10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-K
ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2007
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission file number 0-29801

INTERMUNE, INC.

(Exact name of registrant as specified in its charter)

Delaware	94-3296648
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	identification No.)

3280 Bayshore Boulevard
Brisbane, CA 94005
(Address of principal executive offices, including Zip Code)

(415) 466-2200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Exchange on Which Registered
Common Stock, $0.001 par value	The NASDAQ Stock Market Inc.

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.  Yes o     No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

As of June 29, 2007, the aggregate market value (based upon the closing sales price of such stock as reported on the NASDAQ Global Select Market on such date) of the voting and non-voting stock held by non-affiliates of the registrant was $246,424,189. Excludes an aggregate of 25,207,426 shares of the registrant’s common stock held by officers and directors and by each person known by the registrant to own 5% or more of the registrant’s outstanding common stock as of June 29, 2007. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant, or that such person is controlled by or under common control with the registrant. As of February 29, 2008, the number of outstanding shares of the registrant’s common stock was 39,032,577 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 2008 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K are incorporated by reference in Part III, Items 10-14 of this Form 10-K.

INTERMUNE, INC.

ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007

TABLE OF CONTENTS

		PART I.
	ITEM 1.	BUSINESS	1
	ITEM 1A.	RISK FACTORS	23
	ITEM 1B.	UNRESOLVED STAFF COMMENTS	43
	ITEM 2.	PROPERTIES	43
	ITEM 3.	LEGAL PROCEEDINGS	43
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	43
PART II.			44
	ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	44
	ITEM 6.	SELECTED FINANCIAL DATA	46
	ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	47
	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	59
	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	61
	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES	98
	ITEM 9A.	CONTROLS AND PROCEDURES	98
	ITEM 9B.	OTHER INFORMATION	100
PART III			100
	ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	100
	ITEM 11.	EXECUTIVE COMPENSATION	100
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	100
	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	100
	ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	101
PART IV			101
	ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	101
SIGNATURES			106
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 10.5
EXHIBIT 10.58
EXHIBIT 10.59
EXHIBIT 10.60
EXHIBIT 10.61
EXHIBIT 10.62
EXHIBIT 10.63
EXHIBIT 10.64
EXHIBIT 10.65
EXHIBIT 10.66
EXHIBIT 10.67
EXHIBIT 10.68
EXHIBIT 10.69
EXHIBIT 10.70
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

PART I

ITEM 1.   BUSINESS

Forward Looking Statements

This Annual Report on Form 10-K (the “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve substantial risks and uncertainty. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “could,” “should” and “continue” or similar words. These forward-looking statements may also use different phrases.

We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include, among other things, statements which address our strategy and operating performance and events or developments that we expect or anticipate will occur in the future, including, but not limited to, statements about:

•  product and product candidate development;

•  the market or markets for our products or product candidates;

•  the ability of our products to treat patents in our markets;

•  timing and expectations of our clinical trials and when our products or product candidates may be marketed;

•  opportunities to establish development or commercial alliances;

•  governmental regulation and approval;

•  requirement of additional funding to complete research and development and commercialize products;

•  liquidity and sufficiency of our cash resources;

•  future revenue, including those from product sales and collaborations, adequacy of revenue reserve levels, future expenses, future financial performance and trends;

•  our future research and development expenses and other expenses; and

•  our operational and legal risks.

You should also consider carefully the statements under “Item 1A. Risk Factors” below, which address additional factors that could cause our results to differ from those set forth in the forward-looking statements. Any forward-looking statements are qualified in their entirety by reference to the factors discussed in this Report, including those discussed in this Report under “Item 1A. Risk Factors” below. Because the factors referred to above, as well as the factors discussed in this Report under “Item 1A. Risk Factors” below, could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statement. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. When used in this Report, unless otherwise indicated, “InterMune,” “we,” “our” and “us” refers to InterMune, Inc.

Overview

We are a biotech company focused on developing and commercializing innovative therapies in pulmonology and hepatology. Pulmonology is the field of medicine concerned with the diagnosis and treatment of lung conditions. Hepatology is the field of medicine concerned with the diagnosis and treatment of disorders of the liver. We were incorporated in California in 1998 and reincorporated in Delaware in 2000 upon becoming a public

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company. During the past several years, we have reorganized our business by curtailing new investment in non-core areas and focusing our development and commercial efforts in pulmonology and hepatology. During 2005, we divested the Amphotec^® (amphotericin B cholesteryl sulfate complex for injection) product as well as the oritavancin compound. Until December 2005, our revenue base was provided primarily from the sales of two products, Actimmune^® (interferon gamma-1b) and Infergen^® (consensus interferon alfacon-1). As part of our efforts to refocus our corporate strategy, we completed the sale of the Infergen product, including related intellectual property rights and inventory, to a wholly-owned subsidiary of Valeant Pharmaceuticals International (“Valeant”) in December 2005, for approximately $120.0 million in cash, of which $6.5 million was attributed to the purchase of finished product inventory. As part of this transaction, we received a $2.1 million promissory note from Valeant due and paid to us in 2007 and may also receive up to approximately $20.0 million in clinical related contingent milestone payments beginning in 2007, of which $5.0 million has been received. Concurrent with the above transaction, we made the decision to significantly reduce our investment in field-based idiopathic pulmonary fibrosis (“IPF”) disease awareness activities, which, when combined with the sale of our Infergen assets, led to a significant headcount reduction of approximately 160 full time equivalent employees. In October 2006, we entered into an Exclusive License and Collaboration Agreement (the “Collaboration Agreement”) with Hoffmann-LaRoche Inc. and F. Hoffmann-LaRoche Ltd. (collectively, “Roche”) to develop and commercialize products from our chronic hepatitis C virus (“HCV”) protease inhibitor program, including our lead candidate compound ITMN-191. In October 2006, we also reached a comprehensive settlement with the government concerning promotional activities for Actimmune by former employees during a period that ended in June 2003. The settlement resolves all outstanding government investigations of InterMune without criminal sanctions. We agreed to pay a total of $36.9 million, plus 5% interest on the then outstanding principal balance, over a period of five years. As part of the settlement, we also entered into corporate integrity and deferred prosecution agreements with the government. Effective March 2007, as a result of disappointing clinical trial results and based upon the recommendation of the study’s independent data monitoring committee (“DMC”), we discontinued further development of Actimmune for IPF. We then implemented a restructuring plan which led to further headcount reductions and total restructuring charges of approximately $10.2 million. Subsequent to the discontinuation of Actimmune for IPF, we now have the following key development programs in place: pirfenidone for IPF, the HCV protease inhibitor program and a new target in hepatology. We have sustained losses in every year since inception and, as of December 31, 2007, we had an accumulated deficit of $657.7 million.

Our total revenue, loss from continuing operations and net loss for each of the years ended, and our total assets as of December 31, 2007, 2006 and 2005 are summarized in the following table:

	2007			2006			2005
	(In thousands)
Total revenue*	$	66,692		$	90,784		$	110,496
Loss from continuing operations		(94,596	)		(105,962	)		(57,648	)
Net loss		(89,602	)		(107,206	)		(5,235	)
Total assets		262,445			257,583			266,242

* Total revenue for the year ended 2005 has been adjusted to reflect the reclassification of Infergen revenue into discontinued operations.

Approved Product

Our sole approved product is Actimmune, approved for the treatment of patients with severe, malignant osteopetrosis and chronic granulomatous disease (“CGD”). During 2005, our three approved products were Actimmune, Infergen, approved for the treatment of patients with compensated liver disease who have chronic HCV infections, and Amphotec, approved for the treatment of invasive aspergillosis. In May 2005, we sold the Amphotec product to Three Rivers Pharmaceuticals, LLC (“Three Rivers”). In December 2005, we sold the Infergen product to Valeant. For the years ended December 31, 2007, 2006 and 2005, Actimmune accounted for substantially all of our product revenue and substantially all of that revenue was derived from physicians’ prescriptions for the off-label use of Actimmune in the treatment of IPF.

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Product Development

Drug development in the United States is a process that includes several steps required by the United States Food and Drug Administration (“FDA”). The process begins with the submission of an Investigational New Drug Application (“IND”) with the FDA, which if accepted by the FDA, allows for the opportunity for clinical study of the potential new medicine. Clinical development typically involves three phases of clinical trials prior to approval: Phase I, II and III. Within the pharmaceutical industry, clinical development takes approximately seven years of a drug’s total development time. The FDA may require, or companies may pursue, additional clinical trials, known as Phase IV clinical trials, after a product is approved. The results of Phase IV clinical trials can confirm the effectiveness of a drug and can provide important safety information to supplement the FDA’s voluntary adverse drug reaction reporting system. The most significant costs associated with clinical development are Phase III clinical trials, as they tend to be the longest and largest studies conducted during the drug development process. It is possible for a drug that appears promising in a Phase II clinical trial to fail in a more rigorous Phase III clinical trial.

In responding to a New Drug Application (“NDA”), a Biologic License Application, (“BLA”), or an NDA or BLA supplement, the FDA may grant marketing approval (i.e., a license), request additional information or refuse to approve the application if it determines that the application does not provide an adequate basis for approval.

We have an advanced-stage development pipeline in the pulmonology area and a research and development-stage pipeline in the hepatology area.

•  Pulmonology

In pulmonology, we are developing a single therapy for the treatment of IPF. IPF is a fatal disease characterized by progressive scarring, or fibrosis, of the lungs, which leads to the deterioration and destruction of lung function. There is no FDA approved therapy for IPF. Although conclusive data does not exist, it is estimated that approximately 100,000 people suffer from IPF in the United States, with approximately 30,000 new cases developing each year.

We are currently developing one clinically advanced compound for the treatment of IPF, pirfenidone. Pirfenidone is an orally available small molecule. It may have activity in multiple fibrotic indications, and in vitro experiments show that it inhibits collagen synthesis, down-regulates profibrotic and proinflammatory cytokines and decreases fibroblast proliferation. In 2004, the FDA granted pirfenidone orphan drug status in the United States, and the EMEA granted pirfenidone orphan drug designation in the European Union, for the treatment of IPF. We have acquired worldwide rights, excluding Japan, Korea and Taiwan, to develop and commercialize pirfenidone for all fibrotic diseases. Shionogi and Co. Ltd., or Shionogi, holds the rights to pirfenidone in Japan, Korea and Taiwan. Both we and Shionogi have undertaken clinical trials seeking to demonstrate that pirfenidone may positively affect lung function and disease progression in patients with IPF.

In December 2006, Shionogi reported positive results from its pivotal Phase III trial conducted in Japan evaluating pirfenidone for the treatment of patients with IPF. The trial was designed to evaluate a high-dose treatment regimen versus a placebo for 52 weeks. A low-dose treatment arm was also included. The Shionogi Phase III trial, in which 261 patients were enrolled and which used a measure of lung function called vital capacity, or VC, as the primary endpoint, showed that pirfenidone significantly slowed the worsening of the disease. Both the high-dose group and the low-dose group showed statistically significant positive results as compared to a placebo for the primary endpoint. Additionally, a statistically significant improvement was seen in progression-free survival, a key secondary endpoint, for the high-dose group compared to a placebo. In March 2007, Shionogi submitted an application to the Japanese Health Authorities for approval to market pirfenidone.

We have completed patient enrollment in our CAPACITY trials for pirfenidone. Our CAPACITY trials, which were initiated in April 2006, include two separate, concurrent Phase III trials conducted at 110 centers in North America and Europe. In May 2007, we completed enrollment of 779 patients with mild to moderate forms of IPF in the trials following our decision to refine and expand the CAPACITY program to include an increase in the number of patients enrolled and a lengthening of the treatment duration. We made these refinements based on the data from the Shionogi Phase III trial and the knowledge gained from the recently unblinded placebo arm of our INSPIRE trial for Actimmune. We began our CAPACITY trials following Shionogi’s successful Phase II clinical trial in which

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pirfenidone was generally well tolerated, with the most frequent side effects reported being photosensitivity rash and gastrointestinal symptoms. The primary endpoint of our CAPACITY trials is lung function, as measured by change in forced vital capacity, or FVC, which is believed to be an important measure of disease progression in IPF. Our CAPACITY program is designed similarly to the Shionogi Phase III trial in that the maximum doses, on a mg/kg basis, are approximately the same and the primary endpoints (FVC versus VC) are expected to be clinically very similar. The CAPACITY trials are longer (72 weeks versus 52 weeks) than the Shionogi Phase III trial, which we anticipate will allow for better statistical power to detect the efficacy of pirfenidone. We anticipate that top-line results for the CAPACITY trials will be available January 2009.

We initiated a second Phase III clinical trial of Actimmune for the treatment of patients with mild to moderate IPF (otherwise known as the “INSPIRE” trial) in December 2003. Effective March 2007, we discontinued the Phase III INSPIRE trial based upon the recommendation of the study’s independent DMC. In a planned interim analysis that included a total of 115 deaths, the DMC found the overall survival result crossed a predefined stopping boundary for lack of benefit of Actimmune relative to placebo. Among the 826 randomized patients, there was not a statistically significant difference between treatment groups in overall mortality (14.5% in the Actimmune group as compared to 12.7% in the placebo group). The adverse events associated with Actimmune therapy appeared generally consistent with prior clinical experience and most commonly involved constitutional symptoms. As a result of the negative INSPIRE trial results, we revised our estimates of inventory requirements as of December 31, 2006. Accordingly, we recorded a charge of $4.5 million in 2006 related to the prepayment of inventory that we were expecting to receive in 2007 and 2008.

•  Hepatology

In hepatology, we are developing product candidates to provide expanded treatment options for patients suffering from HCV infection. According to the Centers for Disease Control and Prevention (“CDC”) an estimated 3.9 million Americans have been infected with HCV, of whom 2.7 million are chronically infected. It is estimated that there are 170 million people worldwide afflicted with this disease. The primary mode of transmission of HCV is through contaminated blood. Despite the currently available therapies, interferon alphas and ribavirin, there is considerable need for the development of novel therapeutic approaches since approximately 50% of patients are not cured with these currently available therapies. Patients who are not cured can develop cirrhosis, liver failure and hepatocellular carcinoma.

Our lead compound in hepatology is ITMN-191, an orally available HCV protease inhibitor. We are currently conducting a Phase Ib clinical trial of this compound. We have focused on HCV proteases because of their involvement in viral replication and suppressive effects on host response to viral infection. Our HCV protease inhibitor program is being conducted under our exclusive license and collaboration agreement with Roche.

Preclinical toxicology and pharmacokinetic studies in multiple species suggest that ITMN-191 has attractive therapeutic characteristics for the treatment of HCV, including significant liver exposure, slow dissociation from the NS3/4A protease, high in vitro potency and specificity and an advantageous cross-resistance profile, including considerable effectiveness against variants of the NS3/4A protease that are resistant to other HCV protease inhibitors currently in development. Our preclinical pharmacokinetic results also support the exploration of twice-daily oral dosing.

In May 2007, we reported that ITMN-191 had completed dosing in a Phase Ia single ascending-dose, or SAD, trial in 64 healthy volunteers. No serious adverse events were reported in the SAD trial. All adverse events were classified as mild (CTCAE Grade 1), and no volunteers were discontinued due to an adverse event. The most common adverse events were gastrointestinal-related, were all classified as mild (CTCAE Grade 1), occurred predominantly in the highest dose cohort, appeared to be attenuated in the presence of food and rapidly resolved without intervention. No clinically significant laboratory abnormalities or ECG changes were reported. Plasma exposure was observed in all dosage cohorts. The doses given in this SAD trial ranged from less than 10% to many-fold higher than those planned to be given in the Phase 1b multiple ascending dose, or MAD, trial which began in September 2007. Subjects who were administered ITMN-191 with a meal demonstrated significantly higher plasma levels of ITMN-191 compared to subjects given the same dose of ITMN-191 without a meal.

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In early 2007, we designed a Phase Ib MAD trial of ITMN-191 based on the preliminary safety data from the SAD trial. We later amended our Clinical Trial Authorization, or CTA, for our planned Phase Ib trial to take into consideration new information on the dosing and side effect profiles of competitive protease inhibitors, in vitro and preclinical data on ITMN-191 and the food effect that was observed in the Phase Ia trial. In September 2007, European regulatory authorities approved our amended CTA related to the Phase Ib clinical trial of ITMN-191. The Phase Ib MAD trial is designed to assess the effect on viral kinetics, viral resistance, pharmacokinetics, safety and tolerability of multiple ascending doses of ITMN-191 given as a monotherapy both two and three times per day. The Phase Ib clinical trial began in September 2007, and we anticipate that we will announce top-line viral kinetic and safety results from the first four treatment-naïve dose cohorts of the Phase Ib clinical trial at or before the EASL meeting and/or the Digestive Disease Week meeting, which meetings will take place in April and May of 2008, respectively.

•  Ovarian Cancer

We also were evaluating Actimmune in patients with ovarian cancer in a Phase III trial (otherwise known as the “GRACES” trial) evaluating the safety and efficacy of Actimmune in combination with standard of care chemotherapy in patients with advanced ovarian cancer. On February 2, 2006, we announced our decision to discontinue the GRACES trial. After reviewing the results of an analysis of progression free survival time and an interim analysis of overall survival time, an independent Data Safety Monitoring Board recommended the discontinuation of the ongoing post-treatment follow-up of patients in the study. This recommendation was based on a shorter overall survival time in patients who received Actimmune plus standard of care chemotherapy compared to patients who received standard of care chemotherapy alone.

•  Other Assets

Our oritavancin and Amphotec assets did not fit within our core focus areas of pulmonology and hepatology. Therefore, we divested these non-core assets during 2005.

Product Development Status

The following chart shows the status of our product development programs as of December 31, 2007:

	Preclinical		Phase I		Phase II	Phase III
Pulmonology
Pirfenidone — Idiopathic pulmonary fibrosis (CAPACITY)							X
Anti-inflammatory/antifibrotic		X
Hepatology
ITMN-191 — Chronic hepatitis C program; protease inhibitor				X
Next generation protease inhibitor		X
Second Target in hepatology		X

Our Strategy

We intend to use our current capital resources and any potential revenue provided by sales of Actimmune to fund the development of our advanced-stage pulmonology pipeline and our research and development-stage hepatology pipeline.

Our strategy for achieving these objectives include:

Focusing our Development Efforts in the Areas of Pulmonology and Hepatology.  Historically, we have pursued development opportunities in the areas of pulmonology, hepatology, infectious disease and oncology. During 2003 and 2004, we narrowed our focus to development and commercial efforts in pulmonology and hepatology in order to more effectively compete, manage our resources and sustain our business. During 2005,

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we further narrowed our focus to three core development programs: Actimmune in IPF (which, effective March 2007, has been discontinued), pirfenidone in IPF and our protease inhibitors in hepatology.

Investing in Preclinical and Applied Research.  We have a preclinical and applied research group which focuses its research in pulmonology and hepatology. The hepatology research program includes our protease inhibitor program for the treatment of hepatitis C as well as a second small molecule program in hepatology. This group seeks to characterize mechanisms of action and biological, toxicology and pharmacology profiles of our product development candidates.

Obtaining FDA Approval for our Compounds in Pulmonology and Hepatology. We are developing pirfenidone and our protease inhibitors for diseases for which preclinical studies and clinical trials have shown evidence that they may be potentially effective treatments. We believe that pirfenidone may have potential as a treatment for IPF. We also believe that our protease inhibitors may have potential to treat patients with HCV infections.

Establishing Appropriate Alliances.  We believe that we have significant opportunities to achieve additional revenue and to offset expenses by establishing appropriate development or commercial alliances in pulmonology and hepatology. Such alliances may help us accelerate our development efforts, offset our expenses and mitigate our risks. We have entered into a Collaboration Agreement with Roche to develop and commercialize products from our HCV protease inhibitor program, including our lead candidate compound ITMN-191

Evaluating Appropriate Product Acquisition Candidates.  We continue to evaluate appropriate product acquisition candidates that we believe could complement our existing pulmonology and hepatology portfolios.

Approved Product

Our sole approved product is Actimmune which is approved by the FDA only for the treatment of two rare congenital disorders: CGD and severe, malignant osteopetrosis. Actimmune is also approved for these indications by the health authorities in numerous other countries.

Chronic granulomatous disease.  CGD is a life-threatening congenital disorder that causes patients, primarily children, to be vulnerable to severe, recurrent bacterial and fungal infections. This results in frequent and prolonged hospitalizations and commonly results in death. In 1990, Actimmune was approved by the FDA for reducing the frequency and the severity of serious infections associated with CGD, and is the only FDA approved drug for this disease.

Severe, malignant osteopetrosis.  Severe, malignant osteopetrosis is a life-threatening, congenital disorder that primarily affects children. This disease results in increased susceptibility to infection and an overgrowth of bony structures that may lead to blindness and/or deafness. In 2000, Actimmune was approved by the FDA for delaying time to disease progression in patients with severe, malignant osteopetrosis, and is the only FDA approved drug for this disease.

We have the exclusive rights to develop and commercialize Actimmune for a broad range of diseases in the United States, Canada and Japan. We have an agreement with Boehringer Ingelheim (“BI”) in connection with the development and commercialization of interferon gamma-1b in Europe and the rest of the world under the trade name Imukin^®. See “License and Other Agreements.” Substantially all of our revenue from sales of Actimmune has been derived from off-label uses of Actimmune rather than the treatment of osteopetrosis or CGD.

Development Programs

Pulmonology

We are developing pirfenidone for the treatment of IPF.

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Idiopathic Pulmonary Fibrosis.

IPF is a disease characterized by progressive scarring, or fibrosis, of the lungs, which leads to their deterioration and destruction. The cause of IPF is unknown. The prognosis is poor for patients with IPF, which occurs primarily in persons 40 to 70 years old. Based on the published literature, median survival time from diagnosis is two to five years in patients with IPF, and most patients die from complications associated with IPF. Although conclusive data does not exist, it is estimated that approximately 100,000 people suffer from IPF in the United States, approximately one-half of whom have mild to moderate disease severity. There is no FDA approved therapy available for the treatment of IPF.

Actimmune for Idiopathic Pulmonary Fibrosis.  We were developing Actimmune for the treatment of IPF. We reported data from our first Phase III clinical trial of Actimmune for the treatment of IPF (GIPF-001) in August 2002. Although this trial failed to meet its primary and secondary endpoints, it provided us with information regarding the disease, appropriate clinical endpoints and the treatment effect of Actimmune on patients. Based on analysis of this data, we initiated a second Phase III clinical trial of Actimmune for the treatment of IPF (GIPF-007, or the “INSPIRE” trial) in December 2003. Effective March 2007, we discontinued the Phase III INSPIRE trial based upon the recommendation of the study’s independent DMC.

Pirfenidone for Idiopathic Pulmonary Fibrosis and Hermansky-Pudlak Syndrome.

Pirfenidone, which may have activity in multiple fibrotic indications, is currently in clinical development for the treatment of IPF and for pulmonary fibrosis associated with Hermansky-Pudlak Syndrome (“HPS”), a fatal, fibrotic lung disease caused by genetic factors for which there is no FDA approved therapy. Pirfenidone is an orally active, small molecule drug that appears to inhibit collagen synthesis, down-regulate production of multiple cytokines and block fibroblast proliferation and stimulation in response to cytokines. In May 2003, we concluded a 55-patient, proof-of-concept Phase II clinical trial of pirfenidone in IPF. We stopped this trial early to expedite the collection of preliminary safety and efficacy data and our assessment of whether these data support pirfenidone as a product candidate with potential benefits to IPF patients.

In 2004, we completed the data analysis and preclinical work necessary to design and conduct a pirfenidone registration program for IPF. In May 2005, the American Journal of Respiratory and Critical Care Medicine (AJRCCM) published results from a double-blind, randomized, placebo-controlled Phase II trial evaluating pirfenidone for the treatment of patients with IPF. This 107 patient study with a planned 12 month treatment period was conducted in Japan by Shionogi and was terminated after only nine months based on the recommendation of an independent Data Safety Monitoring Board following an interim analysis. This analysis suggested favorable effects of pirfenidone on acute exacerbations and other efficacy parameters. In December 2006, Shionogi reported positive results of their Phase III clinical trial of patients with IPF who were treated with pirfenidone and in March 2007, submitted an application to the Japanese Health Authorities for approval to market pirfenidone. This Phase III clinical trial was conducted in Japan.

We have completed patient enrollment in our CAPACITY trials. Our CAPACITY trials, which were initiated in April 2006, include two separate, concurrent Phase III trials conducted at 110 centers in North America and Europe. In May 2007, we completed enrollment of 779 patients with mild to moderate forms of IPF in the trials following our decision to refine and expand the CAPACITY program to include an increase in the number of patients enrolled and a lengthening of the treatment duration. We made these refinements based on the data from the Shionogi Phase III trial and the knowledge gained from the recently unblinded placebo arm of our INSPIRE trial for Actimmune. We began our CAPACITY trials following Shionogi’s successful Phase II clinical trial in which pirfenidone was generally well tolerated, with the most frequent side effects reported being photosensitivity rash and gastrointestinal symptoms. The primary endpoint of our CAPACITY trials is lung function, as measured by change in FVC, which is believed to be an important measure of disease progression in IPF. Our CAPACITY program is designed similarly to the Shionogi Phase III trial in that the maximum doses, on a mg/kg basis, are approximately the same and the primary endpoints (FVC versus VC) are expected to be clinically very similar. The CAPACITY trials are longer (72 weeks versus 52 weeks) than the Shionogi Phase III trial, which we anticipate will allow for better statistical power to detect the efficacy of pirfenidone. We anticipate that top-line results for the CAPACITY trials will be available in January 2009.

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In 2004, the FDA and the EMEA granted pirfenidone orphan drug designation for the treatment of IPF. Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States. This designation provides seven years of market exclusivity in the United States upon the FDA’s first approval of the product for the orphan designation provided that the sponsor complies with certain FDA specified conditions. EMEA orphan drug designation provides for ten years of market exclusivity in the European Union.

We are also supporting the development of pirfenidone for HPS by providing free pirfenidone drug product to the National Institute of Health (“NIH”) for its continuing Phase III clinical work on HPS.

Next-Generation Interferon Gamma

We had a license and collaboration agreement with Maxygen Holdings Ltd., a wholly owned subsidiary of Maxygen, Inc. (“Maxygen”), to develop and commercialize novel, next-generation interferon gamma products that have enhanced pharmacokinetics and a potential for less frequent dosing regimens than Actimmune. Effective July 2007, we have terminated this agreement.

Hepatology

Our second area of focus is developing therapeutics in the area of hepatology. Our development efforts in hepatology are currently directed at expanding treatment options for patients suffering from HCV infections. Prior to the end of 2005, we were focusing our hepatology efforts on the pegylated interferon non-responder population. We have now decided to focus our investments on small molecules, the first of which is our protease inhibitor program which we believe could have a broad application in the overall HCV patient population.

Protease Inhibitor Program

We have a preclinical research program in the hepatology area. In September 2002, we entered into a drug discovery collaboration agreement with Array BioPharma, Inc. (“Array”) to discover novel small molecule protease inhibitors for the treatment of hepatitis C. In late 2004, we amended the Array agreement to provide for the acquisition of certain intellectual property rights from Array. In April 2005, we initiated a second research collaboration with Array with respect to a new hepatology target and have since terminated that agreement, although we continue to conduct research on this new hepatology target.

Results from scientific studies presented at the Digestive Disease Week medical conference in May 2005 have identified protease inhibitors as a promising therapeutic class. In 2005, we presented several abstracts demonstrating high potency, favorable pharmacokinetics, including uptake into the liver, and encouraging tolerability for our two lead oral HCV protease inhibitor compounds. In the third quarter of 2005, we chose “ITMN-191” (formerly known as ITMN B) as our lead compound and have advanced this compound through toxicology and other clinical trial authorization-enabling studies. We submitted a Clinical Trial Authorisation (“CTA”) with the French Medicinal and Biological Products Evaluation Directorate for this lead compound during the third quarter of 2006. In addition, we are pursuing research related to other small molecules for follow-on compounds to ITMN 191 as well as second-generation protease inhibitors. Under the Collaboration Agreement with Roche, we are collaborating to develop and commercialize products from our HCV protease inhibitor program, including our lead candidate compound ITMN-191, which entered Phase Ia clinical trials late in 2006 and a Phase Ib clinical trial in September 2007, and novel second-generation HCV protease inhibitors.

Other Assets

The oritavancin and Amphotec assets did not fit within our core focus areas of pulmonology and hepatology. Therefore, we divested these assets during 2005. We also discontinued our Phase III clinical trial of Actimmune for the treatment of ovarian cancer.

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Divesture of Oritavancin

Oritavancin is a semi-synthetic glycopeptide antibiotic in development for the treatment of a broad range of infections caused by gram-positive bacteria, including those resistant to other glycopeptides. Oritavancin has demonstrated the ability to kill most strains of gram-positive bacteria, while other glycopeptides and many other agents merely suppress them. Oritavancin may be effective in the treatment of a range of infections caused by gram-positive bacteria.

In two Phase III clinical trials with oritavancin for the treatment of complicated skin and skin-structure infections (“CSSSIs”), oritavancin achieved the primary efficacy endpoint and demonstrated that oritavancin was as effective as the comparator regimen of vancomycin followed by cephalexin, which is a commonly used regimen. However, the FDA requested an additional clinical safety study be completed prior to the submission of a New Drug Application, or NDA, for oritavancin for the treatment of CSSSIs. In December 2005, we sold our worldwide rights to oritavancin to Targanta Therapeutics (“Targanta”). The terms of the agreement included upfront and potential clinical related milestone payments of up to $9.0 million, of which $4.0 million has been received through December 31, 2007. We also received a convertible promissory note that, assuming certain clinical milestones were achieved, could have been valued at up to $25.0 million in principal amount from Targanta, which note was initially secured by the oritavancin assets. Upon the achievement by Targanta of certain corporate objectives, the notes were designed to convert into capital stock of Targanta, subject to certain limitations in the amount of voting stock that we may hold. Effective February 2007, these objectives were met by Targanta and, upon conversion of the promissory note, we received approximately 1.7 million shares of Targanta Series C preferred stock in exchange for the convertible promissory note. In October 2007, Targanta completed an initial public offering of its common stock at a price of $10.00 per share. Upon completion of the offering, our investment in Targanta was automatically converted into approximately 3.0 million shares of Targanta common stock and warrants to purchase approximately 0.1 million additional shares of Targanta common stock. These shares are currently restricted for resale and are subject to a lock-up agreement that expires April 2008. In connection with the 2005 sale of worldwide rights, Eli Lilly & Company (“Eli Lilly”) waived its right to collect a $10.0 million milestone payment which had previously been accrued by us. We also received a seat on the Targanta board of directors from which we resigned effective December 31, 2007.

Divesture of Amphotec

Amphotec is an FDA approved lipid-form of amphotericin B indicated for the treatment of invasive aspergillosis in patients where renal impairment or unacceptable toxicity precludes the use of amphotericin B deoxycholate in effective doses, and in patients with invasive aspergillosis where prior amphotericin B deoxycholate has failed. Systemic fungal infections that do not respond to initial treatment with standard antifungal treatment regimens are typically treated with amphotericin B, the active ingredient in Amphotec. This product is approved in the United States under the name Amphotec and in more than 40 other countries under the name Amphocil. In 2004, we announced our intent to divest Amphotec and in May 2005, we sold Amphotec to Three Rivers for cash consideration. In accordance with our agreement with Three Rivers, we may receive contingent payments based on Three Rivers meeting future specified sales targets of Amphotec. The first of these sales targets was met and we received $0.5 million from Three Rivers in the first quarter of 2007.

Discontinuation of Actimmune Trial for Ovarian Cancer.

We were conducting the GRACES trial, which was an 847-patient Phase III clinical trial of Actimmune in combination with carboplatin and paclitaxel for the first-line treatment of ovarian cancer in women who have undergone surgical resection. On February 2, 2006, we announced our decision to discontinue the GRACES trial evaluating the safety and efficacy of Actimmune in combination with standard of care chemotherapy in patients with advanced ovarian cancer. After reviewing the results of an analysis of progression free survival time and an interim analysis of overall survival time, an independent Data Safety Monitoring Board recommended the discontinuation of the ongoing post-treatment follow-up of patients in the study. This recommendation was based on a shorter overall survival time in patients who received Actimmune plus standard of care chemotherapy compared to patients who received standard of care chemotherapy alone. As a result, we do not intend to conduct further development of Actimmune for the treatment of ovarian cancer.

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License and Other Agreements

Roche License and Collaboration Agreement (Protease Inhibitors)

In October 2006 we entered into a Collaboration Agreement with Roche. Under the Collaboration Agreement, we agreed to collaborate with Roche to develop and commercialize products from our HCV protease inhibitor program. The Collaboration Agreement includes our lead candidate compound ITMN-191, which entered Phase 1a clinical trials late in 2006 and phase 1b clinical trials during the third quarter of 2007. We also agreed to collaborate with Roche on a research program to identify, develop and commercialize novel second-generation HCV protease inhibitors.

Under the terms of the Collaboration Agreement, we agreed to conduct Phase I studies for ITMN-191, and thereafter Roche agreed to lead clinical development and commercialization. Upon closing, we received an upfront payment of $60.0 million from Roche. In addition, assuming successful development and commercialization of ITMN-191 in the United States and other countries, we could potentially receive up to $470.0 million in milestone payments. One milestone payment of $10.0 million was received in January 2007, which was not deemed to be substantially at risk at the execution of the Collaboration Agreement. Therefore, the upfront payment of $60.0 million and this $10.0 million milestone payment have been deferred and are being recognized ratably as collaboration revenue over the estimated life of the Collaboration Agreement and our continuing involvement. All further milestone payments, of which a $10.0 million milestone was received in June 2007, have been assessed as substantially at-risk at the initiation of the agreement and will be recognized as revenue when and if these milestones are achieved, as defined in the Collaboration Agreement. Roche agreed to fund 67% of the global development costs of ITMN-191 and, if the product is approved for commercialization by the FDA, we agreed to co-commercialize the product in the United States and share profits on a 50-50 basis with Roche. We are entitled to receive royalties on any sales of the product outside of the United States. We have the right to opt-out of either co-development and/or co- commercialization of ITMN-191 in exchange for higher royalties on sales outside of the United States, and royalties instead of profit sharing in the United States. The economic terms for ITMN-191 could also apply to additional compounds that we and Roche develop under the Collaboration Agreement.

Genentech, Inc. License Agreement (Actimmune)

In 1998, we obtained a license from Genentech, Inc. (“Genentech”) for patents relating to Actimmune. The license from Genentech terminates on the later of May 5, 2018 or the date that the last of the patents licensed under the agreement expires. Our licensed Actimmune rights include exclusive and non-exclusive licenses. The exclusive licenses include the right to develop and commercialize Actimmune in the United States and Canada for the treatment and prevention of all human diseases and conditions, including infectious diseases, pulmonary fibrosis and cancer, but excluding arthritis and cardiac and cardiovascular diseases and conditions. The non-exclusive licenses include the right to make or have made Actimmune for clinical and commercial purposes within our field of use in the United States and Canada. In Japan, we have the exclusive license rights to commercialize Actimmune for the treatment and prevention of all infectious diseases caused by fungal, bacterial or viral agents, including in patients with CGD or osteopetrosis. We also have the opportunity, under specified conditions, to obtain further rights to Actimmune in Japan and other countries. In addition, we received an exclusive sublicense under certain of Genentech’s patents outside the United States, Canada and Japan under the BI agreement discussed below. Under the Genentech license, we pay Genentech royalties on the revenue from sales of Actimmune, and are required to make one-time payments to Genentech upon the occurrence of specified milestone events, which include the submission of a BLA with the FDA for approval to market Actimmune for the treatment of particular categories of diseases, the receipt of FDA approval to market Actimmune for the treatment of particular categories of diseases and the achievement of certain annual revenue targets for Actimmune. We had made royalty payments of approximately $74.8 million in the aggregate, but no milestone payments, under this agreement through December 31, 2007. If all of the milestones under this agreement are achieved, we would be required to make further milestone payments of $3.2 million. We must satisfy specified diligence obligations under the agreement with Genentech to maintain our license from Genentech. Our rights to certain therapeutic uses for Actimmune under this agreement could revert to Genentech if we do not meet our diligence obligations or otherwise commit a material breach of the agreement.

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Boehringer Ingelheim International GmbH (Imukin)

In 2001, we formed a collaboration with BI to clinically develop and seek regulatory approval for interferon gamma-1b, the active ingredient in Actimmune, in certain diseases, and to commercialize a liquid formulation of interferon gamma-1b under one or more of BI’s trade names, including Imukin, in Europe and other major markets of the world (other than the United States, Canada and Japan). Under the agreement, the parties may seek to develop and obtain regulatory approval for the use of Imukin in the treatment of a variety of diseases, including IPF, ovarian cancer, CGD and osteopetrosis. The agreement provides that in return for our funding and managing clinical and regulatory development of interferon gamma-1b for these diseases in the countries covered by the agreement, BI will pay us royalties on sales of the product when it meets a specified minimum sales level. BI has an option to exclusively promote Imukin in all of the major market countries covered by the agreement, and we may opt to promote the product in those countries and for those new diseases for which BI does not do so. If we opt to promote the product in those countries or for those new diseases for which BI does not, we will pay royalties to BI on sales of the product in those countries and/or for those new diseases. We had neither paid nor received any royalties under this agreement through December 31, 2007, and there are no milestone payments under this agreement. The agreement will expire, on a country-by-country basis, upon expiration of the parties’ royalty obligations in each country covered by the agreement. Such royalty obligations generally expire fifteen years after regulatory approval of Imukin for certain specified indications in the relevant country. If no such regulatory approvals are granted in a particular country, the royalty obligations in such country will expire in 2016. Prior to such expiration, either party can terminate the agreement for the uncured material breach of the other party or for the insolvency of the other party. In addition, we have the right to terminate the agreement with respect to certain countries at any time subsequent to regulatory approval for IPF.

Connetics Corporation (acquired by Stiefel Laboratories, Inc.) (Actimmune)

Through an assignment and option agreement with Connetics, we paid Connetics $5.7 million to acquire rights to Actimmune and are obligated to pay to Connetics a royalty of 0.25% of our net United States sales for Actimmune until our net United States sales cumulatively surpass $1.0 billion. Above $1.0 billion, we are obligated to pay a royalty of 0.5% of our net United States sales of Actimmune. Through a separate purchase agreement, we paid Connetics $0.4 million to acquire rights related to scleroderma and are obligated to pay Connetics a royalty of 4.0% on our net revenue from sales of Actimmune for the treatment of scleroderma. We had made royalty payments of approximately $1.6 million in the aggregate through December 31, 2007. There are no milestone payments pursuant to this agreement.

Amgen Inc. (Infergen, PEG-Alfacon-1 and Interferon Gamma)

In 2001, we entered into a licensing and commercialization agreement with Amgen through which we obtained an exclusive license in the United States and Canada to Infergen and the rights to an early stage program to develop a pegylated form of Infergen PEG-Alfacon-1. Infergen is currently approved in both the United States and Canada to treat chronic HCV infections. Under the agreement, we had the exclusive right to market Infergen and clinically develop it for other indications in the United States and Canada. In December 2004, we amended our licensing and commercialization agreement with Amgen to remove certain non-competition restrictions on Amgen with respect to alpha interferons in exchange for a specified reduction in the royalties payable by us to Amgen on Infergen sales should Amgen engage in certain competitive activities as well as Amgen’s consent to transfer the manufacturing of Infergen to a new supplier. (See section entitled “Manufacturing” below). We initially paid Amgen $29.0 million for up-front license and other fees and milestones with respect to our license, and had been obligated to pay royalties on sales of Infergen. In March 2003, we commenced a Phase I clinical trial for PEG-Alfacon-1, which required us to make a $1.5 million milestone payment to Amgen pursuant to the terms of the agreement. We had made royalty and milestone payments of approximately $41.0 million under this agreement in the aggregate through December 31, 2005. These rights and obligations with respect to Infergen under the agreement have been assumed by Valeant as part of our sale of the Infergen product to Valeant in December 2005. We have discontinued development of PEG-Alfacon-1.

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Marnac, Inc./KDL GmbH (Pirfenidone)

In 2002, we licensed from Marnac, Inc. (“Marnac”) and its co-licensor, KDL GmbH (“KDL”), their worldwide rights, excluding Japan, Korea and Taiwan, to develop and commercialize pirfenidone for all fibrotic diseases, including renal, liver and pulmonary fibrosis. Under the agreement terms, we received an exclusive license from Marnac and KDL in exchange for an up-front cash payment of $18.8 million and future milestone and up to 9% royalty payments. During the third quarter of 2007, we recorded a $7.5 million expense for such milestone payments, which are based on the progress of clinical development of pirfenidone. If all of the milestones under this agreement had been achieved, we would have been required to make milestone payments of $14.5 million. Effective November 21, 2007, we entered into asset purchase agreements with Marnac and KDL whereby we effectively terminated the prior license agreement by purchasing, among other things, the pirfenidone-related assets covered by such prior license agreement. Under the terms of the asset purchase agreements, we made acquisition payments of approximately $13.7 million, which includes the $7.5 million expense recorded in the third quarter of 2007 relating to the 2002 license agreement. Contingent acquisition payments of up to an additional $53.5 million would be made by us only if positive Phase III data and registration in the United States and European Union are achieved. The asset purchase agreements do not affect the rights to pirfenidone in Japan, Korea and Taiwan, which rights are licensed by Marnac and KDL to Shionogi. Since the original 2002 license agreement has been effectively terminated as a result of our acquisition of such pirfenidone-related assets from Marnac and KDL, we no longer have milestone or royalty obligations thereunder.

Novartis Corporation (Small Molecule Therapeutics)

In 2004, we entered into a license agreement with Chiron Corporation (which was acquired by Novartis Corporation) which granted us the right to discover, develop and commercialize small molecule therapeutic agents against certain HCV targets that are covered by patents owned by Novartis. In consideration for this license, we paid Novartis a nonrefundable fee of approximately $0.4 million in 2004 and are required to make milestone payments based on the clinical progress of ITMN-191. In 2006, we expensed $0.5 million upon initiation of the Phase Ia clinical trials for ITMN-191. Assuming that all of the remaining milestones under this agreement are achieved, we will be required to make milestone payments of $4.5 million. In addition, Novartis is entitled to receive royalties on future product sales.

Array BioPharma Inc. (Small Molecule Therapeutics)

In 2002, we entered into a drug discovery collaboration agreement to create small molecule therapeutics targeting hepatitis with Array. Under that agreement, we fund drug discovery research conducted by Array during the research term based on the number of Array scientists working on the research phase of the agreement and we are responsible for all development and commercialization. Though the research phase of the agreement expired in June 2007, Array will continue to be entitled to receive milestone payments under the agreement based on the selection and progress of clinical drug candidates, as well as low single-digit royalties on net sales of products derived from the collaborative efforts. In addition, in December 2004, the agreement was amended to provide a mechanism for us to purchase certain intellectual property rights arising from the collaboration. In April 2005, we initiated a second research collaboration with Array with respect to a new hepatology target and have since terminated that agreement, although we continue to conduct research on this new hepatology target.

Assuming that all of the remaining milestones under these agreements are achieved, we will be required to make milestone payments of $8.5 million. Total research and development expenses related to this agreement were $1.3 million, $10.2 million and $7.5 million for the years ended December 31, 2007, 2006 and 2005, respectively. Included in the $10.2 million in 2006 is a $0.5 million milestone payment for the initiation of the Phase Ia clinical trial for ITMN-191.

Shearwater Corporation (PEG-Alfacon-1)

In June 2002, we entered into a development, license and manufacturing agreement with Shearwater Corporation (“Shearwater”), a wholly-owned subsidiary of Nektar Therapeutics, to access Shearwater’s pegylation technology in order to develop a pegylated version of Infergen. Under the terms of the agreement, we received a co-

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exclusive license with Maxygen from Shearwater in exchange for an up-front payment of $500,000 and future milestone and royalty payments. We terminated this agreement in June 2006 and had paid $250,000 in milestone payments, but no royalty payments, under this agreement in the aggregate through the date of termination.

Maxygen Holdings Ltd. (Next-Generation Interferon Gamma)

We had a license and collaboration agreement with Maxygen to develop and commercialize novel, next-generation interferon gamma products that have enhanced pharmacokinetics and a potential for less frequent dosing regimens than Actimmune. If preclinical data provided compelling proof of concept for a longer-acting interferon gamma compound, our plan would have been to take forward into clinical development selected protein-modified interferon gamma product candidates created by Maxygen that met these criteria. We had funded Maxygen’s optimization and development of these next-generation interferon gamma products and retained exclusive worldwide commercialization rights for all human therapeutic indications. Our diligence obligations included a minimum level of clinical development expenditures for an initial period of time, as well as the general obligation to use commercially reasonable efforts to clinically develop, seek regulatory approval for and commercialize a product in specified major market countries. The agreement terms included up-front license fees and full research funding, as well as development and commercialization milestone payments, which were payable based on the progress of our clinical development program for next-generation interferon gamma products and the achievement of certain sales targets with respect to such products. We had made payments of approximately $9.7 million under this agreement in the aggregate through December 31, 2007, including approximately $0.1 million in the last three years. Effective July 2007, we have terminated this agreement.

Eli Lilly & Company (Oritavancin)

In 2001, we entered into an asset purchase and license agreement with Eli Lilly pursuant to which we acquired worldwide rights to oritavancin. We assigned this agreement to Targanta in December 2005 in connection with Targanta’s purchase of the oritavancin compound.

ALZA Corporation (Amphotec)

In 2001, we entered into a product acquisition agreement with ALZA Corporation, now a subsidiary of Johnson & Johnson, in which we acquired the rights to Amphotec. We had made royalty payments of approximately $1.3 million, but no milestone payments, under this agreement in the aggregate through December 31, 2005. We assigned this agreement to Three Rivers in May 2005 in connection with Three Rivers’ purchase of the Amphotec product.

Manufacturing

We contract with qualified third-party manufacturers to produce our products and product candidates. This manufacturing strategy enables us to direct financial resources to the development and commercialization of products rather than diverting resources to establishing a manufacturing infrastructure.

Boehringer Ingelheim Austria GmbH (Actimmune)

In January 2000, we entered into an agreement with BI for the clinical and commercial supply of Actimmune. The agreement, which had been amended from time to time, generally provided for the exclusive supply by BI and exclusive purchase by us of Actimmune. This contractual obligation to BI was denominated in euros. Prior to the failure of the INSPIRE trial, we had future purchase obligations of approximately $91.6 million. Given the fact that the Phase III INSPIRE trial was unsuccessful and was discontinued in March 2007, we entered into a termination agreement (“Termination Agreement”) with BI. The Termination Agreement provides for the termination of the existing supply agreement dated January 2000, as amended, for the clinical and commercial supply of Actimmune conditioned upon and coincident with the entry by us and BI into a new agreement for the clinical and commercial supply of Actimmune. In consideration of the entry into the Termination Agreement, we incurred approximately $6.8 million in termination expenses during the second quarter of 2007, which have been included in restructuring charges in our consolidated statement of operations. Pursuant to the Termination Agreement and new supply

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agreement, we eliminated $91.6 million in future purchase commitments for Actimmune for the years 2007 to 2012. On June 29, 2007, InterMune and BI entered into a new agreement for the clinical and commercial supply of Actimmune (“Supply Agreement”). Under the terms of the new Supply Agreement, we are not required to make any minimum annual purchase commitments and BI is not required to commit to reserving any minimum annual capacity for the manufacture of Actimmune. On a going forward basis, the product will be purchased based upon a rolling forecast. The new Supply Agreement is effective as of June 29, 2007 and will expire on December 31, 2012. If BI is not able to supply all of our requirements for Actimmune, we may choose an additional manufacturer. However, we are not entitled to seek such a secondary source until BI has informed us of its unwillingness or inability to meet our requirements. Either party has the right to terminate the Supply Agreement if the other party materially breaches its obligations thereunder. In addition, we have the right to terminate the Supply Agreement immediately in the event that health authorities prevent distribution of Actimmune for all indications.

Amgen Inc. (Infergen)

As part of our 2001 license agreement with Amgen under which we licensed Infergen, we entered into a manufacturing and supply arrangement under which Amgen was obligated to manufacture and supply our requirements of Infergen for our sales in the United States and Canada. We assigned this agreement to Valeant in December 2005 in connection with Valeant’s purchase of the Infergen product.

Boehringer Ingelheim Austria GmbH (Infergen)

On November 3, 2005, we entered into an agreement with BI for the future clinical and commercial supply of Infergen. The agreement generally obligated BI to supply exclusively to us, and for us to purchase exclusively from BI, bulk Infergen as well as the finished forms of Infergen that are currently marketed. Amgen will remain the manufacturer for Infergen until the transfer of the manufacturing process from Amgen to BI is completed and until BI is approved by the FDA as a manufacturer of Infergen. Prior to and upon execution of the agreement, we made payments to BI of approximately $16.8 million. We assigned this agreement and all future rights and obligations thereunder to Valeant as part of the sale of the Infergen product to Valeant in December 2005.

Cardinal Health PTS, Inc. (oritavancin and pirfenidone)

In 2003, we entered into an agreement with Cardinal Health PTS, Inc. (“Cardinal Health”) to supply us with oritavancin drug product. We assigned this agreement to Targanta in December 2005 in connection with Targanta’s purchase of the oritavancin compound. Cardinal Health also formulates and encapsulates the active pharmaceutical ingredient (“API”) in the manufacturing process for pirfenidone.

ACIC Fine Chemical, Inc. and Signa C.V. (pirfenidone)

On May 13, 2004 we entered into a purchase agreement with ACIC Fine Chemicals Inc. (“ACIC”) to supply us with a finite amount of API for manufacturing of pirfenidone. Under a separate agreement with Signa C.V. (“Signa”), ACIC sub-contracts the actual manufacturing of this finite amount of API for pirfenidone to Signa. We acquire the API for pirfenidone from ACIC on a purchase order basis under the agreement. We are not obligated to purchase any minimum amount of product under this agreement.

Abbott Laboratories, Inc. (oritavancin)

In 2001, we entered into an agreement with Abbott Laboratories, Inc. (“Abbott”) to provide the bulk manufacturing of oritavancin active pharmaceutical ingredient (oritavancin API). We assigned this agreement to Targanta in December 2005 in connection with Targanta’s purchase of the oritavancin compound.

Ben Venue Laboratories Supply Agreement (Amphotec)

We assumed a manufacturing and supply agreement with Ben Venue Laboratories, Inc. (“Ben Venue”) dated as of January 1, 1993 for the manufacture of Amphotec. We assigned this agreement to Three Rivers in May 2005 in connection with Three Rivers’ purchase of the Amphotec product.

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Patents and Proprietary Rights

Based on our own internal research efforts, we have filed numerous patents relating to the use of interferons to treat a variety of diseases in the areas of pulmonology, hepatology and oncology. In addition, we have filed for patents on a number of small molecules in hepatology and pulmonology.

Actimmune

We have acquired an exclusive license under certain Genentech patents to develop, use and sell interferon gamma-1b, the active ingredient in Actimmune, in particular fields in the United States, Canada and Japan under our license agreement with Genentech. This license agreement covers more than 12 United States patents and related foreign patents and/or patent applications filed in Japan and Canada. Certain of the United States patents covering DNA vectors and host cells relating to interferon gamma-1b have expired in 2005 and in 2006 without material impact to our business. In addition, a United States patent relating to the composition of interferon gamma-1b expires in 2014. Other material United States patents expire between 2009 and 2013. Under the Genentech license, we pay Genentech royalties on the sales of Actimmune, and are required to make one-time payments to Genentech upon the occurrence of specified milestone events, which include the submission of a BLA with the FDA for approval to market Actimmune for the treatment of particular categories of diseases, the receipt of FDA approval to market Actimmune for the treatment of particular categories of diseases and the achievement of certain annual revenue targets for Actimmune. Two United States composition-of-matter patents acquired from Amgen covering interferon-gamma analogs, including interferon gamma-1b, expire in 2022.

Pirfenidone

In 2002, we licensed from Marnac and its co-licensor KDL their worldwide rights, excluding Japan, Korea and Taiwan, to develop and commercialize pirfenidone for all fibrotic diseases, including renal, liver and pulmonary fibrosis. Effective November 21, 2007, we entered into asset purchase agreements with Marnac and KDL whereby we effectively terminated the prior license agreement by purchasing, among other things, the pirfenidone-related assets covered by such prior license agreement. Among the patents we purchased under the asset purchase agreements are U.S. Patent Nos. 5,310,562; 5,962,478; 6,090,822, 6,300,349 and related foreign equivalents. When U.S. Patent No. 5,310,562 expires in 2011, we will not be able to use this patent to block others from marketing pirfenidone for the treatment of fibrotic disorders in the United States. For a description of certain intellectual property issues relating to this license, please see “Item 1A. Risk Factors-Over time, we will lose our ability to rely on the intellectual property we currently own to prevent competing products, which may impair our ability to generate revenue” below.

Protease Inhibitors

In late 2004, we purchased from Array certain co-ownership rights in patents relating to our protease inhibitor program such that we hold exclusive ownership rights in the patent applications and issued patents covering the products arising out of our collaboration with Array.

Other Intellectual Property

We hold additional intellectual property in our core therapeutic areas. For example, we have filed numerous patent applications relating to the use of interferons and small molecules for the treatment of various diseases in the areas of pulmonology, HCV and oncology. To date, none of these patent applications have issued.

Competition

Actimmune for CGD and Severe Malignant Osteopetrosis

Actimmune is the only FDA approved therapy for CGD and severe, malignant osteopetrosis and we are not aware of any competitive products available or in development for these indications. However, in general, our products and product candidates face competition from other currently available or development-stage therapies.

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Pirfenidone for IPF

There is no FDA approved therapy available for the treatment of IPF. We believe that the primary competition for pirfenidone, if approved by the FDA for the treatment of IPF, will initially consist of products that are approved for other indications and for which clinical development for IPF is contemplated or underway, such as Gleevec^® and Tracleer^®. In 2007, a Phase III clinical trial for Tracleer has been initiated.

Protease Inhibitor for HCV

In the field of hepatology there are multiple drug candidates in development for hepatitis C, including immunomodulators, synthetic interferons, ribavirin analogs, protease inhibitors, polymerase inhibitors, viral budding inhibitors, monoclonal antibodies and RNAi knockdown techniques. In the field of HCV protease inhibitors, several other companies have protease inhibitor drugs in development, including Schering-Plough Corporation, Gilead Sciences, Merck & Co., Pfizer, Inc., GlaxoSmithKline, Vertex Pharmaceuticals, Inc. and Tibotec, Inc. Many of these companies have substantially greater financial, technical and human resources than we do, have a significant lead in terms of timing of clinical development, and are more experienced in the development of new drugs than we are.

Commercial Operations, Product Distribution and Medical Affairs

Reorganization of Commercial Operations

In connection with the divestiture of Infergen, we also made significant reductions in our commercial operations in late 2005, including a significant reduction in our field-based IPF disease awareness activities. We plan to rebuild a commercial presence in the future if and when Phase III data from the research and development pipeline warrant that investment. We continue to have a strategic marketing group that will continue to support the supply and reimbursement of Actimmune for its labeled indications, CGD and severe, malignant osteopetrosis. This group is also responsible for strategic planning in preparation for the potential launch of pirfenidone for the treatment of IPF.

Product Distribution

In the United States, Actimmune is sold primarily to distributors and specialty pharmacies who distribute directly to patients. During the year ended December 31, 2007, the primary specialty pharmacies and distributors for Actimmune were CuraScript, Inc. (formerly Priority Healthcare, Inc.), Caremark, Inc. and Merck Medco, which accounted for 48%, 23% and 12%, respectively, of our total net product sales.

Co-Promotion

On March 26, 2004, we entered into an agreement with Baxter Healthcare Corporation (“Baxter”) under which we co-promoted Baxter’s product Aralast^® in the United States for the treatment of patients with hereditary emphysema. Under this agreement, we were compensated by Baxter based upon a percentage of Aralast sales. We were required to make a certain minimum number of visits to physicians’ offices on an annual basis to discuss Aralast, and among those visits a certain minimum number were required to be to offices of pulmonologists. We terminated this agreement with Baxter in December 2005 in connection with the decision to significantly reduce our field-based IPF disease awareness activities.

Medical Affairs

We have a Medical Affairs Department that maintains current, scientific-based information about pulmonology and hepatology for the benefit of heath care providers, patients and caregivers, as well as our employees. Other functions of our Medical Affairs Department are medical education, medical information, publications and administration.

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Sales by Geographic Region

Our total revenue by region for the years ended December 31, was as follows (in thousands):

	2007		2006		2005
United States	$	53,321	$	90,185	$	110,017
Rest of the world		13,371		599		479
Totals*	$	66,692	$	90,784	$	110,496

* Total revenue for the year ended 2005 has been adjusted to reflect the reclassification of Infergen revenue into discontinued operations.

Governmental Regulation and Product Approval

The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, manufacture and marketing of pharmaceutical products. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of our products. We believe that our products will be regulated as biologics or drugs by the FDA.

The EMEA, or European Medicines Agency, is a centralized body of the European Union whose main responsibility is the protection and promotion of public health through the evaluation and supervision of medicines for human use. The EMEA coordinates the evaluation and supervision of medicinal products throughout the 25 European Union member states in a network of 42 national competent authorities.

The process required by the FDA before our potential products, or previously approved products to be marketed for the treatment of new diseases in the United States generally involves the following:

•  preclinical laboratory and animal tests;

•  submission of an IND, which must become effective before clinical trials may begin;

•  adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended use; and

•  FDA approval of a new BLA, a new NDA, or a BLA or NDA supplement.

The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any new approvals for our products will be granted on a timely basis, if at all.

Prior to commencing a clinical trial in the U.S., we must submit an IND to the FDA. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the application. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Our submission of an IND may not result in FDA authorization to commence such a clinical trial. Further, an independent institutional review board (“IRB”) for each medical center proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences.

For purposes of NDA or BLA approval, human clinical trials in the United States are typically conducted in three sequential phases that may overlap.

•  Phase I:  The drug is initially introduced into healthy human subjects or patients and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion.

•  Phase II:  Studies are conducted in a limited patient population to identify possible adverse effects and safety risks, to determine the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosage frequency. These Phase II clinical trials may be divided into early Phase II clinical trials, which are referred to as Phase IIa clinical trials, during which pilot studies are performed to determine initial activity and late Phase II clinical trials, which are referred to as Phase IIb

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clinical trials, that generally consist of controlled trials often involving several hundred patients in traditional drug development programs.

•  Phase III:  When Phase II clinical trials demonstrate that a dosage range of the product is effective and has an acceptable safety profile, Phase III clinical trials are undertaken to further evaluate dosage, to provide statistically and clinically significant evidence of clinical efficacy and to further test for safety in an expanded patient population at multiple clinical study sites. It is possible for a drug that appears promising in a Phase II clinical trial to fail in a more rigorous and reliable Phase III clinical trial. For example, after Actimmune had shown promising results for the treatment of IPF in an investigator sponsored Phase II clinical trial, our initial Phase III study of Actimmune for the treatment of IPF failed to show significant effect on the primary endpoint of progression-free survival or on secondary endpoints of lung function and quality of life.

In the case of products for severe or life-threatening diseases such as IPF, the initial human testing is often conducted in patients rather than in healthy volunteers. Because these patients already have the target disease, these studies may provide initial evidence of efficacy traditionally obtained in Phase II clinical trials, and thus these trials are frequently referred to as Phase I/II clinical trials.

We may not successfully complete Phase I, Phase II or Phase III clinical trial testing of our product candidates within any specific time period, if at all. Furthermore, the FDA or an IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

The FDA may require, or companies may pursue, additional clinical trials after a product is approved. These are called Phase IV studies. The results of Phase IV studies can confirm the effectiveness of a drug and can provide important safety information to augment the FDA’s adverse drug reaction reporting system.

The results of product development, preclinical studies and clinical trials are submitted to the FDA as part of a BLA or NDA, or as part of a BLA or NDA supplement for approval as a treatment for a new disease if the product is already approved for a disease. The FDA may deny approval of a BLA, NDA or BLA or NDA supplement if the applicable regulatory criteria are not satisfied, or it may require additional clinical data. Even if such data are submitted, the FDA may ultimately decide that the BLA, NDA or BLA or NDA supplement does not satisfy the criteria for approval.

Once issued, the FDA may withdraw product approval if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.

A company seeking approval of an abbreviated new drug application (“ANDA”), for the use of an approved drug that is subject to another company’s patent may have to certify to that patent and notify the owner of the NDA and patent for such drug that it is seeking approval. If the patent owner or licensee files a patent infringement lawsuit, FDA approval of the ANDA for which certification is made may be deferred pending the outcome of the lawsuit.

Satisfaction of FDA requirements or similar requirements of state, local and foreign regulatory agencies typically takes several years and the actual time required may vary substantially, based upon the type, complexity and novelty of the product or disease. Government regulation may delay or prevent marketing of potential products or of approved products for new diseases for a considerable period of time and impose costly procedures upon our activities. We cannot be certain that the FDA or any other regulatory agency will grant approvals for our product candidates or for use of our approved products for new diseases on a timely basis, if at all. Success in early stage clinical trials does not ensure success in later stage clinical trials. Data obtained from clinical activities is not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. Even if a product receives regulatory approval, the approval may be significantly limited to specific diseases, patient subgroups and dosages. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal

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of the product from the market. Delays in obtaining, or failures to obtain, initial regulatory approval for any of our product candidates, or additional regulatory approvals for new indications of our approved products, would harm our business. In addition, we cannot predict what adverse governmental regulations may arise from future United States or foreign governmental action.

Any products we manufacture or distribute pursuant to FDA approvals are subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with these products. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and other government agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with good manufacturing practices, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. We cannot be certain that we or our present or future suppliers will be able to comply with the good manufacturing practices regulations and other FDA regulatory requirements.

Physicians may prescribe legally available drugs for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. For example, we are aware that physicians are prescribing Actimmune for the treatment of IPF, although we do not promote Actimmune for the treatment of IPF, and the FDA has not approved the use of Actimmune for the treatment of this disease. Substantially all of our Actimmune revenue is derived from physicians’ prescriptions for off-label use for IPF. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use. Companies cannot promote FDA approved drugs for off-label uses. A company may engage in truthful, non-misleading, and non-promotional speech concerning its products. We may also educate physicians about a particular disease state and how that disease is properly diagnosed so that patients who qualify for the clinical trial might be identified. We also may survey physicians who are lawfully prescribing our products for off-label uses to monitor patients’ experiences, particularly as to whether safety issues have arisen. We may also, pursuant to FDA policies, respond to unsolicited requests from health care professionals and engage in appropriate scientific exchange of information about unapproved uses. We have engaged in these lawful activities in the past and continue to engage in some of them today. We have polices and procedures in place to regulate the lawful promotion of our marketed products within their labeled indications. Employees are trained to follow these policies and procedures and must certify that they will abide by them. The FDA actively enforces regulations prohibiting promotion of off-label uses and the promotion of products for which marketing approval has not been obtained. While we believe we are currently in compliance with the FDA’s regulations relating to off-label promotion, the regulations are subject to varying interpretations which continue to evolve. Failure to comply with these requirements in the past or with respect to future activities can result in regulatory enforcement action by the FDA and other governmental bodies, which would have an adverse effect on our revenue, business and financial prospects. On November 9, 2004 we received a subpoena from the U.S. Department of Justice requiring us to provide the Department of Justice with certain information relating to Actimmune, including information regarding the promotion and marketing of Actimmune. On October 25, 2006 we reached a comprehensive settlement with the government to resolve all claims without criminal sanctions relating to promotional activities for Actimmune for IPF by former InterMune employees during a period ending in June 2003. For a more complete description of this matter see “Item 3. Legal Proceedings” below.

The FDA’s policies may change and additional government regulations may be enacted which could prevent or delay regulatory approval of our potential products or approval of new diseases for our existing products. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the United States or abroad.

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting an NDA or BLA for that orphan indication. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. If a product that has orphan drug designation is the first to subsequently receive FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity for seven years in the United States, (i.e., the FDA may not approve any other applications to market the same drug for the same disease for seven years, except in very limited circumstances). Orphan drug

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designation exclusivity lasts for 10 years in the European Union. We have filed and intend to file for orphan drug designation for those diseases we target that meet the criteria for orphan drug exclusivity. For example, Actimmune has orphan drug exclusivity for severe, malignant osteopetrosis. Actimmune and pirfenidone have been granted orphan drug designation for the treatment of IPF by the FDA and EMEA. Although obtaining FDA and EMEA approval to market a product with orphan drug exclusivity can be advantageous, there can be no assurance that we will be able to maintain this designation for Actimmune or pirfenidone, nor can there be any assurance that we will be granted orphan drug designation for additional diseases or that orphan drug exclusivity will provide us with a material commercial advantage.

Research and Development

Our research and development expenses were $105.9 million, $103.8 million and $82.7 million for the years ended December 31, 2007, 2006 and 2005. Research and development expenses for 2005 have been adjusted to reflect the reclassification of Infergen related activities into discontinued operations.

Facilities

All of our facilities and long-lived assets are located in the United States. Our facilities currently consist of 55,898 square feet of office space located at our headquarters at 3280 Bayshore Boulevard, Brisbane, California. In December 2000, we entered into a ten-year lease for this facility. In May 2006, we entered into an amendment to our existing lease to expand our existing office space by approximately 15,000 square feet. The lease expires concurrently with our existing facility lease in March 2011. We believe that our facilities are adequate for our current needs, and that suitable additional or substitute space will be available in the future to replace our existing facility, if necessary, or accommodate expansion of our operations.

Employees

As of February 29, 2008, we had 132 full-time employees. Of the full-time employees, 93 were engaged in research and development and 39 were engaged in general and administrative positions. In connection with the sale of the Infergen product to Valeant and the significant reduction in our field-based IPF disease awareness activities in 2005, we eliminated approximately 160 employee positions. As a result of our decision to discontinue the INSPIRE trial in March 2007, we eliminated approximately 70 additional positions over the course of 2007. We believe that our relations with our employees are good.

Available Information

We file electronically with the United States Securities and Exchange Commission (“SEC”) our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We make available on our website at http://www.intermune.com, free of charge, copies of these reports as soon as reasonably practicable after filing these reports with, or furnishing them to, the SEC. You can also request copies of such documents by contacting our Investor Relations department at (415) 466-2242 or by sending an e-mail to ir@intermune.com.

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Executive Officers of the Registrant

The following table provides information regarding our executive officers and key employees as of February 29, 2008:

Name	Age		Title
Daniel G. Welch		50	Chief Executive Officer and President
Marianne T. Armstrong, Ph.D.		53	Chief Medical Affairs and Regulatory Officer
Lawrence M. Blatt, Ph.D.		46	Chief Scientific Officer
Williamson Z. Bradford, M.D., Ph.D.		46	Senior Vice President, Clinical Science and Biometrics
John C. Hodgman		53	Senior Vice President of Finance and Chief Financial Officer
Steven B. Porter, M.D., Ph.D.		51	Chief Medical Officer
Howard A. Simon, Esq., SPHR		49	Senior Vice President, Human Resources and Corporate Services and Associate General Counsel
Robin J. Steele, Esq.		52	Senior Vice President of Legal Affairs, General Counsel and Corporate Secretary

Daniel G. Welch.  Mr. Welch has served as our Chief Executive Officer and President and a member of our board of directors since September 2003. From March 2003 to September 2003, Mr. Welch served as a consultant to Warburg Pincus LLC, a global equity investor. From August 2002 to January 2003, Mr. Welch served as chairman and chief executive officer of Triangle Pharmaceuticals, Inc., a pharmaceutical company. From October 2000 to June 2002, Mr. Welch served as president of the pharmaceutical division of Elan Corporation, PLC, a pharmaceutical company. From September 1987 to August 2000, Mr. Welch served in various senior management roles at Sanofi-Synthelabo and its predecessor companies Sanofi and Sterling Winthrop, including vice president of worldwide marketing. From November 1980 to September 1987, Mr. Welch was with American Critical Care, a division of American Hospital Supply. He currently serves on the Board of Directors of one public company, Seattle Genetics, Inc. and is also a director of one private company. Mr. Welch holds a B.S. from the University of Miami and an MBA from the University of North Carolina.

Marianne T. Armstrong, Ph.D.  Dr. Armstrong has served as our Chief Medical Affairs and Regulatory Officer since January 2006. From January 2004 to January 2006, Dr. Armstrong served as our Senior Vice President, Regulatory/Medical Affairs and Drug Safety. From April 2002 to January 2004, Dr. Armstrong served as our Senior Vice President of Global Regulatory Operations and Corporate Compliance. From December 1999 to April 2002, Dr. Armstrong served as senior director of clinical development/regulatory affairs at Genentech, Inc., a pharmaceutical company. From July 1998 to November 1999, Dr. Armstrong served as senior director of clinical development at PathoGenesis Corporation, a pharmaceutical company. From May 1995 to July 1998, Dr. Armstrong served as department head of clinical affairs for Amgen Inc., a pharmaceutical company. From January 1981 to April 1995, Dr. Armstrong held management positions in clinical development at Alcon Laboratories, Solvay Pharmaceuticals and Parke-Davis/Warner Lambert, each a pharmaceutical company, and was a regional sales representative at American McGaw, a division of American Hospital Supply. Dr. Armstrong holds a Ph.D. and M.S. from Florida State University.

Lawrence M. Blatt, Ph.D.  Dr. Blatt has served as our Chief Scientific Officer since January 2006. Dr. Blatt served as our Senior Vice President of Preclinical and Applied Research from January 2004 to January 2006. From May 2002 to January 2004, Dr. Blatt served as our Vice President of Biopharmacology Research. From January 1998 to May 2002, Dr. Blatt served as vice president, research, at Ribozyme Pharmaceuticals., a pharmaceutical company. From August 1996 to January 1998, Dr. Blatt served as vice president, product development, at National Genetics Institute. From May 1984 to August 1996, Dr. Blatt was employed at Amgen Inc., a pharmaceutical company, most recently as product development team leader, interferons. Dr. Blatt holds a Ph.D. in Public Health Administration from the University of La Verne.

Williamson Z. Bradford, M.D, Ph.D.  Dr. Bradford has served as our Senior Vice President, Clinical Science and Biometrics since January 2008. From July 2001 to January 2008, Dr. Bradford held several positions including

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most recently Vice President of Clinical Science, responsible for our pulmonary development efforts. From 1999-2001, Dr. Bradford served as Director, Clinical Science at IntraBiotics Pharmaceuticals, Inc., a pharmaceutical company and from 1998-1999, Dr. Bradford served as Clinical Scientist at Genentech, Inc., a pharmaceutical company. Prior to 1998, Dr. Bradford held various academic and clinical positions including Assistant Professor of Medicine at the University of California, San Francisco (UCSF). Dr. Bradford holds an M.D. from the University of North Carolina at Chapel Hill, School of Medicine, a Ph.D. from the University of California, Berkeley, School of Public Health, and was trained in internal medicine and infectious diseases at UCSF. He is board-certified in infectious diseases and serves as an Assistant Clinical Professor of Medicine in the Division of Infectious Diseases at UCSF.

John C. Hodgman.  Mr. Hodgman has served as our Senior Vice President of Finance and Chief Financial Officer since August 2006. Prior to joining InterMune, Mr. Hodgman served as President and Chief Executive Officer of Aerogen, Inc. from June 2005 to October 2005 until its acquisition by Nektar. From August 1998 to December 2005, he served as Chairman, President and Chief Executive Officer of Cygnus, Inc. Mr. Hodgman also served as Vice President of Finance, Chief Financial Officer of Cygnus from August 1994 to August 1998 in addition to serving as President of Cygnus’ Diagnostic Division. He currently serves on the Board of Directors of two public companies, Immersion Corporation and AVI BioPharma, Inc. Mr. Hodgman holds a B.S. from Brigham Young University and an M.B.A. from the University of Utah.

Steven B. Porter, M.D., Ph.D.  Dr. Porter has served as our Chief Medical Officer since January 2006. Dr. Porter served as our Senior Vice President of Clinical Affairs from January 2004 to January 2006. From July 2001 to January 2004, Dr. Porter served as our Vice President of Clinical Research. From 1999 to June 2001, Dr. Porter was employed at IntraBiotics Pharmaceuticals, Inc., a pharmaceutical company, most recently as Senior Director, Clinical Science and Clinical Affairs. From 1997 to 1999, Dr. Porter served as Senior Director, Clinical Affairs at Shaman Pharmaceuticals, Inc., a pharmaceutical company and from 1996 to 1997, Dr. Porter served as Associate Director, Clinical Research at Bayer Corporation. Dr. Porter received his M.D., and Ph.D. from Vanderbilt University School of Medicine. He completed his residency in internal medicine at the University of California, San Francisco and his fellowship in infectious diseases at the University of California, San Francisco and Stanford University. He is currently an Assistant Clinical Professor of Medicine in the Division of Infectious Diseases at the University of California, San Francisco.

Howard A. Simon, Esq, SPHR.  Mr. Simon has served as our Senior Vice President, Human Resources and Corporate Services and Associate General Counsel since May 2004. Mr. Simon joined us from ABD Insurance and Financial Services, a financial services firm, where he was Senior Vice President, Human Resources & Associate Counsel from June 2003 to March 2004. Prior to ABD, Mr. Simon was the principal in HR & Employment Law Solutions, a consulting firm specializing in the biotechnology industry from February 2002 to June 2003. He served as Vice President, Human Resources at Maxygen, Inc. from 1999 to 2001. He holds an undergraduate degree from UC Berkeley, a law degree from the Boalt Hall School of Law (UC Berkeley), and a Master’s Degree from the Graduate Theological Union of Berkeley. Mr. Simon also is a certificated Senior Human Resources Professional.

Robin J. Steele, Esq.  Ms. Steele has served as our Senior Vice President, General Counsel and Corporate Secretary since May 2004. From 1998 to April 2003, Ms. Steele worked with Elan Pharmaceuticals, Inc., a global pharmaceutical company headquartered in Dublin, Ireland, most recently as Vice President, Commercial and Legal Affairs in San Diego. Prior to joining Elan, Ms. Steele was in private practice and served as outside counsel to a variety of life science and technology based companies in the Bay Area. Ms. Steele holds a B.A. in Biology from University of Colorado, Boulder, a J.D. from Hastings College of the Law, University of California, San Francisco, and a L.L.M. in Taxation from New York University School of Law.

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ITEM 1A.   RISK FACTORS

An investment in our common stock is risky. Stockholders and potential purchasers of shares of our stock should carefully consider the following risk factors, which hereby update those risks contained in the “Risk Factors” section of our Quarterly Report on Form 10-Q that was filed with the SEC on November 9, 2007, in addition to other information and risk factors in this Report. We are identifying these risk factors as important factors that could cause our actual results to differ materially from those contained in any written or oral forward-looking statements made by or on behalf of InterMune. We are relying upon the safe harbor for all forward-looking statements in this Report, and any such statements made by or on behalf of InterMune are qualified by reference to the following cautionary statements, as well as to those set forth elsewhere in this Report.

Risks Related to the Development of Our Products and Product Candidates

We may not succeed in our development efforts.

We commenced operations in 1998 and have incurred significant losses to date. Our revenue has been limited primarily to sales of Actimmune derived from physicians’ prescriptions for the off-label use of Actimmune in the treatment of IPF. In March 2007, we discontinued our development of Actimmune for treatment of IPF. Although we are developing pirfenidone for the treatment of IPF, pirfenidone will not be marketed for any diseases before late 2009 or early 2010, if at all.

We may fail to develop our products on schedule, or at all, for the reasons stated in “Risks Related to the Development of Our Products and Product Candidates”. If this were to occur, our costs would increase and our ability to generate revenue could be impaired.

Drug development is a long, expensive and uncertain process, and delay or failure can occur at any stage of any of our clinical trials.

To gain approval to market a product for the treatment of a specific disease, we must provide the FDA and foreign regulatory authorities with preclinical and clinical data that demonstrate the safety and statistically significant and clinically meaningful efficacy of that product for the treatment of the disease. Drug development is a long, expensive and uncertain process, and delay or failure can occur at any stage of any of our clinical trials. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in clinical trials, even after promising results in earlier preclinical or clinical trials. These setbacks have been caused by, among other things, preclinical findings made while clinical studies were underway and safety or efficacy observations made in clinical studies. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the results of clinical trials by other parties may not be indicative of the results in trials we may conduct. For example:

•  We recently terminated our development of Actimmune for patients with IPF as a result of our decision to discontinue the INSPIRE trial on the recommendation of the study’s independent DMC. We do not intend to conduct further development of Actimmune for the treatment of IPF. In addition, we reported that our exploratory Phase II clinical trial evaluating Actimmune for the potential treatment of advanced liver fibrosis caused by HCV in patients who have failed standard antiviral therapy failed to meet its primary endpoint. As a result, we do not intend to conduct further development of Actimmune for the treatment of liver fibrosis.

•  The results of the Shionogi Phase III clinical trial for pirfenidone may not be indicative of the results we will have in our CAPACITY trials. Despite the similarities of the trials, the trials are not the same and different trials can have different results as a result of even small differences in the trials, including differences in the patient population, the manner in which the trial is conducted and external factors.

•  The positive results of the Phase Ia SAD trial for ITMN-191 do not ensure that the Phase Ib MAD trial or subsequent trials for ITMN-191 will be successful at any dosing level.

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We do not know whether our planned clinical trials will begin on time, or at all, or will be completed on schedule, or at all.

The commencement or completion of any of our clinical trials may be delayed or halted for numerous reasons, including, but not limited to, the following:

•  the FDA or other regulatory authorities do not approve a clinical trial protocol or place a clinical trial on clinical hold;

•  patients do not enroll in clinical trials at the rate we expect;

•  patients experience adverse side effects;

•  patients withdraw or die during a clinical trial for a variety of reasons, including adverse events associated with the advanced stage of their disease and medical problems that may or may not be related to our products or product candidates;

•  the interim results of the clinical trial are inconclusive or negative;

•  our trial design, although approved, is inadequate to demonstrate safety and/or efficacy;

•  third-party clinical investigators do not perform our clinical trials on our anticipated schedule or consistent with the clinical trial protocol and good clinical practices, or other third-party organizations do not perform data collection and analysis in a timely or accurate manner;

•  our contract laboratories fail to follow good laboratory practices; or

•  sufficient quantities of the trial drug are not available.

Our development costs will increase if we have material delays in our clinical trials or if we need to perform more or larger clinical trials than planned. If there are any significant delays for any of our other current or planned clinical trials, our financial results and the commercial prospects for our products and product candidates will be harmed, and our prospects for profitability will be impaired.

Preclinical development is a long, expensive and uncertain process, and we may terminate one or more of our current preclinical development programs.

We may determine that certain preclinical product candidates or programs do not have sufficient potential to warrant the allocation of resources toward them. Accordingly, we may elect to terminate our programs for and, in certain cases, our licenses to, such product candidates or programs. If we terminate a preclinical program in which we have invested significant resources, we will have expended resources on a program that will not provide a full return on our investment and missed the opportunity to have allocated those resources to potentially more productive uses. For example, we terminated our license and collaboration agreement with Maxygen for the development of next-generation interferon gamma products effective July 2007.

We currently depend upon one collaboration partner, Roche, for support in the development and commercialization of our HCV product candidates. If our Collaboration Agreement with Roche terminates, our business and, in particular, the development and commercialization of our HCV product candidates would be significantly harmed.

On October 16, 2006, we entered into the Collaboration Agreement with Roche. Under the Collaboration Agreement, we agreed to collaborate with Roche to develop and commercialize products from our HCV protease inhibitor program. The Collaboration Agreement includes our lead candidate compound ITMN-191, which is in Phase Ib clinical trials. We also agreed to collaborate with Roche on a research program to identify, develop and commercialize novel second-generation HCV protease inhibitors. Assuming that we continue to successfully develop and commercialize these product candidates, under the terms of the Collaboration Agreement we are entitled to receive reimbursement and sharing of expenses incurred in connection with the development of these product candidates and additional milestone payments from Roche. As a result, Roche is providing 67% of the development costs for ITMN-191. In addition, if any of the product candidates we have licensed to Roche are

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approved for commercialization, we anticipate receiving proceeds in connection with the sales of such products. Roche may terminate the Collaboration Agreement in its entirety, in any country, subject to certain limitations for major countries, or with respect to any product or product candidate licensed under the Collaboration Agreement for any reason on six months’ written notice. If the Collaboration Agreement is terminated in whole or in part and we are unable to enter into similar arrangements with other collaborators, our business could be materially adversely affected.

If Roche fails to perform its obligations under the Collaboration Agreement, we may not be able to successfully commercialize our product candidates licensed to Roche and the development and commercialization of our product candidates could be delayed, curtailed or terminated.

Under the Collaboration Agreement, if marketing authorization is obtained, we have the right to co-promote with Roche our lead candidate compound ITMN-191 and/or any other product candidates licensed to Roche, as applicable, in the United States and Roche has the right to market and sell ITMN-191 and/or any other product candidates licensed to Roche throughout the rest of the world. Roche is also responsible for the manufacturing of the global commercial supply for ITMN-191 and/or any other product candidates licensed to Roche. As a result, we will depend upon the success of the efforts of Roche to manufacture, market and sell ITMN-191 and/or any other product candidates, if approved. However, we have little to no control over the resources that Roche may devote to such manufacturing and commercialization efforts and, if Roche does not devote sufficient time and resources to such efforts, we may not realize the commercial benefits that we anticipate, and our results of operations may be adversely affected. In addition, if Roche were to terminate the Collaboration Agreement, we would not have manufacturing resources to manufacture ITMN-191, and we would need to develop those resources or contract with one or more third party manufacturers, which we may be unable to do at a favorable cost, or at all.

If we materially breach the representations and warranties we made to Roche under the Collaboration Agreement or any of our other contractual obligations, Roche has the right to seek indemnification from us for damages it suffers as a result of such breach. These amounts could be substantial.

We have agreed to indemnify Roche and its affiliates against losses suffered as a result of our material breach of representations and warranties and our other obligations in the Collaboration Agreement. If one or more of our representations and warranties were not true at the time we made them to Roche, we would be in breach of the Collaboration Agreement. In the event of a breach by us, Roche has the right to seek indemnification from us for damages suffered by Roche as a result of such breach. The amounts for which we could become liable to Roche may be substantial.

Roche has the right under certain circumstances to market and sell products that compete with our product candidates that we have licensed to Roche, and any competition by Roche could have a material adverse effect on our business.

Roche has agreed that, except as set forth in the Collaboration Agreement, it will not develop or commercialize certain specific competitive products during the exclusivity period, which extends until October 2011 at the latest. However if neither ITMN-191 nor any other product candidate is in clinical development, Roche may develop or commercialize such competitive products during the exclusivity period in accordance with the Collaboration Agreement. However, if they undertake such development or commercialization, we will have the right to terminate the Collaboration Agreement. Accordingly, despite the exclusivity period, Roche may under certain circumstances develop or commercialize competitive products. Roche has significantly greater financial, technical and human resources than we have and they are better equipped to discover, develop, manufacture and commercialize products. In addition, Roche has more extensive experience than we have in preclinical studies and clinical trials, obtaining regulatory approvals and manufacturing and marketing pharmaceutical products. In the event that Roche competes with us, our business could be materially and adversely affected.

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Risks Related to Government Regulation and Approval of our Products and Product Candidates

If we fail to comply or have in the past failed to comply with FDA or other government regulations prohibiting the promotion of off-label uses and the promotion of products for which marketing approval has not been obtained, it could result in regulatory enforcement action by the FDA or other governmental authorities, including a substantial fine, either of which could harm our business.

Physicians may prescribe commercially available drugs for uses that are not described in the product’s labeling and that differ from those uses tested by us and approved by the FDA. Such off-label uses are common across medical specialties. For example, even though the FDA has not approved the use of Actimmune for the treatment of IPF, we are aware that physicians are, and have in the past, prescribing Actimmune for the treatment of IPF. Substantially all of our Actimmune revenue is derived from physicians’ prescriptions for off-label use for IPF. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA and other governmental agencies do, however, restrict manufacturers’ communications on the subject of off-label use. Companies may not promote FDA approved drugs for off-label uses. Accordingly, we may not promote Actimmune for the treatment of IPF. The FDA and other governmental authorities actively enforce regulations prohibiting promotion of off-label uses. The federal government has levied large civil and criminal fines against manufacturers for alleged improper promotion, including us in October 2006 and the FDA has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which certain promotional conduct is changed or curtailed. We are aware of many instances in which the Office of the Inspector General of the FDA has sought and secured criminal penalties and a corporate integrity agreement against pharmaceutical manufacturers requiring payment of substantial fines and monitoring of certain promotional activities to ensure compliance with FDA regulations. We engage in medical education activities that are subject to scrutiny under the FDA’s regulations relating to off-label promotion. While we believe we are currently in compliance with these regulations, the regulations are subject to varying interpretations, which are evolving.

If the FDA or any other governmental agency initiates an enforcement action against us and it is determined that we violated prohibitions relating to off-label promotion in connection with past or future activities, we could be subject to civil and/or criminal fines and sanctions such as those noted above in this risk factor, any of which would have an adverse effect on our revenue, business and financial prospects.

In addition, some of the agreements pursuant to which we license our products, including our license agreement relating to Actimmune, contain provisions requiring us to comply with applicable laws and regulations, including the FDA’s restriction on the promotion of FDA approved drugs for off-label uses. As a result, if it were determined that we violated the FDA’s rules relating to off-label promotion in connection with our marketing of Actimmune, we may be in material breach of our license agreement for Actimmune. If we failed to cure a material breach of this license agreement, we could lose our rights to certain therapeutic uses for Actimmune under the agreement.

If the FDA imposes significant restrictions or requirements related to our products for any disease, or withdraws its approval of any of our products for any disease for which it has been approved, our revenue would decline.

The FDA and foreign regulatory authorities may impose significant restrictions on the use or marketing of our products or impose additional requirements for post-approval studies. Later discovery of previously unknown problems with any of our products or their manufacture may result in further restrictions, including withdrawal of the product from the market. In this regard, the FDA has conducted routine inspections of our manufacturing contractors, and some were issued a standard “notice of observations”. While we believe that all of these observations are being appropriately corrected, failure to correct any deficiency could result in manufacturing delays. Our existing approvals for diseases, and any new approval for any other disease that we target, if granted, could be withdrawn for failure to comply with regulatory requirements or to meet our post-approval commitments. For example, we have ongoing Phase IV post-marketing commitments to the FDA relating to Actimmune for the treatment of osteopetrosis. Our failure to adequately address these ongoing Phase IV commitments could result in a regulatory action or restriction, such as withdrawal of the relevant product’s approval by the FDA. If approval for a disease is withdrawn, we could no longer market the affected product for that disease. In addition, governmental

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authorities could seize our inventory of such product, or force us to recall any product already in the market, if we fail to comply with FDA or other governmental regulations.

For a description of restrictions relating to the off-label promotion of our products, please see the risk factor titled, “If we fail to comply or have in the past failed to comply with FDA or other government regulations prohibiting the promotion of off-label uses and the promotion of products for which marketing approval has not been obtained, it could result in regulatory enforcement action by the FDA or other governmental authorities, including a substantial fine, either of which could harm our business” above.

If our clinical trials fail to demonstrate to the FDA and foreign regulatory authorities that any of our products or product candidates are safe and effective for the treatment of particular diseases, the FDA and foreign regulatory authorities may require us to conduct additional clinical trials or may not grant us marketing approval for such products or product candidates for those diseases.

Our failure to adequately demonstrate the safety and effectiveness of any of our products or product candidates for the treatment of particular diseases may delay or prevent our receipt of the FDA’s and foreign regulatory authorities’ approval and, ultimately, may prevent commercialization of our products and product candidates for those diseases. The FDA and foreign regulatory authorities have substantial discretion in deciding whether, based on the benefits and risks in a particular disease, any of our products or product candidates should be granted approval for the treatment of that particular disease. Even if we believe that a clinical trial has demonstrated the safety and statistically significant efficacy of any of our products or product candidates for the treatment of a disease, the results may not be satisfactory to the FDA or foreign regulatory authorities. Preclinical and clinical data can be interpreted by the FDA and foreign regulatory authorities in different ways, which could delay, limit or prevent regulatory approval. Our CAPACITY trials are being conducted without a Special Protocol Assessment, so there can be no assurance that, even if we believe the results of the trials are favorable, the results will provide a sufficient basis in the view of the FDA for the FDA to grant regulatory approval of a new drug application for pirfenidone for the treatment of IPF. If regulatory delays are significant or regulatory approval is limited or denied altogether, our financial results and the commercial prospects for those of our products or product candidates involved will be harmed, and our prospects for profitability will be impaired.

The pricing and profitability of our products may be subject to control by the government and other third-party payors.

The continuing efforts of governmental and other third-party payors to contain or reduce the cost of healthcare through various means may adversely affect our ability to successfully commercialize our products. For example, in most foreign markets, the pricing and/or profitability of prescription pharmaceuticals are subject to governmental control. In the United States, we expect that there will continue to be federal and state proposals to implement similar governmental controls. For example, federal legislation was enacted on December 8, 2003 that provides a new Medicare prescription drug benefit which began in 2006 and which mandates other reforms. Although we cannot predict the full effects on our business of the implementation of this program, it is possible that the new Medicare benefit, which will be managed by private health insurers, pharmacy benefit managers and other managed care organizations, will result in decreased reimbursement for prescription drugs, which may further exacerbate industry-wide pressure to reduce the prices charged for prescription drugs. In addition, increasing emphasis on managed care in the United States will continue to put pressure on the pricing of pharmaceutical products. These new and any future cost-control initiatives could decrease the price that we would receive for Actimmune or any other products that we may develop in the future, which would reduce our revenue and potential profitability.

Our failure or alleged failure to comply with anti-kickback and false claims laws could result in civil and/or criminal sanctions and/or harm our business.

We are subject to various federal and state laws pertaining to health care “fraud and abuse”, including anti-kickback laws and false claims laws. Subject to certain exceptions, the anti-kickback laws make it illegal for a prescription drug manufacturer to knowingly and willfully solicit, offer, receive or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. The federal government has published regulations that identify “safe harbors” or exemptions for certain payment

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arrangements that do not violate the anti-kickback statutes. Due to the breadth of the statutory provisions and the absence of guidance in the form of regulations or court decisions addressing some of our practices, it is possible that our practices might be challenged under anti-kickback or similar laws. False claims laws prohibit anyone from knowingly presenting, or causing to be presented, for payment to third party payors (including Medicare and Medicaid) claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed or claims for medically unnecessary items or services. Our activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting of Medicaid rebate information and other information affecting federal and state and third-party payment for our products, and the sale and marketing of our products, could become subject to scrutiny under these laws.

In addition, pharmaceutical companies have been prosecuted under the False Claims Act in connection with their “off-label” promotion of drugs. For information regarding allegations with respect to “off-label” promotion by us, please see the risk factor titled “If we fail to comply or have in the past failed to comply with FDA or other government regulations prohibiting the promotion of off-label uses and the promotion of products for which marketing approval has not been obtained, it could result in regulatory enforcement action by the FDA or other governmental authorities, including a substantial fine, either of which could harm our business” above.

If the government were to allege that we were, or convict us of, violating these laws, there could be a material adverse effect on us, including a substantial fine, decline in our stock price, or both. Our activities could be subject to challenge for the reasons discussed above and due to the broad scope of these laws and the increasing attention being given to them by law enforcement authorities.

Risks Related to Manufacturing and Our Dependence on Third Parties

The manufacturing and manufacturing development of our products and product candidates present technological, logistical and regulatory risks, each of which may adversely affect our potential revenue.

The manufacturing and manufacturing development of pharmaceuticals, and, in particular, biologicals, are technologically and logistically complex and heavily regulated by the FDA and other governmental authorities. The manufacturing and manufacturing development of our products and product candidates present many risks, including, but not limited to, the following:

•  It may not be technically feasible to scale up an existing manufacturing process to meet demand or such scale-up may take longer than anticipated; and

•  Failure to comply with strictly enforced good manufacturing practices regulations and similar foreign standards may result in delays in product approval or withdrawal of an approved product from the market. For example, the FDA has conducted routine inspections of our manufacturing contractors, and some were issued a standard “notice of observations.” Failure to correct any deficiency could result in manufacturing delays.

Any of these factors could delay clinical trials, regulatory submissions and/or commercialization of our products for particular diseases, interfere with current sales, entail higher costs and result in our being unable to effectively sell our products.

Our manufacturing strategy, which relies on third-party manufacturers, exposes us to additional risks as a result of which we may lose potential revenue.

We do not have the resources, facilities or experience to manufacture any of our products or product candidates ourselves. Completion of our clinical trials and commercialization of our products requires access to, or development of, manufacturing facilities that meet FDA standards to manufacture a sufficient supply of our products. The FDA must approve facilities that manufacture our products for commercial purposes, as well as the manufacturing processes and specifications for the product. We depend on third parties for the manufacture of our product candidates for preclinical and clinical purposes, and we rely on third parties with FDA approved manufacturing facilities for the manufacture of Actimmune for commercial purposes. These third parties include BI, and Catalent Pharma Solutions, or Catalent. We have a long-term supply contract with BI for Actimmune and an agreement with Catalent for the manufacture of the drug product for pirfenidone. In addition, under our

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Collaboration Agreement with Roche, we are dependent upon Roche for the manufacture of ITMN-191. However, if we do not perform our obligations under these agreements, these agreements may be terminated.

Our manufacturing strategy for our products and product candidates presents many risks, including, but not limited to, the following:

•  If market demand for our products is less than our purchase obligations to our manufacturers, we may incur substantial penalties and substantial inventory write-offs.

•  Manufacturers of our products are subject to ongoing periodic inspections by the FDA and other regulatory authorities for compliance with strictly enforced good manufacturing practices regulations and similar foreign standards, and we do not have control over our third-party manufacturers’ compliance with these regulations and standards.

•  When we need to change third party manufacturers of a particular pharmaceutical product, the FDA and foreign regulatory authorities must approve the new manufacturers’ facilities and processes prior to our use or sale of products it manufactures for us. This requires demonstrated compatibility of product, process and testing and compliance inspections. Delays in transferring manufacturing technology between third parties could delay clinical trials, regulatory submissions and commercialization of our product candidates.

•  Our manufacturers might not be able or refuse to fulfill our commercial or clinical trial needs, which would require us to seek new manufacturing arrangements and may result in substantial delays in meeting market or clinical trial demands. For example, our current agreement with BI does not impose any obligation on BI to reserve a minimum annual capacity for the production of Actimmune, which could impair our ability to obtain product from them in a timely fashion.

•  We may not have intellectual property rights, or may have to share intellectual property rights, to any improvements in the manufacturing processes or new manufacturing processes for our products.

•  Our product costs may increase if our manufacturers pass their increasing costs of manufacture on to us.

•  If third-party manufacturers do not successfully carry out their contractual duties or meet expected deadlines, we will not be able to obtain or maintain regulatory approvals for our products and product candidates and will not be able to successfully commercialize our products and product candidates. In such event, we may not be able to locate any necessary acceptable replacement manufacturers or enter into favorable agreements with such replacement manufacturers in a timely manner, if at all.

