LICENSE AGREEMENT

CONFIDENTIAL

Exhibit 10.5

CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AND THE NON-PUBLIC INFORMATION HAS BEEN FILED WITH THE SECURITIES EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

LICENSE AGREEMENT

     THIS LICENSE AGREEMENT (this “Agreement”) dated as of September 30, 2005 (the “Effective Date”), is entered into between Abaxis, Inc. a California corporation (“Abaxis”), having a place of business at 3240 Whipple Road, Union City, CA, 94587, and Cepheid, a California corporation (“Cepheid”), having a place of business at 904 Caribbean Drive, Sunnyvale, CA 94089.

     WHEREAS, Abaxis owns or has rights in certain technology regarding lyophilized beads or reagent spheres.

     WHEREAS, Cepheid desires to obtain a non-exclusive worldwide license under Abaxis’ rights in such technology to develop and commercialize products for use in nucleic acid based amplification assays for diagnostic applications.

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties agree as follows:

ARTICLE 1

DEFINITIONS

     1.1 “ Affiliate ” shall mean, with respect to any Person, any other Person which directly or indirectly controls, is controlled by, or is under common control with, such Person. A Person shall be regarded as in control of another Person if it owns, or directly or indirectly controls, at least fifty percent (50%) of the voting stock or other ownership interest of the other Person, or if it directly or indirectly possesses the power to direct or cause the direction of the management and policies of the other Person by any means whatsoever.

     1.2 “ Confidential Information ” shall mean, with respect to a party, all information of any kind whatsoever, and all tangible and intangible embodiments thereof of any kind whatsoever, which is disclosed by such party to the other party and is marked, identified as or otherwise acknowledged to be confidential at the time of disclosure to the other party. Notwithstanding the foregoing, Confidential Information of a party shall not include information which the other party can establish by written documentation (a) to have been publicly known prior to disclosure of such information by the disclosing party to the other party, (b) to have become publicly known, without fault on the part of the other party, subsequent to disclosure of such information by the disclosing party to the other party, (c) to have been received by the other party at any time from a source, other than the disclosing party, rightfully having possession of and the right to disclose such information, (d) to have been otherwise known by the other party prior to disclosure of such information by the disclosing party to the other party, or (e) to have been

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independently developed by employees or agents of the other party without access to or use of such information disclosed by the disclosing party to the other party.

     1.3 “ Cepheid Foreign Distributor ” shall mean a distributor authorized by Cepheid to sell outside of the United States, Cepheid’s Licensed Products provided by Cepheid to the distributor in their final package form and without any re-packaging or modification to the Licensed Product by the distributor.

     1.4 “ District Court Action ” shall mean the lawsuit asserting claims of infringement against Cepheid under multiple United States patents owned by Abaxis in the action of Abaxis, Inc., v. Cepheid, Inc. , Case No. C 05-3618 PVT, pending as of the Effective Date in the United States District Court for the Northern District of California.

     1.5 “ Field of Use ” shall mean nucleic acid based amplification assays excluding for use in molecular biology research and isothermal rolling circle amplification.

     1.6 “ Licensed Patent ” U.S. patents and patent applications claiming priority from the U.S. patent application No. 07/747,179 including any reissues, reexaminations, extensions and continuations-in-part, and specifically including U.S. Patent Nos. 6,251,684, 5,998,031, 5,776,563, 5,624,597 and 5,413,732, and their corresponding foreign patents and patent applications.

