Genentech (Hedgehog antagonist)

In June 2003, we established a collaboration with Genentech that included continued development of our systemically administered Hedgehog antagonist drug candidates for the treatment of cancer. Genentech is a biotechnology company with broad expertise in the development of cancer therapeutics. Pursuant to the collaboration agreement, Genentech agreed to make specified cash payments, including up-front payments of $8,500,000, which consisted of a $3,509,000 non-refundable license fee payment and $4,991,000 in exchange for 1,323,835 shares of our common stock. Genentech also agreed to make license maintenance fee payments totaling $4,000,000 over the first two years of the collaboration.  We have entered into three amendments to the June 2003 collaboration agreement related to the Hedgehog antagonist. Pursuant to the amendments, Genentech increased the number of researchers that it would fund and extended its funding obligation through December 2006. As part of these amendments, Genentech committed to provide us with up to $6,169,000 in incremental research funding over the period of December 2004 to December 2006. In October 2006, Genentech filed an investigational new drug application for which we received a $3,000,000 milestone payment shortly after the application was filed.

The funded research portion of the June 2003 agreement and related amendments ended in December 2006, and we do not expect to receive additional future research funding from Genentech or incur any material research costs related to this program.  Genentech has assumed all future responsibility for the clinical development and commercialization of the Hedgehog small molecule and antibody antagonists. In the future, we will receive cash payments from Genentech only upon the achievement of certain clinical development objectives as well as royalties on product sales if clinical evaluations of any Hedgehog systemic antagonist products are successful and the resulting products are successfully commercialized.

Unless terminated earlier, the agreement shall expire six months after the later of the expiration of Genentech’s obligation to pay royalties to us under the agreement or such time as no activities have occurred under the agreement for a period of twelve months.