10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission File No. 000-50461

TERCICA, INC.

(Exact name of Registrant as specified in its charter)

Delaware	26-0042539
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

2000 Sierra Point Parkway, Suite 400

Brisbane, CA 94005

(650) 624-4900

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

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

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $0.001 par value	Nasdaq Global Market

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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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

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

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

Large accelerated filer  ¨             Accelerated filer  x             Non-accelerated filer  ¨

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

The aggregate market value of the registrant’s common stock, $0.001 par value, held by non-affiliates of the registrant as of June 30, 2006 was $92,114,611 (based upon the closing sales price of such stock as reported in the Nasdaq Global Market on such date). Excludes an aggregate of 20,168,764 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 30, 2006. 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 28, 2007, there were 50,162,610 shares of the registrant’s common stock, $0.001 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 2007 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.

TERCICA, INC.

FORM 10-K ANNUAL REPORT

FOR THE YEAR ENDED DECEMBER 31, 2006

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Business	1
Item 1A.	Risk Factors	22
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	44
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	45
Item 6.	Selected Financial Data	47
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
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 Disclosure	92
Item 9A.	Controls and Procedures	92
Item 9B.	Other Information	93
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	94
Item 11.	Executive Compensation	94
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	94
Item 13.	Certain Relationships and Related Transactions, and Director Independence	95
Item 14.	Principal Accountant Fees and Services	95
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	96
Signatures		100

PART I

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statement of the plans and objectives of management for future operations, any statements concerning proposed new products or licensing or collaborative arrangements, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” or “continue” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including but not limited to the Risk Factors set forth under Item 1A, and for the reasons described elsewhere in this report. All forward-looking statements and reasons why results may differ included in this report are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might differ.

Item 1. Business.

Tercica, Inc. is a biopharmaceutical company developing and marketing a portfolio of endocrinology products. We currently have the following products in our commercialization and development portfolio:

• Increlex^™, which we began commercializing in the United States in January 2006; and

• Somatuline^® Autogel^®, for which a New Drug Application, or NDA, was submitted in October 2006 to the U.S. Food and Drug Administration, or FDA, by Ipsen S.A., or Ipsen, our collaborator; and was approved for marketing in July 2006 by Health Canada for the treatment of acromegaly.

Increlex^™.    We market Increlex^™ as a long-term replacement therapy for the treatment of children with severe primary insulin-like growth factor deficiency, or severe Primary IGFD, or with growth hormone gene deletion who have developed neutralizing antibodies to growth hormone. We obtained approval for the long-term treatment of severe Primary IGFD from the FDA in August 2005. We are currently conducting a Phase IIIb clinical trial for the use of Increlex^™ for the treatment of children with Primary IGFD. In January 2006, we launched Increlex^™ in the United States. Increlex^™ generated net revenues of $1.3 million in 2006.

In December 2005, we submitted a Marketing Authorization Application, or MAA, in the European Union for the long-term treatment of growth failure in children with severe Primary IGFD or with growth hormone gene deletion who have developed neutralizing antibodies to growth hormone. We expect to receive an opinion from the Committee for Medicinal Products for Human Use on the Increlex^™ MAA in the second quarter of 2007. Pursuant to our worldwide strategic collaboration with Ipsen that was finalized in October 2006, we granted to Ipsen and its affiliates the exclusive right under our patents and know-how to develop and commercialize Increlex^™ in all countries of the world except the United States, Japan, Canada, and for a certain period of time, Taiwan and certain countries of the Middle East and North Africa, for all indications, other than treatment of central nervous system and diabetes indications.

Somatuline^® Autogel^®.    Pursuant to our worldwide strategic collaboration with Ipsen, we have the exclusive right under Ipsen’s patents and know-how to develop and commercialize Somatuline^® Autogel^® in the United States and Canada for all indications other than opthalmic indications. In July 2006, Somatuline^® Autogel^® was approved for marketing by Health Canada for the treatment of acromegaly and is currently in the reimbursement review process. Acromegaly is a hormonal disorder that results when a tumor in the pituitary gland produces excess growth hormone, resulting in overproduction of insulin-like growth factor-1 (IGF-1) and

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excessive growth. In October 2006, Ipsen submitted an NDA to the FDA for the use of Somatuline^® Autogel^® for the treatment of acromegaly. The FDA accepted the NDA on December 30, 2006, and the Prescription Drug User Fee Act, or PDUFA, date for Somatuline^® Autogel^® for the treatment of acromegaly is August 30, 2007.

Somatuline^® Autogel^® is an injectable sustained-release formulation containing lanreotide, a somatostatin analogue. The Somatuline^® Autogel^® formulation requires no excipient other than water and is generally injected monthly. The product is contained in a pre-filled syringe, and can be administered as a deep subcutaneous injection. In contrast, Sandostatin LAR, the only currently available, long-acting somatostatin analogue, which is marketed by Novartis, must be reconstituted from a powdered form and drawn up into a syringe, and must be then be given as a deep intramuscular injection. Like Sandostatin LAR, Somatuline^® Autogel^® is used primarily when circulating levels of growth hormone remain high despite surgery or radiotherapy in patients with acromegaly. Through its inhibitory effects, Somatuline^® Autogel^® lowers growth hormone and IGF-1 levels, thus controlling disease progression and relieving the symptoms associated with active disease.

Scientific Background—Short Stature

We believe that approximately one million children in each of the United States and Western Europe have short stature. Short stature is caused by a deficiency of IGF-1 or growth hormone, or other abnormalities such as genetic defects not associated with a deficiency of either hormone. Physicians use a height standard deviation score, or height SDS, to indicate how many standard deviations a person’s height is from the average height of the normal population of a similar age and gender. The American Academy of Pediatrics and the American Academy of Clinical Endocrinology define short stature as a height that is more than two standard deviations below the average population height. Children with short stature are shorter than approximately 97.7% of children of a similar age and gender, and if their deficit in growth continues unchanged, they will attain a final height of no more than approximately 5’4” for boys and 4’11” for girls. Similarly, in evaluating IGF-1 deficiency, physicians can use an IGF-1 standard deviation score, or IGF-1 SDS, to indicate how many standard deviations a person’s IGF-1 level is from the average level of the population of a similar age and gender.

We define the indication severe Primary IGFD to mean a child who has both a height SDS and an IGF-1 SDS of minus three or less; and the indication Primary IGFD to mean a child who has both a height SDS and an IGF-1 SDS of less than minus two, in each case in the presence of normal or elevated levels of growth hormone. Children with a height SDS of less than minus three are shorter than 99.9% of children of the same age and sex, while children with a height SDS of less than minus two are shorter than 97.7% of children of the same age and sex. Children with an IGF-1 SDS of less than minus three have IGF-1 levels lower than 99.9% of children of the same age, and children with an IGF-1 SDS of less than minus two have lower IGF-1 values than 97.7% of children of the same age. We are currently conducting a Phase IIIb clinical trial for the use of rhIGF-1 in Primary IGFD.

We believe that approximately 30,000 children in each of the United States and Western Europe suffer from Primary IGFD.

Role of IGF-1 in short stature.    The endocrine system regulates metabolism through the use of hormones, including IGF-1, which is a naturally occurring 70 amino acid protein that is necessary for normal human growth and metabolism. A deficiency of IGF-1 can result in short stature and can lead, in children and adults, to a range of other metabolic disorders. These metabolic disorders can include lipid abnormalities, decreased bone density, obesity and insulin resistance. IGF-1 is normally produced as a result of a hormonal cascade beginning with the secretion of growth hormone by the pituitary gland. Growth hormone binds to a growth hormone receptor on a cell which initiates an intracellular process, known as intracellular signaling. This intracellular signaling produces IGF-1 which is released into the blood, which then stimulates cartilage and bone growth.

The cellular production of IGF-1 is regulated by growth hormone. Growth hormone deficiency leads to inadequate IGF-1 production, which results in short stature in children. Growth hormone replacement therapy,

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which increases IGF-1 levels, can often be used to successfully treat growth hormone deficiency. However, we believe many individuals with short stature, despite normal growth hormone secretion, are IGF-1 deficient, because their cells do not respond normally to growth hormone. These children are IGF-1 deficient usually because of abnormalities in either their growth hormone receptors or in their growth hormone signaling pathways. These individuals have Primary IGFD, which is characterized clinically by short stature, IGF-1 deficiency, and growth hormone sufficiency. Individuals with Primary IGFD are candidates for rhIGF-1 replacement therapy.

The following diagram illustrates IGF-1 deficiency and the role of IGF-1 in growth.

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Increlex^™ and Severe Primary IGFD.    Our product, Increlex^™, is identical to naturally occurring human IGF-1, and we believe it performs the same functions in the body. Increlex’s^™ product label defines severe Primary IGFD to mean a child who has a height SDS and IGF-1 SDS of minus three or less and normal growth hormone levels. These children do not respond to or respond poorly to growth hormone therapy. If their deficit in growth continues unchanged, children with severe Primary IGFD who are untreated will typically attain a final height of no more than approximately 5’1” for boys and 4’9 ¹/2” for girls. Increlex^™ therapy supplies these children with the IGF-1 that their bodies are not producing enough of. We estimate that a total of 6,000 children in each of the United States and Western Europe have severe Primary IGFD.

In our Phase III clinical trials of severe Primary IGFD, the data of which we submitted to the FDA in our NDA, some patients experienced hypoglycemia, or low blood glucose levels. Other side effects noted in some patients include hearing deficits, enlargement of the tonsils and intracranial hypertension. Of the children who have completed at least one year of rhIGF-1 replacement therapy, which is the generally accepted length of time required to adequately measure growth responses to drug therapy, a statistically significant increase in average growth rate from 2.8 cm per year prior to treatment to 8.0 cm per year after the first year of rhIGF-1 treatment was demonstrated (p<0.0001). A p-value of less than 0.0001 means that the probability that this result occurred by chance was less than 1 in 10,000. A probability of 5 in 100 or less, or p<0.05, is considered to be statistically significant. Compared to pre-treatment growth rates, statistically significant increases were also observed during each of the next five years of rhIGF-1 treatment (p<0.005). We believe these increases in growth rates were clinically meaningful and comparable to those observed in clinical trials of other approved growth hormone treatments. Statistically significant increases in height SDS compared to baseline were also observed for each of the first eight years of rhIGF-1 treatment (p<0.001).

Increlex^™ and Primary IGFD.    Although our first indication is for severe Primary IGFD, we are evaluating the use of Increlex^™ for the treatment of children with Primary IGFD. Children with Primary IGFD suffer from the same hormonal deficiency as those with severe Primary IGFD. If their deficit in growth continues unchanged, children with Primary IGFD who are untreated will typically attain a final height of no more than approximately 5’4” for boys and 4’11” for girls. Excluding children with severe Primary IGFD, we believe that approximately 24,000 children in each of the United States and Western Europe suffer from Primary IGFD.

We are enrolling a Phase IIIb clinical trial in Primary IGFD, which is intended to serve as the basis for a supplemental NDA filing for this indication. We are conducting this study in the United States and Europe. The principal purpose of this clinical trial is to ensure safety in the broader population and to evaluate the safety and efficacy of various doses of Increlex^™ for patients with Primary IGFD. In mid-2005, we initiated another study in Primary IGFD to investigate once-daily dosing of Increlex^™.

Scientific Background—Acromegaly

The term acromegaly is derived from the Greek words “acro” (extremities) and “megaly” (enlargement). Acromegaly is an orphan disease where the pituitary gland secretes too much growth hormone resulting in overproduction of IGF-1 and excessive growth. The most common cause of acromegaly is a benign tumor of the pituitary gland. The condition can be caused by tumors in other parts of the body, such as the adrenal glands, lungs, or pancreas. Sometimes, these type of tumors can secrete growth hormone, or they might produce another hormone (growth hormone-releasing hormone), which stimulates the pituitary gland to make more growth hormone. If the condition develops before bone growth is completed in adolescence, it is called gigantism.

Acromegaly is a condition characterized by enlarged facial features, hands and feet, that results from excessive production of growth hormone by a tumor affecting the pituitary gland in the brain. Lanreotide decreases the production of the growth hormone and treats the symptoms of acromegaly without curing the tumor. It can be used as first line medical treatment when the levels of growth hormone and IGF-1 remain elevated following surgery or radiotherapy to treat the pituitary tumor.

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The excessive growth associated with acromegaly occurs in the extremities where bones and soft tissues increase in size. Because it is an uncommon disorder with symptoms that develop gradually over time, acromegaly can be difficult to diagnose. We believe that a total of approximately 15,000 people in the United States and Canada are estimated to have acromegaly. It is most commonly found in middle-aged adults.

Without treatment, acromegaly can lead to cardiovascular disease, hypertension, diabetes and a possible increased risk of colon cancer. If untreated, the mortality rate of people with acromegaly is at least two times higher, and the life expectancy is five to ten years less than that of the general population. Treatments that control the excess production of growth hormone and IGF-1 have been shown to return the mortality rate in these patients to normal.

Treatment options for acromegaly include surgical removal of the tumor, drug therapy and radiation therapy of the pituitary gland. Depending on each individual case, a combination of these treatment options may be needed to manage the effects of acromegaly. For example, although surgery can be an effective treatment approach, in many cases, hormone levels may improve yet still not return to normal; these patients would then need additional treatment, most commonly with drug therapy.

Drug therapies include somatostatin analogues, dopamine agonists and growth hormone receptor agonists:

• Somatostatin analogues operate like a naturally occurring hormone called somatostatin, which decreases the production and secretion of growth hormone.

• Dopamine agonists promote the activity of dopamine, a chemical in the brain, to stop growth hormone release by some pituitary tumors. These drugs generally do not work as well as the growth hormone receptor antagonists or the somatostatin analogues.

• Growth hormone receptor antagonists, the most recent class of drugs developed to treat acromegaly, prevent growth hormone from stimulating IGF-1 production by blocking the places on cells where growth hormone binds, or connects, with the growth hormone receptor.

Radiation treatment is usually reserved for patients who cannot undergo surgery, or whose tumor is not completely removed during surgery, or who have not responded adequately to medication.

Somatuline^® Autogel^® and acromegaly.    Somatuline^® Autogel^® injection contains the active ingredient lanreotide. Lanreotide belongs to a class of products called somatostatin analogues that operate similarly to a naturally occurring hormone in the body called somatostatin. Somatostatin is produced in various parts of the body, including the brain, gut and pancreas. It prevents the release of several hormones found in the body, such as growth hormone, serotonin, insulin and vasoactive intestinal peptide (VIP).

Somatuline^® Autogel^® has marketing authorizations in over 50 countries for the treatment of acromegaly and neuroendocrine tumors. In 2006, Somatuline^® and Somatuline^® Autogel^® generated worldwide sales of €92.2 million (approximately $120 million), up 12.8% versus 2005. In its main markets in Europe, Somatuline^® Autogel^® has achieved a 30% to 50% market share of the acromegaly market varying from country-to-country.

Strategy

Our goal is to capitalize on the opportunities presented by Increlex^™ and Somatuline^® Autogel^® and to develop and commercialize additional new products for the treatment of metabolic disorders. Key elements of our strategy for achieving our goal include:

Grow Increlex^™ usage in severe Primary IGFD.    We believe that for the approximately 6,000 children in the United States who suffer from severe Primary IGFD, Increlex^™ provides a favorable efficacy and safety profile. Through our sales and marketing efforts, we make pediatric endocrinologists aware of the risks and benefits of Increlex^™ therapy, including conducting medical education programs, medical symposia, and regional

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speaker programs aimed at increasing physician awareness of Increlex^™ and severe Primary IGFD. We have also established a patient registry to provide additional data on the safety and efficacy of Increlex^™. In addition, we seek to increase formulary acceptance of Increlex^™ so it can be reimbursed in a timely manner following the writing of a prescription.

Expand Increlex^™ indication from severe Primary IGFD to Primary IGFD.    To maximize the opportunities presented by Increlex^™ for the treatment of short stature, we initiated a Phase IIIb clinical trial of Increlex^™ in children with Primary IGFD in late 2004. If the data from this trial are positive, we intend to submit a supplemental NDA to expand the use of Increlex^™ to encompass children with Primary IGFD. If approved for Primary IGFD in the United States and European Union, the market for Increlex^™ would expand from the approximately 6,000 children with severe Primary IGFD to encompass the approximately 30,000 children with Primary IGFD, including severe Primary IGFD, in each of the United States and Western Europe.

Successfully Launch Somatuline^® Autogel^® in Canada and the United States.    There are approximately 500 adult endocrinologists in the United States that prescribe approximately 90% of the prescriptions for acromegaly. Subject to FDA approval, we believe that with the addition of approximately six additional sales representatives to our existing sales force we will be able to effectively market Somatuline^® Autogel^® to these physicians. In addition, we plan to conduct medical education programs, medical symposia, and regional speaker programs aimed at establishing awareness of Somatuline^® Autogel^® and its role in treating patients with acromegaly in the physician community. Somatuline^® Autogel^® has received a marketing approval in Canada and is currently in the reimbursement review process.

Broaden our endocrinology development portfolio.    We intend to pursue the development and commercialization of additional products for the treatment of short stature, acromegaly and other metabolic disorders. We are seeking to in-license products that may benefit from our expertise in the field of endocrinology. In addition, as part of our strategic collaboration with Ipsen, we have granted to each other a right of first negotiation for products in our respective endocrine pipelines and have agreed on a framework for joint clinical development and subsequent commercialization of endocrine products on a worldwide basis. Ipsen has several endocrinology compounds in pre-clinical development, including two products, BIM 23A760 (Dopastatin) and BIM 28131, that could enter clinical development in late 2007. BIM 23A760 (Dopastatin), a chimeric molecule directed towards somatostatin and dopamine receptors, is targeted at the possible treatment of pituitary adenomas, including those causing acromegaly, Cushing’s disease and hyperprolactinemia as well as non-functional pituitary adenomas. BIM 28131, a ghrelin agonist, is targeted at restoring normal body composition in wasting diseases associated with chronic illness.

Key Relationships—Genentech

rhIGF-1.    We entered into a U.S. License and Collaboration Agreement with Genentech in April 2002, which was amended in July and November 2003. In addition, we entered into an International License and Collaboration Agreement with Genentech in July 2003, which expands certain of the rights granted to us under the U.S. License and Collaboration Agreement to the remaining territories of the world outside of the United States. Under these agreements, we have certain rights and licenses to Genentech’s intellectual property to research, develop, use, manufacture and market rhIGF-1, alone or in combination with IGF binding protein-3, which we refer to in this document as IGFBP-3, for a broad range of indications. The rights are exclusive with respect to our development and sale of rhIGF-1 and non-exclusive with respect to our manufacture of rhIGF-1. Indications not covered by our licenses from Genentech include diseases and conditions of the central nervous system. In addition, we need to enter into a written agreement with another company if we desire to commercialize rhIGF-1 for diabetes outside of the United States.

Under both the U.S. License and Collaboration Agreement and the International License and Collaboration Agreement, Genentech agreed to transfer to us its pre-clinical and clinical data related to rhIGF-1. This includes data resulting from extensive animal testing as well as Phase I, Phase II and Phase III clinical trials with respect

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to rhIGF-1. In addition, under these agreements Genentech agreed to transfer its manufacturing technology and know-how to us. In consideration of this transfer, we paid Genentech $1.0 million in cash and approximately $4.1 million in Series A preferred stock upon execution of the U.S. License and Collaboration Agreement. We paid Genentech $1.7 million upon execution of the International License and Collaboration Agreement and $1.4 million related to the license to Genentech’s rights to IGF-1 combined with IGFBP-3. In connection with the approval of our NDA in August 2005, we paid Genentech a $1.0 million milestone payment related to the U.S. License and Collaboration Agreement. We also agreed to pay to Genentech royalties on the sales of rhIGF-1 products and certain one-time payments upon the occurrence of specified milestone events, such as attaining rhIGF-1 indication approvals and aggregate sales levels with respect to rhIGF-1. We are subject to the following milestone payments to Genentech as of December 31, 2006:

• In addition to the amounts already paid to Genentech, if we achieve all of the additional milestones for rhIGF-1 under the U.S. License and Collaboration Agreement and the International License and Collaboration Agreement, we will owe Genentech up to an aggregate of approximately $33.0 million.

• If we develop rhIGF-1 in combination with IGFBP-3, we would be subject to these same milestone events and, upon achievement of all of the milestones, would owe Genentech up to an additional aggregate of approximately $32.5 million.

Accordingly, we would owe Genentech up to an aggregate of approximately $65.5 million in milestone payments if we achieved all of these milestone events for both rhIGF-1 and for rhIGF-1 in combination with IGFBP-3. Both agreements require us to fulfill certain obligations to maintain our licenses.

Under the U.S. License and Collaboration Agreement, Genentech has exclusively licensed to us its right to develop and commercialize rhIGF-1 products in the United States for all indications other than diseases and conditions of the central nervous system. Genentech has a right, the Opt-In Right, to elect, within a limited period of time following an NDA-enabling clinical trial, to participate jointly with us in the development and commercialization of rhIGF-1 products we develop for diabetes indications and for all non-orphan indications. Orphan indications are generally diseases or conditions that affect fewer than 200,000 individuals in the United States. If Genentech elects to exercise its Opt-In Right for a particular indication, Genentech will pay us more than 50% of the past development costs associated with that indication. In addition, after Genentech exercises its Opt-In Right for a particular indication, we would share with Genentech the ongoing net operating losses and profits resulting from the joint development and commercialization effort for that indication. Pursuant to this arrangement, we would fund less than 50% of such operating losses and we would receive less than 50% of any profits associated with any joint indication. In addition, if we elect to discontinue the development of rhIGF-1 products for diabetes or a substitute indication selected by us, subject to Genentech’s consent, Genentech has the right to assume development of such indication. Any substitute indication agreed to by Genentech, under the terms of the current agreement, must have a potential market greater than $250.0 million and not be an indication for the central nervous system. In such event, our rights under the agreement for such indication would terminate and Genentech would be granted a non-exclusive license under our rhIGF-1 intellectual property and technology to manufacture, use and sell rhIGF-1 products for diabetes, or if applicable the substitute indication, subject to an obligation to pay us milestone payments and/or royalties to be negotiated by Genentech and us in good faith on sales of these products.

With respect to those indications in the United States for which Genentech does not have an Opt-In-Right or for which Genentech has not exercised its Opt-In-Right to jointly develop and commercialize rhIGF-1, we have the final decision on disputes relating to development and commercialization of rhIGF-1. With respect to those indications in the United States for which Genentech has exercised its Opt-In-Right, or for which its Opt-In-Right has not expired or been waived by Genentech, Genentech has the final decision on disputes relating to development and commercialization of rhIGF-1.

Under the International License and Collaboration Agreement, Genentech has exclusively licensed to us its right to develop and commercialize rhIGF-1 products outside of the United States for all indications other than

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diseases and conditions of the central nervous system. In addition, we need to enter into a written agreement with another company if we desire to commercialize rhIGF-1 for diabetes outside of the United States. Unlike the U.S. License and Collaboration Agreement, Genentech does not have the right to participate in any of our development or commercialization efforts for rhIGF-1 products outside of the United States.

Upon an uncured material breach of either the U.S. License and Collaboration or the International License and Collaboration Agreement, the non-breaching party may terminate the agreement. We also have the right to terminate either agreement at our sole discretion upon 60 days prior written notice to Genentech. If Genentech terminates either agreement because of our material breach, or if we terminate either agreement for any reason other than a material breach by Genentech, the rights and licenses granted to us under the respective agreement would terminate. In such event, Genentech would be granted a non-exclusive license under our rhIGF-1 intellectual property and technology to manufacture, use and sell rhIGF-1 products, subject to an obligation to pay us royalties on sales of these products to be negotiated by Genentech and us in good faith.

Key Relationships—Ipsen

On October 13, 2006, we completed the first closing of the transactions contemplated by the stock purchase and master transaction agreement we entered into with Ipsen in July 2006. At the closing, we issued 12,527,245 shares of our common stock to an affiliate of Ipsen for an aggregate purchase price of $77.3 million, a 30.0% premium to the Company’s volume-weighted average closing stock price over the preceding 15 trading days ending on July 17, 2006, and issued to Ipsen a convertible note in the principal amount of $25.0 million and a warrant to purchase a minimum of 4,948,795 shares of our common stock, which warrant is exercisable at any time during the five-year period after the initial closing and carries an initial exercise price equal to $7.41 per share. Simultaneously with the initial closing, we and Ipsen (and/or affiliates thereof) entered into licensing agreements with respect to Somatuline^® Autogel^® and Increlex^™, and entered into certain other agreements, including an affiliation agreement with respect to certain corporate governance matters and providing Ipsen with the right to nominate a certain number of directors for election to our Board of Directors. Additionally, we effected an amendment to our amended and restated certificate of incorporation and adopted a rights agreement implementing a stockholder rights plan. The stock purchase and master transaction agreement we entered into with Ipsen in July 2006 also provides for the issuance by us of a second convertible note and a third convertible note to Ipsen in the principal amounts of €30.0 million (or $39.6 million at December 31, 2006) and $15.0 million, respectively, at the second closing thereunder. Each of the convertible notes we issued or that we may issue to Ipsen mature in October 2011 and carry a coupon of 2.5% per annum from the date of issuance, compounded quarterly, and are convertible into shares of our common stock at an initial conversion price per share equal to $7.41 per share (€5.92 per share with respect to the second convertible note). The number of shares that Ipsen can purchase by exercising the warrant can increase over time. As of December 31, 2006, Ipsen could purchase up to approximately 5,000,000 shares of our common stock by exercising the warrant.

Together with the shares issued at the initial closing, the conversion of all three convertible notes and the exercise of the warrant in full would enable Ipsen to acquire an ownership interest in us of approximately 40% on a fully diluted basis.

Pursuant to the licensing agreements we entered into with Ipsen (and/or affiliates thereof) in connection with the initial closing under the stock purchase and master transaction agreement, we granted to Ipsen and its affiliates exclusive rights to develop and commercialize Increlex^™ in all countries of the world except the United States, Japan, Canada, and for a certain period of time, Taiwan and certain countries of the Middle East and North Africa, and Ipsen granted to us exclusive rights to develop and commercialize Somatuline^® Autogel^® in the United States and Canada. Further, we and Ipsen granted to each other product development rights and agreed to share the costs for improvements to, or new indications for, Somatuline^® Autogel^® and Increlex^™. In addition, we and Ipsen agreed to rights of first negotiation for our respective endocrine pipelines. Under the license and collaboration agreement with respect to Increlex^™, Ipsen made an upfront cash payment to us of €10.0 million or $12.4 million and has agreed to pay us a milestone of €15.0 million (or $19.8 million as of December 31, 2006)

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upon approval of the Increlex^™ MAA in the European Union for the targeted product label. If Increlex^™ is launched in Ipsen’s territory, Ipsen would pay royalties to us on a sliding scale from 15% to 25% of net sales, in addition to a supply price of 20% of net sales of Increlex^™. Under the license and collaboration agreement with respect to Somatuline^® Autogel^®, we made an upfront payment of $25.0 million to Ipsen, which was financed through the issuance by us of the first convertible note to Ipsen at the initial closing under the stock purchase and master transaction agreement. If Somatuline^® Autogel^® is approved in the United States for the targeted product label (and the second closing under the stock purchase and master transaction agreement is consummated), we would make a milestone payment of €30.0 million (or $39.6 million as of December 31, 2006) to Ipsen, which would be financed through the issuance by us of the second convertible note to Ipsen at the second closing. If the second closing is consummated, we would also issue the third convertible note to Ipsen and Ipsen would deliver $15.0 million to us, which would be used by us for working capital. Once Somatuline^® Autogel^® is launched in our territory, we would pay royalties to Ipsen, on a sliding scale from 15% to 25% of net sales, in addition to a supply price of 20% of net sales of Somatuline^® Autogel^®. For additional information on our collaboration with Ipsen, please refer to “Note 7 of the Notes to Financial Statements.

Manufacturing

Increlex^™.    We have a Manufacturing Services Agreement with Cambrex Bio Science Baltimore, Inc., or Cambrex Baltimore, for the manufacture and supply of bulk rhIGF-1. We have extended the Manufacturing Service Agreement for four additional years and the agreement now terminates in December 2012. Under this agreement, Cambrex Baltimore is obligated to provide us with up to 24 kilograms of rhIGF-1 per year. We believe this quantity will be sufficient to supply our expected requirements through at least 2011. We also have a quality agreement with Cambrex Baltimore to ensure that product quality, compliance with cGMP and oversight over all critical aspects of rhIGF-1 production, testing and release is maintained.

In October 2006, Cambrex Corporation announced plans to sell its BioPharma subsidiary, which includes its Baltimore manufacturing operations, to Lonza Group AG, or Lonza Baltimore Inc. The sale to Lonza Baltimore was completed in February 2007, and we expect our contractual relationship with Cambrex to continue with Lonza Baltimore.

In November 2006, we executed a Development and Supply Agreement and a Quality Agreement for drug product filling, packaging, and labeling, with a commercial contract manufacturer. These agreements have an initial term of five years from the time of first commercial sale, and thus are anticipated to last through 2012. We expect to complete the technology transfer and manufacturing validation at this manufacturer by the end of 2007.

Our U.S. License and Collaboration Agreement with Genentech provides us with rights and access to Genentech’s manufacturing technology and documentation associated with Genentech’s manufacture and testing of rhIGF-1, including Genentech’s proprietary large-scale manufacturing process for producing bulk rhIGF-1. This includes production cell banks, production batch records, development reports, analytical methods and regulatory documents describing improvements and changes to the production process.

Somatuline^® Autogel^®.    Ipsen is our sole provider of Somatuline^® Autogel^®. We have no alternative manufacturing facilities or plans for any alternative facilities at this time. We do not have direct control over Ipsen’s compliance with regulations and standards. The facilities used by and operations of Ipsen to manufacture Somatuline^® Autogel^® must undergo an inspection by the FDA for compliance with cGMP regulations before Somatuline^® Autogel^® can be approved in the United States.

Sales and Marketing

Increlex^™.    Our Increlex^™ sales and marketing efforts target approximately 500 pediatric endocrinologists practicing in the United States. Pediatric endocrinologists are the physicians who customarily treat children with severe Primary IGFD. Because these pediatric endocrinologists are primarily hospital-based and concentrated in major metropolitan areas, we believe that our focused marketing organization and specialized sales force

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effectively serves them. We are conducting a variety of programs aimed at establishing physician awareness of Increlex^™ as a treatment for severe Primary IGFD, including medical education, symposiums and regional speaker programs. We have also established a patient registry in order to provide further data on the safety and efficacy of Increlex^™.

Somatuline^® Autogel^®.    Patients with acromegaly are typically treated by a subset of adult endocrinologists who sub-specialize in pituitary disorders. We believe there are approximately 500 physicians in the United States who write approximately 90% of the prescriptions for this disease. Subject to approval, we believe that with the addition of approximately six sales representatives to our existing sales force we will be able to effectively market Somatuline^® Autogel^® to these physicians. Like pediatric endocrinologists, adult endocrinologists are primarily hospital-based and concentrated in major metropolitan areas. We plan to conduct medical education programs, medical symposia and regional speaker programs aimed at establishing awareness of Somatuline^® Autogel^® and its role in treating patients with acromegaly.

Somatuline^® Autogel^® has received marketing approval in Canada and is currently in the reimbursement review process. At present, we have contracted sales and marketing operations in Canada to a third party.

Research and Development

Our principal experience has been developing late-stage product candidates and commercializing them. We do not conduct any of our own pre-clinical laboratory research. However, we consult with academic research institutions and other companies regarding both IGF-1 and non-IGF-1 related projects in endocrinology. Research and development activities consist primarily of severe Primary IGFD, Primary IGFD, and clinical and regulatory activities. Manufacturing development activities include pre-MAA approval preparation activities for current good manufacturing practices (cGMP), regulatory inspection preparation, technology transfer, process development and validation, quality control and assurance activities, and analytical services. Clinical and regulatory activities include the preparation, implementation, management of our clinical trials as well as regulatory compliance, data management and biostatistics. Our research and development expenses were $42.0 million for the year ended December 31, 2006, $21.6 million for the year ended December 31, 2005 and $27.9 million for the year ended December 31, 2004.

Patents and Proprietary Rights

Our policy is to enforce our licensed patents to the extent our licensors have granted us such rights, and to protect our proprietary technology. We intend to continue to file U.S. and foreign patent applications to protect technology, inventions and improvements that are considered important to the development of our business. There can be no assurance that any of these patent applications will result in the grant of a patent either in the United States or elsewhere, or that any patents granted will be valid and enforceable, or will provide a competitive advantage or will afford protection against competitors with similar technologies. Our success could depend, in part, on our ability to obtain additional patents, protect our proprietary rights and operate without infringing third party patents. We will be able to protect our licensed patents or proprietary technologies from unauthorized use by third parties only to the extent that such patents or proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets and such third party does not have any valid defense.

We have licensed from Genentech certain intellectual property rights, including patent rights and pre-clinical and clinical data, and manufacturing know-how, to develop and commercialize rhIGF-1 worldwide for a broad range of indications. Such U.S. patents expire between 2010 and 2020. Our U.S. patent No. 6,331,414 B1 licensed from Genentech is directed to methods for bacterial expression of rhIGF-1 and expires in 2018. We have no equivalent European patent. The European Patent Office has determined that the claims of Genentech’s corresponding European patent application are not patentable under European patent law in view of public disclosures made before the application was filed.

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We have licensed from Ipsen their intellectual property rights, including patent rights and pre-clinical and clinical data, to develop and commercialize Somatuline^® Autogel^® in the United States and Canada for a broad range of indications. Such rights include U.S. patents for the formulation and for methods of using Somatuline^® Autogel^® that expire between 2015 and 2019. We do not have patent composition coverage on the lanreotide molecule (the active pharmaceutical ingredient of Somatuline^® Autogel^®) alone.

There has been increasing litigation in the biopharmaceutical industry with respect to the manufacture and sale of new therapeutic products. The validity and breadth of claims in biotechnology patents may involve complex factual and legal issues for which no consistent policy exists. In particular, the patent protection available for protein-based products, such as rhIGF-1, is highly uncertain and involves issues relating to the scope of protection of claims to gene sequences and the production of their corresponding proteins.

There can be no assurance that our licensed patents will not be successfully circumvented by competitors. In particular, we do not have patent composition coverage on the rhIGF-1 protein alone, and we are aware that Chiron Corporation has developed a process to manufacture rhIGF-1 using yeast expression, rather than bacterial expression. In addition, the patent laws of foreign countries differ from those in the United States and the degree of protection afforded by foreign patents may be different from the protection offered by U.S. patents. Our competitors may obtain patents in the United States and Europe directed to methods for the manufacture or use of rhIGF-1 that may be necessary for us to conduct our business free from claims of patent infringement. We may not be able to license such patents on reasonable terms, if at all.

We may need additional intellectual property from other third parties to commercialize rhIGF-1 for diabetes. We cannot be sure that we will be able to obtain a license to any third party technology we may require to conduct our business.

In some cases, litigation or other proceedings may be necessary to defend against claims of infringement, to enforce patents licensed to us, to protect our know-how or other intellectual property rights or to determine the scope and validity of the proprietary rights of third parties. Any potential litigation could result in substantial cost to us and diversion of our resources. We cannot be sure that any of our licensed patents will ultimately be held valid. An adverse outcome in any litigation or proceeding could subject us to significant liability.

Declaratory judgments of invalidity against the patents asserted in any such actions could prevent us from using the affected patents to exclude others from competing with us.

We generally enter into confidentiality agreements with our employees and consultants. Our confidentiality agreements generally require our employees and consultants to hold in confidence and not disclose any of our proprietary information. Despite our efforts to protect our proprietary information, unauthorized parties may attempt to obtain and use our proprietary information. Policing unauthorized use of our proprietary information is difficult, and the steps we have taken might not prevent misappropriation, particularly in foreign countries where the laws may not protect our proprietary rights as fully as do the laws of the United States.

We have applied for registration of the trademarks “Increlex^™,” “Tercica” and the Tercica logo in the United States.

Competition

The biotechnology industry is intensely competitive and characterized by rapid technological progress. In each of our potential product areas, we face significant competition from large pharmaceutical, biotechnology and other companies. Most of these companies have substantially greater capital resources, research and development staffs, facilities and experience at conducting clinical trials and obtaining regulatory approvals. In addition, many of these companies have greater experience, expertise and resources in developing and commercializing products.

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We cannot predict the relative competitive positions of Increlex^™ and Somatuline^® Autogel^®. However, we expect that the following factors, among others, will determine our ability to compete effectively:

• acceptance of Increlex^™ and Somatuline^® Autogel^® by physicians and patients as a safe and effective treatment;

• reimbursement adoption;

• product price;

• manufacturing costs;

• the effectiveness of our and Ipsen’s sales and marketing efforts;

• storage requirements and ease of administration;

• dosing regimen;

• safety and efficacy;

• prevalence and severity of side effects; and

• competitive products.

We believe that many of our competitors spend significantly more on research and development-related activities than we do. Our competitors may discover new treatments, drugs or therapies or develop existing technologies to compete with our products. Our commercial opportunities will be reduced or eliminated if these competing products are more effective, have fewer or less severe side effects, are more convenient or are less expensive than our products.

Growth hormone products compete with Increlex^™ for the treatment of severe Primary IGFD. If Increlex^™ receives regulatory approval for the treatment of patients with Primary IGFD, growth hormone products will also compete with Increlex^™ for the treatment of patients in that indication. The major suppliers of commercially available growth hormone products in the United States are Genentech, Eli Lilly and Company, Teva Pharmaceutical Industries Ltd., Novo Nordisk A/S, Pfizer Inc., and Serono S.A. Investigators from a Novo Nordisk clinical trial presented data that demonstrated growth hormone was effective in a population that included children with Primary IGFD.

In addition, children with Primary IGFD may be diagnosed as having ISS. Eli Lilly and Company and Genentech have received FDA approval for their respective growth hormone products for the treatment of children with ISS in the United States, and Ipsen is seeking ISS approval for its growth hormone product in Europe. Moreover, biosimilar growth hormone products, including Omnitrope marketed by Sandoz, a division of the Novartis group, have been or may be approved in the United States and other countries. Accordingly, we expect that several growth hormone products will compete directly with Increlex^™ for the treatment of children with Primary IGFD.

In addition, we are aware that Chiron Corporation has developed a process to manufacture rhIGF-1 using yeast expression and has intellectual property with respect to that process. We use bacterial expression, which differs from yeast expression, to manufacture Increlex^™.

We believe that Bristol-Meyers Squibb Company, Genentech, Merck & Co., Inc., Novo Nordisk and Pfizer Inc. have conducted research and development of orally available small molecules that cause the release of growth hormone, known as growth hormone secretagogues. We believe that Sapphire Therapeutics has licensed certain rights to Novo Nordisk’s growth hormone secretagogues and is actively developing one of these compounds for use in cancer cachexia, a wasting disorder affecting some cancer patients. These products work by increasing the levels of rhIGF-1 and, if approved, could potentially compete with Increlex^™. It is possible that there are other products currently in development or that exist on the market that may compete directly with Increlex^™.

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Somatuline^® Autogel^®.    Somatuline^® Autogel^® is approved in Canada for the treatment of acromegaly. Together with Ipsen we are seeking regulatory approval for the same indication in the United States. In Canada, and in the United States if approved, Somatuline^® Autogel^® will compete directly with Sandostatin^® LAR^® Depot and Somavert^®. Sandostatin^® LAR^® Depot is a somatostatin analogue and has the same mechanism of action as Somatuline^® Autogel^®. Sandostatin^® LAR^® Depot is indicated for long-term maintenance therapy in patients with acromegaly and in the treatment of symptoms related to carcinoid syndrome and vasoactive intestinal peptide tumors. Somavert^®, a growth hormone antagonist, and Sandostatin^® LAR^® Depot are marketed by Pfizer and Novartis, respectively, in the United States and Canada. Moreover, a subset of patients with acromegaly can be treated with radiotherapy and dopaminergic agonists. These therapies are commercially available in the United States and Canada and will also compete with Somatuline^® Autogel^® for the treatment of patients with acromegaly.

We are aware that Ambrilia Biopharma, QLT Inc., Valera Pharmaceuticals and Camurus AB are conducting research and development programs with long acting versions of octreotide for the treatment of acromegaly. Octreotide is the generic name of the active molecule in Sandostatin^® and Sandostatin^® LAR^® Depot. We are also aware that Novartis is developing pasiretide (SOM 230) and that Ipsen is developing dopastatin for the treatment of acromegaly and other hormone secreting tumors. If approved, these therapies would compete with Somatuline^® Autogel^® in these indications. It is possible that there are other products currently in development or that exist on the market that may compete directly with Somatuline^® Autogel^®.

Government 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 the testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, advertising and promotion of our products. Failure to comply with regulatory requirements may result in criminal prosecution, civil penalties, recall or seizure of products, total or partial suspension of production or injunction, as well as other actions that could affect our potential products or us. Any failure by us to comply with regulatory requirements, to obtain and maintain regulatory approvals, or any delay in obtaining regulatory approvals could materially adversely affect our business.

The process required by the FDA before drugs may be marketed in the United States generally involves the following:

• pre-clinical laboratory and animal tests;

• submission of an IND application, which must become effective before human 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 an NDA.

The testing and approval process requires substantial time, effort, and financial resources, and we cannot be certain that any approvals for rhIGF-1 or Somatuline^® Autogel^® will be granted on a timely basis, if at all.

Once a pharmaceutical candidate is identified for development it enters the pre-clinical testing stage. During pre-clinical studies, laboratory and animal studies are conducted to show biological activity of the drug candidate in animals, both healthy and with the targeted disease. Also, pre-clinical tests evaluate the safety of drug candidates. Pre-clinical tests must be conducted in compliance with good laboratory practice regulations. In some cases, long-term pre-clinical studies are conducted while clinical studies are ongoing.

Prior to commencing a clinical trial, we must submit an IND application 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

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concerns or questions. 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 a clinical trial. All clinical trials must be conducted under the supervision of a qualified investigator in accordance with good clinical practice regulations. These regulations include the requirement that all subjects provide informed consent. Further, an independent institutional review board at the medical center proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences. Reports detailing the results of the clinical trials must be submitted at least annually to the FDA, and more frequently, if adverse events occur.

Human clinical trials 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: Involves studies 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 and optimal dosage.

• Phase III: Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of the product and provide, if appropriate, an adequate basis for product labeling.

• In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients. Because these patients already have the target disease, these studies may provide initial evidence of efficacy traditionally obtained in Phase II trials, and thus these trials are frequently referred to as Phase I/II trials.

The FDA or an institutional review board 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.

Concurrent with clinical trials and pre-clinical studies, companies also must develop information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product and the manufacturer must develop methods for testing the quality, purity, and potency of the final drugs. Additionally, appropriate packaging must be selected and tested and chemistry stability studies must be conducted to demonstrate that the product does not undergo unacceptable deterioration over its shelf-life.

The results of product development, pre-clinical studies and clinical studies, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, and results of chemical studies are submitted to the FDA as part of an NDA requesting approval to market the product. The FDA reviews all NDAs submitted before it accepts them for filing. It may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. The submission of an NDA is subject to user fees, but a waiver of such fees may be obtained. The FDA may deny an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical or other data. Even if such data is submitted, the FDA may ultimately decide that the NDA 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, which 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.

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The FDA has established priority and standard review classifications for original NDAs and efficacy supplements. Priority review applies to the time frame for FDA review of completed marketing applications and is separate from and independent of orphan drug status and the FDA’s fast track and accelerated approval mechanisms. The classification system, which does not preclude the FDA from doing work on other projects, provides a way of prioritizing NDAs upon receipt and throughout the FDA application review process.

The classification system sets the target date for the completion of FDA review and for taking action to approve or not approve an NDA after its acceptance for filing. If the priority review designation criteria are not met, standard review procedures apply. Under the Prescription Drug User Fee Amendments of 2002, the FDA’s performance goals for fiscal years 2003-2007 involve reviewing 90% of priority applications within six months of filing and 90% of standard applications within ten months of submission of the NDA.

Priority designation applies to new drugs that have the potential for providing significant improvement compared to marketed products in the treatment, diagnosis or prevention of a disease. Hence, even if an NDA is initially classified as a priority application, this status can change during the FDA review process, such as in the situation where another product is approved for the same disease for which previously there was no available therapy.

We cannot guarantee that the FDA will grant a request for priority review designation or will permit expedited development, accelerated approval, or treatment use of any product. We also cannot guarantee that if such statutory or regulatory provisions apply to our products, that they will necessarily affect the time period for FDA review or the requirements for approval. Additionally, the FDA’s approval of drugs can include restrictions on the product’s use or distribution, such as permitting use only for specified medical procedures, limiting distribution to physicians or facilities with special training or experience, or requiring pre-submission of advertising and promotional materials.

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 new diseases for a considerable period of time and impose costly procedures upon our activities. Success in early stage clinical trials does not assure success in later stage clinical trials. Data obtained from clinical activities are 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 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 of the product from the market. Delays in obtaining, or failures to obtain regulatory approvals for rhIGF-1 could harm our business. In addition, we cannot predict what adverse governmental regulations may arise from future U.S. or foreign governmental action.

Any drug products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including record-keeping requirements, reporting of adverse experiences with the drug, drug sampling and distribution requirements, notifying the FDA and gaining its approval of certain manufacturing or labeling changes, complying with certain electronic records and signature requirements, and complying with FDA promotion and advertising requirements. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP, 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 pharmaceutical cGMP regulations and other FDA regulatory requirements.

The FDA’s policies may change and additional government regulations may be enacted which could prevent or delay regulatory approval of Increlex^™ for other indications, including Primary IGFD, and Somatuline^®

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Autogel^® for acromegaly. We cannot predict the likelihood, nature or extent of adverse governmental regulation, which 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 rare diseases or conditions, which are generally diseases or conditions that affect fewer than 200,000 individuals in the U.S. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of the therapeutic agent 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 subsequently receives FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same indication, except in limited circumstances, for seven years. The FDA may, however, approve applications to market the same drug for different indications, and applications to market different drugs for the same indication as the drug that has orphan exclusivity.

The FDA granted Increlex^™ seven years of orphan exclusivity for the long-term treatment of growth failure in children with severe Primary IGFD or with growth hormone gene deletion who have developed neutralizing antibodies to growth hormone. In addition, we intend to file for orphan drug designation for other rhIGF-1 diseases that meet the criteria for orphan exclusivity.

Under the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, Congress created an abbreviated FDA review process for generic versions of pioneer (brand name) drug products like Increlex^™. The law also provides incentives by awarding, in certain circumstances, non-patent marketing exclusivities to pioneer drug manufacturers. For example, the Hatch-Waxman Act provides five years of “new chemical entity” exclusivity to the first applicant to gain approval of an NDA for a product that does not contain an active ingredient found in any other approved product. The FDA granted Increlex^™ new chemical entity exclusivity, which expires on August 30, 2010.

During this period, the FDA is prohibited from accepting any abbreviated NDA, or an ANDA, for a generic version of Increlex^™. An ANDA is a type of application in which approval is based on a showing of “sameness” to an already approved drug product. An ANDA does not contain full reports of safety and effectiveness, as do NDAs, but rather demonstrates that the proposed product is “the same as” a reference product in terms of conditions of use, active ingredient, route of administration, dosage form, strength, and labeling. ANDA applicants are also required to demonstrate the “bioequivalence” of their products to reference products. Bioequivalence generally means that there is no significant difference in the rate and extent to which the active ingredient in the products becomes available at the site of drug action. ANDAs also must contain data relating to formulation, raw materials, stability, manufacturing, packaging, labeling, and quality control, among other information.

During this exclusivity period, the FDA is also prohibited from accepting any NDA for a modified version of Increlex^™ where the applicant does not own or have a legal right of reference to all of the data required for approval, otherwise known as a 505(b)(2) application. The FDA has determined that 505(b)(2) applications may be submitted for products that represent changes to approved products like Increlex^™. Such changes may be to the approved product’s conditions of use, active ingredient, route of administration, dosage form, strength, labeling, or bioavailability. A 505(b)(2) applicant also may reference more than one approved product. It is the FDA’s position that such an applicant must only submit the pre-clinical and clinical data necessary to demonstrate the safety and effectiveness of the changes made to the approved product.

This new chemical entity exclusivity protects the entire new chemical entity franchise, including all products containing Increlex^™’s active ingredient for any use and in any strength or dosage form. This exclusivity will not, however, prevent the submission or approval of a full NDA, as opposed to an ANDA or 505(b)(2) application, for any drug, including a drug with the same conditions of use, active ingredient, route of

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administration, dosage form, and strength as Increlex^™. In addition, an ANDA or a 505(b)(2) application may be submitted after four years, rather than five years, if that ANDA or 505(b)(2) application contains a certification (known as a “Paragraph IV certification”) that one of the patents listed with the Increlex^™ NDA is invalid or will not be infringed by the manufacture, use, or sale of the product described in that ANDA or 505(b)(2) application.

The Hatch-Waxman Act also provides three years of new use exclusivity for the approval of NDAs, 505(b)(2) applications, and NDA supplements, where those applications contain the results of new clinical investigations (other than bioavailability studies) essential to the FDA’s approval of the applications. Such applications may be submitted for new indications, new dosage forms, new strengths, or new conditions of use of already approved products like Increlex^™. So long as the new clinical investigations are essential to the FDA’s approval of the change, this new use exclusivity prohibits the approval of ANDAs or 505(b)(2) applications for products with the specific changes associated with those clinical investigations. Should Increlex^™ receive this exclusivity, however, it will not prevent the submission or approval of a full NDA for any drug, including a drug with the same changes as are protected by the exclusivity. It also would not prohibit the FDA from accepting or approving ANDAs or 505(b)(2) applications for other products containing the same active ingredient. It would only protect against the approval of ANDAs and 505(b)(2) applications for products with the specific changes to Increlex^™ that were approved based on the new clinical investigations.

The Hatch-Waxman Act also requires an ANDA or 505(b)(2) applicant that has submitted an ANDA or a 505(b)(2) application with a Paragraph IV certification to notify the owner of the patent that is the subject of the Paragraph IV certification and the holder of the approved NDA of the factual and legal basis for the applicant’s opinion that that patent is invalid or will not be infringed by the manufacture, use, or sale of the product described in that ANDA or 505(b)(2) application. The NDA holder or patent owner may then sue such an ANDA or 505(b)(2) applicant for infringement. If the

NDA holder or patent owner files suit within 45 days of receiving notice of the Paragraph IV certification, a one-time 30-month stay of the FDA’s ability to approve the ANDA or 505(b)(2) application is triggered. However, the FDA may approve the ANDA or 505(b)(2) application before the expiration of the 30-month stay if a court finds the patent invalid or not infringed, or if the court shortens the 30-month period because a party failed to cooperate in expediting the litigation. In addition, if the NDA holder or patent owner chooses not to sue such an ANDA or 505(b)(2) applicant after receiving notification of the Paragraph IV certification, or sues outside of the 45-day window, the FDA may approve the ANDA or 505(b)(2) application whenever all of the other requirements for approval are met.

The FDA Modernization Act of 1997 included a pediatric exclusivity provision that was extended by the Best Pharmaceuticals for Children Act of 2002. Pediatric exclusivity is designed to provide an incentive to manufacturers to conduct research about the safety and effectiveness of their products in children. Pediatric exclusivity, if granted, provides an additional six months of market exclusivity in the United States for new or currently marketed drugs. Under Section 505a of the Federal Food, Drug, and Cosmetic Act, the extra six months of market exclusivity may be granted in exchange for the voluntary completion of pediatric studies in accordance with an FDA-issued “Written Request.” The FDA may issue a Written Request for studies on unapproved or approved indications, where it determines that information relating to the use of a drug in a pediatric population, or part of a pediatric population, may produce health benefits in that population. We have not requested or received a Written Request for such pediatric studies, although we may ask the FDA to issue a Written Request for such studies in the future. To receive the six-month pediatric exclusivity, we would have to receive a Written Request from the FDA, conduct the requested studies, and submit reports of the studies in accordance with a written agreement or commonly accepted scientific principles. There is no guarantee that the FDA will issue a Written Request for such studies or accept the reports of the studies. We believe that Increlex^™ may become eligible for pediatric exclusivity, although there can be no assurances that FDA will grant such exclusivity. The current pediatric exclusivity provision is scheduled to expire on October 1, 2007, and there can be no assurances that it will be reauthorized.

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Reimbursement

Sales of biopharmaceutical products depend in significant part on the availability of third-party reimbursement. Third-party payors provide reimbursement for Increlex^™ and, if approved by the FDA, we expect they would pay for Somatuline^® Autogel^®. It is time consuming and expensive for us to seek reimbursement from third-party payors. Reimbursement may not be available or sufficient to allow us to sell our products on a competitive and profitable basis.

The passage of the Medicare Prescription Drug and Modernization Act of 2003, or the MMA, imposed new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries, which may affect the marketing of our products. The MMA also introduced a new reimbursement methodology, part of which went into effect in 2004. At this point, it is not clear what effect the MMA will have on the prices paid for currently approved drugs and the pricing options for new drugs approved after January 1, 2006. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the medicinal product.

We expect that there will continue to be a number of federal and state proposals to implement governmental pricing controls. While we cannot predict whether such legislative or regulatory proposals will be adopted, the adoption of such proposals could have a material adverse effect on our business, financial condition and profitability.

Employees

As of December 31, 2006, we had 106 full-time employees. Of the full-time employees, 34 were engaged in research and product development and 72 were engaged in selling, general and administrative positions. We believe that our employee base will need to grow in order to execute our development and commercialization plans for rhIGF-1. We believe our relations with our employees are good.

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Executive Officers of the Registrant

Our executive officers, their ages and their positions as of March 7, 2007, are as follows:

Name	Age	Position(s)
John A. Scarlett, M.D.	56	President, Chief Executive Officer and Director
Ross G. Clark, Ph.D.	56	Chief Technical Officer and Director
Ajay Bansal	45	Chief Financial Officer and Senior Vice President of Finance
Richard A. King	42	Chief Operating Officer
Stephen N. Rosenfield	57	Executive Vice President of Legal Affairs, General Counsel and Secretary
Andrew J. Grethlein, Ph.D.	42	Senior Vice President, Pharmaceutical Operations
Thorsten von Stein, M.D., Ph.D.	45	Chief Medical Officer and Senior Vice President of Clinical and Regulatory Affairs
Susan Wong	44	Vice President, Finance and Chief Accounting Officer

John A. Scarlett, M.D., has served as our President and Chief Executive Officer and as a member of our board of directors since February 2002. From March 1993 to May 2001, Dr. Scarlett served as President and Chief Executive Officer of Sensus Drug Development Corporation, a development stage pharmaceutical company. In 1995, he co-founded Covance Biotechnology Services, Inc., a biotechnology contract manufacturing company, and served as a member of its board of directors from inception to 2000. From 1991 to 1993, Dr. Scarlett headed the North American Clinical Development Center and served as Senior Vice President of Medical and Scientific Affairs at Novo Nordisk Pharmaceuticals, Inc., a wholly owned subsidiary of Novo Nordisk A/S, a pharmaceutical company. From 1985 to 1990, Dr. Scarlett served as Vice President, Clinical Affairs and headed the clinical development group at Greenwich Pharmaceuticals, Inc., a pharmaceutical company. From 1982 to 1985, Dr. Scarlett served as Associate Director and, subsequently, as Director, of Medical Research and Services at Ortho-McNeil Pharmaceuticals, a wholly owned subsidiary of Johnson & Johnson. Dr. Scarlett received his B.A. degree in chemistry from Earlham College and his M.D. from the University of Chicago, Pritzker School of Medicine.

Ross G. Clark, Ph.D., has served as our Chief Technical Officer since May 2002 and as a member of our board of directors since December 2001. From December 2001 to August 2003, Dr. Clark served as Chairman of our board of directors. From December 2001 to February 2002, Dr. Clark served as our Chief Executive Officer and President. Dr. Clark founded Tercica Limited, our predecessor company in New Zealand, in September 2000. Since September 1997, Dr. Clark has served as Professor of Endocrinology at the University of Auckland. From October 1997 to January 2000, Dr. Clark served as Chief Scientist for NeuronZ Limited, a New Zealand biotechnology company. In July 1999, Dr. Clark served as a board member of ViaLactia Biosciences (NZ) Ltd, a biotechnology subsidiary of the New Zealand Dairy Board. From 1990 to 1997, Dr. Clark served as a senior scientist for Genentech, Inc., a biotechnology company. Dr. Clark received his B.Sc., Dip.Sci. and Ph.D. degrees in veterinary physiology from Massey University, New Zealand.

Ajay Bansal has served as our Chief Financial Officer and Senior Vice President of Finance since March 2006. From February 2003 to January 2006, Mr. Bansal served as Vice Present of Finance and Administration and Chief Financial Officer of Nektar Therapeutics. From July 2002 until February 2003, Mr. Bansal served as Director of Operations Analysis at Capital One Financial. From August 1998 to June 2002, Mr. Bansal was at Mehta Partners LLC, a financial advisory firm where he was named partner in January 2000. Prior to joining Mehta Partners, Mr. Bansal spent more than 10 years in management roles at Novartis and in consulting at Arthur D. Little, Inc., McKinsey & Company, Inc. and ZS Associates. Mr. Bansal holds a Bachelor of Technology degree from the Indian Institute of Technology (Delhi), an M.S. in Operations Management from Northwestern University and an M.B.A. from Northwestern University.

Richard A. King, has served as our Chief Operating Officer since February 2007. From January 2002 to September 2006, Mr, King served as Executive Vice President, Commercial Operations of Kos Pharmaceuticals, Inc.,

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where he was responsible for sales, marketing, managed care, sales operations and customer service functions. From January 2000 to January 2002, Mr. King served as Senior Vice President of Commercial Operations at Solvay Pharmaceuticals. From January 1992 to January 2000, Mr. King held various marketing positions at SmithKline Beecham Pharmaceuticals. Mr. King began his career in the pharmaceutical industry at Lederle Laboratories, Ltd. Mr. King received his B.S. degree in chemical engineering from the University of Surrey and his M.B.A. from Manchester Business School.

Stephen N. Rosenfield has served as our Executive Vice President of Legal Affairs, General Counsel and Secretary since March 2006. From July 2004 through February 2006, Mr. Rosenfield acted as our Senior Vice President of Legal Affairs, General Counsel and Secretary. From February 2003 to May 2004, Mr. Rosenfield served as Executive Vice President of Legal Affairs, General Counsel and Secretary of InterMune, Inc., a biopharmaceutical company. From February 2000 to February 2003, Mr. Rosenfield served as Senior Vice President of Legal Affairs, General Counsel and Secretary of InterMune, Inc. From February 1996 to March 2000, Mr. Rosenfield was as an attorney at Cooley Godward LLP and served as outside counsel for biotechnology and technology clients. Mr. Rosenfield received his B.S. degree from Hofstra University and his J.D. degree from Northeastern University School of Law.

Andrew Grethlein, Ph.D., has served as our Senior Vice President, Pharmaceutical Operations since August 2005 and served as our Vice President, Manufacturing from April 2003 to August 2005. From December 2000 to April 2003, Dr. Grethlein served as Senior Director, South San Francisco Operations for Elan Corporation, plc, a pharmaceutical company. From November 1998 to December 2000, he served as Director, Biopharmaceutical Operations for Elan Corporation, plc. From 1997 to November 1998, Dr. Grethlein served as Associate Director, Neurotoxin Production for Elan Corporation, plc. From 1995 to 1997, Dr. Grethlein served as Manager, Biologics Development and Manufacturing for Athena Neurosciences, Inc., a biotechnology company. From 1991 to 1995, Dr. Grethlein served in various engineering positions for Michigan Biotechnology Institute, a non-profit technology research and business development corporation, and its wholly-owned subsidiary, Grand River Technologies, Inc. Dr. Grethlein received his B.S. degree in biology from Bates College and his Ph.D. in chemical engineering from Michigan State University.

Thorsten von Stein, M.D., Ph.D., has served as our Chief Medical Officer and Senior Vice President of Clinical and Regulatory Affairs since January 2005. From August 2003 to January 2005, Dr. von Stein served as Chief Medical Officer at NeurogesX, Inc., a pharmaceutical company. From December 2001 to July 2003, Dr. von Stein served as Vice President, Clinical Development at Neurogesx. From 1994 to 2001, Dr. von Stein held positions of increasing responsibility in medical research, global clinical development and project management for Roche Palo Alto and F. Hoffman-La Roche AG in Basel, Switzerland. Dr. von Stein served as Director of Medical Research at Roche Palo Alto from 1998 to December 2001. Dr. von Stein received his M.D. degree from Munich University, Germany, and his Ph.D. degree in computer science from the University of Hamburg, Germany.

Susan Wong has served as our Vice President of Finance and Chief Accounting Officer since March 2006 and Acting Chief Financial Officer from June 2005 to March 2006; and Vice President, Finance and Controller from January 2004 to March 2006. From November 2001 to December 2003, Ms. Wong was an independent financial services consultant. From August 2000 to October 2001, she served as Senior Vice President and Corporate Controller at innoVentry Corp., a privately-held provider of fee-based financial services. From September 1993 to July 2000, Ms. Wong served as Vice President and Corporate Controller at Ocular Sciences, Inc., a publicly-held manufacturer and distributor of soft contact lenses. From September 1989 to 1993, Ms. Wong served as Director of Corporate Accounting and Financial Reporting, Planning & Analysis at Vanstar, Inc., a computer reseller. Ms. Wong held various positions in the audit group at Coopers & Lybrand from August 1985 to August 1989. Ms. Wong is a Certified Public Accountant, and received her B.S. degree in finance and accounting from University of California, Berkeley.

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Corporate Information

Tercica, Inc. was formed in December 2001 as a Delaware corporation. In early 2002, Tercica, Inc. acquired all the intellectual property rights and assumed specified liabilities of Tercica Limited, which was formed in October 2000 as a New Zealand company. Tercica Limited was subsequently liquidated.

Available Information

We file electronically with the U.S. Securities and Exchange Commission, or 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. We make available on our website at http://www.tercica.com, free of charge, copies of these reports as soon as reasonably practicable after filing these reports with, or furnishing them to, the SEC.

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Item 1A. Risk Factors.

We have identified the following additional risks and uncertainties that may have a material adverse effect on our business, financial condition or results of operations. Investors should carefully consider the risks described below before making an investment decision. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business operations. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and investors may lose all or part of their investment.

Risks Related to Our Business

We have a limited operating history and may not be able to successfully market and sell products, generate significant revenues or attain profitability.

We are primarily focused on the development and commercialization of products for the treatment of short stature and other endocrine disorders. We had an accumulated deficit of $248.7 million at December 31, 2006. We had net revenues of $1.5 million and incurred a net loss of $83.0 million during the year ended December 31, 2006. We may not be able to generate significant revenues from operations and may not be able to attain profitability. We expect to incur substantial net losses, in the aggregate and on a per share basis, for the foreseeable future as we attempt to develop, market and sell Increlex^™ for severe Primary IGFD and Primary IGFD and Somatuline^® Autogel^® for acromegaly. We are unable to predict the extent of these future net losses, or when we may attain profitability, if at all. These net losses, among other things, have had and will continue to have an adverse effect on our stockholders’ equity and net current assets.

We anticipate that for the foreseeable future our ability to generate revenues and achieve profitability will be dependent on the successful commercialization by us and Ipsen of Increlex^™ for the treatment of severe Primary IGFD and Primary IGFD, as well as on the successful commercialization by us of Somatuline^® Autogel^® for acromegaly in the United States and Canada. There is no assurance that we will be able to obtain or maintain governmental regulatory approvals to market our products in the United States or rest of the world for these or any other indications. If we are unable to generate significant revenue from Increlex^™ or Somatuline^® Autogel^®, or attain profitability, we will not be able to sustain our operations.

If there are fewer children with severe Primary IGFD or Primary IGFD than we estimate, our ability to generate revenues sufficient to fund our development and commercialization efforts may be curtailed, or we may not be able to complete our clinical trials for Increlex^™ .

If there are fewer children with severe Primary IGFD or Primary IGFD than we estimate, our ability to generate revenues sufficient to fund our development and commercialization efforts may be curtailed. We estimate that the number of children in the United States with short stature is approximately one million, of which approximately 380,000 are referred to pediatric endocrinologists for evaluation. We believe that approximately 30,000 of these children have Primary IGFD, of which approximately 6,000 have severe Primary IGFD. Our estimate of the size of the patient population is based on published studies as well as internal data, including our interpretation of a study conducted as part of Genentech’s National Cooperative Growth Study program. This study reported results of the evaluation of the hormonal basis of short stature in approximately 6,450 children referred to pediatric endocrinologists over a four-year period. We believe that the aggregate numbers of children in Western Europe with Primary IGFD and severe Primary IGFD are substantially equivalent to the numbers in the United States. If the results of Genentech’s study or our interpretation and extrapolation of data from the study do not accurately reflect the number of children with Primary IGFD or severe Primary IGFD, our assessment of the market may be incorrect, making it difficult or impossible for us to meet our revenue goals or to receive royalties from our collaboration with Ipsen to the extent that we currently anticipate, or to enroll a sufficient number of patients in our clinical trials on a timely basis, or at all.

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Our products may fail to achieve market acceptance, which could harm our business.

Prior to our January 2006 commercial launch of Increlex^™ in the United States for the treatment of severe Primary IGFD, rhIGF-1 had never been commercialized in the United States or Europe for any indication. Even though the FDA has approved Increlex^™ for sale in the United States, and Somatuline^® Autogel^® has received marketing approval in Canada, physicians may choose not to prescribe these products, and third-party payers may choose not to pay for them, in which event we may be unable to generate significant revenue or become profitable.

Acceptance of our products will depend on a number of factors including:

• acceptance of our products by physicians and patients as a safe and effective treatment;

• reimbursement adoption;

• product price;

• the effectiveness of our sales and marketing efforts;

• storage requirements and ease of administration;

• dosing regimen;

• safety and efficacy;

• prevalence and severity of side effects; and

• competitive products.

Reimbursement for our products may be slow, not available at the levels we expect, or not available at all, resulting in our expected revenues being delayed or substantially reduced.

Market acceptance, our sales of Increlex^™ and Somatuline^® Autogel^®, and our profitability will depend on reimbursement policies and health care reform measures. The levels at which government authorities and third-party payers, such as private health insurers and health maintenance organizations, reimburse the price patients pay for our products, and the timing of reimbursement decisions by these payers, will affect the commercialization of our products. If our assumptions regarding the timing of reimbursement decisions and level of reimbursement, or regarding the age, dosage or price per patient for Increlex^™ are incorrect, our expected revenues, including potential royalties from our collaboration with Ipsen, may be delayed or substantially reduced. Since Increlex^™ is approved by the FDA for severe Primary IGFD, only prescriptions for that indication may be reimbursable. Also, we cannot be sure that the formulary status that our products ultimately receive by payers will not limit the ability of patients to afford our products and therefore reduce the demand for, or the price of, our products. If reimbursement is not available or is available only to limited levels, we may not be able to market and sell our products and our revenues may be delayed or substantially reduced.

We believe that the annual wholesale acquisition cost of Increlex^™ therapy for the treatment of severe Primary IGFD for a 24 kilogram child at a 120mg/kg twice daily dose at 100% compliance is approximately $27,200 per year. The actual cost per year per patient for Increlex^™ will depend on the weight of the child, the treatment dose prescribed and compliance. If our assumptions regarding the revenue per patient of Increlex^™ therapy for the treatment of severe Primary IGFD and Primary IGFD are incorrect, our expected revenues and the market opportunity for Increlex^™ therapy for the treatment of severe Primary IGFD and Primary IGFD may be substantially reduced.

In recent years, officials have made numerous proposals to change the health care system in the United States. These proposals include measures that would limit or prohibit payments for certain medical treatments or subject the pricing of drugs to government control. In addition, in many foreign countries, particularly in Canada and the countries of the European Union, the pricing of prescription drugs is subject to government control. If our

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products become subject to government legislation that limits or prohibits payment for our products, or that subjects the price of our products to governmental control, we may not be able to generate revenues, attain profitability or market and sell our products. Because these initiatives are subject to substantial political debate, which we cannot predict, the trading price of biotechnology stocks, including ours, may become more volatile as this debate proceeds.

As a result of legislative proposals and the trend towards managed health care in the United States, third-party payers are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement of new drugs. They may also refuse to provide any coverage of uses of approved products for medical indications other than those for which the FDA has granted market approvals, or require patients to pay co-insurance for our products. As a result, significant uncertainty exists as to whether and how much third-party payers will reimburse patients for their use of newly approved drugs, which, in turn, could put pressure on the pricing of drugs and/or the adoption of new products based on reimbursement policies.

We may not realize the anticipated benefits from our collaboration with Ipsen.

Somatuline^® Autogel^® may not receive U.S. regulatory approval in a timely manner, for the label that we anticipate, or at all. Even if Somatuline^® Autogel^® receives U.S. regulatory approval, the approval may not be maintained, including as a result of the failure to maintain compliance with cGMP regulations, and Ipsen may be unable to maintain the supply of the product. In addition, revenues from sales of Somatuline^® Autogel^® in the United States and Canada may not meet our expectations, including as a result of competing products or unavailable or limited reimbursement by third-party payers. Under the license and collaboration agreement with respect to Somatuline^® Autogel^®, Ipsen may terminate the agreement in a particular country if we fail to meet certain minimum sales and promotional requirements with respect to that country. It is also possible that Ipsen will not be successful in marketing and selling Increlex^™ in the licensed territories, or may be delayed in doing so, in which case we would not receive royalties on the timeframe and to the extent that we currently anticipate. We also may not be able to successfully develop additional products or improvements to, or new indications for, Somatuline^® Autogel^® and/or Increlex^™ or share the costs of such developments in a manner that is commercially feasible for us. In addition to cross-licensing agreements for Somatuline^® Autogel^® and Increlex^™, we and Ipsen have granted to each other a right of first negotiation for products in our respective endocrine pipelines and have agreed on a framework for joint clinical development and subsequent commercialization of endocrine products on a worldwide basis. However, the development of Ipsen’s endocrine pipeline may not advance at the rate we currently expect, or at all, and in any event, we cannot assure you that we will be able to reach an agreement with Ipsen on reasonable terms, or at all, for any of these endocrine pipeline products. The license and collaboration agreements would also be terminable by Ipsen under certain circumstances, including certain change of control transactions. In any such or similar events, we may not realize the anticipated benefits from our collaboration with Ipsen.

There can be no assurance that we will receive all or any remaining portion of the anticipated proceeds from our collaboration with Ipsen, nor can there be an assurance that we would achieve the anticipated benefits of our collaboration with Ipsen. Further, we would be required to pay to Ipsen the principal amounts, including accrued interest, under all three convertible notes we issued or that we may issue to Ipsen if Ipsen elects not to convert these notes into shares of our common stock.

We are dependent on our collaboration with Ipsen for the development and commercialization of Increlex^™ outside of the United States, Canada and Japan and for a certain period of time, certain countries of the Middle East and North Africa and Taiwan. We may also be dependent upon additional collaborative arrangements in the future. These collaborative arrangements may place the development and commercialization of our product candidates outside of our control, may require us to relinquish important rights or may otherwise be on terms unfavorable to us.

Under the terms of our collaboration with Ipsen, we granted Ipsen the exclusive right to develop and commercialize Increlex^™ in all regions of the world except the United States, Japan, and Canada and for a certain

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period of time, certain countries of the Middle East and North Africa and Taiwan. We may also enter into additional collaborations with third parties to develop and commercialize our product candidates. Dependence on collaborators for the development and commercialization of our product candidates subjects us to a number of risks, including:

• we may not be able to control the amount and timing of resources that our collaborators devote to the development or commercialization of product candidates or to their marketing and distribution, which could adversely affect our ability to obtain milestone and royalty payments;

• collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

• disputes may arise between us and our collaborators that result in the delay or termination of the research, development or commercialization of our product candidates or that result in costly litigation or arbitration that diverts management’s attention and resources;

• our collaborators may experience financial difficulties;

• collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential litigation;

• business combinations or significant changes in a collaborator’s business strategy may also adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement;

• a collaborator could independently move forward with a competing product candidate developed either independently or in collaboration with others, including our competitors; and

• the collaborations may be terminated or allowed to expire, which would delay product development and commercialization efforts.

We face significant competition from large pharmaceutical, biotechnology and other companies that could harm our business.

The biotechnology industry is intensely competitive and characterized by rapid technological progress. In each of our potential product areas, we face significant competition from large pharmaceutical, biotechnology and other companies. Most of these companies have substantially greater capital resources, research and development staffs, facilities and experience at conducting clinical trials and obtaining regulatory approvals. In addition, many of these companies have greater experience, expertise and resources in developing and commercializing products.

We cannot predict the relative competitive positions of Increlex^™ and Somatuline^® Autogel^®. However, we expect that the following factors, among others, will determine our ability to compete effectively:

• acceptance of Increlex^™ and Somatuline^® Autogel^® by physicians and patients as a safe and effective treatment;

• reimbursement adoption;

• product price;

• manufacturing costs;

• the effectiveness of our and Ipsen’s sales and marketing efforts;

• storage requirements and ease of administration;

• dosing regimen;

• safety and efficacy;

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• prevalence and severity of side effects; and

• competitive products.

We believe that many of our competitors spend significantly more on research and development-related activities than we do. Our competitors may discover new treatments, drugs or therapies or develop existing technologies to compete with our products. Our commercial opportunities will be reduced or eliminated if these competing products are more effective, have fewer or less severe side effects, are more convenient or are less expensive than our products.

Growth hormone products compete with Increlex^™ for the treatment of severe Primary IGFD. If Increlex^™ receives regulatory approval for the treatment of patients with Primary IGFD, growth hormone products will also compete with Increlex^™ for the treatment of patients in that indication. The major suppliers of commercially available growth hormone products in the United States are Genentech, Eli Lilly and Company, Teva Pharmaceutical Industries Ltd., Novo Nordisk A/S, Pfizer Inc and Serono S.A. Investigators from a Novo Nordisk clinical trial presented data that demonstrated growth hormone was effective in a population that included children with Primary IGFD.

In addition, children with Primary IGFD may be diagnosed as having idiopathic short stature, or ISS. Eli Lilly and Company and Genentech have received FDA approval for their respective growth hormone products for the treatment of children with ISS in the United States. Moreover, biosimilar growth hormone products, including Omnitrope marketed by Sandoz, a division of the Novartis group, have been or may be approved in the United States and other countries. Accordingly, we expect that several growth hormone products will compete directly with Increlex^™ for the treatment of children with Primary IGFD.

In addition, we are aware that Chiron Corporation has developed a process to manufacture rhIGF-1 using yeast expression and has intellectual property with respect to that process. We use bacterial expression, which differs from yeast expression, to manufacture Increlex^™.

We believe that Bristol-Meyers Squibb Company, Genentech, Merck & Co., Inc., Novo Nordisk and Pfizer Inc. have conducted research and development of orally available small molecules that cause the release of growth hormone, known as growth hormone secretagogues. We believe that Sapphire Therapeutics has licensed certain rights to Novo Nordisk’s growth hormone secretagogues and is actively developing one of these compounds for use in cancer cachexia, a wasting disorder affecting some cancer patients. These products work by increasing the levels of rhIGF-1 and, if approved, could potentially compete with Increlex^™.

Somatuline^® Autogel^® is approved in Canada for the treatment of acromegaly and together with Ipsen, we are seeking regulatory approval for the same indication in the United States. In Canada, and in the United States if approved, Somatuline^® Autogel^® will compete directly with Sandostatin^® LAR^® Depot and Somavert^®. Sandostatin^® LAR^® Depot is a somatostatin analogue and has the same mechanism of action as Somatuline^® Autogel^®. Sandostatin^® LAR^® Depot is indicated for long-term maintenance therapy in patients with acromegaly and in the treatment of symptoms related to carcinoid syndrome and vasoactive intestinal peptide tumors. Somavert^®, a growth hormone antagonist, and Sandostatin^® LAR^® Depot are marketed by Pfizer and Novartis, respectively, in the United States and Canada. Moreover, a subset of patients with acromegaly can be treated with radiotherapy and dopaminergic agonists. These therapies are commercially available in the United States and Canada and will also compete with Somatuline^® Autogel^® for the treatment of patients with acromegaly.

We are aware that Ambrilia Biopharma, QLT Inc., Valera Pharmaceuticals, and Camurus AB are conducting research and development programs with long acting versions of octreotide for the treatment of acromegaly. Octreotide is the generic name of the active molecule in Sandostatin^® and Sandostatin^® LAR^® Depot. We are also aware that Novartis is developing pasiretide and that Ipsen is developing dopastatin for the treatment of acromegaly and other hormone secreting tumors. If approved, these therapies would compete with Somatuline^® Autogel^® in these indications. It is possible that there are other products currently in development or that exist on the market that may compete directly with Increlex^™ or Somatuline^® Autogel^®.

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If we do not receive additional regulatory marketing approvals for the target labels, our business will be harmed.

We are currently developing Increlex^™ for the treatment of Primary IGFD. The FDA has substantial discretion in the approval process and may decide that the data from our clinical trial is insufficient to allow approval of Increlex^™ for Primary IGFD for the target label. If we do not receive regulatory marketing approval in the United States for Primary IGFD for the target label, our business will be harmed. We will also need to file applications with regulatory authorities in foreign countries to market Increlex^™ for Primary IGFD in foreign countries. Although we have submitted a marketing authorization application in Europe for severe Primary IGFD, there is no assurance that we will receive marketing approval in Europe for either severe Primary IGFD or Primary IGFD. In addition, if we fail to obtain European marketing approval for Increlex^™ for the target label, under our license and collaboration agreement with Ipsen (or for a label which provides access to an agreed upon number of patients), we would not receive the European Medicines Agency, or EMEA, approval-related milestone payment provided for under our agreement with Ipsen. Further, even if European marketing authorization for Increlex^™ is obtained but the target label or access to the agreed upon patient population is not approved within three years from the date of obtaining such initial marketing authorization, we would not be owed the EMEA approval-related milestone payment provided for under our agreement with Ipsen. Further, if EMEA approvals are delayed, it would postpone our ability to receive royalties from the commercialization of Increlex^™ in Europe.

In addition, if FDA does not approve Somatuline^® Autogel^® for the treatment of acromegaly, or the approval is significantly delayed, or we do not receive the target label that we anticipate, our ability to generate revenues would be adversely affected, and our business would be harmed. We may also determine not to, or we may be unable to develop or obtain FDA approval of Somatuline^® Autogel^® for indications other than acromegaly, such as neuroendocrine tumors.

We rely solely on single-source third parties in the manufacture, testing, storage and distribution of Increlex^™.

We source all of our Increlex^™ fill-finish manufacturing and testing and final product storage and distribution operations, as well as all of our bulk manufacturing, testing, and shipping operations, through single-source third-party suppliers and contractors. Single-source suppliers are the only approved suppliers currently available to us, and could only be replaced by qualification of new sites for the same operations.

If our contract facilities, contractors or suppliers become unavailable to us for any reason, including as a result of the failure to comply with cGMP regulations, manufacturing problems or other operational failures, such as equipment failures or unplanned facility shutdowns required to comply with cGMP, damage from any event, including fire, flood, earthquake or terrorism, business restructuring or insolvency, or if they fail to perform under our agreements with them, such as failing to deliver commercial quantities of bulk drug substance or finished product on a timely basis and at commercially reasonable prices, we may be delayed in manufacturing Increlex^™ or may be unable to maintain validation of Increlex^™. This could delay or prevent the supply of commercial and clinical product, or delay or otherwise adversely affect revenues. If the damage to any of these facilities is extensive, or, for any reason, they do not operate in compliance with cGMP or are unable or refuse to perform under our licenses and/or agreements, we will need to find alternative facilities. Further, we are responsible for the manufacture and supply of Increlex^™ to Ipsen (through our contract manufacturer) for Ipsen’s clinical development and commercial needs. In the event we fail to meet Ipsen’s supply obligations, Ipsen would have the right to exercise its option to manufacture Increlex^™ on its own or to engage a third-party manufacturer to do so. The number of contract manufacturers with the expertise and facilities to manufacture rhIGF-1 bulk drug substance on a commercial scale in accordance with cGMP regulations is extremely limited, and it would take a significant amount of time and expense to arrange for alternative manufacturers. If we need to change to other commercial manufacturers, these manufacturers’ facilities and processes, prior to our use, would likely have to undergo pre-approval and/or cGMP compliance inspections. In addition, we would need to transfer and validate the processes and analytical methods necessary for the production and testing of rhIGF-1 to these new manufacturers.

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Our inability to timely transfer to an alternate single-source manufacturer to fill-finish Increlex^™ could adversely affect our commercial supply and ability to grow revenues.

We currently source all of our Increlex^™ fill-finish manufacturing and portions of release testing through a single-source third-party supplier. This supplier is the only FDA-approved manufacturer currently available to us, and could only be replaced by qualification of a new site for the same operations. We have negotiated a short-term commercial agreement with this fill-finish manufacturer and during the term of this agreement, we are attempting to move our process to another fill-finish manufacturer. It will take a significant amount of time and expense to complete the transfer to, and validate an alternative manufacturer. For us to change to this commercial fill-finish manufacturer, the manufacturer’s facilities and processes, prior to our use, will need to undergo pre-approval and/or cGMP compliance inspections. In addition, we need to transfer and validate the processes and certain analytical methods necessary for the production and testing of rhIGF-1 to this new manufacturer. A delay in this transfer may also result in a shortage of our commercial product and a loss of revenues.

If our contract manufacturers’ and/or Ipsen’s facilities and operations do not maintain satisfactory cGMP compliance, we may be unable to market and sell Increlex^™ and/or Somatuline^® Autogel^®.

The facilities used by and operations of our contract manufacturers to manufacture and test Increlex^™ must undergo continuing inspections by the FDA for compliance with cGMP regulations in order to maintain our Increlex^™ approval for the treatment of severe Primary IGFD. Similarly, the facilities used by and operations of Ipsen to manufacture Somatuline^® Autogel^® must undergo an inspection by the FDA for compliance with cGMP regulations before Somatuline^® Autogel^® can be approved. Currently, Lonza Baltimore is our sole provider of bulk rhIGF-1 and Ipsen is our sole provider of Somatuline^® Autogel^®. We have no alternative manufacturing facilities or plans for additional facilities at this time. We do not know if the Lonza Baltimore facilities or their operations required for the commercial manufacture of Increlex^™ will continue to receive satisfactory cGMP inspections and we do not know if Ipsen’s facilities or their operations required for the commercial manufacture of Somatuline^® Autogel^® will receive a satisfactory cGMP inspection. In the event these facilities or operations do not receive, or continue to receive, satisfactory cGMP inspections for the manufacture of our products, or for the operation of their facilities in general, we may need to invest in significant compliance improvement programs, fund additional modifications to our manufacturing processes, conduct additional validation studies, or find alternative manufacturing facilities, any of which would result in significant cost to us as well as result in a delay or prevention of commercialization, and may result in our failure to obtain or maintain approvals. In addition, Lonza Baltimore, and any alternative contract manufacturer we may utilize, will be subject to ongoing periodic inspection by the FDA and corresponding state and foreign agencies for compliance with cGMP regulations and similar foreign standards. We do not have direct control over Ipsen’s or our contract manufacturers’ compliance with these regulations and standards. Any of these factors could delay or suspend clinical trials, regulatory submissions or regulatory approvals, entail higher costs and result in us being unable to effectively market and sell our products or maintain our products in the marketplace, which would adversely affect our ability to generate revenues.

We rely in certain cases on single-source and sole-source materials suppliers to manufacture Increlex^™.

Certain specific components and raw materials used to manufacture Increlex^™ at our third-party manufacturers are obtained and made available through either single-source or sole-source suppliers. Single-source suppliers are the only approved suppliers currently available to us, and could only be supplemented by qualification of new sources for the material required. Sole-source suppliers are the only source of supply available to us, and could only be replaced through qualification of an alternate material after demonstrating suitability. Supply interruption of these materials could result in a significant delay to our manufacturing schedules and ability to supply product, and would likely be required to undergo lengthy regulatory approval procedures prior to product distribution. Limits or termination of supply of these materials could significantly impact our ability to manufacture Increlex^™, cause significant supply delays while we qualified, at significant expense, new suppliers or new materials, and would consequently cause harm to our business, including as a result, our failure to meet our supply obligations to Ipsen.

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Difficulties or delays in product manufacturing due to advance scheduling requirements, capacity constraints and/or manufacturing lot failures at our third-party manufacturers or Ipsen could harm our operating results and financial performance.

The manufacture of Increlex^™ requires successful coordination between us and all of our suppliers, contractors, service-providers, and manufacturers. Coordination failures with these different elements of our supply chain, or with Ipsen’s supply of Somatuline^® Autogel^® to us, could require us to delay shipments and/or impair our ability to distribute and supply product, including Increlex^™ to Ipsen. Furthermore, uncertainties in estimating future demand for new products such as Increlex^™ may result in manufacture of surplus inventory requiring us to record charges for any expired, unused product, or may result in inadequate manufacturing of product inventory, causing delays to shipments or no shipments at all. Additionally, our reliance on third-party manufacturing requires long lead times from order to delivery of product, and may be hampered by available capacity at those manufacturers, making our ability to supply product supplies in excess of our forecast extremely difficult. As a consequence, we may have inadequate capacity to meet unexpected demand, which could negatively affect our operating results and our ability to meeting our supply obligations to Ipsen. Further, our operating results and financial performance may suffer if we experience more than anticipated manufacturing lot failures.

Claims and concerns may arise regarding the safety and efficacy of our products, which could require us to perform additional clinical trials, could slow penetration into the marketplace, or cause reduced sales or product withdrawal after introduction.

Increlex^™ was approved in the United States for the treatment of severe Primary IGFD based on long-term and extensive studies and clinical trials conducted to demonstrate product safety and efficacy. Somatuline^® Autogel^® was approved in Canada for the treatment of acromegaly on a similar basis. Discovery of previously unknown problems with the raw materials, product or manufacturing processes, such as loss of sterility, contamination, new data suggesting an unacceptable safety risk or previously unidentified side effects for these products, could result in a voluntary or mandated withdrawal of the products from the marketplace, either temporarily or permanently. Studies may result in data or evidence suggesting another product is safer, better tolerated, or more efficacious than our products, which could lead to reduced sales and royalties. Additionally, discovery of unknown problems with our products or manufacturing processes for our products could negatively impact the established safety and efficacy profile and result in possible reduced sales or product withdrawal. Such outcomes could negatively and materially affect our product sales, royalty stream, operating results, and financial condition.

If other companies overcome our U.S. orphan drug marketing exclusivity for Increlex^™, or for Somatuline^® Autogel^® if obtained, or obtain marketing exclusivity in Europe for the treatment of severe Primary IGFD, they will be able to compete with us, and our revenues will be diminished.

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. The company that obtains the first FDA approval for a designated orphan drug for a rare disease receives marketing exclusivity for use of that drug for the designated condition for a period of seven years. Increlex^™ has received from the FDA orphan drug marketing exclusivity for the long-term treatment of patients with severe Primary IGFD. Ipsen is seeking orphan drug marketing exclusivity for Somatuline^® Autogel^® for acromegaly in connection with the marketing approval application that Ipsen submitted to the FDA; however, there can be no assurance that the FDA will grant marketing exclusivity to Somatuline^® Autogel^®.

Although Increlex^™ has received marketing exclusivity for severe Primary IGFD, the FDA can still approve different drugs for use in treating the same indication or disease covered by our product, which would create a more competitive market for us. Similarly, there may be additional drugs for treating acromegaly that could compete with Somatuline^® Autogel^® despite its seven-year orphan drug marketing exclusivity, even if granted by the FDA.

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Furthermore, drugs considered to be the same as Increlex^™ or Somatuline^® Autogel^® that are clinically superior or provide a major contribution to patient care may be approved for marketing by the FDA despite our initial orphan drug marketing exclusivity for either Increlex^™ or Somatuline^® Autogel^®, if obtained. If other companies are able to overcome our U.S. orphan drug exclusivity, they will be able to compete with us, and our revenues will be diminished.

We will not be able to sell our products if we are not able to maintain our regulatory approval due to changes to existing regulatory requirements.

