<SUBMISSION>
<ACCESSION-NUMBER>0000950129-01-502580
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>3
<PERIOD>20010630
<FILING-DATE>20010814
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>LEXICON GENETICS INC/TX
<CIK>0001062822
<ASSIGNED-SIC>2835
<IRS-NUMBER>760474169
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>000-30111
<FILM-NUMBER>1709754
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>4000 RESEARCH FOREST DRIVE
<STREET2>281-364-0100
<CITY>THE WOODLANDS
<STATE>TX
<ZIP>77381
<PHONE>2813640100
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>4000 RESEARCH FOREST DR
<CITY>THE WOODLANDS
<STATE>TX
<ZIP>77381
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>h89868e10-q.txt
<DESCRIPTION>LEXICON GENETICS INC - JUNE 30, 2001
<TEXT>
<PAGE>   1
================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

(MARK ONE)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

         FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

         FOR THE TRANSITION PERIOD FROM               TO
                                        -------------    -------------

                        COMMISSION FILE NUMBER: 000-30111

                          LEXICON GENETICS INCORPORATED
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


           DELAWARE                                         76-0474169
 (STATE OR OTHER JURISDICTION OF                         (I.R.S. EMPLOYER
  INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NUMBER)

                           4000 RESEARCH FOREST DRIVE
                           THE WOODLANDS, TEXAS 77381
                         (ADDRESS OF PRINCIPAL EXECUTIVE
                              OFFICES AND ZIP CODE)

                                 (281) 364-0100
                         (REGISTRANT'S TELEPHONE NUMBER,
                              INCLUDING AREA CODE)

       Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

                                                  Yes  X    No
                                                      ---      ---

       As of August 9, 2001, 51,848,452 shares of the registrant's common stock,
par value $0.001 per share, were outstanding.


================================================================================

<PAGE>   2



                          LEXICON GENETICS INCORPORATED

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                                PAGE
                                                                                                                ----
<S>                                                                                                            <C>
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS.................................................................    2

PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements
         Balance Sheets - December 31, 2000 and June 30, 2001 (unaudited)....................................    3
         Statements of Operations (unaudited) - Three and Six Months Ended June 30, 2000 and 2001............    4
         Statements of Cash Flows (unaudited) - Six Months Ended June 30, 2000 and 2001......................    5
         Notes to Financial Statements (unaudited)...........................................................    6
Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations...............................................................................    8
Item 3.  Quantitative and Qualitative Disclosures About Market Risk..........................................   15

PART II - OTHER INFORMATION
Item 1.  Legal Proceedings...................................................................................   15
Item 4.  Submission of Matters to a Vote of Security Holders.................................................   15
Item 6.  Exhibits and Reports on Form 8-K....................................................................   16

SIGNATURES ..................................................................................................   17
</Table>

         The Lexicon name and logo and OmniBank(R) are registered trademarks and
LexVision(TM), Lexgen.com(TM), Internet Universal(TM) and e-Biology(TM) are
trademarks of Lexicon Genetics Incorporated.

                                  ------------

                  FACTORS AFFECTING FORWARD LOOKING STATEMENTS

         This quarterly report on Form 10-Q contains forward-looking statements.
These statements relate to future events or our future financial performance. We
have attempted to identify forward-looking statements by terminology including
"anticipate," "believe," "can," "continue," "could," "estimate," "expect,"
"intend," "may," "plan," "potential," "predict," "should" or "will" or the
negative of these terms or other comparable terminology. These statements are
only predictions and involve known and unknown risks, uncertainties and other
factors, including the risks outlined under "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Risk Factors," that
may cause our or our industry's actual results, levels of activity, performance
or achievements to be materially different from any future results, levels or
activity, performance or achievements expressed or implied by these
forward-looking statements.

         Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. We are not under any duty to
update any of the forward-looking statements after the date of this quarterly
report on Form 10-Q to conform these statements to actual results, unless
required by law.

                                       2


<PAGE>   3



PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                          LEXICON GENETICS INCORPORATED

                                 BALANCE SHEETS

<Table>
<Caption>
                                                                       AS OF DECEMBER 31,      AS OF JUNE 30,
                                                                       ------------------    -----------------
                                                                              2000                  2001
                                                                       ------------------    -----------------
                                                                                               (UNAUDITED)
<S>                                                                     <C>                  <C>
                                   ASSETS
Current assets:
    Cash and cash equivalents .......................................   $      37,811,039    $      43,585,316
    Marketable securities ...........................................         164,869,291          140,224,465
    Accounts receivable, net of allowance for doubtful accounts
       of $100,000 ..................................................           2,814,707           16,037,920
    Prepaid expenses and other current assets .......................             536,480            3,669,213
                                                                        -----------------    -----------------
       Total current assets .........................................         206,031,517          203,516,914
Property and equipment, net of accumulated depreciation of
    $5,708,366 and $7,567,449, respectively .........................          14,477,235           16,856,415
Other assets ........................................................             184,200            1,625,156
                                                                        -----------------    -----------------
       Total assets .................................................   $     220,692,952    $     221,998,485
                                                                        =================    =================

                    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable ................................................   $       2,522,722    $       6,458,185
    Accrued liabilities .............................................           3,023,725            1,973,811
    Current portion of deferred revenue .............................           4,671,818           12,041,994
    Current portion of long-term debt ...............................           1,012,246              974,368
                                                                        -----------------    -----------------
       Total current liabilities ....................................          11,230,511           21,448,358
Deferred revenue, net of current portion ............................                  --            5,000,000
Long-term debt, net of current portion ..............................           1,833,982                   --
                                                                        -----------------    -----------------
       Total liabilities ............................................          13,064,493           26,448,358

Commitments and contingencies

Stockholders' equity:
    Common stock, $.001 par value; 120,000,000 shares authorized,
       48,271,735 and 48,925,613 shares issued and outstanding ......              48,272               48,926
    Additional paid-in capital ......................................         296,119,625          296,203,689
    Deferred stock compensation .....................................         (33,636,725)         (27,853,469)
    Accumulated deficit .............................................         (54,902,713)         (72,849,019)
                                                                        -----------------    -----------------
       Total stockholders' equity ...................................         207,628,459          195,550,127
                                                                        -----------------    -----------------
       Total liabilities and stockholders' equity ...................   $     220,692,952    $     221,998,485
                                                                        =================    =================
</Table>


   The accompanying notes are an integral part of these financial statements.


                                       3

<PAGE>   4



                          LEXICON GENETICS INCORPORATED

                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<Table>
<Caption>
                                                          FOR THE THREE MONTHS ENDED JUNE 30,   FOR THE SIX MONTHS ENDED JUNE 30,
                                                          -----------------------------------   ----------------------------------
                                                               2000                2001               2000              2001
                                                          ---------------    ----------------   ---------------    ---------------
<S>                                                       <C>                <C>                <C>                <C>
Revenues:
   Subscription and license fees ......................   $       434,574    $     1,282,366    $     2,058,052    $     3,029,820
   Collaborative research .............................         1,989,299          2,199,742          3,634,057          3,723,326
   Other revenue ......................................           158,747             20,330            229,420             60,249
                                                          ---------------    ---------------    ---------------    ---------------
     Total revenues ...................................         2,582,620          3,502,438          5,921,529          6,813,395
Operating expenses:
   Research and development, including stock-based
     compensation of $1,460,499, $1,413,078,
     $8,160,891 and $2,809,608, respectively ..........         5,590,315         10,693,165         15,858,643         20,555,507
   General and administrative, including stock-based
     compensation of $1,773,806, $1,310,599,
     $6,981,722 and $2,652,383, respectively ..........         3,302,015          5,045,832          9,808,788          9,316,972
                                                          ---------------    ---------------    ---------------    ---------------
   Total operating expenses ...........................         8,892,330         15,738,997         25,667,431         29,872,479
                                                          ---------------    ---------------    ---------------    ---------------
Loss from operations ..................................        (6,309,710)       (12,236,599)       (19,745,902)       (23,059,084)
Interest income .......................................         2,922,316          2,426,919          3,050,158          5,322,810
Interest expense ......................................           129,310            129,017            239,060            210,032
                                                          ---------------    ---------------    ---------------    ---------------
Net loss ..............................................        (3,516,704)        (9,938,657)       (16,934,804)       (17,946,306)
Accretion on redeemable convertible preferred stock ...                --                 --           (133,854)                --
                                                          ---------------    ---------------    ---------------    ---------------
Net loss attributable to common stockholders ..........   $    (3,516,704)   $    (9,938,657)   $   (17,068,658)   $   (17,946,306)
                                                          ===============    ===============    ===============    ===============
Net loss per common share, basic and diluted ..........   $         (0.08)   $         (0.20)   $         (0.48)   $         (0.37)
Shares used in computing net loss per common share,
   basic and diluted ..................................        45,816,588         48,865,268         35,214,800         48,672,350
</Table>


   The accompanying notes are an integral part of these financial statements.


                                       4
<PAGE>   5



                          LEXICON GENETICS INCORPORATED

                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<Table>
<Caption>
                                                                                FOR THE SIX MONTHS ENDED JUNE 30,
                                                                                ----------------------------------
                                                                                      2000               2001
                                                                                ---------------    ---------------
<S>                                                                             <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss .................................................................   $   (16,934,804)   $   (17,946,306)
   Adjustments to reconcile net loss to net cash provided by (used in)
   operating activities:
     Depreciation ...........................................................         1,152,361          2,016,148
     Amortization of deferred stock compensation ............................        15,142,613          5,461,991
     Changes in operating assets and liabilities
       (Increase) decrease in accounts receivable ...........................         1,907,566        (13,223,213)
       (Increase) decrease in prepaid expenses and other current assets .....            39,626         (3,132,733)
       (Increase) decrease in other assets ..................................           (12,758)        (1,440,956)
       Increase (decrease) in accounts payable and accrued liabilities ......           474,552          2,885,549
       Increase (decrease) in deferred revenue ..............................        (1,223,962)        12,370,176
                                                                                ---------------    ---------------
         Net cash provided by (used in) operating activities ................           545,194        (13,009,344)
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property and equipment ......................................        (1,350,592)        (4,395,328)
   Purchases of marketable securities .......................................      (214,940,362)      (210,244,673)
   Maturities of marketable securities ......................................        61,061,925        234,889,499
                                                                                ---------------    ---------------
         Net cash provided by (used in) investing activities ................      (155,229,029)        20,249,498
CASH FLOWS FROM FINANCING ACTIVITIES:
   Principal payments on capital lease obligations ..........................          (111,683)                --
   Proceeds from issuance of common stock ...................................       203,747,594            405,983
   Repayment of debt borrowings .............................................        (1,345,140)        (1,871,860)
                                                                                ---------------    ---------------
         Net cash provided by (used in) financing activities ................       202,290,771         (1,465,877)
                                                                                ---------------    ---------------
Net increase (decrease) in cash and cash equivalents ........................        47,606,936          5,774,277
Cash and cash equivalents at beginning of period ............................         2,025,585         37,811,039
                                                                                ---------------    ---------------
Cash and cash equivalents at end of period ..................................   $    49,632,521    $    43,585,316
                                                                                ===============    ===============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid for interest ...................................................   $       239,060    $       198,271

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
   Conversion of redeemable convertible preferred stock into common stock ...   $    30,184,090    $            --
   Conversion of related party note payable into common stock ...............   $       337,500    $            --
</Table>

   The accompanying notes are an integral part of these financial statements.


                                       5

<PAGE>   6



                          LEXICON GENETICS INCORPORATED

                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.       BASIS OF PRESENTATION

         The accompanying unaudited financial statements of Lexicon Genetics
Incorporated (Lexicon or the Company) have been prepared in accordance with
generally accepted accounting principles for interim financial information and
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.

         In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three and six month periods ended June 30,
2001 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2001.

         For further information, refer to the financial statements and
footnotes thereto included in Lexicon's annual report on Form 10-K for the year
ended December 31, 2000, as filed with the SEC.

         In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" and No. 142,
"Goodwill and Other Intangible Assets". These statements, which Lexicon must
adopt for 2001, generally require that all business combinations initiated after
June 30, 2001, be accounted for using the purchase method. Additionally, any
resulting goodwill will not be amortized, rather it will be subject to at least
an annual impairment test. Acquired intangible assets must be separately
recognized and amortized over their useful lives. Management is currently
assessing the impact of these statements on its future financial position and
results of operations, which will reflect the July 2001 acquisition of
Coelacanth Corporation (see note 7).

2.       NET LOSS PER SHARE

         Net loss per share is computed using the weighted average number of
shares of common stock outstanding during the applicable period. Shares
associated with stock options and warrants are not included because they are
antidilutive. There are no differences between basic and diluted net loss per
share for all periods presented.

3.       DEFERRED STOCK COMPENSATION

         Deferred stock compensation represents the difference between the
exercise price of stock options and the fair value of Lexicon's common stock at
the date of grant. Deferred stock compensation is amortized over the vesting
periods of the individual stock options for which it was recorded, generally
four years. For the six months ended June 30, 2000 and 2001, Lexicon amortized
$15.1 million and $5.5 million, respectively, of deferred stock compensation. If
vesting continues in accordance with the outstanding individual stock options,
Lexicon expects to record amortization expense for deferred stock compensation
as follows: $5.4 million during the last six months of 2001, $10.8 million
during 2002, $10.7 million during 2003 and $953,000 during 2004. The amount of
stock based compensation expense to be recorded in future periods may decrease
if unvested options for which deferred stock compensation

                                       6

<PAGE>   7

expense has been recorded are subsequently canceled or forfeited or may increase
if additional options are granted to individuals other than employees or
directors.

         4.       INITIAL PUBLIC OFFERING AND CONVERSION OF PREFERRED STOCK

         In April 2000, Lexicon completed an initial public offering of
10,000,000 newly-issued shares of its common stock at a price of $22.00 per
share. Lexicon received $203.2 million in cash, net of underwriting discounts,
commissions and other offering costs.

         Simultaneously with the closing of the initial public offering, the
4,244,664 shares of Redeemable Convertible Series A Preferred Stock then
outstanding were automatically converted into 12,733,992 shares of common stock.

         5.       RESTRICTED CASH

         The Company is required to maintain restricted cash or investments to
the extent of borrowings made under the synthetic lease agreement. As of June
30, 2001, borrowings were $19.9 million as compared to $13.4 million as of
December 31, 2000.

         6.       FINANCING AND DEBT OBLIGATIONS

         In June 1999, the Company entered into a $5.0 million financing
agreement for the purchase of property and equipment. As of June 30, 2001, the
Company had drawn down a total of approximately $4.2 million under this
arrangement. As of June 30, 2001, $974,000 was outstanding under this
arrangement. This facility accrues interest at a weighted-average rate of
approximately 11.7% and principal and interest is due in monthly installments
through 2003. The Company intends to retire this debt obligation by December 31,
2001, therefore the total obligation has been classified as current debt. A 3%
prepayment premium is required upon early extinguishment of the debt and is
being accrued as interest expense using the effective interest rate method until
the debt is retired.

         7.       SUBSEQUENT EVENT

         On July 12, 2001, the Company completed the acquisition of Coelacanth
Corporation (Coelacanth) in a merger, under an Agreement and Plan of Merger
entered into on June 13, 2001. Under the terms of the merger agreement, the
Company issued an aggregate of 2,918,991 shares of common stock in exchange for
all of Coelacanth's outstanding capital stock. An aggregate of 10% of the shares
of common stock issued in the merger have been placed in escrow for one year to
satisfy claims, if any, that the Company may have for breaches of Coelacanth's
representations, warranties and covenants in the merger agreement. The Company
assumed Coelacanth's outstanding options and warrants in the merger. The Company
expects to record intangible assets and expense for in-process research and
development in the third quarter of 2001 in connection with the acquisition of
Coelacanth.

                                       7

<PAGE>   8

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

         We are defining the functions of genes for drug discovery using mice
whose DNA has been altered to disrupt, or "knock out," the function of the
altered gene. Our proprietary gene trapping and gene targeting technologies
enable us to rapidly generate these knockout mice by altering the DNA of genes
in a special variety of mouse cells, called embryonic stem (ES) cells, which can
be cloned and used to generate mice with the altered gene. We employ an
integrated platform of advanced medical technologies to systematically analyze
the functions and pharmaceutical relevance of the genes we have knocked out. Our
LexVision program captures the information resulting from this analysis for our
use, and use by our collaborators, to discover pharmaceutical products based on
genomics - the study of genes and their function.

         We derive substantially all of our revenues from subscriptions to our
databases, functional genomics collaborations for the development and, in some
cases, analysis of the physiological effects of genes altered in knockout mice,
and technology licenses. To date, we have generated a substantial portion of our
revenues from a limited number of sources.

         Since our inception, we have incurred significant losses and, as of
June 30, 2001, we had an accumulated deficit of $72.8 million. Our losses have
resulted principally from costs incurred in research and development, general
and administrative costs associated with our operations, and non-cash
stock-based compensation expense associated with stock options granted to
employees and consultants prior to our April 2000 initial public offering.
Research and development expenses consist primarily of salaries and related
personnel costs, material costs, legal expenses resulting from intellectual
property prosecution and other expenses related to our drug discovery and
LexVision programs, the expansion of our OmniBank library, the development and
analysis of knockout mice and our other functional genomics research efforts. We
expense our research and development costs as they are incurred. General and
administrative expenses consist primarily of salaries and related expenses for
executive, finance and other administrative personnel, professional fees and
other corporate expenses including business development and general legal
activities, as well as expenses related to our patent infringement litigation
against Deltagen, Inc. In connection with the expansion of our drug discovery
and LexVision programs, our OmniBank database and library and our functional
genomics research efforts, we expect to incur increasing research and
development and general and administrative costs. As a result, we will need to
generate significantly higher revenues to achieve profitability.

         Deferred stock-based compensation represents the difference between the
exercise price of stock options granted and the fair value of our common stock
at the applicable date of grant. Stock-based compensation is amortized over the
vesting period of the individual stock options for which it was recorded,
generally four years. Assuming continued vesting of all outstanding stock
options in accordance with their terms, we expect to record amortization expense
for deferred stock-based compensation as follows: $5.4 million during the last
six months of 2001, $10.8 million during 2002, $10.7 million during 2003 and
$953,000 during 2004. The amount of stock-based compensation expense to be
recorded in future periods may decrease if unvested options for which deferred
stock compensation expense has been recorded are subsequently canceled or
forfeited or may increase if additional options are granted to non-employee
consultants or advisors.

         Our quarterly operating results will depend upon many factors,
including our success in establishing new database subscription and research
contracts with collaborators, expirations of such

                                       8

<PAGE>   9

contracts, the success rate of our discovery efforts leading to milestones and
royalties, the timing and willingness of collaborators to commercialize products
which may result in royalties, and general and industry-specific economic
conditions which may affect research and development expenditures. As a
consequence, our quarterly operating results have fluctuated in the past and are
likely to do so in the future.

RECENT DEVELOPMENTS

         On July 12, 2001, we completed the acquisition of Coelacanth
Corporation in a merger, under an Agreement and Plan of Merger entered into on
June 13, 2001. Coelacanth, which uses proprietary chemistry technologies to
rapidly discover new chemical entities for drug development, forms the core for
our new Lexicon Pharmaceuticals division, based in Princeton, New Jersey. In
Lexicon Pharmaceuticals, we are combining our drug target discoveries with
Coelacanth's high performance chemistry technologies to discover potential new
drugs.

         Under the terms of the merger agreement, the Company issued an
aggregate of 2,918,991 shares of common stock in exchange for all of
Coelacanth's outstanding capital stock. An aggregate of 10% of the shares of
common stock issued in the merger have been placed in escrow for one year to
satisfy claims, if any, that the Company may have for breaches of Coelacanth's
representations, warranties and covenants in the merger agreement. The Company
assumed Coelacanth's outstanding options and warrants in the merger.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2000 and 2001

         Revenues. Total revenues increased 36% to $3.5 million in the three
months ended June 30, 2001 from $2.6 million in the corresponding period in
2000. Of the $920,000 increase, $848,000 was derived from increased database
subscription and technology license fees and $210,000 was derived from increased
revenues from collaborative research. This was offset by a $138,000 decrease in
other revenue.

         In June 2001, we entered into a series of agreements with Incyte
Genomics, Inc. (Incyte), including a drug discovery alliance under which we and
Incyte will collaborate in the discovery and development of therapeutic proteins
and a separate agreement under which Incyte will have access to our LexVision
database and OmniBank database and library. In addition, as a result of our
acquisition of Coelacanth in July 2001, we obtained or have subsequently entered
agreements with pharmaceutical and biotechnology companies for access to
chemical libraries and optimization services. We have not yet recognized any
revenues under any of these agreements.

         Research and Development Expenses. Research and development expenses,
including stock-based compensation expense, increased 91% to $10.7 million in
the three months ended June 30, 2001 from $5.6 million in the corresponding
period in 2000. Research and development expenses for the three months ended
June 30, 2001 and 2000 included $1.4 million and $1.5 million, respectively, of
stock-based compensation primarily relating to option grants made prior to our
April 2000 initial public offering. The increase of $5.2 million in research and
development expenses exclusive of stock-based compensation was primarily
attributable to increased personnel costs to support the expansion of our drug
discovery and LexVision programs, our OmniBank database and library, the
development and analysis of knockout mice and our other functional genomics
research efforts.

         We expect to record expense for in-process research and development in
the third quarter of 2001 in connection with our acquisition of Coelacanth. In
addition, we expect to incur increased research and

                                       9

<PAGE>   10

development expenses in the third quarter and subsequent periods as a result of
our acquisition of Coelacanth and agreements entered in June 2001 with Incyte
for access and license rights to Incyte's LifeSeq(R) Gold database

         General and Administrative Expenses. General and administrative
expenses, including stock-based compensation expense, increased 53% to $5.0
million in the three months ended June 30, 2001 from $3.3 million in the
corresponding period in 2000. General and administrative expenses for the three
months ended June 30, 2001 and 2000 included $1.3 million and $1.8 million,
respectively, of stock-based compensation primarily relating to option grants
made prior to our April 2000 initial public offering. The increase of $2.2
million in general and administrative expenses exclusive of stock-based
compensation was due primarily to additional personnel costs for business
development and finance and administration, as well as expenses associated with
our patent infringement litigation against Deltagen, Inc. We expect to incur
increased general and administrative expenses in future periods as a result of
our acquisition of Coelacanth.

         Interest Income and Interest Expense. Interest income decreased to $2.4
million in the three months ended June 30, 2001 from $2.9 million in the
corresponding period in 2000. This decrease resulted from lower interest rates
and decreased average cash and investment balances during the 2001 period.
Interest expense was $129,000 in each of the three-month periods ended June 30,
2001 and 2000, respectively.

         Net Loss and Net Loss Per Common Share. Net loss attributable to common
stockholders increased to $9.9 million in the three months ended June 30, 2001
from $3.5 million in the corresponding period in 2000. Net loss per common share
increased to $0.20 in the three months ended June 30, 2001 from $0.08 in the
corresponding period of 2000. A portion of the net loss for the three months
ended June 30, 2001 and most of the net loss for the corresponding period in
2000 were attributable to stock-based compensation expense. Excluding
stock-based compensation expense, and assuming the conversion of the redeemable
convertible preferred stock into common stock occurred on the date of original
issuance (May 1998), we would have had a net loss of $7.2 million and $282,000
in the three months ended June 30, 2001 and 2000, respectively, and net loss per
common share of $0.15 and $0.01 in the three months ended June 30, 2001 and
2000, respectively.

Six Months Ended June 30, 2000 and 2001

         Revenues. Total revenues increased 15% to $6.8 million in the six
months ended June 30, 2001 from $5.9 million in the corresponding period in
2000. Of the $892,000 increase, $972,000 was derived from increased database
subscription and technology license fees and $89,000 was derived from increased
revenues from collaborative research. This was offset by a $169,000 decrease in
other revenue.

         Research and Development Expenses. Research and development expenses,
including stock-based compensation expense, increased 30% to $20.6 million in
the six months ended June 30, 2001 from $15.9 million in the corresponding
period in 2000. Research and development expenses for the six months ended June
30, 2001 and 2000 included $2.8 million and $8.2 million, respectively, of
stock-based compensation primarily relating to option grants made prior to our
April 2000 initial public offering. The increase of $10.0 million in research
and development expenses exclusive of stock-based compensation was primarily
attributable to increased personnel costs to support the expansion of our drug
discovery and LexVision programs, our OmniBank database and library, the
development and analysis of knockout mice and our other functional genomics
research efforts.

         General and Administrative Expenses. General and administrative
expenses, including stock-based compensation expense, decreased 5% to $9.3
million in the six months ended June 30, 2001 from

                                       10

<PAGE>   11

$9.8 million in the corresponding period in 2000. General and administrative
expenses for the six months ended June 30, 2001 and 2000 included $2.7 million
and $7.0 million, respectively, of stock-based compensation primarily relating
to option grants made prior to our April 2000 initial public offering. The
increase of $3.8 million in general and administrative expenses exclusive of
stock-based compensation was due primarily to additional personnel costs for
business development and finance and administration, as well as expenses
associated with our patent infringement litigation against Deltagen, Inc.

         Interest Income and Interest Expense. Interest income increased to $5.3
million in the six months ended June 30, 2001 from $3.1 million in the
corresponding period in 2000. This increase resulted from increased average cash
and investment balances during the 2001 period as a result of our initial public
offering in April 2000. Interest expense decreased to $210,000 in the six months
ended June 30, 2001 from $239,000 in the corresponding period in 2000.

         Net Loss and Net Loss Per Common Share. Net loss attributable to common
stockholders increased to $17.9 million in the six months ended June 30, 2001
from $17.1 million in the corresponding period in 2000. Net loss per common
share decreased to $0.37 in the six months ended June 30, 2001 from $0.48 in the
corresponding period of 2000. A portion of the net loss for the six months ended
June 30, 2001 and most of the net loss for the corresponding period in 2000 were
attributable to stock-based compensation expense. Excluding stock-based
compensation expense, and assuming the conversion of the redeemable convertible
preferred stock into common stock occurred on the date of original issuance (May
1998), we would have had a net loss of $12.5 million and $1.8 million in the six
months ended June 30, 2001 and 2000, respectively, and net loss per common share
of $0.26 and $0.04 in the six months ended June 30, 2001 and 2000, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" and No. 142,
"Goodwill and Other Intangible Assets". These statements, which Lexicon must
adopt for 2001, generally require that all business combinations initiated after
June 30, 2001, be accounted for using the purchase method. Additionally, any
resulting goodwill will not be amortized, but rather will be subject to at least
an annual impairment test. Acquired intangible assets will be separately
recognized and amortized over their useful lives. Management is currently
assessing the impact of these statements on its future financial position and
results of operations, which will reflect the July 2001 acquisition of
Coelacanth Corporation.

LIQUIDITY AND CAPITAL RESOURCES

         We have financed our operations from inception primarily through sales
of common and preferred stock, contract and milestone payments to us under our
database subscription and collaboration agreements and equipment financing
arrangements. From our inception through June 30, 2001, we had received net
proceeds of $241.8 million from issuances of common and preferred stock,
including $203.2 million of net proceeds from the initial public offering of our
common stock in April 2000. In addition, from our inception through June 30,
2001, we received $30.4 million in cash payments from database subscription and
technology license fees, functional genomics collaborations for the development
and analysis of knockout mice, sales of reagents and government grants, and have
recognized revenues of $29.5 million through June 30, 2001.

         As of June 30, 2001, we had $183.8 million in cash, cash equivalents
and marketable securities, as compared to $202.7 million as of December 31,
2000. We used $13.0 million in operations in the six months ended June 30, 2001.
This consisted of the net loss for the six months ended June 30, 2001 of $17.9
million offset by non-cash charges of $5.4 million related to stock-based
compensation expense and

                                       11

<PAGE>   12
$2.0 million related to depreciation expense, which in turn was offset by a $2.5
million net increase in other working capital accounts and long-term deferred
revenue. Investing activities provided $20.2 million in the six months ended
June 30, 2001, principally as a result of maturities of marketable securities.

         In June 1999, we entered into a $5.0 million financing arrangement for
the purchase of property and equipment which is secured by the equipment
financed. We borrowed a total of approximately $4.2 million under this
arrangement, of which $974,000 remained outstanding at June 30, 2001. This
facility accrues interest at a weighted-average rate of approximately 11.7%, and
principal and interest is due in monthly installments through 2003. The debt is
being retired through prepayment beginning in the second quarter of 2001.

         In October 2000, we entered into a synthetic lease agreement under
which the lessor purchased our current laboratory and office space and animal
facility and agreed to fund the construction of additional laboratory and office
space and a second animal facility. Including the purchase price for our
existing facilities, the synthetic lease provides for funding of up to $45.0
million in property and improvements. The term of the agreement is six years,
which includes the construction period and a lease period. Lease payments for
the new facilities will begin upon completion of construction, which is expected
in the fourth quarter of 2001. Lease payments are subject to fluctuation based
on LIBOR rates. At the end of the lease term, the lease may be extended for
one-year terms, up to seven additional terms, or we may purchase the properties
for a price including the outstanding lease balance. If we elect not to renew
the lease or purchase the properties, we must arrange for the sale of the
properties to a third party. Under the sale option, we have guaranteed a
percentage of the total original cost as the residual fair value of the
properties. The Company is required to maintain restricted cash or investments
to the extent of borrowings made under the synthetic lease agreement. As of June
30, 2001, borrowings were $19.9 million as compared to $13.4 million as of
December 31, 2000.

         Our capital requirements depend on numerous factors, including our
ability to obtain database subscription and collaboration agreements, the amount
and timing of payments under such agreements, the level and timing of our
research and development expenditures, market acceptance of our products, the
resources we devote to developing and supporting our products and other factors.
We expect to devote substantial capital resources to continue our research and
development efforts, to expand our support and product development activities,
and for other general corporate activities. We believe that our current cash
balances, together with revenues to be derived from subscriptions to our
databases, functional genomics collaborations for the research, development and
analysis of the physiological effects of genes altered in knockout mice, will be
sufficient to fund our operations for at least the next several years. During or
after this period, if cash generated by operations is insufficient to satisfy
our liquidity requirements, we may need to sell additional equity or debt
securities or obtain additional credit arrangements. Additional financing may
not be available on terms acceptable to us or at all. The sale of additional
equity or convertible debt securities may result in additional dilution to our
stockholders.

IMPACT OF INFLATION

         The effect of inflation and changing prices on our operations was not
significant during the periods presented.

DISCLOSURE ABOUT MARKET RISK

         Our exposure to market risk is confined to our cash and cash
equivalents which have maturities of less than three months. We maintain an
investment portfolio which consists of U.S. government debt obligations and
investment grade commercial paper that mature one to twelve months after June
30, 2001,

                                       12

<PAGE>   13

which we believe are subject to limited credit risk. We currently do not hedge
interest rate exposure. Because of the short-term maturities of our investments,
we believe that changes in market rates would not have any negative impact on
the realized value of our investment portfolio.

         We have operated primarily in the United States and substantially all
sales to date have been made in U.S. dollars. Accordingly, we have not had any
material exposure to foreign currency rate fluctuations.

RISK FACTORS

         Our business is subject to certain risks and uncertainties, including
those referenced below:

Risks Related to Our Business

     o    we have a history of net losses, and we expect to continue to incur
          net losses and may not achieve or maintain profitability

     o    our quarterly operating results have been and likely will continue to
          fluctuate, and we believe that quarter-to-quarter comparisons of our
          operating results are not a good indication of our future performance

     o    we are an early-stage company with an unproven business strategy

     o    we face substantial competition in the discovery of the DNA sequences
          of genes and their functions and in our drug discovery and product
          development efforts

     o    we rely heavily on collaborators to develop and commercialize
          pharmaceutical products based on genes that we identify as promising
          candidates for development as drug targets

     o    any cancellation by or conflicts with our collaborators could harm our
          business

     o    we have no experience in developing and commercializing pharmaceutical
          products on our own

     o    we may engage in future acquisitions, which may be expensive and time
          consuming and from which we may not realize anticipated benefits

     o    if we lose our key personnel or are unable to attract and retain
          additional personnel, we may be unable to pursue collaborations or
          develop our own products

     o    we may encounter difficulties in managing our growth, which could
          increase our losses

     o    because our entire OmniBank mouse clone library is located at a single
          facility, the occurrence of a disaster could significantly disrupt our
          business

     o    we can provide no assurance that we will prevail in our claims against
          Deltagen, Inc. or that, if we prevail, any damages or equitable
          remedies awarded will be commercially valuable

     o    we may need additional capital in the future and, if it is not
          available, we may have to curtail or cease operations


                                       13

<PAGE>   14

Risks Related to Our Industry

     o    our ability to patent our discoveries is uncertain because patent laws
          and their interpretation are highly uncertain and subject to change

     o    our patent applications may not result in enforceable patent rights

     o    if other companies and institutions obtain patents claiming the
          functional uses of genes and gene products based upon gene sequence
          information and predictions of gene function, we may be unable to
          obtain patents for our discoveries of biological function in knockout
          mice

     o    we are presently involved in patent litigation and may be involved in
          future patent litigation and other disputes regarding intellectual
          property rights, and can give no assurance that we will prevail in any
          such litigation or other dispute

     o    issued patents may not fully protect our discoveries, and our
          competitors may be able to commercialize products similar to those
          covered by our issued patents

     o    our rights to the use of technologies licensed by third parties are
          not within our control

     o    we may be unable to protect our trade secrets

     o    we may become subject to regulation under the Animal Welfare Act,
          which could subject us to additional costs and permit requirements

     o    we and our collaborators are subject to extensive and uncertain
          government regulatory requirements, which could increase our operating
          costs or adversely affect our ability to obtain government approval of
          products based on genes that we identify in a timely manner or at all

     o    security risks in electronic commerce or unfavorable internet
          regulation may deter future use of our products and services

     o    we use hazardous chemicals and radioactive and biological materials in
          our business; any disputes relating to improper handling, storage or
          disposal of these materials could be time consuming and costly

     o    we may be sued for product liability

     o    public perception of ethical and social issues may limit or discourage
          the use of our technologies, which could reduce our revenues

         For additional discussion of the risks and uncertainties that affect
our business, see "Item 1. Business - Risk Factors" included in our annual
report on Form 10-K for the year ended December 31, 2000, as filed with the
Securities and Exchange Commission.

                                       14

<PAGE>   15

ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         See "Disclosure about Market Risk" under "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations for
quantitative and qualitative disclosures about market risk.

PART II - OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS

         On May 24, 2000, we filed a complaint against Deltagen, Inc. in U.S.
District Court for the District of Delaware alleging that Deltagen is willfully
infringing the claims of United States Patent No. 5,789,215, under which we hold
an exclusive license from GenPharm International, Inc. This patent covers
methods of engineering the animal genome, including methods for the production
of knockout mice by homologous recombination, using isogenic DNA technology. In
the complaint, we are seeking unspecified damages from Deltagen, as well as
injunctive relief. Deltagen has counterclaimed for a declaratory judgment that
the patent is invalid and unenforceable and is not infringed by Deltagen. On
November 14, 2000, Deltagen filed an amended counterclaim alleging antitrust
claims against us and GenPharm, for which Deltagen is seeking unspecified
damages. The Markman hearing with respect to the claims of the isogenic DNA
patent is currently scheduled for October 4, 2001.

