
<PAGE>

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                                                   EXHIBIT 10.9

                              AEROGEN/PATHOGENESIS

                    PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT

                                JANUARY 20, 2000

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                               PAGE

<S>                                                                                                            <C>
1.       DEFINITIONS..............................................................................................1

2.       DEVELOPMENT OF INHALER...................................................................................5

         2.1      Development of Clinical Test Inhaler............................................................5

         2.2      Development of Inhaler..........................................................................5

         2.3      Reporting.......................................................................................5

         2.4      Subcontracting..................................................................................5

         2.5      Delivery........................................................................................5

         2.6      Regulatory Cooperation..........................................................................5

         2.7      Facilities Access...............................................................................6

         2.8      License Grants..................................................................................6

                  2.8.1    Ampoules...............................................................................6

                  2.8.2    Inhaler Products and Adapters..........................................................6

                  2.8.3    Contingent License to Manufacture......................................................6

                  2.8.4    Aminoglycosides........................................................................6

                  2.8.5    Rights Retained by AeroGen.............................................................7

                  2.8.6    [*] for European Community.............................................................7

                  2.8.7    [*] for United States..................................................................8

                  2.8.8    Research Regarding Other PathoGenesis Products.........................................8

                  2.8.9    Further Licenses.......................................................................8

3.       DEVELOPMENT OF THE INHALER...............................................................................8

         3.1      Joint Development Team..........................................................................8

                  3.1.1    Formation; Purpose.....................................................................8

                  3.1.2    Membership.............................................................................8

                  3.1.3    Meetings...............................................................................9

                  3.1.4    Chairpersons...........................................................................9

                  3.1.5    Decision-Making........................................................................9

                  3.1.6    Dispute Resolution.....................................................................9

                  3.1.7    Limitation of Powers...................................................................9

         3.2      Liaisons........................................................................................9

         3.3      Payment for Development Activities..............................................................9

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                       i.
<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)

<CAPTION>
                                                                                                               PAGE
<S>                                                                                                            <C>
         3.4      Fees in Excess of Development Cost Limit.......................................................10

         3.5      Invoices.......................................................................................10

4.       DEVELOPMENT AND DELIVERY OF THE DRUG PRODUCT............................................................11

         4.1      Development....................................................................................11

         4.2      Delivery.......................................................................................11

5.       CLINICAL SUPPLY AND TESTING.............................................................................11

         5.1      Delivery of Clinical Supply....................................................................11

         5.2      Ampoule for Clinical Testing...................................................................11

         5.3      Testing and Acceptance.........................................................................11

         5.4      Ownership of Data..............................................................................11

6.       REGULATORY OBLIGATIONS AND COMMERCIALIZATION............................................................12

         6.1      Commercialization of the Product...............................................................12

         6.2      Regulatory Filings for the Products............................................................12

7.       COMMERCIAL MANUFACTURE AND SUPPLY OF THE INHALER........................................................13

         7.1      Manufacturing and Delivery.....................................................................13

         7.2      Quality and Acceptance.........................................................................13

         7.3      Subcontracting.................................................................................13

         7.4      Forecasts and Purchase Order...................................................................14

         7.5      Delivery.......................................................................................14

         7.6      Payments to Third Parties......................................................................14

         7.7      Facilities Access and Regulatory Inspections...................................................14

         7.8      Use of Trademarks on Products..................................................................15

         7.9      Title and Risk of Loss.........................................................................15

         7.10     Product Insurance..............................................................................15

8.       PAYMENTS FOR THE MANUFACTURED INHALER PRODUCTS..........................................................15

         8.1      Inhaler Transfer Price.........................................................................15

         8.2      Invoicing......................................................................................16

9.       ROYALTY.................................................................................................16

         9.1      Royalty Payments by PathoGenesis for Products..................................................16

         9.2      Minimum Royalty................................................................................16

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      ii.
<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)

<CAPTION>
                                                                                                               PAGE
<S>                                                                                                            <C>
         9.3      Royalty Term...................................................................................17

         9.4      Royalty Reports................................................................................17

         9.5      Reduction of Royalties.........................................................................17

         9.6      Books and Records..............................................................................18

         9.7      Inspection.....................................................................................18

         9.8      Withholding Tax................................................................................18

         9.9      Marking........................................................................................18

10.      INTELLECTUAL PROPERTY...................................................................................19

         10.1     Inhaler Ownership..............................................................................19

         10.2     Drug Product Ownership.........................................................................19

         10.3     Cooperation....................................................................................19

11.      EQUITY PURCHASE.........................................................................................19

12.      CONFIDENTIALITY.........................................................................................19

         12.1     Use of Confidential Information................................................................19

         12.2     Confidentiality and Non-use....................................................................20

         12.3     Exclusions.....................................................................................20

         12.4     Confidentiality Agreements.....................................................................20

         12.5     Publicity - Results............................................................................20

         12.6     Publicity - Terms of Agreement.................................................................20

         12.7     Publicity - Press Releases.....................................................................21

         12.8     Publicity - Use of Parties' Names..............................................................21

13.      ADVERSE INFORMATION AND EVENT REPORTING.................................................................21

         13.1     Notification...................................................................................21

         13.2     Product Recalls................................................................................21

14.      REPRESENTATIONS AND WARRANTIES..........................................................................21

         14.1     AeroGen Representations and Warranties.........................................................22

         14.2     PathoGenesis Representations and Warranties....................................................23

15.      INDEMNIFICATION AND INSURANCE...........................................................................23

         15.1     Indemnification of AeroGen.....................................................................23

         15.2     Indemnification of PathoGenesis................................................................24


[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      iii.
<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)

<CAPTION>
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<S>                                                                                                            <C>
         15.3     Insurance......................................................................................24

         15.4     Limitation of Damages..........................................................................24

         15.5     AeroGen's Right to Prosecute Infringements.....................................................25

         15.6     PathoGenesis' Option to Prosecute Infringements................................................25

16.      DISPUTE RESOLUTION......................................................................................26

         16.1     Negotiation....................................................................................26

         16.2     Mediation......................................................................................26

         16.3     Arbitration....................................................................................26

         16.4     Injunctive Relief..............................................................................27

17.      TERM AND TERMINATION....................................................................................27

         17.1     Term...........................................................................................27

         17.2     Termination for Breach.........................................................................27

         17.3     Termination for Cause..........................................................................27

         17.4     Termination Without Cause......................................................................27

         17.5     Effects of Termination.........................................................................27

                  17.5.1   Sales After Termination...............................................................27

                  17.5.2   Noncancellable Costs..................................................................28

         17.6     Survival.......................................................................................28

         17.7     Rights in Bankruptcy...........................................................................28

18.      MISCELLANEOUS...........................................................................................28

         18.1     Entire Agreement...............................................................................28

         18.2     Notices........................................................................................28

         18.3     Governing Law..................................................................................29

         18.4     Assignability..................................................................................29

         18.5     Waivers and Amendments.........................................................................29

         18.6     Severability...................................................................................29

         18.7     Section Headings...............................................................................30

         18.8     Counterparts...................................................................................30

         18.9     Further Assurances.............................................................................30

         18.10    Force Majeure..................................................................................30

</TABLE>

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      iv.
<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)
<TABLE>
<CAPTION>
                                                                                                               PAGE
<S>                                                                                                            <C>
         18.11    Compliance of Law..............................................................................30

         18.12    Confidentiality of Terms of Agreement..........................................................30

         18.13    Relationship of the Parties....................................................................30

         18.14    Binding Agreement..............................................................................30

         18.15    Books and Records..............................................................................30


Exhibit A         Specification for Inhaler

Exhibit B         Schedule

Exhibit C         AeroGen Patent Rights

Schedule 14.1(h)
</TABLE>


[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                       v.
<PAGE>

                              AEROGEN/PATHOGENESIS

                    PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT

         THIS PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT ("Agreement") is entered
into and effective as of January 20, 2000 (the "Effective Date"), between
AEROGEN, INC. a Delaware corporation with a principal place of business at 1310
Orleans Drive, Sunnyvale, California 94089 ("AeroGen"), and PATHOGENESIS
CORPORATION, a Delaware corporation with a principal place of business at 201
Elliott Avenue West, Suite 150, Seattle, Washington 98119 ("PathoGenesis").

                                    RECITALS

         WHEREAS, PathoGenesis has the expertise and experience to undertake the
development, manufacture and commercialization of antiinfective drugs and has
developed and is selling tobramycin, an antiinfective in the aminoglycoside
class.

         WHEREAS, AeroGen has in development, and has the expertise and
experience to undertake further development, manufacture and supply of, a drug
delivery inhaler for the delivery of a liquid containing drug molecules; and

         WHEREAS, PathoGenesis and AeroGen desire to initially develop and
commercialize such new drug delivery inhaler for the delivery of tobramycin, on
the terms and conditions set forth herein.

                                    AGREEMENT

         In consideration of the recitals set forth above, the mutual covenants,
terms and conditions set forth below, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, AeroGen and
PathoGenesis agree as follows:

1.       DEFINITIONS

         As used in this Agreement, the following terms shall have the following
meanings:

         "ADAPTER" means one or more customized components which enable the
Ampoule to interfit or co-act with the Dispenser, as described in Exhibit A.

         "AEROGEN INHALER" means that mechanism, which aerosolizes liquids
containing drug molecules for inhalation delivery to the human respiratory
tract, under development by AeroGen as of the Effective Date, for
commercialization by AeroGen and use in conjunction with the delivery of certain
drugs outside the Field.

         "AEROGEN'S INHALATION INTELLECTUAL PROPERTY" means AeroGen's Patent
Rights, AeroGen's Copyrights, AeroGen's Trade Dress Rights and AeroGen's
Know-How owned, licensed or controlled by AeroGen and relating to, covering or
claiming inhalation devices, apparatus, products, systems, methods, processes
and technology, whether created before or after the Effective Date, where such
terms have the following meanings, respectively:

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                       1
<PAGE>

                                    (i)      "AEROGEN'S PATENT RIGHTS" means
AeroGen's inventions, proposed inventions, patents, patent applications,
provisional patent applications, divisional applications, continuation
applications, continuation-in-part applications, continued prosecution
applications, renewals, reissues, reexaminations, extensions, and substitutions
thereof, and counterparts for other countries, and any and all patents issuing
therefrom, including, without limitation, the patents and patent applications
set forth in Exhibit C.

                                    (ii)     "AEROGEN'S COPYRIGHTS" means
AeroGen's copyrights in works, including, without limitation, drawings, product
literature, manuals, brochures, catalogues, advertisements, software, and other
written or graphic material and all derivative works arising therefrom, whether
or not such copyrights are registered.

                                    (iii)    "AEROGEN'S TRADE DRESS RIGHTS"
means AeroGen's statutory and common law rights in trade dress and the
associated good will, including, without limitation, rights in product shape,
color, packaging, and overall image.

                                    (iv)     "AEROGEN'S KNOW-HOW" means
AeroGen's confidential or proprietary information, knowledge, data and trade
secrets, including, without limitation, inventions, discoveries, product
designs, models, prototypes, engineering drawings, schematics, manufacturing
processes, methods, equipment and systems, vendor information, and other product
manufacturing and product marketing information.

         An "AFFILIATE" of a party means any person or entity that directly or
indirectly owns or controls, is owned or controlled by or is under common
ownership or control with such party. "Control" of a party shall mean beneficial
ownership, directly or indirectly, of 50% or more of the outstanding voting
shares or securities or the ability otherwise to elect a majority of the board
of directors or other managing authority of the party.

         "AMINOGLYCOSIDE" means compounds consisting of a [*]. This includes,
but is not limited to, [*].

