EXCLUSIVE LICENSE AGREEMENT

Exhibit 10.4

EXCLUSIVE LICENSE AGREEMENT

between

THE REGENTS OF THE UNIVERSITY OF CALIFORNIA

and

NEUROGESX, INC.

for

HIGH DOSE CAPSAICIN FOR NEUROPATHIC PAIN

UCSF Case No. SF00-056

UC Case No. SF00-056

EXCLUSIVE LICENSE AGREEMENT

For

HIGH DOSE CAPSAICIN FOR NEUROPATHIC PAIN

This license agreement (the “Agreement”) is made effective November 1, 2000 (the “Effective Date”) between THE REGENTS OF THE UNIVERSITY OF CALIFORNIA, a California corporation having its statewide administrative offices at 1111 Franklin Street, Oakland, California 94607-5200, (“The Regents”), and acting through its Office of Technology Management, University of California San Francisco, 1294 Ninth Avenue – Suite 1, Box 1209, San Francisco, CA 94143-1209 (“UCSF”), and NEUROGESX, INC., a Delaware corporation having a principal place of business at 2215 Bridgepointe Parkway, Suite 200, San Mateo, California, (the “Licensee”).

BACKGROUND

A. Certain inventions, generally characterized as “High Dose Capsaicin Relieves Neuropathic Pain” (collectively the “Invention”), were made in the course of research at the University of California San Francisco by Wendye R. Robbins as described in UCSF Case Number SF00-056, and are covered by Regents’ Patent Rights as defined below;

B. The Licensee has evaluated the Invention under a Secrecy Agreement with The Regents effective August 20, 1999 (U.C. Control No. 2000-20-0104);

E. The Licensee and The Regents have executed a Letter of Intent dated June 1, 2000 (U.C. Control No. 2000-30-0050) for the purpose of negotiating a license to Regents’ Patent Rights;

F. The Licensee wishes to obtain rights from The Regents for the commercial development, use, and sale of products from the Invention, and The Regents is willing to grant those rights so that the Invention may be developed to its fullest and the benefits enjoyed by the general public; and

G. The Licensee is a “small business firm” as defined in 15 U.S.C. §632;

H. Licensee recognizes and agrees that royalties due under this Agreement will be paid on both pending patent applications and issued patents;

In view of the foregoing, the parties agree:

1. DEFINITIONS

1.1 “Regents’ Patent Rights” means the Regents’ interest in any subject matter claimed in or covered by any of the following: Pending U.S. Patent Application Serial No. 08/746,207 entitled “Therapeutic Method with Capsaicin and Capsaicin Analogs” filed November 6, 1996, the

continuation-in-part U.S. Patent Application Serial No. 08/990,633 entitled “Transdermal Therapeutic Device and Method with Capsaicin and Capsaicin Analogs” filed December 15, 1997 and assigned to The Regents; and continuing applications thereof including divisions, substitutions, continuation-in-part applications (but only to the extent however, that claims in the continuation-in-part applications are entitled to the priority filing date of the foregoing applications); any patents issuing on said applications including reissues, reexaminations and extensions; and any corresponding foreign applications or patents based on said applications.

1.2 “Licensed Product” means any material for which the manufacture, use, sale, or import would constitute an infringement of a Valid Claim within the Regents’ Patent Rights if not for the license granted to the Licensee under this Agreement.

1.3 “Licensed Method” means any method for which the use or sale would constitute an infringement of a Valid Claim within the Regents’ Patent Rights if not for the license granted to the Licensee under this Agreement.

1.4 “Net Sales” means the total of the gross invoice prices of Licensed Products sold or Licensed Methods performed by the Licensee, an Affiliate, or a Sublicensee, less the sum of the following actual and customary deductions where applicable: cash, trade, or quantity discounts; sales, use, tariff, import/export duties or other excise taxes imposed on particular sales; transportation charges and allowances (including insurance); or credits to customers because of rejections, returns, or expired goods. For purposes of calculating Net Sales, transfers to an Affiliate or Sublicensee for end use by the Affiliate or Sublicensee will be treated as sales to an independent third party for purposes of calculating earned royalties (as specified in Article 7)

1.5 “Affiliate” means any corporation or other business entity in which the Licensee owns or controls, directly or indirectly, at least fifty percent (50%) of the outstanding stock or other voting rights entitled to elect directors, or in which the Licensee is owned or controlled directly or indirectly by at least fifty percent (50%) of the outstanding stock or other voting rights entitled to elect directors; but in any country where the local law does not permit foreign equity participation of at least fifty percent (50%), then an “Affiliate” includes any company in which the Licensee owns or controls or is owned or controlled by, directly or indirectly, the maximum percentage of outstanding stock or voting rights permitted by local law.