         On October 13, 2000, we filed a second complaint against Deltagen, Inc.
in U.S. District Court for the Northern District of California alleging that
Deltagen is willfully infringing the claims of United States Patents Nos.
5,464,764, 5,487,992, 5,627,059, and 5,631,153, under which also we hold
exclusive licenses from GenPharm International. These patents cover methods and
vectors for using positive-negative selection for producing gene targeted, or
"knockout," cells and animals, including the production of knockout mice by
homologous recombination. In the complaint, we are seeking unspecified damages
from Deltagen, as well as injunctive relief. Deltagen has counterclaimed for a
declaratory judgment that the patents are invalid and unenforceable and are not
infringed by Deltagen.

         While we believe that our complaints against Deltagen are meritorious
and that Deltagen's counterclaims against us are without merit, we can provide
no assurance that we will prevail in our litigation against Deltagen or that, if
we prevail, any damages or equitable remedies awarded will be commercially
valuable. If Deltagen prevails in declaring our patents invalid or on its
antitrust claim against us, our business and financial position could be
adversely affected. Furthermore, we are likely to incur substantial costs and
expend substantial personnel time in pursuing our litigation against Deltagen.

         We are not a party to any material legal proceedings other than the
Deltagen litigation.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Our annual meeting of stockholders was held on April 18, 2001 to
consider and vote upon the following proposals:

          (1)  The following individual was nominated and elected as a Class I
               director, with the following numbers of shares voted for and
               withheld for such director:

<Table>
<Caption>
               NAME OF DIRECTOR                     FOR              WITHHELD
               ----------------                     ---              --------
<S>                                               <C>                 <C>
               Robert J. Lefkowitz, M.D.          39,235,702          19,279
</Table>


                                       15
<PAGE>   16
(2)               The following additional matter was considered and approved,
                  with the following numbers of shares voted for, voted against
                  and abstaining with respect to such matter:

<Table>
<Caption>
                  MATTER                                 FOR        AGAINST    ABSTAIN
                  ------                                 ---        -------    -------
<S>                                                    <C>          <C>        <C>
                  Appointment of Arthur Andersen
                  LLP as our independent public
                  accountants for the fiscal year
                  ending December 31, 2001             39,208,234    39,821     6,926
</Table>

ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K

         (a)   Exhibits

     EXHIBIT NO.                  DESCRIPTION

      10.1     -- Agreement and Plan of Merger, dated June 13, 2001, among
                  Lexicon Genetics Incorporated, Angler Acquisition Corp. and
                  Coelacanth Corporation (filed as Exhibit 10.1 to the company's
                  Current Report on Form 8-K dated June 13, 2001 and
                  incorporated by reference herein).

     +10.2     -- LexVision Database and Collaboration Agreement, dated June 27,
                  2001, between Lexicon Genetics Incorporated and Incyte
                  Genomics, Inc.

     +10.3     -- Therapeutic Protein Alliance Agreement, dated June 27, 2001,
                  between Lexicon Genetics Incorporated and Incyte Genomics,
                  Inc.

------------------------
+  Confidential treatment has been requested for a portion of this exhibit. The
   confidential portions of this exhibit have been omitted and filed separately
   with the Securities and Exchange Commission.

         (b)   Reports on Form 8-K:

         On June 18, 2001, we filed a Current Report on Form 8-K dated June 13,
2001 relating to our execution of an Agreement and Plan of Merger providing for
our acquisition of Coelacanth Corporation.


                                       16

<PAGE>   17



                                   SIGNATURES

         Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                           LEXICON GENETICS INCORPORATED


Date:   August 14, 2001                    By:  /s/ ARTHUR T. SANDS
                                              ---------------------------------
                                                Arthur T. Sands, M.D., Ph.D.
                                                President and Chief
                                                Executive Officer


Date:   August 14, 2001                    By:  /s/ JULIA P. GREGORY
                                              ---------------------------------
                                                Julia P. Gregory
                                                Executive Vice President and
                                                Chief Financial Officer


                                       17

<PAGE>   18




                                INDEX TO EXHIBITS

<Table>
<Caption>

     EXHIBIT NO.                      DESCRIPTION
     -----------                      -----------
<S>               <C>
      10.1     -- Agreement and Plan of Merger, dated June 13, 2001, among
                  Lexicon Genetics Incorporated, Angler Acquisition Corp. and
                  Coelacanth Corporation (filed as Exhibit 10.1 to the company's
                  Current Report on Form 8-K dated June 13, 2001 and
                  incorporated by reference herein).

     +10.2     -- LexVision Database and Collaboration Agreement, dated June 27,
                  2001, between Lexicon Genetics Incorporated and Incyte
                  Genomics, Inc.

     +10.3     -- Therapeutic Protein Alliance Agreement, dated June 27, 2001,
                  between Lexicon Genetics Incorporated and Incyte Genomics,
                  Inc.

------------------------
+  Confidential treatment has been requested for a portion of this exhibit. The
   confidential portions of this exhibit have been omitted and filed separately
   with the Securities and Exchange Commission.

</Table>


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>h89868ex10-2.txt
<DESCRIPTION>LEXVISION DATABASE & COLLABORATION AGREEMENT
<TEXT>
<PAGE>   1
                                                                    EXHIBIT 10.2


CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.









               LEXVISION(TM) DATABASE AND COLLABORATION AGREEMENT

                                     BETWEEN

                          LEXICON GENETICS INCORPORATED

                                       AND

                              INCYTE GENOMICS, INC.

                            DATED AS OF JUNE 27, 2001

<PAGE>   2
               LEXVISION(TM) DATABASE AND COLLABORATION AGREEMENT

         THIS LEXVISION(TM) DATABASE AND COLLABORATION AGREEMENT (this
"Agreement") is dated as of June 27, 2001 (the "Effective Date") and is made by
and between LEXICON GENETICS INCORPORATED, a Delaware corporation ("Lexicon"),
and INCYTE GENOMICS, INC., a Delaware corporation ("Incyte"). Lexicon and Incyte
are sometimes referred to herein individually as a "party" and collectively as
the "parties."

                                    RECITALS

         WHEREAS, Lexicon has compiled and is continuing to compile the
LexVision(TM) and OmniBank(R) Databases (as hereinafter defined);

         WHEREAS, Lexicon owns or has rights to, and expertise in, certain
methods of producing Mutant Mice (as hereinafter defined);

         WHEREAS, Incyte desires to obtain non-exclusive access to the LexVision
and OmniBank Databases during the Collaboration Term (as hereinafter defined),
and certain licenses under the Lexicon Patent Rights and the Lexicon Know-How
relating to Designated Drug Targets (in each case, as hereinafter defined), for
purposes of drug discovery research;

         WHEREAS, Incyte desires that Lexicon develop, upon request, certain
Mutant Mice having Selected Mutations (as hereinafter defined) for use in such
research;

         WHEREAS, Lexicon is willing to grant Incyte non-exclusive access to the
LexVision and OmniBank Databases during the Collaboration Term, and certain
licenses under the Lexicon Patent Rights and/or the Lexicon Know-How relating to
Designated Drug Targets, for purposes of drug discovery research upon the terms
and conditions set forth herein; and

         WHEREAS, Lexicon is willing to develop, upon request by Incyte, Mutant
Mice having Selected Mutations for use in drug discovery research upon the terms
and conditions set forth herein;

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


                             Article 1. DEFINITIONS


         For purposes of this Agreement, the terms defined in this Article 1
shall have the respective meanings specified below:

         1.1 "Academic Collaborator" means a principal investigator, employed at
a university or other not-for-profit academic research institution that has
entered into a material transfer agreement with Incyte pursuant to Section 3.7,
who is performing collaborative research with Incyte involving use of a
Designated Drug Target, Mutant Mouse or Progeny.


                                       1
<PAGE>   3
         1.2 "Affiliate" means any corporation, company, partnership, joint
venture and/or firm that controls, is controlled by or is under common control
with a party to this Agreement. For purposes hereof, "control" means (i) in the
case of corporate entities, direct or indirect ownership more than fifty percent
(50%) of the stock or shares entitled to vote for the election of directors; and
(ii) in the case of non-corporate entities, direct or indirect ownership of more
than fifty percent (50%) of the equity interest with the power to direct the
management and policies of such non-corporate entities. [**]

         1.3 "Collaboration Term" means the period described in Section 12.1.1.

         1.4 "Commercialization Field" means the treatment and prevention of
human diseases and conditions.

         1.5 "Confidential Information" means any information and data received
by a party (the "Receiving Party") from the other party or its Affiliates (the
"Disclosing Party") in connection with this Agreement (which, in the case of
Incyte as the Receiving Party, shall include without limitation the LexVision
and OmniBank Databases and all information contained therein and all
documentation related thereto; and which, in the case of Lexicon as the
Receiving Party, shall include without limitation any information and data
relating to Incyte's research and development efforts using the LexVision and
OmniBank Databases, a Mutant Mouse, Progeny or any human ortholog of a mouse
gene contained in the OmniBank Database and discovered by Incyte, and any
research, testing, clinical, regulatory, marketing or other scientific or
business information, plans, or data pertaining to any Product of Incyte).
Notwithstanding the foregoing, Confidential Information shall not include any
part of such information or data that:

                  (a) is or becomes part of the public domain other than by
         unauthorized acts of the Receiving Party, its Affiliates or Corporate
         Partners;

                  (b) can be shown by written documents to have been already in
         the possession of the Receiving Party or its Affiliates or its
         Corporate Partners prior to disclosure under this Agreement, provided
         such Confidential Information was not obtained directly or indirectly
         from the Disclosing Party pursuant to a confidentiality agreement;

                  (c) can be shown by written documents to have been disclosed
         to the Receiving Party or its Affiliates or Corporate Partners by a
         Third Party, provided such Confidential Information was not obtained
         directly or indirectly from the Disclosing Party pursuant to a
         confidentiality agreement; or

                  (d) can be shown by written documents to have been
         independently developed by the Receiving Party or its Affiliates or its
         Corporate Partners without use of, or access to, Confidential
         Information of the Disclosing Party.

Specific Confidential Information of a Disclosing Party shall not be deemed to
come under the foregoing exceptions merely because it is embraced by more
general information that is or becomes part of the public domain, or is known
by, disclosed to or independently developed by the Receiving Party. For example,
coding sequence of a gene disclosed by a Disclosing Party shall not be deemed to
come under the foregoing exceptions merely because genomic DNA


                                       2
<PAGE>   4
sequence information relating to such gene is or becomes part of the public
domain, or is known by, disclosed to or independently developed by the Receiving
Party, unless that genomic DNA sequence information has been specifically and
materially established as exon region(s) via standard molecular biology
laboratory techniques.

         1.6 "Corporate Partner" means any Third Party, other than an Academic
Collaborator, which enters into an agreement with Incyte or its Affiliates
involving the grant to such Third Party of rights for the development,
commercialization and/or marketing of a Product, and which, if Incyte has
transferred a Designated Drug Target, Mutant Mouse or Progeny to such Third
Party, has entered into a material transfer agreement with Incyte pursuant to
Section 3.7.

         1.7 "Cre-Lox Mouse" means any mouse cell or mouse containing a Selected
Mutation and which (i) has one or more lox sites in its genome and (ii) contains
DNA capable of expressing a Cre recombinase protein, and which is made or
produced by Lexicon and delivered to Incyte.

         1.8 "Cre-Lox Patent Rights" means the United States and foreign patents
and patent applications listed on Exhibit 1.8, any continuation-in-part,
continuation or divisional applications thereof, any patent granted on any
aforesaid patent application and any extension, revival, re-examination or
reissue of any of such patent, and any continuations, continuations-in-part,
divisionals, reissues, extensions or foreign counterparts of any of the
foregoing, which Lexicon has the right to sublicense hereunder. The terms "Cre"
and "lox" (also referred to as "loxP") have the meanings as described and
embodied by the Cre-Lox Patent Rights.

         1.9 "Cre-Lox Technology" means all the inventions described, embodied
by and claimed in the Cre-Lox Patent Rights.

         1.10 "Cre Mouse" means any mouse cell or mouse (i) having no lox sites
in its genome and (ii) containing DNA capable of expressing a Cre recombinase
protein.

         1.11 "Designated Drug Target" means any Drug Target which (i) is
selected for research and development by Incyte in accordance with the terms and
conditions of this Agreement and (ii) is or has been Used By Incyte (as
hereinafter defined) during the Collaboration Term.

         1.12 "Disclosing Party" has the meaning set forth in Section 1.5
hereof.

         1.13 "DPC" means DuPont Pharmaceuticals Company.

         1.14 "Drug Target" means [**].

         1.15 "Effective Date" means the date specified in the initial paragraph
of this Agreement.

         1.16 "Event of Default" means an event described in Section 12.3
hereof.

         1.17 "First Commercial Sale" means the first sale for use or
consumption by the general public of a Product in a country after all required
marketing and pricing or pricing


                                       3
<PAGE>   5
reimbursement approvals to be granted by the governing health authority of such
country have been obtained. For the avoidance of doubt, First Commercial Sale
shall not include the sale of any Product for use in clinical trials or for
compassionate use prior to the approval of an NDA.

         1.18 "Homologous Recombination" means a method of making a mouse
containing a Selected Mutation in a particular portion of a gene using standard
homologous recombination techniques.

         1.19 "Incyte Know-How" means [**].

         1.20 "Incyte Patent Rights" means [**].

         1.21 "Incyte Proprietary Program" means [**].

         1.22 "Incyte Database Information" means [**].

         1.23 "IND" means an Investigational New Drug application filed with the
U.S. Food and Drug Administration or a similar application for the clinical
testing of a Product in human subjects filed with a foreign regulatory
authority.

         1.24 "Invention" means any new and useful composition of matter,
process, product by process, machine or manufacture, including without
limitation, software or an arrangement or collection of data, or any new and
useful improvement thereof, whether or not patentable, which has been or is
discovered, conceived, developed or first reduced to practice by employees or
others acting on behalf of Lexicon or its Affiliates (either solely or jointly
with others), or by employees or others acting on behalf of Incyte or its
Affiliates (either solely or jointly with others), through [**].

         1.25 "Joint Invention" means any new and useful composition of matter,
process, product by process, machine or manufacture, including without
limitation, software or an arrangement or collection of data, or any new and
useful improvement thereof, whether or not patentable, hereafter discovered,
conceived, made, developed or reduced to practice jointly by employees or others
acting on behalf of Incyte or its Affiliates, together with employees or others
acting on behalf of Lexicon or its Affiliates, through [**].

         1.26 "Joint Patent Rights" means (i) any United States and foreign
patent applications, including without limitation provisional patent
applications, hereafter owned, in whole or in part, by Lexicon or Incyte or
having legal force in any country, which claim a Joint Invention, (ii) any
United States patents and foreign patents issuing from such patent applications
and (iii) any substitutions, renewals, continuations, continuations-in-part,
divisionals, reissues, reexaminations or extensions of any of the foregoing.

         1.27 "Lexicon Know-How" means all inventions (including Inventions
other than Joint Inventions), discoveries, improvements, know-how, technical
information, data or other technology comprised within or otherwise relating to
the Lexicon Technology that [**], all to the extent and only to the extent that
Lexicon has the right to grant licenses, immunities or other rights to Incyte
hereunder; provided, however, that the Lexicon Know-How excludes the Lexicon


                                       4
<PAGE>   6
Patent Rights and any Inventions, discoveries, improvements, know-how, technical
information, data or other technology discovered, conceived, developed or first
reduced to practice under a Lexicon Proprietary Program.

         1.28 "Lexicon Patent Rights" means (i) the United States and foreign
patents owned by or licensed (with rights to sublicense) to Lexicon which claim
a composition, method, or process relating to the Lexicon Technology, (ii) the
United States and foreign patent applications, including without limitation
provisional patent applications, heretofore or hereafter filed by Lexicon or
having legal force in any country, which claim a composition, method, or process
relating to the Lexicon Technology, (iii) any United States patents and foreign
patents issuing from such patent applications and (iv) any substitutions,
renewals, continuations, continuations-in-part, divisionals, reissues,
reexaminations or extensions of any of the foregoing, in each case to the extent
(and only to the extent) such patents and patent applications claim [**];
provided that the Lexicon Patent Rights exclude any Joint Patent Rights, the
Cre-Lox Patent Rights and the claims of any patent or patent application filed
by Lexicon directed to Inventions discovered, conceived, developed or first
reduced to practice under a Lexicon Proprietary Program.

         1.29 "Lexicon Proprietary Program" means [**].

         1.30 "Lexicon Technology" means [**].

         1.31 "LexVision Database" means Lexicon's proprietary database
comprising phenotypic data and associated information, as more fully described
in Exhibit 1.31 hereto, and as may be supplemented from time to time as set
forth herein.

         1.32 "Lox Mutant Mouse" means a mouse cell or mouse containing a
Selected Mutation (i) having one or more lox sites in its genome and (ii) not
containing DNA capable of expressing a Cre recombinase protein, and which is
made or produced by Lexicon using either the OmniBank Method or Homologous
Recombination and delivered to Incyte.

         1.33 "Major Market" means the United States, the European Union (under
the centralized process or any other process), Germany, the United Kingdom,
France, Italy, Spain or Japan.

         1.34 "Mutant Mouse" means collectively a Cre Mouse, a Cre-Lox Mouse, a
Lox Mutant Mouse, or a Non-Cre-Lox Mutant Mouse having a Selected Mutation that
was made or produced by Lexicon and delivered to Incyte pursuant to Section 5.2.
A "line of Mutant Mice" means Mutant Mice having the same Selected Mutation. For
purposes of this Agreement, Mutant Mouse shall exclude any mouse cell or mouse
made by Lexicon under the Therapeutic Protein Alliance Agreement between Lexicon
and Incyte of even date herewith.

         1.35 "NDA" means a New Drug Application filed with the U.S. Food and
Drug Administration or a similar application for marketing approval of a Product
filed with a foreign regulatory authority.

         1.36 "Net Sales" means, with respect to a Product, the gross amount
invoiced by Incyte, its Affiliates or Corporate Partners for sales of such
Product to a Third Party, less:


                                       5
<PAGE>   7
                  (a) trade, quantity and cash discounts actually allowed;

                  (b) discounts, refunds, rebates, chargebacks, retroactive
         price adjustments, billing errors and any other allowances (including,
         without limitation, government-mandated and managed health
         care-negotiated rebates) actually granted which effectively reduce the
         net selling price;

                  (c) product returns credits and allowances actually granted;

                  (d) any tax imposed on the production, sale, delivery or use
         of the product (excluding federal, state or local taxes based on
         income);

                  (e) freight, postage, shipping, customs duties, excises,
         tariffs, surcharges, other governmental charges (excluding federal,
         state or local taxes based on income) and insurance charges actually
         allowed or paid for delivery of Products;

                  (f) payments or rebates paid with respect to such Product in
         connection with state or federal Medicare, Medicaid or similar programs
         in the United States or in connection with similar programs in other
         countries in which there are sales; and

                  (g) adjustments for bad debts.

Such amounts shall be determined from the books and records of Incyte, its
Affiliates or Corporate Partners, as the case may be, maintained in accordance
with the generally accepted accounting principles, consistently applied.

         In the event the Product is sold as part of a Combination Product (as
defined below), the Net Sales from the Combination Product, for the purposes of
determining royalty payments, will be determined by multiplying the Net Sales of
the Combination Product by the fraction, A/A+B where A is the average sale price
of the Product when sold separately in finished form and B is the average sale
price of the other active compounds or ingredients in the Combination Product
sold separately in finished form.

         In the event that the average sale price of the Product can be
determined but the average sale price of the other active compounds or
ingredients cannot be determined, Net Sales for purposes of determining royalty
payments will be calculated by multiplying the Net Sales of the Combination
Product by the fraction C/C+D where C is the selling party's average sales price
of the Product and D is the difference between the average selling price of the
Combination Product and the average selling price of the Product. If the average
sale price of the other active compounds or ingredients can be determined but
the average price of the Product cannot be determined, Net Sales for purposes of
determining royalty payments will be calculated by multiplying the Net Sales of
the Combination Product by the following formula: one minus C/C+D where C is the
average selling price of the other product(s) and D is the difference between
the average selling price of the Combination Product and the average selling
price of the other active compounds or ingredients.


                                       6
<PAGE>   8
         In the event that the average sales price of both the Product and the
other active compounds or ingredients in the Combination Product cannot be
determined, the Net Sales of the Product shall be negotiated in good faith by
the parties.

         The Net Sales price for a Combination Product in a given country will
be calculated once each calendar year and such price will be used during all
applicable royalty reporting periods for the entire calendar year for such
country, absent extraordinary conditions or events. When determining the average
sale price of a Product or the other active compounds or ingredients in the
Combination Product, the average sale price will be calculated using data
arising from the twelve (12) months preceding the calculation of the Net Sales
price for the Combination Product. As used above, the term "Combination Product"
means any Product sold in conjunction with any other active component(s)
(whether packaged together or in the same therapeutic formulation).

         If Incyte or any of its Affiliates or Corporate Partners sells any
Product to a Third Party which also purchases other products or services from
such seller or any of its Affiliates in a bundled, combination or capitated
transaction (a "Bundled Transaction"), and such seller discounts the sales price
of the Product to a greater degree than such seller or its Affiliates generally
discount the price of its other products to such customer, then the aggregate
amount received with respect to such Bundled Transaction shall be allocated to
Net Sales pursuant to the formula set forth in Exhibit 1.36 hereto. For purposes
of the foregoing, "discounting" includes establishing the list price at lower
than the seller's normal pricing level.

         Free samples of Product and the disposition of Product for, or the use
of Product in, pre-clinical or clinical (Phase 1 - 3) trials or other
market-focused (Phase 4) trials in which Product is provided to patients without
any payment shall not result in any Net Sales.

         1.37 "Non-Cre-Lox Mutant Mouse" means a mouse cell or mouse containing
a Selected Mutation (i) having no lox sites in its genome and (ii) not
containing DNA capable of expressing a Cre recombinase protein, and which is
made or produced by Lexicon using either the OmniBank Method or Homologous
Recombination and delivered to Incyte.

         1.38 "OmniBank Database" means Lexicon's proprietary database
comprising OmniBank Sequence Tags and all associated information, as more fully
described in Exhibit 1.38 hereto, and as may be supplemented from time to time
as set forth herein.

         1.39 "OmniBank" or "OmniBank Library" means Lexicon's proprietary
library of embryonic stem cell clones containing gene trap events in particular
mouse genes, which genes are identified by OmniBank Sequence Tags, and which
clones may or may not have lox sites, as more fully described in Exhibit 1.38
hereto.

         1.40 "OmniBank Method" means the method of making or developing a mouse
containing a Selected Mutation using gene trap insertion techniques with
embryonic stem cells retrieved from the OmniBank Library.

         1.41 "OmniBank Sequence Tag" or "OST" means any DNA sequence that is
derived from a mouse gene using gene trap insertion techniques and contained in
the OmniBank Database.


                                       7
<PAGE>   9
         1.42 "Phase 3 Trial" means a pivotal human clinical trial in any
country the results of which could be used to establish safety and efficacy of a
Product as a basis for an NDA or that would otherwise satisfy the requirements
of 21 CFR 312.21(c) or its foreign equivalent. For purposes of this Agreement,
"commencement of a Phase 3 Trial" for a Product shall mean the introduction of
such Product into a human patient in a Phase 3 Trial.

         1.43 "Product" means any Small Molecule Drug product or Small Molecule
Drug product candidate for the treatment or prevention of any human disease or
condition which [**]. Without limiting the foregoing, a Product shall include
any Small Molecule Drug product or product candidate for the treatment or
prevention of any human disease or condition which [**].

         1.44 "Product Patent Rights" means (i) the United States and foreign
patent applications, hereafter filed by Incyte, its Affiliates, Academic
Collaborators or Corporate Partners or having legal force in any country, which
claim a composition, method, or process relating to a Product, (ii) any United
States patents and foreign patents issuing from such patent applications and
(iii) any substitutions, renewals, continuations, continuations-in-part,
divisionals, reissues, reexaminations or extensions of any of the foregoing.

         1.45 "Progeny" means mice, including successive generations thereof,
that are produced or developed by Incyte, its Affiliates, Academic Collaborators
or Corporate Partners by breeding a Mutant Mouse with any other mouse
(including, without limitation, any other Mutant Mouse); provided that Progeny
shall not include any mouse that does not contain at least one copy of an allele
carrying a Selected Mutation, or nucleotide sequence derived or descended from
an OmniBank vector, stably integrated into its genome.

         1.46 "Project Coordinator" has the meaning specified in Section 2.1
hereof.

         1.47 "Receiving Party" has the meaning set forth in Section 1.5 hereof.

         1.48 "Research Field" means use by Incyte, its Affiliates, Academic
Collaborators and/or Corporate Partners, at the internal research facilities of
Incyte, its Affiliates, Academic Collaborators and Corporate Partners, for
research directed toward the discovery, identification, selection, and
characterization of Products. The Research Field shall specifically exclude (i)
the clinical development, marketing, sale, license or commercialization of any
Product, which activities shall require a license in the Commercialization
Field, and (ii) the development, manufacture, use, lease, sale (or other
transfer for consideration) or importation of any product for sale (or lease or
other transfer of a product for consideration) wherein the manufacture, use,
sale or importation of such product would infringe a Valid Claim of the Cre-Lox
Patent Rights, including but not limited to wherein the product is manufactured
using a composition or method which would infringe a Valid Claim of the Cre-Lox
Patent Rights.

         1.49 "Selected Mutation" means a specific mutation in a particular
portion of a gene of a mouse embryonic stem cell that is created using the
OmniBank Method or Homologous Recombination, which may or may not contain lox
sites.

         1.50 "Seek-Target-Validation Project" or "S-T-V Project" means
Lexicon's conduct of a Level 2 or 3 S-T-V analysis pursuant to Section 6.1,
which may include, as applicable, the tests and assays described in Exhibit
1.50.


                                       8
<PAGE>   10
         1.51 "Small Molecule Drug" means any product or product candidate for
the treatment of any human disease or condition, the active ingredient of which
is a synthetic small molecule, a natural product or a macromolecule; provided,
however, that "Small Molecule Drug" specifically excludes any product or product
candidate which consists of or incorporates as an active ingredient [**].

         1.52 "Steering Committee" has the meaning specified in Section 2.1
hereof.

         1.53 "Territory" means all countries and jurisdictions throughout the
world.

         1.54 "Third Party" means any person or entity other than Lexicon or
Incyte and their respective Affiliates.

         1.55 "Use by Incyte" or "Used by Incyte" means any of the following:

                  (a) any use by Incyte or any of its Affiliates of (i) a Drug
         Target, which Drug Target or the use thereof is covered by a Valid
         Claim of the Lexicon Patent Rights at the time of such use, or (ii)
         data or other information from the LexVision or OmniBank Database
         relating to a Drug Target which is included in the Lexicon Know-How at
         the time of such use, in any such case which use meets any or all of
         the following criteria:

         [**]

         1.56 "Valid Claim" means either (i) a claim of an issued and unexpired
patent which has not been held permanently revoked, unenforceable or invalid by
a decision of a court or other governmental agency of competent jurisdiction,
unappealable or unappealed within the time allowed for appeal and that is not
admitted to be invalid or unenforceable through reissue, disclaimer or
otherwise, or (ii) a claim of a pending patent application that [**]and that has
not been abandoned or finally rejected without the possibility of appeal or
refiling.

                          ARTICLE 2. STEERING COMMITTEE

         2.1  Members of Steering Committee; Project Coordinators. The
parties shall establish a steering committee (the "Steering Committee"), which
shall comprise three representatives designated by each party (or such other
number as the parties may agree). The initial members of the Steering Committee
are set forth on Exhibit 2.1. Members of the Steering Committee may be
represented at any meeting by a designee who is appointed by such member for
such meeting and who has authority to act on behalf of such member. The
chairperson of the Steering Committee shall be designated annually on an
alternating basis between the parties. The initial chairperson shall be selected
by Incyte and is designated on Exhibit 2.1. The party not designating the
chairperson shall designate one of its representative members as secretary to
the Steering Committee for such year. Each party shall designate an individual
(a "Project Coordinator"), who may, but need not, be a member of the Steering
Committee to coordinate, on its behalf, the day-to-day interaction of and
communication between the parties under this Agreement. Each Project Coordinator
shall possess the education, training and experience necessary to make him or
her reasonably technically qualified to serve as a Project Coordinator.


                                       9
<PAGE>   11
The initial Project Coordinators are set forth on Exhibit 2.1. Each party shall
be free to replace its representative members of the Steering Committee and its
Project Coordinator with new appointees who have authority to act on behalf of
such party, on notice to the other party.

         2.2 Responsibilities of Steering Committee. The Steering Committee
shall be responsible for overseeing and directing the parties' interaction and
performance of their respective obligations under this Agreement. Without
limiting the generality of the foregoing, its duties shall include:

                  (a) evaluating and modifying, from time to time, the tests and
         analytical methods to be used in Level 2 and 3 S-T-V Projects conducted
         by Lexicon under this Agreement;

                  (b) prioritizing and reviewing Lexicon's efforts to develop
         and supply Mutant Mice pursuant to Article 5;

                  (c) establishing criteria and strategies for seeking patent
         protection for Joint Inventions;

                  (d) providing for the exchange of information between the
         parties; and

                  (e) addressing issues and resolving differences that may arise
         between the parties.

         2.3  Meetings of Steering Committee. The Steering Committee shall
meet at least once every calendar quarter, and more frequently as the parties
deem appropriate, on such dates and at such times as the parties shall agree, on
ten (10) days' written notice to the other party unless such notice is waived by
the parties. The first meeting of the Steering Committee shall take place within
thirty (30) days after the Effective Date, at Lexicon's facility in The
Woodlands, Texas. The Steering Committee may convene or be polled or consulted
from time to time by means of telecommunications, videoconferences or
correspondence, as deemed necessary or appropriate by the parties. To the extent
that meetings are held in person, they shall alternate between the offices of
the parties unless the parties otherwise agree. The chairperson shall be
responsible for sending notices of meetings to all members.

         2.4 Decisions.

                  2.4.1 Quorum; Voting. A quorum for a meeting of the Steering
         Committee shall require the presence of at least one Lexicon member (or
         designee) and at least one Incyte member (or designee) in person or by
         telephone. All decisions made or actions taken by the Steering
         Committee shall be made unanimously by its members, with the Lexicon
         members cumulatively having one vote and the Incyte members
         cumulatively having one vote.

                  2.4.2 Dispute Resolution. In the event that unanimity cannot
         be reached by the Steering Committee with respect to a matter that is a
         subject of its decision-making authority, then the matter shall be
         referred for further review and resolution to the Chief Executive
         Officer of Incyte, or such other similar position designated by Incyte
         from time


                                       10
<PAGE>   12
         to time, and the Chief Executive Officer of Lexicon, or such other
         similar position designated by Lexicon from time to time. The
         designated officers of each party shall use reasonable efforts to
         resolve the matter within [**] after the matter is referred to them. If
         the designated officers cannot resolve any matter described in Section
         2.2 within such [**] period, the matter shall be decided by the
         designated officer of Lexicon in good faith, taking into account the
         reasonable commercial interests of Incyte and the express provisions of
         this Agreement.

         2.5 Minutes. Within fifteen (15) days after each Steering Committee
meeting, the secretary of the Steering Committee shall prepare and distribute
minutes of the meeting, which shall provide a description in reasonable detail
of the discussions had at the meeting and a list of any actions, decisions or
determinations approved by the Steering Committee. The secretary shall be
responsible for circulation of all draft and final minutes. Draft minutes shall
be first circulated to the chairperson, edited by the chairperson and then
circulated in final draft form to all members of the Steering Committee
sufficiently in advance of the next meeting to allow adequate review and comment
prior to the meeting. Minutes shall be approved or disapproved, and revised as
necessary, at the next meeting. Final minutes shall be distributed to the
members of the Steering Committee.

         2.6 Term. The Steering Committee shall exist until the termination or
expiration of the Collaboration Term and for such longer period as necessary to
perform the responsibilities assigned to it under this Agreement.

         2.7 Expenses. Each party shall be responsible for all travel and
related costs for its representatives to attend meetings of, and otherwise
participate on, the Steering Committee.


                           ARTICLE 3. GRANTS OF RIGHTS

         3.1 Grant of Rights and Licenses by Lexicon to Incyte.

                  3.1.1 Non-Exclusive Grant of Access to LexVision and OmniBank
         Databases. Subject to the terms of this Agreement, Lexicon hereby
         grants to Incyte and its Affiliates, during the Collaboration Term, the
         non-exclusive right under the Lexicon Patent Rights and Lexicon
         Know-How of access, without the right to permit Third Parties any right
         of access, to the LexVision and OmniBank Databases for use in the
         Research Field only. Incyte and its Affiliates may make copies of
         information contained in the LexVision and OmniBank Databases only to
         the extent reasonably necessary to exercise Incyte's rights under this
         Agreement, and Incyte agrees to establish, and to cause its Affiliates
         to establish, reasonable security measures to prevent copies of the
         information contained in the LexVision and OmniBank Databases from
         being made available to Third Parties (except as provided in Section
         3.7), all to the same extent required for the protection of Lexicon's
         other Confidential Information under Section 9.1.

                  3.1.2 Non-Exclusive Research License Grant under the Lexicon
         Patent Rights and Lexicon Know-How for Drug Discovery. At any time
         during the Collaboration Term, Incyte may, at its option, designate a
         Drug Target as a Designated Drug Target by


                                       11
<PAGE>   13
         providing written notice of such designation to Lexicon; provided that
         Incyte shall be obligated to designate each Drug Target Used by Incyte
         as a Designated Drug Target promptly following the date such Drug
         Target is first Used by Incyte. Subject to the terms of this Agreement,
         Lexicon hereby grants to Incyte and its Affiliates, within the
         Territory, a non-exclusive right and license (without any right to
         sublicense except as specifically provided herein) under the Lexicon
         Patent Rights and Lexicon Know-How with respect to Designated Drug
         Targets solely in the Research Field. Lexicon hereby grants Incyte and
         its Affiliates the limited right to grant sublicenses to Corporate
         Partners and Academic Collaborators under the right and license granted
         by Lexicon pursuant to this Section 3.1.2, on a Designated Drug
         Target-by-Designated Drug Target basis, solely to accomplish the
         purposes of such Corporate Partner's or Academic Collaborator's
         collaboration with Incyte or its Affiliates, as provided in Section
         3.7.

                  3.1.3 Non-Exclusive Commercial License Grant under the Lexicon
         Patent Rights and Lexicon Know-How for Small Molecule Drugs. Subject to
         the terms of this Agreement, Lexicon hereby grants to Incyte and its
         Affiliates, within the Territory, a non-exclusive right and license
         (without the right to sublicense except as specifically provided
         herein) under the Lexicon Patent Rights and Lexicon Know-How with
         respect to Designated Drug Targets to discover, develop, make, have
         made, import, use, have used, offer for sale, sell and have sold Small
         Molecule Drugs in the Commercialization Field. Lexicon hereby grants
         Incyte and its Affiliates the limited right to grant sublicenses to
         Corporate Partners and Academic Collaborators under the right and
         license granted by Lexicon pursuant to this Section 3.1.3, on a
         Designated Drug Target-by-Designated Drug Target basis, solely to
         accomplish the purposes of such Corporate Partner's or Academic
         Collaborator's collaboration with Incyte or its Affiliates, as provided
         in Section 3.7.