         "AMPOULE" means an ampoule or canister for storing an Antiinfective
Drug, which coacts with or is received by the Adapter, and which is adapted to
be housed or received in the Dispenser, as described in Exhibit A.

         "ANTIINFECTIVE DRUG" means any chemical or biological agent used for
the treatment or prophylaxis of infectious disease.

         "cGMP" means current Good Manufacturing Practices regulations and
Quality System regulations, as promulgated by the FDA.

         "CLINICAL TEST INHALER" means an inhalation device based in part upon
the AeroGen Inhaler, which is fully operable without an Adapter or Ampoule, as
described in Exhibit A.

         "DEVELOPMENT ACTIVITIES" means the development, reporting, supply and
delivery of the Clinical Test Inhalers and the Inhalers in accordance with
Sections 2 and 3 of this Agreement and as described in Exhibit A and Exhibit B.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                       2.
<PAGE>

         "DEVELOPMENT COSTS" means the fully burdened costs and expenses
incurred by AeroGen and specifically identifiable to the Development Activities
including the clinical supply of the Clinical Test Inhalers and the Inhalers
pursuant to this Agreement, all to the extent consistent with U.S. generally
accepted accounting principles, consistently applied. Development Costs include,
without limitation, FTE Costs and the direct costs of materials, all as
specified in the budgets developed by the Joint Development Team, as provided in
Section 3.3.

         "DISPENSER" means a component of an Inhaler which houses an inspiration
sensor, an aerosol generator, which interfits or interacts with the Adapter and
Ampoule, and which includes a mouth piece, as described in Exhibit A.

         "ELECTRONIC COMPONENT" means the component of an Inhaler which houses a
power supply such as one or more batteries and other electronics, and which is
removably connected to the Dispenser, as described in Exhibit A.

         "FDA" means the United States Food and Drug Administration or any
successor to that agency.

         "FIELD" means the treatment or prophylaxis of infectious disease.

         "FTE" shall mean a full time scientific/technical employee of AeroGen
for one year (or, in the case of less than a full-time dedicated
scientific/technical person, a full time equivalent scientific/technical
employee), dedicated to the Development Activities, including development and
clinical supply of the Inhaler and the Clinical Test Inhaler.

         "FTE COSTS" shall mean the annual fully-burdened costs of an FTE, which
has been determined by the parties as of the Effective Date to equal [*] per
FTE.

         "INHALER" means the AeroGen Inhaler as further developed and refined in
accordance with Section 2.2 of this Agreement, and including without limitation:
(i) a Dispenser, and (ii) an Electronic Component, as described in Exhibit A.

         "INHALER MARKUP" has the meaning set forth in Section 8.1 of this
Agreement.

         "INHALER TRANSFER PRICE" has the meaning set forth in Section 8.1 of
this Agreement.

         "JOINT DEVELOPMENT TEAM" or "JDT" means the joint development team
described in Section 3.1 that shall oversee the Development Activities.

         "NET SALES" means the amount invoiced by PathoGenesis, its Affiliates
or sublicensees for sales of the Product less the following deductions: (a)
discounts, returns, allowances, commissions and wholesaler chargebacks; (b)
import, export, excise, sales or use taxes, value added taxes, and other taxes,
tariffs and duties imposed on such sales; (c) freight, freight insurance,
packaging, handling, transportation and other insurance relating to such sales;
and (d) amounts allowed or credited on such sales for retroactive price
reductions or rebates including, but not limited to Medicaid. PathoGenesis, may,
at its option, allocate the above deductions from sales of the Product based
upon accruals estimated reasonably and consistent with

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                       3.
<PAGE>

PathoGenesis' standard business practices, and in any event in accordance with
generally accepted accounting principles applied on a consistent basis. If
PathoGenesis elects to utilize such accruals, actual deductions will be
calculated and, if applicable, a "true-up" made, on an annual basis.

         "NORTH AMERICA" means the U.S., its territories and possessions, Canada
and Mexico,

         "OTHER INHALER" means a mechanism developed by AeroGen after the
Effective Date, either alone or in conjunction with a third party (i.e., other
than PathoGenesis), which aerosolizes liquids containing drug molecules for
inhalation delivery to the respiratory tract of a human, but which is [*].

         "OTHER PATHOGENESIS PRODUCT" has the meaning set forth in Section
2.8.5(b).

         "PRODUCT(S)" means any one or more of the following: Inhaler-Drug
Product(s), Inhaler Product(s), and Drug Product(s), where such terms have the
following meanings:

                                    (i)      "INHALER-DRUG PRODUCT(S)" means an
Inhaler Product sold with a Drug Product;

                                    (ii)     "INHALER PRODUCT(S)" means an
Inhaler, including an Electronic Component and Dispenser sold without an Ampoule
or Adapter; and

                                    (iii)    "DRUG PRODUCT(S)" means an Ampoule
filled with a Tobramycin Solution, sold with an Adapter, for use in conjunction
with an Inhaler or Inhaler Product.

         "STOCK PURCHASE AGREEMENT" means that stock purchase agreement to be
entered into by AeroGen and PathoGenesis, for the sale of Preferred Stock of
AeroGen to PathoGenesis.

         "TERRITORY" means the entire world.

         "TERM" means the later of: (a) expiration of the last to expire Valid
Claim within AeroGen's Patent Rights covering or claiming the Product; and (b)
fifteen (15) years from the Effective Date.

         "TOBRAMYCIN SOLUTION(S)" means an aqueous solution containing
tobramycin as described in Exhibit A.

         "VALID CLAIM" means a claim in an issued patent included within
AeroGen's Patent Rights, which has not expired, lapsed, been canceled or become
abandoned and has not been finally found to be invalid (or not valid) or
unenforceable by an unreversed or unappealable final decision or judgment of a
court or other authority or agency of competent jurisdiction.

2.       DEVELOPMENT OF INHALER

         2.1      DEVELOPMENT OF CLINICAL TEST INHALER. AeroGen shall use
commercially reasonable efforts to develop the Clinical Test Inhaler, in
accordance with the specifications set

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                       4.
<PAGE>

forth in Exhibit A and the schedule set forth in Exhibit B. Additionally,
AeroGen shall develop the Clinical Test Inhaler: (i) in compliance with cGMP;
and (ii) in accordance with AeroGen's internal quality control and product
specifications or as otherwise agreed upon by AeroGen and PathoGenesis. At
PathoGenesis' reasonable request, AeroGen shall provide PathoGenesis with
documentation for the purpose of verifying AeroGen's compliance with this
section.

         2.2      DEVELOPMENT OF INHALER. AeroGen shall use commercially
reasonable efforts to develop the Inhaler in accordance with the specifications
set forth in Exhibit A and the schedule set forth in Exhibit B. Additionally,
AeroGen shall develop the Inhaler: (i) in compliance with cGMP; and (ii) in
accordance with AeroGen's internal quality control and product specifications or
as otherwise agreed upon by AeroGen and PathoGenesis. At PathoGenesis'
reasonable request, AeroGen shall provide PathoGenesis with documentation for
the purpose of verifying AeroGen's compliance with this section.

         2.3      REPORTING. AeroGen shall keep PathoGenesis up-to-date on the
progress of the development of the Clinical Test Inhaler and the Inhaler, and
specifically shall provide PathoGenesis with written monthly progress reports
and oral progress reports on the development of the Clinical Test Inhaler and
the Inhaler, as reasonably requested by PathoGenesis. Such written reports shall
accompany the invoices submitted by AeroGen under Section 3.5.

         2.4      SUBCONTRACTING. AeroGen may subcontract portions of the
development of the Clinical Test Inhaler or the Inhaler provided that: (i)
AeroGen advises PathoGenesis in advance, to the extent practicable, of entering
into any such subcontract, the terms and conditions (related to technical or
cGMP matters) and the work to be performed; (ii) any such subcontractor agrees
to perform such work in compliance with cGMP and AeroGen's internal quality
control and product specifications or as otherwise agreed upon by AeroGen and
PathoGenesis; and (iii) any subcontractor engaged by AeroGen agrees to perform
such work in compliance with all regulatory requirements imposed by the FDA and
other regulatory agencies.

         2.5      DELIVERY. AeroGen shall use commercially reasonable efforts to
provide PathoGenesis with the samples of the Clinical Test Inhaler for
examination, testing and comment in the amounts and according to the schedule
set forth in Exhibit B. AeroGen shall provide PathoGenesis with the samples of
the Inhaler for examination, testing and comment in the amounts and according to
the schedule set forth in Exhibit B.

         2.6      REGULATORY COOPERATION. AeroGen shall cooperate with and
provide commercially reasonable assistance to PathoGenesis in connection With
PathoGenesis making the necessary submissions and filings for obtaining
regulatory approvals for the Products, as discussed under Section 6. AeroGen
shall be reimbursed for costs reasonably incurred in conducting activities
undertaken pursuant to this Section 2.6 which are above and beyond those
activities for which it is being reimbursed under Section 3.3, in the same
manner and at the same rates as the Development Costs under Section 3.

         2.7      FACILITIES ACCESS. PathoGenesis shall have reasonable access
to the Development Activities conducted in AeroGen facilities. PathoGenesis'
representatives shall be permitted, from time to time and upon reasonable
notice, to visit those portions of the AeroGen facilities

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                       5.
<PAGE>

which are used for the development, manufacture, and testing of the Clinical
Test Inhaler or Inhaler during normal or usual hours of operation to monitor the
Development Activities.

         2.8      LICENSE GRANTS.

                  2.8.1    AMPOULES. Subject to the terms and conditions of this
Agreement, including specifically Section 2.8.5, AeroGen hereby grants to
PathoGenesis an exclusive license within the Field, including the right to grant
sublicenses, under AeroGen's Inhalation Intellectual Property to make, have
made, use, import, export, offer for sale and sell Ampoules for use in
connection with the Inhaler, in the Territory.

                  2.8.2    INHALER PRODUCTS AND ADAPTERS. Subject to the terms
and conditions of this Agreement, including specifically Section 2.8.5, AeroGen
hereby grants to PathoGenesis an exclusive license within the Field, including
the right to grant sublicenses, under AeroGen's Inhalation Intellectual Property
to use, import, export, offer for sale and sell the Inhaler Product(s) and the
Adapters (as part of a Drug Product) for the inhalation delivery of
Antiinfective Drugs, in the Territory.

                  2.8.3    CONTINGENT LICENSE TO MANUFACTURE.

                           (a)      Except as otherwise provided herein,
PathoGenesis shall purchase its clinical and commercial requirements for the
Inhaler Products and the Adapters (excluding the Ampoules) from AeroGen pursuant
to the terms and conditions of this Agreement. In the event of a "Triggering
Event" (as defined below), AeroGen shall promptly notify PathoGenesis in writing
thereof, and effective only in such event, AeroGen hereby grants to PathoGenesis
an exclusive (subject to Sections 2.8.6, 2.8.7 and 9.2) license within the
Field, including the right to grant sublicenses, under AeroGen's Inhalation
Intellectual Property, to make and have made the Inhaler Products and the
Adapters for sale and use consistent with the license set forth in Section
2.8.2, for the Term. In such event, PathoGenesis shall notify AeroGen in writing
of its election to exercise such right, and upon receipt AeroGen shall promptly
provide PathoGenesis with the AeroGen Know-How reasonably necessary for
PathoGenesis (or its designee) to make and have made the Inhaler Products
(including Adapters).

                           (b)      As used in this section, "Triggering Event"
shall mean either: (i) [*]; (ii) all or a substantial portion of AeroGen's
assets are transferred to an assignee for the benefit of creditors, to a
receiver or a trustee in bankruptcy; (iii) AeroGen is adjudged bankrupt; or (iv)
[*].

