10-K405

QuickLinks -- Click here to rapidly navigate through this document

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, 2001

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 NO. 000-28347

TULARIK INC.
(Exact Name of Registrant as In Its Charter)

DELAWARE
(State or Other Jurisdiction of
Incorporation or Organization) 94-3148800
(IRS Employer
Identification Number)

Two Corporate Drive
South San Francisco, California 94080
(650) 825-7000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK $.001 PAR VALUE
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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. ý

The aggregate market value of the voting stock held by non-affiliates of the Registrant based upon the closing price of the Common Stock listed on The Nasdaq Stock Market® on February 28, 2002 was $603,183,780*

The total number of shares outstanding of the Registrant's Common Stock was 50,229,052 as of February 28, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's Definitive Proxy Statement filed with the Commission pursuant to Regulation 14A in connection with the 2002 Annual Meeting are incorporated herein by reference into Part III of this Report.

Certain exhibits filed with the Registrant's prior registration statements and periodic reports under the Securities Exchange Act of 1934 are incorporated herein by reference into Part IV of this Report.

*

Based on a closing price of $18.00 per share. Excludes 16,718,842 shares of the Registrant's Common Stock held by executive officers, directors and stockholders whose ownership exceeds 5% of the Common Stock outstanding at February 28, 2002. Exclusion of such shares should not be construed to indicate that any such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the Registrant or that such person is controlled by or under common control with the Registrant.

TABLE OF CONTENTS

		PAGE
PART I
Item 1.	Business	4
Item 2.	Properties	37
Item 3.	Legal Proceedings	37
Item 4.	Submission of Matters to a Vote of Security Holders	37
PART II
Item 5.	Market for the Registrant's Common Stock and Related Stockholder Matters	38
Item 6.	Selected Consolidated Financial Data	39
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	40
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 8.	Financial Statements and Supplementary Data	49
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	74
PART III
Item 10.	Directors and Executive Officers of the Registrant	75
Item 11.	Executive Compensation	78
Item 12.	Security Ownership of Certain Beneficial Owners and Management	78
Item 13.	Certain Relationships and Related Transactions	78
PART IV
Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	79

PART I

Forward-Looking Statements and Risk Factors

        This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the "safe harbor" created by those sections. These forward-looking statements include, but are not limited to, statements about:

•

our strategy;



•

sufficiency of our cash resources;



•

revenues from existing and new collaborations;



•

product development; and



•

our research and development and other expenses.

        These forward-looking statements are generally identified by words such as "expect," "anticipate," "intend," "believe," "hope," "assume," "estimate," "plan," "will" and other similar words and expressions. Discussions containing these forward-looking statements may be found in "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements. The risks discussed on pages 26 through 36, among other things, should be considered in evaluating our prospects and future financial performance. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

3

Item 1. Business

Overview

        Tularik Inc. engages in the discovery and development of a broad range of novel and superior orally available medicines that act through the regulation of gene expression. Building on our scientific strengths, we intend to become a world-class pharmaceutical company. Our broad scientific platform addresses many human diseases that represent attractive potential commercial markets. We have diversified our drug discovery and development efforts not only across a large number of diseases, but also across multiple targets and drug candidates for these diseases. We were incorporated in California in 1991 and reincorporated in Delaware in 1997. We currently have seven different programs that fall within three therapeutic areas: cancer, immunology and metabolic disease.

(1)

Investigational New Drug application

(2)

Cytomegalovirus

Regulation of Gene Expression

        Gene Expression.    The human body is composed of specialized cells that perform different functions and are organized into tissues and organs. All cells in the human body contain the same set of approximately 40,000 genes, referred to as the human genome. Approximately 10% of the total number of genes are activated, or expressed, in an individual human cell, and different subsets of genes are activated in distinct cell types. Most genes direct the production of specific proteins through a two-step decoding process, resulting in the production of approximately 10,000 different proteins in a typical cell. Proteins, such as hormones, enzymes and receptors, carry out critical biological functions. Gene activation is known as gene expression, and the selective activation of different subsets of genes in distinct cell types is referred to as differential gene expression. All functions of cells, tissues and

4

organs are controlled by differential gene expression. As an example, cells in the pancreas known as beta cells make large amounts of the insulin protein, which is secreted and which circulates throughout the body, regulating glucose metabolism. The exclusive production of insulin by these cells reflects the fact that its encoding gene, the insulin gene, is expressed only in these specialized cells. In all other cells of the body, the insulin gene is not expressed. Differential gene expression results in the carefully controlled, or regulated, production of functional proteins, such as insulin.

        Regulation of Gene Expression.    Central to the process of differential gene expression are the regulatory elements of genes that are responsible for determining when and where in the body a gene is expressed, or switched on. The regulatory elements of genes operate by interacting with a specialized category of proteins called transcription factors, which are responsible for turning the genes on and off. In addition, the activities of transcription factors are themselves controlled by a network of gene regulation pathways composed of proteins. Transcription factors and the other proteins in this network of gene regulation pathways represent potential targets for therapeutic intervention, or drug discovery targets, because of their potential to switch genes on and off. These protein targets reside inside the cell.

        The Role of Gene Regulation in Disease.    When one or more steps in a normal cellular pathway is upset or blocked, disrupting the normal balance or function of essential proteins, disease may occur. This disruption can occur because of an intrinsic defect, a harmful environmental stimulus or a combination of both. Intrinsic defects arise from mutations in particular genes, which can either affect the level of gene expression or alter the protein that is produced. Inappropriate gene regulation, resulting in overexpression or underexpression of a protein or group of proteins, plays an important role in numerous diseases, including cardiovascular disease, inflammation, immune disorders and metabolic diseases such as obesity and diabetes. Furthermore, infectious agents, such as bacteria and viruses, rely on gene regulation to survive and proliferate in the human body.

The Tularik Advantage

        We are a pioneer in the application of gene regulation biology to drug discovery. Our drug discovery platform is directed toward the discovery of gene regulating pathways and orally available drugs that act on these pathways. We believe that our understanding of gene regulation, the strength of our scientific and management team and the efficiencies captured through our integrated drug discovery and development platform place us in a leading position to discover, develop and commercialize novel, orally available drugs.

        Advantages of Gene Regulation Approach.    Approaches to drug discovery that seek drug targets through the random sequencing of portions of the human genome generally do not lead to an understanding of the relevance of discovered genes as drug targets. Similarly, the identification of genes or proteins without an understanding of the pathways by which they operate may not permit identification of the optimal point of pharmaceutical intervention. In contrast, our approach permits the identification of multiple targets within a pathway or subpathway that regulates genes and increases the likelihood that we will be able to identify the optimal target for effective therapeutic intervention. The potential to regulate the part of the pathway that causes a specific disease without impacting other parts of the same pathway that perform other functions may allow us to develop drugs that have fewer side effects than existing treatments. In addition, we believe that understanding the mechanism of action of drug candidates that act by the regulation of gene expression may allow us to select clinical indications and design clinical trials that have more predictable results than has typically been the case. Finally, gene regulation is fundamental to the development or progression of most diseases and, therefore, has broad applicability.

        Integrated Drug Discovery and Development Platform.    We have developed a drug discovery and development infrastructure that we believe positions us to become a leading pharmaceutical company.

5

Our drug discovery and development expertise includes molecular biology, high-throughput and virtual screening, biochemistry, structural biology, chemistry, pharmacology, pre-clinical and clinical testing, biometrics and regulatory affairs. Our management team has extensive drug discovery and development experience with large pharmaceutical companies. To complement our internal capabilities, we collaborate with world-renowned scientists and clinicians and with leading pharmaceutical companies. We believe that our integration of biology, chemistry, pharmacology and clinical development enhances our ability to find novel gene regulating drugs and that our drug discovery and development efforts are highly efficient and productive. To date, we have:

•

identified numerous novel proteins or targets that regulate the expression of disease-causing genes;


•

established more than 100 automated drug testing systems, known as high-throughput screening assays, that mimic the diseases addressed by our programs;


•

conducted more than 45 million drug screens using our library of more than 950,000 distinct, small molecule compounds and natural product extracts;


•

identified more than 25 drug leads;


•

identified drug candidates in five of our programs that are undergoing pre-clinical testing consisting of animal studies designed to determine the feasibility of human testing in clinical trials;


•

identified two anti-cancer drug candidates; we are completing human testing designed to determine efficacy, known as phase 2 clinical trials, of one candidate, and we are initiating phase 2 clinical trials in multiple indications for the other candidate;


•

obtained a license for an anti-cancer drug candidate and are completing phase 2 clinical trials; and


•

identified an anti-cytomegalovirus (CMV) drug candidate that is undergoing phase 2 clinical trials.

        Pre-clinical milestones.    We expect to file Investigational New Drug, or IND, applications with the United States Food and Drug Administration, or FDA, on one to two of our lead compounds per year over the next several years, including 2002. We have more than 25 drug leads in seven different programs, with advanced lead compounds in the following five programs: inflammation, immune disorders, lipid disorders, diabetes and obesity. Each of these advanced lead compounds has shown activity in animal models of the relevant disease and represents a new approach to treatment.

        Attractive Commercial Opportunities.    Our seven different programs fall within three therapeutic areas: cancer, immunology and metabolic disease. These programs offer potential opportunities to develop drugs for many therapeutic indications. The significant unmet medical and quality-of-life needs for these diseases represent attractive potential commercial markets. We intend to commercialize drugs independently and through collaborations with pharmaceutical partners, and to date we have retained significant rights to independently market products resulting from most of our programs. The breadth of our current activities and the potential for the application of our platform to additional diseases reduces the risks associated with drug discovery, development and commercialization.

Our Strategy

        Our objective is to build a world-class pharmaceutical company that discovers, develops and commercializes novel and superior medicines that act through the regulation of gene expression. The key elements of our scientific and business strategy to achieve our objective are:

        Emphasize scientific excellence across our multidisciplinary drug discovery and development platform.    We intend to build on the excellence in biology embodied in our target discovery, assay development

6

and screening capabilities by continuing to integrate high quality efforts in structural biology, chemistry, pharmacology and pre-clinical and clinical development. We plan to add management and technical expertise at each stage of our growth. Important components of our strategy include entering into collaborations with leading academic scientists and pharmaceutical companies and internally developing and in-licensing state-of-the-art technologies as needed.

        Focus on diseases representing attractive market opportunities with significant unmet medical needs.    Our drug discovery efforts generally target diseases that represent attractive commercial opportunities and that are underserved by available therapeutic alternatives. Shortcomings of currently available treatments may include limited efficacy, side effects or method of delivery. In particular, we believe that orally available drugs that treat disease with a high degree of specificity without these shortcomings will have strong commercial potential.

        Develop orally available small molecule drugs.    Our drug discovery and development efforts focus on orally available small molecule drugs. Small molecules are ideally suited for penetrating cells to reach the gene regulatory mechanisms that are within the cell to stimulate or inhibit the function of intracellular targets. The major commercial advantage of small molecule therapeutics is the potential for oral administration. In addition, these drugs can be manufactured by conventional methods, resulting in lower manufacturing costs and higher margins than for other types of drugs, such as protein therapeutics.

        Increase likelihood of commercial success through diversification.    To reduce the risks inherent in drug discovery and development and our reliance on any one of our programs, we have diversified our drug discovery and development efforts by pursuing a large number of diseases and multiple targets and drug candidates for these diseases. Where appropriate, we will pursue product candidates that act through mechanisms of action other than through the regulation of gene expression.

        Sustain a pipeline of drug candidates and accelerate drug development.    We expect our productive and efficient drug discovery and development platform, coupled with the breadth of our programs, to consistently yield a large number of drug candidates. We subject each product candidate to rigorous pre-clinical scrutiny and determine its mechanism of action before we enter clinical trials. This enables us to obtain the best drug candidate for each indication and to focus financial resources only on drug candidates that we believe are the most likely to become approved drugs. We may be able to accelerate approval and commercialization by developing a detailed understanding of our products' characteristics, which may enable us to select optimal clinical indications and design the most appropriate clinical trials. We intend to augment our internal discovery and development efforts by obtaining licenses to promising clinical candidates.

        Retain most attractive commercial rights.    We intend to build a world-class pharmaceutical company with the objective of bringing to market novel and superior medicines. We expect to maximize the value of our drug candidate pipeline by retaining as many commercial rights as possible, especially in geographies where we can develop and market drugs independently. We have retained worldwide rights to all compounds in our programs that are currently in the clinic, as well as all compounds in our immune disorders, diabetes and obesity programs. In North America, we intend to develop a focused sales force to market products to specialty physicians. We intend to seek corporate collaborations or joint ventures for drugs prescribed by general practice physicians or a large number of specialists. In addition, we intend to continue to selectively collaborate with pharmaceutical and biotechnology companies to accelerate product commercialization in Asia and possibly Europe. Currently, two corporate partners, the Roche Bioscience division of Syntex (U.S.A.) LLC and the pharmaceutical division of Japan Tobacco Inc., fund portions of our research in our inflammation program and in the metabolic disease area, respectively. In addition, we have a collaboration with Medarex, Inc. to develop human antibodies against three of our oncogene-encoded targets.

7

Product Development

        Our drug discovery and development system is broadly applicable to a wide range of diseases. We have applied this system to diseases that represent attractive potential markets with significant patient populations that are underserved by current therapeutic products. Our pipeline includes three anti-cancer drug candidates and one anti-CMV drug candidate in clinical testing, pre-clinical drug candidates in five of our programs and more than 25 drug leads in various programs. The following table summarizes key information in our programs:

Program		Status	Key Achievements
Cancer
	T67	Phase 2 clinical trials	Discovered at Tularik, T67 is an anti-cancer drug candidate that binds irreversibly to tubulin. We have completed phase 2 studies and are pursuing further studies to demonstrate efficacy against hepatocellular carcinoma (HCC) or liver cancer.
	T607	Initiating phase 2 clinical trials	Discovered at Tularik, T607 is an analog of T67 that may have advantages over T67 in that it does not cross the blood brain barrier. We plan to commence phase 2 studies in selected tumor types, including HCC, in 2002.
	T64	Phase 2 clinical trials	In-licensed from Eli Lilly, T64 is an anti-folate drug candidate that has shown responses in a wide range of human tumors in phase 1 clinical trials. We are completing phase 2 studies.
Immunology
	T611	Phase 2 clinical trials	Discovered at Tularik, T611 is an orally bioavailable primase inhibitor developed to treat CMV in organ transplant patients. We initiated phase 2 clinical trials in AIDS patients in 2001.
	Immune disorders	IND candidate	Identified a series of compounds with activity in animal models of transplant rejection.

8

	Inflammation	IND candidate	Discovered a series of compounds that inhibit expression of inflammatory response genes in animals. Elucidated key gene regulation pathways and discovered numerous proteins involved in inflammatory gene regulation.
Metabolic Disease
	Lipid disorders	IND candidate	Identified a series of lead compounds that improve lipid profile in animals. Discovered regulatory pathways involved in cholesterol metabolism.
	Diabetes	IND candidate	Discovered a series of compounds with activity in animal models predictive of anti-diabetic efficacy.
	Obesity	IND candidate	Identified compounds with activity in animal models predictive of anti-obesity efficacy.

Clinical Programs

        We currently have four drugs in clinical development, three in our oncology program and one in our immunology program to treat CMV disease in transplant patients. The anti-cancer drug candidates are: T67, T607 and T64, also known as lometrexol. The anti-CMV drug candidate is T611.

Cancer

        T67.    T67 is our most advanced oncology drug candidate. T67 binds irreversibly to tubulin, the building block of microtubules, which are essential to cell division. T67 disrupts microtubule function, causing cancer cells to die and potentially resulting in tumor shrinkage. This concept has been proven clinically by other anti-cancer agents, such as Taxol® and vincristine, which also bind to tubulin. However, unlike these agents, T67 targets tubulin through a unique mechanism involving irreversible binding.

        We have completed phase 2 clinical studies in patients with non-small cell lung cancer, glioma, colorectal cancer and breast cancer and are completing a phase 2 clinical study in hepatocellular carcinoma, or liver cancer. The primary endpoint of these studies is radiological response rate. Based on the activity observed in these clinical studies, we plan to move forward with T67 in 2002 for the treatment of hepatocellular carcinoma, and we intend to request a meeting with the FDA to discuss phase 3 plans. In addition, we are currently conducting two trials exploring the activity of different dosage regiments of T67, as well as a combination trial with doxorubicin. Liver cancer is the third leading cause of cancer death worldwide, with approximately one million new cases reported annually. There is no effective therapy for liver cancer currently, making it an attractive commercial opportunity, with the potential for fast-track approval by the FDA.

        T607.    T607 is an analog of T67 and similarly targets tubulin through a unique mechanism involving irreversible binding. Animal studies indicate that T607 is distinct from T67 because T607 has a reduced ability to enter the brain, which may make it suitable for the treatment of different tumor types than T67. We are completing phase 1 clinical studies of T607 in the United States, the United

9

Kingdom and Canada. We have established the phase 2 dosing schedule for T607 and plan to commence phase 2 clinical studies in hepatocellular carcinoma, non-Hodgkin's lymphoma, gastric/esophageal cancer and ovarian cancer in the first half of 2002.

        T64 (also known as lometrexol).    In 1999, we licensed T64 from Eli Lilly and Company. T64 is an anti-folate agent, a class of drugs that disrupts the synthesis of DNA and has been validated for use in the treatment of cancer.

        We conducted phase 2 clinical studies of T64 in 2001 in patients with head and neck cancer, soft-tissue sarcoma, melanoma, breast cancer and non-small cell lung cancer, all tumor types in which phase 1 responses were observed. We have completed enrollment in all of these phase 2 clinical studies except for the non-small cell lung cancer study, which we expect to complete in 2002. The primary endpoint of these studies is efficacy, as assessed by response rate. In addition, T64 is being tested in combination studies with carboplatin, doxorubicin, gemcitabine, paclitaxel and temozolomide.

CMV disease

        Cytomegalovirus is a common virus that causes serious infection in patients with compromised or immature immune systems, particularly transplant recipients, AIDS patients and infants born to cytomegalovirus-infected mothers. In the bone marrow and solid organ transplant population, cytomegalovirus can cause life-threatening pneumonia. In the AIDS patient population, retinitis caused by cytomegalovirus is the primary cause of blindness. Cytomegalovirus infection in newborns can cause death or severe neurological damage, typically deafness. Current therapy for cytomegalovirus disease is associated with significant toxicity. This toxicity limits the utility of the current drugs in prophylactic therapy in patients at high risk, such as patients receiving bone marrow transplants or solid organ transplants.

        T611 is the first of a class of potent and orally available compounds that interferes with the replication machinery of cytomegalovirus. We believe that this class of compounds is the first to target the cytomegalovirus primase, which is necessary for initiating the synthesis of viral DNA. This class of compounds is efficacious against clinical cytomegalovirus taken from patients who have developed resistance to current therapies.

        We have completed single- and multiple-dose phase 1 safety studies in human volunteers for T611. Because this agent is well tolerated and does not have the same toxicity profile of existing anti-cytomegalovirus agents, we believe it may also be practical for use in prophylaxis settings, such as in transplant patients. We have initiated phase 2 clinical studies in AIDS patients and expect to initiate phase 2 clinical studies in kidney transplant patients in the first half of 2002.

Pre-clinical Programs

Immunology

        Immune Disorders.    While playing a beneficial role in protecting us from bacterial and viral infections, inappropriate immune responses can cause diseases or lead to conditions such as allergy, asthma, type I diabetes and multiple sclerosis. Our objective is to develop orally administered drugs that work in a new way to selectively inhibit cells that mediate undesirable immune responses. We are focused on inhibiting certain receptors that regulate trafficking and migration of the cells of the immune system. In June 2001, we announced an immune disorders collaboration with ChemoCentryx, Inc., a company dedicated to chemokine drug discovery. We are currently evaluating advanced lead compounds from this collaboration in animal models for organ transplantation and other autoimmune disorders. In addition, we are optimizing drug-like lead compounds with potential to treat a range of autoimmune disorders, including rheumatoid arthritis, multiple sclerosis, organ transplant rejection, psoriasis and asthma.

10

        Inflammation.    Under normal circumstances, inflammation is an important defense response to injury and infection. An early step in the inflammatory response is the recruitment of white blood cells, or leukocytes, from the circulatory system to damaged or infected tissue. Excessive or prolonged accumulation of leukocytes can lead to inflammatory conditions, including rheumatoid arthritis, inflammatory bowel disease, psoriasis, multiple sclerosis, asthma and septic shock. Inflammatory messengers act by binding to specific cell surface receptors that, in turn, set off signaling events culminating in the expression of many inflammatory response genes. The crucial roles played by particular inflammatory messengers in several inflammatory disease states have been clearly demonstrated by studies utilizing antibodies and soluble receptors that neutralize the activities of particular inflammatory messengers. The efficacy demonstrated by Enbrel®, a soluble inflammatory messenger receptor, has validated this concept for the treatment of rheumatoid arthritis. We believe that an orally available drug of comparable efficacy would represent a competitive advantage over drugs that must be injected, such as Enbrel®.

        Several key inflammatory response genes are regulated by a single transcription factor, NF-kB. Our scientists have discovered numerous novel regulatory proteins in the gene regulation pathways leading from the receptors for particular inflammatory messengers and have elucidated their roles in NF-kB activation. On the basis of these discoveries, our scientists are recognized as leaders in this field of research. Based upon this research, our scientists have determined that some of these regulatory proteins appear to be exclusively dedicated to NF-kB activation and the inflammatory response and therefore represent ideal drug discovery targets. We are engaged in the pre-clinical development of a series of compounds that inhibit one of the key components involved in NF-kB activation and have demonstrated oral activity in animal models of inflammation. We believe that our discoveries and the expertise we have developed in this disease area place us in a leading position to identify the next generation of important anti-inflammatory drugs.

        We have collaborated with the Roche Bioscience division of Syntex (U.S.A.) LLC in inflammation research since July 1997.

Metabolic Diseases

        Lipid Disorders.    Cardiovascular disease is the leading cause of death in the developed world. The most clinically significant diseases, angina and myocardial infarction, are causally related to elevated levels of low-density lipoprotein, or LDL, cholesterol in the blood stream. The risk of death begins to increase when LDL cholesterol levels rise above 126 mg/dl and progressively worsens with higher levels. To date, statins are the most successful drugs for lowering LDL cholesterol levels. Statins lower LDL cholesterol levels in the bloodstream by indirectly increasing the number of LDL receptors on the surface of cells. Despite the success of statins, there is a significant patient population, particularly those individuals having substantially elevated blood cholesterol levels, for which these drugs alone are insufficient to achieve the desired efficacy. We believe that a drug that either directly increases expression of LDL receptors or induces cholesterol clearance mechanisms may show improved efficacy relative to the current agents.

        Our scientists have extended the understanding of the mechanism regulating an important enzyme that is responsible for the body's clearance of cholesterol. These scientists have discovered important transcription factors involved in the process. They have also identified a natural receptor for bile acids, which are the end products of cholesterol metabolism and suppress the expression of this enzyme. We have established proprietary biochemical assays for high-throughput screening to detect inhibitors of receptors involved in the regulation of cholesterol.

        We have a research collaboration with Professors Michael Brown and Joseph Goldstein of the University of Texas Southwestern Medical School at Dallas to develop a detailed understanding of the intracellular events controlling cholesterol metabolism. Professors Brown and Goldstein won a Nobel

11

Prize for their work in this area. This collaboration is currently focused upon elucidating mechanisms involved in regulation of the transcription factors that have been shown by Professors Brown and Goldstein to activate the LDL receptor gene. We have been collaborating with Professors Brown and Goldstein since October 1992 and have the exclusive right to license the results of their research in this area.

        We collaborated with the pharmaceutical division of Japan Tobacco Inc. in lipid disorders research from September 1998 to September 2001. We are presently conducting pre-clinical development studies with Japan Tobacco on a series of compounds that modulate the activity of one of the receptors involved in the regulation of cholesterol.

        Diabetes.    Type II diabetes is a chronic, progressively debilitating disease and represents 90% of the total population of people with diabetes. Its prevalence is increasing as a function of the aging population and the increasing population of obese people in the world. Type II diabetes usually develops after the age of 40 and is characterized by the body's inability to respond to insulin. Recently, a new class of drugs has been introduced that permit type II diabetics to make better use of the insulin produced by their bodies or taken by injection. Drugs in this class, including Actos® and Avandia®, have proven to be efficacious for the treatment of type II diabetes but have also been associated with undesirable side effects, such as weight gain, edema and anemia. These side effects may limit the number of eligible patients and increase the costs associated with monitoring for adverse effects after initiation of treatment.

        Our scientists have implemented a biochemical assay that tests activity against the same biochemical mechanism as that targeted by Actos and Avandia. Our current efforts are focused on a lead series of potent and orally available agents identified in this assay that improve insulin sensitivity and lower blood glucose in animals. We believe that this series offers the potential for an anti-diabetes drug with an improved profile relative to existing agents.

        We collaborated with the pharmaceutical division of Japan Tobacco in diabetes research from September 1996 to September 2001.

        Obesity.    Body weight is determined and regulated by a variety of genetic and environmental factors. Weight change is influenced by eating behavior and by energy utilization as determined by exercise and metabolic rate. Obesity increases the risk of serious human diseases, including type II diabetes, coronary artery disease and hypertension. There is a large, unmet need for a treatment for obesity.

        We have a robust program that currently is focused upon multiple pathways involved in obesity. One of the pathways we are evaluating involves a family of proteins thought to play a role in regulating satiety. Our scientists have discovered a series of compounds that block the activation of a promising target within this family of proteins. Compounds from this series have been shown to reduce food intake in animal models of obesity.

        We collaborated with Knoll AG in obesity from November 1998 to November 2001. We collaborated with the pharmaceutical division of Japan Tobacco in obesity research from September 1996 to September 2001.

Research and Development Programs

Oncogene Discovery Program

        Our Oncogene Discovery Program focuses on the identification of novel cancer genes. To date, Tularik scientists have discovered 22 novel oncogenes using Representational Difference Analysis (RDA) and related microarray technology. RDA works by sampling DNA from healthy and diseased cells from the same person and rapidly comparing the two samples to identify cancer genes. RDA does

12

not require either prior hereditary clues or an extensive sample collection from high-risk families that have a history of disease. Prior to the time we obtained a license to this technology, RDA was utilized to isolate two tumor suppressor genes, BRCA2 and PTEN. We believe these proprietary approaches will allow us to identify virtually all remaining amplified oncogenes in the next few years.

        We believe that 12 of the oncogenes identified thus far are potential candidates for small molecule intervention and that seven of these potential oncogenes encode cell-surface targets for antibody development. We intend to devote our internal drug discovery efforts to small molecule therapeutics and partner those oncogenes that are suitable for the development of therapeutic antibodies. To this end, in January 2002, we announced a collaboration with Medarex to develop human antibodies against three of our oncogene-encoded targets. Under the terms of the collaboration, Medarex made a $5.0 million investment in Tularik by buying 100,036 shares of our common stock at $49.98 per share which represents a 100% premium over and above an average market price per share. We and Medarex will share equally clinical development costs and commercialization rights.

Drug Discovery and Development

        We believe that our integrated drug discovery and development platform places us in a leading position to discover, develop and commercialize novel, orally available drugs. We continually seek to identify and apply novel technologies and methods for our multi-faceted drug discovery effort.

Target Identification and Validation

        A key focus of our scientists is to establish a link between specific genes and diseases. Following the identification of such a link, we seek to identify and characterize important proteins and regulatory pathways responsible for the expression of these genes. Our ability to identify multiple targets within a gene regulatory pathway or subpathway that regulates genes increases the likelihood that we will be able to identify the optimal target for therapeutic intervention.

        Our scientists use a combination of biochemical, molecular biological and genetic approaches to discover novel regulatory proteins. Once a regulatory protein has been identified, we clone and express the gene that encodes that protein. Cloning the regulatory protein allows us to conduct target validation, which is the biological evaluation of the protein's specific function in the disease process. We evaluate the physiological function of potential drug targets we discover by manipulating their expression in cells, by mapping the pathways by which they interact with other regulatory proteins to regulate genes and by understanding the cell types in which they are expressed. This information can be critical to assessing the suitability of a gene regulatory protein as a target for pharmaceutical intervention.

        In our target discovery efforts, we also search publicly available genome databases, including data derived from the Human Genome Project. In the cancer area, we seek to discover novel cancer genes using Representational Difference Analysis. Some of these cancer genes may be targets for small molecule intervention.

        Where the target validation process indicates that a particular regulatory protein may not be the most appropriate molecular target for assay development, we use cellular and molecular biology studies to identify other proteins involved in the same biochemical pathway(s) that may be better molecular targets for drug discovery and therapeutic intervention. The target validation process also provides us with opportunities to discover additional components of the cellular pathway that may lead to identification of additional drug discovery targets.

13

Primary Assays

        We use primary assays specific to each target or program to rapidly search our compound screening library for chemical structures that hold promise for further study, or hits. We design and implement two main types of primary assays, as described below. We performed high-throughput screening with approximately 55 assays in 2001.

        Biochemical Assays.    Our scientists use the results of target identification efforts to craft specialized biochemical assays in which one or more target proteins are reconstituted in a system that closely mimics their native environment. At this stage, we adapt the assay to an automated format to allow for high-throughput screening. Biochemical assays provide several advantages in the search for new drugs. In a biochemical assay, the components and mechanism of action of the drug candidates are already known. This precision minimizes inaccurate results and false-positive readings, thereby accelerating the discovery process. Additionally, the identification of lead compounds using biochemical assays bypasses the potential problems of false-negative readings associated with the ability of a compound to penetrate a cell or the intrinsic ability of cells to break down chemicals before they reach a target. Once hits are identified, these properties can be subsequently manipulated through chemistry. Since biochemical assays are usually highly amenable to high-throughput screening, results can be obtained rapidly and reproduced consistently.

        Cell-based Assays.    High-throughput screening using intact cell-based assays complements and extends our biochemical screening capabilities. A major advantage of cell-based assays over biochemical assays is that cell-based assays allow analysis of sample activity in an environment similar to the one in which a drug would act. In addition, the toxicity of the drug and its ability to penetrate into the cell can be assessed. In contrast to biochemical assays, where the target protein for a drug is known, cell-based assays offer an additional opportunity to discover drugs interacting with novel, previously unknown, target proteins.

High-throughput Screening

        We have developed innovative hardware and software systems to automate the entire drug screening process, from the preparation of solutions of the test substances for screening to the analysis of the data generated from the assays. In our automated screening facility, we can annually generate more than 20 million sample evaluations in our assays. In 2001, we performed more than 22 million of such sample evaluations. Our automated systems can be configured to run a wide variety of assay formats. Our data management system stores the data for hundreds of thousands of samples, each tested in dozens of assays. This relationally-integrated system manages sample inventories through a bar code system, configures plates for a wide variety of experiments and coordinates the screening of large numbers of plates across multiple assays. The data management system electronically recalls and presents data in formats that allow rapid recognition of active compounds or extracts. This gives each of our scientists the ability to analyze the results for a given assay within the context of the entire drug discovery database, including the results of all past screening assays.

        Virtual screening is the process by which computers calculate the theoretical binding affinity between a very large number of possible chemical structures and the active site of cellular receptors or enzymes for which the molecular structure has been solved. We added virtual screening to our capabilities in July 2001 with the acquisition of the computer-aided molecular design (CAMD) unit of Protherics PLC, now known as Tularik Ltd. Through this transaction, we acquired proprietary computational chemistry software and a team of experienced software designers, as well as computational chemists and medicinal chemists. The key aspect of the CAMD technology is a set of proprietary computational software tools that facilitate the identification of novel compounds. The use of virtual screening to complement our high-throughput screening capabilities may accelerate the discovery of high-quality leads against our validated targets. As part of the acquisition of the CAMD

14

unit, we inherited a research collaboration with Eli Lilly relating to anti-thrombotics. The research portion of the Eli Lilly collaboration concluded in December 2001, however Eli Lilly is progressing a compound with activity against Factor Xa through its pre-clinical development process. In addition to the success milestone payment received in November 2001, we are entitled to additional payments for Factor Xa inhibitors as they progress through clinical trials to registration. Royalties are payable from Eli Lilly on sales of products emerging from the collaboration.

Screening Library

        Access to large libraries of highly diverse molecular structures is an important aspect of our drug discovery efforts. We currently have a library of more than 950,000 synthetic compounds and natural product extracts. This library includes individual synthetic compounds, combinatorial chemical libraries that contain synthetic compounds incorporating desirable molecular features and also includes a natural product collection of independent samples derived from microbial, plant and marine sources. This library is supplemented with chemical libraries provided by our collaborators for specific programs.

Secondary Assays

        Secondary assays are designed to eliminate those "hits" that lack potency or specificity, or have unwanted characteristics. If a compound survives the secondary assay screening process, it is then subjected to further testing and, ultimately, chemistry optimization. Generally, hits with promising results in animal models and desirable chemical characteristics become lead compounds.

Lead Optimization

        Regardless of whether a lead compound is obtained from biochemical or cell-based assays, the pharmaceutical properties of that compound must be improved before clinical development. This is the process of lead optimization.

        Chemistry.    We carry out traditional structure-activity relationship studies of potential lead compounds and conduct lead optimization utilizing chemistry techniques to synthesize new analogs of a lead compound with improved properties. Our natural products chemists handle the separation, isolation and structure elucidation of bioactive components derived from our natural product extracts. In addition, we have computational chemistry capabilities, including molecular modeling, to support lead optimization.

        We complement this activity with directed combinatorial chemistry, which enables the rapid synthesis of thousands of chemical analogs of lead compounds. We continue to expand our efforts in this area as we believe that the continued development of combinatorial chemistry technology will streamline the ability of our chemists to improve upon promising lead compounds and facilitate the expansion of our proprietary screening library.

        Structural Biology.    Structural biology techniques aid in drug design and optimization by providing molecular "snapshots" that allow scientists to visualize the interactions between a drug or lead and its protein target. These interactions are analogous to the fit between a lock and a key. Nuclear magnetic resonance, spectroscopy and X-ray crystallography comprise the essential techniques of structural biology. We have established state-of-the-art laboratories that allow us to readily utilize these powerful tools for lead optimization. Utilizing structural information, chemists can design and synthesize new analogs of lead compounds that are likely to have a better fit with the target protein, and hence have greater potency. We are applying structural biology broadly and have ongoing efforts in many of our drug discovery programs.

15

Pharmacology and Pre-clinical Development

        We believe that the rapid characterization and optimization of lead compounds identified in high-throughput screening will generate high quality pre-clinical development candidates. Our Pharmacology and Pre-clinical Development groups facilitate lead optimization by characterizing lead compounds with respect to the pharmacokinetic profile, potency, efficacy and selectivity. The generation of proof-of-principle data in animals and the establishment of standard pharmacological models with which to assess lead compounds represent integral components of lead optimization. As programs move through the lead optimization stage, our Pharmacology and Pre-clinical Development groups perform the necessary studies, including toxicology, for IND application submissions.

Clinical Development

        We have assembled a team of experts in drug development to design and implement clinical trials and to analyze the data derived from these studies. The clinical development group possesses expertise in clinical research, clinical pharmacology, biostatistics and data management, drug safety and surveillance and regulatory affairs.

Research and Development Expenses

        Our research and development expenses were $91.2 million in 2001, $64.8 million in 2000 and $47.6 million in 1999.

New Subsidiaries

Cumbre Inc.

        During 2001, we formed Cumbre Inc., a majority-owned subsidiary. In conjunction with the formation of Cumbre, we assigned the assets of our bacterial diseases program to this subsidiary. One of the co-founders of Cumbre is Steven L. McKnight, Ph.D., a co-founder and director of Tularik. Cumbre is based in Dallas, Texas and focuses on antibacterial and antifungal drug discovery and development. In September 2001, Cumbre announced the completion of a $26.2 million private placement of its Series B preferred stock. Tularik retains a majority voting control in Cumbre, as of December 31, 2001.

Tularik GmbH

        In April 2001, we announced the formation of Tularik GmbH, a wholly-owned subsidiary located in Regensburg, Germany. The subsidiary is developing new assays and implementing high-throughput screening for the identification of small molecule drugs that act by gene regulation.

Corporate Collaborations

        To assist in product commercialization and to fund research and development activities, we have established and will continue to pursue collaborations with selected pharmaceutical and biotechnology companies. We currently have two research stage collaborations that provide research funding: one with Roche Bioscience relating to inflammation, and the other with the pharmaceutical division of Japan Tobacco relating to metabolic diseases. In addition, we have a collaboration with Medarex to develop human antibodies against three of our oncogene-encoded targets. From our inception to December 31, 2001, we received a total of $191.6 million, including $178.6 million in research funding and $13.0 million from equity purchases, from these corporate collaborations as well as under the following: a prior research alliance with Merck & Co. (that terminated in March 1999); a prior research alliance with Sumitomo Pharmaceuticals Co. that expired in January 2000; a prior research alliance with Taisho Pharmaceutical Co. that terminated in March 2000; two other research alliances with the

16

pharmaceutical division of Japan Tobacco, one of which expired and for one of which the research stage terminated in September 2001; and a prior research alliance with Knoll A.G. that terminated in October 2001.

        See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Overview" for additional details relating to funding received to date and future funding payable under existing corporate collaboration agreements. In addition, we have a number of scientific collaborations with academic and medical institutions and biotechnology companies under which we have in-licensed technology. We intend to pursue further collaborations as appropriate.

        Our corporate collaboration agreements generally contain the following terms. Other than our agreement with the pharmaceutical division of Japan Tobacco relating to metabolic diseases, our corporate collaboration agreements provide that each party will retain ownership of all inventions and any related patents made solely by its employees during the course of the collaboration, except as limited by each party's license rights described below. In our corporate collaboration agreements, we have agreed not to conduct research in specified areas, independently or with any commercial third party, that is in the same field and in the same geographical territory as that covered by that corporate collaboration agreement.

        The table below summarizes the economic rights currently held by us and our corporate collaborators and additional details relating to specific corporate collaboration agreements.

		Economic Rights Holder
Research Area	Corporate Collaborator
		North America	Europe	Asia
Cancer
T67	—	Tularik	Tularik	Tularik
T607	—	Tularik	Tularik	Tularik
T64(1)	—	Tularik	Tularik	Tularik
Cancer gene discovery: 3 antibody targets	Medarex(4)	Profit split	Profit split	Profit split
Immunology
T611	—	Tularik	Tularik	Tularik
Immune disorders	—	Tularik	Tularik	Tularik
Inflammation: IBD(2), skin and eye diseases	Roche Bioscience	Tularik (Royalties to Roche)	Tularik (Royalties to Roche)	Tularik (Royalties to Roche)
Inflammation: other indications	Roche Bioscience	Roche Bioscience (Royalties to Tularik)	Roche Bioscience (Royalties to Tularik)	Roche Bioscience (Royalties to Tularik)
Metabolic Disease
Lipid disorders	The pharmaceutical division of Japan Tobacco	Profit split	Profit split	Profit split(3)
Diabetes	—	Tularik	Tularik	Tularik
Obesity	—	Tularik	Tularik	Tularik
Metabolic diseases: certain targets	The pharmaceutical division of Japan Tobacco	Profit split	Profit split	Profit split

(1)

We have agreed to pay Eli Lilly a royalty on sales of T64 and to make milestone payments, as described below.

(2)

Inflammatory Bowel Disease.

(3)

Sumitomo has an option to license certain compounds.

(4)

Agreement signed January 9, 2002.

17

Roche Bioscience (Inflammation)

        In 1997, we established a collaboration with Roche Bioscience to discover, develop and market anti-inflammatory gene regulating drugs. The research stage of this agreement will end in July 2002.

        The agreement provides that we will establish assays for particular targets within specified signaling pathways and conduct high-throughput screening of compounds from the Roche Bioscience and Tularik libraries. Roche Bioscience provides expertise and funding to support molecular structure validation and chemistry, and obtains exclusive, worldwide manufacturing and marketing rights to develop and commercialize certain identified compounds resulting from the research program for specified indications. Roche Bioscience is obligated to pay us benchmark payments based on clinical progress and royalties on sales of these compounds for the Roche Bioscience indications. We have exclusive, worldwide manufacturing and marketing rights to develop and commercialize other compounds resulting from the research program for other specified indications. We are obligated to pay Roche Bioscience royalties on sales of these compounds for indications we have retained, which include inflammatory bowel disease, as well as skin and eye diseases. We and Roche Bioscience are responsible for funding pre-clinical testing and clinical development of compounds for their respective indications.

        Roche Bioscience retains rights of first negotiation and of first refusal to develop and commercialize various types of compounds identified both within and outside the scope of the collaboration.

        For a specified period at the conclusion of the collaboration, either party may commercialize compounds resulting from the research program, other than those that are licensed to each party as described above, for all indications, subject to the payment of royalties on sales of the compound. The first party to commence pre-clinical development of such a compound receives exclusive commercialization rights to that compound and must pay the other party royalties on sales of that compound and, in the case of compounds commercialized by Roche Bioscience, benchmark payments. After the specified period, the first party to commence pre-clinical development of such compound resulting from the research program receives exclusive commercialization rights to such a compound and may commercialize that compound without paying royalties to the other party. Either party may terminate the agreement at any time upon a material breach by the other party or in connection with the other party's bankruptcy. Roche Bioscience is committed to pay us up to $30.0 million in research payments, of which $27.5 million had been paid through December 31, 2001.

The pharmaceutical division of Japan Tobacco (Lipid Disorders)

        Effective September 1998, we established a five-year research collaboration with the pharmaceutical division of Japan Tobacco to discover, develop and market compounds that regulate the expression of genes implicated in lipid disorders. The research stage of the collaboration was terminated by Japan Tobacco at the end of the third year of the research collaboration. However, under the agreement, the parties are jointly participating in chemistry optimization and other pre-clinical activities for lead compounds that were identified during the research stage.

        The collaboration is structured to provide for the equal sharing of development expenses and profits on a worldwide basis. We retain exclusive marketing and sales rights in the United States and Canada. Japan Tobacco retains exclusive marketing and sales rights in Japan and Korea. We and Japan Tobacco jointly determine marketing strategy in other countries. Japan Tobacco will be required to make benchmark payments to us based on clinical progress.

        Either party may elect to terminate its development obligations with respect to, and profit-sharing interest in, a given collaboration product, upon prior written notice to the other party. In such case, the other party may exclusively commercialize such product, subject to the payment of a royalty to the party that elects not to participate in co-development and co-promotion. Either party may terminate

18

the agreement at any time upon a material breach by the other party of its obligations under the agreement. Japan Tobacco paid us $17.0 million in research payments related to this collaboration through September 30, 2001, the month of termination.

The pharmaceutical division of Japan Tobacco (Metabolic Diseases)

        In June 2000, we entered into a collaborative agreement with the pharmaceutical division of Japan Tobacco for the discovery, development and commercialization of products for the treatment of metabolic diseases. For purposes of the collaboration, we formed a wholly-owned subsidiary, Tularik Pharmaceutical Company, which is focused on discovering small molecule, orally available drug candidates useful to treat or prevent metabolic diseases. The subsidiary is located in South San Francisco, California.

        In connection with the collaboration, Japan Tobacco made payments of $43.5 million to us, as of December 31, 2001, and has agreed to make additional research and other payments to us of approximately $27.7 million during the remaining term of the research program being conducted under the agreement. Expenses incurred in conjunction with the development and commercialization of any compound identified by the subsidiary will be shared equally by us and Japan Tobacco. We and Japan Tobacco will also share equally all profit and/or revenues from the commercialization of any compound identified by the subsidiary during the collaboration. We retain exclusive marketing and sales rights in the United States and Canada. Japan Tobacco retains exclusive marketing and sales rights in Japan and Korea. Japan Tobacco and Tularik jointly determine marketing strategy in other countries.

        Each party may elect to terminate its co-development obligations with respect to, and profit sharing interest in, a given collaboration product upon prior written notice to the other party. In such case, the other party may continue to develop and commercialize such product at its expense, subject to an obligation to pay a royalty on sales of such product to the party that terminated its co-development and co-promotion of such product. Japan Tobacco has the option to purchase the subsidiary at various times starting in 2003 at escalating prices and an option to purchase the subsidiary upon a change of control of Tularik.

Eli Lilly (Heart Diseases)

        As part of the acquisition of the CAMD unit, we purchased a research collaboration with Eli Lilly relating to anti-thrombotics. The research portion of the Eli Lilly collaboration concluded in December 2001. However, Eli Lilly is progressing a compound with activity against Factor Xa through its pre-clinical development process. In addition to the success milestone payment received in November 2001, we are entitled to additional payments for Factor Xa inhibitors as they progress through clinical trials to registration. Royalties are payable from Eli Lilly on sales of products emerging from the collaboration.

Medarex (Oncogene Antibody Discovery)

        As part of the Oncogene Discovery Program, in January 2002, we announced a collaboration with Medarex, Inc. to develop human antibodies against three of our oncogene-encoded targets. The parties will share development expenses and profits on a worldwide basis. Tularik and Medarex will share equally clinical development costs and commercialization rights. However, either party may elect to terminate its participation in the co-promotion of products upon prior written notice to the other party, in which case the other party may exclusively commercialize a product subject to the payment of milestones and royalty payments to the party that elects not to participate in co-promotion. Either party may terminate the agreement at any time upon a material breach by the other party or in connection with the other party's bankruptcy.

19

Other Agreements

Eli Lilly (T64)

        Effective September 24, 1999, we executed a license agreement with Eli Lilly under which we obtained an exclusive, worldwide, royalty-bearing license to make, use and sell pharmaceutical products containing a compound that we refer to as T64 or lometrexol. We would owe Eli Lilly milestone and royalty payments upon successful commercialization of T64. Eli Lilly filed an IND application for T64 in August 1988, filed a Clinical Trial Exemption for the United Kingdom in June 1991 and subsequently conducted phase 1 clinical trials of T64 in cancer patients in the United States and Europe. Under the agreement, Eli Lilly granted us a license under its proprietary technology relating to T64 and also a sublicense under the exclusive license granted to Eli Lilly by Princeton University relating to T64. Eli Lilly has specified obligations under the agreement to maintain the license from Princeton University. Eli Lilly has a right to match the material terms of any offer made by a third party to Tularik for commercialization rights relating to T64 products.

        We may terminate the agreement with Eli Lilly upon written notice. Eli Lilly may terminate our license in specified major countries if we fail to use reasonable diligence to develop T64 products in these countries, and may terminate the agreement if we fail to use appropriate diligence to develop T64 products in a predetermined number of major countries. Each party has the right to terminate the agreement if the other party becomes insolvent or fails to cure a breach of the agreement. If Eli Lilly terminates the agreement, it obtains a nonexclusive, royalty-bearing, worldwide license to our technical improvements to T64.

Cold Spring Harbor Laboratory (Representational Difference Analysis)

        Amplicon Corporation had been the exclusive licensee of the rights of Cold Spring Harbor Laboratory in Representational Difference Analysis, and we acquired these rights held by Amplicon when we acquired Amplicon in 1997. In connection with our acquisition of Amplicon, we established a research collaboration with Cold Spring Harbor Laboratory. As part of this collaboration, Dr. Michael Wigler of Cold Spring Harbor Laboratory supervises research using Representational Difference Analysis to search for tumor suppressor genes and DNA sequences that are amplified in cancer. In addition, we may elect to obtain licenses under inventions made under the research collaboration. Either party may terminate the research collaboration for breach. We may terminate the license agreement after October 2002. We intend to utilize the results of this research collaboration and new discoveries from Dr. Wigler's laboratory to develop proprietary technologies for drug discovery.

Knoll (Obesity)

        In November 1998, we and Knoll established a five-year collaboration to discover, develop and market compounds that act on specified obesity-related targets. In connection with the closure of its Nottingham, U.K. research facility, Knoll terminated the collaboration, effective October 31, 2001. Knoll had paid us $12.6 million as of December 31, 2001.

The pharmaceutical division of Japan Tobacco (Obesity/Diabetes)

        In September 1996, we entered into a five-year collaboration with the pharmaceutical division of Japan Tobacco to discover, develop and market compounds in the fields of obesity and diabetes. Under a related stock purchase agreement, Japan Tobacco purchased 600,000 shares of our Series F preferred stock for $10.00 per share, the fair market value of our preferred stock at that date and on the same terms and conditions as other investors in our Series F preferred stock financing. All shares of Series F preferred stock converted into shares of common stock upon the closing of our initial public offering. In September 1998 and again in September 2000, we and the pharmaceutical division of Japan Tobacco agreed to modify the structure of the original collaboration. The collaboration ended in

20

September 2001. We retain exclusive worldwide marketing and sales rights. Japan Tobacco had paid us $15.5 million in research payments related to the obesity and diabetes collaboration as of December 31, 2001.

Merck (Viral Diseases)

        Effective December 1993, we established a five-year research collaboration with Merck to discover and develop compounds for the prevention or treatment of specified viruses. The research collaboration ended in March 1999. Under our agreement with Merck, Merck has exclusive, worldwide manufacturing and marketing rights to develop and commercialize products resulting from the human immunodeficiency virus, (or HIV) research program under the Agreement, subject to obligations to pay to us benchmark payments based on clinical progress and royalties on sales of HIV products. Merck has waived its option to assume responsibility for the development of our anti-cytomegalovirus drug candidate resulting from this Agreement. Merck had paid us $18.4 million in research payments under this agreement through March 1999.

        Under the terms of a related stock purchase agreement, Merck purchased 400,000 shares of our Series D Preferred Stock in January 1994 at $5.00 per share for an aggregate purchase price of $2.0 million. The shares of preferred stock were converted into the same number of shares of our common stock in connection with our initial public offering.

Sumitomo (Hypercholesterolemia)

        Effective January 1995, we established a five-year research and development collaboration with Sumitomo to discover, develop and market compounds that act to upregulate the gene encoding the low density lipoprotein, or LDL, receptor and thereby lower serum LDL cholesterol. This research collaboration ended in January 2000.

        Under the Agreement, Sumitomo has the right to obtain a license from Tularik to develop, manufacture and sell in specified Asian countries any of a limited number of compounds selected for pre-clinical testing during the term of the research collaboration or during a specified period thereafter. If it obtains such license, then Sumitomo must make benchmark payments to us, and royalty payments based on sales of product in specified Asian countries. Under the collaboration agreement, we obtain exclusive rights to develop, manufacture and sell products containing compounds selected for pre-clinical testing during the term of the research collaboration in the rest of the world, without payment obligation to Sumitomo. The licenses granted to us and to Sumitomo each continue following expiration of the research portion of the collaboration. Any of such limited number of compounds as to which Sumitomo may select to obtain a license will revert to us if Sumitomo does not obtain a license to them within the specified period after the termination of the research collaboration. Sumitomo paid us $15.0 million in research payments through December 31, 1999.

        Under the terms of a related stock purchase agreement, Sumitomo purchased 400,000 shares of our Series E Preferred Stock in February 1995 at $7.50 per share for an aggregate purchase price of $3.0 million. The shares of preferred stock were converted into the same number of shares of our common stock in connection with our initial public offering,

Taisho (Immune Disorders)

        Effective April 1995, we established a five-year research and development collaboration with Taisho focused on therapeutic modulation of the human immune function. In January 1998, the parties extended the research stage of the alliance for an additional year beyond that specified in the agreement. However, the research stage of the collaboration was terminated by Taisho in March 2000. We retain exclusive, worldwide, royalty-free rights to all products identified in the collaboration. Taisho had paid us $15.0 million in research payments through March 31, 2000.

