DEVELOPMENT AND LICENSE AGREEMENT

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ARTICLE 1 - DEFINITIONS

In the present Agreement the following definitions shall prevail:

     1.1 “Affiliates” of a party hereto shall mean an entity which controls, is controlled by or is under common control with such party (by majority ownership or otherwise). For the purposes hereof “control” shall mean the power to direct or cause the direction of the management and the policies of an entity, whether through the ownership of a majority of the outstanding voting securities or by contract or otherwise.

     1.2 “ARADIGM” shall mean ARADIGM CORPORATION of 26219 Eden Landing Road, Hayward, California 94545, and any of its Affiliates.

     1.3 “ARADIGM Know-How” shall mean all knowledge, information and expertise possessed by ARADIGM prior to or at any time during the term of this Agreement related to the development and production of the Device, Packaged Products, Formulated Compounds and Programme Compounds, whether or not covered by ARADIGM Patent Rights or any other industrial or intellectual property right of ARADIGM, including but not limited to technical data, experimental results, specifications, techniques, methods, processes and written materials.

     1.4 “ARADIGM Patent Rights” shall mean any and all of ARADIGM’s patents and patent applications related to the Device, Packaged Products, Formulated Compounds and Programme Compounds, including those that relate to the development, production and use of same, possessed by ARADIGM at any time during the term of this Agreement. A current and complete list of such rights, entitled “ARADIGM Patents” and certified by an officer of ARADIGM, has been delivered to NOVO NORDISK. ARADIGM Patent Rights shall also include all continuations, continuations-in-part, divisionals or re-issues of such patents and patent applications and any patents issuing thereon or extensions thereof or any foreign counterparts thereof. Extensions of patents shall include: a) extensions under the U.S. Patent Term Restoration Act, b) extensions of patents under the Japanese Patent Law, c) Supplementary Protection Certificates for members of the European Patent Convention and other countries in the European Economic Area and d) similar extensions under any applicable law in the Territory.

     1.5 “Development Costs” shall mean the fully burdened costs of conducting development activities (including the supply by ARADIGM of clinical trial quantities of Devices and Packaged Products) pursuant to the Development Programme, including the costs of labor (including all allocable benefits), materials, outside consultants and research and development and corporate and overhead amounts reasonably allocable to such development activities [ * ].

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     1.6 “Development Programme” shall mean the pharmaceutical development of the Packaged Products (including Formulated Compounds and the disposable unit dose packaging) and the Device, including the pre-clinical and clinical development programmes required for registration and approval of the Device and the Packaged Products in the Territory as provided for in this Agreement. The Development Programme shall initially consist of a development plan addressing the development of the Device and a Packaged Product containing the Initial Compound, but may be enlarged to include the development of Packaged Products containing one or more Other Compounds in accordance with Article 2.1.

     1.7 “Device” shall mean any pulmonary delivery device, together with any accessories, used to administer any Formulated Compounds contained in a disposable unit dose package, developed in the course of the Development Programme based on the device technology described in the ARADIGM Patent Rights or utilizing ARADIGM Know-How.

     1.8 “Diligent Efforts” shall mean no less than the efforts that the applicable party applies to development, manufacture or commercialization of its own compounds or products with similar regulatory requirements and market potential.

     1.9 “Field” shall mean pulmonary administration of insulin, insulin analogs and any other compounds whose principal therapeutic effect is to control blood glucose levels in humans, including but not limited to glucagon-like peptide (“GLP”), GLP-1 and analogs of GLP.

     1.10 “First Marketing” shall mean making available for sale the Device and a Packaged Product in commercial quantities in any country in the Territory.

     1.11 “Formulated Compound” shall mean any formulation of any Programme Compound developed in the course of the Development Programme for use in a Packaged Product.