•  If our agreement with a third-party manufacturer expires, we may not be able to renegotiate a new agreement with that manufacturer on favorable terms, if at all. If we cannot successfully complete such renegotiation, we may not be able to locate any necessary acceptable replacement manufacturers or enter into favorable agreements with such replacement manufacturers in a timely manner, if at all.

Any of these factors could delay clinical trials, regulatory submissions or commercialization of our products for particular diseases, interfere with current sales, entail higher costs and result in our being unable to effectively sell our products.

We rely on third parties to conduct clinical trials for our products and product candidates, and those third parties may not perform satisfactorily.

If our third-party contractors do not successfully carry out their contractual duties or meet expected deadlines, we may be delayed in or prevented from obtaining regulatory approvals for our products and product candidates, and may not be able to successfully commercialize our products and product candidates for targeted diseases. We do not have the ability to independently conduct clinical trials for all of our products and product candidates, and we rely on third parties such as contract research organizations, medical institutions and clinical investigators to perform this function. Our ability to monitor and audit the performance of these third parties is limited. If these third parties do not perform satisfactorily, our clinical trials may be extended or delayed, resulting in potentially substantial cost increases to us and other adverse impacts on our product development efforts. We may not be able to locate any necessary acceptable replacements or enter into favorable agreements with them, if at all.

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Risks Related to the Commercialization of Our Products and Product Candidates

If the specialty pharmacies and distributors that we rely upon to sell our products fail to perform, our business may be adversely affected.

Our success depends on the continued customer support efforts of our network of specialty pharmacies and distributors. A specialty pharmacy is a pharmacy that specializes in the dispensing of injectable or infused medications for complex or chronic conditions, which often require a high level of patient education and ongoing management. The use of specialty pharmacies and distributors involves certain risks, including, but not limited to, risks that these specialty pharmacies and distributors will:

•  not provide us with accurate or timely information regarding their inventories, the number of patients who are using Actimmune or Actimmune complaints;

•  not effectively sell or support Actimmune;

•  reduce their efforts or discontinue to sell or support Actimmune;

•  not devote the resources necessary to sell Actimmune in the volumes and within the time frames that we expect;

•  be unable to satisfy financial obligations to us or others; or

•  cease operations.

Any such failure may result in decreased product sales and lower product revenue, which would harm our business.

Even if regulatory authorities approve our products or product candidates for the treatment of the diseases we are targeting, our products may not be marketed or commercially successful.

Our products and product candidates are expensive, and we anticipate that the annual cost for treatment for each of the diseases for which we are seeking approval will be significant. These costs will vary for different diseases based on the dosage and method of administration. Accordingly, we may decide not to market any of our products or product candidates for an approved disease because we believe that it may not be commercially successful. Market acceptance of and demand for our products and product candidates will depend on many factors, including, but not limited to:

•  cost of treatment;

•  pricing and availability of alternative products;

•  ability to obtain third-party coverage or reimbursement for our products or product candidates to treat a particular disease;

•  perceived efficacy relative to other available therapies;

•  shifts in the medical community to new treatment paradigms or standards of care;

•  relative convenience and ease of administration; and

•  prevalence and severity of adverse side effects associated with treatment.

If third-party payors do not provide coverage or reimburse patients for our products, our revenue and prospects for profitability will suffer.

Our ability to commercialize our products or product candidates for particular diseases is highly dependent on the extent to which coverage and reimbursement for our products is available from:

•  private health insurers, including managed care organizations;

•  governmental payors, such as Medicaid, the U.S. Public Health Service Agency or the Veterans’ Administration; and

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•  other third-party payors.

Significant uncertainty exists as to the coverage and reimbursement status of pharmaceutical products, particularly with respect to products that are prescribed by physicians for off-label use. If governmental and other third-party payors do not provide adequate coverage and reimbursement levels for our products, market acceptance of our products will be reduced, and our sales will suffer. Many third-party payors provide coverage or reimbursement only for FDA approved indications. If any large or many third-party payors decide to deny reimbursement for Actimmune used to treat IPF, sales of Actimmune would decline, and our revenue would suffer.

Often, third-party payors make the decision to reimburse an off-label prescription based on whether that product has a compendia listing. A drug compendia is produced by a compendia body, such as the United States Pharmacopoeia Drug Information, that lists approved indications that a product has received from the FDA. The compendia bodies also evaluate all of the clinical evidence to determine whether an off-label use of a product should be listed in the compendia as medically appropriate. A compendia listing of an off-label use is a condition typically required by third-party payors, such as Medicare and private payors, to cover that use. Applications for a compendia listing are often based upon the publication of certain data in peer reviewed journals whose publication is often outside the applicant’s control. We are not seeking to achieve acceptance by a compendia body for Actimmune for the treatment of IPF. As a result, additional third-party payors may decide to deny reimbursement for Actimmune for the treatment of IPF and fewer physicians may prescribe Actimmune for such treatment. If either of these were to occur, sales of Actimmune would decline and our revenue would suffer.

Some third-party payors have denied coverage for Actimmune for the treatment of IPF for a variety of reasons, including the cost of Actimmune, the fact that IPF is not an FDA approved indication for Actimmune or a third-party payor’s assessment that a particular patient’s case of IPF has advanced to a stage at which treatment with Actimmune would not have a significant effect. We believe that approximately 60-70% of the patients who seek coverage for Actimmune for the treatment of IPF from private third-party payors are able to obtain coverage. While coverage trends have not changed significantly in the last few years, major health plans could further restrict coverage or adopt a policy of no coverage since we have discontinued the INSPIRE trial and have no further development plans for Actimmune for the treatment of IPF.

Medicare generally does not provide coverage for drugs, like Actimmune, that are administered by injection in the home. Moreover, in connection with the Medicare Prescription Drug Improvement and Modernization Act of 2003, Medicare has recently discussed the possibility of refusing to provide coverage for products for a specific indication unless the product has been approved by the FDA for that indication. If Medicare were to make a formal decision not to cover the off-label use of products, it may have a negative impact on the willingness of private third-party payors to provide coverage for the off-label use of products such as Actimmune.

Our supply agreement with BI may restrict our ability to establish alternative sources of Actimmune in a timely manner or at an acceptable cost, which may cause us to be unable to meet demand for Actimmune and to lose potential revenue.

Our new supply agreement with BI provides that BI is our exclusive source of supply for Actimmune, except under certain circumstances. Under the terms of the supply agreement, BI is not required to commit to reserving any minimum annual capacity for the manufacture of Actimmune and we cannot seek a secondary source to manufacture Actimmune until BI has indicated to us its inability or unwillingness to meet our requirements. If we are delayed in establishing a secondary supply source for Actimmune, or cannot do so at an acceptable cost, we may suffer a shortage of commercial supply of Actimmune or a higher cost of product, either of which would have a material and adverse effect on our revenue, business and financial prospects.

The activities of competitive drug companies, or others, may limit our products’ revenue potential or render them obsolete.

Our commercial opportunities will be reduced or eliminated if our competitors develop or market products that, compared to our products or product candidates:

•  are more effective;

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•  have fewer or less severe adverse side effects;

•  are better tolerated;

•  have better patient compliance;

•  receive better reimbursement terms;

•  are more accepted by physicians;

•  are more adaptable to various modes of dosing;

•  have better distribution channels;

•  are easier to administer; or

•  are less expensive.

Even if we are successful in developing effective drugs, our products may not compete effectively with our competitors’ current or future products. We expect that pirfenidone, if approved, may compete with two products that are being developed for the treatment of IPF, although the products are currently-available and approved for other indications. Tracleer, marketed by Actelion, is in Phase III clinical trials for IPF and is the most advanced competitor to pirfenidone. Tracleer is currently approved for pulmonary arterial hypertension. Gleevec, marketed by Novartis, is a product currently approved for different cancer indications that is in Phase II clinical trials for IPF. We expect that ITMN-191, if approved, may compete with telaprevir, which is being developed by Vertex Pharmaceuticals, SCH 503034, which is being developed by Schering-Plough, and TMC 435450, which is being developed by Tibotec Pharmaceuticals and Medivir. Telaprevir, SCH-503034 and TMC 435450 are in Phase II clinical trials. Our competitors include larger, more established, fully integrated pharmaceutical companies and biotechnology companies that have substantially greater capital resources, existing competitive products, larger research and development staffs and facilities, greater experience in drug development and in obtaining regulatory approvals and greater marketing capabilities than we do. For more information, see “Item 1. Business-Competition.”

Risks Related to Our Intellectual Property Rights

We may not be able to obtain, maintain and protect certain proprietary rights necessary for the development and commercialization of our products or product candidates.

Our commercial success will depend in part on obtaining and maintaining patent protection on our products and product candidates and successfully defending these patents against third-party challenges. Our ability to commercialize our products will also depend in part on the patent positions of third parties, including those of our competitors. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date. Accordingly, we cannot predict with certainty the scope and breadth of patent claims that may be afforded to other companies’ patents. We could incur substantial costs in litigation if we are required to defend against patent suits brought by third parties, or if we initiate suits to protect our patent rights.

The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:

•  we were the first to make the inventions covered by each of our pending patent applications;

•  we were the first to file patent applications for these inventions;

•  others will not independently develop similar or alternative technologies or duplicate any of our technologies;

•  any of our pending patent applications will result in issued patents;

•  any of our issued patents or those of our licensors will be valid and enforceable;

•  any patents issued to us or our collaborators will provide a basis for commercially viable products or will provide us with any competitive advantages or will not be challenged by third parties;

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•  we will develop additional proprietary technologies that are patentable; or

•  the patents of others will not have a material adverse effect on our business.

Others have filed and in the future may file patent applications covering uses and formulations of interferon gamma-1b, a pegylated version of this product, and other products in our development program. If a third party has been or is in the future issued a patent that blocked our ability to commercialize any of our products, alone or in combination, for any or all of the diseases that we are targeting, we would be prevented from commercializing that product or combination of products for that disease or diseases unless we obtained a license from the patent holder. We may not be able to obtain such a license to a blocking patent on commercially reasonable terms, if at all. If we cannot obtain, maintain and protect the necessary proprietary rights for the development and commercialization of our products or product candidates, our business and financial prospects will be impaired.

Over time, we will lose our ability to rely upon the intellectual property we currently own to prevent competing products, and after 2011 pirfenidone will only be protected by orphan drug designation, which may impair our ability to generate revenue.

We have licensed certain patents relating to interferon gamma-1b, the active ingredient in Actimmune, from Genentech. A U.S. patent relating to the composition of interferon gamma-1b expires in 2014. Other material U.S. patents relating to interferon gamma-1b expire between 2009 and 2013. We also previously purchased certain patents relating to interferon gamma analogs from Amgen in 2002 including two U.S. patents that issued August 30, 2005 which will expire on August 30, 2022. When these various patents expire, we will be unable to use these patents to try to block others from marketing interferon gamma-1b in the United States.

In 2002, we licensed from Marnac and its co-licensor, KDL, their worldwide rights, excluding Japan, Korea and Taiwan, to develop and commercialize pirfenidone for all fibrotic diseases, including the use of pirfenidone for the treatment of IPF. Effective November 21, 2007, we entered into asset purchase agreements with Marnac and KDL whereby we effectively terminated the prior license agreement by purchasing, among other things, the pirfenidone-related assets covered by such prior license agreement. Among the patents we purchased is U.S. Patent No. 5,310,562. After this U.S. patent expires in 2011, we will not be able to use this patent to block others from marketing pirfenidone for fibrotic disorders, including IPF. The FDA and the EMEA granted pirfenidone orphan drug designation for the treatment of IPF in 2004, which gives us seven years of market exclusivity for the use of pirfenidone for the treatment of IPF from the date that pirfenidone is approved, if it is approved. The pirfenidone molecule itself has no composition of matter patent protection in the United States or elsewhere. Therefore, we have no ability to prevent others from commercializing pirfenidone for (i) IPF after the orphan drug designation exclusivity period ends, (ii) uses covered by other patents held by third parties, or (iii) other uses in the public domain for which there is no patent protection. We are primarily relying on exclusivity granted from orphan drug designation in IPF to protect pirfenidone from competitors in this indication. The exclusivity period in the United States begins on first NDA approval for this product in IPF and ends seven years thereafter. In addition, a third party could develop pirfenidone for another non-fibrotic disease that also qualifies for orphan drug designation and could be granted seven years exclusivity in that indication. Additionally, in the European Union we have been granted orphan drug designation for pirfenidone for the treatment of IPF by the EMEA, which provides for ten years of market exclusivity in the European Union following first marketing approval in the European Union. We cannot provide any assurance that we will be able to maintain this orphan drug designation.

Once our patents expire, we will be subject to competition from third parties who will be able to use the intellectual property covered by these patents, which could impair our ability to generate revenue.

If we breach our license agreement with Genentech, we may lose our ability to develop and market Actimmune.

We license certain patents and trade secrets relating to Actimmune from Genentech. If we breach this agreement with Genentech, they may be able to terminate the respective license, and we would have no further rights to utilize the licensed patents or trade secrets to develop and market Actimmune, which could adversely affect our revenue and financial prospects.

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Since the pirfenidone molecule is in the public domain and the patents we acquired from Marnac and KDL are limited to specific methods of use of pirfenidone, we may be subject to competition from third party products with the same active pharmaceutical ingredients as our product candidate.

Composition of matter patent protection for pirfenidone molecule has expired in the United States and elsewhere. Others have obtained patents in the United States and elsewhere relating to methods of use of pirfenidone for the treatment of certain diseases. In 2002, we licensed from Marnac and its co-licensor, KDL, their worldwide rights, excluding Japan, Korea and Taiwan, to develop and commercialize pirfenidone for all fibrotic diseases, including the use of pirfenidone for the treatment of IPF. Effective November 21, 2007, we entered into asset purchase agreements with Marnac and KDL whereby we effectively terminated the prior license agreement by purchasing, among other things, the pirfenidone-related assets covered by such prior license agreement. It is possible that a third party may develop pirfenidone for the treatment of certain diseases that are not covered by patents we had acquired. If such third party were to develop pirfenidone for a use that is not covered by any patents and such third parties successfully developed pirfenidone for non-fibrotic indications, we could face competition from third party products with the same active pharmaceutical ingredient as our product candidate. If a third party were to obtain FDA approval for the use of pirfenidone for an indication before we did, such third party would be first to market and could establish the price for pirfenidone. This could adversely impact our ability to implement our pricing strategy for the product and may limit our ability to maximize the commercial potential of pirfenidone. The presence of a lower priced competitive product with the same active pharmaceutical ingredients as our product could lead to use of the competitive product for our anti-fibrotic indications. This could lead to pricing pressure for pirfenidone, which would adversely affect our ability to generate revenue from the sale of pirfenidone for anti-fibrotic indications.

Litigation or third-party claims of intellectual property infringement could require us to spend substantial time and money and could adversely affect our ability to develop and commercialize products.

Our commercial success depends in part on our ability and the ability of our collaborators to avoid infringing patents and proprietary rights of third parties. Third parties may accuse us or our collaborators of employing their proprietary technology in our products, or in the materials or processes used to research or develop our products, without authorization. Any legal action against our collaborators or us claiming damages and/or seeking to stop our commercial activities relating to the affected products, materials and processes could, in addition to subjecting us to potential liability for damages, require our collaborators or us to obtain a license to continue to utilize the affected materials or processes or to manufacture or market the affected products. We cannot predict whether we, or our collaborators, would prevail in any of these actions or whether any license required under any of these patents would be made available on commercially reasonable terms, if at all. If we are unable to obtain such a license, we, or our collaborators, may be unable to continue to utilize the affected materials or processes or manufacture or market the affected products or we may be obligated by a court to pay substantial royalties and/or other damages to the patent holder. Even if we are able to obtain such a license, the terms of such a license could substantially reduce the commercial value of the affected product or products and impair our prospects for profitability. Accordingly, we cannot predict whether or to what extent the commercial value of the affected product or products or our prospects for profitability may be harmed as a result of any of the liabilities discussed above. Furthermore, infringement and other intellectual property claims, with or without merit, can be expensive and time-consuming to litigate and can divert management’s attention from our core business.

If the owners of the intellectual property we license fail to maintain the intellectual property, we may lose our rights to develop our products or product candidates.

We generally do not control the patent prosecution of technology that we license from others. Accordingly, we are unable to exercise the same degree of control over this intellectual property as we would exercise over technology that we own. For example, if Genentech fails to maintain the intellectual property licensed to us, we may lose our rights to develop and market certain therapeutic uses for Actimmune and may be forced to incur substantial additional costs to maintain or protect the intellectual property or to compel Genentech to do so.

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If our employees, consultants and vendors do not comply with their confidentiality agreements or our trade secrets otherwise become known, our ability to generate revenue and profits may be impaired.

We rely on trade secrets to protect technology where it is possible that patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. We protect these rights mainly through confidentiality agreements with our corporate partners, employees, consultants and vendors. These agreements generally provide that all confidential information developed or made known to an individual or company during the course of their relationship with us will be kept confidential and will not be used or disclosed to third parties except in specified circumstances. In the case of employees and consultants, our agreements generally provide that all inventions made by the individual while engaged by us will be our exclusive property. We cannot be certain that these parties will comply with these confidentiality agreements, that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known or be independently discovered by our competitors. If our trade secrets become known, we may lose a competitive advantage and our ability to generate revenue may therefore be impaired.

By working with corporate partners, research collaborators and scientific advisors, we are subject to disputes over intellectual property, and our ability to obtain patent protection or protect proprietary information may be impaired.

Under some of our research and development agreements, inventions discovered in certain cases become jointly owned by our corporate partner and us and in other cases become the exclusive property of one of us. It can be difficult to determine who owns a particular invention, and disputes could arise regarding those inventions. These disputes could be costly and could divert management’s attention from our business. Our research collaborators and scientific advisors have some rights to publish our data and proprietary information in which we have rights. Such publications may impair our ability to obtain patent protection or protect our proprietary information, which could impair our ability to generate revenue.

Risks Related to Our Financial Results and Other Risks Related to Our Business

Revenue from the sale of Actimmune has been declining and is expected to decline further.

Physicians may choose not to prescribe Actimmune or provide fewer patient referrals for Actimmune for the treatment of IPF for a variety of reasons, some of which are because:

•  Actimmune is not approved by the FDA for the treatment of IPF, and we therefore are unable to market or promote Actimmune for the treatment of IPF;

•  in our initial and Phase III INSPIRE clinical trials, Actimmune failed to meet the primary and secondary endpoints;

•  physicians prefer to enroll their patients in clinical trials for the treatment of IPF;

•  Actimmune does not have a drug compendia listing, often a criterion used by third-party payors to decide whether or not to reimburse off-label prescriptions;

•  physicians’ patients are unable to receive or lose reimbursement from a third-party reimbursement organization;

•  physicians are not confident that Actimmune has a clinically significant treatment effect for IPF; or

•  a competitor’s product shows a clinically significant treatment effect for IPF.

Net sales of Actimmune for the year ended December 31, 2007 were $53.4 million, compared to $90.3 million for the year ended December 31, 2006, a decline of 41%. If physicians do not prescribe Actimmune for the treatment of IPF for the above reasons or any other reasons, our Actimmune revenue will continue to decline. In light of the failure of the INSPIRE clinical trial, we expect that net sales of Actimmune for the year ended December 31, 2008 will continue to decline.

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Negative conditions in the global credit markets may impair the liquidity of a portion of our investment portfolio.

Our investment securities consist of high-grade auction rate securities, corporate debt securities and government agency securities. As of December 31, 2007, our short-term investments included $27.0 million of high-grade (AAA rated) auction rate securities issued by state municipalities. Our auction rate securities are debt instruments with a long-term maturity and an interest rate that is reset in short intervals through auctions. The recent conditions in the global credit markets have prevented some investors from liquidating their holdings of auction rate securities because the amount of securities submitted for sale has exceeded the amount of purchase orders for such securities. If there is insufficient demand for the securities at the time of an auction, the auction may not be completed and the interest rates may be reset to predetermined higher rates. Although to date, we have not recorded any realized gains or losses on our investment portfolio or recognized any significant unrealized gains or losses on investments, when auctions for these securities fail, the investments may not be readily convertible to cash until a future auction of these investments is successful or they are redeemed or mature. If the credit ratings of the security issuers deteriorate and any decline in market value is determined to be other-than-temporary, we would be required to adjust the carrying value of the investment through an impairment charge. Through March 4, 2008, auctions failed for $24.0 million of our auction rate securities and as a result our ability to liquidate our investment and fully recover the carrying value of our investment in the near term may be limited or not exist.

If we fail to obtain the capital necessary to fund our operations, we will be unable to successfully execute our business plan.

We believe our existing cash, cash equivalents and available-for-sale securities, together with the anticipated net proceeds of this offering and anticipated cash flows from our operations, will be sufficient to fund our operating expenses, settlement with the government, debt obligations and capital requirements under our current business plan through at least the end of 2008. However, our current plans and assumptions may change, and our capital requirements may increase in future periods. We have no committed sources of capital and do not know whether additional financing will be available when needed, or, if available, that the terms will be favorable to our stockholders or us. If additional funds are not available, we may be forced to delay or terminate clinical trials, curtail operations or obtain funds through collaborative and licensing arrangements that may require us to relinquish commercial rights or potential markets, or grant licenses on terms that are not favorable to us. If adequate funds are not available, we will not be able to successfully execute our business plan.

If we continue to incur net losses for an extended period of time, we may be unable to continue our business.

We have incurred net losses since inception, and our accumulated deficit was approximately $657.7 million at December 31, 2007. We expect to incur substantial additional net losses prior to achieving profitability, if ever. The extent of our future net losses and the timing of our profitability are highly uncertain, and we may never achieve profitable operations. We are planning to expand the number of diseases for which our products may be marketed, and this expansion will require significant expenditures. To date, we have generated revenue primarily through the sale of Actimmune. However, Actimmune sales have decreased in recent periods and we expect this trend to continue into the future. We have not generated operating profits to date from our products. If the time required for us to achieve profitability is longer than we anticipate, we may not be able to continue our business.

Failure to accurately forecast our revenue could result in additional charges for excess inventories or non-cancelable purchase obligations.

We base many of our operating decisions on anticipated revenue trends and competitive market conditions, which are difficult to predict. Based on projected revenue trends, we acquired inventories and entered into non-cancelable purchase obligations in order to meet anticipated increases in demand for our products. However, more recent projected revenue trends resulted in us recording charges of $1.6 million, $4.5 million and $9.1 million in 2007, 2006 and 2005, respectively, for excess inventories from previous years’ contractual purchases. If revenue levels experienced in future quarters are substantially below our expectations, especially revenue from sales of Actimmune, we could be required to record additional charges for excess inventories and/or non-cancelable

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purchase obligations. For additional information relating to difficulties we have experienced forecasting revenue, see the risk factor titled “We may fail to meet our publicly announced revenue and/or expense projections and/or other financial guidance, which would cause our stock to decline in value” below.

If product liability lawsuits are brought against us, we may incur substantial liabilities.

The testing, marketing and sale of medical products entail an inherent risk of product liability. We have product liability risk for all of our product candidates and for all of the clinical trials we conduct, including our unsuccessful INSPIRE trial. If product liability costs exceed our liability insurance coverage, we may incur substantial liabilities. Whether or not we were ultimately successful in product liability litigation, such litigation would consume substantial amounts of our financial and managerial resources, and might result in adverse publicity, all of which would impair our business. While we believe that our clinical trial and product liability insurance currently provides adequate protection to our business, we may not be able to maintain our clinical trial insurance or product liability insurance at an acceptable cost, if at all, and this insurance may not provide adequate coverage against potential claims or losses.

Our use of hazardous materials, chemicals, viruses and radioactive compounds exposes us to potential liabilities.

Our research and development activities involve the controlled use and disposal of hazardous materials, chemicals, infectious disease agents and various radioactive compounds. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of such an accident, we could be held liable for significant damages or fines, which may not be covered by or may exceed our insurance coverage.

If we fail to fulfill our obligations under the Deferred Prosecution Agreement with the U.S. Department of Justice or the Corporate Integrity Agreement with the Office of Inspector General of the United States Department of Health and Human Services it could have a material adverse effect on our business.

On October 26, 2006, we announced that we entered into a Deferred Prosecution Agreement with the United States Attorney’s Office for the Northern District of California and a Corporate Integrity Agreement with the Office of the Inspector General of the United States Department of Health and Human Services. Under the terms of the Deferred Prosecution Agreement, the United States Attorney’s Office for the Northern District of California filed an Information charging us with one count of off-label promotion of Actimmune for use with IPF, but has agreed to defer prosecution of such charge during the two year term of the Deferred Prosecution Agreement. The U.S. Attorney will seek dismissal of the Information after the two year period if we comply with the provisions of the Deferred Prosecution Agreement. Under the terms of the Corporate Integrity Agreement, the Office of the Inspector General of the United States Department of Health and Human Services has agreed to waive any potential exclusion against us from participation in federal health care programs provided that we comply with the terms of the Corporate Integrity Agreement for a period of five years. If we do not satisfy our obligations under the Deferred Prosecution Agreement, the U.S. Attorney can proceed with the prosecution against us for actions involving the off-label promotion of Actimmune for use with IPF, as set forth in the Information, and may consider additional actions against us, which could have significant adverse effects on our operations and financial results. If we do not satisfy our obligations under the Corporate Integrity Agreement, the Office of the Inspector General of the United States Department of Health and Human Services could potentially exclude us from participation in federal health care programs, which could have significant adverse effects on our operations and financial results.

We may be required to indemnify certain of our former officers and directors if any action is taken by the U.S. Attorney or other authorities with respect to those individuals in connection with the off-label promotion of Actimmune for use with IPF, and there can be no assurance that our directors’ and officers’ liability insurance will cover all of these indemnification obligations.

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Insurance coverage is increasingly difficult to obtain or maintain.

While we currently maintain clinical trial and product liability insurance, directors’ and officers’ liability insurance, general liability insurance, property insurance and warehouse and transit insurance, first- and third-party insurance is increasingly more costly and narrower in scope, and we may be required to assume more risk in the future. If we are subject to third-party claims or suffer a loss or damage in excess of our insurance coverage, we may be required to share that risk in excess of our insurance limits. Furthermore, any first- or third-party claims made on our insurance policies may impact our future ability to obtain or maintain insurance coverage at reasonable costs, if at all.

Budget or cash constraints may force us to delay our efforts to develop certain products in favor of developing others, which may prevent us from meeting our stated timetables and commercializing those products as quickly as possible.

Because we are an emerging company with limited resources, and because research and development is an expensive process, we must regularly assess the most efficient allocation of our research and development resources. Accordingly, we may choose to delay our research and development efforts for a promising product candidate to allocate those resources to another program, which could cause us to fall behind our initial timetables for development. As a result, we may not be able to fully realize the value of some of our product candidates in a timely manner, since they will be delayed in reaching the market, or may not reach the market at all.

Failure to attract, retain and motivate skilled personnel and cultivate key academic collaborations will delay our product development programs and our business development efforts.

We had 132 full-time employees as of February 29, 2008, and our success depends on our continued ability to attract, retain and motivate highly qualified management and scientific personnel and on our ability to develop relationships with leading academic scientists. Competition for personnel and academic collaborations is intense. We are highly dependent on our current management and key scientific and technical personnel, including Daniel G. Welch, our Chief Executive Officer and President, as well as the other principal members of our management. None of our employees, including members of our management team, has a long-term employment contract, and any of our employees can leave at any time. Our success will depend in part on retaining the services of our existing management and key personnel and attracting and retaining new highly qualified personnel. In addition, we may need to hire additional personnel and develop additional academic collaborations if we expand our research and development activities. We do not know if we will be able to attract, retain or motivate personnel or cultivate academic collaborations. Our inability to hire, retain or motivate qualified personnel or cultivate academic collaborations would harm our business.

Risks Related to our Common Stock

We may fail to meet our publicly announced revenue and/or expense projections and/or other financial guidance, which would cause our stock to decline in value.

There are a number of reasons why we might fail to meet our revenue and/or expense projections and/or other financial guidance, including, but not limited to, the following:

•  if only a subset of or no affected patients respond to therapy with any of our products or product candidates;

•  the actual dose or efficacy of the product for a particular condition may be different than currently anticipated;

•  negative publicity about the results of our clinical studies, such as the recent failure of INSPIRE to meet it’s primary endpoint and our resulting decision to discontinue the trial, or those of others with similar or related products may reduce demand for our products and product candidates;

•  the treatment regimen may be different in duration than currently anticipated;

•  treatment may be sporadic;

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•  we may not be able to sell a product at the price we expect;

•  we may not be able to accurately calculate the number of patients using the product;

•  we may not be able to supply enough product to meet demand;

•  there may be current and future competitive products that have greater acceptance in the market than our products do;

•  we may decide to divest a product;

•  our development activities may proceed faster than planned;

•  we may decide to change our marketing and educational programs;

•  clinical trial participation may reduce product sales; or

•  physicians’ prescriptions or patient referrals for Actimmune may decline.

If we fail to meet our revenue and/or expense projections and/or other financial guidance for any reason, our stock could decline in value.

Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our stock price.

Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the Securities and Exchange Commission require an annual management assessment of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm attesting to the effectiveness of our internal control over financial reporting at the end of the fiscal year. If we fail to maintain the adequacy of our internal control over financial reporting, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the Securities and Exchange Commission. If we cannot in the future favorably assess, or our independent registered public accounting firm is unable to provide an unqualified attestation report on the effectiveness of our internal control over financial reporting, investor confidence in the reliability of our financial reports may be adversely affected, which could have a material adverse effect on our stock price.

Our stock price may be volatile, and an investment in our stock could decline in value.

The trading price of our common stock has been and is likely to continue to be extremely volatile. During the twelve-month period ended December 31, 2007, the closing price of our common stock on the NASDAQ Global Select Market ranged from a high of $35.97 in February 2007 to a low of $13.33 in December 2007. Our stock price could be subject to wide fluctuations in response to a variety of factors, including, but not limited to any announcements made by Shionogi with respect to their pirfenidone product candidate and all the factors discussed in this “Risk Factors” section.

In addition, the stock market in general, and the stock price of companies listed on the NASDAQ, and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of actual operating performance. Periods of volatility in the market price of a company’s securities frequently results in securities class action and shareholder derivative litigation against that company. This type of litigation can result in substantial costs and a diversion of management’s attention and resources.

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If our officers, directors and certain stockholders choose to act together, they may be able to significantly influence our management and operations, acting in their own best interests and not necessarily those of other stockholders.

At December 31, 2007, our directors, executive officers and greater than 5% stockholders and their affiliates beneficially owned approximately 65% of our issued and outstanding common stock. Accordingly, they collectively may have the ability to significantly influence the election of all of our directors and to significantly influence the outcome of corporate actions requiring stockholder approval, such as mergers or a financing in which we sell more than 20% of our voting stock at a discount to market price. They may exercise this ability in a manner that advances their own best interests and not necessarily those of other stockholders. This concentration of ownership could also depress our stock price.

Substantial sales of shares may negatively impact the market price of our common stock.

If our stockholders sell substantial amounts of our common stock, including shares issued upon the exercise of outstanding options or conversion of our outstanding convertible notes the market price of our common stock may decline. In addition, the existence of our outstanding convertible notes may encourage short selling by market participants. These sales also might make it more difficult for us to sell equity or equity related securities in the future at a time and price that we deem appropriate. We are unable to predict the effect that sales may have on the then-prevailing market price of our common stock.

We have filed registration statements covering the approximately 9,271,426 shares of common stock that are either issuable upon the exercise of outstanding options or reserved for future issuance pursuant to our stock plans as of December 31, 2007. We have also filed a shelf registration statement covering the resale of our 0.25% convertible senior notes due in 2011 and the 7,858,811 shares of common stock issuable upon conversion of those notes.

On October 29, 2004, we entered into an Amended and Restated Standstill Agreement with Warburg Pincus Equity Partners, L.P. and certain of its affiliates (“Warburg Pincus”) that permits Warburg Pincus to acquire up to 25% of our outstanding common stock in the open market. Under this agreement, Warburg Pincus may acquire up to 25% of our outstanding common stock and we have granted Warburg Pincus certain registration rights with respect to its holdings. The restriction on Warburg Pincus’ acquisition of additional shares of our common stock expired on October 29, 2007. In exchange for allowing Warburg Pincus to increase its ownership stake, Warburg Pincus has granted the independent members of our board of directors the right to vote the shares of InterMune common stock owned by Warburg Pincus in excess of 19.9%. In addition, Warburg Pincus has agreed to certain limitations on the manner in which it may dispose of its ownership interest in InterMune. In connection with this transaction, we also amended our stockholder Rights Plan to allow Warburg Pincus to acquire up to 25% of our outstanding common stock. Jonathan S. Leff, a member of our board of directors, is a managing director of Warburg Pincus LLC and a partner of Warburg Pincus & Co., which are affiliates of Warburg Pincus Equity Partners, L.P. In December 2006, we filed a shelf registration statement covering the sale of 7,357,549 shares held by Warburg Pincus and up to $175.0 million from any combination of debt securities, preferred stock, common stock or warrants that may be sold by us. In September 2007, we completed a public offering of 4,025,000 shares of registered common stock under this shelf registration statement.

Management may invest or spend the proceeds of our September 2007 public offering in ways with which you may not agree and in ways that may not yield a return to our stockholders.

Management will retain broad discretion over the use of proceeds from our September 2007 public offering. Stockholders may not deem such uses desirable, and our use of the proceeds may not yield a significant return or any return at all for our stockholders. Management intends to use the proceeds from this offering for general corporate purposes, which may include funding research and development, increasing our working capital, reducing our indebtedness, acquisitions or investments in businesses, products or technologies that are complementary to our own, and capital expenditures. Because of the number and variability of factors that determine our use of the proceeds from this offering, our actual uses of the proceeds of this offering may vary substantially from our currently planned uses. We intend to invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities until we are ready to use them.

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Under the terms of our settlement with the U.S. Department of Justice concerning promotional activities for Actimmune by certain of our former employees, we may be required to apply a portion of the proceeds of our September 2007 public offering towards the making of an accelerated payment to the U.S. Department of Justice.

As part of the comprehensive settlement we entered into with the U.S. Department of Justice concerning promotional activities for Actimmune by certain of our former employees during a period that ended in June of 2003, we entered into a Civil Settlement Agreement that provides that if, after the effective date of the settlement, we receive over $150 million from in license fees and milestone payments from partnering (excluding any research and development contributions), external debt and equity financing during the term of the settlement, 20% of the amount over $150 million (subject to a cap of $10 million per year) must be applied to the acceleration of the $36.9 million in original scheduled principal payments under the settlement. We entered into the Civil Settlement Agreement on October 25, 2006 and it became effective on December 4, 2006, the date the settlement was approved by the United States District Court.

After we entered into the Civil Settlement Agreement and prior to the September 2007 public offering, we received $91.1 million in payments from third parties. We believe that $20.0 million of these payments, representing the two milestone payments we received from Roche during 2007, should be counted towards the $150 million that we may raise under the Civil Settlement Agreement before triggering an acceleration of payments under the agreement. This is in addition to the proceeds we received from the public offering of approximately $73.8 million, after deducting underwriting discounts and commissions but not deducting estimated offering expenses payable by us, which we also believe should be counted towards that $150 million. We believe that the remaining $71.1 million in payments that we have received from third parties should not be applied towards the $150 million. However, it is possible that the U.S. Department of Justice may take the position that some or all of the remaining $71.1 million in payments we have received from third parties should count towards the $150 million. If this were to occur, we may be required to apply a portion of the proceeds of the offering towards the making of an accelerated payment to the U.S. Department of Justice under the Civil Settlement in an amount of up to $10 million for 2007.

We have implemented anti-takeover provisions, which could discourage, prevent or delay a takeover, even if the acquisition would be beneficial to our stockholders, or frustrate or prevent any attempts by our stockholders to replace or remove our current management or Board of Directors.

The existence of our stockholder Rights Plan and 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 benefit our stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. These provisions:

•  establish a classified board of directors so that not all members of our board may be elected at one time;

•  authorize the issuance of up to 5,000,000 shares of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares and hinder a takeover attempt;

•  limit who may call a special meeting of stockholders;

•  prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; and

•  establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon at stockholder meetings.

In addition, Section 203 of the Delaware General Corporation Law, which prohibits business combinations between us and one or more significant stockholders unless specified conditions are met, may discourage, delay or prevent a third party from acquiring us.

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We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.

We have never declared or paid any dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance our operations and do not anticipate paying any cash dividends on our capital stock in the foreseeable future. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for investors in our common stock for the foreseeable future.

Risks Related to our Outstanding Notes

Our indebtedness and debt service obligations may adversely affect our cash flow.

As of December 31, 2007, our annual debt service obligation on the $170.0 million in aggregate principal amount of our 0.25% convertible senior notes due March 1, 2011 was $0.4 million. We intend to fulfill our current debt service obligations, including repayment of the principal, both from cash generated by our operations and from our existing cash and investments. If we are unable to generate sufficient cash to meet these obligations and need to use existing cash or liquidate investments in order to fund our current debt service obligations, including repayment of the principal, we may have to delay or curtail research and development programs.

We may add additional lease lines to finance capital expenditures and may obtain additional long-term debt and lines of credit. If we issue other debt securities in the future, our debt service obligations will increase further.

Our indebtedness could have significant additional negative consequences, including, but not limited to:

•  requiring the dedication of a substantial portion of our expected cash flow from operations to service our indebtedness, thereby reducing the amount of our expected cash flow available for other purposes, including capital expenditures;

•  increasing our vulnerability to general adverse economic and industry conditions;

•  limiting our ability to obtain additional financing;

•  limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and

•  placing us at a possible competitive disadvantage to less leveraged competitors and competitors that have better access to capital resources.

We may not have the ability to raise the funds necessary to finance any required redemptions of our outstanding convertible notes, which might constitute a default by us.

If a designated event, such as the termination of trading of our common stock on the NASDAQ Global Select Market or a specified change of control transaction, occurs prior to maturity, we may be required to redeem all or part of our 0.25% convertible senior notes due 2011. We may not have enough funds to pay the redemption price for all tendered notes. Although the indenture governing the 0.25% convertible senior notes due 2011 allows us in certain circumstances to pay the applicable redemption prices in shares of our common stock, if a designated event were to occur, we may not have sufficient funds to pay the redemption prices for all the notes tendered.

We have not established a sinking fund for payment of our outstanding notes, nor do we anticipate doing so. In addition, any future credit agreements or other agreements relating to our indebtedness may contain provisions prohibiting redemption of our outstanding notes under certain circumstances, or expressly prohibit our redemption of our outstanding notes upon a designated event or may provide that a designated event constitutes an event of default under that agreement. If a designated event occurs at a time when we are prohibited from purchasing or redeeming our outstanding notes, we could seek the consent of our lenders to redeem our outstanding notes or attempt to refinance this debt. If we do not obtain consent, we would not be permitted to purchase or redeem our outstanding notes. Our failure to redeem tendered notes would constitute an event of default under the indenture for the notes, which might constitute a default under the terms of our other indebtedness.

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ITEM 1B.   UNRESOLVED STAFF COMMENTS

None.

ITEM 2.   PROPERTIES

Our facilities currently consist of approximately 55,898 square feet of office space located at our headquarters at 3280 Bayshore Boulevard, Brisbane, California. In December 2000, we entered into a ten-year lease for this building. In May 2006, we entered into an amendment to our existing lease to expand our existing office and laboratory space by approximately 15,000 square feet on the first floor of 3260 Bayshore Boulevard, Brisbane, CA 94005. The lease expires concurrently with our existing facility lease in March 2011. We believe that our facilities are adequate for our current needs, and that suitable additional or substitute space will be available in the future to replace our existing facility, if necessary, or accommodate expansion of our operations.

ITEM 3.   LEGAL PROCEEDINGS

On November 9, 2004, we received a subpoena from the U.S. Department of Justice requiring us to provide the Department of Justice with certain information relating to Actimmune, including information regarding the promotion and marketing of Actimmune. On October 25, 2006 we reached a comprehensive settlement with the government to resolve all claims without criminal sanctions relating to promotional activities for Actimmune for IPF by our former employees during a period ending in June 2003. As part of this comprehensive settlement, we entered into a Civil Settlement Agreement with the United States Department of Justice and the United States Attorney’s Office for the Northern District of California. In addition, we entered into a Deferred Prosecution Agreement with the United States Attorney’s Office for the Northern District of California and a Corporate Integrity Agreement with the Office of the Inspector General of the United States Department of Health and Human Services.

Under the terms of the Civil Settlement Agreement, we agreed to pay $36.9 million plus 5% interest on the then outstanding principal balance to the government over a period of five years, an amount to be shared between the Federal and participating State governments as per the agreement and the Medicaid Program. We recorded a $36.9 million charge during 2006 to reflect the final terms of the Civil Settlement Agreement. We paid $4.1 million of the first installment payment of $5.0 million during the fourth quarter of 2006, an additional $4.1 million in the fourth quarter of 2007 and are required to make additional payments on the remaining settlement amount over the next four years in annual installments. The Civil Settlement Agreement contains a provision for the acceleration of certain of the $36.9 million in original scheduled principal payments if we receive over $150.0 million from partnering, license fees and milestone payments (excluding any research and development contributions), external debt and equity financing during the term of the Civil Settlement Agreement, subject to a cap on any acceleration of payment of $10.0 million in any one year.

Under the terms of the Deferred Prosecution Agreement, the United States Attorney’s Office for the Northern District of California will file an Information charging us with one count of off-label promotion of Actimmune for use with IPF, but will defer prosecution of such charge during the two year term of the Deferred Prosecution Agreement. The U.S. Attorney will seek dismissal of the Information after the two year period if we comply with the provisions of the Deferred Prosecution Agreement. The Deferred Prosecution Agreement became effective December 2006 when it was approved by the United States District Court for the Northern District of California.

Under the terms of the Corporate Integrity Agreement, the Office of the Inspector General of the United States Department of Health and Human Services agrees to waive any potential exclusion of us from participation in federal health care programs provided that we comply with the terms of the Corporate Integrity Agreement for a period of five years. As part of the agreement, we agreed to retain an independent review organization to conduct periodic reviews of our promotional processes and policies as well as reviews of certain medical affairs group records.

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

None.

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PART II

ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Since the initial public offering of our common stock, $0.001 par value, on March 24, 2000, our common stock has traded on the NASDAQ Global Select Market under the symbol “ITMN.”

The following table sets forth the high and low closing sales prices of our common stock, as reported on the NASDAQ Global Select Market for the fiscal periods indicated:

Fiscal Year:	High		Low
2007
First Quarter	$	35.97	$	21.86
Second Quarter		30.62		24.42
Third Quarter		27.06		18.61
Fourth Quarter		20.00		13.33
2006
First Quarter	$	20.61	$	17.62
Second Quarter		18.35		14.20
Third Quarter		17.68		14.83
Fourth Quarter		30.75		16.25

As of February 29, 2008, we had 81 stockholders of record. In addition, we believe that a significant number of beneficial owners of our common stock hold their shares in street name.

Dividend Policy

We have never declared or paid any dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance our operations and do not anticipate paying any cash dividends on our capital stock in the foreseeable future.

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Performance Graph

We show below the cumulative total return to our stockholders during the period from December 31, 2002 through December 31, 2007 in comparison to the cumulative return on the NASDAQ Composite and the AMEX Biotechnology Index during that same period. The results assume that $100 was invested on December 31, 2002.

Comparison of Cumulative Five Year Total

			Years Ending December 31,
	Base period
	December
Company/Index	2002		2003		2004		2005		2006		2007
InterMune, Inc.		100	$	90.79	$	51.98	$	65.86	$	120.54	$	52.25
NASDAQ Composite		100		150.36		163.00		166.58		183.68		201.91
AMEX Biotechnology Index		100		144.91		160.92		201.32		223.01		232.54

The information under “Performance Graph” is not soliciting material, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference in any filing of InterMune, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this 10-K and irrespective of any general incorporation language in those filings.

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ITEM 6.   SELECTED FINANCIAL DATA

The selected consolidated financial data that appears below and on the following page has been derived from our audited consolidated financial statements. This historical data should be read in conjunction with our Consolidated Financial Statements and the related Notes to Consolidated Financial Statements contained in this Report, and with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Report. The selected consolidated statement of operations data for each of the three years ended December 31, 2007, 2006 and 2005 and the selected consolidated balance sheet data as of December 31, 2006 and 2005 are derived from the audited consolidated financial statements included elsewhere in this Report. The selected consolidated statement of operations data for the years ended December 31, 2004 and 2003 and the selected consolidated balance sheet data as of December 31, 2005, 2004 and 2003 are derived from audited financial statements not included in this Report.

In December 2005, we sold our Infergen product, including related intellectual property rights and inventory, to Valeant. The operating results of our Infergen activities, which include allocations of research and development and selling, general and administrative expenses, have been reclassified as discontinued operations for all periods presented.

	Year Ended December 31,
	2007			2006			2005			2004			2003
	(In thousands, except per share data)
Statement of Operations Data:
Revenue, net:
Actimmune	$	53,420		$	90,317		$	107,633		$	124,980		$	141,402
Other products		—			—			2,863			3,700			3,460
Collaboration revenue		13,272			467			—			—			—
Total revenue, net		66,692			90,784			110,496			128,680			144,862
Costs and expenses:
Cost of goods sold		14,109			24,608			35,022			33,882			39,231
Research and development		105,939			103,849			82,736			75,683			118,771
Acquired research and development and milestone (credits) payments(1)		13,725			—			(10,000	)		—			12,150
General and administrative		29,577			40,372			58,854			55,132			56,167
Provision for government settlement		—			36,944			—			—			—
Restructuring charges		10,246			—			5,549			—			—
Total costs and expenses		173,596			205,773			172,161			164,697			226,319
Loss from operations		(106,904	)		(114,989	)		(61,665	)		(36,017	)		(81,457	)
Interest income		10,699			9,512			3,965			3,490			4,024
Interest and other income (expense)		(666	)		(485	)		52			(12,516	)		(10,037	)
Loss from continuing operations before income taxes		(96,871	)		(105,962	)		(57,648	)		(45,043	)		(87,470	)
Income tax benefit		(2,275	)		—			—			—			—
Loss from continuing operations		(94,596	)		(105,962	)		(57,648	)		(45,043	)		(87,470	)
Discontinued operations:
Income (loss) from discontinued operations		4,994			(1,244	)		(32,925	)		(14,435	)		(9,531	)
Gain on sale of discontinued operations (net of transaction costs)		—			—			85,338			—			—
Income (loss) from discontinued operations		4,994			(1,244	)		52,413			(14,435	)		(9,531	)
Net loss	$	(89,602	)	$	(107,206	)	$	(5,235	)	$	(59,478	)	$	(97,001	)
Basic and diluted loss per share:
Continuing operations	$	(2.67	)	$	(3.18	)	$	(1.79	)	$	(1.42	)	$	(2.76	)
Discontinued operations	$	0.15		$	(0.04	)	$	1.63		$	(0.45	)	$	(0.30	)
Net loss per share	$	(2.52	)	$	(3.22	)	$	(0.16	)	$	(1.87	)	$	(3.06	)
Shares used in computing basic and diluted net loss per share		35,493			33,277			32,220			31,760			31,665

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	As of December 31,
	2007			2006			2005			2004			2003
	(In thousands)
Balance sheet data:
Cash, cash equivalents and available-for-sale securities	$	235,292		$	214,549		$	215,525		$	183,025		$	216,107
Working capital		214,463			201,924			185,295			185,133			201,855
Total assets		262,445			257,583			266,242			268,795			291,070
Long-term obligations		170,000			170,000			170,000			170,000			149,500
Accumulated deficit		(657,689	)		(568,087	)		(460,881	)		(455,646	)		(396,168	)
Total stockholders’ equity (deficit)		(30,888	)		(39,797	)		31,767			32,791			87,744

(1) These charges represent acquired research and development and milestone payments for projects that were in development, had not reached technical feasibility and had no foreseeable alternative future uses at the time of acquisition or when the milestone became payable. The 2005 balance reflects the reversal of the milestone liability in connection with the divestiture of oritavancin. Please see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” and Note 5 of the Notes to Consolidated Financial Statements.

ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

For additional overview information relating to our business, including Actimmune, co-promotion and our product development programs, please see the discussion in “Item 1. Business — Overview,” which is incorporated herein by reference.

Significant License/Acquisition Agreements

We are highly dependent on technology we license or acquire from third parties. Actimmune, which is currently our sole marketed product, is subject to a license agreement with Genentech, Inc. The majority of our clinical development pipeline is also based on technology that we have licensed from third parties. Details of these agreements can be found elsewhere in this Report under “Item 1. Business — License and Other Agreements,” Notes 6 and 7 of the Notes to Consolidated Financial Statements, and under the heading “Results of Operations” below.

We will be required to make contingent milestone payments in accordance with all of our license and acquisition agreements in the aggregate amount of $71.6 million if all of the milestones defined in each of the agreements are achieved. These milestones include development, regulatory approval, commercialization and sales milestones.

Our Need for Additional Capital

We commenced operations in 1998 and have incurred significant losses to date. Our revenue has been limited primarily to sales of Actimmune, which has been declining in 2006 and 2007, derived from physicians’ prescriptions for the off-label use of Actimmune in the treatment of IPF. We expect to continue to incur net losses over the next several years as we continue the development of our advanced-stage pulmonology pipeline and our research-stage hepatology pipeline, apply for regulatory approvals and grow our operations. Although we believe that our existing cash, cash equivalents and available-for-sale securities, together with anticipated cash flows from our operations, will be sufficient to fund our operating expenses, settlement with the government, debt obligations and capital requirements under our current business plan through at least the end of 2008, we believe that we will continue to require substantial additional funding to complete the research and development activities currently contemplated and to commercialize our product candidates. As a result, we may require additional funds

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and may attempt to raise additional funds through equity or debt financings, collaborative arrangements with corporate partners or from other sources. If additional capital is not available, we may be forced to curtail our development activities or cease operations.

Discontinuation of Actimmune Trial for IPF

Effective March 5, 2007, we made the decision to discontinue the Phase III INSPIRE clinical trial evaluating Actimmune in patients with IPF based upon the recommendation of the study’s independent DMC. As a result of the disappointing INSPIRE trial results, we revised our estimates of inventory requirements as of December 31, 2006. Accordingly, we recorded a charge of $4.5 million in 2006 related to the prepayment of inventory that we were expecting to receive in 2007 and 2008. While we believe other Actimmune related assets are recoverable for at least their $2.4 million net carrying value, if sales decline below our revised estimates, we may incur additional asset impairment charges, including inventory writedowns in excess of the $1.6 million recorded in 2007, and impairment of acquired product rights, as well as product returns.

The following table reflects the asset balances as of December 31, 2007 which may be impacted (in thousands):

Finished goods inventory	$	1,776
Acquired product rights, net		667
Total	$	2,443

We have also incurred approximately $3.4 million in personnel-related restructuring charges during 2007, primarily consisting of severance related expenses to implement our announced plan to reduce the workforce by approximately 50%, which has been completed as of September 30, 2007. We have also incurred approximately $6.8 million in expenses in connection with the termination of our previous supply agreement with BI. See Note 14 of the Notes to Consolidated Financial Statements.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable. These estimates are the basis for our judgments about the carrying values of assets and liabilities, which in turn may impact our reported revenue and expenses. We have discussed the development, selection and disclosure of these estimates with the Audit Committee of our board of directors. Actual results may differ from these estimates under different assumptions or conditions.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur periodically, could materially change the financial statements. We believe that the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Stock-based Compensation

Beginning January 1, 2006, we account for stock-based compensation in accordance with Statement of Financial Accounting Standards, or SFAS No. 123(R), Share-Based Payment. Under the fair value recognition provisions of this statement, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. In order to estimate the value of share-based awards, we use the Black-Scholes model, which requires the use of certain subjective assumptions. The most significant assumptions are our estimates of the expected volatility and the expected term of the award. In addition, judgment is also required in estimating the amount of share-based awards that are expected to be forfeited. If actual results differ

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significantly from any of these estimates, stock-based compensation expense and our results of operations could be materially impacted.

We adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006, the first day of the our fiscal year 2006. SFAS 123(R) supersedes our previous accounting under APB 25. Our Consolidated Financial Statements as of and for the year ended December 31, 2006 reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method, our Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Stock-based compensation expense recognized under SFAS 123(R) for the years ended December 31, 2007 and 2006 was $12.7 million and $16.5 million, respectively, which consisted of stock-based compensation expense related to employee stock options, restricted stock and the 2000 Employee Stock Purchase Plan (the “ESPP”). Stock-based compensation expense of $3.0 million for the year ended December 31, 2005 was related to restricted stock which we had been recognizing under previous accounting standards and option acceleration costs related to our divestiture of Infergen and concurrent restructuring. There was no stock-based compensation expense related to the ESPP recognized during the year ended December 31, 2005.

If all of the remaining restricted stock awards that were granted in 2004, 2006 and 2007 became vested, we would recognize approximately $3.0 million in compensation expense over a weighted average remaining period of 2.0 years. If all of the remaining nonvested and outstanding stock option awards that have been granted became vested, we would recognize approximately $14.6 million in compensation expense over a weighted average remaining period of 2.0 years. However, no compensation expense will be recognized for any stock awards that do not vest.

Revenue Recognition and Revenue Reserves

Revenue on product sales is recognized when persuasive evidence of an arrangement exists, the price is fixed, and final delivery has occurred and there is a reasonable assurance of collectibility of the amounts receivable from the customer. Therefore, revenue is generally recognized upon delivery when title passes to a credit-worthy customer. Reserves are recorded at the time revenue is recognized for estimated returns, rebates, chargebacks and cash discounts, if applicable. We sell to a limited number of customers, mainly specialty pharmacies and distributors. We obtain written purchase authorizations from our customers for a specified amount of product at a specified price. We are obligated to accept returns from customers if the pharmaceuticals they purchased have reached the expiration date. We have demonstrated the ability to make reasonable and reliable estimates of product returns based on historical experience. Due to the nature of our business model and based on historical experience, these estimates are not highly subjective. We review all sales transactions for potential rebates, chargebacks and discounts each month and monitor product ordering cycles and actual returns, product expiration dates and wholesale inventory levels to estimate potential product return rates. We believe that our reserves are adequate. For each of the periods presented below, we have not made any shipments as a result of incentives and/or in excess of our customers’ ordinary course of business inventory levels. Specialty wholesalers maintain low inventory levels and manage their inventory levels to optimize patient-based need (demand) and generally do not overstock Actimmune.

The tables below present the amounts reported as revenue reductions for the periods indicated (in thousands, except percentages):

	Years Ended December 31,
Reductions to Revenue	2007		2006		2005
Cash discounts	$	1,116	$	1,887	$	2,280
Product returns		—		—		428
Chargebacks		1,222		1,106		1,258
Medicaid rebates		1,160		2,032		3,474
Total	$	3,498	$	5,025	$	7,440

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	Years Ended December 31,
	2007			2006			2005
Gross product revenue	$	56,918		$	95,342		$	117,936
Revenue reductions as a% of gross product revenue
Cash discounts		2.0	%		2.0	%		1.9	%
Product returns		—			—			0.4	%
Chargebacks		2.1	%		1.2	%		1.1	%
Medicaid rebates		2.0	%		2.1	%		2.9	%
Total		6.1	%		5.3	%		6.3	%

In 2007, chargebacks were approximately 2.1% of gross revenue, but could reasonably fall within a range of 1.0% to 4.0% in any given year depending on the customer base. If chargebacks had increased to 4.0% during 2007, this would have reduced our reported revenue by approximately $1.1 million. In 2007, Medicaid rebates were approximately 2.0% of gross revenue, but could reasonably fall within a range of 2.0% to 3.0% in any given year. If Medicaid rebates had increased to 3.0% during 2007, this would have decreased our reported revenue by approximately $0.5 million. The ranges selected above are based on a review of historical trends and we believe they are reasonably likely to continue to be relevant in future periods. Chargebacks as a percentage of gross revenue increased in 2007 compared with 2006 and 2005 due to disappointing clinical trial results and our subsequent decision to discontinue further development of Actimmune. The decrease in Medicaid rebates from 2.9% in 2005 and 2.1% in 2006 to 2.0% in 2007 is due to the decreasing number of patients, as a percentage of the total patient population treated with Actimmune, that are covered through state Medicaid programs.

The source of information that we monitor in assisting us with computing chargebacks is from the Federal Supply Schedule, Veterans Administration and Public Health System pricing documents. These documents establish the maximum price allowable for the sale of our product to a government customer. The chargeback amount per unit is computed as the difference between our sales price to the wholesaler and the selling price from the wholesaler to a government customer. Chargebacks are processed directly by the wholesalers and are deducted from payments to us.

The source of information that we monitor in assisting us with computing Medicaid rebates is from each of the 50 states. Medicaid rebates are billed directly to us from each state. Billings from each of the states, which are based on end user reports submitted by pharmacies to the state agencies, are typically received within 45 days after the end of each calendar quarter. We use historical billing and payment trends made to the states to assist us in determining an estimated Medicaid rebate amount each period.

Clinical Trial Accruals

We accrue costs for clinical trial activities performed by contract research organizations based upon the estimated amount of work completed on each study. These estimates may or may not match the actual services performed by the organizations as determined by patient enrollment levels and related activities. We monitor patient enrollment levels and related activities to the extent possible through internal reviews, correspondence with contract research organizations and review of contractual terms. However, if we have incomplete or inaccurate information, we may overestimate or underestimate activity levels associated with various studies at a given point in time. In the event we underestimate, we could be required to record significant additional research and development expenses in future periods when the actual activity level becomes known. All such costs are charged to research and development expenses as incurred. To date, we have not experienced changes in estimates that have led to material research and development expense adjustments being recorded in future periods.

Inventory Reserves

Our inventories are stated at the lower of cost or market and our inventory costs are determined by the first-in first-out method. We enter into purchase obligations to purchase our inventory based upon sales forecasts to enable us to mitigate some of the risk associated with the long lead times required to manufacture our products.

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We write off the cost of inventory and reserve for future minimum purchase commitments, if any, that we consider to be in excess of forecasted future demand. We define excess inventory as inventory that will expire before it can be sold, based on future sales forecasts. In making these assessments, we are required to make judgments as to the future demand for current or committed inventory purchase levels. We are also required to monitor the expiration dates of our products, since our products can no longer be used after their respective expiration dates. In 2004, in an effort to best manage the procurement and distribution of levels of Actimmune, we successfully completed the necessary testing to extend the expiration period of Actimmune from 30 months to a total of 36 months. As part of our excess inventory assessment for Actimmune, we also estimate the expiration date of any Actimmune to be manufactured in the future.

Projected revenue trends resulted in us recording charges during 2007 of $1.6 million to cost of goods sold for excess inventories. If Actimmune revenue levels experienced in future periods are substantially below our current expectations, we could be required to record additional charges for excess inventories. Please refer to the statements under “Item 1A. Risk Factors” in this Report to gain a better understanding of the possible reasons why actual results could differ from our estimates.

Results of Operations

The following discussion of our continuing results of operations for each of the comparative periods excludes Infergen related activity. These amounts are reflected in discontinued operations as a result of the sale of the Infergen product to Valeant in December 2005.

Comparison of years ended December 31, 2007 and 2006

Revenue

For the year ended December 31, 2007, we recorded total net revenue of $66.7 million, compared to $90.8 million for the same period in 2006, a decrease of 27%. This decrease was attributable to a decrease in sales of Actimmune of approximately $36.9 million, or 41%, partially offset by an increase in collaboration revenue of $12.8 million resulting from the agreement with Roche. In early March 2007, we announced that our Phase III INSPIRE program for Actimmune in IPF had been discontinued and that future Actimmune revenue was expected to decline. The $13.3 million of collaboration revenue for 2007 includes a $10.0 million milestone received in June 2007, which had been assessed as substantially at-risk at the initiation of the agreement and was therefore recognized as revenue when the milestone was achieved, as defined in the Collaboration Agreement. For each of the years ended December 31, 2007 and 2006, Actimmune accounted for all of our product revenue. Substantially all of these sales were derived from physicians’ prescriptions for the off-label use of Actimmune in the treatment of IPF. Net revenue in 2006 includes approximately $0.5 million of collaboration revenue, which represents amortization of the $60.0 million upfront payment received from Roche during the fourth quarter of 2006.

There are a number of variables that impact Actimmune revenue including, but not limited to, the discontinuation of the Phase III INSPIRE clinical trial in March 2007, the level of enrollment in IPF clinical trials of other companies, new patients started on therapy, average duration of therapy, new data on Actimmune or other products presented at medical conferences and publications in medical journals, reimbursement and patient referrals from physicians. In light of the failure of the INSPIRE clinical trial, we expect that net sales of Actimmune for the year ended December 31, 2008 will continue to decline.

Cost of Goods Sold

Cost of goods sold included product manufacturing costs, royalties and distribution costs associated with our product revenue and inventory writedowns. Cost of goods sold for the year ended December 31, 2007 was $14.1 million, or approximately 26% of total product revenue, compared to $24.6 million, or approximately 27% of total product revenue, in the corresponding period of 2006. The decrease in cost of goods sold primarily reflects the decline in Actimmune revenue. Included in 2007 cost of goods sold is a charge of $1.6 million recorded for excess inventory. Included in 2006 cost of goods sold is a charge of approximately $4.5 million for excess inventories, recorded in connection with the impact of the disappointing Phase III INSPIRE trial results announced in March 2007. Excluding the $1.6 million and $4.5 million charges for excess inventory and purchase commitments in 2007

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and 2006, respectively, cost of goods sold was approximately 23% and 22% of product revenue for each of the years ended December 31, 2007 and 2006, respectively.

Exchange rate fluctuations on inventory purchases may affect cost of goods sold on Actimmune inventory purchased from BI. In the past, we have utilized forward exchange contracts to partially offset the effect of exchange rate fluctuations, but we did not enter into any new contracts in 2006 or 2007.

Research and Development Expenses

Research and development (“R&D”) expenses were $105.9 million and $103.8 million for the years ended December 31, 2007 and 2006, respectively, representing an increase of 2%. The increase was primarily due to the full enrollment of our two Phase III CAPACITY studies for pirfenidone during 2007 and the conduct of the Phase 1a and 1b studies of ITMN-191, partially offset by reduced costs related to the discontinuation of the INSPIRE program and the full year reimbursement from Roche under our collaboration agreement.

The following table lists our current product development programs and the research and development expenses recognized in connection with each program during the indicated periods. The category titled “Programs — Non-specific” is comprised of facilities and personnel costs that are not allocated to a specific development program or discontinued programs and $6.0 million and $8.1 million of stock-based compensation in 2007 and 2006, respectively. Our management reviews each of these program categories in evaluating our business. For a discussion of the risks and uncertainties associated with developing our products, as well as the risks and uncertainties associated with potential commercialization of our product candidates, see the specific sections under “Item 1A. Risk Factors” above.

	Year Ended December 31,
Development Program	2007		2006		2005
	(In thousands)
Pulmonology	$	56,169	$	50,065	$	34,779
Hepatology		21,965		30,035		17,820
Oncology		—		1,561		14,156
Programs — Non-specific		27,805		22,188		15,981
Total	$	105,939	$	103,849	$	82,736

The largest component of our total operating expenses is our ongoing investments in research and development and, in particular, the clinical development of our product pipeline. The process of conducting the clinical research necessary to obtain FDA approval is costly and time consuming. Current FDA requirements for a new human drug to be marketed in the United States include:

•  the successful conclusion of preclinical laboratory and animal tests, if appropriate, to gain preliminary information on the product’s safety;

•  the submission of an IND with the FDA to conduct human clinical trials for drugs;

•  the successful completion of adequate and well-controlled human clinical investigations to establish the safety and efficacy of the product for its recommended use; and

•  the submission by a company and acceptance and approval by the FDA of an NDA or BLA for a drug product to allow commercial distribution of the drug.

In light of the factors mentioned above, we consider the active management and development of our clinical pipeline to be crucial to our long-term success. The actual probability of success for each candidate and clinical program may be impacted by a variety of factors, including, among others, the quality of the candidate, the validity of the target and disease indication, early clinical data, investment in the program, competition, manufacturing capability and commercial viability. Due to these factors, it is difficult to give accurate guidance on the anticipated proportion of our research and development investments or the future cash inflows from these programs.

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Acquired Research and Development and Milestone Expense/(Credits)

In 2002, we licensed from Marnac and its co-licensor, KDL, their worldwide rights, excluding Japan, Korea and Taiwan, to develop and commercialize pirfenidone for all fibrotic diseases, including renal, liver and pulmonary fibrosis. Effective November 21, 2007, we entered into asset purchase agreements with Marnac and KDL whereby we effectively terminated the prior license agreement by purchasing, among other things, the pirfenidone-related assets covered by such prior license agreement. Under the terms of the asset purchase agreements, we made acquisition payments of approximately $13.7 million. Contingent acquisition payments of up to an additional $53.5 million would be made by us only if positive Phase III data and registration in the United States and European Union are achieved. There were no charges for acquired research and development and milestone payments in the year ended December 31, 2006.

General and Administrative Expenses

General and administrative (“G&A”) expenses were $29.6 million and $40.4 million for the years ended December 31, 2007 and 2006, respectively, representing a decrease of $10.8 million, or 27%. The decreased spending for the year ended December 31, 2007 compared to the same period in 2006 reflects the impact of headcount and cost reductions related to the closure of the INSPIRE trial for Actimmune in March 2007.

Provision for Government Settlement

On November 9, 2004, we received a subpoena from the U.S. Department of Justice requiring us to provide the Department of Justice with certain information relating to Actimmune, including information regarding the promotion and marketing of Actimmune. On October 25, 2006, we reached a comprehensive settlement with the government concerning promotional activities for Actimmune by former employees during a period that ended in June 2003. A $36.9 million charge was recorded during 2006 to reflect the final terms of the civil settlement agreement. The settlement resolves without criminal sanctions, all outstanding government investigations of InterMune. We agreed to pay a total of $36.9 million, plus 5% interest on the then outstanding principal balance, over a period of five years. As part of the settlement, InterMune also entered into corporate integrity and deferred prosecution agreements with the government.

Restructuring Charges

Effective March 5, 2007, we made the decision to discontinue the Phase III INSPIRE clinical trial evaluating Actimmune in patients with IPF based upon the recommendation of the study’s independent data monitoring committee. As a result of the disappointing INSPIRE trial results, we made the decision to reduce our workforce by approximately 50%, which has been completed as of September 30, 2007. As a result, we incurred approximately $3.4 million in personnel-related restructuring charges during 2007. The $3.4 million charge is comprised of approximately $2.9 million for cash severance and related benefits and $0.5 million of costs for the acceleration of options for approximately 66,000 shares of our common stock. We have also incurred approximately $6.8 million in expenses in connection with the termination of our previous supply agreement with BI. See Note 14 of Notes to Consolidated Financial Statements.

Interest Income

Interest income increased to $10.7 million for the year ended December 31, 2007 compared to $9.5 million for the year ended December 31, 2006. The increase in interest income for the year ended December 31, 2007 reflects a higher average balance on our invested cash and securities throughout 2007, including the proceeds of $73.4 million from our public offering in September 2007, compared to 2006 and relatively higher average interest rates in 2007 compared to 2006.

Interest Expense

Interest expense increased to $2.9 million for the year ended December 31, 2007 compared to $1.5 million for the year ended December 31, 2006. The increase in interest expense for the year ended December 31, 2007 reflects a full year of interest incurred in connection with our liability under the government settlement reached in October 2006. Both 2007 and 2006 include interest on our $170.0 million principal amount 0.25% convertible senior notes, issued in February 2004 and the amortization of the related debt issuance costs.

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Other Income

Other income increased to $2.2 million for the year ended December 31, 2007 compared to $1.1 million for 2006. Other income for 2007 includes $2.5 million in aggregate milestone payments from Targanta and Three Rivers in connection with our divestitures of oritavancin and Amphotec, respectively. Other income for 2006 includes a $1.0 million cash payment received from Targanta in connection with the divestiture of oritavancin.

Income (loss) from Discontinued Operations

The income (loss) from discontinued operations reflects the divestiture of our Infergen product line to Valeant which was completed in December 2005. The income from discontinued operations of $5.0 million for the year ended December 31, 2007 compares to a loss of $1.2 million for the year ended December 31, 2006. Income from discontinued operations in 2007 reflects a clinical-related milestone received from Valeant. Discontinued operations in 2006 consist primarily of transition related services, including product returns, which were substantially completed at the end of 2006. See Note 3 of Notes to Consolidated Financial Statements.

Provision for Income Taxes

The $2.3 million tax benefit recorded in 2007 primarily relates to net operating losses that we concluded are realizable based on our estimate of future taxable income resulting from future potential sales of our shares of Targanta common stock. Due to our continuing operating losses and the uncertainty of our recognizing the potential future benefits from the remaining non-operating losses, we recorded no provision for income taxes for the year ended December 31, 2006. As of December 31, 2007, we had federal net operating loss carryforwards of approximately $434.5 million. The net operating loss carryforwards will expire at various dates beginning in 2018 through 2027 if not utilized. We also have federal research and development tax credits of approximately $17.9 million that will expire in the years 2018 through 2027. In addition, we had net operating loss carryforwards for state income tax purposes of approximately $109.8 million that expire in the years 2012 through 2017 and state research and development tax credits of approximately $12.1 million that do not expire. Utilization of the net operating losses may be subject to a substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.

We adopted the provisions of FIN 48 on January 1, 2007. Implementation of FIN 48 did not result in any adjustment to our Consolidated Statements of Operations or a cumulative adjustment to accumulated deficit.

Comparison of years ended December 31, 2006 and 2005

Revenue

For the year ended December 31, 2006, we recorded total net revenue of $90.8 million, compared to $110.5 million for the same period in 2005, a decrease of 18%. Net sales of Actimmune for 2006 were $90.3 million, compared to $107.6 million for 2005, a decline of 16%. For the year ended December 31, 2006 Actimmune accounted for all of our product revenue and approximately 97% of our total product revenue in 2005. Substantially all of these sales were derived from physicians’ prescriptions for the off-label use of Actimmune in the treatment of IPF. Net revenue in 2006 includes approximately $0.5 million of collaboration revenue, which represents amortization of the $60.0 million upfront payment received from Roche during the fourth quarter of 2006.

Cost of Goods Sold

Cost of goods sold included product manufacturing costs, royalties and distribution costs associated with our revenue and inventory reserves. Cost of goods sold for the year ended December 31, 2006 was $24.6 million, or approximately 27% of total product revenue, compared to $35.0 million, or approximately 33% of total product revenue, in the corresponding period of 2005. The decrease in cost of goods sold primarily reflects the decline in Actimmune revenue and a charge of $9.1 million in 2005 taken for excess inventory from previous years’ contractual purchases. Included in 2006 cost of goods sold is a charge of approximately $4.5 million recorded in connection with the disappointing Phase III INSPIRE trial results announced in March 2007. Excluding the $4.5 million and $9.1 million charges for excess inventory and purchase commitments in 2006 and 2005,

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respectively, cost of goods sold was approximately 22% of product revenue for the year ended December 31, 2006 and 24% of product revenue for the year ended December 31, 2005.

Exchange rate fluctuations on inventory purchases may affect cost of goods sold on Actimmune inventory purchased from BI. In the past, we have utilized forward exchange contracts to partially offset the effect of exchange rate fluctuations, but we did not enter into any new contracts in 2006 or 2005.

Research and Development Expenses

R&D expenses were $103.8 million and $82.7 million for the years ended December 31, 2006 and 2005, respectively, representing an increase of $21.1 million or 26%. The increase in R&D expense in 2006 was related to increased investment in our two Phase III clinical development programs in IPF, the manufacturing, preclinical and clinical activities for ITMN-191 prior to entering into the collaboration agreement with Roche and an increased investment in pulmonology and hepatology research. R&D expense also includes $8.1 million of stock-based compensation expense in 2006, reflecting the adoption of SFAS 123(R).

Acquired Research and Development and Milestone Expense/(Credits)

There were no charges for acquired research and development and milestone payments in the years ended December 31, 2006 and 2005. Included in our charges prior to 2004 was $10.0 million for a milestone payable to Eli Lilly for oritavancin. We initially expensed this amount as acquired research and development as oritavancin at the time was in clinical development, had not reached technical feasibility and had no foreseeable alternative future uses. In connection with the divestiture of oritavancin to Targanta in December 2005, we received a waiver from Eli Lilly for making this payment and reversed the accrued liability and related expense for this milestone in 2005.

General and Administrative Expenses

G&A expenses were $40.4 million and $58.9 million for the years ended December 31, 2006 and 2005, respectively, representing a decrease of $18.5 million, or 31%. G&A expense also includes $8.4 million of stock-based compensation expense in 2006, reflecting the adoption of SFAS 123(R). The decreased spending for the year ended December 31, 2006 compared to the same period in 2005 was largely the result of the reductions in field-based IPF disease awareness activities and a decrease in the number of personnel in the home office, as announced in November 2005.

Restructuring Charges

In the fourth quarter of 2005, our board of directors approved a restructuring plan recommended by our Chief Executive Officer and senior management that was designed to help streamline our operations and reduce our operating expenses in 2006. The plan, which consisted of a significant reduction in our investment in field-based IPF disease awareness activities, was implemented concurrently with the divestiture of Infergen in December 2005. These combined actions led to a significant headcount reduction of approximately 160 employees and resulting termination costs of approximately $9.2 million. Restructuring charges comprised approximately $5.5 million of this amount which were recorded as a separate component of operating expenses in the statement of operations, with the remainder allocated to discontinued operations. See “Loss from Discontinued Operations” discussion below. The majority of the 160 employees left InterMune at the end of the fourth quarter of 2005 and the remainder during the first quarter of 2006.

The $5.5 million restructuring charge was comprised of approximately $4.7 million for cash severance and related benefits and approximately $0.8 million for non-cash stock compensation, consisting of an allocation of option acceleration costs for approximately 400,000 shares of our common stock. We paid substantially all of the $4.7 million severance and related benefits during the first quarter of 2006. No further restructuring charges were incurred in 2006.

Interest Income

Interest income increased to $9.5 million for the year ended December 31, 2006 compared to $4.0 million for the year ended December 31, 2005. The increase in interest income for the year ended December 31, 2006 reflects a higher average balance on our invested cash and securities throughout 2006 compared to 2005 and an increase in average interest rates.

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Interest Expense

Interest expense increased to $1.5 million for the year ended December 31, 2006 compared to $1.3 million for the year ended December 31, 2005. The increase in interest expense for the year ended December 31, 2006 reflects interest incurred on our government settlement liability. Both 2006 and 2005 include interest on our $170.0 million principal amount 0.25% convertible senior notes, issued in February 2004.

Other Income

Other income decreased to $1.1 million for the year ended December 31, 2006 compared to $1.3 million for 2005. Other income in both 2006 and 2005 includes $1.0 million cash payments received from Targanta in connection with the divestiture of oritavancin.

Loss from Discontinued Operations

The loss from discontinued operations reflects the divestiture of our Infergen product line to Valeant which was completed in December 2005. The loss from discontinued operations of $1.2 million for the year ended December 31, 2006 compares to a loss of $32.9 million for the year ended December 31, 2005. Discontinued operations in 2006 consist primarily of transition related services, including product returns, which were substantially completed at the end of 2006. The components of the loss from discontinued operations for 2005 included net revenue of Infergen, the related cost of goods sold and amortization of acquired product rights, as well as certain allocated research and development and selling general and administrative expenses specific to Infergen. The loss in 2005 also included employee termination costs of approximately $3.7 million. See Note 3 of Notes to Consolidated Financial Statements.

Gain on Sale of Discontinued Operations

The gain on sale of discontinued operations in 2005 was comprised of the $120.0 million in cash proceeds and a $2.1 million note received from Valeant in connection with the sale of Infergen, offset by the net book value of the assets sold and direct transaction costs. These assets included intellectual property rights, payments to a contract manufacturer, and inventory with a net book value of approximately $36.5 million at the time of the transaction. In addition, we incurred approximately $0.3 million of direct transaction costs related to the sale of Infergen.

Provision for Income Taxes

Due to our continuing operating losses and the uncertainty of our recognizing the potential future benefits from these losses, we recorded no provision or benefit for income taxes for the years ended December 31, 2006 and 2005.

Liquidity and Capital Resources

At December 31, 2007, we had cash, cash equivalents and available-for-sale securities of $235.3 million compared to $214.5 million at December 31, 2006. The increase was primarily the result of the completion of a public stock offering during 2007 in which we received net proceeds of approximately $73.4 million and the receipt of $20.0 million from our collaboration partner Roche, partially offset by operating losses.

The primary objective of our investment activities is to preserve principal while at the same time maximize yields without significantly increasing risk. To achieve this objective, we invest our excess cash in debt instruments of the U.S. federal and state governments and their agencies and high-quality corporate issuers, and, by policy, restrict our exposure by imposing concentration limits and credit worthiness requirements for all corporate issuers. At December 31, 2007, we held approximately $27.0 million of municipal notes investments, classified as current assets, with an auction reset feature (“auction rate securities”) whose underlying assets are generally student loans which are substantially backed by the federal government. Through March 4, 2008, auctions failed for $24.0 million of our auction rate securities and as a result our ability to liquidate our investment and fully recover the carrying value of our investment in the near term may be limited or not exist.

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Operating Activities

Cash used in operating activities was $65.1 million during the year ended December 31, 2007, comprised primarily of a net loss of $89.6 million. This use of cash is net of a $6.7 million increase to deferred revenue as a result of a $10.0 million milestone received January 2007 from Roche under the collaboration agreement, stock-based compensation expense of $12.7 million and a decrease in accounts receivable of $8.7 million. The decrease in accounts receivable is primarily due to the continuing decline in Actimmune sales resulting from the disappointing INSPIRE trial results announced March 2007. Details concerning the loss from operations can be found above in this Report under the heading “Results of Operations.”

Investing Activities

Investing activities used $37.6 million in cash flows during the year ended December 31, 2007, primarily due to investment purchases of $182.5 million, of which a portion were made upon completion of our public stock offering. We also had maturities and sales of available-for-sale securities totaling $147.3 million, which partially offset the purchases during the year.

Financing Activities

Cash provided by financing activities of $82.3 million for the year ended December 31, 2007 was primarily due to the $73.4 million in net proceeds from the public stock offering and to a lesser extent the issuance of our common stock under our employee stock plans.

We believe that we will continue to require substantial additional funding to complete the research and development activities currently contemplated and to commercialize our product candidates. We believe that our existing cash, cash equivalents and available-for-sale securities, together with anticipated cash flows from our operations, will be sufficient to fund our operating expenses, settlement with the government, debt obligations and capital requirements under our current business plan through at least the end of 2008. However, this forward-looking statement involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed under “Item 1A. Risk Factors.” This forward-looking statement is also based upon our current plans and assumptions, which may change, and our capital requirements, which may increase in future periods. Our future capital requirements will depend on many factors, including, but not limited to:

•  sales of Actimmune or any of our product candidates in development that receive commercial approval;

•  our ability to partner our programs or products;

•  the progress of our research and development efforts;

•  the scope and results of preclinical studies and clinical trials;

•  the costs, timing and outcome of regulatory reviews;

•  determinations as to the commercial potential of our product candidates in development;

•  the pace of expansion of administrative expenses;

•  the status of competitive products and competitive barriers to entry;

•  the establishment and maintenance of manufacturing capacity through third-party manufacturing agreements;

•  the establishment of collaborative relationships with other companies;

•  the payments of annual interest on our long-term debt;

•  the payments related to the Civil Settlement Agreement with the government;

•  the timing and size of the payments we may receive from Roche pursuant to the Collaboration Agreement; and

•  whether we must repay the principal in connection with our convertible debt obligations.

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As a result, we may require additional funds and may attempt to raise additional funds through equity or debt financings, collaborative arrangements with corporate partners or from other sources. We have no commitments for such fund raising activities at this time. Additional funding may not be available to finance our operations when needed or, if available, the terms for obtaining such funds may not be favorable or may result in dilution to our stockholders.

Off-Balance Sheet Arrangements

We do not have any “special purpose” entities that are unconsolidated in our financial statements. We have no commercial commitments or loans with related parties.

Contractual Obligations

Contractual obligations represent future cash commitments and liabilities under agreements with third parties, and exclude contingent liabilities, such as milestone payments, for which we cannot reasonably predict future payments. The following chart represents our contractual obligations as of December 31, 2007, aggregated by type (in millions):

Contractual Obligations	Total		2008		2009-2010		2011-2012		After 2012
Long-term debt obligations(1)	$	171.5	$	0.4	$	0.9	$	170.2	$	—
Government settlement		34.4		8.4		16.0		10.0		—
Operating leases		16.3		4.8		9.9		1.6		—
Non-cancelable purchase obligations — Other(2)		6.8		5.3		1.5		—		—
Research and development commitments(3)		21.0		15.4		5.6		—		—
Total contractual cash obligations	$	250.0	$	34.3	$	33.9	$	181.8	$	—

(1)	These amounts include accrued interest and the principal amount of the 0.25% convertible senior notes due 2011.
(2)	These amounts consist of clinical, process development and marketing related obligations.
(3)	These amounts consist of clinical related obligations and are cancelable upon discontinuation of the trial. They do not include any amounts related to the collaboration agreement with Roche given the inherent difficulties in the estimation process.

The operating leases for our facilities require letters of credit secured by a restricted cash balance with our bank. The amount of each letter of credit approximates six to twelve months of operating rent payable to the landlord of each facility.

Recent Accounting Pronouncements

At its December 2007 meeting, the Financial Accounting Standards Board (FASB) ratified the consensus reached by the Emerging Issues Task Force (EITF) in Issue No. 07-1, Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property. The EITF concluded that a collaborative arrangement is one in which the participants are actively involved and are exposed to significant risks and rewards that depend on the ultimate commercial success of the endeavor. Revenues and costs incurred with third parties in connection with collaborative arrangements would be presented gross or net based on the criteria in EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, and other accounting literature. Payments to or from collaborators would be evaluated and presented based on the nature of the arrangement and its terms, the nature of the entity’s business and whether those payments are within the scope of other accounting literature. The nature and purpose of collaborative arrangements are to be disclosed along with the accounting policies and the classification and amounts of significant financial statement amounts related to the arrangements. Activities in the arrangement conducted in a separate legal entity should be accounted for under other accounting literature; however, required disclosure under EITF 07-1 applies to the entire collaborative agreement. This Issue is effective for fiscal years beginning after December 15, 2008, and is to be applied retrospectively to all periods presented for all collaborative arrangements existing as of the effective date. We are currently in the process of

58

evaluating the impact of adopting this pronouncement and have not determined whether it will have a material impact, but its adoption would not affect reported amounts of net loss.

In June 2007, the FASB ratified the consensus reached by the Emerging Issues Task Force on Issue No. 07-3 (“EITF 07-3”), Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities. Pursuant to EITF 07-3, nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized. Such amounts should be recognized as an expense as the related goods are delivered or services are performed, or when the goods or services are no longer expected to be received. This Issue is effective for us beginning January 1, 2008, and is to be applied prospectively for contracts entered into on or after the effective date. We do not expect the adoption of EITF 07-3 to have a material impact on our consolidated financial position, results of operations or cash flows.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (“SFAS 159”), The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 permits an entity to measure certain financial assets and financial liabilities at fair value where entities will report unrealized gains and losses in earnings at each subsequent reporting date. The standard allows entities to elect fair value application on an instrument-by-instrument basis with certain exceptions. The fair value option election is irrevocable in most cases. The new standard establishes presentation and disclosure requirements and assets and liabilities that are measured at fair value must be displayed on the face of the balance sheet. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We do not expect the adoption of SFAS 159 to have a material impact on our consolidated financial position, results of operations or cash flows.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (“SFAS 157”), “Fair Value Measurements,” which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Earlier adoption is permitted, provided the company has not yet issued financial statements, including for interim periods, for that fiscal year. We do not expect the adoption of SFAS 157 to have a material impact on our consolidated financial position, results of operations or cash flows.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate and Market Risk

The securities in our investment portfolio are not leveraged, are classified as available-for-sale and are, due to their short-term nature, subject to minimal interest rate risk. We currently do not hedge interest rate exposure. Because of the short-term maturities of our investments, we do not believe that a change in market rates would have a significant negative impact on the value of our investment portfolio.

The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents and short-term and long-term investments in a variety of securities, including obligations of U.S. government-sponsored enterprises, municipal notes which may have an auction reset feature, corporate notes and bonds, commercial paper, and money market funds. These securities are classified as available for sale and consequently are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income. Substantially all investments mature within approximately 2 years from the date of purchase. Our holdings of the securities of any one issuer, except obligations of U.S. government-sponsored enterprises, do not exceed 10% of the portfolio. If interest rates rise, the market value of our investments may decline, which could result in a realized loss if we are forced to sell an investment before its scheduled maturity. We do not utilize derivative financial instruments to manage our interest rate risks.

At December 31, 2007, we held approximately $27.0 million of municipal notes investments, classified as current assets, with an auction reset feature (“auction rate securities”) whose underlying assets are generally student

59

loans which are substantially backed by the federal government. Through March 4, 2008, auctions failed for $24.0 million of our auction rate securities and as a result our ability to liquidate our investment and fully recover the carrying value of our investment in the near term may be limited or not exist. An auction failure means that the parties wishing to sell securities could not. All of our auction rate securities are currently rated AAA, the highest rating by a rating agency. If the issuers are unable to successfully close future auctions and their credit ratings deteriorate, we may in the future be required to record an impairment charge on these investments. We currently believe these securities are not significantly impaired, primarily due to the government guarantee of the underlying securities, however, it could take until the final maturity of the underlying notes (up to 35 years) to realize our investments’ recorded value. Based on our expected operating cash flows, and our other sources of cash, we do not anticipate the potential lack of liquidity on these investments will affect our ability to execute our current business plan.

The table below presents the principal amounts and weighted-average interest rates by year of maturity for our investment portfolio as of December 31, 2007 by effective maturity (in millions, except percentages):

																		Fair Value at
													2012 and					December 31,
	2008			2009			2010			2011			beyond		Total			2007
Assets:
Available-for-sale securities	$	211.7		$	6.4		$	2.9		$	—		$	—	$	221.0		$	222.5
Average interest rate		4.8	%		5.1	%		5.1	%		—			—		4.8	%		—
Liabilities:
0.25% convertible senior notes due 2011		—			—			—		$	170.0			—	$	170.0		$	159.5
Average interest rate		—			—			—			0.25	%		—		0.25	%		—

The table below presents the principal amounts and weighted-average interest rates by year of maturity for our investment portfolio as of December 31, 2006 by effective maturity (in millions, except percentages):

																	Fair Value at
											2011 and						December 31,
	2007			2008			2009		2010		beyond			Total			2006
Assets:
Available-for-sale securities	$	172.2		$	29.0		$	—	$	—	$	—		$	201.2		$	202.1
Average interest rate		5.2	%		5.3	%		—		—		—			5.2	%		—
Liabilities:
0.25% convertible senior notes due 2011		—			—			—		—	$	170.0		$	170.0		$	249.1
Average interest rate		—			—			—		—		0.25	%		0.25	%		—

Foreign Currency Market Risk

We purchase commercial and clinical products from BI and settle our obligations in a foreign currency. This exposes us to foreign currency exchange rate risk. To protect against currency exchange risks on forecasted foreign currency cash payments for the purchases of Actimmune from BI over the next year, we have considered instituting a foreign currency cash flow hedging program. In the past, we have hedged portions of our forecasted foreign currency cash payments with forward contracts. When the dollar strengthens significantly against the foreign currencies, the decline in the value of future foreign currency expenses is offset by losses in the value of the option or forward contracts designated as hedges. Conversely, when the dollar weakens, the increase in the value of future foreign currency expenses is offset by gains in the value of the forward contracts. In 2004, we used foreign currency forward contracts to partially mitigate this exposure, but did not enter into any new foreign currency forward contracts in 2005, 2006 or 2007. We regularly evaluate the cost-benefit of entering into such arrangements, and presently have no foreign currency hedge agreements outstanding.

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ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm	62
Consolidated Balance Sheets	63
Consolidated Statements of Operations	64
Consolidated Statements of Stockholders’ Equity (Deficit)	65
Consolidated Statements of Cash Flows	66
Notes to Consolidated Financial Statements	67

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

InterMune, Inc.

We have audited the accompanying consolidated balance sheets of InterMune, Inc. (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2007. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of InterMune, Inc. at December 31, 2007 and 2006, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, in 2006 InterMune, Inc. changed its method of accounting for stock-based compensation in accordance with guidance provided in Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment.”

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), InterMune, Inc’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2008, expressed an unqualified opinion thereon.

Ernst & Young LLP

Palo Alto, California

March 10, 2008

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INTERMUNE, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2007			2006
	(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	88,946		$	109,386
Available-for-sale securities		146,346			105,163
Accounts receivable, net of allowances of $44 in 2007 and $164 in 2006		3,117			11,799
Inventories		1,776			8,188
Deferred taxes		2,275			—
Prepaid expenses and other current assets		7,112			7,691
Total current assets		249,572			242,227
Property and equipment, net		8,118			9,210
Acquired product rights, net		667			1,167
Other assets (includes restricted cash of $1,425)		4,088			4,979
Total assets	$	262,445		$	257,583
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	7,392		$	10,572
Accrued compensation		7,282			6,181
Deferred taxes		2,275			—
Other accrued liabilities		18,160			23,550
Total current liabilities		35,109			40,303
Deferred rent		1,767			1,804
Deferred collaboration revenue		62,989			56,732
Liability under government settlement		23,468			28,541
Convertible notes		170,000			170,000
Commitments and contingencies (Note 14)
Stockholders’ deficit:
Convertible preferred stock, $0.001 par value; 5,000 shares authorized, no shares issued and outstanding at December 31, 2007 and 2006, respectively		—			—
Common stock, $0.001 par value, 70,000 shares authorized; 39,032 and 34,264 shares issued and outstanding at December 31, 2007 and 2006, respectively		39			34
Additional paid-in capital		623,115			528,116
Accumulated other comprehensive income		3,647			140
Accumulated deficit		(657,689	)		(568,087	)
Total stockholders’ deficit		(30,888	)		(39,797	)
Total liabilities and stockholders’ deficit	$	262,445		$	257,583

See Accompanying Notes to Consolidated Financial Statements

63

INTERMUNE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2007			2006			2005
	(In thousands, except per share amounts)
Revenue, net
Actimmune	$	53,420		$	90,317		$	107,633
Other products		—			—			2,863
Collaboration revenue		13,272			467			—
Total revenue, net		66,692			90,784			110,496
Costs and expenses:
Cost of goods sold		14,109			24,608			35,022
Research and development		105,939			103,849			82,736
Acquired research and development and milestone expense/(credits)		13,725			—			(10,000	)
General and administrative		29,577			40,372			58,854
Restructuring charges		10,246			—			5,549
Provision for government settlement		—			36,944			—
Total costs and expenses		173,596			205,773			172,161
Loss from operations		(106,904	)		(114,989	)		(61,665	)
Other income (expense):
Interest income		10,699			9,512			3,965
Interest expense		(2,881	)		(1,542	)		(1,261	)
Other income		2,215			1,057			1,313
Loss from continuing operations before income taxes		(96,871	)		(105,962	)		(57,648	)
Income tax benefit		(2,275	)		—			—
Loss from continuing operations		(94,596	)		(105,962	)		(57,648	)
Discontinued operations:
Gain (loss) from discontinued operations		4,994			(1,244	)		(32,925	)
Gain on sale of discontinued operations (net of transaction costs)		—			—			85,338
Income (loss) from discontinued operations		4,994			(1,244	)		52,413
Net loss	$	(89,602	)	$	(107,206	)	$	(5,235	)
Basic and diluted loss per share
Continuing operations	$	(2.67	)	$	(3.18	)	$	(1.79	)
Discontinued operations	$	0.15		$	(0.04	)	$	1.63
Net loss per share	$	(2.52	)	$	(3.22	)	$	(0.16	)
Shares used in computing basic and diluted net loss per share		35,493			33,277			32,220

See Accompanying Notes to Consolidated Financial Statements

64

INTERMUNE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

												Accumulated
						Additional						Other						Total
	Common Stock					Paid-in			Deferred Stock			Comprehensive			Accumulated			Stockholders’
	Shares			Amount		Capital			Compensation			Income			Deficit			Equity (Deficit)
	(In thousands)
Balances at December 31, 2004		32,583		$	33	$	492,663		$	(5,845	)	$	1,586		$	(455,646	)	$	32,791
Net unrealized gain on available-for-sale securities		—			—		—			—			173			—			173
Change in unrealized gain on foreign currency cash flow hedge		—			—		—			—			(1,005	)		—			(1,005	)
Net loss		—			—		—			—			—			(5,235	)		(5,235	)
Comprehensive loss																			(6,067	)
Exercise of stock options		19			—		236			—			—			—			236
Stock issued under employee stock purchase plan		203			—		1,847			—			—			—			1,847
Stock compensation related to the modification of unvested stock options		—			—		1,301			—			—			—			1,301
Issuance of restricted stock to employees		11			—		175			—			—			—			175
Reversal of deferred stock compensation due to employee terminations		(227	)		—		(2,269	)		2,269			—			—			—
Amortization of deferred stock compensation, net of reversals		—			—		—			1,484			—			—			1,484
Balances at December 31, 2005		32,589		$	33	$	493,953		$	(2,092	)	$	754		$	(460,881	)	$	31,767
Net unrealized loss on available-for-sale securities		—			—		—			—			(7	)		—			(7	)
Change in unrealized gain on foreign currency cash flow hedge		—			—		—			—			(607	)		—			(607	)
Net loss		—			—		—			—			—			(107,206	)		(107,206	)
Comprehensive loss																			(107,820	)
Exercise of stock options		1,225			1		18,605			—			—			—			18,606
Stock issued under employee stock purchase plan		117			—		1,128			—			—			—			1,128
Reclassification of deferred compensation upon adoption of SFAS 123(R)		—			—		(2,092	)		2,092			—			—			—
Issuance of restricted stock to employees		333			—		5,960			—			—			—			5,960
Stock compensation related to the modification of stock options		—			—		253			—			—			—			253
Stock compensation related to employee stock benefit plans		—			—		10,309			—			—			—			10,309
Balances at December 31, 2006		34,264		$	34	$	528,116		$	—		$	140		$	(568,087	)	$	(39,797	)
Net unrealized gain on available-for-sale securities, net of taxes of $2,275		—			—		—			—			3,719			—			3,719
Change in unrealized gain on foreign currency cash flow hedge		—			—		—			—			(212	)		—			(212	)
Net loss		—			—		—			—			—			(89,602	)		(89,602	)
Comprehensive loss																			(86,095	)
Exercise of stock options		534			1		7,633			—			—			—			7,634
Stock issued under employee stock purchase plan		111			—		1,257			—			—			—			1,257
Issuance of common stock in a public offering at $19.50 per share, net of issuance costs of $5,092		4,025			4		73,391			—			—			—			73,395
Issuance of restricted stock to employees		98			—		2,694			—			—			—			2,694
Stock compensation related to the modification of stock options		—			—		482			—			—			—			482
Stock compensation related to employee stock benefit plans		—			—		9,542			—			—			—			9,542
Balances at December 31, 2007		39,032		$	39	$	623,115		$	—		$	3,647		$	(657,689	)	$	(30,888	)

See Accompanying Notes to Consolidated Financial Statements

65

INTERMUNE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Year Ended December 31,
	2007			2006			2005
	(In thousands)
Cash flows used for operating activities:
Net loss	$	(89,602	)	$	(107,206	)	$	(5,235	)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on sale of discontinued operations		—			—			(85,338	)
Stock-based compensation expense		12,718			16,522			2,960
Acquired research and development and milestone (credits) payments		—			—			(10,000	)
Amortization		1,336			1,331			4,555
Depreciation		3,511			2,516			2,860
Deferred taxes		(2,275	)		—			—
Deferred rent		(37	)		161			130
Impairment of intangible asset		—			—			600
Change in unrealized gain on foreign currency cash flow hedge		(212	)		(607	)		(1,005	)
Changes in operating assets and liabilities:
Accounts receivable		8,682			4,424			(1,335	)
Inventories		6,412			4,249			14,053
Prepaid expenses		579			(1,319	)		(291	)
Other assets		55			927			(760	)
Accounts payable and accrued compensation		(2,079	)		(24,090	)		3,649
Other accrued liabilities		(8,459	)		(5,816	)		4,386
Liability under government settlement		(2,474	)		33,116			—
Deferred collaboration revenue		6,727			59,534			—
Net cash used in operating activities		(65,118	)		(16,258	)		(70,771	)
Cash flows from investing activities:
Purchase of property and equipment		(2,419	)		(4,452	)		(2,144	)
Proceeds from the divestiture of Infergen		—			—			120,000
Purchase of manufacturing technology rights		—			—			(16,832	)
Purchases of available-for-sale securities		(182,517	)		(130,434	)		(77,353	)
Maturities of available-for-sale securities		107,328			41,396			103,516
Sales of available-for-sale securities		40,000			12,065			72,903
Other		—			—			163
Net cash provided by (used in) investing activities		(37,608	)		(81,425	)		200,253
Cash flows from financing activities:
Proceeds from issuance of common stock in a public offering, net of issuance costs		73,395			—			—
Proceeds from issuance of common stock under employee stock benefit plans, net		8,891			19,734			2,084
Net cash provided by financing activities		82,286			19,734			2,084
Net increase (decrease) in cash and cash equivalents		(20,440	)		(77,949	)		131,566
Cash and cash equivalents at beginning of period		109,386			187,335			55,769
Cash and cash equivalents at end of period	$	88,946		$	109,386		$	187,335
Supplemental disclosure of cash flow information:
Interest paid	$	1,733		$	445		$	425
Reclassification of deferred compensation upon adoption of SFAS 123(R)	$	—		$	2,092		$	—

See Accompanying Notes to Consolidated Financial Statements

66

InterMune, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION

Overview

InterMune, Inc. (“InterMune,” “the Company,” “we,” “our,” or “us”) is an independent biotechnology company focused on developing and commercializing innovative therapies in pulmonology and hepatology. Our revenue is provided from sales of Actimmune and our collaboration agreement with Hoffmann-LaRoche Inc. and F.Hoffmann-La Roche Ltd (collectively, “Roche”). We also have preclinical and advanced stage clinical programs in the hepatology and pulmonology areas. As part of our efforts to refocus our corporate strategy in 2005, we completed the sale of our Infergen product, including related intellectual property rights and inventory, in December 2005. As a result of this transaction, Infergen related activities are reflected as discontinued operations in these financial statements. Effective March 5, 2007 as a result of disappointing trial results, we made the decision to discontinue the Phase III INSPIRE clinical trial evaluating Actimmune in patients with idiopathic pulmonary fibrosis (“IPF”).