                  3.1.4 Non-Exclusive Research License Grant under the Lexicon
         Patent Rights and Lexicon Know-How to Mutant Mice and Progeny. Subject
         to the terms of this Agreement, Lexicon hereby grants to Incyte and its
         Affiliates within the Territory, a non-exclusive right and license
         under the Lexicon Patent Rights and Lexicon Know-How to use, breed,
         cross-breed and have bred and cross-bred Mutant Mice and Progeny for
         use in the Research Field only. Except as provided in Section 3.7,
         Incyte agrees to use the Mutant Mice and Progeny solely for Research
         Field purposes of Incyte and its Affiliates in accordance with the
         terms and conditions of this Agreement, and not to use the Mutant Mice
         or Progeny for any purposes for Third Parties, or to transfer, license
         the use of or make available to Third Parties Mutant Mice or Progeny.
         Lexicon hereby grants Incyte and its Affiliates the limited right to
         grant sublicenses to Corporate Partners and Academic Collaborators
         under the right and license granted by Lexicon pursuant to this Section
         3.1.4, on a Designated Drug Target-by-Designated Drug Target basis,
         solely to accomplish the purposes of such Corporate Partner's or
         Academic Collaborator's collaboration with Incyte or its Affiliates, as
         provided in Section 3.7.

                  3.1.5 Non-Exclusive Research License Grant under the Cre-Lox
         Technology to Lox Mutant Mice, Cre-Lox Mice, Cre Mice and Progeny.

                           3.1.5.1 Subject to the terms of this Agreement,
                  Lexicon hereby grants to Incyte and its Affiliates the
                  non-transferable (except to Academic Collaborators


                                       12
<PAGE>   14
                  and Corporate Partners as provided in Section 3.1.5.2),
                  non-exclusive right under the Cre-Lox Technology to use, breed
                  and cross-breed Lox Mutant Mice solely in the Research Field;
                  provided however, that Incyte and its Affiliates shall not
                  manipulate the genetic information at any lox site of a Lox
                  Mutant Mouse by using the Cre-Lox Technology (including
                  without limitation cross-breeding a Lox Mutant Mouse with a
                  Cre Mouse) or otherwise further practice under the Cre-Lox
                  Patents, without first obtaining a license from DPC.

                           3.1.5.2 Incyte and its Affiliates shall not transfer
                  any Lox Mutant Mice or any Progeny or material in any way
                  derived from such Lox Mutant Mice to any Third Party, except
                  as follows: Incyte may transfer Lox Mutant Mice (or any
                  Progeny or material in any way derived from such Lox Mutant
                  Mice) to Academic Collaborators and Corporate Partners,
                  provided that each such Academic Collaborator or Corporate
                  Partner has first entered into a Material Transfer Agreement
                  with Incyte substantially in the form and containing the terms
                  as set forth in Exhibit 3.7-B hereto.

                           3.1.5.3 No right is granted to Incyte or its
                  Affiliates to sell (or lease or otherwise transfer for
                  consideration) or develop or manufacture for sale (or lease or
                  other transfer for consideration) any product, the
                  manufacture, use, sale or importation of which would infringe
                  a Valid Claim of the Cre-Lox Patents, including but not
                  limited to any product which is manufactured using a
                  composition or method which would infringe a Valid Claim of
                  the Cre-Lox Patents.

                           3.1.5.4 Subject to the restricted non-exclusive
                  rights granted to Incyte, Lexicon (and its licensors, as
                  applicable) shall retain all rights under the Cre-Lox
                  Technology to Lox Mutant Mice (and any Progeny or material in
                  any way derived from such Lox Mutant Mice).


                                       13
<PAGE>   15
         3.2 Use of LexVision Data in Support of Incyte Patents. Subject to the
terms of this Agreement, Lexicon hereby grants to Incyte and its Affiliates,
within the Territory, a non-exclusive right and license (without any right to
sublicense) under the Lexicon Patent Rights and Lexicon Know-How to use data or
other information from the LexVision Database relating to Drug Targets to
support the prosecution or issuance of claims of the Incyte Patent Rights that
(i) claim the composition of matter of a Drug Target and/or (ii) arise solely
from the generation of Incyte Database Information and claim the use of a Drug
Target with respect to human therapeutic and diagnostic products (and any
substitutions, renewals, continuations, continuations-in-part, divisionals,
reissues, reexaminations or extensions of any of the foregoing). The use of such
information in support of the Incyte Patent Rights will not result in such
Incyte Patent Rights becoming Joint Patent Rights. Lexicon shall execute such
documents and take such additional steps as Incyte may reasonably request to
enable Incyte to exercise its rights under this Section 3.2.

         3.3 Reservation of Rights. Notwithstanding the rights granted to Incyte
under this Article 3:

                  3.3.1 Lexicon at all times reserves (i) the right to use and
         to permit others to access and use the LexVision and OmniBank
         Databases, and any information or date contained therein, to discover,
         research, develop, make, have made, import, use, have used, offer for
         sale, sell and have sold products, including the right to grant
         licenses with respect to any applicable intellectual property rights
         for such purpose; (ii) the right to use and to permit others to use,
         breed and have bred Mutant Mice and successive generations thereof to
         discover, research, develop, make, have made, import, use, have used,
         offer for sale, sell and have sold products, including the right to
         grant licenses with respect to any applicable intellectual property
         rights for such purpose; and (iii) its rights under the Lexicon Patent
         Rights and Lexicon Know-How to all embryonic stem cell clones and other
         biological materials contained in the OmniBank Library.

                  3.3.2 Lexicon reserves the right under the Lexicon Patent
         Rights and Lexicon Know-How (i) to discover, research, develop, make,
         have made, import, use, have used, offer for sale, sell and have sold
         Drug Targets and Products, and (ii) to grant licenses to Third Parties
         to discover, research, develop, make, have made, import, use, have
         used, offer for sale, sell and have sold Drug Targets and Products.

         3.4 No Grant of Other Technology or Patent Rights. Except as otherwise
expressly provided in this Agreement, under no circumstances shall a party
hereto, as a result of this Agreement, obtain any ownership interest in or other
right to any technology, know-how, patents, patent applications, gene or genomic
sequence data or information, products, or biological materials of the other
party, including items owned, controlled or developed by, or licensed to, the
other party, or transferred by the other party to said party, at any time
pursuant to this Agreement.


                                       14
<PAGE>   16
         3.5 Grant of Non-Blocking Rights Among Incyte, Lexicon and Reciprocal
Rightsgivers.

                  3.5.1 Rights to Use the LexVision Database, OmniBank Database
         and Mutant Mice.

                           3.5.1.1 Incyte and its Affiliates shall not assert or
                  enforce, and shall use good faith efforts to obtain the
                  written agreement of its Corporate Partners not to assert or
                  enforce, against Lexicon, its Affiliates or any Reciprocal
                  Rightsgiver (as defined below) any claims of an issued patent
                  arising from the use by Incyte, its Affiliates, Academic
                  Collaborators or Corporate Partners of the LexVision or
                  OmniBank Databases or any information therein, or arising from
                  the use by Incyte, its Affiliates, Academic Collaborators or
                  Corporate Partners of an OST, a Mutant Mouse or Progeny,
                  including, without limitation, any claims of an issued patent
                  to an Invention made by Incyte, its Affiliates, Academic
                  Collaborators or Corporate Partners, to the extent, but only
                  to the extent, any such assertion or enforcement would, absent
                  a license from Incyte, prevent Lexicon, any of its Affiliates
                  or any Reciprocal Rightsgiver from using (and/or, in the case
                  of Lexicon and its Affiliates, permitting others to use), for
                  research purposes only (including, without limitation,
                  research directed toward the discovery, identification,
                  selection, or characterization of human therapeutic and
                  diagnostic products), (i) the LexVision or OmniBank Databases,
                  any information therein or any OST; (ii) any Mutant Mice or
                  Progeny or other mice having a Selected Mutation; or (iii) any
                  embryonic stem cell clones or other biological materials
                  contained in the OmniBank Library.

                           3.5.1.2 Lexicon and its Affiliates shall not assert
                  or enforce, and shall use good faith efforts to obtain the
                  written agreement of its corporate partners not to assert or
                  enforce, against Incyte or its Affiliates any claims of an
                  issued patent arising from the use by Lexicon, its Affiliates,
                  academic collaborators or corporate partners of the LexVision
                  or OmniBank Databases or any information therein, or arising
                  from the use by Lexicon, its Affiliates, academic
                  collaborators or corporate partners of an OST, a Mutant Mouse
                  or Progeny, including, without limitation, any claims of an
                  issued patent to an Invention made by Lexicon, its Affiliates,
                  academic collaborators or corporate partners, to the extent,
                  but only to the extent, any such assertion or enforcement
                  would, absent a license from Lexicon, prevent Incyte or any of
                  its Affiliates from using, for research purposes only
                  (including, without limitation, research directed toward the
                  discovery, identification, selection, or characterization of
                  human therapeutic and diagnostic products), (i) the LexVision
                  or OmniBank Databases, any information therein or any OST;
                  (ii) any Mutant Mice or Progeny or other mice having a
                  Selected Mutation; or (iii) any embryonic stem cell clones or
                  other biological materials contained in the OmniBank Library.

                  3.5.2  "Reciprocal Rightsgiver," for purposes of Section
         3.5.1, respectively, means a Third Party licensee under the Lexicon
         Patent Rights and/or Lexicon Know-How which has agreed, in writing, to
         terms and conditions concerning the subject matter of


                                       15
<PAGE>   17
         such section that are at least as advantageous to Incyte and Lexicon
         and their respective Affiliates (including, without limitation, with
         respect to assignment, as provided below) in the Research Field or with
         respect to Products in the Commercialization Field, respectively, as
         the terms and conditions under Section 3.5.1, as applicable, are to
         such Third Party. Furthermore, except to the extent expressly provided
         herein, neither Incyte nor Lexicon nor any Reciprocal Rightsgiver shall
         have the right to assign, transfer or otherwise dispose of (with or
         without consideration), in whole or in part, any of its rights under
         this Section 3.5 (or, in the case of Incyte, under the equivalent
         provisions of Lexicon's agreements with Reciprocal Rightsgivers) except
         in connection with a merger, consolidation or sale with or to any
         unrelated Third Party of such portion of Incyte's, Lexicon's or such
         Reciprocal Rightsgiver's assets that include such rights; that is to
         say, Incyte's, Lexicon's or such Reciprocal Rightsgiver's rights under
         this Section 3.5 (or, in the case of Incyte, under the equivalent
         provisions of Lexicon's agreements with Reciprocal Rightsgivers) shall
         be assumed by such person's successor in interest in any such
         transaction and shall not be transferred separate from all or
         substantially all of its other business assets. Any purported
         assignment of rights under this Section 3.5 in violation of the
         preceding sentence shall be void.

                  3.5.4 Incyte, Lexicon and each Reciprocal Rightsgiver shall
         provide Lexicon's Project Coordinator with a copy of any patent
         application that such person reasonably believes will be implicated
         under this Section 3.5, promptly after such application is first
         published anywhere in the Territory. Lexicon's Project Coordinator
         shall distribute copies of such patent application to Incyte, Lexicon
         and each Reciprocal Rightsgiver (other than the person which filed the
         application) and shall indicate the applicability of Section 3.5
         thereto. The parties acknowledge and agree that initial determination
         of whether a patent application is implicated under this Section 3.5
         may be difficult. Therefore, no person shall be held liable for failure
         to comply with this Section 3.5.4 (or under the equivalent provisions
         of Lexicon's agreements with Reciprocal Rightsgivers) with regard to
         any particular patent application, so long as such failure was
         reasonable and in good faith and is promptly rectified when realized.

                  3.5.5 Lexicon shall use good faith efforts to obtain from each
         Third Party that becomes a subscriber to the LexVision Database during
         the Collaboration Term agreements in favor of Reciprocal Rightsgivers
         (including Incyte) on substantially the same terms as those set forth
         in this Section 3.5, so that such Third Party subscriber becomes a
         Reciprocal Rightsgiver. To the extent permitted, Lexicon shall
         periodically disclose to the Steering Committee the identity of any
         such Reciprocal Rightsgivers and the terms and conditions agreed to by
         such Reciprocal Rightsgivers under which Incyte receives rights
         reciprocal to those specified in this Section 3.5.

                  3.5.6 Incyte and each Reciprocal Rightsgiver shall have the
         right to enforce the provisions of this Section 3.5 or the equivalent
         provisions of Lexicon's agreements with such Reciprocal Rightsgiver, as
         the case may be, as if each were a party to the agreements containing
         such provisions.

         3.6 Non-Blocking License under Incyte Patents Supported by LexVision
Data.


                                       16
<PAGE>   18
                  3.6.1 Subject to the terms of this Agreement, Incyte hereby
         grants to Lexicon and its Affiliates, within the Territory, a
         non-exclusive right and license (without the right to sublicense except
         as specifically provided herein) to research, develop, manufacture,
         have manufactured and sell "Drug Products" (as hereinafter defined)
         under claims of the Incyte Patent Rights (and any substitutions,
         renewals, continuations, continuations-in-part, divisionals, reissues,
         reexaminations or extensions of any of the foregoing) that (a) (i)
         claim the composition of matter of a Drug Target and/or (ii) arise
         solely from the generation of Incyte Database Information and claim the
         use of a Drug Target with respect to Drug Products, and (b) for which
         data or other information from the LexVision Database relating to such
         Drug Target was used to support the prosecution or issuance of such
         patent; provided that such right and license shall not extend to claims
         of any Incyte patent or patent application to an invention or discovery
         made in an Incyte Proprietary Program. Lexicon may grant sublicenses to
         Third Parties under the right and license granted to Lexicon under this
         Section 3.6.1 to the extent, and only to the extent, that Lexicon
         grants such Third Party (i) a corresponding license or sublicense of
         rights to a given Drug Product discovered, researched and under bona
         fide commercial development (at least through the stage of the
         demonstration of pre-clinical efficacy in animal studies) by Lexicon
         and (ii) the license or sublicense of patent rights pertaining thereto
         owned by, licensed to or controlled by Lexicon. For purposes of this
         Section 3.6.1, "Drug Products" shall mean [**].

                  3.6.2 Incyte shall provide Lexicon's Project Coordinator with
         a copy of any Incyte patent or patent application (and any United
         States patents and foreign patents issuing from such patent
         applications and any substitutions, renewals, continuations,
         continuations-in-part, divisionals, reissues, reexaminations or
         extensions of any of the foregoing) under which Lexicon holds license
         rights pursuant to this Section 3.6, promptly after such application is
         first published anywhere in the Territory.

         3.7 Sublicenses, Transfers to or Use for the Benefit of Corporate
Partners and Academic Collaborators.

                  3.7.1 Incyte and its Affiliates shall have the limited right
         to grant sublicenses to Corporate Partners and Academic Collaborators
         under the Lexicon Patent Rights and Lexicon Know-How in the Research
         Field with respect to any Designated Drug Target, on a Designated Drug
         Target-by-Designated Drug Target basis, solely to accomplish the
         purposes of such Corporate Partner's or Academic Collaborator's
         collaboration with Incyte or its Affiliates; provided, however, that
         without the prior written consent of Lexicon, no such sublicense under
         the Lexicon Patent Rights or Lexicon Know-How with respect to such
         Designated Drug Target may be granted to any Third Party in the absence
         of (i) a corresponding license or sublicense of rights to a given
         Product discovered, researched and under bona fide commercial
         development (at least through the stage of the demonstration of
         pre-clinical efficacy in animal studies) by Incyte and (ii) the license
         or sublicense of patent rights pertaining thereto owned by, licensed to
         or controlled by Incyte; and provided, further, that the grant of any
         such sublicense shall be consistent with the terms and conditions of
         this Agreement and that no such sublicense to a Corporate Partner shall
         relieve Incyte of primary responsibility for all payments and royalties
         due to Lexicon under Article 7 with respect to Product(s) licensed to
         such


                                       17
<PAGE>   19
         Corporate Partner. Incyte shall obtain the written commitment of any
         sublicensee to abide by all applicable terms and conditions of this
         Agreement. Promptly upon execution of any permitted sublicense, Incyte
         shall provide written notice thereof to Lexicon and evidence reasonably
         satisfactory to Lexicon that such sublicense is in compliance with this
         Section 3.7.1.

                  3.7.2 Incyte and its Affiliates shall have the right to
         transfer a Mutant Mouse or Progeny to a Corporate Partner or an
         Academic Collaborator, provided that such Corporate Partner or Academic
         Collaborator shall have entered into a material transfer agreement with
         Incyte substantially in the form and containing the terms as set forth
         in Exhibit 3.7-A or 3.7-B, whichever is applicable. Within [**] of
         entering into any such material transfer agreement, Incyte shall
         provide Lexicon with a copy thereof.

                  3.7.3 Except as provided in Section 3.7.1 above, Incyte shall
         have no right to grant any sublicense under its rights under the
         Lexicon Patent Rights or Lexicon Know-How. Under no circumstances shall
         Incyte provide direct access to the LexVision or OmniBank Database to
         any Corporate Partner, Academic Collaborator or other Third Party.

              ARTICLE 4. ACCESS TO LEXVISION AND OMNIBANK DATABASES

         4.1 Access to the LexVision and OmniBank Databases. Within thirty (30)
days after the Effective Date, Lexicon shall provide Incyte with [**] access,
using [**], to the LexVision and OmniBank Databases in their most current
versions as of the access activation date. Incyte shall access the LexVision and
OmniBank Databases through one or more servers in secure locations at its
principal research facilities in Palo Alto, California, or such alternate
research site as Incyte may designate by written notice to Lexicon; provided,
however, Incyte shall be entitled to access the LexVision and OmniBank Databases
remotely from computers which are part of a Incyte intranet system. [**]. Up to
[**] concurrent Incyte users (and [**] total users) at Incyte's principal
research facilities in Palo Alto, California, or an alternate site designated by
written notice to Lexicon, shall be permitted to access the LexVision and
OmniBank Databases through such servers at any given time. Incyte shall take
reasonable precautions to restrict access to the LexVision and OmniBank
Databases to the scientists and other employees of Incyte and its Affiliates who
have access to Incyte's own proprietary gene databases, including without
limitation all precautions Incyte employs with respect to its own proprietary
gene databases. Incyte shall not provide any Academic Collaborator, Corporate
Partner or other Third Party with direct access to the LexVision or OmniBank
Databases and, except as provided in Section 3.7, shall not disclose any
information contained therein to any Academic Collaborator, Corporate Partner or
other Third Party.

         4.2 Updates to the LexVision and OmniBank Databases. During the
Collaboration Term, Lexicon will use commercially reasonable efforts to update
the LexVision and OmniBank Database, [**] at least once every two months, and
Lexicon shall, in all events, make such updates for Incyte at least as
frequently and promptly as Lexicon makes updates available to other subscribers
to the LexVision or OmniBank Databases, as the case may be. Without limiting the
foregoing, Lexicon will use commercially reasonable efforts to include in the


                                       18
<PAGE>   20
LexVision Database the phenotypic data from substantially the assays described
on Exhibit 1.28, as may be modified from time to time by Lexicon, for the
following numbers of murine genes upon the following schedule:

                  Deadline                        Number of Genes (Total)
                  --------                        -----------------------

                  [**]

         4.3 Support for the LexVision and OmniBank Databases.

                  4.3.1 During the Collaboration Term, Lexicon will provide
         reasonable technical support for the LexVision and OmniBank Databases
         during normal business hours (9:00 a.m. to 5:00 p.m. Central time).
         Requests for support shall be coordinated by the Project Coordinator
         designated by each party.

                  4.3.2 If the LexVision Database and/or OmniBank Database
         malfunctions or for some reason becomes nonoperational, Incyte shall
         notify Lexicon within [**] of such occurrence. Lexicon shall respond to
         all such notices within [**] of receipt and shall use reasonable
         efforts to correct defects in the LexVision Database and/or OmniBank
         Database within time frames corresponding to the severity of the
         defects, as agreed upon by Lexicon and Incyte.

                  4.3.3 Both parties shall use all reasonable efforts to
         minimize any the downtime of the LexVision Database and OmniBank
         Database and shall discuss, in good faith, equitable adjustment of the
         parties' respective obligations under this Agreement as a result of any
         extraordinary period of downtime.

         4.4 Incyte Designation of Genes for Inclusion in LexVision Database.

                  4.4.1 In each of the first four years of the Collaboration
         Term, Incyte will have the right to designate for inclusion in the
         LexVision Database up to [**] of the murine genes to be included in the
         LexVision Database in the following year pursuant to Section 4.2.
         Incyte shall designate such genes by written notice in the form
         attached hereto as Exhibit 4.4.1 delivered to Lexicon (i) within [**]
         of the Effective Date for the murine genes designated by Incyte for the
         following year and (ii) no fewer than [**] prior to each anniversary of
         the Effective Date for the murine genes designated by Incyte for each
         subsequent year. [**].

                  4.4.2 [**].

                  4.4.3 If Incyte does not provide Lexicon with the murine DNA
         sequence for the gene for which it desires a Selected Mutation (e.g.,
         Incyte provides only a human DNA expressed sequence tag or full-length
         coding region for which it desires Lexicon to obtain the murine
         homolog), Lexicon will use commercially reasonable efforts in
         performing the following activities in the following order: [**].

                  4.4.4 In the event that Lexicon is unsuccessful in identifying
         the murine homolog of a human expressed sequence tag or full-length
         coding region provided by


                                       19
<PAGE>   21
         Incyte pursuant to Section 4.4.3, Lexicon shall, within [**] after
         receipt of Incyte's designation of such gene or such failure by
         Lexicon, as the case may be, notify Incyte, and Incyte shall thereafter
         be entitled, but not required, to designate a replacement gene. Incyte
         shall designate any such replacement gene no later than [**] after
         receiving such notice from Lexicon.

                ARTICLE 5. DEVELOPMENT AND SUPPLY OF MUTANT MICE

         5.1 General. Subject to the terms of this Agreement, upon the written
request of Incyte, Lexicon shall develop and deliver Mutant Mice containing a
particular Selected Mutation as may be specifically requested by Incyte.

         5.2 Requests for Mutant Mice by Incyte. During each year of the
Collaboration Term, Incyte shall have the option, subject to the terms and
conditions of this Agreement, to request that Lexicon develop and deliver to
Incyte up to [**] lines of Mutant Mice [**].

         5.3 Development of Mutant Mice by Lexicon. Following a request by
Incyte that Lexicon develop and deliver a particular line of Mutant Mice,
Lexicon shall provide Incyte with quarterly reports regarding Lexicon's efforts
in developing such Mutant Mouse and shall permit Incyte scientists to confer
with the Lexicon scientists who are developing such lines of Mutant Mice, from
time to time, at mutually convenient times coordinated by the Project
Coordinator for each party. It is understood by the parties that Lox Mutant
Mice, Cre-Lox Mice and Non-Cre-Lox Mutant Mice delivered by Lexicon will be
heterozygous at the Selected Mutation.

         5.4 Maintenance of Back-Up Colonies. For a period of [**], Lexicon
shall retain a small back-up colony of approximately two cages of such Mutant
Mice (approximately five mice per cage), for the purpose of replacing mice
shipped to Incyte under this Article 5 which die during or within [**] after
shipment to Incyte hereunder. Thereafter, Lexicon shall [**]. In the event
Incyte requests that Lexicon maintain any such colony for a period of more than
[**], Incyte shall pay Lexicon a storage and maintenance charge of [**] for such
requested line of Mutant Mice for each additional week that Lexicon maintains
such colony at Incyte's request.

         5.5 Delivery Terms and Conditions. Incyte shall be responsible for
making shipping arrangements for all Mutant Mice to be shipped to Incyte from
Lexicon. Incyte shall also be responsible for complying with all customs,
regulations, veterinary handling procedures and protocols, and obtaining any and
all permits, forms or permissions that may be required for Incyte to accept
shipment of Mutant Mice from Lexicon. To facilitate timely compliance with such
requirements, a copy of a standard Lexicon mutant mouse shipping and transfer
report is attached in Exhibit 5.5. Lexicon will specify a reputable, experienced
shipping company located in the same metropolitan area as Lexicon with which
Incyte may make arrangements for shipping and delivery of such Mutant Mice.
Lexicon shall ship to Incyte at least one female and one male Mutant Mouse with
the Selected Mutation, each of breeding age (i.e., a "breeding pair"), promptly
following its receipt of payment and written notice that Incyte has completed
the necessary shipping arrangements. Risk of loss with respect to any Mutant
Mice to be transferred under this Section 5.5 shall pass to Incyte upon delivery
thereof to the shipping company designated as specified herein. If Incyte fails
to complete the necessary shipping


                                       20
<PAGE>   22
arrangements and provide such notice within [**] after Lexicon's delivery of a
notice pursuant to Section 5.3, Incyte shall pay Lexicon a storage and
maintenance charge of [**] for such requested line of Mutant Mice for each week
thereafter until Lexicon receives notice of the completion of such shipping
arrangements. All out-of-pocket transportation and transfer costs associated
with the transfer and delivery of Mutant Mice from Lexicon to Incyte shall be
paid by Incyte.

         5.6 Reasonable Efforts. Lexicon shall use commercially reasonable
efforts to complete the generation of (i) Mutant Mice made by the OmniBank
Method within [**] of the date of Incyte's request, (ii) Lox Mutant Mice and
Non-Cre-Lox Mutant Mice made by Homologous Recombination within [**] of the date
of Incyte's request, and (iii) Cre-Lox Mice made by Homologous Recombination
within [**] of the date of Incyte's request. Incyte recognizes that the
production of Mutant Mice involves a number of technologically complex steps and
that technical obstacles may prevent Lexicon from producing Mutant Mice on the
schedule provided for herein. Lexicon shall immediately notify Incyte of any
such technical obstacle encountered and its analysis of whether the obstacle can
be overcome and the time required to do so. If, after consultation with Incyte,
Lexicon determines that production of such Mutant Mice within the time periods
provided for herein is not feasible using commercially reasonable efforts,
Lexicon may notify Incyte in writing that it is extending the relevant delivery
date to a date that can be accomplished using commercially reasonable efforts;
provided that Incyte may [**].

         5.7 No Infringement of Third Party Rights. Lexicon shall not be
obligated to develop, produce or deliver a Mutant Mouse where Lexicon reasonably
believes, with the advice of its counsel and the Steering Committee, that such
action would infringe upon the intellectual property rights of a Third Party. In
such event, the Steering Committee shall adopt an acceptable solution including,
but not limited to, the identification by Incyte of an alternative Mutant Mouse
and, subject to Section 7.4, the production, development and analysis by Lexicon
of non-infringing Mutant Mice. [**].

         5.8 [**].

                      ARTICLE 6. S-T-V PHENOTYPIC ANALYSIS

         6.1 Level 2 and Level 3 S-T-V Projects. Terms for Level 2 and Level 3
S-T-V Projects shall be negotiated in good faith between the parties on a
target-specific basis. Unless otherwise mutually agreed, the consideration to
Lexicon for the conduct of any Level 2 or Level 3 S-T-V Project shall include
payments for project costs, and, as appropriate, upfront license fees,
milestones and/or royalties on Products developed using data from such S-T-V
Project. Unless otherwise mutually agreed, Incyte and Lexicon exclusively shall
have the right to use the data and results from each Level 2 and Level 3 S-T-V
Project (and Incyte shall have the right to provide same to any of Incyte's
Corporate Partners and Academic Collaborators in accordance with Section 3.7),
and Incyte shall have a right and license (with the right to sublicense same to
any of Incyte's Corporate Partners and Academic Collaborators in accordance with
Section 3.7) under the Lexicon Patent Rights and Lexicon Know-How to use any
Invention owned by Lexicon under Section 8.1.4 that arises directly from such
analysis.


                                       21
<PAGE>   23
         6.2 Restrictions on Rights to Disclose Data. Neither party will have
the right to disclose any data, results or Inventions from an S-T-V Project
performed for Incyte under Section 6.1 to any Third Party, except that Incyte
will have the right to disclose such data, results and Inventions to Academic
Collaborators and Corporate Partners who need to know same for purposes of their
collaborations with Incyte; provided that, if independently requested by a Third
Party, Lexicon may conduct independent Level 2 and/or Level 3 S-T-V Projects
with respect to the same lines of Mutant Mice for such Third Party (i.e.,
Lexicon may not share the specific data, results or Inventions from the work
done for Incyte in a Level 2 and/or Level 3 S-T-V Project, but may disclose data
and results generated from a complete course of work repeated or otherwise
separately conducted for such Third Party).

                               ARTICLE 7. PAYMENTS

         7.1 Access Fees. In consideration of the rights and licenses granted to
Incyte during the Collaboration Term hereunder, Incyte agrees to pay Lexicon,
during the Collaboration Term, annual access fees (each, an "Access Fee") in the
amount of [**], payable as provided herein. The Access Fee for the first year of
the Collaboration Term will be payable [**], and will be payable [**] for
subsequent years of the Collaboration Term; provided, however, that, in the
event that either party terminates the Collaboration Term at the third
anniversary of the Effective Date in accordance with Section 12.1.2, Incyte
shall not be obliged to pay the Access Fees for the last two years of the
Collaboration Term.

         7.2 Milestone Payments Payable by Incyte.

                  7.2.1 Incyte shall pay Lexicon the following milestone
         payments for each Product:

                  Milestone                        Amount of Milestone Payment
                  ---------                        ---------------------------

                  [**]

                  7.2.2 Incyte shall promptly notify Lexicon of the first
         occurrence of any milestone with respect to each Product, and milestone
         payments shall be made within [**] days after such occurrence.
         Milestone payments shall be made only once with respect to any given
         Product, regardless of the number of indications sought (or approvals
         obtained) for such Product, whether alone or in combination with other
         products, and regardless of any new dosage strengths, preparations or
         forms of administration for such Product.

                  7.2.3 If Incyte develops as a back-up Product that inhibits or
         otherwise modulates the activity of a particular molecular target of a
         Product on which Incyte is already making milestone payments, then
         Incyte may conduct clinical development on such back-up or follow-on
         Products and shall not be obligated to make any milestone payments with
         respect to any such back-up or follow-on Product, except as otherwise
         provided below. In the event that a particular Product is dropped from
         active clinical development work or marketing for safety or efficacy
         reasons and is specifically replaced


                                       22
<PAGE>   24
         with a different Product targeting the same molecular target as such
         dropped Product, such new Product shall be deemed a "Replacement
         Product." Incyte shall not be obligated to make milestone payments that
         were earlier made with respect to a dropped Product and replaced by a
         Replacement Product, but, subject to Section 7.2.2, Incyte shall pay
         all milestone payments for milestone events achieved by such
         Replacement Product that had not been achieved by such dropped Product.

         7.3 Royalties Payable by Incyte.

                  7.3.1 Royalties on Net Sales. In consideration of the licenses
         granted to Incyte under Section 3.1, Incyte shall pay to Lexicon a
         royalty of [**] on cumulative Net Sales of each Product by Incyte, its
         Affiliates and its Corporate Partners.

                  7.3.2 Royalty Reports; Exchange Rates. During the term of this
         Agreement following the First Commercial Sale of any Product, Incyte
         shall, within [**] after each calendar quarter, furnish to Lexicon a
         written quarterly report showing: (i) the gross sales and Net Sales of
         Products sold by Incyte and its Affiliates and Corporate Partners
         during the reporting period and the calculation of Net Sales from such
         gross sales; (ii) the royalties payable in United States dollars which
         shall have accrued hereunder in respect of such Net Sales; (iii)
         withholding taxes, if any, required by law to be deducted in respect of
         such royalties; (iv) the dates of the First Commercial Sales of
         Products in any country during the reporting period; and (v) the
         exchange rates used in determining the amount of United States dollars
         payable hereunder. Royalties payable on sales in countries other than
         the United States shall be calculated in accordance with the standard
         exchange rate conversion practices used by Incyte for financial
         accounting purposes. If no royalty or payment is due for any royalty
         period hereunder, Incyte shall so report. Incyte shall keep, and shall
         require its Corporate Partners to keep (all in accordance with
         generally accepted accounting principles, consistently applied),
         complete and accurate records in sufficient detail to properly reflect
         all gross sales and Net Sales and to enable the royalties payable
         hereunder to be determined.

                  7.3.3 Audits. Upon the written request of Lexicon, Incyte
         shall permit an independent certified public accountant selected by
         Lexicon and acceptable to Incyte, which acceptance shall not be
         unreasonably withheld, to have access, at reasonable times and during
         normal business hours, to such records of Incyte as may be reasonably
         necessary to verify the accuracy of the royalty reports described
         herein, in respect of any fiscal year ending not more than [**] prior
         to the date of such request. Lexicon and Incyte shall use commercially
         reasonable efforts to schedule all such verifications within [**] after
         Lexicon makes its written request. All such verifications shall be
         conducted not more than once in, or with respect to, each calendar
         year. The report of Lexicon's independent certified public accountant
         shall be made available to both parties. Subject to Incyte's rights
         under Section 13.6, in the event Lexicon's independent certified public
         accountant [**] concludes that additional royalties were owed to
         Lexicon for such period, the additional royalty shall be paid by Incyte
         within [**] of the date Lexicon delivers to Incyte such independent
         certified public accountant's written report so concluding. In the
         event Lexicon's independent certified public accountant [**] concludes
         that there was an overpayment of royalties to Lexicon during such
         period, the overpayment shall be


                                       23
<PAGE>   25
         repaid by Lexicon within [**] of the date Lexicon received such
         independent certified public accountant's written report so concluding.
         The fees charged by such independent certified public accountant shall
         be paid by Lexicon unless such audit discloses an underpayment of more
         than [**] of the amount due under this Agreement for the period in
         question, in which case Incyte will bear the full cost of such audit.
         Incyte shall include in each agreement with each applicable Corporate
         Partner a provision requiring the Corporate Partner to make reports to
         Incyte, to keep and maintain records of sales made pursuant to such
         agreement and to grant access to such records by Lexicon's independent
         certified public accountant to the same extent required of Incyte under
         this Agreement. Lexicon agrees that all information subject to review
         under this Section 7.3.3 or under any agreement with a Corporate
         Partner of Incyte is confidential and that Lexicon shall cause its
         independent certified public accountant to retain all such information
         in confidence. Lexicon's independent certified public accountant shall
         only report to Lexicon as to the computation of the royalties and other
         payments due to Lexicon under this Agreement and shall not disclose to
         Lexicon any other information of Incyte or its Corporate Partner.

                  7.3.4 Royalty Payment Terms. Royalty payments for each
         calendar quarter shall be due at the time Incyte's report under Section
         7.3.2 for such calendar quarter shall be due.

         7.4 Fees for Development of Mutant Mice. The following fees shall be
payable for Mutant Mice requested by Incyte pursuant to Section 5.2:

                  (a) [**] for each line of Mutant Mice requested by Incyte
         pursuant to Section 5.2 and delivered by Lexicon, which shall be
         payable within [**] after Lexicon's notice that Mutant Mice from such
         line are available for shipment to Incyte; [**] and

                  (b) An additional license and development fee of [**] for each
         line of Mutant Mice with a conditional allele incorporating Cre-Lox
         Technology, which shall be payable within [**] after Lexicon's notice
         that Mutant Mice from such line are available for shipment to Incyte;*]

         7.5 Fees for Use of LexVision Data to Support Incyte Patents. Incyte
shall pay Lexicon a fee of [**] for each Drug Target for which Incyte uses data
or other information from the LexVision Database pursuant to Section 3.2.

         7.6 Fees for Drug Target Licenses following the Collaboration Term.
Upon termination or expiration of the Collaboration Term, to retain any license
under Section 3.1.3, Incyte shall, on a Designated Drug Target-by-Designated
Drug Target basis, pay Lexicon an annual license maintenance fee of [**] until:

                  (a) the filing by Incyte of an IND for a Product related to
         such Designated Drug Target, in which case the license under Section
         3.1.3 with respect to such Designated Drug Target shall then extend in
         perpetuity; or


                                       24
<PAGE>   26
                  (c) the license is terminated prior to the filing of an IND by
         Incyte for a Product related to such Designated Drug Target, on a given
         anniversary of the Collaboration Term, by Incyte's delivery of written
         notice of such termination to Lexicon.