                  2.8.4    AMINOGLYCOSIDES. Subject to the terms and conditions
of this Agreement, including specifically Section 2.8.5, AeroGen hereby grants
to PathoGenesis an exclusive license, within the Field, including the right to
grant sublicenses, under AeroGen's Inhalation Intellectual Property to use,
import, export, offer for sale and sell any inhalation device, adapter or
ampoule (including, without limitation, the Inhaler, Adapter and Ampoule), for
the inhalation delivery of Aminoglycosides in the Territory.

                  2.8.5    RIGHTS RETAINED BY AEROGEN.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                       6.
<PAGE>

                           (a)      Subject to Section 10 and notwithstanding
anything else in this Agreement to the contrary, AeroGen may make, have made,
use, import, export, offer for sale and sell either itself or with or through
any third party inhalation devices, including Inhalers, the AeroGen Inhaler,
Adapters and Ampoules for the delivery of any drug other than an Antiinfective
Drug. In addition, it is understood and agreed by the parties that AeroGen shall
have the right to develop, make, have made, sell, import and market, either
itself or with or through any third party, any Other Inhaler, or any adapter or
ampoule compatible or interfitting or interacting therewith, for the delivery of
any Antiinfective Drug which is not an Aminoglycoside.

                           (b)      Notwithstanding the grant of licenses and
rights under Sections 2.8.1, 2.8.2, 2.8.3, and 2.8.4, in the event PathoGenesis
intends to enter human clinical development of, and/or commercialize the
Inhaler, Ampoule and/or Adapter for the inhalation delivery, in the Field, of an
Antiinfective Drug or Aminoglycosides other than Tobramycin Solution (an "Other
PathoGenesis Product"), it shall so notify AeroGen in writing, and PathoGenesis
shall not proceed with such development or commercialization of any Other
PathoGenesis Product unless and until AeroGen and PathoGenesis negotiate and
enter into a written agreement (or amendment to this Agreement) with respect to
the terms of such development and/or commercialization; including, without
limitation, the development work, if any, to be undertaken by AeroGen, the
development costs of such work, and the consideration to be paid to AeroGen for
commercialization of such Other PathoGenesis Product. In such event,
PathoGenesis and AeroGen shall negotiate in good faith.

                  2.8.6    [*] FOR EUROPEAN COMMUNITY. In the event that: (i)
PathoGenesis files for and obtains regulatory approval for the Drug Product in
the United States as set forth in Section 6.2; (ii) AeroGen obtains the CE mark
for the Inhaler Product in Europe; and (iii) PathoGenesis does not file for a
regulatory approval of the Drug Product within the European Community ("EC")
within a period of [*] (the "EC Filing Date"), then AeroGen shall have the
right upon thirty (30) days written notice to PathoGenesis to [*].
Notwithstanding the foregoing, AeroGen shall not have the right to [*] under
this Section 2.8.6 if, as of the EC Filing Date, PathoGenesis is in the process
of [*], or is in the process of [*]; provided that in all events
PathoGenesis thereafter files for regulatory approval in the EC no later than
[*] from the EC Filing Date.

                  2.8.7    [*] FOR UNITED STATES. In the event that, following
commercial launch of the Drug Product and the Inhaler Product: (i) PathoGenesis
sells an inhalation device for the delivery of Tobramycin Solution in the United
States, the effect of which is to substantially reduce (as defined below) the
sales of the Drug Products in the United States; (ii) such inhalation devices
are not licensed or supplied to PathoGenesis by AeroGen; (iii) such inhalation
devices are not as of the Effective Date being distributed by PathoGenesis; and
(iv) AeroGen is supplying the Inhaler Products to PathoGenesis under the terms
and conditions of this Agreement, then AeroGen shall have the right upon thirty
(30) days written notice to PathoGenesis to [*]. As used in this Section
2.8.7, "substantially reduces" means that Net Sales of the Drug Product for a
given calendar year are less than [*].

                  2.8.8    RESEARCH REGARDING OTHER PATHOGENESIS PRODUCTS. In
the event PathoGenesis intends to utilize the Clinical Test Inhaler, Inhaler,
Adapter, Ampoule or any other

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                       7.
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technology covered by AeroGen's Inhalation Intellectual Property, for conducting
research with respect to the use thereof in connection with any Antiinfective
Drug other than Tobramycin Solution in accordance with Section 2.8.5(b); or any
other research outside of that contemplated hereunder, it shall notify AeroGen
in writing.

                  2.8.9    FURTHER LICENSES. Except as expressly provided
herein, neither party grants the other party any rights or licenses under this
Agreement.

3.       DEVELOPMENT OF THE INHALER

         3.1      JOINT DEVELOPMENT TEAM.

                  3.1.1    FORMATION; PURPOSE. Within ten (10) days after the
Effective Date, AeroGen and Pathogenesis shall establish the Joint Development
Team ("JDT"). The general purposes of the JDT shall be (i) to determine the
overall technical strategy for the development of the Inhaler and Adapter (and
the way in which they coact or interfit with the Ampoule), (ii) to oversee and
coordinate the parties' activities in the development of the Inhaler and Adapter
pursuant to the specifications and the timelines set forth in Exhibits A and B,
and (iii) to develop and propose for the parties' approval the final
specifications for the Inhaler and Adapter, all based on the principles of
prompt and diligent development, consistent with good pharmaceutical and medical
device practices. The JDT shall perform such other functions as appropriate to
further the purposes of the this Agreement as determined by the parties,
including the periodic evaluation of performance against goals.

                  3.1.2    MEMBERSHIP. The JDT shall initially have three (3)
representatives of each party with the requisite levels of skill and experience
in product development, engineering or such other matters as the parties may
agree. The JDT may change its size from time to time by written agreement of the
parties; provided that the JDT at all times shall be composed of an equal number
of representatives appointed by each of AeroGen and PathoGenesis. Each party may
replace its JDT representatives at any time upon written notice to the other
party; provided that each party's representatives shall at all times be persons
possessing the appropriate level of skill, experience and familiarity with the
Products.

                  3.1.3    MEETINGS. The JDT shall hold meetings at such times
as the JDT elects to do so, but in no event shall such meetings be held less
frequently than once every calendar quarter. The JDT shall meet alternately at
AeroGen's facilities in Sunnyvale, CA and PathoGenesis' facilities in Seattle,
Washington, or at such locations as the parties may otherwise agree. With the
consent of the representatives of each party serving on the JDT, other
representatives of each party or of third parties involved in the development,
manufacture or commercialization of the Products may attend meetings of the JDT
as nonvoting observers. Meetings of the JDT may be held by audio or video
teleconference with the consent of each party, provided that at least half of
the minimum number of meetings set forth above shall be held in person. Each
party shall be responsible for all of its own expenses of participating in the
JDT. Meetings of the JDT shall be effective only if a representative of each
party is present or participating.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                       8.
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                  3.1.4    CHAIRPERSONS. The JDT shall be chaired first by a
representative of AeroGen from the Effective Date through June 30, 2000, and the
Chairperson position shall rotate thereafter on a semi-annual basis with
PathoGenesis to appoint the Chairperson for the six month period beginning July
1, 2000. The Chairperson shall be responsible for calling meetings, preparing
and circulating an agenda in advance of each meeting, and preparing and issuing
minutes of each meeting within thirty (30) days thereafter.

                  3.1.5    DECISION-MAKING. Each of AeroGen's and PathoGenesis'
representatives shall have one vote. All decisions of the JDT shall be
unanimous. The JDT shall remain in operation until the earlier of (i)
termination of this Agreement, or (ii) the regulatory approval in both the US
and the EC of the Inhaler-Drug Product.

                  3.1.6    DISPUTE RESOLUTION. In the event that the JDT is
unable to reach agreement on an issue within thirty (30) days, such issue shall
be subject to dispute resolution as set forth in Section 16.

                  3.1.7    LIMITATION OF POWERS. The powers of the JDT are
limited to those expressly set forth in this Agreement. Without limiting the
generality of the foregoing, the JDT shall not have the right to amend this
Agreement. The actions of the JDT shall not substitute for either party's
ability to exercise any right, nor excuse the performance of any obligation, set
forth herein.

         3.2      LIAISONS. Each party will designate an individual to serve as
the liaison between the parties to undertake and coordinate any day-to-day
communications as may be required between the parties relating to their
activities under this Agreement. Each party may change such liaison from time to
time during the term of this Agreement upon written notice thereof to the other
party.

         3.3      PAYMENT FOR DEVELOPMENT ACTIVITIES. Subject to the terms and
conditions of this Agreement, PathoGenesis shall pay to AeroGen, by wire
transfer to the bank account designated by AeroGen, the Development Costs
incurred by AeroGen [*]. The JDT shall develop mutually agreeable budgets and
schedules which will establish the maximum amount of Development Costs (such
amount is referred to herein as the "Development Cost Limit") to be expended in
developing the Clinical Test Inhaler and the Inhaler to the point of completion
of an application for Section 510(k) Premarket Notification Clearance ("510(k)
Clearance") for the Inhaler. The Development Cost Limit is currently expected
not to exceed the sum of [*] in FTE Costs owed to AeroGen (after taking into
account the above discount) plus [*] in other direct costs. AeroGen shall
account for and calculate the Development Costs in accordance with its internal
accounting systems and GAAP (as defined in Section 8.1). AeroGen, in accordance
with Section 18.15 hereof, shall allow PathoGenesis reasonable access to
AeroGen's books and records in order to verify such Development Costs.

         3.4      FEES IN EXCESS OF DEVELOPMENT COST LIMIT. The Development
Costs for developing the Inhaler shall not exceed the Development Cost Limit
unless AeroGen obtains prior written approval from PathoGenesis. A decision by
PathoGenesis not to agree to provide funding for Development Costs in excess of
the Development Cost Limit shall not constitute a termination or breach of this
Agreement. Unless the parties agree otherwise in writing, in no

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                       9.
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event shall AeroGen be obligated to undertake any Development Activities that
would cause it to incur Development Costs in excess of the Development Cost
Limit. The JDT shall work together in good faith to resolve any disputes
regarding the Development Costs. In the event the JDT is unable to resolve such
disputes, such disputes shall be resolved in accordance with Section 16 of this
Agreement.

         3.5      INVOICES. AeroGen shall submit monthly invoices to
PathoGenesis for the Development Activities AeroGen conducts in the preceding
month. The invoices shall contain the following information:

                                    (i)      identification of the number or
fraction of FTEs and subcontractors who performed the Development Activities
during the month covered by the invoice;

                                    (ii)     a general description of the
Development Activities performed during such month by FTEs and subcontractors,
and a report of the progress made to date in light of the goals and timelines
set forth in Exhibits A and B;

                                    (iii)    a statement of costs, categorized
in reasonable detail, of all supplies and materials used and other out-of-pocket
costs incurred during such month directly in connection with the Development
Activities;

                                    (iv)     a statement of payments (if any)
made by AeroGen to third parties during such month in connection with the
Development Activities; and

                                    (v)      the number of Clinical Test
Inhalers or Inhalers, as the case may be, supplied to PathoGenesis for clinical
development during such month.

         PathoGenesis shall make payments to AeroGen as incurred against invoice
within [*] of receipt of such invoice.

4.       DEVELOPMENT AND DELIVERY OF THE DRUG PRODUCT

         4.1      DEVELOPMENT. PathoGenesis shall use commercially reasonable
efforts to develop the Drug Product in accordance with the schedule set forth in
Exhibit B.