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of InterMune and its wholly-owned subsidiaries, InterMune Canada Inc. and InterMune Ltd. (U.K.). All inter-company balances and transactions have been eliminated. To date, the financial position and results of operations of InterMune Canada Inc. and InterMune Ltd. (U.K.) have been dormant with no assets, liabilities or operations.

Use of Estimates

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

We evaluate our estimates and assumptions on an ongoing basis, including those related to reserves for doubtful accounts, returns, charge backs, cash discounts and rebates; excess inventories; the effects of inventory purchase commitments on inventory; and certain accrued clinical and preclinical expenses and contingent liabilities. We base our estimates on historical experience and on various other specific assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Cash, Cash Equivalents and Available-For-Sale Securities

Cash and cash equivalents consist of highly liquid investments with original maturities, when purchased, of less than three months. We classify all debt securities as available-for-sale. Cash equivalents and available-for-sale securities are carried at fair value, with unrealized gains and losses, reported as other comprehensive income, a separate component of stockholders’ equity (deficit). We have estimated the fair value amounts by using quoted market prices. The cost of securities sold is based on the specific identification method.

Fair Value of Other Financial Instruments

Other financial instruments, including accounts receivable, accounts payable and accrued liabilities, are carried at historical cost, which we believe approximates fair value because of the short-term nature of these instruments. The fair value of our convertible senior notes was $159.5 million at December 31, 2007 and $249.1 million at December 31, 2006, which we determined using readily available market information.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Inventory Valuation

Inventories are stated at the lower of cost or market. Cost is determined by the specific identification method. Inventories were $1.8 million and $8.2 million at December 31, 2007 and December 31, 2006, respectively, and consisted solely of Actimmune finished goods.

Because of the long lead times required to manufacture Actimmune, we enter into purchase obligations to satisfy our estimated inventory requirements. We evaluate the need to provide reserves for contractually committed future purchases of inventory that may be in excess of forecasted future demand. In making these assessments, we are required to make judgments as to the future demand for current as well as committed purchases. We are also required to make judgments as to the expiration dates of Actimmune, since Actimmune can no longer be used after its expiration date. As part of our excess inventory assessment for Actimmune, we also consider the expiration dates of Actimmune to be manufactured in the future under these purchase obligations.

During the years ended December 31, 2007 and December 31, 2005, we charged $1.6 million and $9.1 million, respectively, to cost of goods sold for inventory write downs resulting from the estimated excess of inventory compared to forecasted inventory requirements and non-cancelable purchase commitments in excess of forecasted demand. We did not incur any charges for excess inventory and non-cancelable purchase commitments in 2006.

Concentration of Risks

Cash equivalents and investments are financial instruments that potentially subject us to concentration of risk to the extent recorded on the balance sheet. We have established guidelines for investing excess cash relative to diversification and maturities that we believe maintain safety and liquidity. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest our excess cash in debt instruments of the U.S. federal and state governments and their agencies and high-quality corporate issuers, and, by policy, restrict our exposure to any single corporate issuer by imposing concentration limits. To reduce the exposure due to adverse shifts in interest rates we maintain investments with short effective maturities.

Foreign Currency and Derivative Instruments

From time to time, we have used derivatives to manage our market exposure to fluctuations in foreign currencies. We record all derivatives on the balance sheet at fair value. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The gain or loss on the derivative instruments in excess of the cumulative change in the present value of future cash flows of the hedged transaction, if any, is recognized in current earnings during the period of change. We do not use derivative instruments for speculative purposes.

We purchase commercial and clinical products from Boehringer Ingelheim (“BI”) and settle our obligations in a foreign currency. This exposes us to foreign currency exchange rate risk. To protect against currency exchange risks on forecasted foreign currency cash payments for the purchases of Actimmune from BI over the next year, we have considered instituting a foreign currency cash flow hedging program. In the past, we have hedged portions of our forecasted foreign currency cash payments with forward contracts. When the dollar strengthens significantly against the foreign currencies, the decline in the value of future foreign currency expenses is offset by losses in the value of the option or forward contracts designated as hedges. Conversely, when the dollar weakens, the increase in the value of future foreign currency expenses is offset by gains in the value of the forward contracts. In accordance with FAS 133, hedges related to anticipated transactions are designated and documented at the hedge’s inception as cash flow hedges and evaluated for hedge effectiveness at least quarterly.

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InterMune, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At December 31, 2006, net gains on derivative instruments expected to be reclassified from accumulated other comprehensive income to earnings ratably with sales of Actimmune were $0.2 million. Such amount was recognized as a reduction of cost of goods sold ratably throughout 2007 as the related units of Actimmune were sold. At December 31, 2007, there were no outstanding derivative instruments and no remaining balance in Accumulated Other Comprehensive Income. Amounts reclassified from accumulated other comprehensive income to earnings ratably with sales of Actimmune and recognized as a reduction of cost of goods sold in 2006 and 2005 were $0.6 million and $1.0 million, respectively.

Property and Equipment

Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets as follows:

	Useful Lives
Computer and laboratory equipment	3 to 5 years
Office furniture and fixtures	3 to 5 years
Leasehold improvements	Length of lease

Acquired Product Rights

Initial payments for the acquisition of products that, at the time of acquisition, are already marketed or are approved by the FDA for marketing are capitalized and amortized ratably over the estimated life of the products, typically ten years. At the time of acquisition, the product life is estimated based upon the term of the agreement, the patent life of the product and our assessment of future sales and profitability of the product. We assess this estimate regularly during the amortization period and adjust the asset value or useful life when appropriate. Initial payments for the acquisition of products that, at the time of acquisition, are under development or are not approved by the FDA for marketing, have not reached technical feasibility and have no foreseeable alternative future uses are expensed as research and development costs. Acquired product rights consist of payments made for the acquisition of rights to interferon gamma (see Note 6). Accumulated amortization of this intangible asset was $2.8 million and $2.3 million at December 31, 2007 and 2006, respectively. Amortization expense for acquired product rights for each of the next two years until fully amortized is scheduled as follows: 2008 — $0.5 million; 2009 — $0.2 million.

Impairment of Long-Lived Assets

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” if indicators of impairment exist, we assess the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through undiscounted future operating cash flows. If impairment is indicated, we will measure the amount of such impairment by comparing the carrying value of the asset to the present value of the expected future cash flows associated with the use of the asset.

Revenue Recognition and Revenue Reserves

We recognize revenue generally upon delivery when title passes to a credit-worthy customer and record provisions for estimated returns, rebates, chargebacks and cash discounts against revenue. We are obligated to accept from customers the return of pharmaceuticals that have reached their expiration date. We believe that we are able to make reasonable and reliable estimates of product returns, rebates, chargebacks and cash discounts based on historical experience and other known or anticipated trends and factors. We review all sales transactions for potential rebates, chargebacks and discounts each month and believe that our reserves are adequate. We include shipping and handling costs in cost of goods sold.

Our revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer and whether there is

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

objective and reliable evidence of the fair value of the undelivered items. The consideration we receive is allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. Advance payments received in excess of amounts earned are classified as deferred revenue until earned.

Collaboration revenue derived from our agreement with Roche generally includes upfront license fees and milestone payments. Nonrefundable upfront license fees that require our continuing involvement in the form of research, development, or other commercialization efforts by us are recognized as revenue ratably over the estimated life of the contract. Milestone payments received under our Roche collaboration agreement related to events that are substantively at risk at the initiation of the agreement are recognized as revenue when the milestones, as defined in the contract, are achieved and collectibility of the milestone is assured.

On March 26, 2004, we entered into an agreement with Baxter Healthcare Corporation (“Baxter”) under which we co-promoted Baxter’s product Aralast^® in the United States for the treatment of patients with hereditary emphysema. Under this agreement, we were compensated by Baxter based upon a percentage of Aralast sales. We recognized Aralast co-promotion revenue upon receipt of the co-promotion funds from Baxter. The co-promotion revenue calculation was dependent upon national sales data which lagged one quarter for reporting purposes, therefore estimates were not used. Co-promotion revenue was based on a percentage of Baxter’s sales of Aralast to pulmonologists. We terminated this agreement with Baxter in December 2005 in connection with the decision to significantly reduce our field-based pulmonary disease awareness activities.

Research and Development Expenses

Research and development (“R&D”) expenses include salaries, contractor and consultant fees, external clinical trial expenses performed by contract research organizations (“CRO”), licensing fees, acquired intellectual property with no alternative future use and facility and administrative expense allocations. In addition, we fund R&D at research institutions under agreements that are generally cancelable at our option. Research costs typically consist of applied research and preclinical and toxicology work. Pharmaceutical manufacturing development costs consist of product formulation, chemical analysis and the transfer and scale-up of manufacturing at our contract manufacturers. Clinical development costs include the costs of Phase I, II and III clinical trials. These costs, along with the manufacturing scale-up costs, are a significant component of research and development expenses.

We accrue costs for clinical trial activities performed by contract research organizations and other third parties based upon the estimated amount of work completed on each study as provided by the CRO. These estimates may or may not match the actual services performed by the organizations as determined by patient enrollment levels and related activities. We monitor patient enrollment levels and related activities using available information; however, if we underestimate activity levels associated with various studies at a given point in time, we could be required to record significant additional R&D expenses in future periods when the actual activity level becomes known. We charge all such costs to R&D expenses.

Collaboration agreements with co-funding arrangements resulting in a net receivable or payable of R&D expenses are recognized as the related R&D expenses by both parties are incurred. The agreement with Roche resulted in a net payable of approximately $0.1 million at December 31, 2007 and a net receivable of $3.2 million at December 31, 2006. See Note 7 below.

Advertising Costs

We expense advertising costs as incurred.  Advertising costs were $42,000, $285,000 and $313,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

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InterMune, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Income Taxes

In accordance with SFAS No. 109, “Accounting for Income Taxes,” we determine a deferred tax asset or liability based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates, which will be in effect when these differences reverse. We provide a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized. Accordingly, the net deferred taxes have been fully offset by a valuation allowance.

We adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”) on January 1, 2007. FIN 48 requires companies to determine whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities before any tax benefit can be recorded in the financial statements. It also provides guidance on the recognition, measurement, classification and interest and penalties related to uncertain tax positions. The adoption of FIN 48 did not have an impact on our results of operations or financial condition.

Comprehensive Income (Loss)

SFAS No. 130, “Reporting Comprehensive Income,” requires components of other comprehensive income, including unrealized gains or losses on our available-for-sale securities, to be included in total comprehensive income (loss). Total comprehensive loss for each of the periods presented is disclosed in Note 10 below. Also, other comprehensive income (loss) includes certain changes in stockholders’ equity that are excluded from net loss. Specifically, we include in other comprehensive income (loss) changes in the fair value of our available-for-sale investments and derivatives designated as cash flow hedges.

Net Loss Per Share

We compute basic net loss per share by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. We deduct shares subject to repurchase by us from the outstanding shares to arrive at the weighted average shares outstanding. We compute diluted net loss per share by dividing the net loss for the period by the weighted average number of common and common equivalent shares outstanding during the period. We exclude dilutive securities, composed of potential common shares issuable upon the exercise of stock options and common shares issuable on conversion of our convertible notes, from diluted net loss per share because of their anti-dilutive effect.

The securities excluded were as follows (in thousands):

	Year Ended December 31,
	2007		2006		2005
Options		4,671		5,390		6,449
Shares issuable upon conversion of convertible notes		7,859		7,859		7,859

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InterMune, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The calculation of basic and diluted net loss per share is as follows (in thousands, except per share data):

	Year Ended December 31,
	2007			2006			2005
Net loss	$	(89,602	)	$	(107,206	)	$	(5,235	)
Basic and diluted net loss per share:
Weighted-average shares of common stock outstanding		35,743			33,702			32,577
Less: weighted-average shares subject to repurchase		(250	)		(425	)		(357	)
Weighted-average shares used in computing basic and diluted net loss per share		35,493			33,277			32,220
Basic and diluted net loss per share	$	(2.52	)	$	(3.22	)	$	(0.16	)

Stock-Based Compensation

On January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options, restricted stock and employee stock purchases related to the Amended and Restated 2000 Employee Stock Purchase Plan (“ESPP”) based on estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in fiscal 2006. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).

We adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006, the first day of our fiscal year 2006. In accordance with the modified prospective transition method, our Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Stock-based compensation expense recognized under SFAS 123(R) for the years ended December 31, 2007 and 2006 was $12.7 million and $16.5 million, respectively, which consisted of stock-based compensation expense related to employee stock options, restricted stock and the ESPP. Stock-based compensation expense of $3.0 million for the year ended December 31, 2005 was related to restricted stock and costs associated with the acceleration of unvested stock options, which we had been recognizing under previous accounting standards. There was no stock-based compensation expense related to the ESPP recognized during the year ended December 31, 2005. See Note 12 for additional information.

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated Statement of Operations. Prior to the adoption of SFAS 123(R), we accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Under the intrinsic value method, no stock-based compensation expense had been recognized in our Consolidated Statement of Operations, other than for restricted stock and the acceleration of unvested stock options, because the exercise price of the Company’s stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant.

Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized in our Consolidated Statement of Operations for fiscal 2006 included compensation expense for share-based payment awards granted prior to, but not yet vested as of December 31, 2005 based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123 and compensation expense for the share-based payment awards granted subsequent to December 31, 2005 based on the grant date fair value estimated in

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

accordance with the provisions of SFAS 123(R). In conjunction with the adoption of SFAS 123(R), we changed our method of attributing the value of stock-based compensation to expense from the accelerated multiple-option approach to the straight-line single option method. Compensation expense for all share-based payment awards granted on or prior to December 31, 2005 will continue to be recognized using the accelerated multiple-option approach while compensation expense for all share-based payment awards granted subsequent to December 31, 2005 is recognized using the straight-line single option method. As stock-based compensation expense recognized in the Consolidated Statement of Operations for fiscal years 2007 and 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and adjusted, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In the Company’s pro forma information required under SFAS 123 for the periods prior to fiscal 2006, we accounted for forfeitures as they occurred.

Upon adoption of SFAS 123(R), the Company retained its method of valuation for share-based awards granted beginning in fiscal 2006 with the use of the Black-Scholes option-pricing model (“Black-Scholes model”) which was previously used for the Company’s pro forma information required under SFAS 123. For additional information, see Note 12. The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

Recent Accounting Pronouncements

At its December 2007 meeting, the Financial Accounting Standards Board (FASB) ratified the consensus reached by the Emerging Issues Task Force (EITF) in Issue No. 07-1, Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property. The EITF concluded that a collaborative arrangement is one in which the participants are actively involved and are exposed to significant risks and rewards that depend on the ultimate commercial success of the endeavor. Revenues and costs incurred with third parties in connection with collaborative arrangements would be presented gross or net based on the criteria in EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, and other accounting literature. Payments to or from collaborators would be evaluated and presented based on the nature of the arrangement and its terms, the nature of the entity’s business and whether those payments are within the scope of other accounting literature. The nature and purpose of collaborative arrangements are to be disclosed along with the accounting policies and the classification and amounts of significant financial statement amounts related to the arrangements. Activities in the arrangement conducted in a separate legal entity should be accounted for under other accounting literature; however, required disclosure under EITF 07-1 applies to the entire collaborative agreement. This Issue is effective for fiscal years beginning after December 15, 2008, and is to be applied retrospectively to all periods presented for all collaborative arrangements existing as of the effective date. We are currently in the process of evaluating the impact of adopting this pronouncement. We are currently in the process of evaluating the impact of adopting this pronouncement and have not determined whether it will have a material impact, but its adoption would not affect reported amounts of net loss.

In June 2007, the FASB ratified the consensus reached by the Emerging Issues Task Force on Issue No. 07-3 (“EITF 07-3”), Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities. Pursuant to EITF 07-3, nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized. Such amounts should be recognized as an expense as the related goods are delivered or services are performed, or when the goods or services are no longer expected to be received. This Issue is effective for us beginning January 1, 2008, and is to be applied prospectively for contracts entered into on or after the effective date. We do not expect the adoption of EITF 07-3 to have a material impact on our consolidated financial position, results of operations or cash flows.

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In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (“SFAS 159”), The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 permits an entity to measure certain financial assets and financial liabilities at fair value where entities will report unrealized gains and losses in earnings at each subsequent reporting date. The standard allows entities to elect fair value application on an instrument-by-instrument basis with certain exceptions. The fair value option election is irrevocable in most cases. The new standard establishes presentation and disclosure requirements and assets and liabilities that are measured at fair value must be displayed on the face of the balance sheet. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We do not expect the adoption of SFAS 159 to have a material impact on our consolidated financial position, results of operations or cash flows.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (“SFAS 157”), “Fair Value Measurements,” which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Earlier adoption is permitted, provided the company has not yet issued financial statements, including for interim periods, for that fiscal year. We do not expect the adoption of SFAS 157 to have a material impact on our consolidated financial position, results of operations or cash flows.

3.   DISCONTINUED OPERATIONS

Product Acquisition Agreement

We entered into a Product Acquisition Agreement (the “Agreement”) with Valeant Pharmaceuticals International (“Valeant”) on November 28, 2005, whereby Valeant agreed to purchase all of the rights to Infergen from us. Valeant agreed to acquire certain assets, including intellectual property rights and inventory, as of December 30, 2005 for approximately $122.1 million, including a fixed payment of approximately $2.1 million in 2007. Of the $122.1 million, $6.5 million is related to the purchase of finished product inventory. The Agreement also states that we are entitled to receive approximately $20.0 million contingent upon Valeant achieving certain clinical related milestones beginning in 2007, of which $5.0 million was received in July 2007 and recorded in discontinued operations in the statement of operations. The operating results of our Infergen activities, which include allocations of research and development and selling, general and administrative expenses, have been reclassified as discontinued operations for all periods presented.

We had acquired rights to Infergen in a licensing and commercialization agreement with Amgen in 2001 through which we obtained an exclusive license in the United States and Canada to Infergen and the rights to an early stage program to develop a pegylated form of Infergen (PEG-Alfacon-1). Infergen is currently approved in both the United States and Canada to treat chronic HCV infections. We initially paid Amgen total consideration of $29.0 million for up-front license and other fees and milestones with respect to our license, and had been obligated to pay royalties on sales of Infergen. Based upon an independent appraisal, the $5.4 million fair value of the in-process research and development program for PEG-Alfacon-1 was expensed as acquired research and development and milestone payments because at the time of acquisition the PEG-Alfacon-1 program was in clinical development, had not reached technical feasibility and had no foreseeable alternative future uses. The remainder of the purchase price of approximately $23.6 million was allocated to developed technology and recorded as an intangible asset, which was being amortized over ten years.

Manufacturing Technology Rights

On November 3, 2005, we entered into an agreement with BI for the future clinical and commercial supply of Infergen. The agreement generally obligated BI to supply exclusively to us, and for us to purchase exclusively from BI, bulk Infergen as well as the finished forms of Infergen that are currently marketed. Amgen will remain the manufacturer for Infergen until the transfer of the manufacturing process from Amgen to BI is completed and until

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BI is approved by the FDA as a manufacturer of Infergen. Prior to and upon execution of the agreement, we made payments to BI of approximately $16.8 million. We assigned this agreement and all future rights and obligations thereunder to Valeant as part of the sale of the Infergen product to Valeant in December 2005.

Purchase Option

Under the terms of our agreement with Valeant for the purchase of Infergen, Valeant has the option to acquire our rights to PEG Alfacon-1 at any time prior to the commencement of a Phase III clinical trial for PEG Alfacon-1, provided that we have incurred documented expenses by that time of at least $7.0 million in the development of PEG Alfacon-1. If Valeant chooses to exercise this option, Valeant will be obligated to pay us an amount equal to 150% of our documented expenses directly incurred by us in connection with the development of PEG Alfacon-1. In addition, if we decide to accept an offer from a third party to acquire the rights to PEG Alfacon-1, we are required to deliver written notice to Valeant of such offer and Valeant has the option to acquire the rights to PEG Alfacon-1 on substantially the same terms and conditions as those offered to us by such third party.

Results of Discontinued Operations

Summary operating results for the discontinued operations are as follows (in thousands):

	Year Ended December 31,
	2007			2006			2005
Infergen revenue, net	$	(6	)	$	(1,024	)	$	36,399
Contract (milestone) revenue		5,000			—			—
Costs and expenses:
Cost of goods sold		—			81			17,296
Amortization and impairment of acquired product rights		—			—			2,360
Research and development		—			(531	)		13,652
Selling, general and administrative		—			230			36,016
Total costs and expenses		—			(220	)		69,324
Gain (loss) from discontinued operations	$	4,994		$	(1,244	)	$	(32,925	)

Discontinued operations in 2007 consist primarily of the $5.0 million clinical related milestone received in July 2007 and in 2006 consist primarily of transition related services, including product returns. The loss from discontinued operations in 2005 includes a write-off of $3.2 million for inventory not acquired by Valeant and severance related costs of approximately $3.7 million, including $0.5 million of costs for the acceleration of options for approximately 400,000 shares of our common stock.

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Gain on Sale of Discontinued Operations

The gain on sale of discontinued operations is calculated as follows (in thousands):

Cash proceeds received from sale	$	120,000
Note receivable from Valeant		2,130
		122,130
Less Infergen assets sold:
Acquired product rights, net		(12,889	)
Manufacturing technology rights		(16,832	)
Inventories		(6,500	)
Property and equipment, net		(271	)
Less direct transaction costs:
Legal, accounting and regulatory		(300	)
Total	$	85,338

4.   ASSET IMPAIRMENT AND RESTRUCTURING CHARGES

Effective March 5, 2007, we made the decision to discontinue the Phase III INSPIRE clinical trial evaluating Actimmune in patients with IPF. This decision was based upon the recommendation of the study’s independent data monitoring committee. As a result of the disappointing INSPIRE trial results, we revised our estimates of inventory requirements as of December 31, 2006. Accordingly, we recorded a charge of $4.5 million related to the prepayment of inventory that we were expecting to receive in 2007 and 2008. While we believe other Actimmune related assets are recoverable for at least their $2.4 million net carrying value, if sales decline below our revised estimates, we may incur additional asset impairment charges, including inventory writedowns in excess of the $1.6 million recorded in 2007, and impairment of acquired product rights, as well as product returns.

The following table reflects the asset balances as of December 31, 2007 which may be impacted (in thousands):

	2007
Finished goods inventory	$	1,776
Acquired product rights, net		667
Total	$	2,443

We also incurred approximately $3.4 million in personnel-related restructuring charges during 2007, primarily consisting of severance related expenses to implement our announced plan to reduce the workforce by approximately 50%. This workforce reduction was completed as of September 30, 2007. The $3.4 million personnel-related restructuring charge is comprised of approximately $2.9 million for cash severance and related benefits and $0.5 million of costs for the acceleration of options for approximately 66,000 shares of our common stock. We have also incurred approximately $6.8 million in expenses in connection with the termination of our previous supply agreement with BI. See Note 14 below.

In the fourth quarter of 2005, our Board of Directors approved a restructuring plan recommended by our Chief Executive Officer and senior management that was designed to help streamline our operations and reduce our operating expenses in 2006. The plan, which consisted of a significant reduction in our investment in field-based IPF disease awareness activities, was implemented concurrently with the divestiture of Infergen in December 2005. See Note 3 above. These combined actions led to a significant headcount reduction of approximately 160 employees and resulting termination costs of approximately $9.2 million. Restructuring charges comprised approximately

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$5.5 million of this amount which were recorded as a separate component of operating expenses in the statement of operations, with the remainder allocated to discontinued operations. The majority of the 160 employees terminated employment at the end of the fourth quarter of 2005 and the remainder during the first quarter of 2006.

The $5.5 million restructuring charge is comprised of approximately $4.7 million for cash severance and related benefits and approximately $0.8 million for non-cash stock compensation, consisting of an allocation of option vesting acceleration costs for approximately 400,000 shares of our common stock.

The activity in the accrued restructuring balance, included within accounts payable and accrued compensation on the balance sheet, was as follows for 2006 and 2007 (in thousands):

	Restructuring								Restructuring							Restructuring
	Liabilities at								Liabilities at							Liabilities at
	December 31,		Cash			Accrual			December 31,				Cash			December 31,
	2005		Payments			Reversals			2006		Charges		Payments			2007
Workforce reduction	$	4,733	$	(4,653	)	$	(80	)	$	—	$	2,984	$	(2,780	)	$	204
Supply agreement termination		—		—			—			—		6,779		(6,779	)		—
Totals	$	4,733	$	(4,653	)	$	(80	)	$	—	$	9,763	$	(9,559	)	$	204

5.   AMPHOTEC AND ORITAVANCIN

In 2001, we acquired worldwide rights from ALZA, (now a subsidiary of Johnson & Johnson) to Amphotec (sold under the trade name Amphocil^® in certain countries outside the United States). The transaction terms included an up-front product acquisition fee of $9.0 million which was capitalized as acquired product rights and was being amortized over its estimated useful life of ten years. During September 2003, we reduced the remaining carrying value of the intangible asset by recording an impairment charge of $4.8 million. In 2004, we decided to divest Amphotec. In March 2005, we recorded an additional impairment charge of $0.6 million that was included in cost of goods sold. These impairment charges were based on our impairment review of the Amphotec product rights, which took into account that sales levels were lower than expected and that Amphotec is not aligned with our new strategic focus in pulmonology and hepatology.

In May 2005, we divested the Amphotec product line, including all related assets, to Three Rivers for cash consideration. The resulting loss, which was not material, is included in other income in our 2005 results of operations. In accordance with our agreement with Three Rivers, we may receive contingent payments based on Three Rivers meeting future specified sales targets of Amphotec. The first of these sales targets was met and we received $0.5 million from Three Rivers in the first quarter of 2007.

In 2001, we entered into an asset purchase and license agreement with Eli Lilly pursuant to which we acquired worldwide rights to oritavancin. The agreement provided us with exclusive worldwide rights to develop, manufacture and commercialize oritavancin. Pursuant to the agreement, we paid Eli Lilly $50.0 million and would have been obligated to pay Eli Lilly significant milestone payments and royalties on product sales. We expensed the $50.0 million during 2001 since oritavancin was in clinical development, had not reached technical feasibility and had no future alternative uses. We had made no royalty or milestone payments under this agreement through December 31, 2005. In September 2002, Eli Lilly exercised its option under the agreement to reduce the agreed percentage of royalties on product sales. The exercise of this option required us to pay $15.0 million to Eli Lilly, and we made the payment to Eli Lilly during January 2003. In September 2003, we expensed $10.0 million related to a milestone payment due to Eli Lilly for the completion of the Phase III clinical trials for oritavancin. This amount was recorded as a milestone-based liability at December 31, 2003 as a result of an understanding between Eli Lilly and ourselves.

In December 2005, we sold the oritavancin compound to Targanta. The terms of the agreement included upfront and clinical related contingent milestone payments of up to $9.0 million, of which $4.0 million has been

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received through December 31, 2007. We also received a convertible promissory note that, assuming certain clinical milestones were achieved, could have been valued at up to $25.0 million in principal amount from Targanta, which note was initially secured by the oritavancin assets. Upon the achievement by Targanta of certain corporate objectives, the notes were designed to convert into capital stock of Targanta, subject to certain limitations in the amount of voting stock that we may hold. Effective February 2007, these objectives were met by Targanta and, upon conversion of the promissory note, we received approximately 1.7 million shares of Targanta Series C preferred stock in exchange for the convertible promissory note. In October 2007, Targanta completed an initial public offering of its common stock at a price of $10.00 per share. Upon completion of the offering, our investment in Targanta was automatically converted into approximately 3.0 million shares of Targanta common stock and warrants to purchase approximately 0.1 million additional shares of Targanta common stock. These shares are currently restricted for resale and are subject to a lock-up agreement that expires April 2008. See Note 8 below. In connection with the 2005 sale of worldwide rights, Eli Lilly waived its right to collect a $10.0 million milestone payment which had previously been accrued by us. We also received a seat on the Targanta board of directors which we resigned from effective December 31, 2007.

6.   ACQUIRED PRODUCT RIGHTS

Marnac, Inc./KDL GmbH (Pirfenidone)

In 2002, we licensed from Marnac and its co-licensor, KDL, their worldwide rights, excluding Japan, Korea and Taiwan, to develop and commercialize pirfenidone for all fibrotic diseases, including renal, liver and pulmonary fibrosis. Under the agreement terms, we received an exclusive license from Marnac and KDL in exchange for an up-front cash payment of $18.8 million and future milestone and up to 9% royalty payments. During the third quarter of 2007, we recorded a $7.5 million expense for such milestone payments, which are based on the progress of clinical development of pirfenidone. If all of the milestones under this agreement had been achieved, we would have been required to make milestone payments of $14.5 million. Effective November 21, 2007, we entered into asset purchase agreements with Marnac and KDL whereby we effectively terminated the prior license agreement by purchasing, among other things, the pirfenidone-related assets covered by such prior license agreement. Under the terms of the asset purchase agreements, we made acquisition payments of approximately $13.7 million, which includes the $7.5 million expense recorded in the third quarter of 2007 relating to the 2002 license agreement. These payments have been reported as acquired research and development in our consolidated statements of operations. Contingent acquisition payments of up to an additional $53.5 million would be made by us only if positive Phase III data and registration in the United States and European Union are achieved. The asset purchase agreements do not affect the rights to pirfenidone in Japan, Korea and Taiwan, which rights are licensed by Marnac and KDL to Shionogi. Since the original 2002 license agreement has been effectively terminated as a result of our acquisition of such pirfenidone-related assets from Marnac and KDL, we no longer have milestone or royalty obligations thereunder.

Amgen Inc. (Interferon Gamma)

In 2002, we acquired certain pending patent applications relating to interferon gamma from Amgen in exchange for $3.5 million, of which $1.5 million was paid in June 2002, and the remaining $2.0 million was paid in January 2003. We are amortizing these product rights to operations over the expected useful product life of Actimmune. The net carrying value of this intangible asset was $0.7 million as of December 31, 2007.

Genentech, Inc. License Agreement (Actimmune)

In 1998, we obtained a license under Genentech’s patents relating to Actimmune. The license from Genentech terminates on the later of May 5, 2018 or the date that the last of the patents licensed under the agreement expires. Our licensed Actimmune rights include exclusive and non-exclusive licenses. The exclusive licenses include the right to develop and commercialize Actimmune in the United States and Canada for the treatment and prevention of

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all human diseases and conditions, including infectious diseases, pulmonary fibrosis and cancer, but excluding arthritis and cardiac and cardiovascular diseases and conditions. The non-exclusive licenses include the right to make or have made Actimmune for clinical and commercial purposes within our field of use in the United States and Canada. In Japan, we have the exclusive license rights to commercialize Actimmune for the treatment and prevention of all infectious diseases caused by fungal, bacterial or viral agents, including in patients with CGD or osteopetrosis. We also have the opportunity, under specified conditions, to obtain further rights to Actimmune in Japan and other countries. In addition, we received an exclusive sublicense under certain of Genentech’s patents outside the United States, Canada and Japan under the BI agreement discussed below. Under the Genentech license, we pay Genentech royalties on the revenue from sales of Actimmune and are required to make one-time payments to Genentech upon the occurrence of specified milestone events, which include the submission of a filing a BLA with the FDA for approval to market Actimmune for the treatment of particular categories of diseases, the receipt of FDA approval to market Actimmune for the treatment of particular categories of diseases and the achievement of certain annual revenue targets for Actimmune. We had made royalty payments of approximately $74.8 million, but no milestone payments, under this agreement in the aggregate through December 31, 2007. If all of the milestones under this agreement are achieved, we would be required to make milestone payments of $3.2 million. We must satisfy specified diligence obligations under the agreement with Genentech to maintain our license from Genentech. Our rights to certain therapeutic uses for Actimmune under this agreement could revert to Genentech if we do not meet our diligence obligations or otherwise commit a material breach of the agreement.

Connetics Corporation (Actimmune)

Through an assignment and option agreement with Connetics, we paid Connetics $5.7 million to acquire rights to Actimmune and are obligated to pay to Connetics a royalty of 0.25% of our net United States sales for Actimmune until our net United States sales cumulatively surpass $1.0 billion. Above $1.0 billion, we are obligated to pay a royalty of 0.5% of our net United States sales of Actimmune. Through a separate purchase agreement, we paid Connetics $0.4 million to acquire rights related to scleroderma and are obligated to pay Connetics a royalty of 4.0% on our net revenue from sales of Actimmune for the treatment of scleroderma. We had made royalty payments of approximately $1.6 million in the aggregate through December 31, 2007. There are no milestone payments pursuant to this agreement.

7.   SPONSORED RESEARCH, LICENSE AND COLLABORATION AGREEMENTS

Roche (Protease Inhibitors)

In October 2006 we entered into a Collaboration Agreement with Roche. Under the Collaboration Agreement, we agreed to collaborate with Roche to develop and commercialize products from our HCV protease inhibitor program. The Collaboration Agreement includes our lead candidate compound ITMN-191, which entered Phase 1a clinical trials late in 2006 and phase 1b clinical trials during the third quarter of 2007. We also agreed to collaborate with Roche on a research program to identify, develop and commercialize novel second-generation HCV protease inhibitors.

Under the terms of the Collaboration Agreement, we agreed to conduct Phase I studies for ITMN-191, and thereafter Roche agreed to lead clinical development and commercialization. Upon closing, we received an upfront payment of $60.0 million from Roche. In addition, assuming successful development and commercialization of ITMN-191 in the United States and other countries, we could potentially receive up to $470.0 million in milestone payments. One milestone payment of $10.0 million was received in January 2007, which was not deemed to be substantially at risk at the execution of the Collaboration Agreement. Therefore, the upfront payment of $60.0 million and this $10.0 million milestone payment have been deferred and are being recognized ratably as collaboration revenue over the estimated life of the Collaboration Agreement and our continuing involvement, currently expected to conclude approximately March 2028. All further milestone payments, of which a $10.0 million milestone was received in June 2007, have been assessed as substantially at-risk at the initiation

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of the agreement and will be recognized as revenue when and if these milestones are achieved, as defined in the Collaboration Agreement. Roche agreed to fund 67% of the global development costs of ITMN-191 and, if the product is approved for commercialization by the U.S. Food and Drug Administration, we agreed to co-commercialize the product in the United States and share profits on a 50-50 basis with Roche. We are entitled to receive royalties on any sales of the product outside of the United States. We have the right to opt-out of either co-development and/or co- commercialization of ITMN-191 in exchange for higher royalties on sales outside of the United States, and royalties instead of profit sharing in the United States. The economic terms for ITMN-191 could also apply to additional compounds that we and Roche develop under the Collaboration Agreement.

Novartis Corporation (Small Molecule Therapeutics)

In 2004, we entered into a license agreement with Chiron Corporation (which was acquired by Novartis) which granted us the right to discover, develop and commercialize small molecule therapeutic agents against certain HCV targets that are covered by patents owned by Novartis. In consideration for this license, we paid Novartis a nonrefundable fee of approximately $0.4 million in 2004 and are required to make milestone payments based on the clinical progress of ITMN-191. In 2006, we expensed $0.5 million upon initiation of the Phase Ia clinical trials for ITMN-191. Assuming that all of the remaining milestones under this agreement are achieved, we will be required to make milestone payments of $4.5 million. In addition, Novartis is entitled to receive royalties on future product sales.

Array BioPharma Inc. (Small Molecule Therapeutics)

In 2002, we entered into a drug discovery collaboration agreement to create small molecule therapeutics targeting hepatitis with Array. Under that agreement, we fund drug discovery research conducted by Array during the research term based on the number of Array scientists working on the research phase of the agreement and we are responsible for all development and commercialization. Though the research phase of the agreement has expired since June 2007, Array will continue to be entitled to receive milestone payments under the agreement based on the selection and progress of clinical drug candidates, as well as low single-digit royalties on net sales of products derived from the collaborative efforts. In addition, in December 2004, the agreement was amended to provide a mechanism for us to purchase certain intellectual property rights arising from the collaboration. In April 2005, we initiated a second research collaboration with Array with respect to a new hepatology target and have since terminated that agreement, although we continue to conduct research on this new hepatology target.

Assuming that all of the remaining milestones under these agreements are achieved, we will be required to make milestone payments of $8.5 million. Total research and development expenses related to this agreement were $1.3 million, $10.2 million and $7.5 million for the years ended December 31, 2007, 2006 and 2005, respectively. Included in the $10.2 million in 2006 is a $0.5 million milestone payment for the initiation of the Phase Ia clinical trial for ITMN-191.

Maxygen Holdings Ltd. (Next-Generation Interferon Gamma)

We had a license and collaboration agreement with Maxygen to develop and commercialize novel, next-generation interferon gamma products that have enhanced pharmacokinetics and a potential for less frequent dosing regimens than Actimmune. If preclinical data provided compelling proof of concept for a longer-acting interferon gamma compound, our plan would have been to take forward into clinical development selected protein-modified interferon gamma product candidates created by Maxygen that met these criteria. We had funded Maxygen’s optimization and development of these next-generation interferon gamma products and retained exclusive worldwide commercialization rights for all human therapeutic indications. Our diligence obligations included a minimum level of clinical development expenditures for an initial period of time, as well as the general obligation to use commercially reasonable efforts to clinically develop, seek regulatory approval for and commercialize a product in specified major market countries. The agreement terms included up-front license fees and full research

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funding, as well as development and commercialization milestone payments, which were payable based on the progress of our clinical development program for next-generation interferon gamma products and the achievement of certain sales targets with respect to such products. We had made payments of approximately $9.7 million under this agreement in the aggregate through December 31, 2007, including approximately $0.1 million in the last three years. Effective July 2007, we have terminated this agreement.

Boehringer Ingelheim International GmbH (Imukin)

In 2001, we formed a collaboration with BI to clinically develop and seek regulatory approval for interferon gamma-1b, the active ingredient in Actimmune, in certain diseases, and to commercialize a liquid formulation of interferon gamma-1b under one or more of BI’s trade names, including Imukin, in Europe and other major markets of the world (other than the United States, Canada and Japan). Under the agreement, the parties may seek to develop and obtain regulatory approval for the use of Imukin in the treatment of a variety of diseases, including IPF, ovarian cancer, CGD and osteopetrosis. The agreement provides that in return for our funding and managing clinical and regulatory development of interferon gamma-1b for these diseases in the countries covered by the agreement, BI will pay us royalties on sales of the product when it meets a specified minimum sales level. BI has an option to exclusively promote Imukin in all of the major market countries covered by the agreement, and we may opt to promote the product in those countries and for those new diseases for which BI does not do so. If we opt to promote the product in those countries or for those new diseases for which BI does not, we will pay royalties to BI on sales of the product in those countries and/or for those new diseases. We had neither paid nor received any royalties under this agreement through December 31, 2007, and there are no milestone payments under this agreement. The agreement will expire, on a country-by-country basis, upon expiration of the parties’ royalty obligations in each country covered by the agreement. Such royalty obligations generally expire fifteen years after regulatory approval of Imukin for certain specified indications in the relevant country. If no such regulatory approvals are granted in a particular country, the royalty obligations in such country will expire in 2016. Prior to such expiration, either party can terminate the agreement for the uncured material breach of the other party or for the insolvency of the other party. In addition, we have the right to terminate the agreement with respect to certain countries at any time subsequent to regulatory approval for IPF.

8.   AVAILABLE-FOR-SALE INVESTMENTS

The following is a summary of our available-for-sale investments as of December 31, 2007 and 2006 (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
December 31, 2007
Obligations of government-sponsored enterprises	$	135,813	$	181	$	—		$	135,994
Corporate debt securities		34,526		110		(3	)		34,633
Commercial paper		12,815		—		(53	)		12,762
Targanta common stock		—		5,687		—			5,687
Auction rate securities and money market funds		39,150		—		—			39,150
Total	$	222,304	$	5,978	$	(56	)	$	228,226

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			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Reported as:
Cash equivalents	$	81,861	$	20	$	(1	)	$	81,880
Available-for-sale securities		140,443		5,958		(55	)		146,346
Total	$	222,304	$	5,978	$	(56	)	$	228,226

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
December 31, 2006
Obligations of government-sponsored enterprises	$	111,487	$	16	$	(72	)	$	111,431
Corporate debt securities		41,070		5		(5	)		41,070
Auction rate and other debt securities		49,607		—		(16	)		49,591
Total	$	202,164	$	21	$	(93	)	$	202,092

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Reported as:
Cash equivalents	$	96,915	$	18	$	(4	)	$	96,929
Available-for-sale securities		105,249		3		(89	)		105,163
Total	$	202,164	$	21	$	(93	)	$	202,092

Realized gains and losses and declines in value, judged to be other than temporary, on available-for-sale securities are included in other income for the years 2007, 2006 and 2005 and were not material. Realized gains and losses were calculated based on the specific identification method. Unrealized holding gains and losses on securities classified as available-for-sale are recorded in accumulated other comprehensive income, net of tax. Our investment in Targanta common stock consists of approximately 3.0 million shares of which we have recorded an unrealized gain on approximately 630,000 of those shares representing the portion estimated to qualify for resale within one year.

The following is a summary of the amortized cost and estimated fair value of available-for-sale debt securities at December 31, by contractual maturity (in thousands):

	December 31, 2007
	Amortized
	Cost		Fair Value
Mature in less than one year	$	212,847	$	212,999
Mature in one to three years		9,457		9,540
Mature in over three years		—		—
Total	$	222,304	$	222,539

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9.   BALANCE SHEET DETAIL

Property and equipment and related accumulated depreciation and amortization is as follows at December 31 (in thousands):

	2007			2006
Computer and laboratory equipment	$	11,060		$	9,444
Office furniture and fixtures		3,710			3,693
Leasehold improvements		9,839			9,139
		24,609			22,276
Less accumulated depreciation and amortization		(16,491	)		(13,066	)
Total	$	8,118		$	9,210

Other accrued liabilities consist of the following at December 31 (in thousands):

	2007		2006
Accrued clinical trial costs	$	4,624	$	7,654
Royalties payable		884		1,955
Liability under government settlement — current		7,174		4,575
Deferred collaboration revenue — current		3,272		2,802
Medicaid rebates		256		534
Provision for returns and rebates		378		1,174
Accrued interest		142		142
Accrued research and development		812		2,733
Other accrued liabilities		618		1,981
Total other accrued liabilities	$	18,160	$	23,550

10.   COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is comprised of net loss and other comprehensive income (loss). We include in other comprehensive income (loss) changes in the fair value of derivatives designated as foreign currency cash flow hedges and unrealized gains and losses on our available-for-sale securities, including approximately 630,000 shares of Targanta common stock, which represents the portion of our holdings that are estimated to qualify for resale within one year. The activity in other comprehensive income (loss) is as follows (in thousands):

	Year Ended December 31,
	2007			2006			2005
Net loss	$	(89,602	)	$	(107,206	)	$	(5,235	)
Change in unrealized gain/(loss) on available-for-sale securities, net of tax benefit of $2,275 in 2007		3,719			(7	)		173
Change in realized and unrealized gain on foreign currency hedge		(212	)		(607	)		(1,005	)
Comprehensive loss	$	(86,095	)	$	(107,820	)	$	(6,067	)

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Accumulated other comprehensive income consists of the following at (in thousands):

	December 31,
	2007		2006
Net unrealized gain (loss) on available-for-sale securities, net of tax of $2,275 in 2007	$	3,647	$	(72	)
Gain on foreign currency hedge		—		212
Accumulated other comprehensive income	$	3,647	$	140

11.   CONVERTIBLE SENIOR NOTES

In February 2004, we issued 0.25% convertible senior notes due March 1, 2011 in an aggregate principal amount of $170.0 million (the “Senior Notes”). The Senior Notes are convertible into our common stock at the option of the holder at a conversion price of approximately $21.63 per share, subject to adjustment in certain circumstances. Interest on the Senior Notes is payable semiannually in arrears on March 1 and September 1 of each year. The Senior Notes are unsecured and rank on parity with all of our other existing and future senior unsecured debt and prior to all subordinated indebtedness. In addition, the Senior Notes are effectively subordinated to any existing and future secured debt to the extent of the value of the collateral securing such debt. As of December 31, 2007, we had no secured debt and no senior obligations. Offering expenses of $5.8 million related to the sale of the Senior Notes have been included in other assets and are being amortized to interest expense using the effective interest method over the life of the Senior Notes, which is seven years from the date of issuance. Accumulated amortization at December 31, 2007 is $3.2 million.

12.   STOCKHOLDERS’ EQUITY

Employee Stock Purchase Plan

To provide employees with an opportunity to purchase our common stock through payroll deductions, our board of directors adopted the 2000 Employee Stock Purchase Plan (the “ESPP”). Under the ESPP, employees, subject to certain restrictions, may purchase shares of common stock at 85% of the fair market value at either the date of eligibility for enrollment or the date of purchase, whichever is less. Purchases are limited to the lesser of 15% of each employee’s eligible annual compensation or $25,000. Through the end of December 2007, we issued a cumulative total of 699,943 shares under the ESPP, including 110,833 issued in 2007, and 1,688,567 shares remained available for future issuance at December 31, 2007. Beginning January 1, 2001 and continuing through and including January 1, 2006, the amount of common stock reserved for issuance under the ESPP increased annually on that date by the lesser of (i) one percent (1%) of the total number of shares of common stock outstanding on such January 1, (ii) 400,000 shares of common stock, or (iii) a number of shares as determined by the board of directors prior to January 1, which shall be lesser than (i) or (ii) above.

Restricted Stock Awards

In May 2007, we granted employees restricted stock awards for approximately 128,000 shares of our common stock with a weighted-average fair value of $25.50 per share that vest annually over a four year period. In January 2006 we granted employees restricted stock awards for 404,450 shares of our common stock with a weighted-average fair value of $19.30 per share that vest in January 2008. The vesting may accelerate depending on the Company’s achievement of certain performance criteria over the two-year period, twenty-five percent each for four different milestones. In May 2006, the first of the four milestones was met and in January and March 2007, the second and third milestones were met, respectively. Grants made in 2004 (none were granted in 2005) vest annually over a four-year period, thirty percent in each of the first three years and ten percent in the final year. Restricted stock awards are shares of common stock which are forfeited if the employee leaves the Company prior to vesting. As a result of all of these restricted stock awards, we recognized $2.7 million in compensation expense during the

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year ended December 31, 2007, compared to $6.0 million and $1.7 million in the years ended December 31, 2006 and 2005, respectively. As all of the restricted stock awards vest through 2008 and beyond, we will continue to recognize stock based compensation expense related to the grants of these restricted awards. These stock awards offer employees the opportunity to earn shares of our stock over time, rather than options that give the employee the right to purchase stock at a set price. If all of the remaining restricted stock awards that were granted in 2004, 2006 and 2007 vest, we will recognize approximately $3.0 million in compensation expense over a weighted average remaining period of 2.0 years. However, no compensation expense will be recognized for stock awards that do not vest.

A summary of our restricted stock activity is presented in the following table:

				Weighted-Average
				Grant Date Fair
Restricted Stock Awards	Shares			Value
Nonvested at December 31, 2005		175,651		$	16.02
Granted		424,450			19.43
Vested		(161,959	)		18.08
Forfeited		(92,774	)		17.77
Nonvested at December 31, 2006		345,368		$	18.78
Granted		128,077			25.50
Vested		(233,258	)		18.54
Forfeited		(30,478	)		19.27
Nonvested at December 31, 2007		209,709		$	23.08

Stock Compensation Plans

In 1999, we adopted the 1999 Equity Incentive Plan (“1999 Plan”). The 1999 Plan provided for the granting of options to purchase common stock and the issuance of shares of common stock, subject to repurchase rights, to directors, employees and consultants. Certain options were immediately exercisable, at the discretion of our board of directors. Shares issued pursuant to the exercise of an unvested option are subject to the right of repurchase which lapses over periods specified by the board of directors, generally four years from the date of grant. In 2000, we terminated all remaining unissued shares under the 1999 Plan amounting to 121,584 shares. Under the 1999 Plan, 46,550 shares have been granted to employees that are subject to repurchase as of December 31, 2007.

In 2000, our board of directors adopted the 2000 Equity Incentive Plan, which was most recently amended and approved by stockholders in 2007 and re-named the Amended and Restated 2000 Equity Incentive Plan (“2000 Plan”). In 2000, a total of 2.0 million shares of common stock were initially reserved for issuance under the 2000 Plan. In 2002, 2004 and 2007 an additional 2.5 million, 1.0 million and 1.5 million shares of common stock, respectively, were reserved for issuance under the 2000 Plan. The 2000 Plan provides for the granting of options to purchase common stock and the issuance of shares of common stock, subject to repurchase rights, to directors, employees and consultants. Shares issued pursuant to the exercise of an unvested option are subject to our right of repurchase which lapses over periods specified by the board of directors, generally four years from the date of grant. Options not immediately exercisable generally vest up to a maximum of four years. Options previously granted under the 2000 Plan had a maximum term of 10 years. Effective May 15, 2007, new option grants have a maximum term of 7 years.

In 2000, our board of directors adopted the 2000 Non-Employee Directors’ Stock Option Plan, which was most recently amended in 2007 and re-named the Amended and Restated 2000 Non-Employee Directors’ Stock Option Plan (“Directors’ Plan”). In 2000, a total of 180,000 shares of common stock were initially reserved for issuance under the Directors’ Plan. In 2004, an additional 550,000 shares of common stock were reserved for issuance under

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the Director’s Plan. The Directors’ Plan provides for the granting of options to purchase common stock and the issuance of shares of common stock, subject to repurchase rights, to directors of InterMune. Shares issued pursuant to the exercise of an unvested option are subject to our right of repurchase which lapses over periods specified by the board of directors, generally one year from the date of grant for annual grants and three years from the date of grant for initial grants made to new directors. Options not immediately exercisable generally vest over four years. Options granted under the Directors’ Plan have a maximum term of 10 years.

The stock option and related activity under all of our stock option plans is summarized as follows:

	Outstanding Options
	Shares						Weighted
	Available			Number of			Average Exercise
	for Grant			Options			Price per Share
Balance at December 31, 2004		3,070,375			4,945,452		$	22.81
Stock options granted		(2,317,724	)		2,317,724		$	12.44
Forfeited stock options		795,980			(795,980	)	$	21.88
Restricted shares forfeited		152,275			—			—
Stock options exercised		—			(18,166	)	$	12.95
Balance at December 31, 2005		1,700,906			6,449,030		$	19.22
Stock options granted		(1,406,716	)		1,406,716		$	16.15
Restricted shares granted		(424,450	)		—			—
Forfeited stock options		1,240,435			(1,240,435	)	$	25.10
Restricted shares forfeited		92,774			—			—
Stock options exercised		—			(1,225,763	)	$	15.18
Balance at December 31, 2006		1,202,949			5,389,548		$	17.99
Stock options granted		(515,700	)		515,700		$	25.37
Restricted shares granted		(128,077	)		—			—
Forfeited stock options		699,972			(699,972	)	$	19.77
Restricted shares forfeited		30,478			—			—
Stock options exercised		—			(534,008	)	$	14.30
Balance at December 31, 2007		1,289,622			4,671,268		$	18.96

At December 31, 2007, the weighted average remaining contractual term for the outstanding options was 6.7 years and the aggregate intrinsic value was approximately $2.7 million on that date. The total intrinsic value of options exercised during the year ended December 31, 2007 was approximately $5.2 million. Intrinsic value for stock options is defined as the difference between the current market value and the exercise price.

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The following table summarizes information about options outstanding at December 31, 2007:

Options Outstanding							Options Exercisable
			Weighted
			Average		Weighted				Weighted
Range of Exercise	Number of		Remaining		Average Exercise		Number of		Average
Prices	Shares		Contractual Life		Price		Shares		Exercise Price
$ 4.50 — $12.74		1,323,553		6.95	$	11.30		950,832	$	11.08
$13.16 — $18.70		1,187,388		7.87	$	15.62		667,695	$	15.63
$19.01 — $24.76		1,306,602		5.94	$	21.48		1,182,588	$	21.51
$24.96 — $49.26		853,725		5.64	$	31.61		500,200	$	35.34
		4,671,268		6.66	$	18.96		3,301,315	$	19.41

At December 31, 2007, the weighted average remaining contractual term for options exercisable is 6.2 years and the aggregate intrinsic value for those shares is approximately $2.1 million. If all of the remaining nonvested and outstanding stock option awards that have been granted became vested, we will recognize approximately $14.6 million in compensation expense over a weighted average remaining period of 2.0 years. However, no compensation expense will be recognized for any stock awards that do not vest.

Stockholder Rights Agreement

In July 2001, our board of directors approved the adoption of a stockholder Rights Agreement, which provided for the distribution of one preferred share purchase right (a “Right”) for each outstanding share of our common stock. The dividend was paid on August 3, 2001 to the stockholders of record on that date. Each Right entitles the registered holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $0.001 per share (the “Preferred Shares”), at a price of $390.00 per one one-hundredth of a Preferred Share (the “Purchase Price”), subject to adjustment. The Rights will be exercisable upon the earlier of: (i) the date of a public announcement that a person, entity or group of affiliated or associated persons have acquired beneficial ownership of 20% or more of the outstanding common shares (an “Acquiring Person”), or (ii) ten business days (or such later date as may be determined by action of the board of directors prior to such time as any person or entity becomes an Acquiring Person) following the commencement of, or announcement of an intention to commence, a tender offer or exchange offer the consummation of which would result in any person or entity becoming an Acquiring Person. In October 2004, the Rights Agreement was amended to allow Warburg Pincus Equity Partners, L.P. and certain of its affiliates (“Warburg Pincus”) to acquire ownership of up to 25% of our issued and outstanding common stock in open market purchases without becoming an Acquiring Person. Jonathan S. Leff, a member of our board of directors, is a managing director of Warburg Pincus LLC and a partner of Warburg Pincus & Co., which are affiliates of Warburg Pincus Equity Partners, L.P.

In the event that any person, entity or group of affiliated or associated persons become an Acquiring Person, each holder of a Right will have the right to receive, upon exercise, the number of common shares having a market value of two times the exercise price of the Right. In the event that we are acquired in a merger or other business combination transaction or 50% or more of our consolidated assets or earning power are sold to an Acquiring Person, its associates or affiliates or certain other persons in which such persons have an interest, each holder of a Right will have the right to receive, upon the exercise at the then-current exercise price of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right. At any time after an Acquiring Person becomes an Acquiring Person and prior to the acquisition by such Acquiring Person of 50% or more of the outstanding common shares, our board of directors may exchange the Rights (other than Rights owned by such person or group which have become void), in whole or in part, at an exchange ratio of one common share, or one one-hundredth of a Preferred Share, per Right (or, at our election, we may issue cash, debt, stock or a combination thereof in exchange for the Rights), subject to adjustment. The Rights will expire on August 3, 2011, unless we redeem or exchange them.

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Public Offering

On September 26, 2007, we completed a public offering of approximately 4.0 million shares of registered common stock, at a price of $19.50 per share. We received net proceeds of approximately $73.4 million after deducting underwriting fees of $4.7 million and other related expenses of $0.4 million.

Reserved Shares

At December 31, 2007, common stock subject to future issuance is as follows:

Common stock issuable upon conversion of convertible senior notes	7,858,811
Outstanding common stock options	4,671,268
Common stock available for grant under stock option plans	1,289,622
Common stock available for grant under the 2000 Employee Stock Purchase Plan	1,688,567
Total	15,508,268

Valuation and Expense Information under SFAS 123(R)

We adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006, the first day of the Company’s fiscal year 2006. The Company’s Consolidated Financial Statements as of and for the years ended December 31, 2007 and 2006 reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method, the Company’s Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R).

The following table reflects stock-based compensation expense recognized under SFAS 123(R) for the years ended December 31, 2007 and 2006 (in thousands):

	Year Ended December 31,
	2007		2006
Research and development	$	6,012	$	8,127
General and administrative		6,224		8,395
Restructuring charges		482		—
Total stock-based compensation expense	$	12,718	$	16,522

Approximately $0.3 million has been included in G&A expense for the year ended December 31, 2006 in connection with the amendment to our Amended and Restated 2000 Non-Employee Directors’ Stock Option Plan, which allows the board of directors to specify in a directors’ stock option agreement a longer or shorter period of time by which a director must exercise the option before the option terminates.

Upon adoption of SFAS 123(R), we retained our method of valuation for share-based awards granted beginning in fiscal 2006 with the use of the Black-Scholes model which was previously used for the Company’s pro forma information required under SFAS 123. The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. A description of the assumptions follows:

—  Previously under SFAS 123, we estimated volatility using only our historical share price performance over the expected life of the option. Under SFAS No. 123(R), however, the Company, with the assistance of an outside consulting service, has refined its valuation methodology and estimated expected volatility using a blend of implied

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volatility based on market-traded options on the Company’s common stock and historical volatility of the Company’s common stock over the contractual life of the options

—  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the contractual life of the option.

—  The expected life of options granted represents the period of time the options are expected to be outstanding. The Company has applied the provisions of SAB 107 to determine the expected term.

—  The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the contractual life of the option.

We estimated the fair value of each option grant on the date of grant using the Black-Scholes model with the following weighted-average assumptions:

	Year Ended
	December 31
	2007			2006
Expected stock price volatility		58	%		56	%
Risk-free interest rate		4.8	%		5.0	%
Expected term (in years)		4.9			6.0
Expected dividend yield		—			—

The weighted-average fair value per share of options granted during the years ended December 31, 2007 and 2006 was $13.72 and $9.30, respectively.

We estimated the fair value of the employees’ stock purchase rights using the Black-Scholes model with the following weighted-average assumptions:

	Year Ended
	December 31
	2007			2006
Expected stock price volatility		56	%		65	%
Risk-free interest rate		4.5	%		4.1	%
Expected term (in years)		1.0			1.8
Expected dividend yield		—			—

The weighted-average fair value for purchase rights granted under the employee stock purchase plan for the years ended December 31, 2007 and 2006 was $7.25 and $6.21, respectively.

As stock-based compensation expense recognized in the Consolidated Statement of Operations for fiscal years 2007 and 2006 is based on awards ultimately expected to vest, each has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

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Pro Forma Information under SFAS 123 for Periods Prior to January 1, 2006

Had we used the fair value based accounting method for stock-based compensation expense prescribed by SFAS No. 123 for the year ended December 31, 2005, our net loss and net loss per share would have increased to the following pro-forma amounts (in thousands, except per share data):

	Year Ended
	December 31,
	2005
Net loss, as reported	$	(5,235	)
Add: Stock-based employee compensation expense, included in reported net loss		2,960
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards		(17,003	)
Pro forma net loss	$	(19,278	)
Net loss per share:
Basic and diluted — as reported	$	(0.16	)
Basic and diluted — pro forma	$	(0.60	)

Prior to the adoption of SFAS No. 123(R), pro forma disclosures reflected the fair value of each option grant estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Year Ended
	December 31,
	2005
Expected stock price volatility		72	%
Risk-free interest rate		4.0	%
Expected term (in years)		6.5
Expected dividend yield		—

The weighted-average fair value per share of options granted was $8.46 in 2005.

We estimated the fair value of the employees’ stock purchase rights using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Year Ended
	December 31,
	2005
Expected stock price volatility		75	%
Risk-free interest rate		3.0	%
Expected term (in years)		2.0
Expected dividend yield		—

The weighted-average fair value for shares issued under the employee stock purchase plan for the year ended December 31, 2005 was $8.38.

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13.   INCOME TAXES

The Company’s benefit for income taxes consists of the following (in thousands):

	2007		2006		2005
Deferred:
Federal	$	1,934	$	—	$	—
State		341		—		—
Totals	$	2,275	$	—	$	—

The tax benefit recorded in 2007 primarily relates to net operating losses that we concluded are realizable based on our estimate of future taxable income resulting from future potential sales of our shares of Targanta common stock.

A reconciliation of the Company’s recorded income tax benefit to the U.S. statutory rate follows (in thousands):

	2007			2006			2005
Federal tax benefit at statutory rate	$	(31,238	)	$	(36,450	)	$	(1,780	)
Increase (reduction) in tax resulting from:
State taxes, net of federal benefits		(700	)		(10,890	)		6,240
Change in valuation allowance		12,821			57,602			7,723
Research and development credits		(10,728	)		(2,038	)		(2,576	)
Change in deferreds		26,037			(20,180	)		(10,942	)
Stock options		(2,668	)		(636	)		882
Government settlement		—			12,561			—
Other		4,201			31			453
Totals	$	(2,275	)	$	—		$	—

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amount used for income tax purposes.

Significant components of our deferred taxes are as follows at December 31 (in thousands):

	2007			2006
Deferred tax assets:
Net operating loss carryforwards	$	162,000		$	171,000
Research and development credits		13,000			22,000
Capitalized research and development costs		15,000			12,000
Deferred revenue		23,000			24,000
Other, net		53,000			23,000
Total deferred tax assets		266,000			252,000
Valuation allowance		(263,725	)		(252,000	)
Net deferred tax assets	$	2,275		$	—
Deferred tax liability:
Unrealized gain on investments, including Targanta common stock		(2,275	)		—
Net deferred tax	$	—		$	—

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Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. The valuation allowance increased by $11.7 million, $58.0 million, and $8.0 million during the years ended December 31, 2007, 2006 and 2005, respectively.

Deferred tax assets related to carryforwards at December 31, 2007 include approximately $9.8 million associated with stock option activity for which any subsequently recognized tax benefits will be credited directly to stockholders equity.

As of December 31, 2007, we had federal net operating loss carryforwards of approximately $434.5 million. The net operating loss carryforwards will expire at various dates beginning in 2018 through 2027 if not utilized. We also have federal research and development tax credits of approximately $17.9 million that will expire in the years 2018 through 2027. In addition, we had net operating loss carryforwards for state income tax purposes of approximately $109.8 million that expire in the years 2012 through 2017 and state research and development tax credits of approximately $12.1 million that do not expire.

Utilization of the net operating losses may be subject to a substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.

We adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”) on January 1, 2007. FIN 48 requires companies to determine whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities before any tax benefit can be recorded in the financial statements. It also provides guidance on the recognition, measurement, classification and interest and penalties related to uncertain tax positions. The following table summarizes the activity related to the Company’s gross unrecognized tax benefits:

	Gross
	Unrecognized
	Tax Benefits
Balance at January 1, 2007	$	10,415
Increases related to current year tax positions		2,954
Balance at December 31, 2007	$	13,369

At December 31, 2007, the Company had unrecognized tax benefits of approximately $13.4 million. The unrecognized tax benefits, if recognized, would not have an impact on the Company’s effective tax rate. The Company does not expect a significant change to its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may increase or change during the next year for items that arise in the ordinary course of business.

We file income tax returns in the U.S. federal and various state and local jurisdictions. We are not currently under examination by federal, state or local taxing authorities for any open tax years. The tax years 1998 through 2007 remain open to examination by the major taxing authorities to which we are subject. Our policy is to record interest related to uncertain tax positions as interest and any penalties as other expense in our statement of operations. As of the date of adoption of FIN 48 and through December 31, 2007, we did not have any interest or penalties associated with unrecognized tax benefits.

14.   COMMITMENTS AND CONTINGENCIES

Leases

We have a non-cancelable lease for facilities, which expires in 2011. Total rent expense was approximately $4.1 million, $4.2 million and $4.1 million for the years ended December 31, 2007, 2006 and 2005, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following is a schedule by year of future minimum lease payments of all leases at December 31, 2007 (in thousands):

Year	Operating Leases
2008	$	4,766
2009		4,862
2010		5,007
2011		1,633
Thereafter		—
	$	16,268

The operating lease for our facility requires a letter of credit secured by a restricted cash balance with our bank. The amount of each letter of credit approximates 6-12 months of operating rent payable to the landlord of the facility and is effective until we reach profitability. At December 31, 2007 and 2006, restricted cash under this letter of credit amounted to $1.4 million.

Purchase Commitments

In January 2000, we entered into an agreement with BI for the clinical and commercial supply of Actimmune. The agreement, which had been amended from time to time, generally provided for the exclusive supply by BI and exclusive purchase by us of Actimmune. This contractual obligation to BI was denominated in euros. Prior to the failure of the INSPIRE trial, we had future purchase obligations of approximately $91.6 million. Given the fact that the Phase III INSPIRE trial was unsuccessful and was discontinued in March 2007, we entered into a termination agreement (“Termination Agreement”) with BI. The Termination Agreement provides for the termination of the existing supply agreement dated January 2000, as amended, for the clinical and commercial supply of Actimmune conditioned upon and coincident with the entry by us and BI into a new agreement for the clinical and commercial supply of Actimmune. In consideration of the entry into the Termination Agreement, we incurred approximately $6.8 million in termination expenses during the second quarter of 2007, which have been included in restructuring charges in our consolidated statement of operations. Pursuant to the Termination Agreement and new supply agreement, we eliminated $91.6 million in future purchase commitments for Actimmune for the years 2007 to 2012. On June 29, 2007, InterMune and BI entered into a new agreement for the clinical and commercial supply of Actimmune (“Supply Agreement”). Under the terms of the new Supply Agreement, we are not required to make any minimum annual purchase commitments and BI is not required to commit to reserving any minimum annual capacity for the manufacture of Actimmune. On a going forward basis, the product will be purchased based upon a rolling forecast. The new Supply Agreement is effective as of June 29, 2007 and will expire on December 31, 2012. If BI is not able to supply all of our requirements for Actimmune, we may choose an additional manufacturer. However, we are not entitled to seek such a secondary source until BI has informed us of its unwillingness or inability to meet our requirements. Either party has the right to terminate the Supply Agreement if the other party materially breaches its obligations thereunder. In addition, we have the right to terminate the Supply Agreement immediately in the event that health authorities prevent distribution of Actimmune for all indications.

Contingent Payments

We will be required to make contingent milestone payments in accordance with our license, commercialization and collaboration agreements in the aggregate amount of $71.6 million if all of the milestones per the agreements are achieved. These milestones include development, regulatory approval, commercialization and sales milestones.

93

InterMune, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Department of Justice Settlement

On November 9, 2004, we received a subpoena from the U.S. Department of Justice requiring us to provide the Department of Justice with certain information relating to Actimmune, including information regarding the promotion and marketing of Actimmune. On October 25, 2006 we reached a comprehensive settlement with the government to resolve all claims without criminal sanctions relating to promotional activities for Actimmune for IPF by our former employees during a period ending in June 2003. As part of this comprehensive settlement, we entered into a Civil Settlement Agreement with the United States Department of Justice and the United States Attorney’s Office for the Northern District of California. In addition, we entered into a Deferred Prosecution Agreement with the United States Attorney’s Office for the Northern District of California and a Corporate Integrity Agreement with the Office of the Inspector General of the United States Department of Health and Human Services.

Under the terms of the Civil Settlement Agreement, we agreed to pay $36.9 million plus 5% interest on the then outstanding principal balance to the government over a period of five years, an amount to be shared between the Federal and participating State governments as per the agreement and the Medicaid Program. We recorded a $36.9 million charge during 2006 to reflect the final terms of the Civil Settlement Agreement. We paid $4.1 million of the first installment payment of $5.0 million during the fourth quarter of 2006, an additional $4.1 million in the fourth quarter of 2007 and are required to make additional payments on the remaining settlement amount over the next four years in annual installments. The Civil Settlement Agreement contains a provision for the acceleration of certain of the $36.9 million in original scheduled principal payments if we receive over $150.0 million from partnering, license fees and milestone payments (excluding any research and development contributions), external debt and equity financing during the term of the Civil Settlement Agreement, subject to a cap on any acceleration of payment of $10.0 million in any one year.

The following table reflects the schedule of payments due under the settlement as of December 31, 2007 (in thousands):

Year	Principal		Interest		Total
2008		6,596		1,810		8,406
2009		5,826		1,174		7,000
2010		8,118		882		9,000
2011		9,524		476		10,000
Total	$	30,064	$	4,342	$	34,406

15.   DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

We have determined that, in accordance with SFAS No. 131, we operate in one segment, because operating results are reported only on an aggregate basis to our chief operating decision makers. We currently market Actimmune in the United States for the treatment of chronic granulomatous disease and severe, malignant osteopetrosis. Prior to its divestiture in December 2005, we also marketed Infergen in the United States and Canada for chronic HCV infections; and prior to its divestiture in May 2005, we also marketed Amphotec worldwide for invasive aspergillosis. Total revenue for each year presented has been adjusted to reflect the reclassification of Infergen revenue into discontinued operations.

94

InterMune, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Our net revenue for the years ended December 31, are as follows (in thousands):

	2007		2006		2005
Actimmune	$	53,420	$	90,317	$	107,633
Other products		—		—		2,863
Collaboration revenue		13,272		467		—
Totals	$	66,692	$	90,784	$	110,496

Our net revenue by region for the years ended December 31, are as follows (in thousands):

	2007		2006		2005
United States	$	53,321	$	90,185	$	110,017
Rest of world		13,371		599		479
Totals	$	66,692	$	90,784	$	110,496

Our revenue and trade receivables are concentrated with a few customers. We perform credit evaluations on our customers’ financial condition and limit the amount of credit extended. However, we generally do not require collateral on accounts receivable. Concentrations of credit risk, with respect to accounts receivable, exist to the extent of amounts presented in the financial statements. Four customers represented 43%, 25%, 11% and 10%, respectively, of total accounts receivable at December 31, 2007, and three customers represented 45%, 27% and 13%, respectively, of total accounts receivable at December 31, 2006. No other customer represented more than 10% of accounts receivable at December 31, 2007 or December 31, 2006.

Revenue from customers representing 10% or more of total product revenue during the years ended December 31, 2007, 2006 and 2005 were as follows:

Customer	2007			2006			2005
CuraScript, Inc (formerly Priority Healthcare)		48	%		57	%		59	%
Caremark		23	%		22	%		21	%
Merck Medco		12	%		11	%		7	%

16.   RELATED PARTY TRANSACTIONS

On October 29, 2004 we entered into an Amended and Restated Standstill Agreement with Warburg Pincus Equity Partners, L.P. and certain of its affiliates (“Warburg Pincus”) that permits Warburg Pincus to acquire up to 25% of our outstanding common stock in the open market. Under this agreement, Warburg Pincus may acquire up to 25% of our outstanding common stock and we have granted Warburg Pincus certain registration rights with respect to its holdings. In exchange for allowing Warburg Pincus to increase its ownership stake, Warburg Pincus has granted the independent members of our board of directors the right to vote the shares of InterMune common stock owned by Warburg Pincus in excess of 19.9%. In addition, Warburg Pincus has agreed to certain limitations on the manner in which it may dispose of its ownership interest in InterMune. In connection with this transaction, we have also amended our stockholder Rights Plan to allow Warburg Pincus to acquire up to 25% of our outstanding common stock in open market purchases. Jonathan S. Leff, a member of our board of directors, is a managing director of Warburg Pincus LLC and a partner of Warburg Pincus & Co., which are affiliates of Warburg Pincus Equity Partners, L.P. As of December 31, 2007, Warburg Pincus held approximately 19% of our outstanding common stock.

17.   EMPLOYEE SAVINGS PLAN

On May 1, 1999, we adopted a 401(k) defined contribution plan that covers all full time employees, as defined, who fulfill certain length-of-service requirements. Employees may contribute up to the maximum limit imposed by

95

InterMune, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

federal tax law. Beginning in 2005, we began matching employee contributions at a rate of 50% of the first $6,000 per employee contributed each year. In 2007, we increased our matching contribution rate to 50% of the first $8,000 per employee contributed each year. Our total matching contributions were $0.6 million, $0.5 million and $0.8 million in 2007, 2006 and 2005, respectively.

18.   GUARANTEES AND INDEMNIFICATIONS

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligations it assumes under that guarantee.

As permitted under Delaware law and in accordance with our Bylaws, we indemnify our officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at our request in such capacity. We terminate the indemnification agreements with our officers and directors upon the termination of their employment, but the termination will not affect claims for indemnification relating to events occurring prior to the effective date of termination. The maximum amount of potential future indemnification is unlimited; however, our director and officer insurance policy limits our exposure and may enable us to recover a portion of any future amounts paid. Accordingly, we believe the fair value of these indemnification agreements is minimal. Therefore, we have not recorded any liabilities for these agreements as of December 31, 2007.

96

InterMune, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

19.   QUARTERLY FINANCIAL DATA (Unaudited)

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Total Year
	(In thousands, except per share amounts)
2007
Revenue, net Actimmune	$	19,525		$	14,533		$	10,553		$	8,809		$	53,420
Collaboration revenue		818			10,818			818			818			13,272
Total revenue, net	$	20,343		$	25,351		$	11,371		$	9,627		$	66,692
Cost of goods sold	$	5,284		$	3,276		$	3,491		$	2,058		$	14,109
Restructuring charges		1,333			8,596			317			—			10,246
Loss from operations		(25,209	)		(21,567	)		(29,755	)		(30,373	)		(106,904	)
Loss from continuing operations		(20,661	)		(19,808	)		(28,167	)		(25,960	)		(94,596	)
Income (loss) from discontinued operations		(144	)		16			5,043			79			4,994
Net income (loss)		(20,805	)		(19,792	)		(23,124	)		(25,881	)		(89,602	)
Basic and diluted loss per share:
Continuing operations	$	(0.61	)	$	(0.58	)	$	(0.81	)	$	(0.67	)	$	(2.67	)
Discontinued operations		—			—			0.15			—			0.15
Net loss per share	$	(0.61	)	$	(0.58	)	$	(0.66	)	$	(0.67	)	$	(2.52	)
2006
Revenue, net Actimmune	$	24,356		$	24,111		$	22,496		$	19,354		$	90,317
Collaboration revenue		—			—			—			467			467
Total revenue, net	$	24,356		$	24,111		$	22,496		$	19,821		$	90,784
Cost of goods sold	$	6,248		$	5,013		$	4,421		$	8,426		$	24,108
Provision for settlement		—			30,000			6,944			—			36,944
Loss from operations		(14,283	)		(45,881	)		(30,290	)		(24,535	)		(114,989	)
Loss from continuing operations		(12,532	)		(44,018	)		(28,361	)		(21,051	)		(105,962	)
Income (loss) from discontinued operations		(254	)		38			(623	)		(405	)		(1,244	)
Net income (loss)		(12,786	)		(43,980	)		(28,984	)		(21,456	)		(107,206	)
Basic and diluted loss per share:
Continuing operations	$	(0.38	)	$	(1.33	)	$	(0.86	)	$	(0.63	)	$	(3.18	)
Discontinued operations		(0.01	)		—			(0.02	)		(0.01	)		(0.04	)
Net loss per share	$	(0.39	)	$	(1.33	)	$	(0.88	)	$	(0.64	)	$	(3.22	)

97

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

Not Applicable.

ITEM 9A.   CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.  We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective.

Management’s Report on Internal Control Over Financial Reporting.  Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We assessed the effectiveness of our internal control over financial reporting as of December 31, 2007. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework. Based on our assessment using those criteria, we concluded that our internal control over financial reporting was effective as of December 31, 2007.

Our independent registered public accounting firm has expressed an opinion on the effectiveness of our internal control over financial reporting which is included below.

Changes in Internal Control over Financial Reporting.  There have been no changes to our internal controls over financial reporting during the three months ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls.  Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected.

98

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of InterMune, Inc.

We have audited InterMune, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). InterMune, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, InterMune, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of InterMune, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2007 and our report dated March 10, 2008 expressed an unqualified opinion thereon.

Ernst & Young LLP

Palo Alto, California

March 10, 2008

99

ITEM 9B.   OTHER INFORMATION.

Not applicable.

PART III

Certain information required by Part III is omitted from this Annual Report on Form 10-K because we expect to file with the U.S. Securities and Exchange Commission a definitive proxy statement pursuant to Regulation 14A in connection with the solicitation of proxies for our Annual Meeting of Stockholders to be held at 10:00 a.m. on May 13, 2008 (the “Proxy Statement”) not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and certain information included therein is incorporated herein by reference.

ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Identification of Directors and Executive Officers

The information required by this Item with respect to Executive Officers may be found under the caption, “Executive Officers of the Registrant” at the end of Item 1 of this Annual Report on Form 10-K. The information required by this Item with respect to Directors, including information with respect to our audit committee financial expert and the identification of our audit committee, is incorporated herein by reference from the information under the caption “Proposal 1 — Election of Directors” contained in the Proxy Statement.

Section 16(a) Beneficial Ownership Reporting Compliance

The information required by this Item with respect to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference from the section captioned “Section 16(a) Beneficial Ownership Reporting Compliance” contained in the Proxy Statement.

Code of Business Conduct and Ethics

The information required by this Item with respect to our code of ethics is incorporated herein by reference from the section captioned “Proposal 1 — Election of Directors — Code of Business Ethics and Conduct” contained in the Proxy Statement.

ITEM 11.   EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to the information under the sections entitled “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” contained in the Proxy Statement.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item is incorporated herein by reference to the information under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” contained in the Proxy Statement.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item is incorporated herein by reference to the information under the caption “Executive Compensation — Certain Relationships and Related Transactions” contained in the Proxy Statement.

100

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is incorporated herein by reference to the information from the Proxy Statement under the section entitled “Proposal 2 — Ratification of Selection of Independent Registered Public Accounting Firm.”

PART IV

ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this Annual Report on Form 10-K:

(1) Financial Statements

See Index to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

(2) Financial Statement Schedules

The following financial statement schedule is filed as part of this Annual Report on Form 10-K. All other financial statement schedules have been omitted because they are either not applicable or the required information has been included in the consolidated financial statements or the notes thereto.

Schedule II

InterMune, Inc.

Valuation and Qualifying Accounts and Reserves
Years ended December 31, 2007, 2006 and 2005

	Balance at		Charged to
	Beginning of		Revenue or					Balance at
Description	Year		Expense		Utilizations			End of Year
Allowance for cash discounts:
Year ended December 31, 2007	$	164	$	1,116	$	(1,236	)	$	44
Year ended December 31, 2006		337		1,887		(2,060	)		164
Year ended December 31, 2005		526		3,108		(3,297	)		337
Allowance for doubtful accounts:
Year ended December 31, 2007	$	—	$	—	$	—		$	—
Year ended December 31, 2006		108		—		(108	)		—
Year ended December 31, 2005		94		43		(29	)		108

(3) Exhibits

Number			Description of Document
	1	.1	Underwriting Agreement, dated September 20, 2007, among Registrant, Goldman, Sachs & Co., Deutsche Bank Securities Inc. and CIBC World Markets Corp.(24)
	3	.1	Certificate of Incorporation of Registrant.(1)
	3	.2	Certificate of Ownership and Merger, dated April 26, 2001.(8)
	3	.3	Bylaws of Registrant.(1)
	3	.4	Certificate of Amendment of Certificate of Incorporation of Registrant.(12)
	3	.5	Certificate of Amendment of Amended and Restated Certificate of Incorporation of Registrant.(15)
	3	.6	Registrant’s Certificate of Designation of Series A Junior Participating Preferred Stock.(7)
	4	.1	Specimen Common Stock Certificate.(1)
	4	.6	Indenture, dated as of February 17, 2004, between Registrant and The Bank of New York.(14)

101

Number			Description of Document
	4	.7	Registration Rights Agreement, dated as of February 17, 2004, among Registrant, Morgan Stanley & Co. Incorporated, Banc of America Securities LLC, Credit Suisse First Boston LLC, Harris Nesbitt Corp. and RBC Capital Markets Corporation.(14)
	10	.1+	Form of Indemnity Agreement.(1)
	10	.2+	1999 Equity Incentive Plan and related documents.(1)
	10	.3+	Amended and Restated 2000 Equity Incentive Plan and related documents.(26)
	10	.4+	Amended and Restated 2000 Employee Stock Purchase Plan and related documents.(26)
	10	.5+	Amended and Restated 2000 Non-Employee Directors’ Stock Option Plan and related documents.(26)
	10	.6	Amended and Restated Investor Rights Agreement, dated January 7, 2000, between Registrant and certain holders of the common stock.(1)
	10	.7	Rights Agreement, dated July 17, 2001, between Registrant and Mellon Investor Services LLC.(7)
	10	.8	Preliminary Stipulation of Settlement Agreement, dated May 6, 2005.(17)
	10	.9+	Form of Change of Control Provisions for Officers.(2)
	10	.10	Assignment and Option Agreement, dated June 23, 2000, between Registrant and Connetics Corporation.(3)
	10	.11	Consent to Assignment Agreement, dated June 23, 2000, between Registrant, Connetics Corporation and Genentech, Inc.(3)
	10	.12	Notice re: Return of Rights to Gamma Interferon for Treatment of Infectious Diseases in Japan, dated July 25, 2000, between Registrant and Genentech, Inc.(3)
	10	.13	Form of Common Stock Purchase Agreement, dated August 11, 2000, between the Company and Investors.(4)
	10	.14	Lease Agreement, dated December 18, 2000, between Registrant and GAL-BRISBANE, L.P.(5)
	10	.15	First Amendment to Brisbane Technology Park Lease, effective as of December 18, 2000, between Registrant and GAL-BRISBANE, L.P.(5)
	10	.16*	Development and Marketing Agreement, dated March 23, 2001, between Registrant and Boehringer Ingelheim International GmbH.(6)
	10	.17	Amendment No. 5, dated January 25, 2001, to License Agreement, dated May 5, 1998, between Registrant and Genentech, Inc.(6)
	10	.18	Letter Amendment, dated August 1, 2001, to Development and Marketing Agreement, dated March 23, 2001, between Registrant and Boehringer Ingelheim International GmbH.(8)
	10	.19+	Employment Offer Letter, dated April 5, 2002, between Registrant and Marianne Armstrong, Ph.D.(9)
	10	.20+	Bonus Plan Memorandum, dated April 18, 2002, from Registrant to Marianne Armstrong, Ph.D.(9)
	10	.21	Letter Amendment, dated May 28, 2002, to Development and Marketing Agreement, dated March 23, 2001, between Registrant and Boehringer Ingelheim International GmbH.(9)
	10	.22	Letter Amendment, dated July 1, 2002, to Development and Marketing Agreement, dated March 23, 2001, between Registrant and Boehringer Ingelheim International GmbH.(9)
	10	.23*	Amendment No. 4, dated January 28, 2003, to Development and Marketing Agreement, dated March 23, 2001, between Registrant and Boehringer Ingelheim International GmbH.(10)
	10	.24+	Employment Offer Letter, dated April 30, 2002, between Registrant and Lawrence M. Blatt, Ph.D.(11)
	10	.25+	Bonus Plan Memorandum, dated May 22, 2002, from Registrant to Lawrence M. Blatt, Ph.D.(11)
	10	.26+	Employment Offer Letter, dated September 24, 2003, between Registrant and Daniel G. Welch.(12)
	10	.27+	Stock Bonus Award Agreement, dated November 5, 2003, between Registrant and William R. Ringo, Jr.(13)
	10	.28	Amended and Restated Standstill Agreement, dated October 29, 2004, among Registrant, Warburg Pincus & Co. and certain affiliates of Warburg Pincus & Co.(16)
	10	.29	Registration Rights Agreement, dated October 29, 2004, among Registrant, Warburg Pincus & Co. and certain affiliates of Warburg Pincus & Co.(16)

102

Number			Description of Document
	10	.30	Amendment, dated October 29, 2004 to Rights Agreement, dated July 17, 2001, between Registrant and Mellon Investor Services LLC.(16)
	10	.31+	Employment Offer Letter Agreement, dated June 13, 2001, between Registrant and Williamson Bradford, M.D., Ph.D.(18)
	10	.32+	Employment Offer Letter Agreement, dated June 1, 2001, between Registrant and Steven Porter, M.D., Ph.D.(18)
	10	.33+	Employment Offer Letter Agreement, dated August 9, 2004, between Registrant and Robin Steele.(18)
	10	.34+	Amendment to Offer Letter re Severance Pay and Change in Control, dated August 18, 2004, between Registrant and Marianne Armstrong, Ph.D.(18)
	10	.35+	Amendment to Offer Letter re Severance Pay and Change in Control, dated August 18, 2004, between Registrant and Lawrence M. Blatt, Ph.D.(18)
	10	.36+	Amendment to Offer Letter re Severance Pay and Change in Control, dated July 27, 2004, between Registrant and Williamson Bradford, M.D., Ph.D.(18)
	10	.37+	Amendment to Offer Letter re Severance Pay and Change in Control, dated July 26, 2004, between Registrant and Steven Porter, M.D., Ph.D.(18)
	10	.38+	Amendment to Offer Letter re Severance Pay and Change in Control, dated July 27, 2004, between Registrant and Howard A. Simon, Esq.(18)
	10	.39*	Product Acquisition Agreement, dated November 28, 2005, between Registrant and Valeant Pharmaceuticals North America.(19)
	10	.40*	Asset Purchase Agreement dated December 23, 2005, between Registrant and Targanta Therapeutics Corporation.(20)
	10	.41+	Severance Agreement and General Release, dated January 6, 2006, between Registrant and Roger L. Hawley.(20)
	10	.42*	Amendment No. 6, dated February 27, 2006, to License Agreement dated May 5, 1998, between Registrant and Genentech, Inc.(20)
	10	.43*	Exclusive License and Collaboration Agreement dated October 16, 2006 between Registrant and Hoffmann-La Roche, Inc. and F. Hoffmann-La Roche Ltd.(21)
	10	.44	Deferred Prosecution Agreement between Registrant and the United States Attorney’s Office for the Northern District of California(21)
	10	.45	Civil Settlement Agreement between Registrant and the United States Department of Justice and the United States Attorney’s Office for the Northern District of California(21)
	10	.46	Corporate Integrity Agreement between Registrant and the Office of the Inspector General of the United States Department of Health and Human Services(21)
	10	.47+	Retention Payment Agreement dated May 24, 2007 between Registrant and Howard Simon.(22)
	10	.48+	Retention Payment Agreement dated May 24, 2007 between Registrant and Robin Steele.(22)
	10	.49+	Retention Payment Agreement dated May 24, 2007 between Registrant and John Hodgman.(22)
	10	.50+	Retention Payment Agreement dated May 24, 2007 between Registrant and Bill Bradford.(22)
	10	.51+	Retention Payment Agreement dated May 24, 2007 between Registrant and Steve Porter.(22)
	10	.52+	Retention Payment Agreement dated May 24, 2007 between Registrant and Marianne Armstrong.(22)
	10	.53+	Retention Payment Agreement dated May 24, 2007 between Registrant and Lawrence Blatt.(22)
	10	.54+	Separation Agreement and Release of Claims dated July 3, 2007 between Registrant and Thomas Kassberg.(23)
	10	.55+	Separation Agreement and Release of Claims dated July 3, 2007 between Registrant and Cynthia Robinson.(23)
	10	.56*	Termination Agreement dated June 6, 2007 between Registrant and Boehringer Ingelheim Austria GmbH.(25)
	10	.57*	Supply Agreement dated June 29, 2007 between Registrant and Boehringer Ingelheim Austria GmbH.(25)

103

Number			Description of Document
	10	.58	Letter Amendment dated December 19, 2007 to Product Acquisition Agreement dated November 28, 2005 between Registrant and Valeant Pharmaceuticals North America.(26)
	10	.59**	Asset Purchase Agreement, dated November 19, 2007, among Registrant, Marnac, Inc., and Dr. Solomon B. Margolin.(26)
	10	.60**	Asset Purchase Agreement, dated November 21, 2007, among Registrant, KDL GmbH, and Dr. Shitotomo Yamauchi.(26)
	10	.61**	License Agreement, dated August 24, 2004, between Registrant and Chiron Corporation.(26)
	10	.62**	Drug Discovery Collaboration Agreement, dated September 13, 2002, between Registrant and Array BioPharma Inc.(26)
	10	.63**	Amendment No. 1, dated May 8, 2003, to the Drug Discovery Collaboration Agreement, dated September 13, 2002, between Registrant and Array BioPharma Inc.(26)
	10	.64**	Amendment No. 2, dated January 7, 2004, to the Drug Discovery Collaboration Agreement, dated September 13, 2002, between Registrant and Array BioPharma Inc.(26)
	10	.65**	Amendment No. 3, dated September 10, 2004, to the Drug Discovery Collaboration Agreement, dated September 13, 2002, between Registrant and Array BioPharma Inc.(26)
	10	.66**	Amendment No. 4, dated December 7, 2004, to the Drug Discovery Collaboration Agreement, dated September 13, 2002, between Registrant and Array BioPharma Inc.(26)
	10	.67**	Letter Agreement, dated March 10, 2005, between Registrant and Array BioPharma Inc.(26)
	10	.68**	Amendment No. 5, dated June 30, 2005, to the Drug Discovery Collaboration Agreement, dated September 13, 2002, between Registrant and Array BioPharma Inc.(26)
	10	.69**	Amendment No. 6, dated February 3, 2006, to the Drug Discovery Collaboration Agreement, dated September 13, 2002, between Registrant and Array BioPharma Inc.(26)
	10	.70**	Amendment No. 7, dated June 28, 2006, to the Drug Discovery Collaboration Agreement, dated September 13, 2002, between Registrant and Array BioPharma Inc.(26)
	21	.1	List of Subsidiaries(26)
	23	.1	Consent of Independent Registered Public Accounting Firm(26)
	24	.1	Power of Attorney (included on the signature pages hereto)
	31	.1	Certification required by Rule 13a-14(a) or Rule 15d-14(a)(26)
	31	.2	Certification required by Rule 13a-14(a) or Rule 15d-14(a)(26)
	32	.1†	Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350)(26)

*	Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
**	Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
+	Management contract or compensation plan or arrangement.
†	This certification accompanies the Periodic Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
(1)	Filed as an exhibit to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 2, 2000 (No. 333-96029), as amended by Amendment No. 1 filed with the Commission on February 18, 2000, as amended by Amendment No. 2 filed with the Commission on March 6, 2000, as amended by Amendment No. 3 filed with the Commission on March 22, 2000, as amended by Amendment No. 4 filed with the Commission on March 23, 2000 and as amended by Amendment No. 5 filed with the Commission on March 23, 2000.
(2)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
(3)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
(4)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K on August 23, 2000.

104

(5)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000.
(6)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.
(7)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K on July 18, 2001.
(8)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
(9)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended June 30, 2002.
(10)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended March 31, 2003.
(11)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended June 30, 2003.
(12)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 2003.
(13)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003.
(14)	Filed as an exhibit to the Registrant’s amended Annual Report on Form 10-K/A (Amendment No. 2) for the year ended December 31, 2003.
(15)	Filed as an exhibit to the Registrant’s amended Quarterly Report on Form 10-Q/A (Amendment No. 1) filed for the quarter ended June 30, 2004.
(16)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K on November 4, 2004.
(17)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended March 31, 2005.
(18)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004.
(19)	Incorporated by reference to Exhibit 2.1 of Form 8-K (File No. 001-11397) filed by Valeant Pharmaceuticals International, the parent company of Valeant Pharmaceuticals North America on January 5, 2006.
(20)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005.
(21)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2006.
(22)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K on May 25, 2007.
(23)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K on July 10, 2007.
(24)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K on September 21, 2007.
(25)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.
(26)	Filed herewith.

(c) Exhibits

See Item 15(a) above.

(d) Financial Statement Schedules

See Item 15(a) above.

105

SIGNATURES

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

Intermune, Inc.