         7.7 Withholding Taxes. In the event that any royalties or other
payments due to Lexicon are subject to withholding tax required by law to be
paid to the taxing authority of any foreign country, the amount of such tax may
be withheld from the applicable royalties or other payment due Lexicon. Incyte
shall promptly pay such tax on behalf of Lexicon and shall furnish Lexicon with
a certificate of withholding tax so deducted for Lexicon's avoidance of
duplicate taxation in United States. Incyte may not deduct any other withholding
or any other governmental charges from the payments agreed upon under this
Agreement, except to the extent same are paid on behalf of, or for the benefit
of, Lexicon. Incyte shall maintain official receipts of payment of any such
withholding taxes and shall forward such receipts to Lexicon.

         7.8 Blocked Currency. If by law, regulation, or fiscal policy of a
particular country, conversion into United States dollars or transfer of funds
of a convertible currency to the United States is restricted or forbidden,
Incyte shall give Lexicon prompt written notice and shall pay the royalty due
under this Article 7 through such means or methods as are lawful in such country
as Lexicon may reasonably designate. Failing the designation by Lexicon of such
lawful means or methods within [**] after such written notice is given to
Lexicon, Incyte shall deposit such royalty payment in local currency to the
credit of Lexicon in a recognized banking institution designated by Lexicon, or
if none is designated by Lexicon within the [**] period described above, in a
recognized banking institution selected by Incyte and identified in a written
notice to Lexicon by Incyte, and such deposit shall fulfill all obligations of
Incyte to Lexicon with respect to such royalties.

         7.9 Interest on Late Payments. Lexicon shall have the right to seek to
collect interest on any payments that are not paid on or before [**] after the
date such payments are due under this Agreement at a rate of [**] per month,
calculated on the total number of days payment is delinquent; provided, however,
that interest shall not accrue pursuant to this Section 7.9 on any amounts
payable under this Agreement with respect to which payment is disputed in good
faith; provided, further that interest shall accrue pursuant to this Section 7.9
in the event such dispute has been resolved in Lexicon's favor if payment is not
made promptly thereafter.

         7.10 Manner of Payment. Except as provided in Section 7.8, payments to
be made by Incyte to Lexicon under this Agreement shall be payable in United
States dollars and shall be paid by check delivered to Lexicon at its principal
office at The Woodlands, Texas or bank wire transfer in immediately available
funds to such bank account in the State of Texas as is designated in writing by
Lexicon from time to time.

                        ARTICLE 8. INTELLECTUAL PROPERTY

         8.1 Ownership of Intellectual Property.


                                       25
<PAGE>   27
                  8.1.1 Ownership by Lexicon of the LexVision and OmniBank
         Databases and the OmniBank Library. Subject to the rights and licenses
         granted under this Agreement, Lexicon (and its licensors, as
         applicable) shall own and retain all rights to: (i) the LexVision and
         OmniBank Databases and all information contained therein; and (ii) the
         OmniBank Library, and all embryonic stem cells, genes and mutated
         genes, lox sites and other biological materials contained therein.

                  8.1.2 Ownership of Mutant Mice and Progeny. Subject to the
         rights and licenses granted under this Agreement, Lexicon shall own and
         retain all rights to the Mutant Mice and any successive generations
         thereof, including without limitation the right to use, produce, breed,
         sell or license the Mutant Mice or any successive generations thereof,
         to use any cells or genes derived by Lexicon from the Mutant Mice or
         any successive generations thereof, and to use the Lexicon Technology;
         [**].

                  8.1.3 Ownership of Inventions Arising from S-T-V Projects.
         Subject to the rights and licenses granted under this Agreement,
         Lexicon shall own and retain all rights to any Invention that is
         conceived or first reduced to practice by Lexicon or any of its
         Affiliates during the course of any S-T-V Project performed under this
         Agreement.

                  8.1.4 Ownership of Inventions Arising from Further Incyte
         Development. As between the parties, and subject to the provisions of
         Sections 3.5 and 3.6, Incyte shall own and retain all rights to any
         Invention that is conceived or first reduced to practice by Incyte or
         any of its Affiliates, Academic Collaborators or Corporate Partners
         during the course of any further development by any of them of, or
         based upon, any data or results included in the LexVision or OmniBank
         Databases and/or provided by Lexicon in connection with any S-T-V
         Project performed under this Agreement.

                  8.1.5 Ownership of Inventions Arising from Further Lexicon
         Development; Disclosure. In the event Lexicon chooses to engage in
         further development of Level 1 S-T-V analytical data or results other
         than as part of a Level 2 and/or Level 3 S-T-V Project in collaboration
         with Incyte, then, subject to the provisions of Section 3.5, Lexicon
         shall own and retain all rights to any Invention that Lexicon conceives
         or first reduces to practice during the course of such further
         development.

                  8.1.6 Ownership of Other Intellectual Property. Subject to
         Article 3 and Sections 8.1.1 through 8.1.5, (i) each party shall own
         and retain all rights to all Inventions which are not Joint Inventions
         and which are conceived or reduced to practice solely by its employees,
         Affiliates or agents, and (ii) the parties shall jointly own all Joint
         Inventions, and each owner of a Joint Invention shall have and retain
         sole and exclusive title to its interest in such Joint Invention;
         provided, that, the responsibility for patent filing with respect to
         each Joint Invention developed hereunder shall be as set forth in
         Section 8.2.

         8.2 Responsibility for Patents.

                  8.2.1 Solely Owned Inventions. Each party shall have the
         right, but not the obligation, at its sole expense, to prepare, file,
         prosecute and maintain any patent


                                       26
<PAGE>   28
         applications, patents, registration of copyrights or other intellectual
         property rights directed to any Invention owned solely by such party.

                  8.2.2 Jointly Owned Inventions. The Steering Committee shall
         determine whether, and in what jurisdictions, to seek patent protection
         with respect to any Joint Invention. Lexicon shall have the first right
         to assume responsibility at its sole expense for the preparation,
         filing, prosecution and maintenance of any patent applications and
         patents, or registration of copyright or other intellectual property
         rights directed to Joint Inventions, keeping Incyte reasonably informed
         of, and consulting with Incyte with respect to, all significant actions
         relating thereto, and allowing Incyte to reasonably participate
         therein, at its own expense. If Lexicon elects not to assume such
         responsibility, Incyte shall have the right to do so at its sole
         expense, keeping Lexicon reasonably informed of, and consulting with
         Lexicon with respect to, all significant actions relating thereto, and
         allowing Lexicon to reasonably participate therein, at its own expense.

         8.3 Patent Enforcement; Infringement. Each party shall have the right,
but not the obligation, to take action against any Third Party who is, or is
allegedly, infringing any patent contemplated by this Agreement that such party
owns hereunder. Each party shall promptly inform the other party of any such
infringement or alleged infringement of such other party's patents, to the
extent the first party is aware of same. In the event a party's exercise of any
of the rights granted to it hereunder gives rise to a claim of infringement of a
patent owned by a Third Party, the Steering Committee (or, if no Steering
Committee is then in existence, the Chief Executive Officer of Incyte, or such
other appropriate officer of Incyte, and the Chief Executive Officer of Lexicon,
or such other appropriate officer of Lexicon) shall confer and agree upon the
best method for responding to and/or defending against such claim and how the
costs thereof and the payment of any damages (and, in the event of any
counterclaims, the receipt of any damages) with respect thereto shall be
allocated between the parties. Any such determination shall take into account
each party's significant interest in controlling any defense of a claim made
against itself and the respective parties' indemnification obligations under
Article 11.

                           ARTICLE 9. CONFIDENTIALITY

         9.1 Nondisclosure Obligations.

                  9.1.1 General. Except as otherwise provided in this Article 9,
         during the term of this Agreement and for a period of five years
         thereafter, each Receiving Party shall maintain the Confidential
         Information of each Disclosing Party in confidence and use it only for
         purposes specifically authorized under this Agreement.

                  9.1.2 Limitations. To the extent it is reasonably necessary or
         appropriate to fulfill its obligations or exercise its rights under
         this Agreement and subject to advance written notification to the
         Disclosing Party: (i) a party may disclose to Third Parties
         Confidential Information it is otherwise obligated not to disclose
         under this Section 9.1, to its Affiliates, Corporate Partners,
         consultants, outside contractors and clinical


                                       27
<PAGE>   29
         investigators, on a strict need-to-know basis for the purposes
         contemplated by this Agreement and on condition that such entities or
         persons agree to keep the Confidential Information confidential for the
         same time periods and to the same extent as such party is required to
         keep the Confidential Information confidential hereunder; and (ii) a
         party or its Corporate Partners may disclose, using appropriate
         measures to preserve confidentiality, such Confidential Information to
         government or other regulatory authorities to the extent that such
         disclosure is reasonably necessary to obtain authorizations to conduct
         clinical trials of, and to commercially market, Products pursuant to
         this Agreement. Furthermore, a Receiving Party may request permission
         from the Disclosing Party to disclose such Confidential Information to
         the extent that such disclosure is reasonably necessary to obtain
         patents which such Receiving Party is permitted to obtain hereunder,
         which permission shall not be unreasonably withheld or delayed.

                  9.1.3 Required Disclosure. A Receiving Party may disclose
         Confidential Information pursuant to interrogatories, requests for
         information or documents, subpoena, civil investigative demand issued
         by a court or governmental agency or as otherwise required by law;
         provided, however, that the Receiving Party shall notify the Disclosing
         Party promptly upon receipt thereof, giving (where practicable) the
         Disclosing Party sufficient advance notice to permit it to oppose,
         limit or seek confidential treatment for such disclosure; and provided,
         further, that the Receiving Party shall furnish only that portion of
         the Confidential Information which it is advised by counsel is legally
         required whether or not a protective order or other similar order is
         obtained by the Disclosing Party.

         9.2 Injunctive Relief. The parties hereto understand and agree that
remedies at law may be inadequate to protect against any breach of any of the
provisions of this Article 9 by either party or their employees, agents,
officers or directors or any other person acting in concert with it or on its
behalf. Accordingly, each party shall be entitled to the granting of injunctive
relief by a court of competent jurisdiction against any action that constitutes
any such breach of this Article 9.

         9.3 Publication. Incyte and/or Lexicon (each, a "Submitting Party") may
each publish or present data and/or results generated utilizing Mutant Mice or
Progeny, subject to the prior review of the proposed disclosure by the other
party (each, a "Reviewing Party"), solely to determine (i) whether the proposed
disclosure contains the Confidential Information of the Reviewing Party or (ii)
whether information contained in the proposed disclosure should be the subject
of a patent application to be filed by the Reviewing Party prior to such
disclosure. Each Submitting Party shall provide the Reviewing Party with the
opportunity to review any proposed abstract, manuscript or presentation which
discloses the results of research conducted utilizing the Mutant Mice or Progeny
by delivering a copy thereof to the Reviewing Party no less than [**] before its
intended submission for publication or presentation. The Reviewing Party shall
have [**] from its receipt of any such abstract, manuscript or presentation in
which to notify the Submitting Party in writing of any specific objections to
the disclosure, based on either the need to seek patent protection or concern
regarding the specific disclosure of the Confidential Information of the
Reviewing Party. In the event the Reviewing Party objects to the disclosure, the
Submitting Party agrees not to submit the publication or abstract or make the
presentation


                                       28
<PAGE>   30
containing the objected-to information until the Reviewing Party is given a
reasonable additional period of time (not to exceed an additional [**]) to seek
patent protection for any material in the disclosure which the Reviewing Party
believes is patentable (subject, in all events, to Section 8.2) or, in the case
of Confidential Information, to allow the Submitting Party to delete any
Confidential Information of the Reviewing Party from the proposed disclosure.
The Submitting Party agrees to delete from the proposed disclosure any
Confidential Information of the Reviewing Party upon request.

                   ARTICLE 10. REPRESENTATIONS AND WARRANTIES

         10.1 Representations, Warranties and Covenants of Lexicon. Lexicon
represents and warrants to and covenants with Incyte that:

                  10.1.1 Lexicon is a corporation duly organized, validly
         existing and in corporate good standing under the laws of Delaware;

                  10.1.2 Lexicon has the corporate and legal right, authority
         and power to enter into this Agreement, and to extend the rights and
         licenses granted to Incyte in this Agreement;

                  10.1.3 Lexicon has taken all necessary action to authorize the
         execution, delivery and performance of this Agreement;

                  10.1.4 upon the execution and delivery of this Agreement, this
         Agreement shall constitute a valid and binding obligation of Lexicon,
         enforceable in accordance with its terms, except as enforceability may
         be limited by applicable bankruptcy, insolvency, reorganization,
         moratorium or similar laws affecting creditors' and contracting
         parties' rights generally and except as enforceability may be subject
         to general principles of equity (regardless of whether such
         enforceability is considered in a proceeding in equity or at law);

                  10.1.5 the performance of Lexicon's obligations under this
         Agreement will not conflict with its charter documents or result in a
         breach of any agreements, contracts or other arrangements to which it
         is a party; and

                  10.1.6 Lexicon will not during the term of this Agreement
         enter into any agreements, contracts or other arrangements that would
         be inconsistent with its obligations under this Agreement.

         10.2 Representations, Warranties and Covenants of Incyte. Incyte
represents and warrants to and covenants with Lexicon that:

                  10.2.1 Incyte is a corporation duly organized, validly
         existing and in corporate good standing under the laws of the state of
         Delaware;


                                       29
<PAGE>   31
                  10.2.2 Incyte has the corporate and legal right, authority and
         power to enter into this Agreement, and to extend the rights and
         licenses granted to Lexicon in this Agreement;

                  10.2.3 Incyte has taken all necessary action to authorize the
         execution, delivery and performance of this Agreement;

                  10.2.4 upon the execution and delivery of this Agreement, this
         Agreement shall constitute a valid and binding obligation of Incyte
         enforceable in accordance with its terms, except as enforceability may
         be limited by applicable bankruptcy, insolvency, reorganization,
         moratorium or similar laws affecting creditors' and contracting
         parties' rights generally and except as enforceability may be subject
         to general principles of equity (regardless of whether such
         enforceability is considered in a proceeding in equity or at law);

                  10.2.5 the performance of its obligations under this Agreement
         will not conflict with Incyte's charter documents or result in a breach
         of any agreements, contracts or other arrangements to which it is a
         party; and

                  10.2.6 Incyte will not after the Effective Date enter into any
         agreements, contracts or other arrangements that would be inconsistent
         with its obligations under this Agreement.

         10.3 Limited Warranties Relating to Performance of the LexVision and
OmniBank Databases. Lexicon warrants that the LexVision and OmniBank Databases
made available to Incyte under this Agreement from time to time shall represent
the latest version of the LexVision and OmniBank Databases which Lexicon has
made available at each such time to subscribers to the LexVision and OmniBank
Databases. Lexicon does not represent that the operations of the LexVision and
OmniBank Databases will be trouble-free or that the LexVision or OmniBank
Databases contain no errors. Lexicon is, however, obligated to Incyte, with
respect to the LexVision and OmniBank Databases, to periodically update the
LexVision and OmniBank Databases as provided in this Agreement and make every
reasonable effort to resolve any technical difficulties in a timely manner, as
further provided in Section 4.3.

         10.4 Limited Warranties Relating to the Development of Mutant Mice.
Except as otherwise expressly provided in this Agreement, Lexicon represents
that it will use commercially reasonable efforts to produce Mutant Mice upon
request by Incyte. Lexicon does not represent that in all cases it will be
commercially and technically feasible to produce such Mutant Mice. Lexicon's
only obligation to Incyte with respect to the production of Mutant Mice will be
to use commercially reasonable efforts to produce such Mutant Mice as requested
by Incyte and to consult with the Steering Committee in the event of any
material difficulty.

         10.5 Warranty Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
THIS AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY WITH RESPECT TO THE LEXVISION
DATABASE, THE OMNIBANK DATABASE, ANY MUTANT MOUSE, PROGENY, PATENT RIGHTS,
GOODS, SERVICES OR ANY OTHER SUBJECT MATTER OF THIS AGREEMENT, AND EACH PARTY
HEREBY DISCLAIMS WARRANTIES OF


                                       30
<PAGE>   32
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT WITH
RESPECT TO ANY AND ALL OF THE FOREGOING. IN ADDITION, INCYTE ACKNOWLEDGES THAT
THE LEXVISION DATABASE AND THE OMNIBANK DATABASE MAY CONTAIN INFORMATION THAT IS
COVERED BY ONE OR MORE VALID PATENTS OF THIRD PARTIES, AND THAT THE USE OF A
MUTANT MOUSE OR PROGENY MAY BE COVERED BY ONE OR MORE VALID PATENTS OF THIRD
PARTIES. EACH PARTY ACKNOWLEDGES THAT EXERCISE BY IT OF THE RIGHTS AND LICENSES
GRANTED TO IT PURSUANT TO ARTICLE 3 HEREOF MAY BE COVERED BY ONE OR MORE VALID
PATENTS OF THIRD PARTIES.

         10.6 Limited Liability. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT
OR OTHERWISE TO THE CONTRARY, NEITHER LEXICON NOR INCYTE WILL BE LIABLE WITH
RESPECT TO ANY MATTER ARISING UNDER THIS AGREEMENT UNDER ANY CONTRACT,
NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY
PUNITIVE, EXEMPLARY, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST PROFITS.

                              ARTICLE 11. INDEMNITY

         11.1 Incyte Indemnity Obligations. Incyte agrees to defend, indemnify
and hold Lexicon, its Affiliates and their respective employees and agents
harmless from all claims, losses, damages or expenses (including reasonable
attorneys' fees and costs of litigation) arising as a result of: (i) actual or
asserted violations of any applicable law or regulation by Incyte, its
Affiliates or Corporate Partners by virtue of which any Products manufactured,
distributed or sold hereunder shall be alleged or determined to be adulterated,
misbranded, mislabeled or otherwise not in compliance with any applicable law or
regulation; (ii) claims for bodily injury, death or property damage attributable
to the manufacture, distribution, sale or use of any Products by Incyte, its
Affiliates or Corporate Partners; (iii) a Product recall ordered by a
governmental agency or required by a confirmed Product failure as reasonably
determined by the parties hereto; or (iv) Incyte's breach of any of its
representations, warranties or covenants hereunder.

         11.2 Lexicon Indemnity Obligations. Lexicon agrees to defend, indemnify
and hold Incyte, its Affiliates and their respective employees and agents
harmless from all claims, losses, damages or expenses (including reasonable
attorneys' fees and costs of litigation) arising as a result of (i) the
infringement of any issued patent or valid copyright of any Third Party as a
result of Lexicon's delivery to Incyte of access to the LexVision or OmniBank
Databases or any Mutant Mouse, or the use by Incyte of the LexVision or OmniBank
Databases or any Mutant Mouse, pursuant to this Agreement, or (ii) Lexicon's
breach of any of its representations, warranties or covenants hereunder. In the
event that any claim of infringement under clause (i) of this Section 11.2 is,
or in Lexicon's judgment is likely to be, substantiated, Lexicon will use all
commercially reasonable efforts to obtain a license from the applicable Third
Party to permit the parties to continue to engage in the allegedly infringing
activities (hereinafter the "Infringing Activities"). If, after all commercially
reasonable efforts, Lexicon is unable to effect a satisfactory solution to any
such infringement claim regarding the Infringing Technology,


                                       31
<PAGE>   33
Lexicon will have the right to terminate Incyte's rights under this Agreement
solely with respect to the Infringing Activities.

         11.3 Limitation on Indemnity Obligations. Neither party, its Affiliates
or their respective employees and agents shall be entitled to the indemnities
set forth in Sections 11.1 or 11.2, respectively, to the comparative extent the
claim, loss, damage or expense for which indemnification is sought was caused by
a grossly negligent, reckless or intentional act or omission by such party, its
directors, officers, employees or authorized agents.

         11.4 Procedure. If a party or any of its Affiliates or their respective
employees or agents (collectively, the "Indemnitee") intends to claim
indemnification under this Article 11, the Indemnitee shall promptly notify the
other party (the "Indemnitor") of any loss, claim, damage, liability or action
in respect of which the Indemnitee intends to claim such indemnification, and
the Indemnitor shall assume the defense thereof with counsel selected by the
Indemnitor and reasonably acceptable to the Indemnitee, provided, however, that
an Indemnitee shall have the right to retain its own counsel, with the fees and
expenses to be paid by the Indemnitee, if representation of such Indemnitee by
the counsel retained by the Indemnitor would be inappropriate due to actual or
potential differing interests between such Indemnitee and any other party
represented by such counsel in such proceedings. The Indemnitor shall have the
right to settle or compromise any claims for which it is providing
indemnification under this Article 11, provided that the consent of the
Indemnitee (which shall not be unreasonably withheld or delayed) shall be
required in the event any such settlement or compromise would adversely affect
the interests of the Indemnitee. The indemnity agreement in this Article 11
shall not apply to amounts paid in settlement of any loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Indemnitor. The failure to deliver notice to the Indemnitor within a reasonable
time after the commencement of any such action, if prejudicial to the
Indemnitor's ability to defend such action, shall relieve such Indemnitor of any
liability to the Indemnitee under this Article 11, but the omission so to
deliver notice to the Indemnitor will not relieve it of any liability that it
may have to any Indemnitee otherwise than under this Article 11. The Indemnitee
under this Article 11, its employees and agents, shall cooperate fully with the
Indemnitor and its legal representatives in the investigation of any action,
claim or liability covered by this indemnification.

         11.5 Insurance. Incyte shall maintain appropriate liability insurance
(and/or self-insurance) with respect to development, manufacture and sale of
Products by Incyte in such amount as Incyte customarily maintains with respect
to sales of its other products. Incyte shall maintain such insurance for so long
as it continues to manufacture or sell Products, and thereafter for so long as
Incyte customarily maintains insurance with respect to sales of its other
products.

                     ARTICLE 12. EXPIRATION AND TERMINATION

         12.1 Collaboration Term.

                  12.1.1 Expiration. Unless this Agreement is sooner terminated
         in accordance with the provisions of this Article 12, the Collaboration
         Term shall commence on the Effective Date and shall expire on December
         31, 2005; provided that the Collaboration


                                       32
<PAGE>   34
         Term may be extended upon the election of both parties by a written
         agreement having terms mutually agreeable to both parties.

                  12.1.2 Optional Termination. Either party shall have the
         right, in its sole discretion, to terminate the Collaboration Term on
         the third anniversary of the Effective Date by delivering [**] advance
         written notice of such termination to the other party.

                  12.1.3 Effect of Expiration or Termination of Collaboration
         Term. Following the expiration or earlier termination of the
         Collaboration Term, Lexicon shall have no further obligation under this
         Agreement to provide to Incyte (i) updates to the LexVision or OmniBank
         Databases or any additional information of any nature relating thereto,
         (ii) any support services with respect to the LexVision or OmniBank
         Databases, except as the parties may further agree in writing, or (iii)
         any Mutant Mice (except for Mutant Mice ordered prior to the expiration
         of Incyte's right to order same, as provided in Section 5.2) or the
         conduct of any S-T-V Project (except for S-T-V Projects commenced prior
         to the expiration of the Collaboration Term). Upon expiration of the
         Collaboration Term, Incyte shall discontinue use of the LexVision and
         OmniBank Databases in the Research Field and shall remove any portions
         of the LexVision and OmniBank Databases from all computers at all sites
         on which such information may have been installed by Incyte except as
         reasonably necessary to exercise its continuing rights as set forth
         below. Incyte shall be entitled to continue to use the LexVision and/or
         OmniBank Databases in the Research Field for a reasonable period of
         time after the termination or expiration of the Collaboration Term, for
         the purposes contemplated by this Agreement, in the event that Lexicon
         is required to provide any deliverables to Incyte after the expiration
         of the Collaboration Term and use of the LexVision and/or OmniBank
         Databases is reasonably necessary or desirable for Incyte's utilization
         of such deliverables. [**]Incyte may retain, and continue to use,
         copies of information from the LexVision and/or OmniBank Databases with
         respect to Designated Drug Targets for which it shall retain continuing
         rights under Section 3.1.3, subject to Incyte's compliance with the
         surviving terms and conditions of this Agreement. The expiration or
         termination of the Collaboration Term shall not affect Incyte's right
         to continue to exercise its rights under Sections 3.1.4 and 3.1.5 with
         respect to any Mutant Mice delivered by Lexicon hereunder, subject to
         Incyte's compliance with the surviving terms and conditions of this
         Agreement.

                  12.2 Expiration. Unless this Agreement is sooner terminated in
         accordance with the provisions of this Article 12, this Agreement shall
         expire and the licenses granted by Lexicon to Incyte hereunder shall
         become fully paid, on a Product-by-Product and country-by-country
         basis, on the latest to occur of (i) [**] after the Effective Date,
         (ii) [**] after the First Commercial Sale of the relevant Product in
         such country or, (iii) upon the last to expire of any Valid Claim
         included in the Product Patent Rights and/or the Lexicon Patent Rights
         with respect to the Designated Drug Target relating thereto in such
         country.

         12.3 Events of Default.

                  12.3.1 Default by Either Party. An Event of Default by either
         party shall have occurred upon (i) the occurrence of a material breach
         of this Agreement if such party fails to remedy such breach within [**]
         after written notice thereof by the non-breaching party


                                       33
<PAGE>   35
         (or, if remediation of such breach in [**] is not practicable, if such
         party fails to commence and diligently pursue such remediation during
         such [**] period), or (ii) the commencement of any proceeding in or for
         bankruptcy, insolvency, dissolution or winding up by or against such
         party that is not dismissed or otherwise disposed of within [**]
         thereafter.

                  12.3.2 Default by Lexicon. For the avoidance of doubt, the
         entry against Lexicon of, or the entry into by Lexicon of, any
         judgment, decree, injunction, consent order, settlement agreement,
         cross-license or any other binding obligation, unappealable or
         unappealed during the time permitted for appeal (if applicable), that
         has the effect of materially adversely affecting Incyte's exercise of
         its rights under this Agreement shall constitute an Event of Default by
         Lexicon, unless Incyte has consented thereto, in writing, in advance.

                  12.3.3 Default by Incyte. For the avoidance of doubt, an Event
         of Default shall have occurred if Incyte fails to make any payments due
         hereunder, within [**] after Lexicon delivers written notice thereof to
         Incyte specifying such failure and its claim of right to terminate,
         unless Incyte makes such payments plus interest, calculated in
         accordance with Section 7.9, within such [**] period.

         12.4 Effect of an Event of Default.

                  12.4.1 Remedies Available to Lexicon. If an Event of Default
         occurs relating to Incyte, Lexicon shall have the right, at its option
         exercisable in its sole discretion, in addition to any other rights or
         remedies available to it at law or in equity and subject to the
         limitations set forth in Sections 2.4.2, 10.6 and 13.6 hereof, to
         terminate this Agreement upon [**] notice thereof to Incyte, in which
         case (i) Incyte shall discontinue use of the LexVision and OmniBank
         Databases, (ii) Incyte shall return to Lexicon, or, upon Lexicon's
         written instruction, destroy all information, materials or
         documentation provided by Lexicon pursuant to this Agreement,
         including, without limitation, any materials derived from the LexVision
         or the OmniBank Databases and all information relating thereto and any
         copies thereof (including electronic copies) and (iii) Incyte shall
         return to Lexicon, or, upon Lexicon's written instruction, destroy all
         Mutant Mice and any Progeny thereof.

                  12.4.2 Remedies Available to Incyte. In the event that an
         Event of Default occurs relating to Lexicon, Incyte shall have the
         right, at its option exercisable in its sole discretion, in addition to
         any other rights or remedies available to it at law or in equity and
         subject to the limitations set forth in Sections 2.4.2, 10.6 and 13.6
         hereof, to terminate this Agreement upon notice thereof to Lexicon, in
         which case the rights and licenses granted to Incyte pursuant to
         Sections 3.1.2 and 3.1.3 shall, subject to Incyte's obligations to pay
         milestones and royalties pursuant to Article 7, continue.

         12.5 Effect of Expiration or Termination of Agreement. The expiration
or termination of this Agreement shall not relieve the parties of any obligation
accruing prior to such expiration or termination. The provisions of Articles 8,
9, 10, 11 and 12, and Sections 3.1.3, 3.5 and 13.2 through 13.6 hereof shall
survive the expiration or termination of this Agreement. The


                                       34
<PAGE>   36
provisions of Sections 7.2 through 7.10 hereof shall survive any termination of
this Agreement under which Incyte retains the right to sell Products until such
time as this Agreement would have expired with respect to any Product, as the
case may be, in any country pursuant to Section 12.2 hereof had this Agreement
not been earlier terminated.

                            ARTICLE 13. MISCELLANEOUS

         13.1 Force Majeure. Neither party shall be held liable or responsible
to the other party nor be deemed to have defaulted under or breached this
Agreement for failure or delay in fulfilling or performing any obligation under
this Agreement when such failure or delay is caused by or results from causes
beyond the reasonable control of the affected party, including but not limited
to fire, floods, embargoes, war, acts of war (whether war is declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, acts of God or acts, omissions or delays in acting by any
governmental authority; provided, however, that the party so affected shall use
reasonable commercial efforts to avoid or remove such causes of nonperformance,
and shall continue performance hereunder with reasonable dispatch whenever such
causes are removed. Either party shall provide the other party with prompt
written notice of any delay or failure to perform that occurs by reason of force
majeure. The parties shall mutually seek a resolution of the delay or the
failure to perform as noted above.

         13.2 Assignment. This Agreement may not be assigned or otherwise
transferred, in whole or in part, by either party without the consent of the
other party; provided, however, that either Lexicon or Incyte may, without such
consent, assign its rights and obligations under this Agreement (i) to any
Affiliate, or (ii) in connection with a merger, consolidation or sale of such
portion of a party's assets that includes rights under this Agreement to an
unrelated Third Party; provided, further, that such party's rights and
obligations under this Agreement shall be assumed by its successor in interest
in any such transaction and shall not be transferred separate from all or
substantially all of its other business assets, including those business assets
that are the subject of this Agreement. [**] Any purported assignment in
violation of the preceding sentence shall be void. Any permitted assignee shall
assume all obligations of its assignor under this Agreement, unless the parties
otherwise agree.

         13.3 Severability. Each party hereby agrees that it does not intend to
violate any public policy, statutory or common laws, rules, regulations, treaty
or decision of any government agency or executive body thereof of any country or
community or association of countries. Should one or more provisions of this
Agreement be or become invalid, the parties hereto shall substitute, by mutual
consent, valid provisions for such invalid provisions which valid provisions in
their economic effect are sufficiently similar to the invalid provisions that it
can be reasonably assumed that the parties would have entered into this
Agreement with such valid provisions in lieu of such invalid provisions. In case
such valid provisions cannot be agreed upon, the invalidity of one or several
provisions of this Agreement shall not affect the validity of this Agreement as
a whole, unless the invalid provisions are of such essential importance to this
Agreement that it is to be reasonably assumed that the parties would not have
entered into this Agreement without the invalid provisions.


                                       35
<PAGE>   37
         13.4 Notices. Any consent, notice or report required or permitted to be
given or made under this Agreement by one of the notification parties hereto to
the other shall be in writing, delivered personally or by facsimile (and
promptly confirmed by telephone, personal delivery or courier) or courier,
postage prepaid (where applicable), addressed to such other party at its address
indicated below, or to such other address as the addressee shall have last
furnished in writing to the addressor and shall be effective upon receipt by the
addressee.

        If to Lexicon:  Lexicon Genetics Incorporated
                        4000 Research Forest Drive
                        The Woodlands, Texas 77381
                        Attention:  Arthur T. Sands, M.D., Ph.D.
                                    President and Chief Executive Officer
                        Telephone:  (281) 364-0100
                        Facsimile:  (281) 863-8095

                        With a copy to:

                        Lexicon Genetics Incorporated
                        4000 Research Forest Drive
                        The Woodlands, Texas 77381
                        Attention:  Jeffrey L. Wade
                                    Executive Vice President and General Counsel
                        Telephone:  (281) 364-0100
                        Facsimile:  (281) 863-8321

        If to Incyte:   Incyte Genomics, Inc.
                        3174 Porter Drive
                        Palo Alto, CA  94304
                        Attention:  Roy Whitfield
                                    Chief Executive Officer
                        Telephone:  650-855-0555
                        Facsimile:  650-621-8919

                        With a copy to:

                        Incyte Genomics, Inc.
                        3174 Porter Drive
                        Palo Alto, CA  94304
                        Attention:  Lee Bendekgey
                                    Executive Vice President and General Counsel
                        Telephone:  650-855-0555
                        Facsimile:  650-845-4166

All such communications shall be effective upon receipt.


                                       36
<PAGE>   38
         13.5 Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without reference to the
conflicts of law principles thereof.

         13.6 Dispute Resolution. Subject to Section 2.4.2, the parties hereby
agree that they will first attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement promptly by negotiations. If
a controversy or claim should arise hereunder, the matter shall be referred to
an individual designated by the Chief Executive Officer (or the equivalent
position) of Lexicon and by the Chief Executive Officer (or the equivalent
position) of Incyte (the "Representatives"). If the matter has not been resolved
within [**] of the first meeting of the Representatives of the parties (which
period may be extended by mutual agreement) concerning such matter, the parties
shall be free to pursue all available recourse both at law and in equity.

         13.7 Entire Agreement. This Agreement, together with the exhibits and
appendices hereto and any confidentiality agreement(s) executed in contemplation
of this Agreement, contains the entire understanding of the parties with respect
to the subject matter hereof. All express or implied agreements and
understandings, either oral or written, heretofore made are expressly merged in
and made a part of this Agreement. This Agreement may be amended, or any term
hereof modified, only by a written instrument duly executed by both parties
hereto.

         13.8 Publicity. Lexicon and Incyte each agree not to disclose any terms
or conditions of this Agreement to any Third Party without consulting the other
party prior to such disclosure. Notwithstanding the foregoing, prior to
execution of this Agreement, Lexicon and Incyte shall agree upon the substance
of information that can be used as a routine reference in the usual course of
business to describe the existence and general nature of this transaction, and
Lexicon and Incyte may disclose such information without consulting the other
party. The parties may thereafter from time to time mutually agree on revisions
to material to be used as a routine reference, which revisions shall be
submitted by one party for the review and approval of the other party at least
ten (10) days prior to the anticipated use or disclosure of the revised
material, such approval not to be unreasonably withheld. The terms of this
Agreement shall be treated as the Confidential Information of Lexicon and
Incyte, and, except to the extent required by applicable law, shall not be
disclosed to anyone (except for the parties' respective employees, consultants,
agents and attorneys assisting in the review and negotiation of this Agreement
who have a need to know the terms of this Agreement) without the written
permission of Incyte or Lexicon; provided that Incyte may disclose to its
Corporate Partners that it is a subscriber to the LexVision and OmniBank
Databases; and provided, further, Incyte may disclose the restrictions imposed
on it as a subscriber to the LexVision and OmniBank Databases to the employees,
directors or officers of its Academic Collaborators, under a written
confidentiality agreement, to the extent necessary to enable such Academic
Collaborators to fulfill their obligations to Incyte under sponsored research
and other similar agreements by and between such Academic Collaborators and
Incyte. Any announcements shall first be agreed upon by the parties in writing
and may include the number of Mutant Mice to be produced hereunder. If either
party desires to release a separate announcement relating to this Agreement, it
shall first allow the other party to approve in writing such proposed
announcement; such approval shall not be unreasonably withheld or delayed.