Although we have obtained regulatory approval for Increlex^™ in the United States for the treatment of severe Primary IGFD, this product and our manufacturing processes are subject to continued review and ongoing regulation by the FDA post approval, including, for example, changes to manufacturing process standards or good manufacturing practices, changes to product labeling, revisions to existing requirements or new requirements for manufacturing practices, or changing interpretations regarding regulatory guidance. Such changes in the regulatory environment and requirements could occur at any time during the commercialization of Increlex^™. We face similar risks with respect to the commercialization of Somatuline^® Autogel^® in Canada and, if we receive FDA approval, in the United States. Changes in the regulatory environment or requirements could adversely affect our ability to maintain our approval or require us to expend significant resources to maintain our approvals, which could result in the possible withdrawal of our products from the marketplace, which would harm our business and negatively impact our financial performance.

Competitors could develop and gain FDA approval of products containing rhIGF-1, which could adversely affect our competitive position.

In the future, rhIGF-1 manufactured by other parties may be approved for use in the United States. For example, we are aware that Chiron Corporation has developed a process to manufacture rhIGF-1 using yeast expression and has intellectual property with respect to that process. In the event there are other rhIGF-1 products approved by the FDA to treat indications other than those covered by Increlex^™, physicians may elect to prescribe a competitor’s product containing rhIGF-1 to treat the indications for which Increlex^™ has received and may receive approval. This is commonly referred to as off-label use. While under FDA regulations a competitor is not allowed to promote off-label use of its product, the FDA does not regulate the practice of medicine and as a result cannot direct physicians as to which product containing rhIGF-1 to prescribe to their patients. As a result, we would have limited ability to prevent off-label use of a competitor’s product containing rhIGF-1 to treat any diseases for which we have received FDA approval, even if it violates our method of use patents and/or we have orphan drug exclusivity for the use of rhIGF-1 to treat such diseases.

Competitors could challenge our patents and file an Abbreviated New Drug Application or a 505(b)(2) new drug application for an IGF-1 or Somatuline^® Autogel^® product and adversely affect the competitive position of each.

Products approved for commercial marketing by the FDA are subject to the provisions of the Drug Price Competition and Patent Term Restoration Act of 1984, or “Hatch-Waxman Act.” The Hatch-Waxman Act provides companies with marketing exclusivity for varying time periods during which generic or modified versions of a drug may not be marketed and allows companies to apply to extend patent protection for up to five additional years. It also provides a means for approving generic versions of a drug once the marketing exclusivity period has ended and all relevant patents have expired. The period of exclusive marketing, however, may be shortened if a patent is successfully challenged and defeated. Competitors with a generic IGF-1 or Somatuline^® Autogel^® product or a modified version of IGF-1 or Somatuline^® Autogel^® may attempt to file an ANDA or a 505(b)(2) NDA and challenge our patents and marketing exclusivity. Such applications would have to certify that one of the patents in the Increlex^™ or Somatuline^® Autogel^® NDA is invalid or not infringed by the manufacture, use, or sale of the product described in that ANDA or 505(b)(2) application under the Hatch-Waxman Act. If successful, a competitor could come to market at an earlier time than expected. We can provide no assurances that we can prevail in a challenge or litigation related to our patents or exclusivity.

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We are subject to “fraud and abuse” and similar laws and regulations, and a failure to comply with such regulations or prevail in any litigation related to noncompliance could harm our business.

Upon approval of Increlex^™ by the FDA, we became subject to various health care “fraud and abuse” laws, such as the Federal False Claims Act, the federal anti-kickback statute and other state and federal laws and regulations. Pharmaceutical companies have faced lawsuits and investigations pertaining to violations of these laws and regulations. We cannot guarantee that measures that we have taken to prevent such violations, including our corporate compliance program, will protect us from future violations, lawsuits or investigations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

If we fail or are unable to protect or defend our intellectual property rights, competitors may develop competing products, and our business will suffer.

lf we are not able to protect our proprietary technology, trade secrets and know-how, our competitors may use our inventions to develop competing products. We have licensed intellectual property rights, including patent rights, relating to rhIGF-1 and Somatuline^® Autogel^® technologies from Genentech and Ipsen, respectively. However, these patents may not protect us against our competitors. Patent litigation is very expensive, and we therefore may be unable to pursue patent litigation to its conclusion because currently we do not generate meaningful revenues.

We do not have patent composition coverage on the rhIGF-1 protein alone. Although we have licensed from Genentech its rights to its methods of use and manufacturing patents, it may be more difficult to establish infringement of such patents as compared to a patent directed to the rhIGF-1 protein composition alone. Our licensed patents may not be sufficient to prevent others from competing with us. We cannot rely solely on our patents to be successful. The standards that the U.S. Patent and Trademark Office and foreign patent offices use to grant patents, and the standards that U.S. and foreign courts use to interpret patents, are not the same and are not always applied predictably or uniformly and can change, particularly as new technologies develop. As such, the degree of patent protection obtained in the United States may differ substantially from that obtained in various foreign countries. In some instances, patents have issued in the United States while substantially less or no protection has been obtained in Europe or other countries. Our U.S. Patent No. 6,331,414 B1 licensed from Genentech is directed to methods for bacterial expression of rhIGF-1 and expires in 2018. We have no equivalent European patent. The European Patent Office has determined that the claims of Genentech’s corresponding European patent application are not patentable under European patent law in view of public disclosures made before the application was filed.

We do not have patent composition coverage on the lanreotide molecule (the active pharmaceutical ingredient of Somatuline^® Autogel^®) alone. We have licensed from Ipsen its rights to formulation and method of use patents for Somatuline^® Autogel^® that expire between 2015 and 2019, and we intend to seek and obtain seven-year orphan drug marketing exclusivity in connection with any marketing authorization for Somatuline^® Autogel^® for the treatment of acromegaly in the United States. However, there can be no assurance that we have patent rights sufficient to prevent others from competing with us, nor can there be any assurance that we will be granted any orphan drug marketing exclusivity to block a competitor from marketing the same drug for the treatment of acromegaly.

If we attempt to enforce against a competitor the patent rights we have licensed from Ipsen or the patent rights we have licensed from Genentech, and if such patents are challenged in court by defenses the competitor may raise, such as invalidity, unenforceability or possession of a valid license, we may fail to stop the competitor and we may lose the ability to assert the affected patents against other competitors as well. If we assert the patents we licensed from Ipsen in an infringement proceeding against a competitor, and if the court were to find in favor of any defense of invalidity or unenforceability raised by the competitor against the asserted patents, we

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would be unable to use the affected patents to exclude others from competing with Somatuline^® Autogel^®. In addition, the type and extent of patent claims that will be issued to us in the future are uncertain. Any patents that are issued may not contain claims that will permit us to stop competitors from using technology similar to our Increlex^™ or Somatuline^® Autogel^® technologies.

In addition to the patented technology licensed from Genentech and Ipsen, we also rely on unpatented technology, trade secrets and confidential information, such as the proprietary information we use to manufacture Increlex^™. We may not be able to effectively protect our rights to this technology or information. Other parties may independently develop substantially equivalent information and techniques or otherwise gain access to or disclose this technology. We generally require each of our employees, consultants, collaborators, and certain contractors to execute a confidentiality agreement at the commencement of an employment, consulting or collaborative relationship with us. However, these agreements may not provide effective protection of this technology or information or, in the event of unauthorized use or disclosure, they may not provide adequate remedies.

We may incur substantial costs as a result of patent infringement litigation or other proceedings relating to patent and other intellectual property rights, and we may be unable to protect our intellectual property rights.

A third party may claim that we are using its inventions covered by its patents and may initiate litigation to stop us from engaging in our operations and activities. Although no third party has claimed that we are infringing on their patents, patent lawsuits are costly and could affect our results of operations and divert the attention of managerial and technical personnel. There is a risk that a court would decide that we are infringing the third party’s patents and would order us to stop the activities covered by the patents. In addition, there is a risk that a court will order us to pay the other party damages for having infringed the other party’s patents. The biotechnology industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our products or methods of use do not infringe the patent claims of the relevant patent and/or that the patent claims are invalid, and we may not be able to do so. Proving invalidity, in particular, is difficult since it requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents.

We are aware of a U.S. patent of Chiron Corporation related to processes of manufacturing rhIGF-1 in yeast host cells, to fusion proteins, DNA, and yeast host cells useful in such processes of manufacturing rhIGF-1 in yeast host cells, and to rhIGF-1 made as a product of such processes. While we use bacterial expression, not yeast expression, in our process for manufacturing Increlex^™, we cannot predict whether our activities relating to the development and commercialization of Increlex^™ in the United States will be found to infringe Chiron’s patent in the event Chiron brings patent infringement proceedings against us. We may not be able to obtain a license to Chiron’s patent under commercially reasonable terms, if at all. If we are unable to obtain a license to Chiron’s patent, and if in any patent infringement proceeding Chiron brings against us the court decides that our activities relating to the development and commercialization of Increlex^™ in the United States infringe Chiron’s patent, the court may award damages and/or injunctive relief to Chiron. Any such damages, injunctive relief and/or other remedies the court may award could render any further development and commercialization of Increlex^™ commercially infeasible for us or otherwise curtail or cease any further development and commercialization of Increlex^™.

We cannot be certain that others have not filed patent applications for technology covered by the issued patents of any of our licensors, or by our pending applications or by the pending applications of any of our licensors, or that we or any of our licensors were the first to invent the technology because:

• some patent applications in the United States may be maintained in secrecy until the patents are issued,

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• patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, and

• publications in the scientific literature often lag behind actual discoveries and the filing of patents relating to those discoveries.

Patent applications may have been filed and may be filed in the future covering technology similar to ours. Any such patent application may have priority over our patent applications and could further require us to obtain rights to issued patents covering such technologies. In the event that another party has filed a U.S. patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the U.S. Patent and Trademark Office to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our U.S. patent position with respect to such inventions.

Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could harm our business.

Ipsen may seek to influence our business in a manner that is contrary to our goals or strategies or to the interests of our other stockholders.

Based on its significant ownership position through certain protective provisions, Ipsen has the ability to significantly influence the outcome of certain actions by our Board of Directors and those requiring the approval of our stockholders. Our other stockholders may be unable to prevent actions taken by Ipsen. Together with the 12,527,245 shares of our common stock that we issued in connection with the initial closing of our collaboration with Ipsen, the conversion of the convertible notes we issued or that we may issue to Ipsen and the exercise of the warrant that we issued to Ipsen would enable Ipsen to acquire an ownership interest in us of approximately 40% on a fully diluted basis, with the opportunity to increase its ownership position to 60% or greater through market purchases upon the expiration of a one-year standstill period. Ipsen was also granted a preemptive right to purchase its pro rata portion of new securities that we may offer in the future to maintain its percentage ownership interest. In addition, under the terms of our affiliation agreement with Ipsen, so long as Ipsen holds at least 15% of the outstanding shares of our common stock, Ipsen would be entitled to nominate two out of the nine directors on our Board of Directors. In the event that Ipsen holds at least 10% of the outstanding shares of our common stock, but less than 15%, it would be entitled to nominate one director to our Board of Directors. Our affiliation agreement with Ipsen also provides that in the event Ipsen holds at least 60% of the outstanding shares of our common stock, Ipsen is entitled to nominate an unlimited number of directors to our Board of Directors. For so long as Ipsen holds at least 15% of the outstanding shares of our common stock, Ipsen is also entitled to nominate additional independent director nominees, who must be independent of Ipsen, starting in 2008. Our certificate of incorporation was also amended in connection with our collaboration with Ipsen to waive the corporate opportunity provisions under Delaware law and the corporate opportunity doctrine with respect to opportunities of which Ipsen and Ipsen’s designees to our Board of Directors may become aware as a result of their affiliation with us. Additionally, our certificate of incorporation provides that any person purchasing or acquiring an interest in shares of our common stock shall be deemed to have consented to these provisions of our certificate of incorporation. This deemed consent might restrict the ability to challenge transactions carried out in compliance with these provisions. We make no assurances that Ipsen will not seek to influence our business in a manner that is contrary to our goals or strategies or the interests of other stockholders. Moreover, persons who are directors and/or officers of Ipsen and who also serve on our Board of Directors may decline to take action in a manner that might be favorable to us but adverse to Ipsen. Currently, two of our directors, Jean-Luc Bélingard and Christophe Jean, also serve as the Chief Executive Officer and Chief Operating Officer, respectively, of Ipsen.

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If we lose our licenses from Genentech or Ipsen, we may be unable to continue our business.

We have licensed intellectual property rights and technology from Genentech and from Ipsen. Under our license and collaboration agreements with Genentech and Ipsen, each of Genentech and Ipsen have the right to terminate our licenses if we are in material breach of our obligations under our agreements with them and fail to cure that breach. Under the terms of the agreements, we are obligated, among other things, to use reasonable business efforts to meet specified milestones, including in the Genentech agreements, filing for regulatory approval in the United States for either a diabetes indication or a substitute indication by December 31, 2008. If any of these agreements are terminated, then we would lose our rights to utilize the technology and intellectual property covered by that agreement to develop, manufacture, market and sell Increlex^™ for any indication and/or to develop, market and sell Somatuline^® Autogel^®. This may prevent us from continuing our business.

We are subject to Genentech’s option rights with respect to the commercialization of Increlex^™ for all diabetes and non-orphan indications in the United States. We are also subject to Ipsen’s right of first negotiation to develop and commercialize other products subsequently acquired or owned by us.

Under our U.S. license and collaboration agreement with Genentech, Genentech has the option to elect to jointly commercialize rhIGF-1 for all diabetes and non-orphan indications in the United States. Orphan indications are designated by the FDA under the Orphan Drug Act, and are generally rare diseases or conditions that affect fewer than 200,000 individuals in the United States. With respect to those non-orphan and diabetes indications in the United States, once Genentech has exercised its option to jointly develop and commercialize, Genentech has the final decision on disputes relating to development and commercialization of such indications. Our ability to sublicense the development and commercialization of such products requires the consent of Genentech. In addition, under our license and collaboration agreement with Ipsen with respect to Increlex^™, Ipsen has a right of first negotiation to develop and commercialize, in Ipsen’s territory, other products subsequently acquired or owned by us in the field of endocrinology. Accordingly, we may not receive a reasonable return on our investment if we develop new endocrinology products.

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 either 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 (for example, in our current Phase III clinical trials of rhIGF-1 in Primary IGFD, patients have not enrolled at the rate we expected);

• patients experience adverse side effects;

• patients develop medical problems that are not related to our products or product candidates;

• 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;

• contract laboratories fail to follow good laboratory practices;

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

• sufficient quantities of the trial drug may not be available, or available drug may become unusable;

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

• re-evaluation of our corporate strategies and priorities; and

• limited financial resources.

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In addition, we may choose to cancel, change or delay certain planned clinical trials, or replace one or more planned clinical trials with alternative clinical trials. Our clinical trials or intended clinical trials may be subject to further change from time to time as we evaluate our research and development priorities and available resources. Our development costs will increase if we need to perform more or larger clinical trials than planned. Significant delays for our current or planned clinical trials may harm the commercial prospects for Increlex^™ and our prospects for profitability.

Clinical 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 treatment of a specific disease, we must provide the FDA and foreign regulatory authorities with clinical data that demonstrate the safety and statistically significant efficacy of that product for the treatment of the disease. Clinical development is a long, expensive and uncertain process, and delay or failure can occur at any stage of any of our clinical trials. For example, we may seek to develop Somatuline^® Autogel^® for indications other than acromegaly, such as neuroendocrine tumors, but we may determine that such trials are prohibitively expensive and ultimately may not proceed with such trials. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. Success in pre-clinical testing and early clinical trials does not ensure that later clinical trials will be successful. If a clinical trial failed to demonstrate safety and statistically significant efficacy, we would likely abandon the development of that product, which could harm our business and may result in a precipitous decline in our stock price.

If third-party clinical research organizations do not perform in an acceptable and timely manner, our clinical trials could be delayed or unsuccessful.

We do not have the ability to conduct all of our clinical trials independently. We rely on clinical investigators, third-party clinical research organizations and consultants to perform a substantial portion of these functions. If we cannot locate acceptable contractors to run our clinical trials or enter into favorable agreements with them, or if these contractors do not successfully carry out their contractual duties, satisfy FDA requirements for the conduct of clinical trials, or meet expected deadlines, we may be unable to obtain or maintain required approvals and may be unable to market and sell our products on a timely basis, if at all.

If we fail to identify and in-license other patent rights, products or product candidates, we may be unable to grow our revenues.

We do not conduct any discovery research. Our strategy is to in-license products or product candidates and further develop them for commercialization. The market for acquiring and in-licensing patent rights, products and product candidates is intensely competitive. If we are not successful in identifying and in-licensing other patent rights, products or product candidates, we may be unable to grow our revenues with sales from additional products. Further, under the terms of our collaboration with Ipsen, Ipsen has certain approval rights with respect to our entering into material contracts or transactions, making capital expenditures or acquiring certain assets. Accordingly, Ipsen may prevent us from in-licensing products or product candidates. In addition, under the terms of our collaboration, Ipsen has a right of first negotiation to develop and commercialize, in Ipsen’s territory, products subsequently acquired or owned by us in the field of endocrinology.

In addition, we may need additional intellectual property from other third parties to market and sell our products for indications other than severe Primary IGFD, Primary IGFD or acromegaly. We cannot be certain that we will be able to obtain a license to any third-party technology we may require to conduct our business.

The committed equity financing facility that we entered into with Kingsbridge Capital Limited may not be available to us if we elect to make a draw down, and may require us to pay certain liquidated damages.

In October 2005, we entered into a committed equity financing facility, or CEFF, with Kingsbridge Capital Limited, or Kingsbridge, which entitles us to sell and obligates Kingsbridge to purchase, from time to time over a

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period of three years, newly issued shares of our common stock for cash consideration of up to an aggregate of $75.0 million, subject to certain conditions and restrictions. Kingsbridge will not be obligated to purchase shares under the CEFF unless certain conditions are met, which include:

• a minimum price for our common stock;

• the accuracy of representations and warranties made to Kingsbridge;

• compliance with laws;

• effectiveness of the registration statement, filed by us with the U.S. Securities and Exchange Commission, or SEC, for the resale of the shares of common stock issuable in connection with the CEFF and the shares of common stock underlying the warrant we issued to Kingsbridge in connection with the entering into of the CEFF; and

• the continued listing of our stock on the Nasdaq Global Market, or Nasdaq.

In addition, Kingsbridge is permitted to terminate the CEFF if it determines that a material and adverse event has occurred affecting our business, operations, properties or financial condition. If we are unable to access funds through the CEFF, or if the CEFF is terminated by Kingsbridge, we may be unable to access capital on favorable terms or at all.

The terms of the CEFF require us to pay certain liquidated damages in the event that the registration statement filed by us with the SEC is not available for the resale of securities purchased by Kingsbridge under the CEFF or upon exercise of the warrant we issued to Kingsbridge. Except for certain periods of ineffectiveness permitted under the CEFF, we are obligated to pay to Kingsbridge an amount equal to the number of shares purchased under the CEFF and held by Kingsbridge at the date the registration statement becomes unavailable, multiplied by any positive difference in price between the volume weighted average price on the trading day prior to such period of unavailability and the volume weighted average price on the first trading day after the period of unavailability. In addition, we are entitled in certain circumstances to deliver a “blackout” notice to Kingsbridge to suspend the use of the registration statement and prohibit Kingsbridge from selling shares under the registration statement. If we deliver a blackout notice in the 15 trading days following a settlement of a draw down, then we must make a blackout payment to Kingsbridge as liquidated damages, or issue Kingsbridge additional shares in lieu of this payment, calculated by means of a varying percentage of an amount based on the number of shares purchased and held by Kingsbridge and the change in the market price of our common stock during the period in which the use of the registration statement is suspended. If the trading price of our common stock declines during a suspension of the registration statement, the blackout payment could be significant and could adversely affect our liquidity and our ability to raise capital. In addition, under the terms of an affiliation agreement we entered into pursuant to our collaboration with Ipsen, we have only a limited ability to raise capital through the sale of our equity without first obtaining Ipsen’s approval.

We may not have the ability to raise the funds necessary to finance the repayment of the convertible notes we issued or that we may issue to Ipsen, which could adversely affect our cash position and harm our business.

Under the terms of our collaboration with Ipsen, we issued Ipsen a convertible note in the principal amount of $25.0 million, and may issue up to two additional convertible notes to Ipsen in the principal amounts of €30.0 million and $15.0 million, respectively. All of these notes mature on October 13, 2011 and carry a 2.5% coupon per annum from the date of issuance, compounded quarterly. If Ipsen chooses not to convert these notes, we would be required to pay to Ipsen the principal amount of the notes plus accrued interest at maturity. We will also be subject to currency risk on the €30.0 million convertible note that we may issue to Ipsen, which, if the note is not converted, may result in the need to raise a greater amount of U.S. dollars to repay this note at maturity than would be required based on a conversion of this note to U.S. dollars at the time we entered into the stock purchase and master transaction agreement with Ipsen in July 2006 or issuance of the note. If we are

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required to pay the notes in cash, we will likely need to raise such amounts from the capital markets or through a strategic transaction. There is no assurance that we would be able to do so in a timely manner or on reasonable terms. If we are unable to do so, we may be required to delay or curtail our development and commercialization efforts, which would harm our business.

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

• 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.

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

We believe that our cash, cash equivalents and short-term investments as of December 31, 2006, together with the funds that we would potentially receive from our collaboration with Ipsen, will be sufficient to meet our projected operating and capital expenditure requirements through at least the middle of 2008 based on our current business plan. However, our future capital needs and the adequacy of our available funds will depend on many factors, including:

• changes in our business plan;

• our ability to market and sell sufficient quantities of Increlex^™ and Somatuline^® Autogel^® at the anticipated level;

• the commercial status of the Increlex^™ bulk drug manufacturing operations at Lonza Baltimore, including the success of our cGMP production activities;

• the success of Increlex^™ final drug product manufacturing;

• the costs, timing and scope of additional regulatory approvals for Increlex^™;

• Ipsen’s ability to supply Somatuline^® Autogel^® to us in sufficient quantities;

• the cost, timing and scope of additional regulatory approvals for Somatuline^® Autogel^®;

• Ipsen’s ability to market and sell sufficient quantities of Increlex^™ in the licensed territories at the anticipated level;

• any required repayment of the convertible notes we issued or that we may issue to Ipsen;

• the status of competing products;

• the rate of progress and cost of our future clinical trials and other research and development activities; and

• the pace of expansion of administrative and legal expenses.

We expect capital outlays and operating expenditures to increase over the next several years as we expand our operations. We expect that we may require and attempt to raise additional funds through equity or debt financings, collaborative arrangements with corporate partners or from other sources, and the CEFF. However, there can be no assurance that additional financing will be available when needed, or, if available, that the terms will be favorable. In addition, under the terms of an affiliation agreement we entered into pursuant to our collaboration with Ipsen, we have only a limited ability to raise capital through the sale of our equity without first obtaining Ipsen’s approval. If additional funds are not available, we may be forced to curtail or cease operations.

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If we are unable to manage our expected growth, we may not be able to implement our business plan.

Our ability to implement our business plan requires an effective planning and management process. As of December 31, 2006, we had 106 full-time employees, and we expect to hire additional employees in the near term. Our offices are located in the San Francisco Bay area where competition for personnel with biopharmaceutical skills is intense. If we fail to identify, attract, retain and motivate these highly skilled personnel, we may be unable to continue our development and commercialization activities.

We believe that our anticipated future growth may strain our management, systems and resources. To manage the anticipated growth of our operations, we may need to increase management resources and implement additional financial and management controls, reporting systems and procedures. If we are unable to manage our growth, we may be unable to execute our business strategy.

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

One potential risk of using growth factors like rhIGF-1 is that it may increase the likelihood of developing cancer or, if patients already have cancer, that the cancer may develop more rapidly. Increlex^™ may also increase the risk that diabetic patients may develop or worsen an existing retinopathy, which could lead to the need for additional therapy such as laser treatment of the eyes or result in blindness. In our Phase III clinical trials for severe Primary IGFD, the data of which we submitted to the FDA in our NDA, some patients experienced hypoglycemia, or low blood glucose levels. Other side effects noted in some patients include hearing deficits, enlargement of the tonsils and intracranial hypertension.

Somatuline^® Autogel^® is a member of a class of products known as somatostatin analogs, which have the potential to cause gallstones and other disorders associated with obstruction of the biliary tract, including pancreatitis. These products also alter the balance between the counter-regulatory hormones insulin, glucagon and growth hormone, which may result in hypoglycemia or hyperglycemia, and suppress secretion of thyroid stimulating hormone, which may result in hypothyrodism. Cardiac conduction abnormalities have also occurred during treatment with this class of drugs.

There may also be other adverse events associated with the use of Increlex^™ or Somatuline^® Autogel^®, which may result in product liability suits being brought against us. While we have licensed the rights to develop, market and sell Increlex^™ and Somatuline^® Autogel^® in certain indications, we are not indemnified by any third party, including our contract manufacturers, for any liabilities arising out of our development or use of rhIGF-1 or Somatuline^® Autogel^® .

Whether or not we are ultimately successful in defending product liability litigation, such litigation would consume substantial amounts of our financial and managerial resources, and might result in adverse publicity or reduced acceptance of Increlex^™ or Somatuline^® Autogel^® in the market, all of which would impair our business. We have obtained clinical trial insurance and product liability insurance; however, 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.

Budgetary or cash constraints may force us to delay our efforts to develop certain research and development programs in favor of developing others, which may prevent us from meeting our stated timetables and completing these projects through to product commercialization.

Because we are a company with limited financial resources, and because research, development and commercialization activities are costly processes, we must regularly prioritize the most efficient allocation of our financial resources. For example, we may choose to delay or abandon our research and development efforts for the treatment of a particular indication or project to allocate those resources to another indication or project, or to commercialization activities, 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.

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We must implement additional finance and accounting systems, procedures and controls as we grow our business and organization and to satisfy new reporting requirements.

As a public reporting company, we must comply with the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the Securities and Exchange Commission, including expanded disclosures and accelerated reporting requirements and more complex accounting rules. Compliance with Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, and other requirements will increase our costs and require additional management resources. We have upgraded our finance and accounting systems, procedures and controls and will need to continue to implement additional procedures and controls as we grow our business and organization and to satisfy new reporting requirements. Section 404 requires annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accountants attesting to and reporting on these assessments. If our independent registered public accounting firm is unable to provide us with an unqualified report as to the effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of our internal control over financial reporting, which could adversely affect our stock price.

If we are unable to attract and retain additional qualified personnel, our ability to market and sell our products and develop other product candidates will be harmed.

Our success depends on our continued ability to attract and retain highly qualified management and scientific personnel and on our ability to develop relationships with leading academic scientists and clinicians. We are highly dependent on our current management and key medical, scientific and technical personnel, including: Dr. John A. Scarlett, our President and Chief Executive Officer and Dr. Ross G. Clark, our Founder and Chief Technical Officer, whose knowledge of our industry and technical expertise would be extremely difficult to replace. We have at will employment contracts with all of our executive officers. They may terminate their employment without cause or good reason and without notice to us.

Risks Related to Our Common Stock

If our results do not meet our and analysts’ forecasts and expectations, our stock price could decline.

Analysts who cover our business and operations provide valuations regarding our stock price and make recommendations whether to buy, hold or sell our stock. Our stock price may be dependent upon such valuations and recommendations. Analysts’ valuations and recommendations are based primarily on our reported results and our and their forecasts and expectations concerning our future results regarding, for example, expenses, revenues, clinical trials, regulatory marketing approvals and competition. Our future results are subject to substantial uncertainty, and we may fail to meet or exceed our and analysts’ forecasts and expectations as a result of a number of factors, including those discussed under the section entitled “Risks Related to Our Business” above. If our results do not meet our and analysts’ forecasts and expectations, our stock price could decline as a result of analysts lowering their valuations and recommendations or otherwise.

If our officers, directors and largest stockholders choose to act together, they are able to control our management and operations, acting in their best interests and not necessarily those of other stockholders.

As of December 31, 2006, our directors, executive officers and principal stockholders and their affiliates beneficially owned approximately 73.16% of our common stock. Our greater than five percent beneficial owners include Ipsen and its affiliates, which beneficially owned 35.7% (not including shares subject to limited voting agreements with certain of our stockholders); entities affiliated with MPM Capital, L.P. which beneficially owned 13.8%; entities affiliated with Prospect Management Co. II, LLC, which beneficially owned 6.1%; MedImmune, Inc., which beneficially owned 6.0%; and entities affiliated with Rho Capital Partners, which beneficially owned 6.0%; and AIMS Fund Management, Inc., which beneficially owned 5.7%. Our directors, executive officers and principal stockholders and their affiliates collectively have the ability to determine the election of all of our directors and to determine the outcome of most corporate actions requiring stockholder approval. They may exercise this ability in a manner that advances their best interests and not necessarily those of other stockholders.

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Our collaboration with Ipsen limits our ability to enter into transactions and to pursue opportunities in conflict with Ipsen, which could cause the price of our common stock to decline.

Under the terms of an affiliation agreement we entered into pursuant to our collaboration with Ipsen, the approval of Ipsen is required for us to take certain actions, including, but not limited to:

• entering into most material transactions or agreements;

• merging or consolidating with other entities;

• establishing or approving an operating budget with anticipated research and development spending in excess of $25.0 million per year, plus potential additional amounts for new Ipsen projects under the license and collaboration agreement we entered into with respect to Somatuline^® Autogel^®;

• subject to limited exceptions, incurring any indebtedness other than certain permitted indebtedness (provided that our total permitted indebtedness may not exceed $2.5 million if our ratio of net indebtedness to EBITDA exceeds 1:1);

• incurring capital expenditures of more than $2.0 million in any given year;

• making any investment, other than certain permitted investments;

• entering into any transaction that results in competition with Ipsen;

• declaring or paying any cash dividends;

• taking any action with respect to takeover defense measures, including with respect to our stockholder rights plan; and

• issuing or selling shares of our capital stock, other than issuances or sales after the second anniversary of the initial closing of our collaboration with Ipsen that may not exceed $25.0 million in any three-year period, and other limited exceptions.

These provisions could continue indefinitely and may limit our ability to enter into transactions otherwise viewed as beneficial to us, which could cause the price of our common stock to decline.

Our stockholder rights plan and anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult.

Provisions of our amended and restated certificate of incorporation and amended and restated 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. 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 “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.

We have adopted a rights agreement under which certain stockholders have the right to purchase shares of a new series of preferred stock at an exercise price of $40.00 per one one-hundredth of a share of such preferred

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stock if a person or group of persons acquires more than a certain percentage of our common stock. The rights plan could make it more difficult for a person to acquire a majority of our outstanding voting stock. The rights plan could also reduce the price that investors might be willing to pay for shares of our common stock and result in the market price being lower than it would be without the rights plan. In addition, the existence of the rights plan itself may deter a potential acquirer from acquiring us. As a result, either by operation of the rights plan or by its potential deterrent effect, mergers or other business combinations that our stockholders may consider in their best interests may not occur.

The committed equity financing facility that we entered into with Kingsbridge may result in dilution to our stockholders.

Pursuant to the CEFF, Kingsbridge committed to purchase, subject to certain conditions and at our election, up to $75.0 million of our common stock. Should we sell shares to Kingsbridge under the CEFF, or issue shares in lieu of any “blackout” payment, it will have a dilutive effect on the holdings of our current stockholders, and may result in downward pressure on the price of our common stock. If we draw down amounts under the CEFF, we will issue shares to Kingsbridge at a discount of up to ten percent from the volume weighted average price of our common stock. If we draw down amounts under the CEFF when our share price is decreasing, we will need to issue more shares to raise the same amount than if our stock price was higher. Issuances in the face of a declining share price will have an even greater dilutive effect than if our share price were stable or increasing, and may further decrease our share 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 fluctuated significantly since our initial public offering in March 2004, and is likely to remain volatile in the future. The trading price of our common stock could be subject to wide fluctuations in response to many events or factors, including the following:

• announcements by us, Ipsen, our suppliers and key third-party vendors, or our competitors of regulatory developments, product development agreements, clinical trial results, clinical trial enrollment, regulatory filings, new products and product launches, significant acquisitions, strategic partnerships or joint ventures;

• estimates of our business potential and earnings prospects;

• deviations from analysts’ projections regarding business potential, costs and/or earnings prospects;

• developments with respect to our collaboration with Ipsen;

• quarterly variations in our operating results;

• significant developments in the businesses of biotechnology companies;

• changes in financial estimates by securities analysts;

• changes in market valuations or financial results of biotechnology companies;

• additions or departures of key personnel;

• changes in the structure of healthcare payment or reimbursement systems, regulations or policies;

• activities of short sellers and risk arbitrageurs;

• future sales of our common stock, including potential sales of a substantial number of shares by Ipsen and its affiliates, or the perception that such sales are likely to occur;

• general economic, industry and market conditions; and

• volume fluctuations, which are particularly common among highly volatile securities of biotechnology companies.

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In addition, the stock market has experienced volatility that has particularly affected the market prices of equity securities of many biotechnology companies, which often has been unrelated or disproportionate to the operating performance of these companies. These broad market fluctuations may adversely affect the market price of our common stock. If the market price of our common stock declines in value, you may not realize any return on your investment in us and may lose some or all of your investment.

We are at risk of securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology companies have experienced greater than average stock price volatility in recent years. If we faced such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

Substantial sales of shares may 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 pursuant to the CEFF, and the shares issued or issuable to Ipsen and its affiliates, the market price of our common stock may decline. In addition, the perceived risk of dilution from sales or issuances of our common stock to or by Kingsbridge or Ipsen may cause holders of our common stock to sell their shares, or it may encourage short selling by market participants, which could contribute to a decline in our stock price. 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 prevailing market price of our common stock.

As of December 31, 2006, we had 50,162,610 outstanding shares of common stock. Of these shares, the 18,975,000 shares sold in our public offerings were freely tradable without restriction or further registration unless purchased by our affiliates. Of the remaining 31,187,610 shares outstanding as of December 31, 2006, substantially all of these shares, other than the 12,527,245 shares we issued to an affiliate of Ipsen, were eligible for sale in the public market (subject to certain restrictions on sales by affiliates and vesting in the case of early exercised options). The 12,527,245 shares we issued to an affiliate of Ipsen will become eligible for sale in the public market under Rule 144 in October 2007, subject to compliance with the volume, manner of sale and other limitations under Rule 144. As of December 31, 2006, we had 3,873,806 shares subject to outstanding options granted under our equity compensation plans. In addition, as of December 31, 2006, 8,405,524 shares were issuable upon the exercise of the warrant and conversion of convertible note we issued to Ipsen in connection with the initial closing of our collaboration. Further, the terms of the warrant we issued to Ipsen provide that the number of shares of our common stock subject to the warrant may increase in the event of certain issuances of equity securities by us that dilute Ipsen’s percentage ownership interest in us. Moreover, the initial exercise price of the warrant, and the conversion price of convertible notes we issued or that we may issue to Ipsen, are subject to certain weighted-average price-based antidilution adjustments. These terms of the warrant and convertible notes may entitle Ipsen to acquire a greater number of shares of our common stock than we currently anticipate.

We have filed a registration statement covering shares of common stock issuable upon exercise of options and other grants pursuant to our stock plans. In September 2005, we filed a shelf registration statement pursuant to which we may, from time-to-time, sell shares of our common stock and preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, in one or more offerings. In November 2005, we also filed a registration statement for the resale of the shares of common stock issuable in connection with the CEFF and the shares of common stock underlying the warrant we issued to Kingsbridge in connection with our entering into the CEFF. Moreover, we have agreed that, upon Ipsen’s request after October 13, 2007, we would file one or more registration statements in order to permit Ipsen and its affiliates to offer and sell a substantial number of shares of our common stock, including the 12,527,245 shares we issued to an affiliate of Ipsen and the shares issuable upon exercise of the warrant and conversion of the convertible notes we issued or that we may issue to Ipsen. In addition, certain holders of shares of our common stock that are parties to our amended and restated investors’ rights agreement are entitled to registration rights.

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Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our facilities consist of approximately 32,000 square feet of office space located in Brisbane, California that is leased to us until October 2011. We have no laboratory or research facilities. We believe that our Brisbane facilities will be adequate for our near-term needs and that suitable additional space will be available on commercially reasonable terms to accommodate expansion of our operations, if any.

Item 3. Legal Proceedings.

On December 20, 2004, we initiated patent infringement proceedings against Avecia Limited and Insmed as co-defendants in the High Court of Justice (Chancery Division Patents Court) in the United Kingdom. On December 23, 2004, we, with Genentech, initiated patent infringement proceedings against Insmed in the U.S. District Court for the Northern District of California. We initiated these proceedings because we believe that Insmed and Avecia are infringing and/or have infringed on our patents that cover Insmed’s product’s use and manufacture. There were no material developments in our patent infringement litigation against Avecia and Insmed in the United Kingdom during the 12 months ended December 31, 2006.

On June 30, 2006, the court issued rulings on several claims construction issues and cross-motions for summary judgment in our patent infringement litigation against Insmed in the United States. The court granted us summary judgment that Insmed infringes claims 1, 2 and 9 of U.S. Patent No. 6,331,414, and granted us summary judgment that certain publications asserted by Insmed against the validity of U.S. Patent No. 5,187,151 do not qualify as prior art and cannot be used to attack the validity of that patent. In addition, the court denied Insmed summary judgment that Insmed does not infringe any of claims 1 through 4, 9 and 10 of U.S. Patent No. 6,331,414, denied Insmed summary judgment that claims 1 through 4, 9 and 10 of U.S. Patent No. 6,331,414 are invalid under 35 U.S.C. §101 and §112, denied Insmed summary judgment that Insmed does not infringe claims 1, 4, 5 and 7 of U.S. Patent No. 5,187,151, and granted Insmed summary judgment that no recovery can be had against it based on any activities conducted by Celtrix Pharmaceuticals, Inc. prior to December 23, 1998. On July 14, 2006 Insmed filed a motion for partial reconsideration of the summary judgment order with respect to infringement of claims 1 and 2 of U.S. Pat. No. 6,331,414, and filed a request seeking the court’s permission to file the motion. On September 29, 2006, the court granted its permission to Insmed for the filing of that motion. On October 13, 2006, Genentech and we filed an opposition to Insmed’s motion for partial reconsideration of the court’s summary judgment order. On October 31, 2006, the court issued a written ruling denying Insmed’s motion for partial reconsideration of the court’s summary judgment order.

On November 6, 2006, the court initiated jury trial proceedings relating to Genentech’s and our claims that Insmed had infringed U.S. Pat. No. 5,258,287 and 5,187,151 and relating to Insmed’s defense of invalidity against the asserted claims of U.S. Pat. No. 6,331,414. On December 6, 2006, the jury returned a verdict finding that Insmed had infringed U.S. Pat. No. 5,258,287 and U.S. Pat. No. 5,187,151 and that the asserted claims of U.S. Pat. No. 6,331,414 were not invalid. In addition, the jury found that Insmed’s infringement of U.S. Pat. No. 5,187,151 was willful. For Insmed’s past acts of infringement, the jury awarded Genentech and us damages of an upfront payment of $7.5 million and a 15 percent royalty on past net sales of Iplex. This award has not been reflected in our financial statements in 2006 in accordance with U.S. GAAP as we have not realized the value of the award which will occur upon payment to us.

On November 29, 2006, the court held an evidentiary hearing on Insmed’s defense of inequitable conduct against U.S. Pat. No. 5,187,151, instructed Insmed to submit a brief in support of Insmed’s inequitable conduct defense, granted Genentech and us leave to submit Genentech’s and our closing arguments regarding Insmed’s inequitable conduct defense in the form of a brief in opposition to such defense, and granted Insmed leave to submit a brief in reply to any opposition brief that Genentech and we may submit. On December 6, 2006, Insmed submitted a brief in support of Insmed’s inequitable conduct defense against U.S. Pat. No. 5,187,151. On

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December 11, 2006, Genentech and we submitted closing arguments regarding Insmed’s defense of inequitable conduct in the form of a brief in opposition to such defense. On December 13, 2006, Insmed submitted a brief in reply to Genentech’s and our opposition brief.

On December 22, 2006, Genentech and we filed a motion requesting that the court award Genentech and us a permanent injunction prohibiting Insmed from making or selling Iplex for commercial use as a treatment for Severe Primary Insulin-Like Growth Factor Deficiency, award Genentech and us a trebling of the damages awarded by the jury, and award Genentech and us our attorneys’ fees, costs and expenses.

In December 2005, we filed a complaint against Insmed for False Advertising and Unfair Competition, Case No. C-05-5027 SBA, in the U.S. District Court for the Northern District of California. The complaint alleged that Insmed made false, misleading and deceptive statements about Increlex^™ and its product. On June 9, 2006, the Court granted Insmed’s motion to dismiss the case. On June 12, 2006, we filed a complaint against Insmed for False Advertising, Unfair Competition and Intentional Interference with Prospective Business Relations, Case No. 3:06cv403, in the U.S. District Court for the Eastern District of Virginia. The complaint alleged that Insmed made false, misleading and deceptive statements about Increlex^™ and its product and intentionally interfered with our business relationships. We are seeking monetary and injunctive relief. On June 23, 2006, we filed our First Amended Complaint. On July 27, 2006, Insmed filed a motion to dismiss the case. On October 3, 2006, the Court denied in part and granted in part Insmed’s motion to dismiss, and ordered the case, with our allegations narrowed, to move forward with a March 2007 trial date. On October 13, 2006, Insmed filed a counterclaim in the case, alleging that we made false and misleading statements regarding Insmed’s product and Increlex^™.

On March 6, 2007, Insmed, Avecia, Tercica and Genentech publicly announced agreements that settled all the ongoing litigation among the companies.

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

A special meeting of our stockholders was held on October 12, 2006 for the purposes of:

1. To approve the issuance of the following securities to Ipsen or its designated affiliate in connection with the transactions contemplated by the Stock Purchase and Master Transaction Agreement dated July 18, 2006:

• 12,527,245 shares of our common stock for an aggregate purchase price of $77.0 million;

• a warrant to purchase a minimum of 4,948,795 shares of our common stock at an initial exercise price of $7.41 per share and the shares of our common stock issuable upon exercise of the warrant;

• a convertible promissory note in the principal amount of $25.0 million, which would be convertible into shares of our common stock at an initial conversion price of $7.41 per share, and the shares of our common stock issuable upon conversion of the note; a convertible promissory note in the principal amount of €30.0 million, which would be convertible into shares of our common stock at an initial conversion price of €5.92 per share, and the shares of our common stock issuable upon conversion of the note; and

• a convertible promissory note in the principal amount of $15.0 million, which would be convertible into shares of our common stock at an initial conversion price of $7.41 per share, and the shares of our common stock issuable upon conversion of the note.

2. To approve amendments to our amended and restated certificate of incorporation and amended and restated bylaws to eliminate our classified board of directors and certain other anti-takeover protections.

3. To approve amendments to our amended and restated certificate of incorporation to waive the corporate opportunity provisions under Delaware law and corporate opportunity doctrine with respect to opportunities of which Ipsen and the Ipsen designees to our Board of Directors may become aware as a result of Ipsen’s affiliation with us.

4. To approve a stockholders rights plan, commonly referred to as a “poison pill,” to be entered into between us and Computershare Trust Company, N.A. as rights agent.

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Proxies for the special meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended, and there was no solicitation in opposition of management’s solicitations. The final vote on the proposals were recorded as follows:

1. Proposal No. 1

For	29,928,554
Against	40,900
Abstain	3,475
Broker Non-Votes	—

2. Proposal No. 2

For	22,428,495
Against	7,518,959
Abstain	5,475
Broker Non-Votes	—

3. Proposal No. 3

For	29,928,254
Against	39,200
Abstain	5,475
Broker Non-Votes	—

4. Proposal No. 4

For	21,700,295
Against	8,267,159
Abstain	5,475
Broker Non-Votes	—

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock has been traded on the Nasdaq Global Market under the symbol “TRCA” since March 17, 2004. The following table sets forth for the periods indicated the high and low closing sale prices of our common stock, as reported by the Nasdaq Global Market.

	Prices
	High		Low
Fiscal 2006:
First Fiscal Quarter	$	7.90	$	6.29
Second Fiscal Quarter		6.88		3.07
Third Fiscal Quarter		6.70		4.21
Fourth Fiscal Quarter		6.24		4.90
Fiscal 2005:
First Fiscal Quarter	$	10.55	$	7.63
Second Fiscal Quarter		9.21		7.14
Third Fiscal Quarter		12.65		8.41
Fourth Fiscal Quarter		11.94		6.74

There were approximately 37 holders of record of our common stock as of February 28, 2007. In addition, we believe that a significant number of beneficial owners of our common stock hold their shares in street name.

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Dividend Policy

We have never declared or paid any cash dividends on our common stock. We currently expect to retain any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future.

Stockholder Return Comparison

The following graph shows the total stockholder return of an investment of $100 cash on March 17, 2004, the date Tercica became a public company, for our common stock, or on February 28, 2004 in the NASDAQ Global Market—US Index and the NASDAQ Biotechnology Index. The stock price performance shown on the graph is not necessarily indicative of future price performance.

The information required by this item regarding equity compensation plans is incorporated by reference to the information set forth in Item 12 of this Annual Report on Form 10-K.

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Item 6. Selected Financial Data.

The following selected financial data has been derived from the audited consolidated financial statements. The information below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K and the financial statements and related notes thereto, included in Item 8 of this Form 10-K to fully understand factors that may affect the comparability of the information presented below.

	Year Ended December 31,
	2006			2005			2004			2003			2002
Statements of Operations Data (in thousands, except per share data):
Net revenues:
Net product sales	$	1,315		$	—		$	—		$	—		$	—
License revenue		194			—			—			—			—
Total net revenues:		1,509			—			—			—			—
Costs and expenses:
Cost of sales		1,667			—			—			—			—
Research and development		42,034			21,587			29,335			20,916			7,045
Selling, general and administrative		44,248			25,913			12,552			4,834			1,978
Total costs and expenses		87,949			47,500			41,887			25,750			9,023
Loss from operations		(86,440	)		(47,500	)		(41,887	)		(25,750	)		(9,023	)
Interest expense		(162	)		(1,080	)		—			—			(106	)
Interest and other income, net		4,226			2,347			885			327			177
Loss before income taxes		(82,376	)		(46,233	)		(41,002	)		(24,423	)		(8,952	)
Provision for income taxes		(621	)		—			—			—			—
Net loss		(82,997	)		(46,233	)		(41,002	)		(25,423	)		(8,952	)
Deemed dividend related to beneficial conversion features of convertible preferred stock(3)		—			—			—			(44,153	)		—
Net loss allocable to common stockholders	$	(82,997	)	$	(46,233	)	$	(41,002	)	$	(69,576	)	$	(8,952	)
Basic and diluted net loss per share allocable to common stockholders(1)	$	(2.09	)	$	(1.51	)	$	(2.12	)	$	(38.59	)	$	(5.76	)
Shares used in computing basic and diluted net loss per share allocable to common stockholders(1)		39,789			30,590			19,302			1,803			1,555
	December 31,
	2006			2005			2004			2003			2002
Balance Sheet Data (in thousands):
Cash, cash equivalents and short-term investments	$	125,575		$	58,626		$	52,001		$	37,313		$	15,870
Working capital		123,181			53,752			45,542			33,346			15,707
Total assets		137,687			66,316			55,022			42,484			16,348
Long-term convertible debt(2)		25,172			—			—			—			—
Convertible preferred stock		—			—			—			68,637			24,693
Accumulated deficit		(248,738	)		(165,741	)		(119,508	)		(78,506	)		(8,930	)
Total stockholders’ equity (deficit)		89,931			56,798			47,677			(33,198	)		(8,913	)

(1) See Note 3 of the Notes to Financial Statements for information regarding the computation of per share amounts.

(2) See Note 7 of the Notes to Financial Statements for information regarding the collaboration agreement with Ipsen.

(3) We recorded a deemed dividend of $44,153,000 associated with this issuance of preferred shares to reflect the value of the beneficial conversion feature embedded in the Series B convertible preferred stock. The deemed dividend increases the net loss allocable to common stockholders in the calculation of basic and diluted net loss per common share for the year ended December 31, 2003.

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

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statement of the plans and objectives of management for future operations, any statements concerning proposed new products or licensing or collaborative arrangements, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” or “continue” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including but not limited to the Risk Factors set forth under Item 1A above, and for the reasons described elsewhere in this report. All forward-looking statements and reasons why results may differ included in this report are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might differ.

We are a biopharmaceutical company developing and marketing a portfolio of endocrinology products. We currently have the following products in our commercialization and development portfolio:

• Increlex^™, which we began commercializing in the United States in January 2006;

• Somatuline^® Autogel^®, for which a New Drug Application, or NDA, was submitted in 2006 to the U.S. Food and Drug Administration, or FDA, by Ipsen S.A., or Ipsen, our collaborator; and was approved for marketing in July 2006 by Health Canada for the treatment of acromegaly.

Increlex^™.    We market Increlex^™ as a long-term replacement therapy for the treatment of children with severe primary insulin-like growth factor deficiency, or severe Primary IGFD, or with growth hormone gene deletion who have developed neutralizing antibodies to growth hormone, or growth hormone. We obtained approval for the long-term treatment of severe Primary IGFD, from the U.S. Food and Drug Administration, or FDA, in August 2005. We are currently conducting a Phase IIIb clinical trial for the use of Increlex^™ for the treatment of children with Primary IGFD. In January 2006, we launched Increlex^™ in the United States. Increlex^™ generated net revenues of $1.3 million in 2006.

In December 2005, we submitted a Marketing Authorization Application, or MAA, in the European Union for the long-term treatment of growth failure in children with severe Primary IGFD or with growth hormone gene deletion who have developed neutralizing antibodies to growth hormone. We expect to receive an opinion from the Committee for Medicinal Products for Human Use on the Increlex^™ MAA in the second quarter of 2007. Pursuant to our worldwide strategic collaboration with Ipsen that was finalized in October 2006, we granted to Ipsen and its affiliates the exclusive right under our patents and know-how to develop and commercialize Increlex^™ in all countries of the world except the United States, Japan, Canada, and for a certain period of time, Taiwan and certain countries of the Middle East and North Africa, for all indications, other than treatment of central nervous system and diabetes indications.

Somatuline^® Autogel^®. Pursuant to our worldwide strategic collaboration with Ipsen, we have the exclusive right under Ipsen’s patents and know-how to develop and commercialize Somatuline^® Autogel^® in the United States and Canada for all indications other than opthalmic indications. In July 2006, Somatuline^® Autogel^® was approved for marketing by Health Canada for the treatment of acromegaly and is currently in the reimbursement review process. Acromegaly is a hormonal disorder that results when a tumor in the pituitary gland produces excess growth hormone, resulting in overproduction of insulin-like growth factor-1 (IGF-1) and excessive

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growth. In October 2006, Ipsen submitted an NDA to the FDA for the use of Somatuline^® Autogel^® for the treatment of acromegaly. The FDA accepted the NDA on December 30, 2006, and the Prescription Drug User Fee Act, or PDUFA, date for Somatuline^® Autogel^® for the treatment of acromegaly is August 30, 2007.

Somatuline^® Autogel^® is an injectable sustained-release formulation containing lanreotide, a somatostatin analogue. The Somatuline^® Autogel^® formulation requires no excipient other than water and is generally injected monthly. In some patients, the time between injections can be lengthened to up to 56 days. The product is contained in a pre-filled syringe, and can be administered as a deep subcutaneous injection. In contrast, Sandostatin LAR, the only currently available, long-acting somatostatin analogue, which is marketed by Novartis, must be reconstituted from a powdered form and drawn up into a syringe, and must be then be given as a deep intramuscular injection. Like Sandostatin LAR, Somatuline^® Autogel^® is used primarily when circulating levels of growth hormone remain high despite surgery or radiotherapy in patients with acromegaly. Through its inhibitory effects, Somatuline^® Autogel^® lowers growth hormone and IGF-1 levels, thus controlling disease progression and relieving the symptoms associated with active disease.

In October 2005, we entered into a committed equity financing facility, or CEFF, with Kingsbridge Capital Limited, or Kingsbridge, which entitles us to sell, and obligates Kingsbridge to purchase, a maximum of approximately 6,000,000 newly issued shares of our common stock over a three-year period for cash up to an aggregate of $75.0 million, subject to certain conditions and restrictions. See the discussion below under “Committed Equity Financing Facility” for further details on the CEFF. As of December 31, 2006, we had not issued any shares under this facility. Under the terms of an affiliation agreement we entered into pursuant to our collaboration with Ipsen, we have only a limited ability to raise capital through the sale of our equity without first obtaining Ipsen’s approval, and would generally not have the ability to draw down any funds under the CEFF without Ipsen’s prior approval.

As of December 31, 2006, we had approximately $125.6 million in cash, cash equivalents and short-term investments. We have funded our operations since inception through the private placement of equity securities and public offerings of our common stock, including a follow-on public offering of common stock completed on January 27, 2006 in which we raised net cash proceeds of approximately $34.2 million. In October 2006, we also received cash proceeds in connection with our strategic partnership with Ipsen as described under “Liquidity and Capital Resources—Ipsen Collaboration” below.

Critical Accounting Policies and the Use of Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements which have been prepared in accordance with accounting principles generally accepted in the U.S., or GAAP. The preparation of our financial statements requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ materially from those estimates.

The items in our financial statements requiring significant estimates and judgments are as follows:

Revenue Recognition

We recognize revenue from the sale of our products and contract arrangements. 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 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 in excess of amounts earned are classified as deferred revenue until earned.

• We recognize revenue from product sales when there is persuasive evidence that an arrangement exits, title passes, the price is fixed and determinable and collectibility is reasonably assured. We record provisions for discounts to customers, rebates to government agencies, product returns and other adjustments which are based on our historical experience.

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• License revenue includes upfront and continuing licensing fees. Nonrefundable upfront fees that require our continuing involvement in the manufacturing or other commercialization efforts by us are recognized as revenue ratably over the contractual term. We believe the contractual term is our best estimate for recognition of license revenue which could change in the future if we decide another methodology is appropriate.

Stock-based Compensation

Prior to 2006, we accounted for stock-based compensation plans under the recognition and measurement provisions of APB Opinion No. 25 and related interpretations, and provided the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation. On January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, or SFAS No. 123R, which requires the measurement and recognition of non-cash compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to our 2004 Employee Stock Purchase Plan based on estimated fair values. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107, or SAB 107, relating to SFAS No. 123R. We have applied the provisions of SAB 107 in our adoption of SFAS No. 123R.

We adopted SFAS No. 123R using the modified prospective transition method. Under that transition method, non-cash compensation expense has been recognized beginning in the first quarter of fiscal 2006 and includes the following: (a) compensation expense related to any share-based payments granted through, but not yet vested as of January 1, 2006, and (b) compensation expense for any share-based payments granted subsequent to January 1, 2006 based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. We recognize non-cash compensation expense for the fair values of these share-based awards on a straight-line basis over the requisite service period of each of these awards. Because non-cash stock compensation expense is based on awards ultimately expected to vest, it has been reduced by estimated forfeitures. SFAS No. 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Our financial statements as of December 31, 2006 reflect the impact of SFAS No. 123R. In accordance with the modified prospective transition method, our financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS No. 123R.

As a result of adopting SFAS No. 123R, we recognized stock-based compensation expense of $5.7 million during the year ended December 31, 2006, which primarily affected our reported research and development and selling, general, and administrative expenses. Approximately $2.0 and $3.7 million are included in research and development expenses, and selling, general and administrative expenses, respectively, for the year ended December 31, 2006. We calculated this expense based on the fair values of the stock-based compensation awards as estimated using the Black-Scholes model. Use of this model requires us to make assumptions about expected future volatility of our stock price and the expected term of the options that we grant. Calculating stock-based compensation expense under SFAS No. 123R also requires us to make assumptions about expected future forfeiture rates for our option awards. As of December 31, 2006, total unrecognized compensation expense related to unvested share-based compensation arrangements previously granted under our various plans was $10.4 million, which we expect to recognize over a weighted-average period of 2.6 years. However, it is difficult to predict the actual amount of share-based compensation expense that we will recognize in future periods as that expense can be affected by changes in the amount or terms of our share-based compensation awards issued in the future, changes in the assumptions used in our model to value those future awards, changes in our stock price, and changes in interest rates, among other factors.

During the period from February 1, 2003 through January 31, 2004, we granted certain stock options with exercise prices that were below the reassessed fair value of the common stock at the date of grant. Deferred stock compensation, from inception through January 31, 2004, of $10.9 million was recorded in accordance with APB Opinion No. 25, and was being amortized to expense over the related vesting period of the options. From inception through December 31, 2005, stock-based compensation expense of $5.7 million was recognized and

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$2.6 million was reversed as a result of employee terminations. The remaining deferred stock compensation balance of $2.6 million as of December 31, 2005 was reversed on January 1, 2006 upon adoption in accordance with the provisions of SFAS No. 123R.

For more information on stock-based compensation expense recorded for the year ended December 31, 2006, please refer to “Note 10—Stock Based Compensation” in the Notes to Financial Statements.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. The valuation of inventory requires us to estimate potential obsolete or excess inventory. The determination of obsolete or excess inventory requires us to estimate the future demands for Increlex^™; however, if our current assumptions about future production or inventory levels, demand or competition were to change or if actual market conditions are less favorable than those we have projected, inventory write-downs may be required that could negatively impact our results of operations.

Clinical Trial Expenses

We contract with third-party clinical research organizations to perform various clinical trial activities. We recognize research and development expenses for these contracted activities based upon a variety of factors, including actual and estimated patient enrollment rates, clinical site initiation activities, labor hours and other activity-based factors. We match the recording of expenses in our financial statements to the actual services received from and efforts expended by these third-party clinical research organizations. Depending on the timing of payments to the service providers, we record prepaid expenses and accruals relating to clinical trials based on our estimate of the degree of completion of the event or events as specified in each clinical study or trial contract. We monitor each of these factors to the extent possible and adjust estimates accordingly. Such adjustments to date have not been material to our results of operations or financial position.

Valuation of Warrants

In order to estimate the value of warrants, we use the Black-Scholes-Merton valuation model, which requires the use of certain subjective assumptions. The most significant assumption is the estimate of the expected volatility. The value of a warrant is derived from its potential for appreciation in value. The more volatile the stock, the more valuable the option becomes because of the greater possibility of significant changes in the stock price. We record the value of a warrant to additional paid-in capital based on the estimated value, using certain assumptions, at the closing of a warrant transaction. However, it is difficult to predict the valuation of warrants issued in future periods as that value can be affected by changes in the volatility assumptions of our common stock.

Recent Accounting Pronouncement

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute of tax positions taken or expected to be taken on a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact of adopting FIN 48 on our financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, or SFAS No. 157. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently evaluating the impact of adopting SFAS No. 157 on our financial statements.

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Results of Operations

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Revenues.    We began shipment of Increlex^™ to specialty pharmacy distributors in January 2006. Product sales less product returns and cash discounts were $1.3 million for the year ended December 31, 2006. There were minimal government rebates to state Medicaid agencies for the year ended December 31, 2006. As Increlex^™ is generally ordered by our distributors to fill specific prescriptions, we believe that our distributors carry minimal levels of inventory. We also recorded $194,000 of amortized license revenue in connection with our Increlex^™ License and Collaboration Agreement with Ipsen, or the Increlex^™ License. We are amortizing the upfront payment, received in October 2006 of €10.0 million or $12.4 million over a period of approximately 16 years (See Note 7 in the Notes to Financial Statements for further details on our collaboration with Ipsen). There were no revenues in 2005.

The Prescription Drug User Fee Act, or PDUFA date for Somatuline^® Autogel^® for the treatment of acromegaly is August 30, 2007. Somatuline^® Autogel^® has already received marketing approval in Canada and is currently in the reimbursement review process.

Cost of Product Sales.    Our cost of product sales represents the supply cost and cost of production, shipping, distribution and handling costs, royalties owed to our licensor, inventory write-downs/write-offs based on our review of obsolete, excess, expired and failed inventory lots, and other costs related to production activities, including technology transfer and validation cost associated with manufacturing site changes.

Cost of product sales was $1.7 million for the year ended December 31, 2006 which included write-offs of inventory totaling $0.7 million due to manufacturing lot failures as well as costs related to transfer of manufacturing processes to an alternative manufacturer of $0.1 million. Prior to regulatory approval of Increlex^™ in August 2005, drug supply production costs were charged to research and development. Beginning in the fourth quarter of 2005, with the marketing approval of Increlex^™ by the FDA, we began capitalizing these production costs to inventory and began to charge cost of product sales in the first quarter of 2006 as units of Increlex^™ were sold. In addition to these capitalized drug supply production costs, there are also certain variable and fixed shipping, distribution and handling costs charged to cost of product sales. Our cost of product sales as a percentage of net product sales may fluctuate over time as the drug supply produced prior to August 2005 is sold, as the mix of the fixed versus variable costs change over time, as we execute other production activities, and the percentage of manufacturing lots that are successfully completed. There was no cost of product sales in 2005.

Research and Development Expenses.    Research and development expenses have consisted primarily of costs associated with clinical, regulatory, manufacturing development activities and acquired rights to technology or products in development. Clinical and regulatory activities include the preparation, implementation, and management of our clinical trials and assay development, as well as regulatory compliance, data management and biostatistics. Manufacturing development activities include pre-regulatory approval activities associated with technology transfer, process development and validation, quality control and assurance, analytical services, as well as preparations for current good manufacturing practices (cGMP) and regulatory inspections. In addition to these manufacturing development and clinical activities, license payments for patents and know-how to develop and commercialize products, are also recorded as research and development expense.

Research and development expenses increased to $42.0 million for the year ended December 31, 2006 from $21.6 million for the same period in 2005. The $20.4 million increase was due primarily to:

• A license fee of $25.0 million paid in October 2006 to Ipsen related to our Somatuline^® License and Collaboration Agreement. (See Note 7 in the Notes to Financial Statements for further details on our collaboration with Ipsen),

• partially offset by $3.8 million in lower external project costs, primarily due to lower manufacturing development activities in 2006 as compared to 2005 and $1.0 million paid in 2005 to Genentech related to Increlex^™. Manufacturing development in 2005 was focused on production and validation of our rhIGF-1 manufacturing process and pre-NDA activities.

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The $42.0 million in expense for the year ended December 31, 2006 was comprised primarily of $25.0 million license fees paid to Ipsen, personnel and related costs of $10.7 million, external project costs related to our clinical activities for Primary IGFD and severe Primary IGFD of $4.7 million, and costs associated with our MAA filing activities of $1.3 million.

Excluding the $25.0 million license fee charged in 2006, we expect our research and development expenses to increase in 2007 as we continue our clinical activities in Primary IGFD and severe Primary IGFD, Increlex^™ activities in support of our MAA, Somatuline^® Autogel^® activities in acromegaly and other clinical development activities. Our projects or intended projects may be subject to change from time to time as we evaluate our research and development priorities and available resources.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses consist primarily of payroll and related costs associated with sales and marketing personnel, executive management, corporate administration, legal fees, commercial activities, medical education, facility costs, insurance, information technology and accounting services. We expanded our corporate staffing, infrastructure, and commercial activities in 2005 as we prepared for our January 2006 launch of Increlex^™, as well as our 2005 implementation of Section 404 of the Sarbanes-Oxley Act of 2002. Activities associated with litigation and with marketing Increlex^™ for severe Primary IGFD, medical education and other infrastructure support increased in 2006.

Selling, general and administrative expenses increased to $44.2 million for the year ended December 31, 2006, from $25.9 million for the same period in 2005. The $18.3 million increase was attributable to:

• additional expenditures associated with sales and marketing activities of $7.9 million;

• increased general and administrative personnel and other costs of $3.2 million;

• increased legal expenses primarily associated with litigation with Insmed of $2.8 million;

• increased expenses of $2.3 million associated with medical education and

• free goods expense of $1.5 million, of which $0.8 million was related to inventory write-offs due to manufacturing lot failures and $0.1 million for inventory write-downs.

We expect total selling, general and administrative expenses in 2007 to be similar to expenses in 2006. We expect that increases in our expenses due to commercial activities associated with Somatuline^® Autogel^® in the United States and Canada, will be largely offset by decreased legal costs associated with our litigation with Insmed and Avecia.

Interest expense.    Interest expense for the year ended December 31, 2006 was $0.2 million. Interest expense was $1.1 million for the year ended December 31, 2005 due to the issuance of our common stock to VLL. Interest expense in 2005 represented the value of 112,500 shares of common stock we issued in 2005 in connection with our loan agreement with VLL of $1.0 million and $0.1 million of commitment fees related to our loan agreement with VLL.

Interest and Other Income, net.    Interest and other income, net, increased to $4.2 million for the year ended December 31, 2006, from $2.3 million for the same period in 2005. The increase was primarily due to interest income on higher average cash, cash equivalents and short-term investment balances as a result the cash received from Ipsen transaction in October 2006 and the impact of higher interest rates in 2006 compared to 2005.

Provision for income taxes.    The provision for income taxes for the year ended December 31, 2006 represents $0.6 million of French foreign income taxes withheld on an upfront license fee received from Ipsen under the Increlex^™ License. There is no domestic provision for income taxes for the years ended December 31, 2006 and 2005 because we have incurred operating losses to date.

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Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Research and Development Expenses.    Upon FDA approval for Increlex^™ in August 2005, costs associated with manufacturing activities associated with the Increlex^™ commercial production were charged to inventory or cost of sales. Manufacturing development activities included in research and development expenses starting in September 2005 were primarily in support of our MAA as well as clinical supply production. Prior to receiving regulatory approval, we charged all drug supply production costs to research and development.

Research and development expenses decreased to $21.6 million for the year ended December 31, 2005, from $29.3 million for the same period in 2004. The decrease of $7.7 million was primarily due to lower costs related to manufacturing activities, which decreased by $8.8 million from the same period in 2004. Manufacturing development expenses in 2004 included establishment and validation of our rhIGF-1 manufacturing process at our contract manufacturers and cGMP preparations for the anticipated NDA filing in severe Primary IGFD, neither of which were required in 2005, and $1.4 million of acquired in-process research and development primarily related to a license payment to Genentech. Costs in 2005 associated with our development projects for Primary IGFD and severe Primary IGFD decreased by $1.3 million due primarily to the timing of certain start up clinical trial expenses incurred in 2004. These decreases were partially offset by higher personnel costs of $2.3 million and a milestone payment to Genentech of $1.0 million in 2005.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased to $25.9 million for the year ended December 31, 2005, from $12.6 million for the same period in 2004. The $13.3 million increase was attributable to increased legal fees of $7.0 million primarily associated with our litigation with Insmed and Avecia, increased personnel costs of $2.8 million and increased corporate administration expenses including consulting, professional fees, insurance, facilities and other expenses of $3.5 million.

Interest Expense.    Interest expense was $1.1 million for the year ended December 31, 2005. We did not incur any interest expense in the comparable period in 2004. Interest expense in 2005 represented the value of 112,500 shares of common stock we issued in 2005 in connection with our loan agreement with VLL of $1.0 million and $0.1 million of commitment fees related to our loan agreement with VLL.

Interest and Other Income, net.    Interest and other income, net, increased to $2.3 million for the year ended December 31, 2005, from $0.9 million for the same period in 2004. The increase was primarily due to interest income on higher average cash, cash equivalents and short-term investment balances as a result of the cash proceeds received from our initial public offering in March 2004 and our follow-on public offering in February 2005 and the impact of higher interest rates in 2005 compared to 2004.

Liquidity and Capital Resources

Sources of Liquidity

As of December 31, 2006, we had an accumulated deficit of $248.7 million, which was primarily comprised of $205.7 million of accumulated net losses and $44.1 million of a non-cash deemed dividend related to the beneficial conversion feature of convertible preferred stock. We have funded our operations and growth from inception through December 31, 2006 with net cash proceeds of $66.0 in private equity financings and $135.3 million from our public offerings of common stock and $100.0 million, net of issuance costs, from the issuance of common stock and a convertible note to Ipsen.

Committed Equity Financing Facility

Under the terms of the CEFF, Kingsbridge committed to purchase a maximum of approximately 6,000,000 newly issued shares of our common stock over a three-year period beginning in October 2005, for cash up to an aggregate of $75.0 million, subject to certain conditions. We may draw down under the CEFF in tranches of up to the lesser of $7.0 million or 2% of our market capitalization at the time of the draw down of such tranche,

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subject to certain conditions. The common stock to be issued for each draw down will be issued and priced over an eight-day pricing period at discounts ranging from 6% to 10% from the volume weighted average price of our common stock during the pricing period. During the term of the CEFF, Kingsbridge may not short our stock, nor may it enter into any derivative transaction directly related to our stock. The minimum acceptable purchase price, prior to the application of the appropriate discount for any shares to be sold to Kingsbridge during the eight-day pricing period, is determined by the greater of $3.00 or 90% of our closing share price on the trading day immediately prior to the commencement of each draw down. In connection with the CEFF, we issued a warrant to Kingsbridge to purchase up to 260,000 shares of our common stock at an exercise price of $13.12 per share. We intend to exercise our right to draw down amounts under the CEFF, if and to the extent available, at such times as we have a need for additional capital and when we believe that sales of our common stock under the CEFF provide an appropriate means of raising capital. However, we are not obligated to sell any of the $75.0 million of common stock available under the CEFF, and there are no minimum commitments or minimum use penalties. Under the terms of the affiliation agreement with Ipsen, we have only a limited ability to raise capital through the sale of its equity without first obtaining Ipsen’s approval, and would generally not have the ability to draw down any funds under the CEFF without Ipsen’s prior approval.

Convertible Note

On July 18, 2006, we entered into a Stock Purchase and Master Transaction Agreement, or the Purchase Agreement, with Ipsen (see Note 7 in the Notes to Financial Statements “Ipsen Collaboration”). Under the terms of the Purchase Agreement, we agreed to issue to Ipsen a convertible note in the principal amount of $25.0 million, or the First Convertible Note. In accordance with the Purchase Agreement, at the first closing, we issued the First Convertible Note in the principal amount of $25.0 million to Ipsen on October 13, 2006, the First Closing. The First Convertible Note accrues interest at a rate of 2.5% per year, compounded quarterly, and is convertible into our common stock at an initial conversion price of $7.41 per share, subject to adjustment, which represents 3,397,031 shares at December 31, 2006. The number of conversion shares could increase depending on the market value of our common stock. The entire principal balance and accrued interest under the First Convertible Note is due and payable on the later to occur of (i) October 13, 2011; or (ii) the second anniversary of the date on which Ipsen (or a subsequent holder of the First Convertible Note) notifies us that it will not convert the First Convertible Note in full. As of December 31, 2006, approximately $0.1 million of interest expense on the First Convertible Note was accrued.

Cash Flow

Cash, cash equivalents and short-term investments totaled $125.6 million at December 31, 2006, compared to $58.6 million at December 31, 2005 and $52.0 million at December 31, 2004. The increase in 2006 was primarily due to net proceeds of $34.2 million from the issuance of common stock under a shelf registration and net proceeds of $100.0 million, net of issuance costs, from the issuance of common stock and the First Convertible Note to Ipsen, partially offset by cash used in operating activities of $67.4 million. The increase in 2005 was primarily due to net proceeds of $51.1 million from the issuance of common stock in a follow-on public offering, partially offset by cash used in operating activities of $43.4 million.

Net cash used in operating activities totaled $67.4 million in the year ended December 31, 2006, compared to $43.4 million in the year ended December 31, 2005 and $34.7 million in the year ended December 31, 2004. The increase in net cash used in 2006 operating activities from 2005 was primarily due to the increase in our net loss in 2006 adjusted for the non-cash compensation charge of $5.7 million related to our adoption of FAS 123R compared to 2005, which is discussed above in the results of operations, and the increase in our inventory balance; partially offset by the $12.4 million received from Ipsen for the upfront Increlex^™ license fee. Cash used in operating activities in 2005 includes the receipt of a $1.0 million reimbursement from our landlord for facility improvements which was recorded as deferred rent. The increase in net cash used in 2005 operating activities from 2004 was primarily due to the increase of our net loss in 2005 compared to 2004, which is discussed above in the results of operations, and the capitalization of inventory after we obtained FDA approval of Increlex^™, partially offset by the recognition of the leasehold improvement allowance received from our landlord

55

Net cash used in investing activities totaled $41.8 million in the year ended December 31, 2006, compared to $7.7 million in the year ended December 31, 2005 and $3.4 million in the year ended December 31, 2004. Net cash used in investing activities represent purchases, sales and maturities of investments and purchases of property and equipment net against proceeds received from the sale of equipment. Net purchases of short-term investments were $40.7 million in 2006, an increase of $35.5 million from 2005. Due to the relatively short-term maturities of our investment portfolio during 2004, 2005 and 2006, the increases and decreases in net purchases of short-term investments were primarily due to timing of maturities, sales and purchases of short-term investments. Net purchases of short-term investments were $5.2 million in 2005, an increase of $2.2 million from 2004. Purchases of property and equipment were $1.1 million in 2006, a decrease $1.7 million from 2005. Purchases of property and equipment were lower in 2006 because leasehold improvements for the new office building recorded in 2005 did not continue in 2006. Purchases of property and equipment were $2.8 million in 2005, an increase of $2.4 million from 2004. The increase in purchases of property and equipment in 2005 primarily relate to the purchase of leasehold improvements and office furniture for our new offices located in Brisbane, California, and the purchase of computer equipment and software for new employees hired in 2005. Proceeds received from the sale of equipment were $0.3 million in 2005, compared to $0 in 2004.

Net cash provided by financing activities for the year ended December 31, 2006 was $134.7 million, compared to $51.8 million for the year ended December 31, 2005 and $50.3 million for the year ended December 31, 2004. Net cash provided by financing activities primarily relate to net proceeds received from our public offerings of common stock, proceeds from the issuance of the First Convertible Note to Ipsen, interest on our cash investments and proceeds received from the issuance of common stock under our stock plans. Net proceeds received from our public offerings of common stock were $34.2 million, $51.1 million and $50.0 million in 2006, 2005 and 2004, respectively. Net proceeds from the issuance of common stock and a convertible note to Ipsen were $100.0 million in 2006. Proceeds from the issuance of common stock under our equity compensation plans were $0.5 million, $0.8 million and $0.3 million for 2006, 2005 and 2004, respectively.

We expect capital outlays and operating expenditures to increase over the next several years as we expand our operations. We believe that our cash, cash equivalents and short-term investments as of December 31, 2006, together with the funds that we would potentially receive from our collaboration with Ipsen, will be sufficient to meet our projected operating and capital expenditure requirements through at least the middle of 2008 based on our current business plan. However, our future capital needs and the adequacy of our available funds will depend on many factors, including:

• changes to our business plan;

• our ability to market and sell sufficient quantities of Increlex^™ and Somatuline^® Autogel^® at the anticipated level;

• the commercial status of the Increlex^™ bulk drug manufacturing operations at Lonza Baltimore Inc., including the success of our cGMP production activities;

• the success of Increlex^™ final drug product manufacturing;

• the costs, timing and scope of additional regulatory approvals for Increlex^™;

• Ipsen’s ability to supply Somatuline^® Autogel^® to us in sufficient quantities;

• the cost, timing and scope of additional regulatory approvals for Somatuline^® Autogel^®;

• Ipsen’s ability to market and sell sufficient quantities of Increlex^™ in the licensed territories at the anticipated level;

• any required repayment of the convertible notes we issued or that we may issue to Ipsen;

• the status of competing products;

• the rate of progress and cost of our future clinical trials and other research and development activities; and

• the pace of expansion of administrative and legal expenses.

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Due to the significant risks and uncertainties inherent in the manufacturing, clinical development and regulatory approval processes, the costs to complete our projects through product commercialization are not accurately predictable. Results from regulatory review, manufacturing operations and clinical trials may not be favorable. Further, data from clinical trials is subject to varying interpretation, and may be deemed insufficient by the regulatory bodies reviewing applications for marketing approvals. As such, our development projects are subject to risks, uncertainties and changes that may significantly impact cost projections and timelines. As a result, our capital requirements may increase in future periods.

As a result, we expect that we may require and attempt to raise additional funds through equity or debt financings, collaborative arrangements with corporate partners or from other sources, and the CEFF. However, there can be no assurance that additional financing will be available when needed, or, if available, that the terms will be favorable. In addition, under the terms of an affiliation agreement we entered into pursuant to our collaboration with Ipsen, we have only a limited ability to raise capital through the sale of our equity without first obtaining Ipsen’s approval. If additional funds are not available, we may be forced to curtail or cease operations.

Litigation

On December 20, 2004, we initiated patent infringement proceedings against Avecia Limited and Insmed Incorporated as co-defendants in the High Court of Justice (Chancery Division Patents Court) in the United Kingdom. On December 23, 2004, we, with Genentech, initiated patent infringement proceedings against Insmed in the U.S. District Court for the Northern District of California. We initiated these proceedings because we believe that Insmed and Avecia are infringing and/or have infringed on our patents that cover Insmed’s product’s use and manufacture. There were no material developments in our patent infringement litigation against Avecia and Insmed in the United Kingdom during the 12 months ended December 31, 2006.

On June 30, 2006, the court issued rulings on several claims construction issues and cross-motions for summary judgment in our patent infringement litigation against Insmed in the United States. The court granted us summary judgment that Insmed infringes claims 1, 2 and 9 of U.S. Patent No. 6,331,414, and granted us summary judgment that certain publications asserted by Insmed against the validity of U.S. Patent No. 5,187,151 do not qualify as prior art and cannot be used to attack the validity of that patent. In addition, the court denied Insmed summary judgment that Insmed does not infringe any of claims 1 through 4, 9 and 10 of U.S. Patent No. 6,331,414, denied Insmed summary judgment that claims 1 through 4, 9 and 10 of U.S. Patent No. 6,331,414 are invalid under 35 U.S.C. §101 and §112, denied Insmed summary judgment that Insmed does not infringe claims 1, 4, 5 and 7 of U.S. Patent No. 5,187,151, and granted Insmed summary judgment that no recovery can be had against it based on any activities conducted by Celtrix Pharmaceuticals, Inc. prior to December 23, 1998. On July 14, 2006 Insmed filed a motion for partial reconsideration of the summary judgment order with respect to infringement of claims 1 and 2 of U.S. Pat. No. 6,331,414, and filed a request seeking the court’s permission to file the motion. On September 29, 2006, the court granted its permission to Insmed for the filing of that motion. On October 13, 2006, Genentech and we filed an opposition to Insmed’s motion for partial reconsideration of the court’s summary judgment order. On October 31, 2006, the court issued a written ruling denying Insmed’s motion for partial reconsideration of the court’s summary judgment order.

On November 6, 2006, the court initiated jury trial proceedings relating to Genentech’s and our claims that Insmed had infringed U.S. Pat. No. 5,258,287 and 5,187,151 and relating to Insmed’s defense of invalidity against the asserted claims of U.S. Pat. No. 6,331,414. On December 6, 2006, the jury returned a verdict finding that Insmed had infringed U.S. Pat. No. 5,258,287 and U.S. Pat. No. 5,187,151 and that the asserted claims of U.S. Pat. No. 6,331,414 were not invalid. In addition, the jury found that Insmed’s infringement of U.S. Pat. No. 5,187,151 was willful. For Insmed’s past acts of infringement, the jury awarded Genentech and us damages of an upfront payment of $7.5 million and a 15 percent royalty on past net sales of Iplex. This award has not been reflected in our financial statements in 2006 in accordance with U.S. GAAP as we have not realized the value of the award which will occur upon payment to us. This award has not been reflected in our financial statements in 2006 in accordance with U.S. GAAP as we have not realized the value of the award which will occur upon payment to us.

57

On November 29, 2006, the court held an evidentiary hearing on Insmed’s defense of inequitable conduct against U.S. Pat. No. 5,187,151, instructed Insmed to submit a brief in support of Insmed’s inequitable conduct defense, granted Genentech and us leave to submit Genentech’s and our closing arguments regarding Insmed’s inequitable conduct defense in the form of a brief in opposition to such defense, and granted Insmed leave to submit a brief in reply to any opposition brief that Genentech and we may submit. On December 6, 2006, Insmed submitted a brief in support of Insmed’s inequitable conduct defense against U.S. Pat. No. 5,187,151. On December 11, 2006, Genentech and we submitted closing arguments regarding Insmed’s defense of inequitable conduct in the form of a brief in opposition to such defense. On December 13, 2006, Insmed submitted a brief in reply to Genentech’s and our opposition brief.

On December 22, 2006, Genentech and we filed a motion requesting that the court award Genentech and us a permanent injunction prohibiting Insmed from making or selling Iplex for commercial use as a treatment for Severe Primary Insulin-Like Growth Factor Deficiency, award Genentech and us a trebling of the damages awarded by the jury, and award Genentech and us our attorneys’ fees, costs and expenses.

In December 2005, we filed a complaint against Insmed for False Advertising and Unfair Competition, Case No. C-05-5027 SBA, in the U.S. District Court for the Northern District of California. The complaint alleged that Insmed made false, misleading and deceptive statements about Increlex ^™ and its product. On June 9, 2006, the Court granted Insmed’s motion to dismiss the case. On June 12, 2006, we filed a complaint against Insmed for False Advertising, Unfair Competition and Intentional Interference with Prospective Business Relations, Case No. 3:06cv403, in the U.S. District Court for the Eastern District of Virginia. The complaint alleged that Insmed made false, misleading and deceptive statements about Increlex^™ and its product and intentionally interfered with our business relationships. We are seeking monetary and injunctive relief. On June 23, 2006, we filed our First Amended Complaint. On July 27, 2006, Insmed filed a motion to dismiss the case. On October 3, 2006, the Court denied in part and granted in part Insmed’s motion to dismiss, and ordered the case, with our allegations narrowed, to move forward with a March 2007 trial date. On October 13, 2006, Insmed filed a counterclaim in the case, alleging that we made false and misleading statements regarding Insmed’s product and Increlex^™.

On March 6, 2007, Insmed, Avecia, Tercica and Genentech publicly announced agreements that settled all the ongoing litigation among the companies.

Contractual Obligations and Commercial Commitments

Our contractual obligations as of December 31, 2006 were as follows (in thousands):

	Payment due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Contractual Obligations
Operating lease obligations(1)	$	4,270	$	811	$	1,800	$	1,659	$	—
Other long-term liabilities reflected on the Registrant’s Balance Sheet under GAAP(2)		28,362		—		—		28,362		—
Total contractual obligations	$	32,632	$	811	$	1,800	$	30,021	$	—

(1) Our obligations for operating leases include leases for our present office facility and office equipment. In 2005, we obtained a $340,000 irrevocable letter of credit in conjunction with the lease agreement covering our present facility. This irrevocable letter of credit is collateralized for the same amount by cash, cash equivalents and short-term investments held in a Company bank account and has been recorded as restricted cash.

(2) Other long-term liabilities reflected on our Balance Sheet under GAAP refers to the long-term convertible note issued in connection with the Purchase Agreement with Ipsen, which accrues interest at a rate of 2.5% per year, compounded quarterly, and is convertible into our common stock at an initial conversion

58

price of $7.41 per share, subject to adjustment. The entire principal balance and accrued interest under the First Convertible Note is due and payable on the later to occur of (i) October 13, 2011; or (ii) the second anniversary of the date on which Ipsen (or a subsequent holder of the First Convertible Note) notifies us that it will not convert the First Convertible Note in full. The balance as of December 31, 2006 included accrued interest of $0.1 million.

We also have contractual payment obligations, the timing of which is contingent on future events. Under our license agreements with Genentech, aggregate payments of up to $0.5 million would be due if milestones relating to the initial product approval of rhIGF-1 for severe Primary IGFD in Europe are achieved. Additional milestone payments would be due for subsequent indication approvals, including for approvals of products consisting of rhIGF-1 or IGF binding protein 3, in the United States or Europe.

Our Purchase Agreement with Ipsen provides that, at the Second Closing of the transaction contemplated by the Purchase Agreement (see Note 7 to the financial statements), subject to the satisfaction or waiver of the conditions thereto, the Company would issue a convertible note to Ipsen for the sum of €30.0 million ($39.6 million). Conditions to the Second Closing include the occurrence of the milestone event provided for in the Somatuline^® License related to marketing approval of Somatuline^® Autogel^® by the FDA for the targeted product label.

Pursuant to the Increlex^™ License we granted to Ipsen and its affiliates the exclusive right under the Company’s patents and know-how to develop and commercialize Increlex^™ in all countries of the world except the United States, Japan, Canada, and for a certain period of time, Taiwan and certain countries of the Middle East and North Africa, for all indications, other than treatment of central nervous system indications and diabetes indications. Further to the Increlex^™ License, we granted to Ipsen product development rights and agreed to share the costs for improvements to, or new indications for Increlex^™, and also agreed to rights of first negotiation for the endocrine pipelines. Under the Increlex^™ License Agreement, we are required to provide Ipsen with 100% of their Increlex^™ supply to meet their demand and development activities through the term of the Increlex^™ License which extends 15 years from the first commercial sale by Ipsen. Additionally in connection with the Increlex^™ License, we have granted an exclusive option for Ipsen to make or have made the drug product known and marketed in the United States as Increlex^™ if we fail to provide drug product in accordance with the terms of the Increlex^™ License.

Under our agreement with Lonza Baltimore Inc., we have a non-cancelable obligation to reimburse Lonza Baltimore Inc. on a time and materials and per batch basis in connection with the commercial production of Increlex^™. We estimate that our total purchase commitment to Lonza Baltimore Inc. is approximately $8.5 million through December 31, 2007. Further, as we reach certain milestones, we will be committed to make certain future purchases.

Under our agreement with a third-party fill and finish agent, we have a non-cancelable obligation to reimburse such agent on a milestone basis in connection with the preparation for commercial production of Increlex^™. We estimate that our total purchase commitment to this agent, as we validate the fill and finish processes which must then be approved by the FDA, is approximately $1.0 million through December 31, 2007. If we reach certain milestone, we will be committed to make certain future purchases.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The primary objective of our investment activities is to preserve our capital for the purpose of funding operations while at the same time maximizing the income we receive from our investments without significantly increasing risk. To achieve these objectives, our investment policy allows us to maintain a portfolio of cash equivalents and short-term investments in a variety of securities, including auction rate debt securities, commercial paper, federal agency bonds, repurchase agreements and money market funds.

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As of December 31, 2006, we held $40.3 million in cash and cash equivalents consisting of highly liquid investments having original maturity dates of less than 90 days. Declines of interest rates over time would reduce our interest income from our highly liquid short-term investments. Based upon our balance of cash and cash equivalents, a decrease in interest rates of 100 basis points would cause a corresponding decrease in our annual interest income of approximately $0.4 million for these investments. Due to the nature of our highly liquid cash equivalents, a change in interest rates would not materially change the fair market value of our cash and cash equivalents.

As of December 31, 2006, we held $85.2 million in short-term investments, which consisted primarily of money market funds held by large institutions in the United States, federal agency bonds, commercial paper, auction market preferred securities, corporate bonds, repurchase agreements and asset-backed securities maturing in less than twelve months. The weighted average interest rate of our portfolio was approximately 5.50% at December 31, 2006. A decline in interest rates over time would reduce our interest income from our short-term investments. A decrease in interest rates of 100 basis points would cause a corresponding decrease in our annual interest income of approximately $0.9 million for these investments. Due to the nature of our highly liquid cash equivalents, a change in interest rates would not materially change the fair market value of our short-term investments.

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Item 8. Financial Statements and Supplementary Data.

TERCICA, INC.

INDEX TO FINANCIAL STATEMENTS

	Page
Reports of Independent Registered Public Accounting Firm	62
Balance Sheets	64
Statements of Operations	65
Statements of Stockholders’ Equity (Deficit)	66
Statements of Cash Flows	68
Notes to Financial Statements	69

61

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of

Tercica, Inc.

We have audited the accompanying balance sheets of Tercica, Inc. as of December 31, 2006 and 2005, and the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with 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 financial position of Tercica, Inc. at December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

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

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Tercica, Inc.’s internal control over financial reporting as of December 31, 2006, 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 5, 2007 expressed an unqualified opinion thereon.

/s/    ERNST & YOUNG LLP

Palo Alto, California

March 5, 2007

62

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of

Tercica, Inc.

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting at Item 9A, that Tercica, Inc. maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Tercica, 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. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of 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, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, 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, management’s assessment that Tercica, Inc. maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Tercica, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheets as of December 31, 2006 and 2005, and the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2006 of Tercica, Inc. and our report dated March 5, 2007 expressed an unqualified opinion thereon.