By:  /s/  JOHN C. HODGMAN

John C. Hodgman

Senior Vice President of Finance Administration

and Chief Financial Officer

Dated: March 11, 2008

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John C. Hodgman and Daniel G. Welch, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution for him, and in his name in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the registrant and in the capacities and on the dates indicated have signed this Report below:

Signatures	Title	Date
/s/  William R. Ringo, Jr.  William R. Ringo, Jr.	Chairman of the Board of Directors	March 11, 2008
/s/  Daniel G. Welch Daniel G. Welch	President and Chief Executive Officer and Director (Principal Executive Officer)	March 11, 2008
/s/  John C. Hodgman John C. Hodgman	Senior Vice President of Finance Administration and Chief Financial Officer (Principal Financial Officer)	March 11, 2008
/s/  Bruce W. Tomlinson Bruce W. Tomlinson	Vice President, Controller and Principal Accounting Officer	March 11, 2008
/s/  Louis Drapeau Louis Drapeau	Director	March 11, 2008
/s/  Lars Ekman Lars Ekman	Director	March 11, 2008

106

Signatures	Title	Date
/s/  James I. Healy James I. Healy	Director	March 11, 2008
/s/  David S. Kabakoff David S. Kabakoff	Director	March 11, 2008
/s/  Jonathan S. Leff Jonathan S. Leff	Director	March 11, 2008
/s/  Michael L. Smith Michael L. Smith	Director	March 11, 2008

107

EXHIBIT INDEX

Number			Description of Document
	1	.1	Underwriting Agreement, dated September 20, 2007, among Registrant, Goldman, Sachs & Co., Deutsche Bank Securities Inc. and CIBC World Markets Corp.(24)
	3	.1	Certificate of Incorporation of Registrant.(1)
	3	.2	Certificate of Ownership and Merger, dated April 26, 2001.(8)
	3	.3	Bylaws of Registrant.(1)
	3	.4	Certificate of Amendment of Certificate of Incorporation of Registrant.(12)
	3	.5	Certificate of Amendment of Amended and Restated Certificate of Incorporation of Registrant.(15)
	3	.6	Registrant’s Certificate of Designation of Series A Junior Participating Preferred Stock.(7)
	4	.1	Specimen Common Stock Certificate.(1)
	4	.6	Indenture, dated as of February 17, 2004, between Registrant and The Bank of New York.(14)
	4	.7	Registration Rights Agreement, dated as of February 17, 2004, among Registrant, Morgan Stanley & Co. Incorporated, Banc of America Securities LLC, Credit Suisse First Boston LLC, Harris Nesbitt Corp. and RBC Capital Markets Corporation.(14)
	10	.1+	Form of Indemnity Agreement.(1)
	10	.2+	1999 Equity Incentive Plan and related documents.(1)
	10	.3+	Amended and Restated 2000 Equity Incentive Plan and related documents.(26)
	10	.4+	Amended and Restated 2000 Employee Stock Purchase Plan and related documents.(26)
	10	.5+	Amended and Restated 2000 Non-Employee Directors’ Stock Option Plan and related documents.(26)
	10	.6	Amended and Restated Investor Rights Agreement, dated January 7, 2000, between Registrant and certain holders of the common stock.(1)
	10	.7	Rights Agreement, dated July 17, 2001, between Registrant and Mellon Investor Services LLC.(7)
	10	.8	Preliminary Stipulation of Settlement Agreement, dated May 6, 2005.(17)
	10	.9+	Form of Change of Control Provisions for Officers.(2)
	10	.10	Assignment and Option Agreement, dated June 23, 2000, between Registrant and Connetics Corporation.(3)
	10	.11	Consent to Assignment Agreement, dated June 23, 2000, between Registrant, Connetics Corporation and Genentech, Inc.(3)
	10	.12	Notice re: Return of Rights to Gamma Interferon for Treatment of Infectious Diseases in Japan, dated July 25, 2000, between Registrant and Genentech, Inc.(3)
	10	.13	Form of Common Stock Purchase Agreement, dated August 11, 2000, between the Company and Investors.(4)
	10	.14	Lease Agreement, dated December 18, 2000, between Registrant and GAL-BRISBANE, L.P.(5)
	10	.15	First Amendment to Brisbane Technology Park Lease, effective as of December 18, 2000, between Registrant and GAL-BRISBANE, L.P.(5)
	10	.16*	Development and Marketing Agreement, dated March 23, 2001, between Registrant and Boehringer Ingelheim International GmbH.(6)
	10	.17	Amendment No. 5, dated January 25, 2001, to License Agreement, dated May 5, 1998, between Registrant and Genentech, Inc.(6)
	10	.18	Letter Amendment, dated August 1, 2001, to Development and Marketing Agreement, dated March 23, 2001, between Registrant and Boehringer Ingelheim International GmbH.(8)
	10	.19+	Employment Offer Letter, dated April 5, 2002, between Registrant and Marianne Armstrong, Ph.D.(9)
	10	.20+	Bonus Plan Memorandum, dated April 18, 2002, from Registrant to Marianne Armstrong, Ph.D.(9)
	10	.21	Letter Amendment, dated May 28, 2002, to Development and Marketing Agreement, dated March 23, 2001, between Registrant and Boehringer Ingelheim International GmbH.(9)
	10	.22	Letter Amendment, dated July 1, 2002, to Development and Marketing Agreement, dated March 23, 2001, between Registrant and Boehringer Ingelheim International GmbH.(9)
	10	.23*	Amendment No. 4, dated January 28, 2003, to Development and Marketing Agreement, dated March 23, 2001, between Registrant and Boehringer Ingelheim International GmbH.(10)

Number			Description of Document
	10	.24+	Employment Offer Letter, dated April 30, 2002, between Registrant and Lawrence M. Blatt, Ph.D.(11)
	10	.25+	Bonus Plan Memorandum, dated May 22, 2002, from Registrant to Lawrence M. Blatt, Ph.D.(11)
	10	.26+	Employment Offer Letter, dated September 24, 2003, between Registrant and Daniel G. Welch.(12)
	10	.27+	Stock Bonus Award Agreement, dated November 5, 2003, between Registrant and William R. Ringo, Jr.(13)
	10	.28	Amended and Restated Standstill Agreement, dated October 29, 2004, among Registrant, Warburg Pincus & Co. and certain affiliates of Warburg Pincus & Co.(16)
	10	.29	Registration Rights Agreement, dated October 29, 2004, among Registrant, Warburg Pincus & Co. and certain affiliates of Warburg Pincus & Co.(16)
	10	.30	Amendment, dated October 29, 2004 to Rights Agreement, dated July 17, 2001, between Registrant and Mellon Investor Services LLC.(16)
	10	.31+	Employment Offer Letter Agreement, dated June 13, 2001, between Registrant and Williamson Bradford, M.D., Ph.D.(18)
	10	.32+	Employment Offer Letter Agreement, dated June 1, 2001, between Registrant and Steven Porter, M.D., Ph.D.(18)
	10	.33+	Employment Offer Letter Agreement, dated August 9, 2004, between Registrant and Robin Steele.(18)
	10	.34+	Amendment to Offer Letter re Severance Pay and Change in Control, dated August 18, 2004, between Registrant and Marianne Armstrong, Ph.D.(18)
	10	.35+	Amendment to Offer Letter re Severance Pay and Change in Control, dated August 18, 2004, between Registrant and Lawrence M. Blatt, Ph.D.(18)
	10	.36+	Amendment to Offer Letter re Severance Pay and Change in Control, dated July 27, 2004, between Registrant and Williamson Bradford, M.D., Ph.D.(18)
	10	.37+	Amendment to Offer Letter re Severance Pay and Change in Control, dated July 26, 2004, between Registrant and Steven Porter, M.D., Ph.D.(18)
	10	.38+	Amendment to Offer Letter re Severance Pay and Change in Control, dated July 27, 2004, between Registrant and Howard A. Simon, Esq.(18)
	10	.39*	Product Acquisition Agreement, dated November 28, 2005, between Registrant and Valeant Pharmaceuticals North America.(19)
	10	.40*	Asset Purchase Agreement dated December 23, 2005, between Registrant and Targanta Therapeutics Corporation.(20)
	10	.41+	Severance Agreement and General Release, dated January 6, 2006, between Registrant and Roger L. Hawley.(20)
	10	.42*	Amendment No. 6, dated February 27, 2006, to License Agreement dated May 5, 1998, between Registrant and Genentech, Inc.(20)
	10	.43*	Exclusive License and Collaboration Agreement dated October 16, 2006 between Registrant and Hoffmann-La Roche, Inc. and F. Hoffmann-La Roche Ltd.(21)
	10	.44	Deferred Prosecution Agreement between Registrant and the United States Attorney’s Office for the Northern District of California(21)
	10	.45	Civil Settlement Agreement between Registrant and the United States Department of Justice and the United States Attorney’s Office for the Northern District of California(21)
	10	.46	Corporate Integrity Agreement between Registrant and the Office of the Inspector General of the United States Department of Health and Human Services(21)
	10	.47+	Retention Payment Agreement dated May 24, 2007 between Registrant and Howard Simon.(22)
	10	.48+	Retention Payment Agreement dated May 24, 2007 between Registrant and Robin Steele.(22)
	10	.49+	Retention Payment Agreement dated May 24, 2007 between Registrant and John Hodgman.(22)
	10	.50+	Retention Payment Agreement dated May 24, 2007 between Registrant and Bill Bradford.(22)
	10	.51+	Retention Payment Agreement dated May 24, 2007 between Registrant and Steve Porter.(22)
	10	.52+	Retention Payment Agreement dated May 24, 2007 between Registrant and Marianne Armstrong.(22)
	10	.53+	Retention Payment Agreement dated May 24, 2007 between Registrant and Lawrence Blatt.(22)

Number			Description of Document
	10	.54+	Separation Agreement and Release of Claims dated July 3, 2007 between Registrant and Thomas Kassberg.(23)
	10	.55+	Separation Agreement and Release of Claims dated July 3, 2007 between Registrant and Cynthia Robinson.(23)
	10	.56*	Termination Agreement dated June 6, 2007 between Registrant and Boehringer Ingelheim Austria GmbH.(25)
	10	.57*	Supply Agreement dated June 29, 2007 between Registrant and Boehringer Ingelheim Austria GmbH.(25)
	10	.58	Letter Amendment dated December 19, 2007 to Product Acquisition Agreement dated November 28, 2005 between Registrant and Valeant Pharmaceuticals North America.(26)
	10	.59**	Asset Purchase Agreement, dated November 19, 2007, among Registrant, Marnac, Inc., and Dr. Solomon B. Margolin.(26)
	10	.60**	Asset Purchase Agreement, dated November 21, 2007, among Registrant, KDL GmbH, and Dr. Shitotomo Yamauchi.(26)
	10	.61**	License Agreement, dated August 24, 2004, between Registrant and Chiron Corporation.(26)
	10	.62**	Drug Discovery Collaboration Agreement, dated September 13, 2002, between Registrant and Array BioPharma Inc.(26)
	10	.63**	Amendment No. 1, dated May 8, 2003, to the Drug Discovery Collaboration Agreement, dated September 13, 2002, between Registrant and Array BioPharma Inc.(26)
	10	.64**	Amendment No. 2, dated January 7, 2004, to the Drug Discovery Collaboration Agreement, dated September 13, 2002, between Registrant and Array BioPharma Inc.(26)
	10	.65**	Amendment No. 3, dated September 10, 2004, to the Drug Discovery Collaboration Agreement, dated September 13, 2002, between Registrant and Array BioPharma Inc.(26)
	10	.66**	Amendment No. 4, dated December 7, 2004, to the Drug Discovery Collaboration Agreement, dated September 13, 2002, between Registrant and Array BioPharma Inc.(26)
	10	.67**	Letter Agreement, dated March 10, 2005, between Registrant and Array BioPharma Inc.(26)
	10	.68**	Amendment No. 5, dated June 30, 2005, to the Drug Discovery Collaboration Agreement, dated September 13, 2002, between Registrant and Array BioPharma Inc.(26)
	10	.69**	Amendment No. 6, dated February 3, 2006, to the Drug Discovery Collaboration Agreement, dated September 13, 2002, between Registrant and Array BioPharma Inc.(26)
	10	.70**	Amendment No. 7, dated June 28, 2006, to the Drug Discovery Collaboration Agreement, dated September 13, 2002, between Registrant and Array BioPharma Inc.(26)
	21	.1	List of Subsidiaries(26)
	23	.1	Consent of Independent Registered Public Accounting Firm(26)
	24	.1	Power of Attorney (included on the signature pages hereto)
	31	.1	Certification required by Rule 13a-14(a) or Rule 15d-14(a)(26)
	31	.2	Certification required by Rule 13a-14(a) or Rule 15d-14(a)(26)
	32	.1†	Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350)(26)

*	Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
**	Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
+	Management contract or compensation plan or arrangement.
†	This certification accompanies the Periodic Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
(1)	Filed as an exhibit to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 2, 2000 (No. 333-96029), as amended by Amendment No. 1 filed with the

	Commission on February 18, 2000, as amended by Amendment No. 2 filed with the Commission on March 6, 2000, as amended by Amendment No. 3 filed with the Commission on March 22, 2000, as amended by Amendment No. 4 filed with the Commission on March 23, 2000 and as amended by Amendment No. 5 filed with the Commission on March 23, 2000.
(2)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
(3)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
(4)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K on August 23, 2000.
(5)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000.
(6)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.
(7)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K on July 18, 2001.
(8)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
(9)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended June 30, 2002.
(10)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended March 31, 2003.
(11)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended June 30, 2003.
(12)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 2003.
(13)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003.
(14)	Filed as an exhibit to the Registrant’s amended Annual Report on Form 10-K/A (Amendment No. 2) for the year ended December 31, 2003.
(15)	Filed as an exhibit to the Registrant’s amended Quarterly Report on Form 10-Q/A (Amendment No. 1) filed for the quarter ended June 30, 2004.
(16)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K on November 4, 2004.
(17)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed for the quarter ended March 31, 2005.
(18)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004.
(19)	Incorporated by reference to Exhibit 2.1 of Form 8-K (File No. 001-11397) filed by Valeant Pharmaceuticals International, the parent company of Valeant Pharmaceuticals North America on January 5, 2006.
(20)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005.
(21)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2006.
(22)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K on May 25, 2007.
(23)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K on July 10, 2007.
(24)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K on September 21, 2007.
(25)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.
(26)	Filed herewith.

EX-10.3

Exhibit 10.3

INTERMUNE, INC.
AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN

Adopted January 31, 2000
Approved by Stockholders: March 20, 2000
Termination Date: January 30, 2010
Amended on: April 4, 2002 and June 19, 2002
Approved by Stockholders: June 19, 2002
Amended and Restated on: April 2, 2004
Approved by Stockholders: May 27, 2004
Amended and Restated on: March 7, 2007
Amended on: April 27, 2007
Approved by Stockholders: May 15, 2007

1. Purposes.

     (a) The Plan amends and restates the InterMune, Inc. 2000 Equity Incentive Plan originally adopted January 31, 2000. All Stock Awards granted subsequent to April 7, 2007 shall be subject to the terms of this Plan (as amended and restated hereby). Subject to approval of the amendments to the Plan reflected in this document by the Company’s stockholders at the Company’s 2007 Annual Meeting of stockholders, this version of the Plan is effective on and after April 7, 2007, and Awards granted on or after April 7, 2007 shall be made under this version of the Plan and not under the Plan as previously in effect. For the terms and conditions of the Plan applicable to Awards granted under the Plan before April 7, 2007, refer to the version of the Plan in effect as of the date such Stock Award was granted.

     (b) The persons eligible to receive Stock Awards are the Employees, Directors and Consultants of the Company and its Affiliates.

     (c) The purpose of the Plan is to provide a means by which eligible recipients of Stock Awards may be given an opportunity to benefit from increases in value of the Common Stock through the granting of the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) Stock Purchase Awards, and (v) Stock Bonus Awards.

     (d) The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive Stock Awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates.

2. Definitions.

     (a) “Affiliate” means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.

     (b) “Board” means the Board of Directors of the Company.

     (c) “Code” means the Internal Revenue Code of 1986, as amended.

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     (d) “Committee” means a committee of one or more members of the Board appointed by the Board in accordance with subsection 3(c).

     (e) “Common Stock” means the common stock of the Company.

     (f) “Company” means InterMune, Inc., a Delaware corporation.

     (g) “Consultant” means any person, including an advisor, (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) who is a member of the Board of Directors of an Affiliate. However, the term “Consultant” shall not include either Directors who are not compensated by the Company for their services as Directors or Directors who are merely paid a director’s fee by the Company for their services as Directors.

     (h) “Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s service. For example, a change in status without interruption from an Employee of the Company to a Consultant of an Affiliate or a Director will not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that party’s sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave.

     (i) “Covered Employee” means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to Stockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.

     (j) “Director” means a member of the Board.

     (k) “Disability” means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code.

     (l) “Employee” means any person employed by the Company or an Affiliate. Mere service as a Director or payment of a director’s fee by the Company or an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate.

     (m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     (n) “Fair Market Value” means, as of any date, the value of the Common Stock determined as follows:

     (i) If the Shares are listed on any established stock exchange or a national market system, Fair Market Value shall be the closing sales price for such Shares (or the

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closing bid, if no sales were reported) as quoted on such exchange or system for such date, or if no bids or sales were reported for such date, then the closing sales price (or the closing bid, if no sales were reported) on the trading date immediately prior to such date during which a bid or sale occurred, in each case, as reported in The Wall Street Journal or such other source as the Committee deems reliable;

     (ii) If the Shares are regularly quoted by a recognized securities dealer but selling prices are not reported, Fair Market Value shall be the mean of the closing bid and asked prices for the Shares on such date, or if no closing bid and asked prices were reported for such date, the date immediately prior to such date during which closing bid and asked prices were quoted for the Shares, in each case, as reported in The Wall Street Journal or such other source as the Committee deems reliable; or

     (iii) In the absence of an established market for the Shares, the Fair Market Value thereof shall be determined in good faith by the Committee.

     (o) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

     (p) “Non-Employee Director” means a Director who either (i) is not a current Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (“Regulation S-K”)), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a “non-employee director” for purposes of Rule 16b-3.

     (q) “Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.

     (r) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

     (s) “Option” means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan.

     (t) “Option Agreement” means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan.

     (u) “Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.

     (v) “Outside Director” means a Director who either (i) is not a current Employee of the Company or an “affiliated corporation” (within the meaning of Treasury Regulations

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promulgated under Section 162(m) of the Code), is not a former Employee of the Company or an “affiliated corporation” receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an “affiliated corporation” at any time and is not currently receiving direct or indirect remuneration from the Company or an “affiliated corporation” for services in any capacity other than as a Director or (ii) is otherwise considered an “outside director” for purposes of Section 162(m) of the Code.

     (w) “Participant” means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.

     (x) “Plan” means this InterMune, Inc. Amended and Restated 2000 Equity Incentive Plan.

     (y) “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.

     (z) “Securities Act” means the Securities Act of 1933, as amended.

     (aa) “Share Reserve” shall have the meaning ascribed in Section 4(a).

     (bb) “Stock Award” means any right granted under the Plan, including an Option, a Stock Purchase Award and a Stock Bonus Award.

     (cc) “Stock Award Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of a Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan.

     (dd) “Stock Bonus Award” means an award of shares of Common Stock which is granted pursuant to Section 7(a).

     (ee) “Stock Bonus Award Agreement” means a written agreement between the Company and a holder of a Stock Bonus Award evidencing the terms and conditions of a Stock Bonus Award grant. Each Stock Bonus Award Agreement shall be subject to the terms and conditions of the Plan.

     (ff) “Stockholder” means a stockholder of the Company.

     (gg) “Stock Purchase Award” means an award of shares of Common Stock which is granted pursuant to Section 7(b).

     (hh) “Stock Purchase Award Agreement” means a written agreement between the Company and a holder of a Stock Purchase Award evidencing the terms and conditions of a Stock Purchase Award grant. Each Stock Purchase Award Agreement shall be subject to the terms and conditions of the Plan.

     (ii) “Ten Percent Stockholder” means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates.

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3. Administration.

     (a) Administration by Board. The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in subsection 3(c).

     (b) Powers of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

     (i) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; the exercise price and acceptable types of consideration for payment of the exercise price for each Stock Award; what type or combination of types of Stock Award shall be granted; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive Common Stock pursuant to a Stock Award; and the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person.

     (ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.

     (iii) Subject to the provisions of Section 14, to amend the Plan or a Stock Award as provided in Section 12.

     (iv) To terminate or suspend the Plan as provided in Section 13.

     (v) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan.

     (c) Delegation to Committee.

     (i) General. The Board may delegate administration of the Plan to a Committee or Committees of one (1) or more members of the Board, and the term “Committee” shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan.

     (ii) Committee Composition when Common Stock is Publicly Traded. At such time as the Common Stock is publicly traded, in the discretion of the Board, a

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Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such authority, the Board or the Committee may (1) delegate to a committee of one or more members of the Board who are not Outside Directors the authority to grant Stock Awards to eligible persons who are either (a) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Awards or (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or (2) delegate to a committee of one or more members of the Board who are not Non-Employee Directors the authority to grant Stock Awards to eligible persons who are not then subject to Section 16 of the Exchange Act.

     (iii) Delegation to Non-Board Members. To the extent permitted by applicable law, the Board may from time to time delegate to a committee of one or more officers of the Company the authority to grant or amend Options to Participants other than (a) senior executives of the Company who are subject to Section 16 of the Exchange Act, (b) Covered Employees, or (c) officers of the Company (or members of the Board) to whom authority to grant or amend Options has been delegated hereunder. Any delegation hereunder shall be subject to the restrictions and limits that the Board specifies at the time of such delegation, and the Board may at any time rescind the authority so delegated or appoint a new delegatee. At all times, the delegatee appointed under this Section 3(d) shall serve in such capacity at the pleasure of the Board.

     (d) Effect of Board’s Decision. All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons.

4. Shares Subject to the Plan.

     (a) Share Reserve. Subject to the provisions of Section 11 relating to adjustments upon changes in Common Stock, the Common Stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate eight million seven hundred seventy eight and two hundred twenty six (8,778,226) shares (the “Share Reserve”), which is comprised of 1,500,000 shares that were approved by the Stockholders on May 15, 2007, 1,000,000 shares that were approved by the Stockholders on May 27, 2004; 2,500,000 shares that were approved by the Stockholders on June 19, 2002; and 3,778,226 shares that were in the Share Reserve prior to June 19, 2002; provided, however, that such aggregate number of shares of Common Stock available for issuance under the Plan shall be reduced by 1.67 shares for each share of Stock delivered in settlement of any Stock Purchase Award or Stock Bonus Award.

     (b) Reversion of Shares to the Share Reserve. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, or if any shares of Common Stock issued to a Participant pursuant to a Stock Award are forfeited to or repurchased by the Company, including, but not limited to, any repurchase or forfeiture caused by the failure to meet a contingency or condition required for the vesting of such shares, then the shares of Common Stock not issued under such Stock Award, or forfeited to or

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repurchased by the Company, shall revert to and again become available for issuance under the Plan.

     (c) Source of Shares. The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.

     (d) Incentive Stock Option Shares. Subject to the provisions of Section 11 relating to adjustments upon changes in Common Stock, the aggregate number of shares of Common Stock issued under the Plan pursuant to the exercise of all Incentive Stock Options granted under the Plan shall not exceed ten million (10,000,000) shares of Common Stock.

5. Eligibility.

     (a) Eligibility for Specific Stock Awards. Incentive Stock Options may be granted only to Employees. Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants.

     (b) Ten Percent Stockholders. A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the exercise price of such Incentive Stock Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant and the Incentive Stock Option is not exercisable after the expiration of five (5) years from the date of grant.

     (c) Section 162(m) Limitation. Subject to the provisions of Section 11 relating to adjustments upon changes in Common Stock, no Employee shall be eligible to be granted Options covering more than one million (1,000,000) shares of Common Stock during any calendar year.

     (d) Consultants.

     (i) A Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act (“Form S-8”) is not available to register either the offer or the sale of the Company’s securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (i) that such grant (A) shall be registered in another manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or (B) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (ii) that such grant complies with the securities laws of all other relevant jurisdictions.

     (ii) Form S-8 generally is available to consultants and advisors only if (i) they are natural persons; (ii) they provide bona fide services to the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuer’s parent; and (iii) the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the issuer’s securities.

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6. Option Provisions.

     Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of Option. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:

     (a) Term. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, no Option shall be exercisable after the expiration of seven (7) years.

     (b) Exercise Price of an Option. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.

     (c) [Intentionally Omitted.]

     (d) Consideration. The purchase price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised or (ii) at the discretion of the Board (1) by delivery to the Company of other Common Stock (either by actual delivery or attestation), (2) by a “net exercise” of the Option (as further described below), (3) to the extent permissible under Section 13(k) of the Exchange Act, according to a deferred payment or other similar arrangement with the Optionholder, (4) to the extent permissible under Section 13(k) of the Exchange Act, pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds, or (5) in any other form of legal consideration that may be acceptable to the Board. Unless otherwise specifically provided in the Option, the purchase price of Common Stock acquired pursuant to an Option that is paid by delivery to the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to the Company’s earnings for financial accounting purposes). At any time that the Company is incorporated in Delaware, payment of the Common Stock’s “par value,” as defined in the Delaware General Corporation Law, shall not be made by deferred payment.

     In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement.

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     In the case of a “net exercise” of an Option, the Company will not require a payment of the exercise price of the Option from the Optionholder but will reduce the number of shares of Common Stock issued upon the exercise by the largest number of whole shares that has a Fair Market Value that does not exceed the aggregate exercise price. With respect to any remaining balance of the aggregate exercise price, the Company shall accept a cash payment from the Optionholder. Shares of Common Stock will no longer be outstanding under an Option (and will therefore not thereafter be exercisable) following the exercise of such Option to the extent of (i) shares used to pay the exercise price of an Option under a “net exercise”, (ii) shares actually delivered to the Optionholder as a result of such exercise and (iii) shares withheld for purposes of tax withholding.

     (e) Transferability of an Incentive Stock Option. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.

     (f) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock Option shall be transferable to the extent provided in the Option Agreement. If the Option Agreement does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. Notwithstanding the foregoing, in no event may any Nonstatutory Stock Option be sold, pledged, assigned, hypothecated, transferred, or disposed of for consideration.

     (g) Vesting Generally. The total number of shares of Common Stock subject to an Option may, but need not, vest and therefore become exercisable in periodic installments that may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this subsection 6(g) are subject to any Option provisions governing the minimum number of shares of Common Stock as to which an Option may be exercised.

     (h) Termination of Continuous Service. In the event an Optionholder’s Continuous Service terminates (other than upon the Optionholder’s death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholder’s Continuous Service (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate.

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     (i) Extension of Termination Date. An Optionholder’s Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholder’s Continuous Service (other than upon the Optionholder’s death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the Option Agreement or (ii) the expiration of a period of three (3) months after the termination of the Optionholder’s Continuous Service during which the exercise of the Option would not be in violation of such registration requirements.

     (j) Disability of Optionholder. In the event that an Optionholder’s Continuous Service terminates as a result of the Optionholder’s Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement) or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate.

     (k) Death of Optionholder. In the event (i) an Optionholder’s Continuous Service terminates as a result of the Optionholder’s death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholder’s Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder’s estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Optionholder’s death pursuant to subsection 6(e) or 6(f), but only within the period ending on the earlier of (1) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement) or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate.

     (l) Early Exercise. The Option may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholder’s Continuous Service terminates to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of the Option. Any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate. At the Board’s election, the repurchase right may be at the lesser of: (i) the Fair Market Value on the relevant date and (ii) the Optionholder’s original cost. The Company will not exercise its repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following exercise of the Option unless the Board otherwise specifically provides in the Option.

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7. Provisions of Stock Awards other than Options.

     (a) Stock Bonus Awards. Each Stock Bonus Award Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. At the Board’s election, shares of Common Stock may be (i) held in book entry form subject to the Company’s instructions until any restrictions relating to the Stock Bonus Award lapse; or (ii) evidenced by a certificate, which certificate shall be held in such form and manner as determined by the Board. The terms and conditions of Stock Bonus Award Agreements may change from time to time, and the terms and conditions of separate Stock Bonus Award Agreements need not be identical, but each Stock Bonus Award Agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

     (i) Consideration. A Stock Bonus Award may be awarded in consideration for past services actually rendered to the Company or an Affiliate.

     (ii) Vesting. Shares of Common Stock awarded under the Stock Bonus Award Agreement may be subject to forfeiture to the Company in accordance with a vesting schedule to be determined by the Board.

     (iii) Termination of Participant’s Continuous Service. In the event a Participant’s Continuous Service terminates, the Company may receive pursuant to a forfeiture condition, any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination of Continuous Service under the terms of the Stock Bonus Award Agreement.

     (iv) Transferability. Rights to acquire shares of Common Stock under the Stock Bonus Award Agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the Stock Bonus Award Agreement, as the Board shall determine in its sole discretion, so long as Common Stock awarded under the Stock Bonus Award Agreement remains subject to the terms of the Stock Bonus Award Agreement. Notwithstanding the foregoing, in no event may a right to acquire shares of Common Stock under a Stock Bonus Award be sold, pledged, assigned, hypothecated, transferred, or disposed of for consideration.

     (b) Stock Purchase Awards. Each Stock Purchase Award Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. At the Board’s election, shares of Common Stock may be (i) held in book entry form subject to the Company’s instructions until any restrictions relating to the Stock Purchase Award lapse; or (ii) evidenced by a certificate, which certificate shall be held in such form and manner as determined by the Board. The terms and conditions of Stock Purchase Award Agreements may change from time to time, and the terms and conditions of separate Stock Purchase Award Agreements need not be identical, provided, however, that each Stock Purchase Award Agreement shall include (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

     (i) Purchase Price. At the time of the grant of a Stock Purchase Award, the Board will determine the price to be paid by the Participant for each share subject to the

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Stock Purchase Award. To the extent required by applicable law, the price to be paid by the Participant for each share of the Stock Purchase Award will not be less than the par value of a share of Common Stock.

     (ii) Consideration. At the time of the grant of a Stock Purchase Award, the Board will determine the consideration permissible for the payment of the purchase price of the Stock Purchase Award. The purchase price of Common Stock acquired pursuant to the Stock Purchase Award shall be paid either: (i) in cash at the time of purchase, (ii) at the discretion of the Board, according to a deferred payment or other similar arrangement with the Participant (to the extent permissible under Section 13(k) of the Exchange Act); or (ii) in any other form of legal consideration that may be acceptable to the Board and permissible under the Delaware General Corporation Law; provided, however, that to the extent prohibited by applicable law, payment of the Common Stock’s par value shall not be made by deferred payment.

     (iii) Vesting. Shares of Common Stock acquired under a Stock Purchase Award may be subject to a share repurchase right or option in favor of the Company in accordance with a vesting schedule to be determined by the Board.

     (iv) Termination of Participant’s Continuous Service. In the event that a Participant’s Continuous Service terminates, the Company shall have the right, but not the obligation, to repurchase or otherwise reacquire, any or all of the shares of Common Stock held by the Participant that have not vested as of the date of termination under the terms of the Stock Purchase Award Agreement. At the Board’s election, the repurchase right may be at the least of: (i) the Fair Market Value on the relevant date or (ii) the Participant’s original cost. The Company shall not be required to exercise its repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following the purchase of the restricted stock unless otherwise determined by the Board or provided in the Stock Purchase Award Agreement.

     (v) Transferability. Rights to purchase or receive shares of Common Stock granted under a Stock Purchase Award shall be transferable by the Participant only upon such terms and conditions as are set forth in the Stock Purchase Award Agreement, as the Board shall determine in its sole discretion, and so long as Common Stock awarded under the Stock Purchase Award remains subject to the terms of the Stock Purchase Award Agreement. Notwithstanding the foregoing, in no event may a right to purchase or receive shares of Common Stock granted under a Stock Purchase Award be sold, pledged, assigned, hypothecated, transferred, or disposed of for consideration.

8. Covenants of the Company.

     (a) Availability of Shares. During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Stock Awards.

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     (b) Securities Law Compliance. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained.

9. Use of Proceeds from Stock.

     Proceeds from the sale of Common Stock pursuant to Stock Awards shall constitute general funds of the Company.

10. Miscellaneous.

     (a) Acceleration of Exercisability and Vesting. The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest.

     (b) Stockholder Rights. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award unless and until such Participant has satisfied all requirements for exercise of the Stock Award pursuant to its terms.

     (c) No Employment or other Service Rights. Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.

     (d) Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options.

     (e) Investment Assurances. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances

13

satisfactory to the Company as to the Participant’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant’s own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (1) the issuance of the shares of Common Stock upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock.

     (f) Withholding Obligations. To the extent provided by the terms of a Stock Award Agreement, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under a Stock Award by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under the Stock Award, provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii) delivering to the Company owned and unencumbered shares of Common Stock of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to the Company’s earnings for financial accounting purposes).

11. Adjustments upon Changes in Stock.

     (a) Capitalization Adjustments. If any change is made in the Common Stock subject to the Plan, or subject to any Stock Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to subsection 4(a), the maximum aggregate number of securities that may be issued pursuant to the exercise of Incentive Stock Options under subsection 4(d), the maximum number of securities subject to award to any person pursuant to subsection 5(c), and the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of securities and price per share of Common Stock subject to such outstanding Stock Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction “without receipt of consideration” by the Company.)

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     (b) Dissolution or Liquidation. In the event of a dissolution or liquidation of the Company, then all outstanding Stock Awards shall terminate immediately prior to such event.

     (c) Change in Control. In the event of (i) a sale, lease or other disposition of all or substantially all of the securities or assets of the Company, (ii) a merger or consolidation in which the Company is not the surviving corporation or (iii) a reverse merger in which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then any surviving corporation or acquiring corporation may assume any Stock Awards outstanding under the Plan or may substitute similar stock awards (including an award to acquire the same consideration paid to the Stockholders in the transaction described in this subsection 11(c)) for those outstanding under the Plan. In the event any surviving corporation or acquiring corporation does not assume such Stock Awards or substitute similar stock awards for those outstanding under the Plan, then with respect to Stock Awards held by Participants whose Continuous Service has not terminated, the vesting of such Stock Awards (and, if applicable, the time during which such Stock Awards may be exercised) shall be accelerated in full, and the Stock Awards shall terminate if not exercised (if applicable) at or prior to such event. With respect to any other Stock Awards outstanding under the Plan, such Stock Awards shall terminate if not exercised (if applicable) prior to such event.

12. Amendment of the Plan and Stock Awards.

     (a) Amendment of Plan. The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 11 relating to adjustments upon changes in Common Stock, no amendment shall be effective unless approved by the Stockholders of the Company to the extent Stockholder approval is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements.

     (b) Stockholder Approval. The Board may, in its sole discretion, submit any other amendment to the Plan for Stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers.

     (c) Contemplated Amendments. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith.

     (d) No Impairment of Rights. Rights under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.

     (e) Amendment of Stock Awards. Subject to the provisions of Section 14 hereof, the Board at any time, and from time to time, may amend the terms of any one or more Stock Awards; provided, however, that the rights under any Stock Award shall not be impaired by any

15

such amendment unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.

13. Termination or Suspension of the Plan.

     (a) Plan Term. The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on April 7, 2017. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated.

     (b) No Impairment of Rights. Suspension or termination of the Plan shall not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the Participant.

14. Prior Stockholder Approval of Option Repricings.

     Notwithstanding anything to the contrary herein, the Board shall not, without first obtaining the approval of the Stockholders, (i) reduce the exercise price of any outstanding Option under the Plan, (ii) cancel any outstanding Option under the Plan and replace it with an Option with a lower exercise price, (iii) accept any outstanding Option in exchange for a new Option with a lower exercise price, or (iv) take any other action that is treated as a repricing under generally accepted accounting principles.

15. Effective Date of Plan and Amendments.

     (a) The Prior Plan became effective upon the effective date of the Company’s first registered offering of its Common Stock to the public. The Plan (as amended and restated hereby) shall become effective as of May 15, 2007, provided that the Stockholders approve the Plan (as amended and restated hereby) at the 2007 annual meeting of Stockholders.

     (b) No Stock Award that has been granted under an amendment adopted by the Board which is subject to Stockholder approval shall be exercised (or, in the case of a Stock Bonus Award, shall be granted) unless and until such amendment has been approved by the Stockholders, which approval shall be within twelve (12) months after the date such amendment is adopted by the Board.

16. Choice of Law.

     The law of the State of Delaware shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state’s conflict of laws rules.

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InterMune, Inc.
Amended and Restated 2000 Equity Incentive Plan
Notice of Grant of Stock Option and Stock Option Terms and Conditions

InterMune, Inc.
3280 Bayshore Boulevard
Brisbane, CA 94005
(415) 466-2200
«First» «Middle» «Last»	Social Security Number:	«SS_No»
«Address»	Grant Number:	«Grant_No»
«City», «State» «Zip»
Date of Grant:	«Date_of_Grant»
Vesting Commencement Date:	«Vesting _Start_Date»
Exercise Price per Share:	$ «Exercise_Price»
Total Number of Shares Granted:	«No_Granted»
Total Exercise Price:	$«Total_Exercise_Price»
Term/Expiration Date:	«Term_Date»
Type of Option:	«Type_of_Option»

Vesting Schedule:	The Shares subject to this Option shall vest according to the following schedule:
	One Fourth (1/4) of the Shares shall vest on the one (1) year anniversary of the Vesting Commencement Date. One Thirty-Sixth (1/36) of the Shares shall vest monthly thereafter.

Optionee acknowledges and agrees that the vesting of shares pursuant to this option (the “Option”) is earned only by continuing consultancy or employment at the will of lnterMune, Inc. (the “Company”) (not through the act of being hired, being granted this Option or acquiring shares hereunder). Optionee further acknowledges and agrees that nothing in this agreement, nor in the Company’s Amended and Restated 2000 Equity Incentive Plan (the “Plan”), which Plan is incorporated herein by reference, shall confer upon Optionee any right with respect to continuation of employment or consultancy by the Company, nor shall it interfere in any way with Optionee’s right or the Company’s right to terminate Optionee’s employment or consultancy at any time, with or without Cause.

Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions of such Plan. Optionee hereby accepts this Option subject to all of the terms and provisions hereof. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Company upon any questions related to this Option or arising under the Plan. Optionee further agrees to notify the Company upon any change in the residence address indicated above.

This Option is governed by the Stock Option Terms and Conditions attached hereto and incorporated herein by this reference. By Optionee’s signature below, Optionee agrees to be bound by all of the terms and conditions of the Plan and the Stock Option Terms and Conditions attached hereto.

	Date:
Robin Steele
Senior Vice President and General Counsel
Optionee Signature	Date

INTERMUNE, INC.
AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN
STOCK OPTION TERMS AND CONDITIONS

1. Plan Incorporated by Reference. The Option is issued pursuant to the Intermune, Inc. Amended and Restated 2000 Equity Incentive Plan (the “Plan”), the terms of which are hereby incorporated by reference. Capitalized terms not otherwise defined herein shall have the meanings given to them in the attached Notice of Grant of Stock Option and in the Plan. In the event of any conflict between the provisions of the Option and those of the Plan, the provisions of the Plan shall control.

2. Option Shares and Exercise Price. The Company hereby grants to the Optionee an Option to purchase the Common Stock (the “Shares”) set forth in the Notice of Grant of Stock Option, at the exercise price per Share set forth in the Notice of Grant of Stock Option (the “Exercise Price”).

3. Exercisability Schedule. Provided Optionee has remained in continuous service as an Employee, Director or Consultant as of each applicable vesting date, as required by the Plan, the Option shall become vested and exercisable in accordance with the Vesting Schedule set forth in the Notice of Grant of Stock Option.

4. Payment of Exercise Price. Payment of the exercise price per share is due in full upon exercise of all or any part of each installment which has accrued to Optionee. Optionee may elect, to the extent permitted by applicable statutes and regulations, to make payment of the exercise price under one of the following alternatives:

     (a) Payment of the exercise price per share in cash (including check) at the time of exercise;

     (b) With the consent of the Committee, and provided that at the time of exercise the Company’s Common Stock is publicly traded, payment by delivery of shares of Common Stock issuable upon the exercise of the Option having a Fair Market Value on the date of exercise equal to the aggregate exercise price of the Option or the exercised portion of the Option and which have been held for the period sufficient to avoid a compensation accounting charge to the Company;

     (c) Payment by delivery of a notice that Optionee has placed a market sell order with a broker with respect to shares of the Company’s Common Stock then issuable upon exercise of the Option and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate exercise price of the Option or the exercised portion of the Option; provided that payment of such proceeds is made to the Company on or before settlement of such sale;

     (d) With the consent of the Committee, payment in any other form of legal consideration that may be acceptable to the Committee; or

     (e) With the consent of the Committee, payment by a combination of the methods of payment permitted by subparagraph 4(a) through 4(d) above.

5. No Fractional Shares. The Option may not be exercised for any number of shares which would require the issuance of anything other than whole shares.

6. Compliance with Securities Laws. Notwithstanding anything to the contrary contained herein, the Option may not be exercised unless the shares issuable upon exercise of the Option are then registered under the Securities Act of 1933, as amended (the “Act”) or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Act.

7. Option Term. The term of the Option commences on the date of grant of the Option set forth in the Notice of Grant of Stock Option and, unless sooner terminated as set forth below or in the Plan, terminates on the expiration date of the Option set forth in the Notice of Grant of Stock Option (which date shall be no more than ten (10) years from the date of grant of the Option). In no event may the Option be exercised on or after the date on which it terminates. The Option shall terminate prior to the expiration of its term as follows: three (3) months after the termination of Optionee’s continuous service as an Employee, Director or Consultant, as determined under the Plan, for any reason or for no reason unless:

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     (a) such termination of continuous service as an Employee, Director or Consultant is for Cause, in which event the Option shall terminate upon the date of termination of continuous service as an Employee, Director or Consultant;

     (b) such termination of continuous service as an Employee, Director or Consultant is due to Optionee’s permanent and total disability (within the meaning of Section 22(e)(3) of the Code), in which event the Option shall terminate on the earlier of (i) the expiration date of the Option set forth above, or (ii) twelve (12) months following such termination of continuous service as an Employee, Director or Consultant;

     (c) such termination of continuous service as an Employee, Director or Consultant is due to Optionee’s death, in which event the Option shall terminate on the earlier of (i) the expiration date of the Option set forth above, or (ii) eighteen (18) months after Optionee’s death; or

     (d) during any part of such three (3) month period the Option is not exercisable solely because of the condition set forth in Section 6 above, in which event the Option shall not terminate until the earlier of (i) the expiration date of the Option set forth above or (ii) until the Option shall have been exercisable for an aggregate period of three (3) months after the termination of continuous service as an Employee, Director or Consultant.

     However, unless otherwise permitted by the Committee, the Option may be exercised following termination of employment only as to that number of Shares which are vested and exercisable on the date of such termination of continuous service as an Employee, Director or Consultant.

     For purposes of the Option, unless otherwise defined in an employment, severance or similar agreement between Optionee and the Company (in which case such alternate definition shall govern) “Cause” means Optionee’s misconduct, including but not limited to: (i) Optionee’s conviction of any felony or any crime involving moral turpitude or dishonesty, (ii) Optionee’s participation in any fraud or act of dishonesty against the Company, (iii) Optionee’s conduct that, based upon a good faith and reasonable factual investigation by the Company, demonstrates Optionee’s gross unfitness to serve, or (iv) Optionee’s intentional, material violation of any agreement or contract between the Company and Optionee or any statutory duty of Optionee to the Company that Optionee does not correct within seven (7) days after notice to Optionee thereof. Optionee’s medically diagnosed physical or mental disability shall not constitute “Cause” for purposes of the Option.

8. Method of Exercise. The Option may be exercised, to the extent specified above, by providing a notice of exercise (in a form designated by the Company) together with the exercise price payable to the Company delivered to the administrator of the Plan or to such other person as the Company may designate, during regular business hours, together with such additional written or electronic documents as the Company may then require pursuant to the Plan. By exercising the Option, Optionee agrees that the Company may require Optionee to enter into an arrangement providing for the cash payment by Optionee to the Company of any tax withholding obligation of the Company.

9. Withholding. Optionee hereby authorizes withholding from his or her payroll payments and any other amounts payable to Optionee upon exercise of the Option and Optionee agrees to make adequate provision for any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company which arise in connection with the Option.

10. Option Not Transferable. The Option is not transferable, except by will or by the laws of descent and distribution and is exercisable during Optionee’s life only by Optionee. By delivering written notice to the Company, in a form satisfactory to the Company, Optionee may designate a third party who, in the event of Optionee’s death, shall thereafter be entitled to exercise the Option.

11. No Right to Employment. The Option is not an employment contract and nothing in the Option shall be deemed to create in any way whatsoever any obligation on Optionee’s part to continue in the employ of the Company, or of the Company to continue Optionee’s employment with the Company. In the event that the Option is granted to Optionee in connection with the performance of services as a Consultant or Director, references to employment, Employee and similar terms shall be deemed to include the performance of services as a Consultant or a Director, as the case may be, provided, however, that no rights as an Employee shall arise by reason of the use of such terms.

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12. Notices. Any notices provided for in the Option or in the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to Optionee, five (5) days after deposit in the United States mail, postage prepaid, addressed to Optionee at the address specified on the Notice of Grant of Stock Option or at such other address as Optionee hereafter designates by written notice to the Company.

13. ISO Limitation. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and its Affiliates) exceeds $100,000, the Option or portion thereof which exceeds such limit (according to the order in which they were granted) shall be treated as a Non-Statutory Stock Option.

14. Section 409A. The Notice of Grant of Stock Option, this Stock Option Terms and Conditions and the Option are intended to be exempt from the provisions of Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, as providing for an option to purchase service recipient stock as described in Section 1.409A-1(b)(5)(i)(A) of the Department of Treasury regulations. Notwithstanding any provision of the Notice of Grant of Stock Option and this Stock Option Terms and Conditions to the contrary, in the event that the Committee determines that the Option may be subject to Section 409A of the Code, the Committee may adopt such amendments to the Notice of Grant of Stock Option and this Stock Option Terms and Conditions or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Committee determines are necessary or appropriate to (a) exempt the Option from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Option, or (b) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance and thereby avoid the application of penalty taxes under Section 409A of the Code.

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InterMune, Inc.
Amended and Restated 2000 Equity Incentive Plan
Notice of Grant of Stock Bonus Award And Terms and Conditions

InterMune, Inc.
3280 Bayshore Boulevard
Brisbane, CA 94005
(415) 466-2200

«First» «Middle» «Last»	Social Security Number:	«SS_No»
«Address»	Award Number:	«Grant_No»
«City», «State» «Zip»
Date of Grant:	«Date___of_Grant»
Vesting Commencement Date:	«Vesting_Start_Date»
Total Number of Shares Granted:	«No_Granted»

Vesting Schedule: The Shares subject to this Grant shall vest according to the following schedule:

Twenty Five Percent (25%) of the Shares shall vest on each one
(1) year anniversary of the Vesting Commencement Date.

Grantee acknowledges and agrees that the vesting of shares pursuant to this Stock Bonus Award (the “Grant”) is earned only by continuing consultancy or employment at the will of lnterMune, Inc. (the “Company”) (not through the act of being hired, being granted this Grant or acquiring shares hereunder). Grantee further acknowledges and agrees that nothing in this agreement, nor in the Company’s Amended and Restated 2000 Equity Incentive Plan (the “Plan”), which Plan is incorporated herein by reference, shall confer upon Grantee any right with respect to continuation of employment or consultancy by the Company, nor shall it interfere in any way with Grantee’s right or the Company’s right to terminate Grantee’s employment or consultancy at any time, with or without Cause.

Grantee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions of such Plan. Grantee hereby accepts this Grant subject to all of the terms and provisions hereof. Grantee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Company upon any questions related to this Grant or arising under the Plan. Grantee further agrees to notify the Company upon any change in the residence address indicated above.

This Grant is governed by the Stock Bonus Award Terms and Conditions attached hereto and incorporated herein by this reference. By Grantee’s signature below, Grantee agrees to be bound by all of the terms and conditions of the Plan and the Stock Bonus Award Terms and Conditions attached hereto.

	Date:
Robin Steele
Senior Vice President and General Counsel
Optionee Signature	Date

INTERMUNE, INC.
AMENDED AND RESTATED 2000 EQUITY INCENTIVE PLAN
STOCK BONUS AWARD TERMS AND CONDITIONS

1. Plan Incorporated by Reference. The Grant is issued pursuant to the InterMune, Inc. Amended and Restated 2000 Equity Incentive Plan (the “Plan”), the terms of which are hereby incorporated by reference. Capitalized terms not otherwise defined herein shall have the meanings given to them in the attached Notice of Grant of Stock Bonus Award and in the Plan. In the event of any conflict between the provisions of the Grant and those of the Plan, the provisions of the Plan shall control.

2. Shares of Restricted Stock. The Company hereby grants to the Grantee the shares of Common Stock (the “Shares”) set forth in the Notice of Grant of Stock Bonus Award.

3. Vesting Schedule. Provided Grantee has remained in continuous service as an Employee, Director or Consultant as of each applicable vesting date, as required by the Plan, the Shares shall become vested in accordance with the vesting schedule set forth in the Notice of Grant of Stock Bonus Award (the “Vesting Schedule”).

4. Compliance with Securities Laws. Grantee may not be issued any Shares unless the Shares are either (i) then registered under the Securities Act of 1933, as amended (the “Act”) or, (ii) the Company has determined that such issuance would be exempt from the registration requirements of the Act. The Grant must also comply with other applicable laws and regulations governing the Grant, including the withholding of individual taxes, and Grantee will not receive such Shares if the Company determines that such receipt would not be in material compliance with such laws and regulations.

5. Forfeiture Condition. Grantee shall be required to forfeit to the Company for no additional consideration all or any part of the shares received pursuant to Grantee’s Grant (the “Forfeiture Condition”) that have not as yet vested in accordance with the Vesting Schedule (the “Unvested Shares”) on the following terms and conditions:

     (a) Grantee shall, simultaneously with termination of Grantee’s Continuous Service, automatically forfeit to the Company for no consideration all of the Unvested Shares, unless the Company agrees to waive the Forfeiture Condition as to some or all of the Unvested Shares. Any such waiver shall be exercised by the Company to written notice to Grantee or Grantee’s representative.

     (b) Subject to the provisions of the Grant, Grantee shall, during the term of the Grant, exercise all rights and privileges of a stockholder of the Company with respect to the shares subject to the Grant. Grantee shall be deemed to be the holder of the shares for purposes of receiving any dividends which may be paid with respect to such shares and for purposes of exercising any voting rights relating to such shares, even if some or all of such shares have not yet vested and been released from the Forfeiture Condition.

     (c) If, from time to time, there is any stock dividend, stock split or other change in the character of amount of any of the outstanding stock of the Company the stock of which is subject to the provisions of the Grant, then in such event any and all new, substituted or additional securities to which Grantee is entitled by reason of his or her ownership of the shares acquired under the Grant shall be immediately subject to the Forfeiture Condition with the same force and effect as the shares subject to the Forfeiture Condition immediately before such event.

6. Withholding. Grantee hereby authorizes withholding from his or her payroll payments and any other amounts payable to Grantee in connection with, and Grantee agrees to make adequate provision for, any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company which arise in connection with the Grant.

7. Limitations on Transferability. In addition to any other limitation on transfer created by applicable securities laws, yon shall not sell, assign, donate, encumber or otherwise dispose of any interest in the Shares while the Shares are subject to the Forfeiture Condition. After any Shares have been released from the Forfeiture Condition, Grantee shall not sell, assign, donate, encumber or otherwise dispose of any interest in the Shares except in compliance with the provisions herein and applicable securities laws.

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8. No Right to Employment. The Grant is not an employment contract and nothing in the Grant shall be deemed to create in any way whatsoever any obligation on Grantee’s part to continue in the employ of the Company, or of the Company to continue Grantee’s employment with the Company. In the event that the Grant is granted to Grantee in connection with the performance of services as a Consultant or Director, references to employment, Employee and similar terms shall be deemed to include the performance of services as a Consultant or a Director, as the case may be, provided, however, that no rights as an Employee shall arise by reason of the use of such terms.

9. Notices. Any notices provided for in the Grant or in the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to Grantee, five (5) days after deposit in the United States mail, postage prepaid, addressed to Grantee at the address specified on the Notice of Grant of Stock Bonus Award or at such other address as Grantee hereafter designates by written notice to the Company.

10. Section 409A. The Notice of Grant of Stock Bonus Award, this Stock Bonus Award Terms and Conditions, and the Grant are intended to be exempt from the provisions of Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, as providing for the transfer of restricted property as described in Section 1.409A-1(b)(6) of the Department of Treasury regulations. Notwithstanding any provision of the Notice of Grant of Stock Bonus Award and this Stock Bonus Award Terms and Conditions to the contrary, in the event that the Committee determines that the Grant may be subject to Section 409A of the Code, the Committee may adopt such amendments to the Notice of Grant of Stock Bonus Award and this Stock Bonus Award Terms and Conditions or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Committee determines are necessary or appropriate to (a) exempt the Grant from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Grant, or (b) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance and thereby avoid the application of penalty taxes under Section 409A of the Code.

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EX-10.4

Exhibit 10.4

INTERMUNE, INC.

AMENDED AND RESTATED 2000 EMPLOYEE STOCK PURCHASE PLAN

Approved by the Board of Directors: January 31, 2000
Approved by Stockholders: March 20, 2000
Approved by the Board of Directors: March 15, 2006

1. PURPOSE.

     (a) The purpose of this Amended and Restated 2000 Employee Stock Purchase Plan (the “Plan”) is to provide a means by which employees of InterMune, Inc. (the “Company”) and its Affiliates, as defined in subsection 1(b) below, that are designated as provided in subsection 2(b) below, may be given an opportunity to purchase Common Stock of the Company (the “Common Stock”).

     (b) The word “Affiliate” as used in the Plan means any parent corporation or subsidiary corporation of the Company, as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended (the “Code”).

     (c) The Company, by means of the Plan, seeks to retain the services of its employees, to secure and retain the services of new employees, and to provide incentives for such persons to exert maximum efforts for the success of the Company.

     (d) The Company intends that the rights to purchase stock of the Company granted under the Plan be considered options issued under an “employee stock purchase plan” as that term is defined in Section 423(b) of the Code.

2. ADMINISTRATION.

     (a) The Plan shall be administered by the Board of Directors (the “Board”) of the Company unless and until the Board delegates administration to a Committee, as provided in subsection 2(c). Whether or not the Board has delegated administration, the Board shall have the final power to determine all questions of policy and expediency that may arise in the administration of the Plan.

     (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan, to:

          (i) determine when and how rights to purchase stock of the Company shall be granted and the provisions of each offering of such rights (which need not be identical);

          (ii) designate from time to time which Affiliates of the Company shall be eligible to participate in the Plan;

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          (iii) construe and interpret the Plan and rights granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective;

          (iv) amend the Plan as provided in Section 13;

          (v) terminate or suspend the Plan as provided in Section 15; and

          (vi) exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and its Affiliates and to carry out the intent that the Plan be treated as an “employee stock purchase plan” within the meaning of Section 423 of the Code.

     (c) The Board may delegate administration of the Plan to a Committee composed of not fewer than two (2) members of the Board (the “Committee”). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan.

3. SHARES SUBJECT TO THE PLAN.

     (a) Subject to the provisions of Section 12 relating to adjustments upon changes in stock and subject to the increases in the number of reserved shares described below, the stock that may be sold pursuant to rights granted under the Plan shall not exceed in the aggregate two hundred thousand (200,000) shares of Common Stock (the “Reserved Shares”). As of each January 1, commencing with January 1, 2001 and including and ending with January 1, 2006, the number of Reserved Shares will be increased automatically by the lesser of (i) one percent (1%) of the total number of shares of Common Stock outstanding (on a fully-diluted, as converted basis) on each such January 1, (ii) four hundred thousand (400,000) shares or (iii) a number of shares determined by the Board prior to a January 1, which number shall be less than (i) above and also less than (ii) above. If any right granted under the Plan shall for any reason terminate without having been exercised, the Common Stock not purchased under such right shall again become available for the Plan.

     (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.

4. GRANT OF RIGHTS; OFFERING.

     The Board or the Committee may from time to time grant or provide for the grant of rights to purchase Common Stock of the Company under the Plan to eligible employees (an “Offering”) on a date or dates (the “Offering Date(s)”) selected by the Board or the Committee. Each Offering shall be in such form and shall contain such

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terms and conditions as the Board or the Committee shall deem appropriate, which shall comply with the requirements of Section 423(b)(5) of the Code that all employees granted rights to purchase stock under the Plan shall have the same rights and privileges. The terms and conditions of an Offering shall be incorporated by reference into the Plan and treated as part of the Plan. The provisions of separate Offerings need not be identical, but each Offering shall include (through incorporation of the provisions of this Plan by reference in the document comprising the Offering or otherwise) the period during which the Offering shall be effective, which period shall not exceed twenty-seven (27) months beginning with the Offering Date, and the substance of the provisions contained in Sections 5 through 8, inclusive.

5. ELIGIBILITY.

     (a) Rights may be granted only to employees of the Company or, as the Board or the Committee may designate as provided in subsection 2(b), to employees of any Affiliate of the Company. Except as provided in subsection 5(b), an employee of the Company or any Affiliate shall not be eligible to be granted rights under the Plan unless, on the Offering Date, such employee has been in the employ of the Company or any Affiliate for such continuous period preceding such grant as the Board or the Committee may require, but in no event shall the required period of continuous employment be greater than two (2) years. In addition, unless otherwise determined by the Board or the Committee and set forth in the terms of the applicable Offering, no employee of the Company or any Affiliate shall be eligible to be granted rights under the Plan, unless, on the Offering Date, such employee’s customary employment with the Company or such Affiliate is for at least twenty (20) hours per week and at least five (5) months per calendar year.

     (b) The Board or the Committee may provide that each person who, during the course of an Offering, first becomes an eligible employee of the Company or designated Affiliate will, on a date or dates specified in the Offering which coincides with the day on which such person becomes an eligible employee or occurs thereafter, receive a right under that Offering, which right shall thereafter be deemed to be a part of that Offering. Such right shall have the same characteristics as any rights originally granted under that Offering, as described herein, except that:

          (i) the date on which such right is granted shall be the Offering Date of such right for all purposes, including determination of the exercise price of such right;

          (ii) the period of the Offering with respect to such right shall begin on its Offering Date and end coincident with the end of such Offering; and

          (iii) the Board or the Committee may provide that if such person first becomes an eligible employee within a specified period of time before the end of the Offering, he or she will not receive any right under that Offering.

     (c) No employee shall be eligible for the grant of any rights under the Plan if, immediately after any such rights are granted, such employee owns stock possessing five

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percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Affiliate. For purposes of this subsection 5(c), the rules of Section 424(d) of the Code shall apply in determining the stock ownership of any employee, and stock which such employee may purchase under all outstanding rights and options shall be treated as stock owned by such employee.

     (d) An eligible employee may be granted rights under the Plan only if such rights, together with any other rights granted under “employee stock purchase plans” of the Company and any Affiliates, as specified by Section 423(b)(8) of the Code, do not permit such employee’s rights to purchase stock of the Company or any Affiliate to accrue at a rate which exceeds twenty-five thousand dollars ($25,000) of Fair Market Value of such stock (determined at the time such rights are granted) for each calendar year in which such rights are outstanding at any time. For purposes of this Plan, “Fair Market Value” means, as of the date, the value of the Common Stock of the Company determined as follows: If the Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market system or the Nasdaq Small Cap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable. In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board.

     (e) Officers of the Company and any designated Affiliate shall be eligible to participate in Offerings under the Plan; provided, however, that the Board may provide in an Offering that certain employees who are highly compensated employees within the meaning of Section 423(b)(4)(D) of the Code shall not be eligible to participate.

6. RIGHTS; PURCHASE PRICE.

     (a) On each Offering Date, each eligible employee, pursuant to an Offering made under the Plan, shall be granted the right to purchase up to the number of shares of Common Stock of the Company purchasable with a percentage designated by the Board or the Committee not exceeding fifteen percent (15%) of such employee’s Earnings (as defined in subsection 7(a)) during the period which begins on the Offering Date (or such later date as the Board or the Committee determines for a particular Offering) and ends on the date stated in the Offering, which date shall be no later than the end of the Offering. The Board or the Committee shall establish one or more dates during an Offering (the “Purchase Date(s)”) on which rights granted under the Plan shall be exercised and purchases of Common Stock carried out in accordance with such Offering.

     (b) In connection with each Offering made under the Plan, the Board or the Committee may specify a maximum number of shares that may be purchased by any employee as well as a maximum aggregate number of shares that may be purchased by all eligible employees pursuant to such Offering. In addition, in connection with each Offering that contains more than one Purchase Date, the Board or the Committee may

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specify a maximum aggregate number of shares which may be purchased by all eligible employees on any given Purchase Date under the Offering. If the aggregate purchase of shares upon exercise of rights granted under the Offering would exceed any such maximum aggregate number, the Board or the Committee shall make a pro rata allocation of the shares available in as nearly a uniform manner as shall be practicable and as it shall deem to be equitable.

     (c) The purchase price of stock acquired pursuant to rights granted under the Plan shall be not less than the lesser of:

          (i) an amount equal to eighty-five percent (85%) of the Fair Market Value of the stock on the Offering Date; or

          (ii) an amount equal to eighty-five percent (85%) of the Fair Market Value of the stock on the Purchase Date.

7. PARTICIPATION; WITHDRAWAL; TERMINATION.

     (a) An eligible employee may become a participant in the Plan pursuant to an Offering by delivering a participation agreement to the Company within the time specified in the Offering, in such form as the Company provides. Each such agreement shall authorize payroll deductions of up to the maximum percentage specified by the Board or the Committee of such employee’s Earnings during the Offering. “Earnings” is defined as an employee’s wages (including amounts thereof elected to be deferred by the employee, that would otherwise have been paid, under any arrangement established by the Company that is intended to comply with Section 125, Section 401(k), Section 402(h) or Section 403(b) of the Code or that provides non-qualified deferred compensation), which shall include overtime pay, bonuses, incentive pay, and commissions, but shall exclude profit sharing or other remuneration paid directly to the employee, the cost of employee benefits paid for by the Company or an Affiliate, education or tuition reimbursements, imputed income arising under any group insurance or benefit program, traveling expenses, business and moving expense reimbursements, income received in connection with stock options, contributions made by the Company or an Affiliate under any employee benefit plan, and similar items of compensation, as determined by the Board or the Committee. The payroll deductions made for each participant shall be credited to an account for such participant under the Plan and shall be deposited with the general funds of the Company. A participant may reduce (including to zero) or increase such payroll deductions, and an eligible employee may begin such payroll deductions, after the beginning of any Offering only as provided for in the Offering. A participant may make additional payments into his or her account only if specifically provided for in the Offering and only if the participant has not had the maximum amount withheld during the Offering.

     (b) At any time during an Offering, a participant may terminate his or her payroll deductions under the Plan and withdraw from the Offering by delivering to the Company a notice of withdrawal in such form as the Company provides. Such withdrawal may be elected at any time prior to the end of the Offering except as provided

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by the Board or the Committee in the Offering. Upon such withdrawal from the Offering by a participant, the Company shall distribute to such participant all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the participant) under the Offering, without interest, and such participant’s interest in that Offering shall be automatically terminated. A participant’s withdrawal from an Offering will have no effect upon such participant’s eligibility to participate in any other Offerings under the Plan but such participant will be required to deliver a new participation agreement in order to participate in subsequent Offerings under the Plan.

     (c) Rights granted pursuant to any Offering under the Plan shall terminate immediately upon cessation of any participating employee’s employment with the Company and any designated Affiliate, for any reason, and the Company shall distribute to such terminated employee all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the terminated employee), under the Offering, without interest.

     (d) Rights granted under the Plan shall not be transferable by a participant otherwise than by will or the laws of descent and distribution, or by a beneficiary designation as provided in Section 14 and, otherwise during his or her lifetime, shall be exercisable only by the person to whom such rights are granted.

8. EXERCISE.

     (a) On each Purchase Date specified therefore in the relevant Offering, each participant’s accumulated payroll deductions and other additional payments specifically provided for in the Offering (without any increase for interest) will be applied to the purchase of whole shares of stock of the Company, up to the maximum number of shares permitted pursuant to the terms of the Plan and the applicable Offering, at the purchase price specified in the Offering. No fractional shares shall be issued upon the exercise of rights granted under the Plan. The amount, if any, of accumulated payroll deductions remaining in each participant’s account after the purchase of shares which is less than the amount required to purchase one share of stock on the final Purchase Date of an Offering shall be held in each such participant’s account for the purchase of shares under the next Offering under the Plan, unless such participant withdraws from such next Offering, as provided in subsection 7(b), or is no longer eligible to be granted rights under the Plan, as provided in Section 5, in which case such amount shall be distributed to the participant after such final Purchase Date, without interest. The amount, if any, of accumulated payroll deductions remaining in any participant’s account after the purchase of shares which is equal to the amount required to purchase whole shares of stock on the final Purchase Date of an Offering shall be distributed in full to the participant after such Purchase Date, without interest.

     (b) No rights granted under the Plan may be exercised to any extent unless the shares to be issued upon such exercise under the Plan (including rights granted thereunder) are covered by an effective registration statement pursuant to the Securities Act of 1933, as amended (the “Securities Act”) and the Plan is in material compliance

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with all applicable state, foreign and other securities and other laws applicable to the Plan. If on a Purchase Date in any Offering hereunder the Plan is not so registered or in such compliance, no rights granted under the Plan or any Offering shall be exercised on such Purchase Date, and the Purchase Date shall be delayed until the Plan is subject to such an effective registration statement and such compliance, except that the Purchase Date shall not be delayed more than twelve (12) months and the Purchase Date shall in no event be more than twenty-seven (27) months from the Offering Date. If on the Purchase Date of any Offering hereunder, as delayed to the maximum extent permissible, the Plan is not registered and in such compliance, no rights granted under the Plan or any Offering shall be exercised and all payroll deductions accumulated during the Offering (reduced to the extent, if any, such deductions have been used to acquire stock) shall be distributed to the participants, without interest.

9. COVENANTS OF THE COMPANY.

     (a) During the terms of the rights granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such rights.

     (b) The Company shall seek to obtain from each federal, state, foreign or other regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the rights granted under the Plan. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such rights unless and until such authority is obtained.

10. USE OF PROCEEDS FROM STOCK.

     Proceeds from the sale of Common Stock pursuant to rights granted under the Plan shall constitute general funds of the Company.

11. RIGHTS AS A STOCKHOLDER.

     A participant shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to rights granted under the Plan unless and until the participant’s shareholdings acquired upon exercise of rights under the Plan are recorded in the books of the Company.

12. ADJUSTMENTS UPON CHANGES IN STOCK.

     (a) If any change is made in the stock subject to the Plan, or subject to any rights granted under the Plan, due to a change in corporate capitalization and without the receipt of consideration by the Company (through reincorporation, stock dividend, stock split, reverse stock split, combination or reclassification of shares), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to subsection 3(a) as well as the number of shares set forth under (ii) of subsection 3(a), and the outstanding rights will be appropriately adjusted in the class(es)

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and number of securities and price per share of stock subject to such outstanding rights. Such adjustments shall be made by the Board, the determination of which shall be final, binding and conclusive.

     (b) In the event of: (i) a dissolution, liquidation or sale of all or substantially all of the securities or assets of the Company, (ii) a merger or consolidation in which the Company is not the surviving corporation or (iii) a reverse merger in which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then any surviving corporation may assume outstanding rights or substitute similar rights for those under the Plan. In the event that no surviving corporation assumes outstanding rights or substitutes similar rights therefore, participants’ accumulated payroll deductions shall be used to purchase Common Stock immediately prior to the transaction described above and the participants’ rights under the ongoing Offering shall terminate immediately following such purchase.

13. AMENDMENT OF THE PLAN.

     (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will:

          (i) Increase the number of shares reserved for rights under the Plan;

          (ii) Modify the provisions as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code or to comply with the requirements of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (“Rule 16b-3”)); or

          (iii) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code or to comply with the requirements of Rule 16b-3, or any Nasdaq or securities exchange listing requirements.

          It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to employee stock purchase plans and/or to bring the Plan and/or rights granted under it into compliance therewith.

     (b) Rights and obligations under any rights granted before amendment of the Plan shall not be impaired by any amendment of the Plan, except with the consent of the person to whom such rights were granted, or except as necessary to comply with any laws or governmental regulations, or except as necessary to ensure that the Plan and/or rights granted under the Plan comply with the requirements of Section 423 of the Code.

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14. DESIGNATION OF BENEFICIARY.

     (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant’s account under the Plan in the event of such participant’s death subsequent to the end of an Offering but prior to delivery to the participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant’s account under the Plan in the event of such participant’s death during an Offering.

     (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant’s death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its sole discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.

15. TERMINATION OR SUSPENSION OF THE PLAN.

     (a) The Board in its discretion, may suspend or terminate the Plan at any time. No rights may be granted under the Plan while the Plan is suspended or after it is terminated.

     (b) Rights and obligations under any rights granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except as expressly provided in the Plan or with the consent of the person to whom such rights were granted, or except as necessary to comply with any laws or governmental regulations, or except as necessary to ensure that the Plan and/or rights granted under the Plan comply with the requirements of Section 423 of the Code.

16. EFFECTIVE DATE OF PLAN.

          The Plan shall become effective simultaneously with the effectiveness of the Company’s registration statement under the Securities Act with respect to the initial public offering of shares of the Company’s Common Stock (the “Effective Date”), but no rights granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted by the Board, which date may be prior to the Effective Date.

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INTERMUNE, INC.

AMENDED AND RESTATED
2000 EMPLOYEE STOCK PURCHASE PLAN OFFERING

(As Approved by the Board of Directors on March 7, 2007)

     1. GRANT; OFFERING DATE.

     (a) Effective as of March 7, 2007 (the “Effective Date”), the Board of Directors (the “Board”) of InterMune, Inc., a Delaware corporation (the “Company”), pursuant to the Company’s Amended and Restated 2000 Employee Stock Purchase Plan (the “Plan”), hereby authorizes the grant of rights to purchase shares of the common stock of the Company (“Common Stock”) to all eligible employees (an “Offering”). On and after May 1, 2007, a new Offering shall begin on May 1^st and November 1^st of each calendar year and each such Offering shall end on the day prior to the six (6) month anniversary of each such Offering’s Offering Date, unless sooner terminated in accordance with the provisions of this Offering or the Plan (the “Offering Period”). The first day of an Offering is that Offering’s “Offering Date.”

     (b) Prior to the commencement of any Offering, the Board (or the Committee described in subsection 2(c) of the Plan, if any) may change any or all terms of such Offering and any subsequent Offerings. The granting of rights pursuant to each Offering hereunder shall occur on each respective Offering Date unless, prior to such date (a) the Board (or the Committee, as defined in the Plan) determines that such Offering shall not occur, or (b) no shares remain available for issuance under the Plan in connection with the Offering.

     (c) The “Purchase Date” shall be the day prior to the six (6) month anniversary of each such Offering’s Offering Date.

     (d) Notwithstanding any provision herein to the contrary, offerings under the Plan which were already in progress as of the Effective Date shall continue in accordance with their original terms and conditions.

2. ELIGIBLE EMPLOYEES.

     (a) Each employee of either the Company or its designated Affiliates (as defined in the Plan) incorporated in the United States shall be eligible to be granted rights to purchase Common Stock under the Offering on the Offering Date of such Offering, provided that such employee has been continuously employed by the Company or one of its designated Affiliates throughout the ten (10) day period immediately prior to and ending on that Offering’s Offering Date (an “Eligible Employee”).

     (b) Notwithstanding subsection 2(a) above, the following employees shall not be Eligible Employees or be eligible to be granted rights under an Offering: (i) part-time or seasonal employees whose customary employment is less than twenty (20) hours per week or five (5)

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months per calendar year, or (ii) five percent (5%) stockholders (including ownership through unexercised options) described in subsection 5(c) of the Plan.

3. RIGHTS.

     (a) Subject to the limitations contained herein and in the Plan, on each Offering Date each Eligible Employee shall automatically be granted the right to purchase the number of shares of Common Stock purchasable with up to fifteen percent (15%) of such Eligible Employee’s Earnings paid during the period of such Offering beginning after such Eligible Employee first commences participation; provided, however, that no Eligible Employee may purchase Common Stock on a particular Purchase Date that would result in more than fifteen percent (15%) of such Eligible Employee’s Earnings paid during the period of time measured from the later of (i) the Offering Date, (ii) the date the Eligible Employee first commences participation in the Offering, or (iii) the immediately preceding Purchase Date, to such Purchase Date having been applied to purchase shares under all ongoing Offerings under the Plan and all other Company plans intended to qualify as “employee stock purchase plans” under Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”). For purposes of an Offering, “Earnings” shall mean an Eligible Employee’s wages (including amounts thereof elected to be deferred by the Eligible Employee that would otherwise have been paid, under any arrangement established by the Company that is intended to comply with Section 125, Section 401(k), Section 402(h) or Section 403(b) of the Code or that provides non-qualified deferred compensation), which shall include overtime pay, bonuses, incentive pay, and commissions, but shall exclude profit sharing or other remuneration paid directly to the Eligible Employee, the cost of employee benefits paid for by the Company or an Affiliate, education or tuition reimbursements, imputed income arising under any group insurance or benefit program, traveling expenses, business and moving expense reimbursements, income received in connection with stock options, contributions made by the Company or an Affiliate under any employee benefit plan, and similar items of compensation.

     (b) Notwithstanding the foregoing, the maximum number of shares of Common Stock an Eligible Employee may purchase on any Purchase Date in an Offering shall be such number of shares as has a Fair Market Value (as defined in the Plan) (determined as of the Offering Date for such Offering) equal to (x) $25,000 multiplied by the number of calendar years in which the right under such Offering has been outstanding at any time, minus (y) the Fair Market Value (as defined in the Plan) of any other shares of Common Stock (determined as of the relevant Offering Date with respect to such shares) which, for purposes of the limitation of Section 423(b)(8) of the Code, are attributed to any of such calendar years in which the right is outstanding. The amount in clause (y) of the previous sentence shall be determined in accordance with regulations applicable under Section 423(b)(8) of the Code based on (i) the number of shares previously purchased with respect to such calendar years pursuant to such Offering or any other Offering under the Plan, or pursuant to any other Company plans intended to qualify as “employee stock purchase plans” under Section 423 of the Code, and (ii) the number of shares subject to other rights outstanding on the Offering Date for such Offering pursuant to the Plan or any other such Company plan.

     (c) The maximum aggregate number of shares available to be purchased by all Eligible Employees under an Offering shall be the number of shares remaining available under the Plan on the Offering Date. If the aggregate purchase of shares of Common Stock upon

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exercise of rights granted under the Offering would exceed the maximum aggregate number of shares available, the Board shall make a pro rata allocation of the shares available in a uniform and equitable manner.

4. PURCHASE PRICE.

     The purchase price of the Common Stock under the Offering shall be the lesser of (a) eighty-five percent (85%) of the Fair Market Value of the Common Stock on the Offering Date (eighty-five percent (85%) of the Fair Market Value of the Common Stock on the first day on which the Company’s Common Stock is actively traded that immediately follows the Offering Date if an Offering Date does not fall on a day during which the Company’s Common Stock is actively traded), or (b) eighty-five percent (85%) of the Fair Market Value of the Common Stock on the Purchase Date (eighty-five percent (85%) of the Fair Market Value of the Common Stock on the first day on which the Company’s Common Stock is actively traded that immediately precedes the Purchase Date if a Purchase Date does not fall on a day during which the Company’s Common Stock is actively traded), in each case rounded up to the nearest whole cent per share.

5. PARTICIPATION.

     (a) Except as otherwise provided in this Section 5, an Eligible Employee may elect to participate in an Offering prior to the Offering Date. An Eligible Employee shall become a participant in an Offering by delivering an agreement authorizing payroll deductions to the Company no later than ten (10) days prior to the Offering Date. Such deductions must be in whole dollars, with a minimum dollar amount of ten dollars ($10) per pay period and a maximum amount not expected to exceed fifteen percent (15%) of such Eligible Employee’s Earnings over the course of an Offering, or in whole percentages, with a minimum percentage of one percent (1%) and a maximum percentage of fifteen percent (15%) of such Eligible Employee’s Earnings over the course of an Offering. A participant may not make additional payments into his or her account. In the absence of the delivery of an agreement authorizing payroll deductions, a participant’s initial participation level shall be zero, provided, however, that for a participant already enrolled in an offering under the Plan, as of the day prior to the Offering Date of an Offering under this offering document, the initial level of participation shall be as provided in the most recent agreement authorizing payroll deductions from the pay of such participant that has been delivered to the Company.

     (b) By delivering a notice to the Company on such form as the Company provides, a participant may increase or decrease his or her participation level during the Offering Period or withdraw from an Offering as follows: (i) a participant may increase or decrease (including to zero) his or her participation level only once (except for a second reduction to zero) during the Offering Period, except during the ten (10) day period immediately preceding a Purchase Date, (ii) a participant may increase or decrease his or her participation level with such change not to take effect until after the Purchase Date that follows the date such increase is delivered to the Company, and (iii) a participant may withdraw from an Offering and receive all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire Common Stock for the participant), without interest, at any time prior to the end of the Offering, excluding only the ten (10) day period immediately preceding a Purchase Date.

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6. PURCHASES.

     Subject to the limitations contained herein, on each Purchase Date, each participant’s accumulated payroll deductions (without any increase for interest) shall be applied to the purchase of whole shares of Common Stock, up to the maximum number of shares permitted under the Plan and the Offering.

7. NOTICES AND AGREEMENTS.

     Any notices or agreements provided for in an Offering or the Plan shall be given in writing, in a form provided by the Company, and unless specifically provided for in the Plan or this Offering shall be deemed effectively given upon receipt or, in the case of notices and agreements delivered by the Company, five (5) days after deposit in the United States mail, postage prepaid.

8. EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.

     The rights granted under an Offering are subject to the approval of any amendment to the Plan by the stockholders as required in order to obtain or preserve treatment as a tax-qualified employee stock purchase plan under Section 423 of the Code and as necessary to comply with the requirements of exemption from potential liability under Section 16(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) set forth in Rule 16b-3 promulgated under the Exchange Act.

9. OFFERING SUBJECT TO PLAN.

     Each Offering is subject to all the provisions of the Plan, and all terms and conditions of the Plan are hereby made a part of the Offering, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of an Offering and those of the Plan (including interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan), the provisions of the Plan shall control.

4

EX-10.5

Exhibit 10.5

INTERMUNE, INC.

AMENDED AND RESTATED 2000 NON-EMPLOYEE DIRECTORS’
STOCK OPTION PLAN

ADOPTED FEBRUARY 8, 2000
APPROVED BY STOCKHOLDERS MARCH 20, 2000
AMENDED ON JUNE 19, 2002
AMENDED ON MARCH 5, 2003
APPROVED BY STOCKHOLDERS MAY 29, 2003
AMENDED AND RESTATED ON APRIL 2, 2004
APPROVED BY STOCKHOLDERS MAY 27, 2004
AMENDED AND RESTATED ON MAY 25, 2006
AMENDED AND RESTATED ON MARCH 7, 2007

1. Purposes.

     (a) Amendment and Restatement. The Plan amends and restates the InterMune, Inc. 2000 Non-Employee Directors’ Stock Option Plan adopted January 31, 2000 (the “Prior Plan”). All outstanding Options granted under the Prior Plan shall remain subject to the terms of the Prior Plan. All Options granted subsequent to the effective date of this Plan shall be subject to the terms of this Plan (as amended and restated hereby).

     (b) Eligible Option Recipients. The persons eligible to receive Options are the Non-Employee Directors of the Company.

     (c) Available Options. The purpose of the Plan is to provide a means by which Non-Employee Directors may be given an opportunity to benefit from increases in value of the Common Stock through the granting of Nonstatutory Stock Options.

     (d) General Purpose. The Company, by means of the Plan, seeks to retain the services of its Non-Employee Directors, to secure and retain the services of new Non-Employee Directors and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates.

2. Definitions.

     (a) “Affiliate” means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.

     (b) “Annual Grant” means a Director Annual Grant or a Chairman Annual Grant.

     (c) “Annual Meeting” means the annual meeting of the stockholders of the Company.

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     (d) “Board” means the Board of Directors of the Company.

     (e) “Chairman” means the Chairman of the Board, if such person is also a Non-Employee Director. If such person is not a Non-Employee Director, then such person shall not be considered a “Chairman” for purposes of the Plan.

     (f) “Chairman Annual Grant” shall have the meaning ascribed in Section 6(c)(i).

     (g) “Chairman Partial Grant” shall have the meaning ascribed in Section 6(c)(ii).

     (h) “Code” means the Internal Revenue Code of 1986, as amended.

     (i) “Common Stock” means the common stock of the Company.

     (j) “Company” means InterMune, Inc., a Delaware corporation.

     (k) “Consultant” means any person, including an advisor, (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) who is a member of the Board of Directors of an Affiliate. However, the term “Consultant” shall not include either Directors of the Company who are not compensated by the Company for their services as Directors or Directors of the Company who are merely paid a director’s fee by the Company for their services as Directors.

     (l) “Continuous Service” means (i) with respect to Options granted to an Optionholder in his or her capacity as Chairman, that the Optionholder’s service as Chairman is not interrupted or terminated; and (ii) with respect to Options granted to an Optionholder in his or her capacity as a Director, that the Optionholder’s service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. Solely with respect to subclause (ii) above, the Optionholder’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionholder renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Optionholder renders such service, provided that there is no interruption or termination of the Optionholder’s service. For example, a change in status without interruption from a Non-Employee Director of the Company to a Consultant of an Affiliate or an Employee of the Company will not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that party’s sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave.

     (m) “Director” means a member of the Board of Directors of the Company.

     (n) “Director Annual Grant” shall have the meaning ascribed in Section 6(b)(i).

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     (o) “Disability” means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code.

     (p) “Employee” means any person employed by the Company or an Affiliate. Mere service as a Director or payment of a director’s fee by the Company or an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate.

     (q) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     (r) “Initial Grant” shall have the meaning ascribed in Section 6(a)(i).

     (s) “Fair Market Value” means, as of any date, the value of the Common Stock determined as follows:

          (i) If the Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable.

          (ii) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board.

     (t) “New Director Partial Grant” shall have the meaning ascribed in Section 6(a)(ii).

     (u) “Non-Employee Director” means a Director who is not an Employee.

     (v) “Nonstatutory Stock Option” means an Option not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

     (w) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

     (x) “Option” means a Nonstatutory Stock Option granted pursuant to the Plan.

     (y) “Option Agreement” means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan.

     (z) “Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.

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     (aa) “Partial Grant” shall mean a New Director Partial Grant or a Chairman Partial Grant.

     (bb) “Plan” means this InterMune, Inc. Amended and Restated 2000 Non-Employee Directors’ Stock Option Plan.

     (cc) “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.

     (dd) “Securities Act” means the Securities Act of 1933, as amended.

3. Administration.

     (a) Administration By Board. The Board shall administer the Plan. The Board may not delegate administration of the Plan to a committee.

     (b) Powers Of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

          (i) To determine the provisions of each Option to the extent not specified in the Plan.

          (ii) To construe and interpret the Plan and Options granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Option Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.

          (iii) To amend the Plan or an Option as provided in Section 12.

          (iv) To terminate or suspend the Plan as provided in Section 13.

          (v) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company that are not in conflict with the provisions of the Plan.

     (c) Effect Of Board‘s Decision. All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons.

4. Shares Subject to the Plan.

     (a) Share Reserve. Subject to the provisions of Section 11 relating to adjustments upon changes in the Common Stock, the Common Stock that may be issued pursuant to Options shall not exceed in the aggregate one million two hundred seventy thousand (1,270,000) shares of Common Stock.

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     (b) Reversion Of Shares To The Share Reserve. If any Option shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the shares of Common Stock not acquired under such Option shall revert to and again become available for issuance under the Plan.

     (c) Source Of Shares. The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.

5. Eligibility.

     The Options as set forth in Sections 6(a) and 6(b) automatically shall be granted under the Plan to all Non-Employee Directors. The Options as set forth in Sections 6(c) automatically shall be granted under the Plan to each Chairman.

6.  Non-Discretionary Grants.

     (a) New Director Grants.

          (i) Without any further action of the Board, each person who, after the date of the Annual Meeting in 2004, is elected or appointed for the first time to be a Non-Employee Director shall automatically be granted, upon the date of his or her initial election or appointment to be a Non-Employee Director, an Option to purchase thirty thousand (30,000) shares of Common Stock (an “Initial Grant”).

          (ii) In addition to the Initial Grant, without any further action of the Board, each person who, after the date of the Annual Meeting in 2004, is elected or appointed for the first time to be a Non-Employee Director on a date other than an Annual Meeting date shall automatically be granted, upon the date of his or her initial election or appointment to be a Non-Employee Director, an Option to purchase the number of shares of Common Stock equal to the product of (A) 1,667 and (B) the number of consecutive 30-day periods included in the period commencing on the date of such appointment and ending on the date of the next Annual Meeting, provided, however, that if the last consecutive 30-day period ends on a date that is not the date of the next Annual Meeting or there are fewer than 30 days between such appointment and the date of the next Annual Meeting, then the number of consecutive 30-day periods determined pursuant to this clause (B) shall be increased by one (1) (a “New Director Partial Grant”). For example, if a Non-Employee Director was appointed on April 15, 2005 and the next Annual Meeting was scheduled for May 27, 2005, the Non-Employee Director would receive an Option to purchase 3,334 shares of Common Stock pursuant to this Section 6(a)(ii) (1,667 shares for the 30-day period from April 15, 2005 to May 14, 2005 and 1,667 shares for the period beginning on May 15, 2005 and ending on May 27, 2005). If at the time of the New Director Partial Grant the date of the next Annual Meeting has not been set by resolution of the Board, the date of the next Annual Meeting shall be deemed to be the first anniversary of the date of the immediately preceding Annual Meeting. In no event, however, shall the maximum number of shares subject to a New Director Partial Grant exceed twenty thousand (20,000) shares.

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     (b) Director Annual Grants. Without any further action of the Board, on the day following each Annual Meeting, commencing with the Annual Meeting in [2007], each person who is then a Non-Employee Director shall automatically be granted an Option to purchase twelve thousand (12,000) shares of Common Stock (a “Director Annual Grant”).

     (c) Chairman Grants.

          (i) Without any further action of the Board, on the day following each Annual Meeting, commencing with the Annual Meeting in 2004, the Chairman shall automatically be granted, in addition to a Director Annual Grant, an Option to purchase ten thousand (10,000) shares of Common Stock (the “Chairman Annual Grant”).

          (ii) Additionally, without any further action of the Board, each person who, after the date of the Annual Meeting in 2004, is appointed by the Board for the first time (and who was not Chairman on the day following the immediately preceding Annual Meeting) shall automatically be granted, upon the date of his or her initial appointment as Chairman, an Option to purchase the number of shares of Common Stock equal to the product of (A) 834 and (B) the number of consecutive 30-day periods included in the period commencing on the date of such appointment and ending on the date of the next Annual Meeting, provided, however, that if the last consecutive 30-day period ends on a date that is not the date of the next Annual Meeting or there are fewer than 30 days between such appointment and the date of the next Annual Meeting, then the number of consecutive 30-day periods determined pursuant to this clause (B) shall be increased by one (1) (a “Chairman Partial Grant”). For example, if the Chairman was appointed on April 15, 2005 and the next Annual Meeting was scheduled for May 27, 2005, the Chairman would receive an Option to purchase 1,668 shares of Common Stock pursuant to this Section 6(c)(ii) (834 shares for the 30-day period from April 15, 2005 to May 14, 2005 and 834 shares for the period beginning on May 15, 2005 and ending on May 27, 2005). If at the time of the Chairman Partial Grant the date of the next Annual Meeting has not been set by resolution of the Board, the date of the next Annual Meeting shall be deemed to be the first anniversary of the date of the immediately preceding Annual Meeting. In no event, however, shall the maximum number of shares subject to a Chairman Partial Grant exceed ten thousand (10,000) shares.

7. Option Provisions.

     Each Option shall be in such form and shall contain such terms and conditions as required by the Plan. Each Option shall contain such additional terms and conditions, not inconsistent with the Plan, as the Board shall deem appropriate. Each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:

     (a) Term. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted.

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     (b) Exercise Price. The exercise price of each Option shall be one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.

     (c) Consideration. The purchase price of stock acquired pursuant to an Option may be paid, to the extent permitted by applicable statutes and regulations, in any combination of the following methods:

          (i) By cash or check.

          (ii) Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in THE WALL STREET JOURNAL, by delivery of already-owned shares of Common Stock either that the Optionholder has held for the period required to avoid a charge to the Company’s reported earnings (generally six months) or that the Optionholder did not acquire, directly or indirectly from the Company, that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date of exercise. “Delivery” for these purposes shall include delivery to the Company of the Optionholder’s attestation of ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing, the Optionholder may not exercise the Option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.

          (iii) Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in THE WALL STREET JOURNAL, pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds.

     (d) Transferability. An Option is transferable by will or by the laws of descent and distribution. An Option also is transferable (i) by instrument to an inter vivos or testamentary trust, in a form accepted by the Company, in which the Option is to be passed to beneficiaries upon the death of the trustor (settlor) and (ii) by gift, in a form accepted by the Company, to a member of the “immediate family” of the Optionholder as that term is defined in the general instructions to Form S-8 (promulgated under the Securities Act). An Option shall be exercisable during the lifetime of the Optionholder only by the Optionholder and a permitted transferee as provided herein. However, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.

     (e) Exercise Schedule. An Option shall be exercisable only for whole shares and then only as the shares of Common Stock subject to the Option vest.

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     (f) Vesting Schedule. Options shall vest as follows:

          (i) An Initial Grant shall vest in consecutive monthly installments at a rate of one thirty-sixth (1/36th) of the total number of shares subject to such Option. The first such installment shall vest one month from the date of grant of such Option and each subsequent installment shall vest one month from the vesting date of the prior installment until such Option has fully vested; provided, however, that vesting shall cease on termination of the Optionholder’s Continuous Service.

          (ii) An Annual Grant shall vest in consecutive monthly installments at a rate of one twelfth (1/12th) of the total number of shares subject to such Option. The first such installment shall vest one month from the date of grant of such Option and each subsequent installment shall vest one month from the vesting date of the prior installment until such Option has fully vested; provided, however, that vesting shall cease on termination of the Optionholder’s Continuous Service.

          (iii) A Partial Grant shall vest in consecutive monthly installments from the date of grant of such Option. Each vesting installment shall be equal, as nearly as possible, to each other vesting installment. The first such installment shall vest one month from the date of grant of such Option (or on the date of the next Annual Meeting if it is to occur within one month of the date of grant) and such vesting installments shall continue until the date of the next Annual Meeting occurring after the date of grant of such Option, at which time such Option shall be fully vested; provided, however, that such vesting shall cease on termination of the Optionholder’s Continuous Service.

     (g) Termination Of Continuous Service. In the event an Optionholder’s Continuous Service terminates (other than due to the Optionholder’s death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise it as of the date of termination) but only within such period of time ending on the earlier of (i) the date that is three (3) months following the termination of the Optionholder’s Continuous Service (or such longer or shorter period specified in the Option Agreements either as of the date of option grant or as amended thereafter), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate.

     (h) Disability Of Optionholder. In the event an Optionholder’s Continuous Service terminates due to the Optionholder’s Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise it as of the date of termination), but only within such period of time ending on the earlier of (i) the date that is twelve (12) months after the date of such termination, or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate.

     (i) Death Of Optionholder. In the event (i) an Optionholder’s Continuous Service terminates as a result of the Optionholder’s death or (ii) the Optionholder dies

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within the three-month period after the termination of the Optionholder’s Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise the Option as of the date of death) by the Optionholder’s estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Optionholder’s death, but only within the period ending on the earlier of (1) the date that is eighteen (18) months following the date of death or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate.

     (j) Extension Of Termination Date. If exercise of the Option following the termination of the Optionholder’s Continuous Service would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of: (i) the expiration of the term of the Option set forth in subsection 7(a), or (ii) the expiration of the applicable period of time after the termination of the Optionholder’s Continuous Service during which the exercise of the Option would not be in violation of such registration requirements.

8. Covenants of the Company.

     (a) Availability Of Shares. During the terms of the Options, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Options.

     (b) Securities Law Compliance. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Options and to issue and sell shares of Common Stock upon exercise of the Options; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Option or any stock issued or issuable pursuant to any such Option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Options unless and until such authority is obtained.

9. Use of Proceeds from Stock.

     Proceeds from the sale of stock pursuant to Options shall constitute general funds of the Company.

10. Miscellaneous.

     (a) Stockholder Rights. No Optionholder shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Option unless and until such Optionholder has satisfied all requirements for exercise of the Option pursuant to its terms.

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     (b) No Service Rights. Nothing in the Plan or any instrument executed or Option granted pursuant thereto shall confer upon any Optionholder any right to continue to serve the Company as a Non-Employee Director or as Chairman or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.

     (c) Investment Assurances. The Company may require an Optionholder, as a condition of exercising or acquiring stock under any Option, (i) to give written assurances satisfactory to the Company as to the Optionholder’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option; and (ii) to give written assurances satisfactory to the Company stating that the Optionholder is acquiring the stock subject to the Option for the Optionholder’s own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (iii) the issuance of the shares upon the exercise or acquisition of stock under the Option has been registered under a then currently effective registration statement under the Securities Act or (iv) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock.

     (d) Withholding Obligations. The Optionholder may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under an Option by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Optionholder by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares from the shares of the Common Stock otherwise issuable to the Optionholder as a result of the exercise or acquisition of stock under the Option, provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii) delivering to the Company owned and unencumbered shares of the Common Stock.

11. Adjustments upon Changes in Stock.

     (a) Capitalization Adjustments. If any change is made in the stock subject to the Plan, or subject to any Option, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend,

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combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject both to the Plan pursuant to subsection 4(a) and to the non-discretionary Options specified in Section 6, and the outstanding Options will be appropriately adjusted in the class(es) and number of securities and price per share of stock subject to such outstanding Options. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction “without receipt of consideration” by the Company.)

     (b) Dissolution Or Liquidation. In the event of a dissolution or liquidation of the Company, then all outstanding Options shall terminate immediately prior to such event.

     (c) Change In Control. In the event of (i) a sale, lease or other disposition of all or substantially all of the securities or assets of the Company, (ii) a merger or consolidation in which the Company is not the surviving corporation or (iii) a reverse merger in which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then any surviving corporation or acquiring corporation may assume any Options outstanding under the Plan or may substitute similar Options (including an option to acquire the same consideration paid to the stockholders in the transaction described in this subsection 11(c)) for those outstanding under the Plan, and the vesting of Options held by Non-Employee Directors shall accelerate in full on the date immediately preceding the date of such event. In the event no surviving corporation or acquiring corporation assumes such Options or substitutes similar Options for those outstanding under the Plan, then with respect to Options held by Optionholders whose Continuous Service has not terminated, the vesting of such Options (and the time during which such Options may be exercised) shall accelerate in full on the date immediately preceding the date of such event, and the Options shall terminate if not exercised at or prior to such event. With respect to any other Options outstanding under the Plan, such Options shall terminate if not exercised prior to such event.