                                       37
<PAGE>   39
         13.9 Headings. The captions to the several Articles and Sections hereof
are not a part of this Agreement, but are merely guides or labels to assist in
locating and reading the several Articles and Sections hereof.

         13.10 No Partnership. It is expressly agreed that the relationship
between Lexicon and Incyte shall not constitute a partnership, joint venture or
agency. Neither Lexicon nor Incyte shall have the authority to make any
statements, representations or commitments of any kind, or to take any action,
which shall be binding on the other, without the prior consent of the other
party to do so.

         13.11 Exports. The parties acknowledge that the export of technical
data, materials or products is subject to the exporting party receiving any
necessary export licenses and that the parties cannot be responsible for any
delays attributable to export controls which are beyond the reasonable control
of either party. Lexicon and Incyte agree not to export or re-export, directly
or indirectly, any information, technical data, the direct product of such data,
samples or equipment received or generated under this Agreement in violation of
any applicable export control laws or governmental regulations. Lexicon and
Incyte agree to obtain similar covenants from their licensees, sublicensees,
Corporate Partners or corporate partners, as the case may be, and contractors
with respect to the subject matter of this Section 13.11.

         13.12 Waiver. The waiver by either party hereto of any right hereunder
or the failure to perform or of a breach by the other party shall not be deemed
a waiver of any other right hereunder or of any other breach or failure by said
other party whether of a similar nature or otherwise.

         13.13 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.


                                       38
<PAGE>   40
         IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute and deliver this Agreement as of the Effective Date.

LEXICON GENETICS INCORPORATED

By:                                              Date:
   ---------------------------------------             -------------------------
     Arthur T. Sands, M.D., Ph.D.
     President and Chief Executive Officer


INCYTE GENOMICS, INC.

By:                                              Date:
   ---------------------------------------             -------------------------

Printed Name:
             -----------------------------

Title:
      ------------------------------------


                                       39
<PAGE>   41
                                                                     EXHIBIT 1.8

                              CRE-LOX PATENT RIGHTS

<Table>
<Caption>
                            Application
Country                     Serial No.           Patent No.              Issue Date             Expiry Date
--------------------------- -------------------- ----------------------- ---------------------- ----------------------
<S>                         <C>                  <C>                     <C>                    <C>
USA                                              4,959,317               9/25/90                9/25/2007
--------------------------- -------------------- ----------------------- ---------------------- ----------------------
CANADA                                           1,293,460               12/24/91               12/24/2008
--------------------------- -------------------- ----------------------- ---------------------- ----------------------
IRELAND                                          60421                   7/8/94                 10/6/2006
--------------------------- -------------------- ----------------------- ---------------------- ----------------------
JAPAN                       86/236385
--------------------------- -------------------- ----------------------- ---------------------- ----------------------
EPO                                              0 220 009               2/10/93                10/6/2006
--------------------------- -------------------- ----------------------- ---------------------- ----------------------
AUSTRIA                                          E0085649                2/10/93                10/6/2006
--------------------------- -------------------- ----------------------- ---------------------- ----------------------
BELGIUM                                          0 220 009               2/10/93                10/6/2006
--------------------------- -------------------- ----------------------- ---------------------- ----------------------
FRANCE                                           0 220 009               2/10/93                10/6/2006
--------------------------- -------------------- ----------------------- ---------------------- ----------------------
GREAT BRITAIN                                    0 220 009               2/10/93                10/6/2006
--------------------------- -------------------- ----------------------- ---------------------- ----------------------
GERMANY                                          3687734                 2/10/93                10/6/2006
--------------------------- -------------------- ----------------------- ---------------------- ----------------------
GREECE                                           3007809                 2/10/93                10/6/2006
--------------------------- -------------------- ----------------------- ---------------------- ----------------------
ITALY                                            0 220 009               2/10/93                10/6/2006
--------------------------- -------------------- ----------------------- ---------------------- ----------------------
LUXEMBOURG                                       0 220 009               2/10/93                10/6/2006
--------------------------- -------------------- ----------------------- ---------------------- ----------------------
NETHERLANDS                                      0 220 009               2/10/93                10/6/2006
--------------------------- -------------------- ----------------------- ---------------------- ----------------------
SWEDEN                                           0 220 009               2/10/93                10/6/2006
--------------------------- -------------------- ----------------------- ---------------------- ----------------------
SWITZERLAND                                      0 220 009               2/10/93                10/6/2006
--------------------------- -------------------- ----------------------- ---------------------- ----------------------
</Table>

<PAGE>   42
                                                                    EXHIBIT 1.31


                    DESCRIPTION OF THE LEXVISION(TM) DATABASE

         The LexVision Database is a proprietary relational database comprising
mutant mouse phenotypic data and associated information. The phenotypic
information and data present in the LexVision Database can be derived from the
study of mutant mice produced by the OmniBank method or by Homologous
Recombination. Lexicon includes data from the "Level 1" analysis of mutant mice
in the LexVision Database. Level 1 analysis is designed to identify primary
pathophysiological perturbations resulting from engineered mutations.

         Level 1 analysis is intended as a first pass screen that may include:

1.  [**]

<PAGE>   43
                                                                    EXHIBIT 1.36


                 ALLOCATION OF NET SALES IN BUNDLED TRANSACTION

         With respect to Products sold in a Bundled Transaction in which Incyte
or any of its Affiliates or Corporate Partners discounts the sales price of the
Products to a greater degree than Incyte, its Affiliates or its Corporate
Partners, respectively, generally discounts the price of its other products to
such customer, the amount to be included in Net Sales of such Products shall be
calculated in accordance with the following formula:

                                   ASP-P x N-P
                      NS-P = ----------------------- x BTF
                             (SIGMA)=1 ASP-pi x N-pi

         Where:

                  NS-P         = Amount allocated to Net Sales of the Product

                  ASP-P        = Average Selling Price (as defined below) per
                                 unit, during the applicable period, of the
                                 Product when sold alone

                  ASP-pi       = Average Selling Price per unit, during the
                                 applicable period, of each Product or each
                                 product other than a Product in the Bundled
                                 Transaction when sold alone

                  N-P          = Total number of units of Product included in
                                 the Bundled Transaction during the applicable
                                 period

                  N-pi         = Total number of units (i.e., corresponding to
                                 the same ASP-pi) of each Product or product
                                 other than a Product included in the Bundled
                                 Transaction during the applicable period

                  (SIGMA)=1    = The sum of the products of the formula ASP-pi
                                 [ ] N-pi for each and every Product or product
                                 other than a Product included in the Bundled
                                 Transaction during the applicable period

                  BTF          = The aggregate amounts paid to Incyte for the
                                 Bundled Transaction during the applicable
                                 period

         The Average Selling Price shall be based on the actual average selling
price of the applicable Product or product other than a Product, as the case may
be, determined for the applicable period.

<PAGE>   44
         If a Product or other product is not sold separately and no bona fide
list price exists for such Product or other product, the Parties shall agree
upon an imputed bona fide list price for such Product or other product, and Net
Sales with respect thereto shall be based on such imputed list price.

<PAGE>   45
                                                                    EXHIBIT 1.38


         DESCRIPTION OF THE OMNIBANK(R) LIBRARY AND OMNIBANK(R) DATABASE

         The OmniBank Library is a library of mouse embryonic stem ("ES") cell
clones each containing a gene trap in a single gene. The trapped gene is
identified by a sequence tag referred to as an OST, as defined herein, which
have an average length of approximately 250 base pairs (and no fewer than 100
base pairs). The OSTs identify exons of the trapped genes and are stored in a
searchable database. Once a gene of interest has been identified, the
corresponding ES cell clone, with a specified gene trap mutation, can be
microinjected into host blastocysts to produce knockout mice to study the gene's
function.

         The OmniBank mutations are created using insertional mutagenesis based
on Moloney murine leukemia virus ("MoMuLV") and other vectors. The vectors
deliver a gene trap construct to the ES cells that allows the expression of a
selectable marker gene when the vector has inserted into and trapped exons from
a gene. The gene trap vectors also provide for the semi-automated acquisition of
OSTs.

<PAGE>   46
                                                                    EXHIBIT 1.50


                   SEEK TARGET VALIDATION (S-T-V(TM)) PROGRAM

Level 2 analysis is designed as a continuation of the Level 1 preliminary
analysis of the pathophysiological perturbations resulting from engineered
mutations. Level 2 analysis is focused on organ and physiologic system function
and represents an exhaustive analysis of organismal physiology. Phenotypic
screen analysis under Level 2 may include any or all of the following scientific
experiments depending on the partner's needs. Additional screens and assays to
be conducted by Lexicon can be explored between the parties prior to the
initiation of Level 2 biological experiments.

LEVEL 2 - ORGAN AND PHYSIOLOGIC SYSTEMS ANALYSIS

o     [**]


LEVEL 3 - PATHWAY DISCOVERY AND ANALYSIS

Level 3 analysis is designed as a continuation of the Level 1 and Level 2
analysis of the pathophysiological perturbations resulting from engineered
mutations. Level 3 analysis is designed to define biochemical pathways, identify
new drug targets and to define the biochemical mechanism of the pathophysiology
identified in the Level 1 and Level 2 analysis. [**]

<PAGE>   47
                                                                     EXHIBIT 2.1


                   STEERING COMMITTEE AND PROJECT COORDINATORS

Incyte Steering Committee Representatives:

1.  ___________________, Initial Chairperson

2.  _________________________

3.  _________________________

Incyte Project Coordinator: ___________

Lexicon Steering Committee Representatives:

1.  Jim Piggott, Initial Secretary
2.  Brian Zambrowicz
3.  David Powell

Lexicon Project Coordinator:  Cori Mossel

<PAGE>   48
                                                                   EXHIBIT 3.7-A


       MATERIAL TRANSFER AGREEMENT BETWEEN INCYTE AND A CORPORATE PARTNER
                    OR ACADEMIC COLLABORATOR FOR TRANSFER OF
                 NON-CRE-LOX MUTANT MICE PURSUANT TO SECTION 3.7

         Incyte Genomics, Inc. ("Incyte") is willing to provide Material
(defined below) to _______________ ("Investigator") of ________________
("[Institution/Company]") (hereinafter collectively "Recipient") solely for the
internal research purposes as described below, under the following terms.

         1. Upon execution of this agreement, Incyte shall provide to
Investigator samples of the Material. "Material" as used herein means __________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
[SPECIFY THE NON-CRE-LOX MOUSE (MOUSE OR CELL LINE)] or any cell line or progeny
derived directly or therefrom.

         2. The Material will be used by Recipient solely in conducting research
under the supervision of Investigator in support of a collaborative research
project with Incyte. The Material will be used solely within Recipient's
internal facilities and will not be transferred to any third party. The Material
will be used solely for internal research purposes and for no other purpose. In
no event will the Material be used in, or used in the manufacture of, a product
for sale (or lease or other transfer of a product for consideration).

         3. Recipient acknowledges the Material or its parent or progenitor has
been obtained by Incyte from Lexicon Genetics Incorporated ("Lexicon").
Recipient shall acknowledge in any publication or presentation of results of
research performed using the Material that the Material or its parent or
progenitor was obtained from Lexicon.

         4. Recipient will indemnify, defend and hold harmless Incyte and
Lexicon from and against any and all claims, losses, liabilities and damages
arising from or related to the Recipient's use of the Material. THE MATERIAL IS
PROVIDED TO RECIPIENT WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR THAT THE USE
OF THE MATERIAL WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHTS OF
OTHERS.

         5. Recipient agrees that any person utilizing the Material within
Institution will be advised of and shall be subject to the conditions of this
Agreement.

         6. Incyte represents that it has obtained prior written permission from
Lexicon to enter into this Agreement.

<PAGE>   49
         The parties agree to the foregoing and have caused this Agreement to be
executed by their duly authorized representatives.


                                          INCYTE GENOMICS, INC.

                                          By:
                                             ----------------------------------

                                          Title:
                                                -------------------------------

                                          Date:
                                               --------------------------------

[Name of Institution/Company]

By:
   ------------------------------------   -------------------------------------
(signature of authorized representative)       (signature of Investigator)

Printed Name:                             Printed Name:
             --------------------------                ------------------------

Title:
      ---------------------------------

Date:                                      Date:
     ----------------------------------         -------------------------------

<PAGE>   50
                                                                   EXHIBIT 3.7-B


       MATERIAL TRANSFER AGREEMENT BETWEEN INCYTE AND A CORPORATE PARTNER
                  OR ACADEMIC COLLABORATOR FOR LOX-MUTANT MICE
                      PURSUANT TO SECTIONS 3.1.5.2 AND 3.7

         Incyte Genomics, Inc. ("Incyte") is willing to provide Material
(defined below) to ____________________________ ("Investigator") of
____________________________ ("[Institution/Company]") (hereinafter collectively
"Recipient") solely for the internal research purposes as described below, under
the following terms.

         1. Upon execution of this agreement, Incyte shall provide to
Investigator samples of the Material. "Material" as used herein means __________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
[SPECIFY THE LOX MOUSE (MOUSE OR CELL LINE) OR ANY CELL LINE OR PROGENY
CONTAINING LOX DNA DERIVED THEREFROM] and any cell line or progeny containing
lox DNA or cre DNA derived directly or indirectly therefrom.

         2.1.  The Material will be used by Recipient solely in conducting
research under the supervision of Investigator in support of the collaborative
research project with Incyte. The material will be used solely within
Recipient's internal facilities will not be transferred to any third party. The
Material will be used solely for internal research purposes and for no other
purpose. In no event will the Material be used in, or used in the manufacture
of, a product for sale (or lease or other transfer of a product for
consideration).

         2.2.  Recipient further agrees that it will not manipulate the
genetic information at any loxP site in the Material using cre recombinase,
except as may be permitted as set forth in Section 4 below. For example and
without limitation, Recipient shall not cross-breed any mouse containing loxP
with a mouse expressing cre recombinase.

         3. The Material is covered by the claims of U.S. patent number
4,959,317, which is assigned to DuPont Pharmaceuticals Company. The Material or
its parent or progenitor has been obtained by Incyte from Lexicon Genetics
Incorporated ("Lexicon") which has licensed certain rights under U.S. patent
number 4,959,317 from DuPont Pharmaceuticals Company, including the right to
permit Incyte to extend to third parties the limited rights to practice under
U.S. patent number 4,959,317 as set forth herein. Except as specifically and
expressly set forth herein, no right is granted by DuPont Pharmaceuticals
Company to practice inventions claimed under U.S. patent number 4,959,317.
Recipient shall acknowledge in any publication or presentation of results of
research performed using the Material that the Material or its parent or
progenitor was obtained from Lexicon.

         4. In the event that Recipient has entered into a license agreement
with DuPont Pharmaceuticals Company, The DuPont Merck Pharmaceutical Company or
E.I. DuPont de

<PAGE>   51
Nemours and Company granting rights under U.S. patent number 4,959,317, then the
use of the Material shall be subject to the terms of such license agreement,
provided however, that the use of the Material shall be subject to any further
restrictions on the use of the Material as set forth herein.

         5. With respect to any further license rights under U.S. patent number
4,959,317, Recipient should contact:

                  Vice President, Product Planning & Acquisition
                  DuPont Pharmaceuticals Company
                  974 Centre Road, Chestnut Run Plaza, WR722
                  Wilmington, Delaware 19807-2802
                  (fax number: 302-922-3040)

         6. Recipient will indemnify, defend and hold harmless Incyte and
Lexicon from and against any and all claims, losses, liabilities and damages
arising from or related to the Recipient's use of the Material. THE MATERIAL IS
PROVIDED TO RECIPIENT WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR THAT THE USE
OF THE MATERIAL WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHTS OF
OTHERS.

         7. Recipient agrees that any person utilizing the Material within
[Institution/Company] will be advised of and shall be subject to the conditions
of this Agreement.

         8. Incyte represents that it has obtained prior written permission from
Lexicon to enter into this Agreement.

<PAGE>   52
         The parties agree to the foregoing and have caused this Agreement to be
executed by their duly authorized representatives.

                                          INCYTE GENOMICS, INC.

                                          By:
                                             ----------------------------------

                                          Title:
                                                -------------------------------

                                          Date:
                                               --------------------------------

[Name of Institution/Company]

By:
   ------------------------------------   -------------------------------------
(signature of authorized representative)       (signature of Investigator)

Printed Name:                             Printed Name:
             --------------------------                ------------------------

Title:
      ---------------------------------

Date:                                      Date:
     ----------------------------------         -------------------------------

<PAGE>   53
                                                                   EXHIBIT 4.4.1


                   FORM FOR DESIGNATION OF LEXVISION PROJECTS

DATE

Lexicon Genetics Incorporated
Attn: LexVision Project Manager
4000 Research Forest Drive
The Woodlands, TX  77381

Subject:  LexVision Project Initiation Request

Dear _________:

This letter is to provide notice to Lexicon Genetics Incorporated ("Lexicon") of
the request by Incyte Genomics, Inc. ("Incyte"), under Section 4.4.1 of the
LexVision Database and Collaboration Agreement between Lexicon and Incyte dated
____________________ (the "Agreement"), that Lexicon initiate a standard mutant
mouse project specified below for inclusion in the LexVision Database, subject
to the terms and conditions of the Agreement.

The standard mutant mouse project to be initiated is described as follows:

     o    Gene Name:

     o    Method of Development:
[**]
     o    Mouse cDNA sequence (if known):

              (Provide as an electronic file or on diskette if necessary)

     o    Is the genomic structure (i.e., intron/exon boundaries, size of
          introns, position of initiation codon, etc.) known for this gene?

              (Provide as an electronic file or on diskette if necessary)

     o    Description of desired mutation (i.e., which specific sequences to
          delete):



Sincerely,

Name:
     -------------------------------------
Incyte Project Coordinator

Title:
      ------------------------------------

<PAGE>   54
                                                                     EXHIBIT 5.2

        REQUEST FOR DELIVERY OF LEXVISION MUTANT MOUSE UNDER SECTION 5.2

DATE

Lexicon Genetics Incorporated
Attn: LexVision Project Coordinator
4000 Research Forest Drive

The Woodlands, TX  77381

Subject: Request for Delivery of LexVision Mutant Mice

Dear __________:

This letter is to provide notice to Lexicon Genetics Incorporated ("Lexicon") of
the request by Incyte Genomics, Inc. ("Incyte"), under Section(s) 5.2 of the
LexVision Database and Collaboration Agreement between Lexicon and Incyte dated
_________, 2000 (the "Agreement"), for the delivery to Incyte of the LexVision
Mutant Mice specified below, subject to the terms and conditions of the
Agreement.

     o    LexVision Accession No.:

     o    Gene Name:


   [ ]    The "Request for Shipping Information" form has been completed and
          attached.



Sincerely,

Name:
     ---------------------------
Incyte Project Coordinator

Title:
      --------------------------


================================================================================
                              FOR LEXICON USE ONLY

<Table>
<S>                  <C>                          <C>                   <C>
-------------------- ---------------------------- --------------------- ----------------------------------------------
REQUEST NO.:                                      PROJECT I.D.:
-------------------- ---------------------------- --------------------- ----------------------------------------------
METHOD:              [ ]  Stock        [ ]  Microinjection       [ ]  In Vitro Fertilization
-------------------- -------------------------------------------------------------------------------------------------
</Table>

DATE OF COMPLETION: ________________    PROJECT MANAGER: ____________________

<PAGE>   55
                                                                     EXHIBIT 5.5


           STANDARD LEXICON MUTANT MOUSE SHIPPING AND RECEIVING REPORT

                        REQUEST FOR SHIPPING INFORMATION

The following information is required to process the shipment of your mutant
mice. In order to prevent any delays in shipping your mice, please complete this
form in full and submit it to Lexicon as soon as possible. Omission of any
information could delay your shipment. **Lexicon will not ship any mice without
explicit authorization from the receiving institution's veterinarian.**

    SHIPPING & RECEIVING CLERK:
                                 -----------------------------------------------
             Clerk's Telephone:
                                 -----------------------------------------------
                   Clerk's Fax:
                                 -----------------------------------------------
                Clerk's E-mail:
                                 -----------------------------------------------

                                 -----------------------------------------------
                   INSTITUTION:
                                 -----------------------------------------------
              SHIPPING ADDRESS:
                         Street
                                 -----------------------------------------------
                       Building
                                 -----------------------------------------------
                       Room No.
                                 -----------------------------------------------
       City, State and Zip Code
                                 -----------------------------------------------
                        Country
                                 -----------------------------------------------
    INSTITUTION'S VETERINARIAN:
                                 -----------------------------------------------
      Veterinarian's Telephone:
                                 -----------------------------------------------
            Veterinarian's Fax:
                                 -----------------------------------------------
         Veterinarian's E-mail:
                                 -----------------------------------------------
        RECEIVING INVESTIGATOR:
                                 -----------------------------------------------
      Investigator's Telephone:
                                 -----------------------------------------------
            Investigator's Fax:
                                 -----------------------------------------------
         Investigator's E-mail:
                                 -----------------------------------------------


SHIPPING & DELIVERY REQUIREMENTS (DOMESTIC AND INTERNATIONAL):

Lexicon will use the information you provide above to exchange the required
health documents with the Institution's Veterinarian and schedule the shipment.
The shipping costs have been included in the overall project cost.

INTERNATIONAL ONLY:  Lexicon will contact the Receiving Veterinarian
                     approximately 3 weeks prior to delivery. At this time,
                     Lexicon will provide serology reports and request an Import
                     Permit from the Receiving Veterinarian. An Import Permit is
                     required in most countries and must be provided to Lexicon
                     in English and the predominant language of the receiving
                     country. Lexicon will notify Receiving Institution and
                     Animal Port Houston when mice are ready to be shipped. Upon
                     arrival in the destination country, the Receiving
                     Institution is responsible for arranging delivery from the
                     airport to Receiving Institution. Animal Port Houston will
                     contact the Receiving Institution and provide flight
                     information.

PLEASE RETURN THIS FORM TO:  LexVision(TM) Project Manager
                             Lexicon Genetics Incorporated
                             4000 Research Forest Drive
                             The Woodlands, TX 77381
                             Tel: 281-364-0100
                             Fax: 281-296-0749
                             E-mail: jd@lexgen.com or cmossel@lexgen.com

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>4
<FILENAME>h89868ex10-3.txt
<DESCRIPTION>THERAPEUTIC PROTEIN ALLIANCE AGREEMENT - 6-27-01
<TEXT>
<PAGE>   1

                                                                    EXHIBIT 10.3

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.


















                     THERAPEUTIC PROTEIN ALLIANCE AGREEMENT


                                     BETWEEN


                          LEXICON GENETICS INCORPORATED


                                       AND


                              INCYTE GENOMICS, INC.


                            DATED AS OF JUNE 27, 2001




<PAGE>   2
                     THERAPEUTIC PROTEIN ALLIANCE AGREEMENT

         THIS THERAPEUTIC PROTEIN ALLIANCE AGREEMENT (this "Agreement") is dated
as of June 27, 2001 (the "Effective Date") and is made by and between LEXICON
GENETICS INCORPORATED, a Delaware corporation ("Lexicon"), and INCYTE GENOMICS,
INC., a Delaware corporation ("Incyte"). Lexicon and Incyte are sometimes
referred to herein individually as a "party" and collectively as the "parties."

                                 R E C I T A L S

         WHEREAS, Lexicon owns or has rights to, and expertise in, certain
methods of producing and analyzing the phenotypes of gene knockout mice for the
discovery of gene and protein function;

         WHEREAS, Incyte owns or has rights in certain genes that encode
secreted proteins and the proteins encoded by such genes;

         WHEREAS, the parties desire to engage in a collaborative research
program to define the function and pharmaceutical utility of selected secreted
proteins for the discovery of Therapeutic Proteins (as hereinafter defined);

         WHEREAS, each party is willing to grant to the other party (i) the
right to obtain exclusive licenses to commercialize Therapeutic Proteins and
(ii) non-exclusive licenses to commercialize Diagnostic Products (as hereinafter
defined) in connection with marketed Therapeutic Proteins, in each case that are
derived from such collaborative research on the terms and conditions set forth
below;

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


                            ARTICLE 1. DEFINITIONS

         For purposes of this Agreement, the terms defined in this Article 1
shall have the respective meanings specified below:

         1.1 "Affiliate" means any corporation, company, partnership, joint
venture and/or firm that controls, is controlled by or is under common control
with a party to this Agreement. For purposes hereof, "control" means (i) in the
case of corporate entities, direct or indirect ownership more than fifty percent
(50%) of the stock or shares entitled to vote for the election of directors; and
(ii) in the case of non-corporate entities, direct or indirect ownership of more
than fifty percent (50%) of the equity interest with the power to direct the
management and policies of such non-corporate entities. [**]

                                       1
<PAGE>   3

         1.2 "BLA" means a Biologics License Application, Product License
Application, New Drug Application, or similar application for marketing approval
of a Product for use in the Therapeutic Field submitted to the FDA, or its
foreign equivalent.

         1.3 "Collaboration Term" means the period described in Section 11.1.1.

         1.4 "Commercialization Field" means, collectively, the Diagnostic Field
and the Therapeutic Field.

         1.5 "Confidential Information" means any information and data received
by a party (the "Receiving Party") from the other party or its Affiliates (the
"Disclosing Party") in connection with this Agreement (including, without
limitation, all information disclosed by the Parties under Section 2.2 and any
research, testing, clinical, regulatory, marketing or other scientific or
business information, plans, or data pertaining to any Product of the Disclosing
Party). Notwithstanding the foregoing, Confidential Information shall not
include any part of such information or data that:

                 (a) is or becomes part of the public domain other than by
         unauthorized acts of the Receiving Party or its Affiliates;

                 (b) can be shown by written documents to have been already in
         the possession of the Receiving Party or its Affiliates prior to
         disclosure under this Agreement, provided such Confidential Information
         was not obtained directly or indirectly from the Disclosing Party
         pursuant to a confidentiality agreement;

                 (c) can be shown by written documents to have been disclosed to
         the Receiving Party or its Affiliates by a Third Party, provided such
         Confidential Information was not obtained directly or indirectly from
         the Disclosing Party pursuant to a confidentiality agreement; or

                 (d) can be shown by written documents to have been
         independently developed by the Receiving Party or its Affiliates
         without use of, or access to, Confidential Information of the
         Disclosing Party.

Specific Confidential Information of a Disclosing Party shall not be deemed to
come under the foregoing exceptions merely because it is embraced by more
general information that is or becomes part of the public domain, or is known
by, disclosed to or independently developed by the Receiving Party.

         1.6 "Diagnostic Field" means [**].

         1.7 "Diagnostic Product" means any product or service derived from or
directed to Research Program Gene Products or Licensed Gene Products for use in
the Diagnostic Field.

         1.8 "Disclosing Party" has the meaning set forth in Section 1.5 hereof.

         1.9 "Drug Product" means [**]; provided, however, that Drug Product
shall not include any Therapeutic Protein or antisense product.

                                       2
<PAGE>   4

         1.10 "Effective Date" means the date specified in the initial paragraph
of this Agreement.

         1.11 "Eligible TP Gene Product" has the meaning set forth in Section
2.6 hereof. A Gene Product shall cease to be an Eligible TP Gene Product upon
the earlier to occur of (i) a party's selection of such Gene Product and
obtaining a license in the Commercialization Field under Section 2.10 or (ii)
the failure of either party to select such Gene Product and obtain a license in
the Commercialization Field within the time contemplated by Section 2.10.7.

         1.12 "Event of Default" means an event described in Section 11.3
hereof.

         1.13 "First Commercial Sale" means the first sale for use or
consumption by the general public of a Product in a country after all required
marketing and pricing or pricing reimbursement approvals to be granted by the
governing health authority of such country have been obtained. For the avoidance
of doubt, First Commercial Sale shall not include the sale of any Product for
use in clinical trials or for compassionate use prior to the approval of a BLA.

         1.14 "FDA" means the United States Food and Drug Administration, or the
successor thereto.

         1.15 "Gene Product" means [**].

         1.16 "Homologous Recombination" means a method of making a mouse
containing a Selected Mutation in a particular portion of a gene using standard
homologous recombination techniques.

         1.17 "Incyte Know-How" means [**].

         1.18 "Incyte LifeSeq(R) Gold Database" has the meaning set forth in the
LifeSeq Gold Collaborative Agreement between Incyte and Lexicon of even date
herewith.

         1.19 "Incyte Patent Rights" means [**].

         1.20 "Incyte Technology" means the Incyte Know-How and the Incyte
Patent Rights.

                                       3
<PAGE>   5

         1.21 "IND" means an Investigational New Drug application filed with the
U.S. Food and Drug Administration or a similar application for the clinical
testing of a Product in human subjects filed with a foreign regulatory
authority.

         1.22 "Invention" means any new and useful composition of matter,
process, product by process, machine or manufacture, including without
limitation, software or an arrangement or collection of data, or any new and
useful improvement thereof, whether or not patentable, which has been or is
discovered, conceived, developed or first reduced to practice by employees or
others acting on behalf of Lexicon or its Affiliates (either solely or jointly
with others), or by employees or others acting on behalf of Incyte or its
Affiliates (either solely or jointly with others), relating to a Research
Program Gene Product or Licensed Gene Product (including any Therapeutic Protein
or Diagnostic Product that incorporates or is derived from any such Research
Program Gene Product or Licensed Gene Product) or any use thereof.

         1.23 "Joint Invention" means any new and useful composition of matter,
process, product by process, machine or manufacture, including without
limitation, software or an arrangement or collection of data, or any new and
useful improvement thereof, whether or not patentable, hereafter discovered,
conceived, made, developed or reduced to practice jointly by employees or others
acting on behalf of Incyte or its Affiliates, together with employees or others
acting on behalf of Lexicon or its Affiliates, relating to a Research Program
Gene Product or Licensed Gene Product (including any Therapeutic Protein or
Diagnostic Product that incorporates or is derived from any such Research
Program Gene Product or Licensed Gene Product) or any use thereof, for purposes
of which inventorship shall be determined in accordance with U.S. patent law.

         1.24 "Joint Know-How" means all trade secrets and other rights in or to
Joint Inventions; provided, however, that the Joint Know-How excludes the Joint
Patent Rights. Joint Know-How shall constitute Confidential Information, as
defined in Section 1.5 and subject to the exceptions therein, of both parties.

1.25 "Joint Patent Rights" means (i) any United States and foreign patent
applications, including without limitation provisional patent applications,
hereafter owned, in whole or in part, by Lexicon or Incyte or having legal force
in any country, which claim a Joint Invention, (ii) any United States patents
and foreign patents issuing from such patent applications and (iii) any
substitutions, renewals, continuations, continuations-in-part, divisionals,
reissues, reexaminations or extensions of any of the foregoing.

         1.26 "Lexicon Know-How" means [**].

         1.27 "Lexicon Patent Rights" means [**].

                                       4
<PAGE>   6

         1.28 "Lexicon Technology" means the Lexicon Know-How and Lexicon Patent
Rights.

         1.29 "Licensed Gene Product" means any Gene Product for which Incyte
and/or Lexicon is granted a license in the Commercialization Field pursuant to
Section 4.2 and/or 4.3, as applicable.

         1.30 "Major Market" means the United States, the European Union (under
the centralized process or any other process), Germany, the United Kingdom,
France, Italy, Spain or Japan.

         1.31 "Mutant Mouse" means mouse cell or mouse containing a Selected
Mutation in the murine ortholog of a Research Program Gene Product that is made
or produced by Lexicon under this Agreement. A "line of Mutant Mice" means
Mutant Mice having the same Selected Mutation.

         1.32 "Net Sales" means, with respect to a Product, the gross amount
invoiced by Incyte, Lexicon, sublicensees of Incyte or Lexicon, and their
respective Affiliates for sales of such Product to customers which are not
Affiliates (or which are Affiliates but are end users of such Product), less:

                 (a) trade, quantity and cash discounts actually allowed;

                 (b) discounts, refunds, rebates, chargebacks, retroactive price
         adjustments, billing errors and any other allowances (including,
         without limitation, government-mandated and managed health
         care-negotiated rebates) actually granted which effectively reduce the
         net selling price;

                 (c) product returns credits and allowances actually granted;

                 (d) any tax imposed on the production, sale, delivery or use of
         the product (excluding federal, state or local taxes based on income);

                 (e) freight, postage, shipping, customs duties, excises,
         tariffs, surcharges, other governmental charges (excluding federal,
         state or local taxes based on income) and insurance charges actually
         allowed or paid for delivery of Products;

                                       5
<PAGE>   7

                 (f) payments or rebates paid with respect to such Product in
         connection with state or federal Medicare, Medicaid or similar programs
         in the United States or in connection with similar programs in other
         countries in which there are sales; and

                 (g) adjustments for bad debts.

Such amounts shall be determined from the books and records of Incyte, Lexicon,
sublicensees of Incyte or Lexicon, and their respective Affiliates, as the case
may be, maintained in accordance with the generally accepted accounting
principles, consistently applied.

          In the event the Product is sold as part of a Combination Product (as
defined below), the Net Sales from the Combination Product, for the purposes of
determining royalty payments, will be determined by multiplying the Net Sales of
the Combination Product by the fraction, A/A+B where A is the average sale price
of the Product when sold separately in finished form and B is the average sale
price of the other active compounds or ingredients in the Combination Product
sold separately in finished form.

         In the event that the average sale price of the Product can be
determined but the average sale price of the other active compounds or
ingredients cannot be determined, Net Sales for purposes of determining royalty
payments will be calculated by multiplying the Net Sales of the Combination
Product by the fraction C/C+D where C is the selling party's average sales price
of the Product and D is the difference between the average selling price of the
Combination Product and the average selling price of the Product. If the average
sale price of the other active compounds or ingredients can be determined but
the average price of the Product cannot be determined, Net Sales for purposes of
determining royalty payments will be calculated by multiplying the Net Sales of
the Combination Product by the following formula: one minus C/C+D where C is the
average selling price of the other product(s) and D is the difference between
the average selling price of the Combination Product and the average selling
price of the other active compounds or ingredients.

         In the event that the average sales price of both the Product and the
other active compounds or ingredients in the Combination Product cannot be
determined, the Net Sales of the Product shall be negotiated in good faith by
the parties.

         The Net Sales price for a Combination Product in a given country will
be calculated once each calendar year and such price will be used during all
applicable royalty reporting periods for the entire calendar year for such
country, absent extraordinary conditions or events. When determining the average
sale price of a Product or the other active compounds or ingredients in the
Combination Product, the average sale price will be calculated using data
arising from the twelve (12) months preceding the calculation of the Net Sales
price for the Combination Product. As used above, the term "Combination Product"
means any Product sold in conjunction with any other active component(s)
(whether packaged together or in the same therapeutic formulation).

         If Incyte, Lexicon, sublicensees of Incyte or Lexicon, or any of their
respective Affiliates sells any Product to a customer which also purchases other
products or services from such seller or any of its Affiliates in a bundled,
combination or capitated transaction (a "Bundled Transaction"), and such seller
discounts the sales price of the Product to a greater degree than

                                       6
<PAGE>   8
such seller or its Affiliates generally discount the price of its other products
to such customer, then the aggregate amount received with respect to such
Bundled Transaction shall be allocated to Net Sales pursuant to the formula set
forth in Exhibit 1.32 hereto. For purposes of the foregoing, "discounting"
includes establishing the list price at lower than the seller's normal pricing
level.

