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

                                   FORM 10-K

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

                  For the fiscal year ended December 31, 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 000-30992

                      3-DIMENSIONAL PHARMACEUTICALS, INC.
            (Exact name of registrant as specified in its charter)

               Delaware                              23-2716487
       (State of incorporation)         (I.R.S. Employer Identification No.)


Three Lower Makefield Corporate Center, Suite 300, 1020 Stony Hill Road,
Yardley, PA 19067
               (Address of principal offices including zip code)

                                (267) 757-7200
              (Registrant's telephone number including area code)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                     None

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                     None

  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 [_]

  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this annual report on Form 10-K or
any amendment to this annual report on Form 10-K. [X]

   As of February 11, 2002, the aggregate market value of the Common Stock
held by non-affiliates of the registrant was $111,835,628. Such aggregate
market value was computed by reference to the closing sale price of the Common
Stock as reported on the Nasdaq National Market on such date.

  As of February 11, 2002, there were 22,494,902 shares of the registrant's
Common Stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

  Portions of the definitive Proxy Statement for the Registrant's 2002 Annual
Meeting of Stockholders to be held on May 17, 2002, to be filed within 120
days after the end of the fiscal year covered by this Annual Report on Form
10-K, are incorporated by reference into Part III of this Report and certain
exhibits are incorporated by reference into Part IV of this Report.

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<PAGE>

                               TABLE OF CONTENTS

                                     PART I
<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
 <C>      <S>                                                             <C>
 Item 1.  Business......................................................     1
 Executive Officers of the Registrant....................................   19
 Item 2.  Properties....................................................    21
 Item 3.  Legal Proceedings.............................................    21
 Item 4.  Submission of Matters to a Vote of Security Holders...........    21

                                    PART II
          Market for the Registrant's Common Equity and Related
 Item 5.     Stockholder Matters........................................    21
 Item 6.  Selected Financial Data.......................................    22
          Management's Discussion and Analysis of Financial Condition
 Item 7.     and Results of Operations..................................    23
 Factors Affecting the Company's Prospects...............................   27
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk....    38
 Item 8.  Financial Statements and Supplementary Data...................  F-1
          Changes in and Disagreements with Accountants on Accounting
 Item 9.     and Financial Disclosure...................................  F-22

                                   PART III
 Item 10. Directors of the Registrant...................................  F-22
 Item 11. Executive Compensation........................................  F-22
          Security Ownership of Certain Beneficial Owners and
 Item 12.    Management.................................................  F-22
 Item 13. Certain Relationships and Related Transactions................  F-22

                                    PART IV
          Exhibits, Financial Statement Schedules, and Reports on Form
 Item 14.    8-K........................................................  F-23
</TABLE>
<PAGE>

This report includes "forward-looking statements" within the meaning of the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements include, but are not limited to,
statements about our plans, objectives, representations and contentions and
are not historical facts and typically are identified by use of terms such as
"may," "will," "should," "could," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential," "continue" and similar words, although
some forward-looking statements are expressed differently. You should be aware
that the forward-looking statements included herein represent management's
current judgment and expectations, but our actual results, events and
performance could differ materially from those in the forward-looking
statements. The forward-looking statements are subject to a number of risks
and uncertainties which are discussed in the section entitled "Factors
Affecting the Company's Prospects." We do not intend to update any of these
factors or to publicly announce the results of any revisions to these forward-
looking statements.

                                    PART I

Item 1. Business

Overview

   We are a small molecule drug discovery and development business that has a
pipeline of drug candidates in the areas of cancer, inflammation, and
metabolic and cardiovascular diseases. Until recently when we in-licensed a
compound, all of the drug candidates in our pipeline were discovered using all
or a major portion of our integrated set of proprietary technologies called
DiscoverWorks.(R) We believe DiscoverWorks increases the productivity of the
drug discovery process by making it faster than traditional drug discovery
methods and by providing our scientists with the ability to design
characteristics into drug candidates that increase the probability of
development success. DiscoverWorks may also enable us to discover drugs that
act on many of the thousands of new drug targets revealed from sequencing the
human genome. We use DiscoverWorks to discover and develop drugs for our own
pipeline and in collaboration with pharmaceutical and biotechnology companies.
The drug discovery process is discussed below in "--Industry Background."

   Our objective is to be an industry leader in the discovery and development
of new drug candidates. The main elements of our strategy are to:

  .  Expand and advance our pipeline of drug candidates: We plan to continue
     to expand and advance our pipeline. Our most advanced program, partnered
     with Centocor, Inc., a Johnson & Johnson subsidiary, has been designed
     to inhibit the formation of blood clots and a Phase 1 clinical program
     was initiated. Our next most advanced program is our pre-IND (pre-
     Investigational New Drug Application) thrombopoietin (TPO) mimetic drug
     candidate for treating people with low blood platelet counts, which is
     expected to begin human clinical trials in early 2003. In addition, we
     have three other pre-clinical programs that could advance drug
     candidates to human trials within the next 24 months. We may also
     continue to acquire targets and drug candidates for our pipeline from
     other pharmaceutical and biotechnology companies.

  .  Pursue additional DiscoverWorks agreements: We intend to continue to
     enter into collaborative drug discovery and development agreements
     relating to the use of DiscoverWorks with pharmaceutical and
     biotechnology companies. We currently have research and development
     collaborations with several major pharmaceutical companies including
     Bristol-Myers Squibb Company and Johnson & Johnson. Our new and ongoing
     research and development collaborations generated $28 million in revenue
     during 2001.

  .  Maintain and improve DiscoverWorks: We intend to continue to pursue
     technological and process innovation that allows us to continue to
     improve drug discovery and development productivity by improving success
     rates and speed. To date, we have invented the key proprietary
     DiscoverWorks technologies. We intend to continue to patent or otherwise
     protect our technological innovations to maintain our intellectual
     property position.

  .  Create a world-class scientific research environment:  The growth and
     success of our business depends on the talents of our employees. We are
     committed to providing our employees with a culture
<PAGE>

     that emphasizes quality science, innovation, team work and empowerment.
     We are dedicated to continuous process improvement, implementation of
     new technologies, shared learning among our scientists, and innovative
     organizational design.

Our Drug Candidate Programs

   With the exception of our in-licensed TPO mimetic compound, all of our
programs are developing small molecule drug candidates that have been
discovered and are being optimized by our scientists using DiscoverWorks. Our
more advanced programs are described in the table below.

<TABLE>
<CAPTION>
                      Therapeutic
 Molecular Target        Area               Indication                    Development Status
 ----------------     -----------           ----------                    ------------------

 <S>                <C>             <C>                         <C>
     Thrombin       Cardiovascular          Thrombosis                Phase 1 program commenced
                                                                     Ongoing pre-clinical studies
                                                                     (Licensed to Centocor, Inc.
                                                                          /Johnson & Johnson)

    TPO mimetic         Cancer           Thrombocytopenia                      Pre-IND
     3DP-3534       Supportive care

  alphavbeta/3//
  alphavbeta/5/      Cancer             Solid Tumors                       Pre-clinical
                    Bone Disorders     Rheumatoid arthritis
                    Cardiovascular     Diabetic retinopathy
                                       Macular degeneration
                                            Restenosis
                                           Osteoporosis

     Urokinase          Cancer             Solid Tumors                      Pre-clinical
                    Cardiovascular  Restenosis, Atherosclerosis (Licensed to Berlex Laboratories, Inc.
                                                                        /Schering AG, Germany)

        C1s          Inflammation   Lupus, Autoimmune Diseases               Pre-clinical
                    Cardiovascular        Bypass Surgery                  (In collaboration
                       Pulmonary    Adult Respiratory Distress   with BioCryst Pharmaceuticals, Inc.)
                                          Syndrome (ARDS)

  Hdm2(mdm2)/p53        Cancer      Adjunct to Chemotherapy and           Lead Optimization
    interaction     Cardiovascular           Radiation
</TABLE>

   Oral Thrombin Inhibitors: Our most advanced cardiovascular drug discovery
program focuses on the development of potent, selective, and orally active
(orally administered) inhibitors of thrombin for arterial and venous
thrombosis. This program is being conducted under an agreement that we entered
into in December 2000 with Centocor, Inc., or Centocor, a subsidiary of
Johnson & Johnson, under which Centocor acquired worldwide rights to our
orally active direct thrombin inhibitor program. We are developing several
compounds under this program. During 2001, the agreement with Centocor was
amended to include compounds active against additional protease targets that
affect coagulation. Centocor is responsible for development and worldwide
commercialization of all compounds under the agreement. For the deep vein
thrombosis indication, however, we have an option to co-develop and co-promote
with Centocor in the United States. Under the agreement, we received an up-
front cash payment of $6 million from Centocor and in October of 2001 we
received a $4 million milestone payment. We could also receive additional
milestone payments of up to $38 million based on the achievement of certain
milestones for the first compound developed and approved under the agreement.
As of December 31, 2001, we have also received research funding aggregating
approximately $0.8 million, and the contract provides that we will receive
committed additional funding of approximately $0.8 million over the initial
two-year term of the research program. In addition, we are entitled to receive
royalties on sales of any products marketed under the agreement.

                                       2
<PAGE>

   The only oral anticoagulant currently marketed is warfarin (Coumadin(R) and
generic versions). We have designed our compounds to work by a different
mechanism of action from warfarin, which we believe will provide an enhanced
safety profile without the need for monitoring.

   Our thrombin inhibitors were discovered through the close integration of
structure-based drug design (the science of creating drug molecules from
knowledge of the structural features of the site on the target protein at
which drugs bind) and DirectedDiversity combinatorial chemistry. They
represent a new class of thrombin inhibitors that potently and reversibly
inhibit thrombin with excellent specificity and are orally active and
efficacious in several animal models. We filed an Investigational New Drug
Application (IND) with the FDA for 3DP-4815 in December 1999 and initiated
Phase 1 clinical trials in January 2000. In the Phase 1 clinical trials, 3DP-
4815 exhibited good safety, surrogate efficacy and tolerability
characteristics, and we are continuing additional pre-clinical studies to
characterize its pharmacological profile. We are also developing alternative
compounds from chemistry series different than 3DP-4815 to expand the spectrum
of compound pharmacological properties suitable for full development as oral
thrombin inhibitors.

   TPO Mimetic Program: In January of 2002, we acquired worldwide rights to a
pre-IND compound, 3DP-3534, from GlaxoSmithKline plc, or GSK, for the
prevention and treatment of thrombocytopenia, or low blood platelet count. We
believe this compound fits well with our strategic effort in oncology. All
payments that we will make to GSK will be in shares of our stock. We made an
initial payment of 0.5 million shares and will issue up to 1.9 million
additional shares if the compound achieves certain key development and
regulatory milestone events. We expect to recognize a non-cash in-process
research and development charge in the first quarter of 2002 of $4.1 million
for the 0.5 million shares paid to GSK.

   3DP-3534 is a pegylated synthetic TPO mimetic peptide that binds
specifically to the thrombopoietin receptor. In in-vivo (evaluation in living
organisms) studies, 3DP-3534 has been shown to increase the production of
blood platelets, which regulate the clotting process. Our current development
focus is on chemotherapy-induced thrombocytopenia. About one-third of the two
million platelet transfusions administered each year in the United States are
given to cancer patients, while the remainder are given to patients with a
variety of conditions including coronary bypass and hepatic surgery, HIV/AIDS,
hepatitis B and C, and idiopathic thrombocytopenia purpura. We are also
evaluating clinical development plans in these other conditions where people
are given platelet transfusions.

   Antagonists of alpha/v/beta/3/ and alpha/v/beta/5/ Integrins: The integrin
adhesion proteins alpha/v/beta/3/ and alpha/v/beta/5/ are essential mediators of
the adhesion of cells in tumor angiogenesis (the process by which tumors develop
blood vessels), atherosclerosis, restenosis and osteoporosis. We have applied
DiscoverWorks to the discovery of potent and selective small molecule
antagonists of alpha/v/beta/3/ and alpha/v/beta/5/ and discovered several
independent lead series of compounds. Our research has focused on finding
selective antagonists which are equipotent at alpha/v/beta/3/ and
alpha/v/beta/5/ integrins, thereby inhibiting cell adhesion or attachment as
well as the migration of endothelial cells to form blood vessels in tumors. Our
lead compounds have been shown to inhibit cellular processes that require
functioning of alpha/v/beta/3/ and alpha/v/beta/5/ integrins. They are not
cytotoxic and are being evaluated in several different in-vivo models for
efficacy and pharmacokinetics.

   Urokinase Inhibitor Program: Our urokinase inhibitor program targets the
inhibition of urokinase plasminogen activator (uPA or Urokinase). An inhibitor
of uPA provides a new therapeutic approach to cancer treatment by inhibiting
angiogenesis and metastasis. In addition, uPA has been identified as a target
for restenosis, aneurysm, and atherosclerosis. Our lead compounds are potent
and selective uPA inhibitors and have been shown to inhibit tumor cell
invasion and migration of blood vessel muscle cells, and are orally active.

   During May 2000, we entered into a license and research agreement with
Schering AG, Germany in which Schering AG obtained, for human therapeutic
uses, exclusive worldwide rights to our urokinase inhibitor compounds. Under
our agreement, we are responsible for further research and optimization of the
compounds and Schering AG is responsible for development, marketing, and sales
of the resulting products. As of December 31, 2001, we have received research
funding aggregating approximately $4.1 million, and the contract provides that
we will receive committed additional funding of approximately $0.9 million
over the initial two-

                                       3
<PAGE>

year term of the research program. The contract provides that we could also
receive milestone payments of up to approximately $23 million for the first
product developed in a therapeutic area, and further milestones for additional
therapeutic areas. After the initial research term, Schering AG, may terminate
the agreement at any time on 90 days' notice. In connection with the
agreement, we issued shares of our preferred stock to an affiliate of Schering
AG for $5 million. These shares automatically converted into 223,214 shares of
common stock upon the closing of our initial public offering.

   C1s Program: C1s is a serine protease that plays an important role in
regulating the complement pathway, the pathway by which plasma proteins work
to eliminate microorganisms and other antigens from tissues and blood. When
the complement pathway is inappropriately activated or regulated, it may play
a key role in several inflammation and autoimmune disorders including lupus,
rheumatoid arthritis, and acute respiratory distress syndrome. We have
discovered potent and selective leads that are currently being optimized
further in in-vivo studies.

   During October 1996, we entered into a research collaboration with BioCryst
Pharmaceuticals, Inc. to share resources and technology to develop inhibitors
of key serine protease enzymes, including C1s, that represent promising
targets for inhibiting the activation of complement. During June 1999, we
updated and renewed our original agreement to concentrate on selected
complement enzymes as targets for the design of inhibitors. Under our
agreement, we are each responsible for our own research costs. If a drug
candidate emerges as a result of our joint research, we will then negotiate
the product development and commercialization rights and responsibilities. The
initial term of the agreement was one year, subject to automatic annual
renewal. Either of us may terminate the agreement at any time upon 60 days
written notice.

   Hdm2(mdm2)/p53 Interaction Program: We have discovered a unique series of
small molecule inhibitors of the interaction in tumor cells between two
proteins, the tumor suppressor gene product p53 and another protein hdm2 which
stimulates the breakdown of p53. Our compounds are active in anti-
proliferative and apoptosis cellular models and are being investigated in-
vivo. Our rapid progress to date with this program has resulted from the use
of DiscoverWorks, where we integrated the analysis of the structure of our
molecules bound to the hdm2 protein and our ThermoFluor high throughput
screen, which is uniquely powerful for protein/protein interaction targets,
and our powerful chemi-informatics for lead optimization.

   Other Internal Discovery Programs: In connection with our strategy to build
our pipeline by gaining access to proprietary targets, in October 2001 we
entered into a collaboration with Athersys, Inc. to discover, develop, and
commercialize novel, small molecule drugs by screening against therapeutically
relevant drug targets derived from the G-Protein Coupled Receptor (GPCR)
family of proteins. This collaboration combines Athersys, Inc.'s functional
genomics expertise with our capabilities for rapid drug identification and
optimization of drug candidates. Under the terms of the agreement, certain
drug candidates identified from the collaboration will be jointly developed,
with the companies sharing future development costs and commercialization
rights, while others will be retained exclusively by each of the parties for
future development and commercialization.

   In addition to the programs described above, we have several other earlier
stage programs focused on cancer and metabolic disease.

Our Drug Discovery Collaborations

   We seek to enter into discovery collaborations and joint discovery programs
with pharmaceutical and biotechnology companies. These arrangements can take
various forms ranging from comprehensive programs to specific R&D arrangements
that utilize components of DiscoverWorks for target decryption (the assessment
of biochemical function) and validation, lead generation, and lead
optimization (the chemical modification of leads). Our collaborations provide
cash, drug targets, drug candidates, discovery and development capabilities,
and other assets we need to build our company. A summary of our drug discovery
collaborations is provided below.

 Bristol-Myers Squibb Company

   In July 2000, we entered into a collaboration with Bristol-Myers Squibb
Company, or BMS, under which we are using our DiscoverWorks technologies to
assist BMS in the discovery and development of new human

                                       4
<PAGE>

drugs for specific biological targets. In the initial three-year term of the
research collaboration, BMS will supply biological targets and we will create
chemical libraries and screen such libraries against these targets.
Thereafter, the parties will decide which organization will conduct subsequent
lead optimization and development activities of active hits toward creating
pre-clinical drug candidates and the terms of any such extension. In addition
to its collaboration in this research, BMS will be primarily responsible for
pre-clinical and clinical development of identified drug candidates, and for
marketing and sales of any resulting products.

   Under the BMS contract, we have received up-front licensing and technology
access fees amounting to $19 million, and, as of December 31, 2001, we had
received research funding of $7.5 million. The contract provides that we will
receive committed additional research funding of approximately $6.9 million
over the remaining initial three-year term of the collaboration. In addition,
the contract provides that we will receive milestone payments through the
development stages, and royalty payments on sales of any resulting products,
with the amount at each level determined based on our involvement in the
related optimization and development activities. For each compound, depending
on whether stipulated pre-clinical and clinical milestones are met and
depending on our level of contribution to the development of the compound, the
contract provides that we could receive milestone payments aggregating from up
to $4.5 million to $15 million.

   We have also granted BMS non-exclusive perpetual licenses under our
DirectedDiversity patent rights for the duration of the licensed rights and
non-exclusive perpetual licenses under our ThermoFluor technology for use by
BMS in their research and development programs.

   BMS may terminate research activities under our collaboration with 90 days
notice, without cause, but must pay any remaining research funding during the
initial research term or one-half of the remaining research funding during any
extended term. Following the end of the initial research or any extended
research term, either party may terminate the agreement on 30 days notice if
no compound is being optimized or developed under the collaborative agreement.

 Boehringer Ingelheim Pharmaceuticals, Inc.

   Effective December 1999, we entered into a collaboration agreement with
Boehringer Ingelheim Pharmaceuticals, Inc., or BIPI, to use our
DirectedDiversity technology to assist BIPI in the discovery of new drugs for
specific biological targets in humans. The initial research term of our
collaboration was for two years. In April 2001 we expanded our collaboration
to cover additional targets and extended the research term through March 2003,
subject to annual extensions by BIPI. In this collaboration, we have agreed to
generate custom combinatorial chemistry libraries based on molecules and
information provided by BIPI and will optimize those molecules into pre-
clinical development candidates. BIPI is responsible for pre-clinical and
clinical development, and marketing and sales of the resulting products. As of
December 31, 2001, we had received up-front fees and research funding
aggregating approximately $4.1 million, and the contract provides that we will
also receive committed additional research funding of approximately $3.1
million over the remaining term of the collaboration. The contract provides
that we could also receive milestone payments of up to $2.4 million for the
first product developed, depending on whether stipulated milestones are met,
and are eligible to receive additional milestones if subsequent products are
developed. We are also entitled to receive royalties on sales of resulting
products.

   BIPI may terminate the research program upon 30 days written notice
provided it pays us, in most circumstances, an early termination fee if it
terminates the research program prior to the end of any term.

 Johnson & Johnson Pharmaceutical Research & Development, L.L.C.

   In December 2001, we entered into a collaboration with Johnson & Johnson
Pharmaceutical Research & Development, L.L.C., or J&J PRD, under which we are
using our DiscoverWorks technology to discover and optimize small molecule
drug leads directed towards genomics targets identified by J&J PRD. J&J PRD,
will provide biological targets and we will create chemical libraries and
screen such libraries against these targets. J&J PRD is responsible for
subsequent lead optimization and development activities, and marketing and
sales of the resulting products. The initial research term is for
approximately one year, subject to renewal by mutual agreement.

                                       5
<PAGE>

   Under the terms of this agreement, we received an up-front technology
access fee and committed research funding aggregating $3.6 million over the
initial term of the collaboration. The contract provides that we could also
receive milestone payments of up to $4.2 million for the first product
developed, depending on whether stipulated milestones are met, and could
receive additional milestones if subsequent products are developed. The
contract also provides that we are entitled to receive royalties on sales of
licensed products.

   J&J PRD may terminate the research program upon 90 days notice, provided it
pays the lesser of the amount due for six months or the balance of any
financial support due for the remainder of the term of the research program.

 Aventis CropScience GmbH

   In October 1999, we entered into a collaboration with Hoechst Schering
AgrEvo GmbH, now Aventis CropScience GmbH, or Aventis, to use our
DirectedDiversity technology to assist Aventis in the discovery of compounds
applicable to plant and pest management, Under our agreement, we received up-
front payments and research funding totaling approximately $3.4 million. Our
agreement originally had a two-year research term, which was extended until it
expired in January 2002.

 DuPont Pharmaceuticals Company

   In February 2000, we entered into a collaboration with DuPont
Pharmaceuticals Company (acquired by Bristol-Myers Squibb Company in October
2001), or DuPont Pharmaceuticals, to use our DirectedDiversity technology to
assist DuPont Pharmaceuticals in the discovery of new human and veterinary
pharmaceutical compounds for specific biological targets. Under our agreement,
we received up-front payments and research funding totaling approximately $2.6
million. Our agreement had a two-year research term, which expired in December
2001. We have agreed not to work with any company other than DuPont
Pharmaceuticals on compounds acting through the targets of the research
program during the term of the program and for one year thereafter.

 Heska Corporation

   In December 1997, we entered into a research and license agreement with
Heska Corporation, or Heska, to use our DirectedDiversity technology to assist
in the discovery and development of new veterinary therapeutic agents. Under
our agreement, we also granted Heska the exclusive worldwide right to license
the veterinary therapeutic products developed for sale worldwide. As of
December 31, 2001, we had received up-front payments and research funding
totaling approximately $2.7 million. Our agreement originally had a two-year
research term expiring in December 1999, which was revived and extended until
May 31, 2002.

Industry Background

   Drugs are chemical compounds that change the activity of biological target
proteins associated with particular disease states to achieve the desired
therapeutic effect. Using traditional approaches, it has been estimated
generally to take from five to seven years from the initial identification of
a protein as a suitable target for a drug to the production of a drug
candidate ready to go into clinical trials. The major steps in the drug
discovery process following identification of the biological target involve
(a) hit identification, (b) lead generation, (c) lead optimization, and (d)
target validation, each of which is described below.

   Hit identification: This involves the screening of large collections of
compounds to identify those compounds that interact with the biological target
(which may be an enzyme, receptor, or other protein). A compound that
interacts with a target protein is referred to as a "hit." In order to
identify hits, the following steps are undertaken:

  .  production ("cloning and expression") of sufficient quantities of the
     target protein to facilitate high-throughput screening;

                                       6
<PAGE>

  .  design and development of a high-throughput screen specific to the
     target protein; and

  .  screening the target protein against collections or "libraries" of
     compounds.

   Lead generation: This involves the chemical modification of hits by
repeated cycles of synthesis and testing of analogs to produce "leads," which
are compounds with improved chemical characteristics, thereby increasing their
suitability as potential drugs.

   Lead optimization: This involves the further optimization of leads by
additional repeated modification to produce drug development candidates with
optimized characteristics for further pre-clinical and clinical development.

   Target validation: In parallel to the above steps in the discovery process,
"target validation" studies seek to establish the link between the target
protein and the particular clinical disease. These tests usually involve
correlating changes in the level of the target protein in cells or animals
with changes in cell biology or animal physiology characteristic of the
disease state. This "biology-driven" target validation, which is generally
employed today in the pharmaceutical industry, is in contrast to "chemistry-
driven" target validation, where the role of the target protein in disease is
determined by testing a target-specific compound in living organism models.

   Drug discovery has traditionally been a costly and time-consuming process
in which the failure rate remains very high. Pharmaceutical companies are
facing growing challenges to rapid and cost efficient drug discovery as
continuing advances are made in genomics research. While there are
approximately 500 currently known biological targets for human therapeutics,
it is estimated that genomics research will facilitate the identification of
perhaps an additional 5,000 potential targets. In order to take advantage of
the wealth of opportunities presented by genomics research, pharmaceutical
companies will need to generate new lead compounds on a scale commensurate
with the increase in new targets. This will require the use of more advanced
and integrated technologies to rapidly and cost efficiently discover and
develop lead compounds.

   Although advances in recent years have improved the drug discovery process,
there remain serious challenges, which can include:

  .  an inability to produce in a reasonable time sufficient quantities of
     the target protein for high-throughput screening and concurrent three-
     dimensional structure analysis of the target protein;

  .  the need to establish a different high-throughput screen for each new
     target, which typically can take from two to six months;

  .  an inability to rapidly generate leads from initial hits, a process
     which typically can take one to two years;

  .  the need for large resources in the lead optimization process;

  .  an inability to incorporate desirable "drug-like" attributes (as
     described below) into leads and to validate target proteins sufficiently
     early in the optimization process; and

  .  the time-consuming and resource-intensive nature of the biology-driven
     target validation process.

Our Integrated DiscoverWorks Solution

   We believe that we provide a unique solution to the problems of efficiency
and productivity in drug discovery by integrating the use of an array of
advanced tools with proprietary information technology to more efficiently
discover new drugs and harness the opportunities presented by genomics. We
believe that our technologies offer an important solution to the resource and
productivity dilemmas facing drug discovery by providing the following
advantages:

  .  Industrialization of Early Stage Drug Discovery. DiscoverWorks(R) is an
     integrated approach to establish the "drugability", biological functions
     and therapeutic relevance of the multitude of new

                                       7
<PAGE>

     drug targets emerging from sequencing the human genome. Drugability is
     the determination of whether or not a small molecule can bind
     sufficiently to a drug target. The efficiency and broad applicability of
     our ThermoFluor(R) high-throughput screen, coupled with rapid chemical
     property optimization enabled by DirectedDiversity(R) combinatorial
     chemistry and chemi-informatics, allow us to rapidly discover compounds
     that can be used to directly test therapeutic ideas for drug action in
     biological disease models. This approach, which we call chemi-genomics,
     allows targets to be prioritized and medicinal chemistry to begin at the
     earliest stage of the drug discovery process. We believe this increases
     the success rate of the drug discovery process and decreases the time
     required to discover and develop drugs.

  .  Improved Compound Characteristics. Our DirectedDiversity process and
     structural biology capabilities enable our scientists to design "drug-
     like" characteristics into our compounds throughout the lead generation
     and optimization processes. We believe this will increase the
     probability of development success of our drug candidates.

   We believe our technology reduces the risk in discovery and early
development by facilitating better, more timely decisions in discovery and
development. We believe that the key benefits of our technology, with its
broad applicability, will be even more important to the pharmaceutical
industry as the genomics revolution continues to expand the number of new
molecular targets.

Our DiscoverWorks Technology Platform

   DiscoverWorks is a highly integrated platform for drug discovery that links
our ThermoFluor high-throughput screen, Chemical Probe and computer-based
Synthetically Accessible Libraries, DirectedDiversity chemi-informatics and
combinatorial chemistry and structure-based drug design. Starting from the DNA
sequence of a molecular target, we can generate chemical leads that can be
used to test a disease hypothesis in a biological model and to serve as
starting points for lead optimization. Our DiscoverWorks technologies can
efficiently assimilate and process vast quantities of data produced from the
combination of combinatorial chemistry and high-throughput screening, and can
be rapidly and efficiently scaled to meet increasing demand. Our DiscoverWorks
process integrates the following technologies:

 Target Protein Production

   Timely large-scale production of target proteins is essential for effective
quantitative high-throughput screening and analysis of the three-dimensional
structure of the target. We have extensive experience in cloning, engineering
and expressing target proteins using a wide array of bacterial, insect cell,
and mammalian cell expression systems. We believe we can produce large
quantities of many types of target proteins in order to facilitate high-
throughput screening and target protein three-dimensional structure analysis.

 ThermoFluor High-Throughput Screening

   Our proprietary ThermoFluor high-throughput screening process is a direct
binding assay that measures the affinity of compounds in a screening library
to a target protein. ThermoFluor has broad target applicability because it is
based on the fact that most targets are proteins that melt at defined
temperatures. Drugs can be screened and their affinity measured by measuring
any difference in protein melting temperature with and without the drug
present. ThermoFluor can be applied with equal effectiveness to many varieties
of enzymes, receptors, growth factors, antibodies, cell adhesion molecules
(molecules that influence contact between cells), and other target proteins.
We have developed ThermoFluor in an automated computer workstation format
using 384-well assay plates with integrated data processing and database
connectivity. We are continuing to develop ThermoFluor to incorporate
improvements that improve its versatility and enhance throughput.

   ThermoFluor is able to directly discover leads for target proteins with
unknown biological function, including the thousands of new targets being
identified through genome sequencing. We believe ThermoFluor

                                       8
<PAGE>

significantly shortens the time required for target-specific high-throughput
screen development and compound library screening. The ThermoFluor assay
developed and used for high-throughput screening can also be applied during
lead generation and optimization, offering additional time and cost savings in
the discovery process. The technology is portable and can be scaled up to
screen very large numbers of compounds at many targets.

 ThermoFluor Target Decryption and Protein Characterization

   We believe ThermoFluor screening can be used to assess the biochemical
function (i.e. class of enzyme, receptor etc.) of targets emerging from
genomics and proteomics research. This capability is referred to as "target
decryption". The knowledge of the biochemical function of a potential target
that can be obtained with ThermoFluor can provide, in addition to establishing
a defensible intellectual property position, key information regarding target
"drugability", potential side effect profile, functional uniqueness, and
guidance for focusing a screening campaign that can lead to the discovery of
compounds that can be used as pharmacological probes for validating the role
of the target in disease model systems ("chemi-genomics" or chemistry driven
target validation).

 DirectedDiversity Probe Library

   In order to initiate our DiscoverWorks discovery process, we have
constructed a DirectedDiversity Probe Library incorporating approximately
300,000 individually synthesized "drug-like" compounds. The library includes a
diversity of chemical structures that are representative of the three-
dimensional molecular shapes that we believe are useful for targeting drug
binding sites on proteins and that possess "drug-like" properties, that is,
the structural and physicochemical characteristics (such as shape and
molecular weight) commonly found in orally active, small molecule marketed
drugs.

   Prior to including a compound in our Probe Library, we extensively analyze
and accumulate information on the compound, including a comprehensive set of
approximately 600 molecular descriptors (physicochemical characteristics of a
molecule, such as shape and molecular weight). The Probe Library includes sub-
libraries directed toward classes of enzyme targets called serine proteases
and metalloproteases, receptor tyrosine kinases, GPCRs, and several other
receptor classes with broad therapeutic relevance.

 DirectedDiversity Synthetically Accessible Library

   To complement our Probe Library, we have generated a computer-based
Synthetically Accessible Library of multi-billion compounds that are analogs
of the compounds in our Probe Library. Each compound in the Synthetically
Accessible Library can be synthesized using automated chemistry synthesis
protocols. For a typical optimization cycle, we select a focused library
varying from 100 to 1,000 compounds from our Synthetically Accessible Library
and synthesize them within two to three weeks. As with our Probe Library, each
of the compounds in our Synthetically Accessible Library is indexed using a
comprehensive set of approximately 600 molecular characteristics.

   In August 2001, we formed a collaboration with Cyprotex Services Limited,
or Cyprotex, aimed at providing parameters useful for improving the prediction
of ADME (Absorption, Distribution, Metabolism, Excretion) properties of
compounds. The collaboration is geared towards integrating the application of
Cyprotex ADME prediction methods with our DiscoverWorks process to improve the
development success rate of drug candidates.

 DirectedDiversity Chemi-informatics Software and Databases

   Using the 600 molecular characteristics referred to above and artificial
intelligence computer procedures, our DirectedDiversity chemi-informatics
software helps assure that properties important in drug development, such as
potency, selectivity, bio-availability, and minimal toxicity, are factored
into compound selection for inclusion in a focused library, and more broadly,
in the lead generation and lead optimization processes. Through

                                       9
<PAGE>

our ability to rapidly select and synthesize a focused library of compounds in
each optimization cycle, our chemists can test many optimization hypotheses in
parallel, with all information tracked and captured by the DirectedDiversity
software for use in future compound synthesis and testing cycles and other
discovery programs. The combination of the detailed chemical description of
each of our compounds and the biological screening data that is generated
provides a valuable drug property database for lead generation and further
optimization.

   We believe that traditional approaches to library generation using
combinatorial chemistry are less directed and information-rich, and therefore
an unnecessary expenditure of time and effort may be required in the discovery
process, and the compounds produced may lack required properties for orally
active drugs.

 Automated Chemical Synthesis Technologies

   We have a broad range of modern parallel synthetic technologies, which
affords us the capacity to synthesize over 10,000 compounds per month. We
believe this compound production is sufficient to support multiple concurrent
discovery programs and can be readily expanded.

 Structure-Based Drug Design Technology

   Our DiscoverWorks platform integrates structure-based drug design
technology that uses X-ray crystallography to directly visualize how lead
compounds bind to a target protein. Structure-based drug design allows the
atom-by-atom modification of leads to produce chemically new compounds with
high potency and specificity toward a given target protein. We have
established a state-of-the-art facility for protein production,
crystallization, X-ray crystallography, and computational chemistry to carry
out three-dimensional structure determination of target proteins and their
bound complexes with lead compounds. In addition, we have access through our
membership in the Industrial Macromolecular Crystallography Association (IMCA)
to the Advanced Photon Source at the Argonne National Laboratory in Argonne,
Illinois. The integration of DirectedDiversity technology with structure-based
drug design allows us to automate the parallel design and chemical synthesis
of compounds, enabling the simultaneous investigation and optimization of
multiple drug properties. We refer to this as the coupling of high-throughput
co-structure analysis and high-throughput chemistry.

 Chemi-Genomics: Chemistry-Driven Target Validation

   Our chemistry-driven target validation process, also referred to as
chemical genomics or chemi-genomics, relies on the broad capability of our
ThermoFluor screen, coupled with our ability using DirectedDiversity to
rapidly generate leads suitable for testing therapeutic hypotheses in
biological models. By capitalizing on DiscoverWorks, we can perform chemistry-
driven validation of new genomics targets early in the discovery process. We
believe this provides a unique advantage that allows us to prioritize targets
early, on the basis of therapeutic utility and drugability.

 GPCR Technology Program

   G-protein coupled receptors, or GPCRs, are an important class of target
proteins that exist on the surface membrane of all cells, and are associated
with a wide range of therapeutic categories. We have an ongoing program aimed
at the three-dimensional structure determination of a drug target GPCR using
X-ray crystallography. Successful crystallization of drug target GPCRs may
present a novel opportunity to exploit this broad and important range of drug
targets, benefiting both our internal discovery programs and pharmaceutical
and biotechnology company collaborations. Our collaboration with Athersys,
Inc. is focused on screening at several GPCR targets using our GPCR-directed
probe libraries.

                                      10
<PAGE>

Intellectual Property

   Protection of our intellectual property is a strategic priority. Our
ability to protect and use our intellectual property rights in the continued
development and commercialization of our technologies and drug candidates,
operate without infringing the proprietary rights of others and prevent others
from infringing on our proprietary rights is crucial to our continued success.
We will be able to protect our proprietary rights from unauthorized use by
third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents, trademarks or copyrights, or are effectively
maintained as trade secrets, know-how or other proprietary information. We
currently rely on a combination of patents and pending patent applications,
some of which we license and most of which we own, and on trademarks,
copyrights, trade secrets, know-how and proprietary information, to protect
our interests as we continue to develop and commercialize our technologies and
drug candidates.

   We devote significant resources to obtaining, enforcing and defending
patents, as well as developing and protecting our other proprietary
information. Our comprehensive patent strategy is to augment our broad
proprietary portfolio by continuing to actively seek patents for our
technologies and compounds. We have already obtained patents or filed patent
applications on a number of our technologies and on certain of the compounds
we have developed. We also have certain proprietary trade secrets and know-how
that are not patentable or for which we have chosen to maintain secrecy rather
than file for patent protection.

   We have taken certain security measures to protect our trade secrets,
proprietary know-how, technologies and confidential information and continue
to explore further methods of protection. We have executed confidentiality
agreements with our employees and consultants upon the commencement of an
employment or consulting arrangement with us. These agreements require that
all confidential information developed or made known to the individual by us
during the course of the individual's relationship with us be kept
confidential and not disclosed to third parties. These agreements also provide
that inventions conceived by the individual in the course of rendering
services to us shall be our exclusive property. We also attempt to limit
access to, and dissemination of, our confidential information.

   Our intellectual property estate is as follows:

 Drug Discovery Program Patents

   We have 22 issued U.S. Patents, three Australian patents, three New Zealand
patents, two South African patents, one Pakistani patent and one Singapore
patent covering our drug discovery program inventions.

   The patents cover various, distinct families of new compounds, methods of
making compounds, pharmaceutical compositions, and methods of using the
compounds for treating particular disease states and for inhibiting proteases,
or in one instance, for antagonizing certain adhesion proteins.

   We also have 30 pending U.S. patent applications, four of which have
received a notice of allowance from the U.S. Patent & Trademark Office, 164
pending foreign patent applications, and five applications in preparation.
These applications describe and claim distinct families of new compounds,
methods of making the compounds, and pharmaceutical compositions. These
applications also variously describe and claim methods of using compounds for
treating particular disease states, methods of using compounds for inhibiting
proteases, methods of using compounds for antagonizing certain adhesion
proteins, methods of using compounds for antagonizing insect GABA receptors
and for use as pesticides, methods of using compounds for inhibiting
plasminogen activation inhibitor-1 activity, and methods of using compounds
for inhibiting mdm2-p53 interactions.

   The proteases that are inhibited by protease inhibitors described and
claimed in the issued patents and pending applications variously include, but
are not limited to, thrombin, factor Xa, urokinase, and complement C1s.
Particular disease states to which the issued patents and pending applications
are directed are described in the sections entitled "--Our Drug Candidate
Programs" and "--Our Drug Discovery Collaborations."

                                      11
<PAGE>

   We have two issued U.S. patents and three allowed U.S. applications
covering lead compounds and their manufacture and use in our thrombin program,
one issued U.S. patent and one allowed U.S. application covering lead
compounds and their manufacture and use in our urokinase program, one issued
U.S. patent and one allowed U.S. application covering lead compounds and their
manufacture and use in our C1s complement program, and one issued U.S. patent
and one allowed U.S. application covering lead compounds and their manufacture
and use in our integrin program. However, we may be unable to obtain any
issued patents for any patent applications we have filed or may file in the
future on our drug discovery inventions. Furthermore, if a compound considered
a lead compound at present changes in the future, we may have to file new
patent applications to cover the new one.

   We have an exclusive, worldwide license from GSK to patents that cover 3DP-
3534, in its pegylated and unpegylated forms, and methods of treatment with
3DP-3534, for in-vivo administration. We also have a worldwide, exclusive
license to other patents owned by another entity and directed to certain
polyethylene glycol moieties for use in preparing 3DP-3534.

 DirectedDiversity Combinatorial Chemistry Process Patents

   Our DirectedDiversity technology is protected by five issued U.S. patents.
Collectively, these patents provide apparatus and process patent coverage for
the automated, semi-automated and/or manual computer-directed selection,
synthesis, testing, and refinement of compounds in chemical libraries,
including the computer codes that allow implementation of this process.

   In October 1995, we were issued our first U.S. patent covering our
DirectedDiversity technology. The patent covers the use of semi-automated
feedback control for refining the properties of combinatorial libraries for
all applications in which suitable properties can be measured (e.g., drugs,
herbicides, paints, scents, solvents, advanced materials, etc.). A second U.S.
patent related to our DirectedDiversity technology was issued in November 1996
covering the automatic generation of new drug leads through computer-
controlled, iterative robotic synthesis and analysis of chemical libraries.
Our third U.S. patent, issued in November 1997, covers additional features of
our DirectedDiversity technology, including inventions related to computer
software for semi-automatic and automatic generation of compounds of interest.
We received our fourth U.S. patent for DirectedDiversity in May 1999, covering
the generation of new drug leads through computer-controlled, iterative
robotic synthesis and analysis of chemical libraries. Our fifth patent issued
September 2001, covering the method, system and computer program product for
representing the similarity/dissimilarity between chemical compounds.

   We also have four Australian patents and two Israeli patents, one Taiwan
patent and one allowed application in India that cover our DirectedDiversity
technology described above.

   Additionally, we have 13 pending U.S. patent applications and 43 pending
foreign patent applications. In addition to our DirectedDiversity technology
described above, these patent applications cover new methods for handling
large multidimensional data sets. Within our DirectedDiversity technology,
these methods are utilized for visualizing chemical compound
similarity/dissimilarity, for lead identification, and for lead optimization.
The methods for handling large multi-dimensional data sets have applications
beyond our DirectedDiversity technology.

 ThermoFluor Patents

   We have 11 issued U.S. patents covering our ThermoFluor screening and
protein characterization technology, process and instruments. These U.S.
patents cover methods for screening compounds for binding to proteins and
nucleic acids; an instrument for implementing these methods for screening
compounds; methods for screening for biochemical conditions that stabilize
proteins and nucleic acids; methods for screening for biochemical conditions
that facilitate protein crystallization; methods for screening for biochemical
conditions that promote recombinant protein folding; methods for screening for
lead compounds that bind to a target receptor; methods and apparatus for
sensing emission fluorescence; and methods of screening for molecules in
combinatorial systems.

                                      12
<PAGE>

   We also have six pending U.S. applications, one New Zealand patent and 19
pending foreign patent applications covering this technology. At least one of
the pending applications cover "functional genomics," which include methods
for screening proteins of unknown function in order to determine the function
of newly discovered proteins.

   Under the terms of a settlement agreement with Anadys Pharmaceuticals, Inc.
(formerly Scriptgen Pharmaceuticals, Inc.) or Anadys, relating to an action
that Anadys brought against us in the United States District Court for the
District of Delaware on October 13, 1998 for our alleged infringment of two
patents, we acquired a limited license to Anadys' ATLAS (Any Target Ligand
Affinity Screen) assay technology and Anadys was granted a limited license to
the method claims of our ThermoFluor assay technology. Neither of these
licenses is exclusive. Under this agreement, we paid Anadys $1.5 million and
Anadys released us from all claims of infringement with respect to those two
patents. The settlement agreement restricts us, until March 7, 2003, from
specified activities in connection with screening drugs useful for treating
"infection" (defined as relating to drugs whose principal aim is to treat or
cure infectious disease in humans). As part of this settlement agreement, we
are precluded from using our ThermoFluor screening technology in the Hepatitis
C Virus "infection" area as part of collaborative agreements or as part of our
internal drug programs until March 7, 2003. In addition, we are precluded from
using our ThermoFluor screening technology as part of more than one
collaboration agreement in other areas of "infection" until March 7, 2003, and
such collaborative agreement must be limited to a maximum of three anti-viral
targets. Our collaboration with Bristol-Myers Squibb Company constitutes the
one permitted collaboration agreement in the area of infection. The settlement
with Anadys, however, does not restrict use of our ThermoFluor screening
technology for our internal drug discovery efforts, other than the limitation
with respect to Hepatitis C Virus "infection," or for purposes of
collaborative agreements outside the area of "infection." In addition, if our
use of ThermoFluor facilitates the discovery of a drug used to treat
infectious disease, we are obligated to pay Anadys a royalty based on revenue
from the sale of such a drug.

 U.S. Government Grants

   We have been awarded a number of U.S. government grants to fund a variety
of internal scientific programs and undertake exploratory research. Under
these grants, we retain ownership of all intellectual property and commercial
rights generated during these projects, subject to a non-transferable, paid-up
license for the use by or on behalf of the United States of the inventions
made with federal funds. This license is not exclusive and is retained by the
U.S. government as provided by applicable statutes and regulations. We have
received the following government grants and awards from the National
Institutes of Health (Small Business Innovative Research "SBIR" grants) and
the National Institute of Standards and Technology (Advanced Technology
Program "ATP" award) during the past several years under which we have
received a total of approximately $3.9 million:

<TABLE>
<CAPTION>
Grant/Award Title                                             Grant/Award Date
-----------------                                             ----------------

<S>                                                           <C>
Automated Receptor Screening by Thermal Physical Assays
 (SBIR)(Phase 1).............................................        May 1995

Crystallization and Structural Determination of G-Coupled
 Protein Receptors (ATP).....................................     August 1995

Protein Engineering a Receptor Antagonist (SBIR)(Phase 1)....  September 1995

Automated Receptor Screening by Thermal Physical Assays
 (SBIR)(Phase 2).............................................  September 1996

Four Helix Bundle Analog of a G-Protein Coupled Receptor
 (SBIR)(Phase 1).............................................   February 1999

Expression of G-Protein Coupled Receptors for Structure
 Determination (SBIR)(Phase 1)...............................  September 1999

Four Helix Bundle Analog of a G-Protein Coupled Receptor
 (SBIR)(Phase 2).............................................      March 2000

Expression of G-Protein Coupled Receptors for Structure
 Determination (SBIR)(Phase 2)...............................       June 2001
</TABLE>

   The sponsoring agencies make decisions annually on continuations of multi-
year awards based on the availability of funds from the United States Congress
and our satisfactory performance under each grant or award.

                                      13
<PAGE>

Government Regulation

   The U.S. Food and Drug Administration (FDA) and comparable regulatory
agencies in state and local jurisdictions and in foreign countries impose
substantial requirements on the development, manufacture and marketing of
pharmaceutical candidates. These agencies and other federal, state and local
entities regulate research and development activities and the testing,
manufacture, quality control, safety, effectiveness, labeling, storage,
record-keeping, approval, promotion and advertising and pricing of our drug
candidates and those of our collaborative partners. Obtaining marketing
approvals and later complying with ongoing statutory and regulatory
requirements are costly and time-consuming. Any failure by us or our
collaborators, licensors or licensees to obtain, or any delay in obtaining,
regulatory approvals or in complying with other requirements could adversely
affect the commercialization of drug candidates and our ability to receive up-
front payments, milestone payments or royalty revenues.

   The steps required before a new drug candidate for humans may be
distributed commercially in the U.S. generally include:

  .  conducting appropriate laboratory evaluations of the drug candidate's
     chemistry, formulation and stability, and pre-clinical studies to assess
     the potential safety and efficacy of the product candidate;

  .  submitting the results of these evaluations and tests to the FDA, along
     with manufacturing information and analytical data, in an
     investigational new drug application (IND);

  .  obtaining approval of Institutional Review Boards, or IRBs, to introduce
     the drug into humans in clinical studies;

  .  conducting adequate and well-controlled human clinical trials that
     establish the safety and efficacy of the drug candidate for the intended
     use, typically in the following sequential, or slightly overlapping,
     stages:

    Phase 1: The drug candidate is initially introduced into healthy human
             subjects or patients and tested for safety, dose tolerance,
             absorption, metabolism, distribution and excretion;

    Phase 2: The drug candidate is studied in patients to identify possible
             adverse effects and safety risks, determine dosage tolerance
             and the optimal dosage, and collect some efficacy data;

    Phase 3: The drug candidate is studied in an expanded patient
             population at multiple clinical study sites to confirm
             efficacy and safety at the optimized dose, by measuring a
             primary endpoint established at the outset of the study; and

    Phase 4: The FDA may in some circumstances require post-marketing
             studies to delineate additional information about a drug's
             risks, benefits and optimal use;

  .  submitting the results of preliminary research, pre-clinical studies,
     and clinical trials as well as chemistry, manufacturing and control and
     labeling information on the drug candidate to the FDA in an New Drug
     Application (NDA) or Biologics License Application (BLA);

  .  payment of fees authorized by the Prescription Drug User Fee Act
     ("PDUFA") which include a one-time application fee for approval of an
     NDA or BLA, an annual establishment fee imposed on facilities used to
     manufacture prescription drugs and biologics, and an annual product fee
     imposed on prescription drugs and biologics after FDA approval; and

  .  obtaining FDA approval of the NDA or BLA, including inspection of
     manufacturing facilities, prior to any commercial sale or shipment of
     the drug candidate.

   The steps required before a new animal drug may be distributed commercially
in the U.S. are similar to the foregoing. The major differences are that
additional safety issues need to be addressed if the target animal(s) will
contribute or be part of human food, and the requisite clinical study
requirements for animal drugs are oftentimes less expensive than those for
human drugs. Also, there are no user fees for New Animal Drug Applications
(NADAs).

                                      14
<PAGE>

   Upon approval, a drug candidate may be marketed only in those dosage forms
and for those indications approved in the NDA, BLA or NADA. In addition to
obtaining FDA approval for each indication to be treated with each product
candidate, each foreign and domestic drug candidate manufacturing
establishment must register with the FDA, list its product candidates with the
FDA, comply with current good manufacturing practices (cGMPs) and permit and
pass manufacturing plant inspections by the FDA. Moreover, the submission of
applications for approval may require additional time to complete
manufacturing stability studies. Foreign companies that manufacture drug
candidates for distribution in the United States also must list their product
candidates with the FDA and comply with cGMPs. They are also subject to
periodic inspection by the FDA or by local authorities under agreement with
the FDA. Moreover, approval of drug candidates may be delayed by certain
market exclusivity and patent protections awarded to other parties concerning
similar products or drug candidates.

   Any drug candidates that we or our collaborators manufacture or distribute
under FDA approvals are subject to extensive continuing regulation by the FDA,
including recordkeeping requirements and reporting of adverse experiences with
the product candidate. Additionally, if we or our collaborators propose any
modifications to a product, including changes in indication, manufacturing
process, manufacturing facility or labeling, we or our collaborators may be
required to submit an NDA/NADA supplement to the FDA. The promotion and
advertising for drugs that we or our collaborators market are also subject to
review and can be the subject of possible FDA action.

   Failure to comply subjects the manufacturer to possible FDA action, such as
warning letters, suspension of manufacturing, seizure of the product,
voluntary recall or withdrawal of a product or injunctive action, as well as
possible civil or criminal penalties. We currently rely on, and intend to
continue to rely on, third parties to manufacture our compounds and product
candidates. These third parties will be required to comply with cGMPs.

   Products manufactured in the United States for distribution abroad will be
subject to FDA regulations regarding export, as well as to the requirements of
the country to which they are shipped. These latter requirements are likely to
cover the conduct of clinical trials, the submission of marketing
applications, and all aspects of manufacturing and marketing. Such
requirements can vary significantly from country to country. As part of our
strategic relationships, our collaborators may be responsible for the foreign
regulatory approval process for our product candidates, although we may be
legally liable for noncompliance.

   We and our collaborators are also subject to various federal, state and
local laws, rules, regulations and policies relating to safe working
conditions, laboratory and manufacturing practices, the experimental use of
animals and the use and disposal of hazardous or potentially hazardous
substances used in connection with our research work. Also, the availability
and levels of government or third-party payor reimbursement for our products
and those of our collaborators/licensees that involve our technology will have
a considerable impact on our revenues and business. The availability and scope
of government and third-party reimbursement for drugs are subject to ongoing
debate and change. For example, the U.S. Congress is actively debating whether
and how to provide prescription drug benefits to Medicare beneficiaries.
Government and third-party payors are continuously striving to reduce
reimbursement levels for healthcare products, and these cost control
initiatives may be applied to our products or those of our
collaborators/licensees. Further, changes in government reimbursement are
oftentimes adopted by other payors.

   The extent of government regulation which might result from future
legislation or administrative action cannot be accurately predicted. As a
result, the actual effect of these developments on our business is uncertain
and unpredictable.

Competition

   We compete both in the markets for pharmaceutical products and the markets
for drug discovery technologies and services. Our principal competitors are
the internal drug discovery departments of our pharmaceutical company
customers and potential customers. Many of our customers and potential
customers have developed or acquired or are developing or are acquiring
integrated drug discovery capabilities that use combinatorial chemistry,
chemi-informatics software, structure-based drug design and high-throughput

                                      15
<PAGE>

screening. In addition, many of these companies have large collections of
compounds that they have previously synthesized, purchased from chemical
supply catalogs or obtained from other sources against which they may screen
new targets.

   For drug candidates that we seek to develop commercially and/or outlicense
from our drug discovery pipeline, we face, and will continue to face, intense
competition from organizations such as large pharmaceutical and biotechnology
companies. Competition with any of the programs in our internal drug discovery
pipeline may arise from current or future drug candidates in the same
therapeutic class or other classes of therapeutic agents or other methods of
preventing or reducing the incidence of disease. In addition, any drug
candidate that is successfully developed may compete with existing therapies
that have long histories of safe and effective use.

   Due to perceived shortcomings of available agents and the large market
potential, competition to develop a safe, orally active antithrombotic agent
is intense, with many discovery programs in process, including programs in
clinical development by AstraZeneca, Pfizer Inc., and Abbott Laboratories. In
addition, we are aware of several other programs targeting additional proteins
in the coagulation process that could be competitive with our thrombin
inhibitor, including programs of Schering AG, Germany and AstraZeneca. We are
aware of an oral heparin program of Emisphere Technologies, Inc., believed to
be in Phase 2, which may also compete with our thrombin inhibitor. In
addition, oral agents that effect blood platelet activation could provide
competitive therapeutic approaches to oral inhibitors of the coagulation
process. We are aware of such drug development programs at Merck & Co., Inc.,
GlaxoSmithKline plc, Bristol-Myers Squibb Company, and Schering-Plough
Corporation, among others.

   Our thrombopoietin-mimetic compound, 3DP-3534, with potential for
prophylaxis and/or therapy for chemotherapy-induced thrombocytopenia, competes
directly with the recombinant form of the natural human hormone (rhTPo)
currently in Phase 3 clinical development by Pharmacia Corporation. We also
are aware of a related product by Receptron, Inc. that is in Phase 1 clinical
trials as a thrombopoietin receptor modulator. In addition, several companies
may be attempting to develop small molecule agonists of the human
thrombopoietin receptor in pre-clinical studies.

   Our orally active alpha/v/beta/3//alpha/v/beta/5/ integrin antagonist program
for the treatment of solid and metastatic tumors, osteoporosis, and arthritis
has significant competition from several companies. We are aware of competing
small molecule programs at GlaxoSmithKline plc, Merck & Co., Inc., Pharmacia
Corporation., and Merck KGaA that may have advanced one or more compounds into
clinical trials. In addition, we are aware of programs at MedImmune and
Centocor, Inc. developing humanized monoclonal antibodies against specific
integrins to target tumor angiogenesis and/or rheumatoid arthritis among other
indications.

   Our orally active urokinase inhibitor for the inhibition of cancer
metastasis and tumor angiogenesis faces competition from a number of agents
and approaches under development. We are aware of competing small molecule
inhibitor programs at Abbott Laboratories, Pfizer Inc., Celera Genomics Group,
Corvas International, Inc., and Wilex Biotechnology GmbH. We are also aware of
programs aimed at developing compounds that are antagonists of the receptor
for urokinase that could compete with our oral urokinase inhibitor. There are
also a number of alternative approaches to controlling angiogenesis or
metastasis including the use of a) inhibitors of matrix metalloproteases,
which are protease enzymes that destroy the matrix material that binds cells
together, including programs by British Biotech plc, Bristol-Myers Squibb
Company, Pharmacia Corporation, and Pfizer, Inc., b) inhibitors of endothelial
cell receptor tyrosine kinases, including programs by AstraZeneca, Pharmacia
Corporation, Cephalon, Inc., and Merck & Co., Inc., and c) other therapeutic
proteins or monoclonal antibodies that target a variety of processes in cancer
cells.

   Our C1s complement antagonist program for the treatment of inflammatory
diseases such as rheumatoid arthritis and lupus faces significant industry
competition as well. We are aware of programs targeting various proteins in
the complement activation cascade, including a humanized antibody directed
against complement factor C5 by Alexion Pharmaceuticals, Inc. currently in
Phase 2 clinical trials and a soluble complement receptor by AVANT
Immunotherapeutics, Inc. In addition, small molecule programs directed against
complement factors have been reported by Abbott Laboratories, Merck & Co.,
Inc., and Pfizer Inc.

                                      16
<PAGE>

   Our hdm2 antagonist program, targeting a key molecular regulator of the
well-known tumor suppressor gene p53, is also an area of active research in
the pharmaceutical industry. In this regard, we are aware of pre-clinical
research programs targeting hdm2 at AstraZeneca and Novartis AG. In
additional, many companies are working on alternative ways to modulate normal
p53 functioning, including various gene therapy and biological approaches.

   Other earlier-phase research programs in small molecule drug discovery are
also in highly competitive areas. Many companies are working in these areas,
and they may achieve earlier or greater success than we may be able to
achieve. Most of our competitors, either alone, or together with their
collaborators, have substantially greater research and development
capabilities and financial, scientific, operational, marketing, and sales
resources than we do, as well as significantly more experience in research and
development, clinical trials, regulatory matters, manufacturing, marketing,
and sales. These competitors and other companies may have developed or may in
the future develop new technologies or products that compete with ours or
which could render our technologies and products obsolete. In addition, our
competitors may succeed in obtaining broader patent protection, receiving FDA
approval for products, or developing and commercializing products or
technologies before us. We also compete with these organizations in recruiting
and retaining qualified scientific and management personnel.

   We also compete with biotechnology and drug discovery services companies,
academic and scientific institutions, governmental agencies, and public and
private research organizations. We face competition based on numerous factors,
including size, diversity and ease of use of compound libraries, speed and
cost of identifying and optimizing potential lead compounds and patent
position from companies offering one or more technology components of the
discovery process. Companies such as Aurora Biosciences Corporation (recently
acquired by Vertex Pharmaceuticals Incorporated) and EVOTEC BioSystems AG have
developed ultra-high-throughput screening capabilities. In addition, several
competitors, including Anadys Pharmaceuticals, Inc., Novalon Pharmaceutical
Corporation, Cetek Corporation, NeoGenesis Pharmaceuticals, Inc., and
Signature Pharmaceuticals, Inc., have developed alternative approaches to
screening protein targets of unknown function that are competitive with our
ThermoFluor technology. There are many companies that provide combinatorial
chemistry services for lead generation and optimization that compete with our
DiscoverWorks technologies and discovery services. Competitors such as
Pharmacopeia, Inc., ArQule, Inc., Discovery Partners International, Inc. and
MediChem Life Sciences, Inc. (recently purchased by deCODE Genetics, Inc.) use
computer methods to assist in the design of large screening libraries and
synthesize them using combinatorial or parallel chemical synthesis methods,
which are competitive with our DirectedDiversity technology. Competitors such
as Accelerys Inc. (a division of Pharmacopeia, Inc.), Tripos, Inc., and MDL
Information Systems, Inc. are computer software companies that offer chemi-
informatics and other software and database services to support drug
discovery, which are competitive with the software components of our
DirectedDiversity chemi-informatics technology. Competitors such as Vertex
Pharmaceuticals Incorporated, Millennium Pharmaceuticals, Inc., and Axys
Pharmaceuticals, Inc. (recently purchased by Celera Genomics, Inc.)
extensively use structure-based drug design or genomics technologies
integrated with combinatorial chemistry and other drug discovery technologies.
These entities compete with us either on their own or in collaborations.
Companies such as Arena Pharmaceuticals, Inc., Synaptic Pharmaceutical
Corporation, and EVOTEC BioSystems AG have developed GPCR screening
technologies that offer alternative approaches to GPCR drug discovery which
may be competitive with our structure-based drug design approach. In addition,
both internal drug design units at major pharmaceutical companies and
companies offering protein modeling services, such as Structural
Bioinformatics, Inc. and BioIT Inc, may compete with 3DP's approach, while
companies such as Structural GenomiX Inc., Astex Technology Ltd, and Syrrx,
Inc. specialize in the use of high throughput crystallography for drug
discovery and may have competitive GPCR crystallography programs.

   While we believe that our integration of proprietary technologies for drug
discovery provides us with a competitive advantage over many of our
competitors and intend to further develop our integrated "target-to-lead"
technologies, we recognize that many of our competitors will seek to integrate
and improve their technologies to provide discovery capabilities similar or
superior to those provided by us.


                                      17
<PAGE>

Clinical Testing Strategy

   We do not have the ability to independently conduct clinical studies and
obtain regulatory approvals for our drug candidates. To the extent our
collaborators do not perform these functions, we rely and intend to continue
to rely on third-party expert clinical investigators and clinical research
organizations to perform these functions.

Manufacturing Strategy

   We are an early stage drug discovery company and, accordingly, do not at
this stage require commercial scale manufacturing capabilities. We currently
rely, and anticipate continuing to do so for the foreseeable future, on
internal capabilities for synthesis of the small amounts of chemical compounds
required for the discovery phases of our internal programs and external
collaborations.

   Completion of any pre-clinical trials for our drug candidates involving
large quantities of chemical compounds, or any future clinical trials and
commercialization of our drug candidates by us or our collaborators, will
require access to, or development of, facilities to manufacture a sufficient
supply of our drug substance. We do not have the facilities or experience to
manufacture the quantities of drug substance necessary for any such trials or
commercial purposes on our own and do not intend to develop or acquire
facilities for the manufacture of such quantities of drug substance in the
foreseeable future. We currently intend, instead, to rely on our collaborators
and third-party contract manufacturers.

   In connection with our TPO mimetic compound 3DP-3534, we have signed a
license, manufacturing, and supply agreement with Shearwater Corporation, a
subsidiary of Inhale Therapeutic Systems, Inc., to provide a key ingredient
required for the manufacture of the drug substance. Under the terms of this
agreement, we will pay for the supply of the ingredient and may pay
milestones, and royalties on product sales. We are currently working with
other third-party manufacturers to provide adequate quantities of drug
substance to meet our clinical development requirements.

   In addition, for drug candidates that we have licensed or may in the future
license to third-party collaborators for further development and
commercialization, we must rely on our collaborators' ability to manufacture,
or to have manufactured, the quantities necessary for further development and
commercialization.

Marketing and Sales

   We sell and license our DiscoverWorks drug discovery services,
technologies, and drug candidates through a direct marketing effort to
pharmaceutical and biotechnology companies. Since we are an early-stage
company, we do not have an established sales and marketing department.
Instead, we solicit potential collaborative partners primarily through the
efforts of our management and business development teams. We also present at
industry conferences and have an internet web site that describes our products
and services.

   We currently have no sales, marketing, or distribution capabilities to
commercialize our drug candidates. In order to commercialize drugs, we will
either internally develop sales, marketing, and distribution capabilities or
make arrangements with third parties to perform these services.

Employees

   As of March 1, 2002, we had 204 full-time employees, 89 of whom hold Ph.D.
degrees. Of these employees, 161 were engaged in research and development and
43 were engaged in business development, finance, legal, facility operations,
and general administration. Our scientific staff includes: 61 biologists, 73
chemists, and 27 computer scientists and engineers. Many of our employees have
extensive experience in drug discovery at major pharmaceutical companies. None
of our employees are represented by labor unions or covered by collective
bargaining agreements. We have not experienced any work stoppages, consider
our employee relations to be good, and believe that we enjoy a strong
corporate culture built on cooperation among our various departments, which we
view as a key element in our interdisciplinary approach to research.

                                      18
<PAGE>

Executive Officers of the Registrant

   The following table sets forth certain information concerning the executive
officers, as well as certain other members of senior management, of the
Company:

<TABLE>
<CAPTION>
                    Name                  Age Position
                    ----                  --- --------
   <C>                                    <C> <S>
   David C. U'Prichard, Ph.D............. 53  Chief Executive Officer
                                              President and Chief Scientific
   F. Raymond Salemme, Ph.D.............. 57  Officer
   John M. Gill.......................... 50  Chief Operating Officer
   Roger F. Bone, Ph.D................... 44  Senior Vice President, Research &
                                              Development
   Scott M. Horvitz...................... 43  Vice President, Finance and
                                              Administration, Secretary,
                                              Treasurer
   Brian R. MacDonald, MB ChB and Ph.D... 42  Vice President, Development
   Kathy A. Quay......................... 46  Vice President, Human Resources
   Melinda P. Rudolph.................... 44  Vice President, General Counsel
</TABLE>

   Dr. David C. U'Prichard joined us in September 1999 as our CEO and a member
of our Board of Directors. From 1997 to 1999, Dr. U'Prichard served as
President of Research and Development at SmithKline Beecham. While at
SmithKline Beecham, Dr. U'Prichard oversaw the entry of approximately ten
compounds into global development, the international registration of the
diabetes drug Avandia(R) and the entry of four compounds into Phase 3 trials
and six compounds into early clinical trials; additionally, he instituted
several major restructuring efforts at the company. Prior to SmithKline
Beecham, he worked for ICI/Zeneca (now AstraZeneca) from 1986 to 1997, as
Executive Vice President and International Research Director from 1994 to
1997. Previously, Dr. U'Prichard was instrumental in the launch of Nova
Pharmaceuticals in 1983, following an academic career as the Associate
Professor of Pharmacology and Neurobiology at Northwestern University Medical
School (1978-83), and his postdoctoral fellowship at Johns Hopkins University
(1975-78). Dr. U'Prichard received his Ph.D. in Pharmacology from the
University of Kansas, and his B.S. in Pharmacology with first-class honors
from the University of Glasgow, Scotland. He has held academic appointments at
Northwestern University, Johns Hopkins University and the University of
Pennsylvania and is an Honorary Professor at the University of Glasgow. He is
also an author of more than 100 primary and review publications, was a
founding co-editor of Molecular Neurobiology and co-editor of Epinephrine in
the Central Nervous System and has served as a member of various editorial
boards. Dr. U'Prichard serves on the Board of Directors of Lynx Therapeutics,
Inc., a public company. Dr. U'Prichard also serves on the Board of Directors
of Predict, Inc., RiboTargets plc, and GeneMatrix, Inc., and is on the Board
of the Pennsylvania Biotechnology Association.

   Dr. F. Raymond Salemme founded our company in 1993 and currently serves as
President and Chief Scientific Officer and as a member of our Board of
Directors. Dr. Salemme is co-inventor on 14 U.S. patents covering our
DirectedDiversity(R) chemi-informatics process control technology and our
ThermoFluor(R) assay technology. Prior to founding our company, Dr. Salemme
established drug discovery groups specializing in structure-based drug design,
biophysics and computational chemistry at Sterling Winthrop Pharmaceuticals
and DuPont Merck Pharmaceuticals, Inc. Dr. Salemme also worked in Central
Research and Development at DuPont, where he led research in protein X-ray
crystallography and engineering, developed computational methods for
crystallography and drug design, and conducted large-scale computational
simulations of proteins and polymer systems. In 1983, Dr. Salemme founded the
Protein Engineering Division of Genex Corporation, among the first companies
to use X-ray crystallography and molecular modeling for genetically
engineering proteins. From 1973 to 1983, Dr. Salemme was Professor of
Biochemistry at the University of Arizona and published extensively in the
areas of molecular structures of redox proteins, theory of biological electron
transfer and protein architecture. Dr. Salemme received a B.A. in Molecular
Biophysics from Yale University (with exceptional distinction) and a Ph.D. in
Chemistry from the University of California, San Diego, where his Ph.D. thesis
solved one of the first high-resolution 3-D protein structures by X-ray
crystallography. In addition to duties at 3DP, Dr. Salemme serves on several
corporate scientific and academic advisory boards, as well as federal advisory
committees on advanced

                                      19
<PAGE>

technology and biotechnology, including the National Institute of Science and
Technology (NIST) Visiting Committee on Advanced Technology, and advisory
committees for National Institutes of Health (NIH).

   Mr. John M. Gill currently serves as our Chief Operating Officer and as a
member of our Board of Directors. Mr. Gill joined us in May 2001 as Executive
Vice President and Chief Financial Officer. Prior to joining us, Mr. Gill was
Vice President and Director, Operations and Finance, SmithKline Beecham
Research and Development, now GlaxoSmithKline plc. Mr.Gill served in Division
and Corporate Finance positions at SmithKline Beecham from 1979 to 1984.
During 1985, Mr. Gill was a founding member of SmithKline Beecham's life
sciences venture capital fund, S.R. One, Ltd. In 1989, he was named Executive
Vice President and Chief Operating Officer of SK&F/NOVA Pharmaceuticals, a
neuroscience drug discovery joint venture of SmithKline Beckman and NOVA
Pharmaceutical Corporation. He returned to S.R. One, Ltd. during 1991 and
moved to SmithKline Beecham Research and Development during 1995. Prior to
joining SmithKline Beecham, Mr. Gill worked for Peat, Marwick, Mitchell &
Company. Mr. Gill is a Certified Public Accountant and received his B.A. in
Accounting and Economics from Rutgers University in 1975. He served in the
United States Marine Corps from 1971 to 1973.

   Dr. Roger F. Bone joined us in 1993 and currently serves as Senior Vice
President, Research and Development. Dr. Bone began his career with Merck &
Co. in 1990 as Senior Research Biophysicist and was named Research Fellow in
1992. He was a Postdoctoral Fellow at the University of California from 1985
to 1990, and he was an associate with Howard Hughes Medical Institute from
1988 to 1990. Dr. Bone is a recipient of the U.S. Public Health Service
Individual National Research Award, is widely published in scientific
journals, and is a co-inventor on several patents, including patents covering
our DirectedDiversity(R) technology. Dr. Bone received his Ph.D. in
Biochemistry from the University of North Carolina at Chapel Hill and his B.S.
in Chemistry from Purdue University.

   Mr. Scott M. Horvitz has served as our Vice President, Finance and
Administration since our inception. From 1991 to 1993, Mr. Horvitz held
various positions at Magainin Pharmaceuticals Inc., now Genaera Corporation,
and most recently served as Executive Director, Finance and Human Resources.
From 1983 to 1991, Mr. Horvitz was with the firm of Richard A. Eisner and
Company, LLP, Certified Public Accountants, where he most recently served as a
Senior Audit Manager, specializing in venture-financed, technology start-up
companies. Mr. Horvitz holds a B.S. in Accounting from the University at
Albany and is a Certified Public Accountant. Mr. Horvitz is currently a member
of the University at Albany Life Sciences Steering Committee.

   Dr. Brian R. MacDonald joined us in January 2002 as Vice President,
Development. Prior to joining us, Dr. MacDonald served as Group Director,
Emerging Therapeutic Areas, North American Medical Affairs, for
GlaxoSmithKline plc (GSK) where he managed the clinical development of a
portfolio of compounds in several disease areas. From 1995 to 2002, Dr.
MacDonald held positions of increasing responsibility with SmithKline Beecham
Pharmaceuticals (subsequently GSK). Prior to joining SmithKline Beecham
Pharmaceuticals, Dr. MacDonald held teaching positions with the University of
Pennsylvania and the University of Bath, U.K. Dr. MacDonald is a member of
several well-respected medical research organizations. He received his medical
degree and his Ph.D. from the University of Sheffield Medical School,
Sheffield, UK and trained as a rheumatologist at the Royal National Hospital
for Rheumatic Diseases, Bath UK.

   Ms. Kathy A. Quay joined us in September 2001 as Vice President Human
Resources. From February 1999 to February 2001, Ms. Quay was a Senior
Consultant with Watson Wyatt Worldwide, a global consulting firm. Prior to
joining Watson Wyatt, Ms. Quay held leadership positions in Human Resources
for Rhone-Poulenc Rorer, Inc. She also held various human resources positions
for Centeon LLC, PECO Energy Company and General Electric Company. Ms. Quay
received her BBA with a concentration in Industrial Relations from Ursinus
College.

   Melinda P. Rudolph joined us in March 2002 as Vice President and General
Counsel. From 1992 until she joined us, Ms. Rudolph was in private practice at
the law firm of Harkins Cunningham, where she served as a partner (1998-2002),
and of counsel (1996-1998) and an associate (1992-1995). Before joining
Harkins

                                      20
<PAGE>

Cunningham, Ms. Rudolph was associated with the law firm of Pepper Hamilton &
Scheetz (now Pepper Hamilton LLP). Ms. Rudolph received her J.D. in 1986 from
the University of Pennsylvania Law School, where she was the winner of the
Edwin R. Keedy Moot Court Competition. She received a B.A., cum laude from the
University of Pennsylvania in 1978.

Item 2. Properties

   We currently occupy approximately 104,500 square feet of space including
our executive offices in Yardley, Pennsylvania and our two research facilities
located in Exton, Pennsylvania and Cranbury, New Jersey. Our corporate and
administrative offices cover 20,500 square feet of office space which we
occupied in October of 2001 and which are leased through March of 2006. We
lease approximately 41,000 square feet of space in Exton, Pennsylvania which
houses one of our research and development facilities, including approximately
10,000 square feet, adjacent to our initial space, which we occupied in
December 2000. The initial 31,000 square feet of our Exton facility is leased
through June 2008 and the additional 10,000 square feet is subject to options
allowing us to extend that portion of the lease term through June 2008. Our
other research and development facility includes approximately 43,000 square
feet of space in Cranbury, New Jersey. Our Cranbury facility is leased through
May 2007. We believe that our current space is sufficient to meet our near
term requirements.

Item 3. Legal Proceedings

   We are not currently a party to any material legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders

   No matters were submitted to stockholders during the fourth quarter of
2001.

                                    PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

   Our common stock has been traded on the Nasdaq National Market under the
symbol "DDDP" since August 4, 2000.

   The following table sets forth the high and low closing prices for our
common stock for the quarters indicated as reported on the Nasdaq National
Market.

<TABLE>
<CAPTION>
                                                                  High     Low
                                                                 ------- -------
       <S>                                                       <C>     <C>
       2000
        Third Quarter........................................... $38.875 $15.00
        Fourth Quarter..........................................  35.00   11.375

       2001
        First Quarter........................................... $15.125 $ 7.25
        Second Quarter..........................................  16.64    7.75
        Third Quarter...........................................  10.39    6.60
        Fourth Quarter..........................................   9.60    5.54
</TABLE>

   As of February 11, 2002, there were approximately 138 holders of record and
approximately 2,845 beneficial stockholders of our common stock.

   We do not intend to pay any cash dividends on our common stock in the
foreseeable future. We currently intend to retain any future earnings for use
in our business.