         4.2      DELIVERY. PathoGenesis shall use commercially reasonable
efforts to deliver, at PathoGenesis' expense, the filled Ampoule or Tobramycin
Solution, as applicable (in quantities mutually agreed to by the parties) to
AeroGen in accordance with the schedule set forth in Exhibit B. AeroGen shall
use all quantities of filled Ampoule or Tobramycin Solution so supplied by
PathoGenesis pursuant to this Agreement exclusively for the development and
related testing of the Clinical Test Inhaler and the Inhaler. AeroGen shall
handle, store and use the filled Ampoules and Tobramycln Solution in compliance
with all applicable laws, rules and regulations, and shall not use the filled
Ampoules or Tobramycin Solution in any manner on human or animal subjects or in
anything destined for human or animal consumption.

5.       CLINICAL SUPPLY AND TESTING

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      10.
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         5.1      DELIVERY OF CLINICAL SUPPLY. AeroGen shall provide to
PathoGenesis the Clinical Test Inhaler for clinical testing (in quantities and
in accordance with the schedule set forth in Exhibit B and the specifications in
Exhibit A). AeroGen shall provide to PathoGenesis the inhalers for clinical
testing (in quantities and in accordance with the schedule set forth in Exhibit
B and in accordance with the specifications in Exhibit A).

         5.2      AMPOULE FOR CLINICAL TESTING. PathoGenesis shall be
responsible for all Drug Product for clinical testing of the Inhaler, and all
Tobramycin Solution needed for clinical testing of the Clinical Test Inhaler.

         5.3      TESTING AND ACCEPTANCE. PathoGenesis shall have a period of
[*] from the date of receipt of the shipment of Clinical Test Inhaler(s) to test
for quality of the shipment and to accept or reject such shipment. If
PathoGenesis determines that any shipment of the Clinical Test Inhalers or
portions thereof do not meet the specifications set forth in Exhibit A,
PathoGenesis shall notify AeroGen in writing within such [*] period,
indicating the date of delivery and the defective nature of the Clinical Test
Inhaler(s). AeroGen shall undertake commercially reasonable efforts to correct
such defect, and supply PathoGenesis with a replacement shipment of Clinical
Test Inhalers acceptable to PathoGenesis, within a reasonable time and in view
of the timelines set forth in Exhibit B.

         5.4      OWNERSHIP OF DATA. PathoGenesis shall own all data, reports,
applications, approvals and information, all intellectual property rights
therein and all rights arising from its clinical testing and commercialization
activities and efforts with respect to the Products, including, but not limited
to, all data, reports, information and rights arising out of any regulatory
filing for the Ampoule, any regulatory application approval thereof or any
corresponding application or approval in any country in the Territory.
Notwithstanding the foregoing, AeroGen (or its designee) shall have the right,
upon reasonable written request, the granting of which is not to be unreasonably
withheld, to use any data or information generated by PathoGenesis with respect
to the performance characteristics of the Inhaler (the "Inhaler Data"), in
connection with AeroGen's development and submission for regulatory approval and
commercialization of, the AeroGen Inhaler, consistent with AeroGen's obligations
under Section 2.

6.       REGULATORY OBLIGATIONS AND COMMERCIALIZATION

         6.1      COMMERCIALIZATION OF THE PRODUCT. In the event the clinical
testing set forth in Section 5 of this Agreement produces favorable results in
the reasonable discretion of PathoGenesis, PathoGenesis shall use commercially
reasonable efforts to obtain regulatory approval and commercialize the Products
in the United States. PathoGenesis may, at its sole discretion, commercialize
the Products in any other country in the Territory in accordance with
PathoGenesis' other commercial obligations, if any. If any further
documentation, agreement or information is necessary to facilitate PathoGenesis'
commercialization of the Products in countries other than the United States, the
parties agree to cooperate in good faith to effect such documentation or
agreement and to provide such information.

         6.2      REGULATORY FILINGS FOR THE PRODUCTS. The parties agree and
acknowledge that the regulatory approval process for the Inhaler Product and
Drug Product, and their combined use, has not been determined definitively as of
the Effective Date. The parties, through the JDT,

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      11.
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will coordinate and work in good faith to determine the most efficient and
effective regulatory strategy for regulatory approval of the Products. It is
contemplated by the parties, as of the Effective Date, that AeroGen shall
develop the Inhaler Product and prepare such reports and submissions as are
necessary to complete an application for a 510(k) Clearance for the general use
of the Inhaler Product for the delivery of liquids containing drug molecules.
Whether AeroGen, or PathoGenesis, in fact files for such 510(k) Clearance shall
be determined by the JDT in light of the objectives of PathoGenesis under this
Agreement and AeroGen's objectives to develop and commercialize the AeroGen
Inhaler outside this Agreement. PathoGenesis, its Affiliates and sublicensees
shall have the right to prepare, file, prosecute and maintain all necessary and
appropriate applications, submissions and filings with the appropriate
regulatory authorities, to obtain approval of the Drug Products alone, and in
conjunction with the Inhaler Product, in each country within the Territory in
which PathoGenesis, any Affiliate of PathoGenesis or any sublicensee of
PathoGenesis intends to market the Drug Products. PathoGenesis makes no
representation or warranty that PathoGenesis, any Affiliate of PathoGenesis or
any sublicensee of PathoGenesis will obtain approvals for the Products in any
country in the Territory. PathoGenesis, Affiliates of PathoGenesis and
sublicensees of PathoGenesis shall not be liable to AeroGen for any damages or
other compensation if PathoGenesis, Affiliates of PathoGenesis or sublicensees
of PathoGenesis use commercially reasonable efforts to obtain approvals of the
Products, but do not obtain approvals for the Drug Products. PathoGenesis shall
bear all costs for any regulatory filing covering the Products. In the event
PathoGenesis has not [ * ], after the parties have discussed the issue in good
faith, AeroGen shall have the right upon thirty (30) days written notice to
PathoGenesis to [*]. In addition, in the event PathoGenesis has not [*], after
the parties have discussed the issue in good faith, AeroGen shall have the right
to terminate this Agreement upon [*] written notice to PathoGenesis.

7.       COMMERCIAL MANUFACTURE AND SUPPLY OF THE INHALER

         7.1      MANUFACTURING AND DELIVERY. During the Term, and subject to
the provisions of this Section 7, AeroGen shall manufacture for and supply to
PathoGenesis, and PathoGenesis shall purchase from AeroGen, all of the
requirements of PathoGenesis, its Affiliates and sublicensees for the Inhalers
and Adapters (excluding the Ampoules) in the Territory. AeroGen shall
manufacture the Inhaler: (i) in compliance with cGMP; (ii) in compliance with
all regulatory requirements imposed by FDA; and (iii) in accordance with
AeroGen's internal quality control standards and product specifications or as
otherwise agreed upon by AeroGen and PathoGenesis. To enable AeroGen to comply
with its obligations with respect to regulatory requirements outside the United
States, PathoGenesis shall inform AeroGen as early as practical of its intention
to pursue regulatory approval of the Product in a country outside the United
States. Upon AeroGen's reasonable request, PathoGenesis and AeroGen shall meet
and confer regarding the regulatory requirements of such country, compliance
therewith, the timeline for compliance, the costs associated with compliance and
the manufacture of the Inhaler in compliance therewith. The quantities and
delivery schedules shall be as specified in Section 7.4 hereof and in purchase
orders submitted to AeroGen by PathoGenesis. At PathoGenesis' reasonable
request, AeroGen shall provide PathoGenesis with documentation for the purpose
of verifying AeroGen's compliance with this section.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      12.
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         7.2      QUALITY AND ACCEPTANCE. Both parties acknowledge that quality
is critical to ensuring the performance and reliability of the Product, and that
quality is a material term of this Agreement. AeroGen shall use commercially
reasonable efforts to manufacture the Inhalers to achieve an acceptable quality
level ("AQL") of non-conforming units, as determined by the JDT. The parties,
through the JDT, will negotiate in good faith to identify critical, major and
minor components and corresponding specifications, test methods and associated
AQLs. PathoGenesis shall have a period of [*] from the date of receipt of any
shipment of the Inhalers to test for quality and quantity of the shipment and to
accept or reject such shipment. If PathoGenesis determines that any shipment or
portion thereof of the Inhalers does not meet the specifications set forth in
this Agreement, PathoGenesis shall notify AeroGen in writing within such [*],
indicating the particular lot, date of delivery and the defective nature of the
Inhalers. In such event, PathoGenesis shall promptly return the shipment or
defective portion thereof to AeroGen and PathoGenesis shall have no obligation
to pay for such shipment or defective portion of such shipment, as the case may
be. Upon receipt, AeroGen shall undertake commercially reasonable efforts to
repair or replace defective Inhalers and supply PathoGenesis with a replacement
shipment of Inhalers acceptable to PathoGenesis, within a commercially
reasonable time. In the event PathoGenesis does not so notify AeroGen within [ *
] of receipt of any shipment of Inhalers, PathoGenesis shall be deemed to have
accepted such shipment and shall be obligated to make payment therefor as
provided under Section 8.2.

         7.3      SUBCONTRACTING. AeroGen may subcontract portions of the
manufacturing of the Inhaler provided that: (i) AeroGen advises PathoGenesis in
advance, to the extent practicable, of entering into any such subcontract, the
terms and conditions (related to technical or cGMP matters) and the work to be
performed; (ii) any such subcontractor agrees to comply with cGMP, and AeroGen's
internal quality control and product specifications or as otherwise agreed upon
by AeroGen and PathoGenesis; and (iii) any subcontractor engaged by AeroGen
agrees to comply with all regulatory requirements imposed by the FDA and other
regulatory agencies.

         7.4      FORECASTS AND PURCHASE ORDER. On a [*] basis, PathoGenesis
shall provide AeroGen with its good faith written projections of the anticipated
requirements to be ordered from and delivered by AeroGen during the subsequent [
* ] (as may be amended from time to time by PathoGenesis, the "Supply
Forecast"). PathoGenesis shall provide AeroGen with the Supply Forecast no later
than [*] before the start of each [*]. The Supply Forecast will be binding for
the next [*] and will be non-binding for the subsequent [*]. For each [*], and
by no later than the first day of such [*], PathoGenesis will issue a firm
purchase order for finished Inhaler Products required on a [*] basis by
PathoGenesis in such [*], and a delivery date of no less than [*] from the date
of such purchase order. AeroGen shall accept any such purchase order, or will
negotiate a new delivery schedule for such purchase order and accept such
revised purchase order, within [*] of receipt of such purchase order. Any
purchase order for a given [*] so placed by PathoGenesis shall specify an amount
which is at least [*] of the amount most recently forecast for such [*].
AeroGen shall accept and fill such purchase order; provided however, that where
such purchase order specifies an amount which is more than [*] of the amount
most recently forecast, AeroGen shall use commercially reasonable efforts to
manufacture and supply such excess amount, but shall not be liable in any way in
the event it is unable to so supply such excess amount.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      13.
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         7.5      DELIVERY. AeroGen shall use diligent efforts, consistent with
its other shipment obligations and manufacturing capacity, to ship all Inhaler
Products and Adapters for which purchase orders are accepted on or before the
requested shipment date, to the extent such date is at least [*] after the date
AeroGen accepts the purchase order for such shipment. The shipping and packaging
method used will be at the discretion of AeroGen. Deliveries shall be shipped to
PathoGenesis' address as set forth in this Agreement. All Products will be
shipped by AeroGen freight collect, or if prepaid, such freight will be
subsequently billed to PathoGenesis. PathoGenesis shall be responsible for
clearing all Products for export. If required, AeroGen shall insure the
shipments against damage or loss and will subsequently bill PathoGenesis for
such shipping insurance.

         7.6      PAYMENTS TO THIRD PARTIES. AeroGen, its affiliates, and its
assignees, shall be fully responsible for paying any and all licensee fees,
royalties and other such payments owed by it to any third parties for the
manufacture, sale, offer for sale, use, importation or exportation of the
Inhalers provided by AeroGen. Third party payments owed by PathoGenesis shall be
handled as provided under Section 9.5(a).