     1.12 “Fully Burdened Costs” shall mean the cost of raw materials (excluding unless otherwise stated the Programme Compound), components, labour (production), quality control (labour, material and external analysis), third party royalties, freight, import duties, taxes and reasonably allocated facilities, depreciation of equipment and manufacturing overheads relating to the production of the specified item.

     1.13 “Gross Profit” shall mean NOVO NORDISK’s Net Sales of Packaged Products and Devices in the Territory minus the Fully Burdened Costs of all Packaged Products and Devices (including finished goods, components and raw materials such as Initial Compound that become obsolete or outdated, whether due to inaccurate forecasting or any other reason) supplied to NOVO NORDISK or produced by NOVO NORDISK as contemplated by Article 4.7 [ * ] and Article 4.9(a) (secondary packaging), including for this purpose the Fully Burdened Costs of the applicable Programme Compound, other than product that is so produced or provided as samples (Article 4.9(f)).

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     1.14 “Initial Compound” shall mean recombinant human insulin.

     1.15 “Minimum Product Profile” shall mean any and all of the essential minimum product specifications and other criteria for the Device and the Packaged Products, set forth in a separate document entitled “Minimum Product Profile” signed by the parties, which the parties have agreed must be met in the course of the Development Programme to provide justification for commercial launch and which may provide the basis for termination of this Agreement as set forth in Article 9.2.

     1.16 “Net Sales” shall mean the invoiced gross revenue from sales of product made by NOVO NORDISK and/or its sublicensees when invoiced to any third party in an arm’s length transaction less: a) Trade, cash and/or quantity discounts or rebates, if any; b) Credits or allowances given for rejection or return of such products previously sold; c) Any tax or governmental charge other than income tax levied on the sale thereof or customs duties associated therewith; d) Freight, insurance and other similar expenses billed separately to the customer. Upon a request by NOVO NORDISK supported by suitable documentation reflecting actual operating experience, the parties will agree on a fixed percentage of Net Sales to represent item (d).

     1.17 “NOVO NORDISK Know-How” shall mean knowledge, information and expertise possessed by NOVO NORDISK prior to or at any time during the term of this Agreement that relates to any Programme Compound or any Formulated Compound or that NOVO NORDISK otherwise contributes to the Development Programme, whether or not covered by NOVO NORDISK Patent Rights or other industrial or intellectual property right of NOVO NORDISK, including but not limited to technical data, experimental results, specifications, techniques, methods, processes and written materials.

     1.18 “NOVO NORDISK” shall mean NOVO NORDISK A/S, Novo Allé, DK-2880 Bagsvaerd, Denmark, and any of its Affiliates.

     1.19 “NOVO NORDISK Patent Rights” shall mean any and all of NOVO NORDISK’s patents and patent applications related to any Programme Compound or any Formulated Compound, including those that relate to the production, development and use of same, possessed by NOVO NORDISK at any time during the term of this Agreement. NOVO NORDISK Patent Rights shall also include all continuations, continuations-in-part, divisionals or re-issues of such patents and patent applications and any patents issuing thereon or extensions thereof or any foreign counterparts thereof. Extensions of patents shall include: a) extensions under the U.S. Patent Term Restoration Act, b) extensions under the Japanese Patent Law, c) Supplementary Protection Certificates for members of the European Patent Convention and other countries in the European Economic Area and d) similar extensions under any applicable law in the Territory.

     1.20 “Other Compounds” shall mean compounds in the Field other than the Initial Compound.

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     1.21 “Packaged Products” shall mean the disposable unit dose packages developed in the course of the Development Programme containing Formulated Compounds, packaged for use with the Device for pulmonary delivery of such Formulated Compounds.

     1.22 “Programme Compounds” shall mean the Initial Compound and any Other Compounds that are added to the Development Programme in accordance with Article 2.1.

     1.23 “Regulatory Approval” shall mean the granting of a commercial marketing authorization for the Packaged Product for delivery of a Formulated Compound using the Device and for the Device.