                                      21
<PAGE>

Item 6. Selected Consolidated Financial Data

   The selected consolidated financial data set forth below is derived from
our consolidated financial statements. Our statements of operations data for
the year ended December 31, 2001 and our balance sheet data at December 31,
2001 are derived from our consolidated financial statements that have been
audited by Arthur Andersen LLP and our consolidated statements of operations
data for the years ended December 31, 2000 and 1999 and our consolidated
balance sheet data at December 31, 2000 are derived from our financial
statements that were audited by Richard A. Eisner & Company, LLP. These
financial statements are included elsewhere in this annual report, and are
qualified by reference to such consolidated financial statements. The
statement of operations data for the years ended December 31, 1998 and 1997
and the balance sheet data as of December 31, 1999, 1998 and 1997 are derived
from our audited financial statements, which are not included in this annual
report. The selected consolidated financial information set forth below should
be read together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and related notes appearing elsewhere in this annual report.

<TABLE>
<CAPTION>
                                          Year ended December 31,
                                 ---------------------------------------------
                                   2001     2000      1999     1998     1997
                                 --------  -------  --------  -------  -------
                                    (in thousands except per share data)
<S>                              <C>       <C>      <C>       <C>      <C>
Statements of Operations Data:
Research and grant revenue.....  $ 28,399  $12,409  $  4,489  $ 5,095  $ 3,580
                                 --------  -------  --------  -------  -------
Costs and expenses
 Research and development......    29,614   14,562    12,136   10,984    6,517
 General and administrative....    15,334    8,652     6,525    4,458    3,000
 Litigation settlement.........       --       --      1,500      --       --
                                 --------  -------  --------  -------  -------
  Total costs and expenses.....    44,948   23,214    20,161   15,442    9,517
                                 --------  -------  --------  -------  -------
Loss from operations...........   (16,549) (10,805)  (15,672) (10,347)  (5,937)
Interest income................     5,344    3,458       328      868      521
Interest expense...............      (237)    (646)     (625)    (232)    (149)
                                 --------  -------  --------  -------  -------
Loss before income taxes.......   (11,442)  (7,993)  (15,969)  (9,711)  (5,565)
Provision for income taxes.....       --       159       --       --       --
                                 --------  -------  --------  -------  -------
Net loss.......................   (11,442)  (8,152)  (15,969)  (9,711)  (5,565)
Declared and accrued cumulative
 dividends on preferred
 stock.........................       --      (396)     (669)    (144)     --
                                 --------  -------  --------  -------  -------
Net loss applicable to common
 stock.........................  $(11,442) $(8,548) $(16,638) $(9,855) $(5,565)
                                 ========  =======  ========  =======  =======
Basic and diluted net loss per
 common share--historical......  $   (.53) $  (.97) $ (27.37) $(22.20) $(27.55)
                                 ========  =======  ========  =======  =======
Weighted average common shares
 outstanding--historical.......    21,626    8,778       608      444      202
                                 ========  =======  ========  =======  =======
Basic and diluted net loss per
 common share--pro forma.......            $  (.52) $  (1.57)
                                           =======  ========
Weighted average common shares
 outstanding--pro forma........             15,663    10,198
                                           =======  ========
</TABLE>

   See our consolidated financial statements for a description of the
computation of the historical and pro forma net loss per share and the number
of shares used in the historical and pro forma per share calculations in
"Statements of Operations Data" above.

                                      22
<PAGE>

<TABLE>
<CAPTION>
                                           As of December 31,
                                ---------------------------------------------
                                  2001      2000     1999     1998     1997
                                --------  --------  -------  -------  -------
                                             (in thousands)
<S>                             <C>       <C>       <C>      <C>      <C>
Balance Sheet Data:
Cash, cash equivalents and
 marketable securities......... $100,389  $114,557  $ 7,645  $ 9,726  $ 8,953
Total assets...................  117,119   123,244   12,480   15,712   12,646
Notes payable--dividends and
 accrued interest..............      --        --       685      144      --
Deferred revenue, less current
 portion.......................    3,286     9,619      --       --       --
Long-term debt, less current
 portion.......................      161     1,315    2,330    3,270      820
Convertible notes and accrued
 interest......................      --        --    10,115      --       --
Settlement accrual, less
 current portion...............      --        --       500      --       --
Redeemable convertible
 preferred stock...............      --        --    34,834   34,834   24,461
Accumulated deficit............  (64,703)  (53,261) (45,109) (29,140) (19,429)
Total stockholders' equity
 (deficiency)..................   92,246   100,023  (41,748) (25,384) (15,702)
</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Overview

   We are a small molecule drug discovery and development business that has a
pipeline of drug candidates in the areas of cancer, inflammation, and
metabolic and cardiovascular diseases. Almost all of the drug candidates in
our pipeline were discovered using portions of our integrated set of
proprietary technologies called DiscoverWorks.(R) We believe DiscoverWorks
increases the productivity of the drug discovery process by making it faster
than traditional drug discovery methods and by providing our scientists with
the ability to design characteristics into drug candidates that increase the
probability of development success. DiscoverWorks may also enable us to
discover drugs that act on many of the thousands of new drug targets revealed
from sequencing the human genome. We use DiscoverWorks to discover and develop
drugs for our own pipeline and in collaboration with pharmaceutical and
biotechnology companies.

   To date, substantially all of our revenue has been from corporate
collaborations, license agreements, and government grants. Revenue from
corporate collaborations and licensing agreements consists of up-front fees,
research and development funding, and milestone payments. Royalties from sales
of developed products are not expected for at least several years, if at all.

   We have incurred substantial operating losses since our inception in 1993.
As of December 31, 2001, our accumulated deficit was $64.7 million. We have
funded our operations primarily through public and private placements of
equity securities totaling $153.0 million and cash received under
collaborative agreements, license agreements, and government grants of $68.5
million. Our losses have resulted from costs incurred in research and
development activities related to technology development, internally funded
drug discovery and development programs, and associated administrative support
costs. During 2001, we achieved a significant portion of our near term
staffing needs, increasing our staff from 125 to 200, which includes 90
Ph.D.s. The staff expansion has enabled us to initiate and advance several
internally funded programs. A key objective of ours is to continue to progress
and expand our pipeline of drug candidates, which currently includes several
programs in various stages of discovery and development.

   For 2002, our existing collaborations, license agreements, and government
grants are expected to provide revenues of approximately $24 million relating
to up-front fees, research funding payments, and license fees. Not included in
the 2002 estimate are potential milestone payments from existing agreements or
revenues from any future collaborations. Although one of our goals is to enter
into additional DiscoverWorks collaborations, our basic business model is to
focus a greater portion of our resources on internally funded product research
and development. As a result, we expect to incur increasing operating losses
in 2002 and over the next several years. In connection with our objective to
enhance our pipeline, in January 2002 we acquired worldwide rights to a pre-
clinical compound from GlaxoSmithKline plc (GSK) for the prevention and
treatment of thrombocytopenia,

                                      23
<PAGE>

or low blood platelet count. We believe that this compound fits well with our
strategic effort in oncology. All payments that we will make to GSK will be in
3DP stock. We made an initial payment of 0.5 million shares and are obligated
to issue up to 1.9 million additional shares if the compound achieves certain
key development and regulatory milestone events. We expect to recognize a non-
cash in-process research and development charge in the first quarter of 2002
of $4.1 million for the initial 0.5 million shares.

   Our ability to achieve profitability is dependent on the progress and
commercialization of drug candidates from existing programs and collaborations
and our ability to initiate and develop new programs and enter into additional
collaborations with favorable economic terms. Payments under drug discovery
and development agreements will be subject to significant fluctuation in both
timing and amount and therefore our results of operations for any period may
not be comparable to the results of operations for any other period.

Critical Accounting Policies

   Our significant accounting policies are described in Note B to the
consolidated financial statements included in Item 8 of this Form 10-K. We
believe our most critical accounting policy is revenue recognition. Revenue
from corporate collaborations and licensing agreements consists of up-front
fees, research and development funding, and milestone payments. Non-refundable
up-front fees are deferred and amortized to revenue over the related
performance period. We estimate our performance period as the initial research
term. The actual performance period may vary. We will adjust the performance
period estimate based upon available facts and circumstances. Periodic
payments for research and development activities and government grants are
recognized over the period that we perform the related activities under the
terms of the agreements. Revenue resulting from the achievement of milestone
events stipulated in the agreements is recognized when we have (i) adequate
evidence that the milestone has been achieved and (ii) the achievement of the
milestone is deemed to be substantive. The determination whether the
achievement of the milestone is substantive is generally based upon the
ability to verify the developmental progress.

Results of Operations

 Years Ended December 31, 2001 and 2000

   Revenue. Our revenue for the year ended December 31, 2001 was $28.4
million, compared to $12.4 million for the year ended December 31, 2000. The
revenue increase results from discovery collaborations and license agreements
with Schering AG, Germany, Bristol-Myers Squibb Company and Centocor, Inc., a
wholly owned subsidiary of Johnson & Johnson, that commenced in May 2000, July
2000 and December 2000, respectively. Included in the 2001 revenue is a $4.0
million payment resulting from a milestone that the Company achieved in
October 2001 in connection with the Centocor, Inc. agreement. In December
2001, we entered into a DiscoverWorks drug discovery alliance with Johnson &
Johnson Pharmaceutical Research & Development L.L.C. We will begin to
recognize revenue from this agreement in 2002.

   Research and Development Expenses. Our research and development expenses
increased by $15.0 million to $29.6 million for the year ended December 31,
2001, compared to $14.6 million for the year ended December 31, 2000. During
2001, we increased our capacity to generate drug leads and added resources to
progress our drug candidates to clinical trials. Related to our expansion were
increases in personnel, scientific instrumentation, computing, and facilities
expenses. We anticipate that research and development expenses will continue
to increase as we advance more research and development programs towards and
into human clinical trials.

   General and Administrative Expenses. Our general and administrative
expenses increased by $6.6 million to $15.3 million for the year ended
December 31, 2001, compared to $8.7 million for the year ended December 31,
2000. The increase was primarily related to increased management and personnel
expenses, increased investments in business development and facilities
required to support our continued research and development efforts, and
additional expenses relating to our operations as a public company.

                                      24
<PAGE>

   Other Income (Expenses). Interest income increased by $1.8 million to $5.3
million for the year ended December 31, 2001, compared to $3.5 million for the
year ended December 31, 2000. The increase in interest income is attributable
to the investment of the proceeds from our initial public offering and private
placements of securities, as well as investment of the up-front fees we have
received from our collaborators. Interest expense was $0.2 million for the
year ended December 31, 2001 and $0.6 million for the year ended December 31,
2000. The decrease was due to the decrease in the amount of interest-bearing
notes outstanding during the period.

   Provision for Income Taxes. As of December 31, 2001, we had net operating
loss carryforwards for federal income taxes of $43.4 million. We also had
federal research and development tax credit carryforwards. Our utilization of
the net operating loss and tax credit carryforwards may be subject to annual
limitations pursuant to Section 382 of the Internal Revenue Code, and similar
state provisions, as a result of changes in our ownership structure. The
annual limitations may result in the expiration of net operating losses and
credits prior to utilization.

   At December 31, 2001 and 2000, the Company had deferred tax assets
representing the benefit of net operating loss carryforwards, certain start up
costs capitalized for tax purposes, up-front payments from collaborators
taxable in the year received, and research and development tax credits. During
the year ended December 31, 2000, we recorded a provision for federal and
state income taxes of $0.2 million. The federal tax provision was based on the
alternative minimum tax under which net operating loss carryforwards are
available to offset 90% of our current tax liability. The Company did not
record a benefit for the deferred tax asset because realization of the benefit
was uncertain and, accordingly, a valuation allowance is provided to offset
the deferred tax asset.

 Years Ended December 31, 2000 and 1999

   Revenue. Our revenue for the year ended December 31, 2000 was $12.4
million, compared to $4.5 million for the year ended December 31, 1999. The
revenue increase results from discovery collaborations and license agreements
with Schering AG, and Bristol-Myers Squibb, that commenced in May 2000 and
July 2000, respectively. The 2000 revenue amount is net of a charge of
approximately $0.4 million in connection with a modification of the Bristol-
Myers Squibb agreement made during the fourth quarter of 2000. The
modification resulted from an agreement with Bristol-Myers Squibb to terminate
both Bristol-Myers Squibb's subscription to a planned GPCR structure database
and its non-exclusive license to related technologies.

   Research and Development Expenses. Our research and development expenses
increased by $2.5 million to $14.6 million for the year ended December 31,
2000, compared to $12.1 million for the year ended December 31, 1999. During
2000, we continued to expand our research and development investments,
including clinical testing of our lead thrombin inhibitor compound, in our
internally funded and collaborative programs. Related to our expansion were
increases in personnel, scientific instrumentation, and facilities expenses.

   General and Administrative Expenses. Our general and administrative
expenses increased by $2.2 million to $8.7 million for the year ended December
31, 2000 compared to $6.5 million for the year ended December 31, 1999. The
increase was primarily related to increased management and personnel expenses,
increased investments in business development and facilities required to
support our continued growth, and additional expenses relating to our
operations as a public company.

   Other Income (Expenses). Interest income increased by $3.2 million to $3.5
million for the year ended December 31, 2000, compared to $0.3 million for the
year ended December 31, 1999. The increase in interest income is attributable
to the investment of the proceeds from our initial public offering and private
placements of securities completed during this period, as well as investment
of the up-front fees we have received from our collaborators. Interest expense
was $0.6 million for the years ended December 31, 2000 and December 31, 1999.

   Provision for Income Taxes. As of December 31, 2000, we had net operating
loss carryforwards for federal income taxes of $35.1 million. We also had
federal research and development tax credit carryforwards.

                                      25
<PAGE>

Our utilization of the net operating loss and tax credit carryforwards may be
subject to annual limitations pursuant to Section 382 of the Internal Revenue
Code, and similar state provisions, as a result of changes in our ownership
structure. The annual limitations may result in the expiration of net
operating losses and credits prior to utilization.

   At December 31, 2000 and 1999, the Company had deferred tax assets
representing the benefit of net operating loss carryforwards, certain start up
costs capitalized for tax purposes, up-front payments from collaborators
taxable in the year received, and research and development tax credits. During
the year ended December 31, 2000, we recorded a provision for federal and
state income taxes of $0.2 million. The federal tax provision was based on the
alternative minimum tax under which net operating loss carryforwards are
available to offset 90% of our current tax liability. The Company did not
record a benefit for the deferred tax asset because realization of the benefit
was uncertain and, accordingly, a valuation allowance is provided to offset
the deferred tax asset.

Liquidity and Capital Resources

   At December 31, 2001, we had cash, cash equivalents, and marketable
securities of $100.4 million and working capital of $82.0 million. We have
funded substantially all of our operations through public and private
placements of equity securities with aggregate proceeds of approximately
$153.0 million, and cash received from corporate collaborations totaling $64.7
million, government grants totaling $3.8 million, capital equipment and
leasehold improvement financing totaling $7.8 million, and interest earned on
our cash balances. In addition, in February 2002 we repaid a $5.0 million
short-term note and then entered into a series of loans totaling $6.5 million,
payable over 36 to 48 months, to finance the purchase of capital equipment and
leasehold improvements. We believe that our available cash and cash
equivalents, and marketable securities, expected revenue from collaborations
and license arrangements, existing capital resources, interest income, and
additional borrowings should be sufficient to fund anticipated levels of
operations for at least the next two years.

   We expect that substantially all of our revenue for the foreseeable future
will come from corporate collaborations, license agreements, government
grants, and interest earned on the proceeds from our sales of securities,
primarily in our initial public offering in 2000. However, there can be no
assurance that we will successfully enter into new agreements with
collaborators or extend the terms of our existing collaborations. If we raise
additional funds through collaborations and licensing arrangements, we may be
required to relinquish some rights to our technologies or drug candidates, or
grant licenses on terms that are not favorable to us. We expect to incur
increasing operating losses over the next several years as we continue to
focus a greater portion of our effort on internal product research and
development and further develop our technologies. To the extent that funds
from our existing and future collaborations are not sufficient to fund our
activities, it will be necessary to raise additional funds through public
offerings or private placements of securities, long-term borrowings, or other
methods of financing. There can be no assurance that such financing will be
available on acceptable terms, if at all. If adequate funds are not available,
we may have to delay or may not be able to continue developing our drug
candidates.

   The following table summarizes our obligations as of December 31, 2001 to
make future principal payments under our current contractual obligations:

<TABLE>
<CAPTION>
                                     Less than                        After 5
                            Total      1 Year   1-3 Years  4-5 Years   Years
                         ----------- ---------- ---------- ---------- --------
<S>                      <C>         <C>        <C>        <C>        <C>
Short-term debt......... $ 5,000,000 $5,000,000        --         --       --
Long-term debt..........   1,227,000  1,066,000 $  161,000        --       --
Operating leases........  13,469,000  2,418,000  7,432,000 $3,397,000 $222,000
                         ----------- ---------- ---------- ---------- --------
Total contractual
 obligations............ $19,696,000 $8,484,000 $7,593,000 $3,397,000 $222,000
                         =========== ========== ========== ========== ========
</TABLE>

   In addition, pursuant to our lease agreement for our Cranbury, New Jersey
research facility, we maintain a $750,000 standby letter of credit.

                                      26
<PAGE>

Factors Affecting the Company's Prospects

We have a history of net losses and may never achieve or maintain
profitability.

   We have incurred net losses since our inception, including net losses of
approximately $8.2 million for the year ended December 31, 2000 and
approximately $11.4 million for the year ended December 31, 2001. As of
December 31, 2001, we had an accumulated deficit of approximately $64.7
million. Although one of our goals is to enter into additional DiscoverWorks
collaborations, our basic business model is to focus a greater portion of our
efforts on internally funded product research and development. As a result, we
expect to incur increasing operating losses over the next several years. The
extent of our future losses will depend on the rate of growth, if any, of our
revenue and on the level of our expenses. To date, we have derived
substantially all of our revenue from corporate collaborations, license
agreements and government grants. We expect that substantially all of our
revenue for the foreseeable future will result from payments from these
sources and from the licensing of our technologies and certain of our pre-
clinical and clinical drug candidates. We also expect to continue to invest in
our drug discovery technologies and to fund research and development of drug
candidates. Because our operating expenses will increase in the future, we
will need to generate significant additional revenue to achieve profitability.
In order to generate revenue, we must continue to develop products and
technologies from which we can derive revenue either ourselves or through
existing and future collaborations. Accordingly, we may never achieve
profitability. Even if we do achieve profitability, we may not be able to
sustain or increase profitability on a quarterly or annual basis.

If we fail to obtain necessary funds for our operations, we will be unable to
maintain and improve our technology position and will be unable to develop and
commercialize our drug candidates.

   To date, we have funded our operations primarily through public and private
placements of equity securities and revenues from corporate collaborations,
with additional revenue from government grants, capital equipment and
leasehold financing, and interest earned on net proceeds of our initial public
offering and private placements. We believe that our cash and cash
equivalents, expected revenue from collaborations and license arrangements,
existing capital resources and interest income should be sufficient to meet
our operating and capital requirements for at least the next two years.
However, our present and future capital requirements depend on many factors,
including:

  .  the level of research and development investment required to maintain
     and improve our technology position;

  .  our ability to enter into new agreements with collaborators or to extend
     the terms of our existing collaborations, and the terms of any agreement
     of this type. During 2001, the research term for one of our
     collaborations ended and the research terms for two other collaborations
     are scheduled to end in 2002;

  .  our success rate or that of our collaborators in discovery and
     development efforts associated with milestones and royalties;

  .  the timing, willingness and success of our collaborators to
     commercialize our products, which would result in milestone payments and
     in royalties;

  .  costs of recruiting and retaining qualified personnel;

  .  costs of filing, prosecuting, defending and enforcing patent claims and
     other intellectual property rights;

  .  our need or decision to acquire or license complementary technologies or
     new targets, or acquire complementary businesses; and

  .  changes in drug candidate development plans needed to address any
     difficulties in clinical studies or in commercialization.

                                      27
<PAGE>

   Should we require additional capital in the future, we do not know whether
additional financing will be available on acceptable terms when needed. We
would try to raise necessary funds through public or private equity offerings
or debt financings or through corporate collaborations and licensing
arrangements.

   If we raise additional capital by issuing equity securities, our existing
stockholders' percentage ownership will be reduced and they may experience
substantial dilution. Any equity securities issued may also provide for
rights, preferences or privileges senior to those of holders of our common
stock. If we raise additional funds by issuing debt securities, these debt
securities would have rights, preferences and privileges senior to those of
holders of our common stock and the terms of the debt securities issued could
impose significant restrictions on our operations. If we raise additional
funds through collaborations and licensing arrangements, we may be required to
relinquish some rights to our technologies or drug candidates, or grant
licenses on terms that are not favorable to us. If adequate funds are not
available, we may have to delay or may not be able to continue developing our
drug candidates.

   If additional funds are required to operate our business, these funds may
not be available on terms that we find favorable, if at all. If adequate funds
are not available or are not available on acceptable terms, our ability to
fund our operations, take advantage of opportunities, develop products or
technologies or otherwise respond to competitive pressures could be
significantly delayed or limited and we may need to downsize or halt our
operations.

All of the drug candidates we are developing, including those we have licensed
for commercial development, are at an early stage of development, and they may
fail in later development or commercialization.

   All of the compounds that we are currently developing will require
significant additional research, formulation and manufacturing process
development, and pre-clinical and extensive clinical testing prior to
regulatory approval and commercialization. Pre-clinical and clinical studies
of our products under development may not display the safety and efficacy
necessary to obtain regulatory approvals. Pharmaceutical and biotechnology
companies have suffered significant setbacks in advanced clinical trials, even
after experiencing promising results in earlier trials. Products that appear
to be promising at early stages of development may not reach the market or be
marketed successfully for a number of reasons, including the following:

  .  researchers may find that the product is ineffective or has harmful side
     effects during later pre-clinical testing or clinical trials;

  .  the product may fail to receive necessary regulatory approval or
     clearance;

  .  the product may be too difficult to manufacture on a large scale;

  .  the product may be too expensive to manufacture or market;

  .  the product may not achieve broad market acceptance;

  .  others may hold proprietary rights that will prevent the product from
     being marketed; or

  .  others may market equivalent or superior products.

   We do not expect that we will make commercially available any products we
are developing internally or in association with our collaborators for at
least several years, if at all. We and our collaborators may not succeed in
our research and product development efforts and we may not be able to launch
any successfully commercialized products. Further, after commercial
introduction of a new product, discovery of problems through adverse event
reporting could result in restrictions on the product, including recall or
withdrawal from the market and, in certain cases, civil or criminal penalties
resulting from actions by regulatory authorities or damage from product
liability judgments.

                                      28
<PAGE>

We are developing and using new technologies, and if we are unable to
successfully commercialize these technologies, we will not achieve
profitability.

   Our DiscoverWorks technologies, in particular our DirectedDiversity and
ThermoFluor technologies, represent a new approach to the identification and
optimization of lead compounds with therapeutic potential. We have not used
these technologies in the development of any compound that has reached the
point of commercialization. The collaboration with Bristol-Myers Squibb
Company represents the initial collaborative use of the entire DiscoverWorks
process. In addition, although we began using the entire DiscoverWorks set
process in our internal programs in 1998, we did not use our ThermoFluor
technology in our most advanced programs. Our technologies may not result in
the successful identification, optimization or development of compounds that
are safe or efficacious. Because the development of new pharmaceutical
products is highly uncertain, our drug discovery technologies may not produce
any commercially successful compounds. Failure to validate our technologies
through the successful discovery of compounds that become commercialized would
hinder our ability to license drug candidates developed by us internally and
to market successfully our technologies and services.

   Historically, due to the highly proprietary nature of drug discovery and
development efforts, and the desire to obtain maximum patent and other
proprietary protection for their programs, other pharmaceutical and
biotechnology companies have conducted molecular target screening and lead
compound identification and optimization within their own internal research
departments. We must convince these companies that our technologies and
capabilities justify retaining us to work on drug discovery programs on their
behalf or the licensing by them of our technologies. Under the terms of a
settlement agreement with Anadys Pharmaceuticals, Inc., formerly known as
Scriptgen Pharmaceuticals, Inc., we acquired a limited license to Anadys'
ATLAS (Any Target Liquid Affinity Screen) assay technology, and Anadys was
granted a limited license to the method claims of our ThermoFluor screening
technology. Neither of these licenses was exclusive. The settlement agreement
precludes us, until March 7, 2003, from using our ThermoFluor screening
technology in the Hepatitis C Virus "infection" area as part of collaborative
agreements or as part of our internal drug programs. In addition, the
settlement agreement precludes us from using our ThermoFluor screening
technology as part of more than one collaboration agreement in other areas of
"infection" until March 7, 2003, and such collaborative agreement must be
limited to a maximum of three anti-viral targets. Our collaboration agreement
with Bristol-Myers Squibb Company constitutes the one permitted collaboration
agreement in the area of infection. Our ability to succeed will depend upon
the acceptance by potential collaborators of our systems, services and
technologies as effective discovery tools.

If we do not update and enhance our technologies, they will become obsolete.

   Technological change occurs rapidly in the pharmaceutical market, and our
future success may depend on our ability to continuously update and enhance
our technologies. Because DiscoverWorks integrates many technologies, we may
find it difficult to stay abreast of the rapid changes in each of the areas
that DiscoverWorks encompasses. If we fail to stay at the forefront of
technological change, we may be unable to compete effectively. In particular,
our DirectedDiversity technology for optimizing the properties of lead
compounds and our ThermoFluor technology for high-throughput screening involve
areas where many companies are actively developing new technologies. Because
the pharmaceutical and biotechnology industries currently perceive high-
throughput screening and optimizing of lead compounds to represent critical
bottlenecks in the discovery process, our competitors are using substantial
resources to develop new technologies to reduce these bottlenecks.
Accordingly, advances in existing technological approaches or our current or
future competitors' development of different approaches may render our
technologies obsolete.

We are dependent on our collaborators, and our failure to successfully manage
our existing and future collaborations and license arrangements could prevent
us or our collaborators from developing and commercializing our products.

   Our strategy depends upon the maintenance of our existing collaborations
and licensing arrangements as well as the formation of new collaborations and
licensing arrangements, principally with pharmaceutical and

                                      29
<PAGE>

biotechnology companies. We may fail to maintain our existing collaborations
or licensing arrangements, or establish additional collaborative or licensing
arrangements, on terms favorable to us. In addition, our current or future
collaborations or licensing arrangements may not be successful or we may be
unable to successfully manage these collaborations or licensing arrangements.
As a result, we could become involved in disputes that might result in, among
other things, a significant strain on our management resources, legal claims
involving significant time and expense, a loss of capital and a loss of
current or future collaborators. Several other factors could harm our present
or future collaborations or licensing arrangements, such as:

  .  our failure to achieve our research and development objectives under our
     collaborative agreements;

  .  the development of conflicts with our collaborators as to rights to
     intellectual property to technologies or product candidates either we or
     they develop;

  .  our entry into additional collaboration agreements that potentially
     conflict with the business objectives of our collaborators;

  .  the decision by our collaborators to become competitors of ours or enter
     into agreements with our competitors; or

  .  the limit on the number of potential collaborators that results from
     further consolidation in our target markets.

   In addition, if we exclusively license any aspect of our technologies to
one or more collaborators, we will limit our ability to license this
technology to other parties. This may limit our ability to enter into future
collaborations or licensing arrangements.

   Since we do not currently possess the resources necessary to complete
development and commercialization of our drug candidates, we expect to rely on
and continue to enter into licensing arrangements and/or third party expert
clinical investigators and clinical research organizations for the further
development and commercialization of our drug candidates. These drug
candidates will require significant pre-clinical and/or clinical development
efforts, the receipt of the requisite regulatory approvals and the successful
manufacturing and marketing of the drugs. A party to whom we license a drug
candidate may not devote sufficient resources to the development, manufacture,
marketing or sale of these products. We will have limited or no control over
the resources that any third party may devote to our projects.

   Any of our present or future collaborators may breach or terminate their
agreements with us or otherwise fail to conduct their collaborative activities
successfully and in a timely manner. In addition, we may dispute the
application of payment provisions under any of our collaboration agreements.
If we fail to enter into or maintain collaborative agreements, or if any of
these events occur, we may not be able to commercialize our technologies or
develop and commercialize our drug candidates.

If our collaborators fail to advance compounds arising from the use of our
technologies to develop and commercialize pharmaceutical products, our
business will suffer.

   Our future revenue will depend in part on the realization of milestone
payments and royalties, if any, triggered by our collaborators' successful
development and commercialization of compounds identified through the use of
our technologies or of compounds that we licensed. The agreements with our
collaborators do not obligate them to develop or commercialize lead compounds
identified through the use of our technologies. Our development and
commercialization of lead compounds will therefore depend not only on our and
our collaborators' achievement of development objectives, but also on each
collaborator's own financial, competitive, marketing and strategic
considerations, such as the relative advantages of other companies' products,
including relevant patent and proprietary positions. If a collaborator fails
to develop or commercialize a lead compound identified through the use of our
technologies, or if a compound that a collaborator develops is determined to
be unsafe or of no therapeutic benefit, we will not receive any future
milestone payments or royalties for that compound, and we may have only
limited or no rights to independently develop and commercialize that compound.

                                      30
<PAGE>

If the third-party expert clinical investigators and clinical research
organizations we intend to rely on to conduct any of our future clinical
trials do not perform in an acceptable or timely manner, our clinical trials
could be delayed or unsuccessful.

   We do not have the ability to independently conduct clinical studies and
obtain regulatory approvals for our drug candidates and, to the extent our
collaborators do not perform these functions, we intend to rely on third-party
expert clinical investigators and clinical research organizations to perform
these functions. If we cannot locate and enter into favorable agreements with
acceptable third parties, or if these third parties do not successfully carry
out their contractual duties, meet expected deadlines and enrollment
objectives and follow regulatory guidelines, including clinical laboratory and
manufacturing guidelines, then we will not obtain required approvals and will
be unable to commercialize our drug candidates on a timely basis, if at all.

If we or our collaborators are unable to manufacture or contract with third
parties to manufacture drug candidates in sufficient quantities and at an
acceptable cost, we or our collaborators may be unable to complete clinical
trials and commercialize these drug candidates.

   Our or our collaborators' completion of any pre-clinical or clinical trials
for our drug candidates involving large quantities of chemical substance, or
any future clinical trials and commercialization of drugs, will require access
to, or development of, facilities to manufacture a sufficient supply of our
investigational drug substance. We do not have the facilities or experience to
manufacture the quantities of drug substance necessary for any such trials or
commercial purposes on our own and do not intend to develop or acquire
facilities for the manufacture of such quantities of drug substance in the
foreseeable future. Instead, we currently intend to rely on third-party
contract manufacturers.

   In addition, because we intend to license certain of our drug candidates
for further development and commercialization, once a drug candidate is
licensed, we must rely on our collaborators' abilities to manufacture, or have
manufactured, the quantities necessary for further development and
commercialization of these drug candidates.

   Our manufacturing strategy presents the following risks:

  .  we, or our collaborators, may not be able to locate acceptable
     manufacturers or enter into favorable long-term agreements with them;

  .  third parties may fail to successfully manufacture our drug candidates
     or to manufacture them in a cost effective and/or timely manner;

  .  we have not tested the manufacturing processes for our drug candidates
     in quantities needed for clinical trials or commercial sales;

  .  delays in scale-up to commercial quantities could delay clinical
     studies, regulatory submissions, and commercialization of drug
     candidates;

  .  we may not have intellectual property rights, or may have to share
     intellectual property rights, to many improvements in the manufacturing
     processes or new manufacturing processes for our drug candidates;

  .  our drug candidates require a long lead time to manufacture and the
     manufacturing process is complex; and

  .  manufacturers of our drug candidates are subject to the FDA's current
     Good Manufacturing Practices regulations, or cGMPs, and similar foreign
     standards and we and our collaborators do not have day-to-day control
     over compliance with these regulations by third-party manufacturers.


                                      31
<PAGE>

   Any of these factors could delay clinical trials or commercialization of
drug candidates developed and commercialized by us or by our collaborators,
entail higher costs, and result in us or our collaborators being unable to
effectively sell any products.

If we, or our collaborators, do not obtain and maintain required regulatory
approvals, we will be unable to commercialize our product candidates.

   Regulation by governmental entities in the United States and other
countries could impact the development, production and marketing of any
pharmaceutical products that we or our collaborators develop. The nature and
the extent to which such regulation may apply will vary depending on the
nature of any such pharmaceutical products. In particular, FDA, and foreign
regulatory authorities apply rigorous pre-clinical and clinical testing and
other approval requirements to pharmaceutical products for use in humans and
animals. Various federal and, in some cases, state statutes and regulations
and similar statutes and regulations of foreign jurisdictions also govern or
influence the manufacturing, safety, labeling, storage, recordkeeping,
confidential patient information exchange, promotion, advertising, marketing,
and pricing relating to such pharmaceutical products. Companies spend a
significant amount of time and resources obtaining these approvals and
complying with appropriate federal and foreign statutes and regulations. Both
we and our collaborators may be unable to successfully complete the pre-
clinical and clinical development of, and file new drug applications, or NDAs
or BLAs, with the FDA for any drug candidate. In addition the FDA may not
grant approval on a timely basis, if at all, for any drug candidate. Any
failure by our collaborators or licensees to obtain, or any delay in
obtaining, regulatory approval or non-patent market exclusivity could
adversely affect our ability to receive milestone payments or royalty
revenues. Even if our collaborators or licensees obtain FDA regulatory
approvals, material changes to an approved product, such as manufacturing
changes or additional labeling claims, require further FDA review and
approval. Once obtained, the FDA may withdraw any approval. Further, if we,
our collaborators, our contract research organizations or our contract
manufacturers fail to comply with applicable FDA and other regulatory
requirements at any stage during the regulatory process, the FDA may impose
sanctions, including delays, warning letters, fines, product recalls or
seizures, injunctions, refusal of the FDA to review pending market approval
applications or supplements to approval applications, total or partial
suspension of production, civil penalties, withdrawals of previously approved
marketing applications, or criminal prosecutions. In addition, foreign
regulatory requirements governing human and animal clinical trials and
marketing approval for pharmaceutical products govern our and our
collaborators' marketing outside the United States. The requirements governing
the conduct of clinical trials, product licensing, pricing, and reimbursement
may vary from country to country, adding to the overall expense of drug
development.

If we, or our collaborators, do not obtain adequate reimbursement, we will be
unable to commercialize our product candidates.

   In both domestic and foreign markets, sales of our product candidates will
depend in part upon the availability of reimbursement from third-party payors.
Such third-party payors include government health administration authorities,
managed care providers, private health insurers, and other organizations.
These third-party payors are increasingly challenging the price and examining
the cost effectiveness of medical products and services. In addition,
significant uncertainty exists as to the reimbursement status of newly
approved healthcare products. We, or our collaborators, may need to conduct
post-marketing studies in order to demonstrate the cost-effectiveness of our
products. Such studies may require us to provide a significant amount of
resources. Our product candidates may not be considered cost-effective.
Adequate third-party reimbursement may not be available to enable us to
maintain price levels sufficient to realize an appropriate return on our
investment in product development. Domestic and foreign governments continue
to propose and pass legislation designed to reduce the cost of healthcare.
Accordingly, legislation and regulations affecting the pricing of
pharmaceuticals may change before our proposed products are approved for
marketing. Adoption of such legislation could further limit reimbursement for
pharmaceuticals. If the government and third-party payors fail to provide
adequate coverage and reimbursement rates for our product candidates, the
market acceptance of our products may be adversely affected. If our products
do not receive market acceptance, our business, financial condition, and
results of operations will be materially adversely affected.

                                      32
<PAGE>

If we are unable to build sales, marketing and distribution capabilities or
enter into agreements with third parties to perform these functions, we will
not be able to commercialize any of our drug candidates.

   We currently have no sales, marketing or distribution capabilities to
commercialize our drug candidates. In order to commercialize any of our drug
candidates, we must either internally develop sales, marketing and
distribution capabilities or make arrangements with third parties to perform
these services.

   To market any of our drug products directly, we would have to develop a
marketing and sales force with technical expertise and supporting distribution
capabilities and we may not be able to do so. To promote any of our drug
products through third parties, we would have to locate acceptable third
parties for these functions and enter into agreements with them on acceptable
terms and we may not be able to do so. If we enter into co-promotion or other
licensing arrangements, any product revenues would likely be lower than if we
directly marketed and sold our products, and any revenues that we may receive
would depend upon the efforts of third parties, which efforts may not be
successful. If these third parties do not succeed in carrying out their
contractual duties or do not meet expected deadlines, our sales would suffer
and we might not be profitable.

Our ability to compete in the market may decline if we do not adequately
protect our proprietary technologies, or if we lose some of our intellectual
property rights as a result of, or otherwise become involved in, expensive
lawsuits or administrative proceedings.

   Our intellectual property consists of patents, copyrights, trade secrets,
and trademarks. Our success depends in part on our ability to obtain patents
and maintain adequate protection of our intellectual property for our
technologies and products in the United States and other countries. We may be
unable to obtain any issued patents for any patent applications we have filed
or may file in the future.

   Our commercial success depends in part on avoiding infringing patents and
proprietary rights of third parties and developing and maintaining a
proprietary position with regard to our own technologies, products, and
business. The patent positions of pharmaceutical companies, including our
patent position, involve complex legal and factual questions, and whether a
company will be able to enforce its patent cannot always be predicted with
certainty. Even if we obtain patents, we may lose them in part or in whole as
a result of lawsuits or administrative proceedings, or competitors may
otherwise challenge or circumvent them. We cannot be sure that relevant
patents have not been issued, or that relevant publications or actions by
others have not occurred, that could block our ability to obtain patents or to
operate as we would like. Others may develop similar technologies or duplicate
technologies to those that we have developed. We are aware of the existence of
claims in a granted patent and published patent applications in some countries
that, if valid and broadly construed, may block our ability to commercialize
products or processes in those countries if we are unable to circumvent or
license them. As to those patents that we have licensed, our rights depend on
maintaining our obligations to the licensor under the applicable license
agreement and we may be unable to do so.

   Extensive litigation regarding patents and other intellectual property
rights characterizes our industry. Many companies have employed intellectual
property litigation as a way to gain a competitive advantage. If we became
involved in litigation or interference proceedings declared by the United
States Patent and Trademark Office, or oppositions or other intellectual
property proceedings outside of the United States, to defend our intellectual
property rights or as a result of alleged infringement of the rights of
others, we might have to spend significant amounts of time and money. We are
aware of a significant number of patents and patent applications relating to
our technologies filed by, or issued to, third parties. Should any of our
competitors have filed patent applications or obtained patents that claim
inventions that we also claim, we may have to participate in an interference
proceeding to determine priority of invention and, thus, the right to a patent
for these inventions or discoveries in the United States. We could incur
substantial costs from such a proceeding even if the outcome is favorable.
Even if successful on priority grounds, an interference may result in loss of
claims based on patentability grounds raised in the interference. The
litigation or proceedings could divert our management time and efforts. Even
unsuccessful claims could result in significant legal fees and other expenses,
diversion of management time and disruption in our business. Uncertainties
resulting from initiation and continuation of any patent or related litigation
could harm our ability to compete.

                                      33
<PAGE>

   An adverse ruling arising out of any intellectual property dispute,
including but not limited to an adverse decision as to the priority of our
inventions, would undercut or invalidate our intellectual property position.
An adverse ruling could also subject us to significant liability for damages,
prevent us from using processes or products, or require us to license disputed
rights from third parties. Although patent and intellectual property disputes
in the biotechnology area are often settled through licensing or similar
arrangements, costs associated with these arrangements may be substantial and
could include ongoing royalties. We may not be able to obtain any necessary
licenses on satisfactory terms, if at all.

   From time to time we have received letters from third parties suggesting
that we may want to consider licensing patents held by such third parties. We
believe that we have defenses to any infringement claim with respect to such
patents. However, we cannot be certain that one or more of the third parties
will not initiate litigation alleging that our technologies infringe claims of
such patents or that a court would not find such claims valid and infringed.

   We have funded specific technologies with U.S. government grants. For
instance, we developed our ThermoFluor screening technology using funds from a
grant awarded by the National Institute for General Medical Sciences at the
National Institutes of Health, and portions of our GPCR technology using funds
from grants awarded by the National Institute for General Medical Sciences at
the National Institutes of Health. We elected to retain title in these
technologies, subject to a nonexclusive, nontransferable, irrevocable, paid-up
license to the U.S. government to practice or have practiced for or on behalf
of the government any technology developed with these funds.

Confidentiality agreements with employees and others may not adequately
prevent disclosure of trade secrets and other proprietary information.

   In order to protect our proprietary technology and processes, we also rely
in part on trade secret protection for our confidential and proprietary
information. Our policy is to execute confidentiality agreements with our
employees and consultants upon the commencement of an employment or consulting
arrangement with us. These agreements require that all confidential
information that the individual develops or that we make known to the
individual during the course of the individual's relationship with us be kept
confidential and not disclosed to third parties. These agreements also provide
that inventions that the individual conceives in the course of rendering
services to us shall be our exclusive property. Such individual may,
nonetheless, disclose proprietary information, others may independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to our trade secrets, and we may be unable to
meaningfully protect our trade secrets. Costly and time-consuming litigation
could be necessary to enforce and determine the scope of our proprietary
rights, and failure to obtain or maintain trade secret protection could
adversely affect our competitive business position.

If our competitors develop and market drug discovery technologies or drug
candidates faster than we do or that are superior to our drug discovery
technologies or drug candidates, our commercial opportunities will be reduced
or eliminated.

   We compete both in the markets for drug discovery technologies and services
and the markets for pharmaceutical products. Our principal competitors are the
internal drug discovery departments of our pharmaceutical company customers
and potential customers. Many of our customers and potential customers have
developed or acquired or are developing or are acquiring integrated drug
discovery capabilities that use combinatorial chemistry (the science of
modifying a central core structure by adding different chemical groups
connected to the core at different positions), chemi-informatics software
(software for handling chemistry data), structure-based drug design and high-
throughput screening. In addition, many of these companies have large
collections of compounds that they have previously synthesized, purchased from
chemical supply catalogs or obtained from other sources against which they may
screen new targets.

                                      34
<PAGE>

   We also compete with biotechnology and drug discovery services companies,
academic and scientific institutions, governmental agencies, and public and
private research organizations. Our technology platform integrates many
technologies, including combinatorial chemistry, chemi-informatics software,
structure-based drug design and high-throughput screening. We face competition
based on numerous factors, including size, diversity and ease of use of
compound libraries, speed and cost of identifying and optimizing potential
lead compounds and patent position, from companies offering one or more
technology components of the discovery process. These entities compete with us
either on their own or in collaborations.

   While we believe that our integration of proprietary technologies for drug
discovery provides us with a competitive advantage over many of our
competitors, we expect that many of our competitors will seek to integrate and
improve their technologies to provide discovery capabilities similar or
superior to those provided by us.

   For drug candidates developed internally which we seek to license, we face,
and will continue to face, intense competition from organizations such as
large pharmaceutical and biotechnology companies. Competition with any of the
programs in our internal drug discovery pipeline may arise from current or
future drug candidates in the same therapeutic class or other classes of
therapeutic agents or other methods of preventing or reducing the incidence of
disease. Any drug candidate that is successfully developed may compete with
existing therapies that have long histories of safe and effective use.

   Due to perceived shortcomings of available agents and the large market
potential, competition to develop a safe, orally active antithrombotic agent (an
agent which inhibits the formation of blood clots) is intense, with many
discovery programs in process. Our orally active urokinase inhibitor for the
inhibition of cancer metastasis (development of secondary tumors in other organs
of the body during the spread of cancer) and tumor angiogenesis (development of
new blood vessels that allow the further growth of tumors) and for
cardiovascular indications faces competition from a number of agents and
approaches currently under development. Our thrombopoietin-mimetic compound,
3DP-3534, with potential for prophylaxis and/or therapy for chemotherapy-induced
thrombocytopenia, competes directly with the recombinant form of the natural
human hormone (rhTPo) currently in Phase 3 clinical development. We also are
aware of a related product that is in Phase 1 clinical trials as a
thrombopoietin receptor modulator. In addition, several companies may be
attempting to develop small molecule agonists of the human thrombopoietin
receptor in pre-clinical studies. Our orally active
alpha/v/beta/3//alpha/v/beta/5/ integrin antagonist program for the treatment of
solid and metastatic tumors, osteoporosis, and arthritis has significant
competition from several companies. We are aware of competing small molecule
programs that may have advanced one or more compounds into clinical trials. In
addition, we are aware of programs developing humanized monoclonal antibodies
against specific integrins to target tumor angiogenesis and/or rheumatoid
arthritis among other indications. Our C1s complement antagonist program for the
treatment of inflammatory diseases such as rheumatoid arthritis and lupus faces
significant industry competition as well. We are aware of programs targeting
various proteins in the complement activation cascade, including a humanized
antibody directed against complement factor C5 currently in Phase 2 clinical
trials. Our hdm2 antagonist program, targeting a key molecular regulator of the
well-known tumor suppressor gene p53, is also in an area of active research in
the pharmaceutical industry. In this regard, we are aware of preclincal research
programs targeting hdm2 at two companies. In addition, many companies are
working on alternative ways to modulate normal p53 functioning, including
various gene therapy and biological approaches.

   Other earlier-phase research programs in small molecule drug discovery at
3DP are also in highly competitive areas. Many other companies are working in
these areas and they may achieve earlier or greater success than we may be
able to achieve. Most of our competitors, either alone, or together with their
collaborators, have substantially greater research and development
capabilities and financial, scientific, operational, marketing and sales
resources than we do, as well as significantly more experience in research and
development, clinical trials, regulatory matters, manufacturing, marketing and
sales. These competitors and other companies may have developed or may in the
future develop new technologies or products that compete with ours or which
could render our technologies and products obsolete. In addition, our
competitors may succeed in

                                      35
<PAGE>

obtaining broader patent protection, receiving FDA approval for products or
developing and commercializing products or technologies before us. We also
compete with these organizations in recruiting and retaining qualified
scientific and management personnel.

   Most of our competitors, either alone, or together with their
collaborators, have substantially greater research and development
capabilities and financial, scientific, operational, marketing and sales
resources than we do, as well as significantly more experience in research and
development, clinical trials, regulatory matters, manufacturing, marketing and
sales. These competitors and other companies may have already developed or may
in the future develop new technologies or products that compete with ours or
which could render our technologies and products obsolete. In addition, our
competitors may succeed in obtaining broader patent protection, receiving FDA
approval for products or developing and commercializing products or
technologies before us. We also compete with these organizations in recruiting
and retaining qualified scientific and management personnel.

If we lose our key personnel or are unable to attract and retain qualified
personnel as necessary, it could delay our product development programs and
harm our research and development efforts.

   We are highly dependent on the principal members of our scientific and
management staff, including David C. U'Prichard, our Chief Executive Officer,
F. Raymond Salemme, our President and Chief Scientific Officer and John M.
Gill, our Chief Operating Officer. If we lose the services of one or more of
these persons, we may be unable to achieve our business objectives. Our future
success also will depend in part on the continued service of our other key
scientific, software, engineering and management personnel and our ability to
identify, hire and retain additional personnel. Intense competition exists for
qualified personnel in the areas of our activities, and we may not be able to
continue to attract and retain such personnel necessary for the development of
our business. Failure to attract and retain key personnel could have a
material adverse effect on our business, financial condition and results of
operations.

We have experienced a period of significant expansion of personnel and space,
which could delay our product development programs and harm our research and
development efforts.

   During 2001 we increased our staff from 125 to 200 and increased our space
from 41,000 square feet to 104,500, square feet which includes three
locations. As a result, we will face the challenge of managing the business in
multiple locations. These needs and challenges will place demands on our
management, information technology and other support functions, which may,
from time to time, cause delays in our product development programs and
diminish the results of our research and development efforts.

We expect that our quarterly results of operations will fluctuate, and this
fluctuation could cause our stock price to decline, causing investor losses.

   To date, substantially all of our revenue has been from corporate
collaborations, license agreements and government grants. We expect that a
significant portion of our revenues for the foreseeable future will be
comprised of this funding as well as milestone payments. The timing of revenue
in the future will depend largely upon the signing and terms of collaborative
research and development or technology licensing agreements or the licensing
of drug candidates for further development and the recognition of fees,
milestone payments and royalty revenues from these agreements. In any one
fiscal quarter we may receive multiple or no payments from our collaborators.
Although we recognize certain revenue under our collaborations and some
licenses over the life of the contract, operating results may vary from
quarter to quarter. Revenue for any given period may be greater or less than
revenue in the immediately preceding period or in the comparable period of the
prior year. Our operating results may also fluctuate due to other factors,
including the following:

  .  termination of collaborations and licensing arrangements;

  .  the ability and willingness of collaborators to develop and
     commercialize milestone and royalty-bearing products within expected
     timelines and the resulting demand for any commercialized products;

                                      36
<PAGE>

  .  our ability to enter into new collaborative agreements, or to extend the
     terms of our existing collaborative agreements, and the terms of any
     agreement of this type;

  .  our ability or that of our collaborators to successfully satisfy all
     pertinent regulatory requirements;

  .  the level of our expenditures on research and development and the level
     of other operating expenses; and

  .  general and industry specific economic conditions, which may affect our
     collaborators' research and development expenditures.

   If revenue declines or does not grow as anticipated due to the expiration
of collaborative agreements, failure to obtain new agreements or grants,
lower-than-expected milestone or royalty payments or other factors, we may not
be able to correspondingly reduce our operating expenses. A large portion of
our expenses, including expenses for facilities, equipment and personnel, are
committed and growing. Failure to achieve anticipated levels of revenue could
therefore significantly harm our operating results for a particular fiscal
period.

   Due to the possibility of fluctuations in our revenue and our anticipated
increasing expenses, we believe that quarter-to-quarter comparisons of our
operating results are not a good indication of our future performance. Our
operating results in some quarters may not meet the expectations of stock
market analysts and investors. In that case, our stock price may decline.

If we use or our collaborators use biological and hazardous materials in a
manner that causes injury, we may be liable for damages.

   Both we and our collaborators conduct research and development activities
which involve the controlled use of potentially harmful biological materials
as well as hazardous materials, chemicals and various radioactive compounds.
We use a wide range of solvents and other chemicals in order to discover new
drug candidates. We also generate biological waste products such as bacterial
cells and analyzed blood products during drug discovery programs. In addition,
several of our biological studies use small quantities of radioactive isotopes
of hydrogen, iodine, carbon, sulfur and phosphorus. We cannot completely
eliminate the risk of accidental contamination or injury from the use,
storage, handling or disposal of these materials. In the event of
contamination or injury, we could be held liable for damages that result, and
any liability could exceed our resources. We do not have liability insurance
coverage for contamination or injury. We also do not have mass tort insurance
coverage or environmental insurance coverage. The cost of compliance with
Federal and local regulatory requirements with respect to the use, monitoring
and disposal of chemical and biological waste products could be significant.

We may be sued for product liability.

   Because we are involved in the drug discovery process, our business exposes
us to potential product liability risks. We may not be able to avoid product
liability claims. Product liability insurance for the pharmaceutical industry
is generally expensive, if it is available at all. If we are unable to obtain
sufficient insurance coverage on reasonable terms or to otherwise protect
against potential product liability claims, we may be unable to commercialize
our product candidates. We currently maintain products/professional liability
insurance with coverage which we believe is customary and appropriate for
businesses such as ours. If a plaintiff brings a successful product liability
claim against us in excess of our insurance coverage, if any, we may incur
substantial liabilities and our business may fail.

If we engage in any acquisition or business combination, we will incur a
variety of risks that could adversely affect our business operations.

   We generally consider and will continue to consider strategic business
initiatives intended to further the development of our business, including
acquiring businesses, technologies and products and entering into

                                      37
<PAGE>

business combinations with other companies. If we do pursue one or more of
these strategic initiatives, we could, among other things:

  .  issue equity securities that would dilute current stockholders'
     percentage ownership, incur substantial debt, or both;

  .  spend substantial operational, financial and management resources in
     integrating new businesses, technologies and products;

  .  assume substantial actual or contingent liabilities; or

  .  merge, or otherwise enter into a business combination with, another
     company in which our stockholders would receive cash or shares of the
     other company, or a combination of both. In such case, many stockholders
     may disagree with the terms of such business combination or may view the
     sufficiency of the consideration to be received to be inadequate, or
     both.

   In addition, any future acquisitions or business combinations might
negatively impact our business relations with a collaborator and could lead to
a termination of our agreement with that collaborator.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

   Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on
our investment portfolio and on the increase or decrease in the amount of
interest expense we must pay with respect to our various outstanding debt
instruments. Our risk associated with fluctuating interest expense is limited
to our long-term borrowings, the underlying interest rates of which are
closely tied to market rates, and our investments in interest rate sensitive
financial instruments. Under our current policies, we do not use interest rate
derivative instruments to manage exposure to interest rate changes. We seek to
ensure the safety and preservation of our invested principal funds by limiting
default risk, market risk and reinvestment risk. We seek to minimize the risk
of default by investing in investment grade securities. A hypothetical 100
basis point adverse move in interest rates along the entire interest rate
yield curve would not materially affect the fair value of our interest rate
sensitive financial instruments at December 31, 1999, December 31, 2000 or
December 31, 2001. Declines in interest rates over time will, however, reduce
our interest income while increases in interest rates over time will increase
our interest expense.

                                      38
<PAGE>

Item 8. Financial Statements and Supplementary Data

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                      3-DIMENSIONAL PHARMACEUTICALS, INC.

                                    CONTENTS
<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Consolidated Financial Statements
 Report of independent public accountants
  As of and for the year ended December 31, 2001......................... F-2
  As of December 31, 2000 and for the years ended December 31, 2000 and
   1999.................................................................. F-3
Consolidated balance sheets as of December 31, 2001 and 2000............. F-4
Consolidated statements of operations for the years ended December 31,
 2001, 2000 and 1999..................................................... F-5
Consolidated statements of stockholders' equity (deficit) for the years
 ended December 31, 2001, 2000 and 1999.................................. F-6
Consolidated statements of cash flows for the years ended December 31,
 2001, 2000 and 1999..................................................... F-7
Notes to consolidated financial statements............................... F-8
</TABLE>
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

   To 3-Dimensional Pharmaceuticals, Inc.:

   We have audited the accompanying consolidated balance sheet of 3-
Dimensional Pharmaceuticals, Inc. (a Delaware corporation) and subsidiaries as
of December 31, 2001, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

   We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of 3-Dimensional
Pharmaceuticals, Inc. and subsidiaries as of December 31, 2001, and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States.

                                             Arthur Andersen LLP

Philadelphia, Pennsylvania
February 19, 2002

                                      F-2
<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
3-Dimensional Pharmaceuticals, Inc.
Yardley, Pennsylvania

   We have audited the accompanying consolidated balance sheet of 3-
Dimensional Pharmaceuticals, Inc. and subsidiary as of December 31, 2000 and
the related consolidated statements of operations, changes in stockholders'
equity (deficit) and cash flows for the years ended December 31, 2000 and
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of 3-Dimensional
Pharmaceuticals, Inc. and subsidiary as of December 31, 2000, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 2000 and 1999 in conformity with accounting principles
generally accepted in the United States of America.

                                             Richard A. Eisner & Company, LLP

New York, New York
February 7, 2001

                                      F-3
<PAGE>

                      3-DIMENSIONAL PHARMACEUTICALS, INC.
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                    December 31,  December 31,
                                                    ------------  ------------
                                                        2001          2000
                                                    ------------  ------------
<S>                                                 <C>           <C>
                      ASSETS
Current assets:
 Cash and cash equivalents......................... $ 19,519,000  $114,557,000
 Marketable securities.............................   80,870,000           --
 Prepaid expenses and other current assets.........    3,087,000       977,000
                                                    ------------  ------------
   Total current assets............................  103,476,000   115,534,000
Property and equipment, net........................   11,735,000     5,508,000
Restricted cash....................................      835,000           --
Other assets.......................................    1,073,000     2,202,000
                                                    ------------  ------------
                                                    $117,119,000  $123,244,000
                                                    ============  ============
       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable and accrued expenses............. $  5,759,000  $  3,193,000
 Current portion of deferred revenue...............    9,601,000     7,385,000
 Note payable......................................    5,000,000           --
 Current portion of long-term debt.................    1,066,000     1,209,000
 Current portion of settlement accrual.............          --        500,000
                                                    ------------  ------------
   Total current liabilities.......................   21,426,000    12,287,000
Deferred revenue, less current portion.............    3,286,000     9,619,000
Long-term debt, less current portion...............      161,000     1,315,000
                                                    ------------  ------------
                                                      24,873,000    23,221,000
                                                    ------------  ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
 Preferred Stock--$.001 par value: 5,000,000 shares
  authorized, none issued and outstanding at
  December 31, 2001 and 2000.......................           --            --
 Common stock--$.001 par value; 45,000,000 shares
  authorized, 21,988,238 and 21,385,798 shares
  issued and outstanding at December 31, 2001
  and December 31, 2000, respectively..............       22,000        21,000
 Additional paid-in capital........................  158,450,000   157,223,000
 Note receivable from officer......................     (260,000)     (390,000)
 Deferred compensation.............................   (2,386,000)   (3,570,000)
 Accumulated deficit...............................  (64,703,000)  (53,261,000)
 Accumulated other comprehensive income............    1,123,000           --
                                                    ------------  ------------
Total stockholders' equity.........................   92,246,000   100,023,000
                                                    ------------  ------------
                                                    $117,119,000  $123,244,000
                                                    ============  ============
</TABLE>

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

                                      F-4
<PAGE>

                      3-DIMENSIONAL PHARMACEUTICALS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                       ---------------------------------------
                                           2001         2000          1999
                                       ------------  -----------  ------------
<S>                                    <C>           <C>          <C>
Research and grant revenue...........  $ 28,399,000  $12,409,000  $  4,489,000
Costs and expenses:
 Research and development............    29,614,000   14,562,000    12,136,000
 General and administrative..........    15,334,000    8,652,000     6,525,000
 Litigation settlement...............           --           --      1,500,000
                                       ------------  -----------  ------------
                                         44,948,000   23,214,000    20,161,000
                                       ------------  -----------  ------------
Loss from operations.................   (16,549,000) (10,805,000)  (15,672,000)
Interest income......................     5,344,000    3,458,000       328,000
Interest expense.....................      (237,000)    (646,000)     (625,000)
                                       ------------  -----------  ------------
Loss before income taxes.............   (11,442,000)  (7,993,000)  (15,969,000)
Provision for income taxes...........           --       159,000           --
                                       ------------  -----------  ------------
Net loss.............................   (11,442,000)  (8,152,000)  (15,969,000)
Declared and accrued cumulative
 dividends on preferred stock........           --      (396,000)     (669,000)
                                       ------------  -----------  ------------
Net loss applicable to common stock..  $(11,442,000) $(8,548,000) $(16,638,000)
                                       ============  ===========  ============
Basic and diluted net loss per common
 share--historical...................  $      (0.53) $     (0.97) $     (27.37)
                                       ============  ===========  ============
Weighted average common shares
 outstanding--historical.............    21,626,000    8,778,000       608,000
                                       ============  ===========  ============
Basic and diluted net loss per common
 share--pro forma....................                $     (0.52) $      (1.57)
                                                     ===========  ============
Weighted average common shares
 outstanding--pro forma..............                 15,663,000    10,198,000
                                                     ===========  ============
</TABLE>


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

                                      F-5
<PAGE>

                      3-DIMENSIONAL PHARMACEUTICALS, INC.
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
                    Preferred Stock       Common Stock
                   ------------------  -------------------
                                                                           Notes                    Accumulated
                                                            Additional   Receivable                    Other
                                Par                  Par     Paid-in        From       Deferred    Comprehensive Accumulated
                     Shares    Value     Shares     Value    Capital      Officers   Compensation  Income (Loss)   Deficit
                   ----------  ------  ----------  ------- ------------  ----------  ------------  ------------- ------------
<S>                <C>         <C>     <C>         <C>     <C>           <C>         <C>           <C>           <C>
Balance--December
 31, 1998........   1,400,000  $1,000     733,979  $ 1,000 $  3,875,000  $(121,000)  $       --     $      --    $(29,140,000)
Common stock
 issued pursuant
 to exercise of
 stock options...         --      --       11,439      --        11,000        --            --            --             --
Value of options
 issued to
 consultants.....         --      --          --       --        18,000        --            --            --             --
Value of warrants
 issued in
 connection with
 bridge loan.....         --      --          --       --        26,000        --            --            --             --
Dividend declared
 on Series A-1
 preferred.......         --      --          --       --      (501,000)       --            --            --             --
Forgiveness of
 loans made to
 officers........         --      --          --       --           --      51,000           --            --             --
Net loss.........         --      --          --       --           --         --            --            --     (15,969,000)
                   ----------  ------  ----------  ------- ------------  ---------   -----------    ----------   ------------
Balance--December
 31, 1999........   1,400,000   1,000     745,418    1,000    3,429,000    (70,000)          --            --     (45,109,000)
Common stock
 issued pursuant
 to exercise of
 stock options,
 warrants and
 stock grants....         --      --      622,010      --     1,605,000   (521,000)          --            --             --
Common stock
 issued pursuant
 to cashless
 exercise of
 warrants........         --      --    1,017,230    1,000       (1,000)       --            --            --             --
Issuance of
 Series D
 preferred stock,
 net of offering
 costs of
 $24,000.........     625,000   1,000         --       --     4,976,000        --            --            --             --
Common stock
 issued pursuant
 to initial
 public offering,
 net of offering
 costs of
 $7,362,500......         --      --    5,750,000    6,000   78,882,000        --            --            --             --
Conversion of
 convertible
 preferred
 stock...........  (2,025,000) (2,000)    723,214    1,000        1,000        --            --            --             --
Conversion of
 redeemable
 preferred
 stock...........         --      --   12,463,389   12,000   63,523,000        --            --            --             --
Conversion of
 notes payable--
 dividends and
 accrued
 interest........         --      --       71,234      --     1,068,000        --            --            --             --
Dividends
 declared on
 Series A-1
 preferred.......         --      --          --       --      (563,000)       --            --            --             --
Value of options
 issued to
 consultants.....         --      --          --       --       392,000        --            --            --             --
Deferred
 compensation
 charge in
 connection with
 option grants...         --      --          --       --     3,983,000        --     (3,983,000)          --             --
Forfeiture of
 options subject
 to deferred
 compensation....         --      --          --       --       (53,000)       --         53,000           --             --
Deferred
 compensation
 expense.........         --      --          --       --           --         --        360,000           --             --
Common stock
 reacquired......         --      --       (6,697)     --       (19,000)    19,000           --            --             --
Forgiveness of
 loans made to
 officers........         --      --          --       --           --     182,000           --            --             --
Net loss.........         --      --          --       --           --         --            --            --      (8,152,000)
                   ----------  ------  ----------  ------- ------------  ---------   -----------    ----------   ------------
Balance--December
 31, 2000........         --      --   21,385,798   21,000  157,223,000   (390,000)   (3,570,000)          --     (53,261,000)
Common stock
 issued pursuant
 to exercise of
 stock options...         --      --      246,134      --       603,000        --            --            --             --
Common stock
 issued pursuant
 to exercise of
 warrants........         --      --      356,306    1,000       10,000        --            --            --             --
Value of options
 issued to
 consultants.....         --      --          --       --       433,000        --            --            --             --
Compensation
 charge in
 connection with
 acceleration of
 vesting terms on
 options.........         --      --          --       --       365,000        --            --            --             --
Forfeiture of
 options subject
 to deferred
 compensation....         --      --          --       --      (184,000)       --        184,000           --             --
Deferred
 compensation
 expense.........         --      --          --       --           --         --      1,000,000           --             --
Forgiveness of
 loans made to
 officer.........         --      --          --       --           --     130,000           --            --             --
Comprehensive
 loss:                                                                                                     --
 Net loss........         --      --          --       --           --         --            --                   (11,442,000)
 Unrealized gain
  on
  investments....         --      --          --       --           --         --            --      1,123,000            --
Comprehensive
 loss............
                   ----------  ------  ----------  ------- ------------  ---------   -----------    ----------   ------------
Balance--December
 31, 2001........         --   $  --   21,988,238  $22,000 $158,450,000  $(260,000)  $(2,386,000)   $1,123,000   $(64,703,000)
                   ==========  ======  ==========  ======= ============  =========   ===========    ==========   ============
<CAPTION>
                       Total
                   Stockholders'
                      Equity
                     (Deficit)
                   --------------
<S>                <C>
Balance--December
 31, 1998........  $(25,384,000)
Common stock
 issued pursuant
 to exercise of
 stock options...        11,000
Value of options
 issued to
 consultants.....        18,000
Value of warrants
 issued in
 connection with
 bridge loan.....        26,000
Dividend declared
 on Series A-1
 preferred.......      (501,000)
Forgiveness of
 loans made to
 officers........        51,000
Net loss.........   (15,969,000)
                   --------------
Balance--December
 31, 1999........   (41,748,000)
Common stock
 issued pursuant
 to exercise of
 stock options,
 warrants and
 stock grants....     1,084,000
Common stock
 issued pursuant
 to cashless
 exercise of
 warrants........           --
Issuance of
 Series D
 preferred stock,
 net of offering
 costs of
 $24,000.........     4,977,000
Common stock
 issued pursuant
 to initial
 public offering,
 net of offering
 costs of
 $7,362,500......    78,888,000
Conversion of
 convertible
 preferred
 stock...........           --
Conversion of
 redeemable
 preferred
 stock...........    63,535,000
Conversion of
 notes payable--
 dividends and
 accrued
 interest........     1,068,000
Dividends
 declared on
 Series A-1
 preferred.......      (563,000)
Value of options
 issued to
 consultants.....       392,000
Deferred
 compensation
 charge in
 connection with
 option grants...           --
Forfeiture of
 options subject
 to deferred
 compensation....           --
Deferred
 compensation
 expense.........       360,000
Common stock
 reacquired......           --
Forgiveness of
 loans made to
 officers........       182,000
Net loss.........    (8,152,000)
                   --------------
Balance--December
 31, 2000........   100,023,000
Common stock
 issued pursuant
 to exercise of
 stock options...       603,000
Common stock
 issued pursuant
 to exercise of
 warrants........        11,000
Value of options
 issued to
 consultants.....       433,000
Compensation
 charge in
 connection with
 acceleration of
 vesting terms on
 options.........       365,000
Forfeiture of
 options subject
 to deferred
 compensation....           --
Deferred
 compensation
 expense.........     1,000,000
Forgiveness of
 loans made to
 officer.........       130,000
Comprehensive
 loss:
 Net loss........   (11,442,000)
 Unrealized gain
  on
  investments....     1,123,000
                   --------------
Comprehensive
 loss............  (10,319,000)
                   --------------
Balance--December
 31, 2001........  $ 91,123,000
                   ==============
</TABLE>

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

                                      F-6
<PAGE>

                      3-DIMENSIONAL PHARMACEUTICALS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                       ----------------------------------------
                                           2001          2000          1999
                                       ------------  ------------  ------------
<S>                                    <C>           <C>           <C>
Cash flows from operating activities:
Net loss.............................  $(11,442,000) $ (8,152,000) $(15,969,000)
Adjustments to reconcile net loss to
 net cash provided by (used in)
 operating activities:
 Depreciation and amortization.......     2,863,000     1,922,000     1,565,000
 Amortization of premium on
  marketable securities..............       851,000           --         19,000
 Amortization of discount on
  marketable securities..............      (691,000)          --            --
 Accretion of interest on discounted
  note payable.......................        34,000        26,000           --
 Non-cash compensation expense.......     1,495,000       201,000        51,000
 Valuation of options and warrants...       433,000       752,000        44,000
 Interest paid with common stock.....            --        49,000           --
 Interest paid with preferred stock..            --       239,000           --
  Changes in:
   Other assets......................      (981,000)   (1,899,000)      260,000
   Accounts payable and accrued
    expenses ........................     2,566,000       454,000     1,620,000
   Settlement accrual................      (500,000)   (1,000,000)    1,500,000
   Deferred revenue..................    (4,117,000)   16,116,000       345,000
                                       ------------  ------------  ------------
    Net cash provided by (used in)
     operating activities............    (9,489,000)    8,708,000   (10,565,000)
                                       ------------  ------------  ------------
Cash flows from investing activities:
 Purchases of marketable securities..  (137,978,000)          --            --
 Maturities of marketable
  securities.........................    58,071,000           --      7,267,000
 Cash restricted for collateral......       835,000           --            --
 Acquisition of subsidiary, net of
  $25,000 cash acquired..............           --            --         (5,000)
 Capital expenditures................    (9,090,000)   (3,469,000)     (278,000)
                                       ------------  ------------  ------------
    Net cash provided by (used in)
     investing activities............   (89,832,000)   (3,469,000)    6,984,000
                                       ------------  ------------  ------------
Cash flows from financing activities:
 Proceeds from sale of stock.........           --    102,212,000           --
 Proceeds from exercise of options
  and warrants ......................       614,000     1,068,000        11,000
 Dividends paid on Series A-1
  Preferred Stock....................           --       (229,000)          --
 Proceeds from issuance of short-term
  debt...............................     5,000,000           --     10,000,000
 Repayment of long-term debt and
  notes payable......................    (1,331,000)   (1,378,000)   (1,224,000)
                                       ------------  ------------  ------------
    Net cash provided by financing
     activities......................     4,283,000   101,673,000     8,787,000
                                       ------------  ------------  ------------
Net increase (decrease) in cash and
 cash equivalents....................   (95,038,000)  106,912,000     5,206,000
Cash and cash equivalents--beginning
 of year.............................   114,557,000     7,645,000     2,439,000
                                       ------------  ------------  ------------
Cash and cash equivalents--end of
 year................................  $ 19,519,000  $114,557,000  $  7,645,000
                                       ============  ============  ============
Supplemental disclosures of cash flow
 information:
 Cash paid for interest..............  $    204,000  $    331,000  $    446,000
 Noncash investing and financing
  activities:
  Equipment purchased under capital
   leases............................           --            --   $    390,000
  Dividends declared but not paid....                         --   $    501,000
  Note receivable exchanged for
   common stock......................           --   $    521,000           --
  Notes payable (including interest
   due of $89,000) exchanged for
   common stock......................           --   $  1,068,000           --
  Notes payable (including interest
   due of $353,000) exchanged for
   redeemable preferred stock........           --   $ 10,353,000           --
  Conversion of redeemable and
   convertible preferred stock to
   common stock......................           --   $ 71,751,000           --
</TABLE>

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

                                      F-7
<PAGE>

                      3-DIMENSIONAL PHARMACEUTICALS, INC.

                         NOTES TO FINANCIAL STATEMENTS

                          December 31, 2001 and 2000

NOTE A--DESCRIPTION OF BUSINESS

   3-Dimensional Pharmaceuticals, Inc. (the Company) is a drug discovery and
development company that has a pipeline of drug candidates in the areas of
cancer and inflammation, and metabolic and cardiovascular diseases. The
Company has developed an integrated set of proprietary technologies called
DiscoverWorks(R) to accelerate and improve the drug discovery process.
DiscoverWorks enables scientists to design characteristics into drug
candidates that the Company believes increases the probability of development
success. The Company uses DiscoverWorks to discover and develop drugs for its
own pipeline and in collaboration with pharmaceutical and biotechnology
companies.

   The Company has incurred net losses since inception in 1993 and may incur
additional losses for at least the next several years. Through December 31,
2001, substantially all of the Company's revenue has been derived from
corporate collaborations, license agreements and government grants. The
Company expects that substantially all of its funds for the next several years
will result from payments from these sources, from outlicensing of
technologies and internally developed drug candidates, and from interest
income. The Company expects to spend significant resources to enhance its drug
discovery technologies and to fund research and development of its pipeline of
drug candidates. Through December 31, 2001, the Company's technologies have
not been used in the development of any compound that has reached the point of
commercialization. In order to achieve profitability, the Company must
continue to develop products and technologies that can be commercialized by
the Company or through existing and future collaborations.

NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 [1] Principles of consolidation:

   The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All inter-company balances have been
eliminated in consolidation.

 [2] Cash, cash equivalents and marketable securities:

   The Company considers all highly liquid investment instruments purchased
with an original maturity of three months or less to be cash equivalents.

   Marketable securities include investments in commerical paper, notes and
bonds with original maturities of greater than three months having a remaining
maturity of less than 24 months. These marketable securities are treated for
accounting purposes as available-for-sale and as such are reported at their
fair market values. At December 31, 2001, the Company had $1,123,000 of
unrealized gains on these marketable securities. All realized gains and losses
are recorded in the results of operations. Unrealized gains and losses have
been recorded as a separate component of stockholders' equity.

 [3] Restricted Cash:

   Restricted cash of $0.8 million at December 31, 2001 collateralizes a $0.8
million outstanding letter of credit associated with the lease of the
Company's Cranbury research facility. The funds are invested in a money market
fund. (Note K)

 [4] Property and equipment:

   Property and equipment are recorded at cost and depreciated using the
straight-line method over estimated useful lives of two to five years.
Leasehold improvements and equipment acquired under capital leases are
amortized over the lesser of the economic useful life of the improvement or
asset or the term of the lease. Expenditures for repairs and maintenance are
charged to expense as incurred, while major renewals and improvements are
capitalized.

                                      F-8
<PAGE>

                      3-DIMENSIONAL PHARMACEUTICALS, INC.

                         NOTES TO FINANCIAL STATEMENTS


 [5] Revenue recognition:

   Revenue from corporate collaborations and licensing agreements consists of
up-front fees, research and development funding and milestone payments. Non-
refundable up-front fees are deferred and amortized to revenue over the
related performance period. Periodic payments for research and development
activities and government grants are recognized over the period that the
Company performs the related activities under the terms of the agreements.
Revenue resulting from the achievement of milestone events stipulated in the
agreements is recognized when the milestone is achieved.

   In the year ended December 31, 1999, the Company changed its method of
recognizing revenue with respect to nonrefundable up-front fees received under
corporate collaboration research agreements to the method described above to
conform with the requirements of an accounting bulletin on revenue recognition
issued by the staff of the Securities and Exchange Commission in December 1999
and retroactively restated its prior years' financial statements to reflect
the application of the new method. Prior to the change, the Company recognized
revenue from such fees upon the execution of the agreement.

 [6] Research and development:

   Research and development costs are expensed as incurred.

 [7] Accounting for stock-based compensation:

   The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). In October 1995, the Financial Accounting Standards Board
issued Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS No.
123), which establishes a fair value-based method of accounting for stock-
based compensation plans. The Company has adopted the disclosure-only
alternative under SFAS No. 123, which requires disclosure of the pro forma
effects on net loss and net loss per share as if stock-based employee
compensation was measured under SFAS No. 123, as well as certain other
information. The Company accounts for stock-based compensation to non-
employees using the fair value method in accordance with SFAS No. 123. The
Company has recognized deferred stock compensation related to certain stock
option grants (see Note I).

