry applications,
regardless of whether hemostasis and/or sealing is an indication, recombinant
products or any device which uses the patient's own blood.

            1.15 "First Commercial Sale" shall mean the date on which Ethicon
first sells a specified Development Product to a third party which is not an
Affiliate following either US Marketing Clearance or EU Marketing Clearance, as
applicable.

            1.16 "Flowable Hemostat" shall mean a combination product comprised
of Thrombin and a medical device provided by Ethicon, packaged together as
separate components and approved by the regulatory authorities as a kit of two
or more medicinal products in a combination package where the components are
intended for simultaneous administration and which the DAB identifies in writing
as the "Flowable Hemostat."

            1.17 "FS2" shall mean a frozen liquid fibrin sealant which would
include the biological reagents BAC2 and Thrombin, would be essentially free of
plasminogen activity and tranexamic acid as contemplated by the Certificate of
Analysis for FS2 set forth on Exhibit B hereto, would be manufactured from
cryoprecipitate extracted from "Human Plasma for Fractionation" and would be
sold with a delivery device.

            1.18 "Hemostatic Pad Product" shall mean a pad comprised of
fibrinogen and/or Thrombin combined with a substrate, which substrate may be an
Ethicon Component.

            1.19 "Improved Product" shall mean a product, if any, incorporating
a Covered Improvement, which cannot be a Primary Product, as that term is
defined in the Supply Agreement.


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            1.20 "Improvement" shall mean, with respect to any Intellectual
Property, or Development Product, or Quixil, any upgrade, new version, change,
redesign, improvement or modification of or to such Intellectual Property, or
Development Product, or Quixil, or the method or process of manufacture,
production, use or sale of such Development Product, or Quixil.

            1.21 "Intellectual Property" shall mean (a) patents, patent
applications, patent disclosures and all related continuation,
continuation-in-part, divisional, reissue, reexamination, utility model,
certificate of invention and design patents, patent applications, registrations
and applications for registrations; (b) trademarks, service marks, trade dress,
Internet domain names, logos, trade names and corporate names and registrations
and applications for registration thereof; (c) copyrights and registrations and
applications for registration thereof; (d) mask works and registrations and
applications for registration thereof; (e) computer software, data and
documentation; (f) inventions, trade secrets and confidential business
information, whether patentable or nonpatentable and whether or not reduced to
practice, know-how, manufacturing and product processes and techniques, research
and development information, copyrightable works, financial, marketing and
business data, pricing and cost information, business and marketing plans and
customer and supplier lists and information; and (g) copies and tangible
embodiments thereof.

            1.22 "Labor Costs" shall mean Omrix's compensation of its personnel
and its subcontractors and consultants who fill Omrix's full-time, permanent
personnel positions in connection with the performance of Omrix's obligations
under this Agreement relating to the Project (including, without limitation, the
salary of such personnel).

            1.23 "Milestone Payments" shall have the meaning set forth in
Section 5 hereof.

            1.24 "Non-Consumer Applications" shall mean applications where
products are sold or distributed in a manner in which such products are required
by law to be applied by a medical professional in a doctor's office, hospital,
home-health setting, pharmacy or other healthcare facility.

            1.25 "Omrix Intellectual Property" shall mean all Intellectual
Property of Omrix that is not Development Intellectual Property, including,
without limitation: (a) United States provisional patent application Serial
Number 60/291,968, (b) European patent application 01115157.8, (c) PCT patent
application WO 02/095019, all continuations, continuations-in-part, divisionals
and foreign counterparts thereof, all patents worldwide issuing thereon, and all
renewals, reexaminations and extensions thereof; (d) proprietary know-how,
processes, technical information, and data relating to Omrix Products; (e) all
Intellectual Property of Omrix existing prior to the Effective Date and (f) all
Intellectual Property developed by or for Omrix that is or was not developed in
connection with the Project.

            1.26 "Omrix Products" shall mean FS2, Thrombin, BAC, and BAC2.


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            1.27 "Project" shall mean the development of the Development
Products contemplated hereby and of any Covered Improvements approved by the DAB
pursuant to Section 2.4 hereof as well as the implementation of any Regulatory
Changes.

            1.28 "Quixil" shall mean Omrix's frozen liquid fibrin sealant that
includes the biological reagents BAC and Thrombin and a delivery device,
currently marketed under the name "CrossealTM" by The American Red Cross in the
United States, under the name "Quixil" in certain EU countries by Omrix and
having U.S. license number 1603 and product registration numbers in certain
other countries as set forth on Exhibit C hereto.