     1.24 “Regulatory Submission” shall mean the filing of an application for a commercial marketing authorization for a Packaged Product for delivery of a Formulated Compound using the Device and for the Device.

     1.25 “Territory” shall include any and all countries of the world.

ARTICLE 2 - DEVELOPMENT ACTIVITIES AND RESPONSIBILITIES

     2.1 NOVO NORDISK and ARADIGM shall jointly conduct the Development Programme, which shall initially consist of Diligent Efforts by the parties to carry out a development plan addressing development of the Device and a Packaged Product containing the Initial Compound for administration using the Device. The preliminary details of such development plan have been agreed upon by the parties and are set forth in a separate document entitled “Milestone Plan.” The details of this development plan shall be discussed and agreed on in good faith between the parties and embodied in a document signed by both parties, which shall thereafter be subject to further modification from time to time as approved by the Steering Committee. The product description for the Packaged Product and the Device, including the Minimum Product Profile as well as desired target profiles, shall be agreed by NOVO NORDISK and ARADIGM and shall be included in the document defining the Development Programme. It is understood between the parties that the specifications for the Packaged Product and the Device may require some changes during the course of the programme and that such changes will be made when and as approved by the Steering Committee. NOVO NORDISK shall specify within [ * ] after the initiation of a Phase III trial of the initial Packaged Product one or more Other Compounds for study by the Steering Committee as candidates for the second Packaged Product to be added to the Development Programme and may from time to time thereafter propose additional Other Compounds for the Development Programme. Upon agreement by the parties on a development plan to incorporate the preliminary details for the development of such Other Compounds and determination by the Steering Committee that such development is feasible and should be undertaken, such Other Compounds will be added to the Development Programme. Each time an Other Compound is added to the Development Programme in this manner, the parties will agree in good faith on the financial terms not otherwise specified herein for such development and commercialization, which will provide for a reasonable sharing of the

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potential value of the Packaged Product containing such compound, as well as on such other modifications of the other terms hereof as may be reasonable under the circumstances.

     2.2 A Steering Committee will be established, consisting of an equal number of people (at least three) from each party, whose responsibility will be to ensure the Development Programme is carried out to the satisfaction of both parties. The Steering Committee, [ * ] shall have responsibility for approval of and release of funds, approving budgets, approving any changes to the Development Programme, for approving reimbursement of costs for pharmaceutical development as described in Article 2.5, as well as plans for production capacity and budgets for capital expenditures associated therewith, and for the review and approval of product specifications as contemplated by Article 4.9(d). The Steering Committee will meet each quarter, during the first year of this Agreement, and then as mutually agreed between the parties. In the event the Steering Committee is unable to resolve any matter to the satisfaction of the Steering Committee, the matter will be referred to the senior managements of the two parties for resolution. While in general the parties intend to act by mutual agreement, with respect to issues concerning the design and implementation of clinical trials and approval of specifications as provided in Article 4.9(d), the senior management of NOVO NORDISK shall have the right to make the final decision.

     2.3 ARADIGM agrees that it will use Diligent Efforts to develop, manufacture and supply, to the deadlines included in the Development Programme agreed between the parties, the Packaged Product and the Device consistent with Good Manufacturing Practice and any other relevant practices as required to obtain Regulatory Approval for the Device and the Packaged Product in all major markets in the Territory. ARADIGM shall use Diligent Efforts to obtain all the required Regulatory Approvals in the Territory required for NOVO NORDISK commercialization of the Device with the Packaged Products. However, in such cases where the Device Regulatory Submission is an integrated part of the Regulatory Submission, then ARADIGM shall only timely submit to NOVO NORDISK all the sections of the Regulatory Submission which are required for obtaining Regulatory Approval of the Device with the Packaged Products. For countries other than the United States, NOVO NORDISK shall provide reasonable non-monetary assistance in structuring such Device Regulatory Submission, provided NOVO NORDISK has the necessary experience to provide such assistance. The personnel of NOVO NORDISK having relevant expertise in technical areas affecting ARADIGM’s activities directed to product development, production process development and manufacturing scale-up and cost reduction, including those pertaining to the Device as well as the Packaged Product, shall participate or advise in the Development Programme in such manner as is approved by the Steering Committee.