 [8] Use of estimates:

   The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.

 [9] Per share data:

   Historical basic and diluted net loss per common share is computed by
dividing the net loss increased by declared and accrued cumulative dividends
on the Series A-1 preferred stock for the year by the weighted average number
of common shares exclusive of outstanding shares of common stock which are
subject to repurchase and are nonvested. As their effects would be anti-
dilutive, shares of common stock issuable upon conversion of preferred stock
(for the periods prior to conversion) and exercise of outstanding options and
warrants as well as outstanding common shares which are nonvested during the
periods were not included in computing diluted net loss per common share.

                                      F-9
<PAGE>

                      3-DIMENSIONAL PHARMACEUTICALS, INC.

                         NOTES TO FINANCIAL STATEMENTS


   Securities and the related number of common shares not included in the
diluted computation for the years ended December 31, 2001, 2000 and 1999 that
could potentially dilute basic earnings per share, if any, in the future are
as follows:

                       Dilutive Potential Common Shares*

<TABLE>
<CAPTION>
                                                   2001       2000       1999
                                                 --------- ---------- ----------
   <S>                                           <C>       <C>        <C>
   Preferred Stock (see below)..................       --   6,858,000  9,545,000
   Options...................................... 2,991,000  2,115,000  2,023,000
   Warrants.....................................   279,000  1,531,000  1,843,000
   Common stock--subject to repurchase..........   111,000    179,000    115,000
                                                 --------- ---------- ----------
                                                 3,381,000 10,683,000 13,526,000
                                                 ========= ========== ==========
</TABLE>
  --------
   * Includes weighted average shares for period prior to conversion and
exercise.

   The preferred stock automatically converted into common stock on a 1 for
..36 basis and certain nonvested common stock automatically became vested upon
completion of the initial public offering of the Company's common stock in
August 2000. Accordingly, pro forma basic and diluted net loss per common
share on the accompanying consolidated statements of operations for the years
ended December 31, 2000 and 1999 has been calculated by dividing net loss by
the weighted average outstanding common shares as if the preferred stock were
converted into common stock, and certain nonvested common stock was vested, as
of the original date of issuance.

 [10] Comprehensive loss:

   Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," requires the reporting of all changes in equity of an
enterprise that result from recognized transactions and other economic events
of the period other than transactions with owners in their capacity as owners.
The Company's other comprehensive loss includes unrealized gains on available
for sale securities.

 [11] Impairment of long-lived assets:

   As required by Statement of Financial Accounting Standards No.
121,"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," the Company assesses the recoverability of any
long-lived assets for which an indicator of impairment exists. Specifically,
the Company calculates, and recognizes, any impairment losses by comparing the
carrying value of these assets to its estimate of the undiscounted future
operating cash flows. Although its current and historical operating cash flows
are indicators of impairment, the Company believes that the future cash flows
to be received from its long-lived assets will exceed the assets' carrying
value. Accordingly, the Company has not recognized any impairment losses
through December 31, 2001.

 [12] Income taxes:

   The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
objective of this pronouncement is to recognize and measure, in accordance
with enacted tax laws, the amount of current and deferred income taxes payable
or refundable at the date of the financial statements as a result of all
events that have been recognized in the financial statements.


                                     F-10
<PAGE>

                      3-DIMENSIONAL PHARMACEUTICALS, INC.

                         NOTES TO FINANCIAL STATEMENTS


NOTE C--CERTAIN RESEARCH AND COLLABORATION AGREEMENTS

   In December 1997, the Company entered into a research collaboration with
Heska Corporation to assist in the discovery and development of new veterinary
therapeutic agents. The agreement originally had a two-year research term,
which was revived and extended until May 31, 2002. As of December 31, 2001,
the Company received up-front cash payments and research funding aggregating
approximately $2.7 million.

   In October 1999, the Company entered into a research collaboration and
license agreement with Hoechst Schering, AgrEvo GmbH, now part of Aventis
CropScience GmbH, under which the Company utilized its DirectedDiversity(R)
technology in the discovery of compounds applicable to plant and pest
management. The initial term of the agreement was for two years and was
extended until it expired in January 2002. As of December 31, 2001, the
Company has received up-front payments, payment for delivery of compounds and
research funding of approximately $3.4 million.

   In December 1999, the Company entered into a collaboration with Boehringer
Ingelheim Pharmaceuticals, Inc., or BIPI, to use its DirectedDiversity
technology to assist BIPI in the discovery of new drugs for specific
biological targets in humans. The initial term of the collaboration was for
two years and, in April 2001, the collaboration was expanded to cover
additional targets and the research term was extended until March 2003. As of
December 31, 2001, the Company has received up-front payments and research
funding aggregating approximately $4.1 million, and will receive additional
committed research funding of approximately $3.1 million over the remaining
term of the collaboration. The Company could also receive milestone payments
of up to $2.4 million for the first product developed depending on whether
stipulated milestones are met, and is eligible to receive additional milestone
payments if subsequent products are developed. The Company is also entitled to
receive royalties on the sales of resulting products.

   In February 2000, the Company entered into a collaboration with DuPont
Pharmaceuticals Company (acquired by Bristol-Myers Squibb Company in October
2001) under which the Company would utilize its DirectedDiversity technology
to develop new drugs for specific biological targets. As of December 31, 2001,
the Company has received up-front payments and research funding aggregating
approximately $2.6 million. The agreement expired on December 31, 2001, the
end of the initial research term of the collaboration.

   In March 2000, the Company was awarded and commenced a research project in
which it was the recipient of a two-year Small Business Innovative Research
(SBIR) award totaling up to $1 million. In addition, in June 2001, the Company
was awarded and commenced an additional research project under a two-year SBIR
Award totaling up to $1 million. The SBIRs are sponsored by the National
Institutes of Health.

   In May 2000, the Company entered into a license and research agreement with
Schering AG, Germany, in which Schering AG obtained, for human therapeutic
uses, exclusive worldwide rights to the Company's urokinase inhibitor
compounds. During the initial two-year research and development term, the
Company is to receive payments for research funding totaling $5 million, of
which $4.1 million was received by December 31, 2001. In addition, the Company
is eligible to receive milestone payments of up to approximately $23 million
for the first product developed in a therapeutic area depending on whether
stipulated milestones are met, and future milestone payments for additional
therapeutic areas and royalties on the sales of any resulting products. In
connection with the agreement, an affiliate of Schering AG made a $5 million
equity investment in the Company consisting of shares of preferred stock that
converted into 223,214 shares of common stock.

   In July 2000, the Company entered into a collaboration with Bristol-Myers
Squibb Company, or BMS, under which the Company will use its DiscoverWorks
technologies to assist BMS in the discovery and development of new human drugs
for specific biological targets. In the initial three-year term of the
research

                                     F-11
<PAGE>

                      3-DIMENSIONAL PHARMACEUTICALS, INC.

                         NOTES TO FINANCIAL STATEMENTS

collaboration, BMS will supply biological targets and the Company will create
chemical libraries and screen such libraries against these targets. BMS may
terminate research activities with 90 days notice, without cause, but must pay
any remaining research funding during the initial research term or one-half of
the remaining research funding during any extended term. Following the end of
the initial research or any extended research term, either party may terminate
the agreement on 30 days notice if no compound is being optimized or developed
under the collaborative agreement. The Company received up-front cash
licensing and technology access fees amounting to $19 million, net of a $4.5
million refund resulting from a modification of the agreement, and research
funding of $14.4 million has been committed over the first three years of the
collaboration of which $7.5 million was received by December 31, 2001.

   In addition, the Company could receive milestone payments through the
clinical development stages, and royalty payments on the sales of any
resulting products, with the amount at each level determined based on the
Company's involvement in the related optimization and development activities.
For each compound, depending on whether all pre-clinical and clinical
milestones are met and depending on the Company's contribution to the
development of the compound, the Company could receive milestone payments
aggregating up to between $4.5 million and $15 million.

   In December 2000, the Company entered into an agreement with Centocor,
Inc., a subsidiary of Johnson & Johnson, under which Centocor acquired
worldwide rights to the Company's direct thrombin inhibitor program. Centocor
is responsible for development and worldwide commercialization of all
compounds under the agreement. For the deep vein thrombosis indication, the
Company has an option to co-develop and co-promote with Centocor in the United
States. Under the agreement, the Company received an up-front cash payment of
$6 million from Centocor, research funding of $0.8 million during the year
ended December 31, 2001 and a milestone payment of $4 million in October 2001
and is eligible to receive additional committed research funding of $0.8
million over the remaining term of the contract. The Company could also
receive milestone payments of up to $38 million based on the achievement of
certain milestones for the first compound developed and approved under the
agreement. In addition, the Company is entitled to receive royalties on the
sales of any products marketed under the agreement.

   In December 2001, the Company entered into a collaboration with Johnson &
Johnson Pharmaceutical Research & Development, L.L.C., or J&J PRD, to utilize
the Company's DiscoverWorks technology to discover and optimize small molecule
drug leads directed towards genomics targets identified by J&J PRD. The
initial research term is for approximately one year, subject to renewal by
mutual agreement. Under the terms of this agreement, the Company received an
up-front technology access fee and committed research funding aggregating $3.6
million. The contract provides that the Company could also receive milestone
payments of up to $4.2 million for the first product developed depending on
whether stipulated milestones are met and could receive additional milestones
if subsequent products are developed. The contract also provides that the
Company is entitled to receive royalties on the sales of any resulting
products.

   All revenue from research and collaboration agreements is earned from
activities performed in the United States. Revenue from foreign corporate
collaborators (based on the location of the collaborator) comprised 13%, 30%
and 23% of total collaboration revenues for the years ended December 31, 2001,
2000 and 1999, respectively.

                                     F-12
<PAGE>

                      3-DIMENSIONAL PHARMACEUTICALS, INC.

                         NOTES TO FINANCIAL STATEMENTS


   Revenue from the Company's major customers as a percentage of total
revenue, for the years ended December 31, 2001, 2000 and 1999 was comprised of
the following:

<TABLE>
<CAPTION>
            Customer                     2001 2000 1999
            --------                     ---- ---- ----
            <S>                          <C>  <C>  <C>
            A........................... 43%  35%  --
            B........................... 30%  --   --
            C...........................  4%  16%   3%
            D...........................  9%  13%  --
            E...........................  8%  14%  --
            F........................... --   --   37%
            G........................... --    3%  27%
            H........................... --   --   20%
                                         ---  ---  ---
                                         94%  81%  87%
                                         ===  ===  ===
</TABLE>

   Deferred revenue at December 31, 2001, which consists of unamortized up-
front fees, is expected to be recognized as revenue in 2002 and 2003 in the
amounts of $9,601,000 and $3,286,000, respectively.

NOTE D--PROPERTY AND EQUIPMENT

   Property and equipment, all of which are located in the United States, is
summarized as follows:

<TABLE>
<CAPTION>
                                                      As of December 31,
                                                    ------------------------
                                                       2001         2000
                                                    -----------  -----------
      <S>                                           <C>          <C>
      Laboratory equipment, computer software and
       office equipment............................ $12,330,000  $ 6,720,000
      Leasehold improvements.......................   4,570,000    2,655,000
                                                    -----------  -----------
                                                     16,900,000    9,375,000
      Less accumulated depreciation and
       amortization................................  (5,165,000)  (3,867,000)
                                                    -----------  -----------
                                                    $11,735,000  $ 5,508,000
                                                    ===========  ===========
</TABLE>

NOTE E--ACCOUNTS PAYABLE AND ACCRUED EXPENSES

   Accounts payable and accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                           As of December 31,
                                                          ---------------------
                                                             2001       2000
                                                          ---------- ----------
      <S>                                                 <C>        <C>
      Professional fees.................................. $  950,000 $  289,000
      Equipment..........................................  1,473,000    685,000
      Payroll and related expenses.......................  1,615,000  1,280,000
      Trade payables.....................................  1,721,000    939,000
                                                          ---------- ----------
                                                          $5,759,000 $3,193,000
                                                          ========== ==========
</TABLE>

NOTE F--DEBT

 [1] Short-term note payable:

   On December 31, 2001, the Company completed a short-term note financing for
$5 million. The note bears interest at the prime rate of 4.75%. Principal and
interest is due by February 28, 2002. The Company intends to repay the
principal and interest and to arrange to refinance the amount borrowed as a
long-term note.

                                     F-13
<PAGE>

                      3-DIMENSIONAL PHARMACEUTICALS, INC.

                         NOTES TO FINANCIAL STATEMENTS


 [2] Convertible notes payable:

   On November 18, 1999, the Company completed a convertible note financing
for $10 million.

   The notes bore interest at the rate of prime + 1% per annum (9.5% through
December 31, 1999). Principal and interest was due on the first anniversary of
the closing date (the Maturity Date). The notes provided that, if prior to the
Maturity Date the Company raised an additional $10 million through the sale of
redeemable preferred stock, the notes and any unpaid accrued interest would
convert into the redeemable stock on the same terms and conditions as given to
the new investors. On March 31, 2000, the Company raised $18.4 million through
the sale of redeemable preferred stock, which upon completion of the IPO
converted into 2,186,101 shares of common stock. In connection therewith, the
$10 million of convertible notes and $353,000 of accrued interest were
converted into shares of redeemable preferred stock, which upon completion of
the IPO converted into 1,232,559 shares of common stock.

   In connection with the sale of the notes, the Company issued warrants to
purchase 1,250,000 shares of common stock exercisable at $3.50 per share for a
period of one year. The Company recorded a noncash interest charge in
connection with these warrants of $26,000 for the year ended December 31,
1999. All of the warrants were exercised prior to expiration, certain of which
on a net issuance basis, resulting in the issuance of 1,119,285 shares of
common stock.

 [3] Long-term debt:

   Long-term debt, including capital lease obligations, was as follows:

<TABLE>
<CAPTION>
                                                           As of December 31,
                                                          ---------------------
                                                             2001       2000
                                                          ---------- ----------
      <S>                                                 <C>        <C>
      Loans payable(a)................................... $1,010,000 $2,002,000
      Note payable(b)....................................    217,000    308,000
      Capital lease obligations..........................        --     214,000
                                                          ---------- ----------
                                                           1,227,000  2,524,000
      Current portion of long-term debt..................  1,066,000  1,209,000
                                                          ---------- ----------
      Long-term debt..................................... $  161,000 $1,315,000
                                                          ========== ==========
</TABLE>
--------
(a)  During 1998 and 1999, the Company entered into a series of 48-month loans
     to finance the purchase of laboratory equipment and office equipment and
     certain tenant improvements at interest rates varying between 10.68% and
     11.65%. The loans are payable in monthly installments of principal and
     interest aggregating $98,000 with final payments in 2002 and 2003
     aggregating $362,000 and $39,000, respectively. Borrowings related to the
     purchase of laboratory equipment and office equipment are collateralized
     by the equipment.
(b) The note is payable in annual installments of $125,000 through December
    2003. Interest on the note payable has been imputed at 10.0% per annum. As
    of December 31, 2001, the discounted amount of the note is $217,000 (face
    value $250,000).

   Minimum principal repayments of long-term debt as of December 31, 2001 were
as follows:

<TABLE>
      <S>                                                             <C>
      2002........................................................... $1,066,000
      2003...........................................................    161,000
                                                                      ----------
          Total...................................................... $1,227,000
                                                                      ==========
</TABLE>

                                     F-14
<PAGE>

                      3-DIMENSIONAL PHARMACEUTICALS, INC.

                         NOTES TO FINANCIAL STATEMENTS


NOTE G--FAIR VALUE OF FINANCIAL INSTRUMENTS

   Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires the Company to disclose the
estimated fair value of its financial instruments. The carrying amounts
reported in the balance sheets for cash and cash equivalents, accounts payable
and accrued expenses approximate fair value because of the short-term duration
of those items. The carrying amounts of debt and notes payable approximate
fair value because the interest rates on such debt approximate the market
rate.

NOTE H--REDEEMABLE PREFERRED STOCK AND EQUITY SECURITIES

 [1] Preferred stock:

   In August 2000, all outstanding Series A, B, C and D preferred shares and
the notes payable were automatically converted into common shares of the
Company on a 1 to .36 basis upon completion of the initial public offering of
the Company's common stock.

 [2] Common Stock:

   In August 2000, the Company completed an initial public offering of its
common stock. The offering consisted of 5,000,000 shares, which were priced at
$15 per share. The Company also granted its underwriters an option to purchase
750,000 shares to cover over allotments, which was exercised concurrently with
the IPO. Net proceeds to the Company after subtracting underwriting discounts
and expenses was $78,888,000.

 [3] Warrants:

   As of December 31, 2001, the Company has outstanding warrants to purchase
common shares, all of which are exercisable, as follows:

<TABLE>
<CAPTION>
                                      Expiration                         Number of Common
         Exercise Price                  Date                            Shares Reserved
         --------------               ----------                         ----------------
         <S>                          <C>                                <C>
             $0.03                       2005                                   5,894
             $0.03                       2006                                  90,599
             $0.03                       2007                                   5,336
             $7.00                       2004                                   4,500
                                                                             --------
                                                                             *106,329
                                                                             ========
</TABLE>
--------
* Weighted average exercise price was $.32 and weighted average remaining
contractual life was 4.44 years.

 [4] Common stock subject to repurchase:

   As of December 31, 2001 and 2000, 93,792 and 139,796 shares of common
stock, respectively, are subject to repurchase by the Company. The shares are
subject to repurchase at the Company's option at the original purchase prices,
ranging from $2.94 to $6.30, in the event that the purchaser's relationship
with the Company is terminated. The number of shares subject to repurchase by
the Company decreases by 25% on the one-year anniversary of the sale, and
further reduces upon later anniversary dates.

 [5] Note receivable from officer:

   At December 31, 2001, the Company has a note receivable from an officer
with an unpaid balance of $260,000 in connection with a loan made in March
2000 to purchase 176,871 restricted shares of the Company's common stock. The
loan is collateralized by the officer's beneficial interest in the stock.
Under the terms of the

                                     F-15
<PAGE>

                      3-DIMENSIONAL PHARMACEUTICALS, INC.

                         NOTES TO FINANCIAL STATEMENTS

note, interest accrues on the unpaid principal at approximately 7% per annum.
Principal and accrued interest is to be paid in four equal installments with
the first payment due six months from the loan date and the remaining payments
due annually thereafter. The Company has forgiven installments of principal
and interest due on loans to this officer and to other officers as part of the
overall executive compensation program. These amounts have been recorded as
compensation expense totaling $156,000, $182,000 and $58,000 for the years
ended December 31, 2001, 2000 and 1999, respectively.

NOTE I--EQUITY COMPENSATION PLANS

   The Company has maintained two equity compensation plans (together the
Plans) for the issuance of stock options and other stock grants to its
employees, non-employee directors, advisors and consultants.

   The Company's Equity Compensation Plan adopted in 1993, as amended,
provides for the issuance of restricted stock and the granting of both
incentive stock options and nonqualified stock options to purchase a total of
3,022,095 shares of common stock. The options vest over various periods, not
exceeding five years, and expire no later than ten years from date of grant.
Upon the close of the Company's IPO in August 2000, the Company stopped making
grants under the 1993 Plan.

   During 2000, the board of directors and stockholders approved the 2000
Equity Compensation Plan, which became effective upon the close of the IPO in
August 2000 and provided for the granting of up to 2,200,000 shares of common
stock. On May 14, 2001, the board of directors and stockholders increased the
number of shares under the plan to 4,200,000 shares of common stock.

   The 2000 Plan provides for grants of incentive stock options, nonqualified
stock options, stock awards and performance units.

   The Plans are administered by a committee of the board of directors. The
committee has the authority to determine the term during which an option may
be exercised (provided that no option may have a term of more than ten years),
the exercise price of an option and the rate at which options may be
exercised. Incentive stock options may be granted only to employees of the
Company. Nonqualified stock options may be granted to employees, directors or
consultants of the Company. For incentive stock options, the exercise price
may not be less than the fair value of the stock on the date of grant.

   The Company applies APB 25 in accounting for its employee stock option
awards, which requires the recognition of compensation expense for the
difference between the market value of the underlying common stock and the
exercise price of the option at the grant date.

   Pro forma information regarding net loss and loss per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The
weighted average fair value of options granted during the years ended December
31, 2001, 2000 and 1999 is estimated to be $6.80, $13.83 and $.35,
respectively. The fair value of these options was estimated at the date of
grant using the Black-Scholes option-pricing model with the following
assumptions:

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                      -------------------------
                                                       2001     2000     1999
                                                      -------  -------  -------
      <S>                                             <C>      <C>      <C>
      Risk-free interest rate........................     5.7%     5.9%     6.6%
      Expected life.................................. 6 Years  6 Years  6 Years
      Expected volatility............................     102%     120%      10%
      Divided yield..................................       0%       0%       0%
</TABLE>

                                     F-16
<PAGE>

                      3-DIMENSIONAL PHARMACEUTICALS, INC.

                         NOTES TO FINANCIAL STATEMENTS


   Had compensation cost for the Company's stock options been determined based
upon the fair value at the grant date for awards under the Plans consistent
with the methodology prescribed under SFAS No. 123, the Company's pro forma
net loss and pro forma net loss per share would be as follows:


<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                        -------------------------------------
                                           2001         2000         1999
                                        -----------  -----------  -----------
   <S>                                  <C>          <C>          <C>
   Net loss:
    Historical......................... $11,442,000  $ 8,152,000  $15,969,000
    Pro forma..........................  15,652,000   10,388,000   16,398,000
   Basic and diluted net loss per
    share:
    Historical......................... $     (0.53) $     (0.97) $    (27.37)
    Pro forma.......................... $     (0.72) $     (1.23) $    (28.07)
</TABLE>

   The following table summarizes information about stock option activity
under the Plans during the periods indicated:

<TABLE>
<CAPTION>
                                   Incentive Options   Nonqualified Options
                                  -------------------- ------------------------
                                              Weighted               Weighted
                                              Average                Average
                                              Exercise              Excercise
                                    Shares     Price     Shares       Price
                                  ----------  -------- -----------  -----------
   <S>                            <C>         <C>      <C>          <C>
   Balance--December 31, 1998....  1,020,149   $ 2.08      160,487   $   1.92
   Granted.......................    157,585     2.94      727,619       3.67
   Exercised.....................    (11,439)    0.97           --         --
   Forfeited.....................    (31,541)    2.65           --         --
                                  ----------           -----------
   Balance--December 31, 1999....  1,134,754     2.20      888,106       3.35
   Granted.......................    455,170    11.07      431,090      15.17
   Exercised.....................   (200,569)    1.80     (191,433)      2.59
   Forfeited.....................   (133,832)    3.44           --         --
                                  ----------           -----------
   Balance--December 31, 2000....  1,255,523     5.34    1,127,763       8.00
   Granted.......................  1,096,421    10.16      230,142      12.66
   Exercised..................... (1,096,974)    2.45      (49,214)      2.44
   Forfeited.....................   (134,998)   10.46      (86,891)     15.17
                                  ----------           -----------
   Balance--December 31, 2001....  2,019,972   $ 7.90    1,221,800   $   8.59
                                  ----------   ------  -----------   --------
</TABLE>

   The following table presents information relating to stock options
outstanding and exercisable at December 31, 2001:

<TABLE>
<CAPTION>
                                 Options Outstanding       Options Exercisable
                            ------------------------------ --------------------
                                        Weighted
                                         Average  Weighted             Weighted
                                        Remaining Average              Average
                              Number      Life    Exercise   Number    Exercise
Range of Exercise Price     Outstanding in Years   Price   Exercisable  Price
-----------------------     ----------- --------- -------- ----------- --------
<S>                         <C>         <C>       <C>      <C>         <C>
Incentive Stock Options
  $0.03 to $7.28...........    904,494    6.77     $ 3.52    559,235    $ 2.45
  $7.29 to $30.00..........  1,115,478    9.20      11.44     48,690     16.02
                             ---------                       -------
                             2,019,972    8.11     $ 7.90    607,925    $ 3.54
                             =========             ======    =======    ======
Nonqualified Stock Options
  $0.03 to $7.28...........    710,853    7.40     $ 3.89    382,965    $ 3.66
  $7.29 to $30.00..........    510,947    8.98      15.14    109,503     17.54
                             ---------                       -------
                             1,221,800    8.06     $ 8.59    492,468    $ 6.75
                             =========             ======    =======    ======
</TABLE>

                                     F-17
<PAGE>

                      3-DIMENSIONAL PHARMACEUTICALS, INC.

                         NOTES TO FINANCIAL STATEMENTS


   In addition to the stock option activity, the Company issued 7,143 shares of
restricted stock at a weighted average purchase price per share of $6.30 under
the Plans during the year ended December 31, 2000. The Company reacquired 6,697
unvested, restricted shares at a purchase price of $19,000 during 2000.

   As of December 31, 2001, 2,689,242 common shares were available for future
grants under the 2000 Plan.

   The Company records expense for option grants to non-employees in the amount
of the fair value per share, as computed using the Black-Scholes option-pricing
model and variable plan accounting over the vesting period. The Company
recognized non-cash expense of $433,000, $392,000 and $18,000 for the years
ended December 31, 2001, 2000 and 1999, respectively in conjunction with such
non-employee option grants.

   During the year ended December 31, 2001, the Company recorded charges
totaling $365,000 resulting from changes in terms of certain stock options to
former employees, directors and consultants.

   During the year ended December 31, 2000, in connection with the grant of
options to employees and directors and the change in status of an option holder
from a consultant to an employee, the Company recorded deferred stock
compensation of $3,983,000, representing the difference between the exercise
price and the market value of the Company's common stock on the dates such
stock options were granted or status was changed. Deferred compensation is
included as a component of stockholders' equity (deficit) and is being
amortized to expense over the vesting period of the stock options. For the
years ended December 31, 2001 and 2000, the Company incurred deferred stock
compensation expense of $1,000,000 and $360,000, respectively.

NOTE J--401(K) PLAN

   The Company maintains a defined contribution 401(k) plan available to
eligible employees. Employee contributions are voluntary and are determined on
an individual basis, limited to the maximum amount allowable under federal tax
regulations. During the year ended December 31, 2001, the Company began making
matching contributions in the amount of 50% of employee contributions up to 6%.
The Company, at its discretion, may also make certain contributions to the
plan. For the years ended December 31, 2001 and 2000, the Company contributed
$266,000 as matching contributions and $226,000 as a discretionary contribution
to the plan, respectively. The Company made no contributions during 1999.

NOTE K--COMMITMENTS AND CONTINGENCIES

 [1] Leases:

   The Company currently occupies approximately 104,500 square feet of space,
including its corporate headquarters and clinical development offices in
Yardley, Pennsylvania and two research facilities located in Exton,
Pennsylvania and Cranbury, New Jersey. The Yardley facility includes 20,500
square feet of office space, which the Company occupied in October 2001 and
which is leased through March 2006. The Company leases approximately 41,000
square feet of space in Exton, Pennsylvania which houses one of the Company's
research and development facilities, including approximately 10,000 square
feet, adjacent to its initial space, which the Company occupied in December
2000. The initial 31,000 square feet of the Exton facility is leased through
June 2008 and the additional 10,000 square feet is subject to options allowing
the Company to extend that portion of the lease term through June 2008. The
Company's other research and development facility includes approximately 43,000
square feet of space in Cranbury, New Jersey. The Cranbury facility is leased
through May 2007. At December 31, 2001 minimum annual rentals under the leases
are as follows:

                                      F-18
<PAGE>

                      3-DIMENSIONAL PHARMACEUTICALS, INC.

                         NOTES TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
         Year Ending December 31,                      Amount
         ------------------------                    -----------
         <S>                                         <C>
             2002................................... $ 2,418,000
             2003...................................   2,460,000
             2004...................................   2,503,000
             2005...................................   2,469,000
             2006...................................   2,412,000
           Thereafter...............................   1,207,000
                                                     -----------
                                                     $13,469,000
                                                     ===========
</TABLE>

   The leases provide for scheduled rental increases and escalations for
increases in real estate taxes and certain operating expenses. At December 31,
2001, the Company has recorded a deferred rent liability in the amount of
$84,000.

   Rent expense was $2,224,000, $547,000 and $516,000 for the years ended
December 31, 2001,2000 and 1999, respectively.

 [2] Letter of Credit:

   The Company had an outstanding letter of credit at December 31, 2001,
totaling $0.8 million pursuant to the lease for the Cranbury research
facility. (Note B[3])

 [3] Contingencies:

   The Company may be, from time to time, a party to various legal proceedings
arising from normal business activities. Although the amount of any liability
that could arise with respect to currently pending actions cannot be
accurately predicted, management believes that the ultimate resolution of
these matters will not have a material adverse effect on the Company's
financial condition or result of operations.

NOTE L--INCOME TAXES

   As of December 31, 2001, the Company has a net operating loss carryforward
and a research and development credit carryforward for federal income tax
purposes of approximately $49,680,000 and $2,909,000 respectively, which begin
to expire in 2016. In addition, the Company has an alternative minimum tax
credit carryforward of $120,000 as of December 31, 2001.

   Deferred tax assets, which represent the tax effects of loss and credit
carryforwards and temporary differences between the financial statement
amounts and the tax basis of assets and liabilities consist of:

<TABLE>
<CAPTION>
                                                        As of December 31,
                                                      ------------------------
                                                         2001         2000
                                                      -----------  -----------
   <S>                                                <C>          <C>
   Net operating loss carryforwards.................  $18,210,000  $14,760,000
   Research and development credit carryforwards....    2,909,000    1,321,000
   Alternative minimum tax credit carryforward......      120,000      117,000
   Income deferred for financial statement purposes,
    taxable when received for tax purposes..........    4,930,000    6,652,000
   Operating expenses, capitalized and amortized as
    start up costs for tax purposes.................          --       247,000
   Other--depreciation and expenses not currently
    deductible......................................      806,000      376,000
                                                      -----------  -----------
   Total deferred tax asset.........................   26,975,000   23,473,000
   Valuation allowance..............................  (26,975,000) (23,473,000)
                                                      -----------  -----------
       Net deferred tax asset.......................  $       --   $       --
                                                      ===========  ===========
</TABLE>

                                     F-19
<PAGE>

                      3-DIMENSIONAL PHARMACEUTICALS, INC.

                         NOTES TO FINANCIAL STATEMENTS


   The Company has not recorded a benefit from its carryforwards or deductible
temporary differences because realization of the benefit is uncertain and,
therefore, a valuation allowance has been provided for the deferred tax asset
at December 31, 2001 and 2000, respectively. The provision for income taxes
for the year ended December 31, 2000 represents a provision for the federal
alternative minimum tax and state income tax. The difference between the tax
benefit computed at the statutory tax rate of 34% and the Company's effective
tax rate is due to the increase in the valuation allowance of $3,502,000,
$4,305,000 and $6,805,000 for the years ended December 31, 2001, 2000 and
1999, respectively, and the provision for the federal alternative minimum tax
and state income tax of $159,000 for the year ended December 31, 2000. In
subsequent years, the Company may be subject to an annual limitation on the
utilization of its net operating loss and research and development tax credit
carryforwards under Section 382 of the Internal Revenue Code.

NOTE M--SETTLEMENT OF LITIGATION

   In October 1998, a complaint was filed in the United States District Court
for the District of Delaware by Anadys Pharmaceuticals, Inc. alleging that the
Company infringed two Anadys U.S. Patents. On March 7, 2000, the Company and
Anadys entered into a Settlement Agreement for a total of $1.5 million which
was paid by the Company for settlement of the litigation.

NOTE N--QUARTERLY RESULTS  (unaudited):

<TABLE>
<CAPTION>
                                          Quarter ended
                         --------------------------------------------------
                                                    September
                          March 31      June 30        30       December 31   Total Year
                         -----------  -----------  -----------  -----------  ------------
<S>                      <C>          <C>          <C>          <C>          <C>
          2001
Revenues................ $ 5,796,000  $ 6,643,000  $ 5,788,000  $10,172,000  $ 28,399,000
Net loss................  (1,641,000)  (3,094,000)  (4,965,000)  (1,742,000)  (11,442,000)
Basic net loss per
 common share--
 historical*............ $     (0.08) $     (0.14) $     (0.23) $     (0.08) $      (0.53)
Diluted net loss per
 common share--
 historical*............ $     (0.08) $     (0.14) $     (0.23) $     (0.08) $      (0.53)
                         ===========  ===========  ===========  ===========  ============
          2000
Revenues................ $ 1,484,000  $ 2,131,000  $ 4,994,000  $ 3,800,000  $ 12,409,000
Net income (loss).......  (3,742,000)  (2,477,000)     409,000   (2,342,000)   (8,152,000)
Basic net income (loss)
 per common share--
 historical*............ $     (5.92) $     (3.76) $      0.03  $     (0.11) $      (0.97)
Diluted net income
 (loss) per common
 share--historical*..... $     (5.92) $     (3.76) $      0.02  $     (0.11) $      (0.97)
Basic net income (loss)
 per common share--pro
 forma.................. $     (0.36) $     (0.18) $      0.02  $     (0.11) $      (0.52)
Diluted net income
 (loss) per common
 share--pro forma....... $     (0.36) $     (0.18) $      0.02  $     (0.11) $      (0.52)
                         ===========  ===========  ===========  ===========  ============
</TABLE>
--------
*  Per common share amounts for the quarters and full years have been
   calculated separately. Accordingly, quarterly amounts do not add to the
   annual amounts because of differences in the weighted average common shares
   outstanding during each period principally due to the effect of the
   Company's issuing shares of its common stock during the year.
(1) During the quarter ended December 31, 2000, revenues included a $0.4
    million adjustment resulting from a modification of the agreement with
    BMS.

                                     F-20
<PAGE>

NOTE O--TPO MIMETIC PROGRAM:

   In January 2002, the Company acquired worldwide rights to a pre-clinical
compound, 3DP-3534, from GlaxoSmithKline Plc, or GSK, for the prevention and
treatment of thrombocytopenia, or low blood platelet count. All payments for
the compound will be made to GSK in shares of the Company's stock. The Company
made an initial payment of 0.5 million shares and is obligated to issue up to
1.9 million additional shares should the compound achieve certain key
development and regulatory milestone events. With respect to the initial 0.5
million shares issued, the Company will recognize a non-cash in-process
research and development charge in the first quarter of 2002 of $4.1 million.

                                     F-21
<PAGE>

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

   On September 24, 2001, upon the recommendation of the Audit Committee and
the Board of Directors, the Company dismissed Richard A. Eisner & Company, LLP
(Eisner) as the Company's independent accountants. Eisner's reports on the
financial statements of the Company for each of the fiscal years ended
December 31, 2000 and 1999 did not contain an adverse opinion or a disclaimer
of opinion, and were not qualified or modified as to uncertainty, audit scope,
or accounting principles. During the Company's 2000 and 1999 fiscal years and
the interim period ended September 24, 2001, the Company did not have any
disagreements with Eisner on any matter relating to accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of Eisner, would have
caused Eisner to make reference to the subject matter of the disagreement in
connection with its report.

   On September 24, 2001, the Board of Directors approved the Company's
retention of Arthur Andersen LLP to act as the Company's independent
accountants. During the Company's 2000 and 1999 fiscal years and the interim
period ended September 24, 2001, the Company did not consult Arthur Andersen
LLP regarding either the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the financial statements of the Company. Additionally,
the Company did not consult Arthur Andersen LLP during the Company's 2000 and
1999 fiscal years or the interim period ended September 24, 2001, regarding
any matter that was the subject of a disagreement or a reportable event.

                                   PART III

Item 10. Directors and Executive Officers of the Registrant

   The response to this item is contained in part under the caption "Executive
Officers of the Registrant" in Part I of this Annual Report on Form 10-K and
the remainder is incorporated by reference from the discussion under the
caption "Nomination and Election of Directors" from our Proxy Statement
relating to our Annual Meeting of Stockholders scheduled for May 17, 2002,
which will be filed within 120 days after the close of the Company's fiscal
year covered by this Report.

Item 11. Executive Compensation

   This information will be included in our Proxy Statement relating to our
Annual Meeting of Stockholders scheduled for May 17, 2002, which will be filed
within 120 days after the close of our fiscal year covered by this Report, and
is incorporated herein by reference to such Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management

   This information will be included in our Proxy Statement relating to our
Annual Meeting of Stockholders scheduled for May 17, 2002, which will be filed
within 120 days after the close of our fiscal year covered by this Report, and
is incorporated herein by reference to such Proxy Statement.

Item 13. Certain Relationships and Related Transactions

   This information will be included in our Proxy Statement relating to our
Annual Meeting of Stockholders scheduled for May 17, 2002, which will be filed
within 120 days after the close of our fiscal year covered by this Report, and
is incorporated herein by reference to such Proxy Statement.

                                     F-22
<PAGE>

                                    PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

     (a)  Documents filed as part of this report:

       (1)  Financial Statements

   The financial statements are included under Item 8 of this Report.

       (2)  Financial Statement Schedules

     The financial statement schedules listed under Item 8 of this Report are
  omitted because they are not applicable or required information, and are
  shown in the financial statements or the notes thereto.

       (3)  List of Exhibits.

   The following is a list of exhibits filed as part of this annual report on
Form 10-K. Where so indicated in parentheses, exhibits which were previously
filed are incorporated herein by reference.

<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------
 <C>     <S>
  3 (i)  Ninth Restated Certificate of Incorporation of the Company
         (incorporated by reference to Exhibit 3.4 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606)).
  3 (ii) Amended and Restated Bylaws of the Company (incorporated by reference
         to Exhibit 3.5 to the Company's Registration Statement on Form S-1
         (File No. 333-37606)).
  4.1    Form of Common Stock Certificate of Company (incorporated by reference
         to Exhibit 4.1 to the Company's Registration Statement on Form S-1
         (File No. 333-37606)).
 10.1    3-Dimensional Pharmaceuticals, Inc. Equity Compensation Plan, as
         amended (incorporated by reference to Exhibit 10.1 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606))./1/
 10.2    Third Amended and Restated Stockholders' Agreement by and among the
         Company and the Stockholders identified therein, dated March 31, 2000
         (incorporated by reference to Exhibit 10.2 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606)).
 10.3    Series B Preferred Stock Purchase Agreement between the Company and
         Merck KGaA, dated October 11, 1996 (incorporated by reference to
         Exhibit 10.3 to the Company's Registration Statement on Form S-1 (File
         No. 333-37606)).
 10.4    Series C Preferred Stock Purchase Agreement between the Company and
         American Home Products Corporation, dated June 13, 1997 (incorporated
         by reference to Exhibit 10.4 to the Company's Registration Statement
         on Form S-1 (File No. 333-37606)).
 10.5    Series D Preferred Stock Purchase Agreement between the Company and
         Schering Berlin Venture Corporation, dated May 17, 2000 (incorporated
         by reference to Exhibit 10.5 to the Company's Registration Statement
         on Form S-1 (File No. 333-37606)).
 10.6    Warrant to Purchase Common Stock of the Company issued to HealthCare
         Ventures III, L.P., dated November 18, 1999 (incorporated by reference
         to Exhibit 10.6 to the Company's Registration Statement on Form S-1
         (File No. 333-37606)).
 10.7    Warrant to Purchase Common Stock of the Company issued to HealthCare
         Ventures IV, L.P., dated November 18, 1999 (incorporated by reference
         to Exhibit 10.7 to the Company's Registration Statement on Form S-1
         (File No. 333-37606)).
 10.8    Warrant to Purchase Common Stock of the Company issued to Rho
         Management Trust II, dated November 18, 1999 (incorporated by
         reference to Exhibit 10.8 to the Company's Registration Statement on
         Form S-1 (File No. 333-37606)).
</TABLE>


                                      F-23
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------
 <C>     <S>
  10.9   Warrant to Purchase Common Stock of the Company issued to Aetna Life
         Insurance Company, dated November 18, 1999 (incorporated by reference
         to Exhibit 10.9 to the Company's Registration Statement on Form S-1
         (File No. 333-37606)).
  10.10  Warrant to Purchase Common Stock of the Company issued to Henry
         Rothman, dated November 18, 1999 (incorporated by reference to Exhibit
         10.10 to the Company's Registration Statement on Form S-1 (File No.
         333-37606)).
  10.11  Warrant to Purchase Common Stock of the Company issued to Abingworth
         Bioventures SICAV, dated November 18, 1999 (incorporated by reference
         to Exhibit 10.11 to the Company's Registration Statement on Form S-1
         (File No. 333-37606)).
  10.12  Warrant to Purchase Common Stock of the Company issued to Sentron
         Medical, Inc., dated November 18, 1999 (incorporated by reference to
         Exhibit 10.12 to the Company's Registration Statement on Form S-1
         (File No. 333-37606)).
  10.13  Warrant to Purchase Common Stock of the Company issued to Biotech
         Growth S.A., dated November 18, 1999 (incorporated by reference to
         Exhibit 10.13 to the Company's Registration Statement on Form S-1
         (File No. 333-37606)).
  10.14  Employment Offer Letter to David C. U'Prichard, dated September 1,
         1999 (incorporated by reference to Exhibit 10.14 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606))./1/
  10.15  Settlement Agreement between the Company and Anadys Pharmaceuticals,
         Inc. (Formerly Scriptgen Pharmaceuticals, Inc.), dated March 7, 2000
         (incorporated by reference to Exhibit 10.15 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606))./2/
  10.16  Research Collaboration Agreement between the Company and BioCryst
         Pharmaceuticals, Inc., dated October 18, 1996, and Amendment No.1
         thereto, dated October 18, 1996 (incorporated by reference to Exhibit
         10.16 to the Company's Registration Statement on Form S-1 (File No.
         333-37606))./2/
  10.17  Collaborative Discovery and Lead Optimization Agreement between the
         Company and Boehringer Ingelheim Pharmaceuticals, Inc., dated December
         17, 1999 (incorporated by reference to Exhibit 10.17 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606))./2/
  10.18  Collaborative Research and License Agreement between the Company and
         Hoechst Schering AgrEvo GmbH, now Aventis CropScience GmbH, dated
         October 18, 1999 (incorporated by reference to Exhibit 10.18 to the
         Company's Registration Statement on Form S-1 (File No. 333-37606))./2/
  10.19  Collaborative Research and License Agreement between the Company and
         E.I. DuPont de Nemours & Co., dated October 12, 1998 (incorporated by
         reference to Exhibit 10.19 to the Company's Registration Statement on
         Form S-1 (File No. 333-37606))./2/
  10.20  Collaborative Discovery and Lead Optimization Agreement between the
         Company and DuPont Pharmaceuticals Company, dated February 11, 2000
         (incorporated by reference to Exhibit 10.20 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606))./2/
  10.21  Nonexclusive Patent License Agreement between the Company and DuPont
         Pharmaceuticals Company, dated February 11, 2000 (incorporated by
         reference to Exhibit 10.21 to the Company's Registration Statement on
         Form S-1 (File No. 333-37606))./2/
  10.22  Research and License Agreement between the Company and the Heska
         Corporation, dated December 18, 1997, and Amendment No.1 thereto,
         dated December 18, 1997 (incorporated by reference to Exhibit 10.22 to
         the Company's Registration Statement on Form S-1 (File
         No. 333-37606))./2/
  10.23  License and Research Agreement between the Company and Schering AG,
         Germany, dated May 17, 2000 (incorporated by reference to Exhibit
         10.23 to the Company's Registration Statement on Form S-1 (File No.
         333-37606))./2/
</TABLE>


                                      F-24
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------
 <C>     <S>
  10.24  Master Loan and Security Agreement between the Company and Phoenixcor,
         Inc., dated June 18, 1998 (incorporated by reference to Exhibit 10.24
         to the Company's Registration Statement on Form S-1 (File No. 333-
         37606)).
  10.25  Amended and Restated Lease for Combination Office/Laboratory/Light
         Manufacturing Space at Eagleview Corporate Center Lot 28 between the
         Company and Eagleview Technology Partners, dated December 12, 1997
         (incorporated by reference to Exhibit 10.25 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606)).
  10.26  Master Lease Agreement between the Company and Transamerica Business
         Credit Corporation, dated June 12, 1997 (incorporated by reference to
         Exhibit 10.26 to the Company's Registration Statement on Form S-1
         (File No. 333-37606)).
  10.27  Warrant to Purchase Common Stock of the Company issued to Transamerica
         Business Credit Corporation, dated June 12, 1997 (incorporated by
         reference to Exhibit 10.27 to the Company's Registration Statement on
         Form S-1 (File No. 333-37606)).
  10.28  Master Lease Agreement, Loan Agreement and Subordination Agreement
         between the Company and Comdisco, Inc., dated March 7, 1994
         (incorporated by reference to Exhibit 10.28 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606)).
  10.29  Warrant to Purchase Series A Preferred Stock, originally dated March
         7, 1994 and reissued to CDC Realty, Inc., dated July 21, 1998
         (incorporated by reference to Exhibit 10.29 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606)).
  10.30  Warrant to Purchase Series A Preferred Stock, originally dated March
         7, 1994 and reissued to Gregory Stento, dated July 21, 1998
         (incorporated by reference to Exhibit 10.30 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606)).
  10.31  Warrant to Purchase Series A Preferred Stock, originally dated April
         25, 1995 and reissued to Comdisco, Inc., dated July 21, 1998
         (incorporated by reference to Exhibit 10.31 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606)).
  10.32  Warrant to Purchase Series A Preferred Stock, originally dated April
         25, 1995 and reissued to Gregory Stento, dated July 21, 1998
         (incorporated by reference to Exhibit 10.32 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606)).
  10.33  Form of Warrant to Purchase Common Stock (along with Schedule of
         Holders of Certain Warrants to Purchase Common Stock) (incorporated by
         reference to Exhibit 10.33 to the Company's Registration Statement on
         Form S-1 (File No. 333-37606)).
  10.34  3-Dimensional Pharmaceuticals, Inc. 2000 Equity Compensation Plan
         (incorporated by reference to Exhibit 10.34 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606))./1/
  10.35  DiscoverWorks(TM) Drug Discovery Collaboration Agreement between the
         Company and Bristol-Myers Squibb Company, dated July 7, 2000
         (incorporated by reference to Exhibit 10.35 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606))./2/
  10.36  DiscoverWorks(TM) Nonexclusive License and Purchase Agreement between
         the Company and Bristol-Myers Squibb Company, dated July 7, 2000
         (incorporated by reference to Exhibit 10.36 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606))./2/
  10.37  Letter agreement between the Company and Bristol-Myers Squibb Company,
         dated December 18, 2000 (incorporated by reference to Exhibit 10.37 to
         the Company's Annual Report on Form 10-K (File No. 000-309992)).
  10.38  Research, Development and Commercialization Agreement between the
         Company and Centocor, Inc., dated as of December 29, 2000
         (incorporated by reference to Exhibit 10.38 to the Company's Annual
         Report on Form 10-K (File No. 000-30992))./2/
</TABLE>


                                      F-25
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------
 <C>     <S>
  10.39  First Amendment to Lease between the Company and Eagleview Technology
         Partners dated October 24, 2000 (incorporated by reference to Exhibit
         10.39 to the Company's Annual Report on Form 10-K (File No. 000-
         30992))./2/
  10.40  Agreement of Sublease between the Company and Advanced Medicine, Inc.,
         dated December 13, 2000 (incorporated by reference to Exhibit 10.40 to
         the Company's Annual Report on Form 10-K (File No. 000-30992))./2/
  10.41  Additional and Alternative Target Agreement between the Company and
         Boehringer Ingelheim Pharmaceuticals, Inc. dated April 20, 2001
         (incorporated by reference to Exhibit 10.41 to the Company's Quarterly
         Report on Form 10-Q for the fiscal quarter period ended June 30, 2001
         (File No. 000-30992))./2/
  10.42  Amendment No. 1 dated May 16, 2001, to Discoverworks Drug Discovery
         Collaboration Agreement between the Company and Bristol-Myers Squibb
         Company, dated July 7, 2000 (incorporated by reference to Exhibit
         10.42 to the Company's Quarterly Report on Form 10-Q for the fiscal
         quarter period ended June 30, 2001 (File No. 000-30992))./2/
  10.43  Agreement of Lease dated June 14, 2001, between the Company and Cedar
         Brook Corporate Center, L.P. (incorporated by reference to Exhibit
         10.43 to the Company's Quarterly Report on Form 10-Q for the fiscal
         quarter period ended June 30, 2001 (File No. 000-30992)).
  10.44  Amendment No. 2 dated October 4, 2001, to Research, Development and
         Commercialization Agreement between the Company and Centocor, Inc.,
         dated December 29, 2000 (incorporated by reference to Exhibit 10.44 to
         the Company's Quarterly Report on Form 10-Q for the fiscal quarter
         period ended September 30, 2001 (File No. 000-30992))./2/
  10.45  Agreement of Lease dated August 8, 2002, between the Company and
         Newtown Office Development III, L.P. (incorporated by reference to
         Exhibit 10.45 to the Company's Quarterly Report on Form 10-Q for the
         fiscal quarter period ended September 30, 2001 (File No. 000-30992)).
  10.46  Collaboration Research and Development Agreement dated October 25,
         2001 between the Company and Athersys, Inc./3/,/4/.
  10.47  Discoverworks Drug Discovery Collaboration Agreement dated December
         28, 2001 between the Company and Janssen Pharmaceuticals and the R.W.
         Johnson Pharmaceutical Research Institute/3/,/4/.
  10.48  License Agreement dated January 7, 2002 between the Company and
         GlaxoSmithKline plc, including Exhibit D consisting of a Stock
         Purchase Agreement and a Registration Rights Agreement between the
         Company and GlaxoSmithKline plc./3/,/4/.
  11.1   Statements or computation of per share income (loss)./3/
  21.1   Subsidiaries of the Registrant (incorporated by reference to the
         Company's Annual Report on Form 10-K (File No. 000-30992)).
  23.1   Consent of Arthur Andersen LLP./3/
  23.2   Consent of Richard A. Eisner & Company, LLP./3/
  99.1   Letter relating to Arthur Andersen LLP./3/
</TABLE>

--------
/1/Compensation plans or arrangements in which directors and executive
   officers are eligible to participate.
/2/Confidential treatment granted with respect to portions of this exhibit.
   Omitted portions were filed separately with the Securities and Exchange
   Commission.
/3/Filed herewith.
/4/Confidential treatment has been requested with respect to portions of this
   exhibit. Omitted portions have been filed separately with the Securities
   and Exchange Commission.

     (b)  Reports on Form 8-K:

     None

                                     F-26
<PAGE>

                                  SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.


Date: March 29, 2002                      3-Dimensional Pharmaceuticals, Inc.

                                                  /s/ David C. U'Prichard
                                          By: _________________________________
                                             David C. U'Prichard, Ph.D. Chief
                                              Executive Officer and Director

<TABLE>
<CAPTION>
           Name                            Title                    Date
           ----                            -----                    ----
<S>                                   <C>                     <C>
     /s/ David C. U'Prichard           Chief Executive          March 29, 2002
-------------------------------------   Officer and
     David C. U'Prichard, Ph.D.         Director (Principal
                                        Executive Officer)

         /s/ John M. Gill              Chief Operating          March 29, 2002
-------------------------------------   Officer and
            John M. Gill                Director (Principal
                                        Financial Officer)

       /s/ Scott M. Horvitz            Vice President,          March 29, 2002
-------------------------------------   Finance and
          Scott M. Horvitz              Administration
                                        (Principal
                                        Accounting Officer)

      /s/ F. Raymond Salemme           President, Chief         March 29, 2002
-------------------------------------   Scientific Officer
      F. Raymond Salemme, Ph.D.         and Director

      /s/ James H. Cavanaugh           Director                 March 29, 2002
-------------------------------------
-------------------------------------
      James H. Cavanaugh, Ph.D.
      James H. Cavanaugh, Ph.D.

    /s/ William Claypool. M.D.         Director                 March 29, 2002
-------------------------------------
-------------------------------------
       William Claypool, M.D.

       /s/ Zola P. Horovitz            Director                 March 29, 2002
-------------------------------------
-------------------------------------
       Zola P. Horovitz, Ph.D

        /s/ David R. King              Director                 March 29, 2002
-------------------------------------
-------------------------------------
            David R. King

         /s/ Joshua Ruch               Director                 March 29, 2002
-------------------------------------
-------------------------------------
             Joshua Ruch

       /s/ Harold R. Werner            Director                 March 29, 2002
-------------------------------------
-------------------------------------
          Harold R. Werner
</TABLE>
<PAGE>

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------
 <C>     <S>
  3 (i)  Ninth Restated Certificate of Incorporation of the Company
         (incorporated by reference to Exhibit 3.4 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606)).
  3 (ii) Amended and Restated Bylaws of the Company (incorporated by reference
         to Exhibit 3.5 to the Company's Registration Statement on Form S-1
         (File No. 333-37606)).
  4.1    Form of Common Stock Certificate of Company (incorporated by reference
         to Exhibit 4.1 to the Company's Registration Statement on Form S-1
         (File No. 333-37606)).
 10.1    3-Dimensional Pharmaceuticals, Inc. Equity Compensation Plan, as
         amended (incorporated by reference to Exhibit 10.1 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606))./1/
 10.2    Third Amended and Restated Stockholders' Agreement by and among the
         Company and the Stockholders identified therein, dated March 31, 2000
         (incorporated by reference to Exhibit 10.2 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606)).
 10.3    Series B Preferred Stock Purchase Agreement between the Company and
         Merck KGaA, dated October 11, 1996 (incorporated by reference to
         Exhibit 10.3 to the Company's Registration Statement on Form S-1 (File
         No. 333-37606)).
 10.4    Series C Preferred Stock Purchase Agreement between the Company and
         American Home Products Corporation, dated June 13, 1997 (incorporated
         by reference to Exhibit 10.4 to the Company's Registration Statement
         on Form S-1 (File No. 333-37606)).
 10.5    Series D Preferred Stock Purchase Agreement between the Company and
         Schering Berlin Venture Corporation, dated May 17, 2000 (incorporated
         by reference to Exhibit 10.5 to the Company's Registration Statement
         on Form S-1 (File No. 333-37606)).
 10.6    Warrant to Purchase Common Stock of the Company issued to HealthCare
         Ventures III, L.P., dated November 18, 1999 (incorporated by reference
         to Exhibit 10.6 to the Company's Registration Statement on Form S-1
         (File No. 333-37606)).
 10.7    Warrant to Purchase Common Stock of the Company issued to HealthCare
         Ventures IV, L.P., dated November 18, 1999 (incorporated by reference
         to Exhibit 10.7 to the Company's Registration Statement on Form S-1
         (File No. 333-37606)).
 10.8    Warrant to Purchase Common Stock of the Company issued to Rho
         Management Trust II, dated November 18, 1999 (incorporated by
         reference to Exhibit 10.8 to the Company's Registration Statement on
         Form S-1 (File No. 333-37606)).
 10.9    Warrant to Purchase Common Stock of the Company issued to Aetna Life
         Insurance Company, dated November 18, 1999 (incorporated by reference
         to Exhibit 10.9 to the Company's Registration Statement on Form S-1
         (File No. 333-37606)).
 10.10   Warrant to Purchase Common Stock of the Company issued to Henry
         Rothman, dated November 18, 1999 (incorporated by reference to Exhibit
         10.10 to the Company's Registration Statement on Form S-1 (File No.
         333-37606)).
 10.11   Warrant to Purchase Common Stock of the Company issued to Abingworth
         Bioventures SICAV, dated November 18, 1999 (incorporated by reference
         to Exhibit 10.11 to the Company's Registration Statement on Form S-1
         (File No. 333-37606)).
 10.12   Warrant to Purchase Common Stock of the Company issued to Sentron
         Medical, Inc., dated November 18, 1999 (incorporated by reference to
         Exhibit 10.12 to the Company's Registration Statement on Form S-1
         (File No. 333-37606)).
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------
 <C>     <S>
  10.13  Warrant to Purchase Common Stock of the Company issued to Biotech
         Growth S.A., dated November 18, 1999 (incorporated by reference to
         Exhibit 10.13 to the Company's Registration Statement on Form S-1
         (File No. 333-37606)).
  10.14  Employment Offer Letter to David C. U'Prichard, dated September 1,
         1999 (incorporated by reference to Exhibit 10.14 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606))./1/
  10.15  Settlement Agreement between the Company and Anadys Pharmaceuticals,
         Inc. (Formerly Scriptgen Pharmaceuticals, Inc.), dated March 7, 2000
         (incorporated by reference to Exhibit 10.15 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606))./2/
  10.16  Research Collaboration Agreement between the Company and BioCryst
         Pharmaceuticals, Inc., dated October 18, 1996, and Amendment No.1
         thereto, dated October 18, 1996 (incorporated by reference to Exhibit
         10.16 to the Company's Registration Statement on Form S-1 (File No.
         333-37606))./2/
  10.17  Collaborative Discovery and Lead Optimization Agreement between the
         Company and Boehringer Ingelheim Pharmaceuticals, Inc., dated December
         17, 1999 (incorporated by reference to Exhibit 10.17 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606))./2/
  10.18  Collaborative Research and License Agreement between the Company and
         Hoechst Schering AgrEvo GmbH, now Aventis CropScience GmbH, dated
         October 18, 1999 (incorporated by reference to Exhibit 10.18 to the
         Company's Registration Statement on Form S-1 (File No. 333-37606))./2/
  10.19  Collaborative Research and License Agreement between the Company and
         E.I. DuPont de Nemours & Co., dated October 12, 1998 (incorporated by
         reference to Exhibit 10.19 to the Company's Registration Statement on
         Form S-1 (File No. 333-37606))./2/
  10.20  Collaborative Discovery and Lead Optimization Agreement between the
         Company and DuPont Pharmaceuticals Company, dated February 11, 2000
         (incorporated by reference to Exhibit 10.20 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606))./2/
  10.21  Nonexclusive Patent License Agreement between the Company and DuPont
         Pharmaceuticals Company, dated February 11, 2000 (incorporated by
         reference to Exhibit 10.21 to the Company's Registration Statement on
         Form S-1 (File No. 333-37606))./2/
  10.22  Research and License Agreement between the Company and the Heska
         Corporation, dated December 18, 1997, and Amendment No.1 thereto,
         dated December 18, 1997 (incorporated by reference to Exhibit 10.22 to
         the Company's Registration Statement on Form S-1 (File
         No. 333-37606))./2/
  10.23  License and Research Agreement between the Company and Schering AG,
         Germany, dated May 17, 2000 (incorporated by reference to Exhibit
         10.23 to the Company's Registration Statement on Form S-1 (File No.
         333-37606))./2/
  10.24  Master Loan and Security Agreement between the Company and Phoenixcor,
         Inc., dated June 18, 1998 (incorporated by reference to Exhibit 10.24
         to the Company's Registration Statement on Form S-1 (File No. 333-
         37606)).
  10.25  Amended and Restated Lease for Combination Office/Laboratory/Light
         Manufacturing Space at Eagleview Corporate Center Lot 28 between the
         Company and Eagleview Technology Partners, dated December 12, 1997
         (incorporated by reference to Exhibit 10.25 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606)).
  10.26  Master Lease Agreement between the Company and Transamerica Business
         Credit Corporation, dated June 12, 1997 (incorporated by reference to
         Exhibit 10.26 to the Company's Registration Statement on Form S-1
         (File No. 333-37606)).
  10.27  Warrant to Purchase Common Stock of the Company issued to Transamerica
         Business Credit Corporation, dated June 12, 1997 (incorporated by
         reference to Exhibit 10.27 to the Company's Registration Statement on
         Form S-1 (File No. 333-37606)).
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------
 <C>     <S>
  10.28  Master Lease Agreement, Loan Agreement and Subordination Agreement
         between the Company and Comdisco, Inc., dated March 7, 1994
         (incorporated by reference to Exhibit 10.28 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606)).
  10.29  Warrant to Purchase Series A Preferred Stock, originally dated March
         7, 1994 and reissued to CDC Realty, Inc., dated July 21, 1998
         (incorporated by reference to Exhibit 10.29 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606)).
  10.30  Warrant to Purchase Series A Preferred Stock, originally dated March
         7, 1994 and reissued to Gregory Stento, dated July 21, 1998
         (incorporated by reference to Exhibit 10.30 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606)).
  10.31  Warrant to Purchase Series A Preferred Stock, originally dated April
         25, 1995 and reissued to Comdisco, Inc., dated July 21, 1998
         (incorporated by reference to Exhibit 10.31 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606)).
  10.32  Warrant to Purchase Series A Preferred Stock, originally dated April
         25, 1995 and reissued to Gregory Stento, dated July 21, 1998
         (incorporated by reference to Exhibit 10.32 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606)).
  10.33  Form of Warrant to Purchase Common Stock (along with Schedule of
         Holders of Certain Warrants to Purchase Common Stock) (incorporated by
         reference to Exhibit 10.33 to the Company's Registration Statement on
         Form S-1 (File No. 333-37606)).
  10.34  3-Dimensional Pharmaceuticals, Inc. 2000 Equity Compensation Plan
         (incorporated by reference to Exhibit 10.34 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606))./1/
  10.35  DiscoverWorks(TM) Drug Discovery Collaboration Agreement between the
         Company and Bristol-Myers Squibb Company, dated July 7, 2000
         (incorporated by reference to Exhibit 10.35 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606))./2/
  10.36  DiscoverWorks(TM) Nonexclusive License and Purchase Agreement between
         the Company and Bristol-Myers Squibb Company, dated July 7, 2000
         (incorporated by reference to Exhibit 10.36 to the Company's
         Registration Statement on Form S-1 (File No. 333-37606))./2/
  10.37  Letter agreement between the Company and Bristol-Myers Squibb Company,
         dated December 18, 2000 (incorporated by reference to Exhibit 10.37 to
         the Company's Annual Report on Form 10-K (File No. 000-309992)).
  10.38  Research, Development and Commercialization Agreement between the
         Company and Centocor, Inc., dated as of December 29, 2000
         (incorporated by reference to Exhibit 10.38 to the Company's Annual
         Report on Form 10-K (File No. 000-30992))./2/
  10.39  First Amendment to Lease between the Company and Eagleview Technology
         Partners dated October 24, 2000 (incorporated by reference to Exhibit
         10.39 to the Company's Annual Report on Form 10-K (File No. 000-
         30992))./2/
  10.40  Agreement of Sublease between the Company and Advanced Medicine, Inc.,
         dated December 13, 2000 (incorporated by reference to Exhibit 10.40 to
         the Company's Annual Report on Form 10-K (File No. 000-30992))./2/
  10.41  Additional and Alternative Target Agreement between the Company and
         Boehringer Ingelheim Pharmaceuticals, Inc. dated April 20, 2001
         (incorporated by reference to Exhibit 10.41 to the Company's Quarterly
         Report on Form 10-Q for the fiscal quarter period ended June 30, 2001
         (File No. 000-30992))./2/
  10.42  Amendment No. 1 dated May 16, 2001, to Discoverworks Drug Discovery
         Collaboration Agreement between the Company and Bristol-Myers Squibb
         Company, dated July 7, 2000 (incorporated by reference to Exhibit
         10.42 to the Company's Quarterly Report on Form 10-Q for the fiscal
         quarter period ended June 30, 2001 (File No. 000-30992))./2/
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------
 <C>     <S>
  10.43  Agreement of Lease dated June 14, 2001, between the Company and Cedar
         Brook Corporate Center, L.P. (incorporated by reference to Exhibit
         10.43 to the Company's Quarterly Report on Form 10-Q for the fiscal
         quarter period ended June 30, 2001 (File No. 000-30992)).
  10.44  Amendment No. 2 dated October 4, 2001, to Research, Development and
         Commercialization Agreement between the Company and Centocor, Inc.,
         dated December 29, 2000 (incorporated by reference to Exhibit 10.44 to
         the Company's Quarterly Report on Form 10-Q for the fiscal quarter
         period ended September 30, 2001 (File No. 000-30992))./2/
  10.45  Agreement of Lease dated August 8, 2002, between the Company and
         Newtown Office Development III, L.P. (incorporated by reference to
         Exhibit 10.45 to the Company's Quarterly Report on Form 10-Q for the
         fiscal quarter period ended September 30, 2001 (File No. 000-30992)).
  10.46  Collaboration Research and Development Agreement dated October 25,
         2001 between the Company and Athersys, Inc./3/,/4/.
  10.47  Discoverworks Drug Discovery Collaboration Agreement dated December
         28, 2001 between the Company and Janssen Pharmaceuticals and the R.W.
         Johnson Pharmaceutical Research Institute/3/,/4/.
  10.48  License Agreement dated January 7, 2002 between the Company and
         GlaxoSmithKline plc, including Exhibit D consisting of a Stock
         Purchase Agreement and a Registration Rights Agreement between the
         Company and GlaxoSmithKline plc./3/,/4/.
  11.1   Statements or computation of per share income (loss)./3/
  21.1   Subsidiaries of the Registrant (incorporated by reference to the
         Company's Annual Report on Form 10-K (File No. 000-30992)).
  23.1   Consent of Arthur Andersen LLP./3/
  23.2   Consent of Richard A. Eisner & Company, LLP./3/
  99.1   Letter relating to Arthur Andersen LLP./3/
</TABLE>

--------
/1/Compensation plans or arrangements in which directors and executive
   officers are eligible to participate.
/2/Confidential treatment granted with respect to portions of this exhibit.
   Omitted portions were filed separately with the Securities and Exchange
   Commission.
/3/Filed herewith.
/4/Confidential treatment has been requested with respect to portions of this
   exhibit. Omitted portions have been filed separately with the Securities
   and Exchange Commission.




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.46
<SEQUENCE>3
<FILENAME>dex1046.txt
<DESCRIPTION>COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.46

                                                                    CONFIDENTIAL



               COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT


                                    between


                      3-DIMENSIONAL PHARMACEUTICALS, INC.


                                      and


                                ATHERSYS, INC.


NOTE:    Certain portions of this Collaborative Research and Development
----
Agreement and its exhibits, which are identified by the symbol "[* *]", have
been omitted and filed separately with the Securities and Exchange Commission
pursuant to a confidential treatment request.
<PAGE>

ARTICLE 1      DEFINITIONS.....................................................1

ARTICLE 2      JOINT COMMITTEES...............................................10

     2.1    Joint Steering Committee..........................................10

     2.2    Chairperson.......................................................10

     2.3    Joint Development Committee.......................................11

     2.4    Responsibilities of the Joint Committees..........................11

     2.5    Voting............................................................12

     2.6    Opinion of Patent Counsel.........................................12

ARTICLE 3      RESEARCH PROGRAM...............................................12

     3.1    Goal of Research Program..........................................12

     3.2    Selection of Athersys Target and 3DP Target.......................12

     3.3    Rejection.........................................................13

     3.4    Selection/Rejection of Joint Targets..............................13

     3.5    Athersys Responsibilities.........................................13

     3.6    3DP Responsibilities..............................................14

     3.7    Completion of Lead Generation.....................................14

     3.8    Additional Efforts................................................14

     3.9    Termination of Research Program For a Joint Target................15

     3.10   Optional 3DP Continued Research...................................15

     3.11   Re-instatement of Terminated Joint Target.........................15

     3.12   [*                        *]......................................16

     3.13   Expansion of Research Program.....................................16

ARTICLE 4      DEVELOPMENT PROGRAM............................................17

     4.1    Goal of Development Program; Development Plans....................17

     4.2    Responsibilities During the Development Program...................17

     4.3    Determination to Move from Lead Generation to Lead Optimization...17

     4.4    Progression into Lead Optimization................................18

     4.5    Athersys Responsibilities.........................................18

     4.6    3DP Responsibilities..............................................18

     4.7    Progression into Pre-Clinical Development and Clinical
            Development.......................................................18

     4.8    Development Efforts...............................................18

     4.9    Opting Out........................................................18

                                       i
<PAGE>

     4.10   Termination of Development Program for a Joint Compound...........19

ARTICLE 5      COMMERCIALIZATION..............................................20

     5.1    Commercialization of Joint Products...............................20

     5.2    Division of Revenues for Joint Products...........................20

     5.3    Athersys Product Commercialization................................21

     5.4    3DP Product Commercialization.....................................22

ARTICLE 6      EXCLUSIVITY....................................................23

     6.1    Athersys Restriction..............................................23

     6.2    3DP Restriction...................................................23

ARTICLE 7      COSTS AND FINANCIAL RECORD KEEPING.............................23

     7.1    Research Program Costs............................................23

     7.2    Development Program Costs.........................................23

     7.3    Record Keeping....................................................24

     7.4    Quarterly Reconciliation..........................................24

     7.5    Audits............................................................25

ARTICLE 8      CROSS-LICENSES.................................................25

     8.1    License Grant by 3DP..............................................25

     8.2    License Grant by Athersys.........................................26

     8.3    3DP's Libraries...................................................26

ARTICLE 9      RESEARCH PROGRAM AND DEVELOPMENT PROGRAM RECORD KEEPING........26

     9.1    Laboratory Notebooks..............................................27

     9.2    Audit.............................................................27

     9.3    Policies for Maintaining Records; Assignments of Inventions.......27

ARTICLE 10     CONFIDENTIAL INFORMATION.......................................27

     10.1   Confidentiality Obligations.......................................27

     10.2   Written Assurances and Permitted Uses of Confidential
            Information.......................................................28

                                       ii
<PAGE>

     10.3   Publication.......................................................28

     10.4   Permitted Disclosures.............................................29

ARTICLE 11     PATENTS AND INTELLECTUAL PROPERTY..............................30

     11.1   Ownership; Inventions.............................................30

     11.2   Prosecution and Maintenance of Patent Rights......................32

     11.3   Prosecution and Maintenance of Joint Targets, Joint Lead
            Compounds, Joint Safety Assessment Compounds and Joint
            Development Compounds.............................................32

     11.4   Cooperation.......................................................33

     11.5   Third Party Infringement..........................................33

     11.6   Other Intellectual Property Infringement..........................34

     11.7   Patent Term Extensions............................................35

ARTICLE 12     REPRESENTATIONS AND WARRANTIES.................................35

     12.1   Authority.........................................................35

     12.2   Commercially Reasonable Efforts...................................35

     12.3   No Conflicts......................................................35

     12.4   No Existing Third Party Rights....................................35

     12.5   Intellectual Property.............................................35

     12.6   Access to Athersys Cell Lines.....................................36

     12.7   Access to 3DP Compounds...........................................36

     12.8   Disclaimer of Warranties..........................................37

ARTICLE 13     INDEMNIFICATION................................................37

     13.1   Indemnification by Athersys.......................................37

     13.2   Indemnification By 3DP............................................38

     13.3   Insurance Proceeds................................................38

     13.4   Insurance.........................................................38

ARTICLE 14     TERM AND TERMINATION...........................................38

     14.1   Term..............................................................38

     14.2   Extension of Research Program.....................................39

     14.3   Partial Termination...............................................39

     14.4   Breach............................................................39

     14.5   Insolvency or Bankruptcy..........................................39

     14.6   Survival of Obligations...........................................40

     14.7   Effects of Termination............................................40

                                      iii
<PAGE>

ARTICLE 15     DISPUTE RESOLUTION.............................................41

     15.1   Dispute Resolution Process........................................41

     15.2   Dispute Resolution Panel..........................................41

     15.3   Arbitration.......................................................41

ARTICLE 16     MISCELLANEOUS PROVISIONS.......................................42

     16.1   Entire Agreement..................................................42

     16.2   Further Actions...................................................42

     16.3   Binding Effect....................................................42

     16.4   Assignment........................................................42

     16.5   No Implied Licenses...............................................42

     16.6   No Waiver.........................................................42

     16.7   Force Majeure.....................................................42

     16.8   Independent Contractors...........................................42

     16.9   Notices and Deliveries............................................43

     16.10  Public Announcements..............................................43

     16.11  Headings..........................................................44

     16.12  Severability......................................................44

     16.13  No Consequential Damages..........................................44

     16.14  Applicable Law....................................................44

     16.15  Counterparts......................................................44

                                       iv
<PAGE>

                COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
                ------------------------------------------------

         This Agreement, made as of the 25th day of October, 2001 (the
"Effective Date"), between 3-Dimensional Pharmaceuticals, Inc., a corporation
 --------------
organized under the laws of Delaware and having a place of business at 1020
Stony Hill Road, Suite 300, Yardley, Pennsylvania 19067 (herein referred to as
"3DP") and Athersys, Inc., a corporation organized under the laws of Delaware
 ---
and having a place of business at 3201 Carnegie Avenue, Cleveland, Ohio 44115
(herein referred to as "Athersys") (3DP and Athersys are each referred to as a
                        --------
"Party" and collectively, the "Parties").
                               -------

                               WITNESSETH THAT:

         WHEREAS, 3DP is engaged in drug discovery research for a variety of
pharmacologically active compounds and the development of technologies to
facilitate such research and 3DP has patented and other proprietary systems for
generating chemical compounds having desired pharmaceutical properties including
DiscoverWorks(TM) Technology;

         WHEREAS, Athersys is engaged in discovery and production of drug
discovery targets and drug discovery screens and has proprietary technologies
therefor, including RAGE-VT Technology and RAGE-PE Technology; and

         WHEREAS, the Parties wish to enter into a strategic alliance in which
they will collaborate on the selection of drug discovery targets to be produced
and developed into screens by Athersys, on the screening by Athersys of
compounds to be selected or synthesized and provided by 3DP, and on the further
research and development and commercialization of compounds that are shown to be
active in such screens.

         NOW, THEREFORE, in consideration of the covenants and obligations
expressed herein, and intending to be legally bound, and otherwise to be bound
by proper and reasonable conduct, the Parties agree as follows:

                                    ARTICLE 1
                                   DEFINITIONS

         1.1   "Affiliate" means, with respect to any Party, any corporation or
                ---------
other business entity, which controls, is controlled by, or is under common
control with such Party. A corporation or other entity shall be regarded as in
control of another corporation or entity if it owns or directly or indirectly
controls at least fifty (50%) of the voting stock or other ownership interest of
the other corporation or entity (or alternatively with respect to foreign
entities, if it owns the maximum such ownership interest permitted by law), or
if it possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of the corporation or other entity or
the power to elect or appoint at least fifty (50%) of the members of the
governing body of the corporation or other entity.

         1.2   "Athersys" means Athersys and its Affiliates.
                --------
<PAGE>

         1.3   "Athersys Compound" means a Compound that is selected or
                -----------------
otherwise results from screening against the Athersys Target during Lead
Generation.

         1.4   "Athersys Development Compound" means a Development Compound
                -----------------------------
directed against an Athersys Target that results from Pre-Clinical Development
undertaken by Athersys and has been selected for Clinical Development.

         1.5   "Athersys Indemnitees" shall have the meaning set forth in
                --------------------
Section 13.2.

