EMPLOYMENT AGREEMENT

Exhibit 10.1

EMPLOYMENT AGREEMENT

This E MPLOYMENT A GREEMENT (this “Agreement” ) is made and entered into effective as of October __, 2007 (the “ Effective Date ”) by and among I NSERT T HERAPEUTICS ( “Insert” ), C ALANDO P HARMACEUTICALS ( “ Calando”) (collectively, the “Companies” ), and L ARRY S TAMBAUGH (the “Executive” ). The Companies and the Executive are hereinafter collectively referred to as the “Parties” , and individually referred to as a “Party” .

R ECITALS

A. The Companies desire assurance of the association and services of the Executive in order to retain the Executive’s experience, skills, abilities, background and knowledge, and is willing to engage the Executive’s services on the terms and conditions set forth in this Agreement.

B. The Executive desires to be in the employ of the Companies, and is willing to accept such employment on the terms and conditions set forth in this Agreement.

C. The Parties anticipate that, shortly following the execution of this Agreement, Insert and Calando shall merge into a single entity (the “ Merged Entity ”), and that Executive shall thereafter perform the services described herein on behalf of the Merged Entity.

A GREEMENT

In consideration of the foregoing Recitals and the mutual promises and covenants herein contained, and for other good and valuable consideration, the Parties, intending to be legally bound, agree as follows:

1.1 Term. The Companies hereby employ the Executive, and the Executive hereby accepts employment with the Companies, upon the terms and conditions set forth in this Agreement. The term of this Agreement shall begin on the Effective Date and shall continue until it is terminated pursuant to Section 4 herein (the “Term” ). The initial term of this Agreement shall be for a period of (i) three years after the Effective Date of this Agreement (“ Initial Term ”); or (ii) the date upon which Executive’s employment is terminated in accordance with Section 4. This Agreement shall be automatically renewed for additional one (1) year terms (each an “ Extension Term ”) upon the expiration of the Initial Term and each Extension Term, unless either party gives the other party a written notice of termination not less than thirty (30) days prior to the date of expiration of the Initial Term or any Extension Term (together, the Initial Term and all Extension Terms are referred to herein as the “ Term ”). Where the Agreement is terminated upon notice and the expiration of the Initial Term or an Extension Term, the Company shall pay to Executive all compensation to which Executive is entitled up through the effective date of termination according to its normal payroll practices, and the Company shall not have any further obligations under this Agreement. It is expected that the Executive’s first day of work for the Companies shall be November 1, 2007.

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1.2 Title . The Executive shall be the President and Chief Executive Officer of Insert and the President and Chief Executive Officer of Calando, and shall also serve in such other capacity or capacities as the Boards of Directors (the “ Boards ”) of the Companies may from time to time prescribe. The Executive shall also serve as a member of the Companies’ Boards. Following the anticipated merger of the Companies into the Merged Entity, the Executive shall serve as the President and Chief Executive Officer of the Merged Entity and shall also serve on the Board of the Merged Entity.

1.3 Duties. The Executive shall do and perform all services, acts or things necessary or advisable to manage and conduct the business of the Companies and that are normally associated with the position of President and Chief Executive Officer. The Executive shall report to the Companies’ Boards.

1.4 Policies and Practices. The employment relationship between the Parties shall be governed by this Agreement and by the policies and practices established by the Companies and the Companies’ Boards. In the event that the terms of this Agreement differ from or are in conflict with the Companies’ policies or practices or the Companies’ Employee Handbooks, this Agreement shall control.

1.5 Location . Unless the Parties otherwise agree in writing, during the Term the Executive shall perform the services the Executive is required to perform pursuant to this Agreement in San Diego, California; provided, however , that the Companies may from time to time require the Executive to travel temporarily to other locations in connection with the Companies’ business.

2.1 Loyalty . During the Executive’s employment by the Companies, the Executive shall devote the Executive’s full business energies, interest, abilities and productive time to the proper and efficient performance of Executive’s duties under this Agreement. Notwithstanding the foregoing, the Executive and the Companies agree that the Executive may (1) serve as a member of the Boards of Directors of Precision, Elixir Industries, and Axtel, Inc.; and (2) serve as the Chairman of the Board of Directors of a yet-to-be-formed subsidiary of Virtual Reality Medical Center; provided that such service does not materially interfere with the Executive’s duties for the Companies.

2.2 Agreement not to Participate in Companies’ Competitors . During the Term, the Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by Executive to be adverse or antagonistic to the Companies, their business, or prospects, financial or otherwise, or in any company, person, or entity that is, directly or indirectly, in competition with the business of the Companies or any of their Affiliates. Ownership by the Executive, in professionally managed funds over which the Executive does not have control or discretion in investment decisions, or as a passive investment, of less than two percent (2%) of the outstanding shares of capital stock of any corporation with one or more classes of its capital stock listed on a national securities exchange or publicly traded on the Nasdaq Stock Market or in the over-the-counter market shall not constitute a breach of this Section 2.3.