         7.7      FACILITIES ACCESS AND REGULATORY INSPECTIONS. PathoGenesis
shall have reasonable access to the manufacturing activities conducted in
AeroGen facilities. PathoGenesis' representatives shall be permitted, from time
to time and upon reasonable notice, to visit the AeroGen facilities during
normal or usual hours of operation to monitor the manufacturing activities. In
addition, PathoGenesis shall have the right, upon reasonable notice to AeroGen,
and provided such subcontractor agrees to such visit, to visit the facilities of
any of the subcontractors AeroGen utilizes pursuant to Section 2.4 or 7.3;
provided that the PathoGenesis representatives are accompanied by AeroGen
representatives. AeroGen shall promptly notify PathoGenesis of any regulatory
inspection of AeroGen facilities used in the manufacturing, processing or
packaging of the Inhaler Product. At the reasonable written request of
PathoGenesis, AeroGen shall promptly provide to PathoGenesis copies of the
documents relating to or arising out of the inspection such as FDA Form 483 list
of observations, establishment inspection reports, and warning letters.

         7.8      USE OF TRADEMARKS ON PRODUCTS. PathoGenesis will have the
right to mark the Inhaler Product with its own Company Trademarks. PathoGenesis
and AeroGen acknowledge that it may be mutually beneficial to mark the Inhaler
Product with the trademarks, trade names, Iogos, or company names ("Company
Trademarks") of both PathoGenesis and AeroGen. In the event that both parties
desire (or where regulations require) the Inhaler Product to bear the Company
Trademarks of PathoGenesis and AeroGen simultaneously, AeroGen will cooperate
with PathoGenesis and conform to the marking scheme of PathoGenesis. The parties
will agree to the size and placement of the Company Trademarks. Notwithstanding
the foregoing, the parties understand that this Section 7.7 does not include
trademark licenses and that neither PathoGenesis nor AeroGen will use one
another's Company Trademarks without an appropriate license to do so.

         7.9      TITLE AND RISK OF LOSS. Risk of damage or loss of Inhalers
shipped to PathoGenesis by AeroGen shall remain with AeroGen until an Inhaler
Product is shipped at the instructions of PathoGenesis.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      14.
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         7.10     PRODUCT INSURANCE. AeroGen shall furnish PathoGenesis with
Certificates of Insurance within forty-five (45) days of the first commercial
sale of the Inhaler Drug Product or Inhaler Product and shall furnish
PathoGenesis with annual renewal Certificates of Insurance fifteen (15) days
prior to each anniversary of such first sale. The Certificate of Insurance will
extend [*] to PathoGenesis. A thirty (30) day written notice, as practicable, of
cancellation or reduction in scope or amount of coverage will be provided to
PathoGenesis. If such insurance is written on a claims-made form following
termination of this Agreement, coverage shall survive for a period of no less
than [*].

8.       PAYMENTS FOR THE MANUFACTURED INHALER PRODUCTS

         8.1      INHALER TRANSFER PRICE. Subject to the terms and conditions of
this Agreement, PathoGenesis shall pay AeroGen the per unit manufacturing cost
for each Inhaler delivered to and accepted by PathoGenesis, plus [*] of the
manufacturing cost per unit (the "Inhaler Markup") (the sum of the manufacturing
cost per unit and the Inhaler Markup shall be referred to herein as the "Inhaler
Transfer Price"). The manufacturing cost per unit is the [*] of AeroGen, on a
consolidated basis, of manufacturing the Inhaler. AeroGen shall determine such
cost in accordance with its internal accounting systems and methodologies and
GAAP, and shall allow PathoGenesis reasonable access to AeroGen's books and
records in order to verify such cost in accordance with Section 18.15 hereof. In
computing such cost, AeroGen will utilize standard industry practice, as
mutually agreed upon by the parties, which agreement shall not be unreasonably
withheld or delayed. At the time of [*], the parties will mutually agree on a
target manufacturing cost per unit (the "Target Cost") and consequent Inhaler
Transfer Price. Under current conditions, as of the Effective Date the Target
Cost of the AeroGen Inhaler is projected to be [*], as per AeroGen's 1999
Business Plan. In the event that the actual Target Cost exceeds the agreed upon
Target Cost by [*] or more, then the Inhaler Markup shall be reduced by [*] for
every [*] of such excess. In the event that the actual Target Cost is below the
agreed upon Target Cost by [*] or more, then the Inhaler Markup shall be
increased by [*] for every [*] of such decrease. AeroGen shall use its best
efforts to obtain and maintain appropriate capital funding to satisfy its
obligations under this Agreement. All capital expenditures necessary to
manufacture and supply the Clinical Test Inhalers and the Inhalers pursuant to
this Agreement shall be the sole responsibility of AeroGen.

         8.2      INVOICING. AeroGen shall invoice PathoGenesis when AeroGen
ships the Inhaler. PathoGenesis shall pay all invoices for the Inhalers
delivered to and accepted in accordance with this Agreement within forty-five
(45) days after receipt of the Inhalers.

9.       ROYALTY

         9.1      ROYALTY PAYMENTS BY PATHOGENESIS FOR PRODUCTS. Except as
provided herein and subject to the terms and conditions of this Agreement,
PathoGenesis shall pay to AeroGen, on a country-by-country basis, a royalty
("Royalty" or "Royalties") based upon the Net Sales of the Products at the
following rates:

                           (a)      a royalty of [*] of the annual Net Sales of
the Products sold in each country other than those countries in North America;

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      15.
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                           (b)      a royalty of [*] of the annual Net Sales of
the Products sold in each country in North America.

         PathoGenesis shall pay the royalties owed to AeroGen on Net Sales of
the Products on a calendar-quarterly basis, within sixty (60) days following the
end of the calendar quarter during which the sales in question were made. Upon
payment of a royalty for any sale of a Product, the royalty obligation under
this Agreement with respect to that Product shall be deemed exhausted.

         9.2      MINIMUM ROYALTY. Subject to the terms and conditions of this
Agreement, [*] (the "Minimum Royalty Commencement Date"), and at each
anniversary of the Minimum Royalty Commencement Date during the Term,
PathoGenesis shall pay to AeroGen, in arrears, a minimum annual royalty payment
of [*] within [*] of such Minimum Royalty Commencement Date or anniversary
thereof; provided that any and all royalty payments actually made with respect
to Net Sales during such calendar year shall be credited against such minimum
royalty amount. In the event PathoGenesis fails to make such payment, and such
payment is not made within [*] written notice thereof, AeroGen shall have the
right to [*].

         9.3      ROYALTY TERM. The parties acknowledge that PathoGenesis'
royalty obligations shall be in effect for so long as PathoGenesis, or any
sublicensee, is selling the Product supplied by AeroGen hereunder anywhere in
the Territory.

         9.4      ROYALTY REPORTS. After the first commercial sale of the
Product in the Territory, PathoGenesis shall provide AeroGen with
calendar-quarterly written royalty reports, within sixty (60) days from the last
day of each calendar quarter during the term of the Agreement. Each report shall
include a summary of the Net Sales of the Product for sales made during the
calendar quarter in question on which a royalty is payable and the royalties
which are payable on such Net Sales. Any objection by AeroGen to the accuracy or
completeness of any such reports must be made in writing to PathoGenesis within
two (2) years after the report is provided to AeroGen, or such report shall be
deemed to be true and correct.

         9.5      REDUCTION OF ROYALTIES.

                           (a)      If it is "necessary" (as defined below) for
PathoGenesis, any Affiliate of PathoGenesis or any sublicensee of PathoGenesis
in any country within the Territory to obtain a license and pay a royalty under
such license to either (i) a third party [*] or (ii) a third party [*], under
any patent or other proprietary interest of such third party in order to use,
import, export, offer for sale or sell the Inhaler Product in that country,
PathoGenesis' obligations to pay royalties to AeroGen on Net Sales in that
country shall be [*]; or (b) [*]; provided that in no event shall AeroGen's
royalties be reduced under this Section 9.5(a) below [*] of the applicable rate
set forth in Section 9.1. It shall be considered "necessary" to obtain a license
if [*]. As used in this Section 9.5(a), an "Excepted Party" means [*].

                           (b)      In the event: (i) [*]; or (ii) a third party
obtains, by order, decree or grant from a court or other regulatory authority of
competent jurisdiction in any country in the Territory, a compulsory license
under AeroGen's Inhalation Intellectual Property authorizing such third party to
make, have made, use, import, export, offer for sale or sell the Product in such
country, AeroGen shall give prompt written notice to PathoGenesis. In either
such event

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      16.
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PathoGenesis' obligations to pay royalties with respect to Net Sales of the
Product in such country under this Agreement shall be [*].

                           (c)      If, for any other reason or under any other
circumstances, the exclusive licenses and rights granted to PathoGenesis under
Section 2 of this Agreement [*], the royalties owed by PathoGenesis to AeroGen
for Net Sales of the Products in such country shall be reduced by [*].

         9.6      BOOKS AND RECORDS. PathoGenesis shall keep full, true and
accurate books and records which disclose the Net Sales of the Products, the
number of Products sold in the Territory and all matters relating to those sales
which are relevant for the purposes of determining the royalties to be paid by
PathoGenesis to AeroGen. Such books and records shall be retained for three (3)
years following the occurrence of such sales.

         9.7      INSPECTION. AeroGen, at its own expense, shall have the right
during normal business hours on thirty (30) days' prior written notice to
PathoGenesis, and not more than once in any calendar year, to have a nationally
recognized independent public accounting firm selected by AeroGen and reasonably
acceptable to PathoGenesis, to examine the relevant books and records of
PathoGenesis for the purpose of verifying the royalties due under Section 9.1 of
this Agreement. Such accounting firm shall not work on a contingency fee basis,
shall execute and deliver to PathoGenesis a standard and reasonable
confidentiality agreement and shall not disclose to AeroGen any information
relating to PathoGenesis' business, except whether the PathoGenesis royalty
reports are correct or incorrect. If such reports are incorrect, then the
accounting firm shall provide PathoGenesis with the specific details concerning
any discrepancies and the amounts of the royalties due under Section 9.1 of this
Agreement. If such examination reveals a discrepancy, PathoGenesis shall pay to
AeroGen any additional royalties owed to AeroGen, or AeroGen shall refund to
PathoGenesis any excess royalty payments made by PathoGenesis, as appropriate.
In the event that the discrepancy amounts to an underpayment by PathoGenesis of
[*] or more of the royalties due under Section 9.1 of this Agreement,
PathoGenesis shall promptly reimburse AeroGen for its out-of-pocket expenses
reasonably incurred in connection with such examination.

         9.8      WITHHOLDING TAX. Any and all withholding taxes or similar
charges imposed by any government on royalties due from PathoGenesis under this
Agreement will be deducted from the amounts due and paid to AeroGen, will be
paid by PathoGenesis to the proper taxing authority, and proof of payment of
said taxes or other charges will be promptly secured and sent to AeroGen as
evidence of such payment.

         9.9      MARKING. AeroGen shall provide PathoGenesis with written
notice of the patent number and country of each of the patents in AeroGen's
Patent Rights when issued by providing PathoGenesis a revised Exhibit C of this
Agreement or providing other suitable written notice to PathoGenesis.
PathoGenesis shall use commercially reasonable efforts to place, in a
conspicuous location on the Inhaler Product, a patent notice in accordance with
and when required by applicable laws of the Country in which the Inhaler Product
is sold and in which there is a Valid Claim of a patent in AeroGen's Patent
Rights covering the Inhaler Product. With respect to the patents in AeroGen's
Patent Rights, PathoGenesis will respond to any request for

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


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disclosure under 35 U.S.C. Section 287(b)(4)(B) only by notifying AeroGen of the
request for disclosure.