         1.6   "Athersys Lead Compound" means a Lead Compound directed against
                ----------------------
an Athersys Target that results from Lead Generation and has been selected for
Lead Optimization or is identified during Lead Optimization.

         1.7   "Athersys Product" means a Product that comprises an Athersys
                ----------------
Development Compound.

         1.8   "Athersys Safety Assessment Compound" means a Safety Assessment
                -----------------------------------
Compound directed against an Athersys Target that results from Lead Optimization
undertaken by Athersys and has been selected for Pre-Clinical Development.

         1.9   "Athersys Target" means the Target that is selected by Athersys
                ---------------
for screening of Compounds provided by 3DP during Lead Generation under this
Agreement to develop a Product that will be owned exclusively by Athersys.

         1.10  "Candidate Target" means a Target listed in Schedule 1.10,
                ----------------                           -------------
Targets that are relevant to the disease areas listed in Schedule 1.10,
                                                         -------------
and Targets that are within the families of Targets listed in Schedule 1.10,
                                                              -------------
as may be amended by the JSC from time to time.

         1.11  "Clinical Development" means the full range of Phase I, Phase II
                --------------------
and Phase III clinical development that are required to obtain a Regulatory
Approval to market a Product.

         1.12  "Clinical Development Plan" means the detailed program of
                -------------------------
Clinical Development activities documented by the JDC for each Joint Target and
its respective Joint Development Compound and including those elements described
in Section 4.1.

         1.13  "Combination Product" means a Product that includes one or more
                -------------------
active ingredients in addition to a Development Compound developed under this
Agreement.

         1.14  "Compound" means an organic chemical compound that is selected or
                --------
synthesized by 3DP from the 3DP Probe Library or associated 3DP Synthetically
Accessible Libraries or from other sources owned or controlled by 3DP for use in
the Research Program. A flowchart of the potential progression of a Compound
through Pre-Clinical Development and Clinical Development and into a Product is
attached hereto as Schedule 1.14.
                   -------------

         1.15  "Confidential Information" means all proprietary, non-public
                ------------------------
information that has or could have commercial value or other utility in a
Party's business, or the unauthorized disclosure of which could be detrimental
to the Party's interests, including confidential information, inventions,
know-how, data and materials relating to chemical structures, Targets,

                                       2
<PAGE>

screens, assays, utility against Targets, Compounds, Lead Compounds, Safety
Assessment Compounds, Development Compounds or Products provided by the Parties
or otherwise developed under this Agreement, and shall include, without
limitation, research, technical, development, manufacturing, commercialization,
financial, personnel and other business information and plans, whether in oral,
written, graphic or electronic form.

         1.16  "Development Compound" means a Safety Assessment Compound that
                --------------------
results from Pre-Clinical Development and has characteristics considered
required for a successful IND submission and, therefore, suitable for and has
been selected for Clinical Development.

         1.17  "Development Plan" means a Lead Optimization Plan, Pre-Clinical
                ----------------
Development Plan or Clinical Development Plan.

         1.18  "Development Program" means the activities and tasks that
                -------------------
comprise Lead Optimization, Pre-Clinical Development, Clinical Development,
manufacture and registration of a Product as applied to Joint Lead Compounds,
Joint Safety Assessment Compounds, Joint Development Compounds and Joint
Products as outlined in ARTICLE 4. Schedule 1.14 graphically depicts the
                                   -------------
elements of the Development Program and its relationship to the Research
Program.

         1.19  "Development Term" means with respect to each Lead Compound, the
                ----------------
period of time beginning with selection of such Lead Compound for Lead
Optimization and ending with the earlier of (i) termination by the JSC or the
JDC, as applicable, of the Development Program for such Lead Compound or Safety
Assessment Compounds or Development Compounds derived therefrom, and (ii) the
first commercial sale of a Product that results from such Lead Compound or
Safety Assessment Compound or Development Compound derived therefrom.

         1.20  "Disclosing Party" shall have the meaning set forth in Section
                ----------------
10.1.

         1.21  "Discontinuing Party" means a Party that elects to opt out of
                -------------------
further development and funding of a Joint Lead Compound, Joint Safety
Assessment Compound or Joint Development Compound, as further provided in
Section 4.9.

         1.22  "DiscoverWorks(TM) Technology" means 3DP's full panoply of drug
                ----------------------------
discovery and compound and library synthesis technologies including but not
limited to DirectedDiversity(R) technology, ThermoFluor(R) Technology, 3DP Probe
Libraries, 3DP Synthetically Accessible Libraries and Proteomica(TM) technology,
notwithstanding that not all such technologies and resources will be utilized
under this Agreement.

         1.23  "Effective Date" shall have the meaning set forth in the
                --------------
preamble.

         1.24  "FTE" means a full time equivalent scientific employee (i.e., one
                ---
full-time or multiple part-time employees aggregating to one full-time employee)
employed by a Party and assigned to work on the Research Program or Development
Program with such time and effort to constitute one employee working on the
Research Program or Development Program on a full-time basis consistent with
normal business and scientific practice (i.e., on an annual basis, at

                                       3
<PAGE>

least forty (40) hours per week of dedicated effort for at least forty-eight
(48) weeks per year). In no event does an FTE include a subcontractor.

         1.25  "FTE Rate" means [* *] per year per FTE for the first contract
                --------
year subject to an annual increase of [* *] compounded annually thereafter to
reflect inflation.

         1.26  "Funding Party" means a Party that elects to continue development
                -------------
of a Joint Lead Compound, Joint Safety Assessment Compound or Joint Development
Compound as further provided in Section 4.9 after the other Party opts out of
further development, i.e., becomes a Discontinuing Party.
                     ----

         1.27  "IND" means (a) (i) an Investigational New Drug Application, as
                ---
defined in the U.S. Federal Food, Drug and Cosmetic Act, as amended, and the
regulations promulgated thereunder, that is required to be filed with the FDA
before beginning clinical testing of a Development Compound in human subjects,
or any successor application or procedure and (ii) any foreign counterpart of a
U.S. Investigational New Drug Application, and (b) all supplements and
amendments that may be filed with respect to the foregoing.

         1.28  "Intellectual Property" means all of the following or their
                ---------------------
substantial equivalent or counterpart in any jurisdiction throughout the world:
(i) patents, patent applications and patent disclosures, (ii) trademarks,
service marks, trade dress, trade names, corporate names, logos and Internet
domain names, (iii) copyrights and copyrightable works, (iv) registrations and
applications for any registration for any of the foregoing and (v) trade
secrets, confidential information and inventions.

         1.29  "Iterative Chemistry Limitations" means limitations inherent in
                -------------------------------
synthesizing compounds through iterative rounds of chemistry using combinatorial
chemistry reaction schemes as developed for the 3DP Synthetically Accessible
Library. A further explanation and examples of such iterative chemistry
limitations are provided in Schedule 1.29.
                            -------------

         1.30  "Joint Compound" means a Compound that is selected or otherwise
                --------------
results from screening against a Joint Target during Lead Generation.

         1.31  "Joint Development Compound" means a Development Compound
                --------------------------
directed against a Joint Target that results from Pre-Clinical Development
undertaken by the Parties and has been selected by the JDC for Clinical
Development.

         1.32  "Joint Lead Compound" means a Lead Compound directed against a
                -------------------
Joint Target that results from Lead Generation and has been selected by the JSC
for Lead Optimization.

         1.33  "Joint Product" means a Product that comprises a Joint
                -------------
Development Compound.

         1.34  "Joint Safety Assessment Compound" means a Safety Assessment
                --------------------------------
Compound directed against a Joint Target that results from Lead Optimization
undertaken by the Parties and has been selected by the JSC for Pre-Clinical
Development.

                                       4
<PAGE>


         1.35  "Joint Target" means one of the [*  *] Targets that are selected
                ------------
by the JSC in accordance with Section 3.4 for screening by Athersys of Compounds
provided by 3DP under this Agreement to develop a Product that will be owned
jointly by Athersys and 3DP.

         1.36  "JDC" means the Joint Development Committee established as
                ---
provided in Section 2.3. Schedule 1.14 graphically depicts the relation of the
                         -------------
JDC and the JSC to the Research and Development Program activities.

         1.37  "JSC" means the Joint Steering Committee established as provided
                ---
in Section 2.1.

         1.38  "Lead Compound" means a Compound that has a well-understood
                -------------
structure-activity relationship with respect to a Target and is suitable for
Lead Optimization, such that derivatives of the Compound, e.g., homologs,
                                                          ----
analogs, polymorphs and isomers, can be designed which would reasonably be
expected to have greater Potency, selectivity, pharmacokinetics,
pharmacodynamics and acute safety. "Lead Compound" also includes such
derivatives, e.g., homologs, analogs, polymorphs, and isomers up to the point of
             ----
selection as a Safety Assessment Compound.

         1.39  "Lead Generation" means a program of identifying Lead Compounds
                ---------------
by using Primary Screens and Secondary Screens to screen Compounds from the 3DP
Probe Library and using up to three rounds of 3DP's proprietary iterative
combinatorial chemical synthesis developed from the 3DP Synthetically Accessible
Library, and DirectedDiversity(R) Technology to identify Compounds or classes of
Compounds having superior activity and by using Secondary Screens to assist 3DP
in determining the structure-activity relationships of Compounds being screened
and confirm cell-based functional activity of the Compounds.

         1.40  "Lead Generation Plan" means the detailed program of Lead
                --------------------
Generation activities as documented by the JSC for each Joint Target and
including those elements described in Section 2.4.1.

         1.41  "Lead Optimization" means a program of activities to progress
                -----------------
Lead Compounds into Safety Assessment Compounds by using customized or novel
medicinal chemistry technologies to make specific derivatives, e.g., homologs,
                                                               ----
analogs, polymorphs and isomers, of Lead Compounds and testing such derivatives
in in vitro, ex vivo assays and/or in vivo animal models and using the data
therefrom to improve Lead Compounds' structure-activity relationships, Potency,
selectivity, pharmacokinetics, pharmacodynamics and acute safety. It is
understood that Lead Optimization and Pre-Clinical Development overlap in the
sense that certain data developed during Lead Optimization are useful in
Pre-Clinical Development.

         1.42  "Lead Optimization Plan" means the detailed program of Lead
                ----------------------
Optimization activities as documented by the JSC for each Joint Target and its
respective Joint Lead Compound and including those elements described in Section
4.1.

         1.43  "LMP" means license fees, milestone payments, purchase price or
                ---
the fair market value of non-cash consideration received from a Third Party in
exchange for a right or license granted, or the sale or assignment of rights, by
Athersys in an Athersys Lead Compound, Athersys Safety Assessment Compound,
Athersys Development Compound and/or Athersys

                                       5
<PAGE>

Product or by 3DP in a 3DP Lead Compound, 3DP Safety Assessment Compound, 3DP
Development Compound and/or 3DP Product, as the case may be. LMP shall not
include consideration received for services provided to the Third Party and
shall also not include royalties received on Net Sales made by such Third Party.

         1.44  "NDA" means (a) (i) a New Drug Application pursuant to 21 U.S.C.
                ---
Section 505(b)(1) submitted to the FDA or any successor application or procedure
and (ii) any foreign counterpart of a U.S. New Drug Application, and (b) all
supplements and amendments, including supplemental New Drug Applications (and
any foreign counterparts), that may be filed with respect to the foregoing.

         1.45  "Net Sales" means the gross amount invoiced for sale of a Product
                ---------
in the Territory by a Party or any of its Affiliates, licensees or sublicensees,
to a Third Party end user, including but not limited to distributors, in bona
fide, arm's-length transactions, after deduction of the following items (to the
extent actually incurred or reasonably estimated and accrued and to the extent
not already deducted in the amount invoiced): (i) customary trade, quantity and
cash discounts, wholesaler-charge backs, or rebates (including, but not limited
to, rebates to governmental agencies, managed care organizations, health
management organizations, pharmacy benefit managers and group purchasing
organizations); (ii) customary credits or allowances for rejection or return of
previously sold Products; (iii) excise, sales and other consumption taxes and
customs duties; (iv) retroactive price reductions including but not limited to
those imposed by governmental agencies; and (iv) any charge for freight or
insurance if separately stated on the same invoice as for the sale of Product
and directly related to the sale or distribution of the Product. A "sale" of a
Product is deemed to occur upon the invoicing, or if no invoice is issued, upon
the earlier of shipment or transfer of title in the Product to a Third Party.

         In the event that all the active ingredients of a Combination Product
are also sold separately and in identical strengths to those contained in the
Combination Product, then Net Sales shall be calculated as set forth above on
the basis of the gross invoice price of a Product containing the same weight of
the active ingredient in the Athersys Product, the 3DP Product or the Joint
Products, as the case may be, sold independently [ A ] divided by the sum of the
gross invoice price of each of the active ingredients contained in the
Combination Product sold independently [ B + A ], multiplied by the gross
invoice price of the Combination Product, as shown by the following formula:

         Net Sales =     [ A ]       x [gross sales of the Combination Product]
                     --------------
                       [ B + A ]

         In the event that the Athersys Product, the 3DP Product or the Joint
Products, as the case may be, and/or any of the other active ingredients of a
Combination Product are not sold separately in identical strengths to those
contained in the Combination Product, then the Parties agree to negotiate in
good faith the calculation of Net Sales with regard to such Combination Product
based upon the relative value of the active ingredients as determined by the
Parties hereto in good faith.

                                       6
<PAGE>

         Sales between or among a Party and its Affiliates, licensees or
sublicensees shall not be used to calculate Net Sales unless the purchasing
Affiliate, licensee or sublicensee is an end-user.

         Net Sales for purposes of Sections 5.2, 5.3 and 5.4 includes sales by
Third Party assignees or Third Party purchasers of a Party's rights thereunder.

         1.46  "Non-publishing Party" shall have the meaning set forth in
                --------------------
Section 10.3.2.

         1.47  "Opt-Out Point" shall have the meaning set forth in Section 14.3.
                -------------

         1.48  "Party" and/or "Parties" shall have the meaning set forth in the
                -----          -------
preamble hereto.

         1.49  "Patent Prosecution" shall have the meaning set forth in Section
                ------------------
11.2.

         1.50  "Patent Rights" means all existing patents and patent
                -------------
applications and all patent applications hereafter filed, including any
continuations, continuations-in-part, divisions, provisionals or any substitute
applications, any patent issued with respect to any such patent applications,
any reissue, reexamination, renewal or extension (including any supplemental
patent certificate) of any such patent, and any confirmation patent or
registration patent or patent of addition based on any such patent, and all
foreign counterparts of any of the foregoing.

         1.51  "Phase I" means a complete program of one or more human clinical
                -------
trials in any country that is intended to initially evaluate the safety and/or
pharmacological effect of a Product in subjects or that would otherwise satisfy
the requirements of 21 CFR 312.21(a), or its foreign equivalent.

         1.52  "Phase II" means a complete program of one or more human clinical
                --------
trials 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 the
requirements of 21 CFR 312.21(b), or its foreign equivalent.

         1.53  "Phase III" means a complete program of one or more pivotal human
                ---------
clinical trials in any country the results of which could be used to establish
safety and efficacy of a Product as a basis for a Biologics License Application,
Product License Application, NDA or similar application for marketing approval
of a Product or that would otherwise satisfy the requirements of 21 CFR
312.21(c), or its foreign equivalent.

         1.54  "Phase IV" means a program of one or more human clinical trials
                --------
in any country after approval for marketing in that country, including a trial
that begins before approval but concludes after approval.

         1.55  "Potency" means the level of activity against a Target at a given
                -------
molar concentration. A Compound is more potent than another Compound if it has a
higher level of activity at the same or lower molar concentration or if it has
the same or a higher level of activity at a lower molar concentration.

                                       7
<PAGE>

         1.56  "Pre-Clinical Development" means a program of developing Safety
                ------------------------
Assessment Compounds into Development Compounds by undertaking the full range of
pre-clinical studies, and the full range of safety and pathology/toxicology
studies required to file an IND including but not limited to drug metabolism,
pharmacokinetics, Potency, selectivity, and safety/toxicology studies.

         1.57  "Pre-Clinical Development Plan" means the detailed program of
                -----------------------------
Pre-Clinical Development activities, as documented by the JDC for each Joint
Target and its respective Joint Safety Assessment Compound and including those
elements described in Section 4.1.

         1.58  "Primary Screen" means a fluorometric, cell-based assay useful to
                --------------
screen Compounds for activity against Targets.

         1.59  "Program Compound" means a Compound, a Lead Compound, a Safety
                ----------------
Assessment Compound and/or a Development Compound.

         1.60  "Product" means any commercial product comprising an Athersys
                -------
Development Compound, a 3DP Development Compound or a Joint Development Compound
as an active ingredient.

         1.61  "Profits" means the amount, on an annual basis, equal to Net
                -------
Sales by a Party less any costs directly associated with such Net Sales,
including, but not limited to, costs of goods sold, selling and marketing
expenses, Phase IV expenses and royalties on Net Sales paid to the other Party
and to Third Parties to the extent applicable. Net Sales for the purpose of this
definition specifically exclude such Net Sales by a licensee or sublicensee.

         1.62  "Publication Plan" shall have the meaning set forth in Section
                ----------------
10.3.1.

         1.63  "Publishing Party" shall have the meaning set forth in Section
                ----------------
10.3.2.

         1.64  "RAGE-PE Technology" means Athersys' proprietary methods for
                ------------------
creation of protein expression libraries using Athersys' Random Activation of
Gene Expression(TM) technology.

         1.65  "RAGE-VT Technology" means Athersys' proprietary methods for
                ------------------
creation and isolation of human cell lines expressing validated drug targets of
interest using Athersys' Random Activation of Gene Expression(TM) technology.

         1.66  "Receiving Party" shall have the meaning set forth in Section
                ---------------
10.1.

         1.67  "Regulatory Approval" means any and all approvals (including any
                -------------------
applicable governmental price and reimbursement approvals), licenses,
registrations, or authorizations of any federal, national, multinational, state,
provincial or local regulatory agency, department, bureau or other governmental
entity necessary for the manufacture, use, storage, import, transport,
promotion, marketing and sale of a Product in a country.

                                       8
<PAGE>

         1.68  "Research Program" means the drug discovery program that
                ----------------
comprises selection of Joint Targets, the Athersys Target and the 3DP Target,
Screen Development and Lead Generation, and associated activities and tasks as
outlined in ARTICLE 3.

         1.69  "Research Program Costs" shall have the meaning set forth in
                ----------------------
Section 7.1.

         1.70  "Research Term" means, with respect to each of the Joint Targets,
                -------------
the 3DP Target or the Athersys Target, the period beginning on the Effective
Date and ending [* *] after the initiation of Lead Generation, unless this [* *]
period is (i) extended in whole or in part by mutual written agreement of the
Parties as set forth in Section 14.2 or (ii) terminated earlier pursuant to
Section 2.4.5.

         1.71  "Royalty Term" means, with respect to each of the Athersys
                ------------
Product, the 3DP Product, and the Joint Products and on a country-by-country
basis, the period of time beginning on the date of the first commercial sale of
such product and ending on the later of (a) when all claims of a patent covering
such Product are expired or rendered invalid or unenforceable and (b) ten (10)
years from the date of such first commercial sale in such country.

         1.72  "Safety Assessment Compound" means a Lead Compound that has
                --------------------------
undergone Lead Optimization and has adequate Potency, efficacy, selectivity,
pharmacokinetic/pharmacodynamic properties, and acute safety profile that is
suitable for Pre-Clinical Development and has been selected for Pre-Clinical
Development.

         1.73  "Screen Development" means a program of developing a Primary
                ------------------
Screen by selecting Targets using Athersys' proprietary gene expression
technology, RAGE-VT Technology, to express Targets in cell lines and developing
screens to identify Compounds that are active against Targets.

         1.74  "Secondary Screen" means a single, confirmatory cell-based assay
                ----------------
for a Target to determine or confirm function in a cell-based assay and to
assist in determining structure-activity relationships for each Target.

         1.75  "Small Molecule" means a non-peptidic, organic compound with a
                --------------
molecular weight of less than [*  *] daltons.

         1.76  "Target" means a human drug discovery target that is a G
                ------
Protein-coupled Receptor or an ion channel and human cell lines expressing such
receptor or ion channel.

         1.77  "Territory" means the entire world.
                ---------

         1.78  "ThermoFluor(R) Technology" means the Patent Rights of 3DP and
                -------------------------
associated proprietary 3DP know-how and instruments used to evaluate
ligand-binding parameters.

         1.79  "Third Party" means a person or party other than 3DP and Athersys
                -----------
or their Affiliates.

         1.80  "3DP" means 3DP and its Affiliates.
                ---

                                       9
<PAGE>

         1.81  "3DP Compound" means a Compound that is selected or otherwise
                ------------
results from screening against the 3DP Target during Lead Generation.

         1.82  "3DP Development Compound" means a Development Compound directed
                ------------------------
against a 3DP Target that results from Pre-Clinical Development undertaken by
3DP and has been selected for Clinical Development.

         1.83  "3DP Indemnitees" shall have the meaning set forth in Section
                ---------------
13.1.

         1.84  "3DP Lead Compound" means a Lead Compound directed against a 3DP
                -----------------
Target that results from Lead Generation and has been selected for Lead
Optimization.

         1.85  "3DP Probe Library" means 3DP's proprietary chemical library of
                -----------------
Small Molecules, synthesized by 3DP for the purpose of screening to find Lead
Compounds, of approximately [* *] diverse synthesized compounds in existence as
of the Effective Date.

         1.86  "3DP Product" means a Product that comprises a 3DP Development
                -----------
Compound.

         1.87  "3DP Safety Assessment Compound" means a Safety Assessment
                ------------------------------
Compound directed against a 3DP Target that results from Lead Optimization
undertaken by 3DP and has been selected for Pre-Clinical Development.

         1.88  "3DP Synthetically Accessible Library" means 3DP's proprietary
                ------------------------------------
Small Molecule compound library of approximately [* *] compounds available for
on-demand synthesis.

         1.89  "3DP Target" means the Target that is selected by 3DP for
                ----------
screening by Athersys of Compounds provided by 3DP under this Agreement to
develop a Product that will be owned exclusively by 3DP.

                                   ARTICLE 2
                                JOINT COMMITTEES

         2.1   Joint Steering Committee. Promptly following the Effective Date,
               ------------------------
the Parties shall establish a Joint Steering Committee ("JSC") that will be
                                                         ---
staffed by an equal number of 3DP and Athersys appointees. The total number of
JSC members will be six (6), but the number may be adjusted upward or downward
by the JSC from time to time provided the number of 3DP appointees is always the
same as the number of Athersys appointees. Each Party may replace any of one or
more of its appointees at will by giving written notice thereof to the other
Party.

         2.2   Chairperson. The Chairperson shall be selected initially by 3DP
               -----------
from among the 3DP appointees and shall serve in such role for six (6) months.
After such six (6) month period, Athersys shall designate the Chairperson from
among the Athersys appointees, and such person shall serve in such role for six
(6) months. Thereafter, 3DP and Athersys shall continue to alternate designation
of the Chairperson from their respective appointees every six (6) months
throughout the Research Term. The Chairperson will be responsible for calling
and chairing

                                       10
<PAGE>

meetings, developing meeting agendas, and recording meeting minutes and
decisions taken. The Chairperson shall call at least one meeting every three (3)
months during the Research Term.

         2.3   Joint Development Committee. Promptly after the JSC selects the
               ---------------------------
first Joint Safety Assessment Compound to progress into Pre-Clinical
Development, the Parties will establish a Joint Development Committee (the
"JDC") with a structure and governance as outlined for the JSC under Sections
 ---
2.1 and 2.2. In contrast to the JSC, however, the JDC will govern the
Pre-Clinical Development and Clinical Development. The JDC will review, approve,
and oversee the implementation of the Pre-Clinical Development Plans and
Clinical Development Plans. Schedule 1.14 graphically depicts the relation of
                            -------------
the JDC and the JSC to the Research Program and Development Program activities.

         2.4   Responsibilities of the Joint Committees.
               ----------------------------------------

               2.4.1  In general, the responsibilities of the JSC, will be to
adopt, review, and amend Lead Generation Plans, as described below, and Lead
Optimization Plans, as described in Section 4.1, and oversee and, whenever
practicable, expedite the implementation of such plans. Each Lead Generation
Plan shall contain, as early as possible before or during the Lead Generation
process, guidelines or criteria for determining whether a Compound constitutes a
Lead Compound, such guidelines or criteria to be amended thereafter with
increasing specificity during Lead Generation activities as practical. The JSC
will appoint Compounds that successfully complete Lead Generation as Joint Lead
Compounds and appoint Joint Lead Compounds that successfully complete Lead
Optimization as Joint Safety Assessment Compounds.

               2.4.2  The JSC shall be responsible for selecting the Joint
Targets and for approving the Primary Screens and Secondary Screens developed by
Athersys using the Joint Targets. If the JSC reasonably determines that a
Primary Screen or a Secondary Screen is unlikely to yield a Lead Compound, then
the JSC shall direct Athersys to terminate further efforts directed to such
screen(s). If the JSC terminates a screening effort directed to a Joint Target,
subject to there being sufficient time remaining in the Research Term, Athersys
shall attempt to develop a replacement screen using its existing capabilities on
the same Target.

               2.4.3  In general, the responsibilities of the JDC will be to
adopt, review, and amend Pre-Clinical Development Plans and Development Plans,
as described in Section 4.1, and oversee and, whenever practicable, expedite the
implementation of such plans. The JDC will appoint Joint Safety Assessment
Compounds that successfully complete Pre-Clinical Development as Joint
Development Compounds.

               2.4.4  The JDC shall be responsible for determining whether or
not and to what extent to pursue back-up Joint Safety Assessment Compounds and
back-up Joint Development Compounds.

               2.4.5  If (i) at any time the JSC or the JDC, as the case may be,
determines that further research using a Joint Target is unlikely to yield a
Joint Lead Compound, Joint Safety Assessment Compound or Joint Development
Compound, as the case may be, or (ii) a Lead Compound is not selected for Lead
Optimization following Lead Generation using a given Joint

                                       11
<PAGE>

Target and the Parties have not agreed to undertake additional research as
provided in Section 3.8 with respect to that Joint Target, then the Research
Term or Development Term, as the case may be, relating to the given Joint Target
shall terminate. In either such case, the JSC or the JDC, as the case may be,
shall document the reasons for termination of the Research Program or
Development Program, as the case may be, including the known or suspected
reasons that Compounds failed to meet the guidelines or criteria established for
a Lead Compound, if applicable, to provide a basis for potential re-instatement
of such programs under Sections 3.10 and 3.11 and Sections 4.10.4 and 4.10.5,
respectively.

               2.4.6  For each project undertaken during the Research Program or
Development Program, as the case may be, the JSC or the JDC will select either
Athersys, 3DP or both to maintain comprehensive project projections, budgets and
tracking reports in accordance with the Lead Optimization Plan, the Pre-Clinical
Development Plan and the Clinical Development Plan.

               2.4.7  The JSC and the JDC shall have such other responsibilities
as are expressly set forth elsewhere in this Agreement or as are assigned to it
as mutually agreed upon by the Parties.

         2.5   Voting. Regardless of the number of representatives from each
               ------
Party, each Party shall present one consolidated view and have one vote on any
issue in dispute. If the JSC or the JDC fails to reach agreement on any matter
within the scope of its responsibilities as described in this Agreement or as
expressly delegated to the JSC or the JDC by written agreement of the Parties,
the dispute shall be resolved as provided in ARTICLE 15.

         2.6   Opinion of Patent Counsel. The JSC may, at its discretion, retain
               -------------------------
patent counsel to provide an analysis and legal opinion regarding possible
infringement of Third Party patents by the use of Joint Targets or Compounds in
the Research Program.

                                   ARTICLE 3
                                RESEARCH PROGRAM

         3.1   Goal of Research Program. The goal of the Research Program is to
               ------------------------
identify at least one Compound as a Lead Compound for each of the 3DP Target,
the Athersys Target and the [*  *] Joint Targets. Schedule 1.14 graphically
                                                  -------------
depicts the elements of the Research Program and its relationship to elements of
the Development Program.

         3.2   Selection of Athersys Target and 3DP Target. Promptly following
               -------------------------------------------
the Effective Date, Athersys shall select the Athersys Target and 3DP shall
select the 3DP Target. In the event that the Parties each select the same
Target, that Target shall become one of the [*  *] Joint Targets. A Party can
reject the selection by the other Party of a 3DP Target or Athersys Target prior
to initiation of Screen Development:

               3.2.1  if the rejecting Party reasonably believes that use of
such 3DP Target or Athersys Target, as applicable, would create a commercially
unacceptable risk of infringement of dominating Patent Rights of Third Parties;

                                       12
<PAGE>

               3.2.2  for which the rejecting Party has a preexisting, ongoing
and active internal research program for which cell line development or
screening has commenced before its designation as an Athersys Target or 3DP
Target, as applicable; or

               3.2.3  for which the rejecting Party has a preexisting exclusive
collaborative arrangement with a Third Party or is engaged in bona fide
negotiations with a Third Party regarding the same before its designation as an
Athersys Target or a 3DP Target, as applicable.

         3.3   Rejection. Notwithstanding the foregoing, if a Party rejects the
               ---------
selection of the other Party's designation of a 3DP Target or Athersys Target,
as applicable, such rejecting Party may not designate such rejected Target as
its own 3DP Target or Athersys Target, as applicable.

         3.4   Selection/Rejection of Joint Targets. In addition to any Targets
               ------------------------------------
that become Joint Targets pursuant to Section 3.2, the JSC shall select
additional Targets from among the Candidate Targets until there are a total of
[*  *] Joint Targets. The Parties will strive to select Joint Targets that (i)
are complementary to both Parties' current therapeutic area/disease focus for
its internal drug discovery efforts and (ii) are amenable to screening in a
Primary Screen. Either Party can reject the selection of a Joint Target prior to
initiation of Screen Development:

               3.4.1  if that Party reasonably believes that use of such Target
would create a commercially unacceptable risk of infringement of dominating
Patent Rights of Third Parties;

               3.4.2  for which a Party has a preexisting, ongoing and active
internal research program for which cell line development or screening has
commenced before its designation as a Joint Target;

               3.4.3  for which a Party has a preexisting exclusive
collaborative arrangement with a Third Party or is engaged in bona fide
negotiations with a Third Party regarding the same before its designation as a
Joint Target;

               3.4.4  that, for either scientific, technical or business reasons
in such Party's reasonable judgment, do not have a reasonable likelihood of
leading to a commercially successful Product that is a Small Molecule; or

               3.4.5  that does not have a readily identifiable market size or
value significant enough to justify the anticipated Research Program and
Development Program investments of such Party.

         3.5   Athersys Responsibilities.
               -------------------------

               3.5.1  As specifically described in Schedule 3.5, Athersys shall
                                                   ------------
be responsible for Screen Development using the RAGE-VT Technology in Primary
Screens and Secondary Screens and the screening of Compounds provided by 3DP
using the Athersys Target, the 3DP Target and the Joint Targets.

               3.5.2  Athersys shall use reasonable efforts to develop all
Primary Screens using the Athersys Target, the 3DP Target and the Joint Targets
and to screen Compounds provided by

                                       13
<PAGE>

3DP in all such Primary Screens in parallel. To the extent that resource
limitations preclude such parallel efforts, first priority shall be given to
[*  *] Joint Targets after which the 3DP Target shall be given priority over the
Athersys Target, which shall be given priority over the remaining Joint Target;
provided, however, that it is acknowledged that due to uncontrollable biological
variability Targets may be developed at different rates which may preclude
parallel or preferred screening sequence. Athersys shall use reasonable efforts
to screen all Compounds provided by 3DP for screening against each Joint Target
and the 3DP Target. To the extent that resource limitations require
prioritization of screening, 3DP shall prioritize the Compounds for screening
against Targets. Athersys, at its own discretion, may screen any or all
Compounds provided by 3DP against the Athersys Target.

               3.5.3  Athersys shall develop replacement screens using the 3DP
Target as provided in Section 3.6.2.

               3.5.4  Athersys shall be responsible for selecting the Athersys
Target and for approving the Primary Screens and Secondary Screens developed by
Athersys using the Athersys Target.

         3.6   3DP Responsibilities.
               --------------------

               3.6.1  As specifically described in Schedule 3.6 during Lead
                                                   ------------
Generation, 3DP will be responsible for providing subsets of [* *] Compounds
from the 3DP Probe Library for screening by Athersys in Primary Screens and
Secondary Screens of the Joint Targets, the Athersys Target and the 3DP Target,
and for all subsequent Compounds synthesized from the iterative rounds of
chemistry from the 3DP Synthetically Accessible Library and utilizing elements
of its Directed Diversity(R) Technology during Lead Generation using Joint
Targets, the Athersys Target and the 3DP Target.

               3.6.2  3DP shall be responsible for selecting the 3DP Target and
for approving the Primary Screens and Secondary Screens developed by Athersys
using the 3DP Target as set forth in Schedule 3.5. If 3DP reasonably determines
                                     ------------
that a Primary Screen or a Secondary Screen is unlikely to perform adequately to
yield a Lead Compound, then, subject to there being sufficient time remaining in
the Research Term, Athersys shall attempt to develop a replacement screen using
its existing capabilities on the same Target.

         3.7   Completion of Lead Generation. Lead Generation with respect to a
               -----------------------------
particular Target shall be deemed completed when at least one Compound is
selected as a Lead Compound or a maximum of [* *] rounds of iterative chemical
synthesis of Compounds selected from the 3DP Synthetically Accessible Libraries
with a [* *] Compounds are synthesized, subject to Iterative Chemistry
Limitations or screening results that do not provide a structure-activity
relationship.

         3.8   Additional Efforts. The JSC may determine that efforts additional
               ------------------
to those assigned to a Party in this Agreement (including the efforts set forth
in the Schedules hereto), e.g., selectivity assays, cell biology assays, animal
modeling, toxicological studies, ADME studies, etc., are warranted at any time
during the Research Program with respect to the Joint

                                       14
<PAGE>

Targets. In this case, the JSC will assign responsibility for such additional
efforts to a Party or will outsource the efforts subject to the cost sharing
provisions of Section 7.1.

         3.9   Termination of Research Program For a Joint Target. Upon
               --------------------------------------------------
termination of the Research Term for a Joint Target, as provided in Section
2.4.5, or upon expiration of the Research Term for a Joint Target:

               3.9.1  subject to Section 3.11, all further activities with
respect to such Joint Target hereunder shall cease;

               3.9.2  the Joint Target shall be counted as one of the [*  *]
Joint Targets; and

               3.9.3  this Agreement shall terminate with respect to such Joint
Target unless reinstated under Section 3.11.

         3.10  Optional 3DP Continued Research. 3DP, at its election any time
               -------------------------------
during the [*   *] period immediately following the termination date of the
Research Term for a Joint Target, may request in writing to Athersys to continue
the Research Program for the Joint Target independently of Athersys and at 3DP's
sole cost and expense. If 3DP so elects, Athersys shall provide 3DP with the
cells for the Primary Screen(s) and Secondary Screen(s) and the related know-how
for that Joint Target, and grants to 3DP a non-exclusive, royalty-free license
to use such cells during the remainder of such [*  *] period after notice by 3DP
solely for the purpose of continuing research to attempt to identify Lead
Compound(s) for that Joint Target. Should 3DP be successful in obtaining new
data or developing reasons that it believes overcome the prior reasons of the
JSC for terminating the Research Program, 3DP shall notify the JSC of such under
Section 3.11. Should 3DP be unsuccessful during such period in obtaining new
data or developing reasons that overcome the prior reasons of the JSC for
terminating the Research Program, 3DP shall return or destroy, as directed by
Athersys, the cells for the Primary Screen(s) and Secondary Screen(s), return
all physical embodiments of know-how provided by Athersys associated therewith,
and destroy all copies, in whole or in part, of such embodiments, and this
Agreement shall terminate with respect to such Joint Target.

         3.11  Re-instatement of Terminated Joint Target. If, at any time during
               -----------------------------------------
the [* *] period immediately following the Research Term for a Joint Target, 3DP
obtains new data that overcomes, or believes that changed circumstances
overcome, the prior reasons of the JSC for terminating the Research Program, 3DP
shall notify the JSC of such. Upon agreement of the JSC that the reasons
advocated by 3DP do overcome the JSC's prior reasons for termination of the
Research Program, 3DP shall give Athersys written notice thereof and of the
reasons and changed circumstances leading to the desire to reinitiate the
Research Program for such Joint Target. In that case, Athersys shall within
[* *] of receiving such notice, give notice to 3DP that it does or does not want
to reinitiate the Research Program for such Joint Target under the terms of this
Agreement; provided, however, that Athersys shall not be entitled to accept
re-instatement of the Research Program for such Joint Target if Athersys has
entered an agreement with a Third Party to co-develop (cost sharing, as opposed
to having merely licensed out the cells) Small Molecule drugs for that Joint
Target. If Athersys does not give notice within such time period, notifies 3DP
that

                                       15
<PAGE>

it does not desire to reinitiate the Research Program for such Joint Target, or
has agreed to co-develop that Joint Target with a Third Party, then 3DP shall
have the right to continue research and/or development on its own or with a
Third Party and Athersys shall be deemed to have opted out, as provided in
Section 4.9, as of the initiation of Lead Optimization Opt-Out Point, but such
exclusive right of 3DP as the Funding Party therein shall be subject to any then
existing rights Athersys has granted or agreed to grant to a Third Party, and
Section 6.1 shall not apply. For the avoidance of doubt and notwithstanding
anything to the contrary herein, the Research Term for any Joint Target shall
not extend and may not be reinstated under this Section 3.11 beyond [* *] from
the Effective Date, absent mutual agreement to the contrary. For the further
avoidance of doubt, during the [* *] period immediately following the Research
Term for a Joint Target, Athersys may not grant rights in the Joint Target to a
Third Party that would preclude 3DP from re-instating the Research Program under
this Agreement.

         3.12  [*                                                        *]:

               3.12.1 [*                                                 *];

               3.12.2 [*                                                 *];

               3.12.3 [*                                                 *];

               3.12.4 [*                                                 *]; and

               3.12.5 [*                                                 *].

         3.13  Expansion of Research Program. If the Parties mutually agree, the
               -----------------------------
Research Program will be expanded by adding additional targets identified by
Athersys through the RAGE-PE Technology or RAGE-VT Technology. 3DP and Athersys
shall discuss and agree to relative values of the RAGE-PE Technology or RAGE-VT
Technology and the ThermoFluor(R) Technology in conjunction with such expansion
of the Research Program. The Parties acknowledge that Targets other than the
Targets used in the expanded Research Program may be more amenable to the
application of the ThermoFluor(R) Technology for screening purposes, in addition
to use of screens developed by Athersys.

                                   ARTICLE 4
                               DEVELOPMENT PROGRAM

         4.1   Goal of Development Program; Development Plans. The goal of the
               ----------------------------------------------
Development Program is to move at least one Joint Lead Compound forward and to
develop it into a Joint Product for each of the [*  *] Joint Targets. Schedule
                                                                      --------
1.14 graphically depicts the elements of the Development Program and its
----
relationship to the Research Program. The responsibilities and obligations of
Athersys and 3DP in the Development Program shall be described in a Lead
Optimization Plan for each Joint Target and related Joint Lead Compound, in a
Pre-Clinical Development Plan for each Joint Safety Assessment Compound and in a
Clinical Development Plan for each Joint Development Compound. Such plans shall
address the specific roles and responsibilities of each Party, budgets (for the
completion of the particular

                                       16
<PAGE>

Development Program activity, i.e., Lead Optimization, Pre-Clinical Development,
                              ----
Phase I, Phase II or Phase III) tasks to be outsourced, timelines, key "go/no
go" decisions, objectives for each major activity including, manufacturing of
pre-clinical, clinical and commercial supplies, chemical profiles required to
advance Compounds, pre-clinical and clinical study plans including study
endpoints, formulation, development, regulatory and marketing strategies. The
Parties, through the JSC and the JDC, shall use diligent efforts in preparing
such plans (1) to achieve a 50/50 balance in utilization of their respective
internal resources to the extent possible, (2) to exploit the relative strengths
and skills of each Party, and (3) to utilize outsourcing to complement the
Parties' collective strengths, skills and resources and otherwise to avoid
unduly straining the resources of a Party.

         4.2   Responsibilities During the Development Program. The Athersys
               -----------------------------------------------
Target and the 3DP Target and the progress of Athersys Lead Compounds and 3DP
Lead Compounds through Lead Optimization, Pre-Clinical Development, Development
and commercialization are excluded from the Development Program. 3DP shall have
full responsibility for and control over 3DP Lead Compounds, 3DP Safety
Assessment Compounds, 3DP Development Compounds and 3DP Products. Athersys shall
have full responsibility for and control over development of Athersys Lead
Compounds, Athersys Safety Assessment Compounds, Athersys Development Compounds
and Athersys Products. All matters pertaining to the Joint Lead Compounds, Joint
Safety Assessment Compounds and Joint Development Compounds during the
Development Program shall be managed by the JSC for Joint Lead Compounds and by
the JDC for Joint Safety Assessment Compounds and Joint Development Compounds.

         4.3   Determination to Move from Lead Generation to Lead Optimization.
               ---------------------------------------------------------------
3DP shall determine whether or not to progress 3DP Compounds for which Lead
Generation is completed into Lead Optimization. Athersys shall determine whether
or not to progress Athersys Compounds for which Lead Generation is completed
into Lead Optimization. Subject to Section 4.4, the JSC shall determine whether
or not to progress Joint Compounds for which Lead Generation is completed into
Lead Optimization.

         4.4   Progression into Lead Optimization. The JSC shall progress Joint
               ----------------------------------
Compounds for which Lead Generation is completed into Lead Optimization if it
reasonably determines that:

               4.4.1  there is sufficient understanding of the
structure-activity relationships to design new Joint Compounds that are likely
to have greater Potency and to have adequate selectivity to justify investing in
Lead Optimization, Pre-Clinical Development and Clinical Development;

               4.4.2  a commercially feasible method for synthesizing such new
Compounds is foreseeable or reasonably anticipated and the area of chemistry
under consideration does not involve a commercially unacceptable risk of
violation of others' Intellectual Property;

               4.4.3  an economically reasonable strategy for conducting Lead
Optimization, Pre-Clinical Development and Clinical Development is reasonably
foreseeable; and

                                       17
<PAGE>

               4.4.4  the reasonably foreseeable market opportunity for a Joint
Product justifying the anticipated investment in a Development Program may
reasonably be expected to result from Lead Optimization.

               Upon consideration of the foregoing criteria and designation of a
Joint Compound as a Joint Lead Compound, the JSC shall develop a Lead
Optimization Plan for each Joint Target and related Joint Lead Compounds as
provided in Section 4.1.

         4.5   Athersys Responsibilities. During the Development Program and to
               -------------------------
the extent consistent with its internal capabilities, Athersys shall be
responsible for developing models for pre-clinical confirmation of
pharmacological activity, and screening Joint Lead Compounds and Joint Safety
Assessment Compounds.

         4.6   3DP Responsibilities. During the Development Program and to the
               --------------------
extent consistent with its internal capabilities, 3DP shall be responsible for
medicinal chemistry aspects of Lead Optimization and synthesizing derivatives of
Joint Lead Compounds during Lead Optimization.

         4.7   Progression into Pre-Clinical Development and Clinical
               ------------------------------------------------------
Development. The JSC shall determine when to terminate Lead Optimization using
-----------
Joint Lead Compounds and whether or not to designate such Joint Lead Compounds
as Safety Assessment Compounds for Pre-Clinical Development. The JDC shall
determine how to progress a Safety Assessment Compound through Pre-Clinical
Development and onwards into and through Clinical Development.

         4.8   Development Efforts. Each Party will exercise its reasonable
               -------------------
efforts and diligence in developing Joint Lead Compounds, Joint Safety
Assessment Compounds and Joint Development Compounds and in undertaking all
investigations and actions required to obtain appropriate Regulatory Approvals
to develop and market Joint Products.

         4.9   Opting Out.
               ----------

               4.9.1  Discontinuing Party; Funding Party. Either Party may
                      ----------------------------------
terminate its responsibilities under this Agreement with respect to any or all
Joint Lead Compounds, Joint Safety Assessment Compounds or Joint Development
Compounds as provided in Section 14.3. In this event, the other Party shall have
the exclusive right and, at its election, may continue to develop the relevant
compound or compounds and the Party opting out (the "Discontinuing Party") shall
                                                     -------------------
provide reasonable ongoing assistance during a reasonable transition period. The
Discontinuing Party shall have no continuing funding obligations after the
Opt-Out Point, and the other Party (the "Funding Party"), if it elects to
                                         -------------
continue the Development Program, [*   *] (i.e., Lead Optimization, Pre-Clinical
                                           ----
Development, Phase I, Phase II, or Phase III) [*   *], whichever is shorter;
provided, however, such budget funding obligation shall not apply if the Funding
Party licenses out, assigns or sells rights in such compound [*   *].

                                       18
<PAGE>

               4.9.2  Discontinuing Party Duties. In the event that Athersys
                      --------------------------
becomes a Discontinuing Party for a Joint Lead Compound, Joint Safety Assessment
Compound or Joint Development Compound, Athersys will provide 3DP with the cells
for the Primary Screen(s) and Secondary Screen(s) and the related know-how for
that Joint Target. In the event that 3DP becomes a Discontinuing Party for a
Joint Lead Compound, Joint Safety Assessment Compound or Joint Development
Compound, 3DP will provide Athersys with the know-how associated with such
Compound(s) for that Joint Target.

         4.10  Termination of Development Program for a Joint Compound. If
               -------------------------------------------------------
(i) the JSC or the JDC, as applicable, determines not to progress a Joint Lead
Compound, Joint Safety Assessment Compound or Joint Development Compound on to
the next stage of the Development Program or (ii) both Parties opt-out with
respect to continued development of any Joint Lead Compound, Joint Safety
Assessment Compound or Joint Development Compound (i.e., both Parties become
Discontinuing Parties), then:

               4.10.1 the JSC or JDC shall promptly give written notice to the
Parties confirming such termination or mutual opt-out;

               4.10.2 subject to Section 4.10.5, all further activities with
respect to such Joint Lead Compound, Joint Safety Assessment Compound or Joint
Development Compound, as the case may be, hereunder shall cease;

               4.10.3 the Development Term shall expire and this Agreement shall
terminate with respect to such Joint Lead Compound, Joint Safety Assessment
Compound or Joint Development Compound, as the case may be, unless reinstated
under Section 4.10.5; and

               4.10.4 at 3DP's request, during the [*  *] period immediately
following the expired Development Term, Athersys shall promptly provide 3DP with
the cells for the Primary Screen(s) and Secondary Screen(s) and the related
know-how for that Joint Target, and grants to 3DP a non-exclusive, royalty-free
license to use such cells during the remainder of such [*  *] period after 3DP's
request solely for the purpose of generating data that may cause the Parties to
re-instate the Development Program; and

               4.10.5 except for the purpose of generating data that may cause
the Parties to re-instate the Development Program, during this [*  *], neither
3DP nor Athersys, independent of the other Party, shall use the Joint Lead
Compound, Joint Safety Assessment Compound or Joint Development Compound for
Lead Optimization, Pre-Clinical Development or Clinical Development unless 3DP
or Athersys, as the case may be, first (a) obtains the agreement of the JSC that
changed circumstances warrant re-instating the Development Program for such
Compound and that the prior reasons of the JSC for terminating the Development
Program have been overcome and (b) offers to the other Party the ability to
re-instate Lead Optimization, Pre-Clinical Development or Clinical Development
under this Agreement and to extend the Development Term for this purpose and
such other Party opts-out in accordance with Section 4.9. A Party's failure to
accept re-instatement of the Development Program within [*  *] of receiving a
valid request under subsection 4.10.6(b) shall be deemed an opt-out in
accordance with Section 4.9.

                                       19
<PAGE>

                                   ARTICLE 5
                                COMMERCIALIZATION

         5.1   Commercialization of Joint Products. Unless a Party has elected
               -----------------------------------
to opt out in accordance with Section 4.9, upon the initiation of a Phase III
trial for a Joint Development Compound, or earlier if the Parties mutually
agree, the Parties shall, enter into a written agreement setting forth the terms
under which the Parties will jointly commercialize the Joint Product. While the
basis of cost and profit sharing will be [* *], items to be covered in such
agreement will include which countries to launch directly, where to partner, how
many field forces will detail product, who will promote a Joint Product, how
pricing will be determined, and sales and marketing strategy.

         5.2   Division of Revenues for Joint Products.
               ---------------------------------------

               5.2.1  Profits from commercialization of a Joint Product by the
Parties shall be shared [* *] by the Parties. LMPs derived from a Joint Product
as well as any royalties paid by a Third Party to the Parties derived from Net
Sales by such Third Party of a Joint Product shall also be shared [* *].

               5.2.2  In the event that a Party elects to opt out as provided in
Section 4.9, and if the other Party elects to continue the Development Program
as a Funding Party, then the Funding Party shall share Profits or LMPs derived
from commercializing the former Joint Product, i.e., the then Athersys Product
or the then 3DP Product, as the case may be, and shall pay a royalty on Net
Sales thereof, the value of which shall depend upon the point at which the
Discontinuing Party discontinued funding, as provided in Schedule 5.2.
                                                         ------------

         5.3   Athersys Product Commercialization.
               ----------------------------------

               5.3.1  Upon commercialization by Athersys of an Athersys Product,
Athersys shall pay 3DP an amount equal to [* *] of Profits of such Athersys
Product. In addition, Athersys shall pay to 3DP a royalty equal to [* *] of Net
Sales of the Athersys Product.

               5.3.2  If Athersys licenses, assigns or sells to a Third Party
the rights to an Athersys Product during Lead Optimization for such Athersys
Product, then Athersys shall pay 3DP an amount equal to [* *] of LMPs of such
Athersys Product. In addition, Athersys shall pay to 3DP a royalty equal to [*
*] of Net Sales of the Athersys Product by such Third Party.

               5.3.3  If Athersys licenses, assigns or sells to a Third Party
the rights to an Athersys Product during Pre-Clinical Development for such
Athersys Product, then Athersys shall pay 3DP an amount equal to [* *] of LMPs
of such Athersys Product. In addition, Athersys shall pay to 3DP a royalty equal
to [* *] of Net Sales of the Athersys Product by such Third Party.

               5.3.4  If Athersys licenses, assigns or sells to a Third Party
the rights to an Athersys Product during Phase I for such Athersys Product, then
Athersys shall pay 3DP an

                                       20
<PAGE>

amount equal to [* *] of LMPs of such Athersys Product. In addition, Athersys
shall pay to 3DP a royalty equal to [* *] of Net Sales of the Athersys Product
by such Third Party.

               5.3.5  If Athersys licenses, assigns or sells to a Third Party
the rights to an Athersys Product during Phase II for such Athersys Product,
then Athersys shall pay 3DP an amount equal to [* *] of LMPs of such Athersys
Product. In addition, Athersys shall pay to 3DP a royalty equal to [* *] of Net
Sales of the Athersys Product by such Third Party.

               5.3.6  If Athersys licenses, assigns or sells to a Third Party
the rights to an Athersys Product during Phase III for such Athersys Product,
then Athersys shall pay 3DP an amount equal to [* *] of LMPs of such Athersys
Product. In addition, Athersys shall pay to 3DP a royalty equal to [* *] of Net
Sales of the Athersys Product by such Third Party.

               5.3.7  With respect to each license, assignment or sale, the
amounts payable under the foregoing Sections 5.3.1 through 5.3.6 are all
mutually exclusive of one another such that Athersys shall only pay such amounts
and royalties under the first to occur of any such Section for the same
transaction and as exemplified in Schedule 5.3.7. Any royalty obligation will
                                  --------------
continue only for the duration of the Royalty Term. Section 5.2.2, but not this
Section 5.3, shall apply to commercialization, license, assignment or sale of
Athersys Products which are former Joint Products for which 3DP opted out. [*
*].

         5.4   3DP Product Commercialization.
               -----------------------------

               5.4.1  Upon commercialization by 3DP of a 3DP Product, 3DP shall
pay Athersys an amount equal to [* *] of Profits of 3DP Product. In addition,
3DP shall pay to Athersys a royalty equal to [* *] of Net Sales of the 3DP
Product.

               5.4.2  If 3DP licenses, assigns or sells to a Third Party the
rights to a 3DP Product during Lead Optimization for such 3DP Product, then 3DP
shall pay Athersys an amount equal to [* *] of LMPs of such 3DP Product. In
addition, 3DP shall pay to Athersys a royalty equal to [* *] of Net Sales of the
3DP Product by such Third Party.

               5.4.3  If 3DP licenses, assigns or sells to a Third Party the
rights to a 3DP Product during Pre-Clinical Development for such 3DP Product,
then 3DP shall pay Athersys an amount equal to [* *] of LMPs of such 3DP
Product. In addition, 3DP shall pay to Athersys a royalty equal to [* *] of Net
Sales of the 3DP Product by such Third Party.

               5.4.4  If 3DP licenses, assigns or sells to a Third Party the
rights to a 3DP Product during Phase I for such 3DP Product, then 3DP shall pay
Athersys an amount equal to [* *] of LMPs of such 3DP Product. In addition, 3DP
shall pay to

                                       21
<PAGE>

Athersys a royalty equal to [* *] of Net Sales of the 3DP Product by such Third
Party.

               5.4.5  If 3DP licenses, assigns or sells to a Third Party the
rights to a 3DP Product during Phase II for such 3DP Product, then 3DP shall pay
Athersys an amount equal to [* *] of LMPs of such 3DP Product. In addition, 3DP
shall pay to Athersys a royalty equal to [* *] of Net Sales of the 3DP Product
by such Third Party.

               5.4.6  If 3DP licenses, assigns or sells to a Third Party the
rights to a 3DP Product during Phase III for such 3DP Product, then 3DP shall
pay Athersys an amount equal to [* *] of LMPs of such 3DP Product. In addition,
3DP shall pay to Athersys a royalty equal to [* *] of Net Sales of the 3DP
Product by such Third Party.

               5.4.7  With respect to each license, assignment or sale, the
amounts under the foregoing Sections 5.4.1 through 5.4.6 are all mutually
exclusive of one another such that 3DP shall only pay such amounts and royalties
under the first to occur of any such Section for the same transaction and as
exemplified in Schedule 5.3.7. Any royalty obligation will continue only for the
               --------------
duration of the Royalty Term. Section 5.2.2, but not this Section 5.4, shall
apply to commercialization, license, assignment or sale of 3DP Products which
are former Joint Products for which Athersys opted out. [* *].

                                    ARTICLE 6
                                   EXCLUSIVITY

         6.1   Athersys Restriction. Subject to any obligations of Athersys that
               --------------------
exist prior to designation of a Candidate Target as a Joint Target, during the
Research Term, Development Term and Royalty Term for each of the 3DP Target and
the Joint Targets, respectively, Athersys shall not, through use of the RAGE-VT
Technology, RAGE-PE Technology or otherwise, (i) provide the 3DP Target or the
Joint Targets to any Third Party for Small Molecule drug discovery or
development against the 3DP Target or the Joint Targets or (ii) run Small
Molecule screens against the 3DP Target or Joint Targets for purposes of drug
discovery or development directed thereto, except as explicitly allowed pursuant
to the terms of this Agreement. For the avoidance of doubt, the foregoing shall
not be construed to restrict Athersys' ability to license to others or use
itself the 3DP Target or Joint Targets for purposes of developing therapeutics
other than Small Molecule drugs and/or counterscreening, i.e., screening to
determine specificity for another drug discovery target.

         6.2   3DP Restriction. During the Research Term, Development Term and
               ---------------
Royalty Term for each of the Athersys Target and the Joint Targets and the
Athersys Lead Compound and Joint Lead Compounds, respectively, 3DP shall not,
through the use of its 3DP Probe Library, 3DP Synthetically Accessible Library,
DiscoverWorks(TM) Technology or otherwise, use or provide its chemically
synthesizable libraries with or to any Third Party for screening Small Molecules
against the Joint Targets or the Athersys Target.

                                       22
<PAGE>

                                   ARTICLE 7
                       COSTS AND FINANCIAL RECORD KEEPING

         7.1   Research Program Costs. Athersys and 3DP agree to provide their
               ----------------------
relevant technologies as set forth in Schedule 3.5 and Schedule 3.6,
                                      ------------     ------------
respectively, in support of the Research Program. The costs incurred by each
Party for such support are considered equivalent and there will be no
requirement for any financial settlement between the Parties in respect of the
application of the technologies of either Party for such purpose. The Parties
estimate that the total cost for the Research Program will be [* *] for each
Target, i.e., [* *] for each Party and for each Target ("Research Program
                                                         ----------------
Costs"). If the JSC determines, in accordance with Section 3.8, that efforts
-----
additional to those assigned to a Party in this Agreement including the
Schedules hereto, e.g., selectivity assays, cell biology assays, animal
                  ----
modeling, toxicological studies, ADME studies, etc., are warranted at any time
during the Research Program with respect to the Joint Targets, then the Parties
shall share these costs equally. The JSC will select patent counsel to provide
an analysis and legal opinion regarding possible infringement of Third Party
patents by the use of proposed Joint Targets, with such costs to be shared
equally between the Parties. Each Party will be responsible for the expense for
any independent analysis on the Joint Targets, or the 3DP Target or the Athersys
Target, that it may choose to obtain.

         7.2   Development Program Costs. For Joint Lead Compounds, Joint Safety
               -------------------------
Assessment Compounds and Joint Development Compounds, the Parties will mutually
agree which Party or contract organization shall conduct each task beyond Lead
Generation, recognizing each Party's then-existing competencies and expertise.
All costs and expenses for activities during the Development Program will be
shared equally, including, without limitation, the costs of FTEs, at the FTE
Rate, and out-of-pocket costs paid to Third Parties in accordance with budgeted
items approved by the JSC or JDC, as applicable, and set forth in the Lead
Optimization Plans, Pre-Clinical Development Plans, and Clinical Development
Plans. To the extent any such cost or expense will exceed such pre-approved
budgeted item by more than the lesser of (a) [* *] or (b) [* *], the Party
incurring such excess cost or expense shall be solely responsible for such cost
or expense unless such additional amount was approved in advance by the JSC or
the JDC, as applicable.

         7.3   Record Keeping. For a period of two (2) years after the end of
               --------------
the Development Term, the Parties shall keep complete and accurate records of
its FTEs and out-of-pocket costs and expenses directly related to the
Development Program to the extent made or incurred by such Party during the
Development Program.

         7.4   Quarterly Reconciliation.
               ------------------------

               7.4.1  Within thirty (30) days following the end of each calendar
quarter, Athersys shall submit to 3DP a written report setting forth in
reasonable detail, separately with respect to each Joint Lead Compound, Joint
Safety Assessment Compound and Joint Development Compound, all FTEs and
out-of-pocket costs and expenses to the extent made or incurred by Athersys
during the Development Program and in accordance with Section 7.2.

                                       23
<PAGE>

               7.4.2  Within thirty (30) days following the end of each calendar
quarter, 3DP shall submit to Athersys a written report setting forth in
reasonable detail, separately with respect to each Joint Target, Joint Lead
Compound, Joint Safety Assessment Compound and Joint Development Compound, all
FTEs and out-of-pocket costs and expenses to the extent made or incurred by 3DP
during the Development Program and in accordance with Section 7.2.

               7.4.3  Within forty-five (45) days following the end of each
calendar quarter, 3DP shall submit to Athersys a written report setting forth in
reasonable detail the costs and expenses incurred by each Party during the
Development Program and the calculation of any net amount owed by Athersys to
3DP or by 3DP to Athersys, as the case may be, in order to ensure an equal
sharing of such costs and expenses during the Development Program. The net
amount payable shall be paid by 3DP or Athersys, as the case may be, within
fifteen (15) days after receipt of such written report, without regard to any
dispute as to the amounts under this Section 7.4.3; provided that the amounts
are in accordance with Section 7.2, and that, in the event of a dispute, the
disputing Party shall provide written notice within such fifteen (15) day period
after receipt of the written report in question, specifying in detail such
dispute. The Parties shall promptly thereafter meet and negotiate in good faith
a resolution to such dispute. In the event that the Parties are unable to
resolve such dispute within thirty (30) days after notice by the disputing
Party, the matter shall be resolved in a manner consistent with the procedures
set forth in Section 15.2, provided, that, in the case that the matter has not
been resolved by the Chief Executive Officers, such matter shall be referred to
an internationally recognized independent accounting firm acceptable to both
Parties for binding resolution. Any outstanding amounts payable following
resolution shall be subject to interest calculated using the prime rate plus
three percent (3%) for the time from which the amounts should have been paid
until the time of actual payment.

         7.5   Audits. Each Party shall keep complete and accurate records of
               ------
the underlying costs and expense data relating to the reports and payments
required by Section 7.4. Each Party will have the right once annually at its own
expense to have an independent, certified public accountant, selected by such
Party and reasonably acceptable to the other Party, review any such records of
the other Party in the location(s) where such records are maintained by the
other Party upon reasonable notice and during regular business hours and under
obligations of strict confidence, for the sole purpose of verifying the basis
and accuracy of payments made, in each case within the prior twenty-four (24)
month period. If the review of such records reveals that the other Party has
failed to accurately report information, then the other Party shall promptly pay
to the auditing Party any resulting amounts due, together with interest
calculated using the prime rate plus three percent (3%) for the time from which
the amounts should have been paid until the time of actual payment. If any
amounts due under Section 7.4 as a result of such audit are greater than five
percent (5%) of the amounts actually due for a calendar year, the other Party
shall pay all of the costs of such review. If a Party in good faith disputes any
conclusion of the accounting firm under this Section 7.5, including that such
Party owes additional amounts, then such Party shall inform the other Party by
written notice within thirty (30) days of receipt of a copy of the audit in
question, specifying in detail such dispute. The Parties shall promptly
thereafter meet and negotiate in good faith a resolution to such dispute. In the
event that the Parties are unable to resolve such dispute within thirty (30)
days after notice by the disputing Party, the matter shall be resolved in a
manner consistent with the procedures set forth in Section

                                       24
<PAGE>

15.2, provided, that, in the case that the matter has not been resolved by the
Chief Executive Officers, such matter shall be referred to an internationally
recognized independent accounting firm acceptable to both Parties for binding
resolution. Any amounts payable at the conclusion of such dispute shall include
interest calculated using the prime rate plus three percent (3%) for the time
from which the amounts should have been paid until the time of actual payment.

                                   ARTICLE 8
                                 CROSS-LICENSES

         8.1   License Grant by 3DP.
               --------------------

               8.1.1  3DP grants to Athersys a royalty-free, non-exclusive
license under its Patent Rights and know-how to use Compounds for purposes of
discovering and developing an Athersys Lead Compound, an Athersys Safety
Assessment Compound and/or an Athersys Development Compound. This license shall
terminate when and to the extent it is no longer required for the stated
purposes. For the avoidance of doubt, this license includes the right to
sublicense rights in Athersys Lead Compounds, Athersys Safety Assessment
Compounds and Athersys Development Compounds to Third Parties for the purpose of
licensing out rights in an Athersys Product as contemplated by Sections 5.3.2 -
5.3.6.

               8.1.2  3DP grants to Athersys the exclusive right, with the right
to grant sublicenses, under 3DP's Patent Rights and know-how, to make, have
made, use, import, offer for sale and sell Athersys Products under the terms of
this Agreement. The license grant under this Section 8.1.2 is present, shall
terminate when and to the extent it is no longer required for the stated
purposes and is not conditioned upon the Parties reaching agreement as to the
form and substance of any future separate license agreement, if any, documenting
such license.

         8.2   License Grant by Athersys.
               -------------------------

               8.2.1  Athersys grants to 3DP a royalty-free, non-exclusive
license under Athersys' Patent Rights and know-how to use the cell lines
developed by Athersys that express the 3DP Target for Lead Generation, Lead
Optimization, Pre-Clinical Development and Clinical Development of 3DP
Compounds, 3DP Lead Compounds, 3DP Safety Assessment Compounds and 3DP
Development Compounds under this Agreement. This license shall be exclusive in
the field of Small Molecule drug discovery and development. This license shall
terminate when and to the extent it is no longer required for the stated
purposes.

               8.2.2  Athersys grants to 3DP a royalty-free, non-exclusive
license to use the cell lines developed by Athersys that express the Joint
Targets for Lead Generation, Lead Optimization, Pre-Clinical Development and
Clinical Development of Joint Compounds, Joint Lead Compounds, Joint Safety
Assessment Compounds and Joint Development Compounds under this Agreement. This
license shall terminate when and to the extent it is no longer required for the
stated purposes or as may be otherwise provided in the commercialization
agreement contemplated under Section 5.1.

               8.2.3  Athersys grants to 3DP the exclusive right, with the right
to grant sublicenses, under its Patent Rights and know-how, to make, have made,
use, import, offer for

                                       25
<PAGE>

sale and sell, under the terms of this Agreement, 3DP Products. The license
under this Section 8.2.3 is present, shall terminate when and to the extent it
is no longer required for the stated purposes and is not conditioned upon the
Parties reaching agreement as to the form and substance of any future separate
license agreement, if any, documenting such license.

               8.2.4 If 3DP wishes to use cell lines developed by Athersys to
screen Compounds against Targets other than the 3DP Target or Joint Targets, 3DP
will notify Athersys and Athersys and 3DP shall use good faith efforts to agree
to a license upon commercially reasonable terms for such additional screening.

         8.3   3DP's Libraries. Notwithstanding: (i) the exclusive license
               ---------------
granted to Athersys in ARTICLE 8, (ii) the ownership by Athersys of Athersys
Lead Compounds synthesized by Athersys, Athersys Development Compounds and
Athersys Safety Assessment Compounds as provided in ARTICLE 11, (iii) any Patent
Rights Athersys may acquire as a result of Lead Optimization under this
Agreement, or (iv) anything to the contrary in this Agreement, 3DP shall have
the free and unencumbered right to use the 3DP Synthetically Accessible Library,
the 3DP Probe Library, any other 3DP Small Molecule chemical compound libraries,
as they exist now or in the future and including each and every compound in the
libraries even if the compounds are Athersys Lead Compounds, Athersys Safety
Assessment Compounds, Athersys Development Compounds or Athersys Products,
solely for purpose of screen development and lead generation by 3DP (such terms
to be construed as consistently as possible with the terms "Screen Development"
and "Lead Generation" as defined hereunder).

                                   ARTICLE 9
             RESEARCH PROGRAM AND DEVELOPMENT PROGRAM RECORD KEEPING

         9.1   Laboratory Notebooks. All work conducted by either Party in the
               --------------------
course of the Research Program and the Development Program shall be completely
and accurately recorded, in sufficient detail and in good scientific manner, in
laboratory notebooks kept separately from the other research and development
activities of the Party.

         9.2   Audit. On reasonable notice, and at reasonable intervals, each
               -----
Party shall have the right to inspect and copy all such records of the other
Party reflecting inventions, ideas, information or data developed in the course
of or work done under the Research Program or the Development Program, to the
extent reasonably required to carry out its respective obligations and to
exercise its respective rights hereunder. Notwithstanding the definition of
"Confidential Information," all such records shall constitute Confidential
Information of the Party creating such records.

         9.3   Policies for Maintaining Records; Assignments of Inventions. In
               -----------------------------------------------------------
order to protect the Parties' Patent Rights under U.S. law in any inventions
conceived or reduced to practice during or as a result of the Research Program
or the Development Program, each Party agrees to maintain a policy which
requires its employees to record and maintain all data and information developed
during the Research Program and Development Program in such a manner as to
enable the Parties to use such records to establish the earliest date of
invention and/or diligence to reduction to practice. At a minimum, the policy
shall require such individuals to record all inventions generated by them in
standard laboratory notebooks which are dated and corroborated

                                       26
<PAGE>

by non-inventors on a regular, contemporaneous basis. The policy shall also
require all employees engaged in the Research Program or Development Program to
assign all Intellectual Property conceived or reduced to practice in connection
therewith to their respective employer, and the Parties shall ensure that each
such employee has signed such an agreement before any work on the Research
Program or Development Program commences.

                                   ARTICLE 10
                            CONFIDENTIAL INFORMATION

         10.1  Confidentiality Obligations. The Parties agree that, for the term
               ---------------------------
of this Agreement and for ten (10) years thereafter, either Party that receives
Confidential Information (a "Receiving Party") from the other Party (a
                             ---------------
"Disclosing Party") shall keep completely confidential and shall not publish or
 ----------------
otherwise disclose and shall not use for any purpose (except as expressly
permitted hereunder) any Confidential Information furnished to it by the
Disclosing Party pursuant to this Agreement (including without limitation,
know-how), except to the extent that it can be established by the Receiving
Party that such Confidential Information: (a) was already known to the Receiving
Party, other than under an obligation of confidentiality from the Disclosing
Party; (b) was generally available to the public or otherwise part of the public
domain at the time of its disclosure to the Receiving Party; (c) became
generally available to the public or otherwise part of the public domain after
its disclosure and other than through any act or omission of the Receiving Party
in breach of this Agreement; (d) was subsequently lawfully disclosed to the
Receiving Party by a Third Party; (e) can be shown by written records to have
been independently developed by the Receiving Party without reference to the
Confidential Information received from the Disclosing Party and without breach
of any of the provisions of this Agreement; or (f) is information that the
Disclosing Party has specifically agreed in writing that the Receiving Party may
disclose. The obligations of confidentiality and non-use set forth in this
Section 10.1 shall also apply to biological material and chemical compounds and
associated information (including without limitation know-how) disclosed by one
Party to the other prior to or during the Term.

         10.2  Written Assurances and Permitted Uses of Confidential
               -----------------------------------------------------
Information.
-----------

               10.2.1 Each Party shall inform its employees and consultants who
perform work on the Research Program or the Development Program, of the
obligations of confidentiality specified in Section 10.1 and all such persons
shall be bound by the terms of confidentiality set forth therein.

               10.2.2 The Receiving Party may disclose Confidential Information
to the extent the Receiving Party is compelled to disclose such information by a
court or other tribunal of competent jurisdiction; provided however, that in
such case the Receiving Party shall immediately give notice to the Disclosing
Party so that the Disclosing Party may seek a protective order or other remedy
from said court or tribunal. In any event, the Receiving Party shall disclose
only that portion of the Confidential Information that, in the opinion of its
legal counsel, is legally required to be disclosed and will exercise reasonable
efforts to ensure that any such information so disclosed will be accorded
confidential treatment by said court or tribunal.

                                       27
<PAGE>

               10.2.3 To the extent it is reasonably necessary or appropriate to
fulfill its obligations and exercise its rights under this Agreement, either
Party may disclose Confidential Information to its Affiliates, on a need-to-know
basis on condition that such Affiliates 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 under
this Agreement.

               10.2.4 The existence and the terms and conditions of this
Agreement which the Parties have not specifically agreed to disclose pursuant to
this Section 10.2 shall be treated by each Party as Confidential Information of
the other Party.

         10.3  Publication. 3DP and Athersys, by mutual consent, will jointly
               -----------
determine to publish or publicly present the results of the Research Program or
Development Program (the "Results") subject to the following terms and
                          -------
conditions:

               10.3.1 As soon as reasonably necessary after its formation, the
JSC or JDC, as applicable, will establish a long term strategic publication plan
governing publication of the Results and public appearances (congresses,
presentations, press releases, advisory boards and the like) with the goal to
use and combine all existing data to support and maximize the commercial success
of the Products (the "Publication Plan"). The Parties will each provide, from
                      ----------------
time to time, a list of proposed publications regarding Joint Compounds, Joint
Lead Compounds, Joint Safety Assessment Compounds, Joint Development Compounds,
Joint Targets or Joint Products to the JSC or JDC, as applicable, for mutual
approval, and a list of proposed publications regarding its own Compounds, Lead
Compounds, Safety Assessment Compounds, Development Compounds, Targets or
Products to the JSC or JDC, as applicable, for review and comment provided that
no approval will be required by the JSC or JDC, as applicable, or the other
Party for those Compounds, Lead Compounds, Safety Assessment Compounds,
Development Compounds, Targets or Products that are not jointly owned.
Authorship of each publication will be determined at time of submission for
publication based on the contributions provided thereto.

               10.3.2 The Party proposing to publish or publicly present the
Results (the "Publishing Party") will submit thirty (30) days in advance, a
              ----------------
draft of any proposed manuscript or speech to the other Party (the
"Non-Publishing Party") for comments from the other Party and the JSC or JDC, as
 --------------------
applicable, and, if such proposed manuscript or speech involves Joint Compounds,
Joint Lead Compounds, Joint Safety Assessment Compounds, Joint Development
Compounds, Joint Targets or Joint Products, for approval by the JSC or JDC, as
applicable, and inclusion in the Publication Plan.

               10.3.3 The Parties will use their best efforts to gain the right
to review proposed publications by consultants or contractors relating to the
subject matter of the Research Program.

               10.3.4 No Party may publish Confidential Information of the other
Party, the use of which is restricted under this ARTICLE 10, without the consent
of the other Party.

               10.3.5 If the Parties determine that patent protection is
suitable for any information or results desired to be published or such results
or information is the subject of patent protection, no Party may publish such
information or results without first obtaining

                                       28
<PAGE>

approval from patent counsel in charge of prosecuting that patent application
(who shall take into consideration the absolute novelty requirements of
applicable jurisdictions).

               10.3.6 This ARTICLE 10 shall be inapplicable to the publication
of information presented in substantially the same form in which was previously
published or disclosed to the public, and to any other disclosures which, on the
advice of counsel, are required by law to be disclosed.

         10.4  Permitted Disclosures. Notwithstanding anything to the contrary
               ---------------------
herein, either Party may, upon the advice of its counsel and without the prior
consent of the other Party, disclose or publish Confidential Information, the
name or the trademarks of the other Party or information concerning the Research
Program or Development Program as required by law, government regulation, court
order or alternative dispute resolution process, including without limitation in
connection with filings with the U.S. Securities and Exchange Commission or
otherwise pursuant to applicable securities laws and regulations, filings with
the Internal Revenue Service and otherwise pursuant to applicable tax laws and
regulations, or to comply with discovery or similar requests in litigation and
alternative dispute resolution proceedings; provided, however, in any such case
the Party seeking to make such disclosure or publication, if permissible under
all laws or regulations, provides the other Party with advance written notice of
such disclosure or publication and provides the other Party with a reasonable
opportunity to secure protection of the Confidential Information therein.