            1.29 "Regulatory Changes" shall mean any changes in or to a Product,
its components or its Regulatory Approval imposed by the applicable Regulatory
Agency subsequent to Regulatory Approval, except for changes to Quixil required
for Omrix to meet the milestone set forth in Section 4.1(b) of the Supply
Agreement. For the avoidance of doubt, changes which Omrix makes for product
quality, compliance requirements, ongoing improvement programs related to viral
inactivation processes and productivity improvements not imposed by the
applicable Regulatory Agency shall not be considered Regulatory Changes.

            1.30 "Term" shall have the meaning set forth in Section 10.

            1.31 "Thrombin" shall mean the component of Quixil that is
manufactured from cryoprecipitate-depleted plasma and meets the specifications
for Thrombin set forth on Exhibit B hereto.

            1.32 "US Marketing Clearance" shall mean the receipt by Omrix or
Ethicon from the U.S. Food and Drug Administration ("FDA") of a 510k pre-market
clearance notification, a Pre-Market Approval ("PMA"), or Biologic License
Approval ("BLA") letter that permits the commercial distribution of a
Development Product for use in humans.

      2. Development of Development Products; Development Advisory Board;
Development of Covered Improvements; Scope

            2.1 Development of Development Products; Regulatory Changes. The
Parties each agree that they will use commercially reasonable efforts to develop
the Development Products and, as and if applicable, Ethicon Components, and to
agree on specifications therefor, as contemplated by the Development Plan. The
Parties each further agree that any Regulatory Changes shall automatically
become part of the Project and the costs for responding to and implementing such
Regulatory Changes (other than such costs which are increases to the costs of
manufacturing the applicable Product) shall be included within the scope of
Development Costs and Labor Costs, as applicable.

            2.2 Creation of Development Advisory Board; Meetings. Ethicon and
Omrix will assign individuals who will participate in a Development Advisory
Board ("DAB") consisting of from three to five individuals, including at least
one Director of Omrix and one Vice President of Ethicon, plus additional members
as necessary for guidance during the term of


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this Agreement. The DAB will meet on a periodic basis, which shall be no less
often than once per quarter. Approval of any matters by the DAB shall require
the unanimous vote of the members of the DAB or the mutual consent and signature
of authorized representatives of Ethicon and Omrix, except as expressly provided
in Section 2.3 hereof.

            2.3 Powers of DAB. The DAB will act as a steering group to oversee
and review progress and status of the Project, provide approval of a budget of
Development Costs and Labor Costs and approve specifications for the Development
Products and Ethicon Components, resolve outstanding issues and consider any
other information that may be relevant to the successful completion of the
Project. The DAB may refine the Development Plan for all Development Products by
mutual consent and by signature from authorized representatives of Ethicon and
Omrix, and such Development Plan shall be amended to include the Development
Plan for each Improved Product upon the approval of the development of the
applicable Covered Improvement by the DAB. The Development Plan as refined may
include details on activities such as those activities set forth on Exhibit A-1
hereto. Both Parties agree and acknowledge that the Development Plan will
include a timetable that will govern development of the Development Products. In
case mutual consent cannot be obtained, Ethicon shall have final vote on
clinical strategy, including indications for use, and product definition on the
Hemostatic Pad Product and on the Flowable Hemostat (but, in each case, not on
the Omrix Products contained therein). Omrix shall have the final vote on
regulatory and quality strategy and product specifications on all Development
Products.

            2.4 Covered Improvements. Each Party agrees that, prior to
commencing development of a Covered Improvement, they will submit such Covered
Improvement to the DAB for the DAB's consideration for development hereunder. If
the DAB approves such Covered Improvement for development hereunder, the
development of such Covered Improvement shall be deemed to be part of the
Project and subject to the terms and conditions of this Agreement. If the DAB
does not approve the development of such Covered Improvement, or if the DAB does
not approve the Development Plan relating to such Covered Improvement and the
expected resulting Improved Product within sixty (60) days of such approval, the
Party proposing such Covered Improvement shall be free to develop such Covered
Improvement outside the scope of the Project and this Agreement even in the
Field and in the Territory; provided that (i) no Covered Improvement not
approved by the DAB shall be commercialized by the Party proposing such Covered
Improvement if such Covered Improvement merely constitutes nominal modifications
to dosage forms, volume, packaging, or other modifications that do not result in
a substantial change in the safety, marketability or efficacy of the Development
Product and (ii) the Party proposing such Covered Improvement shall not commence
commercial sales of products incorporating such Covered Improvement until after
the one year anniversary of the date such Improvement was submitted to the DAB
for its consideration hereunder. Notwithstanding anything to the contrary in
this Agreement, Omrix shall not commercialize in the United States of America or
Canada or any of their territories or possessions (including Puerto Rico) FS2 or
any Covered Improvement of FS2 in the Field or Improvement to Quixil in the
Field without the participation of Ethicon, except as otherwise permitted under
Section 2.8 of the Supply Agreement. This Section 2.4 is subject to Section
2.8(c) of the Supply Agreement in all respects.