     2.4 The Development Costs necessary for activities after the Effective Date required to develop the Packaged Product and the Device as specified in the Development Programme referred to in Article 2.1 shall be allocated and paid as described below:

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In addition to the foregoing, and in consideration of ARADIGM’s past and future development activities, NOVO NORDISK agrees to make the following milestone payments to ARADIGM at first occurrence of each of the following events:

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Notwithstanding any other provision of this Agreement, and for the avoidance of doubt, each of the amounts referred to in [ * ] shall be payable only once with respect to the development of the initial Packaged Product and shall be non-refundable. Consequently, maximum total milestone payments to be paid by NOVO NORDISK to ARADIGM under this Agreement in respect of such milestones shall amount to [ * ]

For the avoidance of doubt, each of the amounts referred to in [(h)-(l) of this Article 2.4] shall be payable only once. Moreover, no further payments in respect of such milestones will become due once NOVO NORDISK has paid ARADIGM a total of [ * ]. Consequently, maximum total milestone payments to be paid by NOVO NORDISK to ARADIGM under this Agreement in respect of such milestones shall amount to [ * ].

Thus, the total milestone payments in respect of the Packaged Product containing the second Programme Compound will be [ * ], plus milestone amounts in respect of regulatory submission and approvals thereof to be agreed upon at the time it is added to the Development Programme. Upon request by NOVO NORDISK to develop a third Programme Compound in the Development Programme pursuant to Article 2.1, the parties will agree in good faith on the milestone payments to apply to the clinical development of Packaged Products containing such Other Compound.

Furthermore, NOVO NORDISK shall invest up to a total of USD ten million (USD 10,000,000) equity in ARADIGM at times and under terms as specified in a separate agreement between the parties.

     2.5 Development Costs of ARADIGM to be borne by NOVO NORDISK will be paid quarterly [ * ] by NOVO NORDISK based on budgeted expenses approved by the Steering Committee, subject to a reconciliation to actual costs incurred at the end of each year (based on a presentation to the Steering Committee no later than sixty (60) days after the end of such year) approved by the Steering Committee (such approval not to be unreasonably withheld or delayed) or more frequently if requested by either party. NOVO NORDISK shall pay or ARADIGM shall refund, as applicable, any difference between amounts advanced and actual costs incurred within thirty (30) days after such reconciliation is approved. Any anticipated material deviations from established budgets will be reported as promptly as practicable to the Steering Committee.

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     2.6 NOVO NORDISK and ARADIGM shall use their Diligent Efforts to obtain all necessary regulatory approvals for pre-clinical and clinical development work. All regulatory submissions required for clinical development work in the USA to be filed initially by ARADIGM that are needed by NOVO NORDISK to continue development will be transferred to NOVO NORDISK as soon as practicable but in any event prior to the commencement of Phase III trials, and NOVO NORDISK will thereafter be the holder thereof and will have responsibility for all further regulatory filings worldwide unless otherwise approved by the Steering Committee.

     2.7 NOVO NORDISK agrees that it will use its Diligent Efforts to clinically develop and register, to the deadlines included in the Development Programme agreed between the Parties, and market the Packaged Products for administration using the Device in the Territory. [ * ]

     2.8 All supplies of Programme Compounds (including certificates of analysis and safety handling data) required for the Development Programme, shall be supplied by NOVO NORDISK to ARADIGM, [ * ] and in a timely manner, so as not to adversely affect the expected duration of the Development Programme.

     2.9 All supplies of Packaged Product and the Device plus safety and handling information and training required for the Development Programme, shall be supplied by ARADIGM to NOVO NORDISK, [ * ] and in a timely manner, so as not to adversely affect the expected duration of the Development Programme.