                                   ARTICLE 11
                        PATENTS AND INTELLECTUAL PROPERTY

         11.1  Ownership; Inventions.
               ---------------------

               11.1.1 Inventions. Inventorship for patentable inventions
                      ----------
conceived or reduced to practice during the course of the performance of
activities pursuant to this Agreement shall be determined in accordance with
U.S. patent laws for determining inventorship. Subject to Section 11.1.2,
ownership shall be initially determined based on inventorship. In the event of a
dispute regarding inventorship, if the Parties are unable to resolve such
inventorship dispute, the JSC shall establish a procedure to resolve such
dispute, which may include engaging a Third Party patent attorney jointly
selected by the Parties to resolve such dispute.

               11.1.2 Ownership.
                      ---------

                      (a)    Joint Targets, Joint Lead Compounds, Joint Safety
                             -------------------------------------------------
Assessment Compounds, Joint Development Compounds and Joint Products.
--------------------------------------------------------------------

                             (i)    Subject to Sections 11.1.2(a)(ii) and
11.1.2(e), each Party shall own a fifty percent (50%) undivided interest in all
inventions, discoveries and research information made, conceived, reduced to
practice or generated jointly by employees or agents of both Parties relating to
Joint Targets, Joint Lead Compounds, Joint Safety Assessment Compounds, Joint
Development Compounds and Joint Products. Each Party shall promptly notify the
other upon the making, conceiving or reducing to practice of any invention or
discovery referred to in this Section 11.1.2(a)(i). For purposes of this Section
11.1.2(a)(i), Joint

                                       29
<PAGE>

Lead Compounds shall only include Compounds that are synthesized through
medicinal chemistry during Lead Optimization and all other Lead Compounds shall
be owned, as between the Parties, by 3DP.

                             (ii)   In the event that either a Research Term for
a Joint Target expires or is terminated with no corresponding follow-on
Development Program or a Development Program for a Joint Target is terminated
with no corresponding follow-on Product, then as between the Parties, (A)
Athersys shall own all right, title and interest in and to the Joint Target and
any inventions, discoveries and research made, conceived, reduced to practice or
generated solely by either Party or jointly by employees or agents of both
Parties, subject to Sections 3.12.4 and 4.10.5, as applicable, and 3DP shall
execute all further instruments to document Athersys' ownership therein as
reasonably requested by Athersys, and (B) 3DP shall own all right, title and
interest in and to the Compounds screened against such Joint Target.

                             (iii)  Notwithstanding 11.1.2(a)(ii), in the event
that either a Research Term for a Joint Target expires or is terminated with no
corresponding follow-on Development Program or a Development Program for a Joint
Target is terminated with no corresponding follow-on Product, then as between
the Parties, each Party shall own a fifty percent (50%) undivided interest in
and to all right, title and interest in and to any inventions, discoveries and
research information made, conceived, reduced to practice or generated jointly
by employees or agents of both Parties relating to disease pathways or
mechanisms of action (e.g., a discovery that a certain Joint Target is useful as
a drug discovery target for a new indication or a discovery that a class of
drugs acts against a Joint Target). Each Party shall promptly notify the other
upon the making, conceiving or reducing to practice of any invention or
discovery referred to in this Section 11.1.2(a)(iii). Each Party shall execute
all further instruments to document each other's ownership therein as reasonably
requested by the other Party.

                      (b)    Athersys Targets, Athersys Lead Compounds, Athersys
                             ---------------------------------------------------
Safety Assessment Compounds, Athersys Development Compounds and Athersys
------------------------------------------------------------------------
Product. As between the Parties, Athersys shall exclusively own all Athersys
-------
Lead Compounds, Athersys Safety Assessment Compounds and Athersys Development
Compounds that are synthesized by Athersys through the use of its own
chemistries and that are not identical to Compounds provided by 3DP, subject
only to Patent Rights deriving from patent applications filed by 3DP prior to
Athersys' synthesis thereof. Athersys shall be the owner of inventions,
discoveries and research information made, conceived, reduced to practice or
generated relating to an Athersys Target, Athersys Lead Compound, Athersys
Safety Assessment Compound, Athersys Development Compound or Athersys Product.
In the event an employee, agent or other person under obligations to assign
inventions or discoveries to 3DP is deemed an inventor of such inventions or
discoveries that relate to an Athersys Target, Athersys Lead Compound, Athersys
Safety Assessment Compound, Athersys Development Compound or Athersys Product,
then 3DP hereby assigns its entire right, title and interest in such invention
to Athersys and shall execute all further instruments to document such
assignment as reasonably requested by Athersys. For purposes of this Section
11.1.2(b), Athersys Lead Compounds shall only include Compounds that are
synthesized by Athersys through medicinal chemistry during Lead

                                       30
<PAGE>

Optimization and all other Lead Compounds, subject to Section 11.1.2(a), shall
be owned, as between the Parties, by 3DP.

                      (c)    3DP Targets, 3DP Lead Compounds, 3DP Safety
                             -------------------------------------------
Assessment Compounds, 3DP Development Compounds and 3DP Products. 3DP shall be
----------------------------------------------------------------
the owner of inventions, discoveries and research information made, conceived,
reduced to practice or generated relating to a 3DP Target, 3DP Lead Compound,
3DP Safety Assessment Compound, 3DP Development Compound or 3DP Product. In the
event an employee, agent or other person under obligations to assign inventions
or discoveries to Athersys is deemed an inventor of such inventions or
discoveries that relate to a 3DP Target, 3DP Lead Compound, 3DP Safety
Assessment Compound, 3DP Development Compound, 3DP Target or 3DP Product, then
Athersys hereby assigns its entire right, title and interest in such invention
to 3DP, and shall execute all further instruments to document such assignment as
reasonably requested by 3DP.

                      (d)    Compounds. As between the Parties, 3DP shall retain
                             ---------
its ownership and Patent Rights and other intellectual property rights in all
Compounds delivered to Athersys. 3DP shall be the owner of inventions,
discoveries and research information made, conceived, reduced to practice or
generated by 3DP or by Athersys relating to all Compounds screened against Joint
Targets and Compounds that during Lead Generation do not become Joint Lead
Compounds, 3DP Lead Compounds or Athersys Lead Compounds. In the event an
employee, agent or other person under obligations to assign inventions or
discoveries to Athersys is deemed an inventor of such inventions or discoveries
that relate to a Compound that did not become Joint Lead Compounds, 3DP Lead
Compounds or an Athersys Lead Compound, then Athersys hereby assigns its entire
right, title and interest in such invention to 3DP, and shall execute all
further instruments to document such assignment as reasonably requested by 3DP.

                      (e)    Ownership After Opt-Out. From the Opt-Out Point,
                             -----------------------
the Joint Lead Compounds, Joint Safety Assessment Compounds or Joint Development
Compounds, as the case may be, shall be (a) owned exclusively by the Funding
Party, (b) subject to the division of Profits and LMPs and subject to the
royalty sharing provisions as set forth in Section 5.2.2, and (c) for all other
purposes, (i) if Athersys is the Funding Party, then considered an Athersys Lead
Compound, Athersys Safety Assessment Compound or Athersys Development Compound,
as applicable, or (ii) if 3DP is the Funding Party, then considered a 3DP Lead
Compound, 3DP Safety Assessment Compound or 3DP Development Compound, as
applicable. Athersys or 3DP, as the case may be, shall execute all further
instruments to document ownership in the former Joint Lead Compounds, Joint
Safety Assessment Compounds or Joint Development Compounds, as the case may be,
as reasonably requested by the owner thereof. For purposes of this Section
11.1.2(e), Joint Lead Compounds and Athersys Lead Compounds shall only include
Compounds that are synthesized through medicinal chemistry during Lead
Optimization.

         11.2  Prosecution and Maintenance of Patent Rights. The responsibility
               --------------------------------------------
for (a) preparing, filing and prosecuting patent applications (including
reissue, continuing, divisional, and substitute applications and any foreign
counterparts thereof); (b) for maintaining any Patent Rights; and (c) for
managing any interference or opposition proceedings relating to the foregoing
((a), (b) and (c) collectively, "Patent Prosecution") covering an invention
                                 ------------------
conceived or reduced to practice during the course of the performance of
activities pursuant to this Agreement shall be the responsibility of the Party
owning such invention. All Patent Prosecution expenses, including attorneys'
fees, incurred by a Party in the performance of Patent Prosecution of an
invention owned by one Party shall be borne by such Party. All Patent

                                       31
<PAGE>

Prosecution costs, including attorneys' fees, relating to Joint Targets, Joint
Lead Compounds, Joint Safety Assessment Compounds or Joint Development Compounds
shall be shared by the Parties in accordance with Section 11.3.

         11.3   Prosecution and Maintenance of Joint Targets, Joint Lead
                --------------------------------------------------------
Compounds, Joint Safety Assessment Compounds and Joint Development Compounds.
----------------------------------------------------------------------------

               11.3.1 Filing. The JSC or JDC, as appropriate, shall determine
                      ------
whether to conduct Patent Prosecution with respect to jointly-owned inventions.
The JSC or the JDC, as appropriate, will assign responsibility to one Party to
act as the lead Party for the Patent Prosecution of such patent(s) and
application(s); provided, however, that both Parties shall be entitled to
actively participate in such Patent Prosecution and shall jointly decide upon
the strategy and content of Patent Prosecution activities. The lead Party shall
keep the JSC or the JDC, as appropriate, and the other Party informed of the
status of all matters affecting such patents and applications and Patent
Prosecution, including providing a copy of all correspondence from all
governmental authorities, and consulting on the strategy and content of
submissions to such governmental authorities in advance of any Patent
Prosecution submissions.

               11.3.2 Costs. All costs incurred by the Parties in carrying out
                      -----
the foregoing Patent Prosecution for inventions relating to Joint Targets, Joint
Lead Compounds, Joint Safety Assessment Compounds or Joint Development Compounds
shall be borne by the Parties at equal shares, unless otherwise agreed in
writing.

               11.3.3 Discontinuance. If the lead Party elects not to continue
                      --------------
pursuing Patent Prosecution with respect to any rights within Patent Rights for
inventions relating to Joint Targets, Joint Lead Compounds, Joint Safety
Assessment Compounds or Joint Development Compounds, then the prosecuting Party
shall, subject to any contractual obligations to Third Parties, notify the other
Party in writing of such election at least thirty (30) days prior to the last
available date for action to preserve such Patent Rights. If such other Party
elects to continue Patent Prosecution, such other Party may do so and all costs
and expenses shall be shared by the Parties in accordance with Section 11.3.2.

         11.4  Cooperation. Each Party hereby agrees:
               -----------

               11.4.1 to make its employees, agents and consultants reasonably
available to the other Party (or to the other Party's authorized attorneys,
agents or representatives), to the extent reasonably necessary to enable the
lead Party to undertake Patent Prosecution;

               11.4.2 to provide the other Party with copies of all material
correspondence pertaining to Patent Prosecution with the U.S. Patent and
Trademark Office or its foreign counterparts;

               11.4.3 to cooperate, if necessary and appropriate, with the other
Party in gaining patent term extensions wherever applicable to Patent Rights;
and

                                       32
<PAGE>

               11.4.4 to endeavor in good faith to coordinate its efforts with
the other Party to minimize or avoid interference with the Patent Prosecution of
the other Party's patent applications.

         11.5  Third Party Infringement.
               ------------------------

               11.5.1 Notice. Except as provided in Section 11.5.2, each Party
                      ------
shall promptly provide, but in on event later than thirty (30) days, the other
with written notice reasonably detailing any known or alleged infringement of
the other Party's Patent Rights by a Third Party.

               11.5.2 Notice-ANDA Filing. Each Party shall promptly provide to
                      ------------------
the other Party copies of any allegations of alleged patent invalidity or
non-infringement of a patent or patents with respect to technology used in the
Research Program, Development Program or of a Target, Compound or Product
pursuant to a certification under 21 U.S.C. ss. 355(b)(2)(A)(iv) by a Third
Party filing an Abbreviated New Drug Application thereunder. Such copies shall
be provided promptly, but in any event within ten (10) business bays, of receipt
of such certification.

               11.5.3 Infringement Proceedings. Each Party shall have the sole
                      ------------------------
right, but not the obligation, to institute and direct legal proceedings against
any Third Party believed to be infringing the Patent Rights of such Party, that
covers an invention that relates to such owning Party's Target, Lead Compound,
Safety Assessment Compound, Development Compound or Product; provided, however,
that the Parties shall mutually agree on a course of action for instituting and
directing legal proceedings against any Third Party believed to be infringing
any such Patent Rights that relates to Joint Targets, Joint Lead Compounds,
Joint Safety Assessment Compounds, Joint Development Compounds or Joint
Products. All costs, including attorneys' fees, relating to such legal
proceedings shall be borne by the Party that owns such Patent Rights or, in the
case of Patent Rights that relate to Joint Targets, Joint Lead Compounds, Joint
Safety Assessment Compounds, Joint Development Compounds or Joint Products,
shared equally by the Parties. If the Parties share the expenses, the Parties
shall each recover its expenses after which all damages will be shared by the
Parties in proportion to their actual damages. If only one Party is bearing the
expense, then the Party not bearing any of the expense shall, after the other
Party recovers its expenses, receive a share of the remaining compensatory
damages in proportion to its actual damages up to the percentage such Party
would have received had it received a share of Profits, LMPs and/or a royalty on
Net Sales in accordance with Schedule 5.2 and Sections 5.3 and 5.4, as the case
                             ------------
may be.

               11.5.4 Cooperation in Patent Infringement Proceedings. In the
                      ----------------------------------------------
event that either 3DP or Athersys takes action pursuant to this Section 11.5,
the other Party shall cooperate to the extent reasonably necessary and at the
first Parties' sole expense. Upon the reasonable request of the first Party,
such other Party shall join the suit and shall be represented in any such legal
proceedings using counsel of its own choice. Neither Party shall settle any
claim or proceeding relating to Patent Rights owned in whole or in part by the
other Party without the prior written consent of such other Party, which consent
shall not be unreasonably withheld.

                                       33
<PAGE>

         11.6  Other Intellectual Property Infringement.
               ----------------------------------------

               11.6.1 Notice.
                      ------

                      (a)    Each Party shall notify the other in writing of any
allegations it receives from a Third Party that technology used in the Research
Program, Development Program or a Product infringes the intellectual property
rights of such Third Party. Such notice shall be provided promptly, but in no
event after more than fifteen (15) business days, following receipt of such
allegations

                      (b)    In the event that a Party receives notice that it
or any of its Affiliates have been individually named as a defendant in a legal
proceeding by a Third Party alleging infringement of a Third Party patent or
other intellectual property right as a result of the manufacture, production,
use, development, sale or distribution of technology used in the Research
Program, Development Program or of a Target, Compound or Product, such Party
shall immediately notify the other Party in writing and in no event notify them
later than ten (10) business days after the receipt of such notice. Such written
notice shall include a copy of any summons or complaint (or the equivalent
thereof) received regarding the foregoing.

               11.6.2 Cooperation. Each Party shall assist the other and
                      -----------
cooperate in the defense of such allegations at each Party's own expense.

               11.6.3 Settlement. The Parties shall keep each other informed of
                      ----------
the status of and of their respective activities regarding any litigation or
settlement thereof concerning Targets, Compounds or Products; provided however,
that no settlement or consent judgment or other voluntary final disposition of a
suit under this Section may be undertaken without the consent of the other Party
if such settlement would require the other Party to be subject to an injunction
or to make a monetary payment or would otherwise adversely affect the other
Party's rights under this Agreement.

         11.7  Patent Term Extensions. The Parties shall cooperate in good faith
               ----------------------
with each other in gaining patent term extension wherever applicable.

               11.7.1 The Parties shall determine which patents covering joint
inventions shall be extended.

               11.7.2 All filings for such extension shall be made by the Party
responsible for Patent Prosecution covering such joint invention; provided,
however, that in the event that the Party who is responsible for such Patent
Prosecution elects not to file for an extension, such Party shall (i) inform the
other Party of its intention not to file and (ii) grant the other Party the
right to file for such extension.

                                   ARTICLE 12
                         REPRESENTATIONS AND WARRANTIES

         12.1  Authority. Each Party represents and warrants that as of the
               ---------
Effective Date it has the full right, power and authority to enter into this
Agreement and that this Agreement has been

                                       34
<PAGE>

duly executed by such Party and constitutes a legal, valid and binding
obligation of such Party, enforceable in accordance with its terms.

         12.2  Commercially Reasonable Efforts. Each Party represents and
               -------------------------------
warrants that it will use good faith commercially reasonable and diligent
efforts to develop Products, consistent with sound business judgment and to
perform the activities for which it is responsible under the Research Program
and Development Program.

         12.3  No Conflicts. Each Party represents and warrants that the
               ------------
execution, delivery and performance of this Agreement do not conflict with, or
constitute a breach or default under any of its charter or organizational
documents, any law, order, judgment or governmental rule or regulation
applicable to it, or any material agreement, contract, commitment or instrument
to which it is a party.

         12.4  No Existing Third Party Rights. Each Party represents and
               ------------------------------
warrants that its obligations under this Agreement are not encumbered by any
rights granted by such Party to any Third Parties that are or may be
inconsistent with the rights and licenses granted in this Agreement.

         12.5  Intellectual Property. Each Party represents and warrants to the
               ---------------------
other that as of the Effective Date:

               12.5.1 it is not aware of any claim made against it asserting the
invalidity, misuse, unregisterability, unenforceability or non-infringement of
any of its Intellectual Property that is the subject of this Agreement or
challenging its right to use or ownership of any of such Intellectual Property
or making any adverse claim of ownership thereof; and

               12.5.2 it is not aware of any pending or threatened claim or
litigation which alleges that its activities to date relating to the
Intellectual Property that is the subject of this Agreement have violated, or by
conducting its business as currently proposed to be conducted hereunder would
violate, the Intellectual Property rights of any other person or Third Party;
and

               12.5.3 it is not aware of Intellectual Property rights of any
Third Party that, with respect to Athersys' representation and warranty, validly
cover the use of the RAGE-VT Technology or, with respect to 3DP's representation
and warranty, validly cover the use of 3DP's libraries and combinatorial
chemistry technologies, in each case as contemplated under this Agreement.

         12.6  Access to Athersys Cell Lines.
               -----------------------------

               12.6.1 Athersys represents and warrants to 3DP that for the 3DP
Target and Joint Targets, 3DP Lead Compound(s) and Joint Lead Compounds, 3DP
Safety Assessment Compound(s) and Joint Safety Assessment Compounds and 3DP
Development Compounds and Joint Development Compounds, 3DP will have access to
cell lines produced using the RAGE-VT Technology and expressing the 3DP Target
and as required under the applicable Lead Optimization Plans, Pre-Clinical
Development Plans and Clinical Development Plans, the Joint Targets, for 3DP's
internal experimentation within the Research Programs and Development

                                       35
<PAGE>

Programs outlined herein, for those purposes set forth in Sections 3.11 and
4.10.5, as well as the equivalent programs and plans that 3DP develops for 3DP
Lead Compounds, 3DP Safety Assessment Compounds and 3DP Development Compounds.

               12.6.2 3DP represents and warrants to Athersys that 3DP will only
use such cell lines with the 3DP Target and Joint Targets, 3DP Lead Compound(s)
and Joint Lead Compounds, 3DP Safety Assessment Compound(s) and Joint Safety
Assessment Compounds and 3DP Development Compounds and Joint Development
Compounds within the Research Programs and Development Programs outlined herein,
and for a Joint Target, Joint Compound, Joint Lead Compound, Joint Safety
Assessment Compound or Joint Development Compound, only as required under the
applicable Lead Optimization Plan, Pre-Clinical Development Plan and Development
Plan, for those purposes set forth in Sections 3.11 and 4.10.5, as well as the
equivalent programs and plans that 3DP develops for 3DP Lead Compounds, 3DP
Safety Assessment Compounds and 3DP Development Compounds.

         12.7  Access to 3DP Compounds.
               -----------------------

               12.7.1 3DP represents and warrants to Athersys that for the
Athersys Target and Joint Targets, Athersys Lead Compound(s) and Joint Lead
Compounds, Athersys Safety Assessment Compound(s) and Joint Safety Assessment
Compounds and Athersys Development Compound(s) and Joint Development Compounds,
Athersys will have access to selected Compounds from 3DP Probe Library and to
the focused libraries created from the 3DP Synthetically Accessible Library as
required under the applicable Lead Optimization Plans, Pre-Clinical Development
Plans and Clinical Development Plans and for Athersys' internal experimentation
within the Research Programs and Development Programs outlined herein as well as
the equivalent programs and plans that Athersys develops for Athersys Lead
Compounds, Athersys Safety Assessment Compounds and Athersys Development
Compounds.

               12.7.2 Athersys represents and warrants to 3DP that Athersys will
only use such libraries and technology with the Athersys Target and Joint
Targets, Athersys Lead Compound(s) and Joint Lead Compounds, Athersys Safety
Assessment Compound(s) and Joint Safety Assessment Compounds, and Athersys
Development Compound(s) and Joint Development Compounds within the Research
Programs and Development Programs outlined herein and only as required under the
applicable Lead Optimization Plan, Pre-Clinical Development Plan and Clinical
Development Plan as well as the equivalent programs and plans that Athersys
develops for Athersys Lead Compounds, Athersys Safety Assessment Compounds and
Athersys Development Compounds.

         12.8  Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS
               ------------------------
AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS AND EXTENDS NO WARRANTIES OR
CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED
TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR
NON-INFRINGEMENT.

                                   ARTICLE 13
                                 INDEMNIFICATION

                                       36
<PAGE>

         13.1  Indemnification by Athersys. Athersys shall indemnify, defend and
               ---------------------------
hold 3DP, its Affiliates and their permitted contractors and agents, employees,
officers and directors (the "3DP Indemnitees") harmless from and against any and
                             ---------------
all liability, damage, loss, cost or expense (including reasonable attorneys'
fees) arising out of Third Party claims or lawsuits related to (a) Athersys'
performance of its obligations under this Agreement; (b) the manufacture, use or
sale of Products by Athersys and its Affiliates, sublicensees, distributors and
agents; (c) a material breach by Athersys of any of its covenants,
representations or warranties set forth in this Agreement; or (d) claims that
the development or commercialization of any Athersys Target, Athersys Compound,
Athersys Lead Compound, Athersys Safety Assessment Compound, Athersys
Development Compound or Athersys Product infringes the Intellectual Property
rights of a Third Party, except to the extent such claims or suits result from
the material breach of any of the provisions of this Agreement, gross negligence
or willful misconduct of the 3DP Indemnitees. Upon the assertion of any such
claim or suit, the 3DP Indemnitees shall promptly notify Athersys thereof and
Athersys shall appoint counsel reasonably acceptable to the 3DP Indemnitees to
represent the 3DP Indemnitees with respect to any claim or suit for which
indemnification is sought. The 3DP Indemnities shall not settle any such claim
or suit without the prior written consent of Athersys, unless the 3DP
Indemnitees shall have first waived their rights to indemnification hereunder.

         13.2  Indemnification By 3DP. 3DP shall indemnify, defend and hold
               ----------------------
Athersys, its Affiliates and their permitted contractors and agents, employees,
officers and directors (the "Athersys Indemnitees") harmless from and against
                             --------------------
any and all liability, damage, loss, cost or expense (including reasonable
attorneys' fees) arising out of Third Party claims or lawsuits related to (a)
3DP's performance of its obligations under this Agreement; (b) the manufacture,
use or sale of Products by 3DP and its Affiliates, sublicensees, distributors
and agents; (c) a material breach by 3DP of any of its covenants,
representations or warranties set forth in this Agreement; or (d) claims that
the development or commercialization of any 3DP Target, 3DP Compound, 3DP Lead
Compound, 3DP Safety Assessment Compound, 3DP Development Compound or 3DP
Product infringes the Intellectual Property rights of a Third Party, except to
the extent that such claims or suits result from the material breach of any of
the provisions of this Agreement, gross negligence or willful misconduct of the
Athersys Indemnitees. Upon the assertion of any such claim or suit, the Athersys
Indemnitees shall promptly notify 3DP thereof and 3DP shall appoint counsel
reasonably acceptable to the Athersys Indemnitees to represent the Athersys
Indemnitees with respect to any claim or suit for which indemnification is
sought. The Athersys Indemnitees shall not settle any such claim or suit without
the prior written consent of 3DP, unless the Athersys Indemnitees shall have
first waived their rights to indemnification hereunder.

         13.3  Insurance Proceeds. Any indemnification hereunder shall be made
               ------------------
net of any insurance proceeds recovered by the indemnified Party; provided,
however, that if, following the payment to the indemnified Party of any amount
under this ARTICLE 13, such indemnified Party recovers any insurance proceeds in
respect of the claim for which such indemnification payment was made, the
indemnified Party shall promptly pay an amount equal to the amount of such
proceeds (but not exceeding the amount of such indemnification payment) to the
indemnifying Party.

                                       37
<PAGE>

         13.4  Insurance. Each Party shall maintain insurance, including product
               ---------
liability insurance, with respect to its activities hereunder. Such insurance
shall be in such amounts and subject to such deductibles as the Parties may
agree based upon standards prevailing in the industry at the time. Each Party
may satisfy its obligations under this Section through self-insurance to the
same extent.

                                   ARTICLE 14
                              TERM AND TERMINATION

         14.1  Term. The Research Program shall commence upon the Effective
               ----
Date, and, unless all or a portion of the Research Program is extended by mutual
written agreement of the Parties, shall expire as to each Joint Target, the 3DP
Target and the Athersys Target, at the end of its Research Term. The Development
Program under this Agreement shall expire as to each Lead Compound, Safety
Assessment Compound and Development Compound upon expiration of its Development
Term. This Agreement shall terminate in its entirety upon expiration of all
Research Terms and their corresponding periods thereafter set forth in Sections
3.10 and 3.11, all Development Terms and their corresponding periods thereafter
set forth in Sections 4.10.4 and 4.10.5 and Royalty Terms.

         14.2  Extension of Research Program. If the Parties expand the Research
               -----------------------------
Program as provided in Section 3.13, the JSC shall extend the Research Term as
appropriate therefor.

         14.3  Partial Termination. Either Party may, independently of the other
               -------------------
Party and the JSC or JDC, elect to discontinue its funding of Lead Optimization,
Pre-Clinical Development or Clinical Development, or commercialization of a
Joint Lead Compound, Joint Safety Assessment Compound or Joint Development
Compound related to a Joint Target or Joint Product, as applicable, by giving
written notice thereof to the other Party prior to any of the following points
in time (each, an "Opt-Out Point"):
                   -------------

               14.3.1 Initiation of Lead Optimization;

               14.3.2 Initiation of Pre-Clinical Development;

               14.3.3 Initiation of the first Phase I trial;

               14.3.4 Initiation of the first Phase II trial;

               14.3.5 Initiation of the first Phase III trial; or

               14.3.6 Any time after Phase III is completed and all study
reports have been finalized.

         14.4  Breach. The failure by a Party to comply with any of the material
               ------
obligations contained in this Agreement shall entitle the other Party to give
notice to have the default cured. If such default is not cured within sixty (60)
days after the receipt of such notice, or diligent steps are not taken to cure
if by its nature such default could not be cured within sixty (60) days, the
notifying Party shall be entitled, without prejudice to any of its other rights
conferred on it by this Agreement, and in addition to any other remedies that
may be available to it, to terminate

                                       38
<PAGE>

this Agreement with respect to a given Joint Lead Compound, Joint Safety
Assessment Compound, or Joint Development Compound or, depending upon the
materiality of the breach to the entire Agreement, to terminate this Agreement
in its entirety; provided, however, that such right to terminate shall be stayed
in the event that, during such 60-day period, the Party alleged to have been in
default shall have: (a) initiated arbitration in accordance with ARTICLE 15,
below, with respect to the alleged default, and (b) diligently and in good faith
cooperated in the prompt resolution of such arbitration proceedings.

         14.5  Insolvency or Bankruptcy.
               ------------------------

               14.5.1 Either Party may, in addition to any other remedies
available by law or in equity, terminate this Agreement by written notice to the
other Party in the event the latter Party shall have become insolvent or
bankrupt, or shall have an assignment for the benefit of its creditors, or there
shall have been appointed a trustee or receiver of the other Party or for all or
a substantial part of its property or any case or proceeding shall have been
commenced or other action taken by or against the other Party in bankruptcy or
seeking reorganization, liquidation, dissolution, winding-up, arrangement or
readjustment of its debts or any other relief under any bankruptcy, insolvency,
reorganization or other similar act or law of any jurisdiction now or hereafter
in effect, or there shall have been issued a warrant of attachment, execution,
restraint or similar process against any substantial part of the property of the
other Party, and any such event shall have continued for ninety (90) days
undismissed, unbonded and undischarged.

               14.5.2 All rights and licenses granted under or pursuant to this
Agreement by Athersys or 3DP are, and shall otherwise be deemed to be, for
purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to
"Intellectual Property" as defined under Section 101 of the U.S. Bankruptcy
Code. The Parties agree that the Parties as licensees of such rights under this
Agreement, shall retain and may fully exercise all of their rights and elections
under the U.S. Bankruptcy Code. The Parties further agree that, in the event of
the commencement of a bankruptcy proceeding by or against either Party under the
U.S. Bankruptcy Code, the Party hereto which is not a Party to such proceeding
shall be entitled to a complete duplicate of (or complete access to, as
appropriate) any such Intellectual Property and all embodiments or descriptions
of such licensed Intellectual Property, and same, if not already in their
possession, shall be promptly delivered to it (a) upon any such commencement of
a bankruptcy proceeding upon its written request therefor, unless the Party
subject to such proceedings elects to continue to perform all of its obligations
under this Agreement or (b) if not delivered under (a) above, upon the rejection
of this Agreement by or on behalf of the Party subject to such proceeding upon
written request therefor by the nondebtor Party.

         14.6  Survival of Obligations. The termination or expiration of this
               -----------------------
Agreement shall not relieve the Parties of any obligations accruing prior to
such termination, and any such termination shall be without prejudice to the
rights of either Party against the other. The provisions of Sections 3.12.2,
3.12.4, 7.3, 7.5, 12.8, 14.6 and 14.7 and Articles 1, 8, 10, 11, 13, 15 and 16
shall survive any termination of this Agreement.

                                       39
<PAGE>

         14.7  Effects of Termination.
               ----------------------

               14.7.1 If a Party elects to partially terminate this Agreement in
accordance with Section 14.3, then such terminating Party will receive royalties
and a share of the Profits and/or LMPs in accordance with Schedule 5.2;
                                                          ------------
provided, however,[* *]. For the avoidance of doubt, there shall be no limit on
the amount a terminating Party may receive for royalties on Net Sales other than
the Royalty Term.

               14.7.2 If a Party terminates this Agreement pursuant to Section
14.4 or 14.5 between any two of the Opt-Out Points, then such terminated Party
shall be entitled to receive a share of the Profits, LMPs and royalties as set
forth on Schedule 5.2 for the last fully-completed Opt-Out Point prior to the
         ------------
effective date of such termination; provided, however, [* *]. For the avoidance
of doubt, there shall be no limit on the amount a terminated Party may receive
for royalties on Net Sales other than the Royalty Term.

                                   ARTICLE 15
                               DISPUTE RESOLUTION

         15.1  Dispute Resolution Process. Both Parties understand and
               --------------------------
appreciate that their long term mutual interest will be best served by affecting
a rapid and fair resolution of any claims or disputes which may arise out of
services performed under this contract or from any dispute concerning the terms
of this Agreement. Therefore, both Parties agree to use their best efforts to
resolve all such disputes as rapidly as possible on a fair and equitable basis.
Toward this end, both Parties agree to develop and follow a process for
presenting, rapidly assessing, and settling claims on a fair and equitable basis
that takes into account the precise subject and nature of the dispute.

         15.2  Dispute Resolution Panel. If any dispute or claim arising under
               ------------------------
this Agreement cannot be readily resolved by the Parties pursuant to the process
described above, then the Parties agree to refer the matter to a panel
consisting of the Chief Executive Officer of 3DP and the Chief Executive Officer
of Athersys or their designees for review and a non-binding resolution. A copy
of the terms of this Agreement, agreed upon facts (and areas of disagreement),
and concise summary of the basis for each side's contentions will be provided to
both such officers who shall review the same, confer and attempt to reach a
mutual resolution of the issue.

         15.3  Arbitration.
               -----------

               15.3.1 If the matter has not been resolved utilizing the
foregoing process and the Parties are unwilling to accept the non-binding
decision of the dispute resolution panel, either or both Parties may elect to
pursue definitive resolution through binding arbitration, which the Parties
agree to accept in lieu of litigation or other legally available remedies (with
the exception of injunctive relief where such relief is necessary to protect a
Party from irreparable harm pending the outcome of any such arbitration
proceeding). Binding arbitration shall be settled in accordance with the Rules
of the American Arbitration Association by a panel of three arbitrators chosen
in accordance with such Rules. If such dispute relates primarily to Patents
relating to

                                       40
<PAGE>

Products, such arbitrators shall be selected in such a manner to ensure that
they will have sufficient technical expertise and training to handle such a
dispute.

               15.3.2 As set forth in Section 16.14, this Agreement shall be
governed by and construed in accordance with the substantive laws of the State
of Delaware without regard to the conflicts of laws provisions of Delaware. The
arbitration will be held in Wilmington, Delaware. Judgment upon the award
rendered may be entered in any court having jurisdiction and the Parties hereby
consent to the said jurisdiction and venue, and further irrevocably waive any
objection which either Party may have now or hereafter to the laying of venue of
any proceedings in said courts and to any claim that such proceedings have been
brought in an inconvenient forum, and further irrevocably agree that a judgment
or order in any such proceeding shall be conclusive and binding upon the Parties
and may be enforced in the courts of any other jurisdiction.

                                   ARTICLE 16
                            MISCELLANEOUS PROVISIONS

         16.1  Entire Agreement. This Agreement and each of the Schedules hereto
               ----------------
constitute and contain the entire understanding and agreement of the Parties
respecting the subject matter of this Agreement and cancels and supersedes any
all prior negotiations, correspondence, understandings and agreements between
the Parties, whether oral or written, regarding such subject matter.

         16.2  Further Actions. Each Party agrees to execute, acknowledge and
               ---------------
deliver such further instruments and to do all such other acts as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.

         16.3  Binding Effect. This Agreement and the rights granted herein
               --------------
shall be binding upon and shall inure to the benefit of 3DP, Athersys and their
successors and permitted assigns.

         16.4  Assignment. Neither Party shall assign this Agreement without the
               ----------
prior written consent of the other Party; provided, however, that either Party
may assign this Agreement without the prior written consent of the other in
connection with the sale or transfer of substantially all of its assets that
relate to this Agreement, or in the event of its merger or consolidation or
change of control or similar transaction, or to a wholly-owned Affiliate of a
Party. Any permitted assignee shall assume all obligations of its assignor under
this Agreement.

         16.5  No Implied Licenses. No rights to any other patents, know-how or
               -------------------
technical information, or other intellectual property rights, other than as
explicitly identified herein, are granted or deemed granted by this Agreement.
Except as provided in Section 10.4, no right, expressed or implied, is granted
by this Agreement to a Party to use in any manner the name or any other trade
name or trademark of the other Party in connection with the performance of this
Agreement.

         16.6  No Waiver. No waiver, modification or amendment of any provision
               ---------
of this Agreement shall be valid or effective unless made in writing and signed
by a duly authorized officer of each Party. The failure of either Party to
assert a right hereunder or to insist upon

                                       41
<PAGE>

compliance with any term or condition of this Agreement shall not constitute a
waiver of that right or excuse a similar subsequent failure to perform any such
term or condition.

         16.7  Force Majeure. The failure of a Party to perform any obligation
               -------------
under this Agreement by reason of acts of God, acts of governments, riots, wars,
strikes, accidents or deficiencies in materials or transportation or other
causes of a similar magnitude beyond its control shall not be deemed to be a
breach of this Agreement.

         16.8  Independent Contractors. Both Parties are independent contractors
               -----------------------
under this Agreement. Nothing contained in this Agreement is intended nor is to
be construed so as to constitute 3DP or Athersys as partners or joint venturers
with respect to this Agreement. Neither Party shall have any express or implied
right or authority to assume or create any obligations on behalf of or in the
name of the other Party or to bind the other Party to any other contract,
agreement or undertaking with any Third Party.

         16.9  Notices and Deliveries. Any formal notice, request, delivery,
               ----------------------
approval or consent required or permitted to be given under this Agreement shall
be in writing and shall be deemed to have been sufficiently given when it is
received, whether delivered in person, transmitted by facsimile with
contemporaneous confirmation, or delivery by registered letter (or its
equivalent) or delivery by certified overnight courier service, to the Party to
which it is directed at its address shown below or such other address as such
Party shall have last given by notice to the other Parties.

               If to Athersys:                       with a copy to:

               Athersys, Inc.                        Jones, Day, Reavis & Pogue
               3201 Carnegie Avenue                  North Point
               Cleveland, OH  44115-2634             901 Lakeside Avenue
               Fax: (216) 361-9495                   Cleveland, OH 44114-2304
               ATTN:  Chief Executive Officer        ATTN:  Thomas Briggs, Esq.


               If to 3DP:                            with a copy to:

               3-Dimensional Pharmaceuticals, Inc.   Morgan, Lewis & Bockius LLP
               1020 Stony Hill Road, Suite 300       1701 Market Street
               Yardley, PA  19067                    Philadelphia, PA 19103-2921
               Fax: (267) 757-7283
               ATTN: Chief Executive Officer         ATTN:  Edward Lentz, Esq.


         16.10 Public Announcements. The Parties will agree upon the timing and
               --------------------
content of any initial press release, attached hereto as Schedule 16.10, or
other public communications relating to this Agreement and the transactions
contemplated herein.

               16.10.1 Except to the extent already disclosed in that initial
press release or other public communication, no public announcement concerning
the existence or the terms of this

                                       42
<PAGE>

Agreement or concerning the transactions described herein shall be made, either
directly or indirectly, by Athersys or 3DP, except as set forth in Section 10.4,
without first obtaining the approval of the other Party and agreement upon the
nature, text, and timing of such announcement, which approval and agreement
shall not be unreasonably withheld.

               16.10.2 The Party desiring to make any such public announcement
shall provide the other Party with a written copy of the proposed announcement
in sufficient time prior to public release to allow such other Party to comment
upon such announcement, prior to public release.

         16.11 Headings. The captions to the sections and articles in this
               --------
Agreement are not a part of this Agreement, and are included merely for
convenience of reference only and shall not affect its meaning or
interpretation.

         16.12 Severability. If any provision of this Agreement becomes or is
               ------------
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision, so long as the Agreement, taking into account said voided
provision(s), continues to provide the Parties with the same practical economic
benefits as the Agreement containing said voided provision(s) did on the
Effective Date. If, after taking into account said voided provision(s), the
Parties are unable to realize the practical economic benefit contemplated on the
Effective Date, the Parties shall negotiate in good faith to amend this
Agreement to reestablish the practical economic benefit provided the Parties on
the Effective Date.

         16.13 No Consequential Damages. IN NO EVENT SHALL EITHER PARTY OR ANY
               ------------------------
OF ITS RESPECTIVE AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY OF ITS
AFFILIATES FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER
IN CONTRACT, WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE,
INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS OR REVENUE, OR CLAIMS OF
CUSTOMERS OF ANY OF THEM OR OTHER THIRD PARTIES FOR SUCH OR OTHER DAMAGES.

         16.14 Applicable Law. This Agreement shall be governed by and
               --------------
interpreted in accordance with the laws of the State of Delaware without
reference to its conflicts of laws provisions.

         16.15 Counterparts. This Agreement may be executed in counterparts, or
               ------------
facsimile versions, each of which shall be deemed to be an original, and both of
which together shall be deemed to be one and the same agreement.

                            [Signature Page Follows]

                                       43
<PAGE>

         IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective duly authorized officers as of the Effective Date,
each copy of which shall for all purposes be deemed to be an original.


                                       ATHERSYS, INC.


                                       By:______________________________________
                                          Name:
                                          Title:


                                       3-DIMENSIONAL PHARMACEUTICALS, INC.


                                       By:______________________________________
                                          Name:
                                          Title:


       SIGNATURE PAGE TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
<PAGE>

                                  Schedule 1.10

                                Candidate Targets
                                -----------------


I.       Joint Targets
         -------------

         [*                                   *].

II.      3DP Target
         ----------

         [*                                   *].

III.     Athersys Target
         ---------------

         [*                                   *].


                                  SCHEDULE 1.10
               TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
<PAGE>

                                 Schedule 1.14
                                 -------------
                             Compound and Work Flow
                             ----------------------


     Compounds                                                   Targets


                                Lead Generation
                                                                 Research
                                                                 Program
                                                                  (ends)


                                     Lead                      Development
                                   Compound                      Program
                                                                 (begins)


                               Lead Optimization


        JSC                    Safety Assessment
      (ends)                       Compound


        JDC                Pre-Clinical Development
     (begins)


                                  Development
                                   Compound


                             Clinical Development
         (IND, Phases I,II,III (and IV), NDA and Regulatory Approval)


                                    Product



                                  SCHEDULE 1.14
               TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
<PAGE>

                                  Schedule 1.30
                                  -------------


[* 1 entire page has been omitted pursuant to a confidential treatment request*]


                                  SCHEDULE 1.30
               TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
<PAGE>

                                  Schedule 3.5
                                  ------------

  [* 2 pages have been omitted pursuant to a confidential treatment request *]


                                  SCHEDULE 3.5
               TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
<PAGE>

                                  Schedule 3.6

[* 1 entire page has been omitted pursuant to a confidential treatment request*]


                                  SCHEDULE 3.6
               TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
<PAGE>

                                  Schedule 5.2

                    Revenue Sharing with Discontinuing Party
                    ----------------------------------------

The outline below illustrates revenue sharing in the event a Party opts-out as
provided in Section 4.9. [* *].

1.1      If the Discontinuing Party discontinues funding prior to Lead
Optimization, and

         1.1.1  if the Funding Party licenses, assigns or sells the former Joint
Lead Compound prior to initiation of Lead Optimization, then the Funding Party
shall pay to the Discontinuing Party [* *] of LMPs received from such
outlicensing, assignment or sale as well as [* *] of any royalty received by the
Funding Party on Net Sales by its Third Party Licensee(s) of Product comprising
the former Joint Lead Compound. [* *];

         1.1.2  if the Funding Party licenses, assigns or sells the former Joint
Lead Compound during Lead Optimization, then the Funding Party shall pay to the
Discontinuing Party [* *] of LMP received from such outlicensing, assignment or
sale;

         1.1.3  if the Funding Party licenses, assigns or sells the former Joint
Lead Compound during Pre-Clinical Development, then the Funding Party shall pay
to the Discontinuing Party [* *] of LMP received from such outlicensing,
assignment or sale;

         1.1.4  if the Funding Party licenses, assigns or sells the former Joint
Lead Compound during Phase I, then the Funding Party shall pay to the
Discontinuing Party [* *] of LMP received from such outlicensing, assignment or
sale;

         1.1.5  if the Funding Party licenses, assigns or sells the former Joint
Lead Compound during Phase II, then the Funding Party shall pay to the
Discontinuing Party [* *] of LMP received from such outlicensing, assignment or
sale;

         1.1.6  if the Funding Party licenses, assigns or sells the former Joint
Lead Compound during or after Phase III, then the Funding Party shall pay to the
Discontinuing Party [* *] of LMP received from such outlicensing, assignment or
sale;

         1.1.7  in addition to any amounts the Funding Party may owe to the
Discontinuing Party under the foregoing Sections 1.1.2 - 1.1.6 of this Schedule
                                                                       --------
5.2, the Funding Party shall pay to the Discontinuing Party a royalty equal to
---
[* *] of all Net Sales (whether by Funding Party or its Third Party Licensee(s))
of Product comprising the former Joint Lead Compound; and


                                  SCHEDULE 5.2
               TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
<PAGE>

         1.1.8  with respect to each license, assignment or sale, the amounts
under Sections 1.1.1 - 1.1.6 are mutually exclusive such that the Funding Party
shall only owe to the Discontinuing Party the first of such amounts to occur and
no other such amounts for the same transaction and as exemplified in Schedule
                                                                     --------
5.3.7. Any royalty obligation will last for the duration of the Royalty Term.
-----

1.2      If the Discontinuing Party discontinues funding prior to Pre-Clinical
Development, and

         1.2.1  if the Funding Party licenses, assigns or sells the former Joint
Safety Assessment Compound prior to initiation of Pre-Clinical Development, then
the Funding Party shall pay to the Discontinuing Party [* *] of LMPs received
from such outlicensing, assignment or sale as well as [* *] of any royalty
received by the Funding Party on Net Sales by its Third Party Licensee(s) of
Product comprising the former Joint Safety Assessment Compound. [* *];

         1.2.2  if the Funding Party licenses, assigns or sells the former Joint
Safety Assessment Compound during Pre-Clinical Development, then the Funding
Party shall pay to the Discontinuing Party [* *] of LMP received from such
outlicensing, assignment or sale;

         1.2.3  if the Funding Party licenses, assigns or sells the former Joint
Safety Assessment Compound during Phase I, then the Funding Party shall pay to
the Discontinuing Party [* *] of LMP received from such outlicensing, assignment
or sale;

         1.2.4  if the Funding Party licenses, assigns or sells the former Joint
Safety Assessment Compound during Phase II, then the Funding Party shall pay to
the Discontinuing Party [* *] of LMP received from such outlicensing, assignment
or sale;

         1.2.5  if the Funding Party licenses, assigns or sells the former Joint
Safety Assessment Compound during or after Phase III, then the Funding Party
shall pay to the Discontinuing Party [* *] of LMP received from such
outlicensing, assignment or sale; and

         1.2.6  in addition to any amounts the Funding Party may owe to the
Discontinuing Party under the foregoing Sections 1.2.2 - 1.2.5 of this Schedule
                                                                       --------
5.2, the Funding Party shall pay to the Discontinuing Party a royalty equal to
---
[* *] of all Net Sales (whether by Funding Party or its Third Party Licensee(s))
of Product comprising the former Joint Safety Assessment Compound; and

         1.2.7  with respect to each license, assignment or sale, the amounts
under Sections 1.2.1 - 1.2.5 are mutually exclusive such that the Funding Party
shall only owe to the Discontinuing Party the first of such amounts to occur and
no other such amounts for the same transaction and as exemplified in Schedule
                                                                     --------
5.3.7. Any royalty obligation will last for the duration of the Royalty Term.
-----

1.3      If the Discontinuing Party discontinues funding prior to initiation of
a Phase I trial

                                  SCHEDULE 5.2
               TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
<PAGE>

         1.3.1  if the Funding Party licenses, assigns or sells the former Joint
Development Compound prior to initiation of Phase I, then the Funding Party
shall pay to the Discontinuing Party [* *] of LMPs received from such
outlicensing, assignment or sale as well as [* *] of any royalty received by the
Funding Party on Net Sales by its Third Party Licensee(s) of Product comprising
the former Joint Development Compound. [* *];

         1.3.2  if the Funding Party licenses, assigns or sells the former Joint
Development Compound during Phase I, then the Funding Party shall pay to the
Discontinuing Party [* *] of LMP received from such outlicensing, assignment or
sale

         1.3.3  if the Funding Party licenses, assigns or sells the former Joint
Development Compound during Phase II, then the Funding Party shall pay to the
Discontinuing Party [* *] of LMP received from such outlicensing, assignment or
sale;

         1.3.4  if the Funding Party licenses, assigns or sells the former Joint
Development Compound during or after Phase III, then the Funding Party shall pay
to the Discontinuing Party [* *] of LMP received from such outlicensing,
assignment or sale; and

         1.3.5  in addition to any amounts the Funding Party may owe to the
Discontinuing Party under the foregoing Sections 1.3.2 - 1.3.4 of this Schedule
                                                                       --------
5.2, the Funding Party shall pay to the Discontinuing Party a royalty equal to
---
[* *] of all Net Sales (whether by Funding Party or its Third Party Licensee(s))
of Product comprising the former Joint Development Compound; and

         1.3.6  with respect to each license, assignment or sale, the amounts
under Sections 1.3.1 - 1.3.4 are mutually exclusive such that the Funding Party
shall only owe to the Discontinuing Party the first of such amounts to occur and
no other such amounts for the same transaction and as exemplified in Schedule
                                                                     --------
5.3.7. Any royalty obligation will last for the duration of the Royalty Term.
-----
1.4      If the Discontinuing Party discontinues funding prior to initiation of
a Phase II trial

         1.4.1  if the Funding Party licenses, assigns or sells the former Joint
Development Compound prior to initiation of Phase II, then the Funding Party
shall pay to the Discontinuing Party [* *] of LMPs received from such
outlicensing, assignment or sale as well as [* *]of any royalty received by the
Funding Party on Net Sales by its Third Party Licensee(s) of Product comprising
the former Joint Development Compound. [* *];

         1.4.2  if the Funding Party licenses, assigns or sells the former Joint
Development Compound during Phase II, then the Funding Party shall pay to the
Discontinuing Party [* *] of LMP received from such outlicensing, assignment or
sale;

                                  SCHEDULE 5.2
               TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
<PAGE>

         1.4.3  if the Funding Party licenses, assigns or sells the former Joint
Development Compound during or after Phase III, then the Funding Party shall pay
to the Discontinuing Party [* *] of LMP received from such outlicensing,
assignment or sale; and

         1.4.4  in addition to any amounts the Funding Party may owe to the
Discontinuing Party under the foregoing Sections 1.4.2 - 1.4.3 of this Schedule
                                                                       --------
5.2, the Funding Party shall pay to the Discontinuing Party a royalty equal to
---
[* *] of all Net Sales (whether by Funding Party or its Third Party Licensee(s))
of Product comprising the former Joint Development Compound; and

         1.4.5  with respect to each license, assignment or sale, the amounts
under Sections 1.4.1 - 1.4.3 are mutually exclusive such that the Funding Party
shall only owe to the Discontinuing Party the first of such amounts to occur and
no other such amounts for the same transaction and as exemplified in Schedule
                                                                     --------
5.3.7. Any royalty obligation will last for the duration of the Royalty Term.
-----
1.5      If the Discontinuing Party discontinues funding prior to initiation of
a Phase III trial

         1.5.1  if the Funding Party licenses, assigns or sells the former Joint
Development Compound prior to initiation of Phase III, then the Funding Party
shall pay to the Discontinuing Party [* *] of LMPs received from such
outlicensing, assignment or sale as well as [* *] of any royalty received by the
Funding Party on Net Sales by its Third Party Licensee(s) of Product comprising
the former Joint Development Compound. [* *];

         1.5.2  if the Funding Party licenses, assigns or sells the former Joint
Development Compound during or after Phase III, then the Funding Party shall pay
to the Discontinuing Party [*    *] of LMP received from such outlicensing,
assignment or sale; and

         1.5.3  in addition to any amounts the Funding Party may owe to the
Discontinuing Party under the foregoing Section 1.5.2 of this Schedule 5.2, the
                                                              ------------
Funding Party shall pay to the Discontinuing Party a royalty equal to [* *] of
all Net Sales (whether by Funding Party or its Third Party Licensee(s)) of
Product comprising the former Joint Development Compound. Any royalty obligation
will last for the duration of the Royalty Term.

2.1      If the Discontinuing Party discontinues funding:

         2.1.1  prior to Lead Optimization, and the Funding Party fully funds
Lead Optimization, Pre-Clinical Development and Clinical Development and
commercialization, then the Funding Party shall pay to the Discontinuing Party
[* *] of its Profits and a royalty equal to [* *] of the Net Sales of such
Product comprising the former Joint Lead Compound;

         2.1.2  prior to Pre-Clinical Development and the Funding Party fully
funds Pre-Clinical Development and Clinical Development and commercialization,
then the Funding Party shall pay

                                  SCHEDULE 5.2
               TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
<PAGE>

to the Discontinuing Party [* *] of its Profits and a royalty equal to [* *] of
the Net Sales of such Product comprising the former Joint Safety Assessment
Compound;

         2.1.3  prior to Phase I and the Funding Party fully funds Clinical
Development and commercialization, then the Funding Party shall pay
to the Discontinuing Party [* *] of its Profits and a royalty equal to [* *] of
the Net Sales of such Product comprising the former Joint Development Compound;

         2.1.4  prior to Phase II and the Funding Party fully funds Phase II and
Phase III Clinical Development and commercialization, then the Funding Party
shall pay to the Discontinuing Party [* *] of its Profits and a royalty equal to
[* *] of the Net Sales of such Product comprising the former Joint Development
Compound; and

         2.1.5  prior to Phase III and the Funding Party fully funds Phase III
Clinical Development and commercialization, then the Funding Party shall pay to
the Discontinuing Party [* *] of its Profits and a royalty equal to [* *] of the
Net Sales of such Product comprising the former Joint Development Compound.

         2.1.6  With respect to each license, assignment or sale, the amounts
under Sections 2.1.1 - 2.1.5 are mutually exclusive such that the Funding Party
shall only owe to the Discontinuing Party the first of such amounts to occur and
no other such amounts for the same transaction under such Sections or under
Sections 1.1.1 - 1.5.3 of this Schedule 5.2 and as exemplified in Schedule
                               ------------                       --------
5.3.7. Any royalty obligation will last for the duration of the Royalty Term.
-----

                                  SCHEDULE 5.2
               TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
<PAGE>

                                 Schedule 5.3.7
                                 --------------

         Examples of Mutually Exclusive Transactions Concerning Amounts
             Payable Under Schedule 5.2, Section 5.3 and Section 5.4
             -------------------------------------------------------

Illustrative Example 1:
-----------------------

Athersys opts out at the initiation of Pre-Clinical Development and 3DP elects
to continue as a Funding Party. 3DP completes Pre-Clinical Development
successfully developing a Development Compound and then:

Action: 3DP licenses during Phase I to Third Party X for the territory of the
------
United States, Canada and Mexico.

         Result: Under Section 1.2.3 of Schedule 5.2, 3DP pays to Athersys [* *]
         ------
         of the LMP received from the licensing and, under Section 1.2.6 of
         Schedule 5.2, [* *] of Net Sales of Products comprising the Development
         Compound by Third Party X in the United States, Canada and Mexico, but
         no other fees under Schedule 5.2 in connection with the transaction.

Action: 3DP enters into a co-development and co-commercialization agreement
------
during Phase II with Third Party Y for the territory of Europe and agrees to
sell the rights in the Product in Europe should it be approved therein.

         Result: Under Section 1.2.4, 3DP pays Athersys [* *] of the LMP
         ------
         received from the transaction, and, under Section 1.2.6 of Schedule
         5.2, [* *] of Net Sales of Products comprising the Development Compound
         by Third Party Y in Europe.

Action: Subsequently, 3DP sells the co-commercialization rights to the Product
------
in Europe to Third Party Y after regulatory approval.

         Result: Notwithstanding the earlier transaction with Third Party Y
         ------
         because the sale of rights was pursuant to a different transaction than
         the earlier license to Third Party Y, under Section 1.2.5 of Schedule
         5.2, 3DP would pay Athersys [* *] of the LMP received from the sale
         and, under Section 1.2.6 of Schedule 5.2, [* *] of Net Sales of
         Products comprising the Development Compound by Third Party Y in
         Europe, but no other fees under Schedule 5.2 in connection with the
         sale.

Illustrative Example 2/1/:
-------------------------

Action: Athersys licenses an Athersys Product to Company A for Territory M for X
dollars.


                                 SCHEDULE 5.3.7
               TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
<PAGE>

         Result: Athersys pays to 3DP [* *] of X (depending on which of 5.3.2,
         ------
         5.3.3, 5.3.4, 5.3.5, and 5.3.6 apply) and also pays to 3DP a royalty in
         the amount of [* *] of the Net Sales by Company A in Territory M.

Action: Subsequently, Athersys licenses rights in the same Product to Company A
------
for Territory N for Y Dollars.

         Result: Athersys pays [* *] of Y (depending on which of 5.3.2, 5.3.3,
         ------
         5.3.4, 5.3.5, and 5.3.6 apply) and also pays to 3DP a royalty in the
         amount of [* *] of the Net Sales by Company A in Territory N.

Action: Athersys retains right in Territory O, and subsequently, Athersys
------
markets the same Product in Territory O.

         Result: Athersys pays to 3DP [* *] of its Profits on the sale of the
         ------
         Athersys Product and also pays to 3DP a royalty in the amount of [* *]
         of its Net Sales, as provided in Section 5.3.1.

Illustrative Example 3/2/:
-------------------------

Action: 3DP licenses a 3DP Product to Company A worldwide for X dollars,
------
retaining a co-marketing right in Territory M.

         Result: 3DP pays to Athersys [* *] of X (depending on which of 5.4.2,
         ------
         5.4.3, 5.4.4, 5.4.5, and 5.4.6 apply) and also pays to Athersys a
         royalty in the amount of [* *] of the Net Sales by Company A.

Action: In accordance with the terms of the agreement with Company A, 3DP
------
co-markets the same 3DP Product in Territory M.

         Result: 3DP pays to Athersys [* *] of its Profits on the sale of the
         ------
         3DP Product and also pays to Athersys a royalty in the amount of [* *]
         of its Net Sales in Territory M, as provided in Section 5.4.1.

Illustrative Example 4/1/:
-------------------------

Action: Athersys licenses an Athersys Product to Company A for Indication M for
------
X dollars.

         Result: Athersys pays to 3DP [* *] of X (depending on which of 5.3.2,
         ------
         5.3.3, 5.3.4, 5.3.5, and 5.3.6 apply) and also pays to 3DP a royalty in
         the amount of [* *] of the Net Sales by Company A for Indication M.

Action: Subsequently, Athersys licenses rights in the same Athersys Product to
------
Company B for Indication N for Y Dollars.

                                 SCHEDULE 5.3.7
               TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
<PAGE>

         Result: Athersys pays to 3DP [* *] of Y (depending on which of 5.3.2,
         5.3.3, 5.3.4, 5.3.5, and 5.3.6 apply) and also pays to 3DP a royalty in
         the amount of [* *] of the Net Sales by Company B for Indication N.

Action: Subsequently, Athersys agrees to co-promote with Company A the same
------
Athersys Product for Indication O in consideration for an up-front payment (Z
Dollars) and a share of the combined Athersys-Company A profits based on the
number of details provided by Athersys.

         Result: Athersys pays to 3DP [* *] of its share of Profits on the
         ------
         co-promotion of the Athersys Product for Indication O and also pays to
         3DP a royalty in the amount of [* *] of the Net Sales for Indication O,
         as provided in Section 5.3.1. In addition, Athersys pays to 3DP [* *]
         of Z (depending on which of 5.3.2, 5.3.3, 5.3.4, 5.3.5, and 5.3.6
         apply).

Illustrative Example 5/2/:
-------------------------

Action: 3DP licenses a 3DP Product to Company A worldwide for X dollars.
------

         Result: 3DP pays to Athersys [* *] of X (depending on which of 5.4.2,
         5.4.3, 5.4.4, 5.4.5, and 5.4.6 apply) and also pays to Athersys a
         royalty in the amount of [* *] of the Net Sales by Company A.

Action: 3DP subsequently licenses a 3DP Product line-extension (e.g., new
------
formulation) to Company A worldwide for Y dollars.

         Result: 3DP pays to Athersys [* *] of Y (depending on which of 5.4.2,
         5.4.3, 5.4.4, 5.4.5, and 5.4.6 apply) and also pays to Athersys a
         royalty in the amount of [* *] of the Net Sales by Company A of the 3DP
         Product line-extension.

Notes:
------

/1/      For purposes of illustrative examples 2 and 4, "Athersys Product," does
not include a Product developed against a formerly Joint Target. If the Athersys
Product used in the example was formerly developed against a Joint Target, then
Section 5.2 and Schedule 5.2 would apply.

/2/      For purposes of illustrative examples 3 and 5, "3DP Product," does not
include a Product developed against a formerly Joint Target. If the 3DP Product
used in the example was formerly developed against a Joint Target, then Section
5.2 and Schedule 5.2 would apply.

                                 SCHEDULE 5.3.7
               TO COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
<PAGE>

<TABLE>
<CAPTION>

                                 Schedule 16.10

                                  Press Release
                                  -------------


<S>                              <C>                                     <C>                            <C>
Athersys, Inc.                   3-Dimensional Pharmaceuticals           Media Inquiries                Investor Inquiries
--------------                   -----------------------------           ---------------                ------------------
Kathryn Garvey                   Scott Horvitz                           Noonan/Russo                   Rx Communications
Director of Strategic            VP, Finance and Administration          Glenn Silver                   Melody Carey
Planning & Investor Relations    267-757-7208                            212-696-4455, ext. 271         917-322-2571
216 431-9900 ext. 223            horvitz@3dp.com                         g.silver@noonanrusso.com       mcarey@rxir.com
ir@athersys.com                  ---------------                         ----------------------------------------------
---------------

</TABLE>

FOR IMMEDIATE RELEASE- DRAFT dated October 24


ATHERSYS AND 3-DIMENSIONAL PHARMACEUTICALS FORM
DRUG DISCOVERY AND DEVELOPMENT COLLABORATION
--------------------------------------------

Cleveland, Ohio and Yardley, Pa, October XX, 2001 - Athersys, Inc. and
3-Dimensional Pharmaceuticals Inc. (Nasdaq: DDDP) today announced a
collaboration to discover, develop and commercialize novel, small molecule
pharmaceuticals by screening against therapeutically relevant drug targets
derived from the G-Protein Coupled Receptor (GPCR) family of proteins. This
collaboration combines Athersys' functional genomics expertise with
3-Dimensional Pharmaceutical's (3DP) small molecule drug development
capabilities for rapid drug identification and optimization of drug candidates.

Under the terms of the agreement, the companies will jointly select a number of
biologically validated targets having commercial or therapeutic value to be
included in the collaboration. Certain small molecule drug candidates identified
from the collaboration will be jointly developed, with the companies sharing
future development costs and commercialization rights, while others will be
retained exclusively by each of the parties for future development and
commercialization.

Athersys will employ its proprietary RAGE (Random Activation of Gene
Expression(TM)) technology platform to provide the collaboration access to cell
lines that express the selected drug targets. Athersys will use the cell lines
to develop screens for drug discovery and screen compounds using 3DP's
DiscoverWorks(R) platform. 3DP will employ its DiscoverWorks(R) platform to
identify and optimize lead compounds active against the validated targets. 3DP's
technologies can be applied to virtually any disease target, and are used to
produce small molecule compounds suitable for drug development in a more timely
and cost-effective manner and with a higher probability of success than
conventional methods.

"This collaboration combines two powerful drug discovery and development
technologies, making it possible for Athersys and 3DP to rapidly discover and
develop small molecule compounds against the biologically validated GPCR targets
that Athersys and 3DP select for development," commented Gil
<PAGE>

Van Bokkelen, Ph.D., Chairman, President and Chief Executive Officer of
Athersys. "This marks another important milestone for Athersys as we continue to
expand our drug development capabilities by establishing strategic partnerships
with companies that have developed highly complementary technology platforms."

"We see this collaboration as a highly synergistic combination of strong biology
and chemistry capabilities that will quickly achieve positive results," said
David C. U'Prichard, Ph.D., Chief Executive Officer of 3DP. "Access to
proprietary, validated targets for drug discovery and development is a key
objective of 3DP and we are very pleased to enter into this collaboration with
Athersys."

3DP (http://www.3dp.com) is an integrated bio-pharmaceuticals company dedicated
to revolutionizing small molecule drug discovery and development. 3DP's
proprietary platform, DiscoverWorks(R), can be applied to virtually any
potential drug target. It produces drug candidates suitable for faster
development, with fewer resources and a higher probability of success than using
conventional drug discovery methods. 3DP is developing its own drug pipeline and
collaborates with other pharmaceutical companies in discovery and development.

Athersys is a functional genomics and biopharmaceutical company engaged in the
development, application and commercialization of novel gene expression tools
and therapeutic products. The company's research and development programs are
focused on its two proprietary platform technologies: RAGE (Random Activation of
Gene Expression(TM)) and SMC(TM) (Synthetic Microchromosome(TM)) vector system.
RAGE is a novel gene expression system that provides the unique ability to
produce protein from virtually every gene in the human genome, without requiring
the cloning of individual genes or use of cDNA libraries. RAGE greatly
accelerates the identification and validation of novel drug targets by enabling
the direct correlation of a disease process or characteristic with expression of
a specific protein. As a result, RAGE has powerful applications in functional
genomics; the generation of validated drug targets; discovery of novel antibody
drug targets; structural proteomics and rational drug design; and the production
of protein therapeutics. Athersys is developing novel therapeutic products based
on its proprietary technologies, through partnerships and internal research and
development programs. This press release and further information on Athersys,
Inc. can be found on the World Wide Web at: www.athersys.com.
                                            -----------------

# # #

For Athersys: Statements herein that are not descriptions of historical facts
are forward-looking and subject to risk and uncertainties. Actual results could
differ materially from those currently anticipated due to a number of factors,
including risks relating to the early stage of products under development;
uncertainties related to patent protection; uncertainties relating to clinical
trials; dependence on third parties, including strategic partners, collaborators
and key personnel; and risks relating to the development and commercialization,
if any, of Athersys' proposed products (such as effectiveness of our products,
marketing, manufacturing, safety, regulatory, patent or product liability,
supply, competition and other risks).

For 3DP: Statements in this press release that are not strictly historical are
"forward-looking" statements which involve a high degree of risk and
uncertainty. Such statements are only predictions, and the actual events of
results may differ materially from those projected in such forward-looking
statements. Factors that could cause or contribute to differences include, but
are not limited to, risks associated with our new and uncertain technologies,
clinical trials
<PAGE>

and product development, the long and arduous process of obtaining regulatory
approval, our dependence on existing strategic alliances and new collaborations,
our dependence on patents and proprietary rights, our ability to protect and
enforce our patents and proprietary rights, the development and availability of
competitive products or technologies, our ability to attract and retain talented
employees and our ability to manage our expansion as a company increasingly
focused on internal product research and development.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.47
<SEQUENCE>4
<FILENAME>dex1047.txt
<DESCRIPTION>DISCOVERWORKS DRUG DISCOVERY COLLABORATION AGREEMENT
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.47

                                  CONFIDENTIAL



NOTE: Certain portions of this Collaboration Agreement and its exhibits, which
are identified by the symbol "[* *]", have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential treatment
request.


                                DISCOVERWORKS(R)
                     DRUG DISCOVERY COLLABORATION AGREEMENT


THIS DISCOVERWORKS(R) DRUG DISCOVERY COLLABORATION AGREEMENT is made as of the
Effective Date by and between 3-Dimensional Pharmaceuticals, Inc., a Delaware
corporation having its principal place of business at Three Lower Makefield
Corporate Center, 1020 Stony Hill Road, Suite 300, Yardley, PA 19067, USA
("3DP"), and Janssen Pharmaceutica, N.V., having its place of business at
Turnhoutseweg 30, 2340 Beerse, Belgium and The R.W. Johnson Pharmaceutical
Research Institute, a division of Ortho-McNeil Pharmaceutical, Inc. having a
place of business at U.S. Route 202, Raritan, NJ 08869, USA (collectively, with
its Affiliates, referred to herein as "Janssen"). 3DP and Janssen may be
referred to herein as a "Party" or, collectively, as the "Parties." Reference to
a Party herein shall include its Affiliates (as hereinafter defined) unless
otherwise indicated.

WHEREAS, 3DP is engaged in discovery research for a variety of
biologically-active compounds and the development of technologies to facilitate
such research, and 3DP has developed and is patenting systems for identifying
and generating chemical compounds having desired pharmaceutical properties;

WHEREAS,  Janssen is engaged in research,  development and  commercialization of
biologically-active compounds for the treatment of human diseases; and

WHEREAS, 3DP and Janssen desire to enter into a research collaboration to allow
Janssen and 3DP to identify Prototype Compounds (as defined herein) active
against selected targets that may be developed and commercialized by Janssen.

NOW, THEREFORE, in consideration of the mutual promises and undertakings set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the Parties agree as follows:

                                    ARTICLE 1

                                   DEFINITIONS
<PAGE>

 The terms in this Agreement with initial letters capitalized, whether used in
the singular or the plural, shall have the meaning set forth below or, if not
listed below, the meaning designated in places throughout this Agreement.

         1.1      "Active Compound" means a compound(s) claimed by a Valid Claim
                  of a 3DP Patent, Joint Patent or Research Program Patent
                  Right.

         1.2      "Affiliate" means, with respect to either Party, any
                  corporation or other business entity, which controls, is
                  controlled by, or is under common control with such Party. A
                  corporation or other entity shall be regarded as in control of
                  another corporation or entity if it owns or directly or
                  indirectly controls at least fifty percent (50%) of the voting
                  stock or other ownership interest of the other corporation or
                  entity (or alternatively, such lesser percentage which is the
                  maximum allowed to be owned by a foreign corporation in a
                  particular jurisdiction), or if it possesses, directly or
                  indirectly, the power to direct or cause the direction of the
                  management and policies of the corporation or other entity or
                  the power to elect or appoint at least fifty percent (50%) of
                  the members of the governing body of the corporation or other
                  entity.

         1.3      "Agreement" means this DiscoverWorks(R) Drug Discovery
                  Collaboration Agreement, including its Schedules, as may be
                  amended from time to time.

         1.4      "Back-up Compound" means a compound selected from the Focused
                  Library which has activity against a Target, that is reserved
                  as a back-up for an Active Compound or Licensed Product having
                  activity against the same Target, and is not intended to be
                  developed or commercialized unless development and/or
                  commercialization of such Active Compound or Licensed Product
                  is terminated and such compound becomes a Replacement
                  Compound.

         1.5      "Combination Product" means a Licensed Product that includes
                  one or more active ingredients in addition to an Active
                  Compound.

         1.6      "Confidential Information" means all confidential and
                  proprietary technical and/or commercial information that has
                  or could have value or utility in a Party's business, or the
                  unauthorized disclosure of which could be detrimental to the
                  Party's interests, including information, inventions,
                  Know-how, data and materials relating to the Research Program
                  or to the Licensed Products, and shall include, without
                  limitation, research, technical, clinical development,
                  manufacturing, marketing, financial, personnel and other
                  business information and plans, whether in oral, written,
                  graphic or electronic form, except to the extent that it can
                  be established by the Receiving Party (as defined in Section
                  7.1) that such Confidential Information: (a) was already known
                  to the Receiving Party, other than under an obligation of
                  confidentiality from the Disclosing Party (as defined in
                  Section 7.1); (b) was generally available to the public or
                  otherwise part of the public domain at the time of its
                  disclosure to the Receiving Party; (c)



                                       2
<PAGE>

                  became generally available to the public or otherwise part of
                  the public domain after its disclosure and other than through
                  any act or omission of the Receiving Party in breach of this
                  Agreement; (d) was subsequently lawfully disclosed to the
                  Receiving Party by a Third Party; (e) can be shown by written
                  records to have been independently developed by or for the
                  Receiving Party without reference to the Confidential
                  Information received from the Disclosing Party and without
                  breach of any of the provisions of this Agreement; or (f) is
                  information that the Disclosing Party has specifically agreed
                  in writing that the Receiving Party may disclose.

         1.7      "Control" or "Controlled" means possession of the ability to
                  grant a license or sublicense of Patents, know-how or other
                  intangible rights as provided for herein without violating the
                  terms of any contract or other arrangements with any Third
                  Party.

         1.8      "DirectedDiversity(R)Technology" means the technology
                  described in: (a) the 3DP Patents identified in Schedule 1.8,
                                                                  ------------
                  and (b) associated proprietary 3DP know-how used to identify
                  Hits, Prototype Compounds, and Active Compounds.

         1.9      "DiscoverWorks(R) Technology" means 3DP's full panoply of drug
                  discovery and compound and library synthesis technologies,
                  including without limitation the technologies currently known
                  as DirectedDiversity(R) Technology, ThermoFluor(R) Technology,
                  3DP Synthetically Accessible Libraries and 3DP Probe
                  Libraries, notwithstanding that all such technologies and
                  resources may not be utilized under this Agreement.

         1.10     "Effective Date" means December 28, 2001.

         1.11     "Extended Research Term" means a period of time, mutually
                  agreed upon by the Parties, following conclusion of the Stage
                  A Term or Stage B Term or of an earlier Extended Research
                  Term, during which the Research Program is conducted. An
                  Extended Research Term may apply to either or both the Stage A
                  Term and the Stage B Term and is part of the Research Term.

         1.12     "Field" means the research, development and commercialization
                  of compounds for use in therapeutic, prophylactic and
                  diagnostic products in humans or animals. The Field shall
                  specifically exclude [*             *].

         1.13     "First Commercial Sale" means, with respect to a given
                  Licensed Product, the first shipment of Licensed Product for
                  use or consumption by the public of such Licensed Product in a
                  country after all required approvals, including marketing and
                  pricing approvals, have been granted by the applicable
                  governmental drug regulatory agency of such country.


                                       3
<PAGE>

         1.14     "Focused Library" means a library of compounds selected from
                  the 3DP Synthetically Accessible Library using
                  DirectedDiversity(R)Technology and synthesized by 3DP.

         1.15     "FTE" means a full time equivalent employee (i.e., one
                  full-time or multiple part-time employees aggregating to one
                  full-time employee) employed by 3DP and assigned to work on
                  the Research Program with such time and effort to constitute
                  one employee working on the Research Program on a full-time
                  basis consistent with normal business and scientific practice
                  (at least forty (40) hours per week of dedicated effort; on an
                  annual basis, at least forty (40) hours per week of dedicated
                  effort for at least forty-eight (48) weeks per year).

         1.16     "Generic Equivalent" means a pharmaceutical product that is
                  being sold in a country without infringing a claim of a Patent
                  Right covering a Licensed Product being sold hereunder by
                  Janssen, which would have infringed such claim of a Patent
                  Right, or which would have prevented a Third Party from
                  selling the same Active Compound that is part of the Licensed
                  Product, if such claim of a Patent Right were in force in that
                  country.

         1.17     "Hit" means a compound in the 3DP Probe Library having a
                  confirmed structure that (i) is identified from the screening
                  of a Target; (ii) modulates [*           *], as measured using
                  ThermoFluor(R) Technology, and (iii) passes the ThermoFluor(R)
                  validation tests set forth on Schedule 1.17.

         1.18     "IND" means an investigational new drug application filed with
                  the U.S. Food and Drug Administration or successor agency
                  ("FDA") as more fully defined in 21 C.F.R.ss.312.3, a CTX, or
                  their respective equivalents in any country.

         1.19     "Initiation of Prototype Compound Optimization" means the
                  receipt of written notice from Janssen to 3DP indicating that
                  Prototype Compound Optimization activities have been initiated
                  by Janssen for a Prototype Compound. Such notice shall, among
                  other things, specifically identify the Prototype Compound and
                  its Target, the project champion, and the site at which work
                  is being conducted.