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3.1 Base Salary. The Companies shall pay the Executive a combined base salary at the rate of four hundred thousand dollars ($400,000) per year (the “Base Salary” ), less payroll deductions and all required withholdings, payable in regular periodic payments in accordance with the Companies’ normal payroll practices. Such Base Salary shall be prorated for any partial year of employment on the basis of a 365-day fiscal year.

3.2 Annual Bonus. In addition to the Base Salary, the Executive shall be eligible for an annual bonus of up to 50% of the Executive’s Base Salary as is then in effect, based on the Executive’s achievement of performance milestones to be established for the Executive each year by the Companies’ Boards in consultation with the Executive. Any annual bonus earned by Executive will be paid within two-and-one-half months of the end of the year in which it was earned.

3.1 Stock Options.

3.1.1 Option Grants. Subject to the approval of the Boards of Insert, Calando, and Arrowhead Research Corporation (“ Arrowhead ”), and subject to the terms of Insert’s, Calando’s, and Arrowhead’s respective Equity Incentive Plans (the “ Plans ” ), the Executive will be granted all of the following (collectively, the “ Options ”):

(i) an option to purchase a number of shares of Insert’s common stock that is not less than five percent (5%) of Insert’s outstanding common stock, which percentage shall be based on the fully-diluted capitalization of Insert immediately following the grant of the option, at an exercise price per share equal to the fair market value of a share of Insert’s common stock on the date of the grant;

(ii) an option to purchase a number of shares of Calando’s common stock that is not less than five percent (5%) of Calando’s outstanding common stock, which percentage shall be based on the fully-diluted capitalization of Calando immediately following the grant of the option, at an exercise price per share equal to the fair market value of a share of Calando’s common stock on the date of the grant; and

(iii) an option to purchase 100,000 shares of Arrowhead’s common stock at an exercise price equal to the closing price of a share of Arrowhead’s common stock on the NASDAQ exchange on the later of (a) the Executive’s start date; and (b) the date Arrowhead’s Board approves the option.

The Options shall be immediately fully exercisable and shall vest in accordance with Section 3.1.2 below. The Executive’s right to exercise the shares, the Companies’ and Arrowhead’s repurchase rights with respect to any exercised unvested shares, and all other rights and obligations with respect to the Option, will be as set forth in the stock option agreement, grant notice and applicable Plans.

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3.1.2 Vesting. The Options shall vest as follows: 12.5% of the shares subject to each of the three Options shall vest on the six (6) month anniversary of the Effective Date. The remaining 87.5% of the shares subject to the Options shall vest in equal monthly installments on the last calendar day of each month for the 42-month period thereafter.

3.1.3 Incentive Stock Option. To the maximum extent possible, the Options shall be Incentive Stock Options as such term is defined in Section 422 of the Internal Revenue Code of 1986, as amended.

3.2 Employment Taxes . All of the Executive’s compensation shall be subject to customary withholding taxes and any other employment taxes as are commonly required to be collected or withheld by the Companies.

3.3 Vacation. The Executive shall be entitled to four (4) weeks of paid vacation per year. Benefits . The Executive shall, in accordance with Arrowhead’s policies and the terms of the applicable plan documents, be eligible to participate in the various employee benefit plans and programs offered by Arrowhead, including but not limited to health, dental, and vision, life, and disability insurance benefits and Arrowhead’s 401(k) plan.

3.4 Expense Reimbursements. The Companies will reimburse the Executive for all reasonable business expenses Executive incurs in conducting his duties hereunder, pursuant to the Companies’ usual expense reimbursement policies.

4.1 Termination By the Companies . The Executive’s employment with the Companies is at will and may be terminated by the Companies at any time and for any reason or for no reason, including but not limited to under the following conditions:

4.1.1 Termination for Death or Disability . The Executive’s employment with the Companies shall automatically terminate effective upon the date of the Executive’s death or Complete Disability (as defined below), provided, however, that this Section 4.1.1 shall in no way limit the Companies’ obligation to provide such reasonable accommodations to the Executive as may be required by law.

4.1.2 Termination by the Companies For Cause . The Companies may terminate the Executive’s employment under this Agreement for “Cause” (as defined below) by delivery of written notice to the Executive specifying the Cause or Causes relied upon for such termination. Any notice of termination given pursuant to this Section 4.1.2 shall effect termination as of the date of the notice, or as of such other date as specified in the notice.

4.1.3 Termination by the Companies Without Cause. The Companies may terminate the Executive’s employment under this Agreement without Cause at any time and for any reason, or for no reason. Such termination shall be effective on the date the Executive is so informed, or as otherwise specified by the Companies.