/s/    ERNST & YOUNG LLP

Palo Alto, California

March 5, 2007

63

TE RCICA, INC.

BALANCE SHEETS

(In thousands, except share and per share data)

	December 31,
	2006			2005
Assets
Current assets:
Cash and cash equivalents	$	40,339		$	14,817
Short-term investments		85,236			43,809
Accounts receivable, less allowance of $8 at December 31, 2006		335			—
Inventories		5,092			1,636
Prepaid expenses and other current assets		1,948			1,555
Total current assets		132,950			61,817
Property and equipment, net		3,861			4,021
Restricted cash		340			340
Other assets		536			138
Total assets	$	137,687		$	66,316
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	2,457		$	2,245
Accrued expenses		6,214			5,750
Liability for early exercise of stock options, less long-term portion		32			70
Other current liabilities		290			—
Deferred revenue, less long-term portion		776			—
Total current liabilities		9,769			8,065
Liability for early exercise of stock options, long-term portion		—			24
Long-term convertible note		25,172			—
Deferred rent		1,363			1,429
Deferred revenue—long-term portion		11,452			—
Total liabilities		47,756			9,518
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value: 5,000,000 shares authorized, no shares issued and outstanding at December 31, 2006 and 2005		—			—
Common stock, $0.001 par value: 100,000,000 shares authorized; 50,141,776 and 31,578,859 shares issued and outstanding at December 31, 2006 and 2005, respectively		50			32
Additional paid-in capital		338,608			225,100
Deferred stock compensation		—			(2,591	)
Accumulated other comprehensive income (loss)		11			(2	)
Accumulated deficit		(248,738	)		(165,741	)
Total stockholders’ equity		89,931			56,798
Total liabilities and stockholders’ equity	$	137,687		$	66,316

See accompanying notes.

64

TERCICA, INC.

STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Year Ended December 31,
	2006			2005			2004
Net revenues:
Net product sales	$	1,315		$	—		$	—
License revenue		194			—			—
Total net revenues		1,509			—			—
Costs and expenses:
Cost of sales		1,667			—			—
Research and development*		42,034			21,587			29,335
Selling, general and administrative*		44,248			25,913			12,552
Total costs and expenses		87,949			47,500			41,887
Loss from operations		(86,440	)		(47,500	)		(41,887	)
Interest expense		(162	)		(1,080	)		—
Interest and other income, net		4,226			2,347			885
Loss before income taxes		(82,376	)		(46,233	)		(41,002	)
Provision for income taxes		(621	)		—			—
Net loss	$	(82,997	)	$	(46,233	)	$	(41,002	)
Basic and diluted net loss per share	$	(2.09	)	$	(1.51	)	$	(2.12	)
Shares used to compute basic and diluted net loss per share		39,789			30,590			19,302
*  Includes stock-based compensation expense as follows:
Research and development	$	2,043		$	1,188		$	1,386
Selling, general and administrative		3,680			1,006			1,455
Total	$	5,723		$	2,194		$	2,841

See accompanying notes.

65

TERCICA, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share and per share data)

	Common Stock			Additional Paid-in Capital			Deferred Stock Compensation			Accumulated Other Comprehensive Income (Loss)			Deficit Accumulated			Total Stockholders’ Equity (Deficit)
	Shares	Amount
Balances at December 31, 2003	2,083,741	$	2	$	51,308		$	(5,984	)	$	(18	)	$	(78,506	)	$	(33,198	)
Issuance of common stock upon net exercise of warrants	139,750		—		—			—			—			—			—
Conversion of Series A convertible preferred stock to common stock	6,466,662		7		24,846			—			—			—			24,853
Conversion of Series B convertible preferred stock to common stock	8,830,646		9		43,775			—			—			—			43,784
Issuance of common stock upon initial public offering at $9.00 per share in March and April 2004, net of underwriting discount and offering expenses of $6,905	6,325,000		6		50,014			—			—			—			50,020
Vesting of common stock from early exercises of stock options	258,913		—		173			—			—			—			173
Issuance of common stock	67,450		—		260			—			—			—			260
Deferred stock compensation, net of forfeitures	—		—		3,138			(3,138	)		—			—			—
Amortization of deferred stock compensation	—		—		—			2,734			—			—			2,734
Issuance of stock options to consultants in exchange for services	—		—		107			—			—			—			107
Comprehensive loss:
Unrealized loss on marketable securities	—		—		—			—			(54	)		—			(54	)
Net loss	—		—		—			—			—			(41,002	)		(41,002	)
Comprehensive loss	—		—		—			—			—			—			(41,056	)
Balances at December 31, 2004	24,172,162	$	24	$	173,621		$	(6,388	)	$	(72	)	$	(119,508	)	$	47,677
Issuance of common stock upon initial public offering at $8.00 per share in February 2005, net of underwriting discount and offering expenses of $4,058	6,900,000		7		51,135			—			—			—			51,142
Vesting of common stock from early exercises of stock options	201,373		1		140			—			—			—			141
Issuance of common stock	192,824		—		806			—			—			—			806
Reversal of deferred stock compensation due to forfeitures	—		—		(1,695	)		1,695			—			—			—
Amortization of deferred stock compensation	—		—		—			2,102			—			—			2,102
Issuance of stock options to consultants in exchange for services	—		—		72			—			—			—			72
Stock-based compensation recognized due to stock option modifications	—		—		20			—			—			—			20
Issuance of common stock in connection with senior credit facility, net of issuance costs of $1	112,500		—		1,001			—			—			—			1,001
Financing cost of warrant issued in connection with committed equity financing facility	—		—		(1,196	)											(1,196	)
Issuance of warrant in connection with committed equity financing facility	—		—		1,196			—			—			—			1,196
Comprehensive loss:
Unrealized gain on marketable securities	—		—		—			—			70			—			70
Net loss	—		—		—			—			—			(46,233	)		(46,233	)
Comprehensive loss	—		—		—			—			—			—			(46,163	)
Balances at December 31, 2005 (carried forward)	31,578,859	$	32	$	225,100		$	(2,591	)	$	(2	)	$	(165,741	)	$	56,798

See accompanying notes.

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TERCICA, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)—(Continued)

(In thousands, except share and per share data)

	Common Stock			Additional Paid-in Capital			Deferred Stock Compensation			Accumulated Other Comprehensive Income (Loss)			Deficit Accumulated			Total Stockholders’ Equity (Deficit)
	Shares	Amount
Balances at December 31, 2005 (brought forward)	31,578,859	$	32	$	225,100		$	(2,591	)	$	(2	)	$	(165,741	)	$	56,798
Vesting of common stock from early exercises of stock options	88,513		—		84			—			—			—			84
Reversal of deferred stock compensation pursuant to SFAS 123(R) adoption	—		—		(2,591	)		2,591			—			—			—
Issuance of common stock in connection with Ipsen, net of issuance costs of $15,457	12,527,245		12		61,850			—			—			—			61,862
Issuance of warrant in connection with Ipsen collaboration	—		—		13,623			—			—			—			13,623
Issuance of common stock sold pursuant to public offering, net of issuance costs of $278	5,750,000		6		34,216			—			—			—			34,222
Issuance of common stock	197,159		—		519			—			—			—			519
Stock-based compensation	—		—		5,807			—			—			—			5,807
Comprehensive loss:
Unrealized gain on marketable securities	—		—		—			—			13			—			13
Net loss	—		—		—			—			—			(82,997	)		(82,997	)
Comprehensive loss	—		—		—			—			—			—			(82,984	)
Balances at December 31, 2006	50,141,776	$	50	$	338,608		$	—		$	11		$	(248,738	)	$	89,931

See accompanying notes.

67

TERCICA, INC.

STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2006			2005			2004
Cash flows from operating activities:
Net loss	$	(82,997	)	$	(46,233	)	$	(41,002	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,162			707			446
Loss on disposal of property and equipment		121			76			9
(Accretion) / Amortization of (discounts) /premiums relating to available-for-sale securities		(756	)		(701	)		454
Stock based compensation		5,723			2,102			2,734
Amortization of debt issuance costs		28			1,002			—
Commitment fee written-off due to termination of senior credit facility		—			75			—
Stock compensation to consultants in exchange for services		—			72			107
Other		—			23			—
Changes in operating assets and liabilities:
Prepaid expenses and other assets		(300	)		(938	)		2,101
Accounts receivable, net		(335	)
Inventories		(3,372	)		(1,636	)		—
Restricted cash		—			(340	)		—
Accounts payable		212			(1,722	)		(1,384	)
Accrued expenses		464			2,718			1,818
Deferred rent		224			1,429			—
Deferred revenue		12,226			—			—
Interest payable (long-term)		136
Net cash used in operating activities		(67,464	)		(43,366	)		(34,717	)
Cash flows from investing activities:
Purchases of property and equipment		(1,123	)		(2,838	)		(407	)
Proceeds received from sale of equipment		—			300			—
Purchases of available-for-sale securities		(92,294	)		(110,641	)		(113,184	)
Proceeds from maturities and sales of available-for-sale securities		51,636			105,475			110,165
Net cash used in investing activities		(41,781	)		(7,704	)		(3,426	)
Cash flows from financing activities:
Proceeds from issuance of convertible note, net of issuance costs		24,555			—			—
Proceeds from issuance of common stock, excluding early exercised options		519			806			260
Proceeds from early exercised options		23			—			40
Repurchases of unvested early exercised options		—			(111	)		—
Payment of commitment fees for senior credit facility		—			(76	)		—
Net proceeds from public offerings of common stock		34,186			51,142			50,020
Net proceeds from the sale of common stock to Ipsen, S.A.		75,484			—			—
Net cash provided by financing activities		134,767			51,761			50,320
Net increase in cash and cash equivalents		25,522			691			12,177
Cash and cash equivalents, beginning of year		14,817			14,126			1,949
Cash and cash equivalents, end of year	$	40,339		$	14,817		$	14,126
Supplemental schedule of noncash activities:
Cash paid during the year for:
Taxes paid	$	632		$	—		$	—
Cash paid for interest		—			75			—
Non-cash investing and financing activities:
Reversal of deferred stock upon adoption of SFAS 123R	$	(2,591	)	$	—		$	—
Increase in common stock from vesting of early exercises of stock options		84			140			173
Issuance of common stock for senior credit facility		—			1,001			—
Issuance of warrant in connection with committed equity financing facility		—			1,196			—
Issuance of warrant in connection with Ipsen transaction		13,622			—			—
Deferred stock compensation, net of forfeitures		—			(1,695	)		3,138
Conversion of Series A and B convertible preferred stock into common stock		—			—			68,637

See accompanying notes.

68

TERCICA, INC.

NOTES TO FINANCIAL STATEMENTS

1.    Company and Basis of Presentation

Company

Tercica, Inc. (the “Company”), is a biopharmaceutical company developing and marketing a portfolio of endocrinology products. The Company currently has the following products in our commercialization and development portfolio:

• Increlex^™, which the Company began commercializing in the United States in January 2006;

• Somatuline^® Autogel^®, for which a New Drug Application, or NDA, was submitted in 2006 to the U.S. Food and Drug Administration, or FDA, by Ipsen S.A., or Ipsen, the Company’s collaborator; and was approved for marketing in July 2006 by Health Canada for the treatment of acromegaly.

Increlex^™.    The Company markets Increlex^™ as a long-term replacement therapy for the treatment of children with severe primary insulin-like growth factor deficiency, or severe Primary IGFD, or with growth hormone gene deletion who have developed neutralizing antibodies to growth hormone. The Company obtained approval for the long-term treatment of severe Primary IGFD, from the U.S. Food and Drug Administration, or FDA, in August 2005. We are currently conducting a Phase IIIb clinical trial for the use of Increlex^™ for the treatment of children with Primary IGFD. In January 2006, the Company launched Increlex^™ in the United States. Increlex^™ generated net revenues of $1.3 million in 2006.

In December 2005, the Company submitted a Marketing Authorization Application, or MAA, in the European Union for the long-term treatment of growth failure in children with severe Primary IGFD or with growth hormone gene deletion who have developed neutralizing antibodies to growth hormone. The Company expects to receive an opinion from the Committee for Medicinal Products for Human Use on the Increlex^™ MAA in the second quarter of 2007. Pursuant to the Company’s worldwide strategic collaboration with Ipsen that was finalized in October 2006, the Company granted to Ipsen and its affiliates the exclusive right under the Company’s patents and know-how to develop and commercialize Increlex^™ in all countries of the world except the United States, Japan, Canada, and for a certain period of time, Taiwan and certain countries of the Middle East and North Africa, for all indications, other than treatment of central nervous system and diabetes indications.

Somatuline^® Autogel^®.    Pursuant to the worldwide strategic collaboration with Ipsen, the Company has the exclusive right under Ipsen’s patents and know-how to develop and commercialize Somatuline^® Autogel^® in the United States and Canada for all indications other than opthalmic indications. In July 2006, Somatuline^® Autogel^® was approved for marketing by Health Canada for the treatment of acromegaly and is currently in the reimbursement review process. Acromegaly is a hormonal disorder that results when a tumor in the pituitary gland produces excess growth hormone, resulting in overproduction of insulin-like growth factor-1 (IGF-1) and excessive growth. In October 2006, Ipsen submitted an NDA to the FDA for the use of Somatuline^® Autogel^® for the treatment of acromegaly. The FDA accepted the NDA on December 30, 2006, and the Prescription Drug User Fee Act, or PDUFA, date for Somatuline^® Autogel^® for the treatment of acromegaly is August 30, 2007.

Basis of Presentation

Prior to 2006, the Company had been considered to be a development stage company as it has not yet generated significant revenue from product sales. The Company had devoted substantially all of its efforts since incorporation to the development and commercialization of Increlex^™ for the treatment of severe Primary IGFD and Primary IGFD. These efforts have included establishing its facilities, recruiting personnel, conducting research and development, business development, business and financial planning and raising capital. The Company began commercializing Increlex^™ in 2006 and generated net revenues of $1.3 million from sales of Increlex^™. Based on these factors, the Company is no longer considered to be in the development stage.

69

TERCICA, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Use of Estimates and Reclassifications

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Certain reclassifications of prior period amounts have been made to our financial statements to conform to current period presentation.

2.    Summary of Significant Accounting Policies

Concentrations

Financial instruments that potentially subject the Company to credit risk consist of cash, cash equivalents and short-term investments to the extent of the amounts recorded on the balance sheets. The Company’s cash, cash equivalents and short-term investments are placed with high credit-quality financial institutions and issuers. The Company believes its established guidelines for investment of its excess cash maintain safety and liquidity through its policies on diversification and investment maturity.

The Company sources all of its bulk manufacturing and fill-finish manufacturing through single-source third-party suppliers and contractors and the Company obtains specific components and raw materials used to manufacture Increlex^™ from either single-source or sole-source suppliers. If these contract facilities, suppliers or contractors become unavailable to the Company for any reason, the Company may be delayed in manufacturing Increlex^™ or may be unable to maintain validation of Increlex^™, which could delay or prevent the supply of commercial and clinical product, or delay or otherwise adversely affect revenues and our license and collaboration agreement with Ipsen whereby we are required to supply to them Increlex^™. The Company believes that it has established guidelines to maintain an adequate level of inventory to mitigate this potential negative impact.

We promote our products to medical professionals, but we sell our products primarily to distributors and our product revenues and accounts receivable are concentrated with a few customers. Customer concentrations in gross product sales that are greater than 10% of the relative total are 24%, 23%, 22% and 14% for the year ended December 31, 2006. Customer concentrations in trade accounts receivable that are greater than 10% of the relative total are 21%, 17%, 16%, 15% and 11% at December 31, 2006. Commercialization of our product Increlex^™ began in 2006 and, therefore, we had no sales or accounts receivable in prior years. Sales of the Company’s product in the US represent approximately 92% of total product sales.

Cash, and Cash Equivalents, Short-Term Investments and Restricted Cash

The Company considers all highly liquid investments with a remaining maturity of 90 days or less at the date of purchase to be cash equivalents. Cash equivalents are carried at cost, which approximates fair value. The Company’s cash equivalents include interest-bearing money market funds. The Company’s short-term investments primarily consist of readily marketable debt securities with remaining maturities of more than 90 days at the time of purchase but not exceeding one year.

The Company has classified its entire investment portfolio as available-for-sale. These securities are recorded as either cash equivalents or short-term investments and are carried at fair value with unrealized gains or losses included in accumulated other comprehensive income (loss) in the stockholders’ equity (deficit). The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest and other income, net. Realized gains and losses are also included in interest and other income, net. The cost of all securities sold is based on the specific identification method.

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TERCICA, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

The Company obtained a $340,000 irrevocable letter of credit in conjunction with a lease agreement for its facility. The letter of credit is collateralized for the same amount by cash, cash equivalents and short-term investments held in a Company bank account and has been recorded as restricted cash (see Note 6) in the accompanying balance sheet.

The following is a summary of available-for-sale securities (in thousands):

	December 31, 2006
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale debt securities maturing within 1 year:
Auction market preferred	$	30,700	$	—	$	—		$	30,700
Corporate bonds		4,289		—		—			4,289
Commercial paper		58,942		8		—			58,950
Government sponsored entity bonds		10,866		2		—			10,868
Repurchase agreements		9,325		—		—			9,325
Asset-backed securities		7,410		1		—			7,411
Total available-for-sale debt securities	$	121,532	$	11	$	—		$	121,543
	December 31, 2005
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale debt securities maturing within 1 year:
Corporate bonds	$	36,150	$	—	$	—		$	36,150
Commercial paper		13,468		3		—			13,471
Government sponsored entity bonds		5,477		—		(5	)		5,472
Municipal bonds		3,000		—		—			3,000
Total available-for-sale debt securities	$	58,095	$	3	$	(5	)	$	58,093

The Company’s financial instruments are classified as follows (in thousands):

	December 31,
	2006		2005
Cash	$	4,372	$	873
Cash equivalents		35,967		13,944
Cash and cash equivalents		40,339		14,817
Short-term investments		85,236		43,809
Long-term restricted cash		340		340
Total	$	125,915	$	58,966

Realized losses on the sale of available-for-sale securities for the years ended December 31, 2006, 2005 and 2004 were immaterial.

71

TERCICA, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Fair Value of Financial Instruments

The fair value of our cash equivalents and marketable securities is based on quoted market prices. The carrying amount of cash equivalents and marketable securities is equal to their respective fair values at December 31, 2006 and 2005.

Other financial instruments, including accounts receivable, accounts payable and accrued expenses, are carried at cost, which we believe approximates fair value because of the short-term maturity of these instruments. The fair value of our convertible debt was $25.2 million at December 31, 2006. We determined this value using available market information and a valuation of the instrument by an independent third-party valuation expert. Other long-term obligations at December 31, 2005 approximate their fair values due to the relatively short maturities.

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount. We perform evaluations of our customers’ financial condition and generally do not require collateral. We make judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables when collection becomes doubtful. We have not recorded reserves related to the collectibility of our trade accounts receivable for the year ended December 31, 2006. All allowances recorded are based on net payment terms afforded to our customers.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out basis. The valuation of inventory requires the Company to estimate obsolete or excess inventory based on analysis of future demand for our products. If inventory costs exceed expected market value due to obsolescence or lack of demand, inventory write-downs may be recorded as deemed necessary by management for the difference between the cost and the market value. These inventory write-downs are determined based on significant estimates by management and will be recorded as a write-down to net realizable value in the period that impairment is first recognized.

Products released from inventory which have been sold are recorded in cost of goods sold. Products released from inventory as free goods are recorded in selling, general and administrative expenses. Accordingly, cost of inventory write-downs are allocated to cost of goods sold and free goods expense as appropriate.

The Company recorded inventory write-downs of approximately $1,566,000, during the year ended December 31, 2006. Inventory write-downs for the year ended December 31, 2006 primarily related to Increlex ^™ manufacturing lot failures in the second and third quarters of 2006. Cost of inventory write-downs allocated to cost of goods sold and free goods expenses was $690,000 and $876,000, respectively, for the year ended December 31, 2006.

Revenue Recognition

We recognize revenue from the sale of our products, royalties earned and contract arrangements. 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 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

72

TERCICA, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

criteria are applied to each of the separate units. Advance payments in excess of amounts earned are classified as deferred revenue until earned.

• We recognize revenue from product sales when there is persuasive evidence that an arrangement exits, title passes, the price is fixed and determinable, and collectibility is reasonably assured. We record provisions for discounts to customers, rebates to government agencies, product returns and other adjustments.

• License revenue includes upfront and continuing licensing fees. Nonrefundable upfront fees that require our continuing involvement in the manufacturing or other commercialization efforts by us are recognized as revenue ratably over the contractual term.

Research and Product Development Costs

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 2, Accounting for Research and Development Costs, research and development costs are expensed as incurred. Research and development expenses consist primarily of costs associated with clinical and regulatory activities, payroll and related costs, non-cash stock-based compensation, laboratory supplies, certain allocated costs, manufacturing development activities and in 2006 an upfront licensing fee associated with our license of Somatuline^® Autogel^®. Manufacturing development expenses include costs associated with the Company’s contract manufacturers, including technology transfer, pre-approval product manufacturing, process development, validation and qualification activities, analytical development, and compliance-related support, pre-regulatory approval preparations for current good manufacturing practices (cGMP), quality control and assurance activities, as well as personnel and related benefits and depreciation, prior to regulatory approval. Clinical and regulatory activities include the preparation, implementation and management of the Company’s clinical trials and assay development, as well as regulatory compliance, data management and biostatistics.

Acquired in-process research and development relates to in-licensed, in-process technology, intellectual property and know-how. The nature of the remaining efforts for completion of research and development activities generally include completion of clinical trials, completion of manufacturing validation, interpretation of clinical and pre-clinical data and obtaining marketing approval from the FDA and other foreign regulatory bodies, the cost, length and success of which are extremely difficult to determine. Numerous risks and uncertainties exist with timely completion of development projects, including clinical trial results, manufacturing process development results, ongoing feedback from regulatory authorities, including obtaining marketing approval. In addition, products under development may never be successfully commercialized due to the uncertainties associated with the pricing of new pharmaceuticals, the cost of sales to produce these products in a commercial setting, changes in the reimbursement environment, or the introduction of new competitive products. As a result of the uncertainties noted above, the Company charges in-licensed intellectual property and licenses for unapproved products to research and development expense.

Clinical Trial Expenses

The Company contracts with third-party clinical research organizations to perform various clinical trial activities. The Company recognizes research and development expenses for these contracted activities based upon a variety of factors, including actual and estimated patient enrollment rates, clinical site initiation activities, labor hours and other activity-based factors. The Company matches the recording of expenses in the financial statements to the actual services received and efforts expended. Depending on the timing of payments to the service providers, the Company records prepaid expenses and accruals relating to clinical trials based on the estimate of the degree of completion of the event or events as specified each clinical study or trial contract. The Company monitors each of these factors to the extent possible and adjusts estimates accordingly.

73

TERCICA, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Promotional and Advertising Expenses

The Company expenses the costs of promotional and advertising expenses, as incurred. Promotional and advertising expenses consist primarily of promotional materials and activities, design and layout costs of promotional materials, and direct mail advertising. Promotional and advertising expenses were $1,396,000, $1,069,000 and $75,000 in the years ended December 31, 2006, 2005 and 2004, respectively.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, but not more than:

Description	Estimated Useful Lives
Computer equipment and software	3 years
Office equipment	5 years
Furniture and fixtures	7 years
Manufacturing equipment	10 years
Leasehold improvements	Shorter of useful life or life of lease

Impairment of Long-Lived Assets

The Company reviews its long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Impairment, if any, is assessed using discounted cash flows.

Income Taxes

The Company utilizes the liability method of accounting for income taxes as required by SFAS No. 109, Accounting for Income Taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The provision for income taxes for the year ended December 31, 2006 represents $621,000 of French foreign income taxes withheld on an upfront license fee received from Ipsen under the Increlex ^™ License. There is no domestic provision for income taxes for the years ended December 31, 2006, 2005 and 2004 because the Company has incurred operating losses to date.

Valuation of Warrants

In order to estimate the value of warrants, the Company uses the Black-Scholes-Merton valuation model, which requires the use of certain subjective assumptions. The most significant assumption is estimate of the expected volatility. The value of a warrant is derived from its potential for appreciation in value. The more volatile the stock, the more valuable the option becomes because of the greater possibility of significant changes in the stock price. The Company records the value of a warrant to additional paid-in capital based on the estimated value, using certain assumptions, at closing of a warrant transaction. However, it is difficult to predict the valuation of warrants issued in future periods as that value can be affected by changes in the volatility of the Company’s common stock.

74

TERCICA, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Stock-Based Compensation

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123R”) which requires the measurement and recognition of non-cash compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to the 2004 Employee Stock Purchase Plan (“Purchase Plan”) based on estimated fair values. SFAS No. 123R supersedes the Company’s previous accounting under Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, for periods beginning in fiscal 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS No. 123R. The Company has applied the provisions of SAB 107 in its adoption of SFAS No. 123R. See Note 10—Stock-Based Compensation for further detail.

After the adoption of SFAS No. 123R, stock compensation arrangements with non-employee service providers continue to be accounted for in accordance with SFAS No. 123 and Emerging Issues Task Force (“EITF”) No. 96-18, Accounting for Equity Instruments that Are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, using a fair value approach. The compensation costs of these arrangements are subject to remeasurement over the vesting terms as earned.

Comprehensive Loss

Comprehensive loss is comprised of net loss and unrealized gains/losses on available-for-sale securities in accordance with SFAS No. 130, Reporting Comprehensive Income. The following table presents the calculation of comprehensive loss (in thousands):

	Year Ended December 31,
	2006			2005			2004
Net loss, as reported	$	(82,997	)	$	(46,233	)	$	(41,002	)
Change in unrealized gains/(losses) on marketable securities, net of taxes		13			70			(54	)
Comprehensive loss	$	(82,984	)	$	(46,163	)	$	(41,056	)

Recent Accounting Pronouncement

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute of tax positions taken or expected to be taken on a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact of adopting FIN 48 on our financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, or SFAS No. 157. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently evaluating the impact of adopting SFAS No. 157 on our financial position or results of operations.

75

TERCICA, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

3.    Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method for warrants and options and the as-if converted method for the convertible notes. For purposes of this calculation, common stock subject to repurchase by the Company, preferred stock, options, and warrants are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

	Year Ended December 31,
	2006			2005			2004
	(In thousands, except per share data)
Numerator:
Net loss	$	(82,997	)	$	(46,233	)	$	(41,002	)
Denominator:
Weighted-average common shares outstanding		39,789			30,619			19,377
Less: Weighted-average unvested common shares subject to repurchase		—			(29	)		(75	)
Denominator for basic and diluted net loss per share		39,789			30,590			19,302
Basic and diluted net loss per share	$	(2.09	)	$	(1.51	)	$	(2.12	)
	Year Ended December 31,
	2006			2005			2004
	(In thousands)
Outstanding dilutive securities not included in diluted net loss per share
Options to purchase common stock		3,895			2,851			2,077
Convertible note		3,397			—			—
Warrants		5,268			260			—
		12,560			3,111			2,077

4.    Balance Sheet Details

Inventories consisted of the following (in thousands):

	December 31,
	2006		2005
Raw materials	$	1,477	$	319
Work-in-process		3,280		1,229
Finished goods		335		88
Total	$	5,092	$	1,636

The Company’s finished goods included obsolescence write downs of approximately $246,000 and $45,000 for the years ended December 31, 2006 and 2005, respectively.

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Property and equipment, net, consists of the following (in thousands):

	December 31,
	2006			2005
Office equipment	$	316		$	292
Furniture and fixtures		635			628
Computer equipment and software		2,291			1,683
Manufacturing equipment		1,240			1,004
Leasehold improvements		1,302			1,450
Construction in progress		216			175
		6,000			5,232
Less accumulated depreciation and amortization		(2,139	)		(1,211	)
Property and equipment, net	$	3,861		$	4,021

Depreciation expense was $1,240,000, $707,000 and $446,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

Accrued liabilities consist of the following (in thousands):

	December 31,
	2006		2005
Accrued compensation and related liabilities	$	2,938	$	2,626
Accrued professional fees		1,691		1,577
Accrued contract manufacturing expenses		629		543
Clinical trial costs		335		276
Other accrued liabilities		621		728
	$	6,214	$	5,750

5.    Long-Term Debt

Convertible Note

On October 13, 2006, the Company issued to Ipsen a convertible note in the principal amount of $25,037,000 (the “First Convertible Note”). The First Convertible Note accrues interest at a rate of 2.5% per year, compounded quarterly, and is convertible into the Company’s common stock at an initial conversion price of $7.41 per share, subject to adjustment, which represents 3,397,031 shares at December 31, 2006. See “Ipsen Collaboration” in Note 7 in the Notes to Financial Statements for further discussion regarding the First Convertible Note.

Senior Credit Facility

On January 21, 2005, the Company entered into a Loan Agreement (the “Loan Agreement”) with Venture Leasing & Lending IV, Inc. (“VLL”) under which the Company had the option to draw down funds in the aggregate principal amount of up to $15,000,000 through December 31, 2005. The Company paid a $75,000 fee as part of this Loan Agreement and issued a total of 112,500 shares of its common stock to an affiliate of VLL. The 112,500 shares of common stock issued were recorded at fair market value on the dates of issuance of $1,002,000. As of December 31, 2005, the entire amount was recognized as interest expense. The facility expired on December 31, 2005, and the Company did not borrow any funds under this facility.

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6.    Commitments and Contingencies

The Company leases approximately 32,000 square feet of office space in Brisbane, California. The lease expires in October 2011 with an option to renew for five years. This lease agreement includes scheduled rent increases over the lease term and rent abatement for the first 15 months. The Company recognizes rent expense on a straight-line basis over the term that the facility is physically utilized, taking into account the scheduled rent increases, rent abatement, rent holidays and the leasehold improvement reimbursement. In September 2005, the Company received a $1,046,000 reimbursement from the landlord for facility improvements, which was recorded as deferred rent and is being amortized to offset rent expense over the remaining life of the lease. Under the lease agreement, the Company originally provided the landlord with irrevocable letters of credit amounting to $790,000, which were subsequently reduced to $340,000 in September 2005 after the FDA approved Increlex^™ for marketing in late August 2005. The remaining irrevocable letter of credit is collateralized for the same amount by cash, cash equivalents and short-term investments held in a Company bank account. The Company has recorded the collateralized bank account balance as restricted cash.

At December 31, 2006, future minimum lease commitments under operating leases were as follows (in thousands):

Year ending December 31,
2007	$	811
2008		889
2009		911
2010		944
2011		715
Thereafter		—
	$	4,270

Rent expense, including the impact of the allowance for leasehold improvements of $172,000 in 2006, was $389,000, $641,000 and $453,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

Manufacturing Services Agreement

In December 2002, the Company entered into a development and commercial supply agreement (the “Manufacturing Agreement”) with Cambrex Bio Science Baltimore, Inc. (“Cambrex Baltimore”). At that time, the Company began to transfer its manufacturing technology to Cambrex Baltimore in order for them to establish the process for rhIGF-1 fermentation and purification. Further, under the terms of the Manufacturing Agreement, Cambrex Baltimore is obligated to annually provide the Company with certain minimum quantities of bulk rhIGF-1 drug substance. In February 2007, Cambrex Baltimore was purchased by Lonza Group AG, or Lonza Baltimore Inc. The Company’s contractual relationship continued with Lonza Baltimore Inc. and has a non-cancelable obligation to reimburse Lonza Baltimore Inc. on a time and materials and per batch basis in connection with the commercial production of Increlex^™ of approximately $8,500,000 through December 31, 2007. Payments under this agreement were $3,638,000, $6,887,000 and $11,699,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

In November 2006, the Company entered into a development and commercial supply agreement with a third-party fill and finish agent. At that time, the Company began to transfer its manufacturing technology to this agent in order for the agent to establish the process for drug product fill and finish. Further, under the terms of this agreement, the agent is obligated to annually provide the Company with certain minimum quantities of finished rhIGF-1 drug product. The Company has a non-cancelable obligation to reimburse the agent on a

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milestone basis in connection with the preparation for commercial production of Increlex^™. We estimate that our total purchase commitment to this agent as we validate the fill and finish processes which must then be approved by the FDA is approximately $950,000 through December 31, 2007.

Guarantees and Indemnifications

The Company, as permitted under Delaware law and in accordance with its Bylaws, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The Company may terminate the indemnification agreements with its officers and directors upon 90 days written notice, but 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, the Company has a director and officer insurance policy that limits its exposure and may enable it to recover a portion of any future amounts paid. The Company believes the fair value of these indemnification agreements is minimal. Accordingly, the Company has not recorded any liabilities for these agreements as of December 31, 2006.

Contingencies

On December 20, 2004, the Company initiated patent infringement proceedings against Avecia Limited and Insmed Incorporated as co-defendants in the High Court of Justice (Chancery Division Patents Court) in the United Kingdom. On December 23, 2004, the Company, with Genentech, initiated patent infringement proceedings against Insmed in the U.S. District Court for the Northern District of California. The Company initiated these proceedings because it believes that Insmed and Avecia are infringing and/or have infringed on the Company’s patents that cover Insmed’s product’s use and manufacture. There were no material developments in our patent infringement litigation against Avecia and Insmed in the United Kingdom during the 12 months ended December 31, 2006.

On June 30, 2006, the court issued rulings on several claims construction issues and cross-motions for summary judgment in the Company’s patent infringement litigation against Insmed in the United States. The court granted the Company summary judgment that Insmed infringes claims 1, 2 and 9 of U.S. Patent No. 6,331,414, and granted it summary judgment that certain publications asserted by Insmed against the validity of U.S. Patent No. 5,187,151 do not qualify as prior art and cannot be used to attack the validity of that patent. In addition, the court denied Insmed summary judgment that Insmed does not infringe any of claims 1 through 4, 9 and 10 of U.S. Patent No. 6,331,414, denied Insmed summary judgment that claims 1 through 4, 9 and 10 of U.S. Patent No. 6,331,414 are invalid under 35 U.S.C. §101 and §112, denied Insmed summary judgment that Insmed does not infringe claims 1, 4, 5 and 7 of U.S. Patent No. 5,187,151, and granted Insmed summary judgment that no recovery can be had against it based on any activities conducted by Celtrix Pharmaceuticals, Inc. prior to December 23, 1998. On July 14, 2006 Insmed filed a motion for partial reconsideration of the summary judgment order with respect to infringement of claims 1 and 2 of U.S. Pat. No. 6,331,414, and filed a request seeking the court’s permission to file the motion. On September 29, 2006, the court granted its permission to Insmed for the filing of that motion. On October 13, 2006, Genentech and the Company filed an opposition to Insmed’s motion for partial reconsideration of the court’s summary judgment order. On October 31, 2006, the court issued a written ruling denying Insmed’s motion for partial reconsideration of the court’s summary judgment order.

On November 6, 2006, the court initiated jury trial proceedings relating to Genentech’s and the Company’s claims that Insmed had infringed U.S. Pat. No. 5,258,287 and 5,187,151 and relating to Insmed’s defense of invalidity against the asserted claims of U.S. Pat. No. 6,331,414. On December 6, 2006, the jury returned a verdict finding that Insmed had infringed U.S. Pat. No. 5,258,287 and U.S. Pat. No. 5,187,151 and that the

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asserted claims of U.S. Pat. No. 6,331,414 were not invalid. In addition, the jury found that Insmed’s infringement of U.S. Pat. No. 5,187,151 was willful. For Insmed’s past acts of infringement, the jury awarded Genentech and the Company damages of an upfront payment of $7.5 million and a 15 percent royalty on past net sales of Iplex. This award has not been reflected in the Company’s financial statements for 2006, and will not be until the award has been paid.

On November 29, 2006, the court held an evidentiary hearing on Insmed’s defense of inequitable conduct against U.S. Pat. No. 5,187,151, instructed Insmed to submit a brief in support of Insmed’s inequitable conduct defense, granted Genentech and the Company leave to submit Genentech’s and the Company’s closing arguments regarding Insmed’s inequitable conduct defense in the form of a brief in opposition to such defense, and granted Insmed leave to submit a brief in reply to any opposition brief that Genentech and the Company may submit. On December 6, 2006, Insmed submitted a brief in support of Insmed’s inequitable conduct defense against U.S. Pat. No. 5,187,151. On December 11, 2006, Genentech and the Company submitted closing arguments regarding Insmed’s defense of inequitable conduct in the form of a brief in opposition to such defense. On December 13, 2006, Insmed submitted a brief in reply to Genentech’s and the Company’s opposition brief.

On December 22, 2006, Genentech and the Company filed a motion requesting that the court award Genentech and the Company a permanent injunction prohibiting Insmed from making or selling Iplex for commercial use as a treatment for Severe Primary Insulin-Like Growth Factor Deficiency, award Genentech and the Company a trebling of the damages awarded by the jury, and award Genentech and the Company our attorneys’ fees, costs and expenses.

In December 2005, we filed a complaint against Insmed for False Advertising and Unfair Competition, Case No. C-05-5027 SBA, in the U.S. District Court for the Northern District of California. The complaint alleged that Insmed made false, misleading and deceptive statements about Increlex^™ and its product. On June 9, 2006, the Court granted Insmed’s motion to dismiss the case. On June 12, 2006, we filed a complaint against Insmed for False Advertising, Unfair Competition and Intentional Interference with Prospective Business Relations, Case No. 3:06cv403, in the U.S. District Court for the Eastern District of Virginia. The complaint alleged that Insmed made false, misleading and deceptive statements about Increlex^™ and its product and intentionally interfered with our business relationships. We are seeking monetary and injunctive relief. On June 23, 2006, we filed our First Amended Complaint. On July 27, 2006, Insmed filed a motion to dismiss the case. On October 3, 2006, the Court denied in part and granted in part Insmed’s motion to dismiss, and ordered the case, with our allegations narrowed, to move forward with a March 2007 trial date. On October 13, 2006, Insmed filed a counterclaim in the case, alleging that we made false and misleading statements regarding Insmed’s product and Increlex^™.

On March 6, 2007, Insmed, Avecia, Tercica and Genentech publicly announced agreements that settled all the ongoing litigation among the companies.

7.    License and Collaboration Agreements and Related Party Transactions

Ipsen Collaboration

On July 18, 2006, the Company entered into a Stock Purchase and Master Transaction Agreement (the “Purchase Agreement”) with Ipsen. Under the terms of the Purchase Agreement, the Company agreed to issue to Ipsen (or its designated affiliate): (i) 12,527,245 shares of common stock (the “Shares”) for an aggregate purchase price of $77,318,944; (ii) a convertible note in the principal amount of $25,037,000 (the “First Convertible Note”); (iii) a second convertible note in the principal amount of €30,000,000 ($39,600,000 at December 31, 2006; the “Second Convertible Note); (iv) a third convertible note in the principal amount of $15,000,000 (the “Third Convertible Note”); and (v) a warrant to purchase a minimum of 4,948,795 shares of the

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Company’s common stock (the “Warrant”). The initial closing under the Purchase Agreement was consummated on October 13, 2006 (the “First Closing”) after receiving approval by the Company’s stockholders of the required aspects of the transactions contemplated by the Purchase Agreement at a Special Meeting of Stockholders held on October 12, 2006. In accordance with the Purchase Agreement, at the First Closing, the Company issued the Shares, the First Convertible Note and the Warrant, and the Company and Ipsen (and/or affiliates thereof) entered into an Increlex^™ License and Collaboration Agreement (“Increlex^™ License”), a Somatuline^® License and Collaboration Agreement (“Somatuline^® License” and together with the Increlex^™ License, the “License Agreements”), a Registration Rights Agreement and an Affiliation Agreement. In connection with the First Closing, the Company also adopted certain amendments to its amended and restated certification of incorporation and adopted a Rights Agreement implementing a stockholder rights plan (the “Rights Agreement”). Pursuant to the Somatuline^® License, Ipsen granted to the Company the exclusive right under Ipsen’s patents and know-how to develop and commercialize Somatuline^® Autogel^® in the United States and Canada for all indications other than opthalmic indications. Pursuant to the Increlex^™ License, the Company granted to Ipsen and its affiliates the exclusive right under the Company’s patents and know-how to develop and commercialize Increlex^™ in all countries of the world except the United States, Japan, Canada, and for a certain period of time, Taiwan and certain countries of the Middle East and North Africa, for all indications, other than treatment of central nervous system indications and diabetes indications. Ipsen’s territory would expand, subject to Genentech’s approval, to include Taiwan and any of the excluded countries of the Middle East or North Africa upon termination or expiry of certain third-party distribution agreements in such countries. Pursuant to the License Agreements, the Company and Ipsen granted to each other product development rights and agreed to share the costs for improvements to, or new indications for, Somatuline^® Autogel^® and Increlex^™, and also agreed to rights of first negotiation for their respective endocrine pipelines.

At the First Closing, the Company received from Ipsen proceeds of $77,318,944 for the issuance of the Shares, which Shares represented 25% of the Company’s outstanding common stock on a non-diluted basis. Further, the Company received from Ipsen, €10,000,000 or $12,422,000 as an upfront license fee under the Increlex^™ License. For 2006, approximately $194,000 was recognized as License Revenue, and as of December 31, 2006 $11,452,000 was recorded as Long Term Deferred Revenue and $776,000 was recorded as Short Term Deferred Revenue. The upfront license fee is amortized over the life of the license agreement which is approximately 16 years. The Company paid an upfront license fee of $25,037,000 under the Somatuline^® License and was recorded to research and development for the year ended December 31, 2006. As indicated above, the First Convertible Note in the principal amount of $25,037,000 was issued to Ipsen at the First Closing. The First Convertible Note accrues interest at a rate of 2.5% per year, compounded quarterly, and is convertible into the Company’s common stock at an initial conversion price of $7.41 per share, subject to adjustment, which represents 3,397,031 shares at December 31, 2006. The number of conversion shares could increase depending on the market value of the Company common stock. The entire principal balance and accrued interest under the First Convertible Note is due and payable on the later to occur of (i) October 13, 2011; or (ii) the second anniversary of the date on which Ipsen (or a subsequent holder of the First Convertible Note) notifies the Company that it will not convert the First Convertible Note in full. As of December 31, 2006, approximately $135,000 of interest expense on the First Convertible Note was accrued. The amount payable on October 13, 2011 will be $28,362,000 which includes interest of $3,325,000

Additionally, the Company issued the Warrant to Ipsen, which is exercisable for such number of shares of the Company’s common stock equal to the greater of (i) 4,948,795 shares of the Company’s common stock (the “Baseline Amount”) or (ii) the Baseline Amount plus a variable amount of shares of Tercica’s common stock, which variable amount will fluctuate throughout the term of the Warrant. The number of common shares exercisable under the Warrant as of the First Closing was 5,026,712 with a fair value of $13,622,000, estimated using the Black-Scholes-Merton valuation model, and recorded to Additional Paid in Capital. The number of

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common stock shares exercisable under the warrant as of December 31, 2006 was 5,008,429. The Warrant is exercisable, in full or in part, at any time during the five years following the date of the First Closing at an initial exercise price of $7.41 per share, subject to adjustment under certain circumstances.

The Purchase Agreement provides that, at the second closing of the transactions contemplated by the Purchase Agreement, subject to the satisfaction or waiver of the conditions thereto, the Company will issue the Second Convertible Note and the Third Convertible Note, and Ipsen would deliver the sum of €30,000,000 ($39,600,000 at December 31, 2006) and $15,000,000 to the Company (the “Second Closing”). The issuance of the Second Convertible Note and the Third Convertible Note, together with the Shares and the Warrant, would enable Ipsen to increase its equity ownership in the Company to approximately 40% on a fully diluted basis. Conditions to the Second Closing include the occurrence of the milestone event provided for in the Somatuline^® License related to marketing approval of Somatuline^® Autogel^® by the FDA for the targeted product label. There can be no assurance that the Second Closing will occur on a timely basis or at all.

Upon closing the Ipsen transaction, the Company incurred $3,004,000 in issuance costs, and allocated these costs to the license, debt and equity components of the agreement based on the relative fair value of the components. $687,000 was allocated to the License and Collaboration Agreements for Somatuline^® Autogel^® and Increlex^™ and was expensed to SG&A as incurred. $1,835,000 was allocated to the equity financing and recorded to additional paid in capital. $482,000 was allocated to the Convertible Note and recorded as a prepaid financing cost. In 2006, $28,000 of prepaid financing costs was amortized, and as of December 31, 2006, the remaining balance was $454,000.

Related Party Transactions

We enter into transactions with our related parties, Ipsen and other Ipsen affiliates under existing agreements in the ordinary course of business. The accounting policies we apply to our transactions with our related parties are no more favorable to the Company than with independent third-parties.

Genentech Collaboration

On April 15, 2002, the Company entered into a license and collaboration agreement (the “U.S. License and Collaboration Agreement”) with Genentech under which it obtained licenses to certain technology, know-how, and intellectual property rights to develop and commercialize rhIGF-1 in the U.S.

The Company is required to make cash payments based on the achievement of certain milestones and royalties on sales. Genentech has certain Opt-In rights to participate in the commercialization of certain rhIGF-1 products. If Genentech elects to exercise its Opt-In Right for a particular indication, Genentech will pay the Company more than 50% of the past development costs associated with that indication. In addition, after Genentech exercises its’ Opt-In Right for a particular indication, the Company would share with Genentech the ongoing net operating losses and profits resulting from the joint development and commercialization effort for that indication. Pursuant to this arrangement, the Company would fund less than 50% of such operating losses and the Company would receive less than 50% of any profits. In 2004 and early 2006, the Company paid Genentech cash of $1,100,000 and $100,000, respectively, under this agreement.

On July 25, 2003, the Company entered into an international license and collaboration agreement (the “International License and Collaboration Agreement”) with Genentech, obtaining certain rights to develop and commercialize rhIGF-1 for a broad range of indications, including short stature, outside of the United States. The Company paid Genentech cash of $1,670,000 upon the execution of this license in 2003 and $167,000 in 2004.

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The Company also agreed to pay to Genentech royalties on the sales of rhIGF-1 products and certain one-time payments upon the occurrence of specified milestone events. As the Company was several years away from having an approved product to market, the amount paid for this license was charged to acquired in-process research and development expense.

In addition to the amounts already paid to Genentech, if the Company achieves all of the additional milestones for rhIGF-1 under the U.S. and International License and Collaboration Agreements, the Company will owe Genentech up to an aggregate of approximately $33,000,000 in milestone payments. If the Company develops rhIGF-1 in combination with IGF binding protein-3, the Company would be subject to these same milestone events and, upon achievement of all of the milestones, would owe Genentech up to an additional aggregate of approximately $32,500,000 in milestone payments. In connection with the U.S. License and Collaboration Agreement, the Company paid $100,000 and $1,000,000 milestone payments to Genentech in the year ended December 31, 2006 and 2005, respectively. These amounts were recorded as research and development expense when such payments became due. Additionally, the Company paid royalties of $256,000 in 2006.

8.    Committed Equity Financing Facility

On October 14, 2005, the Company entered into a committed equity financing facility (“CEFF”) with Kingsbridge Capital Limited (“Kingsbridge”), which entitles the Company to sell and obligates Kingsbridge to purchase, a maximum of approximately 6.0 million newly issued shares of the Company’s common stock over a period of three years for cash up to an aggregate of $75,000,000, subject to certain conditions and restrictions. The Company may draw down under the CEFF in tranches of up to the lesser of $7,000,000 or 2% of the Company’s market capitalization at the time of the draw down of such tranche, subject to certain conditions. The common stock to be issued for each draw down will be issued and priced over an eight-day pricing period at discounts ranging from 6% to 10% from the volume weighted average price of the Company’s common stock during the pricing period. During the term of the CEFF, Kingsbridge may not short the Company’s stock, nor may it enter into any derivative transaction directly related to the Company’s stock. The minimum acceptable purchase price, prior to the application of the appropriate discount for any shares to be sold to Kingsbridge during the eight-day pricing period, is determined by the greater of $3.00 or 90% of the Company’s closing share price on the trading day immediately prior to the commencement of each draw down. In connection with the CEFF, the Company issued a warrant to Kingsbridge to purchase up to 260,000 shares of the Company’s common stock at an exercise price of $13.12 per share. The exercise term of the warrant is five years beginning on April 14, 2006. The warrant was valued on the date of grant using the Black-Scholes method using the following assumptions: a risk-free interest rate of 4.1%, a life of 5.5 years, no dividend yield and a volatility factor of 0.5. The estimated value of this warrant was $1,196,000 and was recorded as a contra-equity amount in additional paid-in capital in 2005.

On November 9, 2005 the Company filed a shelf registration statement with the SEC relating to the resale of up to 6,296,912 shares of common stock that the Company may issue to Kingsbridge pursuant to a common stock purchase agreement and warrant agreement noted above. The Company will not sell common stock under this registration statement and will not receive any of the proceeds from the sale of shares by the selling stockholder.

During the year ended December 31, 2006, the Company did not draw down any funds under the CEFF and had not issued any shares pursuant to the CEFF as of December 31, 2006. Under the terms of an affiliation agreement the Company entered into pursuant to its collaboration with Ipsen, the Company has only a limited ability to raise capital through the sale of its equity without first obtaining Ipsen’s approval, and would generally not have the ability to draw down any funds under the CEFF without Ipsen’s prior approval.

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9.    Stockholders’ Equity

On January 27, 2006, the Company completed the sale of 5,750,000 shares of its common stock under this shelf registration statement, at a price to the public of $6.40 per share, including the exercise of the over-allotment option by the underwriters. Net cash proceeds from this offering were approximately $34,200,000 after deducting underwriter discounts and other offering expenses.

Preferred Stock

As of December 31, 2006, the Company was authorized to issue 5,000,000 shares of preferred stock. The board of directors has the authority, without action by its stockholders with the exception of stockholders who hold board positions, to designate and issue shares of preferred stock in one or more series. The board of directors may also designate the rights, preferences and powers of each series of preferred stock, any or all of which may be greater than the rights of the common stock including restrictions of dividends on the common stock, dilution of the voting power of the common stock, reduction of the liquidation rights of the common stock, and delaying or preventing a change in control of the Company without further action by the stockholders. To date, the board of directors has not designated any rights, preference or powers of any preferred stock and no shares have been issued.

Warrants

On October 13, 2006, the Company issued to Ipsen a warrant to purchase a minimum of 4,948,795 shares of the Company’s common stock. The warrant is exercisable for such number of shares of the Company’s common stock equal to the greater of (i) 4,948,795 shares of the Company’s common stock (the “Baseline Amount”) or (ii) the Baseline Amount plus a variable amount of shares of Tercica’s common stock, which variable amount will fluctuate throughout the term of the warrant. The number of common stock shares exercisable under the warrant as of the First Closing was 5,026,712. The fair value of the warrant, based on a measurement date of October 13, 2006, was $13,622,000, estimated using the Black-Scholes-Merton valuation model. This value was recorded as offsetting entries to additional paid in capital since the warrants are accounted for as common stock issuance costs. The number of common stock shares exercisable under the warrant as of December 31, 2006 was 5,008,429. The warrant is exercisable, in full or in part, at any time during the five years following the date of the First Closing at an exercise price of $7.41 per share. See “Ipsen Collaboration” in Note 7 in the Notes to Financial Statements for further discussion regarding the warrant.

In connection with the CEFF (see Note 8), the Company issued a warrant to Kingsbridge to purchase up to 260,000 shares of the Company’s common stock at an exercise price of $13.12 per share. The exercise term of the warrant is five years beginning on April 14, 2006. This warrant was valued on the date of grant using the Black-Scholes method using the following assumptions: a risk-free interest rate of 4.1%, a life of 5.5 years, no dividend yield and a volatility factor of 0.54. The estimated value of this warrant was $1,196,000 and was recorded as a contra-equity amount in additional paid-in capital in 2005.

Restricted Stock Purchases and Early Exercise of Options

In February 2002, 328,158 restricted shares of common stock were issued to an employee in exchange for $2,000 in cash. As of December 31, 2006 there were no shares subject to repurchase by the Company related to this purchase. Shares subject to repurchase by the Company at December 31, 2005 were 3,895.

In December 2002, the Company issued 692,943 shares of its common stock to two employees under restricted stock purchase agreements pursuant to the early exercise of their stock options for $71,000 in cash in

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TERCICA, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

December 2002 and $206,000 in cash in January 2003. During 2003, the Company issued 237,500 shares of common stock under restricted stock purchase agreements to three employees pursuant to the early exercises of their stock options in exchange for $305,000 in cash. In January 2004, the Company issued 10,000 shares of common stock under a restricted stock purchase agreement to a director pursuant to the early exercise of stock options in exchange for $40,000 in cash. In February 2006, the Company issued 15,647 shares of common stock under restricted stock purchase agreements to an employee pursuant to the early exercises of stock options in exchange for $23,000 in cash. Under the terms of these agreements, these shares generally vest over a four-year period for employees and over a three-year period for the director. Total unvested shares, which amounted to 20,834 and 93,700 at December 31, 2006 and 2005, respectively, are subject to a repurchase option held by the Company at the original issuance price in the event the optionees’ employment or director’s tenure is terminated either voluntarily or involuntarily. These repurchase terms are considered to be a forfeiture provision and do not result in variable accounting. During the year ended December 31, 2005, the Company repurchased 130,718 shares of its common stock for approximately $111,350 under restricted stock purchase agreements due to employee forfeitures. In accordance with EITF No. 00-23, Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25, and FIN No. 44, the shares purchased by the employees pursuant to the early exercise of stock options are not deemed to be issued until those shares vest. Therefore, amounts received in exchange for these shares have been recorded as liability for early exercise of stock options on the balance sheet, and will be reclassified into common stock and additional paid-in capital as the shares vest. There were no repurchases in the year ended December 31, 2006. There were 88,513 shares at an original purchase price of $84,000 reclassified into common stock and additional paid-in capital during the year ended December 31, 2006, 201,374 shares at an original purchase price of $141,000 reclassified into common stock and additional paid-in capital during the year ended December 31, 2005 and 258,913 shares at an original purchase price of $173,000 reclassified into common stock and additional paid-in capital during the year ended December 31, 2004.

Shares Reserved for Issuance

The Company had reserved shares of common stock for future issuance as follows:

	December 31,
	2006	2005
2004 Employee Stock Purchase Plan	191,070	152,101
Stock option plans:
Shares available for grant	1,439,865	1,338,983
Options outstanding	3,894,640	2,945,163
Shares available for issuance under the CEFF	6,036,912	6,036,912
Shares available for issuance under the convertible notes	3,397,095	—
Warrants outstanding to purchase common stock	5,268,429	260,000
	20,228,011	10,733,159

10.    Stock Based Compensation

On January 1, 2006, the Company adopted the provisions of SFAS No. 123R, Share-Based Payment. SFAS No. 123R establishes accounting for stock-based awards made to employees and directors. Accordingly, stock-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as expense over the remaining requisite service period. The Company previously applied APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations and provided the required pro forma disclosures of SFAS No. 123, Accounting for Stock-Based Compensation. Total stock-based compensation expense of $5,723,000 was recorded during the year ended December 31, 2006.

85

TERCICA, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

The Company has four active stock-based compensation plans, which are described below.

2004 Stock Plan

The Company’s Board of Directors adopted the 2004 Stock Plan (formerly the 2003 Stock Plan) in September 2003 and the Company’s stockholders approved it in October 2003. The 2004 Stock Plan became effective on March 16, 2004. The 2004 Stock Plan provides for the grant of incentive stock options to employees and for the grant of nonstatutory stock options, stock purchase rights, restricted stock, stock appreciation rights, performance units and performance shares to the Company’s employees, directors and non-employee service providers. Shares reserved under the 2004 Stock Plan include (a) shares reserved but unissued under the Company’s 2002 Executive Stock Plan and the Company’s 2002 Stock Plan at March 16, 2004, (b) shares returned to the 2002 Executive Stock Plan and the 2002 Stock Plan as the result of cancellation or forfeiture of options or the repurchase of shares issued under the 2002 Executive Stock Plan and the 2002 Stock Plan, and (c) annual increases in the number of shares available for issuance on the first day of each year beginning on January 1, 2005 equal to the lesser of:

• 4% of the outstanding shares of common stock on the first day of the Company’s fiscal year,

• 1,250,000 shares, or

• an amount the Company’s Board of Directors may determine.

Incentive stock options must be granted with exercise prices not less than 100% of fair market value of the common stock on the date of grant. Nonqualified stock options may be granted with an exercise price as determined by the Company’s Board of Directors; however, nonstatutory stock options intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code must be granted with exercise prices not less than 100% of fair market value on the date of grant. The exercise price of any incentive stock option granted to a 10% stockholder will not be less than 110% of the fair market value of the common stock on the date of grant. Options granted under the 2004 Stock Plan expire no later than 10 years from the date of grant; however, incentive stock options granted to individuals owning over 10% of the total combined voting power of all classes of stock expire no later than five years from the date of grant. Options granted under the 2004 Stock Plan vests over periods determined by the Company’s Board of Directors, generally over four years. The 2004 Stock Plan has a term of 10 years. The Company’s Board of Directors approved an increase of 1,250,000 shares to the reserve for the year ended December 31, 2006.

2002 Stock Plan and 2002 Executive Stock Plan

The terms of the 2002 Stock Plan and 2002 Executive Stock Plan (the “2002 Plans”) are similar to those of the Company’s 2004 Stock Plan. The shares reserved but unissued under the 2002 Plans as of March 15, 2004 were reserved for issuance under the 2004 Stock Plan. In addition, any shares returned to the 2002 Plans as a result of cancellation or forfeiture of options or repurchases of shares after March 16, 2004 that were issued under the 2002 Plans are added to the shares reserved for the 2004 Stock Plan. Effective as of March 16, 2004, no additional stock options were issuable under the 2002 Plans.

As of December 31, 2006, there were a total of 6,453,834 shares authorized for issuance under the 2004 Stock Plan and the 2002 Plans.

2004 Employee Stock Purchase Plan

The Company’s Board of Directors adopted the 2004 Employee Stock Purchase Plan (formerly the 2003 Stock Purchase Plan) in September 2003 and the Company’s stockholders approved it in October 2003. The 2004

86

TERCICA, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Employee Stock Purchase Plan (the “Purchase Plan”) became effective on March 16, 2004. As of December 31, 2006, there were a total of 347,979 shares reserved for issuance under the Purchase Plan. In addition, the Purchase Plan provides for annual increases in the number of shares available for issuance under the Purchase Plan on the first day of each year, beginning with January 1, 2005 equal to the lesser of:

• 0.5% of the outstanding shares of common stock on the first day of the Company’s fiscal year,

• 125,000 shares, or

• such other amount as may be determined by the Company’s Board of Directors.

The Purchase Plan permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. Offering periods are successive and overlapping of 24 months’ duration. Each offering period includes four six-month purchase periods and generally begins on the first trading day on or after May 15 and November 15 of each year. The price at which the stock is purchased is equal to the lower of 85% of the fair market value of the common stock at the beginning of an offering period or after a purchase period ends.

Adoption of SFAS No. 123R

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, or SFAS No. 123R using the modified prospective transition method, which requires the measurement and recognition of non-cash compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to our 2004 Employee Stock Purchase Plan based on estimated fair values. Under that transition method, non-cash compensation expense was recognized in the year ended December 31, 2006 and included the following: (a) compensation expense related to any share-based payments granted through, but not yet vested as of January 1, 2006, and (b) compensation expense for any share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. The Company recognizes non-cash compensation expense for the fair values of these share-based awards on a straight-line basis over the requisite service period of each of these awards. Because non-cash stock compensation expense is based on awards ultimately expected to vest, it has been reduced by an estimate for future forfeitures. SFAS No. 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company’s financial statements as of and for the year ended December 31, 2006 reflects the impact of SFAS No. 123R. In accordance with the modified prospective transition method, the Company’s financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS No. 123R.

During the period from February 1, 2003 through January 31, 2004, certain stock options were granted with exercise prices that were below the reassessed fair value of the common stock at the date of grant. Total deferred stock compensation of $10,873,000 was recorded in accordance with APB Opinion No. 25, and was being amortized to expense over the related vesting period of the options. From inception through December 31, 2005, stock-based compensation expense of $5,740,000 was recognized and $2,542,000 was reversed as a result of employee terminations. Stock-based compensation expense recognized in the years ended December 31, 2005 and 2004 was $2,102,000 and $2,734,000, respectively. The remaining deferred stock compensation balance of $2,591,000 as of December 31, 2005 was reversed on January 1, 2006 upon adoption in accordance with the provisions of SFAS No. 123R.

The stock-based compensation expense related to SFAS No. 123R for year ended December 31, 2006 was $5,723,000. As a result of adopting SFAS No. 123R on January 1, 2006, the Company’s net loss and basic and

87

TERCICA, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

diluted net loss per share for the year ended December 31, 2006 was $4,069,000 and $0.10 higher, respectively, than if the Company had continued to account for stock-based compensation expense under APB Opinion No. 25.

The following table presents the pro forma effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to options granted under the Company’s share-based compensation arrangements during the years ended December 31, 2005 and 2004 (in thousands, except per share amounts):

	Year Ended December 31,
	2005			2004
	(In thousand except per share data)
Net loss, as reported	$	(46,233	)	$	(41,002	)
Plus: Employee stock compensation expense based on intrinsic value method		2,102			2,734
Less: Employee stock compensation expense determined under the fair value method for all awards		(4,424	)		(3,307	)
Pro forma net loss	$	(48,555	)	$	(41,575	)
Net loss per share:
Basic and diluted, as reported	$	(1.51	)	$	(2.12	)
Basic and diluted, pro forma	$	(1.59	)	$	(2.15	)

Other than options granted to non-employee service providers and the grant of certain stock options to employees with exercise prices that were below the reassessed fair value of the common stock as the date of the grant, there was no other stock-based compensation recognized during the year ended December 31, 2005.

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

	Year Ended December 31,
	2006		2005
Expected volatility	75.2	%	50	%
Expected term (years)	6.2		3.6
Risk-free interest rate	5.1	%	3.8	%
Dividend yield	—		—

The Company’s computation of expected volatility for the year ended December 31, 2006 is based on an average of the historical volatility of the Company’s stock and the historical volatility of a peer-group of similar companies. The Company’s computation of expected term in the year ended December 31, 2006 utilizes the simplified method in accordance with SAB 107. The risk-free interest rate for periods within the contractual life of the option is based on treasury constant maturities rates in effect at the time of grant. The Company recognizes stock-based compensation expense for the fair values of these awards on a straight-line basis over the requisite service period of each of these awards.

88

TERCICA, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

A summary of activity of all options are as follows (in thousands, except per share data and contractual term):

	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2003	1,202		$	0.71
Options granted	1,284			7.38
Options granted outside of Plans	22			4.00
Options exercised	(298	)		0.72
Options cancelled/forfeited	(133	)		3.25
Outstanding at December 31, 2004	2,077			4.72
Options granted	1,959			9.13
Options exercised	(352	)		1.76
Options cancelled/forfeited	(586	)		8.18
Options cancelled/forfeited outside of Plans	(22	)		4.00
Options repurchased	(131	)		0.85
Outstanding at December 31, 2005	2,945			7.49
Options granted	1,788			6.71
Options exercised	(199	)		1.04
Options cancelled/forfeited	(639	)		9.06
Outstanding at December 31, 2006	3,895		$	7.21	8.5	$	1,428
Exercisable at December 31, 2006	3,097		$	6.98	8.4	$	1,342

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $5.00 on December 29, 2006, which would have been received by the option holders had all option holders exercised their options on December 31, 2006. This amount changes based on the fair market value of the Company’s stock. Total intrinsic value of options exercised for the years ended December 31, 2006, 2005 and 2004 were $1,084,000, $2,685,000 and $2,514,000, respectively. The weighted-average grant date fair value of options granted during the years ended December 31, 2006, 2005 and 2004 were $4.74. $3.94 and $6.13 per share, respectively. Total fair value of options vested for the years ended December 31, 2006, 2005 and 2004 was $4,359,000, $4,736,000 and $2,678,000.

As of December 31, 2006, unrecognized stock-based compensation expense related to stock options of $10,372,000 was expected to be recognized over a weighted-average period of 2.6 years.

The following table summarizes information concerning total outstanding and vested options as of December 31, 2006 (in thousands, except per share data and contractual term):

Options Outstanding					Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted-Average Remaining Contractual Term	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$0.40 – $1.60	251	6.4	$	0.71	239	$	0.69
$3.46 – $5.81	651	8.5	$	4.55	521	$	4.50
$6.41 – $8.85	2,437	8.7	$	7.72	1,992	$	7.74
$9.04 – $12.65	556	8.4	$	10.99	345	$	10.69
	3,895				3,097

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TERCICA, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

A summary of activity of all nonvested stock options are as follows (in thousands, except per share data):

	Shares		Weighted- Average Grant Date Fair Value
Nonvested stock options at December 31, 2005	2,259		$	8.01
Granted	1,788			6.71
Vested	(973	)		7.22
Forfeited	(404	)		8.31
Nonvested stock options at December 31, 2006	2,670		$	7.38

Employee Stock Purchase Plan

For the year ended December 31, 2006, the Company recorded $353,000 of compensation expense related to the Purchase Plan. During the years ended December 31, 2006, 2005 and 2004, 86,031, 42,584 and 28,294 shares, respectively, were purchased under the Purchase Plan. The fair value of awards issued under the Purchase Plan is measured using assumptions similar to those used for stock options, except that the weighted average term of the awards were 1.49, 1.25 and 0.91 years for the years ended December 31, 2006, 2005 and 2004, respectively.

Disclosures Pertaining to All Stock-Based Compensation Plans

Cash received from option exercises and the Purchase Plan contributions under all share-based payment arrangements for years ended December 31, 2006, 2005 and 2004 was $542,000, $806,000 and $300,000, respectively. Because of the Company’s net operating losses, the Company did not realize any tax benefits for the tax deductions from share-based payment arrangements during the years ended December 31, 2006 and 2005.

11.    Income Taxes

The provision for income taxes for the year ended December 31, 2006 represents $621,000 of French foreign income taxes withheld on an upfront license fee received from Ipsen under the Increlex^™ License (see footnote 7 “Ipsen Collaboration”). There is no domestic provision for income taxes because the Company has incurred operating losses to date. Deferred income taxes reflect the tax effects of net operating loss and tax credit carryovers and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows (in thousands):

	December 31,
	2006			2005
Net operating loss carryforwards	$	45,705		$	30,403
Capitalized license fees		13,044			3,168
Orphan drug credits		9,065			5,881
Capitalized research expenses		8,913			1,779
Deferred revenue		5,013			—
Research tax credit carryforwards		4,332			3,948
Capitalized inventory costs		2,519			—
Capitalized start-up costs		304			531
Other		350			250
Total deferred tax assets		89,245			45,960
Valuation allowance		(89,245	)		(45,960	)
Net deferred tax assets	$	—		$	—

90

TERCICA, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Realization of the deferred tax assets is dependent upon the generation of future taxable income, if any, the amount and timing of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by approximately $43,285,000, $11,843,000 and $19,040,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

As of December 31, 2006, the Company had federal net operating loss carryforwards of approximately $115,324,000. The Company also had California net operating loss carryforwards of approximately $92,045,000. The federal net operating loss carryforwards will expire at various dates beginning in 2022, if not utilized. The California net operating loss carryforwards expire beginning in 2012. The Company also has federal research, state research and federal orphan drug credit carryforwards of approximately $2,212,000, $3,261,000 and $9,065,000, respectively. The federal research and orphan drug credits expire beginning in 2022 and the state research credits have no expiration date.

Utilization of the net operating loss carryforwards is subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

12.    401(k) Plan

Effective January 2005, the Company began sponsoring a 401(k) plan, which covers all eligible employees. Under this plan, employees may contribute specified percentages of their eligible compensation, subject to certain Internal Revenue Service restrictions. The plan does not currently allow for matching contributions by the Company.

13.    Quarterly Financial Data—Unaudited

The following table presents unaudited quarterly financial data of the Company. The Company’s quarterly results of operations for these periods are not necessarily indicative of future results of operations.

	Fiscal year 2006 Quarter Ended
	March 31			June 30			September 30			December 31
	(In thousands, except per share data)
Total net revenues	$	85		$	166		$	316		$	942	)
Net product sales	$	85		$	166		$	316		$	748	)
Cost of product sales	$	(83	)	$	(557	)	$	(516	)	$	(511	)
Research and development	$	(4,630	)	$	(4,596	)	$	(3,513	)	$	(29,295	)
Selling, general and administrative	$	(10,504	)	$	(10,586	)	$	(10,162	)	$	(12,996	)
Net loss	$	(14,269	)	$	(14,684	)	$	(13,063	)	$	(40,981	)
Basic and diluted net loss per share	$	(0.40	)	$	(0.39	)	$	(0.35	)	$	(0.85	)
	Fiscal year 2005 Quarter Ended
	March 31			June 30			September 30			December 31
	(In thousands, except per share data)
Research and development	$	(4,871	)	$	(6,320	)	$	(5,681	)	$	(4,716	)
Selling, general and administrative	$	(4,179	)	$	(6,458	)	$	(6,393	)	$	(8,882	)
Net loss	$	(9,108	)	$	(12,401	)	$	(11,518	)	$	(13,206	)
Basic and diluted net loss per share	$	(0.32	)	$	(0.40	)	$	(0.37	)	$	(0.42	)

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

None.

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures

Based on their evaluation as of December 31, 2006, our Chief Executive Officer and Chief Financial Officer, with the participation of management, have concluded that our disclosure controls and procedures (as defined in Rules 13a–15(e) and 15d–15(e) of the Securities Exchange Act of 1934) are effective.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934. 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 in the United States.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Acting Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2006 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on this evaluation, our management concluded that as of December 31, 2006, our internal control over financial reporting was effective.

Attestation Report of the Registered Public Accounting Firm

Ernst & Young LLP, our independent registered public accounting firm that has audited our financial statements included herein, has issued an attestation report on management’s assessment of our internal control over financial reporting, which report is included under Item 8 of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Our disclosure controls and procedures provide our Chief Executive Officer and Chief Financial Officer reasonable assurances that our disclosure controls and procedures will achieve their objectives. However, company management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation of controls can provide complete assurance that all control issues and instances of error, if any, within our company are detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts of specific persons within the organization. The design of any

92

system of controls is also 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 objectives under all potential future conditions.

Item 9B. Other Information.

None

93

PART III

Certain information required by Part III is omitted from this Annual Report on Form 10-K because the registrant will 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 the Company’s Annual Meeting of Stockholders expected to be held in May 2007 (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.

The information required by this item with respect to directors and executive officers may be found under the caption “Executive Officers of the Registrant” in Part I, Item 1 of this Annual Report on Form 10-K, and in the section entitled “Proposal 1—Election of Directors” appearing in the Proxy Statement. Such information is incorporated herein by reference.

The information required by this Item with respect to our audit committee and audit committee financial expert may be found in the section entitled “Proposal 1—Election of Directors—Audit Committee” appearing in the Proxy Statement. Such information is incorporated herein by reference.

The information required by this Item with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 and our code of ethics may be found in the sections entitled “Section 16(a) Beneficial Ownership Reporting Compliance” and “Proposal 1—Election of Directors—Code of Business Conduct and Ethics,” respectively, appearing in the Proxy Statement. Such information is incorporated herein by reference.

Item 11. Executive Compensation.

The information required by this Item with respect to director and executive officer compensation is incorporated herein by reference to the information from the Proxy Statement under the section entitled “Executive Compensation.”

The information required by this Item with respect to Compensation Committee interlocks and insider participation is incorporated herein by reference to the information from the Proxy Statement under the section entitled “Proposal 1—Election of Directors—Compensation Committee Interlocks and Insider Participation.”

The information required by this Item with respect to our Compensation Committee’s review and discussion of the Compensation Discussion and Analysis included in the Proxy Statement is incorporate herein by reference to the information from the Proxy Statement under the section entitled “Proposal 1—Election of Directors—Compensation Committee Report.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item with respect to security ownership of certain beneficial owners and management is incorporated herein by reference to the information from the Proxy Statement under the section entitled “Security Ownership of Certain Beneficial Owners and Management.”

The information required by this Item with respect to securities authorized for issuance under our equity compensation plans is incorporated herein by reference to the information from the Proxy Statement under the section entitled “Equity Compensation Plan Information.”

94

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item with respect to related party transactions is incorporated herein by reference to the information from the Proxy Statement under the section entitled “Certain Relationships and Related Transactions.”

The information required by this Item with respect to director independence is incorporated herein by reference to the information from the Proxy Statement under the section entitled “Proposal 1—Election of Directors—Independence of the Board of Directors.”

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.”

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Documents filed as part of this report

1.    Financial Statements

See Index to Financial Statements in Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.

2.    Financial Statement Schedules

All financial statement schedules are omitted because the information is inapplicable or presented in the Notes to Financial Statements.

3.    The following exhibits are included herein or incorporated herein by reference:

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation(1)
3.2	Amended and Restated Bylaws(2)
3.3	Certificate of Designation of Series A Junior Participating Preferred Stock(3)
3.4	Certification of Amendment of Amended and Restated Certificate of Incorporation(3)
4.1	Form of Specimen Stock Certificate(4)
4.2	Reference is made to Exhibits 3.1, 3.2, 3.3, and 3.4
4.3	Warrant issued to Kingsbridge Capital Limited, dated October 14, 2005(5)
4.4	Warrant issued to Ipsen, S.A., dated October 13, 2006(4)
4.5	First Senior Convertible Promissory Note issued to Ipsen, S.A., dated October 13, 2006(4)
4.6A	Rights Agreement, dated as of October 13, 206, between the Registrant and Computershare Trust Company, N.A., as Rights Agent(4)
4.6B	Form of Right Certificate(4)
10.1A	2002 Stock Plan, as amended(4)*
10.1B	Form of Stock Option Agreement under the 2002 Stock Plan(2)*
10.2A	2002 Executive Stock Plan, as amended(4)*
10.2B	Form of Stock Option Agreement under the 2002 Executive Stock Plan(2)*
10.3A	2004 Stock Plan(4)*
10.3B	Form of Stock Option Agreement under the 2004 Stock Plan(2)*
10.4A	2004 Employee Stock Purchase Plan(4)*
10.4B	Form of Subscription Agreement under the 2004 Employee Stock Purchase Plan(2)*
10.5	Form of Indemnification Agreement(2)*
10.6A	Sublease Agreement dated June 24, 2002 between Elan Pharmaceuticals, Inc. and the Registrant(2)
10.6B	Sublease Agreement dated March 21, 2003 between Elan Pharmaceuticals, Inc. and the Registrant(2)
10.6C	Lease Agreement dated July 24, 2003 between Gateway Center, LLC and the Registrant(2)

96

Exhibit Number	Description
10.6D	First Amendment to Lease Agreement dated September 24, 2003 between Gateway Center, LLC and the Registrant(2)
10.6E	Second Amendment to Lease Agreement dated June 28, 2004 between Gateway Center, LLC and the Registrant(6)
10.6F	Lease Agreement dated March 7, 2005 between 2000 Sierra Point, LLC and the Registrant(7)
10.6G	First Amended to Lease Agreement dated May 1, 2006 between Clarendon Hills Investors, LLC and the Registrant(8)
10.7A	License and Collaboration Agreement, between Genentech, Inc. and the Registrant, dated as of April 15, 2002(2)†
10.7B	First Amendment to the License and Collaboration Agreement, between Genentech, Inc. and the Registrant, dated as of July 25, 2003(2)†
10.7C	International License and Collaboration Agreement, between Genentech, Inc. and the Registrant, dated as of July 25, 2003(2)†
10.7D	Second Amendment to the License and Collaboration Agreement, between Genentech, Inc. and the Registrant, dated as of November 25, 2003(9)
10.8	Manufacturing Services Agreement between the Registrant and Cambrex Bio Science Baltimore, Inc., dated as of December 20, 2002(2)†
10.9A	Key Employment Agreement for John A. Scarlett, M.D. dated February 27, 2002(2)*
10.9B	Amendment to Key Employment Agreement for John A. Scarlett, M.D. dated May 15, 2002(2)*
10.9C	Key Employment Agreement for Ross G. Clark dated May 15, 2002(2)*
10.9D	Intentionally omitted
10.9E	Intentionally omitted
10.9F	Intentionally omitted
10.9G	Employment Letter to Andrew Grethlein dated March 5, 2003(2)*
10.9H	Intentionally omitted
10.9I	Intentionally omitted
10.9J	Intentionally omitted
10.9K	Intentionally omitted
10.9L	Employment Letter to Stephen Rosenfield dated June 23, 2004(3)*
10.9M	Employment Letter to Thorsten von Stein dated December 3, 2004(5)*
10.9N	Amendment to Key Employment Agreement for John A. Scarlett, M.D. dated February 22, 2005(4)*
10.9O	Amendment to Key Employment Agreement for Ross G. Clark dated February 22, 2005(4)*
10.9P	Intentionally omitted
10.9Q	Intentionally omitted
10.9R	Amendment to Employment Letter for Stephen N. Rosenfield dated February 22, 2005(7)*
10.9S	Intentionally omitted
10.9T	Non-Employee Director Compensation Arrangements(11)
10.9U	Employment Letter to Christopher E. Rivera, dated March 31, 2005(12)*

97

Exhibit Number	Description
10.9V	Intentionally omitted
10.9W	Tercica, Inc. Incentive Compensation Plan(13)
10.9X	Employment letter to AjayBansal, dated February 27, 2006(14)
10.10	Amended and Restated Investors’ Rights Agreement dated July 9, 2003(2)
10.11A	Amendment to Amended and Restated Investors’ Rights Agreement dated February 27, 2004(2)
10.11B	Consent, Waiver and Amendment, dated as of October 13, 2006
10.12A	Intentionally omitted
10.12B	Common Stock Purchase Agreement, dated January 21, 2005, between Venture Lending & Leasing IV, LLC and the Registrant(10)
10.13A	Common Stock Purchase Agreement, by and between Kingsbridge Capital Limited and the Registrant, dated October 14, 2005(5)
10.13B	Registration Rights Agreement, by and between Kingsbridge Capital Limited and the Registrant, dated October 14, 2005(5)
10.14A	Stock Purchase and Master Transaction Agreement, by and between the Registrant and Ipsen, S.A., dated July 18, 2006(15)
10.14B	Affiliation Agreement, by and between the Registrant, Suraypharm and Ipsen, S.A., dated October 13, 2006
	Registration Rights Agreement, by and between the Registrant, Suraypharm and Ipsen, S.A., dated October 13, 2006
10.14C	Increlex™ License and Collaboration Agreement, by and between the Registrant and Beaufour Ipsen Pharma, dated October 13, 2006††
10.14D	Somatuline® License and Collaboration Agreement, by and between the Registrant, SCRAS and Beaufour Ipsen Pharma, dated October 13, 2006††
23.1	Consent of Independent Registered Public Accounting Firm
24.1	Power of Attorney (included on the signature pages hereto)
31.1	Certification of Chief Executive Officer of Tercica, Inc., as required by Rule 13a-14(a) or Rule 15d-14(a).
31.2	Certification of Chief Financial Officer of Tercica, Inc., as required by Rule 13a-14(a) or Rule 15d-14(a).
32.1	Certification by the Chief Executive Officer, as 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).
32.2	Certification by the Chief Financial Officer, as 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).

* Management contract or compensation plan or arrangement.

† Confidential treatment has been granted with respect to certain portions of this exhibit. This exhibit omits the information subject to this confidentiality request. Omitted portions have been filed separately with the SEC.

†† Confidential treatment has been requested with respect to certain portions of this exhibit. This exhibit omits the information subject to this confidentiality request. Omitted portions have been filed separately with the SEC.

98

(1) Incorporated by reference to the similarly described exhibit included with the Registrant’s quarterly report on Form 10-Q (File No. 000-50461) filed on May 13, 2004.

(2) Incorporated by reference to the similarly described exhibit included with the Registrant’s registration statement on Form S-1 (File No. 333-108729) and amendments thereto, declared effective on March 16, 2004.

(3) Incorporated by reference to the similarly described exhibit included with the Registrant’s Current Report on Form 8-K (File No. 000-50461) filed on October 18, 2006.

(4) Incorporated by reference to the similarly described exhibit included with the Registrant’s quarterly report on Form 10-Q (File No. 000-50461) filed on November 3, 2006.

(5) Incorporated by reference to the similarly described exhibit included with the Registrant’s quarterly report on Form 10-Q (File No. 000-50461) filed on November 4, 2005.

(6) Incorporated by reference to the similarly described exhibit included with the Registrant’s quarterly report on Form 10-Q (File No. 000-50461) filed on August 16, 2004.

(7) Incorporated by reference to the similarly described exhibit included with the Registrant’s annual report on Form 10-K (File No. 000-50461) filed on March 24, 2005.

(8) Incorporated by reference to the similarly described exhibit included with the Registrant’s quarterly report on Form 10-Q (File No. 000-50461) filed on August 9, 2006.

(9) Incorporated by reference to the similarly described exhibit included with the Registrant’s quarterly report on Form 10-Q (File No. 000-50461) filed on August 4, 2005.

(10) Incorporated by reference to the similarly described exhibit included with the Registrant’s registration statement on Form S-1 (File No. 333-122224) and amendments thereto, declared effective on February 7, 2005.

(11) Incorporated by reference to the information under the heading “Executive Compensation—Compensation of Directors” in the Registrant’s definitive proxy statement filed pursuant to Regulation 14A (File No. 000-50461) on April 24, 2006.

(12) Incorporated by reference to the similarly described exhibit included with the Registrant’s quarterly report on Form 10-Q (File No. 000-50461) filed on May 16, 2005.

(13) Incorporated by reference to the similarly described exhibit included with the Registrant’s Current Report on Form 8-K (File No. 000-50461) filed on February 28, 2006.

(14) Incorporated by reference to the similarly described exhibit included with the Registrant’s quarterly report on Form 10-Q (File No. 000-50461) filed on May 10, 2006.

(15) Incorporated by reference to the similarly described exhibit included with the Registrant’s Current Report on Form 8-K (File No. 000-50461) filed on July 24, 2006.

99

SIGNATURES

Pursuant to 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.

TERCICA, INC.
By:	/S/    JOHN A. SCARLETT, M.D.
	John A. Scarlett, M.D. President, Chief Executive Officer and Director
Dated: March 9, 2007

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John A. Scarlett, M.D. and Ajay Bansal, 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 or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities indicated on March 9, 2007:

Signature	Title
/S/    JOHN A. SCARLETT, M.D.         John A. Scarlett, M.D.	President, Chief Executive Officer and Director (Principal Executive Officer)
/S/    AJAY BANSAL         Ajay Bansal	Chief Financial Officer (Principal Accounting and Financial Officer)
/S/    ALEXANDER BARKAS, PH.D.         Alexander Barkas, Ph.D.	Director
/S/    ROSS G. CLARK, PH.D.         Ross G. Clark, Ph.D.	Director
/S/    KARIN EASTHAM         Karin Eastham	Director
/S/    DENNIS HENNER, PH.D.         Dennis Henner, Ph.D.	Director
/S/    MARK LESCHLY         Mark Leschly	Director
/S/    DAVID L. MAHONEY         David L. Mahoney	Director
/S/    CHRISTOPHE JEAN         Christophe Jean	Director
/S/    JEAN-LUC BÉLINGARD         Jean-Luc Bélingard	Director

100

EX-10.11B

Exhibit 10.11B

TERCICA, INC.

CONSENT, WAIVER AND AMENDMENT

THIS CONSENT, WAIVER AND AMENDMENT (the “Agreement”) is made effective as of the Effective Date by and among TERCICA, INC., a Delaware corporation (the “Company”), the undersigned Founders (the “Consenting Founders”) and the undersigned Investors (the “Consenting Investors”).

RECITALS

WHEREAS, the Company, the Founders and the Investors are parties to that certain Amended and Restated Investors’ Rights Agreement, dated as of July 9, 2003, as amended (the “Investor Rights Agreement”);

WHEREAS, the Consenting Founders and the Consenting Investors acknowledge that the Company has agreed to issue and sell the Ipsen Shares, the Convertible Notes and the Warrant to Ipsen S.A., a French société anonyme and/or one or more of its affiliates (collectively, “Ipsen”) in accordance with the terms of the Ipsen Purchase Agreement;

WHEREAS, pursuant to the terms of the Ipsen Purchase Agreement, the Company has agreed to enter into the Registration Rights Agreement, which provides for, among other things, certain registration rights with respect to the Ipsen Shares, the Note Shares, the Warrant Shares and certain other shares of Common Stock held by Ipsen from time to time;

WHEREAS, pursuant to Section 5.1 of the Investor Rights Agreement, the Company, the Consenting Founders (for and on behalf of all Founders) and the Consenting Investors (for and on behalf of all Investors) wish to amend the Investor Rights Agreement as set forth below and to waive certain provisions of the Investor Rights Agreement in connection with the transactions contemplated by the Purchase Agreement and the Registration Rights Agreement;

WHEREAS, pursuant to Section 7.10 of the Common Stock Agreement, the Company and the Consenting Investors wish to amend the Common Stock Agreement as set forth below; and

NOW, THEREFORE, in consideration of the mutual agreements, covenants and considerations contained herein, the Company, the Consenting Founders and the Consenting Investors agree as follows:

AGREEMENT

1. DEFINITIONS.

1.1 Each of the following terms, when used in this Agreement, shall have the meaning set forth below:

(a) “Common Stock Agreement” shall mean that certain Common Stock Agreement, dated as of January 21, 2005, by and between the Company and VLL.

(b) “Convertible Notes” shall have the meaning ascribed to it in the Ipsen Purchase Agreement.

(c) “Effective Date” shall mean the First Closing Date.

(d) “First Closing Date” shall have the meaning ascribed to it in the Ipsen Purchase Agreement.

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(e) “Investor Rights Agreement” shall have the mean ascribed to it in the recitals to this Agreement.

(f) “Ipsen Purchase Agreement” shall mean that certain Stock Purchase and Master Transaction Agreement, dated as of July 18, 2006, by and between the Company and Ipsen.

(g) “Ipsen Shares” shall mean the shares of Common Stock issued to Ipsen pursuant to the Purchase Agreement.

(h) “Note Shares” shall have the meaning ascribed to it in the Ipsen Purchase Agreement.

(i) “Registration Rights Agreement” shall have the meaning ascribed to it in the Ipsen Purchase Agreement.

(j) “VLL” shall mean Venture Lending & Leasing IV, LLC.

(k) “Warrant” shall have the meaning ascribed to it in the Ipsen Purchase Agreement.

(l) “Warrant Shares” shall have the meaning ascribed to it in the Ipsen Purchase Agreement.

1.2 Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Investor Rights Agreement.

2. CONSENT AND WAIVER. Section 2.16 of the Investor Rights Agreement be, and it hereby is, waived in its entirety with respect to the entering into by the Company of the Registration Rights Agreement with Ipsen, and, in furtherance thereof, the execution and delivery of the Registration Rights Agreement by the Company and the grant to Ipsen of the registration rights pursuant thereto be, and it hereby is, authorized and approved in all respects.

3. AMENDMENT.

3.1 Section 1 of the Investor Rights Agreement is hereby amended to add the following definitions to the list of defined terms thereunder, each of which shall read in full as follows:

““Ipsen” shall mean Ipsen S.A., a French société anonyme and/or one or more of its affiliates.”

““Ipsen Holder” shall mean a holder of Ipsen Registrable Securities.”

““Ipsen Registrable Securities” shall have the same meaning as the meaning ascribed to the term “Registrable Securities” under the Ipsen Rights Agreement.

““Ipsen Registration” shall mean any registration effected at the request of Ipsen or its assigns pursuant to the Ipsen Rights Agreement.”

““Ipsen Rights Agreement” shall mean that certain Registration Rights Agreement, dated as of July 18, 2006, by and between the Company and Ipsen, as the same may be amended from time to time.”

““Kingsbridge Registration” shall mean any registration effected pursuant to that certain Registration Rights Agreement, dated as of October 14, 2005, by and between the Company and Kingsbridge Capital Limited, as the same may be amended from time to time.”

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““VLL Agreement” shall mean that certain Common Stock Agreement, dated as of January 21, 2005, by and between the Company and VLL, as the same may be amended from time to time.”

““VLL Holder” shall mean Venture Lending & Leasing IV, LLC and/or one or more of its affiliates.”