12. Amendment of the Plan and Options.

     (a) Amendment Of Plan. The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 11 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or securities exchange listing requirements.

     (b) Stockholder Approval. The Board may, in its sole discretion, submit any other amendment to the Plan for stockholder approval.

     (c) No Impairment Of Rights. Rights under any Option granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the

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Company requests the consent of the Optionholder and (ii) the Optionholder consents in writing.

     (d) Amendment Of Options. The Board at any time, and from time to time, may amend the terms of any one or more Options; provided, however, that the rights under any Option shall not be impaired by any such amendment unless (i) the Company requests the consent of the Optionholder and (ii) the Optionholder consents in writing.

13. Termination or Suspension of the Plan.

     (a) Plan Term. The Board may suspend or terminate the Plan at any time. No Options may be granted under the Plan while the Plan is suspended or after it is terminated.

     (b) No Impairment Of Rights. Suspension or termination of the Plan shall not impair rights and obligations under any Option granted while the Plan is in effect except with the written consent of the Optionholder.

14. Effective Date of Plan and Amendments.

     (a) The Prior Plan became effective on March 29, 2000. The Plan (as amended and restated hereby) became effective as of April 2, 2004.

     (b) No Option that has been granted under an amendment adopted by the Board which is subject to stockholder approval shall be exercised unless and until such amendment has been approved by the stockholders, which approval shall be within twelve (12) months after the date such amendment is adopted by the Board.

15. Choice of Law.

     All questions concerning the construction, validity and interpretation of this Plan shall be governed by the law of the State of Delaware, without regard to such state’s conflict of laws rules.

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InterMune, Inc.
2000 Non-Employee Directors’ Stock Option Plan
Notice of Grant of Stock Option and Stock Option Terms And Conditions

InterMune, Inc
3280 Bayshore Boulevard
Brisbane, CA 94005
(415) 466-2200
«First» «Middle» «Last»	Social Security Number:                    «SS_No»
«Address»	Grant Number:                                   «Grant_No»
«City», «State» «Zip»
Date of Grant:	«Date___of_Grant»
Vesting Commencement Date:	«Vesting_Start_Date»
Exercise Price per Share:	$«Exercise_Price»
Total Number of Shares Granted:	«No_Granted»
Total Exercise Price:	$«Total_Exercise_Price»
Term/Expiration Date:	«Term_Date»
Type of Option:	Nonstatutory Stock Option

        Vesting Schedule:       The Shares subject to this Option shall vest according to the following schedule:

                                             One Thirty-Sixth (1/36) of the Shares shall vest monthly after the Vesting

                                             Commencement Date.

Optionee acknowledges and agrees that the vesting of shares pursuant to this option (the “Option”) is earned only by continuing to serve as a director of InterMune, Inc. (the “Company”) (not through the act of being elected as a director, being granted this Option or acquiring shares hereunder). Optionee further acknowledges and agrees that nothing in this agreement, nor in the Company’s 2000 Non-Employee Directors’ Stock Option Plan (the “Plan”), which Plan is incorporated herein by reference, shall confer upon Optionee any right with respect to continuation of service as a director of the Company.

Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions of such Plan. Optionee hereby accepts this Option subject to all of the terms and provisions hereof. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Company upon any questions related to this Option or arising under the Plan. Optionee further agrees to notify the Company upon any change in the residence address indicated above.

This Option is governed by the Stock Option Terms and Conditions attached hereto and incorporated herein by this reference. By Optionee’s signature below, Optionee agrees to be bound by all of the terms and conditions of the Plan and the Stock Option Terms and Conditions attached hereto.

	Date:
Robin Steele
Senior Vice President and General Counsel
Optionee Signature	Date

INTERMUNE, INC.
2000 NON-EMPLOYEE DIRECTORS’ STOCK OPTION PLAN
STOCK OPTION AWARD TERMS AND CONDITIONS

1. Plan Incorporated by Reference. The Option is issued pursuant to the Intermune, Inc. 2000 Non-Employee Directors’ Stock Option Plan (the “Plan”), the terms of which are hereby incorporated by reference. Capitalized terms not otherwise defined herein shall have the meanings given to them in the attached Notice of Grant of Stock Option and in the Plan. In the event of any conflict between the provisions of the Option and those of the Plan, the provisions of the Plan shall control.

2. Option Shares and Exercise Price. The Company hereby grants to the Optionee an Option to purchase the Common Stock (the “Shares”) set forth in the Notice of Grant of Stock Option, at the exercise price per Share set forth in the Notice of Grant of Stock Option (the “Exercise Price”).

3. Exercisability Schedule. Provided Optionee has remained in continuous service as a Director as of each applicable vesting date, as required by the Plan, the Option shall become vested and exercisable in accordance with the Vesting Schedule set forth in the Notice of Grant of Stock Option.

4. Payment of Exercise Price. Payment of the exercise price per share is due in full upon exercise of all or any part of each installment which has accrued to Optionee. Optionee may elect, to the extent permitted by applicable statutes and regulations, to make payment of the exercise price under one of the following alternatives:

     (a) Payment of the exercise price per share in cash (including check) at the time of exercise;

     (b) With the consent of the Board of Directors of the Company (the “Board”), and provided that at the time of exercise the Company’s Common Stock is publicly traded, payment by delivery of shares of Common Stock issuable upon the exercise of the Option having a Fair Market Value on the date of exercise equal to the aggregate exercise price of the Option or the exercised portion of the Option and which have been held for the period sufficient to avoid a compensation accounting charge to the Company;

     (c) Payment by delivery of a notice that Optionee has placed a market sell order with a broker with respect to shares of the Company’s Common Stock then issuable upon exercise of the Option and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate exercise price of the Option or the exercised portion of the Option; provided that payment of such proceeds is made to the Company on or before settlement of such sale;

     (d) With the consent of the Board, payment in any other form of legal consideration that may be acceptable to the Board; or

     (e) With the consent of the Board, payment by a combination of the methods of payment permitted by subparagraph 4(a) through 4(d) above.

5. No Fractional Shares. The Option may not be exercised for any number of shares which would require the issuance of anything other than whole shares.

6. Compliance with Securities Laws. Notwithstanding anything to the contrary contained herein, the Option may not be exercised unless the shares issuable upon exercise of the Option are then registered under the Securities Act of 1933, as amended (the “Act”) or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Act.

7. Option Term. The term of the Option commences on the date of grant of the Option set forth in the Notice of Grant of Stock Option and, unless sooner terminated as set forth below or in the Plan, terminates on the expiration date of the Option set forth in the Notice of Grant of Stock Option (which date shall be no more than ten (10) years from the date of grant of the Option). In no event may the Option be exercised on or after the date on which it terminates. The Option shall terminate prior to the expiration of its term as follows: three (3) months after the termination of Optionee’s continuous service as a Director, as determined under the Plan, for any reason or for no reason unless:

2

     (a) such termination of continuous service as a Director is for Cause, in which event the Option shall terminate upon the date of termination of continuous service as a Director;

     (b) such termination of continuous service as a Director is due to Optionee’s permanent and total disability (within the meaning of Section 22(e)(3) of the Code), in which event the Option shall terminate on the earlier of (i) the expiration date of the Option set forth above, or (ii) twelve (12) months following such termination of continuous service as a Director;

     (c) such termination of continuous service as a Director is due to Optionee’s death, in which event the Option shall terminate on the earlier of (i) the expiration date of the Option set forth above, or (ii) eighteen (18) months after Optionee’s death; or

     (d) during any part of such three (3) month period the Option is not exercisable solely because of the condition set forth in Section 6 above, in which event the Option shall not terminate until the earlier of (i) the expiration date of the Option set forth above or (ii) until the Option shall have been exercisable for an aggregate period of three (3) months after the termination of continuous service as a Director.

     However, unless otherwise permitted by the Board, the Option may be exercised following termination of service as a Director only as to that number of Shares which are vested and exercisable on the date of such termination of continuous service as a Director.

     For purposes of the Option, unless otherwise defined in an employment, severance or similar agreement between Optionee and the Company (in which case such alternate definition shall govern) “Cause” means Optionee’s misconduct, including but not limited to: (i) Optionee’s conviction of any felony or any crime involving moral turpitude or dishonesty, (ii) Optionee’s participation in any fraud or act of dishonesty against the Company, (iii) Optionee’s conduct that, based upon a good faith and reasonable factual investigation by the Company, demonstrates Optionee’s gross unfitness to serve, or (iv) Optionee’s intentional, material violation of any agreement or contract between the Company and Optionee or any statutory duty of Optionee to the Company that Optionee does not correct within seven (7) days after notice to Optionee thereof. Optionee’s medically diagnosed physical or mental disability shall not constitute “Cause” for purposes of the Option.

8. Method of Exercise. The Option may be exercised, to the extent specified above, by providing a notice of exercise (in a form designated by the Company) together with the exercise price payable to the Company delivered to the administrator of the Plan or to such other person as the Company may designate, during regular business hours, together with such additional written or electronic documents as the Company may then require pursuant to the Plan. By exercising the Option, Optionee agrees that the Company may require Optionee to enter into an arrangement providing for the cash payment by Optionee to the Company of any tax withholding obligation of the Company.

9. Withholding. Optionee hereby authorizes withholding from any amounts payable to Optionee upon exercise of the Option and Optionee agrees to make adequate provision for any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company which arise in connection with the Option.

10. Option Not Transferable. The Option is not transferable, except as set forth in the Plan or by will or by the laws of descent and distribution, and is exercisable during Optionee’s life only by Optionee. By delivering written notice to the Company, in a form satisfactory to the Company, Optionee may designate a third party who, in the event of Optionee’s death, shall thereafter be entitled to exercise the Option.

11. No Right to Service. The Option is not an employment or service contract and nothing in the Option shall be deemed to create in any way whatsoever any obligation or right on Optionee’s part to continue as a Director of the Company, or of the Company to continue Optionee’s service as a Director of the Company.

12. Notices. Any notices provided for in the Option or in the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to Optionee, five (5) days after deposit in the United States mail, postage prepaid, addressed to Optionee at the address specified on the Notice of Grant of Stock Option or at such other address as Optionee hereafter designates by written notice to the Company.

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13. Section 409A. The Notice of Grant of Stock Option, this Stock Option Terms and Conditions and the Option are intended to be exempt from the provisions of Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, as providing for an option to purchase service recipient stock as described in Section 1.409A-1(b)(5)(i)(A) of the Department of Treasury regulations. Notwithstanding any provision of the Notice of Grant of Stock Option and this Stock Option Terms and Conditions to the contrary, in the event that the Board determines that the Option may be subject to Section 409A of the Code, the Board may adopt such amendments to the Notice of Grant of Stock Option and this Stock Option Terms and Conditions or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Board determines are necessary or appropriate to (a) exempt the Option from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Option, or (b) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance and thereby avoid the application of penalty taxes under Section 409A of the Code.

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EX-10.58

Exhibit 10.58

Valeant Pharmaceuticals North America
One Enterprise
Aliso Viejo, CA 92656

December 19, 2007

InterMune, Inc.
3280 Bayshore Boulevard
Brisbane, California 94005

Re: Product Acquisition Agreement (the “Product Acquisition Agreement”) dated as of November 28, 2005 by and between InterMune, Inc. (“Seller”) and Valeant Pharmaceuticals North America (“Buyer”) – Transition Trademark License

Ladies and Gentlemen,

In connection with the Product Acquisition Agreement, Buyer and Seller wish to amend the terms of the transition trademark license granted pursuant to the terms of Section 8.4 thereof, effective as of the date hereof. Capitalized terms used herein without definition shall have the meaning ascribed to them in the Product Acquisition Agreement.

1. The term of the license set forth in Section 8.4(a) of the Product Acquisition Agreement (“Transition Trademark License”) is hereby extended from the date that is twenty-four (24) months after the Closing up to and through June 30, 2008; and

2. Pursuant to Section 8.4(d) of the Product Acquisition Agreement, Seller hereby consents to the assignment by Buyer of the Transition Trademark License to a Third Party that acquires from Buyer the entire Product Business previously acquired by Buyer from Seller provided that (a) with respect to the Transition Trademark License such acquirer agrees in writing to abide by the provisions of Section 8.4 of the Product Acquisition Agreement, (b) such acquirer may not further assign such Transition Trademark License, and (c) the Transition Trademark License is used only in the Territory to permit such acquirer to sell Inventory that exists in saleable form as of the date that such acquirer acquires the Product Business and such use in connection with the sale of such Inventory by acquirer complies with all applicable governmental and regulatory laws and regulations. In no event shall any assignment of the Transition Trademark License to such acquirer be deemed to relieve Buyer of its liabilities or obligations to Seller under the Product Acquisition Agreement and Buyer acknowledges and agrees that it shall remain fully and unconditionally obligated and responsible for the full and complete performance of all of its obligations under the Product Acquisition Agreement, including but not limited to the Transition Trademark License.

Except as expressly amended herein, all terms and conditions contained in the Product Acquisition Agreement remain unchanged and the Product Acquisition Agreement shall continue and remain in full force and effect.

If the agreements and understandings contained in this letter agreement are acceptable to Seller, please indicate such approval by signing this letter in the space indicated below and return a fully executed copy of this letter to Buyer.

Sincerely,

/s/ Richard K. Masterson, Jr.

Richard K. Masterson, Jr.
Sr. Vice President
Global Commercial Development

Accepted and Agreed

InterMune, Inc.

By:	/s/ Daniel G. Welch Daniel G. Welch
	President and Chief Executive Officer

EX-10.59

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT 10.59

EXECUTION COPY

ASSET PURCHASE AGREEMENT

by and among

INTERMUNE, INC.

(the “Buyer”),

MARNAC, INC.

(“Marnac”)

and

DR. SOLOMON B. MARGOLIN

(“Dr. Margolin” and, collectively with Marnac, the “Sellers”)

Dated as of November 19, 2007

TABLE OF CONTENTS

Section			Page
ARTICLE 1 DEFINITIONS				1
	Section 1.1	Defined Terms		1
	Section 1.2	Construction		8
ARTICLE 2 THE TRANSACTION				9
	Section 2.1	Transfer of Purchased Assets		9
	Section 2.2	Excluded Assets		9
	Section 2.3	Assumed Liabilities		10
	Section 2.4	Excluded Liabilities		10
	Section 2.5	Purchase Price		11
	Section 2.6	Risk of Loss		12
	Section 2.7	Allocation		12
ARTICLE 3 CLOSING				13
	Section 3.1	Closing		13
	Section 3.2	Closing Deliveries by the Sellers		13
	Section 3.3	Closing Deliveries and Payments by the Buyer		13
	Section 3.4	Closing Deliveries by the Buyer and the Sellers		14
	Section 3.5	Liabilities Related to Finders’ or Brokers’ Fees		14
	Section 3.6	Further Actions		14
	Section 3.7	Withholdings		14
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE SELLERS				14
	Section 4.1	Organization and Authority		15
	Section 4.2	Title to Purchased Assets		15
	Section 4.3	Consents; No Violations		15
	Section 4.4	Compliance with Laws and Litigation		15
	Section 4.5	Contracts		16
	Section 4.6	Tax Matters		16
	Section 4.7	Intellectual Property		16
	Section 4.8	Product Records		17
	Section 4.9	Brokers, Finders, etc		17
	Section 4.10	No Other Agreements to Sell the Purchased Assets		18
	Section 4.11	Disclosure		18
	Section 4.12	Inventory		18
	Section 4.13	Regulatory Approvals		18
	Section 4.14	Regulatory Compliance		19
	Section 4.15	Disclaimer of Implied Warranty		20
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER				20
	Section 5.1	Organization and Authority		21
	Section 5.2	Consents; No Violations		21
	Section 5.3	Brokers, Finders, etc		21
ARTICLE 6 CERTAIN OTHER COVENANTS				21
	Section 6.1	Cooperation		21
	Section 6.2	Billing and Invoices		23

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Section			Page
	Section 6.3	Adverse Experience Reports		24
	Section 6.4	Regulatory Matters		24
	Section 6.5	Covenant Not To Compete		24
	Section 6.6	Exclusive License; Right of First Refusal		25
	Section 6.7	Tax Matters		26
	Section 6.8	Notice to Third Parties		28
	Section 6.9	Clinical Trials		28
	Section 6.10	Compassionate Use Programs		28
	Section 6.11	Patent Maintenance		28
	Section 6.12	[ * ]		28
ARTICLE 7 CONDITIONS TO CLOSING				29
	Section 7.1	Conditions Precedent to Buyer’s Obligations		29
	Section 7.2	Conditions Precedent to Sellers’ Obligations		30
ARTICLE 8 INDEMNIFICATION				31
	Section 8.1	Survival of Representations and Warranties		31
	Section 8.2	Indemnification		31
	Section 8.3	Right of Setoff		33
ARTICLE 9 MISCELLANEOUS PROVISIONS				33
	Section 9.1	Confidentiality and Publicity		33
	Section 9.2	Notices		34
	Section 9.3	Governing Law		35
	Section 9.4	Representation By Counsel		35
	Section 9.5	Expenses		35
	Section 9.6	Entire Agreement		35
	Section 9.7	Amendment; Waiver		35
	Section 9.8	Severability		35
	Section 9.9	Assignment		36
	Section 9.10	Counterparts		36
	Section 9.11	Waiver of Jury Trial		36
	Section 9.12	Consent to Jurisdiction		36
	Section 9.13	Attorney Fees		36
	Section 9.14	Remedies Cumulative; Specific Performance		36
	Section 9.15	Time is of Essence		37
	Section 9.16	Executory Nature of the Duties Imposed by this Agreement		37
	Section 9.17	Bankruptcy Rights		37
	Section 9.18	Release		37

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

EXECUTION COPY

ASSET PURCHASE AGREEMENT
(Marnac Agreement)

     This ASSET PURCHASE AGREEMENT (as amended from time to time, the “Agreement”), dated November 19, 2007, is made and entered into by and among InterMune, Inc., a Delaware corporation (the “Buyer”), Marnac, Inc., a New Jersey corporation (“Marnac”), and Dr. Solomon B. Margolin (“Dr. Margolin” and, collectively with Marnac, the “Sellers”). The Buyer and the Sellers are sometimes collectively referred to herein as the “Parties” and individually as a “Party.”

RECITALS

     WHEREAS, the Buyer, the Sellers, KDL, Inc. (“KDL Japan”), KDL GmbH and Dr. Shitotomo Yamauchi (the Sellers, KDL Japan, KDL GmbH and Dr. Shitotomo Yamauchi are collectively referred to herein as the “Licensors”) are parties to that certain License Agreement dated as of March 29, 2002, as amended (the “Existing License Agreement”), pursuant to which the Licensors granted to the Buyer certain limited rights and licenses related to anti-fibrotic uses of Pirfenidone on a worldwide basis (except for Japan, Taiwan and Korea);

     WHEREAS, Marnac and KDL Japan are parties to that certain License Agreement dated November 5, 1996 (the “Shionogi License Agreement”) with Shionogi & Co., Ltd. (“Shionogi”) pursuant to which Marnac and KDL Japan have granted to Shionogi certain limited rights and licenses related to anti-fibrotic uses of Pirfenidone within Japan, Taiwan and Korea; and

     WHEREAS, the Sellers desire to sell certain assets related to Pirfenidone to the Buyer, and the Buyer desires to purchase such assets from the Sellers, on the terms and subject to conditions set forth herein.

     NOW, THEREFORE, in consideration of the promises, representations, warranties, covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto, intending to be legally bound hereby, agree as follows:

ARTICLE 1
DEFINITIONS

     Section 1.1 Defined Terms. For the purposes of this Agreement, the following words and phrases shall have the following meanings whether in the singular or the plural:

     “Action” shall mean any action, claim, suit, litigation, proceeding, labor dispute, arbitral action, governmental audit, inquiry, criminal prosecution, examination, investigation or unfair labor practice charge or complaint commenced, brought, conducted or heard at law or in equity or before any Governmental Authority or any arbitrator or arbitral panel.

     “Affiliate” shall mean any company or entity controlled by, controlling or under common control with a Party. As used in the definition of “Affiliate,” “control” means (a) that Person owns, directly or indirectly, more than fifty percent (50%) of the voting stock of another entity, or (b) that a Person has the actual ability to control and direct the management of the entity, whether by contract or otherwise.

     “Agreement” shall have the meaning set forth in the first paragraph of this Agreement.

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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     “Allocation” shall have the meaning set forth in Section 2.7.

     “Ancillary Agreements” shall mean, collectively, the Bill of Sale, the Assignment and Assumption Agreement and the IP Assignments.

     “Approval Notice and Report” shall have the meaning set forth in Section 6.6(c).

     “Assignment and Assumption Agreement” shall have the meaning set forth in Section 3.4(a).

     “Assumed Contracts” shall have the meaning set forth in the definition of Purchased Assets.

     “Assumed Liabilities” shall have the meaning set forth in Section 2.3.

     “Bill of Sale” shall have the meaning set forth in Section 3.2(a).

     “Business Day” means a day, which is not a Saturday, a Sunday, or a statutory holiday in the United States.

     “Buyer” shall have the meaning set forth in the first paragraph of this Agreement.

     “Buyer Disclosure Schedule” shall have the meaning set forth in the first paragraph of Article 5.

     “Buyer Proprietary Information” shall have the meaning set forth in Section 9.1(b).

     “CAPACITY Trial” shall mean (i) the randomized, double-blind, placebo controlled, Phase III, three-arm study of the safety and efficacy of Pirfenidone in patients with idiopathic pulmonary fibrosis under protocol PIPF-004; and (ii) the randomized, double-blind, placebo controlled, Phase III study of the safety and efficacy of Pirfenidone in patients with idiopathic pulmonary fibrosis under protocol PIPF-006, in each case as designed by and initiated by the Buyer.

     “Claim” shall have the meaning set forth in Section 8.2(c).

     “Claim Notice” shall have the meaning set forth in Section 8.2(c).

     “Clinical Trials” shall have the meaning set forth in the definition of Purchased Assets.

     “Closing” shall have the meaning set forth in Section 3.1.

     “Closing Date” shall have the meaning set forth in Section 3.1.

     “Closing Payment” shall have the meaning set forth in Section 2.5(a).

     “Code” means the United States Internal Revenue Code of 1986, as amended.

     “Compassionate Use Programs” shall have the meaning set forth in Section 2.3(c).

     “Competing Product” shall mean any product that contains Pirfenidone. Notwithstanding the foregoing, Competing Product shall not include those products containing Pirfenidone that (i) are designed, marketed, sold and used exclusively for [ * ] indications (excluding [ * ]) and (ii) are covered by a pending or issued claim of U.S. Patent No. [ * ], PCT Application No. [ * ], [ * ] or [ * ], or any patent applications, provisional patent applications or similar instruments (including any and all

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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substitutions, divisions, continuations, reissues, renewals, extensions, reexaminations, patents of addition, supplementary protection certificates, inventors’ certificates, pediatric data package exclusivity extensions, or the like) as well as any foreign equivalents thereof (including certificates of invention and any applications therefor). Competing Product shall also exclude any product in Japan, Korea or Taiwan under license of the Shionogi Assets.

     “Confidentiality Agreement” shall have the meaning set forth in Section 9.1.

     “Consents” shall have the meaning set forth in Section 4.3(a).

     “Contract” shall mean any agreement, contract, lease, purchase, under, consensual obligation, promise, or undertaking, obligation or commitment (whether written or oral), to which one or more of the Sellers are a party that is primarily related to the Product, the Product Business, the Purchased Assets or the Assumed Liabilities, or which is necessary for the conduct of the Product Business to the extent conducted by the Sellers.

     “Copyrights” shall have the meaning set forth in the definition of Purchased Assets.

     “Damages” shall have the meaning set forth in Section 8.2(a).

     “Data Safety Exchange Agreement” shall have the meaning set forth in Section 6.3.

     “Diligence Period” shall have the meaning set forth in Section 6.6(c).

     “Dr. Margolin” shall have the meaning set forth in the first paragraph of this Agreement.

     “EMEA” means the European Medicines Evaluation Agency.

     “Encumbrance” shall mean claims, security interests, liens, pledges, charges, escrows, options, proxies, rights of first refusal, preemptive rights, mortgages, hypothecations, assessments, prior assignments, title retention agreements, conditional sales agreements, indentures, deeds of trust, leases, levies or security agreements of any kind whatsoever imposed upon the subject property or item.

     “Excluded Assets” notwithstanding any other provision of this Agreement, shall mean all assets and properties of the Sellers other than the Purchased Assets, including U.S. Patent No. [ * ]; PCT Application No. [ * ]; [ * ]; [ * ]; and the Shionogi Assets.

     “Excluded Liabilities” shall mean all Liabilities or obligations of the Sellers (other than the Assumed Liabilities), including any obligation or Liability of the Sellers created as a result of this Agreement and those items set forth on Schedule 2.4(a).

     “Existing License Agreement” shall have the meaning set forth in the first sentence of the Recitals.

     “FDA” means the United States Food and Drug Administration.

     “Governmental Authority” shall mean any (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, board, bureau, official, ministry, organization, unit, body or entity and any court or other tribunal).

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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     “IND” shall mean an Investigational New Drug Application (as defined under the United States Food, Drug and Cosmetic Act and applicable Regulations promulgated thereunder).

     “Indemnified Party” shall have the meaning set forth in Section 8.2(c).

     “Indemnifying Party” shall have the meaning set forth in Section 8.2(c).

     “Intellectual Property” shall mean Copyrights, Know-How, Trademarks, Patents, and all other intellectual property or proprietary rights, in each case whether or not subject to statutory registration or protection.

     “Interim Agreement” shall mean the Interim Agreement, dated October 3, 2007, by and among the Sellers and the Buyer.

     “IP Assignments” shall have the meaning set forth in Section 3.2(b).

     “IRS” means the United States Internal Revenue Service.

     “KDL Japan” shall have the meaning set forth in the first sentence of the Recitals.

     “Know-How” shall mean all trade secrets, technology, discoveries and improvements, know-how, proprietary rights, formulae, confidential and proprietary information, technical information, techniques, inventions, designs, drawings, procedures, processes, models, formulations, manuals and systems, whether or not patentable or copyrightable, including all biological, chemical, biochemical, toxicological, pharmacological and metabolic material and information and data relating thereto and formulation, clinical, analytical and stability information and data which have actual or potential commercial value and are not available in the public domain.

     “Knowledge of the Sellers” or “to the Sellers’ Knowledge” or any similar such statement with respect to the Sellers shall mean the best actual knowledge of any executive officer or director of Marnac, any key employee of Marnac directly involved in the management, operation or research and development of the Purchased Assets, or Dr. Margolin.

     “Law” shall mean any constitution, law, statute, treaty, role, directive, requirement or Regulation or Order of any Governmental Authority.

     “Liability” shall mean, collectively, any indebtedness, guaranty, endorsement, commitment, claim, loss, damage, deficiency, cost, expense, obligation or responsibility, fixed or unfixed, known or unknown, choate or inchoate, liquidated or unliquidated, secured or unsecured, direct or indirect, matured or unmatured, or absolute, contingent or otherwise, including any product liability.

     “Licensors” shall have the meaning set forth in the first sentence of the Recitals.

     “MAA Milestone Payment” shall have the meaning set forth in Section 2.5(c)(iii).

     “Marnac” shall have the meaning set forth in the first paragraph of this Agreement.

     “Material Adverse Effect” shall mean any change, event or occurrence that has, or has had, or is reasonably likely to have, a material adverse effect upon (a) the business, financial condition or results of operations of the Product Business or the Purchased Assets, or (b) the ability of a Party to consummate the transactions contemplated by this Agreement, other than (i) any change, effect, event or condition that

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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arises from changes in general economic conditions or conditions affecting the pharmaceutical industry generally, or (ii) such changes, events or conditions resulting from the announcement of, or the consummation of, the transactions contemplated hereby.

     “Milestone Payments” shall mean, collectively, the Phase III Milestone Payment, the NDA Milestone Payment and the MAA Milestone Payment.

     “NDA Milestone Payment” shall have the meaning set forth in Section 2.5(c)(ii).

     “Non-Income Taxes” shall mean (i) any real property, personal property, ad valorem and other similar Taxes and (ii) any sales, use, transaction, excise and other similar Taxes; provided, however, that “Non-Income Taxes” shall not include (a) any Taxes that are income Taxes or Taxes in the nature of income Taxes or (b) any Transfer Taxes.

     “Officer’s Certificate” shall have the meaning set forth in Section 3.2(d).

     “Order” shall mean any: (a) temporary, preliminary or permanent order, judgment, injunction, edict, decree, ruling, pronouncement, proclamation, directive, determination, decision, opinion, verdict, sentence, stipulation, subpoena, writ or award that is or has been issued, made, entered, rendered or otherwise put into effect by or under the authority of any court, administrative agency or other Governmental Authority; or (b) Contract with any Governmental Authority that is or has been entered into in connection with any Action.

     “[ * ]” shall mean [ * ].

     “Other Party” shall have the meaning set forth in Section 6.7(e)(iii).

     “Party” or “Parties” shall have the meaning set forth in the first paragraph of this Agreement.

     “Patents” shall have the meaning set forth in the definition of Purchased Assets.

     “Permitted Encumbrances” shall mean liens imposed by any Governmental Authority for Taxes not yet due and payable.

     “Person” shall mean any natural person, corporation, unincorporated organization, partnership, association, joint stock company, joint venture, limited liability company, trust or entity or organization of any kind or Governmental Authority.

     “Phase III Milestone Payment” shall have the meaning set forth in Section 2.5(c)(i).

     “Pirfenidone” shall mean that certain substance whose chemical composition is 5-methyl-1-phenyl-2-(1H)-pyridone (CAS 53179-13-8).

     “Post-Closing Tax Period” shall mean any Tax Period beginning after the close of business on the Closing Date and the portion of any Straddle Period beginning after the Closing Date.

     “Pre-Closing Tax Period” shall mean any Tax Period ending on or before the close of business on the Closing Date and the portion of any Straddle Period ending on the Closing Date.

     “Patent Transferor” shall have the meaning set forth in Section 6.6(a).

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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     “Product” shall mean any pharmaceutical composition or preparation, in any dosage, strength or size, containing Pirfenidone.

     “Product Business” shall mean the manufacturing, using, developing, promoting, selling, offering to sell, or importing of Pirfenidone for sale to the extent currently being or previously conducted by the Sellers.

     “Product Copyrights” shall have the meaning set forth in the definition of Purchased Assets.

     “Product Data” shall have the meaning set forth in the definition of Purchased Assets.

     “Product Intellectual Property” shall have the meaning set forth in the definition of Purchased Assets.

     “Product Inventory” shall have the meaning set forth in the definition of Purchased Assets.

     “Product Know-How” shall mean all Know-How as owned, licensed, sublicensed or otherwise controlled by any Seller and primarily related to Pirfenidone, including as developed in connection with clinical trials.

     “Product Patents” shall have the meaning set forth in the definition of Purchased Assets.

     “Product Records” shall have the meaning set forth in the definition of Purchased Assets.

     “Product Trademarks” shall have the meaning set forth in the definition of Purchased Assets.

     “Purchased Assets” shall mean, collectively: (i) the Contracts or portions of the Contracts set forth on Schedule 1.1(a) (the “Assumed Contracts”); (ii) as primarily related to Pirfenidone, all permits, licenses, certificates, approvals, Product Registrations, waivers, exemptions, qualifications, consents or orders of, filings and authorizations issued by any Governmental Authority to the Sellers or their Representatives (the “Regulatory Approvals”); (iii) all toxicology, pre-clinical, clinical and manufacturing information and data, including with respect to clinical trials, and all submissions and correspondence with or to any Governmental Authority regarding the Product, including all validation data and documentation supporting the process of manufacturing the Product, but only to the extent the foregoing may be in the possession or control of any Seller (or any Affiliate of any Seller) (the “Product Data”); (iv) all domestic and foreign copyrights, copyright registrations, copyright applications, original works of authorship fixed in any tangible medium of expression, including literary works (including all forms and types of computer software, including all source code, object code, firmware, development tools, files, records and data, and all documentation related to any of the foregoing), pictorial, and graphic works relating to the Product Data and Product Records (“Copyrights”), except for any Copyrights to published scientific papers, unpublished academic materials, and submitted but unpublished scientific papers of Marnac, including those by Dr. Margolin and Dr. Shri Giri, or other Marnac employees, as owned, licensed, sublicensed or otherwise controlled by any Seller and primarily related to Pirfenidone (“Product Copyrights”); ownership of Product Know-How for all uses (except for the Sellers’ use of the Product Know-How exclusively for satisfying their obligations under the Shionogi License Agreement); (vi) the United States patents, patent applications, provisional patent applications and similar instruments (including any and all substitutions, divisions, continuations, continuations-in-part, reissues, renewals, extensions, reexaminations, patents of addition, supplementary protection certificates, inventors’ certificates, pediatric data package exclusivity extensions, or the like) as well as any foreign equivalents of the foregoing (including certificates of invention and any applications therefor) (“Patents”) as owned (in whole or in part), licensed, sublicensed or otherwise controlled by any Seller and primarily related to

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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Pirfenidone (“Product Patents”); (vii) all domestic and foreign trademarks, trademark registrations, trademark applications, service marks, service mark registrations, service mark applications, business marks, brand names, trade names, names, internet domains and URLs, and all goodwill associated therewith (“Trademarks”) as owned, licensed, sublicensed or otherwise controlled by any Seller and primarily related to Pirfenidone (“Product Trademarks” and, collectively with Product Copyrights, Product Know-How and Product Patents, “Product Intellectual Property”); (viii) all files, documents, instruments, papers, books and records owned or controlled by any Seller, whether in electronic or tangible form, to the extent relating to the Purchased Assets, including any research and development files, marketing materials (if any), regulatory files, adverse event reports and files, clinical studies and all documentation relating to the Product Intellectual Property, but excluding any such items to the extent that any applicable Law prohibits their transfer (the “Product Records”); (ix) all of Sellers’ rights under the contracts set forth in Schedule 1.1(a) relating to (A) the Pirfenidone Phase II Trial in Children & Young Adults with NF1 and Plexiform Neurofibromas, under IND # 60,584 (IRB# 1072.04) held by the Mayo Clinic, Rochester, Minnesota, and (B) the trials in adults with Neurofibromas, under IND # 60,584 (IRB# 1835.99) held by Dr. Dusica Babovic, Mayo Clinic, Rochester, Minnesota (collectively, the “Clinical Trials”); and (x) all inventory owned by any Seller or any of their respective Affiliates of finished Product (in powder, capsule or any other form) or works in progress or materials used in the manufacture of finished Product, whether held at a location or facility of any Seller or any of their respective Affiliate (or of any Person on behalf of any Seller or any of their respective Affiliates) or in transit to or from any Seller or any of their respective Affiliates (or any such other Person) (the “Product Inventory”). The Parties agree that “Purchased Assets” does not include any of the Excluded Assets.

     “Product Registrations” shall mean all applications, all Investigational New Drug Applications (INDs) and their foreign equivalents, new drug applications, abbreviated new drug applications, new drug submissions, and any comparable applications and submissions, together with any and all supplements or modifications or amendments thereto, whether existing, pending, withdrawn or in draft form, together with all correspondence to or from any Governmental Authority with respect thereto, prepared and submitted to any Governmental Authority with respect to any Product.

     “Purchase Price” shall have the meaning set forth in Section 2.5.

     “Recipient Party” shall have the meaning set forth in Section 6.7(e)(iii).

     “Regulations” shall mean any laws, statutes, ordinances, regulations, rules, notice requirements, court decisions, agency guidelines, principles of Law and orders of any foreign, federal, state or local Governmental Authority.

     “Regulatory Approvals” shall have the meaning set forth in the definition of Purchased Assets.

     “Released Claims” shall have the meaning set forth in Section 9.18.

     “Representative” shall mean any officer, director, principal, attorney, accountant, agent, employee or other representative of any Person.

     “Restricted Territory” means the entire world.

     “Right of First Refusal” shall have the meaning set forth in Section 6.6(d).

     “ROFR Notice” shall have the meaning set forth in Section 6.6(d).

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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     “Schedules” shall refer to the schedules to this Agreement which are hereby incorporated by reference into this Agreement.

     “SEC” means the Securities and Exchange Commission.

     “Sellers” shall have the meaning set forth in the first paragraph of this Agreement.

     “Sellers Disclosure Schedule” shall have the meaning set forth in the first paragraph of Article 4.

     “Sellers Proprietary Information” shall have the meaning set forth in Section 9.1(c).

     “Shionogi” shall have the meaning set forth in the second sentence of the Recitals.

     “Shionogi Assets” shall mean (i) the Shionogi License Agreement, (ii) [ * ] and other Japanese patents and patent applications disclosing and claiming certain [ * ], as well as any and all divisions, re-issues, continuations, substitutes and extension in part or all of such patents or patent applications which are [ * ].

     “Shionogi License Agreement” shall have the meaning set forth in the second sentence of the Recitals.

     “[ * ]” shall have the meaning set forth in [ * ].

     “Straddle Period” shall mean any Tax Period beginning before and ending after the Closing Date.

     “Survival Date” shall have the meaning set forth in Section 8.1(a).

     “Taxes” mean any federal, state, local, foreign or other tax, levy, impost, fee, assessment or other government charge, including without limitation income, estimated income, business, occupation, franchise, property, payroll, personal property, sales, transfer, use, employment, commercial rent, occupancy, franchise or withholding taxes, and any premium, including without limitation interest, penalties and additions in connection therewith.

     “Tax Period” shall mean any period prescribed by any Governmental Authority for which a Tax Return is required to be filed or a Tax is required to be paid.

     “Tax Return” shall mean any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

     “Trademarks” shall have the meaning set forth in the definition of Purchased Assets.

     “Transition Period” shall have the meaning set forth in Section 6.1(c).

     “Transfer Taxes” shall mean all transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement and the transactions contemplated hereby.

     “Treasury Regulations” shall mean the income tax regulations issued under the Code.

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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     Section 1.2 Construction.

     (a) The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. The meaning of defined terms shall be equally applicable to the singular and plural forms of the defined terms. The terms “include” and “including” and variations thereof, are not limiting but rather shall be deemed to be followed by the words “without limitation.”

     (b) References to agreements and other documents shall be deemed to include all subsequent amendments and other modifications thereto.

     (c) References to statutes shall include all regulations promulgated thereunder and references to statutes or regulations shall be construed as including all statutory and regulatory provisions consolidating, amending or replacing the statute or regulation.

     (d) References to “license” or “licenses” shall include “sublicense” or “sublicenses,” as applicable.

     (e) The captions, titles and headings of this Agreement are for convenience of reference only and shall not affect the construction of this Agreement.

     (f) Whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include the masculine and feminine genders.

     (g) The Parties participated jointly in the negotiation and drafting of this Agreement and the language used in this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent. If an ambiguity or question of intent or interpretation arises, then this Agreement will accordingly be construed as drafted jointly by the Parties to this Agreement, and no presumption or burden of proof will arise favoring or disfavoring any Party to this Agreement by virtue of the authorship of any of the provisions of this Agreement.

     (h) The Schedules and Exhibits to this Agreement are a material part hereof and shall be treated as if fully incorporated into the body of this Agreement.

ARTICLE 2
THE TRANSACTION

     Section 2.1 Transfer of Purchased Assets. At the Closing, upon the terms and subject to the conditions hereof and in reliance upon the representations, warranties and covenants contained herein and in consideration of the Purchase Price paid to the Sellers by the Buyer, the Sellers will sell, convey, transfer, assign and deliver to the Buyer, and the Buyer will purchase, take delivery of and acquire from the Sellers, all of the Sellers’ right, title and interest in and to the Purchased Assets, free and clear of any Encumbrances, except for Permitted Encumbrances.

     Section 2.2 Excluded Assets. The Parties acknowledge and agree that the Sellers are not selling, conveying, transferring, delivering or assigning any rights whatsoever to the Excluded Assets to the Buyer, and the Buyer is not purchasing, taking delivery of or acquiring any rights whatsoever to the Excluded Assets from the Sellers.

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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     Section 2.3 Assumed Liabilities. As of the Closing Date or such other date specifically set forth in this Section 2.3, the Buyer shall assume and agree to pay, perform or otherwise discharge, in accordance with their respective terms and subject to the respective conditions thereof, only the following Liabilities (collectively, the “Assumed Liabilities”):

     (a) Any Liability arising after the Closing Date under any Assumed Contract (other than any Liability arising under those contracts constituting a part of the Clinical Trials or Compassionate Use Programs, or out of or relating to a breach of, or default under, such Assumed Contract which occurred on or prior to the Closing Date);

     (b) Any Liability associated with conducting the Clinical Trials after such Clinical Trials are transferred to the Buyer under Section 6.1(d) (other than any Liability arising out of or relating to the conduct of the Clinical Trials on or prior to the transfer of the Clinical Trials to the Buyer under Section 6.1(d));

     (c) Any Liability associated with the contracts set forth in Schedule 1.1(a) which relates to the “compassionate use” programs for Pirfenidone under [ * ] (the “Compassionate Use Programs”) after the date such Compassionate Use Programs are transferred to the Buyer under Section 6.1(d) (other than any Liability arising out of or relating to the conduct of the Compassionate Use Programs on or prior to the transfer of the Compassionate Use Programs to the Buyer under Section 6.1(d)); and

     (d) Any other Liability specifically set forth on Schedule 2.3(d) hereto.

For the avoidance of doubt, nothing in this Section 2.3 is intended to, or shall be interpreted to, limit or otherwise reduce the Liabilities of the Buyer as they may occur and/or exist after the Closing Date solely by virtue of the Buyer’s ownership, marketing or use of the Purchased Assets, but rather, this Section 2.3 is solely intended to identify and provide for the assumption by the Buyer of those Liabilities of the Sellers that are specifically assumed by the Buyer hereunder and which, but for such assumption, would remain Liabilities of the Sellers.

     Section 2.4 Excluded Liabilities. Notwithstanding any other provision of this Agreement, except for the Assumed Liabilities expressly assumed in Section 2.3, the Buyer shall not assume, or otherwise be responsible for, any Liabilities of any Seller or any of their respective Affiliates, whether liquidated or unliquidated, or known or unknown, whether arising out of occurrences prior to, at or after the Closing Date (“Excluded Liabilities”), which Excluded Liabilities shall include:

     (a) any Liability of any Seller that arises out of or relates to any Excluded Assets (for the avoidance of doubt, the Parties agree that any Liabilities of Marnac and KDL Japan under the Shionogi License Agreement shall remain the Liabilities of Marnac and KDL Japan and are Excluded Liabilities);

     (b) any Liability of any Seller under or with respect to any Contract (other than an Assumed Contract pursuant to Section 2.3(a));

     (c) any Liability of any Seller arising out of or related to any Action asserted on or prior to the Closing Date against any Seller, or against or in respect of any Purchased Asset or the conduct of the Product Business, or the basis of which shall have arisen on or prior to the Closing Date;

     (d) any Liability arising from any injury to or death of any Person or damage to or destruction of any property, whether based on negligence, breach of warranty, strict liability, enterprise liability or any other legal or equitable theory arising from defects in products manufactured or services performed by or on behalf of any Seller or any other Person on or prior to the Closing Date;

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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     (e) any Liability of any Seller arising out of or relating to the ownership or operation of the Purchased Assets and/or the Product Business prior to Closing, including any claims, obligations, rebates or litigation arising out of or relating to events or conditions occurring prior to Closing or Products sold by any Seller prior to Closing;

     (f) any Liability to the extent arising out of or as a result of the conduct of any business of the Sellers and their respective Affiliates other than those liabilities expressly assumed herein pursuant to Section 2.3;

     (g) any Liability arising out of or relating to any finder’s fee, brokerage fee, commission or similar payment in connection with any Seller’s entry into this Agreement or the consummation of the transactions contemplated hereby, including any of the Contracts listed on Section 4.9 of the Sellers Disclosure Schedule; and

     (h) any Liability of any Seller, or any member of any consolidated, affiliated, combined or unitary group of which any Seller is or has been a member, for any Tax, and any Liability for Taxes attributable to the Purchased Assets or the Product Business for any Pre-Closing Tax Period.

     Section 2.5 Purchase Price. In consideration for the sale, transfer, conveyance, assignment and delivery of the Purchased Assets and the execution and delivery of this Agreement and the Ancillary Agreements by the Sellers, upon the terms and subject to the conditions set forth in this Agreement (collectively, the “Purchase Price”):

     (a) Closing Payment. The Buyer shall make an upfront payment to the Sellers of $6,750,000 and assume the Assumed Liabilities pursuant to Section 2.3. The Parties agree that $2,100,000 of this upfront payment has been previously paid by the Buyer to the Sellers. Therefore, at the Closing, the Buyer shall (i) deliver (or cause to be delivered) to the Sellers the remainder of the upfront payment in the form of a nonrefundable payment in the aggregate amount of $4,650,000 in cash, payable by wire transfer in immediately available funds in the allocations and to the accounts specified in Schedule 2.5 (the “Closing Payment”); and (ii) assume the Assumed Liabilities pursuant to Section 2.3.

     (b) Deferred Payment. Subject to Article 8, within ten (10) Business Days of the first anniversary of the Closing Date, the Buyer shall deliver (or cause to be delivered) to the Sellers a payment in the aggregate amount of $2,500,000 in cash payable by wire transfer in immediately available funds in the allocations and to the accounts specified in Schedule 2.5.

     (c) Milestone Payments. Subject to Article 8:

          (i) By [ * ], the Buyer shall notify the Sellers of its decision, in the Buyer’s sole and absolute discretion, to file or not to file (A) a New Drug Application for Pirfenidone for an indication of idiopathic pulmonary fibrosis with the FDA, or (B) a Marketing Authorization Application for Pirfenidone for an indication of idiopathic pulmonary fibrosis with the EMEA. If the Buyer decides to file a New Drug Application with the FDA and/or a Marketing Authorization Application with the EMEA, then within ten (10) Business Days of such notification to the Sellers, the Buyer shall deliver (or cause to be delivered) to the Sellers an aggregate amount of [ * ] in cash, payable by wire transfer in immediately available funds in the allocations and to the accounts specified in Schedule 2.5 (the “Phase III Milestone Payment”).

          (ii) Upon the Buyer’s receipt of New Drug Application approval for Pirfenidone for an indication of idiopathic pulmonary fibrosis in the United States, the Buyer shall deliver (or cause to be delivered) to the Sellers an aggregate amount of $[ * ] in cash within fifteen (15) Business Days, payable

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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by wire transfer in immediately available funds in the allocations and to the accounts specified in Schedule 2.5 (the “NDA Milestone Payment”); provided, however, that the parties hereby acknowledge and agree that in the event the Buyer determines, in good faith, that the labeling received by the Buyer from the FDA with respect to the use of Pirfenidone for an indication of idiopathic pulmonary fibrosis materially and negatively impacts the potential commercial value of Pirfenidone for idiopathic pulmonary fibrosis in the United States, then the Sellers agree to, in good faith, (A) discuss with the Buyer the extent to which labeling has negatively impacted the commercial value of Pirfenidone for idiopathic pulmonary fibrosis in the United States and (B) negotiate an appropriate downward adjustment to the NDA Milestone Payment to reflect such decrease in commercial value.

          (iii) Upon the Buyer’s receipt of Marketing Authorization Application approval for Pirfenidone for an indication of idiopathic pulmonary fibrosis in Europe, the Buyer shall deliver (or cause to be delivered) to the Sellers an aggregate amount of $[ * ] in cash within fifteen (15) Business Days, payable by wire transfer in immediately available funds in the allocations and to the accounts specified in Schedule 2.5 (the “MAA Milestone Payment”); provided, however, that the parties hereby acknowledge and agree that in the event the Buyer determines, in good faith, that the labeling received by the Buyer from the EMEA with respect to the use of Pirfenidone for an indication of idiopathic pulmonary fibrosis materially and negatively impacts the potential commercial value of Pirfenidone for idiopathic pulmonary fibrosis in Europe, then the Sellers agree to, in good faith, (A) discuss with the Buyer the extent to which labeling has negatively impacted the commercial value of Pirfenidone for idiopathic pulmonary fibrosis in Europe and (B) negotiate an appropriate downward adjustment to the MAA Milestone Payment to reflect such decrease in commercial value.

Each of the payments constituting the Purchase Price shall be deemed material, and any failure to make any payment of any portion of the Purchase Price, if and when due, may be treated by the Sellers as a material failure of consideration.

     Section 2.6 Risk of Loss. Until the Closing, any loss of or damage to the Purchased Assets from fire, flood, casualty or any other similar occurrence shall be the sole responsibility of the Sellers. As of the Closing, title to the Purchased Assets shall be transferred to the Buyer. After the Closing, the Buyer shall bear all risk of loss associated with the Purchased Assets and shall be solely responsible for procuring adequate insurance to protect the Purchased Assets against any such loss.

     Section 2.7 Allocation. As soon as practicable after the Closing, the Parties shall agree on an allocation (the “Allocation”) of the Purchase Price (including any Assumed Liabilities to the extent properly taken into account under the Code and the Treasury Regulations promulgated thereunder) among the Purchased Assets and the Sellers’ covenants under Section 6.5 in accordance with the requirements of Section 1060 of the Code and consistent with the principles set forth in Schedule 2.7. The Parties agree to be bound by the Allocation, and the Parties shall act in accordance with the Allocation in the preparation of financial statements and the filing of all Tax Returns (including, without limitation, filing IRS Form 8594 with their Tax Returns for the taxable year that includes the Closing Date), before any Tax authority or in any judicial proceeding unless it has the written consent of the other Party to this Agreement or unless specifically required pursuant to a final determination within the meaning of Section 1313(a) of the Code. No later than thirty (30) days prior to the filing of their respective Forms 8594 (and analogous state law forms), each Party shall deliver to the other Party a copy of such form. The Parties shall promptly advise each other of the existence of any Tax proceeding related to the Allocation. In the event of an adjustment to the Purchase Price pursuant to Section 6.7(c), the Buyer shall amend the Allocation to reflect such adjustment, subject to approval by the Sellers, such approval not to be unreasonably withheld. The Buyer and the Sellers agree to treat as interest for Tax purposes any portion of the Purchase Price that is properly treated as interest under Section 483 of the Code (or any similar provision applicable under state or local Law).

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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ARTICLE 3
CLOSING

     Section 3.1 Closing. Subject to the satisfaction or waiver of the conditions set forth in Sections 7.1 and 7.2, the closing of the transactions contemplated herein in connection with the purchase and sale of the Purchased Assets (the “Closing”) shall be held at 10:00 a.m., local time, on the second (2^nd) Business Day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective Parties shall take at the Closing) at the offices of Latham & Watkins LLP, 140 Scott Drive, Menlo Park, California 94025, or such other time or place as the Parties hereto shall otherwise agree (the “Closing Date”).

     Section 3.2 Closing Deliveries by the Sellers. At the Closing, the Sellers shall (i) take all steps necessary to place the Buyer in actual possession and operating control of the Purchased Assets and (ii) deliver to the Buyer the following items, duly executed by the Sellers as applicable, all of which shall be in form and substance reasonably acceptable to the Buyer and in full force and effect:

     (a) Bill of Sale. Bill of Sale covering all of the applicable Purchased Assets, substantially in the form of Exhibit A (the “Bill of Sale”);

     (b) Intellectual Property Assignment. Any and all documents necessary to properly record the assignment to the Buyer of all of the Sellers’ right, title and interest in and to the Product Intellectual Property, substantially in the form of Exhibit B (the “IP Assignments”);

     (c) Consents. Duly executed Consents of all third parties (including any Governmental Authorities), if any, required by the Sellers to consummate the transactions contemplated by this Agreement and the Ancillary Agreements, in form and substance reasonably satisfactory to the Buyer, including those Consents listed in Schedule 4.3(a);

     (d) Officer’s Certificates. A certificate executed on behalf of the Sellers by Dr. Margolin (both individually and in his capacity as President of Marnac), dated as of the Closing Date, certifying that the conditions set forth in Section 7.1(a), Section 7.1(b) and Section 7.1(d) have been satisfied in all respects (the “Officer’s Certificate”);

     (e) Secretary’s Certificate. A certificate of the Secretary of Marnac certifying as to:

          (i) The certificate of incorporation and bylaws of Marnac as in effect as of the Closing Date;

          (ii) resolutions of Marnac’s board of directors authorizing the execution, delivery and performance of this Agreement and the Ancillary Agreements; and

          (iii) the incumbency of Marnac’s officers executing this Agreement and the Ancillary Agreements; and

     (f) Certificate of Good Standing. A certificate from the Secretary of State of New Jersey and other applicable Governmental Authorities of the State of New Jersey as to Marnac’s good standing and payment of all applicable taxes, dated no earlier than ten (10) Business Days prior to the Closing Date.

     Section 3.3 Closing Deliveries and Payments by the Buyer. The Buyer shall pay the Closing Payment.

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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     Section 3.4 Closing Deliveries by the Buyer and the Sellers. At the Closing, the Buyer and the Sellers shall deliver the following items to one another, duly executed and in full force and effect:

     (a) Assignment and Assumption Agreement. Assignment and Assumption Agreement, covering all of the Assumed Liabilities, substantially in the form of Exhibit C (the “Assignment and Assumption Agreement”).

     (b) Other Documentation. Such other certificates, instruments or documents required pursuant to the provisions of this Agreement or otherwise necessary or appropriate to transfer the Purchased Assets and Assumed Liabilities in accordance with the terms hereof and consummate the transactions contemplated by this Agreement and the Ancillary Agreements, and to vest in the Buyer full and complete title to the Purchased Assets free and clear of any Encumbrances, except for Permitted Encumbrances.

     Section 3.5 Liabilities Related to Finders’ or Brokers’ Fees. For the avoidance of doubt, the Parties agree that (i) all Liabilities in respect of finder’s fees, brokerage fees or commissions or similar payments arising out of or relating to the Purchased Assets in connection with any Seller’s entry into this Agreement or the consummation of any of the transactions contemplated hereby shall remain Excluded Liabilities pursuant to Section 2.4, and (ii) the Buyer shall reserve all rights pursuant to Article 8 (including Section 8.2(a)(iii)).

     Section 3.6 Further Actions. From and after the Closing, each Seller shall cooperate with the Buyer and the Buyer’s Affiliates and Representatives, and shall execute and deliver such documents and take such other actions as the Buyer may reasonably request, for the purpose of evidencing the transactions contemplated by this Agreement or the Ancillary Agreements and putting the Buyer in possession and control of all of the Purchased Assets, including using their reasonable best efforts to obtain all necessary Consents from other parties to the Assumed Contracts. Each of the Sellers hereby irrevocably nominates, constitutes and appoints the Buyer as the true and lawful attorney-in-fact of each of the Sellers (with full power of substitution) effective as of the Closing Date, limited to the purposes contemplated by this Agreement and the Ancillary Agreements, and hereby authorizes the Buyer (in the name of and on behalf of each of the Sellers) to execute, deliver, acknowledge, certify, file and record any document, to institute and prosecute any Action and to take any other action (on or at any time after the Closing Date) that the Buyer may deem reasonably appropriate for the purpose of (a) collecting, asserting, enforcing or perfecting any claim, right or interest of any kind that is included in or relates to any of the Purchased Assets, (b) defending or compromising any claim or Action relating to any of the Purchased Assets (subject to the provisions of Section 8.2 in the case of a Claim for indemnification) or (c) otherwise carrying out or facilitating any of the transactions contemplated by this Agreement or the Ancillary Agreements. The power of attorney referred to in the preceding sentence is and shall be coupled with an interest and shall be irrevocable, and shall survive the dissolution or insolvency of Marnac.

     Section 3.7 Withholdings. The Buyer shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement such amounts as may be required to be deducted or withheld therefrom under any provision of federal, local or foreign Tax law or under any applicable Law. To the extent such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.

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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SELLERS

     Each Seller represents and warrants, jointly and severally, to the Buyer that the statements contained in this Article 4 are true and correct as of the date of this Agreement and will be true and correct as of the Closing Date as if made on such date, except as set forth in the disclosure schedules delivered by the Sellers to the Buyer on the date of this Agreement (collectively, such schedules being referred to herein as the “Sellers Disclosure Schedule”). The Sellers Disclosure Schedule shall be arranged in paragraphs corresponding to the numbered sections contained in this Article 4 and the disclosure in any paragraph shall qualify other sections in this Article 4 only to the extent that it is readily apparent from a reading of such disclosure that it also qualifies or applies to such other sections.

     Section 4.1 Organization and Authority. Marnac is a corporation duly organized, validly existing and in good standing under the laws of the State of New Jersey. Each Seller has all requisite power and authority to execute and deliver this Agreement and the Ancillary Agreements, to perform its respective obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby and, in the case of Marnac, has duly authorized the execution, delivery and performance of this Agreement and the Ancillary Agreements and transactions or documents contemplated hereby and thereby by all necessary corporate action. The Sellers have all requisite power and authority necessary to own, lease and operate their respective assets, to carry on the Product Business to the extent currently being conducted by them, and to perform their respective obligations under all Contracts. This Agreement and the Ancillary Agreements, when executed and delivered by the Sellers, constitute the valid and legally binding obligations of the Sellers, enforceable against each of them in accordance with their respective terms, subject to applicable bankruptcy, moratorium, reorganization, insolvency and similar laws of general application relating to or affecting the rights and remedies of creditors generally and to general equitable principles (regardless of whether in equity or at law).

     Section 4.2 Title to Purchased Assets. The Sellers have good and marketable title to the Purchased Assets free and clear of any Encumbrances, except for Permitted Encumbrances. Upon the consummation of the transactions contemplated hereby, the Buyer will acquire good and marketable title to the Purchased Assets free and clear of any Encumbrances, except for Permitted Encumbrances. None of the Sellers has received any notice of any adverse claims of ownership to or right to use the Purchased Assets, and to the Sellers’ Knowledge, no facts or circumstances exist which would provide a reasonable basis for any such adverse claim of ownership or right to use any of the Purchased Assets.

     Section 4.3 Consents; No Violations.

     (a) Except for all filings and other actions contemplated by this Agreement and the Ancillary Agreements (including the necessary transfer of filings, notices and approvals required to transfer the Regulatory Approvals from the Sellers to the Buyer), the execution, delivery and performance by the Sellers of this Agreement and the Ancillary Agreements and the consummation by the Sellers of the transactions contemplated hereby and thereby will not require any notice to, filing with, or the consent, approval or authorization of, any Person or Governmental Authority (“Consents”).

     (b) Neither the execution and delivery of this Agreement or the Ancillary Agreements nor the consummation of the transactions contemplated hereby or thereby will (i) violate or result in a breach or result in the acceleration or termination of, or the creation in any third party of the right to accelerate, terminate, modify or cancel, any Contract primarily related to the Purchased Assets and/or the Assumed Liabilities, (ii) conflict with, violate or result in a breach of any provision of the certificate of incorporation or by-laws of Marnac, or (iii) conflict with or violate in any material respect any applicable Law.

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     Section 4.4 Compliance with Laws and Litigation.

     (a) With respect to the Product Business, the Purchased Assets and the Assumed Liabilities, to the Knowledge of the Sellers, the Sellers are in material compliance with all applicable Laws.

     (b) There is no existing or pending or, to the Knowledge of the Sellers, threatened Action with respect to the Product Business, the Purchased Assets or the Assumed Liabilities or with respect to this Agreement or the transactions contemplated hereby. None of the Sellers is subject to any Order of any Governmental Authority that would reasonably be expected to impair or delay its ability to perform its obligations under, and consummate the transactions contemplated, by this Agreement.

     Section 4.5 Contracts.

     (a) The Sellers have delivered to or made available to the Buyer accurate and complete copies of all Contracts primarily related to the Purchased Assets and/or the Assumed Liabilities. All such Contracts to which any Seller is a party are, as to such Seller (and, as to the other parties thereto, to the Knowledge of the Sellers), legal, valid and binding agreements in full force and effect and enforceable in accordance with its terms (subject to applicable bankruptcy, moratorium, reorganization, insolvency and similar laws of general application relating to or affecting the rights and remedies of creditors generally and to general equitable principles (regardless of whether in equity or at law)).

     (b) None of the Sellers is in breach or default, and no event has occurred that with notice or lapse of time would constitute a breach or default by any Seller permitting termination, modification, or acceleration, under any Contract primarily related to the Purchased Assets and/or Assumed Liabilities. To the Knowledge of the Sellers, no other party to any Contract is in material breach or default under, or has repudiated any material provision of, any Contract primarily related to the Purchased Assets and/or Assumed Liabilities.

     Section 4.6 Tax Matters. Each Seller has timely filed all Tax Returns required to be filed, and has paid all Taxes due, with respect to the Purchased Assets and the Product Business. There are no Encumbrances on any of the Purchased Assets for Taxes (except for current Taxes not yet due and payable). There are no asserted, and the Sellers have no Knowledge of any basis for the assertion of any, claims relating to Taxes which, if adversely determined, could reasonably be expected to result in any such Encumbrance.

     Section 4.7 Intellectual Property.

     (a) Section 4.7(a) of the Sellers Disclosure Schedule set forth a true and complete list of the Product Patents and the Product Trademarks.

     (b) To the Knowledge of the Sellers, (i) the activities of the Sellers, if any, relating to the development, manufacture, marketing, use, sale, distribution, import, export or other commercial exploitation of Pirfenidone by the Sellers, in each case do not infringe upon, misappropriate, violate, dilute (with respect to any trademarks, trade names, brand names and service marks) or otherwise constitute the unauthorized use of, the Intellectual Property rights of any third party; (ii) no claim is pending or, to the Knowledge of the Sellers, threatened against the Sellers alleging any of the foregoing; and (iii) to the Knowledge of the Sellers, no right, license, lease, consent or other agreement is required with respect to any Product Intellectual Property for the conduct of the Product Business other than those included in the Purchased Assets.

     (c) To the Knowledge of the Sellers, none of the Product Patents is involved in any litigation, reissue, interference, reexamination, or opposition, and there has been no threat or other indication that any such proceeding will hereafter be commenced. To the Knowledge of the Sellers, the Product Patents

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(excluding patent applications) (i) are in good standing, (ii) are all without challenge of any kind, (iii) are valid and enforceable, and (iv) have not been adjudged invalid or unenforceable in whole or in part.

     (d) To the Knowledge of the Sellers, none of the Product Trademarks or Product Copyrights is involved in any cancellation, nullification, interference, conflict, concurrent use or opposition proceeding, and there has been no threat or other indication that any such proceeding will hereafter be commenced.

     (e) No Actions are pending, or to the Knowledge of the Sellers are threatened, against any of the Sellers (i) based upon challenging or seeking to deny or restrict the use of any of the Product Intellectual Property, or (ii) alleging that any services provided by, processes used by, or products manufactured or sold by the Sellers in relation to the Product Business infringe or misappropriate any Intellectual Property right of any third party.

     (f) To the Knowledge of the Sellers, all maintenance fees, annuity fees or renewal fee payment for each jurisdiction in which each patent, patent application, trademark, trademark application, trade name, trade name registration, brand name, brand name registration, service mark, service mark registration, copyright, copyright application, domain name or domain name application included within the Product Intellectual Property has issued or is pending have been timely paid.

     (g) To the Knowledge of the Sellers, no third party is engaging in any activity that infringes or misappropriates the Product Intellectual Property. None of the Sellers is a party to any agreement granting rights by the Sellers to any third party with respect to the Product Intellectual Property.

     (h) The Sellers have, with respect to the Product Business, used commercially reasonable efforts to maintain their trade secrets in confidence.

     (i) To the Knowledge of the Sellers, there has been no misappropriation of any trade secrets or other confidential information of the Sellers with respect to the Product Business.

     (j) All employees of, consultants to or vendors of the Sellers with access to confidential information with respect to the Product Business are parties to written agreements under which each such employee, consultant or vendor is obligated to maintain the confidentiality of confidential information of the Sellers. To the Knowledge of the Sellers, none of the employees, consultants or vendors of the Sellers or any of their subsidiaries is in violation of such agreements.

     (k) The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, will not result in or give rise to any right of termination or other right to impair or limit, or otherwise result in a breach of, any of the Sellers’ rights to own or retain a license to any of the Product Intellectual Property.

     (l) To the Knowledge of the Sellers, the Sellers have disclosed to the Buyer all patentable Product Know-How.

     Section 4.8 Product Records. To the Knowledge of the Sellers, all of the Product Records have been made available by the Sellers to the Buyer for examination, are complete and correct in all material respects, and have been maintained in accordance with sound business practices and applicable Law.

     Section 4.9 Brokers, Finders, etc. Except as set forth in Section 4.9 of the Sellers Disclosure Schedule, none of the Sellers nor any of their respective officers, directors, employees,

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stockholders or Affiliates has employed or made any agreement with any broker, finder or similar agent or any Person which will result in the obligation of the Buyer or any of its Affiliates to pay any finder’s fee, brokerage fees or commission or similar payment in connection with the transactions contemplated hereby.

     Section 4.10 No Other Agreements to Sell the Purchased Assets. None of the Sellers nor any of Marnac’s officers, directors, stockholders or Affiliates has any commitment or legal obligation, absolute or contingent, to any other Person other than the Buyer to sell, assign, transfer or effect a sale of any of the Purchased Assets, to sell or effect a sale of a majority of the capital stock of Marnac, to effect any merger, consolidation, liquidation, dissolution or other reorganization of Marnac, or to enter into any agreement or cause the entering into of an agreement with respect to any of the foregoing.

     Section 4.11 Disclosure. This Agreement, the Sellers Disclosure Schedule and the Ancillary Agreements do not contain any untrue statement of a material fact or, to the Knowledge of the Sellers, omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. The Sellers have provided the Buyer with all information requested by the Buyer in connection with this transaction and all information that the Sellers considers necessary or appropriate to enable the Buyer to decide whether to purchase the Purchased Assets and assume the Assumed Liabilities. To the Sellers’ Knowledge, there are no facts which (individually or in the aggregate) materially affect the Purchased Assets and/or the Assumed Liabilities that have not been set forth in the Agreement, the Sellers Disclosure Schedule and the Ancillary Agreements.

     Section 4.12 Inventory. Section 4.12(a) of the Sellers Disclosure Schedule lists (i) the lot numbers associated with the Product Inventory and (ii) the manufacturing, warehousing, distribution and consignee locations where the Product Inventory is located. To the Sellers’ Knowledge, the Product Inventory represents all raw materials, API and finished goods directly related to the Product that is currently owned and on hand or in the control of the Sellers, at any of their warehouses, blenders, toll manufacturers, suppliers, or other third parties and which has not otherwise been destroyed by the Sellers.

     Section 4.13 Regulatory Approvals.

     (a) Section 4.13(a) of the Sellers Disclosure Schedule sets forth a complete and correct list of all Regulatory Approvals, including all Product Registrations. The Sellers have provided to the Buyer complete and correct copies of the Regulatory Approvals or the Buyer has had access to such copies of the Regulatory Approvals. The Regulatory Approvals are in full force and effect and have been duly and validly issued.

     (b) To the Knowledge of the Sellers, the Sellers have all Regulatory Approvals necessary for or used to carry on the Product Business as being conducted by the Sellers as of the Closing Date and which are required by applicable Law.

     (c) To the Knowledge of the Sellers, the Sellers are in compliance with all of the Regulatory Approvals listed on Section 4.13(a) of the Sellers Disclosure Schedule. Since the time the Sellers acquired its rights in the Product, none of the Sellers has received any notification, written or oral, from any Person with respect to any alleged or possible violation with respect to any such Regulatory Approvals, and to the Sellers’ Knowledge, there are no facts or circumstances that would form a reasonable basis for any such violation.

     (d) The Sellers own the Product Registrations and no other party has any rights thereto. To the Knowledge of the Sellers, no applications made or other materials submitted by the Sellers to the FDA, the EMEA or a notified body with respect to the Product contained an untrue statement of material fact

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when submitted, or omitted to state a material fact within the Sellers’ Knowledge when submitted which was required to be stated therein or necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading.

     (e) The Product Registration files of the Sellers have been maintained in accordance with reasonable industry standards. The Sellers have in their possession or control, or have access to, copies of all the material documentation filed in connection with filings made by any Seller for regulatory approval or registration of the Product, including the complete regulatory chronology for each Product Registration (if applicable), and have provided to the Buyer complete and correct copies of the Product Registration files.

     (f) None of the Sellers has received any Paragraph IV Notification under U.S.C. 355(j)(2)(B) relative to any patents listed in any Product Registration held by any Seller. In addition, none of the Sellers has received any notice regarding, and otherwise has no Knowledge of, any plans by any third party to file a product registration relative to any Product Registration held by any Seller.

Section 4.14 Regulatory Compliance.

     (a) To the Knowledge of the Sellers, Pirfenidone has been developed, labeled, stored, tested and distributed in compliance with all applicable requirements under the Federal Food Drug and Cosmetic Act 21 U.S.C. §§301 et. seq., its implementing regulations, and all similar applicable Laws, including those relating to investigational use, premarket clearance and applications or abbreviated applications to market a new product, except for noncompliance which, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect.

     (b) All preclinical trials and clinical trials conducted by or, to the Knowledge of the Sellers, on behalf of the Sellers with respect to Pirfenidone have been, and are being, conducted in compliance with the applicable requirements of Good Laboratory Practice and Good Clinical Practice requirements contained in 21 C.F.R. Part 58 and Part 312 and all applicable requirements relating to protection of human subjects contained in 21 C.F.R. Parts 50, 54, and 56, and all similar applicable Laws, except for noncompliance which, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect.

     (c) To the Knowledge of the Sellers, with respect to Pirfenidone (i) all manufacturing operations conducted for the benefit of the Sellers have been and are being conducted in compliance with the FDA’s current Good Manufacturing Practice regulations for drug products, including 21 C.F.R. Parts 210 and 211, and all similar applicable Laws, except for noncompliance which, individually or in the aggregate, has not had and would not reasonably be expected to have, a Material Adverse Effect; and (ii) the Sellers are in compliance with all registration and listing requirements set forth in 21 U.S.C. §360 and 21 C.F.R. Part 207, and all similar applicable Laws, except for noncompliance which, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect.

     (d) The Sellers have not received any notice that the FDA or any other Governmental Authority has commenced, or threatened to initiate, any action to withdraw approval or request the recall of Pirfenidone, or commenced, or threatened to initiate, any action to enjoin or place restrictions on the production of Pirfenidone.

     (e) To the Knowledge of the Sellers, there are no facts, circumstances or conditions that would be sufficient to presently, or solely with the passage of time in the ordinary course of business, provide a reasonable basis for a recall, suspension or discontinuance of Pirfenidone.

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     (f) With respect to any new drug application, investigational new drug application or similar state or foreign regulatory application with respect to Pirfenidone, the Sellers are, to the Knowledge of the Sellers, in compliance with 21 U.S.C. §§355 or 21 C.F.R. Parts 312 or 314, respectively (and all similar applicable Laws), and all terms and conditions of such licenses or applications. As to Pirfenidone, the Sellers and their respective officers, employees or agents have included in each applicable application, where required, the certification described in 21 U.S.C. § 335a(k)(l) and each such certification was true, complete and correct in all material respects when made.

     (g) With respect to Pirfenidone or the Product Business, the Sellers have not committed any act, made any statement or failed to make any statement that would reasonably be expected to provide a basis for the FDA to invoke its policy with respect to “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities” set forth in 56 Fed. Reg. 46191 (September 10, 1991) and any amendments thereto. Additionally, none of the Sellers or any of their respective officers, key employees or agents have been convicted of any crime or engaged in any conduct that has resulted, or would reasonably be expected to result, in debarment under 21 U.S.C. Section 335a or any similar state law or regulation under 42 U.S.C. Section 1320a-7.

     (h) The Sellers have delivered or made available to the Buyer copies of all serious adverse event (SAE) reports received by the Sellers with respect to Pirfenidone.

     (i) Section 4.14(i) of the Sellers Disclosure Schedule sets forth (A) a true and correct list of all current clinical trials with respect to the Product and (B) details regarding the Compassionate Use Programs, in each case as conducted by or on behalf of the Sellers as of the Closing Date.

     (j) None of the Sellers has received any notice from any other Governmental Authority that such Governmental Authority has commenced, threatened or intends to commence any action or investigation with respect to the Product Business, and there are no facts, circumstances or conditions that would be sufficient to presently, or solely with the passage of time in the ordinary course of business, provide a reasonable basis for any such action or investigation.

     Section 4.15 Disclaimer of Implied Warranty. EACH OF THE SELLERS HEREBY DISCLAIMS ANY IMPLIED WARRANTY AS TO THE LEGAL EFFECT OF THE PURCHASED ASSETS, THE FITNESS OF THE PURCHASED ASSETS FOR THEIR INTENDED PURPOSE, THE MERCHANTABILITY OF THE PURCHASED ASSETS, AND ALL OTHER WARRANTIES WHICH MAY BE IMPLIED AT LAW. THE PURCHASED ASSETS ARE SOLD “AS IS”, WITHOUT WARRANTY OTHER THAN WARRANTIES OF TITLE AND WARRANTIES EXPRESSLY SET OUT IN THIS AGREEMENT. This disclaimer of warranty, however, shall not disclaim the implied contractual covenant of good faith and fair dealing, which the Sellers hereby expressly recognize as applicable to this Agreement; and any warranty which may not be disclaimed as a matter of patent or any other Law. The Buyer acknowledges that it is not relying upon any statement, representation or warranty not expressly contained in this Agreement or in the Seller Disclosure Schedule. Notwithstanding the foregoing, each Seller hereby acknowledges that nothing set forth in this Section 4.15 shall relieve the Sellers of any liability to the Buyer arising out of any actual fraud or intentional misrepresentation of the Sellers or any of their respective Representatives in connection with the transactions contemplated by this Agreement.

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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER

     The Buyer represents and warrants to the Sellers that the statements contained in this Article 5 are true and correct as of the date of this Agreement and will be true and correct as of the Closing Date as if made on such date, except as set forth in the disclosure schedules delivered by the Buyer to the Sellers on the date of this Agreement (the “Buyer Disclosure Schedule”). The Buyer Disclosure Schedule shall be arranged in paragraphs corresponding to the numbered sections contained in this Article 5 and the disclosure in any paragraph shall qualify other sections in this Article 5 only to the extent that it is readily apparent from a reading of such disclosure that it also qualifies or applies to such other sections.

     Section 5.1 Organization and Authority. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Buyer has all requisite power and authority to execute and deliver this Agreement and the Ancillary Agreements, to perform its respective obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby, and has duly authorized the execution, delivery and performance of this Agreement and the Ancillary Agreements and transactions or documents contemplated hereby and thereby by all necessary corporate action. This Agreement and the Ancillary Agreements, when executed and delivered by the Buyer, constitute the valid and legally binding obligations of the Buyer, enforceable against it in accordance with their respective terms, subject to applicable bankruptcy, moratorium, reorganization, insolvency and similar laws of general application relating to or affecting the rights and remedies of creditors generally and to general equitable principles (regardless of whether in equity or at law).

     Section 5.2 Consents; No Violations.

     (a) Except for all filings and other actions contemplated by this Agreement and the Ancillary Agreements (including the necessary transfer of filings, notices and approvals required to transfer the Regulatory Approvals from the Sellers to the Buyer), the execution, delivery and performance by the Buyer of this Agreement and the Ancillary Agreements and the consummation by the Buyer of the transactions contemplated hereby and thereby will not require any notice to, filing with, or the consent, approval or authorization of, any Person or Governmental Authority.

     (b) Neither the execution and delivery of this Agreement or the Ancillary Agreements nor the consummation of the transactions contemplated hereby or thereby will (i) violate or result in a breach or result in the acceleration or termination of, or the creation in any third party of the right to accelerate, terminate, modify or cancel, any indenture, contract, lease, sublease, loan agreement, note or other obligation or liability to which the Buyer is a party or is bound, (ii) conflict with, violate or result in a breach of any provision of the certificate of incorporation or by-laws of the Buyer, or (iii) conflict with or violate in any material respect any applicable Law.

     Section 5.3 Brokers, Finders, etc. Neither the Buyer nor any of its officers, directors, employees, stockholders or Affiliates has employed or made any agreement with any broker, finder or similar agent or any person or firm which will result in the obligation of the Buyer or any of its Affiliates to pay any finder’s fee, brokerage fees or commission or similar payment in connection with the transactions contemplated hereby.

ARTICLE 6
CERTAIN OTHER COVENANTS

     Section 6.1 Cooperation.

     (a) After the Closing Date, the Parties shall cooperate reasonably with each other in connection with any reasonable actions required to be taken with respect to their respective obligations

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under this Agreement and the Ancillary Agreements, and shall (i) furnish upon reasonable request to each other such further information, (ii) execute and deliver to each other such other reasonable documents, and (iii) do such other acts, all as the other Party may reasonably request for the purpose of carrying out the provisions of this Agreement (and the Ancillary Agreements) and the transactions contemplated hereby and thereby.

     (b) The Sellers will promptly notify the Buyer, and the Buyer will notify the Sellers, as applicable and in writing, of any event or fact which represents a material breach of any of their respective representations, warranties, covenants or agreements hereunder.

     (c) Within ninety (90) days of the Closing Date, the Sellers shall deliver (or cause to be delivered) to the Buyer any Purchased Assets not required to be delivered at Closing pursuant to Section 3.2 or required to be delivered within one hundred and eighty (180) days of the Closing Date (the “Transition Period”) pursuant to Section 6.1(d).

     (d) Prior to the end of the Transition Period, the Sellers shall deliver (or cause to be delivered) to the Buyer the Regulatory Approvals, the Clinical Trials, the Compassionate Use Programs, the Product Inventory and the Product Records and Product Data relating to the Regulatory Approvals, the Clinical Trials and the Product Inventory. Until such time as the Sellers have made the deliveries specified in the preceding sentence, the Sellers shall continue to supply and distribute, or cause one or more third parties to supply and distribute, Pirfenidone in the same manner as Pirfenidone is currently being supplied and distributed by the Sellers, shall maintain their systems as necessary in order to timely process and record the supply and distribution of Pirfenidone as currently processed and recorded by the Sellers, and shall continue to comply in all material respects with applicable Laws. The Parties acknowledge that this Section 6.1(d) does not make any Seller an agent or legal representative of the Buyer for any purpose whatsoever, and no Seller is granted any right or authority to assume or create any obligation or responsibility, expressed or implied, on behalf of the Buyer, and that the Sellers, in fulfilling their obligations under this Section 6.1(d), are independent contractors with respect to the Buyer in all respects. The Parties further acknowledge that the Sellers will not receive any consideration in addition to the Purchase Price for the performance of these services in this Section 6.1.

     (e) From the Closing Date through the first anniversary of the Closing Date, upon the Buyer’s request, each Seller shall: (i) reasonably assist the Buyer in the maintenance and renewal of any Regulatory Approvals and the performance of any compliance activities under applicable Law, (ii) reasonably assist the Buyer in the preparation of any maintenance or renewal filings with respect to any Product Intellectual Property, and (iii) provide such other cooperation and assistance as reasonably requested by the Buyer.

     (f) Notwithstanding anything to the contrary contained in this Agreement, if the sale, assignment, transfer, conveyance or delivery or attempted sale, assignment, transfer, conveyance or delivery to the Buyer of any asset that would be a Purchased Asset is (i) prohibited by any applicable Law or (ii) would require any consents, waivers, approvals, authorizations of or notices to a third Person or Governmental Authority and such consents, waivers, approvals, authorizations or notices shall not have been obtained prior to the Closing, then in either case the Closing shall proceed without the sale, assignment, transfer, conveyance or delivery of such asset and this Agreement shall not constitute an agreement for the sale, assignment, transfer, conveyance or delivery of such asset; provided that nothing in this Section 6.1(f) shall be deemed to waive the rights of the Buyer not to consummate the transactions contemplated by this Agreement if the conditions to the Buyer’s obligations set forth in Article 7 have not been satisfied. In the event that the Closing proceeds without the sale, assignment, transfer, conveyance or delivery of any such asset, then following the Closing, the Parties shall use their commercially reasonable efforts, and cooperate with each other, to obtain promptly such consents, waivers, approvals,

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authorizations or notices. Pending such consents, waivers, approvals, authorizations or notices, the Parties shall cooperate with each other in any mutually agreeable, reasonable and lawful arrangements designed to provide to the Buyer the benefits of use of such asset and to the Sellers the benefits, including any indemnities, that, in each case, it would have obtained had the asset been conveyed to the Buyer at the Closing. To the extent that Buyer is provided the benefits pursuant to this Section 6.1(f) of any Contract, the Buyer shall (x) perform for the benefit of the other parties thereto the obligations of any Seller or any Affiliate of any Seller thereunder and (y) shall satisfy any related Liabilities with respect to such Contract that, but for the lack of an authorization, approval, consent or waiver to assign such obligations or Liabilities to the Buyer, would be Assumed Liabilities. Once consent, waiver, approval, authorization or notice for the sale, assignment, transfer, conveyance or delivery of any such asset not sold, assigned, transferred, conveyed or delivered at the Closing is obtained or given, the Sellers shall assign, transfer, convey and deliver such asset to the Buyer at no additional cost to the Buyer.

     (g) At least thirty (30) days prior to the submission for publication, including public presentation, of any Copyrights primarily related to Pirfenidone, including any scientific papers and academic materials by Dr. Margolin, Dr. Shri Giri, or other Marnac employees, the Sellers shall provide complete copies of all such materials to the Buyer for the Buyer’s review. If the materials provided to the Buyer are in draft form or are later revised prior to publication, the Sellers shall continue to provide revised copies of all such materials until a complete and final copy has been provided to the Buyer for the Buyer’s review. The Buyer will, in all such cases, have at least thirty (30) days to review and comment on the materials prior to publication. The Sellers shall reasonably consider for inclusion in such publication the comments of the Buyer. Should the Buyer desire to file a patent application on any inventions within such proposed publication, the Buyer shall so notify the Sellers prior to the expiration of the thirty (30) day review period and the Sellers shall, upon receipt of such notice, delay publication for up to an additional thirty (30) days and cooperate with the Buyer in the preparation of such patent application; provided that this additional thirty-day (30-day) delay shall not apply to the following studies:

• Pharmacokinetics and Metabolism of Intervenous Pirfenidone in Sheep (in press);

• [ * ];

• [ * ];

• [ * ]; and

• [ * ]

The Buyer shall own all rights, title and interest in all such patent applications and patents claiming inventions disclosed in all such publications and materials. The Sellers hereby assign all rights to any and all such patent applications and patents to the Buyer. The Sellers shall cooperate with the Buyer to perfect any such assignments, including executing, or causing to be executed, any formal papers necessary.

     Section 6.2 Billing and Invoices. In the event that any Seller or any of their respective Affiliates receive payment after the Closing Date on invoices relating to any business arising from the Purchased Assets operated by the Buyer or sales of products or services rendered by the Buyer on or after the Closing Date, such Seller will promptly notify the Buyer of such receipt and will promptly remit, or will cause such Affiliate to promptly remit, such payment to the Buyer without depositing such payment in an account of such Seller, or such Affiliate, unless in error, and such Seller, or such Affiliate, shall not be entitled to offset such payment against any payments due such Sellers from the Buyer. In the event that any Seller receives an invoice or request for payment relating to the operation of any business arising

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from the Purchased Assets on or after the Closing Date, or with respect to any Assumed Liability, such Seller will promptly notify the Buyer of such request or invoice and forward the invoice and all other appropriate information to the Buyer for payment. In the event the Buyer or any of its Affiliates receive payment after the Closing Date on invoices issued by any Sellers relating to an Excluded Asset or relating to product sold or services rendered by businesses other than those relating to the Purchased Assets, the Buyer will promptly notify the Sellers of such receipt and will promptly remit, or will cause such Affiliate to promptly remit, such payment to the Sellers without depositing such payment in an account of the Buyer, or such Affiliate, unless in error, and the Buyer, or such Affiliate, shall not be entitled to offset such payment against any payments due the Buyer from the Sellers.

     Section 6.3 Adverse Experience Reports. Marnac and the Buyer hereby agree that the obligations of the Parties under the Clinical Data Safety Exchange Agreement for Pirfenidone, dated as of August 18, 2006 (the “Data Safety Exchange Agreement”), by and between the Buyer and Marnac, shall continue in effect until, and terminate after, the earlier of (i) the end of the Transition Period and (ii) the date that the last of the Regulatory Approvals to be transferred to the Buyer have been transferred to the Buyer. After the Closing Date, the Buyer shall have all responsibility for required reporting of adverse experiences for Pirfenidone.

     Section 6.4 Regulatory Matters.

     (a) Following the transfer of the Regulatory Approvals from the Sellers to the Buyer pursuant to Section 6.1(d), the Buyer, at its cost, shall be solely responsible and liable for (i) taking all actions, paying all fees and conducting all communication with the appropriate Governmental Authority required by Law in respect of the Regulatory Approvals, including preparing and filing all reports (including adverse drug experience reports) with the appropriate Governmental Authority (whether Pirfenidone is sold before or after transfer of such Regulatory Approval), (ii) taking all actions and conducting all communication with third parties in respect of Pirfenidone sold pursuant to such Regulatory Approval (whether sold before or after transfer of such Regulatory Approval), including responding to all complaints in respect thereof, including complaints related to tampering or contamination, and (iii) investigating all complaints and adverse drug experiences in respect of Pirfenidone sold pursuant to such Regulatory Approval (whether sold before or after transfer of such Regulatory Approval).

     (b) The Sellers shall cooperate with the Buyer’s reasonable requests and use commercially reasonable efforts to assist the Buyer in connection with the investigation of and response to any complaint or adverse drug experience related to Pirfenidone.

     (c) The Sellers shall, within fifteen (15) Business Days following the transfer of the Regulatory Approvals from the Sellers to the Buyer pursuant to Section 6.1(d), notify the FDA and EMEA of the transfer of the Regulatory Approvals to the Buyer in accordance with all applicable Laws.

     Section 6.5 Covenant Not To Compete.

     (a) Each Seller hereby agrees that for a period of ten (10) years from and after the Closing Date, such Seller shall not, directly or indirectly, alone, as a licensor, or otherwise in conjunction with any other Persons, through licenses or otherwise, develop, manufacture, license-in, market, sell or otherwise distribute for human use, or assist any other Person, in developing, manufacturing, licensing-in, marketing, selling or otherwise distributing for human use, any Competing Product, either alone or in combination with another product, in all or any portion of the Restricted Territory.

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     (b) Acknowledgment of the Sellers. Each Seller hereby acknowledges that (i) the value of the Purchased Assets is an integral component of the value of the transactions contemplated by this Agreement to the Buyer, and (ii) the scope of the covenants contained in this Section 6.5, including as to time and geography, are necessary to preserve the value of the Purchased Assets for the Buyer. Each Seller also acknowledges that the limitations of time, geography and scope of activity agreed to in this Section 6.5 are ongoing executory duties of such Seller and are reasonable because, among other things, (i) the Buyer and the Sellers are engaged in a highly competitive industry, (ii) the Sellers have had unique access to the trade secrets and know-how of the Purchased Assets, including the plans and strategy (and, in particular, the competitive strategy) relating to the Purchased Assets, and (iii) the Sellers are receiving significant consideration in connection with the consummation of the transactions contemplated by this Agreement.

     (c) Non-Competition Covenants; Scope.

          (i) If any agreement in this Section 6.5 or any part of such agreement is held invalid, void or unenforceable by any court of competent jurisdiction, such invalidity, voidness, or unenforceability shall in no way render invalid, void, or unenforceable any other part of such agreement or any separate agreement not declared invalid, void or unenforceable, and this Section 6.5 shall in such case be construed as if the invalid, void, or unenforceable provisions were omitted.

          (ii) If any court of competent jurisdiction shall determine that the provisions of this Section 6.5 exceed the time, geographic or scope limitations permitted by applicable Law, then such provisions shall nevertheless be enforceable by such court against any Seller upon such shorter term, or within such lesser geographic area or scope, as may be determined by such court to be reasonable and enforceable.

     (d) Injunctive Relief. The Parties agree that in the event of a breach by a Seller of any of the covenants set forth in this Section 6.5, monetary damages alone would be inadequate to fully protect the Buyer from, and compensate the Buyer for, the harm caused by such breach or threatened breach. Accordingly, each Seller agrees that if it breaches or threatens breach of any provision of this Section 6.5, the Buyer shall be entitled to, in addition to any other right or remedy otherwise available, injunctive relief restraining such breach or threatened breach and to specific performance of any such provision of this Section 6.5. The Buyer shall not be required to post a bond or other security in connection with, or as a condition to, obtaining such relief before a court of competent jurisdiction.

Section 6.6 Exclusive License; Right of First Refusal.

     (a) The Buyer hereby grants an irrevocable, fully paid-up, royalty-free, perpetual, transferable, sublicensable, exclusive license to the Product Patents to the Seller or Sellers who owned such Product Patent immediately prior to the consummation of the transactions contemplated by this Agreement (the “Patent Transferor”) solely to the extent that such Product Patents [ * ] and solely to the extent necessary to [ * ]. The Buyer shall execute such documents to evidence such transfers as may be reasonably requested by the Sellers, including documents for filing with the United States Patent and Trademark Office and other relevant patent agencies.

     (b) The Buyer shall have the right to terminate the license granted pursuant to Section 6.6(a) of this Agreement effective immediately upon written notice if any Patent Transferor or any of their respective Affiliates, or any sublicensee under any patent right licensed to such Patent Transferor under Section 6.6(a) of this Agreement or any of their respective Affiliates challenges in a court of competent jurisdiction, the validity, scope or enforceability of, or otherwise opposes, any patent right covered by the Product Patents, including any patent right licensed to any Patent Transferor under Section 6.6(a) of this

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Agreement. If a sublicensee under any patent right licensed to such Patent Transferor under Section 6.6(a) of this Agreement or any of their respective Affiliates challenges the validity, scope or enforceability of or otherwise opposes any patent right covered by the Product Patents, including any patent right licensed to any Patent Transferor under Section 6.6(a) of this Agreement under which such sublicensee is sublicensed, then such Patent Transferor or its respective Affiliate, as applicable, shall, upon written notice from the Buyer, terminate such sublicense. Each Patent Transferor and its respective Affiliates shall include provisions in all agreements under which a third party obtains a license under any patent right licensed to such Patent Transferor under Section 6.6(a) of this Agreement providing that, if the sublicensee challenges the validity or enforceability of or otherwise opposes any such patent right under which the sublicensee is sublicensed, then such Patent Transferor may terminate such sublicense agreement with such sublicensee, and such Patent Transferor shall, upon request by the Buyer, enforce such right if such sublicensee breaches such restriction.

     (c) Each Patent Transferor agrees that for a period of six (6) years from the date of this Agreement, such Patent Transferor shall not, directly or indirectly (including through any of its Affiliates), at any time prior to the approval by the FDA of an IND or by the EMEA of a Clinical Trial Authorization with respect to such [ * ], enter into any agreement, understanding or arrangement (or discussions or negotiations therefor) with any Person that effects or contemplates the licensing, sale or transfer of any rights in or to assets relating to such [ * ]. Upon the FDA approval of an IND or the EMEA approval of a Clinical Trial Authorization with respect to such [ * ] at any time within the six (6) year period referenced in the foregoing sentence, such Patent Transferor(s) shall promptly provide the Buyer with (i) a copy of such FDA or EMEA approval and (ii) all the available and relevant data from the studies (collectively, the “Approval Notice and Report”). The Buyer shall have the right to conduct due diligence for a period of up to sixty (60) days from the date that Buyer receives the Approval Notice and Report from the Patent Transferor(s) (such period, the “Diligence Period”). The Buyer’s due diligence during the Diligence Period may include the following: (A) a full pre-clinical or clinical (as applicable) and manufacturing audit of the Patent Transferor(s), (B) the right to reasonably request all relevant data, including raw data, obtained to date, and (C) the right to inspect the Patent Transferor(s) facilities and, to the extent within the reasonable control of the Patent Transferor(s), the facilities of its clinicians and manufacturers (and the Patent Transferor(s) agree to use their commercially reasonable efforts to ensure that the Buyer may inspect the facilities of such third parties).

     (d) The Buyer shall have the right of first refusal (in its sole and absolute discretion) to enter into negotiations with such Patent Transferor(s) for further research, development and commercialization of an [ * ] in connection with an Approval Notice and Report (the “Right of First Refusal”). The Buyer’s Right of First Refusal shall expire upon the expiration of the underlying Diligence Period unless the Buyer exercises its Right of First Refusal by delivering written notice to the Patent Transferor(s) (a “ROFR Notice”) prior to such expiration, in which case the Parties shall negotiate in good faith to enter into a definitive agreement with respect to the research, development and/or commercialization of such [ * ] within 90 days of the Patent Transferor(s) receipt of such ROFR Notice. Each Patent Transferor further agrees to not, directly or indirectly (including through any of its Affiliates), enter into any agreement, understanding or arrangement (or discussions or negotiations therefor) with any Person (other than the Buyer) that effects or contemplates the licensing, sale or transfer of any rights in or to assets relating to such [ * ] unless and until the Buyer’s Right of First Refusal has expired in accordance with this Section 6.6(d).

     Section 6.7 Tax Matters.

     (a) Notices. The Sellers shall promptly notify the Buyer in writing upon receipt by the Sellers of notice of any pending or threatened Tax audits or assessments relating to the income, properties or operations of the Sellers that reasonably may be expected to relate to the Purchased Assets, the

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Assumed Liabilities or the Product Business. The Buyer shall promptly notify the Sellers in writing upon receipt by the Buyer of notice of any pending or threatened Tax audits or assessments relating to the Product Patents as to which the Sellers have an interest pursuant to Section 6.6(a) or Section 6.9.

     (b) Transfer Taxes. All Transfer Taxes shall be paid by the Sellers when due, and the Sellers shall, at their own expense, file all necessary Tax Returns and other documentation with respect to all such Transfer Taxes and, if required by applicable Law, the Buyer shall join in the execution of any such Tax Returns and other documentation. As soon as reasonably practicable following the Closing, the Sellers shall provide the Buyer with (i) evidence satisfactory to the Buyer that such Transfer Taxes have been paid by the Sellers and (ii) a clearance certificate or similar document(s) which may be required by any state Tax authority to relieve the Buyer of any obligation to withhold any portion of the payments to the Sellers pursuant to this Agreement.

     (c) Characterization of Payments. Except as otherwise provided in this Agreement, any payments made pursuant to any indemnification obligation under this Agreement shall constitute an adjustment of the consideration paid for the Purchased Assets for Tax purposes and shall be treated as such by the Buyer and the Sellers on their Tax Returns to the extent permitted by Law.

     (d) FIRPTA Certificate. The Sellers shall deliver to the Buyer at the Closing a certificate, duly executed and acknowledged, in form and substance satisfactory to the Buyer, certifying such facts as would exempt the transactions contemplated hereby from withholding pursuant to the provisions of the Foreign Investment in Real Property Tax Act.

     (e) Allocation of Taxes.

          (i) Except as otherwise provided in this Section 6.7, the Sellers shall be responsible for, and shall timely pay, all Taxes levied with respect to the Purchased Assets and the Product Business attributable to the Pre-Closing Tax Period.