1.6 “Field of Use” means all fields and uses.

1.7 “Commercial Sale” means with respect to each Licensed Product in each country, a bona fide commercial sale of such Licensed Product following marketing approval by the regulatory authority in such country; provided that where such a first commercial sale has occurred in a country for which government pricing or government reimbursement approval is needed for widespread commercial sale (for clarification, the parties acknowledge that no such approval is required in the United States) then a sale shall not be deemed a Commercial Sale until such pricing or reimbursement approval has been obtained.

-2-

1.8 “IND” means an Investigational New Drug Application, as defined in the U.S. Federal Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or comparable filing in a foreign jurisdiction, in each case with respect to a Licensed Product.

1.9 “NDA” means a New Drug Application, as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder, and all subsequent supplements to that NDA, as well as any equivalent foreign application, registration or certification in the relevant country, such as a Marketing Approval Application (“MAA”) in Europe, in each case with respect to a Licensed Product.

1.10 “Phase I” means a clinical trial involving the initial introduction of a Licensed Product into humans and which is designed to determine the metabolism and pharmacologic actions of the Licensed Product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness.

1.11 “Phase III” means human clinical trials of a Licensed Product performed after obtaining preliminary evidence suggesting effectiveness of the drug, and are intended to gather the additional information about effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of the drug, to provide an adequate basis for physician labeling, and to form the basis for approval to market such Licensed Product.

1.12 “Valid Claim” means a claim of an issued and unexpired patent or a claim of a pending patent application within the Regents’ Patent Rights which has not been held invalid or unenforceable by a court or other government agency of competent jurisdiction from which no appeal can be or has been taken, and has not been admitted to be invalid or unenforceable through re-examination, disclaimer or otherwise; provided that if a claim of a pending application has not issued as a claim of an issued patent within the Regents’ Patent Rights within ten (10) years after the filing date from which such claim takes priority, such pending claim shall not be a Valid Claim for purposes of this Agreement until such time as such claim issues.

1.13 “Sublicensee” means, with respect to a particular Licensed Product, a third party to whom Licensee has granted a right or license to both make and sell such Licensed Product or practice the Licensed Method. As used in this Agreement, “Sublicensee” shall also include a non-Affiliate third party to whom Licensee has granted a right to distribute such Licensed Product, provided that such third party is responsible for some or all of the marketing and promotion of such Licensed Product within the territorial region in which it has such sublicensed rights.

2. LIFE OF PATENT EXCLUSIVE GRANT

2.1 Subject to the limitations set forth in this Agreement, The Regents grants to the Licensee a world-wide license under Regents’ Patent Rights to make, have made, use, sell, offer to sell, import and have imported Licensed Products, to practice Licensed Methods, and to otherwise exploit the Regents’ Patent Rights, and to have each of the foregoing performed by a third party on Licensee’s behalf.

-3-

2.2 Except as otherwise provided in this Agreement, the license granted in Paragraph 2.1 is exclusive for the life of this Agreement.

2.3 The license granted in Paragraphs 2.1 and 2.2 is limited to methods and products that are within the Field of Use. For other methods and products, the Licensee has no license under this Agreement.

2.4 To the extent it is legally able, The Regents also grants Licensee a non-exclusive license to any proprietary know-how relating to Regents’ Patent Rights that The Regents has an interest in and is reasonably needed by Licensee to practice and/or commercially develop Licensed Products and/or Licensed Methods.

2.5 The Regents reserves the nontransferable right to use the Invention and associated technology for its own bona fide non-commercial research and education purposes.

3. SUBLICENSES

3.1 The Regents also grants to the Licensee the worldwide right to issue sublicenses to third parties to make, have made, use, sell, offer to sell, import and have imported Licensed Products, to practice Licensed Methods, and to otherwise exploit the Regents’ Patent Rights, in each case as long as the Licensee has current exclusive rights thereto under this Agreement. Each sublicense shall be subordinate to the terms and conditions of this Agreement (including, if applicable, those regarding the U.S. Government’s and other sponsors’ rights and the rights reserved by The Regents).

