10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2007
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                    to

Commission File Number: 0-50523

PHARMACOPEIA, INC.
(Exact name of Registrant as specified in its Charter)

Delaware (State or other jurisdiction of incorporation or organization)	51-0418085 (I.R.S. employer identification number)
P.O. Box 5350, Princeton, NJ (Address of principal executive offices)	08543-5350 (zip code)

Registrant's telephone number, including area code 609-452-3600

Securities registered pursuant to Section 12(b) of the Act: None

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

Title of each class	Name of each exchange on which registered
Common Stock, par value $0.01 per share	NASDAQ Global Market
Series A Junior Participating Preferred Stock	Not applicable

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

          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 o    No ý

          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 periods as the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

          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. o

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

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

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

          The aggregate market value of voting stock held by non-affiliates of the Company as of June 30, 2007 was $163,146,417.

          Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

Class	Outstanding at February 29, 2008
Common stock, par value $0.01 per share	29,652,752

DOCUMENTS INCORPORATED BY REFERENCE

          Selected portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on April 30, 2008 are incorporated by reference in Part III of this Report.

          The Exhibit Index (Item No. 15) incorporates several documents by reference as indicated therein.

Pharmacopeia, Inc.

Report on Form 10-K

Table of Contents

PART I			3
	ITEM 1.	BUSINESS	3
	ITEM 1A.	RISK FACTORS	21
	ITEM 1B.	UNRESOLVED STAFF COMMENTS	35
	ITEM 2.	PROPERTIES	35
	ITEM 3.	LEGAL PROCEEDINGS	35
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	35
PART II			36
	ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	36
	ITEM 6.	SELECTED FINANCIAL DATA	36
	ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION	37
	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	52
	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	53
	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	82
	ITEM 9A.	CONTROLS AND PROCEDURES	82
	ITEM 9B.	OTHER INFORMATION	83
PART III			84
	ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	84
	ITEM 11.	EXECUTIVE COMPENSATION	84
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	84
	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	85
	ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	85
PART IV			86
	ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	86
SIGNATURES			92

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PART I

ITEM 1.    BUSINESS

FORWARD-LOOKING STATEMENTS

        This Report on Form 10-K contains forward-looking statements regarding us and our business, financial condition, results of operations and prospects within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements. These forward-looking statements include statements about the following:

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our plans to develop PS433540, a Phase 2 product candidate from our DARA program;



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our existing and proposed Phase 2 and Phase 1 clinical studies with respect to PS433540, including timing and expected outcomes of such studies;



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our ability to raise additional funds;



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our plans to develop PS178990, a Phase 1 product candidate from our SARM program;



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our plans to develop PS031291, a preclinical development product candidate from our chemokine receptor CCR1 program;



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our estimates of the market opportunity for our product candidates, including PS433540, PS178990 and PS031291;



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our ability to successfully perform under our agreements with Bristol-Myers Squibb Company, GlaxoSmithKline, Wyeth, Cephalon and Organon;



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our ability to build our pipeline of novel drug candidates through our own internally-funded drug discovery and development programs, third party collaborations, in-licensing and acquisitions;



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our expectations concerning the development priorities of our collaborators, their ability to successfully develop compounds and our receipt of milestones and royalties;



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our anticipated operating results, financial condition, liquidity and capital resources;



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our expectations concerning the legal protections afforded by U.S. and international patent laws;



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our ability to pursue the development of new compounds and other business matters without infringing the patent rights of others;



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our ability to acquire or invest in complementary businesses or technologies; and



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additional competition and changes in economic conditions.

        In some cases, you can identify forward-looking statements by terminology, such as "goals," or "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," or the negative of such terms or other similar expressions. You are urged not to place undue reliance on any such forward-looking statements, any of which may turn out to be wrong due to inaccurate assumptions, unknown risks, uncertainties or other factors. Factors that could cause or contribute to differences in results and outcomes from those in our forward-looking statements include, without limitation, those discussed elsewhere in this Report in Part I, Item 1A. "Risk Factors" and in this Item 1, as well as those discussed in our other Securities and Exchange Commission (SEC) filings.

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        We urge you to carefully read and consider the disclosures found in these filings, all of which are available in the SEC EDGAR database at www.sec.gov. Except as otherwise required in our reports on Form 10-Q or form 8-K as applicable, we undertake no obligation to (and expressly disclaim any such obligation to) revise or update the statements made herein or the risk factors that may relate thereto whether as a result of new information, future events or otherwise.

        The following discussions should be read in conjunction with the sections of this Report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors".

The Company

Overview

        We are a clinical development stage biopharmaceutical company dedicated to discovering and developing novel small molecule therapeutics to address significant medical needs. We have a broad portfolio of clinical and preclinical candidates under development internally or by partners, including eight clinical compounds in Phase 2 or Phase 1 development addressing multiple indications including hypertension, diabetic nephropathy, muscle wasting, inflammation and respiratory disease.

        PS433540, a product candidate we are developing internally, is in Phase 2 clinical development. PS433540 is a Dual-Acting angiotensin and endothelin Receptor Antagonist (DARA) that we in-licensed from Bristol-Myers Squibb Company (BMS) and that is being developed as a potential treatment for cardiovascular and renal diseases, including hypertension and diabetic nephropathy. Our license agreement with BMS provides us with an exclusive license under certain BMS patents with respect to worldwide development and commercialization of PS433540, as well as certain other compounds discovered by BMS that possess DARA activity. There is considerable preclinical and initial clinical data suggesting that simultaneously blocking the actions of both angiotensin and endothelin by co-administration, compared to either agent alone, may provide significantly improved treatment options for several cardiovascular diseases. In September 2007, we announced the initiation of a Phase 2a clinical trial of PS433540 in subjects with Stage I and Stage II hypertension. We expect results from the trial in the second quarter of 2008. In March 2008, we initiated a Phase 2b clinical trial designed to further evaluate safety and efficacy in subjects with Stage I and Stage II hypertension. We expect results from this trial by the end of 2008.

        Of 50 million hypertensives in the United States, only 60% were treated and 30% of those treated require three or more drugs to reach target blood pressure (data from Defined Health 2006 report). The worldwide total number of adults with diabetic hypertension with nephropathy was approximately 21 million in 2007 (data from Data Monitor report). It will be determined based on the safety and efficacy profiles of PS433540 which population, if any, will achieve maximum benefit from the use of PS433540.

        In October 2007, we entered into an additional license agreement with BMS providing us exclusive worldwide development and commercialization rights to a selective androgen receptor modulator (SARM) program (the SARM program). PS178990 is the lead compound in the SARM program and is in Phase 1 clinical development. PS178990 is a non-steroidal SARM that was designed to provide the benefits of testosterone to patients without unwanted side effects on the prostate. BMS completed a Phase 1 single ascending dose study with PS178990. We expect to initiate additional Phase 1 studies for PS178990 in 2008 and initiate a Phase 2 study of the compound in the first half of 2009.

        In February 2008, we announced the nomination of PS031291 as a preclinical development compound from our internal chemokine receptor CCR1 program. PS031291 is a potent and highly selective antagonist at the chemokine receptor CCR1, which has been implicated in playing a significant role in multiple inflammatory and autoimmune disease processes. We believe PS031291 may possess significant potential in the treatment of multiple myeloma and various inflammatory diseases including

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rheumatoid arthritis. We intend to initiate good laboratory practice (often referred to as GLP) toxicology studies on the product candidate in the first half of 2008.

        We also have certain other agreements with leading pharmaceutical and biotechnology companies, including Schering Corporation and Schering-Plough Ltd. (together Schering-Plough), BMS and Celgene Corporation (Celgene), where we have completed our research activities and the partner is now responsible for the development of potential therapeutic products. Our collaborative research efforts with Schering Plough, BMS and Celgene have resulted in a portfolio that includes two partnered programs currently in Phase 2 clinical trials targeting chronic obstructive pulmonary disease (COPD) in the first instance and psoriasis, rheumatoid arthritis and atherosclerosis in the second instance, as well as four partnered programs in active Phase 1 clinical trials targeting oncology, inflammatory and respiratory diseases. Associated with these clinical development programs, we have received milestone payments from Schering-Plough, BMS and Celgene and, to the extent the compounds successfully progress through clinical development and registration, we will be entitled to receive additional milestone payments. We are also entitled to receive royalties on the commercial sale, if any, of drugs resulting from these collaborations. However, numerous additional studies are required to fully assess the potential of these clinical candidates before they reach the marketplace, and the results from preclinical studies and clinical studies conducted to date with these compounds are not necessarily indicative of the results that may be obtained in future clinical studies.

        In addition to the compounds in clinical development, two other of our partnered programs are in preclinical development, the point at which compounds are tested for safety in animals and are subjected to other studies required prior to testing compounds in humans.

        In addition to our proprietary research and development, we currently have collaborations under which we are actively performing research and development activities with leading pharmaceutical and biotechnology companies, including GlaxoSmithKline, Wyeth, Cephalon and Organon. While the nature of our collaborative relationships vary with each of these companies, we retain certain development and/or commercialization rights under the terms of each agreement.

        Clinical and preclinical development of product drug candidates is a long, expensive and uncertain process that requires us to raise funds from time to time to support our internal development programs. We expect to raise funds from one or a combination of approaches, which could include public and/or private financing, sale and/or partnering of one or more of our internal programs, and partnering of our internal drug discovery capabilities. We continue to pursue the discovery and development of product candidates in both our internal and collaborative programs. The product candidates described above are at early stages and none have received regulatory approval for commercial sale. All of the compounds face the substantial risk of failure inherent in drug discovery and development. At any stage of the clinical development process, we or our collaborators may decide to discontinue development of our product candidates. To date, none of the compounds in which we hold complete or partial rights has reached the stage of a commercial product and, although we have received license and milestone fees, we may never receive any sales revenues, royalty payments or any additional license and milestone fees, under our current or any future collaborations. We do not expect that our product candidates will be commercially available for many years, if ever.

        From time to time we have considered, and we will continue to consider, strategic initiatives intended to further the development of our business. In addition, we consider opportunities to expand our product pipeline through the acquisition or in-licensing of, or investment in, product development candidates, and we intend to continue to explore those opportunities.

        We refer you to our financial statements set forth in Item 8 of this Report.

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Corporate Information

        We are a Delaware corporation. We were incorporated in February 2002 as a wholly owned subsidiary of Accelrys, Inc. (Accelrys), formerly Pharmacopeia, Inc. On April 30, 2004, Accelrys completed the spin-off of us into an independent, separately traded and publicly held company through the distribution to its stockholders of a dividend of one share of our common stock for every two shares of Accelrys common stock held. The mailing address of our principal executive offices is P.O. Box 5350, Princeton, NJ 08543-5350, and our telephone number is (609) 452-3600.

Available Information

        Our internet address is www.pharmacopeia.com. As soon as reasonably practicable after we file or furnish reports with the SEC, we make such reports available free of charge through our website our periodic reports that we file with the SEC. The charters of the committees of our Board of Directors and our Ethics and Business Conduct Policy are posted to our website above. The Ethics and Business Conduct Policy, which was adopted in April 2004 and amended in October 2007, applies to all of our employees and directors.

Our Therapeutic Candidate Pipeline

        In September 2007, we announced the initiation of a Phase 2a clinical trial of PS433540 in subjects with Stage I and Stage II hypertension. We expect results from the trial in the second quarter of 2008. In March 2008, we initiated a Phase 2b clinical trial of PS433540 designed to further evaluate safety and efficacy in subjects with stage I and stage II hypertension. We expect results from this trial by the end of 2008.

        We have built a broad therapeutic candidate pipeline consisting of eight active clinical programs (with respect to which human evaluation has begun), three preclinical programs and multiple other drug discovery programs. Some of these programs were in-licensed, others started as collaborative drug discovery partnerships, and others started from our internal discovery efforts. Our collaborators have diverse therapeutic interests, and thus our product pipeline spans multiple disease categories. In all cases, we have a financial interest in each of the programs.

        Our collaborative research efforts have resulted in a portfolio that includes two partnered programs currently in Phase 2 clinical trials targeting COPD in the first instance and psoriasis in the second instance, as well as four partnered programs in active Phase 1 clinical trials targeting oncology, inflammatory and respiratory diseases. The Schering-Plough relationship produced a CXCR2 antagonist which entered Phase 2 clinical trials in the fourth quarter of 2006 for COPD, an enzyme inhibitor which entered Phase 1 clinical trials in September 2006 for oncology, a candidate for inflammatory diseases which entered Phase 1 clinical trials in March 2007, and a candidate for respiratory diseases which entered Phase 1 clinical trials in September 2007. We initially identified p38 kinase inhibitor lead compounds in 1997 and entered into a collaborative partnering agreement with BMS in 1999. This collaboration resulted in a compound that entered Phase 2 clinical trials in September 2007 in psoriasis. We believe BMS will initiate Phase 2 clinical trials with this compound targeting rheumatoid arthritis and atherosclerosis. A second compound resulting from that partnership, which is a back-up candidate, entered Phase 1 clinical trials in Canada in December 2005. Our relationship with Celgene produced a compound being evaluated for the treatment of inflammatory diseases that entered a Phase 1 clinical trial in the first quarter of 2008.

        The following chart sets forth our internal program portfolio and the disease areas in which we believe each program is likely relevant. We licensed our DARA program and our SARM program from

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BMS. We partnered our JAK3 Inhibitors program to Wyeth for all indications and routes of delivery other than topical administration for dermatological and ocular diseases.

Internal Program Portfolio

Proprietary Program			Therapeutic Areas
	DARA (PS433540)		Hypertension, diabetic nephropathy
	SARM (PS178990)		Muscle wasting
CCR1 Antagonists (PS031291)			Multiple myeloma and rheumatoid arthritis
		JAK3 Inhibitors	Dermatological and ocular diseases for topical administration

        DARA.    Our lead internal program is our DARA program, from which PS433540 is in Phase 2 clinical development. We are developing PS433540 as a potential treatment for cardiovascular and renal diseases, including most importantly hypertension and diabetic nephropathy. In September 2007, we announced the initiation of a Phase 2a clinical trial of PS433540 in subjects with Stage I and Stage II hypertension. We expect results from the trial in the second quarter of 2008. In March 2008, we initiated a Phase 2b clinical trial designed to further evaluate safety and efficacy in subjects with Stage I and Stage II hypertension. We expect results from this trial by the end of 2008. We believe that PS433540 administered as a single agent has the potential to have a superior efficacy profile to monotherapy with an angiotensin receptor blocker for the treatment of hypertension and diabetic nephropathy.

        Abnormal liver function test results, which are indicative of potential liver toxicity, have been reported by other companies as complications in their clinical trials of ERA product candidates. In addition, other companies' ERAs and ARBs have been teratogenic in animals. Prior clinical trials by other companies have also indicated that the ERA therapeutic class may cause peripheral edema (fluid retention) in some patients. It will be determined based on the safety and efficacy profiles of PS433540 which patient population, if any, will achieve maximum benefit from the use of PS433540.

        We have announced positive results from multiple Phase 1 clinical studies for PS433540. Results from a single ascending dose (SAD) study indicated that the compound was well tolerated at all six doses administered ranging from 20 mg to 1,000 mg and that the compound has a half-life that is consistent with once daily administration. In the multiple ascending dose study, five dose levels from 50 mg to 1,000 mg have not produced safety or tolerability issues. In a Phase 1 angiotensin II (AII) challenge study, PS433540 demonstrated its ability to block the increase in blood pressure induced by administration of AII to healthy volunteers.

        AII and endothelin 1 (ET1) are two of the most potent vasoactive peptides currently known and are believed to play a role in controlling both vascular tone and pathological tissue remodeling associated with a variety of diseases, including diabetic nephropathy and heart failure. Currently, angiotensin receptor blockers (ARBs), which inhibit the activity of AII, are widely used as a treatment for hypertension, heart failure and diabetic nephropathy. In addition, there is a growing body of data that demonstrates the potential therapeutic benefits of ET receptor antagonists (ERAs) in blocking ET1 activity.

        PS433540 appears to block the activity of both AII and ET1 at their respective AT1 and ETA receptors. It is the first and only example in development of a single compound with dual-acting angiotensin and endothelin receptor antagonist (DARA) activity. We view PS433540 as a first-in-class product candidate, which may represent a significant advancement in the treatment of cardiovascular and renal diseases, including hypertension and diabetic nephropathy.

        In well-validated rat models of human hypertension, the combination of an ARB and an ERA appears to result in a synergistic effect. Furthermore, although ARBs are the standard of care for

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patients with diabetic nephropathy, improved efficacy with the co-administration of an ERA has been reported by a third party in Phase 2 clinical development. Finally, in animal models of heart failure conducted by third parties, the combination of an ARB and an ERA results in improvements in both function and tissue remodeling parameters not seen with either agent alone.

        A number of preclinical studies using PS433540 have resulted in positive outcomes in multiple disease models and a positive preclinical pharmacokinetic and safety profile.

        In March 2006, we and BMS entered into an exclusive licensing agreement (the DARA License Agreement) providing us worldwide development and commercialization rights to certain compounds discovered by BMS, including PS433540, that possess DARA activity. Under the agreement, we acquired exclusive rights to lead and backup DARA development candidates under the BMS patents claiming these compounds. BMS has a limited right of first negotiation in the event that we desire to license compounds that are the subject of the DARA License Agreement to a third party other than BMS.

        SARM.    The lead compound in our SARM program (PS178990), which we believe to be one of the most potent muscle selective SARM agonists currently identified, is presently in Phase 1 clinical development. PS178990 has been well characterized both preclinically and in a Phase 1 SAD study. Results for the SAD study demonstrated PS178990 to be safe and well tolerated at doses anticipated to be clinically efficacious. We expect to initiate additional Phase 1 studies for PS178990 in 2008 and to initiate a Phase 2 study of the compound in the first half of 2009.

        Endogenous androgens are hormones that play an important role in several systems in the body while also stimulating the growth of the prostate in men. As individuals age, the level of these hormones gradually declines, potentially causing the loss of muscle mass and osteoporosis. This loss of muscle mass and bone becomes accelerated in situations of extreme stress and immobility, such as in patients with end-stage renal disease or severe burns. SARMs are small molecules which have been shown to activate the androgen receptor selectively in certain tissues. The degree to which these compounds activate the androgen receptor can vary between tissues. For example, SARMs can be agonists in one tissue and partial agonists, or antagonists, in other tissues. As a result, muscle selective SARMs may, through oral administration, supplement the lack of endogenous androgens without causing undesirable effects such as prostate growth. Testosterone and other anabolic steroids may cause unwanted side effects, including stimulating prostate cancer growth in men and masculinization in women.

        In October 2007, we entered into a license agreement with BMS providing us exclusive worldwide development and commercialization rights to a selective androgen receptor modulator (SARM) program, including PS178990 and back-up compounds. BMS has a limited right of first negotiation in the event that we desire to license compounds that are part of our SARM program to a third party other than BMS.

        CCR1 Antagonists.    In February 2008, we announced the nomination of PS031291 as a preclinical development compound from our internal CCR1 discovery program. PS031291 is a potent and highly selective antagonist at the chemokine receptor CCR1, which has been implicated in playing a significant role in multiple inflammatory and autoimmune disease processes. We believe PS031291 may possess significant potential in the treatment of multiple myeloma and various inflammatory diseases including rheumatoid arthritis. We intend to initiate GLP toxicology studies on the compound in the first half of 2008.

        CCR1 is a member of the chemokine receptor family. The CCR1 receptor is involved in the trafficking of T-cells and monocytes to specific sites of inflammation, such as in the arthritic synovium. The chemokine receptors link extracellular signals to intracellular processes that are central to the inflammatory response. Research has clearly demonstrated a role for the CCR1 receptor in modulating multiple inflammatory disease states and, therefore, inhibition of its activity could offer potential new treatment options with reduced side effects.

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        JAK3 Inhibitors.    A member of the Janus family of tyrosine protein kinases, Janus Kinase-3 (JAK3), plays a critical role in T-cell proliferation via cytokine signaling pathways. Local administration of a selective JAK3 inhibitor represents a potential therapeutic approach for T-cell and cytokine mediated dermatologic and ocular diseases. Included in these are psoriasis, which is characterized by hyper-proliferation of T-cells which present themselves in inflamed skin lesions, and dry eye, which is a cytokine-based inflammation of the ocular surface.

        Local administration of a JAK3 inhibitor for psoriasis would inhibit T-cell proliferation but have the advantage of limiting potential systemic side effects. Treatment of dry eye is aimed at reducing conjunctival inflammation and restoring normal tear film to minimize dryness. Local administration of a JAK3 inhibitor could selectively reduce cytokine-induced inflammation in the conjunctiva.

        We have identified a series of potent, selective JAK3 inhibitors that are immunoregulatory in preclinical models of T-cell activities. Lead psoriasis candidates are being assessed for skin permeation. Additional studies are in progress to advance compounds toward preclinical development.

        In December 2006, we entered into a research and license agreement with Wyeth, providing for the formation of a new alliance based on our JAK3 inhibitor program. Our alliance with Wyeth is described in more detail below in the discussion of our collaborations.

Our Drug Discovery and Development Processes

        Although many scientific disciplines are required for new drug discovery and development, chemistry, biology and pharmacology are at the center of this process. Chemists, pharmacologists and biologists typically work together to design, prepare and deliver new chemical substances, develop laboratory models of disease, test compounds to identify agents that demonstrate the desired activity and finally select a clinical candidate. The drug discovery and development process includes the following steps:

        Lead identification.    During the lead identification phase, researchers screen "libraries," i.e., collections of compounds, against disease targets to evaluate their potential as lead compounds (compounds that may be a starting point for further chemical modification to produce a clinical candidate molecule) in a process known as primary screening. To maximize the prospects of discovering promising new compounds during primary screening, many researchers seek to utilize diverse collections of molecules that cover a broad range of possible chemical structures. Scientists must balance, however, this desire for diversity in chemical composition against the requirement that the compounds have "drug-like" properties, such that their chemical structures render them likely to be bioavailable and non-toxic. The imperatives of diversity and drug-likeness present scientists with a "trade-off" in their experimentation. Researchers can address these dual needs by efficiently screening large collections of molecules that are diverse in structure, but drug-like in character.

        Once active compounds are generated from primary screening, medicinal chemists determine which compounds are most promising by analyzing the structure-activity relationships (SAR) data generated during the screening process. SAR information educates scientists with respect to the relationship between the chemical structures of a series of structurally related active and inactive compounds and the activity of the compounds within the series at the target that has been screened. As a result, a lead identification process which yields the richest SAR information will best guide the chemist towards creating compounds having chemical structures most likely to improve the potency, efficacy, bioavailability and toxicity properties of the original active compound. Large, diverse, densely populated compound libraries tend to produce substantially richer SAR data than smaller, less dense collections, providing chemists with the information needed to initiate successful optimization and reduce false starts.

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        Lead optimization.    Lead optimization is the iterative process of refining the chemical structure of a compound in an attempt to improve its drug characteristics with the goal of producing a preclinical drug candidate. Specifically, medicinal chemists attempt to create compounds with characteristics superior to those of an identified lead candidate. Common among these characteristics are potency, selectivity, pharmacodynamics and/or pharmacokinetics (absorption, solubility, half-life and metabolism). The lead optimization process involves chemical synthesis, biological testing, analytical chemistry, pharmacology and data analysis.

        Historically, lead optimization has not proven to be nearly as amenable as lead identification to the efficiencies and economies of scale of industrialization. Optimization remains largely a manual undertaking, with chemists personally synthesizing numerous compounds for further evaluation. Because most compounds created ultimately will not be utilized in the subject drug discovery program, a key to reducing optimization costs is to lower the number of molecules that must be synthesized to discover a new drug. We accomplish this reduction by utilizing rich SAR data we identify from screening our compound libraries. We also employ parallel synthesis in our lead optimization efforts to improve the efficiency of the process, a process which is common in the industry.

        Our drug discovery platform.    Our drug discovery approach is supported by our proprietary combinatorial chemistry encoding technology, Encoded Combinatorial Libraries on Polymeric Support (ECLiPS®), our proprietary collection of chemical compounds, assay technology, production automation, information systems and quality assurance programs. We have employed ECLiPS®, together with other technologies, to synthesize approximately 8 million chemical compounds, which we believe comprise the largest group of compound libraries held by one company in the pharmaceutical industry. Our small molecule libraries have been engineered to be both drug-like and diverse. Our compound collection and high throughput screening technologies have been proven to be effective against a wide variety of biological targets. Importantly, we have achieved success against some of our collaborators' most difficult targets, often after our partners' internal drug discovery efforts were unsuccessful.

        Our tagging technology used in ECLiPS® has been licensed exclusively from the Trustees of Columbia University (Columbia) and Cold Spring Harbor Laboratory (Cold Spring) since 1993. We are obligated to pay a minimum annual license fee of $100,000 to Columbia University and Cold Spring Harbor Laboratory. The term of the agreement is the later of (i) July 16, 2013 or (ii) the expiration of the last patent relating to the technology, at which time we will have a fully paid license to the technology. The license granted to us under the agreement can be terminated by Columbia and Cold Spring (i) upon 30 days written notice to us if we materially breach the Agreement and we fail to cure such material breach in accordance with the Agreement or (ii) if we commit any act of bankruptcy, become insolvent, file a petition under any bankruptcy or insolvency act or have any such petition filed against us that is not dismissed within 60 days. We are also obligated to pay royalties to Columbia and Cold Spring based on net sales of pharmaceutical products we develop, as well as a percentage of all other revenue we recognize from collaborators that is derived from the technology licensed from Columbia and Cold Spring.

        Preclinical development.    During the lead optimization phase, but prior to clinical testing, potential drug candidates undergo extensive in vitro (non-animal testing in a laboratory), and in vivo (testing in animals) studies. These efforts are designed to predict drug efficacy and safety in humans. The ultimate objective of preclinical testing is to obtain results that will allow selection of a clinical candidate to enter human clinical trials following regulatory approval. In parallel, scientists continue to synthesize additional compounds that act as back-ups for the lead compound. Researchers will also continue to refine the process for manufacturing larger quantities of the compound, with the goals of reducing production costs while ensuring safety. Once a successful process is developed, batches of compounds are synthesized for animal testing during the preclinical (and, later, the clinical) development phase.

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        Clinical trials.    Clinical trials, or human tests to determine the safety and efficacy of potential drug candidates, typically comprise three sequential phases, although the phases may overlap:

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Phase 1: The drug is initially introduced into healthy human subjects or patients and tested for safety, dosage tolerance, absorption, distribution, metabolism and excretion.



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Phase 2: This phase 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.



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Phase 3: When Phase 2 evaluations demonstrate that a dosage range of the product is effective and has an acceptable safety profile, Phase 3 trials are undertaken to further evaluate dosage and clinical efficacy and to further test for safety in an expanded patient population at geographically dispersed clinical study sites.

        If successful, clinical trials in the United States result in the submission of a New Drug Application (NDA) with the U.S. Food and Drug Administration (FDA). Similarly, separate clinical trials must be conducted and regulatory approvals secured before a drug can be marketed internationally.

        In September 2007, we announced the initiation of a Phase 2a clinical trial of PS433540, the lead compound in our DARA program, in subjects with Stage I and Stage II hypertension. In March 2008, we initiated a Phase 2b clinical trial designed to further evaluate safety and efficacy in subjects with Stage I and Stage II hypertension. PS178990 is the lead compound in our SARM program and is in Phase 1 clinical development. We are building our capability to manage and oversee our clinical development programs. We work extensively with clinical development consultants and clinical research organizations to augment our internal capabilities.

        In an effort to increase the efficiency of both our internal and collaborative programs, we utilize resources in China and India to provide specific and general chemistry services to us at a cost substantially lower than our internal costs. Further, we engage in research collaborations with academic institutions to access their considerable expertise, in particular for the testing of our compounds in specific non-clinical models of disease. We also contract with other biotechnology companies to perform fee-for-service testing of compounds both for internal and collaborative drug discovery.

Our Significant In-Licensing Relationships

Bristol-Myers Squibb (DARA program and SARM program)

        In March 2006, we entered into an exclusive licensing agreement (the DARA License Agreement) with BMS providing us an exclusive license under certain BMS patents with respect to worldwide development and commercialization of certain compounds discovered by BMS that possess dual angiotensin and endothelin receptor antagonist (DARA) activity, including lead and backup DARA development candidates.

        Under the terms of the DARA License Agreement, in lieu of an up-front cash payment, we are providing BMS a set of compound libraries, over a period of approximately three years following the execution of the agreement. In the event we fail to deliver the aforementioned libraries to BMS, we would be required to make cash payments to BMS on a pro rata basis of up to $1.2 million as of December 31, 2007.

        We estimated that the fair value of the compound library services to be provided to BMS is approximately $2.0 million. In accordance with Statement of Financial Accounting Standard (SFAS) No. 2 "Accounting for Research and Development Costs," (SFAS 2) we recorded a non-cash charge of $2.0 million to proprietary research and development expense related to the acquisition of the license to the DARA program during the year ended December 31, 2006. We also recorded deferred revenue for the estimated fair value of the compound library services to be provided. Included in deferred

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revenue as of December 31, 2007 was approximately $1.2 million, all of which was classified as deferred revenue, current portion. During the year ended December 31, 2007, we recognized approximately $765 thousand of revenue in connection with these compound library services.

        For the year ended December 31, 2007, we paid BMS $3.0 million in milestone fees related to the achievement of clinical events by PS433540. We are obligated to pay BMS additional milestone payments upon the achievement, if any, of further successive clinical and regulatory events in the United States and certain other jurisdictions, and royalties on sales of products, if any, resulting from the DARA program. BMS has a limited right of first negotiation in the event that we desire to license compounds that are the subject of the DARA License Agreement to a third party other than BMS.

        In October 2007, we acquired the development and commercialization rights to our SARM program from BMS, including PS178990, a product candidate in Phase 1 clinical development for which we intend to conduct further clinical trials. In consideration for the licenses to the SARM program, we entered into a discovery collaboration agreement with BMS to provide a portion of our medicinal chemistry resources to a BMS discovery program unrelated to the SARM program for a period up to three years. Progressing the SARM program, specifically our product candidate PS178990, through clinical trials is expected to further increase our proprietary research and development costs. BMS has a limited right of first negotiation in the event that we desire to license compounds that are part of our SARM program to a third party other than BMS.

        In accordance with SFAS 2 we recorded a non-cash charge of $9.2 million to proprietary research and development expense related to the acquisition of the license to the SARM program during the year ended December 31, 2007. We also recorded deferred revenue of approximately $9.2 million as of December 31, 2007, which represents the estimated fair value of the medicinal chemistry resources BMS will receive, of which $6.2 million was classified as long-term revenue.

        In addition, we will pay BMS milestone payments associated with submission and approval of a therapeutic product for marketing and a stepped royalty on net sales of therapeutic products, if any, resulting from the SARM development program. BMS has a limited right of first negotiation in the event that the Company desires to license compounds that are the subject of the SARM License Agreement to a third party other than BMS.

Our Significant Collaborative Relationships

GlaxoSmithKline

        In March 2006, we and SmithKlineBeecham Corporation and Glaxo Group Limited (together GSK) entered into a product development and commercialization agreement (the GSK Agreement). Under the terms of the GSK Agreement, we may receive up to $15.0 million in cash payments from GSK related to the initial discovery activities to be conducted by us, including $5.0 million that we received in April 2006 and $5.0 million that we received in June 2007. The remaining $5.0 million will be payable to us upon our fulfillment of certain conditions related to the initial discovery activities to be conducted by us. Our role in the alliance is to (i) identify and (ii) advance molecules in chosen therapeutic programs to development stage and (iii) subject to certain provisions in the GSK Agreement, further develop the candidates to clinical "proof of concept" (a demonstration of efficacy in humans). We have agreed that we will not screen our compound library for other collaborators, or for our own account, against any target we screen under the GSK Agreement for a specified period.

        The GSK Agreement provides GSK an exclusive option, exercisable at defined points during the development process for each program (up to the point of clinical proof of concept), to license that program. Upon licensing a program, GSK is obligated to conduct preclinical development and/or clinical trials and commercialize pharmaceutical products resulting from such licensed programs on a worldwide basis. In addition to the cash payments above, we are entitled to receive success-based

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milestone payments, starting in preclinical research, from GSK for each drug development program under the alliance and the potential for double-digit royalties upon the successful commercialization by GSK of any product resulting therefrom. In the year ended December 31, 2007, we received non-refundable milestone payments totaling $1.5 million from GSK related to the identification of lead compounds, which were recorded as deferred revenue due to our continuing performance obligations under the GSK Agreement.

        In the event that GSK does not exercise its option to license a program, we will retain all rights to that program and may continue to develop the program and commercialize any products resulting from the program, or we may elect to cease progressing the program and/or seek other partners for further development and commercialization. Should we develop or partner such a program and commercialize any products resulting from that program, we will be obligated to pay GSK success-based milestone payments and royalties upon successful commercialization, if any.

        In connection with the GSK Agreement, we issued two warrants to GSK for the purchase of up to an aggregate of 176,367 shares of its common stock at an exercise price of $5.67 per share. The warrants are exercisable at any time before the earlier to occur of (i) March 24, 2011 and (ii) the effective date of certain types of terminations of the GSK Agreement. These warrants were issued in a transaction not involving a public offering under Section 4(2) of the Securities Act of 1933, as amended

        We and GSK each have the right to terminate the GSK Agreement in our sole discretion under certain specified circumstances at any time during the term of the GSK Agreement. In addition, we and GSK each have the right to terminate the GSK Agreement under other circumstances that are customary in these types of agreements. If we exercise our discretionary termination right at any time during the first five years of the term, under certain circumstances, we could be required to refund to GSK a portion of the up to $15.0 million related to initial discovery activities to be conducted by us referred to above. The amount of any such refund will be calculated based upon when during the term of the GSK Agreement that termination occurs. However, there are no instances where the deferred revenue would be amortized below the amount that could be potentially refundable pursuant to the terms of the GSK Agreement. Further, should GSK exercise its discretionary termination rights, there are no provisions in the GSK Agreement that would require us to refund payments received relating to our performance of initial discovery activities under the GSK Agreement.

        During the year ended December 31, 2007, we earned approximately $1.6 million, or 8% of our revenue, under the GSK Agreement.

Wyeth

        In December 2006, we entered into a research and license agreement (the Wyeth Agreement) with Wyeth, acting through its Wyeth Pharmaceuticals Division, providing for the formation of an alliance based on our JAK3 kinase inhibitor program. The alliance's goal is to research, develop and commercialize therapeutic products for the treatment of certain immunological conditions in humans.

        The companies each have certain exclusive rights to develop and commercialize products resulting from the JAK3 program and the alliance. We retain the right to develop and commercialize therapeutic products for the employment of topical administration for treatment of dermatological and ocular diseases and Wyeth has the right to develop therapeutic products for all other indications and routes of delivery. Under the terms of the Wyeth Agreement, in addition to an up-front $5.0 million cash payment and $3.0 million in research funding received during the year ended December 31, 2007, we may also receive up to $6.0 million in research funding over the remaining portion of the three-year research term, which began in January 2007. In addition, we may receive up to $175.0 million for Wyeth's achievement of development, regulatory and commercialization milestones, as well as double-digit royalties on the net sales of any products commercialized by Wyeth under the alliance. Each

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company is responsible for all development, regulatory, manufacturing and commercialization activities for the products it develops and commercializes in its field.

        We and Wyeth each have the right to terminate the Wyeth Agreement under certain specified circumstances at any time during the term of the Wyeth Agreement. In addition, Wyeth has the right, upon six months' prior written notice provided to us, to terminate the research collaboration and/or the Wyeth Agreement in its entirety or in part. Such right of termination would not apply to Wyeth's obligations with respect to any program developed by the collaboration and licensed by Wyeth. No termination will require us to refund to Wyeth any or all of the above cash payments.

        During the year ended December 31, 2007, we recognized approximately $4.7 million, or 22%, of our revenue under the Wyeth Agreement.

Cephalon

        In May 2006, we entered into a collaboration and license agreement (the Cephalon Agreement) with Cephalon providing for the formation of a new drug discovery, development and commercialization alliance. Under the Cephalon Agreement, we received an up-front, non-refundable payment of $15.0 million in June 2006 to support our research efforts.

        Cephalon is responsible for identifying hit and lead compounds, which we and Cephalon will then work collaboratively to advance to clinical candidates. We are principally responsible for medicinal chemistry, and Cephalon provides biology support, including preclinical disease models, as required by the Cephalon Agreement. We have agreed that, for a specified period, we will not screen our compound library for other collaborators, or for our own account, against any target we work on under the Cephalon Agreement.

        Upon the nomination of any clinical candidates by the alliance, Cephalon will be primarily responsible for their development and commercialization. We retain an option to develop certain candidates from the alliance, subject to Cephalon's agreeing to such development. For each clinical candidate, if any, advanced under the alliance, the developing company will make clinical, regulatory and sales milestone payments to the non-developing company. In addition, the company commercializing each resulting product, if any, will pay the non-commercializing company up to double-digit royalties based on the sales level achieved.

        We and Cephalon each have the right to terminate the Cephalon Agreement under certain specified circumstances at any time during the term of the Cephalon Agreement. In addition, Cephalon has the right to terminate the Cephalon Agreement in its sole discretion, upon ninety days written notice to us, during the initial three-year phase of the alliance, which phase may be extended by agreement of the parties. No such termination shall require us to refund to Cephalon any or all of the above research and development funding.

        One of our directors currently serves as the Chairman and Chief Executive Officer of Cephalon.

        For the year ended December 31, 2007, our alliance with Cephalon accounted for approximately $5.0 million, or 23%, of our revenue.

Organon

        In February 2007, we entered into an amended and restated collaboration and license agreement (the Organon Agreement) with N.V. Organon (Organon), providing for the formation of a new alliance to discover, develop and commercialize therapeutic products across a broad range of therapeutic indications. The new alliance builds on the companies' past collaborations, including the collaboration that we and Organon entered into in 2002 and were performing under prior to the execution of the

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Organon Agreement (the 2002 Collaboration). In 2007, subsequent to our entering into the Organon Agreement, Schering-Plough acquired Organon.

        Under the Organon Agreement, we received an up-front payment of $15.0 million, $1.0 million for the transfer of rights to certain programs from the 2002 collaboration and $4.0 million in quarterly research funding during 2007. The Organon Agreement provides that we may also receive up to an additional $4.0 million per year ($16.0 million aggregate) in research funding over the remaining portion of the five-year research term of the alliance, which began in February 2007. The Organon Agreement also provides that we waive our rights to receive further compensation (e.g., future milestone and royalty payments) with respect to programs resulting from lead series identified by us and delivered to Organon under the 2002 Collaboration and certain other programs from earlier agreements.

        Under the Organon Agreement, we will work collaboratively with Organon to generate development compounds addressing targets of mutual interest selected by Organon and agreed upon by the joint research committee of the alliance, by taking advantage of the complementary skills and expertise of each company. The goal is to produce compounds ready to enter development, which will be primarily handled by Organon. The Organon Agreement provides us the option to purchase the right to co-develop and co-commercialize therapeutic candidates discovered through the alliance.

        For therapeutic candidates we do not elect to co-develop and co-commercialize, Organon will retain exclusive development and commercialization rights, and we will receive milestone payments as a result of Organon's successful advancement, if any, of each candidate through clinical development, and up to double-digit royalties based on commercialization of any resulting pharmaceutical products.

        We and Organon each have the right to terminate the Organon Agreement under certain specified circumstances at any time during the term of the Organon Agreement. In addition, we and Organon each have the right to terminate the Organon Agreement under other circumstances that are customary in these types of agreements. Should Organon exercise its discretionary termination rights, there are no provisions in the Organon Agreement that would require us to refund payments received under the Organon Agreement. If we exercise our discretionary termination right, under certain circumstances, we could be subject to a termination fee of $5.0 million. Whether or not we are subject to the termination fee is based upon when during the term of the Organon Agreement we exercise our discretionary termination right. There will, however, until such time as we are no longer subject to the termination fee, be no instances where the deferred revenue associated with the Organon Agreement would be amortized below $5.0 million.

        During the year ended December 31, 2007, we earned approximately $3.5 million, or 16% of our revenue, of which $3.0 million related to research activities performed under the Organon Agreement and $0.5 million related to research activities performed under our 2002 Collaboration with Organon.

Schering-Plough

        In April 2007, we completed our research activities under our agreements with Schering-Plough. Under the terms of our agreements with Schering-Plough, the cessation of our research activities does not affect other areas of the collaborations, including the ongoing Phase 2 and 1 clinical trials and multiple preclinical programs that Schering-Plough is conducting. We will continue to be entitled to payments resulting from the successful achievement by Schering-Plough, if any, of clinical milestones, as well as royalty payments from sales, if any, of products resulting from compounds already delivered by us and accepted by Schering-Plough under the collaborations.

        In 2007, subsequent to our entering into the Organon Agreement, Schering-Plough acquired our collaborator Organon.

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        For the year ended December 31, 2007, our collaborations with Schering-Plough accounted for approximately $3.8 million, or 18%, of our revenue, including $3.0 million in milestone revenue.

Other Relationships

        We have also entered into research collaboration agreements with numerous other companies. Several of these collaborations, in which we have completed our research activities, may yield us milestone and royalty revenues. We believe the termination of any one of these other active agreements would not have a material adverse effect on us.

Competition; Markets

        Of 50 million hypertensives in the United States, only 60% were treated and 30% of those treated required three or more drugs to reach target blood pressure (data from Defined Health 2006 report). The worldwide total number of adults with diabetic hypertension with nephropathy was approximately 21 million in 2007 (data from Data Monitor report).

        Our DARA program is currently in Phase 2 clinical trials in subjects with Stage I and Stage II hypertension. The hypertension market is characterized by significant competition targeting uncontrolled hypertension from a number of established generic classes and new therapies, including several combination products of two antihypertensives. In addition, while there are currently are no therapies approved for resistant hypertension, there are two such therapies in clinical development, the most advanced of which is in Phase 2. It will be determined based on the safety and efficacy profiles of PS433540 which population, if any, will achieve maximum benefit from the use of PS433540.

        Our SARM program is in Phase 1 clinical development focusing on conditions that result in a loss of muscle mass, such as those individuals recovering from traumatic surgeries and those individuals suffering from cancer and AIDS cachexia. While there are no SARM products that have received regulatory approval, two competitors have compounds that are in development, the most advanced of which is in Phase 2.

        Additionally, we may face competition from companies using different or advanced techniques that could render our products obsolete.The pharmaceutical industry is characterized by intense competition. Many companies, research institutions and universities are conducting research and development activities in a number of areas similar to our fields of interest. Many of our competitors have substantially greater financial, research and development, manufacturing, marketing and human resources and greater experience in product discovery, development, clinical trial management, FDA and other regulatory review, manufacturing and marketing than we do.

        We intend to evaluate in-licensing or other opportunities to acquire products in development. We will face intense competition in acquiring products to expand our product portfolio. Many of the companies and institutions that we will compete with in acquiring products to expand our product portfolio have substantially greater capital resources, research and development staffs and facilities than we have.

Employees

        As of December 31, 2007, we had 169 full-time employees. None of our employees are covered by collective bargaining agreements. Our employees are at-will employees, which means that each of them can terminate their relationship with us and we can terminate our relationship with them at any time. We believe our relations with our employees are good.

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Intellectual Property

        As of February 1, 2008, we had 79 issued and not abandoned patents in the United States as well as associated granted foreign patents relating to various aspects of our intellectual property, including compounds related to our internal or collaborative programs, compound libraries, our molecular tag sets and certain screening technologies. We either own these patents ourselves or with collaborators or rights under them are licensed to us. The term of the primary U.S. patent covering PS433540 extends to 2019. The intellectual property estate related to our SARM program contains a portfolio of pending patent applications that, if granted, would provide intellectual property coverage through at least 2023 in the United States.

        Our success will depend in large part on our ability, and the ability of our licensees and licensors, to obtain patents for our technologies and the compounds and other products, if any, resulting from the application of such technologies, defend patents once obtained, maintain trade secrets and operate without infringing upon the proprietary rights of others, both in the U.S. and in foreign countries.

Government Regulation

        In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act (FDC Act), and other federal and state statutes and regulations, govern, among other things, the research, development, testing, approval, manufacture, distribution, labeling and marketing of pharmaceutical products. Failure to comply with applicable FDA requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA suspension of clinical trials, refusal to approve pending NDAs, warning letters, injunctions, fines, civil penalties and criminal prosecution.

        Pharmaceutical product development in the U.S. typically involves preclinical laboratory and animal tests, submission to FDA of a notice of claimed investigational exemption (also known as an investigational new drug application or IND) which must become effective before clinical testing may commence, and finally submission and FDA approval of a new drug application (known as an NDA). Adequate and well-controlled clinical trials establishing the safety and effectiveness of a new drug must be submitted for each indication for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically requires many years and the actual time required may vary substantially based upon type, complexity and novelty of the product or disease.

        We, or our collaborators, must include in any IND submission results of preclinical tests such as laboratory evaluations of product chemistry, formulation and toxicity, as well as animal studies assessing the characteristics and potential safety and efficacy of the product. Conduct of preclinical tests must comply with federal regulations and requirements including good laboratory practice. In addition to preclinical testing results, the IND must contain data and information pertinent to product chemistry, manufacturing and controls, as well as protocols for proposed clinical trials in which the investigational new drug will be administered to healthy volunteers or patients under the supervision of a qualified investigator. Long term preclinical tests, such as animal studies of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.

        A 30-day waiting period after the submission of each IND is required prior to commencement of clinical testing in humans. If FDA has not commented on or questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin. Clinical trials sponsored by us, or our collaborators, must be conducted in compliance with federal regulations, good clinical practice (commonly known as GCP), and the applicable study protocols. The study protocol describes the study and details the objectives of the trial and the parameters to be used in monitoring safety and the effectiveness. Subsequent amendments to the protocol must be submitted to FDA as part of the IND. FDA may order temporary or permanent, complete or partial, discontinuation of a clinical trial at any time or impose other restrictions or sanctions if it believes that the clinical trial is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the human subjects.

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        The study protocol and informed consent information for the patients or volunteers who will participate in the clinical trial and any changes to the study which may impact patient safety must also be submitted by us, or our collaborators, to an institutional review board (known as an IRB) for approval prior to commencement of the trial. An IRB may also require a clinical trial to be halted, either temporarily or permanently, for failure to comply with the IRB's requirements, or may impose other conditions for conduct of the trial.

        Clinical trials conducted pursuant to an IND in support of NDA premarket approval are typically conducted in three sequential phases, although the phases may overlap somewhat. In Phase 1, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses and, if possible, early evidence of effectiveness. Phase 2 usually involves trials in a limited patient population to determine the effectiveness of the drug for a particular indication or indications, dosage tolerance and optimum dosage, and identify common adverse effects and safety risks. If an investigational drug demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2, Phase 3 trials are undertaken to obtain additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites. Phase 3 results are intended to permit FDA to evaluate the overall benefit-risk relationship of the drug and provide adequate information for the labeling of the drug.

        After completion of clinical trials of a new drug, U.S. and foreign regulatory authority marketing approval must be obtained. In the U.S., we or our collaborators must prepare an NDA and submit it to FDA for premarket approval. The NDA must include the results of all preclinical, clinical and other testing, as well as a compilation of data relating to the product's pharmacology, chemistry, manufacture and controls. The time and cost required for preparation and submission of an NDA is substantial. Under federal law, the submission of most NDAs is also subject to a substantial application user fee, currently exceeding $896,200. In addition, the manufacturer and/or sponsor under an approved NDA are subject to annual product and establishment user fees, currently exceeding $49,750 per product and $313,100 per establishment. These fees are typically increased annually.

        Upon receipt of an NDA, FDA has 60 days to determine whether the NDA will be accepted for filing based on the agency's threshold determination that it is sufficiently complete to permit substantive review. Once the NDA is accepted for filing, FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of NDAs. Most NDAs for non-priority drug products are reviewed within ten months. The review process may be extended by FDA for three additional months to consider certain information or clarification regarding information already provided in the NDA. FDA may also refer an NDA for a novel drug product or a drug product that presents difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the NDA should be approved. FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, FDA will, prior to NDA approval, inspect the facility or the facilities at which the drug is manufactured. FDA will not approve the product unless compliance with current good manufacturing practice (known as cGMP) is demonstrated and the NDA contains substantial evidence that the drug is safe and effective in the indication studied.

        After FDA evaluates the NDA and the manufacturing facilities, it issues an approval letter, an approvable letter or a not-approvable letter. Both approvable and not-approvable letters generally outline the deficiencies in the NDA and may require substantial additional testing or information in order for the FDA to reconsider the NDA. If and when those deficiencies are addressed to FDA's satisfaction in a resubmission of the NDA, FDA will issue an approval letter. FDA has committed to reviewing such resubmissions in 2 or 6 months depending on the type of information included. An FDA

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approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.

        As a condition of NDA approval, FDA may require substantial post-approval testing, known as Phase 4 testing, risk minimization action plans and surveillance to monitor the effects of an approved product, or place conditions on an approval that could restrict the distribution or use of the product or materially affect the potential market and profitability. Once granted, product approvals may be withdrawn if compliance with post-market regulatory requirements is not maintained or problems are identified following initial marketing. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems such as adverse effects are subsequently discovered.

        Upon NDA approval, the new drug and each of the patents identified for the drug in the NDA are published in FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can be cited by potential competitors in support of approval of an abbreviated new drug application (known as an ANDA). ANDA applicants are not required to conduct or submit pre-clinical or clinical tests to prove the safety or effectiveness of their "generic equivalent" drug products. An ANDA applicant must, however, certify to FDA that its generic product will not infringe the already approved product's listed patents or that such patents are invalid. Unless the ANDA applicant challenges the listed patents, FDA will not approve the ANDA until expiration of all such patents. FDA also will not approve an ANDA until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired.

        Under the Pediatric Research Equity Act of 2003, NDAs for a new active ingredient, indication, dosage form, dosage regimen, or route of administration must contain data that are adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. FDA may, on its own or at the request of the applicant, defer submission of some or all pediatric data until after approval of the product in adults, or grant a full or partial waiver from the pediatric data requirements. The pediatric data requirements do not apply to product with an orphan drug designation.

        Sales of drugs depend in significant part on the availability of reimbursement from third party payors, including governmental health authorities such as Medicaid and Medicare, managed care providers, private health insurers and other organizations. It is anticipated that any products we have will be eligible for payment by third party payors when they are approved. It is time consuming and expensive to seek coverage and reimbursement from third party payors. Reimbursement, however, may not be available or sufficient to allow sale of the product on a competitive profitable basis.

        For marketing outside the United States, we will also be subject to foreign regulatory requirements governing human clinical trials and marketing approval for pharmaceutical products. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from country to country. Further, our research and development processes involve the controlled use of hazardous materials. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. Although we believe that our activities currently comply with the standards prescribed by such laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated.

        In addition, we are subject to the U.S. Foreign Corrupt Practices Act, which prohibits corporations and individuals from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value to any foreign government official, government staff member, political party or political candidate

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in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. Our present and future business has and will continue to be subject to various other laws, rules and/or regulations applicable to us as a result of our international sales.

Research and Development

Collaborative Research and Development

        Our collaborative research and development expense consists of the labor, material, equipment and allocated facilities cost of our scientific staff that are working on our collaborative partnerships. Our expense for collaborative research and development activities was as follows (in thousands):

Years ended December 31,
2007	2006	2005
$23,735	$13,551	$17,734

        The increase in collaborative research and development expense from 2006 to 2007 primarily related to an increase in resources allocated to our alliances with GSK, Cephalon and Wyeth. This increase was offset by decreased resources allocated to our collaborations with Schering-Plough that resulted from the completion of our research activities in April 2007.

        The decrease in collaborative research and development expense from 2005 to 2006 related primarily to the decreased resources allocated to our collaborative partnerships with Schering-Plough and the expiration of other collaborative research and development agreements.

Proprietary Research and Development

        Our proprietary research and development expense includes research and development acquisition costs, clinical trial and preclinical study costs, and labor, material, equipment and allocated facilities cost of scientific staff working on self-funded internal drug discovery and development programs. Our expense for proprietary research and development activities was as follows (in thousands):

Years ended December 31,
2007	2006	2005
$39,273	$23,524	$10,965

        The increase in research and development expense from 2006 to 2007 related primarily to increased costs associated with the advancement of PS433540 from preclinical development into clinical development. PS433540 is currently in Phase 2 clinical trials. In addition, we recorded a non-cash charge of $9.2 million to research and development expense related to our acquisition of our SARM program from BMS. These costs were offset by a reduction in our proprietary research and development expense related to our JAK3 program which we partnered with Wyeth in December 2006, and which expenses are now primarily accounted for in collaborative research and development expense.

        The increase in research and development expense from 2005 to 2006 was primarily attributable to our licensing of the DARA program and the related preclinical studies we conducted with respect to PS433540. Also contributing to the increase were increased resources expended on our JAK3 program prior to our partnering with Wyeth on the program at the end of 2006, our CCR1 program, and our adenosine A2a program.

Revenue by Geographic Region

        We classify our business operations in one operating segment and all of our revenues are generated from this segment. Our net revenue consists of the funding of our collaborative research

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activities, as well as our receipt of milestones, success fees and license revenue if and as our research and development progresses through our collaborators' development processes. For more information about our revenues, particularly from our collaborative relationships which produced more than 10% of our revenue, and our operating results, please see our "Selected Financial Data" and our "Management's Discussion and Analysis of Financial Condition and Results of Operation—Results of Operations" included elsewhere in this Annual Report. Revenue was derived from collaborators located in the following geographic regions:

		Years ended December 31,
		2007		2006		2005
Customers located in:
	United States	69	%	45	%	39	%
	Europe	31	%	55	%	60	%
	Asia	—		—		1	%

        While our international operations are subject to the risk factors inherent in the conduct of international business, we are unaware of any specific risk that will have a material impact on our revenue.

ITEM 1A.    RISK FACTORS

        As further described herein, our performance and financial results are subject to risks and uncertainties including, but not limited to, the following specific risks:

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

If we consume cash more quickly than expected, and if we are unable to raise additional capital, we may be forced to curtail operations.

        As of December 31, 2007, we had cash, cash equivalents and marketable securities of approximately $71.3 million. In addition, as of December 31, 2007, we had deferred revenue of approximately $47.2 million relating to research and development activities that are to be performed by us subsequent to December 31, 2007. Our cash used in operating activities for the year ended December 31, 2007 was approximately $11.1 million, which included $25.0 million in upfront payments from collaborators. Excluding these receipts, our cash used in operating activities would have been $36.1 million. As the clinical programs we are developing progress, we expect this amount to increase in the future. Clinical and preclinical development of drug candidates is a long, expensive and uncertain process that requires us to raise funds from time to time to support our internal development programs. We expect to raise funds from one or a combination of approaches, which could include public and/or private financing, sale and/or partnering of one or more of our internal programs, and partnering of our internal drug discovery capabilities.

        We believe that our capital resources will be adequate to fund our operations at their current levels at least through December 31, 2008. However, changes may occur that would cause us to consume available capital resources before that time. Examples of relevant potential changes that could impact our capital resources include:

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the costs associated with our drug research and development activities, including the costs associated with our Phase 2 and Phase 1 clinical development programs for our product candidates PS433540 and PS178990 and additional costs we may incur if our development programs are delayed or are more expensive to implement than we currently anticipate;



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changes in existing collaborative relationships, including the funding we receive in connection with those relationships;



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the progress of our milestone and royalty producing activities;



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acquisitions of other businesses or technologies;

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the purchase of additional capital equipment;



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cash refunds we may be required to make to GSK if, prior to March 24, 2011, we exercise our discretionary termination right under the GSK Agreement;



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cash payments we may be required to make to Organon relating to a termination fee if, prior to August 2010, we exercise our discretionary termination right under the Organon Agreement;



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cash payments we may be required to make to BMS if we fail to deliver certain compound libraries under the license agreement for the DARA program;



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competing technological and market developments; and



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the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights, and the outcome of related litigation.

        In May 2007, we raised capital through a public underwritten offering of common stock. Our issuance of approximately 8.1 million shares of common stock in connection with that financing resulted in significant dilution in the percentage ownership of our stockholders that owned stock prior to the financing. We expect to raise funds from one or a combination of approaches, which could include public or private financing, sale and/or partnering of one or more of our internal programs, and partnering of our internal drug discovery capabilities. Capital could be raised through public or private financings involving debt or common stock or other classes of our equity. As of February 29, 2008, we had only approximately 12.9 million shares of common stock authorized and available for issuance to raise additional capital under our amended and restated certificate of incorporation. Our failure to secure stockholder approval of an amendment of our amended and restated certificate of incorporation to authorize additional shares of common stock would make it more difficult for us to raise additional capital through the issuance of our common stock. Further issuances of equity securities will further dilute our stockholders' percentage ownership.

        As of February 29, 2008, there were approximately 4,802,000 stock options outstanding granted under our various equity compensation plans and approximately 1,626,000 warrants outstanding, which includes approximately 176,000 warrants issued in connection with the GSK Agreement and approximately 1,450,000 warrants issued in connection with our October 2006 financing transaction. These equity instruments represent approximately 22% of our shares outstanding at February 29, 2008. The significant dilution represented by our outstanding warrants and equity compensation awards may make it more difficult for us to raise additional capital.

        Additional capital may not be available on favorable terms, or at all. If adequate funds are not available, we may be required to curtail operations significantly or to obtain funds by entering into arrangements with partners or others that may require us to relinquish rights to certain of our technologies, products or potential markets that we would not otherwise relinquish.

Because PS433540 is in Phase 2 clinical development and PS178990 is in Phase 1 clinical development, there is a high risk that further development and testing will demonstrate that neither compound is suitable for commercialization. In addition, because we exclusively licensed each of PS433540 and PS178990 from BMS, any dispute with BMS may adversely affect our ability to develop and commercialize those product candidates.

        We have no products that have received regulatory approval for commercial sale. PS433540 is in Phase 2 clinical development and PS178990 is in Phase 1 clinical development. We face the substantial risks of failure inherent in developing drugs based on new technologies.

        Both PS433540 and PS178990 must satisfy rigorous standards of safety and efficacy before the FDA and foreign regulatory authorities will approve either product candidate for commercial use. Phase 1 clinical trials with PS178990 may not demonstrate that the product candidate is sufficiently safe

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to warrant our continued development of it, and Phase 2 clinical trials with PS433540 may not demonstrate that it is safe or efficacious with respect to the clinical indications for which we seek to develop it. We will need to conduct significant additional clinical trials to demonstrate the safety and efficacy of PS433540 and PS178990 to the satisfaction of the FDA and foreign regulatory authorities to obtain product approval.

        Clinical development is a long, expensive and uncertain process. It may take us many years to complete clinical trials, and failure can occur at any stage of trials. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful. We may suffer significant setbacks in advanced clinical trials, even after promising results in earlier trials. We may not be able to enroll a sufficient number of patients to complete our clinical trials in a timely manner. Based on results at any stage of preclinical testing or clinical trials, we may decide to discontinue development of PS433540 and PS178990.

        We do not know whether any future clinical trials of PS433540 or PS178990 will demonstrate sufficient safety and efficacy necessary to obtain the requisite regulatory approvals or will result in marketable products. Our failure to adequately demonstrate the safety and efficacy of PS433540 or PS178990 in their respective development programs will prevent receipt of FDA and foreign regulatory approvals and, ultimately, commercialization.

        If there is any dispute between us and BMS regarding our rights under the DARA License Agreement, our ability to develop and commercialize PS433540 may be adversely affected. Any loss of our rights from BMS could delay or completely terminate our product development efforts for PS433540 and other DARA compounds licensed from BMS. Similarly, if there is any dispute between us and BMS regarding our rights under the SARM License Agreement and/or performance under the discovery collaboration agreement, our ability to develop and commercialize PS178990 may be adversely affected. Any loss of our rights from BMS could delay or completely terminate our product development efforts for PS178990 and other SARM compounds licensed from BMS.

Our development of PS433540 may be adversely impacted if our clinical trials show certain adverse effects reported by other companies in connection with clinical trials of their ERA and ARB product candidates.

        Abnormal liver function test (LFT) results, which are indicative of potential liver toxicity, have been reported by other companies as complications in their clinical trials of ERA product candidates. Approval of PS433540 may be delayed or ultimately blocked by such concerns. If the results of any of our PS433540 clinical trials indicate abnormal LFTs, we may not receive regulatory approval to market the product candidate and our product candidate, if approved for marketing, may not be able to compete with other products. There can be no assurance that the lack of LFT abnormalities seen with respect to PS433540 prior to now will be confirmed by subsequent clinical trial results.

        As developed by other companies, ERAs and ARBs have been teratogenic in animals. If approved for marketing, we assume that PS433450 will be subject to a black box warning regarding teratogenicity and therefore may not be able to compete with other products that do not have a similar warning.

        Prior clinical trials by other companies have also indicated that the ERA therapeutic class may cause peripheral edema (fluid retention) in some patients. Consequently, PS433540 may not be successfully developed as a treatment for heart failure or for use in patients at risk for heart failure and may therefore have a more limited market potential than antihypertensives that are approved for the treatment of heart failure.

Our development of PS178990 may be adversely impacted if our clinical trials show certain adverse effects reported in connection with testosterone and other anabolic steroids.

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        Testosterone and other anabolic steroids may cause serious unwanted side effects, including stimulating prostate cancer growth in men and masculinization in women. Approval of PS178990 may be delayed or ultimately blocked by such concerns. If the results of any of our PS178990 clinical trials indicate such stimulation of prostate cancer growth or masculinization, we may not receive regulatory approval to market the product candidate and our product candidate, if approved for marketing, may not be able to compete with other products.

We had net losses in recent years and our future profitability is uncertain.

        During the year ended December 31, 2007, we had a net loss of approximately $47.9 million. The net loss was primarily due to costs incurred in our internal product development efforts, including the costs of developing PS433540, which is currently in Phase 2 clinical trials, and the research and development of our other product candidates.

        In connection with the acquisition of the SARM program, we recorded a non-cash charge of $9.2 million to proprietary research and development expense. The amount of this charge approximates the fair value of the chemistry resources we are to provide to BMS under the discovery collaboration agreement.

        We expect to incur losses in future periods and these losses are expected to increase as compared to prior periods as a result of the increased level of investment we plan to make in our internal programs, including our DARA program and our SARM program, in the future.

        Our adoption of SFAS No. 123 (revised 2004) "Share-Based Payment" (SFAS 123R), which was effective January 1, 2006, increased our compensation costs and will continue to have a significant impact on our results of operations. In addition, under Emerging Issues Task Force (EITF) No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock" (EITF 00-19), the accounting treatment of the warrants that we issued in our October 2006 equity financing may have a significant impact on our results of operations, depending on the volatility of the market price of our common stock and the assumptions used in calculating the fair value of the warrants.

        On a quarterly basis, our future operating results are likely to be highly volatile depending upon our receipt, if any, of milestone payments from our collaborators. We may not receive milestone payments on a regular basis or at all. Our ability to achieve profitability, if ever, will be significantly impacted by the level of investment we plan to make in our internal proprietary programs in the future, as well as the results of those programs.

        Continuing net losses may limit our ability to fund our operations and we may not generate income from operations in the future.

Our current revenue stream is highly dependent upon the extent to which the pharmaceutical and biotechnology industries collaborate with drug discovery and development companies for one or more aspects of their drug discovery and development process.

        Our revenue depends to a large extent on research and development expenditures by the pharmaceutical and biotechnology industries. Our capabilities include aspects of the drug discovery and development process that pharmaceutical companies have traditionally performed internally. Although there is a history among pharmaceutical and biotechnology companies of outsourcing drug research and development functions, this practice may not continue.

        The willingness of these companies to expand or continue collaborations to enhance their research and development activities is based on certain factors that are beyond our control. While we are unaware of a specific reason that any of the following factors will have a material impact on the willingness of current or potential collaborators to expand or continue collaborations, examples of

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relevant factors include collaborators' changing spending priorities among various types of research activities, the increased presence of offshore companies that conduct research and have lower full-time equivalent costs than ours, their ability to hire and retain qualified scientists, their approach regarding expenditures during recessionary periods and their policies regarding the balance of research expenditures versus cost containment. Also, general economic downturns in our collaborators' industries, adverse changes in the regulatory environment, the adverse impact of product litigation on our collaborators' businesses or any decrease in our research and development expenditures could harm our operations, as could increased popularity of management theories, which counsel against outsourcing of critical business functions.

        Continued consolidation in the pharmaceutical and biotechnology industries may further decrease the number of potential collaborators for us or may alter the priorities of our current collaborators. For example, in 2007, subsequent to our entering into the Organon Agreement, Schering-Plough acquired our collaborator Organon.

        In addition, the popularity of scientific thinking that disfavors elements of our technology platform, such as large diverse libraries, could negatively impact our business. Any decrease in drug discovery spending by pharmaceutical and biotechnology companies could cause our revenue to decline.

        Our ability to collaborate with large pharmaceutical and biotechnology companies will depend on many factors, including our ability to:

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discover and develop high-quality drug candidates;



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identify and utilize scientists and technologies that are of the highest caliber; and



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achieve results in a timely fashion, with acceptable quality and at an acceptable cost.

        The importance of these factors varies from collaborator to collaborator, and we may be unable to meet any or all of them for some or all of our collaborators in the future.

If third parties do not manufacture PS433540 in sufficient quantities and at an acceptable cost, clinical development of PS433540 would be delayed.

        We do not currently own or operate manufacturing facilities, and we rely, and expect to continue to rely, on third parties for the production of clinical quantities of our product candidates. Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to develop product candidates and commercialize any product candidates on a timely and competitive basis.

        We have relied on third party vendors for the manufacture of clinical quantities of PS433540, and we are currently assessing our manufacturing needs for additional clinical trial supply of PS433540 as we review our clinical strategy for PS433540. We will evaluate whether to continue to rely on the manufacturing capabilities of our current third party vendors or whether some or all of the manufacturing process should be transferred to other contract manufacturers as we plan for our additional clinical trials. If our current supply of PS433540 becomes unusable, if our PS433540 supply is not sufficient to complete our clinical trials, or if we are unsuccessful in identifying a contract manufacturer or negotiating a manufacturing agreement on a timely basis for our additional clinical trials, we could experience a delay in receiving an adequate supply of PS433540.

        We may not be able to maintain or renew our existing or any other third-party manufacturing arrangements on acceptable terms, if at all. If we are unable to continue relationships for PS433540, or to do so at an acceptable cost, or if these or other suppliers fail to meet our requirements for PS433540 for any reason, we would be required to obtain alternate suppliers. Any inability to obtain alternate suppliers, including an inability to obtain approval from the FDA of an alternate supplier, would delay or prevent the clinical development of these product candidates.

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Use of third-party manufacturers may increase the risk that we will not have adequate supplies of our product candidates.

        Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates or products ourselves, including:

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Reliance on the third party for regulatory compliance and quality assurance;



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The possible breach of the manufacturing agreement by the third party because of factors beyond our control; and



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The possible termination or non-renewal of the agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us.

        If we are not able to obtain adequate supplies of our product candidates, it will be more difficult for us to develop our product candidates and compete effectively. Our product candidates and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities.

        Our present or future manufacturing partners may not be able to comply with FDA-mandated current Good Manufacturing Practice regulations, other FDA regulatory requirements or similar regulatory requirements outside the United States. Failure of our third-party manufacturers or us to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates.

We are dependent on our collaborations, and events involving these collaborations or any future collaborations could prevent us from developing or commercializing product candidates.

        The success of our current business strategy will depend in part on our ability to successfully perform under and manage strategic collaborations. Since we do not currently possess the resources necessary to independently develop and commercialize all of the product candidates that may be discovered through our drug discovery technology, we may need to enter into additional collaborative agreements to assist in the development and commercialization of some of these product candidates or in certain markets for a particular product candidate. Establishing strategic collaborations is difficult and time-consuming. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position, and our discussions with potential collaborators may not lead to the establishment of new collaborations on acceptable terms.

        We and our present and future collaborators may fail to develop or effectively commercialize products covered by our present and future collaborations if:

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we do not achieve our objectives under our collaboration agreements;



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we or our collaborators are unable to obtain patent protection for the product candidates or proprietary technologies we discover in our collaborations;



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we are unable to manage multiple simultaneous product discovery and development collaborations;



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our potential collaborators are less willing to expend their resources on our programs due to their focus on other programs or as a result of general market conditions;



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our collaborators become competitors of ours or enter into agreements with our competitors;

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we or our collaborators encounter regulatory hurdles that prevent commercialization of our product candidates;



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we develop products and processes or enter into additional collaborations that conflict with the business objectives of our other collaborators; or



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our collaborators elect to terminate our partnerships under the permitted circumstances.

        If we or our collaborators are unable to develop or commercialize products as a result of the occurrence of any one or a combination of these events, we will be prevented from developing and commercializing such product candidates. Moreover, disputes may arise with respect to the ownership of rights to any technology or products developed with any current or future partner. Lengthy negotiations with potential new partners or disagreements between us and our partners may lead to delays or termination in the research, development or commercialization of product candidates. If we are not able to establish additional partnerships on terms that are favorable to us or if a significant number of our existing partnerships are terminated and we cannot replace them, we may be required to increase our internal product development and commercialization efforts. Any of the foregoing may materially harm our business, financial condition and results of operations.

The development of our internal and collaborative products is at an early stage and is uncertain.

        Drug development is a highly uncertain process. Our approach and technology may never result in a commercial drug. None of our programs has resulted in products that have received regulatory approval for commercial sale. Our most advanced internal compound, PS433540, is in Phase 2 clinical trials. Currently our collaborators have advanced six programs into active clinical trials. All of our therapeutic candidates, including these clinical candidates, face the substantial risks of failure inherent in the drug development process. Any potential pharmaceutical product emanating from one of our internal or collaborative programs must satisfy rigorous standards of safety and efficacy before the FDA and foreign regulatory authorities will approve them for commercial use. To satisfy these standards, significant additional research, preclinical studies and clinical trials will be required.

        Our internal and collaborative programs are in early stages relative to generating a commercial product. Therefore, we and our collaborators must engage in significant, time-consuming and costly research and development efforts followed by our and our collaborators' applications for and receipt of, regulatory approvals. Consequently, we do not expect compounds from these development activities to result in commercially available products for many years, if at all.

If our collaborators are not able to successfully develop our existing clinical candidates, our business will be harmed.

        Our collaborators Schering-Plough, BMS and Celgene, currently are undertaking active clinical trials of prospective pharmaceutical products containing our proprietary compounds.

        In each case, the collaborator is responsible for the development of these potential products, the level of resources devoted to such development and the decision as to when, or whether, such development should cease. Numerous additional studies are necessary to support the further development of these product candidates. Results from preclinical and clinical studies conducted to date on these product candidates are not necessarily indicative of the results that may be obtained in clinical studies. Clinical results could cause our collaborators to discontinue or limit development of these product candidates. For example, in each of August 2007 and November 2005, Schering-Plough informed us that it had discontinued Phase 1 clinical trials for the respective clinical compounds developed from leads from our collaboration with Schering-Plough. There can be no assurance that Schering-Plough, BMS and Celgene will continue to develop the current clinical programs.

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        In addition, our collaborators may pursue alternative technologies or drug candidates, either on their own or in collaboration with others, that compete with the clinical candidates on which they collaborate with us. If our collaborators do not continue their development efforts or if such efforts do not result in positive clinical results, we will not receive additional milestone and royalty payments from those efforts, and our business will be harmed.

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

        The market price for our common stock has been highly volatile and may continue to be highly volatile in the future. During the year ended December 31, 2007, the closing market price of our common stock ranged from $4.02 per share at its low point in January 2007 to $6.59 per share at its high point in April 2007. Results from our development programs, especially the DARA program, our quarterly operating results, changes in general conditions in the economy or the financial markets, and other developments affecting our competitors or us could cause the market price of our common stock to fluctuate substantially. In recent years, the stock market has experienced significant price and volume fluctuations.

        While we are unaware of a specific reason that any of the following factors will have a material impact on our stock price, the following factors, in addition to the factors described in the other risk factors contained in this report, may have a significant impact on the market price of our common stock:

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publicity concerning the status of potential drug products under development by us or our collaborators or our competitors and their partners;



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reduction, termination or expiration of our collaborations;



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announcements by us or our competitors of significant acquisitions, strategic partnerships or joint ventures;



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



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developments concerning proprietary rights, including patents;



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litigation;



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economic and other external factors or other disasters or crises;



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actual or anticipated period-to-period fluctuations in our financial results;



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changes in financial estimates prepared by securities analysts;



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differences in the valuations assigned by the equity markets and, in particular, the biopharmaceutical sector of the equity markets, to biopharmaceutical companies like us that have more drug discovery than drug development capabilities; and



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the general performance of the equity markets and, in particular, the biopharmaceutical sector of the equity markets.

Disputes may arise between our partners and us as to royalties and milestones to which we believe we are entitled.

        The compound basis for drugs developed by a partner may be a derivative or optimized version of the compound screened or optimized by us.

        While our existing collaborative agreements provide that we will receive milestone payments and royalties with respect to certain products developed from certain derivative compounds, there can be no assurance that disputes will not arise over the application of payment provisions to such products.

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        There can be no assurance that current or future partners will not pursue alternative technologies, or develop alternative products either on their own or in collaboration with others, including our competitors, as a means for developing treatments based on the targets which are the subject of the collaborative arrangements with us.

        In addition, many of our agreements that provide for potential royalty payments to us also contain provisions that reduce our expected royalty if a partner is also required to pay a royalty on a product to a third party.

The drug research and development industry is highly competitive and subject to technological change, and we may not have the resources necessary to compete successfully.

        Many of our competitors have access to greater financial, technical, research, marketing, sales, distribution, service and other resources than we do. Moreover, the pharmaceutical and biotechnology industries are characterized by continuous technological innovation. We anticipate that we will face increased competition in the future as new companies enter the market and our competitors make advanced technologies available. Technological advances or entirely different approaches that we or one or more of our competitors develop may render our products, services and expertise obsolete or uneconomical. Additionally, the existing approaches of our competitors or new approaches or technologies that our competitors develop may be more effective than those we develop. We may not be able to compete successfully with existing or future competitors.

If we cannot manage the multiple relationships and interests involved in our collaborative arrangements and internal programs, our business, financial condition and results of operations may be materially adversely affected.

        We need to successfully structure and manage multiple internal programs and collaborative relationships, including maintaining confidentiality of the research being performed for multiple collaborators. We may be unable to successfully manage conflicts between competing drug development programs of third parties to which we offer services. From time to time, more than one of our collaborators may want to perform research concerning the same or molecularly similar disease targets.

        Because of that, we may be required to reconcile our relationships with those collaborators, particularly if both want to establish exclusive relationships with us with respect to that target or if one collaborator has an existing arrangement with us and the other would like us to perform services regarding a target restricted by that arrangement.

        Further, if we are working with a collaborator regarding a particular target, another of our collaborators may be researching the same target in one of its internal programs of which we have no knowledge. As a result, potential conflicts involving us may arise due to this competition between collaborators in a particular disease field of interest.

        Conflicts also may arise between our collaborators as to proprietary rights to particular compounds in our libraries or as to proprietary rights to biological targets such as receptors or enzymes against which we screen compounds in our libraries. The occurrence of conflicts, or the perception of conflicts, could have a material adverse effect on our business, financial condition and results of operations.

If we use hazardous materials in a manner that causes injury or violates laws, we may be liable for damages.

