<SUBMISSION>
<ACCESSION-NUMBER>0000912057-00-047988
<TYPE>S-1/A
<PUBLIC-DOCUMENT-COUNT>7
<FILING-DATE>20001109
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>AEROGEN INC
<CIK>0001039160
<ASSIGNED-SIC>3845
<IRS-NUMBER>330488580
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>S-1/A
<ACT>33
<FILE-NUMBER>333-44470
<FILM-NUMBER>756420
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>1310 CORONADO DR
<CITY>SANTA CLARA
<STATE>CA
<ZIP>95054
<PHONE>4085432400
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>1310 ORLEANS DRIVE
<CITY>SUNNYVALE
<STATE>CA
<ZIP>94089
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>S-1/A
<SEQUENCE>1
<FILENAME>a2028834zs-1a.txt
<DESCRIPTION>S-1/A
<TEXT>

<PAGE>

    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 9, 2000

                                                      REGISTRATION NO. 333-44470
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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


                                AMENDMENT NO. 3
                                       TO
                                    FORM S-1


                             REGISTRATION STATEMENT

                                     UNDER

                           THE SECURITIES ACT OF 1933

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

                                 AEROGEN, INC.

             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                    <C>                                    <C>
               DELAWARE                                 3845                                33-0488580
   (State or other jurisdiction of          (Primary Standard Industrial                 (I.R.S. Employer
    incorporation or organization)          Classification Code Number)               Identification Number)
</TABLE>

                               1310 ORLEANS DRIVE
                          SUNNYVALE, CALIFORNIA 94089
                                 (408) 543-2400

  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)

                              JANE E. SHAW, PH.D.
                      CHAIRMAN AND CHIEF EXECUTIVE OFFICER
                                 AEROGEN, INC.
                               1310 ORLEANS DRIVE
                          SUNNYVALE, CALIFORNIA 94089
                                 (408) 543-2400
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)

                                   COPIES TO:

<TABLE>
<S>                                                          <C>
                  ROBERT J. BRIGHAM, ESQ.                                      JAMES R. TANENBAUM, ESQ.
                   KEITH D. PISANI, ESQ.                                         ANNA T. PINEDO, ESQ.
                     Cooley Godward LLP                                     Stroock & Stroock & Lavan LLP
                   Five Palo Alto Square                                           180 Maiden Lane
                    3000 El Camino Real                                        New York, NY 10038-4982
                Palo Alto, California 94306                                     Phone: (212) 806-5400
                   Phone: (650) 843-5000                                      Facsimile: (212) 806-6006
                 Facsimile: (650) 849-7400
</TABLE>

                  APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.

    If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

    If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

    If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

    If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>

                 SUBJECT TO COMPLETION, DATED NOVEMBER 9, 2000

                                                   FILED PURSUANT TO RULE 424(A)

PROSPECTUS

                                3,600,000 SHARES

                                 [AEROGEN LOGO]

                                  COMMON STOCK

    This is an initial public offering of common stock by AeroGen, Inc. AeroGen
is selling 3,600,000 shares of common stock. The estimated initial public
offering price is between $13.00 and $15.00 per share.

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

    Prior to this offering, there has been no public market for our common
stock. We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol AEGN.

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

<TABLE>
<CAPTION>
                                                                   PER SHARE             TOTAL
                                                                   ---------          -----------
<S>                                                                <C>                <C>
Initial public offering price.............................         $                  $
Underwriting discounts and commissions....................         $                  $
Proceeds to AeroGen before expenses.......................         $                  $
</TABLE>

    AeroGen has granted the underwriters an option for a period of 30 days to
purchase up to 540,000 additional shares of common stock.

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

           INVESTING IN OUR COMMON SHARES INVOLVES A HIGH DEGREE OF RISK.
                    SEE "RISK FACTORS" BEGINNING ON PAGE 5.

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

    NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

CHASE H&Q
                               CIBC WORLD MARKETS
                                                                        SG COWEN

         , 2000
<PAGE>
                               INSIDE FRONT COVER

Creating Innovative Drug Delivery Products (header, left)

    -  AeroGen Logo image (upper right)

    -  Aerosol generator image (center)

    -  Respiratory Products For Marketing by AeroGen (upper left)

    -  Systemic Drug Delivery Products For Partners (center right)

    -  Respiratory Products For Partners (center left)

    -  Aerosol Generator Our Core Technology (lower center)

    -  Broad Range of Drug Formulations Solutions or Suspensions of Drugs
       (bottom center)

                          INSIDE FOLDOUT PANEL 1 AND 2

Products (header, upper left)

    -  Image of man using nebulizer (upper left), annotated with the following:

       --  AeroNeb-TM- Nebulizer--Cleared by FDA for delivery of commercially
           available nebulizer solutions

    -  Image of patient using AeroNeb Inline-TM- Nebulizer (upper center),
       annotated with the following:

       --  AeroNeb Inline-TM- Nebulizer--In development to deliver commercially
           available nebulizer solutions and humidification

    -  Image of man and girl using AeroDose Inhalers (upper right), annotated
       with the following:

       --  AeroDose-TM- Inhalers--In development--Respiratory products,
           Bronchodilators, Anti-infective, Anti-inflammatory--Systemic drug
           delivery products--Insulin

Platforms (header, middle left)

    -  Schematic drawing of nebulizer (middle left), annotated with the
       following:

       --  Our Home Nebulizer--Quiet, small, lightweight, portable

    -  Schematic drawing of ventilator nebulizer (middle center), annotated with
       the following:

       --  Our Ventilator Nebulizer--Efficient drug delivery

    -  Schematic drawing of inhaler (middle right), annotated with the
       following:

       --  Our Inhaler--Breath activated, small, lightweight, hand-held,
           efficient

Core Technology (header, lower left)

    -  Image of Aerosol Generator (lower middle)--Aerosol Generator

AeroGen logo (lower left)

                               INSIDE BACK COVER

Efficiency of AeroDose-TM- Inhaler in Depositing Albuterol in the Lungs (header,
left)

Imaging Study was sponsored and funded by AeroGen and limited to six persons
using radiolabeled albuterol (subhead, left)

    -  Image of Throat, Lungs, Stomach (upper right)--Throat, Lungs, Stomach

    -  AeroDose-TM- (middle, right), annotated with the following:

       --  Average Lung Deposition 70%

    -  Metered Dose Inhaler (middle, left), annotated with the following:

       --  Average Lung Deposition 18%

    -  Image of Throat, Lungs, Stomach (lower left)--Throat, Lungs, Stomach

    -  AeroGen logo (lower right)
<PAGE>
                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
Prospectus Summary..........................................      1

Risk Factors................................................      5

Forward-Looking Statements..................................     14

Use of Proceeds.............................................     14

Dividend Policy.............................................     14

Capitalization..............................................     15

Dilution....................................................     16

Selected Consolidated Financial Data........................     17

Management's Discussion and Analysis of Financial Condition
  and Results of Operations.................................     19

Business....................................................     24

Management..................................................     44

Principal Stockholders......................................     55

Related Party Transactions..................................     58

Description of Capital Stock................................     60

Shares Eligible for Future Sale.............................     63

Underwriting................................................     65

Legal Matters...............................................     68

Experts.....................................................     68

Where You Can Find More Information.........................     68

Index to Consolidated Financial Statements..................    F-1
</TABLE>


    "AeroGen," "AeroDose," "AeroNeb," "AeroNeb InLine" and the AeroGen logo are
our trademarks. "TOBI" is a registered trademark of PathoGenesis Corporation.
This prospectus also includes references to registered service marks and
trademarks of other companies.
<PAGE>
                               PROSPECTUS SUMMARY

    THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD CONSIDER
BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY, INCLUDING "RISK FACTORS" BEGINNING ON PAGE 5 AND OUR CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES BEGINNING ON PAGE F-1, BEFORE MAKING AN
INVESTMENT DECISION. EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS
PROSPECTUS ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE
EXERCISED, THE CONVERSION OF ALL OF OUR PREFERRED STOCK INTO COMMON STOCK UPON
COMPLETION OF THIS OFFERING AND A THREE-FOR-ONE REVERSE STOCK SPLIT OF OUR
COMMON STOCK.

                                  OUR BUSINESS

    AeroGen specializes in the development, manufacture and commercialization of
products for the controlled delivery of drugs to the lungs, which is called
pulmonary drug delivery. Drugs can be delivered via a fine mist, or aerosol, to
the lungs to treat breathing-related, or respiratory, conditions such as asthma,
and through the lungs to the bloodstream, or systemically, to treat diseases or
conditions outside of the lungs such as diabetes. Our core technology consists
of a proprietary aerosol generator. When incorporated in our inhaler or
nebulizer platforms, our aerosol generator delivers drugs in an aerosol of a
predetermined particle size. We believe our drug delivery platforms will allow
us to develop products that deliver drugs formulated as liquids in solutions or
suspensions, from single-dose, multi-dose or patient-adjustable dosage forms.
Products in development provide drug delivery from our hand-held
breath-activated inhalers, nebulizers for home use and nebulizers for patients
on ventilators. Ventilators are machines, generally used in hospitals, that
assist patients in breathing when they are unable to breathe on their own. Our
products require regulatory clearance before they can be commercialized, and to
date only one of our products, the AeroNeb portable nebulizer, has received
regulatory clearance for marketing.

    We intend to create and market a respiratory disease product portfolio. Our
initial products will focus on treating three respiratory diseases--asthma,
chronic obstructive pulmonary disease and cystic fibrosis--and will improve
treatment for patients currently using inhalers or nebulizers and those
receiving therapy via ventilators. These products will deliver commercially
available respiratory drugs and compounds licensed from third parties. According
to IMS HEALTH's Market Segment Report, the U.S. institutional and pharmacy
expenditures for inhaled respiratory medications were over $3.0 billion in 1999.

    We also are developing respiratory products in collaboration with partner
companies who will commercialize those products. For example, in March 2000, we
signed an agreement with PathoGenesis Corporation to develop a small, hand-held
AeroDose inhaler to deliver TOBI, an inhaled tobramycin treatment for cystic
fibrosis. Under the agreement, PathoGenesis received exclusive worldwide rights
to commercialize our AeroDose inhaler for use in combination with TOBI. In
September 2000, PathoGenesis was acquired by Chiron Corporation, a leading
biopharmaceutical company. Chiron has not advised us of any change in the
development plans for the product. However, Pathogenesis has the right to
terminate the agreement at any time. This program provided 47.4% of our research
and development revenues for the nine months ended September 30, 2000.

    In addition to our respiratory therapy activities, we intend to develop
novel pulmonary drug delivery products for systemic drug delivery. These
products will be developed in collaboration with pharmaceutical and
biotechnology companies. Systemic drug delivery of biotechnology products via
the lungs provides significant market opportunities for us. Our first product in
development for delivery of drugs through the lungs to the bloodstream is an
AeroDose inhaler delivering insulin to treat diabetes. We have completed our
first clinical trial for this product and are proceeding with additional trials
in the United States and Europe. In May of this year, we entered into an
agreement with Becton, Dickinson and Company under which Becton Dickinson will
develop and supply a patient-adjustable container for use in our AeroDose
insulin product. We plan to partner this product for further development,
clinical testing and commercialization. Medical Data International reported that
the U.S. market for insulin and insulin delivery systems and supplies was over
$1.4 billion in 1998 and is forecasted to be over $2.0 billion in 2002.

                                       1
<PAGE>
    We believe that our products will address many of the limitations presented
by traditional and competing new methods of pulmonary drug delivery and will
provide the following benefits:

    -  OPTIMIZATION AND CUSTOMIZATION OF AEROSOL PARTICLE SIZE. Our aerosol
       generator delivers a low-velocity aerosol of precisely defined particle
       size, facilitating delivery of drug to the appropriate part of the
       respiratory system.

    -  EASE OF FORMULATION. Drugs can be stored in liquid or dry powder form and
       can be aerosolized in solution or suspension.

    -  FLEXIBILITY OF DOSING. Our AeroDose inhaler technology can be used to
       administer drugs as a single dose, as a unit dose from a multi-dose
       container or as a patient-adjustable dose.

    -  BREATH-ACTIVATION. We have developed a breath-activation feature which
       triggers aerosol formation and is designed to enable patients to obtain
       consistent dosing over one or more breaths.

    -  DOSAGE GUIDANCE. We can incorporate electronic features to provide
       information to the patient.

    -  CONVENIENCE. Our products are designed to be portable, lightweight and
       easy to use.

                                  OUR STRATEGY

    Our goal is to become the leading provider of aerosol-based pulmonary drug
delivery products. Key elements of our strategy include:

    -  Incorporating our core technology into adaptable pulmonary drug delivery
       platforms;

    -  Developing our platforms for multiple product applications;

    -  Developing and commercializing respiratory products ourselves and with
       partners;

    -  Partnering with pharmaceutical and biotechnology companies for systemic
       delivery products; and

    -  Out-licensing our aerosol generator technology for use outside of the
       field of pulmonary drug delivery.

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

    We were incorporated in the state of California in November 1991 under the
name Fluid Propulsion Technologies, Inc. In April 1997, we changed our name to
AeroGen, Inc. In March 1998, we changed our domicile to the state of Delaware.
Our principal executive offices are located at 1310 Orleans Drive, Sunnyvale,
California 94089, and our telephone number is (408) 543-2400. Our web site is
www.aerogen.com. Information on our web site is not part of this prospectus.

                                       2
<PAGE>
                                  THE OFFERING

<TABLE>
<S>                                            <C>
Common stock we are offering.................  3,600,000 shares

Common stock to be outstanding after this      19,376,702 shares
  offering...................................

Use of proceeds..............................  We intend to use the net proceeds of this
                                               offering primarily for research, development
                                               and clinical activities, manufacturing and
                                               commercialization of existing and future
                                               products, capital expenditures and general
                                               corporate purposes.

Proposed Nasdaq National Market symbol.......  AEGN
</TABLE>

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

    The share amounts above are based on shares outstanding as of September 30,
2000 and exclude:

    -  32,349 shares of common stock issuable upon exercise of warrants
       outstanding at a weighted average exercise price of $2.78 per share;

    -  1,250,444 shares of common stock issuable upon exercise of options
       outstanding at a weighted average exercise price of $2.80 per share;

    -  2,036,712 shares of common stock reserved for future grants under our
       stock option plans; and

    -  250,000 shares of common stock reserved for issuance under our employee
       stock purchase plan.

                                       3
<PAGE>
                      SUMMARY CONSOLIDATED FINANCIAL DATA

    The following table sets forth summary consolidated financial data for the
periods indicated. The data has been derived from the consolidated financial
statements for the three years ended December 31, 1999 and the nine month
periods ended September 30, 1999 and 2000 included elsewhere in this prospectus.
It is important that you read this information together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 19 and our consolidated financial statements and related notes
beginning on page F-1.

<TABLE>
<CAPTION>
                                                                                            NINE MONTHS       CUMULATIVE PERIOD
                                                                                               ENDED            FROM 11/18/91
                                                                YEARS ENDED                SEPTEMBER 30,            (DATE
                                                                DECEMBER 31,                (UNAUDITED)         OF INCEPTION)
                                                       ------------------------------   -------------------    THROUGH 9/30/00
                                                         1997       1998       1999       1999       2000        (UNAUDITED)
                                                       --------   --------   --------   --------   --------   -----------------
                                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                    <C>        <C>        <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
  Research and development revenues..................  $   328    $    85    $   468    $    31    $  5,140       $  6,738
  Operating expenses:
    Research and development.........................    3,961      4,392      7,910      5,388      12,035         31,087
    General and administrative.......................    1,509      1,600      2,076      1,573       2,821          9,399
    Purchased in-process research and development....       --         --         --         --       3,500          3,500
                                                       -------    -------    -------    -------    --------       --------
      Total operating expenses.......................    5,470      5,992      9,986      6,961      18,356         43,986
                                                       -------    -------    -------    -------    --------       --------
  Loss from operations...............................   (5,142)    (5,907)    (9,518)    (6,930)    (13,216)       (37,248)
  Interest income, net...............................       87        345        550        444         508          1,671
                                                       -------    -------    -------    -------    --------       --------
  Net loss...........................................   (5,055)    (5,562)    (8,968)    (6,486)    (12,708)       (35,577)
  Dividend related to beneficial conversion feature
    of preferred stock...............................       --         --         --         --     (16,517)       (16,517)
                                                       -------    -------    -------    -------    --------       --------
  Net loss available to common stockholders..........  $(5,055)   $(5,562)   $(8,968)   $(6,486)   $(29,225)      $(52,094)
                                                       =======    =======    =======    =======    ========       ========
  Net loss per common share, basic and diluted.......  $ (3.40)   $ (3.47)   $ (4.95)   $ (3.68)   $ (13.26)
                                                       =======    =======    =======    =======    ========
  Shares used in computing net loss per common share,
    basic and diluted................................    1,487      1,603      1,811      1,762       2,205
                                                       =======    =======    =======    =======    ========
  Pro forma net loss per common share, basic and
    diluted (unaudited)..............................                        $ (0.81)              $  (0.98)
                                                                             =======               ========
  Shares used in computing pro forma net loss per
    common share, basic and diluted (unaudited)......                         11,099                 12,947
                                                                             =======               ========
</TABLE>

    The actual column in the following table presents the actual summary
consolidated balance sheet at September 30, 2000.

    The as adjusted consolidated balance sheet data summarized below reflects
the sale of 3,600,000 shares of common stock in this offering at an assumed
initial public offering price of $14.00 per share, after deducting underwriting
discounts and commissions and estimated offering expenses, as well as the
conversion of all of our preferred stock into common stock upon the closing of
this offering.


<TABLE>
<CAPTION>
                                                                SEPTEMBER 30, 2000
                                                                   (UNAUDITED)
                                                              ----------------------
                                                               ACTUAL    AS ADJUSTED
                                                              --------   -----------
                                                                  (IN THOUSANDS)
<S>                                                           <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
  Cash, cash equivalents and available-for-sale
    securities..............................................  $ 19,580    $ 64,952
  Total assets..............................................    26,570      71,942
  Long-term obligations, less current portion...............       272         272
  Deficit accumulated during the development stage..........   (35,577)    (35,577)
  Deferred stock-based compensation, net....................    (6,174)     (6,174)
  Total stockholders' equity (deficit)......................   (35,042)     68,871
</TABLE>


                                       4
<PAGE>
                                  RISK FACTORS

    YOU SHOULD CONSIDER CAREFULLY THE RISKS DESCRIBED BELOW TOGETHER WITH ALL OF
THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT
DECISION. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE HARMED. IN SUCH AN EVENT, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE PART OR ALL OF
YOUR INVESTMENT.

                         RISKS RELATED TO OUR BUSINESS

WE ARE A DEVELOPMENT STAGE COMPANY AND ALMOST ALL OF OUR PRODUCTS ARE IN AN
EARLY STAGE OF RESEARCH AND DEVELOPMENT, WHICH MAKES IT DIFFICULT FOR YOU TO
EVALUATE OUR BUSINESS AND PROSPECTS.

    You must evaluate us in light of the uncertainties and complexities present
in a development stage company. Almost all of our products are in an early stage
of research or development. Before we can begin to sell our products
commercially, we will need to invest in substantial additional development and
conduct clinical trials. To further develop our products, we will need to
address engineering and design issues, including ensuring that our products
deliver a consistent and predictable amount of drug to the lung and can be
manufactured successfully. We cannot assure you that:

    -  our research and development efforts will be successful;

    -  any of our products will prove safe and effective;

    -  we will obtain regulatory clearance or approval to sell any of our
       products; or

    -  any of our products can be manufactured in commercial quantities or at an
       acceptable cost or marketed successfully.

WE HAVE A HISTORY OF LOSSES, ANTICIPATE FUTURE LOSSES AND MAY NEVER ACHIEVE OR
MAINTAIN PROFITABILITY.

    We have never been profitable. Through September 30, 2000, we have incurred
a cumulative deficit of approximately $35.6 million. We expect to continue to
incur substantial losses over at least the next several years as we:

    -  expand our research and development efforts;

    -  expand our preclinical and clinical testing activities;

    -  expand our manufacturing efforts, including our commercial production
       capability; and

    -  build our sales and marketing capabilities and launch our products.

    To achieve and sustain profitability, we must, alone or with others,
develop, obtain regulatory approval for, manufacture, market and sell products.
We cannot assure investors that we will generate sufficient product, royalty or
research and development revenue to become profitable or to sustain
profitability.

WE MAY NEED ADDITIONAL CAPITAL. IF WE CANNOT SECURE ADDITIONAL FUNDING ON
ACCEPTABLE TERMS, WE MAY BE REQUIRED TO SLOW OUR PROGRESS, CURTAIL OUR
OPERATIONS OR GIVE UP RIGHTS TO SOME OF OUR TECHNOLOGIES OR PRODUCTS.

    Depending on the timing and nature of our marketing efforts and whether and
when we enter into additional collaborations, we may need to raise additional
funds to finance our operations. Our cash requirements may increase because of
our research and development efforts, including clinical trials, capital
expenditures, and the manufacture and marketing of our products. We may need to
seek additional funding through collaborations or through public or private
equity financings. We cannot assure investors that additional financing will be
available on acceptable terms or at all. If adequate funds are not available, we
may be required to delay, reduce the scope of, or eliminate one or more of our
research or development programs. Arrangements with collaborative partners may
require us to relinquish rights to some of our technologies or products.

                                       5
<PAGE>
OUR TECHNOLOGY IS UNPROVEN, SO PRODUCTS USING OUR TECHNOLOGY MAY NOT WORK
EFFECTIVELY.

    Our pulmonary drug delivery technology is new and unproven. Most of our
products are currently in the research, development or clinical stages.
Extensive additional testing will need to be performed to demonstrate that:

    -  drugs may be safely and effectively delivered using our technology;

    -  our nebulizers and inhalers are safe across a range of drugs and
       formulations;

    -  our products consistently deliver accurate and predictable amounts of
       drug over time; and

    -  drug formulations are stable in our products.

    If our products do not prove to be safe and effective, we may be required to
abandon some or all of them. If we cannot develop new products, our business
will suffer.

IF CLINICAL TRIALS OF OUR PRODUCTS ARE NOT SUCCESSFUL, PRODUCTS USING OUR
AERODOSE INHALERS MAY NOT BE COMMERCIALIZED.

    Before either we or our partners can file for regulatory approval for the
commercial sale of products using our AeroDose inhalers, the Food and Drug
Administration will require extensive clinical trials to demonstrate their
safety and efficacy. We are developing other drug and inhaler combinations, each
of which will require clinical testing. To date, we have completed limited
clinical trials using prototype patient-operated AeroDose inhalers. If we do not
successfully complete appropriate clinical trials, we will not be able to
commercialize our products.

    The results of initial clinical trials do not necessarily predict the
results of more extensive clinical trials. Furthermore, we cannot be certain
that clinical trials of our products will demonstrate that they are safe and
effective to the extent necessary to obtain regulatory approvals. Many companies
in the pharmaceutical and biotechnology industries have suffered significant
setbacks in advanced clinical trials, even after achieving promising results in
earlier trials.

WE HAVE LIMITED MANUFACTURING EXPERIENCE AND MAY NOT BE ABLE TO MANUFACTURE OUR
PRODUCTS IN COMMERCIAL QUANTITIES. WE WILL DEPEND ON KEY SUPPLIERS AND CONTRACT
MANUFACTURERS, AND THEIR FAILURE TO SUPPLY US MAY DELAY OR PREVENT
COMMERCIALIZATION OF OUR PRODUCTS.

    We are building our own manufacturing capabilities to produce key components
of our products. We currently plan to produce our aerosol generators. We plan to
use contract manufacturers to produce certain other key components and
subassemblies of our products. We may assemble some or all of our products
ourselves, or we may use contract manufacturers for the final assembly of some
or all of our products. We do not have contracts with any of our key suppliers
or contract manufacturers. In addition, most of them currently are our sole
source of supply. We may not be able to enter into or maintain satisfactory
contracts or arrangements. In addition, manufacturing our products could be
delayed by supply problems at our suppliers or contract manufacturers. There can
be no assurance that we or our contract manufacturers can successfully
manufacture in high volumes in a timely manner, at an acceptable cost or at all.
We cannot assure investors that:

    -  the design of our products will permit their manufacture on a commercial
       scale;

    -  manufacturing and quality control problems will not arise as we attempt
       to scale-up production; or

    -  any scale-up of production can be achieved in a timely manner or at a
       commercially reasonable cost.

    Failure to address these issues adequately could delay or prevent clinical
testing and commercialization of our products.

                                       6
<PAGE>
IF OUR COLLABORATION WITH PATHOGENESIS IS NOT SUCCESSFUL, THE AERODOSE TOBI
PRODUCT WILL NOT BE COMMERCIALIZED.

    The successful development and commercialization of the AeroDose TOBI
product depends on our development collaboration with PathoGenesis. PathoGenesis
has agreed to:

    -  fund our AeroDose TOBI development activities;

    -  design and conduct advanced clinical trials and obtain regulatory
       approval;

    -  purchase the AeroDose TOBI inhaler from us at a defined premium over our
       manufacturing cost; and

    -  pay us royalties if and when the AeroDose TOBI product is commercialized.

    The development and commercialization of the AeroDose TOBI product will not
occur if PathoGenesis fails to conduct these activities. PathoGenesis may
terminate the agreement at any time. We cannot assure investors that we will
receive further development funding, that PathoGenesis will commercialize the
product, or that we will receive any manufacturing or royalty payments. If
PathoGenesis terminates the agreement, our business will be impaired. In
September 2000, PathoGenesis was acquired by Chiron Corporation, a
biopharmaceutical company. Chiron has not advised us of any change in the
development plans for the product; however, there is no assurance that Chiron
will elect to continue this collaboration. The development and commercialization
schedule for the product is in the control of Pathogenesis, and even if Chiron
continues the program, the speed at which the program will proceed, the timing
of regulatory approval if the development program is completed, and the timing
of the launch of the product are all uncertain and are not within our control.

OUR INSULIN PRODUCT CURRENTLY IS OUR ONLY PRODUCT IN DEVELOPMENT FOR SYSTEMIC
DELIVERY, AND THERE ARE MANY UNCERTAINTIES WHICH COULD CAUSE THE PRODUCT TO BE
DELAYED OR NOT TO REACH THE MARKET AT ALL.

    Our insulin product faces many uncertainties. We have only completed one
Phase I clinical trial, an initial study in 13 normal volunteers. Normal
volunteers, who generally are the subjects in early studies, are people who do
not have the disease for which the product is being studied. Early studies
generally focus on the safety of a product rather than its effectiveness in
treating the disease. We cannot be sure that the results of additional clinical
trials will prove the safety and effectiveness of our product. Ensuring a steady
supply of insulin from a qualified supplier is critical to the success of the
product. We do not have a contract for the supply of insulin, and there are only
a limited number of suppliers of commercial quantities of insulin. If our
agreement with Becton Dickinson terminates or if Becton Dickinson's efforts to
develop a patient-adjustable container are unsuccessful, we will need to develop
or obtain a different patient-adjustable container to use with our insulin
product, and clinical trials and regulatory approval would be delayed. In
addition, we have not yet identified a marketing partner to fund the additional
development and clinical trials necessary to obtain regulatory approval and to
commercialize the product. We cannot assure you that we will be able to enter
into a satisfactory agreement with a marketing partner.

WE MAY NOT BE ABLE TO DEVELOP CERTAIN PRODUCTS IF WE DO NOT ENTER INTO
ADDITIONAL COLLABORATIVE RELATIONSHIPS OR GAIN ACCESS TO COMPOUNDS FROM THIRD
PARTIES.

    Our strategy depends partially on our ability to enter into collaborative
relationships with additional partners to conduct the clinical trials,
manufacturing, marketing and sales activities necessary to commercialize
products. To develop products to be marketed by us, we will need to purchase or
license, possibly reformulate and package drugs for use with our AeroDose
inhalers and nebulizers. We cannot assure you that we will be able to establish
these kinds of arrangements on favorable terms or at all, or that our existing
or future collaborative arrangements will be successful.

                                       7
<PAGE>
IF OUR PRODUCTS DO NOT GAIN COMMERCIAL ACCEPTANCE, WE WILL NOT GENERATE
SIGNIFICANT REVENUE.

    Our success in commercializing our products depends on many factors,
including acceptance by healthcare professionals and patients. Their acceptance
of our products will depend largely on our ability to demonstrate that our
products can compete with alternative delivery systems with respect to:

    -  safety;

    -  efficacy;

    -  the benefits associated with pulmonary delivery;

    -  ease of use; and

    -  price.

    We cannot assure investors that our products will compete effectively or
that we or our partners will be able to successfully market any products in a
timely manner.

IF WE ARE UNABLE TO DEVELOP A SUCCESSFUL SALES AND MARKETING PROGRAM, WE WILL
NOT BE ABLE TO COMMERCIALIZE OUR PRODUCTS.

    We currently have a very limited sales and marketing staff, and many of our
competitors have substantial sales and marketing programs. Our success in
commercializing our respiratory products in the United States will depend on our
ability to develop a successful sales and marketing program. Successful
worldwide commercialization will depend upon finding strong marketing partners
for our products in other countries.

OUR CORPORATE PARTNERS MAY NOT COMMERCIALIZE OUR PRODUCTS OR MAY DEVELOP
PRODUCTS THAT COMPETE AGAINST OUR PRODUCTS.

    We will depend on our corporate partners to commercialize products developed
in collaboration with us. If any of our existing or future corporate partners do
not complete the development of or commercialize products to which they have
obtained rights from us, our business could be impaired. In the drug delivery
area, it is common for corporate partners to conduct feasibility studies with
multiple partners. There can be no assurance that our existing or future
corporate partners will choose our technology over their own technology or that
of our competitors.

IF WE ARE UNABLE TO ATTRACT AND RETAIN THE HIGHLY SKILLED PERSONNEL NECESSARY
FOR OUR BUSINESS, WE MAY NOT BE ABLE TO DEVELOP OUR PRODUCTS SUCCESSFULLY.

    Because of the specialized nature of our business, we depend upon qualified
scientific, engineering, technical and managerial personnel. In particular, our
business and prospects depend upon the continued employment of Dr. Jane E. Shaw,
our Chairman and Chief Executive Officer. We do not have an employment agreement
with Dr. Shaw. There is intense competition for qualified personnel in our
business, especially for engineering personnel. In addition, our location in
northern California makes recruiting qualified personnel from outside the San
Francisco Bay area more difficult, due to the very high cost of housing, the
rapid expansion of businesses demanding skilled workers and the low unemployment
rates. Therefore, we may not be able to attract and retain the qualified
personnel necessary to grow our business. The loss of the services of existing
personnel, as well as the failure to recruit additional key scientific,
technical, engineering and managerial personnel in a timely manner, would harm
our research and development programs and our business.

                                       8
<PAGE>
OUR ABILITY TO MARKET AND SELL OUR PRODUCTS DEPENDS UPON RECEIVING REGULATORY
APPROVALS, WHICH WE MAY NOT OBTAIN.

    Our products are subject to extensive regulation in the United States by the
Food and Drug Administration, and state and local government agencies, and
abroad by international regulatory authorities. These agencies regulate the
development, testing, manufacture, labeling, storage, approval, advertising,
promotion, sale and distribution of medical devices, drugs and biologics. If we
or our partners fail to obtain regulatory clearances to market our products, our
business will be harmed and we, or our collaborative partners, will not be able
to market and sell our products. Even if granted, regulatory approvals may
include significant limitations on the uses for which products may be marketed.
Once obtained, required approvals may be withdrawn, or we may not remain in
compliance with regulatory requirements. The process for obtaining necessary
regulatory approvals for drugs and biologics is generally lengthy, expensive and
uncertain. Obtaining and maintaining foreign regulatory approvals is expensive,
and we cannot be certain that we will receive approvals in any foreign country
in which we or our partners plan to market our products. If we or our partners
fail to obtain regulatory approval in the United States or in any foreign
country in which we plan to market our products, our revenues will be lower.

    The regulatory approval process for many of our products is unclear because
our products may be classified as medical devices, drugs or biologics. As a
result, we may experience greater regulatory uncertainty and longer approval
timelines.

IF OUR MANUFACTURING FACILITIES DO NOT MEET FEDERAL, STATE OR INTERNATIONAL
MANUFACTURING STANDARDS, WE MAY NOT BE ABLE TO SELL OUR PRODUCTS IN THE UNITED
STATES OR INTERNATIONALLY.

    Our manufacturing facilities are subject to periodic inspection by
regulatory authorities and our operations will continue to be regulated by the
Food and Drug Administration for compliance with current Good Manufacturing
Practices. We also are required to comply with ISO 9000 series standards in
order to produce products for sale in the European Union. ISO, the International
Organization for Standardization, is a worldwide federation of national
standards bodies. ISO has developed the ISO 9000 family of standards to assist
companies in implementing and operating quality management systems. ISO 9001
provides the requirements for a quality management system that a company must
meet in order for its products to satisfy applicable regulatory requirements. We
only recently received ISO 9001 certification for our California facility.
Maintaining such certification is difficult and costly. If we fail to comply
with Good Manufacturing Practices requirements, ISO 9000 series or other
international regulatory requirements, we may be required to cease all or part
of our operations until we comply with these regulations. We cannot be certain
that our facilities will be found to comply on an ongoing basis with Good
Manufacturing Practices, ISO 9000 series or other international regulatory
requirements.

    The state of California requires that we maintain a license to manufacture
medical devices, and our facilities and manufacturing processes may be inspected
from time to time to monitor compliance with the applicable regulations. We will
be subject to licensing requirements and periodic inspections by the California
Department of Health Services, the county of Santa Clara and various
environmental agencies. If we are unable to maintain a license following any
future inspections, we will be unable to manufacture or ship any products.

    Currently, we lease our California facility under a lease expiring at the
end of 2001. We intend to use this facility to manufacture our products, which
requires us to qualify the facility with the Food and Drug Administration. If we
are unable to renew our lease on terms satisfactory to us, we may be required to
move to a new facility and dedicate substantial resources to building and
qualifying new manufacturing operations.

                                       9
<PAGE>
OUR PRODUCTS MAY NOT BE COMMERCIALLY VIABLE IF GOVERNMENT HEALTH ADMINISTRATION
AUTHORITIES, PRIVATE HEALTH INSURERS AND OTHER THIRD-PARTY PAYORS DO NOT PROVIDE
ADEQUATE REIMBURSEMENT FOR THE COST OF OUR PRODUCTS.

    In both domestic and foreign markets, sales of our potential products will
depend in part on the availability of reimbursement from third-party payors such
as government health administration authorities, private health insurers and
other organizations. Third-party payors often challenge the price and
cost-effectiveness of medical products and services. There is significant
uncertainty about the reimbursement status of newly approved healthcare
products. We cannot assure investors that any of our products will be reimbursed
by third-party payors. In addition, we cannot assure investors that our products
will be considered cost-effective or that adequate third-party reimbursement
will be available to enable us to maintain price levels sufficient to realize a
profit. Legislation and regulations affecting the pricing of health care
products may change before our products are approved for marketing, and any such
changes could further limit reimbursement.

OUR COMPETITORS MAY BE MORE SUCCESSFUL IN DEVELOPING COMPETING TECHNOLOGIES AND
GAINING MARKET ACCEPTANCE.

    We compete with pharmaceutical, biotechnology and drug delivery companies,
research organizations, individual scientists and nonprofit organizations
engaged in the development and commercialization of drug delivery systems and
new drug research and testing. We are aware of a number of companies currently
seeking to develop pulmonary delivery devices and other non-invasive
alternatives to injectable drug delivery, including oral delivery systems,
intranasal delivery systems, transdermal systems and infusion systems. Many of
these companies and entities have greater research and development capabilities,
experience, manufacturing, marketing, financial and managerial resources than we
do. Accordingly, our competitors may succeed in developing competing
technologies and products, obtaining regulatory approval for products or gaining
market acceptance more rapidly than we can. If competitors bring effective
products to market before we do, there is a risk that we may not be able to gain
significant market share because our competitors may have firmly established
their products in the market. It is also possible that a competitor may develop
a technology or product that renders our technology or products obsolete.

WE MAY BE UNABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY, WHICH COULD
ENABLE THIRD PARTIES TO USE OUR TECHNOLOGY AND IMPAIR OUR ABILITY TO COMPETE
EFFECTIVELY.

    Our ability to compete effectively depends in part on developing and
maintaining the proprietary aspects of our aerosolization technology. We cannot
assure you that the patents we have obtained, or any patents we may obtain as a
result of our pending U.S. or international patent applications, will provide
any competitive advantages for our products and, in particular, our vibratory
aerosolization technology, which is technology that aerosolizes liquids by
vibrating a metal plate that contains holes. We also cannot assure you that
those patents will not be successfully challenged, invalidated or circumvented
in the future. In addition, we cannot assure you that competitors, many of which
have substantial resources and have made substantial investments in competing
technologies, have not already applied for or obtained, or will not seek to
apply for and obtain, patents that will prevent, limit or interfere with our
ability to make, use and sell our products either in the United States or in
international markets. Patent applications are maintained in secrecy for a
period after filing. We may not be aware of all of the patents and patent
applications potentially adverse to our interests.

    A number of pharmaceutical, medical device and other companies, as well as
universities and research institutions, have filed patent applications or have
issued patents relating to methods and apparatuses for aerosolization and
pulmonary drug delivery. We have become aware of, and may become aware of in the
future, patent applications and issued patents that relate to certain aspects of
the technology employed in our products, including certain aspects of vibratory
aerosolization technology. Our pending patent

                                       10
<PAGE>
applications, and those we may file in the future, may not result in patents
being issued. We do not believe that our products currently infringe any valid
and enforceable claims of the issued patents that we have reviewed. However, if
third-party patents or patent applications contain claims infringed by our
technology and such claims are ultimately determined to be valid, we may not be
able to obtain licenses to those patents at a reasonable cost, if at all, or be
able to develop or obtain alternative technology. Our inability to do either
would have a material adverse effect on our business, financial condition,
results of operations and prospects. We cannot assure you that we will not have
to defend ourselves in court against allegations of infringement of third-party
patents, or that such defense would be successful.

    In addition to patents, we rely on trade secrets and proprietary know-how,
which we seek to protect, in part, through confidentiality and proprietary
information agreements. We require our employees and key consultants to execute
confidentiality agreements upon the commencement of employment or a consulting
relationship with us. We cannot assure you that employees or consultants will
not breach these agreements, that we would have adequate remedies for any breach
or that our trade secrets will not otherwise become known to or be independently
developed by competitors.

WE MAY BECOME SUBJECT TO PATENT LITIGATION, WHICH WOULD BE COSTLY TO DEFEND AND
COULD INVALIDATE OUR PATENTS.

    The pharmaceutical and medical device industries have been characterized by
extensive litigation regarding patents and other intellectual property rights,
and companies in these industries have used intellectual property litigation to
gain a competitive advantage. We cannot assure you that we will not become
subject to patent infringement claims or litigation or interference proceedings
declared by the U.S. Patent and Trademark Office, the USPTO, to determine the
priority of inventions. In 1999 we settled a patent interference with U.S.
Patent No. 5,261,601, assigned to Bespak plc. The settlement provided for a
cross-license between us and Bespak, as a result of which Bespak has a license
to certain of our technology, including the right to sublicense. The scope of
the granted license was limited to products employing technology which was
disclosed by Bespak in U.S. Patent No. 5,261,601.

    Our patent position involves complex legal and factual questions and is
generally uncertain. Legal standards relating to the validity and scope of
patent claims in the biotechnology and pharmaceutical field are evolving.
Defending and prosecuting intellectual property suits, USPTO interference
proceedings and related legal and administrative proceedings are costly and
time-consuming. Further litigation may be necessary to enforce our patents, to
protect our trade secrets or know-how or to determine the enforceability, scope
and validity of the proprietary rights of others. Any litigation or interference
proceedings will be costly and will result in significant diversion of effort by
technical and management personnel. An adverse determination in any of the
litigation or interference proceedings to which we may become a party could
subject us to significant liabilities to third parties, require us to license
disputed rights from third parties or require us to cease using such technology,
which would have a material adverse effect on our business, financial condition,
results of operations and future growth prospects. Patent and intellectual
property disputes in the medical device area have often been settled through
licensing or similar arrangements, and could include ongoing royalties. We
cannot assure you that we can obtain the necessary licenses on satisfactory
terms, if at all.

IF WE WERE SUCCESSFULLY SUED FOR PRODUCT LIABILITY, WE COULD FACE SUBSTANTIAL
LIABILITIES THAT EXCEED OUR RESOURCES.

    Researching, developing and commercializing medical devices and
pharmaceutical products entails significant product liability risks. The use of
our products in clinical trials and the commercial sale of our products may
expose us to liability claims. These claims might be made directly by consumers
or by our partner companies or others selling such products. Companies often
address the exposure of this risk by obtaining product liability insurance.
Although we currently have product liability insurance, we cannot assure
investors that we can maintain such insurance or obtain additional insurance on
acceptable terms in

                                       11
<PAGE>
amounts sufficient to protect our business or at all. A successful claim brought
against us in excess of our insurance coverage would have a material adverse
effect on our business.

WE USE HAZARDOUS AND TOXIC MATERIALS AND MUST COMPLY WITH ENVIRONMENTAL LAWS AND
REGULATIONS, WHICH CAN BE EXPENSIVE AND RESTRICT HOW WE DO BUSINESS.

    Our operations involve use of hazardous and toxic materials and generate
hazardous, toxic and other wastes. In particular, we use a special metal alloy
to build our aerosol generators that is regulated as a hazardous material. The
risk of accidental contamination or injury from hazardous and toxic materials
cannot be completely eliminated. In the event of such an accident, we could be
held liable for any damages that result, and this liability could exceed our
resources. Our operations could be shut down by government officials if we were
not in compliance with environmental laws.

WE WILL NEED TO INTEGRATE EFFECTIVELY THE ACTIVITIES OF OUR NEW IRISH SUBSIDIARY
WITH OUR CALIFORNIA ACTIVITIES IN ORDER TO OPERATE OUR COMPANY EFFICIENTLY.

    In May 2000, we acquired Cerus Limited, an Irish company with approximately
ten employees. Cerus was renamed AeroGen (Ireland) Limited and has primary
responsibility for developing and obtaining regulatory approval for our AeroNeb
InLine nebulizer. If the California and Irish locations of our businesses do not
integrate quickly and efficiently, the development and commercialization of our
products could be delayed. Currency fluctuations involving our Irish operations
may cause foreign currency translation gains and losses. We cannot predict the
effect of such exchange rate fluctuations on our combined operations.

                         RISKS RELATED TO THIS OFFERING

OUR MANAGEMENT WILL HAVE BROAD DISCRETION AS TO THE USE OF PROCEEDS FROM THIS
OFFERING AND MAY SPEND THE PROCEEDS IN WAYS WITH WHICH YOU MAY NOT AGREE.

    Our management will have broad discretion over the use of proceeds from this
offering. We currently intend to use the proceeds of this offering for increased
research, development and clinical activities, manufacturing and
commercialization of existing and future products, capital expenditures and
general corporate purposes. Our management may allocate the net proceeds among
these purposes as it determines necessary. In addition, market factors may
require our management to allocate all or portions of the net proceeds for other
purposes. Management may not use the proceeds in a manner in which you agree.
Accordingly, you will be relying on the judgment of our management with regard
to the use of proceeds from this offering.

YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION AS A RESULT OF THIS OFFERING.


    The initial public offering price of our common stock is substantially
higher than the net tangible book value per share of our common stock. As a
result, investors purchasing common stock in this offering will incur immediate
and substantial dilution in net tangible book value per share of our common
stock. The dilution will be $10.54 per share in the net tangible book value of
the common stock from the initial public offering price (or $10.28 per share if
the underwriters' option to purchase additional shares is exercised in full). In
addition, investors will incur additional dilution upon the exercise of
outstanding stock options and warrants.


OUR STOCK PRICE MAY BE VOLATILE, AND YOU MAY LOSE ALL OR A PART OF YOUR
INVESTMENT.

    The market prices for securities of many companies in the life sciences
industry have historically been highly volatile, and the market from time to
time has experienced significant price and volume fluctuations unrelated to the
operating performance of particular companies. As a result, you may be unable to
sell

                                       12
<PAGE>
your shares of common stock at or above the offering price. Prices for our
common stock may be influenced by many factors, including:

    -  market conditions relating to the life sciences industry;

    -  investor perception of our company;

    -  securities analysts' recommendations;

    -  delays in the development or regulatory approval of our products;

    -  announcements of technological innovations or new commercial products by
       us, our partners or competitors;

    -  failure to establish new collaborative relationships or termination of
       existing collaborative relationships;

    -  developments or disputes concerning patent or intellectual property
       rights;

    -  regulatory and pricing developments in both the United States and foreign
       countries;

    -  public concern as to the safety of drugs and drug delivery technologies;

    -  period-to-period fluctuations in financial results; or

    -  economic and other external factors.

THE SUBSTANTIAL NUMBER OF OUR SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE MAY CAUSE THE MARKET PRICE FOR OUR COMMON STOCK TO DECLINE.

    Sales of a substantial number of shares of our common stock in the public
market following this offering could cause the market price of our common stock
to decline. The number of shares of common stock available for sale in the
public market is limited by restrictions under federal securities laws and under
agreements into which substantially all of our stockholders have entered with
the underwriters or with us. Those lock-up agreements restrict our stockholders
from selling, pledging or otherwise disposing of their shares for a period of
180 days after the date of this prospectus without the prior written consent of
Chase Securities Inc. However, Chase Securities Inc. may, in its sole
discretion, release all or any portion of the common stock from the restrictions
of the lock-up agreements.

WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS WHICH COULD DISCOURAGE OR PREVENT A
TAKEOVER, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.

    Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our
stockholders. These provisions also may discourage bids at a premium over the
market price of our common stock and may adversely affect both the market price
of our common stock and the voting rights of our stockholders.

CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND
ENTITIES AFFILIATED WITH OUR DIRECTORS MAY PREVENT NEW INVESTORS FROM
INFLUENCING SIGNIFICANT CORPORATE DECISIONS.

    Upon completion of this offering, our executive officers, directors and
entities affiliated with our directors will beneficially own, in the aggregate,
approximately 29.7% of our outstanding common stock. As a result, these
stockholders will be able to exercise control over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. This could have the effect of delaying or
preventing a change of control of AeroGen and will make some transactions
difficult or impossible without the support of these stockholders.

                                       13
<PAGE>
                           FORWARD-LOOKING STATEMENTS

    This prospectus contains forward-looking statements. These forward-looking
statements are not historical facts but rather are based on current
expectations, estimates and projections about our industry, our beliefs and our
assumptions. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks" and "estimates," and variations of these words and similar
expressions, are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control, are
difficult to predict and could cause actual results to differ materially from
those expressed, implied or forecasted in the forward-looking statements. In
addition, the forward-looking events discussed in this prospectus might not
occur. These risks and uncertainties include, among others, those described in
"Risk Factors" beginning on page 5 and elsewhere in this prospectus. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect our management's view only as of the date of this prospectus. Except as
required by law, we undertake no obligation to update any forward-looking
statement, whether as a result of new information, future events or otherwise.

                                USE OF PROCEEDS


    We estimate that the net proceeds to us from the sale of 3,600,000 shares of
our common stock will be approximately $45.4 million, approximately
$52.4 million if the underwriters' over-allotment option is exercised in full,
at an assumed initial public offering price of $14.00 per share, after deducting
the underwriting discounts and commissions and estimated offering expenses.


    Of the net proceeds that we will receive from the offering, we expect to use
approximately:

    -  $20.0 million for research, development and clinical activities;

    -  $10.0 million for manufacturing and commercialization of existing and
       future products; and

    -  $7.0 million for capital expenditures.

We intend to use the remainder of the net proceeds for general corporate
purposes. The amounts and timing of these expenditures may vary depending on a
number of factors, including the amount of cash generated by our operations,
competitive and technological developments and the rate of growth, if any, of
our business. We also may use a portion of the net proceeds to acquire
additional businesses, products and technologies, to lease or build additional
facilities, or to establish joint ventures or other collaborative arrangements
that we believe will complement our current or future business. However, we have
no specific plans, agreements or commitments to do so and are not currently
engaged in any negotiations for any acquisition or joint venture.

    We will retain broad discretion in the allocation of the net proceeds of
this offering. Pending the uses described above, we will invest the net proceeds
of this offering in short-term, interest-bearing investment-grade securities. We
cannot predict whether the proceeds will be invested to yield a favorable
return. Based upon our current plans, we believe that our available cash, cash
equivalents and available-for-sale securities, together with the estimated net
proceeds of this offering, will be sufficient to meet our capital requirements
for at least the next 24 months.

                                DIVIDEND POLICY

    We have never paid or declared any cash dividends. We currently expect to
retain earnings to support our operations and expand our business, and therefore
we do not anticipate paying any cash dividends for the foreseeable future.

                                       14
<PAGE>
                                 CAPITALIZATION

    The following table sets forth our capitalization as of September 30, 2000:

    -  on an actual basis derived from our unaudited consolidated financial
       statements;

    -  on an as adjusted basis to reflect our receipt of the net proceeds from
       the sale of 3,600,000 shares of common stock in this public offering at
       an assumed initial public offering price of $14.00 per share, after
       deducting the estimated underwriting discounts and commissions and
       estimated offering expenses and the automatic conversion of all of our
       preferred stock into an aggregate of 13,003,514 shares of common stock,
       which will occur upon the closing of the offering.


<TABLE>
<CAPTION>
                                                                   SEPTEMBER 30, 2000
                                                              ----------------------------
                                                                ACTUAL       AS ADJUSTED
                                                              -----------   --------------
                                                              (IN THOUSANDS, EXCEPT SHARE
                                                                        AMOUNTS)
<S>                                                           <C>           <C>
Cash, cash equivalents and available-for-sale securities....   $ 19,580        $ 64,952
                                                               ========        ========
Long-term obligations, less current portion.................        272             272
                                                               --------        --------
    Convertible preferred stock, $0.001 par value,
      40,642,430 shares authorized, 39,010,653 shares issued
      and outstanding, actual; 5,000,000 shares authorized,
      and none issued pro forma.............................     58,541              --
    Stockholders' equity (deficit):
    Common stock, $0.001 par value; 62,000,000 shares
      authorized; 2,773,188 shares issued and outstanding,
      actual; 95,000,000 shares authorized and 19,376,702
      shares issued and outstanding, pro forma..............          3              19
    Additional paid-in capital..............................      7,379         111,276
    Notes receivable from stockholders......................       (683)           (683)
    Deferred stock-based compensation, net..................     (6,174)         (6,174)
    Accumulated other comprehensive income..................         10              10
    Deficit accumulated during the development stage........    (35,577)        (35,577)
                                                               --------        --------
        Total stockholders' equity (deficit)................    (35,042)         68,871
                                                               --------        --------
          Total capitalization..............................   $ 23,771        $ 69,143
                                                               ========        ========
</TABLE>


    The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of September 30, 2000, and
excludes:

    -  32,349 shares of common stock issuable upon the exercise of warrants
       outstanding at a weighted average exercise price of $2.78 per share;

    -  1,250,444 shares of common stock issuable upon the exercise of options
       outstanding at a weighted average exercise price of $2.80 per share;

    -  2,036,712 shares available for issuance or future grant under our stock
       option plans; and

    -  250,000 shares available for issuance under our employee stock purchase
       plan.

    The above information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 19 and the consolidated financial statements and related notes
included elsewhere in this prospectus.

                                       15
<PAGE>
                                    DILUTION

    Our pro forma net tangible book value was approximately $21.6 million, or
$1.37 per share, as of September 30, 2000. Pro forma net tangible book value per
share is equal to the amount of our total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding
assuming the conversion of all shares of convertible stock outstanding as of
September 30, 2000.


    Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers for shares of common
stock in this offering and the pro forma as adjusted net tangible book value per
share of our common stock immediately afterwards, after giving effect to the
sale of 3,600,000 shares in this offering and after deducting underwriting
discounts and commissions and estimated offering expenses. This represents an
immediate increase in pro forma net tangible book value of $2.09 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $10.54 per share to new investors. The following table illustrates this
dilution:



<TABLE>
<S>                                                           <C>        <C>
Assumed initial public offering price per share.............             $ 14.00
    Pro forma net tangible book value per share at
      September 30, 2000....................................     1.37
    Increase per share attributable to new investors........     2.09
                                                              -------
Pro forma as adjusted net tangible book value per share
  after this offering.......................................                3.46
                                                                         -------
Dilution per share to new investors.........................             $ 10.54
                                                                         =======
</TABLE>



    If the underwriters' over-allotment option were exercised in full, the pro
forma as adjusted net tangible book value per share after this offering would be
$3.72 per share, the increase in net tangible book value per share to existing
stockholders would be $2.35 per share and the dilution in net tangible book
value to new investors would be $10.28 per share.


    The following table summarizes, on a pro forma basis, as of September 30,
2000, the differences between the total consideration paid and the average price
per share paid by the existing stockholders and the new investors with respect
to the number of shares of common stock purchased from us based on an assumed
initial public offering price of $14.00 per share. We have not deducted the
underwriting discounts and commissions and estimated offering expenses in our
calculations.

<TABLE>
<CAPTION>
                                   SHARES PURCHASED        TOTAL CONSIDERATION      AVERAGE
                                 ---------------------   -----------------------   PRICE PER
                                   NUMBER     PERCENT       AMOUNT      PERCENT      SHARE
                                 ----------   --------   ------------   --------   ---------
<S>                              <C>          <C>        <C>            <C>        <C>
Existing stockholders..........  15,776,702      81.4%   $ 54,727,200      52.1%    $ 3.47
New investors..................   3,600,000      18.6      50,400,000      47.9     $14.00
                                 ----------    ------    ------------    ------
        Total..................  19,376,702     100.0%   $105,127,200     100.0%
                                 ==========    ======    ============    ======
</TABLE>

    The discussion and tables do not assume the exercise of any stock options or
warrants. As of September 30, 2000, there were 1,250,444 shares of common stock
issuable upon exercise of outstanding stock options at a weighted average
exercise price of $2.80 per share and 32,349 shares of common stock issuable
upon the exercise of warrants outstanding at a weighted average exercise price
of $2.78 per share. The exercise of outstanding options and warrants having an
exercise price less than the initial public offering price would increase the
dilutive effect to new investors.

                                       16
<PAGE>
                      SELECTED CONSOLIDATED FINANCIAL DATA

    The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes
beginning on page F-1 and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 19. The consolidated
statements of operations data for the years ended December 31, 1997, 1998, and
1999, and the consolidated balance sheet data as of December 31, 1998 and 1999,
are derived from our audited consolidated financial statements, which are
included elsewhere in this prospectus. The consolidated statements of operations
data for the nine month periods ended September 30, 1999 and 2000 and our
balance sheet data as of September 30, 2000 are derived from our consolidated
unaudited financial statements included elsewhere in this prospectus.

    Unaudited pro forma basic and diluted net loss per share have been
calculated assuming the conversion of all the outstanding shares of preferred
stock into an equal number of shares of common stock, as if the shares had been
converted immediately upon their issuance.

<TABLE>
<CAPTION>
                                                                                            NINE MONTHS
                                                                                               ENDED           CUMULATIVE PERIOD
                                                                                           SEPTEMBER 30,      FROM 11/18/91 (DATE
                                               YEARS ENDED DECEMBER 31,                     (UNAUDITED)          OF INCEPTION)
                                 ----------------------------------------------------   -------------------     THROUGH 9/30/00
                                   1995       1996       1997       1998       1999       1999       2000         (UNAUDITED)
                                 --------   --------   --------   --------   --------   --------   --------   -------------------
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                              <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENTS OF
  OPERATIONS DATA:
    Research and development
      revenues.................  $   281    $   149    $   328    $    85    $   468    $     31   $  5,140        $  6,738
    Operating expenses:
        Research and
          development..........      716      1,725      3,961      4,392      7,910       5,388     12,035          31,087
        General and
          administrative.......      376        706      1,509      1,600      2,076       1,573      2,821           9,399
        Purchased in-process
          research and
          development..........       --         --         --         --         --          --      3,500           3,500
                                 -------    -------    -------    -------    -------    --------   --------        --------
            Total operating
              expenses.........    1,092      2,431      5,470      5,992      9,986       6,961     18,356          43,986
                                 -------    -------    -------    -------    -------    --------   --------        --------
        Loss from operations...     (811)    (2,282)    (5,142)    (5,907)    (9,518)     (6,930)   (13,216)        (37,248)
        Interest income, net...       57        108         87        345        550         444        508           1,671
                                 -------    -------    -------    -------    -------    --------   --------        --------
        Net loss...............     (754)    (2,174)    (5,055)    (5,562)    (8,968)     (6,486)   (12,708)        (35,577)
    Dividend related to
      beneficial conversion
      feature of preferred
      stock....................       --         --         --         --         --          --    (16,517)        (16,517)
                                 -------    -------    -------    -------    -------    --------   --------        --------
    Net loss available to
      common stockholders......  $  (754)   $(2,174)   $(5,055)   $(5,562)   $(8,968)   $ (6,486)  $(29,225)       $(52,094)
                                 =======    =======    =======    =======    =======    ========   ========        ========
    Net loss per common share,
      basic and diluted........  $ (0.51)   $ (1.54)   $ (3.40)   $ (3.47)   $ (4.95)   $  (3.68)  $ (13.26)
                                 =======    =======    =======    =======    =======    ========   ========
    Shares used in computing
      net loss per common
      share, basic and
      diluted..................    1,493      1,413      1,487      1,603      1,811       1,762      2,205
                                 =======    =======    =======    =======    =======    ========   ========
    Pro forma net loss per
      common share, basic and
      diluted (unaudited)......                                              $ (0.81)              $  (0.98)
                                                                             =======               ========
    Shares used in computing
      pro forma net loss per
      common share, basic and
      diluted (unaudited)......                                               11,099                 12,947
                                                                             =======               ========
</TABLE>

                                       17
<PAGE>
    The following table contains a summary of our consolidated balance sheets on
an actual basis at December 31, 1995, 1996, 1997, 1998, 1999 and September 30,
2000.

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                            ----------------------------------------------------   SEPTEMBER 30,
                                              1995       1996       1997       1998       1999          2000
                                            --------   --------   --------   --------   --------   --------------
                                                                       (IN THOUSANDS)               (UNAUDITED)
<S>                                         <C>        <C>        <C>        <C>        <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
  Cash, cash equivalents and
    available-for-sale securities.........  $ 3,373    $ 1,433    $  5,904   $ 17,499   $  7,809      $ 19,580
  Working capital.........................    3,210      1,196       5,383     16,825      7,407        19,831
  Total assets............................    3,547      1,726       7,108     18,608      9,674        26,570
  Long-term obligations, less current
    portion...............................      104         66         778        480        100           272
  Convertible preferred stock.............    4,727      5,743      15,819     31,476     31,476        58,541
  Deficit accumulated during the
    development stage.....................   (1,387)    (4,077)    (10,027)   (13,901)   (22,869)      (35,577)
  Total stockholders' deficit.............   (1,452)    (4,344)    (10,285)   (14,140)   (23,014)      (35,042)
</TABLE>

                                       18
<PAGE>
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

    You should read the following discussion of our financial condition and
results of operations in conjunction with the consolidated financial statements
and the related notes. This discussion may contain forward-looking statements
that involve risks and uncertainty. As a result of many factors, such as those
set forth under "Risk Factors" and elsewhere in this prospectus, our actual
results may differ materially from those anticipated in these forward-looking
statements.

OVERVIEW

    We were incorporated in November 1991. We specialize in the controlled
delivery of drugs to the lungs. Our core technology consists of a proprietary
aerosol generator. We are using our technology to develop respiratory products
for marketing by AeroGen, and we are developing products in collaboration with
pharmaceutical and biotechnology companies for both respiratory therapy and for
the delivery of drugs through the lungs to the bloodstream.

    We are in the development stage and since inception have devoted
substantially all of our efforts to develop products. We have an accumulated
deficit of approximately $35.6 million as of September 30, 2000. We expect to
incur significant additional operating losses over the next several years and
expect cumulative losses to increase primarily due to the expansion of our
research and development activities, an increase in the number and size of
clinical trials, the costs associated with manufacturing and marketing of our
products, and the general expansion of our business activities. To date, we have
not had product sales and do not anticipate receiving revenue from product sales
in 2000. We anticipate that our quarterly results will fluctuate for the
foreseeable future. Therefore, period to period comparisons should not be relied
upon as predictive of the results in future periods. Our sources of working
capital have been equity financings, research and development revenues,
equipment lease financings and interest earned on investments.

    We perform feasibility and initial development work to customize our
AeroDose inhalers to deliver specific drugs, and we have been compensated for
expenses incurred by us in performing this work in several cases. Once
feasibility is demonstrated with respect to a potential product, we seek to
enter into an agreement with the corporate partner owning the rights to the
compound that will be used in the product. We currently have such an agreement
with PathoGenesis to develop an AeroDose inhaler to deliver TOBI, an inhaled
tobramycin therapy for the treatment of cystic fibrosis.

    Our collaborative agreement with PathoGenesis provides for reimbursement of
research and development expenses incurred under an approved workplan. If the
product continues to commercialization, we expect to receive royalties from
PathoGenesis. We expect to receive similar payments from other partners for the
development of products under other collaborations and royalties based on
partner sales of products. We also expect to receive revenue from the
manufacturing of these products. We recognize revenues as reimbursable research
and development expenses are incurred.

    In May 2000, we acquired all the voting stock of Cerus Limited, now AeroGen
(Ireland) Limited, for 1,725,000 shares of Series E convertible preferred stock
valued at approximately $6.0 million, including transaction costs of
approximately $150,000. Cerus was a development stage company developing
products under a license from us using our core aerosol generator technology. At
the acquisition date, Cerus had research and development projects underway aimed
at developing two product lines: inline nebulizers, which we now call the
AeroNeb InLine Nebulizer; and a line of drug containers for use in inline
nebulizer products.

    The first inline nebulizer product has significant development milestones to
achieve before it can be commercialized. The significant milestones include
completion of the development of the technology incorporated in the product,
completion of the necessary reliability testing, field testing and filing for
and

                                       19
<PAGE>
obtaining regulatory clearance, scale-up of manufacturing of the aerosol
generator by AeroGen and the product manufacturing process by AeroGen Ireland.
Other products in this line are at earlier stages of development.

    The drug container project is at a very early stage of development, and the
time and cost to completion may be significant.

    The acquisition was accounted for using the purchase method of accounting.
The purchase price, which for financial accounting purposes was valued at
$6.0 million, was allocated to the assets acquired and the liabilities assumed
based on their estimated fair values at the date of acquisition, as determined
by management. As a result of this transaction, we recorded expense associated
with the purchase of in-process research and development of $3.5 million, net
tangible assets of $445,000, and intangible assets (including goodwill) of
$2.0 million, the majority of which will be amortized over six years. Financial
statements of Cerus are included elsewhere in this prospectus.

    We have incurred stock-based compensation expenses of $487,000 and $54,000
for the nine months ended September 30, 2000 and 1999, and $110,000, $0, $0 for
the years ended December 31, 1999, 1998 and 1997, respectively. As of
September 30, 2000 there was approximately $6.2 million of deferred compensation
which will be amortized to expense on a straight line basis through 2004. We
anticipate incurring additional stock-based compensation expense in the future
as a result of both additional options or other securities issued to employees
and consultants at below deemed fair market value and fluctuations in the market
value of our stock which will have a direct impact on the value of these
securities held by non-employees.

    We had federal and state net operating loss carryforwards as of
December 31, 1999 of approximately $21.8 million and $13.9 million, and
$13.3 million and $10.2 million for 1998, respectively. We also had federal and
state research and development tax credit carryforwards as of December 31, 1999
and 1998 of approximately $407,000 and $212,000, respectively. The net operating
loss and credit carryforwards will expire at various dates through the year
2014, if not utilized. Due to the uncertainty regarding the ultimate utilization
of the net operating loss and credit carryforwards, we have not recorded any
benefit for losses, and a valuation allowance has been recorded for the entire
amount of the net deferred asset. Utilization of net operating losses and
credits may be substantially limited due to the change in ownership provisions
of the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before they can be used.

RESULTS OF OPERATIONS

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999

    RESEARCH AND DEVELOPMENT REVENUES.  Revenues increased to approximately
$5.1 million for the nine months ended September 30, 2000 from $31,000 for the
nine months ended September 30, 1999. This revenue increase resulted from
development activities performed for PathoGenesis ($2.4 million) and activities
for a biotechnology company ($2.7 million). Revenues from other customers were
not material for these periods. Research and development revenues can be
expected to vary from period to period based on the activities requested by
customers in any particular period, and therefore are not predictable. Based on
agreements we currently have in place, we expect research and development
revenues for the fourth quarter of 2000 to be lower than those for each of the
first three quarters of 2000.

    RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses
increased to $12.0 million for the nine months ended September 30, 2000 from
$5.4 million for the nine months ended September 30, 1999, primarily reflecting
the increase in research and development activities for customers and, to a
lesser extent, expenses associated with our AeroDose insulin product
($2.5 million). The increase is largely attributable to outside professional
services ($4.5 million), including design and engineering services, and to
internal salary and benefit costs ($1.2 million).

                                       20
<PAGE>
    Research and development expenses represent expenses related to our own
research and development projects, as well as the costs related to research and
development activities for our customers. Research and development expenses for
customer activities approximated our revenues from those customers. Research and
development expenses include salaries and benefits for scientific and
development personnel, laboratory supplies, consulting services, clinical
expenses and the expenses associated with the development of manufacturing
processes, including related overhead. We expect research and development
spending to increase significantly over the next several years as we increase
clinical trials, expand our research and development activities to support our
products and those we develop in our collaborations, and initiate commercial
manufacturing. The increase in research and development expenditures cannot be
predicted reliably, as it depends in part upon our success in continuing
existing development collaborations, as well as entering into new partnering
agreements.

    GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses
increased to $2.8 million for the nine months ended September 30, 2000 from
$1.6 million for the nine months ended September 30, 1999. Most of the increase
is associated with increased personnel expenses ($400,000), increased facility
rent and related expenses for additional space ($350,000) and professional
services ($230,000). We expect general and administrative expenses to increase
as we expand our research and development efforts, commercialize our products
and operate as a public company.

    PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT.  In conjunction with the
acquisition of Cerus, we recorded a $3.5 million expense during the second
quarter of 2000, which was associated with the purchase of in-process research
and development. The purchased research and development represents the value of
new technologies that were in various stages of development where no alternative
future use was identified. The value of purchased in-process research and
development was determined by management utilizing various methods, including
the income approach.

    DIVIDEND RELATED TO BENEFICIAL CONVERSION FEATURE OF PREFERRED
STOCK.  Dividends relating to beneficial conversion of our preferred stock of
$16.5 million were recorded in the nine months ended September 30, 2000. These
dividends arose due to the issuance of 961,539 shares of Series E convertible
preferred stock in May 2000 for net proceeds of $2.5 million ($202,000 of
beneficial conversion) and 7,498,223 shares of Series F convertible preferred
stock in July 2000 for net proceeds of $16.3 million ($16.3 million of
beneficial conversion).

COMPARISON OF YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

    RESEARCH AND DEVELOPMENT REVENUES.  Research and development revenues were
$468,000 in 1999, $85,000 in 1998 and $328,000 in 1997. Revenue increases in
1999 from 1998 resulted primarily from development activities performed for and
funded by a biotechnology company ($350,000) and, to a lesser extent, from
limited activities performed for other customers. Revenue decreases in 1998 as
compared to 1997 resulted from decreased emphasis on obtaining revenues in
connection with the performance of feasibility studies as we determined to
perform some feasibility studies at no charge to encourage the testing of our
inhaler and nebulizer platforms by potential partners. Research and development
revenues can be expected to vary from period to period, sometimes significantly,
based on the level and timing of activities for customers, and therefore are not
predictable.

    RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses were
$7.9 million in 1999, $4.4 million in 1998 and $4.0 million in 1997. Research
and development expenses in 1999 increased over 1998 due to approximately equal
increases in personnel expenses and other research and development costs such as
consulting services, tooling and materials. Research and development expenses in
1998 increased over 1997 due to the expansion of our research and development
efforts, including moving to a larger facility in the second half of 1997.

                                       21
<PAGE>
    GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses
were $2.1 million in 1999, $1.6 million in 1998 and $1.5 million in 1997.
General and administrative expenses increased in 1999 primarily due to
professional services ($300,000) and increased staffing ($250,000).

    INTEREST INCOME.  Interest income was $626,000 in 1999, $467,000 in 1998 and
$117,000 in 1997. The increase in interest income was primarily due to higher
average cash and investment balances, resulting from the completion of private
placements of our convertible preferred stock in April and November 1997 and in
August 1998.

    INTEREST EXPENSE.  Interest expense was $76,000 in 1999, $122,000 in 1998
and there was minimal interest expense in 1997. The increases from 1997 were due
to borrowings under an equipment lease financing agreement.

LIQUIDITY AND CAPITAL RESOURCES

    Since inception, we have financed our operations primarily through the
private placement of preferred stock and the interest earned on related
proceeds. We have received approximately $52.7 million aggregate net proceeds
from sales of our preferred stock through September 30, 2000. As of
September 30, 2000, we had cash, cash equivalents and available-for-sale
securities of approximately $19.6 million.

    From inception through September 30, 2000, expenditures for operating
activities and capital acquisitions were approximately $33.9 million. The
development of our technology and proposed products will require a commitment of
substantial funds to conduct the costly and time-consuming research and clinical
trials required to develop and refine our technology and proposed products and
to bring any such products to market. Our future capital requirements and
operating expenses will depend on many factors including, but not limited to,
research and development activities, the timing, cost, extent and results of
clinical trials, our success in licensing drugs for use in our products,
regulatory approvals, the status of competitive products, manufacturing and
marketing costs associated with commercialization of products, costs involved in
obtaining and maintaining patents, as well as our ability to enter into
collaborative agreements.

    Based upon our current plans, we believe that our cash, cash equivalents and
available-for-sale securities, together with the estimated net proceeds of this
offering, will be sufficient to meet our capital requirements for at least the
next 24 months. Our forecast of the period of time through which our financial
resources will be adequate to support our operations is a forward-looking
statement that involves risks and uncertainties, and actual results could vary
materially. The factors described above will impact our future capital
requirements and the adequacy of our available funds. We may be required to
raise additional funds through public or private financings, collaborative
relationships or other arrangements. We cannot be certain that such additional
funding, if required, will be available on terms attractive to us, or at all.
Furthermore, any additional equity financing may be dilutive to existing
stockholders and debt financing, if available, may involve restrictive
covenants. Collaborative arrangements, if necessary to raise additional funds,
may require us to relinquish rights to certain of our products or technologies,
or marketing territories. Our failure to raise capital when needed could have a
material adverse effect on our business.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    INTEREST RATE RISK.  Our cash equivalents and investments are comprised
primarily of short-term, fixed-rate instruments. Accordingly, we are not subject
to interest rate risk to any material degree.