          (ii) Non-Income Taxes for any Straddle Period shall be apportioned between the Pre-Closing Tax Period and the Post-Closing Tax Period as follows: (A) in the case of personal property Taxes, real property Taxes and any other Taxes other than sales, use, transaction or excise Taxes and other similar Taxes, the portion allocable to the Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the entire Straddle Period multiplied by a fraction the numerator of which is the number of days in the portion of the Straddle Period ending on the Closing Date and the denominator of which is the number of days in the entire Straddle Period, and (B) in the case of any sales, use, transaction or excise Taxes or other similar Taxes, the portion allocable to the Pre-Closing Tax Period shall be deemed equal to the amount which would be payable if the relevant Straddle Period ended on the Closing Date. The Sellers shall be liable for Non-Income Taxes apportioned to the Pre-Closing Tax Period, and the Buyer shall be liable for Non-Income Taxes apportioned to the Post-Closing Tax Period.

          (iii) Upon receipt by the Buyer, on the one hand, or a Seller, on the other, of any bill for Taxes relating to the Purchased Assets or the Product Business, the Party receiving such bill (the “Recipient Party”) promptly shall present a statement to the other Party (the “Other Party”) setting forth the amount of such Taxes for which the Other Party is liable under this Section 6.7(e), together with such supporting evidence as is reasonably necessary to calculate the amount of such Taxes. The apportioned amount of Taxes for which the Other Party is liable shall be paid by the Other Party to the Recipient Party within 15 days after delivery of such statement to the Other Party by the Recipient Party. The Recipient Party shall be responsible for the timely payment of the Taxes to which such bill relates. In the event that a Party shall make any payment to any Taxing or other authority of any Taxes apportioned to the Other Party under Section 6.7(e), the Other Party shall reimburse the paying Party for the amount of such Taxes

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apportioned to the Other Party promptly but in no event later than 15 days after the presentation by the paying Party of a statement setting forth the amount of reimbursement to which the paying Party is entitled along with such supporting evidence as is reasonably necessary to calculate the amount of such reimbursement. The portion of any refund of Taxes attributable to amounts apportioned hereunder to and paid or reimbursed by the Party not receiving such refund shall be the property of the Party not receiving such refund, and the Party receiving such refund shall promptly pay to the Party not receiving such refund that portion of such refund so attributable.

     (f) Cooperation. The Buyer and the Sellers agree to furnish or cause to be furnished to the other, upon request, as promptly as practicable, such information and assistance relating to the Purchased Assets or the Product Business as is reasonably necessary for the filing of Tax Returns and the prosecution or defense of any audit, claim, suit or proceeding relating to any Tax. The Parties shall retain all books and records with respect to Taxes pertaining to the Purchased Assets for a period of at least seven (7) years following the Closing Date. At the end of such period, the Parties shall provide the other Party with reasonable prior written notice before disposing of such books and records and to allow the other Party to take possession, at its own expense, of such books and records. The Parties shall cooperate fully with each other in the conduct of any audit or other proceeding relating to Taxes pertaining to the Purchased Assets and further agree to use their best efforts to obtain any certificate or other document from any Governmental Authority or other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including with respect to the transactions contemplated hereby).

     Section 6.8 Notice to Third Parties. The Sellers agree to cooperate with the Buyer, at the Buyer’s reasonable request, in the notification to third parties of the transactions contemplated by this Agreement and the Sellers agree not to notify any third parties of such transactions without the consent of the Buyer.

     Section 6.9 Clinical Trials. Following the transfer of the Clinical Trials from the Sellers to the Buyer pursuant to Section 6.1(d), the Buyer shall take over and assume (a) all of the Sellers’ duties and responsibilities related to the ongoing conduct of the Clinical Trials from and after such transfer in accordance with the protocols therefore and (b) the related Liabilities described in Section 2.3(b).

     Section 6.10 Compassionate Use Programs. Following the transfer of the Compassionate Use Programs from the Sellers to the Buyer pursuant to Section 6.1(d), the Buyer shall take over and assume (a) all of the Sellers’ duties and responsibilities related to the ongoing conduct of the Compassionate Use Programs from and after such transfer in accordance with the protocols therefore and (b) the related Liabilities described in Section 2.3(c).

     Section 6.11 Patent Maintenance. After the Closing Date, the Buyer shall assume the duty to make all required maintenance and prosecution payments as to the Product Patents for the remaining terms thereof; provided, however, that upon ninety (90) days written notice, the Buyer may transfer any of the Product Patents to the Patent Transferor from which the Buyer purchased such Product Patent in lieu of making further maintenance or prosecution payments. Nothing in this Section 6.11 shall obligate the Sellers to assume any further maintenance or prosecution payments.

     Section 6.12 [ * ]. The Buyer shall have the right of first refusal to acquire the [ * ] from the Sellers. The Sellers agree not to, directly or indirectly (including through any of its Affiliates), enter into any agreement, understanding or arrangement with any Person [ * ] that effects or contemplates the licensing, sale or transfer of any rights in or to the [ * ] without first offering Buyer the opportunity to acquire such rights in or to the [ * ] on the same or economically equivalent terms. If any Seller plans to transfer, assign or dispose of any of its rights in or to the [ * ], such Seller shall notify the Buyer promptly, and the Buyer and the Sellers shall promptly negotiate in good faith to enter into a definitive agreement with respect to the sale of the [ * ] to the Buyer for [ * ] days (the “[ * ]”). In addition, if the Sellers receive notification from [ * ] that it consents to the sale of the [ * ] to the Buyer, Sellers agree to promptly notify the Buyer of such consent and the Buyer and the Sellers agree to promptly negotiate in good faith to enter into a definitive agreement

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with respect to the sale of the [ * ]. After the expiration of the [ * ], if the Parties cannot agree on a definitive agreement, then the Sellers may enter into negotiations with third parties with respect to the sale or transfer of the [ * ]. Notwithstanding the foregoing, this Section 6.12 shall not prevent the Sellers from entering into a non-binding term sheet with any Person for the licensing, sale or transfer of any rights in or to the [ * ], provided that any transaction contemplated by such term sheet is subject to the Buyer’s right of first refusal set forth in this Section 6.12.

ARTICLE 7
CONDITIONS TO CLOSING

     Section 7.1 Conditions Precedent to Buyer’s Obligations. Buyer’s obligations to consummate the transactions contemplated by this Agreement and the Ancillary Agreements shall be subject to the fulfillment of each of the following additional conditions, any one or more of which may be waived, at Buyer’s sole discretion, in writing by the Buyer:

     (a) Representations and Warranties.

          (i) Each of the representations and warranties of the Sellers set forth in this Agreement, or in any written statement or certificate that shall be delivered to the Buyer by the Sellers under this Agreement (including the Officer’s Certificate) that is not qualified by “Material Adverse Effect” or other materiality qualifications shall have been true and correct in all material respects as of the date of this Agreement and shall be true and correct in all material respects as of the Closing Date as if made at the Closing Date (except to the extent such representation or warranty specifies an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such date); and

          (ii) Each of the representations and warranties of the Sellers set forth in this Agreement, or in any written statement or certificate that shall be delivered to the Buyer by the Sellers under this Agreement (including the Officer’s Certificate) that is qualified by “Material Adverse Effect” or other materiality qualifications shall have been true and correct in all respects as of the date of this Agreement and shall be true and correct in all respects as of the Closing Date as if made at the Closing Date (except to the extent such representation or warranty specifies an earlier date, in which case such representation or warranty shall be true and correct in all respects as of such date).

     (b) Performance of Obligations. Each Seller shall have performed in all material respects all obligations and covenants required to be performed by it under this Agreement and any other agreement or document entered into in connection herewith prior to the Closing Date (to the extent such obligations and covenants require performance prior to such time).

     (c) Release of Liens. The Buyer shall have received evidence satisfactory to it from any Person who held any Encumbrance (other than Permitted Encumbrances) on any of the Purchased Assets of the release by such Person of such Encumbrance effective upon or concurrent with the Closing.

     (d) Legal Requirements. No Law shall be in effect which prohibits or materially restricts the consummation of the Transactions contemplated by this Agreement and the Ancillary Agreements at the Closing, or which otherwise adversely affects in any material respect the right or ability of the Buyer to own, operate or control the Purchased Assets, in whole or material part, and no Action is pending or

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threatened by or before a Governmental Authority which, if successful, could reasonably be expected to result in a Law having such effect or which seeks to obtain from the Buyer any damages.

     (e) Closing Deliveries. The Sellers shall have delivered to the Buyer all of the closing documents and agreements set forth in Sections 3.2 and 3.4, and each of such documents and agreements shall be in full force and effect.

     (f) FIRPTA Compliance. The Sellers shall have delivered to the Buyer the certificate referred to in Section 6.7(d).

     (g) Termination or Release of Third Party Finders Agreements. The Buyer shall have received evidence satisfactory to it that all agreements relating to the payment of finder’s fees, brokerage fees, commissions or similar payments in connection with the Sellers’ entry into this Agreement or the consummation of the transaction contemplated hereby have been terminated or released with respect thereto have been granted such that the Buyer will not have any Liability under such agreements.

     Section 7.2 Conditions Precedent to Sellers’ Obligations. The Sellers’ obligation to consummate the transactions contemplated hereby shall be subject to the fulfillment of each of the following additional conditions, any one or more of which may be waived, at the Sellers’ sole discretion, in writing by the Sellers:

     (a) Representations and Warranties.

          (i) Each of the representations and warranties of the Buyer set forth in this Agreement, or in any written statement or certificate that shall be delivered to the Sellers by the Buyer under this Agreement that is not qualified by “Material Adverse Effect” or other materiality qualifications shall have been true and correct in all material respects as of the date of this Agreement and shall be true and correct in all material respects as of the Closing Date as if made at the Closing Date (except to the extent such representation or warranty specifies an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such date); and

          (ii) Each of the representations and warranties of the Buyer set forth in this Agreement, or in any written statement or certificate that shall be delivered to the Sellers by the Buyer under this Agreement that is qualified by “Material Adverse Effect” or other materiality qualifications shall have been true and correct in all respects as of the date of this Agreement and shall be true and correct in all respects as of the Closing Date as if made at the Closing Date (except to the extent such representation or warranty specifies an earlier date, in which case such representation or warranty shall be true and correct in all respects as of such date).

     (b) Performance of Obligations. The Buyer shall have performed in all material respects all obligations and covenants required to be performed by it under this Agreement and any other agreement or document entered into in connection herewith prior to the Closing Date (to the extent such obligations and covenants require performance prior to such time).

     (c) Closing Deliveries. The Buyer shall have delivered to the Sellers all of the closing documents and agreements set forth in Section 3.4.

     (d) Legal Requirements. No Law shall be in effect which prohibits or materially restricts the consummation of the Transactions contemplated by this Agreement and the Ancillary Agreements at the Closing, or which otherwise adversely affects in any material respect the right or ability of the Buyer to own, operate or control the Purchased Assets, in whole or material part, and no Action is pending or

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threatened by or before a Governmental Authority which, if successful, could reasonably be expected to result in a Law having such effect or which seeks to obtain from the Buyer any damages.

ARTICLE 8
INDEMNIFICATION

     Section 8.1 Survival of Representations and Warranties.

     (a) All representations and warranties of the Sellers in this Agreement shall survive the Closing until the 18-month anniversary of the Closing Date (the “Survival Date”); provided, that:

          (i) the representations and warranties contained in Section 4.2, Section 4.6 and Section 4.7 shall survive until the expiration of the applicable statutes of limitations relating to such representations and warranties; and

          (ii) any claim for indemnification based upon a breach of any such representation or warranty and asserted prior to the Survival Date (or, in the case of any representation or warranty contained in Section 4.2, Section 4.6 and Section 4.7, prior to the expiration of the applicable statute of limitation relating to such representation or warranty) by written notice in accordance with Section 8.2 shall survive until final resolution of such claim.

     (b) The representations and warranties contained in this Agreement (and any right to indemnification for breach thereof) shall not be affected by any investigation, verification or examination by any Party hereto or by any Representative of any such Party or by any such Party’s constructive knowledge (which, for purposes of clarity, excludes actual knowledge) of any facts with respect to the accuracy or inaccuracy of any such representation or warranty.

     (c) The representations and warranties of the Buyer in Article V of this Agreement shall terminate upon the Closing. For avoidance of doubt, the covenants of the Buyer shall survive closing and remain in effect until satisfied or terminated.

     Section 8.2 Indemnification.

     (a) Sellers’ Indemnification Obligations. The Sellers shall, jointly and severally, indemnify, save and hold harmless the Buyer, its Affiliates and their respective Representatives from and against any and all costs, losses, Taxes, Liabilities, obligations, damages, lawsuits, judgments, settlements, awards, deficiencies, claims, demands, expenses (including reasonable costs of investigation and reasonable attorneys’ fees and expenses), interest, fines, penalties, costs of mitigation, and other losses actually paid to third parties (herein, “Damages”), incurred in connection with, arising out of, resulting from or incident to (i) any breach of a representation or warranty of any Seller contained in this Agreement; (ii) any breach of any covenant of any Seller contained in this Agreement; or (iii) any Excluded Asset or Excluded Liability.

          The term “Damages” as used in this Article 8 is not limited to matters asserted by third parties against the Sellers or the Buyer, but includes Damages incurred or sustained by the Sellers or the Buyer in the absence of third party claims. Payments by the Buyer of amounts for which the Buyer is indemnified hereunder, and payments by the Sellers of amounts for which the Sellers are indemnified hereunder, shall not be a condition precedent to recovery. The Sellers’ obligation to indemnify the Buyer, and the Buyer’s obligation to indemnify the Sellers, shall not limit any other rights, including without limitation rights of contribution which any Party may have under statute or common law.

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     (b) Buyer’s Indemnification Obligations. The Buyer shall indemnify and save and hold harmless the Sellers, their respective Affiliates, and their Representatives from and against any and all Damages incurred in connection with, arising out of, resulting from or incident to (i) any breach of any representation or warranty made by the Buyer contained in this Agreement; (ii) any breach of any covenant made by the Buyer contained in this Agreement; or (iii) from and after the Closing, any Assumed Liability.

     (c) Defense of Claims. If a claim for Damages (a “Claim”) is to be made by a Party entitled to indemnification (“Indemnified Party”) hereunder against the Party from whom indemnification is sought (the “Indemnifying Party”), the Party claiming such indemnification shall, subject to this Section 8.2, give written notice (a “Claim Notice”) to the Indemnifying Party as soon as practicable after the Party entitled to indemnification becomes aware of any fact, condition or event which may give rise to Damages for which indemnification may be sought under this Section 8.3. If any lawsuit or enforcement action is filed against any Party entitled to the benefit of indemnity hereunder, written notice thereof shall be given to the Indemnifying Party as promptly as practicable (and in any event within fifteen (15) calendar days after the service of the citation or summons). The failure of any Indemnified Party to give timely notice hereunder shall not affect rights to indemnification hereunder, except to the extent that the Indemnifying Party demonstrates actual damage caused by such failure. After such notice, if the Indemnifying Party shall acknowledge in writing to the Indemnified Party that the Indemnifying Party shall be obligated under the terms of its indemnity hereunder in connection with such lawsuit or action, then the Indemnifying Party shall be entitled, if it so elects at its own cost, risk and expense, (i) to take control of the defense and investigation of such lawsuit or action, (ii) to employ and engage attorneys of its own choice to handle and defend the same unless the named parties to such action or proceeding include both the Indemnifying Party and the Indemnified Party and the Indemnified Party has been advised in writing by counsel that there may be one or more legal defenses available to such Indemnified Party that are different from or additional to those available to the Indemnifying Party, in which event the Indemnified Party shall be entitled, at the Indemnifying Party’s cost, risk and expense, to separate counsel of its own choosing, and (iii) to compromise or settle such claim, which compromise or settlement shall be made only with the written consent of the Indemnified Party, such consent not to be unreasonably withheld; provided, however, that this sentence shall not apply to Claims relating to Taxes. If the Indemnifying Party fails to assume the defense of such claim within fifteen (15) calendar days after receipt of the Claim Notice, the Indemnified Party against which such claim has been asserted will (upon delivering notice to such effect to the Indemnifying Party) have the right to undertake, at the Indemnifying Party’s cost and expense, the defense, compromise or settlement of such claim on behalf of and for the account and risk of the Indemnifying Party. In the event the Indemnified Party assumes the defense of the claim, the Indemnified Party will keep the Indemnifying Party reasonably informed of the progress of any such defense, compromise or settlement. The Indemnifying Party shall be liable for any settlement of any action effected pursuant to and in accordance with this Section 8.2 and for any final judgment (subject to any right of appeal), and the Indemnifying Party agrees to indemnify and hold harmless the Indemnified Party from and against any Damages by reason of such settlement or judgment.

     (d) Cooperation. The Indemnified Party shall cooperate in all reasonable respects with the Indemnifying Party and such attorneys in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom; provided, however, that the Indemnified Party may, at its own cost, participate in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom. For the avoidance of doubt, nothing contained in this Section 8.2(d) shall affect the Indemnified Party’s right to employ and engage separate counsel in accordance with Section 8.2(c)(ii). The Parties shall cooperate with each other in any notifications to insurers.

     (e) Equitable Relief; No Waiver. Nothing in this Agreement shall (i) limit the right of any Party to seek specific performance of, or equitable relief with respect to, another Party with respect to a

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breach of any covenant or agreement set forth in this Agreement or (ii) be deemed a waiver by any Party to this Agreement of any right or remedy which such Party may have at law or in equity based on any claim of fraud.

     Section 8.3 Right of Setoff. The Buyer may setoff any amount to which it is entitled under Section 6.7(e) or this Article 8 against amounts otherwise payable to the Sellers hereunder, provided that any amount to be setoff is no greater than any amount to which the Buyer is entitled to under Section 6.7(e) and this Article 8. Neither the exercise nor the failure to exercise such right of setoff shall constitute an election of remedies or limit the Buyer in any manner in the enforcement of any other remedies that may be available to it.

ARTICLE 9
MISCELLANEOUS PROVISIONS

     Section 9.1 Confidentiality and Publicity.

     (a) The Mutual Confidentiality and Disclosure Agreement, attached as Exhibit A to the Existing License Agreement is hereby incorporated in this Agreement as though fully set forth herein. All terms used in this Section 9.1 and not otherwise defined herein shall have the meanings assigned to such terms in the Confidentiality Agreement. Subject to this Section 9.1, all information exchanged between or among the Parties prior to, on and after the date of this Agreement shall be subject to and treated in accordance with the terms and conditions of the Confidentiality Agreement. The Parties agree that from and after the Closing Date, the Confidentiality Agreement shall remain in full force and effect pursuant to its terms with respect to all Confidential Information that does not relate to the Purchased Assets or the Assumed Liabilities.

     (b) From and after the Closing Date, all Confidential Information primarily concerning the Purchased Assets and the Assumed Liabilities (the “Buyer Proprietary Information”) shall be used by the Sellers solely as required to perform their respective obligations, exercise or enforce their respective rights under this Agreement (or any Ancillary Agreement), or comply with applicable Law, and for no other purpose. The Sellers shall not disclose, or permit the disclosure of, any of the Buyer Proprietary Information to any Person except those Persons to whom such disclosure is necessary to permit the Sellers to perform their respective obligations, exercise or enforce their respective rights under this Agreement (or any Ancillary Agreement), or comply with applicable Law. The Sellers shall treat, and will cause their respective Affiliates and the Representatives and advisors of the Sellers or any of their respective Affiliates to treat, the Buyer Proprietary Information as confidential, using the same degree of care as the Sellers normally employ to safeguard its own confidential information from unauthorized use or disclosure, but in no event less than a reasonable degree of care.

     (c) All Confidential Information obtained by the Buyer (or its Representatives or Affiliates) from the Sellers (or its Representatives or Affiliates) other than the Buyer Proprietary Information (the “Sellers’ Proprietary Information”) shall be used by the Buyer solely as required to perform its obligations, exercise or enforce its rights under this Agreement (or any Ancillary Agreement), or comply with applicable Law, and for no other purpose. The Buyer shall not disclose, or permit the disclosure of, any of the Sellers Proprietary Information to any person except those persons to whom such disclosure is necessary to permit the Buyer to perform its obligations, exercise or enforce its rights under this Agreement (or any Ancillary Agreement), or comply with applicable Law. The Buyer shall treat, and will cause its Affiliates and the Representatives and advisors of the Buyer or any of their respective Affiliates to treat, the Sellers’ Proprietary Information as confidential, using the same degree of care as the Buyer normally employ to safeguard its own confidential information from unauthorized use or disclosure, but in no event less than a reasonable degree of care.

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     (d) In the event either Party is requested pursuant to, or required by, applicable Law to disclose any of the other Party’s Confidential Information (i.e., the Sellers’ Proprietary Information or the Buyer Proprietary Information, as applicable), it will notify the other Party in a timely manner so that such Party may seek a protective order or other appropriate remedy or, in such Party’s sole discretion, waive compliance with the confidentiality provisions of this Agreement. Each Party will cooperate in all reasonable respects, in connection with any reasonable actions to be taken for the foregoing purpose. In any event, the Party requested or required to disclose such Confidential Information may furnish it as requested or required pursuant to applicable Law (subject to any such protective order or other appropriate remedy) without liability hereunder, provided that such Party furnishes only that portion of the Confidential Information which such Party is advised by a reasoned opinion of its counsel is legally required, and such Party exercises reasonable efforts to obtain reliable assurances that confidential treatment will be accorded such Confidential Information.

     (e) Except as required by applicable Laws, no Party to this Agreement shall issue any press release or make any public statement regarding the transactions contemplated hereby without the prior approval of the other Parties, and the Parties shall issue a mutually acceptable press release as soon as practicable after the Closing Date. Notwithstanding the foregoing, the Buyer shall be permitted to make any public statement without obtaining the consent of the Sellers if (i) the disclosure is required by applicable Laws or the requirements of the SEC or NASDAQ Stock Market and (ii) the Buyer has first used its reasonable efforts to consult with (but not to obtain the consent of) the Sellers about the form and substance of such disclosure.

     Section 9.2 Notices. Unless otherwise provided herein, any notice, request, instruction or other document to be given hereunder by any Party to the other shall be in writing and delivered in person or by courier, sent by facsimile transmission, sent via overnight delivery service or mailed by registered or certified mail (such notice to be effective upon receipt), as follows:

If to the Sellers, addressed to:

Marnac Inc.
9400 N. Central Expressway, Suite 305
Dallas, Texas 75231
Attn: Solomon B. Margolin, M.S., Ph.D.
Telephone: (214) 692-8544
Fax: (214) 692-8510

with a copy to:

Wisener*Nunnally*Gold, LLP
625 West Centerville Road, Suite 110
Garland, Texas 75041
Attn: Robert H. Nunnally, Jr.
Telephone: (972) 840-9080
Fax: (972) 840-6575

If to the Buyer, addressed to:

InterMune, Inc.
3280 Bayshore Boulevard

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Brisbane, CA 94005
Attn: General Counsel
Telephone: (415) 466-2200
Fax: (415) 466-2300

with a copy to:

Latham & Watkins LLP
140 Scott Drive
Menlo Park, CA 94025
Attn: Mark V. Roeder
Telephone: (650) 328-4600
Fax: (650) 463-2600

or to such other place and with such other copies as any Party may designate as to itself by written notice to the other Parties.

     Section 9.3 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California without regard to the conflicts of laws principles thereof that would require the application of the laws of any other jurisdiction.

     Section 9.4 Representation By Counsel. Each Party hereto represents and agrees with each other that it has been represented by or had the opportunity to be represented by, independent counsel of its own choosing, and that it has had the full right and opportunity to consult with its respective attorney(s), that to the extent, if any, that it desired, it availed itself of this right and opportunity, that it or its authorized officers (as the case may be) have carefully read and fully understand this Agreement in its entirety and have had it fully explained to them by such Party’s respective counsel, that each is fully aware of the contents thereof and its meaning, intent and legal effect, and that it or its authorized officer (as the case may be) is competent to execute this Agreement and has executed this Agreement free from coercion, duress or undue influence.

     Section 9.5 Expenses. Except as expressly provided for herein, all expenses, including the fees of any attorneys, accountants, investment bankers, brokers, finders or others engaged by a Party, incurred in connection with this Agreement, the Ancillary Agreements and the transactions contemplated hereby and thereby, shall be paid by the Party incurring such expenses.

     Section 9.6 Entire Agreement. This Agreement (including the documents and the instruments referred to herein) and the Confidentiality Agreement constitute the entire agreement among the Parties pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussions, whether written and oral, among the Parties.

     Section 9.7 Amendment; Waiver. This Agreement may not be amended except in an instrument in writing signed on behalf of each of the Parties hereto. No amendment, supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the Party to be bound hereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

     Section 9.8 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced as a result of any rule of law or public policy, all other terms and other provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or

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legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated by this Agreement are fulfilled to the greatest extent possible.

     Section 9.9 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the Parties hereto (whether by operation of law or otherwise) without the prior written consent of the other Parties hereto; provided, however, that such written consent will not be required by an assignment by the Buyer (a) to any of its Affiliates (in which case the Buyer shall remain liable for all obligations of the Buyer hereunder, including the performance or nonperformance of any actions or omissions of its Affiliates) or (b) in connection with a merger, sale or transfer involving all or substantially all of the assets of the Buyer. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the Parties and their respective permitted successors and assigns.

     Section 9.10 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Each of the Parties agrees to accept and be bound by facsimile signatures hereto.

     Section 9.11 Waiver of Jury Trial. Each signatory to this Agreement hereby waives its respective right to a jury trial of any permitted claim or cause of action arising out of this Agreement, any of the transactions contemplated hereby, or any dealings between any of the signatories hereto relating to the subject matter of this Agreement or any of the transactions contemplated hereby. The scope of this waiver is intended to be all encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this agreement or any of the transactions contemplated hereby, including, without limitation, contract claims, tort claims, and all other common law and statutory claims. This waiver is irrevocable, meaning that it may not be modified either orally or in writing, and this waiver shall apply to any subsequent amendments, supplements or other modifications to this agreement, any of the transactions contemplated hereby or to any other document or agreement relating to the transactions contemplated hereby.

     Section 9.12 Consent to Jurisdiction. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY (I) AGREES THAT ANY SUIT, ACTION OR OTHER LEGAL PROCEEDING ARISING OUT OF THIS AGREEMENT MAY BE BROUGHT IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OR, IF SUCH COURT DOES NOT HAVE JURISDICTION OR WILL NOT ACCEPT JURISDICTION, IN ANY COURT OF GENERAL JURISDICTION IN THE COUNTY OF SAN FRANCISCO, CALIFORNIA; (II) CONSENTS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING; AND (III) WAIVES ANY OBJECTION WHICH SUCH PARTY MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY SUCH COURT.

     Section 9.13 Attorney Fees. If any Party to this Agreement brings an Action to enforce its rights under this Agreement in accordance with the provisions hereof, the prevailing Party shall be entitled to recover its actual out-of-pocket costs and expenses, including without limitation reasonable attorneys’ fees reasonably incurred in connection with such Action, including any appeal of such Action.

     Section 9.14 Remedies Cumulative; Specific Performance. The rights and remedies of the Parties hereto shall be cumulative (and not alternative). The Parties agree that, in the event of any breach or threatened breach by any Party of any covenant, obligation or other provision set forth in this

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Agreement for the benefit of any other Party, such other Party shall be entitled (in addition to any other remedy that may be available to it) to (a) a decree or order of specific performance or mandamus to enforce the observance and performance of such covenant, obligation or other provision, and (b) an injunction restraining such breach or threatened breach.

     Section 9.15 Time is of Essence. Time is of the essence with respect to the performance of this Agreement.

     Section 9.16 Executory Nature of the Duties Imposed by this Agreement. This Agreement is intended to require the Sellers and the Buyer to perform a number of executory duties throughout the term of this Agreement. The Parties intend that this Agreement shall be governed by Section 365 of the Bankruptcy Code.

     Section 9.17 Bankruptcy Rights. In the event this Agreement is terminated or rejected by either the Buyer or any Seller or the Buyer’s or any Seller’s trustee or debtor in possession in bankruptcy (or receiver) under applicable bankruptcy or receivership laws due to the Buyer or such Seller’s bankruptcy or receivership, then all rights and licenses granted by the Sellers to the Buyer and by the Buyer to the Sellers shall be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code and any other similar law or regulation in any other country, licenses of rights to “intellectual property” as defined in Section 101(35A) of the Bankruptcy Code. The parties intend such rights and licenses to be subject to the protections afforded the non-terminating party under Section 365(n) of the Bankruptcy Code or any similar law or regulation in any other country.

     Section 9.18 Release. Each Party hereby releases the other Party, its successors and assigns, and their respective Representatives, in each case from and against any and all grievances, rights, actions, causes of action, claims, demands, complaints, obligations, liabilities or controversies of any and all kinds, nature and character whatsoever, legal and equitable, whether known or unknown, foreseen or unforeseen, that a Party has or shall or may have under any Law, arising out of, related to, or in connection with the Existing License Agreements (the “Released Claims”). EACH PARTY HEREBY EXPRESSLY WAIVES THE BENEFIT OF ANY STATUTE OR RULE OF LAW THAT, IF APPLIED TO THIS AGREEMENT, WOULD OTHERWISE EXCLUDE FROM ITS BINDING EFFECT ANY RELEASED CLAIMS NOT KNOWN BY SUCH PARTY TO EXIST WHICH AROSE PRIOR TO THE SIGNING OF THIS AGREEMENT. Each Party understands and acknowledges that it may not currently know of losses or claims or may have underestimated the severity of losses. Part of the consideration provided by this Agreement was given in exchange for the release of such claims. Each Party hereby waives any rights or benefits under California Civil Code Section 1542 (or any similar statute in any other jurisdiction), which provides that: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with debtor.”

     Per the Interim Agreement, the Parties have previously acknowledged that there has been a dispute surrounding the interpretation of Paragraph 5.2(a) of the Existing License Agreement and whether payment is due and owing by the Buyer thereunder. However, as a result of this Agreement and the transactions contemplated herein, the Parties acknowledge and agree that such dispute has been resolved and no payment under that Paragraph 5.2(a) of the Existing License Agreement is due and owing by the Buyer to the Sellers.

[SIGNATURE PAGE FOLLOWS]

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     IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the date first above written.

BUYER

INTERMUNE, INC.
 

/s/ Daniel G. Welch  

By: Daniel G. Welch 

Its: President and CEO 

SELLERS

MARNAC, INC.
 

/s/ Solomon B. Margolin  

By: Solomon B. Margolin 

Its: President 

/s/ Solomon B. Margolin  

DR. SOLOMON B. MARGOLIN 

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

EX-10.60

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EXHIBIT 10.60

PRIVILEGED AND CONFIDENTIAL
EXECUTION COPY

ASSET PURCHASE AGREEMENT

by and among

INTERMUNE, INC.

(the “Buyer”),

KDL GmbH

(“KDL GmbH”)

and

DR. SHITOTOMO YAMAUCHI

(“Dr. Yamauchi” and, collectively with KDL GmbH, the “Sellers”)

Dated as of November 21, 2007

TABLE OF CONTENTS

Section	Page
ARTICLE 1 DEFINITIONS		1
Section 1.1 Defined Terms		1
Section 1.2 Construction		8
ARTICLE 2 THE TRANSACTION		9
Section 2.1 Transfer of Purchased Assets		9
Section 2.2 Excluded Assets		9
Section 2.3 Assumed Liabilities		9
Section 2.4 Excluded Liabilities		9
Section 2.5 Purchase Price		10
Section 2.6 Risk of Loss		11
Section 2.7 Allocation		11
ARTICLE 3 CLOSING		12
Section 3.1 Closing		12
Section 3.2 Closing Deliveries by the Sellers		12
Section 3.3 Closing Deliveries and Payments by the Buyer		13
Section 3.4 Closing Deliveries by the Buyer and the Sellers		13
Section 3.5 Liabilities Related to Finders’ or Brokers’ Fees		13
Section 3.6 Further Actions		13
Section 3.7 Withholdings		14
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE SELLERS		14
Section 4.1 Organization and Authority		14
Section 4.2 Title to Purchased Assets		14
Section 4.3 Consents; No Violations		14
Section 4.4 Compliance with Laws and Litigation		15
Section 4.5 Contracts		15
Section 4.6 Tax Matters		15
Section 4.7 Intellectual Property		15
Section 4.8 Product Records		17
Section 4.9 Brokers, Finders, etc		17
Section 4.10 No Other Agreements to Sell the Purchased Assets		17
Section 4.11 Disclosure		17
Section 4.12 Disclaimer of Implied Warranty		17
Section 4.13 Regulatory Matters		18
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER		18
Section 5.1 Organization and Authority		18
Section 5.2 Consents; No Violations		19
Section 5.3 Brokers, Finders, etc		19
ARTICLE 6 CERTAIN OTHER COVENANTS		19
Section 6.1 Cooperation		19
Section 6.2 Billing and Invoices		20
Section 6.3 Covenant Not To Compete		20

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Section	Page
Section 6.4 Exclusive License; Right of First Refusal		21
Section 6.5 Tax Matters		22
Section 6.6 Notice to Third Parties		24
Section 6.7 Patent Maintenance		24
ARTICLE 7 CONDITIONS TO CLOSING		24
Section 7.1 Conditions Precedent to Buyer’s Obligations		24
Section 7.2 Conditions Precedent to Sellers’ Obligations		25
ARTICLE 8 INDEMNIFICATION		26
Section 8.1 Survival of Representations and Warranties		26
Section 8.2 Indemnification		27
Section 8.3 Right of Setoff		28
ARTICLE 9 MISCELLANEOUS PROVISIONS		28
Section 9.1 Confidentiality and Publicity		28
Section 9.2 Notices		29
Section 9.3 Governing Law		30
Section 9.4 Representation By Counsel		30
Section 9.5 Expenses		31
Section 9.6 Entire Agreement		31
Section 9.7 Amendment; Waiver		31
Section 9.8 Severability		31
Section 9.9 Assignment		31
Section 9.10 Counterparts		31
Section 9.11 Waiver of Jury Trial		31
Section 9.12 Consent to Jurisdiction		32
Section 9.13 Attorney Fees		32
Section 9.14 Remedies Cumulative; Specific Performance		32
Section 9.15 Time is of Essence		32
Section 9.16 Executory Nature of the Duties Imposed by this Agreement		32
Section 9.17 Bankruptcy Rights		32
Section 9.18 Release		32

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

PRIVILEGED AND CONFIDENTIAL
EXECUTION COPY

ASSET PURCHASE AGREEMENT
(KDL Agreement)

     This ASSET PURCHASE AGREEMENT (as amended from time to time, the “Agreement”), dated November 21, 2007, is made and entered into by and among InterMune, Inc., a Delaware corporation (the “Buyer”), KDL GmbH, a Swiss corporation (“KDL GmbH”), and Dr. Shitotomo Yamauchi (“Dr. Yamauchi” and, collectively with KDL GmbH, the “Sellers”). The Buyer and the Sellers are sometimes collectively referred to herein as the “Parties” and individually as a “Party.”

RECITALS

     WHEREAS, the Buyer, the Sellers, KDL, Inc. (“KDL Japan”), Marnac, Inc. (“Marnac”), and Dr. Solomon B. Margolin (“Dr. Margolin” and, collectively with the Sellers, KDL Japan and Marnac, the “Licensors”) are parties to that certain License Agreement dated as of March 29, 2002, as amended (the “Existing License Agreement”), pursuant to which the Licensors granted to the Buyer certain limited rights and licenses related to anti-fibrotic uses of Pirfenidone on a worldwide basis (except for Japan, Taiwan and Korea);

     WHEREAS, Marnac and KDL Japan are parties to that certain License Agreement dated November 5, 1996 (the “Shionogi License Agreement”) with Shionogi & Co., Ltd. (“Shionogi”) pursuant to which Marnac and KDL Japan have granted to Shionogi certain limited rights and licenses related to anti-fibrotic uses of Pirfenidone within Japan, Taiwan and Korea;

     WHEREAS, the Buyer, Marnac and Dr. Margolin have entered into an Asset Purchase Agreement, dated as of November 19, 2007 and certain related agreements pursuant to which, among other things, the Buyer acquired from Marnac and Dr. Margolin certain assets related to Pirfenidone; and

     WHEREAS, the Sellers desire to sell certain assets related to Pirfenidone to the Buyer, and the Buyer desires to purchase such assets from the Sellers, on the terms and subject to conditions set forth herein.

     NOW, THEREFORE, in consideration of the promises, representations, warranties, covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto, intending to be legally bound hereby, agree as follows:

ARTICLE 1
DEFINITIONS

     Section 1.1 Defined Terms. For the purposes of this Agreement, the following words and phrases shall have the following meanings whether in the singular or the plural:

     “Action” shall mean any action, claim, suit, litigation, proceeding, labor dispute, arbitral action, governmental audit, inquiry, criminal prosecution, examination, investigation or unfair labor practice charge or complaint commenced, brought, conducted or heard at law or in equity or before any Governmental Authority or any arbitrator or arbitral panel.

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     “Affiliate” shall mean any company or entity controlled by, controlling or under common control with a Party. As used in the definition of “Affiliate,” “control” means (a) that Person owns, directly or indirectly, more than fifty percent (50%) of the voting stock of another entity, or (b) that a Person has the actual ability to control and direct the management of the entity, whether by contract or otherwise.

     “Agreement” shall have the meaning set forth in the first paragraph of this Agreement.

     “Allocation” shall have the meaning set forth in Section 2.7.

     “Ancillary Agreements” shall mean, collectively, the Bill of Sale, the Assignment and Assumption Agreement and the IP Assignments.

     “Approval Notice and Report” shall have the meaning set forth in Section 6.4(c).

     “Assignment and Assumption Agreement” shall have the meaning set forth in Section 3.4(a).

     “Assumed Contracts” shall have the meaning set forth in the definition of Purchased Assets.

     “Assumed Liabilities” shall have the meaning set forth in Section 2.3.

     “Bill of Sale” shall have the meaning set forth in Section 3.2(a).

     “Business Day” means a day, which is not a Saturday, a Sunday, or a statutory holiday in the United States.

     “Buyer” shall have the meaning set forth in the first paragraph of this Agreement.

     “Buyer Disclosure Schedule” shall have the meaning set forth in the first paragraph of Article 5.

     “Buyer Proprietary Information” shall have the meaning set forth in Section 9.1(b).

     “CAPACITY Trial” shall mean (i) the randomized, double-blind, placebo controlled, Phase III, three-arm study of the safety and efficacy of Pirfenidone in patients with idiopathic pulmonary fibrosis under protocol PIPF-004; and (ii) the randomized, double-blind, placebo controlled, Phase III study of the safety and efficacy of Pirfenidone in patients with idiopathic pulmonary fibrosis under protocol PIPF-006, in each case as designed by and initiated by the Buyer.

     “Claim” shall have the meaning set forth in Section 8.2(c).

     “Claim Notice” shall have the meaning set forth in Section 8.2(c).

     “Closing” shall have the meaning set forth in Section 3.1.

     “Closing Date” shall have the meaning set forth in Section 3.1.

     “Closing Payment” shall have the meaning set forth in Section 2.5(a).

     “Code” means the United States Internal Revenue Code of 1986, as amended.

     “Competing Product” shall mean any product that contains Pirfenidone. Notwithstanding the foregoing, Competing Product shall not include those products containing Pirfenidone that (i) are

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designed, marketed, sold and used exclusively for [ * ]indications (excluding [ * ]) and (ii) are covered by a pending or issued claim of USPTO Application No. [ * ], U.S. Patent No. [ * ], PCT Application No. [ * ], PCT Application No. [ * ], [ * ] or [ * ], or any patent applications, provisional patent applications or similar instruments (including any and all substitutions, divisions, continuations, reissues, renewals, extensions, reexaminations, patents of addition, supplementary protection certificates, inventors’ certificates, pediatric data package exclusivity extensions, or the like) as well as any foreign equivalents thereof (including certificates of invention and any applications therefor). Competing Product shall also exclude any product in Japan, Korea or Taiwan that currently is or is in the future under license of the Shionogi Assets (and any such product shall continue to be excluded from the definition of a Competing Product after it ceases to be under license of the Shionogi Assets).

     “Confidentiality Agreement” shall have the meaning set forth in Section 9.1.

     “Consents” shall have the meaning set forth in Section 4.3(a).

     “Contract” shall mean any agreement, contract, lease, purchase, under, consensual obligation, promise, or undertaking, obligation or commitment (whether written or oral), to which one or more of the Sellers are a party that is primarily related to the Product, the Product Business, the Purchased Assets or the Assumed Liabilities, or which is necessary for the conduct of the Product Business to the extent conducted by the Sellers.

     “Copyrights” shall have the meaning set forth in the definition of Purchased Assets.

     “Damages” shall have the meaning set forth in Section 8.2(a).

     “Diligence Period” shall have the meaning set forth in Section 6.4(c).

     “Dollar(s)” shall mean the USA dollar(s).

     “Dr. Yamauchi” shall have the meaning set forth in the first paragraph of this Agreement.

     “EMEA” means the European Medicines Evaluation Agency.

     “Encumbrance” shall mean claims, security interests, liens, pledges, charges, escrows, options, proxies, rights of first refusal, preemptive rights, mortgages, hypothecations, assessments, prior assignments, title retention agreements, conditional sales agreements, indentures, deeds of trust, leases, levies or security agreements of any kind whatsoever imposed upon the subject property or item.

     “Excluded Assets” notwithstanding any other provision of this Agreement, shall mean all assets and properties of the Sellers, in the territory of Japan, Taiwan, and Korea, other than the Purchased Assets, including USPTO Application No. [ * ]; U.S. Patent No. [ * ]; PCT Application No. [ * ]; PCT Application No. [ * ]; [ * ]; [ * ]; [ * ] (application Number); and the Shionogi Assets.

     “Excluded Liabilities” shall mean all Liabilities or obligations of the Sellers (other than the Assumed Liabilities), including any obligation or Liability of the Sellers created as a result of this Agreement and those items set forth on Schedule 2.4(a).

     “Existing License Agreement” shall have the meaning set forth in the first sentence of the Recitals.

     “FDA” means the United States Food and Drug Administration.

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     “Governmental Authority” shall mean any (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, board, bureau, official, ministry, organization, unit, body or entity and any court or other tribunal).

     “IND” shall mean an Investigational New Drug Application (as defined under the United States Food, Drug and Cosmetic Act and applicable Regulations promulgated thereunder).

     “Indemnified Party” shall have the meaning set forth in Section 8.2(c).

     “Indemnifying Party” shall have the meaning set forth in Section 8.2(c).

     “Intellectual Property” shall mean Copyrights, Know-How, Trademarks, Patents, and all other intellectual property or proprietary rights, in each case whether or not subject to statutory registration or protection.

     “IP Assignments” shall have the meaning set forth in Section 3.2(b).

     “IRS” means the United States Internal Revenue Service.

     “KDL GmbH” shall have the meaning set forth in the first paragraph of this Agreement.

     “KDL Japan” shall have the meaning set forth in the first sentence of the Recitals.

     “Know-How” shall have the meaning set forth in the definition of Purchased Assets.

     “Knowledge of the Sellers” or “to the Sellers’ Knowledge” or any similar such statement with respect to the Sellers shall mean the best actual knowledge of any executive officer or director of KDL GmbH, any key employee of KDL GmbH directly involved in the management, operation or research and development of the Purchased Assets, or Dr. Yamauchi.

     “Law” shall mean any constitution, law, statute, treaty, role, directive, requirement or Regulation or Order of any Governmental Authority.

     “Liability” shall mean, collectively, any indebtedness, guaranty, endorsement, commitment, claim, loss, damage, deficiency, cost, expense, obligation or responsibility, fixed or unfixed, known or unknown, choate or inchoate, liquidated or unliquidated, secured or unsecured, direct or indirect, matured or unmatured, or absolute, contingent or otherwise, including any product liability.

     “Licensors” shall have the meaning set forth in the first sentence of the recitals.

     “MAA Milestone Payment” shall have the meaning set forth in Section 2.5(b)(iii).

     “Milestone Payments” shall mean, collectively, the Phase III Milestone Payment, the NDA Milestone Payment and the MAA Milestone Payment.

     “NDA Milestone Payment” shall have the meaning set forth in Section 2.5(b)(ii).

     “Non-Income Taxes” shall mean (i) any real property, personal property, ad valorem and other similar Taxes and (ii) any sales, use, transaction, excise and other similar Taxes; provided, however, that

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“Non-Income Taxes” shall not include (a) any Taxes that are income Taxes or Taxes in the nature of income Taxes or (b) any Transfer Taxes.

     “Officer’s Certificate” shall have the meaning set forth in Section 3.2(d).

     “Order” shall mean any: (a) temporary, preliminary or permanent order, judgment, injunction, edict, decree, ruling, pronouncement, proclamation, directive, determination, decision, opinion, verdict, sentence, stipulation, subpoena, writ or award that is or has been issued, made, entered, rendered or otherwise put into effect by or under the authority of any court, administrative agency or other Governmental Authority; or (b) Contract with any Governmental Authority that is or has been entered into in connection with any Action.

     “[ * ]” shall mean [ * ].

     “Other Party” shall have the meaning set forth in Section 6.5(e)(iii).

     “Party” or “Parties” shall have the meaning set forth in the first paragraph of this Agreement.

     “Patents” shall have the meaning set forth in the definition of Purchased Assets.

     “Permitted Encumbrances” shall mean liens imposed by any Governmental Authority for Taxes not yet due and payable.

     “Person” shall mean any natural person, corporation, unincorporated organization, partnership, association, joint stock company, joint venture, limited liability company, trust or entity or organization of any kind or Governmental Authority.

     “Phase III Milestone Payment” shall have the meaning set forth in Section 2.5(b)(i).

     “Pirfenidone” shall mean that certain substance whose chemical composition is 5-methyl-1-phenyl-2-(1H)-pyridone (CAS 53179-13-8).

     “Post-Closing Tax Period” shall mean any Tax Period beginning after the close of business on the Closing Date and the portion of any Straddle Period beginning after the Closing Date.

     “Pre-Closing Tax Period” shall mean any Tax Period ending on or before the close of business on the Closing Date and the portion of any Straddle Period ending on the Closing Date.

     “Patent Transferor” shall have the meaning set forth in Section 6.4(a).

     “Product” shall mean any pharmaceutical composition or preparation, in any dosage, strength or size, containing Pirfenidone.

     “Product Business” shall mean the manufacturing, using, developing, promoting, selling, offering to sell, or importing of Pirfenidone for sale to the extent currently being or previously conducted by the Sellers.

     “Product Copyrights” shall have the meaning set forth in the definition of Purchased Assets.

     “Product Data” shall have the meaning set forth in the definition of Purchased Assets.

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     “Product Intellectual Property” shall have the meaning set forth in the definition of Purchased Assets.

     “Product Know-How” shall have the meaning set forth in the definition of Purchased Assets.

     “Product Patents” shall have the meaning set forth in the definition of Purchased Assets.

     “Product Records” shall have the meaning set forth in the definition of Purchased Assets.

     “Product Trademarks” shall have the meaning set forth in the definition of Purchased Assets.

     “Purchased Assets” shall mean, collectively: (i) the Contracts or portions of the Contracts set forth on Schedule 1.1(a) (the “Assumed Contracts”); (ii) as primarily related to Pirfenidone, all permits, licenses, certificates, approvals, Product Registrations, waivers, exemptions, qualifications, consents or orders of, filings and authorizations issued by any Governmental Authority to the Sellers or their Representatives, if any (the “Regulatory Approvals”); (iii) all toxicology, pre-clinical, clinical and manufacturing information and data, including with respect to clinical trials, and all submissions and correspondence with or to any Governmental Authority regarding the Product, including all validation data and documentation supporting the process of manufacturing the Product, but only to the extent the foregoing may be in the possession or control of any Seller (or any Affiliate of any Seller) (the “Product Data”); (iv) all domestic and foreign copyrights, copyright registrations, copyright applications, original works of authorship fixed in any tangible medium of expression, including literary works (including all forms and types of computer software, including all source code, object code, firmware, development tools, files, records and data, and all documentation related to any of the foregoing), pictorial, and graphic works relating to the Product Data and Product Records (“Copyrights”), except for any Copyrights to published scientific papers, unpublished academic materials, and submitted but unpublished scientific papers of KDL GmbH, including those by Dr. Yamauchi or other KDL GmbH employees, as owned, licensed, sublicensed or otherwise controlled by any Seller and primarily related to Pirfenidone (“Product Copyrights”); (v) trade secrets, technology, discoveries and improvements, know-how, proprietary rights, formulae, confidential and proprietary information, technical information, techniques, inventions, designs, drawings, procedures, processes, models, formulations, manuals and systems, whether or not patentable or copyrightable, including all biological, chemical, biochemical, toxicological, pharmacological and metabolic material and information and data relating thereto and formulation, clinical, analytical and stability information and data which have actual or potential commercial value and are not available in the public domain (“Know-How”) as owned, licensed, sublicensed or otherwise controlled by any Seller, if any, and primarily related to Pirfenidone, including as developed in connection with clinical trials (“Product Know-How”); (vi) the United States patents, patent applications, provisional patent applications and similar instruments (including any and all substitutions, divisions, continuations, continuations-in-part, reissues, renewals, extensions, reexaminations, patents of addition, supplementary protection certificates, inventors’ certificates, pediatric data package exclusivity extensions, or the like) as well as any foreign equivalents of the foregoing (including certificates of invention and any applications therefor) (“Patents”) as owned (in whole or in part), licensed, sublicensed or otherwise controlled by any Seller and primarily related to Pirfenidone (“Product Patents”); (vii) all domestic and foreign trademarks, trademark registrations, trademark applications, service marks, service mark registrations, service mark applications, business marks, brand names, trade names, names, internet domains and URLs, and all goodwill associated therewith, if any (“Trademarks”) as owned, licensed, sublicensed or otherwise controlled by any Seller and primarily related to Pirfenidone (“Product Trademarks” and, collectively with Product Copyrights, Product Know-How and Product Patents, “Product Intellectual Property”); and (viii) all files, documents, instruments, papers, books and records owned or controlled by any Seller, whether in electronic or tangible form, to the extent relating to the Purchased Assets, including any research and development files, marketing materials (if any), regulatory files, adverse event reports and

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files, clinical studies and all documentation relating to the Product Intellectual Property, but excluding any such items to the extent that any applicable Law prohibits their transfer (the “Product Records”). The Parties agree that “Purchased Assets” does not include any of the Excluded Assets.

     “Product Registrations” shall mean all applications, all Investigational New Drug Applications (INDs) and their foreign equivalents, new drug applications, abbreviated new drug applications, new drug submissions, and any comparable applications and submissions, together with any and all supplements or modifications or amendments thereto, whether existing, pending, withdrawn or in draft form, together with all correspondence to or from any Governmental Authority with respect thereto, prepared and submitted to any Governmental Authority with respect to any Product.

     “Purchase Price” shall have the meaning set forth in Section 2.5.

     “Recipient Party” shall have the meaning set forth in Section 6.5(e)(iii).

     “Regulations” shall mean any laws, statutes, ordinances, regulations, rules, notice requirements, court decisions, agency guidelines, principles of Law and orders of any foreign, federal, state or local Governmental Authority.

     “Regulatory Approvals” shall have the meaning set forth in the definition of Purchased Assets.

     “Released Claims” shall have the meaning set forth in Section 9.18.

     “Representative” shall mean any officer, director, principal, attorney, accountant, agent, employee or other representative of any Person.

     “Restricted Territory” means the entire world.

     “Right of First Refusal” shall have the meaning set forth in Section 6.4(d).

     “ROFR Notice” shall have the meaning set forth in Section 6.4(d).

     “Schedules” shall refer to the schedules to this Agreement which are hereby incorporated by reference into this Agreement.

     “SEC” means the Securities and Exchange Commission.

     “Sellers” shall have the meaning set forth in the first paragraph of this Agreement.

     “Sellers Disclosure Schedule” shall have the meaning set forth in the first paragraph of Article 4.

     “Sellers Proprietary Information” shall have the meaning set forth in Section 9.1(c).

     “Shionogi” shall have the meaning set forth in the second sentence of the Recitals.

     “Shionogi Assets” shall mean the Shionogi License Agreement and [ * ] and other Japanese patents and patent applications disclosing and claiming certain [ * ], as well as any and all divisions, re-issues, continuations, substitutes and extension in part or all of such patents or patent applications which are [ * ].

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     “Shionogi License Agreement” shall have the meaning set forth in the second sentence of the Recitals.

     “Straddle Period” shall mean any Tax Period beginning before and ending after the Closing Date.

     “Survival Date” shall have the meaning set forth in Section 8.1(a).

     “Taxes” mean any federal, state, local, foreign or other tax, levy, impost, fee, assessment or other government charge, including without limitation income, estimated income, business, occupation, franchise, property, payroll, personal property, sales, transfer, use, employment, commercial rent, occupancy, franchise or withholding taxes, and any premium, including without limitation interest, penalties and additions in connection therewith.

     “Tax Period” shall mean any period prescribed by any Governmental Authority for which a Tax Return is required to be filed or a Tax is required to be paid.

     “Tax Return” shall mean any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

     “Trademarks” shall have the meaning set forth in the definition of Purchased Assets.

     “Transfer Taxes” shall mean all transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement and the transactions contemplated hereby.

     “Treasury Regulations” shall mean the income tax regulations issued under the Code.

     Section 1.2 Construction.

     (a) The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. The meaning of defined terms shall be equally applicable to the singular and plural forms of the defined terms. The terms “include” and “including” and variations thereof, are not limiting but rather shall be deemed to be followed by the words “without limitation.”

     (b) References to agreements and other documents shall be deemed to include all subsequent amendments and other modifications thereto.

     (c) References to statutes shall include all regulations promulgated thereunder and references to statutes or regulations shall be construed as including all statutory and regulatory provisions consolidating, amending or replacing the statute or regulation.

     (d) References to “license” or “licenses” shall include “sublicense” or “sublicenses,” as applicable.

     (e) The captions, titles and headings of this Agreement are for convenience of reference only and shall not affect the construction of this Agreement.

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     (f) Whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include the masculine and feminine genders

     (g) The Parties participated jointly in the negotiation and drafting of this Agreement and the language used in this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent. If an ambiguity or question of intent or interpretation arises, then this Agreement will accordingly be construed as drafted jointly by the Parties to this Agreement, and no presumption or burden of proof will arise favoring or disfavoring any Party to this Agreement by virtue of the authorship of any of the provisions of this Agreement.

     (h) The Schedules and Exhibits to this Agreement are a material part hereof and shall be treated as if fully incorporated into the body of this Agreement.

ARTICLE 2
THE TRANSACTION

     Section 2.1 Transfer of Purchased Assets. At the Closing, upon the terms and subject to the conditions hereof and in reliance upon the representations, warranties and covenants contained herein and in consideration of the Purchase Price paid and to be paid to the Sellers by the Buyer, the Sellers will sell, convey, transfer, assign and deliver to the Buyer, and the Buyer will purchase, take delivery of and acquire from the Sellers, all of the Sellers’ right, title and interest in and to the Purchased Assets, free and clear of any Encumbrances, except for Permitted Encumbrances.

     Section 2.2 Excluded Assets. The Parties acknowledge and agree that the Sellers are not selling, conveying, transferring, delivering or assigning any rights whatsoever to the Excluded Assets to the Buyer, and the Buyer is not purchasing, taking delivery of or acquiring any rights whatsoever to the Excluded Assets from the Sellers.

     Section 2.3 Assumed Liabilities. As of the Closing Date, the Buyer shall assume and agree to pay, perform or otherwise discharge, in accordance with their respective terms and subject to the respective conditions thereof, only the following Liabilities (collectively, the “Assumed Liabilities”):

     (a) Any Liability arising after the Closing Date under any Assumed Contract (other than any Liability arising out of or relating to a breach of, or default under, such Assumed Contract which occurred or prior to the Closing Date); and

     (b) Any other Liability specifically set forth on Schedule 2.3(b) hereto.

For the avoidance of doubt, nothing in this Section 2.3 is intended to, or shall be interpreted to, limit or otherwise reduce the Liabilities of the Buyer as they may occur and/or exist after the Closing Date solely by virtue of the Buyer’s ownership, marketing or use of the Purchased Assets, but rather, this Section 2.3 is solely intended to identify and provide for the assumption by the Buyer of those Liabilities of the Sellers that are specifically assumed by the Buyer hereunder and which, but for such assumption, would remain Liabilities of the Sellers.

     Section 2.4 Excluded Liabilities. Notwithstanding any other provision of this Agreement, except for the Assumed Liabilities expressly assumed in Section 2.3, the Buyer shall not assume, or

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otherwise be responsible for, any Liabilities of any Seller or any of their respective Affiliates, whether liquidated or unliquidated, or known or unknown, whether arising out of occurrences prior to, at or after the Closing Date (“Excluded Liabilities”), which Excluded Liabilities shall include:

     (a) any Liability of any Seller that arises out of or relates to any Excluded Assets (for the avoidance of doubt, the Parties agree that any Liabilities of Marnac and KDL Japan under the Shionogi License Agreement shall remain the Liabilities of Marnac and KDL Japan and are Excluded Liabilities);

     (b) any Liability of any Seller under or with respect to any Contract (other than an Assumed Contract pursuant to Section 2.3(a));

     (c) any Liability of any Seller arising out of or related to any Action asserted on or prior to the Closing Date against any Seller, or against or in respect of any Purchased Asset or the conduct of the Product Business, or the basis of which shall have arisen on or prior to the Closing Date;

     (d) any Liability arising from any injury to or death of any Person or damage to or destruction of any property, whether based on negligence, breach of warranty, strict liability, enterprise liability or any other legal or equitable theory arising from defects in products manufactured or services performed by or on behalf of any Seller or any other Person on or prior to the Closing Date;

     (e) any Liability of any Seller arising out of or relating to the ownership or operation of the Purchased Assets and/or the Product Business prior to Closing, including any claims, obligations, rebates or litigation arising out of or relating to events or conditions occurring prior to Closing or Products sold by any Seller prior to Closing;

     (f) any Liability to the extent arising out of or as a result of the conduct of any business of the Sellers and their respective Affiliates other than those liabilities expressly assumed herein pursuant to Section 2.3;

     (g) any Liability arising out of or relating to any finder’s fee, brokerage fee, commission or similar payment in connection with any Seller’s entry into this Agreement or the consummation of the transactions contemplated hereby, including any of the Contracts listed on Section 4.9 of the Sellers Disclosure Schedule; and

     (h) any Liability of any Seller, or any member of any consolidated, affiliated, combined or unitary group of which any Seller is or has been a member, for any Tax, and any Liability for Taxes attributable to the Purchased Assets or the Product Business for any Pre-Closing Tax Period.

     Section 2.5 Purchase Price. In consideration for the sale, transfer, conveyance, assignment and delivery of the Purchased Assets and the execution and delivery of this Agreement and the Ancillary Agreements by the Sellers, upon the terms and subject to the conditions set forth in this Agreement (collectively, the “Purchase Price”):

     (a) Closing Payment. At the Closing, the Buyer shall (i) deliver (or cause to be delivered) to the Sellers an upfront payment in the form of a payment, which shall be nonrefundable for any reason whatsoever, in the aggregate amount of $4,250,000 in cash, payable by wire transfer in immediately available funds in the allocations and to the accounts specified in Schedule 2.5 (the “Closing Payment”); and (ii) assume the Assumed Liabilities pursuant to Section 2.3.

     (b) Milestone Payments. Subject to Article 8:

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          (i) By [ * ], the Buyer shall notify the Sellers of its decision, in the Buyer’s sole and absolute discretion, to file or not to file (A) a New Drug Application for Pirfenidone for an indication of idiopathic pulmonary fibrosis with the FDA, or (B) a Marketing Authorization Application for Pirfenidone for an indication of idiopathic pulmonary fibrosis with the EMEA. If the Buyer decides to file a New Drug Application with the FDA and/or a Marketing Authorization Application with the EMEA, then within ten (10) Business Days of such notification to the Sellers, the Buyer shall deliver (or cause to be delivered) to the Sellers an aggregate amount of $[ * ] in cash, payable by wire transfer in immediately available funds in the allocations and to the accounts specified in Schedule 2.5 (the “Phase III Milestone Payment”).

          (ii) Upon the Buyer’s receipt of New Drug Application approval for Pirfenidone for an indication of idiopathic pulmonary fibrosis in the United States, the Buyer shall deliver (or cause to be delivered) to the Sellers an aggregate amount of $[ * ] in cash within fifteen (15) Business Days, payable by wire transfer in immediately available funds in the allocations and to the accounts specified in Schedule 2.5 (the “NDA Milestone Payment”); provided, however, that the parties hereby acknowledge and agree that in the event the Buyer determines, in good faith, that the labeling received by the Buyer from the FDA with respect to the use of Pirfenidone for an indication of idiopathic pulmonary fibrosis materially and negatively impacts the potential commercial value of Pirfenidone for idiopathic pulmonary fibrosis in the United States, then the Sellers agree to, in good faith, (A) discuss with the Buyer the extent to which labeling has negatively impacted the commercial value of Pirfenidone for idiopathic pulmonary fibrosis in the United States and (B) negotiate an appropriate downward adjustment to the NDA Milestone Payment to reflect such decrease in commercial value.

          (iii) Upon the Buyer’s receipt of Marketing Authorization Application approval for Pirfenidone for an indication of idiopathic pulmonary fibrosis in Europe, the Buyer shall deliver (or cause to be delivered) to the Sellers an aggregate amount of $[ * ] in cash within fifteen (15) Business Days, payable by wire transfer in immediately available funds in the allocations and to the accounts specified in Schedule 2.5 (the “MAA Milestone Payment”); provided, however, that the parties hereby acknowledge and agree that in the event the Buyer determines, in good faith, that the labeling received by the Buyer from the EMEA with respect to the use of Pirfenidone for an indication of idiopathic pulmonary fibrosis materially and negatively impacts the potential commercial value of Pirfenidone for idiopathic pulmonary fibrosis in Europe, then the Sellers agree to, in good faith, (A) discuss with the Buyer the extent to which labeling has negatively impacted the commercial value of Pirfenidone for idiopathic pulmonary fibrosis in Europe and (B) negotiate an appropriate downward adjustment to the MAA Milestone Payment to reflect such decrease in commercial value.

Each of the payments constituting the Purchase Price shall be deemed material, and any failure to make any payment of any portion of the Purchase Price, if and when due, may be treated by the Sellers as a material failure of consideration.

     Section 2.6 Risk of Loss. Until the Closing, any loss of or damage to the Purchased Assets from fire, flood, casualty or any other similar occurrence shall be the sole responsibility of the Sellers. As of the Closing, title to the Purchased Assets shall be transferred to the Buyer subject to the terms hereof. After the Closing, the Buyer shall bear all risk of loss associated with the Purchased Assets and shall be solely responsible for procuring adequate insurance to protect the Purchased Assets against any such loss.

     Section 2.7 Allocation. As soon as practicable after the Closing, the Parties shall agree on an allocation (the “Allocation”) of the Purchase Price (including any Assumed Liabilities to the extent properly taken into account under the Code and the Treasury Regulations promulgated thereunder) among the Purchased Assets and the Sellers’ covenants under Section 6.3 in accordance with the requirements of Section 1060 of the Code and consistent with the principles set forth in Schedule 2.7. The Parties agree to

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be bound by the Allocation, and the Parties shall act in accordance with the Allocation in the preparation of financial statements and the filing of all Tax Returns (including, without limitation, filing IRS Form 8594 with their Tax Returns for the taxable year that includes the Closing Date), before any Tax authority or in any judicial proceeding unless it has the written consent of the other Party to this Agreement or unless specifically required pursuant to a final determination within the meaning of Section 1313(a) of the Code. No later than thirty (30) days prior to the filing of their respective Forms 8594 (and analogous state law forms), each Party shall deliver to the other Party a copy of such form. The Parties shall promptly advise each other of the existence of any Tax proceeding related to the Allocation. In the event of an adjustment to the Purchase Price pursuant to Section 6.5(c), the Buyer shall amend the Allocation to reflect such adjustment, subject to approval by the Sellers, such approval not to be unreasonably withheld. The Buyer and the Sellers agree to treat as interest for Tax purposes any portion of the Purchase Price that is properly treated as interest under Section 483 of the Code (or any similar provision applicable under state or local Law).

ARTICLE 3
CLOSING

     Section 3.1 Closing. Subject to the satisfaction or waiver of the conditions set forth in Sections 7.1 and 7.2, the closing of the transactions contemplated herein in connection with the purchase and sale of the Purchased Assets (the “Closing”) shall be held at 10:00 a.m., local time, on the second (2^nd) Business Day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective Parties shall take at the Closing) at the offices of Latham & Watkins LLP, 140 Scott Drive, Menlo Park, California 94025, or such other time or place as the Parties hereto shall otherwise agree (the “Closing Date”).

     Section 3.2 Closing Deliveries by the Sellers. At the Closing, the Sellers shall (i) take all steps necessary to place the Buyer in actual possession and operating control of the Purchased Assets and (ii) deliver to the Buyer the following items, duly executed by the Sellers as applicable, all of which shall be in form and substance reasonably acceptable to the Buyer and in full force and effect:

     (a) Bill of Sale. Bill of Sale covering all of the applicable Purchased Assets, substantially in the form of Exhibit A (the “Bill of Sale”);

     (b) Intellectual Property Assignment. Any and all documents necessary to properly record the assignment to the Buyer of all of the Sellers’ right, title and interest in and to the Product Intellectual Property, substantially in the form of Exhibit B (the “IP Assignments”);

     (c) Consents. Duly executed Consents of all third parties (including any Governmental Authorities), if any, required by the Sellers to consummate the transactions contemplated by this Agreement and the Ancillary Agreements, in form and substance reasonably satisfactory to the Buyer, including those Consents listed in Schedule 4.3(a);

     (d) Officer’s Certificates. A certificate executed on behalf of each of the Sellers by an executive officer of KDL GmbH, and individually by Dr. Yamauchi, dated as of the Closing Date, certifying that the conditions set forth in Section 7.1(a), Section 7.1(b) and Section 7.1(d) have been satisfied in all respects (the “Officer’s Certificate”);

     (e) Secretary’s Certificate. A certificate of the Secretary of KDL GmbH certifying as to:

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          (i) The certificate of incorporation and bylaws (or comparable organizational documents) of KDL GmbH as in effect as of the Closing Date;

          (ii) resolutions of KDL GmbH’s board of directors authorizing the execution, delivery and performance of this Agreement and the Ancillary Agreements; and

          (iii) the incumbency of KDL GmbH’s officers executing this Agreement and the Ancillary Agreements; and

     (f) Certificate of Good Standing. Certificates from appropriate Governmental Authorities from Switzerland as to KDL GmbH’s existence and good standing under Swiss law and, if applicable, payment of all applicable taxes, dated no earlier than three (3) Business Days prior to the Closing Date.

     Section 3.3 Closing Deliveries and Payments by the Buyer . The Buyer shall pay the Closing Payment.

     Section 3.4 Closing Deliveries by the Buyer and the Sellers. At the Closing, the Buyer and the Sellers shall deliver the following items to one another, duly executed and in full force and effect:

     (a) Assignment and Assumption Agreement. Assignment and Assumption Agreement, covering all of the Assumed Liabilities, substantially in the form of Exhibit C (the “Assignment and Assumption Agreement”).

     (b) Other Documentation. Such other certificates, instruments or documents required pursuant to the provisions of this Agreement or otherwise necessary or appropriate to transfer the Purchased Assets and Assumed Liabilities in accordance with the terms hereof and consummate the transactions contemplated by this Agreement and the Ancillary Agreements, and to vest in the Buyer full and complete title to the Purchased Assets free and clear of any Encumbrances, except for Permitted Encumbrances.

     Section 3.5 Liabilities Related to Finders’ or Brokers’ Fees. For the avoidance of doubt, the Parties agree that (i) all Liabilities in respect of finder’s fees, brokerage fees or commissions or similar payments arising out of or relating to the Purchased Assets in connection with any Seller’s entry into this Agreement or the consummation of any of the transactions contemplated hereby shall remain Excluded Liabilities pursuant to Section 2.4, and (ii) the Buyer shall reserve all rights pursuant to Article 8 (including Section 8.2(a)(iii)).

     Section 3.6 Further Actions. From and after the Closing, each Seller shall cooperate with the Buyer and the Buyer’s Affiliates and Representatives, and shall execute and deliver such documents and take such other actions as the Buyer may reasonably request, for the purpose of evidencing the transactions contemplated by this Agreement or the Ancillary Agreements and putting the Buyer in possession and control of all of the Purchased Assets, including using their reasonable best efforts to obtain all necessary Consents from other parties to the Assumed Contracts. Each of the Sellers hereby irrevocably nominates, constitutes and appoints the Buyer as the true and lawful attorney-in-fact of each of the Sellers (with full power of substitution) effective as of the Closing Date, limited to the purposes contemplated by this Agreement and the Ancillary Agreements, and hereby authorizes the Buyer (in the name of and on behalf of each of the Sellers) to execute, deliver, acknowledge, certify, file and record any document, to institute and prosecute any Action and to take any other action (on or at any time after the Closing Date) that the Buyer may deem reasonably appropriate for the purpose of (a) collecting, asserting, enforcing or perfecting any claim, right or interest of any kind that is included in or relates to any of the Purchased Assets, (b) defending or compromising any claim or Action relating to any of the Purchased

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Assets (subject to the provisions of Section 8.2 in the case of a Claim for indemnification) or (c) otherwise carrying out or facilitating any of the transactions contemplated by this Agreement or the Ancillary Agreements. The power of attorney referred to in the preceding sentence is and shall be coupled with an interest and shall be irrevocable, and shall survive the dissolution or insolvency of KDL GmbH.

     Section 3.7 Withholdings. The Buyer shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement such amounts as may be required to be deducted or withheld therefrom under any provision of federal, local or foreign Tax law or under any applicable Law. To the extent such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SELLERS

     Each Seller represents and warrants, jointly and severally, to the Buyer that the statements contained in this Article 4 are true and correct as of the date of this Agreement and will be true and correct as of the Closing Date as if made on such date, except as set forth in the disclosure schedules delivered by the Sellers to the Buyer on the date of this Agreement (collectively, such schedules being referred to herein as the “Sellers Disclosure Schedule”). The Sellers Disclosure Schedule shall be arranged in paragraphs corresponding to the numbered sections contained in this Article 4 and the disclosure in any paragraph shall qualify other sections in this Article 4 only to the extent that it is readily apparent from a reading of such disclosure that it also qualifies or applies to such other sections.

     Section 4.1 Organization and Authority. KDL GmbH is a corporation duly organized, validly existing and in good standing under the laws of Switzerland. Each Seller has all requisite power and authority to execute and deliver this Agreement and the Ancillary Agreements, to perform its respective obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby and, in the case of KDL GmbH, has duly authorized the execution, delivery and performance of this Agreement and the Ancillary Agreements and transactions or documents contemplated hereby and thereby by all necessary corporate action. The Sellers have all requisite power and authority necessary to own, lease and operate their respective assets, to carry on the Product Business to the extent currently being conducted by them, and to perform their respective obligations under all Contracts. This Agreement and the Ancillary Agreements, when executed and delivered by the Sellers, constitute the valid and legally binding obligations of the Sellers, enforceable against each of them in accordance with their respective terms, subject to applicable bankruptcy, moratorium, reorganization, insolvency and similar laws of general application relating to or affecting the rights and remedies of creditors generally and to general equitable principles (regardless of whether in equity or at law).

     Section 4.2 Title to Purchased Assets. The Sellers have good and marketable title to the Purchased Assets free and clear of any Encumbrances, except for Permitted Encumbrances. Upon the consummation of the transactions contemplated hereby, the Buyer will acquire good and marketable title to the Purchased Assets free and clear of any Encumbrances, except for Permitted Encumbrances. None of the Sellers has received any notice of any adverse claims of ownership to or right to use the Purchased Assets, and to the Sellers’ Knowledge, no facts or circumstances exist which would provide a reasonable basis for any such adverse claim of ownership or right to use any of the Purchased Assets.

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     Section 4.3 Consents; No Violations.

     (a) Except for all filings and other actions contemplated by this Agreement and the Ancillary Agreements (including the necessary transfer of filings, notices and approvals required to transfer the Regulatory Approvals from the Sellers to the Buyer), the execution, delivery and performance by the Sellers of this Agreement and the Ancillary Agreements and the consummation by the Sellers of the transactions contemplated hereby and thereby will not require any notice to, filing with, or the consent, approval or authorization of, any Person or Governmental Authority (“Consents”).

     (b) Neither the execution and delivery of this Agreement or the Ancillary Agreements nor the consummation of the transactions contemplated hereby or thereby will (i) violate or result in a breach or result in the acceleration or termination of, or the creation in any third party of the right to accelerate, terminate, modify or cancel, any Contract primarily related to the Purchased Assets and/or the Assumed Liabilities, (ii) conflict with, violate or result in a breach of any provision of the certificate of incorporation or by-laws (or comparable organizational documents) of KDL GmbH, or (iii) conflict with or violate in any material respect any applicable Law.

     Section 4.4 Compliance with Laws and Litigation .

     (a) With respect to the Product Business, the Purchased Assets and the Assumed Liabilities, to the Knowledge of the Sellers, the Sellers are in material compliance with all applicable Laws.

     (b) There is no existing or pending or, to the Knowledge of the Sellers, threatened Action with respect to the Product Business, the Purchased Assets or the Assumed Liabilities or with respect to this Agreement or the transactions contemplated hereby. None of the Sellers is subject to any Order of any Governmental Authority that would reasonably be expected to impair or delay its ability to perform its obligations under, and consummate the transactions contemplated, by this Agreement.

     Section 4.5 Contracts.

     (a) The Sellers have delivered to or made available to the Buyer accurate and complete copies of all Contracts primarily related to the Purchased Assets and/or the Assumed Liabilities. All such Contracts to which any Seller is a party are, as to such Seller (and, as to the other parties thereto, to the Knowledge of the Sellers), legal, valid and binding agreements in full force and effect and enforceable in accordance with its terms (subject to applicable bankruptcy, moratorium, reorganization, insolvency and similar laws of general application relating to or affecting the rights and remedies of creditors generally and to general equitable principles (regardless of whether in equity or at law)).

     (b) None of the Sellers is in breach or default, and no event has occurred that with notice or lapse of time would constitute a breach or default by any Seller permitting termination, modification, or acceleration, under any Contract primarily related to the Purchased Assets and/or Assumed Liabilities. To the Knowledge of the Sellers, no other party to any Contract is in material breach or default under, or has repudiated any material provision of, any Contract primarily related to the Purchased Assets and/or Assumed Liabilities.

     Section 4.6 Tax Matters. Each Seller has timely filed all Tax Returns required to be filed, and has paid all Taxes due, with respect to the Purchased Assets and the Product Business. There are no Encumbrances on any of the Purchased Assets for Taxes (except for current Taxes not yet due and payable). There are no asserted, and the Sellers have no Knowledge of any basis for the assertion of any, claims relating to Taxes which, if adversely determined, could reasonably be expected to result in any such Encumbrance.

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     Section 4.7 Intellectual Property.

     (a) Section 4.7(a) of the Sellers Disclosure Schedule set forth a true and complete list of the Product Patents and the Product Trademarks.

     (b) To the Knowledge of the Sellers, (i) the activities of the Sellers, if any, relating to the development, manufacture, marketing, use, sale, distribution, import, export or other commercial exploitation of Pirfenidone by the Sellers, in each case do not infringe upon, misappropriate, violate, dilute (with respect to any trademarks, trade names, brand names and service marks) or otherwise constitute the unauthorized use of, the Intellectual Property rights of any third party; (ii) no claim is pending or, to the Knowledge of the Sellers, threatened against the Sellers alleging any of the foregoing; and (iii) to the Knowledge of the Sellers, no right, license, lease, consent or other agreement is required with respect to any Product Intellectual Property for the conduct of the Product Business other than those included in the Purchased Assets.

     (c) To the Knowledge of the Sellers, none of the Product Patents is involved in any litigation, reissue, interference, reexamination, or opposition, and there has been no threat or other indication that any such proceeding will hereafter be commenced. To the Knowledge of the Sellers, the Product Patents (excluding patent applications) (i) are in good standing, (ii) are all without challenge of any kind, (iii) are valid and enforceable, and (iv) have not been adjudged invalid or unenforceable in whole or in part.

     (d) To the Knowledge of the Sellers, none of the Product Trademarks or Product Copyrights is involved in any cancellation, nullification, interference, conflict, concurrent use or opposition proceeding, and there has been no threat or other indication that any such proceeding will hereafter be commenced.

     (e) No Actions are pending, or to the Knowledge of the Sellers are threatened, against any of the Sellers (i) based upon challenging or seeking to deny or restrict the use of any of the Product Intellectual Property, or (ii) alleging that any services provided by, processes used by, or products manufactured or sold by the Sellers in relation to the Product Business infringe or misappropriate any Intellectual Property right of any third party.

     (f) To the Knowledge of the Sellers, all maintenance fees, annuity fees or renewal fee payment for each jurisdiction in which each patent, patent application, trademark, trademark application, trade name, trade name registration, brand name, brand name registration, service mark, service mark registration, copyright, copyright application, domain name or domain name application included within the Product Intellectual Property has issued or is pending have been timely paid.

     (g) To the Knowledge of the Sellers, no third party is engaging in any activity that infringes or misappropriates the Product Intellectual Property. None of the Sellers is a party to any agreement granting rights by the Sellers to any third party with respect to the Product Intellectual Property.

     (h) The Sellers have, with respect to the Product Business, used commercially reasonable efforts to maintain their trade secrets in confidence.

     (i) To the Knowledge of the Sellers, there has been no misappropriation of any trade secrets or other confidential information of the Sellers with respect to the Product Business.

     (j) All employees of, consultants to or vendors of the Sellers with access to confidential information with respect to the Product Business are parties to written agreements under which each such employee, consultant or vendor is obligated to maintain the confidentiality of confidential information of the Sellers. To the Knowledge of the Sellers, none of the employees, consultants or vendors of the Sellers or any of their subsidiaries is in violation of such agreements.

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     (k) The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, will not result in or give rise to any right of termination or other right to impair or limit, or otherwise result in a breach of, any of the Sellers’ rights to own or retain a license to any of the Product Intellectual Property.

     (l) To the Knowledge of the Sellers, the Sellers have disclosed to the Buyer all patentable Product Know-How.

     Section 4.8 Product Records. To the Knowledge of the Sellers, all of the Product Records have been made available by the Sellers to the Buyer for examination, are complete and correct in all material respects, and have been maintained in accordance with sound business practices and applicable Law.

     Section 4.9 Brokers, Finders, etc. Except as set forth in Section 4.9 of the Sellers Disclosure Schedule, none of the Sellers nor any of their respective officers, directors, employees, stockholders or Affiliates has employed or made any agreement with any broker, finder or similar agent or any Person which will result in the obligation of the Buyer or any of its Affiliates to pay any finder’s fee, brokerage fees or commission or similar payment in connection with the transactions contemplated hereby.

     Section 4.10 No Other Agreements to Sell the Purchased Assets. None of the Sellers nor any of KDL GmbH’s officers, directors, stockholders or Affiliates has any commitment or legal obligation, absolute or contingent, to any other Person other than the Buyer to sell, assign, transfer or effect a sale of any of the Purchased Assets, to sell or effect a sale of a majority of the capital stock of KDL GmbH, to effect any merger, consolidation, liquidation, dissolution or other reorganization of KDL GmbH, or to enter into any agreement or cause the entering into of an agreement with respect to any of the foregoing.

     Section 4.11 Disclosure. This Agreement, the Sellers Disclosure Schedule and the Ancillary Agreements do not contain any untrue statement of a material fact or, to the Knowledge of the Sellers, omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. The Sellers have provided the Buyer with all information requested by the Buyer in connection with this transaction and all information that the Sellers considers necessary or appropriate to enable the Buyer to decide whether to purchase the Purchased Assets and assume the Assumed Liabilities. To the Sellers’ Knowledge, there are no facts which (individually or in the aggregate) materially affect the Purchased Assets and/or the Assumed Liabilities that have not been set forth in the Agreement, the Sellers Disclosure Schedule and the Ancillary Agreements.

     Section 4.12 Disclaimer of Implied Warranty. EACH OF THE SELLERS HEREBY DISCLAIMS ANY IMPLIED WARRANTY AS TO THE LEGAL EFFECT OF THE PURCHASED ASSETS, THE FITNESS OF THE PURCHASED ASSETS FOR THEIR INTENDED PURPOSE, THE MERCHANTABILITY OF THE PURCHASED ASSETS, AND ALL OTHER WARRANTIES WHICH MAY BE IMPLIED AT LAW. THE PURCHASED ASSETS ARE SOLD “AS IS”, WITHOUT WARRANTY OTHER THAN WARRANTIES OF TITLE AND WARRANTIES EXPRESSLY SET OUT IN THIS AGREEMENT. This disclaimer of warranty, however, shall not disclaim the implied contractual covenant of good faith and fair dealing, which the Sellers hereby expressly recognize as applicable to this Agreement; and any warranty which may not be disclaimed as a matter of patent or any other Law. The Buyer acknowledges that it is not relying upon any statement, representation or warranty not expressly contained in this Agreement or in the Seller Disclosure Schedule. Notwithstanding the foregoing, each Seller hereby acknowledges that nothing set forth in this Section 4.12 shall relieve the Sellers of any liability to the Buyer arising out of any actual fraud or intentional

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misrepresentation of the Sellers or any of their respective Representatives in connection with the transactions contemplated by this Agreement.

     The Sellers make no representation or warranty that the Product Patents may not be invalidated in the future by any Governmental Authority, although to the Knowledge of the Sellers, there is no Action currently contemplated, threatened or underway that may result in the invalidation of any of the Product Patents.

     Section 4.13 Regulatory Matters.

     (a) None of the Sellers has any existing, pending or withdrawn Regulatory Approvals, including Product Registrations. The Sellers do not require any Regulatory Approvals to carry on the Product Business as being conducted by the Sellers as of the Closing Date and which are required by applicable Law.

     (b) None of the Sellers, nor any third party on behalf of any Seller, has conducted or is currently conducting any preclinical or clinical trials relating to Pirfenidone. None of the Sellers has submitted any materials or made any applications to the FDA, the EMEA or other comparable Governmental Authorities.

     (c) None of the Sellers, nor any third party on behalf of any Seller, has developed, labeled, stored, tested, manufactured or distributed any Pirfenidone or Product.

     (d) None of the Sellers has received any notice from any Governmental Authority that such Governmental Authority has commenced, threatened or intends to commence any action or investigation with respect to the Product Business, and there are no facts, circumstances or conditions that would be sufficient to presently, or solely with the passage of time in the ordinary course of business, provide a reasonable basis for any such action or investigation.

ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER

     The Buyer represents and warrants to the Sellers that the statements contained in this Article 5 are true and correct as of the date of this Agreement and will be true and correct as of the Closing Date as if made on such date, except as set forth in the disclosure schedules delivered by the Buyer to the Sellers on the date of this Agreement (the “Buyer Disclosure Schedule”). The Buyer Disclosure Schedule shall be arranged in paragraphs corresponding to the numbered sections contained in this Article 5 and the disclosure in any paragraph shall qualify other sections in this Article 5 only to the extent that it is readily apparent from a reading of such disclosure that it also qualifies or applies to such other sections.

     Section 5.1 Organization and Authority. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Buyer has all requisite power and authority to execute and deliver this Agreement and the Ancillary Agreements, to perform its respective obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby, and has duly authorized the execution, delivery and performance of this Agreement and the Ancillary Agreements and transactions or documents contemplated hereby and thereby by all necessary corporate action. This Agreement and the Ancillary Agreements, when executed and delivered by the Buyer, constitute the valid and legally binding obligations of the Buyer, enforceable against it in

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accordance with their respective terms, subject to applicable bankruptcy, moratorium, reorganization, insolvency and similar laws of general application relating to or affecting the rights and remedies of creditors generally and to general equitable principles (regardless of whether in equity or at law).

     Section 5.2 Consents; No Violations.

     (a) Except for all filings and other actions contemplated by this Agreement and the Ancillary Agreements (including the necessary transfer of filings, notices and approvals required to transfer the Regulatory Approvals from the Sellers to the Buyer), the execution, delivery and performance by the Buyer of this Agreement and the Ancillary Agreements and the consummation by the Buyer of the transactions contemplated hereby and thereby will not require any notice to, filing with, or the consent, approval or authorization of, any Person or Governmental Authority.

     (b) Neither the execution and delivery of this Agreement or the Ancillary Agreements nor the consummation of the transactions contemplated hereby or thereby will (i) violate or result in a breach or result in the acceleration or termination of, or the creation in any third party of the right to accelerate, terminate, modify or cancel, any indenture, contract, lease, sublease, loan agreement, note or other obligation or liability to which the Buyer is a party or is bound, (ii) conflict with, violate or result in a breach of any provision of the certificate of incorporation or by-laws of the Buyer, or (iii) conflict with or violate in any material respect any applicable Law.

     Section 5.3 Brokers, Finders, etc. Neither the Buyer nor any of its officers, directors, employees, stockholders or Affiliates has employed or made any agreement with any broker, finder or similar agent or any person or firm which will result in the obligation of the Buyer or any of its Affiliates to pay any finder’s fee, brokerage fees or commission or similar payment in connection with the transactions contemplated hereby.

ARTICLE 6
CERTAIN OTHER COVENANTS

     Section 6.1 Cooperation.

     (a) After the Closing Date, the Parties shall cooperate reasonably with each other in connection with any reasonable actions required to be taken with respect to their respective obligations under this Agreement and the Ancillary Agreements, and shall (i) furnish upon reasonable request to each other such further information, (ii) execute and deliver to each other such other reasonable documents, and (iii) do such other acts, all as the other Party may reasonably request for the purpose of carrying out the provisions of this Agreement (and the Ancillary Agreements) and the transactions contemplated hereby and thereby.

     (b) The Sellers will promptly notify the Buyer, and the Buyer will notify the Sellers, as applicable and in writing, of any event or fact which represents a material breach of any of their respective representations, warranties, covenants or agreements hereunder.

     (c) Within ninety (90) days of the Closing Date, the Sellers shall deliver (or cause to be delivered) to the Buyer any Purchased Assets not required to be delivered at Closing pursuant to Section 3.2.

     (d) From the Closing Date through the first anniversary of the Closing Date, upon the Buyer’s request, each Seller shall: (i) reasonably assist the Buyer in the maintenance and renewal of any Regulatory Approvals and the performance of any compliance activities under applicable Law, (ii)

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reasonably assist the Buyer in the preparation of any maintenance or renewal filings with respect to any Product Intellectual Property, and (iii) provide such other cooperation and assistance as reasonably requested by the Buyer.

     (e) At least thirty (30) days prior to the submission for publication, including public presentation, of any Copyrights primarily related to Pirfenidone, including any scientific papers and academic materials by Dr. Yamauchi or other KDL GmbH employees, the Sellers shall provide complete copies of all such materials to the Buyer for the Buyer’s review. If the materials provided to the Buyer are in draft form or are later revised prior to publication, the Sellers shall continue to provide revised copies of all such materials until a complete and final copy has been provided to the Buyer for the Buyer’s review. The Buyer will, in all such cases, have at least thirty (30) days to review and comment on the materials prior to publication. The Sellers shall reasonably consider for inclusion in such publication the comments of the Buyer. Should the Buyer desire to file a patent application on any inventions within such proposed publication, the Buyer shall so notify the Sellers prior to the expiration of the thirty (30) day review period and the Sellers shall, upon receipt of such notice, delay publication for up to an additional thirty (30) days and cooperate with the Buyer in the preparation of such patent application. The Buyer shall own all rights, title and interest in all such patent applications and patents claiming inventions disclosed in all such publications and materials. The Sellers hereby assign all rights to any and all such patent applications and patents to the Buyer. The Sellers shall cooperate with the Buyer to perfect any such assignments, including executing, or causing to be executed, any formal papers necessary.

     Section 6.2 Billing and Invoices. In the event that any Seller or any of their respective Affiliates receive payment after the Closing Date on invoices relating to any business arising from the Purchased Assets operated by the Buyer or sales of products or services rendered by the Buyer on or after the Closing Date, such Seller will promptly notify the Buyer of such receipt and will promptly remit, or will cause such Affiliate to promptly remit, such payment to the Buyer without depositing such payment in an account of such Seller, or such Affiliate, unless in error, and such Seller, or such Affiliate, shall not be entitled to offset such payment against any payments due such Sellers from the Buyer. In the event that any Seller receives an invoice or request for payment relating to the operation of any business arising from the Purchased Assets on or after the Closing Date, or with respect to any Assumed Liability, such Seller will promptly notify the Buyer of such request or invoice and forward the invoice and all other appropriate information to the Buyer for payment. In the event the Buyer or any of its Affiliates receive payment after the Closing Date on invoices issued by any Sellers relating to an Excluded Asset or relating to product sold or services rendered by businesses other than those relating to the Purchased Assets, the Buyer will promptly notify the Sellers of such receipt and will promptly remit, or will cause such Affiliate to promptly remit, such payment to the Sellers without depositing such payment in an account of the Buyer, or such Affiliate, unless in error, and the Buyer, or such Affiliate, shall not be entitled to offset such payment against any payments due the Buyer from the Sellers.

     Section 6.3 Covenant Not To Compete.

     (a) Each Seller hereby agrees that for a period of ten (10) years from and after the Closing Date, such Seller shall not, directly or indirectly, alone, as a licensor, or otherwise in conjunction with any other Persons, through licenses or otherwise, develop, manufacture, license-in, market, sell or otherwise distribute for human use, or assist any other Person, in developing, manufacturing, licensing-in, marketing, selling or otherwise distributing for human use, any Competing Product, either alone or in combination with another product, in all or any portion of the Restricted Territory.

     (b) Acknowledgment of the Sellers. Each Seller hereby acknowledges that (i) the value of the Purchased Assets is an integral component of the value of the transactions contemplated by this

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Agreement to the Buyer, and (ii) the scope of the covenants contained in this Section 6.3, including as to time and geography, are necessary to preserve the value of the Purchased Assets for the Buyer. Each Seller also acknowledges that the limitations of time, geography and scope of activity agreed to in this Section 6.3 are ongoing executory duties of each Seller and are reasonable because, among other things, (i) the Buyer and the Sellers are engaged in a highly competitive industry, (ii) the Sellers have had unique access to the trade secrets and know-how of the Purchased Assets, including the plans and strategy (and, in particular, the competitive strategy) relating to the Purchased Assets, and (iii) the Sellers are receiving significant consideration in connection with the consummation of the transactions contemplated by this Agreement.

     (c) Non-Competition Covenants; Scope.

          (i) If any agreement in this Section 6.3 or any part of such agreement is held invalid, void or unenforceable by any court of competent jurisdiction, such invalidity, voidness, or unenforceability shall in no way render invalid, void, or unenforceable any other part of such agreement or any separate agreement not declared invalid, void or unenforceable, and this Section 6.3 shall in such case be construed as if the invalid, void, or unenforceable provisions were omitted.

          (ii) If any court of competent jurisdiction shall determine that the provisions of this Section 6.3 exceed the time, geographic or scope limitations permitted by applicable Law, then such provisions shall nevertheless be enforceable by such court against any Seller upon such shorter term, or within such lesser geographic area or scope, as may be determined by such court to be reasonable and enforceable.

     (d) Injunctive Relief. The Parties agree that in the event of a breach by a Seller of any of the covenants set forth in this Section 6.3, monetary damages alone would be inadequate to fully protect the Buyer from, and compensate the Buyer for, the harm caused by such breach or threatened breach. Accordingly, each Seller agrees that if it breaches or threatens breach of any provision of this Section 6.4, the Buyer shall be entitled to, in addition to any other right or remedy otherwise available, injunctive relief restraining such breach or threatened breach and to specific performance of any such provision of this Section 6.3. The Buyer shall not be required to post a bond or other security in connection with, or as a condition to, obtaining such relief before a court of competent jurisdiction.

     Section 6.4 Exclusive License; Right of First Refusal.

     (a) The Buyer hereby grants an irrevocable, fully paid-up, royalty-free, perpetual, transferable, sublicensable, exclusive license to the Product Patents to the Seller or Sellers who owned such Product Patent immediately prior to the consummation of the transactions contemplated by this Agreement (the “Patent Transferor”) solely to the extent that such Product Patents [ * ] and solely to the extent necessary to [ * ]. The Buyer shall execute such documents to evidence such transfers as may be reasonably requested by the Sellers, including documents for filing with the United States Patent and Trademark Office and other relevant patent agencies.

     (b) The Buyer shall have the right to terminate the license granted pursuant to Section 6.4(a) of this Agreement effective immediately upon written notice if any Patent Transferor or any of their respective Affiliates, or any sublicensee under any patent right licensed to such Patent Transferor under Section 6.4(a) of this Agreement or any of their respective Affiliates challenges in a court of competent jurisdiction, the validity, scope or enforceability of, or otherwise opposes, any patent right covered by the Product Patents, including any patent right licensed to any Patent Transferor under Section 6.4(a) of this Agreement. If a sublicensee under any patent right licensed to such Patent Transferor under Section 6.4 (a) of this Agreement or any of their respective Affiliates challenges the validity, scope or enforceability

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of or otherwise opposes any patent right covered by the Product Patents, including any patent right licensed to any Patent Transferor under Section 6.4(a) of this Agreement under which such sublicensee is sublicensed, then such Patent Transferor or its respective Affiliate, as applicable, shall, upon written notice from the Buyer, terminate such sublicense. Each Patent Transferor and its respective Affiliates shall include provisions in all agreements under which a third party obtains a license under any patent right licensed to such Patent Transferor under Section 6.4(a) of this Agreement providing that, if the sublicensee challenges the validity or enforceability of or otherwise opposes any such patent right under which the sublicensee is sublicensed, then such Patent Transferor may terminate such sublicense agreement with such sublicensee, and such Patent Transferor shall, upon request by the Buyer, enforce such right if such sublicensee breaches such restriction.

     (c) Each Patent Transferor agrees that for a period of six (6) years from the date of this Agreement, such Patent Transferor shall not, directly or indirectly (including through any of its Affiliates), at any time prior to the approval by the FDA of an IND or by the EMEA of a Clinical Trial Authorization with respect to such [ * ], enter into any agreement, understanding or arrangement (or discussions or negotiations therefor) with any Person that effects or contemplates the licensing, sale or transfer of any rights in or to assets relating to such [ * ]. Upon the FDA approval of an IND or the EMEA approval of a Clinical Trial Authorization with respect to such [ * ] at any time within the six (6) year period referenced in the foregoing sentence, such Patent Transferor(s) shall promptly provide the Buyer with (i) a copy of such FDA or EMEA approval and (ii) all the available and relevant data from the studies (collectively, the “Approval Notice and Report”). The Buyer shall have the right to conduct due diligence for a period of up to sixty (60) days from the date that Buyer receives the Approval Notice and Report from the Patent Transferor(s) (such period, the “Diligence Period”). The Buyer’s due diligence during the Diligence Period may include the following: (A) a full pre-clinical or clinical (as applicable) and manufacturing audit of the Patent Transferor(s), (B) the right to reasonably request all relevant data, including raw data, obtained to date, and (C) the right to inspect the Patent Transferor(s) facilities and, to the extent within the reasonable control of the Patent Transferor(s), the facilities of its clinicians and manufacturers (and the Patent Transferor(s) agree to use their commercially reasonable efforts to ensure that the Buyer may inspect the facilities of such third parties).