21

Patents and Other Proprietary Rights

        We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents, trademarks and copyrights or are effectively maintained as trade secrets. Accordingly, patents and other proprietary rights are essential elements of our business. Our policy is to file patent applications and to protect technology, inventions and improvements to inventions that are commercially important to the development of our business. We seek patent protection in the United States and in certain foreign countries for the genes we discover, as well as therapeutic products and processes, drug screening methodologies, transgenic animals, diagnostics and other inventions based on these genes. Our commercial success will depend in part on obtaining this patent protection. To date, 75 of our patent applications have either issued as United States patents or have been allowed by the United States Patent and Trademark Office, and we have at least 95 additional patent applications pending in the United States. For some of our discoveries, corresponding foreign patent protection has been received or is pending. We also intend to seek patent protection or rely upon trade secret rights to protect other technologies that may be used to discover and characterize genes and that may be used to develop novel drugs. We seek protection, in part, through confidentiality and proprietary information agreements. We are a party to various license agreements that give us rights to use technologies in our research and development processes. These licenses (both exclusive and non-exclusive) may require us to pay royalties based on product sales.

Competition

        We face, and will continue to face, intense competition from organizations such as large pharmaceutical and biotechnology companies, as well as academic and research institutions and government agencies. Our major competitors include fully integrated pharmaceutical companies that have extensive drug discovery efforts and are developing novel small molecule pharmaceuticals. We face significant competition from organizations that are pursuing the same or similar technologies, including the discovery of targets that regulate genes, as the technologies used by us in our drug discovery efforts and from organizations that are pursuing pharmaceuticals that are competitive with our potential products.

        Many of these companies and institutions, either alone or together with their collaborative partners, have substantially greater financial resources and larger research and development staffs than we do. In addition, many of these competitors, either alone or together with their collaborative partners, have significantly greater experience than we do in:

•

drug discovery;



•

developing products;



•

undertaking pre-clinical testing and clinical trials;



•

obtaining FDA and other regulatory approvals of products; and



•

manufacturing, marketing, distributing and selling products.

        Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval or commercializing products before us. If we commence commercial product sales, we will be competing against companies with greater manufacturing, marketing, distributing and selling capabilities, areas in which we have limited or no experience.

22

        In addition, any product candidate that we successfully develop may compete with existing therapies that have long histories of safe and effective use. Competition may also arise from:

•

other drug development technologies and methods of preventing or reducing the incidence of disease;



•

new small molecules; or



•

other classes of therapeutic agents.

        Developments by others may render our product candidates or technologies obsolete or noncompetitive. We face and will continue to face intense competition from other companies for collaborative arrangements with pharmaceutical and biotechnology companies, for establishing relationships with academic and research institutions, and for licenses to proprietary technology. These competitors, either alone or with their collaborative partners, may succeed in developing technologies or products that are more effective than ours.

        Our ability to compete successfully will depend, in part, on our ability to:

•

develop proprietary products;



•

develop and maintain products that reach the market first, are technologically superior to and/or are of lower cost than other products in the market;



•

attract and retain scientific and product development personnel;



•

obtain patent or other proprietary protection for our products and technologies;



•

obtain required regulatory approvals; and



•

manufacture, market, distribute and sell any products that we develop.

Government Regulation

        The manufacturing and marketing of our potential products and our ongoing research and development activities are subject to extensive regulation by numerous governmental authorities in the United States and other countries. Before marketing in the United States, any drug developed by us must undergo rigorous pre-clinical testing and clinical trials and an extensive regulatory clearance process implemented by the FDA under the federal Food, Drug and Cosmetic Act. The FDA regulates, among other things, the development, testing, manufacture, safety, efficacy, record-keeping, labeling, storage, approval, advertising, promotion, sale and distribution of biopharmaceutical products. None of our product candidates has been approved for sale in the United States or any foreign market. The regulatory review and approval process, which includes pre-clinical testing and clinical trials of each product candidate, is lengthy, expensive and uncertain. Securing FDA approval requires the submission of extensive pre-clinical and clinical data and supporting information to the FDA for each indication to establish a product candidate's safety and efficacy. The approval process takes many years, requires the expenditure of substantial resources, involves post-marketing surveillance and may involve ongoing requirements for post-marketing studies. Before commencing clinical investigations in humans, we must submit to, and receive approval from, the FDA of an IND application. We expect to rely on some of our collaborative partners to file IND applications and generally direct the regulatory approval process for some of our products.

23

        Clinical testing must meet requirements for institutional review board oversight, informed consent and good clinical practices. Clinical testing must be conducted under FDA oversight. Before receiving FDA clearance to market a product, we must demonstrate that the product is safe and effective on the patient population that will be treated. If regulatory clearance of a product is granted, this clearance will be limited to those disease states and conditions for which the product is useful, as demonstrated through clinical studies. Marketing or promoting a drug for an unapproved indication is generally prohibited. Furthermore, clearance may entail ongoing requirements for post-marketing studies. Even if this regulatory clearance is obtained, a marketed product, its manufacturer and its manufacturing facilities are subject to continual review and periodic inspections by the FDA. Discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions on this product, manufacturer or facility, including costly recalls or withdrawal of the product from the market.

        The length of time necessary to complete clinical trials varies significantly and may be difficult to predict. Clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. Additional factors that can cause delay or termination of our clinical trials, or cause the costs of these trials to increase, include:

•

slow patient enrollment due to the nature of the protocol, the proximity of patients to clinical sites, the eligibility criteria for the study, competition with clinical trials for other drug candidates or other factors;



•

inadequately trained or insufficient personnel at the study site to assist in overseeing and monitoring clinical trials;



•

delays in approvals from a study site's review board;



•

longer treatment time required to demonstrate effectiveness or determine the appropriate product dose;



•

lack of sufficient supplies of the product candidate;



•

adverse medical events or side effects in treated patients; and



•

lack of effectiveness of the product candidate being tested.

        Any drug is likely to produce some toxicities or undesirable side effects in animals and in humans when administered at sufficiently high doses and/or for sufficiently long periods of time. Unacceptable toxicities or side effects may occur at any dose level at any time in the course of studies in animals designed to identify unacceptable effects of a drug candidate, known as toxicological studies, or in clinical trials of our potential products. The appearance of any unacceptable toxicity or side effect could cause us or regulatory authorities to interrupt, limit, delay or abort the development of any of our product candidates and could ultimately prevent their marketing clearance by the FDA or foreign regulatory authorities for any or all targeted indications.

        All of our contract manufacturers and we are also required to comply with the applicable FDA current good manufacturing practice regulations. Good manufacturing practice regulations include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Manufacturing facilities are subject to inspection by the FDA. These facilities must be approved before we can use them in commercial manufacturing of our products. Our contract manufacturers or we may not be able to comply with the applicable good manufacturing practice requirements and other FDA regulatory requirements. If our contract manufacturers or we fail to comply, our business, financial condition and results of operations may be materially adversely affected.

        Outside the United States, our ability to market a product is contingent upon receiving a marketing authorization from the appropriate regulatory authorities. The requirements governing the

24

conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from country to country. At present, foreign marketing authorizations are applied for at a national level, although within the European Community registration procedures are available to companies wishing to market a product in more than one EC member state. If the regulatory authority is satisfied that adequate evidence of safety, quality and efficacy has been presented, a marketing authorization will be granted. This foreign regulatory approval process involves all of the risks associated with FDA clearance discussed above.

Employees

        As of December 31, 2001, we had 380 full-time employees. Of our total workforce, 331 were engaged in research and development activities and 49 were engaged in general and administration functions. None of our employees is represented by a collective bargaining agreement, nor have we experienced work stoppages. We believe that our relations with our employees are good. Our future success is substantially dependent on the performance of our senior management and key scientific personnel and our continuing ability to attract and retain highly qualified scientific and managerial personnel.

25

RISK FACTORS

An investment in our common stock is risky. You should carefully consider the following risks, as well as the other information contained in this annual report on Form 10-K. If any of the following risks actually occurs, our business could be harmed. In that case, the trading price of our common stock could decline, and you might lose all or part of your investment. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us, or that we currently see as immaterial, may also harm our business. If any of these additional risks or uncertainties occur, the trading price of our common stock could decline, and you might lose all or part of your investment.

If we continue to incur operating losses for a period longer than anticipated, we may be unable to continue our operations.

        We have generated operating losses since we began operations in November 1991. The extent of our future losses and the timing of potential profitability are highly uncertain, and we may never achieve profitable operations. We have been engaged in discovering and developing drugs since inception, which has required, and will continue to require, significant research and development expenditures. To date, we have no products that have generated any revenue. As of December 31, 2001, we had an accumulated deficit of approximately $179.2 million. Even if we succeed in developing a commercial product, we expect to incur losses for at least the next several years, and we expect that our losses will increase as we expand our research and development activities. If the time required to generate product revenues and achieve profitability is longer than anticipated, we may not be able to continue our operations. If we fail to obtain the necessary capital, we will not be able to fund our operations.

Because our product candidates are in an early stage of development, there is a high risk of failure.

        We have no products that have received regulatory approval for commercial sale. All of our product candidates are in early stages of development, and we face the risks of failure inherent in developing drugs based on new technologies. None of our prospective products, including T67, T607, T64 and T611, is expected to be commercially available until at least 2005.

        Two of our drug candidates, T67 and T607, operate in a similar manner. Based on results at any stage of clinical trials, we may decide to discontinue development of one or both of these compounds. Additionally, even if the clinical results are favorable for both compounds, we may decide to commercialize only one of the compounds.

        Our products must satisfy rigorous standards of safety and efficacy before they can be approved by the FDA and international regulatory authorities for commercial use. We will need to conduct significant additional research, pre-clinical testing and clinical trials before we can file applications with the FDA for product approval. Clinical trials are expensive and have a high risk of failure. In addition, to compete effectively, our products must be easy to use, cost-effective and economical to manufacture on a commercial scale. We may not achieve any of these objectives. Any of our products may not attain market acceptance. Typically, there is a high rate of attrition for products in pre-clinical testing and clinical trials. Also, third parties may develop superior products or have proprietary rights that preclude us from marketing our products. If research and clinical testing is not successful or we fail to obtain regulatory approval, we will be unable to market and sell our future product candidates.

The progress and results of our animal and human testing are uncertain.

        Pre-clinical testing and clinical development are long, expensive and uncertain processes. It may take us several years to complete our testing, and failure can occur at any stage of testing. Interim results of trials do not necessarily predict final results, and acceptable results in early trials may not be repeated in later trials. Success in pre-clinical testing and early clinical trials does not ensure that later

26

clinical trials will be successful. For example, a single partial response or even a small number of partial responses are not necessarily indicative of success in demonstrating efficacy in phase 2 and phase 3 clinical testing. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. Commercialization of our product candidates depends upon successful completion of clinical trials. We must provide the FDA and foreign regulatory authorities with clinical data that demonstrates the safety and efficacy of our products before they can be approved for commercial sale. None of the product candidates that we have internally developed or licensed have advanced beyond the stage of human testing designed to determine efficacy, known as phase 2 clinical trials.

        Any clinical trial may fail to produce results satisfactory to the FDA. Pre-clinical and clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory approval. Negative or inconclusive results or adverse medical events during a clinical trial could cause a clinical trial to be repeated or a program to be terminated. We typically rely on third-party clinical investigators to conduct our clinical trials and other third-party organizations to perform data collection and analysis and, as a result, we may face additional delaying factors outside our control.

        We do not know whether planned clinical trials will begin on time, will be completed on schedule or at all or will result in marketable products. Our product development costs will increase if we have delays in testing or approvals or if we need to perform more or larger clinical trials than planned. If the delays are significant, our financial results and the commercial prospects for our products will be harmed, and our ability to become profitable will be delayed.

        Three of our first four clinical candidates are cytotoxic agents directed to the treatment of cancer. Anti-cancer drugs of this type generally have a narrow therapeutic window between efficacy and toxicity. If unacceptable toxicity is observed in clinical trials, the trials may be terminated at an early stage. Drug-related deaths may occur in clinical trials with anti-cancer drugs, because drugs for the treatment of cancer are typically dangerous and cancer patients are critically ill. Several deaths occurred during Eli Lilly's phase 1 clinical trials of T64.

        We do not know whether our existing or any future clinical trials will demonstrate safety and efficacy sufficient to obtain the requisite regulatory approvals or will result in marketable products. Our failure to adequately demonstrate the safety and efficacy of our products under development will prevent receipt of FDA approval and, ultimately, commercialization of our products.

        For additional information concerning the testing of our prospective products, see "Business—Government Regulation."

Because we must obtain regulatory approval to market our products in the United States and foreign jurisdictions, we cannot predict whether or when we will be permitted to commercialize our products.

        The pharmaceutical industry is subject to stringent regulation by a wide range of authorities. We cannot predict whether regulatory clearance will be obtained for any product we develop. A pharmaceutical product cannot be marketed in the United States until it has completed rigorous pre-clinical testing and clinical trials and an extensive regulatory clearance process implemented by the FDA. Satisfaction of regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and requires the expenditure of substantial resources. Of particular significance are the requirements covering research and development, testing, manufacturing, quality control, labeling and promotion of drugs for human use.

        Before commencing clinical trials in humans, we must submit and receive approval from the FDA of an IND application. Clinical trials are subject to oversight by institutional review boards and the FDA and:

•

must be conducted in conformance with the FDA's good laboratory practice regulations;

27

•

must meet requirements for institutional review board oversight;



•

must meet requirements for informed consent;



•

must meet requirements for good clinical practices;



•

are subject to continuing FDA oversight;



•

may require large numbers of test subjects; and



•

may be suspended by us or the FDA at any time if it is believed that the subjects participating in these trials are being exposed to unacceptable health risks or if the FDA finds deficiencies in the IND application or the conduct of these trials.

        While we intend to file one to two INDs per year over the next several years, no assurance can be made that we will be able to do so or that the FDA will approve any IND in a timely manner or at all.

        Before receiving FDA clearance to market a product, we must demonstrate that the product is safe and effective on the patient population that will be treated. Data obtained from pre-clinical and clinical activities are susceptible to varying interpretations that could delay, limit or prevent regulatory clearances. In addition, delays or rejections may be encountered based upon additional government regulation from future legislation or administrative action or changes in FDA policy during the period of product development, clinical trials and FDA regulatory review. Failure to comply with applicable FDA or other applicable regulatory requirements may result in criminal prosecution, civil penalties, recall or seizure of products, total or partial suspension of production or injunction, as well as other regulatory action against our potential products or us. Additionally, we have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approval.

        If regulatory clearance of a product is granted, this clearance will be limited to those disease states and conditions for which the product is demonstrated through clinical trials to be safe and efficacious. We cannot ensure that any compound developed by us, alone or with others, will prove to be safe and efficacious in clinical trials and will meet all of the applicable regulatory requirements needed to receive marketing clearance.

        Outside the United States, our ability to market a product is contingent upon receiving a marketing authorization from the appropriate regulatory authorities. This foreign regulatory approval process includes all of the risks associated with FDA clearance described above.

        For additional information concerning regulatory approval of our prospective products, see "Business—Government Regulation."

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

        We had 380 employees as of December 31, 2001. Our success depends on our continued ability to attract, retain and motivate highly qualified management and scientific personnel and on our ability to develop and maintain important relationships with leading academic institutions and scientists. Competition for personnel and academic collaborations is intense. In particular, our product development programs depend on our ability to attract and retain highly-skilled chemists and clinical development personnel. The loss of the services of any of these personnel, in particular, David V. Goeddel, our Chief Executive Officer, could impede significantly the achievement of our research and development objectives. If we fail to negotiate additional acceptable collaborations with academic institutions and scientists, or if our existing academic collaborations are unsuccessful, our product development programs may be delayed. In addition, we will need to hire additional personnel and develop additional academic collaborations as we continue to expand our research and development

28

activities. We do not know if we will be able to attract, retain or motivate personnel or maintain relationships.

The drug discovery methods we employ are relatively new and may not lead to the development of drugs.

        The drug discovery methods we employ based upon the regulation of gene expression are relatively new. We do not know if these methods will lead to the discovery of commercially-viable drugs. None of our cancer product candidates undergoing clinical testing acts by the regulation of gene expression. There is limited scientific understanding generally relating to the regulation of gene expression and the role of genes in complex diseases, and relatively few products based on gene discoveries have been developed and commercialized by drug manufacturers. Even if we are successful in identifying the pathways that cells use to control the expression of genes associated with specific diseases, these discoveries may not lead to the development of drugs. Furthermore, our drug discovery efforts are focused on a number of target genes, the functions of which have not yet been fully identified. As a result, the safety and efficacy of drugs that alter the expression of these genes have not yet been established. Therefore, we cannot assure you that our research and development activities will result in any commercially-viable products. We expect to continue to in-license or acquire additional product candidates to augment the results of our internal research activities, and in-licensed candidates may not prove to be successful.

If we cannot maintain our current corporate collaborations and enter into new corporate collaborations, our product development could be delayed.

        We rely, to a significant extent, on our corporate collaborators to provide funding in support of our research and to jointly conduct some research and pre-clinical testing functions. If any of our corporate collaborators were to breach or terminate their agreement with us or otherwise fail to conduct the collaborative activities successfully and in a timely manner, the pre-clinical or clinical development or commercialization of the affected product candidates or research programs could be delayed or terminated. We cannot control the amount and timing of resources our corporate collaborators devote to our programs or potential products. In addition, we expect to rely on our corporate collaborators for commercialization of some of our products.

        The continuation of any of our partnered drug discovery and development programs may be dependent on the periodic renewal of our corporate collaborations. All of our corporate collaborations have terms of five or fewer years, which is less than the period required for the discovery, clinical development and commercialization of most drugs. Each of our corporate collaboration agreements provides that, upon expiration of a specified period after commencement of the agreement, the corporate collaborator has the right to terminate the agreement on short notice, and each corporate collaboration agreement, other than the agreement with Roche Bioscience, provides that these terminations do not require cause. Our collaboration with Merck was terminated by Merck in March 1999, our collaboration with Sumitomo expired in January 2000, our collaboration with Taisho was terminated by Taisho in March 2000, our collaboration with Knoll was terminated in October 2001, our collaboration with the pharmaceutical division of Japan Tobacco on obesity expired in September 2001 and the research portion of our collaboration with the pharmaceutical division of Japan Tobacco on lipid disorders was terminated in September 2001. Our existing corporate collaboration agreements also may terminate before the full term of the collaborations. Moreover, we may not be able to renew these collaborations on acceptable terms, if at all. If funding from one or more of our corporate collaborations were reduced or terminated, we would be required to devote additional internal resources to product development or scale back or terminate some development programs or seek alternative corporate collaborators.

29

        There have been a significant number of business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future corporate collaborators. If business combinations involving our corporate collaborators were to occur, the effect could be to diminish, terminate or cause delays in one or more of our corporate collaborations.

        Until recently, our corporate collaboration strategy focused on partnering with pharmaceutical companies to fund our research in the regulation of gene expression. Over the past two years, as our partnered and unpartnered research has led to product candidates, our corporate collaboration strategy has evolved. In addition to seeking collaborations for our research-stage programs, we also seek to enter into collaborations for the development of compounds discovered through our research and development efforts. The timing of these collaborations may be linked to clinical results of our product candidates. As a result, we expect our net spending on research and development to increase significantly and that our corporate collaborators will fund a smaller percentage of our expenses than historically.

        We may not be able to negotiate additional corporate collaborations on acceptable terms, if at all, and these collaborations may not be successful. Our quarterly operating results may fluctuate significantly depending on the initiation of new corporate collaboration agreements or the termination of existing corporate collaboration agreements.

If we do not realize value from our retained commercialization rights, we may not achieve our commercial objectives.

        If we do not effectively exploit the commercialization rights we have retained, we may not achieve profitability. In most of our corporate collaborations, we have retained various commercialization rights for the development and marketing of pharmaceutical products, including rights for specific pharmaceutical indications or in specified geographical regions. For a description of programs for which we have retained commercialization rights, see "Business—Corporate Collaborations." We may take advantage of these currently retained rights directly or may exploit retained rights through collaborations with others. The value of these rights, if any, will be largely derived from our ability, directly or with collaborators, to develop and commercialize drugs, the success of which is also uncertain.

        The exploitation of retained commercialization rights requires sufficient capital; technological, product development, manufacturing and regulatory expertise and resources; and marketing and sales personnel. We may not be able to develop or obtain these resources in sufficient quantity, or of sufficient quality, to enable us to achieve our objectives. To the extent that we are required to rely on third parties for these resources, failure to establish and maintain our relationships will affect our ability to realize value from our retained commercialization rights. If we seek to commercialize products for which we have retained rights through joint ventures or collaborations, we may be required to relinquish material rights on terms that may not be favorable to us. We do not know whether we will be able to enter into any agreements on acceptable terms, if at all, or whether we will be able to realize any value from our retained commercialization rights.

If our competitors develop and market products that are more effective than our product candidates, our commercial opportunity will be reduced or eliminated.

        Our commercial opportunity will be reduced or eliminated if our competitors develop and market products that are more effective, have fewer side effects or are less expensive than our product candidates. With respect to our drug discovery programs, other companies have product candidates in clinical trials to treat each of the diseases for which we are seeking to discover and develop product candidates. These competing potential drugs are further advanced in development than are any of our potential products and may result in effective, commercially successful products. Even if our

30

collaborators or we are successful in developing effective drugs, our products may not compete effectively with these products or other successful products. Our competitors may succeed in developing and marketing products either that are more effective than those that we may develop, alone or with our collaborators, or that are marketed before any products we develop are marketed.

        Our competitors include fully integrated pharmaceutical companies and biotechnology companies that currently have drug and target discovery efforts and universities and public and private research institutions. In addition, companies pursuing different but related fields represent substantial competition. Many of the organizations competing with us have substantially greater capital resources, larger research and development staffs and facilities, greater experience in drug development and in obtaining regulatory approvals and greater marketing capabilities than we do. These organizations also compete with us to:

•

attract qualified personnel;



•

attract parties for acquisitions, joint ventures or other collaborations; and



•

license the proprietary technology of these institutions that is competitive with the technology we are practicing.

        If our competitors successfully enter into partnering arrangements or license agreements with academic research institutions, we will then be precluded from pursuing those specific opportunities. Since each of these opportunities is unique, we may not be able to find an acceptable substitute. For additional information regarding the competition we face, see "Business—Competition."

Because it is difficult and costly to protect our proprietary rights, we cannot ensure their protection.

        Our commercial success will depend, in part, on obtaining patent protection on our products and successfully defending these patents against third-party challenges. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date. Accordingly, we cannot predict with certainty the breadth of claims allowed in our patents and other companies' patents.

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

•

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



•

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



•

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



•

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



•

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



•

we will develop additional proprietary technologies that are patentable; or



•

the patents of others will not have an adverse effect on our ability to do business.

        In addition, we could incur substantial costs in litigation if we are required to defend against patent suits brought by third parties or if we initiate these suits.

        Others may have filed and in the future are likely to file patent applications covering genes, gene products or therapeutic products that are similar or identical to ours. We cannot assure you that any

31

patent applications or issued patents of others will not have priority over our patent applications or issued patents. Any legal action against our collaborators or us claiming damages and seeking to enjoin commercial activities relating to the affected products and processes could, in addition to subjecting us to potential liability for damages, require our collaborators or us to obtain a license to continue to manufacture or market the affected products and processes. We cannot predict whether we or our collaborators would prevail in any of these actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. We believe that there may be significant litigation in the industry regarding patent and other intellectual property rights. If we become involved in litigation, it could consume a substantial portion of our managerial and financial resources.

        We rely on trade secrets to protect technology where we believe patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. While we require employees, academic collaborators and consultants to enter into confidentiality agreements, we may not be able to adequately protect our trade secrets or other proprietary information.

        We are a party to various license agreements that give us rights to use specified technologies in our research and development processes. If we are not able to continue to license this technology on commercially reasonable terms, our product development and research may be delayed. In addition, we generally do not control the patent prosecution of in-licensed technology and, accordingly, are unable to exercise the same degree of control over this intellectual property as we exercise over our internally developed technology.

        Our research collaborators and scientific advisors have rights to publish data and information in which we have rights. If we do not apply for patent protection prior to such publication or if we cannot maintain the confidentiality of our technology and other confidential information in connection with our collaborations, then our ability to receive patent protection or protect our proprietary information will be imperiled. See "Business—Patents and Other Proprietary Rights."

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

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

•

cost of treatment;



•

pricing and availability of alternative products;



•

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



•

relative convenience and ease of administration; and



•

prevalence and severity of adverse side effects associated with treatment.

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

        If third parties do not successfully carry out their contractual duties or meet expected deadlines, we will not be able to obtain regulatory approvals for our drug candidates and will not be able to successfully commercialize our drug candidates for targeted diseases. We do not have the ability to

32

independently conduct clinical trials for drug candidates, and we rely on third parties such as contract research organizations, medical institutes and clinical investigators to perform this function. If these third parties do not perform satisfactorily, our clinical trials may be extended or delayed. We may not be able to locate any necessary acceptable replacements or enter into favorable agreements with them, if at all.

If we are unable to contract with third parties to manufacture our products in sufficient quantities and at an acceptable cost, we may be unable to meet demand for our products and lose potential revenues.

        Completion of our clinical trials and commercialization of our product candidates require access to, or development of, facilities to manufacture a sufficient supply of our product candidates. We will depend on our collaborators or third parties for the manufacture of compounds for pre-clinical, clinical and commercial purposes in their FDA-approved manufacturing facilities. Our products may be in competition with other products for access to these facilities. Consequently, our products may be subject to manufacturing delays if collaborators or outside contractors give other products greater priority than our products. For this and other reasons, our collaborators or third parties may not be able to manufacture these products in a cost-effective or timely manner. If not performed in a timely manner, the clinical trial development of our product candidates or their submission for regulatory approval could be delayed, and our ability to deliver products on a timely basis could be impaired or precluded. We may not be able to enter into any necessary third-party manufacturing arrangements on acceptable terms, if at all. Our current dependence upon others for the manufacture of our products may adversely affect our future profit margin and our ability to commercialize products on a timely and competitive basis. In particular, our current supply of finished product of T64 is limited and is not sufficient for completion of all phases of clinical development. The manufacture of T64 is complex, and it may be difficult to efficiently manufacture or to secure an adequate supply of this compound in a timely manner or on an economical basis. We do not intend to develop or acquire facilities for the manufacture of product candidates for clinical trials or commercial purposes in the foreseeable future.

If we are unable to create sales, marketing and distribution capabilities or enter into agreements with third parties to perform these functions, we will not be able to commercialize products.

        We currently have no sales, marketing or distribution capability. In order to commercialize any products, we must internally develop sales, marketing and distribution capabilities or make arrangements with a third party to perform these services. We intend to market some products directly and rely on relationships with one or more pharmaceutical companies with established distribution systems and direct sales forces to market other products. To market any of our products directly, we must develop a marketing and sales force with technical expertise and with supporting distribution capabilities. We may not be able to establish in-house sales and distribution capabilities or relationships with third parties. To the extent that we enter into co-promotion or other licensing arrangements, our product revenues are likely to be lower than if we directly marketed and sold our products, and any revenues we receive will depend upon the efforts of third parties, which efforts may not be successful and are outside of our control.

Our ability to generate revenues will be diminished if we fail to obtain acceptable prices or an adequate level of reimbursement for our products from third-party payors.

        The continuing efforts of government and third-party payors to contain or reduce the costs of health care through various means will limit our commercial opportunity. For example, in some foreign markets, pricing and profitability of prescription pharmaceuticals are subject to government control. In the United States, we expect that there will continue to be a number of federal and state proposals to implement similar government control. In addition, increasing emphasis on managed care in the United States will continue to put pressure on the pricing of pharmaceutical products. Cost control initiatives

33

could decrease the price that any of our collaborators or we would receive for any products in the future. Further, cost control initiatives could adversely affect our collaborators' ability to commercialize our products and our ability to realize revenues from this commercialization.

        Our ability to commercialize pharmaceutical products, alone or with collaborators, may depend in part on the extent to which reimbursement for the products will be available from:

•

government and health administration authorities;



•

private health insurers; and



•

other third-party payors.

        Significant uncertainty exists as to the reimbursement status of newly approved health care products. Third-party payors, including Medicare, are challenging the prices charged for medical products and services. Government and other third-party payors increasingly are attempting to contain health care costs by limiting both coverage and the level of reimbursement for new drugs and by refusing, in some cases, to provide coverage for uses of approved products for disease indications for which the FDA has not granted labeling approval. Third-party insurance coverage may not be available to patients for any products we discover and develop, alone or with collaborators. If government and other third-party payors do not provide adequate coverage and reimbursement levels for our products, the market acceptance of these products may be reduced.

If conflicts arise between our collaborators, advisors or directors and us, they may act in their self-interest, which may be adverse to your best interests.

        If conflicts arise between us and our corporate or academic collaborators or scientific advisors, the other party may act in its self-interest and not in the interest of our stockholders. Some of our corporate or academic collaborators are conducting multiple product development efforts within each disease area that is the subject of the collaboration with us. Generally, in each of our collaborations, we have agreed not to conduct independently, or with any third party, any research that is competitive with the research conducted under our collaborations. Our collaborations may have the effect of limiting the areas of research that we may pursue, either alone or with others. Our collaborators, however, may develop, either alone or with others, products in related fields that are competitive with the products or potential products that are the subject of these collaborations. Competing products, either developed by the collaborators or to which the collaborators have rights, may result in their withdrawal of support for our product candidates.

        Genentech, Inc. is a potential competitor of ours and may be one of our investors. David V. Goeddel, our Chief Executive Officer and a member of our Board of Directors, is a consultant to Genentech. A. Grant Heidrich, III, Chairman of our Board of Directors, also serves on the board of directors of Millennium Pharmaceuticals, Inc. Millennium has publicly disclosed that it is pursuing programs that are competitive with, and may have scientific overlap with, our programs.

If we fail to obtain the capital necessary to fund our operations, we will be unable to successfully develop products.

        We expect that additional financing will be required in the future to fund operations. We do not know whether additional financing will be available when needed, or that, if available, we will obtain financing on terms favorable to our stockholders or us. We have consumed substantial amounts of cash to date and expect capital outlays and operating expenditures to increase over the next several years as we expand our infrastructure and research and development activities.

        We believe that existing cash and investment securities and anticipated cash flow from existing collaborations will be sufficient to support our current operating plan through 2003. We have based this

34

estimate on assumptions that may prove to be wrong. Our future capital requirements depend on many factors that affect our research, development, collaboration and sales and marketing activities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."

        We may raise additional financing through public or private equity offerings, debt financings or additional corporate collaboration and licensing arrangements. To the extent we raise additional capital by issuing equity securities, our stockholders may experience dilution. To the extent that we raise additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us. If adequate funds are not available, we will not be able to continue developing our products.

If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may be required to limit commercialization of our products.

        The testing and marketing of medical products entail an inherent risk of product liability. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of pharmaceutical products we develop, alone or with corporate collaborators. We currently carry clinical trial insurance but do not carry product liability insurance. We or our corporate collaborators may not be able to obtain insurance at a reasonable cost, if at all. While under various circumstances we are entitled to be indemnified against losses by our corporate collaborators, indemnification may not be available or adequate should any claims arise.

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

        Our directors, executive officers and holders of 5% or more of our outstanding common stock and their affiliates currently beneficially own approximately 37.4% of our common stock. Accordingly, they collectively have the ability to determine the election of all of our directors and to determine the outcome of most corporate actions requiring stockholder approval. They may exercise this ability in a manner that advances their best interests and not necessarily those of other stockholders.

        In particular, BZ Group Holding Limited, together with its subsidiaries, including PharmaVision AG, currently owns approximately 24.2% of our outstanding common stock. David V. Goeddel, our Chief Executive Officer and a member of our Board of Directors, is member of the board of directors of PharmaVision.

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

        The market prices for securities of biotechnology companies, including our stock price, have been highly volatile and may continue to be highly volatile in the future. In the year 2001, our common stock traded between $15.95 and $30.50. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock:

•

adverse results or delays in clinical trials;



•

market conditions for pharmaceutical and biotechnology stocks generally;



•

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



•

developments concerning proprietary rights, including patents;



•

developments concerning our collaborations;

35

•

publicity regarding actual or potential medical results relating to products under development by our competitors or us;



•

regulatory developments in the United States and foreign countries;



•

litigation;



•

economic and other external factors or other disasters or crises; or



•

period-to-period fluctuations in financial results.

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

        Our research and development activities involve the controlled use of potentially harmful biological materials as well as hazardous materials, chemicals and various radioactive compounds. 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, and any liability could exceed 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.

Anti-takeover provisions in our charter documents and under Delaware law may make an acquisition of us, which may be beneficial to our stockholders, more difficult.

        Provisions of our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. These provisions:

•

establish that members of the Board of Directors may be removed only for cause upon the affirmative vote of stockholders owning at least two-thirds of our capital stock;



•

authorize the issuance of "blank check" preferred stock that could be issued by our Board of Directors to increase the number of outstanding shares and thwart a takeover attempt;



•

limit who may call a special meeting of stockholders;



•

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



•

establish advance notice requirements for nominations for election to the Board of Directors or for proposing matters that can be acted upon at stockholder meetings.

The financial results of Cumbre may impact our future operating results.

        Cumbre, our majority-owned subsidiary, raised $26.2 million by issuing Series B preferred stock in September 2001. While one of our executive officers is on the board of directors of Cumbre and one of Cumbre's founders is on our board of directors, Cumbre's management operating goals are different from our goals. Cumbre's capital expenditures and operating expenses are expected to grow at a faster rate than ours, which may have a significant impact on our future consolidated operating results.

36

Item 2. Properties

        Our facilities consist of approximately 317,500 square feet of research and office space in the United States, the United Kingdom and Germany.

        We lease approximately 263,000 square feet in South San Francisco, California, of which approximately 147,000 and 116,000 square feet are leased to us until 2013 and 2008, respectively. We have options to renew our leases for two additional periods of five years each on the 147,000-square-foot facility and one additional period of five years on the 116,000-square-foot facility. In December 2001, we entered into a build-to-suit lease for 3 buildings in South San Francisco totaling approximately 280,000 square feet. Approximately 187,000 square feet of the additional facilities will become available in May 2003, and approximately 93,000 square feet will become available in four segments of approximately 23,300 square feet each from May 2004 through November 2005.

        In May 2001, our subsidiary Cumbre Inc. leased approximately 23,000 square feet of research and office space in Dallas, Texas. The lease expires in 2007 but could be extended by exercising two five-year renewal options. We are the guarantor of this lease until Cumbre achieves a net worth of $100 million.

        We have leased approximately 14,500 square feet of research and office space located at Greenlawn, New York until 2005. We leased approximately 3,000 square feet in Regensburg, Germany. Our lease in Germany is cancelable at anytime by providing a six-month advance notice. We lease approximately 14,000 square feet in Macclesfield, United Kingdom until September 2002. Negotiations for new facilities in Macclesfield are currently on-going.

Item 3. Legal Proceedings

        None.

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

        No matters were submitted to a vote of our security holders during the last quarter of the year ended December 31, 2001.

37

PART II

Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters

        Our common stock has traded on The Nasdaq Stock Market® under the symbol "TLRK" since December 10, 1999. As of February 28, 2002, there were approximately 6,300 stockholders of record of our common stock. The following table sets forth, for the period indicated, the high and low bid quotations for our common stock as reported by The Nasdaq Stock Market.

		Common Stock Price
		High		Low
Year Ended December 31, 2000
	First Quarter	$	99.25	$	27.38
	Second Quarter	$	40.00	$	20.00
	Third Quarter	$	36.69	$	25.75
	Fourth Quarter	$	35.13	$	24.63
Year Ended December 31, 2001
	First Quarter	$	30.50	$	16.50
	Second Quarter	$	27.70	$	16.13
	Third Quarter	$	26.68	$	15.95
	Fourth Quarter	$	26.08	$	18.07

        We have not paid cash dividends on our common stock, and currently do not plan to pay any cash dividends in the foreseeable future.

38

Item 6. Selected Consolidated Financial Data

The following Selected Consolidated Financial Data should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8. Financial Statements and Supplementary Data" included elsewhere in this annual report on Form 10-K.

		Year Ended December 31,
		2001			2000			1999			1998			1997
		(In thousands, except per share amounts)
Consolidated Statements of Operations Data:
Revenue:
	Collaborative research and development	$	32,632		$	25,487		$	23,806		$	21,362		$	20,009
Operating expenses:
	Research and development		91,167			64,781			44,550			33,273			26,546
	Acquired in-process research and development		—			—			3,000			—			18,902
	General and administrative		11,916			15,590			7,015			5,024			4,020
			103,083			80,371			54,565			38,297			49,468
Loss from operations			(70,451	)		(54,884	)		(30,759	)		(16,935	)		(29,459	)
Interest income and realized gains on investments, net			21,882			16,427			5,221			6,396			4,085
Net loss before cumulative effect of a change in accounting principle			(48,569	)		(38,457	)		(25,538	)		(10,539	)		(25,374	)
Cumulative effect of a change in accounting principle			—			(4,800	)		—			—			—
Net loss		$	(48,569	)	$	(43,257	)	$	(25,538	)	$	(10,539	)	$	(25,374	)
Net loss per share before cumulative effect of a change in accounting principle, basic and diluted		$	(0.99	)	$	(0.82	)	$	(2.70	)	$	(1.55	)	$	(4.19	)
Net loss per share from cumulative effect of a change in accounting principle, basic and diluted		$	—		$	(0.10	)	$	—		$	—		$	—
Net loss per share, basic and diluted		$	(0.99	)	$	(0.92	)	$	(2.70	)	$	(1.55	)	$	(4.19	)
Weighted average shares used in computing basic and diluted net loss per share			49,051			46,845			9,451			6,791			6,063
Pro forma results as if revenue recognition policy had been adopted retroactively:
Pro forma net loss					$	(38,457	)	$	(23,938	)	$	(12,439	)	$	(29,874	)
Pro forma net loss per share, basic and diluted					$	(0.82	)	$	(2.53	)	$	(1.83	)	$	(4.93	)

        Prior to January 1, 2000 we have recognized nonrefundable technology access fees received in connection with collaboration agreements as revenue when received, when the technology has been transferred and when all of our contractual obligations relating to the fees had been fulfilled. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin, or SAB, No. 101—Revenue Recognition in Financial Statements that, among other things, describes the SEC staff's position on the recognition of certain nonrefundable upfront fees received in connection with research collaborations. As reported in our quarterly report on Form 10-Q for the first quarter of 2000 and effective January 1, 2000, we adopted SAB 101, which changed our method of accounting for

39

nonrefundable technology access fees to recognize such fees over the term of the related research collaboration agreement. The $4.8 million cumulative effect of a change in accounting principle was reported as a charge in the quarter ended March 31, 2000 and is reflected as a charge for the year ended December 31, 2000. The cumulative effect was initially recorded as deferred revenue that will be recognized as revenue over the remaining contractual terms of the collaborative research and development agreements. The pro forma net losses for 1997 through 2000 reflect the effect of applying retroactively the new method of accounting under SAB 101.

	As of December 31,
	2001			2000			1999			1998			1997
	(In thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and investments	$	241,926		$	278,903		$	203,029		$	121,374		$	125,406
Working capital		189,243			224,906			184,553			94,535			116,527
Total assets		293,282			315,098			230,438			136,778			133,522
Long-term obligations, less current portion		10,801			10,285			10,097			4,734			3,456
Deferred compensation		(351	)		(1,674	)		(4,586	)		(679	)		—
Accumulated deficit		(179,221	)		(130,652	)		(87,395	)		(61,857	)		(51,318	)
Total stockholders' equity	$	207,971		$	247,298		$	197,569		$	110,898		$	120,856

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

You should read the following discussion and analysis in conjunction with "Item 6. Selected Consolidated Financial Data," and "Item 8. Financial Statements and Supplementary Data" included elsewhere in this annual report on Form 10-K.

Overview

        Since our founding in November 1991, we have been engaged in the discovery and development of a broad range of novel, orally available medicines, most of which act through the regulation of gene expression. We have incurred net losses since inception and expect to incur substantial and increasing losses for at least the next several years as we expand our research and development activities. To date, we have funded our operations primarily through the sale of equity securities, non-equity payments from collaborators, capital lease financings and interest income. As of December 31, 2001, our accumulated deficit was approximately $179.2 million. We received aggregate research funding under research and development collaborations between 1997 and 2001 as follows:

	Year Ended December 31,
	2001		2000		1999		1998		1997
	(in millions)
Research funding received	$	18.4	$	49.2	$	23.7	$	29.8	$	20.0

        Payments from research collaborations, other than milestone payments, are accounted as deferred revenue which is recognized as revenue over the terms of each collaboration. We expect our sources of revenue, if any, for the next several years to consist primarily of payments under corporate collaborations and interest income. The process of developing our products will require significant additional research and development, pre-clinical testing and clinical trials, as well as regulatory approval. These activities, together with our general and administrative expenses, are expected to result in substantial operating losses for the foreseeable future. We will not receive product revenue unless we or our collaborative partners complete clinical trials, obtain regulatory approval and successfully commercialize one or more of our products.

40

        In order to accelerate product commercialization and finance research activities, we are currently engaged in collaborations with leading pharmaceutical companies as summarized below:

Collaborator	Research Area	Commencement Date
Medarex	Cancer	January 2002
Eli Lilly	Heart Diseases	Business acquired in July 2001
The pharmaceutical division of Japan Tobacco	Metabolic Diseases	June 2000
The pharmaceutical division of Japan Tobacco	Lipid Disorders	September 1998 - research portion of the collaboration terminated in September 2001
Roche Bioscience	Inflammation	July 1997

        Under the terms of the collaborations identified above, as of December 31, 2001, the pharmaceutical division of Japan Tobacco and Roche Bioscience had agreed to provide future research funding of up to approximately $30.2 million over a three-year period as set forth in the table below, including $18.5 million subject to cancellation at the option of the pharmaceutical division of Japan Tobacco under the metabolic diseases collaboration, as well as additional payments upon the achievement of specific research and development milestones and royalties upon commercialization of any products. We expect to receive research funding under existing collaborations as follows as of December 31, 2001:

	Year Ended December 31,
	2004		2003		2002
	(in millions)
Contractual future research funding	$	9.2	$	9.2	$	11.8

        Not included in this table is a $5.0 million equity investment made in January 2002 by Medarex in connection with a collaboration to develop therapeutic antibodies for the treatment of a variety of cancers based on targets discovered by Tularik. If we do not enter into new corporate collaborations, collaborative research and development revenue and cash received from collaborative partners will decline for the foreseeable future.

License Agreement

        Effective September 24, 1999, we executed a license agreement with Eli Lilly under which we obtained an exclusive, worldwide, royalty-bearing license to make, use and sell pharmaceutical products containing a compound that we refer to as T64 and is also known as lometrexol. In connection with this agreement, we paid $3.0 million to Eli Lilly as an initial license fee and agreed to make specified milestone and royalty payments upon successful commercialization of T64. Under the agreement, Eli Lilly granted us a license to its proprietary technology relating to T64 and also a sublicense under an exclusive license granted to Eli Lilly by Princeton University relating to T64. Eli Lilly has specified obligations under the agreement to maintain the license from Princeton University. Eli Lilly has a right to match the material terms of any offer made by a third party for commercialization rights relating to T64 products. We may terminate the agreement with Eli Lilly upon written notice. Eli Lilly may terminate our license in specified major countries if we fail to use reasonable diligence to develop T64 products in these countries, and may terminate the agreement if we fail to use appropriate diligence to develop T64 products in a predetermined number of major countries. If Eli Lilly terminates the

41

agreement, Eli Lilly obtains a nonexclusive, royalty-bearing, worldwide license to our technical improvements to T64.

        At the date of the license agreement, T64 had completed the first of three phases of clinical trials required to seek regulatory approval from the FDA. No trials had been commenced that could have demonstrated, with statistical significance, the effectiveness of T64 as a treatment for any type of cancer. These trials, necessary to establish the technological feasibility of T64, will not be completed for at least several years. In addition, T64 has no known alternative future uses. Accordingly, the initial license payment was allocated to acquired in-process research and development and expensed at the time of the agreement.

Critical Accounting Policies

        Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to terms of the research collaborations, investments, intangible assets, income taxes, financing operations and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

        We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Consolidation

        Our consolidated financial statements include the results of Tularik in the United States and the following subsidiaries:

Subsidiary Name	Location	Ownership
Amplicon Corporation	United States	Wholly-owned
Tularik Pharmaceutical Company	United States	Wholly-owned
Cumbre Inc.	United States	Majority-owned
Tularik GmbH	Germany	Wholly-owned
Tularik Limited	United Kingdom	Wholly-owned

        Transactions and accounts between us and each of our subsidiaries have been eliminated. For non-U.S. operations, local currencies are the functional currencies. All assets and liabilities of foreign subsidiaries are translated into U.S. dollars at current exchange rates, equity is translated at historical rates and net losses are translated at the average exchange rates for the reporting periods. Aggregate gains and losses on currency exchange are included in other comprehensive income as a component of stockholders' equity.

42

Revenue Recognition

        Collaborative research and development agreements provide for periodic payments in support of our research and development activities. Research revenue is recognized as earned based on actual costs incurred, measured by the number of full-time equivalent employees involved in the research effort or pro rated over the term estimated to complete a research program. The estimated term of a research program and the related revenues are subject to revision as the contract progresses to completion. Milestones are earned and recognized when payments are at risk at the inception of the collaboration agreement, our performance of the milestone under the terms of the collaboration is achieved and there are no further performance obligations. Research support payments received in advance of work performed and technology access fees are recorded as deferred revenue. These upfront payments are recognized as revenue as the work is performed (research revenue) or over the stated or estimated terms of the collaborations (technology access fees).

Investments in Non-Marketable Equity Securities

        We hold approximately $2.0 million in non-marketable equity investments in early-stage life science companies having operations or technology in areas within our strategic focus. All of our investments in private entities are recorded under the cost method of accounting, with the exception of Cumbre. We record an investment impairment charge when we believe an investment has experienced a decline in value that is other than temporary. Management makes periodic evaluations of the carrying value of the investments by reference to the available financial information for private companies or the quoted per share market prices. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment's current carrying value, thereby possibly requiring an impairment charge in the future. We review these investments for other than temporary declines in value, at a minimum, on a quarterly basis. Given the nature of these companies, our assessments of value are judgmental.

Business Combination and Purchase Price Allocation

        In July 2001, we acquired the CAMD business of Protherics. The total purchase price was allocated to software, laboratory equipment, furniture, computers, goodwill and liabilities. The value of the software was estimated based on the costs to design, code and test the software. The life of the software was estimated to be three years. The value of the tangible assets acquired and liabilities assumed were estimated to be their carrying value at the date of the business combination. Goodwill was determined to be the excess purchase price over the assets acquired and liabilities assumed. We will review the intangible assets for impairments at least annually.

Deferred Taxes

        We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. Since our inception, we have fully offset net deferred tax assets by a valuation allowance. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made.

43

Results of Operations

Years Ended December 31, 2001, 2000 and 1999.

        Collaborative research and development revenue.    Collaborative research and development revenue was $32.6 million in 2001, compared with $25.5 million in 2000 and $23.8 million in 1999. During 2001, we earned revenues of $7.7 million from amortization of technology access fees, $23.4 million from funded research and $1.5 million from milestone payments. The increases from 1999 to 2000 and from 2000 to 2001 were principally attributable to revenue from a corporate collaboration agreement in the area of metabolic diseases signed in June 2000 with the pharmaceutical division of Japan Tobacco. In 2001, revenue also increased as a result of the termination of the collaboration in the area of obesity with Knoll, which resulted in recognizing $1.1 million in previously deferred access-fee revenue. In 2001, we also received a $1.5 million milestone payment from Eli Lilly related to the anti-thrombotics collaboration acquired with the CAMD business of Protherics. In 2000, the revenue from the pharmaceutical division of Japan Tobacco agreement in the area of metabolic diseases was partially offset by the conclusion of the collaborations with Taisho and Sumitomo during the first quarter of 2000. Unless we enter into new corporate collaborations, we expect collaborative research and development revenue to decline for the foreseeable future as the Roche collaboration expires in July 2002 and the Japan Tobacco collaboration on metabolic diseases expires in June 2005.

        Research and development expenses.    Research and development expenses were $91.2 million in 2001, compared to $64.8 million in 2000 and $47.6 million in 1999. The increase in 2001 as compared to 2000 was primarily attributable to increases in employee costs, pre-clinical and clinical costs and higher occupancy costs associated primarily with leasing additional buildings in South San Francisco in April 2001. In 2001, we also expanded our research operations to Germany and completed the acquisition of the CAMD business of Protherics in the United Kingdom. The increase in 2000 as compared to 1999 is primarily due to increased pre-clinical and clinical studies and related manufacturing costs. In addition, new research in metabolic diseases contributed to higher research and development costs in the second half of 2000 compared to the second half of 1999. In the fourth quarter of 1999, we incurred a $3.0 million expense for in-process research and development in connection with the license agreement we executed with Eli Lilly for T64 in September 1999.

44

        The table below summarizes the dates our drug candidates entered or are expected to enter clinical studies:

Program		Status	Commencement of Current Phase
Cancer
	T67	Phase 2 clinical trials	Commenced clinical trials in the second half of 2000
	T607	Initiation of phase 2 clinical trials	Anticipate commencement of clinical trials in the first half of 2002
	T64	Phase 2 clinical trials	Commenced clinical trials in the second half of 2000
Immunology
	T611	Phase 2 clinical trials	Commenced clinical trials in the second half of 2001
	Immune disorders	IND candidate	—
	Inflammation	IND candidate	—
Metabolic Disease
	Lipid disorders	IND candidate	—
	Diabetes	IND candidate	—
	Obesity	IND candidate	—

        Based on our experience and judgment, phase 1 clinical trials are expected to last between 12 and 18 months, phase 2 clinical trials are expected to last between 18 and 36 months and phase 3 clinical trials are expected to last between 24 and 42 months. The length of clinical development depends on the specific disease and patient population. For drug candidates that are in pre-clinical development, the timing of IND filing varies significantly and is difficult to predict and therefore not reflected in the table above.

        Research and development expenses for 2001, 2000 and 1999 were divided as follows (in millions):

	2001		2000		1999
Research	$	73.7	$	51.2	$	41.7
Development		17.5		13.6		5.9
Total	$	91.2	$	64.8	$	47.6

        We allocate headcount-driven or space-use-driven overhead costs to research and development and to general and administrative expenses consistently from year to year based on the headcount or the space use by each expense category. Approximately 87% of headcount-driven overhead costs and approximately 95% of space-use driven costs are allocated to research and development expenses. From January 1, 1999 through December 31, 2001, research and development costs were split approximately 22%, 38% and 40% among three therapeutic areas, cancer, immunology and metabolic diseases, respectively. We expect research and development expenses to increase significantly in future periods, particularly as new and existing product candidates advance into later stages of development. Additionally, we expect that corporate collaborations will fund a smaller percentage of our research and development expenses than historically.

45

        General and administrative expenses.    General and administrative expenses were $11.9 million in 2001, compared to $15.6 million in 2000 and $7.0 million in 1999. The decrease from 2000 to 2001 is primarily due to a decrease in stock-based compensation offset by increased headcount and higher patent legal fees. The increase from 1999 to 2000 is primarily due to non-cash, stock-based consultant compensation, higher patent legal expenses and the increased costs associated with operating as a publicly-traded company. During this three-year period, general and administrative expenses increased an aggregate 70% compared with a 92% growth in research and development expenses. We expect that general and administrative expenses will increase in the future to support continued growth of our research and development efforts.

        Interest income and realized gains on investments, net.    Net interest income and realized gains on investments, net of interest expenses, were $21.9 million in 2001, compared to $16.4 million in 2000 and $5.2 million in 1999. The increase in 2001 was primarily due to $8.4 million in realized gains on our venture-stage investments, offsetting a $2.9 million decrease in interest income compared to the prior year due to lower overall investment balance and lower interest rates in 2001. The increase in 2000 was due primarily to higher interest-bearing balances as a result of our public offerings in December 1999 and March 2000 as compared to balances in 1999.