““VLL Registrable Securities” shall have the same meaning as the meaning ascribed to the term “Registrable Securities” under the VLL Agreement.”

3.2 Section 1 of the Investor Rights Agreement is hereby amended to amend the definition of “Registrable Securities” thereunder to read in full as follows:

““Registrable Securities” means (a) the Conversion Stock, (b) any Common Stock of the Company issuable or issued with respect to, or in exchange for or in replacement of, the Conversion Stock or other securities convertible into or exercisable for Conversion Stock upon any stock split, stock dividend, recapitalization, subdivision or similar event, (c) the Founder Shares, and (d) the Warrant Shares; provided, however, that (i) for the purposes of Sections 2.5, 2.7, 3 and 4, the Founder Shares and the Warrant Shares shall not be deemed “Registrable Securities” and the Founders and the holder of the Common Stock Warrant (including any Warrant Shares issued upon exercise thereof) shall not be deemed “Holders”; (ii)(A) the foregoing definition shall exclude in all cases any Registrable Securities sold by a person in a transaction in which his or her rights under this Agreement are not assigned pursuant to Section 2.13 hereof; (B) shares of Common Stock or other securities shall only be treated as Registrable Securities if and as long as they have not been (1) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction or (2) sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof so that all transfer restrictions, and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale; and (C) any shares of Common Stock held by a Holder shall cease to be included in the definition of Registrable Securities when all of the Registrable Securities then held by such Holder (together with any affiliate of the Holder with whom such Holder must aggregate its sales under Rule 144 under the Securities Act) may be sold pursuant to Rule 144 under the Securities Act during any ninety (90) day period.”

3.3 Section 2.6 of the Investor Rights Agreement is hereby amended and restated to read in full as follows:

“(a) Notice of Registration. If at any time or from time to time the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders (other than a Kingsbridge Registration, an Ipsen Registration, a registration relating solely to employee benefit plans, a registration relating solely to a Rule 145 transaction, a registration in which the only stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered, or a registration pursuant to Section 2.5 hereof), the Company shall:

(i) promptly give to each Holder written notice thereof; and

(ii) include in such registration, and in any underwriting involved therein, subject to Section 2.6(b) below, all the Registrable Securities specified in a written request or requests, made within twenty (20) days after delivery of such written notice by the Company, by any Holder.

3

(b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 2.6(a)(i). In such event, the right of any Holder to registration pursuant to this Section 2.6 shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein.

All Holders proposing to distribute their securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 2.6, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated first, to the Company; second, to the selling Holders, any selling Ipsen Holders and any selling VLL Holders on a pro rata basis based on the total number of Registrable Securities, Ipsen Registrable Securities and VLL Registrable Securities held by the selling Holders, any selling Ipsen Holders and any selling VLL Holders, respectively; and third, to any stockholder of the Company (other than a Holder, an Ipsen Holder or a VLL Holder); provided, however, that in no event shall (i) the aggregate number of Registrable Securities, Ipsen Registrable Securities and VLL Registrable Securities of the selling Holders, any selling Ipsen Holders and any selling VLL Holders included in the offering be reduced to below twenty-five percent (25%) of the total number of securities included in such offering, or (ii) any Warrant Shares or securities held by a Founder be included in such offering if any Registrable Securities, Ipsen Registrable Securities or VLL Registrable Securities held by any selling Holder, any selling Ipsen Holder or any selling VLL Holder, respectively, are excluded from such offering. The Company shall so advise all Holders distributing their securities through such underwriting of such exclusion or limitation, and in the case of a limitation, the number of shares of Registrable Securities that may be included in the registration. No Registrable Securities excluded from the underwriting by reason of the underwriter’s marketing limitation shall be included in such registration. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holders, Ipsen Holders or VLL Holders to the nearest 100 shares. In no event shall the number of Registrable Securities underwritten in such an offering be limited unless and until all other shares held by persons other than a Holder, an Ipsen Holder or a VLL Holder are completely excluded from such offering.

For purposes of the preceding paragraph as it relates to apportionment, for any Holder, Ipsen Holder or VLL Holder that has requested to include its Registrable Securities, Ipsen Registrable Securities or VLL Registrable Securities, as the case may be, in an underwritten offering and that is a venture capital fund, partnership or corporation, the affiliated venture capital funds, partners, retired partners and stockholders of such Holder, Ipsen Holder or VLL Holder or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single “Holder,” “Ipsen Holder” or “VLL Holder,” as the case may be, and any pro rata reduction with respect to such Holder, Ipsen Holder or VLL Holder shall be based upon the aggregate amount of Registrable Securities, Ipsen Registrable Securities or VLL Registrable Securities, as the case may be, owned by all such related entities and individuals; provided that all such affiliated entities shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action hereunder.

4

If any Holder or Holders disapprove of the terms of any such underwriting, such Holder or Holders may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration.”

(c) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.6 prior to the effectiveness of such registration whether or not any Holder, Ipsen Holder or VLL Holder has elected to include securities in such registration. The Registration Expenses of such withdrawn registration shall be borne by the Company.

(d) Amendments and Waivers. Notwithstanding Section 5.1 hereof, for so long as the total number of Ipsen Registrable Securities exceeds ten percent (10%) of the total number of outstanding shares of Common Stock, the provisions of this Section 2.6 may be amended or waived (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely), with and only with the written consent of (i) the Company, (ii) the Holders of a majority-in-interest of the then-outstanding Registrable Securities (not including the Founder Shares) if at the time of such amendment or waiver, the total number of Registrable Securities (not including the Founder Shares) exceeds ten percent (10%) of the total number of outstanding shares of Common Stock, and (iii) the Ipsen Holders holding a majority-in-interest of the then-outstanding Ipsen Registrable Securities; provided, however, that (x) if such waiver or amendment materially and adversely affects the rights of the Holders of Founder Shares and does not materially and adversely affect the rights of all other Holders of Registrable Securities in the same manner, then such waiver or amendment shall require the consent of the Holder or Holders of a majority-in-interest of the then-outstanding Founder Shares (it being agreed that a waiver of the provisions of this Section 2.6 with respect to a particular registration shall be deemed to apply to all Holders in the same manner if such waiver does so by its terms, notwithstanding the fact that certain Holders or Ipsen Holders may nonetheless, by agreement with the Company, include Registrable Securities in such registration), and (y) if at the time of such amendment or waiver the total number of Registrable Securities (not including the Founder Shares) is less than ten percent (10%) of the total number of outstanding shares of Common Stock and the written consent of the Holders of a majority-in-interest of the then-outstanding Registrable Securities (not including the Founder Shares) is not required to give effect to such amendment or waiver by operation of subclause (ii) of this Section 2.6(d), and such waiver or amendment materially and adversely affects the rights of the Holders of Registrable Securities and does not materially and adversely affect the rights of the Ipsen Holders in the same manner, then such waiver or amendment shall require the consent of the Holders of a majority-in-interest of the then-outstanding Registrable Securities (not including the Founder Shares). With the same consent, the Company, when authorized by resolution of its Board of Directors, may enter into a supplementary agreement for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement.”

3.4 The remaining covenants, agreements and obligations set forth in Section 4 of the Investor Rights Agreement are hereby terminated in their entirety and shall have no further force or effect.

3.5 Section 5.1 of the Investor Rights Agreement is hereby amended and restated to read in full as follows:

“5.1 Amendments and Waivers. Subject to the provisions of Section 2.6(d), with the written consent of (i) the Company and (ii) the Holders of a majority-in-interest of the

5

then-outstanding Registrable Securities (not including the Founder Shares), the obligations of the Company and the rights of the holders of the Registrable Securities under this Agreement may be waived or amended (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely); provided, however, that if such waiver or amendment materially and adversely affects the rights of the Holders of Founder Shares and does not materially and adversely affect the rights of all other Holders of Registrable Securities in the same manner, then such waiver or amendment shall require the consent of the Holder or Holders of a majority-in-interest of the then-outstanding Founder Shares (it being agreed that a waiver of the provisions of Section 2.6 with respect to a particular registration shall be deemed to apply to all Holders in the same manner if such waiver does so by its terms, notwithstanding the fact that certain Holders may nonetheless, by agreement with the Company, include Registrable Securities in such registration). With the same consent, the Company, when authorized by resolution of its Board of Directors, may enter into a supplementary agreement for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement. Neither this Agreement nor any provisions hereof may be changed, waived, discharged or terminated orally, but only by a signed statement in writing. Notwithstanding anything to the contrary set forth herein, no waiver, amendment or modification may be made to Section 3.1 of this Agreement without the express written consent of Genentech and the Company.”

3.6 Section 7.1(b) of the Common Stock Agreement is hereby amended and restated to read in full as follows:

“(b) “Excluded Offerings” shall mean (i) the Follow-On Offering, (ii) offerings pursuant to registration statements relating solely to employee benefit plans, (iii) a registration relating to a corporate reorganization or transaction under Rule 145 of the Securities Act, (iv) a registration in which the only stock being registered is common stock issuable upon conversion of debt securities that are also being registered, (v) any registration pursuant to Section 2.5 of the Rights Agreement, (vi) a Kingsbridge Registration, or (vii) any registration effected at the request of Ipsen or its assigns pursuant to the Ipsen Rights Agreement.”

3.7 Section 7.1 of the Common Stock Agreement is hereby amended to add subsection 7.1(k) which shall read in full as follows:

“(k) “Ipsen Holder” shall mean a holder of Ipsen Registrable Securities.”

3.8 Section 7.1 of the Common Stock Agreement is hereby amended to add subsection 7.1(l) which shall read in full as follows:

“(l) “Ipsen Registrable Securities” shall have the same meaning as the meaning ascribed to the term “Registrable Securities” under the Ipsen Rights Agreement.”

3.9 Section 7.1 of the Common Stock Agreement is hereby amended to add subsection 7.1(m) which shall read in full as follows:

“(m) “Ipsen Rights Agreement” shall mean that certain Registration Rights Agreement, dated as of July 18, 2006, by and between the Company and Ipsen, as the same may be amended from time to time.”

6

3.10 Section 7.1 of the Common Stock Agreement is hereby amended to add subsection 7.1(n) which shall read in full as follows:

“(n) “Kingsbridge Registration” shall mean any registration effected pursuant to that certain Registration Rights Agreement, dated as of October 14, 2005, by and between the Company and Kingsbridge Capital Limited, as the same may be amended from time to time.”

3.11 Section 7.1 of the Common Stock Agreement is hereby amended to add subsection 7.1(o) which shall read in full as follows:

“(o) “IRA Registrable Securities” shall have the same meaning as the meaning ascribed to the term “Registrable Securities” under the Rights Agreement.”

3.12 Section 7.1 of the Common Stock Agreement is hereby amended to add subsection 7.1(p) which shall read in full as follows:

“(p) “Rights Holder” shall mean a holder of IRA Registrable Securities.”

3.13 Section 7.6(c) of the Common Stock Agreement is hereby amended and restated to read in full as follows:

“(c) Notwithstanding any other provision of this Section 7.2, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit the Registrable Securities and other securities to be distributed through such underwriting, provided however, that the securities included in the underwriting shall be allocated:

(i) first, to the Company,

(ii) second, to VLL, any selling Rights Holders and any selling Ipsen Holders on a pro rata basis based on the total number of Registrable Securities, IRA Registrable Securities and Ipsen Registrable Securities held by VLL, any selling Rights Holders and any selling Ipsen Holders, respectively, and

(iii) third, to any stockholder of the Company (other than VLL, a Rights Holder or an Ipsen Holder).”

3.14 Section 7.10 of the Common Stock Agreement is hereby amended and restated to read in full as follows:

“7.10 Amendment of Registration Rights. Any provision of this Section 7 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and VLL. Notwithstanding the foregoing, VLL hereby consents to any amendment to or waiver of the provisions of this Section 7 that is approved by the written consent of the holders of a majority-in-interest of the then-outstanding IRA Registrable Securities (not including any “Founder Shares” as such term is defined in the Rights Agreement) and/or the Ipsen Holders holding a majority-in-interest of the then-outstanding Ipsen Registrable Securities, as applicable, provided that such amendment of or waiver of this Section 7 shall be consistent in all material and substantive respects with amendments to or waivers of the provisions of Section 2.6 of the Rights Agreement. Any amendment or waiver effected in accordance with this Section 7.10 shall be binding upon VLL. By acceptance of any benefits under this Section 7, VLL hereby agrees to be bound by the provisions hereunder.”

7

3.15 Section 7.12 of the Common Stock Agreement is hereby deleted and shall have no further force or effect.

4. MISCELLANEOUS.

4.1 Full Power and Authority. Each Consenting Founder and each Consenting Investor hereby represents and warrants to the Company, severally and not jointly, that each such Consenting Founder or Consenting Investor, as the case may be, (i) has the full right, power and authority to execute and deliver this Agreement, (ii) this Agreement has been duly executed and delivered by such Consenting Founder or Consenting Investor, as the case may be, and constitutes the legal, valid and binding obligation of such Consenting Founder or Consenting Investor, as the case may be, enforceable in accordance with its terms, except (A) as such enforcement is limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors’ rights generally and (B) for limitations imposed by general principles of equity.

4.2 Effect of Agreement. Except as modified by the terms of this Agreement, the terms and provisions of the Investor Rights Agreement and the Common Stock Agreement shall remain in full force and effect. Other than as stated in this Agreement, this Agreement shall not operate as a waiver of any condition or obligation imposed on the parties under the Investor Rights Agreement or the Common Stock Agreement. In the event of any conflict, inconsistency, or incongruity between any provision of this Agreement and any provision of the Investor Rights Agreement or the Common Stock Agreement, the provisions of this Agreement shall govern and control.

4.3 Governing Law. This Agreement shall be governed in all respects by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within California.

4.4 Successors and Assigns. The provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto and each Holder, Investor, Founder and VLL Holder, and shall be enforceable by the Company or any Holder, Investor, Founder or VLL Holder.

4.5 Counterparts. This Agreement may be executed in several counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one instrument.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

8

IN WITNESS WHEREOF, the undersigned have executed this CONSENT, WAIVER AND AMENDMENT effective as of the Effective Date.

COMPANY:		CONSENTING INVESTORS:
TERCICA, INC.		MPM BIOVENTURES III, LP
By:	/s/ Stephen N. Rosenfield	By:	MPM BioVentures III GP, L.P., its General Partner
	Stephen N. Rosenfield	By:	MPM BioVentures III LLC, its General Partner
	Executive Vice President of Legal Affairs,
	General Counsel and Secretary
		By:	/s/ Dennis Henner
		Name:	Dennis Henner
		Title:	Series A Member
		MPM BIOVENTURES III-QP, LP
		By:	MPM BioVentures III GP, L.P., its General Partner
		By:	MPM BioVentures III LLC, its General Partner
		By:	/s/ Dennis Henner
		Name:	Dennis Henner
		Title:	Series A Member
		MPM BIOVENTURES III PARALLEL FUND, LP
		By:	MPM BioVentures III GP, L.P., its General Partner
		By:	MPM BioVentures III LLC, its General Partner
		By:	/s/ Dennis Henner
		Name:	Dennis Henner
		Title:	Series A Member

SIGNATURE PAGE TO

CONSENT, WAIVER AND AMENDMENT

CONSENTING INVESTORS:
MPM BIOVENTURES III GMBH & CO. BETEILIGUNGS KG
By:	MPM BioVentures III GP, L.P., in its capacity as the Managing Limited Partner
By:	MPM BioVentures III LLC, its General Partner
By:	/s/ Dennis Henner
Name:	Dennis Henner
Title:	Series A Member
MPM ASSET MANAGEMENT INVESTORS 2002 BVIII LLC
By:	/s/ Dennis Henner
Name:	Dennis Henner
Title:	Series A Member

SIGNATURE PAGE TO

CONSENT, WAIVER AND AMENDMENT

CONSENTING INVESTORS:
PROSPECT VENTURE PARTNERS II, L.P.
By:	Prospect Management Co. II, LLC, its General Partner
/s/ Dave Markland
(Signature)
Dave Markland, Attorney–In–Fact
(Name and title of signatory)
PROSPECT ASSOCIATES II, L.P.
By:	Prospect Management Co. II, LLC, its General Partner
/s/ Dave Markland
(Signature)
Dave Markland, Attorney–In–Fact
(Name and title of signatory)
RHO VENTURES IV, L.P.
By:	Rho Management Ventures IV, L.L.C., General Partner
/s/ Mark Leschly
(Signature)
Managing Member
(Name and title of signatory)
RHO VENTURES IV (QP), L.P.
By:	Rho Management Ventures IV, L.L.C., General Partner
/s/ Mark Leschly
(Signature)
Managing Member
(Name and title of signatory)

SIGNATURE PAGE TO

CONSENT, WAIVER AND AMENDMENT

CONSENTING INVESTORS:
RHO VENTURES IV GMBH & CO. BETILIGUNGS KG
By:	Rho Capital Partners Verwaltungs GmbH, General Partner
/s/ Mark Leschly
(Signature)
Managing Member
(Name and title of signatory)
RHO MANAGEMENT TRUST I
By:	Rho Capital Partners, Inc., as Investment Adviser
/s/ Mark Leschly
(Signature)
Managing Member
(Name and title of signatory)

SIGNATURE PAGE TO

CONSENT, WAIVER AND AMENDMENT

CONSENTING FOUNDERS:
By:	/s/ John A. Scarlett, M.D.
	JOHN A. SCARLETT III
THE JOHN A. SCARLETT III, 1999 TRUST
/s/ John A. Scarlett, M.D.
(Signature)
(Name and title of signatory)
THE SUSAN E. SCARLETT 1999 TRUST
/s/ John A. Scarlett, M.D.
(Signature)
(Name and title of signatory)
BOAT HARBOUR LTD.
/s/ Ross Clark
(Signature)
Ross Clark, Director
(Name and title of signatory)

SIGNATURE PAGE TO

CONSENT, WAIVER AND AMENDMENT

EX-10.14B

Exhibit 10_14B

October 13, 2006

TERCICA, INC.,

IPSEN, S.A.

and

SURAYPHARM

AFFILIATION AGREEMENT

CONTENTS

SECTION		PAGE
1. Definitions		1
2. Board Representation		7
2.1	Role of the Board	7
2.2	Size of Board	8
2.3	Appointment of Initial Investor Directors	8
2.4	Elections of Directors	8
2.5	Board Observer Rights	10
2.6	Committees	11
2.7	Independent Director Nominations	12
2.8	Indemnification and D&O Insurance	13
2.9	Duration of Obligations Relating to the Board	14
2.10	Corporate Opportunities’ Waiver	14
3. Matters Requiring Investor Approval		15
4. CEO Termination Consultation		19
5. Issue of New Securities		20
5.1	Right of First Offer	20
5.2	Proceeds of Additional Securities Issued in Connection with the Repayment of the Convertible Notes	22
6. Financial Reporting Covenants		22
6.1	Reporting Information	22
6.2	Purchase Accounting	23
6.3	Variable Amount Notification; Dilution Amount Notification	23
6.4	Deadlines for Reporting Information	24
7. Covenants of the Investor		25
7.1	Lock-up Period	25
7.2	Restriction on Block Transfers	26
7.3	Compliance with Securities Laws	26
7.4	Compulsory Acquisition	26

7.5	The Standstill Period	26
7.6	The Regulated Purchase Period	27
8. Miscellaneous		28
8.1	Effectiveness of Agreement	28
	This Agreement shall become effective upon the Effective Date	28
8.2	Assignment	28
8.3	Governing Law	28
8.4	Counterparts	29
8.5	Titles and Subtitles	29
8.6	Notices	29
8.7	Costs of Enforcement	30
8.8	Amendments and Waivers	30
8.9	Severability	31
8.10	Entire Agreement	31
8.11	Delays or Omissions	31
8.12	No Limitation on Stockholder Rights	31
8.13	Seeking Approval of Certificate of Incorporation Amendments and Bylaw Amendments	31
8.14	Specific Performance, Injunctive and Other Equitable Relief	32
Annex A THE STRATEGIC PLANNING COMMITTEE CHARTER

Execution Copy

THIS AFFILIATION AGREEMENT (this Agreement) is made effective as of the Effective Date, by and between: (1) TERCICA, INC., a Delaware corporation with its principal office at 2000 Sierra Point Parkway, Suite 400, Brisbane, California 94005, USA (the Company); (2) SURAYPHARM, a Société par Actions Simplifiée organized under the laws of France with its registered address at 42, rue du Docteur Blanche, 75016 Paris, France (the Investor), which is an assignee of Ipsen (as defined below) under the Purchase Agreement (as defined below) and the purchaser of the Shares (as defined therein); and, solely for purposes of Sections 2.7, 2.9, 2.10, 7 and 8 hereof, (3) IPSEN, S.A., a société anonyme organized under the laws of France with its registered address at 42, rue du Docteur Blanche, 75016 Paris, France (Ipsen).

RECITALS

WHEREAS, the Company and Ipsen are parties to the Stock Purchase and Master Transaction Agreement, dated as of July 18, 2006 (the Purchase Agreement); and

WHEREAS, in order to induce the Company to enter into the Purchase Agreement and to induce Ipsen or its assignee to invest funds in the Company pursuant to the Purchase Agreement, Ipsen, the Investor and the Company hereby agree that this Agreement shall govern the rights of the Investor to recommend new directors to the Board of Directors of the Company (the Board), to participate in future equity offerings by the Company and certain other matters as set forth in this Agreement.

NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:

1. DEFINITIONS

For purposes of this Agreement:

Affiliate means, in respect of any Person, any other Person that is directly or indirectly controlling, controlled by or under common control with such Person or any of its Subsidiaries, and the term “control” (including the terms “controlled by” and “under common control with”) means having, directly or indirectly, the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or by contract or otherwise.

Associate shall have the meaning ascribed to it in Rule 12b-2 of the Exchange Act.

Baseline Amount shall have the meaning ascribed to in the Warrant.

A Person shall be deemed the beneficial owner of and to have acquired beneficial ownership of, and shall be deemed to beneficially own any, securities that such Person or any of such Person’s Affiliates or Associates is deemed to “beneficially own” (or which are deemed to be beneficially owned by any Person deemed to be part of a “group” with such person), each within the meaning of Rule 13d-3 of the Exchange Act. Notwithstanding anything in this definition of beneficial ownership to the contrary, the

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phrase, “then-outstanding,” when used with reference to a Person’s beneficial ownership of securities of the Company, shall mean the number of such securities then issued and outstanding together with the number of such securities not then actually issued and outstanding which such Person would be deemed to beneficially own hereunder.

Board shall have the meaning set forth in the recitals.

Bylaw Amendments shall have the meaning ascribed to it in the Purchase Agreement.

Business Day shall have the meaning ascribed to it in the Purchase Agreement.

Certificate of Incorporation Amendments shall have the meaning ascribed to it in the Purchase Agreement.

Common Stock shall mean shares of the Company’s common stock, par value $0.001 per share.

Company shall have the meaning set forth in the preamble.

Company’s Stockholders’ Meeting shall have the meaning ascribed to it in the Purchase Agreement.

Confidential Information shall mean all material non-public written or verbal information regarding the Company provided to or learned by an Investor Observer in connection with such Investor Observer’s attendance, or an invitation to attend, any meeting of the Board or committee thereof.

Consultation Notice means a notice from Ipsen or an Affiliate thereof to the Company stating its desire to explore a potential acquisition of shares of the Company’s capital stock from other stockholders, and the terms upon which Ipsen or an Affiliate thereof requests that the Company and the Board support and recommend to the Company’s stockholders such an acquisition.

Convertible Notes means, collectively, the First Convertible Note, the Second Convertible Note and the Third Convertible Note.

DGCL means the Delaware General Corporate Law.

Dilution Amount means: (a) two-thirds of the aggregate number of shares of Common Stock (or Common Stock underlying options, warrants or other Common Stock purchase rights) issued after June 30, 2006 to employees or directors of the Company or to consultants of the Company or any of its Subsidiaries pursuant to any plan, agreement, or arrangement approved by the Board (other than shares actually issued pursuant to options, warrants or other Common Stock purchase rights outstanding as of June 30, 2006), minus (b) two-thirds of the aggregate number of shares of Common Stock (or Common Stock underlying options, warrants or other Common Stock purchase rights) covered by clause (a) above which, as at the date of the offers made by the Investor or its

Page 2

Affiliates pursuant to subclause (d) in the definition of Permitted Offers and Acquisitions, (i) are subject to vesting requirements that cannot as at such date be met; and (ii) have been repurchased by the Company or can no longer be issued pursuant to the original option or similar instrument.

Directors mean the members of the Board.

Dollars or $ means dollars in lawful currency of the United States of America.

EBITDA shall have the meaning ascribed to it in the First Convertible Note.

Effective Date means the date of the First Closing.

Exchange Act shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

First Closing shall have the meaning ascribed to it in the Purchase Agreement.

First Closing Date shall have the meaning ascribed to it in the Purchase Agreement.

First Convertible Note shall have the meaning ascribed to it in the Purchase Agreement.

GAAP shall mean U.S. generally accepted accounting principles.

IFRS shall have the meaning ascribed to it in Section 6.1(f) of this Agreement.

IFRS Review Opinion shall have the meaning ascribed to it in Section 6.4(a) of this Agreement.

Increlex License has the meaning ascribed to it in the Purchase Agreement.

Indebtedness shall have the meaning ascribed to it in the First Convertible Note.

Independent Director means a Director who is independent for purposes of the listing standards of the Nasdaq Global Market (or such other listing standards that may be applicable to the Company from time to time).

Indication Notice shall have the meaning ascribed to it in Section 5.1(b) of this Agreement.

Investor shall have the meaning set forth in the preamble.

Investor Directors means those Directors that the Investor is entitled to designate pursuant to Section 2 of this Agreement.

Investor Observer shall have the meaning ascribed to it in Section 2.5(a) of this Agreement.

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Investor’s Percentage Interest means the percentage of the Company’s actually issued and outstanding stock entitled to vote generally in any election of Directors, of which the ability to vote or control, directly or indirectly, by proxy or otherwise, is held in the aggregate by the Investor and its Affiliates, excluding in all cases shares of the Company’s capital stock issuable, but not actually issued, upon conversion or exercise of the Convertible Notes or the Warrant. Notwithstanding the foregoing, for the purpose of determining the Investor’s Percentage Interest, the shares of the Company’s capital stock subject to the Voting Agreements shall not in any event be deemed to constitute any portion of the Investor’s Percentage Interest.

Ipsen shall have the meaning set forth in the preamble.

Law shall have the meaning ascribed to it in the Purchase Agreement.

Management Director means a Director who is also an employee of the Company or any other Director designated as such by the Nominating Committee in accordance with Section 2.4 of this Agreement.

Milestone Payment shall have the meaning ascribed to it in the Somatuline Autogel License.

Net Indebtedness shall have the meaning ascribed to it in the First Convertible Note.

New Securities shall mean, collectively, any equity securities of the Company, whether now authorized or not, or rights, options, or warrants to purchase said equity securities, or securities of any type whatsoever that are, or may become, convertible into or exchangeable into or exercisable for said equity securities.

Nominating Committee means the current Corporate Governance and Nominating Committee of the Board, or such other nominating committee of the Board as described in Section 2.6 of this Agreement, which committee may be a standalone committee or part of a broader governance committee.

Non-Investor Director means a Director who is not an Investor Director.

Note Shares shall have the meaning ascribed to it in the Purchase Agreement.

Offer Notice shall have the meaning ascribed to in Section 5.1(a) of this Agreement.

Permitted Indebtedness shall have the meaning ascribed to it in the First Convertible Note.

Permitted Investments shall have the meaning ascribed to it in the First Convertible Note.

Permitted Offers and Acquisitions means any of (a) offers to acquire or acquisitions of securities, rights or options following which the Investor and its Affiliates beneficially

Page 4

own less than or equal to forty percent of the aggregate of (i) the then-outstanding Common Stock plus (ii) the then-unexercised Warrant Shares plus (iii) the then-unconverted Note Shares; provided that for purposes of this subclause (a), the Investor and its Affiliates (A) shall be deemed to beneficially own Note Shares under any unissued Convertible Notes if the Milestone Payment may still be achieved under the terms of the Somatuline Autogel License; (B) shall be deemed to be the beneficial owner only of the Baseline Amount of the Warrant Shares; and (C) shall not be deemed to beneficially own the shares of Company’s capital stock subject to the Voting Agreements; (b) offers to acquire or acquisitions following the offer to acquire, the acquisition or publication of intent or interest in acquiring beneficial ownership of more than 9.9 percent of the then-outstanding Common Stock by any Person or “group” (within the meaning of Section 13(d)(3) of the Exchange Act) that is not already the beneficial owner of more than 9.9 percent of the then-outstanding Common Stock if, and only if, (A) such acquisition by such Person or group would result in a distribution of Rights under the Rights Agreement or (B) so long as the provisions of Section 3 hereof remain in effect, the Rights Agreement shall have been amended, terminated, waived or modified without the consent of the Investor; (c) offers to acquire or acquisitions following the offer to acquire, the acquisition or publication of intent or interest in acquiring of shares of Common Stock by a Person or “group” (within the meaning of Section 13(d)(3) of the Exchange Act) currently beneficially owning more than 9.9 percent of the outstanding Common Stock that would increase the percentage of the outstanding Common Stock currently beneficially owned by such Person or group if, and only if, (A) such acquisition by such Person or group would result in a distribution of Rights under the Rights Agreement or (B) so long as the provisions of Section 3 hereof remain in effect, the Rights Agreement shall have been amended, terminated, waived or modified without the consent of the Investor; and (d) offers to acquire from all stockholders of the Company (though not necessarily all shares of all stockholders) or acquisitions conditioned upon or following such offers (A) initiated at least thirty but not more than 120 days following delivery of an Consultation Notice by the Investor to the Company, and (B) which follow a period of at least thirty days during which the Investor or an Affiliate of the Investor discusses with the Board in good faith the terms upon which it would propose to consummate such acquisition, and (C) in connection with which the Investor or an Affiliate of the Investor exercises the Warrant, or commits to exercise the Warrant prior to its expiration, for the unexercised Baseline Amount and converts or commits to convert any issued and outstanding Convertible Notes in full and commits to convert any unissued Convertible Notes prior to their maturity upon issuance in accordance with the terms of the Purchase Agreement and the Somatuline Autogel License (provided that such commitments to effect such exercise and conversion shall only become effective and irrevocable upon completion of the acquisitions by the Investor and its Affiliates of the Common Stock, as contemplated by subparagraph (D) of this subclause (d)), as applicable, and (D) which result in, either individually or in aggregate with other offers or acquisitions that are a condition to completion of the acquisition, the beneficial ownership by the Investor and its Affiliates of at least such number of shares of Common Stock that equals (i) such number of shares as would result in the Investor and Affiliates owning sixty percent of the then-outstanding Common

Page 5

Stock (such beneficial ownership to be calculated as if all of the Convertible Notes, whether issued as at the relevant date or not, have been issued and converted and the Warrant has been exercised in full for the maximum number of shares for which such Warrant can be exercised at the time of such measurement) minus (ii) the Dilution Amount; provided that, for purposes of this subclause (d), (i) in the event that the Investor and its Affiliates does not accept all shares tendered in a tender offer or other offer pursuant to this subclause (d), then the Investor or its Affiliates will purchase stock from all participating stockholders of the Company on a pro rata basis based on each stockholder’s ownership interest in the Company (it being understood that the Purchaser may enter into agreements that are not part of any such offer but that are conditioned upon such offer provided that purchases of shares pursuant thereto are pro rata based on the stockholder party’s ownership interest in the Company) and (ii) if following completion of such acquisitions by the Investor and its Affiliates, the Investor and its Affiliates gain control of the Board such that they have the power to direct or cause the direction of the management and policies of the Board, the Investor shall not, and shall cause that its Affiliates shall not, cause the Board to waive any commitments entered into by the Investor or any of the Investor’s Affiliates in accordance with subparagraph (C) of this subclause (d).

Permitted Transfer shall have the meaning ascribed to it in the First Convertible Note.

Person means any individual or any corporation, limited liability company, partnership, trust, association or other entity of any kind.

Purchase Agreement shall have the meaning set forth in the recitals.

Publicly Available Securities shall have the meaning ascribed to in Section 5.1(c) of this Agreement.

Regulated Purchase Period shall mean that period beginning upon the expiration of the Standstill Period and expiring on the fourth anniversary of such date.

Reporting Information shall have the meaning ascribed to it in Section 6.1 of this Agreement.

Rights shall have the meaning ascribed to it in the Rights Agreement.

Rights Agreement means that certain Rights Agreement, to be effective as of the First Closing Date, by and between the Company and Computershare Trust Company, N.A.

SEC means the United States Securities Exchange Commission.

Second Closing Date shall have the meaning ascribed to it in the Purchase Agreement.

Second Convertible Note shall have the meaning ascribed to it in the Purchase Agreement.

Page 6

Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

Series A Junior Participating Preferred means the Series A Junior Participating Preferred Stock, par value $0.001 per share, of the Company having the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions set forth in the Form of Certificate of Designation attached to the Rights Agreement as Exhibit A thereto.

Somatuline Autogel License has the meaning ascribed to it in the Purchase Agreement.

Standstill Period shall mean that period commencing on the First Closing (as defined in the Purchase Agreement) and expiring on the first anniversary of the date of the First Closing.

Subsidiary means any corporation or other organization, whether incorporated or unincorporated, of which (i) at least fifty percent (50%) of the securities (or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization) is directly or indirectly owned or controlled by the relevant Person or (ii) the relevant Person (or any other Subsidiary of the relevant Person) is a general partner.

Third Convertible Note shall have the meaning ascribed to it in the Purchase Agreement.

Transaction Documents shall have the meaning ascribed to it in the Purchase Agreement.

Triggering Sale means a sale or other transfer of Common Stock by the Investor or its Affiliates to non-Affiliates of the Investor which, aggregated with previous sales or other transfers of Common Stock by the Investor and its Affiliates to non-Affiliates of the Investor, exceeds five percent of the Company’s outstanding Common Stock as of the date of the most recent sale or other such transfer.

Voting Agreements shall have the meaning ascribed to in the Purchase Agreement.

Warrant shall have the meaning ascribed to in the Purchase Agreement.

Warrant Shares shall have the meaning ascribed to in the Purchase Agreement.

2. BOARD REPRESENTATION

2.1 Role of the Board

Subject to the provisions of this Agreement and the other Transaction Documents and the Company’s Certificate of Incorporation and Bylaws, the fundamental policies and strategic direction of the Company shall be determined by the Board as provided in this Section 2.

Page 7

2.2 Size of Board

At and after the First Closing, the Board shall be comprised of nine Directors. The number of such Directors may be increased only in accordance with Sections 2.4(e) and 3(m) of this Agreement.

2.3 Appointment of Initial Investor Directors

Immediately following the First Closing, the Board shall elect Jean-Luc Belingard and Christophe Jean as Directors, each of whom has been designated as an initial Investor Director by the Investor (unless either such individual is unable or unwilling to serve, in which case the Company shall elect a substitute nominated by the Investor).

2.4 Elections of Directors

(a) Except as otherwise provided herein, at all times from and after the First Closing, the slate of Directors nominated and recommended by the Company shall be nominated as follows (it being understood that such nomination shall include any nomination of any incumbent Director for reelection to the Board):

(i) the Nominating Committee shall recommend the nomination of no more than two Management Directors, one of which shall be the chief executive officer of the Company;

(ii) the Investor shall have the right to designate two Investor Directors, each of whom shall be recommended for nomination by the Nominating Committee, by giving notice of the identity of the Investor Directors to be recommended for nomination at least (A) 90 days prior to each annual meeting of stockholders at which Directors will stand for election or (B) 30 days prior to the date on which the Company sends a notice for any other meeting of its stockholders at which Persons have been nominated for election as Directors (the Company having given the Investor 30 days prior written notice of its intention to send such a notice), and upon the failure to deliver such notice in subclauses (A) or (B) above, the incumbent Investor Directors shall be recommended for nomination;

(iii) the Nominating Committee shall recommend for nomination the remaining Directors, each of whom (A) shall have an outstanding reputation for personal integrity and distinguished achievement in areas relevant to the Company (in applying the foregoing criteria the Nominating Committee shall be guided by the quality of the individuals currently serving as directors of the Company, the Investor and Ipsen) and (B) shall be an Independent Director; and

Page 8

(iv) the Board shall nominate for election each of the individuals so recommended for nomination by the Nominating Committee and recommend their election to stockholders of the Company.

(b) Notwithstanding anything in the foregoing Section 2.4(a) to the contrary, at any time that the Investor’s Percentage Interest is less than 15 percent but at least 10 percent, the Directors shall be nominated as set forth in paragraph (a) above except that the Investor shall have the right to designate for nomination only one Investor Director. So long as the Investor satisfies the ownership thresholds in this Section 2.4(b), the Company will in all instances nominate the Investor Directors that the Investor has, in accordance with this Section 2.4, designated for nomination and include the names of such nominees in the Company’s proxy statement for any meeting for the election of Directors (or any supplement thereto), together with such information about their nominations as the Investor reasonably requests and include such Persons on all ballots with equal prominence to other director nominees.

(c) Notwithstanding Sections 2.4(a) or 2.7 hereof, if at any time the Investor and its Affiliates beneficially own 60 percent or more of the then-outstanding Common Stock, (i) the Investor shall be entitled to nominate or recommend to the Company for nomination an unlimited number of further Directors (or if any then-applicable provisions of the DGCL, the Securities Act, the Exchange Act or the rules and regulations thereunder or of the SEC or the primary exchange upon which the Company is then-listed, or other applicable Law, prevent the nomination of such number of further Directors, up to such maximum lesser number of further Directors as are permitted by such provisions) at any meeting or action for the election of the Directors by notifying the Company in writing the names of such nominees, (ii) the Company agrees that following receipt of such notification it shall call, as soon as reasonably practicable and in accordance with the Company’s bylaws and certificate of incorporation, a special meeting of the stockholders of the Company for the purposes of electing such nominees as Directors and (iii) the Company shall include the names of all such nominees in the Company’s proxy statement for any such meeting (or any supplement thereto), together with such information about their nominations as the Investor reasonably requests and include such Persons on all ballots with equal prominence to other director nominees.

(d) The Investor and the Nominating Committee, respectively, shall have the right to designate any replacement for a Director designated for nomination or recommended for nomination by the Company in accordance with this Section 2.4 by the Investor or the Nominating Committee, respectively, upon the death, resignation, retirement, disqualification or removal from office for other cause of such Director. Such replacement for any Independent Director shall also be an Independent Director conforming to the standard set forth in clause (A) of Section 2.4(a)(iii) hereof. The Board shall elect each person so designated.

Page 9

(e) Without limiting the generality of Section 2.4(a) of this Agreement, in the event that at any time after the First Closing the number of Investor Directors on the Board differs from the number that the Investor has the right to designate pursuant to this Section 2.4, (i) if the number of Investor Directors exceeds such number, the Investor shall at the request of the Company promptly take all appropriate action to cause to resign that number of Investor Directors as is required to make the remaining number of such Investor Directors conform to this Section 2.4 or (ii) if the number of Investor Directors otherwise is less than such number, the Company shall take all necessary action to create sufficient vacancies on the Board to permit the Investor to designate the full number of Investor Directors which it is entitled (and wishes) to designate pursuant to this Section 2.4 (such action to include expanding the size of the Board, seeking the resignation or removal of Directors or, at the request of the Investor, calling a special meeting of the stockholders of the Company for the purpose of removing Directors to create such vacancies to the extent permitted by applicable law). Upon the creation of any vacancy pursuant to the preceding sentence, the Investor shall designate the person to fill such vacancy in accordance with this Section 2.4, and the Board shall elect each person so designated.

2.5 Board Observer Rights

(a) The Investor Directors shall have the right to invite one representative of the Investor or an Affiliate of the Investor, who is a member of Ipsen’s Executive Committee, to attend, but not vote, as an observer (the Investor Observer) at the open portion of each meeting of the Board, including telephonic meetings.

(b) Notwithstanding Section 2.5(a) of this Agreement, the Investor Observer may be excluded from access to any meetings of the Board or portion thereof if: (i) any Investor Director has excluded himself or herself due to a conflict of interest; or (ii) a majority of the Non-Investor Directors determines, in good faith, that such exclusion is reasonably necessary so as not to have a material adverse effect on the attorney client privilege between the Company and its counsel. The decision of the Non-Investor Directors with respect to the privileged or confidential nature of such information shall be final and binding.

(c) The Investor hereby agrees that it will not, and will instruct any Investor Observer to not, use (other than for purposes of managing its investment in, or commercial relationship with, the Company) or disclose any Confidential Information to any third party (other than the Investor’s Affiliates and the officers, directors and employees of the Investor and such Affiliates, who shall each be subject to confidentiality obligations to the Investor), other than Confidential Information that: (i) subsequent to its disclosure, becomes publicly available to the Investor, the Investor’s Affiliates or any Investor Observer without any violation of this Agreement by the Investor, the Investor’s Affiliates or any Investor Observer; (ii) becomes legally available to the Investor, the Investor’s Affiliates or any Investor Observer on a non-confidential basis from any third party, the disclosure of which

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does not violate any contractual or legal obligation such third party has to the Company with respect to such information; (iii) is independently acquired or developed by the Investor, the Investor’s Affiliates or any Investor Observer; (iv) is required to be disclosed by the Investor, the Investor’s Affiliates or any Investor Observer pursuant to law or by order of court of competent jurisdiction, pursuant to the requirements of a stock exchange, bank regulatory or other governmental or regulatory authority or to obtain tax or other clearances or consent of any relevant authority, provided that in the event of a court ordered disclosure or required disclosure by a stock exchange, the Investor will use its reasonable efforts to notify the Company within 15 days prior to such disclosure; or (v) information that is explicitly approved for release by prior written authorization of the Company. The Investor shall be responsible for any breach of this Section 2.5(c) by any of the Investor’s Affiliates or any of the officers, directors or employees of the Investor or such Affiliates.

2.6 Committees

(a) Subject to the general oversight and authority of the full Board, the Board shall establish, empower and maintain the committees of the Board contemplated by this Section 2.6.

(b) The following committees shall be established, empowered and maintained by the Board at all times during the term of this Agreement:

(i) an Audit Committee comprised of Independent Directors, each of whom shall satisfy the criteria for independence set forth in Rule 10A-3(b)(1) of the Exchange Act;

(ii) a Nominating Committee, responsible, among other things, for recommending the nomination of Directors in accordance with Section 2.4 of this Agreement;

(iii) a Strategic Planning Committee having a charter that includes the items set forth in Annex A hereto and comprised of one Management Director (who shall be the chief executive officer of the Company), each Investor Director and two Independent Directors (who shall be designated by a majority of the Independent Directors);

(iv) a Compensation Committee comprised of at least two Independent Directors, with responsibilities substantially similar to those of the current Compensation Committee of the Company; and

(v) such other committees as the Board deems necessary or desirable; provided that such committees are established in compliance with the terms of this Agreement.

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(c) An Investor Director shall be entitled to attend, as a non-voting participant, all meetings of the Compensation Committee and shall receive written notice of the time and place of all such meetings (such notice to be received at the same time as members of such committee receive notice of such meetings) and copies of all documents provided to the members of such committee at or in connection with such meetings.

(d) No action by any committee of the Board shall be valid unless taken at a meeting for which adequate notice has been duly given or waived by the members of such committee. Such notice shall include a description of the general nature of the business to be transacted at the meeting, and no other business may be transacted at such meeting unless all members of the committee are present and consent to the consideration of such other business. Any committee member unable to participate in person at any meeting shall be given the opportunity to participate by telephone. The Board or, to the extent so permitted under applicable Law, the remaining committee members shall designate an Investor Director, Independent Director or Management Director to replace any absent or disqualified Investor Director member, Independent Director member or Management Director member, respectively, of any committee. In the event that any Investor Director or Independent Director ceases to serve on any committee of the Board and, after a reasonable time, no successor to such Director is designated in accordance with the terms hereof to serve on such committee, the number of members of such committee may be reduced if such reduction does not (and no such reduction is intended to) result in a change of the relative authorities within such committee among the Investor Directors (taken as a group), the Independent Directors (taken as a group) and the Management Directors (taken as a group). Each of the committees established by the Board pursuant to this Section 2.6 shall establish such other rules and procedures for its operation and governance (consistent with the terms of this Agreement) as it shall see fit and may seek such consultation and advice as to matters within its purview as it shall require.

2.7 Independent Director Nominations

In the event that the Investor provides notice to the Company, such notice to be provided at least (i) 90 days prior to the first anniversary of the date on which the prior year’s annual meeting of the stockholders of the Company was held or (ii) 30 days prior to the date on which the Company sends a notice for any other meeting of its stockholders at which Persons have been nominated for election as Independent Directors (the Company having given the Investor 45 days prior written notice of its intention to send such a notice), that it seeks to recommend the nomination of Independent Directors at such upcoming meeting of the stockholders of the Company that have not been nominated for election by the Board, the Company shall include the names of such nominees in the Company’s proxy statement for such meeting (or any supplement thereto), together with such information about their nominations as the Investor reasonably requests and include such Persons on all ballots with equal prominence to other director nominees, on the following basis:

(a) until such time as Section 2.7(b) applies, one such nominee pursuant to notice received by the Company from the Investor after the Company’s 2007 annual meeting of its stockholders;

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(b) until such time as 2.7(c) applies, two such nominees pursuant to notice received by the Company from the Investor after the Company’s 2008 annual meeting of its stockholders; and

(c) four such nominees pursuant to notice received by the Company from the Investor after the Company’s 2009 annual meeting of its stockholders, such entitlement applying in relation to all annual meetings of the Company’s stockholders or other meetings of its stockholders at which Persons have been nominated for election as Independent Directors that are held after the Company’s 2009 annual meeting of its stockholders.

All nominees recommended by the Investor pursuant to this Section 2.7 hereof shall (i) in the reasonable opinion of the Investor acting in good faith, satisfy the requirements of Section 2.4(a)(iii)(A) hereof and (ii) not be an Affiliate, director, employee or officer of the Investor or a director, employee or officer of any of the Investor’s Affiliates. Nothing in this Section 2.7 shall prevent the Company from nominating additional Independent Directors. Except as set forth in Sections 2.4(a)(ii), 2.4(c) and 2.7 hereof, the Investor and Ipsen agree that neither they nor any of their Affiliates will nominate any further Persons for election as Directors at any time at which the Investor is entitled to recommend the nomination of Independent Directors pursuant to this Section 2.7.

2.8 Indemnification and D&O Insurance

(a) Subject to availability on reasonable terms and at a reasonable cost, for so long as any Investor Director remains on the Board, the Company shall maintain directors’ and officers’ liability insurance with an insurer which maintains a rating of not less than A- by Fitch or A.M. Best with at least the current level of coverage and, in addition, shall consult in good faith with the Investor with respect to (i) the renewal of existing policies and (ii) side A excess terms and conditions coverage in a minimum amount that is reasonably satisfactory to the Investor. Nothing herein shall restrict the Board from obtaining additional side A excess terms and conditions coverage.

(b) In the event that the Company or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any Person, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of the Company assume the obligations of the Company with respect to indemnification of members of the Board as in effect immediately prior to such transaction, whether in the Company’s Bylaws, Certificate of Incorporation, or elsewhere, as the case may be.

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(c) The Company shall indemnify the Investor Directors to the full extent allowed by law.

2.9 Duration of Obligations Relating to the Board

(a) The provisions of Section 2 of this Agreement (other than Section 2.7 for which the provisions in Section 2.9(b) shall apply) shall terminate upon the Investor’s Percentage Interest falling below ten percent; provided that, the provisions of Section 2.8 hereof shall continue until expiration of the longest relevant statute of limitations.

(b) The provisions of Section 2.7 of this Agreement shall terminate upon the Investor’s Percentage Interest falling below 15 percent.

(c) In the event of a Triggering Sale, the provisions of Section 2.7(c) hereof shall terminate and the number of Independent Director nominees that the Investor is entitled to recommend pursuant to Sections 2.7(a) and 2.7(b) hereof shall be amended so that such entitlement shall be for the lesser of (i) two such nominees and (ii) such number of nominees that the Investor is entitled to recommend at the time of the Triggering Sale.

2.10 Corporate Opportunities’ Waiver

(a) Except as Ipsen may otherwise agree in writing, neither Ipsen nor any of its Affiliates nor any of its or their respective directors, officers or employees shall be liable to the Company or the Company’s stockholders for breach of any fiduciary duty by reason of any activities of Ipsen or any of Ipsen’s Affiliates or of such Person’s participation therein. In the event that Ipsen or any of its Affiliates acquires knowledge of a potential transaction or matter that may be a corporate opportunity for both Ipsen (or any of its Affiliates) and the Company, Ipsen and its Affiliates shall have no duty to communicate or offer such corporate opportunity to the Company and shall not be liable to the Company or the Company’s stockholders for breach of any fiduciary duty as a stockholder of the Company or controlling person of a stockholder by reason of the fact that Ipsen or any of Ipsen’s Affiliates pursues or acquires such corporate opportunity for itself, directs such corporate opportunity to another Person or entity, or does not communicate information regarding, or offer, such corporate opportunity to the Company.

(b) In the event that a director, officer or employee of the Company who is also a director, officer or employee of Ipsen or any of Ipsen’s Affiliates acquires knowledge, other than solely as a result of his or her position as a director, officer or employee of the Company, of a potential transaction or matter that may be a corporate opportunity for the Company and Ipsen or any of Ipsen’s Affiliates (whether such potential transaction or matter is proposed by a third party or is conceived of by such director, officer or employee of the Company), such

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director, officer or employee shall be entitled to offer such corporate opportunity to the Company or to Ipsen or any of Ipsen’s Affiliates as such director, officer or employee deems appropriate under the circumstances in his sole discretion, and no such director, officer or employee shall be liable to the Company or the Company’s stockholders for breach of any fiduciary duty or duty of loyalty or failure to act in (or not opposed to) the best interests of the Company or the derivation of any improper personal benefit by reason of the fact that (i) such director, officer or employee offered such corporate opportunity to Ipsen or any of Ipsen’s Affiliates (rather than the Company) or did not communicate information regarding such corporate opportunity to the Company or (ii) Ipsen or any of Ipsen’s Affiliates pursues or acquires such corporate opportunity for itself or directs such corporate opportunity to another person or does not communicate information regarding such corporate opportunity to the Company. To the fullest extent permitted by Section 122(17) of the DGCL, the Company hereby renounces any interest or expectancy of the Company in, or in being offered an opportunity to participate in, (i) any such corporate opportunity, and (ii) any other potential transaction or matter that may be a corporate opportunity for the Company and Ipsen or any of Ipsen’s Affiliates of which Ipsen or any of Ipsen’s Affiliates acquire knowledge, except to the extent that a director, officer or employee of Ipsen or any of Ipsen’s Affiliates acquires such knowledge solely as a result of his or her position as a director, officer or employee of the Company.

(c) The foregoing provisions of this Section 2.10 shall expire on the date on which Ipsen and its Affiliates shall no longer be entitled to designate at least one nominee for director to the Board pursuant to the provisions of Section 2.4 hereof and no Person who is a Director or officer of the Company is also a director or officer of Ipsen or any of Ipsen’s Affiliates. Neither such expiration, nor the alteration, amendment, change or modification of any provision of this Section 2.10 inconsistent with any provision of this Section 2.10 shall eliminate or reduce the effect of this Section 2.10 in respect of any matter occurring, or any cause of action, suit or claim that, but for this Section 2.10, would accrue or arise, prior to such expiration, alteration, amendment, repeal or adoption.

(d) For the purposes of this Section 2.10 only, “Company” shall mean the Company and all corporations, partnerships, joint ventures, associations and other entities in which the Company beneficially owns (directly or indirectly) fifty percent or more of the outstanding voting stock, voting power or similar voting interests.

3. MATTERS REQUIRING INVESTOR APPROVAL

Unless the Investor shall otherwise consent in writing, the Company hereby covenants and agrees with the Investor that it will not (and will cause its Subsidiaries not to) until the earlier of (i) five years from the First Closing Date if at that time the Convertible Notes have not been converted in full; or (ii) the date of completion of a Triggering Sale (and absent the occurrence of the events in clauses (i) or (ii) of this Section 3, the obligations of the Company set forth in this Section 3 shall continue indefinitely):

(a) make, or permit any Subsidiary to make, any loan or advance to, or own any stock or other securities of, any Subsidiary or other corporation, partnership, or other entity unless it is wholly owned by the Company other than Permitted Investments;

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(b) adopt any plan or arrangement for the dissolution or liquidation of the Company;

(c) enter into any material transaction or contract unless the transaction or contract would reflect the execution of a board-approved budget and would not be reasonably anticipated to increase future budgets beyond current projections or, where no current projections have been formally prepared, beyond reasonably anticipated growth based on the Company’s recent operating performance;

(d) directly or indirectly acquire, sell, lease or otherwise dispose of any property or assets other than in its ordinary course of business; provided that the Company shall not in any event acquire, sell, lease or dispose of any property or assets with an aggregate value exceeding Five Million Dollars ($5,000,000) without the Investor’s written consent unless it is a Permitted Transfer;

(e) merge into or consolidate with any other Person other than with the Company;

(f) establish or approve an operating budget with anticipated research and development spending per calendar year in excess of the sum of (i) Twenty Five Million Dollars ($25,000,000) (with such research and development spending being determined on a GAAP basis) plus (ii) the amounts approved by the Joint Steering Committee established under the Somatuline Autogel License for spending related to the products of Ipsen or its Affiliates;

(g) enter into any transaction or agreement that would be reasonably likely to require an increase to research and development spending that would cause such spending to exceed the aggregate amount specified in Section 3(f) hereof;

(h) incur capital expenditures (on a GAAP basis) of more than Two Million Dollars ($2,000,000) in any given calendar year;

(i) make any investment, through the direct or indirect holding of securities or otherwise, other than Permitted Investments;

(j) incur any Indebtedness (including extensions, renewals or refinancings and drawdowns under existing facilities), other than (i) Indebtedness evidenced by the Convertible Notes, and (ii) Permitted Indebtedness; provided that, with respect to (ii), if following the incurrence of such Permitted Indebtedness, the total Indebtedness exceeds Two Million Five Hundred Thousand Dollars ($2,500,000) (excluding trade payables in the ordinary course of business that are not more than 90 days past due), then such Permitted Indebtedness shall not be permitted unless immediately prior and after giving effect to the incurrence of such

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Permitted Indebtedness, the Company’s ratio of Net Indebtedness to EBITDA shall not exceed 1 to 1;

(k) change the principal business of the Company, enter new lines of business (if such business or businesses are material to the Company or its Subsidiaries), or exit the current line of business of the Company; provided that the Company shall be permitted to make reasonable extensions, developments or expansions to the business of the Company;

(l) declare or pay any cash dividend on or redeem or repurchase any of its capital stock, directly or indirectly, other than acquisitions of Common Stock by the Company pursuant to agreements which permit the Company to repurchase such shares upon termination of services to the Company;

(m) except as required by any law, rule, regulation or listing standard to which the Company is subject or as contemplated by this Agreement, increase or decrease the authorized number of directors constituting the Board or any committee thereof;

(n) deregister the Common Stock under the Exchange Act;

(o) amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Company;

(p) enter into any transaction or agreement that would reasonably be determined, or is reasonably likely, to result in competition with any business (other than any businesses to which the Investor and its Affiliates devote de minimis resources) of the Investor or its Affiliates carried on anywhere in the world at the time that such transaction or agreement is entered into by the Company or any of its Subsidiaries;

(q) hire a new chief executive officer;

(r) change the Company’s fiscal year;

(s) adopt, implement, amend, redeem, waive or otherwise terminate or cause to come into effect or fail to apply any takeover defense measures, including without limitation any stockholder rights plan or similar plan or device, including the Rights Agreement, or any change of control provisions in contracts that would reasonably be expected to have a material impact on the Company’s operations, prospects or financial condition or the value of the holding of the Investor or the Investor’s Affiliates in the Company in the event that the Investor and its Affiliates were to increase their aggregate holdings in the Company; provided that notwithstanding the foregoing, the Investor hereby provides its consent to the execution and delivery of the Rights Agreement and the consummation of the transactions contemplated thereby;

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(t) support, recommend or endorse any offer by any Person or “group” (within the meaning of Section 13(d)(3) of the Exchange Act) to acquire either (i) the beneficial ownership of more than 9.9 percent of the then-outstanding Common Stock where such Person or group is not already the beneficial owner of more than 9.9 percent of the then-outstanding Common Stock or (ii) any shares of Common Stock where such Person or group currently beneficially owns more than 9.9 percent of the outstanding Common Stock and where such acquisition would increase the percentage of the outstanding Common Stock currently beneficially owned by such Person or group, unless (A) the Company has at least 30 days prior to such support, recommendation or endorsement being given by the Company, notified the Investor and Ipsen in writing of its intention to give such support, recommendation or endorsement and such notice shall set forth in reasonable detail the terms of such offer and any conditions upon which the Company shall give such support, recommendation or endorsement and (B) for the duration of such 30 day period the Board has used its reasonable best efforts to discuss and negotiate with Ipsen in good faith the terms of an alternative offer by Ipsen and/or its Affiliates;

(u) other than with respect to the Series A Junior Participating Preferred, create any additional class or series of shares of stock unless the same ranks junior to the Common Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Company and with respect to the payment of dividends and redemption rights, or increase the authorized number of shares of Common Stock or increase the authorized number of shares of any additional class or series of shares of stock unless the same ranks junior to the Common Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Company and with respect to the payment of dividends and redemption rights, or create or authorize any obligation or security convertible into shares of any class or series of stock, unless in favor of the Investor, unless the same ranks junior to the Common Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Company and with respect to the payment of dividends and redemption rights;

(v) issue, sell, pledge, grant, transfer or otherwise dispose of (or authorize the issuance, sale, pledge, grant, transfer or other disposition) in respect of (A) any shares of the Company’s capital stock or any other securities convertible into or exchangeable or exercisable for any shares of such capital stock (or derivative securities thereof), or (B) any options, warrants or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest (including, without limitation, any phantom interest) of the Company, other than:

(i) issues or sales of shares of the Company’s capital stock the proceeds of which will be used solely for general working capital and research and development purposes, provided that such issues or sales (A) are made only after the second anniversary of the Effective Date and (B) do not exceed in aggregate Twenty Five Million Dollars ($25,000,000) in cash

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(except in respect of New Securities issued pursuant to Section 5.1(d)(iii) in connection with strategic transactions involving the Company and other entities, in which case in value) in any three year period;

(ii) issues or sales of shares of the Company’s capital stock after January 1, 2007, the proceeds of which shall be reserved for potential repayment of the Convertible Notes, provided that such issues and sales are made, and the proceeds of which are maintained, in compliance with Section 5.2 of this Agreement;

(iii) issues or sales pursuant to options, warrants or other Common Stock grants or purchase rights issued or to be issued after the date hereof to employees or directors of the Company or any of its Subsidiaries or to consultants of the Company or any of its Subsidiaries (provided that such consultants are not granted options, warrants or other rights exercisable for more than, or Shares of Common Stock greater than, 75,000 shares of Common Stock in aggregate per year and the issuance of such options, warrants, other rights or shares to such consultants shall be for services and in amounts that are consistent with past issuances) pursuant to any plan, agreement, or arrangement approved by the Board; and

(iv) issues or sales pursuant to any rights or agreements, options, warrants or convertible securities outstanding as of the date of this Agreement; or

(w) grant to any party or issue any security the terms of which contain any preemptive right.

Notwithstanding the foregoing, in the event that any action set forth in this Section 3 is approved by the Board, including the affirmative vote of the Investor Directors, the Company shall as soon as reasonably practicable following such approval, provide the Investor with written notice of such approval and unless the Investor, within ten (10) Business Days after receipt of such notice, notifies the Company in writing that it does not consent to such action, the Investor’s written consent to such action shall be deemed to have been given.

4. CEO TERMINATION CONSULTATION

Prior to a termination or removal of the chief executive officer of the Company, the Company shall, for so long as the provisions of Section 3 are in effect, provide notice to the Investor of such proposed termination or removal and allow the Investor or an Affiliate of the Investor to send a representative to a meeting of the Board for consultation regarding the reasons for such proposed termination or removal.

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5. ISSUE OF NEW SECURITIES

5.1 Right of First Offer

Subject to the terms and conditions specified in this Section 5, and applicable securities laws, in the event the Company proposes to offer or sell any New Securities prior to the earlier of (i) five years from the First Closing Date if at that time the Convertible Notes have not been converted in full and (ii) the date of completion of a Triggering Sale (and absent the occurrence of the events in clauses (i) or (ii) above of this Section 5.1, the obligations of the Company and the rights of the Investor and the Investor’s Affiliates set forth in this Section 5 shall continue indefinitely), the Company shall first make an offering of such New Securities to the Investor in accordance with the following provisions of this Section 5. The Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its Affiliates in such proportions as it deems appropriate.

(a) The Company shall deliver a notice, in accordance with the provisions of Section 8.6 hereof, (the Offer Notice) to the Investor stating (i) its bona fide intention to offer such New Securities, (ii) the number of such New Securities to be offered and sold, and (iii) the price (or in the case of a proposed public offering the minimum and maximum price in a range not to exceed the greater of $2.00 or 20 percent of the closing price of the Common Stock on the trading day prior to the date of the Offer Notice (the Public Offer Price Range)) and terms, if any, upon which it proposes to offer such New Securities.

(b) By written notification received by the Company, within ten (10) calendar days after mailing of the Offer Notice, the Investor may elect to purchase or obtain, at the price and on the terms specified in the Offer Notice (or, in the case of a proposed public offering, at the public offering price), up to that portion of such New Securities which equals (1) the number of shares of Common Stock deemed issued and held by the Investor, which shall include all securities issuable to the Investor upon conversion of the Convertible Notes, exercise of the Warrant for the number of Warrant Shares for which the Warrant is then-exercisable, or otherwise exercisable or exchangeable for, shares of Common Stock) divided by (2) the total number of shares of Common Stock of the Company then outstanding (assuming full conversion and exercise of the Convertible Notes, the Warrant for the number of Warrant Shares for which the Warrant is then-exercisable and any other vested and in-the-money convertible or exercisable securities), multiplied by (3) the number of New Securities being issued; provided that in the case of a proposed public offering such written notice of the Investor (i) may specify an alternative price range to that of the Public Offer Price Range at which the Investor elects to purchase or obtain such portion of such New Securities so long as such alternative price range falls within the Public Offer Price Range, (ii) may specify varying amounts of such portion of such New Securities that the Investor elects to purchase at various prices that fall within the Public Offer Price Range or such alternative price range and (iii) shall constitute a non-binding indication of

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its intention to purchase such portion of such New Securities within the Public Offer Price Range or such alternative price range (an Indication Notice) and the Investor shall be under no obligation to provide any commitment regarding its Indication Notice until such time as all participants in the public offering irrevocably commit. For purposes of this Section 5.1(b), “in-the-money” shall mean that the exercise or conversion price per share of such convertible or exercisable securities exceeds the closing sale price of the Common Stock, as reported by Bloomberg L.P., on the date of the Offer Notice. In the case of a non-public offering, in no event shall an election by the Investor pursuant to this Section 5.1(b) to purchase or obtain up to such portion of such New Securities commit it to purchase more than its pro rata share (as determined above) of the New Securities sold without the Investor’s consent.

(c) The Company may, during the ninety (90) day period following the expiration of the period provided in Section 5.1(b) hereof, offer the remaining unsubscribed portion of such New Securities (or in the case of a proposed public offering the portion of such New Securities for which the Investor has not indicated an interest pursuant to Section 5.1(b) above) (collectively, the Publicly Available Securities) to any Person or Persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the Publicly Available Securities within such period, or if such agreement is not consummated within thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Publicly Available Securities shall not be offered unless first reoffered to the Investor in accordance with this Section 5.

(d) The right of first offer in this Section 5 shall not be applicable to (i) shares of Common Stock and/or options, warrants or other Common Stock purchase rights and the Common Stock issued pursuant to such options, warrants or other rights issued or to be issued after the date hereof to employees or directors of the Company, consultants of the Company or any of its Subsidiaries (provided that such consultants are not granted options, warrants or other rights exercisable for more than, or shares of Common Stock greater than, 75,000 shares of Common Stock in aggregate per year and the issuance of such options, warrants, other rights or shares to such consultants shall be for services and in amounts that are consistent with past issuances) pursuant to any plan, agreement, or arrangement approved by the Board; (ii) shares of Common Stock issued or issuable pursuant to any rights or agreements, options, warrants or convertible securities outstanding as of the date of this Agreement and stock issued pursuant to any such rights or agreements granted after the date of this Agreement, so long as the right of first offer established by this Section 5 was complied with, waived, or was inapplicable pursuant to any provision of this Section 5.1(d) with respect to the initial sale or grant by the Company of such rights or agreements; (iii) any New Securities issued in connection with strategic transactions involving the Company and other entities, including without limitation, joint venture, licensing,

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collaboration, manufacturing, development, marketing or distribution arrangements, if (A) the consideration to be paid therefor shall not consist solely of cash and (B) the Company and the Investor shall not, after a period of good faith negotiation, reasonably agree on the price to be paid by the Investor for such New Securities in the exercise of the Investor’s right of first offer hereunder; provided that any issuances pursuant to this subclause (iii) shall be without prejudice to any obligation of the Company to obtain the Investor’s consent for such issuances in accordance with Section 3(v) hereof; and (iv) any New Securities issued in connection with any stock split, stock dividend or recapitalization by the Company.

(e) The right of first offer set forth in this Section 5 may not be assigned or transferred except that such right is assignable by the Investor to any Affiliate of the Investor. To the extent that any New Securities are proposed to be issued in a public offering, the New Securities to be purchased by the Investor pursuant to Section 5.1(b) hereof shall be purchased in such public offering to the extent permissible under applicable securities laws or in a related private placement to the extent not so permissible.

5.2 Proceeds of Additional Securities Issued in Connection with the Repayment of the Convertible Notes

On each occasion that the Company issues or sells any shares of the Company’s capital stock pursuant to Section 3(v)(ii) hereof, the proceeds of such issue or sale shall be held in trust for the benefit of the Investor in a separate account, apart from all other funds of the Company, and shall only be released from such account (i) for the purposes of paying, upon demand of the Investor, amounts due and payable under the Convertible Notes in accordance with the terms thereof, (ii) following a Triggering Sale, in accordance with the provisions of Sections 8.1(c), (d), (e) and (f) of the Convertible Notes and (iii) to the Company following each conversion under a Convertible Note, such that following each conversion the amount remaining in such account shall be no less than the aggregate amount (if any) of principal and interest that remains unconverted under the Convertible Notes.

6. FINANCIAL REPORTING COVENANTS

6.1 Reporting Information

From the First Closing Date until the occurrence of a Triggering Sale (if any), the Company shall provide to the Investor within the deadlines specified in Section 6.4 below the following financial reporting information in relation to the Company, which together shall constitute the Reporting Information:

(a) the Company’s consolidated balance sheet;

(b) the Company’s consolidated income statement;

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(c) the Company’s consolidated cash flow statement;

(d) the Company’s statement of changes in stockholders’ equity;

(e) inter-company transactions and balances between the Company and any of its Subsidiaries, on the one hand, and Ipsen and its Affiliates, on the other hand;

(f) all relevant information relating to the Company’s accounting treatment of the Convertible Notes in the Company’s consolidated balance sheet and income statement;

(g) details of any restatements or presentation changes relating to the Company’s transition from GAAP to International Financial Reporting Standards (IFRS);

(h) a statement showing the transition between GAAP and IFRS for the Company’s consolidated balance sheet, consolidated income statement, consolidated cash flow statement and stockholders’ equity statement; and

(i) a statement setting out the then-current Variable Amount (as such term is defined in the Warrant), together with the calculations used by the Company to determine such Variable Amount and such other information and documentation as the Investor may reasonably request to verify such calculations, such statement and calculations to be provided on a quarterly basis.

6.2 Purchase Accounting

No later than 30 Business Days after the First Closing Date, the Company shall provide the Investor with detailed information on the valuation of its assets and liabilities, according to both GAAP and IFRS, as at the First Closing Date to enable the Investor and its Affiliates to perform its purchase accounting. No later than 10 Business Days after the end of each subsequent quarter, the Company shall provide the Investor with sufficient information regarding any material change to such valuations that have occurred as at the end of each such subsequent quarter end to enable the Investor and its Affiliates to book appropriate IFRS compliant adjustments to the fair value of such assets and liabilities.

6.3 Variable Amount Notification; Dilution Amount Notification

(a) No later than 10 Business Days after the end of each quarter, the Company shall provide the Investor with a statement setting out the Variable Amount (as such term is defined in the Warrant) as at such quarter end, together with the calculations used by the Company to determine such Variable Amount and such other information and documentation as the Investor may reasonably request to verify such calculations.

(b) No later than 5 Business Days after receipt of a written request by the Investor, the Company shall provide the Investor with a statement setting out the Dilution Amount as at the date of such request, together with the calculations used by the

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Company to determine such Dilution Amount and such other information and documentation as the Investor may reasonably request to verify such calculations.

6.4 Deadlines for Reporting Information

(a) All Reporting Information for the Company’s 2005 financial year and for the first quarter and the first half of 2006 shall be prepared by the Company in accordance with IFRS and provided to the Investor prior to November 15, 2006, together with an IFRS audit opinion from the Company’s auditors on the Company’s IFRS restated financial statements (an IFRS Audit Opinion) for the 2005 financial year and an IFRS review opinion from the Company’s auditors on the Company’s IFRS restated financial statements (an IFRS Review Opinion) for the first quarter and the first half of 2006.

(b) All Reporting Information for the Company’s third quarter of 2006 shall be shall be prepared by the Company in accordance with GAAP and provided to the Investor no later than 15 Business Days after September 30, 2006, and the Company’s Form 10-Q and an SAS 100 Review Report from the Company’s auditors on the GAAP financial statements in such Reporting Information shall be provided to the Investor no later than 30 Business Days after September 30, 2006. All Reporting Information for the Company’s third quarter of 2006 shall be prepared by the Company in accordance with IFRS and such Reporting Information and an IFRS Review Opinion for such financial period shall be provided to the Investor by March 31, 2007.

(c) All Reporting Information for the Company’s full year 2006 shall be prepared by the Company in accordance with IFRS and provided to the Investor no later than 20 Business Days after December 31, 2006 and an IFRS Audit Opinion for such financial period shall be provided to the Investor no later than 32 Business Days after December 31, 2006.

(d) All Reporting Information for the Company’s first quarter of 2007 shall be prepared by the Company in accordance with IFRS and provided to the Investor no later than 12 Business Days after March 31, 2007 and an IFRS Review Opinion for such financial period shall be provided to the Investor no later than 27 Business Days after March 31, 2007.

(e) All Reporting Information for the Company’s second quarter of 2007 shall be prepared by the Company in accordance with IFRS and provided to the Investor no later than 10 Business Days after June 30, 2007 and an IFRS Review Opinion for such financial period shall be provided to the Investor no later than 25 Business Days after June 30, 2007.

(f) All Reporting Information for the Company’s third quarter of 2007 shall be prepared by the Company in accordance with IFRS and provided to the Investor no later than 10 Business Days after September 30, 2007 and an IFRS Review Opinion for such financial period shall be provided to the Investor no later than 25 Business Days after September 30, 2007.

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(g) All Reporting Information for the Company’s full year 2007 shall be prepared by the Company in accordance with IFRS and provided to the Investor no later than 12 Business Days after December 31, 2007 and an IFRS Audit Opinion for such financial period shall be provided to the Investor no later than 27 Business Days after December 31, 2007.

(h) After December 31, 2007:

(i) all Reporting Information for the Company’s first quarter, half year and third quarter shall be prepared by the Company in accordance with IFRS and provided to the Investor no later than 10 Business Days after the end of such period and an IFRS Review Opinion for each such financial period shall be provided to the Investor no later than 25 Business Days after the end of such period; and

(ii) all Reporting Information for the Company’s full year shall be prepared by the Company in accordance with IFRS and provided to the Investor no later than 12 Business Days after the end of such period and an IFRS Audit Opinion for each such financial period shall be provided to the Investor no later than 25 Business Days after the end of such period.

7. COVENANTS OF THE INVESTOR

7.1 Lock-up Period

(a) Without the prior written consent of the Company, the Investor shall not, nor shall it permit any of its Affiliates to, directly or indirectly, offer, sell, contract to sell, pledge or otherwise dispose of (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise)), or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act with respect to, any shares of Common Stock or any securities convertible into, or exercisable or exchangeable for, such Common Stock, or publicly announce an intention to effect any such transaction, for the one-year period commencing on the date of the First Closing, other than (i) transfers to Affiliates of the Investor or (ii) the exercise or conversion of the Warrant or the Convertible Notes.

(b) Without the prior written consent of the Company, neither the Investor nor Ipsen shall, directly or indirectly, sell, transfer or dispose of any of the capital stock of any wholly-owned Subsidiary of Ipsen or the Investor that holds shares of Common Stock for the one-year period commencing on the date of the First

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Closing, other than sales or transfers to another wholly-owned Subsidiary of Ipsen or the Investor. This Section 7.1(b) shall not apply to such a sale, transfer or disposal the primary purpose of which is a bona fide sale, transfer or disposal of all or at least the part of Ipsen’s business that is reasonably related to the Somatuline Autogel License and Increlex License and not primarily the sale, transfer or disposal of the shares of Common Stock held by such Subsidiary, provided that the transferee in any such sale, transfer or disposal agrees to be bound by the terms of Section 7.1 hereof.

(c) Purported sales, transfers or dispositions of shares of Common Stock that are not in compliance with this Section 7.1 shall be void and shall be of no force or effect.

7.2 Restriction on Block Transfers

Without the prior written consent of the Company, the Investor shall not, nor shall it permit any of its Affiliates to, directly or indirectly, sell, transfer or dispose of any shares of Common Stock to any Person or Persons known to the Investor to be a “group” (within the meaning of Section 13(d)(3) of the Exchange Act) if, after giving effect to such sale, transfer or disposition, such Person or such group, as the case may be, would, to the Investor’s knowledge (and, in the case of a private sale, after inquiry), beneficially own more than 14.9 percent of the Company’s then-outstanding shares of Common Stock.

7.3 Compliance with Securities Laws

The Investor shall not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any shares of Common Stock to any Person pursuant to this Agreement except in compliance with the Securities Act, applicable state securities laws and the respective rules and regulations promulgated thereunder.

7.4 Compulsory Acquisition.

If at any time the Investor and/or its Affiliates beneficially own ninety percent or more of the then-outstanding Common Stock such that, upon all such Common Stock being held either by the Investor or an Affiliate of the Investor, the Investor or such Affiliate is entitled to effect a merger with the Company in accordance with the provisions of Section 253 of the Delaware General Corporation Law, the Investor shall, or shall cause such Affiliate to, effect such a merger with the Company.

7.5 The Standstill Period

During the Standstill Period, without the prior written consent of the Company, the Investor shall not, nor shall it permit any of its Affiliates to, nor shall Ipsen or any of its Affiliates agree, or advise, assist, encourage, propose (publicly or otherwise), provide information or provide financing to others, or permit its Affiliates to agree, or to advise, assist, encourage, propose (publicly or otherwise), provide information or provide

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financing to others, to, individually or collectively, directly or indirectly, acquire or offer to acquire or agree to acquire from any Person other than the Company, directly or indirectly, by purchase, by making, effecting, initiating or participating in any tender offer, exchange offer, merger, business combination, recapitalization, restructuring, liquidation, dissolution or extraordinary transaction involving the Company, through the acquisition of control of another Person, by depositing any shares of Common Stock into a voting trust or subjecting any shares of Common Stock to any arrangement or agreement with respect to the voting of such securities, by joining a partnership, limited partnership or other “group” (within the meaning of Section 13(d)(3) of the Exchange Act) or otherwise, beneficial ownership of any equity securities of the Company, or direct or indirect rights (including convertible securities) or options to acquire such beneficial ownership (or otherwise act in concert with respect to any such securities, rights or options with any Person that so acquires, offers to acquire or agrees to acquire); provided that no such acquisition, offer to acquire or agreement to acquire shall be deemed to occur solely due to (a) a stock split, reverse stock split, reclassification, reorganization or other transaction by the Company affecting any class of the outstanding capital stock of the Company generally or (b) a stock dividend or other pro rata distribution by the Company to holders of its outstanding capital stock.

7.6 The Regulated Purchase Period

During the Regulated Purchase Period, without the prior written consent of the Company, the Investor shall not, nor shall it permit any of its Affiliates to, nor shall Ipsen or any of its Affiliates agree, or advise, assist, encourage, propose (publicly or otherwise), provide information or provide financing to others, or permit its Affiliates to agree, or to advise, assist, encourage, propose (publicly or otherwise), provide information or provide financing to others, to, individually or collectively, directly or indirectly, acquire or offer to acquire or agree to acquire from any Person other than the Company, directly or indirectly, by purchase, by making, effecting, initiating or participating in any tender offer, exchange offer, merger, business combination, recapitalization, restructuring, liquidation, dissolution or extraordinary transaction involving the Company, through the acquisition of control of another Person, by depositing any shares of Common Stock into a voting trust or subjecting any shares of Common Stock to any arrangement or agreement with respect to the voting of such securities, by joining a partnership, limited partnership or other “group” (within the meaning of Section 13(d)(3) of the Exchange Act) or otherwise, beneficial ownership of any equity securities of the Company, or direct or indirect rights (including convertible securities) or options to acquire such beneficial ownership (or otherwise act in concert with respect to any such securities, rights or options with any Person that so acquires, offers to acquire or agrees to acquire) other than Permitted Offers and Acquisitions; provided that no such acquisition, offer to acquire or agreement to acquire shall be deemed to occur solely due to (a) a stock split, reverse stock split, reclassification, reorganization or other transaction by the Company affecting any class of the outstanding capital stock of the Company generally or (b) a stock dividend or other pro rata distribution by the Company to holders of its outstanding capital stock.

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8. MISCELLANEOUS

8.1 Effectiveness of Agreement.

This Agreement shall become effective upon the Effective Date.

8.2 Assignment

This Agreement and the rights and obligations hereunder shall not be assigned, delegated, or otherwise transferred (whether by operation of law, by contract, or otherwise) without the prior written consent of the other party hereto; provided that the Investor may, without obtaining the prior written consent of the Company, assign, delegate, or otherwise transfer its rights and obligations hereunder to any Affiliates of the Investor and following such assignment, such Affiliates shall be deemed to be an “Investor” for the purposes of this Agreement and any reference to Investor in this Agreement shall automatically be deemed to include a reference to such Affiliates (provided that in such case the Investor shall not be relieved of its obligations hereunder). The Company shall execute such acknowledgements of such assignments in such forms as the Investor may from time to time reasonably request. Any attempted assignment, delegation, or transfer in violation of this Section 8.2 shall be void and of no force or effect. Each of the Investor and any Affiliate of the Investor to whom rights and obligations hereunder have been assigned pursuant to this Section 8.2 hereby agrees and acknowledges that Ipsen is hereby appointed as its agent in connection with the exercise of its rights and remedies under this Agreement and Ipsen hereby accepts such appointment.

8.3 Governing Law

(a) This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of New York, without regard to its principles of conflicts of laws.

(b) Each party irrevocably submits to the exclusive jurisdiction of the New York Courts for the purposes of any proceeding arising out of or relating in any way whatsoever (whether in contract, tort or otherwise) to this Agreement only. Each party agrees to commence any such proceeding in the United States District Court for the Southern District of New York or if such proceeding may not be brought in such court for jurisdictional reasons, then in the Supreme Court of the State of New York, New York County. Each party further agrees that service of any process, summons, notice or document by registered or certified mail (or any substantially similar form of mail), postage paid, to such party’s respective address set forth in Section 8.6 shall be effective service of process with respect to any matters to which it has submitted to jurisdiction in this Section 8.3(b). Each party irrevocably and unconditionally waives any objection to the laying of venue of any such proceeding in any New York Court, and hereby and thereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such New York Court that any such proceeding brought in any such New York Court has been brought in an inconvenient forum, or should be dismissed or transferred on such basis.

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(c) EACH PARTY HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY PROCEEDING ARISING OUT OF OR RELATING IN ANY WAY WHATSOEVER (WHETHER IN CONTRACT, TORT OR OTHERWISE) TO THIS AGREEMENT ONLY.

8.4 Counterparts

This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

8.5 Titles and Subtitles

The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

8.6 Notices

(a) if to the Company, to:

Tercica, Inc.

2000 Sierra Point Parkway, Suite 400

Brisbane, California 94005

USA

Attention: General Counsel

Facsimile: (650) 624-4940

with a copy (which shall not constitute notice) to:

Cooley Godward LLP

Five Palo Alto Square

3000 El Camino Real

Palo Alto

California 94306

United States of America

Attention: Suzanne Sawochka Hooper

Facsimile: (650) 849-7400

or to such other person, at such other place or to such other facsimile number as the Company shall designate to the Investor and Ipsen in writing; and

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(b) if to the Investor or Ipsen, to:

Ipsen S.A

42, rue du Docteur Blanche

75016 Paris

France

Attention: General Counsel

Facsimile: + 331 44 96 11 88

with a copy (which shall not constitute notice) to:

Freshfields Bruckhaus Deringer LLP

520 Madison Avenue, 34^th Floor

New York, NY 10022

United States of America

Attention: Matthew Jacobson, Esq.

Facsimile: +1 212-277-4001

or to such other person, at such other place or to such other facsimile number as the Investor shall designate to the Company in writing. All notices, requests, consents and other communications hereunder shall be in writing and shall be delivered by facsimile (with receipt confirmed by telephone) or nationally recognized overnight express courier postage prepaid.

8.7 Costs of Enforcement

If any Party to this Agreement seeks to enforce its rights under this Agreement by legal proceedings, the non-prevailing Party shall pay all costs and expenses incurred by the prevailing Party, including, without limitation, all reasonable attorneys’ fees.

8.8 Amendments and Waivers

(a) Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investor and, in respect of Sections 2.7, 2.9, 2.10, 7 and 8 of this Agreement only, Ipsen. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.

(b) Neither the Investor nor Ipsen nor any Affiliate thereof shall seek to amend or waive the terms of this Agreement or the other Transaction Documents by seeking stockholder consent without prior approval of the then-current Board.

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8.9 Severability

The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.

8.10 Entire Agreement

This Agreement, together with the other Transaction Documents, constitutes the full and entire understanding and agreement between the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties are expressly cancelled. None of the rights of the Investor or Ipsen contained herein are or shall be contingent on anything not stated herein and in particular are not contingent on the approval by the stockholders of the Company of the Bylaw Amendments or the Certificate of Incorporation Amendments.

8.11 Delays or Omissions

No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

8.12 No Limitation on Stockholder Rights

Except as expressly provided herein, nothing in this Agreement shall in any way affect any stockholder’s ability to vote or act its shares of the Company’s capital stock (including without limitation nominating additional Directors or voting for different Directors, soliciting proxies or participating in solicitations).

8.13 Seeking Approval of Certificate of Incorporation Amendments and Bylaw Amendments

In the event that any of the Certificate of Incorporation Amendments or Bylaw Amendments have not been approved by the Company’s stockholders at the Company Stockholders’ Meeting, the Company shall, following the written request of the Investor, duly solicit, using all commercially reasonable efforts (including recommending to the Company’s stockholders that they give their approval), the approval of the Company’s

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stockholders for such Certificate of Incorporation Amendments and/or Bylaw Amendments at the Company’s next meeting of stockholders of the Company.

8.14 Specific Performance, Injunctive and Other Equitable Relief

Each Party acknowledges and agrees that the other Parties would be damaged irreparably in the event any provision of this Agreement is not performed in accordance with its specific terms or otherwise is breached, so that a Party shall be entitled to injunctive relief to prevent breaches of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in addition to any other remedy to which such Party may be entitled, at law or in equity. In particular, the Company acknowledges that in the event it breaches this Agreement, money damages would be inadequate and the Investor and Ipsen would have no adequate remedy at law, so that the Investor and Ipsen shall have the right, in addition to any other rights and remedies existing in their favor, to enforce their rights and the Company’s obligations hereunder not only by action for damages but also by action for specific performance, injunctive, and/or other equitable relief.

[SIGNATURES APPEAR ON FOLLOWING PAGE]

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

TERCICA, INC.
By:	/s/ John A. Scarlett, M.D.
	Name: John A. Scarlett, M.D.
	Title: CEO and President
SURAYPHARM
By:	/s/ Claire Giraut
	Name:
	Title:

For the purposes of Sections 2.7, 2.9, 2.10, 7 and 8 hereof only,

IPSEN, S.A.
By:	/s/ Claire Giraut
	Name:
	Title:

[Signature Page to Affiliation Agreement]

ANNEX A

THE STRATEGIC PLANNING COMMITTEE CHARTER

• The Strategic Planning Committee’s role is to:

• review all strategic issues affecting the Company with regard to research and development, industrial, manufacturing, commercial and financial matters, and alliances and partnerships of all types;

• review and recommend to the Board an annual three-year strategic plan;

• review the Company’s operating plans and allocation of resources and their relationship to the Company’s strategic plans and make recommendations relating thereto;

• review any major investment, asset sale, restructuring, alliance or partnership projects; and

• submit reports, proposals and recommendations of all issues falling within its scope of responsibility.

• The Strategic Planning Committee meets at least two times a year. Meetings are convened by the committee’s chairman.

• The Strategic Planning Committee may call upon the Company’s senior executives for assistance. It may request sight of any internal reports, documents and research drawn up by the Company and commission any external technical reports at the Company’s expense, subject to the usual confidentiality undertakings.

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (this Agreement), dated as of October 13, 2006, by and between Tercica, Inc., a Delaware corporation (the Company), Ipsen, S.A., a French société anonyme (Ipsen) and Suraypharm, a French société par actions simplifiée, a subsidiary of Ipsen (Suraypharm and, together with Ipsen and the Company, the Parties).

WHEREAS, Ipsen, Suraypharm and the Company have entered into certain investment documents including a Stock Purchase and Master Transaction Agreement, dated as of July 18, 2006 (the Purchase Agreement), and the Company has delivered, or agreed to deliver subject to specified conditions, the Warrant and the Convertible Notes (as those terms are defined in the Purchase Agreement);

WHEREAS, the Parties desire to enter into this Agreement in order to, among other things, set forth the rights of the Investors (as defined below) to cause the Company to register the Registrable Securities (as defined below) with the U.S. Securities and Exchange Commission (the SEC) for resale pursuant to the U.S. Securities Act of 1933, as amended (the Securities Act); and

WHEREAS, the execution and delivery of this Agreement is a condition to the Parties’ obligations to close the transactions contemplated by the Purchase Agreement.

NOW, THEREFORE, in consideration of the mutual promises, agreements and covenants set forth herein, the Parties hereby agree as follows:

Section 1. Definitions and Interpretation.

(a) Each of the following terms, when used in this Agreement, shall have the meaning set forth below:

Affiliate means, with respect to any Person, any Person that (directly or indirectly) controls, is controlled by or is under common control with such Person (and, for the purposes hereof, the term control means the power to direct the management and policies of such Person (directly or indirectly), whether through ownership of securities, by contract or otherwise (and the terms controlling and controlled have the meanings correlative to the foregoing)).

Affiliation Agreement has the meaning set forth in the Purchase Agreement.

Agreement has the meaning set forth in the preamble.

Business Day means in respect of determining a date related to registration contemplated hereunder, any day on which the principal offices of the SEC in Washington, D.C. are open to accept filings, and, in all other cases, any day on which banks are not required or authorized by applicable law to close in the City of New York.

Company has the meaning set forth in the preamble.

Company Indemnified Person has the meaning set forth in Section 5(b).

Company Common Stock means the common stock, par value $0.001 per share, of the Company.

Effectiveness Deadline has the meaning set forth in Section 2(a).

Exchange Act means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

Filing Deadline has the meaning set forth in Section 2(a).

Holder means any person owning of record Registrable Securities.

Holder Indemnified Persons has the meaning set forth in Section 5(a).

Indemnified Party has the meaning set forth in Section 5(c).

Indemnifying Party has the meaning set forth in Section 5(c).

Initiating Holders has the meaning set forth in Section 2(a).

Ipsen has the meaning set forth in the preamble.

Investors shall mean Ipsen, Suraypharm and each Affiliate thereof.