    EXCHANGE RATE RISK.  Due to our Irish operations, we have market risk
exposure to adverse changes in foreign exchange rates. The revenues and expenses
of our subsidiary, AeroGen (Ireland) Limited, are denominated in Irish currency.
At the end of each quarter, the revenues and expenses of our subsidiary are
translated into U.S. dollars using the average currency exchange rate for that
quarter, and assets and

                                       22
<PAGE>
liabilities are translated into U.S. dollars using the exchange rate in effect
at the end of that quarter. Fluctuations in exchange rates therefore impact our
financial condition and results of operations, as reported in U.S. dollars. To
date, we have not experienced any significant negative impact as a result of
fluctuations in foreign currency markets. As a policy, we do not engage in
speculative or leveraged transactions, nor do we hold financial instruments for
trading purposes.

    We plan to expand our overseas operations. As a result, our operating
results may become subject to more significant fluctuations based on changes in
exchange rates of foreign currencies in relation to the U.S. dollar. We will
periodically analyze our exposure to currency fluctuations and may adjust our
policies to allow for financial hedging techniques to minimize our exchange rate
risk.

RECENT ACCOUNTING PRONOUNCEMENTS

    In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB No. 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. We have
complied with the guidance in SAB No. 101 for all periods presented.

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS No. 133 requires that all derivatives be recognized at fair
value in the statement of financial position and that the corresponding gains or
losses be reported either in the statement of operations or as a component of
comprehensive income, depending on the type of relationship that exists. As
amended, SFAS No. 133 will be effective for fiscal years beginning after
June 15, 2000. We do not currently hold derivative instruments or engage in
hedging activities, and we do not believe that the implementation of SFAS
No. 133 will have any significant impact on our financial position or results of
operations.

    In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN No. 44"), "Accounting for Certain Transactions
Involving Stock Compensation," an interpretation of the Accounting Principles
Board Opinion No. 25 ("APB No. 25"). This interpretation clarifies the
definition of employee for purposes of applying APB No. 25, "Accounting for
Stock Issued to Employees," the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequence of various
modifications to the terms of a previously fixed stock option or award and the
accounting for an exchange of stock compensation awards in a business
combination. FIN No. 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
The adoption of FIN No. 44 did not have any material impact on our consolidated
financial statements.

                                       23
<PAGE>
                                    BUSINESS

                                    OVERVIEW

    AeroGen specializes in the development, manufacture and commercialization of
products for the controlled delivery of drugs to the lungs, which is called
pulmonary drug delivery. Drugs can be delivered via a fine mist, or aerosol, to
the lungs to treat breathing-related, or respiratory, conditions such as asthma,
and through the lungs to the bloodstream, or systemically, to treat diseases or
conditions located outside of the lungs such as diabetes. Our core technology
consists of a proprietary aerosol generator. When incorporated in our nebulizer
or inhaler platforms, our aerosol generator delivers drugs in an aerosol of a
predetermined particle size. We believe our drug delivery platforms will allow
us to develop products that deliver drugs formulated as liquids in solutions or
suspensions, from single-dose, multi-dose or patient-adjustable dosage forms.
Products in development provide drug delivery from our hand-held breath-
activated inhalers, nebulizers for home use and nebulizers for patients on
ventilators.

    We believe our technology has the potential to improve therapy by providing
a cost-effective, convenient and patient friendly alternative to existing
respiratory dosage forms, injections and other forms of drug delivery. Our
strategy includes using our core aerosol generator technology to develop
respiratory products for marketing by us as well as collaborating with
pharmaceutical and biotechnology companies to develop products for improved
respiratory therapy and delivery of drugs to the bloodstream. We also
out-license our technology for uses outside the field of pulmonary drug
delivery.

    The respiratory products currently under development for marketing by us are
targeted to treat pediatric asthma, chronic obstructive pulmonary disease,
cystic fibrosis and mechanically ventilated patients. These products will
deliver available respiratory drugs and compounds licensed from third parties.
We also are developing respiratory products in collaboration with partner
companies who will market those products. For example, in March 2000, we signed
an agreement with PathoGenesis to develop a small, hand-held AeroDose inhaler to
deliver TOBI, an inhaled tobramycin treatment for cystic fibrosis patients.

    Our first product in development to deliver a drug through the lungs to the
bloodstream is an AeroDose inhaler delivering insulin to treat diabetes. We
completed our first clinical trial for the product, and are proceeding with
additional trials. In May of this year we entered into an agreement with Becton
Dickinson under which Becton Dickinson will develop and supply a
patient-adjustable container for use in our AeroDose insulin product.

                              INDUSTRY BACKGROUND

PULMONARY DRUG DELIVERY

    Pulmonary drug delivery is widely used to treat respiratory diseases and is
believed to be a viable means to deliver drugs to the bloodstream via the lungs.
The drugs must be transformed into an aerosol for inhalation by the patient.
This aerosol must be delivered at a low-velocity to deposit drugs in the lungs
effectively. The size of the aerosol particles generally determines where the
drug will be deposited in the lungs. Aerosols containing large particles,
greater than three microns in diameter, typically get deposited in the upper
airways of the lung, where they may be useful in treating diseases such as
asthma, chronic obstructive pulmonary disease and cystic fibrosis. Aerosols
containing small particles, less than three microns in diameter, are more likely
to pass through the upper airways into the deep lung, where they may be absorbed
into the bloodstream to treat diseases such as diabetes.

THE RESPIRATORY DISEASE MARKET

    The worldwide prevalence of respiratory diseases was estimated by Front Line
Strategic Management Consulting, Inc. to have exceeded 800 million patients in
1996. The most prevalent respiratory diseases are obstructive airways diseases
such as asthma and chronic obstructive pulmonary disease. Respiratory

                                       24
<PAGE>
diseases are associated with impaired quality of life, reduced life expectancy
and significant treatment costs. Front Line estimated that worldwide
pharmaceutical expenditures for the treatment of obstructive airways diseases
was approximately $6.8 billion in 1996.

    According to IMS HEALTH's Market Segment Report, U.S. institutional and
pharmacy expenditures for inhaled respiratory medications were over
$3.0 billion in 1999. IMS HEALTH is a leading provider of healthcare statistics.
Market growth in this area has resulted from increased incidence of disease,
diagnosis, medication expenditures and a shift to newer, costlier therapies. We
currently are focusing on treating three respiratory diseases--asthma, chronic
obstructive pulmonary disease and cystic fibrosis--as well as improving
treatments for patients using nebulizers and those receiving therapy via
ventilators.

    Asthma is a chronic inflammatory disorder involving constriction of the
muscles lining the bronchial airways due to external stimuli, such as exercise
or allergens. The World Health Organization estimates that 100 to 150 million
people worldwide suffer from asthma. According to the Centers for Disease
Control and Prevention and the National Center for Environmental Health, the
number of people in the United States diagnosed with asthma more than doubled
from 6.7 million in 1980 to 17.3 million in 1998, and includes an estimated
4.8 million children.

    Chronic obstructive pulmonary disease is a general term used to characterize
the presence of chronic bronchitis and emphysema. Chronic bronchitis is
characterized by a persistent, productive cough caused by excessive airway
mucous secretion. As the disease progresses, there is a chronic reduction in
lung function, with at least partial reversibility following administration of
bronchodilators. Emphysema is a chronic disease caused by irreversible
destruction of elastin, a protein in the lungs critical to maintaining integrity
of the alveolar walls, or air sacs. Emphysema is irreversible and treatment is
oriented towards reducing irritation and making the patient more comfortable.
The major cause of chronic bronchitis and emphysema is cigarette smoking,
followed by environmental pollution, genetic makeup and chronic occupational
exposure to high concentrations of irritating gases.

    Worldwide, chronic obstructive pulmonary disease is the only leading cause
of death that still has a rising mortality. We estimate, based on published
reports, that by 2020 chronic obstructive pulmonary disease will be fifth
worldwide among the medical conditions most costly to society. The Centers for
Disease Control and Prevention estimated that in 1996 there were 16 million
people in the United States diagnosed with chronic obstructive pulmonary
disease.

    Cystic fibrosis is a genetic disorder associated with dysfunction of the
pancreas and liver and is one of the most common life-shortening inherited
diseases in the United States. Cystic fibrosis primarily affects digestion and
nutrition. Secondary effects seen in the lungs include thick mucous secretions
formed and retained in the airways. Most cystic fibrosis patients experience
deterioration in lung function, increased incidence of lung infection and
respiratory failure over time. According to the Cystic Fibrosis Foundation,
cystic fibrosis affects about 30,000 people in the United States. In the 1950s,
the typical life expectancy was four years after diagnosis. Today, however, many
cystic fibrosis patients live well into their 30s. Earlier diagnosis and more
aggressive and effective treatment have been credited with the dramatic increase
in longevity.

    We estimate, based on industry data, that in 1999 the U.S. institutional and
pharmacy expenditures for nebulized solutions were over $500 million. Based on
industry data and estimates by Frost & Sullivan, we believe that U.S. sales of
nebulizer devices will exceed $280 million in 2000, with approximately 25% of
the sales for home use.

    Ventilated patients require a breathing device because they are not able to
breathe on their own. We estimate, based on data provided by a consultant, that
in the United States in 1998 there were approximately 980,000 patients admitted
to hospitals who required ventilation and on average each patient spent
five days on a ventilator. We estimate, based on information provided by third
parties, that in the United States there are approximately 90,000 ventilators
installed in hospitals and approximately 8,000

                                       25
<PAGE>
ventilators purchased annually. We believe that this growth is based on the high
prevalence of chronic lung diseases and an aging population. Aerosol therapy is
frequently prescribed for patients receiving mechanical ventilation to deliver
drugs and to humidify the air reaching the lungs. We estimate, based on third
party sources, that the United States hospital and alternate care market for
nebulizers and humidifiers in 2000 will exceed $300 million.

THE SYSTEMIC DRUG DELIVERY MARKET

    The physiology of the lungs makes pulmonary delivery an attractive method of
delivering drugs to the bloodstream. The absorptive surface area of the lung is
as high as 70 square meters, and is only one to two cells thick. This large
surface area is available for the free exchange of oxygen, carbon dioxide and
other molecules between the air and the bloodstream. This permits drugs
deposited in the lungs through aerosols to be transported rapidly into the
bloodstream.

    Pulmonary drug delivery is being evaluated for non-invasive delivery of
drugs to the bloodstream to treat non-respiratory diseases. There is increasing
interest in pulmonary drug delivery as a result of the inability of currently
available dosage forms to deliver molecules such as proteins and peptides to the
bloodstream effectively. For these large molecules, oral delivery is not
feasible due to rapid breakdown of the molecules following ingestion. Dosage
forms such as intravenous or intramuscular injections and implants, while
effective for delivering proteins, have many drawbacks, including pain,
inconvenience, expense, risk of infection and poor compliance. Alternatives like
transdermal and nasal dosage forms do not allow reproducible delivery of large
molecules. We believe that systemic drug delivery of biotechnology products via
the lungs provides significant market opportunities for us.

    In addition, pulmonary delivery is being evaluated to deliver drugs such as
insulin, which require rapid input to the bloodstream for optimal therapy.
Medical Data International reported that the U.S. market for insulin and insulin
delivery systems and supplies was over $1.4 billion in 1998 and is forecasted to
be over $2.0 billion in 2002.

TRADITIONAL METHODS OF PULMONARY DRUG DELIVERY AND THEIR LIMITATIONS

    Three basic classifications of devices currently are being used for
pulmonary drug delivery: metered dose inhalers, dry powder inhalers and
nebulizers. These devices were developed originally for local treatment of
respiratory diseases, including asthma and chronic obstructive pulmonary
disease, and have inherent limitations in delivering drugs directly to the
bloodstream.

        METERED DOSE INHALERS.  Metered dose inhalers have been in existence for
    over 40 years and are the most widely used devices for pulmonary drug
    delivery. They consist of a portable canister containing the drug as a
    suspension or solution mixed with a volatile propellant, most often a
    chlorofluorocarbon. Metered dose inhalers require a patient to inhale the
    drug in a single breath. In order to administer the drug, the patient must
    activate the inhaler by pressing down on the canister while simultaneously
    inhaling slowly and evenly. Even with repeat training, many patients using
    metered dose inhalers have difficulty coordinating activation of the device
    with their breathing. Once the inhaler is activated, particles are released
    at an initial velocity of at least 30 miles per hour. Metered dose inhalers
    deliver only 10% to 20% of the drug to the lungs. Most of the remainder of
    the drug is deposited in the mouth and swallowed. To overcome these
    limitations, patients are sometimes prescribed holding chambers, or spacers,
    to use with their metered dose inhalers. These spacers increase the
    complexity of use and reduce the portability of metered dose inhalers.

        DRY POWDER INHALERS.  Traditional dry powder inhalers were introduced to
    overcome the problems inherent with the use of metered dose inhalers. Dry
    powder inhalers are inhalers that deliver dry powdered aerosols without
    using a propellant. Dry powder inhalers are breath activated and thus
    eliminate the need for the press and breath coordination associated with
    metered dose inhalers. We believe that traditional dry powder inhalers have
    meaningful limitations that may prevent

                                       26
<PAGE>
    their broad use in pulmonary drug delivery. Dry powder inhalers usually
    require a single strong, deep inhalation to create the aerosol and deliver
    the drug. Children, the elderly and patients with breathing difficulties
    often cannot achieve the deep inhalation necessary to receive the required
    dose. In addition, these devices do not allow the patient to inhale the
    desired drug in multiple breaths and moisture entering into the dry powder
    inhaler from the environment or a patient's own breath can result in
    dose-to-dose variation.

        NEBULIZERS.  Traditional nebulizers create a continuous aerosol that can
    be inhaled by patients through a mask or mouthpiece. Nebulizers allow
    patients to breathe regularly, thereby requiring less patient coordination
    and cooperation than metered dose inhalers and dry powder inhalers.
    Nebulizers typically require an external power source and therefore are
    bulky and generally noisy. Nebulizer treatments are time-consuming, with
    each treatment typically taking up to 15 minutes, and inefficient, with less
    than 20% of the drug reaching the lungs. The remainder of the drug either is
    aerosolized during the patient's exhalation and released into the
    surrounding air or remains in the nebulizer. Because of these limitations,
    nebulizers are only appropriate for relatively inexpensive, small-molecule
    drugs that can be formulated and stored as liquids.

        Aerosol delivery to mechanically ventilated patients currently uses
    either a metered dose inhaler or a nebulizer. Drugs are administered by
    opening the tubing connecting the patient to the ventilator, which may
    result in infection. In addition, it requires significant time and the
    associated expense of an attendant respiratory therapist, and is inefficient
    with only a very small amount of the administered drug reaching the lungs.
    Ventilator performance may be impaired due to the introduction of additional
    air into the ventilator tubing when drug is administered. This can affect
    adversely the ability to monitor the patient's pulmonary function.

NEW METHODS OF PULMONARY DRUG DELIVERY

    Several companies are developing technology to improve the efficiency and
accuracy of pulmonary drug delivery. Because systemic drug delivery requires the
ability to create and deliver small particles to the deep lung, research has
centered around developing devices capable of consistently delivering fine
particle aerosols. One technique involves the processing of drugs into
sophisticated dry powders. Another uses mechanical pressure to aerosolize custom
formulations of existing liquid drugs. Both of these technologies will require
extensive investment in new formulations, new packaging, new materials, and
customized manufacturing, as well as an extensive validation effort for Good
Manufacturing Practices. The dry powder technology also will face the challenge
of consistently creating a cloud of uniform fine particles in varying
environmental conditions that can include high humidity and electrostatic
charge.

                                  OUR SOLUTION

    We have developed a proprietary aerosol generator to facilitate the
consistent and accurate formation of an aerosol to deliver drugs to the lungs.
Our core technology is being incorporated into each of our delivery platforms.
We believe that our platforms overcome many of the limitations presented by
traditional and new methods of pulmonary drug delivery, and may be used to treat
respiratory diseases as well as to deliver drugs to the bloodstream for systemic
therapy. Our AeroDose inhaler is designed to safely and effectively deliver
drugs of various molecular sizes while eliminating many of the limitations
associated with metered dose inhalers, dry powder inhalers and current
commercial nebulizers. Our AeroNeb portable nebulizer incorporates our aerosol
generator technology to provide end users with a small, portable nebulizer that
quietly and efficiently administers currently approved nebulizer solutions. Our
AeroNeb InLine nebulizer also incorporates our aerosol generator technology and
is designed to improve the delivery of medications to patients on ventilators.
We believe our products will provide the following benefits:

        OPTIMIZATION AND CUSTOMIZATION OF AEROSOL PARTICLE SIZE.  Our aerosol
    generator delivers a low-velocity aerosol of precisely defined particle
    size. Our aerosol generator enables us to provide

                                       27
<PAGE>
    either an aerosol with particles averaging three to four microns in diameter
    for respiratory therapy, or an aerosol with particles averaging one to two
    microns in diameter for deposition in the deep lung for systemic drug
    delivery.

        EASE OF FORMULATION.  Drugs can be stored in liquid or dry powder form
    and can be aerosolized in solution or suspension. Our aerosol generator uses
    no propellants or pressure, and generates no heat, so it is not likely to
    degrade drug molecules. In many cases, we can use existing drug
    formulations, eliminating the need to demonstrate the stability of new
    formulations.

        FLEXIBILITY OF DOSING.  Our AeroDose inhaler technology can be used to
    administer drugs as a single dose, or as a unit dose from a multi-dose
    container. Under collaboration with Becton Dickinson, we are developing an
    AeroDose inhaler that will use a patient-adjustable container to deliver the
    required dose of insulin.

        BREATH-ACTIVATION.  We have developed a breath-activation feature which
    triggers aerosol formation and is designed to enable patients to obtain
    consistent dosing over one or more breaths. This feature is designed so that
    drug will be aerosolized only when the patient's inhalation rate has reached
    a predetermined threshold, which can be adjusted for a particular target
    patient population. If a patient exhales or coughs, the aerosolization will
    stop and only resume when the patient begins inhaling again at the
    predetermined rate. Our electronic controls are designed to allow us to
    customize inhalers for both relaxed and controlled breathing, facilitating
    delivery of drug to the desired portion of the lung.

        DOSAGE GUIDANCE.  We can incorporate electronic features to provide
    information to the patient. Lights can indicate when a dose is ready for
    inhalation and when the total dose has been inhaled. Additional features may
    include indicators of patient compliance with the prescribed regimen and
    lock-out features to prevent abuse or overdose.

        CONVENIENCE.  Our products are designed to be lightweight and easy to
    use for patients and care-providers. AeroDose inhalers fit in the palm of
    the hand and can be carried in a shirt pocket or small purse. The AeroNeb
    nebulizer is portable, quieter and more compact than currently
    commercialized nebulizers. The AeroNeb InLine nebulizer is lightweight,
    allowing it to be placed close to the ventilated patient's windpipe,
    providing efficient generation of aerosol close to the lung. We believe our
    products will require minimal patient training, will be easy to use for the
    very young and the elderly and have the potential to increase compliance
    with prescribed treatment regimens.

    Our AeroDose inhaler products are expected to be more expensive than metered
dose inhalers and currently available dry powder inhalers, as our products are
expected to provide significant advantages over currently marketed devices. It
is difficult to predict whether, and to what extent, our products will be
reimbursed by insurance companies, health maintenance organizations and
government healthcare providers. In addition, although we believe that
physicians are likely to recommend our products to their patients, it is
impossible to predict to what extent or how quickly this may occur.

                                  OUR STRATEGY

    Our goal is to become the leading provider of aerosol-based pulmonary drug
delivery products. Key elements of our strategy include:

        INCORPORATING OUR CORE TECHNOLOGY INTO ADAPTABLE PULMONARY DRUG DELIVERY
    PLATFORMS.  Our core aerosol generator technology is being incorporated into
    our inhaler and nebulizer platforms.

        DEVELOPING OUR PLATFORMS FOR MULTIPLE PRODUCT APPLICATIONS.  Our
    platforms are being customized to develop a wide range of products, from the
    pocket-size AeroDose inhalers to the AeroNeb InLine nebulizers for use in
    intensive care units.

        DEVELOPING AND COMMERCIALIZING RESPIRATORY PRODUCTS OURSELVES AND WITH
    PARTNERS.  We are developing a line of AeroDose inhaler and nebulizer
    products which we will market ourselves. Our

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<PAGE>
    initial products will deliver available respiratory drugs. We also are
    actively working to license proprietary drugs from third parties that will
    be combined with our platforms to develop respiratory products for our
    portfolio. We believe that the marketing of products that combine our
    platforms with generic and in-licensed drugs will make therapy easier and
    more convenient for patients, as we will be able to provide both the
    customized container or canister holding the drug as well as the inhaler
    designed to deliver it. This strategy is designed to enable us to earn
    revenues from both sales of our inhalers and sales of the drugs to be used
    with them, as well as from our nebulizers. We intend to retain U.S.
    marketing rights to our AeroDose inhaler products and to license marketing
    rights to partners outside the United States. We plan to market our
    nebulizer products, the AeroNeb and the AeroNeb InLine, ourselves in the
    United States and to commercialize these products in other countries through
    marketing partners or distributors. Our products developed with partner
    companies, such as the AeroDose TOBI product, will be marketed by the
    partner with whom we collaborate on the development of the product.

        PARTNERING WITH PHARMACEUTICAL AND BIOTECHNOLOGY COMPANIES FOR SYSTEMIC
    DELIVERY PRODUCTS.  We are pursuing collaborative arrangements with
    pharmaceutical and biotechnology companies to develop products to deliver
    drugs systemically via the lungs. We are developing an AeroDose inhaler for
    an inhaled insulin product to treat diabetes. Under an agreement with Becton
    Dickinson, this product will incorporate Becton Dickinson's
    patient-adjustable container. We intend to enter into a collaboration with a
    marketing partner to further develop and commercialize this product. We
    currently anticipate commercial introduction of the product by a marketing
    partner no sooner than 2004. However, the timing of commercial introduction
    of this product will be largely within the control of the marketing partner.

        OUT-LICENSING OUR AEROSOL GENERATOR TECHNOLOGY FOR USE OUTSIDE OF THE
    FIELD OF PULMONARY DRUG DELIVERY.  Our aerosol generator technology has
    proven to be of interest to industries focusing outside the field of
    pulmonary drug delivery. We have an agreement with a multinational consumer
    products company covering the use of our technology in the fields of air
    fresheners and insect repellants. Under the terms of this agreement, we are
    to receive royalties based on net sales of units and refill cartridges. We
    will continue to seek out-licensing opportunities outside the pulmonary drug
    delivery field where our technology can provide significant value.

           OUR CORE TECHNOLOGY AND PULMONARY DRUG DELIVERY PLATFORMS

AEROSOL GENERATOR

    Our aerosol generator contains a domed, or curved, plate which contains
multiple apertures, or holes, of a discrete shape and size. The aperture plate
is produced through an electroforming, or plating, process using a metal alloy
which is strong, corrosion resistant and durable. The plate is placed within a
vibrational element and when energy is applied to this element the plate
vibrates. This creates a micro-pumping action that draws solutions in contact
with the concave surface of the plate through the apertures to form a fine
particle aerosol. The aerosol particle size formed is proportional to the size
and shape of the holes in the aperture plate. The same manufacturing process is
used to produce aperture plates with holes of various sizes. We are able to
optimize the flow rate and produce a low velocity aerosol by controlling the
voltage and frequency applied to the vibrational element. Thus, when the aerosol
generator is incorporated into a delivery platform, it is capable of producing
aerosols of consistent particle size.

[Picture of a cross-section of our aerosol generator, annotated with the
following:

              --Vibrational Element
               --Aperture Plate]

                           SCHEMATIC OF AEROGEN'S AEROSOL GENERATOR

                                       29
<PAGE>
    We have demonstrated the ability to aerosolize drugs in solutions or
suspensions. We believe that our core technology will be applicable to
aerosolization of both small- and large-molecule drugs being developed by the
biotechnology industry. Results to date indicate that the aerosol generator does
not affect the stability of proteins and peptides.

AERODOSE INHALERS

    Each inhaler consists of our proprietary aerosol generator, electronic
circuitry, batteries, an inhalation sensor and a drug container. These
components are incorporated into a small, compact inhaler that is easy to use
and can be carried in a shirt pocket or small purse.

    We are incorporating several dosing options into our AeroDose inhalers. We
believe that this versatility enables us to explore multiple applications of our
platforms to deliver a variety of drugs. Our proprietary valves permit accurate
dosing in the range of 15 to 3,000 microliters. We believe that this wide dosing
range will allow us to deliver the required dose of most drugs of interest for
pulmonary delivery, from small quantities of expensive, potent drugs to large
quantities of less potent drugs that are sometimes needed for effective therapy.
Currently, we are developing four distinct dosing options for our inhalers:

    SINGLE-DOSE CANISTER.  The single-dose canister can contain dosing volumes
from 100 to 3,000 microliters. When the patient places the canister in the
inhaler, a proprietary adapter punctures the canister and initiates the release
of drug to the aerosol generator. Drug flow is automatically coordinated with a
patient's breathing until all of the prescribed dose is inhaled. We use standard
nebulizer packaging for the single-dose canister. For drugs such as TOBI, which
are already packaged using standard packaging technology, we are able to use
currently available high capacity manufacturing systems to produce the
single-dose canister without having to design and manufacture new drug packaging
materials.

    MULTI-DOSE CANISTER.  Our multi-dose canister is designed to deliver
multiple small doses of drugs. Our metering valve is designed to maintain
sterility over multiple activations of the canister. The valve is designed to
provide accurate dispensing of small volumes of solutions as well as the
homogeneous suspensions required for the delivery of certain respiratory
steroids. The disposable canister holds up to 6,000 microliters of solution and
reproducibly dispenses a fixed dose which can be set between 15 and 150
microliters. When activated by the patient, the valve dispenses a precise unit
dose of drug-containing solution to the aerosol generator. Each fixed dose
remains on the aperture plate until the patient activates the aerosol generator
by inhaling at a predetermined rate.

    DUAL CHAMBER CANISTER.  The dual chamber canister is intended to accommodate
drugs that are not stable in solution during storage. While most injected drugs
exist in liquid formulations, some proteins may require storage as a dry powder
to extend shelf life or minimize the need for refrigeration. In a dual chamber
canister, drug is stored as a powder in one chamber and a solvent is stored in
the second chamber. The patient depresses the barrel to mix the solvent with the
drug powder, thereby creating a solution. The dual chamber canister can then
function with the ease of our standard single-dose canister or multi-dose
canister.

    PATIENT-ADJUSTABLE CONTAINER.  In our collaboration, Becton Dickinson is
developing a patient-adjustable container to enable variable dosing of insulin
by means of our AeroDose inhaler. This container is designed to allow patients
to adjust their insulin dose before each meal based on their anticipated caloric
intake.

    We are incorporating electronic controls into our inhalers to provide
flexibility, control and reproducibility of drug delivery that is consistent
across our inhalers. A patient can receive a visual signal that a dose of drug
has been dispensed to the aperture plate and is ready for inhalation. Once the
patient's inhalation rate exceeds a predetermined rate, the aerosol generator is
activated and the drug is aerosolized and inhaled. The patient's inhalation rate
can be monitored throughout the inhalation cycle, allowing drug aerosolization
to occur only while the patient's inhalation rate is above a minimum flow rate
for optimal deposition of drug in the lung. A patient can also stop inhalation
mid-dose and take multiple breaths to inhale a single dose. Our electronic
controls can inform a patient when the complete dose has been

                                       30
<PAGE>
aerosolized. Additional electronic features to customize an inhaler for a
specific drug application or dosing regimen can include a dose counter, lock-out
features and patient identification to prevent misuse.

    We expect that our inhalers will be purchased by patients for use over a
period of six months to a number of years, with periodic replacements of the
aerosol generator. Drug canisters or containers designed to fit into our
inhalers may contain a daily or weekly supply of drug and will be replaced by
the patient when the supply in the canister or container is exhausted. We are
designing our inhaler products to be used with a customized container or
canister intended to fit only with our inhalers.

AERONEB PORTABLE NEBULIZER

    Our first commercial product, the AeroNeb portable nebulizer, offers many
improved features compared to standard nebulizers used by patients and care
providers in the home setting. This portable nebulizer weighs less than 12
ounces and can operate on four standard "AA" batteries, a car cigarette lighter
or alternating current. The AeroNeb nebulizer operates silently, in any position
and with less wasted medication and faster medication delivery rates than
standard compressor nebulizers. It incorporates a liquid feed design and
generates negligible heat, minimizing drug degradation. The AeroNeb nebulizer
was designed and approved for use with commercially available nebulizer
solutions of respiratory drugs and is expected to be introduced into the U.S.
market in the first half of 2001.

AERONEB INLINE NEBULIZER

    We are developing an application of our aerosol generator technology to
deliver drugs to patients during mechanical ventilation. The AeroNeb InLine
nebulizer is small and lightweight allowing it to be positioned close to the
patient's windpipe, thereby optimizing drug delivery and humidification of the
inhaled air. The AeroNeb InLine nebulizer is designed to allow the addition of
medication to a nebulizer cup without opening the ventilator tubing, thereby
potentially reducing a major source of infections. The drug is aerosolized
without the use of a compressor and avoids the introduction of additional air
into the ventilator tubing when the drug is administered. The AeroNeb InLine
nebulizer can be designed to synchronize with the patient's breathing cycle,
thereby optimizing drug delivery.

                                    PRODUCTS

    We intend to incorporate our versatile and flexible core aerosol generator
technology into a portfolio of products, some developed for commercialization by
us and some developed with partners for marketing by them. We also intend to
out-license our technology for applications outside of the field of pulmonary
drug delivery.

OUR PRODUCTS FOR RESPIRATORY DISEASES

    We intend to create and market a respiratory disease product portfolio
consisting of our nebulizers and our AeroDose inhalers combined with available
drugs. We have developed an improved, portable and lightweight quiet nebulizer
which we will introduce into the U.S. market in the first half of 2001. We are
also developing nebulizers customized for delivery of drugs to patients on
mechanical ventilators. We are developing our AeroDose inhalers for delivery of
drugs which are currently administered by nebulizers to the lungs of the young
and the elderly. Our initial target diseases are pediatric asthma, chronic
obstructive pulmonary disease and cystic fibrosis. The types of drugs currently
used to treat these diseases include bronchodilators (including beta agonists
and anticholinergics), anti-inflammatories (including steroids) and mucolytics.
Bronchodilators relieve the airway spasms associated with wheezing,
anti-inflammatories reduce airway inflammation and mucolytics cause thinning of
the mucous in the lungs.

    PEDIATRIC ASTHMA.  We estimate, based on U.S. National Health Interview
Survey data reported from 1980 through 1994, that the U.S. population of asthma
patients under age six will be approximately three million by 2001. Two commonly
prescribed classes of drugs for treatment are beta agonists and steroids. We
estimate based on available data that for pediatric asthma patients under age
six, approximately 45% of albuterol prescriptions specify the use of a
nebulizer.

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<PAGE>
    CHRONIC OBSTRUCTIVE PULMONARY DISEASE.  The Centers for Disease Control and
Prevention estimated that in 1996 there were 16 million people in the United
States diagnosed with chronic obstructive pulmonary disease. Two commonly
prescribed drugs to treat chronic obstructive pulmonary disease are beta
agonists and anticholinergics. We estimate based on available data that
approximately 55% of the prescriptions for these drugs specify the use of a
nebulizer.

    CYSTIC FIBROSIS.  According to the Cystic Fibrosis Foundation, cystic
fibrosis affects approximately 30,000 patients in the United States. Cystic
fibrosis patients spend up to a total of three and one-half hours per day taking
inhaled medications, oral medications, enzymes, vitamins and receiving chest
physiotherapy. We estimate based on available data that approximately 40% of the
albuterol prescriptions for the treatment of cystic fibrosis specify the use of
a nebulizer.

OUR RESPIRATORY PRODUCTS IN DEVELOPMENT

<TABLE>
<S>                    <C>                    <C>                    <C>
                        AEROGEN'S PRODUCTS FOR RESPIRATORY THERAPY
PRODUCT                DOSING OPTION          INTENDED MARKET        DEVELOPMENT STAGE
AeroDose (albuterol)   Single- and            Pediatric asthma,      Preclinical
                         multi-dose canister    chronic obstructive    development
                                                pulmonary disease
                                                and cystic fibrosis
AeroDose               Single- and            Pediatric asthma,      Preclinical
  (ipratropium)          multi-dose canister    chronic obstructive    development
                                                pulmonary disease
                                                and cystic fibrosis
AeroDose (budesonide)  Single- and            Pediatric asthma,      Feasibility
                         multi-dose canister    chronic obstructive
                                                pulmonary disease
                                                and cystic fibrosis
AeroDose (anti-        To be determined       Pediatric asthma,      Feasibility
  inflammatory)                                 chronic obstructive
                                                pulmonary disease
                                                and cystic fibrosis
AeroNeb portable       Continuous             All patients using     510(k) cleared; U.S.
  nebulizer                                     nebulizers             launch targeted
                                                                       first half of 2001
AeroNeb InLine         Continuous             All patients on        510(k) filing
  nebulizer                                     mechanical             targeted first half
                                                ventilation            of 2001
</TABLE>

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<PAGE>
    Feasibility is the first stage of development of one of our AeroDose
products. In the feasibility stage, we determine the solubility of the drug, the
type of solution we would likely need in order to use the drug in our inhaler,
our ability to aerosolize the drug and the likely stability of the drug when
used in our inhaler. In this stage we conduct laboratory studies primarily
focused on the drug itself.

    During the preclinical development stage we focus on the customization of
the AeroDose inhaler for use with a particular drug. We work on the appropriate
container to hold the drug in the inhaler, the method of delivery of the drug to
be aerosolized, the type of breath activation mechanism that is likely to be
needed and the configuration of the aperture plate for the product. Preclinical
development is conducted primarily in the laboratory and is targeted to
developing and building the AeroDose inhaler that will be used in the clinical
studies of the particular product in development.

    After feasibility testing and preclinical development, the AeroDose products
listed in the table above will be tested in human subjects. Some of our
products, such as the AeroNeb portable nebulizer and the AeroNeb Inline
nebulizer, do not require human clinical trials before they can be cleared for
marketing. For these products we file a 510(k) application which is reviewed and
cleared by the FDA without human clinical studies. The AeroNeb portable
nebulizer has been cleared by the FDA, and no further regulatory approvals are
required before it can be marketed in the United States. We plan to file a
510(k) application for the AeroNeb Inline nebulizer in the first half of 2001.

    AERODOSE INHALER.  We believe that our AeroDose inhaler is particularly
suited to address the most common complaints of physicians and their patients
who require aerosolized medication. Our inhaler is designed to combine the
convenience and portability of a metered dose inhaler with the ease of
administration of a nebulizer, while minimizing drug waste and ensuring
reproducible dosing. In a six person imaging study, we compared lung deposition
of drug following delivery of the same dose of albuterol from a metered dose
inhaler and an AeroDose inhaler. The AeroDose inhaler deposited, on average, 70%
of the emitted dose in the lungs, compared to the metered dose inhaler, which
deposited, on average, 18%. Based on these findings, we estimate that our
AeroDose inhalers have the potential to reduce the typical prescribed dose of
drug for a nebulizer or metered dose inhaler by more than half, while still
delivering the same therapeutic dose to a patient's lungs.

    Our AeroDose inhalers are designed to be cost competitive inhalers that span
the needs of the youngest and oldest patients in our target markets. We believe
our AeroDose inhalers also will address the coordination problems experienced by
other patients using metered dose inhalers. Even with repeat training, many of
patients using metered dose inhalers have difficulty coordinating the activation
of the device to release a high velocity stream of medication with the quick
breath intake necessary to capture the high velocity stream in the lungs.
Because our AeroDose inhalers will be breath-activated and only deliver a low
velocity aerosol when the intake of breath attains a certain threshold, they are
expected to avoid these problems. The initial version of our breath-activation
mechanism is incorporated into the AeroDose inhalers we are using for clinical
studies. We are developing an improved version of the breath-activation
mechanism for use in commercial AeroDose inhalers.

    The initial drugs targeted for development include albuterol, ipratropium
and budesonide. Our activities will be focused on U.S. regulatory approval and
market introduction. The rights to our products outside the United States will
be licensed to partners who will undertake the studies and other activities
necessary to obtain regulatory approvals. We also plan to explore the potential
for commercializing appropriate drug combinations once individual formulations
have been developed including:

    -  AERODOSE (ALBUTEROL).  Albuterol solution for inhalation is approved for
       use by the Food and Drug Administration and is marketed by several
       different manufacturers. We estimate based on available data that in the
       United States, nebulized albuterol sales in 1999 were approximately
       $189 million, while metered dose inhaler albuterol sales were
       approximately $811 million. We expect that our supplier will purchase
       albuterol in bulk, formulate it and package it into single-dose and
       multi-dose canisters. We have completed the feasibility stage of our
       AeroDose albuterol product

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<PAGE>
       and have initiated preclinical development activities. Once the
       preclinical activities are completed, we intend to file an
       Investigational New Drug Application with the FDA to allow us to
       clinically test the product in humans. Human clinical trials must then be
       completed before a New Drug Application can be filed with the FDA.

    -  AERODOSE (IPRATROPIUM).  Ipratropium solution for inhalation is approved
       for use by the Food and Drug Administration and is marketed by several
       different manufacturers. We estimate, based on available data, that in
       the United States nebulized ipratropium sales in 1999 were approximately
       $165 million, while metered dose inhaler ipratropium sales were over
       $450 million (including sales in combination with albuterol). We expect
       that our supplier will purchase ipratropium in bulk, formulate it and
       package it into single-dose and multi-dose canisters. We have completed
       the feasibility testing of our AeroDose ipratroprium product and have
       initiated preclinical development activities. This product is expected to
       follow substantially the same regulatory pathway as the AeroDose
       albuterol product.

    -  AERODOSE (BUDESONIDE).  We believe, based on current delivery
       limitations, that there is an unmet need for a budesonide dosage form
       suitable for use by pediatric asthma and chronic obstructive pulmonary
       disease patients. Current treatment options for our target patient
       populations are limited to oral delivery, injections and use of a metered
       dose inhaler or dry powder inhaler. We have completed feasibility testing
       of a suspension of budesonide. We expect that our supplier will purchase
       budesonide in bulk, formulate it and package it into single-dose and
       multi-dose canisters. We believe that because budesonide is a steroid, it
       will likely require more clinical trials prior to regulatory approval
       than products using drug solutions of albuterol or ipratropium. We have
       completed most of the feasibility testing required for the AeroDose
       budesonide product.

    -  AERODOSE (ANTI-INFLAMMATORY).  We are conducting feasibility studies with
       a proprietary approved anti-inflammatory drug currently available only in
       an oral dosage form. If our studies are successful, we intend to pursue
       licensing of the compound. We anticipate that the compound will require
       more preclinical studies prior to initiating clinical trials because
       inhalation is a novel method of delivery for such compound. The
       regulatory path is therefore likely to be more comprehensive and take
       longer than for drugs already approved for use in a nebulizer.

    AERONEB PORTABLE NEBULIZER.  Our quiet and portable AeroNeb nebulizer, which
uses a mouthpiece like other nebulizers, will be our first commercial product.
It has been designed and approved for use with commercially available nebulizer
solutions. The product will provide us with commercial experience in the
respiratory disease market and our initial target clinical disease area for
AeroDose inhalers. We plan to introduce the AeroNeb portable nebulizer in the
U.S. market in the first half of 2001.

    The AeroNeb nebulizer may also be used by partners and potential partners in
Phase I clinical studies to evaluate the potential use of our AeroDose inhalers
for delivery of their drugs under appropriate feasibility or development
agreements.

    AERONEB INLINE NEBULIZER.  The AeroNeb InLine nebulizer incorporates our
proprietary aerosol generator. We believe that the AeroNeb InLine nebulizer has
the potential to provide drug delivery and humidification to hospitalized
patients on ventilators. We have developed a means of integrating the electronic
circuits of the ventilator with our nebulizer. We are in discussions with a
ventilator company to make the AeroNeb InLine nebulizer an integral part of its
line of ventilator products. We expect that our first AeroNeb InLine nebulizer
will be sold as a stand-alone product that can be attached to any ventilator. We
plan to make a 510(k) submission to the Food and Drug Administration for this
version of the AeroNeb InLine nebulizer in the first half of 2001. We intend to
market the product ourselves in the United States and through distributors
elsewhere.

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<PAGE>
OTHER PRODUCTS FOR RESPIRATORY THERAPY

<TABLE>
<S>                     <C>                  <C>             <C>                     <C>
                                OTHER PRODUCTS FOR RESPIRATORY THERAPY
COMPANY                 PRODUCT              DOSING OPTION   INTENDED MARKET         DEVELOPMENT STAGE
PathoGenesis            AeroDose TOBI        Single-dose     Respiratory infection   Phase I
                          (tobramycin)         canister

Biotechnology Company   AeroNeb nebulizer    Continuous      Respiratory             Phase I
                          (undisclosed)

Biotechnology Company   AeroDose             Single-dose     Respiratory             Preclinical
                          (undisclosed)        canister                                development

Pharmaceutical Company  Undisclosed          To be           Respiratory             Feasibility
                          products             determined
</TABLE>

"Phase I" means testing the product in a small number of patients or normal
volunteers, primarily for safety, at one or more dosage strengths.
"Preclinical development" means customizing the AeroDose inhaler for a
particular application.
"Feasibility" means formulation studies to ascertain compatibility of compounds
of interest with our aerosol generator.

    AERODOSE TOBI (TOBRAMYCIN).  We are collaborating with PathoGenesis to
develop a customized version of the AeroDose inhaler to deliver TOBI, an
anti-infective drug used to treat cystic fibrosis. TOBI was approved in late
1997 as a nebulized solution for use by cystic fibrosis patients with
PSEUDOMONAS AERUGINOSA lung infections. According to a program sponsored by MCP
Hahnemann University School of Medicine, more than 60% of cystic fibrosis
patients are chronically infected with PSEUDOMONAS AERUGINOSA by age 17. TOBI
has been designated an orphan drug by the Food and Drug Administration which
provides seven years of marketing exclusivity in the United States for
PathoGenesis. PathoGenesis' sales of TOBI were approximately $39.6 million for
the first six months of 2000. Market studies completed by PathoGenesis have
shown that the total time required for treatments of the cystic fibrosis patient
can have an impact on the patient's compliance with the recommended TOBI
treatment regimen and on the physician's assessment of a patient's likelihood of
compliance. TOBI currently is given via nebulizer twice a day during alternate
months, with each administration taking approximately 15 to 20 minutes per
session.

    PathoGenesis and we believe that due to the efficiencies of the AeroDose
inhaler, the administration time per dose of TOBI can potentially be shortened
to five to ten minutes or less. In addition, the breath activation feature of
the AeroDose inhaler will allow for more efficient drug delivery and less drug
waste. By making these improvements, we believe that we can broaden the market
acceptance of TOBI by delivering an effective dose more quickly through our
hand-held, portable AeroDose inhaler.

    In March 2000, we entered into a development and supply agreement with
PathoGenesis to develop and commercialize the custom AeroDose inhaler and
PathoGenesis' formulation of TOBI. PathoGenesis is responsible for the
development and manufacture of the portion of the final product that contains
the drug. We are responsible for developing and manufacturing the custom
AeroDose inhaler. PathoGenesis will conduct the clinical testing needed for
regulatory approval of the final product. In July 2000, PathoGenesis announced
that it had begun Phase I testing of the AeroDose TOBI product.

    Under the agreement, PathoGenesis received exclusive worldwide
commercialization rights for the AeroDose inhaler when it is sold for use with
TOBI. We also granted PathoGenesis exclusive worldwide commercialization rights
to the AeroDose inhaler for the delivery of all other aminoglycoside drugs,
which are a small subset of antibiotics, provided that we and PathoGenesis agree
upon the terms of development of other drug products and the royalties and other
payments to be made to AeroGen resulting from the sale of these products.

                                       35
<PAGE>
    We receive reimbursement of our costs to develop the AeroDose TOBI product.
We also will receive reimbursement for our manufacturing costs and a small
profit for each inhaler we provide to PathoGenesis, as well as royalties on
product sales. Upon entering into this agreement, PathoGenesis made a
$2.5 million equity investment in our Series E convertible preferred stock.
Unless terminated earlier by either party, the agreement will continue on a
country-by-country basis until the last patent covering the product expires, or
on January 20, 2015, whichever is later.

    In September 2000, PathoGenesis was acquired by Chiron Corporation, a
leading biopharmaceutical company. Chiron has not informed us of its intentions
concerning the agreement, and the development program is continuing. Chiron has
the right to terminate the agreement at any time without penalty.

    OTHER RESPIRATORY PRODUCTS UNDER DEVELOPMENT WITH PARTNERS.  We intend to
collaborate with pharmaceutical and biotechnology companies to develop novel
pulmonary drug delivery products for respiratory therapy. Such collaborations
typically take one of two approaches: either a company contacts us with a
proprietary drug to be delivered to the lungs, or we proactively identify
product opportunities and approach potential partners after obtaining
preclinical data, if possible.

    The flexibility of our technology to facilitate improved respiratory therapy
has attracted potential development partners. We currently are working with
three companies exploring respiratory therapies, of which one biotechnology
product is in Phase I trials, one biotechnology product is in preclinical
development and various products with one pharmaceutical company are currently
undergoing feasibility studies. We currently are conducting feasibility
activities with potential partners with both small and large molecules for
respiratory therapy.

    Feasibility studies can be paid for by the other company or by us, and can
include IN VITRO (laboratory) testing and drug deposition studies. These studies
may be followed by some early clinical trials. Generally, the agreements and the
activities can be cancelled at any time by the other company. In the drug
delivery area, it is common for pharmaceutical and biotechnology companies to
conduct feasibility studies with multiple partners. Once feasibility of a
particular drug has been established, the pharmaceutical and biotechnology
companies typically fund additional development work and may make an equity
investment. Following collaborative development of a product, the partner will
commercialize the product and pay us a royalty on sales. We currently intend to
manufacture AeroDose inhalers and supply them to our partners at our cost plus a
small profit.

PRODUCTS FOR SYSTEMIC THERAPY

    In addition to our respiratory therapy activities, our strategy includes
collaborating with pharmaceutical and biotechnology companies to develop novel
pulmonary drug delivery products for systemic therapy. We will pursue these
opportunities in the same manner as our partnered respiratory products; either
the potential partners will come to us, or we will propose products to them
after obtaining preclinical data, if possible.

    AERODOSE (INSULIN).  We are developing a special AeroDose inhaler for
delivery of insulin to diabetic patients which will incorporate a
patient-adjustable container being developed by Becton Dickinson. The American
Diabetes Association estimates that there are 500,000 to one million Type I
(insulin dependent) diabetic patients in the United States who require multiple
injections of insulin per day. We estimate, based on industry sources, that only
20% of Type II (non-insulin dependent) patients are currently injecting
themselves with insulin. Type II patients frequently fail to modify their
lifestyle and are reluctant to use injection-based therapy, even though injected
insulin can substantially limit complications of diabetes. We believe that once
a non-invasive form of insulin is approved, a significant portion of Type II
patients may begin treatment. Medical Data International reported that the U.S.
market for insulin and insulin delivery systems and supplies was over
$1.4 billion in 1998 and is forecasted to be over $2.0 billion in 2002.

                                       36
<PAGE>
    Our AeroDose insulin product is designed to be the first patient-adjustable
inhaler allowing a patient to precisely adjust their insulin dose based on
anticipated caloric intake. After extensive focus group testing with patients
and physicians, we believe that the AeroDose insulin inhaler will be an
attractive method for delivering inhaled insulin due to its small size and ease
of use.

    We have completed a Phase I clinical study using a prototype
patient-operated AeroDose inhaler with insulin in the United Kingdom in twelve
normal volunteers. The study compared insulin inhalation to subcutaneous
injection, focusing on both the absorption of insulin into the bloodstream and
its glucose-lowering effects. Subjects used separate AeroDose inhalers, which
were configured for slow, deep inhalations and production of a small-particle
aerosol appropriate for systemic drug delivery. Results indicated that the
absorption and glucose-lowering effects of inhaled insulin, relative to injected
insulin, were consistent with the published literature indicating that typically
8% to 15% of inhaled drug reaches the systemic circulation. There were no
reported respiratory complaints and no measurable differences in lung function
after inhalation versus injection. We recently began an additional Phase I
clinical trial in Europe, where we are studying optimal aerosolization
parameters. Phase II trials are planned for the first half of 2001. These
studies, in the United States and Europe, are designed to provide additional
evidence of AeroDose inhaler performance and inter- and intra-subject
variability in circulating levels of insulin following inhalation.

    In May of this year, we entered into an agreement with Becton Dickinson
under which Becton Dickinson will develop and supply a patient-adjustable
container for use in our AeroDose insulin inhaler. Under the agreement, we will
develop the customized AeroDose inhaler at our own cost and Becton Dickinson
will develop the container at its own cost. We will have the marketing rights to
the product and Becton Dickinson will receive royalties on product sales and a
portion of any payments we receive from any future marketing partner. Becton
Dickinson will supply the container, without drug. Upon entering into the
agreement, Becton Dickinson made a $2.5 million equity investment in our
Series E convertible preferred stock.

    We plan to partner our AeroDose insulin product for further development,
clinical testing and commercialization.

    OTHER PHARMACEUTICAL AND BIOTECHNOLOGY COLLABORATIONS FOR SYSTEMIC
THERAPIES.  In addition to insulin, we are continuing to evaluate the market
opportunities for other drugs that we believe can be delivered to the
bloodstream using our AeroDose inhaler. We intend to collaborate with
pharmaceutical and biotechnology companies for development, clinical testing and
commercialization of these AeroDose products.

TECHNOLOGY OUT-LICENSING

    Our aerosol generator technology has proven to be of value to industries
focusing outside the field of pulmonary drug delivery. In October 1999, we
entered into an exclusive license agreement with a consumer company permitting
them to use our aerosol generator in the fields of air fresheners and insect
repellants worldwide. We expect the initial product will first be introduced in
Europe in 2002. Under the license agreement, we will receive royalties based on
net sales of units and refills, and the license gives us access to any
improvements in our technology made by the consumer company during conduct of
their development and manufacturing activities. We have the right to terminate
the agreement with respect to either the air freshener products or insect
repellant products if such products are not introduced within specific time
limits. We will continue to explore out-licensing opportunities for our
technologies outside the field of pulmonary drug delivery.

                                 MANUFACTURING

    We plan to manufacture our aerosol generators and outsource the manufacture
of the other components used in our products. We manufacture the aperture plates
and assemble our aerosol generators

                                       37
<PAGE>
at our facility in Sunnyvale, California. We design the remaining components of
our products, such as molded parts and electronic circuitry, and outsource the
manufacture of these parts to qualified vendors. The manufacture of containers
and sterile drug filling will be outsourced, minimizing the need for capital
investment in specialized drug filling facilities that require Good
Manufacturing Practices approval. We currently are planning to have our AeroNeb
nebulizer and our AeroNeb InLine nebulizer manufactured for us by a qualified
vendor in the European Union, incorporating aerosol generators that we will
supply. We plan to assemble our AeroDose inhalers in our California facilities.

                              SALES AND MARKETING

    We are evaluating options for the sales and marketing of our respiratory
products. We anticipate developing a U.S. sales force, through outsourced or
internal efforts or both, to support our respiratory products. Our strategy
includes maintaining the marketing rights for these products in the United
States and commercializing the products in other countries through marketing
partners or distributors. Using a targeted sales strategy, we plan to market the
AeroNeb portable nebulizer in the United States to certain home medical
equipment dealers, retail pharmacies, physicians and patients. We are
considering medical device distribution companies or respiratory equipment
companies as our partners to commercialize the AeroNeb and AeroNeb InLine
nebulizers. We currently expect that the products we develop in collaboration
with partner companies will be commercialized by our partners.

                                  COMPETITION

    There is intense competition in the drug delivery market. We compete with
pharmaceutical and biotechnology companies, hospitals, research organizations,
individual scientists and nonprofit organizations engaged in developing
non-invasive drug delivery dosage forms and new drug research and development.
Competing non-invasive alternatives to injectable drug delivery include oral,
intranasal, transdermal and colonic absorption dosage forms. We also compete
with entities producing and developing injectable drugs. Several of these
entities are working on sustained-release injectable systems. While these
systems still require injections, the lower number of injections could allow
these products to compete effectively with non-invasive therapies.

    The pulmonary drug delivery market in particular is intensely competitive.
Several companies, including Aradigm Corporation, Dura Pharmaceuticals, Inc.,
Inhale Therapeutics and Sheffield Pharmaceuticals, Inc., are developing
competing pulmonary drug delivery dosage forms. These competing dosage forms are
designed both to treat respiratory disease and to deliver drugs systemically.
Several of our competitors have collaborative arrangements with partners to
develop inhalers for insulin. We also face competition from existing pulmonary
drug delivery dosage forms such as metered dose inhalers, dry powder inhalers
and nebulizers, which have been used effectively to treat respiratory disease in
certain patient populations for years. There can be no assurance that our
competitors will not develop and introduce products or technologies that are
competitive with or superior to ours.

    Many of our competitors have greater research and development capabilities,
experience, manufacturing, marketing, financial and managerial resources than we
do. Accordingly, they may succeed in developing competing products and
technologies, obtaining regulatory approval for products or gaining market
acceptance more rapidly than we can. We believe that our products will compete
on the basis of patient convenience, efficiency, dose reproducibility, safety
and cost.

                  INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

    Our ability to compete effectively depends in part on developing and
maintaining the proprietary aspects of our aerosolization technology. We own six
issued U.S. patents. In addition, we have 11 pending

                                       38
<PAGE>
U.S. patent applications and eight pending international patent applications.
None of our issued patents expire earlier than 2009. These patents are directed
at, among other things, the following:

    -  apparatus and methods for generating aerosols, such as delivering the
       liquid to be aerosolized in surface tension with a vibrating membrane,
       dispersing the liquid through tapered apertures in the vibrating
       membrane, and incorporating the tapered apertures in a dome-shaped
       aperture plate;

    -  particular aspects of the liquid feed system; and

    -  particular embodiments of the aerosolization devices.

    The pending patent applications include coverage for numerous improvements
on the fundamental aspects of our aerosolization technology.

    We cannot assure you that the patents we have obtained, or any patents that
we may obtain as a result of our U.S. or international patent applications, will
provide any competitive advantages for our products or that they will not be
successfully challenged, invalidated or circumvented in the future. In addition,
we cannot assure you that competitors, many of whom have substantial resources
and have made substantial investments in competing technologies, will not seek
to apply for and obtain patents that will prevent, limit or interfere with our
ability to make, use and sell our products either in the United States or in
international markets.

    A number of other companies, universities and research institutions have
filed patent applications or have issued patents relating to vibratory
aerosolization technology. In addition, we have become aware of, and may become
aware of in the future, patent applications and issued patents that relate to
our products. We do not believe that our products currently infringe any valid
and enforceable claims of the issued patents that we have reviewed. However, if
third-party patents or patent applications contain claims infringed by our
technology and such claims are ultimately determined to be valid, we cannot
assure you that we would be able to obtain licenses to those patents at a
reasonable cost, if at all, or be able to develop or obtain alternative
technology. The inability to do either would have a material adverse effect on
our business, financial condition, results of operations and future growth
prospects. We cannot assure you that we will not have to defend ourselves in
court against allegations of infringement of third-party patents.

    In addition to patents, we rely on trade secrets and proprietary know-how,
which we seek to protect, in part, through confidentiality and proprietary
information agreements. We require our employees and key consultants to execute
confidentiality agreements upon the commencement of employment or a consulting
relationship with us. These agreements generally provide that all confidential
information developed or made known to the individual by us during the course of
the individual's relationship with us is to be kept confidential and not
disclosed to third parties. These agreements also provide that inventions
conceived by the individual in the course of rendering services to us will be
our exclusive property. We cannot assure you that employees and consultants will
not breach the agreements, that we would have adequate remedies for any breach
or that our trade secrets will not otherwise become known to or be independently
developed by competitors.

    The pharmaceutical and medical device industries have been characterized by
extensive litigation regarding patents and other intellectual property rights,
and companies in these industries have employed intellectual property litigation
to gain a competitive advantage. We cannot assure you that we will not become
subject to patent infringement claims or litigation or interference proceedings
declared by the United States Patent and Trademark Office to determine the
priority of inventions. In 1999 we settled a patent interference involving U.S.
Patent No. 5,261,601, assigned to Bespak concerning methods and apparatus for
dispensing atomized sprays by vibrating a membrane to atomize the liquid in
contact with the membrane through flared holes in the membrane. The settlement
provided for a cross-license between us and Bespak, as a result of which Bespak
has a license to certain of our technology. The scope of the granted license was
limited to products employing technology which was disclosed by Bespak in U.S.

                                       39
<PAGE>
Patent No. 5,261,601. The license would not extend to any of our technology
which was not disclosed in this patent.

    Our patent position involves complex legal and factual questions and is
generally uncertain. The field of aerosolized drug delivery is crowded, and a
substantial number of patents have been issued to others. We are aware of
several issued U.S. and international patents that cover certain aspects of
vibratory aerosolization technology. Legal standards relating to the validity
and scope of patent claims in the biotechnology and pharmaceutical field are
evolving. Therefore, the degree of protection our patents will afford is
uncertain. Patents, if issued, may be challenged, invalidated or designed
around. Thus, any patents that we own or license may not provide any, or
significant, protection against competitors. Our pending patent applications or
those we may file in the future may not result in patents being issued. Also,
patent rights may not provide us with proprietary protection or competitive
advantages against competitors with similar technology. Furthermore, others may
independently develop similar technologies or duplicate any technology that we
have developed.

    The defense and prosecution of intellectual property litigation, United
States Patent and Trademark Office interference proceedings and related legal
and administrative proceedings are both costly and time-consuming. If others
violate our proprietary rights, litigation may be necessary to enforce our
patents, to protect trade secrets or know-how owned by us or to determine the
enforceability, scope and validity of the proprietary rights of others. Any
litigation or interference proceedings will be costly and cause significant
diversion of effort by our technical and management personnel. An adverse
determination, other litigation or interference proceedings to which we may
become a party could subject us to significant liabilities to third parties,
require disputed rights to be licensed from third parties or require us to cease
using such technology. Although patent and intellectual property disputes in the
medical device area have often been settled through licensing or similar
arrangements, costs associated with such arrangements may be substantial and
could include ongoing royalties. Furthermore, we cannot be sure that we could
obtain necessary licenses on satisfactory terms, if at all. Adverse
determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent us from manufacturing and selling our products,
which would have a material adverse effect on our business, financial condition,
results of operations and future growth prospects.

                             GOVERNMENT REGULATION

    Our products are subject to extensive regulation by numerous governmental
authorities, principally the Food and Drug Administration in the United States,
as well as numerous state and foreign regulatory agencies. We need to obtain
clearance of our products by the Food and Drug Administration before we can
begin marketing our products in the United States. Similar approvals also are
required in other countries before our products can be marketed in those
countries.

    Product development and approval within this regulatory framework is
uncertain, can take a number of years and requires substantial resources. The
nature and extent of the governmental premarket review process for our products
will vary depending on the regulatory categorization of particular products.
Because our products may be characterized as devices, drugs or biologics, the
regulatory approval path will not be the same for all of our products.

    Our products regulated as medical devices will be classified into one of
three classes on the basis of the controls deemed by the Food and Drug and
Administration to be necessary to reasonably ensure their safety and
effectiveness. The class for any particular product, as follows, will determine
the regulatory route:

    -  CLASS I:  general controls, e.g., labeling, premarket notification and
       adherence to Good Manufacturing Practices quality system regulation, or
       QSR;

                                       40
<PAGE>
    -  CLASS II:  general controls and special controls, e.g., performance
       standards and postmarket surveillance; and

    -  CLASS III:  premarket approval.

    510(K) CLEARANCE.  Before a new device can be marketed, its manufacturer
must obtain marketing clearance through either a premarket notification under
Section 510(k) of the Federal Food, Drug and Cosmetic Act or approval of a
premarket approval application. A 510(k) clearance typically will be granted if
a company establishes that its device is "substantially equivalent" to a legally
marketed Class I or II medical device or to a Class III device that was on the
market prior to 1976 for which the Food and Drug Administration has not required
the submission of a premarket approval application. A 510(k) clearance must
contain information to support the claim of substantial equivalence, which may
include laboratory test results or the results of clinical studies. An
investigational device exemption (IDE) application generally must be approved
before a clinical trial begins. The IDE must be supported by appropriate data,
such as animal and laboratory testing results. Clinical trials may begin if the
Food and Drug Administration and the appropriate institutional review boards
approve the IDE. Trials must be conducted in conformance with Food and Drug
Administration regulations and institutional review boards' requirements. The
sponsor or the Food and Drug Administration may suspend the trials at any time
if it is believed that they pose unacceptable health risks or the Food and Drug
Administration finds deficiencies in the way they are being conducted. Data from
clinical trials are often subject to varying interpretations that could delay,
limit or prevent Food and Drug Administration approval. Commercial distribution
of a device subject to the 510(k) requirement may begin only after the Food and
Drug Administration issues an order finding the device to be substantially
equivalent to a predicate device. It generally takes from four to 12 months from
the date of submission to obtain clearance of a 510(k) submission, but it may
take longer. The Food and Drug Administration may determine that a proposed
device is not substantially equivalent to a legally marketed device, that
additional information is needed before a substantial equivalence determination
may be made, or that the product must be approved through the premarket approval
process. A Food and Drug Administration determination of "not substantially
equivalent," a request for additional information, or the requirement that a
premarket approval application be filed could delay market introduction of
products that fall into this category. Furthermore, for any devices cleared
through the 510(k) process, modifications or enhancements that could
significantly affect safety or effectiveness, or constitute a major change in
the intended use of the device, require new 510(k) submissions. We have received
510(k) clearance for our AeroNeb portable nebulizer. We plan to file a 510(k)
application for our AeroNeb Inline nebulizer, and we expect that future
nebulizer products will also proceed through the 510(k) clearance route.

    PREMARKET APPROVAL.  If a device does not qualify for the 510(k) premarket
notification procedure, a company must file a premarket approval application.
The premarket approval application requires more extensive pre-filing testing
than required for a 510(k) premarket notification and usually involves a
significantly longer review process. A premarket approval application must be
supported by valid scientific evidence that typically includes extensive data,
including preclinical and clinical trial data, to demonstrate the safety and
efficacy of the device. If clinical trials are required, and the device presents
a "significant risk," an IDE application must be filed with the Food and Drug
Administration and become effective prior to initiating clinical trials. If the
device presents a "nonsignificant risk" to trial subjects, clinical trials may
begin on the basis of appropriate institutional review board approval.

    A premarket approval application may be denied if applicable regulatory
criteria are not satisfied, and the Food and Drug Administration may impose
certain conditions upon the applicant, such as postmarket testing and
surveillance. The premarket approval application process can be expensive,
uncertain and lengthy, and approvals may not be granted. A number of devices for
which premarket approval has been sought have never been approved for marketing
and sale. After approval, a new application or a supplement is required if
certain modifications are made to the device, its labeling or its manufacture.

                                       41
<PAGE>
    NEW DRUG APPLICATION AND BIOLOGICS LICENSE APPLICATION.  Our AeroDose
inhaler products may be regulated as drugs or biologics if approval is requested
for the inhaler with a new chemical entity or a new biologic. In this instance,
an Investigational New Drug Application (IND) will be required before Phase II
studies in patients can be conducted. Approval of a New Drug Application (NDA),
or a Biologics License Application (BLA), will be required before the product
can be marketed. In addition to reports of the preclinical and clinical trials
conducted under an effective IND application, the NDA or BLA includes
information pertaining to the preparation of the drug substance, the manufacture
of the inhaler, analytical methods, details on the manufacture of finished
products and proposed packaging and labeling. Submission of an NDA or BLA does
not assure Food and Drug Administration approval for marketing. The application
review process generally takes several years to complete. The process may take
substantially longer if, among other things, the Food and Drug Administration
has questions or concerns about the safety or efficacy of a product. In general,
the Food and Drug Administration requires at least two properly conducted,
adequate and well-controlled clinical studies demonstrating efficacy with
sufficient levels of statistical assurance.

    While Pathogenesis will control the regulatory process for the AeroDose TOBI
product, we anticipate that it is likely that a New Drug Application for the use
of TOBI in combination with the AeroDose inhaler will be filed. We also may be
required to file a separate 510(k) application for the particular AeroDose
inhaler itself. The final regulatory pathway has not yet been determined.

    We anticipate, although we are not yet certain, that a New Drug Application
will be required for our AeroDose albuterol, ipratroprium and budesonide
products. We plan to meet with the FDA in the first half of 2001 to discuss our
regulatory strategy and the clinical studies we plan to conduct for our AeroDose
inhaler products.

    There can be no assurance that approval for any of our products will be
granted on a timely basis, or at all. Notwithstanding the submission of safety
and efficacy data, the Food and Drug Administration ultimately may decide that
the application does not satisfy all of its regulatory criteria for approval.
The Food and Drug Administration also may require additional clinical tests
(i.e., Phase IV clinical trials) following NDA or BLA approval to confirm safety
and efficacy. Upon approval, a product may only be marketed for the approved
indications.

    In addition, the Food and Drug Administration may in some circumstances
impose restrictions on the use of a product that may be difficult and expensive.
Product approvals may be withdrawn if compliance with regulatory requirements is
not maintained or if problems occur after the product reaches the market. The
Food and Drug Administration also requires reporting of certain safety and other
information that becomes known to a manufacturer of an approved product.

    The process for approval of products regulated as drugs and biologics
outside the United States is similar to the NDA/BLA process in the United
States. For client projects that incorporate biologics, we anticipate that a
Biologics License Application will be required in addition to, or separate from,
any 510(k) clearance we may be required to obtain for the AeroDose inhaler
itself.

    EUROPEAN UNION APPROVAL.  Commercialization of medical devices in the
European Union is regulated under a system which presently requires that all
medical products sold in the European Union bear the CE mark, an international
symbol of adherence to quality assurance standards and demonstrated clinical
effectiveness. Compliance with the Medical Device Directive--as certified by a
recognized European Competent Authority--permits the manufacturer to affix the
CE mark on its products. We cannot be certain that we will obtain the CE mark
approval, or that we will not have delays in obtaining the CE mark approval for
any product.

    POST-APPROVAL REQUIREMENTS.  Regulatory approval, if granted, may entail
limitations on the indicated uses for which a product may be marketed, and
product approvals, once granted, may be withdrawn if problems occur after
initial marketing. Manufacturers of Food and Drug Administration-regulated
products

                                       42
<PAGE>
are subject to pervasive and continuing governmental regulation, including
recordkeeping requirements and reporting of adverse experiences associated with
product use. Compliance with these requirements is costly, and failure to comply
properly can result in withdrawal of a product approval.

    GOOD MANUFACTURING PRACTICES.  We will be required to adhere to applicable
regulations setting forth the Food and Drug Administration's current Good
Manufacturing Practices, which include testing, control and documentation
requirements. Other countries have similar requirements. Failure to comply with
Good Manufacturing Practices and other applicable regulatory requirements may
result in, among other things, warning letters, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to review pending marketing approval
applications, withdrawal of marketing approvals and criminal prosecution.

    HAZARDOUS MATERIALS.  Our operations involve use of hazardous and toxic
materials and generate hazardous, toxic and other wastes. We are subject to
federal, state and local laws and regulations governing the use, storage,
handling and disposal of such materials and certain waste products. Although we
believe that our safety procedures for using, handling, storing and disposing of
such materials comply with the standards required by state and federal laws and
regulations, we cannot completely eliminate the risk of accidental contamination
or injury from these materials.

                                   EMPLOYEES

    We had 103 full-time employees as of September 30, 2000, 80 of whom were
engaged in product development and research activities. Eleven of these
employees are at our Irish facility. Our employees are not represented by a
collective bargaining agreement. All employees participate in an employee stock
option plan and receive options that generally vest over a four-year period. We
believe our relations with our employees are good.

                                   FACILITIES

    We lease two contiguous facilities, approximately 25,000 square feet and
13,000 square feet, respectively, in Sunnyvale, California. We presently use
approximately 85% of the space in these facilities and have approximately 15%
available for expansion. We have a manufacturing area in the facilities, and our
proposed manufacturing activities at AeroGen currently are not expected to
require additional space. The leases on our laboratory, manufacturing and office
spaces expire in December 2001, and we are currently assessing our future
requirements, whether our current space would be adequate and whether it would
be available to us at the end of the current lease term. AeroGen Ireland leases
a laboratory and office facility of approximately 2,500 square feet in Galway,
Ireland. The lease in this office expires at the end of this year and we expect
to renew it.

                               LEGAL PROCEEDINGS

    We are not a party to any material legal proceedings.

                                       43
<PAGE>
                                   MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

    The following persons are our executive officers, senior management and
directors and their ages as of September 30, 2000:

<TABLE>
<CAPTION>
NAME                                  AGE      POSITION
----                                --------   --------
<S>                                 <C>        <C>
Jane E. Shaw, Ph.D................     61      Chairman, Chief Executive Officer and Director
Yehuda Ivri.......................     49      Chief Technical Officer and Director
Casper L. de Clercq...............     36      Vice President, Sales, Marketing and Business
                                                 Development
Carol A. Gamble...................     48      Vice President and General Counsel
Deborah K. Karlson................     48      Chief Financial Officer
Michael A. Klimowicz..............     50      Vice President, Product Development
John S. Power.....................     42      Vice President, European Operations
Thomas R. Baruch(1)...............     61      Director
Jean-Jacques Bienaime(2)..........     47      Director
Susan D.                               43      Director
  Desmond-Hellmann, M.D.(1).......
Phyllis I. Gardner, M.D.(2).......     50      Director
Philip M. Young(1)(2).............     60      Director
</TABLE>

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

(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

    JANE E. SHAW, PH.D. has served as Chairman of our Board of Directors and as
our Chief Executive Officer since 1998. Dr. Shaw was a founder and consultant of
The Stable Network, a consulting company that focuses on improving the
productivity and profitability of biopharmaceutical companies, from 1994 to
1998. Dr. Shaw held various scientific and management positions in ALZA
Corporation, a pharmaceutical company, from 1970 to 1994, most recently as
President and Chief Operating Officer from 1987 to 1994. Dr. Shaw received a
B.S. and Ph.D. in Physiology from Birmingham University in England. Dr. Shaw
serves as a director of McKesson HBOC, Inc., a healthcare supply management
company, Intel Corporation, a semiconductor manufacturer, Boise Cascade
Corporation, an office, wood and paper products company, and IntraBiotics
Pharmaceuticals, Inc., a biopharmaceutical company.