         1.20     "Janssen Know-how" means any and all technical information,
                  inventions, developments, discoveries, software, know-how,
                  methods, techniques, formulae, data, processes and other
                  proprietary ideas, whether or not patentable or copyrightable,
                  that are first conceived, discovered, developed or reduced to
                  practice in the conduct of Prototype Compound Optimization or
                  the Janssen Research Program.

         1.21     "Janssen Patent" means those Patent Rights that claim
                  discoveries or inventions that (i) were conceived and/or
                  reduced to practice solely by Janssen employees or by a Third
                  Party acting under authority of Janssen prior to the Effective
                  Date; or (ii) were conceived and/or reduced to practice solely
                  by Janssen employees or by


                                       4
<PAGE>

                  a Third Party acting under authority of Janssen during the
                  Term but after the completion of the Research Program and the
                  [*              *] period following the Initiation of
                  Prototype Compound Optimization for each Prototype Compound,
                  on a compound-by-compound basis; and (iii) claiming a method,
                  apparatus, composition of matter, material, manufacture or
                  business method relating to Hits, Prototype Compounds, Active
                  Compound or Licensed Products.

         1.22     "Janssen Research Program" means activities of Janssen during
                  the Term that are intended to lead to the discovery of
                  compounds having activity against a Target, and the further
                  optimization, identification and/or discovery of such
                  compounds, excluding any activities of Janssen which occur
                  prior to the Effective Date or after the [* *] period
                  following the Initiation of Prototype Compound Optimization
                  for each Prototype Compound, on a compound-by-compound basis.

         1.23     "Joint Patent" means those Patent Rights that claim
                  discoveries or inventions that (i) were conceived and/or
                  reduced to practice jointly by Janssen and 3DP employees or by
                  a Third Party acting under authority of Janssen or 3DP during
                  the Term but after completion of the Research Program and the
                  [* *] period following the Initiation of Prototype Compound
                  Optimization for each Prototype Compound, on a
                  compound-by-compound basis; and (ii) claiming a method,
                  apparatus, composition of matter, material, manufacture or
                  business method relating to Hits, Prototype Compounds, Active
                  Compound or Licensed Products.

         1.24     "Joint Steering and Management Committee" or "JSMC" shall have
                  the meaning and roles ascribed to it in Article 4.

         1.25     "Know-how" means unpatented technical and other information,
                  including information comprising or relating to concepts,
                  discoveries, inventions, data, designs, formulae, ideas,
                  methods, models, assays, research plans, procedures, designs
                  for experiments and tests and results of experimentation and
                  testing (including results of research or development)
                  processes (including manufacturing processes, specifications
                  and techniques), laboratory records, chemical,
                  pharmacological, toxicological, clinical, analytical and
                  quality control data, trial data, case report forms, data
                  analyses, reports or summaries and information contained in
                  submissions to, and information from, ethical committees and
                  regulatory authorities.

         1.26     "Licensed Product" means a pharmaceutical product containing
                  an Active Compound, a Prototype Compound, a Replacement
                  Compound or a Back-Up Compound as an active ingredient.


                                       5
<PAGE>

         1.27     "Major Country" means the United States, Japan, the United
                  Kingdom, France, Germany, or Italy.

         1.28     "NDA" means a new drug application filed pursuant to 21 U.S.C.
                  Section 505(b)(1) including all documents, data and other
                  information concerning a Licensed Product which are necessary
                  for or included in, FDA approval to market a Licensed Product
                  and all supplements and amendments, including supplemental new
                  drug applications, that may be filed with respect to the
                  foregoing as more fully defined in 21 C.F.R. ss.314.50 et.
                  seq.

         1.29     "Net Sales" means the gross amounts invoiced by Janssen, its
                  Affiliates or sublicensees for sales of Licensed Product in
                  finished package form (ready for use by the ultimate consumer)
                  in the Territory to a Third Party, including, but not limited
                  to, sales to wholesalers or other customers typical in each
                  country in bona fide, arm's length transactions. In the event
                  Janssen does not sell directly to such customers in one or
                  more countries, electing instead to utilize another party as a
                  distributor to those customers, it is understood that Net
                  Sales shall include sales by the distributor rather than
                  Janssen's sales to the distributor. In determining Net Sales,
                  certain deductions may be taken against the gross amount
                  invoiced. These allowable deductions are:

                  1.29.1   (i) discounts, including cash discounts, discounts to
                           managed care or similar organizations or government
                           organizations, administrative fees paid to pharmacy
                           benefits managers; (ii) rebates paid or credited,
                           including government rebates such as Medicaid
                           chargebacks or rebates; (iii) retroactive price
                           reductions or allowances actually allowed or granted
                           from the billed amount; and (iv) commercially
                           reasonably promotional allowances actually granted to
                           customers as reflected on the same invoice as for the
                           sale of Licensed Product;

                  1.29.2   credits or allowances actually granted upon claims,
                           rejections or returns of such sales of Licensed
                           Products, including government mandated recalls and
                           recalls that Janssen reasonably believes are in the
                           best interest of the consumer, it being understood
                           that if the recalled Licensed Product is resupplied,
                           Net Sales shall be calculated based on the resupplied
                           quantities at the price previously charged, provided
                           that the cause of the recall was not due to the
                           negligence of Janssen;

                  1.29.3   taxes, duties or other governmental charges levied on
                           or measured by the billing amount when included in
                           billing, as adjusted for rebates, charge-backs and
                           refunds; and

                  1.29.4   freight, postage, shipping and insurance charges to
                           the extent included on the same invoice by Janssen or
                           its Affiliates or sublicensee for delivery of such
                           Licensed Products.


                                       6
<PAGE>

                  In the case of discounts on packages of products or services
                  which include Licensed Product in those countries of the
                  Territory in which such is legally permissible ("Packages"),
                  the discount applied to Licensed Product within the Package
                  shall be no greater than the discount determined by
                  discounting the list price of the Licensed Product in the
                  Package by the average percentage discount of list prices of
                  all products of Janssen in the same Package, calculated as
                  follows:

                        Average percentage              (     A  )
                            Discount on a        =      ( 1- --- )  x  100
                         Particular Package             (     B  )

                  where A equals the total discounted value of a particular
                  Package of products, and B equals the sum of the undiscounted
                  value of the same Package of products. Janssen shall provide
                  3DP with reasonable documentation supporting the percentage
                  discounts with respect to each product within such Package.

                  A "sale" of a Licensed Product is deemed to occur upon the
                  invoicing, or if no invoice is issued, upon the earlier of
                  shipment or transfer of title in the Licensed Product to a
                  Third Party.

                  With respect to Combination Products, Net Sales for such
                  Combination Product sold by Janssen shall be determined by the
                  Parties to this Agreement in good faith based on the relative
                  value of the Active Compound and the additional active
                  ingredients that are included in the Combination Product.

         1.30     "Patent Rights" means all U. S. patent applications or issued
                  patents, including, but not limited to, provisionals,
                  divisionals, continuations, continuations-in-part, reissues,
                  reexaminations and extensions derived therefrom, such as
                  patent term restorations, supplementary protection
                  certificates, etc., as well as all foreign patents (including
                  PCTs) and foreign patent counterparts to the foregoing.

         1.31     "Prototype Compound" means a compound discovered using
                  information obtained from a Hit in the course of Prototype
                  Compound Generation, as described in Section 2.2, having a
                  dissociation constant [* *] as determined in a dose response
                  experiment and which demonstrates a desired activity against a
                  Target in a molecular or cellular functional assay. Prototype
                  Compounds will have pharmaceutically acceptable properties as
                  determined by the JSMC prior to initiation of Prototype
                  Compound Generation and [* *]. Prototype Compounds will be
                  identified as Prototype Compounds by the JSMC within [* *] of
                  delivery of data [* *]. For purposes of clarity, the Janssen
                  may, at its discretion, select a compound as a Prototype
                  Compound even if such compound does not meet the criteria set
                  forth above.


                                       7
<PAGE>

         1.32     "Prototype Compound Generation" means a program for
                  discovering Prototype Compounds using information obtained
                  from Hits, and iterative rounds of chemistry and the 3DP
                  Synthetically Accessible Library to make Focused Libraries for
                  rescreening using ThermoFluor(R) Technology against such
                  Target as more fully described in Section 2.2.

         1.33     "Prototype Compound Optimization" means a program conducted by
                  Janssen for further optimizing, identifying and/or developing
                  a Prototype Compound or a compound discovered in the course of
                  the Janssen Research Program, to improve the
                  structure-activity relationships, potency, selectivity,
                  pharmacokinetics, pharmacodynamics and acute safety of such
                  Prototype Compound or such compound discovered in the course
                  of the Janssen Research Program, to identify an Active
                  Compound.

         1.34     "Replacement Compound" shall have the meaning attributed
                  thereto in Section 5.8.

         1.35     "Replacement Target" shall have the meaning attributed thereto
                  in Section 2.3.

         1.36     "Research Plan" means the description of the research
                  activities of the Parties for particular Targets in the
                  performance of the Research Program, including an allocation
                  of FTEs to be used for various tasks and a timeline for such
                  tasks. A draft of the Research Plan is attached hereto as
                  Schedule 1.36.
                  -------------

         1.37     "Research Program" means research activities of the Parties
                  during the Research Term, as described in Article 2, that are
                  intended to lead to the discovery of Hits and Prototype
                  Compounds, excluding Prototype Compound Optimization.

         1.38     "Research Program Know-how" means Know-how conceived or
                  developed during the conduct of the Research Program.

         1.39     "Research Program Patent Rights" means those Patent Rights
                  that claim discoveries or inventions that were conceived
                  and/or reduced to practice by Janssen or 3DP or jointly by
                  Janssen and 3DP or by a Third Party acting under authority of
                  Janssen or 3DP in the course of the Research Program or a
                  Janssen Research Program and during the [*    *]  period
                  following the Initiation of Prototype Compound Optimization
                  for each Prototype Compound on a compound-by-compound basis
                  and relating to the Research Program or Janssen Research
                  Program.

         1.40     "Research Term" shall have the meaning attributed thereto in
                  Section 10.1.

         1.41     "Stage A" means the research activities undertaken by the
                  Parties pursuant to Article 2 as part of the Research Program
                  with respect to the first and second Targets to be provided by
                  Janssen to 3DP.


                                       8
<PAGE>

         1.42     "Stage A Commencement Date" means the Effective Date.

         1.43     "Stage A Term" means the period beginning on the Stage A
                  Commencement Date through the first anniversary thereof,
                  during which Stage A of the Research Program is conducted.

         1.44     "Stage B" means the research activities undertaken by the
                  Parties pursuant to Article 2 as part of the Research Program
                  with respect to the third and fourth Targets to be provided by
                  Janssen to 3DP.

         1.45     "Stage B Commencement Date" means the date on which Janssen
                  provides written notice of the third and fourth Targets to
                  3DP.

         1.46     "Stage B Term" means the period beginning on the Stage B
                  Commencement Date through the first anniversary thereof,
                  during which Stage B of the Research Program is conducted.

         1.47     "Target" means a protein against which Hits are identified and
                  Prototype Compounds are to be optimized in the Research
                  Program. Targets, as defined herein, shall also include
                  Replacement Targets once such targets become Targets pursuant
                  to Section 2.3.

         1.48     "Term" shall have the meaning ascribed thereto in Section
                  10.2.

         1.49     "Territory" means the entire world.

         1.50     "ThermoFluor(R) Technology" means the technology described in:
                  (a) the 3DP Patents identified in Schedule 1.50, and (b)
                                                    -------------
                  associated proprietary 3DP Know-how used to evaluate ligand
                  binding parameters of Hits, Prototype Compounds, and Active
                  Compounds.

         1.51     "Third Party" means an individual, corporation or other entity
                  other than a Party or any of its Affiliates.

         1.52     "3DP Patent" means those Patent Rights that claim discoveries
                  or inventions that (i) were conceived and/or reduced to
                  practice solely by 3DP employees or by a Third Party acting
                  under authority of 3DP prior to the Effective Date; or (ii)
                  were conceived and/or reduced to practice solely by 3DP
                  employees or by a Third Party acting under authority of 3DP
                  during the Term, but after completion of the Research Program
                  and the [* *] period following the Initiation of Prototype
                  Compound Optimization for each Prototype Compound, on a
                  compound-by-compound basis; and (iii) claiming a method,
                  apparatus, composition of matter, material, manufacture or
                  business method relating to Hits, Prototype Compounds, Active
                  Compound or Licensed Products.


                                       9
<PAGE>

         1.53     "3DP Probe Library" means the sample compound library or any
                  subset thereof, comprised of proprietary and non-proprietary
                  compounds which are owned or Controlled by 3DP or to the
                  extent not encumbered by a bona fide third party interest,
                  that have been synthesized for the purposes of fulfilling
                  3DP's obligations under this Agreement, which is used for the
                  screening of Targets using ThermoFluor(R) Technology for the
                  purpose of identification of Hits, Prototype Compounds, or
                  Active Compounds. While the individual non-proprietary
                  compounds in the 3DP Probe Library are not proprietary, the
                  collection itself, and the list, as a whole, of
                  non-proprietary compounds included in the collection, are the
                  "Confidential Information" of 3DP.

         1.54     "3DP Synthetically Accessible Library" means 3DP's virtual
                  compound library as it exists from time to time from which 3DP
                  Probe Libraries have been selected, and from which Focused
                  Libraries will be selected.

         1.55     "Valid Claim" means (a) a claim of an issued and unexpired
                  patent included within the Patent Rights, 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 which has not been admitted to be
                  invalid or unenforceable through reissue or disclaimer or
                  otherwise, or (b) a claim of a pending patent application
                  included within the Patent Rights, which claim was filed in
                  good faith and has not been abandoned or finally disallowed
                  without the possibility of appeal or refiling of such
                  application; provided, however, if a claim of a pending
                  application included within the Patent Rights has not issued
                  within six (6) years after the filing date from which such
                  claim takes priority, such claim of a pending application
                  shall no longer be a Valid Claim for purposes of this
                  definition until such patent application issues.

                                    ARTICLE 2

                                RESEARCH PROGRAM

         2.1      Supply of Targets. Janssen shall supply 3DP with four (4)
                  Targets, the first and second of which are identified in
                  Schedule 2.1 attached hereto, in quantities and of quality
                  ------------
                  sufficient to perform the Research Program pursuant to the
                  Research Plan. The third and fourth Targets shall be provided
                  to 3DP by Janssen no later than [* *], or as otherwise agreed
                  by the Parties. All such Targets shall be supplied to 3DP in
                  the form of proteins.

         2.2      Prototype Compound Generation. Depending on the nature and
                  source of each Target, 3DP will have the following
                  obligations. 3DP shall initially screen the Target against a
                  screening library, selected by 3DP from the 3DP Probe Library
                  and totaling approximately one hundred thousand (100,000)
                  compounds per Target. If such initial screening produces no
                  Hits, the JSMC may ask 3DP to


                                       10
<PAGE>

                  perform a secondary screen of a reasonable number of
                  additional compounds from the 3DP Probe Library and 3DP will
                  undertake such secondary screen. If the initial screening or
                  the secondary screening produces Hits, 3DP will undertake
                  rounds of iterative chemistry. Each round will include the
                  synthesis of Focused Libraries containing up to [* *] but not
                  less than [* *] compounds (unless such compounds are subject
                  to the limitations set forth in Schedule 2.2 or such other
                                                  ------------
                  maximum and minimum compound numbers as the Parties may agree
                  upon) per round. 3DP shall continue to perform iterative
                  rounds of chemistry until the first to occur of the following:

                  2.2.1    a Prototype Compound is identified in accordance with
                           Section 1.28; or

                  2.2.2    a maximum of [* *] total rounds of iterative
                           chemistry are performed to generate Focused Libraries
                           from the 3DP Synthetically Accessible Library; or

                  2.2.3    a maximum of [* *] compounds contained in Focused
                           Libraries are synthesized and screened using
                           DiscoverWorks(R) Technology from the 3DP
                           Synthetically Accessible Library.

         2.3      Replacement Targets.

                  2.3.1    If neither initial screening nor the secondary
                           screening of the compounds from the 3DP Probe Library
                           produces any Hits against that Target, then Janssen
                           may identify, subject to approval by 3DP and the
                           JSMC, a replacement Target ("Replacement Target")
                           against which 3DP will conduct Prototype Compound
                           Generation pursuant to Section 2.2 for the remainder
                           of the applicable Stage A Term or Stage B Term.

                  2.3.2    If Prototype Compound Generation of such Replacement
                           Target is incomplete at the end of the applicable
                           Stage A Term or Stage B Term, then at Janssen's
                           request, 3DP will continue and complete the Prototype
                           Compound Generation pursuant to Section 2.2 for such
                           Replacement Target at the same FTE rate of
                           compensation paid to 3DP as recited in Section 5.2.

                  2.3.3    Janssen may select a total of up to [* *] Replacement
                           Targets pursuant to the provisions of this Section
                           2.3.

                  2.3.4    Any Replacement Targets identified by Janssen may be
                           disapproved by 3DP only (i) in order to avoid
                           potential conflicts with respect to prior contractual
                           obligations and current internal 3DP programs, (ii)
                           for lack of suitability with ThermoFluor(R)
                           Technology, (iii) because 3DP reasonably believes
                           that use of such Replacement Target would infringe a
                           valid and enforceable third party patent, or (iv)
                           because the Target is for the primary


                                       11
<PAGE>

                           purpose of identifying drugs specifically intended
                           for [*     *].

         2.4      Prototype Compounds. Upon identification of a Prototype
                  Compound in accordance with Section 1.28, (a) the Prototype
                  Compound, along with all Back-Up Compounds shall be licensed
                  to Janssen for Prototype Compound Optimization and further
                  development and commercialization as provided in Section 6.4
                  herein and (b) 3DP shall provide Janssen with the structure
                  and protocol for synthesis of such Prototype Compound within
                  [* *] of the JSMC identifying it as a Prototype Compound.
                  Janssen shall promptly inform 3DP upon Initiation of Prototype
                  Compound Optimization.

         2.5      Back-up Compounds. On a Target-by-Target basis, upon
                  identification of a Prototype Compound, all the Compounds in
                  the Focused Libraries having activity against such Target
                  equivalent or better than the activity needed to be considered
                  a Hit against that Target shall constitute Back-Up Compounds.
                  On the first anniversary of initiation of Prototype Compound
                  Optimization for a Prototype Compound that has activity
                  against a Target, Janssen shall identify a total of up to
                  [* *] compounds from the Focused Libraries having activity
                  against the same Target to be designated as Back-up Compounds.
                  On the second anniversary of initiation of Prototype Compound
                  Optimization for such Prototype Compound, Janssen shall
                  identify a total of up to [* *] compounds from the [* *]
                  compounds previously identified and having activity against
                  the same Target to be designated Back-up Compounds. If a
                  Back-up Compound is selected for development as a Replacement
                  Compound, the [* *] period following the initiation of
                  Prototype Compound Optimization for each Prototype Compound on
                  a compound-by-compound basis during which Janssen Know-how
                  shall be disclosed by Janssen to 3DP for 3DP to prepare, file,
                  prosecute and maintain Research Program Patent Rights pursuant
                  to Article 8, will be deemed to have restarted on the date of
                  notification of such selection.

         2.6      No Grant of License to DiscoverWorks(R) Technology.
                  Notwithstanding any provision to the contrary in this
                  Agreement, no license to any portion of the DiscoverWorks(R)
                  Technology, including any related Know-how, is hereby granted
                  by 3DP to Janssen under this Agreement or otherwise.

                                   ARTICLE 3

                        RESEARCH AND DEVELOPMENT EFFORTS

         3.1      Research Efforts. Each Party shall use commercially reasonable
                  efforts to perform its responsibilities and fulfill its
                  obligations under this Agreement. As used herein, the term
                  "commercially reasonable efforts" will mean efforts


                                       12
<PAGE>

                  consistent with such Party's normal scientific and business
                  practice, as applied to other programs of similar scientific
                  and commercial potential.

         3.2      Allocation of FTEs. 3DP shall dedicate, and Janssen shall
                  fund, [* *] FTEs to Stage A of the Research Program for the
                  Stage A Term and [* *] FTEs to Stage B of the Research Program
                  for the Stage B Term, unless otherwise agreed by the Parties
                  in writing.

         3.3      Disclosure of Research Program Results. The JSMC will provide
                  quarterly written reports to the Parties presenting a
                  meaningful summary of the work performed on the Research
                  Program and Prototype Compound Optimization. In addition, on
                  reasonable request by Janssen or 3DP, 3DP or Janssen will make
                  presentations to the JSMC of its activities under this
                  Agreement to inform the JSMC of the details of the work done
                  under this Agreement during the Research Term and the [* *]
                  period following the Initiation of Prototype Compound
                  Optimization for each Prototype Compound, on a
                  compound-by-compound basis. Know-how and other information
                  regarding the Research Program or Prototype Compound
                  Optimization disclosed by one Party to the other Party
                  pursuant hereto may be used only in accordance with the rights
                  granted under this Agreement. Within thirty (30) days
                  following the end of each calendar quarter, the Parties shall
                  each exchange and provide to the JSMC chairperson and
                  secretary a written report summarizing in reasonable detail
                  the work performed by it under the Research Program or
                  Prototype Compound Optimization during the preceding calendar
                  quarter.

         3.4      Prototype Compound Optimization Continuing Report
                  Responsibility. For each compound identified as a Prototype
                  Compound or Active Compound, Janssen shall, until the issuance
                  of the last Research Program Patent Right, provide a report of
                  its activities, and/or those of its Affiliates and
                  sublicensees, toward the development, use and/or
                  commercialization of such Prototype Compound or Active
                  Compound. Such report relating to Prototype Compound
                  Optimization shall be submitted to 3DP semi-annually and shall
                  set forth in reasonable detail, with supporting data, the
                  results of work performed on such compound, including, without
                  limitation, all material information and data generated during
                  such period not previously provided to 3DP pursuant to Section
                  8.3, reasonably necessary to enable 3DP to prepare, file,
                  prosecute and maintain Research Program Patent Rights. If no
                  results of work performed on such compound have been obtained
                  by Janssen during the six-month period after the preceding
                  semi-annual report, Janssen will so inform 3DP. In no event
                  shall Janssen provide such a report relating to Prototype
                  Compound Optimization less frequently than semi-annually.
                  After achievement of the milestone in Section 5.7.2 for an
                  Active Compound, Janssen will thereafter provide to 3DP
                  reports relating to such Active Compound annually. Janssen
                  will provide timely notice, in good faith, of its decision to
                  discontinue its and/or its Affiliates' and


                                       13
<PAGE>

                  sublicensees' activities toward the development, use and/or
                  commercialization of a Prototype Compound, Active Compound
                  and/or Licensed Product.

         3.5      Material Transfer. In order to facilitate the Research
                  Program, either Party (a "Supplying Party") may provide to the
                  other Party (a "Receiving Party") certain information
                  (including chemical structures), biological materials or
                  chemical compounds, including without limitation any compounds
                  from the 3DP Synthetically Accessible Library, 3DP Probe
                  Library or Focused Library (collectively, the "Substances")
                  owned by or licensed to the Supplying Party (other than under
                  this Agreement) and available for use by either Party in
                  furtherance of the Research Program. Except as otherwise
                  provided under this Agreement, all information or Substances
                  delivered to the Receiving Party shall remain the sole
                  property of the Supplying Party, shall be used only in
                  furtherance of the Research Program and shall be solely under
                  the control of the Receiving Party, shall not be used or
                  delivered to or for the benefit of any Third Party without the
                  prior written consent of the Supplying Party, and shall not be
                  used in research or testing involving human subjects except
                  pursuant to an approved Janssen clinical trial. Because not
                  all of their characteristics may be known, the Substances
                  supplied under this Section 3.6 must be used with prudence and
                  appropriate caution in any experimental work. THE SUBSTANCES
                  ARE PROVIDED "AS IS" AND WITHOUT ANY REPRESENTATION OR
                  WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY
                  IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY
                  PARTICULAR PURPOSE OR ANY WARRANTY THAT THE USE OF THE
                  SUBSTANCES WILL NOT INFRINGE OR VIOLATE ANY PATENT OR OTHER
                  PROPRIETARY RIGHTS OF ANY THIRD PARTY.

         3.6      Insurance. Each party shall maintain appropriate insurance
                  with respect to its activities hereunder, in amounts customary
                  in the pharmaceutical and biotechnology industries.

         3.7      Liability. Each Party shall be responsible for, and hereby
                  assumes, any and all risks of personal injury or property
                  damage attributable to the gross negligent or willful acts or
                  omissions, during the term of the Research Program, of that
                  Party or its Affiliates, and their respective directors,
                  officers, employees and agents.

                                   ARTICLE 4

                           RESEARCH PROGRAM GOVERNANCE

         4.1      Joint Steering and Management Committee. 3DP and Janssen agree
                  to establish a Joint Steering and Management Committee (the
                  "JSMC"), and shall each designate three members selected by
                  their respective R&D management to form the JSMC. The
                  chairperson of the JSMC shall be selected by Janssen. 3DP

                                       14
<PAGE>

                  shall select the secretary to the JSMC. Each Party may replace
                  its representatives at any time, upon notice to the other
                  Party. Any member of the JSMC may designate a substitute to
                  attend and perform the functions of that member at any meeting
                  of the JSMC. The JSMC shall review the Research Plan for the
                  Stage A Term within 30 days after the Effective Date.
                  Thereafter, the Research Plan shall be updated by the JSMC in
                  writing as changes are made to the Research Program on at
                  least an annual basis.

         4.2      Responsibilities of the JSMC. The JSMC shall be responsible
                  for:

                  4.2.1    Adopting, reviewing and amending the Research Plan to
                           implement the Research Program;

                  4.2.2    Overseeing the progress of research in the Research
                           Program;

                  4.2.3    Monitoring Prototype Compound Optimization and the
                           Janssen Research Program and providing a forum for
                           meetings and updates relating to Prototype Compound
                           Optimization and the Janssen Research Program until
                           the issuance of the last Research Program Patent
                           Right;

                  4.2.4    Allocation of funded FTEs across the Targets, and
                           within each Target;

                  4.2.5    Reviewing results from the screening of the 3DP Probe
                           Library and Focused Libraries in connection with
                           selecting the additional compounds from the 3DP Probe
                           Library to be screened by 3DP or synthesized by 3DP,
                           and the identification of Hits and Prototype
                           Compounds;

                  4.2.6    Defining quality criteria for identification of Hits
                           and Prototype Compounds pursuant to Sections 1.29 and
                           1.16; such criteria to be defined within sixty (60)
                           days after the Effective Date; and

                  4.2.7    Reviewing and approving publications and other public
                           disclosures related to the subject matter of the
                           Research Program.

         4.3      JSMC Meetings. During the Research Term, the JSMC shall meet
                  in person or by teleconference on a calendar quarter basis
                  (provided that at least one meeting per year shall be in
                  person) or more frequently as necessary and as may be agreed
                  upon, with each Party bearing all travel and related costs for
                  its representatives. After the end of the Research Term, but
                  during the [* *] period following the initiation of Prototype
                  Compound Optimization for each Prototype Compound, on a
                  compound-by-compound basis, the JSMC shall meet in person or
                  by teleconference at least semi-annually. Thereafter, the JSMC
                  shall meet on an ad hoc basis as needed to perform the
                  responsibilities designated to the JSMC. In addition to
                  periodic meetings, the members of the JSMC shall communicate
                  regularly by telephone, electronic mail, facsimile, or other
                  method, as deemed necessary or appropriate.


                                       15
<PAGE>

         4.4      JSMC Decision-Making Process. Each Party shall have one vote
                  on all matters decided by the JSMC, and decisions by the JSMC
                  shall be made by unanimous vote of the parties. The Parties
                  shall attempt to resolve any disagreement between the Parties
                  within the JSMC using the objectives and principles of this
                  Agreement as the basis for settling such disputes. Any
                  disagreement that cannot be resolved by a vote of the JSMC
                  shall be subject to the procedures set forth in Article 13.

         4.5      Minutes of JSMC Meetings. Within two (2) weeks after each JSMC
                  meeting, the secretary of the JSMC 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 JSMC. The JSMC 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 JSMC 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 of the JSMC. Final minutes
                  shall be distributed to the members of the JSMC.

         4.6      Management of Matters Outside the Jurisdiction of the JSMC.
                  Matters outside the scope of the Research Program and internal
                  to each Party are not under the purview of the JSMC. Such
                  matters include, but are not limited to the following:
                  internal personnel policies and programs; budgeting, finance,
                  commercial and marketing strategies; Prototype Compound
                  Optimization; and development and commercialization decisions.
                  However, the Parties may, at their sole discretion,
                  communicate with each other on those matters which, while
                  outside the scope of the Research Program, influence the
                  conduct or term of the Research Program or the development or
                  commercialization of any Hit, Prototype Compound, or Active
                  Compound.

                                   ARTICLE 5

                                 FINANCIAL TERMS

         5.1      Technology Access Fee. Janssen agrees to pay a nonrefundable
                  technology access fee of [* *] within thirty (30) days after
                  the Effective Date.

         5.2      FTE Reimbursement Fees.

                  5.2.1    Janssen agrees to pay 3DP for [* *] Stage A FTEs at a
                           rate of [* *] per FTE per year. Such funding shall be
                           payable by Janssen to 3DP in a single nonrefundable
                           payment of [* *] by same day wire transfer and shall
                           be paid concurrently with the Technology Access Fee.


                                       16
<PAGE>

                  5.2.2    Janssen agrees to pay 3DP for [* *] Stage B FTEs [*
                           *] per FTE per year. Such funding shall be payable by
                           Janssen to 3DP in a single nonrefundable payment of
                           [* *] by same day wire transfer and shall be paid
                           concurrently with the Technology Access Fee.

         5.3      Costs. Except as otherwise provided in this Agreement, or as
                  may be agreed from time to time by the Parties in writing, 3DP
                  and Janssen will each bear all of its own expenses incurred in
                  connection with the Research Program including but not limited
                  to any capital expenses for equipment to carry out the
                  Research Program.

         5.4      Extended Term Fees. The level of reimbursement for FTEs in any
                  Extended Research Term shall be negotiated in good faith by
                  the Parties.

         5.5      Research Audit. 3DP shall maintain complete and accurate
                  records tracking the number of FTEs carrying out the Research
                  Program. During the Research Term and for one year thereafter,
                  upon Janssen's reasonable request, 3DP shall make such records
                  available no more than twice a year during normal business
                  hours for examination at Janssen 's expense for the sole
                  purpose of verifying for Janssen whether or not 3DP is using
                  the average required number of FTEs to carry out the Research
                  Program as specified in the Research Plan. Should it be
                  determined that 3DP has used fewer than the required FTEs
                  during any period of the Research Term, Janssen shall receive
                  a credit for the lost FTE time against any future payments
                  owed to 3DP (or if the Parties mutually agree, the lost FTE
                  time will be made up in subsequent quarters); or if no future
                  payments will be owed by Janssen to 3DP, a payment shall be
                  made by 3DP to Janssen for the lost FTE time.

         5.6      Fees for Early Termination of the Research Program. If Janssen
                  terminates the Research Program without cause, pursuant to the
                  provisions of Section 10.3, prior to the end of the Research
                  Term, Janssen agrees to pay to 3DP a termination fee equal to
                  [* *].

         5.7      Milestone Payments. The following milestones shall become due
                  and payable by Janssen to 3DP within sixty (60) days after
                  accomplishment of the following milestones:

                  5.7.1    Upon the identification by the JSMC of the first
                           Prototype Compound for each Target: [* *];

                  5.7.2    Upon submission of an IND and expiration of the
                           thirty (30) day waiting period without disapproval by
                           the FDA or its foreign counterpart for each Active
                           Compound: [* *]; and


                                       17
<PAGE>

                  5.7.3    Upon filing and acceptance by the FDA of an NDA for
                           each Active Compound: [* *].

         5.8      Milestone Payment Credit. In the event that any milestone
                  payment is made pursuant to Section 5.7 with respect to a
                  Prototype Compound or Active Compound selected for development
                  (an "Original Compound"), where, after the payment of any such
                  milestones, such development terminates and, at any time after
                  such termination, a Back-up Compound is selected for
                  development (a "Replacement Compound"), then Janssen shall be
                  entitled to a credit against milestone payments due with
                  respect to the Replacement Compound, in the amount equal to
                  all milestone payments actually paid with respect to the
                  Original Compound prior to termination of development of such
                  Original Compound.

         5.9      Milestone Press Release. Within ten (10) days of the
                  achievement of the milestone(s) set forth in Section 5.7, 3DP
                  shall, at its discretion and subject to Janssen's prior
                  written approval (such approval not to be unreasonably
                  withheld or delayed) issue a press release announcing, by way
                  of example, the achievement of a milestone, the identification
                  of a Prototype Compound (excluding any structural
                  information), and such other information as mutually agreed by
                  the Parties.

         5.10     Royalty Rate. Janssen shall pay 3DP a royalty of [* *] on
                  annual Net Sales.

         5.11     Royalty Rate Reduction.

                  5.11.1   Generic Equivalent. If, in any quarterly royalty
                           reporting period, (i) a third Party commences selling
                           a product which is a Generic Equivalent of the
                           Licensed Product in a country in the Territory and
                           (ii) such Unlicensed Unit Sales (as defined below)
                           amount to the following percentages of Janssen's Unit
                           Sales of the Licensed Product in such country in the
                           same royalty reporting period, the royalty rate on
                           Net Sales shall be reduced in such country in
                           accordance with the percentages below and such lower
                           royalty rate shall then apply on the Net Sales in
                           such country as long as the Unlicensed Unit Sales
                           amount to the particular percentage of Janssen's Unit
                           Sales of the Licensed Product in such country in the
                           same royalty reporting period.

                           Unlicensed Unit Sales         Royalty Rate Reduction*

                           (as a % of Janssen Unit Sales)   (% of Royalty Rate)
                           ------------------------------    -------------------

                           [*                   *]           [*               *]

                           [*                   *]           [*               *]


                                       18
<PAGE>

                           [*                   *]           [*               *]

                           * A royalty rate reduction will, however, only be
                           applicable if Janssen also experiences a decrease in
                           Net Sales of the applicable Licensed Product in that
                           country from the Net Sales of the applicable Licensed
                           Product in the same royalty reporting period in the
                           previous calendar year in the same country.

                           For purposes of this Section 5.11.1, (i) "Unlicensed
                           Unit Sales" and "Janssen Unit Sales" shall be deemed
                           to mean the total grams of the Active Compound
                           contained in the Third Party product (irrespective of
                           dosage form) and the Licensed Product (irrespective
                           of dosage form), respectively, as reflected on the
                           label of each such Licensed Product and Third Party
                           product; and (ii) Unlicensed Unit Sales shall be
                           determined by the sales reports of IMS America Ltd.
                           of Plymouth Meeting, Pennsylvania ("IMS") or any
                           successor to IMS or any other independent sales
                           auditing firm selected by Janssen and reasonably
                           acceptable to 3DP. Janssen shall bear all costs of
                           providing 3DP with such information. If Janssen is
                           entitled to a royalty reduction based on Unlicensed
                           Unit Sales pursuant to this Section 5.11.1 for any
                           royalty reporting period, Janssen shall submit the
                           sales report of IMS or such other independent firm,
                           as applicable, for the relevant royalty reporting
                           period to 3DP, together with Janssen 's or its
                           Affiliates' or sublicensees' sales report for the
                           relevant royalty reporting period. Such sales reports
                           for each royalty reporting period in which Janssen is
                           entitled to such royalty reduction shall be submitted
                           with the royalty report for such royalty reporting
                           period submitted pursuant to Section 5.15.

                  5.11.2   Third Party Patents. If Patent Rights of a Third
                           Party should exist in any country during the Term
                           which are required to manufacture, use sell the
                           Licensed Product, and if it should prove in Janssen's
                           reasonable judgment (as supported by an opinion from
                           outside patent counsel which counsel is acceptable to
                           both Parties) impractical or impossible for Janssen,
                           its Affiliates or its sublicensee to continue the
                           activity or activities licensed hereunder without
                           obtaining a royalty bearing license from such Third
                           Party under such Patent Rights in said country, then
                           Janssen shall be entitled to a credit against the
                           royalty payments due hereunder of an amount equal to
                           the royalty paid to such Third Party, not to exceed
                           [* *] of the royalty rate due under this Agreement,
                           arising from the manufacture, use or sale of the
                           Licensed Product in said country.

                  5.11.3   Compulsory License. If at any time and from time to
                           time a Third Party in any country shall, under the
                           right of a compulsory license granted or ordered to
                           be granted by a competent governmental authority,



                                       19
<PAGE>

                           manufacture, use or sell any Licensed Product, with
                           respect to which royalties would be payable pursuant
                           to Section 5.10 hereof, then Janssen may reduce the
                           royalty on sales in such country of such Licensed
                           Product according to the rates specified in Section
                           5.11.1.

         5.12     Royalty Period. The royalty payments set forth in Section 5.9
                  shall be payable for each Licensed Product on a
                  product-by-product and country-by-country basis from the time
                  of First Commercial Sale of Licensed Product in such country
                  until the later of: (a) [* *] from the time of First
                  Commercial Sale of Licensed Product in such country; or (b)
                  until the last-to-expire or -lapse of Patent Rights containing
                  a Valid Claim with respect to the Active Compound (including
                  without limitation a Replacement Compound) which is an
                  ingredient of such Licensed Product in such country.

         5.13     Royalty Conditions. No royalties shall be due upon the sale or
                  other transfer among Janssen, its Affiliates, licensees or
                  sublicensees, but in such cases the royalty shall be due and
                  calculated upon Janssen's or its Affiliate's, licensee's or
                  sublicensee's Net Sales of Licensed Product to the first
                  independent Third Party.

         5.14     Mode of Payment. All payments to 3DP hereunder shall be made
                  by wire transfer of United States Dollars in the requisite
                  amount to the account designated by 3DP which is attached
                  hereto as Schedule 5.14; provided, however, that any notice by
                            -------------
                  3DP of a change in such account shall not be effective until
                  thirty (30) days after receipt thereof by Janssen. Payments
                  shall be free and clear of any taxes due by Janssen (other
                  than withholding and other taxes imposed on 3DP), fees or
                  charges, to the extent applicable. For purposes of computing
                  royalty payments for Net Sales made outside of the United
                  States, such royalties shall be converted into U.S. Dollars,
                  by applying the rate of exchange as used by Janssen's global
                  accounting system which reflects the average exchange rate for
                  the applicable payment period.

         5.15     Quarterly Royalty Reports. During the Term and commencing with
                  the First Commercial Sale of each Licensed Product, Janssen
                  shall furnish or cause to be furnished to 3DP on a quarterly
                  basis, a written report or reports covering each quarter (each
                  such quarter being sometimes referred to herein as a
                  "reporting period") showing:

                  5.15.1   Gross invoiced sales and total deductions used to
                           calculate Net Sales of each Licensed Product sold by
                           Janssen and its sublicensees during the reporting
                           period on a country-by-country basis. For the United
                           States only, twice per calendar year, Janssen shall
                           provide to 3DP a report showing all itemized
                           deductions from gross sales to Net Sales. In any
                           Major Country or country which represents ten percent
                           (10%) or more of world wide gross invoiced sales
                           (other than the United States), to the extent that
                           there are significant variances in total deductions
                           from gross

                                       20
<PAGE>

                           invoiced sales to Net Sales from one quarter to
                           another, Janssen shall, at 3DP's reasonable request,
                           provide a reasonably detailed explanation as to such
                           increase.

                  5.15.2   The royalties, payable in U.S. Dollars, which shall
                           have accrued hereunder in respect of such Net Sales.

                  5.15.3   The exchange rates used, if any, in converting into
                           U.S. Dollars, from the currencies in which sales were
                           made.

                  5.15.4   Dispositions of such Licensed Product other than
                           pursuant to sale for cash, if such data is normally
                           reported in royalty reports of other licensed
                           products.

                  5.15.5   Any withholding taxes required to be paid from such
                           royalties.

         5.16     Royalty Payment Due Date; Accrual. Royalties which have
                  accrued during any month and are required to be shown on a
                  final quarterly sales report provided for hereunder shall be
                  due and payable on the date such final quarterly sales report
                  is due. In addition, at the end of each calendar year in which
                  royalties are paid hereunder, Janssen agrees to reconcile
                  estimated or accrued rebates and discounts taken during such
                  calendar year in accordance with its standard reconciliation
                  practices and make any necessary adjustment in the next
                  calendar quarter in which royalties are due and payable.

         5.17     Royalty Report Timing. Janssen shall provide flash sales
                  reports to 3DP [* *] after the close of each reporting period,
                  and final reports shall be due [* *] following the close of
                  each reporting period.

         5.18     Currency Exchange. In the case of sales of any Licensed
                  Product outside the United States, royalty payments by Janssen
                  to 3DP shall be converted to U.S. Dollars in accordance with
                  Janssen's current customary and usual procedures for
                  calculating same which are the following: the rate of currency
                  conversion shall be calculated using a simple monthly period
                  average of the end "spot rates" provided by Brown Brothers
                  Harriman, 59 Wall Street, NY, NY 10005, for each quarter, or
                  if such rate is not available, the spot rate as published by a
                  leading United States commercial bank for such accounting
                  period. This method of conversion is consistent with Janssen's
                  current accounting methods. Janssen shall give 3DP prompt
                  written notice of any changes to Janssen's customary and usual
                  procedures for currency conversion, which shall only apply
                  after such notice has been delivered and provided that such
                  changes continue to maintain a set methodology for currency
                  conversion.


                                       21
<PAGE>

         5.19     Records Retention. With respect to any products for which
                  royalties are due pursuant to this Agreement, Janssen and its
                  Affiliates and any licensees or sublicensees shall keep
                  records, for two (2) years, of such Net Sales in sufficient
                  detail to confirm the accuracy of the royalty calculations
                  hereunder. At the request of 3DP, Janssen shall permit an
                  independent certified accountant of nationally recognized
                  standing appointed by 3DP and reasonably acceptable to
                  Janssen, during normal business hours and upon reasonable
                  notice, to examine these records solely to the extent
                  necessary to verify such calculations. Such investigation
                  shall be at the expense of 3DP unless it reveals a discrepancy
                  in Janssen's favor of more than [* *], in which event it shall
                  be at Janssen's expense.

         5.20     Taxes. The Party receiving royalties and other payments under
                  this Agreement shall pay any and all taxes levied on account
                  of such payment. If any taxes are required to be withheld by
                  the paying Party, it shall: (a) deduct such taxes from the
                  remitting payment, (b) pay the taxes, in a timely manner, to
                  the proper taxing authority, and (c) send proof of payment to
                  the other Party and certify its receipt by the taxing
                  authority within sixty (60) days following such payment.

                                   ARTICLE 6

                       OWNERSHIP; GRANT OF LICENSE RIGHTS

         6.1      Ownership of Libraries. 3DP shall retain its ownership rights
                  to the compounds in the 3DP Probe Library and the 3DP
                  Synthetically Accessible Library and in any Focused Library
                  developed by 3DP pursuant to this Agreement.

         6.2      No Reverse Engineering. Janssen shall not, and shall not cause
                  or assist any Third Party to, use any data or information
                  derived from the Research Program or the 3DP Probe Library or
                  the 3DP Synthetically Accessible Library to design, create or
                  supplement a compound library.

         6.3      Ownership of Targets. Janssen shall retain any ownership
                  rights Janssen may have in any Targets Janssen provides to 3DP
                  pursuant to this Agreement, and 3DP shall have a right to use
                  such Targets solely for the purpose of performing its
                  obligations under the Research Program pursuant to the terms
                  of this Agreement. During the Research Term [* *], 3DP
                  shall not use Targets in any work it conducts with Third
                  Parties. During the Research Term [* *], 3DP shall not enter
                  into a drug discovery or development agreement with any Third
                  Party on the same Target or Targets.

         6.4      Ownership of Hits and Prototype Compounds; Janssen Exclusive
                  License. 3DP shall retain any proprietary rights, title and
                  interest in and appurtenant to Hits, Prototype Compounds and
                  any other compounds in the Focused Library; provided, however,
                  that Janssen shall have an exclusive, worldwide license under


                                       22
<PAGE>

                  3DP Patents, Joint Patents and Research Program Patent Rights
                  (even as to 3DP), with the right to sublicense, to conduct
                  research, develop, make, have made, use, sell, have sold,
                  offer for sale or import Prototype Compounds, Replacement
                  Compounds, Active Compounds, Back-Up Compound or Licensed
                  Products in the Field. Notwithstanding the foregoing, 3DP
                  shall retain the right to use any Prototype Compounds, Back-up
                  Compounds, Replacement Compounds, Active Compounds, or any
                  other compounds in the Focused Library that are used in
                  Licensed Products to conduct research; provided, however, that
                  3DP shall not publish results of such research and shall not
                  provide Active Compounds, Prototype Compounds, Replacement
                  Compounds, or Back-Up Compounds to any Third Party during the
                  Term [* *].

                                   ARTICLE 7

                            CONFIDENTIAL INFORMATION

         7.1      Confidentiality Obligations. The Parties agree that, for the
                  Term and for five (5) years thereafter, either Party (a
                  "Receiving Party") that receives Confidential Information from
                  the other Party (a "Disclosing Party") shall keep, and shall
                  endeavor to ensure that its officers, directors and employees
                  keep, confidential and shall not publish or otherwise disclose
                  and shall not use for any purpose (except as expressly
                  permitted hereunder) any Confidential Information furnished to
                  it by the Disclosing Party pursuant to this Agreement
                  (including without limitation, Know-how). The obligations of
                  confidentiality and non-use set forth in this Section 7.1
                  shall also apply to biological material and chemical compounds
                  and associated information (including, without limitation,
                  Know-how) disclosed by one Party to the other prior to or
                  during the Term; provided however, that such obligation of
                  confidentiality and non-use shall not apply to Janssen with
                  respect to compounds that are assigned to Janssen or
                  exclusively licensed to Janssen by 3DP.

         7.2      Written Assurances and Permitted Uses of Confidential
                  Information.

                  7.2.1    Each Party shall inform its employees and consultants
                           who perform work on the Research Program, of the
                           obligations of confidentiality specified in Section
                           7.1 and all such persons shall be bound by the terms
                           of confidentiality set forth therein.

                  7.2.2    The Receiving Party may disclose the Disclosing
                           Party's Confidential Information to the extent the
                           Receiving Party is compelled to disclose such
                           information by a judicial or administrative authority
                           of competent jurisdiction, including but not limited
                           to submitting information to tax authorities or
                           complying with any discovery or similar request for
                           production of documents in litigation or similar
                           alternative dispute resolution proceedings; provided
                           however, that in such case the Receiving


                                       23
<PAGE>

                           Party shall give notice, in a timely fashion, to the
                           Disclosing Party so that the Disclosing Party may
                           seek a protective order or other remedy from said
                           authority. In any event, the Receiving Party shall
                           disclose only that portion of the Confidential
                           Information that, in the opinion of its legal
                           counsel, is legally required to be disclosed and will
                           exercise reasonable efforts to ensure that any such
                           information so disclosed will be accorded
                           confidential treatment by said court or tribunal.

                  7.2.3    To the extent it is reasonably necessary or
                           appropriate to fulfill its obligations and exercise
                           its rights under this Agreement, either Party may
                           disclose Confidential Information to its Affiliates
                           on a need-to-know basis on condition that such
                           Affiliates 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 under this
                           Agreement, and to any regulatory authorities to the
                           extent reasonably necessary to obtain regulatory
                           approvals.

                  7.2.4    To the extent that it is reasonably necessary or
                           appropriate to fulfill its obligations, either Party
                           may disclose Confidential Information to the U.S.
                           Patent and Trademark Office or any foreign
                           counterparts thereof, in order to comply with the
                           rules governing disclosure of material information
                           during patent examination.

                  7.2.5    The existence and the terms and conditions of this
                           Agreement which the Parties have not specifically
                           agreed to disclose pursuant to this Section 7.2 shall
                           be treated by each Party as Confidential Information
                           of the other Party.

         7.3      Permitted Disclosures for Business Development Purposes.
                  Notwithstanding the foregoing or any other provision in this
                  Agreement to the contrary, 3DP may disclose statistics and
                  masked informational data for presentations to investors or to
                  scientific audiences, based on the research data produced
                  pursuant to the activities under this Agreement, including
                  without limitation, success rates; and excluding Confidential
                  Information identifying, for example, specific Prototype
                  Compounds, Active Compounds, Targets, Hits, Back-Up Compounds,
                  Replacement Compounds, Research Program Patent Rights,
                  chemical names, chemical structures and their activities.

         7.4      Notification. Both Parties recognize that each may wish to
                  publish the results of their work relating to the Research
                  Program. However, both Parties also recognize the importance
                  of acquiring patent protection on Licensed Products.
                  Consequently, 3DP shall not make any publication relating to
                  any Prototype Compound, Replacement Compound, Active Compound
                  or Licensed Product without the prior written permission of
                  Janssen and any proposed publication by either Party relating
                  to the Research Program or Prototype Compound


                                       24
<PAGE>

                  Optimization shall comply with this Article 7. At least sixty
                  (60) days before a manuscript is to be submitted to a
                  publisher, the publishing Party will provide the JSMC with a
                  copy of the manuscript. If the publishing Party wishes to make
                  an oral presentation, it will provide the JSMC with a copy of
                  the abstract (if one is submitted) at least sixty (60) days
                  before it is to be submitted. The publishing Party will also
                  provide to the JSMC a copy of the text of the presentation,
                  including all slides, posters and any other visual aids, at
                  least sixty (60) days before the presentation is made.

         7.5      Review of Proposed Publications. The JSMC will review the
                  manuscript, abstract, text or any other material provided
                  under Section 7.4 to determine if patentable subject matter is
                  disclosed. The JSMC will notify the publishing Party within
                  sixty (60) days of receipt of the proposed publication if the
                  JSMC determines that patentable subject matter is or may be
                  disclosed, or if the JSMC believes Confidential Information or
                  proprietary information is or may be disclosed. If it is
                  determined by the JSMC that patent applications should be
                  filed, the publishing Party shall delay its publication or
                  presentation for a period not to exceed ninety (90) days from
                  the JSMC's notification to the publishing Party to allow time
                  for the filing of patent applications covering patentable
                  subject matter. In the event that the delay needed to complete
                  the filing of any necessary patent application will exceed the
                  ninety (90)-day period, the Parties will discuss the need for
                  obtaining an extension of the publication delay beyond the
                  ninety (90)-day period. If it is determined by the JSMC that
                  confidential or proprietary information is being disclosed,
                  the JSMC will attempt to arrive at an agreement on mutually
                  acceptable modifications to the proposed publication to avoid
                  such disclosure. The publishing Party of any manuscript, text
                  or oral presentation will acknowledge the other Party for its
                  contribution to the material being published or presented and
                  to the Research Program.

                                   ARTICLE 8

                     PATENT RIGHTS AND INTELLECTUAL PROPERTY

         8.1      Ownership; Inventions. Inventorship for patentable inventions
                  conceived and reduced to practice during the course of the
                  performance of activities pursuant to this Agreement shall be
                  determined in accordance with U.S. patent laws for determining
                  inventorship. Janssen Patents shall be owned by Janssen, 3DP
                  Patents shall be owned by 3DP, and Joint Patents shall be
                  jointly owned by the Parties. Research Program Patent Rights
                  shall be owned by 3DP, regardless of inventorship, and Janssen
                  agrees to assign to 3DP its rights in any Research Program
                  Patent Rights having Janssen employees as sole or joint
                  inventors. In the event of a dispute regarding inventorship,
                  if the parties are unable to resolve such inventorship
                  dispute, the Parties shall establish a procedure to resolve
                  such dispute, which may include engaging a Third Party patent
                  attorney jointly selected by the Parties to resolve such
                  dispute. Each Party will cooperate with the other to

                                       25
<PAGE>

                  the extent reasonably necessary to execute assignments and
                  other documentation as may be required.

         8.2      Disclosure of Patentable Inventions. Each Party shall promptly
                  provide to the other any invention disclosure submitted in the
                  normal course of business and disclosing an invention arising
                  during the Research Program and [* *] period following the
                  Initiation of Prototype Compound Optimization for each
                  Prototype Compound, on a compound-by-compound basis, and
                  relating to Hits, Prototype Compounds, Active Compounds,
                  Back-Up Compounds or Replacement Compounds.

         8.3      Disclosure of Janssen Know-how. During the [* *] period
                  following the initiation of Prototype Compound Optimization
                  for each Prototype Compound on a compound-by-compound basis,
                  Janssen shall promptly provide 3DP with complete written
                  disclosures of any potentially patentable technology derived
                  from the Research Program, the Janssen Research Program and/or
                  Prototype Compound Optimization.

         8.4      3DP Patentable Inventions and Know-How.

                  8.4.1    3DP Patent Prosecution.

                           (a)      Selection of Outside Counsel. Before
                                    retaining any law firm and/or patent
                                    attorney for the preparation and prosecution
                                    of any patent applications which are
                                    Research Program Patent Rights, 3DP shall
                                    inform Janssen of the identity of such law
                                    firm and/or patent attorney it desires to
                                    employ and the Parties will discuss such
                                    firm and/or attorney. 3DP will consider any
                                    suggestions from Janssen regarding the
                                    selection of a law firm and/or patent
                                    attorney for handling preparation,
                                    prosecution and maintenance of Research
                                    Program Patent Rights and Janssen may
                                    disapprove any law firm and/or patent
                                    attorney proposed by 3DP, such approval not
                                    to be unreasonably withheld or delayed.

                           (b)      Prosecution and Maintenance. During the
                                    Term, 3DP shall prepare, file, prosecute and
                                    maintain 3DP Patents (at 3DP's sole expense)
                                    and Research Program Patent Rights (at
                                    Janssen's sole expense) and use reasonable
                                    efforts to initially file all such patent
                                    applications in the United States. For
                                    Research Program Patent Rights, Janssen
                                    shall provide a list of countries in which
                                    such patent applications shall be filed
                                    reasonably in advance of 3DP's estimated
                                    filing date. 3DP shall file such patent
                                    applications in each indicated country.


                                       26
<PAGE>

                           (c)      Discontinuance. If 3DP does not intend to
                                    file for patent protection or does not wish
                                    to continue preparation, prosecution or
                                    maintenance of Research Program Patent
                                    Rights, then it shall give at least
                                    forty-five (45) days advance notice to
                                    Janssen, and in no event less than a
                                    reasonable period of time for Janssen to act
                                    in its stead. In such case, Janssen may
                                    elect at its sole discretion to continue
                                    preparation, filing and prosecution or
                                    maintenance of the discontinued patent at
                                    its sole expense. 3DP shall execute such
                                    documents and perform such acts as may be
                                    reasonably necessary for Janssen to file or
                                    to continue prosecution or maintenance of
                                    such patent. Discontinuance may be elected
                                    on a country-by-country basis or for a
                                    patent application or patent series in
                                    total.

                  8.4.2    Cooperation. 3DP shall consult with Janssen and shall
                           keep Janssen continuously informed of all material
                           matters relating to the preparation, filing,
                           prosecution and maintenance of Research Program
                           Patent Rights covered by this Agreement, including,
                           but not limited to, disclosing to Janssen the
                           complete text of all such Research Program Patent
                           Rights. In addition, 3DP shall provide Janssen with
                           copies of all material correspondence with the
                           applicable patent office.

         8.5      Janssen Patentable Inventions and Know-How.

                  8.5.1    Janssen Patent Prosecution.

                           (a)      Prosecution and Maintenance. During the
                                    Term, Janssen shall, at its own expense,
                                    prepare, file, prosecute and maintain
                                    Janssen Patents and use reasonable efforts
                                    to file initially all such patent
                                    applications in countries in which Janssen
                                    would file patent applications in its normal
                                    business practice for comparable technology.

                           (b)      Discontinuance. If Janssen does not intend
                                    to file for Patent protection or does not
                                    wish to continue preparation, prosecution or
                                    maintenance of a Janssen Patent, then it
                                    shall give at least forty-five (45) days
                                    advance notice to 3DP, and in no event less
                                    than a reasonable period of time for 3DP to
                                    act in its stead. In such case, 3DP may
                                    elect at its sole discretion to continue
                                    preparation, filing and prosecution or
                                    maintenance of the discontinued patent at
                                    its sole expense. Janssen shall execute such
                                    documents and perform such acts as may be
                                    reasonably necessary for 3DP to file or to
                                    continue prosecution or maintenance of such
                                    patent. Discontinuance may be elected on a
                                    country-by-country basis or for a patent
                                    application or patent series in total.


                                       27
<PAGE>

                  8.5.2    Cooperation. Janssen shall consult with 3DP and shall
                           keep 3DP continuously informed of all material
                           matters relating to the preparation, filing,
                           prosecution and maintenance of Janssen Patents
                           covered by this Agreement, including, but not limited
                           to, disclosing to 3DP the complete text of all such
                           Janssen Patents.

         8.6      Joint Patents

                  8.6.1    The Parties shall jointly determine whether to
                           prepare, file, prosecute and maintain any Joint
                           Patents. Janssen shall act as the lead Party for the
                           prosecution and maintenance of such Joint Patents.

                  8.6.2    Janssen shall keep 3DP apprised of the status of each
                           Joint Patent and shall seek the advice of 3DP with
                           respect to patent strategy and drafting applications
                           and shall give reasonable consideration to any
                           suggestions or recommendations of 3DP concerning the
                           preparation, filing, prosecution, maintenance and
                           defense thereof. Each Party shall be responsible for
                           50% of the cost of such filings.

                  8.6.3    The Parties shall cooperate reasonably in the
                           prosecution of all Joint Patents and shall share all
                           material information relating thereto, including all
                           material communications from patent offices, promptly
                           after receipt of such information.

                  8.6.4    If, during the term of this Agreement, Janssen
                           intends to allow any Joint Patent to lapse or to
                           abandon any such Joint Patent, Janssen shall,
                           whenever practicable, notify 3DP of such intention at
                           least sixty (60) days prior to the date upon which
                           such Joint Patent shall lapse or become abandoned but
                           in no event less than a reasonably sufficient time to
                           prevent such lapse or abandonment, and 3DP shall
                           thereupon have the right, but not the obligation, to
                           assume responsibility for the prosecution,
                           maintenance and defense thereof and all expenses
                           related thereto.

         8.7      Assistance. Each Party hereby agrees:

                  8.7.1    to make its employees, agents and consultants
                           reasonably available to the other Party (or the other
                           Party's authorized attorneys, agents or
                           representatives), to the extent reasonably necessary
                           to enable the Prosecuting Party to undertake
                           preparation, filing, prosecution and maintenance of
                           its Patent Rights;

                  8.7.2    to cooperate, if necessary and appropriate, with the
                           other Party in gaining patent term extensions
                           wherever applicable to Patent Rights; and


                                       28
<PAGE>

                  8.7.3    to endeavor in good faith to coordinate its efforts
                           with the other Party to minimize or avoid
                           interference with the preparation, filing,
                           prosecution and maintenance of the other Party's
                           Patent Rights.

         8.8      Initial Filing if Made Outside of the United States. The
                  Parties agree to use reasonable efforts to ensure that any
                  Patent Rights filed outside of the United States prior to a
                  U.S. filing will be in a form sufficient to establish the date
                  of original filing as a priority date for the purposes of a
                  subsequent U.S. filing.

         8.9      Infringement Claims by Third Parties.

                  8.9.1    Notice. If the manufacture, use or sale of an Active
                           Compound or any Licensed Product results in a claim
                           or a threatened claim by a Third Party against a
                           Party hereto for patent infringement or for inducing
                           or contributing to patent infringement ("Infringement
                           Claim"), the Party first having notice of an
                           Infringement Claim shall promptly notify the other in
                           writing. The notice shall set forth the facts of the
                           Infringement Claim in reasonable detail.

                  8.9.2    Defense. Janssen shall have the right but not the
                           obligation to defend any suit resulting from an
                           Infringement Claim at its expense. 3DP shall
                           cooperate and assist Janssen in any such litigation
                           at Janssen's expense. In the event Janssen declines
                           to take steps with respect to such infringement
                           within [* *] following notice of such infringement,
                           3DP shall have the right to do so at its expense.

                  8.9.3    Settlement. In the event that the manufacture, use or
                           sale of the Active Compound or the Licensed Product
                           in a country would infringe Third Party Patent Rights
                           and a license to such Third Party Patent Rights is
                           available, and Janssen in its sole discretion seeks
                           such a license, the Parties agree:

                           (a)      Subject to Section 5.11.2, Janssen shall be
                                    responsible for all costs associated with
                                    acquiring such Third Party license; and

                           (b)      Janssen shall use reasonable efforts to
                                    obtain required licenses under the Third
                                    Party Patents, with a right to sublicense to
                                    3DP.

         8.10     Patent Assignment. Neither Party may assign its interest in
                  rights under Research Program Patent Rights or any Patent
                  Rights claiming an Active Compound or Licensed Product, except
                  with the prior written consent of the other Party, such
                  consent not to be unreasonably withheld or delayed; provided,
                  however, that either Party may assign such rights without
                  consent of the other Party to a permitted assignee under this
                  Agreement.

         8.11     Infringement Claims Against Third Parties.


                                       29
<PAGE>

                  8.11.1   Cooperation. 3DP and Janssen each agree to take
                           reasonable actions to protect 3DP Patents, Janssen
                           Patents, Joint Patents or Research Program Patent
                           Rights from infringement. If one Party brings any
                           such action or proceeding, the other Party may be
                           joined as a Party plaintiff if necessary for the
                           action or proceeding to proceed and, in case of
                           joining, the other Party agrees to give the first
                           Party reasonable assistance and authority to file and
                           to prosecute such suit. The other Party shall be
                           reimbursed for any costs associated with its
                           participation.

                  8.11.2   Notice. If any 3DP Patent, Janssen Patent, Joint
                           Patents and/or Research Program Patent Rights is
                           infringed by a Third Party in any country in
                           connection with the manufacture, use and/or sale of
                           an Active Compound or Licensed Product in such
                           country, the Party to this Agreement first having
                           knowledge of such infringement, or knowledge of a
                           reasonable probability of such infringement, shall
                           promptly notify the other in writing. The notice
                           shall set forth the known facts of such infringement
                           in reasonable detail.

                  8.11.3   Institution of Proceedings.

                           (a)      3DP shall have the primary right, but not
                                    the obligation, to institute, prosecute and
                                    control with its own counsel, any action or
                                    proceeding with respect to infringement of a
                                    3DP Patent or Research Program Patent
                                    Rights. Janssen shall have the right, at its
                                    own expense, to be represented in such
                                    action by its own counsel; provided,
                                    however, no settlement may be entered into
                                    by 3DP without the written consent of
                                    Janssen, which consent shall not be
                                    unreasonably withheld or delayed, if such
                                    settlement would have a material adverse
                                    effect on Janssen's interests.

                           (b)      With respect to Joint Patents, Janssen shall
                                    have the primary right, but not the
                                    obligation, to institute, prosecute and
                                    control any action or proceeding with
                                    respect to infringement of such Joint
                                    Patents, by counsel of its own choice and at
                                    its own expense; provided, however, 3DP may
                                    participate in such proceedings, represented
                                    by counsel of its own choice and at its own
                                    expense, no settlement may be entered into
                                    by Janssen without the written consent of
                                    3DP, which consent shall not be unreasonably
                                    withheld or delayed.

                           (c)      Janssen shall have the sole right to enforce
                                    any rights under the Janssen Patents at its
                                    own expense.

                  8.11.4   Failure to Institute Proceedings. If the Party having
                           the primary right to institute proceedings under
                           Section 8.11.3 (hereinafter referred to as the


                                       30
<PAGE>

                           "First Prosecuting Party") fails to institute,
                           prosecute or control such action or prosecution
                           within a period of one hundred eighty (180) days
                           after receiving notice of the infringement from the
                           other Party (hereinafter referred to as the "Second
                           Prosecuting Party"), then the Second Prosecuting
                           Party shall have the right to bring and control any
                           such action by counsel of its own choice, and the
                           First Prosecuting Party shall have the right, at its
                           own expense, to be represented in any such action by
                           counsel of its own choice. The First Prosecuting
                           Party shall cooperate with the Second Prosecuting
                           Party in such effort, including being joined as a
                           party to such action if necessary.

                  8.11.5   Costs. The Party bringing suit under this Article
                           shall bear all costs of the suit and shall retain any
                           damages or other monetary awards recovered.

                  8.11.6   Settlement. The parties shall keep each other
                           informed of the status of and of their respective
                           activities regarding any litigation or settlement
                           thereof concerning Licensed Products in the Field. A
                           settlement or consent judgment or other voluntary
                           final disposition of a suit brought by a Party under
                           this Section 8.11 may be entered without the consent
                           of the other Party; provided such settlement, consent
                           judgment or other disposition does not admit the
                           invalidity or unenforceability of any Patent Rights;
                           and provided further, that any rights to continue the
                           infringing activity in such settlement, consent
                           judgment or other disposition shall be limited to the
                           product or activity that was the subject of the suit.

         8.12     Notices Relating to the Act. 3DP shall notify Janssen of the
                  issuance of each U.S. patent included among the 3DP Patents,
                  Research Program Patent Rights and Joint Patents wherein 3DP
                  is the filing Party, giving the date of issue and patent
                  number for each such patent. 3DP and Janssen each shall
                  immediately give notice to the other of any certification
                  filed under the "U.S. Drug Price Competition and Patent Term
                  Restoration Act of 1984" (hereinafter the "Act"), including,
                  but not necessarily limited to, notices pursuant toss.ss.101
                  and 103 of the Act from persons who have filed an abbreviated
                  NDA ("ANDA") or a "paper" NDA claiming that 3DP Patents,
                  Janssen Patents, Joint Patents or Research Program Patent
                  Rights are invalid or that infringement will not arise from
                  the manufacture, use or sale of any Active Compound or
                  Licensed Product by a Third Party.

                  8.12.1   If Janssen decides not to bring infringement
                           proceedings against the entity making such a
                           certification, Janssen shall give notice to 3DP of
                           its decision not to bring suit within twenty-one (21)
                           days after receipt of notice of such certification.

                  8.12.2   3DP may then, but is not required to, bring suit
                           against the party that filed the certification.


                                       31
<PAGE>

                  8.12.3   Any suit by Janssen or 3DP shall either be in the
                           name of Janssen or in the name of 3DP, or jointly in
                           the name of Janssen and 3DP, as may be required by
                           law.

                  8.12.4   For purposes of this Section, the Party not bringing
                           suit shall execute such legal papers necessary for
                           the prosecution of such suit as may be reasonably
                           requested by the Party bringing suit.

         8.13     Patent Term Extensions. 3DP hereby authorizes Janssen to (a)
                  provide in any NDA a list of patents which includes 3DP
                  Patents, Joint Patents and Research Program Patent Rights
                  owned by 3DP that relate to such Licensed Product and such
                  other information as Janssen believes is appropriate; (b)
                  commence suit for infringement of 3DP Patents, Joint Patents
                  and Research Program Patent Rights underss.271(e) (2) of Title
                  35 of the United States Code; and (c) exercise any rights that
                  may be exercisable by 3DP as patent owner under the Act,
                  including without limitation, applying for an extension of the
                  term of any patent included in 3DP Patents, Joint Patents and
                  Research Program Patent Rights. In the event that applicable
                  law in any country provides for the extension of the term of
                  any patent included among Research Program Patent Rights owned
                  by 3DP, such as under the Act, the Supplementary Certificate
                  of Protection of the Member States of the European Union and
                  other similar measures in any other country, 3DP shall apply
                  for and use its reasonable efforts to obtain such an extension
                  or, should the law require Janssen to so apply, 3DP hereby
                  gives permission to Janssen to do so. Janssen and 3DP agree to
                  cooperate with one another in obtaining such extension. 3DP
                  agrees to cooperate with Janssen or its sublicensee, as
                  applicable, in the exercise of the authorization granted
                  herein and shall execute such documents and take such
                  additional action as Janssen may reasonably request in
                  connection therewith, including, if necessary, permitting
                  itself to be joined as a Party in any suit for infringement
                  brought by Janssen hereunder.

                                   ARTICLE 9

                                 INDEMNIFICATION

         9.1      Indemnification by Janssen. Janssen shall indemnify, defend
                  and hold 3DP and its agents, employees and directors (the "3DP
                  Indemnitees") harmless from and against any and all liability,
                  damage, loss, cost or expense (including reasonable attorneys'
                  fees) arising out of Third Party claims or lawsuits related to
                  (a) Janssen's performance of its obligations under this
                  Agreement; or (b) patent infringement related to 3DP's use of
                  the Targets pursuant to this Agreement; or (c) patent
                  infringement or product liability for bodily injury and/or
                  property damage related to Janssen's development activities
                  with compounds identified under the Research Program and/or
                  with Licensed Products; or (d) the manufacture, use or sale of
                  Licensed Products by Janssen, sublicensees, distributors and
                  agents, except to the extent such claims or suits result from
                  the

                                       32
<PAGE>

                  breach of any of the provisions of this Agreement, gross
                  negligence or willful misconduct of the 3DP Indemnitees. Upon
                  the assertion of any such claim or suit, the 3DP Indemnitees
                  shall promptly notify Janssen thereof and shall permit Janssen
                  to assume direction and control of the defense of the claim
                  (including the selection of counsel and the right to settle it
                  at the sole discretion of Janssen, provided that such
                  settlement does not impose any material obligation on the 3DP
                  Indemnitees), and shall cooperate as requested (at the expense
                  of Janssen) in the defense of the claim.

         9.2      Indemnification By 3DP. 3DP shall indemnify, defend and hold
                  Janssen and its agents, employees and directors (the "Janssen
                  Indemnitees") harmless from and against any and all liability,
                  damage, loss, cost or expense (including reasonable attorneys'
                  fees) arising out of Third Party claims or lawsuits related to
                  3DP's performance of its obligations under this Agreement,
                  except to the extent that such claims or suits result from the
                  breach of any of the provisions of this Agreement, gross
                  negligence or willful misconduct of the Janssen Indemnitees.
                  Upon the assertion of any such claim or suit, the Janssen
                  Indemnitees shall promptly notify 3DP thereof and shall permit
                  3DP to assume direction and control of the defense of the
                  claim (including the selection of counsel and the right to
                  settle it at the sole discretion of 3DP, provided that such
                  settlement does not impose any material obligation on the
                  Janssen Indemnitees), and shall cooperate as requested (at the
                  expense of 3DP) in the defense of the claim.

                                   ARTICLE 10

                              TERM AND TERMINATION

         10.1     Term of Research Program. The Research Program shall commence
                  upon the Effective Date, and unless earlier terminated as
                  provided herein, shall expire on the last to expire of the
                  Stage A Term or the Stage B Term or any Extended Research Term
                  (the "Research Term").

         10.2     Term of Agreement. This Agreement shall commence upon the
                  Effective Date and shall terminate: (a) thirty (30) days after
                  notice, in good faith, by one Party to the other Party,
                  following the termination or expiration of the Research Term,
                  if no compound, which was identified as a Prototype Compound,
                  is being optimized, developed, commercialized and/or sold by
                  Janssen or 3DP, or (b) upon the identification and
                  commercialization of one or more Licensed Products, upon
                  expiration of Janssen's obligation to pay royalties hereunder
                  (the "Term").

         10.3     Termination of the Research Program Without Cause. Subject to
                  the provisions of Section 5.6, Janssen may terminate the
                  Research Program upon ninety (90)-days advance written notice
                  during the Research Term provided, however, [* *].


                                       33
<PAGE>

         10.4     Breach. The failure by a Party to comply with any of the
                  material obligations contained in this Agreement shall entitle
                  the other Party to give notice to have the default cured. If
                  such default is not cured within sixty (60) days after the
                  receipt of such notice, or diligent steps are not taken to
                  cure if by its nature such default cannot be cured within
                  sixty (60) days, the notifying Party shall be entitled,
                  without prejudice to any of its other rights conferred to it
                  by this Agreement, and in addition to any other remedies that
                  may be available to it, to terminate the Research Program
                  and/or this Agreement; provided, however, that such right to
                  terminate shall be stayed in the event that, during such sixty
                  (60)-day period, the Party alleged to have been in default
                  shall have: (a) initiated arbitration in accordance with
                  Article 13, below, with respect to the alleged default, and
                  (b) diligently and in good faith cooperated in the prompt
                  resolution of such arbitration proceedings.

         10.5     No Waiver. The right of a Party to terminate the Research
                  Program and/or this Agreement, as provided in this Article 10,
                  shall not be affected in any way by its waiver or failure to
                  take action with respect to any prior default.

         10.6     Insolvency or Bankruptcy.

                  10.6.1   Either Party may, in addition to any other remedies
                           available by law or in equity, terminate the Research
                           Program and/or this Agreement by written notice to
                           the other Party in the event the latter Party shall
                           have become insolvent or bankrupt, or shall have an
                           assignment for the benefit of its creditors, or there
                           shall have been appointed a trustee or receiver of
                           the other Party or for all or a substantial part of
                           its property or any case or proceeding shall have
                           been commenced or other action taken by or against
                           the other Party in bankruptcy or seeking
                           reorganization, liquidation, dissolution, winding-up,
                           arrangement or readjustment of its debts or any other
                           relief under any bankruptcy, insolvency,
                           reorganization or other similar act or law of any
                           jurisdiction now or hereafter in effect, or there
                           shall have been issued a warrant of attachment,
                           execution, distraint or similar process against any
                           substantial part of the property of the other Party,
                           and any such event shall have continued for ninety
                           (90) days undismissed, unbonded and undischarged.

                  10.6.2   All rights and licenses granted under or pursuant to
                           this Agreement by Janssen or 3DP are, and shall
                           otherwise be deemed to be, for purposes of Section
                           365(n) of the U.S. Bankruptcy Code, licenses of right
                           to "Intellectual Property" as defined under Section
                           101 of the U.S. Bankruptcy Code. The Parties agree
                           that the Parties as licensees of such rights under
                           this Agreement, shall retain and may fully exercise
                           all of their rights and elections under the U.S.
                           Bankruptcy Code. The Parties further agree that, in
                           the event of the commencement of a bankruptcy
                           proceeding by or against either Party under the U.S.
                           Bankruptcy Code, the Party

                                       34
<PAGE>

                           hereto which is not a party to such proceeding shall
                           be entitled to a complete duplicate of (or complete
                           access to, as appropriate) any such intellectual
                           property and all embodiments of such intellectual
                           property, and same, if not already in their
                           possession, shall be promptly delivered to them (a)
                           upon any such commencement of a bankruptcy proceeding
                           upon their written request therefor, unless the Party
                           subject to such proceedings elects to continue to
                           perform all of their obligations under this
                           Agreement, or (b) if not delivered under (a) above,
                           upon the rejection of this Agreement by or on behalf
                           of the Party subject to such proceeding upon written
                           request therefor by a nonsubject party.