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4.2 Termination By The Executive . The Executive’s employment with the Companies is at will and may be terminated by the Executive at any time and for any reason or for no reason, including but not limited to under the following conditions:

4.2.1 Good Reason . The Executive may terminate his employment under this Agreement for “Good Reason” (as defined below) in accordance with the procedures specified in Section 4.6.2 below.

4.2.2 Without Good Reason . The Executive may terminate the Executive’s employment hereunder for other than Good Reason upon thirty (30) days written notice to the Companies.

4.3 Termination by Mutual Agreement of the Parties . The Executive’s employment pursuant to this Agreement may be terminated at any time upon a mutual agreement in writing of the Parties. Any such termination of employment shall have the consequences specified in such agreement.

4.4 Compensation Upon Termination .

4.4.1 Death or Complete Disability . If the Executive’s employment shall be terminated by death or Complete Disability as provided in Section 4.1.1, the Companies shall pay to the Executive, or to the Executive’s heirs, the Executive’s Base Salary and accrued and unused vacation benefits earned through the date of termination at the rate in effect at the time of termination, less standard deductions and withholdings.

4.4.2 With Cause or Without Good Reason. If the Executive’s employment shall be terminated by the Companies for Cause, or if the Executive terminates his employment hereunder without Good Reason, the Companies shall pay the Executive’s Base Salary and accrued and unused vacation benefits earned through the date of termination at the rate in effect at the time of termination, less standard deductions and withholdings.

4.4.3 Without Cause or For Good Reason Not In Connection with a Change in Control. If the Companies terminate the Executive’s employment without Cause, or if the Executive terminates his employment for Good Reason, at any time other than during the three (3) months immediately preceding, or the twelve (12) months immediately following, a Change in Control (as defined below) of Insert, Calando, or the Merged Entity, the Companies shall pay the Executive’s Base Salary and accrued and unused vacation earned through the date of termination, at the rate in effect at the time of termination, less standard deductions and withholdings. In addition, upon the Executive’s furnishing to the Companies a waiver and release of claims in the form attached hereto as Exhibit A ( the “ Release ”) within the time period set forth therein, but in no event later than forty-five days following Executive’s termination, and permits the Release to become effective in accordance with its terms, the Executive shall be entitled to the following:

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(i) an amount equal to six (6) months of the Executive’s Base Salary in effect at the time of termination (calculated prior to any reduction in Base Salary that would give rise to the Executive’s right to resign for Good Reason pursuant to Section 4.6.2(iii)), less standard deductions and withholdings, to be paid to the Executive in a single lump sum within five (5) days of the effective date of the Release (as defined therein); and

(ii) in the event the Executive timely elects continued coverage under COBRA, the Companies will pay the same portion of the Executive’s COBRA health insurance premiums as the percentage of health insurance premiums it paid during the Executive’s employment for the twelve (12) month period commencing on the first day of the first full calendar month following the effective date of the Release; and

(iii) if the termination date is on or before the first anniversary of the Effective Date, vesting of the Executive’s Options shall be accelerated such that, on the effective date of the Release, the Executive shall receive immediate accelerated vesting of the number of shares subject to each of the three Options that will bring the Executive’s total percentage of vested shares under each of the three Options to 20%. For example, if the Executive’s employment were terminated three (3) months after the Effective Date, the Executive would be entitled to immediate accelerated vesting of 20% of the shares subject to each of the three Options. If the Executive’s employment were terminated six (6) months and one day after the Effective Date, such that the Executive would already be vested in 12.5% of the shares subject to each of the three Options under Section 3.1.2, the Executive would be entitled to immediate accelerated vesting of 7.5% of the shares subject to each of the three Options.

4.4.4 Without Cause or For Good Reason In Connection with a Change in Control. If the Companies terminate the Executive’s employment without Cause, or if the Executive terminates his employment for Good Reason, at any time during the three (3) months immediately preceding, or the twelve (12) months immediately following, a Change in Control of Insert, Calando, or the Merged Entity, the Companies shall pay the Executive’s Base Salary and accrued and unused vacation earned through the date of termination, at the rate in effect at the time of termination, less standard deductions and withholdings. In addition, if the Executive furnishes to the Companies the Release within the time period set forth therein, but in no event later than forty-five days following Executive’s termination, and permits the Release to become effective in accordance with its terms, the Executive shall be entitled to the following:

(i) an amount equal to twelve (12) months of the Executive’s Base Salary in effect at the time of termination (calculated prior to any reduction in Base Salary that would give rise to the Executive’s right to resign for Good Reason pursuant to Section 4.6.2(iii)), less standard deductions and withholdings, to be paid to the Executive in a single lump sum within five (5) days of the effective date of the Release; and

(ii) in the event the Executive timely elects continued coverage under COBRA, the Companies will pay the same portion of the Executive’s COBRA health insurance premiums as the percentage of health insurance premiums it paid during the Executive’s employment for the twelve (12) month period commencing on the first