    YEHUDA IVRI founded AeroGen in 1991 and has served as a member of our Board
of Directors since its inception. Mr. Ivri has served as our Chief Technical
Officer since 1996 and previously as Chief Scientist and Vice President.
Mr. Ivri received an M.S. in Mechanical Engineering from the Technion-Israel
Institute of Technology.

    CASPER L. DE CLERCQ has served as our Vice President of Business Development
since 1998 and our Vice President of Sales, Marketing and Business Development
since 1999. Mr. de Clercq was Director of Market Development at
Heartport, Inc., a cardiovascular device company, from 1996 to 1998, and Co-
founder and Vice President of Business Development at Biointerventions, Co., a
biotechnology company, from 1994 to 1995. Mr. de Clercq held various positions
at Diagnostic Products Corporation, a medical device company, from 1987 to 1991,
and was a consultant at Bain & Company, an international strategy consulting
firm, from 1984 to 1987. Mr. de Clercq received a B.A. in Biochemistry from
Dartmouth College, an M.B.A. from Stanford University Graduate School of
Business and an M.S. in Biological Science from Stanford University.

    CAROL A. GAMBLE has served as Vice President and General Counsel since
May 2000. Previously Ms. Gamble was with ALZA Corporation, a pharmaceutical
company, from 1988 to 2000, most recently as Senior Vice President and Chief
Corporate Counsel. Ms. Gamble was a partner with the law firm of Heller, Ehrman,
White & McAuliffe. Ms. Gamble received a B.S. in Education from Syracuse
University and a J.D. from the University of California, Berkeley.

                                       44
<PAGE>
    DEBORAH K. KARLSON has served as our Chief Financial Officer since
February 2000 and Vice President of Finance and Administration since 1999.
Ms. Karlson was a financial consultant from 1992 until 1999, and provided
consulting services to AeroGen from 1997 to 1999. Previously, Ms. Karlson was a
manager with Deloitte & Touche LLP, an accounting firm. She received a B.A. in
Accounting and Economics and an M.B.A. in Finance and Accounting from the
Syracuse University School of Management.

    MICHAEL A. KLIMOWICZ has served as our Vice President, Product Development
since 1998. Mr. Klimowicz held a number of senior management positions at Alaris
Medical Systems, a medical device company, from 1990 to 1998, most recently as
Director of Product Development. Mr. Klimowicz was the Director of Biomedical
Engineering at Psicor Inc., a medical services company, from 1987 to 1990.
Mr. Klimowicz received a B.S. in Electrical Engineering from Western Michigan
University.

    JOHN S. POWER has served as our Vice President, European Operations and as
our Managing Director, AeroGen Ireland since May 2000. Mr. Power was the
Managing Director of Cerus Limited (now AeroGen Ireland), from 1998 to 2000.
Mr. Power was Engineering Manager in Mechanical Development at Nellcor Puritan
Bennett Incorporated, a medical products company, from 1993 to 1997. Mr. Power
was an engineering consultant to various companies from 1988 to 1992. Mr. Power
obtained I. Eng. Engineering Council Status from the Chesterfield College of
Technology.

    THOMAS R. BARUCH has served as a director of AeroGen since 1994. He has been
a General Partner at CMEA Ventures, a venture capital firm, since 1988
(previously an affiliated fund of New Enterprise Associates). Mr. Baruch was a
special partner of New Enterprise Associates from 1990 to 1996. Mr. Baruch
received a B.S. in Engineering from Rensselaer Polytechnic Institute and a J.D.
from Capital University. Mr. Baruch serves as a director of Netro Corporation, a
telecommunications company, Symyx Technologies, a technology research company,
Physiometrix Inc., a medical products company and Aclara Biosciences, Inc., a
life science company.

    JEAN-JACQUES BIENAIME has served as a director of AeroGen since 1999.
Mr. Bienaime has been President, Chief Executive Officer and a director of
SangStat, a transplant company, since 1998. Mr. Bienaime held various positions
at Rhone Poulenc Rorer Inc., a leading pharmaceutical company, from 1992 to
1998, most recently as Senior Vice President of Corporate Marketing and Business
Development. Mr. Bienaime received an M.B.A. from the Wharton School at the
University of Pennsylvania and a degree in Economics from Ecole Superieure de
Commerce de Paris in France. Mr. Bienaime serves as a director of the Fox Chase
Cancer Center in Philadelphia.

    SUSAN D. DESMOND-HELLMANN, M.D. joined our Board of Directors in September
2000. Dr. Desmond-Hellmann is the Executive Vice President, Development and
Product Operations and the Chief Medical Officer of Genentech, Inc., a
biotechnology company. She has served in various executive positions with
Genentech since 1995. Prior to joining Genentech, Dr. Desmond-Hellmann was with
Bristol-Myers Squibb Pharmaceutical Research Institute from 1993 through 1994.
Dr. Desmond-Hellmann has a B.S. in Pre-Med and an M.D. from the University of
Nevada, Reno, and an M.P.H. from the University of California, Berkeley.

    PHYLLIS I. GARDNER, M.D. has served as a director of AeroGen since
May 2000. Dr. Gardner is currently the Senior Associate Dean for Education and
Student Affairs and Associate Professor of Molecular Pharmacology and Medicine
at Stanford University School of Medicine and has been with the university since
1984. Dr. Gardner was Vice President of Research and Principal Scientist of ALZA
Corporation, and Head of ALZA Technology Institute, from 1996 to 1998.
Dr. Gardner was Principal Scientist and consultant to ALZA from 1994 to 1996.
Dr. Gardner received a B.S. in Biology from the University of Illinois and an
M.D. from Harvard Medical School.

    PHILIP M. YOUNG has served as a director of AeroGen since 1994. Mr. Young
has been a General Partner with U.S. Venture Partners, a venture capital firm,
since 1990. Mr. Young was a Managing Director of Dillon Read & Co., a financial
services company, and Concord Partners, a venture capital firm managed by Dillon
Read, from 1986 to 1990. Mr. Young was President and CEO of Oximetrix, Inc., a
privately held manufacturer of high technology medical instruments and sterile
disposable products, from 1978 to 1986.

                                       45
<PAGE>
Mr. Young received a B.S. in Mechanical Engineering from Cornell University, an
M.S. in Engineering Physics from George Washington University and an M.B.A. from
Harvard Business School, where he was a Baker Scholar. Mr. Young serves as a
director of Vical Inc., a biotechnology company, Compugen, Ltd., a
bioinformatics company, The Immune Response Corporation, a biopharmaceutical
company, and Zoran Corporation, a digital solutions provider.

CLASSIFIED BOARD

    Upon the closing of this offering, we will have authorized seven directors.
In accordance with the terms of our certificate of incorporation, the terms of
office of our Board of Directors will be divided into three classes. As a
result, a portion of our Board of Directors will be elected each year. The
division of the three classes and their respective election dates are as
follows:

    -  the class I directors' term will expire at the annual meeting of
       stockholders to be held in 2001;

    -  the class II directors' term will expire at the annual meeting of
       stockholders to be held in 2002; and

    -  the class III director's term will expire at the annual meeting of
       stockholders to be held in 2003.

    Our class I directors will be Phyllis I. Gardner, M.D. and Philip M. Young.
Our class II directors will be Thomas R. Baruch, Susan D. Desmond-Hellmann, M.D.
and Jane E. Shaw, Ph.D. Our class III directors will be Jean-Jacques Bienaime
and Yehuda Ivri. At each annual meeting of stockholders after the initial
classification, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election. In addition, our bylaws provide that the
authorized number of directors may be changed by an amendment to the bylaws duly
adopted by the Board of Directors or by the stockholders, or by a duly adopted
amendment to our certificate of incorporation. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of
one-third of the total number of directors.

BOARD COMMITTEES

    We established the audit committee of the Board of Directors in August 2000.
The audit committee reviews our internal accounting procedures and consults with
and reviews the services provided by our independent accountants. Our audit
committee currently consists of Thomas R. Baruch, Susan D. Desmond-Hellmann,
M.D. and Philip M. Young.

    We established the compensation committee of the Board of Directors in
August 2000. The compensation committee administers our stock plans, reviews and
approves the compensation and benefits of all our officers and establishes and
reviews general policies relating to compensation and benefits of our employees.
Our compensation committee currently consists of Jean-Jacques Bienaime, Phyllis
I. Gardner, M.D. and Philip M. Young.

SCIENTIFIC ADVISORS

    We have retained advisors to provide guidance and counsel on key scientific
and medical aspects of our business. These advisors provide us an agreed upon
minimum number of days per year. They provide input on research, development and
clinical strategy. In addition, once a year they each convene a group of
consultants and organize a two-day symposium addressing a scientific or clinical
topic of particular relevance to our product development activities. Each
advisor is paid an annual retainer and receives options to purchase common
stock.

    RICHARD N. DALBY, PH.D., M.R. PHARM. S., B. PHARM., is currently our Chief
Scientific Advisor. Dr. Dalby is guiding our efforts to study and optimize the
delivery of aerosolized formulations in the lung, based on his expertise in
aerosol science, pharmaceutics and respiratory cell biology. Since 1997,
Dr. Dalby has held various positions in the Department of Pharmaceutical
Sciences at the University of Maryland,

                                       46
<PAGE>
including the Vice Chair for Academic Affairs. Dr. Dalby received a Ph.D. from
the University of Kentucky and a B. Pharm. from the Nottingham University School
of Pharmacy.

    ALAN R. LEFF, M.D., is currently our Chief Medical Advisor. Dr. Leff assists
us in identifying and assessing new opportunities. He also provides guidance for
our development programs, based on his expertise in respiratory pharmacology,
cell biology and immunology. Dr. Leff has held various positions at The
University of Chicago where he is currently Senior Director for Research and
Development for Biological Sciences. Since 1993, Dr. Leff has been the Director
of the Asthma and Allergic and Immunologic Disease Cooperative Research Center
(National Institute of Allergy and Infectious Diseases) and Professor of
Pharmacological and Physiological Sciences. From 1996 to 1997 he was
Co-Chairman, Asthma Committee, NIAID Task Force on Immunology, National
Institutes of Health. Between 1994 and 1999, Dr. Leff was editor for the
AMERICAN JOURNAL OF RESPIRATORY and CRITICAL CARE MEDICINE. Dr. Leff received an
A.B. in Biology from Oberlin College and an M.D. from the University of
Rochester School of Medicine and Dentistry.

DIRECTOR COMPENSATION

    Directors currently receive no cash compensation from us for their services
as members of the Board of Directors or for attendance at committee meetings. In
August 1999, we granted Mr. Bienaime, in connection with his participation on
our Board of Directors, an option to purchase 16,666 shares of common stock at
$0.60 per share under our 1996 Stock Option Plan. In April 2000, we granted
Dr. Gardner, in connection with her participation on our Board of Directors, an
option to purchase 16,666 shares of common stock at $3.00 per share under our
1996 Stock Option Plan. In September 2000, we granted an option to purchase
16,666 shares of common stock to each of Mr. Baruch, Dr. Desmond-Hellmann, and
Mr. Young at an exercise price of $4.50 per share under our 1996 Stock Option
Plan. For each of these options, one year from the date of grant 4,166 shares
covered by the option will become exercisable, and the balance of the shares
covered by the option will vest in equal monthly installments over the
subsequent three years.

    In August 2000, we adopted the 2000 Non-employee Directors' Stock Option
Plan to provide for the automatic grant of options to purchase shares of common
stock to our directors who are not our employees. Any director elected after the
closing of this offering will receive an initial option to purchase 15,000
shares of common stock. Starting at the annual stockholder meeting in 2001, all
non-employee directors will receive an annual option to purchase 5,000 shares of
common stock.

EXECUTIVE COMPENSATION

    The following table sets forth summary information concerning the
compensation paid to our Chief Executive Officer and four most highly
compensated executive officers for services during the year ended December 31,
1999. All option grants were made under our 1996 Stock Option Plan.

                                       47
<PAGE>
                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                           NUMBER OF
                                                         ANNUAL            SHARES OF
                                                      COMPENSATION        COMMON STOCK
                                                   -------------------     UNDERLYING
NAME AND PRINCIPAL POSITION                         SALARY     BONUS        OPTIONS        OTHER
---------------------------                        --------   --------   --------------   --------
<S>                                                <C>        <C>        <C>              <C>
Jane E. Shaw, Ph.D. .............................  $239,989        --            --            --
  Chief Executive Officer
Michael A. Klimowicz ............................  $172,523   $44,501            --            --
  Vice President, Product Development
Casper L. de Clercq .............................  $160,132        --        16,666            --
  Vice President, Sales, Marketing & Business
  Development
Yehuda Ivri .....................................  $151,784        --            --       $30,000(1)
  Chief Technical Officer
Deborah K. Karlson(2) ...........................  $126,380        --        50,000            --
  Chief Financial Officer
</TABLE>

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

(1) Consists of $25,000 reimbursement for travel and lodging plus $5,000 tax
    gross-up on an interest-free loan.

(2) Ms. Karlson joined AeroGen in March 1999. Her annualized salary for 1999 was
    $160,000. Ms. Karlson was appointed Chief Financial Officer in
    February 2000.

                                    OPTIONS

    The following table sets forth each grant of stock options during the fiscal
year ended December 31, 1999 to each of the individuals listed on the previous
table.

    The exercise price of each option was equal to the fair market value of our
common stock, as determined by the Board of Directors on the date of grant. The
exercise price may be paid in cash, in shares of our common stock valued at the
fair market value on the exercise date or, after the effective date of this
offering, through a cashless exercise procedure involving a same-day sale of the
purchased shares.

    The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the SEC and does not represent our
prediction of our stock price performance. The potential realizable values at 5%
and 10% appreciation are calculated by

    -  multiplying the number of shares of common stock issuable upon exercise
       of a given option by the assumed initial public offering price of $14.00
       per share;

    -  assuming that the aggregate stock value derived from that calculation
       compounds at the annual 5% or 10% rate shown in the table until the
       expiration of the options; and

    -  subtracting from that result the aggregate option exercise price.

    The options listed in the following table under "Number of Shares of Common
Stock Underlying Options Granted" are subject to vesting. For Mr. de Clercq, the
options vest in equal monthly installments over 48 months of service. For
Ms. Karlson, the options vest in equal monthly installments over 36 months of
service. For all the other individuals, the options vest as to 25% of the total
shares after one year and as to 1/48th of the total shares each month over the
next 36 months. Each of the options has a ten year term, subject to earlier
termination if the optionholder's service with us ends.

    Percentages shown under "Percent of Total Options Granted to Employees in
1999" are based on an aggregate of 354,500 options granted to our employees
under our stock option plans during the fiscal year ended December 31, 1999.

                                       48
<PAGE>
                             OPTION GRANTS IN 1999

<TABLE>
<CAPTION>
                                                                                        POTENTIAL REALIZABLE
                                                                                          VALUE AT ASSUMED
                               NUMBER OF                                                   ANNUAL RATES OF
                               SHARES OF       PERCENT OF                                    STOCK PRICE
                              COMMON STOCK    TOTAL OPTIONS                               APPRECIATION FOR
                               UNDERLYING      GRANTED TO     EXERCISE                       OPTION TERM
                                OPTIONS         EMPLOYEES     PRICE PER   EXPIRATION   -----------------------
NAME                            GRANTED          IN 1999        SHARE        DATE          5%          10%
----                         --------------   -------------   ---------   ----------   ----------   ----------
<S>                          <C>              <C>             <C>         <C>          <C>          <C>
Casper L. de Clercq........      16,666            4.7%         $0.60      08/04/09    $  370,061   $  595,183
Deborah K. Karlson.........      50,000           14.1%         $0.60      03/18/09    $1,110,226   $1,785,620
</TABLE>

  AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1999 AND YEAR-END
                                  OPTION VALUE

    The following table sets forth the number and value of securities underlying
unexercised options that are held by each of the individuals listed on the
previous page as of December 31, 1999.

    Amounts shown under the column "Value of Unexercised In-the-Money Options at
December 31, 1999" are based on the assumed initial public offering price of
$14.00, without taking into account any taxes that may be payable in connection
with the transaction, multiplied by the number of shares issuable upon exercise
of the option, less the exercise price payable for these shares. Our 1994 and
1996 Stock Option Plans and 2000 Equity Incentive Plan allow for the early
exercise of options granted to employees. All options exercised early are
subject to repurchase by us at the original exercise price, if the
optionholder's service with us ends prior to the date when the options would
have vested based upon the original vesting schedule.

<TABLE>
<CAPTION>
                                                  NUMBER OF SECURITIES             VALUE OF UNEXERCISED
                                                       UNDERLYING                      IN-THE-MONEY
                        SHARES                   UNEXERCISED OPTIONS AT                 OPTIONS AT
                       ACQUIRED                    DECEMBER 31, 1999                DECEMBER 31, 1999
                         UPON      VALUE     ------------------------------   ------------------------------
                       EXERCISE   REALIZED   EXERCISABLE   UNEXERCISABLE(1)   EXERCISABLE   UNEXERCISABLE(1)
                       --------   --------   -----------   ----------------   -----------   ----------------
<S>                    <C>        <C>        <C>           <C>                <C>           <C>
Michael A.
  Klimowicz..........    --         --          24,375          65,625         $326,625         $879,375
Casper L. de
  Clercq.............    --         --           1,736          14,930         $ 23,262         $200,062
Deborah K. Karlson...    --         --          40,000          50,000         $538,000         $670,000
</TABLE>

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

(1) These shares can be exercised under our early exercise program. However, if
    they are exercised, they will be subject to repurchase by us at the exercise
    price. The repurchase right lapses over time.

EXECUTIVE SEVERANCE BENEFIT PLAN

    In September 2000, the Board of Directors adopted an Executive Severance
Benefit Plan which provides severance benefits to eligible executive employees
selected by the Board of Directors. Benefits are paid only upon involuntary
termination of employment without cause, or voluntary termination of employment
for good reason, within one month prior to or within 13 months following a
change in control of the beneficial ownership of the Company. Upon execution of
a release of claims, each eligible executive would receive 12 months of salary
continuation payable in monthly installments, continued health benefits for
12 months and option vesting acceleration. The vesting of 100% of the
executive's unvested options would accelerate immediately prior to the date of
termination such that the options would vest in 12 monthly installments
beginning on the date of termination. Jane E. Shaw, Ph.D., Michael Klimowicz,
Casper L. de Clercq, Yehuda Ivri, Carol A. Gamble and Deborah K. Karlson are the
current participants in the Executive Severance Benefit Plan.

                                       49
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

    None of our executive officers serves as a member of the Board of Directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our Board of Directors or compensation committee.

BENEFIT PLANS

    Since 1994, we have established five plans under which employees, officers,
non-employee directors and consultants may purchase or receive common stock
through incentive stock options and nonstatutory stock options, restricted stock
purchase awards and stock bonuses. These plans are the 1994 Stock Option Plan,
the 1996 Stock Option Plan, the 2000 Equity Incentive Plan, the 2000 Employee
Stock Purchase Plan and the 2000 Non-employee Directors' Stock Option Plan. In
addition, we have established a defined contribution plan intended to be
tax-qualified under Sections 401(a) and 401(k) of the Internal Revenue Code, as
amended and the executive severance benefit plan described above.

2000 EQUITY INCENTIVE PLAN


    The Board of Directors authorized the 2000 Equity Incentive Plan in
August 2000, and our stockholders approved the plan in November 2000.


    RESERVED SHARES.  We have reserved 1,000,000 shares for issuance under the
Equity Incentive Plan. On the date of each annual stockholder meeting for
ten years, starting in the year 2001, the number of shares in this reserve will
automatically increase by the least of 2,000,000 shares, 4.5% of the outstanding
common stock on a fully-diluted basis or a lesser number as determined by our
Board of Directors. If stock awards granted under the Equity Incentive Plan
expire or otherwise terminate without being exercised in full, the shares of
common stock not acquired will revert back to the plan and again become
available for issuance.

    ADMINISTRATION.  The Equity Incentive Plan is administered by our Board of
Directors or a committee appointed by the Board which determines recipients and
types of awards to be granted, including the exercise price, number of shares
subject to the award and the exercisability.

    ELIGIBILITY.  Our Board of Directors may grant incentive stock options that
qualify under Section 422 of the Internal Revenue Code, to employees, including
officers, of AeroGen or an affiliate of AeroGen. Our Board of Directors may
grant nonstatutory stock options, stock bonuses and restricted stock purchase
awards to employees, including officers, or our directors and consultants. A
restricted stock purchase award is an offer to purchase our shares at a price
either at or near the fair market value of the shares. A stock bonus, on the
other hand, is a grant of our shares at no cost to the recipient in
consideration for past services rendered. We may reacquire the shares under
either type of award at the original purchase price, which is zero in the case
of a stock bonus, if the recipient's service to us or an affiliate terminates
before the shares vest.

    No incentive stock option may be granted to any person who, at the time of
the grant, owns, or is deemed to own, stock possessing more than 10% of the
total combined voting power of AeroGen or any affiliate of AeroGen, unless the
option exercise price is at least 110% of the fair market value of the stock
subject to the option on the date of grant and the term of the option does not
exceed five years from the date of grant. The aggregate fair market value,
determined at the time of grant, of the shares of common stock with respect to
which incentive stock options are exercisable for the first time by an optionee
during any calendar year under all of our plans may not exceed $100,000.

    Section 162(m) of the Internal Revenue Code denies a deduction to
publicly-held corporations for compensation paid to specific employees in a
taxable year to the extent that the compensation exceeds $1,000,000. When we
become subject to Section 162(m), our Board of Directors may not grant options
under the Equity Incentive Plan to an employee covering an aggregate of more
than 1,000,000 shares in any calendar year.

                                       50
<PAGE>
    OPTION TERMS.  The maximum option term is ten years. The exercise prices of
options granted under the Equity Incentive Plan are determined by our Board of
Directors, provided that the exercise price for an incentive stock option cannot
be less than 100% of the fair market value of the common stock on the date of
the option grant, and the exercise price for a nonstatutory stock option cannot
be less than 85% of the fair market value of the common stock on the date of the
option grant.

    Generally an option terminates three months after the optionholder's service
with us terminates. If the termination is due to the optionholder's disability,
the exercise period generally is extended to 12 months. If the termination is
due to the optionholder's death, or if the optionholder dies within three months
after his or her service terminates, in either case before the end of the option
term, the exercise period generally is extended to 18 months following death.

    OTHER PROVISIONS.  The optionholder may designate a beneficiary to exercise
the option following the optionholder's death. Nonstatutory stock options may be
transferable under limited circumstances. Otherwise, the option exercise rights
will pass by the optionholder's will or by the laws of descent and distribution.

    Our Board of Directors determines the purchase price of other stock awards,
but the purchase price may not be less than 85% of the fair market value of
AeroGen's common stock on the grant date. However, our Board of Directors may
award stock bonuses in consideration of past services without a purchase
payment. Shares sold or awarded under the Equity Incentive Plan may, but need
not, be restricted and subject to a repurchase option in favor of AeroGen in
accordance with a vesting schedule that our Board of Directors determines. Our
Board of Directors may accelerate the vesting of the restricted stock.

    Transactions not involving receipt of consideration by us, including a
merger, consolidation, reorganization, stock dividend, or stock split, may
change the nature, class and number of shares subject to the Equity Incentive
Plan and to outstanding awards. In that event, our Board of Directors will
appropriately adjust the Equity Incentive Plan as to the nature, class and the
maximum number of shares subject to the term of the Equity Incentive Plan,
including the Section 162(m) limitation. Our Board of Directors also will adjust
outstanding awards as to the nature, class, number of shares and price per share
subject to the awards.

    Upon a change in control of AeroGen the surviving entity will either assume,
continue or substitute outstanding awards under the Equity Incentive Plan. If
the awards are not assumed, continued or substituted, then the vesting of the
awards will accelerate.

    OPTIONS ISSUED.  As of September 30, 2000, no shares or options had been
issued under the Equity Incentive Plan. The Equity Incentive Plan will not be
effective until the effective date of this offering. The Equity Incentive Plan
will terminate in 2010 unless our Board of Directors terminates it sooner. See
the description below regarding stock options previously granted under the 1996
Stock Option Plan.

1994 AND 1996 STOCK OPTION PLANS

    In 1994, we adopted our 1994 Stock Option Plan. The 1994 plan will terminate
in November 2004 unless it is terminated earlier by our Board of Directors. In
1996, we adopted our 1996 Stock Option Plan. The 1996 plan will terminate in
March 2006 unless our Board of Directors terminates it sooner. In August 2000
our Board of Directors amended and restated the 1996 Stock Option Plan (Restated
1996 Plan) to provide for the same terms and conditions as the Equity Incentive
Plan described above. However, the original terms of the 1996 Plan as described
in this section will continue to apply to stock options granted under the
original 1996 Plan prior to August 2000.

    OPTION TERMS.  The option terms under the 1994 Plan and original 1996 Plan
are similar to the Equity Incentive Plan described above. However, an option
terminates 30 days under the original 1996 Plan and three months under the 1994
Plan after the optionholder's service with us terminates. In addition, if the
termination is due to the optionholder's disability or death, the exercise
period generally is

                                       51
<PAGE>
extended to six months under the original 1996 Plan, and twelve months under the
1994 Plan, from termination of service.

    Acceptable consideration for the purchase of common stock issued under the
1994 Plan and original 1996 Plan is determined by our Board of Directors and
generally includes cash, surrender of shares of our common stock with a fair
market value equal to the exercise price, services rendered or a promissory
note.

    Generally, an optionholder may not transfer a stock option other than by
will or the laws of descent or distribution unless the optionholder holds a
nonstatutory stock option that provides otherwise. However, an optionholder may
designate a beneficiary who may exercise the option following the optionholder's
death.

    ELIGIBILITY.  The eligibility to receive awards under the 1994 Plan and the
original 1996 Plan are the same as the 2000 Equity Incentive Plan.

    The 1994 Plan and the original 1996 Plan provide for the grant of stock
awards, including:

    -  incentive stock options, as defined in Section 422 of the Internal
       Revenue Code, that may be granted solely to employees (including
       officers);

    -  nonstatutory stock options; and

    -  under the original 1996 Plan, restricted stock purchase awards and stock
       bonuses that may be granted to employees (including officers),
       non-employee directors and consultants.

    RESTRICTED STOCK AND STOCK BONUS AWARDS.  The purchase price for each
restricted stock award granted must be at least 85% of the fair market value of
the stock on the date of the award or at the time the purchase is consummated.
Rights to acquire shares under a stock bonus or restricted stock bonus agreement
may not be transferred other than by will or by the laws of descent and
distribution. Some restricted stock awards made following the completion of this
offering may be otherwise transferable if the stock purchase agreement so
provides. Restricted stock purchase awards and stock bonuses granted under the
original 1996 Plan may include a repurchase option in favor of us that varies
according to a service vesting schedule determined by our Board of Directors.
Stock bonuses may be awarded in consideration for past services without a
purchase payment.

    CHANGE IN CONTROL.  Upon specified changes in control, all outstanding
options under the 1994 Plan and the original 1996 Plan will be either assumed or
substituted. Under the original 1996 Plan, upon a change in control outstanding
options also may be continued, cashed out or accelerated as determined under the
change in control agreement.

    AUTHORIZED SHARES.  As of September 30, 2000, an aggregate of 2,766,664
shares of common stock had been authorized for issuance under the 1994 Plan and
the original 1996 Plan. As of September 30, 2000, options to purchase a total of
1,250,444 shares of our common stock were held by all participants under the
1994 Plan and the original 1996 Plan. At that date, a total of 786,712 shares of
our common stock remained available for grant under the 1994 Plan and the 1996
original Plan. Shares subject to stock options that have expired or otherwise
terminated without having been exercised in full again become available for the
grant of awards under the 1994 Plan and the original 1996 Plan.

    ADMINISTRATION.  The 1994 Plan and original 1996 Plan are administered in
the same manner as the Equity Incentive Plan as described above.

2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN


    The Board of Directors authorized the 2000 Non-employee Directors' Stock
Option Plan in August 2000, and our stockholders approved the plan in November
2000.


    RESERVED SHARES.  We authorized the issuance of 250,000 shares of our common
stock pursuant to the Non-employee Directors' Stock Option Plan. Under the
Non-employee Directors' Stock Option Plan, each new non-employee director who is
subsequently elected or appointed for the first time after this offering

                                       52
<PAGE>
will automatically be granted an option to purchase 15,000 shares of common
stock. This is the non-employee director's initial grant.

    On the date of each annual stockholder meeting, beginning in the year 2001,
each non-employee director will be granted an option to purchase 5,000 shares of
common stock. This is the non-employee director's annual grant.

    Options granted under the Non-employee Directors' Stock Option Plan are
granted at 100% of the fair market value of the common stock on the date of
grant. Options granted under the Non-employee Directors' Stock Option Plan have
a ten-year term and vest as follows: initial grants vest as to 1/3rd of the
shares 12 months after the date of grant and 1/36th of the shares each month for
24 months thereafter; and annual grants vest as to 1/36th of the shares monthly
for three years. The Non-employee Directors' Stock Option Plan will terminate if
and when terminated by our Board of Directors.

    CHANGE IN CONTROL.  Upon certain changes in control of AeroGen, the vesting
of all outstanding options under the Non-employee Directors' Stock Option Plan
will automatically accelerate and the options will terminate if not exercised
prior to the change in control.

    OPTIONS ISSUED.  No options have been granted under the Non-employee
Directors' Stock Option Plan.

2000 EMPLOYEE STOCK PURCHASE PLAN


    The Board of Directors authorized the Employee Stock Purchase Plan in
August 2000, and our stockholders approved the plan in November 2000.


    RESERVED SHARES.  We authorized the issuance of 250,000 shares of our common
stock pursuant to purchase rights granted to our U.S. employees and to employees
of our designated U.S. affiliates. On the date of each annual stockholders'
meeting, for 20 years, beginning in 2001, the number of shares in the reserve
automatically will be increased by the least of 1% of our outstanding shares on
a fully-diluted basis, 250,000 shares or such lesser number of shares as
determined by our Board of Directors.

    ELIGIBILITY.  The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
The purchase plan provides a means by which employees may purchase our common
stock through payroll deductions. We implement this purchase plan by offering
purchase rights to eligible employees. Generally, all U.S. employees of AeroGen
and any U.S. affiliate designated by our Board of Directors may participate in
the purchase plan, excluding part-time and seasonal employees. However, no
employee may participate in the purchase plan if immediately after we grant the
employee a purchase right, the employee has voting power over 5% or more of our
outstanding common stock. As of the date of this prospectus, no shares of common
stock have been purchased under the purchase plan.

    ADMINISTRATION.  Under the purchase plan, our Board of Directors may specify
offerings of up to 27 months. The first offering will begin on the effective
date of this initial public offering. Unless our Board of Directors otherwise
determines, our common stock is purchased for accounts of participating
employees at a price per share equal to the lower of 85% of the fair market
value of a share on the first day of this offering, or 85% of the fair market
value of a share on the purchase date.

    Our Board of Directors may provide that employees who become eligible to
participate after the offering period begins nevertheless may enroll in the
offering. These employees will purchase our stock at the lower of 85% of the
fair market value of a share on the day they began participating in the purchase
plan, or 85% of the fair market value of a share on the purchase date.

    Under the initial offering, employees may authorize payroll deductions of up
to 15% of their base compensation, excluding sales commissions and bonuses, for
the purchase of stock under the purchase plan, and may end their participation
in the offering at any time up to five days before a purchase date.
Participation ends automatically on termination of employment.

                                       53
<PAGE>
    OTHER PROVISIONS.  Our Board of Directors may grant eligible employees
purchase rights under the purchase plan only to the extent the purchase rights,
together with any other purchase rights granted under other employee stock
purchase plans established by us or our affiliate, if any, do not permit the
employee's rights to purchase our stock to accrue at a rate that exceeds $25,000
of the fair market value of our stock for each calendar year in which the
purchase rights are outstanding. Our Board of Directors also may limit the
number of shares that an employee may purchase on any purchase date.

    Upon a change of control of AeroGen, our Board of Directors may provide that
the successor corporation will assume or substitute outstanding purchase rights.
Alternatively, our Board of Directors may shorten the offering and provide that
shares will be purchased for participants immediately before the change in
control.

401(k) PLAN

    We maintain a 401(k) Plan for eligible employees. An employee participant
may contribute up to 20% of his or her total annual compensation to the 401(k)
Plan, up to the legal annual limit. The annual limit for calendar year 2000 is
$10,500. Each participant is fully vested in his or her salary deferral
contributions. Participant contributions are held and invested by the 401(k)
Plan's trustee. We may make discretionary contributions as a percentage of
participant contributions, subject to established limits. To date, we have made
no discretionary contributions to the 401(k) Plan on behalf of the participants.
The 401(k) Plan is intended to qualify under Section 401(a) of the Internal
Revenue Code, so that contributions by employees or by us to the 401(k) Plan,
and income earned on the 401(k) Plan contributions, are not taxable to employees
until withdrawn from the 401(k) Plan, and so that contributions by us, if any,
will be deductible by us when made.

LIMITATION OF LIABILITY AND INDEMNIFICATION

    Our certificate of incorporation and bylaws contain provisions permitted
under Delaware law relating to the liability of directors. These provisions
eliminate a director's personal liability for monetary damages resulting from a
breach of fiduciary duty, except in circumstances involving wrongful acts,
including:

    -  for any breach of the director's duty of loyalty to us or our
       stockholders;

    -  for acts or omissions not in good faith or which involve intentional
       misconduct or a knowing violation of law;

    -  for any acts under Section 174 of the Delaware General Corporation Law;
       or

    -  for any transaction from which the director derives an improper personal
       benefit.

    These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief including an injunction or rescission, in the
event of a breach of a director's fiduciary duty. These provisions will not
alter a director's liability under federal securities laws. We intend to enter
into separate indemnification agreements with our directors and executive
officers that provide each of them indemnification protection in the event the
amended and restated certificate of incorporation and amended and restated
bylaws are subsequently amended. We believe that these provisions and agreements
will assist us in attracting and retaining qualified individuals to serve as
directors and officers.

EMPLOYEE CONFIDENTIALITY AGREEMENTS

    At the time of commencement of employment, our employees generally sign
offer letters specifying basic terms and conditions of employment. In general,
our employees are not subject to written employment agreements. Each employee
has entered into a standard form confidential information and invention
assignment agreement that provides that the employee will not disclose any of
our confidential information received during the course of employment and that,
with some exceptions, the employee will assign to us any and all inventions
conceived or developed during the course of employment.

                                       54
<PAGE>
                             PRINCIPAL STOCKHOLDERS

    The following table sets forth certain information regarding the beneficial
ownership of our common stock as of September 30, 2000, and as adjusted to
reflect the sale of our common stock offered by this prospectus, by:

    -  each of the individuals listed on the "Summary Compensation Table" above;

    -  each of our officers and directors;

    -  each person, or group of affiliated persons, who is known by us to own
       beneficially 5% or more of our common stock; and

    -  all current directors and executive officers as a group.

    Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
held by that person that are currently exercisable or exercisable within
60 days of September 30, 2000, and not subject to repurchase as of that date,
are deemed outstanding. These shares, however, are not deemed outstanding for
the purposes of computing the percentage ownership of any other person.

    Except as indicated in the notes to this table, and except pursuant to
applicable community property laws, each stockholder named in the table has sole
voting and investment power with respect to the shares shown as beneficially
owned by them. Percentage ownership is based on 15,776,702 shares of common
stock outstanding on September 30, 2000, after giving effect to the conversion
of all outstanding shares of preferred stock into common stock upon the closing
of this offering (at a rate of one share of common stock for each three shares
of preferred stock), and 19,376,702 shares of common stock outstanding after
completion of this offering. This table assumes no exercise of the underwriters'
over-allotment option.

    Unless otherwise indicated, the address of each of the individuals named
below is: c/o AeroGen, Inc., 1310 Orleans Drive, Sunnyvale, CA 94089.

<TABLE>
<CAPTION>
                                                                         PERCENT BENEFICIALLY
                                                                                OWNED
                                                        NUMBER OF       ----------------------
                                                          SHARES         PRIOR TO      AFTER
                                                       BENEFICIALLY         THE         THE
BENEFICIAL OWNER                                          OWNED          OFFERING     OFFERING
----------------                                     ----------------   -----------   --------
<S>                                                  <C>                <C>           <C>
FIVE PERCENT STOCKHOLDERS:
Entities affiliated with US Venture Partners(1) ...      1,936,142         12.27%       9.99%
  2180 Sand Hill Road
  Suite 300
  Menlo Park, California 94025
CMEA, L.P.(2) .....................................      1,447,293          9.17%       7.47%
  235 Montgomery Street, Suite 920
  San Francisco, California 94104
Entities affiliated with InterWest Partners(3) ....      1,264,549          8.02%       6.53%
  3000 Sand Hill Road
  Building 3, Suite 255
  Menlo Park, California 94025
MF Private Capital, Inc.(4) .......................        904,762          5.73%       4.67%
  45 Milk Street, Suite 600
  Boston, Massachusetts 02109-5105
</TABLE>

                                       55
<PAGE>

<TABLE>
<CAPTION>
                                                                         PERCENT BENEFICIALLY
                                                                                OWNED
                                                        NUMBER OF       ----------------------
                                                          SHARES         PRIOR TO      AFTER
                                                       BENEFICIALLY         THE         THE
BENEFICIAL OWNER                                          OWNED          OFFERING     OFFERING
----------------                                     ----------------   -----------   --------
<S>                                                  <C>                <C>           <C>
Entities affiliated with Advent Partners,                  848,860          5.38%       4.38%
  L.P.(5) .........................................
  75 State Street
  30th Floor
  Boston, Massachusetts 02109
DIRECTORS AND EXECUTIVE OFFICERS:
Jane E. Shaw, Ph.D.(6).............................        465,480          2.95%       2.41%
Yehuda Ivri........................................      1,236,666          7.84%       6.38%
Thomas R. Baruch(7)................................      1,447,293          9.17%       7.47%
Jean-Jacques Bienaime(8)...........................          5,207             *           *
Casper L. de Clercq(9).............................         95,555             *           *
Susan D. Desmond-Hellmann, M.D.(10)................             --            --          --
Carol A. Gamble(10)................................             --            --          --
Phyllis I. Gardner, M.D.(11).......................          3,333             *           *
Deborah K. Karlson(12).............................         90,000             *           *
Michael A. Klimowicz(13)...........................         90,000             *           *
John S. Power(14)..................................        393,420          2.49%       2.03%
Philip M. Young(15)................................      1,936,142         12.27%       9.99%
All directors and executive officers as a group
  (11 persons)(16).................................      5,763,096         36.30%      29.74%
</TABLE>

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

   * Less than 1%

 (1) Includes 1,674,763 shares held by US Venture Partners IV, L.P., 203,295
     shares held by Second Ventures II, L.P. and 58,084 shares held by USVP
     Entrepreneur Partners II. William K. Bowes, Jr., Irwin Federman, Steven M.
     Krausz and Philip M. Young share voting and dispositive power with respect
     to these shares.

 (2) Thomas R. Baruch has voting and investment power with respect to the shares
     held by this entity.

 (3) Includes 37,486 shares held by InterWest Investors VI, L.P. and 1,227,063
     shares held by InterWest Partners VI, L.P. The voting and dispositive power
     with respect to these shares is shared by the managing directors of
     Interwest Management Partners VI, LLC (Harvey B. Cash, Alan W. Crites,
     Philip T. Gianos, W. Scott Hedrick, W. Stephen Holmes, Robert R. Momsen and
     Arnold L. Oronsky) and the venture member of Interwest Management Partners
     VI, LLC (Gilbert H. Kliman).

 (4) Richard Coles, Senior Vice President of Manulife Financial has voting and
     dispositive power with respect to these shares.

 (5) Includes 465,412 shares held by Noptek, L.P, 321,963 shares held by Advent
     Israel, L.P., 16,100 shares held by Advent Partners, L.P., 6,410 shares
     held by Advent International Investors II, L.P. and 38,975 shares held by
     Advent Israel, Bermuda, L.P. In its capacity as manager of these funds,
     Advent International Corporation exercises sole voting and investment power
     with respect to all of the shares held by these funds. Advent International
     Corporation exercises its voting and investment power through a group of
     four persons: Douglas R. Brown, President and Chief Executive Officer,
     Andrew I. Fillat, Senior Vice President responsible for venture investments
     in North America, Dr. Jason S. Fisherman, Vice President responsible for
     the investment in AeroGen, and Janet L. Hennessy, Vice President
     responsible for monitoring public securities, none of whom may act
     independently and a majority of whom must act in concert to exercise voting
     or investment power of

                                       56
<PAGE>
     the beneficial holdings of such entity. Therefore, no individual in this
     group other than Advent International Corporation is deemed to have sole
     voting or investment authority.

 (6) Includes 450,666 shares held by Dr. Shaw (of which 136,116 are subject to
     repurchase at the original purchase price in the event of termination of
     Dr. Shaw's service with us, which repurchase right lapses over time) and
     14,814 shares held by the Carpenter Family Trust, in which Dr. Shaw has an
     economic interest.

 (7) All of these shares are held by CMEA L.P. Mr. Baruch, a director of
     AeroGen, is a partner of CMEA Ventures. In such capacity, Mr. Baruch is
     deemed to have an indirect interest in an indeterminate portion of the
     shares beneficially owned by CMEA L.P. Mr. Baruch disclaims beneficial
     ownership of the shares held by CMEA L.P., within the meaning of
     Rule 13d-3 under the Securities Act of 1934.

 (8) Includes 5,207 shares issuable upon the exercise of options exercisable
     within 60 days of September 30, 2000.

 (9) Includes 5,555 shares issuable upon exercise of options exercisable within
     60 days of September 30, 2000 and 45,000 shares which are subject to
     repurchase at the original purchase price in the event of termination of
     Mr. de Clercq's service with us, which repurchase right lapses over time.

 (10) No shares vest until one year after beginning of service.

 (11) Includes 1,111 shares subject to repurchase at the original purchase price
      in the event of termination of Dr. Gardner's service with us, which
      repurchase right lapses over time.

 (12) Includes 22,223 shares which are subject to repurchase at the original
      purchase price in the event of termination of Ms. Karlson's service with
      us, which repurchase right lapses over time.

 (13) Includes 45,000 shares which are subject to repurchase at the original
      purchase price in the event of termination of Mr. Klimowicz's service with
      us, which repurchase right lapses over time.

 (14) Includes 147,532 shares issued in conjunction with the acquisition of
      Cerus Limited, subject to repurchase in the event of termination of
      Mr. Power's service with us, which repurchase right lapses over time.

 (15) All of these shares are held by US Venture Partners and its affiliates.
      Mr. Young, a director of AeroGen, is a partner of US Venture Partners. In
      such capacity, Mr. Young is deemed to have an indirect interest in an
      indeterminate portion of the shares beneficially owned by US Venture
      Partners and its affiliates. Mr. Young disclaims beneficial ownership of
      the shares held by US Venture Partners and its affiliates, within the
      meaning of Rule 13d-3 under the Securities Act of 1934.

 (16) Includes shares described in the notes above as applicable to our
      directors and current executive officers.

                                       57
<PAGE>
                           RELATED PARTY TRANSACTIONS

    The following executive officers, directors or holders of more than five
percent of our voting securities purchased securities in the amounts and as of
the dates shown below.


<TABLE>
<CAPTION>
                                                        SHARES OF CONVERTIBLE PREFERRED STOCK(6)
                             COMMON      -----------------------------------------------------------------------
PURCHASER (1)                 STOCK       SERIES A     SERIES B     SERIES C    SERIES D    SERIES E    SERIES F
-------------              -----------   ----------   ----------   ----------   ---------   ---------   --------
<S>                        <C>           <C>          <C>          <C>          <C>         <C>         <C>
DIRECTORS AND EXECUTIVE
  OFFICERS
Jane E. Shaw, Ph.D.......      450,666       --           --           --          --          --        44,445
Casper L. de Clercq......       90,000       --           --           --          --          --         --
Michael A. Klimowicz.....       90,000       --           --           --          --          --         --
Deborah K. Karlson.......       90,000       --           --           --          --          --         --
John S. Power(2).........      --            --           --           --          --       1,180,262     --
ENTITIES AFFILIATED WITH
  DIRECTORS
Entities affiliated with
  US Venture
  Partners(3)............      --         1,282,052    1,602,565    2,666,667     257,143      --         --
CMEA.....................      --         1,282,052    1,282,052    1,333,333      --          --       444,444

OTHER 5% STOCKHOLDERS
Entities affiliated with
  Advent Partners,
  L.P.(4)................      --         1,153,848      897,438      495,300      --          --         --
Entities affiliated with
  InterWest
  Partners(5)............      --            --           --        3,000,000     571,431      --       222,222
MF Private Capital,
  Inc....................      --            --           --           --       2,714,286      --         --

Price per Share..........  $0.30-$0.60     $0.39        $0.78        $1.00        $1.75       $2.97      $2.25
Date(s) of Purchase......   1/98-4/00    5/94-10/94   11/95-5/96   4/97-11/97     8/98        3/00       7/00
</TABLE>


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

(1) See "Principal Stockholders" for more detail on shares held by these
    purchasers.

(2) Consists of shares of Series E preferred stock issued to Mr. Power in
    exchange for his proportionate share of voting shares of stock of Cerus
    Limited in connection with the acquisition of Cerus by AeroGen, whereby
    Cerus became a subsidiary of AeroGen.

(3) Affiliates of US Venture Partners include US Venture Partners IV, L.P.,
    Second Ventures II, L.P., and USVP Entrepreneur Partners II, L.P.

(4) Affiliates of Advent Partners, L.P. include Noptek, L.P., Advent Israel,
    L.P., Advent Partners, L.P., Advent International Investors II, L.P., and
    Advent Israel, Bermuda, L.P.

(5) Affiliates of InterWest Partners include InterWest Investors VI, L.P. and
    InterWest Partners VI, L.P.

(6) Upon completion of this offering, each three shares of preferred stock will
    convert into one share of common stock.

    REGISTRATION RIGHTS AGREEMENT.  We have entered into an agreement with the
preferred stockholders identified above, excluding Mr. Power, pursuant to which
they will have registration rights with respect to their shares of common stock
following this offering. Upon the completion of this offering, all shares of our
outstanding preferred stock will be automatically converted into an equal number
of shares of common stock.

    INDEMNIFICATION AGREEMENTS.  We intend to enter into indemnification
agreements with our directors and officers for the indemnification of and
advancement of expenses to these persons to the full extent permitted by law. We
also intend to execute such agreements with our future directors and officers.

                                       58
<PAGE>
    TRANSACTIONS WITH OFFICERS AND DIRECTORS.  Mr. Ivri, AeroGen's Founder and
Chief Technical Officer, has three notes payable to us. On May 6, 1994, we
received a promissory note for the principal amount of $69,009. The note bears
annual interest of 6.43% with principal and interest due the earlier of May 5,
2003, or 90 days after the date of termination of Mr. Ivri's service with us. On
August 15, 1996, we received a promissory note for the principal amount of
$200,000. The note bears no interest and the entire principal balance is due the
earliest of (i) August 14, 2001, (ii) 90 days after Mr. Ivri's common stock is
no longer subject to a lock-up agreement with the underwriters, or (iii) the
date Mr. Ivri's service with us terminates pursuant to Mr. Ivri's resignation or
is terminated by us for cause. On July 21, 2000, we received a promissory note
for the principal amount of $50,000. The note bears interest at the rate of
6.62%, and the principal and interest are payable on the earlier of
(i) July 21, 2005 or (ii) the date at which Mr. Ivri's service with us
terminates. These latter two notes are secured by 166,666 shares of Mr. Ivri's
common stock.

    In 1998, we received a recourse note from Dr. Shaw, our Chairman and Chief
Executive Officer, in the aggregate principal amount of $140,000 in connection
with her purchase of 466,666 shares of common stock. The note bears annual
interest of 5.93%, with original principal and interest due January 28, 2002. In
October 1998, Dr. Shaw repaid $29,738 of the outstanding principal and accrued
interest on the note. Certain portions of the common stock may be repurchased by
us at the original purchase price if Dr. Shaw's service with us terminates. This
repurchase right lapses over time.

    In 1998, Mr. de Clercq, our Vice President, Sales, Marketing and Business
Development, signed a note in the aggregate principal amount of $53,730 to
acquire 90,000 shares of common stock. The note bears annual interest of 4.51%,
with original principal and interest due November 19, 2002. Certain portions of
the common stock may be repurchased by us at the original purchase price if
Mr. de Clercq's service with us terminates. This repurchase right lapses over
time.

    In 2000, we received a recourse note from each of Ms. Karlson, our Chief
Financial Officer, and Mr. Klimowicz, our Vice President, Product Development,
in the aggregate principal amount of $51,730 and $53,730, respectively, to
acquire 90,000 shares of common stock. The notes bear annual interest at 6.7%,
with original principal and interest due April 17, 2004. A portion of the shares
purchased by each employee may be repurchased by us at the original purchase
price if his or her service with us terminates. This repurchase right lapses
over time.

    In March 1998 we granted Dr. Gardner an option to purchase 3,333 shares of
common stock at $0.30 per share under our 1996 Stock Option Plan in connection
with Dr. Gardner providing consulting services to us. After one year from the
date of grant, 2,500 shares covered by the option will vest, the remaining
shares will vest in equal monthly installments over the following three years.

    We believe that all of the transactions set forth above were made in our
best interest. In particular, the loans made to our Chief Technical Officer and
certain of our other officers were made to help retain them as our employees.
All future transactions, including loans, between us and our officers,
directors, principal stockholders and their affiliates will be approved by the
Board of Directors, including a majority of the independent and disinterested
directors.

                                       59
<PAGE>
                          DESCRIPTION OF CAPITAL STOCK

    The following information describes our common stock and preferred stock, as
well as options and warrants to purchase our common stock, and provisions of our
certificate of incorporation and our bylaws, all as in effect upon the closing
of this offering. This description is only a summary. You should also refer to
our certificate of incorporation, bylaws and warrants which we have filed with
the SEC as exhibits to our registration statement of which this prospectus forms
a part.

    Upon the closing of this offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of
preferred stock, $0.001 par value.

COMMON STOCK

    As of September 30, 2000, there were 15,776,702 shares of common stock
outstanding that were held of record by approximately 70 stockholders, after
giving effect to the conversion of each three shares of our preferred stock into
one share of our common stock. There will be 19,376,702 shares of common stock
outstanding, assuming no exercise of the underwriters' over-allotment option and
no exercise of outstanding options, after giving effect to the sale of the
shares of common stock offered by this prospectus and the conversion of shares
of preferred stock discussed below.

    The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of our stockholders. Subject to preferences that may
be applicable to any preferred stock outstanding at the time, the holders of
outstanding shares of common stock are entitled to receive ratably any dividends
out of assets legally available therefor as our board of directors may from time
to time determine. Upon liquidation, dissolution or winding up of AeroGen,
holders of our common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding shares of preferred stock. Holders of common stock have no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable.

PREFERRED STOCK

    Prior to this offering, there were 39,010,653 shares of convertible
preferred stock outstanding. All outstanding shares of convertible preferred
stock will be converted into 13,003,514 shares of common stock upon the closing
of this offering.

    Our certificate of incorporation provides that our Board of Directors will
have the authority, without further action by the stockholders, to issue up to
5,000,000 shares of preferred stock in one or more series. Our Board of
Directors will be able to fix the rights, preferences, privileges and
restrictions of the preferred stock, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of this series. The issuance of preferred stock could adversely affect the
voting power of holders of common stock, and the likelihood that holders of
preferred stock will receive dividend payments and payments upon liquidation may
have the effect of delaying, deferring or preventing a change in control of
AeroGen, which could depress the market price of our common stock. We have no
present plan to issue any shares of preferred stock.

WARRANTS

    As of September 30, 2000, we have outstanding warrants to purchase:

    -  10,683 shares of common stock at an exercise price of $2.34 per share;

    -  65,000 shares of Series C preferred stock, at an exercise price of $1.00
       per share, which shares are convertible into 21,666 shares of common
       stock.

                                       60
<PAGE>
    The warrants to purchase common stock were issued to Venture Lending &
Leasing, Inc. and will expire no later than June 30, 2002. The warrants to
purchase Series C preferred stock were issued to Venture Lending & Leasing, Inc.
and Venture Lending & Leasing II, Inc. and will expire no later than
October 14, 2004.

REGISTRATION RIGHTS OF STOCKHOLDERS

    Upon completion of this offering, under the Fourth Amended and Restated
Information and Registration Rights Agreement dated July 7, 2000 the holders of
12,428,551 shares of common stock and warrants to purchase 21,666 shares of
common stock, or their transferees, will be entitled to rights to register these
shares under the Securities Act. If we propose to register any of our securities
under the Securities Act, either for our own account or for the account of other
security holders, the holders of these shares will be entitled to notice of the
registration and will be entitled to include, at our expense, their shares of
common stock. In addition, the holders of 11,787,525 of these shares may require
us, at our expense and on not more than three occasions at any time beginning
approximately six months from the date of the closing of this offering, to
file a registration statement under the Securities Act with respect to their
shares of common stock, and we will be required to use our best efforts to
effect the registration. Further, the holders may require us at our expense to
register their shares on Form S-3 when this form becomes available to us. These
rights shall terminate on the earlier of five years after the effective date of
this offering, or when a holder is able to sell all its shares pursuant to
Rule 144 under the Securities Act in any 90-day period.

ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER PROVISIONS

    We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder unless:

    -  prior to the date, our board of directors approved either the business
       combination or the transaction that resulted in the stockholder becoming
       an interested stockholder;

    -  upon consummation of the transaction that resulted in the stockholder
       becoming an interested stockholder, the interested stockholder owned at
       least 85% of our voting stock of the corporation outstanding at the time
       the transaction commenced, excluding those shares owned by persons who
       are directors and also officers, and employee stock plans in which
       employee participants do not have the right to determine confidentially
       whether shares held subject to the plan will be tendered in a tender or
       exchange offer; or

    -  on or subsequent to the date, the business combination is approved by the
       board of directors and authorized at an annual or special meeting of
       stockholders, and not by written consent, by the affirmative vote of at
       least two-thirds of the outstanding voting stock that is not owned by the
       interested stockholder.

Section 203 defines "business combination" to include:

    -  any merger or consolidation involving the corporation and the interested
       stockholder;

    -  any sale, transfer, pledge or other disposition involving the interested
       stockholder of 10% or more of the assets of the corporation;

    -  subject to exceptions, any transaction that results in the issuance or
       transfer by the corporation of any stock of the corporation to the
       interested stockholder; or

    -  the receipt by the interested stockholder of the benefit of any loans,
       advances, guarantees, pledges or other financial benefits provided by or
       through the corporation.

                                       61
<PAGE>
    In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.


    Our bylaws provide that candidates for director may be nominated only by the
Board of Directors or by a stockholder who gives written notice to us no later
than 90 days prior nor earlier than 120 days prior to the first anniversary of
the last annual meeting of stockholders. The Board of Directors may consist of
one or more members to be determined from time to time by the Board of
Directors. The Board of Directors currently consists of seven members divided
into three different classes. As a result, only one class of directors will be
elected at each annual meeting of our stockholders, with the other classes
continuing for the remainder of their respective terms. Between stockholder
meetings, the Board of Directors may appoint new directors to fill vacancies or
newly created directorships.


    Our certificate of incorporation requires that upon completion of this
offering, any action required or permitted to be taken by our stockholders must
be effected at a duly called annual or special meeting of stockholders and may
not be effected by a consent in writing. Our certificate of incorporation also
provides that the authorized number of directors may be changed only by
resolution of the Board of Directors. Delaware law and these charter provisions
may have the effect of deterring hostile takeovers or delaying changes in
control of our management, which could depress the market price of our common
stock.

SECTION 2115

    We currently are subject to Section 2115 of the California Corporations
Code. Section 2115 provides that, regardless of a company's legal domicile,
provisions of California corporate law relating to shareholder rights, election
and removal of directors and distributions to shareholders will apply to that
company if the company meets the requirements of Section 2115. We will not be
subject to Section 2115 if:

    -  we are qualified for trading as a national market security on The Nasdaq
       National Market, and we have at least 800 stockholders of record as of
       the record date of our most recent annual meeting, or

    -  during any income year less than 50% of our outstanding voting securities
       are held of record by persons having addresses in California.

    Our certificate of incorporation includes a provision requiring cumulative
voting for directors whenever Section 2115 of the California Corporations Code
applies to us. Under cumulative voting, a minority stockholder holding a
sufficient percentage of a class of shares may be able to ensure the election of
one or more directors. We expect that, following this offering, Section 2115
will not apply to us.

TRANSFER AGENT

    The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.

                                       62
<PAGE>
                        SHARES ELIGIBLE FOR FUTURE SALE

    Prior to this offering, there has been no public market for our common
stock. The market price of our common stock after this offering could decline as
a result of the sale of a large number of shares of our common stock in the
market, or the perception that such sales could occur. Furthermore, since no
shares will be available for sale shortly after this offering because of
contractual and legal restrictions on resale as described below, sales of
substantial amounts of our common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.

    Upon completion of this offering, we will have outstanding an aggregate of
19,376,702 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless these
shares are purchased by affiliates. The remaining 15,776,702 shares of common
stock held by existing stockholders are restricted securities. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration described below under Rules 144,
144(k) or 701 promulgated under the Securities Act.

    As a result of the contractual restrictions described below and the
provisions of Rules 144, 144(k) and 701, the restricted shares will be available
for sale in the public market as follows:

    -  30,916 shares will be eligible for immediate sale on the date the
       registration statement of which this prospectus is a part is declared
       effective;

    -  11,562 shares will be eligible for sale 90 days from the date the
       registration statement of which this prospectus is a part is declared
       effective;


    -  5,699,940 shares will be eligible for sale upon the expiration of the
       lock-up agreements, described below, 180 days after the date this
       offering is declared effective; and



    -  188,072 shares will be eligible for sale upon the exercise of vested
       options or warrants 180 days after the date this offering is declared
       effective.



    -  9,895,109 shares will be eligible for sale at various times more than
       180 days after the date this offering is declared effective.


    LOCK-UP AGREEMENTS.  All of our officers and directors, and all
stockholders, option holders and warrant holders except the holders of 42,478
shares of our common stock have agreed not to transfer or dispose of, directly
or indirectly, any shares of our common stock or any securities convertible into
or exercisable or exchangeable for shares of our common stock, for a period of
180 days after the date the registration statement of which this prospectus is a
part is declared effective. Transfers or dispositions can be made sooner with
the prior written consent of Chase Securities Inc.

    RULE 144.  In general, under Rule 144 as currently in effect, beginning
90 days after the date the registration statement of which this prospectus is a
part is declared effective, a person or persons whose shares are aggregated, who
has beneficially owned restricted securities for at least one year, including
the holding period of any prior owner except an affiliate, would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of:

    -  1% of the number of shares of our common stock then outstanding, which
       will equal approximately 193,766 shares immediately after this offering;
       or

    -  the average weekly trading volume of our common stock on the Nasdaq
       National Market during the four calendar weeks preceding the filing of a
       notice on Form 144 with respect to the sale.

    Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.

                                       63
<PAGE>
    RULE 144(k).  Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate, is entitled
to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. A total of
5,177,554 shares of our common stock will qualify as "144(k) shares" within
180 days after the date the registration statement of which this prospectus is a
part, is declared effective.

    RULE 701.  In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors, other than affiliates,
who purchase or receive shares from us in connection with a compensatory stock
purchase plan or option plan or other written agreement will be eligible to
resell their shares beginning 90 days after the effective date of the
registration statement of which this prospectus is a part, subject only to the
manner of sale provisions of Rule 144, and by affiliates under Rule 144 without
compliance with its holding period requirements.

    REGISTRATION RIGHTS.  Upon completion of this offering, the holders of
12,428,523 shares of our common stock, or their transferees, will be entitled to
rights with respect to the registration of their shares under the Securities
Act. Registration of their shares under the Securities Act would result in the
shares becoming freely tradable without restriction under the Securities Act,
except for shares purchased by affiliates, immediately upon the effectiveness of
such registration.

    STOCK OPTIONS.  Immediately after this offering, we intend to file a
registration statement under the Securities Act covering the shares of common
stock reserved for issuance under our 2000 Equity Incentive Plan, 1996 Stock
Option Plan, 1994 Stock Option Plan, 2000 Non-employee Directors' Stock Option
Plan, and 2000 Employee Stock Purchase Plan. The registration statement is
expected to be filed and become effective as soon as practicable after the
closing of this offering. Accordingly, shares registered under the registration
statements will, subject to Rule 144 volume limitations applicable to
affiliates, be available for sale in the open market beginning 180 days after
the effective date of the registration statement of which this prospectus is a
part.

                                       64
<PAGE>
                                  UNDERWRITING

    Chase Securities Inc., CIBC World Markets Corp. and SG Cowen Securities
Corporation are the representatives of the underwriters. Subject to the terms
and conditions of the underwriting agreement, the underwriters named below,
through their representatives, have severally agreed to purchase from us the
following respective numbers of shares of common stock:

<TABLE>
<CAPTION>
                                                               NUMBER OF
NAME                                                            SHARES
----                                                          -----------
<S>                                                           <C>
Chase Securities Inc........................................
CIBC World Markets Corp.....................................
SG Cowen Securities Corporation.............................

                                                               ---------
Total.......................................................   3,600,000
                                                               =========
</TABLE>

    The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in our business and the receipt of certain certificates,
opinions and letters from us and our counsel. The underwriters are committed to
purchase all of the shares of common stock offered by us if they purchase any
shares.

    The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters. Such amounts are shown assuming
both no exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares.

                     UNDERWRITING DISCOUNTS AND COMMISSIONS

<TABLE>
<CAPTION>
                                                 WITHOUT            WITH
                                              OVER-ALLOTMENT   OVER-ALLOTMENT
                                                 EXERCISE         EXERCISE
                                              --------------   --------------
<S>                                           <C>              <C>
Per Share...................................    $     0.98       $     0.98
Total.......................................    $3,528,000       $4,057,200
</TABLE>


    We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately $1.5 million.


    The underwriters propose to offer the shares of common stock directly to the
public at the initial public offering price set forth on the cover page of this
prospectus and to certain dealers at that price less a concession not in excess
of $     per share. The underwriters may allow and such dealers may re- allow a
concession not in excess of $     per share to certain other dealers. After the
initial public offering of the shares, the offering price and other selling
terms may be changed by the underwriters. The representatives have advised us
that the underwriters do not intend to confirm discretionary sales in excess of
5% of the shares of common stock offered in this offering.

    We have granted to the underwriters a 30-day option to purchase up to
540,000 additional shares of common stock at the initial public offering price,
less the underwriting discount set forth on the cover page of this prospectus.
To the extent that the underwriters exercise this option, each of the
underwriters will have a firm commitment to purchase approximately the same
percentage thereof which the number of shares of common stock to be purchased by
it shown in the above table bears to the total number of shares of common stock
offered hereby. We will be obligated, pursuant to this option, to sell shares to
the

                                       65
<PAGE>
underwriters to the extent the option is exercised. The underwriters may
exercise this option only to cover over-allotments made in connection with the
sale of shares of common stock offered by us.

    This offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of this offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

    We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
the underwriters may be required to make in respect of these liabilities.

    All of our executive officers and directors and all of our stockholders
except the holders of 42,478 shares of our common stock, have agreed or will
agree prior to completion of this offering that they will not, without the prior
written consent of Chase Securities Inc., offer, sell or otherwise dispose of
any shares of capital stock, options or warrants to acquire shares of capital
stock or securities exchangeable for or convertible into shares of capital stock
owned by them for a period of 180 days following the date of this prospectus. We
have agreed that we will not, without the prior written consent of Chase
Securities Inc., offer, sell or otherwise dispose of any shares of capital
stock, options or warrants to acquire shares of capital stock or securities
exchangeable for or convertible into shares of capital stock for a period of
180 days following the date of this prospectus, except that we may issue shares
upon the exercise of options and warrants granted prior to the date hereof. We
also may grant additional options or other awards under our stock option plans.
Without the prior written consent of Chase Securities Inc., any additional
options granted shall not be exercisable during this 180-day period.

    The representatives of the underwriters participating in this offering may
over-allot or effect transactions which stabilize, maintain or otherwise affect
the market price of the common shares at levels above those which might
otherwise prevail in the open market, including by entering stabilizing bids,
effecting syndicate covering transactions or imposing penalty bids. A
stabilizing bid means the placing of any bid or effecting of any purchase, for
the purpose of pegging, fixing or maintaining the price of the shares of common
stock. A syndicate covering transaction means the placing of any bid on behalf
of the underwriting syndicate or the effecting of any purchase to reduce a short
position created in connection with the offering. A penalty bid means an
arrangement that permits the underwriters to reclaim a selling concession from a
syndicate member in connection with the offering when common shares sold by the
syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq National Market, in the
over-the-counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.

    In connection with this offering, the underwriters may make short sales of
our common stock and may purchase our shares on the open market to cover
positions created by short sales. Short sales involve the sale by the
underwriters of a greater number of shares than they are required to purchase in
this offering. "Covered" short sales are sales made in an amount not greater
than the underwriters' over-allotment option to purchase additional shares in
this offering. The underwriters may close out any covered short position by
either exercising their over-allotment option or purchasing shares in the open
market. In determining the source of shares to close out the covered short
position, the underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to the price at
which they may purchase shares through the over-allotment option. "Naked" short
sales are sales in excess of the over-allotment option. The underwriters must
close out any naked short position by purchasing shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of the shares in the
open market after pricing that could adversely affect investors who purchase in
this offering. Similar to other purchase transactions, the underwriters'
purchases to cover the syndicate short sales may have the effect of raising or
maintaining the market price of our common stock or preventing or retarding a
decline in the

                                       66
<PAGE>
market price of our common stock. As a result, the price of our common stock may
be higher than the price that might otherwise exist in the open market.

    Prior to this offering, there has been no public market for our common
stock. The initial public offering price for the shares of common stock was
determined by negotiations among us and the representatives. Among the factors
considered in determining the initial public offering price were prevailing
market and economic conditions, our revenues and earnings, market valuations of
other companies engaged in activities similar to our business operations, our
management and other factors deemed relevant.

    In addition, at our request, the underwriters have reserved up to 180,000
shares of common stock for sale at the initial public offering price to our
directors, business associates and related persons. The number of shares
available for sale to the general public will be reduced if such persons
purchase the reserved shares. Any reserved shares which are not so purchased
will be offered by the underwriters to the general public on the same basis as
the other shares offered by this prospectus.

    In connection with this offering, certain underwriters and selling group
members, if any, who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in our shares of common stock
on the Nasdaq National Market in accordance with Rule 103 of Regulation M under
the Securities Exchange Act of 1934, as amended. In general, a passive market
maker must display its bid at a price not in excess of the highest independent
bid of such security; if all independent bids are lowered below the passive
market maker's bid, however, the passive market maker must then lower its bid
when certain purchase limits are exceeded.

                                       67
<PAGE>
                                 LEGAL MATTERS

    The validity of the common stock offered hereby will be passed upon for us
by Cooley Godward LLP, Palo Alto, California. Cooley Godward LLP has been
granted an option to purchase 16,666 shares of our common stock. Stroock &
Stroock & Lavan LLP, New York, New York, is acting as counsel for the
underwriters in connection with certain legal matters relating to the shares of
common stock offered by this prospectus.

                                    EXPERTS

    The consolidated financial statements of AeroGen, Inc. as of December 31,
1998 and 1999 and for each of the three years ended December 31, 1999 and for
the period from November 18, 1991 (date of inception) to December 31, 1999,
included in this prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

    The financial statements of Cerus Limited as of December 31, 1998 and 1999
and for each of the two years ended December 31, 1999 and for the period from
December 16, 1997 (date of inception) to December 31, 1999, included in this
prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

                      WHERE YOU CAN FIND MORE INFORMATION

    We have filed with the SEC a registration statement on Form S-1 (including
exhibits, schedules and amendments) under the Securities Act with respect to the
shares of common stock to be sold in this offering. This prospectus does not
contain all the information set forth in the registration statement. For further
information with respect to us and the shares of common stock to be sold in this
offering, reference is made to the registration statement. Statements contained
in this prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. Whenever we make reference in
this prospectus to any contract or other document of ours, the reference may not
be complete, and you should refer to the exhibits that are a part of the
registration statement for a copy of the contract or document.

    You may read and copy all or any portion of the registration statement or
any other information we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, are also available
to you on the SEC's web site (http://www.sec.gov).

    As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act, and, in accordance with
those requirements, will file periodic reports, proxy statements and other
information with the SEC.

                                       68
<PAGE>
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
AEROGEN, INC.
  (A COMPANY IN THE DEVELOPMENT STAGE)

  Report of Independent Accountants.........................     F-2
  Consolidated Balance Sheets...............................     F-3
  Consolidated Statements of Operations.....................     F-4
  Consolidated Statements of Stockholders' Deficit..........     F-5
  Consolidated Statements of Cash Flows.....................     F-8
  Notes to Consolidated Financial Statements................     F-9

CERUS LIMITED
  (A COMPANY IN THE DEVELOPMENT STAGE)

  Report of Independent Accountants.........................    F-29
  Balance Sheets............................................    F-30
  Statements of Operations..................................    F-31
  Statements of Stockholders' Equity........................    F-32
  Statements of Cash Flows..................................    F-33
  Notes to Financial Statements.............................    F-34

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

  Unaudited Pro Forma Combined Condensed Statements of
    Operations..............................................    F-42
  Notes to the Unaudited Pro Forma Combined Condensed
    Statements of Operations................................    F-44
</TABLE>

                                      F-1
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of AeroGen, Inc.


    In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' deficit and of cash
flows present fairly, in all material respects, the financial position of
AeroGen, Inc. (a company in the development stage) and its subsidiary at
December 31, 1998 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 and for
the cumulative period from November 18, 1991 (date of inception) through
December 31, 1999, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.