         Free samples of Product and the disposition of Product for, or the use
of Product in, pre-clinical or clinical (Phase 1 - 3) trials or other
market-focused (Phase 4) trials in which Product is provided to patients without
any payment shall not result in any Net Sales.

         1.33 "OmniBank" or "OmniBank Library" means Lexicon's proprietary
library of embryonic stem cell clones containing gene trap events in particular
mouse genes, which genes are identified by DNA sequence from the trapped gene,
and which clones may or may not have lox sites, as more fully described in
Exhibit 1.33 hereto.

         1.34 "OmniBank Method" means the method of making or developing a mouse
containing a Selected Mutation using gene trap insertion techniques with
embryonic stem cells retrieved from the OmniBank Library.

         1.35 "Phase 2 Trial" means a human clinical trial in any country that
is intended to initially evaluate the effectiveness of a Product for a
particular indication or indications in patients with the disease or indication
under study or that would otherwise satisfy requirements of 21 CFR 312.21(b), or
its foreign equivalent. For purposes of this Agreement, "commencement of a Phase
2 Trial" for a Product shall mean the first introduction of such Product into a
human patient in a Phase 2 Trial.

         1.36 "Phase 3 Trial" means a pivotal human clinical trial in any
country the results of which could be used to establish safety and efficacy of a
Product as a basis for a BLA or that would otherwise satisfy the requirements of
21 CFR 312.21(c) or its foreign equivalent. For purposes of this Agreement,
"commencement of a Phase 3 Trial" for a Product shall mean the introduction of
such Product into a human patient in a Phase 3 Trial.

         1.37 "PMA" shall mean a Pre-Market Approval Application, 510(k) notice
or similar application for marketing approval of a product for use in the
Diagnostic Field submitted to the FDA, or its foreign equivalent.

         1.38 "Product" means (i) any Therapeutic Protein that incorporates or
is derived from a Licensed Gene Product, (ii) any Diagnostic Product which uses,
is based on or incorporates a Licensed Gene Product (for purposes of which, a
product or service shall be deemed to be based on a Licensed Gene Product if it
measures the presence or activity of any such Licensed Gene Product), and (iv)
any Drug Product that [**].

         1.39 "Product Patent Rights" means (i) the United States and foreign
patents owned by or licensed (with rights to sublicense) to Incyte, Lexicon or
their respective Affiliates which claim a composition, method, or process
relating to a Product, (ii) the United States and foreign patent applications,
heretofore or hereafter filed by Incyte, Lexicon or their respective Affiliates
or having legal force in any country, which claim a composition, method, or
process relating to a

                                       7
<PAGE>   9
Product, (iii) any United States patents and foreign patents issuing from such
patent applications and (iv) any substitutions, renewals, continuations,
continuations-in-part, divisionals, reissues, reexaminations or extensions of
any of the foregoing.

         1.40 "Project Coordinator" has the meaning specified in Section 3.1
hereof.

         1.41 "Receiving Party" has the meaning set forth in Section 1.5 hereof.

         1.42 "Regulatory Approval" means, with respect to any country in the
world, applications or approvals of any national, supra-national, regional,
state or local regulatory agency, department, bureau, commission, council or
other governmental entity, necessary for the lawful manufacture, distribution,
use, import, export or sale of Product(s) in such country.

         1.43 "Research Field" means use by Incyte, Lexicon and their respective
Affiliates, at the internal research facilities of Incyte, Lexicon and their
respective Affiliates, for research directed toward the discovery,
identification, selection, or characterization of Products.

         1.44 "Research Program Gene Product" means any Gene Product that is
selected for research by the Steering Committee in accordance with Section 2.3,
including an Eligible TP Gene Product. A Gene Product shall cease to be a
Research Program Gene Product upon (i) the Steering Committee's selection of a
replacement for such Gene Product in accordance with Section 2.5.2, 2.5.3 or
2.5.4 or (ii) such Gene Product becoming a Licensed Gene Product, except that if
such Gene Product remains an Eligible TP Gene Product, it shall remain a
Research Program Gene Product for purposes of Therapeutic Protein research until
it is licensed as a Therapeutic Protein or ceases to be an Eligible TP Gene
Product.

         1.45 "Selected Mutation" means a specific mutation in a particular
portion of a gene of a mouse embryonic stem cell that is created using the
OmniBank Method or Homologous Recombination.

         1.46 "Steering Committee" has the meaning specified in Section 3.1
hereof.

         1.47 "Territory" means all countries and jurisdictions throughout the
world.

         1.48 "Therapeutic Field" shall mean the prevention or treatment of any
disease, state or condition in humans.

         1.49 "Therapeutic Protein" shall mean any product or service, including
gene therapy, which uses a protein, peptide or polypeptide which is a Gene
Product in the treatment or prevention of any disease, state or condition in
humans.

         1.50 "Third Party" means any person or entity other than Lexicon or
Incyte and their respective Affiliates.

         1.51 "Valid Claim" means either (i) a claim of an issued and unexpired
patent which has not been held permanently revoked, unenforceable or invalid by
a decision of a court or other governmental agency of competent jurisdiction,
unappealable or unappealed within the time allowed for appeal and that is not
admitted to be invalid or unenforceable through reissue,

                                       8
<PAGE>   10
disclaimer or otherwise, or (ii) a claim of a pending patent application that
[**]and that has not been abandoned or finally rejected without the possibility
of appeal or refiling.


                           ARTICLE 2. RESEARCH PROGRAM

         2.1 Scope of Research Program. During the Collaboration Term, Incyte
and Lexicon will designate an aggregate of up to two hundred fifty (250)
Research Program Gene Products from Incyte's LifeSeq(R) Gold Database for
potential development as Therapeutic Proteins. Lexicon will develop Mutant Mice
for each Gene Product designated as a Research Program Gene Product and will
conduct analyses directed toward the determination of the pharmaceutical utility
of such Research Program Gene Products, as provided herein. Each party shall
have rights to select and obtain exclusive licenses in the Commercialization
Field for Therapeutic Proteins that incorporate or are derived from Research
Program Gene Products, and each party shall obtain non-exclusive licenses in the
Commercialization Field to Research Program Gene Products (including any
Diagnostic Product that incorporates or is derived from any such Research
Program Gene Product, as well as Drug Products discovered by a party through use
of any such Research Program Gene Products), in each case on the terms set forth
herein.

         2.2 Proposal of Gene Products for Research Program. During the
Collaboration Term, Incyte and Lexicon will evaluate Gene Products from Incyte's
LifeSeq Gold Database for potential designation as Research Program Gene
Products. Upon the proposal by either party that a Gene Product be considered
for designation as a Research Program Gene Product, Incyte and Lexicon shall
provide the Steering Committee with the following information:

                 (a) all relevant scientific data in Incyte's possession (and
         which Incyte has the right to disclose to Lexicon) and all relevant
         scientific data in Lexicon's possession (and which Lexicon has the
         right to disclose to Incyte) relating specifically to such Gene
         Product, including, without limitation, any bioinformatics and
         expression analyses and mouse phenotypic information conducted by (i)
         Incyte with respect to such Gene Product, to the extent such data is
         not accessible through Incyte's LifeSeq Gold Database or (ii) Lexicon
         with respect to such Gene Product to the extent data is not accessible
         through Lexicon's LexVision Database;

                 (b) whether such Gene Product (and/or any Therapeutic Protein
         or Diagnostic Product that incorporates or is derived from any such
         Gene Product) is the subject of a Valid Claim within the Incyte Patent
         Rights or the Lexicon Patent Rights, respectively;

                 (c) whether such Gene Product is subject to an outstanding
         option or license granted by Incyte under the Incyte Patent Rights for
         the development and commercialization of Therapeutic Proteins;

                 (d) whether Incyte has the right to retain for itself and/or
         grant to Lexicon, under the Incyte Patent Rights and Incyte Know-How
         related to such Gene Product, an exclusive option and license under
         Incyte Patent Rights in the Commercialization Field with respect to
         Therapeutic Proteins;

                                       9
<PAGE>   11
                 (e) whether Lexicon has the right to retain for itself and/or
         grant to Incyte, under the Lexicon Patent Rights and Lexicon Know-How
         related to such Gene Product, an exclusive option and license under
         Lexicon Patent Rights in the Commercialization Field with respect to
         Therapeutic Proteins; and

                 (f) whether Incyte (independent of information gained from
         customers and collaborators) or Lexicon (independent of information
         gained from customers and collaborators), respectively, has knowledge
         of any patent or published patent application owned by any Third Party
         that may claim such Gene Product (including any Therapeutic Protein or
         Diagnostic Product that incorporates or is derived from any such Gene
         Product) or any use thereof (and, in the event Incyte or Lexicon,
         respectively, has knowledge of any such patent or published patent
         application, such party shall provide copies thereof to the Steering
         Committee).

         2.3 Selection of Research Program Gene Products.

         2.3.1 The Steering Committee shall evaluate the information
contemplated by Section 2.2 with respect to each Gene Product proposed by a
party for designation as a Research Program Gene Product, and shall select and
designate Gene Products as Research Program Gene Products on the following
schedule:

<Table>
<Caption>
                                                             AGGREGATE MINIMUM NUMBER OF
                       DEADLINE                       RESEARCH PROGRAM GENE PRODUCTS DESIGNATED
                       --------                       -----------------------------------------
<S>                                                    <C>
[*



                                                                         *]
</Table>

The Steering Committee may designate a greater number of Research Program Gene
Products at any time (up to the aggregate total of 250 Research Program Gene
Products contemplated hereby), and Lexicon may, in its discretion, initiate the
development of Mutant Mice for such greater number of Research Program Gene
Products; provided that Lexicon shall be obligated to initiate the development
of Mutant Mice for no more than the minimum number to be designated within any
time period.

         2.3.2 It is the intent of the parties that all Research Program Gene
Products be designated by consensus among the members of the Steering Committee.
In the event the Steering Committee is unable, using good faith efforts, to
reach agreement on the full minimum number of Research Program Gene Products to
be designated in any period, however, the members of the Steering Committee
appointed by Incyte and the members of the Steering Committee appointed by
Lexicon, respectively, shall each be entitled to designate an equal number of
Gene Products from Incyte's LifeSeq Gold database as Research Program Gene
Products until the minimum number of Research Program Gene Products for such
period has been designated. Such designation shall be made in writing, delivered
to the other party no later than [**] following the applicable designation
deadline.

                                       10
<PAGE>   12

         2.4 Exclusivity for Research Program Gene Products. To the extent that
Incyte has the right to do so under its existing contractual arrangements, upon
the designation of a Gene Product as a Research Program Gene Product, Incyte
shall reserve for itself or grant to Lexicon, under and for purposes of this
Agreement, an exclusive option to obtain an exclusive license in the
Commercialization Field with respect to Therapeutic Proteins under the Incyte
Patent Rights related to such Gene Product, such that the rights so reserved or
subject to such option shall be unavailable to subscribers to Incyte's LifeSeq
Gold database during the period of time that such Gene Product remains a
Research Program Gene Product. The parties acknowledge that Incyte has granted
non-exclusive rights under the Incyte Patent Rights and Incyte Know-How in the
Commercialization Field with respect to Drug Products and Diagnostic Products
and under Incyte Know-How with respect to Therapeutic Proteins related to any
such Gene Product, and has contractual obligations to subscribers to Incyte's
LifeSeq Gold database under which Incyte may not reserve exclusive rights with
respect thereto.

         2.5 Development of Mutant Mice for Research Program Gene Products.

                 2.5.1 Within [**] after the designation of a Research Program
         Gene Product, subject to the terms of this Agreement, Lexicon shall
         commence the development of a line of Mutant Mice containing a Selected
         Mutation for such Research Program Gene Product. Lexicon shall generate
         such Mutant Mice by the OmniBank Method if the selected Research
         Program Gene Product is represented in OmniBank, and will generate such
         Mutant Mice by Homologous Recombination if the selected Research
         Program Gene Product is not represented in OmniBank.

                 2.5.2 Lexicon shall use reasonable efforts to develop a line of
         Mutant Mice for each Research Program Gene Product within [**] of the
         designation of such Research Program Gene Product and to complete the
         development of such line of Mutant Mice within [**] thereafter.
         Development of a line of Mutant Mice shall be deemed complete when (i)
         Lexicon has obtained a sufficient number of Mutant Mice that are
         homozygous at the Selected Mutation to conduct the analyses of such
         homozygous Mutant Mice contemplated by Section 2.6 or (ii) the Steering
         Committee has determined that it is not reasonably practicable to
         obtain such homozygous Mutant Mice and Lexicon has obtained a
         sufficient number of Mutant Mice that are heterozygous at the Selected
         Mutation to conduct analyses of such heterozygous Mutant Mice. Incyte
         recognizes that the production of Mutant Mice involves a number of
         technologically complex steps and that technical obstacles may prevent
         Lexicon from producing Mutant Mice or may delay the production of
         Mutant Mice beyond the schedule provided for herein. Lexicon shall
         promptly notify the Steering Committee in writing of any such technical
         obstacle encountered, the basis for such obstacle, its analysis of
         whether the obstacle can be overcome and the time required to do so.
         If, after consultation with the Steering Committee, Lexicon determines
         that production and completion of Level 1 Analysis of a line of Mutant
         Mice for a Research Program Gene Product is not feasible, using
         commercially reasonable efforts, within [**] after the designation of
         such Research Program Gene Product, the Steering Committee may
         designate an alternative Research Program Gene Product in replacement
         of such Research Program Gene Product.

                                       11
<PAGE>   13

                 2.5.3 Lexicon shall not be obligated to develop a line of
         Mutant Mice where Lexicon reasonably believes, with the advice of its
         counsel and the Steering Committee, that such action would infringe
         upon the intellectual property rights of a Third Party. In such event,
         the Steering Committee shall adopt an acceptable solution including,
         but not limited to, the designation of an alternative Research Program
         Gene Product.

                 2.5.4 At any time prior to Lexicon's initiation of a project
         for the development of a line of Mutant Mice for a Research Program
         Gene Product, the Steering Committee may elect to substitute a new
         Research Program Gene Product for a previously-designated Research
         Program Gene Product if it is determined that a Third Party holds a
         patent or patent application claiming the composition of matter of the
         full-length gene comprising such previously-designated Research Program
         Gene Product with a priority date earlier than that of any patent or
         patent application within the Incyte Patent Rights.

                 2.5.5 Subject to the provisions of Sections 2.5.3 and 2.5.4
         (and any designation of replacement Research Program Gene Products
         under Section 2.5.2), and without prejudice to its other obligations
         under this Section 2.5, Lexicon will use (i) reasonable efforts to
         develop lines of Mutant Mice for all Research Program Gene Products
         designated under this Agreement and (ii) reasonable best efforts to
         develop lines of Mutant Mice for no fewer than [**] of the Research
         Gene Products designated under this Agreement; provided that if a line
         of Mutant Mice developed by Lexicon for a Research Program Gene Product
         is embryonic lethal or recessive lethal, Lexicon shall nevertheless,
         for purposes of this Section 2.5.5, be deemed to have completed the
         development of a line of Mutant Mice for such Research Program Gene
         Product.

         2.6 Analysis of Mutant Mice for Research Program Gene Products.
Promptly following the completion of development of a line of Mutant Mice as
provided in Section 2.5, Lexicon shall use reasonable best efforts to conduct
the analyses of such line of Mutant Mice contemplated by the research plan
described in Exhibit 2.6. Lexicon shall conduct one or more Level 2 analyses of
Mutant Mice as contemplated by the research plan described in Exhibit 2.6 for
[**] of all Research Program Gene Products. Lexicon shall provide the results of
the analyses for a Research Program Gene Product to the Steering Committee,
together with any supporting data reasonably requested by any member to the
Steering Committee, promptly following the completion of such analyses by
Lexicon. Upon Lexicon's delivery of such results to the members of the Steering
Committee, such Research Program Gene Product shall be an "Eligible TP Gene
Product" for purposes of Section 2.10 and a Licensed Gene Product for purposes
of Section 4.3.

         2.7 Option to Obtain Mutant Mice upon Request by Incyte for Research
Program Gene Products. Following Lexicon's delivery to the members of the
Steering Committee of the results contemplated by Section 2.6 with respect to a
Research Program Gene Product, Incyte shall have the option, exercisable by
delivery to Lexicon of a signed material transfer agreement in the form attached
hereto as Exhibit 2.7, to obtain Mutant Mice for a Research Program Gene Product
on the terms contemplated by such material transfer agreement; provided that
Incyte's option to obtain such Mutant Mice shall expire if not exercised within
[**] after the time such Research Program Gene Product becomes an Eligible TP
Gene Product.

                                       12
<PAGE>   14

         2.8 Additional Preclinical Research of Research Program Gene Products.
During the Collaboration Term, each party may conduct, in its sole discretion,
such additional preclinical research in the Research Field with respect to
Research Program Gene Products (including any Therapeutic Protein or Diagnostic
Product that incorporates or is derived from any such Research Program Gene
Product) as such party reasonably desires; provided, however, that (i) such
party shall give prior written notice to the other party of the nature and scope
of such additional preclinical research prior to commencing such research and
(ii) shall provide the results of such additional preclinical research to the
Steering Committee, together with any supporting data reasonably requested by
any member to the Steering Committee, promptly following the completion of such
additional preclinical research and in any event prior to the next Selection
Meeting (as defined in Section 2.10 below).

         2.9 Reports. Lexicon shall keep the Steering Committee reasonably
informed of the progress of its activities under this Article 2. At a minimum,
within [**] following the last day of each calendar quarter during the
Collaboration Term, Lexicon shall prepare, and provide to the Steering
Committee, a reasonably detailed written summary report which shall describe the
work performed by Lexicon during the preceding calendar quarter, including,
without limitation, the status of Lexicon's development of Mutant Mice and the
conduct of the analyses of Research Program Gene Products contemplated by
Section 2.6. Upon request by any member of the Steering Committee for data that
supports the summary report, Lexicon shall promptly submit such data to the
Steering Committee in writing.

         2.10 Process to Obtain Commercial Licenses for Therapeutic Proteins. At
each regularly scheduled quarterly meeting of the Steering Committee at which
there have existed [**] Research Program Gene Products that (i) have been
Eligible TP Gene Products for a period of at least [**] and (ii) were not
Eligible TP Gene Products at the prior Selection Meeting (a "Selection
Meeting"), the parties (acting through their Steering Committee representatives)
shall have the right to select Eligible TP Gene Products to become Licensed Gene
Products and obtain licenses with respect to Therapeutic Protein(s)
corresponding to such Eligible TP Gene Product in the Commercialization Field
pursuant to Section 4.2 as follows:

                 2.10.1 At the first Selection Meeting, Incyte shall have the
         first right to select [**} Eligible TP Gene Product to become a
         Licensed Gene Product and obtain a commercial license under Section 4.2
         with respect thereto.

                 2.10.2 At the first Selection Meeting, after Incyte has
         selected, or elected not to select (under Section 2.10.5 below), [**]
         Eligible TP Gene Product to become a Licensed Gene Product and to
         receive a commercial license under Section 4.2 below with respect
         thereto, Lexicon shall have the next right to select up to [**]
         Eligible TP Gene Products to become a Licensed Gene Product(s) and
         obtain a commercial license(s) under Section 4.2 with respect thereto.

                 2.10.3 At each Selection Meeting, after a party has selected
         since the last selection of an Eligible TP Gene Product by the other
         party (other than selections made under Section 2.10.5 below) [**]
         Eligible TP Gene Products to become Licensed Gene Products and to
         receive commercial licenses under Section 4.2 with respect thereto, the
         other party shall have the next right to select [**] Eligible TP
         Gene Products to

                                       13
<PAGE>   15
         become Licensed Gene Products and obtain commercial licenses under
         Section 4.2 with respect thereto.

                 2.10.4 At any Selection Meeting, if there exist less than [**]
         Eligible TP Gene Products that were not Eligible TP Gene Products at
         the prior Selection Meeting, then the party with the right to make the
         next selection of an Eligible TP Gene Product shall have the right to
         suspend further selection until the next Selection Meeting.

                 2.10.5 At any Selection Meeting, if there exist [**] Eligible
         TP Gene Products that were not Eligible TP Gene Products at the prior
         Selection Meeting, and the party (the "Delaying Party") with the right
         to make the next selection under this Section 2.10 elects not to make
         such selection prior to the end of such Selection Meeting, then the
         other party (the "Non-Delaying Party") shall have the right at such
         Selection Meeting, in its discretion, to accelerate its right to select
         up to [**] Eligible TP Gene Products to become Licensed Gene Products
         and obtain commercial licenses under Section 4.2 with respect thereto.
         Each Eligible TP Gene Product selected by the Non-Delaying Party shall
         be counted against the number of Eligible TP Gene Products that may be
         selected by the Non-Delaying Party in accordance with Section 2.10.3 in
         future Selection Meetings. After the Non-Delaying Party has completed
         such accelerated selection(s), further selections shall be suspended
         until the next Selection Meeting, at which time the parties' rights to
         select Eligible TP Gene Products shall resume in accordance with
         Section 2.10.3.

                 2.10.6 If any Eligible TP Gene Product fails to become a
         Licensed Gene Product under Section 4.2 within [**] after such Research
         Program Gene Product becomes an Eligible TP Gene Product, the senior
         business development officers of each party, together with such other
         persons as they mutually agree, shall meet to discuss development and
         commercialization opportunities (including, without limitation, through
         joint development or licensing efforts) for such Eligible TP Gene
         Product and Therapeutic Protein(s) corresponding to such Eligible TP
         Gene Product directed thereto, and whether the time period specified in
         Section 2.10.7 should be extended to permit the parties to pursue such
         opportunities.

                 2.10.7 Unless otherwise agreed in writing by the parties, each
         Eligible TP Gene Product that fails to become a Licensed Gene Product
         under Section 4.2 within [**] after such Gene Product becomes an
         Eligible TP Gene Product shall thereafter cease to be a Research
         Program Gene Product or an Eligible TP Gene Product. Following such
         time, neither party shall thereafter have the right to select such Gene
         Product as a Licensed Gene Product under Section 4.2. [**]


                          ARTICLE 3. STEERING COMMITTEE

         3.1 Members of Steering Committee; Project Coordinators. The parties
shall establish a steering committee (the "Steering Committee"), which shall
comprise three representatives designated by each party (or such other number as
the parties may agree). The initial members of the Steering Committee are set
forth on Exhibit 3.1. The members of the

                                       14
<PAGE>   16
Steering Committee appointed by each party shall include at least one senior
scientific executive. Members of the Steering Committee may be represented at
any meeting by a designee appointed by such member for such meeting who has
authority to act on behalf of such member. The chairperson of the Steering
Committee shall be designated annually on an alternating basis between the
parties. The initial chairperson shall be selected by Incyte and is designated
on Exhibit 3.1. The party not designating the chairperson shall designate one of
its representative members as secretary to the Steering Committee for such year.
Each party shall designate an individual (a "Project Coordinator"), who may, but
need not, be a member of the Steering Committee to coordinate, on its behalf,
the day-to-day interaction of and communication between the parties under this
Agreement. Each Project Coordinator shall possess the education, training and
experience necessary to make him or her reasonably technically qualified to
serve as a Project Coordinator. The initial Project Coordinators are set forth
on Exhibit 3.1. Each party shall be free to replace its representative members
of the Steering Committee and its Project Coordinator with new appointees who
have authority to act on behalf of such party, on notice to the other party.

        3.2 Responsibilities of Steering Committee. The Steering Committee shall
be responsible for overseeing and directing the parties' interaction and
performance of their respective obligations under this Agreement. Without
limiting the generality of the foregoing, its duties shall include:

                 (a) selection and designation of Gene Products from Incyte's
         LifeSeq Gold database as Research Program Gene Products;

                 (b) prioritizing and reviewing Lexicon's efforts to develop
         Mutant Mice and conduct analyses of Research Program Gene Products;

                 (c) reviewing and, if appropriate, modifying the research plan
         contemplated by Section 2.6 for specific Research Program Gene
         Products;

                 (d) reviewing the results of the analyses of Research Program
         Gene Products; and

                 (e) addressing issues and resolving differences that may arise
         between the parties.

         3.3 Meetings of Steering Committee. The Steering Committee shall meet
at least once every calendar quarter, and more frequently as the parties deem
appropriate, on such dates and at such times as the parties shall agree, on ten
(10) days' written notice to the other party unless such notice is waived by the
parties. The first meeting of the Steering Committee shall take place within
thirty (30) days after the Effective Date, at Incyte's facility in Palo Alto,
California. The Steering Committee may convene or be polled or consulted from
time to time by means of telecommunications, videoconferences or correspondence,
as deemed necessary or appropriate by the parties. To the extent that meetings
are held in person, they shall alternate between the offices of the parties
unless the parties otherwise agree. The chairperson shall be responsible for
sending notices of meetings to all members.

                                       15
<PAGE>   17
         3.4 Decisions.

                  3.4.1 Quorum; Voting. A quorum for a meeting of the Steering
         Committee shall require the presence of at least one Lexicon member (or
         designee) and at least one Incyte member (or designee) in person or by
         telephone. All decisions made or actions taken by the Steering
         Committee shall be made unanimously by its members, with the Lexicon
         members cumulatively having one vote and the Incyte members
         cumulatively having one vote.

                  3.4.2 Dispute Resolution. Except as provided in Section 2.3.1,
         in the event that unanimity cannot be reached by the Steering Committee
         with respect to a matter that is a subject of its decision-making
         authority, then the matter shall be referred for further review and
         resolution to the Chief Executive Officer of Incyte, or such other
         similar position designated by Incyte from time to time, and the Chief
         Executive Officer of Lexicon, or such other similar position designated
         by Lexicon from time to time. The designated officers of each party
         shall use reasonable efforts to resolve the matter within [**] after
         the matter is referred to them. If the designated officers cannot
         resolve any matter described in Section 3.2 within such [**] period,
         the matter shall be decided by the designated officer of Lexicon in
         good faith, taking into account the reasonable commercial interests of
         Incyte and the express provisions of this Agreement.

         3.5 Minutes. Within fifteen (15) days after each Steering Committee
meeting, the secretary of the Steering Committee shall prepare and distribute
minutes of the meeting, which shall provide a description in reasonable detail
of the discussions had at the meeting and a list of any actions, decisions or
determinations approved by the Steering Committee. The secretary shall be
responsible for circulation of all draft and final minutes. Draft minutes shall
be first circulated to the chairperson, edited by the chairperson and then
circulated in final draft form to all members of the Steering Committee
sufficiently in advance of the next meeting to allow adequate review and comment
prior to the meeting. Minutes shall be approved or disapproved, and revised as
necessary, at the next meeting. Final minutes shall be distributed to the
members of the Steering Committee.

         3.6 Term. The Steering Committee shall exist until the termination or
expiration of the Collaboration Term and for such longer period as necessary to
perform the responsibilities assigned to it under this Agreement.

         3.7 Expenses.  Each party shall be responsible for all travel and
related costs for its representatives to attend meetings of, and otherwise
participate on, the Steering Committee.


                           ARTICLE 4. GRANTS OF RIGHTS

         4.1 Grant of Rights and Licenses in the Research Field.

                 4.1.1 By Incyte. Subject to the terms of this Agreement, during
         the Collaboration Term, Incyte hereby grants to Lexicon and its
         Affiliates, within the Territory, a non-exclusive right and license
         (without any right to sublicense) under the Incyte Patent Rights and
         Incyte Know-How with respect to Research Program Gene

                                       16
<PAGE>   18
         Products and, to the extent licensed to Lexicon in the
         Commercialization Field, Licensed Gene Products solely in the Research
         Field.

                 4.1.2 By Lexicon. Subject to the terms of this Agreement,
         during the Collaboration Term, Lexicon hereby grants to Incyte and its
         Affiliates, within the Territory, a non-exclusive right and license
         (without any right to sublicense) under the Lexicon Patent Rights and
         Lexicon Know-How with respect to Research Program Gene Products and, to
         the extent licensed to Incyte in the Commercialization Field, Licensed
         Gene Products solely in the Research Field.

                 4.1.3 Restrictions on Clinical Development of Therapeutic
         Proteins. Neither party nor their respective Affiliates shall submit an
         IND for any Therapeutic Protein that incorporates or is derived from
         any Research Program Gene Product, or administer to humans any such
         Therapeutic Protein, unless and until such party has received a license
         under Section 4.2 for such Gene Product in the Commercialization Field.

         4.2 Grant of Rights and Licenses to Therapeutic Proteins in the
Commercialization Field.

                 4.2.1 By Incyte. Subject to the terms of this Agreement, with
         respect to Gene Products selected for a Therapeutic Protein license by
         Lexicon in accordance with Section 2.10, Incyte hereby grants to
         Lexicon and its Affiliates, within the Territory, (i) a non-exclusive
         license, with the right to sublicense under Incyte Know-How with
         respect to Licensed Gene Products to discover, develop, make, have
         made, import, use, have used, offer for sale, sell and have sold
         Therapeutic Proteins in the Commercialization Field and (ii) an
         exclusive license, with the right to sublicense, under the Incyte
         Patent Rights and Incyte's interest in any Joint Patent Rights and
         Joint Know-How with respect to Licensed Gene Products (including any
         Therapeutic Protein that incorporates or is derived from any such
         Licensed Gene Product) to discover, develop, make, have made, import,
         use, have used, offer for sale, sell and have sold Therapeutic Proteins
         in the Commercialization Field. Any sublicense under this Section 4.2.1
         shall be set forth in a written agreement containing confidentiality,
         non-use, ownership of intellectual property and audit provisions
         consistent with and no less restrictive than those contained herein,
         shall be subject and subordinate to the terms and conditions of this
         Agreement, and shall obligate the sublicensee to make the milestone and
         royalty payments required hereunder; provided that Lexicon shall remain
         responsible for all payments due to Incyte hereunder. Lexicon shall
         provide Incyte with a copy of each sublicense agreement promptly after
         executing the same; provided, however, that subject to the exceptions
         set forth in Section 1.6, each such sublicense agreement shall be
         Confidential Information of Lexicon.

                 4.2.2 By Lexicon. Subject to the terms of this Agreement, with
         respect to Gene Products selected for a Therapeutic Protein license by
         Incyte in accordance with Section 2.10, Lexicon hereby grants to Incyte
         and its Affiliates, within the Territory, an exclusive license, with
         the right to sublicense, under the Lexicon Patent Rights, Lexicon
         Know-How and Lexicon's interest in any Joint Patent Rights and Joint
         Know-How with respect to Licensed Gene Products (including any
         Therapeutic Protein that incorporates or is

                                       17
<PAGE>   19
         derived from any such Licensed Gene Product) to discover, develop,
         make, have made, import, use, have used, offer for sale, sell and have
         sold Therapeutic Proteins in the Commercialization Field. Any
         sublicense under this Section 4.2.2 shall be set forth in a written
         agreement containing confidentiality, non-use, ownership of
         intellectual property and audit provisions consistent with and no less
         restrictive than those contained herein, shall be subject and
         subordinate to the terms and conditions of this Agreement, and shall
         obligate the sublicensee to make the milestone and royalty payments
         required hereunder; provided that Incyte shall remain responsible for
         all payments due to Lexicon hereunder. Incyte shall provide Lexicon
         with a copy of each sublicense agreement promptly after executing the
         same; provided, however, that subject to the exceptions set forth in
         Section 1.6, each such sublicense agreement shall be Confidential
         Information of Incyte.

         4.3 Grant of Rights and Licenses to Products Other than Therapeutic
Proteins in the Commercialization Field.

                 4.3.1 By Incyte. Subject to the terms of this Agreement, Incyte
         hereby grants to Lexicon and its Affiliates, within the Territory, a
         non-exclusive license, with the limited right to sublicense subject to
         the conditions of Section 4.3.3, under the Incyte Patent Rights, Incyte
         Know-How and Incyte's interest in any Joint Patent Rights and Joint
         Know-How with respect to Licensed Gene Products (including any
         Diagnostic Product that incorporates or is derived from any such
         Licensed Gene Product) to discover, develop, make, have made, import,
         use, have used, offer for sale, sell and have sold Diagnostic Products
         and Drug Products in the Commercialization Field.

                 4.3.2 By Lexicon. Subject to the terms of this Agreement,
         Lexicon hereby grants to Incyte and its Affiliates, within the
         Territory, a non-exclusive license, with the limited right to
         sublicense subject to the conditions of Section 4.3.3, under the
         Lexicon Patent Rights, Lexicon Know-How and Lexicon's interest in any
         Joint Patent Rights and Joint Know-How with respect to Licensed Gene
         Products (including any Diagnostic Product that incorporates or is
         derived from any such Licensed Gene Product) to discover, develop,
         make, have made, import, use, have used, offer for sale, sell and have
         sold Diagnostic Products and Drug Products in the Commercialization
         Field.

                 4.3.3 Conditions for Grant of Sublicenses. The parties and
         their respective Affiliates shall have the limited right to grant
         sublicenses under the licenses granted under this Section 4.3, on a
         Licensed Gene Product-by-Licensed Gene Product basis; provided,
         however, that without the prior written consent of the party granting a
         license under this Section 4.3, no such sublicense with respect to a
         Licensed Gene Product (including any Diagnostic Product that
         incorporates or is derived from any such Licensed Gene Product) may be
         granted to any Third Party in the absence of (i) a corresponding
         license or sublicense of rights to a given Drug Product discovered,
         researched and under bona fide commercial development (at least through
         the stage of the demonstration of pre-clinical efficacy in animal
         studies) by the party granting such sublicense and (ii) the license or
         sublicense of patent rights pertaining thereto owned by, licensed to or
         controlled by the party granting such sublicense. Except as provided in
         this Section 4.3.3 (and the relevant provisions of Section 4.3.1 or
         4.3.2, as applicable), neither party nor any

                                       18
<PAGE>   20
         of their Affiliates shall have any right to grant any sublicense under
         the licenses granted to such party under this Section 4.3.

         4.4 No Grant of Other Technology or Patent Rights. Except as otherwise
expressly provided in this Agreement, under no circumstances shall a party
hereto, as a result of this Agreement, obtain any ownership interest in or other
right to any technology, know-how, patents, patent applications, gene or genomic
sequence data or information, products, or biological materials of the other
party, including items owned, controlled or developed by, or licensed to, the
other party, or transferred by the other party to said party, at any time
pursuant to this Agreement.


                               ARTICLE 5. PAYMENTS

         5.1 Research Funding. In consideration for and as a contribution toward
the Lexicon's costs of development and analysis of Mutant Mice relating to
Research Program Gene Products, Incyte shall provide Lexicon with research
funding on the following schedule:

                 (a) [**} payable [**], for the research to be conducted during
         [**] of the Collaboration Term;

                 (b) [**] on [**], for the research to be conducted during [**]
         of the Collaboration Term;

                 (c) [**] for the research to be conducted during the [**] of
         the Collaboration Term, payable [**]; and

                 (d) [**]for the research to be conducted during [**] of the
         Collaboration Term, payable [**].

In the event of termination of the Collaboration Term on the third anniversary
of the Effective Date pursuant to Section 11.1.1, then the payments specified
under Section 5.1(c) and (d) above shall not be due to Lexicon.