     (d) The Buyer shall have the right of first refusal (in its sole and absolute discretion) to enter into negotiations with such Patent Transferor(s) for further research, development and commercialization of an [ * ] in connection with an Approval Notice and Report (the “Right of First Refusal”). The Buyer’s Right of First Refusal shall expire upon the expiration of the underlying Diligence Period unless the Buyer exercises its Right of First Refusal by delivering written notice to the Patent Transferor(s) (a “ROFR Notice”) prior to such expiration, in which case the Parties shall negotiate in good faith to enter into a definitive agreement with respect to the research, development and/or commercialization of such [ * ] within 90 days of the Patent Transferor(s) receipt of such ROFR Notice. Each Patent Transferor further agrees to not, directly or indirectly (including through any of its Affiliates), enter into any agreement, understanding or arrangement (or discussions or negotiations therefor) with any Person (other than the Buyer) that effects or contemplates the licensing, sale or transfer of any rights in or to assets relating to such [ * ] unless and until the Buyer’s Right of First Refusal has expired in accordance with this Section 6.4(d).

     Section 6.5 Tax Matters.

     (a) Notices. The Sellers shall promptly notify the Buyer in writing upon receipt by the Sellers of notice of any pending or threatened Tax audits or assessments relating to the income, properties or operations of the Sellers that reasonably may be expected to relate to the Purchased Assets, the Assumed Liabilities or the Product Business. The Buyer shall promptly notify the Sellers in writing upon

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receipt by the Buyer of notice of any pending or threatened Tax audits or assessments relating to the Product Patents as to which the Sellers have an interest pursuant to Section 6.4(a) or Section 6.7.

     (b) Transfer Taxes. All Transfer Taxes shall be paid by the Sellers when due, and the Sellers shall, at their own expense, file all necessary Tax Returns and other documentation with respect to all such Transfer Taxes and, if required by applicable Law, the Buyer shall join in the execution of any such Tax Returns and other documentation. As soon as reasonably practicable following the Closing, the Sellers shall provide the Buyer with (i) evidence satisfactory to the Buyer that such Transfer Taxes have been paid by the Sellers and (ii) a clearance certificate or similar document(s) which may be required by any state Tax authority to relieve the Buyer of any obligation to withhold any portion of the payments to the Sellers pursuant to this Agreement.

     (c) Characterization of Payments. Except as otherwise provided in this Agreement, any payments made pursuant to any indemnification obligation under this Agreement shall constitute an adjustment of the consideration paid for the Purchased Assets for Tax purposes and shall be treated as such by the Buyer and the Sellers on their Tax Returns to the extent permitted by Law.

     (d) FIRPTA Certificate. The Sellers shall deliver to the Buyer at the Closing a certificate, duly executed and acknowledged, in form and substance satisfactory to the Buyer, certifying such facts as would exempt the transactions contemplated hereby from withholding pursuant to the provisions of the Foreign Investment in Real Property Tax Act.

     (e) Allocation of Taxes.

          (i) Except as otherwise provided in this Section 6.5, the Sellers shall be responsible for, and shall timely pay, all Taxes levied with respect to the Purchased Assets and the Product Business attributable to the Pre-Closing Tax Period.

          (ii) Non-Income Taxes for any Straddle Period shall be apportioned between the Pre-Closing Tax Period and the Post-Closing Tax Period as follows: (A) in the case of personal property Taxes, real property Taxes and any other Taxes other than sales, use, transaction or excise Taxes and other similar Taxes, the portion allocable to the Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the entire Straddle Period multiplied by a fraction the numerator of which is the number of days in the portion of the Straddle Period ending on the Closing Date and the denominator of which is the number of days in the entire Straddle Period, and (B) in the case of any sales, use, transaction or excise Taxes or other similar Taxes, the portion allocable to the Pre-Closing Tax Period shall be deemed equal to the amount which would be payable if the relevant Straddle Period ended on the Closing Date. The Sellers shall be liable for Non-Income Taxes apportioned to the Pre-Closing Tax Period, and the Buyer shall be liable for Non-Income Taxes apportioned to the Post-Closing Tax Period.

          (iii) Upon receipt by the Buyer, on the one hand, or a Seller, on the other, of any bill for Taxes relating to the Purchased Assets or the Product Business, the Party receiving such bill (the “Recipient Party”) promptly shall present a statement to the other Party (the “Other Party”) setting forth the amount of such Taxes for which the Other Party is liable under this Section 6.5(e), together with such supporting evidence as is reasonably necessary to calculate the amount of such Taxes. The apportioned amount of Taxes for which the Other Party is liable shall be paid by the Other Party to the Recipient Party within 15 days after delivery of such statement to the Other Party by the Recipient Party. The Recipient Party shall be responsible for the timely payment of the Taxes to which such bill relates. In the event that a Party shall make any payment to any Taxing or other authority of any Taxes apportioned to the Other Party under Section 6.5(e), the Other Party shall reimburse the paying Party for the amount of such Taxes apportioned to the Other Party promptly but in no event later than 15 days after the presentation by the

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paying Party of a statement setting forth the amount of reimbursement to which the paying Party is entitled along with such supporting evidence as is reasonably necessary to calculate the amount of such reimbursement. The portion of any refund of Taxes attributable to amounts apportioned hereunder to and paid or reimbursed by the Party not receiving such refund shall be the property of the Party not receiving such refund, and the Party receiving such refund shall promptly pay to the Party not receiving such refund that portion of such refund so attributable.

     (f) Cooperation. The Buyer and the Sellers agree to furnish or cause to be furnished to the other, upon request, as promptly as practicable, such information and assistance relating to the Purchased Assets or the Product Business as is reasonably necessary for the filing of Tax Returns and the prosecution or defense of any audit, claim, suit or proceeding relating to any Tax. The Parties shall retain all books and records with respect to Taxes pertaining to the Purchased Assets for a period of at least seven (7) years following the Closing Date. At the end of such period, the Parties shall provide the other Party with reasonable prior written notice before disposing of such books and records and to allow the other Party to take possession, at its own expense, of such books and records. The Parties shall cooperate fully with each other in the conduct of any audit or other proceeding relating to Taxes pertaining to the Purchased Assets and further agree to use their best efforts to obtain any certificate or other document from any Governmental Authority or other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including with respect to the transactions contemplated hereby).

     Section 6.6 Notice to Third Parties. The Sellers agree to cooperate with the Buyer, at the Buyer’s reasonable request, in the notification to third parties of the transactions contemplated by this Agreement and the Sellers agree not to notify any third parties of such transactions without the consent of the Buyer.

     Section 6.7 Patent Maintenance. After the Closing Date, the Buyer shall assume the duty to make all required maintenance and prosecution payments as to the Product Patents for the remaining terms thereof; provided, however, that upon ninety (90) days written notice, the Buyer may transfer any of the Product Patents to the Patent Transferor from which the Buyer purchased such Product Patent in lieu of making further maintenance or prosecution payments. Nothing in this Section 6.7 shall obligate the Sellers to assume any further maintenance or prosecution payments.

ARTICLE 7
CONDITIONS TO CLOSING

     Section 7.1 Conditions Precedent to Buyer’s Obligations. Buyer’s obligations to consummate the transactions contemplated by this Agreement and the Ancillary Agreements shall be subject to the fulfillment of each of the following additional conditions, any one or more of which may be waived, at Buyer’s sole discretion, in writing by the Buyer:

     (a) Representations and Warranties.

          (i) Each of the representations and warranties of the Sellers set forth in this Agreement, or in any written statement or certificate that shall be delivered to the Buyer by the Sellers under this Agreement (including the Officer’s Certificate) that is not qualified by “Material Adverse Effect” or other materiality qualifications shall have been true and correct in all material respects as of the date of this Agreement and shall be true and correct in all material respects as of the Closing Date as if made at the Closing Date (except to the extent such representation or warranty specifies an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such date); and

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          (ii) Each of the representations and warranties of the Sellers set forth in this Agreement, or in any written statement or certificate that shall be delivered to the Buyer by the Sellers under this Agreement (including the Officer’s Certificate) that is qualified by “Material Adverse Effect” or other materiality qualifications shall have been true and correct in all respects as of the date of this Agreement and shall be true and correct in all respects as of the Closing Date as if made at the Closing Date (except to the extent such representation or warranty specifies an earlier date, in which case such representation or warranty shall be true and correct in all respects as of such date).

     (b) Performance of Obligations. Each Seller shall have performed in all material respects all obligations and covenants required to be performed by it under this Agreement and any other agreement or document entered into in connection herewith prior to the Closing Date (to the extent such obligations and covenants require performance prior to such time).

     (c) Release of Liens. The Buyer shall have received evidence satisfactory to it from any Person who held any Encumbrance (other than Permitted Encumbrances) on any of the Purchased Assets of the release by such Person of such Encumbrance effective upon or concurrent with the Closing.

     (d) Legal Requirements. No Law shall be in effect which prohibits or materially restricts the consummation of the Transactions contemplated by this Agreement and the Ancillary Agreements at the Closing, or which otherwise adversely affects in any material respect the right or ability of the Buyer to own, operate or control the Purchased Assets, in whole or material part, and no Action is pending or threatened by or before a Governmental Authority which, if successful, could reasonably be expected to result in a Law having such effect or which seeks to obtain from the Buyer any damages.

     (e) Closing Deliveries. The Sellers shall have delivered to the Buyer all of the closing documents and agreements set forth in Sections 3.2 and 3.4, and each of such documents and agreements shall be in full force and effect.

     (f) FIRPTA Compliance. The Sellers shall have delivered to the Buyer the certificate referred to in Section 6.5(d).

     (g) Termination or Release of Third Party Finders Agreements. The Buyer shall have received evidence satisfactory to it that all agreements relating to the payment of finder’s fees, brokerage fees, commissions or similar payments in connection with the Sellers’ entry into this Agreement or the consummation of the transaction contemplated hereby have been terminated or released with respect thereto have been granted such that the Buyer will not have any Liability under such agreements.

     Section 7.2 Conditions Precedent to Sellers’ Obligations. The Sellers’ obligation to consummate the transactions contemplated hereby shall be subject to the fulfillment of each of the following additional conditions, any one or more of which may be waived, at the Sellers’ sole discretion, in writing by the Sellers:

     (a) Representations and Warranties.

          (i) Each of the representations and warranties of the Buyer set forth in this Agreement, or in any written statement or certificate that shall be delivered to the Sellers by the Buyer under this Agreement that is not qualified by “Material Adverse Effect” or other materiality qualifications shall have been true and correct in all material respects as of the date of this Agreement and shall be true and correct in all material respects as of the Closing Date as if made at the Closing Date (except to the extent such representation or warranty specifies an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such date); and

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          (ii) Each of the representations and warranties of the Buyer set forth in this Agreement, or in any written statement or certificate that shall be delivered to the Sellers by the Buyer under this Agreement that is qualified by “Material Adverse Effect” or other materiality qualifications shall have been true and correct in all respects as of the date of this Agreement and shall be true and correct in all respects as of the Closing Date as if made at the Closing Date (except to the extent such representation or warranty specifies an earlier date, in which case such representation or warranty shall be true and correct in all respects as of such date).

     (b) Performance of Obligations. The Buyer shall have performed in all material respects all obligations and covenants required to be performed by it under this Agreement and any other agreement or document entered into in connection herewith prior to the Closing Date (to the extent such obligations and covenants require performance prior to such time).

     (c) Closing Deliveries. The Buyer shall have delivered to the Sellers all of the closing documents and agreements set forth in Section 3.4.

     (d) Legal Requirements. No Law shall be in effect which prohibits or materially restricts the consummation of the Transactions contemplated by this Agreement and the Ancillary Agreements at the Closing, or which otherwise adversely affects in any material respect the right or ability of the Buyer to own, operate or control the Purchased Assets, in whole or material part, and no Action is pending or threatened by or before a Governmental Authority which, if successful, could reasonably be expected to result in a Law having such effect or which seeks to obtain from the Buyer any damages.

ARTICLE 8
INDEMNIFICATION

     Section 8.1 Survival of Representations and Warranties.

     (a) All representations and warranties of the Sellers in this Agreement shall survive the Closing until the 18-month anniversary of the Closing Date (the “Survival Date”); provided, that:

          (i) the representations and warranties contained in Section 4.2, Section 4.6 and Section 4.7 shall survive until the expiration of the applicable statutes of limitations relating to such representations and warranties; and

          (ii) any claim for indemnification based upon a breach of any such representation or warranty and asserted prior to the Survival Date (or, in the case of any representation or warranty contained in Section 4.2, Section 4.6 and Section 4.7, prior to the expiration of the applicable statute of limitation relating to such representation or warranty) by written notice in accordance with Section 8.2 shall survive until final resolution of such claim.

     (b) The representations and warranties contained in this Agreement (and any right to indemnification for breach thereof) shall not be affected by any investigation, verification or examination by any Party hereto or by any Representative of any such Party or by any such Party’s constructive knowledge (which, for purposes of clarity, excludes actual knowledge) of any facts with respect to the accuracy or inaccuracy of any such representation or warranty.

     (c) The representations and warranties of the Buyer in Article V of this Agreement shall terminate upon the Closing. For avoidance of doubt, the covenants of the Buyer shall survive closing and remain in effect until satisfied or terminated.

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     Section 8.2 Indemnification.

     (a) Sellers’ Indemnification Obligations. The Sellers shall, jointly and severally, indemnify, save and hold harmless the Buyer, its Affiliates and their respective Representatives from and against any and all costs, losses, Taxes, Liabilities, obligations, damages, lawsuits, judgments, settlements, awards, deficiencies, claims, demands, expenses (including reasonable costs of investigation and reasonable attorneys’ fees and expenses), interest, fines, penalties, costs of mitigation, and other losses actually paid to third parties (herein, “Damages”), incurred in connection with, arising out of, resulting from or incident to (i) any breach of a representation or warranty of any Seller contained in this Agreement; (ii) any breach of any covenant of any Seller contained in this Agreement; or (iii) any Excluded Asset or Excluded Liability.

          The term “Damages” as used in this Article 8 is not limited to matters asserted by third parties against the Sellers or the Buyer, but includes Damages incurred or sustained by the Sellers or the Buyer in the absence of third party claims. Payments by the Buyer of amounts for which the Buyer is indemnified hereunder, and payments by the Sellers of amounts for which the Sellers are indemnified hereunder, shall not be a condition precedent to recovery. The Sellers’ obligation to indemnify the Buyer, and the Buyer’s obligation to indemnify the Sellers, shall not limit any other rights, including without limitation rights of contribution which any Party may have under statute or common law.

     (b) Buyer’s Indemnification Obligations. The Buyer shall indemnify and save and hold harmless the Sellers, their respective Affiliates, and their Representatives from and against any and all Damages incurred in connection with, arising out of, resulting from or incident to (i) any breach of any representation or warranty made by the Buyer contained in this Agreement; (ii) any breach of any covenant made by the Buyer contained in this Agreement; or (iii) from and after the Closing, any Assumed Liability.

     (c) Defense of Claims. If a claim for Damages (a “Claim”) is to be made by a Party entitled to indemnification (“Indemnified Party”) hereunder against the Party from whom indemnification is sought (the “Indemnifying Party”), the Party claiming such indemnification shall, subject to this Section 8.2, give written notice (a “Claim Notice”) to the Indemnifying Party as soon as practicable after the Party entitled to indemnification becomes aware of any fact, condition or event which may give rise to Damages for which indemnification may be sought under this Section 8.3. If any lawsuit or enforcement action is filed against any Party entitled to the benefit of indemnity hereunder, written notice thereof shall be given to the Indemnifying Party as promptly as practicable (and in any event within fifteen (15) calendar days after the service of the citation or summons). The failure of any Indemnified Party to give timely notice hereunder shall not affect rights to indemnification hereunder, except to the extent that the Indemnifying Party demonstrates actual damage caused by such failure. After such notice, if the Indemnifying Party shall acknowledge in writing to the Indemnified Party that the Indemnifying Party shall be obligated under the terms of its indemnity hereunder in connection with such lawsuit or action, then the Indemnifying Party shall be entitled, if it so elects at its own cost, risk and expense, (i) to take control of the defense and investigation of such lawsuit or action, (ii) to employ and engage attorneys of its own choice to handle and defend the same unless the named parties to such action or proceeding include both the Indemnifying Party and the Indemnified Party and the Indemnified Party has been advised in writing by counsel that there may be one or more legal defenses available to such Indemnified Party that are different from or additional to those available to the Indemnifying Party, in which event the Indemnified Party shall be entitled, at the Indemnifying Party’s cost, risk and expense, to separate counsel of its own choosing, and (iii) to compromise or settle such claim, which compromise or settlement shall be made only with the written consent of the Indemnified Party, such consent not to be unreasonably withheld; provided, however, that this sentence shall not apply to Claims relating to Taxes. If the Indemnifying Party fails to assume the defense of such claim within fifteen (15) calendar days after

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receipt of the Claim Notice, the Indemnified Party against which such claim has been asserted will (upon delivering notice to such effect to the Indemnifying Party) have the right to undertake, at the Indemnifying Party’s cost and expense, the defense, compromise or settlement of such claim on behalf of and for the account and risk of the Indemnifying Party. In the event the Indemnified Party assumes the defense of the claim, the Indemnified Party will keep the Indemnifying Party reasonably informed of the progress of any such defense, compromise or settlement. The Indemnifying Party shall be liable for any settlement of any action effected pursuant to and in accordance with this Section 8.2 and for any final judgment (subject to any right of appeal), and the Indemnifying Party agrees to indemnify and hold harmless the Indemnified Party from and against any Damages by reason of such settlement or judgment.

     (d) Cooperation. The Indemnified Party shall cooperate in all reasonable respects with the Indemnifying Party and such attorneys in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom; provided, however, that the Indemnified Party may, at its own cost, participate in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom. For the avoidance of doubt, nothing contained in this Section 8.2(d) shall affect the Indemnified Party’s right to employ and engage separate counsel in accordance with Section 8.2(c)(ii). The Parties shall cooperate with each other in any notifications to insurers.

     (e) Equitable Relief; No Waiver. Nothing in this Agreement shall (i) limit the right of any Party to seek specific performance of, or equitable relief with respect to, another Party with respect to a breach of any covenant or agreement set forth in this Agreement or (ii) be deemed a waiver by any Party to this Agreement of any right or remedy which such Party may have at law or in equity based on any claim of fraud.

     Section 8.3 Right of Setoff. The Buyer may setoff any amount to which it is entitled under Section 6.5(e) or this Article 8 against amounts otherwise payable to the Sellers hereunder, provided that any amount to be setoff is no greater than any amount to which the Buyer is entitled to under Section 6.5(e) and this Article 8. Neither the exercise nor the failure to exercise such right of setoff shall constitute an election of remedies or limit the Buyer in any manner in the enforcement of any other remedies that may be available to it.

ARTICLE 9
MISCELLANEOUS PROVISIONS

     Section 9.11 Confidentiality and Publicity.

     (a) The Mutual Confidentiality and Disclosure Agreement, attached as Exhibit A to the Existing License Agreement is hereby incorporated in this Agreement as though fully set forth herein. All terms used in this Section 9.1 and not otherwise defined herein shall have the meanings assigned to such terms in the Confidentiality Agreement. Subject to this Section 9.1, all information exchanged between or among the Parties prior to, on and after the date of this Agreement shall be subject to and treated in accordance with the terms and conditions of the Confidentiality Agreement. The Parties agree that from and after the Closing Date, the Confidentiality Agreement shall remain in full force and effect pursuant to its terms with respect to all Confidential Information that does not relate to the Purchased Assets or the Assumed Liabilities.

     (b) From and after the Closing Date, all Confidential Information primarily concerning the Purchased Assets and the Assumed Liabilities (the “Buyer Proprietary Information”) shall be used by the Sellers solely as required to perform their respective obligations, exercise or enforce their respective rights under this Agreement (or any Ancillary Agreement), or comply with applicable Law, and for no other purpose. The Sellers shall not disclose, or permit the disclosure of, any of the Buyer Proprietary

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Information to any Person except those Persons to whom such disclosure is necessary to permit the Sellers to perform their respective obligations, exercise or enforce their respective rights under this Agreement (or any Ancillary Agreement), or comply with applicable Law. The Sellers shall treat, and will cause their respective Affiliates and the Representatives and advisors of the Sellers or any of their respective Affiliates to treat, the Buyer Proprietary Information as confidential, using the same degree of care as the Sellers normally employ to safeguard its own confidential information from unauthorized use or disclosure, but in no event less than a reasonable degree of care.

     (c) All Confidential Information obtained by the Buyer (or its Representatives or Affiliates) from the Sellers (or its Representatives or Affiliates) other than the Buyer Proprietary Information (the “Sellers’ Proprietary Information”) shall be used by the Buyer solely as required to perform its obligations, exercise or enforce its rights under this Agreement (or any Ancillary Agreement), or comply with applicable Law, and for no other purpose. The Buyer shall not disclose, or permit the disclosure of, any of the Sellers Proprietary Information to any person except those persons to whom such disclosure is necessary to permit the Buyer to perform its obligations, exercise or enforce its rights under this Agreement (or any Ancillary Agreement), or comply with applicable Law. The Buyer shall treat, and will cause its Affiliates and the Representatives and advisors of the Buyer or any of their respective Affiliates to treat, the Sellers’ Proprietary Information as confidential, using the same degree of care as the Buyer normally employ to safeguard its own confidential information from unauthorized use or disclosure, but in no event less than a reasonable degree of care.

     (d) In the event either Party is requested pursuant to, or required by, applicable Law to disclose any of the other Party’s Confidential Information (i.e., the Sellers’ Proprietary Information or the Buyer Proprietary Information, as applicable), it will notify the other Party in a timely manner so that such Party may seek a protective order or other appropriate remedy or, in such Party’s sole discretion, waive compliance with the confidentiality provisions of this Agreement. Each Party will cooperate in all reasonable respects, in connection with any reasonable actions to be taken for the foregoing purpose. In any event, the Party requested or required to disclose such Confidential Information may furnish it as requested or required pursuant to applicable Law (subject to any such protective order or other appropriate remedy) without liability hereunder, provided that such Party furnishes only that portion of the Confidential Information which such Party is advised by a reasoned opinion of its counsel is legally required, and such Party exercises reasonable efforts to obtain reliable assurances that confidential treatment will be accorded such Confidential Information.

     (e) Except as required by applicable Laws, no Party to this Agreement shall issue any press release or make any public statement regarding the transactions contemplated hereby without the prior approval of the other Parties, and the Parties shall issue a mutually acceptable press release as soon as practicable after the Closing Date. Notwithstanding the foregoing, the Buyer shall be permitted to make any public statement without obtaining the consent of the Sellers if (i) the disclosure is required by applicable Laws or the requirements of the SEC or NASDAQ Stock Market and (ii) the Buyer has first used its reasonable efforts to consult with (but not to obtain the consent of) the Sellers about the form and substance of such disclosure.

     Section 9.2 Notices. Unless otherwise provided herein, any notice, request, instruction or other document to be given hereunder by any Party to the other shall be in writing and delivered in person or by courier, sent by facsimile transmission, sent via overnight delivery service or mailed by registered or certified mail (such notice to be effective upon receipt), as follows:

     If to the Sellers, addressed to:

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KDL GmbH
Bahnhofstrasse 7
CH-6301 Zug
Switzerland
Attn: Kjell H. Gaustad
Telephone: +41 61 403 0960
Fax: +41 61 403 0961

with a copy to:

Shitotomo Yamauchi, Ph.D.
2-21-14 — # 403
Shimo-ochai, Shinjuku
Tokyo 161-0033, Japan
Japan
Telephone: +81 3 5996 3633
Fax: +81 3 5996 9555

If to the Buyer, addressed to:

InterMune, Inc.
3280 Bayshore Boulevard
Brisbane, CA 94005
Attn: General Counsel
Telephone: (415) 466-2200
Fax: (415) 466-2300

with a copy to:

Latham & Watkins LLP
140 Scott Drive
Menlo Park, CA 94025
Attn: Mark V. Roeder
Telephone: (650) 328-4600
Fax: (650) 463-2600

or to such other place and with such other copies as any Party may designate as to itself by written notice to the other Parties.

     Section 9.3 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California without regard to the conflicts of laws principles thereof that would require the application of the laws of any other jurisdiction.

     Section 9.4 Representation By Counsel. Each Party hereto represents and agrees with each other that it has been represented by or had the opportunity to be represented by, independent counsel of its own choosing, and that it has had the full right and opportunity to consult with its respective attorney(s), that to the extent, if any, that it desired, it availed itself of this right and opportunity, that it or its authorized officers (as the case may be) have carefully read and fully understand this Agreement in its entirety and have had it fully explained to them by such Party’s respective counsel, that each is fully aware of the contents thereof and its meaning, intent and legal effect, and that it or its authorized officer

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(as the case may be) is competent to execute this Agreement and has executed this Agreement free from coercion, duress or undue influence.

     Section 9.5 Expenses. Except as expressly provided for herein, all expenses, including the fees of any attorneys, accountants, investment bankers, brokers, finders or others engaged by a Party, incurred in connection with this Agreement, the Ancillary Agreements and the transactions contemplated hereby and thereby, shall be paid by the Party incurring such expenses.

     Section 9.6 Entire Agreement. This Agreement (including the documents and the instruments referred to herein) and the Confidentiality Agreement constitute the entire agreement among the Parties pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussions, whether written and oral, among the Parties.

     Section 9.7 Amendment; Waiver. This Agreement may not be amended except in an instrument in writing signed on behalf of each of the Parties hereto. No amendment, supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the Party to be bound hereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

     Section 9.8 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced as a result of any rule of law or public policy, all other terms and other provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated by this Agreement are fulfilled to the greatest extent possible.

     Section 9.9 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the Parties hereto (whether by operation of law or otherwise) without the prior written consent of the other Parties hereto; provided, however, that such written consent will not be required by an assignment by the Buyer (a) to any of its Affiliates (in which case the Buyer shall remain liable for all obligations of the Buyer hereunder, including the performance or nonperformance of any actions or omissions of its Affiliates) or (b) in connection with a merger, sale or transfer involving all or substantially all of the assets of the Buyer. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the Parties and their respective permitted successors and assigns.

     Section 9.10 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Each of the Parties agrees to accept and be bound by facsimile signatures hereto.

     Section 9.11 Waiver of Jury Trial. Each signatory to this Agreement hereby waives its respective right to a jury trial of any permitted claim or cause of action arising out of this Agreement, any of the transactions contemplated hereby, or any dealings between any of the signatories hereto relating to the subject matter of this Agreement or any of the transactions contemplated hereby. The scope of this waiver is intended to be all encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this agreement or any of the transactions contemplated hereby, including, without limitation, contract claims, tort claims, and all other common law and statutory claims. This

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waiver is irrevocable, meaning that it may not be modified either orally or in writing, and this waiver shall apply to any subsequent amendments, supplements or other modifications to this agreement, any of the transactions contemplated hereby or to any other document or agreement relating to the transactions contemplated hereby.

     Section 9.12 Consent to Jurisdiction. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY (I) AGREES THAT ANY SUIT, ACTION OR OTHER LEGAL PROCEEDING ARISING OUT OF THIS AGREEMENT MAY BE BROUGHT IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OR, IF SUCH COURT DOES NOT HAVE JURISDICTION OR WILL NOT ACCEPT JURISDICTION, IN ANY COURT OF GENERAL JURISDICTION IN THE COUNTY OF SAN FRANCISCO, CALIFORNIA; (II) CONSENTS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING; AND (III) WAIVES ANY OBJECTION WHICH SUCH PARTY MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY SUCH COURT.

     Section 9.13 Attorney Fees. If any Party to this Agreement brings an Action to enforce its rights under this Agreement in accordance with the provisions hereof, the prevailing Party shall be entitled to recover its actual out-of-pocket costs and expenses, including without limitation reasonable attorneys’ fees reasonably incurred in connection with such Action, including any appeal of such Action.

     Section 9.14 Remedies Cumulative; Specific Performance. The rights and remedies of the Parties hereto shall be cumulative (and not alternative). The Parties agree that, in the event of any breach or threatened breach by any Party of any covenant, obligation or other provision set forth in this Agreement for the benefit of any other Party, such other Party shall be entitled (in addition to any other remedy that may be available to it) to (a) a decree or order of specific performance or mandamus to enforce the observance and performance of such covenant, obligation or other provision, and (b) an injunction restraining such breach or threatened breach.

     Section 9.15 Time is of Essence. Time is of the essence with respect to the performance of this Agreement.

     Section 9.16 Executory Nature of the Duties Imposed by this Agreement. This Agreement is intended to require the Sellers and the Buyer to perform a number of executory duties throughout the term of this Agreement. The Parties intend that this Agreement shall be governed by Section 365 of the Bankruptcy Code.

     Section 9.17 Bankruptcy Rights. In the event this Agreement is terminated or rejected by either the Buyer or any Seller or the Buyer’s or any Seller’s trustee or debtor in possession in bankruptcy (or receiver) under applicable bankruptcy or receivership laws due to the Buyer or such Seller’s bankruptcy or receivership, then all rights and licenses granted by the Sellers to the Buyer and by the Buyer to the Sellers shall be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code and any other similar law or regulation in any other country, licenses of rights to “intellectual property” as defined in Section 101(35A) of the Bankruptcy Code. The parties intend such rights and licenses to be subject to the protections afforded the non-terminating party under Section 365(n) of the Bankruptcy Code or any similar law or regulation in any other country.

     Section 9.18 Release. Each Party hereby releases the other Party, its successors and assigns, and their respective Representatives, in each case from and against any and all grievances, rights, actions, causes of action, claims, demands, complaints, obligations, liabilities or controversies of any and all kinds, nature and character whatsoever, legal and equitable, whether known or unknown, foreseen or unforeseen, that a Party has or shall or may have under any Law, arising out of, related to, or in

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connection with the Existing License Agreements (the “Released Claims”). EACH PARTY HEREBY EXPRESSLY WAIVES THE BENEFIT OF ANY STATUTE OR RULE OF LAW THAT, IF APPLIED TO THIS AGREEMENT, WOULD OTHERWISE EXCLUDE FROM ITS BINDING EFFECT ANY RELEASED CLAIMS NOT KNOWN BY SUCH PARTY TO EXIST WHICH AROSE PRIOR TO THE SIGNING OF THIS AGREEMENT. Each Party understands and acknowledges that it may not currently know of losses or claims or may have underestimated the severity of losses. Part of the consideration provided by this Agreement was given in exchange for the release of such claims. Each Party hereby waives any rights or benefits under California Civil Code Section 1542 (or any similar statute in any other jurisdiction), which provides that: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with debtor.”

[SIGNATURE PAGE FOLLOWS]

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     IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the date first above written.

BUYER
INTERMUNE, INC.
/s/ Daniel G. Welch
By:	Daniel G. Welch
Its:	President and CEO
SELLERS
KDL GmbH
/s/ Kjell H. Gaustad
By:	Kjell H. Gaustad
Its:	Managing Director
/s/ Shitotomo Yamauchi
DR. Shitotomo Yamauchi

SIGNATURE PAGE TO KDL APA

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EX-10.61

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EXHIBIT 10.61

LICENSE AGREEMENT

     THIS LICENSE AGREEMENT is made and entered into as of August 24, 2004 (the “Effective Date”) by and between InterMune, Inc., a Delaware corporation having its principal place of business at 3280 Bayshore Blvd., Brisbane, California 94005 (“Licensee”), and Chiron Corporation, a Delaware corporation having its principal place of business at 4560 Horton Street, Emeryville, California 94608 (“Chiron”).

BACKGROUND

     WHEREAS, Chiron has developed certain intellectual property rights with respect to Hepatitis C Virus (“HCV” as hereinafter defined) which relate to the HCV genome and encoded proteins;

     WHEREAS, Licensee desires to be engaged in the research and development of small molecule inhibitors of the HCV genome and encoded proteins and related therapeutics for the treatment of HCV infection, which activities fall within the scope of the Chiron Patent Rights (as hereinafter defined);

     WHEREAS, Licensee wishes to obtain a license under the Chiron Patent Rights for such purposes; and

     WHEREAS, Chiron is willing to grant, and has offered to grant Licensee a license under the Chiron Patent Rights for a negotiable fully paid-up, one-time fee; and

     WHEREAS, as an alternative to the arrangement whereby Licensee would secure a license under the Chiron Patent Rights for a fully paid up one time fee, Licensee wishes to enter into an arrangement pursuant to which Licensee shall provide consideration for the license under Chiron Patent Rights by paying to Chiron up-front fees, [ * ], milestone and royalty payments, which payments represent Chiron’s interest in the value contributed by the licensure of Chiron Patent Rights to Licensee’s program(s) for the research, development and commercialization of Identified Products, as hereinafter defined.

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

1. DEFINITIONS

     For the purposes of this Agreement, the following definitions shall apply, and the terms defined herein in plural shall include the singular and vice-versa:

     1.1. “Affiliate” means, with respect to a party hereto, any corporation, partnership, joint venture or other business arrangement which is controlled by, controlling or under common control with such party, and shall include without limitation any direct or indirect

1

beneficial ownership of more than fifty percent (50%) of the voting stock or participating profit interest of such corporation or other business entity. Without limiting the generality of the foregoing, the Affiliates of Chiron expressly exclude Novartis A.G, a Swiss corporation, and any Affiliate thereof not otherwise an Affiliate of Chiron (collectively, “Novartis”) unless and until such time as Novartis exercises its rights to control Chiron in accordance with the terms and conditions of the November 20, 1994 Governance Agreement between Chiron and Novartis’ predecessor in interest, Ciba-Geigy Limited.

     1.2. “Chiron Patent Rights” means the patents or patent applications owned by Chiron listed in Exhibit A attached hereto and incorporated herein, together with all patents issuing thereon, including any divisionals, continuations, continuations-in-part, reissues, reexaminations and extensions thereof, and foreign counterparts.

     1.3. “FDA” means the United States Food and Drug Administration and any successor drug regulatory entity thereto.

     1.4. “HCV” means the Hepatitis C virus, including any isolates, strains or mutations thereof.

     1.5. “Identified Products” means compounds that act on, whether by modulation, stimulation, inhibition, or otherwise:

     1.5.1. the HCV [ * ] with respect to which Licensed Processes were employed at any time during the course of the research, development or commercialization of such compounds; or

     1.5.2. [ * ], with respect to which Licensed Processes were employed at any time during the course of the research, development or commercialization of such compounds; or

     1.5.3. HCV which [ * ] compounds (a) [ * ] compounds defined by 1.5.1 or 1.5.2 above [ * ] Licensed Processes were utilized at any time during the course of the research, development or commercialization of such compounds; [ * ] (b) [ * ] activity that would infringe the Chiron Patent Rights but for the rights granted hereunder.

     1.6. “IND” means a “Notice of Claimed Investigational Exemption for a New Drug” filed with the FDA, as defined in 21 C.F.R. Part 312, or foreign equivalent thereof.

     1.7. “Licensee Confidential Information” means Licensee’s confidential and/or proprietary information relating to any Identified Product, including but not limited to Licensee’s know-how, invention disclosures, technology, libraries, targets, compounds, patents, proprietary

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materials and/or technologies, economic information, business or research strategies, trade secrets and material embodiments thereof.

     1.8. “Licensee Facility” means and is limited to the facilities of Licensee and its Affiliates located at the locations specified in Exhibit B attached hereto and incorporated herein and such other locations as Licensee may designate in writing from time to time to Chiron. Licensee may add additional locations to this list with Chiron’s prior written consent, which consent shall not be unreasonably withheld and, upon such consent, such additional locations shall be a Licensee Facility for purposes of this Agreement.

     1.9. “Licensed Composition” means any composition, the making, using, selling, keeping, offering for sale, importing or exporting thereof would, but for the license granted herein, infringe any Valid Claim within Chiron Patent Rights, if practiced in a Reference Country.

     1.10. “Licensed Method” means any method or process, the practice of which would, but for the license granted herein, infringe a Valid Claim of the Chiron Patent Rights, (including, without limitation, the manufacture, use, sale, keeping, offer for sale, importation or exportation of a product which would infringe any such Valid Claim), if practiced in a Reference Country.

     1.11. “Licensed Processes” means any process that involves the use, practice or manufacture of a Licensed Composition and/or Licensed Method, including without limitation: [ * ].

     1.12. “Licensed Territory” means (a) for purposes of use of the Licensed Processes, any country in the world where Licensee has a Licensee Facility; and (b) for purposes of development and commercialization of Identified Products means worldwide.

     1.13. “NDA” means an application submitted to the FDA or foreign equivalent thereof, which contains the details of the manufacture and testing of a new drug for purposes of obtaining regulatory approval to market such new drug.

     1.14. “Net Sales" shall be calculated in accordance with U.S. generally accepted accounting principles and means the gross amount billed or invoiced for sales or other dispositions of all Identified Products hereunder (other than sales or other dispositions to Affiliates unless such Affiliate is the end user), less the following deductions actually paid or incurred (to the extent they are not already reflected in the amount invoiced and to the extent they are not otherwise covered or reimbursed): (a) discounts, returns, allowances, Medicaid rebates, and wholesaler chargebacks allowed and taken in amounts customary in the trade; (b) import, export, excise, sales or use taxes, value added taxes, and other taxes, tariffs or duties directly imposed and properly allocable to Identified Product sales, but not taxes assessed on income derived from Identified Product sales; (c) separately itemized shipping, freight charges or insurance paid; and (d) amounts allowed or credited for retroactive price reductions or rebates.

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Where Identified Product is sold in the form of a combination product containing one or more active ingredients in addition to an Identified Product, Net Sales for such combination product will be calculated by multiplying actual Net Sales of such Combination Product by the fraction A/(A+B) where A is the invoice price of the Identified Product if sold separately, and B is the total invoice price of any other active component or components, or devices, in the combination, if sold separately. If, on a country-by-country basis, the other active component or components in the combination are not sold separately in said country, Net Sales for the purpose of determining royalties of the combination product shall be calculated by multiplying actual Net Sales of such combination product by the fraction A/C where A is the invoice price of the Identified Product, if sold separately, and C is the invoice price of the combination product. If, on a country-by-country basis, neither the Identified Product nor the other active component or components of the combination product is sold separately in said country, Net Sales for the purposes of determining royalties of the combination product shall be determined by the parties by mutual agreement.

If Licensee receives any consideration for the sale or other disposal of any Identified Product or for the use of any Identified Product other than monetary consideration under bona fide arm’s length terms, then for the purposes of calculating the royalty payable under this Agreement, such Identified Products shall be deemed to be sold exclusively for money at the fair market price generally achieved for such Identified Products in the country in which such sale or other disposal or use occurred when such Identified Products are sold alone and not with other products.

     1.15. “Payment Term” shall have the meaning set forth in Section 8.2.

     1.16. “Phase I Clinical Trial” shall mean first human dosing, such as pursuant to a clinical trial, conducted in accordance with 21 C.F.R. 312.21(a) or other applicable regulatory requirements outside the United States, designed to establish the safety, and preliminary evidence of effectiveness, of a pharmaceutical product for human use.

     1.17. “Phase II Clinical Trial” shall mean first human dosing pursuant to a clinical trial, conducted in accordance with 21 C.F.R. 312.21(b) or other applicable regulatory requirements outside the United States, of appropriate size and designed to evaluate the effectiveness of a pharmaceutical product in patients with the disease for its intended use and in the dosage range to be prescribed by identifying the proportion of patients within the trial who respond to the pharmaceutical product.

     1.18. “Phase III Clinical Trial” shall mean first human dosing pursuant to a clinical trial, conducted in accordance with 21 C.F.R. 312.21(c) or other applicable regulatory requirements outside the United States, that is conducted after preliminary evidence suggesting effectiveness has been obtained, that is of appropriate size and design to establish that a pharmaceutical product is safe and effective for its intended use, to define warnings, precautions and adverse reactions that are associated with the pharmaceutical product in the dosage range to be prescribed, and to support regulatory approval of such pharmaceutical product or label expansion of such pharmaceutical product.

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     1.19. “Reference Countries” means the United States of America for any activities that are conducted in the United States of America, and [ * ] for any activities that are conducted outside the United States of America.

     1.20. “Research and Development Field” means the research and development of Identified Products. The Research and Development Field is limited to the research and development of [ * ] HCV [ * ], and expressly excludes research and development related to [ * ]. Also excluded from the Research and Development Field are the research and development of (i)  [ * ] and (ii)  [ * ].

     1.21. “Research and Development Term” shall have the meaning set forth in Section 8.1.

     1.22. “[ * ]” means [ * ].

     1.23. “Valid Claim” means any claim of an issued (or granted) and unexpired patent which has not been held unenforceable, unpatentable or invalid by a decision of a court or governmental agency of competent jurisdiction, which decision is unappealable or unappealed within the time allowed for an appeal, and which has not been admitted by Chiron to be invalid or unenforceable generally through reissue or disclaimer.

2. LICENSE

     2.1. Research and Development License Grant. Subject to all of the terms and conditions in this Agreement, Chiron hereby grants to Licensee and to its wholly owned subsidiaries and to those of its Affiliates conducting research and development activities at the Licensee Facilities and to other of its Affiliates approved in writing by Chiron, which approval shall not be unreasonably withheld (collectively with Licensee, the “Licensed Entities”), a non-transferable, non-exclusive license, without the right to sublicense (unless Chiron has consented to such sublicense under Section 2.1(c) below), under the Chiron Patent Rights, to use Licensed Compositions and Licensed Methods in the Research and Development Field at a designated Licensee Facility in the Licensed Territory during the Research and Development Term and to make, have made, use, have used, sell, have sold, import, and export Identified Products during the term of this Agreement (the “License”). The License shall be solely for the benefit of:

          (a) Licensed Entities; or

          (b) Licensee and a bona fide third party collaborator of Licensee to whom Chiron has granted a license under Chiron Patent Rights to practice Licensed Processes in the Research and Development Field, as confirmed by Chiron’s prior written acknowledgement; or

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          (c) Licensee and any other third party bona fide research collaborator, provided (i) Licensee has provided Chiron with prior written notice identifying such third party collaborator and the scope of the collaboration and (ii) Chiron has provided prior written consent to Licensee providing such third party the benefit of the License, such consent not to be unreasonably withheld or delayed. For purposes of this provision, consent shall be favorably considered if, for example, the third party collaborator is granted such benefit for research purposes only, is exclusive to Licensee with regard to the benefit, retains no development or commercial rights to Identified Products and ceases all such activities upon the termination of its relationship with Licensee. Notwithstanding the foregoing, Chiron hereby acknowledges and consents to [ * ], provided that [ * ], further provided that [ * ], and still further provided that [ * ].

     2.2. Additional Licenses. For the avoidance of doubt, nothing in the foregoing shall be construed as a restriction on any licensing, or otherwise granting or authorizing, by Licensee of marketing, manufacturing, importing, exporting, distribution, development, selling or other commercialization rights to any Identified Product to a third party, and any third party so licensed shall be free to exercise any such rights without any further obligation to Chiron, provided that the sale of such Identified Product (including an Identified Product in development) by or through such third party remains subject to the payment, reporting and indemnity provisions of this Agreement. Nothing in this paragraph is intended to grant to Licensee the right to sublicense Chiron Patent Rights, Licensed Compositions or Licensed Methods to third parties.

     2.3. Prior Activity. For the avoidance of doubt, the foregoing and all subsequent terms of this Agreement shall be construed to embrace and apply to any activity carried out by Licensee, [ * ], prior to the Effective Date within the Research and Development Field, which activity may fall within the scope of the Chiron Patent Rights, provided however, that Licensee shall pay to Chiron within ten (10) days of the Effective Date any and all payments, if any, which would have been due under Sections 3.1.3, 3.1.4 and 3.1.5 had the License been granted prior to the Effective Date. Any Identified Products subject to such payment(s), including latest stage of clinical achievement for each such Identified Product, are listed in Exhibit C attached hereto and incorporated herein. In the event that no such payments are due and owing to Chiron pursuant to the prior sentence, Licensee hereby represents that it does not have any products in development which, as of the Effective Date, would have triggered any payments due under Sections 3.1.3, 3.1.4 and 3.1.5. Notwithstanding the foregoing, any rights granted to Licensee pursuant to this Section 2.3 shall terminate as of the Effective Date in the event of a termination of this Agreement by Chiron pursuant to Section 8.3.1(b) below.

     2.4. Use Limitations. Licensee shall not have any rights under the Chiron Patent Rights other than those specified in Sections 2.1 and 2.2, all other rights being retained by Chiron. Without limiting the foregoing, Licensee shall not use Licensed Processes outside the Research and Development Field or for the benefit of any third party not permitted by Section 2.1. In the event that [ * ], such Identified Products shall be subject to the milestone and royalty provisions herein and Licensee shall [ * ]. Without limiting the foregoing, Chiron grants Licensee no rights under the Chiron Patent Rights to make, have made, use, sell or otherwise

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[ * ]. Notwithstanding any other provision in this Section 2.4, [ * ] shall have the right to [ * ] in the Research and Development Field.

     2.5. Marketing Arrangements. In connection with arrangements with third parties whereby such third parties would distribute or market Identified Products, Licensee agrees to comply and to cause such third parties to comply with all terms and conditions of this Agreement. For the avoidance of doubt, neither Licensee nor any such third party that develops, distributes or markets Identified Products shall be required to make duplicate payments for any one Identified Product for which payment has been received by Chiron.

3. PAYMENTS

     3.1. Payments. In consideration of Chiron’s grant of the License to Licensee, Licensee shall, in addition to the other Licensee obligations referenced herein, make to Chiron the payments referenced in this Section 3.1.

          3.1.1 License Issuance Fee. Within thirty (30) days following the Effective Date, Licensee shall pay to Chiron a non-refundable license issuance fee (the “Issuance Fee”) of Three Hundred Seventy Five Thousand U.S. Dollars ($375,000).

          3.1.2 [ * ]. On [ * ] of the Effective Date during the Research & Development Term, [ * ], Licensee shall pay to Chiron [ * ] (the “[ * ]”) in the amount of [ * ] U.S. Dollars ($[ * ]). The [ * ] shall be creditable against royalty payments referenced in Sections 3.1.4 and 3.1.5, if any, for [ * ]. Royalty payments payable in excess of the [ * ] shall not be creditable against any [ * ].

          3.1.3 Milestone Payments. With respect to each and every Identified Product developed by (i) Licensed Entities; or [ * ] which reaches the milestone events referenced in this Section 3.1.3, Licensee shall pay to Chiron the following milestone payments:

               (a) Upon filing of an IND or commencement of Phase I Clinical Trials (or foreign equivalent), whichever occurs first: $500,000; and

               (b) [ * ]; and

               (c) [ * ]; and

               (d) [ * ]; and

               (e) [ * ].

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          For the avoidance of doubt, each payment pursuant to clause (a), (b), (c), (d) or (e) above shall be non-refundable, non-creditable, non-cancelable and payable once (and only once) with respect to each Identified Product regardless of the number of countries in which clinical trials are conducted or NDA or equivalent product registrations are filed or approved, and regardless of how many NDA or equivalent product registrations are filed or approved in any country with respect to such Identified Product. For the further avoidance of doubt, “commencement of Clinical Trial” shall mean the date of first such dosing of Identified Product in humans as part of such trial.

          3.1.4 Royalty Payments for [ * ] Identified Product [ * ]. Licensee shall, until the expiration of the Payment Term, pay to Chiron, within [ * ] days after the end of each calendar [ * ], an earned royalty equal to [ * ] percent ([ * ]%) of Net Sales of each Identified Product that [ * ].

          3.1.5. Royalty Payments for [ * ] Identified Products. Licensee shall, until the expiration of the Payment term, pay to Chiron, within [ * ] days after the end of each calendar [ * ], an earned royalty equal to [ * ] percent ([ * ]%) of Net Sales of each Identified Product that [ * ].

     3.2. Manner of Payment. All payments hereunder shall be in United States dollars in immediately available funds and shall be made by wire transfer to such bank account as may be designated from time to time by Chiron.

          3.2.1 Exchange Rate. In the event that Identified Products are sold in currencies other than United States dollars, Net Sales shall be calculated by Licensee in accordance with generally accepted accounting principles. Net Sales in such other currencies shall be converted into U.S. dollars at the end of each royalty reporting period using an exchange rate equal to the simple average of the daily “U.S. dollar noon buying rates” on each business day of the applicable royalty reporting period, as published at 12:00pm daily New York time by the Federal Reserve Bank of New York (available on Bloomberg & Reuters). Royalty payments due to Chiron pursuant to Sections 3.1.4 and 3.1.5 shall be calculated based on the Net Sales in United States dollars as calculated above.

          3.2.2 Blocked Currency. In the event that restrictions or prohibitions imposed by a national or international government authority preclude conversion of a national or international currency into United States dollars, Licensee and Chiron shall consult to find a prompt and acceptable solution and, prior to Licensee and Chiron determining such an acceptable solution, Licensee shall handle all money received by Licensee from the sale or other distribution of Identified Products as Chiron may lawfully direct. The cost and expense incurred as a consequence of any such handling shall be borne equally by Licensee and Chiron. Notwithstanding the foregoing, if any national or international currency cannot be converted into United States dollars when payment to Chiron is due and payable under Section 3.1 above, Licensee shall deposit the local currency equivalent of the United States dollar payment amount due and payable to Chiron in an interest-bearing account in the name of Chiron. In the event that conversion into United States dollars of any payment amount due and payable to Chiron deposited in an interest-bearing account pursuant to the previous sentence becomes possible,

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Licensee shall deliver such payment amount to Chiron promptly, however, if conversion of any such amount is not possible within twelve (12) months after the date payment was due and payment to Chiron, Licensee shall transfer to Chiron the amount deposited in the name of Chiron, together with all interest accrued on the amount deposited after the date of deposit.

          3.2.3 Late Payment. Any payment, including, without limitation, royalty payments, made by Licensee hereunder after the date such payment is due, shall bear interest at the lesser of: (a) [ * ] basis points above the three (3) month United States Dollar LIBOR as published in the Wall Street Journal on the day which is two business days prior to the date the payment is due, or (b) the maximum rate permitted by applicable law (the “Interest Rate”). The Interest Rate shall be calculated from the date payment was due until actually received by Chiron (the “Interest Period”) based on actual number of days lapsed and a 360-day year. If the Interest Period extends beyond three (3) months, at the beginning of each three (3) month interval, the Interest Rate will be recalculated using the current three (3) month LIBOR, as described above, until the payment is received.

          3.2.4 Underpayment. If an Inspection (as defined in Section 4.3 hereafter) reveals an underpayment, then Licensee shall promptly make up such underpayment with interest at the Interest Rate.

     3.3. Withholding Taxes. To the extent a statutory tax withholding obligation is imposed by a governmental authority upon any payment due and payable hereunder, Licensee shall be entitled to withhold from such payment to Chiron the amount, if any, of any tax assessed against Licensee and actually withheld, provided that such tax is only for the account of Licensee and evidence of the payment of such tax is promptly provided to Chiron. Licensee shall pay the amount of such tax to the proper taxing authority and shall be entitled to deduct the amount of such tax from the payment to be made by Licensee to Chiron. Licensee shall advise Chiron of any tax payment made for the benefit of Chiron pursuant to this Section 3.3 and provide Chiron copies of tax receipts for all taxes paid and deducted from the payment due and payable to Chiron, together with copies of all pertinent communications from or with governmental authorities with respect thereto. At Chiron’s reasonable request and at Chiron’s reasonable expense, Licensee shall reasonably assist Chiron in any effort by Chiron in claiming any exemption from such deductions or withholdings under any double taxation or similar agreement or treaty from time to time in force, and in minimizing the amount required to be so withheld or deducted.

4. STATEMENTS, RECORDS AND INSPECTION

     4.1. Statements. All milestone and royalty payments made to Chiron hereunder shall be accompanied by a written statement setting forth in reasonable detail the calculation thereof, including, for example, in the case of royalty payments, the gross amount billed or invoiced by the Licensee or an affiliate or commercial collaborators or any other third party for the sale or distribution for the Identified Product, itemized deductions against such gross amount, and Net Sales on a country-by country basis. Such statement shall contain reference to Net Sales by territory in United States Dollars, as calculated by the method in Section 3.2.

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     4.2. Record Keeping. Licensee shall keep and maintain, and shall cause its Affiliates [ * ] to keep and maintain, complete and accurate books of account and adequate records of all sales of Identified Products in sufficient detail to permit Chiron to confirm the accuracy of reported royalties hereunder, including without limitation, general accounting ledgers, invoice/sale registers, original invoices and shipping documents, tax returns, inventory and manufacturing records, sublicense and distributor agreements and price lists, product catalogs and other marketing materials, and shall retain such books and records for a period of three years from the last day of the calendar quarter in which such sales were made.

     4.3. Inspection. Chiron may from time to time and at any reasonable time, not exceeding once every twelve (12) months, use a Chiron auditor (or such firm of certified public accountants (“auditor”) as Chiron may select), to inspect the books and records of the Licensee, Licensee’s Affiliates [ * ], as the case may be, and records and books of sublicensees, to the extent necessary in order to verify the accuracy of any report or payment made under this agreement, or in the case of Licensee’s failure to make reports or pay royalties, to obtain information as to the royalty payable for any such period, by Licensee to Chiron (within the three (3) full-year period immediately preceding such audit) (the “Inspection”). Books and records shall include but not be limited to: (a) Accounting General Ledgers (electronically if available); (b) Invoice/Sales Registers; (c) Original Invoice and Shipping Documents; (d) Federal and State Business Tax Returns; (e) Company Financial Statements; (f) Sales Analysis Reports; (g) Inventory and or Manufacturing Records; (h) Sub-License and Distributor Agreements; and (i) Price Lists, Product Catalogs and Other Marketing Materials. Licensee agrees to maintain such books and records for a period of not less than [ * ] years from the date each royalty report is submitted to Chiron. Such Inspection shall be at Chiron’s expense unless a royalty payment deficiency is determined and such deficiency is [ * ] percent ([ * ]%) or greater, for any royalty reporting period included in the examination. In such case the Licensee shall be responsible for reimbursing Chiron for the examination fee and expenses charged by the auditor. Any underpayment as determined by the auditor shall be paid promptly to Chiron and will bear interest in accordance with Section 3.2.3. Licensee agrees to pay past due royalties for any royalty deficiency error as determined by the auditor, which affects periods prior to the period under audit. Chiron and the auditor shall maintain in confidence such Inspection and its resulting report. The auditor may from time to time consult with Chiron and any of its employees or third party counsel on questions as they relate to the licensed technology. The auditor may not disclose financial or proprietary information except as required by the license agreement or if it already exists in the public domain.

5. REPRESENTATIONS AND WARRANTIES; DISCLAIMER

     5.1. Mutual Warranties. Each party represents and warrants to the other party that (a) it has all requisite corporate power and authority to enter into this Agreement, to grant the licenses granted by it hereunder, and to perform its other obligations under this Agreement, (b) execution of this Agreement and the performance by the warranting party of its obligations hereunder, including, without limitation, the licenses granted by that party hereunder, have been duly authorized, and (c) this Agreement is fully binding and enforceable in accordance with its terms.

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     5.2. Licensee Warranties and Covenants. Licensee warrants, represents and covenants that:

          5.2.1. all of Licensed Entities’ activities related to its use of the Chiron Patent Rights pursuant to this Agreement shall comply in all material respects with all applicable legal and regulatory requirements, including, without limitation, all applicable regulatory requirements; and

          5.2.2. no Licensed Entity shall engage in any activities that would infringe the Chiron Patent Rights and are outside the scope of the Research and Development License to be granted hereunder (e.g., without limitation, use of the Licensed Processes outside the Licensee Facility or after the termination of the Research and Development Term); and

          5.2.3. it shall obtain from any [ * ] a written undertaking requiring such [ * ] to perform the payment obligations referenced in Article 3 herein; and

          5.2.4 that it shall promptly provide Chiron with a copy of such written undertaking described in Section 5.2.3 above.

     5.3. Chiron Warranties. Chiron represents and warrants to Licensee that, as of the Effective Date, the [ * ] for all Identified Products [ * ] and [ * ] for [ * ] Identified Products [ * ] are [ * ] for certain of the Chiron Patent Rights.

     5.4. DISCLAIMER. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, CHIRON MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE CHIRON PATENT RIGHTS OR ANY LICENSE GRANTED BY CHIRON HEREUNDER, OR WITH RESPECT TO ANY PRODUCTS OR SERVICES OF LICENSEE. FURTHERMORE, NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A WARRANTY THAT ANY PATENT OR OTHER PROPRIETARY RIGHTS INCLUDED IN THE CHIRON PATENT RIGHTS ARE VALID OR ENFORCEABLE OR THAT LICENSED ENTITIES’ USE OF THE CHIRON PATENT RIGHTS CONTEMPLATED HEREUNDER DOES NOT INFRINGE ANY PATENT RIGHTS OR OTHER INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY.

     5.5. Patent Matters. Chiron shall have the exclusive right to take action against any infringement of any of the Chiron Patent Rights, in its sole discretion. Licensee shall cooperate reasonably in any action Chiron may take against any such infringement, upon Chiron’s request and at Chiron’s expense.

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6. LIMITATION OF LIABILITY

NOTWITHSTANDING ANYTHING IN THIS AGREEMENT OR OTHERWISE, NEITHER PARTY SHALL BE LIABLE TO THE OTHER WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY, OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES.

7. INDEMNITY

     7.1. Licensee Indemnity. Subject to Section 7.2, Licensee shall indemnify, defend and hold harmless Chiron and its Affiliates and the officers, directors, employees, agents and representatives of Chiron and its Affiliates from and against any and all claims, threatened claims, damages, losses, suits, proceedings or liabilities of any kind (“Claims”) arising out of or relating to Licensed Entities’ manufacture, use, sale, offering for sale, importation or exportation of Identified Products or to its use otherwise of the Chiron Patent Rights, including without limitation, Claims based on product liability or infringement of third party patent or intellectual property rights, except to the extent any such Claim arises from the negligence or willful misconduct or material breach of this Agreement by Chiron.

     7.2. Indemnification Procedures. Chiron shall notify Licensee in writing promptly upon becoming aware of any Claim to which such indemnification may apply. Licensee shall be relieved of its obligation of indemnification to the extent, and only to the extent, Licensee is prejudiced by any failure of Chiron to provide Licensee with the foregoing notice of any such Claim within a reasonable period of time. Licensee shall have the right to assume and control the defense of the Claim at its own expense. If the right to assume and have sole control of the defense is exercised by Licensee, Chiron shall have the right to participate in, but not control, such defense at its own expense and Licensee’s indemnity obligations shall be deemed not to include attorneys’ fees and litigation expenses incurred by Chiron after the assumption of the defense by Licensee. If Licensee does not assume the defense of the Claim, Chiron may defend the Claim at Chiron’s expense but shall have no obligation to do so. Chiron will not settle or compromise the Claim without the prior written consent of Licensee, and Licensee will not settle or compromise the Claim in any manner which would have an adverse effect on Chiron without the consent of Chiron, which consent, in each case, will not be unreasonably withheld. Chiron shall reasonably cooperate with Licensee and will make available to Licensee all pertinent information under the control of Chiron.

     7.3. Presumptions and Burden of Proof Regarding Claims of Exempt Product Status. The parties agree that there shall be a presumption that inhibitor compounds of (i) the HCV [ * ] or [ * ] HCV [ * ], or (iii) HCV, which [ * ] HCV [ * ] arising prior to the expiration of Chiron Patent Rights in the relevant Reference Country from Licensee’s program for research, development and commercialization of HCV [ * ] products (a “Product in Question”) are Identified

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Products, and are subject to the obligations governing Identified Products provided herein. In the event that Licensee contends that a Product In Question is not an Identified Product (an “Exempt Product”) Licensee shall have the burden of proving such contention by a [ * ], and the provisions of Section 7.4 shall apply.

     7.4. Exempt Product Notification. In the event that Licensee or any Licensee Affiliate makes an IND submission (or foreign equivalent) for any Product in Question after the Effective Date which Licensee contends to be an Exempt Product, Licensee shall provide Chiron a written notice providing particular and sufficient facts which are the basis for such contention (the “Exempt Product Notification”). Licensee shall provide Chiron with the Exempt Product Notification within thirty (30) days following IND (or foreign equivalent) filing of any alleged Exempt Product by Licensee (the “Exempt Product Notification Period”).

In the event that Licensee submits to Chiron an Exempt Product Notification, Chiron shall have the right to [ * ]. In the event that Chiron disputes Licensee’s claim that the Product in Question is an Exempt Product [ * ], the dispute shall be governed by the dispute resolution provisions provided herein, provided that the [ * ] and burden of proof provisions referenced in Section 7.3 shall apply to such dispute resolution.

In the event that Licensee fails to provide Chiron with an Exempt Product Notification within the Exempt Product Notification Period, [ * ].

In the event that a Product In Question is determined by action under this Section 7.4 to qualify as an Identified Product (provided that such determination is either accepted or no longer subject to challenge by Licensee under the dispute resolution provisions herein) at a time after the achievement of a corresponding milestone event for the Product In Question, and in the event the milestone payment relating to the same was not paid when it was due, any such unpaid milestone payment shall become immediately due and bear interest for the period of non-payment as provided in Section 3.2.3 above.

8. TERM AND TERMINATION

     8.1. Research and Development Term. The “Research and Development Term” shall be the period commencing from the Effective Date and ending on the earlier of (a) the date as of which Chiron receives Licensee’s notification that Licensee no longer desires to exercise the research and development License (granted under Section 2.1) and has permanently ceased all use of Licensed Processes or other activities which fall within the scope of the Chiron Patent Rights, or (b) the last to expire patent containing a Valid Claim within the Chiron Patent Rights in the relevant Reference Country in which Licensee or a Licensee Affiliate is conducting research activities.

     8.2. Payment Term; Expiration. Licensee’s obligation to make milestone payments as specified in Section 3.1.3, and royalty payments on Net Sales of Identified Products pursuant

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to Sections 3.1.4 and 3.1.5, shall terminate upon [ * ] (the “Payment Term”). In acknowledgement of Licensee’s agreement to enter into a deferred payment arrangement instead of paying a fully negotiable up-front fee for the license to the Chiron Patent Rights referenced herein, Licensee agrees that Licensee’s obligation to pay milestone and royalty payments as referenced herein shall be unconditional and irrevocable during the Payment Term, notwithstanding [ * ]. This Agreement shall expire upon the expiration of the Payment Term. Upon expiration of the Payment Term, all rights of Licensee hereunder shall automatically become fully paid-up, royalty-free, irrevocable, fully sublicenseable and perpetual.

     8.3. Termination.

          8.3.1. Chiron shall have the right to terminate this Agreement, at Chiron’s sole discretion, upon delivery of written notice to Licensee, upon the occurrence of any of the following:

          (a) In the event of any material breach by Licensee of any terms and conditions of this Agreement, provided that such breach has not been cured within sixty (60) days after written notice thereof is given by Chiron to Licensee; or

          (b) In the event that Licensee or any [ * ] challenges or knowingly supports (other than pursuant to a subpoena or other court order) a challenge to the validity of any of the Chiron Patent Rights. Chiron’s termination rights under this Section 8.3.1(b) may be exercised by Chiron at any time subsequent to Licensee’s (or any [ * ]) challenge to the validity of the Chiron Patent Rights.

          8.3.2. Either party shall have the right to terminate this Agreement, upon the filing by the other party in any court or agency pursuant to any statute or regulation of the United States or any state a petition in bankruptcy or insolvency or for reorganization or similar arrangement or for the appointment of a receiver or trustee of such party or its assets, upon the proposal of a written agreement of composition or extension of its debts, or if such party is served with an involuntary petition against it in any insolvency proceeding, upon the ninety-first (91st) day after such service if such involuntary petition has not previously been stayed or dismissed, or upon the making by such party of an assignment for the benefit of its creditors.

     8.4. Effect of Termination or Expiration.

          8.4.1. In General. Upon termination of this Agreement for any reason:

               (a) All rights and licenses to use Licensed Compositions and Licensed Methods granted to Licensee in Article 2 shall terminate, and Licensee shall cease all use of Chiron Patent Rights, provided, however, that Licensee retains all rights and licenses to research, develop, make, have made, use, have used, sell, have sold, import and export Identified Products granted to Licensee in Article 2 to the extent that the exercise of such rights does not infringe any Chiron Patent Rights, subject to Licensee’s obligations under Articles 3, 4 and 7;

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               (b) Chiron shall have the right to obtain specific performance of Licensee’s payment obligations referenced in Section 3.1, including, without limitation, Licensee’s royalty and milestone obligations referenced therein;

               (c) Chiron shall have the right to retain all amounts previously paid to Chiron by Licensee; and

               (d) Neither party shall be relieved of any obligation which accrued prior to the effective date of such expiration or early termination; in particular, without limitation, Licensee shall remain obligated to pay to Chiron all amounts which have accrued hereunder as of such date, all in accordance with Section 3.

          8.4.2. Survival. Except as expressly provided herein, the following provisions shall survive expiration or termination of this Agreement: Article 1, Article 2 (to the extent provided in Section 8.4.1 above), Article 3, Article 4, Article 5, Article 6, Article 7, Section 8.2, Article 9, Article 10 and any other provisions which by their nature are intended to survive termination.

9. CONFIDENTIAL INFORMATION

     9.1 Confidentiality. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing, the parties agree that, for the term of this Agreement and for ten (10) years thereafter, Chiron (the “Receiving Party”) agrees that with respect to whatever Licensee Confidential Information it receives from Licensee (the “Disclosing Party”) hereunder, the Receiving Party shall keep such Licensee Confidential Information confidential and shall not publish or otherwise disclose or use such Licensee Confidential Information for any purpose other than as provided for by in this Agreement except for Licensee Confidential Information that the Receiving Party can establish:

          (a) was already known to the Receiving Party (other than under an obligation of confidentiality), at the time of disclosure by the Disclosing Party and such Receiving Party has documentary evidence to that effect;

          (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the Receiving Party;

          (c) became generally available to the public or otherwise part of the public domain after its disclosure or development, as the case may be, and other than through any act or omission of the Receiving Party in breach of this confidentiality obligation;

          (d) was disclosed to the Receiving Party, other than under an obligation of confidentiality, by a third party who had no obligation to the Disclosing Party not to disclose such information to others; or

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          (e) was independently discovered or developed by or on behalf of the Receiving Party without the use of the Licensee Confidential Information and the Receiving Party has documentary evidence to that effect.

     9.2 Authorized Disclosure and Use. Notwithstanding the foregoing Section 9.1, Chiron may disclose Licensee Confidential Information to the extent such disclosure is required to comply with a court order or applicable governmental law or regulation, including, without limitation, law and regulations of the United States Securities and Exchange Commission, the National Association of Securities Dealers or any national stock exchange regulation, and except as expressly provided herein. In addition, either party may disclose the terms of this Agreement to its accountants or attorneys or its potential or actual partners or collaborators under an obligation of confidentiality no less stringent than that provided in Section 9.1 above. In the event Chiron is required by court order to disclose Licensee Confidential Information, Chiron shall provide sufficient notice to Licensee and such reasonable cooperation and assistance to enable Licensee to seek a protective order or otherwise prevent or limit disclosure or use of such Licensee Confidential Information.

     9.3 Publicity. Neither Licensee nor Chiron shall make any public announcement concerning the economic terms of this Agreement without the prior written consent of the other party. Notwithstanding the foregoing, the parties agree that either party shall have the right to issue a public announcement regarding the execution of this Agreement following such execution. The party making such public announcement shall submit the proposed form of such public announcement to the other party and shall incorporate the other party’s reasonable comments and suggestions prior to issuance of such public announcement.

10. GENERAL

     10.1. Provisions Contrary to Law. In performing this Agreement, the parties shall comply with all applicable laws. Wherever there is any conflict between any provision of this Agreement and any law, the law shall prevail, but in such event the affected provision of this Agreement shall be limited or eliminated only to the extent necessary, and the remainder of this Agreement shall remain in full force and effect. In the event the terms of this Agreement are materially altered as a result of the foregoing, the parties shall renegotiate in good faith the terms of this Agreement to resolve any inequities.

     10.2. Notices. Any notice required or permitted to be given by this Agreement shall be in writing and shall be delivered by hand or overnight courier with tracking capabilities or mailed postage prepaid by first class, registered or certified mail addressed as set forth below unless changed by notice so given:

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If to Chiron:

Chiron Corporation
4560 Horton Street
Emeryville, California 94068-2916
Attention: President, Chiron BioPharmaceuticals
Fax: (510) 923-3832
Copy to: Office of the General Counsel
Fax: (510) 654-5360

If to Licensee:

InterMune, Inc.
3280 Bayshore Blvd.
Brisbane, California 94005
Attention: General Counsel
Fax: (415) 508-0006

     Any such notice shall be deemed delivered on the date received. In addition to any notices required or permitted hereunder, the parties shall use the contact information below for purposes of providing accounting or payment information set forth in Articles 3 and 4 hereof:

If to Chiron:

Chiron Corporation
4560 Horton Street
Emeryville, California 94068-2916
Attention: Manager, R&D Operations
Tel: (510) 923-8128
Fax: (510) 923-8341

If to Licensee:

InterMune, Inc.
3280 Bayshore Blvd.
Brisbane, California 94005
Attention: Chief Financial Officer
Tel: (415) 466-2269
Fax: (415) 466-2369

     10.3. Force Majeure. Neither party shall be liable for delay or failure in the performance of any of its obligations hereunder if such delay or failure is due to causes beyond its reasonable control, including, without limitation, acts of God, fires, earthquakes, strikes and labor disputes, acts of war, civil unrest or intervention of any governmental authority; provided, that the affected party promptly notifies the other party and further provided that the affected party shall use its commercially reasonable efforts to avoid or remove such causes of non-

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performance and shall continue performance with the utmost dispatch whenever such causes are removed. When such circumstances arise, the parties shall negotiate in good faith any modifications of the terms of this Agreement that may be necessary or appropriate in order to arrive at an equitable solution.

     10.4. Use of Names. Licensee, at its sole cost and expense, shall be responsible for the selection, registration and maintenance of all trademarks which it employs in connection with its activities conducted pursuant to this Agreement, if any, and shall own and control such trademarks. Nothing in this Agreement shall be construed as a grant to Licensee of rights, by license or otherwise, to the use of any trademarks, service marks, logos or the name of Chiron for any purpose. Neither party shall use the name or marks or logos of the other party for any purpose without the prior written consent of such other party.

     10.5. Assignment. Neither party shall assign its rights or obligations under this Agreement without the prior written consent of the party, except that (i) Chiron may, without Licensee’s consent, assign all of its rights and obligations hereunder in connection with any transfer of all of the Chiron Patent Rights, to any Affiliate of Chiron or another third party, (including, without limitation, a successor in interest) provided, however, that such Affiliate or assignee or successor in interest agrees to be bound by the terms of this Agreement; and (ii) Licensee may and shall assign all of its rights and obligation hereunder to a successor in interest of the entire business to which this Agreement relates, provided that such successor in interest agrees to be bound by the terms of this Agreement. Subject to the foregoing, this Agreement shall inure to the benefit of and be binding on the parties’ permitted successors and assigns.

     10.6. Waivers and Modifications. The failure of any party to insist on the performance of any obligation hereunder shall not be deemed to be a waiver of such obligation. Waiver of any breach of any provision hereof shall not be deemed to be a waiver of any other breach of such provision or any other provision. No waiver, modification, release or amendment of any obligation under or provision of this Agreement shall be valid or effective unless in writing and signed by all parties hereto.

     10.7. Choice of Law and Jurisdiction. This Agreement shall be governed by and shall be construed in accordance with the laws of the State of California without regard to the conflicts of laws provisions thereof.

     10.8. Dispute Resolution. Any dispute arising out of or in connection with this Agreement shall be resolved by the parties in the following manner:

          10.8.1. Informal Settlement. Either party may initiate resolution of such controversy by providing to the other party a brief and concise statement of the initiating party’s claims, together with relevant facts supporting them, and referring to this Section 10. For a period of sixty (60) days from the date of such statement, or such longer period as the parties may agree in writing, the parties shall make good faith efforts to settle the dispute. Such efforts shall include, without limitation, full presentation of the parties’ respective positions before their respective designated senior executives.

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          10.8.2. Arbitration. Any controversy or claim arising out of or relating to this Agreement or the validity, inducement, or breach thereof, shall be settled by binding arbitration before three arbitrators in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) then pertaining, except where those rules conflict with this provision, in which case this provision controls. The parties hereby consent to the jurisdiction of the federal district court for the district in which the arbitration is held for the enforcement of this provision and the entry of judgment on any award rendered hereunder. Should such court for any reason lack jurisdiction, any court with jurisdiction shall enforce this clause and enter judgment on any award. Each arbitrator shall be an attorney who has at least fifteen (15) years of experience with a law firm or corporate law department of over twenty-five (25) lawyers or was a judge of a court of general jurisdiction. The arbitration shall be held in San Francisco, California or such other place as the parties agree, and in rendering the award the arbitrators must apply the substantive law of California (except where that law conflicts with this clause), except that the interpretation and enforcement of this arbitration provision shall be governed by the Federal Arbitration Act. The arbitrators shall be neutral, independent, disinterested, impartial and shall abide by the Code of Ethics for Arbitrators in Commercial Disputes approved by the AAA. Within forty-five (45) days of initiation of arbitration, each party shall select its arbitrator. The third arbitrator shall be mutually agreed upon by the two arbitrators chosen by the parties. In the event that the two arbitrators cannot agree on a third arbitrator within sixty (60) days of their approval then AAA shall appoint an arbitrator who shall be an attorney who has at least fifteen (15) years of experience with a law firm or corporate law department of over twenty-five (25) lawyers or was a judge of a court of general jurisdiction. The parties shall reach agreement upon and thereafter follow procedures assuring that the arbitration will be concluded and the award rendered within no more than eight months from selection of the arbitrators. Failing such agreement, the AAA will design and the parties will follow procedures that meet such a time schedule. Each party has the right before or, if the arbitrator cannot hear the matter within a acceptable period, during the arbitration to seek and obtain from the appropriate court provisional remedies such as attachment, preliminary injunction, replevin, etc., to avoid irreparable harm, maintain the status quo or preserve the subject matter of the arbitration. Notwithstanding the foregoing, either party may seek an order from a court of competent jurisdiction to restrain the other from violating the nondisclosure provisions of Article 9, the restrictions on use of trademarks in Section 10.4, or the limitations on the use of the Chiron Patent Rights set forth in Article 2.

     10.9. Entire Agreement. This Agreement and the exhibits hereto constitute the entire agreement between the parties as to the subject matter hereof, and supersede all prior negotiations, representations, agreements and understandings regarding the same.

     10.10. Counterparts. This Agreement may be executed in counterparts with the same effect as if both parties had signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument.

     10.11. Relationship of the Parties. Each party is an independent contractor under this Agreement. Nothing contained herein is intended or is to be construed so as to constitute Chiron and Licensee as partners, agents or joint venturers. Neither party shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the

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other party or to bind the other party to any contract, agreement or undertaking with any third party.

     10.12. Headings. Headings and captions are for convenience only and are not be used in the interpretation of this Agreement.

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date set forth above.

CHIRON CORPORATION		INTERMUNE, INC.
By:	/s/ Craig A. Wheeler	By:	/s/ Thomas Kassberg
	Craig A. Wheeler	Name:	Thomas Kassberg
	President, Chiron BioPharmaceuticals	Title:	Sr. VP Business Development

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EXHIBIT A
Patents Relating to HCV

[ * ]

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EXHIBIT B
Location(s) of Licensee Facility(ies)

InterMune, Inc., 3280 Bayshore Boulevard, Brisbane, CA 94005
[ * ]

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EXHIBIT C
Identified Product(s) and Latest Stage of Clinical Achievement for each such Identified
Product arising from Licensee’s Prior Activity

(None)

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EX-10.62

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EXHIBIT 10.62

Execution Copy

DRUG DISCOVERY COLLABORATION AGREEMENT

     This DRUG DISCOVERY COLLABORATION AGREEMENT (the “Agreement”), effective as of September 13, 2002 (the “Effective Date”), is made by and between Array BioPharma Inc., a Delaware corporation, having a principal place of business at 3200 Walnut Street, Boulder, Colorado 80301 (“Array”), and InterMune, Inc., a Delaware corporation, having a principal place of business at 3280 Bayshore Boulevard, Brisbane, California 94005 (“InterMune”).

BACKGROUND

     A. InterMune has experience and expertise in the biological components of drug discovery, development and commercialization of therapeutics.

     B. Array has developed novel and proprietary methods for the generation of compound libraries, and has skills, expertise and experience in lead generation and optimization to produce clinical candidates from drug discovery programs.

     C. InterMune and Array desire to collaborate to identify orally active small molecule-based therapeutics for modulating the Target (as defined below), with the goal of developing compounds with desired activity and selectivity.

     D. InterMune wishes to acquire an exclusive license to develop and commercialize Products (as defined below), and Array wishes to grant to InterMune such license, on the terms and conditions herein.

     NOW, THEREFORE, for and in consideration of the covenants, conditions and undertakings hereinafter set forth, it is agreed by and between the Parties as follows:

ARTICLE 1
DEFINITIONS

     As used herein, the following terms will have the meanings set forth below:

     1.1 “Affiliate” shall mean any corporation or other entity, whether de jure or de facto, which is directly or indirectly controlling, controlled by or under common control of a Party hereto for so long as such control exists. For the purposes of this Section 1.2, “control” shall mean the direct or indirect ownership of at least fifty percent (50%) of the outstanding shares or other voting rights of the subject entity having the power to vote on or direct the affairs of the entity, or if not meeting the preceding, the maximum voting right that may be held by the particular Party under the laws of the country where such entity exists.

     1.2 “Agreement Term” shall mean the term of this Agreement, as determined in accordance with Article 12.

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     1.3 “Collaboration Technology” shall mean all Collaboration Patents and Collaboration Know-How.

     1.4 “Collaboration Patents” shall mean all patents and patent applications anywhere in the world claiming an invention first conceived and/or reduced to practice solely or jointly by Array and/or InterMune personnel in the course of performing the Research Collaboration, including without limitation any such invention comprising a Hit Compound, Lead Compound or Product, or method of use or process for the synthesis thereof or composition-of-matter containing such Hit Compound, Lead Compound or Product. The Collaboration Patents may include the following types of patent applications and patents: divisionals, continuations, continuations-in-part, reissues, reexaminations, renewals or extensions, substitutions, confirmations, registrations and revalidations.

     1.5 “Collaboration Know-How” shall mean all Know-How made or developed solely or jointly by Array and/or InterMune in the course of performing the Research Collaboration, in each case, which is necessary or useful for the development, manufacture, use, sale or other commercialization of any Hit Compound, Lead Compound or Product. Collaboration Know-How does not include patentable inventions claimed in the Collaboration Patents.

     1.6 “Consumer Price Index” or “CPI” means the Consumer Price Index, All Urban Consumers, as published by the U.S. Bureau of Labor Statistics.

     1.7 “Control” shall mean, with respect to any patent application, patent or Know-How, the ownership of, or possession of a license under, such patent application, patent or Know-How, together with the right to grant a license to the other Party thereunder as provided in this Agreement.

     1.8 “Field” shall mean the discovery, development and commercialization of chemical entities for the therapeutic or prophylactic treatment of diseases and conditions in humans, a mechanism of action of which chemical entities is to modulate the activity of a Target.

     1.9 “FTE” shall mean a full-time person dedicated to the Research Collaboration, or in the case of less than a full-time, dedicated person, a full-time equivalent person year, based upon a total of one thousand eight hundred eighty (1,880) hours per year of work in connection with the Research Collaboration.

     1.10 “JRC” or “Joint Research Committee” shall have the meaning set forth in Section 3.1.

     1.11 “Hit Compound” shall mean any chemical entity that meets the Hit Compound Criteria.

     1.12 “Hit Compound Criteria” shall mean (i) those criteria set forth in the Research Plan to be “Hit Compound Criteria,” and/or (ii) such other criteria as are approved by the JRC and agreed in writing by the Parties. If the Parties agree to any such other criteria, then their writing shall clearly set forth whether such criteria are in addition to, or alternative to, such criteria set forth in the Research Plan as of the Effective Date.

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     1.13 “Know-How” shall mean ideas, inventions, data, instructions, processes, formulas, expert opinions and other information (including, without limitation, biological, chemical, pharmacological, toxicological, pharmaceutical, physical, analytical, clinical, safety, manufacturing and quality control data and information).

     1.14 “Lead Compound” shall mean any chemical entity that meets the Lead Compound Criteria.

     1.15 “Lead Compound Criteria” shall mean (i) those criteria set forth in the Research Plan to be “Lead Compound Criteria,” and/or (ii) such other criteria as are approved by the JRC and agreed in writing by the parties. If the Parties agree to any such other criteria, then their writing shall clearly set forth whether such criteria are in addition to, or alternative to, such criteria set forth in the Research Plan as of the Effective Date.

     1.16 “NDA” shall mean a New Drug Application, as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or any corresponding foreign application, registration or certification.

     1.17 “Net Sales” shall mean the gross invoice price by InterMune or its Affiliates or Sublicensees, as the case may be, for all Products that themselves or the methods of manufacture or use of which are claimed by any Valid Claim, sold by InterMune, its Affiliates or Sublicensees ("Selling Party") under this agreement in arm's length sales to Third Parties, less deductions allowed to the Third Party customer by the Selling Party on such sales for: (a) trade, quantity, and cash discounts; (b) credits, rebates (including those to managed-care entities and government agencies), and allowances or credits to customers on account of rejection or returns (including, but not limited to, wholesaler and retailer returns) or on account of retroactive price reductions affecting such Product; (c) freight, postage and duties; and (d) sales and excise taxes, other consumption taxes, value-added taxes, custom duties and compulsory payments to governmental authorities and any other governmental charges imposed upon the sale of such Product to Third Parties. In addition, the Selling Party may exclude from Net Sales a reasonable provision for uncollectible accounts, to the extent such reserve is determined in accordance with generally accepted accounting standards, consistently applied across all product lines of the particular Party. Notwithstanding the foregoing, Net Sales shall not include sales among InterMune, its Affiliates and Sublicensees for resale or use in clinical trials, provided that amounts invoiced upon such resale shall be included within the calculation of Net Sales. For clarity, amounts invoiced by InterMune and its Affiliates and Sublicensees to their distributors shall be included in the calculation of Net Sales hereunder, but amounts invoiced by the distributors to their customers shall not.

     1.18 “Party” or “Parties” shall mean, respectively, Array or InterMune individually, or Array and InterMune collectively.

     1.19 “Phase II” shall mean the phase of human clinical trials for which the primary endpoints include a determination of dose ranges and/or a preliminary determination of efficacy in patients in the United States or a country other than the United States. Phase II specifically excludes that phase of human clinical trials commonly referred to as “Phase I” clinical trials, which are solely intended to determine safety but not definitive dosing and efficacy of a pharmaceutical.

     1.20 “Phase III” shall mean the phase of human clinical trials the principal purpose of which are to establish safety and efficacy of one or more particular doses in patients being studied, and which will (or are intended to) satisfy the requirements of a pivotal trial for purposes of obtaining approval of a product in a country by the health regulatory authority in such country to market such product.

     1.21 “Preparatory Know-How” shall mean all Know-How made or developed by Array on or after May 1, 2002 and prior to the Effective Date that relates to the subject matter of the Research Collaboration and/or to any Hit Compound, Lead Compound or Product, to the extent Controlled by Array.

     1.22 “Preparatory Patents” shall mean all patent applications and patents anywhere in the world claiming any invention conceived and/or reduced to practice by Array on or after May 1, 2002 and prior to the Effective Date that relates to the subject matter of the Research Collaboration and/or to any Hit Compound, Lead Compound or Product, in each case to the extent Controlled by Array.

     1.23 “Product” shall mean any diagnostic, therapeutic or prophylactic product incorporating as an active ingredient a Hit Compound or a Lead Compound.

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     1.24 “Research Collaboration” shall mean the research activities undertaken by the Parties during the Research Term pursuant to Sections 2.1 to 2.3 below.

     1.25 “Research Plan” shall mean the written research plan that the Parties have agreed to on or before the Effective Date. The Research Plan may be amended from time to time by mutual agreement of the Parties, and shall be updated as set forth in Section 2.2.2.

     1.26 “Research Term” shall mean the term of the Research Collaboration, as provided in Section 2.3 below.

     1.27 “Reserved Target” shall mean those targets identified in Exhibit A as “Reserved Targets.”

     1.28 “Sublicensee” shall mean, with respect to a particular Product, a Third Party to whom InterMune has granted a license or sublicense under the Collaboration Technology to make and sell such Product. As used in this Agreement, “Sublicensee” shall specifically exclude a Third Party to whom InterMune has granted the right to distribute such Product, provided that the economics of the distribution relationship involve payment of a transfer price by the distributor, but not a royalty to InterMune calculated as a percentage of net sales of the Product by the distributor.

     1.29 “Target(s)” shall mean (i) the target identified in Exhibit A as the “Target,” and (ii) any Reserved Target selected in accordance with Section 2.2.1 below for use in the Research Collaboration.

     1.30 “Third Party” shall mean any person or entity other than Array and InterMune, and their respective Affiliates.

     1.31 “Valid Claim” shall mean a claim of an issued and unexpired patent or a claim of a pending patent application, in each case within the Collaboration Patents or the Preparatory Patents, and with respect to which Array grants InterMune rights hereunder (i.e., under which no other entity is licensed, enjoys a covenant not to sue or has the right to practice with Hit Compounds, Lead Compounds or Products, other than via a sublicense from InterMune, and not those Preparatory Patents for which the extent of Array’s Control does not enable it to grant InterMune exclusive rights hereunder), and in each case which claim (a) has not been held unenforceable or invalid by a court or other governmental agency of competent jurisdiction from which no appeal can be or has been taken, and which has not been disclaimed or admitted to be invalid or unenforceable through reissue, reexamination, disclaimer or otherwise, and (b) in addition [ * ].

ARTICLE 2
RESEARCH COLLABORATION

     2.1 Goals. The goal of the Research Collaboration is the discovery and optimization of patentable compositions that are orally active small molecule inhibitors in the Field pursuant to the Research Plan.

     2.2 Conduct of the Research Collaboration. Subject to the terms and conditions set forth herein, the Parties agree to conduct research under the Research Collaboration, which shall be funded as set forth in Article 5 below. During the Research Term, Array and InterMune shall collaborate and each use their commercially reasonable efforts to conduct their respective responsibilities under the Research Collaboration in accordance with the Research Plan, within the time frames contemplated therein. In particular, Array shall devote the numbers of FTEs set forth for it to devote in the Research Plan to carrying out the tasks assigned to Array at the times set forth therein.

          2.2.1 Target Selection. The initial subject of the Research Collaboration shall be the Target identified in the Research Plan as of the Effective Date. During the Research

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Term, either Party may propose in writing that the Research Collaboration be expanded to include research involving one of more Reserved Target(s). Upon written consent of the other Party, each Reserved Target so proposed shall cease to be a Reserved Target for purposes of this Agreement and shall thereafter be deemed a Target.

     2.2.2 Research Plan. The Research Collaboration shall be carried out in accordance with the Research Plan. The Research Plan as it exists as of the Effective Date establishes specific research objectives and the general research tasks to be performed and resources to be provided by each Party. Promptly after the Effective Date, the Parties shall meet and agree on the more specific tasks to be undertaken to achieve such research objectives and general tasks, the specific anticipated timelines for such specific tasks, and an FTE schedule setting forth how many FTEs Array will devote to the performance of the tasks assigned to it in each quarter of the Research Term. Within thirty (30) days after the Effective Date, the JRC shall meet to discuss and approve such an update to the Research Plan to cover such subject matter. Thereafter, the Research Plan shall be reviewed on an ongoing basis and may be amended by the Joint Research Committee in accordance with Article 3, or by the Parties in accordance with Section 4.4.

     2.3 Term and Termination of Research Collaboration. The Research Collaboration shall commence on the Effective Date and shall end upon the first to occur of (i) two (2) years after the Effective Date, (ii) the termination of this Agreement, or (iii) ninety (90) days after written notice from InterMune that InterMune elects (in its sole discretion) to early terminate the Research Collaboration, such notice to be given no earlier than nine (9) months after the Effective Date (such period beginning on the Effective Date and ending upon the earliest of (i), (ii) and (iii), the “Research Term”). InterMune shall have the right to extend the Research Term for up to an additional two (2) years. To exercise such right, InterMune shall provide written notice to Array on or before the date ninety (90) days before the second anniversary of the Effective Date.

     2.4 Selection of Candidates for Further Development. From time to time, either Party may suggest that the JRC consider a particular Hit Compound or Lead Compound to be recommended to InterMune for selection for further development. The JRC’s recommendation is not binding on InterMune. The purpose of having the JRC make any such recommendation is to foster collaboration and scientific exchange between the Parties during the Research Term. InterMune agrees to inform Array of any Hit Compounds and Lead Compounds researched hereunder for which InterMune is undertaking any GLP toxicology studies in the next report under Section 7.2 after such studies commence.

     2.5 Records; Inspection.

          (a) Records. Array and InterMune shall maintain records of the Research Collaboration (or cause such records to be maintained) in sufficient detail and in good scientific manner as will properly reflect all work done and results achieved in the performance of the Research Collaboration (including all data in the form required under any applicable governmental regulations and as directed by the JRC).

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          (b) Reports and Information Exchange. Each Party shall keep the other Party, including the Joint Research Committee, informed as to its progress under the Research Plan. During the Research Term, Array and InterMune shall each provide the other, at least once quarterly, a reasonably detailed written summary of research activities and results in connection with the Research Collaboration. In addition, if requested in writing by InterMune, Array shall provide InterMune with copies of its records required to be kept pursuant to Section 2.5(a), including without limitation the relevant portions of laboratory notebooks of Array personnel participating in the Research Collaboration.

     2.6 Post Research Collaboration Activities. For each Hit Compound, Lead Compound and Product, as between the Parties, InterMune shall be responsible, at its sole expense, for conducting all clinical development of such Lead Compound or Product following the termination of the Research Term, and all commercialization of such Hit Compound, Lead Compound or Product.

     2.7 Exclusivity.

          2.7.1 General. Except in performing pursuant to the Research Collaboration, Array and its Affiliates shall not knowingly [ * ], alone or with a Third Party, [ * ] specifically directed to (i) [ * ], during the Research Term and for a period of [ * ] thereafter, (ii) or [ * ], during the Research Term. It is understood and agreed that [ * ] shall not be deemed a violation of this Section 2.7.

          2.7.2 Option. During the Research Term, prior to Array or any of its Affiliates entering into material or substantial negotiations with a third party in connection with [ * ], other than a Target or a Reserved Target, or using [ * ], Array will notify InterMune in writing of such intent. Within thirty (30) days after receipt of such notice, InterMune will notify Array in writing whether InterMune is interested in pursuing such activities in collaboration with Array, under terms equivalent to those contained in the Agreement. If so, InterMune and Array will negotiate in good faith an agreement under which Array and InterMune would collaborate on such compound discovery research. If the parties have not agreed upon terms and conditions of such an agreement within ninety (90) days after receipt of InterMune’s notice, or if InterMune does not indicate its interest within such thirty (30) day period, then Array and its Affiliates shall be free to pursue [ * ] that was the subject of Array’s notice to InterMune, alone or with a Third Party, without further obligation to InterMune, [ * ].

          2.7.3 Change of Control. Notwithstanding the provision of Sections 2.7.1 and 2.7.2, in the event of a Change of Control (as defined below) of Array, the provisions of such Sections shall not apply to any research or development program that a portion of the surviving entity that was not Array (prior to the Change of Control) had ongoing as of immediately prior to the date of such Change of Control. For purposes of this Section 2.7, a “Change of Control” shall mean the merger, consolidation, sale of substantially all of its assets or similar transaction or series of transactions, as a result of which Array’s shareholders before such transaction or series of transactions own less than fifty percent (50%) of the total number of voting securities of the surviving entity immediately after such transaction or series of transactions. For clarity, if as a result of any such Change of Control, Array exists as a wholly owned subsidiary of a parent, then the provisions of this Section 2.7 shall continue to apply to Array, but not to such parent.

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     2.8 Existing Library Compounds. As of the Effective Date, the Parties will focus upon new compound libraries created pursuant to the Research Collaboration, and the Parties will not engage in high throughput screening against pre-existing or separate compound libraries of Array pursuant to the Research Collaboration.

ARTICLE 3
MANAGEMENT

     3.1 Joint Research Committee. Promptly after the Effective Date, InterMune and Array will establish a committee (the “Joint Research Committee” or “JRC”) to oversee, review and recommend direction of the Research Collaboration, and provide advice regarding prosecution of jointly-owned patent applications directed to inventions within the Collaboration Technology. The responsibilities of the Joint Research Committee shall include, among other things: (i) setting priorities and modifying the Research Plan; (ii) recommending the number of FTEs to be provided for in the Research Plan; (iii) monitoring and reporting research progress and ensuring open and frequent exchange between the Parties regarding Research Collaboration activities; and (iv) recommending Hit Compounds and Lead Compounds for selection by InterMune as candidates for further development. The JRC (and any of its subcommittees) shall have no authority to amend or waive compliance with this Agreement. The JRC’s decision-making shall be as set forth in Section 3.4.

     3.2 Membership. The JRC shall include two (2) representatives of each of InterMune and Array. Each Party’s members shall be selected by that Party. Array and InterMune may each replace its JRC representatives at any time, upon written notice to the other Party. From time to time, the JRC may establish subcommittees, to oversee particular projects or activities, and such subcommittees will be constituted as the JRC agrees.

     3.3 Meetings. During the Research Term, the JRC shall meet at least quarterly, or as agreed by the Parties, at such locations as the Parties agree, and will otherwise communicate regularly by telephone, electronic mail, facsimile and/or video conference. With the consent of the Parties, other representatives of Array or InterMune may attend JRC meetings as nonvoting observers. Each Party shall be responsible for all of its own expenses associated with attendance of such meetings. The first meeting of the JRC shall occur within forty-five (45) days after the Effective Date.

     3.4 Decision Making. Decisions of the JRC shall be made by unanimous agreement. In the event that unanimity is not achieved within the JRC, then, other than with respect to setting criteria for Hit Compounds and Lead Compounds, InterMune shall have the deciding vote; provided, however, that notwithstanding the foregoing, Array shall not be obligated, as a result of such a deciding vote by InterMune, to violate any obligation or agreement it may have to or with any Third Party; provided that the obligation to or agreement with the Third Party is not in conflict with this Agreement as originally executed or the activities that would be required or contemplated of Array under the Research Plan as it exists as of the Effective Date. Disputes among the JRC or the Parties as to whether to change or add to the Hit Compound Criteria and/or the Lead Compound Criteria shall be non-justiciable, and the Hit Compound Criteria and the Lead Compound Criteria shall remain as they exist as of the Effective Date unless the Parties otherwise agree in writing.