/s/ PRICEWATERHOUSECOOPERS LLP


San Jose, California
February 25, 2000,
except for Note 11 as to which
the date is July 21, 2000
and Note 12 as to which
the date is November 2, 2000


                                      F-2
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                           PRO FORMA
                                                                                                         STOCKHOLDERS'
                                                                                                           EQUITY AT
                                                                  DECEMBER 31,                           SEPTEMBER 30,
                                                           ---------------------------   SEPTEMBER 30,       2000
                                                               1998           1999           2000        (SEE NOTE 9)
                                                           ------------   ------------   -------------   -------------
                                                                                                  (UNAUDITED)
<S>                                                        <C>            <C>            <C>             <C>
ASSETS
Current assets:
  Cash and cash equivalents..............................  $ 17,499,487   $  1,821,945   $ 14,312,223
  Available-for-sale securities..........................            --      5,986,918      5,267,582
  Accounts receivable....................................            --        319,051      1,994,439
  Prepaid expenses and other current assets..............       118,072        390,748      1,055,308
                                                           ------------   ------------   ------------
    Total current assets.................................    17,617,559      8,518,662     22,629,552
Property and equipment, net..............................       865,671      1,009,846      1,827,693
Goodwill and other intangible assets, net................            --             --      1,907,357
Other assets.............................................       125,000        145,093        205,093
                                                           ------------   ------------   ------------
    Total assets.........................................  $ 18,608,230   $  9,673,601   $ 26,569,695
                                                           ============   ============   ============

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable.......................................  $    344,372   $    455,700   $  1,215,302
  Accrued liabilities....................................       171,801        301,056      1,440,043
  Notes payable, current portion.........................       276,518        354,470        143,037
                                                           ------------   ------------   ------------
    Total current liabilities............................       792,691      1,111,226      2,798,382
Notes payable, less current portion......................       379,509             --             --
Other long-term liabilities..............................       100,000        100,000        271,895
                                                           ------------   ------------   ------------
    Total liabilities....................................     1,272,200      1,211,226      3,070,277
                                                           ------------   ------------   ------------

Commitments (Note 5)

Convertible preferred stock, par value: $0.001:
  Authorized: 27,994,352 shares;
  Issued and outstanding: 27,864,352 shares at
    December 31, 1998 and 1999, 39,010,653 shares at
    September 30, 2000 (unaudited) and none pro forma
    (unaudited)
  (Liquidation preference: $32,245,302 at December 31,
    1998 and 1999, $58,601,307 at September 30, 2000
    (unaudited)).........................................    31,476,099     31,476,099     58,541,015    $         --
                                                           ------------   ------------   ------------    ------------

Stockholders' equity (deficit):

  Common stock, par value: $0.001:
    Authorized: 40,000,000 shares;
    Issued and outstanding: 2,182,586, 2,309,594 and
      2,773,188 shares at December 31, 1998, 1999 and
      September 30, 2000 (unaudited), respectively; and
      15,776,702 shares pro forma (unaudited)............         2,183          2,310          2,773          15,777
  Additional paid-in capital.............................       251,932        954,524      7,378,796      65,906,807
  Notes receivable from stockholders.....................      (492,795)      (510,318)      (682,570)       (682,570)
  Deferred stock-based compensation, net.................            --       (558,360)    (6,174,092)     (6,174,092)
  Accumulated other comprehensive income (loss)..........            --        (32,576)        10,802          10,802
  Deficit accumulated during the development stage.......   (13,901,389)   (22,869,304)   (35,577,306)    (35,577,306)
                                                           ------------   ------------   ------------    ------------
    Total stockholders' equity (deficit).................   (14,140,069)   (23,013,724)   (35,041,597)   $ 23,499,418
                                                           ------------   ------------   ------------    ============
      Total liabilities, convertible preferred stock and
        stockholders' equity (deficit)...................  $ 18,608,230   $  9,673,601   $ 26,569,695
                                                           ============   ============   ============
</TABLE>

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

                                      F-3
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                        CUMULATIVE                                   CUMULATIVE
                                                                        PERIOD FROM                                  PERIOD FROM
                                                                       NOVEMBER 18,                                 NOVEMBER 18,
                                                                       1991 (DATE OF       NINE MONTHS ENDED        1991 (DATE OF
                                    YEARS ENDED DECEMBER 31,           INCEPTION) TO         SEPTEMBER 30,          INCEPTION) TO
                             ---------------------------------------   DECEMBER 31,    --------------------------   SEPTEMBER 30,
                                1997          1998          1999           1999           1999           2000           2000
                             -----------   -----------   -----------   -------------   -----------   ------------   -------------
                                                                                              (UNAUDITED)            (UNAUDITED)
<S>                          <C>           <C>           <C>           <C>             <C>           <C>            <C>
Research and development
  revenues.................  $   327,780   $    85,450   $   468,220   $  1,597,762    $    31,250   $  5,139,795   $  6,737,557
                             -----------   -----------   -----------   ------------    -----------   ------------   ------------
Operating expenses:
  Research and
    development(1).........    3,961,130     4,392,901     7,909,503     19,051,521      5,387,854     12,035,534     31,087,055
  General and
    administrative(2)......    1,509,204     1,599,912     2,076,507      6,577,958      1,573,573      2,820,785      9,398,743
  Purchased in-process
    research and
    development............           --            --            --             --             --      3,500,000      3,500,000
                             -----------   -----------   -----------   ------------    -----------   ------------   ------------
    Total operating
      expenses.............    5,470,334     5,992,813     9,986,010     25,629,479      6,961,427     18,356,319     43,985,798
                             -----------   -----------   -----------   ------------    -----------   ------------   ------------
Loss from operations.......   (5,142,554)   (5,907,363)   (9,517,790)   (24,031,717)    (6,930,177)   (13,216,524)   (37,248,241)
Interest income............      116,544       466,926       626,003      1,420,312        503,188        540,634      1,960,946
Interest expense...........      (29,239)     (121,946)      (76,128)      (257,899)       (59,511)       (32,112)      (290,011)
                             -----------   -----------   -----------   ------------    -----------   ------------   ------------
Net loss...................   (5,055,249)   (5,562,383)   (8,967,915)   (22,869,304)    (6,486,500)   (12,708,002)   (35,577,306)
Dividend related to
  beneficial conversion
  feature of preferred
  stock....................           --            --            --             --             --    (16,516,574)   (16,516,574)
                             -----------   -----------   -----------   ------------    -----------   ------------   ------------
Net loss available to
  common stockholders......  $(5,055,249)  $(5,562,383)  $(8,967,915)  $(22,869,304)   $(6,486,500)  $(29,224,576)  $(52,093,880)
                             ===========   ===========   ===========   ============    ===========   ============   ============
Net loss per common share,
  basic and diluted........  $     (3.40)  $     (3.47)  $     (4.95)                  $     (3.68)  $     (13.26)
                             ===========   ===========   ===========                   ===========   ============
Shares used in computing
  net loss per common
  share, basic and
  diluted..................    1,487,409     1,603,191     1,811,105                     1,762,411      2,204,640
                             ===========   ===========   ===========                   ===========   ============
Pro forma net loss per
  common share, basic and
  diluted (unaudited)......                              $     (0.81)                                $      (0.98)
                                                         ===========                                 ============
Shares used in computing
  pro forma net loss per
  common share, basic and
  diluted (unaudited)......                               11,099,222                                   12,947,068
                                                         ===========                                 ============
</TABLE>

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

(1) Including deferred stock-based compensation expense of $72,191 in 1999,
    $72,191 and $462,883 (unaudited) for the cumulative periods from
    November 18, 1991 (date of inception) to December 31, 1999 and
    September 30, 2000, respectively, and $28,430 (unaudited) and $390,692
    (unaudited) for the nine months ended September 30, 1999 and September 30,
    2000, respectively.

(2) Including deferred stock-based compensation expense of $37,664 in 1999,
    $37,664 and $133,695 (unaudited) for the cumulative periods from
    November 18, 1991 (date of inception) to December 31, 1999 and
    September 30, 2000, respectively, and $25,107 (unaudited) and $96,031
    (unaudited) for the nine months ended September 30, 1999 and September 30,
    2000, respectively.

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

                                      F-4
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM NOVEMBER 18, 1991 (DATE OF INCEPTION) TO SEPTEMBER 30, 2000
<TABLE>
<CAPTION>

                                                                                              NOTES
                                                         COMMON STOCK        ADDITIONAL     RECEIVABLE      DEFERRED
                                                     --------------------     PAID-IN          FROM       STOCK-BASED
                                                      SHARES      AMOUNT      CAPITAL      STOCKHOLDERS   COMPENSATION
                                                     ---------   --------   ------------   ------------   ------------
<S>                                                  <C>         <C>        <C>            <C>            <C>
Issuance of common stock to founder at $0.0015 per
  share for cash in November 1991..................  1,333,333   $  2,000   $         --    $      --     $        --
Note receivable from stockholder...................         --         --             --      (69,009)             --
Issuance of common stock at $0.12 per share for
  cash and note receivable in July 1994............    333,330     40,000             --      (35,000)             --
Accretion to redemption value of redeemable
  convertible preferred stock......................         --         --             --           --              --
Net loss...........................................         --         --             --           --              --
                                                     ---------   --------   ------------    ---------     -----------
Balances, December 31, 1994........................  1,666,663     42,000             --     (104,009)             --
Issuance of common stock pursuant to exercise of
  stock options at $0.12 per share for cash in
  April............................................      3,333        400             --           --              --
Repurchase of common stock at $0.12 per share in
  connection with cancellation of note receivable
  from stockholders in May.........................   (263,898)   (31,668)            --       31,668              --
Repayment of note receivable from stockholder in
  November.........................................         --         --             --        3,332              --
Accrued interest on notes receivable from
  stockholders.....................................         --         --             --       (7,120)             --
Accretion to redemption value of redeemable
  convertible preferred stock......................         --         --             --           --              --
Net loss...........................................         --         --             --           --              --
                                                     ---------   --------   ------------    ---------     -----------
Balances, December 31, 1995........................  1,406,098     10,732             --      (76,129)             --
Issuance of common stock at $0.24 per share for
  services rendered in May.........................      6,416      1,540             --           --              --
Notes receivable from stockholders.................                                   --     (200,000)             --
Issuance of common stock pursuant to exercise of
  stock options at $0.12 and $0.24 per share for
  cash in August and September.....................      6,666      1,400             --           --              --
Accrued interest on notes receivable from
  stockholders.....................................         --         --             --       (4,709)             --
Accretion to redemption value of redeemable
  convertible preferred stock......................         --         --             --           --              --
Net loss...........................................         --         --             --           --              --
                                                     ---------   --------   ------------    ---------     -----------
Balances, December 31, 1996........................  1,419,180     13,672             --     (280,838)             --

<CAPTION>
                                                                       DEFICIT
                                                      ACCUMULATED    ACCUMULATED
                                                         OTHER        DURING THE         TOTAL
                                                     COMPREHENSIVE   DEVELOPMENT     STOCKHOLDERS'
                                                     INCOME (LOSS)      STAGE           DEFICIT
                                                     -------------   ------------   ----------------
<S>                                                  <C>             <C>            <C>
Issuance of common stock to founder at $0.0015 per
  share for cash in November 1991..................    $     --      $        --      $      2,000
Note receivable from stockholder...................          --               --           (69,009)
Issuance of common stock at $0.12 per share for
  cash and note receivable in July 1994............          --               --             5,000
Accretion to redemption value of redeemable
  convertible preferred stock......................          --          (68,621)          (68,621)
Net loss...........................................          --         (355,581)         (355,581)
                                                       --------      ------------     ------------
Balances, December 31, 1994........................          --         (424,202)         (486,211)
Issuance of common stock pursuant to exercise of
  stock options at $0.12 per share for cash in
  April............................................          --               --               400
Repurchase of common stock at $0.12 per share in
  connection with cancellation of note receivable
  from stockholders in May.........................          --               --                --
Repayment of note receivable from stockholder in
  November.........................................          --               --             3,332
Accrued interest on notes receivable from
  stockholders.....................................          --               --            (7,120)
Accretion to redemption value of redeemable
  convertible preferred stock......................          --         (208,506)         (208,506)
Net loss...........................................          --         (754,076)         (754,076)
                                                       --------      ------------     ------------
Balances, December 31, 1995........................          --       (1,386,784)       (1,452,181)
Issuance of common stock at $0.24 per share for
  services rendered in May.........................          --               --             1,540
Notes receivable from stockholders.................          --               --          (200,000)
Issuance of common stock pursuant to exercise of
  stock options at $0.12 and $0.24 per share for
  cash in August and September.....................          --               --             1,400
Accrued interest on notes receivable from
  stockholders.....................................          --               --            (4,709)
Accretion to redemption value of redeemable
  convertible preferred stock......................          --         (515,687)         (515,687)
Net loss...........................................          --       (2,174,108)       (2,174,108)
                                                       --------      ------------     ------------
Balances, December 31, 1996........................          --       (4,076,579)       (4,343,745)
</TABLE>

                                      F-5
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE PERIOD FROM NOVEMBER 18, 1991 (DATE OF INCEPTION) TO SEPTEMBER 30, 2000
<TABLE>
<CAPTION>

                                                                                             NOTES
                                                          COMMON STOCK       ADDITIONAL    RECEIVABLE      DEFERRED
                                                      --------------------    PAID-IN         FROM       STOCK-BASED
                                                       SHARES      AMOUNT     CAPITAL     STOCKHOLDERS   COMPENSATION
                                                      ---------   --------   ----------   ------------   ------------
<S>                                                   <C>         <C>        <C>          <C>            <C>
Issuance of common stock at $0.24 per share for note
  receivable in January.............................    283,333     68,000          --       (68,000)             --
Issuance of common stock at $0.24 per share for
  services rendered in May..........................      3,333        800          --            --              --
Issuance of common stock pursuant to exercise of
  stock options at $0.12 and $0.24 per share for
  cash throughout the year..........................     81,763     16,457          --            --              --
Accrued interest on notes receivable from
  stockholders......................................         --         --          --        (7,976)             --
Accretion to redemption value of redeemable
  convertible preferred stock.......................         --         --          --            --              --
Net loss............................................         --         --          --            --              --
                                                      ---------   --------   ----------    ---------     -----------
Balances, December 31, 1997.........................  1,787,609     98,929          --      (356,814)             --
Accretion to redemption value of redeemable
  convertible preferred stock.......................         --         --          --            --              --
Reincorporation into a Delaware corporation.........         --    (97,141)     97,141            --              --
Removal of redemption provision for Series A, B and
  C in conjunction with issuance of Series D........         --         --          --            --              --
Issuance of common stock at $0.30 per share for a
  note receivable in January........................    466,666        467     139,533      (140,000)             --
Repurchase of common stock at $0.24 per share in
  connection with cancellation of note receivable in
  January...........................................   (208,833)      (209)    (49,911)       71,590              --
Issuance of common stock at $0.60 per share for a
  note receivable in December.......................     90,000         90      53,910       (53,730)             --
Issuance of common stock pursuant to exercise of
  stock options for cash............................     47,144         47      11,259            --              --
Accrued interest on notes receivable from
  stockholders......................................         --         --          --       (13,841)             --
Net loss............................................         --         --          --            --              --
                                                      ---------   --------   ----------    ---------     -----------
Balances, December 31, 1998.........................  2,182,586      2,183     251,932      (492,795)             --

<CAPTION>
                                                                        DEFICIT
                                                       ACCUMULATED    ACCUMULATED
                                                          OTHER        DURING THE         TOTAL
                                                      COMPREHENSIVE   DEVELOPMENT     STOCKHOLDERS'
                                                      INCOME (LOSS)      STAGE           DEFICIT
                                                      -------------   ------------   ----------------
<S>                                                   <C>             <C>            <C>
Issuance of common stock at $0.24 per share for note
  receivable in January.............................          --               --                --
Issuance of common stock at $0.24 per share for
  services rendered in May..........................          --               --               800
Issuance of common stock pursuant to exercise of
  stock options at $0.12 and $0.24 per share for
  cash throughout the year..........................          --               --            16,457
Accrued interest on notes receivable from
  stockholders......................................          --               --            (7,976)
Accretion to redemption value of redeemable
  convertible preferred stock.......................          --         (895,541)         (895,541)
Net loss............................................          --       (5,055,249)       (5,055,249)
                                                        --------      ------------     ------------
Balances, December 31, 1997.........................          --      (10,027,369)      (10,285,254)
Accretion to redemption value of redeemable
  convertible preferred stock.......................          --         (953,587)         (953,587)
Reincorporation into a Delaware corporation.........          --               --                --
Removal of redemption provision for Series A, B and
  C in conjunction with issuance of Series D........          --        2,641,950         2,641,950
Issuance of common stock at $0.30 per share for a
  note receivable in January........................          --               --                --
Repurchase of common stock at $0.24 per share in
  connection with cancellation of note receivable in
  January...........................................          --               --            21,470
Issuance of common stock at $0.60 per share for a
  note receivable in December.......................          --               --               270
Issuance of common stock pursuant to exercise of
  stock options for cash............................          --               --            11,306
Accrued interest on notes receivable from
  stockholders......................................          --               --           (13,841)
Net loss............................................          --       (5,562,383)       (5,562,383)
                                                        --------      ------------     ------------
Balances, December 31, 1998.........................          --      (13,901,389)      (14,140,069)
</TABLE>

                                      F-6
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
FOR THE PERIOD FROM NOVEMBER 18, 1991 (DATE OF INCEPTION) TO SEPTEMBER 30, 2000
<TABLE>
<CAPTION>

                                                                                            NOTES
                                                        COMMON STOCK       ADDITIONAL     RECEIVABLE      DEFERRED
                                                     ------------------     PAID-IN          FROM       STOCK-BASED
                                                      SHARES     AMOUNT     CAPITAL      STOCKHOLDERS   COMPENSATION
                                                     ---------   ------   ------------   ------------   ------------
<S>                                                  <C>         <C>      <C>            <C>            <C>
Issuance of common stock pursuant to exercise of
  stock options at $0.12-$0.60 per share for cash
  throughout the year..............................    127,008     127          34,377           --              --
Accrued interest on notes receivable from
  stockholders.....................................         --      --              --      (17,523)             --
Unrealized loss on available-for-sale securities...         --      --              --           --              --
Deferred stock compensation........................         --      --         668,215           --        (668,215)
Amortization of deferred stock compensation........         --      --              --           --         109,855
Net loss...........................................         --      --              --           --              --
                                                     ---------   ------   ------------    ---------     -----------
Balances, December 31, 1999........................  2,309,594   2,310         954,524     (510,318)       (558,360)
Issuance of common stock pursuant to exercise of
  stock options at $0.24-$4.50 per share for cash
  and notes receivable from stockholders throughout
  the period (unaudited)...........................    468,073     468         324,500     (105,460)             --
Repurchase of common stock at $0.60 per share in
  August (unaudited)...............................     (4,479)     (5)         (2,683)          --              --
Note receivable from stockholder (unaudited).......         --      --              --      (50,000)             --
Accrued interest on notes receivable from
  stockholders (unaudited).........................         --      --              --      (16,792)             --
Changes in unrealized loss on available-for-sale
  securities (unaudited)...........................         --      --              --           --              --
Foreign currency translation (unaudited)...........         --      --              --           --              --
Deferred stock compensation (unaudited)............         --      --       6,102,455           --      (6,102,455)
Amortization of deferred stock compensation
  (unaudited)......................................         --      --              --           --         486,723
Beneficial conversion feature related to issuance
  of Series E and Series F preferred stock
  (unaudited)......................................         --      --      16,516,574           --              --
Deemed dividend related to beneficial conversion
  feature of preferred stock (unaudited)...........         --      --     (16,516,574)          --              --
Net loss (unaudited)...............................         --      --              --           --              --
                                                     ---------   ------   ------------    ---------     -----------
Balances, September 30, 2000 (unaudited)...........  2,773,188   $2,773   $  7,378,796    $(682,570)    $(6,174,092)
                                                     =========   ======   ============    =========     ===========

<CAPTION>
                                                                       DEFICIT
                                                      ACCUMULATED    ACCUMULATED
                                                         OTHER        DURING THE         TOTAL
                                                     COMPREHENSIVE   DEVELOPMENT     STOCKHOLDERS'
                                                     INCOME (LOSS)      STAGE           DEFICIT
                                                     -------------   ------------   ----------------
<S>                                                  <C>             <C>            <C>
Issuance of common stock pursuant to exercise of
  stock options at $0.12-$0.60 per share for cash
  throughout the year..............................          --               --            34,504
Accrued interest on notes receivable from
  stockholders.....................................          --               --           (17,523)
Unrealized loss on available-for-sale securities...     (32,576)              --           (32,576)
Deferred stock compensation........................          --               --                --
Amortization of deferred stock compensation........          --               --           109,855
Net loss...........................................          --       (8,967,915)       (8,967,915)
                                                       --------      ------------     ------------
Balances, December 31, 1999........................     (32,576)     (22,869,304)      (23,013,724)
Issuance of common stock pursuant to exercise of
  stock options at $0.24-$4.50 per share for cash
  and notes receivable from stockholders throughout
  the period (unaudited)...........................          --               --           219,508
Repurchase of common stock at $0.60 per share in
  August (unaudited)...............................          --               --            (2,688)
Note receivable from stockholder (unaudited).......          --               --           (50,000)
Accrued interest on notes receivable from
  stockholders (unaudited).........................          --               --           (16,792)
Changes in unrealized loss on available-for-sale
  securities (unaudited)...........................      32,576               --            32,576
Foreign currency translation (unaudited)...........      10,802               --            10,802
Deferred stock compensation (unaudited)............          --               --                --
Amortization of deferred stock compensation
  (unaudited)......................................          --               --           486,723
Beneficial conversion feature related to issuance
  of Series E and Series F preferred stock
  (unaudited)......................................          --               --        16,516,574
Deemed dividend related to beneficial conversion
  feature of preferred stock (unaudited)...........          --               --       (16,516,574)
Net loss (unaudited)...............................          --      (12,708,002)      (12,708,002)
                                                       --------      ------------     ------------
Balances, September 30, 2000 (unaudited)...........    $ 10,802      $(35,577,306)    $(35,041,597)
                                                       ========      ============     ============
</TABLE>

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

                                      F-7
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                    CUMULATIVE
                                                                                    PERIOD FROM
                                                                                   NOVEMBER 18,
                                                                                   1991 (DATE OF          NINE MONTHS ENDED
                                             YEARS ENDED DECEMBER 31,              INCEPTION) TO            SEPTEMBER 30,
                                     ----------------------------------------      DECEMBER 31,       --------------------------
                                        1997          1998           1999              1999              1999           2000
                                     -----------   -----------   ------------   -------------------   -----------   ------------
                                                                                                             (UNAUDITED)
<S>                                  <C>           <C>           <C>            <C>                   <C>           <C>
Cash flows from operating
  activities:
  Net loss.........................  $(5,055,249)  $(5,562,383)  $ (8,967,915)     $(22,869,304)      $(6,486,500)  $(12,708,002)
  Adjustments to reconcile net loss
    to net cash used in operating
    activities:
    Depreciation and
      amortization.................      217,696       344,082        494,311         1,211,352           361,551        629,841
    Loss on disposal of property
      and equipment................        4,858            --             --             4,858                --             --
    Common stock issued for
      services received............          800            --             --             2,340                --             --
    Purchased in-process research
      and development..............           --            --             --                --                --      3,500,000
    Accrued interest on notes
      receivable from
      stockholders.................       (7,976)      (13,841)       (17,523)         (320,178)          (12,429)       (16,792)
    Amortization of deferred
      stock-based compensation.....           --            --        109,855           109,855            53,537        486,723
    Changes in operating assets and
      liabilities:
      Accounts receivable..........     (127,488)      127,488       (319,051)         (319,051)               --     (1,570,350)
      Prepaid expenses and other
        current assets.............     (123,658)       30,457       (272,676)         (390,748)         (284,551)      (664,560)
      Accounts payable.............      100,311       132,290        111,328           455,700            33,783        697,449
      Accrued liabilities..........      208,346      (148,178)       129,255           301,056           128,462      1,095,091
      Other........................      (18,348)        4,500        (20,093)          (45,093)          (20,093)        (9,105)
                                     -----------   -----------   ------------      ------------       -----------   ------------
        Net cash used in operating
          activities...............   (4,800,708)   (5,085,585)    (8,752,509)      (21,859,213)       (6,226,240)    (8,559,705)
                                     -----------   -----------   ------------      ------------       -----------   ------------
Cash flows from investing
  activities:
  Acquisition of property and
    equipment......................     (764,371)     (410,855)      (638,486)       (2,183,768)         (539,434)    (1,289,716)
  Purchases of available-for-sale
    securities.....................           --            --    (28,565,057)      (28,565,057)       (8,003,790)    (6,091,494)
  Proceeds from maturities of
    available-for-sale
    securities.....................           --            --     22,545,563        22,545,563                --      6,843,406
  Cash acquired, net...............           --            --             --                --                --        392,174
                                     -----------   -----------   ------------      ------------       -----------   ------------
        Net cash used in investing
          activities...............     (764,371)     (410,855)    (6,657,980)       (8,203,262)       (8,543,224)      (145,630)
                                     -----------   -----------   ------------      ------------       -----------   ------------
Cash flows from financing
  activities:
  Proceeds from issuance of common
    stock..........................       16,457        11,576         34,504            71,337            22,860        219,508
  Repurchase of common stock.......           --            --             --                --                --         (2,688)
  Proceeds from issuance of
    convertible preferred stock,
    net............................    9,180,558    17,345,599             --        31,476,107                --     21,252,356
  Proceeds from issuance of note
    payable........................      976,587            --             --         1,113,324                --             --
  Principal payments under capital
    lease obligations..............           --            --             --           (42,296)               --             --
  Repayment of note payable........     (138,235)     (286,341)      (301,557)         (758,854)         (227,326)      (211,433)
  Issuance of note receivable from
    stockholder....................            -             -              -                 -                 -        (50,000)
  Repayment of note receivable from
    stockholder....................           --        21,470             --            24,802                --             --
                                     -----------   -----------   ------------      ------------       -----------   ------------
        Net cash provided by (used
          in) financing
          activities...............   10,035,367    17,092,304       (267,053)       31,884,420          (204,466)    21,207,743
                                     -----------   -----------   ------------      ------------       -----------   ------------
Effect of exchange rate changes on
  cash.............................           --            --             --                --                --        (12,130)
Net increase (decrease) in cash and
  cash equivalents.................    4,470,288    11,595,864    (15,677,542)        1,821,945       (14,973,970)    12,490,278
Cash and cash equivalents,
  beginning of period..............    1,433,335     5,903,623     17,499,487                --        17,499,487      1,821,945
                                     -----------   -----------   ------------      ------------       -----------   ------------
Cash and cash equivalents, end of
  period...........................  $ 5,903,623   $17,499,487   $  1,821,945      $  1,821,945       $ 2,525,557   $ 14,312,223
                                     ===========   ===========   ============      ============       ===========   ============
Supplemental disclosure of noncash
  investing and financing
  activities:
  Acquisition of property and
    equipment under capital
    lease..........................  $        --   $        --   $         --      $     39,958       $        --   $         --
  Exchange of stockholder note
    receivable for common stock....  $    68,000   $   193,730   $         --      $    261,730       $        --   $    105,460
  Repurchase of common stock in
    connection with cancellation of
    note receivable from
    stockholder....................  $        --   $    50,120   $         --      $     81,788       $        --   $         --
  Convertible preferred stock
    issued for acquisition.........  $        --   $        --   $         --      $         --       $        --   $  5,812,560
  Accretion to redemption value of
    redeemable convertible
    preferred stock................  $   895,541   $   953,587   $         --      $  2,641,950       $        --   $         --
  Removal of redemption provision
    for convertible preferred
    stock..........................  $        --   $ 2,641,950   $         --      $  2,641,950       $        --   $         --
  Deferred stock-based
    compensation...................  $        --   $        --   $    668,215      $    668,215       $   161,666   $  6,102,455
Supplemental disclosure of cash
  flow information:
  Cash paid during period for
    interest.......................  $    28,417   $   121,946   $     76,128      $    257,899       $    59,511   $     27,830

<CAPTION>
                                         CUMULATIVE
                                         PERIOD FROM
                                        NOVEMBER 18,
                                        1991 (DATE OF
                                        INCEPTION) TO
                                        SEPTEMBER 30,
                                            2000
                                     -------------------
                                         (UNAUDITED)
<S>                                  <C>
Cash flows from operating
  activities:
  Net loss.........................     $(35,577,306)
  Adjustments to reconcile net loss
    to net cash used in operating
    activities:
    Depreciation and
      amortization.................        1,841,193
    Loss on disposal of property
      and equipment................            4,858
    Common stock issued for
      services received............            2,340
    Purchased in-process research
      and development..............        3,500,000
    Accrued interest on notes
      receivable from
      stockholders.................         (336,970)
    Amortization of deferred
      stock-based compensation.....          596,578
    Changes in operating assets and
      liabilities:
      Accounts receivable..........       (1,889,401)
      Prepaid expenses and other
        current assets.............       (1,055,308)
      Accounts payable.............        1,153,149
      Accrued liabilities..........        1,396,147
      Other........................          (54,198)
                                        ------------
        Net cash used in operating
          activities...............      (30,418,918)
                                        ------------
Cash flows from investing
  activities:
  Acquisition of property and
    equipment......................       (3,473,484)
  Purchases of available-for-sale
    securities.....................      (34,656,551)
  Proceeds from maturities of
    available-for-sale
    securities.....................       29,388,969
  Cash acquired, net...............          392,174
                                        ------------
        Net cash used in investing
          activities...............       (8,348,892)
                                        ------------
Cash flows from financing
  activities:
  Proceeds from issuance of common
    stock..........................          290,845
  Repurchase of common stock.......           (2,688)
  Proceeds from issuance of
    convertible preferred stock,
    net............................       52,728,463
  Proceeds from issuance of note
    payable........................        1,113,324
  Principal payments under capital
    lease obligations..............          (42,296)
  Repayment of note payable........         (970,287)
  Issuance of note receivable from
    stockholder....................          (50,000)
  Repayment of note receivable from
    stockholder....................           24,802
                                        ------------
        Net cash provided by (used
          in) financing
          activities...............       53,092,163
                                        ------------
Effect of exchange rate changes on
  cash.............................          (12,130)
Net increase (decrease) in cash and
  cash equivalents.................       14,312,223
Cash and cash equivalents,
  beginning of period..............               --
                                        ------------
Cash and cash equivalents, end of
  period...........................     $ 14,312,223
                                        ============
Supplemental disclosure of noncash
  investing and financing
  activities:
  Acquisition of property and
    equipment under capital
    lease..........................     $     39,958
  Exchange of stockholder note
    receivable for common stock....     $    367,190
  Repurchase of common stock in
    connection with cancellation of
    note receivable from
    stockholder....................     $     81,788
  Convertible preferred stock
    issued for acquisition.........     $  5,812,560
  Accretion to redemption value of
    redeemable convertible
    preferred stock................     $  2,641,950
  Removal of redemption provision
    for convertible preferred
    stock..........................     $  2,641,950
  Deferred stock-based
    compensation...................     $  6,770,670
Supplemental disclosure of cash
  flow information:
  Cash paid during period for
    interest.......................     $    285,729
</TABLE>

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

                                      F-8
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--FORMATION AND BUSINESS OF THE COMPANY:

    AeroGen, Inc., formerly Fluid Propulsion Technologies, Inc. (the "Company")
was incorporated on November 18, 1991 to develop industrial, consumer, and
medical products using a liquid aerosol generator. The Company is in the
development stage and since inception has devoted substantially all of its
efforts to developing its products, including engaging in research and
development activities with partners, raising capital, and recruiting personnel.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

    BASIS OF CONSOLIDATION

    In May 2000, the Company acquired a subsidiary in Ireland, AeroGen
(Ireland) Limited (see note 11). The consolidated financial statements include
the accounts of the Company and its subsidiary. All intercompany balances and
transactions have been eliminated.

    UNAUDITED INTERIM RESULTS

    The accompanying consolidated balance sheet as of September 30, 2000, the
consolidated statements of operations and of cash flows for the nine months
ended September 30, 1999 and 2000 and for the cumulative period from
November 8, 1991 (date of inception) to September 30, 2000, and the statement of
stockholders' deficit for the nine months ended September 30, 2000 are
unaudited. The unaudited interim consolidated financial statements have been
prepared on the same basis as the annual financial statements and, in the
opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the Company's consolidated
financial position and results of operations and cash flows for the nine months
ended September 30, 1999, and 2000. The financial data and other information
disclosed in these notes to financial statements related to the nine month
periods are unaudited. The results for the nine months ended September 30, 2000
are not necessarily indicative of the results to be expected for the year ending
December 31, 2000.

    USE OF ESTIMATES

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

    CASH AND CASH EQUIVALENTS

    The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. Cash and cash
equivalents include money market and deposit accounts.

    AVAILABLE-FOR-SALE SECURITIES

    All investments are classified as available-for-sale and therefore are
carried at fair market value. Unrealized gains and losses on such securities are
reported as a separate component of stockholders' deficit. Realized gains and
losses on sales of all such securities are reported in earnings and computed
using the specific identification cost method.

                                      F-9
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    DEPRECIATION AND AMORTIZATION

    Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets, generally three to five years.
Amortization of leasehold improvements and leased assets is provided on a
straight-line basis over the life of the related asset or the lease term, if
shorter. Upon sale or retirement of assets, the cost and related accumulated
depreciation and amortization are removed from the balance sheet and the
resulting gain or loss is reflected in operations.

    GOODWILL AND OTHER INTANGIBLE ASSETS

    Goodwill and other intangible assets primarily consist of goodwill and
acquired workforce related to the acquisition of Cerus Limited and are amortized
on a straight-line basis to operations over six and two years, respectively.

    IMPAIRMENT OF LONG-LIVED ASSETS

    The Company accounts for long-lived assets under Statement of Financial
Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires
the Company to review for impairment of long-lived assets, whenever events or
changes in circumstances indicate that the carrying amount of an asset might not
be recoverable. When such an event occurs, management determines whether there
has been an impairment by comparing the anticipated undiscounted future net cash
flows to the related asset's carrying value. If an asset is considered impaired,
the asset is written down to fair value, which is determined based either on
discounted cash flows or appraised value, depending on the nature of the asset.

    CONCENTRATION OF CREDIT RISK AND OTHER RISKS AND UNCERTAINTIES

    The Company maintains its cash and cash equivalents in accounts with two
major financial institutions in the United States. Deposits in these
institutions may exceed the amount of insurance provided on such deposits. The
Company has not experienced any losses on its deposits of cash and cash
equivalents.

    Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, available-for-sale securities, accounts
receivable, accounts payable and accrued liabilities approximate fair value due
to their relatively short maturities. Based upon borrowing rates currently
available to the Company for loans with similar terms, the carrying value of
notes payable approximates fair value.

    Products developed by the Company may require the approval of the Food and
Drug Administration ("FDA") and/or other international regulatory agencies prior
to commercial sales. The Company cannot be assured that its products will
receive the necessary approvals. If the Company is denied approval or if
approval is delayed, this may have a material adverse impact on the Company.

    The Company is subject to risks common to companies in the pharmaceutical
industry including, but not limited to, new technological innovations,
dependence on key personnel, protection of proprietary technology, compliance
with government regulations, uncertainty of market acceptance of products,
product liability and the need to obtain additional financing.

                                      F-10
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    Three customers accounted for 36%, 27% and 15% of the research and
development revenues during the year ended December 31, 1997, respectively.

    One customer accounted for 100% of the research and development revenues
during the year ended December 31, 1998.

    One customer accounted for 100% of accounts receivable at December 31, 1999
and three customers accounted for 75%, 11% and 11% of research and development
revenues during the year ended December 31, 1999, respectively.

    RESEARCH AND DEVELOPMENT REVENUE RECOGNITION

    Research and development revenues which are earned under agreements with
third parties for contract research and development activities are recorded as
the related expenses are incurred, up to contractual limits. Charges to these
third parties are based upon negotiated rates for full time equivalent employees
of the Company and such rates are intended to approximate the Company's
anticipated costs. Payments received that are related to future performance are
recorded as deferred revenue and recognized as revenues as they are earned. All
revenues recognized to date are not refundable if the relevant research effort
is not successful.

    RESEARCH AND DEVELOPMENT

    Research and development costs are charged to operations as incurred.
Certain research and development projects are funded under agreements with third
parties, and the costs related to these activities are included in research and
development expense. The charges to third parties are based upon negotiated
rates for full-time-equivalent employees of the Company, and such rates are
intended to approximate the Company's anticipated costs.

    FOREIGN CURRENCY TRANSLATION

    The Company's international subsidiary uses its local currency as its
functional currency. Assets and liabilities are translated at exchange rates in
effect at the balance sheet date and income and expense accounts at average
exchange rates during the period. Resulting translation adjustments are recorded
directly to a separate component of stockholders' deficit.

    INCOME TAXES

    The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.

    SEGMENTS

    The Company follows Statement of Financial Accounting Standards No. 131, or
SFAS 131, "Disclosure About Segments of an Enterprise and Related Information."
The Company operates in one segment, using one measurement of profitability to
manage its business. As of December 31, 1998 and

                                      F-11
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
1999, all long-lived assets are maintained in the United States. All revenue was
generated in the United States during the years ended December 31, 1997, 1998
and 1999 and for the cumulative period from November 18, 1991 (date of
inception) to December 31, 1999.

    ACCOUNTING FOR STOCK-BASED COMPENSATION

    The Company uses the intrinsic value method of Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," in
accounting for its employee stock options, and presents disclosure of pro forma
information required under Statement of Financial Accounting Standards No. 123
("SFAS No. 123"), "Accounting for Stock-Based Compensation."

    The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services"
which require that such equity instruments are recorded at their fair value on
the measurement date, which is typically the date of grant. The measurement of
stock-based compensation is subject to periodic adjustment as the underlying
equity instruments vest.

    COMPREHENSIVE INCOME (LOSS)

    Comprehensive income (loss) generally represents all changes in
stockholders' deficit except those resulting from investments or contributions
by stockholders. The Company's unrealized losses on available-for-sale
securities represent the only component of comprehensive income (loss) that is
excluded from the Company's net loss for the years ended December 31, 1997, 1998
and 1999 and for the cumulative period from November 18, 1991 (date of
inception) to December 31, 1999. As it is not significant individually or in the
aggregate, no separate statements of comprehensive loss have been presented.

    NET LOSS PER COMMON SHARE

    Basic net loss per share is computed by dividing net loss available to
common stockholders by the weighted average number of vested common shares
outstanding for the period. Diluted net loss per share is computed giving effect
to all potential dilutive common shares, including options, warrants and
convertible preferred stock. Options, warrants and convertible preferred stock
were not included in the diluted net loss per share calculations because the
effect would be antidilutive.

                                      F-12
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    A reconciliation of the numerator and denominator used in the calculation of
basic and diluted net loss per common share follows:

<TABLE>
<CAPTION>
                                                                               NINE MONTHS ENDED
                                        YEARS ENDED DECEMBER 31,                 SEPTEMBER 30,
                                 ---------------------------------------   --------------------------
                                    1997          1998          1999          1999           2000
                                 -----------   -----------   -----------   -----------   ------------
                                                                                  (UNAUDITED)
<S>                              <C>           <C>           <C>           <C>           <C>
Net loss per common share,
  basic and diluted:
  Net loss.....................  $(5,055,249)  $(5,562,383)  $(8,967,915)  $(6,486,500)  $(12,708,002)
  Dividend related to
    beneficial conversion
    feature of preferred
    stock......................           --            --            --            --    (16,516,574)
                                 -----------   -----------   -----------   -----------   ------------
Net loss available to common
  stockholders.................  $(5,055,249)  $(5,562,383)  $(8,967,915)  $(6,486,500)  $(29,224,576)
                                 ===========   ===========   ===========   ===========   ============
Weighted average common shares
  outstanding..................    1,752,686     2,075,482     2,242,840     2,221,855      2,578,673
Less weighted average shares
  subject to repurchase........     (265,277)     (472,291)     (431,735)     (459,444)      (374,033)
                                 -----------   -----------   -----------   -----------   ------------
Weighted average shares used in
  computing basic and diluted
  net loss per common share....    1,487,409     1,603,191     1,811,105     1,762,411      2,204,640
                                 ===========   ===========   ===========   ===========   ============
</TABLE>

    The following outstanding options, common stock subject to repurchase,
convertible preferred stock and warrants were excluded from the computation of
diluted net loss per share as they had an antidilutive effect:

<TABLE>
<CAPTION>
                                                                                NINE MONTHS ENDED
                                         YEARS ENDED DECEMBER 31,                 SEPTEMBER 30,
                                  ---------------------------------------   -------------------------
                                     1997          1998          1999          1999          2000
                                  -----------   -----------   -----------   -----------   -----------
                                                                                   (UNAUDITED)
<S>                               <C>           <C>           <C>           <C>           <C>
  Options to purchase common
    stock.......................      277,458       610,166       708,047       636,752     1,250,444
  Common stock subject to
    repurchase..................      291,666       556,666       306,804       362,221       441,263
  Convertible preferred stock...   17,578,638    27,864,352    27,864,352    27,864,352    39,010,653
  Warrants......................           --            --        75,683        75,683        75,683
</TABLE>

    RECENT ACCOUNTING PRONOUNCEMENTS

    In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN No. 44") "Accounting for Certain Transactions
Involving Stock Compensation," an interpretation of the Accounting Principles
Board Opinion No. 25 ("APB No. 25"). This interpretation clarifies the
definition of employee for purposes of applying APB No. 25, "Accounting for
Stock Issued to Employees," the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequence of

                                      F-13
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
various modifications to the terms of a previously fixed stock option or award,
and the accounting for an exchange of stock compensation awards in a business
combination. FIN No. 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
The adoption of FIN No. 44 did not have a material impact on the Company's
financial statements.

    In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in
Financial Statements," which provides guidance on the recognition, presentation,
and disclosure of revenue in financial statements filed with the SEC. SAB
No. 101 outlines the basic criteria that must be met to recognize revenue and
provides guidance for disclosures related to revenue recognition policies. The
Company has complied with the guidance in SAB No. 101 for all periods presented.

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS No. 133 requires that all derivatives be recognized at fair
value in the statement of financial position, and that the corresponding gains
or losses be reported either in the statement of operations or as a component of
comprehensive income, depending on the type of relationship that exists. As
amended SFAS No. 133 will be effective for fiscal years beginning after
June 15, 2000. The Company does not currently hold derivative instruments or
engage in hedging activities and does not believe that the implementation of
SFAS No. 133 will have any significant impact on its financial position or
results of operations.

NOTE 3--BALANCE SHEET COMPONENTS:

    Available-for-sale securities at December 31, 1999 are summarized as
follows:

<TABLE>
<CAPTION>
                                          AMORTIZED    UNREALIZED   FAIR MARKET
                                          COST BASIS      LOSS         VALUE
                                          ----------   ----------   -----------
<S>                                       <C>          <C>          <C>
Government notes........................  $3,011,243    $(22,803)   $2,988,440
Corporate paper.........................  3,008,251       (9,773)    2,998,478
                                          ----------    --------    ----------
                                          $6,019,494    $(32,576)   $5,986,918
                                          ==========    ========    ==========
</TABLE>

    All available-for-sale securities mature within one year. At December 31,
1998, the Company held no available-for-sale securities.

                                      F-14
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--BALANCE SHEET COMPONENTS: (CONTINUED)
    Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                       ------------------------
                                                          1998         1999
                                                       ----------   -----------
<S>                                                    <C>          <C>
Laboratory, computer and office equipment............  $  867,459   $ 1,360,065
Furniture............................................     295,341       363,074
Leasehold improvements...............................     418,149       496,296
                                                       ----------   -----------
                                                        1,580,949     2,219,435
Less: accumulated depreciation and amortization......    (715,278)   (1,209,589)
                                                       ----------   -----------
                                                       $  865,671   $ 1,009,846
                                                       ==========   ===========
</TABLE>

    Included in property and equipment at December 31, 1998 and 1999 is
equipment acquired under capital leases totaling $39,958, and related
accumulated amortization of $39,958.

    Accrued liabilities consists of the following:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          -------------------
                                                            1998       1999
                                                          --------   --------
<S>                                                       <C>        <C>
Payroll and related expense.............................  $150,662   $183,548
Other accrued liabilities...............................    21,139    117,508
                                                          --------   --------
                                                          $171,801   $301,056
                                                          ========   ========
</TABLE>

NOTE 4--NOTES PAYABLE:

    The Company maintained term loan facilities to finance property and
equipment acquisitions. The initial facility, which expired on October 31, 1996,
provided for borrowings up to $250,000, and was collateralized by the specific
property and equipment totaling $137,000. A payment on this term loan of $1,367
was due January 1, 1996. Thereafter, payments comprised 35 monthly installments
of $4,485 with a final lump sum payment of $20,511 on February 1, 1999. A
subsequent term loan facility, which expired in June 30, 1999, was obtained to
provide for borrowings up to $2,000,000 and is secured by the assets financed
under the facility. As of the expiration date, the Company had borrowed $976,587
under this facility. The loan bears interest at 14.4% per annum and is repayable
in thirty-six equal monthly payments of $29,591, which represent both principal
and interest, and a final lump sum payment of $146,488 due on November 1, 2000.
In conjunction with these term loan facilities, warrants to purchase 10,683
shares of common stock at $2.34 per share and warrants to purchase 65,000 shares
of Series C convertible preferred stock at $1.00 per share were issued (see
Note 7).

                                      F-15
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--COMMITMENTS:

    The Company rents its office facilities under operating leases which expires
on December 31, 2001. At December 31, 1999, future minimum facility lease
payments are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S>                                                           <C>
2000........................................................  $  715,219
2001........................................................     740,678
                                                              ----------
                                                              $1,455,897
                                                              ==========
</TABLE>

    Under the terms of the lease agreement, the Company is obligated to return
the facility to shell condition at the end of the lease and to provide the
lessor with a letter of credit in the amount of $90,000. The estimated cost of
this demolition work ($100,000) is included in other long-term liabilities, and
the letter of credit is secured by a term deposit of $90,000 which is included
in other assets.

    Rent expense for 1997, 1998, 1999 and for the period from November 18, 1991
(date of inception) to December 31, 1999 was approximately $269,000, $488,800,
$564,800 and $1,451,500, respectively.

NOTE 6--CONVERTIBLE PREFERRED STOCK:

    In connection with the Series D preferred stock financing, completed in
August 1998, the Company amended its Certificate of Incorporation to remove the
redemption provisions associated with the Series A, Series B and Series C
convertible preferred stock. Accordingly, the cumulative accretion charges to
the deficit accumulated during the development stage were reversed. Prior to
August 1998 the carrying value of redeemable convertible preferred stock was
increased by periodic accretions so that the carrying value would equal the
redemption amount of the preferred stock at their redemption dates. These
increases were effected through charges against the deficit accumulated during
the development stage. As of December 31, 1997, the convertible preferred stock
comprises:

<TABLE>
<CAPTION>
                         NUMBER      NUMBER OF
                           OF         SHARES                    LIQUIDATION
                         SHARES     ISSUED AND     CARRYING     PREFERENCE    DIVIDENDS
                       AUTHORIZED   OUTSTANDING      VALUE       PER SHARE    PER SHARE
                       ----------   -----------   -----------   -----------   ---------
<S>                    <C>          <C>           <C>           <C>           <C>
Series A.............  3,846,156     3,846,156    $ 1,461,181      $0.39      $0.0312
Series B.............  4,487,182     4,487,182      3,488,769      $0.78      $0.0624
Series C.............  9,375,300     9,245,300      9,180,558      $1.00      $0.08
                       ----------   ----------    -----------
                       17,708,638   17,578,638    $14,130,508
                       ==========   ==========    ===========
</TABLE>

                                      F-16
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--CONVERTIBLE PREFERRED STOCK: (CONTINUED)
As of December 31, 1998 and 1999, the convertible preferred stock comprises:

<TABLE>
<CAPTION>
                         NUMBER      NUMBER OF
                           OF         SHARES                    LIQUIDATION
                         SHARES     ISSUED AND     CARRYING     PREFERENCE    DIVIDENDS
                       AUTHORIZED   OUTSTANDING      VALUE       PER SHARE    PER SHARE
                       ----------   -----------   -----------   -----------   ---------
<S>                    <C>          <C>           <C>           <C>           <C>
Series A.............  3,846,156     3,846,156    $ 1,461,181      $0.39      $0.0312
Series B.............  4,487,182     4,487,182      3,488,769      $0.78      $0.0624
Series C.............  9,375,300     9,245,300      9,180,558      $1.00      $0.08
Series D.............  10,285,714   10,285,714     17,345,591      $1.75      $0.14
                       ----------   ----------    -----------
                       27,994,352   27,864,352    $31,476,099
                       ==========   ==========    ===========
</TABLE>

    As of September 30, 2000, the convertible preferred stock comprises
(unaudited):

<TABLE>
<CAPTION>
                         NUMBER      NUMBER OF
                           OF         SHARES                    LIQUIDATION
                         SHARES     ISSUED AND     CARRYING     PREFERENCE    DIVIDENDS
                       AUTHORIZED   OUTSTANDING      VALUE       PER SHARE    PER SHARE
                       ----------   -----------   -----------   -----------   ---------
<S>                    <C>          <C>           <C>           <C>           <C>
Series A.............  3,846,156     3,846,156    $ 1,461,181      $0.39      $0.0312
Series B.............  4,487,182     4,487,182      3,488,769      $0.78      $0.0624
Series C.............  9,375,300     9,245,300      9,180,558      $1.00      $0.08
Series D.............  10,285,714   10,285,714     17,345,591      $1.75      $0.14
Series E.............  3,648,078     3,648,078     10,750,265      $2.60      $0.208
Series F.............  7,498,223     7,498,223     16,314,651      $2.25      $0.18
                       ----------   ----------    -----------
                       39,140,653   39,010,653    $58,541,015
                       ==========   ==========    ===========
</TABLE>

    The rights, preferences and privileges of the convertible preferred stock
are as follows:

    DIVIDENDS

    The holders of convertible preferred stock are entitled to receive dividends
at the annual rate stated above per share if and when declared by the board of
directors. Such dividends, which are noncumulative and in preference to any
common stock dividends, are payable whenever funds are legally available. As of
September 30, 2000, no dividends have been declared.

    In May 2000, the Company issued 961,539 shares of Series E convertible
preferred stock at $2.60 per share for gross cash proceeds of $2,500,001. In
July 2000, the Company issued 7,498,223 shares of Series F convertible preferred
stock at $2.25 per share for gross proceeds of $16,871,002. The issuances
resulted in a beneficial conversion feature of $201,923 and $16,314,651,
respectively, calculated in accordance with Emerging Issues Task Force No. 98-5
("EITF No. 98-5"), "Accounting for Convertible Securities with Beneficial
Conversion Features." The beneficial conversion features are reflected as
preferred stock dividends in the Statement of Operations for the nine months
ended September 30, 2000.

    LIQUIDATION

    In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or not, the holders of convertible preferred stock are
entitled to receive, prior and in preference to any

                                      F-17
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--CONVERTIBLE PREFERRED STOCK: (CONTINUED)
distribution of any of the assets of the Company to the holders of common stock,
an amount per share, as stated above, for each outstanding share of convertible
preferred stock, plus any declared and unpaid dividends. If the funds available
for distribution are insufficient to cover the liquidation preference, then the
entire assets and funds of the Company legally available for distribution are to
be distributed ratably among the holders of convertible preferred stock. A
liquidation includes any recapitalization or any consolidation or corporate
reorganization in which the stockholders of the Company immediately prior to
such event own less than 50% of the Company's voting power immediately after
such event.

    After payment of the full liquidation preference of the preferred
stockholders, any remaining assets of the Company legally available are to be
distributed ratably to the holders of common stock and convertible preferred
stock on an as-if converted basis.

    REDEMPTION

    The convertible preferred stock is not redeemable by the Company.

    CONVERSION

    Each share of convertible preferred stock, at the option of the holder, is
convertible into a number of fully paid shares of common stock as determined by
dividing the respective convertible preferred stock issue price by the
conversion price in effect at the time. The conversion price of Series A,
Series B, Series C, Series D, Series E and Series F convertible preferred stock
is $1.17, $2.34, $3.00, $5.25, $7.80 and $6.75, respectively, and is subject to
adjustment in accordance with antidilution provisions contained in the Company's
Certificate of Incorporation. Conversion is automatic immediately upon the
closing of the Company's initial public offering in which the public offering
price equals or exceeds $10.50 per share (adjusted to reflect subsequent stock
dividends, stock splits or recapitalization) and the aggregate proceeds raised
exceed $15,000,000. At September 30, 2000, 13,025,180 shares of the Company's
common stock have been reserved for conversion.

    VOTING RIGHTS

    The holder of each share of convertible preferred stock is entitled to one
vote for each share of common stock into which each share of convertible
preferred stock could be converted.

NOTE 7--STOCKHOLDERS' DEFICIT:

    REINCORPORATION

    In August 1998, the Company was reincorporated in Delaware, at which time
the Company's outstanding California corporation preferred and common stock was
exchanged on a one-for-one share basis for Delaware corporation preferred and
common stock. The related change in par value was recorded as an adjustment to
additional paid-in capital and common stock.

    COMMON STOCK

    Each share of common stock has the right to one vote. The holders of common
stock are also entitled to receive dividends whenever funds are legally
available and when declared by the Board of Directors, subject to the prior
rights of holders of all classes of stock outstanding having priority rights as
to dividends. No dividends have been declared or paid as of September 30, 2000.

                                      F-18
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' DEFICIT: (CONTINUED)

    The Company issued shares of its common stock to certain employees under
stock purchase agreements, some of which contain repurchase provisions in the
event of termination of service with the Company. The shares are generally
released from repurchase provisions ratably over four years. Included in common
stock as of December 31, 1999 and September 30, 2000, are 306,804 and 202,428
(unaudited) shares subject to repurchase, respectively.

    STOCK OPTION PLANS

    The Company has reserved shares of common stock for issuance under the 1994
and 1996 Stock Incentive Plans (the "Plans"). Under the Plans the Board of
Directors may issue incentive stock options to employees and nonstatutory stock
options to employees, consultants or nonemployee directors of the Company, and
stock purchase rights to employees, nonemployee directors, or consultants. The
Board of Directors has the authority to determine to whom options will be
granted, the number of shares, the term and exercise price (which cannot be less
than fair market value at date of grant for incentive stock options or 85% of
fair market value for nonstatutory stock options). Historically, fair market
value has been determined by the Board of Directors. If an employee owns stock
representing more than 10% of the outstanding shares, the price of each share
shall be at least 110% of fair market value, as determined by the Board of
Directors. All options are immediately exercisable and generally vest over four
years, and expire ten years from date of grant. Unvested option exercises are
subject to repurchase upon termination of the holder's status as an employee or
consultant. At December 31, 1999 and September 30, 2000, none and 238,835
(unaudited) shares of common stock were subject to the Company's repurchase
rights, respectively.

                                      F-19
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' DEFICIT: (CONTINUED)
    Activity under the Plans is as follows:

<TABLE>
<CAPTION>
                                      SHARES                                              WEIGHTED
                                    AVAILABLE     NUMBER OF                                AVERAGE
                                       FOR         SHARES       EXERCISE     AGGREGATE    EXERCISE
                                      GRANT      OUTSTANDING      PRICE        PRICE        PRICE
                                    ----------   -----------   -----------   ----------   ---------
<S>                                 <C>          <C>           <C>           <C>          <C>
Shares reserved at Plan
  inception.......................     166,666
  Options granted.................    (101,663)     101,663       $0.12      $   12,200     $0.12
  Options exercised...............          --       (3,333)      $0.12            (400)    $0.12
  Options canceled................      53,332      (53,332)      $0.12          (6,400)    $0.12
                                    ----------   ----------                  ----------
Balances, December 31, 1995.......     118,335       44,998       $0.12           5,400     $0.12
  Reservation of shares...........     333,333           --        --                --     --
  Options granted.................    (282,659)     282,659       $0.24          67,838     $0.24
  Options exercised...............          --       (6,666)   $0.12-$0.24       (1,400)    $0.21
  Options canceled................      21,666      (21,666)      $0.24          (5,200)    $0.24
                                    ----------   ----------                  ----------
Balances, December 31, 1996.......     190,675      299,325    $0.12-$0.24       66,638     $0.22
  Options granted.................    (135,795)     135,795    $0.24-$3.75       43,479     $0.32
  Options exercised...............          --      (81,763)   $0.12-$0.24      (16,457)    $0.20
  Options canceled................      75,899      (75,899)   $0.12-$0.24      (17,382)    $0.23
                                    ----------   ----------                  ----------
Balances, December 31, 1997.......     130,779      277,458    $0.12-$3.75       76,278     $0.27
  Reservation of shares...........     566,666           --        --                --     --
  Options granted.................    (396,491)     396,491    $0.30-$0.60      176,736     $0.45
  Options exercised...............          --      (47,144)   $0.30-$0.60      (11,306)    $0.24
  Options canceled................      16,639      (16,639)   $0.24-$0.30       (4,233)    $0.25
                                    ----------   ----------                  ----------
Balances, December 31, 1998.......     317,593      610,166    $0.12-$3.75      237,475     $0.39
  Reservation of shares...........     133,333           --        --                --     --
  Options granted.................    (439,215)     439,215       $0.60         263,529     $0.60
  Options exercised...............          --     (127,008)   $0.12-$0.60      (34,504)    $0.27
  Options canceled................     214,326     (214,326)   $0.12-$0.60      (78,043)    $0.36
                                    ----------   ----------                  ----------
Balances, December 31, 1999.......     226,037      708,047    $0.24-$3.75      388,457     $0.55
  Reservation of shares
    (unaudited)...................   2,816,666           --        --                --     --
  Options granted (unaudited).....  (1,096,632)   1,096,632    $0.60-$6.75    3,567,232     $3.25
  Options exercised (unaudited)...          --     (468,073)   $0.24-$4.50     (324,968)    $0.69
  Options canceled (unaudited)....      86,162      (86,162)   $0.24-$3.75     (129,985)    $1.51
  Shares repurchased
    (unaudited)...................       4,479           --       $0.60              --     $0.60
                                    ----------   ----------                  ----------
Balances, September 30, 2000
  (unaudited).....................   2,036,712    1,250,444    $0.24-$6.75   $3,500,736     $2.80
                                    ==========   ==========                  ==========
</TABLE>

                                      F-20
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' DEFICIT: (CONTINUED)
    The options outstanding and currently vested by exercise price at
December 31, 1999 are as follows:

<TABLE>
<CAPTION>
         OPTIONS OUTSTANDING
-------------------------------------
                           WEIGHTED
                           AVERAGE
                          REMAINING       NUMBER
             NUMBER      CONTRACTUAL        OF
EXERCISE   OF OPTIONS      LIFE IN       OPTIONS
 PRICE     OUTSTANDING      YEARS         VESTED
--------   -----------   ------------   ----------
<S>        <C>           <C>            <C>
 $0.24         30,999        6.71         26,749
 $0.30         98,769        8.13         57,939
 $0.54         23,998        8.55          8,971
 $0.60        552,481        8.74         80,095
 $3.75          1,800        7.65          1,800
            ---------                    -------
              708,047                    175,554
            =========                    =======
</TABLE>

    The options outstanding and currently vested by exercise price at
September 30, 2000 (unaudited) are as follows:

<TABLE>
<CAPTION>
         OPTIONS OUTSTANDING
-------------------------------------
                           WEIGHTED
                           AVERAGE
                          REMAINING       NUMBER
             NUMBER      CONTRACTUAL        OF
EXERCISE   OF OPTIONS      LIFE IN       OPTIONS
 PRICE     OUTSTANDING      YEARS         VESTED
--------   -----------   ------------   ----------
<S>        <C>           <C>            <C>
 $0.24         15,487        5.71         15,215
 $0.30          4,065        7.52          2,083
 $0.60        225,171        8.87         35,658
 $3.00        805,730        9.59          3,602
 $3.75         36,665        9.81            347
 $4.50        131,661        9.92            145
 $6.75         31,665       10.00             --
            ---------                     ------
            1,250,444                     57,050
            =========                     ======
</TABLE>

                                      F-21
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' DEFICIT: (CONTINUED)
    STOCK-BASED COMPENSATION

    The Company has adopted the disclosure only provisions of SFAS No. 123. The
Company calculated the fair value of each option on the date of grant using the
minimum value method as prescribed by SFAS No. 123 with the following
assumptions:

<TABLE>
<CAPTION>
                                                                                           NINE MONTHS
                                                 YEARS ENDED DECEMBER                         ENDED
                                                         31,                              SEPTEMBER 30,
                                        --------------------------------------       -----------------------
                                          1997           1998           1999           1999           2000
                                        --------       --------       --------       --------       --------
                                                                                           (UNAUDITED)
<S>                                     <C>            <C>            <C>            <C>            <C>
Risk-free interest rate..........         5.82%          5.20%          5.71%          6.02%          5.92%
Expected life (in years).........         5              5              5              5              5
Dividend yield...................         --             --             --             --             --
</TABLE>

    The weighted average grant date fair value of options granted during the
years ended December 31, 1997, 1998 and 1999 was $0.33, $0.45 and $0.60,
respectively.

    As the determination of fair value of all options granted after such time as
the Company becomes a public entity will include an expected volatility factor
in addition to the factors described in the preceding table, the following
results may not be representative of future periods.

    Had compensation costs been determined based upon the fair value at the
grant date, consistent with the methodology prescribed under SFAS No. 123, the
Company's pro forma net loss and pro forma basic and diluted net loss per share
under SFAS No. 123 would have been as follows:

<TABLE>
<CAPTION>
                                                                               NINE MONTHS ENDED
                                        YEARS ENDED DECEMBER 31,                 SEPTEMBER 30,
                                 ---------------------------------------   --------------------------
                                    1997          1998          1999          1999           2000
                                 -----------   -----------   -----------   -----------   ------------
                                                                                  (UNAUDITED)
<S>                              <C>           <C>           <C>           <C>           <C>
Net loss available to common
  stockholders--as reported....  $(5,055,249)  $(5,562,383)  $(8,967,915)  $(6,486,500)  $(29,224,576)
                                 ===========   ===========   ===========   ===========   ============
Net loss available to common
  stockholders--pro forma......  $(5,061,341)  $(5,571,770)  $(8,986,409)  $(6,515,932)  $(29,843,186)
                                 ===========   ===========   ===========   ===========   ============
Net loss per share, basic and
  diluted--as reported.........  $     (3.40)  $     (3.47)  $     (4.95)  $     (3.68)  $     (13.26)
                                 ===========   ===========   ===========   ===========   ============
Net loss per share, basic and
  diluted--pro forma...........  $     (3.40)  $     (3.48)  $     (4.96)  $     (3.70)  $     (13.54)
                                 ===========   ===========   ===========   ===========   ============
</TABLE>

    DEFERRED STOCK-BASED COMPENSATION

    During 1999 and 2000, the Company issued options to certain employees under
the Plans with exercise prices below what is now considered to be the deemed
fair market value of the Company's common stock at the date of grant. In
accordance with the requirements of APB 25, the Company has recorded deferred
stock-based compensation for the difference between the exercise price of the
stock options and the deemed fair market value of the Company's stock at the
date of grant. This deferred stock-

                                      F-22
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' DEFICIT: (CONTINUED)
based compensation is amortized to expense on a straight line basis, over the
period during which the Company's right to repurchase the stock lapses or the
options become vested, generally four years. At December 31, 1999 and
September 30, 2000, the Company had recorded deferred compensation related to
these options in the amounts of $331,638 and $5,453,480 (unaudited), net of
cancellations, respectively, of which $8,827 and $299,664 (unaudited) had been
amortized to expense during 1999 and the nine months ended September 30, 2000,
respectively.

    Stock-based compensation expense related to stock options granted to
non-employees is recognized, on a straight line basis, as the stock options are
earned. The Company believes that the fair value of the stock options is more
reliably measurable than the fair value of the services received. The fair value
of the stock options granted is calculated at each reporting date using the
Black-Scholes option pricing model as prescribed by SFAS No. 123 using the
following assumptions:

<TABLE>
<CAPTION>
                                                                                           NINE MONTHS
                                                     YEARS ENDED                              ENDED
                                                     DECEMBER 31,                         SEPTEMBER 30,
                                        --------------------------------------       -----------------------
                                          1997           1998           1999           1999           2000
                                        --------       --------       --------       --------       --------
                                                                                           (UNAUDITED)
<S>                                     <C>            <C>            <C>            <C>            <C>
Risk-free interest rate..........         5.79%          4.93%          6.05%          5.90%          6.09%
Expected life (in years).........         10             10             10             10             10
Dividend yield...................         --             --             --             --             --
Expected volatility..............           70%            70%            70%            70%            70%
</TABLE>

    The stock-based compensation expense will fluctuate as the deemed fair
market value of the common stock fluctuates. In connection with the grant of
stock options to non-employees, the Company recorded deferred stock-based
compensation of none, none and $336,577 for the years ended December 31, 1997,
1998 and 1999, respectively, and $648,975 (unaudited) for the nine months ended
September 30, 2000, of which none, none and $101,028 has been amortized to
expense in 1997, 1998 and 1999, respectively, and $187,059 (unaudited) has been
amortized to expense in the nine months ended September 30, 2000.

    WARRANTS

    In connection with the financing arrangements entered into by the Company in
July 1995 and October 1997, the Company issued warrants to purchase 10,683
shares of common stock and warrants to purchase 65,000 shares of Series C
convertible preferred stock at exercise prices of $2.34 and $1.00, respectively.
The warrants expire on June 30, 2002 and October 14, 2004, respectively. The
fair value of these warrants, determined using the Black-Scholes option pricing
model, was not material.

    NOTES RECEIVABLE

    In May 1994, the Company loaned $69,009 to a stockholder/employee. The note
bears interest at 6.43% per annum and is due May 2003. At December 31, 1999 and
September 30, 2000, $96,373 and $101,703 (unaudited) of principal and interest
was outstanding on this note, respectively. In August 1996, the Company loaned
an additional $200,000 to this individual. The note is non-interest bearing, is
due 2001 and is secured by 166,666 shares of common stock. In July 2000, the
Company loaned this individual an additional $50,000. This loan bears interest
at 6.62% per annum, is due in July 2005 and is secured by

                                      F-23
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' DEFICIT: (CONTINUED)
the same 166,666 shares of common stock. At September 30, 2000, no payments have
been made on the notes.

    In January 1998 and December 1998 the Company received full recourse notes
receivable from officers of the Company in exchange for common stock. The notes
bear interest at 5.93% and 4.51%, and are due in January 2002 and
December 2002, respectively. At December 31, 1999, $156,454 and $55,993 of
principal and interest are outstanding on these notes, respectively. At
September 30, 2000, $164,414 and $58,145 of principal and interest are
outstanding on these notes, respectively. The loans are secured by 466,666 and
90,000 shares of common stock, respectively.

    In April 2000, the Company received full recourse notes receivable from two
officers of the Company in exchange for common stock. Each note bears interest
at 6.71% and is due in April 2004. Each loan is secured by 90,000 shares of
common stock. At September 30, 2000, $108,311 of principal and interest are
outstanding on these notes.

NOTE 8--INCOME TAXES:

    At December 31, 1999, the Company has approximately $21.8 million and
$13.9 million in Federal and California net operating loss carryforwards,
respectively, which expire through the year 2014. United States Federal income
tax regulations may restrict the utilization of the operating loss and tax
credit carryforwards in the case of an "ownership change" of the Company.

    The tax effects of temporary differences and carryforwards that give rise to
significant portions of the net deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                       -----------------------
                                                          1998         1999
                                                       ----------   ----------
<S>                                                    <C>          <C>
Deferred tax assets:
  Net operating loss carryforwards...................  $5,264,000   $8,700,000
  Research and development tax credit
    carryforwards....................................     212,000      407,000
  Depreciation and amortization......................     166,000      296,000
  Other..............................................      46,000       48,000
  Less: valuation allowance..........................  (5,688,000)  (9,451,000)
                                                       ----------   ----------
                                                       $       --   $       --
                                                       ==========   ==========
</TABLE>

    The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.

NOTE 9-- UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE AND PRO FORMA
        STOCKHOLDERS' EQUITY:

    Pro forma basic and diluted net loss per share have been computed to give
effect to common equivalent shares from convertible preferred stock that will
convert to common stock upon the closing of the Company's initial public
offering (using the as-if-converted method) for the year ended December 31,

                                      F-24
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9-- UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE AND PRO FORMA
        STOCKHOLDERS' EQUITY: (CONTINUED)
1999 and the nine months ended September 30, 2000. A reconciliation of the
numerator and denominator used in the calculation of pro forma basic and diluted
net loss per common share follows:

<TABLE>
<CAPTION>
                                                                 NINE MONTHS
                                                 YEAR ENDED         ENDED
                                                DECEMBER 31,    SEPTEMBER 30,
                                                    1999            2000
                                                -------------   -------------
                                                         (UNAUDITED)
<S>                                             <C>             <C>
Pro forma net loss per common share, basic and
  diluted:
  Net loss....................................  $ (8,967,915)   $(12,708,002)
                                                ============    ============
Weighted average shares used in computing net
  loss per common share, basic and diluted....     1,811,105       2,204,640
Adjustments to reflect the effect of the
  assumed conversion of the preferred stock
  from the date of issuance...................     9,288,117      10,742,428
                                                ------------    ------------
Weighted average shares used in computing pro
  forma net loss per common share, basic and
  diluted.....................................    11,099,222      12,947,068
                                                ============    ============
Pro forma net loss per common share, basic and
  diluted.....................................  $      (0.81)   $      (0.98)
                                                ============    ============
</TABLE>

    If an initial public offering is consummated, all of the convertible
preferred stock outstanding, as of the closing date, will be converted into an
aggregate of approximately 13,003,514 shares of common stock based on the shares
of convertible preferred stock outstanding at September 30, 2000. Unaudited pro
forma stockholders' equity at September 30, 2000, as adjusted for the conversion
of convertible preferred stock, is disclosed on the consolidated balance sheet.

NOTE 10--EMPLOYEE BENEFIT PLAN:

    In August 1996, the Company adopted a plan (the "Plan") which is qualified
under section 401(k) of the Internal Revenue Code of 1986. Eligible employees
may make voluntary contributions to the Plan of up to 20% of their annual
compensation, not to exceed the statutory amount, and the Company may make
matching contributions. To date, the Company has not made any matching
contributions to the Plan.

NOTE 11--ACQUISITION:

    In May 2000, the Company acquired all the voting stock of Cerus Limited
("Cerus"), now AeroGen (Ireland) Limited, in exchange for 1,725,000 shares of
Series E convertible preferred stock valued at $3.37 per share and transaction
costs of approximately $150,000. Cerus is a development stage company engaged in
the development of pulmonary inhalation products utilizing the Company's core
aerosol generator technology, under a license agreement with the Company.