        Our activities involve the use of potentially harmful hazardous materials, chemicals and various radioactive compounds. These materials are utilized in the performance of our assay development, high-throughput screening and chemistry optimization services, and include common organic solvents, such as acetone, hexane, methylene chloride, acetonitrile, and isopropyl and methyl alcohol, as well as common acids and bases. The waste from utilization of these solvents and other materials is disposed of through licensed third-party contractors. Further, we utilize an extremely wide variety of chemicals in

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the performance of our assay development, screening and optimization services. These chemicals, such as reagents, buffers and inorganic salts, typically are employed in extremely small amounts in connection with the work performed in our laboratories.

        We cannot completely eliminate the risk of accidental contamination or injury from the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for damages that result.

        We maintain insurance coverage against environmental hazards arising from the storage and disposal of the materials utilized in our business. Although our management believes that such insurance has terms, including coverage limits, which are appropriate for our business, liabilities arising from the use, storage, handling or disposal of these materials could exceed our insurance coverage, as well as our resources. We are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. The cost of compliance with these laws and regulations could be significant. To our knowledge, we have not been, and currently are not, the subject of any governmental investigation concerning the violation of these federal, state and local laws and regulations. There can be no assurance that we will not be the subject of future investigations by governmental authorities.

We and our products are subject to strict government regulation, which may limit the development of products by us or our collaborators.

        Regulation by governmental entities in the United States and other countries will be a significant factor in the production and marketing of any pharmaceutical products our collaborators or we may develop. The nature and the extent to which government regulation may apply to our collaborators and us will vary depending on the nature of the pharmaceutical products, if any. Virtually all pharmaceutical products require regulatory approval prior to commercialization.

        If we or our collaborators or licensees fail to obtain, or encounter delays in obtaining or maintaining, regulatory approvals, our financial results could be adversely affected. Similar regulatory procedures are required in countries outside the United States.

        In addition, new legislation related to health care could reduce the prices pharmaceutical and biotechnology companies can charge for drugs they sell which, in turn, could reduce the amounts that they have available for collaborative relationships with us. If pharmaceutical and biotechnology companies decrease the resources they devote to the research and development of new drugs, the number of collaborations we conclude could be adversely impacted and our revenue and profitability reduced. If prices that pharmaceutical and biotechnology companies can charge for drugs they sell decrease, the royalties, if any, we receive from the sale of products would also decrease, which would reduce our revenue and profitability.

Failure to attract and retain skilled personnel could materially and adversely affect us.

        We are a small company and our success depends in part on the continued service of key scientific and management personnel, including our president and chief executive officer, Leslie J. Browne, Ph.D., and our ability to identify, hire and retain additional personnel. There is intense competition for qualified personnel. Immigration laws may further restrict our ability to attract or hire qualified personnel. We may not be able to continue to attract and retain the personnel necessary for our growth and development. Failure to attract and retain key personnel could have a material adverse effect on our business, financial condition and results of operations. Further, we are highly dependent on the principal members of our scientific and management staff. One or more of these key employees could retire or otherwise leave our employ within the foreseeable future and the loss of any of these people could have a material adverse effect on our business, financial condition and results of operations. We do not, and do not intend to, maintain key person life insurance on the life of any employee.

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If third parties on whom we rely do not perform as contractually required or expected, we may not be able to obtain regulatory approval for or to commercialize our product candidates.

        We do not have the ability to independently conduct clinical trials for our product candidates, and we must rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories to conduct our clinical trials. In addition, we rely on third parties to assist with our preclinical development of product candidates. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our preclinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize, our product candidates.

        In addition, we continue to depend heavily upon the expertise and dedication of sufficient resources by partners to develop and commercialize products primarily based on lead compounds discovered by us. If a partner fails to develop or commercialize a compound or product with respect to which it has rights from us, we may not receive any future milestone payments or royalties associated with that compound or product.

        Similarly, while we are unaware of a specific reason that any of the following factors will be experienced by our partners, because we rely heavily on them, our revenue could be adversely affected if our partners:

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fail to select a target or product candidate we have identified for subsequent development;



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fail to gain the requisite regulatory approvals for product candidates;



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do not successfully commercialize products based on the compounds that we originate;



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do not conduct their collaborative activities in a timely manner;



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do not devote sufficient time or resources to our partnered programs or potential products;



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terminate their alliances or arrangements with us;



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develop, either alone or with others, products that may compete with our product candidates;



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dispute our respective allocations of rights to any products or technology developed during our collaborations; or



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merge with or are acquired by a third party that seeks to terminate our collaboration.

Our operations may be interrupted by the occurrence of a natural disaster or other catastrophic event at our primary facilities.

        We depend on our laboratories and equipment for the continued operation of our business. Our research and development operations and administrative functions are primarily conducted at our facilities in the Princeton, New Jersey area. Although we have contingency plans in effect for natural disasters or other catastrophic events, catastrophic events could still disrupt our operations.

        Even though we carry business interruption insurance policies, we may suffer losses as a result of business interruptions that exceed the coverage available under our insurance policies. Any natural disaster or catastrophic event in our facilities or the areas in which they are located could have a significant negative impact on our operations.

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Because we do not intend to pay dividends, you will benefit from an investment in our common stock only if it appreciates in value.

        We have never declared or paid any cash dividend on common stock. We currently intend to retain our future earnings, if any, to finance the expansion of our business and do not expect to pay any cash dividends in the foreseeable future. As a result, the success of your investment in our common stock will depend entirely upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in value or even maintain its price.

Anti-takeover provisions under Section 203 of the Delaware General Corporation Law, provisions in our amended and restated certificate of incorporation and amended and restated bylaws, and our adoption of a stockholder rights plan may render more difficult the accomplishment of mergers or the assumption of control by a principal stockholder, making more difficult the removal of management.

        Section 203 of the Delaware General Corporation Law may delay or deter attempts to secure control of our company without the consent of our management. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date the person becomes an interested stockholder, unless certain conditions are met.

        Our amended and restated certificate of incorporation and amended and restated bylaws contain several provisions that could delay or make more difficult the acquisition of our company through a hostile tender offer, open market purchases, proxy contest, merger or other takeover attempt that a stockholder might consider in his or her best interest, including those attempts that might result in a premium over the market price of our common stock. Such provisions include the issuance of preferred stock without approval of the holders of our common stock, the classification of our board of directors, the election and removal of directors, restrictions on the ability of stockholders to take action without a meeting, restrictions on stockholders' ability to call a special meeting and advance notice procedures regarding any proposal of stockholder business to be discussed at a stockholders meeting.

        We have adopted a stockholder rights plan, which is triggered upon commencement or announcement of a hostile tender offer or when any one person or group acquires 15% or more of our common stock. The rights plan, once triggered, enables stockholders to purchase our common stock at reduced prices. These provisions of our governing documents, stockholder rights plan and Delaware law could have the effect of delaying, deferring or preventing a change of control, including without limitation a proxy contest, making more difficult the acquisition of a substantial block of our common stock. The provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock. Further, the existence of these anti-takeover measures may cause potential bidders to look elsewhere, rather than initiating acquisition discussions with us.

If we engage in an acquisition or business combination, we will incur a variety of risks that could adversely affect our business operations or our stockholders.

        From time to time we have considered, and we will continue to consider in the future, if and when any appropriate opportunities become available, strategic business initiatives intended to further the development of our business.

        These initiatives may include acquiring businesses, technologies or products or entering into a business combination with another company. If we do pursue such a strategy, we could, among other things:

•

issue equity securities that would dilute our current stockholders' percentage ownership;



•

incur substantial debt that may place strains on our operations;

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•

spend substantial operational, financial and management resources in integrating new businesses, technologies and products;



•

assume substantial actual or contingent liabilities; or



•

merge with, or otherwise enter into a business combination with, another company in which our stockholders would receive cash or shares of the other company or a combination of both on terms that our stockholders may not deem desirable.

        We are not in a position to predict what, if any, collaborations, alliances or other transactions may result or how, when or if these activities would have a material effect on us or the development of our business.

Accounting for our collaboration agreements, our in-licensing agreements, our revenues and costs, our warrants and share-based compensation and other significant transactions involve significant estimates which, if incorrect, could have a material adverse effect on our financial position, results of operations, and our ability to raise capital.

        As further described in "Critical Accounting Policies and Estimates" under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," accounting for our collaborative, development, and other transactions in the course of our business require us to make a variety of significant estimates and assumptions. Although we believe we have sufficient experience and processes in place to enable us to formulate appropriate assumptions and produce reliable estimates, these assumptions and estimates may change significantly in the future and these changes could have a material adverse effect on our financial position, our results of operations, and our ability to raise capital.

CERTAIN RISKS RELATED TO INTELLECTUAL PROPERTY

Positions taken by the U.S. Patent and Trademark Office or non-U.S. patent and trademark officials may preclude us from obtaining sufficient or timely protection for our intellectual property.

        The patent positions of pharmaceutical and biotechnology companies are uncertain and involve complex legal and factual questions. The coverage claimed in a patent application can be significantly reduced before the patent is issued. There is a significant risk that the scope of a patent may not be sufficient to prevent third parties from marketing other products or technologies with the same functionality of our products and technologies. Consequently, some or all of our patent applications may not issue into patents, and any issued patents may provide ineffective remedies or be challenged or circumvented.

Third parties may have filed patent applications of which we may or may not have knowledge, and which may adversely affect our business.

        Patent applications in the United States are maintained in secrecy for 18 months from filing or until a patent issues. Under certain circumstances, patent applications are never published but remain in secrecy until issuance. As a result, others may have filed patent applications for products or technology covered by one or more pending patent applications upon which we are relying. If applications covering similar technologies were to be filed before our applications, our patent applications may not be granted. There may be third-party patents, patent applications and other intellectual property or information relevant to our chemical compositions and other technologies that are not known to us, that block us or compete with our chemical compositions or other technologies, or limit the scope of patent protection available to us. Moreover, from time to time, patents may issue which block or compete with our chemical compositions or other technologies, or limit the scope of patent protection available to us. Litigation may be necessary to enforce patents issued to us or to determine the scope and validity of the intellectual property rights of third parties.

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We may not be able to protect adequately the trade secrets and confidential information that we disclose to our employees.

        We rely upon trade secrets, technical know-how and continuing technological innovation to develop and maintain our competitive position. Competitors through their independent discovery (or improper means, such as unauthorized disclosure or industrial espionage) may come to know our proprietary information. We generally require employees and consultants to execute confidentiality and assignment-of-inventions agreements. These agreements typically provide that all materials and confidential information developed by or made known to the employee or consultant during his, her or its relationship with us are to be kept confidential, and that all inventions arising out of the employee's relationship with us are our exclusive property. Our employees and consultants may breach these agreements, and in some instances we may not have an adequate remedy. Additionally, in some instances, we may have failed to require that employees and consultants execute confidentiality and assignment-of-inventions agreements.

Foreign laws may not afford us sufficient protections for our intellectual property, and we may not seek patent protection outside the United States.

        We believe that our success depends, in part, upon our ability to obtain international protection for our intellectual property. However, the laws of some foreign countries may not be as comprehensive as those of the United States and may not be sufficient to protect our proprietary rights abroad. In addition, we may decide not to pursue patent protection outside the United States because of cost and confidentiality concerns. Accordingly, our international competitors could obtain foreign patent protection for, and market overseas, products and technologies for which we are seeking U.S. patent protection and they may be able to use these products and technologies to compete against us.

We may not be able to adequately defend our intellectual property from third party infringement, and third party challenges to our intellectual property may adversely affect our rights and be costly and time consuming.

        Some of our competitors have, or are affiliated with companies having, substantially greater resources than we have, and those competitors may be able to sustain the costs of complex patent litigation to a greater degree and for longer periods of time than us. Uncertainties resulting from the initiation and continuation of any patent or related litigation could have a material adverse effect on our ability to compete in the marketplace pending resolution of the disputed matters. If our competitors prepare and file patent applications in the United States that claim technology also claimed by us, we may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office to determine the priority of invention, which could result in substantial costs to us, even if the outcome is favorable to us. Similarly, opposition proceedings may occur overseas, which may result in the loss or narrowing of the scope of claims or legal rights. Such proceedings will at least result in delay in the issuance of enforceable claims. An adverse outcome could subject us to significant liabilities to third parties and require us to license disputed rights from third parties or cease using the technology.

A patent issued to us may not be sufficiently broad to protect adequately our rights in intellectual property to which the patent relates.

        Even if patents are issued to us, these patents may not sufficiently protect our interest in our chemical compositions or other technologies because the scope of protection provided by any patents issued to or licensed by us are subject to the uncertainties inherent in patent law. Third parties may be able to design around these patents or develop unique products providing effects similar to our products. In addition, others may discover uses for our chemical compositions or technologies other than those uses covered in our patents and these other uses may be separately patentable. A number of pharmaceutical and biotechnology companies, and research and academic institutions, have developed

34

technologies, filed patent applications or received patents on various technologies that may be related to our business. Some of these technologies, patent applications or patents may conflict with our technologies, patent applications or patents. These conflicts could also limit the scope of patents, if any, that we may be able to obtain, or result in the denial of our patent applications. We are not currently aware of any such patent applications or patents that could have a material adverse effect on our business.

We may be subject to claims of infringement by third parties.

        Third parties may claim infringement by us of their intellectual property rights. In addition, to the extent our employees are involved in research areas similar to those areas in which they were involved at their former employers, we may be subject to claims that one of our employees, or we, have inadvertently or otherwise used or disclosed the alleged trade secrets or other proprietary information of a former employer. From time to time, we have received letters claiming or suggesting that our products or activities may infringe third party patents or other intellectual property rights. Our products may infringe patent or other intellectual property rights of third parties. A number of patents may have been issued or may be issued in the future that could cover certain aspects of our technology and that could prevent us from using technology that we use or expect to use. We may be required to seek licenses for, or otherwise acquire rights to, technology as a result of claims of infringement. We may not possess proper ownership or access rights to the intellectual property we use. Third parties or other companies may bring infringement suits against us. Any claims, with or without merit, could be time consuming to defend, result in costly litigation, divert management's attention and resources or require us to enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may not be available on terms acceptable to us, if at all. In the event of a successful claim of product infringement against us, our failure or inability to license or design around the infringed technology could have a material adverse effect on our business, financial condition and results of operations. We are not currently involved in actions of this type that are material to our business.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        None.

ITEM 2.    PROPERTIES

        We currently lease and occupy approximately 99,000 square feet in two facilities near Princeton, New Jersey. We pay approximately $206,000 per month under these leases and they expire in 2016.

ITEM 3.    LEGAL PROCEEDINGS

        We are not currently a party to any legal proceedings the negative outcome of which would have a material adverse effect on our business, financial condition or results of operations.

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

        No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2007.

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PART II

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

MARKET FOR COMMON STOCK

        Our common stock trades on the NASDAQ Global Market under the ticker symbol "PCOP". The following table sets forth for the periods indicated the range of high and low closing sale prices of the Common Stock.

	2007				2006
	High		Low		High		Low
First Quarter	$	5.69	$	4.02	$	5.93	$	3.60
Second Quarter		6.59		5.05		6.47		3.67
Third Quarter		5.99		4.32		4.91		3.70
Fourth Quarter		6.03		4.21		4.57		3.71

HOLDERS OF RECORD

        As of February 29, 2008 there were approximately 374 holders of record of our Common Stock.

DIVIDENDS

        No cash dividends have been paid on our Common Stock to date. We currently intend to retain our future earnings, if any, to finance the expansion of our business and do not expect to pay any cash dividends in the foreseeable future.

ITEM 6.    SELECTED FINANCIAL DATA

        The following selected financial data have been derived from our audited Financial Statements. This data should be read in conjunction with "Management's Discussion and Analysis of Financial

36

Condition and Results of Operations" and the Financial Statements and related notes thereto included elsewhere in this Annual Report.

		Years ended December 31,
		2007			2006			2005			2004			2003
		(in thousands, except per share data)
Statement of Operations Data:
Net revenue		$	21,406		$	16,936		$	20,403		$	24,359		$	29,503
Collaborative research and development expense			23,735			13,551			17,734			20,689			22,157
Proprietary research and development expense			39,273			23,524			10,965			5,955			3,951
General and administrative expense			10,991			9,848			10,196			9,859			6,003
Total operating expenses			73,999			46,923			38,895			36,503			32,111
Operating loss			(52,593	)		(29,987	)		(18,492	)		(12,144	)		(2,608	)
Interest and other income, net			3,815			1,568			1,120			561			19
Interest and other expense, net			(78	)		—			—			—			—
Decrease in warrant liability			173			89			—			—			—
Restructuring and other charges			—			88			—			(5,947	)		—
Loss before income taxes			(48,683	)		(28,242	)		(17,372	)		(17,530	)		(2,589	)
(Benefit from) provision for income taxes			(823	)		(478	)		(234	)		(110	)		259
Net loss		$	(47,860	)	$	(27,764	)	$	(17,138	)	$	(17,420	)	$	(2,848	)
Net loss per share:
	—Basic and diluted	$	(1.79	)	$	(1.69	)	$	(1.27	)	$	(1.43	)	$	(0.23	)

	As of December 31,
	2007		2006		2005		2004		2003
	(in thousands)
Balance Sheet Data:
Cash, cash equivalents and marketable securities	$	71,315	$	46,140	$	30,366	$	40,885	$	524
Total assets		90,398		66,127		46,019		57,005		11,052
Current liabilities		37,471		18,750		8,862		10,251		6,420
Long-term deferred revenue, long-term notes payable and deferred compensation plan		29,843		16,946		1,904		3,046		325
Total stockholders' equity		23,084		30,431		35,253		43,708		4,307
Cash dividends declared per common share		—		—		—		—		—

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                   RESULTS OF OPERATION

        The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Selected Financial Data" and the Financial Statements and related disclosures included elsewhere in this Report. The following discussion may contain forward-looking statements. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.

        In some cases, you can identify forward-looking statements by terminology, such as "goals," or "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," or the negative of such terms or other similar expressions. You are urged not to place undue reliance on any such forward-

37

looking statements, any of which may turn out to be wrong due to inaccurate assumptions, unknown risks, uncertainties or other factors. Factors that could cause or contribute to differences in results and outcomes from those in our forward-looking statements include, without limitation, those discussed elsewhere in this Report in Part I, Item 1A. "Risk Factors" and in Item 1 "Business—Forward-Looking Statements," as well as those discussed in our other Securities and Exchange Commission (SEC) filings.

Business Overview

        We are a clinical development stage biopharmaceutical company dedicated to discovering and developing novel small molecule therapeutics to address significant medical needs. We have a broad portfolio of clinical and preclinical candidates under development internally or by partners, including eight clinical compounds in Phase 2 or Phase 1 development addressing multiple indications including hypertension, diabetic nephropathy, muscle wasting, inflammation and respiratory disease.

Executive Overview of Financial Results

        Our cash, cash equivalents and marketable securities balance increased from $46.1 million at December 31, 2006 to $71.3 million at December 31, 2007. Our net cash used in operating activities increased from $5.9 million during the year ended December 31, 2006 to $11.1 million during year ended December 31, 2007. Excluding up-front payments totaling $25.0 million in 2007 and $20.0 million in 2006, cash used in operating activities would have been $36.1 million and $25.9 million during the years ended December 31, 2007 and 2006, respectively.

        Our deferred revenue increased from $24.3 million at December 31, 2006 to $47.2 million at December 31, 2007. The increase is primarily attributable to up-front payments we received from our new alliances with Wyeth and Organon, additional research funding we received from GSK, and chemistry resources we have committed to BMS as consideration for our in licensing of our SARM program.

        In May 2007, we raised net proceeds of $37.1 million through a public financing of common stock. The shares of common stock were sold through a prospectus supplement pursuant to one of our effective shelf registration statements.

        Net revenue increased to $21.4 million from $16.9 million, an increase of 26%. This increase was due to revenue recognized under our new alliance with Wyeth, coupled with increased revenue from our alliances with Cephalon and GSK. These increases were offset by the completion of our collaborations with Schering-Plough in April 2007, and decreased milestone revenue from our collaborations with Organon.

        Our collaborative research and development expense increased from $13.6 million in 2006 to $23.7 million in 2007. This increase related primarily to an increase in resources allocated to our alliances with GSK, Cephalon and Wyeth, offset by decreased resources allocated to our Schering-Plough collaborations.

        Our proprietary research and development expense increased from $23.5 million in 2006 to $39.3 million in 2007, an increase of 67%. This increase was partially due to our licensing of the SARM program from BMS, for which we recorded a $9.2 million charge. Exclusive of this charge, our proprietary research and development expenditures increased 28%. This increase related primarily to increased costs associated with our most advanced internal compound, PS433540 from our DARA program, which entered Phase 2 clinical trials in September 2007.

        We recognized a net loss of $47.9 million during the year ended December 31, 2007, compared to $27.8 million during the year ended December 31, 2006.

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Liquidity and Capital Resources

        As of December 31, 2007, we had cash, cash equivalents and marketable securities of $71.3 million compared to $46.1 million at December 31, 2006, representing 79% and 70% of our total assets, respectively. We make investments in highly liquid investment-grade marketable securities, including corporate bonds, United States government and agency securities, and auction rate securities. In addition, as of December 31, 2007, we had deferred revenue of $47.2 million relating to research and development activities that are to be performed by us subsequent to December 31, 2007.

        The following is a summary of selected cash flow information for the years ended December 31, 2007 and 2006:

	Years ended December 31,
	2007			2006
Net loss	$	(47,860	)	$	(27,764	)
Adjustments for noncash operating items		4,856			4,268
Net cash operating loss		(43,004	)		(23,496	)
Net change in assets and liabilities		31,867			17,550
Net cash used in operating activities	$	(11,137	)	$	(5,946	)
Net cash (used in) provided by investing activities	$	(43,678	)	$	13,111
Net cash provided by financing activities	$	41,902		$	24,254

Net cash used in operating activities

        Net cash used in operating activities for the year ended December 31, 2007 was primarily due to cash used to fund both our proprietary internal drug research and development efforts, including our Phase 2 and Phase 1 clinical trials for PS433540, and the fulfillment of our research and development performance obligations under our collaborations, offset by the receipt of a $5.0 million up-front non-refundable payment received in January 2007 relating to the Wyeth Agreement, a $15.0 million up-front non-refundable payment received in March 2007 in connection with the Organon Agreement, and a $5.0 million payment received in June 2007 related to the additional research funding under the GSK Agreement. Absent the receipt of the $25.0 million from Wyeth, Organon and GSK, our net cash used in operating activities would have been approximately $36.1 million.

        Net cash used in operating activities for the year ended December 31, 2006 was primarily due to cash used to fund both our proprietary internal drug research and preclinical development efforts and the fulfillment of our research and development performance obligations under our collaborations, as well as the payment of restructuring expenses related to the 2004 consolidation of our facilities, offset by receipt of a $5.0 million up-front payment received in April 2006 relating to the GSK Agreement and a $15.0 million up-front non-refundable payment received in June 2006 relating to the Cephalon Agreement. Absent the receipt of the $20.0 million from GSK and Cephalon, our net cash used in operating activities would have been approximately $25.9 million.

Net cash (used in) provided by investing activities

        Net cash used in investing activities for the year ended December 31, 2007 related primarily to the purchase of marketable securities. Net cash used in investing activities also included capital expenditures related to the expansion of our facilities and capital expenditures for research and development and information technology equipment and software, partially offset by net proceeds from maturities of marketable securities.

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        Net cash provided by investing activities for the year ended December 31, 2006 related primarily to the net sales and maturities of marketable securities, partially offset by capital expenditures for research and development and information technology equipment and software.

Net cash provided by financing activities

        In May 2007, we issued and sold approximately 8.1 million shares of our common stock at a purchase price per share of $5.00 as part of a public underwritten offering. The aggregate gross proceeds of the transaction were approximately $40.3 million. The proceeds we received from the transaction, net of transaction costs, were approximately $37.1 million. The shares of common stock were sold through a prospectus supplement pursuant to one of our effective shelf registration statements. Net cash provided by financing activities for year ended December 31, 2007 also included proceeds, net of repayments, of approximately $4.1 million received from loans originated under our line of credit and proceeds of $0.8 million from the issuance of common stock in connection with exercises of stock options.

        Net cash provided by financing activities for year ended December 31, 2006 related primarily to our sale of approximately 5.8 million shares of our common stock at a purchase price per share of $4.28 in October 2006. In connection with that sale of stock, we sold warrants to purchase approximately 1.45 million shares of our common stock at a purchase price of $0.125 per warrant, with an exercise price of $5.14 per share. The aggregate gross proceeds of the transaction were approximately $25.0 million. We received proceeds of approximately $23.0 million from the transaction, net of transaction costs. The shares and warrants were offered through a prospectus supplement pursuant to our effective shelf registration statement on Form S-3. We accounted for the warrants as a liability at their fair value using a Black-Scholes option-pricing model and remeasure the fair value at each reporting date until the warrants are exercised or have expired. Net cash provided by financing activities for the year ended December 31, 2006 also consisted of approximately $1.3 million in proceeds from the issuance of common stock in connection with exercises of stock options.

Contractual Obligations

        The following table and discussions summarize our contractual obligations as of December 31, 2007:

	Payments Due by Period (in thousands)
	Total		Less than 1 Year		1 to 3 Years		4 to 5 Years		After 5 Years
Contractual Obligations
Operating lease obligations	$	21,270	$	2,467	$	4,976	$	4,976	$	8,851
Product manufacturing obligations		5,204		5,204		—		—		—
Contract research organization obligations		970		970		—		—		—
DARA License Agreement obligations in the event of non-performance		1,200		1,200		—		—		—
Columbia University and Cold Spring Harbor Laboratory Licensing Agreement		550		100		200		200		50
Total	$	29,194	$	9,941	$	5,176	$	5,176	$	8,901

Operating Leases

        We are obligated to pay approximately $2.5 million annually in costs in connection with the facilities we currently occupy. The leases on these facilities expire in 2016.

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Product Manufacturing Contracts

        We have entered into contracts with third parties related to the manufacturing of materials that are to be used in connection with our clinical trials for PS433450. The termination provisions for these contracts are such that, as of December 31, 2007, we had commitments totaling approximately $5.2 million, which are expected to be fulfilled during the year ended December 31, 2008.

Contract Research Organizations (CROs)

        In connection with toxicology studies for PS433540, we have made certain commitments with CROs totaling approximately $1.0 million, which we expect to be fulfilled during the year ended December 31, 2008.

        From time to time in connection with the development studies we sponsor, we enter into contractual relationships with CROs to perform services for those studies.

Columbia University and Cold Spring Laboratory

        We have a license agreement with Columbia University, or Columbia, and Cold Spring Harbor Laboratory, or Cold Spring, that grants us an exclusive, worldwide license to certain technology for making and using combinatorial chemical libraries for the development of human pharmaceutical products. The term of the agreement is the later of (i) July 16, 2013 or (ii) the expiration of the last patent relating to the technology, at which time we will have a fully paid license to the technology. The license granted under this agreement may be terminated by Columbia and Cold Spring (i) upon 30 days written notice to us if we do not expend certain amount of money developing and commercializing the combinatorial chemical libraries, (ii) upon 30 days written notice to us if we materially breach the agreement and fail to cure the material breach, or (iii) if we commit any act of bankruptcy, become insolvent, file a petition under any bankruptcy or insolvency act or have a petition filed against us that is not dismissed within 60 days. This agreement requires us to pay minimum annual fees and certain royalties of at least $100 thousand per year. Due to the uncertainty of our future payment obligations, we have included only the minimum annual fee required by the agreement in the table above. In 2007, 2006 and 2005 we paid related royalties and license fees of approximately $110 thousand, $129 thousand and $126 thousand, respectively.

Contractual obligations under our collaborations

Product Development and Commercialization Agreement with GSK

        Under the terms of the GSK Agreement, we and GSK each have the right to terminate the GSK Agreement in our sole discretion under certain specified circumstances at any time during the term of the GSK Agreement. In addition, we and GSK each have the right to terminate the GSK Agreement under other circumstances that are customary in these types of agreements. If we exercise our discretionary termination right at any time during the first five years of the term, under certain circumstances, we could be required to refund to GSK a portion of the up to $15.0 million related to initial discovery activities we will conduct. The amount of any such refund will be calculated based upon when during the term of the GSK Agreement that termination occurs. Further, should GSK exercise its discretionary termination rights, there are no provisions in the GSK Agreement that would require us to refund payments received relating to our performance of initial discovery activities under the GSK Agreement.

        Our role in our alliance with GSK is to (i) identify and (ii) advance molecules in chosen therapeutic programs to development stage and (iii) subject to certain provisions in the GSK Agreement, further develop the candidates to clinical "proof of concept" (a demonstration of efficacy in humans). As of December 31, 2007, we had approximately $9.1 million of deferred revenue related to services that we are to provide under the GSK Agreement after December 31, 2007.

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Research and License Agreement with Wyeth

        Under the Wyeth Agreement, we received an up-front, non-refundable payment of $5.0 million in January 2007 to support the Company's research efforts. As of December 31, 2007, we had approximately $3.3 million of deferred revenue related to services that we are to provide under the Wyeth Agreement after December 31, 2007.

Collaboration Agreement with Cephalon

        Under the terms of the Cephalon Agreement, we received an up-front, non-refundable payment of $15.0 million in June 2006 to support our research efforts. We are principally responsible for performing medicinal chemistry research over the alliance term. As of December 31, 2007, we had approximately $7.1 million of deferred revenue related to services that we are to provide under the Cephalon Agreement after December 31, 2007.

Collaboration and License Agreement with Organon

        Under the Organon Agreement, if we exercise our discretionary termination right, under certain circumstances, we could be subject to a termination fee of $5.0 million. Whether or not we are subject to the termination fee is based upon when during the term of the Organon Agreement we exercise our discretionary termination right. However, until such time as we are no longer subject to the termination fee, there will be no instances where the deferred revenue associated with the Organon Agreement would be amortized below $5.0 million.

        In addition, we have received $20.0 million since February 2007 to support our research efforts. As of December 31, 2007, we had approximately $17.0 million of deferred revenue related to services that we are to provide under the Organon Agreement after December 31, 2007.

DARA License Agreement with BMS

        Under the terms of the DARA License Agreement with BMS, in lieu of an up-front cash payment, we are providing BMS a set of compound libraries, over a period of approximately three years following the execution of the agreement. We recorded deferred revenue of $2.0 million representing the estimated fair value of the compound library services to be provided. As of December 31, 2007 the balance of this deferred revenue was approximately $1.2 million. In the event we fail to deliver the aforementioned libraries to BMS, the Company would be required to make cash payments on a pro rata basis of up to approximately $1.2 million as of December 31, 2007.

        We are obligated to pay BMS additional milestone payments upon the achievement, if any, of further successive clinical and regulatory events in the United States and certain other jurisdictions, and royalties on sales of products, if any, resulting from the DARA program.

SARM License Agreement with BMS

        In consideration for the licenses to the SARM program, in October 2007, we also entered into a discovery collaboration agreement (the Discovery Collaboration Agreement) with BMS. The Discovery Collaboration Agreement provides that we will apply a portion of our medicinal chemistry resources to a BMS discovery program that is unrelated to the SARM program for up to three years. In addition, we will pay BMS milestone payments associated with submission and approval of a therapeutic product for marketing and a stepped royalty on net sales of therapeutic products, if any, resulting from the SARM program. We recorded deferred revenue of $9.2 million which approximates the fair value of the chemistry resources that we are to provide to BMS after December 31, 2007.

Milestones and Royalty Commitments

        Under the terms of certain agreements to which we are a party, it is possible that we may become obligated to pay aggregate milestone payments totaling up to $287 million upon the achievement of

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successive clinical and regulatory events and royalties on sales of products, if any, resulting from programs for which we have development responsibility under such agreements. We will not be responsible for the payment of future milestone and/or royalty payments in the event that development of such a program is discontinued. Preclinical and clinical development of drug candidates is a long, expensive and uncertain process. At any stage of the preclinical or clinical development process, we may decide to discontinue the development of our product candidates. To date, none of the compounds to which we hold complete or partial rights has reached the stage of commercial product. We expect that our product candidates will not be commercially available for many years, if ever.

Deferred Compensation Plan

        We maintain a deferred compensation plan for certain officers and members of our Board of Directors. Under the employee matters agreement entered into at the time of our spin-off from Accelrys, effective as of April 30, 2004, we assumed all liabilities of its current and former employees under the deferred compensation plan. The total deferred compensation plan obligation as of December 31, 2007 was approximately $2.1 million. This amount has not been included in the table above, as the obligation dates are governed by the applicable employee's termination or retirement, and therefore the timing of such payments is indeterminable.

Off-Balance Sheet Arrangements

        Our significant off-balance sheet arrangements relate to operating lease obligations for the facilities we currently occupy, product manufacturing commitments to certain third parties, commitments to certain CROs related to the clinical development of PS433540, and other contractual obligations related to minimum contractual payments due to Columbia and Cold Spring. All of these obligations are included in the Contractual Obligations schedule above.

Liquidity and Capital Resources Outlook

        As of December 31, 2007, we had cash, cash equivalents and marketable securities of approximately $71.3 million. In addition, as of December 31, 2007, we had deferred revenue of approximately $47.2 million relating to research and development activities that are to be performed by us subsequent to December 31, 2007. Our cash used in operating activities for the year ended December 31, 2007 was approximately $11.1 million, which included $25.0 million in upfront payments from collaborators. Excluding these receipts, our cash used in operating activities would have been $36.1 million. We expect that our research and development expenditures will continue to increase in the future as we increase our internal drug research and development efforts. Clinical and preclinical development of drug candidates is a long, expensive and uncertain process that requires us to raise funds from time to time to support our internal development programs. We expect to raise funds from one or a combination of approaches, which could include public and/or private financing, sale and/or partnering of one or more of our internal programs, and partnering of our internal drug discovery capabilities.

        Conducting our own drug research and development is a key component of our business model. We are currently conducting Phase 2 and Phase 1 clinical trials for PS433540, a product candidate from our DARA program that we are developing internally. In September 2007, we announced the initiation of a Phase 2a clinical trial of PS433540 in subjects with Stage I and Stage II hypertension. In March 2008, we initiated a Phase 2b clinical trial designed to further evaluate safety and efficacy in subjects with Stage I and Stage II hypertension. Conducting these Phase 2 clinical trials, in addition to other Phase 1 clinical trials that will need to be conducted, will significantly increase our proprietary research and development costs.

        In October 2007, we acquired the development and commercialization rights to the SARM program from BMS, including PS178990, a product candidate in Phase 1 clinical development for which we intend to conduct further clinical trials. In consideration for the licenses to the SARM program, we

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entered into the Discovery Collaboration Agreement with BMS to provide a portion of our medicinal chemistry resources to a BMS discovery program unrelated to the SARM program for a period up to three years. Additionally, progressing the SARM program, specifically our product candidate PS178990, through clinical trials is expected to further increase our proprietary research and development costs.

        As part of our other collaborative agreements with GSK, Wyeth, Cephalon and Organon, we have received up-front cash payments. In connection with these agreements, we are obligated to perform significant research and development activities over multiple years and as such, expect to incur significant costs performing such activities.

        Since February 2007, under the Organon Agreement, we received $20.0 million (the $15.0 million up-front payment, $1.0 million for the transfer of rights to certain programs from the 2002 Collaboration, and four quarterly research payments of $1.0 million each). We may receive up to an additional $16.0 million of research and development funding over the remaining portion of the five-year research term, which began in February 2007.

        Since January 2007, we received $8.0 million in connection with our research and license agreement with Wyeth (a $5.0 million up-front payment and $3.0 million in research funding). We may receive an additional $6.0 million of research and development funding over the remaining portion of the three-year research term, which began in January 2007.

        In connection with the GSK Agreement, we may receive up to an additional $5.0 million from GSK, should we fulfill certain conditions related to initial discovery activities that we expect to perform.

        As of December 31, 2007, we had borrowings associated with our line of credit of approximately $4.1 million, which have repayment terms ranging from 36 to 48 months, including approximately $1.1 million that is due in 2008. We also had approximately $0.6 million available for borrowings under our line of credit as of December 31, 2007 and we expect that we will continue to draw on this line of credit for capital expenditures in the future.

        We anticipate that our capital resources will be adequate to fund our operations at their current levels at least through December 31, 2008. However, there can be no assurance that changes will not occur that would consume available capital resources before then.

        Our capital requirements depend on competing technological and market developments, changes in our existing collaborative relationships, progress of PS433540 and PS178990 in clinical trials, the cost of filing, prosecuting, defending, and enforcing patent claims and other intellectual property rights and the outcome of related litigation, the purchase of additional capital equipment, acquisitions of other businesses or technologies, and the progress of our collaborators' milestone and royalty producing activities. Prior to exhausting our current capital resources, we will need to raise additional funds to finance our operating activities or enter into strategic initiatives intended to further the development of our business. There can be no assurance that additional funding, if necessary, will be available to us on favorable terms, if at all. Our forecasts of the period of time through which our financial resources will be adequate to support our operations are forward-looking information and actual results could vary. The factors described earlier in this section will impact our future capital requirements and the adequacy of our available funds.

Results of Operations

        This section should be read in conjunction with the discussion above under "Liquidity and Capital Resources".

2007 Compared to 2006

        Our net revenue increased 26% to $21.4 million in the year ended December 31, 2007 compared to $16.9 million in the year ended December 31, 2006. Net revenue consists of revenue recorded in connection with research and development efforts we perform under our various collaborative

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agreements, as well as our earning of milestones, success fees and license revenue if and as our research and development progress through our collaborators' development processes. Net revenue for the years ended December 31, 2007 and 2006 is summarized as follows:

	For the years ended December 31,
	2007		2006
Collaborative research revenue	$	16,438	$	12,420
Milestones, success fees and license revenue		4,968		4,516
	$	21,406	$	16,936

        Revenue recognized from our collaborative relationships for the years ended December 31, 2007 and 2006, respectively was as follows:

	For the years ended December 31,
	2007		% of Total Revenue		2006		% of Total Revenue		Change
Cephalon	$	5,000	23	%	$	2,917	17	%	$	2,083
Wyeth		4,667	22	%		—	—			4,667
Schering-Plough(1)		3,813	18	%		6,575	39	%		(2,762	)
Organon(2)		3,489	16	%		5,450	32	%		(1,961	)
GSK		1,609	8	%		319	2	%		1,290
Biovitrum(3)		1,246	6	%		556	3	%		690
BMS		765	3	%		—	—			765
Other		817	4	%		1,119	7	%		(302	)
Total Revenue	$	21,406	100	%	$	16,936	100	%	$	4,470

(1)

Revenue from our Schering-Plough collaborations includes $3.0 million and $2.0 million in milestone revenue for the years ended December 31, 2007 and 2006, respectively. Our research activities under our collaborations with Schering-Plough were completed in April 2007.

(2)

Revenue from our Organon collaborations includes $2.0 million in milestone revenue for the year ended December 31, 2006.

(3)

Revenue from our Biovitrum collaborations includes $1.2 million in milestone revenue for the year ended December 31, 2007.

        The increase in collaborative research revenue in the year ended December 31, 2007 was largely due to our alliances with Cephalon, Wyeth and GSK, partially offset by decreased research revenue that resulted from the completion of our research activities under our collaborations with Schering-Plough in April 2007 and lower milestone revenue from Organon in 2007.

        Collaborative research and development expense includes the labor, material, equipment and allocated facilities cost of our scientific staff that is working on collaborative partnerships. Collaborative research and development expenses increased 75% to $23.7 million in the year ended December 31, 2007 compared to $13.6 million in the year ended December 31, 2006. This increase primarily related to an increase in resources allocated to our alliances with GSK, Cephalon and Wyeth. In December 2006, we entered into the Wyeth agreement under which we licensed certain rights to our JAK3 program to Wyeth. Prior to January 2007, the resources that were deployed on the JAK3 program were accounted for in proprietary research and development expense. Resources now deployed on our JAK3 program, except as they relate to programs for employing topical administration for ocular and dermatological diseases, are accounted for in collaborative research and development. This increase was offset by decreased resources allocated to our collaborations with Schering-Plough that resulted from

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the completion of our research activities in April 2007. Share-based compensation costs associated with our adoption of SFAS 123R for the years ended December 31, 2007 and 2006 were $594 thousand and $329 thousand, respectively.

        Proprietary research and development expense includes research and development acquisition costs, clinical trial and preclinical study costs, and labor, material, equipment and allocated facilities cost of scientific staff working on self-funded internal drug discovery and development programs. Our most advanced internal program is our DARA program, which is in Phase 2 clinical trials. We licensed our DARA program from BMS in March 2006. In addition, we in-licensed our SARM program from BMS in October 2007. The most advanced compound in our SARM program is our product candidate PS178990, which is in Phase 1 clinical trials. We also currently have several internal programs in advanced preclinical discovery. Proprietary research and development expenses increased 67% to $39.3 million in the year ended December 31, 2007 compared to $23.5 million in the year ended December 31, 2006. This increase was partially due to our in-licensing of our SARM program, for which we incurred a charge to earnings of approximately $9.2 million. Exclusive of this charge, proprietary research and development expense increased 28% This increase was primarily attributable to costs relating to clinical trials for PS433540, including milestone payments of $1.0 million and $2.0 million made to BMS for the initiation of Phase 1 and Phase 2 clinical trials, respectively. The increase in proprietary research and development expense also related to increased costs expended on our CCR1 discovery program. The increase was offset by a decrease in costs related to our JAK3 program. As previously mentioned, certain aspects of our JAK3 program were partnered with Wyeth in December 2006. The majority of the costs related to this program, previously recorded in proprietary research and development expense in prior periods, are now categorized as collaborative research and development. Costs for our JAK3 program as they relate to the employment of topical administration for ocular and dermatological diseases continue to be accounted for in proprietary research and development expense as we retain all rights to these programs. Share-based compensation costs associated with our adoption of SFAS 123R for the years ended December 31, 2007 and 2006 were $327 thousand and $371 thousand, respectively. Because of the speculative nature of these internal drug discovery and development projects, it is not possible to estimate completion dates or costs of completion. Additionally, from time to time, certain staff and other research and development resources may be temporarily redirected from one project to another, which redirection may also delay or impact the cost of internal drug discovery and development projects.

        General and administrative expense increased by 12% to $11.0 million in the year ended December 31, 2007 compared to $9.8 million in the year ended December 31, 2006. The increase in general and administrative expense was attributable to increased consulting costs, including costs related to our compliance with section 404 of the Sarbanes-Oxley Act, and recruiting costs during the years ended December 31, 2007. Share-based compensation costs associated with our adoption of SFAS 123R for the years ended December 31, 2007 and 2006 were $1.3 million and $1.2 million, respectively.

        Interest and other income, net increased to $3.8 million in the year ended December 31, 2007 compared to $1.6 million in the year ended December 31, 2006. This increase was primarily due to higher yields on our increased cash, cash equivalents, and marketable securities balances during the years ended December 31, 2007 as compared to the year ended December 31, 2006.

        Interest expense of approximately $78 thousand was incurred in the year ended December 31, 2007, and related to our borrowings under our line of credit during the period. During the corresponding period in 2006, we did not have any borrowings under our credit facility.

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        Non-operating income associated with the decrease in warrant liability was $173 thousand for the year ended December 31, 2007 compared to $89 thousand for the year ended December 31, 2006. This increase represents the change in the fair value of the warrants that were issued in connection with our equity financing in October 2006, from December 31, 2006 to December 31, 2007. The fair value of the warrants was determined using the Black-Scholes option-pricing model and is remeasured at each reporting period.

        We recorded an income tax benefit of $823 thousand and $478 thousand in the years ended December 31, 2007 and 2006, respectively. This increase in income tax benefit relates primarily to an increase in the amount of New Jersey net operating losses sold in 2007. In addition, we recorded no income tax provision for the year ended December 31, 2007 as the minimum state income taxes that we previously were subject to no longer apply due to state legislative changes. For the year ended December 31, 2006, we recorded an income tax provision of $37 thousand related to these minimum state income taxes.

        As a result of the net revenues and expenses described above, we generated a net loss of $47.9 million ($1.79 per basic and diluted share) in the year ended December 31, 2007, compared to a net loss of $27.8 million ($1.69 per basic and diluted share) in the year ended December 31, 2006.

2006 Compared to 2005

        Our net revenue decreased 17% to $16.9 million in the year ended December 31, 2006 compared to $20.4 million in the year ended December 31, 2005. Net revenue consists of revenue recorded in connection with research and development efforts we perform under our various collaborative agreements, as well as our earning of milestones, success fees and license revenue if and as our research and development progress through our collaborators' development processes. Net revenue for the years ended December 31, 2006 and 2005 is summarized as follows:

	For the years ended December 31,
	2006		2005
Collaborative research revenue	$	12,420	$	15,802
Milestones, success fees and license revenue		4,516		4,601
	$	16,936	$	20,403

        Revenue recognized from our collaborative relationships for the years ended December 31, 2006 and 2005, respectively was as follows:

	For the years ended December 31,
	2006		% of Total Revenue		2005		% of Total Revenue		Change
Schering-Plough(1)		6,575	39	%		9,880	48	%		(3,305	)
Organon(2)		5,450	32	%		5,603	27	%		(153	)
Cephalon		2,917	17	%		—	—			2,917
Biovitrum		556	3	%		576	3	%		(20	)
GSK		319	2	%		—	—			319
Other		1,119	7	%		4,344	21	%		(3,225	)
Total Revenue	$	16,936	100	%	$	20,403	100	%	$	(3,467	)

(1)

Revenue from our Schering-Plough collaborations includes $2.0 million and $1.0 million in milestone revenue for the years ended December 31, 2006 and 2005, respectively.

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(2)

Revenue from our Organon collaborations includes $2.0 million in milestone revenue for each of the years ended December 31, 2006 and 2005, respectively.

        The decrease in collaborative research funding in 2006 was largely due to reductions in funding from our collaboration with Schering-Plough and the expiration of other collaborative research and development agreements. The decrease in revenue was partially offset by revenue recognized under our new alliances with Cephalon and GSK.

        Collaborative research and development expense includes the labor, material, equipment and allocated facilities cost of our scientific staff working on collaborative partnerships. Collaborative research and development expenses decreased 24% to $13.6 million in the year ended December 31, 2006 compared to $17.7 million in the year ended December 31, 2005. This decrease was due to decreased resources allocated to our collaborative partnerships largely due to the further reduction in staffing on our collaboration with Schering-Plough and the expiration of other collaborative research and development agreements. This decrease was offset by costs associated with research and development activities relating to our new alliances with Cephalon and GSK, and the recognition of share-based compensation costs of $329 thousand associated with our adoption of SFAS 123R in January 2006.

        Proprietary research and development expense includes research and development acquisition costs, labor, material, equipment and allocated facilities cost of scientific staff working on self-funded internal drug discovery and development programs. Proprietary research and development expenses increased 115% to $23.5 million in the year ended December 31, 2006 compared to $11.0 million in the year ended December 31, 2005. This increase was partially due to our licensing of the DARA program in March 2006, for which we recorded a $2.0 million charge. Exclusive of this charge, proprietary research and development expenditures increased 96%. This increase was primarily attributable to costs relating to preclinical development studies for our DARA program, resources expended on our JAK3 program, our CCR1 program, our Adenosine A2a program, and our recognition of share-based compensation costs of $371 thousand associated with our adoption of SFAS 123R in January 2006. Because of the speculative nature of these internal drug discovery and development projects, it is not possible to estimate completion dates or costs of completion. Additionally, from time to time, certain staff and other research and development resources may be temporarily redirected from one project to another, which redirection may also delay or impact the cost of internal drug discovery and development projects.

        General and administrative expense decreased by 3% to $9.8 million in the year ended December 31, 2006 compared to $10.2 million in the year ended December 31, 2005. The decrease in general and administrative expense was attributable to approximately $1.5 million in severance costs incurred in the year ended December 31, 2005, and lower consulting, recruiting, travel and certain compensation costs offset by the recognition of share-based compensation costs of $1.0 million associated with our adoption of SFAS 123R in January 2006 and approximately $182 thousand in severance costs, which includes $79 thousand relating to the acceleration of vesting of certain stock options under SFAS 123R, in the year ended December 31, 2006.

        Interest and other income, net increased to $1.6 million in the year ended December 31, 2006 compared to $1.1 million in the year ended December 31, 2005. This increase was due to higher yields on our investments.

        The decrease in the warrant liability for the year ended December 31, 2006 was approximately $89 thousand, and represented the change in fair value of the warrants that we issued in October 2006, as of December 31, 2006 from the initial measurement date of October 19, 2006.

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        Restructuring and other charges decreased by approximately $88 thousand in the year ended December 31, 2006 compared to the year ended December 31, 2005, which related to an adjustment to our restructuring cost estimate to reflect our actual restructuring costs.

        We recorded an income tax benefit of $478 thousand and $234 thousand in the years ended December 31, 2006 and 2005, respectively, related to the sale of some of our state net operating losses offset by minimum state income taxes.

        As a result of the net revenues and expenses described above, we generated a net loss of $27.8 million ($1.69 per basic and diluted share) in the year ended December 31, 2006, compared to a net loss of $17.1 million ($1.27 per basic and diluted share) in the year ended December 31, 2005.

Net Loss Outlook

        We have had net losses in recent years and we expect to incur losses in future periods These losses are expected to increase as compared to prior periods as a result of the increased level of investment we plan to make in our internal proprietary programs in the future, as well as the results of those programs. Our internal proprietary research and development costs are expected to continue to increase due to our efforts to progress the DARA and SARM programs through clinical trials.

        Our net loss is highly dependent on the continued funding and success of our research and development programs with our existing and potential collaborators. Our collaborations with Schering-Plough ceased in April 2007. We will continue to be entitled to payments resulting from the successful achievement by Schering-Plough, if any, of clinical milestones, as well as royalty payments from sales, if any, of products resulting from compounds already delivered by us and accepted by Schering-Plough under the collaborations.

        In connection with the acquisition of the licenses to the SARM program in October 2007, we also entered into the Discovery Collaboration Agreement with BMS, which provides that we will apply a portion of our medicinal chemistry resources to a BMS discovery program that is unrelated to the SARM program for up to three years. We recorded deferred revenue of approximately $9.2 million in the fourth quarter of 2007. The amount of this charge approximates the fair value of the chemistry resources we are to provide to BMS under the Discovery Collaboration Agreement. The increase in our expected future losses may be partially offset by revenue we recognize associated with providing these resources to BMS.

        Our adoption of SFAS 123R, which was effective January 1, 2006, increased our compensation costs and will continue to have a significant impact on our results of operations. Changes in the fair value of the warrants we issued in October 2006 are reported in the statements of operations as income or expense. As such, changes to the market price of our common stock or to the assumptions used in calculating the fair value of the warrants may cause significant increases or decreases to our results of operations. However, neither the impact of share-based compensation costs, nor the impact of changes in the fair value of the warrant liability will have an impact on our cash flows.

        There is no assurance that we will ever achieve profitable operations, or that profitable operations, if achieved, could be sustained on a continuing basis.

Critical Accounting Policies and Estimates

        The preparation of our financial statements and disclosures involve the use of judgments and estimates. We believe the following critical accounting policies which we follow involve significant judgments and use estimates.

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Revenue Recognition

        Contract revenue is generally recognized either (i) on a proportional performance basis, for contracts specifying payment for services over a given period, or (ii) as services are performed under the agreement for contracts specifying payment on a full-time employee basis.

        Revenue earned related to up-front product and technology license fees is recognized in accordance with Staff Accounting Bulletin (SAB) 104 issued by the SEC and EITF 00-21, "Revenue Arrangements with Multiple Deliverables" issued by the FASB. Accordingly, amounts received under multiple-element arrangements requiring ongoing services or performance by us are recognized over the period of such services or performance.

        Revenue from milestones is recognized when earned, as evidenced by written acknowledgement from the collaborator, provided that (i) the milestone event is substantive, its achievability was not reasonably assured at the inception of the agreement, and we have no further performance obligations relating to that event, and (ii) collectibility is reasonably assured. If these criteria are not met, the milestone payment is recognized over the remaining minimum period of our performance obligations under the arrangement. Royalties are recognized as earned in accordance with the terms of various research and collaboration agreements.

Share-based Compensation

        Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS 123R, using the modified-prospective transition method. This statement is a revision to SFAS 123, supersedes Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and amends SFAS No. 95, "Statement of Cash Flows." Under this transition method, compensation cost recognized includes compensation cost for all share-based payments granted prior to, but not yet vested as of December 31, 2005 based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and compensation cost for all share-based payments granted subsequent to December 31, 2005 based on the grant date fair value estimated in accordance with provisions of SFAS 123R. Results for prior periods have not been restated.

        Under SFAS 123R, we use the Black-Scholes option pricing model to estimate the fair value of the share-based awards as of the grant date. The Black-Scholes model, by its design, is highly complex and dependent upon key data inputs estimated by management. The primary data inputs with the greatest degree of judgment are the estimated lives of the share-based awards and the estimated volatility of our stock price. The Black-Scholes model is sensitive to changes in these two data inputs. Beginning in fiscal year 2006, we calculated the estimated life of stock options granted using a "simplified" method, which is based on the average of the vesting term and the actual term of the option, as a result of guidance from the SEC as contained in SAB 107 permitting the initial use of this method through 2007. In December 2007, the SEC issued SAB 110, which is effective January 1, 2008, expressing the expectation that companies should be employing information from internal or external sources about employee stock option exercise behavior when developing estimates of expected term as they relate to stock option valuations. SAB 110 states that the SEC will continue to accept the use of the "simplified" method, under certain circumstances, beyond December 31, 2007. We are still evaluating the method that we will use to develop our expected term assumption in 2008. Expected stock price volatility is typically based on the daily historical trading data from an appropriate point in time through the last day of the applicable period. Because our historical trading data only dates back to May 3, 2004, the date of our spin-off from Accelrys, we have determined expected volatility for fiscal year 2007 using an analysis of the stock price volatility of companies comparable to ours in our industry.

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Warrant Liability

        We follow EITF 00-19 in accounting for our warrants which provides guidance for distinguishing between permanent equity, temporary equity and assets and liabilities. Under EITF 00-19, to qualify as permanent equity, the equity derivative must permit us to settle in unregistered shares. Under securities law, if the warrants were issued in connection with a public offering and have a cash settlement feature at the holder's option, we do not have the ability to settle in unregistered shares. Therefore, the warrants cannot be classified as permanent equity and are instead classified as a liability. The approximately 1,450,000 warrants that we issued as part of our equity financing in October 2006 meet this criteria, and have been recorded as a liability in the accompanying balance sheets. Other warrants we had previously issued qualify as permanent equity and do not require remeasurement.

        We record our warrant liabilities at fair value using a Black-Scholes option-pricing model and remeasure at each reporting date until the warrants are exercised or have expired. Changes in the fair value of the warrants are reported in the statements of operations as income or expense. The fair value of the warrants could be subject to significant fluctuation based on changes in our stock price, expected volatility, expected life, the risk-free interest rate and dividend yield. The market price for our common stock has been and may continue to be volatile. Consequently, future fluctuations in the price of our common stock may cause significant increases or decreases in the fair value of the warrants issued in October 2006.

Long-Lived Assets

        We review long-lived assets, including leasehold improvements, property and equipment, and acquired technology rights, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. This requires us to estimate future cash flows related to these assets. Actual results could differ from these estimates, which may affect the carrying amount of assets and the actual amortization expense. As of December 31, 2007, we had long-lived assets with a net book value of $14.8 million.

Accounting for Uncertain Tax Positions

        We have adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes—an interpretation of FAS Statement No. 109" (FIN 48). FIN 48 applies to all uncertain tax positions accounted for in accordance with SFAS No. 109, "Accounting for Income Taxes" and is intended to result in increased relevance and comparability in financial reporting of income taxes and to provide more information about the uncertainty in income tax assets and liabilities. We will recognize potential interest and penalties related to income tax positions as a component of the benefit or provision for income taxes on the consolidated statements of operations in any future periods in which we must record a liability. Because we have not recorded a liability at December 31, 2007, there is no impact to our effective tax rate. We do not anticipate that total unrecognized tax benefits will significantly change during the next twelve months.

New Accounting Pronouncements

Fair Value Measurements

        In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," (SFAS 157). SFAS 157 establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position (FSP) 157-2 which delays the effective date of SFAS 157 for one year for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS 157 and FSP 157-2 are effective for financial statements issued for fiscal years beginning after November 15, 2007. We

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have elected a partial deferral of Statement 157 under the provisions of FSP 157-2. We are currently evaluating the impact that this partial adoption of SFAS 157, which is effective January 1, 2008, will have on our consolidated financial statements.

Fair Value Option for Financial Assets and Liabilities

        In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Liabilities Including an Amendment of FASB Statement No. 115" (SFAS 159). SFAS 159 permits reporting entities to choose to measure eligible financial assets or liabilities, which include marketable securities available-for-sale and equity method investments, at fair value at specified election dates, or according to a pre-existing policy for specific types of eligible items. Unrealized gains and losses for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact, if any, that SFAS 159 will have on our consolidated financial statements.

Non-Refundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities

        In June 2007, the EITF of the FASB reached a consensus on Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities" (EITF 07-3). EITF 07-3 requires that non-refundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized. As the related goods are delivered or the services are performed, or when the goods or services are no longer expected to be provided, the deferred amounts would be recognized as an expense. EITF 07-3 is effective for financial statements issued for fiscal years beginning after December 15, 2007. Our adoption of EITF 07-3 is not expected to have a material effect on our consolidated financial statements.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Our international revenue is generally denominated in United States Dollars, and are, therefore, not exposed to changes in foreign currency exchange rates. Additionally, certain of our preclinical and clinical development expenses are denominated in foreign currencies. We believe that the foreign currency risk arising from these expenses is minimal to these financial instruments.

        We do not use derivative financial instruments for trading or speculative purposes. However, we regularly make investments in overnight repurchase agreements that are subject to changes in short-term interest rates. We believe that the market risk arising from holding these financial instruments is minimal.

        Our exposure to market risks associated with changes in interest rates relates primarily to the increase or decrease in the amount of interest income earned on our investment portfolio since we have minimal debt. We ensure the safety and preservation of invested funds by limiting default risks, market risk and reinvestment risk. We mitigate default risk by investing in investment grade securities. A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not have materially affected the fair value of our interest sensitive financial instruments at December 31, 2007.

52

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Pharmacopeia, Inc.

        We have audited the accompanying consolidated balance sheets of Pharmacopeia, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2007. 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 consolidated financial position of Pharmacopeia, Inc. at December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.

        As discussed in Note 2 to the Financial Statements, in 2006 the Company adopted SFAS No. 123 (revised 2004), "Share-Based Payments" applying the modified prospective method at the beginning of fiscal year 2006.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Pharmacopeia, Inc.'s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 29, 2008 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

MetroPark, New Jersey
February 29, 2008

53

Pharmacopeia, Inc.

Consolidated Balance Sheets

(Amounts in thousands, except share and per share data)

			December 31, 2007			December 31, 2006
ASSETS
Current assets:
	Cash and cash equivalents		$	30,186		$	43,099
	Marketable securities			41,129			3,041
	Accounts receivable, net			—			5,000
	Prepaid expenses and other current assets			2,026			1,504
		Total current assets		73,341			52,644
Property and equipment, net				14,840			11,287
Deferred compensation plan assets				2,073			2,022
Other assets				144			174
		Total assets	$	90,398		$	66,127
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	2,871		$	2,491
	Accrued liabilities			6,928			2,457
	Deferred revenue, current portion			22,398			9,424
	Notes payable, current portion			1,069			—
	Warrant liability			4,205			4,378
		Total current liabilities		37,471			18,750
Deferred revenue, long-term				24,769			14,924
Deferred compensation plan liabilities				2,073			2,022
Notes payable, long-term				3,001			—
Commitments and contingencies
Stockholders' equity:
	Preferred stock, $.01 par value, 2,500,000 shares authorized, none issued and outstanding			—			—
	Common stock, $.01 par value, 50,000,000 shares authorized, 29,630,931 and 21,268,447 shares issued and outstanding, respectively			296			213
	Additional paid-in capital			121,785			81,362
	Accumulated deficit			(98,997	)		(51,137	)
	Accumulated other comprehensive loss			—			(7	)
		Total stockholders' equity		23,084			30,431
		Total liabilities and stockholders' equity	$	90,398		$	66,127

See accompanying notes to these consolidated financial statements.

54

Pharmacopeia, Inc.

Consolidated Statements of Operations

(Amounts in thousands, except share and per share data)

		For the Years Ended December 31,
		2007			2006			2005
Net revenue		$	21,406		$	16,936		$	20,403
	Collaborative research and development expense		23,735			13,551			17,734
	Proprietary research and development expense		39,273			23,524			10,965
	General and administrative expense		10,991			9,848			10,196
Total operating expenses			73,999			46,923			38,895
Operating loss			(52,593	)		(29,987	)		(18,492	)
	Interest and other income, net		3,815			1,568			1,120
	Interest and other expense, net		(78	)		—			—
	Change in warrant liability		173			89			—
	Restructuring and other credits		—			88			—
Loss before income taxes			(48,683	)		(28,242	)		(17,372	)
	Benefit from income taxes		(823	)		(478	)		(234	)
Net loss		$	(47,860	)	$	(27,764	)	$	(17,138	)
Net loss per share:
	—Basic and diluted	$	(1.79	)	$	(1.69	)	$	(1.27	)
Weighted average number of common stock shares outstanding:
	—Basic and diluted		26,738,853			16,448,030			13,513,582

See accompanying notes to these consolidated financial statements.

55

Pharmacopeia, Inc.

Consolidated Statements of Stockholders' Equity

(Amounts in thousands)

		Common Stock
												Accumulated Other Comprehensive Loss
		Number of Shares		Amount		Additional Paid-in Capital			Accumulated Deficit						Deferred Compensation			Total Stockholders' Equity
Balance at December 31, 2004		12,355		$	123	$	50,263		$	(6,235	)	$	(175	)	$	(268	)	$	43,708
Comprehensive loss:
	Net loss	—			—		—			(17,138	)		—			—			(17,138	)
	Unrealized loss on marketable securities	—			—		—			—			29			—			29
	Total comprehensive loss																		(17,109	)
Issuance of shares in private placement, net		2,470			25		7,631			—			—			—			7,656
Investment by Accerlys, Inc.		—			—		46			—			—			—			46
Forfeiture of restricted stock		(2	)		—		(21	)		—			—			21			—
Amortization of deferred compensation		—			—		—			—			—			118			118
Issuance of common stock for exercise of stock options		51			1		126			—			—			—			127
Accelerated vesting of stock options		—			—		227			—			—			—			227
Issuance of common stock for ESPP		22			—		90			—			—			—			90
Issuance of common stock for 401(k) matching contribution		93			1		389			—			—			—			390
Balance at December 31, 2005		14,989		$	150	$	58,751		$	(23,373	)	$	(146	)	$	(129	)	$	35,253
Comprehensive loss:
	Net loss	—			—		—			(27,764	)		—			—			(27,764	)
	Unrealized loss on marketable securities	—			—		—			—			139			—			139
	Total comprehensive loss																		(27,625	)
Issuance of shares in stock offering		5,799			58		18,450			—			—			—			18,508
Forfeiture of restricted stock		(1	)		—		(10	)		—			—			10			—
Reclassification of deferred compensation (123R)		—			—		(119	)		—			—			119			—
Share-based compensation		—			—		2,106			—			—			—			2,106
Issuance of warrants		—			—		505			—			—			—			505
Issuance of common stock for exercise of stock options		394			4		1,275			—			—			—			1,279
Issuance of common stock for 401(k) matching contribution		87			1		404			—			—			—			405
Balance at December 31, 2006		21,268		$	213	$	81,362		$	(51,137	)	$	(7	)	$	—		$	30,431
Comprehensive loss:
	Net loss	—			—		—			(47,860	)		—			—			(47,860	)
	Unrealized loss on marketable securities	—			—		—			—			7			—			7
	Total comprehensive loss																		(47,853	)
Issuance of shares in stock offering		8,050			81		36,989			—			—			—			37,070
Share-based compensation		—			—		2,226			—			—			—			2,226
Issuance of common stock for exercise of stock options		228			2		760			—			—			—			762
Issuance of common stock for 401(k) matching contribution		85			—		448			—			—			—			448
Balance at December 31, 2007		29,631		$	296	$	121,785		$	(98,997	)		—		$	—		$	23,084

See accompanying notes to these consolidated financial statements.

56

Pharmacopeia, Inc.

Consolidated Statements of Cash Flows

(Amounts in thousands)

					Years Ended December 31,
					2007			2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss				$	(47,860	)	$	(27,764	)	$	(17,138	)
	Adjustments to reconcile net loss to net cash used in operating activities
		Depreciation and amortization				2,355			1,937			2,237
		Change in warrant liability				(173	)		(89	)		—
		Contribution of stock to 401(k) Plan				448			405			390
		Share-based compensation				2,226			2,106			345
		Restructuring credits				—			(88	)		—
		Gain on sale of property and equipment				—			(3	)		(34	)
		Changes in assets and liabilities:
			Accounts receivable			5,000			2,250			(1,194	)
			Prepaid expenses and other current assets			(833	)		(727	)		291
			Other assets			30			—			(43	)
			Accounts payable			380			1,379			(302	)
			Accrued and other liabilities			4,471			1,107			476
			Restructuring reserve			—			(820	)		(2,460	)
			Deferred revenue			22,819			14,361			(9	)
				Net cash used in operating activities		(11,137	)		(5,946	)		(17,441	)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures					(5,908	)		(2,676	)		(1,060	)
	Proceeds from sale of property and equipment					—			3			34
	Purchases of marketable securities					(49,400	)		(1,000	)		(10,536	)
	Proceeds from maturities of marketable securities					11,630			16,784			12,591
				Net cash (used in) provided by investing activities		(43,678	)		13,111			1,029
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from equity offerings, net					37,070			22,975			7,656
	Proceeds from issuance of common stock related to compensation plans					762			1,279			217
	Proceeds from borrowings under notes payable					4,320			—			—
	Repayments under notes payable					(250	)		—			—
	Investment by Accelrys, Inc.					—			—			46
				Net cash provided by financing activities		41,902			24,254			7,919
Net (decrease) increase in cash and equivalents						(12,913	)		31,419			(8,493	)
Cash and equivalents, beginning of period						43,099			11,680			20,173
Cash and equivalents, end of period					$	30,186		$	43,099		$	11,680
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
	Cash paid during the period for:
		Interest			$	57		$	—		$	—
		Income Tax			$	5		$	40		$	81

        Noncash transactions for the year ended December 31, 2006 were as follows:

•

The Company recorded the fair value of two warrants issued as part of its Product Development and Commercialization Agreement with GSK as an increase to additional paid-in capital and a decrease to deferred revenue. The fair value of the warrants amounted to approximately $505 thousand.



•

The Company recorded the fair value of the warrants it issued in October 2006 as part of its equity financing as a decrease to additional paid-in capital and an increase to warrant liability. The fair value of the warrants amounted to approximately $4.5 million on October 19, 2006.

See accompanying notes to these consolidated financial statements.

57

Pharmacopeia, Inc.

Notes to Consolidated Financial Statements

1. Background and Basis of Presentation

        Pharmacopeia, Inc. (Pharmacopeia or the Company) was incorporated in 2002 as Pharmacopeia Drug Discovery, Inc., a wholly owned subsidiary of Accelrys, Inc. (Accelrys). On April 30, 2004 (the distribution date), Accelrys spun-off 100 percent of the shares of Pharmacopeia Drug Discovery, Inc. in a pro rata tax-free distribution and distributed to its stockholders of record one share of Pharmacopeia Drug Discovery, Inc. common stock for every two shares of Accelrys common stock held. Effective May 3, 2007, Pharmacopeia Drug Discovery, Inc. changed its name to Pharmacopeia, Inc.

        Pharmacopeia is a clinical development stage biopharmaceutical company dedicated to discovering and developing novel small molecule therapeutics to address significant medical needs. Using proprietary technologies and processes, the Company seeks to identify, optimize and develop novel drug candidates through its own internally-funded drug discovery and development programs and in collaborations with major pharmaceutical and biotechnology companies. The Company has a broad portfolio of clinical and preclinical candidates under development internally or by partners, including eight compounds in Phase 2 or Phase 1 development, addressing multiple indications including hypertension, diabetic nephropathy, muscle wasting, inflammation and respiratory disease.

        The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary Pharmacopeia UK Holdings Limited (Pharmacopeia UK), which was formed in March 2007. All significant intercompany accounts and transactions have been eliminated in consolidation.

2. Significant Accounting Policies

Use of Estimates

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

Revenue Recognition

        Contract revenue is generally recognized either (i) on a proportional performance basis, for contracts specifying payment for services over a given period, or (ii) as services are performed under the agreement for contracts specifying payment on a full-time employee basis.

        Revenue earned related to up-front product and technology license fees is recognized in accordance with SAB 104 issued by the SEC and EITF 00-21, "Revenue Arrangements with Multiple Deliverables" issued by the FASB. Accordingly, amounts received under multiple-element arrangements requiring ongoing services or performance by us are recognized over the period of such services or performance.

        Revenue from milestones is recognized when earned, as evidenced by written acknowledgement from the collaborator, provided that (i) the milestone event is substantive, its achievability was not reasonably assured at the inception of the agreement, and the Company has no further performance obligations relating to that event, and (ii) collectibility is reasonably assured. If these criteria are not met, the milestone payment is recognized over the remaining period of our performance obligations under the arrangement. Royalties are recognized as earned in accordance with the terms of various research and collaboration agreements.

58

Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Significant Accounting Policies (Continued)

Share-based Compensation

        Prior to January 1, 2006 and as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), the Company elected to follow APB 25 and related interpretations in accounting for its employee stock option plans. Under APB 25, the Company did not recognize share-based compensation expense at the time of option grant because the exercise price of the stock option equaled the fair market value of the underlying common stock on the date of grant.

        Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123R, using the modified-prospective transition method. This statement is a revision to SFAS 123, supersedes APB 25 and amends SFAS No. 95, "Statement of Cash Flows." Under this transition method, compensation cost recognized includes compensation costs for all share-based payments granted prior to, but not yet vested as of December 31, 2005 based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and compensation cost for all share-based payments granted subsequent to December 31, 2005 based on the grant date fair value estimated in accordance with provisions of SFAS 123R. Results for prior periods have not been restated.

        Under SFAS 123R, the Company uses the Black-Scholes option pricing model to estimate the fair value of the share-based awards as of the grant date. The Black-Scholes model, by its design, is highly complex and dependent upon key data inputs estimated by management. The primary data inputs with the greatest degree of judgment are the estimated lives of the share-based awards and the estimated volatility of our stock price. The Black-Scholes model is sensitive to changes in these two data inputs. Beginning in fiscal year 2006, the Company calculated the estimated life of stock options granted using a "simplified" method, which is based on the average of the vesting term and the actual term of the option, as a result of guidance from the SEC as contained in SAB 107 permitting the initial use of this method through 2007. In December 2007, the SEC issued SAB 110, which is effective January 1, 2008, expressing the expectation that companies should be employing information from internal or external sources, about employee stock option exercise behavior when developing estimates of expected term, as they relate to stock option valuations. SAB 110 states that the SEC will continue to accept the use of the "simplified" method beyond December 31, 2007 under certain circumstances. The Company is still evaluating the method it will use to develop its expected term assumption in 2008. Expected stock price volatility is typically based on the daily historical trading data from an appropriate point in time through the last day of the applicable period. Because the Company's historical trading data only dates back to May 3, 2004, the date of its spin-off from Accelrys, the Company has determined expected volatility for fiscal year 2007 using an analysis of the stock price volatility of comparable companies in its industry.

        The fair value of these equity awards were estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for the years ended December 31, 2007, 2006 and 2005, respectively:

	2007		2006		2005
Dividend yield	0	%	0	%	0	%
Expected volatility	80.00 - 90.00	%	80.00 - 90.00	%	75.00 - 85.24	%
Risk-free interest rate	3.71 - 4.60	%	4.60 - 5.06	%	3.86 - 4.33	%
Expected life (years)	6.3		6.3		5.0 - 5.8

        As a result of adopting SFAS 123R, the Company's net loss and basic and diluted loss per share for the years ended December 31, 2007 and 2006 were approximately $2.2 million, or $0.8 per share, and $1.8 million, or $0.11 per share, respectively, higher than if the Company had continued to account

59

Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Significant Accounting Policies (Continued)

for its share-based compensation under APB 25. As of December 31, 2007, there was approximately $4.2 million of unrecognized compensation costs, net of estimated forfeitures, related to share-based payments which are expected to be recognized over a weighted average period of 2.7 years. The cash proceeds from options exercised during the years ended December 31, 2007, 2006 and 2005 were approximately $0.8 million, $1.3 million and $0.1 million, respectively. The aggregate intrinsic value of options exercised during the years ended December 31, 2007, 2006, and 2005 was approximately $433 thousand, $497 thousand, and $155 thousand, respectively. In addition to the expense incurred related to stock option grants, during the years ended December 31, 2007 and 2006, the Company also incurred share-based compensation costs of approximately $13 thousand and $68 thousand, respectively, relating to the vesting of restricted stock awards, and $35 thousand and $258 thousand, respectively, relating to stock options granted to consultants.

        The following table illustrates the effect on operating results and per share information had the Company accounted for its share-based compensation in accordance with SFAS 123 for the year ended December 31, 2005 (in thousands, except per share data):

		Year ended December 31, 2005
Net loss:
	As reported	$	(17,138	)
	Add: Stock-based employee compensation expense included in reported net loss		345
	Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(3,316	)
	Pro forma	$	(20,109	)
Basic and diluted net loss per common share:
	As reported	$	(1.27	)
	Pro forma	$	(1.49	)

Cash and Cash Equivalents

        The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company invests its cash with major financial institutions in money market funds, US Treasury securities and other investment grade securities such as prime-rated commercial paper.

Marketable Securities

        Marketable securities consist of fixed-income investments with an original maturity of greater than three months such as US Treasury securities, obligations of US Government agencies and other investment grade securities such as prime-rated commercial paper and corporate bonds. The Company applies SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115) in accordance with its investments in marketable securities. The Company's marketable securities are classified as available-for sale and are recorded at estimated fair value with unrealized gains or losses reported in accumulated other comprehensive income (loss) in stockholders' equity.

60

Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Significant Accounting Policies (Continued)

        Marketable securities consisted of the following (in thousands):

	December 31,
	2007						2006
	Amortized Cost		Market Value		Unrealized Gain (Loss)		Amortized Cost		Market Value		Unrealized Gain (Loss)
Auction Rate Securities	$	20,801	$	20,801	$	—	$	—	$	—	$	—
U.S. corporate-debt securities		20,328		20,328		—		1,047		1,031		(16	)
U.S. Treasury Securities		—		—		—	$	2,001		2,010		9
	$	41,129	$	41,129	$	—	$	3,048	$	3,041	$	(7	)

        Amortized cost and market value in the table above included accrued interest of $311 thousand and $40 thousand as of December 31, 2007 and 2006, respectively.

        Available-for-sale marketable securities by contractual maturity at December 31, 2007 were as follows (in thousands):

Due within one year	$	41,129
Due after one year through five years		—
	$	41,129

        As of February 1, 2008, the Company had re-invested its entire auction rate securities portfolio into U.S. government agency securities. The Company did not recognize any gain or loss with respect to the settlement of these securities.

Property and Equipment

        Property and equipment, which consists of laboratory equipment, computers and software, furniture, fixtures and other equipment, is stated at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the related assets, which range from three to five years. Assets under capital leases are amortized over their estimated useful life or the applicable lease period, whichever period is shorter. The Company amortizes leasehold improvements over the shorter of their estimated useful lives or the remaining term of the related lease. Repair and maintenance costs are charged to expense as incurred.