IRA means that certain Amended and Restated Investors’ Rights Agreement, dated as of July 9, 2003, as amended, by and among the Company and certain of its stockholders.

IRA Registrable Securities has the meaning ascribed to the term “Registrable Securities” under the IRA.

Kingsbridge Registration means any registration pursuant to that certain Registration Rights Agreement, dated as of October 14, 2005, by and between the Company and Kingsbridge Capital Limited.

Material Event has the meaning set forth in Section 4(a)(xi).

Most Recent SEC Report has the meaning set forth in Section 2(d).

Non-Organized Sales means sales that are not Organized Sales.

Non-Organized Sale Limit has the meaning set forth in Section 2(c).

Non-Registration Period means the one-year period beginning on the second anniversary of the effectiveness of the first registration by the Company pursuant to Section 2; provided, however, that the beginning of such period shall be extended by such number of days as (i) pursuant to Section 2(a)(v), the Company is not obligated to effect a registration as a result of a public offering commenced within 90 days prior to the second anniversary of the effectiveness of such first registration (as extended by clauses (i) and (ii) of this paragraph), and (ii) if such first registration is a Shelf Registration Statement, the ability of the Initiating Holders thereof to sell

Page 2

shares thereunder is suspended pursuant to Section 4(a)(xi) prior to the second anniversary of the effectiveness of such first registration (as extended by clauses (i) and (ii) of this paragraph).

Note Shares means the shares of Company Common Stock issued upon conversion of the Convertible Notes (as such term is defined in the Purchase Agreement).

Organized Sales means any of the following: (i) any underwritten offering with a minimum aggregate offering price, net of underwriting discounts and commissions, of at least $10 million; (ii) any offering of Registrable Securities in connection with which the holders of Registrable Securities utilize a placement agent or agents with a minimum anticipated aggregate offering price, net of placement agent fees and commissions, of at least $10 million; and (iii) sales to a single purchaser or group of purchasers in a single transaction or series of related transactions with a minimum aggregate offering price of at least $5 million.

Person means any natural person, corporation, general partnership, limited partnership, limited liability company, proprietorship, other business organization, trust, union, association or governmental entity.

Purchase Agreement has the meaning set forth in the recitals to this Agreement.

register (and registered and registration) means a registration effected by preparing and filing a registration statement in compliance with the Securities Act with the SEC, and the declaration or ordering of the effectiveness by the SEC of, or automatic effectiveness of, such registration statement.

Registrable Securities means (i) the Shares, the Note Shares and the Warrant Shares, and (ii) all shares of Company Common Stock related to the Shares, the Note Shares and the Warrant Shares issued in connection with any exchange, conversion, stock split, stock dividend, distribution, recapitalization or similar event of the Company; provided, however, that Registrable Securities shall not include any of the above shares (i) sold by a person to the public either pursuant to a Registration Statement or Rule 144 under the Securities Act, (ii) sold to any person in a private transaction in which the right the cause the Company to register Registrable Securities is not assigned pursuant to Section 6, and (iii) held by a Holder during any such period that all Registrable Securities held by such Holder could be sold without restriction under Rule 144 under the Securities Act during the following ninety day period.

Registration Statement means a registration statement under the Securities Act covering the registration of all or any portion of the Registrable Securities.

Rights Holder Registration means any registration pursuant to Sections 2.5 or 2.7 of the IRA.

SEC has the meaning set forth in the recitals.

Securities Act has the meaning set forth in the recitals.

Shares means the shares of Company Common Stock issued pursuant to the Purchase Agreement.

Shelf Registration Statement has the meaning set forth in Section 2(a).

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Suspension Notice has the meaning set forth in Section 4(a)(xi).

Unrelated Registration Statement means (i) a Kingsbridge Registration; (ii) a Rights Holder Registration; (iii) any registration (A) relating to an employee benefit plan (as defined in Rule 405 under the Securities Act), or (B) relating to the issuance and sale of, or the resale of, securities issued in a transaction pursuant to Rule 145 under the Securities Act, or (iv) on any form that does not include substantially the same information as would be required to be included in a Registration Statement covering the sale of the Registrable Securities.

VLL Agreement means that certain Common Stock Agreement, dated as of January 21, 2005, as amended, by and between the Company and Venture Lending & Leasing IV, LLC.

VLL Registrable Securities has the meaning ascribed to the term “Registrable Securities” under the VLL Agreement.

Warrant Shares means the shares of Company Common Stock issued upon exercise of the Warrant (as such term is defined in the Purchase Agreement).

Withdrawn Registration has the meaning set forth in Section 2(d).

(a) Any capitalized term used in this Agreement without definition shall have the meaning assigned thereto in the Purchase Agreement.

(b) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.

(c) Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.

(d) The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation.”

(e) The word “will” shall be construed to have the same meaning and effect as the word “shall.”

(f) Any definition of or reference to any contract, document, instrument or other record herein shall be construed as referring to such contract, document, instrument or other record as from time to time amended, supplemented, restated or otherwise modified.

(g) Any reference herein to any Person shall be construed to include such Person’s successors and permitted assigns.

(h) The words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof.

(i) Unless the context otherwise requires, all references herein to Sections shall be construed to refer to Sections of this Agreement; all references herein to the preamble and recitals shall be construed to refer to the preamble and recitals to this Agreement.

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(j) The headings and captions used in this Agreement are for convenience of reference only and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

Section 2. Demand Registration Rights.

(a) The Company hereby covenants and agrees that if the Company shall receive, at any time after the one year anniversary of this Agreement, a written request from a Holder or Holders (the Initiating Holders) that the Company file a registration statement under the Securities Act covering the registration of all or any portion of Registrable Securities then held by the Initiating Holders (a Registration Statement) and the anticipated gross aggregate offering price (based on the Company’s then-current share price) is reasonably expected to exceed $10 million (or if less constitutes all of the remaining Registrable Securities), then the Company shall as soon as reasonably practicable, and in any event within 60 calendar days of the receipt of such request (the Filing Deadline), file a Registration Statement under the Securities Act covering all Registrable Securities which the Initiating Holders have requested to be registered and cause such Registration Statement to be declared effective by the SEC as soon as reasonably practicable, but in no event later than 90 calendar days of the receipt of such request (the Effectiveness Deadline); provided that in the event that the Company is informed by the SEC that the SEC will review such Registration Statement, the Effectiveness Deadline shall be extended by 60 calendar days from the date otherwise calculable hereunder). At the request of the Initiating Holders, such Registration Statement may be for an offering to be made on a delayed or continuous basis pursuant to Rule 415 under the Securities Act (a Shelf Registration Statement).

Notwithstanding this Section 2(a), the Company shall not be obligated to effect any registration pursuant to this Section 2(a): (i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, unless the Company is already subject to service in such jurisdiction and except as may be required under the Securities Act, (ii) if the request for registration occurs during the Non-Registration Period, (iii) during the period starting with the filing of, and ending on the date 180 calendar days following the date any registration requested hereunder was initially declared or automatically became effective, (iv) following the Non-Registration Period, during the period starting with the filing of, and ending on the date 180 calendar days following the final date upon which a Shelf Registration Statement was effective, or (v) during the 90 calendar day period following the closing date of a public offering by the Company. Without the consent of the Initiating Holders, the Company shall not include securities other than Registrable Securities to be sold by the Initiating Holders in any registration effected pursuant to this Section 2(a).

(b) The Company shall keep any Registration Statement filed pursuant to Section 2(a) continuously effective, supplemented and amended to the extent necessary to ensure that it is available for sales of Registrable Securities requested to be registered by the Initiating Holders, and to ensure that it conforms with the requirements of this Agreement, the Securities Act and the policies, rules and regulations of the SEC as in effect from time to time, (i) if such Registration Statement is not a Shelf Registration Statement, for a period of up to 90 days or, if earlier, until the date on which all Registrable Securities covered by such Registration Statement have been sold pursuant thereto, and (ii) if such Registration Statement is a Shelf Registration Statement, until the date on which all Registrable Securities covered by such Registration Statement have been sold pursuant thereto. Notwithstanding the foregoing, the Company shall not be required to keep any Registration Statement effective during (x) the Non-Registration Period or (y) following the Non-Registration Period, for a period exceeding six months.

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(c) As a condition to the filing of any Registration Statement filed pursuant to this Section 2, the Investors agree that so long as they collectively have beneficial ownership of ten percent or more of the outstanding Company Common Stock, the Investors will not sell shares registered pursuant to this Agreement other than through Organized Sales; provided, however, that the Investors may sell such shares through Non-Organized Sales for so long as the total number of shares sold by the Investors in all Non-Organized Sales does not exceed an aggregate of fifteen percent (15%) of the Company’s outstanding Common Stock (as measured at the time of the most recent sale) (the Non-Organized Sale Limit). Notwithstanding the foregoing, in the event that (i) the placement agent or underwriter of an Organized Sale requests reasonable lock-up agreements from stockholders of the Company other than the Investors in a manner consistent with industry practice, (ii) such other stockholders do not agree to the lock-up requested in a manner consistent with industry practice, and (iii) such Organized Sale is aborted by the Investors or the requesting underwriter or placement agent in connection with clause (ii), then the Non-Organized Sale Limit shall be increased by the number of Registrable Securities proposed to be included in such Organized Sale.

(d) The Initiating Holders shall have the right (in their sole discretion) to terminate or withdraw any registration (a Withdrawn Registration) under this Section 2 prior to the effectiveness of such registration whether or not the Company or any other Person has included securities therein, in which case the Company will no longer be required to proceed with such registration; such withdrawn registration shall not count as a registration for purposes of this Section 2 and the Initiating Holders, not the Company, shall bear any and all expenses of any registration begun under this Section 2 (including expenses of the Company) the request of which has been withdrawn by the Initiating Holders, unless (i) there is a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations of the Company and its subsidiaries, taken as a whole, after the filing date of the most recent annual report or, if later, the most recent quarterly report, of the Company filed with the SEC on a Form 10-K or Form 10-Q, as the case may be, filed prior to the making of the relevant request for registration under Section 2(a) and prior to the making of the relevant request for registration under Section 2(a) (the Most Recent SEC Report) or (ii) the Most Recent SEC Report includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. If the Initiating Holders are required to bear such expenses, such expenses shall be borne by the Initiating Holders in proportion to the number of Registrable Securities for which registration was requested.

Section 3.

(a) Piggyback Rights. If at any time after the one year anniversary of this Agreement the Company proposes to register (whether in a primary offering pursuant to which the Company is selling securities or in a registration effected by the Company for its stockholders other than the Holders) any of its stock or other securities under the Securities Act in connection with the public offering of such securities (other than an Unrelated Registration Statement), and at such time there is not an effective Registration Statement covering all of the Registrable Securities then held by the Holders, the Company shall, at such time, promptly give the Holders written notice of such registration. Upon the written request of the Holders given within twenty (20) calendar days after mailing of such notice by the Company, the Company shall cause to be registered under the Securities Act all of the Registrable Securities that the Holders have requested to be registered; provided that if the total number of securities, including Registrable Securities requested to be

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included by the Holders in such offering, exceeds the amount of securities to be sold that the underwriters determine in their reasonable discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that amount of securities, including Registrable Securities, which the underwriters determine will not jeopardize the success of the offering; provided that the number of Registrable Securities, IRA Registrable Securities and VLL Registrable Securities to be included in such offering shall in no event be less than twenty-five percent of the total offering. The Holders, the holders of IRA Registrable Securities and the holders of VLL Registrable Securities shall share such portion of the Company’s offering allocated to selling stockholders on a pro rata basis based upon their relative ownership of the Company’s outstanding stock carrying piggyback registration rights.

(b) If the Company intends to distribute the shares registered pursuant to this Section 3 by means of an underwriting, a Holder’s right to include its Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and such Holder entering into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting, it being agreed and understood that no such underwriting agreement shall require a Holder to (i) provide representations and warranties other than in respect of the Holder’s organizational matters and its authority to enter into such underwriting agreements (and related agreements such as a custody agreement and a power of attorney), title to the shares of Company Common Stock to be sold by such Holder and information provided by such Holder for use in the Registration Statement or (ii) provide indemnification or contribution to any Person other than on the terms set forth in Section 5 below.

(c) Notwithstanding Section 9(a), for so long as the total number of IRA Registrable Securities exceeds ten percent of the outstanding Company Common Stock, the provisions of Section 3(a) may be amended or waived (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely), with and only with the written consent of (i) the Company, (ii) the Holders of a majority-in-interest of the Registrable Securities then held by the Holders if at the time of such amendment or waiver, the total number of Registrable Securities exceeds ten percent of the outstanding Company Common Stock, and (iii) the holders of a majority-in-interest of the then-outstanding IRA Registrable Securities (not including the “Founder Shares” as such term is defined in the IRA); provided, however, that if at the time of such amendment or waiver the total number of Registrable Securities is less than ten percent of the outstanding Company Common Stock and the written consent of the Holders of a majority-in-interest of the Registrable Securities then held by the Holders is not required to give effect to such amendment or waiver by operation of subclause (ii) of this Section 3(c), and such waiver or amendment materially and adversely affects the rights of the Holders of Registrable Securities and does not materially and adversely affect the rights of the holders of IRA Registrable Securities in the same manner, then such waiver or amendment shall require the consent of the Holders of a majority-in-interest of the Registrable Securities then held by the Holders.

Section 4. Obligations of the Company; Expenses; Procedures Relating to Registration.

(a) Whenever required under this Agreement to effect the registration of any Registrable Securities, the Company shall:

(i) Prepare and file with the SEC a Registration Statement with respect to such Registrable Securities, cause such Registration Statement to become effective, and if

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such registration statement is a demand registration statement pursuant to Section 2 keep such registration statement effective in accordance with Section 2(b);

(ii) Subject to Section 4(a)(xi), prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such Registration Statement during the applicable effectiveness period;

(iii) As promptly as possible, furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as the Holders may reasonably request in order to facilitate the disposition of Registrable Securities owned by it;

(iv) As promptly as possible, register and qualify the securities covered by such Registration Statement under such other securities or Blue Sky laws of such jurisdictions as shall be necessary to effect the sale by the Holders of such securities; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless (A) the Company is already subject to service in such jurisdiction or (B) required by the Securities Act;

(v) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering (subject to the Holders having also entered into and performed its obligations under such an agreement);

(vi) As promptly as possible, cause all such Registrable Securities so registered to be listed on the national securities exchange or automated quotation service on which the Company Common Stock is then listed;

(vii) Enter into all such arrangements with the transfer agent and registrar of the Company Common Stock as may be required in connection with the offer and sale of the Registrable Securities so registered and ensure that the CUSIP number for such Registrable Securities is the same as the CUSIP number for the Company Common Stock;

(viii) In the event of any underwritten public offering, cause to be furnished, on the date on which such Registrable Securities are sold to the underwriter: (i) an opinion, dated such date and addressed to the underwriters, of counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and (ii) a comfort letter, dated such date and addressed to the underwriters, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering;

(ix) Shall not cause any other registration of Company Common Stock (or securities convertible into, or exchangeable or exercisable for, Company Common

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Stock), whether for its own account or for the account of any other Person (other than an Unrelated Registration Statement) to become effective within 90 calendar days following the completion of any Organized Sale (or such shorter period as required by the managing underwriter or placement agent);

(x) Provide the Holders, any participating underwriter and any attorney, accountant or other agent retained by the Holders or such underwriter, reasonable access, during normal business hours and upon prior notification, to appropriate officers of the Company and the Company’s subsidiaries to ask questions and to obtain information reasonably requested by any such Person and make available for inspection all financial and other records and other information, pertinent corporate documents and properties of any of the Company and its subsidiaries and affiliates as may be reasonably necessary to enable them to undertake customary due diligence; provided, however, that such Persons shall, at the Company’s request, first agree in writing with the Company that any information that is reasonably and in good faith designated by the Company as confidential at the time of delivery of such information shall be kept confidential by such Persons and shall be used solely for the purposes of exercising rights under this Agreement, unless (A) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of governmental or regulatory authorities, (B) disclosure of such information is required by law (including any disclosure requirements pursuant to federal securities laws in connection with the filing of any Registration Statement or the use of any prospectus referred to in this Agreement) or necessary to defend or prosecute a claim brought against or by any such Persons (e.g., to establish a “due diligence” defense), (C) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard by any such Person, or (D) such information becomes available to any such Person from a source other than the Company and such source is not known to be bound by a confidentiality agreement; and

(xi) In the event of: (A) the issuance by the SEC of a stop order suspending the effectiveness of a Registration Statement or the initiation of proceedings with respect to a Registration Statement under Section 8(d) or 8(e) of the Securities Act, (B) the occurrence of any event or the existence of any fact (a Material Event) as a result of which any Registration Statement shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or any related prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (C) the occurrence or existence of any pending corporate development that, in the reasonable discretion of the Company’s Board of Directors, would cause the failure to suspend the availability of a Registration Statement and related prospectus to be seriously detrimental to the Company and its stockholders:

(1) in the case of clause (B) above, subject to the next sentence, as promptly as practicable prepare and file, if necessary pursuant to applicable law, a post-effective amendment to such Registration Statement or a supplement to the related prospectus or any document incorporated therein by reference or file any other required document that would be incorporated by reference into such Registration Statement and related prospectus so that such Registration Statement

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does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and such prospectus does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, and, in the case of a post-effective amendment to a Registration Statement, subject to the next sentence, use all commercially reasonable efforts to cause it to be declared effective as promptly as is practicable, and

(2) give notice to the Holders that the availability of such Registration Statement is suspended (a Suspension Notice) and, upon receipt of any Suspension Notice, the Holders agree not to sell any Registrable Securities pursuant to such Registration Statement until the Holders’ receipt of copies of the supplemented or amended prospectus provided for in clause (1) above, or until it is advised in writing by the Company that such prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such prospectus, or until the maximum number of applicable days set forth in clauses (B) or (C) in the following paragraph have passed.

The Company will use all commercially reasonable efforts to ensure that the use of the prospectus may be resumed (x) in the case of clause (A) above, as promptly as is practicable, (y) in the case of clause (B) above, as soon as, in the sole judgment of the Company, public disclosure of such Material Event would not be prejudicial to or contrary to the interests of the Company or, if necessary to avoid unreasonable burden or expense, as soon as practicable thereafter (but in no event for more than the lesser of 10 calendar days and the number of days which, aggregated with all other suspensions under clauses (B) and (C) above would result in the total number of suspended days in any twelve month period to exceed thirty (30) days) and (z) in the case of clause (C) above, as soon as in the reasonable discretion of the Company, such suspension is no longer necessary to avoid serious detriment to the Company and its stockholders (but in no event for more than the lesser of 10 calendar days and the number of days which, aggregated with all other suspensions under clauses (B) and (C) above would result in the total number of suspended days in any twelve month period to exceed thirty (30) days).

(b) In connection with any registration hereunder, the Holders shall furnish to the Company or to the managing underwriters of an offering, if any, such information regarding itself, the Registrable Securities held by it and the intended method of disposition of such securities as shall be reasonably required to effect the registration of Registrable Securities.

(c) Except as provided in Section 2(d), all expenses incurred in effecting any registration pursuant to this Agreement (including all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, and expenses of any regular or special audits incident to or required by any such registration) shall be borne by the Company. All underwriting discounts, fees and disbursements of counsel for the Holders, brokers or other selling commissions and stock transfer taxes applicable to the sale of Registrable Securities shall be borne by the Holders.

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(d) With a view to making available to the Holders the benefits of Rule 144 under the Securities Act and any other rule or regulation of the SEC that may at any time permit the Holders to sell securities of the Company to the public without registration or pursuant to a Form S-3 Registration Statement, the Company agrees to: (i) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times that the Company is subject to the periodic reporting requirements under Sections 13 or 15(d) of the Exchange Act, (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act and (iii) furnish to the Holders, forthwith upon request: (A) a written statement by the Company that it has complied with the reporting requirements of the Securities Act and the Exchange Act at all times after it has become subject to such reporting requirements, or that it qualifies as a registrant whose securities may be resold pursuant to a Form S-3 Registration Statement at any time after it so qualifies, (B) a copy of the most recent annual or quarterly report of the Company and such other statements, reports and other documents filed by the Company with the SEC, and (C) such other information as may be reasonably requested in availing the Holders of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to a Form S-3 Registration Statement.

(e) From the date hereof until termination of this Agreement: (i) the Company shall continue to use all commercially reasonable efforts to qualify for registration on Form S-3 Registration Statements for secondary sales and (ii) the Company shall not take any action designed to materially impair or otherwise adversely affect the rights of the Holders hereunder.

Section 5. Indemnification and Contribution. In the event any Registrable Securities are included in a Registration Statement contemplated by this Agreement:

(a) To the extent permitted by applicable law, the Company will indemnify and hold harmless the Holders, each of its officers, directors and partners, legal counsel, and accountants and each Person controlling the Holders within the meaning of Section 15 of the Securities Act, with respect to which registration has been effected pursuant to this Agreement, and each underwriter, if any, and each of its officers, directors, and each Person who controls, within the meaning of Section 15 of the Securities Act, any underwriter (the Persons referred to herein, the Holder Indemnified Persons), against all expenses, claims, losses, damages, and liabilities (or actions, proceedings, or settlements in respect thereof) arising out of or based on: (i) any untrue statement (or alleged untrue statement) of a material fact contained or incorporated by reference in any Registration Statement, or amendment thereto, or in any preliminary prospectus, final prospectus, “issuer free writing prospectus” (as defined in Rule 433 of the Securities Act), offering circular, or other document (including any related registration statement, notification, or similar document) incident to any such registration, (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of any in any preliminary prospectus, final prospectus or issuer free writing prospectus, or in any amendment or supplement thereto, in light of the circumstances under which they were made) not misleading, or (iii) any violation (or alleged violation) by the Company of applicable law (including the Securities Act, any state securities laws or any rule or regulation thereunder) applicable to the Company and relating to action or inaction required of the Company in connection with any offering covered by such registration, and the Company will reimburse each Holder Indemnified Person for any legal and any other expenses (including expenses of enforcement of obligations hereunder) incurred in connection with investigating and defending or settling any such claim, loss, damage, liability, or action; provided that the Company will not be

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liable in any such case to the extent that any such claim, loss, damage, liability, or action arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by a Holder, any of such Holder’s officers, directors, partners, legal counsel or accountants, any Person controlling such Holder, such underwriter or any Person who controls any such underwriter and stated to be specifically for use therein; and provided further that the indemnity agreement contained in this Section 5(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, delayed or conditioned).

(b) To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which a registration is being effected pursuant to this Agreement, indemnify and hold harmless the Company, each of its directors, officers, partners, legal counsel, and accountants and each underwriter, if any, of the Company’s securities covered by such a registration, and each Person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act (a Company Indemnified Person), against all claims, losses, damages and liabilities (or actions, proceedings, or settlements in respect thereof) arising out of or based on: (i) any untrue statement (or alleged untrue statement) of a material fact contained or incorporated by reference in any Registration Statement, or amendment thereto, or in any preliminary prospectus, final prospectus, summary prospectus, “issuer free writing prospectus” offering circular, or other document (including any related registration statement, notification or similar document) incident to any such registration or (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of any in any preliminary prospectus, final prospectus or issuer free writing prospectus, or in any amendment or supplement thereto, in light of the circumstances under which they were made) not misleading, and will reimburse each Company Indemnified Person for any legal and any other expenses (including expenses of enforcement of obligations hereunder) incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement , preliminary prospectus, final prospectus, summary prospectus, issuer free writing prospectus, offering circular, or other document (including any related registration statement, notification or similar document) in reliance upon and in conformity with written information furnished to the Company by such Holder, any of such Holder’s officers, directors, partners, legal counsel or accountants, and any Person controlling such Holder and stated to be specifically for use therein; provided that that the indemnity agreement contained in this Section 5(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of such Holder, which consent shall not be unreasonably withheld, delayed or conditioned; and provided further that in no event shall any indemnity under this Section 5(b) exceed the net proceeds from the offering received by such Holder (except in the case of fraud or willful misconduct by such Holder).

(c) Each Person entitled to indemnification under this Section 5 (an Indemnified Party) shall give notice to the Person required to provide indemnification under this Section 5 (an Indemnifying Party) promptly after such Indemnified Party has actual knowledge of any claim as to which indemnification may be sought hereunder, and shall permit the Indemnifying Party to assume the defense of such claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party, which approval shall not be unreasonably

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withheld, delayed or conditioned, and the Indemnified Party may participate in such defense at such Indemnified Party’s expense; and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 5, except to the such failure is materially prejudicial. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom.

(d) If the indemnification provided for in this Section 5 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage, or expense referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party (on the one hand) and of the Indemnified Party (on the other) in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense, as well as any other relevant equitable considerations; provided that (i) in no event shall a Holder be required to contribute any amount when combined with the amounts paid or payable by such Holder (if any) pursuant to Section 5(b) in excess of the net proceeds from the offering received by such Holder and (i) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the Parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.

(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

(f) Unless otherwise superceded by the underwriting agreement entered into in connection with an underwritten public offering, the obligations of the Company and the Holders under this Section 5 shall survive the consummation of any offering of Registrable Securities in a Registration Statement under this Agreement, and otherwise and shall survive the termination of this Agreement.

Section 6. Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Agreement may be transferred or assigned by the Investors to a transferee or assignee of such Registrable Securities that acquires at least 1,500,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations, recapitalizations and other similar transactions after the date hereof). The Investors shall, within thirty (30) calendar days after such transfer or assignment, furnish the Company with written notice of the name and address of such transferee or assignee and the

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Registrable Securities with respect to which such registration rights are being assigned. Such transfer or assignment shall be effective only upon, and such transferee shall constitute a Holder hereunder, such transferee or assignee agreeing to be bound by and subject to the terms and conditions of this Agreement (to the extent of the obligations of the Investors hereunder).

Section 7. Limitations of Subsequent Registration Rights. For so long as the provisions of Section 3 of the Affiliation Agreement remain in effect, the Company shall not, without the prior written consent of the Ipsen, enter into any agreement or amend any existing agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder: (a) to include such securities in any registration unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the amount of the Registrable Securities of the Holders to be included or (b) to demand registration of any securities held by such holder or prospective holder; provided, however, that the foregoing limitation shall not apply to any holder or prospective holder of any securities of the Company acquired in connection with any issuance of securities of the Company in compliance with the provisions of Section 3(v) of the Affiliation Agreement. From and after the date the provisions of Section 3 of the Affiliation Agreement shall cease to be effective, the Company agrees that prior to effecting any registration (other than a Rights Holder Registration, a Kingsbridge Registration or a registration effected for the Holders), the Company shall provide the Holders with written notice at least 15 Business Days prior to effecting any such registration.

Section 8. Termination of Agreement. Subject to the provisions of Section 5(f), this Agreement shall terminate and be of no further force or effect in the event that there shall cease to be any Registrable Securities outstanding for a period of 90 days or more.

Section 9. Miscellaneous.

(a) Subject to the provisions of Section 3(c), with the written consent of (i) the Company and (ii) the Holders of a majority-in-interest of the then-outstanding Registrable Securities, the obligations of the Company and the rights of the Holders of the Registrable Securities under this Agreement may be waived or amended (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely).

(b) This Agreement is for the sole and exclusive benefit of the Parties and their successors and permitted assigns, and nothing herein expressed or implied shall give, or be construe to give, to any Person, other than the Parties and such successors and permitted assigns, any legal or equitable right, remedies or claims under or with respect to this Agreement or any provisions hereof.

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(c) All notices, consents, waivers, and other communications required or permitted under this Agreement must be in writing and will be deemed to have been duly given when (i) delivered by hand to the Party to be notified, (ii) when sent by facsimile if sent during the normal business hours of the Party to be notified, if not, then on the next Business Day or (iii) when received by the Party to be notified, if sent by an internationally recognized overnight delivery service, specifying the soonest possible time and date of delivery, in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a Party may designate by notice to the other Parties from time to time). All such notices and other communications shall be sent:

(A) if to the Investors, to:

Ipsen, S.A.

42, rue du Docteur Blanche

75016 Paris

France

Attention: General Counsel

Facsimile: +33 1 4496 1188

with a copy (which shall not constitute notice) to:

Freshfields Bruckhaus Deringer, LLP

520 Madison Avenue, 34th Floor

New York, NY 10022

UNITED STATES OF AMERICA

Attention: Matthew L. Jacobson, Esq.

Facsimile: +1 212 277 4001

and

(B) if to the Company to:

Tercica, Inc.

2000 Sierra Point Parkway, Suite 400

Brisbane, California 94005

UNITED STATES OF AMERICA

Attention: General Counsel

Facsimile: +1 650 238 1520

with a copy (which shall not constitute notice) to:

Cooley Godward LLP

Five Palo Alto Square

3000 El Camino Real

Palo Alto, California 94306

UNITED STATES OF AMERICA

Attention: Suzanne Sawochka Hooper

Facsimile: +1 650 849 7400

(d) This Agreement may be executed in any number of counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to the other Parties. Any such counterpart may be delivered to a Party by facsimile.

(e) If any provision of this Agreement (or any portion thereof) or the application of any such provision (or any portion thereof) to any person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity,

Page 15

illegality or unenforceability shall not affect any other provision hereof (or the remaining portion thereof) or the application of such provision to any other persons or circumstances.

(f) This Agreement, the Purchase Agreement and the other documents delivered pursuant thereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any oral or written representations, warranties, covenants and agreements except as specifically set forth herein and therein.

(g) This Agreement shall be construed in accordance with, and this Agreement and all matters arising out of or relating in any way whatsoever (whether in contract, tort or otherwise) to this Agreement shall be governed by, the law of the State of New York.

[SIGNATURE PAGE FOLLOWS;

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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

TERCICA, INC.

/s/ John A. Scarlett, M.D

Name:

Title:

IPSEN, S.A.

/s/ Claire Giraut

Name:

Title:

SURAYPHARM

/s/ Claire Giraut

Name:

Title:

[Signature Page to Registration Rights Agreement]

EX-10.14C

EXHIBIT 10.14C

Execution Copy

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

INCRELEX™

LICENSE AND COLLABORATION AGREEMENT

THIS INCRELEX™ LICENSE AND COLLABORATION AGREEMENT (the “Agreement”), is entered into as of the Effective Date (defined below) by and between Tercica, Inc., a company incorporated under the laws of Delaware with offices at 2000 Sierra Point Parkway, Suite 400, Brisbane, CA 94005, United States of America (“Licensor”) and Beaufour Ipsen Pharma, a company incorporated under the laws of France with offices at 24 rue Erlanger, 75016 Paris, France (“Licensee”). Licensor and Licensee are sometimes referred to herein individually as a “Party” and collectively as the “Parties”.

Whereas, Licensor is engaged in the business of developing and marketing of pharmaceutical products; and

Whereas, Licensor and Genentech Inc. (“GNE”) have entered into that certain License and Collaboration Agreement dated April 15, 2002 (the “GNE US License”); and Licensor and GNE have also entered into that certain International License and Collaboration Agreement dated July 25, 2003 (the “GNE Ex-US License”); whereby GNE has granted to Licensor certain rights in the Licensed Product (as defined below) under GNE’s technology, know-how and/or intellectual property rights to permit Licensor to develop, commercialize, market and promote the Licensed Product in the United States of America, and outside the United States of America, respectively; and

Whereas, Licensor and Fujisawa Pharmaceutical Co, Ltd (“Fujisawa”) have entered into a license agreement dated December 25, 2003 whereby Fujisawa has granted to Licensor certain rights in the Licensed Product under certain patent rights of Fujisawa to permit Licensor to label, promote, distribute, manufacture, use, import and sell the Licensed Product in all countries and territories worldwide but excluding Japan (the “Fujisawa License”); and

Whereas, Licensor, as of the Execution Date has obtained regulatory approval for, and is marketing the Initial Product (as defined below) under the tradename Increlex^® in the United States and is currently conducting additional research and development activities with respect to obtaining regulatory approval for the Licensed Product (the “Licensor On-going Development” as further defined below); and

Whereas, Licensor is seeking a partner for the development and, following regulatory approval, distribution of the Licensed Product in the Territory (as defined below); and

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Whereas, Licensee has the marketing and sales force in the Territory to enable it to effectively market the Licensed Product in the Territory; and

Whereas, Licensor and Licensee (or its Affiliate), on the Execution Date, also are entering into that certain Stock Purchase and Master Transaction Agreement, and will enter into pursuant thereto such other agreements, including the Voting Agreement, Registration Rights Agreement, Investor Rights Agreement, Convertible Note Agreement, and related transaction documents, including the issuance of a Warrant to purchase shares of Common Stock of Licensee (collectively, the “Equity Transaction Documents”); and

Whereas, Licensee, Licensee’s Affiliate, and Licensor, on the Effective Date, are also entering into that certain Somatuline License and Collaboration Agreement pursuant to which, among other things, Licensee will exclusively license to Licensor, Licensee’s product Somatuline Autogel, for sale by Licensor in the United States and Canada (the “Somatuline Agreement”).

THE PARTIES DO HEREBY AGREE AS FOLLOWS:

1. DEFINITIONS

1.1 “18-Month Rolling Order Forecast” has the meaning set forth in Section 6.7.1 of this Agreement.

1.2 “Affiliate” means, in respect of any Person (i.e. any individual or any corporation, limited liability company, partnership, trust, association or other entity of any kind, a Person that is directly or indirectly controlling, controlled by, or under common control with such first-mentioned Person or any of its Subsidiaries, and for the sole purpose of this paragraph, the term “control” (including the terms “controlled by” and “under common control with”) means having, directly or indirectly, the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or by contract or otherwise. As used in this Section 1.2, “Subsidiary” means any corporation or other organization, whether incorporated or unincorporated, of which (i) at least fifty percent (50%) of the securities (or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization) is directly or indirectly owned or controlled by the relevant Person or (ii) the relevant Person (or any other subsidiary of the relevant Person) is a general partner.

1.3 “Agreement” shall have the meaning set forth in the preamble.

1.4 “Binding Order” has the meaning set forth in Section 6.7.2 of this Agreement.

1.5 “BLA” means a Biologics License Application (as defined in Title 21 of the United States Code of Federal Regulations, Section 600 et seq, as amended from time to time), or such application’s foreign equivalent, filed pursuant to the requirements of a Regulatory Authority for Marketing Authorization of a Licensed Product.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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1.6 “Calendar Quarter” means the respective period of three (3) consecutive calendar months ending on March 31, June 30, September 30 and December 31.

1.7 “Calendar Year” means the respective period of twelve (12) consecutive months commencing on January 1 and ending on December 31.

1.8 “Combination Product” shall mean a pharmaceutical formulation or product for use in the Field that contains IGF-1 and any other active ingredient, including without limitation IGFBP-3 or growth hormone.

1.9 “Commercialization Plan” shall mean the most recent version of any given three Calendar Year rolling plan as from First Commercial Sale until termination or expiration of the Agreement (the first Calendar Year being for the purpose of this clause, the period starting from the date of the First Commercial Sale in the country until December 31 of the same year), with respect to the promotion, sales plan and budget for each Licensed Product in each country of the Territory including in particular: (a) the Promotional Efforts planned for such three Calendar Years and (b) the Sales Forecast anticipated for such three Calendar Years. Such Commercialization Plan shall also include provisions for the manufacturing, supply and distribution planning of Licensed Products for sale in the Territory.

1.10 “Commercial Sale” means the sale of Licensed Products whether by Licensee or Licensee’s Affiliates or Sub-licensees to a third party and shall exclude (i) any transfer of Licensed Product by Licensee to its Affiliates or Sub-licensees and (ii) any distribution of Licensed Product for use in Development activities or as Samples.

1.11 “Confidential Information” has the meaning set forth in Section 10.1 of this Agreement.

1.12 “Control” with the correlative meaning “Controlled by” means, with respect to intellectual property, possession of the right to grant a license or sublicense as provided for herein without violating (a) any law or governmental regulation applicable to such license or sublicense or (b) the terms of any agreement or other arrangement with any third party that exists as of the Effective Date, or if such right is acquired after the Effective Date, as of the date a Party first gained possession of such right.

1.13 “Cover” and with correlative meaning “Covered” shall mean with respect to Patent Rights, that such Patent Rights claim the composition of matter, method of making or any use of such Licensed Product.

1.14 “current Good Manufacturing Practices” or “cGMP” shall mean the requirements found in the legislation, regulation and administrative provisions for methods to be used in, and the facilities or controls to be used for, the manufacturing, processing, packing and/or holding of a drug to assure that such drug meets the requirements as to the safety and has

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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the identity and strength and meets the quality characteristics that it purports or is represented to possess, all of which as defined by the competent authorities of each country of the Territory where and at the time Licensee sells the Licensed Products in each such country and by the competent authorities of the country where any manufacturing or testing operation is conducted.

1.15 “Delivery Point” shall have the meaning ascribed to it in Section 6.4 of this Agreement.

1.16 “Developing Party” shall mean a Party Developing solely a Product Improvement, a Combination Product or an Other Product under a Subsequent Development Plan as set forth in Section 4.4.4 (i) of this Agreement.

1.17 “Development” and with correlative meaning “Develop” and “Developing” means all activities related to preclinical testing, toxicological, pharmacokinetic, metabolic, or clinical aspects of the Licensed Product (or where applicable an Other Product), process development, stability studies, formulation development, clinical studies regulatory affairs, and other development activities for the Licensed Product (or where applicable an Other Product).

1.18 “Development Costs” shall mean costs incurred jointly by the Parties under the Initial Development Plan or Joint Subsequent Development Plan or solely by a Developing Party under a Subsequent Development Plan as determined in accordance with Section 4.4.2 of this Agreement.

1.19 “Development Plan” shall mean either the Initial Development Plan or any Subsequent Development Plan.

1.20 “Diabetes” shall mean a progressive disease of carbohydrate metabolism involving inadequate production or utilization of insulin that is characterized by hyperglycemia and glycosuria. The term shall apply to any form of diabetes, including without limitation, Type 1 and Type 2 diabetes, as well as other hyperglycemic disorders, such as hyperinsulinemia, hyperlipidemia, insulin-resistant diabetes such as Mendenhall’s Syndrome, Werner Syndrome, leprechaunism, lipoatrophic diabetes.

1.21 “Diabetes Covenant Expiration” shall have the meaning set forth in Section 2.7.

1.22 “Diligent Efforts” shall mean the efforts consistent with the exercise of prudent scientific and business judgment, consistent with the effort applied to other pharmaceutical products of similar potential and market size by the Party in question (or, if the Party in question has no other pharmaceutical product of similar potential and market size, by other similarly sized pharmaceutical companies that do).

1.23 “Dominating Patent” means with respect to a given country in the Territory, an unexpired patent of a third party which has not been finally invalidated by a court or other governmental agency of competent jurisdiction and which would be infringed by the use, manufacture, sale or import of the Licensed Product in such country under this Agreement

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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1.24 “Effective Date” shall mean the date of the First Closing.

1.25 “EU Marketing Authorization” shall mean the Marketing Authorization granted by the European Union Commission for the Licensed Product under the centralized procedure.

1.26 “EU Territory” shall mean the member states of the European Union, Iceland, Norway and Liechtenstein.

1.27 “EMEA” means the European Medicine Agency, a decentralized body of the European Union.

1.28 “Excluded Indications” shall mean the use of IGF-1 as a therapeutic or potential therapeutic for any human disease or condition of the central nervous system as described in Section 1.19 and Exhibit A of the GNE Ex-US License.

1.29 “Execution Date” shall mean July 18, 2006, the date of execution of the Purchase Agreement.

1.30 “Field” means all uses in humans and all in vitro uses, excluding the Excluded Indications and excluding, unless and until and only to the extent that the Diabetes Covenant Expiration occurs as set forth in Section 2.7, Diabetes.

1.31 “First Closing” shall have the meaning ascribed to it in the Purchase Agreement.

1.32 “First Commercial Sale” means the first Commercial Sale in the relevant countries of the Territory, as evidenced by the first payment received by Licensee, its Affiliates or Sub-licensees in connection with this Commercial Sale on a country-by-country basis.

1.33 “FTE” shall mean full time equivalent of, and is equal to the amount of work one full time employee would accomplish during any one year period.

1.34 “Fujisawa” and “Fujisawa License” shall have the meaning set forth in the preamble of this Agreement.

1.35 “GNE” shall have the meaning set forth in the preamble of this Agreement.

1.36 “GNE Ex-US License” shall have the meaning set forth in the preamble of this Agreement.

1.37 “GNE US License” shall have the meaning set forth in the preamble of this Agreement.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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1.38 “IGF-1” means native-sequence insulin-like growth factor-1 from any species with or without an N-terminal methionine, allelic variants thereof, and sequence variants thereof wherein substitutions and/deletions are made in the region from 1 to 5 amino acids from the N-terminus of the mature native-sequence IGF-1 of any species, including des-IGF-1 and variants wherein at least the glutamic acid residue is absent at position 3 from the N-terminus of native-sequence human IGF-1.

1.39 “IND” means an investigational new drug application as defined under US law and foreign equivalents.

1.40 “Indication” means the prevention, therapeutic treatment, or diagnosis of any particular human disease or, disorder or condition, but shall not include the Excluded Indication and shall not include, unless and until and only to the extent that the Diabetes Covenant Expiration occurs as set forth in Section 2.7, Diabetes.

1.41 “Initial Development Plan” means the plan for the conduct of specified Development activities with regards to the Initial Product, or Product Improvements or Combination Products as agreed between the Parties pursuant to Section 4.3.1 of this Agreement for the purpose of obtaining initial Marketing Authorization or Marketing Authorization for label expansion for such Licensed Product, which shall exclude any Licensor On-going Development.

1.42 “Initial Product” means that certain pharmaceutical formulation for use in the Field containing IGF-1 and as of the Execution Date marketed by Licensor in the United States under the tradename Increlex™, the specifications of which, as of the Execution Date and filed with the EMEA are attached as Schedule 2 to this Agreement, which specifications may be amended from time to time by the written agreement of the Parties.

1.43 “JFC” shall mean the joint finance committee as defined in Section 3.2 of this Agreement.

1.44 “Joint Know-How” shall mean any and all Know-How owned jointly by the Parties pursuant to Section 8.3.

1.45 “Joint Patents” shall mean any and all Patent Rights owned jointly by the Parties pursuant to Section 8.3.

1.46 “Joint Patent Committee” shall mean the committee defined in Section 8.3.

1.47 “Joint Subsequent Development Plan” shall mean a Subsequent Development Plan conducted and funded jointly by the Parties in accordance with Section 4.4.3 of this Agreement.

1.48 “JSC” shall mean the joint steering committee as defined in Section 3.1 of this Agreement.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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1.49 “Know-How” means all non public proprietary information, trade secrets, techniques and data of a Party (including Confidential Information as defined in Section 10.1) including, but not limited to, discoveries, formulae, materials, practices, methods, knowledge, know-how, processes, experience, test data (including pharmacological, toxicological and clinical information and test data), analytical and quality control data, marketing, pricing, distribution, cost and sales data or descriptions and any and all submissions to Regulatory Authorities with respect to Licensed Products, and preclinical and clinical data, assays and associated materials, and protocols and procedures and documentation associated with the foregoing.

1.50 “Licensed Know-How” shall mean Know-How owned or Controlled by Licensor that is reasonably necessary for the characterization, optimization, assaying, Development, import, offer for sale, use or sale of IGF-1 or any Licensed Product in the Field including without limitation all Know-How resulting from Licensor On-going Development.

1.51 “Licensed Patent Rights” shall mean all Patent Rights owned or Controlled by Licensor in the Territory which Cover the Licensed Product, but excluding Licensor Related Patent Rights except and to the extent agreed by the Licensor and Licensee pursuant to Section 2.9. As at the Execution Date, Licensed Patent Rights include all Patent Rights listed in Schedule 1 of this Agreement.

1.52 “Licensed Product” means, as the context requires, the Initial Product, and any Product Improvements and/or any Combination Products that accrue from the Initial Development Plan and/or Joint Subsequent Development Plans, and/or any Subsequent Development Plan as to which the Opt-in Party (as that term is defined in Section 4.4.4(ii)(F)(a) below) has exercised its rights to Opt-In (as that term is described in Section 4.4.4(ii)(F)(a) below) pursuant to Section 4.4.4(ii)F.

1.53 “Licensed Trademarks” shall mean the trademarks listed in Schedule 3.

1.54 “Licensee Allocation” shall have the meaning ascribed to it in Section 4.4.3.

1.55 “Licensee Group” means Licensee and its Affiliates.

1.56 “Licensee Independent Patent Rights” shall have the meaning set forth in Section 2.5.2 of this Agreement.

1.57 “Licensee Related Patent Rights” means, any Patent Rights owned or Controlled by Licensee which Cover a Licensed Product other than the Initial Product in the Licensor Territory and either (i) are acquired by or licensed to Licensee from a third party and as to which Licensee would owe such third party royalties or other payments for the license to such Patent Rights in the Licensor Territory based on Licensee’s (or Licensor’s) use and exploitation of such Patent Rights; or (ii) do not cover inventions made in the conduct of the Development or a Development Plan under this Agreement, which inventions are solely or jointly owned by Licensee as provided in Section 8.3.

1.58 “Licensor Allocation” shall have the meaning ascribed to it in Section 4.4.3.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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1.59 “Licensor IP Rights” means any and all Licensed Patent Rights and Licensed Know-How.

1.60 “Licensor On-going Development” shall mean those clinical, non-clinical studies and regulatory activities anywhere including in the Territory (a) ongoing as of the Execution Date and set forth in Schedule 11 hereto or (b) that either (i) are required for securing Marketing Authorization for the Initial Product for the Target Label in the Territory, or (ii) the conduct of which is a condition upon which such Marketing Authorization has been granted. Licensor On-going Development are carried out and funded solely by Licensor.

1.61 “Licensor Related Patent Rights” means, any Patent Rights owned or Controlled by Licensor that are other than those listed on Schedule 1, but which Cover any Licensed Product other than the Initial Product, and either (i) are acquired by or licensed to Licensor from a third party and as to which Licensor would owe such third party royalties or other payments for the license to such Patent Rights in the Territory based on Licensor’s (or Licensee’s) use and exploitation of such Patent Rights; or (ii) do not cover inventions made in the conduct of the Development or a Development Plan under this Agreement, which inventions are solely or jointly owned by Licensor as provided in Section 8.3.

1.62 “Licensor Territory” means the United States of America, Canada, and Japan, and including, until the license provided for in Section 2.4 is in effect, the Third Party Countries, and the territories and possessions of each of the foregoing countries.

1.63 “Manufacturing Option” shall have the meaning ascribed to it in Section 6.18.1 of this Agreement.

1.64 “Market Competition” means with respect to a given country of the Territory, the written notification to Licensor by Licensee that the sale in a given country of the Territory of one or more products containing IGF-1 produced in a prokaryotic expression system by one or more third parties that are not Sub-licensees of Licensee has achieved greater than twenty-five percent (25%) Market Share. For purposes of this Section 1.64, “Market Share” shall mean the percentage market share in value for the product or products in question containing IGF-1, such percentage to be established by measuring a full Calendar Quarter of reported prescription data for the applicable product(s) and any competing products (including Licensed Products) sold in the relevant country of the Territory. If the Parties are unable to mutually agree on the Market Share of a given product or products based on such prescription data, the Parties shall submit the issue to a mutually-agreeable third party market research firm having expertise in pharmaceutical sales in the relevant country of the Territory (the “Research Firm”). The Research Firm shall be instructed to provide an independent assessment of the Market Share for purposes of determining Market Competition hereunder. Licensee shall bear all costs associated with the services of the Research Firm; provided that in the event that the Research Firm establishes that the Market Share is twenty five percent (25%) or higher for a particular Indication, Licensor shall reimburse Licensee for the full cost of the Research Firm’s services for such assessment.

1.65 “Marketing Authorizations” means the regulatory authorizations required to sell the Licensed Product in the Territory on a country-by country basis.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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1.66 “Net Sales” means the consolidated gross amount recognized as sold for any particular period using IFRS criteria for sales recognition for the Licensed Product by Licensee or its Affiliates or Sublicensees to third parties, minus the following as applicable, using IFRS criteria, (a) returned goods; (b) trade cash, and quantity discounts accrued and actually taken from the invoiced amount; (c) rebates, including payments in respect of any governmental subsidized programs, rebate payments given to wholesalers or other Licensee buying groups, healthcare insurance carriers or other institutions; (d) credits or allowances actually given or made for rejection or return of previously sold Licensed Products or for retroactive price reductions (including government mandated rebates and chargebacks); (e) sales, value added or other taxes or duties levied on or measured by the billing amount for Licensed Products, to the extent billed separately on the invoice and paid for by the customer, as adjusted for rebates and refunds, as applicable; (f) one percent (1%) of such consolidated gross amount recognized as sold to account for estimated charges for freight and insurance directly related to the delivery or return of Licensed Products to the extent billed separately on the invoice and paid for by the customer; (g) adjustments for Combination Products as mutually agreed upon in good faith by the Parties, and by Licensor and GNE, (h) uncollectible debts, as incorporated in Licensee Group’s consolidated accounts consistently applied to all products of Licensee Group, provided however that if collected at a later date such amounts will be added to Net Sales in the Calendar Quarter in which it is received, in all cases as adjusted periodically to reflect amounts actually incurred in the Territory for items (a) through (f). If a Licensed Product is sold for consideration other than cash, the fair market value of such other consideration shall be included in Net Sales.

1.67 “Opt-In” shall have the meaning assigned to it in Section 4.4.4(ii)(F).

1.68 “Opt-in Information” shall have the meaning assigned to it in Section 4.4.4(ii)(F)(d)(A)(b).

1.69 “Opt-in Notice Date” shall have the meaning assigned to it in Section 4.4.4(ii)(F)(d)(A)(a).

1.70 “Other Product” shall mean any chemical entity or pharmaceutical product other than a Licensed Product which is acquired, owned, Controlled or being the object of research and development activities by Licensor in the field of endocrinology, or other areas as may be mutually agreed by the Parties in writing.

1.71 “Patent Rights” means any patents, patent applications, certificates of invention, or applications for certificates of invention and any supplemental protection certificates together with any extensions, registrations, confirmations, reissues, substitutions, divisions, continuations or continuations-in-part, reexamination or renewals thereof.

1.72 “Phase I Clinical Trials” shall mean those clinical trials on sufficient number of volunteers/subjects that are designed to establish safe drug doses and to support testing in Phase II Clinical Trials.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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1.73 “Phase II Clinical Trials” shall mean those clinical trials on sufficient number of patients that are designed to explore the dosage, safety and biological activity of a drug for intended use, and to define warnings, precautions and adverse reactions that are associated with the drug in the dosage range to be prescribed.

1.74 “Phase III Clinical Trials” shall mean those clinical trials on sufficient number of patients that are designed to establish that a drug is safe and efficacious for its intended use, and to define warnings, precautions, and adverse reactions that are associated with the drug in the dosage range to be prescribed and supporting Marketing Authorization of such drug or label expansion of such drug.

1.75 “Product Improvement” shall mean any improvements and/or enhancements or other desirable change to the technical/pharmacological characteristics of the Initial Product (or an enhanced or improved version of the Initial Product), whether patentable or not, including, without limitation, improvements or enhancements in the manufacture, formulation, ingredients, preparation, presentation, means of delivery or administration, dosage, indication for use or packaging of the Initial Product.

1.76 “Promotional Efforts” shall mean, as to a given Licensed Product, the annual sales, medical and marketing efforts planned by the Licensee in the promotion and marketing of such Licensed Product in a country of the Territory after the First Commercial Sale in such country. The Promotional Efforts shall be detailed in the Commercialization Plan which shall include without limitation sales plan, number of calls by medical representatives, intended Phase IV (post-approval) studies and budget related thereto for such Licensed Product in such country (although the actual Phase IV study design and budget therefor will be addressed in a Development Plan for such Licensed Product).

1.77 “Purchase Agreement” means that certain Stock Purchase and Master Transaction Agreement, dated as of July 18, 2006, by and between Licensee’s Affiliate, and Licensor.

1.78 “Regulatory Authority” means any government agency having the responsibility for granting Marketing Authorizations and any other government entities with authority over the manufacturing and the marketing of the Licensed Product.

1.79 “Related Patent Rights” shall have the meaning set forth in Section 2.9 of this Agreement.

1.80 “Royalty Term” shall have the meaning ascribed to it in Section 7.2.1 of this Agreement.

1.81 “Sales Forecasts” shall mean, as to a given Licensed Product, the annual sales forecasts for the Licensed Product in a country of the Territory with respect to the Indication(s) for which Licensee has obtained Marketing Authorization.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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1.82 “Sample” means Licensed Product delivered to Licensee by Licensor for distribution by Licensee or otherwise, to health care professionals for trial use by patients at no cost to the patient and not for re-sale pursuant to applicable laws.

1.83 “Schedule(s)” refers to the Schedules attached to this Agreement and incorporated herein by this reference.

1.84 “SKU” shall mean stock-keeping unit.

1.85 “Specifications” means the standards and specifications relating to the manufacture, testing and packaging of the Licensed Product, which shall be those approved by the Regulatory Authorities in the Territory from time to time and on a country-by-country basis. The Specifications of the Initial Product as at the Execution Date and as filed with the EMEA are set forth in Schedule 2 attached hereto.

1.86 “Sub-licensee” means a third party to whom Licensee or its Affiliates sublicenses, assigns or otherwise delegates some or all of their rights and obligations under this Agreement. Sub-licensee shall also include any third party who purchases its supply of Licensed Product, in finished form from Licensee, its Affiliates or Sublicensee for resale into the market, where, as a partial or full consideration for such purchase, such third party has a payment obligation to Licensee, its Affiliates or Sublicensee that is a percentage of its net sales, including without limitation a royalty obligation.

1.87 “Subsequent Development Plan” shall mean the specific plan for Development activities to obtain initial Marketing Authorization or Marketing Authorization for a Product Improvement, Combination Product or, as the case may be and where agreed pursuant to Section 4.3.3, Other Product, submitted by one Party to the other Party pursuant to Sections 4.3.2 and 4.3.3 of this Agreement.

1.88 “Supply Price” shall have the meaning ascribed to it in Section 6.5 of this Agreement.

1.89 “Target Label” shall mean the Indication for which the Parties intend that the Marketing Authorization will be granted, and the correlative estimated patient population which the Parties expect may be treated by such Indication (the “EU Target Population”), with respect to the Initial Product in the member states of the European Union, Norway, Iceland and Liechtenstein as further described in Schedule 4.

1.90 “Technical Agreement” shall have the meaning ascribed to it in Section 6.1.1 of this Agreement.

1.91 “Territory” means all countries of the world, excluding the United States of America, Canada, Japan, and excluding until the license provided for in Section 2.4 is in effect with respect thereto, the Third Party Countries.

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1.92 “Third Party Countries” means Taiwan, Israel, the Kingdom of Saudi Arabia, United Arab Emirates, Oman, Kuwait, Syria, Jordan, Lebanon, Iran, Iraq, Morocco, Algeria, Tunisia, Libya, Egypt, Bahrain, Qatar, Yemen, and the territories and possessions of each of the foregoing countries.

1.93 “Valid Claim” means any claim of a pending patent application of a Licensed Patent Rights which has not been abandoned or finally rejected without the right of appeal or which is not known to be unpatentable, or any claim from an issued and unexpired Licensed Patent Rights which has not been revoked or held unenforceable or invalid by a decision of a court or other governmental authority of competent jurisdiction without the right of appeal, and which has not been disclaimed, denied or admitted to be invalid or unenforceable through reissue or disclaimer or otherwise.

2. LICENSE GRANT

2.1 Exclusive License.

2.1.1 Subject to the terms and conditions of this Agreement Licensor grants to Licensee and Licensee’s Affiliates (for so long as they remain Affiliates of Licensee):

(i) an exclusive, royalty-bearing license right, with the right to grant sublicenses pursuant to Section 2.2, to use and exploit Licensor IP Rights (including Licensor’s interest in any and all Joint Know-How and Joint Patents) to import, have imported, use, and have used to research and Develop the Initial Product and those other Licensed Products which are jointly Developed by the Parties or solely developed by Licensee or as to which Licensee elects to exercise its Opt-in rights pursuant to Section 4.4.4(ii)F, in the Field and in the Territory, as and to the extent permitted under this Agreement;

(ii) a non- exclusive, royalty-bearing license right, to use and exploit Licensor IP Rights (including Licensor’s interest in any and all Joint Know-How and Joint Patents) to use and have used to research and Develop the Initial Product and those other Licensed Products which are jointly Developed by the Parties or solely developed by Licensee or as to which Licensee elects to exercise its Opt-in rights pursuant to Section 4.4.4(ii)F, in the Field and in the Licensor Territory, as and to the extent permitted under this Agreement; and

(iii) an exclusive (even as to Licensor or Licensor’s Affiliates), royalty-bearing license right, with the right to grant sublicenses pursuant to Section 2.2, to use and exploit Licensor IP Rights (including Licensor’s interest in any and all Joint Know-How and Joint Patents) to use, have used, import, have imported, offer for sale, sell and have sold Licensed Products in the Territory, in the Field.

The grant of exclusive rights to Licensee in subsections (i) and (iii) of this Section 2.1.1 shall be subject to Licensor’s reservation of the right to use, have used, import, and have imported in the Territory Initial Product and those other Licensed Products which are

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jointly Developed by the Parties or solely developed by Licensor or as to which Licensor elects to exercise its Opt-in rights pursuant to Section 4.4.4(ii)F, for the purpose of supporting Development of Initial Product or such other Licensed Products in the Field for sale in the Licensor Territory, as and to the extent permitted under this Agreement.

2.1.2 Notwithstanding the foregoing, Licensor reserves all rights:

(i) under the Licensor Related Patent Rights unless otherwise agreed among the Parties pursuant to Section 2.9 of this Agreement in a separate written agreement, and

(ii) under the Licensor IP Rights to the extent necessary to conduct or have conducted research, use, manufacture or Development of Licensed Products for sale in the Licensor Territory, as and to the extent permitted under this Agreement. In addition, the license granted in Section 2.1.1 is made subject to GNE’s retained rights to perform in vitro research and development activities with respect to IGF-1 in the Field in the Territory (as provided in the Section F.1(f) of the GNE Ex-US License).

2.1.3 Subject to the terms and conditions of this Agreement, Licensor hereby grants to Licensee and Licensee’s Affiliates (for so long as they remain Affiliates of Licensee) an exclusive (even as to Licensor or Licensor’s Affiliates), royalty-bearing license right, with the right to grant sublicenses, to use and exploit the Licensed Trademarks on and solely in connection with the Development and commercialization of the Licensed Product throughout the Territory, in the Field.

2.1.4 Licensee acknowledges and understands that as of the Execution Date, Licensor is in patent litigation proceedings in the United Kingdom with regard to the alleged infringement by Insmed Incorporated and Avecia Limited of certain of the Licensed Patent Rights in the United Kingdom (and related patent validity proceedings involving GNE), and Licensor and GNE are co-plaintiffs in patent litigation proceedings in the U.S. with respect to the alleged infringement by Insmed Incorporated of certain Patent Rights of Licensor in the U.S., and that as part of the possible global settlement of such litigation, Insmed Incorporated may require a license to use and exploit the Licensed Patent Rights in the Territory to make, use and sell (A) its product IPLEX™ (mecasermin rinfabate [rDNA origin] injection) product (hereinafter referred to as “IPLEX”), (B) a product that is a preserved reformulation of IPLEX in a multi-use vial, which product is to be selected by Insmed (hereinafter referred to as “MULTIPLEX”) and/or (C) any product containing IGF-1 in combination with IGFBP-3. Accordingly, and notwithstanding the grant of rights to Licensee by Licensor in this Section 2.1, Licensee agrees to consider in good faith, promptly following the reasonable request of Licensor, the conditions under which such license may be granted to Insmed Incorporated, its Affiliates and its successors-in-interest, (which entities are collectively and individually referred to herein as “Insmed”) by Licensee (either directly, or by reverting such rights to Licensor for direct grant to Insmed). These issues of alleged infringement by and grant of license rights to Insmed shall first be addressed within the Joint Patent Committee following the request of either Party, and such Joint Patent Committee shall recommend a course of action to the Joint Steering Committee. The Joint Patent Committee

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shall in particular consider the following: (i) the outcome or likely outcome of the ongoing patent litigations involving Insmed, (ii) the management of such patent litigation, and costs associated therewith as weighed against the benefits of possible settlement, (iii) the possible means of settlement of such patent litigation including the granting of a non-exclusive right and license to use and exploit the Licensed Patent Rights to use, have used, make, have made, sell, have sold, offer for sale, have offered for sale, import, have imported, export and have exported in the Territory (A) IPLEX™ and/or (B) MULTIPLEX and/or (C) any product containing IGF-1 in combination with IGFBP-3 together with a right to sub-license wholesalers and distributors on agreed terms and subject to prior agreement of Licensee and GNE, (iv) the allocation among the Parties and GNE of all monies paid by Insmed pursuant to such litigation, settlement or license agreement, and (v) the allocation among the Parties and GNE of all costs incurred in the conduct of the litigation. It is also understood that as between the Parties and to the extent permitted under Section 8.2.2 Licensee shall be entitled to elect to manage and assume control of (subject to GNE’s consent) the ongoing patent litigation proceedings against Insmed in the Territory, in which event the conditions thereon shall also be discussed within the Joint Patent Committee and Licensor shall use its reasonable endeavors to assist with the handover of the management of the ongoing proceedings in the Territory in accordance with the foregoing provisions in the event Licensee so elects. If, as part of the overall strategy, either Party considers it desirable to institute new proceedings in the Territory against Insmed or its manufacturers, this issue shall also be referred to the Joint Patent Committee for consideration. The Joint Patent Committee shall work together with the Joint Finance Committee to propose to the Joint Steering Committee an action plan with respect to issues set forth in this Section 2.1.4 and the JSC shall make a determination based upon such action plan for implementation by the Parties. Within the framework of the Joint Patent Committee and the Joint Finance Committee, Licensor and Licensee shall keep each other appraised on a regular basis of the status of such litigation proceedings and any settlement discussions, and review and consider in good faith, all comments or input received from the other with respect thereto.

2.2 Sublicense Rights, Third Party Distributors. Licensee shall have the right to sublicense the rights granted in Section 2.1 to Sub-licensees and/or to appoint third party distributors, subject to the prior written consent of Licensor and GNE which shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, Licensee shall remain responsible for complying, and for ensuring that such Sub-licensees and distributors comply, with this Agreement, all relevant laws, regulations and requirements relating to the importation, distribution, marketing, promotion and sale of the Licensed Product in the Territory. Any sub-license and distributorship agreement shall contain terms and conditions that are not inconsistent with those of this Agreement.

2.3 Excluded Indications. In the event at any time after the Effective Date, Licensor possesses, acquires, or regains rights to Develop, sell, offer for sale, use, export and/import the Licensed Product for the Excluded Indications, such Excluded Indications shall be automatically included in the Field, subject to Section F.5 of the GNE Ex-US License.

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2.4 Territory; Third Party Countries. With respect to each Third Party Country, Licensor shall keep Licensee apprised of any anticipated and actual expiry or termination of the relevant distribution agreement for such Third Party Country with one or more third parties with whom Licensor has entered into such distribution agreement. Distribution Agreements for the Third Party Countries in effect as of the Execution Date are listed in Schedule 5. Licensor shall notify Licensee reasonably in advance of the expected date of expiry or termination of such third parties’ rights. With respect to each Third Party Country, Licensor hereby agrees that it shall not seek to renew or extend the term of such Distribution Agreement, and that Licensee shall automatically be granted all rights as provided for in Section 2.1 above upon both (i) expiry or termination of the relevant distribution agreement with one or more third parties with whom Licensor has entered into such distribution agreement, and (ii) the written consent of GNE, not to be unreasonably withheld or delayed, and which Licensor shall, where practicable, seek at least six (6) months ahead of the foreseen expiry or termination thereof. Licensor shall indemnify and hold harmless Licensee against any claim from these third parties in relation to the execution, termination or expiry of their contractual arrangements with Licensor.

2.5 Licenses to Licensor.

2.5.1 Licensee hereby grants to Licensor,

(i) a non-exclusive, sublicensable license under Licensee’s interest in any Joint Patent Rights and any Joint Know-How to use, have used, make, have made, research and Develop the Initial Product and those other Licensed Products which are jointly Developed by the Parties or as to which Licensor elects to exercise its Opt-in rights pursuant to Section 4.4.4(ii)F, in the Field and in the world, as and to the extent permitted under this Agreement; and

(ii) an exclusive, sublicensable license under Licensee’s interest in any Joint Patent Rights and any Joint Know-How to sell, offer for sale, import, have imported and export in the Field and in the Licensor Territory, the Initial Product and those other Licensed Products which are jointly Developed by the Parties or as to which Licensor elects to exercise its Opt-in rights pursuant to Section 4.4.4(ii)F.

2.5.2 Licensee hereby represents and warrants that, as of the Execution Date, Licensee does not own or Control any Patent Rights that claim the composition of matter of, or the method of making or any use of, the Initial Product in the Licensor Territory (“Licensee Independent Patent Rights”). Notwithstanding the foregoing, to the extent any such Licensee Independent Patent Rights are after the Execution Date found to exist, Licensee hereby covenants that, during the term of this Agreement, neither it, nor its Affiliates, shall assert against Licensor, its Affiliates or any sublicensees, a claim of infringement of such Licensee Independent Patent Rights based upon the research, development, use, manufacture, sale, offer for sale, import and export of the Initial Product in the Field and in the Licensor Territory or the research, development, use and manufacture of the Initial Product in the Field and in the Territory. Provided however that Licensor acknowledges and agrees that Licensee does not covenant that, during the term of this Agreement, neither it, nor its Affiliates, would not assert against Licensor, its Affiliates or any sub-licensees, a claim of infringement of Related Patent Rights Controlled by Licensee unless otherwise agreed among the Parties pursuant to Section 2.9 of this Agreement in a separate written agreement

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2.6 Right of First Negotiation for Other Products.

2.6.1 When acquiring or gaining Control of any Other Product with respect to Licensor Territory, to the extent it is on commercially reasonable terms and does not have an adverse effect on the interests of Licensor to do so, Licensor shall endeavor to acquire or obtain Control of such Other Product with respect to the Territory. With respect to those Other Products owned or Controlled by Licensor as of the Effective Date, Licensor shall provide or cause to be provided to the JSC a list of such Other Products and their status of development.

2.6.2 For a period of six (6) years from the Execution Date (the “Option Period”) Licensee shall have a right of first negotiation with respect to the development and commercialization of Other Products for the Territory as set forth in this Section 2.6. During the Option Period, promptly following the acquisition or obtaining Control of any Other Product by Licensor for the Territory, Licensor shall notify Licensee of such Other Product and simultaneously provide to Licensee all necessary information relating to such Other Product to enable Licensee to decide as to whether it wishes to exercise its right to negotiate with Licensor to obtain the exclusive rights to develop and/or commercialize the Other Product in the Territory, as the case may be, depending upon the development stage of such Other Product and Licensor shall not market or commercialize such Other Product in the Territory (either itself or through its Affiliates, Sublicensees or other third party) unless and until Licensee has either notified Licensor of its decision to negotiate rights on such Other Product for the Territory or the time for such notification has lapsed. Licensee shall notify Licensor of its decision to so negotiate within thirty (30) days as from receipt of the above information. Failure by Licensee to make such notification will be deemed as a refusal of its first right of negotiation for the development and/or commercialization of the Other Product in the Territory.

2.6.3 In the event Licensee notifies Licensor of its decision to develop and commercialize the Other Product in the Territory, the Parties shall have one hundred-twenty (120) days or more if mutually agreed in writing (the “Negotiation Period”) to negotiate exclusively the terms and conditions applicable to such collaboration, including, as appropriate, any co-development of such Other Product, and the payment of any license fees or other payments owed any third party by Licensor with respect to the development or commercialization of the Other Product in the Territory.

2.6.4 In case of failure by Licensee to notify Licensor of Licensee’s decision to exercise its right of first negotiation within the thirty-day (30) period or failure of the Parties to reach an agreement within the Negotiation Period, Licensor shall be free to itself develop and commercialize such Other Product in the Territory and/or enter into any agreement with any third parties to develop and/or commercialize the Other Product in the Territory, provided, however, that for a period of twelve (12) months after the end of the Negotiation Period, Licensor shall not enter into any agreement with such a third party for rights to such Other Product in the Territory on terms less favorable to Licensor, when viewed in their totality, than those last offered by or to Licensee.

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2.6.5 Notwithstanding Licensee’s right of first negotiation as set forth above, Licensor may propose to Licensee that the Parties conduct a Joint Subsequent Development Plan for such Other Product or that a Subsequent Development Plan for such Other Product be conducted solely by the Licensor with the right for the Licensee to Opt-in, pursuant to the provisions of Sections 4.4.3 and 4.4.4 either prior to, or subsequent to any exercise by Licensee of its rights to negotiate for the exclusive license to such Other Product as provided for above. It is expressly understood and agreed however that nothing in this Agreement shall be interpreted as a license by Licensor to Licensee of any rights to such Other Product and that any such license will be only as may be agreed upon in writing by the Parties following the Effective Date.

2.7 Limitations on Commercializing Licensed Products for Diabetes. Notwithstanding Section 2.1, Licensee agrees and acknowledges the limitations placed upon Licensor pursuant to Section F.1(e) of the GNE Ex-US License. Accordingly, Licensee covenants that, with respect to Diabetes in the Territory, it will not (i) market, sell, offer for sale or have sold IFG-1 for which the manufacture, use or sale would infringe, if not for the licenses granted under this Agreement, the Patent Rights licensed to Licensor under the GNE Ex-US License; and (ii) market, sell, offer for sale or have sold IGF-1 that was manufactured or for which approval was received using the Licensed Know-How licensed to Licensor pursuant to the GNE Ex-US License, unless and until the Diabetes Covenant Expiration. As used herein, the “Diabetes Covenant Expiration” means the date upon which Licensor enters into a written agreement with F. Hoffman-La Roche AG granting Licensor the right to market, sell, offer for sale or have sold Licensed Products for Diabetes in the Territory. Upon the Diabetes Covenant Expiration, the license granted to Licensee in Section 2.1 shall automatically be deemed to include Diabetes in the Field definition to the extent, and only to the extent, Licensor obtains such rights and the right to sublicense the same to Licensee from F. Hoffmann-La Roche AG and as provided in Section F.1(e) of the GNE Ex-US License.

2.8 Limitations on Certain Combination Products.

Notwithstanding Section 2.1, Licensee agrees and acknowledges the limitations placed upon Licensor pursuant to Section F.4 of the GNE Ex-US License as of the Execution Date with respect to any Combination Product containing either IGF-I, or IGF-I combined with BP3, complexed or combined in any manner with any form of GH (a “GNE Combination Product”), in keeping with which limitations Licensee shall receive no right or license hereunder to engage in the human clinical development, marketing, or sale of any GNE Combination Product. In addition, Licensee agrees and covenants that it and its Affiliates will not, without Licensor’s prior written consent:

(a) engage in human clinical development, market or sell any GNE Combination Product; or

(b) sublicense the rights to engage in the activities set forth in Subsection 2.8 (a) to any Affiliate or third party. Nothing in this Section 2.8 shall be interpreted as prohibiting GNE from marketing and/or selling its growth hormone products and IGF-I (as permitted under the GNE Ex-US License) separately, even if such activities result in both products being prescribed on one or more occasion to the same patient(s), provided GNE does not actively market the products to be used in combination with each other without Licensee’s prior written consent.

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2.9 Other Cross Licenses. In the event either Party desires to incorporate technology in the discovery, research, composition of matter of, or the making or using of Licensed Products pursuant to a Development Plan (“Technology”), and if such Technology is Covered by Patent Rights which are necessary for the performance of the works contemplated by such Development Plan, in that such Patent Rights would be infringed by the commercial exploitation of the Licensed Product resulting from the performance of such Development Plan and which either are (i) Licensor Related Patent Rights; or (ii) Licensee Related Patent Rights, or (iii) owned by a third party (collectively, “Related Patent Rights”) such Party shall inform the JSC of such Related Patent Rights for the JSC’s consideration as part of its consideration of the Development Plan at issue. If the JSC approves incorporation of such Related Patent Rights, it shall determine (i) the allocation between the Parties of any costs owed or to be owed to such third party owning or Controlling such Patent Rights; or (ii) the consideration to be paid by one Party to the other Party for obtaining a cross license under such Related Patent Rights. If the JSC does not approve such incorporation or the Parties cannot agree upon such allocation of costs or consideration to be paid to the other Party, then the Party that made the proposal (Licensor or Licensee) may incorporate such Technology in the discovery, research or Development of the Licensed Product within the framework of a sole Development Plan, as and to the extent permitted under this Agreement, and use, have used import, have imported offer for sale, sell and have sold the result of such sole Development Plan in the Licensor Territory or Licensee Territory, as the case may be. The foregoing shall remain subject to the Opt-in right of the other Party as set out in Section 4.4.4 of this Agreement, itself subject to prior written agreement among the Parties on the consideration to be paid by the Opt-in Party to the Developing Party for a license under such Related Patent Rights, without which prior written agreement such Opt-in right shall not include a license under such Related Patent Rights.

3. GOVERNANCE

3.1 Joint Steering Committee

3.1.1 Constitution and Powers.

The Parties shall establish a Joint Steering Committee (“JSC”) which will consist of an equal number of representatives of each Party, initially designated at four (4) representatives appointed by each Party among its employees or consultants. Each Party shall, within thirty (30) days after the Effective Date, select its initial representatives and inform the other Party of such representatives and set a date shortly thereafter (no later than thirty (30) days) for the first meeting of such JSC, provided that such representatives shall be senior persons responsible for the applicable functional area (i.e., research, clinical development and regulatory, manufacturing, or commercialization) within each Party. The initial representatives from the Parties are set forth in Schedule 12. Each Party may replace its representatives at any time on prior written notice to the other Party. Each Party will have the right from time to time to invite to JSC meetings employees or consultants other than its representatives to address specific issues discussed at such JSC meetings. The chairperson of the JSC shall be appointed by Licensor.

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The JSC shall act as a consultative and decision making body for the purpose of designing and monitoring the implementation of Development Plans and generally shall act as the forum for information sharing among the Parties with respect to the Development of the Licensed Product, Commercialization Plans, Product Improvements, Combination Products and potentially Other Products (as and to the extent agreed by the Parties), their manufacture, supply and marketing. In particular, the JSC shall :

(i) exchange information (including Development, manufacture, supply and marketing information) related to the Licensed Product, Product Improvements, Combination Products and potentially Other Products and facilitate cooperation and coordination between the Parties as they exercise their respective rights and meet their respective obligations under this Agreement,

(ii) design an Initial Development Plan within one hundred and eighty (180) days following the Effective Date and which shall be undertaken by the Parties jointly as set forth in Section 4.3.1,

(ii) review proposals from either Party on any Subsequent Development Plans,

(iv) review and decide on any changes to the Development Plans,

(v) with respect to the Initial Development Plan and Joint Subsequent Development Plans :

• Allocate the duties among the Parties,

• Implement all activities and monitor and coordinate all activities, including scheduling and prioritization thereof,

• Develop a publication strategy and a calendar of key scientific and clinical meetings or other events,

• Determine the priorities with respect to seeking Marketing Authorization.

(vi) with respect to Subsequent Development Plans that is the object of sole Development by a Developing Party:

• Review the activities of the Developing Party under such Subsequent Development Plan,

• Review all Opt-In Information.

(vii) appoint working sub-groups whose duties and power shall be determined by the JSC and who shall meet as necessary to provide relevant information for the JSC to carry out its duties under this Agreement ; and

(viii) Liaise with and manage the JFC.

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(ix) promptly following the Effective Date, itself or through an appointed sub-group, become the forum for the discussion and analysis of the handling of regulatory matters in the Territory and the specific determination of the role of Licensee in acting as Licensor’s regulatory agent under Section 5.1.

3.1.2 Meetings of the Joint Steering Committee and Minutes.

The JSC shall meet at least twice (2) per Calendar Year for so long as the Initial Development Plan is being carried out by the Parties and Subsequent Development Plans are being jointly Developed by the Parties. Meetings of the JSC may be attended in person or by telephone or video conference. If in person, the location of the meeting shall alternate at a place decided by Licensor and Licensee, sequentially. The chairperson of the JSC shall be responsible for providing an agenda for each meeting at least ten (10) business days in advance of such meeting.

In the event one Party solely carries out Development under a Subsequent Development Plan, the JSC shall meet once a Calendar Year, unless otherwise mutually agreed (on a date and location to be mutually agreed in good faith between the Parties) only to review (i) the Subsequent Development Plan and material modifications thereto, (ii) implementation thereof and progress and (iii) Opt-in Information during the Opt-in Notice Period as set forth in Section 4.4.4 of this Agreement.

Responsibility for the preparation of minutes setting forth discussions held at each JSC meeting shall alternate between the Parties as directed by the chairperson, provided, however, that such minutes will not become official until agreed upon by the JSC representatives of both Parties. The minutes of such JSC meetings shall be reasonably detailed and distributed in draft minutes to all members of the JSC for comment and review within ten (10) business days after the relevant meeting. The JSC members shall have seven (7) business days to provide comments. The Party preparing the minutes shall incorporate timely received comments and distribute finalized minutes to all members of the JSC within twenty-four (24) business days of the relevant meeting.

3.1.3 Decision-making Authority.

Decisions of the JSC shall be taken unanimously. In the event of a disagreement or a deadlock, the matter shall be referred to senior executives of the Parties pursuant to Section 15.1. If the disagreement or deadlock persists and is not resolved in the period provided for in Section 15.1, Licensor shall have the right to cast a tie-breaking vote which shall be reasonably exercised. It is understood and agreed that the exercise by Licensor of a tie-breaking vote so as to resolve a disagreement or deadlock at the JSC shall in no way result in the elimination or reduction of Licensor’s obligation to use Diligent Efforts to participate and co-fund the Initial Development Plan and any Joint Subsequent Development Plans under the terms of this Agreement.

However, in the event that a dispute referred to the Parties pursuant to Section 15.1 is in relation to matters contemplated in Section 3.2.3 of this Agreement as to which the JFC is to agree, including those matters set forth in Section 2.1.4, or with respect to matters related to the manufacture, supply and marketing of Licensed Product in the Territory is referred

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to the JSC, Licensor shall have no tie-breaking vote in which event the provisions of Article 15 shall apply. For clarity, it is understood that as between the Parties, Licensor shall at all times have the right to control all decisions relating to the marketing and selling of the Licensed Product in the Licensor Territory.

3.2 Joint Finance Committee.

3.2.1 Membership. Upon the establishment of the JSC, the Parties shall establish a Joint Finance Committee (“JFC”) to be composed of one (1) employee representative appointed by each Party. Such representative shall be an employee with expertise and responsibilities in the areas of accounting, cost allocation, budgeting and financial reporting. The JFC representative of each Party may call on any additional employee of that Party to attend the JFC meeting on an ad hoc basis.

3.2.2 Meetings. The JFC will meet as appropriate but at least quarterly to review the following, as applicable: (i) each Party’s Development Costs; (ii) Net Sales, milestone payments, royalty payments; (iii) the results of any completed audits conducted in accordance with Section 7.2.4. In addition to the foregoing, in the event one Party solely conducts any Subsequent Development Plan, the JFC shall meet (on a date and location to be mutually agreed in good faith between the Parties) to review the Pre Opt-in Development Costs during the Opt-in Notice Period after receipt of the Opt-in Information.

3.2.3 Decisions of JFC. The JFC shall operate by consensus and decisions of the JFC shall be taken unanimously. If the JFC is unable to resolve a dispute regarding any issue presented to it, such dispute shall be referred to the JSC for resolution. The JFC shall operate under the direction of the JSC to provide services to and consult with the JSC in order to address the financial, budgetary and accounting issues under the Agreement. The JFC members may participate in any meetings of the JSC upon request of the JSC.

3.3 Coordination of JSCs and JFCs. The Parties acknowledge and agree that there is to be a separate Joint Steering Committee and Joint Finance Committee created pursuant to the Somatuline Agreement, with equal and potentially overlapping membership as that present on the JSC and JFC created pursuant to Section 3.1 and 3.2 above. Where possible, the Parties shall endeavor to coordinate and potentially combine meetings of the respective Joint Steering Committees and Joint Finance Committee meetings so as to ensure efficient governance and oversight of both collaborations between the Parties, including for example, holding such meetings on the same dates and/or same locations.

4. DEVELOPMENT PLAN AND CONDUCT OF DEVELOPMENT ACTIVITIES

4.1 Licensor On-going Development.

Licensor shall be solely responsible for the completion of the Licensor On-going Development at its own cost and expense with a view to obtain Marketing Authorization in the Target Label in the countries of the European Union in the Territory.

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Licensor shall promptly provide (or make available) to Licensee all relevant information relating to such Licensor On-going Development including without limitation the clinical data reports, regulatory files and submissions and correspondence with Regulatory Authorities resulting therefrom.

4.2 Development Plan – General.

Any Development Plan shall provide for the Development activities to be carried out by the Parties, either jointly or separately as the case may be. A Development Plan should avoid unnecessary duplication by the Parties in any activity and have a goal of an appropriate allocation of responsibilities in light of the Development activities involved. Each Party shall provide information to the JSC (including Confidential Information) necessary for the JSC coordinating and deciding on such Development Plan activities with the other Party.

Consistent with the above principles, the Development Plan should include:

• specific tasks, location of work, milestones, budgets (determined with reference to Development Costs), estimated timelines, immediate objectives, and long term objectives and a determination of the various research and development activities that shall be performed by each Party:

• provisions for manufacturing and supply of Licensed Product for clinical uses;

• Development activities including preclinical safety and other studies to support Phase I Clinical Trials, Phase II Clinical Trials and/or Phase III Clinical Trials and/or filing for and obtaining and maintaining Marketing Authorization; and

• identification of resource requirements of the Development Plan and allocation of those resources between the Parties.

4.3 Initial Development Plan and Subsequent Development Plans of Licensed Products and Other Products.

4.3.1 Initial Development Plan.

Each Party shall require its representatives at the JSC to use their Diligent Efforts to negotiate in good faith and prepare an Initial Development Plan within one hundred and eighty (180) days following the Effective Date along the guidelines set out in Schedule 6 to this Agreement. If the JSC approves an Initial Development Plan, it shall be attached hereto as Schedule 6-bis and may be amended or updated only upon approval by the JSC. The Initial Development Plan shall be updated annually by the JSC at a time decided by the JSC and suitable for both Parties’ planning and budgeting processes. The Initial Development Plan and any modifications thereto (including a change of scope of the responsibilities of the Parties or changes to the budgets) shall be approved by the JSC

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in the written minutes of the applicable JSC meeting. In the event the Parties agree on such Initial Development Plan, the Parties shall jointly perform and fund such Initial Development Plan as set forth in Section 4.4.3 and the Parties shall each have access to, and the rights to use in their respective territory, data arising out of such Initial Development Plan and shall jointly own the same (as Joint Know-How) as set forth in Section 8.3 of this Agreement.

4.3.2 Subsequent Development Plans for Product Improvements and Combination Products.

All Development activities for the Initial Product, Product Improvements or Combination Products (other than those set forth in the Initial Development Plan), shall be conducted pursuant to a Subsequent Development Plan in conformance with this Section 4.3.2, unless otherwise agreed by the Parties in writing. Each Party may propose to the other Party to perform a Subsequent Development Plan for a Product Improvement or a Combination Product : the JSC shall reasonably consider such proposals and the other Party may make comments or counter proposals with respect to all parameters of such proposal, including budget and the Parties shall thereafter negotiate in good faith with a view to agreeing on a Subsequent Development Plan.

In the event the Parties agree on such Subsequent Development Plan, the Parties shall jointly perform and fund such Subsequent Development Plan as set forth in Section 4.4.3 and the Parties shall each have access to, and the rights to use in their respective territory, data arising out of such Subsequent Development Plan and shall jointly own the same (as Joint Know-How) as set forth in Section 8.3 of this Agreement.

In the event a Party does not agree with and does not want at such time to participate in, a Subsequent Development Plan proposed by the other Party, the proposing Party may, at its own risk, decide unilaterally to perform such Subsequent Development Plan and may subcontract whole or part of such Subsequent Development Plan to the extent such subcontract is not detrimental to the Opt-In rights of the non-Developing Party set forth in Section 4.4.4(ii)(F) of this Agreement; provided, however that at any time during the Opt-In Period, the non-Developing Party may opt to perform and/or co-fund such Subsequent Development Plan, in which event the Opt-in Party may develop, market, promote, sell, have sold the Product Improvement or Combination Product arising from such Subsequent Development Plan in the Territory (where the Opt-in Party is the Licensee) or in the Licensor Territory (where the Opt-in Party is the Licensor).

Notwithstanding the foregoing paragraph, Licensor may only conduct Development activities in a Subsequent Development Plan and designed to take place in the Territory with the prior written agreement of Licensee, which shall not be unreasonably withheld or delayed; provided, however, that nothing herein shall be deemed to prevent Licensor from applying for a Marketing Authorization in the Territory as Licensor may deem appropriate. Once granted, the agreement of Licensee can not be withdrawn unless otherwise agreed with Licensor.

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For the avoidance of doubt, Licensee shall have no right to carry out any Development activity with regards to the Initial Product, Product Improvements, or Combination Products, except in the context of a Subsequent Development Plan, in compliance with this Section 4.3.2. In addition, Licensee may only conduct Development activities in a Subsequent Development Plan which are designed to take place in the Licensor Territory with the prior written agreement of Licensor, which shall not be unreasonably withheld or delayed, and which agreement, once granted, cannot be withdrawn unless otherwise agreed with Licensee, but which in all cases is subject to any rights GNE may have pursuant to Article IV of the GNE US License in the Licensor Territory.

4.3.3 Subsequent Development Plans For Other Products.

Notwithstanding each Party’s right of first negotiation for Other Products as set forth in Section 2.6, either Party may propose to the other Party, through the JSC, to participate in and perform a Subsequent Development Plan for an Other Product in which event the JSC shall reasonably consider such proposals and the other Party may make counter proposals with respect to all parameters of such proposal, including budget and the Parties shall thereafter negotiate in good faith with a view to agreeing on a Subsequent Development Plan for such Other Product.

In the event the Parties agree on such Subsequent Development Plan for an Other Product, the Parties shall jointly perform and fund such Subsequent Development Plan for an Other Product as set forth in Section 4.4.3. The Parties shall each have access to, and the rights to use in their respective territory, data arising out of such Subsequent Development Plan and shall jointly own the same (as Joint Know-How) as set forth in Section 8.3 of this Agreement.

In the event a Party does not agree with a Subsequent Development Plan for an Other Product proposed by the other Party, such other Party may, at its own risk, decide to perform such Subsequent Development Plan for an Other Product wherever in the world. To the extent a Party does not agree to participate in such Subsequent Development Plan, it shall not forfeit its rights of first negotiation under Section 2.6 but such Party shall not have any Opt-In right under Section 4.4.4(ii)F with respect to such Other Product unless and until mutually agreed upon by the Parties. The Developing Party may subcontract whole or part of such Subsequent Development Plan provided however that if such Developing Party is Licensor, such subcontract shall not be detrimental to the right of first negotiation of Licensee as set forth in Section 2.6 of this Agreement.

4.4 Conduct of Development Activities.

4.4.1 General Rules Applicable to Joint and Sole Development

The Parties shall use Diligent Efforts to conduct their tasks and obligations under any Development Plan:

• in accordance with good laboratory, good clinical and current Good Manufacturing Practices, to the extent these are applicable;

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• in accordance with all relevant legal requirements and shall be responsible for obtaining all necessary approvals therefor from any Regulatory Authorities or applicable competent authority; and,

• keeping or causing to be kept written laboratory notebooks and other records and reports of the results and progress of the works to be performed in sufficient detail for the Parties to accomplish their obligations under this Agreement.

The Parties acknowledge that time shall be of the essence in this Agreement and thus that the time deadlines defined in the Initial Development Plan and any Joint Subsequent Development Plan should be complied with and, as a matter of principle, not be postponed. However, the Parties agree that the time deadlines defined in the Initial Development Plan and any Joint Subsequent Development Plan may be reasonably modified by the JSC.

The obligations of any Developing Party pursuing sole Development under a Subsequent Development Plan shall be as set forth in Section 4.4.4.