    The acquisition of Cerus has been accounted for using the purchase method of
accounting and, accordingly the results of operations of Cerus have been
included in the Company's financial statements

                                      F-25
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--ACQUISITION: (CONTINUED)
subsequent to May 25, 2000. The purchase price was allocated to the assets
acquired and the liabilities assumed based on their estimated fair values at the
date of acquisition as determined by management. The excess of the purchase
price over the fair value of the net identifiable assets was allocated to
goodwill. The purchase price was allocated as follows:

<TABLE>
<S>                                                           <C>
Cash and cash equivalents...................................  $  542,174
Grants receivable...........................................     105,038
Property and equipment, net.................................      34,772
Other assets................................................      50,895
Assumed liabilities.........................................    (287,908)
Acquired workforce..........................................     100,000
Acquired in-process research and development................   3,500,000
Goodwill....................................................   1,917,589
                                                              ----------
Total purchase price........................................  $5,962,560
                                                              ==========
</TABLE>

    The amortization of acquired workforce and goodwill is being computed over
two and six years, respectively, on the straight-line basis. The acquired
in-process research and development represents the value of new medical and
other technologies that were in various stages of development where no
alternative future use was identified. Management is primarily responsible for
the valuation of the acquired in-process research and development. The fair
value of the in-process research and development was based on the discounted
cash flow method. As Cerus was a development stage company, there were no
historical pricing and margin assumptions to utilize and therefore estimates
used were based on the expectations of management. Management does not expect
material net cash in-flows until at least 2005. The present value of these cash
flows was calculated with an overall discount rate of 40%. At the date of
acquisition, the Company determined the technological feasibility of Cerus's
products was not established and, accordingly, wrote off the corresponding
amounts to acquired in-process research and development. Approximately
$0.5 million in research and development has been spent up to the date of the
acquisition in an effort to develop the technologies to produce commercially
viable products. At the date of acquisition, the only identifiable intangible
assets acquired were the technologies under development and the acquired
workforce. Currently the Company knows of no developments which would lead it to
change its original assessment of the expected timing and commercial viability
of these projects.

    The unaudited pro forma financial information, had the acquisition of Cerus
occurred at the beginning of each period presented, giving effect to an
acquisition adjustment for the elimination of acquired in-process research and
development is as follows:

<TABLE>
<CAPTION>
                                                           YEAR ENDED         NINE MONTHS
                                                          DECEMBER 31,    ENDED SEPTEMBER 30,
                                                              1999               2000
                                                          -------------   -------------------
<S>                                                       <C>             <C>
Revenue.................................................   $   756,575       $  5,250,369
Net loss available to common stockholders...............    (9,745,715)       (26,078,456)
Net loss per common share, basic and diluted............   $     (5.38)      $     (11.83)
</TABLE>

    The unaudited pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the operating results that
would have occurred had the transaction been completed at the beginning of the
earliest period presented, nor is it necessarily indicative of future operating
results.

                                      F-26
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--STOCK SPLIT


    In September 2000, the Board of Directors approved a three-for-one reverse
stock split of the common stock which was approved by the stockholders in
November 2000. All common stock data and stock option plan information in these
consolidated financial statements has been restated to reflect the reverse
split. In addition, the conversion prices of the Company's preferred stock have
also been adjusted to reflect the effect of the reverse split.


NOTE 13--SUBSEQUENT EVENTS (UNAUDITED):

    RESEARCH AND DEVELOPMENT AGREEMENTS

    In March 2000, the Company entered into an agreement with PathoGenesis
Corporation ("PathoGenesis"). Under the terms of the agreement the Company and
PathoGenesis agreed to collaborate on the development and registration of a
product which will combine PathoGenesis' drug TOBI (tobramycin solution for
inhalation) with the Company's AeroDose inhaler. The Company will be reimbursed
for costs incurred in developing the product in accordance with an agreed upon
workplan, will manufacture inhalers on a cost plus a fixed profit margin, and
will receive royalties on future product sales. In connection with the
agreement, the Company issued 961,539 shares of Series E convertible preferred
stock at $2.60 per share for total gross proceeds of $2.5 million.

    In May 2000, the Company entered into an agreement with Becton, Dickinson
and Company ("Becton Dickinson") under which Becton Dickinson will develop and
supply a patent-adjustable container for use in the Company's AeroDose insulin
product. Under the terms of the agreement, the Company issued 961,539 shares of
Series E convertible preferred stock at $2.60 per share for total gross proceeds
of $2.5 million and will be obligated to pay Becton Dickinson royalties on
future product sales and a portion of any payments the Company receives from any
future marketing partner. As a result of this issuance a beneficial conversion
feature charge of $201,923 was recorded in the nine months ended September 30,
2000.

    INITIAL PUBLIC OFFERING

    In August 2000, the Company's Board of Directors authorized management to
file a registration statement with the Securities and Exchange Commission to
permit the Company to sell its common stock to the public. Upon completion of
the Company's initial public offering, all of the outstanding convertible
preferred stock will be converted into shares of common stock.

    2000 EQUITY INCENTIVE PLAN

    In August 2000, the Board of Directors adopted the 2000 Equity Incentive
Plan (the "2000 Plan"). The 2000 Plan, which will terminate no later than 2010,
provides for the granting of incentive stock options, nonstatutory stock options
and restricted stock purchase rights and stock bonuses to employees, and
consultants.

    A total of 1,000,000 shares of common stock have been authorized for
issuance under the 2000 Plan. At the date of the stockholders' meeting in 2001,
and annually thereafter, the authorized shares will automatically be increased
by a number of shares equal to the least of:

    -  4.5% of the then outstanding shares of common stock on a fully-diluted
       basis;

    -  2,000,000 shares; or

    -  a lesser number of shares determined by the Board of Directors.

                                      F-27
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13--SUBSEQUENT EVENTS (UNAUDITED): (CONTINUED)
    2000 EMPLOYEE STOCK PURCHASE PLAN


    In August 2000, the Board of Directors adopted the 2000 Employee Stock
Purchase Plan (the "Purchase Plan") authorizing the issuance of 250,000 shares
of common stock pursuant to purchase rights granted to in the United States
employees. The stockholders approved the Purchase Plan in November 2000.


    At the date of the stockholders' meeting in 2001, and annually thereafter,
for a period of 20 years, the share reserve will automatically be increased by a
number of shares equal to the least of:

    -  1.0% of the then outstanding shares of common stock on a fully diluted
       basis;

    -  250,000 shares; or

    -  a lesser number of shares determined by the Board of Directors.

    The Purchase Plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Internal Revenue Code of 1986, as
amended. As of the date hereof, no shares of common stock have been purchased
under the Purchase Plan.

    The Purchase Plan permits eligible employees to purchase common stock at a
discount through payroll deductions during defined offering periods. The price
at which stock is purchased under the purchase plan is equal to 85% of the fair
market value of the common stock on the first day of the offering period or 85%
of the fair market value on the subsequent designated purchase dates, whichever
is lower. The initial offering period will commence on the effective date of the
offering.

    2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN


    In August 2000, the Board of Directors adopted the 2000 Non-Employee
Directors' Stock Option Plan ("2000 Non-Employee Plan") under which 250,000
shares of common stock were reserved for issuance. The stockholders approved the
2000 Non-Employee Plan in November 2000. Under the terms of the 2000
Non-Employee Plan, each new non-employee director elected on, or after, the
effectiveness of an initial public offering of the Company's common stock, will
be granted an option to purchase 15,000 shares of common stock which vest over a
4 year period. Thereafter, on an annual basis, on the date of the annual
stockholder meeting, each director will be granted an option to purchase 5,000
shares of common stock which vest over a three year period. The exercise price
of an option will not be less than the fair market value of the common stock on
the date of grant and the term will not exceed 10 years.


    EXECUTIVE SEVERANCE BENEFIT PLAN

    In September 2000, the Board of Directors adopted the Executive Severance
Benefit Plan ("Severance Plan"). Under the terms of the Severance Plan the
Company's officers will be provided with severance benefits upon the involuntary
termination of their employment without cause, or voluntary termination for good
reason, within one month prior to or 13 months following a change in control.
Benefits under the plan include salary continuation, health benefits and option
acceleration.

                                      F-28
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Cerus Limited.

    In our opinion, the accompanying balance sheets and the related statements
of operations, of shareholders' equity and cash flows present fairly, in all
material respects, the financial position of Cerus Limited (a company in the
development stage) at December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1999 and for the cumulative period from December 16, 1997 (date of
inception) through December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers
Chartered Accountants and Registered Auditors
Limerick
Ireland

August 23, 2000

                                      F-29
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                1998        1999
                                                              --------   ----------
<S>                                                           <C>        <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 89,035   $  756,032
  Accounts receivable.......................................    33,506       60,955
  Other current assets......................................        --      139,788
                                                              --------   ----------
    Total current assets....................................   122,541      956,775
  Office equipment, and furniture & fittings, net...........     4,258       40,818
                                                              --------   ----------
    Total assets............................................  $126,799   $  997,593
                                                              ========   ==========
LIABILITIES REDEEMABLE SHARES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $ 11,792   $   52,113
  Taxes payable.............................................    22,141       36,610
  Related party payable.....................................    29,541        8,241
                                                              --------   ----------
    Total current liabilities...............................    63,474       96,964
                                                              --------   ----------
Commitments (Note 4)
Redeemable shares:
  "B" ordinary shares par value: $1.41
  Authorised: 500,000 shares
  Issued and outstanding: No shares in 1998 and 154,000
    shares in 1999..........................................        --      216,308
                                                              --------   ----------
Shareholders' equity:
  "A" ordinary shares par value: $0.014
  Authorised: 10,000,000 shares
  Issued and outstanding: 200 shares in 1998 and 95,000
    shares in 1999..........................................         3        1,352
  Additional paid-in capital................................        --    1,027,849
  Earnings (deficit) accumulated during the development
    stage...................................................    63,322     (344,880)
                                                              --------   ----------
    Total shareholders' equity..............................    63,325      684,321
                                                              --------   ----------
      Total liabilities, redeemable shares and shareholders'
        equity..............................................  $126,799   $  997,593
                                                              ========   ==========
</TABLE>

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

                                      F-30
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                              CUMULATIVE PERIOD
                                                                                    FROM
                                                          YEARS ENDED         DECEMBER 16, 1997
                                                          DECEMBER 31,       (DATE OF INCEPTION)
                                                      --------------------     TO DECEMBER 31,
                                                        1998       1999             1999
                                                      --------   ---------   -------------------
<S>                                                   <C>        <C>         <C>
Research and development revenues...................  $167,169   $ 180,815        $ 347,984
Grant income........................................        --     107,540          107,540
                                                      --------   ---------        ---------
                                                       167,169     288,355          455,524
                                                      --------   ---------        ---------

Operating expenses:
  Research and development..........................    80,962     206,307          287,269
  Administrative(1).................................     4,343     354,814          359,157
                                                      --------   ---------        ---------
    Total operating expenses........................    85,305     561,121          646,426
                                                      --------   ---------        ---------

Income (loss) from operations.......................    81,864    (272,766)        (190,902)

Interest and other income...........................     3,709       1,372            5,081
Interest and other expense..........................      (110)       (183)            (293)
Foreign currency exchange loss......................        --    (108,874)        (108,874)
                                                      --------   ---------        ---------

Net income (loss) before taxation...................    85,463    (380,451)        (294,988)
Taxation............................................   (22,141)    (27,751)         (49,892)
                                                      --------   ---------        ---------
Net income (loss)...................................  $ 63,322   $(408,202)       $(344,880)
                                                      ========   =========        =========
</TABLE>

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

(1)  Including stock-based compensation expense of $177,925 in 1999.

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

                                      F-31
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                       STATEMENTS OF SHAREHOLDERS' EQUITY
 FOR THE PERIOD FROM DECEMBER 16, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                           EARNINGS
                                                                          (DEFICIT)
                                                                         ACCUMULATED
                                      ORDINARY SHARES     ADDITIONAL      DURING THE
                                    -------------------    PAID-IN       DEVELOPMENT
                                     SHARES    AMOUNTS     CAPITAL          STAGE           TOTAL
                                    --------   --------   ----------   ----------------   ---------
<S>                                 <C>        <C>        <C>          <C>                <C>
Issuance of Class "A" ordinary
  shares for cash at $0.0142 per
  share in January................      200     $    3    $      --       $      --       $       3
Net income........................       --         --           --          63,322          63,322
                                     ------     ------    ----------      ---------       ---------
Balances, December 31, 1998.......      200          3           --          63,322          63,325

Issuance of Class "A" ordinary
  shares for cash at $0.0142,
  $7.117 and $42.702 per share in
  August, net of issuance costs of
  $39,345.........................   94,800      1,349      849,924              --         851,273
Compensation expense associated
  with issuance of Class "A"
  ordinary shares.................       --         --      177,925              --         177,925
Net loss..........................       --         --           --        (408,202)       (408,202)
                                     ------     ------    ----------      ---------       ---------
Balances, December 31, 1999.......   95,000     $1,352    $1,027,849      $(344,880)      $ 684,321
                                     ======     ======    ==========      =========       =========
</TABLE>

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

                                      F-32
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                             CUMULATIVE PERIOD
                                                        YEARS ENDED                 FROM
                                                        DECEMBER 31,         DECEMBER 16, 1997
                                                    --------------------   (DATE OF INCEPTION) TO
                                                      1998       1999        DECEMBER 31, 1999
                                                    --------   ---------   ----------------------
<S>                                                 <C>        <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................  $ 63,322   ($408,202)         ($344,880)
Adjustments to reconcile net income (loss) to net
  cash provided by (used in) operating activities:
  Depreciation....................................       752      16,532             17,284
  Stock-based compensation                                --     177,925            177,925
  Changes in operating assets and liabilities:
    Accounts receivable...........................   (33,506)    (27,449)           (60,955)
    Prepaid expenses and other current assets.....        --    (139,788)          (139,788)
    Accounts payable..............................    11,792      40,321             52,113
    Taxes and related party payables..............    51,682      (6,831)            44,851
                                                    --------   ---------          ---------
Net cash provided by (used in) operating
  activities......................................    94,042    (347,492)          (253,450)
                                                    --------   ---------          ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of office equipment and furniture and
  fittings........................................    (5,010)    (53,092)           (58,102)
                                                    --------   ---------          ---------
Net cash used in investing activities.............    (5,010)    (53,092)           (58,102)
                                                    --------   ---------          ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Class `A' ordinary
  shares, net.....................................         3     851,273            851,276
Proceeds from issuance of Class `B' ordinary
  shares, net.....................................        --     216,308            216,308
                                                    --------   ---------          ---------
Net cash provided by financing activities.........         3   1,067,581          1,067,584
                                                    --------   ---------          ---------
Net increase in cash and cash equivalents.........    89,035     666,997            756,032
Cash and cash equivalents, beginning of period....        --      89,035                 --
                                                    --------   ---------          ---------
Cash and cash equivalents, end of period..........  $ 89,035   $ 756,032          $ 756,032
                                                    ========   =========          =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during period for interest..............  $    110   $     183          $     293
                                                    ========   =========          =========
Cash paid during period for taxes.................  $     --   $  10,837          $  10,837
                                                    ========   =========          =========
</TABLE>

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

                                      F-33
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                         NOTES TO FINANCIAL STATEMENTS

1.  FORMATION AND BUSINESS OF THE COMPANY

    Cerus Limited (the "company") was incorporated in the Republic of Ireland on
December 16, 1997 to develop pulmonary medical products. The company, which
operates in the Republic of Ireland, is in the development stage and since
inception has devoted substantially all of its efforts to developing its
products, raising capital and recruiting personnel.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    FOREIGN CURRENCY TRANSLATION

    The financial accounts of the company were originally denominated in Irish
punts (IRL) and have now been translated in United States Dollars ($). Operating
results have been translated at the average exchange rate for the relevant
period. Monetary assets and liabilities have been translated at the exchange
rates in effect at the balance sheet dates. Non-monetary assets and liabilities
have been translated at the exchange rates in effect at the date of the
transaction. Differences arising on translation are included in the statements
of operations for the relevant period.

    USE OF ESTIMATES

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

    CASH AND CASH EQUIVALENTS

    The company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. Cash and cash
equivalents include money market and deposit accounts.

    DEPRECIATION

    Office equipment, and furniture and fittings are stated at cost less
accumulated depreciation. Depreciation is provided using the straight line
method over the estimated useful lives of the assets, generally three to five
years. Upon sale or retirement of assets, the cost and related accumulated
depreciation are removed from the balance sheet and the resulting gain or loss
is reflected in operations.

    FAIR VALUE OF FINANCIAL INSTRUMENTS

    Carrying amounts of certain of the company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable, and
other liabilities approximate fair value due to their short maturities.

                                      F-34
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    CONCENTRATION OF CREDIT RISK AND OTHER RISKS AND UNCERTAINTIES

    The company maintains its cash and cash equivalents in accounts with a major
financial institution in the Republic of Ireland. The company has not
experienced any losses on its deposits of cash and cash equivalents.

    Products developed by the company may require the approval of the Food and
Drug Administration (FDA) and/or other international regulatory agencies prior
to commercialised sales. The company cannot be assured that its products will
receive the necessary approvals. If the company was denied approval or if
approval was delayed, it may have a material adverse impact on the company. To
date the company has not made any product sales.

    In 1998, two customers individually accounted for 44% and 51%, respectively
of the company's total revenue. In 1999, one customer accounted for 90% of the
company's total revenue.

    At December 31, 1998, two customers accounted for 45% and 50% of accounts
receivable, respectively. At December 31, 1999, one customer accounted for 100%
of accounts receivable.

    RESEARCH AND DEVELOPMENT REVENUE RECOGNITION

    Research and development revenues which are earned under agreements with
third parties for contract research and development activities are recorded as
the related expenses are incurred, up to contractual limits. Charges to third
parties are based upon negotiated rates for full-time-equivalent employees of
the company, and such rates are intended to approximate the company's
anticipated costs. Payments received that are related to future performance are
recorded as deferred revenue and recognized as revenues as they are earned. All
revenues recognized to date are not refundable if the relevant research effort
is not successful.

    RESEARCH AND DEVELOPMENT

    Research and development costs are charged to operations as incurred.
Certain research and development projects are funded under agreements with third
parties, and the costs related to these activities are included in research and
development expense. The charges to third parties are based upon negotiated
rates for full-time-equivalent employees of the company, and such rates are
intended to approximate the company's anticipated costs.

    INCOME TAXES

    The company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realised.

                                      F-35
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    RECENT ACCOUNTING PRONOUNCEMENTS

    In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN No. 44") "Accounting for Certain Transactions
Involving Stock Compensation," an interpretation of the Accounting Principles
Board Opinion No. 25 ("APB No. 25"). The Interpretation clarifies the definition
of employee for purposes of applying APB No. 25, "Accounting for Stock Issued to
Employees," the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of a previously fixed share option or award, and the accounting for an
exchange of share compensation awards in a business combination. FIN No. 44 is
effective July 1, 2000, but certain conclusions cover specific events that occur
after either December 15, 1998, or January 12, 2000. The adoption of FIN No. 44
did not and will not have a material impact on the company's financial
statements.

    In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognise revenue and provides
guidance for disclosures related to revenue recognition policies. The Company
has complied with the guidance in SAB No. 101 for all periods presented.

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS No. 133 requires that all derivatives be recognised at fair
value in the statement of financial position, and that corresponding gains or
losses be reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that exists.
As amended SFAS No. 133 will be effective for fiscal quarters beginning after
June 15, 2000. The Company does not currently hold derivative instruments or
engage in hedging activities and does not believe that the implementation of
SFAS No. 133 will have any significant impact on its financial position or
results of operations.

3.  OFFICE EQUIPMENT, AND FURNITURE AND FITTINGS

<TABLE>
<CAPTION>
                                                 DECEMBER 31,    DECEMBER 31,
                                                     1998            1999
                                                 -------------   -------------
<S>                                              <C>             <C>
Office equipment...............................     $   --          $42,643
Furniture and fittings.........................      5,010           15,459
                                                    ------          -------
                                                     5,010           58,102
Less accumulated depreciation..................       (752)         (17,284)
                                                    ------          -------
                                                    $4,258          $40,818
                                                    ======          =======
</TABLE>

                                      F-36
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4.  COMMITMENTS

    The company rents its office facilities under a lease which expires on
December 31, 2000. At December 31, 1999 future minimum rent payments are $15,800
in 2000.

    Rental expense for 1998, 1999 and cumulatively from December 16, 1997 (date
of inception) to December 31, 1999 was $1,428, $7,011 and $8,439, respectively.

    The company acquired an option to acquire land for a three year period from
April 1999 for a reservation fee of approximately $9,400 per annum. The option
expense in 1999 amounted to $6,507. At December 31, 1999 future payments are
approximately as follows:

<TABLE>
<S>                                                           <C>
2000........................................................  $ 9,400
2001........................................................    9,400
2002........................................................    2,890
                                                              -------
                                                              $21,690
                                                              =======
</TABLE>

5.  REDEEMABLE SHARES

    In April 1999 the company established an Irish Revenue approved Business
Expansion Scheme under which it raised $216,308. The Business Expansion Scheme
is a tax based scheme which grants investors tax breaks on the amounts invested.
The investment is generally for a five year period. Under the Business Expansion
Scheme the company issued 154,000 B ordinary shares of IRL1 each at par (or
$1.14 when translated at the historic exchange rate). The maximum amount which
the B ordinary shareholders will receive from the company in respect of their
shares either by way of redemption, dividend or a liquidation is IRL1.20 per
share (or $1.53 when translated as of December 31, 1999).

    REDEMPTION

    A Put/Call Option agreement has been entered into between the company and
the Business Expansion Scheme investors. This agreement provides an option to
the company to require the investors to sell their shares to the company (the
"Call Option") and an option to the investors to require the company to purchase
their shares (the "Put Option") within a three to four month period after a five
year period has elapsed from the date of issue of these shares. The share price
is to be determined by independent appraisal but is capped at a maximum value of
IRL1.20 per share. These B ordinary shares shall rank PARI PASSU (based on a
ratio of 100:1) with the A ordinary shares except that they shall not carry
voting rights.

    DIVIDENDS

    The B ordinary shares are entitled (based on a ratio 100:1 with A ordinary
shares) to receive such a portion (if any) of the profits of the company which
are proposed to be distributed by way of dividend in respect of any financial
year of the company whether by way of interim dividend declared by the directors
or by way of dividend declared by the company in a general meeting, up to a
maximum of IRL1.20 per share. The maximum aggregate amount paid by way of
dividend on B ordinary shares shall never exceed the aggregate sum of IRL1.20
per share.

                                      F-37
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5.  REDEEMABLE SHARES (CONTINUED)
    LIQUIDATION

    On a winding up, the B ordinary shares shall each rank PARI PASSU (based on
a ratio of 100:1) with A ordinary shares, as to entitlement to the return of
amounts paid up or credited as paid up on each share including any premium and
shall further rank PARI PASSU (with the A ordinary shares) as their entitlement
to participate further in the profits and assets of the company, up to a maximum
aggregate amount of IRL1.20 for each share less the aggregate amount (if any) of
all dividends previously paid or declared in respect of B ordinary shares. The
maximum aggregate amount paid on winding up of the company to B ordinary shares,
when aggregated with the aggregate amount of all dividends paid on the B
ordinary shares, shall never exceed the aggregate of IRL1.20 per share inclusive
of amounts paid up or credited as paid up thereon including any premium.

6.  SHAREHOLDERS' EQUITY

    The A ordinary shares of IRL0.01 each (or $0.014 when translated at the
historic exchange rate) have full voting rights. The A ordinary shares shall be
entitled equally to B ordinary shares (based on a ratio of 1:100) to receive
such proportion (if any) of the profit of the company which is proposed to be
distributed by way of dividend in respect of any financial year of the company
whether by way of interim dividend declared by the directors or by way of
dividend declared by the company at a general meeting until such time as the
holders of the A and B ordinary shares shall have received an amount of IRL1.20
per share. Thereafter, the A ordinary shares shall entitle the holders thereof
to receive payment of any further dividend which may be declared to the
exclusion of any entitlement thereto on the part of the holders of B ordinary
shares.

    During 1999 the company issued A ordinary shares to a member of the Board of
Directors at a price below the fair market value at the date of issuance. In
accordance with the requirements of Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees," the company has recorded
stock-based compensation for the difference between the issuance price of the A
ordinary shares and the fair market value at the date of issuance. This
stock-based compensation was immediately expensed to administrative expenses as
the shares were immediately vested.

7.  INCOME TAXES

    The company is subject to Irish Corporation Tax on certain research and
development revenues. The provision for income taxes consists of:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                            -------------------
                                                              1998       1999
                                                            --------   --------
<S>                                                         <C>        <C>
Current income taxes......................................  $22,141    $27,751
Deferred taxes............................................       --         --
                                                            -------    -------
Provision for income taxes................................  $22,141    $27,751
                                                            =======    =======
</TABLE>

                                      F-38
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7.  INCOME TAXES (CONTINUED)
    The tax effects of temporary differences and carryforwards that give rise to
significant portions of the deferred tax assets at December 31, 1999 and 1998
are as follows:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           -------------------
                                                             1998       1999
                                                           --------   --------
<S>                                                        <C>        <C>
Deferred tax asset:
  Deferred research and development expenditures.........  $     --   $ 25,000
  Pension and other deferred expenses....................               13,000
                                                           --------   --------
  Total deferred tax asset...............................        --     38,000
  Valuation allowance....................................        --    (38,000)
                                                           --------   --------
                                                           $     --   $     --
                                                           ========   ========
</TABLE>

    A full valuation allowance is provided for the deferred tax assets as the
company determines that it is more likely than not that the deferred tax assets
will not be utilized. The deferred research and development expenditures can be
carried forward for three years.

8.  RELATED PARTY TRANSACTIONS

    Related party payables relate specifically to transactions with directors in
their capacity as directors of the company. At December 31, 1998 and 1999, the
company had payables of $29,541 and $8,241 respectively for these transactions.
Costs incurred by the company in respect of services rendered to the company by
directors in their capacity as directors for 1998, 1999 and cumulatively from
December 16, 1997 (date of inception) were approximately $30,000, $80,000 and
$110,000 respectively.

    Other costs incurred by the company in respect of services rendered to the
company by directors and companies connected to directors for 1998, 1999 and
cumulatively from December 16, 1997 (date of inception) were approximately nil,
$29,376 and $29,376 respectively.

    At December 31, 1998 and 1999, the company had payables of nil and $3,093
respectively relating to these services which are included in accounts payable.

9.  SUBSEQUENT EVENTS

    Effective May 25, 2000 all of the company's outstanding A ordinary shares
were acquired by AeroGen, Inc. ("AeroGen") in exchange for 1,725,000 shares of
AeroGen's Series E convertible preferred shares. This acquisition was recorded
by AeroGen as a purchase.

                                      F-39
<PAGE>
                                 AEROGEN, INC.

                      (A COMPANY IN THE DEVELOPMENT STAGE)

               UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

OVERVIEW

    In May 2000, the Company acquired all the voting stock of Cerus Limited
("Cerus"), now AeroGen (Ireland) Limited, in exchange for 1,725,000 shares of
Series E convertible preferred stock valued at $3.37 per share and transaction
costs of approximately $150,000. Cerus is a development stage company engaged in
the development of pulmonary inhalation products utilizing the Company's core
aerosol generator technology, under a license agreement with the Company.

    The acquisition of Cerus has been accounted for using the purchase method of
accounting and, accordingly the results of operations of Cerus have been
included in the Company's financial statements subsequent to May 25, 2000. The
purchase price was allocated to the assets acquired and the liabilities assumed
based on their estimated fair values at the date of acquisition as determined by
management. The excess of the purchase price over the fair value of the net
identifiable assets was allocated to goodwill. The purchase price was allocated
as follows:

<TABLE>
<S>                                                           <C>
Cash and cash equivalents...................................  $  542,174
Grants receivable...........................................     105,038
Property and equipment, net.................................      34,772
Other assets................................................      50,895
Assumed liabilities.........................................    (287,908)
Acquired workforce..........................................     100,000
Acquired in-process research and development................   3,500,000
Goodwill....................................................   1,917,589
                                                              ----------
Total purchase price........................................  $5,962,560
                                                              ==========
</TABLE>

    The amortization of acquired workforce and goodwill is being computed over
two and six years, respectively, on the straight-line basis. The acquired
in-process research and development represents the value of new medical and
other technologies that were in various stages of development where no
alternative future use was identified. Management is primarily responsible for
the valuation of the acquired in-process research and development. The fair
value of the in-process research and development was based on the discounted
cash flow method. As Cerus was a development stage company, there were no
historical pricing and margin assumptions to utilize and therefore estimates
used were based on the expectations of management. Management does not expect
material net cash in-flows until at least 2005. The present value of these cash
flows was calculated with an overall discount rate of 40%. At the date of
acquisition, the Company determined the technological feasibility of Cerus's
products was not established, and accordingly, wrote off the corresponding
amounts to acquired in-process research and development. Approximately
$0.5 million in research and development had been spent up to the date of the
acquisition in an effort to develop the technology to produce commercially
viable products. At the date of acquisition, the only identifiable intangible
assets acquired were the technologies under development and the acquired
workforce. Currently the Company knows of no developments which would lead it to
change its original assessment of the expected timing and commercial viability
of these projects.

    The following unaudited pro forma combined condensed statements of
operations are derived from the historical consolidated financial statements of
the Company and Cerus Limited. The unaudited pro forma combined condensed
statements of operations present the combined results of operations of AeroGen,
Inc. and Cerus Limited for the year ended December 31, 1999, and the nine months
ended

                                      F-40
<PAGE>
                                 AEROGEN, INC.

                      (A COMPANY IN THE DEVELOPMENT STAGE)

               UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

September 30, 2000. The unaudited pro forma combined condensed statement of
operations gives effect to the acquisition of Cerus Limited as if it had
occurred as of January 1, 1999.

    The following unaudited pro forma combined condensed statement of operations
is presented for illustrative purposes only and is not necessarily indicative of
the operating results that would have occurred if the transaction had been
consummated at the date indicated, nor is it necessarily indicative of future
operating results of the combined businesses. The unaudited pro forma combined
condensed statement of operations should be read in conjunction with the
historical consolidated financial statements and related notes of AeroGen, Inc.
and Cerus Limited included elsewhere herein.

                                      F-41
<PAGE>
                                 AEROGEN, INC.

                      (A COMPANY IN THE DEVELOPMENT STAGE)
         UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS

                          YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                              HISTORICAL             PRO FORMA
                                                 HISTORICAL        CERUS   -----------------------------
                                              AEROGEN, INC.      LIMITED   ADJUSTMENTS          COMBINED
--------------------------------------------------------------------------------------------------------
<S>                                           <C>             <C>          <C>              <C>
Research and development revenues...........   $   468,220    $ 180,815     $      --       $    649,035
Grant income................................            --      107,540            --            107,540
                                               -----------    ---------     ---------       ------------
                                                   468,220      288,355            --            756,575
                                               -----------    ---------     ---------       ------------

Operating expenses:
  Research and development..................     7,909,503      206,307            --          8,115,810
  General and administrative................     2,076,507      354,814       369,598(A)       2,800,919
                                               -----------    ---------     ---------       ------------
    Total operating expenses................     9,986,010      561,121       369,598         10,916,729
                                               -----------    ---------     ---------       ------------

Loss from operations........................    (9,517,790)    (272,766)     (369,598)       (10,160,154)

Other income (expenses), net................       549,875     (135,436)           --            414,439
                                               -----------    ---------     ---------       ------------
Net loss....................................   $(8,967,915)   $(408,202)    $(369,598)      $ (9,745,715)
                                               ===========    =========     =========       ============

Net loss per common share, basic and
  diluted...................................   $     (4.95)                                 $      (5.38)
                                               ===========                                  ============

Shares used in computing net loss per common
  share, basic and diluted..................     1,811,105                                     1,811,105
                                               ===========                                  ============
</TABLE>

        See notes to unaudited pro forma combined financial information.

                                      F-42
<PAGE>
                                 AEROGEN, INC.

                      (A COMPANY IN THE DEVELOPMENT STAGE)
         UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS

                      NINE MONTHS ENDED SEPTEMBER 30, 2000

<TABLE>
<CAPTION>
                                                                                    PRO FORMA
                                                                          -----------------------------
                                          AEROGEN, INC.   CERUS LIMITED   ADJUSTMENTS          COMBINED
-------------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>             <C>              <C>
Research and development revenues.......  $  5,124,866      $      --     $        --      $  5,124,866
Grant income............................        14,929        110,574              --           125,503
                                          ------------      ---------     -----------      ------------
                                             5,139,795        110,574              --         5,250,369
                                          ------------      ---------     -----------      ------------

Operating expenses:
  Research and development..............    12,035,534        236,738              --        12,272,272
  General and administrative............     2,820,785         74,798         153,999(A)      3,049,582
  Purchased in-process research and
    development.........................     3,500,000             --      (3,500,000)(B)            --
                                          ------------      ---------     -----------      ------------
    Total operating expenses............    18,356,319        311,536      (3,346,001)       15,321,854
                                          ------------      ---------     -----------      ------------

Loss from operations....................   (13,216,524)      (200,962)      3,346,001       (10,071,485)
Other income (expenses), net............   (16,008,052)         1,081              --       (16,006,971)
                                          ------------      ---------     -----------      ------------
Net loss available to common
  stockholders..........................  $(29,224,576)     $(199,881)    $ 3,346,001      $(26,078,456)
                                          ============      =========     ===========      ============

Net loss per common share, basic and
  diluted...............................  $     (13.26)                                    $     (11.83)
                                          ============                                     ============

Shares used in computing net loss per
  common share, basic and diluted.......     2,204,640                                        2,204,640
                                          ============                                     ============
</TABLE>

        See notes to unaudited pro forma combined financial information.

                                      F-43
<PAGE>
          NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

NOTE 1 -- BASIS OF PRESENTATION

    The unaudited pro forma statements of operations give effect to the
acquisition as if it had occurred on January 1, 1999 and presents the unaudited
statement of operations of the Company for the nine months ended September 30,
2000 with the unaudited statement of operations of Cerus Limited for the five
months ended May 25, 2000 and the audited statement of operations of the Company
for the year ended December 31, 1999 combined with the audited statement of
operations of Cerus Limited for the year ended December 31, 1999. The
acquisition of Cerus Limited has been accounted for using the purchase method of
accounting and, accordingly, the results of operations of Cerus Limited have
been included in the Company's financial statements subsequent to May 25, 2000.

    The unaudited pro forma combined information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the transactions had been
consummated at the dates indicated, nor is it necessarily indicative of the
future operating results or the financial position of the combined companies.

NOTE 2 -- PRO FORMA ADJUSTMENTS

    The following adjustments have been made to arrive at the pro forma combined
financial information:

(A) Additional amortization of goodwill and acquired workforce over their
    estimated useful lives as follows:

<TABLE>
<CAPTION>
                                                                         PRO FORMA EXPENSE
                                                                   -----------------------------
                                                                                    NINE MONTHS
                                                                    YEAR ENDED         ENDED
                                                    AMORTIZATION   DECEMBER 31,    SEPTEMBER 30,
                                         AMOUNT        PERIOD          1999            2000
                                       ----------   ------------   -------------   -------------
------------------------------------------------------------------------------------------------
<S>                                    <C>          <C>            <C>             <C>
Goodwill.............................  $1,917,589     6 years        $319,598        $133,166
Acquired workforce...................     100,000     2 years          50,000          20,833
                                       ----------                    --------        --------
Total................................  $2,017,589                    $369,598        $153,999
                                       ==========                    ========        ========
</TABLE>

(B) To eliminate the write-off of the value assigned to in-process research and
    development as it is a non-recurring expense. The income approach was used
    to value acquired in-process research and development, which includes an
    analysis of the completion costs, cash flows, other required assets and
    risks associated with achieving such cash flow. At the time of acquisition,
    the Company determined the technological feasibility of Cerus Limited's
    product had not been established and, accordingly, wrote-off the amount to
    acquired in-process research and development.

                                      F-44
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                3,600,000 SHARES

                                 [AEROGEN LOGO]

                                  COMMON STOCK

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

                                   PROSPECTUS

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

                                   CHASE H&Q

                               CIBC WORLD MARKETS

                                    SG COWEN

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

                                       , 2000

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

    YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.

    NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.

    UNTIL            , 2000 (THE 25TH DAY AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                                    PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

    The following table sets forth all costs and expenses, other than the
underwriting discounts and commissions, payable by the company in connection
with the sale of common stock being registered hereby. All of the amounts shown
are estimates except the SEC registration fee and the NASDAQ National Market
listing fee.


<TABLE>
<CAPTION>
                                                                AMOUNT
                                                                TO BE
                                                                 PAID
                                                              ----------
<S>                                                           <C>
SEC registration fee........................................  $   16,395
NASD filing fee.............................................       6,250
NASDAQ listing fee..........................................      95,000
Accounting fees and expenses................................     450,000
Legal fees and expenses.....................................     500,000
Printing and engraving expenses.............................     350,000
Transfer Agent and registrar fees...........................      11,500
Miscellaneous...............................................      70,855
                                                              ----------
  Total.....................................................  $1,500,000
                                                              ==========
</TABLE>


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

*   To be completed by amendment

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

    As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of ours will be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability for any breach of duty of loyalty to us or to our
stockholders;

    -  for acts or omissions not in good faith or that involve intentional
       misconduct or a knowing violation of law;

    -  for unlawful payment of dividends or unlawful stock repurchases or
       redemptions under Section 174 of the Delaware General Corporation Law; or

    -  for any transaction from which the director derived an improper personal
       benefit.

    Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and executive officers and may indemnify our
other officers and employees and agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our amended and restated
certificate of incorporation covers negligence and gross negligence on the part
of indemnified parties.

    We intend to enter into indemnification agreements with each of our
directors and officers. These agreements, among other things, will require us to
indemnify each director and officer for certain expenses including attorneys'
fees, judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of AeroGen,
arising out of the person's services as our director or officer, any subsidiary
of ours or any other company or enterprise to which the person provides services
at our request.

                                      II-1
<PAGE>
    The underwriting agreement (Exhibit 1.1) will provide for indemnification by
the underwriters of AeroGen, our directors, our officers who sign the
registration statement, and our controlling persons for some liabilities,
including liabilities arising under the Securities Act.

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES.

    Since July 1997, we have sold and issued the following unregistered
securities:

 (1) From July 1997 through October 30, 2000, AeroGen has granted stock options
     to purchase 1,986,136 shares of common stock to employees, consultants and
     directors pursuant to its 1994 Stock Option Plan and 1996 Stock Option
     Plan. Of these options, 321,079 have been canceled without being exercised,
     656,391 have been exercised, 7,187 have been repurchased, and 1,246,502
     shares remain outstanding.

 (2) From April 1997 through November 1997, AeroGen issued 9,245,300 shares of
     Series C preferred stock to 17 investors, including 14 institutional
     investors and three individuals at a purchase price of $1.00 per share for
     an aggregate purchase price of $9,245,300. Shares of Series C preferred
     stock are convertible into shares of common stock at the rate of one share
     of common stock for each three shares of Series C preferred stock owned.

 (3) In October 1997, AeroGen issued warrants to purchase up to 130,000 shares
     of Series C preferred stock at an exercise price of $1.00 per share to two
     equipment leasing companies, Venture Lending & Leasing, Inc. and Venture
     Lending & Leasing II, Inc. Shares of Series C preferred stock are
     convertible into shares of common stock at the rate of one share of common
     stock for each three shares of Series C preferred stock owned.

 (4) In January 1998, AeroGen issued 466,666 shares of common stock to Jane E.
     Shaw at $0.30 per share, for a purchase price of $140,000.

 (5) In August 1998, AeroGen issued 10,285,714 shares of Series D preferred
     stock to 20 investors including 15 institutional investors, three
     individuals and two trusts at a purchase price $1.75 per share for an
     aggregate purchase price of $17,999,999. Shares of Series D preferred stock
     are convertible into shares of common stock at the rate of one share of
     common stock for each three shares of Series D preferred stock owned.

 (6) In November 1998, AeroGen issued 90,000 shares of common stock to
     Casper L. de Clercq at $0.60 per share, for a purchase price of $54,000.

 (7) From March 2000 through May 2000, AeroGen issued 1,923,078 shares of
     Series E preferred stock to two purchasers, PathoGenesis Corporation and
     Becton, Dickinson and Company, at a purchase price of $2.60 per share for
     an aggregate purchase price of $5,000,002. Shares of Series E preferred
     stock are convertible into shares of common stock at the rate of one share
     of common stock for each three shares of Series E preferred stock owned.

 (8) In April 2000, AeroGen issued 180,000 shares of common stock to two
     purchasers, Michael A. Klimowicz and Deborah K. Karlson, at prices of $0.30
     and $0.60 per share, for an aggregate purchase price of $106,000.

 (9) In May 2000, AeroGen issued 1,725,000 shares of Series E preferred stock in
     exchange for all voting shares of stock of Cerus Limited, held by 20
     individuals, in connection with the acquisition of Cerus by AeroGen,
     whereby Cerus became a subsidiary of AeroGen. Shares of Series E preferred
     stock are convertible into shares of common stock at the rate of one share
     of common stock for each three shares of Series E preferred stock owned.

 (10) In July 2000, AeroGen issued 7,498,223 shares of Series F preferred stock
      to 30 investors including 20 institutional investors, six individuals and
      four trusts at a purchase price of $2.25 per share for an

                                      II-2
<PAGE>
      aggregate purchase price of $16,871,001. Shares of Series F Preferred
      Stock are convertible into shares of common stock at the rate of one share
      of common stock for each three shares of Series F Preferred Stock owned.

    The sales and issuances of securities described in paragraph (1) above were
deemed to be exempt from registration under the Securities Act by virtue of
Rule 701 of the Securities Act in that they were offered and sold either
pursuant to a written compensatory benefit plan or pursuant to a written
contract relating to compensation, as provided by Rule 701. The sales and
issuances of securities described in paragraphs (2), (5), (7) and (10) above
were deemed to be exempt from registration under the Securities Act in reliance
upon Regulation D. The sales and issuances of securities described in
paragraphs (3), (4), (6) and (8) above were deemed to be exempt from
registration under the Securities Act in reliance upon Rule 4(2). The issuance
of securities described in paragraph (9) above was deemed to be exempt from
registration under the Securities Act in reliance upon Regulation S.

    Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. All recipients either received adequate
information about AeroGen or had access, through employment or other
relationships, to such information.

ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

    (a)  Exhibits


<TABLE>
<CAPTION>
        EXHIBIT
        NUMBER                              DESCRIPTION OF DOCUMENT
        ------            ------------------------------------------------------------
<C>                       <S>
 1.1+                     Form of Underwriting Agreement
 3.1+                     Amended and Restated Certificate of Incorporation of AeroGen
 3.2+                     Amended and Restated Certificate of Incorporation of AeroGen
                          to be effective upon the closing of the offering
 3.3+                     Bylaws of AeroGen
 3.4+                     Amended and Restated Bylaws of the AeroGen to be effective
                          upon the closing of the offering
 4.1+                     Specimen Common Stock Certificate
 4.2+                     Fourth Amended & Restated Information and Registration
                          Rights Agreement dated July 7, 2000 between AeroGen and
                          holders of AeroGen Series A, Series B, Series C, Series D,
                          Series E, and Series F preferred stock and holders of
                          warrants to purchase AeroGen common stock or Series C
                          preferred stock
 4.3+                     Warrant, dated June 20, 1995, to purchase common stock of
                          AeroGen issued to Venture Lending & Leasing, Inc.
 4.4+                     Warrant, dated October 14, 1997, to purchase Series C
                          preferred stock of AeroGen issued to Venture Lending &
                          Leasing II, Inc.
 4.5+                     Warrant, dated October 14, 1997, to purchase Series C
                          preferred stock of AeroGen issued to Venture Lending &
                          Leasing, Inc.
 4.6+                     Stock Purchase Agreement between AeroGen and PathoGenesis
                          Corporation, dated March 13, 2000
 4.7++                    Stock Purchase Agreement between AeroGen and Becton,
                          Dickinson and Company, dated May 10, 2000
 5.1                      Opinion of Cooley Godward LLP
10.1+                     Form of Indemnity Agreement
10.2+                     1994 Stock Option Plan
10.3+                     1996 Stock Option Plan
</TABLE>


                                      II-3
<PAGE>


<TABLE>
<CAPTION>
        EXHIBIT
        NUMBER                              DESCRIPTION OF DOCUMENT
        ------            ------------------------------------------------------------
<C>                       <S>
10.4+                     2000 Equity Incentive Plan
10.5+                     2000 Non-Employee Directors' Stock Option Plan
10.6+                     2000 Employee Stock Purchase Plan
10.7+                     Sublease between AeroGen and MicroBar dated April 3, 1997
10.8+                     Sublease between AeroGen and MicroBar dated August 9, 1999
10.9++                    Development & Supply Agreement between AeroGen and
                          PathoGenesis Corporation dated March 13, 2000
10.10++                   Development Agreement between Becton, Dickinson and Company
                          and AeroGen, dated May 10, 2000
10.11+                    Settlement Agreement between Bespak plc and AeroGen and
                          Tenax Corporation, dated March 4, 1999
10.12+                    Agreement for the Acquisition By Way of Exchange of the
                          Entire Issued "A" Share Capital of Cerus Limited, dated May
                          25, 2000
10.13+                    Amended and Restated 1996 Stock Option Plan
10.14+                    AeroGen, Inc. Executive Severance Benefit Plan
21.1+                     Subsidiaries of AeroGen
23.1                      Consent of PricewaterhouseCoopers LLP, independent
                          accountants
23.2                      Consent of PricewaterhouseCoopers, independent accountants
23.3                      Consent of Cooley Godward LLP. Reference is made to Exhibit
                          5.1
23.4+                     Consent of IMS HEALTH
23.5+                     Consent of Front Line Strategic Management Consulting, Inc.
24.1+                     Power of Attorney. Reference is made to Page II-6
27.1+                     Financial Data Schedule
</TABLE>


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

++   Confidential treatment requested as to specific portions, which portions
    are omitted and filed separately with the Securities and Exchange
    Commission.

+   Previously filed.

    (b) Financial Statement Schedules

    All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.

ITEM 17.  UNDERTAKINGS.

    The registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

    Insofar as indemnification by the registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter

                                      II-4
<PAGE>
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

    The registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the
    information omitted from the form of Prospectus filed as part of this
    Registration Statement in reliance upon Rule 430A and contained in a form of
    Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
    497(h) under the Securities Act shall be deemed to be part of this
    Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act, each
    post-effective amendment that contains a form of Prospectus shall be deemed
    to be a new registration statement relating to the securities offered
    therein, and the offering of such securities at that time shall be deemed to
    be the initial bona fide offering thereof.

                                      II-5
<PAGE>
                                   SIGNATURES


    Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sunnyvale,
State of California, on the 8th day of November, 2000.


<TABLE>
<S>                                                    <C>  <C>
                                                       AEROGEN, INC.

                                                       By:  *
                                                            -----------------------------------------
                                                            Jane E. Shaw, Ph.D.
                                                            Chairman and Chief Executive Officer
                                                            (Principal Executive Officer)
</TABLE>


<TABLE>
<CAPTION>
               SIGNATURE                                      TITLE                           DATE
               ---------                                      -----                           ----
<S>                                                <C>                                  <C>
*                                                  Chairman and Chief Executive         November 8, 2000
-------------------------------                    Officer and Director
Jane E. Shaw, Ph.D.                                (Principal Executive
                                                   Officer)

*                                                  Chief Financial Officer              November 8, 2000
-------------------------------                    (Principal Financial and
Deborah K. Karlson                                 Accounting Officer)

*                                                  Chief Technical Officer and          November 8, 2000
-------------------------------                    Director
Yehuda Ivri

*                                                  Director                             November 8, 2000
-------------------------------
Thomas R. Baruch

*                                                  Director                             November 8, 2000
-------------------------------
Jean-Jacques Bienaime

*                                                  Director                             November 8, 2000
-------------------------------
Phyllis I. Gardner, M.D.

*                                                  Director                             November 8, 2000
-------------------------------
Susan D. Desmond-Hellmann

*                                                  Director                             November 8, 2000
-------------------------------
Philip M. Young
</TABLE>


<TABLE>
<S>   <C>                                               <C>                              <C>
*By:  /s/ CAROL GAMBLE
      ----------------------------------
      Carol Gamble
      Attorney-in-fact
</TABLE>

                                      II-6
<PAGE>
                                 AEROGEN, INC.
                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
        EXHIBIT
        NUMBER            DESCRIPTION
-----------------------   -----------
<C>                       <S>
 1.1+                     Form of Underwriting Agreement

 3.1+                     Amended and Restated Certificate of Incorporation of AeroGen

 3.2+                     Amended and Restated Certificate of Incorporation of AeroGen
                          to be effective upon the closing of the offering

 3.3+                     Bylaws of AeroGen

 3.4+                     Amended and Restated Bylaws of AeroGen to be effective upon
                          the closing of the offering

 4.1+                     Specimen Common Stock Certificate

 4.2+                     Fourth Amended & Restated Information and Registration
                          Rights Agreement dated July 7, 2000 between AeroGen and
                          holders of AeroGen Series A, Series B, Series C, Series D,
                          Series E, and Series F preferred stock and holders of
                          warrants to purchase AeroGen common stock or Series C
                          preferred stock

 4.3+                     Warrant, dated June 20, 1995, to purchase common stock of
                          AeroGen issued to Venture Lending & Leasing, Inc.

 4.4+                     Warrant, dated October 14, 1997, to purchase Series C
                          preferred stock of AeroGen issued to Venture Lending &
                          Leasing II, Inc.

 4.5+                     Warrant, dated October 14, 1997, to purchase Series C
                          preferred stock of AeroGen issued to Venture Lending &
                          Leasing, Inc.

 4.6+                     Stock Purchase Agreement between AeroGen and PathoGenesis
                          Corporation, dated March 13, 2000

 4.7++                    Stock Purchase Agreement between AeroGen and Becton,
                          Dickinson and Company, dated May 10, 2000

 5.1                      Opinion of Cooley Godward LLP

10.1+                     Form of Indemnity Agreement

10.2+                     1994 Stock Option Plan

10.3+                     1996 Stock Option Plan

10.4+                     2000 Equity Incentive Plan

10.5+                     2000 Non-Employee Directors' Stock Option Plan

10.6+                     2000 Employee Stock Purchase Plan

10.7+                     Sublease between AeroGen and MicroBar dated April 3, 1997

10.8+                     Sublease between AeroGen and MicroBar dated August 9, 1999

10.9++                    Development & Supply Agreement between AeroGen and
                          PathoGenesis Corporation dated March 13, 2000

10.10++                   Development Agreement between Becton, Dickinson and Company
                          and AeroGen, dated May 10, 2000

10.11+                    Settlement Agreement between Bespak plc and AeroGen and
                          Tenax Corporation, dated March 4, 1999

10.12+                    Agreement for the Acquisition By Way of Exchange of the
                          Entire Issued "A" Share Capital of Cerus Limited, dated May
                          25, 2000

10.13+                    Amended and Restated 1996 Stock Option Plan

10.14+                    AeroGen, Inc. Executive Severance Benefit Plan

21.1+                     Subsidiaries of AeroGen
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
        EXHIBIT
        NUMBER            DESCRIPTION
-----------------------   -----------
<C>                       <S>
23.1                      Consent of PricewaterhouseCoopers LLP, independent
                          accountants

23.2                      Consent of PricewaterhouseCoopers, independent accountants

23.3                      Consent of Cooley Godward LLP. Reference is made to Exhibit
                          5.1

23.4+                     Consent of IMS HEALTH

23.5+                     Consent of Front Line Strategic Management Consulting, Inc.

24.1+                     Power of Attorney. Reference is made to Page II-6

27.1+                     Financial Data Schedule
</TABLE>


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

++   Confidential treatment requested as to specific portions, which portions
    are omitted and filed separately with the Securities and Exchange
    Commission.

+   Previously filed.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.7
<SEQUENCE>2
<FILENAME>a2029891zex-4_7.txt
<DESCRIPTION>EXHIBIT 4.7
<TEXT>

<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 4.7






                                  AEROGEN, INC.

                                       AND

                          BECTON, DICKINSON AND COMPANY

                            STOCK PURCHASE AGREEMENT


                                  MAY 10, 2000


<PAGE>

                            STOCK PURCHASE AGREEMENT

         THIS AGREEMENT is made effective as of the 10th day of May, 2000, by
and between AEROGEN, INC., a Delaware corporation with its principal place of
business at 1310 Orleans Drive, Sunnyvale, California 94089 (the "Company"), and
BECTON, DICKINSON AND COMPANY a New Jersey corporation with its principal office
at 1 Becton Drive, Franklin Lakes, New Jersey 07417-1866 ("BD"). AeroGen and BD
are sometimes referred to herein individually as a "Party" and collectively as
the "Parties."

                                    RECITALS

         WHEREAS, the Company and BD have entered into that certain Insulin
Inhaler Development Agreement of even date herewith (the "Development
Agreement", and together with this Agreement, the "Transactional Agreements");
and

         WHEREAS, in connection with the Development Agreement, the Company
desires to sell to BD and BD desires to purchase from the Company an aggregate
of 961,539 shares of Series E Convertible Preferred Stock of the Company
("Series E Stock"), having the rights and preferences as set forth in the
Company's Amended and Restated Certificate of Incorporation (attached as Exhibit
A) (the "Restated Certificate"), for an aggregate price of two million five
hundred thousand one dollars and forty cents ($2,500,001.40) on the terms and
subject to the conditions set forth in this Agreement, and to give the Company
an option, under certain circumstances, to require BD to purchase another three
million dollars ($3,000,000) of stock on the terms set forth below. For the
purposes of this Agreement "Series E Stock" will include the Series E
Convertible Preferred Stock purchased by BD hereunder and any Common Stock
issued upon conversion thereof, and "Financing Stock" (as hereinafter defined)
shall also include any Common Stock into which such stock may be convertible.

         NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the parties hereto, intending
to be legally bound, do hereby agree as follows:

         1.       PURCHASE OF SERIES E STOCK.

                  1.1      INITIAL PURCHASE OF SERIES E STOCK. Subject to the
terms and conditions of this Agreement at the Closing (as hereinafter defined)
the Company agrees to sell to BD and BD agrees to purchase from the Company, for
a price of two million five hundred thousand one dollars and forty cents
($2,500,001.40), an aggregate of 961,539 shares of Series E Stock, free and
clear of all liens and encumbrances, at the purchase price per share of $2.60.
The Company shall have thirty (30) days following the later of the closing of
the Next Financing (as hereinafter defined) and the achievement of the First
Milestone (as hereinafter defined) to exercise its option under Section 1.2 by
giving written notice thereof to BD on or prior to such thirtieth (30th) day.

                  1.2      ADDITIONAL STOCK PURCHASE UPON THE ACHIEVEMENT OF A
MILESTONE.

                           (a)      Subject to the terms and conditions of this
Agreement and in reliance on the representations and warranties contained
herein, BD agrees to purchase from the

[ * ] = 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>

Company, at the Company's option, at the later of the achievement of the First
Milestone (as hereinafter defined) by the Company, or upon the closing of the
Company's Next Financing (as hereinafter defined), an aggregate of three million
dollars ($3,000,000) of the same series or class of stock sold in the Next
Financing (the "Financing Stock") at the same price per share and upon the same
terms (i.e., receiving the same representations, warranties, covenants, legal
opinions, etc.) as sold to purchasers in such financing, provided that both the
achievement of the First Milestone and the closing of the Next Financing shall
have occurred on or prior to December 31, 2000. The closing of such sale shall
occur at such time and place as shall be agreed by the Company and BD, but in no
event more than five business days following written notice to BD from the
Company that it is exercising its option. The Financing Stock purchased by BD
shall have the same rights, preferences and privileges as given by the Company
to purchasers of Financing Stock in the Next Financing.

                           (b)      For purposes of this Section 1.2, the "First
Milestone" shall mean the allowance by the Food and Drug Administration of an
Investigational New Drug Application for inhaled insulin with a device that
is able to deliver [ * ] of bio-available insulin [ * ].

                           (c)      For purposes of this Section 1.2, the "Next
Financing" shall mean a transaction or series of related transactions in which
convertible preferred stock or Common Stock of the Company is sold (other than
the sale to BD contemplated hereby) after the date hereof resulting in aggregate
gross proceeds to the Company (excluding the sale to BD contemplated hereby) of
not less than $5,000,000 with not less than $3,000,000 of such proceeds
resulting from the purchase of such stock from an institutional investor or
investors which is (are) neither an equity investor(s) in the Company as of the
date hereof nor "strategic investors" or "corporate partners"(as those terms are
commonly used) with the Company.

                  1.3      HART-SCOTT-RODINO COMPLIANCE. Notwithstanding
anything else in this Section 1, it shall also be a condition to the Initial
Closing, and any Milestone Closing (as hereinafter defined), as applicable, that
the waiting period under the premerger notification requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
applicable to the aforementioned transactions shall have expired or been
terminated and any approvals required thereunder shall have been obtained. The
parties shall cooperate in promptly filing premerger reports and in taking all
steps necessary to obtain early termination of any applicable HSR Act waiting
periods.

         2.       CLOSING DATE; DELIVERY.

                  2.1      CLOSING; CLOSING DATE. Subject to the terms of
Section 5, the closing of the sale and purchase of shares of Series E Stock (or
Financing Stock, as the case may be) under Sections 1.1 and 1.2 of this
Agreement (the "Initial Closing," or the "Milestone Closing," each of which may
be referred to individually as "Closing") shall be held at 9:00 a.m. (Pacific
Time on the applicable closing date at the offices of Cooley Godward, 5 Palo
Alto Square, 8th Floor, Palo Alto, California, or at such other time and place
as the Company and BD may agree. The date of the Initial Closing ("Initial
Closing Date") shall be the day of the signing of this Agreement. The date of
the Milestone Closing, shall be as set forth in Section 1.2 above.

                  2.2      DELIVERY. At the Initial Closing and at the Milestone
Closing, subject to the terms and conditions hereof, the Company will deliver to
BD a stock certificate, in the name

[ * ] = 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>

of BD or its designee, representing, respectively, the shares of Series E Stock
(or Financing Stock, as the case may be) deliverable at such Closing, dated as
of the Initial Closing or the Milestone Closing, as applicable, against payment
of the purchase price therefor by wire transfer, unless other means of payment
shall have been agreed upon by BD and the Company.

         3.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

         The Company hereby represents and warrants to BD that, except as set
forth on a Schedule of Exceptions attached as Exhibit B (the "Schedule of
Exceptions"), specifically identifying the relevant subsection hereof, which
exceptions shall be deemed to be representations and warranties as if made
hereunder:

                  3.1      ORGANIZATION, GOOD STANDING AND QUALIFICATION. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify would have a
material adverse effect on its business or properties.

                  3.2      CAPITALIZATION. The authorized capital of the Company
immediately prior to the Closing will consist of:

                           (a)      PREFERRED STOCK. 31,642,430 shares of
Preferred Stock (the "Preferred Stock"), of which 3,846,156 shares have been
designated Series A Preferred Stock, all of which are issued and outstanding
immediately prior to the Closing; of which 4,487,182 shares have been designated
Series B Preferred Stock, all of which are issued and outstanding immediately
prior to the Closing; of which 9,375,300 shares have been designated Series C
Preferred Stock, 9,245,300 of which are issued and outstanding immediately prior
to the Closing; of which 10,285,714 shares have been designated Series D
Preferred Stock, all of which are issued and outstanding immediately prior to
the Closing; and of which 3,648,078 shares have been designated Series E
Preferred Stock, of which 961,539 shares are issued and outstanding immediately
prior to the Closing. The rights, privileges and preferences of the Preferred
Stock and Common Stock are as stated in the Restated Certificate.

                           (b)      COMMON STOCK. 53,000,000 shares of Common
Stock ("Common Stock"), of which 6,928,821 shares are issued and outstanding
immediately prior to the Closing and 31,642,430 shares are reserved for issuance
upon conversion of Preferred Stock.

                           (c)      Except for the conversion privileges of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock outstanding, the Series E
Stock to be issued under this Agreement (and the conversion privileges thereof),
outstanding options to purchase 3,930,202 shares of Common Stock, warrants to
purchase 32,051 shares of Common Stock and warrants to purchase 65,000 shares of
Series C Preferred Stock, as of the date of this Agreement, (i) no person will
have any right to subscribe for or to purchase (including conversion or
preemptive rights), or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or other claims of any character relating to, any capital stock or
any

[ * ] = 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>

stock or securities convertible into or exchangeable for any capital stock of
the Company; (ii) except as set forth in this Section 3.2, the Company will not
have any capital stock, equity interests or other securities reserved for
issuance for any purpose; and (iii) the Company will not be subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock or any convertible securities, rights or
options of the type described in the preceding clause (i). No outstanding
option, warrant or other security directly or indirectly exercisable for or
convertible into any class or series of the Company's capital stock requires
anti-dilution adjustment by reason of the transactions contemplated by this
Agreement. To the best knowledge of the Company, there are no agreements among
the Company's stockholders with respect to the voting or transfer of the
Company's capital stock, other than the agreements regarding voting contained in
the Amended and Restated Voting Agreement dated August 25, 1998, (the "Voting
Agreement") and the agreements regarding transfer contained in the Co-Sale
Agreement, dated August 25, 1998, (the "Co-Sale Agreement"). Schedule 3.2(c)
sets forth a complete and correct list of the name of each of the Directors,
Officers and five percent shareholders of the Company and the amount of stock
each owns in the Company. The Company has reserved 5,800,000 shares of Common
Stock under its 1994 and 1996 Stock Option Plans, for issuance upon the exercise
of options to be granted under such stock plans. 819,029 shares of Common Stock
remain in the employee reserve pool.

                  3.3      SUBSIDIARIES. The Company does not currently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity.

                  3.4      AUTHORIZATION. All corporate action on the part of
the Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company under this Agreement and the authorization, issuance
and delivery of the Series E Stock (and the Common Stock issuable upon
conversion of the Stock) has been taken or will be taken prior to the Closing,
and this Agreement constitutes a valid and legally binding obligation of the
Company, enforceable against the Company in accordance with its terms.

                  3.5      VALID ISSUANCE OF SECURITIES.

                           (a)      The Series E Stock that is being issued to
BD hereunder, when issued, sold and delivered in accordance with the terms
hereof for the consideration expressed herein, (i) will be duly and validly
issued, fully paid and nonassessable and (ii) will be free of any pledges,
liens, security interests, claims or encumbrances of any kind. Based in part
upon the representations of BD in this Agreement, the Series E Stock will be
issued in compliance with all applicable federal and state securities laws. The
Common Stock issuable upon conversion of the Series E Stock has been duly and
validly reserved for issuance, and upon issuance in accordance with the terms of
the Restated Certificate (i) will be duly and validly issued, fully paid and
non-assessable, (ii) will be issued in compliance with all applicable federal
and state securities laws and (iii) will be free of any pledges, security
interests, claims or encumbrances of any kind.

                           (b)      The outstanding shares of Common Stock,
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E

[ * ] = 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>

Preferred Stock are all duly and validly authorized and issued, fully paid and
nonassessable, and were issued in compliance with all applicable federal and
state securities laws.

                  3.6      GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for the filings pursuant to (i) Section
25102(f) of the California Corporate Securities Law of 1968, as amended, and the
rules thereunder, (ii) Rule 506 of Regulation D promulgated under the Securities
Act of 1933, as amended (the "Act"), and (iii) any other post-Closing filings
with any other jurisdictions required under applicable state securities laws,
which filings will be timely effected in accordance with such sections and/or
rules.

                  3.7      LITIGATION. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company that questions
the validity of the Transaction Agreements or the right of the Company to enter
into them, or to consummate the transactions contemplated thereby, or that might
result, either individually or in the aggregate, in any material adverse changes
in the assets, condition or affairs of the Company, financially or otherwise, or
any change in the current equity ownership of the Company, nor is the Company
aware that there is any basis for the foregoing. The foregoing includes, without
limitation, actions pending or threatened (or any basis therefor known to the
Company) involving the prior employment of any of the Company's employees, their
use in connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.

                  3.8      EMPLOYEE AGREEMENT. Each employee and officer of the
Company and each consultant to the Company has executed an agreement with the
Company regarding confidentiality and proprietary information. The Company,
after reasonable investigation, is not aware that any of its employees are in
violation thereof, and the Company will use its best efforts to prevent any such
violation.

                  3.9      PATENTS AND TRADEMARKS. The Company has sufficient
title to and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for its business as now conducted and as proposed to be conducted
without any conflict with or infringement upon the rights of others. The
patents, patent applications, trademarks, service marks, trade names and
copyrights owned by the Company and that the Company has rights to use are set
forth on the Schedule of the Exceptions. There are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, nor is the
Company bound by or a party to any options, licenses or agreements of any kind
with respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information, proprietary rights and processes of any
other person or entity. The Company has not received any communications alleging
that the Company has violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity.

[ * ] = 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>

The Company is not aware that any of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of the employee's best
efforts to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, nor the carrying on of the Company's business by the
employees of the Company, nor the conduct of the Company's business as proposed,
will, to the Company's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to utilize any inventions of
any of its employees (or people it currently intends to hire) made prior to
their employment by the Company.

                  3.10     COMPLIANCE WITH OTHER INSTRUMENTS.

                           (a)      The Company is not in violation or default
of any provisions of its Restated Certificate or Bylaws or of any instrument,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound or of any material provision of any federal or state statute, rule or
regulation applicable to the Company. Without limiting the generality of the
foregoing, the Company is in compliance with all material federal, state and
local laws, rules and regulations relating to the development, manufacture,
safety, sale, labeling, marketing and, if required, governmental approval of its
products. The execution, delivery and performance of this Agreement and the
consummation of the transaction contemplated hereby will not result in any such
violation or be in conflict with or constitute, with or without the, passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company.

                           (b)      The Company has avoided every condition, and
has not performed any act, the occurrence of which would result in the Company's
loss of any right granted under any license, distribution or other agreement.

                  3.11     AGREEMENTS; ACTION.

                           (a)      There are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.

                           (b)      Except for the Transactional Agreements,
there are no agreements, understandings, instruments, contracts or proposed
transactions to which the Company is a party or by which it is bound that
involve (i) obligations of, or payments to the Company in excess of $50,000, or
(ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company, or (iii) obligations of, or payments by, the
Company to any officer, director, employee or family member of any such
individual.

                           (c)      The Company has not (i) declared or paid any
dividends, or authorized or made distribution upon or with respect to any class
or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or incurred any other liabilities individually in


                                       7
<PAGE>

excess of $50,000 or in excess of $100,000 in the aggregate, (iii) made any
loans or advances to any person, or (iv) sold, exchanged or otherwise disposed
of any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.

                           (d)      The Company is not a party to and is not
bound by any contract, agreement or instrument, or subject to any restriction
under its Restated Certificate or Bylaws, that adversely affects its business as
now conducted or as proposed to be conducted, its properties or its financial
condition.

                           (e)      The Company has not engaged in the past
three (3) months in any discussion (i) with any representative of any
corporation or corporations regarding the merger of the Company with or into any
such corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of, or (iii)
regarding any other form of liquidation, dissolution or winding up of the
Company.

                           (f)      All contracts to which the Company is a
party or by which its assets may be bound are valid, binding and in full force
and effect, and no material breach or default, or event which, with notice or
lapse of time or both, would constitute any such material breach or default by
the Company (or, to the best knowledge of the Company, by any other party
thereto), exists with respect thereto. The Company has received no notice of
cancellation or non-renewal of any material contract.

                  3.12     DISCLOSURE. Except for certain agreements that the
Company considers to be confidential or proprietary in nature, agreements which
the Company is under an obligation not to disclose, and agreements that the
Company believes contain nonessential details of the interference settlement,
the Company has provided BD or its counsel with all the information which BD has
requested for deciding whether to acquire the Series E Stock. No representation
or warranty of the Company contained in this Agreement and the Exhibits attached
hereto, or, any other written statement or certificate furnished or to be
furnished to BD in connection herewith contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made. The Company has provided counsel to BD
access to complete and accurate copies of each agreement, except for the
agreements stated above, to which the Company is a party or to which it, its
assets or its properties are subject.

                  3.13     RIGHTS OF REGISTRATION AND FIRST OFFER. Except for
registration rights granted to the holders of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock and to be
granted to BD, in each case pursuant to the Third Amended and Restated
Information and Registration Rights Agreement dated August 25, 1998 (the
"Registration Rights Agreement"), the Company has not granted or agreed to grant
any registration rights, including piggyback rights, to any person or entity.
All rights of first offer granted by the Company related to its securities have
been satisfied or will be waived prior to the Closing.

[ * ] = 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
<PAGE>

                  3.14     CORPORATE DOCUMENTS. The Restated Certificate and
By-laws of the Company are in the form provided to counsel to BD.

                  3.15     TITLE TO PROPERTY AND ASSETS. The Company owns its
property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and do not materially impair the Company`s ownership or use
of such property or assets. With respect to the property and assets it leases,
the Company is in compliance with such leases and, to the best of its knowledge,
holds a valid leasehold interest free of any liens, claims or encumbrances.

                  3.16     FINANCIAL STATEMENTS. The Company has delivered to BD
its audited financial statements (balance sheet, profit and loss statement, cash
flows statement and statement of stockholder equity) for the year ended December
31, 1998 and its unaudited financial statements (balance sheet, profit and loss
statement, cash flows statement and statement of stockholder equity) for the
twelve months ended December 31, 1999 (collectively, the "Financial
Statements"). The Financial Statements have been prepared in accordance with
generally accepted accounting principles and on a consistent basis throughout
the periods indicated and with each other. The Financial Statements fairly
present the financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein, subject, in the case of the
unaudited financial statements, to normal year-end audit adjustments, which are
neither individually nor in the aggregate material. Except as set forth in the
Financial Statements, the Company has no material liabilities, contingent or
otherwise.

                  3.17     EMPLOYEE BENEFIT PLANS; ERISA.

                           (a)      Item 3.17 of the Schedule of Exceptions
contains a true and complete list of all "employee benefit plans," within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and any other bonus, profit sharing, compensation,
severance, deferred compensation, fringe benefit, insurance, welfare, medical,
post-retirement health or welfare benefit, life, stock option, stock purchase,
disability, termination, retention or other plan, agreement, trust fund or
arrangement (whether written or unwritten), maintained, sponsored or contributed
to by the Company or any entity that would be deemed a "single employer" with
the Company under Section 414(b), (c), (m) or (o) of the Internal Revenue Code
of 1986, as amended (the "Code") or Section 4001 of ERISA (an "ERISA Affiliate")
on behalf of any employee of the Company or any ERISA Affiliate (whether
current, former or retired) or their beneficiaries or with respect to which the
Company or any ERISA Affiliate has or has had any obligation on behalf of any
such employee or beneficiary (each a "Plan" and, collectively, the "Plans").

                           (b)      None of the ERISA Affiliates or the Company
has ever contributed to or contributes to, been required to contribute to, or
otherwise participated in or participates in (i) any "multiemployer plan"
(within the meaning of Section 4001(a)(3) of ERISA or Section 414(f) of the
Code), (ii) any single employer pension plan (within the meaning of Section
4001(a)(15) of ERISA) which is subject to Sections 4063 and 4064 of ERISA or
(iii) any plan subject to Title IV of ERISA or Section 412 of the Code.

[ * ] = 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
<PAGE>

                           (c)      The Company, each ERISA Affiliate, each Plan
and each "plan sponsor" (within the meaning of Section 3(16) of ERISA) and each
"employee benefit plan" (within the of section 3(3) of ERISA) has complied in
all material respects with applicable law including, without limitation, the
Code and ERISA and each Plan complies with and has been maintained and operated
in all material respects in accordance with its terms.