     1.7 “ Net Sales ” shall mean, with respect to any Licensed Product, the gross invoiced sales price of such Licensed Product by Cepheid, its Affiliates, or distributors billed to third party customers, less (a) credits, allowances, discounts and rebates to, and chargebacks from the account of, such independent customers for spoiled, damaged, out-dated, rejected or returned Licensed Product; (b) actual freight and insurance costs incurred in transporting such Licensed Product to such customers; (c) cash, quantity and trade discounts and other price reductions; (d) sales, use, value-added and other direct taxes incurred; and (e) customs duties, surcharges and other governmental charges incurred in connection with the exportation or importation of such Licensed Product. For avoidance of doubt, Net Sales shall not include sales among Cepheid, its Affiliates and distributors for resale, provided that Net Sales shall include the amounts invoiced by Cepheid, Affiliates or distributors, as the case may be, on the resale of such Licensed Product in arms length transactions to third party customers. Notwithstanding the foregoing, Net Sales with respect to sales through Cepheid Foreign Distributors taking place outside of the United States shall be the amount invoiced between Cepheid and Cepheid Foreign Distributors. Furthermore, Net Sales with respect to sales through Northrop Grumman Security Systems, LLC (NGSS) to the United States Postal Service shall be the amount invoiced between Cepheid and NGSS.

     1.8 “ Person ” shall mean an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.

     1.9 “ Licensed Products ” shall mean any product, the manufacture, use, sale, offer for sale, or importation of which, but for the licenses granted herein under this Agreement, would

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infringe a Valid Claim of the Licensed Patents. Appendix 1 attached hereto provides a list of the Licensed Products as of the Effective Date of this Agreement.

     1.10 “ Licensed GeneXpert Product ” shall mean any Licensed Product that contains Cepheid’s self contained cartridge (also called GeneXpert cartridge) as described and offered by Cepheid at www.cepheid.com as of the Effective Date of this Agreement and any follow on versions made thereon. Appendix 2 attached hereto provides a list of the Licensed GeneXpert Products as of the Effective Date of this Agreement.

     1.11 “ Licensed GeneXpert Product Unit ” shall mean a single GeneXpert cartridge of Licensed GeneXpert Product that is designed for a single use to detect the presence or absence of one or more analytes in a single sample of biological material to be tested.

     1.12 “ Territory ” shall mean worldwide.

     1.13 “ Valid Claim ” shall mean a claim of an issued and unexpired patent of the Licensed Patents that (i) has not been revoked or held unenforceable or invalid by a decision of a court or governmental agency of competent jurisdiction from which no appeal can be taken or has been taken within the time allowed for appeal; (ii) has not been abandoned, or admitted to be invalid or unenforceable through reissue or disclaimer or otherwise.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES

     Each party hereby represents and warrants to the other party as follows:

     2.1 Corporate Existence . Such party is a corporation duly organized, validly existing and in good standing under the laws of the state in which it is incorporated.

     2.2 Authorization and Enforcement of Obligations . Such party (a) has the corporate power and authority and the legal right to enter into this Agreement and to perform its obligations hereunder, and (b) has taken all necessary corporate action on its part to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder. This Agreement has been duly executed and delivered on behalf of such party, and constitutes a legal, valid, binding obligation, enforceable against such party in accordance with its terms.

     2.3 No Consents . All necessary consents, approvals and authorizations of all governmental authorities and other Persons required to be obtained by such party in connection with this Agreement have been obtained.

     2.4 No Conflict . The execution and delivery of this Agreement and the performance of such party’s obligations hereunder (a) do not conflict with or violate any requirement of applicable laws or regulations, and (b) do not conflict with, or constitute a default under, any contractual obligation of it.

     2.5 Representation by Abaxis. Abaxis hereby represents and warrants to Cepheid that as of the Effective Date of this Agreement, (a) Abaxis owns all right, title, and interest in and to the

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Licensed Patents and has all necessary rights to grant the license under the Licensed Patents as set forth in Section ARTICLE 3, (b) Abaxis has received no written notices or claims that the practice of the Licensed Patents violates, infringes or misappropriates any third party’s intellectual property rights, and (c) Abaxis does not own or have rights to any patents or patent applications that are not included in the Licensed Patents and the rights of which are required to practice the license granted under this Agreement as set forth in Section ARTICLE 3.

     2.6 Disclaimer of Warranties . EXCEPT FOR THE WARRANTIES EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES, AND EACH PARTY EXPRESSLY DISCLAIMS, ANY OTHER REPRESENTATIONS OR WARRANTIES TO THE OTHER PARTY WITH RESPECT TO THE LICENSED PATENTS OR OTHERWISE UNDER THIS AGREEMENT, EITHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NONINFRINGEMENT.