Warrant Liability

        The Company, in accounting for its warrants, follows EITF 00-19 which provides guidance for distinguishing between permanent equity, temporary equity and assets and liabilities. Under EITF 00-19, to qualify as permanent equity, an equity derivative, including warrants, must permit the Company to settle in unregistered shares. Under securities law, if the warrants were issued in connection with a public offering and have a cash settlement feature at the holder's option, the Company does not have the ability to settle in unregistered shares. Therefore, the warrants cannot be classified as permanent equity and are instead classified as a liability. The approximately 1,450,000 warrants that the Company issued as part of its equity financing in October 2006 meet this criteria, and their fair value has been recorded as a liability in the accompanying balance sheets. Other warrants the Company had previously issued qualify as permanent equity and do not require remeasurement.

        The Company records its warrant liabilities at fair value using a Black-Scholes option-pricing model and remeasures at each reporting date until the warrants are exercised or have expired. Changes in the fair value of the warrants are reported in the statements of operations as income or expense.

61

Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Significant Accounting Policies (Continued)

The fair value of the warrants is subject to significant fluctuation based on changes in the Company's stock price, expected volatility, expected life, the risk-free interest rate and dividend yield. The market price for the Company's common stock has been and may continue to be volatile. Consequently, future fluctuations in the price of the Company's common stock may cause significant increases or decreases in the fair value of the warrants issued in October 2006. During the year ended December 31, 2007, the fair value of the warrant liability decreased and as such, approximately $173 thousand was recorded as income.

Research and Development Expense

        Research and development expense consists of intellectual property in-licensing costs, labor, materials, contracted services, and allocated facility costs that are incurred in connection with internally funded and partnered drug discovery and development programs. All research and development costs are charged to operations as incurred.

Impairment of Long-Lived Assets

        The Company reviews the recoverability of the carrying value of long-lived assets, primarily property, plant and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable.

        Should indicators of impairment exist, the carrying values of the assets are evaluated in relation to the operating performance and future undiscounted cash flows of the underlying business. The net book value of an asset is adjusted to fair value if its expected future undiscounted cash flow is less than its book value. The Company identified no such impairment losses during the years ended December 31, 2007, 2006 and 2005.

Leases

        The Company accounts for its operating leases in accordance with SFAS No. 13, "Accounting for Leases, as amended" and FASB Technical Bulletin 85-3, "Accounting for Operating Leases with Scheduled Rent Increases". As such, the Company records the total determinable rental payments due under the lease on a straight-line basis over the lease term. Leasehold improvements are amortized over the shorter of their estimated useful lives or the remaining term of the related lease. Common area maintenance costs are charged to expense as incurred.

Accounting for Uncertain Tax Positions

        The Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes—an interpretation of FAS Statement No. 109" (FIN 48). FIN 48 applies to all uncertain tax positions accounted for in accordance with SFAS No. 109, "Accounting for Income Taxes" and is intended to result in increased relevance and comparability in financial reporting of income taxes and to provide more information about the uncertainty in income tax assets and liabilities. The Company will recognize potential interest and penalties related to income tax positions as a component of the benefit or provision for income taxes on the consolidated statements of operations in any future periods in which the Company must record a liability. Because the Company has not recorded a liability at December 31, 2007, there is no impact to the Company's effective tax rate. The Company does not anticipate that total unrecognized tax benefits will significantly change during the next twelve months.

Concentrations of Risk

        See Note 3 to the Financial Statements regarding Concentrations of Risk as they relate to our significant collaborations.

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Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Significant Accounting Policies (Continued)

Net Loss Per Share

        The Company computes net loss per share in accordance with SFAS No. 128, "Earnings Per Share" (SFAS 128). Under the provisions of SFAS 128, basic net loss per share is computed by dividing the net loss for the period by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted-average number of common and dilutive common equivalent shares outstanding during the period.

        The following table sets forth the computation of basic and diluted net loss per share as follows (in thousands, except per share amounts):

		Years Ended December 31,
		2007			2006			2005
Numerator:
Net loss		$	(47,860	)	$	(27,764	)	$	(17,138	)
Denominator:
	Weighted average shares outstanding and denominator for basic and diluted earnings per share		26,738,853			16,448,030			13,513,582
Net loss per share:
	Basic and diluted	$	(1.79	)	$	(1.69	)	$	(1.27	)

        Dilutive common stock equivalents would include the dilutive effects of common stock options, warrants for common stock equivalents, and restricted stock that has not yet fully vested. Potentially dilutive common stock equivalents totaled approximately 4.8 million, 3.7 million and 3.4 million, shares for the years ended December 31, 2007, 2006 and 2005, respectively.

Reclassifications

        Certain accounts in the consolidated balance sheet as of December 31, 2006, the consolidated statement of stockholders equity as of December 31, 2006 and the consolidated statement of cash flows for the years ended December 31, 2006 and 2005 have been reclassified for comparative purposes to conform with the presentation of the consolidated financial statements as of and for the year ended December 31, 2007.

New Accounting Pronouncements

Fair Value Measurements

        In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," (SFAS 157). SFAS 157 establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position (FSP) 157-2 which delays the effective date of SFAS 157 for one year for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS 157 and FSP 157-2 are effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company has elected a partial deferral of Statement 157 under the provisions of FSP 157-2. The

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Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Significant Accounting Policies (Continued)

Company is currently evaluating the impact that this partial adoption of SFAS 157, which is effective January 1, 2008, will have its consolidated financial statements.

Fair Value Option for Financial Assets and Liabilities

        In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Liabilities Including an Amendment of FASB Statement No. 115" (SFAS 159). SFAS 159 permits reporting entities to choose to measure eligible financial assets or liabilities, which include marketable securities available-for-sale and equity method investments, at fair value at specified election dates, or according to a pre-existing policy for specific types of eligible items. Unrealized gains and losses for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact, if any, that SFAS 159 will have on its consolidated financial statements.

Non-Refundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities

        In June 2007, the EITF of the FASB reached a consensus on Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities" (EITF 07-3). EITF 07-3 requires that non-refundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized. As the related goods are delivered or the services are performed, or when the goods or services are no longer expected to be provided, the deferred amounts would be recognized as an expense. EITF 07-3 is effective for financial statements issued for fiscal years beginning after December 15, 2007. The Company's adoption of EITF 07-3 is not expected to have a material effect on its consolidated financial statements.

3. Significant Collaborations

Product Development and Commercialization Agreement with GSK

        In March 2006, the Company and GSK entered into a product development and commercialization agreement. Under the terms of the GSK Agreement, the Company may receive up to $15.0 million in cash payments from GSK related to the initial discovery activities to be conducted by the Company, including $5.0 million that the Company received in April 2006 and $5.0 million that the Company received in June 2007. The remaining $5.0 million will be payable to the Company upon its fulfillment of certain conditions related to the initial discovery activities to be conducted by the Company. The Company's role in the alliance is to (i) identify and (ii) advance molecules in chosen therapeutic programs to development stage and (iii) subject to certain provisions in the GSK Agreement, further develop the candidates to clinical "proof of concept" (a demonstration of efficacy in humans). The Company has agreed that it will not screen its compound library for other collaborators, or for its own account, against any target it screens under the GSK Agreement for a specified period.

        The GSK Agreement provides GSK an exclusive option, exercisable at defined points during the development process for each program (up to the point of clinical proof of concept), to license that program. Upon licensing a program, GSK is obligated to conduct preclinical development and/or clinical trials and commercialize pharmaceutical products resulting from such licensed programs on a worldwide basis. In addition to the cash payments above, the Company is entitled to receive success-

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Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

3. Significant Collaborations (Continued)

based milestone payments, starting in preclinical research, from GSK for each drug development program under the alliance and the potential for double-digit royalties upon the successful commercialization by GSK of any product resulting there from.

        In the event that GSK does not exercise its option to license a program, the Company will retain all rights to that program and may continue to develop the program and commercialize any products resulting from the program, or it may elect to cease progressing the program and/or seek other partners for further development and commercialization. Should the Company develop or partner such a program and commercialize any products resulting from that program, the Company will be obligated to pay GSK success-based milestone payments and royalties upon successful commercialization, if any.

        Since the inception of the GSK Agreement, the Company has received $10.0 million ($5.0 million in April 2006 and $5.0 million in June 2007) in connection with initial discovery and research activities the Company is obligated to perform under the GSK Agreement. The Company recorded deferred revenue of approximately $9.5 million associated with these payments, net of the fair value of the warrants described below. In the year ended December 31, 2007, the Company also received non-refundable milestone payments totaling $1.5 million from GSK related to the identification of three lead compounds, which were also recorded as deferred revenue due to the Company's continuing performance obligations under the GSK Agreement. Included in deferred revenue as of December 31, 2007 was $9.1 million, of which $4.9 million was classified as long-term. The Company recognizes revenue on a proportional performance basis as it performs the required discovery activities in an amount from time to time less than or equal to the non-refundable portion of payments received in connection with the GSK Agreement. The Company's revenue under the GSK Agreement accounted for $1.6 million and $0.3 million of net revenue for the years ended December 31, 2007 and 2006, respectively. The research activities under the GSK Agreement commenced in April 2006.

        In connection with the GSK Agreement, the Company issued two warrants to GSK for the purchase of up to an aggregate of 176,367 shares of its common stock at an exercise price of $5.67 per share, which was a 25% premium over the trailing 30-day closing price average preceding March 24, 2006. The warrants are exercisable at any time before the earlier to occur of (i) March 24, 2011 and (ii) the effective date of certain types of terminations of the GSK Agreement. These warrants were issued in a transaction not involving a public offering under Section 4(2) of the Securities Act of 1933, as amended. The fair value of the warrants at the time of the execution of the GSK Agreement was determined to be $505 thousand. This amount was calculated using the Black-Scholes pricing model with the following assumptions: 80% volatility; expected term of 5 years; 4.66% risk-free rate; and 0% dividend.

        The Company and GSK each have the right to terminate the GSK Agreement in its sole discretion under certain specified circumstances at any time during the term of the GSK Agreement. In addition, the Company and GSK each have the right to terminate the GSK Agreement under other circumstances that are customary in these types of agreements. If the Company exercises its discretionary termination right at any time during the first five years of the term, under certain circumstances, it could be required to refund to GSK a portion of the up to $15.0 million related to initial discovery activities to be conducted by the Company referred to above. The amount of any such refund will be calculated based upon when during the term of the GSK Agreement that termination occurs and the amount of research funding the Company had received prior to such termination. However, there are no instances where the deferred revenue would be amortized below the amount

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Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

3. Significant Collaborations (Continued)

that could be potentially refundable pursuant to the terms of the GSK Agreement. Further, should GSK exercise its discretionary termination rights, there are no provisions in the GSK Agreement that would require the Company to refund payments received relating to its performance of initial discovery activities or milestone payments received under the GSK Agreement.

Research and License Agreement with Wyeth

        In December 2006, Pharmacopeia entered into a research and license agreement (the Wyeth Agreement) with Wyeth, acting through its Wyeth Pharmaceuticals Division, providing for the formation of a new alliance based on the Company's Janus Kinase-3 (JAK3) inhibitor program. The alliance's goal is to identify, develop and commercialize therapeutic products for the treatment of certain immunological conditions in humans.

        The companies each have certain exclusive rights to develop and commercialize products resulting from the JAK3 program and the alliance. Pharmacopeia retains the right to develop and commercialize therapeutic products for the treatment of dermatological and ocular diseases employing topical administration and Wyeth has the right to develop human therapeutic products for all other indications and routes of delivery. Under the terms of the Wyeth Agreement, the Company received an up-front non-refundable $5.0 million cash payment, and $3.0 million in research funding in 2007. The Company may also receive an additional $6.0 million, over the remaining portion of the three-year research term that began in January 2007. In addition, the Company may receive up to $175.0 million if Wyeth achieves preclinical and clinical development and regulatory and commercialization milestones, as well as double-digit royalties on the net sales of any products commercialized by Wyeth under the alliance. Each company is responsible for all development, regulatory, manufacturing and commercialization activities for the products it develops and commercializes in its field.

        In 2007, the Company received a $5.0 million up-front non-refundable payment and $3.0 million in research funding. The revenue for this research is recognized on a proportional performance basis, which is expected to approximate straight-line recognition of revenue over the initial three year term of the alliance. For the year ended December 31, 2007, the Company recognized approximately $4.7 million, or 22% of net revenue under the Wyeth Agreement. As of December 31, 2007, approximately $3.3 million was recorded in deferred revenue, of which $1.7 million was classified as long-term. The research term under the Wyeth Agreement commenced in January 2007. The Company may receive milestone payments upon the successful achievement, if any, of preclinical and clinical milestones.

        Pharmacopeia and Wyeth each have the right to terminate the Wyeth Agreement under certain specified circumstances at any time during the term of the Wyeth Agreement. In addition, Wyeth has the right, upon six months' prior written notice provided to the Company, to terminate the research collaboration and/or the Wyeth Agreement in its entirety or in part. Such right to termination would not apply to Wyeth's obligations with respect to any program developed by the collaboration and licensed by Wyeth. No termination will require the Company to refund to Wyeth any or all of the cash payments described above.

Collaboration and License Agreement with Cephalon

        In May 2006, the Company entered into a Collaboration and License Agreement (the Cephalon Agreement) with Cephalon, Inc. (Cephalon) providing for the formation of a new drug discovery,

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Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

3. Significant Collaborations (Continued)

development and commercialization alliance. Under the Cephalon Agreement, the Company received an up-front, non-refundable payment of $15.0 million in June 2006 to support the Company's research efforts.

        Cephalon is responsible for identifying hit and lead compounds, which the Company and Cephalon will then work collaboratively to advance the lead compounds to clinical candidates. The Company is principally responsible for medicinal chemistry research and Cephalon provides biology support, including preclinical disease models, as required by the Cephalon Agreement. The Company has agreed that, for a specified period, it will not screen its compound library for other collaborators, or for its own account, against any target it works on under the Cephalon Agreement.

        Upon the nomination of any clinical candidates by the alliance, Cephalon will be primarily responsible for their development and commercialization. The Company will retain an option to develop certain candidates from the alliance, subject to Cephalon's agreeing to such development. For any preclinical development candidate advanced under the alliance, the developing company will make clinical, regulatory and sales milestone payments to the non-developing company. In addition, the company commercializing any resulting product will pay the non-commercializing company up to double-digit royalties based on the sales level achieved.

        As stated above, under the Cephalon Agreement, the Company received a non-refundable payment of $15.0 million and is principally responsible for performing medicinal chemistry research. The revenue for this research is recognized on a proportional performance basis, which is expected to approximate straight-line recognition of revenue over the initial three year term of the alliance. Included in deferred revenue at December 31, 2007 was approximately $7.1 million related to the Cephalon Agreement, of which $2.1 million was classified as long-term. For the years ended December 31, 2007, and 2006 the Company recognized $5.0 million, or 23%, and $2.9 million, or 17%, of net revenue, respectively, under the Cephalon Agreement. The research activities under the Cephalon Agreement commenced in June 2006.

        The Company and Cephalon each have the right to terminate the Cephalon Agreement under certain specified circumstances at any time during the term of the Cephalon Agreement. In addition, Cephalon has the right to terminate the Cephalon Agreement in its sole discretion, upon ninety days written notice to the Company, during the initial three-year phase of the alliance, which phase may be extended by agreement of the parties. No such termination shall require the Company to refund to Cephalon any or all of the above research and development funding.

        One of the Company's directors currently serves as the Chairman and Chief Executive Officer of Cephalon.

Collaboration and License Agreement with Organon

        In February 2007, the Company entered into an amended and restated collaboration and license agreement (the Organon Agreement) with N.V. Organon (Organon), providing for the formation of a new alliance to discover, develop and commercialize therapeutic products across a broad range of therapeutic indications. The new alliance builds on the companies' past collaborations, including the February 2002 agreement between the Company and Organon (the 2002 Collaboration). In November 2007, Organon was acquired by and is now a part of Schering-Plough.

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Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

3. Significant Collaborations (Continued)

        Under the Organon Agreement, the Company received an up-front payment of $15.0 million, $1.0 million for the transfer of rights to certain programs from the 2002 collaboration and $4.0 million in quarterly research funding during 2007. The Organon Agreement provides that the Company may also receive up to an additional $4.0 million per year ($16.0 million aggregate) in research funding over the remaining portion of the five-year research term of the alliance, which began in February 2007. The Organon Agreement also provides that the Company waives its rights to receive further compensation (e.g., future milestone and royalty payments) with respect to programs resulting from lead series identified by the Company and delivered to Organon under the 2002 Collaboration and certain other programs from earlier agreements.

        The Organon Agreement provides Pharmacopeia the option to purchase the right to co-develop and co-commercialize certain therapeutic candidates discovered through the alliance. For therapeutic candidates the Company does not elect to co-develop and co-commercialize, Organon will retain exclusive development and commercialization rights, and the Company will receive milestone payments as a result of Organon's successful advancement, if any, of each candidate through clinical development, and up to double-digit royalties based on commercialization of any resulting pharmaceutical products.

        Since February 2007, the Company has received $20.0 million in connection with the Organon Agreement which the Company recorded as deferred revenue. Included in deferred revenue as of December 31, 2007 was approximately $17.0 million related to the Organon Agreement, of which approximately $10.0 million was classified in deferred revenue, long-term. The Company recognizes revenue on a proportional performance basis as it performs research activities as provided in the Organon Agreement. For the year ended December 31, 2007, the Company recognized approximately $3.0 million, or 14%, of revenue in connection with the Organon Agreement.

        Under the 2002 Collaboration, the Company had received quarterly research funding to conduct its drug discovery activities to identify and optimize new drug candidates for multiple therapeutic targets provided by Organon. Funding received in advance was recorded as deferred revenue. Research funding from the 2002 Collaboration was recognized as revenue on a proportional performance basis, which approximated straight-line recognition over the term of the agreement. For the year ended December 31, 2007, the Company recognized as revenue approximately $0.5 million in connection with the 2002 Collaboration. The research term of the 2002 Collaboration ended in February 2007.

        Under the Organon Agreement and the 2002 Collaboration, the Company recognized approximately $3.5 million, or 16%, and $5.5 million, or 32%, respectively, of net revenue for the years ended December 31, 2007 and 2006, including $2.0 million in milestones and success fees in the year ended December 31, 2006.

        Both Pharmacopeia and Organon have the right to terminate the Organon Agreement under certain specified circumstances at any time during the term of the Organon Agreement. In addition, the Company and Organon each have the right to terminate the Organon Agreement under other circumstances that are customary in these types of agreements. Further, each party has the right, upon six months prior written notice provided to the other party at any time beginning two and one-half years after February 8, 2007, to terminate the research portion of the alliance and/or the Organon Agreement. Such a termination of the research portion of the alliance by Organon would not apply to Organon's obligations with respect to any program developed by the alliance that Organon is advancing or to therapeutic candidates with respect to which the Company has previously exercised its option to

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Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

3. Significant Collaborations (Continued)

purchase the right to co-develop and co-commercialize. Should Organon exercise its discretionary termination right, there are no provisions in the Organon Agreement that would require the Company to refund payments received under the Organon Agreement. If Pharmacopeia exercises its discretionary termination right, under certain circumstances, it could be subject to a termination fee of $5.0 million. Whether or not the Company is subject to the termination fee is based upon when during the term of the Organon Agreement the Company's discretionary termination right is exercised. However, until such time as we are no longer subject to the termination fee, there will be no instances where the deferred revenue associated with the Organon Agreement would be amortized below $5.0 million.

Collaboration and License Agreements with Schering-Plough

        In April 2007, the Company's research activities under its agreements with Schering-Plough were completed. Under the terms of the Company's agreements with Schering-Plough, the cessation of the Company's research activities does not affect other areas of the collaborations, including the ongoing Phase 2 and Phase 1 clinical trials and multiple preclinical programs that Schering-Plough is conducting. The Company will continue to be entitled to payments resulting from the successful achievement by Schering-Plough, if any, of clinical milestones, as well as royalty payments from sales, if any, of products resulting from compounds already delivered by the Company and accepted by Schering-Plough under the collaborations. For the years ended 2007 and 2006, the Company's collaborations with Schering-Plough accounted for approximately $3.8 million, or 18%, and $6.6 million, or 39%, respectively, of net revenue in the period, including $3.0 million and $2.0 million in milestone revenue in 2007 and 2006, respectively

        In 2007, subsequent to the Company entering into the Organon Agreement, Schering-Plough acquired Organon.

Other Items

        No other collaborator accounted for more than 10% of total revenue in the years ended December 31, 2007, 2006 and 2005.

4. License Agreements with Bristol-Myers Squibb (DARA program and SARM program)

DARA License Agreement

        In March 2006, the Company and BMS entered into an exclusive licensing agreement (the DARA License Agreement) providing the Company an exclusive license under certain BMS patents with respect to worldwide development and commercialization of certain compounds discovered by BMS that possess dual angiotensin and endothelin receptor antagonist (DARA) activity, including lead and backup DARA development candidates.

        Under the terms of the DARA License Agreement, in lieu of an up-front cash payment, the Company is providing BMS a set of compound libraries, over a period of approximately three years following the execution of the agreement. In the event the Company fails to deliver the aforementioned libraries to BMS, the Company would be required to make cash payments to BMS on a pro rata basis of up to $1.2 million as of December 31, 2007.

        The Company estimated that the fair value of the compound library services to be provided to BMS is approximately $2.0 million. In accordance with SFAS 2 "Accounting for Research and

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Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

4. License Agreements with Bristol-Myers Squibb (DARA program and SARM program) (Continued)

Development Costs," the Company recorded a non-cash charge of $2.0 million to proprietary research and development expense related to the acquisition of the license to the DARA program during the year ended December 31, 2006. The Company also recorded deferred revenue for the estimated fair value of the compound library services to be provided. Included in deferred revenue as of December 31, 2007 was approximately $1.2 million, all of which was classified as deferred revenue, current portion. During the year ended December 31, 2007, the Company recognized approximately $765 thousand of revenue in connection with these compound library services.

        During the year ended December 31, 2007, the Company paid BMS $3.0 million in milestone fees related to the achievement of clinical events by PS433540. The Company is obligated to pay BMS additional milestone payments upon the achievement, if any, of further successive clinical and regulatory events in the United States and certain other jurisdictions, and royalties on sales of products, if any, resulting from the DARA program. BMS has a limited right of first negotiation in the event that the Company desires to license compounds that are the subject of the DARA License Agreement to a third party other than BMS.

SARM License Agreement

        In October 2007, Pharmacopeia acquired the development and commercialization rights to its SARM program from BMS, including PS178990, a product candidate in Phase 1 clinical development for which it intends to conduct further clinical trials. In consideration for the licenses to the SARM program, the Company entered into a discovery collaboration agreement with BMS to provide a portion of our medicinal chemistry resources to a BMS discovery program unrelated to the SARM program for a period up to three years.

        The Company estimated that the fair value of the compound library services to be provided to BMS is approximately $9.2 million. In accordance with SFAS 2, the Company recorded a non-cash charge of $9.2 million to proprietary research and development expense related to the acquisition of the license to the SARM program during the year ended December 31, 2007. Included in deferred revenue as of December 31, 2007 was approximately $9.2 million, which represents the estimated fair value of the medicinal chemistry resources the Company is to provide to BMS, of which $6.2 million was classified as long-term revenue.

        In addition, the Company will pay BMS milestone payments associated with submission and approval of a therapeutic product for marketing and a stepped royalty on net sales of therapeutic products, if any, resulting from the SARM development program. BMS has a limited right of first negotiation in the event that the Company desires to license compounds that are the subject of the SARM License Agreement to a third party other than BMS.

5. Related Party Transactions

        A member of Pharmacopeia's board of directors currently serves as the Chairman and Chief Executive Officer of Cephalon. In connection with the Cephalon Agreement, in June 2006, the Company received an up-front non-refundable $15.0 million payment to support the Company's research efforts. The Company recognized revenue of approximately $5.0 million, or 23% of its total revenue, and $2.9 million, or 17% of its total revenue, relating to this alliance during the years ended December 31, 2007 and 2006, respectively. The alliance with Cephalon began in 2006 and thus, there was no revenue recognized in the year ended December 31, 2005.

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Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

5. Related Party Transactions (Continued)

        A member of Pharmacopeia's clinical advisory board also is affiliated with a contract research organization that the Company has contracted with to conduct one of it clinical trials. For the year ended December 31, 2007, the Company incurred expense of approximately $1.3 million related to the clinical trial this CRO is conducting for the Company. There was no such expense for the years ended December 31, 2006 and 2005, respectively.

        A former member of Pharmacopeia's Board of Directors, who retired in May 2007, was also a partner in an outside law firm that provided legal services to Pharmacopeia during the years he served as director. For the years ended December 31, 2007, 2006, and 2005, Pharmacopeia expended a total of $510 thousand, $373 thousand, and $324 thousand, respectively, in fees related to services provided by such firm.

        A member of Pharmacopeia's Board of Directors also serves as Chair of Pharmacopeia's Scientific Advisory Board. For the years ended December 31, 2007, 2006, and 2005, Pharmacopeia expended a total of $36 thousand, for each year, in fees related to his services as Chair.

        The Company's Chairman is also Chairman of the Board of Directors of a collaborator. For the year ended December 31, 2005, the Company recorded revenue of approximately $1.0 million for collaborative research and development provided to that collaborator. For the years ended December 31, 2007, and 2006, there was no revenue recognized from that collaborator.

6. Composition of Certain Financial Captions

Property and equipment consist of the following (in thousands):

	December 31,
	2007		2006
Laboratory equipment	$	17,001	$	14,968
Furniture, fixtures and equipment		1,938		1,910
Computers and software		6,188		4,559
Leasehold improvements		11,808		11,782
Construction-in-progress		3,437		1,245
		40,372		34,464
Accumulated depreciation and amortization		25,532		23,177
Property and equipment, net	$	14,840	$	11,287

        Depreciation and amortization expense for the years ended December 31, 2007, 2006 and 2005 was $2.4 million, $1.9 million and $2.2 million, respectively.

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Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

6. Composition of Certain Financial Captions (Continued)

Accrued liabilities consist of the following (in thousands):

	December 31,
	2007		2006
Payroll and other compensation	$	2,711	$	2,065
Preclinical and clinical development related expense		3,907		139
Other		310		253
	$	6,928	$	2,457

7. Income Taxes

        The Company accounts for income taxes using the liability method. Under the liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the carrying amounts and the tax basis of existing assets and liabilities.

        Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):

		December 31,
		2007			2006
Deferred tax assets:
	Net operating loss carryforwards	$	35,369		$	19,974
	Deferred revenue		8,396			5,525
	Acquired R&D Costs		3,629			—
	Accruals and reserves		993			1,224
	Share-based compensation		1,071			627
	Gross deferred tax asset		49,458			27,350
Deferred tax liability:
	Fixed assets		1,774			1,510
Net asset before valuation allowance			47,684			25,840
Valuation allowance			(47,684	)		(25,840	)
Net deferred tax asset		$	—		$	—

        As of December 31, 2007, the Company had U.S. federal net operating loss carryforwards of approximately $82.7 million. The U.S. federal net operating losses begin to expire in 2022, if not fully utilized. Realization is dependent on generating sufficient taxable income prior to expiration of the loss. For the years ended December 31, 2007, 2006 and 2005, $419 thousand, $497 thousand and, $54 thousand, respectively, of net operating losses related to stock option deductions, which will result in an increase to paid-in capital and a decrease in income taxes payable at such time as the tax benefit is realized. A valuation allowance has been established for the net deferred tax assets due to the Company's lack of earnings history.

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Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

7. Income Taxes (Continued)

        The benefit from income taxes consists of the following (in thousands):

		Years ended December 31,
		2007			2006			2005
Current:
	State	$	(823	)	$	(478	)	$	(234	)
Total		$	(823	)	$	(478	)	$	(234	)

        The benefit from state income taxes for the years ended December 31, 2007, 2006 and 2005 represents the sale by the Company of a portion of its 2005, 2004 and 2003 state net operating losses and research and development credits, from which the Company realized $771 thousand, $532 thousand, and $267 thousand, respectively, offset by amounts recorded for state alternative minimum taxes.

        The following reconciles income taxes computed at the US statutory federal tax rate to the Company's benefit from income taxes from continuing operations (in thousands):

		Years ended December 31,
		2007			2006			2005
Tax benefit at U.S. statutory rate		$	(16,552	)	$	(9,633	)	$	(5,906	)
	State income benefit, net of Federal income tax benefit		(4,010	)		(1,566	)		(1,097	)
	Change in valuation allowance		21,844			10,704			6,510
	Other		(2,105	)		17			259
Benefit from income taxes		$	(823	)	$	(478	)	$	(234	)

        The Tax Reform Act of 1986 contains provisions that limit the utilization of net operating loss and tax credit carryforwards if there has been a "change of ownership" as described in Section 382 of the Internal Revenue Code. The Company has not performed a detailed analysis to determine whether an ownership change has occurred. Such a change of ownership may limit the Company's utilization of its net operating loss and tax credit carryforwards, and could be triggered by subsequent sales of securities by the Company or its stockholders.

8. Line of Credit / Notes Payable

        In December 2006, the Company entered into a Loan and Security Agreement (the Line of Credit) with a lending institution (the Lender). The Line of Credit is intended to provide the Company with funding, in exchange for a security interest in certain of the Company's equipment. The Line of Credit provides up to a total of $5.0 million in funding in the form of term loans, from time to time through December 2008. Term loans secured by laboratory equipment have a fixed term of 48 months. Term loans secured by all other collateral categories have a fixed term of 36 months.

73

Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

8. Line of Credit / Notes Payable (Continued)

        The following table includes the aggregate future principal payments of the Company's long-term debt as of December 31, 2007:

	Total
2008		1,069
2009		1,182
2010		1,198
2011		621
	$	4,070

        As of December 31, 2007, the aggregate balance of loans originated under the Line of Credit was approximately $4.1 million, of which $3.0 million was classified as notes payable, long-term. Interest rates on these loans range from 10.08% to 10.28%. Additionally, the Company had approximately $0.6 million available for borrowings under the Line of Credit as of December 31, 2007.

9. Sale of Securities

        In May 2007, we issued and sold approximately 8.1 million shares of our common stock at a purchase price per share of $5.00 as part of a public underwritten offering. The aggregate gross proceeds of the transaction were approximately $40.3 million. The proceeds we received from the transaction, net of transaction costs, were approximately $37.1 million. The shares of common stock were sold through a prospectus supplement pursuant to one of our effective shelf registration statements.

        In October 2006, the Company sold approximately 5.8 million shares of its common stock at a purchase price per share of $4.28. In connection with that sale of stock, the Company sold warrants to purchase approximately 1.45 million shares of its common stock at a purchase price of $0.125 per warrant, with an exercise price of $5.14 per share. The warrants are exercisable from April 19, 2007 through April 19, 2012. The aggregate gross proceeds of the transaction were approximately $25.0 million. On October 18, 2006, the Company received proceeds of approximately $23.0 million from the transaction, net of transaction costs. The shares and warrants were offered through a prospectus supplement pursuant to the Company's effective shelf registration statement on Form S-3.

        Under EITF 00-19, to qualify as permanent equity, an equity derivative must permit the issuer to settle in unregistered shares. Under securities law, if the warrants were issued in connection with a public offering and have a cash settlement feature at the holder's option, a company does not have the ability to settle in unregistered shares. Therefore, the warrants cannot be classified as permanent equity and are instead classified as a liability. The warrants that the Company issued as part of its equity financing in October 2006 meet this criteria, and have been recorded as a liability in the accompanying balance sheet. The fair value of the warrants was determined as of October 18, 2006 and the Company recorded a liability relating to the issuance of the warrants of approximately $4.5 million. Equity derivatives not qualifying for permanent equity accounting are recorded at fair value on the measurement date, and are remeasured at each reporting date until the warrants are exercised or have expired. Changes in the fair value of the warrants are reported in the statement of operations as income or expense. At December 31, 2006, the fair value of the warrants decreased to approximately $4.4 million. As a result of this decrease, the Company recorded approximately $0.1 million in income

74

Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

9. Sale of Securities (Continued)

in the statement of operations for the year ended December 31, 2006. At December 31, 2007, the fair value of the warrants had decreased further to approximately $4.2 million. As a result of this decrease, the Company recorded approximately $0.2 million in income in the statement of operations for the year ended December 31, 2007.

        The fair value of the warrants were calculated using the Black-Scholes option-pricing model with the following assumptions at the respective measurement dates:

	December 31, 2007			December 31, 2006			October 19, 2006
Dividend yield		0	%		0	%		0	%
Expected volatility		80.00	%		90.00	%		90.00	%
Risk-free interest rate		3.45	%		4.70	%		4.75	%
Expected life (years)		4.3			5.3			5.5
Stock Price	$	4.77		$	4.26		$	4.28
Exercise Price	$	5.14		$	5.14		$	5.14

10. Preferred Stock

        The Company's amended and restated certificate of incorporation authorizes the issuance of up to 2,500,000 shares of preferred stock, $0.01 par value, per share. As of December 31, 2007 and 2006, no shares of preferred stock were outstanding.

        The Company's amended and restated certificate of incorporation provides that its board of directors may by resolution establish one or more classes or series of preferred stock having the number of shares and relative voting rights, designation, dividend rates, liquidation, and other rights, preferences, and limitations as may be fixed by them without further stockholder approval. The holders of the Company's preferred stock may be entitled to preferences over common stockholders with respect to dividends, liquidation, dissolution or the Company winding up in such amounts as are established by the Company's board of directors resolutions issuing such shares.

        The Company's board of directors adopted a stockholder rights plan (the rights plan) in April 2004. Under the rights plan, preferred stock purchase rights (each a "right) were distributed as a dividend at the rate of one right for each share of common stock outstanding as of the close of business on April 6, 2004 and automatically attach to shares issued thereafter. Each right entitles the holder to purchase one ten-thousandth of a share of newly created Series A Junior Participating Preferred Stock at an exercise price of $75.00 per right. In general, the rights will be exercisable if a person or group (Acquiring Person) becomes the beneficial owner of 15% or more of the Company's outstanding common stock or announces a tender offer for 15% or more of the Company's common stock. When the rights become exercisable, in lieu of Series A Junior Participating Preferred Stock, a holder, other than the Acquiring Person, will have the right to receive upon exercise common stock having a value equal to two times the exercise price of the right. In general the Company's board of directors will be entitled to redeem the rights for $0.0001 per right at any time prior to the occurrence of the stock acquisition events described above. If not redeemed, the rights will expire on April 5, 2014.

75

Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

11. Stock Plans

        Pharmacopeia had two Stock Plans, the 2004 Stock Incentive Plan (the Plan), which was approved by the Company's Board of Directors on April 6, 2004, and the 2004 Employee Stock Purchase Plan (ESPP), which was approved by the Company's Board of Directors on May 1, 2004. Effective May 31, 2005 the Company terminated the ESPP.

        In accordance with the Plan, Pharmacopeia may grant up to an aggregate of 3,400,000 shares of stock options, restricted stock, common stock, performance awards, deferred stock units and stock appreciation rights to officers, directors, employees, sales representatives and consultants of Pharmacopeia. All of the shares reserved under the Plan may be issuable as incentive stock options. The term of each incentive and non-qualified stock option is ten years. Vesting generally occurs over a period of not greater than five years, the expense for which is recorded on a straight-line basis for the requisite service basis. As of December 31, 2007, there were approximately 1,980,000 shares reserved underlying options granted under the Plan and approximately 1,375,000 shares available for future grants under the Plan.

        In September 2007, the Company granted 300,000 options to two new executives, including 50,000 options that vest upon the achievement of certain enumerated objective performance criteria (performance-based vesting). These options were granted outside the Plan, and with provisions that are generally consistent with the provisions of the Plan.

        Prior to the spin-off, the Company adopted the following Accelrys stock option plans: the 1994 Incentive Stock Plan, the 1995 Director's Option Plan and the 2000 Stock Option Plan under which grants of options and restricted stock had been made to Pharmacopeia employees. Generally, all outstanding options to purchase Accelrys common stock under these Accelrys Stock Option Plans were converted to options to purchase Pharmacopeia stock, in order to maintain the then existing intrinsic value and maintain the ratio of the then existing exercise price per share to the market value per share in accordance with applicable accounting standards. As of December 31, 2007, there were approximately 1,918,000 shares reserved underlying options made under these plans. No additional options may be granted to Pharmacopeia employees from these plans. A summary of the stock option activity and weighted average exercise prices follows (in thousands, except per share amounts):

		Years Ended December 31,
		2007				2006				2005
		Common Stock Options		Weighted Average Exercise Price		Common Stock Options		Weighted Average Exercise Price		Common Stock Options		Weighted Average Exercise Price
Outstanding at beginning of year:		3,670		$	6.66	4,280		$	6.83	3,933		$	7.10
	Granted	927		$	5.08	603		$	4.86	568		$	4.89
	Exercised	(228	)	$	5.24	(394	)	$	3.24	(51	)	$	2.26
	Expired or forfeited	(171	)	$	7.99	(819	)	$	7.89	(170	)	$	8.22
Outstanding at end of year:		4,198		$	6.42	3,670		$	6.66	4,280		$	6.83
Exercisable at end of year		2,783				2,678				3,247
	Weighted average fair value of options granted during the period			$	4.76			$	3.63			$	3.53

76

Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

11. Stock Plans (Continued)

        A summary of stock options outstanding and exercisable as of December 31, 2007 is as follows (in thousands, except per share amounts):

			Options Outstanding
						Options Exercisable
			Weighted Average Remaining Life (years)
Range of Exercise Prices	Options Outstanding			Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$  0.00-$  5.00		1,751	6.37	$	4.39		960	$	4.25
$  5.01-$10.00		2,116	6.33	$	6.13		1,492	$	6.33
$10.01-$15.00		35	2.80	$	12.54		35	$	12.55
$15.01-$20.00		296	2.52	$	19.76		296	$	19.76
		4,198	6.05	$	6.42		2,783	$	7.12
Aggregate Intrinsic Value	$	661				$	516

        As of December 31, 2007, there were approximately 4,108,000 options outstanding, net of estimated forfeitures, that had vested or are expected to vest. The weighted-average exercise price of these options was $6.45 per option; the weighted-average remaining contractual life of these options was 5.99 years; and the aggregate intrinsic value of these options was approximately $651 thousand.

12. Deferred Compensation and Retirement Savings Plans

        The Company maintained a deferred compensation plan for certain officers and members of the Board of Directors. Effective December 31, 2004, participation in the deferred compensation plan was frozen and no further contributions may be made into the plan. The balance of the assets in the plan totaled approximately $2.1 million and $2.0 million as of December 31, 2007 and 2006.

        The Company has an employee savings and retirement plan (the 401(k) Plan) that is intended to be a tax-qualified plan covering substantially all employees. Under the terms of the 401(k) Plan, employees may elect to contribute up to 20% of their compensation, or the statutory prescribed limit, if less. The Company may, at its discretion, match employee contributions up to a maximum of 3% of the employee's compensation, subject to certain plan limits. Employer contributions, made up entirely of Company common stock, totaled $448 thousand, $405 thousand and $390 thousand for the years ended December 31, 2007, 2006 and 2005, respectively.

13. Commitments and Contingencies

Operating Leases

        The Company has several operating leases for office and laboratory space, which expire in 2016. The leases for the Company's facilities in New Jersey provide generally for scheduled rent increases, options to extend the leases with certain changes to the terms of the lease agreement, and refurbishment allowances. Rent and Common Area Maintenance expense under operating leases for the years ended December 31, 2007, 2006, and 2005 was approximately $2.2 million, $2.1 million, and $2.1 million, respectively.

77

Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

13. Commitments and Contingencies (Continued)

        Future minimum lease commitments at December 31, 2007 are as follows (in thousands):

	Total
2008		2,467
2009		2,488
2010		2,488
2011		2,488
2012		2,488
Thereafter		8,851
	$	21,270

ECLiPS® Royalties

        Under its license agreement with the Trustees of Columbia (Columbia) University and Cold Spring Harbor Laboratory (Cold Spring), the Company has an exclusive license for technology used in its proprietary combinatorial chemistry encoding technology, Encoded Combinatorial Libraries on Polymeric Support, or ECLiPS®. The Agreement obligates the Company to pay a minimum annual license fee of $100 thousand to Columbia and Cold Spring. In 2007, 2006, and 2005, the Company incurred related royalties and license fees totaling $110 thousand, $129 thousand and $126 thousand, respectively. The term of the Agreement is the later of (i) July 16, 2013 or (ii) the expiration of the last patent relating to the technology, at which time the Company will have a fully paid license to the technology. The license granted to the Company under the Agreement can be terminated by Columbia and Cold Spring (i) upon 30 days written notice to the Company if the Company materially breaches the Agreement and the Company fails to cure such material breach in accordance with the Agreement or (ii) if the Company commits any act of bankruptcy, becomes insolvent, files a petition under any bankruptcy or insolvency act or has any such petition filed against it that is not dismissed within 60 days. The Company is also obligated to pay royalties to Columbia and Cold Spring based on net sales of pharmaceutical products the Company develops, as well as a percentage of all other revenue the Company recognizes from collaborators that is derived from the technology licensed from Columbia and Cold Spring.

Product Development and Commercialization Agreement with GSK

        Under the GSK Agreement, the Company and GSK each have the right to terminate the GSK Agreement in its sole discretion under certain specified circumstances at any time during the term of the GSK Agreement. In addition, the Company and GSK each have the right to terminate the GSK Agreement under circumstances that are customary in these types of agreements. If the Company exercises its discretionary termination right at any time during the first five years of the term, under certain circumstances, it could be required to refund to GSK a portion of the up to $15.0 million related to initial discovery activities to be conducted by the Company. The amount of any such refund will be calculated based upon when during the term of the GSK Agreement that termination occurs. However, there are no instances where the deferred revenue would be amortized below the amount that could be potentially refundable pursuant to the terms of the GSK Agreement. Further, should GSK exercise its discretionary termination rights, there are no provisions in the GSK Agreement that

78

Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

13. Commitments and Contingencies (Continued)

would require the Company to refund payments received relating to its performance of initial discovery activities under the GSK Agreement.

        The Company's role in the alliance is to (i) identify and (ii) advance molecules in chosen therapeutic programs to development stage and (iii) subject to certain provisions in the GSK Agreement, further develop the candidates to clinical "proof of concept" (a demonstration of efficacy in humans). As of December 31, 2007, the Company had approximately $9.1 million of deferred revenue related to services that are to be provided under the GSK Agreement by the Company after December 31, 2007.

Research and License Agreement with Wyeth

        Under the Wyeth Agreement, in 2007 the Company received an up-front, non-refundable payment of $5.0 million and $3.0 million in research funding to support the Company's research efforts. As of December 31, 2007, the Company had approximately $3.3 million of deferred revenue related to services that we are to provide under the Wyeth Agreement after December 31, 2007.

Collaboration and License Agreement with Cephalon

        Under the Cephalon Agreement, the Company received an up-front, non-refundable payment of $15.0 million in June 2006 to support the Company's research efforts. The Company is principally responsible for performing medicinal chemistry research over the alliance term, as required by the Cephalon Agreement. As of December 31, 2007, the Company had approximately $7.1 million of deferred revenue related to services that are to be provided under the Cephalon Agreement by the Company after December 31, 2007.

Collaboration and License Agreement with Organon

        Under the Organon Agreement, the Company has received $20.0 million (the $15.0 million up-front payment, $1.0 million for the transfer of rights to certain programs from the 2002 Collaboration, and four quarterly research payments of $1.0 million each) since February 2007 to support our research efforts. As of December 31, 2007, The Company had approximately $17.0 million of deferred revenue related to services that it is to provide under the Organon Agreement after December 31, 2007.

        In addition, if the Company exercises its discretionary termination right, under certain circumstances, the Company could be subject to a termination fee of $5.0 million. Whether or not the Company is subject to the termination fee is based upon when during the term of the Organon Agreement the Company exercise its discretionary termination right. However, until such time as the Company is no longer subject to the termination fee, the will be no instances where the deferred revenue associated with the Organon Agreement would be amortized below $5.0 million.

SARM License Agreement with BMS

        In consideration for the licenses to the SARM program, in October 2007, the Company also entered into a discovery collaboration agreement (the Discovery Collaboration Agreement) with BMS. The Discovery Collaboration Agreement provides that the Company will apply a portion of its medicinal chemistry resources to a BMS discovery program that is unrelated to the SARM program for

79

Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

13. Commitments and Contingencies (Continued)

up to three years. The Company recorded deferred revenue of $9.2 million which approximates the fair value of the chemistry resources that we are to provide to BMS subsequent to December 31, 2007.

        In addition, the Company will pay BMS milestone payments associated with submission and approval of a therapeutic product for marketing and a stepped royalty on net sales of therapeutic products, if any, resulting from the SARM development program.

DARA License Agreement with BMS

        Under the terms of the DARA License Agreement, in lieu of an up-front cash payment, the Company is providing BMS a set of compound libraries, over a period of approximately three years following the execution of the agreement. In the event the Company fails to deliver the aforementioned libraries to BMS, the Company would be required to make cash payments on a pro rata basis of up to $1.2 million.

        In addition, the Company will pay BMS milestone payments upon the achievement of successive clinical and regulatory events in the United States and certain other jurisdictions, and royalties on sales of products, if any, resulting from the DARA program.

Milestone and Royalty Commitments

        Under the terms of certain agreements to which the Company is a party, it is possible that the Company may become obligated to pay aggregate milestone payments totaling up to $287 million upon the achievement of successive clinical and regulatory events and royalties on sales of products, if any, resulting from programs for which the Company has development responsibility under such agreements. The Company will not be responsible for the payment of future milestone and/or royalty payments in the event that development of such a program is discontinued. Preclinical and clinical development of drug candidates is a long, expensive and uncertain process. At any stage of the preclinical or clinical development process, the Company may decide to discontinue the development of its product candidates. To date, none of the compounds to which the Company holds complete or partial rights has reached the stage of commercial product. The Company expects that its product candidates will not be commercially available for many years, if ever.

Product Manufacturing Contracts

        The Company has entered into contracts with third parties related to the manufacturing of materials that are to be used in connection with our clinical trials for PS433450. The termination provisions for these contracts are such that, as of December 31, 2007, the Company had commitments totaling approximately $5.2 million, which are expected to be fulfilled during the year ended December 31, 2008.

Contract Research Organizations (CROs)

        In connection with toxicology studies for PS433540, the Company has made certain commitments with contract research organizations totaling approximately $1.0 million, which it expects to be fulfilled during the year ended December 31, 2008.

80

Pharmacopeia, Inc.

Notes to Consolidated Financial Statements (Continued)

14. Business Segment and Geographical Information

        The Company classifies its business operations in one operating segment. All of the Company's revenues are generated from this segment. Revenue was derived from collaborators located in the following geographic regions:

		Years ended December 31,
		2007		2006		2005
Customers located in:
	United States	69	%	45	%	39	%
	Europe	31	%	55	%	60	%
	Asia	—		—		1	%

15. Restructuring and severance costs

        During the year ended December 31, 2005, the Company incurred approximately $1.5 million of expense related to severance payable to two former executives of the Company. These charges consisted of $1.3 million in connection with cash payment obligations to these former executives, as well as a noncash charge of $0.2 million related to the accelerated vesting of their stock compensation. These expenses were classified as general and administrative expense in the Company's Consolidated Statement of Operations. Severance costs for year ended December 31, 2006 were approximately $182 thousand. The Company incurred no severance costs in the year ended December 31, 2007.

        During the year ended December 31, 2006, the Company reduced its restructuring accrual by $88 thousand to reflect the final costs associated with its restructuring plan in 2004.

16. Selected Quarterly Financial Information (unaudited)

        The following is a summary of the quarterly results of operations for the years ended December 31, 2007 and 2006 (in thousands, except per share amounts):

		2007
		March 31			June 30			September 30			December 31
Net revenue		$	6,349		$	4,957		$	5,089		$	5,011
Net loss			(10,004	)		(6,905	)		(11,696	)		(19,255	)
Per common share:
	Net loss
	—Basic and Diluted	$	(0.50	)	$	(0.26	)	$	(0.40	)	$	(0.65	)

		2006
		March 31			June 30			September 30			December 31
Net revenue		$	4,116		$	3,292		$	6,257		$	3,271
Net loss			(7,683	)		(7,178	)		(4,712	)		(8,191	)
Per common share:
	Net loss
	—Basic and Diluted	$	(0.51	)	$	(0.47	)	$	(0.31	)	$	(0.41	)

81

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

        None.

ITEM 9A.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

        Our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer (our principal financial officer and chief accounting officer), of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, or the Exchange Act, as of the end of the period covered by this report. Based upon this evaluation, our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in reports filed under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Our management, including our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer, does not expect that our disclosure controls or our internal controls will prevent all errors and all fraud. A control system, no matter how well designed and operated, cannot provide assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

        Additionally, our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer determined that there were no changes in our internal control over financial reporting during the quarter ended December 31, 2007, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management's Report on Internal Controls 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 Exchange Act of 1934. Our internal control over financial reporting is 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. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Pharmacopeia, Inc.; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our 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.

        Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2007. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on its assessment and those criteria, our management has concluded we maintained effective internal control over financial reporting as of December 31, 2007. The effectiveness of our internal control over financial reporting as of December 31, 2007 has been

82

audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which appears below.

Attestation Report of Independent Registered Public Accounting Firm

Report of Independent Public Accounting Firm

The Board of Directors and Stockholders of Pharmacopeia, Inc.

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

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

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

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

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

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Pharmacopeia, Inc. as of December 31, 2007 and 2006, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2007 and our report dated February 29, 2008 expressed an unqualified opinion thereon.

	/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
February 29, 2008

ITEM 9B.    OTHER INFORMATION

        None.

83

PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

        The information required by this Item concerning the Company's directors and executive officers is incorporated by reference from the Sections entitled "Corporate Governance", "Director Compensation Table" and "Executive Officers of the Registrant" in the Company's Proxy Statement (the Proxy Statement) related to the Annual Meeting of Stockholders to be held on April 30, 2008.

ITEM 11.    EXECUTIVE COMPENSATION

        The information required by this Item is incorporated by reference from the sections entitled "Compensation Discussion and Analysis", "Compensation Committee Interlocks and Insider Participation", "Executive Officers of the Registrant", "Compensation Table" and "Employment Agreements and Potential Payments Upon Termination or Change in Control" in the Proxy Statement.

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

        Certain information required by this Item is incorporated by reference from the section entitled "Stock Ownership of Principal Stockholders and Management" in the Proxy Statement.

OTHER FORMS OF COMPENSATION
2007 Equity Compensation Plan Information

	(a)	(b)		(c)
	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
Equity compensation plans approved by security holders(1)	3,898,000	$	6.48	1,375,000
Equity compensation plans not approved by security holders(2)	300,000	$	5.66	—
Total	4,198,000	$	6.42	1,375,000

(1)

Includes approximately 1,918,000 options outstanding from the following Accelrys stock option plans: the 1994 Incentive Stock Plan, the 1995 Director's Option Plan, and the 2000 Stock Option Plan, under which grants of options had been made to Pharmacopeia employees. Prior to the spin-off our Board of Directors resolved to adopt these Accelrys stock option plans. Generally, any outstanding options to purchase Accelrys common stock under these plans have been converted to maintain the then existing intrinsic value and maintain the ratio of the then existing exercise price per share to the market value per share in accordance with applicable accounting standards. No additional options may be granted to Pharmacopeia employees from these plans. The remaining approximately 1,980,000 shares reflects options outstanding under Pharmacopeia, Inc.'s Amended and Restated 2004 Stock Incentive Plan (the Plan).

(2)

Represents 300,000 options outstanding that were issued in 2007 outside the Plan. The provisions of these options are generally consistent with the provisions of the Plan.

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

        The information required by this Item is incorporated by reference from the sections entitled "Certain Relationships and Related Transactions" and "Corporate Governance—Director Independence" in the Proxy Statement.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

        The information required by this Item is incorporated by reference from the section entitled "Audit Committee Report and Payment of Fees to Auditors—Auditor Fees" in the Proxy Statement.

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PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)

(1) Financial Statements

        The following Financial Statements are included:

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm	53
Balance Sheets as of December 31, 2007 and 2006	54
Statements of Operations for the years ended December 31, 2007, 2006 and 2005	55
Statements of Stockholders' Equity for the years ended December 31, 2007, 2006 and 2005.	56
Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005	57
Notes to Financial Statements	58

(a)

(2) Exhibits:

EXHIBITS NO.	DESCRIPTION
1.1	Underwriting Agreement, by and among Pharmacopeia, Inc., CIBC World Markets Corp., Canaccord Adams Inc. and Merriman Curhan Ford & Co., dated May 1, 2007 (incorporated by reference to Exhibit 1.1 to Pharmacopeia, Inc.'s Report on Form 8-K, filed on May 2, 2007).
2.1	Master Separation and Distribution Agreement between Pharmacopeia, Inc., Accelrys Inc. and Pharmacopeia, Inc., dated April 30, 2004 (incorporated by reference to Exhibit 2.1 to Pharmacopeia, Inc.'s Report on Form 8-K, filed May 3, 2004).
3.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Pharmacopeia, Inc.'s Report on Form 10-Q filed on May 10, 2007).
3.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Pharmacopeia, Inc.'s Registration Statement on Form 10 (Reg. No. 000-50523)).
3.3	Amendment No. 1 to Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to Pharmacopeia, Inc.'s Report on Form 8-K filed on December 18, 2007).
3.3	Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of Pharmacopeia, Inc. (incorporated by reference to Exhibit 3.3 to Pharmacopeia,  Inc.'s Registration Statement on Form 10 (Reg. No. 000-50523)).
4.1	Form of Specimen Certificate for Pharmacopeia, Inc. Common Stock (incorporated by reference to Exhibit 4.3 to Pharmacopeia, Inc.'s Registration Statement on Form S-3 filed on August 13, 2007).
4.2	Form of Warrant to Purchase Common Stock issued in connection with Product Development and Commercialization Agreement among SmithKlineBeecham Corporation, doing business as GlaxoSmithKline, Glaxo Group Limited and Pharmacopeia, Inc., dated as of March 24, 2006 (incorporated by reference to Exhibit 4.1 to Pharmacopeia, Inc.'s Report on Form 10-Q, filed May 12, 2006).
4.3	Form of Warrant issued in connection with the Underwriting Agreement, by and among Pharmacopeia, Inc., CIBC World Markets Corp. and Merriman Curhan Ford & Co., dated October 13, 2006 (incorporated by reference to Exhibit 4.1 to Pharmacopeia, Inc.'s Report on Form 8-K, filed October 17, 2006).

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10.1	Tax Sharing and Indemnification Agreement between Pharmacopeia, Inc. and Pharmacopeia, Inc., dated April 30, 2004 (incorporated by reference to Exhibit 10.2 to Pharmacopeia, Inc.'s Report on Form 8-K, filed May 3, 2004).
10.2	Patent and Software License Agreement between Pharmacopeia, Inc., Accelrys Inc. and Pharmacopeia, Inc., dated April 30, 2004 (incorporated by reference to Exhibit 10.4 to Pharmacopeia, Inc.'s Report on Form 8-K, filed May 3, 2004).
10.3	Form of Pharmacopeia Drug Discovery, Inc. Amended and Restated 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to Pharmacopeia, Inc.'s Form DEF 14A filed on March 26, 2007).(3)
10.4(a)	Amended 1994 Incentive Stock Plan of Pharmacopeia, Inc. (incorporated by Reference to Exhibit 10.5 to Accelrys Inc.'s Report on Form 10-K for the year ended December 31, 1995).(3)
10.4(b)	Amendment No. 1 to the 1994 Incentive Stock Plan of Pharmacopeia, Inc. (incorporated by reference to Exhibit 10.1(a) to Accelrys Inc.'s Report on Form 10-K for the year ended December 31, 2000).(3)
10.4(c)	Amendment No. 2 to the 1994 Incentive Stock Plan of Pharmacopeia, Inc. (incorporated by reference to Exhibit 10.5(c) to Accelrys Inc.'s Report on Form 10-K for the year ended December 31, 2000).(3)
10.4(d)	Amendment No. 3 to the 1994 Incentive Stock Plan of Pharmacopeia, Inc. (incorporated by reference to Exhibit 10.5(a) to Accelrys Inc.'s Report on Form 10-Q for the quarter ended June 30, 1997).(3)
10.4(e)	Amendment No. 4 to the 1994 Incentive Stock Plan of Pharmacopeia, Inc. (incorporated by reference to Exhibit 10.1(d) to Accelrys Inc.'s Report on Form 10-K for the year ended December 31, 2000).(3)
10.4(f)	Amendment No. 5 to the 1994 Incentive Stock Plan of Pharmacopeia, Inc. (incorporated by reference to Exhibit 10.1(e) to Accelrys Inc.'s Report on Form 10-K for the year ended December 31, 2000).(3)
10.4(g)	Amendment No. 6 to the 1994 Incentive Stock Plan of Pharmacopeia, Inc. (incorporated by reference to Exhibit 10.1(f) to Accelrys Inc.'s Report on Form 10-K for the year ended December 31, 2000).(3)
10.4(h)	Amendment No. 7 to the 1994 Incentive Stock Plan of Pharmacopeia, Inc. (incorporated by reference to Exhibit 10.1(g) to Accelrys Inc.'s Report on Form 10-K for the year ended December 31, 2000).(3)
10.4(i)	Amendment No. 8 to the 1994 Incentive Stock Plan of Pharmacopeia, Inc. (incorporated by reference to Exhibit 10.54 to Accelrys Inc.'s Report on Form 10-Q for the quarter ended June 30, 2000).(3)
10.4(j)	Amendment No. 9 to the 1994 Incentive Stock Plan of Pharmacopeia, Inc. (incorporated by reference to Exhibit 10.1(i) to Accelrys Inc.'s Report on Form 10-Q for the quarter ended March 31, 2002).(3)
10.4(k)	1995 Director Option Plan of Pharmacopeia, Inc. (incorporated by reference to Exhibit 10.7 to the Accelrys Inc. Registration Statement on Form S-1 (Reg. No. 33-98246)).(3)
10.4(l)	Amendment No. 1 to 1995 Director Option Plan of Pharmacopeia, Inc. (incorporated by reference to Exhibit 10.3(a) to Accelrys Inc.'s report on form 10-K for the year ended December 31, 2000).(3)

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10.4(m)	Amendment No. 2 to the 1995 Director Option Plan of Pharmacopeia, Inc. (incorporated by reference to Exhibit 10.3(b) to Accelrys Inc.'s report on Form 10-Q for the quarter ended March 31, 2001).(3)
10.4(n)	Pharmacopeia, Inc. 2000 Stock Option Plan (incorporated by reference to Accelrys Inc.'s Report on Form 10-K for the year ended December 31, 2000).(3)
10.5	Rights Agreement between Pharmacopeia, Inc. and American Stock Transfer & Trust Company, dated April 30, 2004 (incorporated by reference to Exhibit 10.5 to Pharmacopeia, Inc.'s Report on Form 8-K, filed May 3, 2004).
10.6	Collaboration and License Agreement, dated as of July 9, 2003 and effective August 8, 2003, between Pharmacopeia, Inc. and Schering- Plough Ltd. (incorporated by reference to Exhibit 10.32 to Accelrys, Inc.'s Report on Form 10-Q for the quarter ended September 30, 2003).(5)
10.7	Collaboration and License Agreement, dated as of July 9, 2003 and effective August 8, 2003, between Pharmacopeia, Inc. and Schering Corporation (incorporated by reference to Exhibit 10.33 to Accelrys, Inc.'s Report on Form 10-Q for the quarter ended September 30, 2003).(5)
10.8	Amendment No. 1, dated July 27, 2006, to the Collaboration and License Agreements, effective as of July 9, 2003, between (i) the Company and Schering Corporation and (ii) the Company and Schering-Plough Ltd. (incorporated by reference to Exhibit 10.1 to Pharmacopeia, Inc.'s Report on Form 8-K, filed August 2, 2006).
10.9	Amendment No. 2, dated September 25, 2006, to the Collaboration and License Agreements, effective as of July 9, 2003 (and as subsequently amended) between (i) the Company and Schering Corporation and (ii) the Company and Schering-Plough Ltd. (incorporated by reference to Exhibit 10.1 to Pharmacopeia, Inc.'s Report on Form 10-Q, filed November 2, 2006).(4)
10.10	Lease, dated August 20, 2003, between Pharmacopeia, Inc. and Eastpark at 8A (Building 1000) (incorporated by reference to Exhibit 10.35 to Accelrys, Inc.'s Report on Form 10-Q for the quarter ended September 30, 2003).
10.11	Amendment to Lease, dated September 10, 2007, between Eastpark at 8A and Pharmacopeia, Inc. (Building 1000) (incorporated by reference to Exhibit 10.1 to Pharmacopeia Inc.'s Report on Form 10-Q filed on November 5, 2007).
10.12	Lease, dated August 20, 2003, between Pharmacopeia, Inc. and Eastpark at 8A (Building 3000) (incorporated by reference to Exhibit 10.36 to Accelrys, Inc.'s Report on Form 10-Q for the quarter ended September 30, 2003).
10.13	Amendment to Lease, dated April 18, 2007, between Eastpark at 8A and Pharmacopeia, Inc. (Building 3000) (incorporated by reference to Exhibit 10.2 to Pharmacopeia Inc.'s Report on Form 10-Q filed on November 5, 2007).
10.14	Product Development and Commercialization Agreement among SmithKlineBeecham Corporation, doing business as GlaxoSmithKline, Glaxo Group Limited and Pharmacopeia, Inc., dated as of March 24, 2006 (incorporated by reference to Exhibit 10.1 to Pharmacopeia, Inc.'s Report on Form 10-Q, filed May 12, 2006).(5)
10.15	Amendment No. 1, dated August 10, 2006, to the Product Development and Commercialization Agreement among the Company, SmithKlineBeecham Corporation, doing business as GlaxoSmithKline, and Glaxo Group Limited (incorporated by reference to Exhibit 10.2 to Pharmacopeia, Inc.'s Report on Form 10-Q, filed November 2, 2006).(5)

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10.16	License Agreement, dated as of March 27, 2006, between Pharmacopeia, Inc. and Bristol-Myers Squibb Company (incorporated by reference to Exhibit 10.2 to Pharmacopeia, Inc.'s Report on Form 10-Q, filed May 12, 2006).(5)
10.17	Collaboration and License Agreement between Pharmacopeia, Inc. and Cephalon, Inc., dated May 18, 2006 (incorporated by reference to Exhibit 10.1 to Pharmacopeia, Inc.'s Report on Form 10-Q, filed August 4, 2006).(5)
10.18	License Agreement, amended and restated as of July 1, 2003, among The Trustees of Columbia University in the City of New York, Cold Spring Harbor Laboratory and Pharmacopeia, Inc. (incorporated by reference to Exhibit 10.2 to Pharmacopeia, Inc.'s Report on Form 10-Q for the quarter ended June 30, 2005).(5)
10.19	Form of Purchase Agreement dated July 27, 2005 between Pharmacopeia, Inc. and the Purchasers set forth therein (incorporated by reference to Exhibit 10.1 to Pharmacopeia, Inc.'s Report on Form 8-K, filed August 2, 2005).
10.20	Form of Indemnity Agreement between Pharmacopeia, Inc. and its directors and executive officers. (incorporated by reference to Exhibit 3.3 to Pharmacopeia, Inc.'s Registration Statement on Form 10 (Reg. No. 000-50523)).(3)
10.21	Employment Agreement between Pharmacopeia, Inc. and Leslie Johnston Browne, Ph.D., amended and restated as of March 5, 2008.(1)(3)
10.22	Letter Agreement, dated November 15, 2004, between Pharmacopeia, Inc. and Stephen C. Costalas (incorporated by reference to Exhibit 10.22 to Pharmacopeia, Inc.'s Report on Form 10-K for the year ended December 31, 2004).(3)
10.23	Amended and Restated Severance Agreement, dated December 18, 2007, between Pharmacopeia, Inc. and Stephen C. Costalas.(1)(3)
10.24	Letter Agreement, dated January 6, 2005, between Pharmacopeia, Inc. and David M. Floyd (incorporated by reference to Exhibit 10.24 to Pharmacopeia, Inc.'s Report on Form 10-K for the year ended December 31, 2004).(3)
10.25	Amended and Restated Severance Agreement, dated December 18, 2007, between Pharmacopeia, Inc. and David M. Floyd.(1)(3)
10.26	Letter Agreement, dated May 4, 2006, between Pharmacopeia, Inc. and Brian M. Posner (incorporated by reference to Exhibit 10.1 to Pharmacopeia, Inc.'s Report on Form 8-K, filed May 4, 2006).(3)
10.27	Amended and Restated Severance Agreement, dated December 18, 2007, between Pharmacopeia, Inc. and Brian M. Posner.(1)(3)
10.28	Letter Agreement, dated November 2, 2006, between Pharmacopeia, Inc. and Rene Belder (incorporated by reference to Exhibit 10.1 to Pharmacopeia, Inc.'s Report on Form 8-K, filed November 7, 2006).(3)
10.29	Amended and Restated Severance Agreement, dated December 18, 2007, between Pharmacopeia, Inc. and Rene Belder.(1)(3)
10.30	Letter Agreement, effective September 6, 2007, between Pharmacopeia, Inc. and Eric J. Liebler (incorporated by reference to Exhibit 10.1 to Pharmacopeia, Inc.'s Report on Form 8-K filed on September 7, 2007).(3)
10.31	Severance Agreement, dated September 6, 2007, between Pharmacopeia, Inc. and Eric J. Liebler (incorporated by reference to Exhibit 10.2 to Pharmacopeia, Inc.'s Report on Form 8-K filed on September 7, 2007).(3)

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10.32	Letter Agreement, effective August 31, 2007, between Pharmacopeia, Inc. and S. David Kimball (incorporated by reference to Exhibit 10.3 to Pharmacopeia, Inc.'s Report on Form 8-K filed on September 7, 2007).(3)
10.33	Severance Agreement, dated August 31, 2007, between Pharmacopeia, Inc. and S. David Kimball (incorporated by reference to Exhibit 10.4 to Pharmacopeia, Inc.'s Report on Form 8-K filed on September 7, 2007).(3)
10.34	Amended and Restated Severance Agreement, dated December 18, 2007, between Pharmacopeia, Inc. and Maria L. Webb.(1)(3)
10.35	Letter Agreement, dated March 21, 2003, between Pharmacopeia, Inc. and Simon M. Tomlinson (incorporated by reference to Exhibit 10.31 to Pharmacopeia, Inc.'s Report on Form 10-K filed March 20, 2006).(3)
10.36	Form of Stock Option Agreement (incorporated by reference to Exhibit 10.2 to Pharmacopeia, Inc.'s Report on Form 8-K filed on February 27, 2006.(3)
10.37	Form of Stock Option Agreement (incorporated by reference to Exhibit 10.3 to Pharmacopeia, Inc.'s Report on Form 8-K filed on February 27, 2006.(3)
10.38	Form of Stock Option Agreement (incorporated by reference to Exhibit 10.3 to Pharmacopeia, Inc.'s Report on Form 10-Q filed on November 5, 2007.(3)
10.39	2007 Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to Pharmacopeia, Inc.'s Report on Form 8-K filed on February 8, 2007).(3)
10.40	2008 Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to Pharmacopeia, Inc.'s Report Form on 8-K filed on February 11, 2008).(3)
10.41	Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10.29 to Pharmacopeia, Inc.'s Report on Form 10-K for the year ended December 31, 2004).(3)
10.42	Research and License Agreement, dated December 22, 2006, between Pharmacopeia, Inc. and Wyeth (incorporated by reference to Exhibit 10.43 to Pharmacopeia, Inc.'s Report on Form 10-K for the year ended December 31, 2006).(4).
10.43	Master Security Agreement, dated December 26, 2006, between Oxford Finance Corporation and Pharmacopeia, Inc. (incorporated by reference to Exhibit 10.1 to Pharmacopeia, Inc.'s Report on Form 10-Q filed on August 2, 2007).
10.44	Collaboration and License Agreement, amended and restated effective as of February 8, 2007, between Pharmacopeia, Inc. and N.V. Organon (incorporated by reference to Exhibit 10.1 to Pharmacopeia, Inc.'s Report on Form 10-Q filed on May 10, 2007).(2)
10.45	License Agreement, dated October 11, 2007, between Bristol-Myers Squibb Company and Pharmacopeia, Inc.(1)(2)
10.46	Discovery Collaboration Agreement, dated October 11, 2007, between Bristol-Myers Squibb Company and Pharmacopeia, Inc.(1)(2)
21.1	Subsidiaries of Pharmacopeia, Inc.(1)
23.1	Consent of Ernst & Young LLP.(1)
31.1	Certification of the Principal Executive Officer of Pharmacopeia, Inc. pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1)

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31.2	Certification of the Principal Financial Officer of Pharmacopeia, Inc. pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1)
32.1	Certification of the Chief Executive Officer of Pharmacopeia, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(1)
32.2	Certification of the Principal Financial Officer of Pharmacopeia, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(1)

(1)

Filed herewith.

(2)

Confidential treatment of certain provisions of this exhibit has been requested.

(3)

Compensation plan or arrangement in which directors and executive officers are eligible to participate.

(4)

Confidential treatment of certain provisions of this exhibit has been granted.

(5)

Accelrys, Inc. has been granted confidential treatment of certain provisions of this exhibit.

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SIGNATURES

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

PHARMACOPEIA, INC.
By:	/s/  LESLIE J. BROWNE, PH.D. Leslie J. Browne, Ph.D. President, Chief Executive Officer and Director (Principal Executive Officer and Authorized Signatory)
Date:	March 6, 2008

        Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  LESLIE J. BROWNE Leslie J. Browne, Ph.D.	President and Chief Executive Officer and Director (Principal Executive Officer)	March 6, 2008
/s/  BRIAN M. POSNER Brian M. Posner	Executive Vice President, Chief Financial Officer and Treasurer (Principal Finance and Accounting Officer)	March 6, 2008
/s/  JOSEPH A. MOLLICA Joseph A Mollica, Ph.D.	Chairman of the Board	March 6, 2008
/s/  CAROL A. AMMON Carol A. Ammon	Director	March 6, 2008
/s/  FRANK BALDINO, JR. Frank Baldino, Jr., Ph.D.	Director	March 6, 2008
/s/  PAUL A. BARTLETT Paul A. Bartlett, Ph.D.	Director	March 6, 2008

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/s/  STEVEN J. BURAKOFF Steven J. Burakoff, M.D.	Director	March 6, 2008
/s/  DENNIS H. LANGER Dennis H. Langer, M.D., J.D.	Director	March 6, 2008
/s/  BRUCE A. PEACOCK Bruce A. Peacock	Director	March 6, 2008
/s/  MARTIN H. SOETERS Martin H. Soeters	Director	March 6, 2008

        Each person whose signature appears above in so signing also makes, constitutes and appoints each of Leslie J. Browne, Ph.D., President and Chief Executive Officer of the Registrant, and Brian M. Posner, Executive Vice President, Chief Financial Officer and Treasurer of the Registrant, his true and lawful attorney in-fact, in his or her name, place and stead to execute and cause to be filed with Securities and Exchange Commission any or all amendments to this Form 10-K.

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QuickLinks

DOCUMENTS INCORPORATED BY REFERENCE
Pharmacopeia, Inc. Report on Form 10-K Table of Contents
PART I

ITEM 1. BUSINESS

Internal Program Portfolio

ITEM 1A. RISK FACTORS

ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Pharmacopeia, Inc. Consolidated Balance Sheets (Amounts in thousands, except share and per share data)
Pharmacopeia, Inc. Consolidated Statements of Operations (Amounts in thousands, except share and per share data)
Pharmacopeia, Inc. Consolidated Statements of Stockholders' Equity (Amounts in thousands)
Pharmacopeia, Inc. Consolidated Statements of Cash Flows (Amounts in thousands)
Pharmacopeia, Inc. Notes to Consolidated Financial Statements

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

OTHER FORMS OF COMPENSATION 2007 Equity Compensation Plan Information

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

SIGNATURES

EX-10.21

Exhibit 10.21

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT OF LESLIE JOHNSTON BROWNE

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of the 5th day of March, 2008, by and between Pharmacopeia, Inc. (hereinafter the “Company”) and Leslie Johnston Browne, Ph.D. (hereinafter “Dr. Browne”).

RECITALS

WHEREAS, Dr. Browne is presently employed by the Company in the capacity of President and Chief Executive Officer of the Company (“President and Chief Executive Officer”), pursuant to the Employment Agreement between Dr. Browne and the Company, dated July 14, 2004 (the “Existing Employment Agreement”);

WHEREAS, the Existing Employment Agreement was amended and restated on February 27, 2006, and further amended pursuant to a letter agreement between Dr. Browne and the Company, dated August 3, 2006; and

WHEREAS, the Company and Dr. Browne wish to amend and restate the Existing Employment Agreement to comply with section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the final regulations issued thereunder, and to make other appropriate changes.

NOW, THEREFORE, in consideration of their mutual promises and intending to be legally bound, the parties agree as follows:

1.Employment.

a.The Company agrees to employ Dr. Browne as President and Chief Executive Officer upon the terms and conditions set forth in this Agreement.

b.Dr. Browne’s duties, powers and responsibilities as President and Chief Executive Officer shall be those which are customary for such position, as may be determined from time to time by the Board of Directors of the Company (the “Board”).  Dr. Browne agrees to perform and discharge such duties well and faithfully and to be subject to the supervision and direction of the Board.

c.The position of President and Chief Executive Officer is a full-time position.  Dr. Browne agrees to devote his full time effort, attention, and energies to this position.  Dr. Browne will not render any professional services or engage in any activity which might be competitive with, adverse to the best interest of, or create the appearance of a conflict of interest with the Company.  Prior to serving on any other board of directors, Dr. Browne shall obtain the written permission of the Board, which shall not be unreasonably withheld.  Dr. Browne agrees to abide by the policies, and rules and regulations of the Company as they may be amended from time to time.

2.Term.

a.The initial term of Dr. Browne’s employment as President and Chief Executive Officer under this Agreement began on Dr. Browne’s first date of employment by the Company, August 9, 2004 (the “Start Date”) and continued until the one-year anniversary thereof.

b.Unless earlier terminated under the provisions of this Agreement, this Agreement will renew automatically for successive one year periods at the conclusion of the initial term and any succeeding renewal terms (collectively, the “Term”), unless either party notifies the other in writing, at least one year in advance, of its intention not to renew the Agreement at the expiration of the initial or renewal term.   Notwithstanding the foregoing, if  a “Change of Control” (as defined below) of the Company occurs, the term of the Agreement will be automatically extended to the end of the thirty (30)-day period beginning one (1) year after the closing of the Change of Control, and the Term shall automatically end at the end of such thirty (30)-day period.

3.Compensation.

a.For his services under this Agreement as President and Chief Executive Officer, Dr. Browne will be paid by the Company an initial base salary of Three Hundred Fifty Thousand Dollars ($350,000) per year (“Base Salary”).  The Base Salary will be paid in equal installments, less normally applicable payroll deductions, in accordance with the Company’s regular payroll schedule.  Dr. Browne’s compensation will be reviewed on or before February 28 of each year to determine whether his compensation level shall be adjusted in a manner commensurate with his performance in the prior year of service.

b.Beginning January 1, 2005 and throughout the Term, Dr. Browne shall participate in the Company’s Bonus Program for Senior Management, which shall provide an annual bonus target of fifty percent (50%) of Dr. Browne’s Base Salary, as determined in accordance with the Company’s existing compensation policy.  Such amounts payable to Dr. Browne under the bonus program shall be referred to herein as the “Incentive Bonus.”  Incentive Bonuses will be paid on the March 1 following the completion of each calendar year, provided Dr. Browne is employed or is receiving severance payments on that date, or upon the expiration of the Term (as described in Section 4(g)).

c.From time to time, Dr. Browne may be granted the option to purchase Company stock under the terms of the Company’s Stock Option Plan, or similar employee stock option plans in effect from time to time.  Such stock option grants shall be subject to the terms of the applicable stock option plan(s) then in effect.

d.Dr. Browne was granted on the Start Date three hundred thousand (300,000) options to purchase Company stock, priced at the fair market value on the date of the grant.  The vesting schedule for these options shall be as follows: 25% of these options shall be vested after one year (from the date of the grant) and 1/48 of the options shall vest on the first of each month thereafter.  These options are intended to be incentive stock options as defined under section 422 of the Code and any regulations promulgated thereunder.  However, to the extent the

2

option grant fails to satisfy any requirement of section 422(d) of the Code, the affected options shall be treated as non-qualified stock options.