Liquidity and Capital Resources

        Since inception, our primary sources of funds have been the sale of equity securities, capital lease financings, non-equity payments from collaborators and interest income. As of December 31, 2001, we had received net proceeds of $347.6 million from the sale of Tularik equity securities, including $13.0 million from collaborators, $104.7 million from our initial public offering in December 1999 and $71.6 million from our public offering in March 2000. Non-equity payments received from collaborators since our inception were $178.6 million through December 31, 2001. Aggregate interest income earned since our inception was $56.3 million through December 31, 2001. In addition to the proceeds from the sale of Tularik equity securities, our majority-owned subsidiary, Cumbre Inc., raised $26.2 million by issuing shares of Series B preferred stock in September 2001.

        At December 31, 2001, we had cash, cash equivalents and investments of $241.9 million, which includes $24.1 million of cash, cash equivalents and investments from our majority-owned subsidiary Cumbre, a decrease of $37.0 million from December 31, 2000. Cash used by operations during the year ended December 31, 2001 was $54.5 million.

        Cash used for purchases of equipment and leasehold improvements totaled $14.2 million during the year ended December 31, 2001. Cash received from equipment financing during the year ended December 31, 2001 was $6.6 million. The annual interest rate of these financings ranged from 8.7% to 11.7%, and the financing arrangements have terms of three or five years each. As of December 31, 2001, we had no equipment financing arrangement available. We intend to enter into additional equipment financing arrangements in the future. Repayments of long-term obligations totaled $5.8 million during the year ended December 31, 2001.

        Cash received from exercises of Tularik and Cumbre stock options, from purchases under the Tularik employee stock purchase plan and from repayment of note receivables from stockholders during the year ended December 31, 2001 was $5.6 million. Cash received from the issuance of Cumbre Series B preferred stock in September 2001 was $26.2 million.

        We expect operating spending to increase in the future as we expand operations to support the development of new and existing product candidates and we committed to lease three new buildings in South San Francisco through 2021. Operating in these facilities will require minimum aggregate payments of approximately $310.1 million over a period of 17 years starting in May 2003. We expect to find sub-tenants to occupy our current facilities when our new facilities are ready for occupancy. We are committed to rent our current facilities through 2013. Cumbre, our subsidiary, is committed to pay

46

approximately $1.2 million through 2007. Our capital spending is not expected to increase substantially from 2001 levels.

        The following table summarizes our contractual obligations (in millions):

	Payments due by period
	Total		2002		2003-2004		2005-2006		After 2006
Long-term debt	$	9.1	$	4.5	$	4.6	$	—	$	—
Capital lease obligations		10.6		3.2		5.0		2.4		—
Build-to-suit and operating leases		381.9		6.5		34.8		46.5		294.1
Total contractual cash obligations	$	401.6	$	14.2	$	44.4	$	48.9	$	294.1

        During the three-year period ended December 31, 2001, cash used in operating and investing activities was $72.7 million and $97.0 million, respectively. Uses of cash in operating activities were primarily to fund net losses. Uses of cash in investing activities included $64.4 million used for net purchases of available-for-sale securities and $32.7 million for capital expenditures. Financing activities provided cash of $225.8 million during the three-year period ended December 31, 2001. This amount largely represented proceeds from the sale of equity securities.

        The Company is currently receiving research funding under two of its research collaboration agreements, one of which expires in June 2002 and the second will expire in 2005. The Company is actively engaged in discussions with other potential collaborators to fund future research and development.

        Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary as a result of a number of factors. We believe that our existing cash and investment securities and anticipated cash flow from existing collaborations will be sufficient to support our current operating plan through 2003. We have based this estimate on assumptions that may prove to be wrong. Our future capital requirements will depend on many factors, including:

•

the progress of our pre-clinical and clinical development activities;



•

the costs and timing of regulatory approvals;



•

the progress of our research activities;



•

the number and scope of our research programs;



•

the progress of the development efforts of our collaborators;



•

our ability to establish and maintain current and new collaboration and licensing arrangements;



•

our ability to receive equity and debt financings in Cumbre Inc., our majority-owned subsidiary;



•

our ability to achieve our milestones and receive funding under collaboration arrangements;



•

the costs involved in enforcing patent claims and other intellectual property rights; and



•

the costs of establishing sales, marketing and distribution capabilities.

        Future capital requirements will also depend on the extent to which we acquire or invest in businesses, products and technologies. Until we can generate sufficient levels of cash from our operations, which we do not expect to achieve for at least several years, we expect to finance future cash needs through the sale of equity securities, strategic collaborations and debt financing as well as interest income earned on cash balances. In August 2001, we filed a registration statement on Form S-3 to offer and sell common stock and debt securities in one or more offerings up to a total dollar amount

47

of $250.0 million. Currently, $245.0 million remains available on the Form S-3, and we have no current commitments to offer and sell any securities that may be offered or sold pursuant to such registration statement. We cannot assure you that additional financing or collaboration and licensing arrangements will be available when needed or that, if available, this financing will be obtained on terms favorable to us or our stockholders. Insufficient funds may require us to delay, scale back or eliminate some or all of our research or development programs, to lose rights under existing licenses, to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose or may adversely affect our ability to operate as a going concern. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result.

        Our cash and investments policy emphasizes liquidity and preservation of principal over other portfolio considerations. We select investments that maximize interest income to the extent possible given these two constraints. We satisfy liquidity requirements by investing excess cash in securities with different maturities to match projected cash needs and limit concentration of credit risk by diversifying our investments among a variety of high credit-quality issuers.

        As of December 31, 2001, we had federal net operating loss carryforwards of approximately $129.0 million to offset future taxable income. We also had federal research and development tax credit carryforwards of approximately $3.0 million. If not utilized, net operating loss and credit carryforwards will begin to expire in 2007. Utilization of the net operating losses and credits may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code of 1986, as amended. The annual limitation may result in the expiration of our net operating losses and credits before they can be used. You should read Note 12 of "Notes to Consolidated Financial Statements."

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

        Our exposure to market risk is principally limited to our cash equivalents and investments that have maturities of less than two years and one equity investment resulting from a venture-stage private investment that converted into publicly traded common shares. We maintain an investment portfolio of investment grade liquid debt securities that limits the amount of credit exposure to any one issue, issuer or type of instrument. The securities in our investment portfolio are not leveraged, are classified as available-for-sale and are therefore subject to interest rate risk. We currently do not hedge interest rate exposure. If market interest rates were to increase by 100 basis points, or 1%, from December 31, 2001 levels, the fair value of our portfolio would decline by approximately $904,000. The modeling technique used measures the change in fair values arising from an immediate hypothetical shift in market interest rates and assumes ending fair values include principal plus accrued interest.

Foreign Currency Exchange Risk

        Because we translate foreign currencies into United States dollars for reporting purposes, currency can have an impact, though generally immaterial, on our financial results. We believe that our exposure to currency exchange risk is low because our German and British subsidiaries satisfy their financial obligations almost exclusively in their local currencies. As of December 31, 2001, we did not engage in foreign currency hedging activities.

48

Item 8. Financial Statements and Supplementary Data

TULARIK INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Ernst & Young LLP, Independent Auditors	50
Consolidated Balance Sheets	51
Consolidated Statements of Operations	52
Consolidated Statements of Stockholders' Equity	53
Consolidated Statements of Cash Flows	54
Notes to Consolidated Financial Statements	55

49

Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Stockholders
Tularik Inc.

        We have audited the accompanying consolidated balance sheets of Tularik Inc. as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted in the 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tularik Inc. at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

        As discussed in Note 1 to the consolidated financial statements, in 2000 the Company changed its method of revenue recognition for nonrefundable technology access fees received in connection with collaboration agreements.

/S/ ERNST & YOUNG LLP

Palo Alto, California
February 4, 2002

50

TULARIK INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

			December 31,
			2001			2000
ASSETS
Current assets:
	Cash and cash equivalents		$	109,392		$	76,312
	Short-term investments			107,197			182,591
	Prepaid expenses and other current assets			6,832			4,991
		Total current assets		223,421			263,894
Property and equipment, net				34,011			20,502
Other investments				25,337			20,000
Restricted investments				2,008			2,017
Other assets				5,405			8,685
Goodwill				3,100			—
		Total assets	$	293,282		$	315,098
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	4,855		$	2,549
	Accrued compensation and related liabilities			3,039			3,127
	Accrued liabilities			5,388			4,553
	Current portion of long-term debt and capital lease obligations			6,685			6,121
	Deferred revenue			14,211			22,638
		Total current liabilities		34,178			38,988
Long-term debt and capital lease obligations				10,801			10,285
Long-term portion of deferred revenue				12,083			17,583
Other non-current liabilities				1,999			944
		Total liabilities		59,061			67,800
Commitments
Minority interest in Cumbre Inc.				26,250			—
Stockholders' equity:
	Convertible preferred stock, $0.001 par value, issuable in series: 5,000,000 shares authorized; none issued and outstanding at December 31, 2001 and 2000			—			—
	Common stock, $0.001 par value, 145,000,000 shares authorized; 49,890,865 and 48,131,574 shares issued and outstanding at December 31, 2001 and 2000, respectively			50			48
	Additional paid-in capital			387,484			371,504
	Notes receivable from stockholders			(230	)		(1,084	)
	Deferred compensation			(351	)		(1,674	)
	Accumulated other comprehensive income			239			9,156
	Accumulated deficit			(179,221	)		(130,652	)
		Total stockholders' equity		207,971			247,298
		Total liabilities and stockholders' equity	$	293,282		$	315,098

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

51

TULARIK INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

		Years Ended December 31,
		2001			2000			1999
Revenue:
	Collaborative research and development	$	32,632		$	25,487		$	23,806
Operating expenses:
	Research and development		91,167			64,781			47,550
	General and administrative		11,916			15,590			7,015
			103,083			80,371			54,565
Loss from operations			(70,451	)		(54,884	)		(30,759	)
Interest income			15,033			17,908			6,357
Realized gains on investments			8,390			—			—
Interest expense			(1,541	)		(1,481	)		(1,136	)
Net loss before cumulative effect of a change in accounting principle			(48,569	)		(38,457	)		(25,538	)
Cumulative effect of a change in accounting principle			—			(4,800	)		—
Net loss		$	(48,569	)	$	(43,257	)	$	(25,538	)
Net loss per share before cumulative effect of a change in accounting principle, basic and diluted		$	(0.99	)	$	(0.82	)	$	(2.70	)
Net loss per share from cumulative effect of a change in accounting principle, basic and diluted		$	—		$	(0.10	)	$	—
Net loss per share, basic and diluted		$	(0.99	)	$	(0.92	)	$	(2.70	)
Weighted average shares used in computing basic and diluted net loss per share			49,051,339			46,845,374			9,450,934
Pro forma results as if revenue recognition policy had been adopted retroactively:
	Pro forma net loss				$	(38,457	)	$	(23,938	)
	Pro forma net loss per share, basic and diluted				$	(0.82	)	$	(2.53	)

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

52

TULARIK INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)

	Convertible Preferred Stock
						Common Stock						Notes Receivable From Stockholders						Accumulated Other Comprehensive Income
									Additional Paid-In Capital						Deferred Compensation						Accumulated Deficit			Total Stockholders' Equity
	Shares		Amount			Shares	Amount
Balances at January 1, 1999	26,903,885		$	27		7,560,603	$	8	$	174,035		$	(636	)	$	(679	)	$	—		$	(61,857	)	$	110,898
Conversion of warrants, net	49,654			—		62,599		—		—			—			—			—			—			—
Issuance of common stock, net of repurchases	—			—		2,266,603		2		5,854			(1,405	)		—			—			—			4,451
Payment of notes receivable	—			—		—		—		—			432			—			—			—			432
Issuance of common stock in initial public offering, net of offering costs of $7,220	—			—		7,992,500		8		104,667			—			—			—			—			104,675
Conversion of preferred stock to common stock in conjunction with initial public offering	(26,953,539	)		(27	)	26,953,539		27		—			—			—			—			—			—
Deferred compensation	—			—		—		—		6,558			—			(6,558	)		—			—			—
Amortization of deferred compensation	—			—		—		—		—			—			2,651			—			—			2,651
Net loss and comprehensive loss	—			—		—		—		—			—			—			—			(25,538	)		(25,538	)
Balances at December 31, 1999	—			—		44,835,844		45		291,114			(1,609	)		(4,586	)		—			(87,395	)		197,569
Warrant exercises, net	—			—		507,670		—		432			—			—			—			—			432
Issuance of common stock, net of repurchases	—			—		631,810		1		2,176			—			—			—			—			2,177
Issuance of common stock in secondary public offering, net of offering costs of $631	—			—		2,156,250		2		71,604			—			—			—			—			71,606
Cancellation of pre-IPO options	—			—		—		—		(682	)		—			682			—			—			—
Amortization of deferred compensation	—			—		—		—		—			—			2,230			—			—			2,230
Other stock compensation	—			—		—		—		5,396			—			—			—			—			5,396
Consultant stock compensation	—			—		—		—		1,464			—			—			—			—			1,464
Payment of notes receivable	—			—		—		—		—			525			—			—			—			525
Net loss	—			—		—		—		—			—			—			—			(43,257	)		(43,257	)
Change in unrealized gains on available-for-sale securities	—			—		—		—		—			—			—			9,156			—			9,156
Comprehensive loss	—			—		—		—		—			—			—			—			—			(34,101	)
Balances at December 31, 2000	—			—		48,131,574		48		371,504			(1,084	)		(1,674	)		9,156			(130,652	)		247,298
Issuance of common stock, net of repurchases	—			—		1,359,291		1		4,544			—			—			—			—			4,545
Issuance of common stock upon acquisition of a business	—			—		400,000		1		9,389			—			—			—			—			9,390
Cancellation of pre-IPO options	—			—		—		—		(194	)		—			194			—			—			—
Amortization of deferred compensation	—			—		—		—		—			—			1,129			—			—			1,129
Stock based compensation	—			—		—		—		2,080			—			—			—			—			2,080
Payment of notes receivable	—			—		—		—		—			873			—			—			—			873
Issuance of common stock of Cumbre Inc.	—			—		—		—		161			(19	)		—			—			—			142
Net loss	—			—		—		—		—			—			—			—			(48,569	)		(48,569	)
Change in cumulative translation adjustment	—			—		—		—		—			—			—			364			—			364
Change in unrealized gains on available-for-sale securities	—			—		—		—		—			—			—			(9,281	)		—			(9,281	)
Net loss and comprehensive loss	—			—		—		—		—			—			—			—			—			(57,486	)
Balances at December 31, 2001	—		$	—		49,890,865	$	50	$	387,484		$	(230	)	$	(351	)	$	239		$	(179,221	)	$	207,971

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

53

TULARIK INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

				Years Ended December 31,
				2001			2000			1999
Cash flows from operating activities
Net loss				$	(48,569	)	$	(43,257	)	$	(25,538	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
	Depreciation and amortization				8,188			4,950			3,873
	Noncash gain on exchange of marketable security				(4,325	)		—			—
	Realized gain on investment				(4,065	)		—			—
	Amortization of deferred stock compensation				1,129			2,230			2,651
	Noncash stock based compensation				2,080			6,860			—
	Changes in assets and liabilities:
		Other assets			606			(2,012	)		(2,642	)
		Accounts payable and accrued liabilities			4,428			4,935			1,183
		Deferred revenue			(13,927	)		28,739			(639	)
		Other liabilities			—			—			436
			Net cash (used in) provided by operating activities		(54,455	)		2,445			(20,676	)
Cash flows from investing activities
Maturities of available-for-sale securities					490,059			336,163			95,300
Purchases of available-for-sale securities					(420,884	)		(423,895	)		(137,134	)
Capital expenditures					(14,170	)		(9,257	)		(9,262	)
Purchases of long-term and restricted investments					—			—			(4,000	)
			Net cash provided by (used in) investing activities		55,005			(96,989	)		(55,096	)
Cash flows from financing activities
Proceeds from long-term obligations					6,556			6,440			11,706
Payments of long-term obligations					(5,836	)		(5,593	)		(3,621	)
Proceeds from note receivables from stockholders					873			525			—
Proceeds from issuance of Series B preferred stock by Cumbre Inc.					26,250			—			—
Proceeds from issuance of Cumbre Inc. common stock					142			—			—
Proceeds from issuances of common stock, net					4,545			74,215			109,558
			Net cash provided by financing activities		32,530			75,587			117,643
Net increase (decrease) in cash and cash equivalents					33,080			(18,957	)		41,871
Cash and cash equivalents at beginning of period					76,312			95,269			53,398
Cash and cash equivalents at end of period				$	109,392		$	76,312		$	95,269
Supplemental cash flow information
Cash paid during the period for interest				$	1,541		$	1,481		$	1,136
Supplemental disclosure of noncash investing and financing
Tularik Inc. common stock issued for acquisition of a business				$	9,390		$	—		$	—
Tularik Inc. common stock issued for notes receivable				$	—		$	—		$	1,405
Cumbre Inc. common stock issued for notes receivable				$	19		$	—		$	—
Issuance of notes payable in exchange for services				$	—		$	410		$	—

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

54

TULARIK INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Basis of Presentation

Organization and Business

        Tularik Inc. ("Tularik" or the "Company") was incorporated in the State of California in November 1991 and reincorporated in the State of Delaware in June 1997.

        Since its founding, the Company has been engaged in the discovery and development of a broad range of novel, orally available medicines, most of which act through the regulation of gene expression. Tularik has incurred net losses since inception and expects to incur substantial and increasing losses for at least the next several years as the Company expands its research and development activities. To date, the Company has funded its operations primarily through the sale of equity securities, non-equity payments from collaborators, capital lease financings and interest income. Future revenue, if any, for at least the next several years is expected to consist primarily of payments under corporate collaborations and interest income. The process of developing products has required and will continue to require significant research and development expenditures. The Company expects that its losses will increase as it expands research and development activities. Tularik will not receive product revenue unless the Company or its collaborative partners complete clinical trials, obtain regulatory approval and successfully commercialize one or more of the Company's products.

        In order to accelerate product commercialization and contribute to financing for research activities, Tularik has entered into collaborations with several leading pharmaceutical companies. The Company has ongoing collaborations with the Roche Bioscience division of Syntex (U.S.A.) LLC ("Roche Bioscience") relating to inflammation (commenced in July 1997) and the pharmaceutical division of Japan Tobacco Inc. ("Japan Tobacco") relating to lipid disorders (commenced in September 1998) and metabolic diseases (commenced in June 2000). The research portion of the lipid disorders collaboration with the pharmaceutical division of Japan Tobacco ended in September 2001. Previously, Tularik also had collaborations with other companies including Merck & Co., Inc. ("Merck") relating to viral disease (commenced in December 1993, ended in March 1999); Sumitomo Pharmaceuticals Co., Ltd. ("Sumitomo") relating to hypercholesterolemia (commenced in January 1995, expired in January 2000); Taisho Pharmaceutical Co., Ltd. ("Taisho") relating to immune disorders (commenced in April 1995, ended in March 2000); Knoll AG ("Knoll") relating to obesity (commenced in November 1998, ended in October 2001); and the pharmaceutical division of Japan Tobacco relating to obesity (commenced in September 1996, ended in September 2001). As of December 31, 2001, the Company had received $13.0 million in equity investments and $178.6 million in research funding from its past and current collaborators.

2.    Summary of Significant Accounting Policies

Principles of Consolidation

        The consolidated financial statements include those of Tularik and its subsidiaries. All significant inter-company balances, transactions and stock holdings have been eliminated upon consolidation. Consolidated statements include statements from Tularik's wholly-owned subsidiaries, Amplicon Corporation, Tularik Pharmaceutical Company, Tularik GmbH and Tularik Limited.

        At December 31, 2001, the consolidated financial statements of Tularik also include the accounts of Tularik's majority-owned subsidiary, Cumbre Inc. ("Cumbre"). It is the Company's policy not to allocate losses against the minority interest, if doing so reduces the minority interest balance below the aggregate liquidation preferences of third-party minority stockholders. As a result of this policy, 100%

55

of Cumbre's net loss has been included in the Company's determination of net loss for the year ended December 31, 2001.

Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Changes in estimates on contract terms can cause an acceleration or delay in revenue recognition of deferred revenue. In 2001, the Company recognized $1.1 million in technology access fee revenue due to the associated termination of the collaboration with Knoll.

Foreign Currency Translation

        For non-U.S. operations, local currencies are the functional currencies. All assets and liabilities of foreign subsidiaries are translated into U.S. dollars at current exchange rates, equity is translated at historical rates and net losses are translated at the average exchange rates for the reporting periods. Aggregate gains and losses on currency exchange are included in other comprehensive income as a component of stockholders' equity.

Cash Equivalents and Investments

        The Company considers all highly liquid investments in debt securities with a remaining maturity from the date of purchase of 90 days or less to be cash equivalents. Cash equivalents consist of money market funds and corporate debt securities and exclude demand deposits. The Company's short-term investments include obligations of governmental agencies, corporate debt securities with original maturities ranging between three and 12 months and one equity investment resulting from a private investment that converted into publicly traded common shares. By policy, the Company limits concentration of credit risk by diversifying its investments among a variety of high credit-quality issuers.

        All cash equivalents and marketable investments are classified as available-for-sale. Available-for-sale securities are recorded at fair value, and unrealized gains (losses) are reported in stockholders' equity and included in other comprehensive income. Fair value is estimated based on available market information. The cost of the securities when sold is based upon specific identification.

        The Company's equity investments in venture-stage technology partners are included in other assets because of their long-term nature. The Company realizes gains (losses) upon sale, non-monetary exchange or other than temporary impairment of these investments. The Company includes realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities in realized gains (losses) on investments. The Company includes unrealized gains and losses on securities classified as available-for-sale in accumulated other comprehensive income, a component of stockholders' equity. See Note 5 for a summary of available-for-sale securities at December 31, 2001 and 2000.

Property and Equipment

        Property and equipment is stated at cost. Depreciation and amortization of equipment is calculated using the straight-line method over the lesser of the estimated useful lives of the assets of three years

56

for software and computers and four years for laboratory equipment and furniture, or the lease term. Leasehold improvements are amortized over the term of the related lease, which does not exceed their estimated useful lives.

Fair Value of Financial Instruments

        Carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate fair value due to their short maturities. The carrying value of its debt obligations approximates fair value, based on borrowing rates currently available to the Company for loans with similar terms.

Revenue Recognition

        Non-refundable up-front payments received in connection with research and development collaboration agreements, including technology access fees, are deferred and recognized on a straight-line basis over the relevant periods specified in the agreement, generally the research term.

        Revenue related to collaborative research with the Company's corporate collaborators is recognized as research services are performed or pro rated over the related funding periods for each contract. Under these agreements, the Company is required to perform research and development activities as specified in each respective agreement. The payments received under each respective agreement are not refundable and are generally based on a contractual cost per full-time equivalent employee working on the project. Research and development expenses under the collaborative research agreements approximate or exceed the revenue recognized under such agreements over the term of the respective agreements. Deferred revenue may result when the Company does not incur the required level of effort during a specific period in comparison to funds received under the respective contracts.

        Milestone payments are recognized pursuant to collaborative agreements upon the achievement of specified technical or regulatory at risk milestones. Milestone payments are recorded as revenue upon the achievement of mutually agreed upon milestones in the absence of any performance obligations associated with the milestone provided that (i) the milestone event is substantive and its achievement was not reasonably assured at the inception of the agreement (i.e., at risk), and (ii) there are no performance obligations after achievement of the milestone.

        The Company previously recognized nonrefundable technology access fees received in connection with collaboration agreements as revenue when received when the technology had been transferred and when all contractual obligations of the Company relating to the fees had been fulfilled. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101—Revenue Recognition in Financial Statements ("SAB 101") that, among other things, describes the SEC staff's position on the recognition of certain nonrefundable upfront fees received in connection with research collaborations. Effective January 1, 2000, the Company adopted SAB 101, which changed the Company's method of accounting for nonrefundable technology access fees to recognize such fees over the term of the related research collaboration agreement. The $4.8 million cumulative effect of a change in accounting principle was reported as a charge for the year ended December 31, 2000. The cumulative effect was initially recorded as deferred revenue that will be recognized as revenue over the remaining contractual terms of the collaborative research and development agreements. For the year ended December 31, 2000, the impact of the change in

57

accounting principle was to increase net loss by $3.2 million, or $0.07 per share, comprised of the $4.8 million cumulative effect of the change as described above ($0.10 per share), net of the $1.6 million ($0.03 per share) of the related deferred revenue that was recognized as revenue during the same 12-month period. For the year ended December 31, 2001, the impact of the change in accounting principle was to decrease net loss by $2.7 million, or $0.06 per share. The remainder $0.5 million of the related deferred revenue will be recognized in 2002.

Significant Concentrations

        For the year ended December 31, 2001, revenues from four collaborators accounted for 63%, 19%, 14% and 4% of total revenues, respectively. For the year ended December 31, 2000, revenues from five collaborators accounted for 58%, 21%, 16%, 4% and 1% of total revenues, respectively. For the year ended December 31, 1999, revenues from six collaborators accounted for 34%, 22%, 14%, 13%, 12% and 5% of total revenues, respectively.

Research and Development

        Research and development expenses, including direct and allocated expenses, consist of independent research and development costs and costs associated with collaborative research and development arrangements. In addition, the Company funds research and development at other companies and research institutions under agreements that are generally cancelable. All such costs are charged to operations as incurred.

Stock-Based Compensation

        The Company accounts for grants of stock options and common stock purchase rights according to Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations ("APB No. 25"). Pro forma net loss information, as required by Financial Accounting Standards Board ("FASB") Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), is included in Note 9. Options granted to consultants are accounted for using the Black-Scholes method prescribed by SFAS 123 in accordance with Emerging Issues Task Force Consensus No. 96-18. These options are expensed over their vesting terms. Any deferred stock compensation calculated according to APB No. 25 is amortized over the vesting period of the individual options, generally four years, using the graded vesting method. The graded vesting method provides for vesting of portions of the overall award at interim dates and results in higher vesting in earlier years than straight-line vesting.

Impairment of Long Lived Assets

        In accordance with the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Under SFAS 121, an impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Impairment, if any, is assessed using discounted cash flows. Through December 31, 2001, there have been no such losses.

58

Comprehensive Income

        As of January 1, 1998, the Company adopted FASB Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of SFAS 130 had no impact on the Company's net loss or stockholders' equity. SFAS 130 requires unrealized gains or losses on the Company's available-for-sale securities, which prior to adoption were reported separately in stockholders' equity, to be included in comprehensive income, if material. As unrealized gains and losses on the Company's available-for-sale securities held at December 31, 1999 were not material, net loss approximates comprehensive loss for that year.

Net Loss Per Share

        Net loss per share is computed in accordance with FASB Statement No. 128, "Earnings Per Share," which requires disclosure of basic and diluted earnings per share. Basic earnings per share excludes any dilutive effects of options, shares subject to repurchase, warrants and convertible securities. Diluted earnings per share includes the impact of potentially dilutive securities. The Company's potentially dilutive securities were antidilutive and therefore were not included in the computation of weighted average shares used in computing diluted loss per share, for all periods presented.

        The following table sets forth the computation of weighted average shares used in computing basic and diluted net loss per share for the periods indicated:

	2001		2000		1999
Weighted average shares of common stock outstanding	49,277,495		47,284,531		9,931,112
Less: weighted average shares subject to repurchase	(226,156	)	(439,157	)	(480,178	)
Weighted average shares used in computing basic and diluted net loss per share	49,051,339		46,845,374		9,450,934

        The Company's preferred stock converted into common stock upon the closing of the Company's initial public offering in December 1999. For information purposes, the following pro forma net loss per share data reflects the assumed conversion of the Company's preferred stock into common stock on the date of issuance:

		1999
Pro forma (unaudited):
	Shares used above		9,450,934
	Pro forma adjustment to reflect weighted average effect of assumed conversion of preferred stock		25,377,838
	Total weighted average shares of common stock outstanding pro forma		34,828,772
	Basic and diluted pro forma net loss per share	$	(0.73	)

        During all periods presented, the Company had securities outstanding that could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net loss per

59

share, as their effect would have been antidilutive. Such outstanding securities consist of the following at December 31:

		2001		2000		1999
Outstanding options			5,928,721		5,328,375		4,244,191
Warrants			306,442		301,631		890,119
	Total		6,235,163		5,630,006		5,134,310
Weighted average exercise price of options.		$	16.14	$	10.67	$	2.80
Weighted average exercise price of warrants		$	12.23	$	11.98	$	10.91

        The information above excludes options to purchase 30,263, 33,316 and 38,449 shares with exercise prices from $0.50 to $3.00 granted outside of the Company's stock option plans at December 31, 2001, 2000 and 1999, respectively.

Reclassification

        Certain amounts in the financial statements have been reclassified to conform to the current year's presentation. The reclassifications had no impact on previously reported net loss.

Recent Accounting Pronouncements

        In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations," or SFAS 141, and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," or SFAS 142. SFAS 141 requires the use of the purchase method for all business combinations initiated after June 30, 2001, and provides new criteria for determining whether an acquired intangible asset should be recognized separately from goodwill. SFAS 142 eliminates the amortization of goodwill and replaces it with an impairment-only model. Upon adoption, goodwill related to acquisitions completed before the date of adoption would be subject to the provisions of SFAS 141; amortization of any remaining book value of goodwill would cease and the new impairment-only approach would apply. The impairment-only approach does not apply to the treatment of intangible assets. The provisions of SFAS 141 and SFAS 142 are effective for fiscal years beginning after December 15, 2001. The amortization provisions of SFAS 142 applies to goodwill acquired after June 30, 2001, therefore, the Company did not amortize the goodwill resulting from the acquisition of Protherics PLC's CAMD business. The non-amortization of goodwill did not have any significant effect on the comparability of the consolidated financial statements.

        The FASB recently issued a final statement on asset impairment, Statement of Financial Accounting Standards No. 144, or SFAS 144, that is applicable to financial statements issued for fiscal years beginning after December 15, 2001 (January 2002 for calendar year companies). The FASB's new rules on asset impairment supersede SFAS 121 and provide a single accounting model for long-lived assets to be disposed of. SFAS 144 distinguishes between assets held and used and assets to be disposed of. Under the new rules, assets to be disposed of are recorded at the lower of the assets' carrying amount or fair value, less cost to sell. Assets to be disposed of will be separately classified and depreciation will cease. None of these events has occurred with respect to the Company's long-lived assets.

60

3.    Acquisition

        On July 12, 2001, the Company acquired the computer-aided molecular design (CAMD) business of Protherics PLC, a U.K.-based company. The results of the CAMD business operations are included in the financial statements since that date. The company acquired the CAMD business to have access to a set of proprietary computational chemistry software and a team of experienced chemists and software designers to complement our high-throughput screening. The transaction was accounted for using the purchase method of accounting.

        The cost to acquire the CAMD business is set forth below and has been allocated to the assets acquired and liabilities assumed according to their respective fair values, with the excess purchase price being allocated to goodwill. The fair value of the acquired assets and liabilities is based upon an independent valuation.

        The value of the shares of common stock issued was determined based on the average market price over the period of two days before and after the terms of the acquisition were agreed to and announced. The total consideration to acquire the CAMD unit is as follows (in thousands, except share amounts):

400,000 shares of Tularik common stock issued to Protherics Molecular Design Limited	$	9,390
Transaction costs		394
	$	9,784

The purchase price allocation is as follows (in thousands):

Software	$	6,126
Tangible assets acquired		918
Liabilities assumed		(360	)
Goodwill		3,100
	$	9,784

        An independent valuation specialist performed an allocation of the total purchase price of $9.8 million to the individual assets acquired. The purchase price was allocated to the tangible and intangible assets. The software acquired will be amortized over three years. The goodwill will not be amortized, but will be subject to periodic impairment assessments as prescribed under SFAS 142, "Goodwill and other Intangible Assets" (see "Recent Accounting Pronouncements" in Note 2).

61

        The following pro forma data summarizes the results of operations for the periods indicated as if the CAMD business acquisition had been completed as of the beginning of the periods presented. The pro forma data give effect to actual operating results prior to the acquisition, exclude the charge for amortization of goodwill in accordance with the Company's adoption of SFAS 142 and include the amortization of intangible assets acquired. No effect has been given to cost reductions or operating synergies in this presentation. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred as of the beginning of the periods presented or that may be obtained in the future.

	Year Ended December 31,
	2001			2000
	(In thousands, except per share amounts)
Revenue from collaborative research and development	$	33,045		$	26,487
Net loss	$	(51,350	)	$	(49,218	)
Net loss per share, basic and diluted	$	(1.05	)	$	(1.05	)

4.    Research and Development Collaborations

        The Company has entered into multi-year research and development collaborations in five of its research programs. Tularik received aggregate collaboration payments of $18.4 million, $49.2 million and $23.7 million and recognized collaboration revenue of $32.6 million, $25.5 million and $23.8 million in 2001, 2000 and 1999, respectively. Under the terms of existing collaborations at December 31, 2001, the Company's partners have agreed to provide future research funding of approximately $30.2 million through 2004 including $18.5 million subject to possible cancellation, as well as additional payments upon the achievement of specific research and development milestones. Annual research funding under these agreements ranges from $2.5 million to $9.2 million per agreement. All research payments are nonrefundable, and the Company performs research under these agreements on a "best efforts" basis. Costs incurred under research and development collaborations approximate revenues earned and are included in research and development expenses. In addition to providing the research funding summarized above, certain of the Company's collaborators have also purchased equity investments in Tularik. These equity purchases and other significant terms of current and prior collaborations are described below.

Active Collaborations at December 31, 2001

        On June 1, 2000, Tularik and the pharmaceutical division of Japan Tobacco entered into a collaborative agreement for the discovery, development and commercialization of products for the treatment of metabolic diseases. Under the terms of the agreement, Tularik has formed a wholly-owned subsidiary, Tularik Pharmaceutical Company, to conduct the research portion of the collaboration which is funded by Japan Tobacco. The research conducted by the subsidiary is independent from any research programs that previously existed at Tularik or the pharmaceutical division of Japan Tobacco. Expenses incurred in conjunction with the development and commercialization of any compound identified by the subsidiary will be shared equally by the parties. Tularik and the pharmaceutical division of Japan Tobacco will also share equally all profit and/or revenues from the commercialization of any compound identified by the subsidiary during the collaboration. Each party may elect to terminate its co-development obligations with respect to, and profit sharing interest in, a given

62

collaboration product. In such case, the other party may continue to develop and commercialize such product at its expense, subject to an obligation to pay a royalty on sales of such product to the party that terminated its co-development of such product. To date, Japan Tobacco has made payments totaling $43.5 million to Tularik and has agreed to make additional research and other payments to Tularik of approximately $27.7 million through 2004. The pharmaceutical division of Japan Tobacco has the option to purchase the subsidiary at various times starting in 2003 at escalating prices.

        In September 1998, Tularik and the pharmaceutical division of Japan Tobacco established a five-year collaboration to discover, develop and market compounds that act by regulating genes implicated in lipid disorders. Under the terms of the collaboration, the pharmaceutical division of Japan Tobacco funded the majority of research expenses. Development and commercialization costs and profits will be shared equally by the partners. Tularik retains exclusive marketing and sales rights in the United States and Canada. The pharmaceutical division of Japan Tobacco retains exclusive marketing and sales rights in Japan and Korea. The pharmaceutical division of Japan Tobacco terminated the research portion of the collaboration in September 2001. The pharmaceutical division of Japan Tobacco and the Company will continue to share equally all pre-clinical and clinical development costs under the collaboration. The pharmaceutical division of Japan Tobacco had paid Tularik $17.0 million as of December 31, 2001.

        In July 1997, Tularik and Roche Bioscience established a five-year collaboration to discover, develop and market anti-inflammatory therapeutics. Under the collaboration, Roche Bioscience has exclusive, worldwide manufacturing and marketing rights to develop and commercialize identified compounds resulting from the research program for specified indications, subject to benchmark payments and royalty obligations to Tularik. Tularik has exclusive, worldwide manufacturing and marketing rights to develop and commercialize other compounds resulting from the research program for other specified indications, subject to royalty obligations to Roche Bioscience. Roche Bioscience is committed to pay Tularik up to $30.0 million in research payments, of which $27.5 million had been paid as of December 31, 2001.

Inactive Collaborations

        In November 1998, Tularik and Knoll established a five-year collaboration to discover, develop and market compounds that act on specified obesity-related targets. In connection with the closure of its Nottingham, U.K. research facility, Knoll terminated the collaboration, effective October 31, 2001. Knoll had paid Tularik $12.6 million as of December 31, 2001.

        In September 1996, the Company entered into a five-year collaboration with the pharmaceutical division of Japan Tobacco to discover, develop and market compounds in the fields of obesity and diabetes. Under a related stock purchase agreement, Japan Tobacco purchased 600,000 shares of the Company's Series F preferred stock for $10.00 per share, the fair market value of the Company's preferred stock at that date and on the same terms and conditions as other investors in the Company's Series F preferred stock financing. All shares of Series F preferred stock converted into shares of common stock upon the closing of the Company's initial public offering. In September 1998 and again in September 2000, Tularik and the pharmaceutical division of Japan Tobacco agreed to modify the structure of the original collaboration. The collaboration ended in September 2001. Tularik retains exclusive worldwide marketing and sales rights. Japan Tobacco had paid Tularik $15.5 million in research payments related to the obesity and diabetes collaboration as of December 31, 2001.

63

        In April 1995, Tularik established a five-year collaboration with Taisho focused on therapeutic modulation of the human immune function. In January 1998, Tularik and Taisho extended the collaboration for an additional year. This research collaboration ended in March 2000. Tularik has exclusive, worldwide, royalty-free rights to all products identified in the collaboration. Taisho had paid Tularik $15.0 million as of December 31, 2001.

        In January 1995, the Company entered into a five-year collaboration with Sumitomo to fund research and development in the field of hypercholesterolemia. This research collaboration ended in January 2000. Under a related stock purchase agreement, Sumitomo purchased 400,000 shares of the Company's Series E preferred stock in February 1995 for $7.50 per share, the fair value of the Company's preferred stock at that date. All shares of Series E preferred stock converted into shares of common stock upon the closing of the Company's initial public offering. Upon the selection of a specified lead compound for certain pre-clinical studies, Sumitomo has the right to enter into a separate license agreement granting Sumitomo exclusive rights to develop, manufacture and sell the compound in Japan and in certain other Asian countries, subject to royalty obligations to the Company. The collaboration agreement grants Tularik exclusive rights to develop, manufacture and sell these products in the rest of the world, without payment obligation to Sumitomo. The license to Tularik and the license to Sumitomo each continue following expiration of the research portion of the collaboration. Any of the specified compounds will revert to the Company if not licensed by Sumitomo within the specified period after the termination of the research collaboration. Sumitomo had paid Tularik $15.0 million in research payments as of December 31, 2001.

        In December 1993, Tularik established a collaboration with Merck to fund research and development in specified fields of human viral disease. Under a related stock purchase agreement, Merck purchased 400,000 shares of the Company's Series D preferred stock in January 1994 for $5.00 per share, the fair value of the preferred stock at that date. The Series D preferred stock converted into common stock upon the close of the Company's initial public offering. In December 1996, the companies amended the original agreement, extending its term to December 1999. In March 1999, utilizing early termination rights under the amended agreement, Merck terminated the collaboration. Merck had paid Tularik $18.4 million under this agreement as of December 31, 2001.

64

5.    Cash and Investments

        The following is a summary of cash and available-for-sale securities at December 31:

		2001		2000
		(In thousands)
Cash and cash equivalents:
	Cash and money market funds	$	19,241	$	9,726
	U.S. corporate debt securities		90,151		66,586
		$	109,392	$	76,312
Short-term investments:
	U.S. equity securities	$	4,660	$	5,116
	U.S. corporate debt securities		85,206		142,779
	Foreign corporate debt securities		17,331		34,696
		$	107,197	$	182,591
Other investments:
	U.S. corporate debt securities	$	25,337	$	20,000

        At December 31, 2001 and 2000, the average portfolio durations were approximately seven months on both dates.

December 31, 2001 (In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	Cash and money market funds	$	19,241	$	—	$	—		$	19,241
	U.S. corporate debt securities maturing within 1 year		175,152		210		(5	)		175,357
	Foreign corporate debt securities maturing within 1 year		17,141		190		—			17,331
	U.S. corporate debt securities maturing between 1 to 5 years		25,238		135		(36	)		25,337
	U.S. equity security		5,279		—		(619	)		4,660
Total available-for-sale		$	242,051	$	535	$	(660	)	$	241,926

        Venture-stage equity investments in technology partners are included in other assets with aggregate amortized costs of $2.0 million. The unrealized loss on our U.S. equity security is judged to be temporary at December 31, 2001.

65

6.    Property and Equipment

        Property and equipment consisted of the following at December 31:

	2001			2000
	(In thousands)
Laboratory and office equipment	$	38,420		$	27,123
Software		8,049			1,244
Leasehold improvements		13,314			9,719
		59,783			38,086
Less accumulated depreciation and amortization		(25,772	)		(17,584	)
Property and equipment, net	$	34,011		$	20,502

        At December 31, 2001 and 2000, equipment under capital leases was approximately $11.5 million and $8.2 million, respectively, with accumulated amortization of approximately $3.0 million and $4.9 million, respectively.

7.    License Agreement

        Effective September 24, 1999, Tularik executed a license agreement with Eli Lilly under which it obtained an exclusive, worldwide, royalty-bearing license to make, use and sell pharmaceutical products containing a compound that Tularik refers to as T64 and is also known as lometrexol. In connection with this agreement, Tularik paid $3.0 million to Eli Lilly as an initial license fee and agreed to make specific milestone and royalty payments upon successful commercialization of T64. Under the agreement, Eli Lilly granted the Company a license to its proprietary technology relating to T64 and also a sublicense under an exclusive license granted to Eli Lilly by Princeton University relating to T64. Eli Lilly has specified obligations under the agreement to maintain the license from Princeton University. Eli Lilly has the right to match the material terms of any offer made by a third party to Tularik for commercialization rights relating to T64 products. Tularik may terminate the agreement with Eli Lilly upon written notice. Eli Lilly may terminate the Company's license in specified major countries if the Company fails to use reasonable diligence to develop T64 products in those countries and may terminate the agreement if the Company fails to use appropriate diligence to develop T64 products in a predetermined number of major countries. If Eli Lilly terminates the agreement, Eli Lilly will obtain a nonexclusive, royalty-bearing, worldwide license to the Company's technical improvements to T64.

        At the date of the license agreement, T64 had completed the first of three phases of clinical trials required to seek regulatory approval from the FDA, but no clinical trials had been commenced that could have demonstrated, with statistical significance, the effectiveness of T64 as a treatment for any type of cancer. The clinical trials necessary to establish the technological feasibility of T64 will not be completed for at least several years. In addition, T64 has no known alternative future uses. Accordingly, the initial license payment was allocated to acquired in-process research and development and expensed at the time of the agreement.

66

8.    Long-Term Debt and Leases

        At December 31, 2001, the Company's aggregate commitments under non-cancelable lease arrangements are as follows:

	Capital Leases			Operating Leases		Build-to-Suit Lease		Operating Sublease Income
	(In thousands)
2002	$	3,225		$	6,488	$	—	$	(1,363	)
2003		3,029			6,182		8,666		(16	)
2004		2,035			8,089		11,892		—
2005		1,555			7,761		14,605		—
2006		808			7,687		16,396		—
Thereafter		—			35,597		258,527		—
Total minimum payment required		10,652		$	71,804	$	310,086	$	(1,379	)
Less amount representing interest		(1,430	)
Present value of future payments		9,222
Less current portion		(2,788	)
	$	6,434

        Maturities of long-term debt were as follows (in thousands):

Year Ending December 31,
2002	$	3,897
2003		3,466
2004		901
	$	8,264

        Equipment and leasehold improvements financed under these arrangements are included in property and equipment and related amortization is included in depreciation expense. Interest rates on long-term debt range from 8.1% to 10.2%. In 1998, the Company entered into sale and leaseback agreements covering certain laboratory equipment. No gain or loss was recognized on these transactions.

        In December 2000, the Company entered into a capital lease agreement that provided for up to $7.2 million of equipment financing through November 2001 and carried interest of approximately 8.7%. Eligible equipment included computer, laboratory and office equipment. Upon termination of the lease agreement, the Company is required to renew the lease or purchase the leased equipment at the then existing fair market value. The Company has also the option to buy-out the equipment at set prices six months before termination of the lease. In July 2001, the Company assumed approximately $0.4 million of capital lease liabilities as a result of the acquisition of the CAMD business from Protherics. The leases carried rates ranging from 7.4% to 14.2% and expire between January 2002 and January 2004.

        In May 2001, Cumbre entered into a lease agreement and has committed to make $1.2 million in minimum aggregate payments over a 7-year period. Tualrik will be guarantor of this lease until Cumbre

67

achieves a net worth of $100 million. In December 2001, Tularik entered into a build-to-suit lease agreement for three buildings in South San Francisco totaling approximately 280,000 square feet. The facilities will become available in May 2003 through November 2005. The Company is committed to make $310.1 million in minimum aggregate rental payments over a 17-year period.

        The Company has purchased $2.0 million of corporate debt securities to secure one of the long-term debt facilities. Accordingly, the Company has classified these investments as a restricted investment in the accompanying balance sheet.

        Rent expense, principally for leased facilities under long-term operating lease commitments, was $7.8 million, $4.6 million and $4.4 million for 2001, 2000 and 1999, respectively. The Company received $2,000,000, $786,000 and $666,000 in sublease income in 2001, 2000 and 1999, respectively.

9.    Stockholders' Equity

Preferred Stock

        Concurrent with the closing of the Company's initial public offering in December 1999, all outstanding shares of preferred stock converted into 26,953,539 shares of common stock of the Company.

Common Stock

Warrants. A summary of warrants to purchase common stock at December 31, 2001 is as follows:

Description	Number of Warrants	Exercise Price		Terms in Years	Expiration
Related to the issuance of Series F preferred stock	109,600	$	10.00	10	2006
Acquisition of Amplicon	190,842	$	13.00	7	2007
Consulting services	3,000	$	30.00	2	2003
Consulting services	3,000	$	27.13	1	2002
	306,442

        Stock Awards.    During 1997, the Company's Board of Directors terminated the 1991 Stock Plan ("1991 Plan") and adopted the 1997 Equity Incentive Plan and the 1997 Non-Employee Directors' Plan ("1997 Plans"). Termination of the 1991 Plan had no effect on options outstanding under that plan. The 1997 Plans provide for stock options and stock purchase rights to be granted to employees, directors and consultants. Under the 1997 Equity Incentive Plan, shares available for grant are increased by three and one-half percent of the total number of shares outstanding at the end of each year from 1997 to 2002 up to a maximum of 2,000,000 shares per year. Options granted under the 1997 Equity Incentive Plan may be incentive stock options or nonstatutory stock options. Exercise prices are determined by the Board of Directors and may not be less than 100% of the fair value of the Company's common stock (not less than 85% of fair value for nonstatutory stock options granted under the 1997 Equity Incentive Plan) on the date of grant. Options and purchase rights are exercisable upon grant, subject to repurchase by the Company until vested, and generally vest over four years. Options that were granted after June 2001 are exercisable only upon vesting. All options expire no more than ten years from the date of grant.

68

        The Company has elected to follow APB No. 25 and related Interpretations in accounting for its stock options and stock purchase rights because, as discussed below, the alternative fair value accounting provided for under SFAS 123 requires use of option valuation models that were not developed for use in valuing employee stock options and rights.

        During the years ended December 31, 1999 and 1998, in connection with the grant of certain stock options to employees, the Company recorded deferred stock compensation of $6.6 million and $0.7 million, respectively, representing the difference between the exercise price and the deemed fair value of the Company's common stock on the date these stock options were granted. During the years ended December 31, 2001 and 2000, deferred stock compensation was reduced by $0.2 million and $0.7 million, respectively, as a result of the cancellation of certain options granted during the years ended December 31, 1999 and 1998. Deferred compensation is included as a reduction of stockholders' equity and is being amortized to expense on a graded vesting method. During the years ended December 31, 2001, 2000 and 1999, the Company recorded amortization of deferred stock compensation expense of approximately $1.1 million, $2.2 million and $2.7 million, respectively. At December 31, 2001, the Company had a total of approximately $0.4 million remaining to be amortized over the corresponding vesting period of each respective option, generally four years. During the year ended December 31, 2000, the Company recorded compensation expense of approximately $5.4 million in connection with the acceleration of vesting of certain stock options and restricted stock.

        Pro forma net loss and net loss per share information is required by SFAS 123, which also requires that the information be determined as if the Company had accounted for its employee stock options and rights granted subsequent to December 31, 1994 under the fair market value method of that statement. For employee stock options granted prior to the Company's initial public offering in December 1999, the fair value for these options and the related purchase rights was estimated at the date of grant using the minimum value method. For employee stock options granted subsequent to the Company's initial public offering, the value was estimated at the date of grant using a Black-Scholes option-pricing model. The following weighted average assumptions were used for 2001, 2000 and 1999, respectively: risk free interest rates of 4.9%, 6.1% and 6.0%; volatility factors of the expected market price of the Company's common stock of 0.64 in 2001 and 0.72 in 2000 and 1999; no dividend yield; and a weighted average expected life of the options of 6.3 years in 2001 and 5 years in 2000 and 1999. Pro forma information follows for the years ended December 31:

		2001			2000			1999
		(In thousands)
Net loss:
	As reported	$	(48,569	)	$	(43,257	)	$	(25,538	)
	Pro forma	$	(62,736	)	$	(48,807	)	$	(27,571	)
Net loss per share (basic and diluted):
	As reported	$	(0.99	)	$	(0.92	)	$	(2.70	)
	Pro forma	$	(1.28	)	$	(1.04	)	$	(2.92	)

69

        A summary of the Company's stock option activity under the 1991 Plan and 1997 Plans and related information follows:

		Number of Options		Weighted Average Exercise Price
Options outstanding at January 1, 1999		5,333,347		$	1.99
	Granted	1,712,750			4.27
	Exercised	(2,229,920	)		1.99
	Forfeited	(571,986	)		2.91
Options outstanding at December 31, 1999		4,244,191			2.80
	Granted	1,750,300			26.83
	Exercised	(545,173	)		1.86
	Forfeited	(120,943	)		8.34
Options outstanding at December 31, 2000		5,328,375			10.67
	Granted	1,991,035			22.86
	Exercised	(1,177,761	)		2.03
	Forfeited	(212,928	)		20.23
Options outstanding at December 31, 2001		5,928,721		$	16.14

An analysis of options outstanding at December 31, 2001, is as follows:

	Options Outstanding
					Options Vested
		Weighted Average Remaining Contractual Life
Exercise Price	Number of Options Outstanding		Weighted Average Exercise Price		Number of Options Vested	Weighted Average Exercise Price
$0.03	97,500	0.33	$	0.03	97,500	$	0.03
$0.40—$0.75	251,700	3.87		0.62	251,700		0.62
$2.50—$3.00	1,858,481	6.68		3.00	1,372,276		3.00
$9.90—$23.13	2,595,657	8.93		21.96	477,260		21.54
$25.38—$58.25	1,125,383	9.05		29.28	218,554		33.64
$0.03—$58.25	5,928,721	7.89	$	16.14	2,417,290	$	9.06

        The information above excludes options to purchase 30,263 shares of common stock with exercise prices from $0.50 to $3.00 granted outside of the Company's 1991 Plan and 1997 Plans. The weighted average fair value of options granted during 2001, 2000 and 1999 was $14.90, $17.00 and $5.22, respectively.