                           (d)      With respect to each of the Plans referenced
in item 3.17 of the Schedule of Exceptions: (i) all payments required by any
Plan or by law with respect to all periods through the date of the Closing have
been made prior to the Closing; (ii) no "prohibited transaction," within the
meaning of Section 4975 of the Code and Section 406 of ERISA, has occurred, or
to the best of the Company's knowledge is expected to occur, with respect to any
Plan which has subjected or could subject the Company, any officer, director or
employee thereof or any trustee, administrator or other fiduciary, to a tax or
penalty on prohibited transactions imposed by either Section 502 of ERISA or
Section 4975 of the Code, or any other liability with respect thereto; and (iii)
no Plan is under audit or investigation by the Internal Revenue Service or the
Department of Labor or any other governmental authority and no such completed
audit, if any, has resulted in the imposition of any tax or penalty.

                  3.18     TAX RETURNS AND PAYMENTS. The Company has filed all
tax returns and reports as required by law. These returns and reports are true
and correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith which are listed in
the Schedule of Exceptions. The provision for taxes of the Company as shown in
the Financial Statements is adequate for taxes due or accrued as of the date
thereof. The Company has not elected pursuant to the Internal Revenue Code of
1986, as amended (the "Code"), to be treated as a Subchapter S corporation or a
collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections which relate solely to methods of accounting, depreciation or
amortization) which would have a material adverse effect on the Company, its
financial condition, its business as currently conducted or as proposed to be
conducted or any of its properties or material assets.

                  3.19     INSURANCE. The Company has in full force and effect
fire and casualty insurance policies, with extended coverage, sufficient in
amount (subject to reasonable deductibles) to allow it to replace any of its
properties that might be damaged or destroyed. The Company also has in full
force and effect product liability insurance and comprehensive general liability
insurance in amounts and with such coverages as are generally maintained by
responsible companies in the same industry.

                  3.20     LABOR AGREEMENTS AND ACTIONS. The Company is not
bound by or subject to (and none of its assets or properties is bound by or
subject to) any written or oral, express or implied, contract, commitment or
arrangement with any labor union, and no labor union has requested or, to the
knowledge of the Company, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or to the knowledge of the Company
threatened, which could have a material adverse effect on the assets,
properties, financial condition, operating results, prospects or business of the
Company (as such business is currently conducted and as it is proposed to be
conducted), nor is the Company aware of any labor organization activity

[ * ] = 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
<PAGE>

involving its employees. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment, with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. The employment of each officer
and employee of the Company is terminable at the will of the Company.

                  3.21     ABSENCE OF CHANGES. Except as specifically set forth
in this Agreement, since December 31, 1999, (a) the Company has not entered into
any transaction other than in the ordinary course of business and which is not,
individually or in the aggregate, material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
currently conducted and as it is proposed to be conducted), (b) the Company has
not changed any compensation arrangement or agreement with any of its key
employees or executive officers, or changed the rate of pay of its employees as
a group, (c) the Company has not changed or amended any contract by which the
Company or any of its respective assets are bound or subject which would have a
material adverse effect on the business of the Company, (d) there has been no
waiver by the Company of a valuable right or of a debt owing to the Company
which would have a material and adverse effect on the business of the Company,
(e) there has not been any satisfaction or discharge of any lien, claim or
encumbrance or any payment of any obligation by the Company except in the
ordinary course of business and which is not, individually or in the aggregate,
material to the assets, properties, financial condition, operating results or
business of the Company (as such business is currently conducted and as it is
proposed to be conducted), and (f) except as set forth in the Financial
Statements, the Company has no material liabilities, contingent or otherwise,
other than obligations under contracts and commitments incurred in the ordinary
course of business not in excess of $50,000 individually and $100,000 in the
aggregate.

                  3.22     BROKERS. The Company has retained no finder, broker,
agent, financial adviser or other intermediary in connection with the
transactions contemplated by this Agreement and the Company agrees to indemnify
and hold harmless BD from liability for any compensation to any such
intermediary and the fees and expenses of defending against such liability or
alleged liability.

                  4.       REPRESENTATIONS AND WARRANTIES OF BD.

         BD hereby represents and warrants to the Company as follows:

                  4.1      LEGAL POWER. BD has the requisite corporate power to
enter into this Agreement and to carry out and perform its obligations under the
terms of this Agreement.

                  4.2      DUE EXECUTION. This Agreement has been duly
authorized, executed and delivered by BD, and, upon due execution and delivery
by the Company, this Agreement will be a valid and binding agreement of BD,
enforceable against BD in accordance with its terms.

                  4.3      INVESTMENT REPRESENTATIONS. In connection with any
sale of shares under this Agreement, BD makes the following representations:

                           (a)      BD is acquiring the shares of Series E Stock
under this Agreement for its own account, not as nominee or agent, for
investment and not with a view to, or for resale

[ * ] = 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
<PAGE>

in connection with, any distribution or public offering thereof within the
meaning of the Securities Act of 1933, as amended (the "Securities Act").

                           (b)      BD understands that (i) the shares of Series
E Stock to be purchased under this Agreement have not been registered under the
Securities Act by reason of a specific exemption therefrom, that such securities
must be held by BD, and that BD must, therefore, bear the economic risk of such
investment, until a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration; (ii) each certificate
representing such shares will be endorsed with the following legends:

                                    A.       THE SECURITIES REPRESENTED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY
TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

                                    B.       THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING RESTRICTIONS ON
TRANSFERABILITY, OF THAT CERTAIN STOCK PURCHASE AGREEMENT, DATED ________, 2000.
A COPY OF SUCH STOCK PURCHASE AGREEMENT WILL BE FURNISHED TO THE RECORD HOLDER
OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO AEROGEN, INC. AT ITS
PRINCIPAL PLACE OF BUSINESS."

                                    C.       Any legend currently required to be
placed thereon under applicable state securities laws.

and (iii) the Company will instruct any transfer agent not to register the
transfer of the shares of Series E Stock purchased pursuant to this Agreement
(or any portion thereof) unless the conditions specified in the foregoing
legends are satisfied, until such time as a transfer is made, pursuant to the
terms of this Agreement, and in compliance with Rule 144 or pursuant to a
registration statement or, if the opinion of counsel referred to above is to the
further effect that such legend is not required in order to establish compliance
with any provisions of the Securities Act or this Agreement.

                           (c)      BD has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the shares of Series E Stock purchased hereunder.

[ * ] = 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
<PAGE>

                           (d)      BD is an "accredited investor" as such term
is defined in Rule 501(a) of Regulation D of the General Rules and Regulations
prescribed by the Securities and Exchange Commission pursuant to the Securities
Act.

                  4.4      BROKERS. BD has retained no finder, broker, agent,
financial advisor or other intermediary in connection with the transactions
contemplated by this Agreement and BD agrees to indemnify and hold harmless the
Company from liability for any compensation to any such intermediary and the
fees and expenses of defending against such liability or alleged liability.

         5.       CONDITIONS TO CLOSING.

                  5.1      CONDITIONS TO OBLIGATIONS OF BD AT INITIAL CLOSING.
BD's obligation to purchase the shares of the Company's Series E Stock at the
Closing is subject to the fulfillment to BD's satisfaction, on or prior to the
Closing, of all of the following conditions, any of which may be waived by BD:

                           (a)      REPRESENTATIONS AND WARRANTIES TRUE;
PERFORMANCE OF OBLIGATIONS. The representations and warranties made by the
Company in Section 3 hereof shall be true and correct in all material respects
on the date of the Agreement and the Company shall have performed and complied
with all obligations and conditions herein required to be performed or complied
with by it on or prior to the Closing, and a Certificate duly executed by an
officer of the Company, to the effect of the foregoing, shall be delivered to
BD.

                           (b)      PROCEEDINGS AND DOCUMENTS. All corporate and
other proceedings in connection with the transactions contemplated at the
Closing and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to counsel to BD, and counsel to
BD shall have received all such counterpart originals or certified or other
copies of such documents as they may reasonably request.

                           (c)      QUALIFICATIONS, LEGAL INVESTMENT. All
authorizations, approvals, or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful sale and issuance of the shares to be issued pursuant
to this Agreement shall have been duly obtained and shall be effective on and as
of the Closing. No stop order or other order enjoining the sale of the shares to
be sold at such Closing shall have been issued and no proceedings for such
purpose shall be pending or, to the best knowledge of the Company, threatened by
the Securities and Exchange Commission, or any commissioner of corporations or
similar officer of any state having jurisdiction over this transaction. At the
time of the Closing, the sale and issuance of the shares of Series E Stock to be
sold thereat shall be legally permitted by all laws and regulations to which BD
and the Company are subject.

                           (d)      NO PENDING LITIGATION. There shall not be
any proceeding, hearing action, suit, arbitration or any investigation pending
or threatened or any legal requirement (including any federal, state, local,
municipal, foreign, international law, statute, rule or regulation) in effect
that would prevent the consummation of any of the transactions contemplated by
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.


                                       13
<PAGE>

                           (e)      OPINION OF COMPANY COUNSEL. BD shall have
received from Cooley Godward LLP, counsel for the Company, an opinion, dated as
of the Closing, in the form attached hereto as Exhibit C.

                           (f)      NECESSARY CONSENTS. The Company shall have
obtained, and shown by written evidence satisfactory to BD, all required
consents and approvals of third parties necessary to convey to BD all of the
shares of Series E Preferred Stock and to consummate the other transactions
contemplated by this Agreement.

                  5.2      CONDITIONS PRECEDENT TO BD'S INVESTMENT AT THE
MILESTONE CLOSING. In addition to the conditions provided for under Sections 1.2
and 1.3 hereof, the obligation of BD on the Milestone Closing to purchase the
Financing Stock as provided in Section 1.2(a) shall be subject to the
satisfaction, on or prior to the Milestone Closing, of each of the following
conditions precedent, any one or more of which may be waived by BD:

                           (a)      PERFORMANCE. The Company shall have
performed and complied in all material respects with all agreements and
conditions contained herein or in other ancillary documents incident to the
transactions contemplated by this Agreement required to be performed or complied
with by it prior to or at the Milestone Closing. No condition or event
constituting a breach under the Agreement or an event which, with notice or
lapse of time, or both, would constitute such a breach shall have occurred and
be continuing, or will result from the proceedings to be undertaken at the
Milestone Closing.

                           (b)      COMPLIANCE CERTIFICATES. The Company shall
have delivered to BD or its representative at the Milestone Closing an Officer's
Certificate to the effect that all conditions specified in Section 5.2(a) and
(d) that relate to the Company, have been fulfilled.

                           (c)      PROCEEDINGS AND DOCUMENTS; PRIOR CONDITIONS.
All corporate and other proceedings in connection with the Milestone Closing
contemplated by this Agreement and all documents and instruments incident to
such transactions shall be reasonably satisfactory in substance and form to BD
and its counsel, and BD and its counsel shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request.

                           (d)      MILESTONE. The Company shall have achieved
the First Milestone.

                           (e)      OPINION OF COMPANY'S COUNSEL. BD shall have
received from Cooley Godward LLP, counsel for the Company, a favorable opinion,
dated as of the Milestone Closing and satisfactory in form and substance to BD
and its counsel, confirming and restating (except as to any changes thereto
since the Initial Closing, including changes in applicable law) such portions of
the opinion rendered on the Initial Closing Date pursuant to Section 5.1(d) as
relate to the issuance and sale of Financing Stock pursuant to Section 1.2(a).

                           (f)      NO NOTICE OF TERMINATION UNDER THE
DEVELOPMENT AGREEMENT. The Development Agreement shall not have been terminated
by BD for breach of such agreement by the Company.

[ * ] = 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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                  5.3      CONDITIONS TO OBLIGATIONS OF THE COMPANY AT CLOSING.
The Company's obligation to issue and sell the shares of its Series E Stock at
the Closing is subject to the fulfillment to the Company's satisfaction, on or
prior to the Closing, of the following conditions, any of which may be waived by
the Company:

                           (a)      REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties made by BD in Section 4 hereof shall be true and
correct in all material respects at the date of the Closing.

                           (b)      PERFORMANCE OF OBLIGATIONS. BD shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by it on or before the Closing, and a Certificate
duly executed by an officer of BD, to the effect of the foregoing, shall be
delivered to the Company.

                           (c)      QUALIFICATIONS, LEGAL INVESTMENT. All
authorizations, approvals, or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful sale and issuance of the shares of Series E Stock to
be sold and issued pursuant to this Agreement shall have been duly obtained and
shall be effective on and as of the Closing. No stop order or other order
enjoining the sale of such shares shall have been issued and no proceedings for
such purpose shall be pending or, to the best knowledge of the Company,
threatened by the Securities and Exchange Commission, or any commissioner of
corporations or similar officer of any state having jurisdiction over this
transaction. At the time of the Closing, the sale and issuance of the shares of
Series E Stock to be sold and issued at the Closing shall be legally permitted
by all laws and regulations to which BD and the Company are subject.

                           (d)      NO PENDING LITIGATION. There shall not be
any proceeding, hearing, action, suit, arbitration or any investigation pending
or threatened or any legal requirement (including any federal, state, local,
municipal, foreign, international law, statute, rule or regulation) in effect
that would prevent the consummation of any of the transactions contemplated by
this Agreement.

         6.       COVENANTS AND RIGHTS OF BD.

                  6.1      SALE RESTRICTION. BD hereby covenants and agrees that
it will not contract to sell, or otherwise transfer, loan, pledge or grant any
rights to acquire any shares of the Company's Series E Stock acquired pursuant
to this Agreement, or Common Stock issued on conversion thereof (or purchase or
sell any derivative security that has a similar effect or enter into any
contract that has a similar effect), without the prior written consent of the
Company until the earlier of (a) one year following the Closing of the initial
public offering of securities of the Company pursuant to an underwritten
registration under the Securities Act, as amended (the "IPO"), or (b) four years
after the date of this Agreement. Notwithstanding anything in this Section 6.1
to the contrary, if the Company sells its equity securities to another corporate
partner (defined as a corporation which is purchasing equity securities of the
Company in connection with entering into a commercial relationship with the
Company) and such corporate partner does not agree to a restriction on the sale
of equity securities of the Company for at least one year following the
Company's IPO, then subsection (a) above shall be modified to provide that BD'S

[ * ] = 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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sale restriction shall extend only for that length of time following an IPO as
the sale restriction of such corporate partner. Following the expiration of the
sale restriction set forth in this Section 6.1, BD agrees that it will give the
Company at least five (5) business days' advance notice of its intention to sell
the Company's equity securities, and will use commercially reasonable efforts to
cooperate with the Company and its designated market makers to find a buyer or
buyers for the Company's stock and conclude its sale of such stock in an orderly
manner. The Company agrees that, following its IPO, it will not make any public
announcement of BD's intention to sell the Company's securities prior to the
time such sale is commenced unless, on advice of counsel, it is legally required
to do so.

                  6.2      RIGHT OF FIRST OFFER.

                           (a)      Prior to the Company's IPO, BD shall not
transfer any shares of the Company's Series E Stock (or Common Stock issued on
conversion thereof) purchased pursuant to this Agreement, whether or not for
consideration, to a third party, without complying with the provisions of this
Section 6.2. The right of first offer herein shall be freely assignable by the
Company.

                           (b)      Prior to the Company's IPO, in the event BD
desires to transfer any shares of the Company then held by it, BD shall give
written notice to the Secretary of the Company of its intention to transfer the
shares (the "Company Notice"). The Company Notice must name the number of shares
of Series E Stock (or Common Stock issued on conversion thereof) involved in the
proposed transfer, the proposed purchase price per share, and any other terms
and conditions of the proposed transfer. Within fifteen (15) days after delivery
of the Company Notice, the Company shall have the right to elect to purchase all
(but not less than all) of the shares proposed to be transferred (the "Option
Shares") on substantially the same terms and conditions specified in the Company
Notice, by delivery to BD of a written notice.

                           (c)      In the event that the Company fails to
exercise the right to purchase set forth in foregoing paragraph (b) as to all
the Option Shares within the period specified above, BD shall have sixty (60)
days thereafter to sell the Option Shares at a price and upon terms no more
favorable to the purchaser thereof than specified in the Company Notice. In the
event that BD has not sold such shares within such sixty (60) day period, BD
shall not thereafter sell any of such shares without first offering such shares
to the Company in the manner provided above.

                           (d)      Anything in this Agreement to the contrary
notwithstanding, BD shall be permitted to transfer shares of Series E Stock,
Financing Stock or the Common Stock into which it may be converted owned by it
without complying with the provisions of Section 6.2 to any of its Affiliates;
provided that any permitted transferee referred to above shall have delivered to
the Company the written agreement of such transferee to be bound by all of the
provisions of this Agreement to the same extent as its transferor, and until
such delivery is made no such transferee shall, with respect to the shares being
transferred, be a stockholder and the Company shall not recognize any such
transferee as a stockholder for any purpose.

                  6.3      STANDSTILL AGREEMENT. Other than shares of Series E
Stock, which it is purchasing pursuant to this Agreement, and the Common Stock
issued upon conversion thereof,

[ * ] = 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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BD hereby covenants and agrees that it will not, nor will it permit any of its
direct or indirect majority-owned subsidiaries, to purchase or otherwise
acquire, directly or indirectly, any equity securities of the Company (or rights
or options to purchase such securities) without the prior written approval of
the Company. This provision shall terminate and be of no further force or effect
five years from the date hereof or such earlier date as shall be agreed to by
the Company; provided, that the undertaking of this Section 6.3 shall
automatically terminate upon the occurrence of any of the following events: (a)
the filing with the SEC of a Schedule 13D by any person or entity indicating
that a person or entity has acquired (x) more than 20% of any class of the
Company's voting equity securities, or (y) has acquired at least 5% of any class
of the Company's voting equity securities which Schedule 13D expresses the
filing party's intention to assume control of the Company, whether by tender
offer, merger, proxy contest or otherwise; (b) the commencement of a tender
offer by any person or entity to acquire 20% or more of the Company's
outstanding voting equity securities; or (c) the solicitation of proxies by any
party other than the Company to which Rule 14a-11 of the rules and regulations
under the Securities and Exchange Act of 1934, as amended, applies and is
intended to effect a change in the majority of members of the Company's Board of
Directors.

                  6.4      REGISTRATION. BD shall become a party to, and shall
be deemed a "Holder" under, the Registration Rights Agreement for all purposes
except Section 2 and Section 16 thereof.

         7.       COVENANTS OF THE COMPANY

                  7.1      INFORMATION RIGHTS. Until the closing of an IPO by
the Company, the Company covenants and agrees that for so long as BD owns,
beneficially or of record, at least 500,000 shares of the Company's Series E
Stock (or Common Stock issued on conversion thereof) (in each case as adjusted
for stock splits or combinations, stock dividends or similar events), the
Company shall furnish to BD the following reports:

                           (a)      ANNUAL REPORTS. As soon as available and in
any event within 90 days after the end of each fiscal year, consolidated and
consolidating financial statements of the Company including a balance sheet as
of the end of such fiscal year and statements of income and retained earnings
and of sources and applications of funds for such fiscal year, prepared in
reasonable detail and in accordance with generally accepted accounting
principles consistently applied and accompanied by the opinion thereon of a
recognized firm of independent certified public accountants as may be selected
by the Board of Directors of the Company.

                           (b)      INTERIM REPORTS. As soon as available, and
in any event within 45 days after the end of each of the first three quarters of
each of the Company's fiscal years beginning with the quarter ending March 31,
2000, consolidated and consolidating financial statements of the Company
including a cash flow statement, a balance sheet as of the end of such
accounting period and statements of income and retained earnings and of sources
and applications of funds for such accounting period and for the period from the
beginning of such fiscal year to the end of such accounting period, and setting
forth in comparative form the figures for the corresponding periods of the
preceding fiscal year, prepared in reasonable detail and in accordance with
generally accepted accounting principles consistently applied and certified as
correct by the chief executive officer and chief financial officer of the
Company.

[ * ] = 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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                  7.2      PRESS RELEASES. Except as provided by law, each party
will secure advanced written approval from the other party of the decision to
issue and the content of any statement regarding or mentioning the transactions
contemplated hereby, whether in writing or otherwise to the public or press.
This provision shall not be deemed to have been breached if the disclosing party
acting on the advice of its securities or other regulatory counsel makes
disclosures to investors and potential investors or to any governmental or other
regulatory agency or organization.

         8.       MISCELLANEOUS.

                  8.1      GOVERNING LAW. This Agreement shall be governed by
and interpreted in accordance with the substantive laws of Delaware and the
United States of America, without regard to choice of law rules.

                  8.2      SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, and permitted assigns of the parties hereto.

                  8.3      ENTIRE AGREEMENT. This Agreement, the Development
Agreement and the Exhibits and Schedules hereto and thereto, and the other
documents delivered pursuant hereto, constitutes the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and thereof and no party shall be liable or bound to any other party in any
manner by any representations, warranties, covenants, or agreements except as
specifically set forth herein or therein. Nothing in this Agreement, express or
implied, is intended to confer upon any party, other than the parties hereto and
their respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
herein.

                  8.4      SEVERABILITY. Whenever possible, each provision of
the Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of the Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of the Agreement in the event of such invalidity, the
parties shall seek to agree on an alternative enforceable provision that
preserves the original purpose of this Agreement.

                  8.5      AMENDMENT AND WAIVER. Except as otherwise provided
herein, any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance,
either retroactively or prospectively, and either for a specified period of time
or indefinitely), with the written consent of the Company and BD. Any amendment
or waiver effected in accordance with this Section shall be binding upon any
holder of any securities purchased under this Agreement (including securities
into which such securities have been convened), each future holder of all such
securities, and the Company.

                  8.6      NOTICES. All notices and other communications
required or permitted hereunder shall be in writing and shall be deemed
effectively given and received (a) upon personal delivery, (b) on the fifth day
following mailing by registered or certified mail, return

[ * ] = 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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receipt requested, postage prepaid, addressed to the Company and BD at their
respective addresses first above written, (c) upon transmission of telegram or
facsimile (with telephonic notice), or (d) upon confirmed delivery by overnight
commercial courier service.

                  8.7      FEES AND EXPENSES. The Company and BD shall bear
their own expenses and legal fees incurred on their behalf with respect to this
Agreement and the transactions contemplated hereby.

                  8.8      TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.

                  8.9      COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one instrument.

[ * ] = 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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         IN WITNESS WHEREOF, the foregoing Stock Purchase Agreement is hereby
executed as of the date first above written.

                                    AEROGEN, INC.


                                    By:  /s/          Jane E. Shaw
                                       -----------------------------------------
                                    Name:    Jane E. Shaw
                                         ---------------------------------------
                                    Title:  Chairman & CEO
                                          --------------------------------------

                                    BECTON, DICKINSON AND COMPANY


                                    By:  /s/          Gary M. Cohen
                                       -----------------------------------------
                                    Name:    Gary M. Cohen
                                         ---------------------------------------
                                    Title: President-Worldwide Medical Systems
                                          --------------------------------------






[ * ] = 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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                                    EXHIBIT A

                AMENDED AND RESTATED CERTIFICATE OF INCORPORATION




[ * ] = 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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                              AMENDED AND RESTATED
                          CERTIFICATE OF INCORPORATION
                                OF AEROGEN, INC.

         AeroGen, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:

         ONE:  The name of the corporation is AeroGen, Inc.

         TWO: The original Certificate of Incorporation of the corporation was
filed with the Secretary of State of the State of Delaware on March 12, 1998
under the name AeroGen (Delaware), Inc.

         THREE: The Certificate of Incorporation of said corporation shall be
amended and restated to read in full as follows:

                                    ARTICLE 1

         The name of this corporation is AEROGEN, INC.

                                    ARTICLE 2

         The address of the registered office of the corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.

                                    ARTICLE 3

         The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.

                                    ARTICLE 4

         The total number of shares of stock and the classes of stock which the
corporation shall have authority to issue is as follows:

         A.       CLASSES OF STOCK. This corporation is authorized to issue two
classes of stock to be designated "Common Stock" and "Preferred Stock." The
total number of shares which this corporation is authorized to issue is
Eighty-Four Million Six Hundred Forty-Two Thousand Four Hundred Thirty
(84,642,430) shares, of which Fifty Three Million (53,000,000) shares of the par
value of One-Tenth of One Cent ($.001) shall be Common Stock and Thirty-One
Million Six Hundred Forty-Two Thousand Four Hundred Thirty (31,642,430) shares
of the par value of One-Tenth of One Cent ($.001) shall be Preferred Stock. The
Preferred Stock authorized by this Certificate of Incorporation shall be issued
by series as set forth hereto. The first series of Preferred Stock shall be
designated "Series A Preferred Stock" and shall consist of Three Million Eight
Hundred Forty-Six Thousand One Hundred Fifty-Six (3,846,156) shares. The second
series of Preferred Stock shall be designated "Series B Preferred Stock" and
shall consist of Four

[ * ] = 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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Million Four Hundred Eighty-Seven Thousand One Hundred Eighty-Two (4,487,182)
shares. The third series of Preferred Stock shall be designated "Series C
Preferred Stock" and shall consist of Nine Million Three Hundred Seventy-Five
Thousand Three Hundred (9,375,300) shares. The fourth series of Preferred Stock
shall be designated "Series D Preferred Stock" and shall consist of Ten Million
Two Hundred Eighty-Five Thousand Seven Hundred Fourteen (10,285,714) shares. The
fifth series of Preferred Stock shall be designated "Series E Preferred Stock"
and shall consist of three million six hundred forty-eight thousand
seventy-eight (3,648,078) shares.

         B.       POWERS, PREFERENCES AND RIGHTS, AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS OF PREFERRED STOCK. The Preferred Stock authorized
by this Certificate of Incorporation may be issued from time to time in series.
The powers, preferences and rights, and the qualifications, limitations and
restrictions granted to and imposed on the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock are as set forth below in this Division B of Article 4. The
Board of Directors is hereby authorized to fix or alter the powers, preferences
and rights, and the qualifications, limitations and restrictions granted to or
imposed upon additional series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or of any of them.
Subject to compliance with applicable protective voting rights which have been
or may be granted to the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, or
other series of Preferred Stock in certificate(s) of designation or this
Certificate of Incorporation, as amended from time to time ("Protective
Provisions"), but notwithstanding any other right of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock or any other series of Preferred Stock, the
powers, preferences and rights of and the qualifications, limitations and
restrictions on, any such additional series may be subordinated to, pari passu
with (including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences and/or approval of matters by vote or
written consent), or senior to any of those of any present or future class or
series of Preferred or Common Stock. Subject to compliance with applicable
Protective Provisions, the Board of Directors is also authorized to increase or
decrease the number of shares of any series (other than the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock), prior or subsequent to the issue of any
shares of that series, but not below the number of shares of such series then
outstanding, in case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.

1.       DIVIDEND RIGHTS.

         The holders of the Preferred Stock shall be entitled to receive, out of
any funds legally available therefor, dividends on each outstanding share of
Preferred Stock payable in preference and priority to any payment of any
dividend on any shares of Common Stock of the corporation at an annual rate of
$.0312 per share of Series A Preferred Stock, $.0624 per share of Series B
Preferred Stock, $.08 per share of Series C Preferred Stock, $.14 per share of
Series D Preferred Stock, and $.208 per share of Series E Preferred Stock, when
and as declared by the Board of Directors. Dividends on the shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall be paid ratably to

[ * ] = 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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holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, based on
the number of shares held. The right to such dividends on the Preferred Stock
shall be noncumulative. No right shall accrue to holders of shares of Preferred
Stock by reason of the fact that dividends on said shares are not declared in
any prior year, nor shall any undeclared or unpaid dividend bear or accrue any
interest. Dividends, if paid, or if declared and set apart for payment, must be
paid or declared and set apart for payment on all outstanding Preferred Stock
contemporaneously. Dividends shall be paid in cash. No shares of Common Stock
shall receive any dividend at a rate which is greater than the rate at which
dividends are simultaneously paid in respect of the Preferred Stock (based on
the number of shares of Common Stock into which the Preferred Stock is
convertible on the date of dividend).

         Dividends shall be paid by forwarding a check, postage prepaid, to the
address of each holder (or, in the case of joint holders, to the address of any
such holder) of Preferred Stock as shown on the books of the corporation, or to
such other address as such holder specifies for such purpose by written notice
to the corporation. The forwarding of such check shall satisfy all obligations
of the corporation with respect to such dividends, unless such check is not paid
upon timely presentation.

2.       LIQUIDATION RIGHTS

         In the event of any liquidation, dissolution or winding up of the
corporation, whether voluntary or not, each holder of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
and Series E Preferred Stock shall be entitled to receive, before any amount
shall be paid to holders of Common Stock, an amount per share equal to $0.39,
$.78, $1.00, $1.75, and $2.60, respectively (each, as adjusted for stock splits,
combinations or similar events and hereafter referred to as the "Original Issue
Price" of such series) plus all declared and unpaid dividends, if any. If upon
the occurrence of a liquidation, dissolution or winding up, the assets and
surplus funds distributed among the holders of Preferred Stock shall be
insufficient to permit the payment to such holders of the full preferential
amount, then the entire assets and surplus funds of the corporation legally
available for distribution shall be distributed ratably among the holders of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock, in proportion to the
aggregate amount payable to each of such holders pursuant to the immediately
preceding sentence. If upon the occurrence of a liquidation, dissolution or
winding up, after the payment to the holders of Preferred Stock of the
preferential amount, assets or surplus funds remain in the corporation, the
holders of Preferred Stock and Common Stock shall be entitled to receive all
such remaining assets and surplus funds pro rata on an as-if-converted basis.

         No later than 20 days before any event that, pursuant to Section 5(a),
permits a holder of Preferred Stock to have each share of Preferred Stock held
by such holder treated for all purposes as if it had been converted into Common
Stock (for purposes of this Section 2, a "Merger or Sale of Corporation"), the
corporation shall deliver a notice to each holder of Preferred Stock setting
forth the principal terms of such Merger or Sale of Corporation. Such notice
shall be deemed delivered upon personal delivery or five days after deposit in
the United States mail, by registered or certified mail, addressed to a party at
its address as shown on the stock records of

[ * ] = 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
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the corporation. Such notice shall include a description of the amounts that
would be paid to holders of Preferred Stock under this Section 2 and of the
consideration that such holders would receive if they exercised their rights
under Section 5(a) to have shares of Preferred Stock treated as if they had been
converted into Common Stock. No later than ten days after delivery of the
notice, each holder of Preferred Stock may deliver an election to the
corporation notifying the corporation that the holder desires that such holder's
shares of Preferred Stock be treated, pursuant to Section 5, as if they had been
converted into shares of Common Stock and, if no such notice is delivered, such
holder shall receive such amounts as are provided for under this Section 2 as
any Merger or Sale of Corporation shall be deemed a liquidation, dissolution or
winding up of the corporation for the purposes of this Section 2.

3.       VOTING RIGHTS.

         (a)      VOTE OTHER THAN FOR DIRECTORS. Except as otherwise required by
law, the holders of Preferred Stock and the holders of Common Stock shall be
entitled to notice of any stockholders' meeting and to vote upon any matter
submitted to the stockholders for a vote, other than the election of directors,
as follows: (i) the holders of Preferred Stock shall have one vote for each full
share of Common Stock into which their respective shares of Preferred Stock are
convertible on the record date for the vote and (ii) the holders of Common Stock
shall have one vote per share of Common Stock.

         (b)      VOTING FOR DIRECTORS.

                  (i)      The holders of shares of Preferred Stock voting as a
class shall be entitled to elect two (2) directors. The holders of shares of
Common Stock voting as a class shall be entitled to elect two (2) directors. The
holders of shares of Series D Preferred Stock voting as a class shall be
entitled to elect one (1) director. The remaining director or directors shall be
elected by the affirmative vote of the holders of the Preferred Stock and of the
holders the Common Stock, voting together as a class with the holders of
Preferred Stock having one vote for each full share of Common Stock into which
their respective shares of Preferred Stock are convertible on the record date
for the vote. If no shares of Preferred Stock remain outstanding, then the
directors otherwise elected by the Preferred Stock as provided above in this
Section 3(b), shall be elected by the holders of Common Stock. In the case of
any vacancy in the office of a director elected by a specified group of
stockholders, a successor shall be elected to hold office for the unexpired term
of such director by the affirmative vote of a majority of the shares of such
specified group given at a special meeting of such stockholders duly called or
by an action by written consent for that purpose. Any director who shall have
been elected by a specified group of stockholders may be removed during the
aforesaid term of office, either for or without cause by, and only by, the
affirmative vote of the holders of a majority of the shares of such specified
group, given at a special meeting of such stockholders duly called or by an
action by written consent for that purpose, and any such vacancy thereby created
may be filled by the vote of the holders of a majority of the shares of such
specified group represented at such meeting or in such consent.

                  (ii)     No person entitled to vote at an election for
directors may cumulate votes to which such person is entitled, unless, at the
time of such election, the corporation is subject to Section 2115(b) of the
California General Corporation Law ("CGCL"). During such time or

[ * ] = 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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times that the corporation is subject to Section 2115(b) of the CGCL, every
stockholder entitled to vote at an election for directors may cumulate such
stockholder's votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which
such stockholder's shares are otherwise entitled, or distribute the
stockholder's votes on the same principle among as many candidates as such
stockholder thinks fit. No stockholder, however, shall be entitled to so
cumulate such stockholder's votes unless (a) the names of such candidate or
candidates have been placed in nomination prior to the voting and (b) the
stockholder has given notice at the meeting, prior to the voting, of such
stockholder's intention to cumulate such stockholder's votes. If any
stockholder has given proper notice to cumulate votes, all stockholders may
cumulate their votes for any candidates who have been properly placed in
nomination. Under cumulative voting, the candidates receiving the highest
number of votes, up to the number of directors to be elected, are elected.

4.       CERTAIN TAXES.

         The corporation shall pay any and all issuance and other taxes
(excluding any federal or state income taxes) that may be payable in respect of
any issuance or delivery of shares of Common Stock on conversion of Preferred
Stock. The corporation shall not, however, be required to pay any tax that may
be payable in respect of any transfer involved in the issuance and delivery of
shares of Common Stock in a name other than that in which the shares of
Preferred Stock to which such issuance relates were registered, and no such
issuance or delivery shall be made unless and until the person requesting such
issuance has paid to the corporation the amount of any such tax, or it is
established to the satisfaction of the corporation that such tax has been paid.

5.       CONVERSION TO COMMON STOCK.

         The Preferred Stock shall be convertible into Common Stock of the
corporation as follows:

         (a)      DEFINITIONS. For purposes of this Section 5 the following
definitions shall apply:

                  (i)      "COMMON STOCK EQUIVALENTS" shall mean Convertible
Securities and rights entitling the holder thereof to receive directly, or
indirectly, additional shares of Common Stock without the payment of any
consideration by such holder for such additional shares of Common Stock or
Common Stock Equivalents.

                  (ii)     "COMMON STOCK OUTSTANDING" shall mean the aggregate
of all Common Stock outstanding and all Common Stock issuable upon exercise of
all outstanding Options and conversion of all outstanding Convertible
Securities.

                  (iii)    "CONVERSION PRICE" with respect to a series of
Preferred Stock, shall mean the price, determined pursuant to this Section 5, at
which shares of Common Stock shall be deliverable upon conversion of such series
of Preferred Stock.

                  (iv)     "CONVERTIBLE SECURITIES" shall mean any indebtedness
or shares of stock or other securities convertible into or exchangeable for
Common Stock, including without limitation Preferred Stock.

[ * ] = 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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                  (v)      "CURRENT CONVERSION PRICE" with respect to a series
of Preferred Stock, shall mean the Conversion Price immediately before the
occurrence of any event, which, pursuant to Section 5(c), causes an adjustment
to the Conversion Price of such series of Preferred Stock.

                  (vi)     "ISSUANCE DATE" shall mean the first date on which
this Amended and Restated Certificate of Incorporation is filed with the
Secretary of State of the State of Delaware.

                  (vii)    "OPTIONS" shall mean any rights, warrants or options
to subscribe for or purchase or otherwise acquire Common Stock or Convertible
Securities.

         (b)      RIGHT TO CONVERT; INITIAL CONVERSION PRICE. Each holder of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock may, at any time, convert
any or all shares of such Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock,
as the case may be, into fully-paid and non-assessable shares of Common Stock at
the Conversion Price for such series of Preferred Stock. Each share of Series A
Preferred Stock shall be convertible into the number of shares of Common Stock
that results from dividing the Conversion Price in effect at the time of
conversion for Series A Preferred Stock into $0.39 for each share of Series A
Preferred Stock being converted; the Conversion Price of the Series A Preferred
Stock shall initially be $0.39 per share of Common Stock. Each share of Series B
Preferred Stock shall be convertible into the number of shares of Common Stock
that results from dividing the Conversion Price in effect at the time of
conversion for Series B Preferred Stock into $0.78 for each share of Series B
Preferred Stock being converted; the Conversion Price of the Series B Preferred
Stock shall initially be $0.78 per share of Common Stock. Each share of Series C
Preferred Stock shall be convertible into the number of shares of Common Stock
that results from dividing the Conversion Price in effect at the time of
conversion for Series C Preferred Stock into $1.00 for each share of Series C
Preferred Stock being converted; the Conversion Price of the Series C Preferred
Stock shall initially be $1.00 per share of Common Stock. Each share of Series D
Preferred Stock shall be convertible into the number of shares of Common Stock
that results from dividing the Conversion Price in effect at the time of
conversion for Series D Preferred Stock into $1.75 for each share of Series D
Preferred Stock being converted; the Conversion Price of the Series D Preferred
Stock shall initially be $1.75 per share of Common Stock. Each share of Series E
Preferred Stock shall be convertible into the number of shares of Common Stock
that results from dividing the Conversion Price in effect at the time of
conversion for Series E Preferred Stock into $2.60 for each share of Series E
Preferred Stock being converted; the Conversion Price of the Series E Preferred
Stock shall initially be $2.60 per share of Common Stock. The initial Conversion
Price of each series of Preferred Stock shall be subject to adjustment from time
to time in certain instances as hereinafter provided. No adjustments with
respect to conversion shall be made on account of any dividends that may be
accrued but unpaid on the Preferred Stock surrendered for conversion, but no
dividends shall thereafter be paid on the Common Stock unless such unpaid
dividends have first been paid to the holders entitled to payment at the time of
conversion of the Preferred Stock.

         Before any holder of Preferred Stock shall be entitled to convert the
same into Common Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed, to the

[ * ] = 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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office of the corporation or any transfer agent for such Preferred Stock and
shall give written notice to the corporation at such office that such holder
elects to convert the same. The corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to such holder's nominee or nominees, certificates for the number of full
shares of Common Stock to which such nominee shall be entitled, together with
cash in lieu of any fraction of a share as hereinafter provided, and, if less
than all of the shares of Preferred Stock represented by such certificate are
converted, a certificate representing the shares of Preferred Stock not
converted. Such conversion shall be deemed to have been made as of the date of
such surrender of the certificate for the Preferred Stock to be converted, and
the person or persons entitled to receive the Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such Common Stock on such date. If the conversion is in connection with an offer
of securities registered pursuant to the Securities Act of 1933, as amended, the
conversion may, at the option of any holder tendering Preferred Stock for
conversion, be conditioned upon the closing of the sale of securities pursuant
to such offering, in which event the person(s) entitled to receive the Common
Stock issuable upon such conversion of the Preferred Stock shall not be deemed
to have converted such Preferred Stock until immediately prior to the closing of
such sale of securities.

         (c)      ADJUSTMENTS TO CONVERSION PRICE. Subject to Section 5(c)(5),
the Conversion Price in effect from time to time for the Preferred Stock shall
be subject to adjustment in certain cases as follows below. Notwithstanding
anything else herein, Sections 5(c)(i), 5(c)(ii) and 5(c)(iii) below shall not
apply to holders of Series E Preferred Stock.

                  (i)      ISSUANCE OF SECURITIES. In the event the corporation
shall at any time after the Issuance Date issue or sell any Common Stock (or
shall be deemed to have issued Common Stock pursuant to Section 5(c)(i)(c)
below) for a consideration per share less than the Current Conversion Price with
respect to a series of Preferred Stock, then, and thereafter successively upon
each such issuance or sale, the Current Conversion Price of such series of
Preferred Stock shall simultaneously with such issuance or sale be adjusted
(downward only) to a Conversion Price (calculated to the nearest cent)
determined by dividing

                           (1)      an amount equal to (x) the total number of
shares of Common Stock Outstanding when the Current Conversion Price for such
series of Preferred Stock became effective multiplied by the Current Conversion
Price for such series of Preferred Stock, plus (y) the aggregate of the amount
of all consideration, if any, received by the corporation for the issuance or
sale of Common Stock since the Current Conversion Price for such series of
Preferred Stock became effective, including the aggregate consideration received
by the corporation for the Common Stock giving rise to such adjustment, by

                           (2)      the total number of shares of Common Stock
Outstanding immediately after such issuance or sale.

         Notwithstanding the previous sentence, in the event that the
corporation shall at any time within one year after the Issuance Date issue or
sell any additional shares of Common Stock (or be deemed to have issued Common
Stock) for consideration per share less than the Current Conversion Price of the
Series D Preferred Stock, then, and thereafter successively upon each such
issuance or sale within such one year period, the Current Conversion Price of
the Series D

[ * ] = 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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Preferred Stock shall simultaneously with such issuance or sale be reduced, in
order to increase the number of shares of Common Stock into which the Series D
Preferred Stock is convertible, to a Conversion Price equal to the consideration
per share at which such additional shares of Common Stock are issued or deemed
issued; provided, however, that if and to the extent any adjustment made in
accordance with the formula contained in this sentence would reduce the
Conversion Price of the Series D Preferred Stock to less than $1.00 per share of
Common Stock, then, to the extent the Conversion Price of the Series D Preferred
Stock is reduced below $1.00, the Conversion Price of the Series D Preferred
Stock shall be adjusted in accordance with the formula contained in the
immediately preceding sentence except that the addend contained in subsection
5(c)(i)(1) shall be the total number of shares of Common Stock Outstanding when
the Current Conversion Price for the Series D Preferred Stock became effective
multiplied by the lesser of $1.00 or the Current Conversion Price for the Series
D Preferred Stock.

         For the purposes of this Section 5(c), the following provisions shall
also be applicable:

                  (a)      CASH CONSIDERATION. In the event of the issuance or
sale of additional Common Stock, Options or Convertible Securities for cash, the
consideration received by the corporation therefor shall be deemed to be the
amount of cash received by the corporation for such shares (or, if such
securities are offered by the corporation for subscription, the subscription
price, or, if such securities are sold to underwriters or dealers for public
offering without a subscription offering, the initial public offering price),
without deducting therefrom any compensation or discount paid or allowed to
underwriters or dealers or others performing similar services or for any
expenses incurred in connection therewith.

                  (b)      NON-CASH CONSIDERATION. In the event of the issuance
(otherwise than upon conversion or exchange of Convertible Securities) or sale
of additional Common Stock, Options or Convertible Securities for a
consideration other than cash or a consideration a part of which shall be other
than cash, the fair value of such consideration as determined by the Board of
Directors of the corporation in the good faith exercise of its business
judgment, irrespective of the accounting treatment thereof, shall be deemed to
be the value, for purposes of this Section 5, of the consideration other than
cash received by the corporation for such securities.

                  (c)      OPTIONS AND CONVERTIBLE SECURITIES. In the event the
corporation shall in any manner issue or grant any Options or any Convertible
Securities, the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities at the time such Convertible Securities
first become convertible or exchangeable shall (as of the date of issue or grant
of such Options or, in the case of the issue or sale of Convertible Securities
other than where the same are issuable upon the exercise of Options, as of the
date of such issue or sale) be deemed to be issued and to be outstanding for the
purpose of this Section 5(c)(i) and to have been issued for the sum of the
amount (if any) paid for such Options or Convertible Securities and the amount
(if any) payable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities at the time such Convertible Securities
first become convertible or exchangeable: provided that, subject to the
provisions of Section 5(c)(ii), no further adjustment of the Conversion Price of
a series of Preferred Stock shall be made upon the actual issuance of any such
Common Stock or Convertible Securities or upon the conversion or exchange of any
such Convertible Securities.

[ * ] = 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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                  (ii)     CHANGE IN OPTION PRICE OR CONVERSION RATE. In the
event that the purchase price provided for in any Option referred to in
subsection 5(c)(i)(c), or the rate at which any Convertible Securities referred
to in subsection 5(c)(i)(c) are convertible into or exchangeable for shares of
Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution), the Current Conversion Price
of each series of Preferred Stock in effect at the time of such event shall
forthwith be readjusted to the Conversion Price that would have been in effect
at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or sold. In the
event that the purchase price provided for in any such Option referred to in
subsection 5(c)(i)(c), or the additional consideration (if any) payable upon the
conversion or exchange of any Convertible Securities referred to in subsection
5(c)(i)(c), or the rate at which any Convertible Securities referred to in
subsection 5(c)(i)(c) are convertible into or exchangeable for shares of Common
Stock, shall be reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in case of the
delivery of shares of Common Stock upon the exercise of any such Option or upon
conversion or exchange of any such Convertible Security, the Current Conversion
Price of a series of Preferred Stock then in effect hereunder shall, upon
issuance of such shares of Common Stock, be adjusted to such amount as would
have obtained had such Option or Convertible Security never been issued and had
adjustments been made only upon the issuance of the shares of Common Stock
delivered as aforesaid and for the consideration actually received for such
Option or Convertible Security and the Common Stock.

                  (iii)    TERMINATION OF OPTION OR CONVERSION RIGHT. In the
event of the termination or expiration of any right to purchase Common Stock
under any Option or of any right to convert or exchange Convertible Securities,
the Current Conversion Price of a series of Preferred Stock shall, upon such
termination, be changed to the Conversion Price of such series of Preferred
Stock that would have been in effect at the time of such expiration or
termination had such Option or Convertible Security, to the extent outstanding
immediately prior to such expiration or termination, never been issued, and the
shares of Common Stock issuable thereunder shall no longer be deemed to be
Common Stock Outstanding.

                  (iv)     STOCK SPLITS, DIVIDENDS, DISTRIBUTIONS AND
COMBINATIONS. In the event the corporation should at any time or from time to
time after the Issuance Date fix a record date for the effectuation of a split
or subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive any other distribution payable in
additional shares of Common Stock or Common Stock Equivalents, then, as of such
record date (or the date of such distribution, split or subdivision if no record
date is fixed), the Conversion Price of each series of Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of each series of Preferred Stock shall be increased in
proportion to such increase in the number of outstanding shares of Common Stock
(including for this purpose, Common Stock Equivalents). If the number of shares
of Common Stock outstanding at any time after the Issuance Date is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price of each series of
Preferred Stock shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of each share of Preferred Stock shall be
decreased in proportion to such decrease in the number of outstanding shares of
Common Stock.

[ * ] = 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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                  (v)      OTHER EVENTS ALTERING CONVERSION PRICE. Upon the
occurrence of any event not specifically denominated in this Section 5 as
reducing the Conversion Price of a series of Preferred Stock that, in the
reasonable exercise of the business judgment of the Board of Directors of the
corporation requires, on equitable principles, the reduction of the Conversion
Price of such series of Preferred Stock, such Conversion Price will be equitably
reduced.

                  (vi)     MISCELLANEOUS CONVERSION PRICE MATTERS. The
corporation shall at all times reserve and keep available out of its authorized
but unissued Common Stock the full number of shares of Common Stock deliverable
upon conversion of all the then outstanding Preferred Stock and shall, at its
own expense, take all such actions and obtain all such permits and orders as may
be necessary to enable the corporation lawfully to issue such Common Stock upon
the conversion of such Preferred Stock.

                  (vii)    EXCLUDED EVENTS. Notwithstanding anything in this
Section 5 to the contrary, the Conversion Price of a series of Preferred Stock
shall not be adjusted by virtue of (i) the conversion of shares of Preferred
Stock into shares of Common Stock, (ii) the repurchase of shares from the
corporation's employees, consultants, officers or directors at such person's
cost (or at such other price as may be agreed to by the corporation's Board of
Directors), or (iii) the issuance and sale of, or the grant of Options to
purchase, up to an aggregate of 7,837,500 shares, net of repurchases and the
lapse of options, of Common Stock (including the 5,141,471 shares and grants for
shares outstanding on the date hereof), to employees, advisors, directors,
officers or consultants of the corporation or its subsidiaries (including shares
issued or sold pursuant to the exercise of any stock option or purchase pursuant
to a grant under the corporation's stock option plan or stock purchase plan) at
any time after the initial issuance of Series D Preferred Stock at a price which
is less than the Conversion Price of such series of Preferred Stock at the time
of such issuance or sale (all as determined in accordance with this Section 5)
as may be approved by the Board of Directors, and none of such shares referenced
in clause (iii) shall be included in any manner in the computation from time to
time of such Conversion Price under Subsection 5(c)(i) or in Common Stock
Outstanding for purposes of such computation.

                  (viii)   CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Conversion Price of a series of Preferred
Stock pursuant to this Section 5, the corporation, at its expense upon request
by any holder of such series of Preferred Stock, shall compute such adjustment
or readjustment in accordance with the terms hereof and prepare and furnish to
each holder of such series of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The corporation shall, upon the written
request at any time of any holder of a series of Preferred Stock, furnish or
cause to be furnished to such holder a like certificate setting forth (a) such
adjustment and readjustment, (b) the Current Conversion Price of such series of
Preferred Stock at the time in effect, and (c) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of such series of Preferred Stock.

         (d)      OTHER DIVIDENDS. In the event this corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights for which such series of Preferred Stock are not entitled
to adjustment pursuant to subsection 5(c)(i)(c), then, in each such

[ * ] = 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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case for the purpose of this Section 5(d), the holders of such series of
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their shares of such series of Preferred
Stock are convertible as of the record date fixed for the determination of the
holders of Common Stock of the corporation entitled to receive such
distribution.

         (e)      RECAPITALIZATIONS. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or a sale of assets transaction for which each series of
Preferred Stock (including, without limitation, the Series E Preferred Stock) is
entitled to adjustment pursuant to this Section 5), provision shall be made so
that the holders of Preferred Stock shall thereafter be entitled to receive upon
conversion of shares of Preferred Stock the number of shares of stock or other
securities or property of the corporation or otherwise, to which a holder of
Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 5 with respect to the rights of
the holders of Preferred Stock after the recapitalization to the end that the
provisions of this Section 5 (including adjustment of the Conversion Price then
in effect and the number of shares purchasable upon conversion of shares of
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.

         (f)      SUCCESSIVE CHANGES. The above provisions of this Section 5
shall similarly apply to successive issuances, sales or other distributions,
subdivisions and combinations on or of the Common Stock after the Issuance Date.

         (g)      NO IMPAIRMENT. The corporation will not, by amendment of this
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 5 and in the taking of all such action as may
be necessary or appropriate in order to protect the conversion rights of the
holders of Preferred Stock against impairment.

         (h)      NO FRACTIONAL SHARES. No fractional shares shall be issued
upon conversion of shares of Preferred Stock and the number of shares of Common
Stock to be issued shall be rounded to the next smaller whole share. Whether or
not fractional shares are issuable upon such conversion shall be determined on
the basis of the total number of shares of Preferred Stock the holder is at the
time converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion. The value of any fractional share
issuable upon conversion shall be paid in cash by the corporation.

         (i)      AUTOMATIC CONVERSION. Immediately upon (a) the effectiveness
of the corporation's registration statement on Form S-1 pursuant to which Common
Stock is sold to the public by the corporation (or selling stockholders, if any)
in a public offering registered under the Securities Act of 1933, as amended, at
a per share public offering price of not less than $3.50 (equitably adjusted for
any stock split, combination or similar event) and an aggregate public offering
price not less than $15,000,000, or (b) the conversion of at least fifty percent
(50%) of

[ * ] = 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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the then outstanding shares of Preferred Stock, each share of Preferred Stock
shall automatically be converted into shares of Common Stock at the Conversion
Price for such Preferred Stock then in effect. On and after said conversion
date, notwithstanding that any certificates for the shares of Preferred Stock
shall not have been surrendered for conversion, the shares of Preferred Stock
evidenced thereby shall be deemed to be no longer outstanding, and all rights
with respect thereto shall forthwith cease and terminate, except only the rights
of the holder (i) to receive the shares of Common Stock to which such holder
shall be entitled upon conversion thereof, (ii) to receive the amount of cash
payable in respect of any fractional share of Common Stock to which such holder
shall be entitled, and (iii) with respect to dividends declared but unpaid on
Preferred Stock prior to such conversion date, in the event that any holder of
Preferred Stock presents such holder's certificate therefor for surrender to the
Company or its transfer agent upon such conversion, a certificate for the number
of shares of Common Stock into which the shares of Preferred Stock surrendered
were convertible on such conversion date promptly will be issued and delivered
to such holder.

         (j)      MERGER: SALE OF CORPORATION. In the event, after the Issuance
Date of any proposed consolidation of the corporation with, or merger of the
corporation with or into another corporation (other than a consolidation or
merger in which the corporation is the continuing corporation and which does not
result in any reclassification of, or change in, the outstanding shares of
Common Stock), or in the event of any proposed sale or transfer to another
corporation of all or substantially all of the assets of the corporation, or in
the event of a sale or transfer of a majority of the voting power of the
corporation, any holder of Preferred Stock may, by delivery of election pursuant
to Section 2 above, elect to have each share of Preferred Stock held by such
holder treated for all purposes as if it had been converted into Common Stock on
the earlier of (i) the record date, if any, for voting by holders of Common
Stock on such event and (ii) the date of such event.

6.       REDEMPTION.  The Preferred Stock is not redeemable.

7.       COVENANTS. In addition to any other rights provided by law, the
corporation shall not take any of the following actions.

         (a)      HOLDERS OF PREFERRED STOCK. So long as any shares of Preferred
Stock shall be outstanding, the corporation shall not without first obtaining
the affirmative vote or written consent of the holders of not less than fifty
percent (50%) of the outstanding shares of Preferred Stock voting together as a
class:

                  (i)      amend or repeal any provision of, or add any
provision to, this Certificate of Incorporation or the corporation's By-laws if
such action would alter or change the preferences, rights, privileges or powers
of or the restrictions provided for the benefit of, the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock, or increase or decrease the number of shares
of Preferred Stock authorized hereby, provided that any such amendment or repeal
of, or addition to, this Certificate of Incorporation or the corporation's
By-laws which affects the preferences, rights, privileges or powers of one
series of Preferred Stock shall affect each other series of Preferred Stock in a
like manner and on a proportionate basis:

[ * ] = 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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                  (ii)     authorize or issue shares of any class or series of
stock not authorized herein having any preference or priority as to dividends or
assets superior to or on a parity with any such preference or priority of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock; or authorize or issue
shares of stock of any class or series of any bonds, debentures, notes or other
obligations convertible into or exchangeable for, or having option rights to
purchase, any shares of stock of this corporation having any preference or
priority as to dividends or assets superior to or on a parity with any such
preference or priority of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, or Series E Preferred
Stock;

                  (iii)    reclassify any class or series of any Common Stock
into shares having any preference or priority as to dividends or assets superior
to or on a parity with any such preference or priority of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock;

                  (iv)     apply any of its assets to the redemption,
retirement, purchase or acquisition, directly or indirectly, through
subsidiaries (as defined in Section 425 of the Internal Revenue Code of 1986, as
amended (the "Code") or otherwise, of any shares of any class or series of
Common Stock, except from employees, advisors, officers, directors and
consultants of, and persons performing services for this corporation or its
subsidiaries on terms approved by the Board of Directors upon termination of
employment or association;

                  (v)      do any act or thing which would result in taxation of
the holders of shares of the Preferred Stock under Section 305 of the Code (or
any comparable provision of the Code as hereafter from time to time amended);

                  (vi)     If (i) sell, convey or otherwise dispose of all or
substantially all of its property or business, or (ii) merge into or consolidate
with any other corporation (other than a wholly owned subsidiary corporation) or
effect any other transaction or series of related transactions disposing of more
than 50% of the voting power of the corporation;

                  (vii)    authorize, declare or pay any dividend on the Common
Stock before March 31, 1999; or

                  (viii)   increase or decrease the authorized number of shares
of Preferred Stock.

         (b)      HOLDERS OF SERIES D PREFERRED STOCK. So long as any shares of
Series D Preferred Stock shall be outstanding, the corporation shall not without
first obtaining the affirmative vote or written consent of the holders of not
less than a majority of the outstanding shares of Series D Preferred Stock
voting together as a class, apply any of its assets to the purchase of any
shares of any class or series of the corporation's stock having any preference
or priority junior to or on a parity with the Series D Preferred Stock, except
from employees, advisors, officers, directors and consultants of, and persons
performing services for, this corporation or its subsidiaries on terms approved
by the Board of Directors upon termination of employment or association.

         (c)      DIRECTORS.

[ * ] = 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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         Without first obtaining the approval of at least a majority of the
Board of Directors, the corporation shall not enter into any contracts with, or
make any investments in, persons not resident within North America.

                  (ix)     Without first obtaining the approval of a majority of
the directors elected by the holders of Preferred Stock, the corporation shall
not:

                           (1)      increase the number of shares reserved for
issuance to employees, consultants and directors of the corporation pursuant to
incentive plans or agreements;

                           (2)      incur indebtedness in principal amount in
excess of $1,000,000; or

                           (3)      commit or make any capital expenditures in
excess of $200,000 in the aggregate.

         C.       COMMON STOCK.

8.       DIVIDEND RIGHTS. Subject to the prior rights of holders of all classes
of stock at the time outstanding having prior rights as to dividends, the
holders of the Common Stock shall be entitled to receive, when and as declared
by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.

9.       LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding up of
the corporation, the assets, of the corporation shall be distributed as provided
in Section 2 of Division B of this Article 4.

10.      REDEMPTION.  The Common Stock is not redeemable.

11.      VOTING RIGHTS. The holder of each share of Common Stock shall have the
right to one vote and shall be entitled to notice of any stockholders' meeting
in accordance with the By-laws of this corporation, and shall be entitled to
vote upon such matters and in such manner as may be provided by law.

12.      NO PREEMPTIVE RIGHTS. The holders of the Common Stock shall not by
virtue of this Certificate of Incorporation have any preemptive rights.

                                    ARTICLE 5

         The corporation is to have perpetual existence.

                                    ARTICLE 6

         In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware:

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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.


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         A.       The board of directors of the corporation is expressly
                  authorized to adopt, amend or repeal the By-laws of the
                  corporation; provided, however, that the By-laws may only be
                  amended in accordance with the provisions thereof.

         B.       Elections of directors need not be by written ballot unless
                  the By-laws of the corporation shall so provide.

         C.       The books of the corporation may be kept at such place within
                  or without the State of Delaware as the By-laws of the
                  corporation may provide or as may be designated from time to
                  time by the board of directors of the corporation.

                                    ARTICLE 7

         Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the corporation or of any creditor or stockholder thereof or on the
application of any receivers appointed for the corporation under the provisions
of section 291 of Title 8 of the Delaware Code or on the application of trustees
in dissolution or of any receiver or receivers appointed for the corporation
under the provisions of section 279 of Title 8 of the Delaware Code order a
meeting of the creditors or class of creditors, and/or the stockholders or class
of stockholders of the corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority, in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall if sanctioned by the
court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the corporation, as the case may be, and also on the
corporation.

         A.       NO PERSONAL LIABILITY. A director of the corporation shall not
be personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (1) for any
breach of the director's duty of loyalty to the corporation and its
stockholders; (2) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law; (3) under section 174 of
the Delaware General Corporation law, or (4) for any transaction from which the
director derived an improper personal benefit.

         B.       INDEMNIFICATION. Each person who is or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held

[ * ] = 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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harmless by the corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the corporation to provide broader indemnification rights than said law
permitted the corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in the
second paragraph hereof, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof), was authorized by the
Board of Directors of the corporation. The right to indemnification conferred in
this section shall be a contract right and shall include the right to be paid by
the corporation for any expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this section or otherwise. The corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.

         If a claim under the first paragraph of this section is not paid in
full by the corporation within thirty (30) days after a written claim has been
received by the corporation, the claimant may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense in any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the corporation to indemnity the
claimant for the amount claimed, but the burden of proving such defense shall be
on the corporation. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.

         The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
section shall not be exclusive of

[ * ] = 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.


                                       37
<PAGE>

any other right which any person may have or hereafter acquire under any
statute, provision of this Certificate of Incorporation, by-law, agreement, vote
of stockholders or disinterested directors or otherwise.

         C.       INSURANCE. The corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.

         D.       REPEAL AND MODIFICATION. Any repeal or modification of the
foregoing provisions of this Article 7 shall not adversely affect any right or
protection of a director, officer, employee or agent of the corporation existing
at the time of such repeal or modification.

         E.       VOTE REQUIRED TO AMEND OR REPEAL. The amendment or repeal of
this Article 7 shall require the approval of the holders of shares representing
at least sixty six and two-thirds percent (66-2/3%) of the shares of the
corporation entitled to vote in the election of directors, voting as one class.

                                    ARTICLE 8

         Subject to the express provisions hereof, this corporation reserves the
right to amend or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon a stockholder herein are granted subject to this
reservation.

                                      *****
         FOURTH: This Amended and Restated Certificate of Incorporation was duly
adopted by the Board of Directors of the corporation.

         FIFTH: This Amended and Restated Certificate of Incorporation was duly
adopted by the written consent of a majority of the stockholders of the
corporation in accordance with Sections 242 and 245 of the General Corporation
Law of the State of Delaware and written notice of such action has been given as
provided in Section 228.

         IN WITNESS WHEREOF, AeroGen, Inc. has caused this certificate to be
signed by the undersigned officer, thereunto duly authorized, this 4TH day of
May, 2000.



                                     By:  /s/     Jane E. Shaw
                                        ----------------------------------------
                                         Jane Shaw
                                         Chairman and CEO



[ * ] = 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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                                    EXHIBIT B

                             SCHEDULE OF EXCEPTIONS





[ * ] = 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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                                    EXHIBIT B
                             SCHEDULE OF EXCEPTIONS
                                  AEROGEN, INC.
                            STOCK PURCHASE AGREEMENT

         In connection with that certain Stock Purchase Agreement dated as of
May 10, 2000 by and among AEROGEN, INC. (the "Company") and BECTON, DICKINSON
AND COMPANY (the "Agreement"), the Company hereby delivers this Disclosure
Schedule to the Company's representations and warranties given in the Agreement.
The section numbers in this Schedule correspond to the section numbers in the
Agreement; PROVIDED, HOWEVER, that any information disclosed herein under any
section number with sufficient particularity shall be deemed to be disclosed and
incorporated in any other section of the Agreement where such disclosure would
be appropriate. Disclosure of any information or document herein is not a
statement or admission that it is material or required to be disclosed herein.
Capitalized terms used but not defined herein shall have the same meanings given
them in the Agreement.

3.2      Capitalization

         c)       The Company has offered or intends to offer employment or
                  consulting opportunities to various individuals. These
                  compensation packages will include options, which resulted in
                  an action by the Board of Directors and Shareholders to
                  increase the number of shares reserved for issuance under the
                  1996 Stock Option Plan by an additional 2,600,000 shares as of
                  March 10, 2000.

         Shares owned directly or indirectly by officers, directors or 5%
         shareholders are as follows:

                  Shares owned directly or indirectly by officers, directors or
         5% shareholders are as follows:


<TABLE>
                  <S>                                <C>
                  CMEA (Tom  Baruch - Director)      3,897,437
                  USVP (Phil Young - Director)       5,808,427
                  Advent                             2,546,584
                  Interwest Partners                 3,571,429
                  Ell &Co.                           2,276,326
                  Gerlach & Co. (Manufacturers Life) 2,714,286
                  Ehud Ivri (Officer and Director)   3,780,000
                  Jane Shaw (Officer and Director)   1,542,858
                  Casper de Clercq (Officer)         270,000
                  Deborah Karlson                    270,000
                  Michael Klimowicz                  270,000
</TABLE>

3.7      Litigation

                  The Company is a defendant in an action for breach of contract
         and specific performance entitled ALEX WERBER V. AEROGEN, INC. AND EHUD
         IVRI, ET AL., Civil Action No. CV 773704, filed in California Superior
         Court for the County of Santa Clara in April, 1998. The litigation has
         been tentatively settled and in connection with settlement Mr.

[ * ] = 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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<PAGE>

         Ivri agreed to transfer 70,000 shares of his Common Stock to Mr.
         Werber. There is no payment by the Company in connection with the
         tentative settlement of the litigation.

                  The Company was party to an Interference, commenced following
         the filing of a request by a predecessor in interest to AeroGen,
         between U.S. Patent Application Serial No. 08/163,850 assigned to the
         Company, and U.S. Patent No. 5,261,601 assigned to Bespak plc
         ("Bespak"). The Interference has been settled.


3.8  Employee Agreement

                  It is part of the hiring process for each employee and officer
         of the Company to execute an agreement with the Company regarding
         confidentiality and proprietary information.

3.9  Patents and Trademarks

                  Aerogen Patent Rights - See Attachment A

         ITEMS a-d BELOW REPRESENT EXCEPTIONS TO THE COMPANY'S REPRESENTATION
THAT THERE ARE NO LICENSES OR AGREEMENTS OF ANY KIND RELATING TO ITS
INTELLECTUAL PROPERTY, OR LICENSES OR AGREEMENTS BY WHICH ITS IS BOUND RELATING
TO THE INTELLECTUAL PROPERTY OF ANY OTHER PERSON OR ENTITY:

                  a. The Company has licensed its aerosol generator technology
         world-wide to a consumer company in the fields of air fresheners and
         insect repellants.

                  b. Reference is made to the Technology License and Supply
         Agreement, dated December 18, 1998, between the Company and Cerus Ltd.,
         an Irish corporation.

                  c. The Company entered into a Product Development and Supply
         Agreement with PathoGenesis Corporation, dated as of March 13, 2000.

                  d. In connection with the settlement of the Interference with
         Bespak, the Company and Bespak have entered into cross-licenses with
         respect to portions of the subject patent claims.


3.11     Agreements; Action

         a)   The Company has entered into or plans to enter into
              indemnification agreements with each of its directors.

                  Yehuda Ivri has executed promissory notes in favor of the
         Company in the amounts of $69,009 and $200,000. The first note was
         issued in connection with relocation expenses and allowances. The
         latter note is secured by a pledge of 500,000 shares of the Company's
         common stock and the purpose of the loan was to provide financing for
         the purchase of a residence near the Company's headquarters. The

[ * ] = 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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         Company has agreed to reimburse Mr. Ivri's travel and lodging expenses
         up to $25,000 per annum.

                  Dr. Shaw, Casper de Clercq, Deborah Karlson and Michael
         Klimowicz have executed promissory notes in favor of the Company in
         connection with purchases of the Company's common stock. Shares sold to
         these officers which have not yet vested (pursuant to a four-year
         vesting schedule) are subject to repurchase if the individual ceases to
         be employed by the Company.

         b)       The Company has entered into and anticipates spending
         significant additional amounts, in excess of $50,000 individually, on
         capital equipment, consultants, design and tooling firms, clinicians,
         medical and other facilities, research organizations etc., all of which
         it considers to be in the ordinary course of its business.

                  The Company has entered into a non-binding term sheet
         involving a small European acquisition. The Company is currently
         conducting its diligence review of the potential target.

                  The Company entered into a Product Development and Supply
         Agreement with PathoGenesis Corporation, dated as of March 13, 2000.

                  The Company has entered into and anticipates entering into
         additional licensing and/or development arrangements whereby it
         receives amounts in excess of $50,000, all of which it considers to be
         in the ordinary course of its business.

         c)   In conjunction with the Company's facility lease, the Company is
              obligated to return the lab space to shell condition at the end of
              the lease term at an estimated cost of $100,000. The Company has
              issued a letter of credit to its lessor for $90,000 in conjunction
              with this liability.

                  The Company has borrowed approximately $1,113,000 (original
         principal) against term loan facilities. Specific assets secure the
         outstanding borrowings.

3.12     Rights of Registration and First Offer

                  The holders of warrants issued in connection with equipment
         financing were added as parties to the Company's Information and
         Registration Rights Agreement and are deemed holders of Registrable
         Securities thereunder with respect to the registration rights granted
         therein.

3.15     Title to Property and Assets

                  See item 3.11(c)

3.17     Employee Benefit Plans

                  Reference is made to the Company's medical, dental, life
         insurance, long and short term disability, Section 125 (flexible
         spending and premium), and non-contributory 401(k) employee benefit
         plans, as well as the Company's stock option plan, PTO policy

[ * ] = 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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         and standard employment offer letter. Reference is made to a summary of
         the Company's employee benefits and policies as provided in a summary
         handout for applicants and in the AeroGen Employee Handbook.

3.19     Insurance

                  The Company currently holds $5million of product liability
         insurance ($1million basic and $4million excess) in addition to its $6
         million ($2million aggregate and $4 million umbrella) of general
         liability coverage which specifically excludes product liability.
         Reference is made to the individual policies for specifics of coverage.

3.21     Absence of Changes

         b)       All employees, including officers, received raises effective
         the first pay period in 2000.

         f)       See 3.11

[ * ] = 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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                                  ATTACHMENT 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.


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                              AEROGEN PATENT RIGHTS


ISSUED U.S. PATENTS AND FOREIGN COUNTERPARTS

U.S. PATENT NO. 5,164,740, Issued Nov. 17, 1992
Filed April 24, 1991

         FOREIGN COUNTERPARTS:

         Argentine Patent No. 247,686
         Brazilian Patent No. PI9201487
         Canadian Patent No. 2066838
         France 0510648
         Mexican Patent No. 179906
         EPC Patent No. 510648B1 (French and UK issued)
         German Patent No. DE 692 12 688.0-08
         Japan: pending

U.S. PATENT NO. 5,938,117, Issued August 17, 1999
Filed April 5, 1995

         FOREIGN COUNTERPARTS:

         Pending in Great Britain, France and Germany

U.S. PATENT NO. 5,586,550, Issued December 24, 1996
Filed August 13, 1995

         FOREIGN COUNTERPARTS:

         Pending in Australia, Brazil, Canada, Germany, France, Great Britain,
Netherlands, Sweden and Japan

U.S. PATENT NO. 5,758,637, Issued June 2, 1998
Filed February 21, 1996

         FOREIGN COUNTERPARTS:

         Pending in nine foreign counterparts of U.S. Patent No. 5,586,550

[ * ] = 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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U.S. PATENT NO. 6,014,970, Issued January 18, 2000
Filed June 11, 1998

         FOREIGN COUNTERPARTS:

         Pending in Australia, Brazil, Canada, China, Europe (all designated
states), India, Japan, Mexico, New Zealand and Russia

PENDING U.S. PATENT APPLICATIONS

ULTRASONIC FLUID EJECTOR, filed May 20, 1997
Serial No. 08/859,525

         FOREIGN COUNTERPARTS:

         Covered by eight foreign patents for U.S. Patent No. 5,164,740

METHODS AND APPARATUS FOR DISPENSING LIQUIDS, filed May 27, 1999
Serial No. 09/318,552

         FOREIGN COUNTERPARTS:

         Pending in three foreign counterparts of U.S. Patent No. 5,938,117

DROPLET EJECTOR WITH OSCILATING TAPERED APERTURE, filed December 11, 1995
Serial No. 08/570,072

         FOREIGN COUNTERPARTS:

         None

LIQUID DISPENSING APPARATUS AND METHODS, filed April 10, 1998
Serial No. 09/058,344

         FOREIGN COUNTERPARTS:

         Pending in nine foreign counterparts of U.S. Patent No. 5,758,637

METHOD AND APPARATUS FOR STORING CHEMICAL COMPOUNDS, filed September 8, 1998
Serial No. 09/149,426

         FOREIGN COUNTERPARTS:

         Pending in nine foreign counterparts (and all designated states in
Europe) of U.S. Patent No. 6,014,970

[ * ] = 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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METHOD AND APPARATUS FOR STORING CHEMICAL COMPOUNDS, filed May 18, 1999
Serial No. 09/313,914

         Will file foreign applications before May 18, 2000 deadline.