4.Termination; Resignation; Permanent Disability; Death.   Dr. Browne’s employment as President and Chief Executive Officer may be terminated at any time by action of the Board for any reason.  In the event of termination of his employment, the Company shall have no liability to Dr. Browne as President and Chief Executive Officer for compensation or benefits except as specified in this Section 4 or as required by the Company’s benefits policy.

a.Involuntary Termination Without Cause.  If Dr. Browne’s employment as President and Chief Executive Officer is terminated involuntarily by the Board, without “Cause” (as defined below), during the Term, the Company shall:

(1)Pay Dr. Browne all compensation and benefits accrued, but unpaid, up to the date of his termination.  Dr. Browne’s Incentive Bonus for the calendar year in which his employment is terminated shall be paid on a pro rata basis, based on Dr. Browne’s target bonus determined by the Board for the year in which the termination occurs.  The pro rata Incentive Bonus shall be paid in a lump sum within thirty (30) days after the date of his termination of employment.

(2)Pay Dr. Browne in a lump sum two (2) times an amount equal to his annual Base Salary in effect as of the date of termination, within thirty (30) days after the date of his termination of employment.  The Company will maintain Dr. Browne’s group medical coverage under the Company’s insured health plan for a period of twenty-four (24) months after such termination.

(3)Allow all vested options to be exercisable pursuant to the terms of the stock option agreement(s) under which the options were granted.

b.Termination by Dr. Browne for Good Reason.  In the event Dr. Browne terminates this Agreement for “Good Reason” (as defined below) during the Term, he shall be entitled to receive the benefits provided in Section 4(a) above.  For purposes of this Section 4(b), “Good Reason” shall mean the occurrence of any of the following events, without Dr. Browne’s express written consent: i) a material diminution by the Company of Dr. Browne’s duties, authority or responsibilities, including without limitation, any removal of Dr. Browne as President and Chief Executive Officer of the Company, except in connection with promotion to a higher position; ii) any material diminution in Dr. Browne’s base compensation, which, for purposes of this Agreement, means a reduction of more than twenty percent (20%) of Dr. Browne’s Base Salary then in effect; iii) any material change in the geographic location at which Dr. Browne must perform services under this Agreement, which, for purposes of this Agreement, means relocation of the Company’s headquarters to a facility more than fifty (50) miles from the Company’s current location, which requires Dr. Browne to relocate his residence; or iv) any action or inaction that constitutes a material breach of this Agreement by the Company.  Dr. Browne shall not have Good Reason for termination unless Dr. Browne gives written notice of the event that constitutes Good Reason to the Company within ninety (90) days of the initial occurrence of such event, the Company fails to cure the event within thirty (30) days after the date on which Dr. Browne gives written notice thereof, and Dr. Browne terminates employment

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within thirty (30) days after the end of the cure period.  In addition to the foregoing, if a Change of Control of the Company occurs that materially changes Dr. Browne’s duties, title or responsibilities, Dr. Browne may elect to terminate employment during the thirty (30)-day period beginning one (1) year after the closing of the Change of Control, and such termination shall be considered termination for Good Reason.

c.Termination Without Cause in Connection with Change of Control.  In the event that Dr. Browne’s employment as President and Chief Executive Officer is terminated involuntarily by the Board without Cause in connection with a Change of Control of the Company: i) Dr. Browne shall be entitled to receive the benefits provided in Section 4(a) above; ii) all stock options granted to Dr. Browne that are then unvested shall immediately vest; and iii) Dr. Browne shall receive a lump sum payment equal to two times the average Incentive Bonus he received in each of the three years immediately prior to the termination or, if less than three years’ of bonus history is available, his target bonus for the year in which the termination occurs. The Incentive Bonus payment shall be paid in a lump sum within thirty (30) days after the date of his termination of employment.

For purposes of this Agreement, a “Change of Control” means that any of the following events has occurred:

(1)Any person (as such term is used in section 13(d) of the Securities Exchange Act of 1934 (the “Exchange Act”)), other than the Company, any employee benefit plan of the Company or any entity organized, appointed or established by the Company for or pursuant to the terms of any such plan, together with all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Exchange Act) becomes the beneficial owner or owners (as defined in Rule 13d-3 and 13d-5 promulgated under the Exchange Act), directly or indirectly (the “Control Group”), of more than 50% of the outstanding equity securities of the Company, or otherwise becomes entitled, directly or indirectly, to vote more than 50% of the voting power entitled to be cast at elections for directors (“Voting Power”) of the Company;

(2)A consolidation or merger (in one transaction or a series of related transactions) of the Company pursuant to which the holders of the Company’s equity securities immediately prior to such transaction or series of related transactions would not be the holders, directly or indirectly, immediately after such transaction or series of related transactions of more than 50% of the Voting Power of the entity surviving such transaction or series of related transactions; or

(3)The sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company.

d.Termination for Cause.  If  Dr. Browne’s employment is terminated as President and Chief Executive Officer for “Cause” (as defined below) during the Term, the Company shall pay Dr. Browne all accrued, but unpaid, compensation and benefits which are then due and owing as of the date of his termination.  He shall not be entitled to receive a pro rata Incentive Bonus for the calendar year in which the termination occurs, or any of the amounts specified in Section 4(a) above.  The Company shall have the right to setoff any amounts due to

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Dr. Browne by any amounts owed by Dr. Browne to the Company at the time Dr. Browne’s employment terminates and he hereby authorizes the Company to make this setoff.

Dr. Browne’s employment may be terminated for “Cause” at any time upon delivery of written notice to Dr. Browne.  For purposes of this Agreement, “Cause” means the occurrence of any of the following events: i) any gross failure on the part of Dr. Browne (other than by reason of disability as provided in Section 4(f)) to faithfully and professionally carry out his duties or to comply with any other material provision of this Agreement, which failure continues after written notice thereof by the Board, provided that the Board shall not be required to provide such notice in the event that such failure (A) is not susceptible to remedy or (B) relates to the same type of acts or omissions as to which such notice has been given on a prior occasion; ii) Dr. Browne’s material dishonesty (which shall include without limitation any misuse or misappropriation of the Company’s assets), or other willful misconduct which is intended to injure or which injures or is likely to injure the business of the Company; iii) Dr. Browne’s conviction for any felony or for any other crime involving moral turpitude, whether or not relating to his employment; iv) Dr. Browne’s insobriety or use of drugs, chemicals or controlled substances either (A) in the course of performing his duties and responsibilities under this Agreement, or (B) otherwise affecting the ability of Dr. Browne to perform the same; v) Dr. Browne’s failure to comply with a lawful, written direction of the Board, which is consistent with Dr. Browne’s duties and responsibilities as President and Chief Executive Officer with the Company; or vi) any wanton and willful dereliction of duties by Dr. Browne.  The existence of any of the foregoing events or conditions shall be determined by the Board in the exercise of its reasonable judgment.

e.Voluntary Resignation.  In the event that Dr. Browne shall voluntarily resign as President and Chief Executive Officer:

(1)Dr. Browne shall provide the Company’s Board of Directors with ninety (90) days’ advance written notice of his intention to resign voluntarily.

(2)Following the effective date of his resignation, the Company shall be relieved of all other obligations to pay compensation to Dr. Browne, except that the Company shall immediately pay Dr. Browne all accrued, but unpaid, Base Salary and any other unpaid expenses or expense reimbursement.

f.Disability.  If Dr. Browne becomes disabled for more than one hundred eighty (180) days in any twelve (12) month period, the Company shall have the right to terminate his employment, subject to the requirements of applicable law, without further liability upon written notice to Dr. Browne.  Dr. Browne shall be deemed disabled for purposes of this Agreement either i) if he is deemed disabled for purposes of any long-term disability insurance policy paid for by the Company and at the time in effect, or ii) if a physician satisfactory to the Company and Dr. Browne determines that due to accident, mental or physical illness, or any other reason, he cannot perform his duties as President and Chief Executive Officer.  In the event the Company shall terminate Dr. Browne due to disability, as described above, Dr. Browne shall be entitled to receive the benefits set forth in Section 4(a) above, reduced by the amount of any disability plan or insurance benefit paid to him.

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g.Non-Renewal.  Following the expiration of the Term by reason of timely notice of non-renewal by the Company in accordance with Section 2(b), Dr. Browne shall be entitled to receive the benefits set forth in Section 4(a) above, except that the severance described in Section 4(a)(2) shall be for a period of twelve (12) months following the expiration of the Term.  Upon the expiration of the Term by reason of timely notice of non-renewal by Dr. Browne, Dr. Browne will remain eligible to receive a pro rata Incentive Bonus for the year in which the Term expires.  In the event the Term expires by reason of timely notice of non-renewal, the twenty-four (24) month time period set forth in Section 11 of this Agreement shall be reduced to twelve (12) months following the expiration of the Term.  The provisions of this Section 4(g) shall not apply upon an automatic expiration of the Term after a Change of Control as described in the last sentence of Section 2(b).

h.Death.  In the event of the death of Dr. Browne, this Agreement shall automatically terminate and any obligation to continue to pay compensation and benefits shall cease as of the date of his death.

i.No Mitigation.  Dr. Browne has no duty to mitigate any payment obligations of the Company under this Section 4.

j.Certain Additional Payments.  If any of the benefits or payments under this Agreement, or under any other agreement with or plan of the Company (in the aggregate, the “Total Payments”), will be subject to the tax (the “Excise Tax”) imposed by Section 4999 of the Code, the Company shall pay Dr. Browne in cash an additional amount (the “Gross-Up Payment”) such that the net amount retained by Dr. Browne after deduction of any Excise Tax upon the Total Payments and any federal, state and local income tax and Excise Tax upon the Gross-Up Payment provided for by this Section 4(j) shall be equal to the Total Payments.  Such payments shall be made by the Company to Dr. Browne within thirty (30) days following a determination that any of the Total Payments will be subject to the Excise Tax, but in no event later than the date on which the related taxes are remitted to the taxing authority.

All determinations required to be made under this Section 4(j), including whether any of the Total Payments will be subject to the Excise Tax and the amounts of such Excise Tax, shall be made by a nationally recognized accounting firm (the “Accounting Firm”) mutually acceptable to the parties.  The Accounting Firm shall provide detailed supporting calculations both to the Company and to Dr. Browne within 10 days after a request for such determinations are made by Dr. Browne or the Company.  Any such determination by the Accounting Firm shall be binding upon the Company and Dr. Browne.  For purposes of determining the amount of the Gross-Up Payment, Dr. Browne shall be deemed to pay Federal, state and local income taxes at the highest marginal rates applicable to Dr. Browne as of the date of the determination.

k.Section 409A.  This Agreement is intended to meet the requirements of the short-term deferral exemption under section 409A of the Code.  However, if required by section 409A and if Dr. Browne is a “specified employee” of a publicly traded corporation under section 409A of the Code, payment of any amount under this Agreement shall be delayed for a period of six (6) months after separation from service, as required by section 409A of the Code.  The accumulated postponed amount shall be paid in a lump sum payment within ten (10) days

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after the end of the six (6)-month period.  If Dr. Browne dies during the postponement period prior to payment of the postponed amount, the amounts withheld on account of section 409A shall be paid to the personal representative of Dr. Browne’s estate within sixty (60) days after the date of Dr. Browne’s death.  The determination of “specified employees” shall be made by the Compensation Committee of the Board of Directors of the Company in accordance with section 409A of the Code and the regulations issued thereunder.

5.Board Membership.  As President and Chief Executive Officer, Dr. Browne shall at all times be nominated by the Board to serve on the Company’s Board of Directors, subject to election by the stockholders.

6.Vacation and Holiday.  Dr. Browne shall be entitled to four weeks’ vacation each year and to those holidays observed by the Company.  As an essential employee of the Company, Dr. Browne shall schedule his vacation and holiday observances so as not to unreasonably interfere with the performance of his duties as President and Chief Executive Officer.

7.Health Insurance; Life Insurance; Other Fringe Benefits. Dr. Browne shall be entitled to the benefit of such group medical, accident and long-term disability insurance as the Company shall make available from time to time to its executive employees.

8.Professional Expenses.  Dr. Browne will be reimbursed in accordance with the Company’s policy and procedure for the reasonable costs of properly documented professional and business related travel expenses required in the course of his employment.  The Company will also pay for appropriate professional dues and memberships, which must be approved in advance by the Board.

9.Legal Fees.  Dr. Browne shall be entitled to reimbursement by the Company for any legal fees he may incur in connection with the negotiation and execution of this Agreement, in an amount not to exceed $10,000.

10.Confidential Information.  Except as reasonably necessary to perform his duties as President and Chief Executive Officer, Dr. Browne agrees not to reveal to any other person or entity or use for his own benefit any confidential information of or about Company or its operations, both during and after his employment under this Agreement, including without limitation marketing plans, financial information, key personnel, employees’ salaries and benefits, customer lists, pricing and cost structures, operation methods and any other information not available to the public, without the Company’s prior written consent.

11.Non-Competition.  Dr. Browne shall not, during the course of his employment with the Company or for a period of twenty-four (24) months thereafter, directly or indirectly:

a.Be employed by, engaged in or participate in the ownership, management, operation or control of, or act in any advisory or other capacity for, any Competing Entity which conducts its business within the Territory (as the terms Competing Entity and Territory are hereinafter defined); provided, however, that notwithstanding the foregoing, Dr. Browne may make solely passive investments in any Competing Entity the common stock of which is “publicly held” and of which Dr. Browne shall not own or control, directly or indirectly, in the

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aggregate securities which constitute 5% or more of the voting rights or equity ownership thereof;

b.Solicit or divert any business or any customer from the Company or assist any person, firm or corporation in doing so or attempting to do so;

c.Cause or seek to cause any person, firm or corporation to refrain from dealing or doing business with the Company or assist any person, firm or corporation in doing so; or

d.Solicit for employment, or advise or recommend to any other person that they employ or solicit for employment or retention as an employee or consultant, any person who is an employee of, or exclusive consultant to, the Company.

The Company’s obligation to make payments pursuant to Section 4 above shall terminate in the event that, and at such time as, Dr. Browne is in breach of his obligation not to compete as set forth in this Section 11.  For purposes of this Section, the term “Competing Entity” shall mean any entity which is in possession of drugs substantially similar to those of the Company that are in pre-clinical development or clinical trials, or which is presently or hereafter engaged in the business of providing to third parties chemistry products or services for pre-clinical drug discovery or chemical development which i) include the out-licensing of small molecule libraries, the undertaking of drug candidate screening, and/or related drug optimization activities; or  ii) utilize combinatorial chemistry or high-throughput screening technologies in offering pre-clinical drug discovery services.  The term “Territory” shall mean North America, Europe and Japan.  Notwithstanding anything in the above to the contrary, Dr. Browne may engage in the activities set forth in Section 11(a) hereof with the prior written consent of the Company, which consent shall not be unreasonably withheld.  In determining whether a specific activity by Dr. Browne for a Competing Entity shall be permitted, the Company will consider, among other things, the nature and scope of i) the duties to be performed by Dr. Browne, and ii) the business activities of the Competing Entity at the time of Dr. Browne’s proposed engagement by such entity.

Dr. Browne acknowledges and agrees that the covenants set forth in this Section are reasonable and necessary in all respects for the protection of the Company’s legitimate business interests (including without limitation the Company’s confidential, proprietary information and trade secrets and client good-will, which represents a significant portion of the Company’s net worth and in which the Company has a property interest).  Dr. Browne acknowledges and agrees that, in the event that he breaches any of the covenants set forth in this Section, the Company may be irreparably harmed and may not have an adequate remedy at law; and, therefore, in the event of such a breach, the Company shall be entitled to injunctive relief, in addition to (and not exclusive of) any other remedies (including monetary damages) to which the Company may be entitled under law.  If any covenant set forth in this Section 11 is deemed invalid or unenforceable for any reason, it is the Parties’ intention that such covenants be equitably reformed or modified to the extent necessary (and only to such extent to) render it valid and enforceable in all respects.  In the event that the time period and geographic scope referenced above is deemed unreasonable, overbroad, or otherwise invalid, it is the Parties’ intention that the enforcing court shall reduce or modify the time period and/or geographic scope

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to the extent necessary (and only to such extent necessary) to render such covenants reasonable, valid, and enforceable in all respects.

12.Arbitration.  Any and all disputes between the parties (except actions to enforce the provisions of Section 11 of this Agreement), arising under or relating to this Agreement or any other dispute arising between the parties, including claims arising under any employment discrimination laws, shall be adjudicated and resolved exclusively through binding arbitration before the American Arbitration Association pursuant to the American Arbitration Association’s then-in-effect National Rules for the Resolution of Employment Disputes (hereafter “Rules”).  The initiation and conduct of any arbitration hereunder shall be in accordance with the Rules and each side shall bear its own costs and counsel fees in such arbitration.  Any arbitration hereunder shall be conducted in Princeton, New Jersey, and any arbitration award shall be final and binding on the Parties.  The arbitrator shall have no authority to depart from, modify, or add to the written terms of this Agreement.  The arbitration provisions of this Section shall be interpreted according to, and governed by, the Federal Arbitration Act, 9 U.S.C. § 1 et seq., and any action pursuant to such Act to enforce any rights hereunder shall be brought exclusively in the United States District Court for the District of  New Jersey.  The parties consent to the jurisdiction of (and the laying of venue in) such court.

13.Waiver.  The waiver by either party of any breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by the other party of any provision of the Agreement.

14.Severability.  In the event that any section, paragraph or term of this Agreement shall be determined to be invalid or unenforceable by any competent authority or tribunal for any reason, the remainder of this Agreement shall be unaffected thereby and shall remain in full force and effect, and any such section, paragraph, or term shall be deemed modified to the extent to make it enforceable.

15.Successors and Assigns.  This Agreement shall bind and inure to the benefit of the successors and assigns of the Company, and the heirs, executors or personal representatives of Dr. Browne.  This Agreement may not be assigned by Dr. Browne.  This Agreement may be assigned to any successor in interest to the Company and Dr. Browne hereby consents to such assignment.

16.Warranties and Representations.  Dr. Browne hereby warrants and represents to the Company that he is not a party to any other agreement or understanding with any other person or entity (including without limitation any agreements containing restrictive covenants governing post-employment competition, solicitation, the disclosure of confidential information, and intellectual property rights, and the like) that would, directly or indirectly, prevent him in any way from lawfully entering into this Agreement, performing any of the duties required hereunder (or that might be assigned to him in the future hereunder), or fully complying with and honoring each and every term, covenant, and promise contained in this Agreement.

17.Lawful Employment in United States.  This Agreement is contingent upon Dr. Browne’s ability to be lawfully employed in the United States indefinitely, without employer

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sponsorship.  Customary documentation establishing work eligibility will be required in accordance with applicable law.

18.Entire Agreement; Amendments.  This Agreement, including the recitals (which are a part hereof), together with the applicable bylaws and policies of the Company, constitutes the entire Agreement between the parties hereto and there are no other understandings, agreements or representations, expressed or implied.  This Agreement may amended only in writing signed by both parties.

19.Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey.

20.General Release.  Notwithstanding anything in this Agreement to the contrary, no payments shall be made or benefits provided by the Company under Section 4 above prior to the execution by Dr. Browne at the time of termination of a general release in favor of the Company and its affiliates, and its and their respective officers, employees and directors.  A form of general release is attached hereto as Exhibit A.

21.Compliance With Law.  This Agreement is intended to comply with the requirements of section 409A of the Code, and specifically, with the short term deferral exemption of section 409A, and shall in all respects be administered in accordance with section 409A.  Notwithstanding anything in the Agreement to the contrary, distributions may only be made under the Agreement upon an event and in a manner permitted by section 409A of the Code or an applicable exemption.  All payments to be made upon a termination of employment with the Company may only be made upon a “separation from service” under section 409A.  In no event may Dr. Browne, directly or indirectly, designate the calendar year of payment.  For purposes of section 409A of the Code, each payment made under this Agreement shall be treated as a separate payment and the right to a series of payments under this Agreement shall be treated as a right to a series of separate payments.  All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of section 409A of the Code, including, where applicable, the requirement that (a) any reimbursement shall be for expenses incurred during Dr. Browne’s lifetime (or during a shorter period of time specified in this Agreement), (b) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year, (c) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred, and (d) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.

PHARMACOPEIA, INC.:

By:	/s/ Joseph A. Mollica	/s/ Leslie J. Browne
Name:	Joseph A. Mollica, Ph.D.	Leslie Johnston Browne, Ph.D.
Title:	Chairman

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EXHIBIT A

General Release

IN CONSIDERATION OF the terms and conditions contained in the Amended and Restated Employment Agreement, dated as of the 5th day of March, 2008, (the “Employment Agreement”) by and between Leslie J. Browne, Ph.D. (“Employee”) and Pharmacopeia, Inc. (the “Company”), and for other good and valuable consideration, the receipt of which is hereby acknowledged, Employee on behalf of himself and his heirs, executors, administrators, and assigns, releases and discharges the Company and its subsidiaries, divisions, affiliates and parents, and their respective past, current and future officers, directors, employees, agents, and/or owners, and their respective successors, and assigns and any other person or entity claimed to be jointly or severally liable with the Company or any of the aforementioned persons or entities (collectively the “Released Parties”) from any and all manner of actions and causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, agreements, judgments, charges, claims, and demands whatsoever (“Claims “) which Employee and his heirs, executors, administrators, and assigns have, had, or may hereafter have, against the Released Parties or any of them arising out of or by reason of any cause, matter, or thing whatsoever from the beginning of the world to the date hereof.  This General Release of Claims includes, without limitation, any and all matters relating to Employee’s employment by the Company and the cessation thereof, and any and all matters arising under any federal, state, or local statute, rule, or regulation, or principle of contract law or common law, including but not limited to, the Family and Medical Leave Act of 1993, as amended, 29 U.S.C. §§ 2601 et seq., Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. §§ 2000 et seq., the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. §§ 621 et seq. (the “ADEA”), the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12101 et seq., the Worker Adjustment and Retraining Notification Act of 1988, as amended, 29 U.S.C. §§2101 et seq., Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001 et seq. (“ERISA”), the New Jersey Law Against Discrimination, N.J.S.A. 10:15-1, et seq., the New Jersey Conscientious Executive Protection Act, N.J.S.A. 34:19-1 to 19-8, the New Jersey Wage and Hour Act, N.J.S.A. 34-11-56a, et seq., and any other equivalent or similar federal, state, or local statute; provided, however, that Employee does not release or discharge the Released Parties from (i) any of the Company’s obligations to him under the Employment Agreement, and (ii) any vested benefits to which he may be entitled under any employee benefit plan or program subject to ERISA.  It is understood that nothing in this General Release is to be construed as an admission on behalf of the Released Parties of any wrongdoing with respect to Employee, any such wrongdoing being expressly denied.

Employee represents and warrants that he fully understands the terms of this General Release, that he is hereby advised to consult with legal counsel before signing, and that he knowingly and voluntarily, of his own free will, without any duress, being fully informed, and after due deliberation, accepts its terms and signs below as his own free act. Except as otherwise provided herein, Employee understands that as a result of executing this General Release, he will not have the right to assert that the Company or any other of the Released Parties unlawfully terminated his employment or violated any of his rights in connection with his employment or otherwise.

A-1

Employee further represents and warrants that he has not filed, and will not initiate, or cause to be initiated on his behalf any complaint, charge, claim, or proceeding against any of the Released Parties before any federal, state, or local agency, court, or other body relating to any claims barred or released in this General Release thereof, and will not voluntarily participate in such a proceeding.  However, nothing in this general release shall preclude or prevent Employee from filing a claim, which challenges the validity of this general release solely with respect to Employee’s waiver of any Losses arising under the ADEA. Employee shall not accept any relief obtained on his behalf by any government agency, private party, class, or otherwise with respect to any claims covered by this General Release.

Employee may take twenty-one (21) days to consider whether to execute this General Release.  Upon Employee’s execution of this General Release, Employee will have seven (7) days after such execution in which he may revoke such execution. In the event of revocation, Employee must present written notice of such revocation to the Company’s Chief Executive Officer.  If seven (7) days pass without receipt of such notice of revocation, this General Release shall become binding and effective on the eighth (8th) day after the execution hereof (the “Effective Date”).

INTENDING TO BE LEGALLY BOUND, I hereby set my hand below:

Dated:

A-2

NOTARIZATION

State of	)
County of	)	ss.

On this              day of                              in the year            before me, the undersigned, personally appeared                                                                     ; personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged to me that he executed the same in his capacity as an individual, and that by his signature on the instrument he executed such instrument, and that such individual made such appearance before the undersigned.

Notary Public

EX-10.23

Exhibit 10.23

AMENDED AND RESTATED

SEVERANCE AGREEMENT

This AMENDED AND RESTATED SEVERANCE AGREEMENT (the “Agreement”) is made and entered into as of the 18th day of December, 2007, by and between PHARMACOPEIA, INC., a Delaware corporation (hereinafter, the “Company”), and Stephen C. Costalas, Esq., an individual (hereinafter, “Employee”).

RECITALS

WHEREAS, Employee is presently employed by the Company the capacity of Executive Vice President, General Counsel and Secretary of the Company, pursuant to a Letter Agreement between the Company and Employee, dated November 15, 2004 (the “Letter Agreement”).

WHEREAS, the Company and Employee previously entered into a Severance Agreement, dated December 2, 2004 (as subsequently amended, the “Existing Severance Agreement”), pursuant to which Employee is entitled to certain payments and benefits in the event of a covered termination of Employee’s employment with the Company.

WHEREAS, the Company and Employee wish to amend and restate the Existing Severance Agreement to comply with section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and to make other appropriate changes.

NOW, THEREFORE, in consideration of their mutual promises and intending to be legally bound, the parties agree as follows:

1.TERMINATION AND EFFECT OF TERMINATION.  Employee’s employment hereunder is AT WILL and may be terminated at any time by the Company for any reason.  In the event of termination of Employee’s employment, the Company shall have no liability to Employee for compensation or benefits except as specified in this Section 1 or as required by the Company’s benefits policy.

(a)Termination By The Company For Cause.  Employee’s employment may be terminated by the Company for Cause (as defined below) at any time upon delivery of written notice to Employee.  Upon such a termination, the Company shall have no obligation to Employee other than the payment of all accrued, but unpaid, base salary and any unpaid expenses or expense reimbursements prior to the effective date of such termination.  For purposes of this Agreement, “Cause” means the occurrence of any one or more of the following events or conditions:

(i)any gross failure on the part of Employee (other than by reason of disability as provided in Section 1(e) below) to faithfully and professionally carry out Employee’s duties or to comply with any other material provision of this Agreement, which failure continues for thirty (30) days after written notice detailing such failure is delivered by the Company; provided, that the Company shall not be required to provide such notice in the event that such failure (A) is not susceptible to remedy or (B) relates to the same type of acts or omissions as to which notice has been given on a prior occasion;

(ii)Employee’s dishonesty (which shall include without limitation any misuse or misappropriation of the Company’s assets), or other willful misconduct (including without limitation, any conduct on the part of Employee intended to or likely to injure the business of the Company);

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(iii)Employee’s conviction of any felony or of any other crime involving moral turpitude, whether or not relating to Employee’s employment;

(iv)Employee’s insobriety or use of drugs, chemicals or controlled substances either (A) in the course of performing Employee’s duties and responsibilities under this Agreement, or (B) otherwise affecting the ability of Employee to perform the same;

(v)Employee’s failure to comply with a lawful written direction of the Company; or

(vi)any wanton or willful dereliction of duties by Employee.

(b)Involuntary Termination By The Company Without Cause.  The Company may involuntarily terminate Employee’s employment under this Agreement at any time without Cause upon delivery of written notice to Employee.  Subject to the provisions of Section 1(g) hereof (concerning a termination in connection with a Change in Control (as defined in Section 1(g)), if Employee’s employment is terminated involuntarily by the Company without Cause pursuant to this Section 1(b), the Company shall:

(i)pay Employee all compensation and benefits accrued, but unpaid, up to the effective date of termination of Employee’s employment;

(ii)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to twelve (12) months of Employee’s base salary in effect as of the effective date of termination of Employee’s employment;

(iii)pay  Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum pro rata portion of Employee’s target incentive bonus for the calendar year in which Employee’s employment is terminated as provided in this Section  1(b), such portion to be based on the number of full months for which Employee was employed  during the year of  termination;

(iv)maintain Employee’s group medical coverage until the earlier of (A) the end of a  period of twelve (12) months following the effective date of such termination, or (B) until such time as comparable medical coverage is obtained by Employee; and

(v)allow all vested options or other incentive securities to be exercised pursuant to the terms of the option agreement or other agreements under which such options or other incentive securities were granted.

(c)Termination By Employee For Good Reason.

(i)Benefits.  Employee may terminate Employee’s employment under this Agreement for Good Reason (as defined below)upon the provision of advance written notice to the Company specifying in reasonable detail the events or conditions upon which Employee is basing such termination.  Employee must give such notice within ninety (90) days after the event that gives rise to Good Reason.  The Company will be given the opportunity, but shall have no obligation, to cure such events or conditions within thirty (30) days after the provision by Employee of such notice.  If the Company elects in a written notice to Employee not to cure such events or conditions or otherwise fails to so cure such events or conditions within such thirty (30) day period, Employee may terminate his employment with the Company for Good Reason pursuant to this Section 1(c) within thirty (30) days after the expiration of the “cure” period.  In the event of such termination, the Company shall:

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(A)pay Employee all compensation and benefits accrued, but unpaid, up to the effective date of termination of Employee’s employment;

(B)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to twelve (12) months of Employee’s base salary in effect as of the effective date of termination of Employee’s employment;

(C)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum pro rata portion of Employee’s target incentive bonus for the calendar year in which Employee’s employment is terminated as provided in this Section 1(c), such portion to be based on the number of full months for which Employee was employed during the year of termination;

(D)maintain Employee’s group medical coverage until the earlier of (A) the end of  a period of twelve (12) months following the effective date of such termination, or (B) until such time as comparable medical coverage is obtained by Employee; and

(E)allow all vested options or other incentive securities to be exercised pursuant to the terms of the option agreement or other agreements under which such options or other incentive securities were granted.

(ii)Definition of “Good Reason.” For purposes of this Agreement, “Good Reason” means any one or more of the following events or conditions without the consent of Employee:

(A)any action or inaction that constitutes a material breach by the Company of the terms of this Agreement or the Letter Agreement;

(B)any material change in the geographic location at which Employee must perform services for the Company, which, for purposes of this Agreement, means a requirement that Employee commute more than fifty (50) miles from the offices of the Company at which he was principally employed on the date of this Agreement;

(C)           any material diminution of the authority, duties or responsibilities of Employee, including without limitation a material diminution in Employee’s position as Executive Vice President, General Counsel and Secretary; or

(D)any material reduction in Employee’s base salary (other than such a reduction applicable generally to substantially all employees of the Company), which, for purposes of this Agreement, means a reduction of more than twenty percent (20%) in Employee’s annual base salary as in effect on the date of this Agreement or as the same may be increased from time to time after such date.

(d)           Termination By Employee Without Good Reason (Voluntary Resignation).  Employee may voluntarily resign Employee’s position and terminate Employee’s employment under this Agreement without Good Reason at any time.  Upon such a termination, the Company shall have no obligation to pay compensation and provide benefits to Employee other than the payment of all accrued and unpaid base salary and any other unpaid expenses or expense reimbursements prior to the effective date of such termination.

(e)           Disability.  If Employee becomes disabled for more than one hundred eighty (180) days in any twelve (12) month period, the Company shall have the right to terminate Employee’s employment without further liability upon written notice to Employee.  Without limiting the generality of

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the foregoing, Employee shall be deemed disabled for purposes of this Agreement either (i) if Employee is deemed disabled for purposes of any long-term disability insurance policy paid for by the Company and at the time in effect, or (ii) if in the exercise of the Company’s reasonable judgment, due to accident, mental or physical illness, or any other reason, Employee cannot perform Employee’s duties.  In the event the Company shall terminate Employee due to disability, as described above, Employee shall be entitled to receive only those benefits provided under the Company’s Long Term Disability Plan, and Employee’s stock options and other incentive compensation grants will be treated under the applicable Disability section of the 2004 Stock Incentive Plan (as amended, the “2004 Plan”) or any other stock option or incentive compensation plan of the Company under which they were granted.

(f)Death.  In the event of the death of Employee, this Agreement shall automatically terminate and any obligation to continue to pay compensation and benefits shall cease as of the date of Employee’s death, except for the payment of all accrued, but unpaid, base salary and any other unpaid expenses or expense reimbursements prior to the date of death.  In the event of Employee’s death, Employee’s stock options and other incentive compensation grants shall be treated under the applicable Death section of the 2004 Plan or any other stock option or incentive compensation plan of the Company under which they were granted.

(g)Change In Control Termination.

(i)            Benefits.  In the event Employee’s employment under this Agreement is terminated by the Company involuntarily without Cause or Employee terminates Employee’s employment with the Company for Good Reason (as defined in Section 1(c) above), in either case at any time during the period commencing two (2) months before and ending twelve (12) months after the occurrence of a Change in Control, the Company shall:

(A)pay Employee all compensation and benefits accrued, but unpaid, up to the effective date of termination of Employee’s employment;

(B)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to eighteen (18) months of Employee’s base salary in effect as of the effective date of Employee’s termination of employment;

(C)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to one hundred and fifty percent (150%) of Employee’s target incentive bonus;

(D)maintain Employee’s group medical coverage until the earlier of  the end of a period of eighteen (18) months following the effective date of termination, or (B) such time as comparable medical coverage is obtained by Employee.

Anything contained in this Section to the contrary notwithstanding, Employee shall not be entitled to any of the benefits set forth in this Section 1(g)(i) if Employee either resigns and terminates such employment voluntarily (other than for Good Reason, as described above) or is terminated by the Company for Cause.

For purposes of Section 1(g) hereof, the term “Company” shall include any Acquiring Company (as defined below), and all obligations of the Company under such Section shall be assumed by any Acquiring Company.

(ii)           Stock Options.  In the event Employee’s employment under this Agreement is terminated by the Company involuntarily without Cause or Employee terminates his employment with the Company for Good Reason, in either case at any time during the period

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commencing two (2) months before and ending twelve (12) months after the occurrence of a Change in Control:

(A)notwithstanding anything to the contrary contained in the 2004 Plan or any other stock option or incentive compensation plan of the Company, any unvested stock options or other incentive securities which were granted to Employee during the term of this Agreement under the 2004 Plan or any such other stock option or incentive compensation plan shall immediately vest on the date of such termination of Employee’s employment, the expiration date of the exercise period for such options or other securities shall be the earlier of (1) one (1) year following the date of termination, or (2) the expiration of the term of the option, and the Company shall take all actions necessary or advisable to give effect to this Section 1(g)(ii)(A); and

(B)all vested options or other incentive securities held by Employee which were issued pursuant to the 2004 Plan or any such other plan shall be exercisable pursuant to the terms of the stock option agreement or other agreement(s) under which the options or other incentive securities were granted, and the Company shall take all actions necessary or advisable to give effect to this Section 1(g)(ii)(B).

Anything contained in this Section to the contrary notwithstanding, Employee shall not be entitled to any of the benefits set forth in this Section 1(g)(ii) if Employee either resigns and terminates such employment voluntarily (other than for Good Reason, as described above) or is terminated by the Company for Cause.

(iii)Definition Of “Change in Control.”  The definition of “Change in Control” set forth in the 2004 Plan is incorporated, and made a part hereof, by reference.

(iv)Definition Of “Acquiring Company.”For purposes of Section 1(g) of this Agreement, an “Acquiring Company” shall mean the resulting or surviving corporation, or the company issuing cash or securities (or its ultimate parent company), in a merger, sale, asset purchase, or assignment of all or substantially all of the Company’s assets, consolidation or share exchange involving the Company, or the successor corporation to the Company (whether in any such transaction or otherwise).

2.GENERAL RELEASE.  Notwithstanding anything in this Agreement to the contrary, no payments shall be made or benefits provided by the Company under Section 1unless Employee executes and does not revoke a general release in favor of the Company and its affiliates, and its and their respective officers, employees and directors.  A form of general release is attached hereto as Exhibit A.

3.CERTAIN EXCISE TAX PROVISIONS.  Notwithstanding anything herein to the contrary:

(a)Additional Payment.  In the event that (i) any payments or benefits received or to be received by Employee in connection with Employee’s employment with the Company (or termination thereof), whether under this Agreement or otherwise (the “Total Payments”), would subject Employee to the excise tax imposed under Section 4999 of the Code (the “Excise Tax”), and (ii) the amount of  total “parachute payment” as defined in Section 280G(b) of the Code to be paid to the Employee is equal to or greater than 110 percent (110%) of 2.99 times the Employee’s “base amount” as defined in Section 280G(b)(3) of the Code (the “Safe Harbor Amount”), then the Company shall pay Employee in cash an additional amount (the “Gross-Up Payment”) such that the net amount retained by Employee after deduction of any Excise Tax upon the Total Payments and any federal, state and local income tax and Excise Tax upon the Gross-Up Payment shall be equal to the Total Payments.  Such payments shall be made by the Company to Employee within thirty (30) days of Employee’s taxable year next following Employee’s taxable year in which Employee remits the related taxes to the taxing authorities.

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(b)Reduced Payments.  In the event that (i) the Total Payments would subject Employee to the Excise Tax, and (ii) the amount of the total “parachute payment” as defined in Section 280G(b) of the Code to be paid to Employee is less than 110% of the Safe Harbor Amount, then, only to the extent necessary to eliminate the imposition of the Excise Tax, such payments and benefits shall be reduced, in the order and of the type, mutually agreed to by Employee and the Company.

(c)Determinations.  All determinations required to be made, including whether any of the Total Payments will be subject to the Excise Tax and the amounts of such Excise Tax, shall be made by the Company’s regular auditors (the “Accounting Firm”).  The Accounting Firm shall provide detailed supporting calculations both to the Company and to Employee within 10 days after a request for such determinations are made by Employee or the Company.  Any such determination by the Accounting Firm shall be binding upon the Company and Employee.  For purposes of making any determination hereunder, Employee shall be deemed to pay Federal, state and local income taxes at the highest marginal rates applicable to Employee as of the date of the determination.

4.SECTION 409A.  This Agreement is intended to meet the requirements of the short-term deferral exemption under section 409A of the Code.  However, if required by section 409A and if Employee is a “specified employee” of a publicly traded corporation under section 409A of the Code, payment of any amount under this Agreement shall be delayed for a period of six (6) months after separation from service, as required by section 409A of the Code.  The accumulated postponed amount shall be paid in a lump sum payment within ten (10) days after the end of the six (6)-month period.  If Employee dies during the postponement period prior to payment of the postponed amount, the amounts withheld on account of section 409A shall be paid to the personal representative of Employee’s estate within sixty (60) days after the date of Employee’s death.  The determination of “specified employees” shall be made by the Compensation Committee of the Board of Directors of the Company in accordance with section 409A of the Code and the regulations issued thereunder.

5.NON-COMPETITION; NON-SOLICITATION.

(a)Restrictions.Employee shall not, during the course of Employee’s employment with the Company or for a period of twelve (12) months thereafter, directly or indirectly:

(i)be employed by, engaged in or participate in the ownership, management, operation or control of, or act in any advisory or other capacity (including as an individual, principal, agent employee, consultant or otherwise) for, any Competing Entity which conducts its business within the Territory (as the terms Competing Entity and Territory are hereinafter defined); provided, however, that notwithstanding any of the foregoing, Employee may make solely passive investments in any Competing Entity the common stock of which is “publicly-held” and of which Employee shall not own or control, directly or indirectly, in the aggregate securities which constitute 5% or more of the voting power of such Competing Entity;

(ii)solicit or divert any business or any customer or known prospective customer from the Company or assist any person or entity in doing so or attempting to do so;

(iii)cause or seek to cause any person or entity to refrain from dealing or doing business with the Company or assist any person or entity in doing so; or

(iv)solicit for employment, or advise or recommend to any other person or entity that he, she or it employ or solicit for employment or retention as an employee or consultant, any person who is an employee of, or exclusive consultant to, the Company.

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(b)Effect On The Company’s Obligations.  The Company’s obligation to make payments and provide the other benefits pursuant to Section 1 above shall terminate in the event that, and at such time as, Employee is in breach of Employee’s obligations set forth in Section 5(a) above.

(c)Definitions.  For purposes of this Section 5:

(i)“Competing Entity” means any entity which is presently or hereafter principally engaged in any business of the type or character engaged in or proposed to be engaged in by the Company from time to time during Employee’s term of employment under this Agreement, including without limitation, any business engaged in the discovery and development of human therapeutic products for any of the same targets and for indications as products the Company had in development or was marketing at any time during Employee’s term of employment under this Agreement.

(ii)           “Territory” means North America, Europe and Japan.

Notwithstanding anything in the above to the contrary, Employee may engage in the activities set forth in Section 5(a) hereof with the prior written consent of the Company, which consent shall not be unreasonably withheld.  Further, in determining whether a specific activity by Employee for a Competing Entity shall be permitted, the Company will consider, among other things, the nature and scope of (i) the duties to be performed by Employee and (ii) the business activities of the Competing Entity at the time of Employee’s proposed engagement by such entity.

(d)           Acknowledgement.  Employee acknowledges and agrees that the covenants set forth in this Section 5 are reasonable and necessary in all respects for the protection of the Company’s legitimate business interests (including, without limitation, the Company’s confidential, proprietary information and trade secrets and client good-will, which represents a significant portion of the Company’s net worth and in which the Company has a property interest).  Employee acknowledges and agrees that, in the event that Employee breaches any of the covenants set forth in this Section 5, the Company shall be irreparably harmed and shall not have an adequate remedy at law; and, therefore, in the event of such a breach, the Company shall be entitled to injunctive relief, in addition to (and not exclusive of) any other remedies (including monetary damages) to which the Company may be entitled under law.  If any covenant set forth in this Section 5 is deemed invalid or unenforceable for any reason, it is the parties’ intention that such covenants be equitably reformed or modified to the extent necessary (and only to such extent) to render it valid and enforceable in all respects.  In the event that the time period and geographic scope referenced above is deemed unreasonable, overbroad, or otherwise invalid, it is the parties’ intention that the enforcing court shall reduce or modify the time period and/or geographic scope to the extent necessary (and only to such extent) to render such covenants reasonable, valid and enforceable in all respects.

6.ARBITRATION.  Any and all disputes between the parties (except actions to enforce the provisions of Section 5 of this Agreement) arising under or relating to this Agreement or any other dispute arising between the parties, including claims arising under any employment discrimination laws, may be adjudicated and resolved exclusively through binding arbitration before the American Arbitration Association pursuant to the American Arbitration Association’s then-in-effect National Rules for the Resolution of Employment Disputes (hereinafter, “Rules”).  The initiation and conduct of any arbitration hereunder shall be in accordance with the Rules and, unless expressly required by law, each side shall bear its own costs and counsel fees in such arbitration.  Any arbitration hereunder shall be conducted in Princeton, New Jersey or at such other location as mutually agreed by the parties.  Any arbitration award shall be final and binding on the parties.  The arbitrator shall have no authority to depart from, modify, or add to the written terms of this Agreement.  The arbitration provisions of this Section 5 shall be interpreted according to, and governed by, the Federal Arbitration Act, 9 U.S.C. § 1 et seq., and any action pursuant to such Act to enforce any rights hereunder shall be brought exclusively in any United

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 States District Court in the State of New Jersey.  The parties consent to the jurisdiction of (and the laying of venue in) any such court.

7.NOTICES.  For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows:

(a)	If to the Company, to:
	Pharmacopeia, Inc.
	3000 Eastpark Blvd.
	Cranbury, NJ 08512
	Attn.: General Counsel
(b)	If to Employee, to:
	Stephen C. Costalas

or to such other address as a party hereto shall designate to the other party by like notice, provided that notice of a change of address shall be effective only upon receipt thereof.

8.WITHHOLDING TAXES.  All payments under this Agreement shall be made subject to applicable tax withholding, and the Company shall withhold from any payments under this Agreement all federal, state and local taxes as the Company is required to withhold pursuant to any law or governmental rule or regulation.  Except as specifically provided otherwise in this Agreement, Employee shall bear all expense of, and be solely responsible for, all federal, state and local taxes due with respect to any payment received under this Agreement.

9.WAIVER.  The waiver by the Company or Employee of any breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by Employee or the Company, as applicable, of any provision of this Agreement.

10.SEVERABILITY.  The parties have carefully reviewed the provisions of this Agreement and agree that they are fair and equitable.  However, in light of the possibility of differing interpretations of law and changes of circumstances, the parties agree that in the event that any section, paragraph or term of this Agreement shall be determined to be invalid or unenforceable by any competent authority or tribunal for any reason, the remainder of this Agreement shall be unaffected thereby and shall remain in full force and effect.  Moreover, if any of the provisions of this Agreement is determined by a court of competent jurisdiction to be excessively broad as to duration, activity, geographic application or subject, it shall be construed by limiting or reducing it to the extent legally permitted so as to be enforceable to the extent compatible with then applicable law.

11.SUCCESSORS AND ASSIGNS.  This Agreement shall bind and inure to the benefit of the successors and assigns of the Company and the heirs, executors or personal representatives of Employee.  This Agreement may not be assigned by Employee.  This Agreement may be assigned to any successor in interest to the Company (including by way of merger, consolidation or reorganization, or by way of any assignment of all or substantially all of the Company’s assets, business or properties), and Employee hereby consents to such assignment.

12.ENTIRE AGREEMENT; AMENDMENTS.  This Agreement, the Letter Agreement and the applicable bylaws and policies of the Company, constitute the entire Agreement between the parties hereto and there are no other understandings, agreements or representations, expressed or implied.

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This Agreement supersedes any and all prior or contemporaneous agreements, oral or written, concerning Employee’s employment and compensation.  This Agreement may be amended only in writing signed by Employee and the Chief Executive Officer or the General Counsel of the Company.

13.COUNTERPARTS.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

14.GOVERNING LAW; FORUM SELECTION.  This Agreement shall be governed by and construed in accordance with the laws (other than conflicts of laws principles) of the State of New Jersey applicable to contracts executed in and to be performed entirely within such State.  The parties consent to jurisdiction and laying of venue in the state and federal courts of New Jersey for purposes of resolving disputes under this Agreement.

15.COMPLIANCE WITH LAW.  This Agreement is intended to comply with the requirements of section 409A of the Code, and specifically, with the short term deferral exemption of section 409A, and shall in all respects be administered in accordance with section 409A.  Notwithstanding anything in the Agreement to the contrary, distributions may only be made under the Agreement upon an event and in a manner permitted by section 409A of the Code or an applicable exemption.  All payments to be made upon a termination of employment under this Agreement may only be made upon a “separation from service” under section 409A.  In no event may Employee, directly or indirectly, designate the calendar year of payment.  For purposes of section 409A of the Code, each payment made under this Agreement shall be treated as a separate payment.  All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of section 409A of the Code, including, where applicable, the requirement that (a) any reimbursement shall be for expenses incurred during Employee’s lifetime (or during a shorter period of time specified in this Agreement), (b) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided,

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in any other calendar year, (c) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred, and (d) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.

PHARMACOPEIA, INC.
By		/s/ Leslie J. Browne
		Leslie J. Browne, Ph.D.
		President and Chief Executive Officer
EMPLOYEE
By	/s/ Stephen C. Costalas
	Stephen C. Costalas

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EXHIBIT A

General Release

IN CONSIDERATION OF the terms and conditions contained in the Amended and Restated Severance Agreement, dated as of the 18th day of December, 2007, (the “Severance Agreement”) by and between Stephen C. Costalas, Esq. (“Employee”) and Pharmacopeia, Inc. (the “Company”), and for other good and valuable consideration, the receipt of which is hereby acknowledged, Employee on behalf of Employee and his or her heirs, executors, administrators, and assigns, releases and discharges the Company and its subsidiaries, divisions, affiliates and parents, and their respective past, current and future officers, directors, employees, agents, and/or owners, and their respective successors, and assigns and any other person or entity claimed to be jointly or severally liable with the Company or any of the aforementioned persons or entities (collectively the “Released Parties”) from any and all manner of actions and causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, agreements, judgments, charges, claims, and demands whatsoever (“Claims “) which Employee and his heirs, executors, administrators, and assigns have, had, or may hereafter have, against the Released Parties or any of them arising out of or by reason of any cause, matter, or thing whatsoever from the beginning of the world to the date hereof.  This General Release of Claims includes, without limitation, any and all matters relating to Employee’s employment by the Company and the cessation thereof, and any and all matters arising under any federal, state, or local statute, rule, or regulation, or principle of contract law or common law, including but not limited to, the Family and Medical Leave Act of 1993, as amended, 29 U.S.C. §§ 2601 et seq., Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. §§ 2000 et seq., the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. §§ 621 et seq. (the “ADEA”), the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12101 et seq., the Worker Adjustment and Retraining Notification Act of 1988, as amended, 29 U.S.C. §§2101 et seq., Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001 et seq. (“ERISA”), the New Jersey Law Against Discrimination, N.J.S.A. 10:15-1, et seq., the New Jersey Conscientious Executive Protection Act, N.J.S.A. 34:19-1 to 19-8, the New Jersey Wage and Hour Act, N.J.S.A. 34-11-56a, et seq., and any other equivalent or similar federal, state, or local statute; provided, however, that Employee does not release or discharge the Released Parties from (i) any of the Company’s obligations to Employee under the Severance Agreement, and (ii) any vested benefits to which Employee may be entitled under any employee benefit plan or program subject to ERISA.  It is understood that nothing in this General Release is to be construed as an admission on behalf of the Released Parties of any wrongdoing with respect to Employee, any such wrongdoing being expressly denied.

Employee represents and warrants that Employee fully understands the terms of this General Release, that Employee is hereby advised to consult with legal counsel before signing, and that Employee knowingly and voluntarily, of Employee’s own free will, without any duress, being fully informed, and after due deliberation, accepts its terms and signs below as Employee’s own free act.  Except as otherwise provided herein, Employee understands that as a result of executing this General Release, Employee will not have the right to assert that the Company or any other of the Released Parties unlawfully terminated Employee’s employment or violated any of Employee’s rights in connection with Employee’s employment or otherwise.

Employee further represents and warrants that Employee has not filed, and will not initiate, or cause to be initiated on Employee’s behalf any complaint, charge, claim, or proceeding against any of the Released Parties before any federal, state, or local agency, court, or other body relating to any claims barred or released in this General Release thereof, and will not voluntarily participate in such a proceeding.  However, nothing in this General Release shall preclude or prevent Employee from filing a claim, which challenges the validity of this General Release solely with respect to Employee’s waiver of any losses arising under the ADEA. Employee shall not accept any relief obtained on Employee’s behalf

A-1

by any government agency, private party, class, or otherwise with respect to any claims covered by this General Release.

Employee may take twenty-one (21) days to consider whether to execute this General Release.  Upon Employee’s execution of this General Release, Employee will have seven (7) days after such execution in which Employee may revoke such execution.  In the event of revocation, Employee must present written notice of such revocation to the Company’s Chief Executive Officer.  If seven (7) days pass without receipt of such notice of revocation, this General Release shall become binding and effective on the eighth (8th) day after the execution hereof (the “Effective Date”).

INTENDING TO BE LEGALLY BOUND, Employee hereby sets Employee’s hand below:

Dated:

* * *

NOTARIZATION

State of	)
County of.	)	ss.

On this              day of                              in the year            before me, the undersigned, personally appeared                                                                     ; personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged to me that he executed the same in his capacity as an individual, and that by his signature on the instrument he executed such instrument, and that such individual made such appearance before the undersigned.

Notary Public

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EX-10.25

Exhibit 10.25

AMENDED AND RESTATED

SEVERANCE AGREEMENT

This AMENDED AND RESTATED SEVERANCE AGREEMENT (the “Agreement”) is made and entered into as of the 18th day of December, 2007, by and between PHARMACOPEIA, INC., a Delaware corporation (hereinafter, the “Company”), and David M. Floyd, Ph.D., an individual (hereinafter, “Employee”).

RECITALS

WHEREAS, Employee is presently employed by the Company the capacity of Executive Vice President and Chief Scientific Officer of the Company, pursuant to a Letter Agreement between the Company and Employee, dated January 6, 2005 (the “Letter Agreement”).

WHEREAS, the Company and Employee previously entered into a Severance Agreement, dated January 7, 2005 (as subsequently amended, the “Existing Severance Agreement”), pursuant to which Employee is entitled to certain payments and benefits in the event of a covered termination of Employee’s employment with the Company.

WHEREAS, the Company and Employee wish to amend and restate the Existing Severance Agreement to comply with section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and to make other appropriate changes.

NOW, THEREFORE, in consideration of their mutual promises and intending to be legally bound, the parties agree as follows:

1.TERMINATION AND EFFECT OF TERMINATION.  Employee’s employment hereunder is AT WILL and may be terminated at any time by the Company for any reason.  In the event of termination of Employee’s employment, the Company shall have no liability to Employee for compensation or benefits except as specified in this Section 1 or as required by the Company’s benefits policy.

(a)Termination By The Company For Cause.  Employee’s employment may be terminated by the Company for Cause (as defined below) at any time upon delivery of written notice to Employee.  Upon such a termination, the Company shall have no obligation to Employee other than the payment of all accrued, but unpaid, base salary and any unpaid expenses or expense reimbursements prior to the effective date of such termination.  For purposes of this Agreement, “Cause” means the occurrence of any one or more of the following events or conditions:

(i)any gross failure on the part of Employee (other than by reason of disability as provided in Section 1(e) below) to faithfully and professionally carry out Employee’s duties or to comply with any other material provision of this Agreement, which failure continues for thirty (30) days after written notice detailing such failure is delivered by the Company; provided, that the Company shall not be required to provide such notice in the event that such failure (A) is not susceptible to remedy or (B) relates to the same type of acts or omissions as to which notice has been given on a prior occasion;

(ii)Employee’s dishonesty (which shall include without limitation any misuse or misappropriation of the Company’s assets), or other willful misconduct (including without limitation, any conduct on the part of Employee intended to or likely to injure the business of the Company);

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(iii)Employee’s conviction of any felony or of any other crime involving moral turpitude, whether or not relating to Employee’s employment;

(iv)Employee’s insobriety or use of drugs, chemicals or controlled substances either (A) in the course of performing Employee’s duties and responsibilities under this Agreement, or (B) otherwise affecting the ability of Employee to perform the same;

(v)Employee’s failure to comply with a lawful written direction of the Company; or

(vi)any wanton or willful dereliction of duties by Employee.

(b)Involuntary Termination By The Company Without Cause.  The Company may involuntarily terminate Employee’s employment under this Agreement at any time without Cause upon delivery of written notice to Employee.  Subject to the provisions of Section 1(g) hereof (concerning a termination in connection with a Change in Control (as defined in Section 1(g)), if Employee’s employment is terminated involuntarily by the Company without Cause pursuant to this Section 1(b), the Company shall:

(i)pay Employee all compensation and benefits accrued, but unpaid, up to the effective date of termination of Employee’s employment;

(ii)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to twelve (12) months of Employee’s base salary in effect as of the effective date of termination of Employee’s employment;

(iii)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum pro rata portion of Employee’s target incentive bonus for the calendar year in which Employee’s employment is terminated as provided in this Section 1(b), such portion to be based on the number of full months for which Employee was employed  during the year of  termination;

(iv)maintain Employee’s group medical coverage until the earlier of (A) the end of a  period of twelve (12) months following the effective date of such termination, or (B) until such time as comparable medical coverage is obtained by Employee; and

(v)allow all vested options or other incentive securities to be exercised pursuant to the terms of the option agreement or other agreements under which such options or other incentive securities were granted.

(c)Termination By Employee For Good Reason.

(i)Benefits.  Employee may terminate Employee’s employment under this Agreement for Good Reason (as defined below) upon the provision of advance written notice to the Company specifying in reasonable detail the events or conditions upon which Employee is basing such termination.  Employee must give such notice within ninety (90) days after the event that gives rise to Good Reason.  The Company will be given the opportunity, but shall have no obligation, to cure such events or conditions within thirty (30) days after the provision by Employee of such notice.  If the Company elects in a written notice to Employee not to cure such events or conditions or otherwise fails to so cure such events or conditions within such thirty (30) day period, Employee may terminate his employment with the Company for Good Reason pursuant to this Section 1(c) within thirty (30) days after the expiration of the cure period.  In the event of such termination, the Company shall:

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(A)pay Employee all compensation and benefits accrued, but unpaid, up to the effective date of termination of Employee’s employment;

(B)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to twelve (12) months of Employee’s base salary in effect as of the effective date of termination of Employee’s employment;

(C)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum pro rata portion of Employee’s target incentive bonus for the calendar year in which Employee’s employment is terminated as provided in this Section 1(c), such portion to be based on the number of full months for which Employee was employed during the year of termination;

(D)maintain Employee’s group medical coverage until the earlier of (A) the end of  a period of twelve (12) months following the effective date of such termination, or (B) until such time as comparable medical coverage is obtained by Employee; and

(E)allow all vested options or other incentive securities to be exercised pursuant to the terms of the option agreement or other agreements under which such options or other incentive securities were granted.

(ii)Definition of “Good Reason.” For purposes of this Agreement, “Good Reason” means any one or more of the following events or conditions without the consent of Employee:

(A)any action or inaction that constitutes a material breach by the Company of the terms of this Agreement or the Letter Agreement;

(B)any material change in the geographic location at which Employee must perform services for the Company, which, for purposes of this Agreement, means a requirement that Employee commute more than fifty (50) miles from the offices of the Company at which he was principally employed on the date of this Agreement;

(C)any material diminution of the authority, duties or responsibilities of Employee, including without limitation a material diminution in Employee’s position as Executive Vice President and Chief Scientific Officer; or

(D)any material reduction in Employee’s base salary (other than such a reduction applicable generally to substantially all employees of the Company), which, for purposes of this Agreement, means a reduction of more than twenty percent (20%) in Employee’s annual base salary as in effect on the date of this Agreement or as the same may be increased from time to time after such date.

(d)Termination By Employee Without Good Reason (Voluntary Resignation).  Employee may voluntarily resign Employee’s position and terminate Employee’s employment under this Agreement without Good Reason at any time.  Upon such a termination, the Company shall have no obligation to pay compensation and provide benefits to Employee other than the payment of all accrued and unpaid base salary and any other unpaid expenses or expense reimbursements prior to the effective date of such termination.

(e)Disability.  If Employee becomes disabled for more than one hundred eighty (180) days in any twelve (12) month period, the Company shall have the right to terminate Employee’s employment without further liability upon written notice to Employee.  Without limiting the generality of

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the foregoing, Employee shall be deemed disabled for purposes of this Agreement either (i) if Employee is deemed disabled for purposes of any long-term disability insurance policy paid for by the Company and at the time in effect, or (ii) if in the exercise of the Company’s reasonable judgment, due to accident, mental or physical illness, or any other reason, Employee cannot perform Employee’s duties.  In the event the Company shall terminate Employee due to disability, as described above, Employee shall be entitled to receive only those benefits provided under the Company’s Long Term Disability Plan, and Employee’s stock options and other incentive compensation grants will be treated under the applicable Disability section of the 2004 Stock Incentive Plan (as amended, the “2004 Plan”) or any other stock option or incentive compensation plan of the Company under which they were granted.

(f)Death.  In the event of the death of Employee, this Agreement shall automatically terminate and any obligation to continue to pay compensation and benefits shall cease as of the date of Employee’s death, except for the payment of all accrued, but unpaid, base salary and any other unpaid expenses or expense reimbursements prior to the date of death.  In the event of Employee’s death, Employee’s stock options and other incentive compensation grants shall be treated under the applicable Death section of the 2004 Plan or any other stock option or incentive compensation plan of the Company under which they were granted.

(g)Change In Control Termination.

(i)Benefits.  In the event Employee’s employment under this Agreement is terminated by the Company involuntarily without Cause or Employee terminates Employee’s employment with the Company for Good Reason (as defined in Section 1(c) above), in either case at any time during the period commencing two (2) months before and ending twelve (12) months after the occurrence of a Change in Control, the Company shall:

(A)pay Employee all compensation and benefits accrued, but unpaid, up to the effective date of termination of Employee’s employment;

(B)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to eighteen (18) months of Employee’s base salary in effect as of the effective date of Employee’s termination of employment;

(C)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to one hundred and fifty percent (150%) of Employee’s target incentive bonus;

(D)maintain Employee’s group medical coverage until the earlier of  the end of a period of eighteen (18) months following the effective date of termination, or (B) such time as comparable medical coverage is obtained by Employee.

Anything contained in this Section to the contrary notwithstanding, Employee shall not be entitled to any of the benefits set forth in this Section 1(g)(i) if Employee either resigns and terminates such employment voluntarily (other than for Good Reason, as described above) or is terminated by the Company for Cause.

For purposes of Section 1(g) hereof, the term “Company” shall include any Acquiring Company (as defined below), and all obligations of the Company under such Section shall be assumed by any Acquiring Company.

(ii)Stock Options.  In the event Employee’s employment under this Agreement is terminated by the Company involuntarily without Cause or Employee terminates his employment with the Company for Good Reason, in either case at any time during the period

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commencing two (2) months before and ending twelve (12) months after the occurrence of a Change in Control:

(A)notwithstanding anything to the contrary contained in the 2004 Plan or any other stock option or incentive compensation plan of the Company, any unvested stock options or other incentive securities which were granted to Employee during the term of this Agreement under the 2004 Plan or any such other stock option or incentive compensation plan shall immediately vest on the date of such termination of Employee’s employment, the expiration date of the exercise period for such options or other securities shall be the earlier of (1) one (1) year following the date of termination, or (2) the expiration of the term of the option, and the Company shall take all actions necessary or advisable to give effect to this Section 1(g)(ii)(A); and

(B)all vested options or other incentive securities held by Employee which were issued pursuant to the 2004 Plan or any such other plan shall be exercisable pursuant to the terms of the stock option agreement or other agreement(s) under which the options or other incentive securities were granted, and the Company shall take all actions necessary or advisable to give effect to this Section 1(g)(ii)(B).

Anything contained in this Section to the contrary notwithstanding, Employee shall not be entitled to any of the benefits set forth in this Section 1(g)(ii) if Employee either resigns and terminates such employment voluntarily (other than for Good Reason, as described above) or is terminated by the Company for Cause.

(iii)Definition Of “Change in Control.”  The definition of “Change in Control” set forth in the 2004 Plan is incorporated, and made a part hereof, by reference.

(iv)Definition Of “Acquiring Company.”  For purposes of Section 1(g) of this Agreement, an “Acquiring Company” shall mean the resulting or surviving corporation, or the company issuing cash or securities (or its ultimate parent company), in a merger, sale, asset purchase, or assignment of all or substantially all of the Company’s assets, consolidation or share exchange involving the Company, or the successor corporation to the Company (whether in any such transaction or otherwise).

2.GENERAL RELEASE.  Notwithstanding anything in this Agreement to the contrary, no payments shall be made or benefits provided by the Company under Section 1unless Employee executes and does not revoke a general release in favor of the Company and its affiliates, and its and their respective officers, employees and directors.  A form of general release is attached hereto as Exhibit A.

3.CERTAIN EXCISE TAX PROVISIONS.  Notwithstanding anything herein to the contrary:

(a)Additional Payment.  In the event that (i) any payments or benefits received or to be received by Employee in connection with Employee’s employment with the Company (or termination thereof), whether under this Agreement or otherwise (the “Total Payments”), would subject Employee to the excise tax imposed under Section 4999 of the Code (the “Excise Tax”), and (ii) the amount of  total “parachute payment” as defined in Section 280G(b) of the Code to be paid to the Employee is equal to or greater than 110 percent (110%) of 2.99 times the Employee’s “base amount” as defined in Section 280G(b)(3) of the Code (the “Safe Harbor Amount”), then the Company shall pay Employee in cash an additional amount (the “Gross-Up Payment”) such that the net amount retained by Employee after deduction of any Excise Tax upon the Total Payments and any federal, state and local income tax and Excise Tax upon the Gross-Up Payment shall be equal to the Total Payments.  Such payments shall be made by the Company to Employee within thirty (30) days of Employee’s taxable year next following Employee’s taxable year in which Employee remits the related taxes to the taxing authorities.

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(b)Reduced Payments.  In the event that (i) the Total Payments would subject Employee to the Excise Tax, and (ii) the amount of the total “parachute payment” as defined in Section 280G(b) of the Code to be paid to Employee is less than 110% of the Safe Harbor Amount, then, only to the extent necessary to eliminate the imposition of the Excise Tax, such payments and benefits shall be reduced, in the order and of the type, mutually agreed to by Employee and the Company.

(c)Determinations.  All determinations required to be made, including whether any of the Total Payments will be subject to the Excise Tax and the amounts of such Excise Tax, shall be made by the Company’s regular auditors (the “Accounting Firm”).  The Accounting Firm shall provide detailed supporting calculations both to the Company and to Employee within 10 days after a request for such determinations are made by Employee or the Company.  Any such determination by the Accounting Firm shall be binding upon the Company and Employee.  For purposes of making any determination hereunder, Employee shall be deemed to pay Federal, state and local income taxes at the highest marginal rates applicable to Employee as of the date of the determination.

4.SECTION 409A.  This Agreement is intended to meet the requirements of the short-term deferral exemption under section 409A of the Code.  However, if required by section 409A and if Employee is a “specified employee” of a publicly traded corporation under section 409A of the Code, payment of any amount under this Agreement shall be delayed for a period of six (6) months after separation from service, as required by section 409A of the Code.  The accumulated postponed amount shall be paid in a lump sum payment within ten (10) days after the end of the six (6)-month period.  If Employee dies during the postponement period prior to payment of the postponed amount, the amounts withheld on account of section 409A shall be paid to the personal representative of Employee’s estate within sixty (60) days after the date of Employee’s death.  The determination of “specified employees” shall be made by the Compensation Committee of the Board of Directors of the Company in accordance with section 409A of the Code and the regulations issued thereunder.

5.NON-COMPETITION; NON-SOLICITATION.

(a)Restrictions.  Employee shall not, during the course of Employee’s employment with the Company or for a period of twelve (12) months thereafter, directly or indirectly:

(i)be employed by, engaged in or participate in the ownership, management, operation or control of, or act in any advisory or other capacity (including as an individual, principal, agent employee, consultant or otherwise) for, any Competing Entity which conducts its business within the Territory (as the terms Competing Entity and Territory are hereinafter defined); provided, however, that notwithstanding any of the foregoing, Employee may make solely passive investments in any Competing Entity the common stock of which is “publicly-held” and of which Employee shall not own or control, directly or indirectly, in the aggregate securities which constitute 5% or more of the voting power of such Competing Entity;

(ii)solicit or divert any business or any customer or known prospective customer from the Company or assist any person or entity in doing so or attempting to do so;

(iii)cause or seek to cause any person or entity to refrain from dealing or doing business with the Company or assist any person or entity in doing so; or

(iv)solicit for employment, or advise or recommend to any other person or entity that he, she or it employ or solicit for employment or retention as an employee or consultant, any person who is an employee of, or exclusive consultant to, the Company.

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(b)Effect On The Company’s Obligations.  The Company’s obligation to make payments and provide the other benefits pursuant to Section 1 above shall terminate in the event that, and at such time as, Employee is in breach of Employee’s obligations set forth in Section 5(a) above.

(c)Definitions.  For purposes of this Section 5:

(i)“Competing Entity” means any entity which is presently or hereafter principally engaged in any business of the type or character engaged in or proposed to be engaged in by the Company from time to time during Employee’s term of employment under this Agreement, including without limitation, any business engaged in the discovery and development of human therapeutic products for any of the same targets and for indications as products the Company had in development or was marketing at any time during Employee’s term of employment under this Agreement.

(ii)“Territory” means North America, Europe and Japan.

Notwithstanding anything in the above to the contrary, Employee may engage in the activities set forth in Section 5(a) hereof with the prior written consent of the Company, which consent shall not be unreasonably withheld.  Further, in determining whether a specific activity by Employee for a Competing Entity shall be permitted, the Company will consider, among other things, the nature and scope of (i) the duties to be performed by Employee and (ii) the business activities of the Competing Entity at the time of Employee’s proposed engagement by such entity.

(d)Acknowledgement.  Employee acknowledges and agrees that the covenants set forth in this Section 5 are reasonable and necessary in all respects for the protection of the Company’s legitimate business interests (including, without limitation, the Company’s confidential, proprietary information and trade secrets and client good-will, which represents a significant portion of the Company’s net worth and in which the Company has a property interest).  Employee acknowledges and agrees that, in the event that Employee breaches any of the covenants set forth in this Section 5, the Company shall be irreparably harmed and shall not have an adequate remedy at law; and, therefore, in the event of such a breach, the Company shall be entitled to injunctive relief, in addition to (and not exclusive of) any other remedies (including monetary damages) to which the Company may be entitled under law.  If any covenant set forth in this Section 5 is deemed invalid or unenforceable for any reason, it is the parties’ intention that such covenants be equitably reformed or modified to the extent necessary (and only to such extent) to render it valid and enforceable in all respects.  In the event that the time period and geographic scope referenced above is deemed unreasonable, overbroad, or otherwise invalid, it is the parties’ intention that the enforcing court shall reduce or modify the time period and/or geographic scope to the extent necessary (and only to such extent) to render such covenants reasonable, valid and enforceable in all respects.

6.ARBITRATION.  Any and all disputes between the parties (except actions to enforce the provisions of Section 5 of this Agreement) arising under or relating to this Agreement or any other dispute arising between the parties, including claims arising under any employment discrimination laws, may be adjudicated and resolved exclusively through binding arbitration before the American Arbitration Association pursuant to the American Arbitration Association’s then-in-effect National Rules for the Resolution of Employment Disputes (hereinafter, “Rules”).  The initiation and conduct of any arbitration hereunder shall be in accordance with the Rules and, unless expressly required by law, each side shall bear its own costs and counsel fees in such arbitration.  Any arbitration hereunder shall be conducted in Princeton, New Jersey or at such other location as mutually agreed by the parties.  Any arbitration award shall be final and binding on the parties.  The arbitrator shall have no authority to depart from, modify, or add to the written terms of this Agreement.  The arbitration provisions of this Section 5 shall be interpreted according to, and governed by, the Federal Arbitration Act, 9 U.S.C. § 1 et seq., and any action pursuant to such Act to enforce any rights hereunder shall be brought exclusively in any United

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States District Court in the State of New Jersey.  The parties consent to the jurisdiction of (and the laying of venue in) any such court.

7.NOTICES.  For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows:

(a)If to the Company, to:

Pharmacopeia, Inc.

3000 Eastpark Blvd.

Cranbury, NJ  08512

Attn.:  General Counsel

(b)If to Employee, to:

David M. Floyd, Ph.D.

or to such other address as a party hereto shall designate to the other party by like notice, provided that notice of a change of address shall be effective only upon receipt thereof.

8.WITHHOLDING TAXES.  All payments under this Agreement shall be made subject to applicable tax withholding, and the Company shall withhold from any payments under this Agreement all federal, state and local taxes as the Company is required to withhold pursuant to any law or governmental rule or regulation.  Except as specifically provided otherwise in this Agreement, Employee shall bear all expense of, and be solely responsible for, all federal, state and local taxes due with respect to any payment received under this Agreement.

9.WAIVER.  The waiver by the Company or Employee of any breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by Employee or the Company, as applicable, of any provision of this Agreement.

10.SEVERABILITY.  The parties have carefully reviewed the provisions of this Agreement and agree that they are fair and equitable.  However, in light of the possibility of differing interpretations of law and changes of circumstances, the parties agree that in the event that any section, paragraph or term of this Agreement shall be determined to be invalid or unenforceable by any competent authority or tribunal for any reason, the remainder of this Agreement shall be unaffected thereby and shall remain in full force and effect.  Moreover, if any of the provisions of this Agreement is determined by a court of competent jurisdiction to be excessively broad as to duration, activity, geographic application or subject, it shall be construed by limiting or reducing it to the extent legally permitted so as to be enforceable to the extent compatible with then applicable law.

11.SUCCESSORS AND ASSIGNS.  This Agreement shall bind and inure to the benefit of the successors and assigns of the Company and the heirs, executors or personal representatives of Employee.  This Agreement may not be assigned by Employee.  This Agreement may be assigned to any successor in interest to the Company (including by way of merger, consolidation or reorganization, or by way of any assignment of all or substantially all of the Company’s assets, business or properties), and Employee hereby consents to such assignment.

12.ENTIRE AGREEMENT; AMENDMENTS.  This Agreement, the Letter Agreement and the applicable bylaws and policies of the Company, constitute the entire Agreement between the parties hereto and there are no other understandings, agreements or representations, expressed or implied.

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This Agreement supersedes any and all prior or contemporaneous agreements, oral or written, concerning Employee’s employment and compensation.  This Agreement may be amended only in writing signed by Employee and the Chief Executive Officer or the General Counsel of the Company.

13.COUNTERPARTS.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

14.GOVERNING LAW; FORUM SELECTION.  This Agreement shall be governed by and construed in accordance with the laws (other than conflicts of laws principles) of the State of New Jersey applicable to contracts executed in and to be performed entirely within such State.  The parties consent to jurisdiction and laying of venue in the state and federal courts of New Jersey for purposes of resolving disputes under this Agreement.

15.COMPLIANCE WITH LAW.  This Agreement is intended to comply with the requirements of section 409A of the Code, and specifically, with the short term deferral exemption of section 409A, and shall in all respects be administered in accordance with section 409A.  Notwithstanding anything in the Agreement to the contrary, distributions may only be made under the Agreement upon an event and in a manner permitted by section 409A of the Code or an applicable exemption.  All payments to be made upon a termination of employment under this Agreement may only be made upon a “separation from service” under section 409A.  In no event may Employee, directly or indirectly, designate the calendar year of payment.  For purposes of section 409A of the Code, each payment made under this Agreement shall be treated as a separate payment.  All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of section 409A of the Code, including, where applicable, the requirement that (a) any reimbursement shall be for expenses incurred during Employee’s lifetime (or during a shorter period of time specified in this Agreement), (b) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a

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calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year, (c) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred, and (d) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.

PHARMACOPEIA, INC.
By	/s/ Leslie J. Browne
	Leslie J. Browne, Ph.D.
	President and Chief Executive Officer
EMPLOYEE
By	/s/ David M. Floyd
	David M. Floyd, Ph.D.