3.2 In addition, Licensee shall pay The Regents a percentage of all sublicense fees (as defined below).

3.2.1 For purposes of this Agreement, “ sublicense fees ” shall consist of amounts received in the form of up-front fees and milestone payments as direct consideration for the grant of a sublicense for Licensed Products under the Regents’ Patent Rights, but shall not include any amounts received as royalties on sales of Licensed Products, as support for research and development activities, as a loan, as income derived from debt financing, for the purchase of an equity interest in the Licensee, as reimbursement for patent and patent related expenses, as earned royalties on net sales, or as consideration for the grant of intellectual property rights and materials other than those claimed under Regents’ Patent Rights. Licensee shall pay The Regents the following percentages of sublicense fees :

-4-

3.2.2 For purposes of calculating the applicable percentage for the foregoing, “Aggregate Sublicense Fees” shall be the cumulative amount of sublicense fees stated in each sublicense of Regents’ Patent Rights entered into by Licensee and assuming that all milestone payments therein are made to Licensee. However, the actual sublicensee fee payments due The Regents from Licensee shall be determined based on the actual amounts of sublicensee fees received by Licensee in each calendar year during the term of this Agreement.

3.3 The Licensee shall promptly provide The Regents with a copy of each sublicense issued; collect all payments due The Regents from Sublicensees; and summarize and deliver all reports due The Regents from Sublicensees, provided that the Licensee may redact from such copy any terms which are not necessary to determine whether Licensee has complied with its obligations under this Agreement.

3.4 Upon termination of this Agreement for any reason, any sublicense granted by Licensee hereunder shall survive, provided that upon request by The Regents, each Sublicensee promptly agrees in writing to be bound by the applicable terms of this Agreement..

4. PAYMENT TERMS

4.1 Licensee shall pay to The Regents earned royalties (as specified in Section 7) on Net Sales of Licensed Products on a Licensed Product-by-Licensed Product and country-by-country basis. The earned royalty due pursuant to this Section will continue on such basis until the manufacture, use or sale of a Licensed Product in such country does not infringe a Valid Claim within the Regents’ Patent Rights.

4.2 Licensee shall pay earned royalties quarterly on or before February 28, May 31, August 31 and November 30 of each calendar year. Each payment will be for earned royalties accrued within the Licensee’s most recently completed calendar quarter.

4.3 Licensee shall pay the applicable percentage of sublicense fees to The Regents on or before February 28 of each calendar year. Each payment will be for sublicensee fees received by Licensee during the most recently completed calendar year.

4.4 [Intentionally left blank]

4.5 All monies due The Regents are payable in United States dollars. When Licensed Products are sold for monies other than United States dollars, the Licensee shall first determine the applicable earned royalty in the currency of the country in which Licensed Products were sold and then convert the amount into equivalent United States funds, using the exchange rate quoted in the Wall Street Journal on the last business day of the reporting period. In no event shall the Licensee be required to pay The Regents more than twenty-five (25%) of its total annual revenue derived from Licensed Products.

4.6 Earned royalties earned on sales occurring in any country outside the United States may not be reduced by any taxes, fees, or other charges imposed by the government of such country on the payment of royalty income. The Licensee is also responsible for all bank transfer charges. Notwithstanding this, all payments made by the Licensee in fulfillment of The Regents’ tax liability in any particular country will be credited against earned royalties or fees due The Regents for sales of Licensed Products in that country.

-5-

4.7 If at any time legal restrictions prevent the prompt remittance of earned royalties by the Licensee from any country where a Licensed Product is sold, the Licensee shall deposit the amount owed in an interest-bearing account within that country until such time as the restrictions are lifted, at which time the Licensee shall promptly convert the current balance of said account into United States funds and pay such amount to The Regents.

4.8 If any patent or Valid Claim within Regents’ Patent Rights is held invalid in a final decision by a court of competent jurisdiction and last resort and from which no appeal has or can be taken, all obligation to pay earned royalties based on that patent or Valid Claim or any Valid Claim patentably indistinct therefrom will cease as of the date of final decision. The Licensee will not, however, be relieved from paying any earned royalties that accrued before the final decision or that are based on another patent within Regents’ Patent Right or Valid Claim not involved in the final decision.

4.9 If payments, rebillings or fees are not received by The Regents when due, the Licensee shall pay to The Regents interest charges on the unpaid amount at a rate often percent (10%) per annum or the maximum permitted by law, whichever is less. Interest is calculated from the date due until actually received by The Regents.

5. LICENSE-ISSUE FEE

5.1 Within sixty (60) days after the Effective Date, the Licensee shall pay to The Regents a license-issue fee equal to the total amount of out-of-pocket costs and expenses of patent prosecution of the Regents’ Patent Rights incurred by The Regents through the Effective Date. This fee is non-refundable, non-cancelable, and is not an advance against earned royalties .