Licensor reserves the right to reasonably exercise a tie breaking vote at the JSC at any time to change or modify the Initial Development Plan or any Joint Subsequent Development Plan, or to abandon whole or part thereof, if (i) it is required by Regulatory Authorities, (ii) there are duly justified scientific constraints, (iii) there are significant increases in the anticipated costs of Development, (iv) there are significant adverse events or conditions relating to the safety or efficacy of the Licensed Product, (v) there are significant, duly justified changes in the anticipated costs of manufacturing or (vi) the benefits of continued Development do not outweigh the risks. In the event Licensor requests a modification or successive modifications of the Initial Development Plan or of a Joint Subsequent Development Plan which shall , individually or cumulatively, result in an increase of the aggregate Development Costs to be incurred by more than fifty (50) percent, such modification shall not be effective unless and until approved by the senior executives of the Parties as provided for in Section 15.1. In case of failure of the senior executives of the Parties to find a common agreement on such modification, Licensee shall have the right to terminate its performance and funding of the Initial Development Plan or the Joint Subsequent Development Plan, as the case may be, provided however that Licensee shall nonetheless retain it’s Opt-In rights set forth in Section 4.4.4 (ii) F of this Agreement.

4.4.2 Determination of Development Costs

All Development Costs associated with the Development activities carried out by the Parties jointly under the Initial Development Plan or any Joint Subsequent Development Plans or solely by the Developing Party shall be accounted for as follows:

• Internal costs of Licensee: EUR [*] per FTE; and Internal costs of Licensor : $[*] per FTE. This reference unit cost shall be reviewed annually by the Parties on the basis of the inflation rate in the European Union and the U.S., respectively.

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• External costs: at cost, as properly documented and consistent with the cost recorded for services rendered by third parties in the Developing Party’s books in any corresponding period.

4.4.3 Funding of Joint Development.

The Initial Development Plan shall be jointly performed and funded by the Parties. To the extent any Subsequent Development Plan is agreed upon by both Parties pursuant to Section 4.3.2 or 4.3.3, the Parties shall be obligated to jointly perform or fund such Subsequent Development Plan at the percentage set forth below (“Joint Subsequent Development Plan”).

All activities undertaken by the Parties pursuant to the Initial Development Plan and any Joint Subsequent Development Plan shall be funded by the Parties in the following proportion: Licensor shall be responsible for sixty percent (60%) of all Development Costs, and Licensee shall be responsible for forty percent (40%) of all Development Costs. As used in this Agreement, “Licensor Allocation” shall mean such sixty percent (60%) of the Development Costs as provided in the foregoing sentence, as the case may be and “Licensee Allocation” shall mean such forty percent (40%) of the Development Costs as provided in the foregoing sentence, as the case may be. Within thirty (30) days of the end of each Calendar Quarter, each Party will notify the JFC in writing of the Development Costs incurred by such Party during such Calendar Quarter, and the JFC shall aggregate such Development Costs and allocate them to the Parties in accordance with the percentages set forth in the foregoing sentence. Where needed in order to reflect such allocated Development Costs, corresponding “true up” payments will be made by the Party underpaying its share of Development Costs to the Party having overpaid its share, quarterly within sixty (60) days following the end of each Calendar Quarter.

4.4.4 Sole Development by one Party and Opt-in Rights.

(i) Decision for Sole Development. In the event that the Parties have not agreed to jointly perform or fund any Subsequent Development Plan pursuant to Section 4.3.2, either Party may pursue and fund at its own risk the Subsequent Development Plans (the “Developing Party”) as and to the extent permitted by this Agreement, in which case the provisions of this Section 4.4.4 shall apply.

(ii) Development Efforts.

A. General. Subject to the restrictions set forth in subsection B below regarding conducting Development activities in the non-Developing Party’s territory, the Developing Party shall make Diligent Efforts (without the duty to make additional expenditures beyond that required to obtain regulatory approval in its own Territory) to perform pre-clinical and clinical activities in a manner that would be suitable for filings for Marketing Authorization in the Licensor Territory (if Licensee is the Developing Party) or in the Territory (if Licensor is the Developing Party), as applicable, should the non-Developing Party subsequently exercise its Opt-in rights pursuant to subsection F below. The Developing Party shall provide the JSC with quarterly reports outlining the results of each completed material pre-clinical and clinical study during the preceding Calendar Quarter. Notwithstanding the foregoing, the Developing Party shall not be required to continue any Subsequent Development Plan or to complete any tasks enumerated therein, prior to the time the other Party exercises its rights to Opt-in.

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B. Territorial Restrictions. If Licensee is the Developing Party, it shall only carry out the Development activities in the Territory or, outside the Territory but only with the prior written consent of Licensor. If Licensor is the Developing Party, it shall only carry out Development activities outside the Territory or, in the Territory, but only with the prior written consent of Licensee.

C. Supply Obligations. If Licensee is the Developing Party, Licensor shall supply Licensee with IGF-1 or Licensed Product as clinical supplies in accordance with Article 6 and in quantities to be reasonably determined by the JSC.

D. Subsequent Development Plan.

Each Party shall have the opportunity to provide input and suggestions with regard to such Subsequent Development Plan. Notwithstanding the foregoing, Licensor shall have the sole right to prohibit any activity related to any Development under a Subsequent Development Plan pursued by the Licensee as Developing Party if Licensor exercises a tie breaking vote as set forth in Section 4.4.1. If Licensor prohibits such activity, the JSC and the Developing Party shall comply with such decision and such activity shall be excluded from the Subsequent Development Plan. The Subsequent Development Plan shall be updated by the Developing Party in accordance with the next sentence and be presented to the JSC at its next meeting. Material modifications to the Subsequent Development Plan shall be submitted to the JSC for review.

E. Development Costs under Subsequent Development Plan.

The Developing Party shall be responsible for all Development Costs related to such Subsequent Development Plan, subject to Opt-in by the other Party and sharing of costs pursuant to Section 4.4.4 (ii) (F) below. The Developing Party shall record separately in its books in an auditable manner, all its Pre Opt-in Development Costs.

F. Opt-in.

(a) General. With respect to each Subsequent Development Plan pertaining to the Development of a Licensed Product for a particular Indication, the non-Developing Party (the “Opt-in Party”) shall have the option to decide to participate (“Opt-In”) in the performance and the funding of such Subsequent Development Plan at such times during the performance of the Subsequent Development Plan as are set forth below (each, an “Opt-In Period”):

• At any time during pre-clinical development and up to the date of allowance of the first IND in the Licensor Territory or the Territory under the relevant Subsequent Development Plan (“Opt-In Period 1”);

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• Within thirty (30) days of receipt of data following completion of each Phase I Clinical Trial under the relevant Subsequent Development Plan (“Opt-in Period 2”);

• Within sixty (60) days of receipt of data following completion of each Phase II Clinical Trial under the relevant Subsequent Development Plan (“Opt-in Period 3”);

• Within thirty (30) days of receipt of data following completion of each Phase III Clinical Trial with the Licensed Product under the relevant Subsequent Development Plan and until the filing of a New Drug Application (or equivalent in any country of the Territory) under such relevant Subsequent Development Plan, (“Opt-in Period 4”);

• At any time after the filing of the first New Drug Application (or equivalent in any country of the Territory) under the relevant Subsequent Development Plan and before the end of the thirty (30)-day period following the date of obtaining the first Marketing Authorization under such relevant Subsequent Development Plan (“Opt-in Period 5”),

• Within the thirty (30) day period after expiry of Opt-in Period 5 (i.e., following expiration of the initial thirty-day period following the date of obtaining Marketing Authorization) (“Opt-in Period 6”). In the event the Licensor is the Developing Party and the Licensee has failed to Opt-in by the end of the Opt-in Period 6, through the failure to deliver either the Opt-in Notification or Opt-in Payment as set forth below to the Developing Party, Licensor shall be entitled to serve a termination notice pursuant to Section 4.4.4(ii)F(e).

Notwithstanding the foregoing general framework, the Parties agree that at the time the non-Developing Party elects not to pursue a Subsequent Development Plan, they shall also agree upon in good faith, through the JSC, for that Subsequent Development Plan, and depending upon the nature and subject matter thereof, which trials proposed to be conducted thereunder shall comprise a “Phase I Clinical Trial” or “Phase II Clinical Trial” or “Phase III Clinical Trial” to best provide a fair and reasonable opportunity for the non-Developing Party to Opt-in at appropriate value creation events, and the Developing Party to receive the appropriate Opt-in Payment associated with those value creation events, as specified in Section 4.4.4(ii) F(c) below. Upon generation of the statistical analyses for the primary endpoint(s) for any such trial, the Developing Party shall provide a report of such statistical analyses and all other analyses available at the same time, as defined in the statistical analysis plan for such trial. In addition, the Developing Party shall also provide to the other Party a final clinical study report signed by the relevant responsible person in the respective Party (the “Final Report”).

In such event of Opt-in, the Opt-in Party shall notify its exercise of its right to Opt-in in writing to the Developing Party (the “Opt-In Notification”). The Opt-in Notification shall contain confirmation that the Opt-in Party has paid the relevant Opt-in Payment (as defined in Section 4.4.4 (ii) F (c) below) to the Developing Party. In case of failure to Opt-in pursuant to this paragraph, the provisions of Section 4.4.4 (ii) F (e) shall apply.

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As used above with respect to a clinical trial, “receipt of data following completion” shall mean the receipt by the Opt-in Party of the Final Report, provided however that the Opt-in Party may, at its discretion elect to Opt-in on the basis of the final statistical analysis, tables figures and listing delivered by the Developing Party as discussed above.

(b) Pre Opt-in Development Costs and Post Opt-in Development Costs. As used herein, “Pre Opt-in Development Costs” means Development Costs incurred by the Developing Party with respect to the Subsequent Development Plan up until the applicable Opt-in Notice Date, including costs of acquiring ownership or Control of Patent Rights or Know-How in relation to the Product Improvements, the Combination Products or the Other Products, as the case may be, as are the subject of such Subsequent Development Plan and related to the Opt-in Information supplied by the Developing Party to the Opt-in Party. “Post Opt-in Development Costs” means Development Costs incurred thereafter for the continuation of the Subsequent Development Plan.

(c) Opt-in Payment. The Opt-in Payment will vary with the specific Opt-in Period during which the Opt-in Notification is received by the Developing Party and shall be paid by the Opt-in Party to the Developing Party concomitantly with the Opt-in Notification. The Opt-in Payment will be equal to the relevant percentage as set forth below of (i) the Licensor Allocation of the Pre Opt-in Development Costs if Licensor is the Opt-in Party and (ii) the Licensee Allocation of the Pre Opt-in Development Costs if Licensee is the Opt-in Party:

• The relevant percentage shall be [*]% if the Opt-in Party exercises its Opt-in during Opt-in Period 1 or Opt-in Period 2;

• The relevant percentage shall be [*]% if the Opt-in Party exercises its Opt-in-during Opt-in Period 3,

• The Opt-in Payment shall be [*]% if the Opt-in Party exercises its Opt-in during Opt-in Period 4

• The Opt-in Payment shall be [*]% if the Opt-in Party exercises its Opt-in during Opt-in Period 5

• The Opt-in Payment shall be [*]% if the Opt-in Party exercises its Opt-in during Opt-in Period 6.

(d) Exercise of Opt-in.

A. Provision of Opt-in Information.

(a) Timing. The Developing Party shall provide, on a continuing basis, Opt-in Information (as defined below) to the other Party as provided herein. Such Party shall provide such Opt-in Information on any on-going preclinical activities promptly following accrual thereof and such Opt-in Information upon completion (as defined below) of the

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first Phase I Clinical Trial, Phase II Clinical Trial and Phase III Clinical Trial with respect to any Subsequent Development Plan but in no event more than thirty (30) days after completion of the data analysis for such clinical trial. For the purposes of this Section, the term “end” or “completion” shall mean that results from the clinical trial at issue have been fully collected, analyzed and formatted consistently with the guidance provided by the appropriate Regulatory Authority. The date of receipt by the other Party of all information accrued from the Subsequent Development Plan which is reasonably available to the Developing Party and which would be reasonably material and necessary for the other Party to make a decision regarding exercising such Opt-in during the Opt-in Period at issue for such indication shall be the “Opt-in Notice Date”.

(b) Content. “Opt-in Information” shall include but is not limited to: a copy of the final clinical study report and data, results (including but not limited to results from the clinical trial at issue), reports and protocols and interpretations of clinical trials, a detailed accounting of all Pre Opt-in Development Costs; all analyses and information relating to predicted manufacturing costs and any other pertinent manufacturing information (if available to the relevant Party); anticipated regulatory costs and fees; Regulatory Authority documentation and correspondence; and information relating to expected third party royalty obligations. The Party receiving such Opt-in Information shall only use such Opt-in Information to decide whether to exercise an Opt-in. If such Party does not exercise an Opt-in, such Party shall not use such Opt-in Information for any other purpose, shall return the same to the Developing Party and shall maintain its confidentiality, provided that such information qualifies as Know-how of the Developing Party.

B. Opt-in Procedure and Providing Additional Information.

(a) Opt-in Procedure. Following the Opt-in Notice Date, the non-Developing Party shall have the right, up until the end of the relevant Opt-in Period (the “Opt-in Notice Period”), to cause the JSC to meet to address any issues arising out of the Opt-in Information, including calculation of or accounting for any Pre Opt-in Development Costs. Then, during such Opt-in Notice Period, the non-Developing Party shall have the right to elect to participate together with the other Party in the Subsequent Development Plan by providing the Developing Party with written notice of its decision to so participate and by paying the Opt-in Payment to the Developing Party (such notice and such reimbursement payment are herein collectively referred to as an “Opt-in” by such Party) by a date which is prior to the end of the Opt-in Period at issue. If the Party electing to Opt-in fails to pay the Opt-in Payment to the Developing Party, and continues to fail to make such payment within ten (10) business days of written notice from the other Party (except that withholding disputed amounts shall not be deemed a failure to make such reimbursement payment), then such Party shall be deemed to have declined such Opt-in for such Subsequent Development Plan during the Opt-in Period at issue, but shall continue to have the right to Opt-in unless and until expiration of Opt-in Period 6.

(b) Obligation to Provide Additional Information. During the Opt-in Notice Period, (1) the Developing Party shall have an affirmative obligation to provide the other Party with any additional available information which would be reasonably

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material for such other Party to make an Opt-in decision and, (2) each Party may request additional information which would be reasonably material for it to make an Opt-in decision and the Developing Party shall supply such information to the extent it is reasonably available and necessary for the Opt-in decision.

(c) Extension. In the event a Developing Party supplies additional information pursuant to the preceding sentence and there are fewer than thirty (30) days remaining in the relevant Opt-in Period, such Opt-in Period shall be extended to such date that is thirty (30) days after the provision of such additional information. A Party may, at its sole discretion, notify the Developing Party in writing before the expiration of its rights set forth herein, that it waives such rights and such Opt-in rights shall thereby terminate. The Opt-in Period may be extended by this Section only once with respect to each Subsequent Development Plan.

C. Pre Opt-in Development Costs and Post Opt-in Development Costs.

(a) Timing of Reimbursement of Pre Opt-in Development Costs. At the same time a Party provides the Opt-in Notification, such Party shall pay to the other Party the Pre-Opt in Development Costs.

(b) Disputes. A Party may audit Pre Opt-in Development Costs submitted by the other Party pursuant to this Agreement or may appoint internationally-recognized professional accountants to do so. In the event that a Party reasonably disputes specific items contained in the other Party’s calculation of Development Costs due to the other Party’s incorrect calculation of Pre Opt-in Development Costs, such Party shall pay the amounts not in dispute or in question and such disputed or questioned amounts shall be identified by the JFC and submitted to the JSC who shall promptly meet or confer to resolve such disputes or questions. Within seven (7) business days following resolution of such matters, one Party shall pay or reimburse to the other Party the appropriate remaining balance. In the event the JSC is not able to resolve a dispute concerning the reimbursement of Development Costs under this Section, the Parties shall follow the dispute resolution procedure in Article 15.

D. Joint Development After Opt-in. After any Opt-in, the Parties shall jointly conduct all future Development activities that are planned in the relevant Subsequent Development Plan for which the non-Developing Party has exercised its Opt-in. For clarity, all such activities by either Party commencing from the Opt-in Notice Date shall be subject to approval by the JSC pursuant to Section 3.1.1 and thereafter the Parties will participate in co-development and such Post Opt-in Development Costs (as of Opt-in Notice Date) shall be funded by the Parties in the following proportion: Licensor shall be responsible for the Licensor Allocation of such Post Opt-in Development Costs, and Licensee shall be responsible for the Licensee Allocation of such Post Opt-in Development Costs, only to the extent the foregoing Post Opt-in Development Costs are set forth in the Subsequent Development Plan approved by the JSC. Corresponding payments will be made as provided under Section 4.4.3.

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(e) Consequences of Non-Exercise of Opt-in by Licensee. In the event Licensee has not Opted in with respect to a Subsequent Development Plan of Licensed Product during Opt-in Period 6 or prior thereto, and therefore has not paid the relevant Opt-in Payment as set forth in Section 4.4.4 (ii) F (c) of this Agreement to Licensor as the Developing Party, Licensor may serve a sixty (60) days termination notice to Licensee; in the event that Licensee does not make such payment within such sixty-day termination notice period, Licensor shall have the right to terminate this Agreement at any time within two (2) months of expiration of such sixty (60) day termination notice period and such termination shall take effect seven (7) months after the expiration of the sixty (60) day period and the provisions of Section 9.3 (except for 9.3.1(b)) shall apply, provided however that if Licensee can reasonably demonstrate to Licensor that (i) the market potential of such Product Improvement or Combination Product which is the subject of such Subsequent Development Plan does not justify the investment required from Licensee to bring such Product Improvement or Combination Product to the market in the Territory or (ii) such Product Improvement or Combination Product can be clearly differentiated from the Licensed Product then being Developed or sold in the Territory, then this Agreement may not be terminated by Licensor, but Licensor shall be entitled to develop, market, promote sell and have sold such Product Improvement or Combination Product anywhere in the Territory, notwithstanding the licenses granted in Section 2.1, and with no duty of accounting or other payment to the Licensee in such event.

5. COMMERCIALIZATION

5.1 Responsibility for Regulatory Affairs. Licensor shall be responsible for all regulatory affairs related to obtaining the initial EU Marketing Authorization of the Licensed Product, and Licensee shall be responsible for regulatory affairs in all other countries in the Territory. For each country in the Territory, the obligations of the Party responsible for regulatory affairs in such country shall include the preparation and filing of applications for Marketing Authorizations in such country. Licensor shall use Diligent Efforts to file and obtain the initial EU Market Authorization of the Licensed Product in its own name or that of its Affiliates, but any failure to so obtain Marketing Authorization in any given country of the Territory shall not constitute a material breach of this Agreement. Upon obtaining of Marketing Authorizations and subject to applicable laws, Licensor shall promptly appoint Licensee as Licensor’s regulatory agent to perform, on behalf of but at no cost to Licensor, those activities that are the responsibility of the Licensor as Marketing Authorization holder. Following the date of the grant of the Marketing Authorization, Licensee shall (a) consult with Licensor regarding the regulatory strategy in the EU and consider in good faith Licensor comments regarding the same, (b) promptly provide Licensor with copies of all correspondence received by Licensee from Regulatory Authorities within the EU, copies of any draft response and (c) consider in good faith Licensor’s comments thereon prior to filing any such response. The Parties agree to initiate, promptly following the Effective Date through the JSC or a sub-group established by the JSC, discussion and analysis of the handling of regulatory matters with respect to the Licensed Product in the Territory and specific determination of the role of Licensee in acting as Licensor’s regulatory agent in the Territory, as well as discussion with regard to regulatory strategy and regulatory matters within the Territory outside the European Union.

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Licensee will be solely responsible, at its own cost, for conducting at its cost all formalities, steps and negotiation with Regulatory Authorities or any governmental entity in establishing the resale pricing and acquiring reimbursement for the Licensed Product in the Territory.

The Parties shall cooperate with each other in supplying data or documents that may be requested or required by the other Party with respect to government regulation, registrations, or approvals in a timely manner and in manner that does not jeopardize the gaining or maintaining of a Marketing Authorization. In addition, as set forth in Section 3.2(c) of the GNE US License and the GNE Ex-US License, in the event that GNE elects under the terms of Section 3.2(c) of the GNE US License and the GNE Ex-US License to take over Development of IGF-1 for the Initial Indication 2 (as those terms are defined in the GNE US License), Licensor shall so inform Licensee, and where requested by GNE, Licensor and Licensee shall negotiate in good faith the terms under which Licensee shall allow Licensor to allow GNE to cross-reference any INDs, BLAs, clinical data or other submissions filed by Licensee or on its behalf with any FRA (as that term is defined in Section 1.25 of the GNE Ex-US License) and provide Licensor (for provision to GNE) with copies of any FRA documentation, for the purposes of Development and/or commercialization of Licensed Product for the Initial Indication 2 under the GNE US License and the GNE Ex-US License.

5.2 Pharmacovigilance Safety Data Exchange Agreement. A pharmacovigilance safety data exchange agreement on standard and customary terms and conditions shall be negotiated and executed between Licensor and Licensee within ninety (90) days as from the Effective Date, but in any event prior to Licensee initiation of any human clinical trials or marketing of the Licensed Product. Such pharmacovigilance agreement shall cross reference the approved risk management plan contained within Licensor’s submission to the EMEA.

5.3 Commercialization Efforts. Licensee shall be solely responsible and shall use Diligent Efforts for the promotion and commercialization of the Licensed Product in the Territory in accordance with the Commercialization Plan. However, Licensor acknowledges that the Licensed Product’s potential may vary from country to country or change from time to time based upon the existence of competing products, as well as scientific, business, marketing and return on investment considerations. Consequently, Licensee (and its Affiliates) may for such reasons elect not to seek to market the Licensed Product in every country of the Territory. Such election by Licensee not to perform any of these activities in any specific country of the Territory for the reasons stated above shall not be a material breach of this Agreement.

Without limiting the generality of the foregoing, the Parties shall agree within the JSC upon a Commercialization Plan for each Licensed Product for each country of the Territory where Licensee intends to commercialize the Licensed Product, within one hundred and twenty (120) days after the Effective Date for the Initial Product or within one hundred and twenty (120) days after the filing of the first Marketing Authorization application for any other Licensed Product as to which Licensee has a license under Article 2, as the case may be. The first Commercialization Plan shall cover

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the remainder of the Calendar Year in which it is prepared and the two subsequent Calendar Years. The Commercialization Plan shall be updated annually in October or earlier, if in the interim a new filing of Marketing Authorization application in any country of the Territory has occurred with respect to such Licensed Product, or, as regards Third Party Countries, upon notification by Licensor of the availability of the rights in a Third Party Country. Sales Forecasts included in the Commercialization Plan shall be reviewed and agreed by the Parties within the JSC at the time of annual update of the Commercialization Plan, provided, however, that during such annual review the Sales Forecasts of the Calendar Year during which the review is conducted or the subsequent Calendar Year shall not be modified, unless agreed unanimously by the JSC, in light of, for example, the occurrence of one or more events in the Territory of the following nature: (i) changes in regulatory approval or compliance requirements having an adverse impact upon the sales or projected sales of the Licensed Product, (ii) the entrance of a generic competitor prior to the time anticipated in such market as a result of the loss by either Party of any patent infringement action with respect to such generic competitors and prior to expiration of the Licensed Patent Rights; or (iii) actual or anticipated disruption of supply of Licensed Products by Licensor, or (iv) any Force Majeure event .

5.4 Commercial Diligence.

5.4.1 Minimum Sales. Licensee shall achieve annual minimum sales of the Licensed Products (aggregated across all Licensed Products) which shall be equal to [*] percent of the applicable Sales Forecasts for such Calendar Year on a country-by-country basis (the “Country Minimum Sales”). The total of all annual Country Minimum Sales is defined as the “Aggregate Minimum Sales Requirements”. After the end of the first full Calendar Year following the Calendar Year in which the First Commercial Sale of the Licensed Product in the Territory occurs, in the event Licensee fails in any subsequent Calendar Year (e.g., if First Commercial Sale occurs in 2007, such failure would have to occur in 2009 or later) to achieve the Aggregate Minimum Sales Requirements (except for Force Majeure reasons or disruption of supply of Licensed Products by Licensor), Licensee will owe to Licensor the “Net Sales Compensation” as defined below within thirty (30) days the end of the relevant Calendar Year. In the event that, Licensee (i) does not pay the Net Sales Compensation due with respect to any Calendar Year within such thirty (30) days or (ii) has paid the Net Sales Compensation for two (2) consecutive Calendar Years and is liable for payment of the Net Sales Compensation for a third consecutive Calendar Year, Licensor shall have the right to terminate this Agreement with respect to such country with respect to which Licensee has failed to pay the Net Sales Compensation or is liable for payment of the Net Sales Compensation for a third consecutive Calendar Year, as the case may be. The “Net Sales Compensation” for any Calendar Year shall be equal to the Aggregate Minimum Sales Requirements applicable for such Calendar Year less the aggregate Net Sales realized during such Calendar Year multiplied by the applicable royalty rate.

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5.4.2 Promotional Diligence. Should Licensee fail to undertake and fund [*] ([*]%) of its Promotional Efforts as specified in the Commercialization Plan during [*] consecutive Calendar Years in any country of the Territory and should Licensee also have failed to achieve the Country Minimum Sales for such country as set forth in Section 5.4.1 for each of such two (2) consecutive Calendar Years, Licensor shall have the right to terminate this Agreement with respect to such country. The Licensee shall provide access to its internal budget and actual spending data as required in case there is an under spend as defined in this Section 5.4.2 and provide available external data sources (i.e to measure sales force activity) to the same effect.

5.4 Minimum Inventory. Licensee shall at all times maintain a sufficient inventory of the Licensed Products available for immediate delivery to customers in the Territory, which shall correspond at least to the Territory-wide volume of Licensee’s sales for the next three (3) forecasted months (which inventory amount shall be reviewed by the Parties after the first Calendar Year following the Calendar Year in which the First Commercial Sale occurred and modified if necessary by the Parties’ mutual written agreement), and shall use all means and make all arrangements necessary to fulfill in due time all orders it receives from customers.

5.5 Sales Reporting and Records.

5.5.1 Monthly Sales Report.

Licensee undertakes to forward to Licensor before the 5^th working day of each calendar month a Licensed Product sales record expressed in value (in Euros) and volume by Licensed Products. Licensee shall use for this purpose the Monthly Sales Report template attached in Schedule 7 to this Agreement or any other template that may be agreed by the Parties from time to time. These reports shall be signed and sent by email and by courier to Licensor.

5.5.2 Sales Reports.

Before February 27^th of each Calendar Year, Licensee undertakes to forward to Licensor a report on the preceding Calendar Year showing :

• the Licensed Product sales achieved by Licensed Product in unit and in local currency;

• the Licensed Product sales development by customer and by Licensed Product showing sales trends;

• Licensed Product returns and claims from the market ;

• Impact of competing products including those constituting Market Competition (including the IMS data on the therapeutic classes to which the Licensed Products pertain), pricing, acceptance of the Licensed Products by the medical profession, hospitals, pharmacies, and chemistries, in the Territory.

These reports shall be signed and sent by email and by courier to Licensor.

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5.5.3 Sales record. Licensee shall keep complete, accurate and detailed records of all sales of Licensed Products during a period of three (3) years as from the date of such sales being made. Licensor or its agent may consult such records at Licensee’s premises at any time during business hours with fifteen (15) days notice, in order to make the customary verifications of the amount of sales performed by Licensee.

5.6 Promotional Materials. Licensee shall forward a copy of all promotional materials, including but not limited to brochures, video tapes and medical information that Licensee is using for the promotion of the Licensed Products in the Territory.

Licensee shall ensure that all promotional materials comply with local laws and regulations of the relevant country of the Territory and do not infringe third party’s rights. Therefore, notwithstanding the communication of Licensor on such promotional materials, only Licensee shall be held liable in case of breach of local laws and regulation or infringement of third parties’ rights.

All costs linked to the promotion of the Licensed Products shall be borne by Licensee exclusively.

Upon early termination by one Party of this Agreement, subject to Licensee’s rights to continue sales for up to six (6) months under Section 9.3.1(b) Licensee shall, upon request and at Licensor’s discretion, either destroy or immediately return to Licensor, at no cost, all promotional materials conceived and printed by Licensee, for Licensor’s unrestricted use.

5.7 Restrictions. Licensee shall not actively sell, advertise nor seek customers for the Licensed Products outside the Territory. During the term of this Agreement, Licensee will not manufacture, promote, distribute nor sell, either directly or indirectly, any pharmaceutical products in the Field having at least one same Indication as the Licensed Product and/or containing IGF-1 analogs or derivatives with more than 80% sequence homology. To the extent the foregoing restrictions would not be enforceable in the Territory then the comparable restrictions as set forth in the Somatuline Agreement with respect to the activities of Licensor, shall not apply against Licensor in that Agreement.

5.8 Product Recalls. Product recalls procedure shall be set out in the Technical Agreement.

6. MANUFACTURING AND SUPPLY

6.1 General.

6.1.1 Initial Product. Licensor shall manufacture and supply to Licensee the Initial Product, as and to the extent set forth in this Article 6. With respect to the Initial Product, the Parties will collaborate to agree and implement within one hundred and twenty (120) days following the Execution Date, a separate agreement relating to technical requirements including without limitation supply organization, quality assurance, specifications, complaints and batch recall, control of material, analytical testing and validation of the Initial Product (the “Technical

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Agreement”). Licensee understands and acknowledges that as of the Execution Date, Licensor does not manufacture itself the Initial Product, but rather relies upon certain third party contract manufacturers to supply bulk active and finished product. In that regard, Licensor has entered into that certain Manufacturing Services Agreement, as of December 20, 2002, with Cambrex Bio Science Baltimore, Inc. as amended (the “Cambrex Agreement”) for the manufacture and supply of IGF-1 bulk drug substance. In addition, Licensor has entered into that certain Drug Product Development and Clinical Supply Agreement with Baxter Pharmaceutical Solutions LLC for finished dosage form of the Initial Product (the “Baxter Existing Agreement”) for development or clinical purposes, and is, as of the Execution Date in negotiations with alternative commercial manufacturers with respect to a commercial supply arrangement for finished dosage form of the Initial Product (once executed, or to the extent another commercial supply agreement is entered into with a party other than Baxter, the “Drug Product Commercial Agreement”). To the extent the terms in this Article 6 are inconsistent with those in the Technical Agreement, the terms in the Technical Agreement shall control.

6.1.2 Product Improvements and Combination Products. In addition, as and to the extent agreed upon by the Parties with respect to any Joint Subsequent Development Plan or Subsequent Development Plan for which Licensee Opts-in, for a Product Improvement or Combination Product, the manufacture and supply of such Product Improvement or Combination Product to Licensee shall be as agreed upon by the Parties in writing (including as needed the execution of a Technical Agreement for each such Product Improvement or Combination Product), depending upon the existing third party manufacturing agreements Licensor then has in place at such time with respect to such Product Improvement or Combination Product.

6.2 Purchase Requirements for Commercial Supply. For the first five (5) years after the Execution Date, Licensee shall purchase exclusively from Licensor all of its requirements for Licensed Products to conduct any Development activities as set forth in this Agreement and to meet demand in the Territory. After the 5^th anniversary of the Execution Date, Licensee shall purchase from Licensor (i) 100% of its Licensed Products requirements for any country of the Territory which is not a member state of the European Economic Area and (ii) 80% of its Licensed Products requirements for any country of the Territory which is a member state of the European Economic Area.

6.3 Clinical Supply Requirements. To the extent needed by Licensee, Licensor shall supply clinical requirements of the Initial Product in either bulk active form or finished dosage form, as further set forth in the Initial Development Plan or any Subsequent Development Plan, as relevant. Such Initial Product shall be supplied at a price equal to Licensor’s internal and out of pocket costs, on a schedule to be determined within the Development Plan, including all costs of carriage and insurance, and such costs shall be paid within thirty (30) days of invoice for same.

6.4 Delivery. Delivery of the Licensed Products shall be CIP (Carriage and Insurance Paid, Incoterms 2000), Rue Ethe Virton, 28000 Dreux (the “Delivery Point”).

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6.5 Commercial Supply Price. For launch and the first Calendar Quarter of the year in which launched, Licensee shall purchase the Initial Products and Samples at the per unit prices listed in Schedule 8 (the “Supply Price”), as of the Execution Date. The Parties acknowledge that the ongoing Supply Price of the Licensed Products shall be equal to twenty percent (20%) of average selling price per unit sold of the Licensed Product in the Territory, Accordingly, following such first Calendar Quarter, Licensee, through the JFC shall calculate the average selling price per unit sold of the Licensed Product in the Territory over the prior Calendar Quarter, and such amount shall be used as the new average selling price per unit sold for all units of Licensed Product purchased during the remainder of the relevant Calendar Year. Each year prior to 30^th January, the JFC shall calculate the average selling price per unit sold of the Licensed Product in the Territory during each preceding Calendar Year and such amount shall be used as the new average selling price per unit sold for all units of Licensed Product to be purchased for the next Calendar Year. As the Supply Price is or may be adjusted annually for each newly calculated average selling price per unit sold of the Licensed Product in the Territory, Schedule 8 shall be updated to so reflect such adjusted price. Within thirty (30) days after the end of a Calendar Year, the Parties, through the JFC, will calculate the actual average selling price per unit sold of the Licensed Product in the Territory and review the Supply Price of the Licensed Products paid to Licensor in light of such actual average selling price per unit sold and Licensee shall adjust the supply price, retroactively, to an amount equal to twenty (20) percent of the actual average selling price per unit sold in the preceding Calendar Year. Such adjustment shall take the form of the issuance (within ten (10) days following such adjustment) by the Licensor of a credit for the amount overpaid or an invoice for the amount remaining due, as the case may be; the invoice (if applicable) shall be settled within thirty (30) days following the date of invoice. In addition, such actual average selling price per unit sold will also be used as the new Supply Price for the current Calendar Year. As used herein, “average selling price per unit sold” shall mean aggregate Net Sales of Licensed Products for the Territory during the applicable Calendar Year, divided by actual number of units of Licensed Product comprising such Net Sales (including free goods but excluding samples).

Licensor shall invoice Licensee upon shipping of the Licensed Products for any Binding Orders. Payment of such invoice shall be made by Licensee to Licensor within thirty (30) calendar days of the date of the invoice and shall be made by wire transfer, using the information below or as Licensor may from time to time direct in writing in its invoicing:

Wells Fargo Bank
Beneficiary Name:	Tercica, Inc.
Account number:	[*]
Bank ID:	[*]
Swift code:	[*]
Contact:	Juan Sanchez
	Ph (415) 396-1011
	sanchjj@Wellsfargo.com

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Contact Information

Director of Accounting:	Ben Yokoyama
	(650) 624-4946
	ben.Yokoyama@tercica.com
Accounting Manager:	Anna Peng
	(650) 624-4978
	Anna.Peng@tercica.com

If Licensee fails to pay any amounts owing to Licensor here above when due, interest shall accrue on overdue amounts at an annual rate equal to the average one-month European Interbank Offered Rate (EURIBOR) plus two (2) percent as reported by the European Bank Federation (or a successor or similar organization) from time to time, calculated on the number of days such a payment is overdue.

6.6 Minimum Commercial Orders. The minimum quantities per order for the Licensed Products are specified in Schedule 9.

6.7 Order Forecast – Firm Order.

6.7.1 At least ninety (90) days before the expected First Commercial Sale of the Licensed Products in any country of the Territory, the Parties shall agree upon a monthly rolling order forecast for the first eighteen (18) months for each SKU of the Initial Product in such country(ies) (the “18-Month Rolling Order Forecast”) which shall be under the form as attached in Schedule 10. Thereafter, Licensee shall forward to Licensor before the 20th day of every calendar month a revised and adjusted 18-Month Rolling Order Forecast for the next eighteen (18) months for each of the countries where the Licensed Product is commercialized or is expected to be commercialized within less than ninety (90) days.

6.7.2 The forecast for the first three (3) months of the 18-Month Rolling Order Forecast shall constitute a firm purchase order unless Licensor informs Licensee of the non availability of the ordered quantities of Products (the “Binding Order”). The Binding Order relating to the 3^rd month of the 18-Month Rolling Order Forecast shall not exceed by more than twenty (20) percent the forecasts relating to the 4^th month of the preceding 18-Month Rolling Order Forecast. In the event the Binding Order relating to the 3^rd month of the 18-Month Rolling Order Forecast exceeds twenty (20) percent, Licensor shall use its Diligent Efforts to supply any exceeding quantities.

6.7.3 The forecast for the fourth (4^th) through sixth (6^th) months of the 18-Month Rolling Order Forecast shall constitute a commitment by Licensee to purchase at least fifty (50) percent of such forecasted amount for such months unless Licensor informs Licensee of the non availability of the ordered quantities of Products (the “Semi-Binding Order”). The Semi-Binding

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Order relating to the 4^th, 5^th, and 6^th months of the 18-Month Rolling Order Forecast shall not vary (upward or downward) by more than twenty (20) percent the forecasts relating to the 5^th, 6^th, and 7^th months, respectively, of the preceding 18-Month Rolling Order Forecast.

6.7.4 Licensee agrees that a Binding Order and/or a Semi-Binding Forecast cannot be modified, and that no changes or cancellations shall be allowed.

6.7.5 In any instance, one (1) month before the preferred shipping date, Licensee shall send a purchase order form using the form that will be forwarded by Licensor from time to time, with the quantities requested to be delivered to each country and/or region and the requested dates of delivery, it being understood that requested delivery shall occur no more frequently than once every six (6) months.

6.7.6 Licensor will use its commercially reasonable efforts to cause its third party manufacturer to accommodate the preferred delivery date mentioned by Licensee on the purchase order form which shall, if possible, not be less than ten (10) days after the date of receipt of the order form by Licensor. Licensee shall take timely delivery of all quantities of Licensed Products supplied by Licensor.

6.7.7 All forecasts and orders shall be sent by email and confirmed by fax or mail to the address set forth in the Technical Agreement.

6.7.8 The Parties agree that they will discuss any improvements to be made to the mechanism of providing forecasts and Binding Orders in a spirit of permanent improvement process.

6.8 Storage. Licensee shall provide warehouse facilities adequate to store the Licensed Products in accordance with the relevant and approved storage requirement as specified within the Technical Agreement and with standard requirements related to cGMP pharmaceutical product storage and handling.

6.9 Packaging. Licensor shall supply Licensee with finished dosage form of the Initial Products fully packaged and labeled ready for sale in each country of the Territory, unless otherwise agreed by the Parties in writing, unless specified otherwise pursuant to the Commercialization Plan. Licensor shall be entitled to modify such packaging and leaflet at any time subject to Licensee’s prior agreement. Any modifications to the initial packaging required by Licensee or by Regulatory Authorities shall be implemented only upon Licensor’s prior written approval and provided that Licensee shall reimburse all costs and expenses in relation thereto.

6.10 Minimum Shelf Life. Licensee understands and acknowledges that the expected shelf life upon obtaining Marketing Authorization in the European Union is eighteen (18) months. Licensor shall use Diligent Efforts to ensure that the Initial Product shall be delivered to Licensee with a remaining shelf life of at least twelve (12) months; provided, however, that Licensee agrees and acknowledges that the shelf life of the Initial Product supplied by Licensor for purposes of commercial launch may be less than twelve (12) months but will be no less than nine (9) months, unless otherwise agreed by the JSC.

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6.11 Regulatory Compliance. Licensee shall observe any and all applicable laws and regulations of the Territory, with respect to import, warehousing, promotion, distribution and sale of pharmaceutical specialties, and undertakes to make and fulfill any and all formalities in connection with all such activities which may be required under applicable laws and regulations of the Territory, including but not limited to, clearance of customs and/or exchange control declarations and payment of any and all sales taxes which are or may become due in the Territory.

6.12 Legal Requirements in Territory. Licensee shall provide Licensor (or its designated third party manufacturer) with appropriate and updated information related to the legal and regulatory requirements in the Territory with regards to the Initial Products (including but not limited to quality, therapeutic use, packaging, labeling and storage). Such information shall be forwarded to Licensor in writing by Licensee forthwith upon its becoming aware of the same. Licensor shall be responsible to proceed promptly to any Licensed Products packaging or labeling modification required by the Regulatory Authorities of the Territory. Licensee shall provide Licensor (or its designated third party manufacturer) with the relevant technical assistance if so requested by Licensor, to that effect.

6.13 Licensee shall solely be responsible for and support all costs and expenses arising out of the occurrence of any damage, destruction or loss of any quantities of Licensed Products from the time Licensor has delivered the Licensed Products to the Delivery Point. Licensee shall contract an insurance to cover such risks (including without limitation the risks incurred by the Licensed Products during its transportation) and shall maintain such insurance in force during the entire term of this Agreement.

6.14 Licensee shall obtain at its own costs any export/import license or other official authorization and carry out, where applicable, all customs formalities for the export/import of the Licensed Products.

6.15 Specifications and compliance with cGMP shall be set forth in the Technical Agreement.

6.15.1 Licensor warrants that all quantities of Licensed Products delivered to Licensee pursuant to this Agreement meet the Specifications, that the Licensed Products are manufactured in full compliance with current Good Manufacturing Practices for all countries of the Territory where the Licensed Products are sold and that all necessary tests and analysis in the course of the manufacturing processes and thereafter have been duly carried out and shall, with each delivery pursuant hereto, provide Licensee with copies of the appropriate quality assurance certificates issued in English by the manufacturing plants and the Qualified Person.

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6.15.2 Licensor shall have the right to modify the Specifications subject to prior notification to Licensee and subject to approval by the Regulatory Authority. In the event Licensee desires other or special Specifications for the Licensed Product or guidelines to be considered, Licensee shall notify Licensor accordingly. Licensor agree to consider in good faith such special Specifications or guidelines, provided, however, that any costs relating to the implementation of such special Specifications or guidelines will be borne by Licensee.

6.16 Checking – non conformity.

6.16.1 Upon delivery of the Licensed Products to the Delivery Point, Licensee shall inspect the Licensed Products and shall notify Licensor within a period set forth in the Technical Agreement, by telefax confirmed by courier, of any damage visible from inspection or of any shortages or non-conformity of the delivered Licensed Products with supporting detailed evidence and documents and their translation in English shall be included. Upon request of Licensor, Licensee shall make available to Licensor samples of the Licensed Products which are declared as defective. In case of non conformity to the Specifications of any quantity of the Licensed Products delivered pursuant hereto, Licensor shall take back, at its expense, the quantities concerned and shall replace them promptly after Licensor received the relevant notice.

6.16.2 Any dispute between the Parties regarding shortage or damages of any quantity of the Licensed Products delivered hereunder shall be referred to an expert jointly appointed by the Parties within thirty (30) days from the receipt by Licensor of the notice of claim of Licensee as set forth in the Technical Agreement.

6.16.3 Licensor shall not replace defective Licensed Products returned to Licensee by the customers, patients, or authorities, unless the relevant Licensed Product defect is due to (i) Licensed Product manufacturing defaults in so far as the Licensed Product does not meet the Specifications, (ii) the Licensed Product manufacturing process, or (iii) Licensed Product defaults that occurred during the delivery of the Licensed Products from the manufacturer’s import warehouse to the Delivery Point.

Without prejudice to the Party bearing defective Licensed Products replacement costs in accordance with the provisions of this Section, if Licensor so decides, Licensee shall destroy immediately upon written notice, any quantity of defective Licensed Products and provide to Licensor the corresponding certificate of destruction hereof.

6.17 Failure to Supply. In the event that at any time during the term of the Agreement, Licensor delivers non-conforming lots of the Initial Product, as further defined in the Technical Agreement, three (3) times in any twelve (12) month period (a “Default”), then:

(a) Licensee shall give written notice to Licensor specifying the occurrence of such Default (and, to the extent Licensor anticipates a possible Default, Licensor shall inform Licensee of such possibility as it becomes known to Licensor);

(b) The JSC shall investigate the cause of the Default. Thereafter, the Parties shall discuss in good faith through the JSC the appropriate mechanism to cure the Default based on the JSC’s investigation. Such mechanisms for cure may include for example, but without limitation, the establishment by Licensor of a secondary source for the manufacture and supply of Initial

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Product to Licensee. In addition, where there is limited supply of conforming Licensed Product, the JSC shall determine the allocation of the available Licensed Product between the Licensor Territory and the Territory, taking into consideration the sales volume of such territories in the previous 6-month period;

(c) Following the Parties’ acceptance of an appropriate mechanism to cure the Default, Licensor shall use Diligent Efforts to implement such agreed upon mechanism. In the event that Licensor fails to begin the implementation of the agreed upon mechanism within 4 months of the Parties agreeing to such mechanism or fails to successfully complete the implementation of the agreed mechanism within 4 months of the Parties agreeing to such mechanism, then Licensee shall have the right to execute the Manufacturing Option set forth in Section 6.18 below.

6.18 Manufacturing Option.

6.18.1 Licensor grants to Licensee an exclusive option under Licensor IP Rights to make and have made bulk active and/or finished dosage form of the Initial Product (the “Manufacturing Option”), as the case may be. Licensee shall have the right to exercise the Manufacturing Option, without prejudice to other remedies (except in case of Force Majeure events), only in the case of failure of Licensor to implement the mechanisms for curing the Default in accordance with Section 6.17(c).

6.18.2 Upon Licensee’s exercise of the Manufacturing Option, Licensor shall:

(i) without the need for any further agreement, grant a non-exclusive license to Licensee under all Licensor IP Rights to make and have made the Licensed Product, and promptly transfer at Licensee’s costs all technical information (subject to any terms and conditions placed thereon under the GNE US Agreement, the GNE Ex-US Agreement, the Drug Product Commercial Agreement or the Cambrex Agreement or such other third party manufacture and supply agreement in effect at such time) and support necessary for Licensee to make or have made the Licensed Product. It is understood by the Parties that Licensor will use Diligent Efforts in any of its negotiations for any future manufacture and supply agreement with a third party to allow for such transfer of technical information to Licensee by such third party in the event Licensee exercises its Manufacturing Option; and

(ii) Licensor shall continue to supply Licensee with the Licensed Product at then prevailing Supply Price as long as Licensee is not in a position to make or have made the Licensed Product.

6.18.3 Upon Licensor beginning manufacturing of the Licensed Product pursuant to this Section, the provisions of Sections 6.1 to 6.17 shall no longer be applicable.

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7. PAYMENTS

7.1 Milestone Payments. In consideration of the rights granted by and undertakings of Licensor under this Agreement, Licensee shall make the following non-refundable and non-creditable milestone payments:

7.1.1 Licensee shall pay Licensor ten million (10,000,000) Euros no later than within five days following the Effective Date.

7.1.2 Licensee shall pay Licensor fifteen million (15,000,000) Euros (the “Milestone Payment”) as indicated in Section 7.1.6 below following the obtaining of either (A) an initial EU Marketing Authorization (i) meeting the Target Label or (ii) which does not strictly meet the Target Label, but nonetheless provides access to a number of patients (the “EU MA Population”) which is more than [*]% of EU Target Population or (B) where the criteria set forth in A(i) and (ii) are not satisfied with respect to the initial EU Marketing Authorization, a Subsequent EU Marketing Authorization (defined below) that satisfies the criteria set forth in Section 7.1.4 below.

7.1.3 In the event that Licensor has not obtained an EU Marketing Authorization the EU MA Population of which is greater than [*]% of the EU Target Population, the Milestone Payment shall not be paid, and Licensor shall use its Diligent Efforts to obtain a new EU Marketing Authorization or to extend the initial EU Marketing Authorization with the view to meet the Target Label (the “Subsequent EU Marketing Authorization”) within three years from the date of obtaining of the initial EU Marketing Authorization (the “Agreed Period”).

7.1.4 Licensee shall pay Licensor the full Milestone Payment in the event Licensor obtains a Subsequent EU Marketing Authorization within the Agreed Period the EU MA Population of which is more than [*] percent ([*]%) of the of EU Target Population.

7.1.5 In case of dispute of the Parties on the determination of the EU MA Population, such dispute shall be first submitted to the JSC. In case of failure by the JSC to find a solution acceptable to both Parties, the matter will be referred to resolution by senior management of both Parties as provided for in Section 15.1 and ultimately to the final decision of three (3) experts of international reputation in the endocrinology field, one being appointed by Licensee within fifteen (15) days following failure by the senior executive to resolve this issue, one by Licensor within fifteen (15) days following failure by the senior executive to resolve this issue and one by the two first experts within fifteen (15) days following their appointment. In the event one Party fails to appoint an expert, the other Party may appoint such expert. Once appointed, the experts shall provide the Parties with their decision within one (1) month from the date of the appointment of the third expert and this decision shall be final and binding upon the Parties. The decision of the expert shall also allocate the cost for this expertise resolution among the Parties in a proportion the experts deems reasonable.

7.1.6 The Milestone Payment shall be paid by Licensee within thirty (30) days following determination by the Parties as to whether the EU MA Population is less or above [*] percent ([*]%) or [*] percent ([*]%) of the EU Target Population and the parties shall use their Diligent Efforts to agree on such determination no later than within sixty (60) days following the

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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date of the EU Marketing Authorization or the Subsequent EU Marketing Authorization. Each milestone payment shall be made only once with respect to the achievement of the applicable milestone events and shall be payable the first time such milestone event is achieved. Milestone payments set forth above shall be due only for the first Licensed Product developed and commercialized under this Agreement to reach the above stages.

7.2 Royalty Payments.

7.2.1 Royalty Term; Rate. In consideration of the rights granted by and undertakings of Licensor under this Agreement, Licensee shall pay to Licensor the following royalties which shall accrue on a country-by-country basis in the Territory upon the First Commercial Sale of the Licensed Product until the later of (i) the expiry date of the last Valid Claim in such country, or (ii) the expiry date of the orphan drug status granted to the Licensed Product by Regulatory Authorities in such country, or (iii) the expiry date of the regulatory protection (if any) preventing any competitor to cross-refer any data of the Marketing Authorizations files of the Licensed Product in such country; or (iv) the date which is fifteen (15) years from First Commercial Sale (the “Royalty Term”) :

(i) For annual Net Sales of the Licensed Products for the Territory below [*] Euros: 15% of Net Sales ;

(ii) For annual Net Sales of the Licensed Products for the Territory between [*] Euros and [*] Euros: [*]% of Net Sales;

(iii) For annual Net Sales of the Licensed Products for the Territory above [*] Euros: 25% of Net Sales;

7.2.2 Royalty Reductions. The royalty rates mentioned in Section 7.2.1 shall be reduced in the following cases, on a country-by-country basis, and the JFC shall determine the mechanism for applying such country-specific reductions due to the fact that annual Net Sales are determined on a total Territory basis:

(a) in the event Market Competition exists in such country and the manufacture, use, or sale of Licensed Product would infringe a Valid Claim but for the licenses granted under this Agreement, the above royalty rates will be reduced to :

(i) For annual Net Sales of the Licensed Products for the Territory below [*] Euros: [*]% of Net Sales in such country;

(ii) For annual Net Sales of the Licensed Products for the Territory between [*] Euros and [*] Euros: [*]% of Net Sales in such country ;

(iii) For annual Net Sales of the Licensed Products for the Territory above [*] Euros: [*]% of Net Sales in such country.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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(b) in the event the manufacture, sale or use of the Licensed Product would infringe no Valid Claim but for the licenses granted under this Agreement and for so long as no Market Competition Exists, the above royalty rates will be reduced to :

(i) For annual Net Sales of the Licensed Products for the Territory below [*] Euros: [*]% of Net Sales in such country;

(ii) For annual Net Sales of the Licensed Products for the Territory between [*] Euros and [*] Euros: [*]% of Net Sales in such country ;

(iii) For annual Net Sales of the Licensed Products for the Territory above [*] Euros: [*]% of Net Sales in such country.

(c) in the event the manufacture, sale or use of the Licensed Product would infringe no Valid Claim but for the licenses granted under this Agreement and Market Competition exists in such country, the above royalty rates will be reduced to:

(i) For annual Net Sales of the Licensed Products for the Territory below [*] Euros: [*]% of Net Sales in such country;

(ii) For annual Net Sales of the Licensed Products for the Territory between [*] Euros and [*] Euros: [*]% of Net Sales in such country ;

(iii) For annual Net Sales of the Licensed Products for the Territory above [*] Euros: [*]% of Net Sales in such country.

Notwithstanding the foregoing, in the case of scenario (a) above, in event of Market Competition, and where the Valid Claim still exists but nonetheless Licensee has a good faith belief, based on advise of legal counsel, that enforcing the Valid Claim against third party competitors is not in the best interests of the Parties, or that Licensor or itself will not prevail in the enforcement of the Licensed Patent Rights or Licensee has other strategic reasons for recommending that the Parties elect not to enforce the Licensed Patent Rights, then the Parties will confer in good faith to determine an appropriate reduction to the royalty rate set forth in Section 7.2.2(a).

(d) the royalty rates set forth in this Section 7.2 may be further off-set in accordance with Section 8.2.3(ii), provided that in no event shall any royalty reduction set forth in this Section 7.2.2 reduce any of the royalty rates mentioned in Section 7.2.1 below the Royalty Floor set forth in Section 8.2.3(ii).

For the purpose of determining whether the manufacture, use or sale of Licensed Product in any jurisdiction in the Territory would infringe a Valid Claim if not for the licenses granted herein, any Licensed Product not manufactured within the jurisdiction in which use or sale of that Licensed Product occurs shall be deemed to have been manufactured in that jurisdiction.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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7.2.3 Reports; Payment of Royalties. During the term of the Agreement, Licensee shall furnish to Licensor two quarterly written report for each Calendar Quarter showing for the First Report Licensee’s estimated Net Sales of all Licensed Products sold by Licensee, its Affiliates or Sub-licensees in the aggregate and on a country-by-country basis during the reporting period; for the Second Report the actual Net Sales of all Licensed Products sold by Licensee, its Affiliates or Sub-licensees in the aggregate and on a country-by-country basis during the reporting period and the calculation of the royalties and/or other payments payable to Licensor under this Agreement. The First Quarterly reports shall be due on the fifth (5^th) day following the close of each Calendar Quarter and will be used as information only by Licensor for accounting purposes. The Second Quarterly Reports shall be due on the sixtieth (60^th) day following the close of each Calendar Quarter. Royalties or other payments shown to have accrued by each royalty report shall be due and payable on the date such report is due. Licensee shall keep complete and accurate records in connection with the sale of Licensed Products hereunder in sufficient detail to permit accurate determination of all figures necessary for calculation and verification of royalty and other payment obligations set forth in this Article 7.

7.2.4 Audits. Upon the written request of Licensor thirty (30) days in advance, Licensee shall permit an independent certified public accounting firm of an internationally recognized standing and selected by Licensor to have access during normal business hours to such of the records of Licensee as may be reasonably necessary to verify the accuracy of the reports under Section 7.2.3 provided however that it does not disrupt Licensee’s operation of business. The accounting firm shall disclose to Licensee and Licensor whether the reports are correct or incorrect, the specific details concerning any discrepancies and such other information that should properly be contained in a royalty report required under this Agreement.

If such accounting firm concludes that additional royalties or other amounts were owed, Licensee shall pay the additional royalties or payments within thirty (30) days of the date Licensor delivers to Licensee such accounting firm’s written report so concluding. In the event such accounting firm concludes that amounts were overpaid by Licensee, Licensor shall repay Licensee the amount of such overpayment within thirty (30) days of the date Licensor delivers to Licensee such accounting firm’s written report so concluding. The fees charged by such accounting firm shall be paid by Licensor; provided, however, that if an error in favor of Licensor of more than five (5) percent of the royalties due hereunder for the period being reviewed is discovered, then the fees and expenses of the accounting firm shall be paid by Licensee.

If such accounting firm concludes that the reports were correct, Licensor shall not be entitled to request any further audit during the next thirty-six (36) months.

Upon the expiration of thirty-six (36) months following the end of any Calendar Year for which Licensee has made payment in full of all royalties and other amounts payable with respect to such year, and in the absence of negligence or willful misconduct of Licensee or a contrary finding by an accounting firm pursuant to this Section, such calculation shall be binding and conclusive upon Licensor and Licensee shall be released from any liability or accountability

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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with respect to royalties or other payment for such Calendar Year. Notwithstanding the foregoing, to the extent that section G.8 of the GNE Ex-US License requires audit rights in addition to, or different from those granted above to Licensor, Licensee shall cooperate in good faith to enable Licensor to so comply with such audit rights.

7.2.5 Payment Exchange Rate. All payments to Licensor under this Agreement related to Royalties or to Milestone Payments shall be made in Euros. When calculating Net Sales, Licensee shall convert the amount of invoiced sales in currencies other than Euros into Euros using the exchange rates as determined for the purpose of consolidating its financial statements (average of the rates of the last day of each month as published by the European Central Bank). All payments related to Developments costs (joint development or after Opt-in) will be made in the currency of the invoicing Party.

7.2.6 Late Payment. In case of late payment of any payment due hereunder by Licensee (or in case of additional payment due by one Party to the other pursuant to Section 7.2.4), Licensee shall pay to Licensor interest on the unpaid amount until such payment is paid in full, at the average one-month European Interbank Offered Rate (EURIBOR) plus two (2) percent as reported by the European Bank Federation (or a successor or similar organization) from time to time, calculated on the number of days such a payment is overdue.

7.2.7 Tax Withholding. If provision is made in law or regulation of any country in the Territory for withholding of taxes of any type, levies or other charges with respect to any amounts payable by Licensee to Licensor pursuant to this Agreement, Licensee shall promptly pay such tax, levy or charge for and on behalf of Licensor to the proper governmental authority and Licensee shall promptly furnish Licensor with certificate of taxes deducted under such withholding tax laws. Licensee shall have the right to offset any such tax, levy or charge actually paid from any payment due to Licensor or shall be promptly reimbursed by Licensor if no further payments are due. Licensor and Licensee shall cooperate with each other in obtaining any exemption from or reduced rate of tax available under any applicable law or tax treaty.

Licensee and Licensor shall pay for their own account all sales, turnover, income, revenue, value added and other taxes levied on account of payments accruing or made under this Agreement. All amounts expressed in this Agreement exclude such taxes which were required by law shall be charged at the applicable rate.

8. TRADEMARKS AND INTELLECTUAL PROPERTY RIGHTS

8.1 Licensed Trademark.

8.1.1 The Licensed Product will be marketed in the Territory under the Licensed Trademark. In specific countries where the use of the Licensed Trademark is not permitted by law or is not appropriate including for reasons relating to language or custom, Licensee shall have the possibility to use a different trademark, subject to Licensor’s prior written approval which shall not be unreasonably withheld or delayed. Licensor shall be responsible for securing and for maintaining registrations for the Licensed Trademark in the Territory and shall use

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reasonable commercial efforts in that regard, provided, however, that Licensor shall not be deemed to have breached this Agreement if it is unable to obtain registration of the Licensed Trademark in every country in the Territory. In the event, despite its reasonable commercial efforts, Licensor is unable to obtain or maintain registrations for the Licensed Trademark in some country (ies) in the Territory, the Parties shall negotiate in good faith concerning the use of such other trademarks as may be available for marketing the Licensed Product in those countries.

8.1.2 Enforcement. Licensee and Licensor shall cooperate with each other and use reasonable efforts to protect the Licensed Trademark from infringement by third parties. Without limiting the foregoing, each Party shall promptly notify the other Party of any known, threatened or suspected infringement, imitation or unauthorized use of or unfair competition relating to the Licensed Trademark. Licensor shall have the first right to determine in its discretion whether to and to what extent to institute, prosecute and/or defend any action or proceedings involving or affecting any rights relating to the Licensed Trademark. Upon Licensor’s reasonable request, Licensee shall, at Licensor’s expense, cooperate with and assist Licensor in any of Licensor’s enforcement efforts with respect to the Licensed Trademark. Licensor shall promptly inform Licensee if Licensor elects not to take action against any actual or suspected infringement of the Licensed Trademark, in which case, Licensee, at its own expense, shall then have the right, but not the obligation, to bring or assume control of any action against the allegedly infringing third party as Licensee determines may be necessary, provided, however, that Licensee shall not enter into any settlement or compromise of any claim relating to the Licensed Trademark without the prior written consent of Licensor. In the event that Licensee brings or assumes control of any such action, then Licensor agrees to, at Licensee’s expense, reasonably assist Licensee in connection therewith. In either case, the Party that initiated and prosecuted, or maintained the defense of the action shall bear all costs and expenses (including reasonable attorneys’ fees) incurred in connection with the action and shall be entitled to recoup those amounts in the event of recovery, by settlement or otherwise. The amount of any recovery remaining shall be shared equally by the Parties.

8.1.3 Avoidance of Confusion. Licensee and its Affiliates or Sublicensee shall not market, promote, sell and/or distribute anywhere in the Territory any product other than Licensed Product under the Licensed Trademark or any confusingly similar trademark, and Licensor and its Affiliates or sublicensee shall not market, promote, sell and/or distribute anywhere in the Licensor Territory any product other than Licensed Product under the Licensed Trademark or any confusingly similar trademark. Licensee and its Affiliates shall not, directly or indirectly, contest the validity of or Licensor’s rights in the Licensed Trademark anywhere in the Territory or assist any third party in doing so. In the event that actual confusion should arise, or either Party reasonably believes that a likelihood of confusion may arise, in connection with the Parties’ respective uses of the Licensed Trademark, the Parties will fully cooperate in an effort to eliminate such confusion and to avoid the possibility of such a likelihood of confusion.

8.2 Licensor IP Rights.

8.2.1 Securing Patent Protection. Subject to legal and contractual limitations imposed upon Licensor as the licensee under the GNE US License, GNE Ex-US License and the Fujisawa License, Licensor will take all commercially reasonable actions necessary to file, prosecute and maintain patent protection for the Licensed Product in the Territory during the term of this Agreement.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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8.2.2 Third Party Infringement of Licensor IP Rights. Each Party shall promptly give the other Party notice of any suspected infringement in the Territory of any patent application or patent included in the Licensor IP Rights that comes to such Party’s attention. The Parties will thereafter consult and cooperate fully to determine a course of action, including, without limitation, the commencement of legal action by any Party. However, as between the Parties, Licensor, subject to legal and contractual limitations imposed upon it as the licensee under the GNE Ex-US License and the Fujisawa License, shall have the first right to initiate and prosecute such legal action at its own expense and in the name of Licensor and/or Licensee, or to control the defense of any declaratory judgment action relating to Licensor IP Rights. Licensor shall promptly inform Licensee if Licensor elects not to exercise such first right, in which case Licensee shall thereafter have the right either to initiate and prosecute such action or to control the defense of such declaratory judgment action in the name of Licensor and, if necessary, Licensee, provided, however, that Licensee shall not enter into any settlement or compromise of any claim relating to the Licensor IP Rights licensed hereunder without the prior written consent of Licensor. If Licensor elects not to initiate and prosecute such an infringement or defend a declaratory judgment action in any country in the Territory and Licensee elects to do so, the cost of any agreed-upon course of action, including the costs of any legal action commenced or any declaratory judgment action defended, shall be borne solely by Licensee. Notwithstanding the foregoing, Licensee shall (i) have no right to initiate or prosecute an enforcement action or defend a declaratory judgment action relating to a third party’s infringement or anticipated infringement of any GNE Patent (as that term is defined in the GNE Ex-US License) in the Licensed IP Rights, and (ii) cooperate to the extent necessary for the enforcement of any GNE Patent in the Licensed IP Rights, which cooperation shall include joining GNE and/or Licensor as a party to such enforcement action if required by law, provided that GNE and/or Licensor reimburse Licensee for reasonable costs incurred with respect to such joinder or other cooperation.

If one Party elects to institute a legal proceeding to enforce Licensor IP Rights against an alleged infringing party, the other Party shall fully cooperate with and supply all assistance reasonably requested by the Party instituting such proceeding, at the expense of the Party instituting such proceeding. Any recovery or award obtained by either Party as a result of any such action or settlement shall be shared as follows:

(a) if Licensor initiated and prosecuted, or maintained the defense of, the action, the amount of any recovery remaining then shall be retained by Licensor; and

(b) if Licensee initiated and prosecuted, or maintained the defense of, the action, the amount of any recovery remaining shall be retained by Licensee, except that Licensor shall receive a portion equivalent to the royalties it would have received in accordance with the terms of this Agreement as if such amount were Net Sales of Licensee.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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For any such legal action or defense, in the event that any Party is unable to initiate, prosecute, or defend such action solely in its own name, the other Party will join such action voluntarily and will execute all documents necessary for the Party to prosecute, defend and maintain such action. In connection with any such action, the Parties will cooperate fully and will provide each other with any information or assistance that either reasonably may request. Any recovery or award obtained by either Party as a result of any such action or settlement shall be shared as follows:

(a) the Party that initiated and prosecuted, or maintained the defense of, the action shall recoup all of its costs and expenses (including reasonable attorneys’ fees) incurred in connection with the action, whether the recovery is by settlement or otherwise;

(b) the other Party then shall, to the extent possible, recover its costs and expenses (including reasonable attorneys’ fees) incurred in connection with the action;

(c) if Licensor initiated and prosecuted, or maintained the defense of, the action, the amount of any recovery remaining then shall be retained by Licensor; and

(d) if Licensee initiated and prosecuted, or maintained the defense of, the action, the amount of any recovery remaining shall be retained by Licensee, except that Licensor shall receive a portion equivalent to the royalties it would have received in accordance with the terms of this Agreement as if such amount were Net Sales of Licensee.

8.2.3 Third Party Intellectual Property.

(i) In the event that a Party becomes aware of any claim or potential claim that the practice by either Party of Licensor IP Rights hereunder infringes the intellectual property rights of any third party, such Party shall promptly notify the other Party. As between the Parties, Licensor shall have the first right, but not the obligation, to defend the Parties against any claim by a third party that the Development, use, sale, offer for sale, export or import of Licensed Product in the Territory infringes third party intellectual property rights. Licensee shall have the right to participate in the defense of such claim but shall not take any position inconsistent with Licensor’s position on such issues. In the event that Licensor chooses in its sole discretion not to defend such suit, Licensee shall have the right but not the obligation to defend such suit. Licensee shall not settle any action pursuant to this Section without Licensor’s consent, such consent not to be unreasonably withheld.

(ii) If Licensee would be prevented from developing, manufacturing using, selling or importing the Licensed Product in any country of the Territory on the grounds that by doing so they would infringe a Dominating Patent held by a third party in said country and Licensee licenses rights to such Dominating Patent in said country, then [*] percent ([*]%) of any royalties on Licensed Product sales paid by Licensee to such third party in any Calendar Year in such country with respect to such Dominating Patent shall be deducted from any royalty payments payable to Licensor by Licensee in such Calendar Year (the “Royalty Reduction”), provided, however, that (i) Licensor has been informed of the Dominating Patent and has had an

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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opportunity to provide input on any related discussion of whether to license such Dominating Patent and negotiation of royalty rates; and (ii) subject to the warranties and representations made by Licensor under Section 11.1 of this Agreement, the amount of the Royalty Reduction in any Calendar Year shall not exceed [*] percent ([*]%) of the royalties (the “Royalty Reduction Cap”) that would have otherwise been payable by Licensee to Licensor for such Calendar Year and for such country. Any amount of the Royalty Reduction which is not offset against royalty payments due to Licensor (because it exceeds the Royalty Reduction Cap) shall be carried forward to and deducted in subsequent Calendar Years until the expiration date of the term. The Parties shall negotiate in good faith the consequences of several Dominating Patents if and when such several Dominating Patents come to the attention of the Parties. Notwithstanding any royalty reduction provided in this Section 8.2.3(ii), in no event shall any royalty on Net Sales payable to Licensor by Licensee be reduced below a minimum equal to the GNE Royalty on such Net Sales, which minimum royalty is referred to herein as the “Royalty Floor.” As used herein, with respect to a given amount of Net Sales the GNE Royalty means whatever percent of Net Sales Licensor owes as a royalty to GNE pursuant to on G.2 of the GNE ex-US License. To demonstrate how the Royalty Floor mechanism is intended to operate pursuant to this Section 8.2.3(ii), a hypothetical calculation (for purposes of example only, and not limitation) is provided in the example below, assuming the amount of Net Sales in Euros is then converted into US dollars.

Example

1. Assumptions

Net Sales of Licensed Product:	[*] USD
Market Competition:	YES
Valid Claim:	YES
Royalty Paid by Licensee for License Under Third Party Dominating Patent:	[*] USD

2. Calculation of Royalty Due and Payable to Licensor by Licensee

a. Royalty Owed per Section 7.2 on Net Sales With Market Competition and Valid Claim:	[*] USD
b. Royalty Reduction Cap ([*]% of Royalty Owed by Licensee on Net Sales With Market Competition and Valid Claim):	[*] USD
c. Full Royalty Reduction ([*]% of Royalty Paid by Licensee for License Under Third Party Dominating Patent):	[*] USD
d. Royalty otherwise owed	[*] USD
e. GNE Royalty (Owed by Licensor on Net Sales pursuant to Section G.2(g) of GNE ex-US License):	[*] USD
f. Royalty otherwise owed compared to GNE Royalty:	[*] USD
g. Adjusted Royalty Reduction (c plus f.):	[*] USD
h. Royalty Due and Payable to Licensor by Licensee (a minus g, which equals e):	[*] USD

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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8.3 Joint IP Rights. All Know-How or Patent Rights arising from Development activities undertaken and funded jointly by the Parties pursuant to Article 4 shall be jointly owned by the Parties, regardless of inventorship, but subject to the licenses set forth in this Agreement. The allocation of responsibilities and costs between the Parties for filing, prosecution, maintenance and enforcement of such Patent Rights jointly owned by the Parties shall be decided by a joint patent committee appointed and overseen by the JSC, consisting of two (2) members from each Party (the “Joint Patent Committee”). The initial members for such Joint Patent Committee are set out in Schedule 13.

8.4 Patents Solely Owned.

8.4.1 Licensee shall have the sole discretion for the filing, prosecution, maintenance and enforcement of Patent Rights that it solely owns, provided that, if any such Patent Rights are subject to a license grant to Licensor as a result of Licensor’s exercise of its Opt-in rights under Section 4.4.4(ii)(F), then at the time Licensor exercises its Opt-in rights, the Parties shall agree upon reasonable terms under which Licensor shall participate in the filing, prosecution, maintenance and enforcement of such Patent Rights in the Licensor Territory, in a form substantially similar in principle to those set forth in Section 8.2.

8.4.2 Licensor shall have the sole discretion for the filing, prosecution, maintenance and enforcement of Patent Rights that it solely owns, provided that, if any such Patent Rights are subject to a license grant to Licensee as a result of Licensee’s exercise of its Opt-in rights under Section 4.4.4(ii)(F), then at the time Licensee exercises its Opt-in rights, the Parties shall agree upon reasonable terms under which Licensee shall participate in the filing, prosecution, maintenance and enforcement of such Patent Rights in the Territory, in a form substantially similar in principle to those set forth in Section 8.2.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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9. TERM AND TERMINATION

9.1 Term

9.1.1 Conditions to Closing. This Agreement shall become effective upon the Effective Date, after the Parties have obtained all consents (including without limitation, the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, if any, and all governmental or regulatory consents, approvals or authorizations required in connection with the valid execution and delivery of this Agreement, the Somatuline Agreement and the Equity Transaction Documents and all necessary stockholder consents and approvals), permits and waivers necessary or appropriate for consummation of any of the transactions contemplated by this Agreement, the Somatuline Agreement and the Equity Transaction Documents.

9.1.2 Term; Expiration. The term of the Agreement shall commence on its Effective Date and, unless sooner terminated as provided herein, shall continue in full force and effect on a Licensed Product by Licensed Product and country- by-country basis until the expiration of the Royalty Term with respect to such Licensed Product in such country. Upon expiration of the Royalty Term with respect to a given Licensed Product, in a given country, Licensee shall be granted a fully paid-up, irrevocable and perpetual non-exclusive license under all Licensor IP Rights with respect such Licensed Product and a fully paid-up, irrevocable and perpetual exclusive license under the Licensed Trademark with respect to such Licensed Product and its promotional material.

9.2 Termination.

9.2.1 Either Party may terminate this Agreement, in whole or in part as applicable, effective immediately upon receipt of written notice to the other Party, under the following circumstances:

(a) if the other Party is in material breach or default with respect to any term or provision hereof and fails to cure the same within thirty (30) days of receipt of written notice of said breach or default; or

(b) if the other Party is adjudged bankrupt, files or has filed against it any petition under any bankruptcy, insolvency or similar law, has a receiver appointed for its business or property, or makes a general assignment for the benefit of its creditors; or

(c) where the right to terminate the Agreement in whole or in part is specifically provided for herein.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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9.2.2 Licensee may terminate this Agreement in case of termination of the GNE License and/or the Fujisawa License immediately upon notice to Licensor. In the case of such termination of the GNE License and/or the Fujisawa License, Licensor shall use Diligent Efforts to present Licensee to GNE and/or Fujisawa so that Licensee may secure its rights under GNE’s and/or Fujisawa’s Patent Rights and Know-How relating to the Licensed Product. The Parties acknowledge that in the event of such termination, Licensee may obtain a direct license from GNE or have this license modified by GNE pursuant to Section 13.6 of the GNE Ex-US License.

9.3 Resulting Obligations. Upon early termination of this Agreement the following shall apply:

9.3.1 Rights to Licensed Product in the Territory.

(a) In the event of termination by Licensor pursuant to Section 9.2.1 with respect to a one or more Licensed Products, all rights to such Licensed Product(s) shall revert to Licensor free of charge and Licensee shall have no further rights with respect to the Licensed Product. Licensee shall, at Licensor’s election, either (i) resell under its own responsibility all remaining quantities of unsold Licensed Products during a maximum time period of six (6) months as from termination of this Agreement, at the expiration of which period, Licensee shall, upon request from Licensor, immediately destroy all unsold quantities of Licensed Products and provide to Licensor the corresponding certificate of destruction hereof, or (ii) immediately return any unsold stock to Licensor or any other third party designated by Licensor provided said stock is in good saleable condition. All expenses and costs of such return shall be borne by Licensor unless termination of this Agreement occurs as a result of Licensee being in breach of the provisions of this Agreement. If option (ii) is selected by Licensor, Licensor or the third party designated by Licensor shall repurchase all such returned stock of Licensed Products at the Licensed Products’ Supply Price referred to in Section 6.5 hereunder provided that they are in good saleable condition and have a remaining shelf life of no less than six (6) months. Should the Licensed Products not be in good saleable condition, Licensee shall destroy all such remaining stock subject to Licensor’s prior written agreement, and provide to Licensor the corresponding certificate of destruction hereof

(b) In the event of termination by Licensee pursuant to Section 9.2.1 or 9.2.2, Licensee shall be entitled to the following, at the Licensee’s election, unless termination of the GNE License or the Fujisawa License was in whole or in part caused by Licensee’s performance under this Agreement; (i) return all unsold Licensed Product and unused Samples to Licensor at Licensor’s expense and to receive a full refund of the Supply Price paid to Licensor for the Licensed Product and Samples returned by Licensee, or (ii) continue to sell Licensed Product according to the terms of this Agreement until all inventory is sold or for six (6) months, whichever shall occur first.

9.3.2 Licensed Trademark. Except as provided for in Section 9.3.1 (b), Licensee shall terminate any use of the Licensed Trademark and shall, at Licensor’s election, either destroy or return to Licensor at Licensee’s cost all literature, labels, or other materials,

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incorporating or bearing same. Licensee shall cooperate with Licensor and execute any and all documents requested by Licensor for the purpose of canceling any registered user or other rights with respect to the Licensed Trademark or, at Licensor’s election, in transferring such rights to Licensor or its designee.

9.3.3 Data. Except as provided for in Section 9.3.1(b), Licensee shall cease using all information and technical and other data provided by Licensor relating to the Licensed Product, and shall, at Licensor’s option, return to Licensor or destroy all such data having physical form and all copies thereof, and shall continue to abide by its obligation of confidentiality set forth in Section 9 below.

9.3.4 Approvals; IP Rights. Except as provided for in Section 9.3.1 (b), Licensee shall promptly assign or otherwise cause to be transferred to Licensor, or Licensor’s designee, all Marketing Authorizations or any other government registrations or approvals in the Territory having to do with the Licensed Product that are in Licensee’s name and shall make no further use of the same and shall allow Licensor to cross-reference any INDs, BLAs (or their equivalent in the Territory), clinical data or other submissions filed with any Regulatory Authority in the Territory and provide Licensor with copies of all such documentation. In addition, Licensee shall (i) provide Licensor with a copy of Licensee’s preclinical and clinical data, assays and associated materials, and protocols and procedures, and any Know-How Controlled by Licensee, with respect to such Licensed Product(s) (ii) grant a non-exclusive, sublicensable license to Licensor to use, sell, manufacture, offer for sale, import and export in the Territory such Licensed Products under any Patent Rights and any Know-How owned or Controlled by Licensee as of the effective date of the termination, (iii) grant Licensor exclusive rights to use any Licensed Trademarks filed in connection with Licensed Products, to the extent such Licensed Trademarks are specific to one or more Licensed Products and are not generally associated with any other product of Licensee and do not contain an element of Licensee’s trade name, in each case solely for purposes of using, selling, offering for sale, importing or exporting such Licensed Products in the Territory.

9.4 Survival of Rights. All of the remedies provided for in Section 9.3 are in addition to the other rights and remedies available to the Parties on termination and Section 9.3 is not intended to limit any of those rights or remedies.

10. CONFIDENTIALITY

10.1 All information, whether in oral, written, graphic or electronic form, disclosed by either Party (“Disclosing Party”) to the other and/or any of its subsidiaries, subdivisions, parent companies, affiliates agents or consultants (“Receiving Party”), and all notes, documents and materials prepared by or for either Party which reflect, interpret, evaluate, include or are derived therefrom, shall be deemed to be “Confidential Information.” In particular, Confidential Information shall include, without limitation, any trade secret, proprietary information, invention, research and development work, work-in-process, technology, technique, know-how, design, specification, program, unpublished data, procedure (including operating procedures), computer software, data base or programming, idea, sample, strategy, budget, projection, development,

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process, formulation, method, guideline, policy, proposal, contract, test data or data file, or any engineering, manufacturing, marketing, servicing, financing, pricing, cost, profit, personnel or salary structure/compensation information relating to the past, present or future operations, products, services, technology, sales, suppliers, clients, customers, employees, investigators, investors or business of Disclosing Party. In addition, “Confidential Information” includes any trade secrets, data (technical or non-technical) or confidential information relating to the past, present or future operations, organization, business, projects or finances of any third party to which Disclosing Party owes a duty of confidentiality including, without limitation, the mere fact that Disclosing Party is or may be working with or for any client.

10.2 Receiving Party shall not use or disclose such Confidential Information to others (except its employees, Affiliates and sub-licensees who reasonably require same for the purposes hereof and who are bound to it by a like obligation as to confidentiality except as required by law) without the express written permission of Disclosing Party, except for Confidential Information that (i) can be demonstrated by written records to be known to Receiving Party from a source other than Disclosing Party at the time of receipt; or (ii) was subsequently otherwise legally acquired by Receiving Party from a third party having an independent right to disclose the information; or (iii) is now or later becomes publicly known without breach of this Agreement by Receiving Party or any Party that received such Confidential Information from Receiving Party.

10.3 Either Party may disclose the other Party’s Confidential Information to the extent such disclosure is required by law, regulations (including without limitation the rules and regulations promulgated by the SEC) and valid court orders, provided that such Party gives the other Party reasonable notice of such disclosure and uses reasonable efforts to obtain confidential treatment or a protective order for such information. Licensor shall have the right to disclose Licensee’s Confidential Information to the extent such disclosure is required to satisfy its obligations under the GNE Ex-US License, the Fujisawa License, or its agreements with third party manufacturers and suppliers provided that such persons undertake to keep confidential such Confidential Information.

10.4 Other Permitted Disclosure. Except as otherwise expressly provided herein, to the extent reasonably necessary to carry on the activities contemplated in this Agreement, each Party shall be permitted to (a) disclose or grant use of Confidential Information received under this Agreement to any of its permitted sublicensees, agents, consultants, clinical investigators, collaborators or contractors, under confidentiality and non-use obligations at least as stringent as those set forth in this Article 10; (b) disclose Confidential Information received under this Agreement to actual or potential professional investors, acquirers, merger or other business partners or retained professional advisors (e.g. attorneys, accountants and investment bankers), under confidentiality and non-use obligations at least as stringent as those set forth in this Article 10; and (c) to a Regulatory Authority to the extent necessary for obtaining Marketing Authorization for a Licensed Product.

10.5 Publications. In the event either Party wishes to publish or orally deliver a scientific article or speech relating to the Development of a Licensed Product, such Party shall submit to the other Party a draft of each such proposed oral disclosure or written publication at

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least thirty (30) days prior to the anticipated oral disclosure or the submission of the written publication. The other Party shall review each such proposed oral disclosure or written publication in order to avoid the unauthorized disclosure of such Party’s Confidential Information and to preserve the patentability of inventions arising from this Agreement. As soon as reasonably possible, but in no event more than thirty (30) days after receipt of an advance copy of a publishing Party’s proposed oral disclosure or written publication, the reviewing Party shall inform the publishing Party if the proposed oral disclosure or written publication contains any of the reviewing Party’s Confidential Information or could be expected to have a material adverse effect on any patent rights of the reviewing Party. If so requested by the reviewing Party, the publishing Party shall amend any proposed oral disclosure or written publication to the extent necessary to protect the Confidential Information of the reviewing Party of which the publishing Party is made aware by the reviewing Party and, if so requested by the reviewing Party, shall delay such proposed oral disclosure or written publication for a reasonable period of time to permit the timely preparation of a patent application by the reviewing Party.

10.6 Press Release. In general, and except where required by law or regulation, no public announcement or other disclosure by the Parties concerning the existence of or terms of this Agreement shall be made, either directly or indirectly, by either Party to this Agreement, without first obtaining the written approval of the other Party and agreement upon the nature and text of such announcement or disclosure, such consent not to be unreasonably withheld. The Parties shall make a joint public announcement in English of the execution of this Agreement in such form separately agreed upon between the Parties on or after the Effective Date. Licensee shall be permitted to make a public announcement in French or such other language as it desires of the execution of this Agreement similar to the English press release. After the initial press release concerning this Agreement, if either Party desires to make an additional press release concerning any additional material terms of this Agreement, it shall inform the other Party in reasonably sufficient time prior to public release, and shall provide the other Party with a written copy thereof for review. A Party commenting on such a proposed press release shall provide its comments, if any, within three (3) business days after receiving the press release for review. Each Party agrees that it shall cooperate fully with the other with respect to all disclosures regarding this Agreement to any stock market, governmental or regulatory agencies, including requests for confidential treatment of proprietary information of either Party included in any such disclosure. Where required by law or by the regulations of the applicable securities exchange upon which such Party may be listed, each Party shall have the right to make a press release announcing the achievement of each milestone under this Agreement as it is achieved, and the achievements of Regulatory Approvals in the Territory as they occur, subject only to the review procedure set forth in the preceding sentence. Neither Party shall be required to seek the permission of the other Party to repeat any information regarding the terms of this Agreement that has already been publicly disclosed by such Party, or by the other Party, in accordance with this Section 10.6.

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11. REPRESENTATIONS AND WARRANTIES

11.1 Representations and Warranties of Licensor. Licensor makes the following covenants, representations and warranties to Licensee, as of the Execution Date, and does so in full understanding and acknowledgement that Licensee is relying on the said representations and warranties in entering into the present Agreement:

11.1.1 Status. Licensor is a corporation organized and existing under the laws of the State of Delaware, United States of America. No action has been taken by the directors, officers or shareholders of Licensor to dissolve Licensor. Licensor has the corporate power and authority to enter into the present Agreement and to perform all its obligations hereunder.

11.1.2 All Necessary Proceedings. Licensor has taken all necessary corporate actions and proceedings to enable it to enter into the present Agreement.

11.1.3 No Other Agreements for the Licensed Product. Save as regards Third Party Countries, Licensor has not made any written or oral agreement or undertaking with any third party regarding the rights to sell the Licensed Product in the Territory.

11.1.4 No Violation and Consent. Licensor warrants that the execution, delivery and performance of this Agreement by it (a) does not and will not violate or conflict with any provision of law or any provision of its articles of incorporation or by-laws; and (b) does not and will not, with or without the passage of time or the giving of notice, result in the breach of, or constitute a default, cause the acceleration of performance, or require any consent under, or result in the creation of any lien, charge or encumbrance upon any of its property or assets pursuant to any material instrument or agreement to which it is a Party or by which it or its properties may be bound or affected. Licensor warrants that (i) all consents from GNE and Fujisawa relating to the execution of this Agreement have been properly and timely obtained by Licensor and (ii) Licensor’s grant of the Manufacturing Option under Section 6.18 of this Agreement does not infringe the rights of any third party to whom Licensor is obligated.

11.1.5 Non-infringement. Licensor represents and warrants to the best of its knowledge, as of the Execution Date, (i) that there are no outstanding claims or allegations that the Licensed Product and/or the Licensed Trademark infringe upon any rights of a third party in the Territory and (b) that the Licensed Product and the Licensed Trademark do not infringe upon any rights of a third party in the Territory.

11.1.6 GNE and Fujisawa Licenses. Licensor warrants that as of the Execution Date, (i) the GNE Ex-US License and Fujisawa License are in full force and in effect in accordance with their terms, (ii) Licensor is not in default or breach in any material respect of the GNE Ex-US License and Fujisawa License, (iii) to Licensor’s knowledge, there is no cause for early termination of the GNE Ex-US License and Fujisawa License, and (iv) the terms under this Agreement are not in conflict with the terms in the GNE Ex-US License or Fujisawa License. Licensor shall (i) comply with and observe in all material respects its obligations under the GNE Ex-US License and Fujisawa License and (ii) not terminate or otherwise modify any terms or conditions of the GNE Ex-US License and Fujisawa License in any manner that would materially adversely affect Licensee’s rights under this Agreement without the prior written consent of Licensee.

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11.2 Representations and Warranties of Licensee. Licensee makes the following covenants, representations and warranties to Licensor, as of the Execution Date, and does so in full understanding and acknowledgement that Licensor is relying on the said representations and warranties in entering into the present Agreement:

11.2.1 Status. Licensee is a corporation organized and existing under the laws of France. No action has been taken by the directors, officers or shareholders of Licensee to dissolve Licensee. Licensee has the corporate power and authority to enter into the present Agreement and to perform all its obligations hereunder.

11.2.2 All Necessary Proceedings. Licensee has taken all necessary corporate actions and proceedings to enable it to enter into the present Agreement.

11.2.3 No Violation. Licensee warrants that the execution, delivery and performance of this Agreement by it (a) does not and will not violate or conflict with any provision of law or any provision of its articles of incorporation or by-laws; and (b) does not and will not, with or without the passage of time or the giving of notice, result in the breach of, or constitute a default, cause the acceleration of performance, or require any consent under, or result in the creation of any lien, charge or encumbrance upon any of its property or assets pursuant to any material instrument or agreement to which it is a Party or by which it or its properties may be bound or affected.

11.3 THE WARRANTIES SET OUT ABOVE AND IN SECTIONS 2.5.2 AND 6.15.1 ARE THE ONLY WARRANTIES GIVEN BY EITHER PARTY AND ARE MADE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED. THERE IS NO OTHER CONDITION OR WARRANTY RELATING TO PRODUCT MERCHANTABILITY OR FIT FOR ANY PARTICULAR PURPOSE, ALL OF WHICH ARE HEREBY EXCLUDED AND DISCLAIMED.

12. INDEMNIFICATION

12.1 Indemnity. For purposes of this Section, “Licensee Indemnified Parties” refers to Licensee, its Affiliates and the officers, directors, employees, shareholders, agents and successors and assigns of Licensee and its Affiliates, and “Licensor Indemnified Parties” refers to Licensor, its Affiliates and officers, directors, employees, shareholders, agents and successors and assigns of Licensor and its Affiliates.