ARTICLE 3

LICENSE GRANT

     3.1 Licensed IP Rights . Subject to the terms and conditions of this Agreement and during the term of this Agreement, Abaxis hereby grants to Cepheid a non-exclusive, non-transferable, royalty-bearing license, with the limited right to sublicense solely in accordance with Section 3.2 herein, under the Licensed Patents to make, have made, import, use, distribute and sell Licensed Products solely within the Field of Use and within the Territory, provided that any OEM arrangements other than CSR customers shall only be permitted with prior written consent by Abaxis and shall be subject to the proposed OEM being licensed under the Licensed Patents under the terms and conditions negotiated in good faith between the proposed OEM distributor and Abaxis. For avoidance of doubt, sales of Licensed GeneXpert Products by Cepheid in the relationship of Cepheid with Applied Biosystems (ABI) shall be considered licensed under this Agreement. The relationship referred to with ABI is specifically an arrangement whereby ABI provides wet reagents to Cepheid, which are manufactured into GeneXpert cartridges by Cepheid, which cartridges are owned by ABI, and which completed cartridges are distributed by Cepheid and its distributors. Sales by Cepheid under this relationship with ABI shall not be considered an OEM arrangement under this Agreement.

     3.2 Sublicenses . Unless specifically permitted by Abaxis in writing, Cepheid shall not grant any sublicenses under the license granted in Section 3.1 to any third party, with the sole exception of the limited right to grant sublicenses to Cepheid Affiliates in the Field of Use. Cepheid shall deliver a copy of each permitted sublicense under this Agreement to Abaxis promptly after execution of the same. Each permitted sublicense shall be subject to the terms and conditions of this Agreement, except that sublicenses of Affiliates shall not require an up front license fee or maintenance fees.

     3.3 License to Additional Products. Any product by Cepheid that becomes a Licensed Product after the Effective Date of this Agreement maybe added to the list of Licensed Products under Appendix 1 attached hereto via amendment to the Appendix 1, provided that Cepheid notifies Abaxis of such added Licensed Product in writing and Cepheid hereby agrees that such

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added Licensed Product is subject to the same royalty term as set forth under Section 4.2 in this Agreement.

ARTICLE 4

PAYMENTS AND ROYALTIES

     4.1 Initial License Fee. In consideration for the licenses granted to Cepheid herein, Cepheid shall pay Abaxis [***] on the Effective Date of this Agreement.

     4.2 Royalty Rate . In consideration for the licenses granted to Cepheid herein, during the term of this Agreement, Cepheid shall pay royalties to Abaxis

     [***]

     4.3 License Maintenance Fee . In consideration for the licenses granted to Cepheid herein, during the term of this Agreement, Cepheid shall pay Abaxis a license maintenance fee of [***] per year payable by December 31 of each year; provided that such license maintenance fee is creditable against any royalties due during such calendar year. Such minimum royalty shall be prorated for the calendar year of 2005.

ARTICLE 5

ROYALTY REPORTS AND ACCOUNTING

     5.1 Royalty Reports . During the term of this Agreement, Cepheid shall furnish to Abaxis a quarterly written report showing in reasonably specific detail , (a) the gross sales of each Licensed Product sold by Cepheid, its Affiliates and its distributors, (except sales by Cepheid Foreign Distributors and NGSS to the US Postal Service) in the Territory during the reporting period and the calculation of Net Sales from such gross sales; (b) the royalties payable in United States dollars, if any, which shall have accrued hereunder based upon Net Sales of each Licensed Product; (c) the withholding taxes, if any, required by law to be deducted in respect of such sales; and (d) the exchange rates used in determining the amount of United States dollars. With respect to sales of Licensed Products invoiced in United States dollars, all amounts shall be expressed in United States dollars. With respect to sales of Licensed Products invoiced in a currency other than United States dollars, all amounts shall be expressed in