6. LICENSE MAINTENANCE FEE

6.1 [Intentionally left blank]

7. EARNED ROYALTIES, MINIMUM ANNUAL ROYALTIES AND MILESTONE PAYMENTS

7.1 The Licensee shall also pay to The Regents an earned royalty of one-half percent (0.5%) of the Net Sales of Licensed Products worldwide, up to a maximum of one million dollars ($1,000,000) per year.

7.2 If it becomes necessary for Licensee to license intellectual property rights from an unaffiliated third party, and Licensee is required to pay a royalty to that unaffiliated third party in order to practice Licensed Methods and make, use or sell Licensed Products, and the combined earned royalty due The Regents and unaffiliated third parties exceeds eleven percent (11%), then the earned royalties to be paid to The Regents by Licensee shall be reduced by an amount equal to one-half (1/2) the excess over eleven percent (11%) of the royalty rate(s) due to the unaffiliated third party(ies). However, in no event shall the amount paid to The Regents be reduced below fifty percent (50%) of the original earned royalty otherwise due The Regents.

-6-

7.3 No cumulation of earned royalties shall be made in the event a Licensed Product is covered by Valid Claims of more than one patent within Regents’ Patent Rights.

7.4 No earned royalty shall be payable under this Article 7 with respect to transfers of Licensed Product to Affiliates, Sublicensees, customers or prospective customers for use in research and/or development, in clinical trials or other regulatory purposes, as samples, or in any other transfer that is not a Commercial Sale.

7.5 In the event that a Licensed Product is sold in combination with other products, components or services (other than another Licensed Product having therapeutic activity) for which no amounts would be payable to The Regents if such other products, components or services having therapeutic activity were sold or performed separately, amounts invoiced for such combination sales for purposes of calculating Net Sales of the Licensed Product in such combination shall be the Net Sales of the Licensed Product calculated by multiplying the Net Sales of the combination product by the fraction A/B where A is the average price on a unit basis of Licensed Product containing a certain amount (by weight) of active ingredient, and B is the average unit price of the combination product containing the same amount of that active ingredient. In the event that such average sale price cannot be determined for both the Licensed Product and the other product(s) in combination, Net Sales for purposes of determining royalty payment shall be mutually agreed by the parties based on relative value contributed by each component, and such agreement shall not be unreasonably withheld.

7.6 [Intentionally left blank]

7.7 Licensee shall pay The Regents non-creditable milestone payments should either of the following occur while Commercial Sales or commercialization of a Licensed Product by Licensee are continuing: (i) the closing of an Initial Public Offering (“IPO”) of the Licensee’s common stock pursuant to a registration statement on Form S-1 filed with the U.S. Securities and Exchange Commission; or (ii) the closing of (x) a consolidation or merger of the Licensee with any other entity, (y) sale of all or substantially all of the assets of Licensee, or (z) sale of all or substantially all of the outstanding stock of the Licensee, pursuant to which the shareholders of the Licensee receive cash or publicly traded securities. Upon the occurrence of such event, the Licensee shall pay to The Regents total cash payments equal to X times P, where X is equal to 16,400 stock equivalents (which number of stock equivalents shall be subject to adjustment from time to time for any stock split, stock dividends, recapitalizations a the like) and P is equal to either the IPO offering price per share of common stock, or in the case of a merger, acquisition, or sale, the average price per share actually received by shareholders of the Licensee’s common stock from the acquirer. Such payments shall be paid in three (3) installments, with one third (1/3) of the total to be paid twelve (12) months after the closing date of such transaction, one third (1/3) to be paid twenty four (24) months after such closing date, and the remaining one third (1/3) to be paid thirty six (36) months after such closing date. In the event that the transaction contemplated hereunder involves more than one closing date, the due date for payments owed to The Regents shall be measured from the date of the last closing.

-7-

7.8 Notwithstanding the foregoing Section 7.7, no milestone payments shall be due from Licensee under Section 7.7 in the event that: (i) a patent with a claim covering a Licensed Product has not issued under the Regents’ Patent Rights at the time such milestone payment is due; and (ii) The Regents is no longer funding active prosecution of the Regents’ Patent rights in the United States patent office or a foreign equivalent; and (iii) the first Commercial Sale of a Licensed Product has already occurred.

8. DUE DILIGENCE

8.1 The Licensee, on execution of this Agreement, shall use commercially reasonable efforts to develop, manufacture and sell Licensed Products, or cause a Sublicensee to do so, and shall use the same level of effort to market the same within a reasonable time after execution of this Agreement.

8.2 The Licensee shall use commercially reasonable efforts to obtain all governmental approvals necessary for the manufacture, use and sale of Licensed Products.

8.3 The Licensee shall commit to use commercially reasonable efforts (either itself or through a Sublicense