10.      INTELLECTUAL PROPERTY

         10.1     INHALER OWNERSHIP. Except as provided herein, AeroGen shall
own all right, title, and interest in all intellectual property rights related
[ * ], whether created independently or jointly by PathoGenesis or AeroGen
during the Term of and pursuant to this Agreement. To the extent that
PathoGenesis owns or acquires any interest in such rights, PathoGenesis hereby
assigns to AeroGen any interest in such intellectual property rights.
PathoGenesis shall own all [ * ], whether such rights are created
independently or jointly by PathoGenesis or AeroGen. To the extent that
AeroGen owns or acquires any interest in such rights, AeroGen hereby assigns
to PathoGenesis any interest in such design patent rights, copyrights and
trade dress rights for the Inhaler.

         10.2     DRUG PRODUCT OWNERSHIP. As between AeroGen and PathoGenesis,
PathoGenesis shall own [*] whether created independently or jointly by
PathoGenesis or AeroGen during the Term of and pursuant to this Agreement. To
the extent AeroGen owns or acquires any interest in such rights, AeroGen hereby
assigns to PathoGenesis any interest in such rights. PathoGenesis shall also own
all right, title, and interest in all patent rights, copyrights, trade dress
rights, and know-how rights covering [*]. To the extent that AeroGen owns or
acquires any interest in such rights, AeroGen hereby assigns such interest to
PathoGenesis.

         10.3     COOPERATION. With respect to the intellectual property rights
addressed in this Section 10, both parties shall cooperate with each other to
obtain, prosecute, maintain and enforce its intellectual property rights. Such
cooperation shall include, without limitation, obtaining assignments from the
other party's employees and causing the execution of all documents and
instruments as the other party may reasonably consider appropriate to pursue
protection.

11.      EQUITY PURCHASE. Pursuant to the Stock Purchase Agreement,
PathoGenesis shall purchase Two Million Five Hundred Thousand Dollars
($2,500,000) of Series E Preferred Stock of AeroGen, at a purchase price of
$2.60 per share.

12.      CONFIDENTIALITY

         12.1     USE OF CONFIDENTIAL INFORMATION. During the Term of this
Agreement, AeroGen and PathoGenesis may each provide Confidential Information,
including but not limited to each party's proprietary materials and/or
technologies, economic information, business or research strategies, trade
secrets and material embodiments thereof, to the other. As used herein,
"Confidential Information" of a party means any such confidential information
disclosed by such party to the other party (i) in written form marked
"confidential," or (ii) in oral form if summarized in a writing marked
"confidential" delivered to the receiving party within thirty (30) days after
the oral disclosure. The parties shall only use Confidential Information of the
other party for those purposes specified in this Agreement.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


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         12.2     CONFIDENTIALITY AND NON-USE. The recipient party shall
maintain the providing party's Confidential Information in strict confidence,
except if and to the extent that such disclosure is required by applicable law
and provided that the providing party has received written notice reasonably far
in advance of the proposed disclosure. The recipient party shall use the
providing party's Confidential Information solely to exercise its rights and
perform its obligations under this Agreement, unless otherwise mutually agreed
in writing. Upon request by the providing party, the recipient party shall,
within ten (10) days of receiving such request, return all tangible materials
comprising Confidential Information of the providing party and return or destroy
any notes, copies, summaries or extracts of the providing party's Confidential
Information, provided that each party shall be permitted to retain one copy of
such embodiments of the other party's Confidential Information for legal
archiving purposes.

         12.3     EXCLUSIONS. Confidential Information shall not include
information that: (i) is shown by contemporaneous documentation of the recipient
party to have been in its possession prior to receipt from the providing party;
(ii) is or becomes, through no fault of the recipient party, publicly known;
(iii) is furnished to the recipient party by a third party without breach of a
duty to the disclosing party; or (iv) is independently developed by the
recipient party without access to the providing party's Confidential
Information.

         12.4     CONFIDENTIALITY AGREEMENTS. AeroGen and PathoGenesis shall use
commercially reasonable efforts to obtain, if not already in place,
confidentiality agreements from its relevant employees, agents, subcontractors
and consultants to protect the confidential information as herein provided.

         12.5     PUBLICITY - RESULTS. During the Term of this Agreement,
AeroGen and PathoGenesis each acknowledge the other party's interest in
publishing certain of its results to obtain recognition within the scientific
community and to advance the state of scientific knowledge. Each party also
recognizes the mutual interest in obtaining valid patent protection and
protecting business interests. Consequently, either party, its employees or
consultants wishing to make a publication or other disclosure (including any
oral disclosure made without obligation of confidentiality) relating to work
performed by such party as part of the work being conducted under this Agreement
(the "Publishing Party") shall transmit to the other party (the "Reviewing
Party") a copy of the proposed written publication or disclosure or an outline
of such oral disclosure at least sixty (60) days prior to submission for
publication or oral disclosure. Such publication or disclosure shall not be made
without the prior written consent of the Reviewing Party, which consent shall
not be unreasonably withheld.

         12.6     PUBLICITY - TERMS OF AGREEMENT. Except as provided in Section
12.7., neither party shall disclose this Agreement or any of the material terms
thereof to any third party, whether in writing or orally, without the prior
written consent of the other party, except for terms or subject matter which has
been the subject of public disclosure or has been mutually approved for such
disclosure pursuant to Section 12. Notwithstanding the foregoing, each party
shall have the right to disclose the material terms of this Agreement in
confidence to any bona fide potential or actual investor, investment banker,
counsel, acquirer, merger target, and where reasonably practicable, shall obtain
a binder of confidentiality consistent with the terms of this Agreement. In
addition, either party may make any such disclosure if, but only to the extent
such disclosure is, on advice of counsel, required by applicable law. The
disclosing party shall use all

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


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commercially reasonable efforts to preserve the confidentiality of this
Agreement and the terms thereof notwithstanding any such required disclosure,
and will give the other party written notice of such required disclosure in
advance thereof, to the extent practicable. In the event either party is
required to file this Agreement with the Securities and Exchange Commission or
any other regulatory agency, such party shall apply for confidential treatment
of this Agreement to the fullest extent permitted by law, shall provide the
other party a copy of the confidential treatment request far enough in advance
of its filing to give the other party a meaningful opportunity to comment
thereon, and shall incorporate in such confidential treatment request any
reasonable comments of the other party.

         12.7     PUBLICITY - PRESS RELEASES. The parties may issue press
releases, either jointly or independently, following the execution of this
Agreement, the form and substance of which shall be approved by the parties,
provided such approval shall not be unreasonably withheld or delayed. Any
subsequent press releases regarding this Agreement, the progress or status
thereof or any developments or other information related thereto shall be
approved in advance by the parties, such approval not to be unreasonably
withheld or delayed.

         12.8     PUBLICITY - USE OF PARTIES' NAMES. Neither party shall use the
name of the other party or any of the other party's affiliates, employees or
subsidiaries, or reference any of the other party's products in any promotions,
public statements or public disclosures without the prior written consent of an
authorized representative of the other party, except where required by law.

13.      ADVERSE INFORMATION AND EVENT REPORTING

         13.1     NOTIFICATION. Each party shall report to the other party, in
as much detail as possible, within forty eight (48) hours from receipt of the
information (or less, where required so as to comply with FDA or after
applicable regulations) any experience coincident with the use of the Inhaler,
AeroGen Inhaler or the Products at any dose, whether or not considered drug
related, that suggests a significant hazard, contraindication, side effect or
precaution. This includes, but is not limited to, any serious adverse experience
or expectation regarding the use of the Products. A serious adverse experience
or expectation includes, at minimum, any possible event coincident with the use
of inhalation devices or the Products that results in any of the following
outcomes: death, a life-threatening experience, inpatient hospitalization,
prolongation of an existing hospitalization, a persistent or significant
disability or incapacity, or a congenital anomaly or birth defect.

         13.2     PRODUCT RECALLS. In the event the FDA orders a recall of the
Inhalers or the Products or one or both parties determine that a voluntary
recall of the Inhaler Product is warranted, the parties agree to meet and confer
in good faith as to whether and how to proceed with such recall and the
allocation of expenses to be incurred in connection therewith.

14.      REPRESENTATIONS AND WARRANTIES

         14.1     AEROGEN REPRESENTATIONS AND WARRANTIES. AeroGen represents,
warrants and covenants that:

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      20.
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                           (a)      AeroGen is a corporation duly organized,
existing and in good standing under the laws of the State of Delaware, with full
right, power and authority to enter into and perform this Agreement;

                           (b)      the execution, delivery and performance of
this Agreement does not conflict with, violate or breach any agreement to which
AeroGen is a party, any court order to which AeroGen is a party or subject to or
AeroGen's certificate of incorporation or bylaws;

                           (c)      this Agreement has been duly executed and
delivered by AeroGen and is a legal, valid and binding obligation enforceable
against AeroGen in accordance with its terms subject to applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium and other laws relating to
or affecting creditors' rights generally and equitable principles;

                           (d)      as of the Effective Date, AeroGen owns or
controls AeroGen's Inhalation Intellectual Property;

                           (e)      to the best of its knowledge, AeroGen [*];

                           (f)      AeroGen has the right to grant the licenses
and rights set forth in this Agreement;

                           (g)      to the best knowledge of AeroGen, [*];

                           (h)      except as set forth on Schedule 14.1(h),
[*];

                           (i)      to the best knowledge of AeroGen, [*].

                           (j)      AeroGen has not knowingly withheld from
PathoGenesis any [*], and to the best knowledge of AeroGen, the information
relating to the manufacture, safety or efficacy of the Clinical Test Inhaler,
Inhaler and the Products provided to PathoGenesis does not contain any
misstatement of a material fact nor omit to state any material fact required to
make such information not misleading;

                           (k)      the execution and delivery by AeroGen of
this Agreement and the performance by AeroGen of the obligations under this
Agreement require no regulatory approvals other than approvals by FDA or other
similar agencies in the Territory to be obtained on the part of AeroGen, or, if
required, AeroGen has obtained such approvals;

                           (l)      during the Term and subject to the terms and
conditions of this Agreement, AeroGen will not grant any license or other right
in any of AeroGen's Inhalation Intellectual Property that interferes with or
conflicts with any of the licenses or rights granted to PathoGenesis under this
Agreement;

                           (m)      the financial information, including but not
limited to audited financial statements, that AeroGen has provided to
PathoGenesis as of the Effective Date comply with GAAP (as defined in Section
8.1) and are correct in all material respects; and

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


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                           (n)      the Clinical Test Inhalers and Inhalers
AeroGen supplies to PathoGenesis hereunder shall, [*].

         14.2     PATHOGENESIS REPRESENTATIONS AND WARRANTIES. PathoGenesis
represents, warrants and covenants that:

                           (a)      PathoGenesis is a corporation duly
organized, existing and in good standing under the laws of the State of
Delaware, with full right, power and authority to enter into and perform this
Agreement;

                           (b)      the execution, delivery and performance of
this Agreement does not conflict with, violate or breach any agreement to which
PathoGenesis is a party, any court order to which PathoGenesis is a party or
subject to or PathoGenesis' certificate of incorporation or bylaws;

                           (c)      this Agreement has been duly executed and
delivered by PathoGenesis and is a binding obligation enforceable against
PathoGenesis in accordance with its terms subject to applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium and other laws relating to
or affecting creditors' rights generally and equitable principles; and

                           (d)      during the term, PathoGenesis will not use
AeroGen's Inhalation Intellectual Property outside the Field or for the delivery
of any drug other than Tobramycin Solution, except as provided under Section
2.8.5(b).