APERTURE PLATE AND METHOD OF CONSTRUCTION, filed September 9, 1999
Serial No. 09/392,180

         Will file foreign applications before September 9, 2000 deadline.

PENDING U.S. PATENT APPLICATIONS

METHOD AND APPARATUS FOR AEROSOLIZING A LIQUID, filed January 15, 2000
Serial No. 09/483,096

         Will file foreign applications before January 15, 2001 deadline.





[ * ] = 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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                                    EXHIBIT C

                       LEGAL OPINION OF COOLEY GODWARD LLP




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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.


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May 10, 2000

Becton, Dickinson and Company
1Becton Drive
Franklin Lakes, NJ  07417-1880


Ladies and Gentlemen:

We have acted as counsel for AeroGen, Inc., a Delaware corporation (the
"Company"), in connection with the issuance and sale of the Company's Series E
Preferred Stock, as defined in the Agreement (the "Shares"), to Becton,
Dickinson and Company ("BD") under the Stock Purchase Agreement dated as of May
10, 2000 (the "Agreement") between the Company and BD. We are rendering this
opinion pursuant to Section 5.1(e) of the Agreement. Except as otherwise defined
herein, capitalized terms used but not defined herein have the respective
meanings given to them in the Agreement.

In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Agreement by the various parties and originals or copies
certified to our satisfaction of such records, documents, certificates,
opinions, memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below. Where we render
an opinion "to the best of our knowledge" or concerning an item "known to us" or
our opinion otherwise refers to our knowledge, it is based solely upon (i) an
inquiry of attorneys within this firm who perform legal services for the
Company, (ii) receipt of a certificate executed by an officer of the Company
covering such matters, and (iii) such other investigation, if any, that we
specifically set forth herein.

In rendering this opinion, we have assumed: the genuineness and authenticity of
all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by the Company of the Agreement), where authorization, execution and delivery
are prerequisites to the effectiveness of such documents. We have also assumed:
that all individuals executing and delivering documents had the legal capacity
to so execute and deliver; that you have received all documents you were to
receive under the Agreement; that the Agreement is an obligation binding upon
you; if you are a corporation or other entity, that you have filed any required
California franchise or income tax returns and have paid any required California
franchise or income taxes; and that there are no extrinsic agreements or
understandings among the parties to the Agreement that would modify or interpret
the terms of the Agreement or the respective rights or obligations of the
parties thereunder.

Our opinion is expressed only with respect to the federal laws of the United
States of America, the laws of the State of California, the securities laws of
the State of New Jersey and, as to corporate matters, the General Corporation
Law of the State of Delaware. We express 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.


                                       49
<PAGE>

opinion as to whether the laws of any other jurisdiction apply, and we express
no opinion to the extent that the laws of any jurisdiction other than those
identified above are applicable to the subject matter hereof. With respect to
the securities laws of New Jersey, we have based our opinion solely upon our
examination of such laws and the rules and regulations of the authorities
administering such laws, all as reported in unofficial compilations. Neither
special rulings of such authorities nor opinions of counsel in said jurisdiction
have been obtained. We are not rendering any opinion as to compliance with any
antifraud law, rule or regulation relating to securities, or to the sale or
issuance thereof.

With regard to our opinion in paragraph 4 below, we have examined and relied
upon a certificate executed by an officer of the Company, to the effect that the
consideration for all outstanding shares of capital stock of the Company was
received by the Company in accordance with the provisions of the applicable
Board of Directors resolutions and any plan or agreement relating to the
issuance of such shares, and we have undertaken no independent verification with
respect thereto.

On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:

1.       The Company has been duly incorporated and is a validly existing
         corporation in good standing under the laws of the State of Delaware.

2.       The Company has the requisite corporate power to own or lease its
         property and assets and to conduct its business as it is currently
         being conducted, is qualified as a foreign corporation to do business
         in California and, to the best of our knowledge, is not required to
         qualify as a foreign corporation to do business in any other
         jurisdiction in the United States where the failure to do so would have
         a material adverse effect.

3.       The Agreement has been duly and validly authorized, executed and
         delivered by the Company and constitutes a valid and binding agreement
         of the Company enforceable against the Company in accordance with its
         terms, except as enforcement may be limited by applicable bankruptcy,
         insolvency, reorganization, arrangement, moratorium or other similar
         laws affecting creditors' rights, and subject to general equity
         principles and to limitations on availability of equitable relief,
         including specific performance.

4.       The Company's authorized capital stock consists of: (a) fifty-three
         million (53,000,000) shares of Common Stock, with a par value of $.001,
         of which six million nine hundred twenty-eight thousand eight hundred
         twenty-one (6,928,821) shares are issued and outstanding and (b)
         thirty-one million six hundred and forty-two thousand four hundred
         thirty (31,642,430) shares of Preferred Stock, with a par value of
         $.001, of which three million eight hundred forty-six thousand one
         hundred fifty-six (3,846,156) shares have been designated Series A
         Preferred Stock, all of which are issued and outstanding; four million
         four hundred eighty-seven thousand one hundred and eighty-two
         (4,487,182) shares have been designated Series B Preferred Stock, all
         of which are issued and outstanding; nine million three hundred
         seventy-five thousand three hundred (9,375,300) shares have been
         designated Series C Preferred Stock, of which nine million two hundred
         forty-five thousand three hundred (9,245,300) are issued and
         outstanding; ten million two

[ * ] = 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.


                                       50
<PAGE>

         hundred eighty-five thousand seven hundred fourteen (10,285,714) shares
         have been designated Series D Preferred Stock, all of which are issued
         and outstanding; and three million six hundred forty-eight thousand
         seventy-eight (3,648,078) shares have been designated Series E
         Preferred Stock, of which nine hundred sixty-one thousand five hundred
         thirty-nine (961,539) shares are issued and outstanding. The
         outstanding shares of Common Stock and of Preferred Stock have been
         duly authorized and validly issued and are fully paid and
         nonassessable. The rights, preferences and privileges of the Series A
         Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
         Series D Preferred Stock and Series E Preferred Stock are as stated in
         the Amended and Restated Certificate of Incorporation. The Shares have
         been duly authorized, and upon issuance and delivery against payment
         therefor in accordance with the terms of the Agreement, the Shares will
         be validly issued, outstanding, fully paid and nonassessable. The
         shares of Common Stock issuable upon conversion of the Shares have been
         duly authorized, duly and validly reserved for issuance, and upon
         issuance and delivery against payment therefor in accordance with the
         terms of the Amended and Restated Certificate of Incorporation, will be
         validly issued, outstanding, fully paid and nonassessable. To the best
         of our knowledge, there are no options, warrants, conversion
         privileges, preemptive rights or other rights currently outstanding to
         purchase or otherwise acquire any of the authorized but unissued
         capital stock of the Company, other than the conversion privileges of
         the Series A Preferred Stock, Series B Preferred Stock, Series C
         Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
         rights set forth in the Agreement, options to purchase 3,930,202 shares
         of Common Stock pursuant to the Company's 1994 and 1996 Stock Option
         Plans, 819,029 shares reserved for issuance of additional options under
         the Company's 1994 and 1996 Stock Option Plans, and warrants to
         purchase 65,000 shares of Series C Preferred Stock and 32,051 shares of
         Common Stock.

5.       The execution, delivery and performance of the Agreement by the Company
         and the issuance of the Shares pursuant thereto do not violate any
         provision of the Company's Amended and Restated Certificate of
         Incorporation or Bylaws, and do not violate or contravene (a) any
         governmental statute, rule or regulation applicable to the Company or
         (b) any order, writ, judgment, injunction, decree, determination or
         award which has been entered against the Company and of which we are
         aware, the violation or contravention of which would materially and
         adversely affect the Company, its assets, financial condition or
         operations.

6.       To our knowledge, there is no action, proceeding or investigation
         pending or overtly threatened against or by the Company before any
         court or administrative agency that questions the validity of the
         Agreement or might result, either individually or in the aggregate, in
         any material adverse change in the assets, financial condition, or
         operations of the Company.

7.       All consents, approvals, authorizations, or orders of, and filings,
         registrations, and qualifications with any regulatory authority or
         governmental body in the United States required for the consummation by
         the Company of the transactions contemplated by the Agreement, have
         been made or obtained including the filing the Amended and Restated
         Certificate of Incorporation in the Office of the Secretary of State of
         the State of

[ * ] = 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.


                                       51
<PAGE>

         Delaware, except (a) for the filing of a Form D pursuant to Securities
         and Exchange Commission Regulation D and (b) other Blue Sky filings
         that may be required.

8.       The offer and sale of the Shares is exempt from the registration
         requirements of the Securities Act of 1933, as amended subject to the
         timely filing of a Form D pursuant to Securities and Exchange
         Commission Regulation D.

This opinion is intended solely for your benefit and is not to be made available
to or be relied upon by any other person, firm, or entity without our prior
written consent.

Very truly yours,

Cooley Godward LLP


By:      /s/      Robert J. Brigham
   -----------------------------------------
         Robert J. Brigham

[ * ] = 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.


                                       52
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                               PAGE

<S>                                                                                                            <C>
1.       PURCHASE OF SERIES E STOCK...............................................................................2

         1.1      Initial Purchase of Series E Stock..............................................................2

         1.2      Additional Stock Purchase upon the Achievement of a Milestone...................................2

         1.3      Hart-Scott-Rodino Compliance....................................................................3

2.       CLOSING DATE; DELIVERY...................................................................................3

         2.1      Closing; Closing Date...........................................................................3

         2.2      Delivery........................................................................................4

3.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................4

         3.1      Organization, Good Standing and Qualification...................................................4

         3.2      Capitalization..................................................................................4

         3.3      Subsidiaries....................................................................................5

         3.4      Authorization...................................................................................5

         3.5      Valid Issuance of Securities....................................................................5

         3.6      Governmental Consents...........................................................................6

         3.7      Litigation......................................................................................6

         3.8      Employee Agreement..............................................................................6

         3.9      Patents and Trademarks..........................................................................6

         3.10     Compliance with Other Instruments...............................................................7

         3.11     Agreements; Action..............................................................................7

         3.12     Disclosure......................................................................................8

         3.13     Rights of Registration and First Offer..........................................................8

         3.14     Corporate Documents.............................................................................9

         3.15     Title to Property and Assets....................................................................9

         3.16     Financial Statements............................................................................9

         3.17     Employee Benefit Plans; ERISA...................................................................9

         3.18     Tax Returns and Payments.......................................................................10

         3.19     Insurance......................................................................................10

         3.20     Labor Agreements and Actions...................................................................10

         3.21     Absence of Changes.............................................................................11

[ * ] = 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>
         3.22     Brokers........................................................................................11

4.       REPRESENTATIONS AND WARRANTIES OF BD....................................................................11

         4.1      Legal Power....................................................................................11

         4.2      Due Execution..................................................................................11

         4.3      Investment Representations.....................................................................12

         4.4      Brokers........................................................................................13

5.       CONDITIONS TO CLOSING...................................................................................13

         5.1      Conditions to Obligations of BD at Initial Closing.............................................13

         5.2      Conditions Precedent to BD's Investment at the Milestone Closing...............................14

         5.3      Conditions to Obligations of the Company at Closing............................................15

6.       COVENANTS AND RIGHTS  OF BD.............................................................................15

         6.1      Sale Restriction...............................................................................15

         6.2      Right of First Offer...........................................................................16

         6.3      Standstill Agreement...........................................................................17

         6.4      Registration...................................................................................17

7.       COVENANTS OF THE COMPANY................................................................................17

         7.1      Information Rights.............................................................................17

         7.2      Press Releases.................................................................................18

8.       MISCELLANEOUS...........................................................................................18

         8.1      Governing Law..................................................................................18

         8.2      Successors and Assigns.........................................................................18

         8.3      Entire Agreement...............................................................................18

         8.4      Severability...................................................................................18

         8.5      Amendment and Waiver...........................................................................18

         8.6      Notices........................................................................................19

         8.7      Fees and Expenses..............................................................................19

         8.8      Titles and Subtitles...........................................................................19

         8.9      Counterparts...................................................................................19
</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.


                                      ii.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-5.1
<SEQUENCE>3
<FILENAME>a2029891zex-5_1.txt
<DESCRIPTION>EXHIBIT 5.1
<TEXT>

<PAGE>
                                                                     EXHIBIT 5.1

[COOLEY GODWARD LLP LETTERHEAD]

November 8, 2000

AeroGen, Inc.
1310 Orleans Drive
Sunneyvale, CA 94089

Ladies and Gentlemen:

You have requested our opinion with respect to certain matters in connection
with the filing by AeroGen, Inc. (the "Company") of a Registration Statement on
Form S-1 (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") covering an underwritten public offering of up to
four million one hundred forty thousand (4,140,000) shares of Common Stock (the
"Common Stock").

In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Amended and
Restated Certificate of Incorporation and Bylaws, as currently in effect, and
the originals or copies certified to our satisfaction of such records,
documents, certificates, memoranda and other instruments as in our judgement are
necessary or appropriate to enable us to render the opinion expressed below;
(ii) assumed that the Amended and Restated Certificate of Incorporation, as set
forth in Exhibit 3.2 of the Registration Statement, shall have been duly
approved and filed with the office of the Secretary of State of the state of
Delaware; and (iii) that the shares of Common Stock will be sold by the
Underwriters at a price established by the Pricing Committee of the Board of
Directors of the Company.

On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Common Stock, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid and
non-assessable.

We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included on the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.

Very truly yours,
COOLEY GODWARD LLP

<TABLE>
  <S>  <C>
  By:            /s/ ROBERT J. BRIGHAM
              ----------------------------
                   Robert J. Brigham
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>4
<FILENAME>a2029891zex-10_9.txt
<DESCRIPTION>EXHIBIT 10.9
<TEXT>

<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>
                                                                                                               PAGE
<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 central streptamine
or deoxystreptamine linked directly to two or more aminosaccharide or
saccharide residues with a molecular weight of not more than 800 daltons.
This includes, but is not limited to, amikacin, gentamycin, kanamycin,
neomycin, streptomycin, and tobramycin.

         "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.
<PAGE>

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.
<PAGE>

                  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.
<PAGE>

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

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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.


                                      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,

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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.


                                      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;

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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.


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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 so ordered by a court of competent
jurisdiction in such country or if PathoGenesis, any Affiliate of
PathoGenesis or any sublicensee obtains a written opinion from an independent
qualified patent counsel or agent in such country, reasonably acceptable to
AeroGen, that the use or sale of the Inhaler Product in the Field infringes
upon such third party's patent rights or other proprietary interests. 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

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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.


                                      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.


                                      18.
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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.


                                      19.
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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:

[*] = 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.


                                      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.


                                      21.
<PAGE>

                           (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.


                                      22.
<PAGE>

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.


                                      23.
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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 the then current Model
Mediation Procedure for Business Disputes of the Center for Public Resources
("CPR"). Unless otherwise agreed, the parties shall select a mediator from
the CPR panel of neutrals and shall notify CPR 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 CPR Rules for
Non-Administered Arbitration of Patent and Trade Secret Disputes. 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.
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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 Seattle, Washington if the arbitration is
initiated by AeroGen, or in San Francisco, California if the arbitration is
initiated by PathoGenesis.

         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.
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                  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.
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                                        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.
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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 III 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

         U.S. PATENT NO. 5,164,740, Issued Nov. 17, 1992
         Filed April 24, 1991

                Foreign Counterparts:
                ---------------------

                Argentine Patent No. 247,686
                Brazilian Patent No. PI9201487
                Canadian Patent No. 2066838
                France 0510648
                Mexican Patent No. 179906
                EPC Patent No. 510648B1 (French and UK issued)
                German Patent No. DE 692 12 688.0-08
                Japan: pending

         U.S. PATENT NO. 5,938,117, Issued August 17, 1999
         Filed April 5, 1995

                Foreign Counterparts:  Pending in Great Britain, France and
                ---------------------  Germany

         U.S. PATENT NO. 5,586,550, Issued December 24, 1996
         Filed August 13, 1995

                Foreign Counterparts:  Pending in Australia, Brazil, Canada,
                ---------------------  Germany, France, Great Britain,
                                       Netherlands, Sweden and Japan

         U.S. PATENT NO. 5,758,637, Issued June 2, 1998
         Filed February 21, 1996

                Foreign Counterparts:  Pending in nine foreign counterparts
                ---------------------  of U.S. Patent No. 5,586,550.

         U.S. PATENT NO. 6,014,970, Issued January 18, 2000
         Filed June 11, 1998

                Foreign Counterparts:  Pending in Australia, Brazil, Canada,
                ---------------------  China, Europe (all designated states),
                                       India, Japan, Mexico, New Zealand, and
                                       Russia






[*] = 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.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>5
<FILENAME>a2029891zex-10_10.txt
<DESCRIPTION>EXHIBIT 10.10
<TEXT>

<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 10.10

                                 INSULIN INHALER

                                   DEVELOPMENT

                                    AGREEMENT

                                 BY AND BETWEEN

                          BECTON, DICKINSON AND COMPANY

                                       AND

                                  AEROGEN, INC.

[*] = 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.

<PAGE>

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

         1.1      "AeroGen Know-How"..............................................................................1

         1.2      "AeroGen Patents"...............................................................................1

         1.3      "AeroGen Technology"............................................................................2

         1.4      "Affiliate".....................................................................................2

         1.5      "BD Cartridge"..................................................................................2

         1.6      "BD Know-How"...................................................................................2

         1.7      "BD Patents"....................................................................................2

         1.8      "BD Percentage".................................................................................2

         1.9      "BD Technology".................................................................................2

         1.10     "Cartridge".....................................................................................2

         1.11     "Confidential Information"......................................................................2

         1.12     "Controlled"....................................................................................2

         1.13     "Critical System Specifications"................................................................2

         1.14     "Development Patents"...........................................................................2

         1.15     "Development Invention".........................................................................2

         1.16     "Development Technology"........................................................................2

         1.17     "Development Term"..............................................................................2

         1.18     "Drug"..........................................................................................3

         1.19     "Field".........................................................................................3

         1.20     "Final Specifications"..........................................................................3

         1.21     "Information"...................................................................................3

         1.22     "Inhaler".......................................................................................3

         1.23     "Initial Phase II Trials".......................................................................3

         1.24     "Interface".....................................................................................3

         1.25     "Interface Technology"..........................................................................3

         1.26     "Interim Technical Specifications"..............................................................3

         1.27     "Joint Development Team" or "JDT"...............................................................3

         1.28     "Joint Know-How"................................................................................3

         1.29     "Joint Patents".................................................................................3

         1.30     "Joint Technology"..............................................................................3

[*] = 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>

         1.31     "Marketing Partner".............................................................................3

         1.32     "NDA"...........................................................................................3

         1.33     "Net Sales".....................................................................................4

         1.34     "Partnering Agreement"..........................................................................4

         1.35     "Patent"........................................................................................4

         1.36     "Preliminary Final Specifications"..............................................................4

         1.37     "Product".......................................................................................4

         1.38     "Qualified Supplier"............................................................................4

         1.39     "Retail Product"................................................................................4

         1.40     "Royalty" or "Royalties"........................................................................4

         1.41     "Specifications"................................................................................4

         1.42     "Steering Committee"............................................................................4

         1.43     "Stock Purchase Agreement"......................................................................4

         1.44     "Supply Agreement"..............................................................................4

         1.45     "Technical Development Plan"....................................................................4

         1.46     "Technical Development Program".................................................................4

         1.47     "Third Party"...................................................................................5

         1.48     "Valid Claim"...................................................................................5

         1.49     "Validation Studies"............................................................................5

2.       OVERVIEW.................................................................................................5

         2.1      Development of the Product......................................................................5

         2.2      Commercialization...............................................................................5

3.       MANAGEMENT...............................................................................................5

         3.1      Joint Development Team..........................................................................5

         3.2      Steering Committee..............................................................................6

         3.3      Limitation of Powers............................................................................8

         3.4      Liaisons........................................................................................8

4.       TECHNICAL DEVELOPMENT PROGRAM............................................................................8

         4.1      Technical Development Plan......................................................................8

         4.2      AeroGen Development Activities..................................................................8

         4.3      BD Development Activities.......................................................................8

         4.4      Conduct of Technical Development Program........................................................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.


                                       ii
<PAGE>

         4.5      Development of Product Specifications...........................................................9

         4.6      Records and Reports.............................................................................9

         4.7      Invention Assignment Agreements................................................................10

5.       CLINICAL DEVELOPMENT....................................................................................10

         5.1      AeroGen Responsibilities.......................................................................10

         5.2      BD Participation...............................................................................11

6.       COMMERCIALIZATION.......................................................................................11

         6.2      BD Right to Secure Marketing Partner...........................................................11

         6.3      Failure to Obtain a Marketing Partner..........................................................11

         6.4      Services by BD.................................................................................12

7.       MANUFACTURING AND SUPPLY................................................................................12

         7.1      Supply of the Drug.............................................................................12

         7.2      Manufacture and Supply of the Cartridge........................................................12

         7.3      Exclusivity....................................................................................13

         7.4      Use of AeroGen Intellectual Property...........................................................14

         7.5      Cost Standards.................................................................................14

8.       LICENSE GRANTS..........................................................................................14

         8.1      To BD..........................................................................................14

         8.2      To AeroGen.....................................................................................15

         8.3      Use of the BD Cartridge Outside of the Field...................................................15

         8.4      Reservation of Rights..........................................................................15

9.       ROYALTIES...............................................................................................16

         9.1      Royalties......................................................................................16

         9.2      Pre-Paid Royalties.............................................................................16

         9.3      Calculation of BD Percentage in Certain Circumstances..........................................16

         9.4      Upfront Payments...............................................................................17

         9.5      Payment of the BD Percentage...................................................................17

         9.6      Audits.........................................................................................17

10.      INTELLECTUAL PROPERTY...................................................................................18

         10.1     Ownership......................................................................................18

         10.2     Patent Matters.................................................................................19

         10.3     Defense and Settlement of Third Party Claims...................................................20

[*] = 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>

         10.4     Infringement By Third Parties..................................................................20

         10.5     Settlements....................................................................................20

11.      CONFIDENTIALITY.........................................................................................20

         11.1     Treatment of Confidential Information..........................................................21

         11.2     Publications...................................................................................21

         11.3     Publicity......................................................................................21

         11.4     Terms of the Agreement.........................................................................22

         11.5     Required Disclosure............................................................................22

         11.6     Survival of Confidentiality....................................................................22

12.      REPRESENTATIONS AND COVENANTS...........................................................................22

         12.1     Mutual Authority...............................................................................22

         12.2     BD Representations and Warranties..............................................................22

         12.3     AeroGen Representations and Warranties.........................................................23

         12.4     Disclaimer.....................................................................................23

13.      TERM AND TERMINATION....................................................................................23

         13.1     Term...........................................................................................23

         13.2     Termination For Other Than Cause...............................................................23

         13.3     Termination For Breach.........................................................................26

         13.4     Effect of Termination..........................................................................27

         13.5     Bankruptcy Rights..............................................................................27

         13.6     Survival.......................................................................................27

14.      INDEMNIFICATION.........................................................................................27

         14.1     By AeroGen.....................................................................................27

         14.2     By BD..........................................................................................27

         14.3     Apportionment..................................................................................28

         14.4     Notice and Procedures..........................................................................28

15.      MISCELLANEOUS...........................................................................................28

         15.1     Entire Agreement; Amendment....................................................................28

         15.2     Dispute Resolution.............................................................................28

         15.3     Force Majeure..................................................................................29

         15.4     Notices........................................................................................29

         15.5     Limitation of Liability........................................................................30

[*] = 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>

         15.6     Consents Not Unreasonably Withheld or Delayed..................................................30

         15.7     Independent Contractors........................................................................30

         15.8     Maintenance of Records.........................................................................30

         15.9     United States Dollars..........................................................................30

         15.10    No Strict Construction.........................................................................30

         15.11    Assignment.....................................................................................30

         15.12    Performance by Affiliates......................................................................30

         15.13    Counterparts...................................................................................31

         15.14    Further Actions................................................................................31

         15.15    Severability...................................................................................31

         15.16    Ambiguities....................................................................................31

         15.17    Headings.......................................................................................31

         15.18    No Waiver......................................................................................31

EXHIBIT 1  CRITICAL SYSTEM SPECIFICATIONS........................................................................33

EXHIBIT 2  TECHNICAL DEVELOPMENT PLAN............................................................................34

EXHIBIT 4  POTENTIAL INVENTORS...................................................................................43

EXHIBIT 5  FORM OF STANDARD EMPLOYMENT AGREEMENT.................................................................44

EXHIBIT 6  AEROGEN INHALER WITH BD CARTRIDGE.....................................................................45
</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>

                      INSULIN INHALER DEVELOPMENT AGREEMENT

         THIS INSULIN INHALER DEVELOPMENT AGREEMENT (the "Agreement") is
executed as of May 10, 2000 (the "Signing Date") and effective as of the 1st day
of January, 2000 (the "Effective Date") by and between AEROGEN, INC., a Delaware
corporation having its principal place of business at 1310 Orleans Drive,
Sunnyvale, CA 94089 ("AeroGen"), and BECTON, DICKINSON AND COMPANY, a New Jersey
corporation having its principal place of business at 1 Becton Drive, Franklin
Lakes, New Jersey 07417-1866 ("BD"). AeroGen and BD are sometimes referred to
herein individually as a "Party" and collectively as the "Parties."

                                    RECITALS

WHEREAS, AeroGen has developed and possesses proprietary drug delivery
technology, including without limitation an aerosol generator device useful for
the systemic delivery of insulin as further described herein; and

WHEREAS, BD possesses extensive experience in the development and
commercialization of medical devices and components thereof, including without
limitation devices for the delivery of insulin; and

WHEREAS, AeroGen and BD desire to enter into a collaboration for the
development of a product for the systemic delivery of insulin to humans,
pursuant to the terms and conditions of this Agreement, with the goal of
achieving rapid, effective development and worldwide registration of a
pulmonary insulin inhaler with a titratable dosing mechanism that has broad
commercial appeal;

NOW, THEREFORE, in consideration of the foregoing and the covenants and promises
contained herein, the Parties hereby agree as follows:

1.       DEFINITIONS

         The following capitalized terms shall have the following meanings as
used in this Agreement:

         1.1      "AEROGEN KNOW-HOW" means all Information Controlled by
AeroGen during the term of this Agreement that is necessary or useful for (a)
BD's conduct of its design and development activities with respect to the
Interface and the BD Cartridge hereunder, and/or (b) BD's manufacture or sale
of the BD Cartridge hereunder. "AeroGen Know-How" includes the Development
Technology solely owned by AeroGen pursuant to Section 10.1(a), but
specifically excludes the AeroGen Patents and the Joint Know-How.

         1.2      "AEROGEN PATENTS" means all Patents Controlled by AeroGen
during the term of this Agreement to the extent that such Patents contain one
or more claims covering an invention that is practiced by BD (a) in the
conduct of its design and development activities with respect to the
Interface and the BD Cartridge hereunder, and/or (b) in the manufacture or
sale of the BD Cartridge hereunder. "AeroGen Patents" includes any Patents
covering the Development Technology that are solely owned by AeroGen pursuant
to Section 10.1(a), but specifically excludes the Joint Patents.

[*] = 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>

         1.3      "AEROGEN TECHNOLOGY" means the AeroGen Know-How and the
AeroGen Patents.

         1.4      "AFFILIATE" means any company or entity controlled by,
controlling or under common control with a Party. As used in this Section 1.4,
"control" means that (a) an entity or company owns, directly or indirectly,
fifty percent (50%) or more of the voting stock of another entity, or (b) an
entity, person or group has the actual ability to control and direct the
management of the entity, whether by contract or otherwise.

         1.5      "BD CARTRIDGE" means the Cartridge developed by BD pursuant
to this Agreement which interfits with the Inhaler, for example, as
illustrated in Exhibit 6 hereto.

         1.6      "BD KNOW-HOW" means all Information Controlled by BD during
the term of this Agreement that is necessary or useful for the development,
manufacture, use or sale of the BD Cartridge, the Interface or any
improvements thereto. "BD Know-How" includes the Development Technology
solely owned by BD pursuant to Section 10.1(a), but specifically excludes the
Joint Know-How and the BD Patents.

         1.7      "BD PATENTS" means all Patents Controlled by BD during the
term of this Agreement to the extent that such Patents contain one or more
claims covering an invention that is practiced by AeroGen (or its
sublicensees hereunder) in the development, manufacture, use, importation,
offer for sale or sale of the BD Cartridge, the Interface or any improvements
thereto. "BD Patents" includes any Patents covering the Development
Technology that are solely owned by BD pursuant to Section 10.1(a), but
specifically excludes the Joint Patents.

         1.8      "BD PERCENTAGE" shall have the meaning ascribed in Section
9.1.

         1.9      "BD TECHNOLOGY" means the BD Patents and the BD Know-How.

         1.10     "CARTRIDGE" means a titratable container and dispensing
mechanism for pulmonary delivery of the Drug.

         1.11     "CONFIDENTIAL INFORMATION" shall have the meaning ascribed in
Section 11.1.

         1.12     "CONTROLLED" means, with respect to any material, Information
or intellectual property right, possession of the ability by a Party to grant
access, a license, or a sublicense to such material, Information or intellectual
property right as provided for herein without violating an agreement with a
Third Party as of the time such Party would be first required hereunder to grant
the other Party such access, license or sublicense.

         1.13     "CRITICAL SYSTEM SPECIFICATIONS" means the critical design
and performance criteria for the Product set forth in Exhibit 1 hereto.

         1.14     "DEVELOPMENT PATENTS" means any Patents claiming a
Development Invention; provided, however, that such Patents do not include
any continuation or division applications claiming priority to a parent
application or continuation-in-part application filed prior to the
commencement of the Development Term.

         1.15     "DEVELOPMENT INVENTION" means an invention in the Development
Technology.

         1.16     "DEVELOPMENT TECHNOLOGY" means all Information created or
developed pursuant to the Technical Development Program or thereafter pursuant
to this Agreement, either solely by a Party or jointly by the Parties, and all
Patents covering such Information.

         1.17     "DEVELOPMENT TERM" means the period beginning on the Effective
Date and ending on the earlier of (a) [*], or (b) [*], unless extended by mutual
written agreement of the Parties.

[*] = 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>

         1.18     "DRUG" means a solution or liquid suspension of
short-acting human insulin, including without limitation reconstituted powder.

         1.19     "FIELD" means the treatment of diabetes mellitus in humans.

         1.20     "FINAL SPECIFICATIONS" mean the final specifications for the
Product that are required for the use of the Product in Phase III clinical
studies in the Field, to be developed by the JDT pursuant to Section 4.5(c).

         1.21     "INFORMATION" means (a) techniques, data, inventions,
practices, methods, knowledge, know-how, skill, experience, test data including
pharmacological, toxicological and clinical test data, analytical and quality
control data, regulatory submissions, correspondence and communications,
marketing, pricing, distribution, cost, sales, manufacturing, patent and legal
data or descriptions, and (b) compositions of matter, assays and biological
materials, and all intellectual property rights in and to any of the foregoing.

         1.22     "INHALER" means AeroGen's proprietary aerosol generator and
related components (excluding the Cartridge) for the pulmonary delivery of
the Drug for use in the Field.

         1.23     "INITIAL PHASE II TRIALS" means the first clinical study for
the use of the Inhaler in patients in the Field conducted in any location.

         1.24     "INTERFACE" means the interface and/or interconnection
between the Inhaler and the BD Cartridge.

         1.25     "INTERFACE TECHNOLOGY" shall have the meaning ascribed in
Section 10.1(a)(iii).

         1.26     "INTERIM TECHNICAL SPECIFICATIONS" means the technical
specifications for the [*] for the Product, to be determined by the JDT
pursuant to Section 4.5(a) based upon the Critical System Specifications and
the work conducted pursuant to the Technical Development Plan.

         1.27     "JOINT DEVELOPMENT TEAM" OR "JDT" means the joint development
team described in Section 3.1 that shall oversee the Parties' activities under
the Technical Development Program.

         1.28     "JOINT KNOW-HOW" means all Information in the Development
Technology jointly owned by the Parties in accordance with Section 10.1(a),
provided that "Joint Know-How" shall specifically exclude the Joint Patents.

         1.29     "JOINT PATENTS" means any Patents claiming a Development
Invention and jointly owned by the Parties in accordance with Section 10.1(a).

         1.30     "JOINT TECHNOLOGY" means the Joint Know-How and the Joint
Patents.

         1.31     "MARKETING PARTNER" means a Third Party with whom AeroGen has
entered into a Partnering Agreement.

         1.32     "NDA" means a New Drug Application filed with the U.S. Food
and Drug Administration.

[*] = 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>

         1.33     "NET SALES" means, with respect to each Partnering
Agreement, net sales of the Retail Product as defined in such agreement;
provided that in no event shall "Net Sales" include any deduction for any
discounts given for bundling the Retail Product with products other than the
Product, the Inhaler or the BD Cartridge.

         1.34     "PARTNERING AGREEMENT" means a written agreement between
AeroGen and a Third Party for the commercial development, promotion,
manufacture (other than manufacture of a Cartridge), marketing and/or sale
and distribution of the Product in any country of the world.

         1.35     "PATENT" means (a) unexpired letters patent which have not
been held invalid or unenforceable by a court of competent jurisdiction from
which no appeal can be taken or has been taken within the required time period,
including without limitation any substitution, extension, registration,
confirmation, inventor's certificate, reissue, re-examination, renewal or any
like filing thereof; and (b) pending applications for letters patent, including
without limitation any continuation, division or continuation-in-part thereof
and any provisional applications.

         1.36     "PRELIMINARY FINAL SPECIFICATIONS" means the preliminary
final specifications for the Product required for the conduct of the
Validation Studies, to be developed by the JDT pursuant to Section 4.5(b).

         1.37     "PRODUCT" means any product for the pulmonary delivery of the
Drug comprising the Inhaler and the BD Cartridge.

         1.38     "QUALIFIED SUPPLIER" shall have the meaning ascribed in
Section 7.1(a).

         1.39     "RETAIL PRODUCT" means either (a) the Product; (b) the BD
Cartridge filled with the Drug; or (c) the Inhaler, in such case packaged
separately for retail sale.

         1.40     "ROYALTY" OR "ROYALTIES" means a percentage of Net Sales
actually received by AeroGen from a Marketing Partner pursuant to a Partnering
Agreement from sales of the Retail Product in any country covered by such
Partnering Agreement.

         1.41     "SPECIFICATIONS" means the Critical System Specifications, the
Interim Technical Specifications, the Preliminary Final Specifications or the
Final Specifications, as applicable.

         1.42     "STEERING COMMITTEE" means the committee described in Section
3.2 that shall oversee the commercialization activities of the Parties
hereunder.

         1.43     "STOCK PURCHASE AGREEMENT" means that certain stock purchase
agreement entered into as of the Signing Date, whereby BD shall purchase from
AeroGen shares of AeroGen Series E Preferred Stock.

         1.44     "SUPPLY AGREEMENT" means the agreement described in Section
7.2.

         1.45     "TECHNICAL DEVELOPMENT PLAN" shall have the meaning ascribed
in Section 4.1.

         1.46     "TECHNICAL DEVELOPMENT PROGRAM" means the collaborative
activities to be conducted by the Parties to develop the Product under the
direction of the JDT during the Development Term, as further described in
Article 4.

[*] = 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>

         1.47     "THIRD PARTY" means any entity other than AeroGen or BD or
their respective Affiliates.

         1.48     "VALID CLAIM" shall mean a claim of an issued and unexpired
Patent that (a) is included within the AeroGen Technology, BD Technology or the
Joint Technology, (b) claims the manufacture, use or sale of the Product and (c)
has not been held unenforceable, unpatentable, or invalid by a court or other
governmental agency of competent jurisdiction, and that has not been admitted to
be invalid or unenforceable through reissue, disclaimer or otherwise.

         1.49     "VALIDATION STUDIES" shall have the meaning ascribed in
Section 5.1(b).

2.       OVERVIEW

         2.1      DEVELOPMENT OF THE PRODUCT. Commencing promptly following
the Effective Date and during the Development Term, the Parties shall
undertake the Technical Development Program in accordance with the Technical
Development Plan, pursuant to which AeroGen shall develop the Inhaler and a
manufacturing process therefor, BD shall develop the BD Cartridge and a
manufacturing process therefor and the Parties shall jointly develop the
Interface, all as further described in Article 4. The Parties' efforts under
the Technical Development Program shall be overseen by the JDT, as further
described in Section 3.1.

         2.2      COMMERCIALIZATION. AeroGen shall seek one or more Marketing
Partners for the commercialization of the Product, as further described in
Section 6.1. AeroGen shall be responsible for identifying and qualifying a
source of the Drug for use with the Product. BD shall exclusively supply to
AeroGen and its Marketing Partner(s), and AeroGen and its Marketing
Partner(s) shall exclusively purchase from BD, AeroGen's clinical and
commercial requirements for the BD Cartridge pursuant to the Supply
Agreement. AeroGen shall be responsible for manufacturing or having
manufactured the Product for clinical trials and commercial use. The Steering
Committee shall oversee the Parties' activities with respect to the clinical
and commercial supply of the Product, and shall advise the Parties with
respect to the commercialization of the Product hereunder, as further
described in Section 3.2.

3.       MANAGEMENT

         3.1      JOINT DEVELOPMENT TEAM.

                  (a)      FORMATION. Within ten (10) days after the Effective
Date, AeroGen and BD shall establish the Joint Development Team ("JDT").

                  (b)      PURPOSE AND PRINCIPLES. The general purposes of the
JDT shall be (i) to determine the overall technical strategy for the development
of the Product, including without limitation developing an integrated system
design for the Product and establishing appropriate specifications, (ii) to
develop the Technical Development Plan and to modify or amend it as necessary,
(iii) to develop and propose for the Parties' approval the Interim Technical
Specifications, the Preliminary Final Specifications and the Final
Specifications in accordance with Section 4.5 and to modify or amend them as
necessary, and (iv) to coordinate the Parties'

[*] = 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>

activities under the Technical Development Program, all based on the principles
of prompt and diligent development of the Product consistent with good
pharmaceutical and medical device practices. The JDT shall perform such other
functions as appropriate to further the purposes of the Technical Development
Program as determined by the Parties, including the periodic evaluation of
performance against goals.

                  (c)      MEMBERSHIP. The JDT shall initially have three (3)
representatives of each Party with the requisite levels of skill and experience
in engineering and 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 BD. 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 Product.

                  (d)      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 BD's facilities in Franklin Lakes, NJ
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 Product 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.

                  (e)      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 BD 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. From time to time, the JDT may
establish subcommittees or subordinate committees (which may or may not include
members of the JDT itself) to oversee particular projects or activities, and
such subcommittees or subordinate committees shall be constituted and shall
operate as the JDT agrees.

                  (f)      DECISION-MAKING. Each of AeroGen's and BD's
representatives shall have one vote. All decisions of the JDT shall be
unanimous. Any disagreement among the members of the JDT will be resolved in
light of the principles set forth in this Article 3. Should the JDT be unable to
reach a unanimous decision on an issue within thirty (30) days, such issue shall
be referred to the Steering Committee for resolution.

                  (g)      TERM. The JDT shall remain in operation for the
duration of the Development Term unless otherwise agreed by the Parties in
writing.

         3.2      STEERING COMMITTEE.

[*] = 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)      FORMATION. Within thirty (30) days following the
Effective Date, the Parties shall establish the Steering Committee, which shall
advise the Parties with respect to the commercial development of the Product.

                  (b)      PURPOSE AND PRINCIPLES. The general purposes of the
Steering Committee shall be (i) to play an advisory role with respect to the
Product positioning and the overall commercialization strategy, (ii) to
determine strategies for supply of the Drug for the Product, (iii) to oversee
the JDT, and (iv) to coordinate the Parties' manufacturing and supply activities
hereunder with respect to the initial commercial introduction of the Product,
all based on the principles of prompt and diligent development of the Product
consistent with good pharmaceutical and medical device practices. The Steering
Committee shall perform such other functions as appropriate to further the
purposes of this Agreement as determined by the Parties, including the periodic
evaluation of performance against goals. In addition to its overall
responsibility for the collaboration established by this Agreement, the Steering
Committee shall explore further collaborative opportunities between the Parties,
including use of the BD Cartridge [*].

                  (c)      MEMBERSHIP. The Steering Committee shall initially
have three (3) representatives of each Party, provided that neither Party's
Chief Executive Officer may serve as a member of the Steering Committee. The
Steering Committee may change its size from time to time by written agreement of
the Parties; provided that the Steering Committee at all times shall be composed
of an equal number of representatives appointed by each of AeroGen and BD. Each
Party may replace its Steering Committee 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 Product.

                  (d)      MEETINGS. The Steering Committee shall hold meetings
at such times as the Steering Committee elects to do so, but in no event shall
such meetings be held less frequently than once every quarter. The Steering
Committee shall meet alternately at AeroGen's facilities in Sunnyvale, CA and
BD's facilities in Franklin Lakes, NJ or at such locations as the Parties may
otherwise agree. With the consent of the representatives of each Party serving
on the Steering Committee, other representatives of each Party or of Third
Parties involved in the manufacture or commercialization of the Product may
attend meetings of the Steering Committee as nonvoting observers. Meetings of
the Steering Committee 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 Steering
Committee. Meetings of the Steering Committee shall be effective only if a
representative of each Party is present or participating.

                  (e)      CHAIRPERSONS. The Steering Committee shall be chaired
by an AeroGen representative. 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. From time to time, each Committee may establish subcommittees or
subordinate committees (which may or may not include members of the Committee
itself) to oversee particular projects or activities, and such subcommittees or
subordinate committees shall be constituted and shall operate as the Committee
agrees.

[*] = 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.
<PAGE>

Notwithstanding the foregoing, BD shall have the right to call a special
meeting of the Steering Committee on two (2) weeks written notice to AeroGen.

                  (f)      DISPUTE RESOLUTION. In the event that the Steering
Committee is unable to reach agreement on an issue within thirty (30) days,
including any dispute referred to it by the JDT, such issue shall be subject to
dispute resolution as set forth in Section 15.2.

                  (g)      TERM. The Steering Committee shall remain in
operation for the period extending from its date of formation under
subsection (a) above until the longer of: (i) the date of first commercial
sale of the Product in any country of the world, or (ii) the date that a
Marketing Partner requests its dissolution, unless otherwise agreed by the
Parties in writing.

         3.3      LIMITATION OF POWERS. The powers of the JDT and the Steering
Committee are limited to those expressly set forth in this Agreement. Without
limiting the generality of the foregoing, neither the JDT nor the Steering
Committee shall have the right to amend this Agreement. The actions of the JDT
and/or the Steering Committee shall not substitute for either Party's ability to
exercise any right, nor excuse the performance of any obligation, set forth
herein.

         3.4      LIAISONS. Each Party will designate in writing to the other 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.

4.       TECHNICAL DEVELOPMENT PROGRAM

         4.1      TECHNICAL DEVELOPMENT PLAN. The specific tasks of each Party
under the Technical Development Program and a time-table therefor, i.e., the
"Technical Development Plan," is attached as Exhibit 2 hereto. Any changes or
modifications to the Technical Development Plan shall be agreed upon in writing
by the Parties.

         4.2      AEROGEN DEVELOPMENT ACTIVITIES. AeroGen shall undertake its
assigned activities under the Technical Development Program in accordance with
the Technical Development Plan, at its own expense, and shall use commercially
reasonable, diligent efforts to (a) itself develop the Inhaler and (b) jointly
with BD develop the Interface, all in accordance with the applicable
Specifications and the timetable as set forth in the Technical Development Plan.
AeroGen shall have the overall responsibility for the development of the
Product, except with respect to the BD Cartridge and other development
activities assigned to BD under the Technical Development Plan. AeroGen shall
have the responsibility for final design review for the Product, including
without limitation system engineering and sign-off.

         4.3      BD DEVELOPMENT ACTIVITIES. BD shall undertake its assigned
activities under the Technical Development Program in accordance with the
Technical Development Plan, at its own expense, and shall use commercially
reasonable, diligent efforts to (a) itself develop the BD Cartridge and (b)
jointly with AeroGen develop the Interface, all in accordance with the
applicable Specifications and the timetable as set forth in the Technical
Development Plan.

[*] = 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.
<PAGE>

         4.4      CONDUCT OF TECHNICAL DEVELOPMENT PROGRAM. AeroGen and BD each
shall conduct their activities under the Technical Development Program in good
scientific and engineering manner, and shall use commercially reasonable
diligent efforts to achieve their objectives efficiently and expeditiously in
compliance in all material respects with all requirements of applicable laws,
rules and regulations and all applicable good laboratory practices and design
controls. AeroGen and BD shall each proceed diligently with the work set out in
the Technical Development Plan using their respective good faith efforts.

         4.5      DEVELOPMENT OF PRODUCT SPECIFICATIONS.

                  (a)      INTERIM TECHNICAL SPECIFICATIONS. The JDT shall
develop and recommend to the Parties for their approval the Interim Technical
Specifications, including any necessary and appropriate changes or
modifications to the Technical Development Plan. The target date for approval
of the Interim Technical Specifications by the Parties is [ * ].

                  (b)      PRELIMINARY FINAL SPECIFICATIONS. The JDT shall
develop and recommend to the Parties for their approval the Preliminary Final
Specifications for the Product, including any necessary and appropriate
changes to the Technical Development Plan. The target date for approval of
the Preliminary Final Specifications is [ * ].

                  (c)      FINAL SPECIFICATIONS. The JDT shall develop and
recommend to the Parties for their approval the Final Specifications for the
Product, including any necessary and appropriate changes or modifications to
the Technical Development Plan. The target date for approval of the Final
Specifications by the Parties is [*].

                  (d)      RESPONSIBILITIES. BD shall be primarily
responsible for the development of such portion of each of such
Specifications as relates specifically to the BD Cartridge. AeroGen shall be
primarily responsible for the development of all other portions of each of
such Specifications, including such as relate specifically to the Inhaler,
except as relate specifically to the Interface. The Parties shall be jointly
responsible for the development of such portions of each of such
Specifications as relates specifically to the Interface. Each Party shall use
diligent, commercially reasonable, good faith efforts to expeditiously
develop and approve each of such Specifications pursuant to this Section 4.5
by the relevant target date.

                  (e)      REVISION OR MODIFICATION. The Parties may revise or
modify the Specifications from time to time as necessary by mutual written
agreement.

                  (f)      FAILURE TO AGREE ON FINAL SPECIFICATIONS. In the
event that the Parties are unable to agree upon the Final Specifications by [*],
and following completion of the Parties' efforts to resolve such dispute
pursuant to Section 15.2, either Party may terminate this Agreement pursuant to
Section 13.2(a).

         4.6      RECORDS AND REPORTS.

                  (a)      RECORD KEEPING. AeroGen and BD each shall maintain
records which shall be complete and accurate and shall fully and properly
reflect all work done and results achieved in the performance of the Technical
Development Program in sufficient detail and in good scientific manner
appropriate for patent and regulatory purposes.

                  (b)      INSPECTION. Each Party shall have the right, during
normal business hours and upon reasonable notice to inspect and copy all of the
records of the other Party described in

[*] = 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.
<PAGE>

subsection (a) above. Such records and the information disclosed therein shall
be deemed Confidential Information and subject to Article 11. Each Party shall
have the right to arrange for a reasonable number of its employees, agents and
outside consultants to visit the other Party at its offices and laboratories
during normal business hours and upon reasonable notice, and to discuss the
Technical Development Program and its results in detail with the technical
personnel and consultants of the other Party. All inspections, copying and
visits hereunder shall be conducted in a manner so as not to disrupt the other
Party's business or cause any disclosure of any other Party's confidential and
proprietary information.

                  (c)      REPORTS. Within thirty (30) days following the end of
each calendar quarter during the Development Term, each Party shall provide to
the other Party a written progress report which shall describe the work
performed by such Party to date on the Technical Development Program, evaluate
the work performed by such Party in relation to the goals of the Technical
Development Program and provide such other information required by the Technical
Development Program or reasonably requested by the other Party relating to the
progress of the goals or performance of the Technical Development Program. Upon
request, each Party shall provide to the other Party copies of the records
described in subsection (a) above.

         4.7      INVENTION ASSIGNMENT AGREEMENTS. Each Party hereby covenants
that each of such Party's employees, consultants and agents performing any work
under the Technical Development Program will have entered into a written
invention assignment agreement requiring that each such individual assign to
such Party all right, title and interest in any Information conceived of or
reduced to practice by such individual pursuant to the Technical Development
Program.

5.       CLINICAL DEVELOPMENT

         5.1      AEROGEN RESPONSIBILITIES.

                  (a)      AeroGen shall be responsible for the preclinical
development and clinical development of the Product and its use with the Drug
in the Field, and for the development of an appropriate formulation of the
Drug for use with the Product, in collaboration with one or more Marketing
Partners; PROVIDED, HOWEVER, that BD acknowledges that it is not AeroGen's
intent to solely fund the clinical development of the Product beyond the [*],
and that AeroGen will have no obligations under this Agreement with respect
to such clinical development of the Product beyond the [*] in the event that
AeroGen is unable to enter into a Partnering Agreement that provides that the
applicable Marketing Partner will fund such further clinical development.

                  (b)      Notwithstanding subsection (a) above, AeroGen
shall conduct, at its expense, the validation studies reasonably necessary to
qualify the BD Cartridge and Product [*] (the "Validation Studies");
provided that the foregoing obligation shall not apply to such studies that
are required due to a failure of the BD Cartridge in a prior study and such
failure was solely due to BD's negligence or wrongful act.

                  (c)      All clinical data (including, without limitation,
pharmacological, toxicological and other test data) generated by or on behalf of
AeroGen pursuant to its activities under this Section 5.1 shall be deemed
AeroGen's Confidential Information, and AeroGen shall retain sole ownership
thereof. BD shall not use such clinical data for any purpose other than its

[*] = 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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activities under the Technical Development Program and the Supply Agreement
without AeroGen's prior written consent.

                  (d)      AeroGen (or its Marketing Partner) shall be
responsible for filing for, and obtaining all applications for regulatory
approval of the Retail Product, as further provided in the Supply Agreement.

         5.2      BD PARTICIPATION. BD will furnish AeroGen with such
assistance and cooperation as AeroGen may reasonably request in connection
with the securing of regulatory approvals required for the conduct of
clinical trials and Product registrations in any country of the world
including, to the extent applicable, rights of reference to all regulatory
filings of BD, if any, regarding the BD Cartridge. AeroGen agrees to share
the protocol for any clinical trials with BD, to permit BD to observe such
clinical trials and to share results of each such clinical trials with BD, in
each case solely to the extent necessary for BD's compliance with its
regulatory obligations. All Information received by BD in connection with
such clinical trials shall be deemed to be AeroGen's Confidential Information
and subject to Article 11.

6.       COMMERCIALIZATION

         6.1      COLLABORATION WITH MARKETING PARTNER(S) AeroGen shall use
commercially reasonable efforts to identify potential Marketing Partner(s) and
to enter into Partnering Agreements therewith and to keep BD regularly apprised
of its progress on at least a monthly basis. BD will cooperate reasonably with
AeroGen in such efforts consistent with BD's lead responsibilities set forth in
Exhibit 2A. AeroGen may carry out any or all of its development and
commercialization obligations under this Agreement in collaboration with or
solely through its Marketing Partner(s). Notwithstanding the foregoing, BD
acknowledges that AeroGen may not enter into a Partnering Agreement, and that
such failure shall not be deemed to be a breach of this Agreement.

         6.2      BD RIGHT TO SECURE MARKETING PARTNER. In the event that
AeroGen has not executed at least one (1) Partnering Agreement by [ * ]
following completion of the Validation Studies, BD then shall have the right,
but not the obligation, to secure a Marketing Partner reasonably acceptable
to AeroGen on reasonable terms to be negotiated by such potential Marketing
Partner and BD and with AeroGen's reasonable assistance; PROVIDED THAT
AeroGen shall not be obligated to enter into any Partnering Agreement, except
on terms reasonably acceptable to AeroGen. BD may exercise such right at any
time following such [*] period by providing AeroGen thirty (30) days prior
written notice thereof. Notwithstanding the foregoing, BD may not exercise
such right if at such time AeroGen is engaged in active negotiations with a
Third Party with respect to a Partnering Agreement, as evidenced by a term
sheet or letter of intent with such Third Party. BD shall not have the right
to enter into a Partnering Agreement except with AeroGen's prior written
consent.

         6.3      FAILURE TO OBTAIN A MARKETING PARTNER. In the event that
AeroGen has not executed a Partnering Agreement as provided in Section 6.1
and BD has not secured a Marketing Partner as provided in Section 6.2 [*]
following completion of the Validation Studies, then either Party may
terminate this Agreement as set forth in Section 13.2(b). Notwithstanding the
foregoing, neither Party shall have the right to terminate this Agreement
under this Section 6.3 at any time during which a Party with the right to
secure a Marketing Partner is engaged in active negotiations with a Third
Party with respect to a Partnering Agreement, as evidenced by a term sheet or
letter of intent with such Third Party.

[*] = 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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         6.4      SERVICES BY BD. In the event that a Marketing Partner desires
that BD perform certain services in connection with a Partnering Agreement, BD
shall negotiate in good faith with such Marketing Partner the commercially
reasonable terms under which BD would provide such services, including without
limitation the reasonable compensation to be paid therefor. Upon reaching
agreement on such terms, BD shall enter into a written agreement with such
Marketing Partner for such services on such terms.

7.       MANUFACTURING AND SUPPLY

         7.1      SUPPLY OF THE DRUG.

                  (a)      AeroGen shall be responsible for identifying and
qualifying a supplier of the Drug for use with the Product (a "Qualified
Supplier"), and shall use commercially reasonable, good faith efforts to
identify, qualify and enter into a supply agreement with a Qualified Supplier
for the Drug for use with the Product (a "Drug Supply Agreement").
Notwithstanding the foregoing, BD acknowledges that AeroGen may not be able to
identify or qualify a Qualified Supplier and/or may not enter into a Drug Supply
Agreement with a Qualified Supplier, and that such failure shall not be deemed a
breach of this Agreement.

                  (b)      In the event that AeroGen has not executed a Drug
Supply Agreement, as described in subsection (a) above, by [*] following
completion of the Validation Studies, BD then shall have the right, but not
the obligation, to secure a Qualified Supplier reasonably acceptable to
AeroGen on reasonable terms to be negotiated by such potential Qualified
Supplier and BD and with AeroGen's reasonable assistance; PROVIDED that
AeroGen shall not be obligated to enter into any Drug Supply Agreement,
except on terms reasonably acceptable to AeroGen. BD may exercise such right
at any time following such [*] period by providing AeroGen written notice
thereof. Notwithstanding the foregoing, BD may not exercise such right if at
such time AeroGen is engaged in active negotiations with a Qualified Supplier
with respect to such a Drug Supply Agreement, as evidenced by a term sheet or
letter of intent with such Qualified Supplier. BD shall not enter into a
Drug Supply Agreement with any Qualified Supplier without AeroGen's prior
written consent.

                  (c)      In the event that AeroGen has not executed a Drug
Supply Agreement as provided in subsection (a) above, and BD has not secured
a Qualified Supplier as provided in subsection (b) above within [*] following
completion of the Validation Studies, then either Party may terminate this
Agreement as set forth in Section 13.2(b). Notwithstanding the foregoing,
neither Party shall have the right to terminate the Agreement under this
subsection (c) at any time during which a Party with the right to secure a
Qualified Supplier is engaged in active negotiations with a Qualified
Supplier with respect to a Drug Supply Agreement, as evidenced by a term
sheet or letter of intent with such Qualified Supplier.

         7.2      MANUFACTURE AND SUPPLY OF THE CARTRIDGE.

                  (a)      The Parties agree to negotiate in good faith and
enter into, as soon as is reasonably practicable, a supply agreement under
which BD would agree to exclusively manufacture and supply AeroGen and its
Marketing Partner(s) with their requirements of Unfilled BD Cartridges, and
AeroGen and its Marketing Partner(s) would agree to exclusively purchase such
requirements from BD, on mutually acceptable terms and conditions (the
"Supply Agreement"). Neither Party shall be obligated to enter into such
Supply Agreement before finalization of the Final Specifications under
Section 4.5(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.


                                      12.
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                  (b)      Such Supply Agreement shall include the terms, or
terms in accordance with the principles, set forth in Exhibit 3 attached hereto,
and shall include such other terms and conditions as are appropriate and
customary, including without limitation: (i) minimum purchase and supply
requirements to be agreed upon by the Parties in good faith following
finalization of the Final Specifications under Section 4.5(c); (ii) inventory
requirements, if applicable; and (iii) provisions to ensure continuity of supply
in the event of a catastrophe, BD's default or, if such a provision is agreed
upon by the Parties, BD's termination of the Supply Agreement for convenience.
In addition, AeroGen shall have the right to assign the Supply Agreement to a
Marketing Partner with BD's prior written consent, which consent shall not be
unreasonably withheld or delayed.

                  (c)      Notwithstanding anything to the contrary contained
in either this Agreement or the Supply Agreement, either explicitly or by
implication, BD shall not be required to commit or otherwise expend capital
resources to expand production beyond the capacity of its pilot line for the
BD Cartridge unless and until, (i) AeroGen has [*], and (ii) AeroGen and/or
its Marketing Partner has [*].

         7.3      EXCLUSIVITY.

                  (a)      BD agrees that, during the Development Term and
for three (3) years thereafter (the "Exclusivity Period") it shall not:

                           (i)      develop, have developed, manufacture,
have manufactured or sell and/or otherwise transfer to any Third Party,
directly or indirectly, either itself or on behalf of a Third Party, any
Cartridge (including, without limitation, the BD Cartridge) for use in the
Field, except as provided in this Agreement or the Supply Agreement; or

                           (ii)     purchase any Cartridge (including,
without limitation, the BD Cartridge) from any Third Party directly or
indirectly, for use in the Field by BD or any Third Party; in each case,
without the prior written consent of AeroGen.

                  (b)      AeroGen agrees that, during the Exclusivity Period it
shall not:

                           (i)      develop, have developed, manufacture, or
have manufactured any Cartridge (including, without limitation, the BD
Cartridge) either itself or with or on behalf of a Third Party for use in the
Field (except as may otherwise be provided in the Supply Agreement in the
event of a supply default by BD); or

                           (ii)     purchase from any Third Party any
Cartridge (including, without limitation, the BD Cartridge) either itself or
with or on behalf of any Third Party for use in the Field (except as may be
otherwise provided in the Supply Agreement in the event of a supply default
by BD); or

                           (iii)    sell and/or otherwise transfer, directly
or indirectly, to any Third Party any Cartridge (including, without
limitation, the BD Cartridge) for use in the Field, except as is provided in
this Agreement and the Supply Agreement.

                  (c)      Notwithstanding anything to the contrary contained
in either this Agreement or the Supply Agreement, either explicitly or by
implication, BD shall be free to manufacture, have manufactured, import, use,
offer for sale and/or sell, or otherwise transfer to any Third Party,
directly or indirectly, any titratable container and dispensing mechanism for
the pulmonary delivery of any drug solely for use outside of the Field,
subject to Section 8.3, Section 13.2(e)(i)(B), and Section 7.3(e).

[*] = 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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                  (d)      The negative covenants set forth in this Section
7.3(a) and (b) shall not survive any early termination of this Agreement by
either Party.

                  (e)      BD covenants that it shall not, during the
Exclusivity Period manufacture, have manufactured, sell, offer for sale or
import, directly or indirectly, any titratable container and dispensing
mechanism for the pulmonary delivery of a drug that interfits and is
compatible with the Inhaler, other than the BD Cartridge pursuant to this
Agreement. BD further covenants that it shall not, during the Exclusivity
Period manufacture any titratable container and dispensing mechanism for the
pulmonary delivery of any drug, which container is covered by a claim of an
issued and unexpired Development Patent claiming the manufacture, use or sale
of such titratable container, which claim (i) has not been held
unenforceable, unpatentable, or invalid by a court or other governmental
agency of competent jurisdiction, and (ii) has not been admitted to be
invalid or unenforceable through reissue, disclaimer or otherwise (a
"Development Patent Cartridge") with the intent that such Development Patent
Cartridge interfit and be compatible with any AeroGen inhaler device, for use
within or outside the Field, nor shall it have manufactured, use in Phase III
clinical trials, sell and/or otherwise transfer to any Third Party, directly
or indirectly, either itself or on behalf of a Third Party, any such
Development Patent Cartridge.

         7.4      USE OF AEROGEN INTELLECTUAL PROPERTY.

                  (a)      AeroGen shall notify BD in writing, prior to the
adoption of the Final Specifications for the BD Cartridge, to the extent any
AeroGen intellectual property is incorporated into the BD Cartridge. Promptly
following BD's receipt of such notice, the JDT shall discuss in good faith
whether it is appropriate and desirable for such intellectual property to be
incorporated into the BD Cartridge. If the Parties agree to so incorporate
such intellectual property, upon BD's request, the Parties shall also agree
in writing on a reasonable royalty or other compensation to be paid to
AeroGen by BD in the event that BD manufactures, has manufactured, imports,
uses, offers for sale or sells the BD Cartridge incorporating such AeroGen
intellectual property, for use outside of the Field.

                  (b)      If AeroGen fails to notify BD of any AeroGen
intellectual property that is incorporated into the BD Cartridge as provided
in Section (a) above, BD's sole and exclusive remedy for such breach shall be
the grant of the following covenant, which covenant shall only apply to the
intellectual property for which AeroGen failed to provide such notice (the
"AeroGen Cartridge IP"): AeroGen shall covenant that it shall not, and shall
not permit its Affiliates and sublicensees to, bring suit against BD, its
Affiliates, its successors-in-interest, their customers or their respective
permitted sublicensees with respect to the infringement, misappropriation or
other wrongful use of AeroGen Cartridge IP in connection with the making,
having made, using, selling, offering for sale or importing of the BD
Cartridge (as the BD Cartridge is envisioned by the Parties as of the
Effective Date, and as the BD Cartridge may be developed in accordance with
the Specifications to be mutually agreed upon by the Parties pursuant to this
Agreement) or a Development Patent Cartridge to the extent incorporating the
AeroGen Cartridge IP that was incorporated in the BD Cartridge, throughout
the world by BD, its successors-in-interest or their respective permitted
sublicensees hereunder solely for use [*].

                  (c)      Except as expressly provided in this Section 7.4,
BD is not granted any license or rights to, or covenant not to sue under, any
intellectual property right of AeroGen covering the manufacture, use,
importation, offer sale, or sale of the BD Cartridge for use [*]. AeroGen
grants no license or rights to, or covenant not to sue under, any
intellectual property right of AeroGen covering any Cartridge other than the
BD Cartridge or a Development Patent Cartridge to the extent incorporating
the AeroGen Cartridge IP that was incorporated in the BD Cartridge.

         7.5      COST STANDARDS. Prior to entering into the Supply Agreement,
BD shall provide to AeroGen such information as AeroGen reasonably requests with
respect to BD's accounting practices as they relate to the calculation of the
cost of goods, including without limitation BD's standard costs and standard
methods of calculating costs.

8.       LICENSE GRANTS

         8.1      TO BD.

                  (a)      DEVELOPMENT LICENSE. Subject to the terms and
conditions of this Agreement, AeroGen hereby grants to BD a non-exclusive,
worldwide, royalty-free license under the AeroGen Technology solely to conduct
its assigned activities under the Technical

[*] = 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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Development Program with respect to the Interface and the BD Cartridge. BD
may grant sublicenses under the foregoing license only with AeroGen's prior
written consent.

                  (b)      MANUFACTURING LICENSE. Subject to the terms and
conditions of this Agreement and of the Supply Agreement, AeroGen hereby
grants to BD an exclusive, worldwide, royalty-free license under the AeroGen
Technology and AeroGen's interest in the Joint Technology to manufacture the
BD Cartridge and the Interface solely for AeroGen (or its assignee under the
Supply Agreement) or its Marketing Partners pursuant to the Supply Agreement.
BD may grant sublicenses under the foregoing license only with AeroGen's
prior written consent.

                  (c)      BD COVENANT. BD hereby covenants that it shall not
use the AeroGen Technology for any purpose other than is expressly permitted
under this Section 8.1 and Section 7.4.

         8.2      TO AEROGEN.

                  (a)      DEVELOPMENT LICENSE. Subject to the terms and
conditions of this Agreement, BD hereby grants to AeroGen a non-exclusive,
worldwide, royalty-free license under the BD Technology solely to conduct its
assigned activities under the Technical Development Program with respect to
the Interface. AeroGen may grant sublicenses under the foregoing license only
with BD's prior written consent.

                  (b)      AEROGEN COVENANT. AeroGen hereby covenants that it
shall not use the BD Technology for any purpose other than is expressly
permitted under this Section 8.2.

                  (c)      BD COVENANT. BD acknowledges and agrees that it is
not BD's intent that AeroGen be prevented from developing, making, having
made, using, selling, offering for sale or importing the Product for use in
the Field in accordance with the terms of this Agreement, as the Product is
envisioned by the Parties as of the Effective Date, and as the Product may be
developed in accordance with the Specifications to be mutually agreed upon by
the Parties pursuant to this Agreement. Therefore, BD hereby covenants that
during the longer of (i) the term of this Agreement or (ii) the term of the
Supply Agreement, it shall not, and shall not permit its Affiliates and
sublicensees to bring suit against AeroGen, its Marketing Partner(s), its
successors-in-interest or their respective permitted sublicensees hereunder,
with respect to the infringement, misappropriation or other wrongful use of
any intellectual property right of BD in connection with the making, having
made, using, selling, offering for sale or importing of the Product for use
in the Field (as the Product is envisioned by the Parties as of the Effective
Date, and as the Product may be developed in accordance with the
Specifications to be mutually agreed upon by the Parties pursuant to this
Agreement) throughout the world by AeroGen, its Marketing Partner(s), its
successors-in-interest or their respective permitted sublicensees hereunder.

         8.3      USE OF THE BD CARTRIDGE OUTSIDE OF THE FIELD. At AeroGen's
request, the Parties shall negotiate in good faith the commercially
reasonable terms under which BD would supply the BD Cartridge to AeroGen for
use outside the Field.

         8.4      RESERVATION OF RIGHTS.

                  (a)      BY AEROGEN. AeroGen reserves all rights under the
AeroGen Technology, except as otherwise expressly stated herein, including
without limitation the right to freely use, assign, transfer, grant licenses
thereunder and otherwise dispose of the AeroGen Technology for any purpose
consistent with the terms of this Agreement.

                  (b)      BY BD. BD reserves all rights under the BD
Technology, except as otherwise expressly stated herein, including without
limitation the right to freely use, assign, transfer, grant licenses thereunder
and otherwise dispose of the BD Technology for any purpose consistent with the
terms of 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.


                                      15.
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9.       ROYALTIES

         9.1      ROYALTIES.

                  (a)      In partial consideration for the rights granted
hereunder, AeroGen shall pay BD a percentage of all Royalties received from each
Marketing Partner pursuant to the applicable Partnering Agreement (the "BD
Percentage"), in accordance with this Section 9.1. The BD Percentage with
respect to the Royalty paid by each Marketing Partner shall be calculated as
follows, except as otherwise set forth in Section 9.3 below:

                           (i)      If the Royalty paid by such Marketing
Partner is less than or equal to [ * ] of Net Sales, then the BD Percentage
with respect to such Royalty shall be [*] of such Royalty. Solely for
purposes of example, if AeroGen receives a Royalty of [*], then the amount
due to BD with respect to such Royalty under this subsection (a) would be [*]
of Net Sales; and

                           (ii)     If the Royalty paid by such Marketing
Partner is greater than [*] of Net Sales, then the BD Percentage with respect
to such Royalty shall be [*] of the first [ * ] of such Royalty, plus [*].
Solely for purposes of example, if AeroGen receives a Royalty of [*], then
the amount due to BD with respect to such Royalty under this subsection (a)
would be: [*] of Net Sales.

                  (b)      Notwithstanding the foregoing, in no event will
the BD Percentage as calculated under this Section 9.1 be less than (i) [*]
of Net Sales by such Marketing Partner in the event that a Valid Claim exists
at the time of a sale of the Product in the country of sale, or (ii) [*] of
Net Sales by such Marketing Partner in the event that (A) no Valid Claim
exists at the time of a sale of the Product in the country of sale, and (B)
the Royalty paid to AeroGen on such sale is at a reduced rate because no such
Valid Claim exists.

                  (c)      AeroGen's obligations under this Section 9.1 shall
expire concurrently with the last to expire obligation of a Marketing Partner to
pay Royalties to AeroGen.

         9.2      PRE-PAID ROYALTIES. In the event that AeroGen receives any
Pre-Paid Royalties (as defined below), AeroGen shall pay to BD the BD
Percentage of such Pre-Paid Royalties as set forth in Section 9.1 in
accordance with Section 9.5 . As used in this Section 9.2, "Pre-Paid
Royalties" means any cash payment received by AeroGen from a Marketing
Partner pursuant to a Partnering Agreement, which payment or portion thereof
either (a) may later be credited by such Marketing Partner against royalties
due to AeroGen on Net Sales of the Product by such Marketing Partner pursuant
to such Partnering Agreement, or (b) is intended to be a lump-sum payment in
lieu of royalties that would otherwise be payable by such Marketing Partner
on sales of the Retail Product by such Marketing Partner pursuant to such
Partnering Agreement.

         9.3      CALCULATION OF BD PERCENTAGE IN CERTAIN CIRCUMSTANCES.

                  (a)      NO ROYALTY. In the event a Partnering Agreement
does not include payment of a Royalty, the BD Percentage shall be [*] of net
sales (as defined in subsection (d) below).