12.1.1 Indemnification by Licensor. Licensor shall defend, indemnify and hold harmless to the fullest extent permitted by law the Licensee Indemnified Parties and each of them, from and against any and all losses, claims, liabilities, demands, actions, proceedings, judgments of any and all types, including, without limitation, reasonable fees of attorneys, accountants and other experts (collectively, “Losses”), incurred by Licensee Indemnified Parties insofar as they arise out of or are alleged or claimed to arise out of (i) any activities conducted by Licensor in relation with (i) the Licensed Product including development and commercialization activities; (ii) Licensors’ enforcement of Licensed Patent Rights in any action against a third party that is joined by Licensee in compliance with Section 8.2.2; and (ii) any material breach by

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Licensor of its obligations under this Agreement, provided, however, that: (a) Licensor shall not be obligated under this Section 12.1.1 to the extent that the Losses resulted from the negligence or willful misconduct of Licensee, Licensee’s Affiliates, Sub-licensees or Contractors; and (b) Licensee shall have the right to participate in the defense of any such claim, complaint, suit, proceeding or cause of action referred to in this Section 12.1.1 utilizing attorneys of its choice, at its own expense, provided, however, that Licensor shall have full authority and control to handle any such claim, complaint, suit, proceeding or cause of action, including any settlement or other disposition thereof, for which Licensee seeks indemnification under this Section 12.1.1.

12.1.2 Indemnification by Licensee. Licensee shall defend, indemnify and hold harmless the Licensor Indemnified Parties and each of them to the fullest extent permitted by law from and against any and all Losses incurred by Licensor Indemnified Parties insofar as they arise out of or are alleged or claimed to arise out of (i) any activities conducted by Licensee in connection with the Licensed Product, and (ii) any material breach by Licensee of its obligations under this Agreement; provided, however, that; (a) Licensee shall not be obligated under this Section 12.1.2 to the extent that the Losses resulted from the negligence or willful misconduct of Licensor or Licensor’s Affiliates or contractors; and (b) Licensor shall have the right to participate in the defense of any such claim, complaint, suit, proceeding or cause of action referred to in this Section 12.1.2 utilizing attorneys of its choice, at its own expense, provided, however, that Licensee shall have full authority and control to handle any such claim, complaint, suit, proceeding or cause of action, including any settlement or other disposition thereof, for which Licensor seeks indemnification under this Section 12.1.2.

Notwithstanding the provisions of Sections 12.1.1 and 12.1.2, Licensee and Licensor agree and understand that, in the event of a claim, complaint, suit, proceeding or cause of action brought against one Party containing allegations of liability based on activities for which such Party was responsible, such Party shall control and bear financial responsibility for its own defense; unless the other Party agrees to control and bear financial responsibility of such defense.

12.2 Settlement of Indemnified Claims. The Indemnifying Party under Section 12.1.1 or 12.1.2, as applicable (the “Indemnifying Party”), shall have the sole authority to settle any claim against the other Party (the “Indemnified Party”) pursuant to Sections 12.1.1 or 12.1.2 (the “Indemnified Claim”) without the consent of the other Party, provided, however, that an Indemnifying Party shall not, without the written consent of the other Party, as part of any settlement or compromise (i) admit to liability on the part of the other Party; (ii) agree to an injunction against the other Party; or (iii) settle any matter in a manner that separately apportions fault to the other Party.

12.3 Indemnification Procedure. Each Party shall promptly notify the other Party in writing of any claim, suit, proceeding, demand or assessment it believes is an Indemnified Claim. Concurrent with the provision of notice pursuant to this Section 12.3, the Indemnified Party shall provide to the other Party copies of any complaint, summons, praecipe, subpoena or other court filings related to such claim. Failure to provide prompt notice shall not relieve any Party of the duty to defend or indemnify unless such failure materially prejudices the defense of any matter.

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Should the Indemnifying Party dispute that any claim or portion of a claim (“Disputed Claim”) of which it receives notice pursuant to Section 12.3, is an Indemnified Claim, it shall so notify the Indemnified Party providing written notice in sufficient time to permit such Indemnified Party to retain counsel and timely appear, answer and/or move in any such action. In such event, such Indemnified Party shall defend against such claim until the dispute regarding whether such claim is an Indemnified Claim has been resolved; provided, however, that an Indemnified Party shall not settle any claim which it contends is an Indemnified Claim without providing the Indemnifying Party ten (10) working days’ notice prior to any such settlement and an opportunity to assume the defense and indemnification of such claim pursuant to this Agreement. If it is determined that a Disputed Claim is subject to indemnification, in whole or in part, the Indemnifying Party will reimburse the reasonable costs and expenses, including attorneys’ fees, of the Indemnified Party.

12.4 Insurance. Each Party shall maintain, during the term of this Agreement, Commercial General Liability Insurance, (including Products Liability, Contractual Liability, Bodily Injury, Property Damage and Personal Injury) to cover its indemnification obligations under this Article 12. During the term of this Agreement, each Party shall not permit such insurance to be reduced, expired or canceled without reasonable prior written notice to the other Party. Upon request, each Party shall provide certificates of insurance to the other Party evidencing the coverage specified herein. Except as expressly stated herein, a Party’s liability to the other is in no way limited to the extent of the Party’s insurance coverage. In the event of duplicate coverage, the insurance policy of the Party whose fault causes the need for reimbursement under an insurance policy shall be primary and the other Party’s excess and non-contributing.

12.5 Limitation of Liability. EXCEPT FOR ANY WILLFUL BREACH BY EITHER PARTY OF ITS REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS UNDER SECTIONS 11.1 AND 11.2, OR FOR DAMAGES ACTUALLY PAID BY A PARTY TO A THIRD PARTY PURSUANT TO A THIRD-PARTY CLAIM, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER OR ANY OF ITS AFFILIATES FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES (INCLUDING, WITHOUT LIMITATION, LOST PROFITS, BUSINESS OR GOODWILL) SUFFERED OR INCURRED BY SUCH OTHER PARTY OR ITS AFFILIATES IN CONNECTION WITH THIS AGREEMENT, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

13. FORCE MAJEURE

Neither Party shall be liable for any delay or default in such Party’s performance hereunder if such default or delay is caused by events beyond such Party’s control including, but not limited to, acts of God, war or insurrection, civil unrest, disease or calamity affecting the raw materials or equipment used in the production of Licensed Product, earthquake, fire, flood or storm, labor disturbances or epidemic. An event of Force Majeure shall have no effect on Licensee’s obligation to pay for Licensed Product already delivered as required by this Agreement.

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In the event that either Party is forced to rely on this Section due to an event of Force Majeure, the Parties agree that, after the event of Force Majeure has ended, they will meet to discuss any issues with the Agreement resulting from the Force Majeure and that the Parties will negotiate in good faith to resolve any such issues. Should an event of Force Majeure continue for more than six (6) months, the Party not relying on this Section shall have the right to terminate this Agreement by giving thirty (30) days written notice to the other Party of its intent to terminate.

14. SUCCESSORS IN INTEREST

14.1 Neither Party may assign this Agreement or any rights hereunder or delegate the performance of any duties hereunder without the prior written approval of the other Party, which approval shall not be unreasonably delayed or withheld; provided, however, that without such consent either Party may assign this Agreement to an Affiliate or in connection with the transfer or sale of all or substantially all of its assets, stock or business, or its merger, consolidation or combination with or into another entity or acquisition of another entity. Subject to the foregoing, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and permitted assignees.

14.2 Notwithstanding Section 14.1, in the event that (i) this Agreement is transferred or sold to, in connection with the transfer or sale of all or substantially all of Licensee’s assets, stock or business to a third party or (ii) that Licensee is directly or indirectly acquired by, or merges with and into, a third party, Licensor shall have the right to terminate this Agreement as provided herein. Where such acquisition or change of control transaction is with a Competing Entity (as defined below), Licensor shall have three (3) months following the announcement of such transaction to give written notice to Licensee of its intent to terminate the Agreement, such termination to be effective sixty (60) days after receipt of notice of termination, the provisions of Section 9.3 shall apply and Licensor shall owe no compensation to Licensee as a result of such termination. Where such acquisition or change of control transaction is not with a Competing Entity, Licensor shall have three (3) months to give written notice to Licensee of its intent to terminate the Agreement, such termination to be effective sixty (60) days after receipt of notice of termination, provided that such termination is subject to the payment by Licensor of the fair market value of the Licensed Products to be reverted to Licensor in such instance, as agreed in writing between the Parties within such sixty (60) days period. The Parties shall exchange their proposals regarding such valuation in writing and in the event the Parties do not agree on such fair market value within the first forty-five (45) days of such sixty (60) day period, the matter shall be referred to the final decision of three (3) experts of international reputation in the field of accounting or merchant banking with expertise in the pharmaceutical industry, one being appointed by Licensee within fifteen (15) days following failure of the parties to agree, one by Licensor within fifteen (15) days following failure of the parties to agree and one by the two first experts within fifteen (15) days following their appointment. In the event one Party fails to appoint an expert, the other Party may appoint such expert. Once appointed, the experts shall provide the Parties with their decision within one (1) month from the date of the appointment of

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the third expert and this decision shall be final and binding upon the Parties. The expert decision shall be one or the other of the latter of the written proposals exchanged by each Party with a view to agree on such fair market value. Licensor shall make such payment to Licensee, as agreed by the Parties or as decided by the experts, within fifteen (15) days following such agreement or decision. The decision of the expert shall also allocate the cost for this resolution by the panel of experts among the Parties in a proportion the experts deem reasonable. For the purpose of this Section, Competing Entity shall mean a company that, at the time of change of control, markets one or more pharmaceutical products wherever in the world which are material competitors to any one of the pharmaceutical products (including but not limited to the Licensed Product) marketed by Licensor wherever in such region, as of such time.

15. DISPUTE RESOLUTION

Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach or termination thereof, shall be settled as follows:

15.1 Reference to Executives. In the event of a significant controversy, claim, or dispute arising out of or relating to this Agreement or any significant breach thereof (hereinafter collectively referred to as a “Dispute”), the Parties agree that the Dispute shall be described in writing by one or both of the Parties and copies of the description shall be sent to the General Counsel of Licensee and to the General Counsel of Licensor. These executives will then have fifteen (15) days from receipt of such Dispute description to attempt in good faith to resolve the Dispute. In the event that the Dispute is not resolved within this fifteen (15) day time period, then either Party can proceed to arbitration of the Dispute, as described in Section 15.2.

15.2 Arbitration. Only in the event that a Dispute is not resolved through reference to executives, as provided above, may the Parties submit the Dispute to arbitration under the Rules of Arbitration of the International Chamber of Commerce. The Arbitral Tribunal shall consist of three (3) arbitrators. The place of arbitration shall be New York, New York and the arbitration proceedings shall be held in English. The award shall be final and judgment upon such an award may be entered in any competent court or application may be made to any competent court for juridical acceptance of such an award and order of enforcement.

15.3 Governing Law. In the event that a Dispute is not resolved though mediation, as provided above, the laws of New York shall apply to any arbitration or litigation initiated under this Agreement (regardless of its or any other jurisdiction’s choice of law principles).

15.4 Restraining Order. The dispute resolution procedures set forth herein shall not limit a court from granting a temporary restraining order or a preliminary injunction in order to preserve the status quo of the parties pending arbitration or to protect a Party’s trademark or confidential or proprietary information. Further, the arbitrator shall have power to enter such orders by way of interim award, and such orders shall be enforceable in court.

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16. NOTICE

Any notice required or permitted to be given hereunder shall be deemed sufficient if sent by facsimile letter or overnight courier, or delivered by hand to Licensor or Licensee at the respective addresses set forth below or at such other address as either Party hereto may designate. If sent by facsimile letter, notice shall be deemed given when the transmission is completed if the sender has a confirmed transmission report. If a confirmed transmission report does not exist, then the notice will be deemed given when the notice is actually received by the person to whom it is sent. If delivered by overnight courier, notice shall be deemed given when it has been signed for. If delivered by hand, notice shall be deemed given when received.

All notices to Licensor shall be addressed as follows:

Tercica, Inc.

2000 Sierra Point Parkway, Suite 400

Brisbane, California 94005

USA

Attention: General Counsel

With a copy, which shall not serve as notice, to:

Cooley Godward, LLP

Five Palo Alto Square

3000 El Camino Real

Palo Alto, CA 94306

USA

Attention: Barbara A. Kosacz, Esq.

All notices to Licensee shall be addressed as follows:

Beaufour Ipsen Pharma

24 rue Erlanger, F

75016 Paris

France

Attention: President

With a copy to:

Ipsen

Attention: General Counsel

24 rue Erlanger, F

75016 Paris

France

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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17. SURVIVAL

17.1 The provisions of Section 2.5.2 (but only with respect to the first sentence of 2.5.2 as it pertains to warranty), the last paragraph of Section 5.6 (promotional materials), and Sections 8.3 (Joint IP Rights), 9.1.2 (Term; expiration), 9.3 (Resulting Obligations), 9.4 (Survival of Rights), and of Articles 10 (Confidentiality), 11 (Representations and Warranties), 12 (Indemnification), 15 (Dispute Resolution) and this Article 17 shall survive expiration or termination of this Agreement.

17.2 Without prejudice to the above:

(a) any amounts payable by a Party under this Agreement prior to termination or expiration of the Agreement shall survive such termination or expiration; and

(b) in relation only to any outstanding sales at the date of expiration or termination that have not yet been accounted for, Section 5.5 (Sales Reports and Records) shall survive termination or expiration of this Agreement

(c) in relation only to ongoing sales for a six month period following termination pursuant to Section 9.3.1(a), Section 6.11 (Regulatory Compliance) and Section 8.1.1 (Licensed Trade Mark) shall survive termination of this Agreement for the six month period only.

18. ADDITIONAL TERMS

18.1 Entire Agreement. This Agreement, together with the Schedules attached hereto, constitutes the entire understanding between the Parties with respect to the Licensed Product, and supersedes and replaces all previous negotiations, understandings, representations, writings, and contract provisions and rights relating to the subject matter hereof. The Parties agree that all supply and distribution of the Licensed Product hereunder shall be subject to and governed by the terms and provisions set forth herein, and none of the terms and conditions contained on any purchase or order form, invoice, or other writing, shall change the provisions of this Agreement unless it is signed and delivered by both Parties and it clearly indicates that the Parties intend to vary the terms hereof.

18.2 Amendments; No Waiver. No provision of this Agreement may be amended, revoked or waived except by writing signed and delivered by an authorized officer of each Party. Any waiver on the part of either Party of any breach or any right or interest hereunder shall not imply the waiver of any subsequent breach or waiver of any other right or interest.

18.3 Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, each of which shall remain in full force and effect.

18.4 Headings. The descriptive headings are inserted for convenience of reference only and are not intended to be part of or to affect the meaning of or interpretation of this Agreement.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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18.5 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed and delivered by their duly authorized representatives on the dates set forth below to be effective as of the Effective Date.

Tercica, Inc.		Beaufour Ipsen Pharma
By:	/s/ John A. Scarlett, M.D.	By:	/s/ Claire Giraut
Date:		Date:

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Schedule 1

Licensed Patent Rights

(Section 1.51) [*]

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Schedule 2

Specification for Initial Product

(Sections 1.41 and 1.82)

Increlex Drug Product Specifications

[*]

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Schedule 3

(TRADEMARKS)

TRADEMARK	COUNTRY	APPLICATION/ REGISTRATION NO.	CLASS/GOODS/ SERVICES	CURRENT STATUS
INCRELEX	Australia	Application No. 1030597 Registration No. 1030597	Class 5: pharmaceutical, veterinary, therapeutic and sanitary preparations; pharmaceutical goods and preparations for medical purposes	Filed 11/19/04 Registered 03/22/05
INCRELEX	Brazil	Application No. 827079346	Class 5: pharmaceutical, veterinary, therapeutic and sanitary preparations; pharmaceutical goods and preparations for medical purposes	Filed 11/19/04 Published 12/14/04
INCRELEX	China	Application No. 4374645	Class 5: pharmaceutical, veterinary, therapeutic and sanitary preparations; pharmaceutical goods and preparations for medical purposes	Filed 11/22/04
INCRELEX	European Union (ECTM)	Application No. 4,124,467 Registration No. 4,124,467	Class 5: pharmaceutical, veterinary, therapeutic and sanitary preparations; pharmaceutical goods and preparations for medical purposes Class 10: medical products, devices and apparatus; scientific and laboratory products, devices and apparatus Class 42: medical research; product research; research and development for new products for others; scientific research; chemical research; biological research; genetic research	Filed 11/18/04 Registered 01/26/06
INCRELEX	India	Application No. 1321206	Class 5: pharmaceutical, veterinary, therapeutic and sanitary preparations; pharmaceutical goods and preparations for medical purposes	Filed 11/19/04
INCRELEX	Korea	Application No. 40-2004-0052422 Publication No. 40-2005-0051978 Registration No. 0638792	Class 5: pharmaceutical preparations for use in treatment of disorders of the endocrine, cardiovascular, renal, skeletal, statural, neural, visual, auditory, immune and metabolic systems; veterinary preparations for use in treatment of disorders of the endocrine, cardiovascular, renal, skeletal, statural, neural, visual, auditory, immune and metabolic systems; therapeutic preparations for treating symptoms of disorders of the endocrine, cardiovascular, renal, skeletal, statural, neural, visual, auditory, immune and metabolic systems; pharmaceutical preparations for use as diagnostic reagents for medical laboratory and clinical use	Filed 11/19/04 Registered 11/11/05

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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TRADEMARK	COUNTRY	APPLICATION/ REGISTRATION NO.	CLASS/GOODS/ SERVICES	CURRENT STATUS
INCRELEX	New Zealand	Application No. 721719 Registration No. 721719	Class 5: pharmaceutical, veterinary, therapeutic and sanitary preparations; pharmaceutical goods and preparations for medical purposes	Filed 11/19/04 Published 12/24/04 Registered 05/19/05
INCRELEX	Norway	Application No. 2004 11585 Registration No. 229224	Class 5: pharmaceutical, veterinary, therapeutic and sanitary preparations; pharmaceutical goods and preparations for medical purposes	Filed 11/19/04 Registered 11/10/05
INCRELEX	Russia	Application No. 2004726887 Registration No. 303966	Class 5: pharmaceutical, veterinary, therapeutic and sanitary preparations; pharmaceutical goods and preparations for medical purposes	Filed 11/19/04 Registered 03/30/06
INCRELEX	Switzerland	Application No. 03901/2004 Registration No. 529.662	Class 5: pharmaceutical, veterinary, therapeutic and sanitary preparations; pharmaceutical goods and preparations for medical purposes	Filed 11/19/04 Registered 01/17/05
INCRELEX	Taiwan	Application No. 93053935 Registration No. 1168388	Class 5: pharmaceutical preparations, namely preparations for use with animals, the human body and environment hygiene; pharmaceutical goods and preparations for medical purposes	Filed 11/19/04 Registered 08/16/05
STAVERSA	European Union (ECTM)	Application No. 4,126,504 Registration No. 4,126,504	Class 5: pharmaceutical, veterinary, therapeutic and sanitary preparations; pharmaceutical goods and preparations for medical purposes Class 10: medical products, devices and apparatus; scientific and laboratory products, devices and apparatus Class 42: medical research; product research; research and development for new products for others; scientific research; chemical research; biological research; genetic research	Filed 11/19/04 Registered 01/26/06

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Schedule 4

Target Label

(Section 1.86)

Increlex Target Label and Target Population

[*]

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Schedule 5

Third Party Countries (and distribution agreements)

(Section 2.4)

Distribution and Quality Agreement by and between Tercica, Inc. and Biologix FZ Co., dated May 26, 2006 (covering Kingdom of Saudi Arabia, United Arab Emirates, Oman, Kuwait, Syria, Jordan, Lebanon, Iran, Iraq, Morocco, Algeria, Tunisia, Libya, Egypt, Bahrain, Qatar, Yemen.

Distribution and Quality Agreement by and between Tercica, Inc. and Giddi Pharma Co., Ltd., dated May 7, 2006 (covering Taiwan)

Negotiations are ongoing as of the Execution Date by and between Tercica, Inc. and Medison Pharma Ltd., for a Distribution and Quality Agreement for Israel.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Schedule 6

Guidelines for Initial Development Plan

(Section 4.3.1)

Weekly formulation of IGF-1 : to be detailed in the Initial Development Plan

Combination Product : IGF-1 together with Recombinant Human Growth Hormone

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Schedule 7

Monthly Sales Report Template

(Section 5.5.1)

Increlex

Sales Report as of : mm/dd/yy

	This Year				Last Year
	Current Month		Year to date		Current Month		Year to date
Countries	Volume (units sold)	Value (in Euros)	Volume (units sold)	Value (in Euros)	Volume (units sold)	Value (in Euros)	Volume (units sold)	Value (in Euros)
Country A
Country B
Country C
Country D
…..
Total for Territory.

Note: One template per type of product sold

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

Schedule 8

Supply Price

(Section 6.5)

EUR [*]/vial

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

Schedule 9

Minimum Quantities per order for Licensed Product

(Section 6.6)

Minimum Quantities per order for Licensed Product: [*] units total per Quarter (Trilingual or English label) or as detailed in the Initial Development Plan and/or Commercialization Plan

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Schedule 10

Form of the 18 Month Rolling Order Forecast

(Section 6.7.1)

Country

Product Name

SKU Number

Monthly Sales Forecast over 18 months

Month 1

Month 2

Month 3

Month 4

Month 5

Month 6

Month 7

Month 8

Month 9

Month 10

Month 11

Month 12

Month 13

Month 14

Month 15

Month 16

Month 17

Month 18

+ Once per year: Annual Forecast over a 4 year horizon

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

Schedule 11

Licensor On-going Development

(Section 1.58)

[*]

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

Schedule 12

JSC – Initial Representatives

(Section 3.1.1)

From Ipsen

[*]

From Tercica

[*]

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

Schedule 13

Joint Patent Committee Members

(Section 8.3)

Tercica:

[*]

Ipsen:

[*]

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

EX-10.14D

EXHIBIT 10.14D

Execution Copy

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

SOMATULINE^®

LICENSE AND COLLABORATION AGREEMENT

THIS SOMATULINE^® LICENSE AND COLLABORATION AGREEMENT (the “Agreement”), is entered into as of the Effective Date (defined below) by and between SCRAS, a company incorporated under the laws of France with offices at 42 rue du Docteur Blanche, 75016 Paris, France (“SCRAS”) and Beaufour Ipsen Pharma, a company incorporated under the laws of France with offices at 24 rue Erlanger, 75016 Paris, France (“BIP”) (SCRAS and BIP acting jointly being together referred to as “Licensors”), and Tercica, Inc. a company incorporated under the laws of Delaware with offices at 2000 Sierra Point Parkway, Suite 400, Brisbane, CA 94005, United States of America (“Licensee”). BIP, SCRAS, either individually or acting jointly as Licensors on the one hand, and Licensee, on the other hand, are sometimes referred to herein individually as a “Party” and collectively as the “Parties”.

Whereas, Licensors are engaged in the business of developing and marketing of pharmaceutical products; and

Whereas, BIP, as of the Execution Date has obtained regulatory approval for, and is marketing the Initial Product (as defined below) under the tradename Somatuline Autogel^® in the European Union and is currently conducting additional research and development activities with respect to obtaining regulatory approval for the Licensed Product in the United States (the “Licensor On-going Development” as further defined below); and

Whereas, Licensors are seeking a partner for the development and, following regulatory approval, distribution of the Licensed Product in the Territory (as defined below); and

Whereas, Licensee has the marketing and sales force in the Territory to enable it to effectively market the Licensed Product in the Territory; and

Whereas, Licensee and an Affiliate of BIP, on the Execution Date, also are entering into that certain Stock Purchase and Master Transaction Agreement, and will enter into pursuant thereto such other agreements, including the Voting Agreement, Registration Rights Agreement, Investor Rights Agreement, Convertible Note Agreement, and related transaction documents, including the issuance of a Warrant to purchase shares of Common Stock of Licensee (collectively, the “Equity Transaction Documents”); and

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Whereas, Licensee and BIP, on the Effective Date, are also entering into that certain Increlex License and Collaboration Agreement pursuant to which, among other things, Licensee will exclusively license to BIP, Licensee’s product Increlex™, for sale by BIP in all countries of the world, excluding the United States, Canada, Japan and certain other countries (the “Increlex Agreement”).

THE PARTIES DO HEREBY AGREE AS FOLLOWS:

1. DEFINITIONS AND INTERPRETATION

1.1 “18-Month Rolling Order Forecast” has the meaning set forth in Section 6.7.1 of this Agreement.

1.2 “Affiliate” means, in respect of any Person (i.e. any individual or any corporation, limited liability company, partnership, trust, association or other entity of any kind, a Person that is directly or indirectly controlling, controlled by, or under common control with such first-mentioned Person or any of its Subsidiaries, and for the sole purpose of this paragraph, the term “control” (including the terms “controlled by” and “under common control with”) means having, directly or indirectly, the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or by contract or otherwise. As used in this Section 1.2, “Subsidiary” means any corporation or other organization, whether incorporated or unincorporated, of which (i) at least fifty percent (50%) of the securities (or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization) is directly or indirectly owned or controlled by the relevant Person or (ii) the relevant Person (or any other subsidiary of the relevant Person) is a general partner.

1.3 “Agreement” shall have the meaning set forth in the preamble.

1.4 “Binding Order” has the meaning set forth in Section 6.7.2 of this Agreement.

1.5 “BLA” means a Biologics License Application (as defined in Title 21 of the United States Code of Federal Regulations, Section 600 et seq, as amended from time to time), or such application’s foreign equivalent, filed pursuant to the requirements of a Regulatory Authority for Marketing Authorization of a Licensed Product.

1.6 “Calendar Quarter” means the respective period of three (3) consecutive calendar months ending on March 31, June 30, September 30 and December 31.

1.7 “Calendar Year” means the respective period of twelve (12) consecutive months commencing on January 1 and ending on December 31.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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1.8 “Combination Product” shall mean a pharmaceutical formulation or product for use in the Field that contains somatostatin or any somatostatin analog, which somatostatin analogs include, but are not limited to, lanreotide, and any other active ingredient.

1.9 “Commercialization Plan” shall mean the most recent version of any given three (3) Calendar Year rolling plan as from First Commercial Sale until termination or expiration of the Agreement (the first Calendar Year being for the purpose of this clause, the period starting from the date of the First Commercial Sale in the country until December 31 of the same year), with respect to the promotion, sales plan and budget for each Licensed Product in each country of the Territory including in particular: (a) the Promotional Efforts planned for such three Calendar Years and (b) the Sales Forecast anticipated for such three Calendar Years. Such Commercialization Plan shall also include provisions for the manufacturing, supply and distribution planning of Licensed Products for sale in the Territory.

1.10 “Commercial Sale” means the sale of Licensed Products whether by Licensee or Licensee’s Affiliates or Sub-licensees to a third party and shall exclude (i) any transfer of Licensed Product by Licensee to its Affiliates or Sub-licensees and (ii) any distribution of Licensed Product for use in Development activities or as Samples.

1.11 “Confidential Information” has the meaning set forth in Section 10.1 of this Agreement.

1.12 “Control” with the correlative meaning “Controlled by” means, with respect to intellectual property, possession of the right to grant a license or sublicense as provided for herein without violating (a) any law or governmental regulation applicable to such license or sublicense or (b) the terms of any agreement or other arrangement with any third party that exists as of the Effective Date, or if such right is acquired after the Effective Date, as of the date a Party first gained possession of such right.

1.13 “Cover” and with correlative meaning “Covered” shall mean with respect to Patent Rights, that such Patent Rights claim the composition of matter, method of making or any use of such Licensed Product.

1.14 “current Good Manufacturing Practices” or “cGMP” shall mean the requirements found in the legislation, regulation and administrative provisions for methods to be used in, and the facilities or controls to be used for, the manufacturing, processing, packing and/or holding of a drug to assure that such drug meets the requirements as to the safety and has the identity and strength and meets the quality characteristics that it purports or is represented to possess, all of which as defined by the competent authorities of each country of the Territory where and at the time Licensee sells the Licensed Products in each such country and by the competent authorities of the country where any manufacturing or testing operation is conducted.

1.15 “Delivery Point” shall have the meaning ascribed to it in Section 6.4 of this Agreement.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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1.16 “Developing Party” shall mean a Party Developing solely a Product Improvement, a Combination Product or an Other Product under a Subsequent Development Plan as set forth in Section 4.4.4 (i) of this Agreement.

1.17 “Development” and with correlative meaning “Develop” and “Developing” means all activities related to preclinical testing, toxicological, pharmacokinetic, metabolic, or clinical aspects of the Licensed Product (or where applicable an Other Product), process development, stability studies, formulation development, clinical studies regulatory affairs, and other development activities for the Licensed Product (or where applicable an Other Product).

1.18 “Development Costs” shall mean costs incurred jointly by the Parties under the Initial Development Plan or Joint Subsequent Development Plan or solely by a Developing Party under a Subsequent Development Plan as determined in accordance with Section 4.4.2 of this Agreement.

1.19 “Development Plan” shall mean either the Initial Development Plan or any Subsequent Development Plan.

1.20 “Diligent Efforts” shall mean the efforts consistent with the exercise of prudent scientific and business judgment, consistent with the effort applied to other pharmaceutical products of similar potential and market size by the Party in question (or, if the Party in question has no other pharmaceutical product of similar potential and market size, by other similarly sized pharmaceutical companies that do).

1.21 “Dominating Patent” means with respect to a given country in the Territory, an unexpired patent of a third party which has not been finally invalidated by a court or other governmental agency of competent jurisdiction and which would be infringed by the use, manufacture, sale or import of the Licensed Product in such country under this Agreement.

1.22 “Effective Date” shall mean the date of the First Closing.

1.23 “EMEA” means the European Medicine Agency, a decentralized body of the European Union.

1.24 “Excluded Indications” shall mean the use of somatostatin or any somatostatin analog, which somatostatin analogs include, but are not limited to, lanreotide, as a therapeutic or potential therapeutic for any opthalmic indications.

1.25 “Execution Date” shall mean July 18, 2006, the date of execution of the Purchase Agreement.

1.26 “Field” means all uses in humans and all in vitro uses excluding the Excluded Indications.

1.27 “First Closing” shall have the meaning ascribed to it in the Purchase Agreement.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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1.28 “First Commercial Sale” means the first Commercial Sale in the relevant countries of the Territory, as evidenced by the first payment received by Licensee, its Affiliates or Sub-licensees in connection with this Commercial Sale on a country-by-country basis.

1.29 “FTE” shall mean full time equivalent of, and is equal to the amount of work one full time employee would accomplish during any one year period.

1.30 “IND” means an investigational new drug application as defined under US law and foreign equivalents.

1.31 “Indication” means the prevention, therapeutic treatment, or diagnosis of any particular human disease or, disorder or condition, but shall not include the Excluded Indications.

1.32 “Initial Development Plan” means the plan for the conduct of specified Development activities with regards to the Initial Product, or Product Improvements or Combination Products as agreed between the Parties pursuant to Section 4.3.1 of this Agreement for the purpose of obtaining initial Marketing Authorization or Marketing Authorization for label expansion for such Licensed Product, which shall exclude any Licensors On-going Development.

1.33 “Initial Product” means that certain pharmaceutical formulation for use in the Field containing lanreotide and as of the Execution Date marketed by Licensors or their Affiliates in any country in the European Union under the tradename Somatuline^® Autogel^®, the specifications of which, as of the Execution Date are attached as Schedule 2 to this Agreement, which specifications may be amended from time to time by the written agreement of the Parties.

1.34 “JFC” shall mean the joint finance committee as defined in Section 3.2 of this Agreement.

1.35 “Joint Know-How” shall mean any and all Know-How owned jointly by BIP and Licensee pursuant to Section 8.3.

1.36 “Joint Patents” shall mean any and all Patent Rights owned jointly by SCRAS and Licensee pursuant to Section 8.3.

1.37 “Joint Patent Committee” shall mean the committee defined in Section 8.3.

1.38 “Joint Subsequent Development Plan” shall mean a Subsequent Development Plan conducted and funded jointly by the Parties in accordance with Section 4.4.3 of this Agreement.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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1.39 “JSC” shall mean the joint steering committee as defined in Section 3.1 of this Agreement.

1.40 “Know-How” means all non public proprietary information, trade secrets, techniques and data of a Party (including Confidential Information as defined in Section 10.1) including, but not limited to, discoveries, formulae, materials, practices, methods, knowledge, know-how, processes, experience, test data (including pharmacological, toxicological and clinical information and test data), analytical and quality control data, marketing, pricing, distribution, cost and sales data or descriptions and any and all submissions to Regulatory Authorities with respect to Licensed Products, and preclinical and clinical data, assays and associated materials, and protocols and procedures and documentation associated with the foregoing.

1.41 “Licensed Know-How” shall mean Know-How owned or Controlled by BIP that is reasonably necessary for the characterization, optimization, assaying, Development, import, offer for sale, use or sale of somatostatin or any somatostatin analog, which somatostatin analogs include, but are not limited to, lanreotide, or any Licensed Product in the Field including without limitation all Know-How resulting from Licensors On-going Development.

1.42 “Licensed Patent Rights” shall mean all Patent Rights owned or Controlled by SCRAS in the Territory which Cover the Licensed Product, but excluding Licensor Related Patent Rights except and to the extent agreed by the Licensor and Licensee pursuant to Section 2.6,. As at the Execution Date, Licensed Patent Rights include all Patent Rights listed in Schedule 1 of this Agreement.

1.43 “Licensed Product” means, as the context requires, the Initial Product, and any Product Improvements and/or any Combination Products that accrue from the Initial Development Plan and/or Joint Subsequent Development Plans, and/or any Subsequent Development Plan as to which the Opt-in Party (as that term is defined in Section 4.4.4(ii)(F)(a) below) has exercised its rights to Opt-In (as that term is described in Section 4.4.4(ii)(F)(a) below) pursuant to Section 4.4.4(ii)F.

1.44 “Licensed Trademarks” shall mean the trademarks listed in Schedule 3.

1.45 “Licensee Allocation” shall have the meaning ascribed to it in Section 4.4.3.

1.46 “Licensee Group” means Licensee and its Affiliates.

1.47 “Licensee Independent Patent Rights” shall have the meaning set forth in Section 2.4.2 of this Agreement.

1.48 “Licensee Related Patent Rights” means, any Patent Rights owned or Controlled by Licensee which Cover a Licensed Product other than the Initial Product in the Licensor Territory and either (i) are acquired by or licensed to Licensee from a third party and as to which Licensee would owe such third party royalties or other payments

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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for the license to such Patent Rights in the Licensor Territory based on Licensee’s (or Licensor’s) use and exploitation of such Patent Rights; or (ii) do not cover inventions made in the conduct of the Development or a Development Plan under this Agreement, which such inventions are solely or jointly owned by Licensee as provided in Section 8.3.

1.49 “Licensors Allocation” shall have the meaning ascribed to it in Section 4.4.3.

1.50 “Licensors IP Rights” means any and all Licensed Patent Rights and Licensed Know-How.

1.51 “Licensors On-going Development” shall mean those clinical, non-clinical studies and regulatory activities anywhere including in the Territory either (a) ongoing as of the Execution Date and set forth in Schedule 11 hereto or (b) that either (i) are required for securing Marketing Authorization for the Initial Product for the Target Label in the Territory, or (ii) the conduct of which is a condition upon which such Marketing Authorization has been granted by a Regulatory Authority in the Territory. Licensors On-going Development activities are carried out and funded solely by Licensors.

1.52 “Licensors Related Patent Rights” means, any Patent Rights owned or Controlled by Licensors that are other than those listed on Schedule 1, but which Cover any Licensed Product other than the Initial Product, and either (i) are acquired by or licensed to Licensors from a third party and as to which Licensors would owe such third party royalties or other payments for the license to such Patent Rights in the Territory based on Licensors’ (or Licensee’s) use and exploitation of such Patent Rights or (ii) do not cover inventions made in the conduct of the Development or a Development Plan under this Agreement, which inventions are solely or jointly owned by Licensors as provided in Section 8.3.

1.53 “Licensors Territory” means all countries in the world, excluding the United States of America and Canada, its territories and possessions.

1.54 “Market Competition” means with respect to a given country of the Territory, the written notification to Licensors by Licensee that the sale in a given country of the Territory of one or more products containing lanreotide by one ore more third parties that are not Sub-licensees of Licensee has achieved greater than twenty five percent (25%) Market Share. For purposes of this Section 1.54, “Market Share” shall mean the percentage market share in value for the product or products in question containing lanreotide, such percentage to be established by measuring a full Calendar Quarter of reported prescription data for the applicable product(s) and any competing products (including Licensed Products) sold in the relevant country of the Territory. If the Parties are unable to mutually agree on the Market Share of a given product or products based on such prescription data, the Parties shall submit the issue to a mutually-agreeable third party market research firm having expertise in pharmaceutical sales in the relevant country of the Territory (the “Research Firm”). The Research Firm shall be instructed to provide an independent assessment of the Market Share for purposes of determining

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Market Competition hereunder. Licensee shall bear all costs associated with the services of the Research Firm; provided that in the event that the Research Firm establishes that the Market Share is twenty five percent (25%) or higher for a particular Indication, Licensors shall reimburse Licensee for the full cost of the Research Firm’s services for such assessment.

1.55 “Marketing Authorizations” means the regulatory authorizations required to sell the Licensed Product in the Territory on a country-by country basis

1.56 “Milestone Event” means the occurrence of either of the two Approval Milestone events set forth in 7.1.2(i) upon which or upon the determination of which the Approval Milestones Payments set forth in Section 7.1.2(i) paid by Licensee.

1.57 “Net Sales” means the consolidated gross amount recognized as sold for any particular period using GAAP (i.e., Generally Accepted Accounting Procedures) for sales recognition for the Licensed Product by Licensee or its Affiliates or Sublicensees to third parties, minus the following as applicable, using GAAP criteria, (a) returned goods; (b) trade cash, and quantity discounts accrued and actually taken from the invoiced amount; (c) rebates, including payments in respect of any governmental subsidized programs, rebate payments given to wholesalers or other Licensee buying groups, healthcare insurance carriers or other institutions; (d) credits or allowances actually given or made for rejection or return of previously sold Licensed Products or for retroactive price reductions (including government mandated rebates and chargebacks); (e) sales, value added or other taxes or duties levied on or measured by the billing amount for Licensed Products, to the extent billed separately on the invoice and paid for by the customer, as adjusted for rebates and refunds, as applicable; (f) a flat rate of one percent (1%) of such consolidated gross amount recognized as sold to account for estimated charges for freight and insurance directly related to the delivery or return of Licensed Products to the extent billed separately on the invoice and paid for by the customer; (g) adjustments for Combination Products as mutually agreed upon in good faith by the Parties, (h) uncollectible debts, as incorporated in Licensee Group’s consolidated accounts consistently applied to all products of Licensee Group, provided however that if collected at a later date such amounts will be added to Net Sales in the Calendar Quarter in which it is received, in all cases as adjusted periodically to reflect amounts actually incurred in the Territory for items (a) through (f). If a Licensed Product is sold for consideration other than cash, the fair market value of such other consideration shall be included in Net Sales.

1.58 “Opt-In” shall have the meaning assigned to it in Section 4.4.4(ii)(F)(a).

1.59 “Opt-in Information” shall have the meaning assigned to it in Section 4.4.4(iii)(A)(b).

1.60 “Opt-in Notice Date” shall have the meaning assigned to it in Section 4.4.4(iii)(A)(a).

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1.61 “Other Product” shall mean any chemical entity or pharmaceutical product other than a Licensed Product which is acquired, owned, Controlled or being the object of research and development activities by Licensors in the field of endocrinology, or other areas as may be mutually agreed by the Parties in writing.

1.62 “Patent Rights” means any patents, patent applications, certificates of invention, or applications for certificates of invention and any supplemental protection certificates together with any extensions, registrations, confirmations, reissues, substitutions, divisions, continuations or continuations-in-part, reexamination or renewals thereof.

1.63 “Phase I Clinical Trials” shall mean those clinical trials on sufficient number of volunteers/subjects that are designed to establish safe drug doses and to support testing in Phase II Clinical Trials.

1.64 “Phase II Clinical Trials” shall mean those clinical trials on sufficient number of patients that are designed to explore the dosage, safety and biological activity of a drug for intended use, and to define warnings, precautions and adverse reactions that are associated with the drug in the dosage range to be prescribed.

1.65 “Phase III Clinical Trials” shall mean those clinical trials on sufficient number of patients that are designed to establish that a drug is safe and efficacious for its intended use, and to define warnings, precautions, and adverse reactions that are associated with the drug in the dosage range to be prescribed and supporting Marketing Authorization of such drug or label expansion of such drug.

1.66 “Product Improvement” shall mean any improvements and/or enhancements or other desirable change to the technical/pharmacological characteristics of the Initial Product (or an enhanced or improved version of the Initial Product), whether patentable or not, including, without limitation, improvements or enhancements in the manufacture, formulation, ingredients, preparation, presentation, means of delivery or administration, dosage, indication for use or packaging of the Initial Product. For the sake of clarity, Product Improvements shall include without limitation any pharmaceutical product containing an active ingredient that is somatostatin or any somatostatin analog other than lanreotide.

1.67 “Promotional Efforts” shall mean, as to a given Licensed Product, the annual sales, medical and marketing efforts planned by the Licensee in the promotion and marketing of such Licensed Product in a country of the Territory after the First Commercial Sale in such country. The Promotional Efforts shall be detailed in the Commercialization Plan which shall include without limitation sales plan, number of calls by medical representatives, intended Phase IV (post-approval) studies and budget related thereto for such Licensed Product in such country (although the actual Phase IV study design and budget therefor will be addressed in a Development Plan for such Licensed Product).

1.68 “Purchase Agreement” means that certain Stock Purchase and Master Transaction Agreement, dated as of July 18, 2006, by and between BIP’s Affiliate, and Licensee.

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1.69 “Regulatory Authority” means any government agency having the responsibility for granting Marketing Authorizations and any other government entities with authority over the manufacturing and the marketing of the Licensed Product.

1.70 “Related Patent Rights” shall have the meaning set forth in Section 2.6 of this Agreement.

1.71 “Royalty Term” shall mean, on a country-by-country basis the period starting upon the First Commercial Sale of the Licensed Product until the later of (i) the expiry date of the last Valid Claim in such country, or (ii) the expiry date of the orphan drug status granted to the Licensed Product by Regulatory Authorities in such country, or (iii) the expiry date of the regulatory protection (if any) preventing any competitor to cross-refer any data of the Marketing Authorizations files of the Licensed Product in such country; or (iv) the date which is fifteen (15) years from such First Commercial Sale.

1.72 “Sales Forecasts” shall mean, as to a given Licensed Product, the annual sales forecasts for the Licensed Product in a country of the Territory with respect to the Indication(s) for which Licensee has obtained Marketing Authorization.

1.73 “Sample” means Licensed Product delivered to Licensee by Licensors for distribution by Licensee or otherwise, to health care professionals for trial use by patients at no cost to the patient and not for re-sale pursuant to applicable laws.

1.74 “Schedule(s)” refers to the Schedules attached to this Agreement and incorporated herein by this reference.

1.75 “SKU” shall mean stock-keeping unit.

1.76 “Specifications” means the standards and specifications relating to the manufacture, testing and packaging of the Licensed Product, which shall be those approved by the Regulatory Authorities in the Territory from time to time and on a country-by-country basis. The Specifications of the Initial Product as at the Execution Date are set forth in Schedule 2 attached hereto.

1.77 “Sub-licensee” means a third party to whom Licensee or its Affiliates sublicenses, assigns or otherwise delegates some or all of their rights and obligations under this Agreement. Sub-licensee shall also include any third party who purchases its supply of Licensed Product, in finished form from Licensee, its Affiliates or Sublicensee for resale into the market, where, as a partial or full consideration for such purchase, such third party has a payment obligation to Licensee, its Affiliates or Sublicensee that is a percentage of its net sales, including without limitation a royalty obligation.

1.78 “Subsequent Development Plan” shall mean the specific plan for Development activities to obtain initial Marketing Authorization or Marketing Authorization for a Product Improvement, Combination Product or, as the case may be and where agreed pursuant to Section 4.3.3, Other Product, submitted by one Party to the other Party pursuant to Sections 4.3.2 and 4.3.3 of this Agreement.

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1.79 “Supply Price” shall have the meaning ascribed to it in Section 6.5 of this Agreement.

1.80 “Target Label” shall mean the Indication for which the Parties intend that the Marketing Authorization will be granted and the correlative estimated patient population which the Parties expect may be treated by such Indication with respect to the Initial Product in the United States of America (the “Target Population”), all as described further in Schedule 4.

1.81 “Technical Agreement” shall have the meaning ascribed to it in Section 6.1.1 of this Agreement.

1.82 “Territory” means United States of America and Canada.

1.83 “USD” means United States dollars.

1.84 “Valid Claim” means any claim of a pending patent application of a Licensed Patent Rights which has not been abandoned or finally rejected without the right of appeal or which is not known to be unpatentable, or any claim from an issued and unexpired Licensed Patent Rights which has not been revoked or held unenforceable or invalid by a decision of a court or other governmental authority of competent jurisdiction without the right of appeal, and which has not been disclaimed, denied or admitted to be invalid or unenforceable through reissue or disclaimer or otherwise.

1.82 Rule of Construction. The Parties acknowledge and agree that for the purposes of this Agreement, where references are made to the “Licensors” the following shall apply:

(i) if and to the extent that the Licensors have a right (for example to terminate the agreement or to Opt-In), BIP and SCRAS shall exercise the right jointly and the Licensee shall be entitled to assume that the exercise of the right by BIP or SCRAS is an exercise of the right by both Licensors;

(ii) BIP and SCRAS shall be jointly and severally liable for the full and timely performance of all obligations of the Licensors under this Agreement and for any indemnities and warranties given by the Licensors under this Agreement;

(iii) if and to the extent the Licensee is required to obtain the consent of the Licensors, the consent of BIP or SCRAS shall be exercised jointly and the Licensee shall be entitled to assume that the exercise of the right by either BIP or SCRAS is an exercise by both Licensors;

(iv) if and to the extent the Licensee if required to give notice to the Licensors, notice in accordance with Section 16 shall be deemed to be notice to both Licensors.;

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(v) the Licensors may perform their obligations under this Agreement directly or through one or more of Licensors’ Affiliates, provided that the Licensors shall remain jointly and severally liable for the full and timely performance pursuant to this Agreement. Unless and until advised otherwise in writing by Licensor (a) Licensee may rely, without inquiry, on all actions taken by Licensors’ Affiliates or their employees in connection with this Agreement, which purport to be on behalf of Licensor; and (b) Licensee may rely on acts to the benefit of Licensors’ Affiliates and employees as being acts to the benefit of Licensors. All rights to the benefit of Licensors’ Affiliates or employees under this Agreement shall vest in and benefit to Licensors.

2. LICENSE GRANT

2.1 Exclusive License.

2.1.1 Subject to the terms and conditions of this Agreement:

(A) SCRAS grants to Licensee and Licensee’s Affiliates (for so long as they remain Affiliates of Licensee):

(i) an exclusive, royalty-bearing license right, with the right to grant sublicenses pursuant to Section 2.2, to use and exploit Licensed Patent Rights (including SCRAS’ interest in any and all Joint Patents) to import, have imported, use, have used, to research and Develop the Initial Product and those other Licensed Products which are jointly Developed by the Parties or solely developed by Licensee or as to which Licensee elects to exercise its Opt-in rights pursuant to Section 4.4.4(ii)F, in the Field and in the Territory, as and to the extent permitted under this Agreement;

(ii) a non- exclusive, royalty-bearing license right, to use and exploit Licensed Patent Rights (including SCRAS’ interest in any and all Joint Patents) to use and have used to research and Develop the Initial Product and those other Licensed Products which are jointly Developed by the Parties or solely developed by Licensee or as to which Licensee elects to exercise its Opt-in rights pursuant to Section 4.4.4(ii)F, in the Field and in the Licensor Territory, as and to the extent permitted under this Agreement; and

(iii) an exclusive (even as to Licensor or Licensor’s Affiliates), royalty-bearing license right, with the right to grant sublicenses pursuant to Section 2.2, to use and exploit Licensed Patent Rights (including SCRAS’ interest in any and all Joint Patents) to use, have used, import, have imported, offer for sale, sell and have sold Licensed Products in the Territory, in the Field.

(B) BIP grants to Licensee and Licensee’s Affiliates (for so long as they remain Affiliates of Licensee):

(i) an exclusive, royalty-bearing license right, with the right to

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grant sublicenses pursuant to Section 2.2, to use and exploit Licensed Know-How (including BIP’s interest in any and all Joint Know-How) to import, have imported, use, have used, to research and Develop the Initial Product and those other Licensed Products which are jointly Developed by the Parties or solely developed by Licensee or as to which Licensee elects to exercise its Opt-in rights pursuant to Section 4.4.4(ii)F, in the Field and in the Territory, as and to the extent permitted under this Agreement;

(ii) a non- exclusive, royalty-bearing license right, to use and exploit Licensed Know-How (including BIP’s interest in any and all Joint Know-How) to use and have used to research and Develop the Initial Product and those other Licensed Products which are jointly Developed by the Parties or solely developed by Licensee or as to which Licensee elects to exercise its Opt-in rights pursuant to Section 4.4.4(ii)F, in the Field and in the Licensor Territory, as and to the extent permitted under this Agreement; and

(iii) an exclusive (even as to Licensor or Licensor’s Affiliates), royalty-bearing license right, with the right to grant sublicenses pursuant to Section 2.2, to use and exploit Licensed Know-How (including BIP’s interest in any and all Joint Know-How) to use, have used, import, have imported, offer for sale, sell and have sold Licensed Products in the Territory, in the Field.

(C) The grant of exclusive rights to Licensee in Sections 2.1.1(A) (i) and (iii) and 2.1.1(B) (i) and (iii) shall be subject to Licensors’ reservation of the right to use, have used, import, and have imported in the Territory Initial Product and those other Licensed Products which are jointly Developed by the Parties or solely developed by Licensors or as to which Licensors elect to exercise their Opt-in rights pursuant to Section 4.4.4(ii)F, for the purpose of supporting Development of Initial Product or such other Licensed Products in the Field for sale in Licensors Territory, as and to the extent permitted under this Agreement.

2.1.2 Notwithstanding the foregoing, Licensors reserve all rights:

(i) under the Related Patent Rights Controlled by Licensors unless otherwise agreed among the Parties pursuant to Section 2.6 of this Agreement in a separate written agreement, and

(ii) under the Licensors IP Rights to the extent necessary to conduct or have conducted research, use, manufacture or Development of Licensed Products for sale in the Licensors Territory, as and to the extent permitted under this Agreement.

2.1.3 Subject to the terms and conditions of this Agreement, SCRAS hereby grants to Licensee and Licensee’s Affiliates (for so long as they remain Affiliates of Licensee) an exclusive (even as to Licensors and their respective Affiliates), royalty-bearing license right, with the right to grant sublicenses, to use and exploit the Licensed Trademarks on and solely in connection with the Development and commercialization of the Licensed Product throughout the Territory, in the Field.

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2.2 Sublicense Rights, Third Party Distributors. Licensee shall have the right to sublicense the rights granted in Section 2.1 to Sub-licensees and/or to appoint third party distributors, subject to the prior written consent of Licensors which shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, Licensee shall remain responsible for complying and for ensuring that such Sub-licensees and distributors comply with this Agreement, all relevant laws, regulations and requirements relating to the importation, distribution, marketing, promotion and sale of the Licensed Product in the Territory. Any sub-license and distributorship agreement shall contain terms and conditions that are not inconsistent with those of this Agreement.

2.3 Excluded Indications. In the event at any time after the Effective Date, Licensors possess, acquire, or regain rights to Develop, sell, offer for sale, use, export and/import the Licensed Product for the Excluded Indications, such Excluded Indications shall be automatically included in the Field.

2.4 Licenses to BIP and SCRAS

2.4.1 Licensee hereby grants to BIP and SCRAS:

(i) a non-exclusive, sublicensable license under Licensee’s interest in any Joint Patent Rights to SCRAS and any Joint Know-How to BIP to use, have used, make, have made, research and Develop the Initial Product and those other Licensed Products which are jointly Developed by the Parties or as to which Licensors elect to exercise their Opt-in rights pursuant to Section 4.4.4(ii)F, in the Field and in the world, as and to the extent permitted under this Agreement; and

(ii) an exclusive, sublicensable license under Licensee’s interest in any Joint Patent Rights to SCRAS and any Joint Know-How to BIP to sell, offer for sale, import, have imported and export in the Field and in the Licensors Territory the Initial Product and those other Licensed Products which are jointly Developed by the Parties or as to which Licensors elect to exercise their Opt-in rights pursuant to Section 4.4.4(ii)F.

2.4.2 Licensee hereby represents and warrants that, as of the Execution Date, Licensee does not own or Control any Patent Rights that claim the composition of matter of, or the method of making or any use of, the Initial Product in the Licensors Territory (“Licensee Independent Patent Rights”). Notwithstanding the foregoing, to the extent any such Licensee Independent Patent Rights are after the Execution Date found to exist, Licensee hereby covenants that, during the term of this Agreement, neither it, nor its Affiliates, shall assert against Licensors, their respective Affiliates or any sublicensees, a claim of infringement of such Licensee Independent Patent Rights based upon the research, development, use, manufacture, sale, offer for sale, import and export of the Initial Product in the Field and in the Licensors Territory or the research, development, use and manufacture of the Initial Product in the Field and in the Territory. Provided however that Licensors acknowledge and agree that Licensee does not covenant that, during the term of this Agreement, neither it, nor its Affiliates, would not assert against Licensors, their respective Affiliates or any sub-licensees, a claim of infringement of Related Patent Rights Controlled by Licensee unless otherwise agreed among the Parties pursuant to Section 2.6 of this Agreement in a separate written agreement.

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2.5 Right of First Negotiation for Other Products.

2.5.1 When acquiring or gaining Control of any Other Product with respect to the Licensors Territory, to the extent it is on commercially reasonable terms and does not have an adverse effect on the interests of Licensors to do so, Licensors shall endeavor to acquire or obtain Control of such Other Product with respect to the Territory. With respect to those Other Products owned or Controlled by Licensors as of the Effective Date, Licensors shall provide or cause to be provided to the JSC a list of such Other Products and their status of development.

2.5.2 For a period of six (6) years from the Execution Date (the “Option Period”) Licensee shall have a right of first negotiation with respect to the development and commercialization of Other Products for the Territory as set forth in this Section 2.5. During the Option Period, promptly following the acquisition or obtaining Control of any Other Product by Licensors for the Territory, Licensors shall notify Licensee of such Other Product and simultaneously provide to Licensee all necessary information relating to such Other Product to enable Licensee to decide as to whether it wishes to exercise its right to negotiate with Licensors to obtain the exclusive rights to develop and/or commercialize the Other Product in the Territory, as the case may be, depending upon the development stage of such Other Product and Licensors shall not market or commercialize such Other Product in the Territory (either themselves or through their respective Affiliates, Sub-licensees or other third party) unless and until Licensee has either notified Licensors of its decision to negotiate rights on such Other Product for the Territory or the time for such notification has lapsed. Licensee shall notify Licensors of its decision to so negotiate within thirty (30) days as from receipt of the above information. Failure by Licensee to make such notification will be deemed as a refusal of its first right of negotiation for the development and/or commercialization of the Other Product in the Territory.

2.5.3 In the event Licensee notifies Licensors of its decision to develop and commercialize the Other Product in the Territory, the Parties shall have one hundred-twenty (120) days or more if mutually agreed in writing (the “Negotiation Period”) to negotiate exclusively the terms and conditions applicable to such collaboration, including, as appropriate, any co-development of such Other Product, and the payment of any license fees or other payments owed any third party by Licensors with respect to the development or commercialization of the Other Product in the Territory.

2.5.4 In case of failure by Licensee to notify Licensors of Licensee’s decision to exercise its right of first negotiation within the thirty-day (30) period or failure of the Parties to reach an agreement within the Negotiation Period, Licensors shall be free to themselves develop and commercialize such Other Product in the Territory and/or enter into any agreement with any third parties to develop and/or commercialize the Other Product in the Territory, provided, however, that for a period of twelve (12)

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months after the end of the Negotiation Period, Licensors shall not enter into any agreement with such a third party for rights to such Other Product in the Territory on terms less favorable to Licensors, when viewed in their totality, than those last offered by or to Licensee.

2.5.5 Notwithstanding Licensee’s right of first negotiation as set forth above, Licensors may propose to Licensee that the Parties conduct a Joint Subsequent Development Plan for such Other Product or that a Subsequent Development Plan for such Other Product be conducted solely by the Licensors with the right for the Licensee to Opt-in, pursuant to the provisions of Sections 4.4.3 and 4.4.4 either prior to, or subsequent to any exercise by Licensee of its rights to negotiate for the exclusive license to such Other Product as provided for above. It is expressly understood and agreed however that nothing in this Agreement shall be interpreted as a license by Licensors to Licensee of any rights to such Other Product and that any such license will be only as may be agreed upon in writing by the Parties following the Effective Date.

2.6 Other Cross Licenses. In the event either Party desires to incorporate technology in the discovery, research, composition of matter of, or the making or using of Licensed Products pursuant to a Development Plan (“Technology”), and if such Technology is Covered by Patent Rights which are necessary for the performance of the works contemplated by such Development Plan, in that such Patent Rights would be infringed by the commercial exploitation of the Licensed Product resulting from the performance of such Development Plan and which either are (i) Licensor Related Patent Rights; or (ii) Licensee Related Patent Rights, or (iii) owned by a third party (collectively, “Related Patent Rights”) such Party shall inform the JSC of such Related Patent Rights for the JSC’s consideration as part of its consideration of the Development Plan at issue. If the JSC approves incorporation of such Related Patent Rights, it shall determine (i) the allocation between the Parties of any costs owed or to be owed to such third party owning or Controlling such Patent Rights; or (ii) the consideration to be paid by one Party to the other Party for obtaining a cross license under such Related Patent Rights. If the JSC does not approve such incorporation or the Parties cannot agree upon such allocation of costs or consideration to be paid to the other Party, then the Party that made the proposal (Licensors or Licensee) may incorporate such Technology in the discovery, research or Development of the Licensed Product within the framework of a sole Development Plan, as and to the extent permitted under this Agreement, and use, have used import, have imported offer for sale, sell and have sold the result of such sole Development Plan in the Licensors Territory or Licensee Territory, as the case may be. The foregoing shall remain subject to the Opt-in right of the other Party as set out in Section 4.4.4 of this Agreement, itself subject to prior written agreement among the Parties on the consideration to be paid by the Opt-in Party to the Developing Party for a license under such Related Patent Rights, without which prior written agreement such Opt-in right shall not include a license under such Related Patent Rights.

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3. GOVERNANCE

3.1 Joint Steering Committee.

3.1.1 Constitution and Powers.

The Parties shall establish a Joint Steering Committee (“JSC”) which will consist of an equal number of representatives of each Party, initially designated at four (4) representatives appointed by each Party among its employees or consultants. Each Party shall, within thirty (30) days after the Effective Date, select its initial representatives and inform the other Party of such representatives and set a date shortly thereafter (no later than thirty (30) days) for the first meeting of such JSC, provided that such representatives shall be senior persons responsible for the applicable functional area (i.e., research, clinical development and regulatory, manufacturing, or commercialization) within each Party. The initial representatives from the Parties are set forth in Schedule 12. Each Party may replace its representatives at any time on prior written notice to the other Party. Each Party will have the right from time to time to invite to JSC meetings employees or consultants other than its representatives to address specific issues discussed at such JSC meetings. The chairperson of the JSC shall be appointed by Licensors.

The JSC shall act as a consultative and decision making body for the purpose of designing and monitoring the implementation of Development Plans and generally shall act as the forum for information sharing among the Parties with respect to the Development of the Licensed Product, Commercialization Plans, Product Improvements, Combination Products and potentially Other Products (as and to the extent agreed by the Parties), their manufacture, supply and marketing. In particular, the JSC shall:

(i) exchange information (including Development, manufacture, supply and marketing information) related to the Licensed Product, Product Improvements, Combination Products and potentially Other Products and facilitate cooperation and coordination between the Parties as they exercise their respective rights and meet their respective obligations under this Agreement,

(ii) design an Initial Development Plan within one hundred and eighty (180) days following the Effective Date and which shall be undertaken by the Parties jointly as set forth in Section 4.3.1,

(iii) review proposals from either Party on any Subsequent Development Plans,

(iv) review and decide on any changes to the Development Plans,

(v) with respect to the Initial Development Plan and Joint Subsequent Development Plans:

(A) Allocate the duties among the Parties,

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(B) Implement all activities and monitor and coordinate all activities, including scheduling and prioritization thereof,

(C) Develop a publication strategy and a calendar of key scientific and clinical meetings or other events,

(D) Determine the priorities with respect to seeking Marketing Authorization.

(vi) with respect to Subsequent Development Plans that is the object of sole Development by a Developing Party:

(A) Review the activities of the Developing Party under such Subsequent Development Plan,

(B) Review all Opt-In Information.

(vii) appoint working sub-groups whose duties and power shall be determined by the JSC and who shall meet as necessary to provide relevant information for the JSC to carry out its duties under this Agreement; and

(viii) Liaise with and manage the JFC.

(ix) promptly following the Effective Date, itself or through an appointed sub-group, become the forum for the discussion and analysis of the handling of regulatory matters in the Territory and the specific determination of the role of Licensee in acting as Licensor’s regulatory agent under Section 5.1.

3.1.2 Meetings of the Joint Steering Committee and Minutes.

The JSC shall meet at least twice (2) per Calendar Year for so long as the Initial Development Plan is being carried out by the Parties and Subsequent Development Plans are being jointly Developed by the Parties. Meetings of the JSC may be attended in person or by telephone or video conference. If in person, the location of the meeting shall alternate at a place decided by Licensors and Licensee, sequentially. The chairperson of the JSC shall be responsible for providing an agenda for each meeting at least ten (10) business days in advance of such meeting.

In the event one Party solely carries out Development under a Subsequent Development Plan, the JSC shall meet once a Calendar Year, unless otherwise mutually agreed (on a date and location to be mutually agreed in good faith between the Parties) only to review (i) the Subsequent Development Plan and material modifications thereto, (ii) implementation thereof and progress and (iii) Opt-in Information during the Opt-in Notice Period as set forth in Section 4.4.4 of this Agreement.

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Responsibility for the preparation of minutes setting forth discussions held at each JSC meeting shall alternate between the Parties as directed by the chairperson, provided, however, that such minutes will not become official until agreed upon by the JSC representatives of both Parties . The minutes of such JSC meetings shall be reasonably detailed and distributed in draft minutes to all members of the JSC for comment and review within ten (10) business days after the relevant meeting. The JSC members shall have seven (7) business days to provide comments. The Party preparing the minutes shall incorporate timely received comments and distribute finalized minutes to all members of the JSC within twenty-four (24) business days of the relevant meeting.

3.1.3 Decision-making Authority.

Decisions of the JSC shall be taken unanimously. In the event of a disagreement or a deadlock, the matter shall be referred to senior executives of the Parties pursuant to Section 15.1. If the disagreement or deadlock persists and is not resolved in the period provided for in Section 15.1, Licensors shall have the right to cast a tie-breaking vote which shall be reasonably exercised. It is understood and agreed that the exercise by Licensors of a tie-breaking vote so as to resolve a disagreement or deadlock at the JSC shall in no way result in the elimination or reduction of Licensors’ obligation to use Diligent Efforts to participate and co-fund the Initial Development Plan and any Joint Subsequent Development Plans under the terms of this Agreement.

However, in the event that a dispute referred to the Parties pursuant to Section 15.1 is in relation to matters contemplated in Section 3.2.3 as to which the JFC is to agree of this Agreement or with respect to matters related to the manufacture, supply and marketing of Licensed Product in the Territory is referred to the JSC, Licensors shall have no tie-breaking vote in which event the provisions of Article 15 shall apply. For clarity, it is understood that as between the Parties, Licensors shall at all times have the right to control all decisions relating to the marketing and selling of the Licensed Product in the Licensors Territory.

3.2 Joint Finance Committee.

3.2.1 Membership. Upon the establishment of the JSC, the Parties shall establish a Joint Finance Committee (“JFC”) to be composed of one (1) employee representative appointed by each Party. Such representative shall be an employee with expertise and responsibilities in the areas of accounting, cost allocation, budgeting and financial reporting. The JFC representative of each Party may call on any additional employee of that Party to attend the JFC meeting on an ad hoc basis.

3.2.2 Meetings. The JFC will meet as appropriate but at least quarterly to review the following, as applicable: (i) each Party’s Development Costs; (ii) Net Sales, milestone payments, royalty payments; (iii) the results of any completed audits conducted in accordance with Section 7.2.4. In addition to the foregoing, in the event one Party solely conducts any Subsequent Development Plan, the JFC shall meet (on a date and location to be mutually agreed in good faith between the Parties) to review the Pre Opt-in Development Costs during the Opt-in Notice Period after receipt of the Opt-in Information.

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3.2.3 Decisions of JFC. The JFC shall operate by consensus and decisions of the JFC shall be taken unanimously. If the JFC is unable to resolve a dispute regarding any issue presented to it, such dispute shall be referred to the JSC for resolution. The JFC shall operate under the direction of the JSC to provide services to and consult with the JSC in order to address the financial, budgetary and accounting issues under the Agreement. The JFC members may participate in any meetings of the JSC upon request of the JSC.

3.3 Coordination of JSCs and JFCs. The Parties acknowledge and agree that there is to be a separate Joint Steering Committee and Joint Finance Committee created pursuant to the Increlex Agreement, with equal and potentially overlapping membership as that present on the JSC and JFC created pursuant to Section 3.1 and 3.2 above. Where possible, the Parties shall endeavor to coordinate and potentially combine meetings of the respective Joint Steering Committees and Joint Finance Committee meetings so as to ensure efficient governance and oversight of both collaborations between the Parties, including for example, holding such meetings on the same dates and/or same locations.

4. DEVELOPMENT PLAN AND CONDUCT OF DEVELOPMENT ACTIVITIES

4.1 Licensors On-going Development.

Licensors shall be solely responsible for the completion of the Licensors On-going Development at its own cost and expense with a view to obtain Marketing Authorization in the Target Label in the countries in the Territory. Licensors shall promptly provide (or make available) to Licensee all relevant information relating to such Licensors On-going Development including without limitation the clinical data reports, regulatory files and submissions and correspondence with Regulatory Authorities resulting therefrom.

4.2 Development Plan – General.

Any Development Plan shall provide for the Development activities to be carried out by the Parties, either jointly or separately as the case may be. A Development Plan should avoid unnecessary duplication by the Parties in any activity and have a goal of an appropriate allocation of responsibilities in light of the Development activities involved. Each Party shall provide information to the JSC (including Confidential Information) necessary for the JSC coordinating and deciding on such Development Plan activities with the other Party.

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Consistent with the above principles, the Development Plan should include:

• specific tasks, location of work, milestones, budgets (determined with reference to Development Costs), estimated timelines, immediate objectives, and long term objectives and a determination of the various research and development activities that shall be performed by each Party:

• provisions for manufacturing and supply of Licensed Product for clinical uses;

• Development activities including preclinical safety and other studies to support Phase I Clinical Trials, Phase II Clinical Trials and/or Phase III Clinical Trials and/or filing for and obtaining and maintaining Marketing Authorization; and

• identification of resource requirements of the Development Plan and allocation of those resources between the Parties.

4.3 Initial Development Plan and Subsequent Development Plans of Licensed Products and Other Products.

4.3.1 Initial Development Plan.

Each Party shall require its representatives at the JSC to use their Diligent Efforts to negotiate in good faith and prepare an Initial Development Plan within one hundred and eighty (180) days following the Effective Date along the guidelines set out in Schedule 6 to this Agreement. If the JSC approves an Initial Development Plan, it shall be attached hereto as Schedule 6-bis and may be amended or updated only upon approval by the JSC. The Initial Development Plan shall be updated annually by the JSC at a time decided by the JSC and suitable for all Parties’ planning and budgeting processes. The Initial Development Plan and any modifications thereto (including a change of scope of the responsibilities of the Parties or changes to the budgets) shall be approved by the JSC in the written minutes of the applicable JSC meeting. In the event the Parties agree on such Initial Development Plan, the Parties shall jointly perform and fund such Initial Development Plan as set forth in Section 4.4.3 and the Parties shall each have access to, and the rights to use in their respective territory, data arising out of such Initial Development Plan and shall jointly own the same (as Joint Know-How) as set forth in Section 8.3 of this Agreement.

4.3.2 Subsequent Development Plans for Product Improvements and Combination Products.

All Development activities for the Initial Product, Product Improvements or Combination Products (other than those set forth in the Initial Development Plan), shall be conducted pursuant to a Subsequent Development Plan in conformance with this Section 4.3.2, unless otherwise agreed by the Parties in writing. Each Party may propose to the other Party to perform a Subsequent Development Plan for a Product Improvement or a Combination Product: the JSC shall reasonably consider such proposals and the other Party may make comments or counter proposals with respect to all parameters of such proposal, including budget and the Parties shall thereafter negotiate in good faith with a view to agreeing on a Subsequent Development Plan.

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In the event the Parties agree on such Subsequent Development Plan, the Parties shall jointly perform and fund such Subsequent Development Plan as set forth in Section 4.4.3 and the Parties shall each have access to, and the rights to use in their respective territory, data arising out of such Subsequent Development Plan and shall jointly own the same (as Joint Know-How) as set forth in Section 8.3 of this Agreement.

In the event a Party does not agree with and does not want at such time to participate in, a Subsequent Development Plan proposed by the other Party, the proposing Party may, at its own risk, decide unilaterally to perform such Subsequent Development Plan and may subcontract whole or part of such Subsequent Development Plan to the extent such subcontract is not detrimental to the Opt-In rights of the non-Developing Party set forth in Section 4.4.4(ii)(F) of this Agreement; provided, however, that at any time during the Opt-In Period, the non-Developing Party may opt to perform and/or co-fund such Subsequent Development Plan, in which event the Opt-in Party may develop, market, promote, sell, have sold the Product Improvement or Combination Product arising from such Subsequent Development Plan in the Territory (where the Opt-in Party is the Licensee) or in the Licensors Territory (where the Opt-in Party is the Licensors).

Notwithstanding the foregoing paragraph, Licensors may only conduct Development activities in a Subsequent Development Plan and designed to take place in the Territory with the prior written agreement of Licensee, which shall not be unreasonably withheld or delayed; provided, however, that nothing herein shall be deemed to prevent Licensors from applying for a Marketing Authorization in the Territory as Licensors may deem appropriate. Once granted, the agreement of Licensee can not be withdrawn unless otherwise agreed with Licensors.

For the avoidance of doubt, Licensee shall have no right to carry out any Development activity with regards to the Initial Product, Product Improvements, or Combination Products, except in the context of a Subsequent Development Plan, in compliance with this Section 4.3.2. In addition, Licensee may only conduct Development activities in a Subsequent Development Plan which are designed to take place in the Licensors Territory with the prior written agreement of Licensors, which shall not be unreasonably withheld or delayed, and which agreement, once granted, cannot be withdrawn unless otherwise agreed with Licensee.

4.3.3 Subsequent Development Plans For Other Products.

Notwithstanding each Party’s right of first negotiation for Other Products as set forth in Section 2.6, either Party may propose to the other Party, through the JSC, to participate in and perform a Subsequent Development Plan for an Other Product in which event the JSC shall reasonably consider such proposals and the other Party may make counter proposals with respect to all parameters of such proposal, including budget and the Parties shall thereafter negotiate in good faith with a view to agreeing on a Subsequent Development Plan for such Other Product.

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In the event the Parties agree on such Subsequent Development Plan for an Other Product, the Parties shall jointly perform and fund such Subsequent Development Plan for an Other Product as set forth in Section 4.4.3. The Parties shall each have access to, and the rights to use in their respective territory, data arising out of such Subsequent Development Plan and shall jointly own the same (as Joint Know-How) as set forth in Section 8.3 of this Agreement.

In the event a Party does not agree with a Subsequent Development Plan for an Other Product proposed by the other Party, such other Party may, at its own risk, decide to perform such Subsequent Development Plan for an Other Product wherever in the world. To the extent a Party does not agree to participate in such Subsequent Development Plan, it shall not forfeit its rights of first negotiation under Section 2.6 but such Party shall not have any Opt-In right under Section 4.4.4(ii)F with respect to such Other Product unless and until mutually agreed upon by the Parties. The Developing Party may subcontract whole or part of such Subsequent Development Plan provided however that if such Developing Party is Licensors, such subcontract shall not be detrimental to the right of first negotiation of Licensee as set forth in Section 2.6 of this Agreement.

4.4 Conduct of Development Activities.

4.4.1 General Rules Applicable to Joint and Sole Development.

The Parties shall use Diligent Efforts to conduct their tasks and obligations under any Development Plan:

• in accordance with good laboratory, good clinical and current Good Manufacturing Practices, to the extent these are applicable;

• in accordance with all relevant legal requirements and shall be responsible for obtaining all necessary approvals therefor from any Regulatory Authorities or applicable competent authority; and,

• keeping or causing to be kept written laboratory notebooks and other records and reports of the results and progress of the works to be performed in sufficient detail for the Parties to accomplish their obligations under this Agreement.

The Parties acknowledge that time shall be of the essence in this Agreement and thus that the time deadlines defined in the Initial Development Plan and any Joint Subsequent Development Plan should be complied with and, as a matter of principle, not be postponed. However, the Parties agree that the time deadlines defined in the Initial Development Plan and any Joint Subsequent Development Plan may be reasonably modified by the JSC.

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The obligations of any Developing Party pursuing sole Development under a Subsequent Development Plan shall be as set forth in Section 4.4.4.

Licensors reserve the right to reasonably exercise a tie breaking vote at the JSC at any time to change or modify the Initial Development Plan or any Joint Subsequent Development Plan, or to abandon whole or part thereof, if (i) it is required by Regulatory Authorities, (ii) there are duly justified scientific constraints, (iii) there are significant increases in the anticipated costs of Development, (iv) there are significant adverse events or conditions relating to the safety or efficacy of the Licensed Product, (v) there are significant, duly justified changes in the anticipated costs of manufacturing or (vi) the benefits of continued Development do not outweigh the risks. In the event Licensors request a modification or successive modifications of the Initial Development Plan or of a Joint Subsequent Development Plan which shall, individually or cumulatively, result in an increase of the aggregate Development Costs to be incurred by more than fifty percent (50%), such modification shall not be effective unless and until approved by the senior executives of the Parties as provided for in Section 15.1. In case of failure of the senior executives of the Parties to find a common agreement on such modification, Licensee shall have the right to terminate its performance and funding of the Initial Development Plan or the Joint Subsequent Development Plan, as the case may be, provided however that Licensee shall nonetheless retain it’s Opt-In rights set forth in Section 4.4.4 (ii) F of this Agreement.

4.4.2 Determination of Development Costs.

All Development Costs associated with the Development activities carried out by the Parties jointly under the Initial Development Plan or any Joint Subsequent Development Plans or solely by the Developing Party shall be accounted for as follows:

• Internal costs of Licensee: EUR [*] per FTE; and Internal costs of Licensors : $[*] per FTE. This reference unit cost shall be reviewed annually by the Parties on the basis of the inflation rate in the European Union and the U.S., respectively.

• External costs: at cost, as properly documented and consistent with the cost recorded for services rendered by third parties in the Developing Party’s books in any corresponding period.

4.4.3 Funding of Joint Development.

The Initial Development Plan shall be jointly performed and funded by the Parties. To the extent any Subsequent Development Plan is agreed upon by all Parties pursuant to Sections 4.3.2 or 4.3.3, the Parties shall be obligated to jointly perform or fund such Subsequent Development Plan at the percentage set forth below (“Joint Subsequent Development Plan”).

All activities undertaken by the Parties pursuant to the Initial Development Plan and any Joint Subsequent Development Plan shall be funded by the

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Parties in the following proportion: Licensors shall be responsible for forty percent (40%) of all Development Costs, and Licensee shall be responsible for sixty percent (60%) of all Development Costs, provided however that with respect to Development that is to be carried out with a view to obtain Marketing Authorization or extension thereof in both the Territory and the Licensor Territory, Licensor and Licensee shall each be responsible for a specific percentage of all Development Costs related thereto, as determined by the JSC at the time of review and approval of such Development Plan, it being understood that in the event the Parties do not reach agreement on such new allocation, Licensor and Licensee shall be responsible respectively for forty percent (40%) and sixty percent (60%) respectively, but only, in the case of each of (i) and (ii), to the extent the foregoing Development Costs are set forth in the Initial Development Plan and Joint Subsequent Development Plan or properly approved revisions thereof. As used in this Agreement, “Licensee Allocation” shall mean such sixty percent (60%) or other allocation of the Development Costs as provided in the foregoing sentence with respect to Licensee, as the case may be, and “Licensor Allocation” shall mean such forty percent (40%) or other allocation of the Development Costs as provided in the foregoing sentence with respect to Licensor, as the case may be. Within thirty (30) days of the end of each Calendar Quarter, each Party will notify the JFC in writing of the Development Costs incurred by such Party during such Calendar Quarter, and the JFC shall aggregate such Development Costs and allocate them to the Parties in accordance with the percentages set forth in the foregoing sentence. Where needed in order to reflect such allocated Development Costs, corresponding “true up” payments will be made by the Party underpaying its share of Development Costs to the Party having overpaid its share, quarterly within sixty (60) days following the end of each Calendar Quarter.

4.4.4 Sole Development by one Party and Opt-in Rights.

(i) Decision for Sole Development. In the event that the Parties have not agreed to jointly perform or fund any Subsequent Development Plan pursuant to Section 4.3.2, either Party may pursue and fund at its own risk the Subsequent Development Plans (the “Developing Party”) as and to the extent permitted by this Agreement, in which case the provisions of this Section 4.4.4 shall apply.

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(ii) Development Efforts.

(A) General. Subject to the restrictions set forth in subsection B below regarding conducting Development activities in the non-Developing Party’s territory, the Developing Party shall make Diligent Efforts (without the duty to make additional expenditures beyond that required to obtain regulatory approval in its own Territory) to perform pre-clinical and clinical activities in a manner that would be suitable for filings for Marketing Authorization in the Licensors Territory (if Licensee is the Developing Party) or in the Territory (if Licensors are the Developing Party), as applicable, should the non-Developing Party subsequently exercise its Opt-in rights pursuant to subsection F below. The Developing Party shall provide the JSC with quarterly reports outlining the results of each completed material pre-clinical and clinical study during the preceding Calendar Quarter. Notwithstanding the foregoing, the Developing Party shall not be required to continue any Subsequent Development Plan or to complete any tasks enumerated therein, prior to the time the other Party exercises its rights to Opt-in.

(B) Territorial Restrictions. If Licensee is the Developing Party, it shall only carry out the Development activities in the Territory or, outside the Territory but only with the prior written consent of Licensors. If Licensors are the Developing Party, they shall only carry out Development activities outside the Territory or, in the Territory, but only with the prior written consent of Licensee.

(C) Supply Obligations. If Licensee is the Developing Party, Licensors shall supply Licensee with lanreotide or Licensed Product as clinical supplies in accordance with Article 6 and in quantities to be reasonably determined by the JSC.

(D) Subsequent Development Plan.

Each Party shall have the opportunity to provide input and suggestions with regard to such Subsequent Development Plan. Notwithstanding the foregoing, Licensors shall have the sole right to prohibit any activity related to any Development under a Subsequent Development Plan pursued by the Licensee as Developing Party if Licensors exercise a tie breaking vote as set forth in Section 4.4.1. If Licensors prohibit such activity, the JSC and the Developing Party shall comply with such decision and such activity shall be excluded from the Subsequent Development Plan. The Subsequent Development Plan shall be updated by the Developing Party in accordance with the next sentence and be presented to the JSC at its next meeting. Material modifications to the Subsequent Development Plan shall be submitted to the JSC for review.

(E) Development Costs under Subsequent Development Plan. The Developing Party shall be responsible for all Development Costs related to such Subsequent Development Plan, subject to Opt-in by the other Party and sharing of costs pursuant to Section 4.4.4(ii)(F) below. The Developing Party shall record separately in its books in an auditable manner, all its Pre Opt-in Development Costs.

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(F) Opt-in.

(a) General. With respect to each Subsequent Development Plan pertaining to the Development of a Licensed Product for a particular Indication, the non-Developing Party (the “Opt-in Party”) shall have the option to decide to participate (“Opt-In”) in the performance and the funding of such Subsequent Development Plan at such times during the performance of the Subsequent Development Plan as are set forth below (each, an “Opt-In Period”):

• At any time during pre-clinical development and up to the date of allowance of the first IND in the Licensors Territory or the Territory under the relevant Subsequent Development Plan (“Opt-In Period 1”);

• Within thirty (30) days of receipt of data following completion of each Phase I Clinical Trial under the relevant Subsequent Development Plan (“Opt-in Period 2”);

• Within sixty (60) days of receipt of data following completion of each Phase II Clinical Trial under the relevant Subsequent Development Plan (“Opt-in Period 3”);

• Within thirty (30) days of receipt of data following completion of each Phase III Clinical Trial with the Licensed Product under the relevant Subsequent Development Plan and until the filing of a New Drug Application (or equivalent in any country of the Territory) under such relevant Subsequent Development Plan, (“Opt-in Period 4”);

• At any time after the filing of the first New Drug Application (or equivalent in any country of the Territory) under the relevant Subsequent Development Plan and before the end of the thirty (30)-day period following the date of obtaining the first Marketing Authorization under such relevant Subsequent Development Plan (“Opt-in Period 5”),

• Within the thirty (30) day period after expiry of Opt-in Period 5 (i.e., following expiration of the initial thirty-day period following the date of obtaining Marketing Authorization) (“Opt-in Period 6”). In the event the Licensors are the Developing Party and the Licensee has failed to Opt-in by the end of the Opt-in Period 6, through the failure to deliver either the Opt-in Notification or Opt-in Payment as set forth below to the Developing Party, Licensors shall be entitled to serve a termination notice pursuant to Section 4.4.4(iii)D(a).

Notwithstanding the foregoing general framework, the Parties agree that at the time the non-Developing Party elects not to pursue a Subsequent Development Plan, they shall also agree upon in good faith, through the JSC, for that Subsequent Development Plan, and depending upon the nature and subject matter thereof, which trials proposed to be conducted thereunder shall comprise a “Phase I Clinical Trial” or “Phase II Clinical Trial” or “Phase III Clinical Trial” to best provide a fair and reasonable opportunity for

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the non-Developing Party to Opt-in at appropriate value creation events, and the Developing Party to receive the appropriate Opt-in Payment associated with those value creation events, as specified in Section 4.4.4(ii)F(c) below. Upon generation of the statistical analyses for the primary endpoint(s) for any such trial, the Developing Party shall provide a report of such statistical analyses and all other analyses available at the same time, as defined in the statistical analysis plan for such trial. In addition, the Developing Party shall also provide to the other Party a final clinical study report signed by the relevant responsible person in the respective Party (the “Final Report”).

In such event of Opt-in, the Opt-in Party shall notify its exercise of its right to Opt-in in writing to the Developing Party (the “Opt-In Notification”). The Opt-in Notification shall contain confirmation that the Opt-in Party has paid the relevant Opt-in Payment (as defined in Section 4.4.4(ii)F(c) below) to the Developing Party. In case of failure to Opt-in pursuant to this paragraph, the provisions of Section 4.4.4(iii)D(a) shall apply.

As used above with respect to a clinical trial, “receipt of data following completion” shall mean the receipt by the Opt-in Party of the Final Report, provided however that the Opt-in Party may, at its discretion elect to Opt-in on the basis of the final statistical analysis, tables figures and listing delivered by the Developing Party as discussed above.

(b) Pre Opt-in Development Costs and Post Opt-in Development Costs. “Pre Opt-in Development Costs” means Development Costs incurred by the Developing Party with respect to the Subsequent Development Plan up until the applicable Opt-in Notice Date, including costs of acquiring ownership or Control of Patent Rights or Know-How in relation to the Product Improvements, the Combination Products or the Other Products, as the case may be, as are the subject of such Subsequent Development Plan and related to the Opt-in Information supplied by the Developing Party to the Opt-in Party. “Post Opt-in Development Costs” means Development Costs incurred thereafter for the continuation of the Subsequent Development Plan.

(c) Opt-in Payment. The Opt-in Payment will vary with the specific Opt-in Period during which the Opt-in Notification is received by the Developing Party and shall be paid by the Opt-in Party to the Developing Party concomitantly with the Opt-in Notification. If Licensee is the Opt-in Party the Opt-in Payment shall be paid to SCRAS unless otherwise directed by Licensor’s representatives at the JSC. The Opt-in Payment will be equal to the relevant percentage as set forth below of (i) the Licensor Allocation of the Pre Opt-in Development Costs if Lisensors are the Opt-in Party and (ii) the Licensee Allocation of the Pre Opt-in Development Costs if Licensee is the Opt-in Party:

• The relevant percentage shall be [*]% if the Opt-in Party exercises its Opt-in during Opt-in Period 1 or Opt-in Period 2;

• The relevant percentage shall be [*]% if the Opt-in Party exercises its Opt-in-during Opt-in Period 3,

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• The Opt-in Payment shall be [*]% if the Opt-in Party exercises its Opt-in during Opt-in Period 4

• The Opt-in Payment shall be [*]% if the Opt-in Party exercises its Opt-in during Opt-in Period 5

• The Opt-in Payment shall be [*]% if the Opt-in Party exercises its Opt-in during Opt-in Period 6.

(iii) Exercise of Opt-in.

(A) Provision of Opt-in Information.

(a) Timing. The Developing Party shall provide, on a continuing basis, Opt-in Information (as defined below) to the other Party as provided herein. Such Party shall provide such Opt-in Information on any on-going preclinical activities promptly following accrual thereof and such Opt-in Information upon completion (as defined below) of the first Phase I Clinical Trial, Phase II Clinical Trial and Phase III Clinical Trial with respect to any Subsequent Development Plan but in no event more than thirty (30) days after completion of the data analysis for such clinical trial. For the purposes of this Section, the term “end” or “completion” shall mean that results from the clinical trial at issue have been fully collected, analyzed and formatted consistently with the guidance provided by the appropriate Regulatory Authority. The date of receipt by the other Party of all information accrued from the Subsequent Development Plan which is reasonably available to the Developing Party and which would be reasonably material and necessary for the other Party to make a decision regarding exercising such Opt-in during the Opt-in Period at issue for such indication shall be the “Opt-in Notice Date”.

(b) Content. “Opt-in Information” shall include but is not limited to: a copy of the final clinical study report and data, results (including but not limited to results from the clinical trial at issue), reports and protocols and interpretations of clinical trials, a detailed accounting of all Pre Opt-in Development Costs; all analyses and information relating to predicted manufacturing costs and any other pertinent manufacturing information (if available to the relevant Party); anticipated regulatory costs and fees; Regulatory Authority documentation and correspondence; and information relating to expected third party royalty obligations. The Party receiving such Opt-in Information shall only use such Opt-in Information to decide whether to exercise an Opt-in. If such Party does not exercise an Opt-in, such Party shall not use such Opt-in Information for any other purpose, shall return the same to the Developing Party and shall maintain its confidentiality, provided that such information qualifies as Know-how of the Developing Party.

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(B) Opt-in Procedure and Providing Additional Information.

(a) Opt-in Procedure. Following the Opt-in Notice Date, the non-Developing Party shall have the right, up until the end of the relevant Opt-in Period (the “Opt-in Notice Period”), to cause the JSC to meet to address any issues arising out of the Opt-in Information, including calculation of or accounting for any Pre Opt-in Development Costs. Then, during such Opt-in Notice Period, the non-Developing Party shall have the right to elect to participate together with the other Party in the Subsequent Development Plan by providing the Developing Party with written notice of its decision to so participate and by paying the Opt-in Payment to the Developing Party (such notice and such reimbursement payment are herein collectively referred to as an “Opt-in” by such Party) by a date which is prior to the end of the Opt-in Period at issue. If the Party electing to Opt-in fails to pay the Opt-in Payment to the Developing Party, and continues to fail to make such payment within ten (10) business days of written notice from the other Party (except that withholding disputed amounts shall not be deemed a failure to make such reimbursement payment), then such Party shall be deemed to have declined such Opt-in for such Subsequent Development Plan during the Opt-in Period at issue, but shall continue to have the right to Opt-in unless and until expiration of Opt-in Period 6.