15.      INDEMNIFICATION AND INSURANCE

         15.1     INDEMNIFICATION OF AEROGEN. PathoGenesis shall at all times
during and after the Term be responsible for, and shall defend, indemnify and
hold AeroGen, its directors, officers, employees, agents and representatives
harmless from and against any and all losses, claims, lawsuits, proceedings,
expenses, recoveries and damages, including reasonable legal expenses, costs and
attorneys fees, arising out of: (i) any product liability claim or lawsuit by a
third party directly arising from the Drug Products or any other products made,
used, sold or distributed by PathoGenesis, except to the extent attributable to
AeroGen's breach of its representations and warranties provided in Section 14.1;
(ii) any breach of any representation or warranty given in this Agreement by
PathoGenesis; (iii) any negligent conduct or willful misconduct by PathoGenesis;
and (iv) any representation made or warranty given by PathoGenesis with respect
to the Products (other than the labeling therefor as approved by the relevant
regulatory authorities) provided however, that: (a) AeroGen gives PathoGenesis
prompt notice of any such claim or lawsuit; (b) PathoGenesis has the right to
compromise, settle or defend such claim or lawsuit; and (c) AeroGen, at the
expense of PathoGenesis, cooperates with PathoGenesis in the defense of such
claim or lawsuit. AeroGen, at its expense, may participate in the defense of any
such claim or lawsuit.

         15.2     INDEMNIFICATION OF PATHOGENESIS. AeroGen shall at all times
during and after the Term be responsible for, and shall defend, indemnify and
hold PathoGenesis, its directors, officers, employees, agents and
representatives harmless from and against any and all losses, claims, lawsuits,
proceedings, expenses, recoveries and damages, including reasonable legal

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


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expenses, costs and attorneys fees, arising out of:. (i) any product liability
or lawsuit by a third party directly arising from the Clinical Test Inhalers or
the Inhalers provided by AeroGen to PathoGenesis, except to the extent
attributable to PathoGenesis' breach of its representations and warranties
provided in Section 14.2; (ii) any breach of any representation or warranty
given in this Agreement by AeroGen; and (iii) any negligent conduct or willful
misconduct by AeroGen; provided however, that (a) PathoGenesis gives AeroGen
prompt notice of any such claim or lawsuit; (b) AeroGen has the right to
compromise, settle or defend such claim or lawsuit; and (c) PathoGenesis, at the
expense of AeroGen, cooperates with AeroGen in the defense of such claim or
lawsuit. PathoGenesis, at its expense, may participate in the defense of any
such claim or lawsuit.

         15.3     INSURANCE. Each party shall maintain appropriate product
liability insurance with respect to any clinical trials, manufacturing,
development, sales, marketing, distribution and promotion activities performed
by it hereunder, in each case in the amount of [*] per occurrence and in total,
except that AeroGen shall not be required to maintain separate insurance
pursuant to this Section 15.3 if it maintains substantially the same coverage
pursuant to Section 7.10. Each party shall maintain such insurance until such
Products are no longer sold. In the case of clinical trial insurance, each party
shall maintain such insurance for [*] following the completion of clinical
trials. Upon termination of such insurance, each party shall obtain tail end
product liability coverage for a [*] term in such amounts and subject to such
deductibles as the parties may mutually agree based upon standards prevailing in
the industry at the time. Each party shall name the other party as an additional
insured on any policy required by this section, and shall deliver certificates
of insurance to the other party to document compliance with this section.

         15.4     LIMITATION OF DAMAGES. IN NO EVENT WILL EITHER PARTY BE LIABLE
TO THE OTHER FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES
ARISING IN ANY WAY OUT OF THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY. THIS LIMITATION WILL APPLY EVEN IF THE OTHER PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGE AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL
PURPOSE OF ANY LIMITED WARRANTY PROVIDED HEREIN. THIS LIMITATION SHALL NOT
APPLY, HOWEVER, TO A PARTY'S INDEMNIFICATION OBLIGATION FOR THIRD PARTY CLAIMS
PURSUANT TO SECTION 15.

         15.5     AEROGEN'S RIGHT TO PROSECUTE INFRINGEMENTS. AeroGen, at
AeroGen's expense and discretion, shall have the first right, but not the
obligation, to take action in its own name, in the name of its Affiliates and
its sublicensees, and in the name of PathoGenesis if necessary, to restrain any
infringement, threatened infringement or suspected infringement of any AeroGen
Inhalation Intellectual Property. PathoGenesis, at AeroGen's expense, shall
reasonably cooperate with AeroGen in such action. PathoGenesis, at PathoGenesis'
option and expense, may actively participate as a party in any such action,
where the infringing product at issue delivers an Antiinfective Drug, so long as
the licenses under Section 2 are exclusive with respect to the country in which
such action is brought (a "Relevant Claim"). Subject to the terms and conditions
of this Agreement, AeroGen shall have the right to control prosecution of such
action and the right to settle and compromise such action or dispute. In the
event any monetary recovery in connection with such action or settlement is
obtained, such recovery shall be applied in the following priority: [*].

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


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         15.6     PATHOGENESIS' OPTION TO PROSECUTE INFRINGEMENTS. If AeroGen
does not file an action to restrain such infringement, threatened infringement
or suspected infringement of AeroGen's Inhalation Intellectual Property in the
Field relating to delivery of an Antiinfective Drug, [*], within [*] after (i)
AeroGen becomes aware of such infringement, threatened infringement or suspected
infringement, or (ii) receipt of PathoGenesis' written request to AeroGen to do
so, then PathoGenesis, at PathoGenesis' expense, shall have the right, but not
the obligation, to take action in its name, to restrain such infringement,
threatened infringement or suspected infringement. AeroGen, at PathoGenesis'
expense shall reasonably cooperate with PathoGenesis in such action. AeroGen, at
AeroGen's option and expense, may actively participate as a party in such
action. Subject to the terms and conditions of this Agreement, PathoGenesis
shall have the sole and exclusive right to control prosecution of such action,
but shall not settle and/or compromise such action or dispute without the
consent of AeroGen, which shall not be unreasonably withheld. In the event any
monetary recovery in connection with such infringement action is obtained, such
recovery shall be applied in the following priority: [*].

16.      DISPUTE RESOLUTION

         16.1     NEGOTIATION. AeroGen and PathoGenesis shall endeavor to
resolve any claim or controversy arising out of or relating to this Agreement or
arising from the JDT, or the threatened breach, breach, termination or validity
of this Agreement informally by negotiation between the senior executives,
officers or management of AeroGen and PathoGenesis. Either party may give the
other party written notice of any claim or controversy not resolved in the
normal course of business, or in the case of the JDT, as provided in Section
3.1.6 (the "Disputing Party Notice"). Within [*] after the delivery of the
Disputing Party Notice, the receiving party shall submit to the other party a
written response (the "Response"). The Disputing Party Notice and Response shall
include a statement of each party's position and a summary of the arguments
supporting that position. Within [*] after the Disputing Party Notice, such
designated senior executives, officers or management of AeroGen and PathoGenesis
shall meet at a mutually acceptable time and place and thereafter as often as
they reasonably deem necessary to attempt to resolve the claim or controversy.
All negotiations pursuant to this clause are confidential and without prejudice
and shall be treated as compromise and settlement negotiations for purposes of
applicable rules of evidence.

         16.2     MEDIATION. If the claim or controversy has not been resolved
by negotiation pursuant to Section 16.1 of this Agreement within [*] of the
Disputing Party Notice, or if the parties fail to meet within the time periods
specified in Section 16.1 of this Agreement, the parties shall endeavor to
settle the dispute by mediation under [*]. Unless otherwise agreed, the parties
shall select a mediator from the [*] panel of neutrals and shall notify [*] to
initiate the selection process. Either party may initiate this procedure [*]
after the Disputing Party Notice whether or not the parties have met.

         16.3     ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or the threatened breach, breach, termination or
validity thereof, which remains unresolved for forty five (45) days after the
appointment of a mediator pursuant to Section 16.2 of this Agreement shall be
finally settled by arbitration in accordance with the [*]. The tribunal shall
consist of a sole arbitrator unless in the initial notice of arbitration or
notice of defense, either party requests a panel of three arbitrators in which
event the panel will consist of three

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      24.
<PAGE>

arbitrators, none of whom shall be appointed by a party. In selecting the
arbitrator(s), either party may, but need not, strike any candidate who does
not have a background in the field of pharmaceuticals with related
scientific, legal or business experience. The arbitration shall be governed
by the United States Arbitration Act, 9 U.S.C. Section 1 et seq., and
judgment upon the award rendered by the arbitrator(s) may be entered by any
court or authority having jurisdiction thereof. Insofar as the proceeding
relates to patents, it shall also be governed by 35 U.S.C. Section 294, to
the extent applicable. The arbitrators are not empowered to award treble,
punitive or any other damages in excess of compensatory damages and each
party irrevocably waives any claim to recover any such damages. The place of
the arbitration shall be in [*].

         16.4     INJUNCTIVE RELIEF. Notwithstanding the foregoing, each party
shall have the right to immediately apply to a court of competent jurisdiction
to seek temporary, or permanent injunctive relief to restrain any conduct or any
threatened conduct in violation of or otherwise with respect to Sections 10, 12,
13 and 15 of this Agreement, or that could threaten the parties' rights in or
to, or protect or enforce, any of the parties' intellectual property.

17.      TERM AND TERMINATION

         17.1     TERM. The term of this Agreement is effective as of the
Effective Date as first written above, and except as otherwise provided in this
Section 17 of this Agreement, shall terminate at the end of the Term.

         17.2     TERMINATION FOR BREACH. If either party shall be in default
of, or fail to comply with any material obligation or condition of this
Agreement, the non-defaulting party may terminate this Agreement by giving [*]
notice to the defaulting party, specifying in reasonable detail the basis for
termination. If within [*] after the receipt of such notice, the party who
received such notice remedies the condition forming the basis for termination,
such notice shall cease to be operative, and this Agreement shall continue in
full force and effect. If [*] after the receipt of such notice, the party who
received such notice fails to remedy the condition forming the basis for
termination, this Agreement shall be terminated.

         17.3     TERMINATION FOR CAUSE.

                  17.3.1   PathoGenesis shall have the option to terminate this
Agreement without penalty by giving AeroGen sixty (60) days' written notice if
PathoGenesis, in its sole discretion, determines that the results, [*] are
unsatisfactory; provided that PathoGenesis shall have informed AeroGen promptly
of the basis underlying such decision to terminate, including summaries of data,
and AeroGen shall have had the opportunity to comment thereon and the parties
shall have discussed the matter in good faith.

         17.4     TERMINATION WITHOUT CAUSE. Notwithstanding anything in this
Agreement to the contrary, after the first commercial sale of the Product in any
country, either party, in its sole discretion and without cause, may give the
other party written notice of its intent to terminate this Agreement, such
termination to be effective two (2) years after the receipt of such notice.

         17.5     EFFECTS OF TERMINATION.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      25.
<PAGE>

                  17.5.1   SALES AFTER TERMINATION. Upon early termination of
this Agreement, other than pursuant to Section 17.1 of this Agreement,
PathoGenesis shall have the right for six (6) months to sell the Product in
inventory, on order, or being manufactured at the time of notification of
termination, whether or not in the form of raw materials, products in process or
finished products on hand, provided the royalties and Inhaler Transfer Price
owed to AeroGen on such sales are paid to AeroGen when due in accordance with
this Agreement.

                  17.5.2   NONCANCELLABLE COSTS. In the event PathoGenesis
terminates this Agreement pursuant to Section 17.3, it shall nonetheless
reimburse AeroGen for any and all non-cancelable costs to be incurred by AeroGen
due to such early termination.