         10.7     Consequences of Termination of the Research Program.

                  10.7.1   In the event of termination of the Research Program
                           by Janssen pursuant to the provisions of Sections
                           10.4 or 10.6, 3DP shall (i) promptly transfer to
                           Janssen copies, whether in written or electronic
                           form, of all data, reports, records and materials
                           (including any Research Program Know-how) in 3DP's
                           possession or control which relate to the Research
                           Program; (ii) return to Janssen all relevant records
                           and materials, whether in written or electronic form,
                           in 3DP's possession or control containing
                           Confidential Information of Janssen; and (iii)
                           furnish to Janssen all unused Substances provided to
                           3DP by Janssen in connection with the Research
                           Program. Thereafter, Janssen shall have no further
                           obligation to fund the Research Program, but the
                           remainder of the Agreement shall, including without
                           limitation, Janssen's rights to continue Prototype
                           Compound Optimization for those Prototype Compounds
                           identified as such pursuant to Section 1.29, remain
                           in force and effect until expiration of the term of
                           the Agreement, unless it is sooner terminated as
                           provided in this Agreement.

                  10.7.2   In the event of termination of the Research Program
                           by 3DP pursuant to the provisions of 10.4 or 10.6, or
                           if Janssen terminates the Research Program pursuant
                           to the provisions of Section 10.3, Janssen shall (i)
                           promptly transfer to 3DP copies, whether in written
                           or electronic form, of all data, reports, records and
                           materials (including any Research Program Know-how)
                           in Janssen's possession or control which relate to
                           the Research Program; (ii) return to 3DP all relevant
                           records and materials, whether in written or
                           electronic form, in Janssen's possession or control
                           containing Confidential Information of 3DP; and (iii)
                           furnish to 3DP all unused Substances, if any,
                           provided to Janssen by 3DP in connection with the
                           Research Program. Thereafter, the remainder of the
                           Agreement shall remain in force and effect until
                           expiration of the term of the Agreement, unless it is
                           sooner terminated as provided in this Agreement.


                                       35
<PAGE>

                  10.7.3   Either Party's termination of the Research Program
                           pursuant to Section 10.3, 10.4 and/or 10.6 shall be
                           without prejudice to, and shall not affect, any of
                           the Parties' respective rights and obligations under
                           this Agreement that do not specifically relate to the
                           Research Program. Without limiting the generality of
                           the foregoing, Janssen's rights to exploit the
                           Licensed Products under any Research Program Patent
                           Rights and Research Program Know-how, if such
                           licenses are in operation, in accordance with the
                           terms of this Agreement, shall not be affected by any
                           such termination.

         10.8     Consequences of Termination of this Agreement. Upon
                  termination of this Agreement, all remaining records and
                  materials in a Party's possession or control containing the
                  other Party's Confidential Information and to which the former
                  Party does not retain rights hereunder shall promptly be
                  returned, except that one (1) copy shall be retained by legal
                  counsel for the former Party.

         10.9     Survival of Obligations. The termination or expiration of this
                  Agreement shall not relieve the Parties of any obligations
                  accruing prior to such termination, and any such termination
                  shall be without prejudice to the rights of either Party
                  against the other. The provisions of Sections 3.7, 5.15, 5.16,
                  6.1, 6.2, 6.3, 8.1, 10.8, 14.1, 14.14, 14.15 and Articles 1,
                  7, 9 and 13 shall survive any termination of this Agreement.


                                   ARTICLE 11

         DEVELOPMENT, REGULATORY AND COMMERCIALIZATION RESPONSIBILITIES

         11.1     Commercial Responsibilities. Janssen agrees to use
                  commercially reasonable efforts consistent with its normal
                  business practices, and in no event less than efforts standard
                  in the pharmaceutical industry, to develop and commercialize
                  Licensed Products. Such efforts shall be efforts consistent
                  with efforts used by Janssen (in each case comparable efforts
                  will be measured against such efforts used by Janssen for
                  marketing in the country where the commercialization takes
                  place for that Licensed Product) in commercializing its own
                  products that are similar with regard to, for example, market
                  potential, price per treatment, patient population, and
                  competitive position. Janssen shall use commercially
                  reasonable efforts consistent with its normal business
                  practices to effect the commercial launch of Licensed Products
                  in the Major Countries within [* *] of Regulatory Approval in
                  such Major Countries.

         11.2     Janssen's Marketing Obligations For Licensed Product. All
                  business decisions, including, without limitation, the design,
                  sale, price and promotion of Licensed Products under this
                  Agreement and the decisions whether to market any particular
                  Licensed Product shall be within the sole discretion of
                  Janssen.


                                       36
<PAGE>

         11.3     Janssen Responsibilities. Janssen shall be responsible for all
                  development, regulatory filings and related submissions that
                  are made in connection with the commercialization of Licensed
                  Products developed by Janssen and all commercialization
                  activities with respect to Licensed Products, and shall do so
                  at Janssen's sole discretion and expense. The JSMC will
                  provide annual written reports to the Parties presenting a
                  meaningful summary of the development and commercialization
                  activities undertaken for each Licensed Product for the Term.

                                   ARTICLE 12

                         REPRESENTATIONS AND WARRANTIES

         12.1     Authority. Each Party represents and warrants that as of the
                  Effective Date it has the full right, power and authority to
                  enter into this Agreement and that this Agreement has been
                  duly executed by such Party and constitutes a legal, valid and
                  binding obligation of such Party, enforceable in accordance
                  with its terms.

         12.2     No Conflicts. Each Party represents and warrants that the
                  execution, delivery and performance of this Agreement does not
                  conflict with, or constitute a breach or default under, any of
                  its charter or organizational documents, any law, order,
                  judgment or governmental rule or regulation applicable to it,
                  or any material agreement, contract, commitment or instrument
                  to which it is a party.

         12.3     No Existing Third Party Rights. Each Party represents and
                  warrants that its obligations under this Agreement are not
                  encumbered by any rights granted by such Party to any Third
                  Parties that are or may be inconsistent with the rights and
                  licenses granted in this Agreement.

         12.4     Permitted Use of Targets. Janssen represents and warrants that
                  it has the legal right to use and permit 3DP to use all
                  Targets provided to 3DP for Research Program activities under
                  this Agreement.

         12.5     Continuing Representations. The representations and warranties
                  of each Party contained in this Article 12 shall survive the
                  execution and delivery of this Agreement and shall remain true
                  and correct at all times during the Term with the same effect
                  as if made on and as of such later date.

         12.6     Disclaimer of Warranties. 3DP MAKES NO REPRESENTATIONS AND
                  EXTENDS NO WARRANTIES OR CONDITIONS OF ANY KIND, EITHER
                  EXPRESS OR IMPLIED, WITH RESPECT TO THE 3DP DISCOVERWORKS(R)
                  TECHNOLOGY, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
                  MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN
                  PARTICULAR, 3DP OFFERS NO REPRESENTATION OR WARRANTY THAT THE
                  USE OF ALL OR ANY PART OF THE 3DP DISCOVERWORKS(R) TECHNOLOGY
                  UNDER THIS


                                       37
<PAGE>

                  AGREEMENT WILL RESULT IN THE DISCOVERY OR THE SUCCESSFUL
                  COMMERCIALIZATION OF A LICENSED PRODUCT FOR USE AGAINST THE
                  TARGET IN THE FIELD.

         12.7     No Infringement. To the best of its knowledge as of the
                  Effective Date, 3DP represents and warrants that the use of
                  the DirectedDiversity(R)Technology and
                  ThermoFluor(R)Technology does not infringe any Patent Rights
                  of a Third Party.

         12.8     Infectious Disease Targets. Janssen covenants that the Targets
                  and Replacement Targets that are provided by Janssen for
                  screening pursuant to this Agreement are not provided for the
                  primary purpose of identifying [* *].

                                   ARTICLE 13

                               DISPUTE RESOLUTION

         13.1     Any dispute concerning or arising out of this Agreement or
                  concerning the existence or validity hereof shall be
                  determined by the following procedure:

                  13.1.1   Dispute Resolution and Arbitration. In the case of
                           any disputes between the Parties arising from this
                           Agreement, and in case this Agreement does not
                           provide a solution for how to resolve such disputes,
                           the Parties shall discuss and negotiate in good faith
                           a solution acceptable to both Parties and in the
                           spirit of this Agreement. If after negotiating in
                           good faith pursuant to the foregoing sentence, the
                           Parties fail to reach agreement within sixty (60)
                           days, then the Chief Executive Officer of 3DP and the
                           Chairman Research & Development Pharmaceuticals shall
                           discuss in good faith an appropriate resolution to
                           the dispute. If these executives fail, after good
                           faith discussions, to reach an amicable agreement
                           within sixty (60) days, then either Party may upon
                           written notice to the other submit the dispute to
                           binding arbitration pursuant to Section 13.2.

         13.2     Arbitration. Any claim, dispute or controversy arising out of
                  or in connection with or relating to this Agreement,
                  (including, without limitation, disputes with respect to the
                  rights and obligations of the Parties following termination)
                  not settled by the procedures set forth in Section 13.1 above
                  or the breach or alleged breach of a material provision of
                  this Agreement shall be adjudicated by arbitration in
                  accordance with the Arbitration Proceedings as set forth in
                  Schedule 13.2 attached hereto.

                                   ARTICLE 14

                            MISCELLANEOUS PROVISIONS

         14.1     Entire Agreement. This Agreement and each of the Schedules
                  hereto constitute and contain the entire understanding and
                  agreement of the Parties respecting the


                                       38
<PAGE>

                  subject matter of this Agreement and cancels and supersedes
                  any and all prior negotiations, correspondence, understandings
                  and agreements between the Parties, whether oral or written,
                  regarding such subject matter.

         14.2     Further Actions. Each Party agrees to execute, acknowledge and
                  deliver such further instruments and to do all such other acts
                  as may be necessary or appropriate in order to carry out the
                  purposes and intent of this Agreement.

         14.3     Binding Effect. This Agreement and the rights granted herein
                  shall be binding upon and shall inure to the benefit of 3DP,
                  Janssen and their successors and permitted assigns.

         14.4     Assignment. Neither Party may assign this Agreement without
                  the prior written consent of the other Party; provided,
                  however, that either Party may assign this Agreement without
                  the prior written consent of the other Party in connection
                  with the sale or transfer of substantially all of its assets
                  that relate to this Agreement, or in the event of its merger
                  or consolidation or change of control or similar transaction.
                  Any permitted assignee shall assume all obligations of its
                  assignor under this Agreement.

         14.5     No Implied Licenses. No rights to any other patents, Know-how
                  or technical information, or other intellectual property
                  rights, other than as explicitly identified herein, are
                  granted or deemed granted by this Agreement. No right, express
                  or implied, is granted by this Agreement to a Party to use in
                  any manner the name or any other trade name or trademark of
                  the other Party in connection with the performance of this
                  Agreement.

         14.6     No Waiver. No waiver, modification or amendment of any
                  provision of this Agreement shall be valid or effective unless
                  made in writing and signed by a duly authorized officer of
                  each Party. The failure of either Party to assert a right
                  hereunder or to insist upon compliance with any term or
                  condition of this Agreement shall not constitute a waiver of
                  that right or excuse a similar subsequent failure to perform
                  any such term or condition.

         14.7     Force Majeure. The failure of a Party to perform any
                  obligation under this Agreement by reason of acts of God, acts
                  of governments, riots, wars, strikes, accidents or
                  deficiencies in materials or transportation or other causes of
                  a similar magnitude beyond its control shall not be deemed to
                  be a breach of this Agreement.

         14.8     Independent Contractors. Both Parties are independent
                  contractors under this Agreement. Nothing contained in this
                  Agreement is intended nor is to be construed so as to
                  constitute 3DP or Janssen as partners or joint venturers with
                  respect to this Agreement. Neither Party shall have any
                  express or implied right or authority to assume or create any
                  obligations on behalf of or in the name of the

                                       39
<PAGE>

                  other Party or to bind the other Party to any other contract,
                  agreement or undertaking with any Third Party.

         14.9     Notices and Deliveries. Any formal notices, request, delivery,
                  approval or consent required or permitted to be given under
                  this Agreement shall be in writing and shall be deemed to have
                  been sufficiently given when it is received, whether delivered
                  in person, transmitted by facsimile with contemporaneous
                  confirmation, delivered by registered letter (or its
                  equivalent) or delivered by overnight courier service (receipt
                  required), to the Party to which it is directed at its address
                  shown below or such other address as such Party shall have
                  last given by notice to the other Parties.
<TABLE>

                  <S>                                             <C>
                  If to Janssen:                                  with a copy to:

                  Johnson & Johnson Pharmaceutical                Johnson & Johnson
                  Research & Development, LLC                     One Johnson & Johnson Plaza
                  U.S. Route 202                                  New Brunswick, New Jersey 08933
                  Raritan, NJ  08869

                  ATTN: Chairman                                  ATTN: Chief Patent Counsel
                  FAX: 908-707-1895                               FAX:  732-524-2138

                  If to 3DP:                                      with a copy to:

                  3-Dimensional Pharmaceuticals, Inc.             Morgan, Lewis & Bockius LLP
                  Three Lower Makefield Corporate Center          1701 Market Street
                  1020 Stony Hill Road, Suite 300                 Philadelphia, PA 19103
                  Yardley, PA  19067
                  ATTN:  Chief Executive Officer                  ATTN:  Manya S. Deehr, Esq.
                  FAX:  267-757-7248                              FAX:  215-963-5299

</TABLE>

         14.10    Public Announcements. On or shortly after the Effective Date,
                  3DP shall issue a press release with respect to entering into
                  this Agreement in the form attached hereto as Schedule 14.10.
                                                                --------------

         14.11    Headings. The captions to the sections and articles in this
                  Agreement are not a part of this Agreement, and are included
                  merely for convenience of reference only and shall not affect
                  its meaning or interpretation.

         14.12    Severability. In the event that any provision of this
                  Agreement shall, for any reason, be held to be invalid or
                  unenforceable in any respect, such invalidity or
                  unenforceability shall not affect any other provision hereof,
                  and this Agreement shall be construed as if such invalid or
                  unenforceable provision had not been included herein.


                                       40
<PAGE>

         14.13    No Consequential Damages. IN NO EVENT SHALL EITHER PARTY OR
                  ANY OF ITS RESPECTIVE AFFILIATES BE LIABLE TO THE OTHER PARTY
                  OR ANY OF ITS AFFILIATES FOR SPECIAL, INDIRECT, INCIDENTAL OR
                  CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT,
                  NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, INCLUDING, BUT NOT
                  LIMITED TO, LOSS OF PROFITS OR REVENUE, OR CLAIMS OF CUSTOMERS
                  OF ANY OF THEM OR OTHER THIRD PARTIES FOR SUCH OR OTHER
                  DAMAGES.

         14.14    Applicable Law. This Agreement shall be governed by and
                  interpreted in accordance with the laws of the State of
                  Delaware without reference to its conflicts of laws
                  provisions.

         14.15    Advice of Counsel. Janssen and 3DP have each consulted with
                  counsel of their choice regarding this Agreement, and each
                  acknowledges and agrees that this Agreement shall not be
                  deemed to have been drafted by one Party or another and will
                  be construed accordingly.

         14.16    Counterparts. This Agreement may be executed in counterparts,
                  or facsimile versions, each of which shall be deemed to be an
                  original, and both of which together shall be deemed to be one
                  and the same agreement.




                                       41
<PAGE>

         IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written, each copy of which -shall for all purposes be deemed to be an original.



3-DIMENSIONAL PHARMACEUTICALS, INC.          JANSSEN PHARMACEUTICA, N.V.


By:      __________________________          By:      __________________________

Name:    David C. U'Prichard, Ph.D.          Name:    __________________________

Title:   Chief Executive Officer             Title:   __________________________


                                             THE R.W. JOHNSON
                                             PHARMACEUTICAL RESEARCH
                                             INSTITUTE, a division of
                                             Ortho-McNeil Pharmaceutical, Inc.


                                             By:      __________________________

                                             Name:    __________________________

                                             Title:   __________________________







                                       42
<PAGE>

                                  Schedule 1.8


                          DIRECTED DIVERSITY(R) PATENTS



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

    TITLE      COUNTRY      SERIAL    FILING     PATENT       ISSUE DATE
                            NUMBER    DATE       NUMBER

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

               [* The entire table, consisting of 1 page, has been
            omitted pursuant to a confidential treatment request *]




                                       43
<PAGE>

                                  Schedule 1.17

                         THERMOFLUOR(R) VALIDATION TESTS



[*               *]

[*               *]




[* 1 entire page has been omitted pursuant to a confidential treatment
request *]


                                       44
<PAGE>

                                  Schedule 1.36

                                  RESEARCH PLAN



                  [* 1 entire page has been omitted pursuant to
                      a confidential treatment request *]




                                       45
<PAGE>

                                  Schedule 1.50

                             THERMOFLUOR(R) PATENTS

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

       TITLE         COUNTRY      SERIAL    FILING    PATENT     ISSUE DATE
                                  NUMBER     DATE     NUMBER
--------------------------------------------------------------------------------

               [* The entire table, consisting of 1 page, has been
            omitted pursuant to a confidential treatment request *]




                                       46
<PAGE>

                                  Schedule 2.1

                                     TARGETS

TARGET 1:         [*                *]

[*                                                            *]

TARGET 2:         [*                *]

[*                                                            *]

  [* 2 pages have been omitted pursuant to a confidential treatment request *]




                                       47
<PAGE>

                                  Schedule 2.2

                  [* 1 entire page has been omitted pursuant to
                      a confidential treatment request *]











                                       48
<PAGE>

                                  Schedule 5.14

                                WIRE INSTRUCTIONS

                  [* 1 entire page has been omitted pursuant to
                      a confidential treatment request *]




                                       49
<PAGE>

                                  Schedule 13.2

                             ARBITRATION PROCEEDINGS


         1.1  (a) Any dispute, controversy or claim arising out of or related to
                  this Agreement, or the interpretation, application, breach,
                  termination or validity thereof, including any claim of
                  inducement by fraud or otherwise, which claim would, but for
                  this provision, be submitted to arbitration shall, before
                  submission to arbitration, first be mediated through
                  non-binding mediation in accordance with the Model Procedures
                  for the Mediation of Business Disputes promulgated by the CPR
                  Institute for Dispute Resolution, or successor ("CPR") then in
                  effect, except where those rules conflict with these
                  provisions, in which case these provisions control. The
                  mediation shall be conducted in Wilmington, Delaware and shall
                  be attended by a senior executive with authority to resolve
                  the dispute from each of the operating companies that are
                  Parties.

              (b) The mediator shall be neutral, independent, disinterested and
                  shall be selected from a professional mediation firm such as
                  ADR Associates or JAMS/ENDISPUTE or CPR.

              (c) The parties shall promptly confer in an effort to select a
                  mediator by agreement. In the absence of such an agreement
                  within 10 days of initiation of the mediation, the mediator
                  shall be selected by CPR as follows: CPR shall provide the
                  parties with a list of at least 15 names. Each party shall
                  exercise challenges for cause, two peremptory challenges, and
                  rank the remaining candidates within 5 working days of
                  receiving the CPR list. The parties may together interview the
                  three top-ranked candidates for no more than one hour each
                  and, after the interviews, may each exercise one peremptory
                  challenge. The mediator shall be the remaining candidate with
                  the highest aggregate ranking.

              (d) The mediator shall confer with the parties to design
                  procedures to conclude the mediation within no more than 45
                  days after initiation. Under no circumstances may the
                  commencement of arbitration under Section 1.2 hereof be
                  delayed more than 45 days by the mediation process specified
                  herein absent contrary agreement of the parties.

              (e) Each party agrees not to use the period or pendency of the
                  mediation to disadvantage the other party procedurally or
                  otherwise. No statements made by either side during the
                  mediation may be used by the other or referred to during any
                  subsequent proceedings.

              (f) Each party has the right to pursue provisional relief from any
                  court, such as attachment, preliminary injunction, replevin,
                  etc., to avoid irreparable harm,

                                       50
<PAGE>

                  maintain the status quo, or preserve the subject matter of the
                               ------ ---
                  arbitration, even though mediation has not been commenced or
                  completed.

         1.2  (a) Following the mediation procedures set forth in Section 1.1,
                  any dispute, claim or controversy arising from or related in
                  any way to this Agreement or the interpretation, application,
                  breach, termination or validity thereof, including any claim
                  of inducement of this Agreement by fraud or otherwise, will be
                  submitted for resolution to arbitration pursuant to the rules
                  then pertaining of CPR, except where those rules conflict with
                  these provisions, in which case these provisions control. The
                  arbitration will be held in Wilmington, Delaware.

              (b) The panel shall consist of three arbitrators chosen from the
                  CPR Panels of Distinguished Neutrals (or, by agreement, from
                  another provider of arbitrators) each of whom is a lawyer with
                  at least 15 years experience with a law firm or corporate law
                  department of over 25 lawyers or was a judge of a court of
                  general jurisdiction. In the event the aggregate damages
                  sought by the claimant are stated to be less than $5 million,
                  and the aggregate damages sought by the counterclaimant are
                  stated to be less than $5 million, and neither side seeks
                  equitable relief, then a single arbitrator shall be chosen,
                  having the same qualifications and experience specified above.
                  Each arbitrator shall be neutral, independent, disinterested,
                  impartial and shall abide by The Code of Ethics for
                  Arbitrators in Commercial Disputes approved by the AAA. There
                  shall be no ex parte communications with an arbitrator either
                              -- -----
                  before or during the arbitration, relating to the dispute or
                  the issues involved in the dispute or the arbitrator's views
                  on any such issues.

              (c) The parties agree to cooperate (1) to attempt to select the
                  arbitrator(s) by agreement within 45 days of initiation of the
                  arbitration, including jointly interviewing the final
                  candidates, (2) to meet with the arbitrator(s) within 45 days
                  of selection and (3) to agree at that meeting or before upon
                  procedures for discovery and as to the conduct of the hearing
                  which will result in the hearing being concluded within no
                  more than 9 months after selection of the arbitrator(s) and in
                  the award being rendered within 60 days of the conclusion of
                  the hearings, or of any post-hearing briefing, which briefing
                  will be completed by both sides within 45 days after the
                  conclusion of the hearings.

              (d) In the event the parties cannot agree upon selection of the
                  arbitrator(s), CPR will select arbitrator(s) as follows: CPR
                  shall provide the parties with a list of no less than 25
                  proposed arbitrators (15 if a single arbitrator is to be
                  selected) having the credentials referenced above. Within 25
                  days of receiving such list, the parties shall rank at least
                  65% of the proposed arbitrators on the initial CPR list, after
                  exercising cause challenges. The parties may then interview
                  the five candidates (three if a single arbitrator is to be
                  selected) with the highest combined rankings for no more than
                  one hour each and, following the interviews, may exercise one
                  peremptory challenge each. The panel will consist of the
                  remaining three

                                       51
<PAGE>

                  candidates (or one, if one arbitrator is to be selected) with
                  the highest combined rankings.

                  In the event these procedures fail to result in selection of
                  the required number of arbitrators, CPR shall select the
                  appropriate number of arbitrators from among the members of
                  the various CPR Panels of Distinguished Neutrals, allowing
                  each side challenges for cause and three peremptory challenges
                  each.

              (e) In the event the parties cannot agree upon procedures for
                  discovery and conduct of the hearing meeting the schedule set
                  forth in Section 1.2(c) above, then the arbitrator(s) shall
                  set dates for the hearing, any post-hearing briefing, and the
                  issuance of the award in accord with the Section 1.2(c)
                  schedule. The arbitrator(s) shall provide for discovery
                  according to those time limits, giving recognition to the
                  understanding of the parties that they contemplate reasonable
                  discovery, including document demands and depositions, but
                  that such discovery be limited so that the Section 1.2(c)
                  schedule may be met without difficulty. In no event will the
                  arbitrator(s), absent agreement of the parties, allow more
                  than a total of ten days for the hearing or permit either side
                  to obtain more than a total of 40 hours of deposition
                  testimony from all witnesses, including both fact and expert
                  witnesses, or serve more than 20 individual requests for
                  documents, including subparts, or 20 individual requests for
                  admission or interrogatories, including subparts. Multiple
                  hearing days will be scheduled consecutively to the greatest
                  extent possible.

              (f) The arbitrator(s) must render their award by application of
                  the substantive law of the State of Delaware and are not free
                  to apply "amiable compositeur" or "natural justice and
                  equity." The arbitrator(s) shall render a written opinion
                  setting forth findings of fact and conclusions of law with the
                  reasons therefor stated. A transcript of the evidence adduced
                  at the hearing shall be made and shall, upon request, be made
                  available to either party. The arbitrator(s) shall have power
                  to exclude evidence on grounds of hearsay, prejudice beyond
                  its probative value, redundancy, or irrelevance and no award
                  shall be overturned by reason of such ruling on evidence. To
                  the extent possible, the arbitration hearings and award will
                  be maintained in confidence.

              (g) The United States District Court for the District in which the
                  arbitration is held may enter judgment upon any award. In the
                  event the panel's award exceeds $5 million in monetary damages
                  or includes or consists of equitable relief, or rejects a
                  claim in excess of that amount or for that relief, then the
                  court shall vacate, modify or correct any award (including
                  remanding to the arbitrators for further proceedings) where
                  the arbitrators' findings of fact are clearly erroneous,
                  and/or where the arbitrators' conclusions of law are
                  erroneous; in other words, the court will undertake the same
                  review as if it were a federal appellate court reviewing a
                  district court's findings of fact and conclusions of law
                  rendered after a bench trial. An award for less than $5
                  million in damages and not including equitable relief,


                                       52
<PAGE>

                  or which neither rejects a claim in excess of that amount or
                  for that relief, may be vacated, modified or corrected only
                  pursuant to the Federal Arbitration Act. The parties consent
                  to the jurisdiction of the above-specified Court for the
                  enforcement of these provisions, the review specified herein,
                  and the entry of judgment on any award. In the event such
                  Court lacks jurisdiction, then any court having jurisdiction
                  of this matter may enter judgment upon any award and provide
                  the same relief, and undertake the same review, as specified
                  herein.

              (h) In the event the expanded judicial review provided for under
                  Section 1.2(g) above is not available from the court as a
                  matter of law, the party unable to obtain such review may
                  instead obtain review of the arbitrators' award or decision by
                  a single appellate arbitrator (the "Appeal Arbitrator")
                  selected from the CPR list of distinguished neutrals and
                  pursuant to selection procedures specified in Section 1.2(d)
                  above. If CPR cannot provide such services, the parties will
                  together select another provider of arbitration services that
                  can. No Appeal Arbitrator shall be selected unless he or she
                  can commit to rendering a decision within forty-five days
                  following oral argument as provided in this paragraph. Any
                  such review must be initiated within thirty (30) days
                  following the date the court declines the expanded review
                  specified in Section 1.2(g) above. In the event timely review
                  is sought, the Appeal Arbitrator will make the same review of
                  the arbitration panel's ruling and its bases that the U.S.
                  Court of Appeals of the Circuit where the arbitration hearings
                  are held would make of findings of fact and conclusions of law
                  rendered by a district court after a bench trial and then
                  modify, vacate or affirm the arbitration panel's award or
                  decision accordingly, or remand to the panel for further
                  proceedings. The Appeal Arbitrator will consider only the
                  arbitration panel's findings of fact and conclusions of law,
                  pertinent portions of the hearing transcript and evidentiary
                  record as submitted by the parties, opening and reply briefs
                  of the party pursuing the review, and the answering brief of
                  the opposing party, plus a total of no more than four (4)
                  hours of oral argument evenly divided between the parties. The
                  party seeking review must submit its opening brief and any
                  reply brief within seventy-five (75) and one hundred thirty
                  (130) days, respectively, following the date the court
                  declines the expanded review specified in Section 1.2(g);
                  whereas, the opposing party must submit its responsive brief
                  within one hundred ten (110) days of that date. Oral argument
                  shall take place within five (5) months after the court
                  declines the expanded review specified in Section 1.2(g), and
                  the Appeal Arbitrator shall render a decision within
                  forty-five (45) days following oral argument. That decision
                  will be final and not subject to further review, except
                  pursuant to the Federal Arbitration Act.

              (i) Each party has the right before or, if the arbitrator(s)
                  cannot hear the matter within an acceptable period, during the
                  arbitration to seek and obtain from the appropriate court
                  provisional remedies such as attachment, preliminary
                  injunction, replevin, etc. to avoid irreparable harm, maintain
                  the status quo, or preserve the subject matter of the
                  arbitration.


                                       53
<PAGE>

              (j) EACH PARTY HERETO WAIVES ITS RIGHT TO TRIAL OF ANY ISSUE BY
                  JURY.

              (k) EACH PARTY HERETO WAIVES ANY CLAIM TO PUNITIVE, EXEMPLARY OR
                  MULTIPLIED DAMAGES FROM THE OTHER.

              (l) EACH PARTY HERETO WAIVES ANY CLAIM OF CONSEQUENTIAL DAMAGES
                  FROM THE OTHER.

              (m) EACH PARTY HERETO WAIVES ANY CLAIM FOR ATTORNEYS' FEES AND
                  COSTS AND PREJUDGMENT INTEREST FROM THE OTHER.




                                       54
<PAGE>

                                 SCHEDULE 14.10

                                  PRESS RELEASE

FOR IMMEDIATE RELEASE

<TABLE>
<CAPTION>

Corporate Contact                   Media Inquiries                 Investor Inquiries
-----------------                   ---------------                 ------------------
<S>                                 <C>                             <C>
3-Dimensional Pharmaceuticals       Noonan/Russo Communications     Rx Communications
Scott Horvitz                       Glenn Silver                    Melody Carey
VP, Finance and Administration      212-696-4455, ext. 271          917-322-2571
267-757-7208                        g.silver@noonanrusso.com        mcarey@rxir.com
horvitz@3dp.com                     ------------------------
---------------
</TABLE>


          3-DIMENSIONAL PHARMACEUTICALS ANNOUNCES DISCOVERWORKS(R)DRUG
            DISCOVERY ALLIANCE WITH JOHNSON & JOHNSON PHARMACEUTICAL
                             RESEARCH & DEVELOPMENT

Yardley, PA, January 7, 2002 - 3-Dimensional Pharmaceuticals, Inc. (Nasdaq:DDDP)
(3DP) today announced a drug discovery alliance that will apply 3DP's
proprietary technologies to discover and optimize small molecule drug leads
directed to genomics targets identified by Johnson & Johnson Pharmaceutical
Research & Development, L.L.C.

Under terms of the agreement, 3DP will receive an upfront technology access fee
and committed research funding during the research collaboration period. 3DP is
also eligible to receive milestone payments and royalties on any sales of
resulting products.

3DP (http://www.3dp.com) is an integrated bio-pharmaceuticals company dedicated
to revolutionizing small molecule drug discovery and development. 3DP's
proprietary platform, DiscoverWorks, can be applied to virtually any potential
drug target. It produces drug candidates suitable for faster development , with
fewer resources and a higher probability of success than using conventional drug
discovery methods. 3DP is developing its own drug pipeline and collaborates with
other pharmaceutical companies in discovery and development.

                                      ###

Statements in this press release that are not strictly historical are "forward
looking" statements which involve a high degree of risk and uncertainty. Such
statements are only predictions, and the actual events of results may differ
materially from those projected in such forward-looking statements. Factors that
could cause or contribute to differences include, but are not limited to, risks
associated with our new and uncertain technologies, clinical trials and product
development, the long and arduous process of obtaining regulatory approval, our
dependence on existing strategic alliances and new collaborations, our
dependence on patents and proprietary rights, our ability to protect and enforce
our patents and proprietary rights, the development and availability of
competitive products or technologies, our ability to attract and retain talented
employees and our ability to manage our expansion as a company increasingly
focused on internal product research and development.


                                       55

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.48
<SEQUENCE>5
<FILENAME>dex1048.txt
<DESCRIPTION>LICENSE AGREEMENT
<TEXT>
<PAGE>

                                                                   Exhibit 10.48


                               LICENSE AGREEMENT

                                GLAXOSMITHKLINE

                                      AND

                      3-DIMENSIONAL PHARMACEUTICALS, INC.



Note:  Certain portions of this License Agreement and its exhibits, which
----
are identified by the symbol "[*    *]", have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential treatment
request.
<PAGE>

                               LICENSE AGREEMENT
                               -----------------

     THIS LICENSE AGREEMENT (hereinafter "AGREEMENT"), made as of the _____ day
of January, 2002, between SmithKline Beecham Corporation, a Pennsylvania
corporation having a place of business at One Franklin Plaza, Philadelphia, PA
19101 ("SBC") and Glaxo Group Limited, a company incorporated in England and
Wales, having an office at Greenford Road, Greenford, Middlesex, UB6 OHE, United
Kingdom ("GGL" and, together with SBC, GlaxoSmithKline or "GSK") and 3-
Dimensional Pharmaceuticals, Inc., a Delaware corporation having a place of
business at Three Lower Makefield Corporate Center, 1020 Stony Hill Road,
Yardley, PA 19067 (herein referred to as "3DP"),

                                WITNESSETH THAT:
                                ----------------

     WHEREAS, GSK is the owner of all right, title and interest in certain
patents, identified in Appendix B hereto, and know-how, relating to two
thrombopoietin peptide mimetics known internally at GSK as AF13948 and AF15705,
as well as to certain PEGylated forms of these compounds known internally at GSK
as GW350805 and GW395058, respectively;

     WHEREAS GSK was developing, but has discontinued development of, GW350805
and W395058; and

     WHEREAS, 3DP desires to obtain an exclusive license, and GSK is willing to
grant an exclusive license to develop and commercialize such compounds on the
terms and conditions set forth herein.

     NOW, THEREFORE, in consideration of the covenants and obligations expressed
herein, and intending to be legally bound, and otherwise to be bound by proper
and reasonable conduct, the parties agree as follows:

1.   DEFINITIONS
     -----------

     1.01 "AFFILIATE" shall mean any corporation or other entity that controls,
is controlled by or is under common control with a party to this Agreement. A
corporation or other entity, as applicable, shall be regarded as in control of
another corporation or other entity if it owns or directly or indirectly
controls at least fifty percent (50%) of the voting stock of the other
corporation or (a) in the absence of the ownership of at least fifty percent
(50%) of the voting stock of a corporation or (b) in the case of a non-corporate
entity, if it possesses, directly or indirectly, the power to direct or cause
the direction of the management and policies of such corporation or non-
corporate entity, as applicable.


                                    Page 1
<PAGE>

     1.02 "EFFECTIVE DATE" shall mean the date as of which this Agreement is
effective and shall be the date of this Agreement first written above.

     1.03 "FIELD" shall the mean the development, manufacture and sale of
products that are peptides or modified peptides, including but not limited to
PRODUCTS, that exhibit activity mimetic to thrombopoietin and that [*        *];
excluding however for all purposes the development, manufacture and sale of
products that [*        *], including but not limited to PRODUCTS,
[*         *].

     1.04 "KNOW-HOW" shall mean the technical information and know-how that is
owned or controlled by GSK as of the EFFECTIVE DATE and that is necessary or
useful for the development, manufacturing or regulatory approval of a PRODUCT
and shall include, without limitation, biological, chemical, pharmacological,
toxicological, clinical, assay, control and manufacturing data and any other
information specifically relating to a PRODUCT. A non-comprehensive list of
documentation encompassed within KNOW-HOW is set forth on Appendix A attached
hereto, which may be amended from time to time by mutual agreement of the
parties. In addition, if in the course of providing the services described in
Appendix E, GSK develops additional information or know-how that is necessary or
useful for the development, manufacturing or regulatory approval of a PRODUCT,
KNOW-HOW shall also include such additional information and know-how. For the
avoidance of doubt, it is understood and agreed that LICENSOR shall have no
obligation to complete or finalize any draft reports or collections of data that
may be included within KNOW-HOW.

     1.05 "LICENSEE" shall mean 3DP.

     1.06 "LICENSOR" shall mean GSK.

     1.07 "NDA" shall mean an application for marketing approval of a
pharmaceutical product in any country of the world.

     1.08 "PATENTS" shall mean the patents and patent applications that are
owned by LICENSOR as of the EFFECTIVE DATE, or to which LICENSOR otherwise has
the right to grant licenses as of the EFFECTIVE DATE and that generically or
specifically claim a PRODUCT or compositions thereof, methods of manufacturing a
PRODUCT or compositions thereof, or methods of using a PRODUCT or compositions
thereof. Also included within the definition of PATENTS are all continuations,
continuations-in-part, divisions, patents of addition, utility models, reissues,
renewals, extensions and supplementary patent certificates derived from or based
on such patents and patent applications. The list of U.S. and PCT patent
applications and patents encompassed within PATENTS as of the EFFECTIVE DATE is
set forth in Appendix B attached hereto. Promptly following the EFFECTIVE DATE,
LICENSOR shall amend Appendix B to include all patent applications and patents
encompassed within PATENTS. In addition, PATENTS shall also include patents and
patent applications filed in

                                    Page 2
<PAGE>

accordance with Section 7.01 as well as all continuations, continuations-in-
part, divisions, patents of addition, utility models, reissues, renewals,
extensions and supplementary patent certificates derived from or based on such
patents and patent applications.


     1.09 "PRODUCT" shall mean any of AF15705, AF13948, GW350805 and GW395058,
each of which is more fully described on Appendix C, including alternative
PEGylated or otherwise-modified forms thereof and including pharmaceutical
compositions comprising such compounds or modified forms thereof, as well as any
derivatives thereof that are discovered or developed by LICENSEE during the term
of this AGREEMENT. "PRODUCTS" shall mean all of AF15705, AF13948, GW350805 and
GW395058 and all alternative PEGylated or otherwise-modified forms thereof and
including pharmaceutical compositions comprising such compounds or modified
forms thereof, as well as any derivatives thereof that are discovered or
developed by LICENSEE during the term of this AGREEMENT.

     1.10 "TERRITORY" shall mean all the countries and territories in the world.

     1.11 "THIRD PARTY(IES)" shall mean any party other than a party to this
Agreement or an AFFILIATE of either party.

2.  GRANT
    -----
     2.01 LICENSOR hereby grants to LICENSEE an exclusive license, with the
right to grant sublicenses, under the PATENTS and KNOW-HOW to make, have made,
use, offer to sell, sell and import products in the FIELD in the TERRITORY,
subject to the terms and conditions of this Agreement.

3.  PAYMENTS AND ROYALTIES
    ----------------------
     3.01 In consideration for the exclusive license to PATENTS and KNOW-HOW
granted to LICENSEE by LICENSOR under this Agreement, LICENSEE shall make the
following stock issuances to LICENSOR (to be split equally between each GSK
entity comprising LICENSOR) in accordance with the Stock Purchase Agreement
attached hereto as Appendix D:

          1.  500,000 shares of Common Stock of LICENSEE to be issued
within five (5) business days after the EFFECTIVE DATE;

          2.  [*                *] shares of Common Stock of LICENSEE to be
issued within ten (10 days of the effective date of [*              *], i.e.,
within ten (10) days of the date on which LICENSEE [*            *]or to an
analogous agency under the laws and regulations of any other country;

          3.  [*                *] shares of Common Stock of LICENSEE to be
issued within ten (10) days of [*                       *];

                                    Page 3
<PAGE>

          4.  [*                *] shares of Common Stock of LICENSEE to be
issued within ten (10) days of [*                       *];

          5.  [*                *] shares of Common Stock of LICENSEE to be
issued with ten (10) days of [*                 *].

        [*                                              *]

     3.02 The stock issuances specified in Section 3.01 shall be the sole
consideration for all rights granted to LICENSEE hereunder and for all
obligations assumed by LICENSOR hereunder.

     3.03 LICENSEE shall give LICENSOR prompt written notice of occurrence of
each of the development milestones identified in Section 3.01(2),(3),(4), and
(5).

4.   DEVELOPMENT AND REGISTRATION
     ----------------------------

     4.01 As of the EFFECTIVE DATE, LICENSEE shall have full control and
authority over, and shall be solely responsible for PRODUCTS, including but not
limited to the development, registration, manufacture and commercialization of
PRODUCTS in the TERRITORY.  LICENSEE will exercise its reasonable efforts and
diligence in developing and commercializing a PRODUCT in accordance with its
business, legal, medical and scientific judgment, and in undertaking
investigations and actions required to obtain appropriate governmental approvals
to market a PRODUCT in the TERRITORY.  All such activity shall be undertaken at
LICENSEE's expense.

     4.02 LICENSEE shall keep LICENSOR informed in writing, on an annual basis,
of the status of the development of PRODUCTS throughout the TERRITORY.

     4.03 Except as specified in Appendix E and in Section 4.04, LICENSOR shall
have no obligation to provide any support to LICENSEE, whether financially,
internal resource or otherwise, for the development and commercialization of
PRODUCTS under the terms of this Agreement or otherwise.

     4.04 Except to the extent transferred to LICENSEE pursuant to this
Agreement, LICENSOR shall maintain its data, records, reports, and other
information relating to the research and development of PRODUCTS to the same
extent, and with the same level of care, as it would for other pharmaceutical
products that it discovers, develops and directly commercializes, provided that
such data, records, reports, and other information are in its possession or
control as of the EFFECTIVE DATE.

5.   SUPPLY, DISTRIBUTION AND LABELING
     ---------------------------------

                                    Page 4
<PAGE>

     5.01 LICENSEE shall be solely responsible for providing its clinical,
promotional and commercial requirements of PRODUCTS throughout the TERRITORY.

     5.02 LICENSEE shall be solely responsible for the distribution in the
TERRITORY of PRODUCTS.

     5.03 At Licensee's discretion, PRODUCTS sold by LICENSEE or its permitted
sublicensees in the TERRITORY may bear a legend on its packaging stating that
such PRODUCT is sold under a license from LICENSOR and/or bearing the patent
numbers of patents claiming the PRODUCT that have been granted in the country of
sale; provided that the exact content of such legend must be approved by
LICENSOR prior to commercial launch in the TERRITORY if LICENSEE elects to use
such legends.  LICENSOR shall bear no responsibility for any limitation on
damages recoverable from an infringer in an infringement suit as provided for
under Section 7.05 herein if LICENSEE elects under this Section 5.03 to omit the
US patent numbers of patents claiming the PRODUCT.

6.   EXCHANGE OF INFORMATION, TRANSITIONAL SERVICES, AND CONFIDENTIALITY
     -------------------------------------------------------------------

     6.01 LICENSOR shall compile and transfer to LICENSEE, KNOW-HOW, including
but not limited to the documentation listed on Appendix A, and shall otherwise
provide certain transitional services, all as described in Appendix E.  The
obligation to transfer KNOW-HOW extends only to KNOW-HOW known to GSK as of
EFFECTIVE DATE or developed by GSK prior to acceptance of an IND for a PRODUCT.

     6.02 During the term of this Agreement and for five (5) years thereafter,
irrespective of any termination earlier than the expiration of the term of this
Agreement, LICENSOR shall not use or reveal or disclose to THIRD PARTIES any
confidential information received from LICENSEE without first obtaining the
written consent of LICENSEE, except as may be required to be disclosed to a
governmental agency, in which case LICENSOR shall give LICENSEE prior notice of
the details of such disclosure and of the requirements therefor.  This
confidentiality obligation shall not apply to such information which is or
becomes a matter of public knowledge, or is already in the possession of
LICENSOR, or is disclosed to LICENSOR by a THIRD PARTY having the right to do
so, or is subsequently and independently developed by employees of LICENSOR or
AFFILIATES thereof who had no knowledge of the confidential information
disclosed.  LICENSOR shall take reasonable measures to assure that no
unauthorized use or disclosure is made by others to whom access to such
information is granted.

     6.03 During the term of this Agreement and for five (5) years thereafter,
irrespective of any termination earlier than the expiration of the term of this
Agreement, LICENSEE shall not use or reveal or disclose to THIRD PARTIES any
confidential information received from

                                    Page 5
<PAGE>

LICENSOR in accordance with this Agreement or under the Confidential Information
Agreement between LICENSOR and LICENSEE dated June 16, 2001, without first
obtaining the written consent of LICENSOR. This confidentiality obligation shall
not apply to KNOW-HOW or to such information which is or becomes a matter of
public knowledge, or is already in the possession of LICENSEE, or is disclosed
to LICENSEE by a THIRD PARTY having the right to do so, or is subsequently and
independently developed by employees of LICENSEE or AFFILIATES thereof who had
no knowledge of the confidential information disclosed. LICENSEE shall take
reasonable measures to assure that no unauthorized use or disclosure is made by
others to whom access to such information is granted.

     6.04 Either party to this Agreement may release the announcement attached
hereto as Appendix F.  Otherwise, no public announcement or other disclosure to
THIRD PARTIES concerning the existence of or terms of this Agreement shall be
made, either directly or indirectly, by any party to this Agreement, except as
may be legally required or as may be required for recording purposes, without
first obtaining the written approval of the other party and agreement upon the
nature and text of such announcement or disclosure; provided however, that in
the event of any disclosure required by law or required for recording purposes,
the disclosing party shall notify the other party prior to any such disclosure
and reasonably cooperate with any requests to limit or otherwise protect any
such disclosures.

     The above notwithstanding, without the prior consent of LICENSOR, LICENSEE
may disclose to third parties information concerning the development and
commercialization of PRODUCTS provided that it shall not disclose the terms of
this Agreement, except to the extent already disclosed by the announcement
attached as Appendix F, without the prior written consent of LICENSOR.

     A party desiring to make any other public announcement or other disclosure
shall inform the other party of the proposed announcement or disclosure in
reasonably sufficient time prior to release, and shall provide the other party
with a written copy thereof, in order to allow such other party to comment upon
such announcement or disclosure.

     6.05 LICENSOR shall not submit for written or oral publication any
manuscript, abstract or the like which includes data or other information
relating to either PRODUCT without first obtaining the prior written consent of
LICENSEE.

     6.06 Nothing in this Agreement shall be construed as preventing or in any
way inhibiting LICENSEE from complying with statutory and regulatory
requirements governing the development, manufacture, use and sale or other
distribution of PRODUCTS in any manner that it reasonably deems appropriate,
including, for example, by disclosing to regulatory authorities confidential or
other information received from LICENSOR or THIRD PARTIES.

                                    Page 6
<PAGE>

     6.07 All confidential information disclosed by one party to the other shall
remain the intellectual property of the disclosing party.  In the event that a
court or other legal or administrative tribunal, directly or through an
appointed master, trustee or receiver, assumes partial or complete control over
the assets of a party to this Agreement based on the insolvency or bankruptcy of
such party, the bankrupt or insolvent party shall promptly notify the court or
other tribunal (i) that confidential information received from the other party
under this Agreement remains the property of the other party and (ii) of the
confidentiality obligations under this Agreement.  In addition, the bankrupt or
insolvent party shall, to the extent permitted by law, take all steps necessary
or desirable to maintain the confidentiality of the other party's confidential
information and to ensure that the court, other tribunal or appointee maintains
such information in confidence in accordance with the terms of this Agreement.

7.   PATENT PROSECUTION AND LITIGATION
     ----------------------------------

     7.01 Each party shall have and retain sole and exclusive title to all
inventions, discoveries and know-how which are made, conceived, reduced to
practice or generated solely by its employees, agents, or other persons acting
under its authority in the course of or as a result of the performance of
activities under this Agreement.  Each party shall own a fifty percent (50%)
undivided interest in all such inventions, discoveries and know-how made,
conceived, reduced to practice or generated jointly by employees, agents, or
other persons acting under the authority of both parties in the course of or as
a result of the performance of activities under this Agreement.  For the
avoidance of doubt, it is understood and agreed that LICENSOR is not obligated
to, and has no intent of being involved at all with LICENSEE in the development
or commercialization of PRODUCT under this Agreement, and that the
responsibility for the development and commercialization of PRODUCT rests solely
with LICENSEE, except as provided in Appendix E and in Section 4.04.  LICENSOR
shall have the right to file, prosecute and maintain patent applications and
patents directed to inventions and discoveries that are owned in whole by
LICENSOR in accordance with this Section 7.01.  LICENSEE shall have the right to
file, prosecute and maintain patent applications and patents directed to
inventions and discoveries that are owned in whole by LICENSEE in accordance
with this Section 7.01.  Both parties shall have the right to file, prosecute
and maintain patent applications and patents directed to inventions and
discoveries that are jointly owned by LICENSEE and by LICENSOR in accordance
with this Section 7.01 and the parties shall agree upon which of them shall take
the lead in filing, prosecuting and maintaining such patent applications at the
equal expense of both parties.  If either party declines to exercise its rights
to file, prosecute and maintain patent applications or patents hereunder, the
other party shall have the right to file, prosecute and maintain such patent
applications and patents at its own expense.

                                    Page 7
<PAGE>

     7.02 LICENSOR shall disclose to LICENSEE the complete texts of all patents
and patent applications that are PATENTS as well as of all correspondence to or
from the U.S. Patent and Trademark Office, and other patent offices around the
world, relating to such patents and patent applications, as well as all
information received concerning the institution or possible institution of any
interference, opposition, re-examination, reissue, revocation, nullification or
any official proceeding involving a PATENT anywhere in the TERRITORY.  All such
disclosures shall be subject to the provisions of Section 6.03.  LICENSEE shall
have the right to comment upon all patent office communications concerning such
patents and patent applications as well as on all proposed responses to such
communications.

     7.03 In addition, LICENSOR shall consult with patent attorneys appointed by
LICENSEE prior to taking any action that would result in the narrowing of claims
that cover the making, using, or selling of a PRODUCT, or that would otherwise
reduce the patent coverage for a PRODUCT, provided that the fees and expenses of
the appointed patent attorneys shall be paid by LICENSEE.  LICENSEE shall have
the right to assume responsibility for any PATENT or any part of a PATENT that
covers the making, using or selling of a PRODUCT and that LICENSOR intends to
abandon or otherwise cause or allow to be forfeited.

     7.04 In the event of the institution of any suit by a THIRD PARTY against
LICENSOR, LICENSEE or its sublicensees for patent infringement involving the
manufacture, use, sale, distribution or marketing of PRODUCT anywhere in the
TERRITORY, the party sued shall promptly notify the other party in writing.
LICENSEE shall have the right but not the obligation to defend such suit at its
own expense.  LICENSOR and LICENSEE shall assist one another and cooperate in
any such litigation at the other's reasonable request without expense to the
requesting party.

     7.05 In the event that LICENSOR or LICENSEE becomes aware of actual or
threatened infringement of a patent claim in a PATENT, which claim covers the
making, using, or selling of a product in the FIELD anywhere in the TERRITORY,
that party shall promptly notify the other party in writing.  LICENSEE shall
have the first right but not the obligation to bring, at its own expense, an
infringement action against any THIRD PARTY and, if required in order to bring
or maintain such action or to recover the full measure of damages, to use
LICENSOR's name in connection therewith and to include LICENSOR as a party
thereto.  If LICENSEE does not commence a particular infringement action within
ninety (90) days, LICENSOR, if LICENSEE consents, shall be entitled to bring
such infringement action at its own expense.  The party conducting such action
shall have full control over its conduct, including settlement thereof, subject
to Paragraph 7.07.  In any event, LICENSOR and LICENSEE shall assist one another
and cooperate in any such litigation at the other's reasonable request without
expense to the requesting party.

                                    Page 8
<PAGE>

     7.06 LICENSOR and LICENSEE shall recover their respective actual out-of-
pocket expenses, or equitable proportions thereof, associated with any
litigation or settlement thereof from any recovery made by any party. Any excess
amount shall be kept by the party that conducted the litigation.

     7.07 The parties shall keep one another informed of the status of and of
their respective activities regarding any litigation or settlement thereof
concerning PRODUCT, provided that no settlement or consent judgment or other
voluntary final disposition of any suit defended or action brought by one party
pursuant to this Article 7 may be entered into without the consent of the other
party if such settlement would require the non-settling party to be subject to
an injunction outside the FIELD or to make a monetary payment for which the non-
settling party is not indemnified by the settling party or would adversely
affect the non-settling party's rights under this Agreement.

8.   TRADEMARKS AND NON-PROPRIETARY NAMES
     ------------------------------------

     8.01 LICENSEE, at its expense, shall be responsible for the selection,
registration and maintenance of all trademarks that it employs in connection
with PRODUCT in the TERRITORY and shall own and control such trademarks.
Nothing in this Agreement shall be construed as a grant of rights, by license or
otherwise, to LICENSOR to use such trademarks for any purpose.

9.   TERM AND TERMINATION
     --------------------

     9.01 Unless otherwise terminated, this Agreement shall expire upon the
expiration, lapse or invalidation of the last remaining PATENT in any country of
the TERRITORY that covers the making, using, selling, or importing of PRODUCT.
Expiration of this Agreement under this provision shall not preclude LICENSEE
from continuing to market PRODUCT and to use KNOW-HOW without further payments
to LICENSOR.

     9.02 If either party fails or neglects to perform material covenants or
provisions of this Agreement and if such default is not corrected within thirty
(30) days after receiving written notice from the other party with respect to
such default, such other party shall have the right to terminate this Agreement
by giving written notice to the party in default; provided, however, that if
such default is contested in accordance with Article 14, then the termination
shall not take effect until the matter is finally resolved.

     9.03 LICENSEE may terminate this Agreement at any time and at its
discretion by giving thirty (30) days written notice thereof to LICENSOR.  Upon
any termination by LICENSOR pursuant to Section 9.02 or LICENSEE pursuant to
this Section 9.03, in addition to the provisions of Article 10 below, LICENSEE
shall return to LICENSOR any KNOW-HOW

                                    Page 9
<PAGE>

provided to LICENSEE hereunder. In addition, LICENSEE shall grant to LICENSOR a
license under LICENSEE's rights in all pre-clinical, clinical, regulatory,
manufacturing and other documentation and related know-how and patents relating
to PRODUCTS developed and/or commercialized hereunder under commercially
reasonable terms to be negotiated in good faith between the parties.

     9.04 Either party may terminate this Agreement if, at any time, the other
party shall file in any court or agency pursuant to any statute or regulation of
any state or country, a petition in bankruptcy or insolvency or for
reorganization or for an arrangement or for the appointment of a receiver or
trustee of the party or of its assets, or if the other party proposes a written
agreement of composition or extension of its debts, or if the other party shall
be served with an involuntary petition against it, filed in any insolvency
proceeding, and such petition shall not be dismissed within sixty (60) days
after the filing thereof, or if the other party shall propose or be a party to
any dissolution or liquidation, or if the other party shall make an assignment
for the benefit of creditors.

     9.05 Notwithstanding the bankruptcy of LICENSOR, or the impairment of
performance by LICENSOR of its obligations under this Agreement as a result of
bankruptcy or insolvency of LICENSOR, LICENSEE shall be entitled to retain the
licenses granted herein, subject to LICENSOR's rights to terminate this
Agreement for reasons other than bankruptcy or insolvency as expressly provided
in this Agreement.

10.  RIGHTS AND DUTIES UPON TERMINATION
     ----------------------------------

     10.01  Upon termination of this Agreement, LICENSOR shall have the right to
retain any shares of Common Stock of LICENSEE already issued to LICENSOR by
LICENSEE under this Agreement or the Stock Purchase Agreement, and LICENSEE
shall issue to LICENSOR all shares of Common Stock that may be due as of the
effective date of termination under Section 3.01.

     10.02  Termination of this Agreement shall terminate all outstanding
obligations and liabilities between the parties arising from this Agreement,
including without limitation the licenses granted in Article 2 hereof, except
those described in Paragraphs 6.02, 6.03, 6.07, 7.01, 9.01, 9.03, 11.06, 13.01
and 14.01 and Article 10, as well as any other provision which, by its terms, is
stated to survive the termination or expiration of this Agreement.  In addition,
any other provision required to interpret and enforce the parties rights and
obligations under this Agreement shall also survive, but only to the extent that
such survival is required for the full observation and performance of this
Agreement by the parties hereto.

     10.03  Termination of the Agreement in accordance with the provisions
hereof shall not limit remedies that may be otherwise available in law or
equity.

                                    Page 10
<PAGE>

11.    WARRANTIES AND REPRESENTATIONS
       ------------------------------

     11.01  LICENSOR represents and warrants that, except as listed in
Appendix G:

        11.1.1.  it has the right to enter into this Agreement;

        11.1.2. as of the EFFECTIVE DATE, to its belief and knowledge, but
without any inquiry or investigation, the claims in the PATENTS listed on
Appendix B that cover the making, using or selling of a PRODUCT are valid and
enforceable;

        11.1.3. as of the EFFECTIVE DATE, to its belief and knowledge, but
without any inquiry or investigation, there are no third party patents or other
intellectual property rights that would preclude or inhibit LICENSEE from
making, using, or selling PRODUCTS in the Field;

        11.1.4. as of the EFFECTIVE DATE, to its belief and knowledge, but
without any inquiry or investigation, there are no third party liens or other
encumbrances, including but not limited to encumbrances arising from contracts
with third parties, on the PRODUCTS or on the PATENTS listed on Appendix B for
use in the Field;

        11.1.5. it has disclosed or will timely disclose to LICENSEE all
information and data relevant to the safety of the PRODUCTS.

     11.02  Nothing in this Agreement shall be construed as a warranty that
PATENTS are valid or enforceable or that their exercise does not infringe any
patent rights of THIRD PARTIES.

     11.03  [*                    *].

     11.04  LICENSEE acknowledges that, in entering into this Agreement,
LICENSEE has independently evaluated any information supplied by LICENSOR and
related to PRODUCT and PATENTS before making its decision to enter into this
Agreement and to undertake the commitments and obligations set forth herein,
except that LICENSEE has relied upon the representations and warranties by
LICENSOR expressly recited in Section 11.01.  LICENSEE expressly acknowledges
that it is solely responsible for the development and commercialization of
PRODUCT and that, except as expressly set forth herein, LICENSOR has no
obligation to provide assistance in any manner to LICENSEE in the development
and commercialization of PRODUCT.

     11.05  LICENSEE warrants that, with respect to any sublicense which it
shall be entitled to grant under this Agreement, it shall secure all appropriate
covenants, obligations and rights from any such sublicensee to ensure that such
sublicensee can comply with all of LICENSEE' covenants and obligations to
LICENSOR under this Agreement.  LICENSEE agrees that it shall comply with all
reasonable requests from LICENSOR to use reasonable endeavors to enforce
requested provisions of such sublicense agreements.

                                    Page 11
<PAGE>

     11.06   LICENSEE shall indemnify and hold harmless LICENSOR and its
Affiliates with respect to any and all claims, suits, causes of action, damages
and costs (including reasonable attorney's fees) (hereinafter "Claims") asserted
by any Third Party against LICENSEE and/or LICENSOR and arising from any of
LICENSEE'S actions or omissions under this Agreement, including without
limitation any claims for illness, injury, death or other damage resulting from
LICENSEE or its AFFILIATES manufacture, use or sale of PRODUCT, except to the
extent:

        11.6.1. such Claims are due to the negligence or willful misconduct of
LICENSOR or to breach by LICENSOR of its representations and warranties under
Section 11.01

        11.6.2. LICENSOR fails to give LICENSEE prompt notice of such Claims,
fails to permit LICENSEE to control the defense or settlement of such Claims, or
fails to reasonably cooperate with LICENSEE in the defense of such Claims;
provided however that LICENSEE shall not settle any claim that imposes an
injunction on LICENSOR outside of the FIELD or imposes a monetary judgement on
LICENSOR for which LICENSOR is not indemnified by LICENSEE or otherwise
adversely affects LICENSOR's rights outside the FIELD.

     11.07  Immediately upon the first administration of a PRODUCT to a human in
accordance with this Agreement, and for a period of at least five (5) years
after the expiration of this Agreement or earlier termination, LICENSEE shall
obtain and/or maintain, at its sole cost and expense, product liability
insurance in amounts, which are reasonable and customary in the U.S.
pharmaceutical industry for companies that are of similar size and similarly
situated as LICENSEE.  Such product liability insurance shall insure against all
liability, including product liability, personal liability, physical injury or
property damage.  LICENSEE shall provide written proof of the existence of such
insurance to LICENSOR upon request therefor.

12.  FORCE MAJEURE
     -------------

     12.01  If the performance of any part of this Agreement by either party, or
of any obligation under this Agreement, is prevented, restricted, interfered
with or delayed by reason of any cause beyond the reasonable control of the
party liable to perform, unless conclusive evidence to the contrary is provided,
the party so affected shall, upon giving written notice to the other party, be
excused from such performance to the extent of such prevention, restriction,
interference or delay, provided that the affected party shall use its reasonable
best efforts to avoid or remove such causes of non-performance and shall
continue performance with the utmost dispatch whenever such causes are removed.
When such circumstances arise, the parties shall discuss what, if any,
modification of the terms of this Agreement may be required in order to arrive
at an equitable solution.

                                    Page 12
<PAGE>

13.  GOVERNING LAW
     -------------

     13.01  This Agreement shall be deemed to have been made in Pennsylvania and
its form, execution, validity, construction and effect shall be determined in
accordance with the laws of Pennsylvania.

14.  DISPUTE RESOLUTION
     ------------------

     14.01  Any dispute, controversy or claim arising out of or relating to this
Agreement, including termination thereof (hereinafter collectively referred to
as "Dispute") shall be attempted to be settled by the parties, in good faith, by
submitting each such Dispute to appropriate senior management representatives of
each party in an effort to effect a mutually acceptable resolution thereof.  In
the event no mutually acceptable resolution is achieved in a reasonable period
of time, then either party may submit the Dispute to binding arbitration in
accordance with the relevant rules of the American Arbitration Association and
the result of such arbitration shall be binding upon the parties and shall be
final. Any such arbitration shall take place in Philadelphia, Pennsylvania.

15.  SEPARABILITY
     ------------

     15.01  In the event any portion of this Agreement shall be held illegal,
void or ineffective, the remaining portions hereof shall remain in full force
and effect.

     15.02  If any of the terms or provisions of this Agreement are in conflict
with any applicable statute or rule of law, then such terms or provisions shall
be deemed inoperative to the extent that they may conflict therewith and shall
be deemed to be modified to conform with such statute or rule of law.

     15.03  In the event that the terms and conditions of this Agreement are
materially altered as a result of Paragraphs 15.01 or 15.02, the parties will
renegotiate the terms and conditions of this Agreement to resolve any
inequities.

16.  ENTIRE AGREEMENT
     ----------------

     16.01  This Agreement, entered into as of the date first written above,
constitutes the entire agreement between the parties relating to the subject
matter hereof and supersedes all previous writings and understandings, including
but not limited to the Confidential Information Agreement between LICENSOR and
LICENSEE dated June 16, 2001.   No terms or provisions of this Agreement shall
be varied or modified by any prior or subsequent statement, conduct or act of
either of the parties, except that the parties may amend this Agreement by
written instruments specifically referring to and executed in the same manner as
this Agreement.

                                    Page 13
<PAGE>

17.  NOTICES
     -------

     17.01  Any notice required or permitted under this Agreement shall be sent
by air mail, postage pre-paid, to the following addresses of the parties:

        LICENSEE

          To:       3-Dimensional Pharmaceuticals, Inc.
                    Three Lower Makefield Corporate Center
                    1020 Stony Hill Road
                    Yardley, PA 19067

                    Attn:  Chief Executive Officer
                    Fax No.:  267-757-7283

          Copy to:
                    Morgan, Lewis & Bockius, LLP
                    1701 Market Street
                    Philadelphia, PA  19103-2921
                    Fax No.  215-963-5299
                    Attention: Edward T. Lentz, Esq. and Linda Griggs, Esq.


          LICENSOR

          To:       GlaxoSmithKline
                    1250 Collegeville Road
                    Collegeville, PA 19426-0989

                    Attn:  Mr. Osagie Imasogie
                           V.P. and Director,
                           Genetics and Discovery Ventures
                    Fax:   610-917-4234

          Copy to:  GlaxoSmithKline
                    Corporate Law Department
                    One Franklin Plaza
                    200 North 16th Street / FP2360
                    Philadelphia, PA  19102
                    Attn:  General Counsel
                    Fax:  215-751-3935

     17.02  Any notice required or permitted to be given concerning this
Agreement shall be effective upon receipt by the party to whom it is addressed.

                                    Page 14
<PAGE>

18.  ASSIGNMENT
     ----------

     18.01  This Agreement and the licenses herein granted shall be binding upon
and inure to the benefit of the successors in interest of the respective
parties.  Neither this Agreement nor any interest under this Agreement shall be
assignable by either party without the written consent of the other; provided,
however, that either party may assign this Agreement  to (i) any AFFILIATE or
(ii) any corporation with which it may merge or consolidate, or to which it may
transfer all or substantially all of its assets , without obtaining the consent
of the other party; provided further that any such assignee shall agree to be
bound by the terms and conditions of this Agreement.  For the avoidance of
doubt, LICENSEE's obligations under the Stock Purchase Agreement and
Registration Rights Agreement shall not be affected by any such assignment.

19.  RECORDING
     ---------

     19.01  LICENSEE shall have the right, at any time, to record, register, or
otherwise notify this Agreement in appropriate governmental or regulatory
offices anywhere in the TERRITORY, and LICENSOR shall provide reasonable
assistance to LICENSEE in effecting such recording, registering or notifying.

20.  EXECUTION IN COUNTERPARTS
     -------------------------

     20.01  This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.

                                    Page 15
<PAGE>

     IN WITNESS WHEREOF, the parties, through their authorized officers, have
executed this Agreement as of the date first written above.

3-DIMENSIONAL PHARMACEUTICALS, INC.

BY:
    ---------------------------------

TITLE:
       ------------------------------


SMITHKLINE BEECHAM CORPORATION

BY:
    ---------------------------------

TITLE:
       ------------------------------


GLAXO GROUP LIMITED

BY:
    ---------------------------------

TITLE:
       ------------------------------

                                    Page 16
<PAGE>

                               LICENSE AGREEMENT
                             GLAXOSMITHKLINE - 3DP
                                   APPENDIX A

                   Documentation Encompassed Within KNOW-HOW
                                   Appendix A

  Documentation Encompassed Within KNOW-HOW
  -----------------------------------------

GSK agrees to supply the following documentation to the extent such information
is in its possession at the time of the Effective Date.  If electronic versions
are available, information will be supplied electronically.  If only hardcopy
information is available then hardcopy will be supplied.


  [* 2 pages have been omitted pursuant to a confidential treatment request *]

Electronic version of the Confidential Data Package


                                      A-1
<PAGE>

Appendix A continued

Documentation Encompassed Within KNOW-HOW
-----------------------------------------

The following documentation was available in the due diligence notebooks and GSK
agrees to supply this information to 3DP.

                      [*                              *]

<TABLE>
<CAPTION>
                                           INDI
        Subject         Document No.     Document/1/     Title                             Author
     <S>                <C>              <C>             <C>                               <C>
     [*         *]      [*        *]     [*        *]    [*                           *]   [*            *]
</TABLE>

   [* The entire table, consisting of 3 pages, has been omitted pursuant to
a confidential treatment request *]

                                      A-3
<PAGE>

                  [*                                      *]
<TABLE>
<CAPTION>
                                           INDI
        Subject         Document No.     Document/1/     Title                             Author
     <S>                <C>              <C>             <C>                               <C>
     [*         *]      [*        *]     [*        *]    [*                           *]   [*            *]
</TABLE>

   [* The entire table, consisting of 2 pages, has been omitted pursuant to a
                       confidential treatment request *]


                                      A-6
<PAGE>

                  [*                                      *]
<TABLE>
<CAPTION>
          Date             From             To                  Subject
     <S>                <C>              <C>                <C>
     [*         *]      [*        *]     [*        *]       [*                           *]
</TABLE>

[* The entire table, consisting of 3 pages, has been omitted pursuant to a
confidential treatment request *]

                                      A-8
<PAGE>

                  [*                                      *]
<TABLE>
<CAPTION>
                                           INDI
        Subject         Document No.     Document/1/     Title                             Author
     <S>                <C>              <C>             <C>                               <C>
     [*         *]      [*        *]     [*        *]    [*                           *]   [*            *]
</TABLE>

   [* The entire table, consisting of 5 pages, has been omitted pursuant to a
                       confidential treatment request *]

                                     A-11

<PAGE>

                         [*                             *]


<TABLE>
<CAPTION>
                                                                                           Created or Last
        Subject          Document        Format          Contents                             Modified
     <S>                <C>              <C>             <C>                               <C>
         [* *]            [*  *]         [* *]            [* *]                                 [* *]

</TABLE>

   [* The entire table, consisting of 1 page, including a portion of one
 footnote, has been omitted pursuant to a confidential treatment request *]



Notes:
1)  A single report may be reissued and appear in more than one INDI document
    files.
2)  Electronic copy not available.  Only pages or sections relevant to
    [*         *] provided.

                                     A-16
<PAGE>

                               LICENSE AGREEMENT
                             GLAXOSMITHKLINE - 3DP
                                   APPENDIX B

                            PATENTS AND APPLICATIONS

                                  U.S. PATENTS
                                  ------------

                         [*                          *]


                        U.S. PENDING PATENT APPLICATIONS
                        --------------------------------

                         [*                          *]

                                PCT APPLICATIONS
                                ----------------

                         [*                          *]


                       NON-U.S. PATENTS AND APPLICATIONS
                       ---------------------------------

  Any and all non-U.S. patents that claim priority to one or more of the U.S.
Patents, U.S. Pending Patent Applications and PCT Applications set forth above.
                    A complete list will be provided by GSK.


                                      B-1
<PAGE>

                               LICENSE AGREEMENT
                             GLAXOSMITHKLINE - 3DP
                                   APPENDIX C

                            DESCRIPTION OF COMPOUNDS

                                    AF13948
                                    -------
                                 [*         *]

                                    AF15705
                                    -------
                                 [*          *]

                                    GW350805
                                    --------
                           [*                        *]

                                    GW395058
                                    --------
                             [*                 *]


                                   C-1
<PAGE>

           STOCK PURCHASE AGREEMENT and REGISTRATION RIGHTS AGREEMENT
                             GLAXOSMITHKLINE - 3DP
                                   Appendix D

                            STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (the "Agreement") is made as of January___, 2002
                                    ---------
by and among 3-Dimensional Pharmaceuticals, Inc., a Delaware corporation
( "3DP"), SmithKline Beecham Corporation, a Pennsylvania corporation ("SBC"),
   ---                                                                 ---
and Glaxo Group Limited, a company incorporated in England and Wales ("GGL"
                                                                       ---
and, together with SBC, "GSK").
                         ---

                                WITNESSETH THAT:

WHEREAS, 3DP and GSK are entering into a License Agreement simultaneously with
the execution of this Agreement whereby GSK is granting to 3DP an exclusive
license to certain patents and know-how described in such License Agreement (the
"License");
 -------

WHEREAS, pursuant to the License Agreement and in consideration for the License,
3DP has agreed to issue shares of its common stock, par value $.001 per share
(the "3DP Common Stock"), in equal amounts to SBC and GGL in accordance with the
      ----------------
terms and conditions of this Agreement;

NOW, THEREFORE, in consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties to this Agreement, intending to be legally
bound, hereby agree as follows:

     1.  Authorization of the Shares.  3DP has authorized the issuance and sale
         ----------------------------
to SBC and GGL of up to 2,400,000 shares of its Common Stock (the "Shares").
                                                                   ------

     2.  Purchase and Sale of the Shares.  Subject to the terms and conditions
         --------------------------------
of this Agreement and the terms and conditions of the License Agreement, and in
consideration for the grant of the License by GSK to 3DP, 3DP agrees to issue
and sell, the following number of Shares, such amount of Shares to be issued in
equal amounts to SBC and GGL:

          (a) 500,000 shares of 3DP Common Stock to be issued within five (5)
business days after the Closing Date;

          (b) [*       *] shares of 3DP Common Stock to be issued within ten
(10) days of the effective date of [*          *], i.e., within ten (10) days
of  the date on which 3DP [*         *] or to an analogous agency under the laws
and regulations of any other country;

                                  D-1
<PAGE>

          (c) [*       *] shares of 3DP Common Stock to be issued within ten
(10) days of [*          *];

          (d) [*       *] shares of 3DP Common Stock to be issued within ten
(10) days of [*          *]; and

          (e) [*       *] shares of 3DP Common Stock to be issued within ten
(10) days of [*          *].

          [*                   *].  In addition, for the purposes of this
Section 2, the terms "Product" and "IND" shall have the meanings ascribed to
                      -------       ---
such terms in the License Agreement.

          For purposes of this Agreement, the Shares to be issued pursuant to
Section 2(a) shall be referred to herein as the "Initial Shares" and the Shares
                                                 --------------
to be issued upon achievement of the milestones identified in Section 2(b), (c),
(d) and (e) shall be referred to herein as the "Contingent Shares."
                                                -----------------

          2.1  Adjustments.  If, on or prior to the issuance of any of the
               ------------
Shares, 3DP should split or combine shares of 3DP Common Stock, or pay a stock
dividend or other stock distribution in 3DP Common Stock, or otherwise change
the 3DP Common Stock into any other securities, or make any other dividend or
distribution on the 3DP Common Stock, then the number of Shares issuable will be
appropriately adjusted to reflect such split, combination, dividend or other
distribution or change.  No fractions of any Shares shall be issued pursuant to
this Agreement and the Shares issued hereunder shall be rounded up to the
nearest whole number of shares.  [*                   *].

     3.  Closing.  The issuance of the Initial Shares will occur within five
         --------
business days of the execution of the License Agreement (the "Closing Date") at
                                                              ------------
the offices of 3DP's counsel or at such other place as may be agreed upon by 3DP
and GSK.  On the Closing Date, 3DP will deliver to GSK, or a representative of
GSK, stock certificates representing the Initial Shares, each such certificate
to be registered in the name of SBC and GGL, as applicable, or in the name of a
nominee designated by SBC or GGL.  The issuance of the Contingent Shares shall
be made within ten days following the achievement of the milestones referenced
in Sections 2(b), (c), (d) and (e).  3DP's obligation to issue the Contingent
Shares will terminate upon the termination or expiration of the License
Agreement in accordance with its terms and will be conditioned on a material
breach or default not having occurred under this Agreement.