        Stock Subject to Repurchase.    As of December 31, 2001 and 2000, the Company had approximately 143,787 and 271,343 shares of common stock outstanding, respectively, which were subject to the Company's lapsing right of repurchase in the event the holder's association with the Company terminates. These shares are the result of the exercise of unvested stock options by employees. The

70

shares that relate to the exercise of unvested stock options will vest over the four-year vesting period of the underlying exercised stock options.

        1999 Employee Stock Purchase Plan.    In November 1999, the Company adopted its 1999 Employee Stock Purchase Plan (the "Purchase Plan"), authorizing the issuance of shares of common stock through purchase rights granted to employees or to employees of affiliates, if any. The Purchase Plan authorizes the issuance of a total of 500,000 shares of common stock. This reserve amount will be increased each January 1 beginning January 1, 2001 by the lesser of 500,000 shares of common stock or 1% of the number of shares of common stock outstanding on that date. However, the Company's Board of Directors has the authority to designate a smaller number of shares by which the authorized number of shares of common stock will be increased on that date. As of December 31, 2001, 250,084 shares of common stock had been issued under the Purchase Plan.

        Reserved Shares.    Shares of common stock reserved for future issuance were as follows at December 31:

		2001	2000
Warrants:
	Warrants outstanding	306,442	301,631
	Reserved for future issuance	949	1,260
Stock plans:
	Options issued from the Plans	5,928,721	5,328,375
	Options issued outside of the Plans	30,263	33,316
	Reserved for future grants	509,429	2,303,426
	Purchase Plan	731,360	417,942
		7,507,164	8,385,950

10.    Related Party Transactions

        At December 31, 2001 and 2000, the Company had $2.2 million and $1.8 million, respectively, in notes receivable from certain employees. The loans were made in connection with relocation and housing expenses. The loans bear interest rates that range from 3.97% to 6.8%, and certain of the loans provide for partial forgiveness based on continued employment. The loans are full-recourse, and amounts forgiven have been recorded as compensation expense. These amounts exclude loans made in connection with stock option exercises that have been recorded in stockholders' equity in the accompanying financial statements.

        During the year ended December 31, 2001, one member of Tularik's board of directors and one executive officer of Tularik were on the board of directors of Cumbre, and three Tularik executive officers were also executive officers of Cumbre. As a result of Tularik's majority voting control in Cumbre, Cumbre's statement of operations for the year ended December 31, 2001 was fully consolidated with Tularik's statement of operations for the same period. In the year ended December 31, 2001, no revenue was recognized by Tularik or Cumbre as a result of inter-company research collaborations. None of the consolidated losses of Cumbre have been allocated to the minority stockholders based upon such stockholders' liquidation preferences.

71

        In May 2001, Cumbre leased approximately 23,000 square feet of research and office space. The lease expires in 2007 but could be extended by exercising two five-year renewal options. Tularik will be the guarantor of this lease until Cumbre achieves a net worth of $100 million.

        In 2001, two employees of Tularik transferred to Cumbre, which resulted in the cancellations of their stock options in Tularik and the issuance of stock options in Cumbre. Had the exercise price to stock fair value ratio of the Cumbre options been more favorable to the employees than the exercise price to fair value ratio of the Tularik options at the time of cancellation and grant, a compensation charge would have been recognized. During the year ended December 31, 2001, Cumbre issued loans to certain of its employees in connection with stock option exercises that have been recorded in stockholders' equity in the accompanying financial statements.

        One executive officer of Tularik is on the board of directors of a company in which Tularik made a $400,000 equity investment and to which Tularik made aggregate payments of $750,000 in a research collaboration. One executive officer of Tularik is on the board of directors of another company in which Tularik made a $999,999 equity investment.

11.    Employee Savings Plan

        The Company has an employee savings plan, which permits substantially all employees to participate and to make contributions by salary reductions as provided in section 401(k) of the Internal Revenue Code of 1986, as amended. All Tularik employees are eligible to participate in the Plan as of their first pay period. Employees may authorize pre-tax payroll deduction contributions up to 20% of their gross salary, subject to limitations. In 2000, the Company matched employee contributions with the Company's shares of common stock at a rate of 50% to a maximum of $1,000 per employee. The Company's contribution is 100% vested at the end of an employee's first year of employment. Under this plan, the Company contributed 13,703, 6,921 and 39,931 shares of common stock to employee savings accounts and recognized compensation expense of $288,000, $214,000 and $309,000 in 2001, 2000 and 1999, respectively.

12.    Income Taxes

        As of December 31, 2001, the Company had federal and state net operating loss carryforwards of approximately $129.0 million and $15.0 million, respectively, which expire in the years 2002 through 2021. The Company also had federal and state research and other tax credit carryforwards of approximately $3.0 million and $2.8 million, respectively, which expire in the years 2007 through 2021 for federal purposes and carryforward for state purposes.

72

        Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets are as follows at December 31:

			2001			2000
			(In thousands)
Deferred tax assets:
	Net operating loss carryforwards		$	45,000		$	32,500
	Research and other credits			5,000			4,100
	Capitalized research expenses			4,300			3,300
	Other			7,800			1,400
		Total deferred tax assets		62,100			41,300
Deferred tax liabilities:
	Unrealized gain on investments			—			(3,600	)
		Total deferred tax liabilities					(3,600	)
	Valuation allowance			(62,100	)		(37,700	)
		Net deferred tax assets	$	—		$	—

        Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $24.4 million and $8.1 million during the years ended December 31, 2001 and 2000, respectively.

        Deferred tax assets related to carryforwards at December 31, 2001 include approximately $3.0 million associated with stock option activity for which any subsequently recognized tax benefits will be credited directly to stockholders' equity.

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

13.    Subsequent Event

        On January 9, 2002, the Company entered into a collaboration with Medarex, Inc. ("Medarex") for the development of therapeutic antibodies for the treatment of a variety of cancers based on targets discovered by the Company. Medarex made a $5.0 million investment in Tularik by buying 100,036 shares of the Company's common stock at $49.98 per share, which represents a 100% premium over and above an average market price per share. The Company and Medarex will share equally clinical development costs and commercialization rights.

73

14.    Selected Quarterly Financial Data (Unaudited)

        (In thousands, except per share amounts)

	Three Months Ended December 31,						Three Months Ended September 30,						Three Months Ended June 30,						Three Months Ended March 31,
	2001			2000			2001			2000			2001			2000			2001			2000
Revenue from collaborative research and development	$	8,747		$	6,843		$	8,529		$	7,144		$	8,315		$	5,824		$	7,041		$	5,676
Loss before the cumulative effect of a change in accounting principle	$	(13,232	)	$	(9,360	)	$	(14,229	)	$	(6,752	)	$	(11,936	)	$	(7,618	)	$	(9,172	)	$	(14,727	)(1)
Cumulative effect of a change in accounting principle	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	(4,800	)
Net loss	$	(13,232	)	$	(9,360	)	$	(14,229	)	$	(6,752	)	$	(11,936	)	$	(7,618	)	$	(9,172	)	$	(19,527	)
Net loss per share before the cumulative effect of a change in accounting principle, basic and diluted	$	(0.27	)	$	(0.20	)	$	(0.29	)	$	(0.14	)	$	(0.25	)	$	(0.16	)	$	(0.19	)	$	(0.33	)
Net loss per share from the cumulative effect of a change in accounting principle, basic and diluted	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	(0.11	)
Net loss per share, basic and diluted	$	(0.27	)	$	(0.20	)	$	(0.29	)	$	(0.14	)	$	(0.25	)	$	(0.16	)	$	(0.19	)	$	(0.44	)

(1)

Includes $5.4 million in non-cash expense in connection with the acceleration of vesting of certain stock options and restricted stock.

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

        None.

74

PART III

Item 10. Directors and Executive Officers of the Registrant

        Certain information required by this item will be contained in our definitive Proxy Statement with respect to our 2002 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission before April 30, 2002, under the captions "Election of Directors—Nominees" and "Security Ownership of Certain Beneficial Owners and Management—Section 16(a) Beneficial Ownership Reporting Compliance," and is hereby incorporated by reference.

Executive Officers and Directors

        The following table sets forth the names, ages and positions of our executive officers and directors as of December 31, 2001:

Name	Age	Position
David V. Goeddel, Ph.D.	50	Chief Executive Officer and Director
Andrew J. Perlman, M.D., Ph.D.	54	Executive Vice President
William J. Rieflin	41	Executive Vice President, Administration, General Counsel and Secretary
Terry J. Rosen, Ph.D.	42	Executive Vice President, Operations
James Huang	36	Vice President, Business Development and Commercial Operations
Michael Levy, M.D.	40	Vice President, Development and Chief Medical Officer
Corinne H. Lyle	41	Vice President, Chief Financial Officer
Pieter B.M.W.M. Timmermans, Ph.D.	52	Vice President, Pharmacology and Pre-clinical Development
A. Grant Heidrich, III	49	Chairman of the Board of Directors
Craig A. P. D. Saxton, M.D.	59	Director
Paul A. Marks, M.D.	75	Director
Edward R. McCracken	58	Director
Steven L. McKnight, Ph.D.	52	Director

David V. Goeddel, Ph.D. co-founded Tularik in November 1991 and has served as a member of the Board since the Company's inception and as Chief Executive Officer since April 1996. From March 1996 to December 1997, Dr. Goeddel served as President of the Company, and from January 1993 to March 1996, Dr. Goeddel served as Vice President, Research of the Company. Dr. Goeddel was the first scientist hired by Genentech, Inc., a biotechnology company, and from 1978 to 1993 served in various positions, including Genentech Fellow, Staff Scientist and Director of Molecular Biology. Dr. Goeddel's pioneering work in the field of gene cloning and expression of human proteins has been the basis for five significant marketed therapeutics developed by Genentech, including human insulin, human growth hormone, interferon-alpha, interferon-gamma and tissue plasminogen activator. Based on his contributions in gene cloning and expression of human proteins, Dr. Goeddel was elected to the National Academy of Sciences and the American Academy of Arts and Sciences. Since 1998, Dr. Goeddel has served on the board of directors of Pharma Vision AG, a stockholder of the Company. Dr. Goeddel holds a Ph.D. in Biochemistry from the University of Colorado and has performed postdoctoral research at Stanford Research Institute.

Andrew J. Perlman, M.D., Ph.D. has served as our Executive Vice President since September 1999. From November 1997 to September 1999, Dr. Perlman served as our Vice President, Medical Research and Corporate Development. From January 1993 to November 1997, Dr. Perlman served as our Vice

75

President of Medical Research. Prior to joining Tularik, Dr. Perlman held senior clinical research positions at Genentech, Inc., a biotechnology company. Previously, Dr. Perlman served as a faculty member in the Department of Medicine at Stanford University. Dr. Perlman is a director of SangStat Medical Corporation, a biotechnology company. Dr. Perlman holds an M.D. degree and a Ph.D. degree in Physiology from New York University. Dr. Perlman serves on the Board of Directors of Cumbre. In February 2002, Dr. Perlman resigned his position with the Company.

William J. Rieflin has served as our Executive Vice President, Administration, General Counsel and Secretary since January 2001. Prior to that time, he served as our Vice President, General Counsel and Secretary since August 1996. From May 1992 to July 1996, Mr. Rieflin worked at AMSCO International, Inc., a medical device company, serving in various positions, including Vice President-Human Resources, General Counsel and Secretary. Previously, Mr. Rieflin was an associate at the law firm of Sidley & Austin. Mr. Rieflin holds a J.D. from Stanford Law School and an M.B.A. from the University of Chicago Graduate School of Business. Mr. Rieflin serves on the Board of Directors of Cumbre.

Terry J. Rosen, Ph.D. has served as our Executive Vice President, Operations since January 2001. Immediately prior to that time, he served as our Vice President, Research Operations since October 1996. From June 1996 to October 1996, Dr. Rosen served as our Vice President, Medicinal Chemistry and from October 1993 to June 1996, as our Director, Medicinal Chemistry. Prior to joining Tularik, Dr. Rosen worked at Pfizer Inc, a pharmaceutical company, and Abbott Laboratories, a pharmaceutical company. Dr. Rosen holds a Ph.D. in Organic Chemistry from the University of California, Berkeley.

James Z. Huang has served as our Vice President, Business Development and Commercial Operations since June 2000. Mr. Huang joined Tularik from SmithKline Beecham PLC, a pharmaceutical company, where he was Product Director, Avandia® and Diabetes and led the launch and marketing effort for Avandia®, a blockbuster diabetes drug. Mr. Huang also held positions at SmithKline Beecham PLC in new product development and worldwide business development. Prior to joining SmithKline Beecham PLC in June 1995, Mr. Huang rose through the strategic product planning, managed care and sales and marketing organizations of Bristol-Myers Squibb, a pharmaceutical company, where he worked from July 1992 to June 1995. Mr. Huang also previously held positions at ALZA Corporation, a pharmaceutical company. Mr. Huang holds an M.B.A. from the Stanford Graduate School of Business.

Michael D. Levy, M.D. has served as our Vice President, Development and Chief Medical Officer since January 2001. Dr. Levy joined Tularik from Glaxo Wellcome Inc., a pharmaceutical company, where he was Senior Vice President, Research & Development and Chief Medical Officer, responsible for the R&D facility in Toronto, Canada. Dr. Levy joined Glaxo Wellcome in 1988. Dr. Levy received his M.A. and medical licensure degrees from Cambridge University, U.K. He undertook postgraduate training at Cambridge University and The Mayo Clinic. He is a Fellow and Member of the Faculty of Pharmaceutical Medicine of the Royal College of Physicians (U.K.).

Corinne H. Lyle has served as our Vice President, Chief Financial Officer since October 1998. From April 1996 to August 1998, Ms. Lyle was an investment banker at Warburg Dillon Read LLC, an investment banking company. Previously, Ms. Lyle was with the investment banking companies of PaineWebber Incorporated and Kidder Peabody & Co. Incorporated as an investment banker. Ms. Lyle holds an M.B.A. from Harvard Business School.

Pieter B.M.W.M. Timmermans, Ph.D. has served as our Vice President, Pharmacology and Pre-clinical Development since January 1997. From June 1984 to December 1996, Dr. Timmermans worked at the DuPont Merck Pharmaceutical Company, and its predecessor, E.I. DuPont de Nemours & Company, serving in various positions including Vice President of Drug Discovery and Senior Vice President of Research. While at DuPont, Dr. Timmermans led the team that discovered

76

the nonpeptide angiotensin II receptor antagonist, Cozaar, which is currently marketed by Merck. Dr. Timmermans holds a Ph.D. in Pharmacology from the University of Amsterdam.

A. Grant Heidrich, III has served as a member of the Board since November 1991 and as Chairman since February 2000. Mr. Heidrich joined Mayfield Fund, a venture capital fund, in 1982 and is currently a general partner of Mayfield Fund. Mr. Heidrich is a member of the board of directors of Millennium Pharmaceuticals, Inc. Mr. Heidrich holds an M.B.A. from Columbia University Graduate School of Business.

Edward R. McCracken has served as a member of the Board since August 1993. From 1984 to 1998, Mr. McCracken served as Chief Executive Officer of Silicon Graphics, Inc., a computer products and services company. Prior to joining Silicon Graphics, Mr. McCracken spent 16 years with Hewlett-Packard Company, a computer company, where he worked in a variety of senior management positions. Mr. McCracken serves as chairman of The PRASAD Project, a charitable foundation, and serves on the board of National Semiconductor Corporation. Mr. McCracken holds an M.B.A. from Stanford University.

Steven L. McKnight, Ph.D. co-founded Tularik in November 1991 and has served as a member of the Board since the Company's inception. From September 1992 to September 1995, Dr. McKnight served as Director, Biology of the Company. Dr. McKnight has been a part-time employee of, or a consultant to, the Company since January 1996. He is currently Professor and Chairman of the Department of Biochemistry at the University of Texas Southwestern Medical Center, where he has served since 1995. Previously, Dr. McKnight was an investigator at the Howard Hughes Medical Institute at the Carnegie Institution of Washington. Dr. McKnight is recognized as one of the world leaders in gene regulation based in part on his discovery of leucine zipper proteins. Dr. McKnight is a member of the National Academy of Sciences and the American Association of Arts and Sciences. Dr. McKnight serves on the Board of Directors of Cumbre.

Paul A. Marks, M.D. has served as a member of our Board of Directors since December 1993 and has decided to resign from his position as a director effective as of the date of our 2002 Annual Meeting of Stockholders. He is currently President Emeritus and Member, Memorial Sloan-Kettering Cancer Center. From July 1980 to December 1999, Dr. Marks was the President and Chief Executive Officer of Memorial Sloan-Kettering Cancer Center, a member of the Sloan-Kettering Institute for Cancer Research, and Attending Physician of Memorial Hospital for Cancer and Allied Diseases. Previously, Dr. Marks was Vice President for Health Sciences and Director of the Cancer Center at Columbia University Medical Center. Dr. Marks is a member of the National Academy of Sciences and the Institute of Medicine, and is a Fellow of the American Academy of Arts and Sciences. Dr. Marks serves as a director of several Dreyfus Funds and is Director-Emeritus of Pfizer Inc. He received his M.D. from the College of Physicians and Surgeons, Columbia University in 1949.

Craig A. P. D. Saxton, M.D. has served as a member of the Board since September 2001. From 1976 to 2001, Dr. Saxton served in a variety of positions with Pfizer Inc, a pharmaceutical company, most recently as Executive Vice President, Central Research and Vice President of Pfizer Inc. Dr. Saxton joined the Central Research Division of Pfizer in Sandwich, U.K. as a Medical Advisor in 1976. After several positions of increasing responsibility within the Clinical Research Division at Sandwich, he relocated to New York, where he was appointed Senior Associate Medical Director of International Pharmaceuticals in 1981. He was named Vice President, Medical Director of the International Division in 1982. In 1988, Dr. Saxton moved to the Central Research Division in Groton, where he was appointed Senior Vice President of Clinical Research and Development, becoming Executive Vice President of the division in 1993. Dr. Saxton serves as a director of Neurogen Corporation. Dr. Saxton earned his M.D. in 1965 from Leed's University.

77

        Our executive officers are appointed by our Board of Directors and serve until their successors are elected or appointed. There are no family relationships among any of our directors or executive officers. No director has a contractual right to serve as a member of our Board of Directors.

Item 11. Executive Compensation

        The information required by this item will be contained in our definitive Proxy Statement with respect our 2002 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission before April 30, 2002, under the caption "Executive Compensation," and is hereby incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

        The information required by this item will be contained in our definitive Proxy Statement with respect to our 2002 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission before April 30, 2002, under the caption "Security Ownership of Certain Beneficial Owners and Management," and is hereby incorporated by reference.

Item 13. Certain Relationships and Related Transactions

        The information required by this item will be contained in our definitive Proxy Statement with respect to our 2002 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission before April 30, 2002, under the caption "Certain Transactions," and is hereby incorporated by reference.

78

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)	The following documents are filed as part of this annual report on Form 10-K:
	1.	Financial Statements—See Index to Consolidated Financial Statements in Item 8 of this annual report on Form 10-K.
	2.	Financial Statement Schedules—None.
	3.	Exhibits.
3.1		Amended and Restated Certificate of Incorporation of Registrant.	(1)
3.2		Amended and Restated Bylaws of Registrant.	(2)
4.1		Specimen Common Stock Certificate.	(3)
4.2		Amended and Restated Registration Rights Agreement, dated August 15, 1999, between Registrant and holders of Registrant's Series A, Series B, Series C, Series D, Series E, Series F and Series G preferred stock and holders of warrants to purchase Registrant's common stock or Series H preferred stock.	(3)
4.3		Reserved.
10.1		Form of Indemnity Agreement.	(3)(4)
10.2		1991 Stock Plan and related documents.	(3)(4)
10.3		1997 Equity Incentive Plan and related documents.	(3)(4)
10.4		1997 Non-Employee Directors' Stock Option Plan and related documents.	(3)(4)
10.5		1999 Employee Stock Purchase Plan.	(3)(4)
10.6		Collaboration Agreement between Registrant and Sumitomo Pharmaceuticals Co., Ltd., dated January 31, 1995, as amended March 13, 1997.	(3)(5)
10.7		Reserved.
10.8		Amended and Restated Collaboration and License Agreement between Registrant and Merck & Co., Inc., dated December 22, 1996.	(3)(5)
10.9		Research Collaboration and License Agreement between Registrant and the Roche Bioscience division of Syntex (U.S.A.) Inc., dated July 8, 1997, as amended on December 19, 1997.	(3)(5)
10.10		Research Agreement between Registrant and Cold Spring Harbor Laboratory, dated October 3, 1997.	(3)(5)
10.11		License Agreement between Registrant and Cold Spring Harbor Laboratory, dated October 3, 1997.	(3)(5)
10.12		Collaboration Agreement between Registrant and Knoll AG, dated November 1, 1998.	(3)(5)
10.13		Preliminary Research, Development and Marketing Agreement between Registrant and Japan Tobacco Inc., dated September 8, 1998.	(3)(5)
10.14		Preliminary Research, Development and Marketing Agreement between Registrant and Japan Tobacco Inc., dated September 20, 1998.	(3)(5)
10.15		Screening Agreement between Registrant and Japan Tobacco Inc., dated August 23, 1999.	(3)(5)

79

10.16	Licensing Agreement between Registrant and Eli Lilly and Company, dated September 24, 1999.	(3)(5)
10.17	Stock Purchase Agreement between Registrant and the 1987 Swanson Family Trust, dated June 20, 1996, as amended August 17, 1996.	(3)
10.18	Sublease between Registrant and AGY Therapeutics, Inc., dated January 25, 1999.	(3)
10.19	Sublease between Registrant and Coulter Pharmaceuticals, Inc., dated May 1, 1999.	(3)
10.20	Sublease between Registrant and IGEN International, Inc., dated August 20, 1999.	(3)
10.21	Lease Agreement between Leonard Racanelli and The Rosa Racanelli 1998 Trust, dated July 23, 1998.	(3)
10.22	Sublease between Registrant and GeneSoft Inc., dated November 16, 1998.	(3)
10.23	Lease Agreement between Registrant and Brittania Developments, Inc., dated April 20, 1995.	(3)
10.24	Lease Agreement between Registrant and Brittania Developments, Inc., dated February 10, 1998.	(3)
10.25	Agreement and General Release between Registrant and John P. McLaughlin, dated September 30, 1999.	(3)
10.26	Amplicon Corp. Stock Option Plan.	(6)
10.27	Reserved.
10.28	Collaboration Agreement between Registrant and Japan Tobacco dated June 1, 2000.	(5)(7)
10.29	License Agreement between Registrant and Japan Tobacco dated June 1, 2000.	(5)(7)
10.30	Option Agreement between Registrant and Japan Tobacco dated June 1, 2000.	(5)(7)
10.31	Industrial Lease Agreement between Grand/Roebling Investment Company and Shaman Pharmaceuticals, Inc. dated January 1, 1993, as amended on April 29, 1994.	(8)
10.32	Assignment of Lease between Shaman Pharmaceuticals, Inc. and Tularik Inc., dated March 27, 2001.	(8)
10.33	Third Amendment to Lease between Grand/Roebling Investment Company and Tularik Inc., dated March 27, 2001.	(8)
10.34	Amendment No. 1, dated August 15, 2000, to Collaboration Agreement between Registrant and Knoll AG dated November 1, 1998.	(9)
10.35	Amendment No. 1, dated January 1, 2001, to Collaboration Agreement between Registrant and Japan Tobacco dated June 1, 2000.	(9)
10.36	Amendment No. 2, dated August 31, 2000, to Research Collaboration and License Agreement between Registrant and Syntex (U.S.A.) LLC dated July 8, 1997.	(9)
10.37	Amendment No. 1, effective December 12, 1999 to the Registrant's 1997 Equity Incentive Plan.	(9)
10.38	Amendment No. 1, dated January 10, 2001, to Licensing Agreement between Registrant and Eli Lilly and Company dated September 30, 1999.	(9)
10.39	Amendment No. 2, dated May 31, 2001, to Collaboration Agreement between Registrant and Japan Tobacco dated June 1, 2000.	(5)(9)
10.40	Build-to-Suit Lease Agreement between Registrant and Slough BTC, LLC dated December 20, 2001.	(10)
21.1	List of Subsidiaries.	(10)

80

23.1	Consent of Ernst & Young LLP, Independent Auditors.	(10)
24.1	Power of Attorney (included on signature pages hereto).	(10)

(1)

Filed as an exhibit to our Form 10-Q for the quarter ended March 31, 2000, and incorporated herein by reference.

(2)

Filed as an exhibit to our quarterly report on Form 10-Q for the quarter ended September 30, 2001, and incorporated herein by reference.

(3)

Filed as an exhibit to our Registration Statement on Form S-1 No. 333-89177, and incorporated herein by reference.

(4)

Management contract or compensatory plan or arrangement.

(5)

Confidential treatment has been granted as to specific portions.

(6)

Filed as an exhibit to our Registration Statement on Form S-8 No. 333-95605, and incorporated herein by reference.

(7)

Filed as an exhibit to our Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference.

(8)

Filed as an exhibit to our quarterly report on Form 10-Q for the quarter ended March 31, 2001, and incorporated herein by reference.

(9)

Filed as an exhibit to our quarterly report on Form 10-Q for the quarter ended June 30, 2001, and incorporated herein by reference.

(10)

Filed herewith.

(b)

We did not file any reports on Form 8-K during the fourth quarter of 2001.

(c)

Exhibits

        See Item 14(a) above.

(d)

Financial Statement Schedule

        See Item 14(a) above.

81

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on March 15, 2002.

TULARIK INC.
BY:	/s/  DAVID V. GOEDDEL David V. Goeddel Chief Executive Officer

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures appear below each severally constitutes and appoints David V. Goeddel and Corinne H. Lyle, and each of them, as true and lawful attorneys-in-fact and agents, with full powers of substitution and resubstitution, for them in their name, place and stead, in any and all capacities, to sign any and all amendments to this Report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they might or could do in person, hereby ratifying and confirming all which said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do, or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Exchange Act of 1934, 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/   DAVID V. GOEDDEL David V. Goeddel	Chief Executive Officer and Director (Principal Executive Officer)	March 15, 2002
/s/   CORINNE H. LYLE Corinne H. Lyle	Chief Financial Officer (Principal Finance and Accounting Officer)	March 15, 2002
/s/   A. GRANT HEIDRICH, III A. Grant Heidrich, III	Director	March 15, 2002
/s/   PAUL A. MARKS Paul A. Marks	Director	March 15, 2002

82

/s/   EDWARD R. MCCRACKEN Edward R. McCracken	Director	March 15, 2002
/s/   STEVEN L. MCKNIGHT Steven L. McKnight	Director	March 15, 2002
/s/   CRAIG A.P.D. SAXTON Craig A.P.D. Saxton	Director	March 15, 2002

83

QuickLinks

TABLE OF CONTENTS
PART I

Item 1. Business

RISK FACTORS

Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders

PART II

Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Item 6. Selected Consolidated Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

TULARIK INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
TULARIK INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts)
TULARIK INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TULARIK INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
TULARIK INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

PART III

Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

SIGNATURES
POWER OF ATTORNEY

EX-10.40

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 10.40

BUILD-TO-SUIT LEASE

Landlord:	Slough BTC, LLC
Tenant:	Tularik Inc.
Date:	December    , 2001

TABLE OF CONTENTS

1.	PROPERTY		1
	1.1	Lease of Buildings	1
	1.2	Landlord's Reserved Rights	3
2.	TERM		3
	2.1	Term; Rent Commencement Dates	6
	2.2	Early Possession	7
	2.3	Delay In Possession	7
	2.4	Acknowledgment Of Rent Commencement Dates	7
	2.5	Holding Over	7
	2.6	Option To Extend Term	8
3.	RENTAL		8
	3.1	Minimum Rental	8
	3.2	Late Charge	13
4.	[Omitted]		14
5.	CONSTRUCTION		14
	5.1	Construction of Improvements	14
	5.2	Condition of Property	14
	5.3	Compliance with Law	15
6.	EXPANSION RIGHTS		15
	6.1	First Refusal Right to Lease	15
	6.2	Right of First Offer to Lease	15
	6.3	Expansion Option	17
7.	[OMITTED]		18
8.	TAXES		18
	8.1	Personal Property	18
	8.2	Real Property	19
9.	OPERATING EXPENSES		19
	9.1	Liability For Operating Expenses	19
	9.2	Definition Of Operating Expenses	21
	9.3	Determination and Payment of Operating Expenses	22
	9.4	Final Accounting For Lease Year	23
	9.5	Proration	23
10.	UTILITIES		24
	10.1	Payment	24
	10.2	Interruption	24
11.	ALTERATIONS; SIGNS		24
	11.1	Right To Make Alterations	24
	11.2	Title To Alterations	25
	11.3	Tenant Trade Fixtures	26
	11.4	No Liens	26
	11.5	Signs	26
12.	MAINTENANCE AND REPAIRS		26
	12.1	Landlord's Work	26

i

	12.2	Tenant's Obligation For Maintenance	27
13.	USE OF PROPERTY		28
	13.1	Permitted Use	28
	13.2	[Omitted.]	28
	13.3	No Nuisance	28
	13.4	Compliance With Laws	28
	13.5	Liquidation Sales	29
	13.6	Environmental Matters	29
14.	INSURANCE AND INDEMNITY		33
	14.1	Liability and Property Insurance	33
	14.2	Quality Of Policies And Certificates	35
	14.3	Workers' Compensation	35
	14.4	Waiver Of Subrogation	35
	14.5	Increase In Premiums	35
	14.6	Indemnification	36
	14.7	Blanket Policy	36
15.	SUBLEASE AND ASSIGNMENT		36
	15.1	Assignment And Sublease Of Building(s)	36
	15.2	Rights Of Landlord	37
16.	RIGHT OF ENTRY AND QUIET ENJOYMENT		37
	16.1	Right Of Entry	37
	16.2	Quiet Enjoyment	38
17.	CASUALTY AND TAKING		38
	17.1	Damage or Destruction	38
	17.2	Condemnation	39
	17.3	Reservation Of Compensation	40
	17.4	Restoration Of Improvements	41
18.	DEFAULT		41
	18.1	Events Of Default	41
	18.2	Remedies Upon Tenant's Default	42
	18.3	Remedies Cumulative	43
19.	SUBORDINATION, ATTORNMENT AND SALE		43
	19.1	Subordination To Mortgage	43
	19.2	Sale Of Landlord's Interest	44
	19.3	Estoppel Certificates	44
	19.4	Subordination to CC&R's	44
	19.5	Mortgagee Protection	45
20.	SECURITY		46
	20.1	Deposit	46
21.	MISCELLANEOUS		47
	21.1	Notices	47
	21.2	Successors And Assigns	48
	21.3	No Waiver	48
	21.4	Severability	48
	21.5	Litigation Between Parties	49
	21.6	Surrender	49

ii

21.7	Interpretation	49
21.8	Entire Agreement	49
21.9	Governing Law	49
21.10	No Partnership	49
21.11	Financial Information	49
21.12	Costs	50
21.13	Time	50
21.14	Rules And Regulations	50
21.15	Brokers	50
21.16	Memorandum Of Lease	50
21.17	Corporate Authority	51
21.18	Execution and Delivery	51
21.19	Survival	51
21.20	Parking and Traffic	51

iii

BUILD-TO-SUIT LEASE

        THIS BUILD-TO-SUIT LEASE ("Lease") is made and entered into as of December 20, 2001, by and between SLOUGH BTC, LLC, a Delaware limited liability company ("Landlord"), and TULARIK INC., a Delaware corporation ("Tenant").

THE PARTIES AGREE AS FOLLOWS:

1.    PROPERTY

        1.1    Lease of Buildings.

        (a)  Landlord leases to Tenant and Tenant hires and leases from Landlord, on the terms, covenants and conditions hereinafter set forth, the buildings (individually, a "Building" and collectively, the "Buildings") to be constructed pursuant to Article 5 hereof and Exhibit C attached hereto on a portion of the real property described in Exhibit A attached hereto (the "Property"), as follows: (i) a three-story office and laboratory building containing approximately 103,000 square feet (the "Phase IA Building"), to be located on the Property substantially as shown for the building designated "Building A" on the site plan attached hereto as Exhibit B (the "Site Plan"); (ii) a three-story office and laboratory building containing approximately 84,000 square feet (the "Phase IB Building"), to be located on the Property substantially as shown for the building designated "Building B" on the Site Plan; (iii) a four-story building containing approximately 93,200 square feet (and in no event less than 90,000 square feet) of office and laboratory space and approximately 5,000 square feet of ground-floor retail space (the "Phase II Building"), to be located on the Property substantially as shown for the building designated "Building E" on the Site Plan; and (iv) subject to final design and to receipt of all required governmental approvals, an enclosed connector bridge connecting the Phase IA Building to the Phase IB Building at the second-story level (the "Connector Bridge"). With respect to the governmental approvals described in clause (iv) of the preceding sentence, Landlord has advised Tenant that the additional square footage created by construction of the Connector Bridge will cause the Project to exceed the maximum square footage amount for which the Project is presently entitled and that, without limiting any other governmental approvals that may be required, a modification of the maximum square footage amount under the existing Project entitlements will therefore be necessary in order to permit construction of the Connector Bridge. Landlord shall pursue diligently and reasonably the design of the Connector Bridge and the securing of all governmental approvals and permits necessary for the construction of the Connector Bridge (other than the interior improvements therein, which shall be Tenant's responsibility as part of the Tenant Improvements), and Tenant shall cooperate diligently and reasonably with Landlord, in any respects reasonably requested by Landlord, in connection with the design and authorization of the Connector Bridge. For purposes of this Lease, the Connector Bridge shall generally be considered to be a part of the Phase IB Building, and the square footage of the Connector Bridge (which is not presently included in the estimated square footage figure used in this Lease for the Phase IB Building), determined in accordance with Section 1.1(d) of this Lease, shall be included in the square footage of the Phase IB Building for purposes of calculating Tenant's Minimum Rent, additional rent and Operating Expense obligations with respect to the Phase IB Building and the Tenant Improvement Allowance with respect to the Phase IB Building; provided, however, that the square footage of the Connector Bridge shall not be taken into account in determining the number of parking spaces allocated to Tenant or required to be paid for by Tenant pursuant to Section 21.20(b) of this Lease. All references in this Lease to the Phase II Building as being leased to Tenant hereunder shall be construed to refer solely to the office and laboratory portion of the Phase II Building and not to the ground-floor retail portion of such building. The Phase IA Building and the Phase IB Building (including the Connector Bridge) are sometimes hereinafter collectively referred to as the "Phase I Buildings." The Property is commonly known as Britannia Oyster Point (the "Center") and is located at Oyster Point Boulevard and Veterans Boulevard in the City of South San Francisco, County of San Mateo, State of California. The Buildings and the other improvements to be constructed on the Property pursuant to Article 5 hereof and Exhibit C attached hereto are sometimes referred to collectively herein as the "Improvements." The parking areas,

driveways, sidewalks, landscaped areas and other portions of the Center that lie outside the exterior walls of the Buildings and of the other buildings to be constructed in the Center, as depicted on the Site Plan and as hereafter modified by Landlord from time to time in accordance with the provisions of this Lease, are sometimes referred to herein as the "Common Areas."

        (b)  As an appurtenance to Tenant's leasing of the Buildings pursuant to Section 1.1(a), Landlord hereby grants to Tenant, for the benefit of Tenant and its employees, suppliers, shippers, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, (i) those portions of the Common Areas improved from time to time for use as parking areas, driveways, sidewalks, landscaped areas, or for other common purposes, and (ii) all easements, access rights and similar rights and privileges relating to or appurtenant to the Center and created or existing from time to time under any easement agreements, declarations of covenants, conditions and restrictions, or other written agreements now or hereafter of record with respect to the Center, subject however to any limitations applicable to such rights and privileges under applicable law, under this Lease and/or under the written agreements creating such rights and privileges.

        (c)  Tenant shall be entitled to install, in areas of the Property adjacent to one or more of the Buildings, in what would otherwise constitute Common Areas, at Tenant's sole expense and for the exclusive use of Tenant and its employees and invitees, subject to all of the conditions set forth in this paragraph (c), (1) a half-court basketball court and (2) an equipment yard. In no event shall Tenant be obligated to pay rent for the use of such areas, nor shall such areas be considered part of the Buildings or premises leased by Tenant for purposes of any calculations of rent or of Tenant's Operating Cost Share under this Lease, but for all other purposes (including, but not limited to, the purposes specifically identified in this paragraph (c)), such areas shall be considered part of the Buildings leased by Tenant under this Lease. Without limiting the generality of the foregoing, Tenant's construction and use of such basketball court and equipment yard shall be subject to the following requirements and restrictions: (i) the locations in which such basketball court and equipment yard are to be constructed shall be subject to Landlord's prior written consent, in Landlord's sole discretion; (ii) the plans and specifications for construction of all improvements constituting such basketball court and equipment yard shall be subject to Landlord's prior written consent, in Landlord's sole discretion, and such improvements shall otherwise be constructed in full compliance with the requirements applicable to Tenant's Work under Exhibit C attached hereto; (iii) the liability insurance to be carried by Tenant pursuant to Section 14.1(a) of this Lease shall cover, to Landlord's satisfaction, any claims and liabilities arising out of the use of such basketball court and equipment yard; (iv) Tenant shall ensure that the construction and use of such basketball court and equipment yard do not interfere with the use of any parking or driveway areas on the Property and do not create any visual or noise interference with the use and enjoyment of the Property by the other tenants thereof; (v) Tenant shall be solely responsible for the maintenance and repair of such basketball court and equipment yard, at Tenant's sole expense, as part of Tenant's maintenance obligations under Section 12.2 of this Lease; and (vi) Tenant shall take all such steps as Landlord in its reasonable discretion may require in order to restrict access to and use of such basketball court and equipment yard to Tenant's employees and invitees.

        (d)  All measurements of building areas under this Lease shall be made by Landlord's architect in accordance with the same formula applied by Landlord to the building areas for the other leased buildings in the Center, which formula consists of measurement from the exterior faces of exterior walls, from the dripline of any overhangs and, where applicable, from the centerline of any demising walls. In measuring interior space (relevant only to the determination of space actually being used or occupied by Tenant in the Phase II Building during the phase-in of Tenant's occupancy thereof), measurements involving any demising walls separating space actually used or occupied by Tenant from space not used or occupied by Tenant shall be made to the centerline of the demising wall.

-2-

        1.2    Landlord's Reserved Rights.    To the extent reasonably necessary to permit Landlord to exercise any rights of Landlord and discharge any obligations of Landlord under this Lease, Landlord shall have, in addition to the right of entry set forth in Section 16.1 hereof, the following rights: (i) to make changes to the Common Areas, including, without limitation, changes in the location, size or shape of any portion of the Common Areas, and to construct and/or relocate parking structures and/or parking spaces in the Center, but not materially decrease the number of parking spaces in the Center; (ii) to close temporarily any of the Common Areas for maintenance or other reasonable purposes, provided that reasonable parking and reasonable access to the Buildings remain available; (iii) to construct, alter or add to other buildings or improvements in the Center; (iv) to build in areas adjacent to the Center and to add such areas to the Center; (v) to use the Common Areas while engaged in making additional improvements, repairs or alterations to the Center or any portion thereof; and (vi) to do and perform such other acts with respect to the Common Areas and the Center as may be necessary or appropriate; provided, however, that notwithstanding anything to the contrary in this Section 1.2, Landlord's exercise of its rights hereunder (x) shall not cause any material diminution of Tenant's rights, nor any material increase of Tenant's obligations, under this Lease, and (y) shall be conducted in such a manner as to minimize, to the extent reasonably possible, any adverse effect on Tenant's business operations in the Buildings (including, but not limited to, reasonable prior notice to Tenant of any pile-driving or other activities of Landlord that will cause significant noise or vibration in the Buildings).

2.    TERM

        2.1    Term; Rent Commencement Dates.    The term of this Lease shall commence upon mutual execution of this Lease by Landlord and Tenant.

        (a)  Tenant's Minimum Rental, additional rent and Operating Expense obligations with respect to the Phase I Buildings shall commence on the earlier to occur of (i) the date which is one hundred eighty (180) days after the date Landlord delivers to Tenant a Structural Completion Certificate for each of the Phase I Buildings (or, if the Structural Completion Certificates for the two Phase I Buildings are delivered on different dates, the date Landlord delivers to Tenant the Structural Completion Certificate for the second of the two Phase I Buildings) pursuant to the Workletter attached hereto as Exhibit C (the "Workletter"), subject to any adjustments in such time period to the extent authorized or required under the provisions of such Workletter, or (ii) the date Tenant takes occupancy of and commences operation of its business in either of the Phase I Buildings, the earlier of such dates being herein called the "Phase I Rent Commencement Date"; provided, however, that in no event shall the Phase I Rent Commencement Date occur earlier than May 1, 2003, unless determined pursuant to clause (ii) of this sentence or unless an earlier date is hereafter mutually agreed upon in writing by Landlord and Tenant; and provided further, however, that if the Phase I Rent Commencement Date is determined pursuant to clause (ii) of this sentence as a result of Tenant's occupancy of and commencement of business operations in one of the two Phase I Buildings, then notwithstanding any other provisions of this Lease to the contrary, Tenant's Minimum Rental, additional rent and Operating Expense obligations with respect to the second of the Phase I Buildings and with respect to the Connector Bridge (regardless of whether the Phase IB Building is the first Phase I Building to be occupied by Tenant) shall not commence until the earlier to occur of the date described in clause (i) of this sentence or the date Tenant takes occupancy of and commences operation of its business in the second Phase I Building. Based on the estimated construction schedules attached hereto as Exhibit D, the parties presently estimate that the Phase I Rent Commencement Date shall occur on May 1, 2003.

        (b)  Tenant shall be entitled to occupy the Phase II Building in up to four (4) successive phases. The first such phase ("Phase IIA") shall consist of a minimum of 23,300 square feet of the Phase II Building. The second such phase ("Phase IIB") shall consist of at least that amount of space which, when added to the Phase IIA space, shall equal a minimum of 46,600 square feet of the Phase II

-3-

Building. The third such phase ("Phase IIC") shall consist of at least that amount of space which, when added to the Phase IIA and Phase IIB spaces, shall equal a minimum of 69,900 square feet of the Phase II Building. The fourth such phase ("Phase IID") shall consist of the remainder, if any, of the non-retail portion of the Phase II Building. As to any of such phases, Tenant shall have the right to take and occupy a larger portion of the Phase II Building than the minimum space required for the applicable phase, in which event the space for the applicable phase shall be deemed to consist of the greater of the minimum required amount of space for such phase or the amount of space actually occupied by Tenant. Tenant shall not be deemed to be occupying any portion of the Phase II Building solely by reason of constructing interior improvements in such portion in connection with Tenant's intended future use and occupancy of such portion or by reason of maintaining insurance on or performing maintenance or repair work in such portion, but use of any portion of the Phase II Building for any other purpose by Tenant (including, but not limited to, any storage uses other than storage or staging of materials on a temporary basis in the course of construction) shall be deemed to constitute occupancy of such portion by Tenant. At least thirty (30) days prior to the applicable Rent Commencement Date for each phase of Tenant's occupancy of the Phase II Building as set forth in subparagraphs (i) through (iv) below, Tenant shall notify Landlord in writing of the portion of the Phase II Building that Tenant intends to actually use and occupy during such phase. Tenant acknowledges, however, that if Tenant in fact uses a greater portion of the Phase II Building than specified in Tenant's notice to Landlord with respect to the applicable phase, then Tenant's Minimum Rental, additional rent and Operating Expense obligations with respect to Tenant's occupancy of the Phase II Building during such phase shall be controlled by the amount of space actually used or occupied by Tenant. Landlord shall have the right to inspect the Phase II Building from time to time prior to the Phase IID Rent Commencement Date, on not less than one (1) business day's prior notice to Tenant, to confirm and measure the amount of space actually being occupied by Tenant in the Phase II Building, and the measurement and calculation of such space actually being occupied by Tenant shall be made by Landlord's architect as contemplated in Section 1.1(d) of this Lease. On the Phase IIA Rent Commencement Date as hereinafter defined, all of Tenant's obligations under this Lease shall become applicable and effective in full with respect to all of the Phase II Building, except that the following obligations with respect to each phase of Tenant's occupancy of the Phase II Building shall become effective only on the respective Rent Commencement Date for such phase: (A) Tenant's Minimum Rental, additional rent and Operating Expense obligations with respect to such phase; (B) Tenant's obligations under Section 8.2 of this Lease with respect to real property taxes and assessments upon Improvements constructed by Landlord and located within such phase; (C) Tenant's obligation under Section 10.1 of this Lease to pay for utilities or services supplied to or consumed in or with respect to such phase, but only to the extent such utilities or services are consumed by or supplied at the request of Landlord or its agents, employees or contractors and the cost thereof can reasonably be segregated from the cost of utilities or services furnished to the portions of the Phase II Building occupied by Tenant; (D) Tenant's maintenance and repair obligations under Section 12.2 of this Lease with respect to any Improvements constructed or installed in such phase by Landlord as part of Landlord's Work under the Workletter, except that Tenant shall be responsible for any such maintenance or repairs required as a result of the negligent or willful acts or omissions of Tenant or its agents, employees, contractors or invitees; and (E) Tenant's obligation to cause the applicable phase to comply with any applicable Requirements under Section 13.4(a) of this Lease, except to the extent the applicability of such Requirements is triggered by Tenant's actual use of any portion of the Building or by Tenant's construction of Improvements in any portion of the Building. The Rent Commencement Dates for the respective phases of the Phase II Building shall be as follows:

        (i)    Tenant's Minimum Rental, additional rent and Operating Expense obligations with respect to Phase IIA shall commence on the earlier to occur of (A) the date which is one hundred eighty (180) days after the date Landlord delivers to Tenant a Structural Completion Certificate for the Phase II Building pursuant to the Workletter, subject to any adjustments in such time period to

-4-

the extent authorized or required under the provisions of such Workletter, or (B) the date Tenant takes occupancy of and commences operation of its business in any portion of the Phase II Building, the earlier of such dates being herein called the "Phase IIA Rent Commencement Date"; provided, however, that in no event shall the Phase IIA Rent Commencement Date occur earlier than May 1, 2004, unless determined pursuant to clause (B) of this sentence or unless an earlier date is hereafter mutually agreed upon in writing by Landlord and Tenant. Based on the foregoing provisions and on the estimated construction schedules attached hereto as Exhibit D, the parties presently estimate that the Phase IIA Rent Commencement Date shall occur on May 1, 2004.

        (ii)  Tenant's Minimum Rental, additional rent and Operating Expense obligations with respect to Phase IIB shall commence on the earlier to occur of (A) the date which is six (6) months after the Phase IIA Rent Commencement Date (as extended for any Landlord Delays occurring after the Phase IIA Rent Commencement Date in connection with Tenant's construction of Tenant Improvements in Phase IIB) or (B) the date Tenant takes occupancy of and commences operation of its business in any portion of Phase IIB of the Phase II Building, the earlier of such dates being herein called the "Phase IIB Rent Commencement Date"; provided, however, that in no event shall the Phase IIB Rent Commencement Date occur earlier than November 1, 2004, unless determined pursuant to clause (B) of this sentence or unless an earlier date is hereafter mutually agreed upon in writing by Landlord and Tenant.

        (iii)  Tenant's Minimum Rental, additional rent and Operating Expense obligations with respect to Phase IIC shall commence on the earlier to occur of (A) the date which is six (6) months after the Phase IIB Rent Commencement Date (as extended for any Landlord Delays occurring after the Phase IIB Rent Commencement Date in connection with Tenant's construction of Tenant Improvements in Phase IIC) or (B) the date Tenant takes occupancy of and commences operation of its business in any portion of Phase IIC of the Phase II Building, the earlier of such dates being herein called the "Phase IIC Rent Commencement Date"; provided, however, that in no event shall the Phase IIC Rent Commencement Date occur earlier than May 1, 2005, unless determined pursuant to clause (B) of this sentence or unless an earlier date is hereafter mutually agreed upon in writing by Landlord and Tenant.

        (iv)  Tenant's Minimum Rental, additional rent and Operating Expense obligations with respect to Phase IID shall commence on the earlier to occur of (A) the date which is six (6) months after the Phase IIC Rent Commencement Date (as extended for any Landlord Delays occurring after the Phase IIC Rent Commencement Date in connection with Tenant's construction of Tenant Improvements in Phase IID) or (B) the date Tenant takes occupancy of and commences operation of its business in any portion of Phase IID of the Phase II Building, the earlier of such dates being herein called the "Phase IID Rent Commencement Date"; provided, however, that in no event shall the Phase IID Rent Commencement Date occur earlier than November 1, 2005, unless determined pursuant to clause (B) of this sentence or unless an earlier date is hereafter mutually agreed upon in writing by Landlord and Tenant.

        (c)  Notwithstanding any other provisions of this Section 2.1 or of Section 2.3 below, if Landlord has not delivered a Final Completion Certificate under the Workletter with respect to the Building Shell of a Building or phase of a Building, as applicable, and completed all Building Shell work that must be completed as a condition of delivery of such Final Completion Certificate for the applicable Building or phase, by the date the Rent Commencement Date for such Building or phase would otherwise occur under this Section 2.1, and if the incomplete elements of such Building Shell work materially impair Tenant's ability to occupy and commence operation of its business in the applicable Building or phase, then the Rent Commencement Date for the applicable Building or phase, to the extent it is determined by the passage of time since delivery of the Structural Completion Certificate and not by actual occupancy, shall be extended, day for day, for a period equal to the lesser of (i) the number of days from the date the Rent Commencement Date for such Building or phase would

-5-

otherwise have occurred under this Section 2.1 until the date Landlord has completed all Building Shell work that must be completed as a condition of delivery of the Final Completion Certificate for the applicable Building or phase to such an extent that Tenant's ability to occupy and commence operation of its business in the applicable Building or phase is no longer materially impaired by any remaining incomplete elements of Landlord's Building Shell work in the applicable Building or phase, or (ii) the number of days by which Landlord's delay (beyond the date the applicable Rent Commencement Date would otherwise have occurred pursuant to this Section 2.1) in completing all Building Shell work that must be completed as a condition of delivery of the Final Completion Certificate for the applicable Building or phase has actually delayed Tenant's ability to occupy and commence operation of its business in the applicable Building or phase; provided, however, that the period (if any) for which any Rent Commencement Date is extended pursuant to this paragraph (c) shall be reduced, day for day, for a period equal to the length of any delays in Landlord's completion of the Building Shell work that must be completed as a condition of delivery of the Final Completion Certificate for the applicable Building or phase to the extent such delays are caused by any Tenant Delays (as defined in the Workletter). Nothing in this paragraph (c) is intended to imply or require that Landlord's Site Improvements relating to a Building or phase shall be completed by the Rent Commencement Date for such Building or phase; in fact, the parties expressly contemplate that completion of various elements of the Site Improvements may be deferred by Landlord, in its discretion, until after completion of Tenant's Work under the Workletter in order to avoid the risk of damage to such Site Improvements in the course of Tenant's Work, and Landlord agrees to complete such Site Improvements with reasonable diligence following completion of Tenant's Work under the Workletter, subject to the effects of any Tenant Delays and/or Unavoidable Delays (as defined in the Workletter).

        (d)  The term of this Lease shall end on the day (the "Termination Date") immediately preceding the fifteenth (15^th) anniversary of the last of the Phase II Rent Commencement Dates to occur, unless sooner terminated or extended as hereinafter provided.