(b) Obligation to Provide Additional Information. During the Opt-in Notice Period, (1) the Developing Party shall have an affirmative obligation to provide the other Party with any additional available information which would be reasonably material for such other Party to make an Opt-in decision and, (2) each Party may request additional information which would be reasonably material for it to make an Opt-in decision and the Developing Party shall supply such information to the extent it is reasonably available and necessary for the Opt-in decision.

(c) Extension. In the event a Developing Party supplies additional information pursuant to the preceding sentence and there are fewer than thirty (30) days remaining in the relevant Opt-in Period, such Opt-in Period shall be extended to such date that is thirty (30) days after the provision of such additional information. A Party may, at its sole discretion, notify the Developing Party in writing before the expiration of its rights set forth herein, that it waives such rights and such Opt-in rights shall thereby terminate. The Opt-in Period may be extended by this Section only once with respect to each Subsequent Development Plan.

(C) Pre Opt-in Development Costs and Post Opt-in Development Costs.

(a) Timing of Reimbursement of Pre Opt-in Development Costs. At the same time a Party provides the Opt-in Notification, such Party shall pay to the other Party the Pre-Opt in Development Costs.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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(b) Disputes. A Party may audit Pre Opt-in Development Costs submitted by the other Party pursuant to this Agreement or may appoint internationally-recognized professional accountants to do so. In the event that a Party reasonably disputes specific items contained in the other Party’s calculation of Development Costs due to the other Party’s incorrect calculation of Pre Opt-in Development Costs, such Party shall pay the amounts not in dispute or in question and such disputed or questioned amounts shall be identified by the JFC and submitted to the JSC who shall promptly meet or confer to resolve such disputes or questions. Within seven (7) business days following resolution of such matters, one Party shall pay or reimburse to the other Party the appropriate remaining balance. In the event the JSC is not able to resolve a dispute concerning the reimbursement of Development Costs under this Section, the Parties shall follow the dispute resolution procedure in Article 15.

(D) Joint Development After Opt-in. After any Opt-in, the Parties shall jointly conduct all future Development activities that are planned in the relevant Subsequent Development Plan for which the non-Developing Party has exercised its Opt-in. For clarity, all such activities by either Party commencing from the Opt-in Notice Date shall be subject to approval by the JSC pursuant to Section 3.1.1 and thereafter the Parties will participate in co-development and such Post Opt-in Development Costs (as of Opt-in Notice Date) shall be funded by the Parties in the following proportion: Licensors shall be responsible for the Licensors Allocation of such Post Opt-in Development Costs, and Licensee shall be responsible for the Licensee Allocation of such Post Opt-in Development Costs, only to the extent the foregoing Post Opt-in Development Costs are set forth in the Subsequent Development Plan approved by the JSC. Corresponding payments will be made as provided under Section 4.4.3.

(a) Consequences of Non-Exercise of Opt-in by Licensee. In the event Licensee has not Opted-in with respect to a Subsequent Development Plan of Licensed Product during Opt-in Period 6 or prior thereto, and therefore has not paid the relevant Opt-in Payment as set forth in Section 4.4.4(ii)F(c) of this Agreement to Licensors as the Developing Party, Licensors may serve a sixty (60) days termination notice to Licensee; in the event that Licensee does not make such payment within such sixty-day termination notice period. Licensor shall have the right to terminate this Agreement at any time within two (2) months of expiration of such sixty (60) day termination notice period and such termination shall take effect seven (7) months after the expiration of the sixty (60) day period and the provisions of Section 9.3 (except for 9.3.1(b)) shall apply, provided however that if Licensee can reasonably demonstrate to Licensors that (i) the market potential of such Product Improvement or Combination Product which is the subject of such Subsequent Development Plan does not justify the investment required from Licensee to bring such Product Improvement or Combination Product to the market in the Territory or (ii) such Product Improvement or Combination Product can be clearly differentiated from the Licensed Product then being Developed or sold in the Territory, then this Agreement may not be terminated by Licensors, but Licensors shall be entitled to develop, market, promote sell and have sold such Product Improvement or Combination Product anywhere in the Territory, notwithstanding the licenses granted in Section 2.1, and with no duty of accounting or other payment to the Licensee in such event.

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5. COMMERCIALIZATION

5.1 Responsibility for Regulatory Affairs. Licensors shall be responsible for all regulatory affairs related to obtaining the initial Market Authorization of the Licensed Product including the Initial Product in the countries in the Territory. For each country in the Territory, the obligations of Licensors in such country shall include the preparation and filing of applications for Marketing Authorizations in such country. Licensor shall use Diligent Efforts to file and obtain the initial Market Authorization of the Initial Product, as well as supplementary Marketing Authorization for the 2^nd generation of the Initial Product (i.e., the planned new syringe and attendant needle protection system to be filed as a supplement after the approval of the Initial Product), in its own name or that of its Affiliates, but any failure to so obtain Marketing Authorization in any given country of the Territory shall not constitute a material breach of this Agreement. Upon obtaining of Marketing Authorizations and subject to applicable laws, Licensors shall promptly appoint Licensee as Licensors’ regulatory agent to perform, on behalf of but at no cost to Licensors, those activities that are the responsibility of the Licensor as Marketing Authorization holder. Following the date of the grant of the Marketing Authorization, Licensee shall (a) consult with Licensors regarding the regulatory strategy in the Territory and consider in good faith Licensors’ comments regarding the same, (b) promptly provide Licensors with copies of all correspondence received by Licensee from Regulatory Authorities within the Territory, copies of any draft response and (c) consider in good faith Licensors’ comments thereon prior to filing any such response. The Parties agree to initiate promptly following the Effective Date, through the JSC or a sub-group established by the JSC, discussion and analysis of the handling of regulatory matters with respect to the Licensed Product in the Territory and specific determination of the role of Licensee in acting as Licensors’ regulatory agent in the Territory.

Licensee will be solely responsible, at its own cost, for conducting at its cost all formalities, steps and negotiation with Regulatory Authorities or any governmental entity in establishing the resale pricing and acquiring reimbursement for the Licensed Product in the Territory.

The Parties shall cooperate with each other in supplying data or documents that may be requested or required by the other Party with respect to government regulation, registrations, or approvals in a timely manner and in manner that does not jeopardize the gaining or maintaining of a Marketing Authorization.

5.2 Pharmacovigilance Safety Data Exchange Agreement. A pharmacovigilance safety data exchange agreement on standard and customary terms and conditions shall be negotiated and executed between BIP and Licensee within ninety (90) days as from the Effective Date, but in any event prior to Licensee initiation of any human clinical trials or marketing of the Licensed Product.

5.3 Commercialization Efforts. Licensee shall be solely responsible and shall use Diligent Efforts for the promotion and commercialization of the Licensed Product in the Territory in accordance with the Commercialization Plan.

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Without limiting the generality of the foregoing, the Parties shall agree within the JSC upon a Commercialization Plan for each Licensed Product for each country of the Territory where Licensee intends to commercialize the Licensed Product, within one hundred and twenty (120) days after the Effective Date for the Initial Product or within one hundred and twenty (120) days after the filing of the first Marketing Authorization application for any other Licensed Product as to which Licensee has a license under Article 2, as the case may be. The first Commercialization Plan shall cover the remainder of the Calendar Year in which it is prepared and the two subsequent Calendar Years. The Commercialization Plan shall be updated annually in October or earlier, if in the interim a new filing of Marketing Authorization application in any country of the Territory has occurred with respect to such Licensed Product. Sales Forecasts included in the Commercialization Plan shall be reviewed and agreed by the Parties within the JSC at the time of annual update of the Commercialization Plan, provided, however, that during such annual review, the Sales Forecasts of the Calendar Year during which the review is conducted or the subsequent Calendar Year shall not be modified unless agreed unanimously by the JSC, in light of, for example, the occurrence of one or more events in the Territory of the following nature: (i) changes in regulatory approval or compliance requirements having an adverse impact upon the sales or projected sales of the Licensed Product, (ii) the entrance of a generic competitor prior to the time anticipated in such market as a result of the loss by either Party of any patent infringement action with respect to such generic competitors and prior to expiration of the Licensed Patent Rights; or (iii) actual or anticipated disruption of supply of Licensed Products by Licensor, or (iv) any Force Majeure event .

5.4 Commercial Diligence.

5.4.1 Minimum Sales. Licensee shall achieve annual minimum sales of the Licensed Products (aggregated across all Licensed Products) which shall be equal to [*] percent of the applicable Sales Forecasts for such Calendar Year on a country-by-country basis (the “Country Minimum Sales”). The total of all annual Country Minimum Sales is defined as the “Aggregate Minimum Sales Requirements”. After the end of the first full Calendar Year following the Calendar Year in which the First Commercial Sale of the Licensed Product in the Territory occurs, in the event Licensee fails in any subsequent Calendar Year (e.g., if First Commercial Sale occurs in 2007, such failure would have to occur in 2009 or later) to achieve the Aggregate Minimum Sales Requirements (except for Force Majeure reasons or disruption of supply of Licensed Products by BIP), Licensee will owe to Licensors the “Net Sales Compensation” as defined below within thirty (30) days the end of the relevant Calendar Year. In the event that, Licensee (i) does not pay the Net Sales Compensation due with respect to any Calendar Year within such thirty (30) days or (ii) has paid the Net Sales Compensation for two (2) consecutive Calendar Years and is liable for payment of the Net Sales Compensation for a third consecutive Calendar Year, Licensors shall have the right to terminate this Agreement with respect to such country with respect to which Licensee has failed to pay the Net Sales Compensation or is liable for payment of the Net

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Sales Compensation for a third consecutive Calendar Year, as the case may be. The “Net Sales Compensation” for any Calendar Year shall be equal to the Aggregate Minimum Sales Requirements applicable for such Calendar Year less the aggregate Net Sales realized during such Calendar Year multiplied by the applicable royalty rate.

5.4.2 Promotional Diligence. Should Licensee fail to undertake and fund [*] of its Promotional Efforts as specified in the Commercialization Plan during [*] consecutive Calendar Years in any country of the Territory and should Licensee also have failed to achieve the Country Minimum Sales for such country as set forth in Section 5.4.1 for each of such two (2) consecutive Calendar Years, Licensors shall have the right to terminate this Agreement with respect to such country. The Licensee shall provide access to its internal budget and actual spending data as required in case there is an under spend as defined in this Section 5.4.2 and provide available external data sources (i.e. to measure sales force activity) to the same effect.

5.5 Minimum Inventory. Licensee shall at all times maintain a sufficient inventory of the Licensed Products available for immediate delivery to customers in the Territory, which shall correspond at least to the Territory-wide volume of Licensee’s sales of the next three (3) forecasted months (which inventory amount shall be reviewed by the Parties after the first Calendar Year following the Calendar Year in which the First Commercial Sale occurred and modified if necessary by the Parties’ mutual written agreement), and shall use all means and make all arrangements necessary to fulfill in due time all orders it receives from customers.

5.6 Sales Reporting and Records.

5.6.1 Monthly Sales Report.

Licensee undertakes to forward to Licensors before the 5^th working day of each calendar month a Licensed Product sales record expressed in value (in USD) and volume by Licensed Products. Licensee shall use for this purpose the Monthly Sales Report template attached in Schedule 7 to this Agreement or any other template that may be agreed by the Parties from time to time. These reports shall be signed and sent by email and by courier to Licensors.

5.6.2 Yearly Sales Reports.

Before February 27^th of each Calendar Year, Licensee undertakes to forward to Licensors a report on the preceding Calendar Year showing :

• the Licensed Product sales achieved by Licensed Product in unit and in local currency;

• the Licensed Product sales development by customer and by Licensed Product showing sales trends;

• Licensed Product returns and claims from the market;

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• Impact of competing products including those constituting Market Competition (including the IMS data on the therapeutic classes to which the Licensed Products pertain), pricing, acceptance of the Licensed Products by the medical profession, hospitals, pharmacies, and chemistries, in the Territory.

These reports shall be signed and sent by email and by courier to Licensors.

5.6.3 Sales record. Licensee shall keep complete, accurate and detailed records of all sales of Licensed Products during a period of three (3) years as from the date of such sales being made. Licensors or their agent(s) may consult such records at Licensee’s premises at any time during business hours with fifteen (15) days notice, in order to make the customary verifications of the amount of sales performed by Licensee.

5.7 Promotional Materials. Licensee shall forward a copy of all promotional materials, including but not limited to brochures, video tapes and medical information that Licensee is using for the promotion of the Licensed Products in the Territory.

Licensee shall ensure that all promotional materials comply with local laws and regulations of the relevant country of the Territory and do not infringe third party’s rights. Therefore, notwithstanding the communication of Licensors on such promotional materials, only Licensee shall be held liable in case of breach of local laws and regulation or infringement of third parties’ rights.

All costs linked to the promotion of the Licensed Products shall be borne by Licensee exclusively.

Upon early termination by one Party of this Agreement, subject to Licensee’s rights to continue sales for up to six (6) months under Section 9.3.1(b) Licensee shall, upon request and at Licensors’ discretion, either destroy or immediately return to Licensors, at no cost, all promotional materials conceived and printed by Licensee, for Licensors unrestricted use.

5.8 Restrictions. Licensee shall not actively sell, advertise nor seek customers for the Licensed Products outside the Territory. During the term of this Agreement, Licensee will not manufacture, promote, distribute nor sell, either directly or indirectly, any pharmaceutical products in the Field having at least one same approved Indication as any Licensed Product

5.9 Product Recalls. Product recalls procedure shall be set out in the Technical Agreement.

6. MANUFACTURING AND SUPPLY

6.1 General.

6.1.1 Initial Product. BIP shall manufacture and supply to Licensee the Initial Product, as and to the extent set forth in this Article 6. With respect to the Initial

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Product, BIP and Licensee will collaborate to agree and implement within one hundred and twenty (120) days following the Execution Date, a separate agreement relating to technical requirements including without limitation supply organization, quality assurance, specifications, complaints and batch recall, control of material, analytical testing and validation of the Initial Product (the “Technical Agreement”).

6.1.2 Product Improvements and Combination Products. In addition, as and to the extent agreed upon by the Parties with respect to any Joint Subsequent Development Plan or Subsequent Development Plan for which Licensee Opts-in, for a Product Improvement or Combination Product, the manufacture and supply of such Product Improvement or Combination Product to Licensee shall be as agreed upon by the Parties in writing (including as needed the execution of a Technical Agreement for each such Product Improvement or Combination Product).

6.2 Purchase Requirements for Commercial Supply. For the term of this Agreement , Licensee shall purchase exclusively from BIP all of its requirements for Licensed Products to conduct any Development activities as set forth in this Agreement and to meet commercial demand in the Territory.

6.3 Clinical Supply Requirements. To the extent needed by Licensee, BIP shall supply clinical requirements of the Initial Product in either bulk active form or finished dosage form, as further set forth in the Initial Development Plan or any Subsequent Development Plan, as relevant. Such Initial Product shall be supplied at a price equal to BIP’s internal and out of pocket costs on a schedule to be determined within the Development Plan, including all costs of carriage and insurance, and such costs shall be paid within thirty (30) days of invoice for same.

6.4 Delivery. Delivery of the Licensed Products shall be CIP (Carriage and Insurance Paid, Incoterms 2000), RX Crossroads, Louisville, Kentucky(the “Delivery Point”).

6.5 Commercial Supply Price. For launch and the first Calendar Quarter of the year in which launched, Licensee shall purchase the Initial Products and Samples at the per unit prices listed in Schedule 8 (the “Supply Price”), as of the Execution Date. The Parties acknowledge that the ongoing Supply Price of the Licensed Products shall be equal to twenty percent (20%) of average selling price per unit sold of the Licensed Product in the Territory, Accordingly, following such first Calendar Quarter Licensee, through the JFC shall calculate the average selling price per unit sold of the Licensed Product in the Territory over the prior Calendar Quarter, and such amount shall be used as the new average selling price per unit sold for all units of Licensed Product purchased during the remainder of the relevant Calendar Year. Each year prior to 30^th January, the JFC shall calculate the average selling price per unit sold of the Licensed Product in the Territory during each preceding Calendar Year and such amount shall be used as the new average selling price per unit sold for all units of Licensed Product to be purchased for the next Calendar Year. As the Supply Price is or may be adjusted annually for each newly calculated average selling price per unit sold of the Licensed Product in the

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Territory, Schedule 8 shall be updated to so reflect such adjusted price. Within thirty (30) days after the end of a Calendar Year, the Parties, through the JFC, will calculate the actual average selling price per unit sold of the Licensed Product in the Territory and review the Supply Price of the Licensed Products paid to BIP in light of such actual average selling price per unit sold and Licensee shall adjust the supply price, retroactively, to an amount equal to twenty (20) percent of the actual average selling price per unit sold in the preceding Calendar Year. Such adjustment shall take the form of the issuance (within ten (10) days following such adjustment) by BIP of a credit for the amount overpaid or an invoice for the amount remaining due, as the case may be; the invoice (if applicable) shall be settled within thirty (30) days following the date of invoice. In addition, such actual average selling price per unit sold will also be used as the new Supply Price for the current Calendar Year. As used herein, “average selling price per unit sold” shall mean aggregate Net Sales of Licensed Products for the Territory during the applicable Calendar Year, divided by actual number of units of Licensed Product comprising such Net Sales (including free goods but excluding samples).

BIP shall invoice Licensee upon shipping of the Licensed Products for any Binding Orders. Payment of such invoice shall be made by Licensee to BIP within thirty (30) calendar days of the date of the invoice and shall be made by wire transfer, using the information below or as BIP may from time to time direct in writing in its invoicing:

Name of the Bank: [*]

Wire transfer account number: [*]

Bank Accounts Numbers ( IBAN): [*]

Account owner: BEAUFOUR IPSEN PHARMA

If Licensee fails to pay any amounts owing to BIP here above when due, interest shall accrue on overdue amounts at an annual rate equal to the average one-month European Interbank Offered Rate (EURIBOR) plus two (2) percent as reported by the European Bank Federation (or a successor or similar organization) from time to time, calculated on the number of days such a payment is overdue.

6.6 Minimum Commercial Orders. The minimum quantities per order for the licensed Products are specified in Schedule 9.

6.7 Order Forecast – Firm order.

6.7.1 At least ninety (90) days before the expected First Commercial Sale of the Licensed Products in any country of the Territory, the Parties shall agree upon a monthly rolling order forecast for the first eighteen (18) months for each SKU of the Initial Product in such country(ies) (the “18-Month Rolling Order Forecast”) which shall be under the form as attached in Schedule 10. Thereafter, Licensee shall forward to

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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BIP before the 20th day of every calendar month a revised and adjusted 18-Month Rolling Order Forecast for the next eighteen (18) months for each of the countries where the Licensed Product is commercialized or is expected to be commercialized within less than ninety (90) days.

6.7.2 The forecast for the first three (3) months of the 18-Month Rolling Order Forecast shall constitute a firm purchase order unless BIP informs Licensee of the non availability of the ordered quantities of Products (the “Binding Order”). The Binding Order relating to the 3^rd month of the 18-Month Rolling Order Forecast shall not exceed by more than twenty (20) percent the forecasts relating to the 4^th month of the preceding 18-Month Rolling Order Forecast. In the event the Binding Order relating to the 3^rd month of the 18-Month Rolling Order Forecast exceeds twenty (20) percent, BIP shall use its Diligent Efforts to supply any exceeding quantities.

6.7.3 The forecast for the fourth (4^th) through sixth (6^th) months of the 18-Month Rolling Order Forecast shall constitute a commitment by Licensee to purchase at least fifty (50) percent of such forecasted amount for such months unless BIP informs Licensee of the non availability of the ordered quantities of Products (the “Semi-Binding Order”). The Semi-Binding Order relating to the 4^th, 5^th, and 6^th months of the 18-Month Rolling Order Forecast shall not vary (upward or downward) by more than twenty (20) percent the forecasts relating to the 5^th, 6^th, and 7^th months, respectively, of the preceding 18-Month Rolling Order Forecast.

6.7.4 Licensee agrees that a Binding Order and/or a Semi-Binding Forecast cannot be modified, and that no changes or cancellations shall be allowed.

6.7.5 In any instance, one (1) month before the preferred shipping date, Licensee shall send a purchase order form using the form that will be forwarded by BIP from time to time, with the quantities requested to be delivered to each country and/or region and the requested dates of delivery, it being understood that requested delivery shall occur no more frequently than once every six (6) months.

6.7.6 BIP will use its commercially reasonable efforts to accommodate the preferred delivery date mentioned by Licensee on the purchase order form which shall, if possible, not be less than ten (10) days after the date of receipt of the order form by BIP. Licensee shall take timely delivery of all quantities of Licensed Products supplied by BIP.

6.7.7 All forecasts and orders shall be sent by email and confirmed by fax or mail to the address set forth in the Technical Agreement.

6.7.8 The Parties agree that they will discuss any improvements to be made to the mechanism of providing forecasts and Binding Orders in a spirit of permanent improvement process.

6.8 Storage. Licensee shall provide warehouse facilities adequate to store the Licensed Products in accordance with the relevant and approved storage requirement as specified within the Technical Agreement and with standard requirements related to cGMP pharmaceutical product storage and handling.

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6.9 Packaging. BIP shall supply Licensee with finished dosage form of the Initial Products fully packaged and labeled ready for sale in each country of the Territory, unless otherwise agreed by the Parties in writing, unless specified otherwise pursuant to the Commercialization Plan. BIP shall be entitled to modify such packaging and leaflet at any time subject to Licensee’s prior agreement. Any modifications to the initial packaging required by Licensee or by Regulatory Authorities shall be implemented only upon BIP’s prior written approval and provided that Licensee shall reimburse all costs and expenses in relation thereto.

6.10 Minimum Shelf Life. The Licensed Product shall be delivered to Licensee with a remaining shelf life of eighty percent (80%) of the total shelf life and in no case less than sixteen (16) months.

6.11 Regulatory Compliance. Licensee shall observe any and all applicable laws and regulations of the Territory, with respect to the import, warehousing, promotion, distribution and sale of pharmaceutical specialties, and undertakes to make and fulfill any and all formalities in connection with all such activities which may be required under applicable laws and regulations of the Territory, including but not limited to, clearance of customs and/or exchange control declarations and payment of any and all sales taxes which are or may become due in the Territory.

6.12 Legal Requirements in Territory. Licensee shall provide BIP with appropriate and updated information related to the legal and regulatory requirements in the Territory with regards to the Initial Products (including but not limited to quality, therapeutic use, packaging, labeling and storage). Such information shall be forwarded to BIP in writing by Licensee forthwith upon its becoming aware of the same. BIP shall be responsible to proceed promptly to any Licensed Products packaging or labeling modification required by the Regulatory Authorities of the Territory. Licensee shall provide BIP (or its designated third party manufacturer) with the relevant technical assistance if so requested by BIP, to that effect.

6.13 Licensee shall solely be responsible for and support all costs and expenses arising out of the occurrence of any damage, destruction or loss of any quantities of Licensed Products from the time BIP has delivered the Licensed Products to the Delivery Point. Licensee shall contract an insurance to cover such risks (including without limitation the risks incurred by the Licensed Products during its transportation) and shall maintain such insurance in force during the entire term of this Agreement.

6.14 Licensee shall obtain at its own costs any export/import license or other official authorization and carry out, where applicable, all customs formalities for the export/import of the Licensed Products.

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6.15 Specifications and compliance with cGMP shall be set forth in the Technical Agreement.

6.15.1 BIP warrants that all quantities of Licensed Products delivered to Licensee pursuant to this Agreement meet the Specifications, that the Licensed Products are manufactured in full compliance with current Good Manufacturing Practices for all countries of the Territory where the Licensed Products are sold and that all necessary tests and analysis in the course of the manufacturing processes and thereafter have been duly carried out and shall, with each delivery pursuant hereto, provide Licensee with copies of the appropriate quality assurance certificates issued in English by the manufacturing plants and the Qualified Person.

6.15.2 BIP shall have the right to modify the Specifications subject to prior notification to Licensee and subject to approval by the Regulatory Authority. In the event Licensee desires other or special Specifications for the Licensed Product or guidelines to be considered, Licensee shall notify BIP accordingly. BIP agree to consider in good faith such special Specifications or guidelines, provided, however, that any costs relating to the implementation of such special Specifications or guidelines will be borne by Licensee.

6.16 Checking – non conformity.

6.16.1 Upon delivery of the Licensed Products to the Delivery Point, Licensee shall inspect the Licensed Products and shall notify BIP within a period set forth in the Technical Agreement, by telefax confirmed by courier, of any damage visible from inspection or of any shortages or non-conformity of the delivered Licensed Products with supporting detailed evidence and documents and their translation in English shall be included. Upon request of BIP, Licensee shall make available to BIP samples of the Licensed Products which are declared as defective. In case of non conformity to the Specifications of any quantity of the Licensed Products delivered pursuant hereto, BIP shall take back, at its expense, the quantities concerned and shall replace them promptly after BIP received the relevant notice.

6.16.2 Any dispute between the Parties regarding shortage or damages of any quantity of the Licensed Products delivered hereunder shall be referred to an expert jointly appointed by BIP and Licensee within thirty (30) days from the receipt by BIP of the notice of claim of Licensee as set forth in the Technical Agreement.

6.16.3 BIP shall not replace defective Licensed Products returned to Licensee by the customers, patients, or authorities, unless the relevant Licensed Product defect is due to (i) Licensed Product manufacturing defaults in so far as the Licensed Product does not meet the Specifications, (ii) the Licensed Product manufacturing process, or (iii) Licensed Product defaults that occurred during the delivery of the Licensed Products from the manufacturer’s import warehouse to the Delivery Point.

6.16.4 Without prejudice to the Party bearing defective Licensed Products replacement costs in accordance with the provisions of this Section, if BIP so decides, Licensee shall destroy immediately upon written notice, any quantity of defective Licensed Products and provide to BIP the corresponding certificate of destruction hereof.

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6.17 Failure to Supply. In the event that at any time during the term of the Agreement, BIP delivers non-conforming lots of the Initial Product, as further defined in the Technical Agreement, three (3) times in any twelve (12) month period (a “Default”), then:

(a) Licensee shall give written notice to BIP specifying the occurrence of such Default (and, to the extent BIP anticipates a possible Default, BIP shall inform Licensee of such possibility as it becomes known to BIP);

(b) The JSC shall investigate the cause of the Default. Thereafter, the Parties shall discuss in good faith through the JSC the appropriate mechanism to cure the Default based on the JSC’s investigation. Such mechanisms for cure may include for example, but without limitation, the establishment by BIP of a secondary source for the manufacture and supply of Initial Product to Licensee.

(c) In addition, where there is limited supply of conforming Licensed Product, the JSC shall determine the allocation of the available Licensed Product between the Licensors Territory and the Territory, taking into consideration the sales volume of such territories in the previous 6-month period;

(d) Following the Parties’ acceptance of an appropriate mechanism to cure the Default, BIP shall use Diligent Efforts to implement such agreed upon mechanism.

7. PAYMENTS

7.1 Milestone Payments. In consideration of the rights granted by and undertakings of Licensors under this Agreement, Licensee shall make the following non-refundable and non-creditable milestone payments:

7.1.1 Up-Front Payments.

(i) In consideration of the exclusive license granted under Licensed Patents Rights hereunder, Licensee shall owe and pay SCRAS fourteen million two hundred seventy thousand and ninety USD ($14,270,090) on the Effective Date.

(ii) In consideration of the exclusive license granted under Licensed Know-How hereunder, Licensee shall owe BIP ten million seven hundred sixty six thousand and nine hundred and ten USD ($10,766,910) which shall be paid to SCRAS, on behalf of BIP, on the Effective Date simultaneously with the payment set forth in Section 7.1.1(i) and SCRAS shall make, and be responsible for, the relevant payment to BIP of its share of such amount.

7.1.2 Approval Milestone Payments.

(i) In consideration of the exclusive license granted under Licensed Patents Rights hereunder, Licensee shall owe SCRAS seventeen million one

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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hundred thousand (17,100,000) Euros and in consideration of the exclusive license granted under Licensed Know-How hereunder, Licensee shall owe BIP twelve million nine hundred thousand (12,900,000) Euros (the “Approval Milestone Payments”) as indicated in Section 7.1.2(v) below following the obtaining of either (A) the grant of an initial Marketing Authorization (i) meeting the Target Label or (ii) which does not strictly meet the Target label, but nonetheless provides access to a number of patients (the “MA Population”) which is more than [*]% of the Target Population or (B) where the criteria set forth in (A)(i) and (A)(ii) are not satisfied by the initial Marketing Authorization, the grant of a Subsequent Marketing Authorization (defined below) that satisfies the criteria set forth in Section 7.1.2(iii) below.

(ii) In the event that Licensors have not obtained a Marketing Authorization the MA Population of which is more than [*]% of the Target Population, the Approval Milestone Payments shall not be paid and Licensors shall use their Diligent Efforts to obtain a new Marketing Authorization or to extend the initial Marketing Authorization with the view to meet the Target Label (the “Subsequent Marketing Authorization”) within three (3) years from the date of obtaining of the initial Marketing Authorization (the “Agreed Period”).

(iii) Licensee shall pay Licensors the Approval Milestone Payments in accordance with clause (v) below in the event Licensors obtain a Subsequent Marketing Authorization within the Agreed Period the MA Population of which is more than [*]% of the Target Population.

(iv) In case of dispute of the Parties on the determination of the MA Population, such dispute shall be first submitted to the JSC. In case of failure by the JSC to find a solution acceptable to all Parties, the matter will be referred to resolution by senior management of the Parties as provided for in Section 15.1 and ultimately to the final decision of three (3) experts of international reputation in the endocrinology field, one being appointed by Licensee within fifteen (15) days following failure by the senior executive to resolve this issue, one by Licensors within fifteen (15) days following failure by the senior executive to resolve this issue and one by the two first experts within fifteen (15) days following their appointment. In the event one Party fails to appoint an expert, the other Party may appoint such expert. Once appointed, the experts shall provide the Parties with their decision within one (1) month from the date of the appointment of the third expert and this decision shall be final and binding upon the Parties. The decision of the expert shall also allocate the cost for this expertise resolution among the Parties in a proportion the experts deems reasonable.

(v) The Approval Milestone Payments shall both be paid by Licensee to SCRAS within thirty (30) days following determination by the Parties as to whether the MA Population is less or above [*] percent ([*]%) or [*] percent ([*]%) of the Target Population and the Parties shall use their Diligent Efforts to agree on such determination no later than sixty (60) days following the date of the grant of Marketing Authorization or the Subsequent Marketing Authorization. SCRAS shall be responsible for and shall pay the relevant amount to BIP of its share of such Approval Milestone Payments.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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7.1.3 Each milestone payment under this Section 7.1 shall be made only once with respect to the achievement of the applicable milestone events and shall be payable the first time such milestone event is achieved. Milestone payments set forth above shall be due only for the first Licensed Product developed and commercialized under this Agreement to reach the above stages.

7.2 Royalty Payments.

7.2.1 Plain Royalty Rate

(a) Licensed Patent Rights Rate. In consideration of the rights granted by SCRAS under the Licensed Patent Rights and undertakings of SCRAS under this Agreement, Licensee shall owe SCRAS the following royalties which shall accrue on a country-by-country basis in the Territory upon the First Commercial Sale of the Licensed Product for the Royalty Term:

(i) For annual Net Sales of the Licensed Products for the Territory below $[*] USD : [*]% of Net Sales ;

(ii) For annual Net Sales of the Licensed Products for the Territory between $[*] and $[*] USD: [*]% of Net Sales ;

(iii) For annual Net Sales of the Licensed Products for the Territory above $[*] USD: [*]% of Net Sales.

(b) Licensed Know-How Rate. In consideration of the rights granted by BIP under the Licensed Know-How and undertakings of BIP under this Agreement, Licensee shall owe BIP the following royalties which shall accrue on a country-by-country basis in the Territory upon the First Commercial Sale of the Licensed Product for the Royalty Term:

(iv) For annual Net Sales of the Licensed Products for the Territory below $[*] USD: [*]% of Net Sales ;

(v) For annual Net Sales of the Licensed Products for the Territory between $[*] and $[*] USD: [*]% of Net Sales ;

(vi) For annual Net Sales of the Licensed Products for the Territory above $[*] USD: [*]% of Net Sales.

(c) Licensed Trademark Rate. In consideration of the rights granted by SCRAS under the Licensed Trademark and undertakings of SCRAS under this Agreement, Licensee shall owe SCRAS a royalty of [*]% which shall accrue on a country-by-country basis in the Territory upon the First Commercial Sale of the Licensed Product for the Royalty Term.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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7.2.2 Royalty Reductions. The royalty rates mentioned in Section 7.2.1(a), (b) and (c) shall be reduced in the following cases, on a country-by-country basis, and the JFC shall determine the mechanism for applying such country-specific reductions due to the fact that annual Net Sales are determined on a total Territory basis:

(a) in the event Market Competition exists in such country and the manufacture, use, or sale of Licensed Product would infringe a Valid Claim but for the licenses granted under this Agreement, the above royalty rates set forth in section 7.2.1 above will be reduced by [*]%.

(b) in the event the manufacture, sale or use of the Licensed Product would infringe no Valid Claim but for the licenses granted under this Agreement and for so long as no Market Competition Exists, the above royalty rates set forth in section 7.2.1 will be reduced by [*]%.

(c) in the event the manufacture, sale or use of the Licensed Product would infringe no Valid Claim but for the licenses granted under this Agreement and Market Competition exists in such country, the plain royalty rates set forth in section 7.2.1 will be reduced by [*]% and, for the sake of certainty, shall total:

(i) For annual Net Sales of the Licensed Products for the Territory below $[*] USD: [*]% of Net Sales in such country;

(ii) For annual Net Sales of the Licensed Products for the Territory between $[*] USD and $[*] USD: [*]% of Net Sales in such country;

(iii) For annual Net Sales of the Licensed Products for the Territory above $[*] USD: [*]% of Net Sales in such country.

Notwithstanding the foregoing, in the case of subsection (a) above, in event of Market Competition, and where the Valid Claim still exists but nonetheless Licensee has a good faith belief, based on advise of legal counsel, that enforcing the Valid Claim against third party competitors is not in the best interests of the Parties, or that Licensors or themselves will not prevail in the enforcement of the Licensed Patent Rights or Licensee has other strategic reasons for recommending that the Parties elect not to enforce the Licensed Patent Rights, then the Parties will confer in good faith to determine an appropriate reduction to the royalty rate set forth in Section 7.2.2(a).

(d) the royalty rates set forth in this Section 7.2 may be further off-set in accordance with Section 8.2.3(ii).

For the purpose of determining whether the manufacture, use or sale of Licensed Product in any jurisdiction in the Territory would infringe a valid claim if not for the licenses granted herein, any Licensed Product not manufactured within the jurisdiction in which use or sale of that Licensed Product occurs shall be deemed to have been manufactured in that jurisdiction.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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7.2.3 Reports; Payment of Royalties. During the term of the Agreement, Licensee shall furnish to Licensors two quarterly written report for each Calendar Quarter showing for the First Report Licensee’s estimated Net Sales of all Licensed Products sold by Licensee, its Affiliates or Sub-licensees in the aggregate and on a country-by-country basis during the reporting period; for the Second Report the actual Net Sales of all Licensed Products sold by Licensee, its Affiliates or Sub-licensees in the aggregate and on a country-by-country basis during the reporting period and the calculation of the royalties and/or other payments payable to Licensors under this Agreement. The First Quarterly reports shall be due on the fifth (5^th) day following the close of each Calendar Quarter and will be used as information only by Licensors for accounting purposes. The Second Quarterly Reports shall be due on the sixtieth (60^th) day following the close of each Calendar Quarter. Royalties or other payments shown to have accrued by each royalty report shall be due and payable on the date such report is due and shall all be paid to SCRAS, who shall solely be responsible for the allocation of the relevant royalties owed hereunder among SCRAS and BIP. Licensee shall keep complete and accurate records in connection with the sale of Licensed Products hereunder in sufficient detail to permit accurate determination of all figures necessary for calculation and verification of royalty and other payment obligations set forth in this Section 7.

7.2.4 Audits. Upon the written request of Licensors thirty (30) days in advance, Licensee shall permit an independent certified public accounting firm of an internationally recognized standing and selected by Licensors to have access during normal business hours to such of the records of Licensee as may be reasonably necessary to verify the accuracy of the reports under Section 7.2.3 provided however that it does not disrupt Licensee’s operation of business. The accounting firm shall disclose to Licensee and Licensors whether the reports are correct or incorrect, the specific details concerning any discrepancies and such other information that should properly be contained in a royalty report required under this Agreement.

If such accounting firm concludes that additional royalties or other amounts were owed, Licensee shall pay the additional royalties or payments within thirty (30) days of the date Licensors deliver to Licensee such accounting firm’s written report so concluding. In the event such accounting firm concludes that amounts were overpaid by Licensee, Licensors shall repay Licensee the amount of such overpayment within thirty (30) days of the date Licensors deliver to Licensee such accounting firm’s written report so concluding. The fees charged by such accounting firm shall be paid by Licensors; provided, however, that if an error in favor of Licensors of more than five (5) percent of the royalties due hereunder for the period being reviewed is discovered, then the fees and expenses of the accounting firm shall be paid by Licensee.

If such accounting firm concludes that the reports were correct, Licensors shall not be entitled to request any further audit during the next thirty-six (36) months.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Upon the expiration of thirty-six (36) months following the end of any Calendar Year for which Licensee has made payment in full of all royalties and other amounts payable with respect to such year, and in the absence of negligence or willful misconduct of Licensee or a contrary finding by an accounting firm pursuant to this Section, such calculation shall be binding and conclusive upon Licensors and Licensee shall be released from any liability or accountability with respect to royalties or other payment for such Calendar Year.

7.2.5 Payments; Currencies and Exchange Rate. All royalty payments to SCRAS under this Agreement shall be made in USD. When calculating Net Sales, Licensee shall convert the amount of invoiced sales in currencies other than USD into USD using the exchange rates as determined by Licensee for the purpose of consolidating its financial statements. All payments related to Developments Costs (joint development or after Opt-In by a Party) will be made in the currency of the invoicing Party (i.e., the Party being reimbursed).

7.2.6 Late Payment. In case of late payment of any payment due hereunder by Licensee (or in case of additional payment due by one Party to the other pursuant to Section 7.2.4), Licensee shall pay to SCRAS and/or BIP, as the case may be, interest on the unpaid amount until such payment is paid in full, at the average one-month European Interbank Offered Rate (EURIBOR) plus two (2) percent as reported by the European Bank Federation (or a successor or similar organization) from time to time, calculated on the number of days such a payment is overdue.

7.2.7 Tax Withholding. If provision is made in law or regulation of any country in the Territory for withholding of taxes of any type, levies or other charges with respect to any amounts payable by Licensee to SCRAS and BIP pursuant to this Agreement, Licensee shall promptly pay such tax, levy or charge for and on behalf of SCRAS and/or BIP, as the case may be, to the proper governmental authority and Licensee shall promptly furnish SCRAS and/or BIP, as the case may be, with certificate of taxes deducted under such withholding tax laws. Licensee shall have the right to offset any such tax, levy or charge actually paid from any payment due to SCRAS and/or BIP, as the case may be, or shall be promptly reimbursed by SCRAS and/or BIP, as the case may be, if no further payments are due. Licensors and Licensee shall cooperate with each other in obtaining any exemption from or reduced rate of tax available under any applicable law or tax treaty.

Licensee and Licensors shall pay for their own account all sales, turnover, income, revenue, value added and other taxes levied on account of payments accruing or made under this Agreement. All amounts expressed in this Agreement exclude such taxes which were required by law shall be charged at the applicable rate.

8. TRADEMARKS AND INTELLECTUAL PROPERTY RIGHTS

8.1 Licensed Trademark.

8.1.1 The Licensed Product will be marketed in the Territory under the Licensed Trademark. In specific countries where the use of the Licensed Trademark is not permitted by law or is not appropriate including for reasons relating to language or

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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custom, Licensee shall have the possibility to use a different trademark, subject to SCRAS’s prior written approval which shall not be unreasonably withheld or delayed. SCRAS shall be responsible for securing and for maintaining registrations for the Licensed Trademark in the Territory and shall use reasonable commercial efforts in that regard, provided, however, that SCRAS shall not be deemed to have breached this Agreement if it is unable to obtain registration of the Licensed Trademark in every country in the Territory. In the event, despite its reasonable commercial efforts, SCRAS is unable to obtain or maintain registrations for the Licensed Trademark in some country (ies) in the Territory, SCRAS and Licensee shall negotiate in good faith concerning the use of such other trademarks as may be available for marketing the Licensed Product in those countries.

8.1.2 Enforcement. Licensee and SCRAS shall cooperate with each other and use reasonable efforts to protect the Licensed Trademark from infringement by third parties. Without limiting the foregoing, each Party shall promptly notify the other Party of any known, threatened or suspected infringement, imitation or unauthorized use of or unfair competition relating to the Licensed Trademark. SCRAS shall have the first right to determine in its discretion whether to and to what extent to institute, prosecute and/or defend any action or proceedings involving or affecting any rights relating to the Licensed Trademark. Upon SCRAS’s reasonable request, Licensee shall, at SCRAS’s expense, cooperate with and assist SCRAS in any of SCRAS’s enforcement efforts with respect to the Licensed Trademark. SCRAS shall promptly inform Licensee if SCRAS elects not to take action against any actual or suspected infringement of the Licensed Trademark, in which case, Licensee, at its own expense, shall then have the right, but not the obligation, to bring or assume control of any action against the allegedly infringing third party as Licensee determines may be necessary, provided, however, that Licensee shall not enter into any settlement or compromise of any claim relating to the Licensed Trademark without the prior written consent of SCRAS. In the event that Licensee brings or assumes control of any such action, then SCRAS agrees to, at Licensee’s expense, reasonably assist Licensee in connection therewith. In either case, the Party that initiated and prosecuted, or maintained the defense of the action shall bear all costs and expenses (including reasonable attorneys’ fees) incurred in connection with the action and shall be entitled to recoup those amounts in the event of recovery, by settlement or otherwise. The amount of any recovery remaining shall be shared equally by SCRAS and Licensee.

8.1.3 Avoidance of Confusion. Licensee and its Affiliates or Sublicensee shall not market, promote, sell and/or distribute anywhere in the Territory any product other than Licensed Product under the Licensed Trademark or any confusingly similar trademark, and SCRAS and its Affiliates or sublicensee shall not market, promote, sell and/or distribute anywhere in the Licensors Territory any product other than Licensed Product under the Licensed Trademark or any confusingly similar trademark. Licensee and its Affiliates shall not, directly or indirectly, contest the validity of or SCRAS’s rights in the Licensed Trademark anywhere in the Territory or assist any third party in doing so. In the event that actual confusion should arise, or either Party reasonably believes that a likelihood of confusion may arise, in connection with SCRAS’ and Licensee’s respective uses of the Licensed Trademark, SCRAS and Licensee will fully cooperate in an effort to eliminate such confusion and to avoid the possibility of such a likelihood of confusion.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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8.2 Licensors IP Rights.

8.2.1 Securing Patent Protection. SCRAS will take all commercially reasonable actions necessary to file, prosecute and maintain patent protection for the Licensed Product in the Territory during the term of this Agreement.

8.2.2 Third Party Infringement of Licensors IP Rights. Each of SCRAS or Licensee shall promptly give the other Party notice of any suspected infringement in the Territory of any patent application or patent included in the Licensors IP Rights that comes to such Party’s attention. SCRAS and Licensee will thereafter consult and cooperate fully to determine a course of action, including, without limitation, the commencement of legal action by SCRAS or Licensee. However, SCRAS shall have the first right to initiate and prosecute such legal action at its own expense and in the name of SCRAS and/or Licensee, or to control the defense of any declaratory judgment action relating to Licensors IP Rights. SCRAS shall promptly inform Licensee if SCRAS elects not to exercise such first right, in which case Licensee shall thereafter have the right either to initiate and prosecute such action or to control the defense of such declaratory judgment action in the name of SCRAS and, if necessary, Licensee, provided, however, that Licensee shall not enter into any settlement or compromise of any claim relating to the Licensors IP Rights licensed hereunder without the prior written consent of SCRAS. If SCRAS elects not to initiate and prosecute such an infringement or defend a declaratory judgment action in any country in the Territory and Licensee elects to do so, the cost of any agreed-upon course of action, including the costs of any legal action commenced or any declaratory judgment action defended, shall be borne solely by Licensee.

If either SCRAS or Licensee elects to institute a legal proceeding to enforce Licensors IP Rights against an alleged infringing party, the other Party shall fully cooperate with and supply all assistance reasonably requested by the Party instituting such proceeding, at the expense of the Party instituting such proceeding. Any recovery or award obtained by either SCRAS or Licensee as a result of any such action or settlement shall be shared as follows:

(a) if SCRAS initiated and prosecuted, or maintained the defense of, the action, the amount of any recovery remaining then shall be retained by SCRAS; and

(b) if Licensee initiated and prosecuted, or maintained the defense of, the action, the amount of any recovery remaining shall be retained by Licensee, except that SCRAS shall receive a portion equivalent to the royalties it would have received in accordance with the terms of this Agreement as if such amount were Net Sales of Licensee.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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For any such legal action or defense, in the event that either SCRAS or Licensee is unable to initiate, prosecute, or defend such action solely in its own name, the other Party will join such action voluntarily and will execute all documents necessary for the Party to prosecute, defend and maintain such action. In connection with any such action, SCRAS and Licensee will cooperate fully and will provide each other with any information or assistance that either reasonably may request. Any recovery or award obtained by either SCRAS or Licensee as a result of any such action or settlement shall be shared as follows:

(c) the Party that initiated and prosecuted, or maintained the defense of, the action shall recoup all of its costs and expenses (including reasonable attorneys’ fees) incurred in connection with the action, whether the recovery is by settlement or otherwise;

(d) the other Party then shall, to the extent possible, recover its costs and expenses (including reasonable attorneys’ fees) incurred in connection with the action;

(e) if SCRAS initiated and prosecuted, or maintained the defense of, the action, the amount of any recovery remaining then shall be retained by SCRAS; and

(f) if Licensee initiated and prosecuted, or maintained the defense of, the action, the amount of any recovery remaining shall be retained by Licensee, except that SCRAS shall receive a portion equivalent to the royalties it would have received in accordance with the terms of this Agreement as if such amount were Net Sales of Licensee.

8.2.3 Third Party Intellectual Property.

(i) In the event that either SCRAS or Licensee becomes aware of any claim or potential claim that the practice by either SCRAS or Licensee of Licensors IP Rights hereunder infringes the intellectual property rights of any third party, such Party shall promptly notify the other Party. As between SCRAS and Licensee, SCRAS shall have the first right, but not the obligation, to defend the Parties against any claim by a third party that the Development, use, sale, offer for sale, export or import of Licensed Product in the Territory infringes third party intellectual property rights. Licensee shall have the right to participate in the defense of such claim but shall not take any position inconsistent with SCRAS’s position on such issues. In the event that SCRAS chooses in its sole discretion not to defend such suit, Licensee shall have the right but not the obligation to defend such suit. Licensee shall not settle any action pursuant to this Section without SCRAS’s consent, such consent not to be unreasonably withheld.

(ii) If Licensee would be prevented from developing, manufacturing using, selling or importing the Licensed Product in any country of the Territory on the grounds that by doing so Licensee would infringe a Dominating Patent held by a third party in said country and Licensee licenses rights to such Dominating Patent in said country, then [*] percent ([*]%) of any royalties on Licensed Product sales paid by Licensee to such third party in any Calendar Year in such country with respect to

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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such Dominating Patent shall be deducted from any royalty payments payable to SCRAS and/or BIP, as the case may be, by Licensee in such Calendar Year (the “Royalty Reduction”), provided, however, that (i) Licensors have been informed of the Dominating Patent and has had an opportunity to provide input on any related discussion of whether to license such Dominating Patent and negotiation of royalty rates; and (ii) subject to the warranties and representations made by Licensors under Section 11.1 of this Agreement, the amount of the Royalty Reduction in any Calendar Year shall not exceed [*] percent ([*]%) of the royalties (the “Royalty Reduction Cap”) that would have otherwise been payable by Licensee to Licensors for such Calendar Year and for such country. Any amount of the Royalty Reduction which is not offset against royalty payments due to Licensors (because it exceeds the Royalty Reduction Cap) shall be carried forward to and deducted in subsequent Calendar Years until the expiration date of the term. The Parties shall negotiate in good faith the consequences of several Dominating Patents, if and when such several Dominating Patents come to the attention of the Parties.

8.3 Joint IP Rights. All Know-How arising from Development activities undertaken and funded jointly by the Parties pursuant to Article 4 shall be jointly owned by BIP and the Licensee, regardless of inventorship, but subject to the licenses set forth in this Agreement. All Patent Rights arising from Development activities undertaken and funded jointly by the Parties pursuant to Article 4 shall be jointly owned by SCRAS and the Licensee, regardless of inventorship, but subject to the licenses set forth in this Agreement. The allocation of responsibilities and costs between the Parties for filing, prosecution, maintenance and enforcement of such Patent Rights jointly owned by SCRAS and the Licensee shall be decided by a joint patent committee appointed and overseen by the JSC, consisting of two (2) members from each Party (the “Joint Patent Committee”). The initial members for such Joint Patent Committee are set out in Schedule 13.

8.4 Patents Solely Owned.

8.4.1 Licensee shall have the sole discretion for the filing, prosecution, maintenance and enforcement of Patent Rights that it solely owns, provided that, if any such Patent Rights are subject to a license grant to Licensors as a result of Licensors’ exercise of its Opt-in rights under Section 4.4.4(ii)(F), then at the time Licensors exercise their Opt-in rights, the Parties shall agree upon reasonable terms under which Licensors shall participate in the filing, prosecution, maintenance and enforcement of such Patent Rights in Licensors Territory, in a form substantially similar in principle to those set forth in Section 8.2.

8.4.2 Licensors shall have the sole discretion for the filing, prosecution, maintenance and enforcement of Patent Rights that they solely own, provided that, if any such Patent Rights are subject to a license grant to Licensee as a result of Licensee’s exercise of its Opt-in rights under Section 4.4.4(ii)(F), then at the time Licensee exercises its Opt-in rights, the Parties shall agree upon reasonable terms under which Licensee shall participate in the filing, prosecution, maintenance and enforcement of such Patent Rights in the Territory, in a form substantially similar in principle to those set forth in Section 8.2.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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9. TERM AND TERMINATION

9.1 Term.

9.1.1 Conditions to Closing. This Agreement shall become effective upon the Effective Date, after the Parties have obtained all consents (including without limitation, the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, if any, and all governmental or regulatory consents, approvals or authorizations required in connection with the valid execution and delivery of this Agreement, the Increlex Agreement and the Equity Transaction Documents and all necessary stockholder consents and approvals), permits and waivers necessary or appropriate for consummation of any of the transactions contemplated by this Agreement, the Increlex Agreement and the Equity Transaction Documents.

9.1.2 Term; Expiration. The term of the Agreement shall commence on its Effective Date and, unless sooner terminated as provided herein, shall continue in full force and effect on a Licensed Product by Licensed Product and country-by-country basis until the expiration of the Royalty Term with respect to such Licensed Product in such country. Upon expiration of the Royalty Term with respect to a given Licensed Product, in a given country, Licensee shall be granted a fully paid-up, irrevocable and perpetual non-exclusive license under all Licensors IP Rights with respect such Licensed Product and a fully paid-up, irrevocable and perpetual exclusive license under the Licensed Trademark with respect to such Licensed Product and its promotional material.

9.2 Termination.

9.2.1 Either Party may terminate this Agreement, in whole or in part as applicable, effective immediately upon receipt of written notice to the other Party, under the following circumstances:

(a) if the other Party is in material breach or default with respect to any term or provision hereof and fails to cure the same within thirty (30) days of receipt of written notice of said breach or default; or

(b) in the case of safeguard procedure, judicial recovery or judicial liquidation of the other Party, subject to the compliance with the provisions of articles L. 622-13, L. 631-14 and/or L. 641-10 of the French Commercial Code; or

(c) where the right to terminate the Agreement in whole or in part is specifically provided for herein.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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9.3 Resulting Obligations. Upon early termination of this Agreement the following shall apply:

9.3.1 Rights to Licensed Product in the Territory.

(a) In the event of termination by Licensors pursuant to Section 9.2.1 with respect to a one or more Licensed Products, all rights to such Licensed Product(s) shall revert to Licensors free of charge and Licensee shall have no further rights with respect to the Licensed Product. Licensee shall, at Licensors’ election, either (i) resell under its own responsibility all remaining quantities of unsold Licensed Products during a maximum time period of six (6) months as from termination of this Agreement, at the expiration of which period, Licensee shall, upon request from Licensors, immediately destroy all unsold quantities of Licensed Products and provide to Licensors the corresponding certificate of destruction hereof, or (ii) immediately return any unsold stock to Licensors or any other third party designated by Licensors provided said stock is in good saleable condition. All expenses and costs of such return shall be borne by Licensors unless termination of this Agreement occurs as a result of Licensee being in breach of the provisions of this Agreement. If option (ii) is selected by Licensors, Licensors or the third party designated by Licensors shall repurchase all such returned stock of Licensed Products at the Licensed Products’ Supply Price referred to in Section 6.5 hereunder provided that they are in good saleable condition and have a remaining shelf life of no less than six (6) months. Should the Licensed Products not be in good saleable condition, Licensee shall destroy all such remaining stock subject to Licensors’ prior written agreement, and provide to Licensors the corresponding certificate of destruction hereof.

(b) In the event of termination by Licensee pursuant to Section 9.2.1, Licensee shall be entitled to the following, at the Licensee’s election: (i) return all unsold Licensed Product and unused Samples to Licensors at Licensors’ expense and to receive a full refund of the Supply Price paid to Licensors for the Licensed Product and Samples returned by Licensee, or (ii) continue to sell Licensed Product according to the terms of this Agreement until all inventory is sold or for six (6) months, whichever shall occur first.

9.3.2 Licensed Trademark. Except as provided for in Section 9.3.1 (b), Licensee shall terminate any use of the Licensed Trademark and shall, at SCRAS’s election, either destroy or return to SCRAS at Licensee’s cost all literature, labels, or other materials, incorporating or bearing same. Licensee shall cooperate with SCRAS and execute any and all documents requested by SCRAS for the purpose of canceling any registered user or other rights with respect to the Licensed Trademark or, at SCRAS ‘s election, in transferring such rights to SCRAS or its designee.

9.3.3 Data. Except as provided for in Section 9.3.1(b), Licensee shall cease using all information and technical and other data provided by BIP relating to the Licensed Product, and shall, at BIP’s option, return to BIP or destroy all such data having physical form and all copies thereof, and shall continue to abide by its obligation of confidentiality set forth in Section 9 below.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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9.3.4 Approvals; IP Rights. Except as provided for in Section 9.3.1(b), Licensee shall promptly assign or otherwise cause to be transferred to BIP, or BIP’s designee, all Marketing Authorizations or any other government registrations or approvals in the Territory having to do with the Licensed Product that are in Licensee’s name and shall make no further use of the same and shall allow BIP to cross-reference any INDs, BLAs (or their equivalent in the Territory), clinical data or other submissions filed with any Regulatory Authority in the Territory and provide BIP with copies of all such documentation. In addition, Licensee shall (i) provide BIP with a copy of Licensee’s preclinical and clinical data, assays and associated materials, and protocols and procedures, and any Know-How Controlled by Licensee, with respect to such Licensed Product(s) (ii) grant a non-exclusive, sublicensable license to BIP or its designee Affiliate to use, sell, manufacture, offer for sale, import and export in the Territory such Licensed Products under any Patent Rights and any Know-How owned or Controlled by Licensee as of the effective date of the termination, (iii) grant BIP or its designee Affiliate exclusive rights to use any Licensed Trademarks filed in connection with Licensed Products, to the extent such Licensed Trademarks are specific to one or more Licensed Products and are not generally associated with any other product of Licensee and do not contain an element of Licensee’s trade name, in each case solely for purposes of using, selling, offering for sale, importing or exporting such Licensed Products in the Territory.

9.4 Survival of Rights. All of the remedies provided for in Section 9.3 are in addition to the other rights and remedies available to the Parties on termination and Section 9.3 is not intended to limit any of those rights or remedies.

10. CONFIDENTIALITY

10.1 All information, whether in oral, written, graphic or electronic form, disclosed by Licensors or Licensee (“Disclosing Party”) to the other Party and/or any of such other Party’s subsidiaries, subdivisions, parent companies, affiliates agents or consultants (“Receiving Party”), and all notes, documents and materials prepared by or for either Party which reflect, interpret, evaluate, include or are derived therefrom, shall be deemed to be “Confidential Information.” In particular, Confidential Information shall include, without limitation, any trade secret, proprietary information, invention, research and development work, work-in-process, technology, technique, know-how, design, specification, program, unpublished data, procedure (including operating procedures), computer software, data base or programming, idea, sample, strategy, budget, projection, development, process, formulation, method, guideline, policy, proposal, contract, test data or data file, or any engineering, manufacturing, marketing, servicing, financing, pricing, cost, profit, personnel or salary structure/compensation information relating to the past, present or future operations, products, services, technology, sales, suppliers, clients, customers, employees, investigators, investors or business of Disclosing Party. In addition, “Confidential Information” includes any trade secrets, data (technical or non-technical) or confidential information relating to the past, present or future operations, organization, business, projects or finances of any third party to which Disclosing Party owes a duty of confidentiality including, without limitation, the mere fact that Disclosing Party is or may be working with or for any client.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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10.2 Subject to the right for SCRAS and BIP to share confidential information as between themselves, Receiving Party shall not use or disclose such Confidential Information to others (except its employees, Affiliates and sub-licensees who reasonably require same for the purposes hereof and who are bound to it by a like obligation as to confidentiality except as required by law) without the express written permission of Disclosing Party, except for Confidential Information that (i) can be demonstrated by written records to be known to Receiving Party from a source other than Disclosing Party at the time of receipt; or (ii) was subsequently otherwise legally acquired by Receiving Party from a third party having an independent right to disclose the information; or (iii) is now or later becomes publicly known without breach of this Agreement by Receiving Party or any Party that received such Confidential Information from Receiving Party.

10.3 Legal Requirements. Either Party may disclose the other Party’s Confidential Information to the extent such disclosure is required by law, regulations (including without limitation the rules and regulations promulgated by the SEC) and valid court orders, provided that such Party gives the other Party reasonable notice of such disclosure and uses reasonable efforts to obtain confidential treatment or a protective order for such information.

10.4 Other Permitted Disclosure. Except as otherwise expressly provided herein, to the extent reasonably necessary to carry on the activities contemplated in this Agreement, each Party shall be permitted to (a) disclose or grant use of Confidential Information received under this Agreement to any of its permitted sublicensees, agents, consultants, clinical investigators, collaborators or contractors, under confidentiality and non-use obligations at least as stringent as those set forth in this Article 10; (b) disclose Confidential Information received under this Agreement to actual or potential professional investors, acquirers, merger or other business partners or retained professional advisors (e.g. attorneys, accountants and investment bankers), under confidentiality and non-use obligations at least as stringent as those set forth in this Article 10; and (c) to a Regulatory Authority to the extent necessary for obtaining Marketing Authorization for a Licensed Product.

10.5 Publications. In the event either Party wishes to publish or orally deliver a scientific article or speech relating to the Development of a Licensed Product, such Party shall submit to the other Party a draft of each such proposed oral disclosure or written publication at least thirty (30) days prior to the anticipated oral disclosure or the submission of the written publication. The other Party shall review each such proposed oral disclosure or written publication in order to avoid the unauthorized disclosure of such Party’s Confidential Information and to preserve the patentability of inventions arising from this Agreement. As soon as reasonably possible, but in no event more than thirty (30) days after receipt of an advance copy of a publishing Party’s proposed oral disclosure or written publication, the reviewing Party shall inform the publishing Party if the proposed oral disclosure or written publication contains any of the reviewing Party’s Confidential Information or could be expected to have a material adverse effect on any Patent Rights of the reviewing Party. If so requested by the reviewing Party, the publishing Party shall amend any proposed oral disclosure or written publication to the

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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extent necessary to protect the Confidential Information of the reviewing Party of which the publishing Party is made aware by the reviewing Party and, if so requested by the reviewing Party, shall delay such proposed oral disclosure or written publication for a reasonable period of time to permit the timely preparation of a patent application by the reviewing Party.

10.6 Press Release. In general, and except where required by law or regulation, no public announcement or other disclosure by the Parties concerning the existence of or terms of this Agreement shall be made, either directly or indirectly, by either Party to this Agreement, without first obtaining the written approval of the other Party and agreement upon the nature and text of such announcement or disclosure, such consent not to be unreasonably withheld. The Parties shall make a joint public announcement in English of the execution of this Agreement in such form separately agreed upon between the Parties on or after the Effective Date. Licensors shall be permitted to make a public announcement in French or such other language as they desire of the execution of this Agreement similar to the English press release. After the initial press release concerning this Agreement, if either Party desires to make an additional press release concerning any additional material terms of this Agreement, it shall inform the other Party in reasonably sufficient time prior to public release, and shall provide the other Party with a written copy thereof for review. A Party commenting on such a proposed press release shall provide its comments, if any, within three (3) business days after receiving the press release for review. Each Party agrees that it shall cooperate fully with the other with respect to all disclosures regarding this Agreement to any stock market, governmental or regulatory agencies, including requests for confidential treatment of proprietary information of either Party included in any such disclosure. Where required by law or by the regulations of the applicable securities exchange upon which such Party may be listed, each Party shall have the right to make a press release announcing the achievement of each milestone under this Agreement as it is achieved, and the achievements of Regulatory Approvals in the Territory as they occur, subject only to the review procedure set forth in the preceding sentence. Neither Party shall be required to seek the permission of the other Party to repeat any information regarding the terms of this Agreement that has already been publicly disclosed by such Party, or by the other Party, in accordance with this Section 10.6.

11. REPRESENTATIONS AND WARRANTIES

11.1 Representations and Warranties of SCRAS. SCRAS makes the following covenants, representations and warranties to Licensee, as of the Execution Date, and does so in full understanding and acknowledgement that Licensee is relying on the said representations and warranties in concluding the present Agreement:

11.1.1 Status. SCRAS is a corporation organized and existing under the laws of France. No action has been taken by the directors, officers or shareholders of SCRAS to dissolve SCRAS. SCRAS has the corporate power and authority to enter into the present Agreement and to perform all its obligations hereunder.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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11.1.2 All Necessary Proceedings. SCRAS has taken all necessary corporate actions and proceedings to enable it to enter into the present Agreement.

11.1.3 No Other Agreements for the Licensed Product. SCRAS has not made any written or oral agreement or undertaking with any third party regarding the rights to sell the Licensed Product in the Territory.

11.1.4 No Violation and Consent. SCRAS warrants that the execution, delivery and performance of this Agreement by it (a) does not and will not violate or conflict with any provision of law or any provision of its articles of incorporation or by-laws; and (b) does not and will not, with or without the passage of time or the giving of notice, result in the breach of, or constitute a default, cause the acceleration of performance, or require any consent under, or result in the creation of any lien, charge or encumbrance upon any of its property or assets pursuant to any material instrument or agreement to which it is a Party or by which it or its properties may be bound or affected.

11.1.5 Non-infringement. SCRAS represents and warrants to the best of its knowledge, as of the Execution Date, (i) that there are no outstanding claims or allegations that the Licensed Product and/or the Licensed Trademark infringe upon any rights of a third party in the Territory and (b) that the Licensed Product and the Licensed Trademark do not infringe upon any rights of a third party in the Territory.

11.1.6 Tulane License. SCRAS represents and warrants that as of the Execution Date, the license agreement between SCRAS’ Affiliate “Biomeasure” and Tulane University of New Orleans (Louisiana), dated June 21, 1990, with respect to somatostatin octapeptide (“Tulane License”) is in full force and in effect in accordance with its terms, (ii) Licensors or its Affiliates are not in default or breach in any material respect of the Tulane License, (iii) to Licensors’ knowledge, there is no cause for early termination of the Tulane License, and (iv) the terms under this Agreement are not in conflict with the terms in the Tulane License. Licensors shall and shall cause their Affiliates to (i) comply with and observe in all material respects its obligations under the Tulane License and (ii) not terminate or otherwise modify any terms or conditions of the Tulane License in any manner that would materially adversely affect Licensee’s rights under this Agreement without the prior written consent of Licensee.

11.2 Representations and Warranties of BIP. BIP makes the following covenants, representations and warranties to Licensee, as of the Execution Date, and does so in full understanding and acknowledgement that Licensee is relying on the said representations and warranties in concluding the present Agreement:

11.2.1 Status. BIP is a corporation organized and existing under the laws of France. No action has been taken by the directors, officers or shareholders of BIP to dissolve BIP. BIP has the corporate power and authority to enter into the present Agreement and to perform all its obligations hereunder.

11.2.2 All Necessary Proceedings. BIP has taken all necessary corporate actions and proceedings to enable it to enter into the present Agreement.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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11.2.3 No Other Agreements for the Licensed Product. BIP has not made any written or oral agreement or undertaking with any third party regarding the rights to sell the Licensed Product in the Territory.

11.2.4 No Violation and Consent. BIP warrants that the execution, delivery and performance of this Agreement by it (a) does not and will not violate or conflict with any provision of law or any provision of its articles of incorporation or by-laws; and (b) does not and will not, with or without the passage of time or the giving of notice, result in the breach of, or constitute a default, cause the acceleration of performance, or require any consent under, or result in the creation of any lien, charge or encumbrance upon any of its property or assets pursuant to any material instrument or agreement to which it is a Party or by which it or its properties may be bound or affected.

11.2.5 Non-infringement. BIP represents and warrants to the best of its knowledge, as of the Execution Date, (i) that there are no outstanding claims or allegations that the Licensed Product infringes upon any rights of a third party in the Territory and (b) that the Licensed Product does not infringe upon any rights of a third party in the Territory.

11.3 Representations and Warranties of Licensee. Licensee makes the following covenants, representations and warranties to Licensors, as of the Execution Date, and does so in full understanding and acknowledgement that Licensors are relying on the said representations and warranties in entering into the present Agreement:

11.3.1 Status. Licensee is a corporation organized and existing under the laws of State of Delaware, United States of America. No action has been taken by the directors, officers or shareholders of Licensee to dissolve Licensee. Licensee has the corporate power and authority to enter into the present Agreement and to perform all its obligations hereunder.

11.3.2 All Necessary Proceedings. Licensee has taken all necessary corporate actions and proceedings to enable it to enter into the present Agreement.

11.3.3 No Violation. Licensee warrants that the execution, delivery and performance of this Agreement by it (a) does not and will not violate or conflict with any provision of law or any provision of its articles of incorporation or by-laws; and (b) does not and will not, with or without the passage of time or the giving of notice, result in the breach of, or constitute a default, cause the acceleration of performance, or require any consent under, or result in the creation of any lien, charge or encumbrance upon any of its property or assets pursuant to any material instrument or agreement to which it is a Party or by which it or its properties may be bound or affected.

11.4 THE WARRANTIES SET OUT ABOVE AND IN SECTIONS 2.4.2 AND 6.15.1 ARE THE ONLY WARRANTIES GIVEN BY EITHER PARTY AND ARE MADE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED. THERE IS NO OTHER CONDITION OR WARRANTY RELATING TO PRODUCT MERCHANTABILITY OR FIT FOR ANY PARTICULAR PURPOSE, ALL OF WHICH ARE HEREBY EXCLUDED AND DISCLAIMED.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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12. INDEMNIFICATION

12.1 Indemnity. For purposes of this Section, “Licensee Indemnified Parties” refers to Licensee, its Affiliates and the officers, directors, employees, shareholders, agents and successors and assigns of Licensee and its Affiliates, and “Licensors Indemnified Parties” refers to Licensors, their Affiliates and officers, directors, employees, shareholders, agents and successors and assigns of Licensors and their Affiliates.

12.1.1 Indemnification by Licensors. Licensors shall jointly and severally defend, indemnify and hold harmless to the fullest extent permitted by law the Licensee Indemnified Parties and each of them, from and against any and all losses, claims, liabilities, demands, actions, proceedings, judgments of any and all types, including, without limitation, reasonable fees of attorneys, accountants and other experts (collectively, “Losses”), incurred by Licensee Indemnified Parties insofar as they arise out of or are alleged or claimed to arise out of (i) any activities conducted by Licensors in relation with (i) the Licensed Product including development and commercialization activities; (ii) Licensors’ enforcement of Licensed Patent Rights in any action against a third party that is joined by Licensee in compliance with Section 8.2.2; and (ii) any material breach by Licensors of their obligations under this Agreement, provided, however, that: (a) Licensors shall not be obligated under this Section 12.1.1 to the extent that the Losses resulted from the negligence or willful misconduct of Licensee, Licensee’s Affiliates, Sub-licensees or Contractors; and (b) Licensee shall have the right to participate in the defense of any such claim, complaint, suit, proceeding or cause of action referred to in this Section 12.1.1 utilizing attorneys of its choice, at its own expense, provided, however, that Licensors shall have full authority and control to handle any such claim, complaint, suit, proceeding or cause of action, including any settlement or other disposition thereof, for which Licensee seeks indemnification under this Section 12.1.1.

12.1.2 Indemnification by Licensee. Licensee shall defend, indemnify and hold harmless the Licensors Indemnified Parties and each of them to the fullest extent permitted by law from and against any and all Losses incurred by Licensors Indemnified Parties insofar as they arise out of or are alleged or claimed to arise out of (i) any activities conducted by Licensee in connection with the Licensed Product, including development and commercialization activities; and (ii) any material breach by Licensee of its obligations under this Agreement; provided, however, that; (a) Licensee shall not be obligated under this Section 12.1.2 to the extent that the Losses resulted from the negligence or willful misconduct of Licensors or Licensors’ Affiliates or contractors; and (b) Licensors shall have the right to participate in the defense of any such claim, complaint, suit, proceeding or cause of action referred to in this Section 12.1.2 utilizing attorneys of its choice, at its own expense, provided, however, that Licensee shall have full authority and control to handle any such claim, complaint, suit, proceeding or cause of action, including any settlement or other disposition thereof, for which Licensors seek indemnification under this Section 12.1.2.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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12.1.3 Notwithstanding the provisions of Sections 12.1.1 and 12.1.2, Licensee and Licensors agree and understand that, in the event of a claim, complaint, suit, proceeding or cause of action brought against one Party containing allegations of liability based on activities for which such Party was responsible, such Party shall control and bear financial responsibility for its own defense; unless the other Party agrees to control and bear financial responsibility of such defense.

12.2 Settlement of Indemnified Claims. The indemnifying Party under Section 12.1.1 or 12.1.2, as applicable (the “Indemnifying Party”), shall have the sole authority to settle any claim against the other Party (the “Indemnified Party”) pursuant to Sections 12.1.1 or 12.1.2 (the “Indemnified Claim”) without the consent of the other Party, provided, however, that an Indemnifying Party shall not, without the written consent of the other Party, as part of any settlement or compromise (i) admit to liability on the part of the other Party; (ii) agree to an injunction against the other Party; or (iii) settle any matter in a manner that separately apportions fault to the other Party.

12.3 Indemnification Procedure. Each Party shall promptly notify the other Parties in writing of any claim, suit, proceeding, demand or assessment it believes is an Indemnified Claim. Concurrent with the provision of notice pursuant to this Section 12.3, the Indemnified Party shall provide to the other Parties copies of any complaint, summons, praecipe, subpoena or other court filings related to such claim. Failure to provide prompt notice shall not relieve any Party of the duty to defend or indemnify unless such failure materially prejudices the defense of any matter.

Should the Indemnifying Party dispute that any claim or portion of a claim (“Disputed Claim”) of which it receives notice pursuant to this Section 12.3, is an Indemnified Claim, it shall so notify the Indemnified Party providing written notice in sufficient time to permit such Indemnified Party to retain counsel and timely appear, answer and/or move in any such action. In such event, such Indemnified Party shall defend against such claim until the dispute regarding whether such claim is an Indemnified Claim has been resolved; provided, however, that an Indemnified Party shall not settle any claim which it contends is an Indemnified Claim without providing the Indemnifying Party ten (10) working days’ notice prior to any such settlement and an opportunity to assume the defense and indemnification of such claim pursuant to this Agreement. If it is determined that a Disputed Claim is subject to indemnification, in whole or in part, the Indemnifying Party will reimburse the reasonable costs and expenses, including attorneys’ fees, of the Indemnified Party.

12.4 Insurance. Licensors and Licensee shall maintain, during the term of this Agreement, Commercial General Liability Insurance, (including Products Liability, Contractual Liability, Bodily Injury, Property Damage and Personal Injury) to cover its indemnification obligations under this Article 12. During the term of this Agreement, each Party shall not permit such insurance to be reduced, expired or canceled without reasonable prior written notice to the other Party. Upon request, each Party shall provide

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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certificates of insurance to the other Party evidencing the coverage specified herein. Except as expressly stated herein, a Party’s liability to the other is in no way limited to the extent of the Party’s insurance coverage. In the event of duplicate coverage, the insurance policy of the Party whose fault causes the need for reimbursement under an insurance policy shall be primary and the other Party’s excess and non-contributing.

12.5 Limitation of Liability. EXCEPT FOR ANY WILLFUL BREACH BY EITHER PARTY OF ITS REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS UNDER SECTIONS 11.1, 11.2 AND 11.3, OR FOR DAMAGES ACTUALLY PAID BY A PARTY TO A THIRD PARTY PURSUANT TO A THIRD-PARTY CLAIM, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER OR ANY OF ITS AFFILIATES FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES (INCLUDING, WITHOUT LIMITATION, LOST PROFITS, BUSINESS OR GOODWILL) SUFFERED OR INCURRED BY SUCH OTHER PARTY OR ITS AFFILIATES IN CONNECTION WITH THIS AGREEMENT, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

13. FORCE MAJEURE

No Party shall be liable for any delay or default in such Party’s performance hereunder if such default or delay is caused by events beyond such Party’s control including, but not limited to, acts of God, war or insurrection, civil unrest, disease or calamity affecting the raw materials or equipment used in the production of Licensed Product, earthquake, fire, flood or storm, labor disturbances or epidemic. An event of Force Majeure shall have no effect on Licensee’s obligation to pay for Licensed Product already delivered as required by this Agreement.

In the event that a Party is forced to rely on this Section due to an event of Force Majeure, the Parties agree that, after the event of Force Majeure has ended, they will meet to discuss any issues with the Agreement resulting from the Force Majeure and that the Parties will negotiate in good faith to resolve any such issues. Should an event of Force Majeure continue for more than six (6) months, the Party not relying on this Section shall have the right to terminate this Agreement by giving thirty (30) days written notice to the other Party of its intent to terminate.

14. SUCCESSORS IN INTEREST

14.1 No Party may assign this Agreement or any rights hereunder or delegate the performance of any duties hereunder without the prior written approval of the other Parties, which approval shall not be unreasonably delayed or withheld; provided, however, that without such consent a Party may assign this Agreement to an Affiliate or in connection with the transfer or sale of all or substantially all of its assets, stock or business, or its merger, consolidation or combination with or into another entity or acquisition of another entity. Subject to the foregoing, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and permitted assignees.

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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14.2 Notwithstanding Section 14.1, in the event (i) that this Agreement is transferred or sold to, in connection with the transfer or sale of all or substantially all of Licensee’s assets, stock or business, a third party or (ii) that Licensee is acquired by, or merges with and into, a third party, Licensors shall have the right to terminate this Agreement as provided herein. Where such acquisition or change of control transaction is with a Competing Entity (as defined below), Licensors shall have three (3) months following the announcement of such transaction to give written notice to Licensee of its intent to terminate the Agreement, such termination to be effective sixty (60) days after receipt of notice of termination, and the provisions of Section 9.3 shall apply and Licensors shall owe no compensation to Licensee as a result of such termination. Where such acquisition or change of control transaction is not with a Competing Entity, Licensors shall have three (3) months following the announcement of such transaction to give written notice to Licensee of its intent to terminate the Agreement, such termination to be effective sixty (60) days after receipt of notice of termination, provided that such termination is subject to the payment by Licensors of the fair market value of the Licensed Products to be reverted to Licensors in such instance, as agreed in writing between the Parties within such sixty (60) days period. The Parties shall exchange their proposals regarding such valuation in writing and in the event the Parties do not agree on such fair market value within the first forty-five (45) days of such sixty (60) day period, the matter shall be referred to the final decision of three (3) experts of international reputation in the field of accounting or merchant banking with expertise in the pharmaceutical industry, one being appointed by Licensee within fifteen (15) days following failure of the parties to agree, one by Licensors within fifteen (15) days following failure of the parties to agree and one by the two first experts within fifteen (15) days following their appointment. In the event one Party fails to appoint an expert, the other Party may appoint such expert. Once appointed, the experts shall provide the Parties with their decision within one (1) month from the date of the appointment of the third expert and this decision shall be final and binding upon the Parties. The expert decision shall be one or the other of the latter of the written proposals exchanged by each Party with a view to agree on such fair market value. Licensors shall make such payment to Licensee, as agreed by the Parties or as decided by the experts, within fifteen (15) days following such agreement or decision. The decision of the expert shall also allocate the cost for this resolution by the panel of experts among the Parties in a proportion the experts deem reasonable. For the purpose of this Section 14.1 “Competing Entity shall mean a company that, at the time of change of control, markets one or more pharmaceutical products in the Field and in the U.S. and/or E.U. which are material competitors to any of the pharmaceutical products (including but not limited to the Licensed Product) marketed by Licensors in such territories.

15. DISPUTE RESOLUTION

Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach or termination thereof, shall be settled as follows:

15.1 Reference to Executives. In the event of a significant controversy, claim, or dispute arising out of or relating to this Agreement or any significant breach

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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thereof (hereinafter collectively referred to as a “Dispute”), the Parties agree that the Dispute shall be described in writing by one or all of the Parties and copies of the description shall be sent to the General Counsel of Licensee and to the General Counsel of SCRAS. These executives will then have fifteen (15) days from receipt of such Dispute description to attempt in good faith to resolve the Dispute. In the event that the Dispute is not resolved within this fifteen (15) day time period, then either Party can proceed to arbitration of the Dispute, as described in Section 15.2.

15.2 Arbitration. Only in the event that a Dispute is not resolved through reference to executives, as provided above, may the Parties submit the Dispute to arbitration under the Rules of Arbitration of the International Chamber of Commerce. The Arbitral Tribunal shall consist of three (3) arbitrators. The place of arbitration shall be New York, New York and the arbitration proceedings shall be held in English. The award shall be final and judgment upon such an award may be entered in any competent court or application may be made to any competent court for juridical acceptance of such an award and order of enforcement.

15.3 Governing Law. In the event that a Dispute is not resolved though mediation, as provided above, the laws of France shall apply to any arbitration or litigation initiated under this Agreement (regardless of its or any other jurisdiction’s choice of law principles).

15.4 Restraining Order. The dispute resolution procedures set forth herein shall not limit a court from granting a temporary restraining order or a preliminary injunction in order to preserve the status quo of the Parties pending arbitration or to protect a Party’s trademark or confidential or proprietary information. Further, the arbitrator shall have power to enter such orders by way of interim award, and such orders shall be enforceable in court.

16. NOTICE

Any notice required or permitted to be given hereunder shall be deemed sufficient if sent by facsimile letter or overnight courier, or delivered by hand to Licensors or Licensee at the respective addresses set forth below or at such other address as either Party hereto may designate. If sent by facsimile letter, notice shall be deemed given when the transmission is completed if the sender has a confirmed transmission report. If a confirmed transmission report does not exist, then the notice will be deemed given when the notice is actually received by the person to whom it is sent. If delivered by overnight courier, notice shall be deemed given when it has been signed for. If delivered by hand, notice shall be deemed given when received.

All notices to Licensors shall be addressed as follows:

SCRAS

42 rue du Docteur BlancheF

75016 Paris

France

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

62

Attention: President

with a copy to:

SCRAS c/o Ipsen

24 rue Erlanger, F

75016 Paris

France

Attention: General Counsel

All notices to Licensee shall be addressed as follows:

Tercica, Inc.

2000 Sierra Point Parkway, Suite 400

Brisbane, California 94005 USA

Attention: General Counsel

with a copy, which shall not serve as notice, to:

Cooley Godward LLP

Five Palo Alto Square

3000 El Camino Real

Palo Alto

California 94306

USA

Attention: Barbara A. Kosacz, Esq.

17. SURVIVAL

17.1 The provisions of Section 2.4.2 (but only with respect to the first sentence of 2.4.2 as it pertains to warranty), the last paragraph of Section 5.7 (promotional materials), Section 6.15.1 (but only insofar as it pertains to a warranty) and Section 8.3 (Joint IP Rights), Section 9.1.2 (Term; expiration), Section 9.3 (Resulting Obligations), Section 9.4 (Survival of Rights), Article 10 (Confidentiality), Article 11 (Representations and Warranties), Article 12 (Indemnification), Article 15 (Dispute Resolution) and this Article 17 shall survive expiration or termination of this Agreement.

17.2 Without prejudice to the above:

(a) any amounts payable by a Party under this Agreement prior to termination or expiration of the Agreement shall survive such termination or expiration; and

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

63

(b) in relation only to any outstanding sales at the date of expiration or termination that have not yet been accounted for, Section 5.6 (Sales Reports and Records) shall survive termination or expiration of this Agreement.

(c) in relation only to ongoing sales for a six month period following termination pursuant to Section 9.3.1(a), Section 6.11 (Regulatory Compliance) and Section 8.1.1 (Licensed Trade Mark) shall survive termination of this Agreement for the six month period only.

18. ADDITIONAL TERMS

18.1 Entire Agreement. This Agreement, together with the Schedules attached hereto, constitutes the entire understanding between the Parties with respect to the Licensed Product, and supersedes and replaces all previous negotiations, understandings, representations, writings, and contract provisions and rights relating to the subject matter hereof. The Parties agree that all supply and distribution of the Licensed Product hereunder shall be subject to and governed by the terms and provisions set forth herein, and none of the terms and conditions contained on any purchase or order form, invoice, or other writing, shall change the provisions of this Agreement unless it is signed and delivered by all Parties and it clearly indicates that the Parties intend to vary the terms hereof.

18.2 Amendments; No Waiver. No provision of this Agreement may be amended, revoked or waived except by writing signed and delivered by an authorized officer of each Party. Any waiver on the part of either Party of any breach or any right or interest hereunder shall not imply the waiver of any subsequent breach or waiver of any other right or interest.

18.3 Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, each of which shall remain in full force and effect.

18.4 Headings. The descriptive headings are inserted for convenience of reference only and are not intended to be part of or to affect the meaning of or interpretation of this Agreement.

18.5 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

Signature Page to Follow

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

64

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed and delivered by their duly authorized representatives on the dates set forth below to be effective as of the Effective Date.

Tercica, Inc.		Beaufour Ipsen Pharma
By:	/s/ John A. Scarlett, M.D.	By:	/s/ Claire Giraut
Date:		Date:
		SCRAS
		By:	/s/ Claire Giraut
		Date:

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

65

Schedule 1

Licensed Patent Rights

(Section 1.41)

[*]

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

1

Schedule 2

Specification for Initial Product

(Sections 1.32 and 1.74)

[*]

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

Schedule 3

Licensed Trade Marks

(Section 1.43)

Trademark	Filing type	Current Status	Filing date	Filing number	Registration date	Registration number	Owner	Classes
AUTOGEL	National filing	Pending	13/JUL/1998	884208			S.C.R.A.S.	03,05
SOMATULINE	National filing	Registered	29/MAY/1997	846541	19/OCT/1999	518212	S.C.R.A.S.	05
AUTOGEL	National filing	Registered	17/JUL/1998	339654	30/NOV/1998	594892	S.C.R.A.S.	03
AUTOGEL	National filing	Registered	14/JUL/1998	339655	30/NOV/1998	594893	S.C.R.A.S.	05
SOMATULINE	National filing	Registered	06/MAR/1997	289067	31/MAR/1997	545.682	S.C.R.A.S.	05
AUTOGEL	National filing	Registered	10/JUL/1998	75/516619	18/APR/2000	2342439	S.C.R.A.S.	03,05
SOMATULINE	National filing	Registered	03/JUN/1994	74/532825	19/OCT/1999	2286865	S.C.R.A.S.	05
SOMATULINE	National filing	Registered	31/AUG/1999	75/789007	01/JAN/2002	2524021	S.C.R.A.S.	05
SOMATULINE	National filing		11/DEC/2003	78/339481			S.C.R.A.S.	05
AUTOGEL		Pending

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

Schedule 4

Target Label

(Section 1.78)

[*]

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

Schedule 5

[Intentionally Left Blank]

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

Schedule 6

Guidelines for Initial Development Plan

(Section 4.3.1)

1. Study 727 with Pegvisamant

2. US – NET

[*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

Schedule 7

Monthly Sales Report Template

(Section 5.6.1)

Countries	This Year				LastYear
	Current Month		Year to date		Current Month		Year to date
	Volume (units sold)	Value (in USD)	Volume (units sold)	Value (in USD)	Volume (units sold)	Value (in USD)	Volume (units sold)	Value (in USD)
Country A
Country B
Country C
Country D
.....
.....
Total for Territory

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

Schedule 8

Supply Price

(Section 6.5)

Somatuline Autogel 60 : [*] Euros

Somatuline Autogel 90 : [*] Euros

Somatuline Autogel 120 : [*] Euros

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

Schedule 9

Minimum Quantities per order for Licensed Product

(Section 6.6)

Somatuline Autogel 60 mg : [*] units

Somatuline Autogel 90 mg : [*] units

Somatuline Autogel 120 mg : [*] units

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

Schedule 10

Form of the 18 Month Rolling Order Forecast

(Section 6.7.1)

Country

Product Name

SKU Number

Monthly Sales Forecast over 18 months

Month 1

Month 2

Month 3

Month 4

Month 5

Month 6

Month 7

Month 8

Month 9

Month 10

Month 11

Month 12

Month 13

Month 14

Month 15

Month 16

Month 17

Month 18

+ Once per year : Annual Forecast over a 4 year horizon

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

Schedule 11

Licensors On-going Development

(Section 1.50)

[*]

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

Schedule 12

JSC – Initial Representatives

(Section 3.1.1)

From Tercica:

[*]

From Ipsen:

[*]

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

Schedule 13

Joint Patent Committee Members

(Section 8.3)

From Tercica:

[*]

From Ipsen:

[*]

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements:

(1) Registration Statement (Form S-3 No. 333-129574) of Tercica, Inc.,

(2) Registration Statement (Form S-3 No. 333-128224) of Tercica, Inc.,

(3) Registration Statement (Form S-8 No. 333-126307) pertaining to the 2004 Stock Plan and the 2004 Employee Stock Purchase Plan of Tercica, Inc., and

(4) Registration Statement (Form S-8 No. 333-113718) pertaining to the 2002 Stock Plan, the 2002 Executive Stock Plan, the 2004 Stock Plan, and the 2004 Employee Stock Purchase Plan of Tercica, Inc.,

of our reports dated March 5, 2007, with respect to the financial statements of Tercica, Inc., Tercica, Inc. management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Tercica, Inc., included in the Annual Report (Form 10-K) for the year ended December 31, 2006.

/s/    Ernst & Young LLP

Palo Alto, California

March 5, 2007

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, John A. Scarlett, M.D., certify that:

1.  I have reviewed this Annual Report on Form 10-K of Tercica, 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-14(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 9, 2007

/S/ JOHN A. SCARLETT, M.D.

John A. Scarlett, M.D.

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Ajay Bansal, certify that:

1.  I have reviewed this Annual Report on Form 10-K of Tercica, 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 9, 2007

/S/ AJAY BANSAL

Ajay Bansal

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, John A. Scarlett, M.D., certify, pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Tercica, Inc. on Form 10-K for the year ended December 31, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Tercica, Inc.

Date: March 9, 2007

By:	/S/ JOHN A. SCARLETT, M.D.
	John A. Scarlett, M.D. Chief Executive 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 Tercica, 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.

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Ajay Bansal, certify, pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Tercica, Inc. on Form 10-K for the year ended December 31, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Tercica, Inc.

Date: March 9, 2007

By:	/S/ AJAY BANSAL
	Ajay Bansal 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 Tercica, 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.