     4.  Representations, Warranties and Covenants of 3DP.  3DP hereby
         ------------------------------------------------
represents and warrants to, and covenants with, SBC and GGL, as follows:

          4.1  Organization.  3DP is duly incorporated and validly existing in
               ------------
good standing under the laws of the jurisdiction of its incorporation. 3DP has
full power and authority to own, operate and occupy its properties and to
conduct its business as presently conducted and as described in the documents
(including the exhibits thereto) filed by 3DP under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), since the end of its most recently
                          ------------
completed fiscal year through the date

                                      D-2
<PAGE>

hereof, including, without limitation, its report on Form 10-K for the year
ended December 31, 2000, its quarterly reports on Form 10-Q for the quarters
ending September 30, 2001, June 30, 2001 and March 31, 2001 and, its current
reports on Form 8-K filed with the Securities and Exchange Commission (the
"SEC") on September 28, 2001 and January 3, 2001, (the "Exchange Act Documents")
 ---                                                    ----------------------
and is registered or qualified to do business and in good standing in each
jurisdiction in which the nature of the business conducted by it or the location
of the properties owned or leased by it requires such qualification and where
the failure to be so qualified would have a material adverse effect upon the
financial condition or results of operations of 3DP (a "Material Adverse
                                                        ----------------
Effect"), and no proceeding has been instituted in any such jurisdiction,
------
revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.

          4.2  Due Authorization and Valid Issuance.  3DP has all requisite
               ------------------------------------
power and authority to execute, deliver and perform its obligations under this
Agreement, and the Agreement has been duly authorized and validly executed and
delivered by 3DP and constitutes a legal, valid and binding agreement of 3DP
enforceable against 3DP in accordance with its terms, except as rights to
indemnity and contribution may be limited by state or federal securities laws or
the public policy underlying such laws, 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).
The Shares being purchased by SBC and GGL hereunder will, upon issuance pursuant
to the terms hereof, be duly authorized, validly issued, fully-paid and
nonassessable.

          4.3  Non-Contravention.  The execution and delivery of this Agreement,
               -----------------
the issuance of the Shares to be sold by 3DP under the License Agreement and
this Agreement, the fulfillment of the terms of the Agreement and the
consummation of the transactions contemplated hereby will not: (a) conflict with
or constitute a violation of, or default (with the passage of time or otherwise)
under, (i) any material bond, debenture, note or other evidence of indebtedness,
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which 3DP is a party or by which its
properties are bound, (ii) the charter, by-laws or other organizational
documents of 3DP, or (iii) any law, administrative regulation, ordinance or
order of any court or governmental agency, arbitration panel or authority
applicable to 3DP or its properties, except in the case of clauses (i) and (iii)
for any such conflicts, violations or defaults which are not reasonably likely
to have a Material Adverse Effect; or (b) result in the creation or imposition
of any lien, encumbrance, claim, security interest or restriction whatsoever
upon any of the material properties or assets of 3DP or an acceleration of
indebtedness pursuant to any obligation, agreement or condition contained in any
material bond, debenture, note or any other evidence of indebtedness or any
material indenture, mortgage, deed of trust or any other agreement or instrument
to which 3DP is a party or by which it is bound or to which any of the material
property or assets of 3DP is subject.  No consent, approval, authorization or
other order of, or registration, qualification or filing with, any regulatory
body, administrative agency, or other governmental body in the United States or
any other person is required for the execution and delivery of the Agreement and
the valid issuance and sale of the Shares to be sold pursuant to the Agreement,
other than such as have been

                                      D-4
<PAGE>

made or obtained, and except for any post-closing securities filings or
notifications required to be made under federal or state securities laws.

          4.4  Capitalization.  The capitalization of 3DP as of September 30,
               --------------
2001 is as set forth in the most recent applicable Exchange Act Documents,
increased as set forth in the next sentence.  3DP has not issued any capital
stock since that date other than pursuant to (a) employee benefit plans
disclosed in the Exchange Act Documents, or (b) outstanding warrants, options or
other securities disclosed in the Exchange Act Documents.  Except as set forth
in or contemplated by the Exchange Act Documents, there are no outstanding
rights (including, without limitation, preemptive rights), warrants or options
to acquire, or instruments convertible into or exchangeable for, any unissued
shares of capital stock or other equity interest in 3DP, or any contract,
commitment, agreement, understanding or arrangement of any kind to which 3DP is
a party or of which 3DP has knowledge and relating to the issuance or sale of
any capital stock of 3DP, any such convertible or exchangeable securities or any
such rights, warrants or options.  No further approval or authorization of any
stockholder, the Board of Directors of 3DP or others is required for the
issuance and sale of the Shares.  Except as disclosed in the Exchange Act
Documents, there are no stockholder agreements, voting agreements or other
similar agreements with respect to the capital stock of 3DP to which 3DP is a
party or, to the knowledge of 3DP, between or among any of 3DP's stockholders.

          4.5  Legal Proceedings.  There is no material legal or governmental
               -----------------
proceeding pending or, to the knowledge of 3DP, threatened to which 3DP is or
may be a party or of which the business or property of 3DP is subject that is
required to be disclosed and that is not so disclosed in the Exchange Act
Documents. To the knowledge of 3DP, there are no facts which, if known by a
potential claimant, governmental authority or self regulatory organization,
would give rise to a claim or proceeding which would be reasonably likely to
have a Material Adverse Effect.

          4.6  No Violations.  3DP is not in violation of its charter, bylaws,
               -------------
or other organizational document, or in violation of any law, administrative
regulation, ordinance or order of any court, self regulatory organization or
governmental agency, arbitration panel or authority applicable to 3DP, which
violation, individually or in the aggregate, would be reasonably likely to have
a Material Adverse Effect, or in default (and there exists no condition which,
with the passage of time or otherwise, would constitute a default) in any
material respect in the performance of any bond, debenture, note or any other
evidence of indebtedness in any indenture, mortgage, deed of trust or any other
material agreement or instrument to which 3DP is a party or by which 3DP is
bound or by which the properties of 3DP are bound, which would be reasonably
likely to have a Material Adverse Effect.

          4.7  Intellectual Property.  Except as specifically disclosed in the
               ---------------------
Exchange Act Documents (a) 3DP owns or possesses sufficient rights to use all
material patents, patent rights, trademarks, copyrights, licenses, inventions,
trade secrets, trade names, know-how, confidential information and other
intellectual property (collectively, "Intellectual Property") described or
                                      ---------------------
referred to in the Exchange Act Documents as owned or possessed by it or that
are necessary for the conduct of its

                                      D-5
<PAGE>

business as now conducted or as proposed to be conducted as described in the
Exchange Act Documents except where the failure to currently own or possess such
Intellectual Property would not have a Material Adverse Effect, (b) 3DP is not,
to its knowledge, infringing, and has not received any notice of, nor has any
knowledge of, any asserted infringement by 3DP of, any rights of a third party
with respect to any Intellectual Property that, individually or in the
aggregate, would have a Material Adverse Effect and (c) 3DP has not received any
notice of, or has any knowledge of, infringement by a third party with respect
to any Intellectual Property rights of 3DP that, individually or in the
aggregate, would have a Material Adverse Effect.

          4.8  Financial Statements; Accountants.  The financial statements of
               ---------------------------------
3DP and the related notes contained in the Exchange Act Documents present fairly
in all material respects the financial position of 3DP as of the dates
indicated, and the results of its operations and cash flows for the periods
therein specified, and such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods specified therein, except as may be included in the
notes to such financial statements, or in the case of unaudited financial
statements, as may be permitted by the rules of the SEC for Form 10-Q under the
Exchange Act and except as disclosed in the Exchange Act Documents.  Arthur
Andersen LLP and Richard A. Eisner & Company, LLP, who 3DP expects will consent
to the inclusion in the Registration Statement of its opinion with respect to
the financial statements to be incorporated by reference from 3DP's Annual
Report on Form 10-K for the year ended December 31, 2001 into the Registration
Statement and the prospectus which forms a part thereof, are independent
accountants as required by the Securities Act and the rules and regulations
promulgated thereunder.

          4.9  No Material Adverse Change.  Except as disclosed in the Exchange
               --------------------------
Act Documents, since September 30, 2001, there has not been (a) any material
adverse change in the financial condition, or results of operations of 3DP, (b)
any material adverse event affecting 3DP, (c) any material obligation, direct or
contingent, incurred by 3DP, except obligations incurred in the ordinary course
of business, (d) any dividend or distribution of any kind declared, paid or made
on the capital stock of 3DP, or (e) any loss or damage (whether or not insured)
to the physical property of 3DP which has been sustained that is material to
3DP.

          4.10  Nasdaq Compliance.  3DP's Common Stock is registered pursuant to
                -----------------
Section 12(g) of the Exchange Act and is listed on the Nasdaq National Market of
The Nasdaq Stock Market, Inc. (the "Nasdaq National Market"), and 3DP has taken
                                    ----------------------
no action designed to, or likely to have the effect of, terminating the
registration of the 3DP Common Stock under the Exchange Act or de-listing the
3DP Common Stock from the Nasdaq National Market, nor has 3DP received any
notification that the SEC or the National Association of Securities Dealers,
Inc. ("NASD") is contemplating terminating such registration or listing.
       ----

          4.11  Reporting Status.  3DP has filed in a timely manner all
                ----------------
documents that 3DP was required to file under the Exchange Act during the 12
months preceding the date of this Agreement.  3DP's Exchange Act Documents
complied in all material respects with the SEC's requirements as of their
respective filing dates, and the information contained therein as of the date
thereof, and such information, taken as a whole as of the date hereof, did not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein in
light of

                                      D-5
<PAGE>

the circumstances under which they were made not misleading. 3DP is eligible to
register the resale of the Shares on a registration statement on Form S-3 under
the Act.

          4.12  Listing.  3DP will comply with all of the requirements of the
                -------
NASD with respect to the issuance of the Shares and the listing thereof on the
Nasdaq National Market.

          4.13  Private Offering.  Assuming that the representations and
                ----------------
warranties of SBC and GGL set forth in Section 5.1 are accurate, the offer and
sale of Shares pursuant to this Agreement are exempt from registration under the
Securities Act.

          4.14 Reservation of Shares.  3DP shall maintain sufficient authorized
               ---------------------
but unissued shares of 3DP Common Stock to meet its obligations to deliver the
Contingent Shares pursuant to Sections 2(b), (c), (d) and (e) under this
Agreement.

          4.15 Reporting of Public Information for Rule 144.  With a view to
               --------------------------------------------
making available the benefits of Rule 144 under the Securities Act (or any
similar or successor rule which may at any time permit the sale of the Shares to
the public without registration), 3DP agrees to (i) make and keep public
information available, as those terms are defined in Rule 144 under the
Securities Act, (ii) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of 3DP under the Securities Act
and the Exchange Act, and (iii) furnish to each of SBC or GGL a copy of the most
recent annual or quarterly report of 3DP, and such other reports and documents
so filed by 3DP as each of SBC or GGL may reasonably request in availing itself
of Rule 144 (or any similar or successor rule).

     5.  Representations, Warranties and Covenants of SBC and GGL.
         --------------------------------------------------------

          5.1  Accredited Investor.  Each of SBC and GGL represents and warrants
               -------------------
to, and covenants with, 3DP that: (a) it is an "accredited investor" as defined
in Regulation D under the Securities Act and is also knowledgeable,
sophisticated and experienced in making, and is qualified to make decisions with
respect to, investments in securities presenting an investment decision like
that involved in the purchase of the Shares, including investments in comparable
companies, and has had the opportunity to request, receive, review and consider
all information that it deemed relevant in making an informed decision to
purchase the Shares; (b) it is acquiring the Initial Shares identified in
Section 2(a) of this Agreement and the right to acquire the Contingent Shares
identified in Sections 2(b), (c), (d) and (e), subject to the achievement by 3DP
of the milestones identified in those subsections and pursuant to the terms and
conditions of the License Agreement, in the ordinary course of its business and
for its own account for investment only and with no present intention of
distributing any of such Shares or any arrangement or understanding with any
other persons regarding the distribution of such Shares; (c) it will not,
directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) any of the Shares except in compliance with the Securities Act, applicable
state securities laws and the respective rules and regulations promulgated
thereunder; and (d) it has, in connection with its decision to purchase the
number of Shares set forth in Section 2 of this Agreement, relied only upon the
Exchange Act Documents, any materials requested and received pursuant to clause
(a) above and the representations and warranties of 3DP contained herein.  Each
of SBC and GGL understands that neither this issuance nor its acquisition of the
Shares has been

                                      D-6
<PAGE>

registered under the Securities Act or registered or qualified under any state
securities law in reliance on specific exemptions therefrom, which exemptions
may depend upon, among other things, the bona fide nature of its investment
intent as expressed herein.

          5.2  Authority.  Each of SBC and GGL further represents and warrants
               ---------
to, and covenants with, 3DP that (a) it has full right, power, authority and
capacity to enter into this Agreement and to consummate the transactions
contemplated hereby and has taken all necessary action to authorize the
execution, delivery and performance of this Agreement, and (b) this Agreement
and the License Agreement constitute valid and binding obligations of each of
SBC and GGL enforceable against them in accordance with their 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).

          5.3  No Investment Advice.  Each of SBC and GGL understands that
               --------------------
nothing in the Exchange Act Documents, this Agreement or any other materials
presented to them in connection with the purchase and sale of the Shares
constitutes legal, tax or investment advice.  Each of SBC and GGL has consulted
such legal, tax and investment advisors as it, in its sole discretion, has
deemed necessary or appropriate in connection with its purchase of Shares.

          5.4  Limitations on Resale.  Each of SBC and GGL understand that the
               ---------------------
Shares may not be transferred unless the Shares have been registered under the
Securities Act and any applicable state securities law or, in the opinion of
counsel satisfactory to the issuer, the sale or disposition of the Shares may
lawfully be made without compliance with the registration requirements of the
Securities Act.  Except with the consent of 3DP, each of SBC and GGL will not,
directly or indirectly, offer, sell, contract to sell, pledge or otherwise
dispose of any of the Initial Shares or Contingent Shares or any interests
therein, including through short sales, swaps, derivatives or other instruments
or arrangements which have the purpose or effect of transferring the risk of
ownership of such Shares (all of the foregoing referred to herein as "Transfer")
                                                                      --------
prior to the first anniversary of (x) the Closing Date in the case of the
Initial Shares or the Contingent Shares issued pursuant to Section 2(b), or (y)
the date of achievement of the relevant milestone in the case of the Contingent
Shares issued pursuant to Sections 2(c), 2(d) or 2(e) (the "Lock Up").  In
                                                            -------
addition, until January 8, 2005, in any three-month period, neither SBC nor GGL
will Transfer any of the Initial Shares or Contingent Shares in an amount of
Shares that exceeds the greater of (i) one percent of the number of shares of
3DP Common Stock outstanding as shown by the most recent report or statement
published by 3DP, or (ii) the average weekly reported volume of trading in
shares of 3DP Common Stock on the Nasdaq National Market or such other national
securities exchange as such shares may be traded, during the four calendar weeks
preceding the date of execution of the transaction, provided, however, that the
foregoing volume limitations shall not apply to any sales by SBC or GGL pursuant
to an Underwritten Offering (as that term is defined in the Registration Rights
Agreement).  Notwithstanding the limitations set forth in this Section 5.4, each
of SBC and GGL may Transfer its Shares to an Affiliate, as such term is defined
in the License Agreement.

                                      D-7
<PAGE>

          5.5  Legends. The certificates evidencing the Shares to be delivered
               --------
to each of SBC and GGL will bear restrictive legends substantially in the
following forms as long as applicable:

     THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED,
     SOLD, ASSIGNED, PLEDGED OR OTHERWISE ENCUMBERED OR DISPOSED OF, AND NO
     LIEN, CHARGE OR OTHER ENCUMBRANCE MAY BE CREATED THEREON UNLESS SUCH
     SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
     AMENDED, AND ANY APPLICABLE STATE SECURITIES LAW, OR IN THE OPINION OF
     COUNSEL SATISFACTORY TO THE ISSUER, THE SALE OR DISPOSITION THEREOF MAY
     LAWFULLY BE MADE WITHOUT COMPLIANCE WITH THE REGISTRATION REQUIREMENTS OF
     SUCH ACT.


     THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CONTRACTUAL
     RESTRICTIONS ON TRANSFER PURSUANT TO THAT CERTAIN STOCK PURCHASE AGREEMENT
     DATED JANUARY_____, 2002 (THE "AGREEMENT") BY AND AMONG THE ISSUER,
     SMITHKLINE BEECHAM CORPORATION AND GLAXO GROUP LIMITED. SUCH SHARES MAY NOT
     BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED OR OTHERWISE ENCUMBERED OR DISPOSED
     OF, AND NO LIEN, CHARGE OR OTHER ENCUMBRANCE MAY BE CREATED THEREON AND THE
     ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
     TRANSFER, ASSIGNMENT, PLEDGE OR OTHER ENCUMBRANCE EXCEPT TO THE EXTENT SUCH
     ACTIONS ARE IN COMPLIANCE WITH THE AGREEMENT.


     6.  Survival of Representations, Warranties and Agreements.
         ------------------------------------------------------
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by 3DP, SBC and GGL
herein will survive the execution of this Agreement, the delivery to SBC and GGL
of the Shares being purchased and the payment therefor, provided, however, that
such representations and warranties need only be accurate as of the date of such
execution and delivery as of the Closing Date.

     7.  Registration of the Shares.  The parties shall enter into a
         --------------------------
Registration Rights Agreement dated the date hereof in substantially the form
attached hereto as Exhibit A with respect to the Shares.

                                      D-8
<PAGE>

     8.  Conditions of SBC's and GGL's Obligations .  The obligations of SBC and
         ------------------------------------------
GGL under the License and this Agreement to purchase the Shares from 3DP are
subject to the fulfillment on or before the Closing Date of each of the
following conditions, any of which may be waived in writing by SBC or GGL:

          8.1  Representation and Warranties.  The representation and warranties
               -----------------------------
of 3DP contained in this Agreement shall be true and correct on and as of the
Closing Date with the same effect as though such representations and warranties
had been made as of the Closing Date, except to the extent of changes caused by
the transactions expressly contemplated herein.

          8.2  Performance of Obligations.  3DP shall have performed and
               --------------------------
complied in all material respects with all agreements, obligations and
conditions contained in the License Agreement and this Agreement that are
required to be performed or complied with by it on or before the Closing Date.

          8.3  Compliance with Law.  On the Closing Date, the issuance by 3DP of
               --------------------
the Shares and the execution of the License Agreement by SBC and GGL shall be
legally permitted by all laws and regulations to which 3DP, SBC and GGL are
subject and no preliminary or permanent injunction or other order by any court
of competent jurisdiction prohibiting or otherwise restraining such acquisition
shall be in effect.

          8.4  The License Agreement.  The License Agreement shall be in full
               ---------------------
force and effect and shall not have been terminated by any of the parties
thereto nor shall any of the parties given notice of such termination.

          8.5  Opinion of Legal Counsel.  SBC and GGL shall have received an
               ------------------------
opinion of Morgan Lewis & Bockius, LLP, counsel to 3DP, with respect to the
matters in Sections 4.1, 4.2, and 4.3 herein, dated as of the Closing Date and
in form and substance reasonably acceptable to SBC and GGL.

     9.  Conditions to 3DP's Obligations.  3DP's obligations under this
         -------------------------------
Agreement to sell and issue the Shares to SBC and GGL are subject to the
fulfillment on or before the Closing Date of each of the following conditions,
any of which may be waived in writing by 3DP:

          9.1  Representations and Warranties. The representation and warranties
               --------------------------------
of SBC and GGL contained in the License Agreement and this Agreement shall be
true and correct on and as of the Closing Date with the same effect as though
such representations and warranties had been made as of the Closing Date, except
to the extent of changes caused by the transactions expressly contemplated
herein.

          9.2.  Performance of Obligations. Each of SBC and GGL shall have
                --------------------------
performed and complied in all material respects with all agreements, obligations
and conditions contained in the License Agreement and this Agreement that are
required to be performed or complied with by it on or before the Closing Date.

                                      D-9
<PAGE>

          9.3.  Compliance with Law.  On the Closing Date, the issuance by 3DP
                --------------------
of the Shares and the execution of the License by SBC and GGL shall be legally
permitted by all laws and regulations to which 3DP and SBC and GGL are subject
and no preliminary or permanent injunction or other order by any court of
competent jurisdiction prohibiting or otherwise restraining such acquisition
shall be in effect.

          9.4.  The License Agreement.  The License Agreement shall be in full
                ---------------------
force and effect and shall not have been terminated by any of the parties
thereto nor shall any of the parties given notice of such termination.

          9.5  The Registration Rights Agreement.  The parties shall have
               ----------------------------------
executed the Registration Rights Agreement as set forth in Section 7.

     10.  Notices.  All notices, requests, consents and other communications
          -------
hereunder will be in writing, will be mailed (a) if within the United States by
first-class registered or certified airmail, or nationally recognized overnight
express courier, postage prepaid, by facsimile or e-mail, or (b) if delivered
from outside the United States, by international express courier, facsimile or
e-mail.  All such notices will be deemed given (a) if delivered by first-class
registered or certified mail, three business days after so mailed, (b) if
delivered by nationally recognized overnight carrier, one business day after so
mailed, (c) if delivered by International Federal Express, two business days
after so mailed, and (d) if delivered by facsimile or e-mail, upon electronic
confirmation of receipt and will be delivered as addressed as follows:

          (a)  If to 3DP, to:  3-Dimensional Pharmaceuticals, Inc.
                               Three Lower Makefield Corporate Center
                               1020 Stony Hill Road
                               Yardley, PA 19067

                               Attn:  David C. U'Prichard, Ph.D
                                      Chief Executive Officer
                               Fax: (267) 757-7204   ___



          (b)  With a copy to: Morgan Lewis & Bockius LLP

                    After January 18, 2002
                    ----------------------
                    111 Pennsylvania Ave., NW
                    Washington, DC 20004
                    Fax: (202) 739-3001

                                     D-11
<PAGE>

                    Attn: Edward T. Lentz, Esq. and Linda Griggs, Esq.

                    Before January 18, 2002
                    -----------------------
                    1800 M Street, N.W.
                    Washington, D.C. 20036
                    Fax:  (202) 467-7176
                    Attn: Edward T. Lentz, Esq. and Linda Griggs, Esq.

          (c)  If to the Licensors, to:
                         GlaxoSmithKline
                         1250 Collegeville Road
                         Collegeville, PA  19426-0989
                         Attn:  Mr. Osagie Imasogie
                                V.P. and Director,
                                Genetics and Discovery Ventures
                         Fax: (610) 917-4234


          (d)  With a copy to:.  GlaxoSmithKline
                                 Corporate Law Department
                                 One Franklin Plaza
                                 200 North 16th Street/FP2355
                                 Philadelphia, PA  19102
                                 Attn: General Counsel
                                 Fax:   (215) 751-3935

     11.  Changes.  This Agreement may not be modified or amended except
          -------
pursuant to an instrument in writing signed by 3DP and each of SBC and GGL.

     12.  Headings.  The headings of the various sections and subsections of
          --------
this Agreement have been inserted for convenience of reference only and will not
be deemed to be part of this Agreement and do not affect its interpretation.

     13.  Severability.  In case any provision contained in this Agreement
          ------------
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein will
not in any way be affected or impaired thereby.

     14.  Successors and Assigns.  This Agreement shall be binding upon and
          ----------------------
inure to the benefit of the successors in interest of the respective parties.
Neither this Agreement nor any interest under this Agreement shall be assignable
by either party without the written consent of the other; provided, however,
that either party may assign this Agreement without the written consent of the
other party to any

                                     D-11
<PAGE>

corporation with which it may merge or consolidate, or to which it may transfer
all or substantially all of its assets; provided, further, that SBC or GGL may
assign this Agreement without the written consent of 3DP to an Affiliate;
provided, further, that, in any case, any such assignee shall agree to be bound
by the terms and conditions of this Agreement.

     15.  Governing Law.  This Agreement will be governed by, and construed in
          -------------
accordance with, the internal laws of the State of Pennsylvania, without giving
effect to the principles of conflicts of law.

     16.  Entire Agreement.  This Agreement, together with the License Agreement
          ----------------
and Registration Rights Agreement, constitutes the entire agreement between the
parties relating to the subject matter hereof and no party shall be liable or
bound to the other in any manner by any warranties, representations or covenants
except as specifically set forth herein.

     17  Counterparts.  This Agreement may be executed in two or more
         ------------
counterparts, each of which will constitute an original, but all of which, when
taken together, will constitute but one instrument, and will become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties.

                                     D-12
<PAGE>

     IN WITNESS WHEREOF the parties have executed this Agreement effective as of
the day and year first above written.



3-DIMENSIONAL PHARMACEUTICALS, INC.

BY:
    -----------------------------------

TITLE:
       --------------------------------



SMITHKLINE BEECHAM CORPORATION

BY:
    -----------------------------------

TITLE:
       --------------------------------



GLAXO GROUP LIMITED

BY:
    -----------------------------------

TITLE:
       --------------------------------


                                     D-13
<PAGE>

                         REGISTRATION RIGHTS AGREEMENT

     THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of this ____th day of January 2002 between 3-Dimensional
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), and SmithKline
Beecham Corporation, a Pennsylvania corporation ("SBC"), and Glaxo Group
Limited, a company incorporated in England and Wales ("GGL" and, together with
SBC, the "Licensors").

                                    RECITALS

     WHEREAS, the Company and the Licensors are entering into a Stock Purchase
Agreement (the "Stock Purchase Agreement") and a License Agreement (the "License
Agreement") simultaneously with the execution of this Agreement;

     WHEREAS, pursuant to the Stock Purchase Agreement, the Company has
authorized the issuance and sale of up to 2,400,000 shares of common stock, par
value $.001 per share (the "3DP Common Stock"), in equal amounts to SBC and GGL
in accordance with the terms of the Stock Purchase Agreement and the License
Agreement; and

     WHEREAS, as a condition of entering into the Stock Purchase Agreement the
Licensors have requested that the Company extend to them certain registration
rights and other rights as set forth below.

     NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Agreement, intending to be legally
bound, hereby agree as follows:


     1. DEFINITIONS.  For the purposes of this Agreement:

     "Affiliate" of any specified Person, as defined below, means any other
Person, as defined below, that, directly or indirectly, is in control of, is
controlled by or is under common control with such specified Person.  For
purposes of this definition, control of a Person means the power, direct or
indirect, to direct or cause the direction of the management and policies of
such Person, whether by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.

     "Commission" means the U.S. Securities and Exchange Commission.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor federal statute and the rules and the regulations of the
Commission promulgated thereunder, as in effect from time to time.

                                     D-14
<PAGE>

     "Existing Holder" means each "Holder" of "the Registrable Securities, as
defined below, of 3DP as those terms are defined in the Stockholders' Agreement,
as defined below.

     "Investors" means the investors listed on Schedule 1 to the Stockholders'
Agreement, as defined below.

     "Lock Up" has the meaning set forth in Section 5.4 of the Stock Purchase
Agreement.

     "Nasdaq" means the Nasdaq National Market of The Nasdaq Stock Market.

     "Person" means an individual, partnership, limited partnership,
corporation, trust, limited liability company or unincorporated organization or
other entity or organization, including a government or agency or political
subdivision thereof.

     "Prospectus" means the prospectus (including any preliminary prospectus,
any final prospectus and any prospectus that discloses information previously
omitted from a prospectus filed as part of an effective Registration Statement,
as defined below, in reliance upon Rule 430A under the Securities Act, as
defined below) included in a Registration Statement, as amended or supplemented
by any prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Shares covered by a Registration Statement, and by
all other amendments and supplements to such prospectus, including all material
incorporated by reference in such prospectus and all documents filed after the
date of such prospectus by the Company under the Exchange Act and incorporated
by reference therein.

     "Registrable Shares" means the 2,400,000 shares of 3DP Common Stock
(subject to adjustment as provided in Section 2.1 of the Stock Purchase
Agreement) that the Company has agreed to sell to the Licensors pursuant to the
terms and conditions of the Stock Purchase Agreement, excluding such shares of
3DP Common Stock (i) which have been registered and sold under the Securities
Act pursuant to an effective registration statement or (ii) that are held by the
Licensors and can be sold to the public pursuant to Rule 144 under the
Securities Act without restriction.

     "Registration Expenses" means all expenses incident to the Company's
compliance with the requirements relating to the filing of a Registration
Statement registering the Registrable Shares pursuant to this Agreement,
including all registration, filing and Nasdaq fees, all fees and expenses of
complying with securities or "blue sky" laws, all word-processing, duplicating
and printing expenses, messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits or "comfort" letters
required by or incident to such performance and compliance, premiums and other
costs of policies of insurance obtained by the Company against liabilities
arising out of the public offering of the Registrable Shares being registered,
but excluding fees and disbursements of counsel retained by the Licensors,
premiums and other costs of policies of insurance obtained by the Licensors or
their agents or Underwriters, as defined below, against liabilities arising out
of the public offering of the Registrable Shares being registered, any fees and

                                     D-15
<PAGE>

disbursements of Underwriters and all underwriting discounts and commissions
and transfer taxes, if any, relating to the Registrable Shares.

     "Registration Statement" means a registration statement filed under the
Securities Act, as defined below, by the Company pursuant to the provisions of
Section 2 or 3 of this Agreement, including the Prospectus contained in such
registration statement, any amendments and supplements to such registration
statement, including post-effective amendments, and all exhibits and all
material incorporated by reference into such registration statement.

     "Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, as in effect from time to time.

     "Stockholders' Agreement" means the Third Amended and Restated
Stockholders' Agreement between the Company and the Investors dated as of March
31, 2000.

     "Underwriter" means the underwriter(s) of the Registrable Shares designated
by the Licensors, with respect to a Registration Statement filed pursuant to
Section 2 or 3 of this Agreement.

     "Underwritten Offering" means an offering of shares of 3DP Common Stock,
including the Registrable Shares, by which the shares of 3DP Common Stock are
sold to an underwriter for reoffering to the public.


     2. DEMAND REGISTRATION.

     (a) REQUEST FOR DEMAND REGISTRATION.  Subject to the provisions of Section
         2(c) of this Agreement, the registration rights of the Existing Holders
         set forth in the Stockholders' Agreement and the limitations on
         transfer contained in Section 5.4 of the Stock Purchase Agreement, at
         any time after the Lock Up, the Licensors will have the right to
         require the Company to register for offer and sale under the Securities
         Act all or a portion, [*        *], of the Registrable Shares then
         outstanding.  To exercise this right, the Licensors must provide the
         Company with a joint written request specifying the number of the
         Registrable Shares that they want the Company to register and the
         Licensors' intended method(s) of distribution.  If desired, the
         Licensors will be entitled to select one or more nationally recognized
         investment banks to serve as Underwriters for an Underwritten Offering
         made pursuant to this Section 2, subject to the approval of the
         Company, which approval will not be unreasonably withheld or delayed.
         The Licensors acknowledge that the Company may include in a
         Registration Statement filed pursuant to this Section 2 shares of 3DP
         Common Stock for resale by other holders of 3DP Common Stock, including
         the Existing Holders, or for the account of the Company; provided,
         however, that if the shares of 3DP Common Stock included by the Company
         and the Existing Holders

                                     D-16
<PAGE>

         constitute at least a majority of the shares of 3DP Common Stock
         included on a Registration Statement filed pursuant to this Section 2,
         such Registration Statement will be deemed to be filed pursuant to
         Section 3 of this Agreement.

     (b)  ALLOCATION OF UNDERWRITTEN OFFERING. If the Company files a
          Registration Statement at the request of the Licensors pursuant to
          this Section 2 to register the Registrable Shares for an Underwritten
          Offering and includes in such Registration Statement additional shares
          of 3DP Common Stock for sale by the Company (the "Company Shares"),
          any of the Existing Holders (the "Existing Holders' Shares") or any
          other holders of 3DP Common Stock (the "Other Holders' Shares") and
          the total number of shares of 3DP Common Stock proposed to be included
          in such Registration Statement will, in the opinion of the Underwriter
          selected by the Licensors, exceed the maximum number of shares of 3DP
          Common Stock that can be marketed either at a price reasonably related
          to the then-current market value of the shares, or without otherwise
          materially and adversely affecting the Underwritten Offering, then the
          Company will exclude from such Underwritten Offering in such amount as
          necessary, in the opinion of the Underwriter(s), to successfully
          complete the Underwritten Offering (i) first, the Other Holders'
          Shares, if any, and (ii) second, the Registrable Shares, the Company
          Shares, and the Existing Holders' Shares, on a pro rata basis based on
          the number of shares of 3DP Common Stock sought to be included in the
          Registration Statement by the Licensors, the Company and the Existing
          Holders.

     (c)  OBLIGATION TO EFFECT DEMAND REGISTRATION.  Following receipt of any
          notice from the Licensors pursuant to Section 2(a), the Company shall
          use its reasonable best efforts to file a Registration Statement to
          register under the Securities Act, for public sale in accordance with
          the method(s) of disposition specified in such notice, the number of
          the Registrable Shares specified in such notice.  The Company shall be
          obligated to register the Registrable Shares on [*      *] in
          connection with requests made by the Licensors pursuant to Section
          2(a); provided, however, that the Licensors must make such requests on
          a joint basis and provided further, however, that such obligation to
          effect the registration shall be deemed satisfied, subject to Section
          2(d) below, only when a Registration Statement covering all of the
          Registrable Shares specified in notices received pursuant to Section
          2(a) shall have become effective.

     (d)  RIGHT TO WITHDRAW REGISTRATION STATEMENT.  The Licensors may request
          that the Company rescind or withdraw a Registration Statement filed
          pursuant to this Section 2, by giving written notice to the Company,
          with the following consequences: (i) if the Registration Statement is
          rescinded prior to being filed with the Commission, such rescinded
          Registration Statement shall not be counted as a Registration
          Statement requested pursuant to this Section 2 for purposes of Section
          2(c); and (ii) if the Registration Statement is withdrawn after being
          filed with the Commission but prior to

                                     D-17
<PAGE>

          becoming effective, such withdrawn Registration Statement will not be
          counted as a Registration Statement for purposes of Section 2(c) if
          the Licensors (A) have reimbursed the Company for all out-of-pocket
          expenses, including Registration Expenses, reasonably incurred by the
          Company with respect to such withdrawn Registration Statement or (B)
          reasonably believed that the Registration Statement contained an
          untrue statement of a material fact or omitted to state a material
          fact required to be stated therein or necessary to make the statements
          made therein not misleading, notified the Company of such belief and
          requested that the Company correct the alleged misstatement or
          omission but the Company refused to correct such alleged misstatement
          or omission.

     (e) ADDITIONAL LIMITATIONS ON DEMAND REGISTRATION.  The Company will not be
         obligated to file a Registration Statement pursuant to this Section 2:
         (i) until after 90 days after the effective date of the first
         registration statement filed by the Company at the request of the
         Existing Holders pursuant to Section 6.1 of the  Stockholders'
         Agreement (provided that such restriction shall not apply if the
         Company's obligations under Section 6.1 of the Stockholders' Agreement
         have been terminated pursuant to Section 6.13 of the Stockholders'
         Agreement); (ii) more than one time in any twelve-month period; (iii)
         if the Company has sent notice to the Licensors pursuant to Section
         3(a) of this Agreement that it proposes to file a registration
         statement to register shares of 3DP Common Stock and is diligently
         pursuing such registration; (iv) during any period in which a
         distribution of shares of 3DP Common Stock is ongoing or any other
         registration statement pursuant to which shares of 3DP Common Stock are
         to be or were sold (other than a registration statement filed for the
         offer or sale of 3DP Common Stock under a shelf registration statement
         on Form S-3 (except during a distribution of shares of 3DP Common Stock
         under such shelf registration statement), or an employee benefit plan,
         dividend reinvestment plan or rights plan or on Form S-8 or S-4 or any
         successor forms) has been filed and not withdrawn or has been declared
         effective within the prior 90 days; (v) during any period when the
         Company is precluded from selling any shares of 3DP Common Stock as a
         result of an agreement made in connection with a firm commitment
         underwriting; or (vi) during any time when the Company has determined
         in good faith that the filing of a Registration Statement would require
         the disclosure of material information which the Company has a bona
         fide reason to maintain as confidential; provided, however, that any
         such delay shall not exceed 60 days.

     (f)  EFFECTIVENESS.  The Company will use its reasonable best efforts,
          subject to receipt of all necessary information from the Licensors (or
          any Affiliate of the Licensors who is assigned registration rights
          pursuant to this Agreement), to cause any Registration Statement filed
          pursuant to this Section 2 to become effective and to maintain the
          effectiveness of any such Registration Statement to enable the
          Licensors to sell the Registrable Shares included in any such
          Registration Statement on a delayed or continuous basis as permitted
          by Rule 415 under the Securities Act, and from time to time

                                     D-18
<PAGE>

          will amend or supplement such Registration Statement and the
          Prospectus contained therein as and to the extent necessary to comply
          with the Securities Act and any applicable state securities statute or
          regulation; provided, however, that the Company will not be obligated
          to maintain the effectiveness of such Registration Statement once the
          Registrable Shares included in the Registration Statement no longer
          meet the definition of the Registrable Shares.


     3. PIGGYBACK REGISTRATION.

     (a)  REQUEST FOR PIGGYBACK REGISTRATION.  If the Company at any time
          proposes to register shares of 3DP Common Stock under the Securities
          Act for sale to the public, whether for its own account or for the
          account of other holders of 3DP Common Stock, including the Existing
          Holders, or both (other than registration statements filed for the
          offer or sale of 3DP Common Stock under an employee benefit plan,
          dividend reinvestment plan or rights plan or on Form S-8 or S-4 or any
          successor forms), each such time it will give written notice to the
          Licensors of its intention to do so.  Upon the written request of the
          Licensors, which request must (i) specify the number of the
          Registrable Shares that the Licensors want included on such
          registration statement and the intended method(s) of disposition of
          the Registrable Shares and (ii) be given to the Company within ten
          (10) calendar days of the date of the Company's notice, the Company
          will use reasonable best efforts to cause such the Registrable Shares
          to be included in the registration statement proposed to be filed by
          the Company subject to the allocation provisions set forth in
          paragraph (b) or (c) of this Section 3.

     (b)  ALLOCATION OF UNDERWRITTEN OFFERING INITIATED BY THE COMPANY.  If the
          Company initiates the filing of a registration statement for an
          Underwritten Offering and the total number of shares of 3DP Common
          Stock proposed to be included in such registration statement will, in
          the opinion of the managing underwriter(s) selected by the Company,
          exceed the maximum number of shares of 3DP Common Stock that can be
          marketed either at a price reasonably related to the then-current
          market value of the shares, or without otherwise materially and
          adversely affecting the Underwritten Offering, then the Company will
          exclude from such Underwritten Offering in such amount as necessary,
          in the opinion of the managing underwriter(s), to successfully
          complete the Underwritten Offering (i) first, the Other Holders'
          Shares, if any (ii) second, the Registrable Shares, and (iii) third,
          the Existing Holders' Shares, if any.

     (c) ALLOCATION OF UNDERWRITTEN OFFERING INITIATED BY THE EXISTING HOLDERS.
         If the Existing Holders initiate the filing of a registration statement
         for an Underwritten Offering pursuant to Section 6.1 of the
         Stockholders' Agreement and the total number of shares of 3DP Common
         Stock proposed to be included in such registration

                                     D-19
<PAGE>

         statement will, in the opinion of the managing underwriter(s) selected
         by such Existing Holders, exceed the maximum number of shares of 3DP
         Common Stock that can be marketed either at a price reasonably related
         to the then-current market value of the shares, or without otherwise
         materially and adversely affecting the Underwritten Offering, then the
         Company will exclude from such Underwritten Offering in such amount as
         necessary, in the opinion of the managing underwriter(s), to
         successfully complete the Underwritten Offering (i) first, the Other
         Holders' Shares, if any, and (ii) second, the Registrable Shares and
         the Company Shares on a pro rata basis based on the number of shares of
         3DP Common Stock sought to be included in the Registration Statement by
         the Licensors and the Company.


     4. REGISTRATION PROCEDURES.  If and whenever the Company is under an
obligation pursuant to this Agreement to use its reasonable best efforts to file
a Registration Statement for the Registrable Shares, the following provisions
will apply:

     (a)  The Company will furnish to the Licensors, at least five (5) business
          days prior to the time that the Registration Statement is declared
          effective by the Commission, a copy of the Registration Statement
          initially filed with the Commission and will furnish to the Licensors
          copies of each amendment thereto and each amendment or supplement, if
          any, to the Prospectus included therein as promptly as practicable
          after the filing thereof.

     (b)  Subject to Section 2(e) of this Agreement, the Company will use its
          reasonable best efforts to promptly take such action as may be
          reasonably necessary so that (i) the Registration Statement, when it
          becomes effective, and any amendment thereto and the Prospectus
          forming part thereof and any amendment or supplement thereto (and, in
          each case, every report or other document incorporated therein by
          reference), comply in all material respects with the Securities Act
          and the Exchange Act, as applicable, and the respective rules and
          regulations thereunder, (ii) the Registration Statement and any
          amendment thereto do not, when the Registration Statement or the
          amendment becomes effective, contain an untrue statement of a material
          fact or omit to state a material fact required to be stated therein or
          necessary to make the statements therein not misleading and (iii) the
          Prospectus forming part of the Registration Statement, and any
          amendment or supplement to such Prospectus, do not, at any time during
          any period during which the Company is required to keep the
          Registration Statement continuously effective pursuant to this
          Agreement, include an untrue statement of a material fact or omit to
          state a material fact necessary in order to make the statements
          therein, in the light of the circumstances under which they were made,
          not misleading, provided that the Licensors provide to the Company the
          information about the Licensors required to be included in the
          Prospectus.

                                     D-20
<PAGE>

     (c)  The Company will, promptly upon learning of any of the following
          events, advise the Licensors, and will confirm such advice in writing
          if so requested by the Licensors:

          (i)   when the Registration Statement and any amendment thereto have
                been filed with the Commission and when the Registration
                Statement or any post-effective amendment thereto has become
                effective;

          (ii)  of any request by the Commission for amendments or supplements
                to the Registration Statement or the Prospectus included therein
                or for additional information;

          (iii) of the issuance by the Commission of any stop order suspending
                the effectiveness of the Registration Statement or the
                initiation of any proceedings for such purpose;

          (iv)  of the receipt by the Company of any notification with respect
                to the suspension of the qualification of the Registrable Shares
                included in the Registration Statement for sale in any
                jurisdiction or the initiation of any proceeding for such
                purpose; and

          (v)   following the effectiveness of any Registration Statement, of
                the happening of any event or the existence of any facts that
                requires the making of any changes in the Registration Statement
                or the Prospectus included therein so that such Registration
                Statement and Prospectus do not contain an untrue statement of a
                material fact and do not omit to state a material fact required
                to be stated therein or necessary to make the statements therein
                (in the case of the Prospectus, in the light of the
                circumstances under which they were made) not misleading (which
                advice will be accompanied by an instruction to the Licensors to
                suspend the use of the Prospectus until the requisite changes
                have been made, which instruction the Licensors agree to
                follow). At the request of the Licensors, the Company will
                prepare a supplement or amendment to the Registration Statement
                or the Prospectus so that as of the date of such amendment or
                supplement the amended or supplemented Registration Statement
                and Prospectus do not contain an untrue statement of a material
                fact and do not omit to state a material fact required to be
                stated therein or necessary to make the statements therein (in
                the case of the Prospectus, in the light of the circumstances
                under which they were made) not misleading.

     (d) The Company will promptly notify the Licensors of its receipt of any
         notification of any stop order issued by the Commission suspending the
         effectiveness of the Registration Statement.

                                     D-21
<PAGE>

     (e)  The Company will furnish to the Licensors, without charge, at least
          one copy of the Registration Statement and any post-effective
          amendments and supplements thereto, including financial statements and
          schedules and, if the Licensors so request in writing, all reports,
          other documents and exhibits that are filed with or incorporated by
          reference into the Registration Statement.

     (f)  The Company will, during the period during which the Company is
          required to keep a Registration Statement continuously effective
          pursuant to this Agreement, deliver to the Licensors, without charge,
          as many copies of the Prospectus (including each preliminary
          Prospectus) included in the Registration Statement and any amendment
          or supplement thereto as the Licensors may reasonably request.

     (g)  Prior to any offering of the Registrable Shares pursuant to the
          Registration Statement, the Company will use reasonable efforts to (i)
          register, qualify or cooperate with the Licensors and their counsel in
          connection with the registration or qualification of such of the
          Registrable Shares for offer and sale under the securities or "blue
          sky" laws of such jurisdictions within the United States as the
          Licensors may reasonably request, (ii) keep such registrations or
          qualifications in effect and comply with such laws so as to permit the
          continuance of offers and sales in such jurisdictions for the period
          during which the Company is required to keep the Registration
          Statement continuously effective under this Agreement and (iii) take
          any and all other actions reasonably requested by the Licensors that
          are necessary or advisable to enable the disposition in such
          jurisdictions of such Registrable Shares; provided, however, that in
          no event will the Company be obligated to qualify as a foreign
          corporation or as a dealer in securities in any jurisdiction where it
          would not otherwise be required to so qualify but for this Agreement
          or file any general consent to service of process or subject itself to
          tax in any jurisdiction where it would not otherwise be required to do
          so but for this Section 4(g).

     (h)  The Company will cooperate with the Licensors to facilitate the timely
          preparation and delivery of certificates representing the Registrable
          Shares sold pursuant to the Registration Statement, which certificates
          will comply with the requirements of Nasdaq, and which certificates
          will be free of any restrictive legends and in such permitted
          denominations and registered in such names as the Licensors may
          request in connection with the sale of the Registrable Shares pursuant
          to the Registration Statement.

     (i)  In connection with an Underwritten Offering of the Registrable Shares,
          the Company will use reasonable efforts to:

          (i)  cooperate with the Licensors and their advisors in their efforts
               to conduct appropriate due diligence as is customary for a
               company of the size and character of the Company and make such
               reasonable representations and

                                     D-22
<PAGE>

                 warranties in the applicable underwriting agreement to the
                 Underwriter, in form, substance and scope as are customarily
                 made by the Company to underwriters in secondary underwritten
                 offerings of equity;

          (ii)   make available for inspection by the Licensors, the Licensors'
                 advisors, and any attorney, accountant or other agent retained
                 by the Underwriter (collectively, the "Inspectors"), all
                 pertinent financial and other records, pertinent corporate
                 documents and properties of the Company (collectively, the
                 "Records"), as shall be reasonably necessary to enable them to
                 exercise their due diligence responsibility, and cause the
                 Company's officers, directors and employees to supply all
                 information (together with the Records, the "Information")
                 reasonably requested by any such Inspector in connection with
                 the preparation of such Registration Statement. Any of the
                 Information which the Company determines in good faith to be
                 confidential, and of which determination the Inspectors are so
                 notified, will not be disclosed by the Inspectors unless (A)
                 the disclosure of such Information is necessary to avoid or
                 correct a misstatement or omission of a material fact in the
                 Registration Statement, (B) the release of such Information is
                 ordered pursuant to a subpoena or other order from a court of
                 competent jurisdiction, or (C) such Information has been made
                 generally available to the public. The Licensors and their
                 Inspectors agree that they will, upon learning that disclosure
                 of such Information is sought in a court of competent
                 jurisdiction, give notice to the Company and allow the Company,
                 at the Company's expense, to undertake appropriate action to
                 prevent disclosure of the Information deemed confidential;

          (iii)  obtain opinions of counsel to the Company (which counsel and
                 opinions (in form, scope and substance) will be reasonably
                 satisfactory to the Underwriter) addressed to the Underwriter,
                 covering such matters that the Company customarily covers in
                 opinions requested in secondary underwritten offerings of
                 equity, to the extent reasonably required by the applicable
                 underwriting agreement;

          (iv)   obtain "comfort" letters and updates thereof from the
                 independent public accountants of the Company (and, if
                 necessary, from the independent public accountants of any
                 subsidiary of the Company or of any business acquired by the
                 Company for which financial statements and financial data are,
                 or are required to be, included in the Registration Statement),
                 addressed to the Licensors (if the Licensors have provided such
                 letter, representation or documentation, if any, required for
                 such "comfort" letter to be so addressed) and the Underwriter,
                 in customary form and covering matters of the type customarily
                 covered in "comfort" letters in connection with secondary
                 underwritten offerings of Company equity;

                                     D-23
<PAGE>

          (v)  deliver such certificates as may be reasonably requested by the
               Licensors and the Underwriter, if any, including certificates to
               evidence compliance with any conditions contained in the
               underwriting agreement or other agreements entered into by the
               Company; and

          (vi) to take all other steps reasonably necessary to effect the timely
               registration of the Registrable Shares covered by a Registration
               Statement contemplated hereby.


     5. LICENSORS' AGREEMENTS.

     (a)  The Licensors agree to provide to the Company such information
          regarding the Licensors, the Registrable Shares and the Licensors'
          intended method of disposition as the Company may from time to time
          reasonably request; provided, however, that such information shall be
          used only in connection with the filing of a Registration Statement or
          as otherwise required by the Commission.  If the Registration
          Statement refers to the Licensors, the Licensors shall promptly (i)
          notify the Company of the existence of any fact of which the
          Licensors, individually or jointly, become aware or the happening of
          any event which relates to the Licensors or the distribution of the
          Registrable Shares that causes the Registration Statement to contain
          an untrue statement of a material fact or omit to state a material
          fact required to be stated therein or necessary to make any statements
          therein not misleading, or the Prospectus included in such
          Registration Statement to contain an untrue statement of a material
          fact or omit to state a material fact required to be stated therein or
          necessary to make any statements therein, in the light of the
          circumstances under which they were made, not misleading, and (ii)
          provide to the Company such information which relates to the
          Licensors' distribution of the Registrable Shares as shall be
          necessary to enable the Company to prepare a supplement or post-
          effective amendment to such Registration Statement or related
          Prospectus or any document incorporated therein by reference or file
          any other documents required so that such Registration Statement will
          not contain any untrue statement of a material fact or omit to state a
          material fact required to be stated therein or necessary to make the
          statements therein not misleading, and such Prospectus shall not
          include an untrue statement of a material fact or omit to state a
          material fact required to be stated therein or necessary to make the
          statements therein, in the light of the circumstances under which they
          were made, not misleading.

     (b)  NOTICE TO DISCONTINUE.  The Licensors agree that, upon receipt of any
          notice from the Company to discontinue using the Prospectus, the
          Licensors will promptly discontinue the disposition of the Registrable
          Shares pursuant to the Registration Statement covering such
          Registrable Shares until the Company advises the Licensors that
          dispositions

                                     D-24
<PAGE>

          pursuant to the Registration Statement can resume and it delivers to
          the Licensors copies of any required supplemented or amended
          Prospectus.

     6. INDEMNIFICATION AND CONTRIBUTION.

     (a)  Upon the registration of the Registrable Shares pursuant to Section 2
          or 3 of this Agreement, the Company will indemnify and hold harmless
          the Licensors and each Underwriter, selling agent or other securities
          professional, if any, that facilitates the disposition of the
          Registrable Shares, and each of their respective officers and
          directors and each Person who controls the Licensors, such
          Underwriter, selling agent or other securities professional within the
          meaning of Section 15 of the Securities Act or Section 20 of the
          Exchange Act (each such Person being sometimes referred to as an
          "Indemnified Person"), against any losses, claims, damages or
          liabilities, joint or several, to which such Indemnified Person may
          become subject under the Securities Act or otherwise, insofar as such
          losses, claims, damages or liabilities (or actions in respect thereof)
          arise out of or are based upon an untrue statement or alleged untrue
          statement of a material fact contained in any Registration Statement
          under which such Registrable Shares are to be registered under the
          Securities Act, or any Prospectus contained therein or furnished by
          the Company to any Indemnified Person, or any amendment or supplement
          thereto, or arise out of or are based upon the omission or alleged
          omission to state therein a material fact required to be stated
          therein or necessary to make the statements therein not misleading,
          and the Company hereby agrees to reimburse such Indemnified Person for
          any legal or other documented expenses reasonably incurred by it in
          connection with investigating or defending any such action or claim as
          promptly as practicable after such expenses are incurred; provided,
          however, that the Company will not be liable to any such Indemnified
          Person in any such case to the extent that any such loss, claim,
          damage, liability (or action or proceeding in respect thereof) or
          expense arises out of or is based upon an untrue statement or alleged
          untrue statement or omission or alleged omission made in such
          Registration Statement or Prospectus, or amendment or supplement
          thereto, in reliance upon and in conformity with written information
          furnished to the Company by such Indemnified Person or its agent(s)
          expressly for use therein; provided further, however, that the Company
          will not be liable to the extent that any loss, claim, damage,
          liability (or action or proceeding in respect thereof) or expense
          arises out of or is based upon (i) the use of any Prospectus after
          such time as the obligation of the Company to keep the same effective
          and current has expired, or (ii) the use of any Prospectus after such
          time as the Company has advised the Licensors in writing that a
          supplement thereto or a post-effective amendment to the Registration
          Statement is required; and provided further, however, that the Company
          will not be liable to any Indemnified Person to the extent that any
          loss, claim, damage, liability (or action or proceeding in respect
          thereof) or expense arises out of such Indemnified Person's failure to
          send or give a copy of the final prospectus or supplement to the
          Person asserting an untrue statement or alleged

                                     D-25
<PAGE>

          untrue statement or omission or alleged omission at or prior to the
          written confirmation of the sale of the Registrable Shares to such
          Person if such statement or omission was timely corrected in such
          final prospectus or supplement.

     (b)  The Licensors agree, as a consequence of the inclusion of the
          Registrable Shares in a Registration Statement, and each Underwriter,
          selling agent or other securities professional, if any, that
          facilitates the disposition of the Registrable Shares will agree, as a
          consequence of facilitating such disposition of the Registrable
          Shares, severally and not jointly, to (i) indemnify and hold harmless
          the Company, its directors and officers and each Person, if any, who
          controls the Company within the meaning of either Section 15 of the
          Securities Act or Section 20 of the Exchange Act, against any losses,
          claims, damages or liabilities or expenses to which the Company or
          such other Person may become subject, under the Securities Act or
          otherwise, insofar as such losses, claims, damages, liabilities (or
          actions or proceedings in respect thereof) or expenses arise out of or
          are based upon an untrue statement or alleged untrue statement of a
          material fact contained in such Registration Statement or Prospectus,
          or any amendment or supplement thereto, or arise out of or are based
          upon the omission or alleged omission to state therein a material fact
          required to be stated therein or necessary to make the statements
          therein not misleading, in each case to the extent, but only to the
          extent, that such untrue statement or alleged untrue statement or
          omission or alleged omission was made in reliance upon and in
          conformity with written information furnished to the Company by the
          Licensors, such Underwriter, selling agent or other securities
          professional or its agent expressly for use therein, and (ii)
          reimburse the Company for any legal or other expenses reasonably
          incurred by the Company in connection with investigating or defending
          any such action or claim as such expenses are incurred.

     (c)  Promptly after receipt by any Person entitled to indemnity (an
          "Indemnitee") under paragraphs (a) or (b) of this Section 6 of notice
          of the commencement of any action or claim, such Indemnitee will, if a
          claim in respect thereof is to be made against an indemnitor under
          this Section 6 (an "Indemnitor"), notify such Indemnitor in writing of
          the commencement thereof; but the omission to so notify the Indemnitor
          will not relieve it from any liability that it may have to any
          Indemnitee except to the extent of any actual prejudice.  In case any
          such action will be brought against any Indemnitee, it will notify an
          Indemnitor of the commencement thereof, such Indemnitor will be
          entitled to participate therein and, to the extent that it wishes,
          jointly with any other Indemnitor similarly notified, to assume the
          defense thereof, with counsel satisfactory to such Indemnitee, and,
          after notice from the Indemnitor to such Indemnitee of its election so
          to assume the defense thereof, such Indemnitor will not be liable to
          such Indemnitee under this Section 6 for any legal expenses of other
          counsel or any other expenses, in each case subsequently incurred by
          such Indemnitee, in connection with the defense thereof.  No
          Indemnitor will, without the written consent of the Indemnitee, effect
          the settlement or compromise of, or

                                     D-26
<PAGE>

          consent to the entry of any judgment with respect to, any pending or
          threatened action or claim in respect of which indemnification or
          contribution may be sought hereunder (whether or not the Indemnitee is
          an actual or potential party to such action or claim) unless such
          settlement, compromise or judgment (i) includes an unconditional
          release of the Indemnitee from all liability arising out of such
          action or claim and (ii) does not include a statement as to, or an
          admission of, fault, culpability or a failure to act, by or on behalf
          of any Indemnitee.

     (d)  If the indemnification provided for in this Section 6 is held by a
          court of competent jurisdiction to be unavailable to, or insufficient
          to hold harmless, an Indemnitee under paragraphs (a) or (b) of this
          Section 6 in respect of any losses, claims, damages, liabilities (or
          actions or proceedings in respect thereof) or expenses referred to
          therein, then each Indemnitor will contribute to the amount paid or
          payable by such Indemnitee as a result of such losses, claims,
          damages, liabilities (or actions or proceedings in respect thereof) or
          expenses in such proportion as is appropriate to reflect the relative
          fault of the Indemnitor and the Indemnitee in connection with the
          statements or omissions which resulted in such losses, claims,
          damages, liabilities (or actions, or proceedings in respect thereof)
          or expenses, as well as any other relevant equitable considerations.
          The relative fault of such Indemnitor and Indemnitee will be
          determined by reference to, among other things, whether the untrue or
          alleged untrue statement of a material fact or omission or alleged
          omission to state a material fact relates to information supplied by
          such Indemnitor or by such Indemnitee, and the parties' relative
          intent, knowledge, access to information and opportunity to correct or
          prevent such statement or omission.  The parties hereto agree that it
          would not be just and equitable if contribution pursuant to this
          Section 6(d) were determined solely by pro rata allocation (even if
          the Licensors or any Underwriter, selling agents or other securities
          professionals or all of them were treated as one entity for such
          purpose) or by any other method of allocation that does not take
          account of the equitable considerations referred to in this Section
          6(d).  The amount paid or payable by an Indemnitee as a result of the
          losses, claims, damages, liabilities (or actions or proceedings in
          respect thereof) or expenses referred to above will be deemed to
          include any legal fees or expenses reasonably incurred by such
          Indemnitee in connection with investigating or defending any such
          action or claim except to the extent any legal fees are incurred after
          the Indemnitor assumes the defense of the litigation as set forth in
          Section 6(c) above.  No Person guilty of fraudulent misrepresentation
          (as used in Section 11(f) of the Securities Act) will be entitled to
          contribution from any Person who was not guilty of such fraudulent
          misrepresentation.  The obligations of the Licensors and any
          Underwriter, selling agents or other securities professionals under
          this Section 6(d) to contribute will be several in proportion to the
          percentage of the principal amount of the Registrable Shares
          registered or underwritten, as the case may be, by them and not joint.

                                     D-27
<PAGE>

The obligations of the Company under this Section 6 will be in addition to any
liability which the Company may otherwise have to any Indemnitee and the
obligations of any Indemnified Person under this Section 6 of this Agreement
will be in addition to any liability which such Indemnified Person may otherwise
have to the Company.  The remedies provided in this Section 6 are not exclusive
and will not limit any rights or remedies that may otherwise be available to an
Indemnitee at law or in equity.

     7. UNDERWRITING AGREEMENT.  Notwithstanding the provisions of Sections 4
and 6 of this Agreement, to the extent that the Licensors and the Company enter
into an underwriting or similar agreement with respect to a Registration
Statement, which agreement contains provisions covering one or more issues
addressed in Sections 4 and 6, the provisions contained in such Sections
addressing such issue or issues shall be superceded with respect to such
Registration Statement by such other agreement.

      8. EXPENSES OF REGISTRATION. [*                  *].

      9. DAMAGES.  [*                    *].

     10. MISCELLANEOUS.

     (a) NOTICES.  All notices, requests, consents and other communications
hereunder will be in writing, will be mailed (a) if within the United States, by
first-class registered or certified airmail, or nationally recognized overnight
express courier, postage prepaid, by facsimile or e-mail, or (b) if delivered
from outside the United States, by international express courier, facsimile or
e-mail.  Notwithstanding anything in this Agreement to the contrary, the
Company's obligation to deliver or give notice to the Licensors shall be
satisfied by the delivery or giving of notice to SBC.  All obligations of the
Licensors to deliver or give notice to the Company shall be satisfied by the
delivery or giving of such notice by SBC and GGL jointly.  All such notices will
be deemed given (a) if delivered by first-class registered or certified mail,
three business days after so mailed, (b) if delivered by nationally recognized
overnight carrier, one business day after so mailed, (c) if delivered by
International Federal Express, two business days after so mailed, and (d) if
delivered by facsimile or e-mail, upon electronic confirmation of receipt and
will be delivered as addressed as follows:

               (i)  If to the Company, to:

                    3-Dimensional Pharmaceuticals, Inc.
                    Three Lower Makefield Corporate Center
                    1020 Stony Hill Road
                    Yardley, PA 19067
                    Attn:  David C. U'Prichard, Ph.D
                    Chief Executive Officer
                    Fax: (267) 757-7204

                                     D-28
<PAGE>

              (ii)  With a copy to:  Morgan Lewis & Bockius LLP


                    After January 18, 2002
                    ----------------------
                    111 Pennsylvania Ave., NW
                    Washington, DC 20004
                    Fax: (202) 739-3001
                    Attn: Edward T. Lentz, Esq. and Linda Griggs, Esq.

                    Before January 18, 2002
                    -----------------------
                    1800 M Street, N.W.
                    Washington, D.C. 20036
                    Fax:  (202) 467-7176
                    Attn: Edward T. Lentz, Esq. and Linda Griggs, Esq.

              (iii) If to Licensors, to:
                    GlaxoSmithKline
                    1250 Collegeville Road
                    Collegeville, PA  19426-0989
                    Attn:  Mr. Osagie Imasogie
                    V.P. and Director
                    Genetics and Discovery Ventures
                    Fax:  (610) 917-4234

               (iv) With a copy to:  GlaxoSmithKline
                    Corporate Law Department
                    One Franklin Plaza
                    200 North 16th Street/FP2355
                    Philadelphia, PA  19102
                    Attn:  General Counsel
                    Fax:  (215) 751-5349


     (b)  CHANGES.  This Agreement may not be modified or amended except
          pursuant to an instrument in writing signed by the Company and each of
          SBC and GGL.

     (c)  HEADINGS.  The headings of the various sections and subsections of
          this Agreement have been inserted for convenience of reference only
          and will not be deemed to be part of this Agreement and do not affect
          its interpretation.

                                     D-29
<PAGE>

     (d)  SEVERABILITY.  In case any provision contained in this Agreement
          should be invalid, illegal or unenforceable in any respect, the
          validity, legality and enforceability of the remaining provisions
          contained herein will not in any way be affected or impaired thereby.

     (e)  SUCCESSORS AND ASSIGNS.  This Agreement shall be binding upon and
          inure to the benefit of the successors in interest of the respective
          parties. Neither this Agreement nor any interest under this Agreement
          shall be assignable by either party without the written consent of the
          other; provided, however, that SBC or GGL may assign this Agreement
          without the written consent of the Company to any Affiliate; provided,
          further, that any such assignee shall agree to be bound by the terms
          and conditions of this Agreement.

     (f)  GOVERNING LAW.  This Agreement will be governed by, and construed in
          accordance with, the internal laws of the State of Pennsylvania,
          without giving effect to the principles of conflicts of law.

     (g)  ENTIRE AGREEMENT.  This Agreement, together with the License Agreement
          and Stock Purchase Agreement, constitutes the entire agreement between
          the parties relating to the subject matter hereof and no party shall
          be liable or bound to the other in any manner by any warranties,
          representations or covenants except as specifically set forth herein.

     (h)  COUNTERPARTS.  This Agreement may be executed in two or more
          counterparts, each of which will constitute an original, but all of
          which, when taken together, will constitute but one instrument, and
          will become effective when one or more counterparts have been signed
          by each party hereto and delivered to the other parties.

     11.  EFFECTIVENESS.  This Agreement shall become effective as of the
Closing Date, as defined in Section 3 of the Stock Purchase Agreement.  In the
event that the Stock Purchase Agreement is terminated pursuant to its terms and
the issuance of the Shares, as defined in Section 1 of the Stock Purchase
Agreement, on the Closing Date does not occur, this Agreement shall be null and
void and of no further force and effect.

                                     D-30
<PAGE>

IN WITNESS WHEREOF the parties have executed this Agreement effective as of the
day and year first above written.



3-DIMENSIONAL PHARMACEUTICALS, INC.


BY:
    ----------------------------------

TITLE:
       -------------------------------


SMITHKLINE BEECHAM CORPORATION

BY:
    ----------------------------------

TITLE:
       -------------------------------



GLAXO GROUP LIMITED

BY:
    ----------------------------------

TITLE:
       -------------------------------

                                     D-31
<PAGE>

                               LICENSE AGREEMENT
                             GLAXOSMITHKLINE - 3DP
                                   Appendix E

                               LICENSOR Services

1. Within [*                      *] following the EFFECTIVE DATE, GSK shall
   deliver to 3DP the KNOW-HOW relating to the manufacture of GW395058 by the
   processes that were used or to be used by GSK to prepare pre-clinical,
   clinical, and commercial supplies of GW395058, including but not limited to
   manufacturing protocols, operating procedures, process controls,
   environmental issues and controls, Drug Master Files, intermediates,
   reagents, drug samples, suppliers, DMPK immunoassay protocols, indirect and
   direct costs of goods, quality assurance and quality control, stability
   testing, yields, purity, impurities, by-products, and product specifications.
   GSK shall also provide final and draft reports ("as is" as of the EFFECTIVE
   DATE) of information and data related to manufacturing GW395058 to the extent
   in GSK's possession or control. GSK shall use reasonable efforts to ensure
   that the information provided under this paragraph is all such information in
   GSK's possession or control as of the EFFECTIVE DATE.

2.  Within [*               *] following the EFFECTIVE DATE, GSK shall deliver
    to 3DP KNOW-HOW comprising:

       2.1.  the documentation relating to pre-clinical studies of GW395058
             that are listed in Appendix A;

       2.2. pre-clinical and clinical development plans for PRODUCTS;

       2.3. any other information or data that is available to GSK and that is
            reasonably believed by GSK to be necessary or useful for the
            development and marketing of PRODUCTS, including but not limited to
            Project Team Meeting Minutes.

3.  For [*                     *] following the EFFECTIVE DATE, GSK shall
    provide to 3DP such additional reports, data, and records that it has in its
    possession as of the EFFECTIVE DATE and that 3DP and GSK mutually agree are
    necessary or useful for the development or commercialization of PRODUCTS.

4.  Until [*                *], GSK shall make those of its employees who have
    relevant knowledge reasonably available to 3DP for consultation concerning
    the pre-clinical development of GW395058, previous regulatory interactions
    between GSK and the FDA relating to GW395058, and manufacturing of GW395058,
    provided such consultations shall not in the aggregate exceed [*        *]
    and further provided that GSK then

                                      E-1
<PAGE>

    currently has employees who have the experience and knowledge relating to
    PRODUCTS to be able to provide such consultation.

5.  Until [*                    *], GSK shall provide to 3DP such additional
    reports, data, and records that it has in its possession as of the EFFECTIVE
    DATE and that are requested by 3DP and that are required to respond to
    inquiries by the FDA or an analogous agency outside the U.S.

6.  All requests by 3DP for reports, data, records, and consultations pursuant
    to this Appendix E shall be directed to a person or persons that GSK may
    designate for this purpose.

                                      E-2
<PAGE>

                               LICENSE AGREEMENT
                             GLAXOSMITHKLINE - 3DP
                                   APPENDIX F

                                 Press Release
<TABLE>
<CAPTION>

Corporate Contact                  Media Inquiries               Investor Inquiries
---------------------------------  ---------------------------   ------------------
<S>                                <C>                           <C>
3-Dimensional Pharmaceuticals      Noonan/Russo Communications   Rx Communications
Scott Horvitz                      Glenn Silver                  Melody Carey
VP, Finance and Administration     212-696-4455, ext. 271        917-322-2571
267-757-7208                       g.silver@noonanrusso.com      mcarey@rxir.com
horvitz@3dp.com                    ------------------------      ---------------
----------------
</TABLE>


  FOR IMMEDIATE RELEASE
  ---------------------

                    3-DIMENSIONAL PHARMACEUTICALS licenses
                       TPO Peptide from GlaxoSmithKline

                                   ---------

Yardley, PA, January 7th, 2002 - 3-Dimensional Pharmaceuticals, Inc. (Nasdaq:
DDDP) (3DP) today announced that the Company has entered into an exclusive
licensing agreement with GlaxoSmithKline (GSK), giving it worldwide development,
marketing and distribution rights to GSK's pre-IND compound GW 395058 for the
prevention and treatment of thrombocytopenia, or low blood platelet count.   GW
395058 is a pegylated synthetic thrombopoietin (TPO) mimetic peptide that
stimulates the human body to increase its production of blood platelets, which
are responsible for regulating the clotting process.

3DP's initial development focus will be on chemotherapy induced thrombocytopenia
because of the frequency with which cancer patients undergoing certain
chemotherapy regimens experience thrombocytopenia.  The condition can prolong
blood clotting times, increase the risk of bruising, and, in extreme cases,
prompt internal hemorrhaging.  These side effects frequently disrupt cancer
treatment protocols, including delays in, and the lowering of chemotherapy
dosing regimens.

"Thrombocytopenia is the unfortunate consequence of a wide range of diseases and
disease treatments," said David U'Prichard, Ph.D., Chief Executive Officer of
3DP. "We see GW 395058 as an important addition to our rapidly growing pipeline
of treatment and supportive therapies for cancer.  In addition, we believe there
could be significant upside potential from the development of GW 395058 for
various non-cancer related indications. We are pleased that we have been able to
successfully negotiate this transaction with GSK's Genetics & Discovery Ventures
Team"

                                      F-1
<PAGE>

The current standard of care for thrombocytopenia is a platelet transfusion;
however, there are a number of potentially negative side effects associated with
this procedure.   About one third of the two million platelet transfusions
administered each year in the United States are given to cancer patients, while
the remainder are given to patients with a variety of conditions including
coronary bypass and hepatic surgery, HIV/AIDS, hepatitis B and C, and idiopathic
thrombocytopenia purpura.

Under the terms of the agreement, all payments by 3DP to GSK will be made in the
form of 3DP stock.  3DP will make an initial upfront payment of 500,000 shares
and future milestone payments based on achievement of certain key development
and regulatory events.  In total, 3DP may provide 2.4 million shares to GSK.

About 3DP

3DP (http://www.3dp.com) is an integrated bio-pharmaceuticals company dedicated
to revolutionizing small molecule drug discovery and development. 3DP's
proprietary platform, DiscoverWorks, can be applied to virtually any potential
drug target.  It produces drug candidates suitable for faster development, with
fewer resources and a higher probability of success than using conventional drug
discovery methods. 3DP is developing its own drug pipeline with a strategic
focus in the therapeutic areas of oncology and metabolism, and collaborates with
other pharmaceutical companies in discovery and development.


                                     # # #

                                      F-2
<PAGE>

                               LICENSE AGREEMENT
                             GLAXOSMITHKLINE - 3DP
                                   Appendix G

                   Exceptions to Representations and Warrants

 [* 1 entire page has been omitted pursuant to a confidential treatment
                                  request *]


                                      G-1

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-11.1
<SEQUENCE>6
<FILENAME>dex111.txt
<DESCRIPTION>STATEMENT OR COMPUTATION OF PER SHARE INCOME
<TEXT>
<PAGE>

                                                                    Exhibit 11.1

                      3-Dimensional Pharmaceuticals, Inc.
                         Computation of per share loss

<TABLE>
<CAPTION>
                                                                               Twelve Months Ended December 31,
                                                                              -----------------------------------
                                                                                    2001                 2000
                                                                                    ----                 ----
<S>                                                                           <C>                   <C>
Net loss                                                                      $ (11,442,000)        $  (8,152,000)

Declared and accrued cumulative dividends on preferred stock                                             (396,000)
                                                                              -----------------------------------

     Net loss to common stockholders                                          $ (11,442,000)        $  (8,548,000)
                                                                              ===================================

Basic
     Weighted average shares of common stock outstanding                         21,736,892             8,956,741
     Less: weighted average shares subject to repurchase                           (111,305)             (178,966)
                                                                              -----------------------------------
     Weighted average shares used in computing basic net loss
     per share                                                                   21,625,587             8,777,776

                                                                              -----------------------------------
     Basic net loss per share                                                 $       (0.53)        $       (0.97)
                                                                              ===================================

Diluted
     Shares used in computing basic net loss per share                           21,625,587             8,777,776
     Add: weighted average of dilutive securities                                         -                     -
                                                                              -----------------------------------
     Shares used in computing diluted net loss per share                         21,625,587             8,777,776

Diluted net loss per share                                                    $       (0.53)        $       (0.97)
                                                                              ===================================

Pro forma:
     Net loss to common stockholders                                                               ($   8,548,000)
     Add: declared and accrued cumulative dividends on
     preferred stock                                                                                      396,000
                                                                                                    -------------
     Net loss                                                                                      ($   8,152,000)
                                                                                                    =============

     Shares used to compute basic net loss per share                                                    8,777,776
     Pro forma adjustment to reflect the weighted-
     average effect of assumed conversion of
     convertible preferred stock                                                                        6,858,051
       Add: common shares subject to repurchase
          with accelerated vesting provision                                                               27,011
     Shares used in computing pro forma basic
                                                                                                    -------------
     net loss per share                                                                                15,662,837

                                                                                                    -------------
     Pro forma basic net loss per share                                                             $       (0.52)
                                                                                                    =============

Diluted pro forma:
     Shares used in computing pro forma basic
     net loss per share                                                                                15,662,837
       Add: weighted average of dilutive securities                                                             -
     Shares used in computing pro forma diluted
                                                                                                    -------------
     net loss per share                                                                                15,662,837

     Pro forma diluted net loss per share                                                           $       (0.52)
                                                                                                    =============
</TABLE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>7
<FILENAME>dex231.txt
<DESCRIPTION>CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
<TEXT>
<PAGE>

                                                                    Exhibit 23.1

                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
report dated February 19, 2002 included in this Form 10-K into the Company's
previously filed Registration Statements on Form S-8, File Nos. 333-54890 and
333-61978.




                                                         /s/ Arthur Andersen LLP

Philadelphia, Pa.
 March 29, 2002

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>8
<FILENAME>dex232.txt
<DESCRIPTION>INDEPENDENT AUDITORS' CONSENT
<TEXT>
<PAGE>

                                                                    EXHIBIT 23.2


                         INDEPENDENT AUDITORS' CONSENT


We hereby consent to the incorporation of our report dated February 7, 2001,
with respect to our audit of the financial statements as of December 31, 2000
and for each of the years in the two-year period then ended of 3-Dimensional
Pharmaceuticals, Inc., included in this Form 10-K, into the Company's previously
filed Registration Statements on Form S-8, File Nos. 333-54890 and 333-61978.



/s/ Richard A. Eisner & Company, LLP

New York, New York
March 29, 2002

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