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ARTICLE 4
LICENSES

     4.1 Research Licenses.

     4.1.1 Grant from InterMune. InterMune hereby grants Array a worldwide, non-exclusive, non-transferable, non-sublicensable, royalty-free, right and license, under InterMune’s interest in the Collaboration Technology, solely to conduct the Research Collaboration during the Research Term.

     4.1.2 Grant from Array. Array hereby grants InterMune a worldwide, non-exclusive, non-transferable, non-sublicensable, royalty-free, right and license, under Array’s interest in the Collaboration Technology and under the Preparatory Patents and the Preparatory Know-How, solely to conduct the Research Collaboration during the Research Term.

     4.2 Commercial License.

          4.2.1 License to Lead Compounds, Development Candidates and Corresponding Products. Subject to the terms and conditions of this Agreement, Array hereby grants to InterMune a worldwide, exclusive, royalty-bearing right and license under Array’s interest in the Collaboration Technology and under the Preparatory Patents, to research, develop, make, have made, use, import, offer for sale and sell Hit Compounds, Lead Compounds and Products worldwide.

          4.2.2 Preparatory Know-How. Subject to the terms and conditions of this Agreement, Array hereby grants to InterMune a worldwide, non-exclusive, royalty-bearing right and license under the Preparatory Know-How to research, develop, make, have made, use, import, offer for sale and sell Hit Compounds, Lead Compounds and Products worldwide.

          4.2.3 Sublicenses. Subject to the terms and conditions of this Agreement, InterMune shall have the right to sublicense the rights granted in Section 4.2.1 above through one (1) or more tiers of sublicensees. Each sublicense granted by InterMune shall be consistent with all the terms and conditions of this Agreement, and shall automatically terminate with respect to the patents and know-how licensed hereunder when this Agreement terminates. InterMune shall remain responsible to Array for the compliance of each such Sublicensee with this Agreement as applicable to such Sublicensee, and the payment of any amounts due hereunder as a result of the activities of Sublicensees.

          4.2.4 Marketing Rights. InterMune shall have the exclusive right to market, sell and distribute Products. In exercising such rights, InterMune may select trademarks for such Products, and InterMune shall own all right, title or interest in such trademarks (subject to any pre-existing rights of Array or Third Parties).

     4.3 License to Array. InterMune hereby grants to Array a worldwide, non-exclusive, transferable, royalty-free right and license, with the right to grant and authorize sublicenses, under InterMune’s interest in the Collaboration Technology, to exploit the same outside the scope of Array’s exclusive license to InterMune pursuant to Section 4.2.

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     4.4 Third-Party Licenses. In the event that the Parties agree to acquire additional technologies from a Third Party specifically for use in the conduct of the Research Collaboration in the Field, InterMune will be responsible for the payment of any amounts due to Third Parties for the license of intellectual property which directly applies to any Target, and the costs of negotiating, preparing and executing any such license, unless the Parties otherwise mutually agree in writing. InterMune shall use its reasonable efforts to negotiate in good faith and obtain all Third Party licenses that it agrees to seek because they are necessary or useful for the conduct of the Research Collaboration. If, during the Research Term, InterMune is unable, despite such efforts, to obtain any license necessary for the conduct of the Research Collaboration, and the Parties are unable to agree to amend the Research Plan such that such license is no longer necessary to the conduct of the Research Collaboration, then InterMune shall have the right to terminate this Agreement upon thirty (30) days notice.

     4.5 No Implied Licenses. Only the licenses granted pursuant to the express terms of this Agreement shall be of any legal force or effect. No other license or rights shall be created by implication, estoppel or otherwise.

     4.6 No Products Other than Products. Except as otherwise agreed in writing or specifically provided in the terms of this Agreement, neither InterMune nor its Affiliates nor Sublicensees shall, directly or indirectly, commercialize any Hit Compound or Lead Compound itself or the method of manufacture or use of which is claimed by the Collaboration Patents or uses the Collaboration Know-How, other than as a Product in accordance with this Agreement (i.e., any Products sold by InterMune, its Affiliates and Sublicensees in exercise of the license granted InterMune in Section 4.2.1 shall be milestone and royalty-bearing to the extent set forth in this Agreement).

ARTICLE 5
PAYMENTS

     5.1 Research Collaboration Funding.

          5.1.1 Research Phase Payment Schedule. InterMune agrees to pay Array research funding for the conduct of the Research Collaboration quarterly, in advance, in an amount equal to one quarter (1/4) of [ * ] FTEs (or, if lesser, the number of Array FTEs scheduled in the Research Plan to be provided by Array in the upcoming quarter), multiplied by the applicable Array FTE Rate (as defined below in Section 5.1.2). The initial quarterly payment shall be made on or before the date Array FTEs are first deployed in accordance with the Research Plan, and subsequent payments shall be made on or before the first day of each calendar quarter thereafter. Such payments are non-creditable and non-refundable, subject to the remainder of this Section 5.1.1. Within thirty (30) days after the end of each calendar quarter during which InterMune is funding Array FTEs devoted to the Research Collaboration, Array shall notify InterMune in writing of the number of FTEs Array actually devoted to the Research Collaboration during such calendar quarter. If such actual FTEs are less than the number of FTEs for which InterMune paid, then InterMune may credit the overpayment against the next payment due Array under this Agreement. If no payment will be due Array within the next three (3) months after Array was required to notify InterMune of such actual FTEs, Array shall promptly refund the overpayment to InterMune. In addition, InterMune may audit Array’s FTE

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records relating to the Research Collaboration, in the same manner and subject to the same restrictions as those set forth for Array’s audits pursuant to Section 6.4, and any discrepancies shall be trued-up as provided in the foregoing two (2) sentences. In no event shall InterMune be required to fund a greater number of Array FTEs in any calendar quarter than one quarter (1/4) of [ * ] FTEs, or, if lesser, those provided in the Research Plan for Array to provide in such quarter.

          5.1.2 FTE Rate. The “Array FTE Rate” shall be equal to [ * ] per FTE per year. Effective after the first anniversary of the Effective Date, the FTE Rate shall increase no more than once annually by the percentage increase, if any, in the Consumer Price Index for all Urban Consumers, as published by the U.S. Department of Labor, Bureau of Statistics, since the Effective Date or the last adjustment hereunder, whichever is later.

          5.1.3 Non-FTE Costs. Non-FTE costs and research requirements associated with performance of the Research Collaboration at Array shall be borne by Array, except that Array shall not be required to incur any extraordinary [ * ] costs without Array’s prior written consent. Extraordinary [ * ] costs means material costs in excess of [ * ].

          5.1.4 PK Outsourcing. In the event that the Parties agree, in the course of the Research Collaboration, to enter into one or more agreements with a Third Party(ies) for the performance of [ * ] with respect to a particular Hit Compound(s) and/or Lead Compound(s), the Parties shall be responsible for the payment of the aggregate amounts due such Third Party(ies) under such agreements as follows: (i) Array shall be responsible for payment of [ * ] due during each of (1) the period commencing on the Effective Date and ending on the first anniversary thereof, and (2) the following twelve (12) months (unless the Research Term is earlier terminated); and (ii) InterMune shall responsible for the payment of all additional amounts that are approved in advance by InterMune. The Parties anticipate that they will contract with Third Parties for [ * ] in each year of the Research Term. The Parties will mutually agree the specific studies to be conducted, and the specific Third Parties that will conduct the studies. Array shall not unreasonably withhold its agreement to particular such studies, or withhold its consent to the Parties contracting for any such studies on the grounds of the cost of the studies.

     5.2 Development Funding. In addition to the funding obligations set forth in Section 5.1, InterMune shall be responsible for all costs and expenses for otherwise developing and commercializing the Products, including without limitation, preclinical development, clinical development, premarketing and commercial activities. For clarity, this means that as between the Parties, InterMune is responsible for the costs of activities in exercise of the license granted it in Section 4.2.1.

     5.3 Milestones. InterMune shall pay to Array the following amounts [ * ] following the first achievement by Array or by InterMune or its Affiliates, Sublicensees or other designees, as the case may be, of each of the following milestones with respect any [ * ] or Product that itself, or the manufacture, use or sale of which is claimed by a Valid Claim or that incorporates as its active ingredient a Hit Compound that was identified as such pursuant to the Research Collaboration (a “Milestone Product”).

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Milestones	Payment Amount
1. [ * ]	$	150,000
2. First human clinical trial of a Milestone Product initiated.	$	500,000
3. [ * ]	$	[ * ]
4. [ * ]	$	[ * ]
5. [ * ]	$	[ * ]

          5.3.1 Milestone payments [ * ] set forth above shall each be payable [ * ] upon the achievement of the corresponding milestone event with a Milestone Product being developed primarily for the treatment of hepatitis C infections and related conditions (collectively, the “HCV Indication”), and [ * ] upon the achievement of the corresponding milestone event with a Milestone Product [ * ]. Milestone payment [ * ] set forth above shall be due [ * ], and milestone payments [ * ] set forth above shall be due [ * ] in relation to a Milestone Product being developed for the HCV Indication, [ * ], regardless of the number of additional times the corresponding milestone events are achieved with one (1) or multiple [ * ] or Milestone Products.

          5.3.2 In the event that one or more milestone payments described above becomes due (a “Later Milestone”) in relation to the achievement of a corresponding milestone event with a Milestone Product being developed primarily for the HCV Indication, and one or more of the earlier-stage milestone payments has not been paid to Array in relation to the achievement of a corresponding milestone event with a Milestone Product being developed primarily for the HCV Indication, then all earlier-stage milestone payments in relation to the achievement of a corresponding milestone event with a Milestone Product being developed primarily for the HCV Indication that have not been paid shall be paid together with the Later Milestone payment. Similarly, if a Later Milestone becomes due in relation to the achievement of the corresponding milestone event with a Milestone Product [ * ], then all earlier stage milestone payments in relation to the achievement of the corresponding milestone events with a Milestone Product [ * ] shall be paid together with such Later Milestone. For clarity, nothing in this Section 5.3.2 shall be deemed to contradict the limits set forth in Section 5.3.1 as to the number of times each milestone payment is available under this Agreement.

          5.3.3 For purposes of this Section 5.3, a clinical trial shall be deemed initiated upon the first dosing of the first patient in such trial.

     5.4 Royalties.

          5.4.1 Products. InterMune shall pay Array a running royalty of [ * ] of Net Sales of each Product during the time periods and in countries in which its manufacture, use or sale of such Product is claimed by a Valid Claim. Such rate shall not be increased if multiple Valid Claims claim the manufacture, use or sale of such Product. Notwithstanding the foregoing, if and when the only Valid Claim claiming such manufacture, use or sale is a claim directed to a method of use or manufacture solely invented by InterMune (an “InterMune Sole Non-composition Claim”), then no such running royalty shall be due. No running royalties shall be due hereunder on the basis of the use of the Collaboration Know-How.

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          5.4.2 Royalty Term. InterMune’s obligation to pay royalties to Array under this Section 5.4 shall continue for each Product that itself or the method of manufacture or use of which is claimed by a Valid Claim, on a country-by-country basis, until such time as there are no Valid Claims (other than InterMune Sole Non-composition Claims) which but for the licenses granted herein would be infringed by the manufacture, use or sale of such Product in such country. Upon the expiration of such term of royalties in any country with respect to any Product, InterMune’s license under Section 4.2 with respect to such Product in such country shall automatically become fully paid, nonexclusive and perpetual.

          5.4.3 Third Party Royalties. In the event that (i) it becomes necessary or useful for InterMune to obtain a license under a valid, issued patent of a Third Party, where such patent covers the composition, methods of therapeutic use, or all practical methods of synthesis of a Product, and such patent would be infringed, but for the existence of the Third-Party license, by the discovery, research, development or sale of such Product, and (ii) InterMune must pay such Third Party for such license a royalty on Net Sales of such Product in a particular country, then InterMune may deduct [ * ] of the royalties reasonably so paid to such Third Party against royalties due Array on Net Sales of such Product; provided that the royalties otherwise due to Array in any quarter will not be lower than [ * ] (the “Floor”) by operation of an offset provided for in this Section 5.4.3. Amounts that InterMune is unable to deduct in a particular calendar quarter due to the Floor may be carried forward and deducted in future calendar quarters, subject always to the Floor in the future calendar quarters.

          5.4.4 Combination Products. If InterMune sells any Product in the form of a combination product containing one or more active ingredients in addition to the active ingredient that is a Lead Compound (which may be either combined in a single formulation or packaged as separate formulations sold as a single package), Net Sales for such combination product will be calculated by multiplying actual Net Sales of such combination product by the fraction A/(A+B) where A is the invoice price of the Lead Compound portion of the combination product if sold separately, and B is the total invoice price of the other active ingredient or ingredients in the combination, if sold separately. If, on a country-by-country basis, the other active ingredient or ingredients in the combination are not sold separately in said country, Net Sales for the purpose of determining royalties due hereunder on the combination product shall be calculated by multiplying actual Net Sales of such combination product by the fraction A/C where A is the invoice price of the Lead Compound portion of the combination product if sold separately, and C is the invoice price of the combination product. If, on a country-by-country basis, the Licensed Product is not sold separately in said country, Net Sales for the purposes of determining royalties of the combination product shall be determined by the Parties in good faith on the basis of the fair market values of the different active ingredients of the combination Product.

          5.4.5 Compulsory License. If either Party learns that a Third Party other than an InterMune Affiliate or Sublicensee has obtained a compulsory license in any country under the Collaboration Patents, or Identified Patents or Preparatory Patents exclusively licensed to InterMune hereunder, to sell a Competitive Product (as defined below), then such Party shall promptly notify the other Party of such occurrence. If the royalty rate payable to Array under such compulsory license is less than the royalty rate otherwise applicable in such country hereunder, then, in each calendar year in which the Competitive Product is being sold in such

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country, and units of the Competitive Product equal at least [ * ] of the total combined units of such Competitive Product and the Product in the particular country, sold in such calendar year, then the royalty rate set forth in Section 5.4.1 shall be reduced, with respect to Net Sales in such country, to the lower royalty rates applicable in such country pursuant to such compulsory license. Any reduction in the royalty due Array as a result of sales of such Competitive Product shall be available to InterMune only with respect to Net Sales in those calendar years and in those countries described by the foregoing sentence. For the purposes of this Section 5.4.5, a “Competitive Product” shall mean any product the manufacture, use or sale of which is claimed by any of the foregoing patents, and which competes with any Product in the relevant country. If such compulsory license is required to be granted by InterMune, then the amounts received by InterMune pursuant to such compulsory license shall be deemed to be Net Sales hereunder (in lieu of the sales pursuant to the compulsory license being included in Net Sales).

          5.4.6 Later Claims. If (a) InterMune was not required to pay royalties on Net Sales of any Product during a time period when and in a country where a pending claim that would have qualified as a Valid Claim but for claiming a first priority to more than five (5) years from the date pendency was determined (that was “Temporarily Disqualified”, with derivative forms being interpreted accordingly), and that covers such Product itself or the method of manufacture or use thereof in such country, and (b) such claim later issues as an issued Valid Claim covering such Product itself or the method of manufacture or use thereof in such country, then (c) with the next royalty report due pursuant to Section 6.1 after such issuance (but no sooner than thirty (30) days after such issuance), InterMune shall report and pay to Array the royalties that would have been due pursuant to Section 5.4.1 on Net Sales of such Product in such country but for the Temporary Disqualification of such claim.

ARTICLE 6
PAYMENTS; BOOKS AND RECORDS

     6.1 Royalty Reports and Payments. After the first sale of a Product on which royalties are payable by InterMune or its Affiliates or Sublicensees hereunder, InterMune shall make quarterly written reports to Array within [ * ] after the end of each calendar quarter, stating in each such report, separately for InterMune and each Affiliate and Sublicensee, the aggregate Net Sales, by country, of each Product sold during the calendar quarter upon which a royalty is payable under Section 5.4 above. InterMune shall pay to Array royalties due at the rates specified in Section 5.4.

     6.2 Payment Method. All payments due under this Agreement shall be made from a bank located in the United States by bank wire transfer in immediately available funds to a bank account designated by Array. All payments hereunder shall be made in U.S. dollars. In the event that the due date of any payment subject to Article 5 hereof is a Saturday, Sunday or national holiday, such payment may be paid on the following business day. Any payments that are not paid on the date such payments are due under this Agreement shall bear interest to the extent permitted by applicable law at the prime rate as reported by the Chase Manhattan Bank, New York, New York, on the date such payment is due, plus an additional [ * ], calculated on the number of days such payment is delinquent.

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     6.3 Place of Royalty Payment; Currency Conversion. If any currency conversion shall be required in connection with the calculation of royalties hereunder, such conversion shall be made using the selling exchange rate for conversion of the foreign currency into U.S. Dollars, quoted for current transactions reported in The Wall Street Journal (U.S., Western Edition), averaged over all business days of the calendar quarter to which such payment pertains.

     6.4 Records; Inspection. InterMune and its Affiliates and Sublicensees shall keep complete, true and accurate books of account and records for the purpose of determining the royalty amounts payable under this Agreement. Such books and records shall be kept by such party for at least [ * ] following the end of the calendar quarter to which they pertain. Such records will be open for inspection during such [ * ] period by a public accounting firm to whom InterMune has no reasonable objection, solely for the purpose of verifying royalty statements hereunder. Such public accounting firm shall be under written obligations of confidentiality and non-use no less stringent than those set forth in Article 9. Such inspections may be made no more than once each calendar year, at reasonable times and on reasonable notice. Inspections conducted under this Section 6.4 shall be at the expense of Array, unless a variation or error producing an increase exceeding [ * ] of the amount stated for the period covered by the inspection is established in the course of any such inspection, whereupon all reasonable costs relating to the inspection for such period and any unpaid amounts that are discovered will be paid promptly by InterMune to Array together with interest thereon from the date such payments were due at the lesser of the prime rate as reported by the Chase Manhattan Bank, New York, New York, plus an additional [ * ] or the maximum rate permitted by law.

     6.5 Taxes. Each Party shall bear and, except as otherwise expressly provided in this Section 6.5, pay any and all taxes, duties, levies, and other similar charges (and any related interest and penalties), however designated, imposed on that party as a result of the existence or operation of this Agreement. If laws or regulations require that taxes be withheld, the paying Party will (i) deduct those taxes from the remittable payment, (ii) timely pay the taxes to the proper taxing authority, and (iii) send proof of payment to the other Party within sixty (60) days following that payment.

ARTICLE 7
DUE DILIGENCE

     7.1 Due Diligence. InterMune shall use commercially reasonable efforts to develop and commercialize at least one (1) Product, and to obtain the optimum commercial return for it in the major markets of the world for it, consistent with high professional standards for the research, development, commercialization, and marketing of pharmaceutical products of similar commercial value potential and patent coverage; provided, however, that, and only if, at least one (1) Lead Compound is identified pursuant to the Research Collaboration. Such diligence obligation shall be the sole diligence obligation of InterMune with respect to such development and commercialization, express or implied, under this Agreement or available in relation hereto at law or in equity. For the avoidance of doubt, the overriding goal of the Research Collaboration is to identify Lead Compounds, one of the criteria for which compounds is that the composition of matter of each (as distinct from their methods of use and manufacture) be patentable. If no such Lead Compound is identified in the Research Collaboration, then the Research Collaboration shall not have been successful in the way that the Parties had anticipated

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when the Parties entered into this Agreement and InterMune agreed to fund the Research Collaboration to the extent provided for hereunder. It is therefore the Parties’ intent that in such event, in recognition of InterMune’s sponsorship of the Research Collaboration to the extent provided for hereunder: (a) InterMune shall be entitled to retain its license pursuant to Section 4.2, and (b) InterMune shall have no diligence obligation with respect to the subject matter of such license.

     7.2 Reports. Until first commercial introduction of each royalty-bearing Product by or on behalf of InterMune hereunder, InterMune shall keep Array apprised of the status of the pre-clinical, clinical and commercial development of such Product by annually providing Array with a written report summarizing such activities with respect to the applicable Product (and the Lead Compound from which such Product is being developed) during the Agreement Term. The reports described in this Section 7.2 shall contain sufficient information to allow Array to monitor InterMune’s compliance with this Agreement, including without limitation, InterMune’s obligations with respect to the payment of the milestones set forth in Section 5.3. All reports and information provided under this Section 7.2 shall be deemed Confidential Information of InterMune. InterMune’s obligations pursuant to this Section 7.2 are subject to Section 13.4 regarding successors in interest to and Affiliates of Array.

ARTICLE 8
INTELLECTUAL PROPERTY

     8.1 Disclosure and Ownership of Inventions.

          8.1.1 Each Party shall promptly disclose to the other any patentable inventions conceived or first reduced to practice pursuant to the Research Collaboration by or on behalf of such Party promptly after such conception or reduction to practice. In addition, each Party shall disclose to the other any Collaboration Know-How promptly after it is made or developed.

          8.1.2 Inventorship of inventions that would be claimed by a Collaboration Patent shall be determined in accordance with U.S. laws of inventorship. Solely invented such inventions, together with the Collaboration Patents claiming such sole inventions, shall be solely owned by the Party whose personnel made the invention. The Parties joint inventions that would be claimed by Collaboration Patents, together with the Collaboration Patents claiming them, shall be jointly owned by the Parties. Such joint ownership shall be in accordance with the default rights enjoyed by co-inventors under U.S. patent law in the absence of a written agreement to the contrary (throughout the world to the maximum extent permitted by law), such that, without limitation and except as restricted by the licenses granted in Sections 4.1 and 4.2, financial commitments set forth in Article 5 and prosecution and enforcement provisions set forth in this Article 8, each Party may practice the subject matter of the jointly owned Collaboration Patents without a duty of accounting to the Party.

          8.1.3 Ownership of Collaboration Know-How shall be determined in accordance with the laws of the state of New York.

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     8.2 Patent Prosecution.

          8.2.1 Collaboration Technology. InterMune shall have the right, [ * ], to (i) prepare, file, prosecute and maintain Collaboration Patents directed to Hit Compounds, Lead Compounds and/or Products; pharmaceutical compositions containing a Hit Compound, Lead Compound, and/or a Product; and methods of making or using any of the foregoing; and (ii) conduct any interferences, re-examinations, reissues and oppositions relating thereto. InterMune shall keep Array fully informed as to the status of such patent matters, including without limitation, by providing Array the opportunity, as far in advance of filing dates as possible, to fully review and comment on any documents which will be filed in any patent office; reasonably considering Array’s comments thereon; and providing Array copies of any substantive documents relating to the Collaboration Patents that InterMune receives from patent offices promptly after receipt, including notice of all interferences, reissues, re-examinations, oppositions or requests for patent term extensions. InterMune may elect, upon thirty (30) days prior notice, to discontinue prosecution of any such patent applications and/or not to file or conduct any further activities with respect to such patent applications or patents. In the event InterMune declines to file or, having filed, fails to further prosecute or maintain any such patent applications or patents, or conduct any proceedings including, but not limited to, interferences, re-examinations, reissues, oppositions relating thereto, then Array shall have the right to prepare, file, prosecute and maintain such patent applications and patents in such countries as it deems appropriate, and conduct such proceedings, at its sole expense. In such case, InterMune shall promptly execute all necessary documents that may be required in order to enable Array to file, prosecute and maintain such patent applications and to conduct any such proceedings.

          8.2.2 Preparatory Patents. Section 8.2.1 shall apply mutatis mutandis to the preparation, filing, prosecution and maintenance of solely those Preparatory Patents that are directed primarily to Hit Compound(s) and/or Product(s) themselves, or the method of manufacture or use of any of them (“Primary Preparatory Patents”), as it does to that of Collaboration Patents, except to the extent that Array cannot grant InterMune preparation, filing, prosecution and/or maintenance rights due to rights granted to a Third Party by Array with regard to any Primary Preparatory Patent prior to the Effective Date. Array will keep InterMune reasonably informed of the preparation filing, prosecution and maintenance of the other Preparatory Patents to the extent relevant to any Hit Compound, Lead Compound or Product. It is understood and agreed that InterMune’s rights under this Section 8.2.2 shall accrue with respect to a particular patent or patent application at the time Array identifies such patent or patent application as being a Preparatory Patent; provided that Array will make reasonable efforts to timely identify the Preparatory Patents.

          8.2.3 Other Technology. This Agreement does not alter the Parties’ responsibilities with respect to patent applications and patents that are not Collaboration Patents or Preparatory Patents. Accordingly, each Party shall be responsible, at its own expense and in its sole discretion, for preparing, filing, prosecuting and maintaining, in such countries as it deems appropriate, any and all patent applications and patents (other than Collaboration Patents and Preparatory Patents) directed to inventions owned or controlled by such Party and conducting any interferences, re-examinations, reissues and oppositions relating to such patent applications and patents.

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          8.2.4 Cooperation. InterMune and Array shall each reasonably cooperate with and assist the other at its own expense in connection with the activities described in Section 8.2.1, at the other Party’s reasonable request, including without limitation by making scientists and scientific records reasonably available to the prosecuting Party.

          8.2.5 Certain Circumstances. This Section 8.2 is subject to the provisions of Section 13.4 regarding successors in interest to and Affiliates of Array.

     8.3 Enforcement and Defense.

          8.3.1 Notice. Each Party shall promptly notify the other of any knowledge it acquires of any potential infringement of the Collaboration Patents and Preparatory Patents by a Third Party.

          8.3.2 InterMune. In the event that a Party believes a Third Party is infringing any Collaboration Patent, InterMune shall have the first right, but not the obligation, to take reasonable legal action to enforce such Collaboration Patent and defend any declaratory judgment action relating to such infringement, at its sole cost and expense. If, within six (6) months following receipt of notice from Array of such infringement, InterMune fails to take such action to halt a commercially significant infringement of a patent filed pursuant to Section 8.2.1, Array shall, in its sole discretion, have the right, at its sole expense, to take such action; provided that if such Collaboration Patent is solely owned by InterMune, Array’s action shall be limited to the prevention of infringing activities with products that are competitive with Products then being commercialized by InterMune (the “Back-Up Right”). Prior to the Back-Up Right becoming effective for a given Collaboration Patent, Array shall not notify any Third Party of their alleged infringement of that Collaboration Patent without InterMune’s advance written consent. The foregoing in this Section 8.3.2 shall apply mutatis mutandis to the enforcement of Primary Preparatory Patents (as defined in Section 8.2.2), except to the extent that Array cannot grant InterMune preparation, filing, prosecution and/or maintenance rights due to rights granted to a Third Party by Array with regard to any Primary Preparatory Patent prior to the Effective Date. In addition, the foregoing regarding the Back-Up Right shall apply mutatis mutandis to permit InterMune to enforce Preparatory Patents that are not Primary Preparatory Patents in the same manner and subject to the same limitations as Array’s Back-Up Right with respect to Collaboration Patents, including without limitation the requirement not to notify infringers until the Back-Up Right becomes effective.

          8.3.3 Cooperation; Costs and Recoveries. Each Party agrees to render such reasonable assistance as the enforcing Party may request, at the enforcing Party’s expense. Amounts recovered from enforcing a Collaboration Patent or Preparatory Patent, whether as payment in settlement or otherwise, shall first be used to reimburse the Parties for their expenses in enforcing the patent (including attorneys’ and experts’ fees), with the remainder, if any, to be divided as follows:

          (a) if InterMune prosecuted the action, then (i) Array shall be paid an amount equal to (x) the proportion that the royalties that would have been due upon sales of the infringing product if the infringing sales had been Net Sales of a Product sold by InterMune bear

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to the total recovery multiplied by (y) such remaining recovery, and (ii) the remaining portion of such remaining recovery shall be paid to InterMune; and

          (b) if Array prosecuted the action, then Array shall be paid twice the amount it would have received under (a) had InterMune prosecuted the action, and InterMune shall be paid the remaining portion of such remaining recovery.

     Notwithstanding the foregoing, if the patent that was enforced was a Preparatory Patent other than a Primary Preparatory Patent (as defined in Section 8.2.2), the action was prosecuted by Array, and the enforcement action extended to infringing activities competitive with Array’s or Array’s other licensees’ products, then the recovery shall be split between (i) an amount to be shared between Array and its other licensees as they may agree amongst themselves, and (ii) an amount to be shared between Array and InterMune in accordance with 8.3.3(b). The division between (i) and (ii) shall be made based on the extent to which the infringement was competitive with Array’s and its other licensees’ products, relative to the extent to which it was competitive with Products.

ARTICLE 9
CONFIDENTIALITY

     9.1 Confidential Information. Except as otherwise expressly provided herein, the Parties agree that, for [ * ], the receiving Party shall not, except as expressly provided in this Article 9, disclose to any Third Party or use for any purpose any Confidential Information furnished to it by the disclosing Party hereto pursuant to this Agreement, or any results of the Research Collaboration (“Results”). For purposes of this Article 9, “Confidential Information” shall mean any information, which if disclosed in tangible form is marked “confidential” or with other similar designation to indicate its confidential or proprietary nature, or, if disclosed orally, is indicated orally to be confidential or proprietary at the time of such disclosure and is confirmed in writing as confidential or proprietary within forty-five (45) days after such disclosure. The Results to the extent relating to Hit Compounds and/or Lead Compounds shall be deemed to be the Confidential Information of InterMune. Notwithstanding the foregoing, Confidential Information shall not include any information that can be established by the receiving Party by competent proof that such information:

          (a) was already known to the receiving Party at the time of disclosure;

          (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party;

          (c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement;

          (d) was independently developed by the receiving Party as demonstrated by documented written evidence prepared contemporaneously with such independent development; or

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          (e) was disclosed to the receiving Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the disclosing Party not to disclose such information to others.

     9.2 Permitted Use and Disclosures. Each Party hereto may use or disclose Confidential Information disclosed to it by the other Party or Results to the extent such use or disclosure is reasonably necessary and permitted in the exercise of the rights granted hereunder in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental laws, regulations or court order or otherwise submitting information to tax or other governmental authorities, conducting clinical trials, or making a permitted sublicense or otherwise exercising license rights expressly granted by the other Party to it pursuant to the terms of this Agreement; provided that if a Party is required to make any such disclosure, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the other Party of such disclosure and, save to the extent inappropriate in the case of patent applications, will use its reasonable efforts to secure confidential treatment of such information in consultation with the other Party prior to its disclosure (whether through protective orders or otherwise) and disclose only the minimum necessary to comply with such requirements.

     9.3 Termination of Prior Agreement. This Agreement supersedes the Confidentiality Agreement between the Parties dated June 6, 2002. All information exchanged between the Parties under that the Confidentiality Agreement shall be deemed Confidential Information hereunder and shall be subject to the terms of this Article 9.

     9.4 Nondisclosure of Terms. Each of the Parties hereto agrees that it and its Affiliates shall not to disclose the material terms of this Agreement to any Third Party without the prior written consent of the other Party hereto, which consent shall not be unreasonably withheld, except to such Party’s attorneys, advisors, investors and others on a need to know basis under circumstances that reasonably ensure the confidentiality thereof, or to the extent required by law. Notwithstanding the foregoing, the Parties shall agree upon a press release and timing to announce the execution of this Agreement, together with a corresponding Q&A outline for use in responding to inquiries about the Agreement. Thereafter, Array and InterMune may each disclose to Third Parties the information contained in such press release and Q&A without the need for further approval by the other. In addition, InterMune and Array may make public statements regarding the progress of the Research Collaboration and the achievement of milestones and fees with respect thereto, following consultation and mutual agreement, the consent of neither Party to be unreasonably withheld, subject to Section 9.5 as regards the results of the Research Collaboration. Advance review and consultation shall not be required to repeat information contained in a press release that had itself been the subject of such procedures. Either Party may disclose the terms of this Agreement to potential investors (other than investors through the public markets) who are bound in writing by obligations of non-disclosure and non-use of the terms of this Agreement at least as stringent as those contained in this Article 9. The Parties acknowledge that either or both of the Parties may be obligated to file a copy of this Agreement with the U.S. Securities and Exchange Commission (the “SEC”), and each Party shall be entitled to make such a required filing, provided that it requests confidential treatment of the more sensitive terms hereof to the extent such confidential treatment is reasonably available to the filing Party under the circumstances then prevailing. In the event of any such filing, the filing Party will provide the non-filing Party with an advance copy of the Agreement marked to

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show provisions for which the filing Party intends to seek confidential treatment and shall obtain such other Party’s written consent to the set of provisions for which the filing Party will initially seek confidential treatment, such consent not to be unreasonably withheld.

     9.5 Publication. Reasonably in advance of any oral or written presentation, or written submission for publication of any manuscript, that would disclose any patentable invention conceived or reduced to practice by Array (solely or jointly with InterMune) pursuant to the Research Collaboration for which invention a patent application has not been filed in any of the United States, Japan, with the European Patent Office or pursuant to the Patent Cooperation Treaty, the Party wishing to make such a publication shall notify the other Party and the Parties will discuss filing patent applications claiming such intention. In addition, during the Agreement Term, Array shall not make any oral or written presentation, or written submission for publication, of any data or information produced pursuant to the Research Collaboration or otherwise relating to Collaboration Products developed or commercialized by InterMune, its Affiliates or Sublicensees without InterMune’s advance written consent, which InterMune shall be entitled to withhold in InterMune’s sole discretion. Any publication of the results of the Research Collaboration shall include an acknowledgment of the contributions of each Party, to the extent consistent with customary scientific norms.

ARTICLE 10
REPRESENTATIONS AND WARRANTIES

     10.1 InterMune. InterMune represents, warrants and covenants (as applicable) on its own behalf and on behalf of its Affiliates that: (i) it has the legal power, authority and right to enter into this Agreement and to perform all of its obligations hereunder; (ii) this Agreement is a legal and valid obligation binding upon it and enforceable in accordance with its terms; (iii) it has the full right to enter into this Agreement, and to fully perform its obligations hereunder; and (iv) it has not previously granted, and during the term of this Agreement will not knowingly make any commitment or grant any rights which are in conflict in any way with the rights and licenses granted herein.

     10.2 Array. Array represents, warrants and covenants (as applicable) on its own behalf and on behalf of its Affiliates that: (i) it has the legal right and power to extend the rights granted in this Agreement; (ii) this Agreement is a legal and valid obligation binding upon it and enforceable in accordance with its terms; (iii) it has the full right to enter into this Agreement, and to fully perform its obligations hereunder; (iv) it has not previously granted, and during the term of this Agreement will not knowingly make any commitment or grant any rights which are in conflict in any way with the rights and licenses granted herein and (v) other than as included in the Preparatory Patents and Preparatory Know-How, as of the Effective Date, Array and its Affiliates do not own or control any patent applications, patents or inventions claiming or constituting any Target, Reserved Target, or a method of manufacture or use of any of the foregoing, or specifically claiming a chemical entity identified by screening against a Target or Reserved Target, where identification by such screening is a limitation of the patent claim. Array makes no representation or warranty with respect to patents or other intellectual property rights of Third Parties covering any Target or Reserved Target.

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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     10.3 Disclaimer. InterMune and Array specifically disclaim any guarantee that the Research Collaboration will be successful, in whole or in part. The failure of the Parties to successfully develop Hit Compounds, Lead Compounds and/or Products will not constitute a breach of any representation or warranty or other obligation under this Agreement. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, ARRAY AND INTERMUNE MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OR CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE COLLABORATION TECHNOLOGY, HIT COMPOUNDS, LEAD COMPOUNDS, INFORMATION DISCLOSED HEREUNDER OR PRODUCTS INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF ANY COLLABORATION TECHNOLOGY, PATENTED OR UNPATENTED, OR NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.

ARTICLE 11
INDEMNIFICATION

     11.1 InterMune. InterMune agrees to indemnify, defend and hold Array and its Affiliates and their respective directors, officers, employees, agents and their respective successors, heirs and assigns (the “Array Indemnitees”) harmless from and against any losses, costs, damages, liabilities or expense (including reasonable attorneys’ and professional fees and other expenses of litigation) (collectively, “Liabilities”) arising, directly or indirectly out of or in connection with Third-Party claims, suits, actions, demands or judgments, relating to (i) the development manufacture, use, sale or other distribution by or on behalf of InterMune, its Affiliates or Sublicensees or other designees of any Hit Compounds, Lead Compounds and Products (including, without limitation, product liability and patent infringement claims), (ii) InterMune’s conduct of the Research Collaboration; and/or (iii) any breach by InterMune of the representations, warranties and covenants made in Article 10 of this Agreement, except, in each case, to the extent such Liabilities result from the gross negligence or intentional misconduct of Array or are subject to indemnification by Array under Section 11.2.

     11.2 Array. Array agrees to indemnify, defend and hold InterMune and its Affiliates and their respective directors, officers, employees, agents and their respective heirs and assigns (the “InterMune Indemnitees”) harmless from and against any Liabilities arising, directly or indirectly out of or in connection with Third Party claims, suits, actions, demands or judgments, relating to (i) Array’s conduct of the Research Collaboration, and/or (ii) any breach by Array of its representations, warranties and covenants made in Article 10 of this Agreement, except, in each case, to the extent such Liabilities result from the negligence or intentional misconduct of InterMune or are subject to indemnification by InterMune under Section 11.1.

     11.3 Indemnification Procedure. A Party that intends to claim indemnification (the “Indemnitee”) under this Article 11 shall promptly notify the other Party (the “Indemnitor”) in writing of any claim, complaint, suit, proceeding or cause of action with respect to which the Indemnitee intends to claim such indemnification (for purposes of this Section 11.3, each a “Claim”), and the Indemnitor shall have sole control of the defense and/or settlement thereof; provided that the Indemnitee shall have the right to participate, at its own expense, with counsel of its own choosing in the defense and/or settlement of such Claim. The indemnification

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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obligations of the Parties under this Article 11 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the consent of the Indemnitor, which consent shall not be withheld or delayed unreasonably. The failure to deliver written notice to the Indemnitor within a reasonable time after the commencement of any such Claim, if prejudicial to its ability to defend such action, shall relieve such Indemnitor of any liability to the Indemnitee under this Article 11, but the omission so to deliver written notice to the Indemnitor shall not relieve the Indemnitor of any liability to any Indemnitee otherwise than under this Article 11. The Indemnitee under this Article 11, and its employees, at the Indemnitor’s request and expense, shall provide full information and reasonable assistance to Indemnitor and its legal representatives with respect to such Claims covered by this indemnification. It is understood that only InterMune may claim indemnity under this Article 11 (on its own behalf or on behalf of a InterMune Indemnitee), and other InterMune Indemnitees may not directly claim indemnity hereunder. Likewise, it is understood that only Array may claim indemnity under this Article 11 (on its own behalf or on behalf of an Array Indemnitee), and other Array Indemnitees may not directly claim indemnity hereunder. If the Parties cannot agree as to the application of Sections 11.1 and 11.2 to any particular Claim, then each Party may conduct its own defense against same, and each reserves the right to claim indemnity hereunder from the other Party upon resolution of the underlying Claim.

ARTICLE 12
TERM AND TERMINATION

     12.1 Term. The term of this Agreement shall commence on the Effective Date, and shall continue in full force and effect on a country-by-country and Product-by-Product basis until InterMune and its Sublicensees have no remaining royalty payment obligations in a country, unless terminated earlier as provided in Section 4.4 or this Article 12. In accordance with Section 5.4.2, upon expiration of this Agreement with respect to a particular Product in a particular country, InterMune shall have a fully paid, non-exclusive and perpetual license under the Collaboration Technology in such country for such Product.

     12.2 Termination for Breach. Either Party to this Agreement may terminate the Research Collaboration and this Agreement in the event the other Party hereto shall have materially breached this Agreement, and such breach shall have continued for sixty (60) days after written notice thereof was provided to the breaching Party by the non-breaching Party. Any termination shall become effective at the end of such sixty (60) day period unless the breaching Party (or any other Party on its behalf) has cured any such breach or default prior to the expiration of the sixty (60) day period (or, in the case of a breach incapable of cure within such period, provided a written plan to cure such breach as soon as reasonably practicable, together with an undertaking to carry out such plan); provided, however, in the case of a failure to pay any amount due hereunder, such default may be the basis of termination thirty (30) days following the date that notice of such default was provided to the breaching Party; provided that the unpaid amount is not in dispute. If one Party alleges material breach and the other Party disputes whether such a breach has occurred, then this Agreement shall not terminate pursuant to this Section 12.2 until and unless such dispute is resolved and a material breach is determined to have occurred.

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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     12.3 Termination for Insolvency. If voluntary or involuntary proceedings by or against a Party are instituted in bankruptcy under any insolvency law, or a receiver or custodian is appointed for such Party, or proceedings are instituted by or against such Party for corporate reorganization, dissolution, liquidation or winding-up of such Party, which proceedings, if involuntary, shall not have been dismissed within sixty (60) days after the date of filing, or if such Party makes an assignment for the benefit of creditors, or substantially all of the assets of such Party are seized or attached and not released within sixty (60) days thereafter, the other Party may immediately terminate the Research Collaboration and/or this Agreement, effective upon notice of such termination.

     12.4 Permissive Termination. After the first anniversary of the Effective Date, InterMune shall have the right to terminate this Agreement upon [ * ] written notice to Array.

     12.5 Effect of Breach or Termination.

          12.5.1 Accrued Rights and Obligations. Termination of this Agreement for any reason shall not release either Party hereto from any liability which, at the time of such termination, has already accrued to the other Party or which is attributable to a period prior to such termination nor preclude either Party from pursuing any rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement.

          12.5.2 Return of Materials. Upon any termination of this Agreement, InterMune and Array shall promptly return to the other all Confidential Information (including, without limitation, all Know-How that is Confidential Information) received from the other Party, except one copy of which may be retained for archival purposes.

          12.5.3 Survival Sections. Articles 1, 6, 9, 11 and 13 and Section 8.1.2 of this Agreement shall survive the expiration or termination of this Agreement for any reason. In the event of termination by InterMune under Section 12.2 or 12.3, Sections 4.1, 4.2, 5.3, 5.4 and 8.2.1 shall survive such termination in addition to the above-referenced Articles; InterMune shall have [ * ] to enforce the Collaboration Patents and Primary Preparatory Patents (as defined in 8.2.2) licensed to InterMune hereunder against infringing products that would be competitive with Products; and Article 9 shall survive until five (5) years after the last payment obligation hereunder expires.

ARTICLE 13
MISCELLANEOUS

     13.1 Governing Laws. This Agreement and any dispute arising from the construction, performance or breach hereof shall be governed by and construed, and enforced in accordance with, the laws of the state of New York, without reference to conflicts of laws principles. Any such dispute, if not resolved informally between the Parties, shall be resolved by submission to a court of competent subject matter jurisdiction located within the federal district division in which the Party that is the defendant in the suit as initially filed is located (for InterMune, the San Francisco division of the Northern District of the State of California, and for Array, the Boulder division of the District for the State of Colorado) Each Party hereby consents to the jurisdiction and venue of all courts located within the appropriate district in accordance with the foregoing sentence and waives all defenses such Party may have to the jurisdiction and venue of such

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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courts, including without limitation the defense of forum non conveniens or that such a court may not assert personal jurisdiction over such Party.

     13.2 Waiver. It is agreed that no waiver by either Party hereto of any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any subsequent and/or similar breach or default.

     13.3 Assignment. This Agreement shall not be assignable by either Party to any Third Party hereto without the written consent of the other Party hereto. Notwithstanding the foregoing, either Party may assign this Agreement, without such consent, to an entity that acquires all or substantially all of the business or assets of such Party to which this Agreement pertains, whether by merger, reorganization, acquisition, sale, or otherwise; provided, however, that within thirty (30) days of such an assignment, the assignee shall agree in writing to be bound by the terms and conditions of this Agreement. This Agreement shall be binding upon and accrue to the benefit any permitted assignee, and any such assignee shall agree to perform the obligations of the assignor.

     13.4 Certain Companies. If any entity having any research or development program relating to the hepatitis C virus or commercial product relating to the treatment of hepatitis C virus infections (“Competing Program”) succeeds in interest hereunder to Array (the “Competitor”), then (a) InterMune shall thereafter not be required to make the reports that would otherwise be required pursuant to Section 7.2; (b) the entity that was Array immediately prior to such succession in interest (“Original Array”) shall not disclose any patent-related information (including without limitation draft filings) received from InterMune pursuant to Section 8.2 to the Competitor, including without limitation by involvement of Original Array personnel with any Competing Program; (c) the rights to review and provide comments regarding patent prosecution, to have such comments considered by InterMune, and the back-up prosecution rights provided for in Section 8.2.1 may be exercised only by personnel of Original Array not involved in any way with any Competing Program, and shall not otherwise inure to the Competitor; (d) Original Array shall maintain sufficient capacity and resources to fulfill its obligations under the Research Collaboration for the remainder of the Research Term, if any; (e) Original Array shall not disclose non-public Collaboration Technology to the Competitor for use in research, development or commercialization activities directed to a Target or chemical entities active against such Target (or during the Research Term, directed to a Reserved Target or chemical entities active against such Reserved Target), including without limitation by allowing personnel having had access to any Collaboration Technology to have any involvement in any Competing Program; and (f) Preparatory Patents and Preparatory Know-How shall not include any intellectual property or subject matter that, prior to the succession in interest, was held or controlled by the Assignee. The foregoing in this Section 13.4, except for clause (a), shall apply mutatis mutandis to any situation in which a Competitor becomes an Affiliate of Array, as it does to a Competitor’s succession in interest hereunder to Array. This Section 13.4 shall not be deemed to limit Article 9.

     13.5 Independent Contractors. The relationship of the Parties hereto is that of independent contractors. The Parties hereto are not deemed to be agents, partners or joint venturers of the others for any purpose as a result of this Agreement or the transactions contemplated thereby.

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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     13.6 Compliance with Laws. In exercising their rights under this license, the Parties shall fully comply in all material respects with the requirements of any and all applicable laws, regulations, rules and orders of any governmental body having jurisdiction over the exercise of rights under this license including, without limitation, those applicable to the discovery, development, manufacture, distribution, import and export and sale of Products pursuant to this Agreement.

     13.7 Patent Marking. InterMune agrees to mark and have its Affiliates and Sublicensees mark all Products sold pursuant to this Agreement in accordance with the applicable statute or regulations relating to patent marking in the country or countries of manufacture and sale thereof, to the extent commercially reasonable for it to do so.

     13.8 Notices. All notices, requests and other communications hereunder shall be in writing and shall be personally delivered or by registered or certified mail, return receipt requested, postage prepaid, in each case to the respective address specified below, or such other address as may be specified in writing to the other Parties hereto and shall be deemed to have been given upon receipt:

If to InterMune:	InterMune, Inc.
	3280 Bayshore Boulevard
	Brisbane, California 94005
	Attention: General Counsel
	Facsimile: (408) 508-0006
If to Array:	Array BioPharma Corporation
	3200 Walnut Street
	Boulder, CO 80301
	Attention: Chief Operating Officer
	Facsimile: (303) 381-6697
With a copy to:	Array BioPharma Corporation
	3200 Walnut Street
	Boulder, CO 80301
	Attention: General Counsel
	Facsimile: (303) 381-6639

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

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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     13.10 Advice of Counsel. Array and InterMune have each consulted counsel of their choice regarding this Agreement, and each acknowledges and agrees that this Agreement shall not be deemed to have been drafted by one Party or another and will be construed accordingly.

     13.11 Performance Warranty. Each Party hereby warrants and guarantees the performance of any and all rights and obligations of this Agreement by its Affiliates and Sublicensees.

     13.12 Force Majeure. Neither Party shall lose any rights hereunder or be liable to the other Party for damages or losses (except for payment obligations) on account of failure of performance by the defaulting Party if the failure is occasioned by war, strike, fire, Act of God, act of terrorism, earthquake, flood, lockout, embargo, governmental acts or orders or restrictions, failure of suppliers, or any other reason where failure to perform is beyond the reasonable control and not caused by the negligence, intentional conduct or misconduct of the non-performing Party and such Party has exerted all reasonable efforts to avoid or remedy such force majeure; provided, however, that in no event shall a Party be required to settle any labor dispute or disturbance.

     13.13 Complete Agreement. This Agreement with its Exhibits, constitutes the entire agreement, both written and oral, between the Parties with respect to the subject matter hereof, and all prior agreements respecting the subject matter hereof, either written or oral, express or implied, shall be abrogated, canceled, and are null and void and of no effect. No amendment or change hereof or addition hereto shall be effective or binding on either of the Parties hereto unless reduced to writing and executed by the respective duly authorized representatives of Array and InterMune.

     13.14 Consultation. If an unresolved dispute arises out of or relates to this Agreement, or the breach thereof, either Party may refer such dispute to the Chief Executive Officer of InterMune and the Chief Executive Officer of Array, who shall meet in person or by telephone within forty-five (45) days after such referral to attempt in good faith to resolve such dispute.

     13.15 Headings. The captions to the several Sections hereof are not a part of this Agreement, but are included merely for convenience of reference and shall not affect its meaning or interpretation.

     13.16 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same agreement.

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     IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed by their authorized representatives and delivered in duplicate originals as of the Effective Date.

INTERMUNE, INC.		ARRAY BIOPHARMA, INC.
By:	/s/ Lawrence M. Blatt	By:	/s/ David Snitman
Name:	Lawrence M. Blatt	Name:	David Snitman
Title:	VP Biopharmacology Research	Title:	COO

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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EXHIBIT A

TARGETS

Reserved Targets

1.	[ * ]
2.	[ * ]
3.	[ * ]
4.	[ * ]

Target

1. NS3/4 protease of the hepatitis C virus

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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EX-10.63

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT 10.63

CONFIDENTIAL

VIA FAX AND FEDERAL EXPRESS

May 8, 2003

Patrice Lee
Array BioPharma, Inc.
3200 Walnut Street
Boulder, CO 80301

RE: Amendment No. 1 to the Drug Discovery Collaboration Agreement

Dear Ms. Lee:

As you know, InterMune, Inc. (“InterMune”) and Array BioPharma, Inc. (“Array”) are parties to that certain Drug Discovery Collaboration Agreement dated September 13, 2002 (the “Agreement”). Because InterMune now wishes to transfer to Array, and Array wishes to accept, the materials described on Exhibit A hereto (the “Materials”), the parties hereby agree to add a new Section 9.6 to the Agreement as follows:

     “9.6 Transfer of Materials.

     (a) Array shall use the Materials solely to perform its obligations under the Agreement. Array will not sell, transfer, disclose or otherwise provide access to the Materials, or any method or process relating thereto or any material that could not have been made but for access to the foregoing, to any person or entity without the prior express written consent of InterMune. Ownership of the Materials will remain solely and exclusively with InterMune, and Array will not acquire any right, title or interest in or to the Materials.

     (b) Array acknowledges that the Materials may have biological and/or chemical properties that are unpredictable and unknown at the time of transfer, that they are to be used with caution and prudence and that they are not to be used for testing in or treatment of humans.

     (c) Array will, at InterMune’s written directions, return or dispose of any unused portions of the Material. Any such disposal will conform to prescribed federal, state and local guidelines.

     (d) THE MATERIALS ARE SUPPLIED WITH NO WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR THAT THEY ARE FREE FROM THE RIGHTFUL CLAIM OF ANY THIRD PARTY BY WAY OF INFRINGEMENT OR THE LIKE. INTERMUNE

MAKES NO REPRESENTATIONS THAT THE USE OF THE MATERIALS WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHTS OF ANY THIRD PARTIES.

     (e) This Section 9.6 will survive any expiration or termination of the Agreement.

Except as set forth above, all terms and conditions of the Agreement will remain in full force and effect. Any capitalized term used herein and not otherwise defined will have the same meaning as set forth in the Agreement.

Please acknowledge your agreement to the above by having an authorized Array representative countersigning both enclosed copies of this letter where indicated below, and returning one original to the attention of Corina Hughes, Manager, Legal Affairs, at InterMune. We would be happy to proceed based on receipt of a facsimile copy while awaiting the original.

Sincerely,

/s/ Stephen N. Rosenfield

Stephen N. Rosenfield
Executive Vice President of Legal Affairs

Acknowledged and Agreed:

ARRAY BIOPHARMA, INC.

By:	/s/ John Moore
Name:	John Moore
Title:	VP, General Counsel
Date:	5-12-03
cc:	Larry Blatt, InterMune
	General Counsel, Array BioPharma
	Chief Operating Officer, Array BioPharma

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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EXHIBIT A

     [ * ].

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

3

EX-10.64

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT 10.64

CONFIDENTIAL

VIA FAX AND FEDERAL EXPRESS

January 7, 2004

David L. Snitman, Ph.D.
Chief Operating Officer
Array BioPharma, Inc.
3200 Walnut Street
Boulder, CO 80301

RE:	Amendment No. 2 to the Drug Discovery Collaboration Agreement
	(“Amendment No. 2”)

Dear Dr. Snitman:

As you know, InterMune, Inc. (“InterMune”) and Array BioPharma, Inc. (“Array”) are parties to that certain Drug Discovery Collaboration Agreement dated September 13, 2002, as amended May 8, 2003 (the “Agreement”). The parties agree that the Agreement is hereby amended as follows, effective as of the date of this Amendment No. 2 (“Amendment Effective Date”):

1. The [ * ] is hereby removed as a [ * ] of the Agreement solely for the purpose of Array entering into an [ * ] arrangement with a third party (the “Third Party”) for [ * ], and subject to the terms of this Amendment No. 2. Accordingly:

(a)	InterMune hereby waives its option to [ * ] under Section 2.7.2 of the Agreement solely with respect to such arrangement with the Third Party.
(b)	If such arrangement with the Third Party has not been concluded within three (3) months from the Amendment Effective Date as evidenced by an executed written agreement, then [ * ] automatically will be reinstated as a [ * ] of the Agreement, and all of InterMune’s rights and Array’s obligations under the Agreement with respect to [ * ] will be reinstated in full. InterMune agrees that Array does not need to provide InterMune with a copy of such written agreement, so long as InterMune receives by three (3) months from the Amendment Effective Date a written certification, in the form attached as Exhibit A hereto, from an authorized officer of Array that a written agreement for such [ * ] arrangement has been executed. Any material misrepresentation set forth in such certification will be deemed a material breach of this Amendment No. 2.
(c)	If such arrangement is concluded with the Third Party, but the [ * ] thereafter revert to Array for any reason, then [ * ] automatically will be reinstated as a [ * ] of the Agreement, and all of InterMune’s rights and Array’s obligations under the

Agreement with respect to [ * ] will be reinstated in full. Array will give InterMune prompt written notice of any such reversion.

(d) Nothing in this Amendment No. 2 will be deemed to:

(i)	grant to Array any further right, title or interest in or to any intellectual property (including, without limitation, any patent rights) Controlled by InterMune other than as expressly stated in Sections 4.1.1 and 4.3 of the Agreement;
(ii)	Array to use any Hit Compound, Lead Compound or Product for any purpose other than the Research Collaboration conducted in accordance with the Agreement; nor
(iii)	permit Array to grant to any third party any right, title or interest in or to any Hit Compound, Lead Compound or Product.

2. In consideration for InterMune’s agreement as set forth in Section 1 above, and irrespective of the outcome of the negotiations or arrangement between Array and the Third Party:

(a)	(i) During the Research Term, Array shall provide, at its sole cost and expense, [ * ] additional FTEs to conduct the Research Collaboration. Such additional FTEs will bring the present number of FTEs conducting the Research Collaboration from [ * ] to [ * ]. Each such individual shall have the appropriate skills, training, experience and ability to perform his or her responsibilities under the Research Plan.
(ii)	If Array fails to provide such additional FTEs as described in subsection (a)(i) above, then in addition to any other remedies available to InterMune at law or equity, InterMune shall be entitled to offset the costs of such additional FTEs (based on the Array FTE Rate, as defined in Section 5.1.2 of the Agreement) against any amounts due to Array under the Agreement, including, without limitation, any milestone and/or royalty payments.
(b)	Except for purposes of the Research Collaboration conducted in accordance with the Agreement, Array shall not develop (either pre-clinically or clinically), use, import, make, have made, sell or offer for sale any Hit Compound, Lead Compound or Product, including, without limitation, in conjunction with any other compound or product.
(c)	Array shall not enable (including without limitation through the grant of a license or covenant) any Array Affiliate or Third Party to develop (either pre-clinically or clinically), use, import, make, have made, sell or offer for sale any Hit Compound, Lead Compound or Product, including, without limitation, in conjunction with any other compound or product.

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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3. If Array materially breaches this Amendment Number 2, then InterMune will be entitled to seek any and all remedies available at law and or equity. Without limiting the generality of the foregoing, in the event of any such material breach: (i) [ * ] automatically will be reinstated as a [ * ] of the Agreement; and (ii) all of InterMune’s rights and Array’s obligations under the Agreement with respect to [ * ] will be reinstated in full.

Except as set forth above, all terms and conditions of the Agreement will remain in full force and effect. Any capitalized term used herein and not otherwise defined will have the same meaning as set forth in the Agreement.

Please acknowledge your agreement to the above by having an authorized Array representative countersign both enclosed copies of this Amendment No. 2 where indicated below, and returning one original to the attention of Gloria Lopez, Contracts Administrator, at InterMune. We would be happy to proceed based on receipt of a facsimile copy while awaiting the original.

Sincerely,

/s/ Larry Blatt

Larry Blatt
Vice President of Biopharmacology Research

Acknowledged and Agreed:
ARRAY BIOPHARMA, INC.
By:	/s/ David Snitman
Name:	David Snitman
Title:	COO
Date:	1-15-04
cc:	Paul Resnick, InterMune
	General Counsel, Array BioPharma

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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EXHIBIT A

ARRAY BIOPHARMA, INC.

OFFICER’S CERTIFICATE

     The undersigned,          , hereby certifies that {he/she} is the duly elected or appointed {Title} of ARRAY BIOPHARMA, INC., a Delaware corporation (the “Company”), and acting in such capacity hereby certifies that:

(a) As of {Date}, the Company entered into a written agreement with a third party (the “Third Party Agreement”) setting forth the terms of an [ * ] arrangement regarding the [ * ], which agreement is effective and binding on the Company.

(b) The Third Party Agreement does not conflict with any obligation of the Company under the Drug Discovery Collaboration Agreement between the Company and InterMune, Inc. (“InterMune”) dated September 13, 2002, as amended (the “Agreement”).

(c) The Company will promptly notify InterMune in writing upon any termination of the Third Party Agreement or of any reversion of [ * ] to the Company.

(d) Any material misrepresentation set forth in this Certificate will be deemed a material breach of the Agreement, and InterMune will be entitled to seek any and all remedies available at law and or equity.

All capitalized terms used and not otherwise defined in this Certificate shall have the same meanings as in the Agreement.

IN WITNESS WHEREOF, I have hereunto set my hand as of the day of      , 2004.

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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EX-10.65

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT 10.65

CONFIDENTIAL

VIA FAX AND FEDERAL EXPRESS

September 10, 2004

David L. Snitman, Ph.D.
Chief Operating Officer
Array BioPharma, Inc.
3200 Walnut Street
Boulder, CO 80301

RE:	Amendment No. 3 to the Drug Discovery Collaboration Agreement
	(“Amendment No. 3”)

Dear Dr. Snitman:

As you know, InterMune, Inc. (“InterMune”) and Array BioPharma, Inc. (“Array”) are parties to that certain Drug Discovery Collaboration Agreement dated September 13, 2002, as amended May 8, 2003 and January 7, 2004 (the “Agreement”).

The parties to the Agreement hereby agree, effective as of the date of this Amendment No. 3 (“Amendment Effective Date”), that:

1.	Section 2.3 of the Agreement is amended in its entirety to read as follows:
	“2.3 Term and Termination of Research Collaboration. The Research Collaboration shall commence on the Effective Date and shall end upon the first to occur of (i) June 30, 2005, (ii) the termination of this Agreement, or (iii) [ * ] after written notice from InterMune that InterMune elects (in its sole discretion) to early terminate the Research Collaboration (such period beginning on the Effective Date and ending upon the earliest of (i), (ii) and (iii), the “Research Term”). InterMune shall have the right to extend the Research Term for additional six-month periods after June 30, 2005 on the same terms and conditions as previously conducted. To exercise such right, InterMune shall provide written notice to Array on or before the date ninety (90) days before the end of any such six-month period.”
2.	The Joint Research Committee shall work together to produce a new Exhibit A Research Plan pursuant to Article 3 of the Agreement as soon as practicable after the execution of this Amendment No. 3.

Except as set forth above, all terms and conditions of the Agreement will remain in full force and effect. Any capitalized term used herein and not otherwise defined will have the same meaning as set forth in the Agreement.

Please acknowledge your agreement to the above by having an authorized Array representative countersign both enclosed copies of this Amendment No. 3 where indicated below, and returning one original to the attention of Gloria Lopez, Senior Contracts Administrator, at InterMune. We would be happy to proceed based on receipt of a facsimile copy while awaiting the original.

Sincerely,

/s/ Tom Kassberg

Tom Kassberg
Senior Vice President, Business Development

Acknowledged and Agreed:

ARRAY BIOPHARMA, INC.

By:	/s/ David L. Snitman
Name:	David L. Snitman
Title:	COO
Date:	1-15-04

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Exhibit A

[ * ]

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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EX-10.66

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT 10.66

VIA FAX AND FEDERAL EXPRESS

December 7, 2004

David L. Snitman, Ph.D.
Chief Operating Officer
Array BioPharma, Inc.
3200 Walnut Street
Boulder, CO 80301

RE: Amendment No. 4 to the Drug Discovery Collaboration Agreement

Dear Dr. Snitman:

As you know, InterMune, Inc. (“InterMune”) and Array BioPharma Inc. (“Array”) are parties to that certain Drug Discovery Collaboration Agreement dated September 13, 2002, as amended May 8, 2003, January 7, 2004 and September 10, 2004 (collectively, the “Agreement”). The parties agree that the Agreement is hereby amended as follows, effective as of the date of this letter (“Amendment Effective Date”):

1.	The first sentence of Section 5.1.1 of the Agreement is hereby amended in its entirety to read as follows:
	“InterMune agrees to pay Array research funding for the conduct of the Research Collaboration quarterly, in advance, in an amount equal to one quarter (1/4) of [ * ] (or, if lesser, the number of Array FTEs scheduled in the Research Plan to be provided by Array in the upcoming quarter), multiplied by the applicable Array FTE Rate (as defined below in Section 5.1.2).”
2.	The last sentence of Section 5.1.1 of the Agreement is hereby amended in its entirety to read as follows:
	“In no event shall InterMune be required to fund a greater number of Array FTEs in any calendar quarter than one quarter (1/4) of [ * ], or, if lesser, those provided in the Research Plan for Array to provide in such quarter.”
3.	Array hereby acknowledges that (a) it devoted [ * ] to the conduct of the Research Collaboration during November 2004, and (b) it will devote [ * ] to the conduct of the Research Collaboration during December 2004. The Joint Research Committee shall amend the Research Plan to reflect such number of FTEs. Upon execution of this Amendment No. 4, InterMune shall pay to Array an amount equal to [ * ] of the current FTE rate to fund such FTEs during such period.

4.	The Agreement is hereby amended to insert a new Section 4.2.1, and, as a result, the old sections 4.2.1, 4.2.2, 4.2.3 and 4.2.4 are hereby renumbered to be new Sections 4.2.2, 4.2.3, 4.2.4 and 4.2.5:
	“4.2.1 Immediately upon receipt by Array of a cash payment of [ * ] with respect to a particular Lead Compound, Array shall [ * ]. It is understood and agreed that the provisions of this Section 4.2.1 shall not apply to any [ * ], nor shall such provisions affect InterMune’s license under Section 4.2.2. Array hereby acknowledges the prior payment of a cash payment of [ * ] with respect to [ * ], and shall immediately following the Amendment Effective Date [ * ].”
5.	Section 4.3 of the Agreement is hereby amended in its entirety to read as follows:
	“Subject to the terms and conditions of this Agreement, including, without limitation, the limitation on Array’s rights hereunder set forth in the last sentence of this Section 4.3, InterMune hereby grants to Array a worldwide, non-exclusive, transferable, royalty-free right and license, with the right to grant and authorize sublicenses, under InterMune’s interest in the Collaboration Technology, to exploit the same other than in the research, development, making, having made, using, importing, offering for sale or selling Hit Compounds, Lead Compounds or Products worldwide. To the extent that any Collaboration Technology included in the license granted to Array under this Section 4.3 comprises a claim of a patent or patent application, the subject matter of which was invented solely by Array personnel, Array’s license under such patent claim(s) to exploit the same other than in the research, development, making, having made, using, importing, offering for sale or selling Hit Compounds, Lead Compounds or Products worldwide shall be exclusive. Notwithstanding the foregoing, Array’s license under this Section 4.3 shall not include any right to make, have made, use or sell any chemical entity, the composition of matter of which is claimed in a Collaboration Patent assigned by Array to InterMune pursuant to Section 4.2.1 above.”
6.	Section 4.6 of the Agreement is hereby amended by adding, in the parenthetical, following the words “in exercise of the” the following phrase: “intellectual property rights assigned or” and replacing “4.2.1” with “4.2.”
7.	Section 5.2 of the Agreement is hereby amended by replacing the last sentence with the following:
	“For clarity, this means that as between the Parties, InterMune is responsible for the costs of activities in exercise of its rights under Section 4.2.”
8.	Section 5.4.3 of the Agreement is hereby amended by adding the following as the last sentence:
	“[ * ].”
9.	Section 8.1.2 of the Agreement is hereby amended by replacing the last sentence with the following:

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	“Such joint ownership shall be in accordance with the default rights enjoyed by co-inventors under U.S. patent law in the absence of a written agreement to the contrary (throughout the world to the maximum extent permitted by law), such that, without limitation and except as restricted by the assignment provisions of Section 4.2, licenses granted in Sections 4.1 and 4.2, financial commitments set forth in Article 5 and prosecution and enforcement provisions set forth in this Article 8, each Party may practice the subject matter of the jointly owned Collaboration Patents without a duty of accounting to the Party.”
10.	The Agreement is amended by including a new Section 8.1.4 of the Agreement:
	“8.1.4. Array shall, and shall cause its employees and agents to, promptly execute all papers and instruments as are necessary (i) to fully effect the assignment of ownership of Collaboration Patents provided for in Section 4.1.2, and (ii) to enable InterMune to record any such assignment in any country.”
11.	Section 8.2.1 of the Agreement is hereby amended by adding the following sentence at the end thereof:
	“InterMune shall use reasonable efforts to prosecute the Collaboration Patents so that there will be claims specifically directed to the making, having made, use and sale of compositions of matter, including, without limitation, Hit Compounds, Lead Compounds and Products, and (as appropriate based on the disclosure) other claims in separate Collaboration Patents specifically directed to areas included within Array’s license set forth in Section 4.3, such as, for example, by the filing of divisional patent applications.”
12.	Section 8.2.1 of the Agreement is hereby amended by adding the following sentence as the third sentence of such Section:
	“Notwithstanding the foregoing, following assignment of a Collaboration Patent pursuant to Section 4.2.1, InterMune shall only be required to keep Array fully informed as to patent matters relating to claims contained in any such Collaboration Patent as to which Array has license rights under Section 4.3.”
13.	The Agreement is hereby amended to include the following Section 8.3.3:
	“8.3.3 Array. In the event that a Party believes a Third Party is infringing any Collaboration Patent right included within the license granted Array pursuant to Section 4.3 above, Array shall have the right, but not the obligation, to take reasonable legal action to enforce such Collaboration Patent and defend any declaratory judgment action relating to such infringement, at its sole cost and expense. Array shall keep InterMune reasonably informed of the progress of any such enforcement action as it relates to such Collaboration Patent, and Array shall not enter into any settlement or other agreement or make any other admission that relates to the validity or enforceability of any such Collaboration Patent owned or Controlled by InterMune without the prior written consent of InterMune, which consent shall not be unreasonably withheld. Any amount recovered by Array in an action brought pursuant to this Section 8.3.3 shall be retained by Array.

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	To the extent that InterMune has to be joined in any legal action pursuant to this Section 8.3.3, InterMune shall be entitled to employ counsel of its choosing and to reimbursement by Array for reasonable attorneys’ fees and expenses incurred in connection with such activities.”
14.	Section 8.3.3 of the Agreement is hereby renumbered to be new Section 8.3.4, and is hereby amended by adding, at the end of the third line thereof, after the phrase “Collaboration Patent or Preparatory Patent”, the following phrase: “pursuant to Section 8.3.2”.
15.	Section 12.2 of the Agreement is hereby amended by adding the following sentence at the end thereof:
	Any such dispute related to payment obligations or alleged breaches thereof shall be resolved by binding arbitration in accordance with Section 13.12.
16.	Section 12.4 of the Agreement is hereby deleted in its entirety.
17.	Section 12.5.3 of the Agreement is hereby amended in its entirety to read as follows:
	“12.5.3 Survival Sections. Articles 1, 6, 9, 11 and 13 and Sections 2.7 and 8.1.2 of this Agreement shall survive the expiration or termination of this Agreement for any reason. In the event of termination by InterMune under Section 12.2 or 12.3, Section 4.1, 4.2, 5.3, 5.4 and 8.2.1 shall survive such termination in addition to the above-referenced Articles and Sections; InterMune shall have the [ * ] right to enforce the Collaboration Patents and Primary Preparatory Patents (as defined in Section 8.2.2) assigned or licensed to InterMune hereunder against infringing products that would be competitive with Products; and Article 9 shall survive until five (5) years after the last payment obligation hereunder expires. In the event of termination by Array under Section 12.2 or 12.3, Sections 4.3, 5.3 and 5.4 shall survive such termination in addition to the above-referenced Articles and Sections; and InterMune shall immediately grant to Array a worldwide, non-exclusive, fully paid-up license under InterMune’s interest in the Collaboration Patents previously assigned to InterMune pursuant to Section 4.1.2 to research, develop, make, have made, use, import, offer for sale and sell Hit Compounds, Lead Compounds and Products; provided that, to the extent that any such assigned Collaboration Patent was invented solely by Array personnel, Array’s license under such Collaboration Patent shall be exclusive. InterMune shall ensure that any licenses of Collaboration Patents granted by InterMune or its Affiliates to third parties are made subject to Array’s license grant-back rights set forth in this Section 12.5.3.”
18.	The Agreement is hereby amended to include the following Section 13.12 and, as a result, the old sections 13.12, 13.13, 13.14, 13.15 and 13.16 are hereby renumbered to be new Sections 13.13, 13.14, 13.15, 13.16 and 13.17:
	“13.12 Short-Form Arbitration. If the Parties do not agree upon a payment dispute under Section 12.2, then such matters in issue shall be determined by binding arbitration conducted pursuant to this Section 13.12 by one (1) arbitrator. In such arbitration, the arbitrator shall be a mutually acceptable, independent, conflict-free individual not affiliated with either Party, with scientific, technical and regulatory experience with

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	respect to development of pharmaceutical products. If the Parties are unable to agree on an arbitrator, the arbitrator shall be an independent expert meeting the criteria set forth in the immediately preceding sentence selected by the American Arbitration Association within seven (7) days of being approached by a Party. Within fifteen (15) days of designation of the expert hereunder, each Party shall prepare and submit to the expert and to the other Party a written statement setting forth its position with respect to the substance of the dispute. Each Party shall have an additional ten (10) days from receipt of the other Party’s submission to submit a written response thereto. The expert shall have the right to meet with the Parties, either alone or together, as necessary to make a determination. The arbitration shall take place in the county in which the executive offices of the Party which is alleged to be in breach are situated. The expert shall select one of the Party’s positions as his decision, and shall not have authority to render any substantive decision other than to so select the position of either InterMune or Array. The costs of such arbitration (including without limitation, the costs of the expert) shall be shared equally by the Parties, and each Party shall bear its own expenses in connection with such arbitration. Any such arbitration shall to the greatest extent possible, be concluded within sixty (60) days after designation of the expert hereunder.”
19.	Section 13.15 of the Agreement is hereby amended by adding the following phrase at the beginning thereof:
	“Except as set forth in Sections 12.2 and 13.12 of this Agreement,”

Except as set forth above, all terms and conditions of the Agreement will remain in full force and effect. Any capitalized term used herein and not otherwise defined will have the same meaning as set forth in the Agreement.

In consideration of the current [ * ] of Collaboration Patents described in Section 4 above, and the amendment to the rights of InterMune set forth in this Amendment No. 4, InterMune shall pay to Array a [ * ] within [ * ] of the Amendment Effective Date. In addition, InterMune agrees to pay to Array [ * ] as a cash payment pursuant to Section 4.2.1 of the Agreement with respect to [ * ]. Following receipt of such payment, Array shall immediately effectuate [ * ]. Array acknowledges its continuing obligation to [ * ] Collaboration Patents as set forth in Section 4.2.1 of the Agreement.

Please acknowledge your agreement to the above by having an authorized Array representative countersign both enclosed copies of this Amendment No. 4 where indicated below, and returning one original to the attention of Gloria Lopez. Contracts Administrator, at InterMune. We would be happy to proceed based on receipt of a facsimile copy while awaiting the original.

Sincerely,

/s/ Larry Blatt

Larry Blatt
Vice President of Biopharmacology Research

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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Acknowledged and Agreed:
ARRAY BIOPHARMA, INC.
By:	/s/ David L. Snitman
Name:	David L. Snitman
Title:	COO
Date:	12-8-04
cc:	Paul Resnick, InterMune
	General Counsel, Array BioPharma

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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EX-10.67

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT 10.67

CONFIDENTIAL

VIA FAX AND FEDERAL EXPRESS

March 10, 2005

David L. Snitman, Ph.D.
Chief Operating Officer
Array BioPharma, Inc.
3200 Walnut Street
Boulder, CO 80301

RE:     Drug Discovery Collaboration Agreement

Dear Dave

As you know, InterMune, Inc. (“InterMune”) and Array BioPharma Inc. (“Array”) are parties to that certain Drug Discovery Collaboration Agreement dated September 13, 2002, as amended May 8, 2003, January 7, 2004, September 10, 2004 and December 7, 2004 (collectively, the “Agreement”). Any capitalized term used herein and not otherwise defined will have the same meaning as set forth in the Agreement.

Pursuant to Section 4.2.1 of the Agreement, InterMune has the right to make a cash payment to Array of [ * ] with respect to a Lead Compound in return for Array’s [ * ] to InterMune of any Collaboration Patent which contains a Valid Claim covering the composition of matter of such Lead Compound (and any Product containing such Lead Compound). As of the date hereof, in return for the appropriate payments made by InterMune to Array, Array has already [ * ] to InterMune certain Collaboration Patents with respect to Lead Compounds [ * ] and [ * ] pursuant to the Agreement.

InterMune desires to obtain the [ * ], notwithstanding the fact that [ * ].

Accordingly, InterMune and Array hereby agree as follows:

1.

InterMune shall pay to Array [ * ] in cash; and

2.

Following Array’s receipt of such cash payment and in the spirit of Section 4.2.1 of the Agreement, Array shall immediately (i) effectuate the [ * ] to InterMune of [ * ] which claims the composition of matter of chemical compounds, one of which shall be [ * ] in accordance with the Agreement [ * ], and (ii) have the continuing obligation to [ * ] to InterMune any Collaboration Patent containing a Valid Claim covering the composition of matter of such Lead Compound (and any Product containing such Lead Compound) or a method of using or a method of making such Lead Compound in accordance with the Agreement. In the event

InterMune [ * ], InterMune shall, at Array’s request, [ * ] to Array [ * ] to InterMune under this letter agreement.

Except as set forth above, all terms and conditions of the Agreement will remain in full force and effect.

Please acknowledge your agreement to the above by having an authorized Array representative countersign both enclosed copies of this letter agreement where indicated below, and returning one original to the attention of Gloria Lopez. Contracts Administrator, at InterMune. We would be happy to proceed based on receipt of a facsimile copy while awaiting the original.

Sincerely,

/s/ Dan Welch

Dan Welch
President and CEO

Acknowledged and Agreed:
ARRAY BIOPHARMA INC.
By:	/s/ David L. Snitman
Name:	David L. Snitman
Title:	COO
Date:	3-14-05
cc:	General Counsel, Array BioPharma

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EX-10.68

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT 10.68

June 30, 2005

VIA FAX AND FEDERAL EXPRESS

David L. Snitman, Ph.D.
Chief Operating Officer
Array BioPharma, Inc.
3200 Walnut Street
Boulder, CO 80301

     RE:     Amendment No. 5 to the Drug Discovery Collaboration Agreement

Dear Dr. Snitman:

     As you know, InterMune, Inc. (“InterMune”) and Array BioPharma Inc. (“Array”) are parties to that certain Drug Discovery Collaboration Agreement dated September 13, 2002, as amended May 8, 2003, January 7, 2004, September 10, 2004 and December 7, 2004 (collectively, and as further amended pursuant to this letter, the “Agreement”). The parties agree that the Agreement is hereby amended as follows, effective as of the date of this letter (“Amendment Effective Date”):

1.	Section 1.24 of the Agreement is hereby amended in its entirety to read as follows:
	“1.24 Research Collaboration shall mean the research (including pre-clinical toxicology), manufacturing process and scale-up activities as well as manufacture of GLP/GMP lots of designated Lead Compounds undertaken by the Parties during the Research Term pursuant to Sections 2.1 to 2.3 below.”
2.	Section 2.3 of the Agreement is hereby amended in its entirety to read as follows:
	“2.3 Term and Termination of Research Collaboration. The Research Collaboration shall commence on the Effective Date and shall end upon the first to occur of (i) June 30, 2006, (ii) the termination of this Agreement, or (iii) [ * ] after written notice from InterMune that InterMune elects (in its sole discretion) to early terminate the Research Collaboration (such period beginning on the Effective Date and ending upon the earliest of (i), (ii) and (iii), the “Research Term”). InterMune shall have the right to extend the Research Term for up to an additional twelve (12)-month period after June 30, 2006 on the same terms and conditions as previously conducted (except as otherwise set forth in this Agreement). To exercise such right, InterMune shall provide written notice to Array on or before March 31, 2006.”
3.	A new last sentence is hereby added to Section 2.5(b) of the Agreement as follows:

	“Finally, at least once quarterly, and within sixty (60) days of the end of the Research Term, Array shall provide to InterMune a reasonably detailed written summary of manufacture process and scale-up activities performed by and information generated by Array under the Research Collaboration, including, without limitation, those reports or other information specifically identified in the Research Plan.”
4.	The first sentence of Section 5.1.1 of the Agreement is hereby amended in its entirety to read as follows:
	“InterMune agrees to pay Array funding for the conduct of the Research Collaboration quarterly, in advance, in an amount equal to one quarter (1/4) of the Allocated Array FTEs (or, if less, the number of Array FTEs described in this Section 5.1.1 or otherwise scheduled in the Research Plan to be provided by Array in the upcoming quarter), multiplied by the applicable Array FTE Rate (as defined below in Section 5.1.2). The Allocated Array FTEs shall be as follows: (a) [ * ] Array FTEs devoted to [ * ] for the period of time set forth below in this Section 5.1.1 (or such other number scheduled in the Research Plan) (the “Discovery FTEs”); (b) [ * ] Array FTEs devoted to [ * ] for the period of time set forth below in this Section 5.1.1 (or such other number scheduled in the Research Plan) (the “Manufacture FTEs”); and (c) [ * ] Array FTEs devoted to [ * ] for the period of time set forth below in this Section 5.1.1 (or such other number scheduled in the Research Plan) (the “Research FTEs”).”
5.	The last sentence of Section 5.1.1 of the Agreement is hereby amended in its entirety to read as follows:
	“In no event shall InterMune be required to fund a greater number of Array FTEs in any calendar quarter than one quarter (1/4) of the Allocated Array FTEs for such calendar quarter, or, if lesser, those provided in the Research Plan for Array to provide in such calendar quarter.”
6.	A new last sentence is hereby added to Section 5.1.1 of the Agreement as follows:
	“The Discovery FTEs shall be funded by InterMune beginning July 1, 2005 through June 30, 2006, with an option exercisable by InterMune to extend such funding by extending the Research Term as set forth in Section 2.3 of this Agreement. The Manufacture FTEs shall be funded by InterMune beginning July 1, 2005 until delivery of the GLP/GMP lots of Lead Compounds, including the second GMP campaign contemplated for formulation and bridging pharmacokinetic studies. The Research FTEs shall be funded by InterMune beginning July 1, 2005 through December 31, 2005, with an option exercisable by InterMune to extend such funding for an additional six (6)-month period.”
7.	Section 5.1.2 of the Agreement is hereby amended in its entirety to read as follows:

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	“5.1.2 FTE Rate. The “Array FTE Rate” shall be equal to [ * ] per FTE per year. Effective after the first anniversary of the Amendment Effective Date, the FTE Rate shall increase no more than once annually by the percentage increase, if any, in the Consumer Price Index for all Urban Consumers, as published by the U.S. Department of Labor, Bureau of Statistics, since the Effective Date or the last adjustment hereunder, whichever is later.”
8.	Section 5.1.3 of the Agreement is hereby amended in its entirety to read as follows:
	“5.1.3 Non-FTE Costs. Non-FTE costs and research requirements associated with performance of the Research Collaboration at Array shall be borne by Array, except that (a) Array shall not be required to incur any extraordinary [ * ] costs without Array’s prior written consent, (b) Array may bill InterMune for materials used in the course of manufacture and analytic activities and of process research at a rate of [ * ] and (c) Array may bill InterMune no more frequently than once per calendar quarter for reasonable costs incurred by Array in connection with the permitted outsourcing of activities by Array as provided in the Research Plan at a rate of [ * ]. Extraordinary chemical or screening costs means material costs in excess of [ * ]. InterMune shall pay any invoices received pursuant to Section 5.1.3(b) within [ * ] of receipt.”
9.	A new Section 5.1.5 is hereby added to the Agreement as follows:
	“5.1.5 Transfer of FTEs to another Array-InterMune Program. InterMune, in its sole discretion, shall have the right to transfer the Array FTEs funded under this Agreement to another research program then being funded by InterMune at Array. InterMune shall provide Array with sixty (60) days prior written notice of its desire to transfer the Array FTEs, including the number of Array FTEs to be so transferred, the program to be transferred to and the effective date of such transfer. Following the effective date of such transfer, this Agreement shall be deemed amended to provide for the reduced FTE funding resulting from such transfer. ”

     Except as set forth above, all terms and conditions of the Agreement will remain in full force and effect. Any capitalized term used herein and not otherwise defined will have the same meaning as set forth in the Agreement.

[Remainder of This Page Intentionally Left Blank]

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     Please acknowledge your agreement to the above by having an authorized Array representative countersign both enclosed copies of this Amendment No. 5 where indicated below, and returning one original to the attention of Robin Steele, General Counsel, at InterMune. We would be happy to proceed based on receipt of a facsimile copy while awaiting for the original.

Sincerely,
/s/ Lawrence M. Blatt
Lawrence M. Blatt
Senior Vice President—Preclinical and
	Applied Research

cc: Robin Steele, Esq., InterMune, Inc.
General Counsel, Array BioPharm, Inc.

* * * * * * * *

AGREED TO AND ACCEPTED:

ARRAY BIOPHARMA, INC.

By:	/s/ David Snitman
Print Name:	David Snitman
Print Title:	COO

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EX-10.69

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT 10.69

February 3, 2006

VIA FAX AND FEDERAL EXPRESS

David L. Snitman, Ph.D.
Chief Operating Officer
Array BioPharma, Inc.
3200 Walnut Street
Boulder, CO 80301

RE:     Amendment No. 6 to the Drug Discovery Collaboration Agreement

Dear Dr. Snitman:

As you know, InterMune, Inc. (“InterMune”) and Array BioPharma Inc. (“Array”) are parties to that certain Drug Discovery Collaboration Agreement dated September 13, 2002, as amended May 8, 2003, January 7, 2004, September 10, 2004, December 7, 2004 and June 30, 2005 (collectively, the “Agreement”). As we have previously discussed with you and/or John Moore, we would like to further amend the Agreement. Accordingly, the parties agree that the Agreement is hereby amended as follows, effective as of January 1, 2006 (“Amendment Effective Date”):

1.	The second sentence in Section 5.1.1 of the Agreement is hereby amended in its entirety to read as follows:
	“The Allocated Array FTEs shall be as follows: (a) [ * ] Array FTEs devoted to [ * ] for the period of time set forth below in this Section 5.1.1 (or such other number scheduled in the Research Plan) (the “Discovery FTEs”); (b) [ * ] Array FTEs devoted to [ * ] for the period of time set forth below in this Section 5.1.1 (or such other number scheduled in the Research Plan) (the “Manufacture FTEs”); and (c) [ * ] Array FTEs,[ * ] of which will be [ * ] will be devoted to [ * ] while[ * ] will be devoted to [ * ] for the period of time set forth below in this Section 5.1.1 (or such other number of FTEs and/or allocation of such number of FTEs between the manufacturing transfer and process research activities as scheduled in the Research Plan) (the “Research FTEs”).”
2.	The last two sentences in Section 5.1.1 of the Agreement are hereby amended in their entirety to read as follows:
	"[ * ] Manufacture FTEs shall be funded by InterMune beginning July 1, 2005 through January 31, 2006. Beginning February 1, 2006, InterMune shall fund [ * ] Manufacture FTEs until [ * ] (or such other [ * ] as may be determined by mutual agreement). At the end of such period, any remaining raw materials purchased for [ * ] and for which Array receives reimbursement from InterMune that are not used for the [ * ] shall be owned by, and also delivered to, InterMune (or a third party designated by InterMune). The Research FTEs shall be funded by InterMune beginning January 1, 2006 through

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August 31, 2006, with an option exercisable by InterMune to extend such funding for an additional six (6)-month period subject to the extension of the Research Term.”

Except as set forth above, all terms and conditions of the Agreement will remain in full force and effect. Any capitalized term used herein and not otherwise defined will have the same meaning as set forth in the Agreement. Please acknowledge your agreement to the above by having an authorized Array representative countersign both enclosed copies of this Amendment No. 6 where indicated below, and returning one original to the attention of Pauline Williams, Senior Paralegal/Executive Assistant, at InterMune. We would be happy to proceed based on receipt of a facsimile copy while awaiting the original.

Sincerely,

/s/ Lawrence Blatt

Lawrence Blatt, Ph.D.

Chief Scientific Officer

Cc: General Counsel, Array
Mr. Larry Kahn, InterMune

Acknowledged and Agreed:

Array BioPharma Inc.

By:	/s/ David Snitman
Name:	David Snitman
Title:	COO

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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EX-10.70

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT 10.70

June 28, 2006

VIA FAX AND FEDERAL EXPRESS

David L. Snitman, Ph.D.
Chief Operating Officer
Array BioPharma, Inc.
3200 Walnut Street
Boulder, CO 80301

     RE:     Amendment No. 7 to Drug Discovery Collaboration Agreement dated September 13, 2002

Dear Dr. Snitman:

     As you know, InterMune, Inc. (“InterMune”) and Array BioPharma Inc. (“Array”) are parties to that certain Drug Discovery Collaboration Agreement dated September 13, 2002, as amended by Amendment No. 1 dated May 8, 2003, Amendment No. 2 dated January 7, 2004, Amendment No. 3 dated September 10, 2004, Amendment No. 4 dated December 7, 2004, Amendment No. 5 dated June 30, 2005 and Amendment No. 6 dated February 3, 2006 and effective January 1, 2006, (collectively, the “Agreement”). Any capitalized term contained herein and not otherwise defined herein shall have the meaning ascribed to such term in the Agreement. As you also know, InterMune has recently exercised it right to extend the Research Term for an additional twelve (12)-month period following June 30, 2006 such that the Research Term no expires June 30, 2007 under the Agreement.

     Pursuant to our discussions,, we would like to amend the Agreement, effective as of the date hereof, as follows:

     1. Section 2.3 of the Agreement is hereby amended in its entirety to read as follows:

“2.3 Term and Termination of Research Collaboration. The Research Collaboration shall commence on the Effective Date and shall end upon the first to occur of (i) June 30, 2007, (ii) the termination of this Agreement, or (iii) [ * ] after written notice from InterMune that InterMune elects (in its sole discretion) to early terminate the Research Collaboration (such period beginning on the Effective Date and ending upon the earliest of (i), (ii) and (iii), the “Research Term”). The Research Term shall automatically be extended for an additional twelve (12)-month period after June 30, 2007 (“Extension Term”) on the same terms and conditions as previously conducted (except as otherwise set forth in this Agreement) unless either party gives the other party written notice on or before March 31, 2007 of its intention not to extend the Research Term.”

     2. Section 5.1.1 of the Agreement is hereby amended in its entirety to read as follows:

“5.1.1 Research Phase Payment Schedule. InterMune agrees to pay Array funding for the conduct of the Research Collaboration quarterly, in advance, in an amount equal to one quarter (1/4) of the Allocated Array FTEs (or, if less, the number of Array FTEs described in this Section 5.1.1 or otherwise scheduled in the Research Plan to be provided by Array in the upcoming quarter), multiplied by the applicable Array FTE Rate (as defined below in Section 5.1.2). The Allocated Array FTEs shall be as follows: (a) [ * ] Array FTEs devoted to [ * ] for the period of time set forth below in this Section 5.1.1 (or such other number scheduled in the Research Plan) (the “Discovery FTEs”); (b) [ * ] Array FTEs devoted to [ * ] for the period of time set forth below in this Section 5.1.1 (or such other number scheduled in the Research Plan) (the “Manufacture FTEs”); and (c) [ * ] Array FTEs, [ * ] of which will be [ * ] will be devoted to [ * ] while [ * ] will be devoted to [ * ] for the period of time set forth below in this Section 5.1.1 (or such other number of FTEs and/or allocation of such number of FTEs between the manufacturing transfer and process research activities as scheduled in the Research Plan) (the “Research FTEs”). Payments shall be made on or before the first day of each calendar quarter. Such payments are non-creditable and non-refundable, subject to the remainder of this Section 5.1.1. Within thirty (30) days after the end of each calendar quarter during which InterMune is funding Array FTEs devoted to the Research Collaboration, Array shall notify InterMune in writing of the number of FTEs Array actually devoted to the Research Collaboration during such calendar quarter. If such actual FTEs are less than the number of FTEs for which InterMune paid, then InterMune may credit the overpayment against the next payment due Array under this Agreement. If no payment will be due Array within the next three (3) months after Array was required to notify InterMune of such actual FTEs, Array shall promptly refund the overpayment to InterMune. In addition, InterMune may audit Array’s FTE records relating to the Research Collaboration, in the same manner and subject to the same restrictions as those set forth in Array’s-audits pursuant to Section 6.4, and any discrepancies shall be trued-up as provided in the foregoing two (2) sentences. In no event shall InterMune be required to fund a greater number of Array FTEs in any calendar quarter than one quarter (1/4) of the Allocated Array FTEs for such calendar quarter, or, if lesser, those provided in the Research Plan for Array to provide in such calendar quarter.

The Discovery FTEs shall be funded by InterMune beginning July 1, 2005 through June 30, 2007. When requesting to extend the Research Term in accordance with Section 2.3, InterMune shall specify in a written notice to be delivered by InterMune to Array no later

3280 Bayshore Boulevard, Brisbane, CA 94005 Tel: 415.466.2200 Fax: 415.466.2300

than February 28, 2007, the number of Discovery FTEs to be funded for the Extension Term.

Beginning February 1, 2006, InterMune shall fund [ * ] Manufacture FTEs until [ * ] (or such other [ * ] as may be determined by mutual agreement). The Research FTEs shall be funded by InterMune beginning January 1, 2006 through August 31, 2006, with an option exercisable by InterMune to extend such funding for an additional six (6)- month period. Upon the [ * ] by Array as described above, (i) any remaining raw materials

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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purchased for the [ * ] and for which Array receives reimbursement from InterMune that are not used for the [ * ] shall be owned by, and also delivered to, InterMune (or a third party designated by InterMune) and (ii) InterMune shall have the right to request, by delivering written notice to Array within thirty (30) days, to [ * ] the number of Research FTEs under this Section 5.1.1 to [ * ] Array FTEs, which additional Research FTEs will be devoted to [ * ] (which activities shall be with respect to the [ * ] as set forth in the Research Plan). In the event Array agrees to InterMune’s request to [ * ] the number of Research FTEs to [ * ] Array FTEs, such Array FTEs will be funded by InterMune until June 30, 2007.”

     Except as set forth in (1) and (2) above, all terms and conditions of the Agreement will remain in full force and effect.

     Please acknowledge your agreement to the proposed amendments to the Agreement by having an authorized Array representative countersign both enclosed copies of this letter where indicated below, and returning one original to the attention of Lucinda Y. Quan, Director, Legal Affairs at InterMune. We would be happy to proceed based on receipt of a facsimile copy while awaiting the original.

     If you have any questions on the foregoing, please do not hesitate to contact me.

Sincerely,

/s/ Lawrence Blatt

Lawrence Blatt, Ph.D.
Chief Scientific Officer

cc: General Counsel, Array Mr. Larry Kahn, InterMune

Acknowledged and Agreed:

ARRAY BIOPHARMA INC.

By:	/s/ David Snitman
Name:	David Snitman
Title:	COO

[ * ] = Certain information on this page has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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EX-21.1

Exhibit 21.1

List of Subsidiaries

InterMune Canada Inc. (Canada)

InterMune Europe Limited (United Kingdom)

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements (Forms S-8 Nos. 333-34510, 333-59316, 333-81172, 333-92276, 333-102907, 333-112380 and 333-116866) pertaining to the 1999 Equity Incentive Plan, the Amended and Restated 2000 Equity Incentive Plan, the Amended and Restated 2000 Non-Employee Directors’ Stock Option Plan and the 2000 Employee Stock Purchase Plan of InterMune, Inc., (Form S-1 No. 333-45460) and (Form S-3 Nos. 333-75794, 333-115516 and 333-139713) and in the related Prospectuses of our reports dated March 10, 2008, with respect to the consolidated financial statements and schedule of InterMune, Inc., and the effectiveness of internal control over financial reporting of InterMune, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2007.

/s/ Ernst & Young LLP

Palo Alto, California
March 10, 2008

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Daniel G. Welch, certify that:

1.	I have reviewed this Annual Report on Form 10-K of InterMune, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 11, 2008

/s/ Daniel G. Welch

Daniel G. Welch

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, John C. Hodgman, certify that:

1.	I have reviewed this Annual Report on Form 10-K of InterMune, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 11, 2008

/s/ John C. Hodgman

John C. Hodgman

Senior Vice President of Finance Administration and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

     Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Daniel G. Welch, Chief Executive Officer of InterMune, Inc. (the “Company”), and John C. Hodgman, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:

1. The Company’s Annual Report on Form 10-K for the year ended December 31, 2007, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

In Witness Whereof, the undersigned have set their hands hereto as of the 11th day of March, 2008.

/s/ Daniel G. Welch	/s/ John C. Hodgman
Daniel G. Welch	John C. Hodgman
Chief Executive Officer	Chief Financial Officer

This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of InterMune, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.