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EXHIBIT A

General Release

IN CONSIDERATION OF the terms and conditions contained in the Amended and Restated Severance Agreement, dated as of the 18th day of December, 2007, (the “Severance Agreement”) by and between David M. Floyd, Ph.D. (“Employee”) and Pharmacopeia, Inc. (the “Company”), and for other good and valuable consideration, the receipt of which is hereby acknowledged, Employee on behalf of Employee and his or her heirs, executors, administrators, and assigns, releases and discharges the Company and its subsidiaries, divisions, affiliates and parents, and their respective past, current and future officers, directors, employees, agents, and/or owners, and their respective successors, and assigns and any other person or entity claimed to be jointly or severally liable with the Company or any of the aforementioned persons or entities (collectively the “Released Parties”) from any and all manner of actions and causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, agreements, judgments, charges, claims, and demands whatsoever (“Claims “) which Employee and his heirs, executors, administrators, and assigns have, had, or may hereafter have, against the Released Parties or any of them arising out of or by reason of any cause, matter, or thing whatsoever from the beginning of the world to the date hereof.  This General Release of Claims includes, without limitation, any and all matters relating to Employee’s employment by the Company and the cessation thereof, and any and all matters arising under any federal, state, or local statute, rule, or regulation, or principle of contract law or common law, including but not limited to, the Family and Medical Leave Act of 1993, as amended, 29 U.S.C. §§ 2601 et seq., Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. §§ 2000 et seq., the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. §§ 621 et seq. (the “ADEA”), the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12101 et seq., the Worker Adjustment and Retraining Notification Act of 1988, as amended, 29 U.S.C. §§2101 et seq., Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001 et seq. (“ERISA”), the New Jersey Law Against Discrimination, N.J.S.A. 10:15-1, et seq., the New Jersey Conscientious Executive Protection Act, N.J.S.A. 34:19-1 to 19-8, the New Jersey Wage and Hour Act, N.J.S.A. 34-11-56a, et seq., and any other equivalent or similar federal, state, or local statute; provided, however, that Employee does not release or discharge the Released Parties from (i) any of the Company’s obligations to Employee under the Severance Agreement, and (ii) any vested benefits to which Employee may be entitled under any employee benefit plan or program subject to ERISA.  It is understood that nothing in this General Release is to be construed as an admission on behalf of the Released Parties of any wrongdoing with respect to Employee, any such wrongdoing being expressly denied.

Employee represents and warrants that Employee fully understands the terms of this General Release, that Employee is hereby advised to consult with legal counsel before signing, and that Employee knowingly and voluntarily, of Employee’s own free will, without any duress, being fully informed, and after due deliberation, accepts its terms and signs below as Employee’s own free act.  Except as otherwise provided herein, Employee understands that as a result of executing this General Release, Employee will not have the right to assert that the Company or any other of the Released Parties unlawfully terminated Employee’s employment or violated any of Employee’s rights in connection with Employee’s employment or otherwise.

Employee further represents and warrants that Employee has not filed, and will not initiate, or cause to be initiated on Employee’s behalf any complaint, charge, claim, or proceeding against any of the Released Parties before any federal, state, or local agency, court, or other body relating to any claims barred or released in this General Release thereof, and will not voluntarily participate in such a proceeding.  However, nothing in this General Release shall preclude or prevent Employee from filing a claim, which challenges the validity of this General Release solely with respect to Employee’s waiver of any losses arising under the ADEA. Employee shall not accept any relief obtained on Employee’s behalf

A-1

by any government agency, private party, class, or otherwise with respect to any claims covered by this General Release.

Employee may take twenty-one (21) days to consider whether to execute this General Release.  Upon Employee’s execution of this General Release, Employee will have seven (7) days after such execution in which Employee may revoke such execution.  In the event of revocation, Employee must present written notice of such revocation to the Company’s Chief Executive Officer.  If seven (7) days pass without receipt of such notice of revocation, this General Release shall become binding and effective on the eighth (8th) day after the execution hereof (the “Effective Date”).

INTENDING TO BE LEGALLY BOUND, Employee hereby sets Employee’s hand below:

Dated:

*            *            *

NOTARIZATION

State of	)
County of	)	ss.

On this              day of                              in the year            before me, the undersigned, personally appeared                                                                     ; personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged to me that he executed the same in his capacity as an individual, and that by his signature on the instrument he executed such instrument, and that such individual made such appearance before the undersigned.

Notary Public

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EX-10.27

Exhibit 10.27

AMENDED AND RESTATED

SEVERANCE AGREEMENT

This AMENDED AND RESTATED SEVERANCE AGREEMENT (the “Agreement”) is made and entered into as of the 18th day of December, 2007, by and between PHARMACOPEIA, INC., a Delaware corporation (hereinafter, the “Company”), and Brian M. Posner, an individual (hereinafter, “Employee”).

RECITALS

WHEREAS, Employee is presently employed by the Company the capacity of Executive Vice President, Chief Financial Officer and Treasurer of the Company, pursuant to a Letter Agreement between the Company and Employee, dated May 4, 2006 (the “Letter Agreement”).

WHEREAS, the Company and Employee previously entered into a Severance Agreement, dated May 4, 2006 (as subsequently amended, the “Existing Severance Agreement”), pursuant to which Employee is entitled to certain payments and benefits in the event of a covered termination of Employee’s employment with the Company.

WHEREAS, the Company and Employee wish to amend and restate the Existing Severance Agreement to comply with section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and to make other appropriate changes.

NOW, THEREFORE, in consideration of their mutual promises and intending to be legally bound, the parties agree as follows:

1.TERMINATION AND EFFECT OF TERMINATION.  Employee’s employment hereunder is AT WILL and may be terminated at any time by the Company for any reason.  In the event of termination of Employee’s employment, the Company shall have no liability to Employee for compensation or benefits except as specified in this Section 1 or as required by the Company’s benefits policy.

(a)Termination By The Company For Cause.  Employee’s employment may be terminated by the Company for Cause (as defined below) at any time upon delivery of written notice to Employee.  Upon such a termination, the Company shall have no obligation to Employee other than the payment of all accrued, but unpaid, base salary and any unpaid expenses or expense reimbursements prior to the effective date of such termination.  For purposes of this Agreement, “Cause” means the occurrence of any one or more of the following events or conditions:

(i)any gross failure on the part of Employee (other than by reason of disability as provided in Section 1(e) below) to faithfully and professionally carry out Employee’s duties or to comply with any other material provision of this Agreement, which failure continues for thirty (30) days after written notice detailing such failure is delivered by the Company; provided, that the Company shall not be required to provide such notice in the event that such failure (A) is not susceptible to remedy or (B) relates to the same type of acts or omissions as to which notice has been given on a prior occasion;

(ii)Employee’s dishonesty (which shall include without limitation any misuse or misappropriation of the Company’s assets), or other willful misconduct (including without limitation, any conduct on the part of Employee intended to or likely to injure the business of the Company);

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(iii)Employee’s conviction of any felony or of any other crime involving moral turpitude, whether or not relating to Employee’s employment;

(iv)Employee’s insobriety or use of drugs, chemicals or controlled substances either (A) in the course of performing Employee’s duties and responsibilities under this Agreement, or (B) otherwise affecting the ability of Employee to perform the same;

(v)Employee’s failure to comply with a lawful written direction of the Company; or

(vi)any wanton or willful dereliction of duties by Employee.

(b)Involuntary Termination By The Company Without Cause.  The Company may involuntarily terminate Employee’s employment under this Agreement at any time without Cause upon delivery of written notice to Employee.  Subject to the provisions of Section 1(g) hereof (concerning a termination in connection with a Change in Control (as defined in Section 1(g)), if Employee’s employment is terminated involuntarily by the Company without Cause pursuant to this Section 1(b), the Company shall:

(i)pay Employee all compensation and benefits accrued, but unpaid, up to the effective date of termination of Employee’s employment;

(ii)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to twelve (12) months of Employee’s base salary in effect as of the effective date of termination of Employee’s employment;

(iii)pay  Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum pro rata portion of Employee’s target incentive bonus for the calendar year in which Employee’s employment is terminated as provided in this Section 1(b), such portion to be based on the number of full months for which Employee was employed  during the year of  termination;

(iv)maintain Employee’s group medical coverage until the earlier of (A) the end of a  period of twelve (12) months following the effective date of such termination, or (B) until such time as comparable medical coverage is obtained by Employee; and

(v)allow all vested options or other incentive securities to be exercised pursuant to the terms of the option agreement or other agreements under which such options or other incentive securities were granted.

(c)Termination By Employee For Good Reason.

(i)Benefits.  Employee may terminate Employee’s employment under this Agreement for Good Reason (as defined below) upon the provision of advance written notice to the Company specifying in reasonable detail the events or conditions upon which Employee is basing such termination.  Employee must give such notice within ninety (90) days after the event that gives rise to Good Reason.  The Company will be given the opportunity, but shall have no obligation, to cure such events or conditions within thirty (30) days after the provision by Employee of such notice.  If the Company elects in a written notice to Employee not to cure such events or conditions or otherwise fails to so cure such events or conditions within such thirty (30) day period, Employee may terminate his employment with the Company for Good Reason pursuant to this Section 1(c) within thirty (30) days after the expiration of the cure period.  In the event of such termination, the Company shall:

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(A)pay Employee all compensation and benefits accrued, but unpaid, up to the effective date of termination of Employee’s employment;

(B)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to twelve (12) months of Employee’s base salary in effect as of the effective date of termination of Employee’s employment;

(C)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum pro rata portion of Employee’s target incentive bonus for the calendar year in which Employee’s employment is terminated as provided in this Section 1(c), such portion to be based on the number of full months for which Employee was employed during the year of termination;

(D)maintain Employee’s group medical coverage until the earlier of (A) the end of  a period of twelve (12) months following the effective date of such termination, or (B) until such time as comparable medical coverage is obtained by Employee; and

(E)allow all vested options or other incentive securities to be exercised pursuant to the terms of the option agreement or other agreements under which such options or other incentive securities were granted.

(ii)Definition of “Good Reason.” For purposes of this Agreement, “Good Reason” means any one or more of the following events or conditions without the consent of Employee:

(A)any action or inaction that constitutes a material breach by the Company of the terms of this Agreement or the Letter Agreement;

(B)any material change in the geographic location at which Employee must perform services for the Company, which, for purposes of this Agreement, means a requirement that Employee commute more than fifty (50) miles from the offices of the Company at which he was principally employed on the date of this Agreement;

(C)any material diminution of the authority, duties or responsibilities of Employee, including without limitation a material diminution in Employee’s position as Executive Vice President, Chief Financial Officer and Treasurer; or

(D)any material reduction in Employee’s base salary (other than such a reduction applicable generally to substantially all employees of the Company), which, for purposes of this Agreement, means a reduction of more than twenty percent (20%) in Employee’s annual base salary as in effect on the date of this Agreement or as the same may be increased from time to time after such date.

(d)Termination By Employee Without Good Reason (Voluntary Resignation).  Employee may voluntarily resign Employee’s position and terminate Employee’s employment under this Agreement without Good Reason at any time.  Upon such a termination, the Company shall have no obligation to pay compensation and provide benefits to Employee other than the payment of all accrued and unpaid base salary and any other unpaid expenses or expense reimbursements prior to the effective date of such termination.

(e)Disability.  If Employee becomes disabled for more than one hundred eighty (180) days in any twelve (12) month period, the Company shall have the right to terminate Employee’s employment without further liability upon written notice to Employee.  Without limiting the generality of

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the foregoing, Employee shall be deemed disabled for purposes of this Agreement either (i) if Employee is deemed disabled for purposes of any long-term disability insurance policy paid for by the Company and at the time in effect, or (ii) if in the exercise of the Company’s reasonable judgment, due to accident, mental or physical illness, or any other reason, Employee cannot perform Employee’s duties.  In the event the Company shall terminate Employee due to disability, as described above, Employee shall be entitled to receive only those benefits provided under the Company’s Long Term Disability Plan, and Employee’s stock options and other incentive compensation grants will be treated under the applicable Disability section of the 2004 Stock Incentive Plan (as amended, the “2004 Plan”) or any other stock option or incentive compensation plan of the Company under which they were granted.

(f)Death.  In the event of the death of Employee, this Agreement shall automatically terminate and any obligation to continue to pay compensation and benefits shall cease as of the date of Employee’s death, except for the payment of all accrued, but unpaid, base salary and any other unpaid expenses or expense reimbursements prior to the date of death.  In the event of Employee’s death, Employee’s stock options and other incentive compensation grants shall be treated under the applicable Death section of the 2004 Plan or any other stock option or incentive compensation plan of the Company under which they were granted.

(g)Change In Control Termination.

(i)Benefits.  In the event Employee’s employment under this Agreement is terminated by the Company involuntarily without Cause or Employee terminates Employee’s employment with the Company for Good Reason (as defined in Section 1(c) above), in either case at any time during the period commencing two (2) months before and ending twelve (12) months after the occurrence of a Change in Control, the Company shall:

(A)pay Employee all compensation and benefits accrued, but unpaid, up to the effective date of termination of Employee’s employment;

(B)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to eighteen (18) months of Employee’s base salary in effect as of the effective date of Employee’s termination of employment;

(C)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to one hundred and fifty percent (150%) of Employee’s target incentive bonus;

(D)maintain Employee’s group medical coverage until the earlier of  the end of a period of eighteen (18) months following the effective date of termination, or (B) such time as comparable medical coverage is obtained by Employee.

Anything contained in this Section to the contrary notwithstanding, Employee shall not be entitled to any of the benefits set forth in this Section 1(g)(i) if Employee either resigns and terminates such employment voluntarily (other than for Good Reason, as described above) or is terminated by the Company for Cause.

For purposes of Section 1(g) hereof, the term “Company” shall include any Acquiring Company (as defined below), and all obligations of the Company under such Section shall be assumed by any Acquiring Company.

(ii)Stock Options.  In the event Employee’s employment under this Agreement is terminated by the Company involuntarily without Cause or Employee terminates his employment with the Company for Good Reason, in either case at any time during the period

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commencing two (2) months before and ending twelve (12) months after the occurrence of a Change in Control:

(A)notwithstanding anything to the contrary contained in the 2004 Plan or any other stock option or incentive compensation plan of the Company, any unvested stock options or other incentive securities which were granted to Employee during the term of this Agreement under the 2004 Plan or any such other stock option or incentive compensation plan shall immediately vest on the date of such termination of Employee’s employment, the expiration date of the exercise period for such options or other securities shall be the earlier of (1) one (1) year following the date of termination, or (2) the expiration of the term of the option, and the Company shall take all actions necessary or advisable to give effect to this Section 1(g)(ii)(A); and

(B)all vested options or other incentive securities held by Employee which were issued pursuant to the 2004 Plan or any such other plan shall be exercisable pursuant to the terms of the stock option agreement or other agreement(s) under which the options or other incentive securities were granted, and the Company shall take all actions necessary or advisable to give effect to this Section 1(g)(ii)(B).

Anything contained in this Section to the contrary notwithstanding, Employee shall not be entitled to any of the benefits set forth in this Section 1(g)(ii) if Employee either resigns and terminates such employment voluntarily (other than for Good Reason, as described above) or is terminated by the Company for Cause.

(iii)Definition Of “Change in Control.”  The definition of “Change in Control” set forth in the 2004 Plan is incorporated, and made a part hereof, by reference.

(iv)Definition Of “Acquiring Company.”  For purposes of Section 1(g) of this Agreement, an “Acquiring Company” shall mean the resulting or surviving corporation, or the company issuing cash or securities (or its ultimate parent company), in a merger, sale, asset purchase, or assignment of all or substantially all of the Company’s assets, consolidation or share exchange involving the Company, or the successor corporation to the Company (whether in any such transaction or otherwise).

2.GENERAL RELEASE.  Notwithstanding anything in this Agreement to the contrary, no payments shall be made or benefits provided by the Company under Section 1unless Employee executes and does not revoke a general release in favor of the Company and its affiliates, and its and their respective officers, employees and directors.  A form of general release is attached hereto as Exhibit A.

3.CERTAIN EXCISE TAX PROVISIONS.  Notwithstanding anything herein to the contrary:

(a)Additional Payment.  In the event that (i) any payments or benefits received or to be received by Employee in connection with Employee’s employment with the Company (or termination thereof), whether under this Agreement or otherwise (the “Total Payments”), would subject Employee to the excise tax imposed under Section 4999 of the Code (the “Excise Tax”), and (ii) the amount of  total “parachute payment” as defined in Section 280G(b) of the Code to be paid to the Employee is equal to or greater than 110 percent (110%) of 2.99 times the Employee’s “base amount” as defined in Section 280G(b)(3) of the Code (the “Safe Harbor Amount”), then the Company shall pay Employee in cash an additional amount (the “Gross-Up Payment”) such that the net amount retained by Employee after deduction of any Excise Tax upon the Total Payments and any federal, state and local income tax and Excise Tax upon the Gross-Up Payment shall be equal to the Total Payments.  Such payments shall be made by the Company to Employee within thirty (30) days of Employee’s taxable year next following Employee’s taxable year in which Employee remits the related taxes to the taxing authorities.

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(b)Reduced Payments.  In the event that (i) the Total Payments would subject Employee to the Excise Tax, and (ii) the amount of the total “parachute payment” as defined in Section 280G(b) of the Code to be paid to Employee is less than 110% of the Safe Harbor Amount, then, only to the extent necessary to eliminate the imposition of the Excise Tax, such payments and benefits shall be reduced, in the order and of the type, mutually agreed to by Employee and the Company.

(c)Determinations.  All determinations required to be made, including whether any of the Total Payments will be subject to the Excise Tax and the amounts of such Excise Tax, shall be made by the Company’s regular auditors (the “Accounting Firm”).  The Accounting Firm shall provide detailed supporting calculations both to the Company and to Employee within 10 days after a request for such determinations are made by Employee or the Company.  Any such determination by the Accounting Firm shall be binding upon the Company and Employee.  For purposes of making any determination hereunder, Employee shall be deemed to pay Federal, state and local income taxes at the highest marginal rates applicable to Employee as of the date of the determination.

4.SECTION 409A.  This Agreement is intended to meet the requirements of the short-term deferral exemption under section 409A of the Code.  However, if required by section 409A and if Employee is a “specified employee” of a publicly traded corporation under section 409A of the Code, payment of any amount under this Agreement shall be delayed for a period of six (6) months after separation from service, as required by section 409A of the Code.  The accumulated postponed amount shall be paid in a lump sum payment within ten (10) days after the end of the six (6)-month period.  If Employee dies during the postponement period prior to payment of the postponed amount, the amounts withheld on account of section 409A shall be paid to the personal representative of Employee’s estate within sixty (60) days after the date of Employee’s death.  The determination of “specified employees” shall be made by the Compensation Committee of the Board of Directors of the Company in accordance with section 409A of the Code and the regulations issued thereunder.

5.NON-COMPETITION; NON-SOLICITATION.

(a)Restrictions.  Employee shall not, during the course of Employee’s employment with the Company or for a period of twelve (12) months thereafter, directly or indirectly:

(i)be employed by, engaged in or participate in the ownership, management, operation or control of, or act in any advisory or other capacity (including as an individual, principal, agent employee, consultant or otherwise) for, any Competing Entity which conducts its business within the Territory (as the terms Competing Entity and Territory are hereinafter defined); provided, however, that notwithstanding any of the foregoing, Employee may make solely passive investments in any Competing Entity the common stock of which is “publicly-held” and of which Employee shall not own or control, directly or indirectly, in the aggregate securities which constitute 5% or more of the voting power of such Competing Entity;

(ii)solicit or divert any business or any customer or known prospective customer from the Company or assist any person or entity in doing so or attempting to do so;

(iii)cause or seek to cause any person or entity to refrain from dealing or doing business with the Company or assist any person or entity in doing so; or

(iv)solicit for employment, or advise or recommend to any other person or entity that he, she or it employ or solicit for employment or retention as an employee or consultant, any person who is an employee of, or exclusive consultant to, the Company.

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(b)Effect On The Company’s Obligations.  The Company’s obligation to make payments and provide the other benefits pursuant to Section 1 above shall terminate in the event that, and at such time as, Employee is in breach of Employee’s obligations set forth in Section 5(a) above.

(c)Definitions.  For purposes of this Section 5:

(i)“Competing Entity” means any entity which is presently or hereafter principally engaged in any business of the type or character engaged in or proposed to be engaged in by the Company from time to time during Employee’s term of employment under this Agreement, including without limitation, any business engaged in the discovery and development of human therapeutic products for any of the same targets and for indications as products the Company had in development or was marketing at any time during Employee’s term of employment under this Agreement.

(ii)“Territory” means North America, Europe and Japan.

Notwithstanding anything in the above to the contrary, Employee may engage in the activities set forth in Section 5(a) hereof with the prior written consent of the Company, which consent shall not be unreasonably withheld.  Further, in determining whether a specific activity by Employee for a Competing Entity shall be permitted, the Company will consider, among other things, the nature and scope of (i) the duties to be performed by Employee and (ii) the business activities of the Competing Entity at the time of Employee’s proposed engagement by such entity.

(d)Acknowledgement.  Employee acknowledges and agrees that the covenants set forth in this Section 5 are reasonable and necessary in all respects for the protection of the Company’s legitimate business interests (including, without limitation, the Company’s confidential, proprietary information and trade secrets and client good-will, which represents a significant portion of the Company’s net worth and in which the Company has a property interest).  Employee acknowledges and agrees that, in the event that Employee breaches any of the covenants set forth in this Section 5, the Company shall be irreparably harmed and shall not have an adequate remedy at law; and, therefore, in the event of such a breach, the Company shall be entitled to injunctive relief, in addition to (and not exclusive of) any other remedies (including monetary damages) to which the Company may be entitled under law.  If any covenant set forth in this Section 5 is deemed invalid or unenforceable for any reason, it is the parties’ intention that such covenants be equitably reformed or modified to the extent necessary (and only to such extent) to render it valid and enforceable in all respects.  In the event that the time period and geographic scope referenced above is deemed unreasonable, overbroad, or otherwise invalid, it is the parties’ intention that the enforcing court shall reduce or modify the time period and/or geographic scope to the extent necessary (and only to such extent) to render such covenants reasonable, valid and enforceable in all respects.

6.ARBITRATION.  Any and all disputes between the parties (except actions to enforce the provisions of Section 5 of this Agreement) arising under or relating to this Agreement or any other dispute arising between the parties, including claims arising under any employment discrimination laws, may be adjudicated and resolved exclusively through binding arbitration before the American Arbitration Association pursuant to the American Arbitration Association’s then-in-effect National Rules for the Resolution of Employment Disputes (hereinafter, “Rules”).  The initiation and conduct of any arbitration hereunder shall be in accordance with the Rules and, unless expressly required by law, each side shall bear its own costs and counsel fees in such arbitration.  Any arbitration hereunder shall be conducted in Princeton, New Jersey or at such other location as mutually agreed by the parties.  Any arbitration award shall be final and binding on the parties.  The arbitrator shall have no authority to depart from, modify, or add to the written terms of this Agreement.  The arbitration provisions of this Section 5 shall be interpreted according to, and governed by, the Federal Arbitration Act, 9 U.S.C. § 1 et seq., and any action pursuant to such Act to enforce any rights hereunder shall be brought exclusively in any United

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States District Court in the State of New Jersey.  The parties consent to the jurisdiction of (and the laying of venue in) any such court.

7.NOTICES.  For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows:

(a)If to the Company, to:

Pharmacopeia, Inc.

3000 Eastpark Blvd.

Cranbury, NJ  08512

Attn.:  General Counsel

(b)If to Employee, to:

Brian M. Posner

or to such other address as a party hereto shall designate to the other party by like notice, provided that notice of a change of address shall be effective only upon receipt thereof.

8.WITHHOLDING TAXES.  All payments under this Agreement shall be made subject to applicable tax withholding, and the Company shall withhold from any payments under this Agreement all federal, state and local taxes as the Company is required to withhold pursuant to any law or governmental rule or regulation.  Except as specifically provided otherwise in this Agreement, Employee shall bear all expense of, and be solely responsible for, all federal, state and local taxes due with respect to any payment received under this Agreement.

9.WAIVER.  The waiver by the Company or Employee of any breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by Employee or the Company, as applicable, of any provision of this Agreement.

10.SEVERABILITY.  The parties have carefully reviewed the provisions of this Agreement and agree that they are fair and equitable.  However, in light of the possibility of differing interpretations of law and changes of circumstances, the parties agree that in the event that any section, paragraph or term of this Agreement shall be determined to be invalid or unenforceable by any competent authority or tribunal for any reason, the remainder of this Agreement shall be unaffected thereby and shall remain in full force and effect.  Moreover, if any of the provisions of this Agreement is determined by a court of competent jurisdiction to be excessively broad as to duration, activity, geographic application or subject, it shall be construed by limiting or reducing it to the extent legally permitted so as to be enforceable to the extent compatible with then applicable law.

11.SUCCESSORS AND ASSIGNS.  This Agreement shall bind and inure to the benefit of the successors and assigns of the Company and the heirs, executors or personal representatives of Employee.  This Agreement may not be assigned by Employee.  This Agreement may be assigned to any successor in interest to the Company (including by way of merger, consolidation or reorganization, or by way of any assignment of all or substantially all of the Company’s assets, business or properties), and Employee hereby consents to such assignment.

12.ENTIRE AGREEMENT; AMENDMENTS.  This Agreement, the Letter Agreement and the applicable bylaws and policies of the Company, constitute the entire Agreement between the parties hereto and there are no other understandings, agreements or representations, expressed or implied.

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This Agreement supersedes any and all prior or contemporaneous agreements, oral or written, concerning Employee’s employment and compensation.  This Agreement may be amended only in writing signed by Employee and the Chief Executive Officer or the General Counsel of the Company.

13.COUNTERPARTS.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

14.GOVERNING LAW; FORUM SELECTION.  This Agreement shall be governed by and construed in accordance with the laws (other than conflicts of laws principles) of the State of New Jersey applicable to contracts executed in and to be performed entirely within such State.  The parties consent to jurisdiction and laying of venue in the state and federal courts of New Jersey for purposes of resolving disputes under this Agreement.

15.COMPLIANCE WITH LAW.  This Agreement is intended to comply with the requirements of section 409A of the Code, and specifically, with the short term deferral exemption of section 409A, and shall in all respects be administered in accordance with section 409A.  Notwithstanding anything in the Agreement to the contrary, distributions may only be made under the Agreement upon an event and in a manner permitted by section 409A of the Code or an applicable exemption.  All payments to be made upon a termination of employment under this Agreement may only be made upon a “separation from service” under section 409A.  In no event may Employee, directly or indirectly, designate the calendar year of payment.  For purposes of section 409A of the Code, each payment made under this Agreement shall be treated as a separate payment.  All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of section 409A of the Code, including, where applicable, the requirement that (a) any reimbursement shall be for expenses incurred during Employee’s lifetime (or during a shorter period of time specified in this Agreement), (b) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a

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calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year, (c) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred, and (d) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.

PHARMACOPEIA, INC.
By	/s/ Leslie J. Browne
	Leslie J. Browne, Ph.D.
	President and Chief Executive Officer
EMPLOYEE
By	/s/ Brian M. Posner
	Brian M. Posner

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EXHIBIT A

General Release

IN CONSIDERATION OF the terms and conditions contained in the Amended and Restated Severance Agreement, dated as of the 18th day of December, 2007, (the “Severance Agreement”) by and between Brian M. Posner (“Employee”) and Pharmacopeia, Inc. (the “Company”), and for other good and valuable consideration, the receipt of which is hereby acknowledged, Employee on behalf of Employee and his or her heirs, executors, administrators, and assigns, releases and discharges the Company and its subsidiaries, divisions, affiliates and parents, and their respective past, current and future officers, directors, employees, agents, and/or owners, and their respective successors, and assigns and any other person or entity claimed to be jointly or severally liable with the Company or any of the aforementioned persons or entities (collectively the “Released Parties”) from any and all manner of actions and causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, agreements, judgments, charges, claims, and demands whatsoever (“Claims “) which Employee and his heirs, executors, administrators, and assigns have, had, or may hereafter have, against the Released Parties or any of them arising out of or by reason of any cause, matter, or thing whatsoever from the beginning of the world to the date hereof.  This General Release of Claims includes, without limitation, any and all matters relating to Employee’s employment by the Company and the cessation thereof, and any and all matters arising under any federal, state, or local statute, rule, or regulation, or principle of contract law or common law, including but not limited to, the Family and Medical Leave Act of 1993, as amended, 29 U.S.C. §§ 2601 et seq., Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. §§ 2000 et seq., the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. §§ 621 et seq. (the “ADEA”), the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12101 et seq., the Worker Adjustment and Retraining Notification Act of 1988, as amended, 29 U.S.C. §§2101 et seq., Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001 et seq. (“ERISA”), the New Jersey Law Against Discrimination, N.J.S.A. 10:15-1, et seq., the New Jersey Conscientious Executive Protection Act, N.J.S.A. 34:19-1 to 19-8, the New Jersey Wage and Hour Act, N.J.S.A. 34-11-56a, et seq., and any other equivalent or similar federal, state, or local statute; provided, however, that Employee does not release or discharge the Released Parties from (i) any of the Company’s obligations to Employee under the Severance Agreement, and (ii) any vested benefits to which Employee may be entitled under any employee benefit plan or program subject to ERISA.  It is understood that nothing in this General Release is to be construed as an admission on behalf of the Released Parties of any wrongdoing with respect to Employee, any such wrongdoing being expressly denied.

Employee represents and warrants that Employee fully understands the terms of this General Release, that Employee is hereby advised to consult with legal counsel before signing, and that Employee knowingly and voluntarily, of Employee’s own free will, without any duress, being fully informed, and after due deliberation, accepts its terms and signs below as Employee’s own free act.  Except as otherwise provided herein, Employee understands that as a result of executing this General Release, Employee will not have the right to assert that the Company or any other of the Released Parties unlawfully terminated Employee’s employment or violated any of Employee’s rights in connection with Employee’s employment or otherwise.

Employee further represents and warrants that Employee has not filed, and will not initiate, or cause to be initiated on Employee’s behalf any complaint, charge, claim, or proceeding against any of the Released Parties before any federal, state, or local agency, court, or other body relating to any claims barred or released in this General Release thereof, and will not voluntarily participate in such a proceeding.  However, nothing in this General Release shall preclude or prevent Employee from filing a claim, which challenges the validity of this General Release solely with respect to Employee’s waiver of any losses arising under the ADEA. Employee shall not accept any relief obtained on Employee’s behalf

A-1

by any government agency, private party, class, or otherwise with respect to any claims covered by this General Release.

Employee may take twenty-one (21) days to consider whether to execute this General Release.  Upon Employee’s execution of this General Release, Employee will have seven (7) days after such execution in which Employee may revoke such execution.  In the event of revocation, Employee must present written notice of such revocation to the Company’s Chief Executive Officer.  If seven (7) days pass without receipt of such notice of revocation, this General Release shall become binding and effective on the eighth (8th) day after the execution hereof (the “Effective Date”).

INTENDING TO BE LEGALLY BOUND, Employee hereby sets Employee’s hand below:

Dated:

*              *              *

NOTARIZATION

State of                                                                                              )

County of                                                                                          )                             ss.

On this              day of                              in the year            before me, the undersigned, personally appeared                                                                     ; personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged to me that he executed the same in his capacity as an individual, and that by his signature on the instrument he executed such instrument, and that such individual made such appearance before the undersigned.

Notary Public

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EX-10.29

Exhibit 10.29

AMENDED AND RESTATED

SEVERANCE AGREEMENT

This AMENDED AND RESTATED SEVERANCE AGREEMENT (the “Agreement”) is made and entered into as of the 18^th day of December, 2007 by and between PHARMACOPEIA, INC., a Delaware corporation (hereinafter, the “Company”), and Rene Belder, M.D., an individual (hereinafter, “Employee”).

RECITALS

WHEREAS, Employee is presently employed by the Company the capacity of Vice President, Clinical and Regulatory Affairs of the Company, pursuant to a Letter Agreement between the Company and Employee, dated November 2, 2006 (the “Letter Agreement”).

WHEREAS, the Company and Employee previously entered into a Severance Agreement, dated November 2, 2006 (as subsequently amended, the “Existing Severance Agreement”), pursuant to which Employee is entitled to certain payments and benefits in the event of a covered termination of Employee’s employment with the Company.

WHEREAS, the Company and Employee wish to amend and restate the Existing Severance Agreement to comply with section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and to make other appropriate changes.

NOW, THEREFORE, in consideration of their mutual promises and intending to be legally bound, the parties agree as follows:

1.TERMINATION AND EFFECT OF TERMINATION.  Employee’s employment hereunder is AT WILL and may be terminated at any time by the Company for any reason.  In the event of termination of Employee’s employment, the Company shall have no liability to Employee for compensation or benefits except as specified in this Section 1 or as required by the Company’s benefits policy.

(a)Termination By The Company For Cause.  Employee’s employment may be terminated by the Company for Cause (as defined below) at any time upon delivery of written notice to Employee.  Upon such a termination, the Company shall have no obligation to Employee other than the payment of all accrued, but unpaid, base salary and any unpaid expenses or expense reimbursements prior to the effective date of such termination.  For purposes of this Agreement, “Cause” means the occurrence of any one or more of the following events or conditions:

(i)            any gross failure on the part of Employee (other than by reason of disability as provided in Section 1(e) below) to faithfully and professionally carry out Employee’s duties or to comply with any other material provision of this Agreement, which failure continues for thirty (30) days after written notice detailing such failure is delivered by the Company; provided, that the Company shall not be required to provide such notice in the event that such failure (A) is not susceptible to remedy or (B) relates to the same type of acts or omissions as to which notice has been given on a prior occasion;

(ii)           Employee’s dishonesty (which shall include without limitation any misuse or misappropriation of the Company’s assets), or other willful misconduct (including without limitation, any conduct on the part of Employee intended to or likely to injure the business of the Company);

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(iii)          Employee’s conviction of any felony or of any other crime involving moral turpitude, whether or not relating to Employee’s employment;

(iv)          Employee’s insobriety or use of drugs, chemicals or controlled substances either (A) in the course of performing Employee’s duties and responsibilities under this Agreement, or (B) otherwise affecting the ability of Employee to perform the same;

(v)           Employee’s failure to comply with a lawful written direction of the Company; or

(vi)          any wanton or willful dereliction of duties by Employee.

(b)           Involuntary Termination By The Company Without Cause.  The Company may involuntarily terminate Employee’s employment under this Agreement at any time without Cause upon delivery of written notice to Employee.  Subject to the provisions of Section 1(g) hereof (concerning a termination in connection with a Change in Control (as defined in Section 1(g)), if Employee’s employment is terminated involuntarily by the Company without Cause pursuant to this Section 1(b), the Company shall:

(i)            pay Employee all compensation and benefits accrued, but unpaid, up to the effective date of termination of Employee’s employment;

(ii)           pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to six (6) months of Employee’s base salary in effect as of the effective date of termination of Employee’s employment;

(iii)          pay  Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum pro rata portion of Employee’s target incentive bonus for the calendar year in which Employee’s employment is terminated as provided in this Section 1(b), such portion to be based on the number of full months for which Employee was employed  during the year of  termination;

(iv)          maintain Employee’s group medical coverage until the earlier of (A) the end of a  period of six (6) months following the effective date of such termination, or (B) until such time as comparable medical coverage is obtained by Employee; and

(v)           allow all vested options or other incentive securities to be exercised pursuant to the terms of the option agreement or other agreements under which such options or other incentive securities were granted.

(c)Termination By Employee For Good Reason.

(i)            Benefits.  Employee may terminate Employee’s employment under this Agreement for Good Reason (as defined below) upon the provision of advance written notice to the Company specifying in reasonable detail the events or conditions upon which Employee is basing such termination.  Employee must give such notice within ninety (90) days after the event that gives rise to Good Reason.  The Company will be given the opportunity, but shall have no obligation, to cure such events or conditions within thirty (30) days after the provision by Employee of such notice.  If the Company elects in a written notice to Employee not to cure such events or conditions or otherwise fails to so cure such events or conditions within such thirty (30) day period, Employee may terminate his employment with the Company for Good Reason pursuant to this Section 1(c) within thirty (30) days after the expiration of the “cure” period.  In the event of such termination, the Company shall:

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(A)pay Employee all compensation and benefits accrued, but unpaid, up to the effective date of termination of Employee’s employment;

(B)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to six (6) months of Employee’s base salary in effect as of the effective date of termination of Employee’s employment;

(C)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum pro rata portion of Employee’s target incentive bonus for the calendar year in which Employee’s employment is terminated as provided in this Section 1(c), such portion to be based on the number of full months for which Employee was employed during the year of termination;

(D)maintain Employee’s group medical coverage until the earlier of (A) the end of  a period of six (6) months following the effective date of such termination, or (B) until such time as comparable medical coverage is obtained by Employee; and

(E)allow all vested options or other incentive securities to be exercised pursuant to the terms of the option agreement or other agreements under which such options or other incentive securities were granted.

(ii)           Definition of “Good Reason.” For purposes of this Agreement, “Good Reason” means any one or more of the following events or conditions:

(A)any action or inaction that constitutes a material breach by the Company of the terms of this Agreement or the Letter Agreement;

(B)any material change in the geographic location at which Employee must perform services for the Company, which, for purposes of this Agreement, means a requirement that Employee commute more than fifty (50) miles from the offices of the Company at which he was principally employed on the date of this Agreement;

(C)any material diminution of the authority, duties or responsibilities of Employee, including without limitation a material diminution in Employee’s position as Vice President, Clinical and Regulatory Affairs; or

(D)any material reduction in Employee’s base salary (other than such a reduction applicable generally to substantially all employees of the Company), which, for purposes of this Agreement, means a reduction of more than twenty percent (20%) in Employee’s annual base salary as in effect on the date of this Agreement or as the same may be increased from time to time after such date.

(d)Termination By Employee Without Good Reason (Voluntary Resignation).  Employee may voluntarily resign Employee’s position and terminate Employee’s employment under this Agreement without Good Reason at any time.  Upon such a termination, the Company shall have no obligation to pay compensation and provide benefits to Employee other than the payment of all accrued and unpaid base salary and any other unpaid expenses or expense reimbursements prior to the effective date of such termination.

(e)           Disability.  If Employee becomes disabled for more than one hundred eighty (180) days in any twelve (12) month period, the Company shall have the right to terminate Employee’s employment without further liability upon written notice to Employee.  Without limiting the generality of

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the foregoing, Employee shall be deemed disabled for purposes of this Agreement either (i) if Employee is deemed disabled for purposes of any long-term disability insurance policy paid for by the Company and at the time in effect, or (ii) if in the exercise of the Company’s reasonable judgment, due to accident, mental or physical illness, or any other reason, Employee cannot perform Employee’s duties.  In the event the Company shall terminate Employee due to disability, as described above, Employee shall be entitled to receive only those benefits provided under the Company’s Long Term Disability Plan, and Employee’s stock options and other incentive compensation grants will be treated under the applicable Disability section of the 2004 Stock Incentive Plan (as amended, the “2004 Plan”) or any other stock option or incentive compensation plan of the Company under which they were granted.

(f)Death.  In the event of the death of Employee, this Agreement shall automatically terminate and any obligation to continue to pay compensation and benefits shall cease as of the date of Employee’s death, except for the payment of all accrued, but unpaid, base salary and any other unpaid expenses or expense reimbursements prior to the date of death.  In the event of Employee’s death, Employee’s stock options and other incentive compensation grants shall be treated under the applicable Death section of the 2004 Plan or any other stock option or incentive compensation plan of the Company under which they were granted.

(g)Change In Control Termination.

(i)Benefits.  In the event Employee’s employment under this Agreement is terminated by the Company involuntarily without Cause or Employee terminates Employee’s employment with the Company for Good Reason (as defined in Section 1(c) above), in either case at any time during the period commencing two (2) months before and ending twelve (12) months after the occurrence of a Change in Control, the Company shall:

(A)pay Employee all compensation and benefits accrued, but unpaid, up to the effective date of termination of Employee’s employment;

(B)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to nine (9) months Employee’s base salary in effect as of the effective date of Employee’s termination of employment;

(C)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to one hundred percent (100%) of Employee’s target incentive bonus;

(D)maintain Employee’s group medical coverage until the earlier of (A) the end of a period of nine (9) months following the effective date of termination, or (B) such time as comparable medical coverage is obtained by Employee.

Anything contained in this Section to the contrary notwithstanding, Employee shall not be entitled to any of the benefits set forth in this Section 1(g)(i) if Employee either resigns and terminates such employment voluntarily (other than for Good Reason, as described above) or is terminated by the Company for Cause.

For purposes of Section 1(g) hereof, the term “Company” shall include any Acquiring Company (as defined below), and all obligations of the Company under such Section shall be assumed by any Acquiring Company.

(ii)Stock Options.  In the event Employee’s employment under this Agreement is terminated by the Company involuntarily without Cause or Employee terminates his employment with the Company for Good Reason, in either case at any time during the period

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commencing two (2) months before and ending twelve (12) months after the occurrence of a Change in Control:

(A)           notwithstanding anything to the contrary contained in the 2004 Plan or any other stock option or incentive compensation plan of the Company, any unvested stock options or other incentive securities which were granted to Employee during the term of this Agreement under the 2004 Plan or any such other stock option or incentive compensation plan shall immediately vest on the date of such termination of Employee’s employment, the expiration date of the exercise period for such options or other securities shall be the earlier of (1) one (1) year following the date of termination, or (2) the expiration of the term of the option, and the Company shall take all actions necessary or advisable to give effect to this Section 1(g)(ii)(A); and

(B)           all vested options or other incentive securities held by Employee which were issued pursuant to the 2004 Plan or any such other plan shall be exercisable pursuant to the terms of the stock option agreement or other agreement(s) under which the options or other incentive securities were granted, and the Company shall take all actions necessary or advisable to give effect to this Section 1(g)(ii)(B).

Anything contained in this Section to the contrary notwithstanding, Employee shall not be entitled to any of the benefits set forth in this Section 1(g)(ii) if Employee either resigns and terminates such employment voluntarily (other than for Good Reason, as described above) or is terminated by the Company for Cause.

(iii)Definition Of “Change in Control.”  The definition of “Change in Control” set forth in the 2004 Plan is incorporated, and made a part hereof, by reference.

(iv)Definition Of “Acquiring Company.”  For purposes of Section 1(g) of this Agreement, an “Acquiring Company” shall mean the resulting or surviving corporation, or the company issuing cash or securities (or its ultimate parent company), in a merger, sale, asset purchase, or assignment of all or substantially all of the Company’s assets, consolidation or share exchange involving the Company, or the successor corporation to the Company (whether in any such transaction or otherwise).

2.             GENERAL RELEASE.  Notwithstanding anything in this Agreement to the contrary, no payments shall be made or benefits provided by the Company under Section 1 unless Employee executes and does not revoke a general release in favor of the Company and its affiliates, and its and their respective officers, employees and directors.  A form of general release is attached hereto as Exhibit A.

3.             SECTION 409A.  This Agreement is intended to meet the requirements of the short-term deferral exemption under section 409A of the Code.  However, if required by section 409A and if Employee is a “specified employee” of a publicly traded corporation under section 409A of the Code, payment of any amount under this Agreement shall be delayed for a period of six (6) months after separation from service, as required by section 409A of the Code.  The accumulated postponed amount shall be paid in a lump sum payment within ten (10) days after the end of the six (6)-month period.  If Employee dies during the postponement period prior to payment of the postponed amount, the amounts withheld on account of section 409A shall be paid to the personal representative of Employee’s estate within sixty (60) days after the date of Employee’s death.  The determination of “specified employees” shall be made by the Compensation Committee of the Board of Directors of the Company in accordance with section 409A of the Code and the regulations issued thereunder.

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4.             NON-COMPETITION; NON-SOLICITATION.

(a)Restrictions.  Employee shall not, during the course of Employee’s employment with the Company or for a period of twelve (12) months thereafter, directly or indirectly:

(i)            be employed by, engaged in or participate in the ownership, management, operation or control of, or act in any advisory or other capacity (including as an individual, principal, agent employee, consultant or otherwise) for, any Competing Entity which conducts its business within the Territory (as the terms Competing Entity and Territory are hereinafter defined); provided, however, that notwithstanding any of the foregoing, Employee may make solely passive investments in any Competing Entity the common stock of which is “publicly -held” and of which Employee shall not own or control, directly or indirectly, in the aggregate securities which constitute 5% or more of the voting power of such Competing Entity;

(ii)           solicit or divert any business or any customer or known prospective customer from the Company or assist any person or entity in doing so or attempting to do so;

(iii)          cause or seek to cause any person or entity to refrain from dealing or doing business with the Company or assist any person or entity in doing so; or

(iv)          solicit for employment, or advise or recommend to any other person or entity that he, she or it employ or solicit for employment or retention as an employee or consultant, any person who is an employee of, or exclusive consultant to, the Company.

(b)Effect On The Company’s Obligations.  The Company’s obligation to make payments and provide the other benefits pursuant to Section 1 above shall terminate in the event that, and at such time as, Employee is in breach of Employee’s obligations set forth in Section 4(a) above.

(c)Definitions.  For purposes of this Section 4:

(i)            “Competing Entity” means any entity which is presently or hereafter principally engaged in any business of the type or character engaged in or proposed to be engaged in by the Company from time to time during Employee’s term of employment under this Agreement, including without limitation, any business engaged in the discovery and development of human therapeutic products for any of the same targets and for indications as products the Company had in development or was marketing at any time during Employee’s term of employment under this Agreement.

(ii)           “Territory” means North America, Europe and Japan.

Notwithstanding anything in the above to the contrary, Employee may engage in the activities set forth in Section 4(a) hereof with the prior written consent of the Company, which consent shall not be unreasonably withheld.  Further, in determining whether a specific activity by Employee for a Competing Entity shall be permitted, the Company will consider, among other things, the nature and scope of (i) the duties to be performed by Employee and (ii) the business activities of the Competing Entity at the time of Employee’s proposed engagement by such entity.

(d)Acknowledgement.  Employee acknowledges and agrees that the covenants set forth in this Section 4 are reasonable and necessary in all respects for the protection of the Company’s legitimate business interests (including, without limitation, the Company’s confidential, proprietary information and trade secrets and client good-will, which represents a significant portion of the Company’s net worth and in which the Company has a property interest).  Employee acknowledges and

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agrees that, in the event that Employee breaches any of the covenants set forth in this Section 4, the Company shall be irreparably harmed and shall not have an adequate remedy at law; and, therefore, in the event of such a breach, the Company shall be entitled to injunctive relief, in addition to (and not exclusive of) any other remedies (including monetary damages) to which the Company may be entitled under law.  If any covenant set forth in this Section 4 is deemed invalid or unenforceable for any reason, it is the parties’ intention that such covenants be equitably reformed or modified to the extent necessary (and only to such extent) to render it valid and enforceable in all respects.  In the event that the time period and geographic scope referenced above is deemed unreasonable, overbroad, or otherwise invalid, it is the parties’ intention that the enforcing court shall reduce or modify the time period and/or geographic scope to the extent necessary (and only to such extent) to render such covenants reasonable, valid and enforceable in all respects.

5.ARBITRATION.  Any and all disputes between the parties (except actions to enforce the provisions of Section 4 of this Agreement) arising under or relating to this Agreement or any other dispute arising between the parties, including claims arising under any employment discrimination laws, may be adjudicated and resolved exclusively through binding arbitration before the American Arbitration Association pursuant to the American Arbitration Association’s then-in-effect National Rules for the Resolution of Employment Disputes (hereinafter, “Rules”).  The initiation and conduct of any arbitration hereunder shall be in accordance with the Rules and, unless expressly required by law, each side shall bear its own costs and counsel fees in such arbitration.  Any arbitration hereunder shall be conducted in Princeton, New Jersey or at such other location as mutually agreed by the parties.  Any arbitration award shall be final and binding on the parties.  The arbitrator shall have no authority to depart from, modify, or add to the written terms of this Agreement.  The arbitration provisions of this Section 5 shall be interpreted according to, and governed by, the Federal Arbitration Act, 9 U.S.C. § 1 et seq., and any action pursuant to such Act to enforce any rights hereunder shall be brought exclusively in any United States District Court in the State of New Jersey.  The parties consent to the jurisdiction of (and the laying of venue in) any such court.

6.NOTICES.  For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows:

(a)If to the Company, to:

Pharmacopeia, Inc.

3000 Eastpark Blvd.

Cranbury, NJ  08512

Attn.:  General Counsel

(b)If to Employee, to:

Rene Belder, M.D.

or to such other address as a party hereto shall designate to the other party by like notice, provided that notice of a change of address shall be effective only upon receipt thereof.

7.WITHHOLDING TAXES.  All payments under this Agreement shall be made subject to applicable tax withholding, and the Company shall withhold from any payments under this Agreement all federal, state and local taxes as the Company is required to withhold pursuant to any law or governmental rule or regulation.  Except as specifically provided otherwise in this Agreement, Employee

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shall bear all expense of, and be solely responsible for, all federal, state and local taxes due with respect to any payment received under this Agreement.

8.WAIVER.  The waiver by the Company or Employee of any breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by Employee or the Company, as applicable, of any provision of this Agreement.

9.SEVERABILITY.  The parties have carefully reviewed the provisions of this Agreement and agree that they are fair and equitable.  However, in light of the possibility of differing interpretations of law and changes of circumstances, the parties agree that in the event that any section, paragraph or term of this Agreement shall be determined to be invalid or unenforceable by any competent authority or tribunal for any reason, the remainder of this Agreement shall be unaffected thereby and shall remain in full force and effect.  Moreover, if any of the provisions of this Agreement is determined by a court of competent jurisdiction to be excessively broad as to duration, activity, geographic application or subject, it shall be construed by limiting or reducing it to the extent legally permitted so as to be enforceable to the extent compatible with then applicable law.

10.          SUCCESSORS AND ASSIGNS.  This Agreement shall bind and inure to the benefit of the successors and assigns of the Company and the heirs, executors or personal representatives of Employee.  This Agreement may not be assigned by Employee.  This Agreement may be assigned to any successor in interest to the Company (including by way of merger, consolidation or reorganization, or by way of any assignment of all or substantially all of the Company’s assets, business or properties), and Employee hereby consents to such assignment.

11.          ENTIRE AGREEMENT; AMENDMENTS.  This Agreement, the Letter Agreement and the applicable bylaws and policies of the Company, constitute the entire Agreement between the parties hereto and there are no other understandings, agreements or representations, expressed or implied.  This Agreement supersedes any and all prior or contemporaneous agreements, oral or written, concerning Employee’s employment and compensation.  This Agreement may be amended only in writing signed by Employee and the Chief Executive Officer or the General Counsel of the Company.

12.          COUNTERPARTS.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

13.          GOVERNING LAW; FORUM SELECTION.  This Agreement shall be governed by and construed in accordance with the laws (other than conflicts of laws principles) of the State of New Jersey applicable to contracts executed in and to be performed entirely within such State.  The parties consent to jurisdiction and laying of venue in the state and federal courts of New Jersey for purposes of resolving disputes under this Agreement.

14.          COMPLIANCE WITH LAW.  This Agreement is intended to comply with the requirements of section 409A of the Code, and specifically, with the short term deferral exemption of section 409A, and shall in all respects be administered in accordance with section 409A.  Notwithstanding anything in the Agreement to the contrary, distributions may only be made under the Agreement upon an event and in a manner permitted by section 409A of the Code or an applicable exemption.  All payments to be made upon a termination of employment under this Agreement may only be made upon a “separation from service” under section 409A.  In no event may Employee, directly or indirectly, designate the calendar year of payment.  For purposes of section 409A of the Code, each payment made under this Agreement shall be treated as a separate payment.  All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of section 409A of the Code, including, where applicable, the requirement that (a) any reimbursement shall be for

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expenses incurred during Employee’s lifetime (or during a shorter period of time specified in this Agreement), (b) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year, (c) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred, and (d) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.

PHARMACOPEIA, INC.
By	/s/ Leslie J. Browne
	Leslie J. Browne, Ph.D.
	President and Chief Executive Officer
EMPLOYEE
By	/s/ Rene Belder
	Rene Belder, M.D.

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EXHIBIT A

General Release

IN CONSIDERATION OF the terms and conditions contained in the Amended and Restated Severance Agreement, dated as of the 18th day of December, 2007, (the “Severance Agreement”) by and between Rene Belder, M.D. (“Employee”) and Pharmacopeia, Inc. (the “Company”), and for other good and valuable consideration, the receipt of which is hereby acknowledged, Employee on behalf of Employee and his or her heirs, executors, administrators, and assigns, releases and discharges the Company and its subsidiaries, divisions, affiliates and parents, and their respective past, current and future officers, directors, employees, agents, and/or owners, and their respective successors, and assigns and any other person or entity claimed to be jointly or severally liable with the Company or any of the aforementioned persons or entities (collectively the “Released Parties”) from any and all manner of actions and causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, agreements, judgments, charges, claims, and demands whatsoever (“Claims “) which Employee and his heirs, executors, administrators, and assigns have, had, or may hereafter have, against the Released Parties or any of them arising out of or by reason of any cause, matter, or thing whatsoever from the beginning of the world to the date hereof.  This General Release of Claims includes, without limitation, any and all matters relating to Employee’s employment by the Company and the cessation thereof, and any and all matters arising under any federal, state, or local statute, rule, or regulation, or principle of contract law or common law, including but not limited to, the Family and Medical Leave Act of 1993, as amended, 29 U.S.C. §§ 2601 et seq., Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. §§ 2000 et seq., the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. §§ 621 et seq. (the “ADEA”), the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12101 et seq., the Worker Adjustment and Retraining Notification Act of 1988, as amended, 29 U.S.C. §§2101 et seq., Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001 et seq. (“ERISA”), the New Jersey Law Against Discrimination, N.J.S.A. 10:15-1, et seq., the New Jersey Conscientious Executive Protection Act, N.J.S.A. 34:19-1 to 19-8, the New Jersey Wage and Hour Act, N.J.S.A. 34-11-56a, et seq., and any other equivalent or similar federal, state, or local statute; provided, however, that Employee does not release or discharge the Released Parties from (i) any of the Company’s obligations to Employee under the Severance Agreement, and (ii) any vested benefits to which Employee may be entitled under any employee benefit plan or program subject to ERISA.  It is understood that nothing in this General Release is to be construed as an admission on behalf of the Released Parties of any wrongdoing with respect to Employee, any such wrongdoing being expressly denied.

Employee represents and warrants that Employee fully understands the terms of this General Release, that Employee is hereby advised to consult with legal counsel before signing, and that Employee knowingly and voluntarily, of Employee’s own free will, without any duress, being fully informed, and after due deliberation, accepts its terms and signs below as Employee’s own free act.  Except as otherwise provided herein, Employee understands that as a result of executing this General Release, Employee will not have the right to assert that the Company or any other of the Released Parties unlawfully terminated Employee’s employment or violated any of Employee’s rights in connection with Employee’s employment or otherwise.

Employee further represents and warrants that Employee has not filed, and will not initiate, or cause to be initiated on Employee’s behalf any complaint, charge, claim, or proceeding against any of the Released Parties before any federal, state, or local agency, court, or other body relating to any claims barred or released in this General Release thereof, and will not voluntarily participate in such a proceeding.  However, nothing in this General Release shall preclude or prevent Employee from filing a claim, which challenges the validity of this General Release solely with respect to Employee’s waiver of any losses arising under the ADEA. Employee shall not accept any relief obtained on Employee’s behalf

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by any government agency, private party, class, or otherwise with respect to any claims covered by this General Release.

Employee may take twenty-one (21) days to consider whether to execute this General Release.  Upon Employee’s execution of this General Release, Employee will have seven (7) days after such execution in which Employee may revoke such execution.  In the event of revocation, Employee must present written notice of such revocation to the Company’s Chief Executive Officer.  If seven (7) days pass without receipt of such notice of revocation, this General Release shall become binding and effective on the eighth (8th) day after the execution hereof (the “Effective Date”).

INTENDING TO BE LEGALLY BOUND, Employee hereby sets Employee’s hand below:

Dated:

*              *              *

NOTARIZATION

State of                                                                                              )

County of                                                                                          )                             ss.

On this              day of                              in the year            before me, the undersigned, personally appeared                                                                     ; personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged to me that he executed the same in his capacity as an individual, and that by his signature on the instrument he executed such instrument, and that such individual made such appearance before the undersigned.

Notary Public

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EX-10.34

Exhibit 10.34

AMENDED AND RESTATED

SEVERANCE AGREEMENT

This AMENDED AND RESTATED SEVERANCE AGREEMENT (the “Agreement”) is made and entered into as of the 18th day of December, 2007 by and between PHARMACOPEIA, INC., a Delaware corporation (hereinafter, the “Company”), and Maria L. Webb, Ph.D., an individual (hereinafter, “Employee”).

RECITALS

WHEREAS, Employee is presently employed by the Company the capacity of Vice President, Preclinical Research, Biological and Pharmacological Services of the Company.

WHEREAS, the Company and Employee previously entered into a Severance Agreement, dated May 10, 2007 (as subsequently amended, the “Existing Severance Agreement”), pursuant to which Employee is entitled to certain payments and benefits in the event of a covered termination of Employee’s employment with the Company.

WHEREAS, the Company and Employee wish to amend and restate the Existing Severance Agreement to comply with section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and to make other appropriate changes.

NOW, THEREFORE, in consideration of their mutual promises and intending to be legally bound, the parties agree as follows:

1.TERMINATION AND EFFECT OF TERMINATION.  Employee’s employment hereunder is AT WILL and may be terminated at any time by the Company for any reason.  In the event of termination of Employee’s employment, the Company shall have no liability to Employee for compensation or benefits except as specified in this Section 1 or as required by the Company’s benefits policy.

(a)Termination By The Company For Cause.  Employee’s employment may be terminated by the Company for Cause (as defined below) at any time upon delivery of written notice to Employee.  Upon such a termination, the Company shall have no obligation to Employee other than the payment of all accrued, but unpaid, base salary and any unpaid expenses or expense reimbursements prior to the effective date of such termination.  For purposes of this Agreement, “Cause” means the occurrence of any one or more of the following events or conditions:

(i)any gross failure on the part of Employee (other than by reason of disability as provided in Section 1(e) below) to faithfully and professionally carry out Employee’s duties or to comply with any other material provision of this Agreement, which failure continues for thirty (30) days after written notice detailing such failure is delivered by the Company; provided, that the Company shall not be required to provide such notice in the event that such failure (A) is not susceptible to remedy or (B) relates to the same type of acts or omissions as to which notice has been given on a prior occasion;

(ii)Employee’s dishonesty (which shall include without limitation any misuse or misappropriation of the Company’s assets), or other willful misconduct (including without limitation, any conduct on the part of Employee intended to or likely to injure the business of the Company);

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(iii)Employee’s conviction of any felony or of any other crime involving moral turpitude, whether or not relating to Employee’s employment;

(iv)Employee’s insobriety or use of drugs, chemicals or controlled substances either (A) in the course of performing Employee’s duties and responsibilities under this Agreement, or (B) otherwise affecting the ability of Employee to perform the same;

(v)Employee’s failure to comply with a lawful written direction of the Company; or

(vi)any wanton or willful dereliction of duties by Employee.

(b)Involuntary Termination By The Company Without Cause.  The Company may involuntarily terminate Employee’s employment under this Agreement at any time without Cause upon delivery of written notice to Employee.  Subject to the provisions of Section 1(g) hereof (concerning a termination in connection with a Change in Control (as defined in Section 1(g)), if Employee’s employment is terminated involuntarily by the Company without Cause pursuant to this Section 1(b), the Company shall:

(i)pay Employee all compensation and benefits accrued, but unpaid, up to the effective date of termination of Employee’s employment;

(ii)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to six (6) months of Employee’s base salary in effect as of the effective date of termination of Employee’s employment;

(iii)pay  Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum pro rata portion of Employee’s target incentive bonus for the calendar year in which Employee’s employment is terminated as provided in this Section 1(b), such portion to be based on the number of full months for which Employee was employed  during the year of  termination;

(iv)maintain Employee’s group medical coverage until the earlier of (A) the end of a  period of six (6) months following the effective date of such termination, or (B) until such time as comparable medical coverage is obtained by Employee; and

(v)allow all vested options or other incentive securities to be exercised pursuant to the terms of the option agreement or other agreements under which such options or other incentive securities were granted.

(c)Termination By Employee For Good Reason.

(i)Benefits.  Employee may terminate Employee’s employment under this Agreement for Good Reason (as defined below) upon the provision of advance written notice to the Company specifying in reasonable detail the events or conditions upon which Employee is basing such termination.  Employee must give such notice within ninety (90) days after the event that gives rise to Good Reason.  The Company will be given the opportunity, but shall have no obligation, to cure such events or conditions within thirty (30) days after the provision by Employee of such notice.  If the Company elects in a written notice to Employee not to cure such events or conditions or otherwise fails to so cure such events or conditions within such thirty (30) day period, Employee may terminate his employment with the Company for Good Reason pursuant to this Section 1(c) within thirty (30) days after the expiration of the cure period.  In the event of such termination, the Company shall:

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(A)pay Employee all compensation and benefits accrued, but unpaid, up to the effective date of termination of Employee’s employment;

(B)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to six (6) months of Employee’s base salary in effect as of the effective date of termination of Employee’s employment;

(C)pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum pro rata portion of Employee’s target incentive bonus for the calendar year in which Employee’s employment is terminated as provided in this Section 1(c), such portion to be based on the number of full months for which Employee was employed during the year of termination;

(D)maintain Employee’s group medical coverage until the earlier of (A) the end of  a period of six (6) months following the effective date of such termination, or (B) until such time as comparable medical coverage is obtained by Employee; and

(E)allow all vested options or other incentive securities to be exercised pursuant to the terms of the option agreement or other agreements under which such options or other incentive securities were granted.

(ii)Definition of “Good Reason.” For purposes of this Agreement, “Good Reason” means any one or more of the following events or conditions without the consent of Employee:

(A)          any action or inaction that constitutes a material breach by the Company of the terms of this Agreement;

(B)           any material change in the geographic location at which Employee must perform services for the Company, which, for purposes of this Agreement, means a requirement that Employee commute more than fifty (50) miles from the offices of the Company at which she was principally employed on the date of this Agreement;

(C)           any material diminution of the authority, duties or responsibilities of Employee, including without limitation a material diminution in Employee’s position as Vice President, Preclinical Research, Biological and Pharmacological Services; or

(D)          any material reduction in Employee’s base salary (other than such a reduction applicable generally to substantially all employees of the Company), which, for purposes of this Agreement, means a reduction of more than twenty percent (20%) in Employee’s annual base salary as in effect on the date of this Agreement or as the same may be increased from time to time after such date.

(d)           Termination By Employee Without Good Reason (Voluntary Resignation).  Employee may voluntarily resign Employee’s position and terminate Employee’s employment under this Agreement without Good Reason at any time.  Upon such a termination, the Company shall have no obligation to pay compensation and provide benefits to Employee other than the payment of all accrued and unpaid base salary and any other unpaid expenses or expense reimbursements prior to the effective date of such termination.

(e)           Disability.  If Employee becomes disabled for more than one hundred eighty (180) days in any twelve (12) month period, the Company shall have the right to terminate Employee’s

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employment without further liability upon written notice to Employee.  Without limiting the generality of the foregoing, Employee shall be deemed disabled for purposes of this Agreement either (i) if Employee is deemed disabled for purposes of any long-term disability insurance policy paid for by the Company and at the time in effect, or (ii) if in the exercise of the Company’s reasonable judgment, due to accident, mental or physical illness, or any other reason, Employee cannot perform Employee’s duties.  In the event the Company shall terminate Employee due to disability, as described above, Employee shall be entitled to receive only those benefits provided under the Company’s Long Term Disability Plan, and Employee’s stock options and other incentive compensation grants will be treated under the applicable Disability section of the 2004 Stock Incentive Plan (as amended, the “2004 Plan”) or any other stock option or incentive compensation plan of the Company under which they were granted.

(f)            Death.  In the event of the death of Employee, this Agreement shall automatically terminate and any obligation to continue to pay compensation and benefits shall cease as of the date of Employee’s death, except for the payment of all accrued, but unpaid, base salary and any other unpaid expenses or expense reimbursements prior to the date of death.  In the event of Employee’s death, Employee’s stock options and other incentive compensation grants shall be treated under the applicable Death section of the 2004 Plan or any other stock option or incentive compensation plan of the Company under which they were granted.

(g)           Change In Control Termination.

(i)            Benefits.  In the event Employee’s employment under this Agreement is terminated by the Company involuntarily without Cause or Employee terminates Employee’s employment with the Company for Good Reason (as defined in Section 1(c) above), in either case at any time during the period commencing two (2) months before and ending twelve (12) months after the occurrence of a Change in Control, the Company shall:

(A)          pay Employee all compensation and benefits accrued, but unpaid, up to the effective date of termination of Employee’s employment;

(B)           pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to nine (9) months Employee’s base salary in effect as of the effective date of Employee’s termination of employment;

(C)           pay Employee, within thirty (30) days after the effective date of termination of Employee’s employment, a lump sum amount equal to one hundred percent (100%) of Employee’s target incentive bonus;

(D)          maintain Employee’s group medical coverage until the earlier of (A) the end of a period of nine (9) months following the effective date of termination, or (B) such time as comparable medical coverage is obtained by Employee.

Anything contained in this Section to the contrary notwithstanding, Employee shall not be entitled to any of the benefits set forth in this Section 1(g)(i) if Employee either resigns and terminates such employment voluntarily (other than for Good Reason, as described above) or is terminated by the Company for Cause.

For purposes of Section 1(g) hereof, the term “Company” shall include any Acquiring Company (as defined below), and all obligations of the Company under such Section shall be assumed by any Acquiring Company.

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(ii)           Stock Options.  In the event Employee’s employment under this Agreement is terminated by the Company involuntarily without Cause or Employee terminates his employment with the Company for Good Reason, in either case at any time during the period commencing two (2) months before and ending twelve (12) months after the occurrence of a Change in Control:

(A)          notwithstanding anything to the contrary contained in the 2004 Plan or any other stock option or incentive compensation plan of the Company, any unvested stock options or other incentive securities which were granted to Employee during the term of this Agreement under the 2004 Plan or any such other stock option or incentive compensation plan shall immediately vest on the date of such termination of Employee’s employment, the expiration date of the exercise period for such options or other securities shall be the earlier of (1) one (1) year following the date of termination, or (2) the expiration of the term of the option, and the Company shall take all actions necessary or advisable to give effect to this Section 1(g)(ii)(A); and

(B)           all vested options or other incentive securities held by Employee which were issued pursuant to the 2004 Plan or any such other plan shall be exercisable pursuant to the terms of the stock option agreement or other agreement(s) under which the options or other incentive securities were granted, and the Company shall take all actions necessary or advisable to give effect to this Section 1(g)(ii)(B).

Anything contained in this Section to the contrary notwithstanding, Employee shall not be entitled to any of the benefits set forth in this Section 1(g)(ii) if Employee either resigns and terminates such employment voluntarily (other than for Good Reason, as described above) or is terminated by the Company for Cause.

(iii)          Definition Of “Change in Control.”  The definition of “Change in Control” set forth in the 2004 Plan is incorporated, and made a part hereof, by reference.

(iv)          Definition Of “Acquiring Company.”  For purposes of Section 1(g) of this Agreement, an “Acquiring Company” shall mean the resulting or surviving corporation, or the company issuing cash or securities (or its ultimate parent company), in a merger, sale, asset purchase, or assignment of all or substantially all of the Company’s assets, consolidation or share exchange involving the Company, or the successor corporation to the Company (whether in any such transaction or otherwise).

2.             GENERAL RELEASE.  Notwithstanding anything in this Agreement to the contrary, no payments shall be made or benefits provided by the Company under Section 1 unless Employee executes and does not revoke a general release in favor of the Company and its affiliates, and its and their respective officers, employees and directors.  A form of general release is attached hereto as Exhibit A.

3.             SECTION 409A.  This Agreement is intended to meet the requirements of the short-term deferral exemption under section 409A of the Code.  However, if required by section 409A and if Employee is a “specified employee” of a publicly traded corporation under section 409A of the Code, payment of any amount under this Agreement shall be delayed for a period of six (6) months after separation from service, as required by section 409A of the Code.  The accumulated postponed amount shall be paid in a lump sum payment within ten (10) days after the end of the six (6)-month period.  If Employee dies during the postponement period prior to payment of the postponed amount, the amounts withheld on account of section 409A shall be paid to the personal representative of Employee’s estate within sixty (60) days after the date of Employee’s death.  The determination of “specified employees”

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shall be made by the Compensation Committee of the Board of Directors of the Company in accordance with section 409A of the Code and the regulations issued thereunder.

4.             NON-COMPETITION; NON-SOLICITATION.

(a)           Restrictions.  Employee shall not, during the course of Employee’s employment with the Company or for a period of twelve (12) months thereafter, directly or indirectly:

(i)            be employed by, engaged in or participate in the ownership, management, operation or control of, or act in any advisory or other capacity (including as an individual, principal, agent employee, consultant or otherwise) for, any Competing Entity which conducts its business within the Territory (as the terms Competing Entity and Territory are hereinafter defined); provided, however, that notwithstanding any of the foregoing, Employee may make solely passive investments in any Competing Entity the common stock of which is “publicly -held” and of which Employee shall not own or control, directly or indirectly, in the aggregate securities which constitute 5% or more of the voting power of such Competing Entity;

(ii)           solicit or divert any business or any customer or known prospective customer from the Company or assist any person or entity in doing so or attempting to do so;

(iii)          cause or seek to cause any person or entity to refrain from dealing or doing business with the Company or assist any person or entity in doing so; or

(iv)          solicit for employment, or advise or recommend to any other person or entity that he, she or it employ or solicit for employment or retention as an employee or consultant, any person who is an employee of, or exclusive consultant to, the Company.

(b)           Effect On The Company’s Obligations.  The Company’s obligation to make payments and provide the other benefits pursuant to Section 1 above shall terminate in the event that, and at such time as, Employee is in breach of Employee’s obligations set forth in Section 4(a) above.

(c)           Definitions.  For purposes of this Section 4:

(i)            “Competing Entity” means any entity which is presently or hereafter principally engaged in any business of the type or character engaged in or proposed to be engaged in by the Company from time to time during Employee’s term of employment under this Agreement, including without limitation, any business engaged in the discovery and development of human therapeutic products for any of the same targets and for indications as products the Company had in development or was marketing at any time during Employee’s term of employment under this Agreement.

(ii)           “Territory” means North America, Europe and Japan.

Notwithstanding anything in the above to the contrary, Employee may engage in the activities set forth in Section 4(a) hereof with the prior written consent of the Company, which consent shall not be unreasonably withheld.  Further, in determining whether a specific activity by Employee for a Competing Entity shall be permitted, the Company will consider, among other things, the nature and scope of (i) the duties to be performed by Employee and (ii) the business activities of the Competing Entity at the time of Employee’s proposed engagement by such entity.

(d)           Acknowledgement.  Employee acknowledges and agrees that the covenants set forth in this Section 4 are reasonable and necessary in all respects for the protection of the Company’s

6

legitimate business interests (including, without limitation, the Company’s confidential, proprietary information and trade secrets and client good-will, which represents a significant portion of the Company’s net worth and in which the Company has a property interest).  Employee acknowledges and agrees that, in the event that Employee breaches any of the covenants set forth in this Section 4, the Company shall be irreparably harmed and shall not have an adequate remedy at law; and, therefore, in the event of such a breach, the Company shall be entitled to injunctive relief, in addition to (and not exclusive of) any other remedies (including monetary damages) to which the Company may be entitled under law.  If any covenant set forth in this Section 4 is deemed invalid or unenforceable for any reason, it is the parties’ intention that such covenants be equitably reformed or modified to the extent necessary (and only to such extent) to render it valid and enforceable in all respects.  In the event that the time period and geographic scope referenced above is deemed unreasonable, overbroad, or otherwise invalid, it is the parties’ intention that the enforcing court shall reduce or modify the time period and/or geographic scope to the extent necessary (and only to such extent) to render such covenants reasonable, valid and enforceable in all respects.

5.             ARBITRATION.  Any and all disputes between the parties (except actions to enforce the provisions of Section 4 of this Agreement) arising under or relating to this Agreement or any other dispute arising between the parties, including claims arising under any employment discrimination laws, may be adjudicated and resolved exclusively through binding arbitration before the American Arbitration Association pursuant to the American Arbitration Association’s then-in-effect National Rules for the Resolution of Employment Disputes (hereinafter, “Rules”).  The initiation and conduct of any arbitration hereunder shall be in accordance with the Rules and, unless expressly required by law, each side shall bear its own costs and counsel fees in such arbitration.  Any arbitration hereunder shall be conducted in Princeton, New Jersey or at such other location as mutually agreed by the parties.  Any arbitration award shall be final and binding on the parties.  The arbitrator shall have no authority to depart from, modify, or add to the written terms of this Agreement.  The arbitration provisions of this Section 5 shall be interpreted according to, and governed by, the Federal Arbitration Act, 9 U.S.C. § 1 et seq., and any action pursuant to such Act to enforce any rights hereunder shall be brought exclusively in any United States District Court in the State of New Jersey.  The parties consent to the jurisdiction of (and the laying of venue in) any such court.

6.             NOTICES.  For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows:

(a)	If to the Company, to:
	Pharmacopeia, Inc.
	3000 Eastpark Blvd.
	Cranbury, NJ 08512
	Attn.: General Counsel
(b)	If to Employee, to:
	Maria L. Webb, Ph.D.

or to such other address as a party hereto shall designate to the other party by like notice, provided that notice of a change of address shall be effective only upon receipt thereof.

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7.             WITHHOLDING TAXES.  All payments under this Agreement shall be made subject to applicable tax withholding, and the Company shall withhold from any payments under this Agreement all federal, state and local taxes as the Company is required to withhold pursuant to any law or governmental rule or regulation.  Except as specifically provided otherwise in this Agreement, Employee shall bear all expense of, and be solely responsible for, all federal, state and local taxes due with respect to any payment received under this Agreement.

8.             WAIVER.  The waiver by the Company or Employee of any breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by Employee or the Company, as applicable, of any provision of this Agreement.

9.             SEVERABILITY.  The parties have carefully reviewed the provisions of this Agreement and agree that they are fair and equitable.  However, in light of the possibility of differing interpretations of law and changes of circumstances, the parties agree that in the event that any section, paragraph or term of this Agreement shall be determined to be invalid or unenforceable by any competent authority or tribunal for any reason, the remainder of this Agreement shall be unaffected thereby and shall remain in full force and effect.  Moreover, if any of the provisions of this Agreement is determined by a court of competent jurisdiction to be excessively broad as to duration, activity, geographic application or subject, it shall be construed by limiting or reducing it to the extent legally permitted so as to be enforceable to the extent compatible with then applicable law.

10.          SUCCESSORS AND ASSIGNS.  This Agreement shall bind and inure to the benefit of the successors and assigns of the Company and the heirs, executors or personal representatives of Employee.  This Agreement may not be assigned by Employee.  This Agreement may be assigned to any successor in interest to the Company (including by way of merger, consolidation or reorganization, or by way of any assignment of all or substantially all of the Company’s assets, business or properties), and Employee hereby consents to such assignment.

11.          ENTIRE AGREEMENT; AMENDMENTS.  This Agreement and the applicable bylaws and policies of the Company, constitute the entire Agreement between the parties hereto and there are no other understandings, agreements or representations, expressed or implied.  This Agreement supersedes any and all prior or contemporaneous agreements, oral or written, concerning Employee’s employment and compensation.  This Agreement may be amended only in writing signed by Employee and the Chief Executive Officer or the General Counsel of the Company.

12.          COUNTERPARTS.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

13.          GOVERNING LAW; FORUM SELECTION.  This Agreement shall be governed by and construed in accordance with the laws (other than conflicts of laws principles) of the State of New Jersey applicable to contracts executed in and to be performed entirely within such State.  The parties consent to jurisdiction and laying of venue in the state and federal courts of New Jersey for purposes of resolving disputes under this Agreement.

14.          COMPLIANCE WITH LAW.  This Agreement is intended to comply with the requirements of section 409A of the Code, and specifically, with the short term deferral exemption of section 409A, and shall in all respects be administered in accordance with section 409A.  Notwithstanding anything in the Agreement to the contrary, distributions may only be made under the Agreement upon an event and in a manner permitted by section 409A of the Code or an applicable exemption.  All payments to be made upon a termination of employment under this Agreement may only be made upon a

8

“separation from service” under section 409A.  In no event may Employee, directly or indirectly, designate the calendar year of payment.  For purposes of section 409A of the Code, each payment made under this Agreement shall be treated as a separate payment.  All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of section 409A of the Code, including, where applicable, the requirement that (a) any reimbursement shall be for expenses incurred during Employee’s lifetime (or during a shorter period of time specified in this Agreement), (b) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year, (c) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred, and (d) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.

PHARMACOPEIA, INC.
By	/s/ Leslie J. Browne
	Leslie J. Browne, Ph.D.
	President and Chief Executive Officer
EMPLOYEE
By	/s/ Maria L. Webb
	Maria L. Webb, Ph.D.

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EXHIBIT A

General Release

IN CONSIDERATION OF the terms and conditions contained in the Amended and Restated Severance Agreement, dated as of the 18th day of December, 2007, (the “Severance Agreement”) by and between Maria L. Webb, Ph.D. (“Employee”) and Pharmacopeia, Inc. (the “Company”), and for other good and valuable consideration, the receipt of which is hereby acknowledged, Employee on behalf of Employee and his or her heirs, executors, administrators, and assigns, releases and discharges the Company and its subsidiaries, divisions, affiliates and parents, and their respective past, current and future officers, directors, employees, agents, and/or owners, and their respective successors, and assigns and any other person or entity claimed to be jointly or severally liable with the Company or any of the aforementioned persons or entities (collectively the “Released Parties”) from any and all manner of actions and causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, agreements, judgments, charges, claims, and demands whatsoever (“Claims “) which Employee and his or her heirs, executors, administrators, and assigns have, had, or may hereafter have, against the Released Parties or any of them arising out of or by reason of any cause, matter, or thing whatsoever from the beginning of the world to the date hereof.  This General Release of Claims includes, without limitation, any and all matters relating to Employee’s employment by the Company and the cessation thereof, and any and all matters arising under any federal, state, or local statute, rule, or regulation, or principle of contract law or common law, including but not limited to, the Family and Medical Leave Act of 1993, as amended, 29 U.S.C. §§ 2601 et seq., Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. §§ 2000 et seq., the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. §§ 621 et seq. (the “ADEA”), the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12101 et seq., the Worker Adjustment and Retraining Notification Act of 1988, as amended, 29 U.S.C. §§2101 et seq., Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001 et seq. (“ERISA”), the New Jersey Law Against Discrimination, N.J.S.A. 10:15-1, et seq., the New Jersey Conscientious Executive Protection Act, N.J.S.A. 34:19-1 to 19-8, the New Jersey Wage and Hour Act, N.J.S.A. 34-11-56a, et seq., and any other equivalent or similar federal, state, or local statute; provided, however, that Employee does not release or discharge the Released Parties from (i) any of the Company’s obligations to Employee under the Severance Agreement, and (ii) any vested benefits to which Employee may be entitled under any employee benefit plan or program subject to ERISA.  It is understood that nothing in this General Release is to be construed as an admission on behalf of the Released Parties of any wrongdoing with respect to Employee, any such wrongdoing being expressly denied.

Employee represents and warrants that Employee fully understands the terms of this General Release, that Employee is hereby advised to consult with legal counsel before signing, and that Employee knowingly and voluntarily, of Employee’s own free will, without any duress, being fully informed, and after due deliberation, accepts its terms and signs below as Employee’s own free act.  Except as otherwise provided herein, Employee understands that as a result of executing this General Release, Employee will not have the right to assert that the Company or any other of the Released Parties unlawfully terminated Employee’s employment or violated any of Employee’s rights in connection with Employee’s employment or otherwise.

Employee further represents and warrants that Employee has not filed, and will not initiate, or cause to be initiated on Employee’s behalf any complaint, charge, claim, or proceeding against any of the Released Parties before any federal, state, or local agency, court, or other body relating to any claims barred or released in this General Release thereof, and will not voluntarily participate in such a proceeding.  However, nothing in this General Release shall preclude or prevent Employee from filing a claim, which challenges the validity of this General Release solely with respect to Employee’s waiver of any losses arising under the ADEA. Employee shall not accept any relief obtained on Employee’s behalf

A-1

by any government agency, private party, class, or otherwise with respect to any claims covered by this General Release.

Employee may take twenty-one (21) days to consider whether to execute this General Release.  Upon Employee’s execution of this General Release, Employee will have seven (7) days after such execution in which Employee may revoke such execution.  In the event of revocation, Employee must present written notice of such revocation to the Company’s Chief Executive Officer.  If seven (7) days pass without receipt of such notice of revocation, this General Release shall become binding and effective on the eighth (8th) day after the execution hereof (the “Effective Date”).

INTENDING TO BE LEGALLY BOUND, Employee hereby sets Employee’s hand below:

Dated:

*              *              *

NOTARIZATION

State of                                                                                              )

County of                                                                                          )                             ss.

On this              day of                              in the year            before me, the undersigned, personally appeared                                                                     ; personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument, and acknowledged to me that he executed the same in his capacity as an individual, and that by his signature on the instrument he executed such instrument, and that such individual made such appearance before the undersigned.

Notary Public

A-2

EX-10.45

EXHIBIT 10.45

Portions of this Exhibit were omitted and filed separately with the Secretary of the Commission pursuant to an application for confidential treatment filed with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.  Such omissions are designated as ***.

LICENSE AGREEMENT

between

BRISTOL-MYERS SQUIBB COMPANY

and

PHARMACOPEIA, INC.

LICENSE AGREEMENT

THIS LICENSE AGREEMENT (this “Agreement”) is made and entered into as of October 11, 2007 (the “Effective Date”), by and between Bristol-Myers Squibb Company, a Delaware corporation headquartered at 345 Park Avenue, New York, New York 10154 (“BMS”), and Pharmacopeia, Inc., a Delaware corporation, having its principal office at 3000 Eastpark Boulevard, Cranbury, New Jersey 08512 (“Pharmacopeia”).  BMS and Pharmacopeia are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”

RECITALS

WHEREAS, BMS Controls (as defined below) certain patent rights and know-how rights with respect to the Licensed Compounds (as defined below); and

WHEREAS, Pharmacopeia desires to obtain from BMS the licenses set forth herein, and BMS desires to grant such licenses to Pharmacopeia, all on the terms and conditions set forth in this Agreement;

NOW, THEREFORE in consideration of the foregoing and the mutual agreements set forth below, the Parties agree as follows.

ARTICLE 1

DEFINITIONS

The terms in this Agreement with initial letters capitalized, whether used in the singular or the plural, shall have the meaning set forth below or, if not listed below, the meaning designated in places throughout this Agreement.

1.1           “BMS564929 Toxicology Studies” means the two (2) toxicology reports due on the IND covering the BMS compound designated BMS564929, specifically the 6 month oral toxicology studies in rats and dogs.

1.2           “AAA” has the meaning set forth in Section 14.2.

1.3           “Act” means the United States Food, Drug and Cosmetic Act, as amended.

1.4           “Affiliate” of a Person means any other Person which (directly or indirectly) is controlled by, controls or is under common control with such Person.  For the purposes of this definition, the term “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) as used with respect to a Person means (i) in the case of a corporate entity, direct or indirect ownership of voting securities entitled to cast at least fifty percent (50%) of the votes in the election of directors or (ii) in the case of a non-corporate entity, direct or indirect ownership of at least fifty percent (50%) of the voting securities with the power to direct the management and policies of such entity.

1.5           “Agreement” means this Agreement, together with all Appendices attached hereto, as the same may be amended or supplemented from time to time.

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1.6           “Approval” means, with respect to any Licensed Product in any regulatory jurisdiction, approval from the applicable Regulatory Authority sufficient for the manufacture, distribution, use and sale of the Licensed Product in such jurisdiction in accordance with applicable Laws.

1.7           “BMS Excluded Compound” has the meaning set forth in Section 2.7.

1.8           “BMS Know-How” means ***.  BMS Know-How shall also include the *** as set forth in ***.  BMS Know-How shall not include ***.

1.9           “BMS Other Patent Rights” means (i) ***, which  (a) *** or (b) *** and (ii) ***.  Notwithstanding the foregoing, ***.

1.10         “BMS Patent Rights” means the Patents that are listed in Appendix 1 hereto, and (a)  any Patent that claims priority to any of the Patents listed inAppendix 1 hereto (but in each case, only with respect to claims in such Patents that Cover subject matter within the scope of the claims in the Patents listed in Appendix 1 hereto).

1.11         “Board” means Pharmacopeia’s then-current Board of Directors.

1.12         “Business Day” or “business day” means a day other than Saturday, Sunday or any day on which commercial banks located in New York, New York are authorized or obligated by applicable Laws to close.

1.13         “Calendar Quarter” means the respective periods of three consecutive calendar months ending on March 31, June 30, September 30 and December 31.

1.14         “Calendar Year” means each successive period of 12 months commencing on January 1 and ending on December 31.

1.15         “Change of Control” means, with respect to a Party: (i) the direct or indirect sale or exchange in a single transaction or a series of related transactions by the shareholders or other ownership interest holders of such Party of more than fifty percent (50%) of the voting stock or other voting ownership interests of such Party; (ii) a merger or consolidation of a Party; or (iii) the sale, exchange or transfer of all or substantially all of the assets of a Party to which this Agreement pertains; or a liquidation or dissolution of a Party, provided however, that any transaction or series of transactions that are effected solely in connection with a reincorporation, reorganization, recapitalization or financing not in connection with the sale of all or substantially all of the assets or stock or other ownership interests of a Party to this Agreement shall not be deemed to be a Change of Control.

1.16         “Combination Product” means a ***.  ***.

1.17         “Commercialization” or “Commercialize” means activities directed to commercially manufacturing, obtaining pricing and reimbursement approvals, carrying out Phase 4 Trials for, marketing, promoting, distributing, importing or selling a pharmaceutical product.

1.18         “Confidential Information” means all trade secrets, processes, formulae, data, know-how, improvements, inventions, chemical or biological materials, assays, techniques, marketing plans, strategies, customer lists, or other information that has been created, discovered, or developed by a Party, or has otherwise become known to a Party, or to which rights have been assigned to a Party, as well as any other information and materials that are marked as confidential or proprietary to or by a Party (including, without limitation, all information and materials of a Party’s customers and any other Third

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Party and their consultants), in each case that are disclosed by or on behalf of such Party to the other Party, regardless of whether any of the foregoing are marked “confidential” or “proprietary” or communicated to the other by the disclosing Party in oral, written, graphic, or electronic form.

1.19         “Controlled” or “Controls”, when used in reference to intellectual property, means the legal authority or right of a Party to grant a license or sublicense of intellectual property rights to another Party, or to otherwise disclose proprietary or trade secret information to such other Party, without breaching the terms of any agreement with a Third Party, or misappropriating the proprietary or trade secret information of a Third Party.

1.20         “Consented Sublicensee” has the meaning set forth in Section 2.3.

1.21         “Cover,” “Covered” or “Covering” means, with respect to patent rights, (i) that the making, using, importation, offer for sale or sale of an invention claimed in such patent rights, or (ii) the conducting of an activity, would, in the absence of a license under such patent rights, infringe at least one Valid Claim of such patent rights whether present in an issued patent or in a patent application that, if it issued as a patent, contains such claim(s).

1.22         “Development” means non-clinical and clinical drug development activities reasonably related to the development and submission of information to a Regulatory Authority, including, without limitation, toxicology, pharmacology and other discovery and pre-clinical efforts, test method development and stability testing, manufacturing process development, formulation development, delivery system development, quality assurance and quality control development, statistical analysis, clinical studies (including, without limitation, pre- and post-approval studies and specifically excluding regulatory activities directed to obtaining pricing and reimbursement approvals).  When used as a verb, “Develop” means to engage in Development.

1.23         “Development Compound” means a compound that has been selected by a Party for ***, including, but not limited to, ***.

1.24         “Disclosing Party” has the meaning set forth in Section 11.1.

1.25         “Discovery Collaboration” means that certain discovery collaboration entered into between BMS and Pharmacopeia of even date herewith, a copy of which is set forth in Appendix 3.

1.26         “Dollar” or “$” means the lawful currency of the United States.

1.27         “Effective Date” means the date specified in the initial paragraph of this Agreement.

1.28         “EMEA” means the European Agency for the Evaluation of Medicinal Products, or any successor agency thereto.

1.29         “EU” means the European Union, as its membership may be altered from time to time, and any successor thereto, and which, as of the Effective Date, consists of Austria, Belgium, Bulgaria, Czech Republic, Cyprus, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.

1.30         “Europe” means the countries comprising the European Union as it may be constituted from time to time, together with those additional countries included in the European Economic Area as it may be constituted from time to time (which as of the Effective Date includes Iceland, Liechtenstein and

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Norway), Albania, Andorra, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Croatia, Georgia, Holy See (Vatican), Macedonia, Moldova, Monaco, Russian Federation, San Marino, Serbia and Montenegro, Switzerland, Turkey, Ukraine, other central and eastern European markets including former Soviet block and USSR countries, and any successors to, or new countries created from, any of the foregoing.

1.31         “Excluded Compound” has the meaning set forth in Section 2.7.

1.32         “FDA” means the U.S. Food and Drug Administration, or any successor agency thereto.

1.33         “Field” means the diagnosis, prevention, treatment or control of any human or animal disease, disorder or condition, excluding the prevention, treatment or control of any human or animal hyperproliferative disease, disorder or condition. For purposes of clarity, “hyperproliferative diseases, disorders and conditions” are those diseases, disorders or conditions which are characterized by an abnormal increase in the proliferation or accumulation of cells and include conditions such as cancers and benign hyperplasia, but not diseases, disorders or conditions incident to an abnormal increase in the proliferation or accumulation of cells.  By way of example, the prevention, treatment or control of all forms of cachexia, regardless of whether the condition is related to a hyperproliferative disease or disorder, is included within the Field

1.34         “First Commercial Sale” means, with respect to any Licensed Product, the first sale for use or consumption by the general public of such Licensed Product in any country in the Territory after Approval of such Licensed Product has been granted, or such marketing and sale is otherwise permitted, by the Regulatory Authority of such country.

1.35         “GAAP” means generally accepted accounting principles in the United States.

1.36         “Generic Product” has the meaning set forth in Section 8.3.4.

1.37         “IND” means an Investigational New Drug Application, as defined in the Act, filed with the FDA or its foreign counterparts.

1.38         “IND Materials” has the meaning set forth in Section 4.4.

1.39         “Indemnification Claim” has the meaning set forth in Section 12.3.

1.40         “Indemnitee” has the meaning set forth in Section 12.3.

1.41         “Indemnitor” has the meaning set forth in Section 12.3.

1.42         “Independent Evaluator” means an independent certified public accounting firm, a consulting firm in the biotechnology and/or pharmaceutical sectors or investment bank, in each case of recognized standing within such sectors, which is not at the time of the evaluation contemplated in Section 3.1 providing auditing or consulting services to either Party, and which is selected by Pharmacopeia.

1.43         “JNDA” means a New Drug Application filed with the Koseisho required for marketing approval for the applicable Licensed Product in Japan.

1.44         “JNDA Approval” means the approval of a JNDA by the Koseisho for the applicable Licensed Product in Japan.

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1.45         “JNDA Filing” means the acceptance by the Koseisho of the filing of a JNDA for the applicable Licensed Product in Japan.

1.46         “Joint Invention” has the meaning set forth in Section 10.1.

1.47         “Joint Patent Rights” has the meaning set forth in Section 10.1.

1.48         “Koseisho” means the Japanese Ministry of Health and Welfare, or any successor agency thereto.

1.49         “Laws” means all laws, statutes, rules, regulations, ordinances and other pronouncements having the effect of law of any federal, national, multinational, state, provincial, county, city or other political subdivision, agency or other body, domestic or foreign.

1.50         “License” means any agreement (i) by which Pharmacopeia or an Affiliate of Pharmacopeia transfers to any Third Party any of the rights under license in this Agreement with respect to any Licensed Compound or any Licensed Product, including without limitation any license, sublicense, co-development, joint venture, development and commercialization collaboration or similar transaction involving a transfer of any rights under license hereunder to a Third Party with respect to a Licensed Compound or Licensed Product, and including any further transfer of such rights by a Third Party licensee to any other Third Party; or (ii) the corresponding arrangement for the grant by Pharmacopeia of rights back to BMS with respect to one or more Licensed Compound(s) and Licensed Product(s) pursuant to Section 3.1.

1.51         “Licensed Compounds” means:

(a)   the ***;

(b)   any ***; and

(c)   *** of any of the foregoing.  For avoidance of doubt, Licensed Compounds do not include ***.

1.52         “Licensed Product” means any pharmaceutical product containing a Licensed Compound (alone or with other active ingredients), in all forms, presentations, formulations and dosage forms.

1.53         “Listed Compounds” means those compounds identified in Appendix 2.

1.54         “Losses and Claims” has the meaning set forth in Section 12.1.

1.55         “MAA Approval” means approval by the EMEA of a marketing authorization application (“MAA”) filed with the EMEA for the applicable Licensed Product under the centralized European procedure.  If the centralized EMEA filing procedure is not used, MAA Approval shall be achieved upon the first Approval for the applicable Licensed Product in any two of the following countries:  France, Germany, Italy, Spain or the United Kingdom.

1.56         “MAA Filing” means filing with the EMEA of a marketing authorization application (“MAA”) for the applicable Licensed Product under the centralized European procedure.  If the centralized EMEA filing procedure is not used, MAA Filing shall be achieved upon the first filing of a marketing authorization application for the applicable Licensed Product in any two of the following countries:  France, Germany, Italy, Spain or the United Kingdom.

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1.57         “Major Market Countries” means the ***. “Major Market Country” means one of these countries.

1.58         “***” has the meaning set forth in Section 3.1.6(a).

1.59         “NDA” means a New Drug Application filed with the FDA required for marketing approval for the applicable Licensed Product in the U.S.

1.60         “NDA Approval” means the approval of an NDA by the FDA for the applicable Licensed Product in the U.S.

1.61         “NDA Filing” means the acceptance by the FDA of the filing of an NDA for the applicable Licensed Product.

1.62         “Negotiation Period” has the meaning set forth in Section 3.1.1(a).

1.63         “Net Sales” means, with respect to any ***:

(a)   ***; provided however, that where any such ***;

(b)   ***;

(c)   ***; and

(d)   ***.

Net Sales shall be determined ***.  In the case of any Combination Product sold in the Territory, Net Sales for such Combination Product shall be calculated by ***.

Net Sales shall not include any ***.

1.64         “Notice” has the meaning set forth in Section 3.1.1(a).

1.65         “Patents” means (a) patents and patent applications in any country or jurisdiction, (b) all priority applications, provisionals, divisionals, continuations, and continuations-in-part of any of the foregoing, and (c) all patents issuing on any of the foregoing patent applications, together with all registrations, reissues, renewals, re examinations, confirmations, supplementary protection certificates, and extensions of any of (a), (b) or (c).

1.66         “Person” means any individual, firm, corporation, partnership, limited liability company, trust, business trust, joint venture company, governmental authority, association or other entity.

1.67         “Pharmacopeia Excluded Compound” has the meaning set forth in Section 2.7.  As of the Effective Date the Listed Compounds shall be deemed to be Pharmacopeia Excluded Compounds.

1.68         “Pharmacopeia Know-How” has the meaning set forth in Section 13.4(f).

1.69         “Pharmacopeia Patent Rights” has the meaning set forth in Section 13.4(f).

1.70         “Phase 2 POC Study” means a Phase 2 trial in the U.S. or a foreign country demonstrating that a Licensed Compound or Licensed Product produces a statistically significant treatment effect.

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1.71         “Phase 4 Trial” means a human clinical trial for a Licensed Product commenced after receipt of Approval in the country for which such trial is being conducted and that is conducted within the parameters of the Approval for the Licensed Product.  Phase 4 Trials may include, without limitation, epidemiological studies, modeling and pharmacoeconomic studies, investigator sponsored clinical trials of the Licensed Product and post-marketing surveillance studies.

1.72         “Receiving Party” has the meaning set forth in Section 11.1.

1.73         “Regulatory Authority” means any national or supranational governmental authority, including, without limitation, the FDA, EMEA or Koseisho (i.e., the Japanese Ministry of Health and Welfare, or any successor agency thereto), that has responsibility in countries in the Territory over the Development and/or Commercialization of Licensed Compounds and Licensed Products

1.74         “Remaining Countries” has the meaning set forth in Section 13.4.1(a).

1.75         “Right of First Negotiation” has the meaning set forth in Section 3.1.1.

1.76         “SARM Compound” means any compound which is a selective human androgen receptor modulator, which acts by full or partial agonism of the androgen receptor.

1.77         “***” has the meaning set forth in Section 3.1.6(b).

1.78         “Sublicensee” means any Third Party granted a License under or with respect to any Licensed Compound or Licensed Product, and shall also include any Third Party to whom such rights are transferred through further sublicense by a Sublicensee.

1.79         “Sublicense Cap” has the meaning set forth in Section 8.10.

1.80         “Sublicense Payment” has the meaning set forth in Section 8.10.

1.81         “Surviving Sublicensee” has the meaning set forth in Section 2.3(b)(v).

1.82         “Table 1” means Table 1 of Section 8.2.

1.83         “Terminated Country” has the meaning set forth in Section 13.4.1.

1.84         “Territory” means any country in the world.

1.85         “Third Party” means any Person other than: Pharmacopeia, BMS, and their respective Affiliates.

1.86         “Third Party Term Sheet” has the meaning set forth in Section 3.1.2(b).

1.87         “Title 11” has the meaning set forth in Section 13.7.

1.88         “Transferred Materials” has the meaning set forth in Section 4.3.

1.89         “United States” or “U.S.” means the United States of America and its territories and possessions (including, without limitation, Puerto Rico).

1.90         “Valid Claim” means a claim of (i) an issued and unexpired patent or a supplementary protection certificate, which claim has not been held invalid or unenforceable by a court or other

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government agency of competent jurisdiction from which no appeal can be or has been taken and has not been held or admitted to be invalid or unenforceable through re-examination or disclaimer, opposition procedure, nullity suit or otherwise, or (ii) a pending patent application; provided, however, that if a claim of a pending patent application shall not have issued within five (5) years (or in Japan, seven (7) years) after the earliest filing date from which such claim takes priority, such claim shall not constitute a Valid Claim for the purposes of this Agreement unless and until a patent issues with such claim.

ARTICLE 2

LICENSE GRANTS

2.1           BMS Patent Rights and BMS Know-How.  Subject to the terms and conditions set forth in this Agreement (including, without limitation, the reservation of rights in Section 2.6 and 2.7), BMS hereby grants to Pharmacopeia an exclusive, worldwide, non-transferable (except in accordance with Section 15.4), license, with the right to sublicense in accordance with Section 2.3 hereunder, under the BMS Patent Rights and BMS Know-How to make, use (including in activities directed at the research and Development of Licensed Compounds), have made, sell, have sold, offer to sell, export, import and otherwise exploit or Commercialize Licensed Compounds and Licensed Products in the Field in the Territory.  Notwithstanding the foregoing, or any other provision of this Agreement, Pharmacopeia may not Develop or Commercialize any Licensed Compounds or Licensed Products for use as a male contraceptive.

2.2           BMS Other Patent Rights.  Subject to the terms and conditions set forth in this Agreement (including, without limitation, the reservation of rights in Section 2.6 and 2.7), BMS hereby grants to Pharmacopeia a non-transferable (except in accordance with Section 15.4), non-exclusive license, with the right to sublicense in accordance with Section 2.3 hereunder, under the BMS Other Patent Rights solely to the extent reasonably necessary to make, use (including in activities directed at the research and Development of Licensed Compounds), have made, sell, offer to sell, export and import and otherwise exploit or Commercialize Licensed Compounds and Licensed Products in the Field in the Territory.  For clarification, no rights are granted under this Section 2.2 (or otherwise under this Agreement) to co-formulate or use in combination a Licensed Compound with any proprietary compound, including any BMS Excluded Compound, of BMS (other than a Listed Compound or Licensed Compound). The rights granted by BMS to Pharmacopeia under this Section 2.2 include the right to make, have made, use (including in activities directed at the research and Development of Licensed Compounds), export and import intermediates and starting materials reasonably necessary for the manufacture of Licensed Compounds, to practice methods reasonably necessary for the manufacture of Licensed Compounds, and to practice methods reasonably necessary for manufacturing such intermediates and starting materials, but only for the purposes of manufacturing, using, importing or exporting Licensed Compounds or Licensed Products in the Field in the Territory.  For clarification, no rights are granted to sell or offer to sell any such intermediates or starting materials, or use such intermediates or starting materials for any purpose other than for the purposes of manufacturing Licensed Compounds or Licensed Products.  Notwithstanding the foregoing, this Section 2.2 shall not apply with respect to any Patent for which BMS would incur any obligation (including but not limited to a cash payment obligation) to a Third Party if such Patent were included in this Section 2.2, whether or not such Patent would fall within the definition of BMS Other Patent Rights, unless and only to the extent that Pharmacopeia agrees in writing to incur such obligation to such Third Party, including to fully reimburse BMS or pay directly to such Third Party any payment obligation.

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2.3           Sublicenses.  Pharmacopeia shall have the right to grant sublicenses with respect to the rights licensed to Pharmacopeia under Sections 2.1 and 2.2 to (i) any Affiliate of Pharmacopeia for so long as such Affiliate remains an Affiliate of Pharmacopeia, and (ii) any special purpose company, corporation or other entity established to act as a sublicensee of Pharmacopeia under the rights licensed hereunder in order to facilitate the structured financing of the research, Development and Commercialization activities contemplated hereunder (each, in (i) and (ii), a “Consented Sublicensee”), provided that (i) such Consented Licensee shall agree in writing to be bound by and subject to the terms and conditions of this Agreement in the same manner and to the same extent as Pharmacopeia, and (ii) Pharmacopeia shall remain responsible for the performance of this Agreement and shall cause such Consented Sublicensee to comply with the terms and conditions of this Agreement.  In addition, Pharmacopeia shall have the right to grant Licenses to Sublicensees (other than Consented Sublicensees, the conditions for which are set forth in the immediately preceding sentence), subject to the following:

(a)          Other than a permitted assignment of this Agreement in accordance with Section 15.4.1, ***, and then only in accordance with this Section 2.3 and Article 3.  The foregoing *** shall not limit Pharmacopeia’s ability to engage Third Party contractors in the Development, manufacture and/or shipping/warehousing of any Licensed Compound or any Licensed Product, provided that such engagement is essentially a fee-for-service or similar purchase arrangement and does not grant the Third Party contractor the right to sell or promote such Licensed Compound or Licensed Product.

(b)          ***, Pharmacopeia shall have the right to enter into a License with a Third Party, provided that, to the extent any such License grants rights with respect to any Licensed Compound:

(i)    such License shall be consistent with the terms and conditions of this Agreement, and shall not impair (A) Pharmacopeia’s ability to perform its obligations under this Agreement or (B) BMS’ rights under this Agreement;

(ii)   in such License, the Sublicensee shall agree in writing to be bound to Pharmacopeia by terms and conditions that are substantially similar to, or less favorable to the Sublicensee than, or otherwise allow Pharmacopeia to fully perform the corresponding terms and conditions of this Agreement, provided that Section 3.1.2 of Section 3.1 shall not apply to a Sublicensee;

(iii)  promptly after the execution of such License, Pharmacopeia shall provide a copy of such License to BMS, with financial and other confidential or proprietary commercial terms redacted consistent with the public filing of such License with the Securities and Exchange Commission (“SEC”), or, if not filed with the SEC, then with financial and other confidential or proprietary commercial terms redacted (to the extent that such other commercial terms are not reasonably necessary for BMS to determine Pharmacopeia’s compliance with and payment obligations under this Agreement, including Sublicense Payments under Article 8);

(iv)  Pharmacopeia shall remain responsible for the performance of this Agreement (including, without limitation, its obligations under Sections 5.1(a) and 6.1), the payment of all payments due, and making reports and keeping books and records, and shall use commercially reasonable efforts to monitor such Sublicensee’s compliance with the terms of such License;

(v)   any sublicense rights granted by Pharmacopeia in a License (to the extent such sublicensed rights are granted to Pharmacopeia in this Agreement) shall terminate on a country-by-country and Licensed Product-by-Licensed Product basis effective upon the termination under Section 13.2 of the license from BMS to Pharmacopeia with respect to such sublicensed rights, provided that such sublicensed rights shall not terminate if, as of the effective date of such termination by BMS under Section 13.2, the Sublicensee is not in material breach of its obligations to Pharmacopeia under its

9

License agreement, and within sixty (60) days of such termination the Sublicensee agrees in writing to be bound directly to BMS under a license agreement substantially similar to this Agreement with respect to the rights sublicensed hereunder, substituting such Sublicensee (a “Surviving Sublicensee”) for Pharmacopeia; and

(vi)   such Sublicensees shall have the right to grant further Licenses with respect to the Development or Commercialization of Licensed Products, provided that such further Licenses shall be in accordance with and subject to all of the terms and conditions of this Section 2.3.

For purposes of clarification, the preceding provisions of this Section 2.3(b) shall not apply to Licensed Compounds or Licensed Products with respect to which Pharmacopeia grants BMS a License.

(c)         For clarity, where provisions of this Agreement provide that Pharmacopeia shall be “solely” responsible or the like with respect to a matter, it is understood that such responsibilities may be carried out or borne on Pharmacopeia’s behalf by a Pharmacopeia Affiliate, Consented Sublicensee, permitted Sublicensee or contractor of Pharmacopeia.

(d)         It shall be a ***.

2.4         No Trademark License.  No right or license, express or implied, is granted to Pharmacopeia to use any trademark, trade name, trade dress or service mark owned or Controlled by BMS or any of its Affiliates.  Pharmacopeia, at its sole cost and expense, shall be responsible for the selection, registration and maintenance of all trademarks which it employs in connection with its activities conducted pursuant to this Agreement, if any, and shall own and control such trademarks.

2.5         No Implied Licenses.  No license or other right is or shall be created or granted hereunder by implication, estoppel or otherwise for any purpose.  All such licenses and rights are or shall be granted only as expressly provided in this Agreement.

2.6         Retained Rights.  All rights not expressly granted under Sections 2.1 and 2.2 are reserved by BMS and may be used by BMS for any purpose.  Without limiting the foregoing, BMS retains any and all rights under the BMS Patent Rights, BMS Other Patents and BMS Know-How to make, have made, use, sell, have sold, export or import any compounds for use outside the Field, provided that such compounds are not Listed Compounds or products containing any Listed Compounds.  BMS also expressly reserves and retains the right (i) to make, have made and use Licensed Compounds for any internal research purposes (including but not limited to for purposes of screening in support of BMS’ internal research programs), (ii) to support the filing and prosecution of patent applications, and (iii) to make, have made and use any Licensed Compound solely for use as an intermediate or starting material in the manufacture of any compound which is not a Listed Compound for use outside the Field.  Notwithstanding the foregoing, BMS shall not develop any compounds Covered by a Valid Claim in the BMS Patent Rights for use in male contraception.

2.7         Notification of Development Compound Selection.  Upon a Party selecting, in good faith, a compound which is Covered by a Valid Claim within the BMS Patent Rights as a Development Compound, such Party will send a notice to the Vice President of Chemistry for the other Party as described below, and the notice provided shall identify each such Development Compound by chemical structure.  Each Party may only select Development Compounds for use in accordance with the rights granted hereunder (i.e. Pharmacopeia may only select Development Compounds for use within the Field, and BMS may only select Development Compounds for use outside the Field and BMS may not select a Listed Compound as a Development Compound) (upon receipt of such notice by the other Party, such Development Compound will be deemed an “Excluded Compound” of the notifying Party, i.e. a BMS

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Excluded Compound if BMS is the notifying Party and a Pharmacopeia Excluded Compound if Pharmacopeia is the notifying Party).  A Party may not begin or continue to Develop or Commercialize an Excluded Compound of the other Party (and such Party shall immediately cease any Development of such Excluded Compound), regardless of what stage in Development such Excluded Compound is in each Party’s portfolio.  Notification of the designation of a Development Compound as an Excluded Compound shall be in accordance with Section 15.2 except that the notification shall be sent to:

For BMS:
	Bristol-Myers Squibb Company
	P.O. Box 4000
	Route 206 & Province Line Road
	Princeton, New Jersey 08543-4000
	Attention: Vice President of Chemistry
	Telephone:  ***
	Facsimile:  ***
With a copy to:
	Bristol-Myers Squibb Company
	P.O. Box 4000
	Route 206 & Province Line Road
	Princeton, New Jersey 08543-4000
	Attention:	Vice President and Senior Counsel,
		Corporate and Business Development
	Telephone:  ***
	Facsimile:  ***
For Pharmacopeia:
	Pharmacopeia, Inc.
	3000 Eastpark Boulevard
	Cranbury, New Jersey 08512
	Attention: Chief Science Officer
	Telephone:  ***
	Facsimile:  ***
with a copy to:
	Pharmacopeia, Inc.
	3000 Eastpark Boulevard
	Cranbury, New Jersey 08512
	Attention: General Counsel
	Telephone:  ***
	Facsimile:  ***

2.8         Unblocking License Grants.

(a)          By Pharmacopeia.  Pharmacopeia hereby grants to BMS a perpetual fully paid-up, worldwide non-exclusive, sublicensable license under any Patents Controlled by Pharmacopeia, solely to the extent that the claims of such patent rights are within the scope of the claims of any Patent within the BMS Patent Rights (e.g., claims Covering a selection invention within a genus of compounds Covered in the BMS Patent Rights) and that are composition-of-matter claims Covering, as compound(s) per se, one

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or more BMS Excluded Compounds, to make, use (including in research activities), have made, sell, offer to sell, export and import and otherwise exploit pharmaceutical products solely for use outside the Field.  For the avoidance of doubt, the unblocking license granted under this Section 2.8(a) shall not entitle BMS to Develop or Commercialize any Pharmacopeia Excluded Compound or product incorporating a Pharmacopeia Excluded Compound.  Notwithstanding the foregoing, this Section 2.8(a) shall not apply with respect to any Patent for which Pharmacopeia would incur any obligation (including but not limited to a cash payment obligation) to a Third Party if such Patent were included in this Section 2.8(a), unless and only to the extent that BMS agrees in writing to incur such obligation to such Third Party, including to fully reimburse Pharmacopeia, or pay directly to such Third Party, any payment obligation.  Notwithstanding the foregoing, BMS acknowledges and agrees that the foregoing license grant shall not include any Patent Controlled by Pharmacopeia and related to the development and commercialization of JAK3 inhibitor-based therapeutic products.

(b)         By BMS.  BMS hereby grants to Pharmacopeia a perpetual fully paid-up, worldwide non-exclusive, sublicensable license under any Patents Controlled by BMS but not included in the BMS Patent Rights or derived from the BMS Know-How, solely to the extent that the claims of such patent rights are within the scope of the claims of any patent within the BMS Patent Rights (e.g., claims Covering a selection invention within a genus of compounds Covered in the BMS Patent Rights) and that are composition-of-matter claims Covering, as compound(s) per se, one or more Pharmacopeia Excluded Compounds, to make, use (including in activities directed at the research and Development of Licensed Compounds), have made, sell, offer to sell, export and import and otherwise exploit or Commercialize Licensed Compounds and Licensed Products solely for use in the Field. For the avoidance of doubt, the unblocking license granted under this Section 2.8(b) shall not entitle Pharmacopeia to Develop or Commercialize any BMS Excluded Compound or product incorporating a BMS Excluded Compound.  Notwithstanding the foregoing, this Section 2.8(b) shall not apply with respect to any Patent for which BMS would incur any obligation (including but not limited to a cash payment obligation) to a Third Party if such Patent were included in this Section 2.8(b), unless and only to the extent that Pharmacopeia agrees in writing to incur such obligation to such Third Party, including to fully reimburse BMS or pay directly to such Third Party any payment obligation.

ARTICLE 3

BMS RIGHT OF FIRST NEGOTIATION

3.1         BMS Right of First Negotiation.

3.1.1      BMS shall have a limited right of first negotiation with respect to Licensed Compounds as follows (the “Right of First Negotiation”).

(a)          In the event that Pharmacopeia desires to enter into a License with respect to any Licensed Compound or Licensed Product, before entering into negotiations with any Third Party with respect to a License to such Third Party with respect to a Licensed Compound or Licensed Product, Pharmacopeia will notify BMS of its desire and provide BMS with information in Pharmacopeia’s possession and control that is reasonably necessary for BMS to perform its due diligence with respect to such Licensed Compound or Licensed Product (including but not limited to information from or relating to clinical studies, correspondence with FDA, information regarding Third Party patents, and information regarding the manufacture, sourcing and cost of goods for the Licensed Compound or Licensed Product) (the “Notice”).  Pharmacopeia shall provide to BMS a proposal of terms and conditions with respect to such proposed License at the time of such Notice.  If BMS notifies Pharmacopeia in writing of its election to pursue a License for such Licensed Compound or Licensed Product within *** (***) days after BMS’

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receipt of such Notice, Pharmacopeia shall enter into good faith negotiations with BMS with respect to such License for a period of *** (***) days (the “Negotiation Period”) following receipt of such election from BMS.  ***.

(b)         During the Negotiation Period, Pharmacopeia will provide BMS with an opportunity to make a written proposal of terms and conditions with respect to such a License and Pharmacopeia will either accept the proposal or provide a counter offer to BMS (i.e., in addition to the proposal provided to BMS at the time of the Notice).  If BMS has not provided Pharmacopeia with such a written proposal regarding all principal financial terms of such a License within the first *** (***) days of the Negotiation Period, the Negotiation Period will terminate, and Pharmacopeia will then be free to enter into negotiations with any Third Party regarding a License for such Licensed Compounds or Licensed Products and free to enter into any such License.  If Pharmacopeia and BMS are able to conclude an agreement in principle within the Negotiation Period as set forth in a mutually satisfactory term sheet with respect to such License (being demonstrated by BMS obtaining internal BMS Executive Committee, and Pharmacopeia obtaining Board approval, to proceed with completing a definitive agreement based on such term sheet), the Parties shall negotiate a definitive agreement in good faith with the goal of executing such agreement within *** (***) days thereafter.

(c)         If BMS does not elect through the written notification described above to pursue a License with respect to such Licensed Compounds within the *** (***) day period set forth above, Pharmacopeia will then be free to enter into negotiations with any Third Party regarding a License for such Licensed Compounds or Licensed Products and free to enter into any such License.

(d)         Following Notice, if BMS does so elect to pursue a License with respect to the Licensed Compounds or Licensed Products within the *** (***) day period set forth above, but Pharmacopeia and BMS do not conclude an agreement in principle (being demonstrated by BMS obtaining internal BMS Executive Committee, and Pharmacopeia obtaining Board approval, to proceed with completing a definitive agreement based on such term sheet) with respect to such License within the Negotiation Period as described above, Pharmacopeia will then be free to enter into negotiations with any Third Party regarding a License for such Licensed Compounds or Licensed Products, and free to enter into any such License, subject to the provisions of this Article 3 set forth below.

3.1.2      Pharmacopeia shall not enter into an agreement with any Third Party with respect to a License for a Licensed Compound or Licensed Product except in accordance with the provisions of this Article 3, including the provisions set forth below.  Notwithstanding the foregoing, in the event BMS does not (i) deliver to Pharmacopeia a written proposal within the forty-five (45) day time period set forth in Section 3.1.1(b), or (ii) elect to pursue a License with respect to Licensed Compounds or Licensed Products within the time frame set forth in Section 3.1.1(c), then the provisions of Section 3.1.2 shall not apply.

(a)          In the event that Pharmacopeia intends to enter into a License agreement with a Third Party (based on bona fide arm’s-length negotiations with such Third Party) after following the procedure set forth in this Article 3, *** (as defined below).

(b)         For purposes of the ***.  For this purpose, the *** at that time.  Such determination by the ***.  The *** will consider the ***.  Such determination by the Board shall be ***.

(c)         If the ***.

(d)         If the ****.  In the event that Pharmacopeia makes ***.  If Pharmacopeia offers ***.  If such ***.  If such ***.

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3.1.3      In the event that *** under this Article 3.

3.1.4      Upon the initiation of any such Negotiation Period, Pharmacopeia shall ***.

3.1.5      Any License agreement entered into by Pharmacopeia with a Third Party in accordance with the foregoing procedure shall be consistent with the terms and conditions of this Agreement and shall fully enable Pharmacopeia to fully perform all of its obligations under the Agreement which will continue in effect.  As set forth in Section 2.2, any Sublicensee shall be bound by the terms and conditions of this Agreement in the same manner as Pharmacopeia, provided that Section 3.1.2 of Section 3.1 shall not apply to a Sublicensee or a Consented Sublicensee.

3.1.6      Certain Definitions.  For the purposes of this Article 3, the following capitalized terms shall have the following meanings:

(a)         “***” means, with respect to a ***, compared to a *** under the ***, that the ***, based on the ***, including without limitation, ***.

(b)         “***” means any ***.

ARTICLE 4

TRANSFER OF KNOW-HOW AND REGULATORY FILINGS

4.1         Documentation.  Within sixty (60) days following the Effective Date, BMS shall provide to Pharmacopeia one (1) electronic or paper copy of all scientific, regulatory and manufacturing documents Controlled by BMS as of the Effective Date to the extent that such documents are (i) included in the BMS Know-How , and (ii) are reasonably available to BMS without undue searching, provided however, that subject to the last sentence of this Section 4.1, the foregoing shall in no event require BMS to provide copies of laboratory notebook records.  Such documentation is Confidential Information of BMS (subject to Article 11) and shall not be used by Pharmacopeia for any purpose other than Development, manufacture or Commercialization of Licensed Compounds and Licensed Products in accordance with this Agreement.  BMS shall be responsible for the cost of providing one (1) set of copies only.  BMS shall have no obligation to reformat or otherwise alter or modify any such materials, or to create materials in electronic form, in order to provide them to Pharmacopeia.  Any and all such materials delivered to Pharmacopeia pursuant to this Section 4.1 are and shall remain the sole property of BMS.  BMS may elect to provide the documentation under this Section 4.1 as such documents become available or provide all documentation at one time; provided that any documentation and materials provided to Pharmacopeia pursuant to Section 4.4 will not be separately provided pursuant to this Section 4.1.

Notwithstanding the foregoing, if at any time during the term of this Agreement Pharmacopeia identifies particular documents, data or information (including laboratory notebook records) that are within the BMS Know-How or would fall within the IND Materials under Section 4.4 or that Pharmacopeia reasonably believes are within the BMS Know-How or would fall within the IND Materials under Section 4.4, but were not previously delivered to Pharmacopeia, and that are reasonably necessary for the continued manufacture, Development or Commercialization of a Licensed Compound or Licensed Product (including without limitation materials requested in connection with an audit or other inquiry by a Regulatory Authority), or are reasonably necessary to support the filing and/or prosecution of Patents Covering the Licensed Compounds or Licensed Products in accordance with Article 10 (i.e., the BMS Patent Rights and Joint Patent Rights for which Pharmacopeia has filing and/or prosecution responsibility), BMS shall promptly provide such material to Pharmacopeia upon request to the extent that such items are in BMS’ possession and are reasonably available without undue searching.

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4.2         Technical Assistance.  During the *** (***) day period following Pharmacopeia’s receipt of the IND materials pursuant to Section 4.4 below, BMS shall provide Pharmacopeia with reasonable access by teleconference or in-person at BMS’ facilities (subject to BMS’ customary rules and restrictions with respect to site visits by non-BMS personnel) to BMS personnel reasonably knowledgeable in the research and development of the Licensed Compounds and Licensed Products for up to *** (***) hours of consulting advice with respect to the Licensed Compounds and Licensed Products, provided that (i) such access shall be requested and coordinated through a single BMS contact person reasonably knowledgeable with respect to the BMS SARM program, with such person to be designated by BMS, (ii) BMS makes no warranty, express or implied, that Pharmacopeia shall be able to successfully implement and use the BMS Know-How, (iii) BMS shall not be obligated to provide more than *** (***) hours of consulting advice in such period, and (iv) BMS will use reasonable efforts to provide such consulting advice promptly.  If Pharmacopeia requests further consulting advice related to Licensed Compounds and Licensed Products in excess of the *** (***) hour amount referenced above, BMS may at its sole discretion provide such consulting advice and, if BMS elects to provide such consulting advice, Pharmacopeia shall reimburse BMS for its time incurred in connection therewith at a rate of *** per hour, plus any reasonable out-of-pocket expenses incurred by BMS in providing such consulting advice requested by Pharmacopeia.  Such reimbursement shall be made to BMS within thirty (30) days after receipt by Pharmacopeia of a BMS invoice reasonably detailing BMS’ time expended, together with documentation substantiating any out-of-pocket expenses incurred.

4.3         Materials.  Within sixty (60) days following the Effective Date, BMS shall provide Pharmacopeia with all quantities of Listed Compounds that are reasonably available to BMS as of the Effective Date, including the Listed Compound designated BMS564929 (the “BMS564929 Compound”) it being understood that at minimum, Pharmacopeia shall be provided with no less than *** of BMS564929 Compound.  Any such materials (including quantities of the BMS564929 Compound) that may be provided by or for BMS to Pharmacopeia pursuant to this Section 4.3 (the “Transferred Materials”) are provided “AS IS”.  Pharmacopeia shall be fully responsible for its and its Affiliates’, Sublicensees’ and contractors’ use, storage, handling and disposition of the Transferred Materials.  Under no circumstances shall BMS be liable or responsible for Pharmacopeia’s or its Affiliates’, Sublicensees’ and contractors’ use, storage, handling or disposition of the Transferred Materials, and Pharmacopeia assumes sole responsibility for any claims, liabilities, damages and losses that might arise as a result of Pharmacopeia’s and its Affiliates’, Sublicensees’ and contractors’ use, storage, handling or disposition of any Transferred Material. Pharmacopeia shall indemnify, defend and hold harmless BMS and its Affiliates, and their respective officers, directors, employees, agents, licensors, and their respective successors, heirs and assigns and representatives, from and against any and all damages, liabilities, losses, costs and expenses (including, without limitation, reasonable legal expenses, costs of litigation and reasonable attorney’s fees) arising in connection with any claims, suits, proceedings, whether for money damages or equitable relief, of any kind, arising out of or relating, directly or indirectly, to Pharmacopeia’s, or any of its Affiliates’, Sublicensees’ or contractors’ use, storage, handling or disposition of any Transferred Material.  Transferred Materials may only be provided to Pharmacopeia, its Affiliates, Sublicensees and contractors.  The Transferred Materials shall be used by Pharmacopeia solely for purposes of supporting the Development of the Licensed Compounds and Licensed Products.  Notwithstanding the foregoing, and subject to BMS’s obligation to provide a minimum quantity of BMS564929 Compound as set forth in the first sentence of this Section 4.3, BMS shall be entitled to retain reasonable sample quantities of Listed Compounds in amounts not to exceed the greater of *** of the available quantities of Listed Compounds.

4.4         Assignment of IND.  BMS hereby assigns to Pharmacopeia all of BMS’ rights, title and interests in and to any INDs filed by BMS with any Regulatory Authority in the Territory for the BMS564929 Compound and BMS will provide to Pharmacopeia one copy of such IND filing(s), including without limitation the drug master file for such filing.  In connection with such assignment,

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BMS shall deliver to Pharmacopeia within fifteen (15) business days of the Effective Date, one (1) electronic or paper copy of all correspondence, responses, meeting minutes and other documentation by and between BMS and any Regulatory Authority relating to such IND filing(s), and all documents relating to contacts by or on behalf of BMS and any Regulatory Authority and related to such IND filing(s) (the IND filing and such ancillary materials, the “IND Materials”).  For the avoidance of doubt, upon such assignment, Pharmacopeia shall own all right, title and interest in and to the IND Materials.  The Parties will work to provide any formal notice of the assignment of the INDs to Pharmacopeia pursuant to this Section 4.4 to the Regulatory Authorities to effect such assignment.  Notwithstanding anything to the contrary in this Agreement, documents related to the BMS564929 Toxicology Studies will be provided by BMS as soon as possible, but in no event later than sixty (60) days after the Effective Date.

ARTICLE 5

DEVELOPMENT

5.1         Development.  Pharmacopeia shall have sole responsibility for, and shall bear the cost of conducting, all Development with respect to the Licensed Compounds and Licensed Products.

5.2         Development Reports.  Pharmacopeia will provide BMS with *** written development reports within thirty (30) days following the *** during the Term, presenting a summary of the Development activities accomplished by Pharmacopeia during the just ended *** with respect to Licensed Compounds and Licensed Products.

5.3         Regulatory Responsibilities and Costs.  Following assignment of the IND by BMS to Pharmacopeia pursuant to Section 4.4, Pharmacopeia shall have sole responsibility for, and shall bear the cost of preparing, all regulatory filings and related submissions with respect to the Licensed Compounds and Licensed Products.  Pharmacopeia shall be responsible for meeting the requirements of all pre-approval inspections required by any Regulatory Authorities.  Except as set forth in Section 13.4, Pharmacopeia or its Affiliate or Sublicensee shall own all INDs, NDAs, Approvals and submissions in connection therewith and all Approvals shall be obtained by and in the name of Pharmacopeia or its Affiliate or Sublicensee as applicable.

5.4         Subcontracting.  Subject to and without limiting Section 2.2, Pharmacopeia may perform any activities in support of its Development or Commercialization of Licensed Compounds and Licensed Products through subcontracting to a Third Party contractor or contract service organization, provided that: (a) Pharmacopeia shall enter into an appropriate written agreement with any such Third Party subcontractor such that the subcontractor shall be bound by all applicable provisions of this Agreement to the same extent as Pharmacopeia and such that BMS’ rights under this Agreement are not adversely effected; (b) any such Third Party subcontractor to whom Pharmacopeia discloses Confidential Information of BMS shall enter into an appropriate written agreement obligating such Third Party to be bound by obligations of confidentiality and restrictions on use of such BMS Confidential Information that are no less restrictive than the obligations in this Agreement; (c) Pharmacopeia will obligate such Third Party to agree in writing to assign or license (with the right to grant sublicenses) to Pharmacopeia any inventions (and any patent rights covering such inventions) made by such Third Party in performing such services for Pharmacopeia; and (d) Pharmacopeia shall at all times be responsible for the performance of such subcontractor.

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ARTICLE 6

COMMERCIALIZATION

6.1Pharmacopeia Obligations.  Pharmacopeia shall have sole responsibility for, and shall bear the cost of conducting, all Commercialization with respect to the Licensed Products.

6.2Marking.  Each Licensed Product Commercialized by Pharmacopeia under this Agreement shall be marked (to the extent not prohibited by applicable Laws) with applicable patent and other intellectual property notices BMS Patent Rights in such a manner as may be required by applicable Law.

6.3Reports.  Pharmacopeia shall provide BMS with *** written reports within *** (***) days following the end of each *** summarizing significant commercial activities and events with respect to Licensed Products during the just ended ***.  If Pharmacopeia plans to launch a Licensed Product in any country of the Territory in the Calendar Year following the *** such report covers, the report provided to BMS under this Section 6.3 shall so indicate.

ARTICLE 7

MANUFACTURE AND SUPPLY

7.1Manufacture and Supply.  Pharmacopeia shall be solely responsible at its expense for making or having made all of its requirements of the Licensed Compounds and Licensed Products.  Pharmacopeia shall manufacture, test, QA release, handle, store and ship the Licensed Compounds and Licensed Products in compliance with all applicable Laws, with all regulatory filings, and with its applicable internal specifications and quality control procedures.

ARTICLE 8

FINANCIAL TERMS

8.1In partial consideration of the rights granted by BMS to Pharmacopeia pursuant to this Agreement, Pharmacopeia shall make the payments to BMS as provided for in this Article 8.

8.2Development Milestone Payments.

Pharmacopeia shall make milestone payments to BMS upon achievement of each of the milestones events in the amounts as set forth below in Table 1.  The milestone payments set forth below will be payable by Pharmacopeia to BMS within *** (***) days of the first achievement of the specified milestone event with respect to a Licensed Compound.  Such milestone payment shall not be refundable or returnable in any event, nor shall it be creditable against royalties or other payments.  For clarity, each milestone shall be payable one-time only irrespective of the number of Licensed Compounds achieving any given milestone or number of indications developed.

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Table 1

Milestone Event	Milestone Payment
NDA Filing	$	***
NDA Approval	$	***
MAA Filing	$	***
MAA Approval	$	***
JNDA Filing	$	***
JNDA Approval	$	***

8.3Royalty Payments.

8.3.1Pharmacopeia shall pay to BMS the following royalty payments on the total aggregate annual Net Sales in the Territory of all Licensed Products in a particular Calendar Year by Pharmacopeia, its Affiliates, and Sublicensees in the Territory:

Aggregate Annual Worldwide Net Sales of All Licensed Products in a Calendar Year	Royalty Rate
Up to $***	***	%
More than $***, but less than $***	***	%
More than $***, but less than $***	***	%
More than $***	***	%

By way of example, in a given Calendar Year, if the aggregate annual worldwide Net Sales for all Licensed Products is $750 million, the following royalty payment would be payable under this Section 8.3.1: ***.

8.3.2Sales-Based Milestones.  In addition to the Development Milestones and royalties described above, Pharmacopeia will pay to BMS sales-based milestones for each Calendar Year that the worldwide annual Net Sales of Products reach the milestones described in the table below.

Net Sales Milestone		Milestone Fee
$	***	$	***
$	***	$	***

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For clarity, if a Licensed Product has worldwide annual Net Sales of $*** in a given Calendar Year, *** described above ***.  Such milestone fee shall be separately itemized and paid with the royalty payment made after the Calendar Quarter in which such milestone occurs.

8.3.3Royalty Term.  Royalties shall be payable on a *** of (i) *** or (ii) the *** or (iii) the ***.

8.3.4Generic Product Competition.  The royalty rates set forth above in Section 8.3.1 shall be ***.  “Generic Product” means any pharmaceutical product containing an active pharmaceutical ingredient that is the same as a Licensed Product

8.3.5Third Party Royalty Payments.  If Pharmacopeia or its Sublicensee, in its reasonable judgment, is ***.  Prior to Pharmacopeia or its Sublicensee exercising its *** under this Section 8.3.5, Pharmacopeia shall provide BMS with ***.  The Parties shall discuss the best course of action to resolve such potential ***, provided that such discussions shall not limit or delay Pharmacopeia’s or its Sublicensee’s right to ***.

Except as set forth above, Pharmacopeia shall be ***.

8.3.6Royalty Conditions.  The royalties under Section 8.3.1 shall be subject to the following conditions:

(a)that only one royalty shall be due with respect to the same unit of Licensed Product;

(b)that no royalties shall be due upon the sale or other transfer among Pharmacopeia, its Affiliates, or Sublicensees, but in such cases the royalty shall be due and calculated upon Pharmacopeia’s or its Affiliate’s or Sublicensee’s Net Sales of Licensed Product to the first independent Third Party; and

(c)no royalties shall accrue on the disposition of Licensed Product in reasonable quantities by Pharmacopeia, its Affiliates or Sublicensees as part of an expanded access program, as bona fide samples, as part of Phase 4 Trials or as donations to non-profit institutions or government agencies for non-commercial purposes, provided, in each case, that neither Pharmacopeia, its Affiliate or Sublicensees receives any payment for such Licensed Product.

8.4Manner of Payment.  All payments to be made by Pharmacopeia hereunder shall be made in Dollars by wire transfer of immediately available funds to such United States bank account as shall be designated by BMS.  Late payments shall bear interest at the rate provided in Section 8.9.

8.5Sales Reports and Royalty Payments.  After the First Commercial Sale of a Licensed Product and during the term of this Agreement, Pharmacopeia shall furnish to BMS a written report, within *** (***) days after the end of each *** (or portion thereof, if this Agreement terminates during a ***), showing the amount of royalty due for such *** (or portion thereof).  Royalty payments for each *** shall be due at the same time as such written report for the ***.  With each *** payment, Pharmacopeia shall deliver to BMS a full and accurate accounting to include at least the following information:

(a)the quantity of each Licensed Product sold (by country) by Pharmacopeia, its Affiliates, and Sublicensees;

(b)the calculation of Net Sales from such gross sales (by country);

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(c)the royalties payable in Dollars which shall have accrued hereunder in respect of such Net Sales;

(d)withholding taxes, if any, required by applicable Law to be deducted in respect of such royalties; and

(e)the dates of the First Commercial Sales of Licensed Products in any country during the reporting period.

If no royalty or payment is due for any royalty period hereunder, Pharmacopeia shall so report.

8.6Sales Record Audit.  Pharmacopeia shall keep, and shall cause each of its Affiliates, and Sublicensees, if any, to keep, full and accurate books of accounting in accordance with GAAP as may be reasonably necessary for the purpose of calculating the royalties payable to BMS.  Such books of accounting (including, without limitation, those of Pharmacopeia’s Affiliates, and Sublicensees, if any) shall be kept at their principal place of business and, with all necessary supporting data, shall during all reasonable times for the *** (***) years next following the end of the Calendar Year to which each shall pertain, be open for inspection at reasonable times upon written notice by BMS and at BMS’ sole cost, no more than once per year, by an independent certified accountant selected by BMS as to which Pharmacopeia has no reasonable objection, for the purpose of verifying royalty statements for compliance with this Agreement.  Such accountant must have agreed in writing to maintain all information learned in confidence, except as necessary to disclose to BMS such compliance or noncompliance by Pharmacopeia.  The results of each inspection, if any, shall be ***.  BMS shall pay for such inspections, except that in the event there is any ***.  Any underpayments shall be paid by Pharmacopeia within ten (10) Business Days of notification of the results of such inspection.  Any overpayments shall be fully creditable against amounts payable in subsequent payment periods or, if no such amounts become payable within ninety (90) days after notification of such results, shall be refunded.

8.7Currency Exchange. With respect to Net Sales invoiced in Dollars, the Net Sales and the amounts due to BMS hereunder shall be expressed in Dollars.  With respect to Net Sales invoiced in a currency other than Dollars, the Net Sales shall be expressed in the domestic currency of the entity making the sale, together with the Dollar equivalent, calculated using the arithmetic average of the spot rates on the close of business on the last Business Day of each month of the Calendar Quarter in which the Net Sales were made.  The “closing mid-point rates” found in the “dollar spot forward against the dollar” table published by The Financial Times or any other publication as agreed to by the Parties shall be used as the source of spot rates to calculate the average as defined in the preceding sentence.  All payments shall be made in Dollars.

8.8Tax Withholding.  In the event that any withholding taxes or similar charges are levied or assessed by any taxing authority in the Territory with respect to payments made by Pharmacopeia to BMS under this Agreement, Pharmacopeia shall pay such taxes or similar charges to the proper taxing authority.  Pharmacopeia may deduct the amount of such taxes or similar charges paid by Pharmacopeia to such taxing authority from the applicable royalties or other payment otherwise payable to BMS, subject to the following.  Pharmacopeia shall promptly provide BMS with evidence of such tax payment obligation together with an original receipt for such tax payments (or a certified copy, if the original is not available) and other documentation as BMS reasonably determines is required for the purpose of BMS’ tax returns.  Pharmacopeia, its Affiliates and Sublicensees shall cooperate with BMS to enable the claiming of a reduction or exemption from withholding taxes on payments under any applicable convention on the avoidance of double taxation or similar agreement in force and shall provide to BMS proper evidence of payments of withholding tax and assist BMS by obtaining or providing in as far as

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possible the required documentation for the purpose of BMS’ tax returns.  Pharmacopeia’s obligation vis-à-vis the tax authorities shall remain unaffected by the provisions of this Section.

8.9Interest Due.  Without limiting any other rights or remedies available to BMS, Pharmacopeia shall pay BMS interest on any payments that are not paid on or before the date thirty (30) days after the date such payments are due under this Agreement at a rate of *** per month or the maximum applicable legal rate, if less, calculated on the total number of days payment is delinquent.

8.10Additional Payments Based on ***.  In addition to the above milestone and royalty payments, and subject to the *** (as defined below), Pharmacopeia shall pay to BMS ***.  For clarification, with respect to ***, in the event that *** (as hereafter defined).

Such ***.  Such *** to BMS shall be due within thirty (30) days following ***.  Notwithstanding the foregoing, the total amount of all ***.

For purposes of this Section 8.10, “***” means ***, but does not include (i) ***, (ii) ***, or (iii) ***.

ARTICLE 9

REPRESENTATIONS AND WARRANTIES; DISCLAIMER;
LIMITATION OF LIABILITY

9.1Mutual Representations and Warranties.  Each Party represents and warrants to the other Party that (i) it has all requisite corporate power and authority to enter into this Agreement and to perform its obligations under this Agreement, (ii) execution of this Agreement and the performance by such Party of its obligations hereunder have been duly authorized, (iii) this Agreement is legally binding and enforceable on such Party in accordance with its terms, and (iv) the performance of this Agreement by it does not create a material breach or material default under any other agreement to which it is a Party.

9.2Representations and Warranties of BMS.

9.2.1BMS represents and warrants to Pharmacopeia that as of the Effective Date, to the actual knowledge of BMS: (i) there is no pending litigation which alleges, or any written communication alleging, that BMS’ activities with respect to the BMS Patent Rights or the Licensed Compounds have infringed or misappropriated any of the intellectual property rights of any Third Party, and (ii) all fees (including legal fees) required to be paid by BMS in order to maintain the BMS Patent Rights have been paid to date.

9.2.2BMS represents and warrants that it has not previously assigned, transferred, conveyed or licensed (or granted an option to assign, transfer, convey or license) its right, title and interest in the BMS Patent Rights or the BMS Know-How.

9.2.3BMS represents and warrants to Pharmacopeia that as of the Effective Date, to the actual knowledge of its in-house patent counsel, other than the BMS Patent Rights, BMS does not Control any Patent that is reasonably necessary for the Development or Commercialization of any Listed Compound and that Covers (i) the composition of matter of any Listed Compound, or (ii) a method of manufacture or use of any Listed Compound; provided that if any such Patents are identified, such Patents will be deemed to be BMS Other Patent Rights and subject to the licenses granted to Pharmacopeia pursuant to Section 2.2.

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9.2.4BMS represents and warrants to Pharmacopeia that, to its actual knowledge, and without further inquiry, with respect to any and all INDs filed by or on behalf of BMS involving BMS564929 Compound, (i) all such INDs were timely filed and have not been withdrawn; (ii) other than the outstanding toxicology reports BMS has timely filed all responses to the appropriate Regulatory Authority with respect thereto (including any required Annual Reports); and (iii) there are no outstanding objections, rejections, warning letters or other enforcement or penalty actions pending or threatened with respect thereto by any Regulatory Authority.

9.2.5***.

9.2.6BMS represents and warrants to Pharmacopeia that, to its actual knowledge, there are no Patents Controlled by BMS as of the Effective Date that, if licensed to Pharmacopeia pursuant to Section 2.8(b) would incur any obligation (including but not limited to a cash payment obligation) by BMS to a Third Party.

9.3Representations and Warranties of Pharmacopeia.  Pharmacopeia represents, warrants and covenants that (i) all of its activities related to its use of the BMS Patent Rights , BMS Other Patent Rights and BMS Know-How, and the Development and Commercialization of the Licensed Compounds and Licensed Products, pursuant to this Agreement shall comply with all applicable legal and regulatory requirements and (ii) it shall not knowingly engage in any activities (A) that use the BMS Patent Rights, BMS Other Patent Rights and/or BMS Know-How in a manner that is outside the scope of the license rights granted to it hereunder or (B) that infringe the intellectual property rights of any Third Party.  Pharmacopeia further represents and warrants to BMS that, to its actual knowledge, there are no Patents Controlled by Pharmacopeia as of the Effective Date that, if licensed to BMS pursuant to Section 2.8(a) would incur any obligation (including but not limited to a cash payment obligation) by Pharmacopeia to a Third Party.

9.4Disclaimer.  EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY PATENT RIGHTS, CONFIDENTIAL INFORMATION OR KNOW-HOW OF SUCH PARTY OR ANY LICENSE GRANTED BY SUCH PARTY HEREUNDER, OR WITH RESPECT TO ANY COMPOUNDS, INCLUDING BUT NOT LIMITED TO THE TRANSFERRED MATERIALS, OR PRODUCTS.  FURTHERMORE, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER MAKES ANY REPRESENTATIONS OR WARRANTIES THAT ANY PATENT, PATENT APPLICATION, OR OTHER PROPRIETARY RIGHTS INCLUDED IN PATENT RIGHTS, CONFIDENTIAL INFORMATION OR KNOW-HOW LICENSED BY SUCH PARTY TO THE OTHER PARTY HEREUNDER ARE VALID OR ENFORCEABLE OR THAT USE OF SUCH PATENT RIGHTS, CONFIDENTIAL INFORMATION OR KNOW-HOW CONTEMPLATED HEREUNDER DOES NOT INFRINGE ANY PATENT RIGHTS OR OTHER INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY.

9.5Limitation of Liability.  NOTWITHSTANDING ANYTHING IN THIS AGREEMENT OR OTHERWISE, NEITHER PARTY SHALL BE LIABLE TO THE OTHER WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT, WHETHER UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY, FOR ANY INCIDENTAL, INDIRECT, SPECIAL, EXEMPLARY, PUNITIVE, MULTIPLE, OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, CONSEQUENTIAL DAMAGES CONSISTING OF LOST PROFITS, LOSS OF USE, DAMAGE TO GOODWILL, OR LOSS OF BUSINESS) AND, IN ANY CASE, BMS SHALL NOT BE LIABLE IN AN AMOUNT

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GREATER THAN THE AMOUNTS PAID BY PHARMACOPEIA TO BMS UNDER ARTICLE 8 OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT THE FOREGOING SHALL NOT APPLY TO ANY BREACH BY PHARMACOPEIA OF THE LICENSES GRANTED TO IT UNDER THIS AGREEMENT THAT IS AN INFRINGEMENT OF BMS PATENT RIGHTS NOT INCLUDED IN THE PATENT RIGHTS LICENSED TO PHARMACOPEIA HEREUNDER, OR ANY BREACH BY EITHER PARTY OF ARTICLE 11 HEREOF.

ARTICLE 10

PATENT MAINTENANCE; INFRINGEMENT; EXTENSIONS

10.1Ownership of Inventions.  Inventorship of inventions conceived or reduced to practice in the course of activities performed under or contemplated by this Agreement shall be determined by application of United States patent Laws pertaining to inventorship.  If such an invention is solely invented by an employee, consultant or contractor of a Party, such invention shall be owned by such Party, and any patent filed claiming such solely owned invention shall also be owned by such Party.  If such inventions are jointly invented by one or more employees, consultants or contractors of each Party, such inventions shall be jointly owned (“Joint Invention”), and if one or more claims included in an issued patent or pending patent application which is filed in a patent office in the Territory claim such Joint Invention, such claims shall be jointly owned (“Joint Patent Rights”).  Subject to Section 5.6 with respect to contractors, each Party shall enter into binding agreements obligating all employees, consultants and contractors performing activities under or contemplated by this Agreement, including activities related to the BMS Patent Rights, Licensed Compounds or Licensed Products, to assign his/her interest in any invention conceived or reduced to practice in the course of such activities to the Party for which such employee, consultant or contractor is providing its services. This Agreement shall be understood to be a joint research agreement in accordance with 35 U.S.C. § 103(c)(3) with respect to the  development of Licensed Compounds and Licensed Products.  The filing, prosecution, maintenance and enforcement of Joint Patent Rights shall be handled in accordance with this Article 10 to the extent such Joint Patent Rights Cover a Pharmacopeia Excluded Compound.  For purposes of clarity, BMS shall be solely responsible, in its sole discretion, for the filing, prosecution, maintenance and enforcement of any Joint Patent Rights which Cover a BMS Excluded Compound, and, as further set forth in Section 10.4.2, for all BMS Other Patent Rights.  The Parties will confer regarding the filing, prosecution, maintenance and enforcement of any Joint Patent Rights which Cover neither a BMS Excluded Compound nor a Pharmacopeia Excluded Compound, or which Cover both a BMS Excluded Compound and a Pharmacopeia Excluded Compound, provided that, to the extent reasonably feasible, the Parties will endeavor (such as through the filing of divisional applications) to Cover BMS Excluded Compounds and Pharmacopeia Excluded Compounds in separate applications within the Joint Patent Rights.

10.2Filing, Prosecution and Maintenance of BMS Patent Rights.  Pharmacopeia shall be responsible, using outside patent counsel selected by Pharmacopeia and acceptable to BMS, such acceptance not to be unreasonably withheld, for the preparation, prosecution (including, without limitation, any interferences, reissue proceedings and reexaminations) and maintenance of BMS Patent Rights.  Promptly following the Effective Date, the Parties shall cooperate to expeditiously transfer such responsibility for the further preparation, prosecution and maintenance of BMS Patent Rights to such outside patent counsel.  Pharmacopeia shall be responsible for all costs incurred by Pharmacopeia (including outside counsel fees) with respect to the preparation, prosecution and maintenance of BMS Patent Rights so long as Pharmacopeia remains responsible for such preparation, prosecution and maintenance.  Upon request by BMS, Pharmacopeia (or its patent counsel) shall provide BMS with an update of the filing, prosecution and maintenance status for each of the BMS Patent Rights for which Pharmacopeia has responsibility.  Each Party shall reasonably consult with and cooperate with the other Party with respect to the preparation, prosecution and maintenance of the BMS Patent Rights reasonably

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prior to any deadline or action with the U.S. Patent & Trademark Office or any foreign patent office, and Pharmacopeia (or its patent counsel) shall furnish to BMS copies of any such relevant documents reasonably in advance of such consultation.  Pharmacopeia (or its patent counsel) shall provide to BMS copies of any papers relating to the filing, prosecution or maintenance of the BMS Patent Rights for which Pharmacopeia has responsibility promptly upon their being filed or received.  Pharmacopeia shall not knowingly take any action during prosecution and maintenance of the BMS Patent Rights for which Pharmacopeia has responsibility that would materially adversely affect them (including any reduction in claim scope), without BMS’ prior consent, such consent not to be unreasonably withheld, conditioned or delayed.

10.3Patent Abandonment.

10.3.1Generally.  In no event will Pharmacopeia knowingly permit any of the BMS Patent Rights for which it has responsibility to be abandoned in any country in the Territory, or elect not to file a new patent application claiming priority to a patent application within the BMS Patent Rights either before such patent application’s issuance or within the time period required for the filing of an international (i.e., Patent Cooperation Treaty), regional (including European Patent Office) or national application, without BMS first being given an opportunity to assume full responsibility for the continued prosecution and maintenance of such BMS Patent Rights, or the filing of such new patent application.  Accordingly, Pharmacopeia (or its patent counsel) shall provide BMS with notice of the allowance and expected issuance date of any patent within the BMS Patent Rights, or any of the aforementioned filing deadlines, and BMS shall provide Pharmacopeia with prompt notice as to whether BMS desires Pharmacopeia to file such new patent application.  In the event that Pharmacopeia decides either (i) not to continue the prosecution or maintenance of a patent application or patent within BMS Patent Rights in any country or (ii) not to file such new patent application requested to be filed by BMS, Pharmacopeia shall provide BMS with notice of this decision at least sixty (60) days prior to any pending lapse or abandonment thereof.

10.3.2BMS Option to Assume Responsibility.  Upon the delivery by Pharmacopeia of a notice that it intends to abandon patent rights within the BMS Patent Rights as provided in Section 10.3.1, BMS shall thereupon have the right, but not the obligation, to assume responsibility for all reasonably documented external costs thereafter incurred associated with the filing and/or further prosecution and maintenance of such patents and patent applications, on a patent-by-patent and country-by-country basis.  The outside patent counsel selected by Pharmacopeia shall proceed with such filing and/or further prosecution and maintenance promptly upon receipt of written notice from BMS of its election to assume such responsibility, with such filing to occur prior to the issuance of the patent to which the application claims priority or expiration of the applicable filing deadline, as set forth above.  In the event that BMS assumes such responsibility for such filing, prosecution and maintenance costs, upon the reasonable request by BMS, Pharmacopeia shall transfer the responsibility for such filing, prosecution and maintenance of such patent applications and patents to BMS’ in-house patent counsel or outside patent counsel selected by BMS, provided that Pharmacopeia shall (i) provide sufficient written notice to BMS of any such election such that the relevant transfer shall not prejudice the filing, prosecution and/or maintenance of patent rights (where possible, such notice shall be provided at least sixty (60) days prior to any pending lapse or abandonment thereof); (ii) transfer or cause to be transferred to BMS or its patent counsel the complete prosecution file for the relevant patents and patent applications, including all correspondence and filings with patent authorities with respect thereto; and (iii) at the reasonable request of BMS and without demanding any further consideration therefore, do all things necessary, proper or advisable, including without limitation the execution, acknowledgment and recordation of specific assignments, oaths, declarations and other documents on a country-by-country basis, to assist BMS in obtaining, perfecting, sustaining and/or enforcing such patent(s).  Such patent applications and patents shall otherwise continue to be subject to all of the terms and conditions of the Agreement in the same way

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as the other BMS Patent Rights, as applicable; provided, that, BMS may, at its sole option and discretion, abandon all or part of such BMS Patent Rights without further notice or liability to Pharmacopeia.

10.3.3Pharmacopeia Responsibility for Patent Costs.

Pharmacopeia shall remain responsible for all costs incurred after the Effective Date with respect to preparation, prosecution and maintenance of the BMS Patent Rights for which it is responsible.

10.4Enforcement of BMS Patent Rights Against Infringers.

10.4.1Enforcement by Pharmacopeia.

(a)In the event that BMS or Pharmacopeia becomes aware of a suspected infringement of any BMS Patent Right exclusively licensed to Pharmacopeia under this Agreement, such Party shall notify the other Party promptly, and following such notification, the Parties shall confer.  Pharmacopeia shall have the right, but shall not be obligated, to bring an infringement action with respect to such infringement in the Field at its own expense, in its own name and entirely under its own direction and control, subject to the following.  BMS shall reasonably assist Pharmacopeia (at Pharmacopeia’s expense) in any action or proceeding being prosecuted if so requested, and shall lend its name to and join as a nominal party in such actions or proceedings if reasonably requested by Pharmacopeia or required by applicable Laws.  BMS shall have the right to participate and be represented in any such suit by its own counsel at its own expense.  No settlement of any such action or proceeding which restricts the scope, or adversely affects the enforceability, of a BMS Patent Right may be entered into by Pharmacopeia without the prior written consent of BMS, which consent shall not be unreasonably withheld, delayed or conditioned.  For an infringement of the BMS Patent Rights that is outside the Field, the Parties will meet to discuss which Party should take the lead in enforcing the BMS Patent Rights against such alleged infringer, and pending agreement of the Parties with respect to the Party bearing responsibility for the enforcement of such BMS Patent Rights, such enforcement shall be pursued in accordance with the terms of this Section 10.4.

(b)BMS shall have the right at its discretion to grant to Pharmacopeia such rights (including assignment of the applicable BMS Patent Rights) as may be necessary for Pharmacopeia to exercise its rights under this Section 10.4 (including defending or enforcing any BMS Patent Rights) without BMS’ involvement.  In the event of such grant of rights (including assignment) with respect to any BMS Patent Rights, such BMS Patent Rights shall continue to be treated as BMS Patent Rights and shall otherwise continue to be subject to all of the terms and conditions of the Agreement in the same way as the other applicable BMS Patent Rights.  For purposes of clarity, election or non-election by BMS to grant or assign rights to Pharmacopeia under this Section 10.4.1(b) shall not limit BMS’ obligations under Section 10.4.1(a) to reasonably assist Pharmacopeia in any action or proceeding, or to join in such action or proceeding upon request by Pharmacopeia if such joinder is necessary under applicable Laws for Pharmacopeia to exercise its rights under this Section 10.4.