        2.2    Early Possession.    Tenant shall have the nonexclusive right to occupy and take possession of the respective Buildings from and after the date of Landlord's delivery of the Structural Completion Certificate described in the applicable portion of Section 2.1 for the applicable Building, even though Landlord will be continuing to construct the balance of Landlord's Work as contemplated in the Workletter, for the purpose of constructing Tenant's Work as contemplated in the Workletter and for the purpose of installing fixtures and furniture, laboratory equipment, computer equipment, telephone equipment, low voltage data wiring and personal property and other similar work related to the construction of Tenant's Work and/or preparatory to the commencement of Tenant's business in the applicable Building. Such occupancy and possession, and any early access under the next sentence of this Section 2.2, shall be subject to and upon all of the terms and conditions of this Lease and of the Workletter (including, but not limited to, conditions relating to the maintenance of required insurance), except that Tenant shall have no obligation to pay Minimum Rental or Operating Expenses for any period prior to the applicable Rent Commencement Date as determined under Section 2.1; such early possession shall not advance or otherwise affect the respective Rent Commencement Dates or the Termination Date determined under Section 2.1. Tenant shall also be entitled to have early access to the respective Buildings and the Property at all appropriate times prior to Landlord's delivery of the Structural Completion Certificate for the applicable Building, subject to the approval of Landlord and its general contractor (which approval shall not be unreasonably withheld or delayed) and to all other provisions of this Section 2.2 and of the Workletter (including, but not limited to, conditions relating to the maintenance of required insurance), solely for the purpose of installing fixtures and equipment and other similar work preparatory to the construction of Tenant's Work and the commencement of Tenant's business on the Property, and Tenant shall not be required to pay Minimum Rental or Operating Expenses by reason of such early access until the applicable Rent Commencement Date otherwise occurs; without limiting the generality of the preceding portion of this sentence, Tenant shall be entitled to have early access to the Property and the respective Buildings as soon as the roof metal

-6-

decking of the applicable Building is in place, to begin hanging electrical, mechanical and plumbing services from the overhead structure, subject to all of the provisions of this Section 2.2.

        2.3    Delay In Possession.    Landlord agrees to use its best reasonable efforts to complete Landlord's Work (as defined in the Workletter) promptly, diligently and within the respective time periods set forth in the respective estimated construction schedules attached hereto as Exhibit D and incorporated herein by this reference, as such schedules may be modified from time to time by mutual written agreement of Landlord and Tenant, and subject to any Tenant Delays and Unavoidable Delays (as respectively defined in the Workletter); provided, however, that Landlord shall not be liable for any damages caused by any delay in the completion of such work, nor shall any such delay affect the validity of this Lease or the obligations of Tenant hereunder. Notwithstanding any other provision of this Section 2.3, however, unless Landlord delivers a Structural Completion Certificate for at least one of the two Phase I Buildings and tenders possession of those completed structural portions of the Building Shell for such Building that must be completed as a condition of delivery of the Structural Completion Certificate by the date which is one hundred twenty (120) days after the date specified for structural completion as to such Phase I Building in the applicable Estimated Construction Schedule attached hereto as Exhibit D, Tenant shall have the right to terminate this Lease without further liability hereunder by written notice delivered to Landlord at any time prior to Landlord's delivery of a Structural Completion Certificate for at least one Phase I Building and tender of possession of the completed structural portions of the Building Shell for such Phase I Building to Tenant; provided, however, that the applicable date on which Tenant's termination right becomes exercisable pursuant to this sentence shall be extended, day for day, for a period equal to the length of any delays in Landlord's design and construction of the respective Phase I Building Shells that are caused by any Unavoidable Delays or Tenant Delays (as respectively defined in the Workletter). If such a termination right arises in favor of Tenant and is properly exercised by Tenant, then Landlord shall reimburse Tenant for all of Tenant's out-of-pocket fees and costs incurred prior to the date of such termination for design, space planning, architectural, engineering and construction management services in connection with this Lease and the Workletter, which reimbursement shall be paid by Landlord to Tenant within thirty (30) days after Landlord's receipt of Tenant's written request for such reimbursement, accompanied by copies of such invoices and other supporting documentation as Landlord may reasonably request to evidence the nature and amount of the fees and costs for which such reimbursement is requested.

        2.4    Acknowledgment Of Rent Commencement Dates.    Promptly following the respective Rent Commencement Date for each Building or portion thereof, Landlord and Tenant shall execute a written acknowledgment of such Rent Commencement Date, the square footage of the Building or portion thereof (in the case of the Phase II Rent Commencement Dates) as to which the Rent Commencement Date applies, the Termination Date (if then determined) and related matters, substantially in the form attached hereto as Exhibit E (with appropriate insertions), which acknowledgment shall be deemed to be incorporated herein by this reference. Notwithstanding the foregoing requirement, the failure of either party to execute such a written acknowledgment shall not affect the determination of the applicable Rent Commencement Date, the applicable minimum rental and Operating Expense obligations, the Termination Date and related matters in accordance with the provisions of this Lease.

        2.5    Holding Over.    If Tenant holds possession of the Property or any portion thereof after the term of this Lease with Landlord's written consent, then except as otherwise specified in such consent, Tenant shall become a tenant from month to month at one hundred twenty-five percent (125%) of the rental and otherwise upon the terms herein specified for the period immediately prior to such holding over and shall continue in such status until the tenancy is terminated by either party upon not less than thirty (30) days prior written notice. If Tenant holds possession of the Property or any portion thereof after the term of this Lease without Landlord's written consent, then Landlord in its sole discretion may

-7-

elect (by written notice to Tenant) to have Tenant become a tenant either from month to month or at will, at one hundred fifty percent (150%) of the rental (prorated on a daily basis for an at-will tenancy, if applicable) and otherwise upon the terms herein specified for the period immediately prior to such holding over, or may elect to pursue any and all legal remedies available to Landlord under applicable law with respect to such unconsented holding over by Tenant. Tenant shall indemnify and hold Landlord harmless from any loss, damage, claim, liability, cost or expense (including reasonable attorneys' fees) resulting from any delay by Tenant in surrendering the Property (except with Landlord's prior written consent), including but not limited to any claims made by a succeeding tenant by reason of such delay. Acceptance of rent by Landlord following expiration or termination of this Lease shall not constitute a renewal of this Lease.

        2.6    Option To Extend Term.    Tenant shall have the option to extend the term of this Lease with respect to any one or more of the Buildings, on a Building by Building basis (provided, however, that notwithstanding any other provisions of this Section 2.6, if the Connector Bridge is constructed as contemplated in Section 1.1(a) of this Lease and if Tenant elects to exercise this extension option with respect to one but not both of the Phase I Buildings, then Landlord's election regarding removal of the Connector Bridge by Landlord at Tenant's expense, as provided in Section 12.2(c) of this Lease, shall be exercisable in Landlord's discretion either at the expiration of this Lease with respect to the Phase I Building for which the extension option was not exercised or at the expiration of this Lease with respect to the Phase I Building for which the extension option was exercised), at the Minimum Rental set forth in Section 3.1(b) and (c) (as applicable) and otherwise upon all the terms and provisions set forth herein with respect to the initial term of this Lease, for up to two (2) additional periods of five (5) years each, the first commencing upon the expiration of the initial term hereof and the second (applicable only to the Building or Buildings as to which a first extended term has been duly elected) commencing upon the expiration of such first extended term, if any. Exercise of such option with respect to the first such extended term shall be by written notice to Landlord at least nine (9) months and not more than twelve (12) months prior to the expiration of the initial term hereof; exercise of such option with respect to the second extended term, if the first extension option has been duly exercised, shall be by like written notice to Landlord at least nine (9) months and not more than twelve (12) months prior to the expiration of the first extended term hereof. If Tenant is in default hereunder on the date of such notice or on the date any extended term is to commence, then the exercise of the option shall be of no force or effect, the extended term shall not commence and this Lease shall expire at the end of the then current term hereof (or at such earlier time as Landlord may elect pursuant to the default provisions of this Lease). If Tenant properly exercises one or more extension options under this Section, then all references in this Lease (other than in this Section 2.6) to the "term" of this Lease shall be construed to include the extension term(s) thus elected by Tenant. Except as expressly set forth in this Section 2.6, Tenant shall have no right to extend the term of this Lease beyond its prescribed term.

3.    RENTAL

        3.1    Minimum Rental.

        (a)    Rental Amounts.    Tenant shall pay to Landlord as minimum rental for the respective Buildings or applicable portions thereof, in advance, without deduction, offset (except as specifically authorized under Paragraph 4(c) of the Workletter, if applicable), notice or demand, on or before the applicable Rent Commencement Date for the respective Building and on or before the first day of each subsequent calendar month of the initial term of this Lease, the following

-8-

amounts per month (the "Minimum Rental"), subject to adjustment in accordance with the terms of this Section 3.1:

        (i)    For the Phase IA Building, beginning on the Phase I Rent Commencement Date, an amount equal to the applicable amount per square foot from the following table multiplied by the square footage of the Phase IA Building as determined pursuant to Section 3.1(d):

Months	Monthly Minimum Rental
001 - 012	$4.0500/sq ft
013 - 024	$4.1715/sq ft
025 - 036	$4.2966/sq ft
037 - 048	$4.4255/sq ft
049 - 060	$4.5583/sq ft
061 - 072	$4.6951/sq ft
073 - 084	$4.8359/sq ft
085 - 096	$4.9810/sq ft
097 - 108	$5.1304/sq ft
109 - 120	$5.2843/sq ft
121 - 132	$5.4429/sq ft
133 - 144	$5.6061/sq ft
145 - 156	$5.7743/sq ft
157 - 168	$5.9476/sq ft
169 - 180	$6.1260/sq ft
181 - 192	$6.3098/sq ft
193 - 204	$6.4991/sq ft
205 - 216 (if applicable)	$6.6940/sq ft
217 and after (if applicable), continued 3.0% annual escalations

-9-

        (ii)  For the Phase IB Building, beginning on the Phase I Rent Commencement Date, an amount equal to the applicable amount per square foot from the following table multiplied by the square footage of the Phase IB Building as determined pursuant to Section 3.1(d):

Months	Monthly Minimum Rental
001 - 012	$4.0500/sq ft
013 - 024	$4.1715/sq ft
025 - 036	$4.2966/sq ft
037 - 048	$4.4255/sq ft
049 - 060	$4.5583/sq ft
061 - 072	$4.6951/sq ft
073 - 084	$4.8359/sq ft
085 - 096	$4.9810/sq ft
097 - 108	$5.1304/sq ft
109 - 120	$5.2843/sq ft
121 - 132	$5.4429/sq ft
133 - 144	$5.6061/sq ft
145 - 156	$5.7743/sq ft
157 - 168	$5.9476/sq ft
169 - 180	$6.1260/sq ft
181 - 192	$6.3098/sq ft
193 - 204	$6.4991/sq ft
205 - 216 (if applicable)	$6.6940/sq ft
217 and after (if applicable), continued 3.0% annual escalations

        (iii)  For the Phase II Building, beginning on the Phase IIA Rent Commencement Date (with each successive phase of Tenant's occupancy of the Phase II Building being brought under the following table as of the applicable Rent Commencement Date for such phase at the rental rate determined under the following table by counting from the Phase IIA Rent Commencement Date), an amount equal to the applicable amount per square foot from the following table multiplied by

-10-

the aggregate square footage of all then applicable phases of the Phase II Building as determined pursuant to Section 3.1(d):

Months	Monthly Minimum Rental
001 - 012	$4.1715/sq ft
013 - 024	$4.2966/sq ft
025 - 036	$4.4255/sq ft
037 - 048	$4.5583/sq ft
049 - 060	$4.6951/sq ft
061 - 072	$4.8359/sq ft
073 - 084	$4.9810/sq ft
085 - 096	$5.1304/sq ft
097 - 108	$5.2843/sq ft
109 - 120	$5.4429/sq ft
121 - 132	$5.6061/sq ft
133 - 144	$5.7743/sq ft
145 - 156	$5.9476/sq ft
157 - 168	$6.1260/sq ft
169 - 180	$6.3098/sq ft

        (iv)  If the obligation to pay Minimum Rental or additional rent hereunder commences on other than the first day of a calendar month or if the term of this Lease terminates on other than the last day of a calendar month, the Minimum Rental and any additional rent for such first or last month of the term of this Lease, as the case may be, shall be prorated based on the number of days the term of this Lease is in effect during such month. If an increase in Minimum Rental or additional rent becomes effective on a day other than the first day of a calendar month, the Minimum Rental or additional rent, as applicable, for that month shall be the sum of the two applicable rates, each prorated for the portion of the month during which such rate is in effect.

        (b)    Rental Amounts During First Extended Term.    If Tenant properly exercises its right to extend the term of this Lease pursuant to Section 2.6 hereof, the Minimum Rental for each Building as to which Tenant has elected to extend during the first year of the first extended term shall be equal to the initial fair market rental (as defined below) for the applicable Building, determined as of the commencement of such extended term in accordance with this Section 3.1(b), and as of the beginning of each subsequent year of the first extended term such Minimum Rental shall be increased by an amount equal to the greater of (i) three percent (3%) of the Minimum Rental in effect during the immediately preceding lease year or (ii) the fair market rental escalation percentage (as defined below) for the applicable Building, determined as of the commencement of such extended term in accordance with this Section 3.1(b). Upon Landlord's receipt of a timely notice of Tenant's exercise of its option to extend the term of this Lease, the parties shall have sixty (60) days in which to agree on the initial fair market rental and the applicable rental escalation percentage for the Buildings as of the commencement of the first extended term for the uses permitted hereunder. If the parties agree on such initial fair market rental and rental escalation percentage, they shall execute an amendment to this Lease stating the amount of the Minimum Rental during the first year of the extended term (determined in accordance with this Section 3.1(b)) and the annually increased Minimum Rental for the balance of the first extended term. If the parties are unable to agree on such initial fair market rental and/or applicable rental escalation percentage within such sixty (60) day period, then within fifteen (15) days after the expiration of such period each party, at its cost and by giving notice to the other party, shall appoint a real estate appraiser who is a member of the American Institute of

-11-

Real Estate Appraisers, or any other similar organization, and has at least five (5) years experience appraising similar commercial properties in northeastern San Mateo County, to determine the initial fair market rental and applicable rental escalation percentage for the Buildings as of the commencement of the first extended term in accordance with the provisions of this Section 3.1(b). If either party fails to appoint an appraiser within the allotted time, the single appraiser appointed by the other party shall be the sole appraiser. If an appraiser is appointed by each party and the two appraisers so appointed are unable to agree upon the initial fair market rental and/or the applicable rental escalation percentage within thirty (30) days after the appointment of the second, the two appraisers shall appoint a third similarly qualified appraiser within ten (10) days after expiration of such 30-day period; if they are unable to agree upon a third appraiser, then either party may, upon not less than five (5) days notice to the other party, apply to the Presiding Judge of the San Mateo County Superior Court for the appointment of a third similarly qualified appraiser. Each party shall bear its own legal fees in connection with appointment of the third appraiser and shall bear one-half of any other costs of appointment of the third appraiser and of such third appraiser's fee. The third appraiser, however selected, shall be a person who has not previously acted for either party in any capacity. Within thirty (30) days after the appointment of the third appraiser, a majority of the three appraisers shall set the initial fair market rental and the applicable rental escalation percentage for the first extended term and shall so notify the parties. If a majority are unable to agree within the allotted time, (i) the three appraised initial fair market rentals shall be added together and divided by three and the resulting quotient shall be the initial fair market rental for the first extended term, and (ii) the three appraised fair market rental escalation percentages shall be added together and divided by three and the resulting quotient shall be the fair market rental escalation percentage used in determining the applicable rental escalation percentage for purposes of clause (ii) of the first sentence of this Section 3.1(b), which determinations shall be binding on the parties and shall be enforceable in any further proceedings relating to this Lease. For purposes of this Section 3.1(b), the "fair market rental" and "fair market rental escalation percentage" for the respective Buildings shall be determined as follows: (x) in the case of a renewal term for any of the Buildings, with reference to the then prevailing market rental rates for properties in northeastern San Mateo County with shell and standard office, research and development improvements and site (common area) improvements comparable to those then existing in the applicable Building and on the Property, provided that no equipment or laboratory improvements shall be taken into account in determining such fair market rental; and (y) in the case of a lease or renewal term for any other building leased by Tenant under terms based on the terms of this Lease (for example, any building leased by Tenant pursuant to any of the provisions of Article 6 hereof, except to the extent any different basis of determination is specified in Landlord's First Refusal Notice or First Offer Notice, if applicable, under such Article 6), with reference to the then prevailing market rental rates and then prevailing market rental escalation provisions for leases of comparable length of properties in the South San Francisco market with shell and office, research and development improvements and site (common area) improvements comparable to those then existing in the applicable building and on the Property, taking into account for such determination all tenant improvements then existing in the applicable building (including, but not limited to, equipment and laboratory improvements installed as part of the initial construction of tenant improvements in such building).

        (c)    Rental Amounts During Second Extended Term.    If Tenant properly exercises its right to a second extended term of this Lease pursuant to Section 2.6 hereof, the Minimum Rental during such second extended term shall be determined in the same manner provided in the preceding paragraph for the first extended term (initial fair market rental followed by subsequent annual escalations equal to the greater of 3% or fair market rental escalation percentage during the balance of the term), except that the determination shall be made as of the commencement of the second extended term.

-12-

        (d)    Determination of Square Footage for Rent Calculation Purposes.    After completion of the Building Shell of each respective Building, Landlord shall cause the square footage of the respective Building (including, in the case of the Phase IB Building, the Connector Bridge if constructed as contemplated in Section 1.1(a) hereof) to be measured by Landlord's architect, and at the commencement of each phase of Tenant's occupancy of the Phase II Building, Landlord shall cause the square footage of the space actually used or occupied by Tenant in the Phase II Building to be measured by Landlord's architect, in each case in accordance with the measurement formula specified in Section 1.1(d) of this Lease, which measurements by Landlord's architect shall be subject to approval (not unreasonably withheld or delayed) by Tenant's architect. Upon mutual approval of such measurement by Landlord's and Tenant's respective architects, the applicable square footages shall be set forth in the applicable Acknowledgment of Rent Commencement Date under Section 2.4 hereof and shall be used for calculation of Minimum Rental under Section 3.1(a), additional rent under Section 3.1(e) and Tenant's Operating Cost Share under Section 9.1 for all applicable periods.

        (e)    Additional Rent for Tenant Improvement Costs.    In consideration of Landlord's willingness to provide the Tenant Improvement Allowance to Tenant in accordance with the provisions of the Workletter, Tenant agrees to pay to Landlord as additional rent hereunder, which additional rent shall be due with respect to each Building or phase thereof on the same dates and in the same manner as Minimum Rental for such Building or phase thereof, beginning on the applicable Rent Commencement Date for the applicable Building or phase thereof, an amount calculated separately for each such Building or phase thereof as follows: (i) for each of the Phase I Buildings, for the first one hundred twenty (120) months after the applicable Rent Commencement Date for the applicable Building, an amount equal to $0.72 per square foot per month multiplied by the applicable square footage for such Building as determined for purposes of Section 3.1(d) above, (ii) for each of the Phase I Buildings, for months one hundred twenty-one (121) through one hundred eighty (180) after the applicable Rent Commencement Date for the applicable Building, an amount equal to $0.33 per square foot per month multiplied by the applicable square footage for such Building as determined for purposes of Section 3.1(d) above, and (iii) for each phase of the Phase II Building, for the first one hundred eighty (180) months after the applicable Rent Commencement Date for such phase, an amount equal to $0.13 per square foot per month multiplied by the applicable square footage for such phase as determined for purposes of Section 3.1(d) above.

        3.2    Late Charge.    If Tenant fails to pay when due rental or other amounts due Landlord hereunder, such unpaid amounts shall bear interest for the benefit of Landlord at a rate equal to the lesser of fifteen percent (15%) per annum or the maximum rate permitted by law, from the date due to the date of payment. In addition to such interest, Tenant shall pay to Landlord a late charge in an amount equal to six percent (6%) of any installment of minimum rental and any other amounts due Landlord if not paid in full on or before the fifth (5th) day after such rental or other amount is due. Tenant acknowledges that late payment by Tenant to Landlord of rental or other amounts due hereunder will cause Landlord to incur costs not contemplated by this Lease, including, without limitation, processing and accounting charges and late charges which may be imposed on Landlord by the terms of any loan relating to the Property. Tenant further acknowledges that it is extremely difficult and impractical to fix the exact amount of such costs and that the late charge set forth in this Section 3.2 represents a fair and reasonable estimate thereof. Acceptance of any late charge by Landlord shall not constitute a waiver of Tenant's default with respect to overdue rental or other amounts, nor shall such acceptance prevent Landlord from exercising any other rights and remedies available to it. Acceptance of rent or other payments by Landlord shall not constitute a waiver of late charges or interest accrued with respect to such rent or other payments or any prior installments thereof, nor of any other defaults by Tenant, whether monetary or non-monetary in nature, remaining uncured at the time of such acceptance of rent or other payments.

-13-

4.    [OMITTED]

5.    CONSTRUCTION

        5.1    Construction of Improvements.

        (a)  Landlord shall, at Landlord's cost and expense (except as otherwise provided herein and in the Workletter), construct Landlord's Work as defined in and in accordance with the terms and conditions of the Workletter. Landlord shall use its best efforts to complete such construction promptly, diligently and within the applicable time periods set forth in the estimated construction schedules attached hereto as Exhibit D and incorporated herein by this reference, as such schedules may be modified or revised from time to time in accordance with the Workletter, subject to Tenant Delays and Unavoidable Delays as defined in the Workletter.

        (b)  Tenant shall, at Tenant's cost and expense (except as otherwise provided herein and in the Workletter), construct Tenant's Work as defined in and in accordance with the terms and conditions of the Workletter.

        5.2    Condition of Property.    Landlord shall deliver the Building Shell for each Building and the other Improvements constructed by Landlord to Tenant clean and free of debris, promptly upon completion of construction thereof, and Landlord warrants to Tenant that each Building Shell and the other Improvements constructed by Landlord (i) shall be free from material structural defects and (ii) shall be constructed in compliance in all material respects with the plans and specifications developed pursuant to the Workletter and mutually approved (to the extent required thereunder) by Landlord and Tenant, subject to any changes implemented in such plans and specifications in accordance with the procedures set forth in the Workletter. If it is determined that this warranty has been violated in any respect, then it shall be the obligation of Landlord, after receipt of written notice from Tenant setting forth with specificity the nature of the violation, to correct promptly, at Landlord's sole cost, the condition(s) constituting such violation. Tenant's failure to give such written notice to Landlord within ninety (90) days after the Rent Commencement Date for the applicable Building shall give rise to a conclusive presumption that Landlord has complied with all Landlord's obligations under this Section 5.2 with respect to the applicable Building, except with respect to latent defects (as to which such 90-day limit shall not apply). Without limiting the scope of Landlord's obligations under the foregoing provisions of this Section 5.2, Landlord also agrees to either (x) use its best reasonable efforts to enforce when and as necessary, for the benefit of Tenant and the Improvements, any and all contractor's and/or manufacturer's warranties with respect to any of Landlord's Work or, at Tenant's request, (y) assign any or all of such warranties to Tenant for enforcement purposes (provided, however, that Landlord may reserve joint enforcement rights under such warranties to the extent of Landlord's continuing obligations or warranties hereunder), and shall cooperate with Tenant in all reasonable respects in any enforcement of such assigned warranties. TENANT ACKNOWLEDGES THAT THE WARRANTIES CONTAINED IN THIS SECTION ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE PHYSICAL CONDITION OF THE IMPROVEMENTS TO BE CONSTRUCTED BY LANDLORD AND THAT LANDLORD MAKES NO OTHER WARRANTIES EXCEPT AS EXPRESSLY SET FORTH IN THIS LEASE.

-14-

        5.3    Compliance with Law.    Landlord warrants to Tenant that the Building Shells and other Improvements constructed by Landlord (when constructed), as they exist on the respective applicable Rent Commencement Dates, but without regard to the use for which Tenant will occupy the Buildings, shall not violate any covenants or restrictions of record or any applicable law, building code, regulation or ordinance in effect on the applicable Rent Commencement Date. Tenant warrants to Landlord that the Tenant Improvements and any other improvements constructed by Tenant from time to time shall not violate any applicable law, building code, regulation or ordinance in effect on the applicable Rent Commencement Date or at the time such improvements are placed in service. If it is determined that any of these warranties has been violated, then it shall be the obligation of the warranting party, after written notice from the other party, to correct the condition(s) constituting such violation promptly, at the warranting party's sole cost and expense. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty as to the present or future suitability of the Property for the conduct of Tenant's business or proposed business thereon.

6.    EXPANSION RIGHTS

        6.1    First Refusal Right to Lease.

        (a)  The building commonly known as Building C in the Center, also commonly known as 1140 Veterans Boulevard and designated as "First Refusal Building" on the Site Plan (the "First Refusal Building"), is presently leased to Raven Biotechnologies, Inc. pursuant to a Build-to-Suit Lease dated as of May 1, 2001 (the "Existing Raven Lease"). Landlord shall not lease all or any portion of the First Refusal Building at any time during the term of this Lease (as extended, if applicable), except in compliance with this Section 6.1; provided, however, that the foregoing restriction shall not apply during any period in which Tenant is in default under this Lease, beyond any applicable notice and cure periods, and provided further, however, that Tenant's rights pursuant to this Section 6.1 are subordinate to the rights of Raven Biotechnologies, Inc. and its successors in interest (collectively, "Raven") pursuant to the Existing Raven Lease, as the same may be amended from time to time.

        (b)  If, at any time during the term of this Lease (as extended, if applicable), Landlord receives and wishes to accept a bona fide written offer from a person or entity (an "Offeror," provided, however, that the term "Offeror" shall not include Tenant itself, nor shall it include Raven with respect to any rights or negotiations under the Existing Raven Lease, as the same may be amended from time to time) to lease all or any portion of the First Refusal Building and if Tenant is not then in default under this Lease (beyond any applicable notice and cure periods), then Landlord shall give written notice of such bona fide written offer to Tenant (the "First Refusal Notice"), specifying the material terms on which the Offeror proposes to lease the First Refusal Building or applicable portion thereof (the "First Refusal Space"), and shall offer to Tenant the opportunity to lease the First Refusal Space on the terms specified in the First Refusal Notice. For purposes of this Section 6.1(b), an offer shall be considered bona fide if it is contained in a letter of intent or other writing signed by the Offeror and specifies the material terms of the proposed lease. Tenant shall have ten (10) business days after the date of giving of the First Refusal Notice in which to accept such offer by written notice to Landlord. Upon such acceptance by Tenant, the First Refusal Space shall be leased to Tenant on the terms set forth in the First Refusal Notice and on the additional terms and provisions set forth in this Lease (except to the extent inconsistent with the terms set forth in the First Refusal Notice), excluding Article 6 hereof, and the parties shall promptly (and in all events within ten (10) business days after delivery of Tenant's acceptance) execute a lease amendment or other written agreement containing the terms of the First Refusal Notice and all other terms and provisions of this Lease not inconsistent with the terms of said First Refusal Notice, except Article 6 hereof and except as the parties may otherwise mutually agree. If Tenant does not accept Landlord's offer within the allotted time or if the parties fail to enter into such a lease amendment or other written agreement in a timely manner, Landlord shall thereafter have the right to lease the First Refusal Space to the Offeror, at any time within one hundred eighty (180) days

-15-

thereafter, at a minimum rental and on other terms and conditions not more favorable to the Offeror than the minimum rental and other terms offered to Tenant in the First Refusal Notice. If Landlord does not lease the First Refusal Space to the Offeror pursuant to the preceding sentence within such one hundred eighty (180) days, or if Landlord desires to lease the First Refusal Space to another third party within such one hundred eighty (180) days, this First Refusal Right shall reattach to the First Refusal Space on all of the same terms set forth above.

        6.2    Right of First Offer to Lease.

        (a)  Landlord has advised Tenant that Buildings F and G in the Center, designated as "First Offer Buildings" on the Site Plan (collectively, the "First Offer Buildings"), are presently leased to Rigel Pharmaceuticals, Inc. pursuant to a Build-to-Suit Lease dated as of May 16, 2001 (the "Existing Rigel Lease"). Landlord shall not lease all or any portion of the First Offer Buildings at any time during the term of this lease (as extended, if applicable), except in compliance with this Section 6.2; provided, however, that the foregoing restriction shall not apply during any period in which Tenant is in default under this Lease, beyond any applicable notice and cure periods, and provided further, however, that Tenant's rights pursuant to this Section 6.2 are subordinate to the rights of Rigel Pharmaceuticals, Inc. and its successors in interest (collectively, "Rigel") pursuant to the Existing Rigel Lease, as the same may be amended from time to time.

        (b)  If, at any time during the term of this Lease (as extended, if applicable), any of the First Offer Buildings or any portion thereof becomes available for leasing by Landlord and Landlord intends to pursue the leasing of such First Offer Building(s) or portion thereof (the "First Offer Space," provided, however, that the provisions of this paragraph shall not apply to any negotiations or discussions Landlord may have with Tenant itself, nor to any negotiations or discussions Landlord may have with Rigel, or any exercise of rights by Rigel, under or in connection with the Rigel Lease as the same may be amended from time to time), and if Tenant is not then in default under this Lease (beyond any applicable notice and cure periods), then Landlord shall first give written notice of such intention to Tenant (a "First Offer Notice") identifying the First Offer Space and the rent, improvement allowance and other material terms upon which Landlord proposes to offer such First Offer Space to prospective tenants. Tenant and Landlord shall have ten (10) business days after Tenant's receipt of such First Offer Notice in which to reach agreement on all terms and achieve execution of a written lease amendment or other written agreement regarding Tenant's leasing and occupancy of the First Offer Space. It is generally the intention of the parties that except with respect to the economic and other terms specified in the First Offer Notice, the form of lease for any such leasing of First Offer Space would be similar to this Lease, excluding Article 6 hereof and subject to such other modifications as may be reasonably necessary to reflect differences in the First Offer Space and/or in the economic and other terms applicable to Tenant's leasing of such First Offer Space pursuant to the First Offer Notice. If Landlord and Tenant fail to reach agreement on all terms and achieve execution of a written lease within ten (10) business days after Tenant's receipt of such First Offer Notice, then Landlord shall thereafter have the right to lease the First Offer Space, at any time within two hundred seventy (270) days thereafter, to such persons or entities and on such terms as Landlord in its sole discretion may deem appropriate, without any further limitation or restriction hereunder. If Landlord does not lease the First Offer Space to any such person or entity within such two hundred seventy (270) days, this First Offer Right shall reattach to the First Offer Space on all of the same terms set forth above, except that in connection with any subsequent First Offer Notice delivered by Landlord to Tenant with respect to any First Offer Space that has previously been the subject of a First Offer Notice which did not result in the leasing of such First Offer Space by Tenant, Tenant's time to reach a written agreement with Landlord in response to such subsequent First Offer Notice shall be reduced from ten (10) business days to five (5) business days.

-16-

        6.3    Expansion Option.

        (a)  Landlord presently owns the property lying easterly of the Property and commonly known as 333 Oyster Point Boulevard, South San Francisco (the "Expansion Property"). The Expansion Property is presently operated as a commercial warehouse facility, but it is also Landlord's present intention to redevelop the Expansion Property as a biotechnology facility during calendar year 2005, and Landlord agrees to undertake such redevelopment, subject to the conditions set forth in this Section 6.3, in order to accommodate any proper exercise of Tenant's rights under this Section 6.3. Tenant shall have a one-time option (the "Expansion Option"), exercisable only in accordance with this Section 6.3, to lease a minimum amount of at least 100,000 square feet of redeveloped biotechnology space on the Expansion Property; provided, however, that the Expansion Option shall not apply if Tenant is in default under this Lease (beyond any applicable notice and cure periods) on the date the Expansion Option is exercisable. The exact size and location of the space subject to the Expansion Option within the Expansion Property (the "Expansion Space") shall be mutually agreed upon in writing by Landlord and Tenant, subject to the minimum size of 100,000 square feet as specified above, after Landlord has approved a final design and site plan for the redevelopment of the Expansion Property. If Tenant notifies Landlord in writing, at least seventy-five (75) days prior to the date the Expansion Option must be exercised, that Tenant is considering exercise of the Expansion Option (which notice may be given by Tenant in its sole and absolute discretion), then (i) Landlord agrees to adopt and approve a final design and site plan for the redevelopment of the Expansion Property at least forty-five (45) days prior to the date the Expansion Option must be exercised, in order to allow a reasonable time for the parties to reach mutual agreement regarding the size and location of the Expansion Space in a timely manner and (ii) Landlord and Tenant agree to negotiate diligently, reasonably and in good faith to reach such an agreement regarding the size and location of the Expansion Space at least fifteen (15) days prior to the date the Expansion Option must be exercised.

        (b)  The Expansion Option shall be exercisable only by written notice from Tenant to Landlord no later than March 1, 2005, and only if Tenant is not then in default under this Lease (beyond any applicable notice and cure periods). Such written notice (the "Exercise Notice") shall state that Tenant is exercising the Expansion Option hereunder and shall state specifically the phasing (if any) pursuant to which Tenant proposes to occupy the Expansion Space, subject to the limitations hereinafter set forth. Upon timely giving of a timely Exercise Notice by Tenant, (i) Landlord shall proceed with reasonable diligence and with commercially reasonable efforts to obtain all governmental approvals required for the construction of the Expansion Space, including, but not limited to, any governmental approvals required for the redevelopment of the Expansion Property to accommodate the construction of the Expansion Space (provided that if Landlord is unable, despite the exercise of reasonable diligence and commercially reasonable efforts, to obtain all such required governmental approvals within six (6) months after delivery of Tenant's Exercise Notice, then upon written notice thereof by either party to the other, Tenant's Exercise Notice shall be deemed to be rescinded and the Expansion Option shall be of no further force or effect) and (ii) subject to the receipt of such required governmental approvals, the Expansion Space shall be leased to Tenant on the following terms (and on the additional terms and provisions set forth in this Lease, except for Article 6 hereof and except to the extent inconsistent with the terms specified in this Section 6.3): The Expansion Space shall, at Tenant's election as set forth in the Exercise Notice, be leased and occupied either all at once, with a single Rent Commencement Date, or in two separate phases, with the first phase having a minimum size of at least fifty percent (50%) of the total Expansion Space and the second phase constituting the balance of the Expansion Space. The Rent Commencement Date for the Expansion Space (or for the first phase thereof, if applicable) shall be determined in the same manner as provided in Section 2.1 hereof (180 days after Landlord's delivery of a Structural Completion Certificate, subject to any adjustments applicable under the Workletter, or on the date Tenant takes occupancy of and commences operation of its business in the applicable space, whichever occurs first), provided that such Rent Commencement Date shall not occur prior to December 1, 2006 unless triggered at an earlier date by Tenant's

-17-

occupancy of and commencement of operation of its business in the applicable space or unless an earlier date is mutually agreed upon by Landlord and Tenant. If Tenant elects to take down the Expansion Space in two phases as provided above, then the Rent Commencement Date for the second phase of the Expansion Space shall occur on the earlier of December 1, 2007 or the date Tenant actually occupies and commences operation of its business in the second phase of the Expansion Space, unless an earlier date is mutually agreed upon by Landlord and Tenant. Landlord shall perform the equivalent of Landlord's Work (as defined in the Workletter) at its sole cost and expense, for the Expansion Space, subject to such modifications of the scope and definition of Landlord's Work as are consistent with Landlord's design, plans and specifications for the other buildings and facilities to be constructed on the Expansion Property, and Tenant shall be entitled to a Tenant Improvement Allowance of One Hundred Thirty-Five and No/100 Dollars ($135.00) per square foot for the Expansion Space. The minimum monthly rental commencing as of the Rent Commencement Date for the Expansion Space (or for the first phase thereof, if applicable) shall be $4.43 per square foot per month, with annual escalations thereafter on each anniversary of such Rent Commencement Date in an amount equal to three percent (3.0%) of the rental rate in effect immediately prior to the applicable escalation date. If Tenant elects to take down the Expansion Space in two phases as provided above, then the minimum monthly rental applicable to the second phase as of the Rent Commencement Date for such second phase shall be equal to the minimum monthly rental rate then in effect for the first phase, and the minimum monthly rental rate for the second phase shall thereafter at all times be equal to the minimum monthly rental rate in effect for the first phase from time to time, as escalated in accordance with the foregoing provisions. Tenant's Operating Expense obligations with respect to the Expansion Space shall be determined in a manner both similar to and proportional to the Operating Expense obligations of other tenants of the Expansion Property, depending on whether, in Landlord's discretion, the Expansion Property is combined with the Center for Operating Expense purposes or is operated on a stand-alone basis for such purposes, and if operated on a stand-alone basis, whether the Expansion Property is operated on a project-wide basis for Operating Expense purposes or the respective buildings within the Expansion Property are operated in whole or in part on a stand-alone basis for such purposes. Following a timely exercise of the Expansion Option by Tenant, the parties shall promptly (and in all events within ten (10) business days after delivery of Tenant's Exercise Notice) execute a lease amendment or other written agreement reflecting the terms applicable to the Expansion Space as set forth above and reflecting all other terms and provisions of this Lease not inconsistent with the terms set forth above, except for Article 6 hereof and except as the parties may otherwise mutually agree. If Tenant does not validly and timely exercise the Expansion Option in accordance with this Section 6.3 or if the parties do not timely enter into such a lease amendment or other written agreement with respect to the Expansion Space, then the Expansion Option shall be of no further force or effect and Landlord shall thereafter have the right to lease the Expansion Space and the Expansion Property at any time and from time to time to such persons or entities and on such terms as Landlord in its sole discretion may deem appropriate, without any further limitation or restriction hereunder.

7.    [OMITTED]

8.    TAXES

        8.1    Personal Property.    Tenant shall be responsible for and shall pay prior to delinquency all taxes and assessments levied against or by reason of (a) any and all alterations, additions and items installed or placed on, in or about any of the Buildings by Tenant or for Tenant's use and taxed as personal property rather than as real property, and/or (b) all personal property, trade fixtures and other property placed by Tenant on or about the Property. Upon request by Landlord, Tenant shall furnish Landlord with satisfactory evidence of Tenant's payment thereof. If at any time during the term of this Lease any of said alterations, additions or personal property, whether or not belonging to Tenant, shall be taxed

-18-

or assessed as part of the Property, then such tax or assessment shall be paid by Tenant to Landlord immediately upon presentation by Landlord of copies of the tax bills in which such taxes and assessments are included and shall, for the purposes of this Lease, be deemed to be personal property taxes or assessments under this Section 8.1.

        8.2    Real Property.    To the extent any real property taxes and assessments on any of the Buildings (including, but not limited to, the Improvements) are assessed directly to Tenant, Tenant shall be responsible for and shall pay prior to delinquency all such taxes and assessments levied against the Buildings. Upon request by Landlord, Tenant shall furnish Landlord with satisfactory evidence of Tenant's payment thereof. To the extent the Buildings, the Property and/or the Improvements are taxed or assessed to Landlord following the applicable Rent Commencement Dates, such real property taxes and assessments shall constitute Operating Expenses (as that term is defined in Section 9.2 of this Lease) and shall be paid in accordance with the provisions of Article 9 of this Lease.

9.    OPERATING EXPENSES

        9.1    Liability For Operating Expenses.

        (a)  Tenant shall pay to Landlord, at the time and in the manner hereinafter set forth, as additional rental, Tenant's Operating Cost Share (as hereinafter defined) of the Operating Expenses defined in Section 9.2, subject to adjustment pursuant to Sections 9.1(b) and (c) when applicable. The parties presently anticipate that the percentage amount constituting Tenant's applicable share of Operating Expenses ("Tenant's Operating Cost Share"), except as otherwise provided herein, will be thirty-eight and eighty hundredths percent (38.80%) as of the Phase I Rent Commencement Date, forty-one and twenty-one hundredths percent (41.21%) as of the Phase IIA Rent Commencement Date, forty-three and seventy-eight hundredths percent (43.78%) as of the Phase IIB Rent Commencement Date, forty-six and thirteen hundredths percent (46.13%) as of the Phase IIC Rent Commencement Date and forty-eight and twenty-nine hundredths percent (48.29%) as of the Phase IID Rent Commencement Date. Notwithstanding the foregoing and the provisions of Section 9.1(c), with respect to liability insurance premiums (except to the extent separately and specifically allocable to a Building, in which event Tenant's Operating Cost Share with respect thereto shall be 100% for the Phase IA Building and the Phase IB Building and 94.91% for the Phase II Building), the land component of real property taxes and assessments, common area lighting and maintenance expenses, and other similar expenses that are incurred or measured on a Center-wide basis (rather than being clearly and reasonably allocable or attributable to a specific Building alone, in which event Tenant's Operating Cost Share with respect thereto shall be 100% for the Phase IA Building and the Phase IB Building and 94.91% for the Phase II Building) or that are incurred with respect to common area facilities, notwithstanding any other provisions of this Article 9, Tenant's Operating Cost Share with respect to such Center-wide and/or common area expenses from and after each respective Rent Commencement Date, regardless of the status of construction and occupancy of the other contemplated buildings in the Center, shall be equal to the percentage amount which is equivalent to a fraction, the numerator of which is the actual square footage of the Building(s) as to which a Rent Commencement Date has then occurred, as determined on the basis of measurement set forth in Section 1.1(c) hereof, and the denominator of which is the sum of the actual square footage of all then completed buildings in the Center plus the proposed square footage (as reflected in Landlord's entitlements for the Property) of all not yet completed buildings that Landlord proposes to construct in the Center (excluding the proposed child care facility and proposed stand-alone restaurant as hereinafter set forth), in each case as determined on the basis of measurement set forth in Section 1.1(c) hereof, consistently applied; provided, however, that the adjusted Tenant's Operating Cost Share determined pursuant to this sentence shall be further adjusted from time to time to reflect (x) any difference between the actual square footage of any additional buildings completed in the Center from time to time and the proposed square footage at which such additional buildings were previously included in the application of the

-19-

foregoing formula, and (y) any increase or decrease in the aggregate square footage of the buildings that Landlord proposes to construct in the Center as part of the initial phased development of the Center (such as, but not limited to, any decision by Landlord to defer indefinitely, beyond the normal and reasonable phasing of the Center, the construction of any of the planned buildings in the Center and/or any action by governmental authorities to reduce the aggregate square footage of the buildings that Landlord is entitled to construct in the Center pursuant to Landlord's entitlements as amended from time to time), provided that in no event shall Tenant's Operating Share be calculated with a denominator of less than 550,000 square feet (except that such minimum denominator shall be reduced to the extent any square footage of existing or proposed buildings in the Center from time to time is removed from commercial use entirely, other than on a temporary or interim basis, as a result of casualty or condemnation, or to the extent any buildings in the Center from time to time cease to be operated and accounted for on an integrated basis with the rest of the Center for Operating Expense purposes as a result of the sale of a portion of the Property or otherwise).

        (b)  Tenant's Operating Cost Share as specified in Section 9.1(a) as of the Phase I Rent Commencement Date is based upon an estimated area of 103,000 square feet for the Phase IA Building, an estimated area of 87,000 square feet for the Phase IB Building (not including the Connector Bridge contemplated in Section 1.1(a), but if such Connector Bridge is in fact constructed, the square footage thereof shall be included in the square footage of the Phase IB Building for purposes of all calculations of Tenant's Operating Cost Share under this Article 9) and an aggregate estimated area of 482,000 square feet for all of the buildings that Landlord presently expects to have in fully constructed and occupied condition on the Property at the Phase I Rent Commencement Date; Tenant's Operating Cost Share as specified in Section 9.1(a) as of the Phase IIA Rent Commencement Date is based upon an estimated area of 23,300 square feet for Phase IIA and upon an aggregate estimated area of 510,200 square feet for all of the buildings that Landlord presently expects to have in fully constructed and occupied condition on the Property at the Phase IIA Rent Commencement Date; Tenant's Operating Cost Share as specified in Section 9.1(a) as of the Phase IIB Rent Commencement Date is based upon an estimated area of 23,300 square feet for Phase IIB and upon an aggregate estimated area of 533,600 square feet for all of the buildings that Landlord presently expects to have in fully constructed and occupied condition on the Property at the Phase IIB Rent Commencement Date; Tenant's Operating Cost Share as specified in Section 9.1(a) as of the Phase IIC Rent Commencement Date is based upon an estimated area of 23,300 square feet for Phase IIC and upon an aggregate estimated area of 556,900 square feet for all of the buildings that Landlord presently expects to have in fully constructed and occupied condition on the Property at the Phase IIC Rent Commencement Date; and Tenant's Operating Cost Share as specified in Section 9.1(a) as of the Phase IID Rent Commencement Date is based upon an estimated area of 23,300 square feet for Phase IID and upon an aggregate estimated area of 580,200 square feet for all of the buildings that Landlord presently expects to have in fully constructed and occupied condition on the Property at the Phase IID Rent Commencement Date. If the actual area of the respective Buildings (when completed) or phases thereof (in the case of the Phase II Building) or of the other buildings existing from time to time in the Center, as determined on the basis of measurement set forth in Section 1.1(c) hereof (which basis of measurement shall be applied consistently for all buildings in the Center), differs from the assumed numbers set forth above (including, but not limited to, any such difference arising from the completion and occupancy of buildings in the Center before or after the respective Rent Commencement Dates hereunder, as contemplated in Section 9.1(c) below, and/or from the construction of the Connector Bridge contemplated in Section 1.1(a), if applicable), then Tenant's Operating Cost Share shall be adjusted to reflect the actual areas so determined as they exist from time to time. In no event, however, shall the square footage of any child care facility or stand-alone restaurant on the Property be included as part of the square footage of buildings on the Property in calculating Tenant's Operating Cost Share, nor shall any costs or expenses relating to the proposed child care facility and proposed stand-alone restaurant on the Property be included in Operating Expenses as hereinafter defined. In

-20-

the case of expenses that are incurred or measured on a Center-wide basis or that are incurred with respect to Common Area facilities, Landlord shall allocate a reasonable share of such expenses to the proposed child care facility and proposed stand-alone restaurant on the Property and shall exclude such share from Operating Expenses pursuant to the preceding sentence.

        (c)  As Landlord constructs additional buildings in the Center (other than those described in the first sentence of Section 9.1(b) as already being taken into account in the estimated figures set forth above), Tenant's Operating Cost Share shall be adjusted from time to time to be equal to the percentage determined by dividing the gross square footage of the Building(s) as to which a Rent Commencement Date has occurred hereunder, as they then exist, by the gross square footage of all buildings located in the Center (subject to the exclusion set forth in Section 9.1(b) with respect to the proposed child care facility and proposed restaurant). In determining such percentage, a building shall be taken into account from and after the date on which a tenant first enters into possession of the building or a portion thereof; the determination of the gross square footage of any such building by Landlord's architect in a manner consistent with the manner in which other buildings in the Center are measured shall be final and binding upon the parties; and costs and expenses relating to a new building shall be taken into account as Operating Expenses under this Article 9 only from and after the date on which the square footage of the building is taken into account in determining Tenant's Operating Cost Share under the criteria set forth in this paragraph.

        9.2    Definition Of Operating Expenses.

        (a)  Subject to the exclusions and provisions set forth in this Article 9, the term "Operating Expenses" shall mean the total costs and expenses incurred by or allocable to Landlord for management, operation and maintenance of the Improvements, the Property and the Center, including, without limitation, costs and expenses of (i) insurance (including, but not limited to, earthquake insurance and environmental insurance), property management (provided that Tenant's allocable share of property management fees for any applicable period during the term of this Lease shall not exceed a maximum amount equal to one and one half percent (1.5%) of the Minimum Rental payable hereunder with respect to such period), landscaping, and the operation, repair and maintenance of buildings and Common Areas; (ii) all utilities and services; (iii) real and personal property taxes and assessments or substitutes therefor levied or assessed against the Center or any part thereof, including (but not limited to) any possessory interest, use, business, license or other taxes or fees, any taxes imposed directly on rents or services, any assessments or charges for police or fire protection, housing, transit, open space, street or sidewalk construction or maintenance or other similar services from time to time by any governmental or quasi-governmental entity, and any other new taxes on landlords in addition to taxes now in effect; (iv) supplies, equipment, utilities and tools used in management, operation and maintenance of the Center; (v) capital improvements to the Property, the Improvements or the Center, amortized over their useful lives as determined by Landlord's accountants consistent with generally accepted accounting principles and/or tax accounting principles, (aa) which reduce or will cause future reduction of other items of Operating Expenses for which Tenant is otherwise required to contribute or (bb) which are required by law, ordinance, regulation or order of any governmental authority; and (vi) any other costs (including, but not limited to, any parking or utilities fees or surcharges not otherwise specifically addressed elsewhere in this Lease) allocable to or paid by Landlord, as owner of the Center or Improvements, pursuant to any applicable laws, ordinances, regulations or orders of any governmental or quasi-governmental authority or pursuant to the terms of any declarations of covenants, conditions and restrictions now or hereafter affecting the Center or any other property over which Tenant has non-exclusive usage rights as contemplated in Section 1.1(b) hereof. Operating Expenses shall not include any costs attributable to the work for which Landlord is required to pay under Article 5 or the Workletter, nor any costs attributable to the initial construction of buildings or Common Area improvements in the Center, nor any costs attributable to buildings the square footage of which is not taken into account in determining Tenant's Operating Cost Share under

-21-

Section 9.1 for the applicable period. The distinction between items of ordinary operating maintenance and repair and items of a capital nature shall be made in accordance with generally accepted accounting principles applied on a consistent basis or in accordance with tax accounting principles, as determined in good faith by Landlord's accountants.

        (b)  Notwithstanding any other provisions of this Section 9.2, the following shall not be included within Operating Expenses: (i) rent paid to any ground lessor; (ii) the cost of constructing tenant improvements for any other tenant of a Building or the Center; (iii) the costs of special services, goods or materials provided to any other tenant of a Building or the Center and not offered or made available to Tenant; (iv) repairs covered by proceeds of insurance or from funds provided by Tenant or any other tenant of the Center, or as to which any other tenant of the Center is obligated to make such repairs or to pay the cost thereof; (v) legal fees, advertising costs, commissions or other related expenses incurred by Landlord in connection with the leasing of space to individual tenants of the Center; (vi) repairs, alterations, additions, improvements or replacements needed to rectify or correct any defects in the original design, materials or workmanship of a Building, the Center or the Common Areas; (vii) damage and repairs necessitated by the negligence or willful misconduct of Landlord or of Landlord's employees, contractors or agents; (viii) Landlord's general overhead expenses not related to the Buildings or the Center; (ix) legal fees, accountants' fees and other expenses incurred in connection with disputes with tenants or other occupants of the Center, or in connection with the enforcement of the terms of any leases with tenants or the defense of Landlord's title to or interest in the Center or any part thereof; (x) costs incurred due to a violation by Landlord or any other tenant of the Center of the terms and conditions of any lease; (xi) costs of any service provided to Tenant or to other occupants of a Building or the Center for which Landlord is reimbursed other than through recovery of Operating Expenses; (xii) personal property taxes due and payable by any other tenant of the Center; (xiii) costs incurred by Landlord pursuant to Article 17 of this Lease in connection with an event of casualty or condemnation; (xiv) depreciation on buildings; (xv) interest; (xvi) capital items (other than as expressly provided above); (xvii) payments on debt (principal or interest); (xviii) legal fees; (xix) amounts paid to any affiliates of Landlord (i.e., persons or companies controlling, controlled by or under common control with Landlord) for provision of services, except to the extent that the costs of such services do not exceed a reasonable and competitive rate for such services in the market for provision of comparable commercial services in the San Francisco Bay Area; (xx) any bad debt losses, rent losses or reserves for bad debt; (xxi) any costs relating to the creation, maintenance and operation of and the internal accounting for the legal entity which constitutes the landlord hereunder; and (xxii) any late fees or penalties or similar fees resulting from delinquent payment by Landlord of any taxes, fees or contract amounts. Moreover, Operating Expenses shall not include any expenses of operation and maintenance of the parking structure and parking areas on the Property or of measures undertaken by Landlord pursuant to the TDMP (as defined in Section 21.20(a)), except to the extent such expenses in the aggregate exceed, for the applicable period, aggregate parking revenues received by Landlord with respect to that period from tenants under provisions comparable to Section 21.20(b) hereof and from any other users paying hourly, daily, monthly or other fees for the use of such parking structure and/or parking areas from time to time. Landlord presently estimates that parking-related revenues will generally exceed expenses of operation and maintenance of the parking structure and parking areas on the Property, leaving a portion of such revenues available to support TDMP measures undertaken by Landlord as contemplated in the preceding sentence.