                  (b)      NO MARKETING PARTNER. In the event AeroGen (or its
successor-in-interest) either alone or in combination with a Third Party
(E.G. a hired sales force), other than a Marketing Partner, commercializes
the Product, the BD Percentage shall be [*] of net sales (as defined in
subsection (d) below).

                  (c)      ADJUSTMENTS TO BD PERCENTAGE. In the event that no
Valid Claim exists at the time of a sale of the Retail Product in the country
of sale, and (i) a Third Party is selling a competitive product for the
pulmonary delivery of the Drug for use in the Field in such country at such
time, and (ii) such competitive product is a copy of the Retail Product, then
the BD Percentage as calculated under subsections (a) and (b) above shall be
reduced by [ * ] with respect to such sale.

                  (d)      DEFINITION OF "NET SALES." As used in this Section
9.3, "net sales" shall mean the gross sales of the Retail Product sold by
AeroGen and its Affiliates and its sublicensees to Third Party purchasers, less:

                           (i)      sales returns (including for defective
products);

[*] = 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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                           (ii)     discounts given for volume purchases;

                           (iii)    cost of distribution and freight, as billed
on the relevant invoice; and

                           (iv)     sales, turnover applicable or value-added or
excise taxes (but not income taxes).

         Sales between AeroGen, its Affiliates and its sublicensees shall not be
deemed a sale for the purposes of this subsection (d).

                  (e)      TERM OF ROYALTY OBLIGATION. AeroGen's obligations
under subsections (a) and (b) above shall expire, on a country-by-country
basis, on the later of ten (10) years from the date of the first commercial
sale of the Product in such country, or the date of expiration of the last to
expire Patent in such country containing a Valid Claim.

         9.4      UPFRONT PAYMENTS.

                  (a)      In the event that a Partnering Agreement includes
an Upfront Payment (as defined below) to AeroGen, whether in addition to or
in lieu of a royalty on sales of the Product, AeroGen shall pay to BD [*] of
the amount of such Upfront Payment that is in excess of [ * ], within thirty
(30) days of the receipt by AeroGen of such Upfront Payment.

                  (b)      As used in subsection (a) above, "Upfront Payment"
means a cash payment received by AeroGen in connection with the execution of
a Partnering Agreement, including such amounts designated as license fees or
technology access fees; PROVIDED THAT in no event shall an "Upfront Payment"
be deemed to include any (i) amounts intended for the support of further
research and development of the Product or the conduct of clinical trials for
the Product, (ii) milestone payments, (iii) amounts received in connection
with the purchase of equity, (iv) loans, (v) amounts allocable to the use or
license of technology other than technology directly related to the Product,
(vi) Pre-Paid Royalties (as defined in Section 9.2), or (vii) reimbursements
for amounts due to one or more Third Parties pursuant to a license agreement
between AeroGen and each such Third Party.

         9.5      PAYMENT OF THE BD PERCENTAGE.

                  (a)      AeroGen shall provide BD with a copy of a written
report of all Net Sales of the Retail Product as is provided by each Marketing
Partner for each calendar quarter following the first commercial sale of the
Product within fifteen (15) days of its receipt of such report. AeroGen shall
make payment to BD of the BD Percentage due BD on such Net Sales within ten (10)
days of receipt of any payments on sales of the Retail Product under Sections
9.1 and 9.3(a)-(c).

                  (b)      In the event that a Marketing Partner, in breach
of the applicable Partnering Agreement, fails to pay to AeroGen any amount
due to AeroGen under such Partnering Agreement on Net Sales of the Product by
such Marketing Partner (the "Royalties Due"), and following AeroGen's (i)
good faith attempts to collect the Royalties Due, (ii) exhaustion of all
applicable contractual procedures under such Partnering Agreement with
respect to such Marketing Partner's failure to pay the Royalties Due, and
(iii) failure to timely initiate, or cessation of its pursuit of, any legal
or equitable remedies available to AeroGen with respect to such failure to
pay the Royalties Due, BD then shall have the right, but not the obligation,
to pursue all legal and equitable remedies available to it against such
Marketing Partner with respect to the Royalties Due as an intended third
party beneficiary under such Partnering Agreement. Any recovery by BD of the
Royalties Due shall first be applied to reimburse BD's reasonable costs and
expenses of such recovery; BD then shall pay to AeroGen any remaining amounts
less the BD Percentage of such amounts.

         9.6      AUDITS. At the request (and expense) of BD, AeroGen shall
permit an independent certified public accountant appointed by BD and reasonably
acceptable to 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.


                                      17.
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at reasonable times and upon reasonable notice, but not more than once a year,
to examine only those records as may be necessary to determine the correctness
or completeness of any report or payment made under this Agreement, with respect
to any calendar year ending not more than two (2) years prior to BD's request.
Results of any such examination shall be (a) limited to information relating to
the Product, (b) made available to both Parties and (c) deemed Confidential
Information subject to Article 11. Such accountant shall not disclose any of
AeroGen's confidential or proprietary information. BD shall bear the full cost
of the performance of any such audit, unless such audit discloses a variance of
more than ten percent (10%) from the amount of the original report, royalty or
payment calculation. In such case, AeroGen shall bear the full cost of the
performance of such audit, as well as promptly paying any shortfall reported,
provided that BD shall promptly refund any overage to AeroGen. In addition,
AeroGen shall use commercially reasonable efforts to include a similar provision
in any Partnering Agreement so that upon the reasonable request of BD under this
provision, AeroGen will audit such Marketing Partner, at BD's expense.

10.      INTELLECTUAL PROPERTY

         10.1     OWNERSHIP.

                  (a)      GENERAL. Each Party shall disclose to the other Party
all Development Technology. The rights of ownership in such Development
Technology shall be retained by the Party that employs or otherwise engages the
inventor. Inventorship shall be determined in accordance with the U.S. patent
laws. Accordingly, AeroGen shall own Development Technology invented solely by
employees of or persons otherwise engaged by AeroGen, BD shall own Development
Technology invented solely by employees of or persons otherwise engaged by BD,
and BD and AeroGen shall own jointly any Development Technology invented jointly
by employees of or persons otherwise engaged by BD and AeroGen, except as
follows:

                           (i)      INHALER TECHNOLOGY. Development
Technology (including without limitation all Patents therein) relating solely
to the Inhaler, including without limitation its manufacture or use, whether
the same is invented jointly by employees of or persons otherwise engaged by
AeroGen and BD or solely by employees of or persons otherwise engaged by
AeroGen or BD, shall be owned solely and exclusively by AeroGen, and BD
hereby assigns all right, title and interest in such Development Technology
to AeroGen.

                           (ii)     CARTRIDGE TECHNOLOGY. Development
Technology (including without limitation all Patents therein) relating solely
to the Cartridge, including without limitation its manufacture or use,
whether the same is invented jointly by employees of or persons otherwise
engaged by AeroGen and BD or solely by employees of or persons otherwise
engaged by AeroGen or BD, shall be owned solely and exclusively by BD, and
AeroGen hereby assigns all right, title and interest in such Development
Technology to BD.

                           (iii)    Interface TECHNOLOGY. Development
Technology (including without limitation all Patents therein) relating solely
to the Interface, including without limitation its manufacture or use,
whether the same is invented jointly by employees of or persons otherwise
engaged by AeroGen and BD or solely by employees of or persons otherwise
engaged by AeroGen or BD ("Interface Technology"), shall be owned jointly by
BD and AeroGen.

                  (b)      PREVIOUSLY OWNED TECHNOLOGY. AeroGen shall remain the
sole owner of the AeroGen Technology and any other intellectual property that it
owned as of the Effective Date. BD shall remain the sole owner of the BD
Technology and any other intellectual property that it owned as of the Effective
Date.

[*] = 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.


                                      18.
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         10.2     PATENT MATTERS.

                  (a)      BD PATENTS. BD shall have the sole right, but not the
obligation, to file, prosecute and maintain the BD Patents.

                  (b)      AEROGEN PATENTS. AeroGen shall have the sole right,
but not the obligation, to file, prosecute and maintain the AeroGen Patents.

                  (c)      JOINT PATENTS.

                           (i)      Each Party shall be responsible for filing
and prosecuting patent applications covering Development Technology exclusively
owned by it and shall keep the other Party advised of the status of such patent
prosecution. However, with respect to Joint Technology, and except as described
in subsection (ii) below, the Parties shall mutually agree on whether and in
which countries to file and prosecute patent applications covering the Joint
Technology, and to maintain patents granted thereunder; with each Party having
an opportunity to review and comment on any such filings prior to submission and
to discuss the strategy for preparing, filing, prosecuting, maintaining and
defending of any such patent applications or resulting patents, and with the
Parties sharing equally any out-of-pocket costs and expenses incurred with
respect to such actions.

                           (ii)     Notwithstanding subsection (i) above,
AeroGen shall have the first right, but not the obligation, to file and
prosecute patent applications covering the Interface Technology, and to
maintain patents granted thereunder. In the event that AeroGen fails to file
a patent application claiming a particular invention in the Interface
Technology in a particular country within one hundred and twenty (120) days
of its receipt of BD's written request, then BD shall have the right, but not
the obligation, to file and prosecute such patent application, and to
maintain patents granted thereunder. In any event, the Party that files and
prosecutes a patent application under this subsection (ii) shall provide the
other Party an opportunity to review and comment on any such filings prior to
submission and to discuss the strategy for preparing, filing, prosecuting,
maintaining and defending of any such patent applications or resulting
patents, and with the Parties sharing equally any out-of-pocket costs and
expenses incurred with respect to such actions.

                           (iii)    Neither Party shall use any Confidential
Information solely owned by the other Party in filing and/or prosecution of any
patent application under this subsection (c) without such other Party's prior
written consent. In the event that a Party filing and/or prosecuting a patent
application under this subsection (c) wishes to use Confidential Information
jointly owned by the Parties in such filing and/or prosecution, such Party shall
give the other Party at least ten (10) days prior written notice thereof, and
shall consider any objections of such other Party reasonably and in good faith.

                  (d)      COOPERATION. Upon request, each Party shall execute
and deliver to the other Party all descriptions, applications, assignments and
other documents and instruments necessary or proper to carry out the provisions
of this Agreement without further compensation; and the Parties shall cooperate
with and assist each other or their nominees in all reasonable ways and at all
reasonable times, including, but not limited to, testifying in all legal
proceedings,


                                      19.
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signing all lawful papers and in general performing all lawful acts reasonable,
necessary or proper, to aid the other Party in obtaining, maintaining, defending
and enforcing all lawful patent, copyright, trade secret, know-how and like
rights in the United States and elsewhere.

         10.3     DEFENSE AND SETTLEMENT OF THIRD PARTY CLAIMS. If a Third Party
asserts that a patent or other intellectual property right owned by it is
infringed by a Party's activities under this Agreement, then such Party shall
immediately provide the other Party with notice of such claim and the related
facts in reasonable detail. The Party against whom the claim of infringement is
made shall have the right, but not the obligation, to control such defense, at
its expense. The Party not controlling such defense shall cooperate reasonably
with the Party controlling such defense and shall have the right to be
represented separately by counsel of its own choice. The Party that controls the
defense of a given claim shall also have the right to control settlement of such
claim, subject to Section 10.5.

         10.4     INFRINGEMENT BY THIRD PARTIES. BD and AeroGen shall promptly
notify the other in writing of any alleged or threatened infringement of the
AeroGen Patents, BD Patents or Joint Patents relating to the manufacture, use or
sale or the Product of which they become aware. The Parties shall then proceed
as follows:

                  (a)      AeroGen, or its Marketing Partner, shall have the
right, but not the obligation, to control the prosecution of any infringement
described in this Section 10.4 with respect to the AeroGen Patents.

                  (b)      BD shall have the right, but not the obligation, to
control the prosecution of any infringement described in this Section 10.4 with
respect to the BD Patents.

                  (c)      AeroGen shall have the right, but not the obligation,
to control the prosecution of any infringement described in this Section 10.4
with respect to Joint Patents, either itself or through its Marketing Partner.
In the event AeroGen decides not to control such prosecution, either itself or
through its Marketing Partner, BD then shall have the right, but not the
obligation, to control such prosecution. AeroGen may assign its rights under
this subsection (c) to a Marketing Partner with BD's prior written consent,
which consent shall not be unreasonably withheld or delayed.

                  (d)      Each Party shall cooperate fully in any action
brought under this Section 10.4 by the other Party, including, if required to
bring such action, naming the other Party only if a court of competent
jurisdiction determines that the other Party is a necessary party to such
suit, in which event the Party shall hold the other Party free, clear and
harmless from any and all liability of such litigation, including costs,
expenses and attorneys' fees. In addition, each Party at all times shall have
the right to be represented separately in such action by counsel of its own
choice. Any recovery realized as a result of such litigation or related
settlement shall first be applied pro rata to reimburse the Parties' costs
and expenses of such litigation, and any remaining amounts shall be retained
by the Party bringing such action, except the Parties shall share equally any
remaining amounts recovered in connection with Joint Patents.

         10.5     SETTLEMENTS. Neither Party may enter into any settlement or
consent judgment or other voluntary final disposition of a suit under this
Article 10 that would adversely affect the rights of the other Party without the
prior written consent of such Party.

11.      CONFIDENTIALITY

[*] = 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.


                                      20.
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         11.1     TREATMENT OF CONFIDENTIAL INFORMATION. A Party receiving or
gaining access to Confidential Information, as defined below, (the "Receiving
Party") of the other Party (the "Disclosing Party") will (i) maintain in
confidence such Confidential Information to the same extent the Receiving Party
maintains its own proprietary information (but at a minimum the Receiving Party
shall use commercially reasonable efforts), (ii) not disclose such Confidential
Information to any Third Party without prior written consent of the Disclosing
Party, except for disclosures made in confidence to any Third Party pursuant to
a plan approved by the JDT or the Steering Committee, and (iii) not use such
Confidential Information for any purpose except as expressly permitted by this
Agreement. As used herein, "Confidential Information" shall mean all
Information, and any other information and materials, received by the Receiving
Party from the Disclosing Party pursuant to this Agreement. Without limiting the
generality of the foregoing, the AeroGen Technology shall be deemed Confidential
Information of AeroGen, the BD Technology shall be deemed Confidential
Information of BD, and the Joint Technology shall be deemed Confidential
Information of both Parties. Notwithstanding the foregoing, "Confidential
Information" shall not include any Information that:

                  (a)      is at the time of receipt by the Receiving Party, or
later becomes, generally available to the public without restriction through no
breach of this Article 11; or

                  (b)      was known to the Receiving Party, without obligation
to keep it confidential, prior to its receipt from the Disclosing Party; or

                  (c)      is subsequently disclosed to the Receiving Party by a
Third Party lawfully in possession thereof without obligation to keep it
confidential; or

                  (d)      has been independently developed by the Receiving
Party without the aid, application or use of the Disclosing Party's Confidential
Information.

         11.2     PUBLICATIONS. Neither Party shall publish or present the
results of studies carried out under this Agreement without the opportunity for
prior review by the other Party. Each Party agrees to provide the other Party
the opportunity to review any proposed abstracts, manuscripts or presentations
(including verbal presentations) which relate to any Product at least thirty
(30) days prior to their intended submission for publication and agrees, upon
request, not to submit any such abstract or manuscript for publication until the
other Party is given a reasonable period of time to secure patent protection for
any material in such publication which it believes to be patentable. The Parties
agree to review and consider delay of publication and filing of patent
applications as appropriate. The Steering Committee will review such requests
and recommend subsequent action. Neither Party shall have the right to publish
or present Confidential Information of the other Party.

         11.3     PUBLICITY. The Parties agree that the public announcement of
the execution of this Agreement shall be in the form of a press release mutually
agreed upon. Any other publication, news release or other public announcement
relating to this Agreement or to the performance hereunder, shall first be
reviewed and approved by both Parties, which approval shall not be unreasonably
withheld or delayed; provided, however, that any disclosure which is required by
law as advised by the disclosing Party's counsel may be made without the prior
consent of the other Party, although the other Party shall be given prompt
notice of any such

[*] = 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.


                                      21.
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legally required disclosure and to the extent practicable shall provide the
other Party an opportunity to comment on the proposed disclosure.

         11.4     TERMS OF THE AGREEMENT. The Parties agree that the material
terms of this Agreement will be considered Confidential Information of both
Parties. Notwithstanding the foregoing, each Party shall have the right to
disclose the material terms of this Agreement in confidence to any bona fide
potential investor, investment banker, acquirer, merger partner or other
potential financial partner (including without limitation a potential Marketing
Partner), and where reasonably practicable, shall obtain an adequate binder of
confidentiality consistent with the terms of this Agreement.

         11.5     REQUIRED DISCLOSURE. If the Receiving Party is required by any
governmental agency, court or other quasi-judicial or regulatory body to provide
Confidential Information received under this Agreement, the Receiving Party
shall not be liable for such disclosure PROVIDED THAT the Receiving Party, as
promptly as reasonably possible, gives notice to the Disclosing Party of the
requirement in order that the Disclosing Party may contest the requirement to
provide such information and cooperates reasonably with the Disclosing Party in
such efforts. In the event that this Agreement is required to be filed with the
U.S. Securities Exchange Commission, the Party making such filing shall use
commercially reasonable, diligent efforts to avoid the public disclosure of as
much Confidential Information as possible, and to consult in good faith with the
other Party prior to making such filing.

         11.6     SURVIVAL OF CONFIDENTIALITY. All obligations of
confidentiality and non-use imposed upon the Parties under this Agreement shall
continue indefinitely until such time as the information that is subject to such
obligations no longer comprises Confidential Information under one of the
exceptions set forth in Section 11.1.

12.      REPRESENTATIONS AND COVENANTS

         12.1     MUTUAL AUTHORITY. AeroGen and BD each represents and warrants
to the other that (a) it has the authority and right to enter into and perform
this Agreement, and (b) its execution, delivery and performance of this
Agreement will not conflict in any material fashion with the terms of any other
agreement to which it is or becomes a party or by which it is or becomes bound.

         12.2     BD REPRESENTATIONS AND WARRANTIES. BD represents and warrants
to AeroGen that as of the Signing Date:

                  (a)      To the best of BD's knowledge and belief, none of
the BD Technology has been misappropriated from any Third Party nor is the
result of any misuse of any Third Party's intellectual property;

                  (b)      To the best of BD's knowledge and belief, there is
no action, suit or proceeding pending or that has been threatened, orally or
in writing, against BD, with respect to the infringement or misappropriation
of any Third Party's intellectual property rights through the use of the BD
Technology as contemplated hereunder; and

                  (c)      To the best of BD's knowledge and belief, the
individuals listed on Exhibit 4 have signed BD's standard employment agreement,
a form of which is attached as Exhibit 5.

[*] = 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.


                                      22.
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         12.3     AEROGEN REPRESENTATIONS AND WARRANTIES. AeroGen represents and
warrants to BD that as of the Signing Date:

                  (a)      To the best of AeroGen's knowledge and belief, the
practice of the inventions claimed in the AeroGen Patents as anticipated
herein will not infringe upon the intellectual property rights of any Third
Party;

                  (b)      To the best of AeroGen's knowledge and belief,
none of the AeroGen Technology has been misappropriated from any Third Party
nor is the result of any misuse of any Third Party's intellectual property;

                  (c)      To the best of AeroGen's knowledge and belief, all
inventors of the AeroGen Technology existing as of the Effective Date have
irrevocably assigned all right, title and interest in the AeroGen Technology
to AeroGen; and

                  (d)      To the best of AeroGen's knowledge and belief,
there is no action, suit or proceeding pending or that has been threatened,
orally or in writing, against AeroGen, with respect to the infringement or
misappropriation of any Third Party's intellectual property rights through
the use of the AeroGen Technology as contemplated hereunder.

         12.4     DISCLAIMER. EXCEPT AS SPECIFICALLY SET FORTH IN SECTION 4.7,
THIS ARTICLE 12, EXHIBIT 3, AND THE STOCK PURCHASE AGREEMENT, NEITHER PARTY
MAKES ANY WARRANTY CONCERNING ITS PATENT RIGHTS OR INFORMATION LICENSED UNDER
THIS AGREEMENT, INCLUDING WITHOUT LIMITATION THE VALIDITY OR SCOPE OF ITS PATENT
RIGHTS OR THAT PRODUCTS WILL BE FREE FROM INFRINGEMENT OF THE PATENT RIGHTS OF
THIRD PARTIES. EACH PARTY SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO BOTH ITS TECHNOLOGY AND THE
PRODUCT.

13.      TERM AND TERMINATION

         13.1     TERM. This Agreement shall become effective on the Effective
Date and shall remain in effect until the later of (a) expiration of the last to
expire Valid Claim, or (b) expiration of all of AeroGen's payment obligations
under this Agreement unless terminated as earlier provided in Section 13.2 or
13.3 below. In addition, this Agreement may be extended by mutual written
consent of the Parties.

         13.2     TERMINATION FOR OTHER THAN CAUSE.

                  (a)      FOR FAILURE TO AGREE ON FINAL SPECIFICATIONS. Either
Party may terminate this Agreement upon thirty (30) days written notice to the
other Party in the event the Parties fail to agree upon the Final
Specifications, as set forth in Section 4.5(f).

                  (b)      FAILURE TO SECURE A MARKETING PARTNER OR A QUALIFIED
SUPPLIER. Either Party may terminate this Agreement on thirty (30) days written
notice in the event that (a) neither Party secures a Marketing Partner, as set
forth in Section 6.3, or (b) neither Party secures a Qualified Supplier, as set
forth in Section 7.1.

                  (c)      THIRD PARTY PATENTS. Either Party may terminate this
Agreement at any time in the event that such Party determines, in its sole,
reasonable, good faith judgment, that the BD Cartridge, Inhaler or Product
cannot be developed or commercialized under this Agreement or the Supply
Agreement because of a Third Party Patent that covers the manufacture, having
manufactured, use, importation, offering for sale or sale of the BD Cartridge,
Inhaler or Product in the United States, subject to the following:

[*] = 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.


                                      23.
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                           (i)      Prior to providing such notice, such
Party shall refer the issue to the JDT for its analysis of whether the
development, manufacture, use, importation, offer for sale or sale of the BD
Cartridge, Inhaler or the Product by a Party pursuant to this Agreement would
infringe such Patent, and if so, whether a license under such Patent can be
obtained on commercially reasonable terms (as determined in the sole
discretion of the Party required to obtain such license) and/or whether it is
commercially feasible to redesign the BD Cartridge, Inhaler and/or the
Product so that such Patent would not be so infringed, and shall recommend a
course of action to the Parties; and

                           (ii)     Such Party shall take the JDT's
recommendation under good faith consideration, and if such Party still desires
to terminate this Agreement despite such recommendation and the other Party does
not desire such termination, then the Parties shall attempt to resolve such
dispute first through referral to the Steering Committee and then, if necessary,
pursuant to Section 15.2.

         If the Parties are unable to resolve such issue as set forth in
subsections (i) and (ii) above, then such Party may terminate this Agreement
upon thirty (30) days written notice to the other Party.

                  (d)      INABILITY TO DEVELOP A SAFE AND EFFECTIVE PRODUCT. In
the event that AeroGen and/or its Marketing Partner is unable to file an NDA for
the Product for use in the Field because the data from the Phase III clinical
trial for the Product will not support such an NDA, then either Party may
terminate this Agreement upon thirty (30) days written notice to the other
Party; PROVIDED THAT if the Parties disagree as to whether such data will
support such an NDA, such termination shall not be effective until such issue is
resolved by the Steering Committee, and, if necessary, through the dispute
resolution procedures set forth in Section 15.2.

                  (e)      TERMINATION FOR CONVENIENCE. BD may terminate this
Agreement without cause and without explanation upon ninety (90) days written
notice to AeroGen; PROVIDED THAT in no event will such termination become
effective prior to the expiration of the Development Term.

                           (i)      BD OBLIGATIONS. In the event of termination
by BD under this subsection (e), BD's only obligations and liabilities to
AeroGen with respect to such termination shall be to:

                                    (A)      Grant AeroGen a royalty-free,
fully paid-up, non-exclusive, sublicenseable, irrevocable license under the
BD Technology, [*] in the event BD has any rights thereto, and BD's interest
in the Joint Technology, limited to develop, use, make, have made, import,
offer for sale and sell the BD Cartridge for use with the Drug in the Field
world-wide to the extent legally permissible by BD and subject to any rights
or obligations placed upon BD; and

                                    (B)      Covenant (1) not to make, have
made, import, offer for sale and sell the BD Cartridge for use in the Field;
(2) not to make have made, import, offer for sale or sell any titratable
container and dispensing mechanism for the pulmonary delivery of any drug
which interfits and is compatible with, the Inhaler; and (3) not to
manufacture any Royalty-Bearing Cartridge (as defined below in subsection
(i)(F)) with the intent that such Royalty-Bearing Cartridge interfit and be
compatible with any AeroGen inhaler device, for use within or outside the
Field, nor to have manufactured, use in

[*] = 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.
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Phase III clinical trials, sell and/or otherwise transfer to any Third Party,
directly or indirectly, either itself or on behalf of a Third Party, any such
Royalty-Bearing Cartridge;

                                    (C)      Promptly disclose to AeroGen all BD
Know-How necessary for the manufacture of the BD Cartridge, and upon AeroGen's
written request, BD shall provide diligent, commercially reasonable, good-faith
assistance and cooperation to enable a Third Party manufacturer to manufacture
and supply the BD Cartridge to AeroGen and its Marketing Partner(s) as rapidly
as possible;

                                    (D)      Provide AeroGen with any
dedicated tooling developed directly as a result of the Technical Development
Program necessary for making the BD Cartridge; and continue to manufacture
and supply to AeroGen those components of the BD Cartridge which require the
use of molding or tooling used for manufacture of the BD Cartridge as well as
other Products, for a period of twelve (12) months after the effective date
of each termination, at a price equal to [*]; and

                                    (E)      Pay to AeroGen one million
dollars ($1,000,000) within ten (10) business days of AeroGen's receipt of
such termination notice; and

                                    (F)      Pay to AeroGen a running royalty
equal to [*] of the net sales (as defined below) of any Drug-filled Cartridge
used in connection with the pulmonary delivery of the Drug in the Field sold
after the effective date of such termination by either BD or any licensee or any
other third party with which BD contracts and covered by a claim of an issued
and unexpired Patent as provided in subsection (ii)(B) below ("Royalty-Bearing
Cartridge"). As used herein, "net sales" shall have the meaning set forth in
Section 9.3(d), except that references to "AeroGen" therein shall be changed to
"BD".

                           (ii)     TERM OF NON-COMPETE OBLIGATION & ROYALTY
OBLIGATION.

                                    (A)      BD's obligation under subsection
(i)(B) above not to make, have made, import, offer for sale and sell the BD
Cartridge for use in the delivery of Drug in the Field, or any Cartridge
which interfits with or is compatible with the Inhaler, or any
Royalty-Bearing Cartridge which interfits with any AeroGen inhaler shall
commence with the effective date of such termination and expire, on a
country-by-country basis, on the later of ten (10) years from the effective
date of such termination or the date of expiration of the last to expire
Patent in such country containing a claim of an issued and unexpired Patent
that (1) is included within the Development Patents, (2) claims the
manufacture, use or sale of the BD Cartridge, and (3) has not been held
unenforceable, unpatentable, or invalid by a court or other governmental
agency of competent jurisdiction, and that has not been admitted to be
invalid or unenforceable through reissue, disclaimer or otherwise; and

                                    (B)      BD's obligation under subsection
(i)(F) above to pay a royalty to AeroGen in connection with a Royalty-Bearing
Cartridge shall commence with and continue, on a country-by-country basis,
with the date of issuance of the first to issue until the date of expiration
of the last to expire Patent in such country containing a claim of an issued
and unexpired Patent that (1) is included within the Development Patents, (2)
claims the manufacture, use or sale of the BD Cartridge and the
Royalty-Bearing Cartridge, and (3) has not been held unenforceable,
unpatentable, or invalid by a court or other governmental agency of competent
jurisdiction, and that has not been admitted to be invalid or unenforceable
through reissue, disclaimer or otherwise.

                           (iii)    AEROGEN'S RIGHTS OUTSIDE THE FIELD. In the
event of termination by BD under this Subsection (e), and notwithstanding
Section 8.3, AeroGen shall be granted the right and license by BD, to make, have
made, use, sell, offer for sale or import the BD Cartridge for the pulmonary
delivery of certain drugs (other than the Drug) as provided herein. Within
thirty (30) days following the effective date of termination of this Agreement
under 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.


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13.2(e), AeroGen shall select no more than [ * ] specific drugs, i.e.,
distinct chemical entities with respect to which it desires a license under
this Subsection 13.2(e)(iii) and identify such drugs in writing to BD (the
"Initial Licensed Drugs"). Upon receipt of such notice of the Initial
Licensed Drugs by AeroGen, BD shall promptly inform AeroGen in writing as to
whether such drugs have not been exclusively licensed, exclusively optioned
or otherwise subject to any prior commitments to a Third Party and thus are
available for non-exclusive license grant to AeroGen (each, an "Available
Drug"). In the event any such identified drugs are not Available Drugs,
AeroGen shall have an additional thirty days in which to select a replacement
for each prior selected drug which was not an Available Drug. Such election
and notification period shall continue until AeroGen has identified [*]
Available Drugs, whereupon BD shall grant to AeroGen a royalty-bearing,
non-exclusive, worldwide license (with the right to sublicense to licensees
of the AeroGen technology only with respect to AeroGen's right to use, sell
and offer for sale the BD Cartridge), to make, have made, use, sell, offer
for sale or import the BD Cartridge for the pulmonary delivery of such
Available Drugs, including the right to modify the BD Cartridge to the extent
necessary to use it in connection with the pulmonary delivery of such
Available Drugs. In exchange for such license, AeroGen shall pay to BD a
royalty of [*] of the net sales of all BD Cartridges filled with Available
Drug. Notwithstanding the foregoing, such license shall expire and the rights
revert to BD, on an Available Drug by Available Drug basis, in the event
AeroGen or its sublicensee fails to both (i) [ * ] within [ * ] from the date
of such license grant and (ii) [ * ] within [ * ] from the date of such
license grant, with respect to a product incorporating such Available Drug.
BD further agrees that, in the event AeroGen desires to obtain a license
under the above described terms with respect to any other Available Drug
other than the initial [*] Available Drugs, AeroGen shall notify BD within
such thirty (30) day period described above, and each such license shall be
granted subject to the payment by AeroGen to BD of [*] at the time of grant
of such license, such fee to be creditable against royalties at the rate
provided above. As used in this Subsection (iii), "Net sales" shall be
defined as provided in Section 9.3(d). The royalty hereunder shall commence
with, and continue, on a country by country basis, with the date of issuance
of the first to issue until the date of expiration of the last to Expire
Patent in such country containing a claim of an issued and unexpired Patent
owned or controlled by BD and covering the manufacture, use, sale, offer for
sale or importation of the BD Cartridge.

         13.3     TERMINATION FOR BREACH.

                  (a)      If either Party believes that the other is in
material breach of this Agreement, then the non-breaching Party may deliver
notice of such breach to the other Party. In such notice the non-breaching Party
shall identify the actions or conduct that such Party would consider to be an
acceptable cure of such breach. The allegedly breaching Party shall have sixty
(60) days to either cure such breach or, if cure cannot be reasonably effected
within such 60-day period, to deliver to the other Party a reasonably acceptable
plan for curing such breach. Such a plan shall set forth a program for achieving
cure as rapidly as practicable. Following delivery of such plan, the breaching
Party shall use commercially reasonable diligent efforts to carry out the plan
and cure the breach, subject to the non-breaching Party's acceptance of such
plan.

                  (b)      If the Party receiving notice of material breach
fails to cure such breach within the 60-day period, or the Party providing the
notice reasonably determines that the proposed corrective plan or the actions
being taken to carry it out is not commercially

[*] = 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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practicable, the Party originally delivering the notice may terminate this
Agreement upon thirty (30) days advance written notice.

         13.4     EFFECT OF TERMINATION. Except as provided in Section 13.2(e),
upon termination of this Agreement:

                  (a)      All licenses granted by each Party to the other
pursuant to Article 8 shall terminate.

                  (b)      Each Party shall, within sixty (60) days of such
termination, return all Confidential Information of the other Party in its
possession; PROVIDED, HOWEVER, that each Party may retain an archival copy of
such Confidential Information solely for determining the scope of its
confidentiality obligations hereunder.

         13.5     BANKRUPTCY RIGHTS. In the event that this Agreement is
terminated or rejected by a Party or its receiver or trustee under applicable
bankruptcy laws due to such Party's bankruptcy, then all rights and licenses
granted under or pursuant to this Agreement by such Party to the other Party
are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the
Bankruptcy Code and any similar law or regulation in any other country, licenses
of rights to "intellectual property" as defined under Section 101(52) of the
Bankruptcy Code. The Parties agree that all intellectual property rights
licensed hereunder, including without limitation any patents or patent
applications of a Party in any country covered by the license grants under this
Agreement, are part of the "intellectual property" as defined under Section
101(52) of the Bankruptcy Code subject to the protections afforded the
non-terminating Party under Section 365(n) of the Bankruptcy Code, and any
similar law or regulation in any other country.

         13.6     SURVIVAL. The following provisions shall survive termination
of this Agreement: Sections 7.3(c), 9.6, 12.4, 13.2(e), 13.4 and 13.6, and
Articles 10, 11, 14 and 15. Termination of this Agreement shall not relieve
either Party of any liability which accrued hereunder prior to the effective
date of such termination, nor preclude either Party from pursuing all rights and
remedies it may have hereunder or at law or in equity with respect to any breach
of this Agreement, nor prejudice either Party's right to obtain performance of
any obligation. The remedies provided under this Agreement are cumulative, and
are not exclusive of other remedies available to a Party in law or equity.

14.      INDEMNIFICATION

         14.1     BY AEROGEN. AeroGen hereby agrees to indemnify, defend and
hold harmless BD and its officers, directors, agents and employees from and
against any and all Losses from any Third Party claim resulting directly or
indirectly from (a) AeroGen's breach of any of its covenants or representations
and warranties hereunder, or (b) the negligence or wrongdoing of AeroGen, but
only to the extent such Losses do not result from the negligence or wrongdoing
of BD.

         14.2     BY BD. BD hereby agrees to indemnify, defend and hold harmless
AeroGen and its officers, directors, agents and employees from and against any
and all Losses from any Third Party claim resulting directly or indirectly from
(a) BD's breach of any of its covenants or

[*] = 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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representations and warranties hereunder, or (b) the negligence or wrongdoing of
BD, but only to the extent such Losses do not result from the negligence or
wrongdoing of AeroGen. Additional indemnification obligations of BD with respect
to its manufacture and supply of the BD Cartridge shall be set forth in the
Supply Agreement.

         14.3     APPORTIONMENT. Consistent with the foregoing, in the event any
Losses from any Third Party relate specifically to the Interface, each Party
hereby agrees to indemnify, defend and hold harmless the other Party and its
officers, directors, agents and employees with respect to that portion of any
such Losses apportioned between the Parties based upon each Party's percentage
of all Royalties received from each Marketing Partner; provided, however, that
this Section 14.3 shall not apply to any such Losses arising from the
indemnifying Party's breach of any of its covenants or representations and
warranties hereunder.

         14.4     NOTICE AND PROCEDURES. In all cases where one Party seeks
indemnification by the other under this Article 14, the Party seeking
indemnification shall promptly notify the indemnifying Party of receipt of any
claim or lawsuit covered by such indemnification obligation and shall cooperate
fully with the indemnifying Party in connection with the investigation and
defense of such claim or lawsuit. The indemnifying Party shall have the right to
control the defense, with counsel of its choice, provided that the
non-indemnifying Party shall have the right to be represented by advisory
counsel at its own expense. The indemnifying Party shall not settle or dispose
of the matter in any manner which could negatively and materially affect the
rights or liability of the non-indemnifying Party without the non-indemnifying
Party's prior written consent, which shall not be unreasonably withheld or
delayed.

15.      MISCELLANEOUS

         15.1     ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Supply
Agreement and the Stock Purchase Agreement sets forth the complete, final and
exclusive agreement between the Parties with respect to the subject matter
hereof, and all of the covenants, promises, agreements, warranties,
representations, conditions and understandings between the Parties hereto with
respect to such subject matter, and supersedes and terminates all prior
agreements and understandings between the Parties with respect to such subject
matter. There are no covenants, promises, agreements, warranties,
representations, conditions or understandings, either oral or written, between
the Parties with respect to such subject matter other than as are set forth
herein and therein. No subsequent alteration, amendment, change or addition to
this Agreement shall be binding upon the Parties unless reduced to writing and
signed by an authorized officer of each Party.

         15.2     DISPUTE RESOLUTION. In the event of any controversy or claim
arising out of, relating to or in connection with any provision of this
Agreement, or the rights or obligations of the Parties hereunder, the Parties
shall try to settle their differences amicably between themselves by referring
the disputed matter to the Chief Executive Officer of AeroGen and the Vice
President and General Manager of BD Consumer Healthcare for discussion and
resolution. Either Party may initiate such informal dispute resolution by
sending written notice of the dispute to the other Party, and within ten (10)
days of such notice the Chief Executive Officer of AeroGen and the Vice
President and General Manager of BD Consumer Healthcare shall meet for attempted
resolution by good faith negotiations. If such personnel are unable to resolve
such

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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.


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dispute within thirty (30) days of initiating such negotiations, each Party may
thereafter pursue any and all rights and remedies it may have at law or equity.
If mutually agreeable, the Parties may explore alternative forms of dispute
resolution, such as mediation and/or arbitration. Notwithstanding any other
provision of this Section 15.2, either Party may seek a temporary restraining
order or injunction against the other Party in the event of a breach of any
confidentiality obligation hereunder, or to prevent a Party's wrongful use of
any intellectual property hereunder.

         15.3     FORCE MAJEURE. Both Parties shall be excused from the
performance of their obligations under this Agreement to the extent that such
performance is prevented by force majeure and the non-performing Party promptly
provides notice of the prevention to the other Party. Such excuse shall be
continued so long as the condition constituting force majeure continues and the
non-performing Party takes reasonable efforts to remove the condition. For
purposes of this Agreement, "force majeure" shall include conditions beyond the
control of the Parties, including without limitation, an act of God, voluntary
or involuntary compliance with any regulation, law or order of any government,
war, civil commotion, labor strike or lock-out, epidemic, failure or default of
public utilities or common carriers, destruction of production facilities or
materials by fire, earthquake, storm or like catastrophe; provided, however, the
payment of invoices due and owing hereunder shall not be delayed by the payor
because of a force majeure affecting the payor.

         15.4     NOTICES. Any notice required or permitted to be given under
this Agreement shall be in writing, shall specifically refer to this Agreement
and shall be deemed to have been sufficiently given for all purposes if mailed
by first class certified or registered mail, postage prepaid, express delivery
service or personally delivered. Unless otherwise specified in writing, the
mailing addresses of the Parties shall be as described below.

                  For AeroGen:    AeroGen, Inc.
                                  1310 Orleans Drive
                                  Sunnyvale, CA 94089
                                  Attention: Chief Executive Officer

                  With a copy to: Cooley Godward LLP
                                  Five Palo Alto Square
                                  3000 El Camino Real
                                  Palo Alto, CA  94306
                                  Attention:  Barbara A. Kosacz, Esq.

                  For BD:         Becton, Dickinson and Company
                                  1 Becton Drive
                                  Franklin Lakes, NJ 07417-1866
                  Attention:      VP and General Manager, BD Consumer Healthcare

                  With a copy to: Becton, Dickinson and Company
                                  1 Becton Drive
                                  Franklin Lakes, NJ 07417-1866
                                  Attention: VP and General Counsel

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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.


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         15.5     LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE
LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, COLLATERAL, CONSEQUENTIAL, SPECIAL
OR PUNITIVE DAMAGES ARISING IN CONNECTION WITH THIS AGREEMENT.

         15.6     CONSENTS NOT UNREASONABLY WITHHELD OR DELAYED. Whenever
provision is made in this Agreement for either Party to secure the consent or
approval of the other, that consent or approval shall not unreasonably be
withheld or delayed, and whenever in this Agreement provisions are made for one
Party to object to or disapprove a matter, such objection or disapproval shall
not unreasonably be exercised, unless expressly stated that such consent is to
be given in such Party's sole discretion.

         15.7     INDEPENDENT CONTRACTORS. The status of the Parties under this
Agreement shall be that of independent contractors. Neither Party shall have the
right to enter into any agreements on behalf of the other Party, nor shall it
represent to any person that it has any such right or authority. Nothing in this
Agreement shall be construed as establishing a partnership or joint venture
relationship between the Parties.

         15.8     MAINTENANCE OF RECORDS. Each Party shall keep and maintain all
records required by law or regulation with respect to the Product and shall make
copies of such records available to the other Party upon request.

         15.9     UNITED STATES DOLLARS. References in this Agreement to
"Dollars" or "$" shall mean the legal tender of the United States of America.

         15.10    NO STRICT CONSTRUCTION. This Agreement has been prepared
jointly and shall not be strictly construed against either Party.

         15.11    ASSIGNMENT. Neither Party may assign or transfer this
Agreement or any rights or obligations hereunder without the prior written
consent of the other, except a Party may make such an assignment without the
other Party's consent to a successor-in-interest to substantially all of the
business assets of such Party to which this Agreement relates, whether in a
merger, sale of stock, sale of assets or other transaction. Any permitted
successor or assignee of rights and/or obligations hereunder shall, in a writing
to the other Party, expressly assume performance of such rights and/or
obligations. Any permitted assignment shall be binding on the successors of the
assigning Party. Any assignment or attempted assignment by either Party in
violation of the terms of this Section 15.11 shall be null and void and of no
legal effect. This Agreement shall be binding upon and shall inure to the
benefit of each Party's successors-in-interest and permitted assigns.

         15.12    PERFORMANCE BY AFFILIATES. The Parties recognize that each
Party may perform some or all of its obligations under this Agreement through
one or more of its Affiliates, provided, however, that each Party shall remain
responsible for and shall guarantee such performance by its Affiliates and shall
cause its Affiliates to comply with the provisions of this Agreement in
connection with such performance. Each Party hereby expressly waives any
requirement that the other Party exhaust any right, power or remedy, or proceed
against an

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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.


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Affiliate, for any obligation or performance hereunder prior to proceeding
directly against such Party.

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

         15.14    FURTHER ACTIONS. Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.

         15.15    SEVERABILITY. If any one or more of the provisions of this
Agreement is held to be invalid or unenforceable, the provision shall be
considered severed from this Agreement and shall not serve to invalidate any
remaining provisions hereof. The Parties shall make a good faith effort to
replace any invalid or unenforceable provision with a valid and enforceable one
such that the objectives contemplated by the Parties when entering this
Agreement may be realized.

         15.16    AMBIGUITIES. Ambiguities, if any, in this Agreement shall not
be construed against any Party, irrespective of which Party may be deemed to
have authored the ambiguous provision.

         15.17    HEADINGS. The headings for each article and section in this
Agreement have been inserted for convenience of reference only and are not
intended to limit or expand on the meaning of the language contained in the
particular article or section.

         15.18    NO WAIVER. Any delay in enforcing a Party's rights under this
Agreement or any waiver as to a particular default or other matter shall not
constitute a waiver of such Party's rights to the future enforcement of its
rights under this Agreement, excepting only as to an express written and signed
waiver as to a particular matter for a particular period of time.

[*] = 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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         IN WITNESS WHEREOF, the Parties have executed this Agreement in by
their proper officers as of the date and year first above written.

BECTON, DICKINSON AND COMPANY                   AEROGEN, INC.

By:/s/ Gary M. Cohen                            By: /s/ Jane E. Shaw
   -----------------------------------------       --------------------

Name:  Gary M. Cohen                            Name:  Jane E. Shaw
     ---------------------------------------         ------------------

Title: President - Worldwide Medical Systems    Title:  Chairman / Ceo
      --------------------------------------          -----------------


EXHIBIT 1  CRITICAL SYSTEM SPECIFICATIONS

EXHIBIT 2  TECHNICAL DEVELOPMENT PLAN

EXHIBIT 3  SUPPLY AGREEMENT TERMS

EXHIBIT 4  POTENTIAL INVENTORS

EXHIBIT 5  FORM OF EMPLOYMENT AGREEMENT

EXHIBIT 6  DIAGRAM OF AEROGEN INHALER AND BD CARTRIDGE


[*] = 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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                                    EXHIBIT 1

                         CRITICAL SYSTEM SPECIFICATIONS

                                      [*]










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


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                                    EXHIBIT 2

                           TECHNICAL DEVELOPMENT PLAN

                                      [*]
                                          [*]






[*] = 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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                                    EXHIBIT 3

                             SUPPLY AGREEMENT TERMS

1.       PURCHASE AND SUPPLY OBLIGATIONS. AeroGen shall purchase its and its
         Marketing Partners' requirements of BD Cartridges from BD, except as
         provided herein in the event of a supply default. BD shall manufacture
         and supply to AeroGen and its Marketing Partners their requirements for
         the BD Cartridge in accordance with binding purchase orders provided by
         AeroGen as described below.

2.       EXCLUSIVITY.

         During the term of the Supply Agreement, BD agrees that it shall not:

                           (i)      manufacture, have manufactured, use in Phase
         III clinical trials or sell and/or otherwise transfer to any Third
         Party, directly or indirectly, either itself or on behalf of a Third
         Party, the BD Cartridge for use in the Field;

                           (ii)     manufacture, have manufactured, use in
         Phase III clinical trials or sell and/or otherwise transfer to any
         Third Party, directly or indirectly, either itself or on behalf of a
         Third Party, any titratable container and dispensing mechanism for
         the pulmonary delivery of any drug, which interfits and is
         compatible with the Inhaler; and

                           (iii)    manufacture, have manufactured, use in
         Phase III clinical trials or sell and/or otherwise transfer to any
         Third Party, directly or indirectly, either itself or on behalf of a
         Third Party, any Development Patent Cartridge (as defined in Section
         7.3(e) of the Development Agreement) with the intent that such
         Development Patent Cartridge interfit and be compatible with any
         AeroGen inhaler device, for use within or outside the Field.

3.       TRANSFER PRICE.

         BD will manufacture the BD Cartridge (unfilled with Drug) and
         transfer the same to AeroGen for a [*] during the first year of
         commercial sale; and for a [*] during the second year of commercial
         sale.

         Following the second full year following commercial sale of the
         Retail Product and each subsequent year, provided that AeroGen
         orders at least [*] BD Cartridges during such year, the Transfer
         Price of the unfilled BD Cartridge shall be equal to BD's Cost of
         Goods (as defined below) [ * ], but in no event greater than [*].
         Any reduction in Cost of Goods of the unfilled BD Cartridge below [*]
         shall be shared between BD and AeroGen as follows: (i) from [ * ]
         to a Cost of Goods greater than or equal to [ * ], BD receiving [ * ]
         and AeroGen receiving [ * ] of the benefit of such cost savings and
         (ii) for any additional reduction in BD's Cost of Goods less than
         [ * ], BD receiving [ * ] and AeroGen receiving [ * ]. For example,
         should the Cost of Goods be reduced to [*], then BD would receive a
         Transfer Price [ * ] for the unfilled BD Cartridge [ * ],
         and, should the Cost of Goods be reduced to [ * ], then BD would
         receive a Transfer Price of [ * ] for the unfilled BD Cartridge [ * ].
         In the event the [*] or any subsequent year production volume is
         less than [*] units, then the steady state transfer price shall be
         the actual Cost of Goods [ * ] per unfilled BD Cartridge. In the
         event BD sells or otherwise transfers to a Third Party any
         Development Patent Cartridge filled with the Drug for use in the
         Field, such [*] unit threshold shall be reduced proportionately.

         In the event the titratable container of the BD Cartridge includes a
         [*] shall be transferred to AeroGen as follows: (i) when BD's Cost
         of Goods is equal to or greater than [ * ], at [*] and (ii) when
         BD's Cost of Goods is less than [ * ], at BD's Cost of Goods [*].
         For example, should the Cost of Goods equal [*], the transfer price
         of [*] mechanism shall be [*].

         "COST OF GOODS" means the cost of manufacturing, supplying and shipping
         the BD

[*] = 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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         Cartridge, and shall consist of (i) in the case of products and/or
         services acquired from Third Parties, payments to such Third Parties
         (including, for example, charges by such Third Parties for an
         allocation of overhead for production of components of the BD
         Cartridge), and (ii) in the case of manufacturing services performed by
         BD, including manufacturing services in support of Third Party
         manufacturing, the actual unit costs of the manufacture, plus the
         variances and other costs specifically provided for herein. Actual unit
         costs shall consist of direct material and direct labor costs plus
         manufacturing overhead attributable directly to the BD Cartridge, all
         calculated in accordance with BD Financial Policies and Generally
         Accepted Accounting Principles ("GAAP").

                           (a)      As used herein, "direct material costs"
         shall include the costs of materials (including waste), including
         applicable taxes imposed thereon, shipping costs and customs duty and
         charges levied by government authorities, and the costs of packaging
         components.

                           (b)      As used herein, "direct labor" shall include
         the cost of employees engaged in direct manufacturing activities and
         direct or indirect quality control and quality assurance activities who
         are directly employed in the manufacture, testing and/or packaging of
         the BD Cartridge.

                           (c)      "Overhead attributable directly to the BD
         Cartridge" shall include a reasonable and customary allocation of
         indirect labor (not previously included in direct labor), a reasonable
         allocation of administrative costs, and a reasonable allocation of
         facilities costs (including but not limited to, electricity, water,
         sewer, waste disposal, property taxes, and depreciation over the
         expected life of buildings and equipment), unless otherwise agreed upon
         by the Steering Committee. Such allocations shall be in accordance with
         BD's general business practice, and GAAP. Attributable overhead shall
         not include corporate overhead or plant start-up costs not otherwise
         allocable to the manufacture of the BD Cartridge, nor shall
         attributable overhead include costs associated with capacity not used
         in the manufacture of the BD Cartridge. Actual costs shall exclude
         costs associated with excess capacity not directly related to the BD
         Cartridge.

                           (d)      Cost of Goods shall also include
         manufacturing variances and other attributable non-standard costs.

4.       FORECASTS. In order to assist BD in its production planning, AeroGen
         would submit to BD at least six (6) months prior to the commencement of
         the market launch of the Product a non-binding forecast of its best
         estimate of its purchase requirements of the BD Cartridge for the first
         twelve (12) months of marketing of the BD Cartridge by month.
         Thereafter, AeroGen would provide BD with an updated non-binding
         rolling estimate of its purchase requirements for the BD Cartridge on a
         monthly basis for the subsequent twelve (12) month period. Forecasts in
         excess of BD's capacity would need to be mutually agreed upon between
         BD and AeroGen.

5.       ORDERS.  Within thirty (30) days of signing a Supply Agreement,
         AeroGen would submit to BD a binding purchase order for its
         requirements for the BD Cartridge for the first [*] months of
         marketing. Thereafter, AeroGen would provide BD with an updated binding

[*] = 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.


                                      36.
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         purchase order of its requirements for the BD Cartridge, each month, at
         least [*] months before requested delivery ("Purchase Order"), and BD
         would confirm all Purchase Orders within at least twenty (20) days of
         receipt. In each Purchase Order for any month, AeroGen would state,
         after consultation with BD, a reasonable delivery schedule for the BD
         Cartridge to be delivered. BD would make a reasonable business effort
         to comply with unplanned changes in Purchase Orders but would not be
         required to accept orders for the BD Cartridge that are not within [*]
         of the quantity forecasted subject to BD's capacity. Orders for the BD
         Cartridge in excess of such amounts would be subject to acceptance by
         BD in its reasonable discretion. However, BD would exercise reasonable
         business efforts to meet any changes, including schedule and quantity
         changes.

6.       SHIPMENT AND DELIVERY. The BD Cartridge would be packed and shipped in
         accordance with a shipping specifications to be mutually agreed to in
         writing between the Parties. Each such shipment shall contain any
         documents and/or information mutually agreed upon by the Parties in
         connection with the manufacture and shipment of the BD Cartridge
         (collectively, "Documentation"). The BD Cartridge would be shipped
         F.O.B. point of origin, unless otherwise mutually agreed. Risk of loss
         or damage would pass to AeroGen upon delivery to the common carrier.
         AeroGen would specify in the applicable purchase order the destination
         for each shipment. The quantity shipped may vary within [*] of the
         confirmed order; provided that AeroGen shall only be required to pay
         for those quantities actually shipped. No provision on AeroGen's
         purchase order forms which may purport to impose different conditions
         upon a Party, nor any other modifications of the Supply Agreement,
         would be of any force or effect, unless in writing and signed by the
         Parties claimed to be bound thereby. All Documentation required in
         connection with a shipment would be forwarded to the attention of
         AeroGen, unless otherwise specified in writing by AeroGen.

7.       INSPECTION, REJECTION AND ACCEPTANCE.

                  (a)      Within thirty (30) days of receipt of each shipment
         of BD Cartridges, in addition to any usual and customary incoming
         inspection including examination of the external appearance and
         integrity of the packaging, and before any use of the BD Cartridge,
         AeroGen or its designee, shall inspect each shipment of the BD
         Cartridges, in accordance with a mutually agreed upon inspection
         procedure. If AeroGen finds that the BD Cartridges do not conform to
         the Final Specifications, AeroGen shall within ten (10) days after the
         discovery of the non-conforming BD Cartridges, give BD written notice
         of any claim setting forth the details of such non-conformity, or
         otherwise shall be deemed to have accepted the BD Cartridges. BD in its
         discretion shall either repair or replace any non-conforming the BD
         Cartridge at BD's expense and at no cost to AeroGen. In accordance with
         BD's request, any the BD Cartridge which does not conform to the
         Specifications shall either be returned to BD or destroyed at BD's
         expense.

                  (b)      In the event the Parties disagree as to whether a
         shipment of the BD Cartridges or a portion thereof conforms to the
         Final Specifications, the rejected BD Cartridges would be submitted to
         a mutually acceptable third party testing laboratory, which would
         determine whether such BD Cartridges meet the Final Specifications. The
         Parties agree that such testing laboratory's determination would be
         final 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.


                                      37.
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         determinative. The Party against whom the testing laboratory rules
         would bear the reasonable costs of the testing laboratory. If the
         testing laboratory rules that the BD Cartridges meet the Final
         Specifications, AeroGen would purchase the BD Cartridges at the
         agreed-upon price, irrespective of whether BD has already replaced
         same. If the testing laboratory rules that the BD Cartridges do not
         meet the Final Specifications and the BD Cartridges were not replaced,
         BD would credit AeroGen's account in an amount equal to the purchase
         price of the rejected BD Cartridges, or refund that sum to AeroGen, as
         appropriate.

8.       TITLE. Title to the BD Cartridges shipped by BD for a given purchase
         order would pass to AeroGen upon delivery to the common carrier. BD
         shall warrant that upon such delivery, BD shall convey good title
         thereto, free and clear from any lawful security interest or lien or
         encumbrance.

9.       INVOICES. BD would invoice AeroGen upon each shipment of the BD
         Cartridge, and AeroGen would pay the full balance of each invoice in
         U.S. Dollars, less any applicable credits for rejected goods or if
         volumes rise so as to meet the next qualified price levels or charge
         backs if volumes fall below quoted levels, including those within
         thirty (30) days of delivery by BD to the common carrier. All such
         invoices would be forwarded as specified by AeroGen.

10.      INTELLECTUAL PROPERTY REPRESENTATIONS AND WARRANTIES.

                  (a)      AeroGen represents and warrants that to the best of
         its knowledge and belief the manufacture, use, sale, offer for sale or
         importation of the Product will not infringe any valid and enforceable
         claim of any third party patent.

                  (b)      BD represents and warrants that to the best of its
         knowledge and belief, the manufacture, use, sale, offer for sale or
         importation of the BD Cartridge will not infringe any valid and
         enforceable claim of any third party patent.

11.      PRODUCT WARRANTIES AND DISCLAIMER.

                  (a)      BD shall warrant to AeroGen that (a) all BD
         Cartridges manufactured and supplied under the Supply Agreement (i)
         will meet the Final Specifications, (ii) will be manufactured and
         supplied in accordance with quality systems regulations and other
         mutually agreeable standards, and (iii) will be free from defects in
         materials and workmanship. Claims on account of quality, loss or damage
         to the BD Cartridge will need to be made by AeroGen in writing within
         thirty (30) days following delivery to BD, unless otherwise mutually
         agreed to in writing between the Parties. AeroGen's sole and exclusive
         remedy, and BD's sole obligation under the warranty (except with
         respect to Latent Defects as defined in Sub-Section 15(c)) will be the
         repair or replacement, at BD's sole option, of any defective BD
         Cartridges. The warranty will not apply to (a) any BD Cartridge that
         had been misused, neglected, altered, abused or used by a party other
         than BD for any purpose other than the one for which it was
         manufactured or (b) any damages or defects caused by unauthorized
         repair or use of unauthorized parts or components. If no claim is made
         by AeroGen within the thirty (30) day period of time, the BD Cartridge

[*] = 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.


                                      38.
<PAGE>

         will be deemed acceptable to AeroGen, and BD will no longer have any
         liability with respect thereto.

                  (b)      ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
         INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
         PURPOSE, ARE HEREBY DISCLAIMED. IN ADDITION, BD EXPRESSLY DISCLAIMS
         ANY REPRESENTATIONS AND WARRANTIES REGARDING THE PERFORMANCE, SAFETY
         AND EFFICACY OF THE BD CARTRIDGE IN COMBINATION WITH THE INHALER OR
         ANY OTHER CARTRIDGE OR COMPONENTS.

12.      CHANGES TO THE BD CARTRIDGE.

                  BD shall not make any material or process changes that would
         affect any regulatory approvals obtained with respect to the BD
         Cartridge. Notwithstanding the foregoing, BD may make such changes if
         they would not have any material effect on the BD Cartridge or the
         Product, solely to the extent permitted by QSR and other applicable
         laws and regulations.

13.      PRODUCT DISCONTINUANCE AND SUPPLY DEFAULT.

                  In the event BD wishes to discontinue the manufacture and
         supply of the BD Cartridge, BD shall provide AeroGen with at least [*]
         months prior, written notice of discontinuation. In addition, BD agrees
         to continue to supply AeroGen with the BD Cartridge for at least [*]
         months from the date of such notice, during which period of time, BD
         shall provide AeroGen with diligent, commercially reasonable,
         good-faith assistance and cooperation to enable a Third Party
         manufacturer to manufacture and supply the BD Cartridge to AeroGen and
         its Marketing Partner(s) as rapidly as possible.

14.      REGULATORY MATTERS.

                  (a)      AeroGen shall be responsible, at its expense, for
         diligently filing and prosecuting any authorizations or approvals for
         the commercial manufacture and sale of the Product, including the BD
         Cartridge, and shall diligently respond to any comments or concerns
         raised by such regulatory authorities. AeroGen shall provide BD with
         any registration dossier or materials, and any amendment thereof, that
         are in its possession or control in respect of the Product, including
         the BD Cartridge. In addition, AeroGen shall promptly notify BD of an
         inquires from or comments or concerns raised by any regulatory
         authorities with respect to the Product or the BD Cartridge.

                  (b)      BD shall have full access and the right of reference
         to the other AeroGen's regulatory filings and approvals, but only to
         the extent necessary and appropriate for the filing of any necessary
         regulatory submissions.

15.      INSPECTIONS AND AUDITS.

                  (a)      Upon written request to BD, AeroGen shall have the
         right to have representatives visit BD's manufacturing facilities
         during normal business hours to

[*] = 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.


                                      39.
<PAGE>

         review BD's manufacturing operations and assess its compliance with QSR
         and quality assurance standards and to discuss any related issues with
         BD's manufacturing and management personnel.

                  (b)      BD shall notify AeroGen within two (2) business days
         of any planned inspection by any regulatory agency which may have an
         impact on the manufacturing of the BD Cartridge. BD shall forward to
         AeroGen copies of all regulatory communications with respect to the BD
         Cartridge within two (2) business days of receipt of such
         communications by BD.

16.      ADVERSE EVENT REPORTING AND RECALLS.

                  (a)      The Parties shall, throughout the duration of the
         Supply Agreement, notify one-another within two (2) business days after
         receiving any information concerning any complaint, injury, or
         sensitivity reaction associated with the use of the Product or the BD
         Cartridge, whether or not considered related to the Product or the BD
         Cartridge. The information shall be collected by the recipient of such
         information in accordance with a Standard Operating Procedure to be
         agreed to by the Parties and provided to the other in the form of a
         report. The report shall indicate if the performance of the Product or
         the BD Cartridge contributed to the event. The Parties shall require
         any third party under contract with either of the Parties to provide
         such information to both Parties on an expedited basis, the receipt of
         which information shall trigger the notification requirements set forth
         in this Section. If the adverse event is serious (including an adverse
         event that is fatal or life-threatening, is permanently or
         significantly disabling, or requires or prolongs in-patient
         hospitalization), then the recipient of such information shall use its
         best efforts to notify the other Party within one (1) business day
         after receipt of such information. In addition, moderately severe
         adverse events requiring medical intervention such as significant
         unexplained hypoglycemia, allergic bronchospasms requiring emergency
         room treatment, new abnormal liver function tests or abnormal CBC shall
         be reported to the other Party within three (3) business days. All
         notifications pursuant to this Section shall be by facsimile with
         confirmation copy by Certified or Registered mail and shall be written
         out on designated adverse event forms to be agreed to by the Parties.

                  (b)      If customer complaints other than those described
         above are received by either Party regarding the performance of the
         Product or the BD Cartridge, the Parties will exchange this information
         within five (5) business days after receipt of such information.
         Monthly reports summarizing any complaints or defects relating to the
         performance of the Product or the BD Cartridge shall be exchanged by
         the Parties. Efforts will be made to retrieve defective Product or the
         BD Cartridge and return them in the case of the Inhaler to AeroGen and
         in the case of the BD Cartridge to BD. All such reports and information
         obtained by either Party or exchanged under this Section shall be
         treated as Confidential Information in accordance with the terms of the
         Insulin Inhaler Development 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.


                                      40.
<PAGE>

                  (c)      AeroGen shall notify BD promptly if any Product or
         any BD Cartridge manufactured by BD hereunder is the subject of a
         recall or correction, and AeroGen and/or its designee shall have the
         sole responsibility for the handling and disposition of such recall or
         correction. In the event that a recall is required during the
         shelf-life of the BD Cartridge as a result of any non-compliance of the
         BD Cartridge with the Final Specification and if such non-compliance
         was not reasonably discoverable by AeroGen with the inspection
         performed pursuant to Section 6 in accordance with the mutually agreed
         inspection procedure (hereinafter referred to as "Latent Defect"), and
         AeroGen recalls either the Product or the BD Cartridge primarily due to
         such Latent Defect of the BD Cartridge, then, in addition to repair or
         replacement, BD shall reimburse AeroGen for the reasonable costs and
         expenses associated with such recall or correction, but only to the
         extent that the foregoing costs and expenses are directly attributable
         to BD's breach of its warranties under Sub-Section 10(a)(i). In all
         other events of a recall, all costs and expenses incurred in connection
         with such recall or correction shall be borne by AeroGen. AeroGen
         and/or its designee shall serve as the sole point of contact with the
         FDA or other applicable regulatory authority concerning any recall or
         correction with respect to the Product and the BD Cartridge.

17.      INDEMNITIES.

                  (a)      INDEMNIFICATION BY AEROGEN. AeroGen shall indemnify,
         defend (subject to Sub-Section (e) below) and hold BD harmless from and
         against any and all claims, demands, actions, suits, causes of action,
         damages and expenses (including but not limited to expenses of
         investigation, settlement, litigation and reasonable attorneys' fees
         incurred in connection therewith) which are hereafter made, sustained
         or brought against BD by any third party (i) for the recovery of
         damages to personal property or bodily injury, illness or death of any
         third party caused or alleged to be caused by the use, distribution, or
         sale of the Retail Product, or the BD Cartridge by AeroGen or its
         sublicensees, or (ii) arising out of or resulting from allegations
         against BD that the manufacture, use, offer for sale, sale or
         importation of the Inhaler infringes a third party patent or trademark
         to which BD has no ownership or license rights thereunder, unless in
         each such case, such claims, demands, actions, suits, causes of action,
         damages or expenses allegedly occurred as a result of BD's negligence,
         willful misconduct, or breach of its representations and warranties
         contained herein.

                  (b)      INDEMNIFICATION BY BD. BD shall indemnify, defend
         (subject to Sub-Section (e) below) and hold AeroGen harmless from and
         against any and all claims, demands, actions, suits, causes of action,
         damages and expenses (including, but not limited to expenses of
         investigation, settlement, litigation and reasonable attorneys' fees
         incurred in connection therewith) which are hereafter made, sustained
         or brought against AeroGen by any third party (i) to the extent arising
         out of or resulting from BD's negligence, willful misconduct or breach
         of its representations and warranties contained herein, or (ii) arising
         out of or resulting from allegations against AeroGen that the
         manufacture, use, sale, offer for sale or importation of the BD
         Cartridge infringes a third party patent or trademark to which AeroGen
         has no ownership or license rights thereunder; provided, unless such
         claims, demands, actions, suits, causes of action,

[*] = 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.


                                      41.
<PAGE>

         damages or expenses allegedly occurred as a result of AeroGen's
         negligence, willful misconduct, or breach of its representations and
         warranties contained herein.

                  (c)      LIMITATION OF LIABILITY. Under no circumstances
         shall either Party be liable to the other Party for any special,
         indirect, consequential or incidental damages, including, but not
         limited to, loss of profits or revenues or damage to or loss of
         other products, property and/or equipment incurred by such Party or
         AeroGen's Marketing Partner or Qualified Supplier, or any other
         party seeking indemnification hereunder. In addition, BD shall not
         be liable for any damages arising or resulting from any failure of
         BD or AeroGen to warn, or to adequately warn, against the dangers of
         the BD Cartridge or failure of BD or AeroGen to instruct or to
         adequately instruct, about the safe and proper use of the BD
         Cartridge, or any damages arising or resulting from the filling
         and/or assembly of the BD Cartridge by AeroGen or any third party.

                  (d)      APPORTIONMENT. Consistent with the foregoing, in the
         event any and all such claims, demands, actions, suits, causes of
         action, damages and expenses (including, but not limited to expenses of
         investigation, settlement, litigation and reasonable attorneys' fees
         incurred in connection therewith) relate to the Interface, each Party
         hereby agrees to indemnify, defend and hold harmless the other Party
         and its officers, directors, agents and employees with respect to that
         portion of any such claims, demands, actions, suits, causes of action,
         damages and expenses (including, but not limited to expenses of
         investigation, settlement, litigation and reasonable attorneys' fees
         apportioned between the Parties based upon each Party's percentage of
         all Royalties received from each Marketing Partner.

                  (e)      PROCEDURES. SHOULD A PARTY (THE "INDEMNIFIED PARTY")
         INTEND TO CLAIM INDEMNIFICATION HEREUNDER, IT SHALL PROMPTLY NOTIFY
         THE OTHER PARTY ("INDEMNIFYING PARTY") IN WRITING OF ANY LOSS, CLAIM,
         DAMAGE, LIABILITY OR ACTION IN RESPECT OF WHICH SUCH INDEMNIFIED PARTY
         INTENDS TO CLAIM SUCH INDEMNIFICATION, AND THE INDEMNIFYING PARTY SHALL
         BE ENTITLED, BUT NOT OBLIGATED, TO ASSUME THE DEFENSE THEREOF WITH
         COUNSEL SELECTED BY THE INDEMNIFYING PARTY, AND THE INDEMNIFIED PARTY,
         INCLUDING ITS EMPLOYEES AND AGENTS, SHALL COOPERATE FULLY WITH
         INDEMNIFYING PARTY AND ITS LEGAL REPRESENTATIVES IN THE INVESTIGATION
         AND DEFENSE OF ANY ACTION, CLAIM OR LIABILITY COVERED BY THIS SECTION.

                  (f)      EXCEPT AS PROVIDED HEREIN, BD MAKES NO OTHER
         WARRANTIES AND ASSUMES NO OTHER OBLIGATIONS, EXPRESS OR IMPLIED, WITH
         RESPECT TO THE BD CARTRIDGE OR THE PRODUCT. ALL OTHERS ARE HEREBY
         DISCLAIMED BY BD.

18.      TERM. The term of the Supply Agreement would be for an initial period
         of five (5) years. The Supply Agreement would be automatically renewed
         for additional two (2) year periods unless either Party provides the
         other Party with written notice of its desire not to renew the Supply
         Agreement at least eighteen (18) months before the expiration of the
         term of such Supply Agreement or any renewal thereof.

[*] = 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.


                                      42.
<PAGE>

                                    EXHIBIT 4

                               POTENTIAL INVENTORS

                                      [*]





[*] = 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.


                                      43.
<PAGE>

                                    EXHIBIT 5

                      FORM OF STANDARD EMPLOYMENT AGREEMENT

                               EMPLOYEE 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.


                                      44.
<PAGE>

                                    EXHIBIT 6

                         AEROGEN INHALER WITH BD CARTRIDGE

                                      [*]







[*] = 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.


                                      45.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>6
<FILENAME>a2029891zex-23_1.txt
<DESCRIPTION>EXHIBIT 23.1
<TEXT>

<PAGE>
                                                                    EXHIBIT 23.1

                       CONSENT OF INDEPENDENT ACCOUNTANTS

    We hereby consent to the inclusion in this Registration Statement on Form
S-1 of our report dated February 25, 2000, except for Note 11, as to which the
date is July 21, 2000, and Note 12 as to which the date is November 2, 2000,
relating to the financial statements of AeroGen, Inc. (a company in the
development stage) at December 31, 1998 and 1999, for each of the three years
ended December 31, 1999 and for the cumulative period from November 18, 1991
(date of inception) to December 31, 1999, which appears in such Registration
Statement. We also consent to the reference to us under the headings "Experts"
in such Registration Statement.

/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California
November 8, 2000
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>7
<FILENAME>a2029891zex-23_2.txt
<DESCRIPTION>EXHIBIT 23.2
<TEXT>

<PAGE>
                                                                    EXHIBIT 23.2

                       CONSENT OF INDEPENDENT ACCOUNTANTS

    We hereby consent to the inclusion in this Registration Statement on Form
S-1 of our report dated August 23, 2000, relating to the financial statements of
Cerus Limited (a company in the development stage) at December 31, 1998 and
1999, for the two years then ended and for the cumulative period from
December 16, 1997 (date of inception) to December 31, 1999, which appears in
such Registration Statement. We also consent to the reference to us under the
headings "Experts" in such Registration Statement.

/s/ PRICEWATERHOUSECOOPERS

Limerick, Ireland
November 8, 2000
</TEXT>
</DOCUMENT>
</SUBMISSION>