         5.2 Milestone Payments for Therapeutic Proteins and Drug Products.

                 5.2.1 The party that holds a commercial license under Section
         4.2 and/or 4.3 with respect to a given Licensed Gene Product (the
         "Product Licensee") shall pay the other party (the "Product Licensor")
         the following milestone payments for each Therapeutic Protein that
         incorporates or is derived from such Licensed Gene Product, and each
         Drug Product that is discovered, identified, developed, made, selected,
         characterized or determined to have utility using such Licensed Gene
         Product:

                                       19
<PAGE>   21
<Table>

<Caption>

                    MILESTONE                                    AMOUNT OF MILESTONE PAYMENT
                    ---------                                    ---------------------------

                                                       THERAPEUTIC PROTEIN              DRUG PRODUCT
                                                       -------------------              ------------
<S>                                                    <C>                              <C>


         [*




                                                                                                  *]
</Table>


                 5.2.2 Each Product Licensee shall promptly notify the Product
         Licensor of the first occurrence of any milestone with respect to each
         Therapeutic Protein that incorporates or is derived from such Licensed
         Gene Product, and each Drug Product that is discovered, identified,
         developed, made, selected, characterized or determined to have utility
         using such Licensed Gene Product, and milestone payments shall be made
         within [**] after such occurrence. Milestone payments shall be made
         only once with respect to any given Product, regardless of the number
         of indications sought (or approvals obtained) for such Product, whether
         alone or in combination with other products, and regardless of any new
         dosage strengths, preparations or forms of administration for such
         Product.

                 5.2.3 If the Product Licensee with respect to a given Licensed
         Gene Product develops a back-up Product for a Product (of the same
         category; e.g., a Drug Product may be a back up Product for another
         Drug Product, but may not be a back-up or follow-on Product for a
         Therapeutic Protein) on which such Product Licensee is already making
         milestone payments, then such Product Licensee may conduct clinical
         development on such back-up or follow-on Products and shall not be
         obligated to make any milestone payments with respect to any such
         back-up or follow-on Product, except as otherwise provided below. In
         the event that a particular Product is dropped from active clinical
         development work or marketing for safety or efficacy reasons and is
         specifically replaced with a different Product, such new Product shall
         be deemed a "Replacement Product." A Product Licensee shall not be
         obligated to make milestone payments that were earlier made with
         respect to a dropped Product and replaced by a Replacement Product
         (provided that the replacement Product is of the same category as the
         dropped Product, as described above), but, subject to Section 5.2.2,
         such Product Licensee shall pay all milestone payments for milestone
         events achieved by such Replacement Product that had not been achieved
         by such dropped Product.

         5.3 Royalties Payable for Products.

                 5.3.1 Royalties on Net Sales. In consideration of the licenses
         granted under Sections 4.2 and/or 4.3, as applicable, a Product
         Licensee shall pay to the Product Licensor the following royalty on
         cumulative Net Sales of each Product by the Product Licensee, its
         sublicensee(s) and their respective Affiliates:

                                       20
<PAGE>   22

<Table>
<Caption>
                                     THERAPEUTIC PROTEIN          DRUG PRODUCT         DIAGNOSTIC PRODUCT
                                     -------------------          ------------         ------------------
<S>                                                               <C>                   <C>
         [*


                                                                                               *]

</Table>

         [**]


                 5.3.2 Royalty Reports; Exchange Rates. During the term of this
         Agreement following the First Commercial Sale of any Product, the
         Product Licensee shall, within [**] after each calendar quarter,
         furnish to the Product Licensor a written quarterly report showing: (i)
         the gross sales and Net Sales of Products sold during the reporting
         period and the calculation of Net Sales from such gross sales; (ii) the
         royalties payable in United States dollars which shall have accrued
         hereunder in respect of such Net Sales; (iii) withholding taxes, if
         any, required by law to be deducted in respect of such royalties; (iv)
         the dates of the First Commercial Sales of Products in any country
         during the reporting period; and (v) the exchange rates used in
         determining the amount of United States dollars payable hereunder.
         Royalties payable on sales in countries other than the United States
         shall be calculated in accordance with the standard exchange rate
         conversion practices used by the Product Licensee for financial
         accounting purposes. If no royalty or payment is due for any royalty
         period hereunder, the Product Licensee shall so report. Each Product
         Licensee shall keep, and shall require its sublicensees to keep (all in
         accordance with generally accepted accounting principles, consistently
         applied), complete and accurate records in sufficient detail to
         properly reflect all gross sales and Net Sales and to enable the
         royalties payable hereunder to be determined.

                 5.3.3 Audits. Upon the written request of a Product Licensor,
         the Product Licensee shall permit an independent certified public
         accountant selected by the Product Licensor and acceptable to the
         Product Licensee, which acceptance shall not be unreasonably withheld,
         to have access, at reasonable times and during normal business hours,
         to such records of the Product Licensee as may be reasonably necessary
         to verify the accuracy of the royalty reports described herein, in
         respect of any fiscal year ending not more than [**] prior to the date
         of such request. The Product Licensor and the Product Licensee shall
         use commercially reasonable efforts to schedule all such verifications
         within [**] after the Product Licensor makes its written request. All
         such verifications shall be conducted not more than once in, or with
         respect to, each calendar year. The report of the Product Licensor's
         independent certified public accountant shall be made available to both
         parties. Subject to the Product Licensee's rights under Section 12.6,
         in the event the Product Licensor's independent certified public
         accountant concludes that additional royalties were owed to the Product
         Licensor for such period, the additional royalty shall be paid by the
         Product Licensee within [**] of the date the Product Licensor delivers
         to the Product Licensee such independent certified public accountant's
         written report so concluding, unless such report contains manifest
         error. In the event the Product Licensor's independent certified public
         accountant concludes that there was an overpayment of royalties to the
         Product Licensor during such period, the overpayment shall be repaid by
         the Product Licensor within [**] of the date the Product Licensor
         received such independent certified public accountant's written report
         so

                                       21
<PAGE>   23
         concluding, unless such report contains manifest error. The fees
         charged by such independent certified public accountant shall be paid
         by the Product Licensor unless such audit discloses an underpayment of
         more than [**] of the amount due under this Agreement for the period in
         question, in which case the Product Licensee will bear the full cost of
         such audit. The Product Licensee shall include in each agreement with
         each applicable sublicensee a provision requiring such sublicensee to
         make reports to the Product Licensee, to keep and maintain records of
         sales made pursuant to such agreement and to grant access to such
         records by the Product Licensor's independent certified public
         accountant to the same extent required of the Product Licensee under
         this Agreement. The Product Licensor agrees that all information
         subject to review under this Section 5.3.3 or under any agreement with
         a sublicensee of the Product Licensee is confidential and that the
         Product Licensor shall cause its independent certified public
         accountant to retain all such information in confidence. The Product
         Licensor's independent certified public accountant shall only report to
         the Product Licensor as to the computation of the royalties and other
         payments due to the Product Licensor under this Agreement and shall not
         disclose to the Product Licensor any other information of the Product
         Licensee or its sublicensee.

                 5.3.4 Royalty Payment Terms. Royalty payments for each calendar
         quarter shall be due at the time the Product Licensee's report under
         Section 5.3.2 for such calendar quarter shall be due.

         5.4 Withholding Taxes. In the event that any royalties or other
payments due to a Product Licensor are subject to withholding tax required by
law to be paid to the taxing authority of any foreign country, the amount of
such tax may be withheld from the applicable royalties or other payment due the
Product Licensor. The Product Licensee shall promptly pay such tax on behalf of
the Product Licensor and shall furnish the Product Licensor with a certificate
of withholding tax so deducted for the Product Licensor's avoidance of duplicate
taxation in United States. The Product Licensee may not deduct any other
withholding or any other governmental charges from the payments agreed upon
under this Agreement, except to the extent same are paid on behalf of, or for
the benefit of, the Product Licensor. The Product Licensee shall maintain
official receipts of payment of any such withholding taxes and shall forward
such receipts to the Product Licensor.

         5.5 No Duplication of Milestone Payments or Royalties. Milestone and
royalty payments made by either party with respect to Drug Products and
Diagnostic Products under this Agreement shall be in lieu of any milestone or
royalty payments that might otherwise be payable (i) by Incyte under the
LexVision Database and Collaboration Agreement between Lexicon and Incyte of
even date herewith and (ii) by Lexicon under the LifeSeq Gold Collaborative
Agreement between Lexicon and Incyte of even date herewith.

         5.6 Blocked Currency. If by law, regulation, or fiscal policy of a
particular country, conversion into United States dollars or transfer of funds
of a convertible currency to the United States is restricted or forbidden, the
Product Licensee shall give the Product Licensor prompt written notice and shall
pay the royalty due under this Article 5 through such means or methods as are
lawful in such country as the Product Licensor may reasonably designate. Failing
the designation by the Product Licensor of such lawful means or methods within
[**] after such

                                       22
<PAGE>   24
written notice is given to the Product Licensor, the Product Licensee shall
deposit such royalty payment in local currency to the credit of the Product
Licensor in a recognized banking institution designated by the Product Licensor,
or if none is designated by the Product Licensor within the [**] period
described above, in a recognized banking institution selected by the Product
Licensee and identified in a written notice to the Product Licensor by the
Product Licensee, and such deposit shall fulfill all obligations of the Product
Licensee to the Product Licensor with respect to such royalties.

         5.7 Interest on Late Payments. A Product Licensor shall have the right
to seek to collect interest on any payments that are not paid on or before [**]
after the date such payments are due under this Agreement at a rate of [**] per
month, calculated on the total number of days payment is delinquent; provided,
however, that interest shall not accrue pursuant to this Section 5.7 on any
amounts payable under this Agreement with respect to which payment is disputed
in good faith; provided, further that interest shall accrue pursuant to this
Section 5.7 in the event such dispute has been resolved in the Product
Licensor's favor if payment is not made promptly thereafter.

         5.8 Manner of Payment. Except as provided in Section 5.6, payments to
be made by a Product Licensee to the Product Licensor under this Agreement shall
be payable in United States dollars and shall be paid by check delivered to the
Product Licensor at its principal office at the address for notice indicated in
this Agreement or bank wire transfer in immediately available funds to such bank
account in the state in which such principal office is located as is designated
in writing by the Product Licensor from time to time.


                    ARTICLE 6. PRODUCT DEVELOPMENT DILIGENCE

         6.1 Diligence Obligations.

                 6.1.1 Each party shall use commercially reasonable efforts to
         actively research, develop and obtain regulatory approvals to market
         Products in major markets throughout the world as expeditiously as
         possible, and following such approval to maximize Net Sales of such
         Products.

                 6.1.2 Without limiting the generality of the obligations set
         forth in Section 6.1.1 above, each party that holds a commercial
         license under Section 4.2 with respect to a given Licensed Gene
         Product, its sublicensee(s) or their respective Affiliates shall file
         an IND with the FDA for at least one (1) Therapeutic Protein that
         incorporates or is derived from such Licensed Gene Product within [**]
         after the effective date of the commercial license therefor. After the
         filing of such IND, such party, its sublicensee or their respective
         Affiliates shall have an active IND and be actively and diligently
         conducting clinical trials in pursuit of regulatory approval in the
         United States for a Therapeutic Protein that incorporates or is derived
         from such Licensed Gene Product until at least one (1) such Therapeutic
         Protein may be sold in the United States for use in the
         Commercialization Field.

                                       23
<PAGE>   25
         6.2 Effect of Failure to Satisfy Diligence Obligations.

                 6.2.1 With respect to each Licensed Gene Product for which the
         licensee fails to timely satisfy its diligence obligations under
         Section 6.1 above, at the option of the other party as its sole and
         exclusive remedy therefor, (i) the commercial licenses granted under
         Section 4.2 with respect to such Licensed Gene Product shall terminate,
         (ii) the licensee shall deliver to the other party copies of all data,
         information, registrations and applications therefor relating to
         Therapeutic Proteins that incorporate or are derived from such Licensed
         Gene Product, and (iii) the other party shall have the right, within
         the period of [**] following the licensee's delivery of such copies, to
         obtain a commercial license under Section 4.2 for such Gene Product by
         delivering written notice thereof to the licensee. If the other party
         fails to exercise such right within the applicable time period, neither
         party shall thereafter have the right to select such Gene Product as a
         Licensed Gene Product under Section 4.2. 6.2.2 With respect to each
         Gene Product for which a party exercises its right, under Section
         6.2.1, to obtain a commercial license regarding such Gene Product, the
         other party promptly shall deliver to such party all materials and
         copies of all data and information, and shall assign and transfer to
         such party registrations and applications therefor relating to
         Therapeutic Proteins that incorporate or are derived from such Licensed
         Gene Product.

         6.3 Research and Development Reports. Each party shall keep complete
and accurate records of its activities conducted under this Agreement and the
results thereof. Within [**] after the end of each calendar year following the
end of the Collaboration Term, each party shall prepare and provide the other
party with a reasonably detailed written report of the activities conducted
under this Agreement, and the results thereof, through such date with respect to
the development and/or commercialization of Products.


                        ARTICLE 7. INTELLECTUAL PROPERTY

         7.1 Ownership of Intellectual Property.

                 7.1.1 Ownership by Incyte of the Incyte Technology. Subject to
         the rights and licenses granted under this Agreement, Incyte (and its
         licensors, as applicable) shall own and retain all rights to the Incyte
         Technology.

                 7.1.2 Ownership by Lexicon of the Lexicon Technology. Subject
         to the rights and licenses granted under this Agreement, Lexicon (and
         its licensors, as applicable) shall own and retain all rights to the
         Lexicon Technology.

                 7.1.3 Ownership of Mutant Mice and Progeny. Subject to the
         rights and licenses granted under this Agreement, Lexicon shall own and
         retain all rights to the Mutant Mice and any successive

                                       24
<PAGE>   26
         generations thereof, including without limitation the right to use,
         produce, breed, sell or license the Mutant Mice or any successive
         generations thereof, and to use any cells derived by Lexicon from the
         Mutant Mice or any successive generations thereof; provided, however,
         that nothing in this Section 7.1.3 shall give Lexicon any ownership or
         sublicensing rights in any Incyte Technology. To the extent that
         Lexicon makes commercially available Mutant Mice and any successive
         generations thereof, Lexicon shall provide Incyte access to such Mutant
         Mice under terms substantially similar to those offered by Lexicon to
         third parties generally.

                 7.1.4 Ownership of Inventions Arising from Analysis of Mutant
         Mice. Subject to the rights and licenses granted under this Agreement,
         Lexicon shall own and retain all rights to any Invention that is
         conceived or first reduced to practice by Lexicon or any of its
         Affiliates during the course of any analysis of Mutant Mice performed
         under this Agreement, including, without limitation, during the course
         of the analyses contemplated by Section 2.6 and the research plan
         contemplated by Exhibit 2.6. Subject to the rights and licenses granted
         under this Agreement, (i) each party shall own and retain all rights to
         all Inventions which are not Joint Inventions and which are conceived
         or reduced to practice solely by its employees, Affiliates or agents,
         and (ii) the parties shall jointly own all Joint Inventions, and each
         owner of a Joint Invention shall have and retain sole and exclusive
         title to its interest in such Joint Invention, in each case that are
         conceived or first reduced to practice by such party or any of its
         Affiliates as a result of research conducted by such party, using
         Mutant Mice or progeny thereof, outside the scope of the work performed
         by Lexicon under this Agreement; provided, that, the responsibility for
         patent filing with respect to each Joint Invention developed hereunder
         shall be as set forth in Section 7.2.

                 7.1.5 Ownership of Other Intellectual Property. Subject to
         Article 4 and Sections 7.1.1 through 7.1.4, (i) each party shall own
         and retain all rights to all Inventions which are not Joint Inventions
         and which are conceived or reduced to practice solely by its employees,
         Affiliates or agents, and (ii) the parties shall jointly own all Joint
         Inventions, and each owner of a Joint Invention shall have and retain
         sole and exclusive title to its interest in such Joint Invention;
         provided, that, the responsibility for patent filing with respect to
         each Joint Invention developed hereunder shall be as set forth in
         Section 7.2.

         7.2 Responsibility for Patents.

                 7.2.1 Solely Owned Inventions. Each party shall have the right,
         but not the obligation, at its sole expense, to prepare, file,
         prosecute and maintain any patent applications, patents, registration
         of copyrights or other intellectual property rights directed to any
         Invention owned solely by such party. Notwithstanding the foregoing, in
         the event that a party has granted the other party an exclusive license
         under Section 4.2 under patent applications, patents, registration of
         copyrights or other intellectual property rights directed to an
         Invention owned solely by such party, such party shall keep the other
         party reasonably informed of, and consulting with the other party with
         respect to, all significant actions relating thereto, and permitting
         the other party to reasonably participate, at its own expense, therein.
         In the event such party elects not to continue to prosecute or maintain
         any patent application or patent directed to such Invention, the other
         party shall have the right to assume such responsibility at its own
         expense, keeping the first party reasonably informed of, and consulting
         with such party with respect to, all

                                       25
<PAGE>   27
         significant actions relating thereto, and permitting such party to
         reasonably participate, at its own expense, therein.

                 7.2.2 Jointly Owned Inventions. The Steering Committee shall
         determine whether, and in what jurisdictions, to seek patent protection
         with respect to any Joint Invention that is not exclusively licensed to
         a party. Lexicon shall have the first right to assume responsibility at
         its sole expense for the preparation, filing, prosecution and
         maintenance of any patent applications and patents, or registration of
         copyright or other intellectual property rights directed to such Joint
         Inventions, keeping Incyte reasonably informed of, and consulting with
         Incyte with respect to, all significant actions relating thereto. In
         addition, Lexicon shall permit Incyte to reasonably participate, at its
         own expense, in preparation, filing, prosecution and maintenance of any
         patent applications and patents, or registration of copyright or other
         intellectual property rights directed to such Joint Inventions. If
         Lexicon elects not to assume such responsibility, Incyte shall have the
         right to do so at its sole expense, keeping Lexicon reasonably informed
         of, and consulting with Lexicon with respect to, all significant
         actions relating thereto. In addition, Incyte shall permit Lexicon to
         reasonably participate, at its own expense, in preparation, filing,
         prosecution and maintenance of any patent applications and patents, or
         registration of copyright or other intellectual property rights
         directed to such Joint Inventions. Notwithstanding the foregoing, in
         the event that a party has granted the other party an exclusive license
         under Section 4.2 under patent applications, patents, registration of
         copyrights or other intellectual property rights directed to a Joint
         Invention, the party holding the exclusive license shall have the first
         right to assume responsibility at its sole expense for the preparation,
         filing, prosecution and maintenance of any patent applications and
         patents, or registration of copyright or other intellectual property
         rights directed to such Joint Invention, keeping the licensing party
         reasonably informed of, and consulting with such other party with
         respect to, all significant actions relating thereto. In addition, the
         party assuming such responsibility shall permit the other party to
         reasonably participate, at its own expense, in preparation, filing,
         prosecution and maintenance of any patent applications and patents, or
         registration of copyright or other intellectual property rights
         directed to such Joint Invention. In the event the party holding the
         exclusive license elects not to assume such responsibility, or elects
         not to continue to prosecute or maintain any patent application or
         patent directed to such Joint Invention, the licensing party shall have
         the right to assume such responsibility at its own expense, keeping the
         party holding the exclusive license reasonably informed of, and
         consulting with such party with respect to, all significant actions
         relating thereto, and permitting such party to reasonably participate,
         at its own expense, therein.

         7.3 Patent Enforcement; Infringement. Each party shall have the right,
but not the obligation, to take action against any Third Party who is, or is
allegedly, infringing any patent contemplated by this Agreement that such party
owns or, in the field of an exclusive license granted hereunder, that such party
exclusively licenses hereunder. Each party shall promptly inform the other party
of any such infringement or alleged infringement of such other party's patents,
to the extent the first party is aware of same. In the event a party's exercise
of any of the rights granted to it hereunder gives rise to a claim of
infringement of a patent owned by a Third Party, the Steering Committee (or, if
no Steering Committee is then in existence, the Chief Executive

                                       26
<PAGE>   28
Officer of Incyte, or such other appropriate officer of Incyte, and the Chief
Executive Officer of Lexicon, or such other appropriate officer of Lexicon)
shall confer and agree upon the best method for responding to and/or defending
against such claim and how the costs thereof and the payment of any damages
(and, in the event of any counterclaims, the receipt of any damages) with
respect thereto shall be allocated between the parties. Any such determination
shall take into account each party's significant interest in controlling any
defense of a claim made against itself and the respective parties'
indemnification obligations under Article 10.


                           ARTICLE 8. CONFIDENTIALITY

         8.1 Nondisclosure Obligations.

                 8.1.1 General. Except as otherwise provided in this Article 8,
         during the term of this Agreement and for a period of five years
         thereafter, each Receiving Party shall maintain the Confidential
         Information of each Disclosing Party in confidence and use it only for
         purposes specifically authorized under this Agreement.

                 8.1.2 Limitations. To the extent it is reasonably necessary or
         appropriate to fulfill its obligations or exercise its rights under
         this Agreement and subject to advance written notification to the
         Disclosing Party: (i) a party may disclose to Third Parties
         Confidential Information it is otherwise obligated not to disclose
         under this Section 8.1, to its Affiliates, sublicensees, consultants,
         outside contractors and clinical investigators, on a strict
         need-to-know basis for the purposes contemplated by this Agreement and
         on condition that such entities or persons agree to keep the
         Confidential Information confidential for the same time periods and to
         the same extent as such party is required to keep the Confidential
         Information confidential hereunder; and (ii) a party or its
         sublicensees may disclose, using appropriate measures to preserve
         confidentiality, such Confidential Information to government or other
         regulatory authorities to the extent that such disclosure is reasonably
         necessary to obtain authorizations to conduct clinical trials of, and
         to commercially market, Products pursuant to this Agreement.
         Furthermore, a Receiving Party may request permission from the
         Disclosing Party to disclose such Confidential Information to the
         extent that such disclosure is reasonably necessary to obtain patents
         which such Receiving Party is permitted to obtain hereunder, which
         permission shall not be unreasonably withheld or delayed.

                 8.1.3 Required Disclosure. A Receiving Party may disclose
         Confidential Information pursuant to interrogatories, requests for
         information or documents, subpoena, civil investigative demand issued
         by a court or governmental agency or as otherwise required by law;
         provided, however, that the Receiving Party shall notify the Disclosing
         Party promptly upon receipt thereof, giving (where practicable) the
         Disclosing Party sufficient advance notice to permit it to oppose,
         limit or seek confidential treatment for such disclosure; and provided,
         further, that the Receiving Party shall furnish only that portion of
         the Confidential Information which it is advised by counsel is legally
         required whether or not a protective order or other similar order is
         obtained by the Disclosing Party.

                                       27
<PAGE>   29

         8.2 Injunctive Relief. The parties hereto understand and agree that
remedies at law may be inadequate to protect against any breach of any of the
provisions of this Article 8 by either party or their employees, agents,
officers or directors or any other person acting in concert with it or on its
behalf. Accordingly, each party shall be entitled to the granting of injunctive
relief by a court of competent jurisdiction against any action that constitutes
any such breach of this Article 8.

         8.3 Publication. Incyte and/or Lexicon (each, a "Submitting Party") may
each publish or present data and/or results relating to a Research Program Gene
Product or a Licensed Gene Product or Product for which the Submitting Party
holds a license in the Commercialization Field, subject to the prior review of
the proposed disclosure by the other party (each, a "Reviewing Party"), solely
to determine (i) whether the proposed disclosure contains the Confidential
Information of the Reviewing Party or (ii) whether the information contained in
the proposed disclosure should be the subject of a patent application to be
filed by the Reviewing Party prior to such disclosure. Each Submitting Party
shall provide the Reviewing Party with the opportunity to review any proposed
abstract, manuscript or presentation which discloses the results of research
relating to the Research Program Gene Product, Licensed Gene Product or Product
by delivering a copy thereof to the Reviewing Party no less than [**] before its
intended submission for publication or presentation. The Reviewing Party shall
have [**] from its receipt of any such abstract, manuscript or presentation in
which to notify the Submitting Party in writing of any specific objections to
the disclosure, based on either the need to seek patent protection or concern
regarding the specific disclosure of the Confidential Information of the
Reviewing Party. In the event the Reviewing Party objects to the disclosure, the
Submitting Party agrees not to submit the publication or abstract or make the
presentation containing the objected-to information until the Reviewing Party is
given a reasonable additional period of time (not to exceed an additional [**])
to seek patent protection for any material in the disclosure which the Reviewing
Party believes is patentable (subject, in all events, to Section 8.2) or, in the
case of Confidential Information, to allow the Submitting Party to delete any
Confidential Information of the Reviewing Party from the proposed disclosure.
The Submitting Party agrees to delete from the proposed disclosure any
Confidential Information of the Reviewing Party upon request.

                    ARTICLE 9. REPRESENTATIONS AND WARRANTIES

         9.1 Representations, Warranties and Covenants of Lexicon. Lexicon
represents and warrants to and covenants with Incyte that:

                 9.1.1 Lexicon is a corporation duly organized, validly existing
         and in corporate good standing under the laws of Delaware;

                 9.1.2 Lexicon has the corporate and legal right, authority and
         power to enter into this Agreement, and to extend the rights and
         licenses granted to Incyte in this Agreement;

                 9.1.3 Lexicon has taken all necessary action to authorize the
         execution, delivery and performance of this Agreement;

                                       28
<PAGE>   30

                 9.1.4 upon the execution and delivery of this Agreement, this
         Agreement shall constitute a valid and binding obligation of Lexicon,
         enforceable in accordance with its terms, except as enforceability may
         be limited by applicable bankruptcy, insolvency, reorganization,
         moratorium or similar laws affecting creditors' and contracting
         parties' rights generally and except as enforceability may be subject
         to general principles of equity (regardless of whether such
         enforceability is considered in a proceeding in equity or at law);

                 9.1.5 the performance of Lexicon's obligations under this
         Agreement will not conflict with its charter documents or result in a
         breach of any agreements, contracts or other arrangements to which it
         is a party; and

                 9.1.6 Lexicon will not during the term of this Agreement enter
         into any agreements, contracts or other arrangements that would be
         inconsistent with its obligations under this Agreement.

         9.2 Representations, Warranties and Covenants of Incyte. Incyte
represents and warrants to and covenants with Lexicon that:

                 9.2.1 Incyte is a corporation duly organized, validly existing
         and in corporate good standing under the laws of the state of Delaware;

                 9.2.2 Incyte has the corporate and legal right, authority and
         power to enter into this Agreement, and to extend the rights and
         licenses granted to Lexicon in this Agreement;

                 9.2.3 Incyte has taken all necessary action to authorize the
         execution, delivery and performance of this Agreement;

                 9.2.4 upon the execution and delivery of this Agreement, this
         Agreement shall constitute a valid and binding obligation of Incyte
         enforceable in accordance with its terms, except as enforceability may
         be limited by applicable bankruptcy, insolvency, reorganization,
         moratorium or similar laws affecting creditors' and contracting
         parties' rights generally and except as enforceability may be subject
         to general principles of equity (regardless of whether such
         enforceability is considered in a proceeding in equity or at law);

                 9.2.5 the performance of its obligations under this Agreement
         will not conflict with Incyte's charter documents or result in a breach
         of any agreements, contracts or other arrangements to which it is a
         party; and

                 9.2.6 Incyte will not after the Effective Date enter into any
         agreements, contracts or other arrangements that would be inconsistent
         with its obligations under this Agreement.

         9.3 Warranty Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY WITH RESPECT TO ANY GENE PRODUCT,
MUTANT MOUSE, PATENT RIGHTS, GOODS, SERVICES OR

                                       29
<PAGE>   31
ANY OTHER SUBJECT MATTER OF THIS AGREEMENT, AND EACH PARTY HEREBY DISCLAIMS
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT WITH RESPECT TO ANY AND ALL OF THE FOREGOING. IN ADDITION,
LEXICON ACKNOWLEDGES THAT THE LIFESEQ GOLD DATABASE MAY CONTAIN INFORMATION THAT
IS COVERED BY ONE OR MORE VALID PATENTS OF THIRD PARTIES, AND INCYTE
ACKNOWLEDGES THAT THE GENERATION OR USE OF A MUTANT MOUSE MAY BE COVERED BY ONE
OR MORE VALID PATENTS OF THIRD PARTIES. EACH PARTY ACKNOWLEDGES THAT EXERCISE BY
IT OF THE RIGHTS AND LICENSES GRANTED TO IT PURSUANT TO ARTICLE 4 HEREOF MAY BE
COVERED BY ONE OR MORE VALID PATENTS OF THIRD PARTIES.

         9.4 Limited Liability. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT
OR OTHERWISE TO THE CONTRARY, NEITHER LEXICON NOR INCYTE WILL BE LIABLE WITH
RESPECT TO ANY MATTER ARISING UNDER THIS AGREEMENT UNDER ANY CONTRACT,
NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY
PUNITIVE, EXEMPLARY, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST PROFITS.

                              ARTICLE 10. INDEMNITY

         10.1 Incyte Indemnity Obligations. Incyte agrees to defend, indemnify
and hold Lexicon, its Affiliates and their respective employees and agents
harmless from all claims, losses, damages or expenses (including reasonable
attorneys' fees and costs of litigation) arising as a result of: (i) actual or
asserted violations of any applicable law or regulation by Incyte, its
sublicensees and their respective Affiliates by virtue of which any Products
manufactured, distributed or sold hereunder shall be alleged or determined to be
adulterated, misbranded, mislabeled or otherwise not in compliance with any
applicable law or regulation; (ii) claims for bodily injury, death or property
damage attributable to the manufacture, distribution, sale or use of any
Products by Incyte, its sublicensees and their respective Affiliates; (iii) a
Product recall ordered by a governmental agency or required by a confirmed
Product failure as reasonably determined by the parties hereto; or (iv) Incyte's
breach of any of its representations, warranties or covenants hereunder.

         10.2 Lexicon Indemnity Obligations. Lexicon agrees to defend, indemnify
and hold Incyte, its Affiliates and their respective employees and agents
harmless from all claims, losses, damages or expenses (including reasonable
attorneys' fees and costs of litigation) arising as a result of: (i) actual or
asserted violations of any applicable law or regulation by Lexicon, its
sublicensees and their respective Affiliates by virtue of which any Products
manufactured, distributed or sold hereunder shall be alleged or determined to be
adulterated, misbranded, mislabeled or otherwise not in compliance with any
applicable law or regulation; (ii) claims for bodily injury, death or property
damage attributable to the manufacture, distribution, sale or use of any
Products by Lexicon, its sublicensees and their respective Affiliates; (iii) a
Product recall ordered by a governmental agency or required by a confirmed
Product failure as reasonably determined by the parties hereto; or (iv)
Lexicon's breach of any of its representations, warranties or covenants
hereunder.

                                       30
<PAGE>   32
         10.3 Limitation on Indemnity Obligations. Neither party, its Affiliates
or their respective employees and agents shall be entitled to the indemnities
set forth in Sections 10.1 or 10.2, respectively, to the comparative extent the
claim, loss, damage or expense for which indemnification is sought was caused by
a grossly negligent, reckless or intentional act or omission by such party, its
directors, officers, employees or authorized agents.

         10.4 Procedure. If a party or any of its Affiliates or their respective
employees or agents (collectively, the "Indemnitee") intends to claim
indemnification under this Article 10, the Indemnitee shall promptly notify the
other party (the "Indemnitor") of any loss, claim, damage, liability or action
in respect of which the Indemnitee intends to claim such indemnification, and
the Indemnitor shall assume the defense thereof with counsel selected by the
Indemnitor and reasonably acceptable to the Indemnitee, provided, however, that
an Indemnitee shall have the right to retain its own counsel, with the fees and
expenses to be paid by the Indemnitee, if representation of such Indemnitee by
the counsel retained by the Indemnitor would be inappropriate due to actual or
potential differing interests between such Indemnitee and any other party
represented by such counsel in such proceedings. The Indemnitor shall have the
right to settle or compromise any claims for which it is providing
indemnification under this Article 10, provided that the consent of the
Indemnitee (which shall not be unreasonably withheld or delayed) shall be
required in the event any such settlement or compromise would adversely affect
the interests of the Indemnitee. The indemnity agreement in this Article 10
shall not apply to amounts paid in settlement of any loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Indemnitor. The failure to deliver notice to the Indemnitor within a reasonable
time after the commencement of any such action, if prejudicial to the
Indemnitor's ability to defend such action, shall relieve such Indemnitor of any
liability to the Indemnitee under this Article 10, but the omission so to
deliver notice to the Indemnitor will not relieve it of any liability that it
may have to any Indemnitee otherwise than under this Article 10. The Indemnitee
under this Article 10, its employees and agents, shall cooperate fully with the
Indemnitor and its legal representatives in the investigation of any action,
claim or liability covered by this indemnification.

         10.5 Insurance. Each party shall maintain appropriate product liability
insurance (and/or self-insurance) with respect to development, manufacture and
sale of Products by such party in such amount as such party customarily
maintains with respect to sales of its other products. Each party shall maintain
such insurance for so long as it continues to manufacture or sell Products, and
thereafter for so long as such party customarily maintains insurance with
respect to sales of its other products.


                     ARTICLE 11. EXPIRATION AND TERMINATION

         11.1 Collaboration Term.

                 11.1.1 Expiration. Unless this Agreement is sooner terminated
         in accordance with the provisions of this Article 11, the Collaboration
         Term shall commence on the Effective Date and shall expire on the fifth
         anniversary thereof; provided that either party shall have the right,
         in its sole discretion, to terminate the Collaboration Term on the
         third anniversary of the Effective Date by delivering [**] advance
         written notice of such

                                       31
<PAGE>   33

         termination; and provided, further, that the Collaboration Term may be
         extended upon the election of both parties by a written agreement
         having terms mutually agreeable to both parties.

                 11.1.2 Effect of Expiration of Collaboration Term. Following
         the expiration of the Collaboration Term, Lexicon shall have no further
         obligation under this Agreement to perform additional research relating
         to Gene Products, except for the completion of Lexicon's research
         contemplated by Section 2.6 regarding Research Program Gene Products
         for which the development of Mutant Mice had been completed prior to
         the expiration of the Collaboration Term. The rights and obligations of
         Incyte and Lexicon under Sections 2.7 through 2.10 and Section 4.1
         shall continue with respect to Gene Products that remain Eligible TP
         Gene Products at the end of the Collaboration Term (or that become
         Eligible TP Gene Products upon completion of Lexicon's research
         contemplated by Section 2.6 regarding Research Program Gene Products
         for which the development of Mutant Mice had been completed prior to
         the expiration of the Collaboration Term) until such Gene Products are
         no longer Eligible TP Gene Products. The rights and obligations of
         Incyte and Lexicon under this Agreement shall continue with respect to
         Licensed Gene Products for which such party has been granted rights
         under Sections 4.2 and/or 4.3 (including Gene Products that become
         Licensed Gene Products upon completion of Lexicon's research
         contemplated by Section 2.6 regarding Research Program Gene Products
         for which the development of Mutant Mice had been completed prior to
         the expiration of the Collaboration Term), subject to such party's
         compliance with the surviving terms and conditions of this Agreement.

         11.2 Expiration. Unless this Agreement is sooner terminated in
accordance with the provisions of this Article 11, this Agreement shall expire
and the licenses granted by each party to the other party hereunder shall become
fully paid, on a Licensed Gene Product-by-Licensed Gene Product and
country-by-country basis, on the latest to occur of (i) [**] after the Effective
Date, (ii) [**] after the First Commercial Sale of a Product relating to such
Licensed Gene Product or (iii) upon the last to expire of any Valid Claim
included in the Product Patent Rights, or the Lexicon Patent Rights or Incyte
Patent Rights claiming the Licensed Gene Product relating thereto, in such
country.