     2.10 NOVO NORDISK shall furnish ARADIGM with such data and information as ARADIGM shall reasonably require regarding each Programme Compound to enable ARADIGM to carry out the work under the Development Programme.

     2.11 ARADIGM shall furnish NOVO NORDISK with such data and information as NOVO NORDISK shall reasonably require regarding the Packaged Products, the Devices and components thereof, as well as the manufacturing processes therefor, to enable NOVO NORDISK to carry out the work under the Development Programme.

     2.12 ARADIGM shall only use Programme Compounds supplied by NOVO NORDISK and the NOVO NORDISK Know-How as provided for in this Agreement. NOVO NORDISK shall only use the ARADIGM Know-How as provided for in this Agreement. Upon termination of this Agreement, ARADIGM undertakes to return, upon NOVO NORDISK’s written request, all written documentation embodying NOVO NORDISK Know-How and any and all remaining Programme Compound to NOVO NORDISK, except and to the extent retention thereof is reasonably necessary during any post termination period in which NOVO NORDISK continues to supply insulin to ARADIGM. Upon termination of this Agreement, NOVO NORDISK undertakes to return, upon Aradigm’s written request, all written documentation embodying ARADIGM Know-How to ARADIGM.

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     2.13 ARADIGM hereby acknowledges that NOVO NORDISK may be simultaneously conducting exploratory research and development on alternative pulmonary delivery technologies that may be applicable in the Field and that NOVO NORDISK is free to develop and commercialise such technology outside the Field. NOVO NORDISK may also supply insulin to third parties free of charge for use in such third party’s clinical studies using such third party’s pulmonary delivery technology in exchange for rights in such technology in the Field. However, NOVO NORDISK [ * ] and [ * ] provided that NOVO NORDISK has given written notice (the “Alternative Technology Notice”) to ARADIGM of its intention to commence such commercialization at least one year prior to such commencement. Notwithstanding the foregoing, in the event NOVO NORDISK proposes to add an Other Compound to the Development Programme pursuant to Article 2.1, and ARADIGM is unwilling or unable to do so, NOVO NORDISK may thereafter develop and commercialize such Other Compound with an alternative pulmonary delivery technology without being in breach of this Agreement and such Other Compound, together with equivalent compounds, will thereafter be excluded from the Field.

     2.14 During the term of this Agreement, in the event NOVO NORDISK becomes aware of [ * ] it agrees subject to the rights and demands of the potential licensor, to inform ARADIGM of such opportunity and, [ * ] then the parties will jointly consider in good faith terms under which ARADIGM would license such rights for application within pulmonary delivery, further develop the applicable technology and make it available to a collaboration between the two parties.

     2.15 For so long as the license to NOVO NORDISK under Article 3 is exclusive, and subject to Article 2.13 above, ARADIGM shall not be entitled to enter into any other agreement with any third party within the Field, and shall not conduct any work programme with Initial Compound or any Other Compound from any third party supplier without the written consent of NOVO NORDISK.

     2.16 NOVO NORDISK agrees that, in the event it cannot produce sufficient quantities of the Initial Compound to satisfy all customer demand on its capacity, [ * ] form.

ARTICLE 3 – GRANT OF LICENSE; OPTION

     3.1 ARADIGM hereby grants NOVO NORDISK a world-wide sole and exclusive license under the ARADIGM Patent Rights and ARADIGM Know-How a) to use, market, distribute, sell, offer for sale, import and export the Packaged Products and the Device in and from the Territory for use within the Field, with the right to sublicense, and b) to otherwise exercise and perform its rights and obligations under this Agreement.

     3.2 ARADIGM hereby grants NOVO NORDISK the right to sublicense its customers to a) use the Packaged Products and the Device, and b) sell, offer to sell, import or export the Packaged Products and the Device, so long as said items were bought from NOVO NORDISK.