         17.6     SURVIVAL. The rights and obligations described in Sections
5.4, 9.6, 9.7, 10, 12, 13, 15.1, 15.2, 15.3, 15.4, 16, 17, 18 of this Agreement
shall survive expiration or termination of this Agreement.

         17.7     RIGHTS IN BANKRUPTCY. All rights and licenses granted under or
pursuant to this Agreement by AeroGen are, and shall otherwise be deemed to be,
for purposes of Section 365(n) of the United States Bankruptcy Code, licenses of
a right to "intellectual property" as defined under Section 101 of the United
States Bankruptcy Code. PathoGenesis, as licensee of such rights under this
Agreement, shall retain and may fully exercise all of its rights and elections
under the United States Bankruptcy Code in the event of the commencement of a
bankruptcy proceeding by or against AeroGen under the United States Bankruptcy
Code including, but not limited to, the right to treat this Agreement or any
agreement supplementary to this Agreement as terminated or to retain its rights
under this Agreement or any Agreement supplementary to this Agreement. In the
event that PathoGenesis elects to retain its rights under this Agreement or any
agreement supplementary to this Agreement, AeroGen shall provide to
PathoGenesis, within [*] of written notice by PathoGenesis to AeroGen in
accordance with Section 18.2 of this Agreement, all intellectual property and
all embodiments of such intellectual property within the possession or control
of AeroGen.

18.      MISCELLANEOUS

         18.1     ENTIRE AGREEMENT. This Agreement, which includes the Exhibits
hereto, contains the entire agreement between AeroGen and PathoGenesis with
respect to the transactions contemplated by this Agreement and supersedes all
prior arrangements or understandings with respect thereto.

         18.2     NOTICES. All notices or other communications that are required
or permitted under this Agreement shall be in writing and shall be sent by
Federal Express or other reliable overnight courier, or hand delivered or mailed
by registered or certified mail, postage prepaid and return receipt requested,
to the appropriate party addressed as follows:

                  If to AeroGen:        AeroGen, Inc.
                                        1310 Orleans Drive
                                        Sunnyvale, California

                                        Attention: Dr. Jane E. Shaw

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      26.
<PAGE>

                                        Chairman and Chief Executive Officer

                  with a copy to:       Cooley Godward LLP
                                        Five Palo Alto Square
                                        3000 El Camino Road
                                        Palo Alto CA 94306-2155

                                        Attention: Barbara A. Kosacz

                  If to PathoGenesis:   PathoGenesis Corporation
                                        5215 Old Orchard Rd. #900
                                        Skokie, Illinois 60077

                                        Attention: Wilbur H. Gantz
                                        Chairman and Chief Executive Officer

                  with a copy to:       PathoGenesis Corporation
                                        5215 Old Orchard Rd., #900
                                        Skokie, Illinois 60077

                                        Attention:Cameron S. Avery
                                        General Counsel

         Any party may by such notice change the address to which notice or
other communications to it are to be delivered or mailed.

         18.3     GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of Delaware excluding its conflict-of-law
rules. This provision shall not preclude application of the United States
Arbitration Act.

         18.4     ASSIGNABILITY. This Agreement shall not be assignable other
than by operation of law by either party without the prior written consent of
the other party, and any purported assignment by either party without the prior
written consent of the other party shall be void, except that either party may
assign its rights under this Agreement to any other corporation or other entity
that succeeds to all or substantially all of that portion of its business to
which this Agreement relates pursuant to any reorganization or sale or
disposition of substantially all of its assets related to that portion of its
business, provided that the assignee agrees to assume the assignor's obligations
hereunder, in which case the assignor shall have no further rights or
obligations under this Agreement. Nothing in this Agreement or such assignment
shall eliminate such assignor's obligations under this Agreement which arise
prior to the time of such assignment. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
permitted assigns.

         18.5     WAIVERS AND AMENDMENTS. Any waiver of any term or condition of
this Agreement, or any amendment or supplementation of this Agreement, shall be
effective only if in writing signed by the parties. A waiver of any breach or
failure to enforce any of the terms or conditions of this Agreement shall not in
any way affect, limit or waive a party's rights

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      27.
<PAGE>

hereunder at any time to enforce strict compliance thereafter with every term or
condition of this Agreement.

         18.6     SEVERABILITY. In the event that any provision contained in
this Agreement shall be determined to be invalid, illegal or unenforceable in
any respect for any reason, the validity, legality and enforceability of any
such provision in every other respect and the remaining provisions of this
Agreement shall not, at the election of the party for whose benefit the
provision exists, be in any way impaired.

         18.7     SECTION HEADINGS. The section headings contained in this
Agreement are for the purpose of convenience and are not intended to define or
limit the contents of such sections.

         18.8     COUNTERPARTS. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The parties may exchange
signature pages of this Agreement by facsimile with originals to follow by
overnight delivery.

         18.9     FURTHER ASSURANCES. Upon the reasonable request of either
party, the other party shall execute any additional certificates or other
documents that may be reasonably necessary to fully implement this Agreement.

         18.10    FORCE MAJEURE. Except pursuant to existing laws, regulations
and orders, no failure or omission by either party in the performance of any
obligation of this Agreement shall be deemed a breach of this Agreement or
create any liability if the same shall arise from any cause or causes beyond the
control of the parties including, but not limited to the following which, for
the purposes of this Agreement, shall be regarded as beyond the control of the
party in question: (i) any act or omission of any government; (ii) any future
rule, regulation or order issued by any governmental authority or by any
officer, department, agency, or instrumentality thereof which makes such
performance impossible or commercially unreasonable; or (iii) any Act of God;
fire; storm; flood; earthquake; accident; war;, rebellion; insurrection; riot;
invasion; strike; and lockout.

         18.11    COMPLIANCE OF LAW. In conducting any activities under this
Agreement or in connection with the manufacture, use or sale of the Product,
AeroGen and PathoGenesis shall comply with all applicable laws and regulations
including, but not limited to, all Export Administration Regulations of the
United States Department of Commerce.

         18.12    CONFIDENTIALITY OF TERMS OF AGREEMENT. Without the prior
written consent of the other party, neither of the parties shall disclose to
anyone any of the material terms of this Agreement, except upon the
recommendation of counsel in view of any governmental or regulatory law, rule or
guideline (in which event, the disclosing party shall make reasonable efforts to
obtain whatever protection against further disclosure may be available in the
circumstances). Notwithstanding the above, either party may issue a press
release as agreed upon by the parties.

         18.13    RELATIONSHIP OF THE PARTIES. The relationship of the parties
under this Agreement is that of independent contractors. Neither party shall be
deemed to be the agent of the other, nor

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      28.
<PAGE>

shall the parties be deemed to be partners or joint venturers. Neither party
hereto 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 contract, agreement or undertaking.

         18.14    BINDING AGREEMENT. This Agreement, and the Exhibits hereto,
constitute a legally valid and binding obligation of both parties.

         18.15    BOOKS AND RECORDS. Each party shall keep full and accurate
books of account containing all particulars that may be necessary for the
purpose of calculating all amounts owed to the other party hereunder and for the
purpose of calculating any costs or developing any budgets hereunder. Said books
of account shall be kept at the parties' respective principal places of
business. All such reports and data shall be open for inspection by the other
party on a confidential basis at all reasonable times and either party may
conduct, at its own expense, once every year during normal business hours
through an independent certified public accountant, an examination of the
accounts contemplated above.

         IN WITNESS WHEREOF, the parties hereby have executed this Agreement, as
of the date first above written.

AEROGEN:

AEROGEN, INC.

/s/ Jane E. Shaw
-------------------------------------------
Dr. Jane E. Shaw
Chairman and Chief Executive Officer

PATHOGENESIS:

PATHOGENESIS CORPORATION

By: /s/ Wilbur H. Gantz
   ----------------------------------------
     Wilbur H. Gantz
     Chairman and Chief Executive Officer





[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      29.
<PAGE>

                                    EXHIBIT A

            SPECIFICATIONS FOR AERODOSE/TOBRAMYCIN SOLUTION INHALERS

         TOBRAMYCIN SOLUTION - an aqueous solution containing tobramycin, [*].

         ADAPTER - see drawing attached as part of Exhibit A

         AMPOULE - see drawing attached as part of Exhibit A

         I)       GENERAL

                  A)       [*].

                  B)       Specifications are subject to change by [*]

                  C)       [*]

         II)      [*]

                  A)       [*]

                           [*]

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      30.
<PAGE>

                              EXHIBIT A - CONTINUED

                  [*]

III)     [*]

                  [*]

                  1)       [*]

                                                       EXHIBIT A - CONTINUED

                           [*]

                           [*]

                                                       EXHIBIT A - CONTINUED

                  [*]

         IV)      COMMERCIAL DEVICES: [*]

                  A)       [*]

                  B)       [*]

                  C)       [*]

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      31.
<PAGE>

                                    EXHIBIT A

                                      [*]








[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      32.
<PAGE>

                              EXHIBIT A - CONTINUED
                  AEROGEN/PATHOGENESIS PROGRAM COST PROJECTION

<TABLE>
<CAPTION>
CLINICAL PHASE I DEVELOPMENT
<S><C>
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------     -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------
         [*]                    [*]                  [*]                   [*]                  [*]

<CAPTION>
PHASE I MANUFACTURING/RELEASE
<S><C>
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------     -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------
         [*]                    [*]                  [*]                   [*]                  [*]

[*]                                                  [*]                   [*]                  [*]
[*]                                                  [*]                   [*]                  [*]
                                              ------------------
[*]                                                  [*]                   [*]                  [*]
</TABLE>

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      33.
<PAGE>

                              EXHIBIT A - CONTINUED
                  AEROGEN/PATHOGENESIS PROGRAM COST PROJECTION

<TABLE>
<S>                     <C>                   <C>                   <C>                  <C>
CLINICAL PHASE I DEVELOPMENT
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------     -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------     -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
                        -------------------                         -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------                        -----------------
         [*]                    [*]                  [*]                   [*]                  [*]


PHASE III MANUFACTURING/RELEASE
         [*]                    [*]                  [*]           [*]                  [*]
----------------------  -------------------   -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------                                              -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------                                              -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]

[*]                                          [*]                           [*]                  [*]
[*]                                          [*]                           [*]                  [*]
[*]                                                  [*]                   [*]                  [*]

[*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------     -----------------    -----------------
[*]                             [*]                  [*]                   [*]                  [*]

[*]                     [*]                  [*]                   [*]                  [*]
</TABLE>

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      34.
<PAGE>

                              EXHIBIT A - CONTINUED
                  AEROGEN/PATHOGENESIS PROGRAM COST PROJECTION

<TABLE>
<S>                     <C>                   <C>                   <C>                  <C>
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------     -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------                                              -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------                         -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
                                                                                                [*]
[*]                             [*]                  [*]                   [*]                  [*]

[*]
[*]                                                  [*]                   [*]                  [*]
[*]                                                  [*]                   [*]                  [*]
[*]                                                  [*]                   [*]                  [*]
                                              -----------------
[*]                                                  [*]                   [*]                  [*]
</TABLE>

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      35.
<PAGE>

                                    EXHIBIT B

                                      [*]







[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      36.
<PAGE>

                                    EXHIBIT C

                              AEROGEN PATENT RIGHTS

ISSUED U.S. PATENTS AND FOREIGN COUNTERPARTS

         [*]









[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      37.
<PAGE>

                              EXHIBIT C - CONTINUED
                              AEROGEN PATENT RIGHTS

PENDING U.S. PATENT APPLICATIONS

[*]









[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      38.
<PAGE>

                              EXHIBIT C - CONTINUED
                              AEROGEN PATENT RIGHTS

         [*]










[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      39.
<PAGE>

                                SCHEDULE 14.1(h)

                                      [*]











[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


                                      40.