         11.3 Events of Default. An Event of Default by either party shall have
occurred upon (i) the occurrence of a material breach of this Agreement if such
party fails to remedy such breach within [**] after written notice thereof by
the non-breaching party ([**] in the event of a party's failure to make a
payment required hereunder) or, if remediation of such breach in [**] is not
practicable, if such party fails to commence and diligently pursue such
remediation during such [**] period, or (ii) the commencement of any proceeding
in or for bankruptcy, insolvency, dissolution or winding up by or against such
party that is not dismissed or otherwise disposed of within [**] thereafter.

         11.4 Effect of an Event of Default. In the event of an Event of
Default, the non-defaulting party shall have the right, at its option
exercisable in its sole discretion, in addition to any other rights or remedies
available to it at law or in equity and subject to the limitations set forth in
Sections 3.4.2, 9.4 and 12.6 hereof, to terminate this Agreement upon [**]
notice thereof to the other party, in which case (i) the licenses granted to the
defaulting party pursuant to Article

                                       32
<PAGE>   34
4 shall terminate and (ii) the defaulting party shall return to the
non-defaulting party or, upon the non-defaulting party's written instruction,
destroy all information, materials or documentation provided by the
non-defaulting party pursuant to this Agreement, including, without limitation,
any materials relating to Gene Products and all information relating thereto and
any copies thereof (including electronic copies); provided that such termination
shall apply to the rights and licenses granted to the defaulting party under
Section 4.2 and/or 4.3 with respect to a Licensed Gene Product and related
Products only in the event, and to the extent, that such Event of Default
relates to such specific Licensed Gene Product or related Products. In the event
of a termination by Incyte of this Agreement during the Collaboration Term as a
result of an Event of Default relating to Lexicon, Lexicon will refund to Incyte
that portion of the research funding previously paid by Incyte for the periods
during the Collaboration Term following such termination, pro rated equally over
the period of the Collaboration Term for which Incyte made such payment. The
rights and licenses granted to the defaulting party under Section 4.2 and/or 4.3
with respect to any Licensed Gene Product and related Products with respect to
which no Event of Default has occurred shall, subject to such party's
obligations to pay milestones and royalties pursuant to Article 5, continue.

         11.5 Effect of Expiration or Termination of Agreement. The expiration
or termination of this Agreement shall not relieve the parties of any obligation
accruing prior to such expiration or termination. The provisions of Articles 7,
8, 9, 10 and 11, and Sections 12.2 through 12.6 hereof shall survive the
expiration or termination of this Agreement. The provisions of Sections 5.2
through 5.8 hereof and Article 6 shall survive any termination of this Agreement
under which a party, its sublicensees or their respective Affiliates retains the
right to sell Products until such time as this Agreement would have expired with
respect to any Product, as the case may be, in any country pursuant to Section
11.2 hereof had this Agreement not been earlier terminated.

                            ARTICLE 12. MISCELLANEOUS

         12.1 Force Majeure. Neither party shall be held liable or responsible
to the other party nor be deemed to have defaulted under or breached this
Agreement for failure or delay in fulfilling or performing any obligation under
this Agreement when such failure or delay is caused by or results from causes
beyond the reasonable control of the affected party, including but not limited
to fire, floods, embargoes, war, acts of war (whether war is declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, acts of God or acts, omissions or delays in acting by any
governmental authority; provided, however, that the party so affected shall use
reasonable commercial efforts to avoid or remove such causes of nonperformance,
and shall continue performance hereunder with reasonable dispatch whenever such
causes are removed. Either party shall provide the other party with prompt
written notice of any delay or failure to perform that occurs by reason of force
majeure. The parties shall mutually seek a resolution of the delay or the
failure to perform as noted above.

         12.2 Assignment. This Agreement may not be assigned or otherwise
transferred, in whole or in part, by either party without the consent of the
other party; provided, however, that either Lexicon or Incyte may, without such
consent, assign its rights and obligations under this Agreement (i) to any
Affiliate, or (ii) in connection with a merger, consolidation or sale of such
portion of a party's assets that includes rights under this Agreement to an
unrelated Third Party;

                                       33
<PAGE>   35
provided, further, that such party's rights and obligations under this Agreement
shall be assumed by its successor in interest in any such transaction and shall
not be transferred separate from all or substantially all of its other business
assets, including those business assets that are the subject of this Agreement.
Any purported assignment in violation of the preceding sentence shall be void.
Any permitted assignee shall assume all obligations of its assignor under this
Agreement, unless the parties otherwise agree.

         12.3 Severability. Each party hereby agrees that it does not intend to
violate any public policy, statutory or common laws, rules, regulations, treaty
or decision of any government agency or executive body thereof of any country or
community or association of countries. Should one or more provisions of this
Agreement be or become invalid, the parties hereto shall substitute, by mutual
consent, valid provisions for such invalid provisions which valid provisions in
their economic effect are sufficiently similar to the invalid provisions that it
can be reasonably assumed that the parties would have entered into this
Agreement with such valid provisions in lieu of such invalid provisions. In case
such valid provisions cannot be agreed upon, the invalidity of one or several
provisions of this Agreement shall not affect the validity of this Agreement as
a whole, unless the invalid provisions are of such essential importance to this
Agreement that it is to be reasonably assumed that the parties would not have
entered into this Agreement without the invalid provisions.

12.4 Notices. Any consent, notice or report required or permitted to be given or
made under this Agreement by one of the notification parties hereto to the other
shall be in writing, delivered personally or by facsimile (and promptly
confirmed by telephone, personal delivery or courier) or courier, postage
prepaid (where applicable), addressed to such other party at its address
indicated below, or to such other address as the addressee shall have last
furnished in writing to the addressor and shall be effective upon receipt by the
addressee.

         If to Lexicon:  Lexicon Genetics Incorporated
                         4000 Research Forest Drive
                         The Woodlands, Texas 77381
                         Attention: Arthur T. Sands, M.D., Ph.D.
                                    President and Chief Executive Officer
                         Telephone: (281) 364-0100
                         Facsimile: (281) 863-8095

                         With a copy to:

                         Lexicon Genetics Incorporated
                         4000 Research Forest Drive
                         The Woodlands, Texas 77381
                         Attention: Jeffrey L. Wade
                                    Executive Vice President and General Counsel
                         Telephone: (281) 364-0100
                         Facsimile: (281) 863-8321

                                       34
<PAGE>   36
         If to Incyte:   Incyte Genomics, Inc.
                         3174 Porter Drive
                         Palo Alto, CA  94304
                         Attention: Roy Whitfield
                                    Chief Executive Officer
                         Telephone: 650-855-0555
                         Facsimile: ____________

                           With a copy to:

                         Incyte Genomics, Inc.
                         3174 Porter Drive
                         Palo Alto, CA  94304
                         Attention: Lee Bendekgey
                                    Executive Vice President and General Counsel
                         Telephone: 650-855-0555
                         Facsimile: ____________

All such communications shall be effective upon receipt.

         12.5 Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without reference to the
conflicts of law principles thereof.

         12.6 Dispute Resolution. Subject to Section 3.4.2, the parties hereby
agree that they will first attempt in good faith to resolve any controversy or
claim arising out of or relating to this Agreement promptly by negotiations. If
a controversy or claim should arise hereunder, the matter shall be referred to
an individual designated by the Chief Executive Officer (or the equivalent
position) of Lexicon and by the Chief Executive Officer (or the equivalent
position) of Incyte (the "Representatives"). If the matter has not been resolved
within [**] of the first meeting of the Representatives of the parties (which
period may be extended by mutual agreement) concerning such matter, the parties
shall be free to pursue all available recourse both at law and in equity.

         12.7 Entire Agreement. This Agreement, together with the exhibits and
appendices hereto and any confidentiality agreement(s) executed in contemplation
of this Agreement, contains the entire understanding of the parties with respect
to the subject matter hereof. All express or implied agreements and
understandings, either oral or written, heretofore made are expressly merged in
and made a part of this Agreement. This Agreement may be amended, or any term
hereof modified, only by a written instrument duly executed by both parties
hereto.

         12.8 Publicity. Lexicon and Incyte each agree not to disclose any terms
or conditions of this Agreement to any Third Party without consulting the other
party prior to such disclosure. Notwithstanding the foregoing, prior to
execution of this Agreement, Lexicon and Incyte shall agree upon the substance
of information that can be used as a routine reference in the usual course of
business to describe the existence and general nature of this transaction, and
Lexicon and Incyte may disclose such information without consulting the other
party. The parties may

                                       35
<PAGE>   37
thereafter from time to time mutually agree on revisions to material to be used
as a routine reference, which revisions shall be submitted by one party for the
review and approval of the other party at least ten (10) days prior to the
anticipated use or disclosure of the revised material, such approval not to be
unreasonably withheld. The terms of this Agreement shall be treated as the
Confidential Information of Lexicon and Incyte, and, except to the extent
required by applicable law, shall not be disclosed to anyone (except for the
parties' respective employees, consultants, agents and attorneys assisting in
the review and negotiation of this Agreement who have a need to know the terms
of this Agreement) without the written permission of Incyte or Lexicon. If
either party desires to release a separate announcement relating to this
Agreement, it shall first allow the other party to approve in writing such
proposed announcement; provided that such approval shall not be unreasonably
withheld or delayed.

         12.9 Headings. The captions to the several Articles and Sections hereof
are not a part of this Agreement, but are merely guides or labels to assist in
locating and reading the several Articles and Sections hereof.

         12.10 No Partnership. It is expressly agreed that the relationship
between Lexicon and Incyte shall not constitute a partnership, joint venture or
agency. Neither Lexicon nor Incyte shall have the authority to make any
statements, representations or commitments of any kind, or to take any action,
which shall be binding on the other, without the prior consent of the other
party to do so.

         12.11 Exports. The parties acknowledge that the export of technical
data, materials or products is subject to the exporting party receiving any
necessary export licenses and that the parties cannot be responsible for any
delays attributable to export controls which are beyond the reasonable control
of either party. Lexicon and Incyte agree not to export or re-export, directly
or indirectly, any information, technical data, the direct product of such data,
samples or equipment received or generated under this Agreement in violation of
any applicable export control laws or governmental regulations. Lexicon and
Incyte agree to obtain similar covenants from their licensees, sublicensees, or
corporate partners, as the case may be, and contractors with respect to the
subject matter of this Section 12.11.

         12.12 Waiver. The waiver by either party hereto of any right hereunder
or the failure to perform or of a breach by the other party shall not be deemed
a waiver of any other right hereunder or of any other breach or failure by said
other party whether of a similar nature or otherwise.

         12.13 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

                                      * * *




                                       36
<PAGE>   38

         IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute and deliver this Agreement as of the Effective Date.


LEXICON GENETICS INCORPORATED




By:                                              Date:
   -----------------------------------------           -------------------------
    Arthur T. Sands, M.D., Ph.D.
    President and Chief Executive Officer





INCYTE GENOMICS, INC.




By:                                              Date:
   -----------------------------------------           -------------------------

Name:
      --------------------------------------

Title:
         -----------------------------------






                                       37
<PAGE>   39
                                  EXHIBIT 1.32


                 ALLOCATION OF NET SALES IN BUNDLED TRANSACTION


         With respect to Products sold in a Bundled Transaction in which Incyte,
Lexicon or any of their respective Affiliates or sublicensees discounts the
sales price of the Products to a greater degree than Incyte, Lexion, their
Affiliates or sublicensees, respectively, generally discounts the price of its
other products to such customer, the amount to be included in Net Sales of such
Products shall be calculated in accordance with the following formula:


                                       ASP-P x N-P
                  NS-P = ---------------------------------------- x BTF
                                (SIGMA)=1  ASP-pi x N-pi

         Where:

                  NS-P        = Amount allocated to Net Sales of the Product

                  ASP-P       = Average Selling Price (as defined below) per
                              unit, during the applicable period, of the Product
                              when sold alone

                  ASP-pi      = Average Selling Price per unit, during the
                              applicable period, of each Product or each product
                              other than a Product in the Bundled Transaction
                              when sold alone

                  N-P         = Total number of units of Product included in the
                              Bundled Transaction during the applicable period

                  N-pi        = Total number of units (i.e., corresponding to
                              the same ASP-pi) of each Product or product other
                              than a Product included in the Bundled Transaction
                              during the applicable period

                  (SIGMA)=1   = The sum of the products of the formula ASP-pi ?
                              N-pi for each and every Product or product other
                              than a Product included in the Bundled Transaction
                              during the applicable period

                  BTF         = The aggregate amounts paid to the seller for the
                              Bundled Transaction during the applicable period

         The Average Selling Price shall be based on the actual average selling
price of the applicable Product or product other than a Product, as the case may
be, determined for the applicable period.

<PAGE>   40

         If a Product or other product is not sold separately and no bona fide
list price exists for such Product or other product, the Parties shall agree
upon an imputed bona fide list price for such Product or other product, and Net
Sales with respect thereto shall be based on such imputed list price.


















                                       2

<PAGE>   41


                                  EXHIBIT 1.33


                     DESCRIPTION OF THE OMNIBANK(R) LIBRARY


         The OmniBank Library is a library of mouse embryonic stem ("ES") cell
clones each containing a gene trap in a single gene. The trapped gene is
identified by a sequence tag referred to as an OST, as defined herein, which
have an average length of approximately 250 base pairs (and no fewer than 100
base pairs). The OSTs identify exons of the trapped genes and are stored in a
searchable database. Once a gene of interest has been identified, the
corresponding ES cell clone, with a specified gene trap mutation, can be
microinjected into host blastocysts to produce knockout mice to study the gene's
function.

         The OmniBank mutations are created using insertional mutagenesis based
on Moloney murine leukemia virus ("MoMuLV") and other vectors. The vectors
deliver a gene trap construct to the ES cells that allows the expression of a
selectable marker gene when the vector has inserted into and trapped exons from
a gene. The gene trap vectors also provide for the semi-automated acquisition of
OSTs.

         As of the Effective Date, the OmniBank Library contains over 130,000 ES
cell clones.



<PAGE>   42
                                   EXHIBIT 2.6


                                  RESEARCH PLAN


Level 1 Analysis

         Lexicon will conduct "Level 1" analysis of Mutant Mice for all Research
Program Gene Products. Level 1 analysis is designed to identify primary
pathophysiological perturbations resulting from engineered mutations.

         Level 1 analysis is intended as a first pass screen that may include:

o        [*
*]


Level 2 Analysis

         Lexicon will conduct "Level 2" analysis of Mutant Mice for all Research
Program Gene Products for which it considers such analysis merited or
appropriate, based on findings from Level 1.

         Level 2 analysis is designed as a continuation of the Level 1
preliminary analysis of the pathophysiological perturbations resulting from
engineered mutations. Level 2 analysis is focused on organ and physiologic
system function and represents an exhaustive analysis of organism physiology.

         Phenotypic screen analysis under Level 2 may include any or all of the
following scientific experiments.


[**]



<PAGE>   43
                                   EXHIBIT 2.7

                           MATERIAL TRANSFER AGREEMENT

         THIS MATERIAL TRANSFER AGREEMENT (this "Agreement") is entered into
effective as of the date set forth on the signature page hereof (the "Effective
Date") by and between Lexicon Genetics Incorporated, a Delaware corporation
("Lexicon"), and Incyte Genomics, Inc., a Delaware corporation ("Incyte").

                                 R E C I T A L S

         WHEREAS, Lexicon and Incyte are parties to that certain Therapeutic
Protein Alliance Agreement dated _____, 2001 (the "Alliance Agreement");

         WHEREAS, Incyte has the right under Section 2.7 of the Alliance
Agreement to obtain Mutant Mice related to a Research Program Gene Product (in
each case as defined therein);

         WHEREAS, Incyte desires to exercise such option with respect to the
line of Mutant Mice specified in Appendix A;

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, Incyte agrees with Lexicon as follows:

1. DEFINITIONS

         1.1 "Cre-Lox Patents" means United States patent number 4,959,317, any
foreign counterpart patents and patent applications of United States patent
number 4,959,317, any continuation-in-part, continuation or divisional
applications thereof, any patent granted on any aforesaid patent application and
any extension, revival, re-examination or reissue of any of such patent, and any
continuations, continuations-in-part, divisionals, reissues, extensions or
foreign counterparts of any of the foregoing, which Lexicon has the right to
sublicense hereunder. The terms "Cre" and "lox" (also referred to as "loxP")
have the meanings as described and embodied by the Cre-Lox Patents.

         1.2 "Cre-Lox Technology" means all the inventions described, embodied
by and claimed in the Cre-Lox Patents.

         1.3 "Lexicon Patent Rights" means (i) the United States and foreign
patent applications, excluding the Cre-Lox Patents, heretofore or hereafter
owned in whole or in part by or licensed to Lexicon, which claim a composition,
method or process relating to the Lexicon Technology, (ii) any United States
patents and foreign patents issuing from such patent applications and (iii) any
continuations, continuations-in-part, divisionals, reexamination certificates,
reissues or extensions of any of the foregoing.

         1.4 "Lexicon Technology" means all inventions, discoveries,
improvements, know-how, technical information, data, or other technology,
relating to the generation or use of the Materials heretofore or hereafter
discovered, conceived, made, developed and/or reduced to practice solely or
jointly by employees or others acting on behalf of Lexicon or its Affiliates, or
owned in whole or in part by or licensed to Lexicon and which Lexicon has the
right to license hereunder, but excluding the Cre-Lox Technology.

                                       1
<PAGE>   44
         1.5 "Materials" means the Mutant Mice provided to Incyte under this
Agreement, any Progeny of such Mutant Mice and any derivative or expression
product thereof.

         1.6 "Progeny" means mice, including successive generations thereof,
that are produced or developed by Incyte or Incyte using by breeding Mutant Mice
with other Mutant Mice or any other mice; provided that Progeny shall not
include any mouse that does not contain the same mutation as the Mutant Mice
delivered to Incyte.

         1.7 "Research Field" means use by Incyte, at the internal research
facilities of Incyte, solely for the purposes of conducting research, including
research directed toward the development of human therapeutic and diagnostic
products. The Research Field specifically excludes (i) any activity associated
with higher plants or agricultural applications; (ii) the development of a
library of mouse embryonic stem cells; and (iii) the development, manufacture,
use, lease, sale (or other transfer for consideration) or importation of any
product for sale (or lease or other transfer of a product for consideration)
wherein the manufacture, use, sale or importation of such product would infringe
a Valid Claim of the Cre-Lox Patents, including, but not limited to, wherein the
product is manufactured using a composition or method that would infringe a
Valid Claim of the Cre-Lox Patents.

         Capitalized terms used without definition in this Agreement shall have
the meanings given to such terms in the Alliance Agreement. Capitalized terms
defined in both this Agreement and the Alliance Agreement shall have the
meanings given to such terms in this Agreement.

2. REQUEST FOR AND DELIVERY OF MUTANT MICE

         2.1 Request for Mutant Mice. Incyte hereby requests, pursuant to the
provisions of Section 2.7 of the Alliance Agreement and subject to the terms
thereof, that Lexicon deliver the Mutant Mice specified in Appendix A on the
terms specified in this Agreement.

         2.2 Payment. In consideration of the rights and licenses granted under
this Agreement, Incyte shall pay Lexicon a fee of [**] within [**] of the
Effective Date.

         2.3 Processing and Delivery of Mutant Mice. Upon Lexicon's receipt and
acceptance of an executed copy of this Agreement, and subject to the terms of
this Agreement, Lexicon will deliver [**] mice heterozygous for the mutant
allele, which will typically include at least one pair of animals of the
opposite sex.

         2.4 Delivery Conditions for Mutant Mice. Incyte shall be responsible
for making shipping arrangements for all Mutant Mice shipped to Incyte from
Lexicon. Incyte shall also be responsible for complying with all customs,
regulations, veterinary handling procedures and protocols, and obtaining any and
all permits, forms or permissions that may be required for Incyte to accept
shipment of Mutant Mice from Lexicon. To facilitate timely compliance with such
requirements, a copy of a standard Lexicon Mutant Mouse shipping and transfer
report is available upon request. When the requested Mutant Mice are available
for shipment, Lexicon shall provide written notice to such effect to Incyte,
which notice shall further specify a shipping company located in the same
metropolitan area as Lexicon with which Incyte may make arrangements for
shipping and delivery of such Mutant Mice. Lexicon shall ship the requested
Mutant Mice to Incyte promptly following its receipt of written notice that
Incyte has completed the necessary shipping arrangements. If Incyte fails to
complete the necessary shipping arrangements and provide such notice within [**]
after Lexicon's delivery of notice that the requested Mutant Mice are available
for shipment, Incyte shall pay Lexicon a storage and maintenance charge of

                                       2
<PAGE>   45
[**] per line of Mutant Mice for each day thereafter until Lexicon receives
notice of the completion of such shipping arrangements.

3. USE OF THE MATERIALS

         3.1 Non-Exclusive License Grant to Materials. Subject to the terms and
conditions of this Agreement, Lexicon hereby grants to Incyte and its Affiliates
a non-transferable, non-exclusive right and license under the Lexicon Technology
to use the Materials solely for the purpose of conducting research in the
Research Field. Incyte agrees to use the Materials solely for internal research
purposes of Incyte in accordance with the terms and conditions of this
Agreement, and not to use the Materials for any purposes for any Third Party or
to transfer to or license the use of or make the Materials available to any
Third Party.

         3.2 Non-Exclusive Rights Under the Cre-Lox Technology. The following
provisions shall apply to the extent that any Mutant Mice containing one or more
lox sites in their genomes (including any Progeny thereof containing one or more
lox sites in its genome, "Lox Mice") are provided to Incyte under this
Agreement:

                  (a) Subject to the terms of this Agreement, Lexicon hereby
         grants to Incyte and its Affiliates the non-transferable, non-exclusive
         right under the Cre-Lox Technology to use, breed and cross-breed any
         Lox Mice solely in the Research Field; provided however, that Incyte
         shall not manipulate the genetic information at any lox site of a Lox
         Mouse by using the Cre-Lox Technology (including without limitation
         cross-breeding a Lox Mouse with a mouse containing DNA capable of
         expressing a Cre recombinase protein) or otherwise further practice
         under the Cre-Lox Patents without first obtaining a license from DuPont
         Pharmaceuticals Company.

                  (b) Incyte shall not transfer any Lox Mice or any progeny or
         material in any way derived from such Lox Mice to any Third Party.

                  (c) No right is granted to Incyte to sell (or lease or
         otherwise transfer for consideration) or develop or manufacture for
         sale (or lease or other transfer for consideration) any product, the
         manufacture, use, sale or importation of which would infringe a Valid
         Claim of the Cre-Lox Patents, including but not limited to any product
         which is manufactured using a composition or method which would
         infringe a Valid Claim of the Cre-Lox Patents.

                  (d) Subject to the restricted non-exclusive license granted to
         Incyte, Lexicon (and its licensors as applicable) shall retain all
         rights to the Lox Mice.

         3.3 No Further Rights. Except as expressly provided herein, no right,
title or interest is granted hereunder by Lexicon in, to or under any Lexicon
Patent Rights or Lexicon Technology. Without limiting the foregoing, (i) nothing
in this Agreement shall be deemed to restrict Lexicon's rights to use any
Materials or, subject to the nonexclusive rights and licenses granted to Incyte
hereunder, to sell, license or otherwise transfer any Materials to Third
Parties, and (ii) nothing in this Agreement shall be deemed to modify any of the
rights and obligations of Incyte under the Alliance Agreement.

                                       3
<PAGE>   46
4. INTELLECTUAL PROPERTY RIGHTS AND OWNERSHIP

         4.1 Ownership of the Materials. Subject to the non-exclusive rights and
licenses granted to Incyte hereunder, Lexicon shall own and retain all rights to
the Materials, including, without limitation, rights to use, produce, breed,
sell and license Mutant Mice.

         4.2 Ownership of the Results of Research Using Materials. Subject to
the non-exclusive rights and licenses granted hereunder and the terms of the
Alliance Agreement, (i) Incyte shall own and have rights to all inventions,
discoveries, improvements, know-how, technical information, data or other
technology discovered, conceived, made, developed and/or reduced to practice
through the use of Materials solely or jointly by employees or others acting on
behalf of Incyte or its Affiliates, and (ii) Lexicon shall own and have rights
to all inventions, discoveries, improvements, know-how, technical information,
data or other technology discovered, conceived, made, developed and/or reduced
to practice through the use of Materials solely or jointly by employees or
others acting on behalf of Lexicon or its Affiliates.

         4.3 Non-Exclusive License to Preserve OmniBank Freedom of Operation. In
consideration of the rights granted by Lexicon hereunder, to the extent that one
or more claims of an issued patent arising from the use by Incyte of Materials
would, absent a license from Incyte, prevent Lexicon from (i) using or
permitting others to use the OmniBank Database or any information therein, (ii)
using or breeding or permitting others to use or breed any Mutant Mouse or other
mutant mice or (iii) using or permitting others to use any embryonic stem cell
clones or other biological materials contained in the OmniBank Library
(collectively a "Incyte Blocking Patent"), then Incyte shall grant to Lexicon a
non-exclusive, royalty-free license, including the right to grant sublicenses,
under any such Incyte Blocking Patent (x) to use and permit others to use the
OmniBank Database and any information therein, (y) to use or breed or permit
others to use or breed Mutant Mice and other mutant mice and (z) to use or
permit others to use any embryonic stem cell clones or other biological
materials contained in the OmniBank Library.

5. TERM AND TERMINATION

         5.1 Term. The term of this Agreement shall commence on the Effective
Date and shall remain in effect until the earlier of either (i) termination of
this Agreement pursuant to the terms hereof or (ii) the expiration of the
last-to-expire claim of any patent or patent application included in the Lexicon
Patent Rights licensed to Incyte under this Agreement.

         5.2 Termination. Each party shall have the right to terminate this
Agreement at any time prior to Lexicon's delivery of Mutant Mice to Incyte
hereunder, upon thirty (30) days written notice to the other party, if such
party reasonably determines that the production, use or breeding of such Mutant
Mice infringes intellectual property rights of any Third Party, and Incyte
elects not to obtain a license under the necessary Third Party intellectual
property rights at its sole expense.

         5.3 Events of Default. An event of default (an "Event of Default")
shall have occurred upon the occurrence of a material breach of this Agreement
if the breaching party fails to remedy such breach within [**] ([**] in the
event of the failure of a party to make any payments due hereunder) after
written notice thereof by the non-breaching party.


         5.4 Effect of an Event of Default.

                                       4
<PAGE>   47
                 (a) Remedies Available to Lexicon. If an Event of Default
         occurs relating to Incyte, and Incyte fails to cure such default during
         any applicable cure period, then Lexicon shall have the right, at its
         option exercisable in its sole discretion, in addition to any other
         rights or remedies available to it at law or in equity, to terminate
         this Agreement upon notice thereof to Incyte, in which case (i) the
         licenses granted to Incyte pursuant to Section 3 shall terminate, (ii)
         Incyte shall return to Lexicon, or, upon Lexicon's written instruction,
         destroy all information, materials or documentation provided or made
         available by Lexicon pursuant to this Agreement, and any copies thereof
         (including electronic copies), and (iii) Incyte shall return to
         Lexicon, or, upon Lexicon's written instruction, destroy any Materials.

                  (b) Remedies Available to Incyte. If an Event of Default
         occurs relating to Lexicon, and Lexicon fails to cure such default
         during any applicable cure period, then Incyte shall have the right, at
         its option exercisable in its sole discretion, in addition to any other
         rights or remedies available to it at law or in equity and subject to
         the limitations set forth in Section 6, to terminate this Agreement
         upon notice thereof to Lexicon.

         5.5 Effect of Expiration or Termination of Agreement. The expiration or
termination of this Agreement shall not relieve the parties of any obligation
accruing prior to such expiration or termination. The provisions of Sections 1,
3.3, 4, 6 and 7 hereof shall survive the expiration or termination of this
Agreement. The provisions of Sections 3.1 and 3.2 shall survive the expiration
or termination of this Agreement unless Lexicon terminates this Agreement
pursuant to Section 5.4(a).

6. DISCLAIMER OF WARRANTIES AND LIMITATION OF LIABILITY

         6.1 Disclaimer of Warranties. THE MUTANT MICE AND OTHER MATERIALS ARE
BEING SUPPLIED TO INCYTE WITH NO WARRANTIES, EXPRESS OR IMPLIED. LEXICON HEREBY
DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
WITHOUT LIMITING THE FOREGOING, LEXICON MAKES NO WARRANTY OF MUTAGENICITY OR
GERMLINE TRANSMISSION OF ANY MUTANT ALLELE, OR THAT A MUTANT PHENOTYPE WILL BE
OBSERVED IN ANY MUTANT MICE OR PROGENY. LEXICON MAKES NO REPRESENTATION OR
WARRANTY THAT THE USE OF THE MATERIALS OR THE CONDUCT OF RESEARCH WITHIN THE
RESEARCH FIELD HEREUNDER WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY
RIGHTS OF THIRD PARTIES.

         6.2 Experimental Nature of Materials. THE MATERIALS ARE EXPERIMENTAL IN
NATURE AND SHOULD BE USED WITH CAUTION SINCE ALL OF THEIR CHARACTERISTICS ARE
NOT KNOWN. INCYTE AND LEXICON AGREE TO COMPLY WITH ALL FEDERAL, STATE AND LOCAL
STATUTES, RULES AND REGULATIONS RELATING TO THE USE, HANDLING AND STORAGE OF THE
MATERIALS.

         6.3 Limitation of Liability. Lexicon shall in no event be liable for
any use by Incyte of the Materials or any loss, claim, damage or liability, of
whatever kind or nature, which may arise from or in connection the use, handling
or storage of the Materials by Incyte. NOTWITHSTANDING ANYTHING ELSE IN THIS
AGREEMENT OR OTHERWISE TO THE CONTRARY, NEITHER LEXICON NOR INCYTE WILL BE
LIABLE WITH RESPECT TO ANY MATTER ARISING UNDER THIS AGREEMENT UNDER ANY
CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR
(I) ANY PUNITIVE, EXEMPLARY, INCIDENTAL OR

                                       5
<PAGE>   48
CONSEQUENTIAL DAMAGES OR LOST PROFITS OR (II) COST OF PROCUREMENT OF SUBSTITUTE
GOODS, TECHNOLOGY OR SERVICES. WITHOUT IN ANY WAY LIMITING THE FOREGOING,
NEITHER LEXICON SHALL NOT, IN ANY EVENT, HAVE ANY LIABILITY WHATSOEVER IN
CONNECTION WITH THIS AGREEMENT IN EXCESS OF AN AMOUNT EQUAL TO THE FEES PAID TO
LEXICON BY INCYTE HEREUNDER.

7. INDEMNIFICATION

         Except to the extent prohibited by law, Incyte shall assume all
liability for, and shall defend, indemnify and hold Lexicon, its Affiliates and
their respective employees and agents harmless from, all claims, losses, damages
or expenses (including reasonable attorneys' fees) arising as a result of the
use by Incyte or its Affiliates of the Materials, except for and to the extent
that any such liability results from the gross negligence or willful misconduct
of Lexicon.

8. MISCELLANEOUS

         8.1 Entire Agreement. This Agreement, together with the Alliance
Agreement, constitutes the entire and exclusive agreement between the parties
with respect to the subject matter hereof and, with respect to any conflicting
terms from prior agreements between the parties, supersedes and cancels such
conflicting sections from all previous registrations, agreements, commitments
and writings in respect thereof. This Agreement may be amended, or any term
hereof modified, only by a written instrument duly executed by both parties
hereto.

         8.2 Assignment and Waiver. This Agreement may not be assigned or
otherwise transferred by either party without the consent of the other party;
provided, however, that Lexicon or Incyte may, without such consent, assign its
rights and obligations under this Agreement (i) to any Affiliate or (ii) in
connection with a merger, consolidation or sale of such portion of its assets
that includes rights under this Agreement to an unrelated Third Party; provided,
however, that such assigning party's rights and obligations under this Agreement
shall be assumed by its successor in interest in any such transaction and shall
not be transferred separate from all or substantially all of its other business
assets, including those business assets that are the subject of this Agreement.
In the event of such a transaction with an unrelated Third Party,
notwithstanding the other provisions of this Agreement, the intellectual
property rights of such Third Party shall not be subject to the licenses granted
by Lexicon or Incyte under this Agreement. Any purported assignment in violation
of the provisions of this Section 8.2 shall be void. Any permitted assignee
shall assume all obligations of its assignor under this Agreement. The waiver by
either party hereto of any right hereunder or the failure to perform or of a
breach by the other party shall not be deemed a waiver of any other right
hereunder or of any other breach or failure by said other party whether of a
similar nature or otherwise.

         8.3 Force Majeure. Neither party shall be held liable or responsible to
the other party nor be deemed to have defaulted under or breached this Agreement
for failure or delay in fulfilling or performing any obligation under this
Agreement when such failure or delay is caused by or results from causes beyond
the reasonable control of the affected party, including but not limited to fire,
floods, embargoes, war, acts of war (whether war is declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, acts of God or acts, omissions or delays in acting by any
governmental authority or the other party; provided, however, that the party so
affected shall use reasonable commercial efforts to avoid or remove such causes
of nonperformance, and shall continue performance hereunder with reasonable
dispatch whenever such causes are removed. Either party shall provide the other
party with prompt written notice of any delay or failure to perform that occurs
by reason of force majeure. The parties shall mutually seek a resolution of the
delay or the failure to perform as noted above.


                                       6
<PAGE>   49

         8.4 No Partnership. It is expressly agreed that the relationship
between Lexicon and Incyte shall not constitute a partnership, joint venture or
agency. Neither Lexicon nor Incyte shall have the authority to make any
statements, representations or commitments of any kind, or to take any action,
which shall be binding on the other, without the prior consent of the other
party to do so.

         8.5 Applicable Law. This Agreement shall be governed by, construed, and
interpreted in accordance with, the laws of the State of Texas, United States of
America, without reference to conflict of laws principles.

         8.6 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but both of which together shall
constitute one and the same instrument.

         8.7 Severability. Each party hereby agrees that it does not intend to
violate any public policy, statutory or common laws, rules, regulations, treaty
or decision of any government agency or executive body thereof of any country or
community or association of countries. Should one or more provisions of this
Agreement be or become invalid, the parties hereto shall substitute, by mutual
consent, valid provisions for such invalid provisions which valid provisions in
their economic effect are sufficiently similar to the invalid provisions that it
can be reasonably assumed that the parties would have entered into this
Agreement with such valid provisions. In case such valid provisions cannot be
agreed upon, the invalidity of one or several provisions of this Agreement shall
not affect the validity of this Agreement as a whole, unless the invalid
provisions are of such essential importance to this Agreement that it is to be
reasonably assumed that the parties would not have entered into this Agreement
without the invalid provisions.

         IN WITNESS WHEREOF, Incyte has caused its duly authorized
representative to execute and deliver this Agreement as of the Effective Date.

Incyte Genomics, Inc.



By:
   --------------------------------------------------
         (Signature of Authorized Representative)

Printed Name:
             ----------------------------------------

Title:
      -----------------------------------------------

Date:
     ------------------------------------------------



                                       7
<PAGE>   50
                                   EXHIBIT 3.1

                   STEERING COMMITTEE AND PROJECT COORDINATORS


Incyte Steering Committee Representatives:

1.       ________, Initial Chairperson
2.       ___________
3.       ___________

Incyte Project Coordinator: ____________

Lexicon Steering Committee Representatives:

1.       Jim Piggott, Initial Secretary
2.       Brian Zambrowicz
3.       David Powell

Lexicon Project Coordinator: _____________________


</TEXT>
</DOCUMENT>
</SUBMISSION>