        9.3    Determination and Payment of Operating Expenses.    On or before the Phase I Rent Commencement Date and during the last month of each calendar year of the term of this Lease ("Lease Year"), or as soon thereafter as practical, Landlord shall provide Tenant notice of Landlord's estimate of the Operating Expenses for the ensuing Lease Year or applicable portion thereof. On or before the first day of each month during the ensuing Lease Year or applicable portion thereof, beginning on the Phase I Rent Commencement Date, Tenant shall pay to Landlord Tenant's Operating Cost Share of the portion of such estimated Operating Expenses allocable (on a prorata basis) to such

-22-

month; provided, however, that if such notice is not given in the last month of a Lease Year, Tenant shall continue to pay on the basis of the prior year's estimate, if any, until the month after such notice is given. If at any time or times it appears to Landlord that the actual Operating Expenses will vary from Landlord's estimate by more than five percent (5%), Landlord may, by notice to Tenant, revise its estimate for such year and subsequent payments by Tenant for such year shall be based upon such revised estimate. In the event of any subsequent rebate, refund, adjustment or surcharge with respect to any item of Operating Expenses allocable to any portion of the term of this Lease, the amount of such rebate, refund, adjustment or surcharge shall be for Tenant's benefit or account.

        9.4    Final Accounting For Lease Year.

        (a)  Within ninety (90) days after the close of each Lease Year, or as soon after such 90-day period as practicable, Landlord shall deliver to Tenant a statement of Tenant's Operating Cost Share of the Operating Expenses for such Lease Year prepared by Landlord from Landlord's books and records, which statement shall be final and binding on Landlord and Tenant (except as provided in Section 9.4(b)). If on the basis of such statement Tenant owes an amount that is more or less than the estimated payments for such Lease Year previously made by Tenant, Tenant or Landlord, as the case may be, shall pay the deficiency to the other party within thirty (30) days after delivery of the statement. Failure or inability of Landlord to deliver the annual statement within such ninety (90) day period shall not impair or constitute a waiver of Tenant's obligation to pay Operating Expenses, or cause Landlord to incur any liability for damages.

        (b)  At any time within four (4) months after receipt of Landlord's annual statement of Operating Expenses as contemplated in Section 9.4(a), Tenant shall be entitled, upon reasonable written notice to Landlord and during normal business hours at Landlord's office or such other places as Landlord shall designate, to inspect and examine those books and records of Landlord relating to the determination and payment of Operating Expenses relating to the immediately preceding Lease Year covered by such annual statement or, if Tenant so elects by written notice to Landlord, to request an independent audit of such books and records. The independent audit of the books and records shall be conducted by a certified public accountant reasonably acceptable to both Landlord and Tenant or, if the parties are unable to agree, by a certified public accountant appointed by the Presiding Judge of the San Mateo County Superior Court upon the application of either Landlord or Tenant (with notice to the other party). In either event, such certified public accountant shall be one who is not then employed in any capacity by Landlord or Tenant or by any of their respective affiliates. The audit shall be limited to the determination of the amount of Operating Expenses for the subject Lease Year, and shall be based on generally accepted accounting principles and tax accounting principles, consistently applied. If it is determined, by mutual agreement of Landlord and Tenant or by independent audit, that the amount of Operating Expenses billed to or paid by Tenant for the applicable Lease Year was incorrect, then the appropriate party shall pay to the other party the deficiency or overpayment, as applicable, within thirty (30) days after the final determination of such deficiency or overpayment. All costs and expenses of the audit shall be paid by Tenant unless the audit shows that Landlord overstated Operating Expenses for the subject Lease Year by more than five percent (5%), in which case Landlord shall pay all costs and expenses of the audit. Each party agrees to maintain the confidentiality of the findings of any audit in accordance with the provisions of this Section 9.4.

        9.5    Proration.    If a Rent Commencement Date falls on a day other than the first day of a Lease Year or if this Lease terminates on a day other than the last day of a Lease Year, then the amount of Operating Expenses payable by Tenant with respect to such first or last partial Lease Year shall be prorated on the basis which the number of days during such Lease Year in which this Lease is in effect bears to 365. The termination of this Lease shall not affect the obligations of Landlord and Tenant pursuant to Section 9.4 to be performed after such termination.

-23-

10.    UTILITIES

        10.1    Payment.    Commencing with the applicable Rent Commencement Date for each Building and thereafter throughout the term of this Lease, Tenant shall pay, before delinquency, all charges for water, gas, heat, light, electricity, power, sewer, telephone, alarm system, janitorial and other services or utilities supplied to or consumed in or with respect to such Building (other than any separately metered costs for water, electricity or other services or utilities furnished with respect to the Common Areas, which costs shall be paid by Landlord and shall constitute Operating Expenses under Section 9.2 hereof), including any taxes on such services and utilities. It is the intention of the parties that all such services and utilities shall be separately metered to each Building and, in the case of the Phase II Building, to Tenant's premises in such Building. In the event that any of such services or utilities supplied to any Building are not separately metered (or, in the case of the Phase II Building, are not separately metered to Tenant's premises in that Building), then the amount thereof shall be an item of Operating Expenses allocable to the specific Building and shall be allocated to and paid by the tenants of that specific Building as provided in Article 9.

        10.2    Interruption.    There shall be no abatement of rent or other charges required to be paid hereunder and Landlord shall not be liable in damages or otherwise for interruption or failure of any service or utility furnished to or used with respect to any Building or the Property because of accident, making of repairs, alterations or improvements, severe weather, difficulty or inability in obtaining services or supplies, labor difficulties or any other cause unless the interruption or failure of a service or utility is caused by the negligence or willful misconduct of Landlord, its agents, employees or contractors, in which case all rent hereunder shall be abated for each Building for each day that such service or utility is not available at such Building as a result of such negligence or willful misconduct, beginning on the first business day following the day on which the unavailability of such service or utility at the applicable Building commences, and Landlord shall be liable for Tenant's actual damages (but not lost profits or other consequential damages) as a result of the unavailability of such service or utility caused by such negligence or willful misconduct. Notwithstanding the foregoing, Landlord agrees that except in case of emergency, it will not voluntarily interrupt, shut down, or otherwise interfere with utilities or services to any Building between the hours of 8:00 a.m. and 5:00 p.m. (excluding weekends and holidays) for any reason, including without limitation, development of other buildings and improvements on the Property (but excluding any necessary interruption or shutdown of utilities or services in connection with the construction of any of the Buildings themselves). In the event Landlord violates the foregoing prohibition, all rent hereunder for each Building shall be abated for each day any service or utility is not available at such Building as a result of Landlord's voluntary interruption, shutdown or interference therewith and Tenant shall have the right to exercise all rights and remedies available at law or in equity for such violation, including the right to enjoin Landlord's actions which are the cause of such interruption, shut down or interference. In the event of any interruption or shutdown of utilities or services by Landlord under emergency circumstances, Landlord shall use reasonable efforts to provide Tenant with oral notice of such interruption or shutdown as promptly as the circumstances reasonably permit.

11.    ALTERATIONS; SIGNS

        11.1    Right To Make Alterations.    Tenant shall make no alterations, additions or improvements to the Property without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed, except that Tenant shall not be required to obtain such consent for interior non-structural alterations costing less than Fifty Thousand Dollars ($50,000.00) for any single project (i.e., any single item of alterations or set of related alterations in a Building) and less than One Hundred Thousand Dollars ($100,000.00) in the aggregate with respect to the applicable Building, on a Building by Building basis, during any twelve (12) month period. All such alterations, additions and improvements shall be completed with due diligence in a first-class workmanlike manner, in compliance with plans and specifications approved in writing by Landlord and in compliance with all applicable

-24-

laws, ordinances, rules and regulations, and to the extent Landlord's consent is not otherwise required hereunder for such alterations, additions or improvements, Tenant shall give prompt written notice thereof to Landlord. Tenant shall cause any contractors engaged by Tenant for work on the Property to maintain public liability and property damage insurance, and other customary insurance, with such terms and in such amounts as Landlord may reasonably require, naming as additional insureds Landlord and any of its members, partners, shareholders, property managers, lenders, agents and employees designated by Landlord for this purpose, and shall furnish Landlord with certificates of insurance or other evidence that such coverage is in effect. Notwithstanding any other provisions of this Section 11.1, under no circumstances shall Tenant make any structural alterations or improvements, or any substantial changes to the roof or substantial equipment installations on the roof, or any substantial changes or alterations to building systems, without Landlord's prior written consent.

        11.2    Title To Alterations.    All alterations, additions and improvements installed in, on or about the Buildings or the Property shall become part of the Improvements and the property of Landlord, unless Landlord elects to require Tenant to remove the same upon the termination of this Lease; provided, however, that the foregoing shall not apply to (i) any Tenant Improvements, (ii) any other alterations, additions or improvements or (iii) Tenant's movable furniture, equipment and trade fixtures, to the extent Tenant can demonstrate that any such items described in the preceding clauses (i) through (iii) were acquired and installed by Tenant at Tenant's sole expense, without any use of funds from the Tenant Improvement Allowance under the Workletter, and are not an integral part of the applicable Building's structure, interior architectural improvements, HVAC, plumbing or electrical systems or other standard operating systems. All of such items described in clauses (i) through (iii) of the preceding sentence and meeting the requirements set forth following clause (iii) in the preceding sentence (in all events including, but not limited to, lab benches, fume hoods and portable cold rooms, to the extent they meet the requirements set forth following clause (iii) in the preceding sentence) may (and, if duly elected by Landlord hereunder, shall) be removed by Tenant upon termination of this Lease. Tenant shall promptly repair any damage caused by its removal of any such improvements from time to time. Notwithstanding any other provisions of this Article 11, however, under no circumstances shall Tenant have any right to remove from the Buildings or the Property, at the expiration or termination of this Lease, any lab benches, fume hoods, cold rooms or other similar improvements and equipment installed in the Buildings with use of funds from the Tenant Improvement Allowance. Tenant shall also be responsible, to the extent provided in Section 12.2(c) hereof, for the cost of removal of the Connector Bridge at the expiration or termination of this Lease if such Connector Bridge is constructed as contemplated in Section 1.1(a) hereof. Notwithstanding any other provisions of this Article 11, (x) it is the intention of the parties that Landlord shall be entitled to claim all tax attributes associated with alterations, additions, improvements and equipment constructed or installed by Tenant or Landlord with funds provided by Landlord pursuant to the Tenant Improvement Allowance; and (y) it is the intention of the parties that Tenant shall be entitled to claim, during the term of this Lease, all tax attributes associated with alterations, additions, improvements and equipment constructed or installed by Tenant with Tenant's own funds (and without any payment or reimbursement by Landlord pursuant to the Tenant Improvement Allowance), despite the fact that many items described in this clause (y) may be characterized in this Section 11.2 as becoming Landlord's property upon installation, in recognition of the fact that Tenant will have installed and paid for such items, will have the right of possession and use of such items during the term of this Lease and will have the obligation to pay (directly or indirectly) property taxes on such items, carry insurance on such items and bear the risk of loss with respect to such items under Article 17 hereof. If and to the extent it becomes necessary, in implementation of the foregoing intentions, to identify (either specifically or on a percentage basis, as may be required under applicable tax laws) which alterations, additions, improvements and equipment constructed as part of Tenant's Work under the Workletter have been funded through the Tenant Improvement Allowance and which have been constructed or installed with Tenant's own funds, Landlord and Tenant agree to cooperate reasonably and in good faith to make such an identification by mutual agreement.

-25-

        11.3    Tenant Trade Fixtures.    Notwithstanding the provisions of Sections 11.1 and 11.2, but subject to the third sentence of Section 11.2 and to Section 11.5 (which shall be controlling in the case of signs, logos and insignia), Tenant may install, remove and reinstall trade fixtures without Landlord's prior written consent, except that installation and removal of any trade fixtures which are affixed to the Buildings or the Property or which affect the exterior or structural portions of the Buildings or the building systems shall require Landlord's written approval. Tenant shall immediately repair any damage caused by installation and removal of trade fixtures under this Section 11.3.

        11.4    No Liens.    Tenant shall at all times keep the Buildings and the Property free from all liens and claims of any contractors, subcontractors, materialmen, suppliers or any other parties employed either directly or indirectly by Tenant in construction work on the Buildings or the Property. Tenant may contest any claim of lien, but only if, prior to such contest, Tenant either (i) posts security in the amount of the claim, plus estimated costs and interest, or (ii) records a bond of a responsible corporate surety in such amount as may be required to release the lien from the Buildings and the Property. Tenant shall indemnify, defend and hold Landlord harmless against any and all liability, loss, damage, cost and other expenses, including, without limitation, reasonable attorneys' fees, arising out of claims of any lien for work performed or materials or supplies furnished at the request of Tenant or persons claiming under Tenant.

        11.5    Signs.    Tenant shall have the right to display its corporate name, logo and/or insignia with lighted signage on the exterior of the Buildings and in front of the entrance to each Building, subject to (a) Landlord's prior approval as to location, size, design and composition (which approval shall not be unreasonably withheld or delayed), (b) the sign criteria established for the Center from time to time and (c) all restrictions and requirements of applicable law and of any covenants, conditions and restrictions or other written agreements now or hereafter applicable to the Property. Tenant shall immediately repair any damage caused by installation and removal of signs under this Section 11.5 from time to time. In the event Landlord installs at the Project any monument sign(s) on which identification signage for any individual tenants is included, Tenant shall be entitled to have identification signage on such monument sign(s) on a basis comparable to that made available to any other tenants.

12.    MAINTENANCE AND REPAIRS

        12.1    Landlord's Work.

        (a)  Landlord shall repair and maintain or cause to be repaired and maintained the Common Areas of the Center, the roofs (structural portions only), exterior walls and other structural portions of the Buildings, any demising walls between Tenant's portion of the Phase II Building and the retail portion of the Phase II Building (other than painting, minor surface damage and other cosmetic matters affecting only Tenant's side of any such demising walls), and any building systems that serve, in common, both Tenant's portion of the Phase II Building and the retail portion of the Phase II Building. The cost of all work performed by Landlord under this Section 12.1 shall be an Operating Expense hereunder, except to the extent such work (i) is required due to the negligence of Landlord, (ii) is a capital expense not includible as an Operating Expense under Section 9.2 hereof, or (iii) is required due to the negligence or willful misconduct of Tenant or its agents, employees or invitees (in which event Tenant shall bear the full cost of such work pursuant to the indemnification provided in Section 14.6 hereof, subject to the release set forth in Section 14.4 hereof). Tenant knowingly and voluntarily waives the right to make repairs at Landlord's expense, except to the extent expressly set forth in Section 12.1(b), or to offset the cost thereof against rent, under any law, statute, regulation or ordinance now or hereafter in effect.

        (b)  If Landlord fails to perform any repairs or maintenance required to be performed by Landlord on any of the Buildings under Section 12.1(a) and such failure continues for thirty (30) days or more after Tenant gives Landlord written notice of such failure (or, if such repairs or maintenance cannot reasonably be performed within such 30-day period, then if Landlord fails to commence

-26-

performance within such 30-day period and thereafter to pursue such performance diligently to completion), then except as otherwise expressly excluded herein, Tenant shall have the right to perform such repairs or maintenance and Landlord shall reimburse Tenant for the reasonable cost thereof within fifteen (15) days after written notice from Tenant of the completion and cost of such work, accompanied by copies of invoices or other reasonable supporting documentation. Under no circumstances, however, shall Tenant have any right to offset the cost of any such work against rent or other charges falling due from time to time under this Lease. Moreover, under no circumstances shall this Section 12.1(b) authorize Tenant to perform any of Landlord's repairs or maintenance obligations (x) in the Phase II Building, except to the extent the conditions requiring repair or maintenance affect only Tenant's portion of the Phase II Building and not the retail portion of the Phase II Building, or (y) in the Common Areas of the Property.

        12.2    Tenant's Obligation For Maintenance.

        (a)    Good Order, Condition And Repair.    Except as provided in Section 12.1 hereof, Tenant at its sole cost and expense shall keep and maintain in good and sanitary order, condition and repair the Buildings (from and after the applicable Rent Commencement Date for each Phase I Building and for each phase of the Phase II Building) and every part thereof, wherever located, including but not limited to the roofs (non-structural portions only), signs, interiors, ceilings, electrical systems, plumbing systems, telephone and communications systems of the Buildings, the HVAC equipment and related mechanical systems serving the Buildings (for which equipment and systems Tenant shall enter into a service contract with a person or entity designated or approved by Landlord), all doors, door checks, windows, plate glass, door fronts, exposed plumbing and sewage and other utility facilities, fixtures, lighting, wall surfaces, floor surfaces and ceiling surfaces of the Buildings and all other interior repairs, foreseen and unforeseen, with respect to the Buildings, as required; provided, however, that (x) Tenant's ordinary repair obligation with respect to any demising walls between Tenant's portion of the Phase II Building and the retail portion of the Phase II Building shall be limited to painting, minor surface damage and other cosmetic matters affecting only Tenant's side of any such demising walls, and (y) Tenant's ordinary repair obligation with respect to building systems in the Phase II Building shall be limited to building systems or portions thereof that serve only Tenant's portion of the Phase II Building and shall not include building systems or portions thereof which serve, in common, both Tenant's portion of the Phase II Building and the retail portion of the Phase II Building.

        (b)    Landlord's Remedy.    If Tenant, after notice from Landlord, fails to make or perform promptly any repairs or maintenance which are the obligation of Tenant hereunder, Landlord shall have the right, but shall not be required, to enter the applicable Building(s) and make the repairs or perform the maintenance necessary to restore the applicable Building(s) to good and sanitary order, condition and repair. Immediately on demand from Landlord, the cost of such repairs shall be due and payable by Tenant to Landlord.

        (c)    Condition Upon Surrender; Removal of Connector Bridge.    At the expiration or sooner termination of this Lease, Tenant shall surrender the Buildings and the Improvements, including any additions, alterations and improvements thereto, broom clean, in good and sanitary order, condition and repair, ordinary wear and tear and casualty damages (the latter of which shall be governed by the provisions of Article 17 hereof) excepted, first, however, removing all goods and effects of Tenant and all and fixtures and items required or permitted to be removed pursuant to this Lease (including, but not limited to, any such removal required as a result of an election duly made by Landlord to require such removal as contemplated in Section 11.2), and repairing any damage caused by such removal. In addition, notwithstanding any other provisions of this Lease, if the Connector Bridge is constructed as contemplated in Section 1.1(a) hereof and if Landlord notifies Tenant in writing, prior to or within six (6) months after the expiration or sooner termination of this Lease, that Landlord wishes, in its sole discretion, to remove the Connector

-27-

Bridge following the expiration or sooner termination of this Lease in order to facilitate the re-leasing of the Phase I Buildings, then Tenant shall be responsible for all costs reasonably incurred by Landlord in connection with the removal of the Connector Bridge and the restoration and repair of the areas where the Connector Bridge was attached to the respective Phase I Buildings, and Tenant shall reimburse the amount of such costs to Landlord from time to time within twenty (20) days after receipt of Landlord's written request(s) for reimbursement, accompanied by supporting documentation evidencing, in reasonable detail, the costs for which such reimbursement is requested. Tenant expressly waives any and all interest in any personal property and trade fixtures not removed from the Property by Tenant at the expiration or termination of this Lease, agrees that any such personal property and trade fixtures may, at Landlord's election, be deemed to have been abandoned by Tenant, and authorizes Landlord (at its election and without prejudice to any other remedies under this Lease or under applicable law) to remove and either retain, store or dispose of such property at Tenant's cost and expense, and Tenant waives all claims against Landlord for any damages resulting from any such removal, storage, retention or disposal.

13.    USE OF PROPERTY

        13.1    Permitted Use.    Subject to Sections 13.3 and 13.4 hereof, Tenant shall use the Buildings solely as laboratory and research and development facilities, including (but not limited to) wet chemistry and biology labs, clean rooms, storage and use of toxic and radioactive materials incidental to such laboratory, research and development activities (subject to the provisions of Section 13.6 hereof), storage and use of laboratory animals, administrative offices, and other lawful purposes related to or incidental to such research and development use (subject in each case to receipt of all necessary approvals from the City of South San Francisco and other governmental agencies having jurisdiction over the Buildings), and for no other purpose without Landlord's written consent (not to be unreasonably withheld or delayed).

        13.2[Omitted.]    

        13.3    No Nuisance.    Tenant shall not use the Buildings or the Property for or carry on or permit upon the Property or any part thereof any offensive, noisy or dangerous trade, business, manufacture, occupation, odor or fumes, or any nuisance or anything against public policy, nor interfere with the rights or business of Landlord in the Buildings or the Property, nor commit or allow to be committed any waste in, on or about the Property. Tenant shall not do or permit anything to be done in or about the Property, nor bring nor keep anything therein, which will in any way cause the Property to be uninsurable with respect to the insurance required by this Lease or with respect to standard fire and extended coverage insurance with vandalism, malicious mischief and riot endorsements.

        13.4    Compliance With Laws.

        (a)  Tenant shall not use the Buildings or the Property, or permit the Buildings or the Property to be used, in whole or in part for any purpose or use that is in violation of any applicable laws, ordinances, regulations or rules of any governmental agency or public authority. Tenant shall keep the Buildings and the Improvements equipped with all safety appliances required by law, ordinance or insurance on the Property, or any order or regulation of any public authority, because of Tenant's particular use of the Property. Tenant shall procure all licenses and permits required for Tenant's use of the Property. Tenant shall use the Property in strict accordance with all applicable ordinances, rules, laws and regulations and shall comply with all requirements of all governmental authorities now in force or which may hereafter be in force pertaining to the use of the Property by Tenant, including, without limitation, regulations applicable to noise, water, soil and air pollution, and making such nonstructural alterations and additions thereto as may be required from time to time by such laws, ordinances, rules, regulations and requirements of governmental authorities or insurers of the Property (collectively, "Requirements") because of Tenant's construction of improvements or other particular use

-28-

of the Property. Any structural alterations or additions required from time to time by applicable Requirements because of Tenant's construction of improvements in the Buildings or other particular use of the Property shall, at Landlord's election, either (i) be made by Tenant, at Tenant's sole cost and expense, in accordance with the procedures and standards set forth in Section 11.1 for alterations by Tenant, or (ii) be made by Landlord at Tenant's sole cost and expense, in which event Tenant shall pay to Landlord as additional rent, within ten (10) days after demand by Landlord, an amount equal to all reasonable costs incurred by Landlord in connection with such alterations or additions. The judgment of any court, or the admission by Tenant in any proceeding against Tenant, that Tenant has violated any law, statute, ordinance or governmental rule, regulation or requirement shall be conclusive of such violation as between Landlord and Tenant.

        (b)  In compliance with requirements imposed upon Landlord by an Owner Participation Agreement between Landlord and The Redevelopment Agency of the City of South San Francisco, Tenant hereby agrees to and accepts the following provision:

        "Tenant herein covenants by and for itself and its successors and assigns, and all persons claiming under or through it, and this Lease is made and accepted upon and subject to the conditions that there shall be no discrimination against or segregation of any person or group of persons on account of race, color, religion, creed, sex, marital status, ancestry or national origin in the leasing, subleasing, transferring, use, occupancy, tenure or enjoyment of the property herein leased, nor shall Tenant or any person claiming under or through it establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, sublessees, subtenants or vendees in the property herein leased."

        13.5    Liquidation Sales.    Tenant shall not conduct or permit to be conducted any auction, bankruptcy sale, liquidation sale, or going out of business sale, in, upon or about the Property, whether said auction or sale be voluntary, involuntary or pursuant to any assignment for the benefit of creditors, or pursuant to any bankruptcy or other insolvency proceeding.

        13.6    Environmental Matters.

        (a)  For purposes of this Section, "hazardous substance" shall mean the substances included within the definitions of the term "hazardous substance"under (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. §§ 9601 et seq., and the regulations promulgated thereunder, as amended, (ii) the California Carpenter-Presley-Tanner Hazardous Substance Account Act, California Health & Safety Code §§ 25300 et seq., and regulations promulgated thereunder, as amended, (iii) the Hazardous Materials Release Response Plans and Inventory Act, California Heath & Safety Code §§ 25500 et seq., and regulations promulgated thereunder, as amended, and (iv) petroleum; "hazardous waste" shall mean (i) any waste listed as or meeting the identified characteristics of a "hazardous waste" under the Resource Conservation and Recovery Act of 1976, 42 U.S.C. §§ 6901 et seq., and regulations promulgated pursuant thereto, as amended (collectively, "RCRA"), (ii) any waste meeting the identified characteristics of "hazardous waste,""extremely hazardous waste" or "restricted hazardous waste" under the California Hazardous Waste Control Law, California Health & Safety Code §§ 25100 et seq., and regulations promulgated pursuant thereto, as amended (collectively, the "CHWCL"), and/or (iii) any waste meeting the identified characteristics of "medical waste" under California Health & Safety Code §§ 25015-25027.8, and regulations promulgated thereunder, as amended; and "hazardous waste facility" shall mean a hazardous waste facility as defined under the CHWCL.

-29-

        (b)  Without limiting the generality of the obligations set forth in Section 13.4 of this Lease:

        (i)    Tenant shall not cause or permit any hazardous substance or hazardous waste to be brought upon, kept, stored or used in or about the Property without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed, except that Tenant, in connection with its permitted use of the Property as provided in Section 13.1, may keep, store and use materials that constitute hazardous substances which are customary for such permitted use, provided such hazardous substances are kept, stored and used in quantities which are customary for such permitted use and are kept, stored and used in full compliance with clauses (ii) and (iii) immediately below.

        (ii)  Tenant shall comply with all applicable laws, rules, regulations, orders, permits, licenses and operating plans of any governmental authority with respect to the receipt, use, handling, generation, transportation, storage, treatment and/or disposal of hazardous substances or wastes by Tenant or its agents or employees, and Tenant shall provide Landlord with copies of all permits, licenses, registrations and other similar documents that authorize Tenant to conduct any such activities in connection with its authorized use of the Property from time to time.

        (iii)  Tenant shall not (A) operate on or about the Property any facility required to be permitted or licensed as a hazardous waste facility or for which interim status as such is required, nor (B) store any hazardous wastes on or about the Property for ninety (90) days or more, nor (C) conduct any other activities on or about the Property that could result in the Property being deemed to be a "hazardous waste facility" (including, but not limited to, any storage or treatment of hazardous substances or hazardous wastes which could have such a result), nor (D) store any hazardous wastes on or about the Property in violation of any federal or California laws or in violation of the terms of any federal or California licenses or permits held by Tenant.

        (iv)  Tenant shall comply with all applicable laws, rules, regulations, orders and permits relating to underground storage tanks installed by Tenant or its agents or employees or at the request of Tenant (including any installation, monitoring, maintenance, closure and/or removal of such tanks) as such tanks are defined in California Health & Safety Code § 25281(x), including, without limitation, complying with California Health & Safety Code §§ 25280-25299.7 and the regulations promulgated thereunder, as amended. Tenant shall furnish to Landlord copies of all registrations and permits issued to or held by Tenant from time to time for any and all underground storage tanks located on or under the Property.

        (v)  If applicable, Tenant shall provide Landlord in writing the following information and/or documentation at the commencement of this Lease and within sixty (60) days of any change in or addition to the required information and/or documentation (provided, however, that in the case of the materials described in subparagraphs (B), (C) and (E) below, Tenant shall not be required to deliver copies of such materials to Landlord but shall maintain copies of such materials to such extent and for such periods as may be required by applicable law and shall permit Landlord or its representatives to inspect and copy such materials during normal business hours at any time and from time to time upon reasonable notice to Tenant):

        (A)  A list of all hazardous substances and/or wastes that Tenant receives, uses, handles, generates, transports, stores, treats or disposes of from time to time in connection with its operations on the Property.

        (B)  All Material Safety Data Sheets ("MSDS's"), if any, required to be completed with respect to operations of Tenant at the Property from time to time in accordance with Title 26, California Code of Regulations § 8-5194 or 42 U.S.C. § 11021, or any amendments thereto, and any Hazardous Materials Inventory Sheets that detail the MSDS's.

-30-

        (C)  All hazardous waste manifests (as defined in Title 26, California Code of Regulations § 22-66481), if any, that Tenant is required to complete from time to time in connection with its operations at the Property.

        (D)  A copy of any Hazardous Materials Management Plan required from time to time with respect to Tenant's operations at the Property, pursuant to California Health & Safety Code §§ 25500 et seq., and any regulations promulgated thereunder, as amended.

        (E)  Copies of any Contingency Plans and Emergency Procedures required of Tenant from time to time due to its operations in accordance with Title 26, California Code of Regulations §§ 22-67140 et seq., and any amendments thereto, and copies of any Training Programs and Records required under Title 26, California Code of Regulations, § 22-67105, and any amendments thereto.

        (F)  Copies of any biennial reports required to be furnished to the California Department of Health Services from time to time relating to hazardous substances or wastes, pursuant to Title 26, California Code of Regulations, § 22-66493, and any amendments thereto.

        (G)  Copies of all industrial wastewater discharge permits issued to or held by Tenant from time to time in connection with its operations on the Property.

        (H)  Copies of any other lists or inventories of hazardous substances and/or wastes on or about the Property that Tenant is otherwise required to prepare and file from time to time with any governmental or regulatory authority.

        (vi)  Tenant shall secure Landlord's prior written approval for any proposed receipt, storage, possession, use, transfer or disposal of "radioactive materials" or "radiation," as such materials are defined in Title 26, California Code of Regulations § 17-30100, and/or any other materials possessing the characteristics of the materials so defined, which approval Landlord may withhold in its sole and absolute discretion; provided, that such approval shall not be required for any radioactive materials (x) for which Tenant has secured prior written approval of the Nuclear Regulatory Commission and delivered to Landlord a copy of such approval (if applicable), or (y) which Tenant is authorized to use pursuant to the terms of a Radioactive Material License (if any) issued by the State of California, provided that Tenant has delivered a copy of such License to Landlord. Tenant, in connection with any such authorized receipt, storage, possession, use, transfer or disposal of radioactive materials or radiation, shall:

        (A)  Comply with all federal, state and local laws, rules, regulations, orders, licenses and permits issued to or applicable to Tenant with respect to its business operations on the Property;

        (B)  Maintain, to such extent and for such periods as may be required by applicable law, and permit Landlord or its representatives to inspect during normal business hours at any time and from time to time upon reasonable notice to Tenant, a list of all radioactive materials or radiation received, stored, possessed, used, transferred or disposed of from time to time, to the extent not already disclosed through delivery of a copy of a Nuclear Regulatory Commission approval and/or a California Radioactive Material License with respect thereto as contemplated above; and

        (C)  Maintain, to such extent and for such periods as may be required by applicable law, and permit Landlord or its representatives to inspect during normal business hours at any time and from time to time upon reasonable notice to Tenant, all licenses, registration materials, inspection reports, governmental orders and permits in connection with the receipt, storage, possession, use, transfer or disposal of radioactive materials or radiation by Tenant or in connection with the operation of Tenant's business on the Property from time to time.

-31-

        (vii) Tenant shall comply with any and all applicable laws, rules, regulations and orders of any governmental authority with respect to the release into the environment of any hazardous wastes or substances or radiation or radioactive materials by Tenant or its agents or employees. Tenant shall give Landlord immediate verbal notice of any unauthorized release of any such hazardous wastes or substances or radiation or radioactive materials into the environment, and to follow such verbal notice with written notice to Landlord of such release within twenty-four (24) hours of the time at which Tenant became aware of such release.

        (viii)Tenant shall indemnify, defend and hold Landlord harmless from and against any and all claims, losses (including, but not limited to, loss of rental income and loss due to business interruption), damages, liabilities, costs, legal fees and expenses of any sort arising out of or relating to (A) any failure by Tenant to comply with any of its obligations under this Section 13.6(b), or (B) any receipt, use handling, generation, transportation, storage, treatment, release and/or disposal of any hazardous substance or waste or any radioactive material or radiation on or about the Property in connection with Tenant's use or occupancy of the Property or as a result of any intentional or negligent acts or omissions of Tenant or of any agent, employee or invitee of Tenant.

        (ix)  Tenant shall cooperate with Landlord in furnishing Landlord with complete information regarding Tenant's receipt, handling, use, storage, transportation, generation, treatment and/or disposal of any hazardous substances or wastes or radiation or radioactive materials. Upon request, Tenant agrees to grant Landlord reasonable access at reasonable times to the Property to inspect Tenant's receipt, handling, use, storage, transportation, generation, treatment and/or disposal of hazardous substances or wastes or radiation or radioactive materials, without being deemed guilty of any disturbance of Tenant's use or possession and without being liable to Tenant in any manner.

        (x)  Notwithstanding Landlord's rights of inspection and review under this Section 13.6(b), Landlord shall have no obligation or duty to so inspect or review, and no third party shall be entitled to rely on Landlord to conduct any sort of inspection or review by reason of the provisions of this Section 13.6(b).

        (xi)  If Tenant or its employees, agents, contractors, vendors, customers or guests receive, handle, use, store, transport, generate, treat and/or dispose of any hazardous substances or wastes or radiation or radioactive materials on or about the Property at any time during the term of this Lease, then within thirty (30) days after termination or expiration of this Lease, Tenant at its sole cost and expense shall obtain and deliver to Landlord an environmental study, performed by an expert reasonably satisfactory to Landlord, evaluating the presence or absence of hazardous substances and wastes, radiation and radioactive materials on and about the Property. Such study shall be based on a reasonable and prudent level of tests and investigations of the Buildings and other appropriate portions of the Property (if any), which tests shall be conducted no earlier than the date of termination or expiration of this Lease. Liability for any remedial actions required or recommended on the basis of such study shall be allocated in accordance with Sections 13.4, 13.6, 14.6 and other applicable provisions of this Lease.

        (c)  Landlord shall indemnify, defend and hold Tenant harmless from and against any and all claims, losses, damages, liabilities, costs, legal fees and expenses of any sort arising out of or relating to (i) the presence on the Property of any hazardous substances or wastes or radiation or radioactive materials present on the Property as of the first Rent Commencement Date to occur hereunder (other than as a result of any intentional or negligent acts or omissions of Tenant or of any agent, employee or invitee of Tenant), and/or (ii) any unauthorized release into the environment (including, but not limited to, the Property) of any hazardous substances or wastes or radiation or radioactive materials to the extent such release results from the negligence of or willful misconduct or omission by Landlord or its agents or employees.

-32-

        (d)  In the event of any third-party claims, losses, damages, liabilities, costs, legal fees and expenses of any sort (including, but not limited to, costs incurred with respect to any government-mandated remediation), against either Landlord or Tenant or both, arising out of or relating to (i) the presence on the Property of any hazardous substances or wastes or radiation or radioactive materials not present on the Property as of the first Rent Commencement Date to occur (except to the extent the presence thereof is already covered by an express indemnification obligation under Section 13.6(b)(viii) or Section 13.6(c), as applicable), and/or (ii) any unauthorized release into the environment (including, but not limited to, the Property) of any hazardous substances or wastes or radiation or radioactive materials (except to the extent such release is already covered by an express indemnification obligation under Section 13.6(b)(viii) or Section 13.6(c), as applicable), then (x) Landlord and Tenant shall cooperate reasonably and in good faith in the defense of such third-party claims, liabilities and related matters and (y) Landlord and Tenant shall each bear fifty percent (50%) of the total claims, losses, damages, liabilities, costs, legal fees and expenses incurred by Landlord and/or Tenant in connection with matters covered by this Section 13.6(d). For purposes of the sharing of expenses contemplated in clause (y) of the preceding sentence, the party directly paying or incurring such costs or expenses shall be entitled to invoice the other party from time to time (on a monthly basis or at other appropriate intervals) for such other party's respective share thereof, which invoice shall be accompanied by copies of third-party invoices or other reasonable documentation supporting the invoiced amounts, and the party receiving such invoice shall pay its share as reflected in the applicable invoice within fifteen (15) days after receipt thereof, unless the parties agree otherwise. Within three (3) months after receipt of any such invoice, the party receiving the invoice shall be entitled, upon reasonable written notice and during normal business hours, to inspect and examine the books and records of the party submitting the invoice with respect to the invoiced amounts. Any dispute with respect thereto that the parties are unable to resolve by good faith negotiations shall be resolved by an independent audit using the same procedure set forth in Section 9.3(b).

        (e)  The provisions of this Section 13.6 shall survive the termination of this Lease.

14.    INSURANCE AND INDEMNITY

        14.1    Liability and Property Insurance.

        (a)  Tenant shall procure and maintain in full force and effect at all times during the term of this Lease, at Tenant's cost and expense, commercial general liability insurance to protect against liability arising out of or related to the use of or resulting from any accident occurring in, upon or about the Property, with combined single limit of liability of not less than Five Million Dollars ($5,000,000) per occurrence for bodily injury and property damage. Such insurance shall name Landlord, its Manager, its property manager and any lender holding a deed of trust on the Property from time to time (as designated in writing by Landlord to Tenant from time to time) as additional insureds thereunder. The amount of such insurance shall not be construed to limit any liability or obligation of Tenant under this Lease. Tenant shall also procure and maintain in full force and effect at all times during the term of this Lease, at Tenant's cost and expense, products/completed operations coverage on terms and in amounts satisfactory to Landlord in its reasonable discretion.

        (b)  Landlord shall procure and maintain in full force and effect at all times during the term of this Lease, at Landlord's cost and expense (but reimbursable as an Operating Expense under Section 9.2 hereof), commercial general liability insurance to protect against liability arising out of or related to the use of or resulting from any accident occurring in, upon or about the Property, with combined single limit of liability of not less than Five Million Dollars ($5,000,000) per occurrence for bodily injury and property damage.

        (c)  Landlord shall procure and maintain in full force and effect at all times during the term of this Lease, at Landlord's cost and expense (but reimbursable as an Operating Expense under

-33-

Section 9.2 hereof), policies of property insurance providing protection against "all risk of direct physical loss" (as defined by and detailed in the Insurance Service Office's Commercial Property Program "Cause of Loss—Special Form [CP 1030]" or its equivalent) for the Building Shell (as defined in the Workletter) of each Building and for the improvements in the Common Areas of the Property, on a full replacement cost basis (with no co-insurance or, if coverage without co-insurance is not reasonably available, then on an "agreed amount" basis). Such insurance shall include earthquake and environmental coverage and shall have such commercially reasonable deductibles and other terms as Landlord in its reasonable discretion determines to be appropriate. Landlord shall, in all events, have no obligation to insure the Tenant Improvements or any other alterations, additions or improvements installed by Tenant in the Buildings or on or about the Property; provided, however, that if Tenant so requests in writing, Landlord agrees to include the Tenant Improvements under Landlord's earthquake coverage, in which event (i) such earthquake coverage with respect to the Tenant Improvements shall be in such amounts and with such commercially reasonable deductibles and other terms as Landlord and Tenant may mutually and reasonably determine to be appropriate, (ii) such earthquake coverage shall, in Landlord's discretion, either name both Landlord and Tenant as insureds as their interests may appear or name Tenant as an additional insured with respect to the portion of the policy that provides earthquake coverage for the Tenant Improvements, (iii) the cost of such earthquake coverage for the Tenant Improvements shall be charged back to Tenant as additional rent under this Lease and shall be reimbursed by Tenant to Landlord within ten (10) business days after Tenant's receipt of a written invoice from Landlord with respect to the premium costs attributable to such coverage, (iv) Tenant shall provide to Landlord from time to time, at or about the Rent Commencement Date for the applicable Building and thereafter annually or at such intervals as Landlord may reasonably request, an updated schedule of values or other appropriate information with respect to the insurable value of the Tenant Improvements, and (v) Landlord shall have no obligation or liability with respect to any underinsurance of the Tenant Improvements that results from Tenant's failure to keep Landlord informed on a current basis of the insurable value of such Tenant Improvements from time to time.

        (d)  Tenant shall procure and maintain in full force and effect at all times during the term of this Lease, at Tenant's cost and expense, policies of property insurance providing protection against "all risk of direct physical loss" (as defined by and detailed in the Insurance Service Office's Commercial Property Program "Cause of Loss—Special Form [CP1030]" or its equivalent) for the Tenant Improvements constructed by Tenant pursuant to the Workletter and on all other alterations, additions and improvements installed by Tenant from time to time in or about the Building, on a full replacement cost basis (with no co-insurance or, if coverage without co-insurance is not reasonably available, then on an "agreed amount" basis). Such insurance may have such commercially reasonable deductibles and other terms as Tenant in its reasonable discretion determines to be appropriate, and shall name both Tenant and Landlord as insureds as their interests may appear. Without limiting the generality of the foregoing provisions, Tenant's property insurance on the Tenant Improvements in each Building shall in all events include (i) earthquake insurance (except as otherwise provided in paragraph (c) above, if applicable) in an amount at least equal to the amount of the Tenant Improvement Allowance paid by Landlord pursuant to the Workletter in connection with the construction of the Tenant Improvements in such Building, and (ii) business interruption (income) coverage, including extra expense coverage and off-premises utility interruption coverage, in such amounts and on such terms as Tenant in its reasonable discretion determines to be appropriate.

        (e)  During the course of construction of the improvements being constructed by Landlord and Tenant under Section 5.1 and the Workletter, Landlord shall procure and maintain in full force and effect, at its sole cost and expense, a policy or policies of builder's risk insurance on both the improvements being constructed by it and the improvements being constructed by Tenant, (i) in such amounts and with such commercially reasonable deductibles and other terms as Landlord in its reasonable discretion determines to be appropriate with respect to the insurance on the improvements being constructed by Landlord, and (ii) in such amounts and with such commercially reasonable

-34-

deductibles and other terms as Landlord and Tenant may mutually and reasonably determine to be appropriate with respect to the insurance on the improvements being constructed by Tenant. Such insurance shall, in Landlord's discretion, either name both Landlord and Tenant as insureds as their interests may appear or name Tenant as an additional insured with respect to the portion of the policy that covers the improvements being constructed by Tenant. Tenant shall provide to Landlord from time to time during the course of construction of improvements by Tenant, at such intervals as Landlord may reasonably request, an updated schedule of values or other appropriate information with respect to the insurable value of the improvements, work in progress and materials located on the Property in connection with Tenant's construction of improvements, and Landlord shall have no obligation or liability with respect to any underinsurance of Tenant's improvements, work in progress and materials that results from Tenant's failure to keep Landlord informed on a current basis, during the course of construction, of the insurable value of such improvements, work in progress and materials on the Property from time to time.

        14.2    Quality Of Policies And Certificates.    All policies of insurance required hereunder shall be issued by responsible insurers and, in the case of policies carried or required to be carried by Tenant, shall be written as primary policies not contributing with and not in excess of any coverage that Landlord may carry. The coverage provided by such policies shall include, where applicable, the clause or endorsement referred to in Section 14.4. Each party shall deliver to the other party certificates of insurance showing that the insuring party's required policies are in effect. If either party fails to acquire, maintain or renew any insurance required to be maintained by it under this Article 14 or to pay the premium therefor, then the other party, at its option and in addition to its other remedies, but without obligation so to do, may procure such insurance, and any sums expended by Landlord to procure any such insurance on behalf of or in place of Tenant shall be repaid upon demand, with interest as provided in Section 3.2 hereof. Tenant shall give Landlord at least thirty (30) days prior written notice of any cancellation or nonrenewal of insurance required to be maintained by Tenant under this Article 14, and shall obtain written undertakings from each insurer under policies required to be maintained by Tenant to notify all insureds thereunder at least thirty (30) days prior to cancellation of coverage.

        14.3    Workers' Compensation.    Tenant shall maintain in full force and effect during the term of this Lease workers' compensation insurance, in at least the minimum amounts required by law, covering all of Tenant's employees working on the Property.

        14.4    Waiver Of Subrogation.    To the extent permitted by law and without affecting the coverage provided by insurance required to be maintained hereunder, Landlord and Tenant each waive any right to recover against the other with respect to (i) damage to property, (ii) damage to the Property or any part thereof, or (iii) claims arising by reason of any of the foregoing, but only to the extent that any of the foregoing damages and claims under clauses (i)-(iii) hereof are covered, and only to the extent of such coverage, by property insurance actually carried or required to be carried hereunder by either Landlord or Tenant. This provision is intended to waive fully, and for the benefit of each party, any rights and claims which might give rise to a right of subrogation in any insurance carrier. Each party shall procure a clause or endorsement on any property insurance policy denying to the insurer rights of subrogation against the other party to the extent rights have been waived by the insured prior to the occurrence of injury or loss. Coverage provided by insurance maintained by Tenant shall not be limited, reduced or diminished by virtue of the subrogation waiver herein contained.

        14.5    Increase In Premiums.    Tenant shall do all acts and pay all expenses necessary to insure that the Buildings are not used for purposes prohibited by any applicable fire insurance, and that Tenant's use of the Buildings and the Property complies with all requirements necessary to obtain any such insurance. If Tenant uses or permits the Buildings or the Property to be used in a manner which increases the existing rate of any insurance carried by Landlord on the Center, then Tenant shall pay the amount of the increase in premium caused thereby, and Landlord's costs of obtaining other

-35-

replacement insurance policies, including any increase in premium, within ten (10) days after demand therefor by Landlord.

        14.6    Indemnification.

        (a)  Except as otherwise expressly provided in this Lease, Tenant shall indemnify, defend and hold Landlord and its members, partners, shareholders, officers, directors, agents, employees and contractors harmless from any and all liability for bodily injury to or death of any person, or loss of or damage to the property of any person, and all actions, claims, demands, costs (including, but not limited to, reasonable attorneys' fees), damages or expenses of any kind arising therefrom which may be brought or made against Landlord or which Landlord may pay or incur by reason of the use, occupancy and enjoyment of the Property by Tenant or any invitees, sublessees, licensees, assignees, agents, employees or contractors of Tenant or holding under Tenant (including, but not limited to, any such matters arising out of or in connection with any early entry upon the Property by Tenant pursuant to Section 2.2 hereof) from any cause whatsoever other than negligence or willful misconduct or omission by Landlord or its agents, employees or contractors. Landlord and its members, partners, shareholders, officers, directors, agents, employees and contractors shall not be liable for, and Tenant hereby waives all claims against such persons for, damages to goods, wares and merchandise in or upon the Property, or for injuries to Tenant, its agents or third persons in or upon the Property, from any cause whatsoever other than negligence or willful misconduct or omission by Landlord or its agents, employees or contractors. Tenant shall give prompt notice to Landlord of any casualty or accident in, on or about the Property.

        (b)  Except as otherwise expressly provided in this Lease, Landlord shall indemnify, defend and hold Tenant and its shareholders, officers, directors, agents, employees and contractors harmless from any and all liability for bodily injury to or death of any person, or loss of or damage to the property of any person, and all actions, claims, demands, costs (including, but not limited to, reasonable attorneys' fees), damages or expenses of any kind arising therefrom which may be brought or made against Tenant or which Tenant may pay or incur, to the extent such liabilities or other matters arise in, on or about the Property by reason of any negligence or willful misconduct or omission by Landlord or its agents, employees or contractors.

        14.7    Blanket Policy.    Any policy required to be maintained hereunder may be maintained under a so-called "blanket policy" insuring other parties and other locations so long as the amount of insurance required to be provided hereunder is not thereby diminished. Without limiting the generality of the requirement set forth at the end of the preceding sentence, property insurance provided under a blanket policy shall provide full replacement cost coverage and liability insurance provided under a blanket policy shall include per location aggregate limits meeting or exceeding the limits required under this Article 14.

15.    SUBLEASE AND ASSIGNMENT

        15.1    Assignment And Sublease Of Building(s).    Except in the case of a Permitted Transfer (as hereinafter defined), Tenant shall not have the right or power to assign its interest in this Lease, or make any sublease of any Building or any portion thereof, nor shall any interest of Tenant under this Lease be assignable involuntarily or by operation of law, without on each occasion obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. Any purported sublease or assignment of Tenant's interest in this Lease requiring but not having received Landlord's consent thereto (to the extent such consent is required hereunder) shall be void. Without limiting the generality of the foregoing provisions, Landlord may withhold consent to any proposed subletting or assignment solely on the ground, if applicable, that the use by the proposed subtenant or assignee is reasonably likely to be incompatible with Landlord's use of the balance of the Property or of any adjacent property owned or operated by Landlord, unless the proposed use is within the

-36-

permitted uses specified in Section 13.1, in which event it shall not be reasonable for Landlord to object to the proposed use. Except in the case of a Permitted Transfer, any dissolution, consolidation, merger or other reorganization of Tenant, or any sale or transfer of the stock or assets of or other interest in Tenant, in a single transaction or series of related transactions, involving in the aggregate a change of fifty percent (50%) or more in the beneficial ownership of Tenant or its assets shall be deemed to be an assignment hereunder and shall be void without the prior written consent of Landlord as required above. Notwithstanding the foregoing, (i) an initial public offering of the common stock of Tenant shall not be deemed to be an assignment hereunder; and (ii) Tenant shall have the right to assign this Lease or sublet the Buildings, or any portion thereof, without Landlord's consent (but with prior or concurrent written notice by Tenant to Landlord), to any entity which controls, is controlled by, or is under common control with Tenant, or to any entity which results from a merger or consolidation with Tenant, or to any entity engaged in a bona fide joint venture with Tenant, or to any entity which acquires substantially all of the stock or assets of Tenant, as a going concern, with respect to the business that is being conducted on the Property (hereinafter each a "Permitted Transfer"). In addition, a sale or transfer of the capital stock of Tenant shall be deemed a Permitted Transfer (x) if such sale or transfer occurs in connection with any bona fide financing or capitalization for the benefit of Tenant, or (y) if Tenant becomes, and while Tenant is, a publicly traded corporation. Landlord shall have no right to terminate this Lease in connection with, and shall have no right to any sums or other economic consideration resulting from, any Permitted Transfer. Except as expressly set forth in this Section 15.1, however, the provisions of Section 15.2 shall remain applicable to any Permitted Transfer and the transferee under such Permitted Transfer shall be and remain subject to all of the terms and provisions of this Lease.

        15.2    Rights Of Landlord.    Consent by Landlord to one or more assignments of this Lease, or to one or more sublettings of any Building or any portion thereof, or collection of rent by Landlord from any assignee or sublessee, shall not operate to exhaust Landlord's rights under this Article 15, nor constitute consent to any subsequent assignment or subletting. No assignment of Tenant's interest in this Lease and no sublease shall relieve Tenant of its obligations hereunder, notwithstanding any waiver or extension of time granted by Landlord to any assignee or sublessee, or the failure of Landlord to assert its rights against any assignee or sublessee, and regardless of whether Landlord's consent thereto is given or required to be given hereunder. In the event of a default by any assignee, sublessee or other successor of Tenant in the performance of any of the terms or obligations of Tenant under this Lease, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against any such assignee, sublessee or other successor. In addition, Tenant immediately and irrevocably assigns to Landlord, as security for Tenant's obligations under this Lease, all rent from any subletting of all or a part of any Building as permitted under this Lease, and Landlord, as Tenant's assignee and as attorney-in-fact for Tenant, or any receiver for Tenant appointed on Landlord's application, may collect such rent and apply it toward Tenant's obligations under this Lease; except that, until the occurrence of an act of default by Tenant, Tenant shall have the right to collect such rent and to retain all sublease profits.