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            2.5 Other Development Activities. The Parties agree and acknowledge
that, subject to the Parties' obligations to develop the Development Products
hereunder and to follow the process set forth in Section 2.4 with respect to
Covered Improvements, nothing in this Agreement shall prevent either Party from
engaging in development or other activities with any third parties; provided
that neither Party shall use any Intellectual Property (other than any such
Intellectual Property which is jointly owned hereunder) or Confidential
Information of the other Party in the conduct of any such development or other
activities. Further, both Parties acknowledge that Omrix has an exclusive
distribution agreement with The American Red Cross for the distribution of
Quixil (under the name of "CrossealTM") in the United States, Canada and each of
their territories and possessions, including the Commonwealth of Puerto Rico.

            2.6 Consultants and Subcontractors. The DAB shall approve any
consultant or subcontractor who is to provide services under this Agreement
prior to the retention of same; provided that such approval shall not be
unreasonably withheld taking into account any qualitative benefits of a
particular subcontractor or consultant. Except as may be otherwise approved by
the DAB, such consultant or subcontractor shall not be retained unless they have
entered into a written agreement with the Parties whereby the consultant or
subcontractor agrees to (1) assign all rights in any Intellectual Property it
may develop as a result of their providing such services over to Omrix, Ethicon,
or both, as is applicable under the terms of this Agreement, (2) agree to
execute any documents and take all actions that are reasonably necessary to
perfect such assignment in the future; and (3) provide to the Parties any
licenses in any Intellectual Property owned by such Consultant or Subcontractor
that may be required in order for the Parties to utilize Intellectual Property
developed by the consultants or subcontractors.

      3. Intellectual Property

            3.1 Ownership of Developed Intellectual Property. Development
Intellectual Property shall be the property of the Party developing such
Intellectual Property, except as follows:

                  (a) Development Intellectual Property which is an Improvement
to Omrix Intellectual Property shall be solely owned by Omrix and Development
Intellectual Property which is an Improvement to Ethicon Intellectual Property
shall be solely owned by Ethicon , except that (1) Ethicon and Omrix shall
jointly own all Development Intellectual Property relating to (i) the process of
integration of Omrix Products with the substrate included in the Hemostatic Pad
or in the Flowable Hemostat, (ii) the Hemostatic Pad or Flowable Hemostat and
(iii) any Covered Improvement of the Hemostatic Pad or Flowable Hemostat (for
the avoidance of doubt, this clause 3.1(a)(1) shall in no event be deemed to
provide (A) Ethicon with joint ownership of any Improvements to an Omrix Product
that are not related to the integration of Omrix Products with a substrate nor
(B) Omrix with joint ownership of any Improvements to an Ethicon Component that
are not related to the integration of such Ethicon Component with Omrix
Products) (2) Development Intellectual Property relating to Improvements to the
Omrix Products that are not within the scope of 3.1(a)(1) above shall be solely
owned by Omrix; and (3) Development Intellectual Property relating to
Improvements to


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Ethicon Intellectual Property that are not within the scope of 3.1(a)(1) above
shall be solely owned by Ethicon.

                  (b) Development Intellectual Property that is jointly
developed but not within the scope of clause 3.1(a) above shall be jointly owned
by the Parties; provided that, for the avoidance of doubt, the Parties agree
that Ethicon's payment of Development Costs and/or Labor Costs shall not be
relevant in any determination of whether any Intellectual Property is jointly
developed or jointly owned by the Parties.

                  (c) With respect to Development Intellectual Property that is
jointly owned by the Parties hereunder, neither Party shall have any duty to
account and no need to obtain the other Party's consent in order to exploit such
Development Intellectual Property, except as may be required pursuant to
obligations to or rights of the other Party that are not acquired under or
related to this Agreement.

                  (d) Nothing in this section shall grant to either Party any
rights in any Intellectual Property of the other Party existing prior to the
Effective Date or that is not developed in connection with the Projec