10.4.2Enforcement by BMS.  If Pharmacopeia elects not to bring any action for infringement described in Section 10.4.1 and so notifies BMS, or if the Parties agree that BMS should enforce the BMS Patent Rights against an alleged infringer, then BMS may bring such action at its own expense, in its own name and entirely under its own direction and control, subject to the following.  Pharmacopeia shall reasonably assist BMS (at BMS’ expense) in any action or proceeding being prosecuted if so requested, and shall lend its name to such actions or proceedings if requested by BMS or required by applicable Laws.  Pharmacopeia shall have the right to participate and be represented in any such suit by its own counsel at its own expense.  No settlement of any such action or proceeding which restricts the scope, or adversely affects the enforceability, of a BMS Patent Right may be entered into by

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BMS without the prior written consent of Pharmacopeia, which consent shall not be unreasonably withheld, delayed or conditioned.  BMS will have the sole right, in it sole discretion, to enforce the BMS Other Patent Rights.

10.4.3Withdrawal.  If either Party brings an action or proceeding under this Section 10.4 and subsequently ceases to pursue or withdraws from such action or proceeding, it shall promptly notify the other Party and the other Party may substitute itself for the withdrawing Party under the terms of this Section 10.4.

10.4.4Damages.  In the event that either Party exercises the rights conferred in this Section 10.4 and recovers any damages or other sums in such action, suit or proceeding or in settlement thereof, such damages or other sums recovered shall ***.  If such recovery is insufficient to ***.  If after such *** any funds shall remain from such damages or other sums recovered, such funds shall be *** under this Section 10.4; provided, however, that if ***.

10.5Patent Term Extension.  BMS and Pharmacopeia shall each cooperate with one another and shall use commercially reasonable efforts in obtaining patent term extension (including without limitation, any pediatric exclusivity extensions as may be available) or supplemental protection certificates or their equivalents in any country with respect to patent rights covering the Licensed Products.  If elections with respect to obtaining such patent term extensions are to be made, Pharmacopeia shall have the right to make the election to seek patent term extension or supplemental protection of a BMS Patent Right, provided that such election will be made so as to maximize the period of marketing exclusivity for the Licensed Product.  For such purpose, for all Approvals Pharmacopeia shall provide BMS with written notice of any expected Approval at least thirty (30) days prior to the expected date of Approval, as well as notice within five (5) business days of receiving each Approval confirming the date of such Approval.  Notification of the receipt of an Approval shall be in accordance with Section 15.2 except that the notification shall be sent to:

Bristol-Myers Squibb Company
***

10.6Data Exclusivity and Orange Book Listings.

10.6.1With respect to data exclusivity periods (such as those periods listed in the FDA’s Orange Book (including without limitation any available pediatric extensions) or periods under national implementations of Article 10.1(a)(iii) of Directive 2001/EC/83, as amended, and all international equivalents), Pharmacopeia shall use commercially reasonable efforts consistent with its obligations under applicable Law to seek, maintain and enforce all such data exclusivity periods available for the Licensed Products.  With respect to filings in the FDA Orange Book (and foreign equivalents) for issued patents for a Licensed Product, Pharmacopeia shall, consistent with its obligations under applicable Law, list in a timely manner and maintain all applicable BMS Patent Rights and other patents Controlled by Pharmacopeia required to be filed by it, or that it is permitted to file, under applicable Law.  At least *** (***) days prior to an anticipated deadline for the filing of patent listing information for BMS Patent Rights, Pharmacopeia will consult with BMS regarding the content of such filing.  In the event of a dispute between the Parties as to whether a BMS Patent Right or BMS Other Patent Right can be filed and/or the content of such filing, the Parties will take expedited steps to resolve the dispute as promptly as possible, including seeking advice of an independent legal counsel to guide their decision.  BMS shall use commercially reasonable efforts consistent with its obligations under applicable Law, including to provide reasonable cooperation to Pharmacopeia in filing and maintaining such Orange Book (and foreign equivalent) listings.

10.6.2Without limiting the foregoing, BMS shall have the right at its discretion to grant

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to Pharmacopeia such rights (including assignment of the applicable BMS Patent Rights) as may be necessary for Pharmacopeia to exercise its rights under this Section 10.6 (including seeking, maintaining and enforcing all data exclusivity periods) without BMS’ involvement.  In the event of such grant of rights (including assignment) with respect to any BMS Patent Rights, such BMS Patent Rights shall continue to be treated as BMS Patent Rights and shall otherwise continue to be subject to all of the terms and conditions of the Agreement in the same way as the other applicable BMS Patent Rights.  For purposes of clarity, election by BMS to grant or assign rights to Pharmacopeia under this Section 10.6.2 shall not limit BMS’ obligation under Section 10.6.1 to provide reasonable cooperation to Pharmacopeia to the extent such cooperation is reasonably necessary for Pharmacopeia in filing and maintaining such Orange Book (and foreign equivalent) listings.

10.7Notification of Patent Certification.  Each Party shall notify and provide the other Party with copies of any allegations of alleged patent invalidity, unenforceability or non-infringement of a BMS Patent Right or BMS Other Patent Right, as the case may be, pursuant to a Paragraph IV Patent Certification by a Third Party filing an Abbreviated New Drug Application, an application under §505(b)(2) or other similar patent certification by a Third Party, and any foreign equivalent thereof.  Such notification and copies shall be provided to the other Party within *** (***) days after such Party receives such certification, and shall be sent to the address set forth in Section 10.5 in the case of notifications to BMS or the address set forth in Section 15.2 in the case of notifications to Pharmacopeia.  In addition, upon request by BMS, Pharmacopeia shall provide reasonable assistance and cooperation (including, without limitation, making available to BMS documents possessed by Pharmacopeia that are reasonably required by BMS and making available personnel for interviews and testimony) in any actions reasonably undertaken by BMS to contest any such patent certification.

10.8Limitation on Patent Actions.  Neither Party shall be required to take any action pursuant to Sections 10.4, 10.5, 10.6 or 10.7 that such Party reasonably determines in its sole judgment and discretion conflicts with or violates any court or government order or decree that such Party is then subject to or otherwise may create legal liability on the part of such Party.

ARTICLE 11

NONDISCLOSURE OF CONFIDENTIAL INFORMATION

11.1Nondisclosure.  Each Party agrees that, for so long as this Agreement is in effect and for a period of *** (***) years thereafter, a Party (the “Receiving Party”) receiving or possessing Confidential Information of the other Party (the “Disclosing Party”) (or that has received any such Confidential Information from the other Party prior to the Effective Date) shall (i) maintain in confidence such Confidential Information using not less than the efforts such Receiving Party uses to maintain in confidence its own proprietary industrial information of similar kind and value, (ii) not disclose such Confidential Information to any Third Party without the prior written consent of the Disclosing Party, except for disclosures expressly permitted below, and (iii) not use such Confidential Information for any purpose except those permitted by this Agreement (it being understood that this clause (iii) shall not create or imply any rights or licenses not expressly granted under Article 2 hereof).

11.1.1Confidentiality of BMS Know-How for Disclosure Purposes.  During such time as the license to the BMS Know-How granted under Section 2.1.1 is in effect, solely for disclosure purposes to Third Parties, the BMS Know-How shall be deemed to be Confidential Information of both BMS and Pharmacopeia under Article 11, both BMS and Pharmacopeia shall be deemed to be a Disclosing Party of the BMS Know-How under Article 11, and BMS and its Affiliates shall be deemed not to have known such BMS Know-How prior to disclosure for the purposes of Section 11.1.2(b).  Other

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than for disclosure purposes to Third Parties, the BMS Know-How shall solely be the Confidential Information of BMS.

11.1.2Exceptions.  The obligations in Section 11.1 shall not apply with respect to any portion of the Confidential Information that the Receiving Party can show by competent proof:

(a)is publicly disclosed by the Disclosing Party, either before or after it is disclosed to the Receiving Party hereunder; or

(b)was known to the Receiving Party or any of its Affiliates, without any obligation to keep it confidential or any restriction on its use, prior to disclosure by the Disclosing Party; or

(c)is subsequently disclosed to the Receiving Party or any of its Affiliates by a Third Party lawfully in possession thereof and without any obligation to keep it confidential or any restriction on its use; or

(d)is published by a Third Party or otherwise becomes publicly available or enters the public domain, either before or after it is disclosed to the Receiving Party; or

(e)has been independently developed after disclosure by the Disclosing Party by employees or contractors of the Receiving Party or any of its Affiliates without the aid, application or use of Confidential Information of the Disclosing Party.

11.2Authorized Disclosure.  The Receiving Party may disclose Confidential Information belonging to the Disclosing Party to the extent (and only to the extent) such disclosure is reasonably necessary in the following instances:

(a)filing or prosecuting patents;

(b)regulatory filings;

(c)prosecuting or defending litigation;

(d)subject to Section 11.4, complying with applicable governmental Laws and regulations (including, without limitation, the rules and regulations of the Securities and Exchange Commission or any national securities exchange) and with judicial process, if in the reasonable opinion of the Receiving Party’s counsel, such disclosure is necessary for such compliance; and

(e)disclosure (i) in connection with the performance of this Agreement and solely on a “need to know basis”, to Affiliates; potential or actual collaborators (including potential Sublicensees); or employees, contractors, or agents; or (ii) solely on a “need to know basis” to potential or actual investment bankers, investors, lenders, or acquirers; each of whom in the case of clause (i) or (ii) prior to disclosure must be bound by written obligations of confidentiality and non-use no less restrictive than the obligations set forth in this Article 11; provided, however, that the Receiving Party shall remain responsible for any failure by any Person who receives Confidential Information pursuant to this Article 11 to treat such Confidential Information as required under this Article 11.  Notwithstanding anything in this Agreement to the contrary, Pharmacopeia may, in its sole discretion, disclose summaries of data or Confidential Information generated by Pharmacopeia in connection with the performance of this Agreement in non-confidential corporate presentations.

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If and whenever any Confidential Information is disclosed in accordance with this Section 11.2, such disclosure shall not cause any such information to cease to be Confidential Information except to the extent that such disclosure results in a public disclosure of such information (otherwise than by breach of this Agreement).  Where reasonably possible and subject to Section 11.4, the Receiving Party shall notify the Disclosing Party of the Receiving Party’s intent to make such disclosure pursuant to paragraphs (a) through (d) of this Section 11.2 sufficiently prior to making such disclosure so as to allow the Disclosing Party adequate time to take whatever action it may deem appropriate to protect the confidentiality of the information.

11.3Terms of this Agreement.  The Parties acknowledge that the terms of this Agreement shall be treated as Confidential Information of both Parties.

11.4Securities Filings.  In the event either Party proposes to file with the Securities and Exchange Commission or the securities regulators of any state or other jurisdiction a registration statement or any other disclosure document which describes or refers to this Agreement under the Securities Act of 1933, as amended, the Securities Exchange Act, of 1934, as amended, or any other applicable Laws, the Party shall notify the other Party of such intention and shall provide such other Party with a copy of relevant portions of the proposed filing not less than *** (***) business days prior to such filing (and any revisions to such portions of the proposed filing a reasonable time prior to the filing thereof), including any exhibits thereto relating to this Agreement, and shall use reasonable efforts to obtain confidential treatment of any information concerning this Agreement that such other Party requests be kept confidential, and shall only disclose Confidential Information which it is advised by counsel is legally required to be disclosed.  No such notice shall be required under this Section 11.4 if the substance of the description of or reference to this Agreement contained in the proposed filing has been included in any previous filing made by the other Party hereunder or otherwise approved by the other Party.

11.5Publication.

11.5.1Publication by BMS.  BMS may publish or present data and/or results relating to a Licensed Compound or Licensed Product in scientific journals and/or at scientific conferences, subject to the prior review and comment by Pharmacopeia as follows.  BMS shall provide Pharmacopeia with the opportunity to review any proposed abstract, manuscript or presentation which discloses information relating to a Licensed Compound or Licensed Product by delivering a copy thereof to Pharmacopeia no less than *** (***) days before its intended submission for publication or presentation.  Pharmacopeia shall have *** (***) days from its receipt of any such abstract, manuscript or presentation in which to notify BMS in writing of any specific objections to the disclosure.  In the event Pharmacopeia objects to the disclosure in writing within such *** (***) day period, BMS agrees not to submit the publication or abstract or make the presentation containing the objected-to information until the Parties have agreed to the content of the proposed disclosure, and BMS shall delete from the proposed disclosure any Pharmacopeia Confidential Information or BMS Know-How or the identity of any Licensed Compound or Licensed Product, upon reasonable request by Pharmacopeia.  Once any such abstract or manuscript is accepted for publication, BMS will provide Pharmacopeia with a copy of the final version of the manuscript or abstract.  For clarification, this Section 11.5.1 shall not limit or restrict BMS’ ability to publish or present publicly information on compounds which are not Licensed Compounds or Licensed Products, provided such publication or presentation does not contain Pharmacopeia Confidential Information (including BMS Know-How) or identify any Licensed Compound or Licensed Product.  Notwithstanding the foregoing or any other provision of this Agreement (including but not limited to Article 11), BMS shall have the right at its sole discretion to publish or otherwise publicly disclose any licensed BMS Know-How at any time after the second anniversary of the Effective Date.

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11.5.2Publication by Pharmacopeia.  Pharmacopeia may publish or present data and/or results relating to a Licensed Compound or Licensed Product in scientific journals and/or at scientific conferences, subject to the prior review and comment by BMS as follows.  Pharmacopeia shall provide BMS with the opportunity to review any proposed abstract, manuscript or presentation which discloses information relating to a Licensed Compound or Licensed Product by delivering a copy thereof to BMS no less than *** (***) days before its intended submission for publication or presentation.  BMS shall have *** (***) days from its receipt of any such abstract, manuscript or presentation in which to notify Pharmacopeia in writing of any specific objections to the disclosure, such objections to be limited to matters involving the disclosure of BMS Confidential Information, or a good faith and documented concern by BMS that such publication would otherwise result in material commercial harm to BMS.  In the event BMS objects to the disclosure in writing within such *** (***) day period, Pharmacopeia agrees not to submit the publication or abstract or make the presentation containing the objected-to information until the Parties have agreed to the content of the proposed disclosure, and Pharmacopeia shall delete from the proposed disclosure any BMS Confidential Information upon the reasonable request by BMS.  The Parties agree to take all reasonable steps to address and resolve a notice of objection by BMS within *** (***) days of receipt of such notice.  Once any such abstract or manuscript is accepted for publication, Pharmacopeia will provide BMS with a copy of the final version of the manuscript or abstract.

ARTICLE 12

INDEMNITY

12.1Pharmacopeia Indemnity.  Pharmacopeia shall indemnify, defend and hold harmless BMS and its Affiliates, and their respective officers, directors, employees, agents, licensors, and their respective successors, heirs and assigns and representatives, from and against any and all claims, damages, losses, suits, proceedings, liabilities, costs (including, without limitation, reasonable legal expenses, costs of litigation and reasonable attorney’s fees) or judgments, whether for money or equitable relief, of any kind, arising out of any claim, action, lawsuit or other proceeding brought by a Third Party (“Losses and Claims”) arising out of or relating, directly or indirectly, (i) to the research, Development, Commercialization (including, without limitation, promotion, advertising, offering for sale, sale or other disposition), transfer, importation or exportation, manufacture, labeling, handling or storage, or use of, or exposure to, any Licensed Compound and/or any Licensed Product by or for Pharmacopeia or any of its Affiliates, Sublicensees, agents and/or contractors, (ii) to Pharmacopeia’s (or its Affiliates’ and/or Sublicensees’) use and practice otherwise of the BMS Patent Rights and/or BMS Know-How, including, without limitation, claims based on (A) product liability, bodily injury, risk of bodily injury, death or property damage, (B) infringement or misappropriation of Third Party patents, copyrights, trademarks or other intellectual property rights, or (C) the failure to comply with applicable Laws related to the matters referred to in the foregoing clauses (i) and (ii) with respect to any Licensed Compound and/or any Licensed Product, or (iii) Pharmacopeia’s gross negligence, recklessness or willful misconduct or Pharmacopeia’s material breach of any representation or warranty set forth in this Agreement; except in any such case for Losses and Claims to the extent reasonably attributable to BMS having committed an act or acts of gross negligence, recklessness or willful misconduct or having materially breached any representation or warranty set forth in this Agreement.

12.2BMS Indemnity.  BMS shall indemnify, defend and hold harmless Pharmacopeia and its Affiliates, and their respective officers, directors, employees, agents, licensors, and their respective successors, heirs and assigns and representatives, from and against any and all Losses and Claims arising out of or relating, directly or indirectly to (i) BMS’ gross negligence, recklessness or willful misconduct; (ii) BMS’ material breach of any representation or warranty set forth in this Agreement; or (iii) products under development by BMS, alone or in collaboration with Third Parties, involving the BMS Patent

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Rights or BMS Know-How, other than Licensed Products,  except in any such case for Losses and Claims to the extent reasonably attributable to Pharmacopeia having committed an act or acts of gross negligence, recklessness or willful misconduct or having materially breached any representation or warranty set forth in this Agreement.

12.3Indemnification Procedure.  A claim to which indemnification applies under Section 12.1 or Section 12.2 shall be referred to herein as an “Indemnification Claim”.  If any Person or Persons (collectively, the “Indemnitee”) intends to claim indemnification under this Article 12, the Indemnitee shall notify the other Party (the “Indemnitor”) in writing promptly upon becoming aware of any claim that may be an Indemnification Claim (it being understood and agreed, however, that the failure by an Indemnitee to give such notice shall not relieve the Indemnitor of its indemnification obligation under this Agreement except and only to the extent that the Indemnitor is actually prejudiced as a result of such failure to give notice).  The Indemnitor shall have the right to assume and control the defense of the Indemnification Claim at its own expense with counsel selected by the Indemnitor and reasonably acceptable to the Indemnitee, provided, however, that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitee, if representation of such Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between such Indemnitee and any other party represented by such counsel in such proceedings.  If the Indemnitor does not assume the defense of the Indemnification Claim as aforesaid, the Indemnitee may defend the Indemnification Claim but shall have no obligation to do so.  The Indemnitee shall not settle or compromise the Indemnification Claim without the prior written consent of the Indemnitor, and the Indemnitor shall not settle or compromise the Indemnification Claim in any manner which would have an adverse effect on the Indemnitee’s interests (including without limitation any rights under this Agreement or the scope or enforceability of the BMS Patents Rights or BMS Know-How), without the prior written consent of the Indemnitee, which consent, in each case, shall not be unreasonably withheld or delayed.  The Indemnitee shall reasonably cooperate with the Indemnitor at the Indemnitor’s expense and shall make available to the Indemnitor all pertinent information under the control of the Indemnitee, which information shall be subject to Article 11.

12.4Insurance.  Pharmacopeia shall, beginning with the initiation of the first clinical trial for a Licensed Product, maintain at all times thereafter during the term of the Agreement, and until the later of (i) *** (***) years *** or (ii) the date that ***, comprehensive general liability insurance from a recognized, creditworthy insurance company, on a claims-made basis, with endorsements for contractual liability and product liability, and with coverage limits of not less than *** to the extent that the *** and *** thereafter.  The minimum level of insurance set forth herein shall not be construed to create a limit on Pharmacopeia’s liability hereunder.  Within ten (10) days following written request from BMS, Pharmacopeia shall furnish to BMS a certificate of insurance evidencing such coverage as of the date.  Pharmacopeia shall use commercially reasonable efforts to cause such certificate of insurance, as well as any certificates evidencing new coverages of Pharmacopeia, to include a provision whereby thirty (30) days’ written notice shall be received by BMS prior to coverage cancellation by either Pharmacopeia or the insurer and of any new coverage.  In the case of a cancellation of such coverage, Pharmacopeia shall promptly provide BMS with a new certificate of insurance evidencing that Pharmacopeia’s coverage meets the requirements in the first sentence of this Section.

ARTICLE 13

TERM AND TERMINATION

13.1Term.  This Agreement shall commence as of the Effective Date and, unless sooner terminated in accordance with the terms hereof or by mutual written consent, shall continue until Pharmacopeia no longer has an obligation to make any payments to BMS.

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13.2Termination By BMS.

13.2.1Termination for Insolvency of Pharmacopeia.  BMS shall have the right to terminate this Agreement with respect to any or all licenses granted to Pharmacopeia pursuant to Article 2 of this Agreement, at BMS’ sole discretion, upon delivery of written notice to Pharmacopeia upon the filing by Pharmacopeia in any court or agency pursuant to any statute or regulation of the United States or any other jurisdiction a petition in bankruptcy or insolvency or for reorganization or similar arrangement for the benefit of creditors or for the appointment of a receiver or trustee of Pharmacopeia or its assets, or if Pharmacopeia is served with an involuntary petition against it in any insolvency proceeding, upon the ninety-first (91st) day after such service if such involuntary petition has not previously been stayed or dismissed, or upon the making by Pharmacopeia of an assignment of substantially all of its assets for the benefit of its creditors.

13.2.2Termination for Breach by Pharmacopeia.

(a)Breach of this Agreement.  Subject to Section 13.2.3 below, BMS shall have the right to terminate this Agreement with respect to any or all licenses granted to Pharmacopeia pursuant to Article 2 of this Agreement, ***, upon delivery of written notice to Pharmacopeia in the event of any *** of this Agreement, provided that such breach has not been cured within ninety (90) days after written notice thereof is given by BMS to Pharmacopeia (the “Cure Period”) specifying the nature of the alleged breach, provided, however, that to the extent such *** involves the failure to make a payment when due, such breach must be cured within thirty (30) days after written notice thereof is given by BMS to Pharmacopeia.  Notwithstanding the foregoing, in the event a *** by Pharmacopeia (other than a breach that involves the failure to make a payment when due) cannot reasonably be cured within the ninety (90) day period after written notice thereof is given by BMS to Pharmacopeia, the Agreement shall continue and shall not be terminated for a period reasonably required by Pharmacopeia to cure such breach, so long as Pharmacopeia is undertaking in good faith the steps and following the timelines specified in writing by BMS to reasonably cure said breach. If, however, at any time after the initial ninety (90) day period Pharmacopeia ceases to use diligent efforts to take the agreed upon steps to cure the breach, BMS may terminate this Agreement immediately upon written notice to Pharmacopeia.

(b)Breach of the Discovery Collaboration.

(i)Subject to Section 13.2.3 below, BMS shall have the right to terminate this Agreement with respect to any or all licenses granted to Pharmacopeia pursuant to Article 2 of this Agreement, at BMS’ sole discretion, upon thirty (30) days prior written notice to Pharmacopeia in the event BMS has previously delivered to Pharmacopeia final notice under Section 9.3 of the Discovery Collaboration of any material and uncured breach by Pharmacopeia of any terms and conditions of the Discovery Collaboration (such breach to be determined in accordance with the terms of the Discovery Collaboration).

(ii)Notwithstanding BMS’ right to terminate this Agreement pursuant to clause (i) above, in the event that Pharmacopeia reasonably believes that the alleged breach of the Discovery Collaboration is not curable, and Pharmacopeia desires to maintain the licenses granted hereunder, the Parties shall determine an *** hereunder.  The amount of ***.  In the event that the Parties are unable to ***.  BMS will *** is finally determined.

13.2.3Disputed Breach.  If Pharmacopeia disputes in good faith the existence or materiality of a breach specified in a notice provided by BMS pursuant to Section 13.2.2, and Pharmacopeia provides notice to BMS of such dispute within the applicable thirty (30) day or ninety (90) day period, BMS shall not have the right to terminate this Agreement unless and until the existence of

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such material breach or failure by Pharmacopeia has been determined in accordance with Section 14.2 and Pharmacopeia fails to cure such breach within *** (***) days following such determination (except to the extent such breach involves the failure to make a payment when due, which breach must be cured within *** (***) days following such determination).  It is understood and acknowledged that during the pendency of such a dispute, all of the terms and conditions of this Agreement shall remain in effect and the Parties shall continue to perform all of their respective obligations hereunder.  The Parties further agree that any payments that are made by one Party to the other Party pursuant to this Agreement pending resolution of the dispute shall be promptly refunded if an arbitrator or court determines pursuant to Section 14.2 that such payments are to be refunded by one Party to the other Party.

13.2.4BMS’ right to terminate the Agreement under this Section 13.2 shall be subject to Section 2.2(b)(vi).

13.3Termination by Pharmacopeia.

13.3.1Termination Without Cause.  At Pharmacopeia’s discretion, on a country-by-country and product-by-product basis (including, for example, all Licensed Compounds within specified BMS Patent Rights), effective upon *** (***) months prior written notice in the case where Approval has not been obtained for the applicable Licensed Product or upon *** (***) months prior written notice in the case where Approval has been obtained for the applicable Licensed Product, Pharmacopeia may terminate this Agreement for any reason; provided, however, that (i) no such *** and (ii) no such ***.

13.3.2Termination For Breach by BMS.  In addition, Pharmacopeia may terminate this Agreement in the event of material breach by BMS, provided that such breach has not been cured within ninety (90) days after written notice thereof is given by Pharmacopeia to BMS.  Notwithstanding the foregoing, if BMS disputes in good faith the existence or materiality of such breach and provides notice to Pharmacopeia of such dispute within such ninety (90) day period, Pharmacopeia shall not have the right to terminate this Agreement in accordance with this Section 13.3.2 unless and until it has been determined in accordance with Section 14.2 that this Agreement was materially breached by BMS and BMS fails to cure such breach within ninety (60) days following such determination.  It is understood and acknowledged that during the pendency of such a dispute, all of the terms and conditions of this Agreement shall remain in effect and the Parties shall continue to perform all of their respective obligations hereunder.  The Parties further agree that any payments that are made by one Party to the other Party pursuant to this Agreement pending resolution of the dispute shall be promptly refunded if an arbitrator or court determines pursuant to Section 14.2 that such payments are to be refunded by one Party to the other Party.  In the case where the material breach (other than a breach that involves the failure to make a payment when due) cannot reasonably be cured within the ninety (90) day period after written notice thereof is given by Pharmacopeia to BMS, the Agreement shall continue and shall not be terminated for a period reasonably required by BMS to cure such breach, so long as BMS is undertaking in good faith the steps and following the timelines specified in writing by Pharmacopeia to reasonably cure said breach. If, however, at any time after the initial ninety (90) day period BMS ceases to use diligent efforts to take the agreed upon steps to cure the breach, Pharmacopeia may terminate this Agreement immediately upon written notice to BMS.

13.4Effect of Termination.  Upon termination of this Agreement or any right or license pursuant to Section 13.2 or 13.3, the rights and obligations of the Parties shall be as set forth in this Section 13.4.

13.4.1Upon termination of this Agreement, either in its entirety or with respect to one or more applicable countries (each, a “Terminated Country”) pursuant to Section 13.2 or 13.3 hereof (the

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rights and obligations of the Parties as to the remaining countries of the Territory in which termination under Section 13. 3 has not occurred, being unaffected by such termination), the following shall apply:

(a)All rights and licenses granted to Pharmacopeia in Article 2 shall terminate with respect to each Terminated Country (subject to Section 2.2(b)(v)), all rights of Pharmacopeia under the BMS Patent Rights, BMS Other Patent Rights and BMS Know-How with respect to each Terminated Country shall revert to BMS, and Pharmacopeia shall cease all use of the BMS Patent Rights, BMS Other Patent Rights and BMS Know-How with respect to each Terminated Country.  To the extent that there remain any countries in the Territory that are not Terminated Countries (“Remaining Countries”), all such rights and licenses shall remain in place with respect to the Remaining Countries.

(b)All regulatory filings (including, without limitation, all INDs and NDAs) and Approvals and other documents reasonably available to Pharmacopeia and necessary to further develop and commercialize Licensed Compounds and Licensed Products, as they exist as of the date of such termination, and all of Pharmacopeia’s right, title and interest therein and thereto, in each Terminated Country shall be assigned to BMS, and Pharmacopeia shall provide to BMS one (1) copy of the foregoing documents and filings and all documents and filings contained in or referenced in any such filings, together with the raw and summarized data for any preclinical and clinical studies of the Licensed Compounds and such Licensed Products (and where reasonably available, electronic copies thereof).  BMS shall have the right to obtain specific performance of Pharmacopeia’s obligations referenced in this Section 13.4.1(b) and/or in the event of failure to obtain assignment, Pharmacopeia hereby consents and grants to BMS the right to access and reference (without any further action required on the part of Pharmacopeia, whose authorization to file this consent with any Regulatory Authority is hereby granted) any and all such regulatory filings for any regulatory or other use or purpose, provided that, if BMS reasonably deems it necessary, Pharmacopeia will provide written confirmation to the Regulatory Authority for such transfer.  In addition, upon request by BMS, Pharmacopeia shall grant to BMS the right to access and reference any other documents (including but not limited to regulatory filings) that are available to Pharmacopeia and reasonably necessary for BMS to further Develop, manufacture and Commercialize the Licensed Compounds and Licensed Products in each Terminated Country.  Without limiting the foregoing in this paragraph, to the extent applicable, Pharmacopeia’s obligations under Section 10.6 shall continue.

(c)All amounts due or payable to BMS prior to the effective date of termination shall remain due and payable, but (except as otherwise expressly provided herein) no additional amounts shall be payable.

(d)Should Pharmacopeia have any inventory of any Licensed Compound allocated for use in clinical trials in a Terminated Country, Pharmacopeia shall offer to sell such Licensed Compounds to BMS at Pharmacopeia’s fully burdened cost (but BMS shall be under no obligation to purchase same unless it agrees to do so in writing at such time).

(e)Should Pharmacopeia have any inventory of any Licensed Product approved and allocated prior to termination in a Terminated Country, Pharmacopeia shall have six (6) months thereafter in which to dispose of such inventory (subject to the payment to BMS of any royalties due hereunder thereon), provided however that such Licensed Product shall not be sold at a discount to a purchaser that is greater than the average discount provided to such purchaser for the Licensed Product in such country during the 12 month period preceding such termination and, in addition, such sales shall not result in the applicable wholesaler inventory levels for such Licensed Product exceeding 120% of the average levels for the 12 month period preceding such termination.

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(f)With respect to a Terminated Country, the Parties shall diligently negotiate in good faith and on commercially reasonable terms (i) a license from Pharmacopeia to BMS of Pharmacopeia Know-How (as defined below) Controlled by Pharmacopeia and in existence as of the date of such termination, including but not limited to Pharmacopeia’s manufacturing processes, techniques and trade secrets for making Licensed Compounds and Licensed Products and Pharmacopeia Know-How relating to any composition, formulation, method of use or manufacture of such Licensed Compounds and such Licensed Products, (ii) a license under the Pharmacopeia Patent Rights (as defined below) Covering the Licensed Compounds and/or Licensed Products in such Terminated Country (including the use and manufacture thereof), and (iii) the assignment of Pharmacopeia’s rights in any Licensed Product trademarks, whether registered or unregistered with respect to such Terminated Country, provided however, that it is understood that neither Party shall be obligated to enter into any such license or assignment.  The Parties will use good faith efforts to effect such license within ninety (90) days after the date of such termination.  For the purposes of the foregoing:

“Pharmacopeia Know-How” means all processes, techniques and know-how Controlled by Pharmacopeia and/or its Affiliates as of the date of termination that are reasonably necessary for the research, manufacture, Development and/or Commercialization of the Licensed Compounds and/or the Licensed Products.  Pharmacopeia Know-How shall not include information and know-how that is acquired or developed by Pharmacopeia after the date of termination; and

“Pharmacopeia Patent Rights” means (i) those patents and patent applications Controlled by Pharmacopeia and/or its Affiliates as of the date of termination that are reasonably necessary for the research, manufacture, Development and/or Commercialization of the Licensed Compounds and/or the Licensed Products; (ii) any patent application that claims priority to any of the patents and patent applications included in clause (i) above (including any divisional, continuation, or continuation-in-part patent application), and foreign counterparts thereof (but in each case, only with respect to claims in such application or foreign counterparts thereof that cover subject matter within the scope of the claims in the patents and patent applications included in clause (i) above), and (iii) all patents issuing on any of the foregoing patent applications which are included in clauses (i) and (ii) above, together with all registrations, reissues, re-examinations, supplemental protection certificates, or extensions thereof, and any foreign counterparts thereof (but in each case, only with respect to claims in such patents or foreign counterparts thereof that cover subject matter within the scope of the claims in the patents and patent applications included in clause (i) of this definition).

(g)If Pharmacopeia has the capability as of the date of termination to commercially manufacture and supply Licensed Compounds and/or Licensed Products, upon request by BMS, Pharmacopeia shall enter into good faith negotiations with BMS with respect to the terms and conditions of an agreement for Pharmacopeia to supply to BMS Licensed Compounds and/or Licensed Products for use and sale in the Terminated Countries, at a supply price and term to be negotiated in good faith.

(h)Pharmacopeia shall provide to BMS all data generated during the term of this Agreement relating to the Licensed Compounds and the Licensed Products and assign (or, if applicable, cause its Affiliate to assign) to BMS all of Pharmacopeia’s (and such Affiliate’s) entire right, title and interest in and to all such data in each Terminated Country.

(i)Neither Party shall be relieved of any obligation that accrued prior to the effective date of such termination or expiration.

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(j)Each Party shall have the right to retain all amounts previously paid to it by the other Party, subject to any applicable determination of an arbitrator or court pursuant to Section 14.2.

(k)It is understood and agreed that BMS shall be entitled to *** as a remedy to enforce the provisions of this Section 13.4, ***.

13.5Scope of Termination.  Except as otherwise expressly provided herein, termination of this Agreement shall be as to all countries in the Territory and all Licensed Compounds and Licensed Products.

13.6Survival.  The following provisions shall survive termination or expiration of this Agreement, as well as any other provision which by its terms or by the context thereof, is intended to survive such termination: Article 1 (as applicable), Section 2.3(b)(v), Article 5 (with respect to obligations arising prior to expiration or termination of this Agreement), Article 8 (with respect to obligations arising prior to expiration or termination of this Agreement), Section 9.4, Section 9.5, Section 10.1, Section 10.4.4 (with respect to an action, suit or proceeding commenced prior to termination), Section 10.7, Article 11, Article 12 (with respect to Losses and Claims arising from activities and breaches that take place prior to expiration or termination of this Agreement), this Section 13.6, Section 13.7, Article 14 and Article 15.  Termination or expiration of this Agreement shall not relieve the Parties of any liability or obligation which accrued hereunder prior to the effective date of such termination or expiration nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity, subject to Section 14.2, with respect to any breach of this Agreement nor prejudice either Party’s right to obtain performance of any obligation.  All other obligations shall terminate upon expiration of this Agreement.

13.7Bankruptcy. The Parties agree that in the event a Party becomes a debtor under Title 11 of the U.S. Code (“Title 11”), this Agreement shall be deemed to be, for purposes of Section 365(n) of Title 11, a license to rights to “intellectual property” as defined therein.  Each Party as a licensee hereunder shall have the rights and elections as specified in Title 11.  Any agreements supplemental hereto shall be deemed to be “agreements supplementary to” this Agreement for purposes of Section 365(n) of Title 11.

ARTICLE 14

DISPUTE RESOLUTION; ARBITRATION

14.1Resolution by Senior Executives.  Other than (i) determinations made by ***, respectively; (ii) pursuit of equitable relief as provided in Section 14.2(g); and (iii) a dispute governed by expedited arbitration in accordance with Section 14.3 below, in the event of any dispute between the Parties in connection with this Agreement, the construction hereof, or the rights, duties or liabilities of either Party hereunder, the Parties shall first attempt in good faith to resolve such dispute by negotiation and consultation between themselves.  In the event that such dispute is not resolved on an informal basis within *** (***) Business Days, either Party may, by written notice to the other Party, refer the dispute to the *** of Pharmacopeia and the *** of BMS or other designated officer of BMS for attempted resolution by good faith negotiation within *** (***) days after such notice is received.

14.2Arbitration.  Other than (i) determinations made by ***, respectively; (ii) pursuit of equitable relief as provided in Section 14.2(g); (iii) disputes regarding the validity, scope or enforceability of intellectual property rights or regarding confidentiality obligations and (iv) expedited arbitration in accordance with Section 14.3 below, if any dispute between the Parties relating to or arising out this

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Agreement cannot be resolved in accordance with Section 14.1, either Party may submit such dispute for resolution through binding arbitration as set forth in Sections 14.2 and 14.3, as applicable.  Notwithstanding the foregoing and for the avoidance of doubt, either Party may submit any dispute to which Section 13.2.2(b) applies for resolution through binding arbitration as set forth in this Section 14.2.

(a)A Party may submit such dispute to arbitration by notifying the other Party, in writing, of such dispute.  Within thirty (30) days after receipt of such notice, the Parties shall designate in writing a single arbitrator to resolve the dispute; provided, however, that if the Parties cannot agree on an arbitrator within such thirty (30) day period, the arbitrator shall be selected by the New York, NY office of the American Arbitration Association (the “AAA”) or, if such office does not exist or is unable to make a selection, by the office of the AAA nearest to New York City.  The arbitrator shall be a lawyer knowledgeable and experienced in the applicable Laws concerning the subject matter of the dispute.  In any case the arbitrator shall not be an Affiliate, employee, consultant, officer, director or stockholder of either Party, or otherwise have any current or previous relationship with either Party or their respective Affiliates.  The governing law in Section 15.7 shall govern any such proceedings.  The language of the arbitration shall be English.

(b)Within thirty (30) days after the designation of the arbitrator, the arbitrator and the Parties shall meet, and each Party shall provide to the arbitrator a written summary of all disputed issues, such Party’s position on such disputed issues and such Party’s proposed ruling on the merits of each such issue.

(c)The arbitrator shall set a date for a hearing, which shall be no later than thirty (30) days after the submission of written proposals pursuant to Section 14.2(b), for the presentation of evidence and legal argument concerning each of the issues identified by the Parties.  The Parties shall have the right to be represented by counsel.  Except as provided herein, the arbitration shall be governed by the Commercial Arbitration Rules of the AAA applicable at the time of the notice of arbitration pursuant to Section 14.2(a); provided, however, that the Federal Rules of Evidence shall apply with regard to the admissibility of evidence in such hearing.

(d)The arbitrator shall use his or her best efforts to rule on each disputed issue within thirty (30) days after completion of the hearing described in Section 14.2(c).  The determination of the arbitrator as to the resolution of any dispute shall be binding and conclusive upon all Parties.  All rulings of the arbitrator shall be in writing and shall be delivered to the Parties except to the extent that the Commercial Arbitration Rules of the AAA provide otherwise.  Nothing contained herein shall be construed to permit the arbitrator to award punitive, exemplary or any similar damages.

(e)The (i) attorneys’ fees of the Parties in any arbitration, (ii) fees of the arbitrator and (iii) costs and expenses of the arbitration shall be borne by the Parties in a proportion determined by the arbitrator.

(f)Any arbitration pursuant to this Section 14.2 shall be conducted in Princeton, New Jersey.  Any arbitration award may be entered in and enforced by a court in accordance with Section 15.8.

(g)Notwithstanding anything in this Article 14, each Party shall have the right to seek injunctive or other equitable relief from a court of competent jurisdiction pursuant to Section 15.8 that may be necessary to avoid irreparable harm, maintain the status quo or preserve the subject matter of the arbitration, including any breach or threatened breach of Section 11.1 or 13.4.

14.3Expedited Arbitration.  The Parties agree that it is important to be able to clarify any disputes regarding *** quickly.  Accordingly, if:

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(i)  BMS ***;

(ii)  ***; or

(iii)  ***,

then the Parties shall resolve such dispute in accordance with this Section 14.3.

Arbitration under this Section 14.3 shall be conducted in the same manner and subject to the same terms and conditions as arbitration under Section 14.2, provided that:

(a)the Parties shall designate in writing a single arbitrator within fifteen (15) days of written notice of the dispute;

(b)the arbitrator and the Parties shall meet, and each Party shall provide to the arbitrator a written summary of all disputed issues, such Party’s position on such disputed issues and such Party’s proposed ruling on the merits of each such issue within fifteen (15) days after the designation of the arbitrator;

(c)the arbitrator shall use his or her best efforts to rule on each disputed issue within fifteen (15) days after completion of the hearing described in Section 14.2(c);

(d)the arbitrator shall select one of the requested positions as his decision, and shall not have the authority to render any substantive decision other than to so select the position of either BMS or Pharmacopeia; and

(e)the Parties shall use good faith efforts to complete arbitration under this Section 14.3 within sixty (60) days following a request by any Party for such arbitration.

14.4In an arbitration procedure under Section 14.3, in the event that the arbitrator determines that BMS has failed to act in good faith with respect to its performance under Section 3.1, the following shall apply:  (a) the provisions of Section 3.1 shall terminate and (b) all other provisions of this Agreement shall remain in full force and effect.  For purposes of clarity, the foregoing shall be in addition to and shall in no way limit any ruling of the arbitrator in accordance with Section 14.3.

ARTICLE 15

MISCELLANEOUS

15.1Severability.  If any one or more of the provisions of this Agreement is held to be invalid or unenforceable, the provision shall be considered severed from this Agreement and shall not serve to invalidate any remaining provisions hereof.  The Parties shall make a good faith effort to replace any invalid or unenforceable provision with a valid and enforceable one such that the objectives contemplated by the Parties when entering this Agreement may be realized.

15.2Notices.  Any notice required or permitted to be given by this Agreement shall be in writing and shall be delivered by hand or overnight courier with tracking capabilities or mailed postage prepaid by first class, registered or certified mail addressed as set forth below unless changed by notice so given:

If to Pharmacopeia:

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Pharmacopeia, Inc.

3000 Eastpark Boulevard

Cranbury, New Jersey 08512

Attention:  Chief Executive Officer

Telephone:  ***

Facsimile:  ***

With a copy to:

Pharmacopeia, Inc.

3000 Eastpark Boulevard

Cranbury, New Jersey 08512

Attention:  Executive Vice President and General Counsel

Telephone:  ***

Facsimile:  ***

If to BMS:

Bristol-Myers Squibb Company
P.O. Box 4000

Route 206 & Province Line Road

Princeton, New Jersey 08543-4000
Attention:  Vice President and Head of Business Development

Telephone:  ***
Facsimile:  ***

With a copy to:

Bristol-Myers Squibb Company

P.O. Box 4000
Route 206 & Province Line Road

Princeton, New Jersey 08543-4000
Attention:  Vice President & Senior Counsel, Corporate and Business Development
Telephone:  ***
Facsimile:  ***

Any such notice shall be deemed given on the date received.  A Party may add, delete, or change the person or address to whom notices should be sent at any time upon written notice delivered to the Party’s notices in accordance with this Section 15.2.

15.3Force Majeure.  Neither Party shall be liable for delay or failure in the performance of any of its obligations hereunder if such delay or failure is due to causes beyond its reasonable control, including, without limitation, acts of God, fires, earthquakes, strikes and labor disputes, acts of war, terrorism, civil unrest or intervention of any governmental authority (“Force Majeure”); provided, however, that the affected Party promptly notifies the other Party and further provided that the affected Party shall use its commercially reasonable efforts to avoid or remove such causes of non-performance and to mitigate the effect of such occurrence, and shall continue performance with the utmost dispatch whenever such causes are removed.  When such circumstances arise, the Parties shall negotiate in good faith any modifications of the terms of this Agreement that may be necessary or appropriate in order to arrive at an equitable solution.

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15.4Assignment.

15.4.1BMS may, without Pharmacopeia’s consent, assign or transfer all of its rights and obligations hereunder, in connection with any transfer of all of the BMS Patent Rights and BMS Know-How, to any Affiliate of BMS or to any Third Party (including, without limitation, a successor in interest); provided, however, that such assignee or transferee agrees in writing to be bound by the terms of this Agreement.

15.4.2Upon thirty (30) days advance written notice to BMS and subject to BMS’ approval, such approval not to be unreasonably withheld, delayed or conditioned, Pharmacopeia may assign or transfer all of its rights and obligations hereunder to any Third Party, provided however, that, (i) Pharmacopeia’s rights and obligations under this Agreement shall be assumed by the Third Party assignee, (ii) such assignment includes, without limitation, all Approvals and all rights and obligations under this Agreement, (iii) such Third Party shall have agreed prior to such assignment or transfer to be bound by the terms of this Agreement in  writing, and (iv) Pharmacopeia remains responsible for the performance of this Agreement.

15.4.3Notwithstanding the provisions of Section 15.4.2 above, Pharmacopeia may assign or transfer all of its rights and obligations hereunder without BMS’ consent to an Affiliate of Pharmacopeia or in connection with a Change of Control of Pharmacopeia, provided however, that (i) Pharmacopeia’s rights and obligations under this Agreement shall be assumed by its successor in interest and shall not, unless consented to pursuant to Section 15.4.2, be transferred separate from all or substantially all of its other business assets, (ii) such assignment includes, without limitation, all Approvals and all rights and obligations under this Agreement, (iii) such successor in interest or Affiliate shall have agreed prior to such assignment or transfer to be bound by the terms of this Agreement in writing, and (iv) where this Agreement is assigned or transferred to an Affiliate, Pharmacopeia remains responsible for the performance of this Agreement.

15.4.4Subject to the foregoing, this Agreement shall inure to the benefit of and be binding on the Parties’ successors and assigns.  Any assignment or transfer in violation of the foregoing shall be null and void and wholly invalid, the assignee or transferee in any such assignment or transfer shall acquire no rights whatsoever, and the non-assigning non-transferring Party shall not recognize, nor shall it be required to recognize, such assignment or transfer.

15.5Further Assurances.  Each Party agrees to do and perform all such further acts and things and shall execute and deliver such other agreements, certificates, instruments and documents necessary or that the other Party may deem advisable in order to carry out the intent and accomplish the purposes of this Agreement and to evidence, perfect or otherwise confirm its rights hereunder.

15.6Waivers and Modifications.  The failure of any Party to insist on the performance of any obligation hereunder shall not be deemed to be a waiver of such obligation.  Waiver of any breach of any provision hereof shall not be deemed to be a waiver of any other breach of such provision or any other provision on such occasion or any succeeding occasion.  No waiver, modification, release or amendment of any obligation under or provision of this Agreement shall be valid or effective unless in writing and signed by all Parties hereto.

15.7Choice of Law.  This Agreement shall be governed by, enforced, and shall be construed in accordance with the laws of the State of Delaware without regard to its conflicts of law provisions.

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15.8Jurisdiction.

15.8.1Any suit, action or other proceeding relating to a dispute regarding the validity, scope or enforceability of intellectual property rights or regarding confidentiality obligations shall not be subject to the provisions of this Section 15.8.1 and Section 15.8.2.  Unless the Parties otherwise agree in writing, each Party, for the purpose of enforcing an award under Section 14.2 or for seeking injunctive or other equitable relief as permitted under Section 14.2(g), hereby irrevocably submits to the exclusive jurisdiction of (i) the Supreme Court of the State of New York, New York County or the Supreme Court or Chancery Court of the State of Delaware (each a “State Court”), and (ii) the United States District Court for the Southern District of New York or the U.S. District Court for the District of Delaware (each a “District Court”), for the purposes of any suit, action or other proceeding arising out of this Agreement or out of any transaction contemplated hereby.  Each Party agrees to commence any such action, suit or proceeding either in a District Court or if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in a State Court.

Each Party further agrees that service of any process, summons, notice or document by personal delivery, by registered mail, or by a recognized international express delivery service to such Party’s respective address set forth above shall be effective service of process for any action, suit or proceeding in the applicable District Court or State Court with respect to any matters to which it has submitted to jurisdiction in this Section.  Each Party irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in the applicable District Court or State Court, and hereby and thereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

15.8.2Each Party hereto hereby waives to the fullest extent permitted by applicable Laws, any right it may have to a trial by jury in respect to any litigation directly or indirectly arising out of, under or in connection with this Agreement.  Each Party hereto (i) certifies that no representative, agent or attorney of the other Party has represented, expressly or otherwise, that such other Party would not, in the event of litigation, seek to enforce that foregoing waiver and (ii) acknowledges that it and the other Party hereto have been induced to enter into this Agreement, as applicable, by, among other things, the mutual waivers and certifications in this Section 15.8.

15.9Publicity.  Within thirty (30) days of the Effective Date Pharmacopeia shall issue a press release regarding the execution of this Agreement (including the Discovery Collaboration) in substantially the form of the press release approved by the Parties prior to the Effective Date.  Subject to the provisions of Sections 11.2 and 11.5, each Party agrees not to otherwise issue any other press release or public statement disclosing the existence of this Agreement or any other information relating to this Agreement, the other Party, or the transactions contemplated hereby without the prior written consent of the other Party, provided, however, that any disclosure which is required by applicable Laws or the rules of a securities exchange, as reasonably advised by the disclosing Party’s counsel, may be made subject to the following.  The Parties agree that any such required disclosure will not contain confidential business or technical information and, if disclosure of confidential business or technical information is required by applicable Laws, the Parties will use appropriate diligent efforts to minimize such disclosure and obtain confidential treatment for any such information which is disclosed to a governmental agency.  Each Party agrees to provide to the other Party a copy of any public announcement regarding this Agreement or the subject matter thereof as soon as reasonably practicable under the circumstances prior to its scheduled release.  Except under extraordinary circumstances, or as otherwise required under applicable Laws or the rules of a securities exchange, each Party shall provide the other with an advance copy of any such announcement at least five (5) business days prior to its scheduled release.  Each Party shall have the right to expeditiously review and recommend changes to any such announcement and, except as otherwise

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required by applicable Laws or the rules of a securities exchange, the Party whose announcement has been reviewed shall remove any Confidential Information of the reviewing Party that the reviewing Party reasonably deems to be inappropriate for disclosure.  The contents of any announcement or similar publicity which has been reviewed and approved by the reviewing Party can be re-released by either Party without a requirement for re-approval.  Nothing in this Section 15.9 shall be construed to prohibit Pharmacopeia or its Affiliates or Sublicensees from making a public announcement or disclosure regarding the stage of development of Licensed Products in Pharmacopeia’s (or its Affiliates’ or Sublicensees’) product pipeline or disclosing clinical trial results regarding such License Products, as may be required by applicable Laws or the rules of a securities exchange, as reasonably advised by Pharmacopeia’s (or its Affiliates’ or Sublicensees’) counsel.

15.10Relationship of the Parties.  Each Party is an independent contractor under this Agreement.  Nothing contained herein is intended or is to be construed so as to constitute BMS and Pharmacopeia as partners, agents or joint venturers.  Neither Party shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other Party or to bind the other Party to any contract, agreement or undertaking with any Third Party.

15.11Headings.  Headings and captions are for convenience only and are not be used in the interpretation of this Agreement.

15.12Entire Agreement.  This Agreement (including all Appendices attached hereto, which are incorporated herein by reference) (i) sets forth all of the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto, (ii) constitutes and contains the complete, final and exclusive understanding and agreement of the Parties with respect to the subject matter herein and (iii) cancels, supersedes and terminates all prior agreements and understanding between the Parties with respect to the subject matter hereof.  For the avoidance of doubt, the confidentiality agreements entered into by BMS and Pharmacopeia on July 2, 007 (the “Confidentiality Agreement”) shall remain in effect with respect to all Confidential Information (as that term is defined in the Confidentiality Agreements) disclosed by the Parties that does not pertain to the subject matter of this Agreement.  All Confidential Information (as that term is defined in the Confidentiality Agreement) pertaining to the subject matter of this Agreement disclosed to BMS by Pharmacopeia under the Confidentiality Agreement shall be considered Confidential Information (as that term is defined in this Agreement) of Pharmacopeia disclosed under this Agreement and shall be subject to the terms and conditions of this Agreement; and all Confidential Information (as that term is defined in the Confidentiality Agreement) pertaining to the subject matter of this Agreement disclosed to Pharmacopeia by BMS under the Confidentiality Agreement shall be considered Confidential Information (as that term is defined in this Agreement) of BMS disclosed under this Agreement and shall be subject to the terms and conditions of this Agreement.  There are no covenants, promises, agreements, warranties, representations, conditions or understandings, whether oral or written, between the Parties other than as set forth herein.  No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties hereto unless reduced to writing and signed by the respective authorized officers of the Parties.

15.13Counterparts.  This Agreement may be executed in counter-parts with the same effect as if both Parties had signed the same document.  All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument.

15.14Nonsolicitation.  During the *** (***) *** period following the Effective Date, each Party agrees that neither it nor any of its Affiliates shall knowingly recruit, solicit or induce, directly or indirectly, any employee of the other Party or any of its Affiliates directly involved in the research or Development activities with respect to Licensed Compounds to terminate his or her employment with the

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other Party or such Affiliate and become employed by or consult for such Party or any of its Affiliates.  For purposes of the foregoing, “recruit”, “solicit” or “induce” shall not be deemed to mean (i) circumstances where an employee of a Party or any of its Affiliates initiates contact with the other Party or any of its Affiliates with regard to possible employment, or (ii) general solicitations of employment not specifically targeted at employees of the other Party or any of its Affiliates, including responses to general advertisements.

15.15Exports.  Pharmacopeia agrees not to export or re-export, directly or indirectly, any information, technical data, the direct product of such data, samples or equipment received or generated under this Agreement in violation of any applicable export control Laws.

15.17Discovery Collaboration Activities to be Performed by Pharmacopeia.  In partial consideration of the license rights granted by BMS to Pharmacopeia under this Agreement, Pharmacopeia shall participate in and perform activities under the Discovery Collaboration.  The obligations of Pharmacopeia to perform the activities pursuant to the Discovery Collaboration under this Section 15.17 shall survive any termination of this Agreement.

15.18Interpretation.

15.18.1  Each of the Parties acknowledges and agrees that this Agreement has been diligently reviewed by and negotiated by and between them, that in such negotiations each of them has been represented by competent counsel and that the final agreement contained herein, including the language whereby it has been expressed, represents the joint efforts of the Parties hereto and their counsel.  Accordingly, in interpreting this Agreement or any provision hereof, no presumption shall apply against any Party hereto as being responsible for the wording or drafting of this Agreement or any such provision, and ambiguities, if any, in this Agreement shall not be construed against any Party, irrespective of which Party may be deemed to have authored the ambiguous provision.

15.18.2  The definitions of the terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have the same meaning and effect as the word “shall”.  The word “any” shall mean “any and all” unless otherwise clearly indicated by context.

15.18.3  Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or therein), (b) any reference to any Laws (including any European Community Directives) herein shall be construed as referring to such Laws as from time to time enacted, repealed or amended, (c) any reference herein to any person shall be construed to include the person’s successors and assigns, (d) 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, and (e) all references herein to Articles, Sections or Appendices, unless otherwise specifically provided, shall be construed to refer to Articles, Sections and Appendices of this Agreement.

Signature Page Follows

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IN WITNESS WHEREOF, the Parties have caused this License Agreement to be executed by their respective duly authorized officers.

PHARMACOPEIA, INC.
By:	/s/ Leslie J. Browne
		(Signature)
Name:	Leslie J. Browne, Ph.D.
Title:	President and Chief Executive Officer

BRISTOL-MYERS SQUIBB COMPANY
By:	/s/ Graham R. Brazier
		(Signature)
Name:	Graham R. Brazier
Title:	Vice President & Head of Business
	Development

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Appendix 1

BMS Patent Rights

BMS Patent Docket #	Patent/Application No.	Priority Date	PCT publication date
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***
***	***	***	***

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Appendix 2

LISTED COMPOUNDS

***	***
***	***
***	***
***	***
***	***
***	***
***	***
***	***

46

Appendix 3

Discovery Collaboration Agreement

(incorporated by reference to Exhibit 10.46 to Pharmacopeia, Inc.’s Report on Form 10-K for the year ended December 31, 2007)

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EX-10.46

EXHIBIT 10.46

Portions of this Exhibit were omitted and filed separately with the Secretary of the Commission pursuant to an application for confidential treatment filed with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.  Such omissions are designated as ***.

DISCOVERY COLLABORATION AGREEMENT

between

PHARMACOPEIA, INC.

and

BRISTOL-MYERS SQUIBB COMPANY

DISCOVERY COLLABORATION AGREEMENT

THIS DISCOVERY COLLABORATION AGREEMENT (the “Agreement”) is made and entered into effective as of October 11, 2007 (the “Effective Date”), by and between Bristol-Myers Squibb Company, a Delaware Corporation (“BMS”) and Pharmacopeia, Inc., a Delaware Corporation (“Pharmacopeia”).  BMS and Pharmacopeia each may be referred to herein individually as a “Party,” or collectively as the “Parties.”

WHEREAS, Pharmacopeia and BMS are parties to that certain License Agreement, under which Pharmacopeia has agreed to perform under this Agreement as partial consideration for BMS providing the licenses granted in the License Agreement;

WHEREAS, Pharmacopeia and BMS each desire to collaborate in the performance of a Research Program for the purpose of discovery of Research Compounds suitable for development for human therapeutic uses, with the objective of identifying one or more Research Compounds for BMS to advance into human clinical trials; and

WHEREAS, BMS will have exclusive rights and will be solely responsible for the clinical development and commercialization of products incorporating Research Compounds worldwide, in each case on the terms set forth in this Agreement.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, the Parties do hereby agree as follows.

ARTICLE 1 - DEFINITIONS

The terms used in this Agreement with initial letters capitalized, whether used in the singular or the plural, shall have the meaning set forth below, or if not listed below, the meaning designated in places throughout the Agreement.

“Affiliate” of an entity means any other entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such first entity.  For purposes of this definition only, “control” (and, with correlative meanings, the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct the management or policies of an entity, whether through the ownership of voting securities or by contract relating to voting rights or corporate governance.

“Alliance Manager” has the meaning set forth in Section 3.5.

“Applicable Law” or “Law” means all applicable laws, statutes, rules, regulations and other pronouncements having the effect of law of any federal, national, multinational, state, provincial, county, city or other political subdivision, agency or other body, domestic or foreign, including but not limited to any applicable rules, regulations, guidelines, or other requirements of the Regulatory Authorities that may be in effect from time to time, but excluding patent laws.

“BMS Compound(s)” means any chemical compound, a physical sample or the structure of which is *** or otherwise ***.  BMS Compounds shall not include any ***.

“BMS Materials” has the meaning set forth in Section 3.9.

“Business Day” means any day, other than Saturday, Sunday or any statutory holiday in the United States.

“Calendar Quarter” means the respective periods of three consecutive calendar months ending on March 31, June 30, September 30 and December 31.

“Calendar Year” means each successive period of 12 months commencing on January 1 and ending on December 31.

“Commercially Reasonable Efforts” means the carrying out of the research activities in accordance with the Research Plan and under the direction of the JRC using ***.

“Confidential Information” means all information and Know-How and any tangible embodiments thereof provided by or on behalf of the Disclosing Party to the Receiving Party either in connection with the discussions and negotiations pertaining to this Agreement or in the course of performing this Agreement, including without limitation data; knowledge; practices; processes; ideas; research plans; engineering designs and drawings; research data; manufacturing processes and techniques; scientific, manufacturing, marketing and business plans; and financial and personnel matters relating to the Disclosing Party or to its present or future products, sales, suppliers, customers, employees, investors or business; regardless of whether any of the foregoing are marked “confidential” or “proprietary” or communicated to the other by the Disclosing Party in oral, written, graphic or electronic form.  For all purposes of this Agreement, the structure of the BMS Compounds and Research Compounds and the Research Results shall be treated as being Confidential Information of BMS.

Notwithstanding the foregoing, information or Know-How of a Party will not be deemed Confidential Information for purposes of this Agreement to the extent that the Receiving Party can show by competent proof that such information or Know-How:

(a)was already known to the Receiving Party or any of its Affiliates, without any obligation to the Disclosing Party to keep it confidential or restricting its use, prior to the time of disclosure to such Receiving Party;

(b)was generally available or known to parties reasonably skilled in the field to which such information or Know-How pertains, or was otherwise part of the public domain, at the time of its disclosure to the Receiving Party;

(c)became generally available or known to parties reasonably skilled in the field to which such information or Know-How pertains, or otherwise became part of the public domain, after its disclosure to such Receiving Party through no fault of the Receiving Party;

(d)was disclosed to such Receiving Party or any of its Affiliates by a Third Party lawfully in possession thereof, and was not obtained indirectly or directly from the Disclosing Party or in connection with the Research Program; or

(e)was independently discovered or developed outside of the Research Program by employees or (sub)contractors of the Receiving Party or any of its Affiliates, without the aid, application or use of Confidential Information of the Disclosing Party.

“Derived” means, with respect to a particular Research Compound, the identification of a follow-up compound that (i) *** or (ii) ***, in each case whether or not such follow-up compound is ***.

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“Disclosing Party” has the meaning set forth in Section 7.1.

“Discovery Collaboration” means the collaborative discovery research activities to be conducted by the Parties pursuant to this Agreement.

“Dollars” or “$” means the lawful currency of the United States.

“ECN” means a compound that has been designated as an Early Candidate Nomination (or other equivalent designation as may be in effect at the applicable time) by BMS, such that such compound has been shown to meet the internal standards and criteria established by BMS to qualify such compound for ***.

“ECN Milestone” has the meaning set forth in Section 5.1.

“Effective Date” means the date specified in the initial paragraph of this Agreement.

“Extended Research Term” has the meaning set forth in Section 3.2.

 “FTE” means the equivalent of the work of one (1) employee working on a dedicated full time basis for one (1) year (consisting of at least a total of *** (***) hours per year of dedicated effort, excluding vacations and holidays) of work on or directly related to the Research Plan.  No one person will be permitted to account for more than *** (***) hours of FTE contribution per year.   Any person who devotes less than *** hours per year shall be treated as an FTE on a pro-rata basis, based upon the actual number of hours worked directly related to the Research Program divided by ***.  Scientific work performed in the performance of the Research Program by an FTE may include, but is not limited to, ***.

“FTE Rate” means the rate at which BMS would fund Pharmacopeia FTEs during any Extended Research Term.  The FTE Rate will be negotiated between the parties no later than thirty (30) days prior to the start of the Extended Research term and will be a fully burdened rate (including any overhead, laboratory supply costs, etc.) based on the average full-time equivalent rate charged to all Third Parties for whom Pharmacopeia is conducting research services and for which the basis of any research funding to be provided to Pharmacopeia by such Third Party is an FTE rate applicable to a defined number of Pharmacopeia full-time equivalents committed to such research services.  If any Subcontractor FTEs are to be utilized during the Extended Research Term, the FTE Rate will include any costs incurred by Pharmacopeia related to such Subcontractor FTEs.

“Initiation Date” has the meaning set forth in Section 3.2.

“Joint Invention” has the meaning set forth in Section 8.1.

“Joint Patent” has the meaning set forth in Section 8.1.

“Joint Research Committee” or “JRC” has the meaning set forth in Section 3.3.

“Know-How” means technical information, results and materials, including without limitation, technology, software, instrumentation, devices, data, biological materials, assays, constructs, compounds, unpatented inventions, practices, methods, knowledge, know-how, trade secrets, skill and experience.

“License Agreement” means that certain license agreement between BMS and Pharmacopeia related to selective androgen receptor modulator compounds of even date herewith.

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“Losses” has the meaning set forth in Section 10.1.

“Objective” has the meaning set forth in Section 3.1.1.

“Patents” means (a) patents and patent applications in any country or jurisdiction, (b) all priority applications, divisionals, continuations, and continuations-in-part of any of the foregoing, and (c) all patents issuing on any of the foregoing patent applications, together with all registrations, reissues, renewals, re-examinations, confirmations, supplementary protection certificates, and extensions of any of (a), (b) or (c).  Patents shall not include any Know-How.

“Person” means any individual, firm, corporation, partnership, limited liability company, trust, business trust, joint venture company, governmental authority, association or other entity.

“Pharmacopeia Compound”  means any chemical compound that, as of the time BMS ***.

“Pharmacopeia Inventions” has the meaning set forth in Section 8.1.

“Pharmacopeia Know-How” means any Know-How and works of authorship created, used or generated by Pharmacopeia’s employees or Subcontractors in the course of the Research Program(s).

“Pharmacopeia Program Patent(s)” has the meaning set forth in Section 8.1.

“Pharmacopeia Research Personnel” has the meaning set forth in Section 3.7.1.

“Product” shall mean a pharmaceutical product incorporating a BMS Compound or Research Compound, or a compound Derived by BMS from a Research Compound.

“Program Inventions” has the meaning set forth in Section 8.1.

“Receiving Party” has the meaning set forth in Section 7.1.

“Regulatory Authority” or “Regulatory Authorities” shall mean the Food and Drug Administration (the “FDA”) in the U.S., and any health regulatory authority(ies) in any foreign country that is a counterpart to the FDA and holds responsibility for granting regulatory marketing approval for a Product in such country, and any successor(s) thereto.

“Research Compound” means any chemical compound created or identified by ***.  For avoidance of doubt, Research Compounds shall include ***.  Such alternate forms may include any ***.  Research Compounds shall not include any ***.

“Research Plan” has the meaning set forth in Section 3.6.

“Research Program” has the meaning set forth in Section 3.1.1.

“Research Results” means all data, information, trade secrets, inventions and Know-How which are discovered, made, reduced to practice, identified or developed in whole or in part by Pharmacopeia (including any Subcontractor) or BMS in the course of the performance of the Research Program.

“Research Target” means any drug target which is the focus of a Research Program pursuant to this Agreement.

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“Research Term” will have the meaning set forth in Section 3.2.

“Research Year” means each 12 month period during the Research Term, with the first Research Year beginning on the Initiation Date.

“Senior Representatives” has the meaning set forth in Section 12.4.

“Subcontractor” has the meaning set forth in Section 3.7.2.

“Substitute Research Program” has the meaning set forth in Section 3.1.3.

“Term” has the meaning set forth in Section 9.1.

“Third Party(ies)” means any Person other than Pharmacopeia or BMS or their respective Affiliates.

“Working Group” has the meaning set forth in Section 3.4.

ARTICLE 2 -
GRANT OF RIGHTS; EXCLUSIVITY

Section 2.1Assignment to BMS.  Pharmacopeia agrees to assign, and hereby does assign, to BMS all right, title and interest in and to all Research Compounds, including any Pharmacopeia Program Patents and Pharmacopeia’s interest in any Joint Patents which claim the composition-of-matter or a method-of-use of any Research Compound.

Section 2.2Exclusive License Grant to BMS.  Pharmacopeia agrees to grant, and hereby does grant, to BMS and its Affiliates an exclusive (even as to Pharmacopeia), worldwide, perpetual, royalty-free license (including the right to sublicense) under such Research Results (including the Pharmacopeia Know-How), and any Pharmacopeia Program Patents or Joint Patents, other than those assigned pursuant to Section 2.1, that are necessary for BMS to make, have made, and use BMS Compounds or Research Compounds in order to make, have made, use, import, export, offer for sale and sell Products.

Section 2.3Non-Exclusive License Grant to BMS.  Pharmacopeia agrees to grant, and hereby does grant, to BMS and its Affiliates a non-exclusive, worldwide, perpetual, royalty-free license (including the right to sublicense) under such Research Results (including the Pharmacopeia Know-How), and any Pharmacopeia Program Patents or Joint Patents, other than those assigned pursuant to Section 2.1 or licensed pursuant to Section 2.2, that are useful, but not necessary, for BMS to make, have made, and use BMS Compounds or Research Compounds in order to make, have made, use, import, export, offer for sale and sell Products.

Section 2.4Research Exclusivity.  During the Term and continuing thereafter for a period of *** (***) ***, Pharmacopeia agrees that it will not ***.

Section 2.5Exception for JAK-3 Kinase Inhibitors.  BMS acknowledges that, pursuant to a Research and License Agreement dated December 22, 2006 between Pharmacopeia and Wyeth, Pharmacopeia is not permitted to grant any license or right, to any party other than Wyeth, under any Patents or Know-How controlled by Pharmacopeia, to any compound having as its primary mechanism of action JAK-3 kinase inhibitory activity or to any method of making or using such a

5

compound.  Therefore, it is understood and agreed that the assignment and license provisions of Sections 2.1 through 2.3 shall not apply to (i) any compound determined to have, as its primary mechanism of action, JAK-3 kinase inhibitory activity or (ii) any method of making or using such a compound.

Section 2.6Third Party Rights.

2.6.1Overlapping Rights.  It is understood that Pharmacopeia is in the business of discovering pharmaceutically active compounds for Third Parties, and that Pharmacopeia may grant Third Parties rights to such compounds comparable to those rights granted to BMS herein.  Notwithstanding the assignments in favor of, and licenses granted to, BMS pursuant to Sections 2.1 through 2.3 above, it is possible that a Third Party may acquire rights from Pharmacopeia with respect to one or more compounds of which Pharmacopeia is a sole or joint owner, which compounds were identified independently of Pharmacopeia’s activities and knowledge gained under the Discovery Collaboration. Accordingly, Pharmacopeia’s grant of rights under Sections 2.1 through 2.3 shall be limited, and shall be subject to any grant of rights to a Third Party, to the extent that (i) such Third Party (either alone or jointly with Pharmacopeia) has filed a patent application with respect to such a compound prior to the filing by BMS (either alone or jointly with Pharmacopeia) of a patent application with respect to such a compound, or (ii) Pharmacopeia has previously granted such Third Party a license or other rights with respect to such a compound.

2.6.2No Liability.  It is understood and agreed that, even if Pharmacopeia complies with its obligations under this Agreement, including its obligations under Section 2.4, compounds provided to Third Parties in the course of Pharmacopeia’s other business activities may result in patent applications and patents owned by such Third Parties, or owned jointly by Pharmacopeia and such Third Parties, which could conflict with patent applications and patents owned by BMS, or jointly owned by BMS and Pharmacopeia hereunder.  Pharmacopeia shall use its reasonable efforts to avoid such conflict; provided, that unless BMS is damaged as a proximate result of a material breach by Pharmacopeia of Section 2.4, Section 3.9, Section 9.4.2, Article 7 or of any of the representations and warranties in Article 11, then Pharmacopeia shall have no liability under this Agreement with respect to any such conflict.

Section 2.7No Implied Licenses.  Only the licenses granted pursuant to the express terms of this Agreement shall be of any legal force or effect.  No other license rights shall be created by implication, estoppel or otherwise.

ARTICLE 3 -
RESEARCH PROGRAM

Section 3.1Research Program.

3.1.1During the Research Term, the Parties will collaborate in carrying out a research program to discover and preclinically develop Research Compounds against a Research Target as described in the Research Plan (the “Research Program”).  The objective of the Research Program will be to *** (the “Objective”).  The Research Program will be carried out in accordance with the Research Plan, as may be amended by the JRC.  BMS will provide BMS Compounds which it has identified as having activity against the Research Target, and the design and prioritization of Research Compounds will be done by the Working Group.  Pharmacopeia’s role in the Research Program will focus on the synthesis of Research Compounds with respect to the Research Target.

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3.1.2Within thirty (30) days after BMS’ disclosure to Pharmacopeia of the applicable BMS Compounds, Pharmacopeia will provide to BMS a listing of any Pharmacopeia Compounds that Pharmacopeia believes could be encompassed by a reasonable medicinal chemistry program of the type to be performed in the Research Program.  The listing of Pharmacopeia Compounds shall be deemed to be Confidential Information of Pharmacopeia.  Pharmacopeia will retain ownership of all Pharmacopeia Compounds. No Pharmacopeia Compound shall be deemed to be a BMS Compound or a Research Compound, and Pharmacopeia Compounds shall not be included in any of the assignment of rights or licenses to BMS pursuant to Sections 2.1 through 2.3.  No Pharmacopeia Compounds will be evaluated in the course of the Research Program without express written permission of BMS.

3.1.3In the event that the JRC determines that the Research Program with respect to the original Research Target has failed to meet the Objective or cannot or should not, based on good faith reasonable commercial or development considerations, be further progressed by or on behalf of BMS, BMS will have sixty (60) days from such decision in which to substitute another research project into the Research Program subject to approval of the new Research Program by Pharmacopeia (the “Substitute Research Program”).  BMS may use its discretion in the selection of the Substitute Research Program, provided that, (i) such Substitute Research Program is not directed to the same drug target that is the subject of an active (at the time of such selection) internal or Third Party collaborative research, development or commercialization program of Pharmacopeia; (ii) such Substitute Research Program is not directed towards a drug target for which Pharmacopeia has an obligation to any Third Party not to conduct any research, development or commercialization; and (iii) such Substitute Research Program does not (in the opinion of counsel selected by Pharmacopeia) infringe valid claims of any Third Party intellectual property, unless BMS first obtains a license reasonably satisfactory to Pharmacopeia at BMS’s sole cost and expense or BMS agrees to indemnify Pharmacopeia against any claims arising from the alleged infringement of such Third Party intellectual property.  For any proposed Substitute Research Programs, Pharmacopeia will provide notice to BMS if the proposed Substitute Research Program must be excluded due to one of clauses (i) — (iii) above within fifteen (15) Business Days of the Substitute Research Program being proposed, and such Substitute Research Program thereafter shall be subject to Section 3.1.2 above.  In the event that (a) a Substitute Research Program has been included in the Discovery Collaboration, and (b) at any time during Pharmacopeia’s performance of such Substitute Research Program, BMS conducts (or has conducted on its behalf) activities to further progress the Research Program with respect to the original Research Target, BMS shall promptly report to Pharmacopeia such activities with respect to the original Research Target.

3.1.4The Research Program will be conducted by each Party in good scientific manner, and in compliance with all applicable safety rules and practices, and in accordance with Applicable Law, to attempt to achieve efficiently and expeditiously the objectives of the Research Program.  Each Party will comply with all Applicable Laws, in the performance of work under this Agreement.

3.1.5Each Party will maintain laboratories, offices and all other facilities at its own expense and risk necessary to carry out its responsibilities under the Research Program pursuant to the Research Plan.  Each Party agrees to make its employees reasonably available at their respective places of employment to consult with the other Party on issues arising during the performance of the Research Program.  BMS and Pharmacopeia will cooperate with each other in carrying out the Research Program, and each Party will contribute its relevant Know-How and experience necessary to carry out the Research Program.

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Section 3.2Research Term.

3.2.1Subject to Section 3.2.2 below, the term of the Research Program will extend until the earlier of (i) the expiration of the three (3) year period following an initiation date (the “Initiation Date”) to be agreed upon by the Parties (such Initiation Date not to be later than January 1, 2008), or (ii) the JRC’s determination that the Research Program has successfully met the Objective (the “Research Term”).

3.2.2In the event that  the JRC determines that (x) the Research Program has failed to meet the Objective or (y) that the Research Program cannot or should not be further progressed, and BMS has substituted a new Research Program into the Discovery Collaboration pursuant to Section 3.1.3, such new Research Program shall continue for the unexpired remainder of the original three (3) years from the Initiation Date.  BMS will not be required to pay any additional consideration to Pharmacopeia for any such remainder of the Research Term.

3.2.3BMS shall have the right to extend the Research Term for up to one year beyond the expiration of the original three (3) year term (the “Extended Research Term”) by (i) providing written notice to Pharmacopeia of BMS’s desire to so extend at least one hundred twenty (120) days before the expiration of the original three (3) year term and (ii) paying Pharmacopeia’s FTE Rate for all Pharmacopeia Research Personnel during the Extended Research Term for activities conducted under the Research Program, pursuant to Sections 3.7.1(b) and 3.7.3(b)(ii).

Section 3.3Joint Research Committee.

3.3.1Formation and Purpose.  The Parties will establish and maintain a joint research committee (the “Joint Research Committee” or “JRC”), which shall oversee the activities of the Parties under the Research Program and progress towards meeting the Objective.  The JRC shall have the membership and shall operate by the procedures set forth in this Section 3.3.    The JRC shall be dissolved at the end of the Research Term unless otherwise agreed to by the Parties.

3.3.2Specific Responsibilities of the JRC.  In addition to its overall responsibility for the Research Program, the JRC shall, in particular, during the Research Term (including any Extended Research Term):

(i)   oversee the activities of the Working Group;

(ii)   resolve any disputes or disagreements relating to the Research Program that are submitted to it by the Working Group or a Party;

(iii)   modify the Research Plan as necessary, but in no event shall such modification increase the *** or be contrary to the intent and purpose of this Agreement;

(iv)   determine the status of the Research Program to meet the Objective, including determination of success, failure and whether the Research Program cannot, or should not, be further progressed; in determining whether the Research Program can, or should, be further progressed, the JRC may consider factors such as commercial factors and risks related to the Research Target and safety concerns among others;  and

(v)   review of Program Inventions and the filing of Program Patents.

Other than the obligations under (i), (ii) and (iv) above, the JRC may delegate its obligations under this Agreement to the Working Group or any other subcommittee.

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3.3.3Decisions of the JRC.  The JRC shall make its decision on matters within its purview only after the JRC discusses such matters and only after reasonably considering each Party’s comments (through its JRC members) on such matters.  All decisions by the JRC must be consistent with the terms of this Agreement, and may not modify the terms and conditions of this Agreement or the rights and obligations of a Party under this Agreement.

3.3.4JRC Membership and Procedures.

a.Membership.  Pharmacopeia and BMS shall *** with appropriate expertise to serve as members of the JRC.  Each Party may replace any of its JRC representatives at any time upon written notice to the other Party.  BMS shall select ***.  The chairperson of the JRC (or his/her designees) shall be responsible for calling meetings, preparing and circulating an agenda in advance of each meeting of the JRC, and preparing and issuing minutes of each meeting within thirty (30) days thereafter; provided that the JRC chairperson shall call a meeting of the JRC promptly upon the written request of a Pharmacopeia JRC representative to convene such a meeting.  Such minutes will not be finalized until both chairpersons review and confirm the accuracy of such minutes in writing.

b.Meetings.  The JRC shall hold meetings at such times as it elects to do so, but in no event shall such meetings be held less frequently than once every ***.  The JRC shall meet alternately at Pharmacopeia’s facilities in New Jersey and BMS’ facilities in New Jersey or at such locations as the Parties may otherwise agree.  Other employees of each Party involved in the development of Research Compounds may attend meetings of the JRC as nonvoting participants.  Each Party shall be responsible for all of its own expenses of participating in the JRC.  Meetings of the JRC may be held by audio or video teleconference with the consent of each Party; provided that at least one (1) meeting of the JRC per Calendar Year shall be held in person.  A quorum for a meeting of the JRC requires the presence of at least one representative of each Party.

c.Decision-Making.  Each Party’s representatives on the JRC shall, *** present at the meeting.  Except as otherwise expressly provided in this Agreement, the JRC shall operate as to matters within its jurisdiction by ***; provided, that the JRC shall not have the authority to amend or modify, or waive compliance with, this Agreement other than to modify the Research Plan, but only as permitted by this Agreement.  Further, no decision of the JRC shall violate or breach any provision of this Agreement.  In the event of a failure of the JRC to reach agreement on any issue, such dispute shall be subject to the dispute resolution provisions set forth in Section 12.4., including any disputes concerning the validity, interpretation or construction of, or the compliance with or breach of, this Agreement.

d.Meeting Agendas.  Each Party will disclose to the other proposed agenda items along with appropriate information at least five (5) Business Days in advance of each meeting of the JRC; provided that under exigent circumstances requiring JRC input, a Party may provide its agenda items to the other Party within a lesser period of time in advance of the meeting, or may propose that there not be a specific agenda for a particular meeting, so long as such other Party consents to such later addition of such agenda items or the absence of a specific agenda for such JRC meeting.

Section 3.4Research Program Working Group.

3.4.1Membership.  A working group will be established immediately after the formation of the JRC (the “Working Group”).  The Working Group will have ***.  The key responsibility of the Working Group will be the day-to-day execution of the Research Plan.  The Working Group will report directly to the JRC and will present its progress against the Research Plan to the JRC *** during the term of the Research Program.  The chairpersons of the Working Group will designate

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employees from BMS and Pharmacopeia to be members of the Working Group as needed to get proper representation on the Working Group for all expertise needed to execute the Research Plan.    In addition, from time to time, the Working Group may establish and delegate duties to sub-committees on an “as-needed” basis to oversee particular projects or activities.  Each such sub-committee shall be constituted and shall operate as the Working Group determines.  Sub-committees may be established on an ad hoc basis for purposes of a specific project or on such other basis as the Working Group may determine.  The Working Group and each sub-committee and their activities shall be subject to the oversight, review and approval of, and shall report to, the JRC.  Decisions of the Working Group and each sub-committee shall be reached by consensus between the Parties’ representatives.  In the case of a non-concurrence in the Working Group, or in a sub-committee, the issue shall be referred for a decision to the JRC.  In no event shall the authority of the Working Group exceed that specified for the JRC in this Article 3.  The Working Group shall hold meetings at such times as it elects to do so approximately on a monthly basis as needed.  Meetings of the Working Group may be held by audio or video teleconference or in person at a location agreed to by the chairpersons; provided that at least one (1) meeting of the Working Group per year shall be held in person.  Each Party shall be responsible for all of its own expenses of participating in the Working Group.  A quorum for a meeting of the Working Group requires the presence of at least one representative of each Party.

3.4.2Interactions Between the JRC and the Working Group, and Internal Teams.  The Parties recognize that while they will establish the JRC,  the Working Group, and sub-committees of the Working Group for the purpose of the Research Program, each Party possesses an internal structure (including without limitation various committees, teams and review boards) that will be involved in administering such Party’s activities under this Agreement.  The JRC and the chairpersons of the Working Group shall establish procedures to facilitate communications between the JRC and the Working Group and any relevant internal committee, team or board in order to maximize the efficiency of the Research Program, including without limitation by requiring appropriate members of the JRC, the Working Group, or any sub-committee of the JRC to be available at reasonable times and places and upon reasonable prior notice for making appropriate oral reports to, and responding to reasonable inquiries from, the relevant internal committee, team or board.  Furthermore, the JRC and the Working Group will establish the necessary working level contacts between the two Parties to ensure that necessary day-to-day interactions will occur in implementing the Research Plan.

Section 3.5Alliance Managers.  Each Party shall have the right, but not the obligation, to appoint one representative who possesses a general understanding of the scientific and business issues relevant to this Agreement to act as its respective alliance manager (each, an “Alliance Manager”) for the relationship of the Parties under this Agreement.  Each Party may change its designated Alliance Manager, who may not be a member of the JRC, from time to time upon notice to the other Party.  Any Alliance Manager may designate a substitute to temporarily perform the functions of that Alliance Manager.  Each Alliance Manager will take responsibility for ensuring that governance activities occur as set forth in this Agreement, in particular ensuring that the JRC meetings occur, and that any conflict is given prompt attention as set forth in Section 3.3.4.  The Alliance Managers shall be entitled to attend meetings of the JRC, but shall not have, or be deemed to have, any rights or responsibilities of a member of the JRC.  Similarly, the Alliance Managers may attend meetings of the Working Group or any subcommittees of the JRC.  Each Alliance Manager may bring any matter to the attention the JRC where such Alliance Manager reasonably believes that such matter requires such attention.  For purposes of clarification, in no event will the Alliance Managers have the power or authority to amend any provision of this Agreement.

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Section 3.6Research Plan.

3.6.1The Research Program will be carried out in accordance with a written research plan (the “Research Plan”).  The initial Research Plan agreed to by the Parties as of the Effective Date is attached hereto as Appendix 1 and is hereby incorporated into this Agreement by reference and is made a part of this Agreement.  The purpose of the Research Plan is to detail the responsibilities and activities of Pharmacopeia and BMS with respect to carrying out the Research Program.  The Research Plan will include a description of the specific activities to be performed by the Parties in support of the Research Program, the allocation of Pharmacopeia Research Personnel to perform such activities, and projected timelines for completion of such activities and the desired specifications for the Research Compounds.  At least once each Research Year (starting in Calendar Year 2008), the JRC will review and, if necessary, update the Research Plan.  The Research Plan may only be *** and is subject to Section 3.7.1 below.  The Working Group may ***.

3.6.2In addition, at least six (6) months prior to the beginning of any Extended Research Term, the JRC will begin the process of updating the Research Plan for such Extended Research Term (if applicable).  At least three (3) months prior to the beginning of any Extended Research Term, the JRC will have agreed on an updated Research Plan for such Extended Research Term (as applicable).

Section 3.7Research Staffing; Funding.

3.7.1Staffing.

a.During the Research Term.  Pharmacopeia will provide *** (***) ***, of which *** (collectively, “Pharmacopeia Research Personnel”) per Research Year during the Research Term to perform activities in support of the Research Program, in accordance with the then-current Research Plan.    The Pharmacopeia Research Personnel dedicated to the Research Program cannot be reduced during the Research Term without express written consent of BMS.  Throughout the Research Term, Pharmacopeia shall assign, as Pharmacopeia Research Personnel, no fewer than the number of FTE qualified scientists specified in this Section 3.7.1 to perform the work set forth in the then-applicable Research Plan.  The mixture of skills and levels of the Pharmacopeia Research Personnel shall be appropriate to the scientific objectives of the Research Program.  No later than sixty (60) days following the end of each Calendar Quarter, during the Research Term Pharmacopeia shall report to the JRC a listing of the FTEs comprising the Pharmacopeia Research Personnel and their percentage of time devoted to working on the Research Program.  If BMS has concern regarding any specific Pharmacopeia Research Personnel assigned to the Research Program, such concerns shall be communicated to the JRC for its consideration.

b.During the Extended Research Term.  At least three (3) months prior to the beginning of an Extended Research Term, if applicable, the JRC shall determine the number of Pharmacopeia Research Personnel to be provided by Pharmacopeia in accordance with Section 3.6.2 above, such number ***, and to be funded by BMS in accordance with Section 3.7.3(b)(ii) below.

3.7.2Subcontracting.  Except as provided in the Research Plan or as may be specifically permitted by the JRC, Pharmacopeia shall be entitled to subcontract to a Third Party (a “Subcontractor”) up to *** (***) *** to conduct any of the work for which it is responsible in the performance of the Research Program (such Subcontractor FTEs to be considered Pharmacopeia Research Personnel for the purposes of this Agreement).  In the case of any subcontracting of Research Program activities by a Party to a Third Party, such Third Party must have entered into a written agreement with

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such Party consistent with the terms and conditions of this Agreement, including provisions (i) protecting and limiting use and disclosure of Confidential Information and Know-How at least to the same extent as under this Agreement, (ii) providing for assignment of all Program Inventions and Program Patents to effect the rights of the Parties under this Agreement, and (iii) obligations regarding the use and transfer of materials consistent with those contained in this Agreement.  Each Party is responsible for compliance by such Third Party with the applicable terms and conditions of this Agreement in the same way and to the same extent as such Party.

3.7.3Funding; Expenses.

a.Responsibility for Expenses for Conduct of Research Program.  Except as set forth in this Section 3.7.3 and as may be otherwise specifically agreed to in writing by Pharmacopeia and BMS, each Party shall bear its own costs incurred in conducting work under the Research Program.

b.Pharmacopeia Research Personnel

(i)   During the Research Term.  Pharmacopeia will bear its own costs, including costs related to the Pharmacopeia Research Personnel (which may include Subcontractor FTEs under Section 3.7.2 above), standard research supplies, consumables and applicable overhead costs, in performing its obligations under the Research Program.

(ii)   During the Extended Research Term. BMS will pay Pharmacopeia in advance for the Pharmacopeia Research Personnel assigned to the Research Program in accordance with Section 3.7.1(b) for each Calendar Quarter (a prorated amount shall be payable for any portion of a Calendar Quarter) of the Extended Research Term at the agreed upon FTE Rate.  Such FTE payment obligation of BMS will be subject to Pharmacopeia providing such qualified Pharmacopeia Research Personnel.  No later than sixty (60) days following the end of each Calendar Quarter, Pharmacopeia will provide BMS with a report of the number of FTEs assigned to the Research Program with a summary of their activities.  Any overpayment by BMS may be applied by BMS to the funding of Pharmacopeia FTEs in a subsequent Calendar Quarter.  If the Parties agree that the activities contemplated by the Research Plan at any time do not justify the number of Pharmacopeia FTEs allocated to the Research Program, the Parties will modify the scope of the Research Plan or adjust the number of Pharmacopeia Research Personnel.

c.Additional Studies.  During the course of the Research Program, the JRC may request that Pharmacopeia conduct studies which Pharmacopeia does not have the necessary internal resources or expertise to conduct (as an example, NovaScreen studies).  In the event that Pharmacopeia needs to engage a Third Party to perform such studies, Pharmacopeia will notify the JRC:   (i) that it does not have the internal resources or expertise to conduct such studies, (ii) the identity of the Third Party that Pharmacopeia proposes to engage in such work, and (iii) the proposed budget for such studies.  If the JRC approves Pharmacopeia’s engagement of the Third Party to conduct such studies and the proposed budget, then BMS will reimburse Pharmacopeia for any external out-of-pocket expenses incurred by Pharmacopeia in undertaking such additional studies which are not carried out by the Pharmacopeia Research Personnel.  Absent such approval by the JRC, Pharmacopeia need not outsource, nor conduct itself, any such additional study.  Further, notwithstanding the preceding sentences, nothing in this Agreement shall be deemed to obligate Pharmacopeia to undertake any study, or to expend its own funds

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to engage a Third Party to conduct any study, that normally would not be performed by Pharmacopeia employees in connection with one of Pharmacopeia’s internal research programs.

d.Synthesis of Research Compounds.  Pharmacopeia will synthesize Research Compounds for testing by BMS in quantities of at least ***.  Upon direction of the Working Group, Pharmacopeia will scale up synthesis of Research Compounds selected by the Working Group to quantities of ***.  If the Working Group directs Pharmacopeia to synthesize quantities of any single Research Compound in excess of 5g, Pharmacopeia will present the JRC with a proposed budget for such synthesis (covering Pharmacopeia’s external out-of-pocket costs to be incurred for such synthesis).  If the JRC approves the budget for such synthesis, then BMS will reimburse Pharmacopeia for its external out-of-pocket expenses incurred by Pharmacopeia in undertaking such synthesis. Absent such approval by the JRC, Pharmacopeia need not outsource, nor conduct itself, any such synthesis.

Section 3.8Research Efforts.  Subject to Section 3.7, each Party shall use good faith Commercially Reasonable Efforts to perform its activities under the Research Program, including its responsibilities under the Research Plan.

Section 3.9Materials Transfer.  In order to facilitate the Research Program, either Party may provide to the other Party certain materials for use by the other Party in furtherance of the Research Program.  All such materials shall be used by the receiving Party in accordance with the terms and conditions of this Agreement solely for purposes of performing its rights and obligations under this Agreement, and the receiving Party shall not transfer such materials to any Third Party unless expressly contemplated by this Agreement or upon the written consent of the supplying Party.

a.Any materials provided by BMS to Pharmacopeia in support of the Research Program, including but not limited to BMS Compounds (such materials being individually and collectively referred to as the “BMS Materials”) shall be used by Pharmacopeia solely for purposes of performing the Research Program and for no other purpose, and any remaining BMS Materials will be returned to BMS (or destroyed as may be requested by BMS in writing) promptly following the end of the Research Term or earlier upon request by BMS.  All information related to such BMS Materials shall be deemed to be BMS Confidential Information.  All such materials must be used with prudence and appropriate caution in any experimental work, since all of their characteristics may not be known.

b.All physical samples of the BMS Compounds and Research Compounds are and will be the property of BMS. In general, physical samples of BMS Compounds and Research Compounds in Pharmacopeia’s possession during the Research Term will be shipped from Pharmacopeia to BMS as the JRC directs.  Any remaining physical samples of Research Compounds or BMS Compounds will be sent to BMS at the end of the Research Term.

Section 3.10Research Program Records.  Pharmacopeia will maintain complete and accurate records of all work conducted in the performance of the Research Program and all results, data, inventions and developments made in the performance of the Research Program.  Such records will be in sufficient detail and in good scientific manner appropriate for patent and regulatory purposes.  Pharmacopeia shall maintain appropriate records sufficient to document the work performed by each of the individuals comprising the FTEs working in support of the Research Program and the time such individuals spent working in support of the Research Program.  Pharmacopeia shall provide BMS the right to inspect such records, and shall provide copies of all requested records, to the extent reasonably required for the performance of BMS’ rights and obligations under this Agreement; provided however, that BMS shall maintain such records and the information of Pharmacopeia in confidence in accordance

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with Article 7 hereof and shall not use such records or information except to the extent otherwise permitted by this Agreement.

Each Party agrees to maintain a policy that requires its employees to record and maintain all data and information developed during the Research Program in such a manner as to enable the Parties to use such records to establish the earliest date of invention and/or diligence to reduction to practice.  At a minimum, the policy shall require such individuals to record all inventions generated by them in standard laboratory notebooks or other suitable means that are dated and corroborated by non-inventors on a regular, contemporaneous basis.

Section 3.11Disclosure of Results of Research Program.  The results of all work performed by the Parties as part of the Research Program shall be promptly disclosed to the other Party in a reasonable manner as such results are obtained.  Pharmacopeia shall provide BMS monthly with reports of the work performed under the Research Program and the Research Results in a format acceptable to the Working Group and JRC.  Pharmacopeia and BMS will provide reports and analyses at each JRC meeting, and more frequently on reasonable request by the JRC, detailing the current status of the Research Program, including but not limited to the utilization of the Pharmacopeia Research Personnel.  Within thirty (30) days following the end of each Calendar Quarter, Pharmacopeia and BMS Alliance Managers and/or JRC members, as applicable, shall exchange and provide to the JRC a report in a mutually acceptable format summarizing in reasonable detail the work performed under the Research Program and results achieved during the preceding Calendar Quarter.  The results, reports, analyses and other information regarding the Research Program disclosed by one Party to the other Party pursuant hereto may be used only in accordance with the rights granted and other terms and conditions under this Agreement.  Upon reasonable request by BMS, Pharmacopeia shall provide BMS with additional data, results and other information with respect to the work performed by Pharmacopeia in the performance of the Research Program.  Any reports required under this Section 3.11 may take the form of and be recorded in minutes of the JRC that will contain copies of any slides relating to the results and presented to the JRC.  Upon direction of the JRC, the Parties will setup and maintain a secure electronic data storage system where the Research Results will be uploaded and stored by each Party, the electronic data storage system will accessible only by the Parties (and any Subcontractors as appropriate).

ARTICLE 4 -
DEVELOPMENT, COMMERCIALIZATION & MANUFACTURING

Section 4.1Development, Commercialization and Regulatory Responsibilities.  Other than Pharmacopeia’s responsibilities under the Research Program, BMS shall have sole responsibility (including without limitation sole responsibility for all funding, resourcing and decision-making) for all further development and commercialization with respect to the BMS Compounds, Research Compounds and Products incorporating a BMS Compound or Research Compound.  BMS will be solely responsible for, and will solely own, all regulatory filings related to BMS Compounds, Research Compounds and Products incorporating a BMS Compound or Research Compound.

ARTICLE 5 -
FINANCIAL PROVISIONS

Section 5.1Milestone Payments by BMS.  Provided that (i) *** and (ii) ***, in the event that ***.  Furthermore, if the ***.  It is understood and agreed that BMS shall not be required to pay more than one set of milestone payments as described in this Section.

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ARTICLE 6 -
PRESS RELEASES & PUBLICATIONS

Section 6.1Press Releases; Public Disclosure.

6.1.1Any press releases or other public statements regarding this Agreement will be made solely pursuant to Section 15.9 of the License Agreement and, except as set forth in Section 15.9 of the License Agreement, each Party agrees not to issue any press release or other public statement disclosing other information relating to this Agreement or the transactions contemplated hereby without the prior written consent of the other Party.

Section 6.2Publication of Research Results.

6.2.1Publication by Pharmacopeia.  Pharmacopeia shall not publish, present or otherwise disclose to the public the Research Results or any information related to the Research Program, including, but not limited to any information related to the BMS Compounds, Research Compounds, strategy, screening tier, and novel assays.

6.2.2Publication by BMS.  BMS will have the sole and exclusive right to publish the Research Results, and all information related to the BMS Compounds and Research Compounds.  Notwithstanding the foregoing, BMS will not publish any Confidential Information of Pharmacopeia, and will not use the name of Pharmacopeia (or any of its directors, employees, or Affiliates) in any such publication without the express written consent of Pharmacopeia.

6.2.3For clarification, this Section 6.2 shall not apply with respect to the use and disclosure of Confidential Information as specifically provided for in Section 6.1 or Article 7 (i.e., a disclosure expressly permitted and made in accordance with Section 6.1 or Article 7).

ARTICLE 7 -
CONFIDENTIALITY

Section 7.1Disclosure and Use Restriction.  Each Party agrees that, for so long as this Agreement is in effect and for a period of *** (***) years thereafter, a Party (the “Receiving Party”) receiving Confidential Information of the other Party (the “Disclosing Party”) shall (i) maintain in confidence such Confidential Information using not less than the efforts such Receiving Party uses to maintain in confidence other proprietary industrial information of similar kind and value, (ii) not disclose such Confidential Information except to the Receiving Party’s employees having a need-to-know such Confidential Information solely for purposes of performing Receiving Party’s obligations under this Agreement, (iii) not disclose such Confidential Information to any Third Party without the prior written consent of the Disclosing Party, except for disclosures expressly permitted by this Agreement, and (iv) not use such Confidential Information for any purpose except those expressly permitted by this Agreement.  For avoidance of doubt, Pharmacopeia shall be permitted to use the BMS Confidential Information solely for purposes of performing the Research Program in accordance with the Research Plan and for no other purpose.  Upon completion of the Research Program or earlier upon written request by BMS, Pharmacopeia shall return to BMS or destroy any BMS Confidential Information, with the understanding that Pharmacopeia will be entitled to retain one (1) copy of BMS Confidential Information in the files of its legal counsel solely for archival purposes.

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Section 7.2Authorized Disclosure.  To the extent (and only to the extent) that it is reasonably necessary or appropriate to fulfill its obligations or exercise its rights under this Agreement, a Party may disclose Confidential Information belonging to the other Party in the following instances:

(a)filing or prosecuting patent applications in accordance with this Agreement;

(b)made to the Regulatory Authorities as necessary for the development or commercialization of a Product in a country, as required in connection with any filing, application or request for regulatory approval; provided, however, that reasonable measures will be taken to assure confidential treatment of such information;

(c)prosecuting or defending litigation;

(d)complying with applicable governmental laws and regulations (including, without limitation, the rules and regulations of the Securities and Exchange Commission or any national securities exchange, and compliance with tax laws and regulations) and with judicial process, if (i) in the reasonable opinion of the Receiving Party’s counsel, such disclosure is necessary for such compliance and (ii) such disclosure is made in accordance with Section 7.3 or 7.4 as applicable; and

(e)disclosure, in connection with the performance of this Agreement and solely on a need-to-know basis, to Affiliates, potential or actual collaborators (including potential licensees), potential or actual investment bankers, investors, lenders, or acquirers, or employees, independent contractors (including without limitation consultants and clinical investigators) or agents, each of whom prior to disclosure must be bound by written obligations of confidentiality and non-use no less restrictive than the obligations set forth in this Article 7; provided, however, that the Receiving Party shall remain responsible for any failure by any Person who receives Confidential Information pursuant to this Article 7 to treat such Confidential Information as required under this Article 7.

If and whenever any Confidential Information is disclosed in accordance with this Section 7.2, such disclosure shall not cause any such information to cease to be Confidential Information except to the extent that such permitted disclosure results in a public disclosure of such information (other than by breach of this Agreement).  Where reasonably possible and subject to Sections 7.3 and 7.4, the Receiving Party shall notify the Disclosing Party of the Receiving Party’s intent to make such disclosure pursuant to clauses (a) through (d) of this Section 7.2 sufficiently prior to making such disclosure so as to allow the Disclosing Party adequate time to take whatever action it may deem appropriate to protect the confidentiality of the information.

For purposes of this Agreement, the Research Results shall be treated as Confidential Information of BMS.  Accordingly, Pharmacopeia shall be considered the Receiving Party with respect to the Research Results and shall be subject to all of the restrictions and obligations of this Article 7 with respect to the disclosure and use of such Research Results to the same extent as applicable to Confidential Information disclosed to Pharmacopeia by BMS.

Section 7.3Required Disclosure.  A Receiving Party may disclose Confidential Information pursuant to interrogatories, requests for information or documents, subpoena, civil investigative demand issued by a court or governmental agency or as otherwise required by Law; provided however, that the Receiving Party shall notify the Disclosing Party promptly upon receipt thereof, giving (where practicable) the Disclosing Party sufficient advance notice to permit it to oppose, limit or seek confidential treatment for such disclosure, and to file for patent protection if relevant; and provided, further, that the Receiving Party shall furnish only that portion of the Confidential Information which it is advised by counsel is legally required whether or not a protective order or other similar order is obtained by the Disclosing Party.

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Section 7.4Securities Filings.  In the event either Party proposes to file with the Securities and Exchange Commission or the securities regulators of any state or other jurisdiction a registration statement, periodic report, or any other disclosure document which describes or refers to this Agreement under the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, or any other applicable securities Law, the Party shall notify the other Party of such intention and shall provide such other Party with a copy of relevant portions of the proposed filing not less than three (3) Business Days prior to such filing (provided that, whenever practicable, such portions shall be provided not less than five (5) Business Days prior to such filing) (and any revisions to such portions of the proposed filing a reasonable time prior to the filing thereof), including any exhibits thereto relating to the Agreement, and shall use reasonable efforts to obtain confidential treatment of any information concerning the Agreement that such other Party requests be kept confidential (except to the extent advised by counsel that confidential treatment is not available for such information), and shall only disclose Confidential Information which it is advised by counsel or, if applicable, by a Regulatory Authority, is legally required to be disclosed.  No such notice shall be required under this Section 7.4 if the substance of the description of or reference to this Agreement contained in the proposed filing has been included in any previous filing made by either Party hereunder or otherwise approved by the other Party.

Section 7.5Terms of Agreement.  The existence and the terms and conditions of the Agreement that the Parties have not specifically agreed to disclose pursuant to Article 6 or Section 7.4 shall be considered Confidential Information of both Parties.  Either Party may disclose such terms to a bona fide potential licensee, investor, investment banker, acquirer, merger partner or other potential financial partner, and their attorneys and agents, provided that each such Person to whom such information is to be disclosed is informed of the confidential nature of such information and has entered into a written agreement with the Party requiring such Person to keep such information confidential.

Section 7.6Injunctive Relief.  The Parties hereto understand and agree that remedies at Law may be inadequate to protect against any breach of any of the provisions of this Article 7 by either Party or their employees, agents, officers or directors or any other person acting in concert with it or on its behalf.  Accordingly, each Party shall be entitled to seek injunctive relief by a court of competent jurisdiction against any action that constitutes any such breach of this Article 7.

ARTICLE 8 -
PATENTS

Section 8.1Ownership of Inventions and Patents.

(a)Except as set forth in Section 2.1 above, title to inventions, discoveries, improvements and other technology, whether or not patentable, conceived, made or reduced to practice in the performance of the Research Program under this Agreement (collectively, the “Program Inventions”) and any Patents claiming such Program Inventions (“Program Patents”), are retained by the Party that is the employer of the inventor (or, in the case of consultants and (sub)contractors, the Party for which the consultant or (sub)contractor is providing its services).  The Parties agree that the United States federal patent law on inventorship shall determine the inventorship of any invention and the names of the inventors on any patent filings, whether sole or joint inventions, which arise in connection with activities conducted pursuant to this Agreement.  BMS shall own Program Inventions invented solely by employees, consultants and/or (sub)contractors of BMS (the “BMS Inventions”) and any Patents claiming such Program Inventions (the “BMS Program Patents”).  Subject to Section 2.1, Pharmacopeia shall own Program Inventions invented solely by employees, consultants and/or (sub)contractors of Pharmacopeia, including the Pharmacopeia Research Personnel (the “Pharmacopeia Inventions”) and any Patents claiming such Program Inventions (the “Pharmacopeia Program Patents”).  Subject to

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Section 2.1, Pharmacopeia and BMS shall own jointly such Program Inventions invented jointly by employees, consultants and/or (sub)contractors of Pharmacopeia and BMS (the “Joint Inventions”) and any Patents claiming such jointly invented Program Inventions (the “Joint Patents”).  Pharmacopeia shall promptly disclose to BMS any such Pharmacopeia Invention or Joint Invention arising from or made in the performance of the Research Program and any patent or patent application claiming such Program Invention.

(b)This Agreement shall be understood to be a joint research agreement to discover Research Compounds and associated uses in accordance with 35 U.S.C. § 103(c)(3).

(c)Each Party has entered or will enter into binding agreements obligating all employees, consultants and/or (sub)contractors performing activities in the performance of the Research Program to assign (or, in the case of (sub)contractors, assign or license) the employee’s, consultant’s and/or (sub)contractor’s interest in any invention and related intellectual property conceived or reduced to practice in the course of such activities to the Party for which such employee, consultant and/or (sub)contractor is providing its services.

Section 8.2Filing, Prosecution and Maintenance of Patent Rights.

8.2.1Solely Owned Patents.  Subject to the other sections of this Article 8, including the other subsections of this Section 8.2 below, each Party will have the sole right, at its cost and expense and at its sole discretion, to prepare, file, prosecute (including, without limitation, to control any interferences, reissue proceedings, oppositions and reexaminations), maintain, enforce and defend throughout the world any Patents solely owned or controlled by such Party.  For purposes of the preceding sentence, all Pharmacopeia Program Patents assigned to BMS pursuant to Section 2.1 shall be understood to be solely owned or controlled by BMS.

8.2.2Filing, Prosecution and Maintenance of Pharmacopeia Program Patents.    As between Pharmacopeia and BMS, Pharmacopeia shall be responsible for the preparation, filing, prosecution (including, without limitation, any interferences, reissue proceedings, oppositions and reexaminations) and maintenance of Pharmacopeia Program Patents (other than those assigned to BMS pursuant to Section 2.1), provided that for those Pharmacopeia Program Patents exclusively licensed to BMS pursuant to Section 2.2 BMS and Pharmacopeia will agree upon an outside counsel for the filing, prosecution and maintenance of such Patents.  Pharmacopeia shall be responsible for all costs incurred by Pharmacopeia with respect to such preparation, filing, prosecution and maintenance of such Pharmacopeia Program Patents, except in the case of those Pharmacopeia Program Patents exclusively licensed to BMS pursuant to Section 2.2, for which BMS shall be responsible for all costs incurred by Pharmacopeia.  At BMS’ reasonable request, Pharmacopeia, or its outside counsel, shall promptly provide BMS with an update of the filing, prosecution and maintenance status for each of the Pharmacopeia Program Patents.  In addition, for any Pharmacopeia Program Patents that are licensed to BMS pursuant to Article 2, Pharmacopeia will coordinate the preparation, filing and prosecution of such Patents with BMS and incorporate reasonable comments, suggestions and requests from BMS in the preparation, filing and prosecution of such Patents.  If BMS specifically directs that a patent application within the Pharmacopeia Program Patents that are licensed to BMS pursuant to Article 2 be filed in a country where Pharmacopeia was not intending to file such patent application, then Pharmacopeia will prepare, file and prosecute such patent application and will consult with BMS at all times to assure that such patent application(s) cover all items of commercial interest and importance.  With respect to all reasonable documented attorneys’ fees and other out-of-pocket costs paid by Pharmacopeia in connection with the preparation, filing, prosecution, and maintenance by Pharmacopeia of  said Pharmacopeia Program Patent for those countries as to which BMS has specifically directed that a patent application be filed (the “Costs”), until such time as BMS notifies Pharmacopeia that it is no longer willing to cover such Costs as

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to any country(ies) and/or patent application(s), BMS shall reimburse Pharmacopeia for *** of such Costs (it being understood that, as of such time as BMS notifies Pharmacopeia that BMS is no longer willing to cover such Costs as to any country(ies) and/or patent application(s), Pharmacopeia shall be free to discontinue prosecution of, or otherwise abandon, such country(ies) and/or patent application(s) without further notice or obligation to BMS).  In the event that Pharmacopeia does not want to file a particular patent application covering a Program Invention which is a Pharmacopeia Invention, or to continue the prosecution, maintenance or defense of a particular Pharmacopeia Program Patent which is licensed to BMS pursuant to Article 2, Pharmacopeia shall so notify BMS, and if BMS wants to file such patent application or continue the prosecution or maintenance of such Patent, Pharmacopeia shall assign such Patent to BMS and BMS may prosecute and maintain such Patent at its sole discretion and expense.

8.2.3Filing, Prosecution and Maintenance of Joint Patents.    For Joint Patents (other than those assigned to BMS pursuant to Section 2.1), Pharmacopeia and BMS agree to meet and confer in order to discuss whether, and in what countries, Joint Patents should be filed.  Unless the Parties agree otherwise, BMS shall handle the preparation, filing, prosecution and maintenance of such Joint Patents, and BMS may elect to use either its in-house patent counsel or external counsel reasonably acceptable to Pharmacopeia for the filing and prosecution of such Joint Patents, at BMS’ sole cost and expense.  In the event that BMS does not want to continue to be responsible for the costs and expenses with respect to the filing, prosecution and/or maintenance of a particular Joint Patent, BMS shall so notify Pharmacopeia, and if Pharmacopeia wants to continue the filing, prosecution and/or maintenance of such Joint Patent it may do so, subject to Section 8.2.4 below, at its sole expense.

8.2.4Cooperation.  In accordance with the foregoing, each Party will cooperate reasonably in the preparation, filing, prosecution, and maintenance of the Program Patent Rights.  Such cooperation includes (a) promptly executing all papers and instruments and requiring employees (and other persons under obligation to assign Patents to such Party) to execute such papers and instruments as reasonable and appropriate so as to enable such other Party, to prepare, file, prosecute, and maintain such Patents in any country; and (b) promptly informing such other Party of matters that may affect the preparation, filing, prosecution, or maintenance of the Program Patents and Joint Patents.

Section 8.3Patent Term Extension.  Pharmacopeia and BMS shall each cooperate with one another and shall use commercially reasonable efforts in obtaining patent term extensions (including without limitation, any pediatric exclusivity extensions as may be available) or supplemental protection certificates or their equivalents in any country with respect to Patents covering Products.  If elections with respect to obtaining such patent term extensions or supplemental protection are to be made, BMS shall have the right to make such election, provided that such election will be made in accordance with applicable Law so as to maximize the period of marketing exclusivity for such Product.

Section 8.4Enforcement of Patents

8.4.1Enforcement of Solely Owned Patents.  Except as set forth in Section 8.4.2 below for those Pharmacopeia Program Patents exclusively licensed to BMS pursuant to Section 2.2 and Joint Patents, each Party will have the sole right and responsibility to enforce, at its discretion, any Patents solely owned by such Party.  For purposes of the preceding sentence, all Pharmacopeia Program Patents assigned to BMS pursuant to Section 2.1 shall be understood to be solely owned by BMS.

8.4.2Enforcement of Pharmacopeia Program Patents and Joint Patents Licensed to BMS.

a.Enforcement by BMS.  In the event that Pharmacopeia or BMS becomes aware of a suspected infringement of any Pharmacopeia Program Patent exclusively licensed to BMS

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pursuant to Section 2.2 or Joint Patent, or any such Pharmacopeia Program Patent or Joint Patent is challenged in any action or proceeding (other than any interferences, reissue proceedings, oppositions or reexaminations, which are addressed above), such Party shall notify the other Party promptly, and following such notification, the Parties shall confer.  BMS shall have the right, but shall not be obligated, to defend any such action or proceeding or bring an infringement action with respect to such infringement to the extent relevant to BMS’s exclusive rights hereunder at its own expense, in its own name and entirely under its own direction and control, or settle any such action, proceeding or dispute by license (to the extent such sublicense is permitted under this Agreement), subject to the following.  Pharmacopeia shall reasonably assist BMS in any action or proceeding being defended or prosecuted if so requested, and shall lend its name to such actions or proceedings if reasonably requested by BMS or required by Applicable Law.  BMS shall reimburse Pharmacopeia for the documented out-of-pocket costs Pharmacopeia reasonably incurs in providing such assistance requested by BMS.  In the event Pharmacopeia is a required party to the proceeding or action, Pharmacopeia shall have the right to be represented by its own counsel (such selection to be subject to BMS’s approval, such approval not to be unreasonably withheld), and BMS shall reimburse Pharmacopeia for the documented out-of-pocket costs Pharmacopeia reasonably incurs that are reasonably related to the proceeding or action, including attorneys’ fees; provided that BMS shall retain overall responsibility for the prosecution of such action or proceeding in such event.  In the event that Pharmacopeia is not a necessary party to the proceeding or action, Pharmacopeia shall have the right to participate and be represented in any such suit by its own counsel at its own expense, provided that BMS shall retain overall responsibility for the prosecution of such action or proceedings in such event.  No settlement of any such action or proceeding (a) that restricts the validity or scope, or adversely affects the enforceability, of a (i) Joint Patent or (ii) Pharmacopeia Program Patent which, in each case (i) and (ii), is not exclusively licensed to BMS under Section 2.2, or (b) which could be reasonably expected to have a material adverse financial impact on Pharmacopeia, may be entered into by BMS without the prior written consent of Pharmacopeia.

b.Enforcement by Pharmacopeia.  If BMS elects not to settle, defend or bring any action for infringement of a Pharmacopeia Program Patent or Joint Patent described in Section 8.4.2 and so notifies Pharmacopeia, including following any request by Pharmacopeia to do so, then Pharmacopeia may defend or bring such action at its own expense, in its own name; provided however that, Pharmacopeia agrees not to so settle, defend or bring any action for infringement of a Pharmacopeia Program Patent or Joint Patent upon BMS’s request based on BMS’s good faith reasonable determination, the basis for which shall be provided to Pharmacopeia, that it is not in the best interest of the Parties to so settle, defend or bring such action for infringement.  In the case where Pharmacopeia proceeds to settle, defend or bring an action for such infringement, the following shall apply.  BMS shall reasonably assist Pharmacopeia in any action or proceeding being defended or prosecuted if so requested, and shall lend its name to such actions or proceedings if requested by Pharmacopeia or required by Applicable Law.  Pharmacopeia shall reimburse BMS for the documented external costs BMS reasonably incurs in providing such assistance as specifically requested in writing by Pharmacopeia.  BMS shall have the right to participate and be represented in any such suit by its own counsel at its own expense, provided that Pharmacopeia shall retain overall responsibility for the prosecution of such suit or proceedings in such event.  No settlement of any action or proceeding defended or brought by Pharmacopeia with respect to a Pharmacopeia Program Patent exclusively licensed to BMS under Article 2 or any Joint Patent, (a) that restricts the validity or scope, or adversely affects the enforceability, of such Patent, or (b) which could be reasonably expected to have a material adverse financial impact on BMS, may be entered into by Pharmacopeia without the prior written consent of BMS.

c.Withdrawal.  If either Party brings an action or proceeding under this Section 8.4 with regard to any Pharmacopeia Program Patents which are exclusively licensed to BMS under Section 2.2 or Joint Patents, and subsequently ceases to pursue or withdraws from such action or

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proceeding, it shall promptly notify the other Party and the other Party may substitute itself for the withdrawing Party and pursue such action or proceeding in accordance with the terms of this Section 8.4.

d.Cooperation.  The Party not enforcing the applicable Patent will provide reasonable assistance to the other Party (at such other Party’s expense), including providing access to relevant documents and other evidence, making its employees available at reasonable business hours, and joining the action to the extent necessary to allow the enforcing Party to maintain the action.

e.Damages.  In the event that either Party exercises the rights conferred in this Section 8.4 and recovers any damages or other sums in such action, suit or proceeding or in settlement thereof, such damages or other sums recovered shall first be applied to all out-of-pocket costs and expenses incurred by the Parties in connection therewith, including, without limitation, attorneys’ fees.  Except as otherwise provided in this Section 8.4, each Party will bear its own expenses with respect to any suit or other proceeding against an infringer.  If such recovery is insufficient to cover all such costs and expenses of both Parties, it shall be shared pro rata in proportion to the total of such costs and expenses incurred by each Party.  If after such reimbursement any funds shall remain from such damages or other sums recovered, such funds shall remain with the Party that brought the enforcement action at its expense.

Section 8.5Notification of Patent Certification.  Pharmacopeia shall notify and provide BMS with copies of any allegations of alleged patent invalidity, unenforceability or non-infringement of any Pharmacopeia Program Patent covering a Research Compound or BMS Compound, or a Product (including methods of use thereof) pursuant to a Paragraph IV Patent Certification by a Third Party filing an Abbreviated New Drug Application, an application under §505(b)(2) or other similar patent certification by a Third Party, and any foreign equivalent thereof for a Generic Product.  Such notification and copies shall be provided to BMS by Pharmacopeia as soon as practicable and at least within five (5) Business Days after Pharmacopeia receives such certification, and shall be sent by facsimile and overnight courier to the address set forth below:

Bristol-Myers Squibb Company

P.O. Box 4000

Route 206 & Province Line Road

Princeton, New Jersey 08543-4000

Attention:  Vice President and Chief Intellectual Property Counsel

Telephone:  ***

Facsimile:  ***

Section 8.6Further Actions.  Each Party shall, upon the reasonable request of the other Party, provide such assistance and execute such documents as are reasonably necessary for such Party to exercise its rights and/or perform its obligations pursuant to this Article 8; provided however, that neither Party shall be required to take any action pursuant to Article 8 that such Party reasonably determines in its sole judgment and discretion conflicts with or violates any applicable court or government order or decree.

Section 8.7Infringement Claims; Oppositions.  BMS and Pharmacopeia shall promptly inform the other in writing of any written notice to it of alleged infringement or misappropriation, based on the research, development, making, using, importing, exporting or selling of a Research Compound or Product incorporating a Research Compound, of a Third Party’s intellectual property rights of which it shall become aware.  The Parties shall confer on the handling of such matter.  Pharmacopeia shall not ***, and BMS shall not ***.  BMS and Pharmacopeia shall each keep the other advised of all material developments in the conduct of any proceedings in defending any claim of such

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alleged infringement or misappropriation and shall cooperate with the other in the conduct of such defense.  In no event may either Party settle any such infringement or misappropriation claim in a manner that would limit the rights of the other Party or impose any obligation on the other Party, without such other Party’s prior written consent, such consent not to be unreasonably withheld or delayed.

BMS and Pharmacopeia shall promptly inform the other in writing of any challenge to Pharmacopeia Program Patents and Joint Patents (an interference proceeding or opposition related to a Pharmacopeia Program Patent or Joint Patent will be deemed a challenge for purposes of this paragraph).  The Parties shall confer on the handling of such matter, and such matter will be handled in accordance with Section 8.2.3 and 8.2.4 above.

Section 8.8Records Regarding Pharmacopeia Program Patents and Joint Patents.  Each Party shall assign patent counsel representatives who, under the direction of the JRC, shall be responsible for coordinating activities between the Parties in accordance with this Article 8.  Such representatives will use good faith diligent efforts to maintain a report listing the Pharmacopeia Program Patents and Joint Patents that are subject to the license granted to BMS under Section 2.2 or 2.3.  Such report shall be used to facilitate the identification and tracking of the Pharmacopeia Program Patents and Joint Patents licensed under this Agreement, but shall not, unless specifically agreed to in a separate written agreement signed by authorized representatives of both Parties, be considered to be a then-current complete and binding list of the Pharmacopeia Program Patents and Joint Patents licensed under this Agreement.

ARTICLE 9 -
TERM AND TERMINATION

Section 9.1Term.  The term of this Agreement (the “Term”) commences upon the Effective Date and, unless earlier terminated in accordance with the provisions of this Article 9, will continue until the expiration of the Research Term or any Extended Research Term, provided that the obligation to pay milestones as described in Section 5.1 will survive expiration of the Term.

Section 9.2BMS Right to Terminate Without Cause.

(a)BMS may terminate this Agreement in full (but not in part), effective upon ninety (90) calendar days prior written notice to Pharmacopeia.

(b)If BMS elects not to substitute a new Research Program into the Discovery Collaboration within the sixty (60) day time period set forth in Section 3.1.3, Pharmacopeia’s obligations to continue to perform the Discovery Collaboration shall automatically terminate.

Section 9.3Material Breach.

(a)If either Party believes that the other is in material breach of this Agreement, then the non-breaching Party may deliver notice of such breach to the other Party.  In such notice the non-breaching Party shall identify the actions or conduct that it wishes such Party to take for an acceptable and prompt cure of such breach; provided that such identified actions or conduct shall not be binding upon the other Party with respect to the actions that it may need to take to cure such breach.  The allegedly breaching Party shall have ninety (90) days to either cure such breach or, if cure cannot be reasonably effected within such ninety (90) day period, to deliver to the other Party a plan for curing such breach which the breaching Party believes is reasonably sufficient to effect a cure within a reasonable period; provided that the breaching Party must notify the non-breaching Party as soon as practicable after the

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breaching Party becomes aware that it will not be able to cure the breach within the ninety (90) day period.  Following agreement to such plan by the other Party, such agreement not to be unreasonably withheld, the breaching Party shall use commercially reasonable efforts to carry out the plan and cure the breach.  If the Party receiving notice of breach fails to cure such breach within the ninety (90) day period or the cure period identified in the proposed corrective plan, as applicable, or the Party providing the notice reasonably determines that the proposed corrective plan or the actions being taken to carry it out is not commercially practicable, the Party originally delivering the notice may declare a breach hereunder upon thirty (30) days advance written notice.  Subject to Section 9.3(b), such notice shall effectively terminate this Agreement upon expiration of such thirty (30) day period.

(b)Notwithstanding the foregoing, if the allegedly breaching Party disputes in good faith the existence or materiality of any such breach, and provides notice to the other Party (the “Other Party”) of such dispute within such ninety (90) day period, the Other Party shall not have the right to terminate this Agreement in accordance with this Section 9.3 unless and until it has been determined in accordance with Section 12.4 that this Agreement was materially breached by the allegedly breaching Party and that Party fails to cure such breach within ninety (90) days following such determination.  It is understood and acknowledged that during the pendency of such a dispute, all of the terms and conditions of this Agreement shall remain in effect and the Parties shall continue to perform all of their respective obligations hereunder.

(c)This Section 9.3 shall be subject to and shall not limit the provisions of Section 9.4 and Section 9.5.

Section 9.4Consequences of Termination.

9.4.1Licenses and Assignment Obligations.  BMS’ rights and Pharmacopeia’s obligations under Article 2 shall survive termination and expiration of this Agreement.

9.4.2Return of Information and Materials.  Upon early termination of this Agreement in its entirety by either Party pursuant to this Article 9, each Party will return to the other (or destroy, as directed by such other Party) all data, files, records and other materials containing or comprising the other Party’s Confidential Information.  Notwithstanding the foregoing, (i) BMS will be permitted to retain all Research Results (which are deemed to be Confidential Information of BMS pursuant to Section 7.1), (ii) subject to clause (iii) below, Pharmacopeia will destroy all Research Results in its possession as of the date of termination or expiration, and (iii) each Party will be entitled to retain one (1) copy of the other Party’s Confidential Information in the files of its legal counsel solely for archival purposes.

9.4.3Termination Pursuant to Section 9.2.   For the avoidance of doubt, in the event BMS terminates this Agreement pursuant to Section 9.2(a) or elects not to substitute a new Research Program into the Discovery Collaboration pursuant to Section 9.2(b), then Pharmacopeia’s rights and BMS’ obligations under the License Agreement shall survive without any additional obligation by either Party.

Section 9.5Accrued Rights; Surviving Obligations.

9.5.1Accrued Rights.  Termination or expiration of this Agreement for any reason will be without prejudice to any rights or financial compensation that will have accrued to the benefit of a Party prior to such termination or expiration.  Such termination or expiration will not relieve a Party from obligations that are expressly indicated to survive the termination or expiration of this Agreement

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(including the Milestone Payments by BMS to Pharmacopeia pursuant to Article 5, and the obligations to license or assign compounds and inventions pursuant to Article 2).

9.5.2Survival.  The definitions contained in Article 1, the license and obligations to assign under Article 2, as well as Articles 6, 7, 8, 10, and 12, and Sections 9.5, 9.6 and 11.2 of this Agreement will survive expiration or termination of this Agreement for any reason.

Section 9.6Rights in Bankruptcy.  All rights and licenses granted under or pursuant to this Agreement by Pharmacopeia or BMS are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code (i.e., Title 11 of the U.S. Code) or analogous provisions of Applicable Law outside the United States, licenses of rights to “intellectual property” as defined under Section 101 of the U.S. Bankruptcy Code or analogous provisions of Applicable Law outside the United States.  The Parties agree that each Party, as licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the U.S. Bankruptcy Code or any other provisions of Applicable Law outside the United States that provide similar protection for ‘intellectual property.’  The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against a Party under the U.S. Bankruptcy Code or analogous provisions of Applicable Law outside the United States, the Party that is not subject to such proceeding will be entitled to a complete duplicate of (or complete access to, as appropriate) such intellectual property and all embodiments of such intellectual property, which, if not already in the non subject Party’s possession, shall be promptly delivered to it upon the non subject Party’s written request therefor.  Any agreements supplemental hereto shall be deemed to be “agreements supplementary to” this Agreement for purposes of Section 365(n) of the U.S. Bankruptcy Code.

ARTICLE 10 -
INDEMNIFICATION, INSURANCE AND LIMITATION OF LIABILITY

Section 10.1Indemnification of Pharmacopeia.  BMS agrees to defend Pharmacopeia, its Affiliates and their respective directors, officers, employees and agents, and their respective successors, heirs and assigns (collectively, the “Pharmacopeia Indemnitees”), and shall indemnify and hold harmless the Pharmacopeia Indemnitees, from and against any liabilities, losses, costs, damages, fees or expenses payable to a Third Party, and reasonable attorney’s fees and other legal expenses with respect thereto (collectively, “Losses”) arising out of any claim, action, lawsuit or other proceeding by a Third Party (collectively, “Third Party Claims”) brought against any Pharmacopeia Indemnitee and resulting from or occurring as a result of: (a) whether or not negligence is found, the development, manufacture, use, handling, storage, sale or other commercialization or disposition of any Product (or any product incorporating a compound derived from a BMS Compound) by BMS or its Affiliates or licensees, (b) any breach by BMS of any of its representations or warranties pursuant to this Agreement, (c) the gross negligence or willful misconduct of BMS or any BMS Affiliate or licensee in connection with this Agreement, (d) any breach of Applicable Law in connection with this Agreement by BMS or any BMS Affiliate or licensee, or (e) claims arising from the infringement of Third Party intellectual property related to a Research Program selected by BMS pursuant to Section 3.1.3, including but not limited to patent infringement claims in connection with the use of any Research Target or of any materials relating to any Research Target but excluding any intellectual property that Pharmacopeia routinely uses in its business that is not specifically related to the Research Program.

Section 10.2Indemnification of BMS.  Pharmacopeia agrees to defend BMS, its Affiliates, Licensees and their respective directors, officers, employees and agents, and their respective successors, heirs and assigns (collectively, the “BMS Indemnitees”), and shall indemnify and hold harmless the BMS Indemnitees, from and against any Losses and Third Party Claims brought against any

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BMS Indemnitee and resulting from or occurring as a result of: (a) any breach by Pharmacopeia of its representations or warranties pursuant to this Agreement, (b) the gross negligence or willful misconduct of Pharmacopeia or any Subcontractor in connection with this Agreement, (c) any breach of Applicable Law in connection with this Agreement by Pharmacopeia or any Subcontractor, or (d) any breach by Pharmacopeia or any Subcontractor under any agreement with a Third Party related to this Agreement (including any breach of an agreement between Pharmacopeia and a Subcontractor) .

Section 10.3Notice of Claim. All indemnification claims provided for in Sections 10.1 and 10.2 shall be made solely by such Party to this Agreement (the “Indemnified Party”).  The Indemnified Party shall give the indemnifying Party prompt written notice (an “Indemnification Claim Notice”) of any Losses or the discovery of any fact upon which the Indemnified Party intends to base a request for indemnification under Section 10.1 or 10.2, but in no event shall the indemnifying Party be liable for any Losses to the extent such Losses result from any delay in providing such notice.  Each Indemnification Claim Notice must contain a description of the claim and the nature and amount of such Loss (to the extent that the nature and amount of such Loss is known at such time).  The Indemnified Party shall furnish promptly to the indemnifying Party copies of all papers and official documents received in respect of any Losses and Third Party Claims.

Section 10.4Defense, Settlement, Cooperation and Expenses.

(a)Control of Defense.  At its option, the indemnifying Party may assume the defense of any Third Party Claim by giving written notice to the Indemnified Party within thirty (30) calendar days after the indemnifying Party’s receipt of an Indemnification Claim Notice.  The assumption of the defense of a Third Party Claim by the indemnifying Party shall not be construed as an acknowledgment that the indemnifying Party is liable to indemnify the Indemnified Party in respect of the Third Party Claim, nor shall it constitute a waiver by the indemnifying Party of any defenses it may assert against the Indemnified Party’s claim for indemnification.  Upon assuming the defense of a Third Party Claim, the indemnifying Party may appoint as lead counsel in the defense of the Third Party Claim any legal counsel selected by the indemnifying Party.  In the event the indemnifying Party assumes the defense of a Third Party Claim, the Indemnified Party shall as soon as is reasonably possible deliver to the indemnifying Party all original notices and documents (including court papers) received by the Indemnified Party in connection with the Third Party Claim.  Should the indemnifying Party assume the defense of a Third Party Claim, except as provided in Section 10.4(b), the Indemnified Party shall be responsible for the legal costs or expenses subsequently incurred by such Indemnified Party in connection with the analysis, defense or settlement of the Third Party Claim.  In the event that it is ultimately determined that the indemnifying Party is not obligated to indemnify, defend or hold harmless the Indemnified Party from and against the Third Party Claim, the Indemnified Party shall reimburse the indemnifying Party for any and all costs and expenses (including attorneys’ fees and costs of suit) and any Third Party Claims incurred by the Indemnifying Party solely attributed to the defense of the Third Party Claim on behalf of the Indemnified Party (but not those costs and expenses otherwise attributable to the defense of the Indemnifying Party).

(b)Right to Participate in Defense.  Without limiting Section 10.4(a), any Indemnified Party shall be entitled to participate in, but not control, the defense of such Third Party Claim and to employ counsel of its choice for such purpose; provided, however, that such employment shall be at the Indemnified Party’s own cost and expense unless (i) the employment thereof has been specifically authorized by the indemnifying Party in writing, (ii) the indemnifying Party has failed to assume the defense and employ counsel in accordance with Section 10.4(a) (in which case the Indemnified Party shall control the defense) or (iii) the interests of the Indemnified Party and the indemnifying Party with respect to such Third Party Claim are sufficiently adverse to prohibit the representation by the same counsel of both Parties under Applicable Law, ethical rules or equitable principles in which case the

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indemnifying Party shall be responsible for any such costs and expenses of counsel for the Indemnified Party.

(c)Settlement.  With respect to any Third Party Claims relating solely to the payment of money damages in connection with a Third Party Claim and that shall not admit liability or violation of Law on the part of the Indemnified Party or result in the Indemnified Party’s becoming subject to injunctive or other relief or otherwise adversely affecting the business of the Indemnified Party in any manner (such as granting a license or admitting the invalidity of a Patent controlled by an Indemnified Party), and as to which the indemnifying Party shall have acknowledged in writing the obligation to indemnify the Indemnified Party hereunder, the indemnifying Party shall have the sole right to consent to the entry of any judgment, enter into any settlement or otherwise dispose of such Loss, on such terms as the indemnifying Party, in its sole discretion, shall deem appropriate.  With respect to all other Losses in connection with Third Party Claims, where the indemnifying Party has assumed the defense of the Third Party Claim in accordance with Section 10.4(a), the indemnifying Party shall have authority to consent to the entry of any judgment, enter into any settlement or otherwise dispose of such Loss provided it obtains the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld).  The indemnifying Party shall not be liable for any settlement or other disposition of a Loss by an Indemnified Party that is reached without the written consent of the indemnifying Party.  Regardless of whether the indemnifying Party chooses to defend or prosecute any Third Party Claim, no Indemnified Party shall admit any liability with respect to or settle, compromise or discharge, any Third Party Claim without the prior written consent of the indemnifying Party, such consent not to be unreasonably withheld.

(d)Cooperation.  Regardless of whether the indemnifying Party chooses to defend or prosecute any Third Party Claim, the Indemnified Party shall, and shall cause each other Indemnified Party to, cooperate in the defense or prosecution thereof and shall furnish such records, information and testimony, provide such witnesses and attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested in connection therewith.  Such cooperation shall include access during normal business hours afforded to indemnifying Party to, and reasonable retention by the Indemnified Party of, records and information that are reasonably relevant to such Third Party Claim, and making Indemnified Parties and other employees and agents available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder, and the indemnifying Party shall reimburse the Indemnified Party for all its reasonable out-of-pocket costs and expenses in connection therewith.

(e)Costs and Expenses.  Except as provided above in this Section 10.4, the costs and expenses, including attorneys’ fees and expenses, incurred by the Indemnified Party in connection with any claim shall be reimbursed on a Calendar Quarter basis by the indemnifying Party, without prejudice to the indemnifying Party’s right to contest the Indemnified Party’s right to indemnification and subject to refund in the event the indemnifying Party is ultimately held not to be obligated to indemnify the Indemnified Party.

Section 10.5Insurance.  Each Party shall maintain at its sole cost and expense, an adequate liability insurance or self-insurance program (including, in the case of BMS, clinical trials and product liability insurance) to protect against potential liabilities and risk arising out of activities to be performed under this Agreement and any agreement related hereto and upon such terms (including coverages, deductible limits and self-insured retentions) as are customary in the U.S. pharmaceutical industry for the activities to be conducted by such Party under this Agreement.

Section 10.6Limitation of Liability.  Neither Party hereto will be liable for the other Party’s indirect, incidental, consequential, special, exemplary, punitive or multiple damages arising in

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connection with this Agreement or the exercise of its rights hereunder, or for lost profits arising from or relating to any breach of this Agreement, regardless of any notice of such damages; provided however, that this Section 10.6 shall not limit or restrict (i) damages available for breaches of confidentiality obligations set forth in Article 7 and (ii) damages available for willful breaches of Article 11.

ARTICLE 11 -
REPRESENTATIONS AND WARRANTIES

Section 11.1Representations, Warranties and Covenants.  Each Party hereby represents and warrants as of the Effective Date and covenants to the other Party that:

(a)  it has the power and authority and the legal right to enter into this Agreement and perform its obligations hereunder, and that it has taken all necessary action on its part required to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder;

(b)  this Agreement has been duly executed and delivered on behalf of such Party and constitutes a legal, valid and binding obligation of such Party and is enforceable against it in accordance with its terms subject to the effects of bankruptcy, insolvency or other laws of general application affecting the enforcement of creditor rights and judicial principles affecting the availability of specific performance and general principles of equity, whether enforceability is considered a proceeding at law or equity;

(c)  all necessary consents, approvals and authorizations of all Regulatory Authorities and other parties required to be obtained by such Party in connection with the execution and delivery of this Agreement and the performance of its obligations hereunder have been obtained;

(d)  the execution and delivery of this Agreement and the performance of such Party’s obligations hereunder (i) do not conflict with or violate any requirement of Applicable Law or any provision of the articles of incorporation, bylaws or any similar instrument of such Party, as applicable, in any material way, and (ii) do not conflict with, violate, or breach or constitute a default or require any consent not already obtained under, any contractual obligation or court or administrative order by which such Party is bound;

(e)  it has and will have enforceable written agreements with all of its employees who receive Confidential Information under this Agreement assigning to such Party ownership of all intellectual property rights created in the course of their employment; and

(f) it has the requisite personnel, facilities, equipment, expertise, experience and skill to perform its obligations under this Agreement.

Section 11.2DISCLAIMER OF WARRANTY.  EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN THIS ARTICLE 11, BMS AND PHARMACOPEIA MAKE NO REPRESENTATIONS AND GRANT NO WARRANTIES, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND BMS AND PHARMACOPEIA EACH SPECIFICALLY DISCLAIM ANY OTHER WARRANTIES, WHETHER WRITTEN OR ORAL, OR EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE OR ANY WARRANTY AS TO THE VALIDITY OF ANY PATENTS OR THE NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.

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ARTICLE 12 - MISCELLANEOUS

Section 12.1         Assignment.  Except as expressly set forth in this Agreement, without the prior written consent of the other Party hereto, neither Party will sell, transfer, assign, delegate, pledge or otherwise dispose of, whether voluntarily, involuntarily, by operation of law or otherwise, this Agreement or any of its rights or duties hereunder; provided, however, that either Party hereto may assign or transfer this Agreement or any of its rights or obligations hereunder without the consent of the other Party to any Third Party with which it has merged or consolidated, or to which it has transferred all or substantially all of its assets or stock to which this Agreement relates if in any such event the Third Party assignee or surviving entity assumes in writing all of the assigning Party’s obligations under this Agreement.  Any purported assignment or transfer in violation of this Section 12.1 will be void ab initio and of no force or effect.

Section 12.2         Severability.  If any provision of this Agreement is held to be illegal, invalid or unenforceable by a court of competent jurisdiction, such adjudication will not affect or impair, in whole or in part, the validity, enforceability, or legality of any remaining portions of this Agreement.  All remaining portions will remain in full force and effect as if the original Agreement had been executed without the invalidated, unenforceable or illegal part.

Section 12.3         Governing Law; Jurisdiction.  This Agreement will be governed by and construed and enforced in accordance with the laws of the State of Delaware, USA without reference to any rules of conflicts of laws.  Each of the Parties hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any federal court of the United States of America sitting in the State of Delaware and any appellate court from any jurisdiction thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the Parties hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such federal court in Delaware.  For clarification, any dispute relating to the scope, validity, enforceability or infringement of any Patents shall be governed by and construed and enforced in accordance with the patent laws of the applicable jurisdiction.

Section 12.4         Dispute Resolution.

12.4.1     Resolution by Senior Representatives.  The Parties shall seek to settle amicably any and all disputes, controversies or claims arising out of or in connection with this Agreement.  Any dispute between the Parties, including any failure by the JRC to agree, shall be promptly presented to the *** for resolution.  If either Party has failed to appoint ***, or if the *** are unable to resolve such dispute, such dispute shall then be presented to the *** of BMS and the *** of Pharmacopeia (the “Senior Representatives”) for resolution.  Such Senior Representatives will meet in-person or by teleconference as soon as reasonably possible thereafter, and use their good faith efforts to mutually agree upon the resolution of the dispute, controversy or claim.  If the Senior Representatives are not able to resolve such dispute, and if the dispute relates to (i) *** or (ii) ***.  If any other dispute between the Parties (i.e., a dispute other than those described in (i) and (ii) of the preceding sentence such as, but not limited to, ***, either Party may refer such dispute to binding arbitration to be conducted as set forth below in Section 12.4.2.

12.4.2     Arbitration.

(a)           With respect to any dispute amenable to arbitration under this Agreement as set forth in Section 12.4.1, a Party may submit such dispute to arbitration by notifying the other Party, in writing, of

28

such dispute.  Within thirty (30) days after receipt of such notice, the Parties shall designate in writing a single arbitrator to resolve the dispute; provided, however, that if the Parties cannot agree on an arbitrator within such thirty (30) day period, the arbitrator shall be selected by the New Jersey office of the American Arbitration Association (the “AAA”) or, if such office does not exist or is unable to make a selection, by the office of the AAA nearest to Princeton, New Jersey.  The arbitrator shall be a lawyer knowledgeable and experienced in the Applicable Laws concerning the subject matter of the dispute.  In any case the arbitrator shall not be an Affiliate, employee, consultant, officer, director or stockholder of either Party, or otherwise have any current or previous relationship with either Party or their respective Affiliates.  The governing law in Section 12.3 shall govern any such proceedings.  The language of the arbitration shall be English.  No individual will be appointed to arbitrate a dispute pursuant to this Agreement unless he or she agrees in writing to be bound by the provisions of this 12.4.2.  The place of arbitration will be Princeton, New Jersey.  Either Party may apply to the arbitrator for interim injunctive relief until the arbitration award is rendered or the controversy is otherwise resolved.

(b)           Within sixty (60) days after the designation of the arbitrator, the arbitrator and the Parties shall meet, and each Party shall provide to the arbitrator a written summary of all disputed issues, such Party’s position on such disputed issues and such Party’s proposed ruling on the merits of each such issue.

(c)           The arbitrator shall set a date for a hearing, which shall be no later than thirty (30) days after the submission of written proposals pursuant to Section 12.4.2(b), for the presentation of evidence and legal argument concerning each of the issues identified by the Parties.  The Parties shall have the right to be represented by counsel.  Except as provided herein, the arbitration shall be governed by the Commercial Arbitration Rules of the AAA applicable at the time of the notice of arbitration pursuant to Section 12.4.2(a); provided, however, that the arbitrator shall determine what discovery will be permitted, consistent with the goal of limiting the cost and time that the Parties must expend for discovery; provided the arbitrators shall permit such discovery as is deemed necessary to permit an equitable resolution of the dispute.  In any such arbitration proceeding, the Parties shall be entitled to all remedies to which they would be entitled in a United States District Court, including monetary damages and injunctive relief, provided that the arbitrator may not order the termination of licenses or assignment rights to a Research Compound to either of the Parties.

(d)           The arbitrator shall use his or her best efforts to rule on each disputed issue within thirty (30) days after completion of the hearing described in Section 12.4.2(c).  The determination of the arbitrator as to the resolution of any dispute shall be binding and conclusive upon all Parties.  All rulings of the arbitrator shall be in writing and shall be delivered to the Parties as soon as is reasonably possible.  Nothing contained herein shall be construed to permit the arbitrator to award punitive, exemplary or any similar damages.  The arbitrator shall render a “reasoned decision” within the meaning of the Commercial Arbitration Rules which shall include findings of fact and conclusions of law.  The Parties undertake to satisfy any award without delay.

(e)           The arbitrator shall determine the proportion in which the Parties shall bear (i) attorneys’ fees of the Parties in any arbitration, (ii) fees of the arbitrator and (iii) costs and expenses of the arbitration.

(f)            Any arbitration pursuant to this Section 12.4 shall be conducted in Princeton, New Jersey, unless the Parties otherwise agree to a different location.  Any arbitration award may be entered in and enforced by a court in accordance with Section 12.3.

(g)           Notwithstanding anything in this Section 12.4, each Party shall have the right to seek injunctive or other equitable relief from a court of competent jurisdiction pursuant to Section 12.3 that

29

may be necessary to avoid irreparable harm, maintain the status quo or preserve the subject matter of the arbitration.

(h)           The Parties agree that any payments that are made by one Party to the other Party pursuant to this Agreement pending resolution of any dispute shall be promptly refunded if an arbitrator or court determines pursuant to this Section 12.4.2 that such payments are to be refunded by one Party to the other Party.

(i)            The Parties intend, and will take all reasonable action as is necessary or desirable to ensure, that there be a speedy resolution to any dispute which becomes the subject of arbitration, and the arbitrator will conduct the arbitration so as to resolve the dispute as expeditiously as possible.

(j)            Except to the extent necessary to confirm an award or as may be required by Applicable Law, neither a Party nor an arbitrator may disclose the existence, content, or results of an arbitration without the prior written consent of both Parties.  In no event will an arbitration be initiated after the date when commencement of a legal or equitable proceeding based on the dispute, controversy or claim would be barred by the applicable Delaware statute of limitations.

(k)           Disputes Regarding Material Breach.  If the Parties are in dispute as to whether one Party is in material breach of this Agreement, then the arbitrator will first determine if material breach has in fact occurred, and if so, will grant the defaulting Party the cure period provided pursuant to Section 9.3.  If the material breach is not cured within the time period provided pursuant to Section 9.3, the arbitration will continue and the arbitrator will, as part of the same arbitration, award actual direct damages to the non-defaulting Party.

Section 12.5         Notices.  Except as otherwise provided for in this Agreement, all notices or other communications that are required or permitted hereunder will be in writing and delivered personally with acknowledgement of receipt, sent by facsimile (and promptly confirmed by personal delivery, registered or certified mail or overnight courier as provided herein), sent by nationally-recognized overnight courier or sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

If to BMS, to:

Bristol-Myers Squibb Company
P.O. Box 4000

Route 206 & Province Line Road

Princeton, NJ  08543-4000
Attention:  Vice President, and Head of Business Development

Telephone:  ***

Facsimile:  ***

With copy to:

Bristol-Myers Squibb Company

P.O. Box 4000

Route 206 and Province Line Road

Princeton, NJ  08543-4000

Attention:  Vice President and Senior Counsel, Corporate &
Business Development

Phone:  ***

Facsimile:  ***

30

If to Pharmacopeia, to:

Pharmacopeia, Inc.

3000 Eastpark Boulevard

Cranbury, New Jersey 08512

Attention:  Chief Executive Officer

Telephone:  ***

Facsimile:  ***

With a copy to:

Pharmacopeia, Inc.

3000 Eastpark Boulevard

Cranbury, New Jersey 08512

Attention:  Executive Vice President and General Counsel

Telephone:  ***

Facsimile:  ***

or to such other address as the Party to whom notice is to be given may have furnished to the other Party in writing in accordance herewith.  Any such communication will be deemed to have been given (i) when delivered, if personally delivered or sent by facsimile on a Business Day, (ii) on the Business Day after dispatch, if sent by nationally-recognized overnight courier, and (iii) on the third Business Day following the date of mailing, if sent by mail.  It is understood and agreed that this Section 12.5 is not intended to govern the day-to-day business communications necessary between the Parties in performing their duties, in due course, under the terms of this Agreement.

Section 12.6         Entire Agreement; Modifications.  This Agreement (including the attached Research Plan) sets forth and constitutes the entire agreement and understanding between the Parties with respect to the subject matter hereof and all prior agreements, understandings, promises and representations, whether written or oral, with respect thereto are superseded hereby.  Each Party confirms that it is not relying on any representations or warranties of the other Party except as specifically set forth herein.  No amendment, modification, release or discharge will be binding upon the Parties unless in writing and duly executed by authorized representatives of both Parties.

Section 12.7         Headings.  The headings of Articles and Sections of this Agreement are for ease of reference only and shall not affect the meaning or interpretation of this Agreement in any way.

Section 12.8         Relationship of the Parties.  It is expressly agreed that the Parties will be independent contractors of one another and that the relationship between the Parties will not constitute a partnership, joint venture or agency.

Section 12.9         Waiver.  Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver will be effective unless set forth in a written instrument duly executed by or on behalf of the Party waiving such term or condition.  Any such waiver will not be deemed a waiver of any other right or breach hereunder.

Section 12.10       Counterparts.  This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

Section 12.11       No Benefit to Third Parties.  The representations, warranties, covenants and agreements set forth in this Agreement are for the sole benefit of the Parties hereto and their

31

successors and permitted assigns, and they will not be construed as conferring any rights on any other parties.

Section 12.12       Further Assurances.  Each Party will duly execute and deliver, or cause to be duly executed and delivered, such further instruments and do and cause to be done such further acts and things, including the filing of such assignments, agreements, documents and instruments, as may be necessary to carry out the provisions and purposes of this Agreement.

Section 12.13       Force Majeure.  Neither Party will be charged with any liability for delay in performance of an obligation under this Agreement to the extent such delay is due to a cause beyond the reasonable control of the affected Party, such as war, riots, labor disturbances, fire, explosion, and compliance in good faith with any governmental Law, regulation or order.  The Party affected will give prompt written notice to the other Party of any material delay due to such causes.

Section 12.14       Interpretation.

(a)           Each of the Parties acknowledges and agrees that this Agreement has been diligently reviewed by and negotiated by and between them, that in such negotiations each of them has been represented by competent counsel and that the final agreement contained herein, including the language whereby it has been expressed, represents the joint efforts of the Parties hereto and their counsel.  Accordingly, in the event an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement.

(b)           The definitions of the terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have the same meaning and effect as the word “shall”.  The word “any” shall mean “any and all” unless otherwise clearly indicated by context.

(c)           Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or therein), (ii) any reference to any Applicable Laws herein shall be construed as referring to such Applicable Laws as from time to time enacted, repealed or amended, (iii) any reference herein to any person shall be construed to include the person’s successors and assigns, (iv) 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, and (v) all references herein to Articles, Sections or Appendices, unless otherwise specifically provided, shall be construed to refer to Articles, Sections and Appendices of this Agreement.

(d)           References to sections of the Code of Federal Regulations and to the United States Code shall mean the cited sections, as these may be amended from time to time.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the Parties hereto have caused this Discovery Collaboration Agreement to be executed by their duly authorized representatives as of the date first above written.

PHARMACOPEIA, INC.
By:	/s/ Leslie J. Browne
Name:			Leslie J. Browne, Ph.D.
Title:		President and Chief Executive Officer
BRISTOL-MYERS SQUIBB COMPANY
By:	/s/ Graham R. Brazier
Name:			Graham R. Brazier
Title:			Vice President & Head of Business Development

33

APPENDIX 1

RESEARCH PLAN

***

34

***.

35

***

36

***

37

***.

38

APPENDIX 2

***

39

EX-21.1

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Exhibit 21.1

Subsidiaries of Pharmacopeia, Inc.

        Pharmacopeia UK Holdings Limited

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Exhibit 21.1

Subsidiaries of Pharmacopeia, Inc.

EX-23.1

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Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

        We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-115202) pertaining to the 2004 Stock Incentive Plan and 2004 Employee Stock Purchase Plan of Pharmacopeia, Inc., the Registration Statement (Form S-8 No. 333-143092) pertaining to the Amended and Restated 2004 Stock Incentive Plan, and the Registration Statements (Form S-3 No. 333-127241, Form S-3 No. 333-134670, S-3 No. 333-140765 and S-3 No. 333-145393) of Pharmacopeia, Inc. and in the related Prospectus of our reports dated February 29, 2008, with respect to the consolidated financial statements of Pharmacopeia, Inc. and the effectiveness of internal controls over financial reporting of Pharmacopeia, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2007.

/s/  ERNST & YOUNG LLP

MetroPark, New Jersey
February 29, 2008

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Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

EX-31.1

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Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

(Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended,
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)

I, Leslie J. Browne, Ph.D., certify that:

1.

I have reviewed this annual report on Form 10-K of Pharmacopeia, 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 officers 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)) 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 account 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 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 officers 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 6, 2008

/s/  LESLIE J. BROWNE, PH.D. Leslie J. Browne, Ph.D.
President, Chief Executive Officer and Director (Principal Executive Officer)

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Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

EX-31.2

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Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

(Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended,
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)

I, Brian M. Posner, certify that:

1.

I have reviewed this annual report on Form 10-K of Pharmacopeia, 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 officers 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)) 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 account 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 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 officers 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 6, 2008

/s/  BRIAN M. POSNER Brian M. Posner
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)

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Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

EX-32.1

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Exhibit 32.1

Pharmacopeia, Inc.

CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Annual Report of Pharmacopeia, Inc. (the "Company") on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Leslie J. Browne, Ph.D., President and Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

        (1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

        (2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/  LESLIE J. BROWNE, PH.D. Leslie J. Browne, Ph.D.
President, Chief Executive Officer and Director

March 6, 2008

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Exhibit 32.1

Pharmacopeia, Inc. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EX-32.2

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Exhibit 32.2

Pharmacopeia, Inc.

CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Annual Report of Pharmacopeia, Inc. (the "Company") on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Brian M. Posner, Executive Vice President and Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

        (1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

        (2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/  BRIAN M. POSNER Brian M. Posner
Executive Vice President,
Chief Financial Officer and Treasurer

March 6, 2008

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Exhibit 32.2

Pharmacopeia, Inc. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002