16.    RIGHT OF ENTRY AND QUIET ENJOYMENT

        16.1    Right Of Entry.    Landlord and its authorized representatives shall have the right to enter the Buildings at any time during the term of this Lease during normal business hours and upon not less than twenty-four (24) hours prior notice, except in the case of emergency (in which event no notice shall be required and entry may be made at any time), for the purpose of inspecting and determining the condition of the Buildings or for any other proper purpose including, without limitation, to make repairs, replacements or improvements which Landlord may deem necessary, to show the Buildings to prospective purchasers, to show the Buildings to prospective tenants (but only during the final year of the term of this Lease), and to post notices of nonresponsibility. Landlord shall not be liable for inconvenience, annoyance, disturbance, loss of business, quiet enjoyment or other damage or loss to

-37-

Tenant by reason of making any repairs or performing any work upon the Buildings or the Property or by reason of erecting or maintaining any protective barricades in connection with any such work, and the obligations of Tenant under this Lease shall not thereby be affected in any manner whatsoever, provided, however, Landlord shall use reasonable efforts to minimize the inconvenience to Tenant's normal business operations caused thereby.

        16.2    Quiet Enjoyment.    Landlord covenants that Tenant, upon paying the rent and performing its obligations hereunder and subject to all the terms and conditions of this Lease, shall peacefully and quietly have, hold and enjoy the Buildings and the Property throughout the term of this Lease, or until this Lease is terminated as provided by this Lease.

17.    CASUALTY AND TAKING

        17.1    Damage or Destruction.

        (a)  If any or all Buildings, or the Common Areas of the Property necessary for Tenant's use and occupancy of any or all Buildings, are damaged or destroyed in whole or in part under circumstances in which (i) repair and restoration is permitted under applicable governmental laws, regulations and building codes then in effect and (ii) repair and restoration reasonably can be completed within a period of one (1) year (or, in the case of an occurrence during the last two (2) years of the term of this Lease, within a period of sixty (60) days) following the date of the occurrence, then Landlord, as to the Common Areas of the Property and the Building Shell of the applicable Building(s), and Tenant, as to the Tenant Improvements constructed by Tenant, shall commence and complete, with all due diligence and as promptly as is reasonably practicable under the conditions then existing, all such repair and restoration as may be required to return the affected portions of the Property to a condition comparable to that existing immediately prior to the occurrence. In the event of damage or destruction the repair of which is not permitted under applicable governmental laws, regulations and building codes then in effect, if such damage or destruction (despite being corrected to the extent then permitted under applicable governmental laws, regulations and building codes) would still materially impair Tenant's ability to conduct its business in the applicable Building(s), then either party may terminate this Lease with respect to the applicable Building(s) as of the date of the occurrence by giving written notice to the other within thirty (30) days after the date of the occurrence; if neither party timely elects such termination, or if such damage or destruction does not materially impair Tenant's ability to conduct its business in the applicable Building(s), then this Lease shall continue in full force and effect, except that there shall be an equitable adjustment in monthly minimum rental and of Tenant's Operating Cost Share of Operating Expenses, based upon the extent to which Tenant's ability to conduct its business in the applicable Building(s) is impaired, and Landlord and Tenant respectively shall restore the Common Areas and Building Shell and the Tenant Improvements in the applicable Building(s) to a complete architectural whole and to a functional condition. In the event of damage or destruction which cannot reasonably be repaired within one (1) year (or, in the case of an occurrence during the last two (2) years of the term of this Lease, within a period of sixty (60) days) following the date of the occurrence, then either Landlord or Tenant, at its election, may terminate this Lease with respect to the applicable Building(s) as of the date of the occurrence by giving written notice to the other within thirty (30) days after the date of the occurrence; if neither party timely elects such termination, then this Lease shall continue in full force and effect and Landlord and Tenant shall each repair and restore applicable portions of the Property in accordance with the first sentence of this Section 17.1(a).

        (b)  The respective obligations of Landlord and Tenant pursuant to Section 17.1(a) are subject to the following limitations:

        (i)    If the occurrence results from a peril which is required to be insured pursuant to Section 14.1(c) and (d) above, the obligations of each party shall not exceed the amount of

-38-

insurance proceeds received from insurers (or, in the case of any failure to maintain required insurance, proceeds that reasonably would have been available if the required insurance had been maintained) by reason of such occurrence, plus the amount of the party's permitted deductible (provided that each party shall be obligated to use its best efforts to recover any available proceeds from the insurance which it is required to maintain pursuant to the provisions of Section 14.1(c) or (d), as applicable), and, if such proceeds (including, in the case of a failure to maintain required insurance, any proceeds that reasonably would have been available) are insufficient, either party may terminate this Lease with respect to the applicable Building(s) unless the other party promptly elects and agrees, in writing, to contribute the amount of the shortfall; and

        (ii)  If the occurrence results from a peril which is not required to be insured pursuant to Section 14.1(c) and (d) above and is not actually insured, Landlord shall be required to repair and restore the Common Areas and the Building Shell of the applicable Building(s) to the extent necessary for Tenant's continued use and occupancy of the applicable Building(s), and Tenant shall be required to repair and restore the Tenant Improvements to the extent necessary for Tenant's continued use and occupancy of the applicable Building(s), provided that each party's out of pocket cost (after application of any insurance proceeds) to repair and restore shall not exceed an amount equal to fifteen percent (15%) of the replacement cost of the Building Shell of the applicable Building(s) and the Common Area improvements, as to Landlord, or fifteen percent (15%) of the replacement cost of the Tenant Improvements in the applicable Building(s), as to Tenant; if the out of pocket replacement cost as to either party exceeds such amount, then the party whose limit has been exceeded may terminate this Lease with respect to the applicable Building(s) unless the other party promptly elects and agrees, in writing, to contribute the amount of the shortfall.

        (c)  If this Lease is terminated with respect to the applicable Building(s) pursuant to the foregoing provisions of this Section 17.1 following an occurrence which is a peril actually insured or required to be insured against pursuant to Section 14.1(c) and (d), Landlord and Tenant agree (and any Lender shall be asked to agree) that such insurance proceeds shall be allocated between Landlord and Tenant in a manner which fairly and reasonably reflects their respective ownership rights under this Lease, as of the termination or expiration of the term of this Lease, with respect to the improvements, fixtures, equipment and other items to which such insurance proceeds are attributable.

        (d)  From and after the date of an occurrence resulting in damage to or destruction of a Building or of the Common Areas necessary for Tenant's use and occupancy of the Buildings, and continuing until repair and restoration thereof are completed, there shall be an equitable abatement of Minimum Rental and additional rent and of Tenant's Operating Cost Share of Operating Expenses based upon the degree to which Tenant's ability to conduct its business in the applicable Building(s) is impaired.

        17.2    Condemnation.

        (a)  If during the term of this Lease one or more Buildings, the Property or Improvements, or any substantial part of any of them, is taken by eminent domain or by reason of any public improvement or condemnation proceeding, or in any manner by exercise of the right of eminent domain (including any transfer in avoidance of an exercise of the power of eminent domain), or receives irreparable damage by reason of anything lawfully done under color of public or other authority, then (i) this Lease shall terminate as to the entire applicable Building(s) at Landlord's election by written notice given to Tenant within sixty (60) days after the taking has occurred, and (ii) this Lease shall terminate as to the entire applicable Building(s) at Tenant's election, by written notice given to Landlord within thirty (30) days after the nature and extent of the taking have been finally determined, if the portion of the Property taken is of such extent and nature as substantially to handicap, impede or permanently impair Tenant's use of the balance of the applicable Building(s). If Tenant elects to terminate this Lease, Tenant shall also notify Landlord of the date of termination, which date shall not be earlier than thirty (30) days nor later than ninety (90) days after Tenant has notified Landlord of Tenant's election to

-39-

terminate, except that this Lease shall terminate on the date of taking if such date falls on any date before the date of termination designated by Tenant. If neither party elects to terminate this Lease as to the applicable Building(s) as hereinabove provided, this Lease shall continue in full force and effect (except that there shall be an equitable abatement of Minimum Rental and additional rent and of Tenant's Operating Cost Share of Operating Expenses based upon the degree to which Tenant's ability to conduct its business in the applicable Building(s) is impaired), Landlord shall restore the Building Shell of the applicable Building(s) and the Common Area improvements to a complete architectural whole and a functional condition and as nearly as reasonably possible to the condition existing before the taking, and Tenant shall restore the Tenant Improvements and Tenant's other alterations, additions and improvements to a complete architectural whole and a functional condition and as nearly as reasonably possible to the condition existing before the taking. In connection with any such restoration, each party shall use its respective best efforts (including, without limitation, any necessary negotiation or intercession with its respective lender, if any) to ensure that any severance damages or other condemnation awards intended to provide compensation for rebuilding or restoration costs are promptly collected and made available to Landlord and Tenant in portions reasonably corresponding to the cost and scope of their respective restoration obligations, subject only to such payment controls as either party or its lender may reasonably require in order to ensure the proper application of such proceeds toward the restoration of the Improvements. Each party waives the provisions of Code of Civil Procedure Section 1265.130, allowing either party to petition the Superior Court to terminate this Lease in the event of a partial condemnation of one or more Buildings or the Property.

        (b)  The respective obligations of Landlord and Tenant pursuant to Section 17.2(a) are subject to the following limitations:

        (i)    Each party's obligation to repair and restore shall not exceed, net of any condemnation awards or other proceeds available for and allocable to such restoration as contemplated in Section 17.2(a), an amount equal to five percent (5%) of the replacement cost of the Building Shell of the applicable Building(s) and the Common Area improvements, as to Landlord, or five percent (5%) of the replacement cost of the Tenant Improvements in the applicable Building(s), as to Tenant; if the replacement cost as to either party exceeds such amount, then the party whose limit has been exceeded may terminate this Lease with respect to the applicable Building(s) unless the other party promptly elects and agrees, in writing, to contribute the amount of the shortfall; and

        (ii)  If this Lease is terminated with respect to the applicable Building(s) pursuant to the foregoing provisions of this Section 17.2, or if this Lease remains in effect but any condemnation awards or other proceeds become available as compensation for the loss or destruction of any of the Improvements, then Landlord and Tenant agree (and any Lender shall be asked to agree) that there shall be paid from such award or proceeds (i) to Landlord, the award or proceeds attributable or allocable to the Building Shell of the applicable Building(s) and/or the Common Area improvements, and (ii) to Landlord and Tenant, respectively, portions of the award or proceeds attributable or allocable to the Tenant Improvements in the applicable Building(s), in the respective proportions in which Landlord and Tenant would have shared, under Section 17.1(c), the proceeds of any insurance proceeds following loss or destruction of such Tenant Improvements by an insured casualty.

        17.3    Reservation Of Compensation.    Landlord reserves, and Tenant waives and assigns to Landlord, all rights to any award or compensation for damage to the Improvements, the Property and the leasehold estate created hereby, accruing by reason of any taking in any public improvement, condemnation or eminent domain proceeding or in any other manner by exercise of the right of eminent domain or of anything lawfully done by public authority, except that (a) Tenant shall be entitled to any and all compensation or damages paid for or on account of Tenant's moving expenses, trade fixtures and equipment, and (b) any condemnation awards or proceeds described in

-40-

Section 17.2(b)(ii) shall be allocated and disbursed in accordance with the provisions of Section 17.2(b)(ii), notwithstanding any contrary provisions of this Section 17.3.

        17.4    Restoration Of Improvements.    In connection with any repair or restoration of Improvements by either party following a casualty or taking as hereinabove set forth, the party responsible for such repair or restoration shall, to the extent possible, return such Improvements to a condition substantially equal to that which existed immediately prior to the casualty or taking. To the extent such party wishes to make material modifications to such Improvements, such modifications shall be subject to the prior written approval of the other party (not to be unreasonably withheld or delayed), except that no such approval shall be required for modifications that are required by applicable governmental authorities as a condition of the repair or restoration, unless such required modifications would impair or impede Tenant's conduct of its business in the applicable Building(s) (in which case any such modifications in Landlord's work shall require Tenant's consent, not unreasonably withheld or delayed) or would materially and adversely affect the exterior appearance, the structural integrity or the mechanical or other operating systems of the applicable Building(s) (in which case any such modifications in Tenant's work shall require Landlord's consent, not unreasonably withheld or delayed).

18.    DEFAULT

        18.1    Events Of Default.    The occurrence of any of the following shall constitute an event of default on the part of Tenant:

        (a)    Abandonment.    Abandonment of one or more Buildings. "Abandonment" is hereby defined to include, but is not limited to, any absence by Tenant from the applicable Building(s) for fifteen (15) consecutive days or more while Tenant is in default under any other provision of this Lease. Tenant waives any right Tenant may have to notice under Section 1951.3 of the California Civil Code, the terms of this subsection (a) being deemed such notice to Tenant as required by said Section 1951.3;

        (b)    Nonpayment.    Failure to pay, when due, any amount payable to Landlord hereunder, such failure continuing for a period of five (5) days after written notice of such failure; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 et seq., as amended from time to time;

        (c)    Other Obligations.    Failure to perform any obligation, agreement or covenant under this Lease other than those matters specified in subsection (b) hereof, such failure continuing for fifteen (15) days after written notice of such failure; provided, however, that if such failure is curable in nature but cannot reasonably be cured within such 15-day period, then Tenant shall not be in default if, and so long as, Tenant promptly (and in all events within such 15-day period) commences such cure and thereafter diligently pursues such cure to completion; and provided further, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 et seq., as amended from time to time;

        (d)    General Assignment.    A general assignment by Tenant for the benefit of creditors;

        (e)    Bankruptcy.    The filing of any voluntary petition in bankruptcy by Tenant, or the filing of an involuntary petition by Tenant's creditors, which involuntary petition remains undischarged for a period of thirty (30) days. In the event that under applicable law the trustee in bankruptcy or Tenant has the right to affirm this Lease and continue to perform the obligations of Tenant hereunder, such trustee or Tenant shall, in such time period as may be permitted by the bankruptcy court having jurisdiction, cure all defaults of Tenant hereunder outstanding as of the date of the affirmance of this Lease and provide to Landlord such adequate assurances as may be necessary to ensure Landlord of the continued performance of Tenant's obligations under this Lease. Specifically, but without limiting the generality of the foregoing, such adequate assurances

-41-

must include assurances that the Buildings continue to be operated only for the use permitted hereunder. The provisions hereof are to assure that the basic understandings between Landlord and Tenant with respect to Tenant's use of the Property and the benefits to Landlord therefrom are preserved, consistent with the purpose and intent of applicable bankruptcy laws;

        (f)    Receivership.    The employment of a receiver appointed by court order to take possession of substantially all of Tenant's assets or Tenant's interest in one or more of the Buildings, if such receivership remains undissolved for a period of thirty (30) days;

        (g)    Attachment.    The attachment, execution or other judicial seizure of all or substantially all of Tenant's assets or Tenant's interest in one or more of the Buildings, if such attachment or other seizure remains undismissed or undischarged for a period of thirty (30) days after the levy thereof; or

        (h)    Insolvency.    The admission by Tenant in writing of its inability to pay its debts as they become due, the filing by Tenant of a petition seeking any reorganization or arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, the filing by Tenant of an answer admitting or failing timely to contest a material allegation of a petition filed against Tenant in any such proceeding or, if within thirty (30) days after the commencement of any proceeding against Tenant seeking any reorganization or arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding shall not have been dismissed.

        18.2    Remedies Upon Tenant's Default.

        (a)  Upon the occurrence of any event of default described in Section 18.1 hereof, Landlord, in addition to and without prejudice to any other rights or remedies it may have, shall have the immediate right to re-enter the Buildings or any part thereof and repossess the same, expelling and removing therefrom all persons and property (which property may be stored in a public warehouse or elsewhere at the cost and risk of and for the account of Tenant), using such force as may be necessary to do so (as to which Tenant hereby waives any claim for loss or damage that may thereby occur). In addition to or in lieu of such re-entry, and without prejudice to any other rights or remedies it may have, Landlord shall have the right either (i) to terminate this Lease and recover from Tenant all damages incurred by Landlord as a result of Tenant's default, as hereinafter provided, or (ii) to continue this Lease in effect and recover rent and other charges and amounts as they become due.

        (b)  Even if Tenant has breached this Lease and abandoned one or more Building(s), this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession under subsection (a) hereof and Landlord may enforce all of its rights and remedies under this Lease, including the right to recover rent as it becomes due, and Landlord, without terminating this Lease, may exercise all of the rights and remedies of a lessor under California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's breach and abandonment and recover rent as it becomes due, if lessee has right to sublet or assign, subject only to reasonable limitations), or any successor Code section. Acts of maintenance, preservation or efforts to relet the Building(s) or the appointment of a receiver upon application of Landlord to protect Landlord's interests under this Lease shall not constitute a termination of Tenant's right to possession.

        (c)  If Landlord terminates this Lease pursuant to this Section 18.2, Landlord shall have all of the rights and remedies of a landlord provided by Section 1951.2 of the Civil Code of the State of California, or any successor Code section, which remedies include Landlord's right to recover from Tenant (i) the worth at the time of award of the unpaid rent and additional rent which had been earned at the time of termination, (ii) the worth at the time of award of the amount by which the unpaid rent and additional rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided,

-42-

(iii) the worth at the time of award of the amount by which the unpaid rent and additional rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided, and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including, but not limited to, the cost of recovering possession of the Buildings, expenses of reletting, including necessary repair, renovation and alteration of the Buildings, reasonable attorneys' fees, and other reasonable costs. The "worth at the time of award" of the amounts referred to in clauses (i) and (ii) above shall be computed by allowing interest at ten percent (10%) per annum from the date such amounts accrued to Landlord. The "worth at the time of award" of the amounts referred to in clause (iii) above shall be computed by discounting such amounts at one percentage point above the discount rate of the Federal Reserve Bank of San Francisco at the time of award.

        18.3    Remedies Cumulative.    All rights, privileges and elections or remedies of Landlord contained in this Article 18 are cumulative and not alternative to the extent permitted by law and except as otherwise provided herein.

19.    SUBORDINATION, ATTORNMENT AND SALE

        19.1    Subordination To Mortgage.    This Lease, and any sublease entered into by Tenant under the provisions of this Lease, shall be subject and subordinate to any ground lease, mortgage, deed of trust, sale/leaseback transaction or any other hypothecation for security now or hereafter placed upon the Buildings, the Property, the Center, or any of them, and the rights of any assignee of Landlord or of any ground lessor, mortgagee, trustee, beneficiary or leaseback lessor under any of the foregoing, and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof; provided, however, that such subordination in the case of any future ground lease, mortgage, deed of trust, sale/leaseback transaction or any other hypothecation for security placed upon the Buildings, the Property, the Center or any of them shall be conditioned on Tenant's receipt from the ground lessor, mortgagee, trustee, beneficiary or leaseback lessor of a Non-Disturbance Agreement in a form reasonably acceptable to Tenant confirming that so long as Tenant is not in default hereunder, Tenant's rights hereunder shall not be disturbed by such person or entity. Moreover, Tenant's obligations under this Lease shall be conditioned on Tenant's receipt within thirty (30) days after mutual execution of this Lease, from any ground lessor, mortgagee, trustee, beneficiary or leaseback lessor currently owning or holding a security interest in the Property, of a Non-Disturbance Agreement in a form reasonably acceptable to Tenant confirming that so long as Tenant is not in default hereunder, Tenant's rights hereunder shall not be disturbed by such person or entity. (Landlord hereby advises Tenant, however, that in fact there is no mortgagee, trustee, beneficiary, ground lessor or leaseback lessor holding an interest in the Property on the date of this Lease.) If any mortgagee, trustee, beneficiary, ground lessor, sale/leaseback lessor or assignee elects to have this Lease be an encumbrance upon the Property prior to the lien of its mortgage, deed of trust, ground lease or leaseback lease or other security arrangement and gives notice thereof to Tenant, this Lease shall be deemed prior thereto, whether this Lease is dated prior or subsequent to the date thereof or the date of recording thereof. Tenant, and any sublessee, shall execute such documents as may reasonably be requested by any mortgagee, trustee, beneficiary, ground lessor, sale/leaseback lessor or assignee to evidence the subordination herein set forth, subject to the conditions set forth above, or to make this Lease prior to the lien of any mortgage, deed of trust, ground lease, leaseback lease or other security arrangement, as the case may be, and if Tenant fails to do so within ten (10) days after demand from Landlord, Tenant constitutes and appoints Landlord as Tenant's attorney-in-fact and in Tenant's name, place and stead to do so. Upon any default by Landlord in the performance of its obligations under any mortgage, deed of trust, ground lease, leaseback lease or assignment, Tenant (and any sublessee) shall, notwithstanding any subordination hereunder, attorn to the mortgagee, trustee, beneficiary, ground lessor, leaseback lessor or assignee thereunder upon demand and become the

-43-

tenant of the successor in interest to Landlord, at the option of such successor in interest, and shall execute and deliver any instrument or instruments confirming the attornment herein provided for.

        19.2    Sale Of Landlord's Interest.    Upon sale, transfer or assignment of Landlord's entire interest in the Buildings and the Property, Landlord shall be relieved of its obligations hereunder with respect to liabilities accruing from and after the date of such sale, transfer or assignment, except as otherwise expressly provided in Section 21.2 hereof.

        19.3    Estoppel Certificates.    Either Tenant or Landlord (the "certifying party") shall at any time and from time to time, within ten (10) days after written request by the other party (the "requesting party"), execute, acknowledge and deliver to the requesting party a certificate in writing stating: (i) that this Lease is unmodified and in full force and effect, or if there have been any modifications, that this Lease is in full force and effect as modified and stating the date and the nature of each modification; (ii) the date to which rental and all other sums payable hereunder have been paid; (iii) that the requesting party is not in default in the performance of any of its obligations under this Lease, that the certifying party has given no notice of default to the requesting party and that no event has occurred which, but for the expiration of the applicable time period, would constitute an event of default hereunder, or if the certifying party alleges that any such default, notice or event has occurred, specifying the same in reasonable detail; and (iv) such other matters as may reasonably be requested by the requesting party or by any institutional lender, mortgagee, trustee, beneficiary, ground lessor, sale/leaseback lessor or prospective purchaser of the Property or of Tenant's leasehold interest therein. Any such certificate provided under this Section 19.3 may be relied upon by any lender, mortgagee, trustee, beneficiary, assignee or successor in interest to the requesting party, by any prospective purchaser, by any purchaser on foreclosure or sale, by any grantee under a deed in lieu of foreclosure of any mortgage or deed of trust on the Property, or by any other third party. Failure to execute and return within the required time any estoppel certificate requested hereunder shall be deemed to be an admission of the truth of the matters set forth in the form of certificate submitted to the certifying party for execution.

        19.4    Subordination to CC&R's.    This Lease, and any permitted sublease entered into by Tenant under the provisions of this Lease, and the interests in real property conveyed hereby and thereby, shall be subject and subordinate (a) to any declarations of covenants, conditions and restrictions or other recorded restrictions affecting the Property or the Center from time to time, which may include easements, access rights and similar non-exclusive use rights and privileges in favor of appropriate third parties; provided that the terms of such declarations or restrictions are reasonable (or, to the extent they are not reasonable, are mandated by applicable law), do not materially impair Tenant's ability to conduct the uses permitted hereunder on the Property, and do not discriminate against Tenant relative to other similarly situated tenants occupying portions of the Center, and provided further that except with Tenant's prior written consent, Landlord shall not enter into any such future declarations of covenants, conditions and restrictions or other recorded restrictions that are applicable, by their terms, solely to one or more of the buildings occupied by or leased to Tenant under this Lease (including any buildings occupied by or leased to Tenant pursuant to Tenant's exercise of any of the rights contained in Article 6 of this Lease) and not to any buildings occupied by or leased to other tenants in the Center or, if Tenant exercises its rights under Section 6.3 of this Lease, on the Expansion Property; (b) to the Declaration of Covenants, Conditions and Restrictions and Reciprocal Easements for Shearwater Project dated January 21, 1998 and recorded on January 22, 1998 as Instrument No. 98-008277, Official Records of San Mateo County, as amended from time to time (the "Shearwater Declaration"), the provisions of which Shearwater Declaration are an integral part of this Lease; and (c) to the Covenant and Environmental Restriction dated as of January 26, 1998 and recorded on February 3, 1998 as Instrument No. 98-013813, Official Records of San Mateo County, as amended from time to time (the "Environmental Restriction"), the provisions of which Environmental Restriction

-44-

are incorporated herein by this reference. Tenant agrees to execute, upon request by Landlord, any documents reasonably required from time to time to evidence the foregoing subordination.

        19.5    Mortgagee Protection.

        (a)  If, in connection with any future ground lease, mortgage, deed of trust, sale/leaseback transaction or any other hypothecation for security placed upon the Buildings, the Property, the Center, or any of them, the ground lessor, mortgagee, trustee, beneficiary or leaseback lessor requests any changes in this Lease as a condition to its willingness to enter into or accept the ground lease, mortgage, deed of trust, sale/leaseback transaction or other hypothecation for security, then Tenant shall not unreasonably withhold or delay its consent to any such requested changes and shall execute, at the request of Landlord, an amendment to this Lease incorporating the changes thus reasonably consented to by Tenant. It shall be deemed reasonable for Tenant to withhold consent to any requested change which imposes a substantial new monetary obligation on Tenant or which otherwise substantially impairs Tenant's rights under this Lease. Tenant's obligations under this Section 19.5(a) shall be conditioned on Tenant's concurrent receipt, from the ground lessor, mortgagee, trustee, beneficiary or leaseback lessor, of a Non-Disturbance Agreement in a form reasonably acceptable to Tenant confirming that so long as Tenant is not in default hereunder, Tenant's rights hereunder shall not be disturbed by such person or entity.

        (b)  If, following a default by Landlord under any mortgage, deed of trust, ground lease, leaseback lease or other security arrangement covering the Buildings, the Property, the Center or any of them, the Buildings, the Property and/or the Center, as applicable, is acquired by the mortgagee, beneficiary, master lessor or other secured party, or by any other successor owner, pursuant to a foreclosure, trustee's sale, sheriff's sale, lease termination or other similar procedure (or deed in lieu thereof), then any such person or entity so acquiring the Buildings, the Property and/or the Center shall not be:

        (i)    liable for any act or omission of a prior landlord or owner of the Property and/or the Center (including, but not limited to, Landlord);

        (ii)  subject to any offsets or defenses that Tenant may have against any prior landlord or owner of the Property and/or the Center (including, but not limited to, Landlord);

        (iii)  bound by any rent or additional rent that Tenant may have paid in advance to any prior landlord or owner of the Property and/or the Center (including, but not limited to, Landlord) for a period in excess of one month, or by any security deposit, cleaning deposit or other prepaid charge that Tenant may have paid in advance to any prior landlord or owner (including, but not limited to, Landlord) except to the extent such deposit or prepaid amount has been expressly turned over to or credited to the successor owner thus acquiring the Property and/or the Center, as applicable;

        (iv)  liable for any warranties or representations of any nature whatsoever, whether pursuant to this Lease or otherwise, by any prior landlord or owner of the Property and/or the Center (including, but not limited to, Landlord) with respect to the use, construction, zoning, compliance with laws, title, habitability, fitness for purpose or possession, or physical condition (including, without limitation, environmental matters) of the Property, the Buildings or the Center; or

        (v)  liable to Tenant in any amount beyond the interest of such mortgagee, beneficiary, master lessor or other secured party or successor owner in the Property and the Center as they exist from time to time, it being the intent of this provision that Tenant shall look solely to the interest of any such mortgagee, beneficiary, master lessor or other secured party or successor owner in the Property and Center for the payment and discharge of the landlord's obligations under this Lease and that such mortgagee, beneficiary, master lessor or other secured party or successor owner shall have no separate personal liability for any such obligations.

-45-

20.    SECURITY

        20.1    Deposit.

        (a)  Concurrently with Tenant's execution of this Lease, Tenant shall deposit with Landlord the sum of Two Million Two Hundred Seventy Thousand Four Hundred Thirty and No/100 Dollars ($2,270,430.00), which sum (the "Security Deposit") shall be held by Landlord as security for the faithful performance of all of the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the term hereof. If Tenant defaults with respect to any provision of this Lease, including, without limitation, the provisions relating to the payment of rental and other sums due hereunder, Landlord shall have the right, but shall not be required, to use, apply or retain all or any part of the Security Deposit for the payment of rental or any other amount which Landlord may spend or become obligated to spend by reason of Tenant's default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of the Security Deposit is so used or applied, Tenant shall, within ten (10) days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount and Tenant's failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep any deposit under this Section separate from Landlord's general funds, and Tenant shall not be entitled to interest thereon. If Tenant fully and faithfully performs every provision of this Lease to be performed by it, the Security Deposit, or any balance thereof, shall be returned to Tenant or, at Landlord's option, to the last assignee of Tenant's interest hereunder, at the expiration of the term of this Lease and after Tenant has vacated the Property. In the event of termination of Landlord's interest in this Lease, Landlord shall transfer all deposits then held by Landlord under this Section to Landlord's successor in interest, whereupon Tenant agrees to release Landlord from all liability for the return of such deposit or the accounting thereof.

        (b)  As an alternative to the cash Security Deposit described in Section 20.1(a), Tenant may instead deliver to Landlord, within ten (10) days after mutual execution of this Lease, an irrevocable standby letter of credit (the "Letter of Credit") issued in favor of Landlord by a federally insured commercial bank or trust company approved in writing by Landlord (which approval shall not be unreasonably withheld), in form and substance reasonably satisfactory to Landlord, to be held by Landlord as security for the faithful performance of all the obligations of Tenant under this Lease, subject to the following terms and conditions:

        (i)    The amount of the Letter of Credit shall be at least Two Million Two Hundred Seventy Thousand Four Hundred Thirty and No/100 Dollars ($2,270,430.00), and Tenant shall maintain the Letter of Credit in that amount in full force and effect throughout the term of this Lease (including any extensions thereof) and until thirty (30) days after the expiration of the term of this Lease, unless Tenant elects at any time to replace the Letter of Credit with a full cash Security Deposit in compliance with Section 20.1(a). The Letter of Credit may be for an initial one-year term, with automatic renewal provisions, provided that Landlord shall be given at least thirty (30) days prior written notice if the Letter of Credit will not be renewed as of any otherwise applicable renewal date and shall be entitled to draw against the expiring Letter of Credit if a replacement Letter of Credit is not furnished to Landlord at least twenty (20) days prior to the scheduled expiration date, as provided in Section 20.1(b)(iii)(A) below.

        (ii)  Landlord shall be entitled (but shall not be required) to draw against the Letter of Credit and receive and retain the proceeds thereof upon any default by Tenant in the payment of any rent or other amounts required to be paid by Tenant under this Lease, or upon the occurrence of any other Event of Default under this Lease. The amount of the draw shall not exceed the amount of the payments (if any) as to which Tenant is then in default and/or the amount reasonably necessary to cure any non-monetary Events of Default by Tenant, and shall be applied by Landlord to the cure of the applicable default(s). Following any partial draw under this paragraph (ii), if Tenant

-46-

fully cures all outstanding defaults and provides Landlord with a new Letter of Credit in the full required amount under this Section 20.1(b), Landlord shall surrender and return to Tenant, within ten (10) days after Tenant's satisfaction of the foregoing conditions, the Letter of Credit under which the partial draw was made, and any unapplied cash drawn under such Letter of Credit.

        (iii)  Landlord shall also be entitled (but shall not be required) to draw against the Letter of Credit in full and to receive the entire proceeds thereof under either of the following circumstances:

        (A)  If the Letter of Credit will expire as of a date prior to the date thirty (30) days after the expiration of the term of this Lease and Tenant fails to provide to Landlord an extension or replacement of such Letter of Credit, in at least the minimum amount required under this Section 20.1(b), at least twenty (20) days prior to the scheduled expiration date of the Letter of Credit; or

        (B)  If, as a result of a draw against the Letter of Credit by Landlord or for any other reason, the amount of the Letter of Credit falls below the minimum amount required to be maintained from time to time pursuant to this Section 20.1(b) and Tenant has failed to cause the Letter of Credit to be restored to at least the minimum required amount within ten (10) days after written demand by Landlord. Landlord shall return any unapplied cash to Tenant upon receipt a new Letter of Credit in the full amount required by the terms of the Lease.

        (iv)  If Landlord draws against the Letter of Credit in any of the circumstances described in subparagraph (iii) above, Landlord shall use, apply and/or retain all or any part of the amount drawn for the cure of any then existing defaults under this Lease. Any amount drawn that is not immediately so used or applied by Landlord shall be retained by Landlord as a cash security deposit, subject to and in accordance with the provisions of Section 20.1(a).

        (v)  Any actual or purported withdrawal, rescission, termination or revocation of the Letter of Credit by the issuer thereof prior to the expiration of the term of this Lease (except when replaced prior to the effectiveness of such withdrawal, rescission, termination or revocation by a replacement Letter of Credit as contemplated in Section 20.1(b)(iii)(A) hereof) shall be a material breach of this Lease.

21.    MISCELLANEOUS

        21.1    Notices.    All notices, consents, waivers and other communications which this Lease requires or permits either party to give to the other shall be in writing and shall be deemed given when delivered personally (including delivery by private same-day or overnight courier or express delivery service) or by telecopier with mechanical confirmation of transmission, effective upon personal delivery to or refusal of delivery by the recipient (in the case of personal delivery by any of the means described above) or upon telecopier transmission during normal business hours at the recipient's office (in the case of telecopier transmission, with any transmission outside of normal business hours being effective as of the beginning of the first business day commencing after the time of actual transmission) to the parties at their respective addresses as follows:

To Tenant: (until Phase I Rent Commencement Date)
Tularik Inc.
Two Corporate Drive
South San Francisco, CA 94080
Attn: Luis Bayol
Telecopier: (650) 825-7554

-47-

	(after Phase I Rent Commencement Date) Tularik Inc.             Veterans Boulevard South San Francisco, CA 94080 Attn: Telecopier: (650) [as specified by Tenant in written notice at or about the Phase I Rent Commencement Date]
with a copy to:	Cooley Godward LLP 4401 Eastgate Mall San Diego, CA 92121-1909 Attn: Elizabeth A. Willes, Esq. Telecopier: (858) 550-6420
To Landlord:	Slough BTC, LLC 33 West Monroe Street, Suite 2000 Chicago, IL 60603 Attn: William Rogalla Telecopier: (312) 558-9041
with a copy to:	Folger Levin & Kahn LLP Embarcadero Center West 275 Battery Street, 23rd Floor San Francisco, CA 94111 Attn: Donald E. Kelley, Jr., Esq. Telecopier: (415) 986-2827
and a copy to:	Britannia Management Services, Inc. 1939 Harrison Street, Suite 715 Oakland, CA 94612 Telecopier: (510) 763-6262

or to such other address as may be contained in a notice at least fifteen (15) days prior to the address change from either party to the other given pursuant to this Section. Rental payments and other sums required by this Lease to be paid by Tenant shall be delivered to Landlord in care of Britannia Management Services, Inc. at the address provided above in this Section, or to such other address as Landlord may from time to time specify in writing to Tenant, and shall be deemed to be paid only upon actual receipt.

        21.2    Successors And Assigns.    The obligations of this Lease shall run with the land, and this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the original Landlord named herein and each successive Landlord under this Lease shall be liable only for obligations accruing during the period of its ownership of the Property, said liability terminating upon termination of such ownership and passing to the successor lessor.

        21.3    No Waiver.    The failure of Landlord to seek redress for violation, or to insist upon the strict performance, of any covenant or condition of this Lease shall not be deemed a waiver of such violation, or prevent a subsequent act which would originally have constituted a violation from having all the force and effect of an original violation.

        21.4    Severability.    If any provision of this Lease or the application thereof is held to be invalid or unenforceable, the remainder of this Lease or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby,

-48-

and each of the provisions of this Lease shall be valid and enforceable, unless enforcement of this Lease as so invalidated would be unreasonable or grossly inequitable under all the circumstances or would materially frustrate the purposes of this Lease.

        21.5    Litigation Between Parties.    In the event of any litigation or other dispute resolution proceedings between the parties hereto arising out of or in connection with this Lease, the prevailing party shall be reimbursed for all reasonable costs, including, but not limited to, reasonable accountants' fees and attorneys' fees, incurred in connection with such proceedings (including, but not limited to, any appellate proceedings relating thereto) or in connection with the enforcement of any judgment or award rendered in such proceedings. "Prevailing party" within the meaning of this Section shall include, without limitation, a party who dismisses an action for recovery hereunder in exchange for payment of the sums allegedly due, performance of covenants allegedly breached or consideration substantially equal to the relief sought in the action.

        21.6    Surrender.    A voluntary or other surrender of this Lease by Tenant, or a mutual termination thereof between Landlord and Tenant, shall not result in a merger but shall, at the option of Landlord, operate either as an assignment to Landlord of any and all existing subleases and subtenancies, or a termination of all or any existing subleases and subtenancies. This provision shall be contained in any and all assignments or subleases made pursuant to this Lease.

        21.7    Interpretation.    The provisions of this Lease shall be construed as a whole, according to their common meaning, and not strictly for or against Landlord or Tenant. The captions preceding the text of each Section and subsection hereof are included only for convenience of reference and shall be disregarded in the construction or interpretation of this Lease.

        21.8    Entire Agreement.    This written Lease, together with the exhibits hereto, contains all the representations and the entire understanding between the parties hereto with respect to the subject matter hereof. Any prior correspondence, memoranda or agreements are replaced in total by this Lease and the exhibits hereto. This Lease may be modified only by an agreement in writing signed by each of the parties.

        21.9    Governing Law.    This Lease and all exhibits hereto shall be construed and interpreted in accordance with and be governed by all the provisions of the laws of the State of California.

        21.10    No Partnership.    The relationship between Landlord and Tenant is solely that of a lessor and lessee. Nothing contained in this Lease shall be construed as creating any type or manner of partnership, joint venture or joint enterprise with or between Landlord and Tenant.

        21.11    Financial Information.    From time to time Tenant shall promptly provide directly to prospective lenders and purchasers of the Property and/or Center designated by Landlord such financial information pertaining to the financial status of Tenant as Landlord may reasonably request; provided, Tenant shall be permitted to provide such financial information in a manner which Tenant deems reasonably necessary to protect the confidentiality of such information. In addition, from time to time, Tenant shall provide Landlord with such financial information pertaining to the financial status of Tenant as Landlord may reasonably request. Landlord agrees that all financial information supplied to Landlord by Tenant shall be treated as confidential material, and shall not be disseminated to any party or entity (including any entity affiliated with Landlord) without Tenant's prior written consent, except that Landlord shall be entitled to provide such information, subject to reasonable precautions to protect the confidential nature thereof, (i) to Landlord's partners and professional advisors, solely to use in connection with Landlord's execution and enforcement of this Lease, and (ii) to prospective lenders and/or purchasers of the Property and/or Center, solely for use in connection with their bona fide consideration of a proposed financing or purchase of the Property and/or Center. For purposes of this Section, without limiting the generality of the obligations provided herein, it shall be deemed reasonable for Landlord to request copies of Tenant's most recent audited annual financial statements,

-49-

or, if audited statements have not been prepared, unaudited financial statements for Tenant's most recent fiscal year, accompanied by a certificate of Tenant's chief financial officer that such financial statements fairly present Tenant's financial condition as of the date(s) indicated. Notwithstanding any other provisions of this Section 21.11, during any period in which Tenant has outstanding a class of publicly traded securities and is filing with the Securities and Exchange Commission, on a regular basis, Forms 10Q and 10K and any other periodic filings required under the Securities Exchange Act of 1934, as amended, it shall constitute sufficient compliance under this Section 21.11 for Tenant to furnish Landlord with copies of such periodic filings substantially concurrently with the filing thereof with the Securities and Exchange Commission.

        Landlord and Tenant recognize the need of Tenant to maintain the confidentiality of information regarding its financial status and the need of Landlord to be informed of, and to provide to prospective lenders and purchasers of the Property and/or Center financial information pertaining to, Tenant's financial status. Landlord and Tenant agree to cooperate with each other in achieving these needs within the context of the obligations set forth in this Section. Landlord also acknowledges and agrees that Tenant's obligations to furnish information to Landlord under this Section are in all events subject to Tenant's compliance with, and may therefore be limited by, applicable securities laws.

        21.12    Costs.    If Tenant requests the consent of Landlord under any provision of this Lease for any act that Tenant proposes to do hereunder, including, without limitation, assignment of this Lease or subletting of any one or more of the Buildings or any part thereof, Tenant shall, as a condition to doing any such act and the receipt of such consent, reimburse Landlord promptly for any and all reasonable costs and expenses incurred by Landlord in connection therewith, including, without limitation, reasonable attorneys' fees.

        21.13    Time.    Time is of the essence of this Lease, and of every term and condition hereof.

        21.14    Rules And Regulations.    Tenant shall observe, comply with and obey, and shall cause its employees, agents and, to the best of Tenant's ability, invitees to observe, comply with and obey such rules and regulations as Landlord may promulgate from time to time for the safety, care, cleanliness, order and use of the Improvements, the Property and the Center.

        21.15    Brokers.    Landlord agrees to pay a brokerage commission to CRESA Partners ("Tenant's Broker"), in connection with the consummation of this Lease in the amount of $6.50 per rentable square foot, payable 50% upon mutual execution of this Lease and 50%, as to each Building, upon the Rent Commencement Date for such Building or, in the case of the Phase II Building, upon the Rent Commencement Date for each phase of the Phase II Building (in proportion to the ratio between the square footage covered by such phase and the total square footage of the Phase II Building). In addition, in the event Tenant exercises the Expansion Option, Landlord shall pay to Tenant's Broker a commission on the same terms as set forth in the first sentence of this Section 21.15. Tenant shall be solely responsible for any claims for brokerage commissions or similar compensation by Tenant's Broker and/or Mark Pearson in excess of the amount described in the preceding two sentences. Each party represents and warrants that no other broker participated in the consummation of this Lease and agrees to indemnify, defend and hold the other party harmless against any liability, cost or expense, including, without limitation, reasonable attorneys' fees, arising out of any claims for brokerage commissions or other similar compensation in connection with any conversations, prior negotiations or other dealings by the indemnifying party with any other broker.

        21.16    Memorandum Of Lease.    At any time during the term of this Lease, either party, at its sole expense, shall be entitled to record a memorandum of this Lease and, if either party so elects, both parties agree to cooperate in the preparation, execution, acknowledgement and recordation of such document in reasonable form.

-50-

        21.17    Corporate Authority.    The person signing this Lease on behalf of Tenant warrants that he or she is fully authorized to do so and, by so doing, to bind Tenant.

        21.18    Execution and Delivery.    This Lease may be executed in one or more counterparts and by separate parties on separate counterparts, but each such counterpart shall constitute an original and all such counterparts together shall constitute one and the same instrument.

        21.19    Survival.    Without limiting survival provisions which would otherwise be implied or construed under applicable law, the provisions of Sections 2.5, 9.4, 11.2, 11.3, 11.4, 13.6, 14.6, 21.5 and 21.20 hereof shall survive the termination of this Lease with respect to matters occurring prior to the expiration of this Lease.

        21.20    Parking and Traffic.

        (a)  Landlord has advised Tenant that the approval of the Britannia Oyster Point project by the City of South San Francisco was conditioned upon, among other things, Landlord's development and implementation of a Transportation Demand Management Plan (the "TDMP") pursuant to which Landlord is required to undertake various measures to try to reduce the volume of traffic generated by the Center. Landlord covenants with Tenant that Landlord will use reasonable efforts to try to reduce the volume of traffic generated by the Center, as contemplated by the TDMP, including (but not limited to) substantially complying with any specific measures required by the City of South San Francisco or its Redevelopment Agency. Tenant hereby agrees (i) to designate one of its employees to act as a liaison with Landlord's designated transportation coordinator in facilitating and coordinating such programs as may be required from time to time by governmental agencies and/or by the terms of the TDMP to reduce the traffic generated by the Center (as required by the City of South San Francisco as part of the conditions of approval of this project) and to facilitate and encourage the use of public transportation, (ii) to make reasonable efforts to encourage cooperation and participation by Tenant's employees in the programs implemented from time to time pursuant to the TDMP, including (but not limited to) programs described in this Section 21.20, and (iii) to cooperate with Landlord's designated transportation coordinator in identifying an appropriate area within each Building where an information kiosk can be maintained for the dissemination of transportation-related information, to be updated from time to time by Landlord's designated transportation coordinator.

        (b)  The Center is presently intended to contain a maximum of approximately 2.9 parking spaces per 1,000 square feet of rentable area in the buildings to be constructed on the Property, subject to approval by appropriate agencies of the City of South San Francisco. Consistent with the TDMP, a specified percentage (presently anticipated to be ten percent (10%)) of these spaces will be designated for carpool, vanpool and clean fuel vehicles. Among other things, the City of South San Francisco requires that Landlord charge a monthly parking fee for each parking space allocated to tenants and their employees. The monthly fee per parking space shall be $20 per parking space for each Building for the first five (5) years after the Rent Commencement Date for such Building, and shall increase to $30 per parking space for each Building immediately after the fifth (5^th) anniversary of the Rent Commencement Date for such Building. In accordance with the policies and requirements of the City of South San Francisco, Landlord recommends that Tenant pass through these parking charges to Tenant's employees using the spaces. (Thus, for example, in years one (1) through five (5) of the Lease term, assuming an aggregate of 280,200 square feet in the Buildings and 2.9 spaces of parking per 1,000 square feet in the Center, Tenant would have 813 allocable parking spaces at $20 per space per month, for a total monthly parking fee of $16,260.)

        (c)  On or about the date Tenant commences business in the respective Buildings, Landlord intends to provide Tenant, through Landlord's designated transportation coordinator, with an appropriate number of packets of employee transportation information, presently expected to include (but not be limited to) information about carpool parking; schedules and maps for SamTrans, Caltrain, BART and shuttle services operating to and from the Property; and a bicycle map. Landlord shall

-51-

thereafter cause its designated transportation coordinator to provide updated copies of the employee transportation information packet to Tenant from time to time, as appropriate, and to make additional copies of the packet available to Tenant from time to time, upon request by Tenant, for new employees. Tenant shall distribute copies of the employee transportation information packet to all employees commuting to the Property at the time Tenant commences business in the respective Buildings, shall thereafter distribute copies of the packet to new employees from time to time and shall distribute updated packets to all employees from time to time when and as such updated packets are furnished to Tenant by Landlord's designated transportation coordinator.

        (d)  Landlord is required to conduct, pursuant to the TDMP, annual surveys of its tenants and their employees regarding both quantitative and qualitative aspects of commuting and transportation patterns at the Center. Landlord anticipates that these surveys will be prepared, administered and analyzed by an independent transportation consultant retained by the City of South San Francisco, and will be summarized by that consultant in an annual report to be submitted by that consultant to the City of South San Francisco and its Redevelopment Agency with respect to the Center. Tenant shall cooperate with Landlord, with Landlord's designated transportation coordinator and with any independent transportation consultant retained by the City, and shall use reasonable efforts to cause Tenant's employees to so cooperate, in the completion and return of such surveys from time to time, when and as requested by Landlord or its designated transportation coordinator or the independent consultant. Tenant acknowledges and understands that employees who fail to respond to such surveys will be counted as drive-alone commuters.

        (e)  Landlord has advised Tenant that pursuant to conditions imposed by the City of South San Francisco and its Redevelopment Agency, Landlord may incur financial penalties if implementation of the TDMP at the Center fails to achieve a target rate of at least thirty-five percent (35%) alternative mode transportation usage (the "Alternative Mode Standard") by employees working at the Center, as reflected in the surveys conducted pursuant to Section 21.20(d) above. Any such financial penalties shall be imposed by the City of South San Francisco Redevelopment Agency (the "Redevelopment Agency"), in its sole discretion, based on its review of the annual reports submitted from time to time pursuant to Section 21.20(d) above. The amount of such financial penalties is presently set at $15,000 per year for each percentage point (if any) by which, after a phase-in period (two (2) years after the granting of a certificate of occupancy) for each building, the aggregate rate of alternative mode transportation usage by employees throughout the Center falls short of the Alternative Mode Standard. If any such financial penalties are imposed on Landlord for failure to meet the Alternative Mode Standard on a Center-wide basis for any applicable survey period, then Landlord shall be entitled to pass such financial penalties through to all tenants of the Center whose employees have failed to demonstrate (pursuant to the applicable surveys) compliance with the Alternative Mode Standard for the applicable period (each such tenant being hereinafter referred to as a "Noncomplying Tenant" for that period), in which event the actual penalty amount shall be allocated among the Noncomplying Tenants for the applicable period in the following manner: Each Noncomplying Tenant shall bear a portion of the applicable penalty amount equal to a fraction, the numerator of which is the number of employees by which such Noncomplying Tenant fell short of meeting the Alternative Mode Standard for the applicable period and the denominator of which is the sum of the respective numbers of employees by which all Noncomplying Tenants, in the aggregate, fell short of meeting the Alternative Mode Standard for the applicable period. Each such Noncomplying Tenant shall pay its share of the applicable penalty amount to Landlord within thirty (30) days after receipt of written demand from Landlord, accompanied by supporting documentation evidencing the applicable penalty amount, as provided by the Redevelopment Agency or its consultant, and demonstrating in reasonable detail the calculation of such Noncomplying Tenant's share of that penalty amount. Under no circumstances shall Tenant be required to bear any portion of any penalties contemplated in this paragraph with respect to any period as to which Tenant can demonstrate that its employees, as evidenced by the applicable survey(s) for that period, met the Alternative Mode Standard. If Tenant subleases any portion(s) of any

-52-

of the Buildings from time to time, then for purposes of this Section 21.20, as between Tenant and Landlord, Tenant shall be fully and solely responsible for compliance by its subtenant(s) and their employees with the requirements of this Section 21.20, and all surveys and reports submitted by Tenant to Landlord or its designated transportation coordinator or to the independent consultant pursuant to this Section 21.20 shall cover the entire Buildings (other than the retail space in the Phase III Building) and shall report figures for Tenant and its subtenant(s) on an aggregate basis. Nothing in the preceding sentence, however, shall preclude Tenant, as between itself and its subtenant(s), from allocating to such subtenant(s) in the applicable sublease agreement any compliance obligations and/or penalty reimbursement obligations under this Section 21.20(e), but no such allocation shall be binding on Landlord or require Landlord, its designated transportation

[rest of page intentionally left blank; signature page follows]

-53-

coordinator or the independent consultant to deal directly with any such subtenant(s) regarding the matters addressed in this Section 21.20. If Tenant believes, reasonably and in good faith, that there are circumstances particular to the nature of Tenant's business operations that would justify a mitigation of penalties and/or a modification of the implementation of the TDMP as applied to Tenant's business, and requests in writing (with supporting information describing, in reasonable detail, the circumstances on which Tenant is relying) that Landlord present such mitigation or modification arguments to the Redevelopment Agency, then Landlord shall use reasonable and good faith efforts to present or cause its designated transportation coordinator to present such mitigation and/or modification arguments, but Tenant acknowledges and understands that any decision with respect to such mitigation and/or modification arguments will be in the sole discretion of the Redevelopment Agency and agrees that Landlord shall have no liability to Tenant if such mitigation and/or modification arguments are not accepted by the Redevelopment Agency.

        IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first set forth above.

"Landlord"		"Tenant"
SLOUGH BTC, LLC, a Delaware limited liability company		TULARIK INC., a Delaware corporation
By:	Slough Estates USA Inc., a Delaware corporation, Its Manager	By: /s/  DAVID V. GOEDDELIts: CEO
	By: /s/  WILLIAM ROGALLAIts: VP	By: /s/  WILLIAM J. RIEFLINIts: EVP

--

EXHIBITS

EXHIBIT A	Real Property Description (Center)
EXHIBIT B	Site Plan
EXHIBIT C	Workletter
EXHIBIT D	Estimated Construction Schedules
EXHIBIT E	Acknowledgment of Rent Commencement Date

--

EXHIBIT A

REAL PROPERTY DESCRIPTION (CENTER)

All that certain real property in the City of South San Francisco, County of San Mateo, State of California, more particularly described as follows:

Parcels 2, 3, 5 and 6 as shown on the Bay West Cove Final Subdivision Map, Parcel Map No. 97-027, recorded January 22, 1998 in Book 70, at pages 33-40, File No. 98-008274, Official Records of San Mateo County, California.

EXHIBIT B

BRITANNIA OYSTER POINT
SITE PLAN

[SITE MAP]

EXHIBIT C

WORKLETTER

        This Workletter ("Workletter") constitutes part of the Build-to-Suit Lease dated as of December 20, 2001 (the "Lease") between SLOUGH BTC, LLC, a Delaware limited liability company ("Landlord"), and TULARIK INC., a Delaware corporation ("Tenant"). The terms of this Workletter are incorporated in the Lease for all purposes.

        1.    Defined Terms.    As used in this Workletter, the following capitalized terms have the following meanings:

        (a)  Approved Plans: Plans and specifications prepared by the applicable Architect for the respective Improvements and approved by Landlord and, to the extent applicable, Tenant in accordance with Paragraph 2 of this Workletter, subject to further modification from time to time to the extent provided in and in accordance with such Paragraph 2.

        (b)  Architect: Chamorro Design Group, or any other architect selected by Landlord in its sole discretion, with respect to the respective Building Shells, the Site Improvements and any other Improvements which Landlord is to design pursuant to this Workletter; any architect selected by Tenant with the written approval of Landlord (which shall not be unreasonably withheld or delayed) with respect to the Tenant Improvements and any other Improvements which Tenant is to design pursuant to the this Workletter.

        (c)  Building Shells: The shells of the respective Buildings, as more fully described in Schedule C-1 attached to this Workletter, including the shell of the Connector Bridge (as described in Section 1.1(a) of the Lease).

        (d)  Change Order Request: See definition in Paragraph 2(e)(ii) hereof.

        (e)  Cost of Improvement: See definition in Paragraph 2(c) hereof.

        (f)    Final Completion Certificate: See definition in Paragraph 3(b) hereof.

        (g)  Final Working Drawings: See definition in Paragraph 2(a) hereof.

        (h)  General Contractor: Hathaway Dinwiddie Construction Company, or any other general contractor selected by Landlord in its sole discretion, with respect to Landlord's Work. The General Contractor with respect to Tenant's Work shall be selected by Tenant, subject to Landlord's approval (not to be unreasonably withheld or delayed), as contemplated in Paragraph 5(a) hereof.

        (i)    Improvements: The Building Shells, Site Improvements, Tenant Improvements and other improvements shown on the Approved Plans from time to time and to be constructed on the Property pursuant to the Lease and this Workletter.

        (j)    Landlord Delay: See definition in Paragraph 10 hereof.

        (k)  Landlord's Work: The Building Shells and Site Improvements, and any other Improvements which Landlord is to construct or install pursuant to this Workletter (including, but not limited to, any Tenant Improvements identified in Schedule C-2 to this Workletter as being Landlord's responsibility to construct) or by mutual agreement of Landlord and Tenant from time to time.

        (l)    Punch List Work: Minor corrections of construction or decoration details, and minor mechanical adjustments, that are required in order to cause any applicable portion of the Improvements as constructed to conform to the Approved Plans in all material respects and that do not materially interfere with Tenant's use or occupancy of the applicable Building and the Property.

        (m)  Site Improvements: The parking areas, driveways, landscaping and other improvements to the Common Areas of the Property that are depicted on Exhibit B to the Lease (as the same may be modified by Landlord from time to time pursuant to the process of development and approval of the Approved Plans).

        (n)  Structural Completion Certificate: See definition in Paragraph 3(a) hereof.

        (o)  Tenant Delay: Any of the following types of delay in the completion of construction of the Building Shell(s):

        (i)    Any delay resulting from Tenant's failure to furnish, within the time frames required in the Estimated Construction Schedules attached as Exhibit D to the Lease (or, in the case of any requests for which no specific time frame is specified in such Estimated Construction Schedules, within the time frame reasonably specified in writing by Landlord or its project manager in making such request), information reasonably requested by Landlord or by Landlord's project manager (Project Management Advisors, Inc. or such other person or entity as Landlord may designate from time to time) in connection with the design or construction of the respective Building Shells, or from Tenant's failure to approve within the time frames required in the Estimated Construction Schedules attached as Exhibit D to the Lease (or, in the case of any requests for which no specific time frame is specified in such Estimated Construction Schedules, within the time frame reasonably specified in writing by Landlord or its project manager in requesting such approval) any matters requiring approval by Tenant;

        (ii)  Any delay resulting from changes in Landlord's Final Working Drawings and/or Landlord's Approved Plans with respect to the Phase IA Building and/or the Phase IB Building in order to accommodate the construction of the Connector Bridge, under the circumstances and to the extent provided in Paragraph 2(e)(iii) of this Workletter;

        (iii)  Any delay resulting from Change Order Requests initiated by Tenant, including any delay resulting from the need to revise any drawings or obtain further governmental approvals as a result of any such Change Order Request; or

        (iv)  Any delay of any other kind or nature caused by Tenant (or Tenant's contractors, agents or employees) or resulting from the performance of Tenant's Work.

        (p)  Tenant Improvements: The improvements to or within the respective Buildings, other than improvements constituting part of the respective Building Shells, shown on the Approved Plans from time to time and to be constructed by Tenant (except as otherwise provided herein) pursuant to the Lease and this Workletter, including (but not limited to) the improvements described in Schedule C-2 attached to this Workletter.

        (q)  Tenant's Work: All of the Improvements other than those constituting Landlord's Work, and such other materials and improvements as Tenant deems necessary or appropriate for Tenant's use and occupancy of the respective Buildings.

        (r)  Unavoidable Delays: Delays due to acts of God, action or inaction of public agencies, labor disputes, strikes, fires, freight embargoes, rainy or stormy weather (but only to the extent such weather prevents the affected party from conducting any substantial element of its construction work for a period of at least one full work day), inability to obtain supplies, materials, fuels or permits, delays of contractors or subcontractors, or other causes or contingencies beyond the reasonable control of Landlord or Tenant, as applicable.

        (s)  Work Deadlines: The target dates for performance by the applicable party of the steps listed in the Estimated Construction Schedules for the respective Buildings attached as Exhibit D to the Lease.

        (t)    Capitalized terms not otherwise defined in this Workletter shall have the definitions set forth in the Lease.

        2.    Plans, Cost of Improvements and Construction.    Landlord and Tenant shall comply with the procedures set forth in this Paragraph 2 in preparing, delivering and approving matters relating to the Improvements.

C-2

        (a)  Approved Plans and Working Drawings for Landlord's Work. Landlord shall promptly and diligently (and in all events prior to any applicable Work Deadlines, subject to Tenant Delays and Unavoidable Delays) prepare or cause to be prepared plans and specifications for the Improvements constituting Landlord's Work and for all other Improvements (if any) for which Landlord is expressly assigned design responsibility under Schedule C-2 to this Workletter. Such plans and specifications shall not be subject to Tenant's approval, except to the extent (and only to the extent) that Landlord's Work includes, pursuant to this Workletter or by other mutual agreement of Landlord and Tenant, any portion of the Tenant Improvements. Landlord shall deliver copies of such plans and specifications to Tenant for Tenant's approval (but only to the extent provided in the preceding sentence) and information, to assist Tenant in providing any information and making any decisions necessary to be provided or made by Tenant in order to permit preparation of Landlord's Final Working Drawings as hereinafter defined, and to assist Tenant in preparing plans, specifications and drawings for Tenant's Work as hereinafter set forth. Following approval of such plans and specifications by Landlord and, if applicable, by Tenant (as so approved, the "Landlord's Approved Plans"), Landlord shall then prepare or cause to be prepared, on or before the applicable Work Deadline (assuming timely delivery by Tenant of all information and decisions required to be furnished or made by Tenant in order to permit complete preparation of Landlord's Final Working Drawings), final detailed working drawings and specifications for the Improvements constituting Landlord's Work, including structural, fire protection, life safety, mechanical and electrical working drawings and final architectural drawings (collectively, "Landlord's Final Working Drawings"). Landlord's Final Working Drawings shall substantially conform to the Landlord's Approved Plans. Landlord's Final Working Drawings shall not be subject to Tenant's approval, except to the extent (and only to the extent), as noted above, that Landlord's Work includes, pursuant to this Workletter or by other mutual agreement of Landlord and Tenant, any portion of the Tenant Improvements. Landlord shall deliver copies of Landlord's Final Working Drawings to Tenant for Tenant's approval (but only to the extent provided in the preceding sentence) and information, and to assist Tenant in preparing plans, specifications and drawings for Tenant's Work as hereinafter set forth. Landlord's obligation to deliver Landlord's Final Working Drawings to Tenant within the time period set forth above shall be extended for any delay encountered by Landlord as a result of a request by Tenant for changes in accordance with the procedure set forth below, any other Tenant Delays, or any Unavoidable Delays. To the extent Tenant has any right of approval over Landlord's proposed plans and specifications or Landlord's proposed Final Working Drawings pursuant to the foregoing provisions, no later than the applicable Work Deadline (assuming timely delivery of plans and drawings by Landlord), Tenant shall either approve (to the extent of Tenant's approval right) Landlord's proposed plans and specifications or Landlord's proposed Final Working Drawings, as applicable, or set forth in writing with particularity any changes necessary to bring the aspects of such proposed plans and specifications or proposed Landlord's Final Working Drawings over which Tenant has a right of approval into a form which will be acceptable to Tenant or, in the case of Landlord's Final Working Drawings, into substantial conformity with the Landlord's Approved Plans. Notwithstanding any other provisions of this paragraph (other than the final sentence thereof), in no event shall Tenant have the right to object to any aspect of the Landlord's proposed plans and specifications or proposed Landlord's Final Working Drawings (including, but not limited to, any subsequently proposed changes therein from time to time) that is necessitated by applicable law or as a condition of any governmental or other third-party approvals that are required to be obtained in connection with Landlord's Work, or that is required as a result of unanticipated conditions encountered in the course of construction of Landlord's Work. Failure of Tenant to deliver to Landlord written notice of disapproval and specification of required changes (to the extent Tenant has a right of approval or objection under this paragraph) on or before the applicable Work Deadline shall constitute and be deemed to be approval of Landlord's proposed plans and specifications or proposed Landlord's Final Working Drawings, as applicable. Upon approval, actual or deemed, of Landlord's Final Working Drawings by Landlord and Tenant (to the extent Tenant has such a right of approval under this paragraph), Landlord's Final Working Drawings shall be deemed to be incorporated in and considered part of the Landlord's

C-3

Approved Plans, superseding (to the extent of any inconsistencies) any inconsistent features of the previously existing Landlord's Approved Plans. Notwithstanding the foregoing provisions of this paragraph, the parties acknowledge and agree as follows: (i) as to the Building Shells for the Phase IA and Phase IB Buildings (excluding the Connector Bridge, which has not yet been designed), the plans and specifications for which building permits have already been issued by the City of South San Francisco constitute Landlord's Approved Plans for such Building Shells, subject to any changes that may be required in connection with the design and construction of the Connector Bridge; (ii) as to the Building Shell for the Phase II Building, the plans and specifications filed with Landlord's pending permit application with the City of South San Francisco constitute Landlord's Approved Plans for such Building Shell, subject to any changes that may be required by the City of South San Francisco in connection with the issuance of a building permit for such Building Shell; and (iii) Tenant shall have a right of approval over the plans and specifications to be prepared by Landlord for the shell of the Connector Bridge, which approval shall not be unreasonably withheld and which right of approval shall be exercised within any applicable Work Deadlines or, to the extent there is no specifically applicable Work Deadline, within five (5) business days after delivery of plans and specifications for review by Tenant.

        (b)  Approved Plans and Working Drawings for Tenant's Work. Tenant shall promptly and diligently cause to be prepared and delivered to Landlord, for approval, a space plan and detailed plans and specifications for the Improvements constituting Tenant's Work (as so approved, the "Tenant's Approved Plans"). Landlord shall approve or disapprove of Tenant's Plans, following receipt thereof from Tenant, within the applicable number of days specified on the applicable Estimated Construction Schedule(s) attached as Exhibit D to the Lease. Following mutual approval of the Tenant's Approved Plans, Tenant shall then cause to be prepared and delivered to Landlord, for approval, final working drawings and specifications for the Improvements constituting Tenant's Work, including any applicable life safety, mechanical and electrical working drawings and final architectural drawings (collectively, "Tenant's Final Working Drawings"). Tenant's Final Working Drawings shall substantially conform to the Tenant's Approved Plans. Landlord shall, within the applicable number of days specified on the applicable Estimated Construction Schedule(s) attached as Exhibit D to the Lease, either approve Tenant's Final Working Drawings or set forth in writing with particularity any changes necessary to bring Tenant's Final Working Drawings into substantial conformity with Tenant's Approved Plans or into a form which will be acceptable to Landlord. Upon approval of Tenant's Final Working Drawings by Landlord and Tenant, Tenant's Final Working Drawings shall be deemed to be incorporated in and considered part of the Tenant's Approved Plans, superseding (to the extent of any inconsistencies) any inconsistent features of the previously existing Tenant's Approved Plans.

        (c)  Cost of Improvements. "Cost of Improvement" shall mean, with respect to any item or component for which a cost must be determined in order to allocate such cost, or an increase in such cost, to Landlord and/or Tenant pursuant to this Workletter, the sum of the following (unless otherwise agreed in writing by Landlord and Tenant with respect to any specific item or component or any category of items or components): (i) all sums paid to contractors or subcontractors for labor and materials furnished in connection with construction of such item or component; (ii) all costs, expenses, payments, fees and charges (other than penalties) paid or incurred to or at the direction of any city, county or other governmental or quasi-governmental authority or agency which are required to be paid in order to obtain all necessary governmental permits, licenses, inspections and approvals relating to construction of such item or component; (iii) engineering and architectural fees for services rendered in connection with the design and construction of such item or component (including, but not limited to, the applicable Architect for such item or component and an electrical engineer, mechanical engineer and civil engineer); (iv) sales and use taxes; (v) testing and inspection costs; (vi) the cost of power, water and other utility facilities and the cost of collection and removal of debris required in connection with construction of such item or component; (vii) all other "hard" costs incurred in the construction of such item or component in accordance with the applicable Approved Plans and this Workletter; and

C-4

(viii) as to the Tenant Improvements, all costs and items specifically described as being at Tenant's cost in Schedules C-1 and C-2 attached hereto. Notwithstanding the foregoing provisions, however, Cost of Improvement shall not include any project management fee relating to the construction of the applicable item or component, except to the extent of any project management fees expressly set forth in Schedules C-1 and C-2 attached hereto.

        (d)  Construction of Landlord's Work. Promptly following approval of Landlord's Final Working Drawings, Landlord shall apply for and use reasonable efforts to obtain the necessary permits and approvals to allow construction of all Improvements constituting Landlord's Work. Upon receipt of such permits and approvals, Landlord shall, at Landlord's sole expense (except as otherwise provided in the Lease or in this Workletter), diligently construct and complete the Improvements constituting Landlord's Work substantially in accordance with the Landlord's Approved Plans, subject to Unavoidable Delays and Tenant Delays (if any). Such construction shall be performed in a neat and workmanlike manner and shall conform to all applicable governmental codes, laws and regulations in force at the time such work is completed. Without limiting the generality of the foregoing, Landlord shall be responsible for compliance of all Improvements designed and constructed by Landlord with the requirements of the Americans with Disabilities Act and all similar or related requirements pertaining to access by persons with disabilities. Landlord shall have the right, in its sole discretion, to decide whether and to what extent to use union labor on or in connection with Landlord's Work and shall use the General Contractor designated or selected pursuant to Paragraph 1(h) to construct all Improvements constituting Landlord's Work.

        (e)  Changes.

        (i)    If Landlord determines at any time that changes in Landlord's Final Working Drawings or in any other aspect of the Landlord's Approved Plans relating to any item of Landlord's Work are required as a result of applicable law or governmental requirements, or at the insistence of any other third party whose approval may be required with respect to the Improvements, or are required as a result of unanticipated conditions encountered in the course of construction, then Landlord shall promptly (A) advise Tenant of such circumstances and (B) cause revised Landlord's Approved Plans and/or Landlord's Final Working Drawings, as applicable, reflecting such changes to be prepared by Architect and submitted to Tenant, for Tenant's information (and to assist Tenant in determining the need for any related changes in Tenant's Approved Plans) and, to the extent such changes relate to any Tenant Improvements being constructed by Landlord pursuant to mutual agreement of Landlord and Tenant or are subject to Tenant's approval pursuant to the final sentence of this paragraph, for approval by Tenant in accordance with the procedure contemplated in Paragraph 2(a) hereof. Upon final approval of such revised drawings by Landlord and Tenant (if applicable), Landlord's Final Working Drawings and/or the Landlord's Approved Plans shall be deemed to be modified accordingly. In the case of any such changes in Landlord's Final Working Drawings and/or Landlord's Approved Plans that are required as a result of applicable law or governmental requirements, or are required at the insistence of any other third party whose approval is required with respect to the Improvements, or are required as a result of unanticipated conditions encountered in the course of construction, Tenant shall have no approval right and Landlord shall have no liability or responsibility for any costs or cost increases incurred by Tenant as a result of any such required changes. However, in the case of any changes in Landlord's Final Working Drawings and/or Landlord's Approved Plans that are merely deemed desirable by Landlord without being required by any of the circumstances described in the preceding sentence, (A) Landlord shall not make any such change without Tenant's written approval, which approval shall not be unreasonably withheld and which right of approval shall be exercised within five (5) business days after Tenant's receipt of Landlord's request for approval of the proposed change, and (B) Landlord shall be responsible for all actual costs or cost increases reasonably incurred by Tenant as a result of such changes and shall reimburse Tenant for any such actual costs or cost

C-5

increases promptly following receipt of Tenant's written request for such reimbursement, accompanied by documentation reasonably supporting Tenant's claimed costs or cost increases and their relationship to the changes made by Landlord.

        (ii)  If Tenant at any time desires any changes, alterations or additions to the Landlord's Approved Plans or Landlord's Final Working Drawings with respect to any of Landlord's Work, Tenant shall submit a detailed written request to Landlord specifying such changes, alterations or additions (a "Change Order Request"). Upon receipt of any such request, Landlord shall promptly notify Tenant of (A) whether the matters proposed in the Change Order Request are approved by Landlord (which approval shall not be unreasonably withheld as to any matters relating to Tenant Improvements which are being constructed by Landlord pursuant to mutual agreement of Landlord and Tenant, but may be granted or withheld by Landlord in its sole discretion as to any other aspects of Landlord's Work), (B) Landlord's estimate of the number of days of delay, if any, which shall be caused by such Change Order Request if implemented (including, without limitation, delays due to the need to obtain any revised plans or drawings and any governmental approvals), and (C) Landlord's estimate of the increase, if any, which shall occur in the Cost of Improvement for the items or components affected by such Change Order Request if such Change Order Request is implemented (including, but not limited to, any costs of compliance with laws or governmental regulations that become applicable because of the implementation of the Change Order Request). If Landlord approves the Change Order Request and Tenant notifies Landlord in writing, within five (5) business days after receipt of such notice from Landlord, of Tenant's approval of the Change Order Request (including the estimated delays and cost increases, if any, described in Landlord's notice), then Landlord shall cause such Change Order Request to be implemented and Tenant shall be responsible for all costs or cost increases resulting from or attributable to the implementation of the Change Order Request, subject to the provisions of Paragraph 4 hereof. If Tenant fails to notify Landlord in writing of Tenant's approval of such Change Order Request within said five (5) business day period, then such Change Order Request shall be deemed to be withdrawn and shall be of no further effect.

        (iii)  If Landlord determines at any time in the course of design and construction of the Connector Bridge that changes in Landlord's Final Working Drawings or in any other aspect of the Landlord's Approved Plans for the Phase IA Building and/or the Phase IB Building are required in order to accommodate the construction of the Connector Bridge, then Landlord shall promptly (A) advise Tenant of such circumstances and (B) notify Tenant of Landlord's estimate of the number of days of delay, if any, which shall be caused in Landlord's achievement of structural completion for the Phase IA Building and/or the Phase IB Building as a result of such changes if implemented (including, without limitation, delays due to the need to obtain any revised plans or drawings and any governmental approvals) (the "Estimated Delay"). If Tenant notifies Landlord in writing, within five (5) business days after receipt of such notice from Landlord, of Tenant's approval of the Connector Bridge design which requires such changes and of Tenant's desire to have Landlord proceed with the construction of the Connector Bridge notwithstanding the Estimated Delay (if any), then Landlord shall cause such changes to be implemented and the amount of the Estimated Delay (if any) as specified in Landlord's notice shall constitute a Tenant Delay; provided, however, that notwithstanding the characterization of such changes as a Tenant Delay and notwithstanding any contrary provisions of the Lease or of this Workletter, under no circumstances shall Tenant be responsible for any costs or cost increases resulting from or attributable to the implementation of the changes described in this subparagraph (iii). If Tenant fails to notify Landlord in writing, within said five (5) business day period, of Tenant's approval of the Connector Bridge design which requires such changes and of Tenant's desire to have Landlord proceed with the construction of the Connector Bridge notwithstanding the estimated delays (if any), then such design changes shall be deemed to be disapproved and Landlord shall be under no further obligation to construct the Connector Bridge.

C-6

        (iv)  If Tenant at any time desires to make any changes, alterations or additions to the Tenant's Approved Plans, such changes, alterations or additions shall be subject to approval by Landlord in the same manner as the original Tenant's Approved Plans as provided above.

        3.    Completion.

        (a)  When Landlord receives written certification from Architect that construction of the foundation, structural slab on grade (except to the extent delayed at Tenant's request to accommodate Tenant's design requirements and/or any underslab aspects of Tenant's Work), Landlord's underslab plumbing work, structural steel framework, decking and concrete on second, third and fourth (if applicable) floors, roof structure, roof membrane and installation of main fire sprinkler risers in a Building have been substantially completed in accordance with the Landlord's Approved Plans, Landlord shall prepare and deliver to Tenant a certificate signed by both Landlord and Architect (the "Structural Completion Certificate") certifying that the construction of such portions of the applicable Building has been substantially completed in accordance with the Landlord's Approved Plans in all material respects and specifying the date of that completion. The delivery of such Structural Completion Certificate shall commence the running of the 180-day time period (which period shall be extended day for day by any Landlord Delay, as hereinafter defined, occurring after the date of delivery of such Structural Completion Certificate) until the Rent Commencement Date for the applicable Building (or in the case of the Phase II Building, until the Phase IIA Rent Commencement Date) under Section 2.1 of the Lease. Notwithstanding any other provisions of this Workletter or of the Lease, Landlord's right to issue a Structural Completion Certificate with respect to the respective Phase I Buildings shall be determined without reference to the degree of completion of the Connector Bridge, and any delay in the construction or structural completion of the shell for the Connector Bridge shall not delay the determination of structural completion or the Rent Commencement Date for either of the Phase I Buildings, treating each of such Buildings (without the Connector Bridge) as a stand-alone building and ignoring, for this purpose, any lack of completion of Landlord's Work at and in the immediate vicinity of the point of attachment of the Connector Bridge to the applicable Building.

        (b)  When Landlord receives written certification from Architect that construction of the remaining Improvements constituting Landlord's Work with respect to a Building has been substantially completed in accordance with the Landlord's Approved Plans (except for Punch List Work), Landlord shall prepare and deliver to Tenant a certificate signed by both Landlord and Architect (the "Final Completion Certificate") certifying that the construction of the remaining Improvements constituting Landlord's Work with respect to such Building has been substantially completed in accordance with the Landlord's Approved Plans in all material respects, subject only to completion of Punch List Work, and specifying the date of that completion. Upon receipt by Tenant of the Final Completion Certificate, the Improvements constituting Landlord's Work will be deemed delivered to Tenant for all purposes of the Lease (subject to Landlord's continuing obligations with respect to the Punch List Work). Notwithstanding any other provisions of this Workletter or of the Lease, Landlord's right to issue a Final Completion Certificate with respect to the respective Phase I Buildings shall be determined without reference to the degree of completion of the Connector Bridge, and any delay in the construction or final completion of the shell for the Connector Bridge shall not delay the determination of final completion or the Rent Commencement Date for either of the Phase I Buildings, treating each of such Buildings (without the Connector Bridge) as a stand-alone building and ignoring, for this purpose, any lack of completion of Landlord's Work at and in the immediate vicinity of the point of attachment of the Connector Bridge to the applicable Building.

        (c)  Notwithstanding any other provisions of this Workletter or of the Lease, Rent Commencement Dates for the applicable Buildings shall be subject to adjustment under the following circumstances:

        (i)    If Landlord is delayed in substantially completing any of Landlord's Work necessary for issuance of the Structural Completion Certificate with respect to a Building as a result of any

C-7

Tenant Delay, then the 180-day period between the delivery of the Structural Completion Certificate and the Rent Commencement Date for such Building pursuant to Section 2.1 of the Lease shall be reduced, day for day, by the number of days by which such Tenant Delay delayed completion of the portions of Landlord's Work necessary for issuance of the Structural Completion Certificate for such Building, and Tenant shall reimburse Landlord in cash, within fifteen (15) days after written demand by Landlord (accompanied by reasonable documentation of the items claimed), for any increased construction-related costs and expenses incurred by Landlord as a result of the Tenant Delay (except to the extent otherwise expressly provided in Paragraph 2(e)(iii) of this Workletter).

        (ii)  If Tenant is delayed in substantially completing any of Tenant's Work necessary for Tenant's occupancy of and commencement of business in a Building as a result of any Landlord Delay, then the 180-day period between the delivery of the Structural Completion Certificate and the Rent Commencement Date for such Building pursuant to Section 2.1 of the Lease shall be extended, day for day, by the number of days by which such Landlord Delay delayed completion of the portions of Tenant's Work necessary for Tenant's occupancy of and commencement of business in such Building.

        (iii)  Rent Commencement Dates shall also be subject to adjustment under the circumstances and to the extent provided in Section 2.1(c) of the Lease, if applicable.

        (d)  At any time within thirty (30) days after delivery of the Structural Completion Certificate or the Final Completion Certificate, as applicable, for a Building, Tenant shall be entitled to submit one or more lists to Landlord specifying Punch List Work to be performed on the applicable Improvements constituting Landlord's Work with respect to such Building, and upon receipt of such list(s), Landlord shall diligently complete such Punch List Work at Landlord's sole expense. Promptly after Landlord provides Tenant with the Final Completion Certificate for a Building, Landlord shall cause the recordation of a Notice of Completion (as defined in Section 3093 of the California Civil Code) with respect to Landlord's Work for such Building.

        4.    Payment of Costs.    

        (a)  Landlord's Work. Except as otherwise expressly provided in this Workletter (including, but not limited to, the cost allocations set forth in Schedules C-1 and C-2 attached hereto) or by mutual written agreement of Landlord and Tenant, the cost of construction of Landlord's Work shall be borne by Landlord at its sole cost and expense, including any costs or cost increases incurred as a result of Unavoidable Delays, governmental requirements or unanticipated conditions; provided, however, that notwithstanding any other provisions of this Paragraph 4(a), to the extent the Cost of Improvement relating to the construction of any item or component of Landlord's Work is increased as a result of any implemented Change Order Request or any Tenant Delay, or as a result of any other plan changes or compliance costs attributable to Tenant's particular use requirements or to the contemplated Tenant's Work, the amount of the increase in the Cost of Improvement with respect to such item or component, as well as the Cost of Improvement with respect to any matters listed on Schedule C-1 or C-2 as being installed by Landlord but as having the cost thereof borne by Tenant, shall be reimbursed by Tenant to Landlord in cash or, by mutual agreement of Landlord and Tenant, may be deducted from Landlord's maximum obligation under Paragraph 4(b) with respect to the cost of Tenant's Work.

        (b)  Tenant's Work. Except as otherwise expressly provided in this Workletter (including, but not limited to, the cost allocations set forth in Schedules C-1 and C-2 attached hereto) or by mutual written agreement of Landlord and Tenant, the cost of construction of Tenant's Work shall be borne by Tenant at its sole cost and expense, including any costs or cost increases incurred as a result of Unavoidable Delays, governmental requirements or unanticipated conditions. Notwithstanding the foregoing sentence, the Cost of Improvements with respect to the construction of the Tenant Improvements in each Building shall be borne by Landlord up to a maximum contribution by Landlord equal to One

C-8

Hundred Ninety and No/100 Dollars ($190.00) per square foot, in the case of each of the Phase I Buildings (including the Connector Bridge), and One Hundred Forty-Five and No/100 Dollars ($145.00) per square foot, in the case of each phase of the Phase II Building, times the square footage of the applicable Building, as and when constructed (measured in accordance with Sections 1.1(c) and 3.1(d) of the Lease), toward the Cost of Improvements for the Tenant Improvements in the respective Buildings (the "Tenant Improvement Allowance"), less any reduction in such sum pursuant to Paragraph 4(a) or any other applicable provision of this Workletter. Tenant shall be entitled to utilize the entire Tenant Improvement Allowance for each respective Building or phase prior to being required to expend any of Tenant's own funds on an unreimbursed basis for Tenant Improvements in such Building or phase. In all other respects, the timing, conditions and other procedures for Landlord's disbursement of the Tenant Improvement Allowance for each Building or phase shall be as reasonably prescribed by Landlord, subject to approval by Tenant (which approval shall not be unreasonably withheld or delayed by Tenant); provided, however, that progress payments of the Tenant Improvement Allowance shall be made not less often than monthly, subject to Tenant's timely compliance with all applicable conditions and procedures established pursuant to this sentence. To the extent the Cost of Improvement with respect to the Tenant Improvements for any Building or Phase exceeds the Tenant Improvement Allowance (as reduced, if applicable), whether as a result of implemented Change Order Requests, Tenant Delays and/or Unavoidable Delays or otherwise, the amount of such excess shall in all events be Tenant's sole responsibility and expense. The rental amounts set forth in Section 3.1 of the Lease are not subject to adjustment based on the Cost of Improvements of the Tenant Improvements, regardless of whether the final Cost of Improvements for the Tenant Improvements in any Building or Phase uses the entire Tenant Improvement Allowance or not. The foregoing Tenant Improvement Allowance assumes that each Phase I Building will be composed of a minimum of 65% laboratory space and a maximum of 35% office space, and that the Phase II Building will be composed of a minimum of 50% laboratory space and a maximum of 50% office space, and such Tenant Improvement Allowance shall be subject to reduction (and/or to disapproval by Landlord of Tenant's proposed plans and specifications for the Tenant Improvements in the applicable Building) if the proposed laboratory space in a Building is less than the minimum percentage specified in this sentence. The square footage attributable to the Connector Bridge shall be disregarded for purposes of applying the ratios set forth in the preceding sentence to the Phase I Buildings.

        (c)  Tenant Funding of Tenant Improvement Allowance. If Landlord fails to timely fulfill its obligation to fund any portion of the Tenant Improvement Allowance pursuant to Paragraph 4(b) above, Tenant shall be entitled to deliver written notice thereof (a "Payment Notice") to Landlord. If Landlord still fails to fulfill any such payment obligation within seventy-five (75) days after Landlord's receipt of the Payment Notice from Tenant and fails to deliver written notice to Tenant within such 75-day period explaining the reasons for which Landlord believes that the amounts described in Tenant's Payment Notice are not in fact due and payable by Landlord, then Tenant shall be entitled to fund the portion of the Tenant Improvement Allowance described in the Payment Notice and to offset the amount so funded, together with interest at the prime rate plus two percentage points (2%) from the date of funding until the date of offset, against Tenant's next obligations to pay Rent under the Lease.

        5.    Tenant's Work.    Tenant shall construct and install in each Building or Phase the Tenant's Work, substantially in accordance with the Tenant's Approved Plans or, with respect to Tenant's Work not otherwise shown on the Tenant's Approved Plans, substantially in accordance with plans and specifications prepared by Tenant and approved in writing by Landlord (which approval shall not be unreasonably withheld or delayed). Tenant's Work shall be performed in accordance with, and shall in

C-9

all respects be subject to, the terms and conditions of the Lease (to the extent not inconsistent with this Workletter), and shall also be subject to the following conditions:

        (a)  Contractor Requirements. The contractor engaged by Tenant for Tenant's Work, and any subcontractors, shall be duly licensed in California and shall be subject to Landlord's prior written approval, which approval shall not be unreasonably withheld or delayed. Tenant shall engage only union contractors for the construction of Tenant's Work and for the installation of Tenant's fixtures and equipment in the Buildings, and shall require all such contractors engaged by Tenant, and all of their subcontractors, to use only union labor on or in connection with such work, except to the extent Landlord determines, in its reasonable discretion, that the use of non-union labor would not create a material risk of labor disputes, picketing or work interruptions at the Property, in which event Landlord shall, to that extent, waive such union labor requirement.

        (b)  Costs and Expenses of Tenant's Work. Subject to Landlord's payment or reimbursement obligations under Paragraph 4(b) hereof with respect to the Tenant Improvement Allowance, Tenant shall promptly pay all costs and expenses arising out of the performance of Tenant's Work (including the costs of permits) and shall furnish Landlord with evidence of payment on request. Tenant shall provide Landlord with ten (10) days' prior written notice before commencing any Tenant's Work. On completion of Tenant's Work (assuming Landlord has complied with its payment or reimbursement obligations under Paragraph 4(b) hereof), Tenant shall deliver to Landlord a release and unconditional lien waiver executed by each contractor, subcontractor and materialman involved in the performance of Tenant's Work. If any lien is filed against the Property or against Tenant's leasehold interest, Tenant shall obtain, within ten (10) days after the filing, the release or discharge of that lien. If Tenant fails to do so, Landlord shall have the right (but not the obligation) to obtain the release or discharge of the lien and Tenant shall, within fifteen (15) days after written demand by Landlord (accompanied by reasonable documentation of the items claimed), reimburse Landlord for all costs, including (but not limited to) reasonable attorneys' fees, incurred by Landlord in obtaining the release or discharge of such lien, together with interest from the date of demand at the interest rate set forth in Section 3.2 of the Lease.

        (c)  Indemnification. Tenant shall indemnify, defend (with counsel satisfactory to Landlord) and hold Landlord and its agents and employees harmless from all suits, claims, actions, losses, costs and expenses (including, but not limited to, claims for workers' compensation, attorneys' fees and costs) based on personal injury or property damage or contract claims (including, but not limited to, claims for breach of warranty) arising from the performance of Tenant's Work, including (but not limited to) from any early access to the Property by Tenant and its contractors in preparation for Tenant's Work as contemplated in Section 2.2 of the Lease and in this Workletter. Tenant shall repair or replace (or, at Landlord's election, reimburse Landlord for the cost of repairing or replacing) any portion of the Improvements and/or any of Landlord's real or personal property or equipment that is damaged, lost or destroyed in the course of or in connection with the performance of Tenant's Work.

        (d)  Insurance. Tenant's contractors shall obtain and provide to Landlord certificates evidencing workers' compensation, public liability, and property damage insurance in amounts and forms and with companies reasonably satisfactory to Landlord.

        (e)  Rules and Regulations. Tenant and Tenant's contractors shall comply with any other reasonable rules, regulations and requirements that Landlord or Landlord's General Contractor or project manager may impose from time to time with respect to the performance of Tenant's Work. Tenant's agreement with Tenant's contractors shall require each contractor to provide daily cleanup of the construction area to the extent that such cleanup is necessitated by the performance of Tenant's Work.

        (f)    Early Entry. Landlord shall permit entry of contractors into the Buildings for the purposes of performing Tenant's Work, upon delivery of the Structural Completion Certificate and, to the extent provided in Section 2.2 of the Lease, prior to such delivery, subject to satisfaction of the conditions set

C-10

forth in the Lease and in this Workletter. This license to enter is expressly conditioned on the contractor(s) retained by Tenant working in harmony with, and not interfering with, the workers, mechanics and contractors of Landlord. If at any time the entry or work by Tenant's contractor(s) causes any material interference with the workers, mechanics or contractors of Landlord, permission to enter may be withdrawn by Landlord immediately on written notice to Tenant. Landlord agrees to use reasonable efforts to cause its workers, mechanics and contractors to work in harmony with Tenant's contractors. Any unreasonable exclusion of Tenant's contractors from the Buildings shall be a Landlord Delay to the extent provided in the definition of that term.

        (g)  Risk of Loss. All materials, work, installations and decorations of any nature brought onto or installed in the Buildings, by or at the direction of Tenant or in connection with the performance of Tenant's Work, before the applicable Rent Commencement Date shall be at Tenant's risk, and neither Landlord nor any party acting on Landlord's behalf shall be responsible for any damage, loss or destruction thereof.

        (h)  Condition of Tenant's Work. All work performed by Tenant shall be performed in a good and workmanlike manner, shall be free from defects in design, materials and workmanship, and shall be completed in compliance with the plans approved by Landlord for such Tenant's Work in all material respects and in compliance with all applicable governmental laws, ordinances, codes and regulations in force at the time such work is completed. Without limiting the generality of the foregoing, Tenant shall be responsible for compliance of all Improvements designed and constructed by Tenant with the requirements of the Americans with Disabilities Act and all similar or related requirements pertaining to access by persons with disabilities.

        6.[Omitted.]    

        7.    No Agency.    Nothing contained in this Workletter shall make or constitute Tenant as the agent of Landlord.

        8.    Survival.    Without limiting survival provisions which would otherwise be implied or construed under applicable law, the provisions of Paragraph 5(c) of this Workletter shall survive the termination of the Lease with respect to matters occurring prior to expiration of the Lease.

        9.    Miscellaneous.    All references in this Workletter to a number of days shall be construed to refer to calendar days, unless otherwise specified herein. In all instances where Tenant's approval is required, if no written notice of disapproval is given within the applicable time period, at the end of that period Tenant shall be deemed to have given approval (unless the provision requiring Tenant's approval expressly states that non-response is deemed to be a disapproval or withdrawal of the pending action or request, in which event such express statement shall be controlling over the general statement set forth in this sentence) and the next succeeding time period shall commence. If any item requiring approval is disapproved by Tenant in a timely manner, the procedure for preparation of that item and approval shall be repeated.

        10.    Landlord Delay.    As used in this Workletter and the Lease, "Landlord Delay" shall mean any of the following types of delay in the completion of construction of the Tenant Improvements necessary for Tenant's occupancy of and commencement of business in the respective Buildings or phases, but only to the extent of the actual delay reasonably attributable to the causes or circumstances described herein and directly or proximately caused by such causes or circumstances after the delivery of Landlord's Structural Completion Certificate for the applicable Building or phase:

        (a)  Any delay resulting from Landlord's failure to approve within the time frames required in the Estimated Construction Schedules attached as Exhibit D to the Lease (or, in the case of any requests for which no specific time frame is specified in such Estimated Construction Schedules, within the time frame reasonably specified in writing by Tenant or its construction manager in requesting such approval) any matters requiring approval by Landlord;

C-11

        (b)  Any delay resulting from any unreasonable or wrongful denial by Landlord or its agents or contractors to Tenant or its agents or contractors of access to the applicable Building or phase, or from any negligent or willful acts or omissions of Landlord or its agents or contractors that interfere materially and unreasonably (beyond reasonable and customary accommodations and coordination issues necessarily involved in the conduct of concurrent work in the applicable premises by Landlord and Tenant) with the actual construction of Tenant's Work; or

        (c)  Any delay resulting from changes by Landlord in Landlord's approved Final Working Drawings and/or Landlord's Approved Plans that are merely deemed desirable by Landlord without being required by any of the circumstances described in the next to last sentence of Paragraph 2(e)(i) of this Workletter.

        11.    Financial Information.    In August 2002, upon written request by Tenant, Landlord agrees to provide to Tenant, for Tenant's review, copies of the most recently available financial statements for Landlord and for Landlord's manager and sole member, Slough Estates USA Inc. Tenant agrees that such financial statements shall be treated as confidential material, and shall not be disseminated to any person or entity (including, but not limited to, any prospective subtenants of Tenant's existing premises in South San Francisco) without Landlord's prior written consent, except that Tenant shall be entitled to provide such information, subject to reasonable precautions to protect the confidential nature thereof, to Tenant's officers, directors and professional advisors, solely to use in connection with Tenant's analysis and enforcement of its rights under the Lease and this Workletter.

        IN WITNESS WHEREOF, the parties have executed this Workletter concurrently with and as of the date of the Lease.

"Landlord"			"Tenant"
SLOUGH BTC, LLC, a Delaware limited liability company			TULARIK INC., a Delaware corporation
By:	Slough Estates USA Inc., a Delaware corporation, Its Manager		By:	/s/ David V. Goeddel
			Its:	CEO
	By:	/s/ William Rogalla	By:	/s/ William J. Rieflin
	Its:	VP	Its:	EVP

C-12

Schedule C-1 to Workletter

BUILDING SHELL DESCRIPTION AND COST ALLOCATIONS

[attached]

Schedule C-1 to Workletter

BUILDING SHELL

The "Building Shell" as defined in the Workletter to which this Schedule C-1 is attached shall consist of the following:

Building envelope and waterproofing (the Building "shell"), except as specifically indicated as being included in Tenant Improvements under Schedule C-2, including: reinforced grade beam foundation on prestressed concrete piles; ground floor to be reinforced concrete slab supported by concrete piles; second, third and fourth (where applicable) floors to have metal decking with concrete topping slab; roof structure to be metal deck with concrete for mass dampening in areas to receive mechanical equipment and to include a mechanical penthouse; roof membrane to be built-up system, four-ply including mineral fiber cap sheet, with flashing and sealants; building structural framing to consist of steel beams, girders, columns with a non-bearing exterior curtain wall; seismic system utilizing steel braced frames; floor system designed with live load capacity of 100 psf; roof live load to be 20 psf with minimum of 50 psf (more if required) in all areas within the roofscreen and mechanical penthouse; floor to floor heights of 17 feet, all three (or four) floors.

All other structural work except that driven specifically by Tenant Improvements programming (e.g., interior masonry walls)

Main Building entrances plus 14' 6" rollup door

Building code required primary structure fireproofing, 1 hour deck at elevated floors

Building code required stairs

Pit and jack for elevator; framed openings at 2^nd and 3^rd floors (and 4th floors where applicable); pits/openings sized for 5' 8" × 8' 5" deep inside clear dimension if Tenant provides elevator selection information prior to design completion by Landlord.

Exterior hardscape and landscape, except as specifically included in Tenant Improvements under Schedule C-2

Polyethylene vapor barrier under slab on grade

Site underground water, fire, storm and sanitary service to 5' outside Building line; sanitary to include monitoring manhole if required by City (but not including any connection, capacity or service fees associated with or imposed in connection with the construction of such manhole)

Building storm and overflow drainage systems

Site underground conduits for "normal" electrical and communications, terminated within the Building, including at least two 4" Pac Bell conduits into Building.

Electrical utility pad and transformer, and primary and secondary service conduits terminated at building switchgear location for TI-provided electrical service. Sizing for Building shall be a 3000A service, unless not approved by PG&E based on Tenant loads and demands.

Gas service to exterior meter at Building.

Wet fire protection (risers, loops, branches and heads), evenly distributed for "ordinary hazard-group 2" occupancy, including plug T's to accommodate three branch lines per bay, .20/3000 sf.

Shell design and permitting fees, except as specifically included in Tenant Improvements under Schedule C-2

Vented deck at 2^nd and 3^rd floors

Temporary project fencing

Construction lift for contractor access and stocking of materials (split with TI—50%)

Underslab plumbing and main trunk line for sanitary waste and lab waste (lab waste cost split ⁵⁰/50 between shell and TI)

Rigid roof insulation

Site directional signage program: a) "Tularik Main Lobby ->"; b) "Tularik shipping/receiving ->"; c) "Tularik Building A->"" d) "Tularik Building B->"; e) "Tularik Building E ->". $5,000 allowance by Landlord; balance chargeable to Tenant under TI

Schedule C-2 to Workletter

TENANT IMPROVEMENTS DESCRIPTION AND COST ALLOCATIONS

[attached]

Schedule C-2 to Workletter

TENANT IMPROVEMENTS

The "Tenant Improvements" as defined in the Workletter to which this Schedule C-2 is attached may include, but shall not necessarily be limited to, the following:

All tenant construction, design fees, fixtures, furnishings, etc. to support tenant operations, including use space, offices, lobbies, circulation, restrooms and all other features not indicated as part of the Building Shell in Schedule C-1

Service Yard foundations, structure, enclosure and waterproofing

Shipping/receiving/dock equipment and bollards

Exterior Building skin modifications to support TI systems (e.g., louvers for HVAC accommodation)

Outdoor lounge and eating area

Topical emission barriers at slab on grade, if moisture test exceeds 3 lbs. Vapor barrier to be @ VCT, sheet vinyl and epoxy floor areas only. (cost split 50/50 with Shell)

Slab depressions for special finishes or special uses

Enhancement of structure for live loading above 100 PSF or vibration control criteria

Modification of structure for openings at floors and roof

Modification or repair of structure fireproofing required by TI construction

All minor support structures for ducts, conduits, pipes, etc.

Stair enclosures

Stair penthouse, if required

Exterior wall insulation

Firesafing at floor decks, exterior wall and interior openings

Custom doors

Security or other upgrades to exterior doors

Wallboard capture trim at exterior window wall

Visual screens for rooftop equipment

Supports, sleepers, etc. for all rooftop equipment, ducts, plumbing. electrical, etc.

Roof patching for all penetrations relating to Tenant Improvements

Skylights, if used, including curbs, roof patching, etc.

Elevator cab and equipment, except for pit and jack

Shaft walls or other fire separations required for vertical openings (stairs, elevators) or control zones

Distribution/laterals from Building main trunk line for sanitary waste

All underground plumbing (distribution/laterals) and related systems and fixtures for lab waste. Cost of main trunk line for lab waste split 50-50 with shell.

Modifications/enhancements to wet fire protection systems required by TI design

Schedule C-2, Page 1 of 2

Fire alarm and signal systems

All secondary electrical service for Tenant demand loads, including 3000A main service disconnect, Tenant meter section and distribution panels

Standby electrical generator, if required

All electrical communications wire and service not included in Building Shell

All TI design fees and reimbursables

All other "soft" costs, including TI permit fees, utility capacity or connection charges

All testing and inspection of TI construction

Construction lift for contractor access and stocking of materials (split with shell—50%)

Schedule C-2, Page 2 of 2

EXHIBIT D

ESTIMATED CONSTRUCTION SCHEDULES

[CHART]

[CHART]

[CHART]

EXHIBIT E

ACKNOWLEDGMENT OF RENT COMMENCEMENT DATE

        This Acknowledgment is executed as of                            , 200    , by SLOUGH BTC, LLC, a Delaware limited liability company ("Landlord"), and TULARIK INC., a Delaware corporation ("Tenant"), pursuant to Section 2.4 of the Build-to-Suit Lease dated December    , 2001 between Landlord and Tenant (the "Lease") covering premises located at                Veterans Boulevard, South San Francisco, CA 94080 (the Phase        Building, hereinafter referred to as the "Building"). [In the case of the Phase II Building: This Acknowledgment covers Phase II        of Tenant's occupancy of the Building.]

        Landlord and Tenant hereby acknowledge and agree as follows:

        1.    The Rent Commencement Date for [Phase II    of] the Building under the Lease is                            , 200    .

        2.    The termination date under the Lease (if determinable at this time) shall be                            , 201    , subject to any applicable provisions of the Lease for extension or early termination thereof.

        3.    The square footage of the Building, as finally designed and built, measured in accordance with Sections 1.1(c) and 3.1(d) of the Lease, is                        square feet. [The square footage of Phase II        of the Phase II Building is                        square feet.]

        4.    Tenant accepts [Phase II    of] the Building and acknowledges the satisfactory completion of all Improvements thereon required to be made by Landlord, subject only to any applicable "punch list" or similar procedures specifically provided under the Lease or under the Workletter governing such work.

        EXECUTED as of the date first set forth above.

"Landlord"		"Tenant"
SLOUGH BTC, LLC, a Delaware limited liability company		TULARIK INC., a Delaware corporation
By:	Slough Estates USA Inc., a Delaware corporation, Its Manager	By:
		Its:
	By:	By:
	Its:	Its:

QuickLinks

BUILD-TO-SUIT LEASE
TABLE OF CONTENTS
BUILD-TO-SUIT LEASE
1. PROPERTY
2. TERM
3. RENTAL
4. [OMITTED]
5. CONSTRUCTION
6. EXPANSION RIGHTS
7. [OMITTED]
8. TAXES
9. OPERATING EXPENSES
10. UTILITIES
11. ALTERATIONS; SIGNS
12. MAINTENANCE AND REPAIRS
13. USE OF PROPERTY
14. INSURANCE AND INDEMNITY
15. SUBLEASE AND ASSIGNMENT
16. RIGHT OF ENTRY AND QUIET ENJOYMENT
17. CASUALTY AND TAKING
18. DEFAULT
19. SUBORDINATION, ATTORNMENT AND SALE
20. SECURITY
21. MISCELLANEOUS
EXHIBITS
EXHIBIT A REAL PROPERTY DESCRIPTION (CENTER)
EXHIBIT B BRITANNIA OYSTER POINT SITE PLAN
EXHIBIT C WORKLETTER
Schedule C-1 to Workletter BUILDING SHELL DESCRIPTION AND COST ALLOCATIONS
Schedule C-1 to Workletter BUILDING SHELL
Schedule C-2 to Workletter TENANT IMPROVEMENTS DESCRIPTION AND COST ALLOCATIONS
Schedule C-2 to Workletter TENANT IMPROVEMENTS
EXHIBIT D ESTIMATED CONSTRUCTION SCHEDULES
EXHIBIT E ACKNOWLEDGMENT OF RENT COMMENCEMENT DATE

EX-21.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 21.1

LIST OF SUBSIDIARIES

1.

Amplicon Corporation, a Delaware corporation

2.

Tularik Pharmaceutical Company, a Delaware corporation

3.

Tularik GmbH, a German corporation

4.

Tularik Limited, a United Kingdom corporation

5.

Cumbre Inc., a Delaware corporation

QuickLinks

Exhibit 21.1

LIST OF SUBSIDIARIES

EX-23.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

        We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-59500, 333-95605 and 333-30384) pertaining to the 1991 Equity Incentive Plan, the 1997 Equity Incentive Plan, the 1997 Non-Employee Directors' Stock Option Plan, the Amplicon Corp. Stock Option Plan, the Tularik Matching Plan and the 1999 Employee Stock Purchase Plan of Tularik Inc., and Form S-3 (Nos. 333-67366 and 333-65232) of our report dated February 4, 2002, with respect to the consolidated financial statements of Tularik Inc. included in its Annual Report (Form 10-K) for the year ended December 31, 2001.

/S/ ERNST & YOUNG LLP

Palo Alto, California
March 13, 2002

QuickLinks

Exhibit 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS