Arena Pharmaceuticals, Inc.
ARENA PHARMACEUTICALS INC (Form: 10-Q, Received: 08/10/2001 17:16:50)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q



/x/

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001

or

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

FOR THE TRANSITION PERIOD FROM                to               

COMMISSION FILE NUMBER 000-31161

ARENA PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
  23-2908305
(I.R.S. EMPLOYER
IDENTIFICATION NO.)

6166 Nancy Ridge Drive, San Diego, CA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

 

92121
(ZIP CODE)

(858) 453-7200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

    Yes /x/  No / /

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

COMMON STOCK, $0.0001 PAR VALUE

  27,558,788 SHARES
     
Class   Outstanding at July 31, 2001




ARENA PHARMACEUTICALS, INC.
INDEX

 
   
  PAGE NO.
    PART I. FINANCIAL INFORMATION    

Item 1.

 

Financial Statements

 

3
    Condensed Consolidated Balance Sheets—June 30, 2001 (unaudited) and
December 31, 2000
  3
    Condensed Consolidated Statements of Operations—Three and Six Month Periods Ended June 30, 2001 and 2000 (unaudited)   4
    Condensed Consolidated Statements of Cash Flows—Six Month Periods Ended
June 30, 2001 and 2000 (unaudited)
  5
    Notes to Condensed Unaudited Consolidated Financial Statements   6

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of
Operations

 

8

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

14

 

 

PART II. OTHER INFORMATION

 

15

Item 2.

 

Changes in Securities and Use of Proceeds

 

15

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

15

Item 6.

 

Exhibits and Reports on Form 8-K

 

16

Signatures

 

17

2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


Arena Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets

 
  June 30,
2001

  December 31,
2000

 
 
  (Unaudited)

   
 
ASSETS              
Current assets:              
  Cash and cash equivalents   $ 222,927,441   $ 144,413,176  
  Proceeds due from over-allotment exercise     19,545,000      
  Accounts receivable     2,581,250     2,116,146  
  Prepaid expenses     1,994,988     1,685,122  
   
 
 
    Total current assets     247,048,679     148,214,444  
Property and equipment, net     13,248,698     4,265,260  
Acquired technology and other intangibles, net     14,865,702      
Deposits and restricted cash     88,016     88,016  
Other assets     2,020,601     144,209  
   
 
 
Total assets   $ 277,271,696   $ 152,711,929  
   
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY              
Current liabilities:              
  Accounts payable and accrued expenses   $ 1,865,331   $ 915,540  
  Current portion of deferred revenues     640,863     220,000  
  Current portion of obligations under capital leases     506,704     480,538  
   
 
 
    Total current liabilities     3,012,898     1,616,078  
Deferred revenues, less current portion     508,831     485,000  
Capital lease obligations, less current portion     703,390     960,517  
Deferred rent payable     864,667     866,009  
Stockholders' equity:              
  Common stock     2,680     2,268  
  Common stock subscribed     19,545,000      
  Additional paid-in capital     281,240,425     177,373,030  
  Deferred compensation     (5,854,506 )   (7,899,970 )
  Accumulated deficit     (22,751,689 )   (20,691,003 )
   
 
 
Total stockholders' equity     272,181,910     148,784,325  
   
 
 
Total liabilities and stockholders' equity   $ 277,271,696   $ 152,711,929  
   
 
 

See accompanying notes to condensed consolidated financial statements.

3



Arena Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)

 
  Three months ended
June 30,

  Six months ended
June 30,

 
 
  2001
  2000
  2001
  2000
 
Revenues                          
  Total revenues   $ 3,330,255   $ 1,289,271   $ 8,722,590   $ 1,289,271  
Operating expenses                          
Research and development     5,241,523     2,681,629     9,144,864     5,080,987  
General and administrative     1,331,573     495,672     2,357,556     919,500  
Amortization of deferred compensation     1,072,731     1,419,565     2,341,397     1,829,044  
Amortization of acquired technology and
other intangibles
    384,249         512,332      
   
 
 
 
 
  Total operating expenses     8,030,076     4,596,866     14,356,149     7,829,531  
Interest income     1,486,322     465,939     3,448,065     623,400  
Interest expense     (30,478 )   (58,056 )   (70,737 )   (117,635 )
Other income     98,297     13,630     195,545     26,213  
   
 
 
 
 
Net loss     (3,145,680 )   (2,886,082 )   (2,060,686 )   (6,008,282 )
Non-cash preferred stock charge         (8,203,505 )       (22,391,068 )
   
 
 
 
 
Net loss applicable to common
stockholders
  $ (3,145,680 ) $ (11,089,587 ) $ (2,060,686 ) $ (28,399,350 )
   
 
 
 
 
Net loss per share, basic and diluted   $ (0.14 ) $ (8.47 ) $ (0.09 ) $ (23.70 )
   
 
 
 
 
Shares used in calculating net loss per
share, basic and diluted
    22,819,360     1,309,968     22,556,573     1,198,238  
   
 
 
 
 

See accompanying notes to condensed consolidated financial statements.

4



Arena Pharmaceuticals, Inc.
Condensed Consolidated Cash Flow Statements
(Unaudited)

 
  Six months ended June 30,
 
 
  2001
  2000
 
Operating Activities              
Net loss   $ (2,060,686 ) $ (6,008,282 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:              
  Depreciation and amortization     668,407     348,722  
  Amortization of acquired technology and other intangibles     512,332      
  Amortization of deferred compensation     2,341,397     1,829,044  
  Interest accrued on note payable to related party         35,863  
  Deferred rent     (1,342 )   22,638  
  Deferred revenues     14,659     973,854  
  Deferred financing costs         (768,309 )
  Changes in operating assets and liabilities:              
    Accounts receivable     (465,104 )    
    Prepaid expenses     (309,866 )   (102,436 )
    Accounts payable and accrued expenses     1,001,791     72,772  
   
 
 
Net cash provided by (used in) operating activities     1,701,588     (3,596,134 )
Investing Activities              
  Acquisition of Bunsen Rush     (15,000,000 )    
  Purchases of land, property and equipment     (9,651,845 )   (517,838 )
  Deposits, restricted cash and other assets     (1,876,392 )   90,882  
   
 
 
Net cash used in investing activities     (26,528,237 )   (426,956 )
Financing Activities              
  Advances under capital lease obligations         377,015  
  Principal payments under capital lease obligations     (230,961 )   (300,033 )
  Proceeds from warrants exercised         69,000  
  Proceeds from issuance of common stock     103,571,875     352,279  
  Proceeds from issuance of redeemable preferred stock         30,065,064  
   
 
 
Net cash provided by financing activities     103,340,914     30,563,325  
   
 
 
Net increase in cash and cash equivalents     78,514,265     26,540,235  
Cash and cash equivalents at beginning of period     144,413,176     5,401,508  
   
 
 
Cash and cash equivalents at end of period   $ 222,927,441   $ 31,941,743  
   
 
 

See accompanying notes to condensed consolidated financial statements.

5



NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

    The accompanying unaudited financial statements of Arena Pharmaceuticals, Inc. have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for a full year.

    The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the audited financial statements and footnotes thereto included in the Annual Report on Form 10-K, for the year ended December 31, 2000, as filed with the Securities and Exchange Commission ("SEC").

(2) Net Loss Per Share

    In accordance with SFAS No. 128, Earnings Per Share, and SEC Staff Accounting Bulletin (or "SAB") No. 98, basic net loss per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common and common equivalent shares outstanding during the period.

    Under the provisions of SAB No. 98, common shares issued for nominal consideration, if any, would be included in the per share calculations as if they were outstanding for all periods presented. No common shares have been issued for nominal consideration.

(3) Comprehensive Loss

    Comprehensive loss for all periods presented is the same as net loss.

(4) Deferred Stock Compensation

    During the six months ended June 30, 2001 and the year ended December 31, 2000, in connection with the grant of stock options to employees, the Company recorded deferred stock compensation totaling approximately $226,000 and $11.6 million, respectively, representing the difference between the exercise price and the estimated market value of the Company's common stock as determined by the Company's management, or quoted market value after July 28, 2000, on the date such stock options were granted. Deferred compensation is included as a reduction of stockholders' equity and is being amortized to expense over the vesting period of the options in accordance with FASB Interpretation No. 28, which permits an accelerated amortization methodology. During the six months ended June 30, 2001 and 2000, the Company recorded amortization of deferred compensation expense of approximately $2.3 million and $1.8, respectively. At June 30, 2001, total charges to be recognized in future periods from amortization of deferred stock compensation are anticipated to be approximately $1.9 million, $2.7 million, $1.1 million, and $119,000 for the remaining six months of 2001, and for the years ending December 31, 2002, 2003 and 2004, respectively.

6


(5) Non-cash Preferred Stock Charge

    In January 2000, March 2000 and April 2000 the Company sold Shares of Series E Convertible Redeemable Preferred Stock, Series F Convertible Redeemable Preferred Stock and Series G Convertible Redeemable Preferred Stock, respectively, at what management believed was fair value. Subsequent to the commencement of the initial public offering process, the Company re-evaluated the fair value of its common stock as of January 2000, March 2000 and April 2000 and determined it to be $4.68, $13.50 and $13.50, respectively. The Company recorded a non-cash preferred stock charge in the amount of approximately $22.4 million in the six months ended June 30, 2000. The Company recorded the charge at the date of issuance by offsetting charges and credits to preferred stock, without any effect on stockholders' equity. The non-cash preferred stock charge increases the loss applicable to common stockholders in the calculation of basic net loss per share for the three and six months ended June 30, 2000.

(6) Initial Public Offering of Common Stock

    On July 28, 2000 the Company completed an initial public offering in which it sold 6,000,000 shares of common stock at $18.00 per share for net proceeds of approximately $98.8 million, net of underwriting discounts, commissions and offering expenses. Upon the closing of the offering, all of the Company's redeemable convertible preferred stock converted into 12,698,578 shares of common stock.

    On August 10, 2000 the underwriters exercised an over-allotment option to purchase an additional 900,000 shares resulting in net proceeds to the Company of approximately $15.1 million.

(7) Follow-on Offering of Common Stock

    On June 21, 2001 the Company completed a follow-on offering in which it sold 4,000,000 shares of common stock at $27.50 per share for net proceeds of approximately $103.5 million, net of underwriting discounts, commissions and offering expenses.

    On June 27, 2001 the underwriters exercised an over-allotment option to purchase an additional 750,000 shares resulting in net proceeds to the Company of approximately $19.5 million. The net proceeds were received by the Company on July 2, 2001.

(8) Acquisition

    On February 15, 2001 the Company completed the acquisition of Bunsen Rush Laboratories, Inc. ("Bunsen Rush") for cash of $15.0 million. The net assets, revenues and operations of Bunsen Rush were not material to the Company. Substantially all of the purchase price has been assigned to acquired technology and other intangibles, which are being amortized over 10 years. Had the acquisition been completed on January 1, 2000 or 2001, the Company's pro forma revenues for the periods reported on this Form 10-Q would not have been materially different than as reported herein, and net loss and net loss per share would have been impacted by the amortization of intangible assets described previously and the reduction of interest income as a result of the use of cash to effect the acquisition.

(9) New Accounting Pronouncements

    In June 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives.

    The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. The Company has not yet determined what impact SFAS No. 141 and No. 142 will have on the results of operations and financial position of the Company.

7


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     This discussion and analysis should be read in conjunction with our financial statements and accompanying notes included in this report and the financial statements and notes thereto for the year ended December 31, 2000 included in the Company's Annual Report on Form 10-K, which was filed with the SEC. Operating results are not necessarily indicative of results that may occur in future periods.

     Certain statements contained in this Form 10-Q, other securities filings, press releases, interviews, our web-site ( www.arenapharm.com ) and other public statements that are not historical facts, including those statements that refer to our plans, prospects, expectations, strategies, intentions, hopes and beliefs, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You should not place undue reliance on these forward-looking statements. These statements involve risks, uncertainties and other factors, including those described below and elsewhere in this Form 10-Q, that may cause our actual results or timing of events to differ materially from any expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," or the negative of these terms or other comparable terminology. Examples of such forward-looking statements include, but are not limited to, statements about our plans and objectives during the remainder of 2001 and beyond, and our plans and objectives generally, statements about our expected receipts of revenues from our collaborations, and our collaborations generally, statements about our future operating losses and anticipated operating and capital expenditures, statements about increases in our research and development expenses, statements about future non-cash charges related to option grants to our employees, statements about the sufficiency of our cash on hand and the net proceeds from our initial public offering and recent follow-on offering to fund our operations for the next two years, statements about anticipated hiring, and statements about the effect of changes in interest rates on our business and financial results. Factors that might cause such a difference include, but are not limited to, those discussed elsewhere in this document and those discussed in "Risk Factors" in our registration statement filed June 21, 2001 on Form S-1, as amended, and in our Annual Report on Form 10-K. We assume no obligation to update these forward-looking statements as circumstances change in the future.

     We were incorporated on April 14, 1997 in the state of Delaware and commenced operations in July 1997. We are an emerging biopharmaceutical company focused principally on discovering drugs that act on an important class of drug targets called G protein-coupled receptors, or GPCRs. We have developed a technology called Constitutively Activated Receptor Technology, or CART, that can be applied to GPCRs and other classes of receptors to identify drug leads. We believe that CART is a more efficient drug discovery technique than traditional drug discovery techniques. Using CART, we have discovered new drug leads in the areas of obesity and schizophrenia. In both of these programs, drug leads were discovered within 18 months, which is substantially less time than might be required to discover a drug lead using traditional drug discovery techniques.

     In January 2001, we purchased a facility we were leasing along with an adjoining building that is currently leased to a tenant at 6138-6150 Nancy Ridge Drive in San Diego, California. We paid cash of $5.4 million and will amortize the building cost over the building's useful life, estimated to be 20 years. We assumed the lease with the tenant, and the term of the lease with the tenant expires on August 31, 2001. The tenant has paid all rents through the expiration of the lease.

     In January 2001, we signed an amendment expanding our original May 2000 agreement with Taisho Pharmaceutical Co., Ltd. ("Taisho") whereby Taisho was granted world-wide rights to our 18-F Program, an obesity orphan receptor target and small molecule modulators. In accordance with the amendment, Taisho made a one-time payment in the first quarter of 2001 to us for the 18-F Program based upon work already completed by the Company. In addition, we may receive additional milestone and research funding payments and royalties on drug sales, if any.

     In February 2001, for $15.0 million in cash we acquired, through our wholly-owned subsidiary, BRL Screening, Inc., all of the outstanding capital stock of Bunsen Rush, a privately-held research-based company that provides receptor screening for the pharmaceutical and biotechnology industries using its proprietary and patented Melanophore Technology. Melanophore Technology is a function-based screening technology used to identify compounds that interact with cell surface receptors, including known and orphan GPCRs and tyrosine kinase receptors, or TKRs. The functional nature of Melanophore Technology eliminates the need for radioactive or fluorescent screening techniques and provides a simple and sensitive means to detect cellular signals generated by activated GPCRs.

8


     In April 2001, we signed a binding letter of intent with Axiom Biotechnologies, Inc. ("Axiom") for a collaborative research program involving Axiom's proprietary RHACE™ Technology and Human Cell Bank, as well as the purchase by us of $2.0 million of Axiom's preferred stock. Axiom's unique assets include the Axiom Human Cell Bank, a large pharmacologically and genetically characterized collection of human cells. We have already initiated the scientific collaboration, and expect to complete the purchase of Axiom's stock in August 2001. Under the scientific collaboration, we will jointly develop and share information related to the localization of known GPCRs within human cell lines owned by Axiom. Axiom will also profile several thousand of our small molecule compounds using its technologies and we will have exclusive rights to these data. We will exclusively own the information related to the localization of orphan GPCRs within these cell lines.

     In June 2001, we entered into a letter of intent to purchase property located at 6145 Nancy Ridge Drive for approximately $5.1 million. The building located on the property totals approximately 48,000 square feet of space suitable for office and laboratory expansion. We intend to complete this purchase by August 2001, and expect to occupy the building in 2002.

     In June 2001, we entered into an agreement with ICI Group ("ICI") to apply our CART technology to olfactory and gustatory GPCRs. The initial stage of research provided for under the agreement will last approximately six months. We intend to use our CART technology to develop olfactory and/or gustatory GPCR assays for ICI and then screen using compounds supplied by ICI businesses.

     In June 2001, we signed an agreement with TaiGen Biotechnology Co., Ltd. ("TaiGen"), a start-up biopharmaceutical organization focused on the discovery and development of innovative therapeutics, which became effective in July 2001. In exchange for equity in TaiGen's series A preferred financing, TaiGen has the right to select and obtain several GPCRs from us. We will activate, develop a screening assay and transfer selected activated receptors to TaiGen. We will not initially receive cash payments from TaiGen, however, we may receive cash royalty payments based on annual TaiGen licensing revenue derived from sales of drugs discovered using our screening assays. We expect to recognize revenue, in the form of equity participation, upon completion of our performance obligations and transfer of selected receptor screens to TaiGen. We also expect to account for our ownership interest using the equity method of accounting.

     Since our inception, we have devoted substantially all of our resources to the research and development of CART. We have incurred significant operating losses since our inception and, as of June 30, 2001, we had an accumulated deficit of $22.8 million. Our prospects should be considered in light of the risks, expenses and difficulties encountered by companies in the early stages of development, particularly those companies in the rapidly changing pharmaceutical and biotechnology industries.

     We plan to pursue several specific objectives during the remainder of 2001, namely:

    establishing additional collaborations with pharmaceutical and biotechnology companies

    expanding the number of receptors available for activation by CART through internal research efforts and, potentially, external licensing agreements

    increasing our internally funded drug discovery efforts, including expansion of our chemistry and screening efforts

    pursue these and other objectives as part of Project Genesis, a recently initiated internal drug discovery program described below.

    Project Genesis

     We have recently initiated Project Genesis, an internal drug discovery program using a combination of CART, Melanophore Technology and other technologies that we believe will allow us to discover a substantial number of unique small molecule drug leads and drug candidates. With the recent completion of the sequencing of the human genome, we view Project Genesis as a logical extension of our scientific and business capabilities. Indeed, to the extent that the human genome project has identified all of the genes within humans, we believe that Project Genesis will allow us to discover new drug leads at all of the estimated 800 therapeutically relevant GPCRs.

9


    Project Genesis is comprised of the following specific components:

    Acquiring all of the estimated 800 therapeutically relevant GPCRs. We expect to acquire these GPCRs through our own internal research efforts as well as from outside sources. To date, we have secured more than half of the estimated 800 therapeutically relevant GPCRs through our own research efforts. We expect to complete this portion of Project Genesis by the end of 2001.

    Determining the location and relative expression levels of GPCRs. An outside vendor is creating customized GPCR probe microarrays for us using our proprietary sequence information. We intend to use these probe microarrays to determine the location of GPCRs and their relative expression levels in normal and diseased tissues. This will allow us to prioritize GPCRs of therapeutic interest for drug discovery screening.

    Preparing the GPCRs for screening. We will build a library of full-length GPCRs that we will CART-activate and clone in preparation for expression and high throughput screening.

    Screening the CART-activated GPCRs. We will use Melanophore Technology and other techniques to screen all of the GPCRs that demonstrate CART-activation using our library of chemical compounds to identify potential drug leads.

    Identifying potential drug candidates. We will use medicinal chemistry to develop drug candidates for animal testing and potential clinical development.

     We may enter into collaborative arrangements at any stage of Project Genesis with respect to any CART-activated receptor, drug leads or drug candidates that we discover.

     Our ability to achieve our identified goals or objectives is dependent upon many factors, some of which are out of our control and we may not achieve our identified goals or objectives.

     Our quarterly operating results will depend upon many factors, including the expiration or termination of research contracts with our collaborators, the size of future collaborations, the success rate of our technology collaborations leading to milestones and royalties, and general and industry-specific economic conditions which may affect research and development expenditures. As a consequence, our revenues in future periods are likely to fluctuate significantly from period to period.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2001 AND 2000

Revenues

     Revenues for the quarter ended June 30, 2001 increased $2.0 million, or 158%, to $3.3 million compared to $1.3 million for the same quarter last year. The increase was primarily attributable to collaborations with Eli Lilly and Taisho, both significant customers, which included research funding, milestone payments, and technology access and development fees. Research funding is recognized as revenue when the services are rendered. Revenues from technology access and development fees are recognized over the term of the collaboration. Revenues from milestone payments are recognized when the milestone is achieved. Our collaborators often pay us before we recognize the revenue and these payments are deferred until earned. As of June 30, 2001 we had current and long-term deferred revenues totaling approximately $1.1 million.

Research and Development

     Research and development expenses increased $2.5 million, or 95%, to $5.2 million for the quarter ended June 30, 2001 from $2.7 million for the same quarter last year. The increase was primarily due to an increase in wages and benefits due to an increase in scientific personnel, along with an increase in lab supplies and equipment costs to support the personnel in order to expand the application of our technology. As of June 30, 2001, all research and development costs have been expensed as incurred. We believe that continued investment in research and development is critical to attaining our strategic objectives and we expect these expenses to continue to increase in the near and long-term.

General and Administrative

     General and administrative expenses increased $836,000 to $1.3 million for the quarter ended June 30, 2001 from $496,000 for the quarter ended June 30, 2000. The increase was a result of increased personnel added to support a growing company as well as supporting the needs of a public company. General and administrative expenses consist primarily of salaries and related personnel expenses for executive, finance and administrative personnel, professional fees, and other general corporate expenses. We expect that our general and administrative expenses will continue to increase to support our growth and requirements as a public company.

10


Non-Cash Stock-Based Compensation Charges

    Deferred compensation for options granted to employees has been determined as the difference between the exercise price and the fair value of our common stock, as estimated by us, or quoted market value after July 28, 2000, for financial reporting purposes, on the date options were granted. Deferred compensation for options granted to consultants was determined in accordance with Statement of Financial Accounting Standards No. 123 as the fair value of the equity instruments issued and is periodically remeasured as the underlying options vest in accordance with EITF 96-18.

    For the quarter ended June 30, 2001, we recorded amortization of deferred compensation of approximately $1.1 million, compared to $1.4 million for the quarter ended June 30, 2000.

Interest Income

    Interest income increased $1.0 million to approximately $1.5 million for the quarter ended June 30, 2001 from $466,000 for the same quarter last year, due to higher average cash balances primarily related to our Initial Public Offering in July 2000 through which we raised gross cash proceeds of $124.2 million.

Interest Expense

    Interest expense decreased $28,000 to $30,000 for the quarter ended June 30, 2001 from $58,000 for the same quarter last year. This decrease was due to a convertible note to a related party that was converted into common stock in July of 2000.

Other Income

    Other income increased approximately $84,000 to $98,000 for the quarter ended June 30, 2001 from $14,000 for the quarter ended June 30, 2000. This increase was due primarily to rental income earned in 2001 related to a tenant's lease we assumed when we acquired the 6138-6150 facility in January 2001.

SIX MONTHS ENDED JUNE 30, 2001 AND 2000

Revenues

    Revenues for the six months ended June 30, 2001 increased $7.4 million, or 577%, to $8.7 million compared to $1.3 million for the same period last year. The revenues for the six months ended June 30, 2001 were primarily attributable to our collaborations with Eli Lilly and Taisho, both significant customers, which included research funding, milestone payments, and technology access and development fees. Research funding is recognized as revenue when the services are rendered. Revenues from technology access and development fees are recognized over the term of the collaboration. Revenues from milestone payments are recognized when the milestone is achieved. Our collaborators often pay us before we recognize the revenue and these payments are deferred until earned. As of June 30, 2001 we had current and long-term deferred revenues totaling approximately $1.1 million.

Research and Development

    Research and development expenses increased $4.0 million, or 80%, to $9.1 million for the six months ended June 30, 2001 from $5.1 million for the same period last year. The increase was due primarily to an increase in wages and benefits due to an increase in scientific personnel, along with an increase in lab supplies and equipment costs to support the personnel in order to expand the application of our technology. As of June 30, 2001, all research and development costs have been expensed as incurred. We believe that continued investment in research and development is critical to attaining our strategic objectives and we expect these expenses to continue to increase in the near and long-term.

General and Administrative

    General and administrative expenses increased $1.4 million to approximately $2.3 million for the six months ended June 30, 2001 from $920,000 for the six months ended June 30, 2000. The increase was a result of increased personnel added to support a growing company as well as supporting the needs of a public company. General and administrative expenses consist primarily of salaries and related personnel expenses for executive, finance and administrative personnel, professional fees, and other general corporate expenses. We expect that our general and administrative expenses will continue to increase to support our growth and requirements as a public company.

11


Non-Cash Stock-Based Compensation Charges

    Deferred compensation for options granted to employees has been determined as the difference between the exercise price and the fair value of our common stock, as estimated by us, or quoted market value after July 28, 2000, for financial reporting purposes, on the date options were granted. Deferred compensation for options granted to consultants was determined in accordance with Statement of Financial Accounting Standards No. 123 as the fair value of the equity instruments issued and is periodically remeasured as the underlying options vest in accordance with EITF 96-18.

    For the six months ended June 30, 2001, we recorded amortization of deferred compensation of approximately $2.3 million, compared to $1.8 million for the six months ended June 30, 2000.

Interest Income

    Interest income increased $2.8 million to $3.4 million for the six months ended June 30, 2001 from $623,000 for the same period last year, due to higher average cash balances primarily related to our Initial Public Offering in July 2000 through which we raised gross cash proceeds of $124.2 million.

Interest Expense

    Interest expense decreased $47,000 to $71,000 for the six months ended June 30, 2001 from $118,000 for the same period last year. This decrease was due to a convertible note to a related party that was converted into common stock in July of 2000.

Other Income

    Other income increased $169,000 to $195,000 for the six months ended June 30, 2001 from $26,000 for the same period last year. This increase was due primarily to the rental income we earned in 2001 related to a tenant's lease we assumed when we acquired the 6138-6150 facility in January 2001.

LIQUIDITY AND CAPITAL RESOURCES

    At June 30, 2001, we had an accumulated deficit of $22.8 million. Our accumulated deficit is the result of expenses incurred in connection with our research and development activities and general and administrative expenses. To date, we have funded our operations primarily through public and private equity financings and to a lesser extent, through funding from our collaborators.

    As of June 30, 2001, we had $222.9 million in cash and cash equivalents compared to $144.4 million in cash and cash equivalents as of December 31, 2000. The increase of $78.5 million is primarily attributable to net proceeds of $103.5 million from our follow-on offering that was completed in June 2001 and cash provided by operations of $1.7 million. This increase was partially offset by our acquisition of Bunsen Rush for $15.0 million in cash in February 2001, the purchase of our facility for $5.4 million in cash in January 2001, lab and equipment purchases totaling $4.3 million and our payment of $2.0 million in connection with our letter of intent with Axiom in April 2001.

    Net cash provided by operating activities was approximately $1.7 million during the six months ended June 30, 2001 compared to net cash used in operating activities of approximately $3.6 million during the same period last year. The primary source of cash in the first six months of 2001 was related to non-cash expenses, including amortization of deferred compensation and amortization of acquired technology and other intangibles, which resulted in positive cash flows from operations despite the net loss, and changes in operating assets and liabilities. The primary use of cash in the first six months of 2000 was to fund our net losses for the period and changes in operating assets and liabilities.

    Net cash used in investing activities was approximately $26.5 million during the six months ended June 30, 2001 compared with approximately $427,000 during the same period last year. Net cash used in investing activities in first six months of 2001 was primarily the result of the acquisition of Bunsen Rush, our facility purchase, the acquisition of laboratory and computer equipment, leasehold improvements and furniture and fixtures and our payment to Axiom. Net cash used in investing activities in the first six months of 2000 was primarily the result of the acquisition of laboratory and computer equipment, leasehold improvements and furniture and fixtures.

12


    Net cash provided by financing activities was approximately $103.3 million during the six months ended June 30, 2001 compared with approximately $30.6 million during the same period last year. Net cash provided by financing activities for the first six months of 2001 was primarily attributable to proceeds received from the issuance of our common stock from our follow-on offering that was completed in June 2001, partially offset by principal payments on our capital leases. The net cash provided by financing activities for the same period last year was primarily from proceeds received from the issuance of our preferred and common stock.

    We lease a corporate and research and development facility under a lease which expires on April 31, 2013. The lease provides us with options to extend for two additional five-year periods. We have also entered into capital lease agreements for various lab and office equipment. The terms of these capital lease agreements range from 48 to 60 months. At December 31, 2000 current total minimum annual payments under these capital leases were approximately $614,000 in 2001, $614,000 in 2002, $480,000 in 2003 and $45,000 in 2004.

    In January 2001, we purchased a facility we were previously leasing as well as the adjoining building at 6138-6150 Nancy Ridge Drive in San Diego for cash of $5.4 million. Of the 52,000 square foot facility, 26,000 square feet is leased to a tenant until August 2001. In June 2001, we entered into a letter of intent to purchase property located at 6154 Nancy Ridge Drive for approximately $5.1 million. The building located on the property totals approximately 48,000 square feet of space suitable for office and laboratory expansion. We intend to complete this purchase by August 2001 and expect to occupy the building in 2002.

    In February 2001, the Company, through our wholly-owned subsidiary BRL Screening, Inc., acquired all of the outstanding capital stock of Bunsen Rush, a privately-held research-based company, for cash of $15.0 million.

    In April 2001, we entered into a binding letter of intent with Axiom Biotechnologies, Inc. Under the terms of the letter of intent, we will identify the location and expression of GPCRs contained in Axiom's human cell lines. In addition, we have paid $2.0 million to Axiom in connection with the letter of intent which provides that we will purchase approximately 570,000 shares of Axiom's preferred stock.

    In June 2001, we completed a follow-on offering in which we sold 4,000,000 shares of common stock at $27.50 per share for net proceeds of approximately $103.5 million, net of underwriting discounts, commissions and offering expenses. In the same month the underwriters exercised an over-allotment option to purchase an additional 750,000 shares resulting in net proceeds to the Company of approximately $19.5 million. The net proceeds from the over-allotment were received by the Company on July 2, 2001.

    Our ability to achieve profitability will be dependent upon, among other things, obtaining additional strategic alliances as well as establishing additional collaborative or licensing arrangements.

    Based on the research collaborations we already have in place and our current internal business plan, we expect to hire an additional 30 to 50 employees, primarily scientists, by the end of 2001. While we believe that our current capital resources and anticipated cash flows from collaborations will be sufficient to meet our capital requirements for at least the next two years, we cannot assure you that we will not require additional financing before such time. Our funding requirements may change at any time due to technological advances or competition from other companies. Our future capital requirements will also depend on numerous other factors, including scientific progress in our research and development programs, additional personnel costs, progress in pre-clinical testing, the time and cost related to proposed regulatory approvals, if any, and the costs of filing and prosecution of patent applications and enforcing patent claims. We cannot assure you that adequate funding will be available to us or, if available, that such funding will be available on acceptable terms. Any shortfall in funding could result in the curtailment of our research and development efforts.

INCOME TAXES

    As of December 31, 2000, we had approximately $12.2 million of net operating loss carryforwards and $1.6 million of research and development tax credit carryforwards for federal income tax purposes. These carryforwards expire on various dates beginning in 2012. These amounts reflect different treatment of expenses for tax reporting than are used for financial reporting. United States tax law contains provisions that may limit our ability to use net operating loss and tax credit carryforwards in any year, or if there has been a significant ownership change. Any future significant ownership change may limit the use of our net operating loss and tax credit carryforwards.

13


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Our exposure to market risk for changes in interest rates relates primarily to our cash equivalents and short-term investments. We do not use derivative financial instruments in our investment portfolio. Our cash and investment policy emphasizes liquidity and preservation of principal over other portfolio considerations. We select investments that maximize interest income to the extent possible within these guidelines. If market interest rates were to decrease by 1% from June 30, 2001, we would expect future interest income from our portfolio to decline by less than $2.2 million over the next 12 months. 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 earned interest.

14


PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

    On July 28, 2000 we completed our initial public offering of 6,000,000 shares of our common stock and on August 10, 2000 the underwriters exercised an over-allotment option for an additional 900,000 shares of our common stock. The shares of common stock sold in the offering were registered under the Securities Act of 1933 in a Registration Statement on Form S-1, as amended (No. 333-35944). The Securities and Exchange Commission declared the Registration Statement effective on July 27, 2000.

    Our total net proceeds from the initial public offering were approximately $113.9 million. Of the net proceeds, through June 30, 2001, we have used approximately $5.4 million to acquire facilities at 6138-6150 Nancy Ridge Drive in San Diego, California, $15.0 million to acquire all of the outstanding stock of Bunsen Rush, $2.0 million in connection with the terms of our letter of intent with Axiom and $4.3 million for lab, equipment and furniture purchases and leasehold improvements. The balance of the net proceeds remains in working capital, held as temporary investments in short-term money funds.

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

    The annual meeting of the stockholders of Arena Pharmaceuticals, Inc. was held on May 8, 2001 for the purpose of (i) electing six (6) Directors to hold office until the next annual meeting of stockholders, (ii) ratifying the appointment of independent auditors, and (iii) voting on one (1) other proposal described below. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there was no solicitation in opposition to management's Director nominees. All of the management's Director nominees as listed in the proxy statement dated March 29, 2001 (the "Proxy Statement") were elected. The votes cast by proxy or in person with respect to the election of Directors, as determined by the final report of the inspectors are set forth below. There were no broker non-votes with respect to any Director nominee.

Director Nominee

  "FOR"
  "WITHHELD"
Jack Lief   13,023,857   423,600
Dominic P. Behan, Ph.D.   13,445,302   2,155
Derek T. Chalmers, Ph.D.   13,445,302   2,155
John P. McAlister, III, Ph.D.   13,445,302   2,155
Michael Steinmetz, Ph.D.   13,442,802   4,655
Stephan Ryser, Ph.D.   13,445,302   2,155

Ratification of Auditors

    Stockholders ratified the selection of Ernst & Young LLP as the Company's independent auditors for the fiscal year ending December 31, 2001. The votes for the ratification of the selection of the independent auditors were as follows:

"FOR"
  "AGAINST"
  "ABSTAIN"
  "BROKER NON-VOTES"
13,428,015   18,090   1,352   0

2001 Arena Employee Stock Purchase Plan

    Stockholders also approved the 2001 Arena Employee Stock Purchase Plan with 1,000,000 shares of Common Stock reserved for issuance thereunder described in the Proxy Statement. The votes for the approval of said Plan were as follows:

"FOR"
  "AGAINST"
  "ABSTAIN"
  "BROKER NON-VOTES"
13,374,168   68,014   5,275   0

15


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)
Exhibits
 
   
   
         
    10.19*   Agreement, executed June 29, 2001 by and between Arena Pharmaceuticals, Inc. and TaiGen Biotechnology Co., Ltd.

 

 

10.20*

 

Agreement, effective June 15, 2001 by and between Imperial Chemical Industries PLC and Arena Pharmaceuticals, Inc.

*
Confidential treatment has been requested for portions of this document.

(b)
Reports on Form 8-K

    On April 30, 2001, the Company filed a current report on Form 8-K under item 5 announcing that on April 25, 2001 the Company and Axiom Biotechnologies, Inc., a privately-held California corporation, had signed a Binding Letter of Intent & Memorarandum of Agreement ("Agreement") for the purchase of $2,000,000 of Preferred Stock of Axiom. In addition, the Agreement provides for the parties to enter into a collaborative research program involving Axiom's proprietary RHASE™ Technology and Human Cell Bank.

16



SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

    ARENA PHARMACEUTICALS, INC.

Dated: August 10, 2001

 

By:

 

/s/ 
JACK LIEF    
Name: Jack Lief
Title:  President and Chief Executive Officer

 

 

By:

 

/s/ 
ROBERT HOFFMAN    
Name: Robert Hoffman
Title:  Vice President, Finance, Chief Accounting Officer

17



EXHIBIT INDEX

Exhibit Number

  Description
10.19*   Agreement, executed June 29, 2001 by and between Arena Pharmaceuticals, Inc. and TaiGen Biotechnology Co., Ltd.
10.20*   Agreement, effective June 15, 2001 by and between Imperial Chemical Industries PLC and Arena Pharmaceuticals, Inc.

*
Confidential treatment has been requested for portions of this document.

18




QuickLinks

ARENA PHARMACEUTICALS, INC. INDEX
Arena Pharmaceuticals, Inc. Condensed Consolidated Balance Sheets
Arena Pharmaceuticals, Inc. Condensed Consolidated Statements of Operations (Unaudited)
Arena Pharmaceuticals, Inc. Condensed Consolidated Cash Flow Statements (Unaudited)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SIGNATURES
EXHIBIT INDEX

EXHIBIT 10.19
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
FOR THE PORTIONS MARKED [***]

AGREEMENT BY AND BETWEEN
ARENA PHARMACEUTICALS, INC.
AND
TAIGEN BIOTECHNOLOGY CO., LTD.

TABLE OF CONTENTS
Page

Article I.        Definitions                                               1
Article II.       GPCR Selection By TaiGen                                  6
Article III.      Arena Activities                                         10
Article IV.       TaiGen Activities                                        11
Article V.        License Grant                                            13
Article VI.       Warranties                                               15
Article VII.      Diligence Is Of The Essence                              16
Article VIII.     TaiGen Royalty Payments                                  17
Article IX.       Arena Royalty Payments                                   18
Article X.        Payment Arrangement                                      19
Article XI.       Confidentiality                                          19
Article XII.      Patent Infringement And Enforcement                      20
Article XIII.     Representations                                          21
Article XIV.      Indemnity                                                22
Article XV.       Termination and Duration                                 22
Article XVI.      Relationship of the Parties                              23
Article XVII.     Miscellaneous Provisions                                 23
Signature Blocks                                                           27
Appendix A        TaiGen Selected GPCRs
Appendix B        Arena Patent Rights

--PLEASE NOTE--
Provisions Within This Agreement Are Deemed "CONFIDENTIAL"
in Accordance With The Terms of Article XI.

Reviewers are advised to confirm with their attorney as to any obligations and/or requirements regarding review of this Agreement.

COVER PAGE


AGREEMENT

This Agreement ("Agreement") is effective as defined below by and between ARENA PHARMACEUTICALS, INC., a Delaware corporation having a place of business at 6166 Nancy Ridge Drive, San Diego, California, 92121 USA ("Arena"), and TAIGEN BIOTECHNOLOGY CO., LTD., a corporation incorporated as a company limited by shares in accordance with the Company law of the Republic of China ("TaiGen").

WHEREAS, TaiGen is a start-up biopharmaceutical organization focused on the discovery and development of innovative therapeutics;

WHEREAS, Arena is a publicly traded biopharmaceutical organization (Nasdaq:
ARNA) focused on the discovery and development of innovative therapeutics;

WHEREAS, Arena and TaiGen each desires to enter into this Agreement on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, Arena and TaiGen hereby agree as follows:

ARTICLE I

DEFINITIONS

Unless otherwise specifically provided herein, the following terms shall have the following meanings:

"ACTIVE CAPITAL" means Active Capital Limited, a Cayman Islands company, or its successor.

"AFFILIATE" when used with reference to a specified person or entity, means any person or entity directly or indirectly controlling, controlled by or under common control with the specified person or entity, while "control" in this context means the direct or indirect ownership of at least 50% of the outstanding voting securities of a person or entity. For purposes of this Agreement, the definition of "TaiGen Affiliate" shall include Active Capital. For purposes of this Agreement, the definition of "Arena Affiliate" shall specifically exclude: (1) ChemNavigator.com, Inc.; (2) Aressa Pharmaceuticals, Inc.; and (3) BRL Screening, Inc.

"ANNUAL" means the period between January 1 and December 31, inclusive.

"ARENA ACTIVATION TECHNOLOGY" means an Arena proprietary approach, referred to by Arena as "CART Technology", to identifying, selecting and altering a region(s) of a G Protein Coupled Receptor that, when altered, leads to or enhances ligand-independent constitutive activation of the altered receptor.

"ARENA EXCLUDED GPCR" means any GPCR that (1)[***************************** **********************************************];

1

CONFIDENTIAL


(2) [**************************************************************]; or (3)
[*********************************************************************
*************].

"ARENA GPCR" means any GPCR in the possession of Arena during the Term of this

Agreement, BUT NOT INCLUDING any Arena Excluded GPCR.

"ARENA GPCR INFORMATION" means, when and if available, human tissue and cell line gene expression data and protein sequence Phylogenetic Information for Arena GPCRs.

"ARENA LICENSING REVENUE" means all financial consideration received by Arena from a Third Party for the licensing by Arena to such Third Party of a CART Identified Compound,[******************************************************** ********************************************************************].

"ARENA PATENT RIGHTS" means all present and/or future patents (including inventor's certificates) and all present and/or future applications (including provisional applications) therefore throughout the world as the case may be, and substitutions, extensions, reissues, renewals, divisions, continuations, or continuation-in-part thereof or therefore, owned or controlled (either fully or partially) by Arena, or under which Arena may grant licenses or sublicenses, to the extent they are directed to (1) Arena Activation Technology applied to TaiGen Selected GPCR(s) and/or (2) TaiGen Activated Receptor(s) and/or (3) Screening Assay(s).

"BEST REASONABLE COMMERCIAL EFFORTS" means efforts to achieve a designated objective, which efforts are based upon reasonably prudent business factors and considerations.

"CART IDENTIFIED COMPOUND(S)" means a compound, and/or a Derivative of a CART Identified Compound, that has been identified as a modulator of a TaiGen Activated Receptor by TaiGen during the term of this Agreement or by Arena Screening.

"DERIVATIVE" of a first compound means a compound having the same core structure as the first compound that has been synthesized or conceived, and then subsequently reduced to practice by TaiGen during the term of this Agreement.

"DRUG PRODUCT" means a therapeutic product comprising a CART Identified Compound.

"DRUG PRODUCT REVENUE" means [************************************************ ****************************************************************************** ****************************************************************************** ****************************************************************************** ****************************************************************************** ****************************************************************************** ****************************************************************************** ******************************************************************************

2
CONFIDENTIAL

****************************************************************************** ****************************************************************************** ************************************************************].

"EFFECTIVE DATE" shall be the First Closing Date as defined in the Stock Purchase Agreement.

"ENDOGENOUS" means naturally occurring.

"FDA" means the United States Food and Drug Administration.

"G PROTEIN COUPLED RECEPTOR" and "GPCR" means an Endogenous cell-surface receptor defined by having three (3) intracellular loops, three (3) extracellular loops, an amino terminus and a carboxy terminus.

"IND" has the same meaning as set forth in 21 C.F.R. Section 312.20, including any and all amendments, modifications or changes as may be made thereto in the future, or the equivalent thereof in any applicable country within the Territory.

"INFORMATION" has the same meaning as set forth in Section 11.1 of this Agreement.

"INVESTORS' RIGHTS AGREEMENT" means the Investors' Rights Agreement entered into as of the date of the Stock Purchase Agreement among TaiGen, Arena and certain other parties.

"LIBRARY COMPOUNDS" means chemical compounds.

"MEASURED RESPONSE" when used in reference to the phrase "TaiGen Activated Receptor" means a signal measured based upon an assay end-point used to assess the signal.

"MIGRATE" as used in the definition of "Active Capital" has the same meaning as set forth in Section 6 of the Investors Rights Agreement.

"NOTICE" has the same meaning as set forth in Section 17.11 of this Agreement.

"PARTY" means either Arena or TaiGen, as the case may be; "Parties" means both Arena and TaiGen.

"PHASE 1 CLINICAL STUDY" has the same meaning as set forth in 21 C.F.R.
Section 312.21(a), including any and all amendments, modifications or changes thereto as may be made thereto in the future, or the equivalent thereof, in any applicable country within the Territory.

"PHASE 2 CLINICAL STUDY" has the same meaning as set forth in 21 C.F.R.
Section 312.21(b), including any and all amendments, modifications or changes thereto as may be made thereto in the future, or the equivalent thereof, in any applicable country within the Territory.

"PHASE 3 CLINICAL STUDY" has the same meaning as set forth in 21 C.F.R.
Section 312.21(c), including any and all amendments, modifications or changes thereto as may be made thereto in the future, or the equivalent thereof, in any applicable country within the Territory.

3
CONFIDENTIAL

"PHYLOGENETIC INFORMATION" means analysis of GPCRs for determination of GPCR subfamilies based upon protein sequence information.

"REGULATORY AGENCY" includes, but is not be limited to, FDA, or similar regulatory bodies in the Territory.

"SERIES A FINANCING ROUND" means the sale and/or distribution by TaiGen of
[***********************] of TaiGen's Series A preferred stock.

"SERIES B FINANCING ROUND" means the sale and/or distribution by TaiGen of at least [**********************] of TaiGen's preferred stock after and independent from the closing of the Series A Financing Round, and where the per share price of each share of such preferred stock sold in the Series B Financing Round is greater than the per share price of each share of Series A preferred stock sold in the Series A Financing Round.

"SCREENING" means the process of contacting a chemical compound with a TaiGen Activated Receptor.

"SCREENING ACTIVITIES" means the process of contacting a chemical compound with a GPCR.

"SCREENING ASSAY" means an Arena assay approach for Screening that has been validated based upon Successful Screening of a TaiGen Activated Receptor.

"SCREENING ASSAY NOTICE" has the same meaning as set forth in Section 3.2 of this Agreement.

"STOCK PURCHASE AGREEMENT" means the Series A Convertible Preferred Stock Purchase Agreement entered into as of _____ ___, 2001 among TaiGen, Arena and certain other parties.

"SUCCESSFUL SCREENING" when used in conjunction with the phrase "TaiGen Activated Receptor" means that the results of the Screening has been positive whereby at least one molecule that has been contacted with the TaiGen Activated Receptor reduces the Measured Response of the TaiGen Activated Receptor by at least [*********** **********] from the mean response of a screening plate that includes that compound.

"TAIGEN ACTIVATED RECEPTOR" means a TaiGen Selected GPCR to which the Arena Activation Technology has been applied.

"TAIGEN ACTIVATED RECEPTOR NOTICE" has the same meaning as set forth in Section 3.1 of this Agreement.

"TAIGEN LICENSING REVENUE" means all financial consideration received by TaiGen from a Third Party for the licensing by TaiGen to such Third Party of a CART Identified Compound,[**********************************************************

4
CONFIDENTIAL

******************************************************************************].

"TAIGEN SELECTED GPCR" has the same meaning as set forth in Section 2.1 of this Agreement.

"TAIGEN SELECTION REQUEST" means a Notice request by TaiGen for selection of an Arena GPCR.

"TECHNICAL INFORMATION" means all information, trade secrets, know-how, methods of manufacture, processes, documents and materials related to TaiGen Activated Receptor(s) and/or Screening Assay(s), and other proprietary information, whether patentable or unpatentable, related to TaiGen Activated Receptor(s) and/or Screening Assay(s), including but not limited to, improvements, that are owned, possessed by, or licensed to Arena, whether now existing or hereafter developed or acquired during the term of this Agreement.

"TECHNOLOGY" means Arena Patent Rights and Technical Information.

"TERM" has the same meaning as set forth in Section 15.2 of this Agreement.

"TERRITORY" means the world.

"THIRD PARTY" means any person or entity other than TaiGen and Arena.

[THE REST OF THIS PAGE IS INTENTIONALLY BLANK]

5
CONFIDENTIAL

ARTICLE II

GPCR SELECTION BY TAIGEN

2.1 Subject to the terms and conditions of this Agreement, within five (5) business days after the Effective Date, Arena shall provide TaiGen with Arena GPCR Information available at Arena as of the Effective Date and thereafter when available, every three (3) months after the Effective Date until the third anniversary of the Effective Date whereby TaiGen shall be entitled to select and obtain from Arena up to a maximum of [***] ([**]) Arena GPCRs for inclusion in this Agreement (each GPCR a "TaiGen Selected GPCR"), with the selection subject to the following:

(a) FIRST [****] ([**]) ARENA GPCRS.

(i) The selection by TaiGen of up to [***] ([**]) Arena GPCRs may begin after the Effective Date and must be completed prior to the second anniversary of the Effective Date.

(ii) Each Arena GPCR selected by TaiGen in accordance with this
Section 2.1(a) must be made by means of a TaiGen Selection Request, with the date of the TaiGen Selection Request being the date that the TaiGen Selection Request is received by Arena.

(iii) In the event that TaiGen selects a GPCR that, as of the date of a TaiGen Selection Request, is determined by Arena to be an Arena Excluded GPCR, Arena shall provide Notice to TaiGen within five business days after TaiGen Selection Request is received by Arena that the proposed Arena GPCR cannot be designated as a TaiGen Selected GPCR; in those circumstances where the GPCR that is the subject of a TaiGen Selection Request is not an Arena Excluded GPCR, then Arena shall provide Notice to TaiGen within five business days after TaiGen Selection Request is received by Arena indicating that such Arena GPCR may be designated as a TaiGen Selected GPCR and at that time, Arena shall provide to TaiGen the nucleic acid and protein sequence information for such TaiGen Selected GPCR.

(b) SECOND [*********] ([**]) ARENA GPCRS.

(i) The selection by TaiGen of up to an additional [*******] ([**]) Arena GPCRs is contingent upon all of the following: (1) completion of the Series A Financing Round on or before the second anniversary of the Effective Date; (2) the closing of the Series B Financing Round on or before the third anniversary of the Effective Date; and (3) securing a per share price for each share of TaiGen Series B Preferred Stock above the per share price of the TaiGen Series A Preferred Stock Price:

a) in the event that the Series A Financing Round is not closed by the second anniversary of the Effective Date, then this entire Section 2.1(b) of the Agreement shall be null and void;

6
CONFIDENTIAL

b) in the event that the Series A Financing Round is closed by the second anniversary of the Effective Date BUT the Series B Financing Round is not closed on or before the third anniversary of the Effective Date, then as the third anniversary of the Effective Date, this Section 2.1(b) of the Agreement shall be null and void and Arena shall have the unilateral right to request that TaiGen return any TaiGen Selected GPCR and related Technical Information secured by TaiGen under the provisions of Section 2.1(b)(i) and TaiGen warrants and represents that it shall be obligated to comply with such request within thirty (30) days thereof; in such event, the provisions of: (i)
Section 5.1 of this Agreement shall be null and void with respect to any TaiGen Selected GPCR(s) selected in accordance with the provisions of Section 2.1(b) of this Agreement, with all such rights automatically reverting back to Arena, and
(ii) Article IX shall not apply with respect to any TaiGen Selected GPCR(s) selected in accordance with the provisions of Section 2.1(b) of this Agreement.

c) In the event that the per share price of the TaiGen Series B Preferred Stock is:

1) [************************************************ ******************] then the entire Section 2.1(b) shall be null and void and Arena shall have the unilateral right to request that TaiGen return any TaiGen Selected GPCR and related Technical Information secured by TaiGen under the provisions of Section 2.1(b)(i) and TaiGen warrants and represents that it shall be obligated to comply with such request within thirty (30) days thereof; in such event, the provisions of: (i) Section 5.1 of this Agreement shall be null and void with respect to any TaiGen Selected GPCR(s) selected in accordance with the provisions of Section 2.1(b) of this Agreement, with all such rights automatically reverting back to Arena, and (ii) Article IX shall not apply with respect to any TaiGen Selected GPCR(s) selected in accordance with the provisions of Section 2.1(b) of this Agreement; OR

2) [************************************************* ******************************] (e.g., if the per share price of the TaiGen Series A Preferred Stock is [****], the per share price of the TaiGen Series B Preferred Stock must be at least [****] for the provisions of this Section 2.1(b)(i)(b)(2) to apply), the provisions of Section 2.1(b)(i) shall apply; OR

3) [************************************************* *********************************************************************], then the Parties shall meet to determine the number of additional Arena GPCRs that may be selected by TaiGen under Section 2.1(b) of this Agreement, with the proviso that such number shall be at least [***] ([**]) but less than [***] ([**]).

(ii) Contingent upon the provisions of Section 2.1(b)(i), the selection by TaiGen of up to [***********] ([**]) Arena GPCRs may begin after the consummation of the Migration and must be completed prior at or before the third anniversary of the Effective Date.

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(iii) Contingent upon the provisions of Section 2.1(b)(i), each Arena GPCR selected by TaiGen must be made by means of a TaiGen Selection Request, with the date of the TaiGen Selection Request being the date that the TaiGen Selection Request is received by Arena.

(iv) In the event that TaiGen selects a GPCR that, as of the date of a TaiGen Selection Request, is determined by Arena to be an Arena Excluded GPCR, Arena shall provide Notice to TaiGen within five business days after TaiGen Selection Request is received by Arena that the proposed Arena GPCR cannot be designated as a TaiGen Selected GPCR; in those circumstances where the GPCR that is the subject of a TaiGen Selection Request is not an Arena Excluded GPCR, then Arena shall provide Notice to TaiGen within five business days after TaiGen Selection Request is received by Arena, indicating that such Arena GPCR may be designated as a TaiGen Selected GPCR and at that time, Arena shall provide to TaiGen the nucleic acid and protein sequence information for such TaiGen Selected GPCR.

2.2 All TaiGen Selected GPCRs shall be attached hereto as APPENDIX A, which shall be updated when TaiGen has selected an Arena GPCR that is designated as a TaiGen Selected GPCR.

2.3 In consideration of the rights granted under Section 2.1(a), TaiGen shall provide Arena validly issued and recorded Series A Preferred Stock Certificates in the name of "Arena Pharmaceuticals, Inc." (including any and all documents related thereto for signature by Arena, including, but not limited to, the Stock Purchase Agreement and the Investors' Rights Agreement) for
[************] worth of Series A Preferred Stock in accordance with the terms of the Stock Purchase Agreement.

2.4 The consideration for the rights granted under Section 2.1(b) shall be based upon either Section 2.4(i) or Section 2.4(ii), but not both:

(i) In consideration of the rights granted under Section 2.1(b), and in the event that TaiGen has selected [******] ([**]) additional GPCRs that are designated as TaiGen Selected GPCRs, then at the closing of TaiGen's Series B Preferred Financing Round, TaiGen shall simultaneously provide Arena a validly issued and recorded Series B Preferred Stock Certificate in the name of "Arena Pharmaceuticals, Inc." (including any and all documents related thereto for signature by Arena, including, but not limited to, a Series B Preferred Stock purchasing agreement) in an amount sufficient to ensure that at the closing of TaiGen's Series B Financing Round, and on a fully diluted basis, the Series B Preferred Stock to be issued to Arena shall be equivalent to [********] percent ([**]%) of the Series B Financing Round.

(ii) In consideration of the rights granted under Section 2.1(b), and in the event that TaiGen has selected less than [******] ([**]) additional GPCRs that are designated as TaiGen Selected GPCRs, then at the closing of TaiGen's Series B Preferred Financing Round, TaiGen shall simultaneously provide Arena a validly issued and recorded Series B Preferred Stock Certificate in the name of "Arena Pharmaceuticals, Inc." (including any and all documents related thereto for signature by Arena, including,

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but not limited to, a Series B Preferred Stock purchasing agreement) in an amount sufficient to ensure that at the closing of TaiGen's Series B Financing Round, and on a fully diluted basis, the Series B Preferred Stock to be issued to Arena shall be equivalent to:

[{each TaiGen Selected GPCR from Section 2.1(b)} X {[****]}]

of the Series B Financing Round, with total percentage being: (a) rounded up to the next nearest whole number and (b) less than [*******] percent ([**]%).

(iii) In consideration of the rights granted under Section 2.1(b), Arena shall have the right, but not the obligation, to purchase, PARI PASSU, TaiGen's Series B Preferred Stock in an amount sufficient to ensure that at the closing of TaiGen's Series B Financing Round, and on a fully diluted basis, the combination of the Series A Preferred Stock issued to Arena and the Series B Preferred Stock to be issued to Arena shall be equivalent to [*****] percent ([**]%) of all securities issued by TaiGen as of the closing of the Series B Financing Round, to the extent that shares are available after allocations have been made to the lead investor and to existing shareholders of the Company based upon their preemptive rights.

2.5 TAIGEN REVIEW

(a) At any time after receipt of Arena GPCR Information by TaiGen, TaiGen scientists shall have the right to discuss the Arena GPCR Information with Arena scientist(s) as designated by Arena.

(b) At any time after receipt of nucleic acid and protein sequence information regarding a TaiGen Selected GPCR by TaiGen, TaiGen scientists shall have the right to discuss the nucleic acid and protein sequence information with Arena scientist(s) as designated by Arena.

(c) Upon written request by TaiGen, Arena shall provide TaiGen with the cDNA of a TaiGen Selected Receptor in a suitable expression vector for the sole and exclusive use by TaiGen to verify Arena GPCR Information. All information generated by TaiGen regarding such materials shall be provided to Arena by TaiGen. Subject to the provisions of Section 2.5(d), in the event that TaiGen is unable to substantially replicate Arena GPCR Information regarding TaiGen Selected GPCR within [***********] of receipt of the materials from Arena, then TaiGen may provide Notice to Arena requesting substitution of TaiGen Selected GPCR with an Arena GPCR.

(d) In the event that Arena has developed a TaiGen Activated Receptor and the corresponding Screening Assay using a TaiGen Selected GPCR in accordance with the provisions of Section 3.1 prior to TaiGen providing Notice to Arena in accordance with Section 2.5(c), then irrespective of the inability of TaiGen to replicate Arena GPCR Information regarding such TaiGen Selected GPCR, TaiGen shall be prohibited from requesting substitution of such TaiGen Selected GPCR with an Arena GPCR. The maximum number of substitutions that TaiGen may receive under Section 2.5(c) shall be limited as follows: (1) for the [*********] GPCRs that may be selected in

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accordance with the provisions of Section 2.1(a), the maximum number of substations shall be [****] ([**]); and (2) for the [*****] GPCRs that may be selected in accordance with the provisions of Section 2.1(b), the maximum number of substations shall be [***] ([**]).

ARTICLE III

ARENA ACTIVITIES

3.1 DEVELOPMENT OF TAIGEN ACTIVATED RECEPTOR. Subject to the terms and conditions of this Agreement, Arena agrees to use Best Reasonable Commercial Efforts to apply Arena Activation Technology to EACH TaiGen Selected GPCR to establish a TaiGen Activated Receptor within [********] after Arena's Notice to TaiGen that the Arena GPCR shall be designated as a TaiGen Selected GPCR. Upon creation of EACH TaiGen Activated Receptor, Arena shall provide Notice to TaiGen ("TaiGen Activated Receptor Notice"), and such TaiGen Activated Receptor Notice shall include a report comprising all data developed by Arena evidencing that the TaiGen Activated Receptor is constitutively active.

3.2 DEVELOPMENT OF SCREENING ASSAY. Subject to the terms and conditions of this Agreement, Arena agrees to use Best Reasonable Commercial Efforts to develop a Screening Assay incorporating EACH TaiGen Activated Receptor within
[***********] after TaiGen Activated Receptor Notice is sent by Arena to TaiGen. Upon development of each Screening Assay, Arena shall provide Notice to TaiGen ("Screening Assay Notice"), and such Screening Assay Notice shall include a report comprising of data developed by Arena evidencing the Screening Assay.

3.3 TRANSFER OF TAIGEN ACTIVATED RECEPTOR AND TECHNICAL INFORMATION.

(a) Subject to the terms and conditions of this Agreement, within
[*******] of each Screening Assay Notice, Arena shall transfer to TaiGen the applicable TaiGen Activated Receptor and a copy of all additional Technical Information owned or possessed by Arena then applicable to such TaiGen Activated Receptor and Screening Assay incorporating such TaiGen Activated Receptor.

(b) In the event that TaiGen is unable to substantially replicate the results of the Screening incorporating such TaiGen Selected Receptor in accordance with the procedures and protocols used by Arena and provided to TaiGen as part of the applicable Technical Information, Arena shall cooperate with TaiGen in studying the cause of such issues, and if any defect in the TaiGen Activated Receptor or the Screening Assay transferred by Arena to TaiGen is detected and determined to have been caused by or effected by the activities of Arena, Arena shall, at its costs and expenses, use Best Reasonable Commercial Efforts to either repair the defect or transfer a substitute TaiGen Activated Receptor and Screening Assay incorporating such substituted TaiGen Activated Receptor to TaiGen.

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3.4 ADDITIONAL SUPPLY. When requested by TaiGen in writing, Arena shall use its Best Reasonable Commercial Efforts to supply additional quantity of the TaiGen Activated Receptor within the time period requested by TaiGen free of charge.

3.5 TECHNICAL ASSISTANCE. At any time during the term of this Agreement, Arena shall use Best Reasonable Commercial Efforts to provide and make available the following to TaiGen:

(a) Arena shall make available during its business hours at least one
(1) scientist designated by Arena for consultation with and for responses to any inquiries of TaiGen relating to TaiGen Selected GPCR, the Technical Information, Arena GPCR Information, the nucleic acid and amino acid sequences of a TaiGen Selected GPCR, TaiGen Activated Receptor, Screening Assay, or any other report and data provided by Arena to TaiGen; such scientist shall be available by means of telephones, e-mails, written correspondences and any other appropriate means of communication, PROVIDED HOWEVER, that such scientist shall not be required to provide more than [***] ([**]) hours' worth of consultation per any twenty (24) four hour period, and not more than a total of [***] ([**]) hours' worth of consultation per any five (5) business days. In the event that TaiGen requires additional consultation time from any Arena scientist, the Parties agree to meet in good faith to discuss the terms and conditions for a fee-for-service consulting agreement.

(b) Upon reasonable advanced notice to Arena, TaiGen shall have the right to dispatch its personnel to visit the laboratories of Arena during Arena's normal business hours. Arena shall arrange for a scientist designated by Arena to accompany TaiGen personnel in their tour of the laboratory and to answer any questions any such personnel may have over the course of the visit, PROVIDED HOWEVER, that such scientist shall not be required to provide more than
[**] ([*]) hours' worth of consultation per any twenty (24) four hour period, and not more than a total of [****] ([**]) hours' worth of consultation per any five (5) business days. In the event that TaiGen requires additional consultation time from any Arena scientist, the Parties agree to meet in good faith to discuss the terms and conditions for a fee-for-service consulting agreement.

3.6 PATENT INFORMATION. A list of Arena Patent Rights, and the jurisdiction of such Arena Patent Rights, relating to any TaiGen Selected GPCR shall be attached hereto as APPENDIX B, which shall be updated from time to time upon any new issuance or filings relating thereto.

ARTICLE IV

TAIGEN ACTIVITIES

4.1 TAIGEN SCREENING.

(a) Upon receipt of EACH TaiGen Activated Receptor, its corresponding Screening Assay, and related Technical Information from Arena, TaiGen shall use Best Reasonable Commercial Efforts to promptly validate the Screening Assay incorporating such TaiGen Activated Receptor and thereafter initiate Screening.

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(b) When requested by TaiGen in writing, Arena shall use its Best Reasonable Commercial Efforts to assist TaiGen in setting-up a Screening Assay(s) at TaiGen's facility within the time period(s) requested by TaiGen. TaiGen agrees to reimburse Arena for the reasonable out-of-pocket costs associated with the assistance of TaiGen with its Screening.

4.2 CART IDENTIFIED COMPOUNDS. For each TaiGen Activated Receptor, TaiGen shall use Best Reasonable Commercial Efforts to develop at least one (1) CART Identified Compound. In the event that TaiGen determines to develop a CART Identified Compound into a Drug Product, Arena acknowledges and agrees that TaiGen has sole and exclusive right to unilaterally determine which CART Identified Compound is to be developed as Drug Product and whether or not to continue development of any CART Identified Compound or Drug Product. Except as otherwise provided for in this Agreement, CART Identified Compounds, Derivatives or Drug Products developed by TaiGen from any TaiGen Activated Receptor hereunder shall be the exclusive property of TaiGen and TaiGen shall have sole ownership and title to such CART Identified Compounds, Derivatives or Drug Products.

4.3 PROGRESS REPORTS.

(a) Beginning from the Effective Date, and throughout the Term of this Agreement, TaiGen shall provide Arena with written progress reports regarding the scientific and business-related activities associated with each TaiGen Selected GPCR. The first report shall be provided by TaiGen to Arena on the
[*********] anniversary of the Effective Date, and each subsequent report shall be provided by TaiGen to Arena [********] after the previous report was provided by TaiGen to Arena. Except as otherwise provided for in this Agreement, Arena, without TaiGen's written consent, shall not utilize any information contained in such written progress reports.

(b) For each TaiGen Activated Receptor, such report shall include, where applicable, information directed to: (1) [******************************];
(2) [***********************************]; (3) [*******************************

************************]; (4)[******************************************
************************************************************************
*********************************************];(5)[***************************
*********************************]; (6)[**************************************
*********************]; and (7)[**********************************************
**********************].

(c) With respect to EACH TaiGen Activated Receptor, in the event that
[***] ([*]) consecutive progress reports for such TaiGen Activated Receptor indicate that no significant activity has been taken by TaiGen with respect to such TaiGen Activated Receptor, then Arena shall provide Notice to TaiGen regarding such non-progress and TaiGen shall have until the next progress report to establish that significant activity has been taken by TaiGen with respect to such TaiGen Activated Receptor. In the event that such activity has not been established in the next consecutive progress report, then Arena shall have the unilateral right to request that TaiGen return such TaiGen Selected GPCR

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and related Technical Information and TaiGen warrants and represents that it shall be obligated to comply with such request within thirty (30) days thereof; in such event, the provisions of: (i) Section 5.1 of this Agreement shall be null and void with respect to such TaiGen Selected GPCR, with all such rights automatically reverting back to Arena, and (ii) Article IX shall not apply with respect to such TaiGen Selected GPCR.

ARTICLE V

LICENSE GRANT

5.1 ARENA LICENSE. Subject to the terms and conditions of this Agreement, Arena hereby grants to TaiGen and its Affiliate Active Capital, effective as of the Effective Date and continuing for a period of ending upon the expiration of twenty (20) years from the Effective Date or the date of expiration of the last to expire patent with claims covering the CART Identified Product(s) and/or Drug Product(s) derived from such TaiGen Selected Receptor, whichever is longer, the following with respect ONLY to the TaiGen Activated Receptor that is the subject of the Screening Assay Notice:

(a) an exclusive right and license under the Technology, exclusive even as to Arena, but subject to the provisions of Section 5.3 and, when applicable, Section 2.1(b) of this Agreement, to use, have used, sell, have sold, import, have imported, further develop, improve and otherwise exploit in any manner the TaiGen Activated Receptor, for the purpose of identification of CART Identified Compound(s) in the Territory, and

(b) an exclusive right and license under the Technology, exclusive even as to Arena, to develop, manufacture, have manufactured, promote, market, sell, distribute and, subject to the provisions of Section 5.3, Section 5.4 and, when applicable, Section 2.1(b) of this Agreement, license CART Identified Compound(s) and/or Drug Product(s) in the Territory.

TaiGen acknowledges and agrees that the license granted to it by Arena hereunder is limited in scope and does not include a license, express or implied, outside the scope set forth herein, including, but not limited to, use of the Arena Activation Technology by TaiGen or use of any technology owned or assigned to:
ChemNavigator.com, Inc.; Aressa Pharmaceuticals, Inc.; and/or BRL Screening, Inc.

5.2 LIMITED SUBLICENSE RIGHTS. No right is granted by Arena, express or implied, to TaiGen to sublicense any of the rights granted to TaiGen under
Section 5.1(a) of this Agreement to a Third Party, PROVIDED HOWEVER that if a Third Party is a licensee of a CART Identified Compound derived by TaiGen from a TaiGen Selected GPCR, TaiGen shall have the right to sublicense the Screening Assay related to such CART Identified Compound to such Third Party for the exclusive and sole use of such Screening Assay for the Third party sublicesee's own internal research. In all such circumstances, TaiGen shall provide Notice to Arena after it has sublicensed such Screening Assay to a Third Party and warrant that the agreement between TaiGen and such Third Party explicitly provides that
(a) the sublicensed rights granted by TaiGen to such Third Party regarding

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such Screening Assay are limited to internal research use only, and (b) that such Third party is expressly prohibited from further sublicensing such Screening Assay to any other Third Party.

5.3 RIGHT OF FIRST NEGOTIATION. During the Term of this Agreement, and in the event that TaiGen determines to license any CART Identified Compound, and/or Derivative, and/or Drug Product to a Third Party, prior to initiating any discussions related thereto with any Third Party, TaiGen shall first provide Notice to Arena informing Arena that the subject CART Identified Compound and/or Drug Product is available for licensing; such Notice shall include a sufficiently detailed summary of the Technical Information developed by or on behalf of TaiGen related to such CART Identified Compound and/or Drug Product. Within [******] ([**]) days of receipt of such Notice, Arena shall provide Notice to TaiGen informing TaiGen as to whether or not Arena is interested in entering into negotiations for a license in and to such CART Identified Compound and/or Drug Product:

(a) In the event that Arena provides Notice to TaiGen indicating that Arena will not enter into negotiations for a license in and to such CART Identified Compound and/or Drug Product, following receipt of such Notice from Arena, TaiGen may then contact any Third Party regarding the licensing of such CART Identified Compound and/or Drug Product.

(b) In the event that Arena provides Notice to TaiGen indicating that Arena will enter into negotiations for a license in and to such CART Identified Compound and/or Drug Product, Arena and TaiGen shall each use Best Reasonable Commercial Efforts to immediately meet and initiate negotiations for a license regarding such CART Identified Compound and/or Drug Product; each Party agrees to use Best Reasonable Commercial Efforts to conclude such negotiations within
[***] ([**]) months of the date of the Notice provided by Arena to TaiGen under this Section 5.3(b). In the event that the Parties are unable to reach mutually acceptable terms and conditions regarding such a license within such [***] ([**]) month period, TaiGen may then contact any Third Party regarding the licensing of such CART Identified Compound and/or Drug Product.

5.4 IMPROVEMENTS.

(a) TaiGen shall notify Arena, in writing, of any improvement discovered or developed by TaiGen related to the Technology.

(b) Arena shall notify TaiGen, in writing, of any improvement discovered or developed by Arena related to the Technology within one (1) month of the discovery or development of such improvement.

(c) The obligations of Sections 5.4(a) and (b) of this Agreement shall be continuing throughout the Term of this Agreement. During the Term of this Agreement, TaiGen shall have a royalty-free, exclusive right and license to use any

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improvement of Arena referred to in Section 5.4(b) in accordance with the provisions of Sections 5.1 and 5.2 of this Agreement.

(d) Subject to Section 5.1 and except as specifically provided for in
Section 5.3(e) hereof, Arena shall have a royalty-free, non-exclusive right and license to use all improvements of TaiGen and/or TaiGen's Licensee(s) referred to in Section 5.4(a) hereof and to disclose and sublicense the same to its licensees, if any.

(e) Both Parties acknowledge and agree that Arena has exclusive ownership of the Technology existing as of the Effective Date and any improvement thereof hereafter discovered or developed by Arena and that TaiGen has exclusive ownership of or control over any improvement of the Technology hereafter discovered or developed by TaiGen and/or TaiGen's Licensee(s).

ARTICLE VI

WARRANTIES

6.1 ARENA REPRESENTS AND WARRANTS THAT ARENA HAS VALID TITLE AND OWNERSHIP OF THE ARENA ACTIVATION TECHNOLOGY, AND THAT AS OF THE EFFECIVE DATE AND TO THE BEST OF ITS KNOWLEDGE, THE ARENA ACTIVATION TECHNOLOGY WILL NOT VIOLATE THE PATENT, COPYRIGHT, TRADEMARK OR OTHER PROPRIETARY RIGHTS OF ANY OTHER PERSON. ARENA FURTHER WARRANTS THAT ARENA HAS FILED FOR PATENT REGISTRATION, OR USING BEST REASONABLE COMMERCIAL EFFORTS WILL FILE FOR SUCH REGISTRATION, AS SOON AS POSSIBLE AFTER SELECTION BY TAIGEN, FOR EACH TAIGEN SELECTED GPCR, TAIGEN ACTIVATED RECEPTOR, SCREENING ASSAY AND ARENA ACTIVATION TECHNOLOGY WITHIN THE TERRITORY.

6.2 NEITHER PARTY MAKES ANY REPRESENTATION THAT ANY ARENA GPCR, TAIGEN SELECTED GPCR, TAIGEN ACTIVATED RECEPTOR OR SCREENING ASSAY TRANSFERRED BY ARENA TO TAIGEN, WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK OR OTHER PROPRIETARY RIGHT OF ANY OTHER PERSON. NEITHER PARTY MAKES ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO ANY TAIGEN SELECTED GPCR OR TAIGEN ACTIVATED RECEPTOR OR SCREENING ASSAY, AS THE CASE MAY BE.

6.3 NEITHER PARTY MAKES ANY REPRESENTATION TO THE OTHER THAT ANY CART IDENTIFIED COMPOUND OR ANY DRUG PRODUCT WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK OR OTHER PROPRIETARY RIGHT OF ANY OTHER PERSON. NEITHER PARTY MAKES ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED, TO THE

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OTHER WITH RESPECT TO ANY CART IDENTIFIED COMPOUND OR ANY DRUG PRODUCT.

ARTICLE VII

DILIGENCE IS OF THE ESSENCE

7.1 TaiGen acknowledges and agrees that upon receipt from Arena of each TaiGen Activated Receptor and related Technical Information, diligence regarding the development of a CART Identified Compound and/or Drug Product, and/or licensing of such CART Identified Compound and/or Drug Product, is of the essence.

7.2 The provisions of this Section 7.2 shall apply to a TaiGen Selected Receptor and corresponding CART Identified Compound and/or Drug Product only if all three of the premises which give rise to Arena's unilateral right to request return as set forth in Section 7.2(a), (b) or (c) occur with respect to such TaiGen Selected Receptor and corresponding CART Identified Compound and/or Drug Product:

(a) In the event that TaiGen has not licensed the CART Identified Compound to a Third Party and/or to Arena prior to the expiration of six (6) years from the receipt of the corresponding TaiGen Selected Receptor from Arena, Arena shall have the unilateral right to request that TaiGen return any TaiGen Selected GPCR, CART Identified Compound(s), Drug Product(s), if any, and related Technical Information, and TaiGen warrants and represents that it shall be obligated to comply with such request within thirty (30) days thereof; in such event, the provisions of: (i) Section 5.1 of this Agreement shall be null and void with respect to any TaiGen Selected GPCR(s), with all such rights automatically reverting back to Arena, and (ii) Article IX shall apply with respect to any such CART Identified Compound(s) and Drug Product(s), if any; OR

(b) In the event that TaiGen has not filed an IND with a Regulatory Agency for a Drug Product prior to the expiration of six (6) years from the receipt of the corresponding TaiGen Selected Receptor from Arena, Arena shall have the unilateral right to request that TaiGen return any TaiGen Selected GPCR, CART Identified Compound(s), Drug Product(s), if any, and related Technical Information, and TaiGen warrants and represents that it shall be obligated to comply with such request within thirty (30) days thereof; in such event, the provisions of: (i) Section 5.1 of this Agreement shall be null and void with respect to any TaiGen Selected GPCR(s), with all such rights automatically reverting back to Arena, and (ii) Article IX shall apply with respect to any such CART Identified Compound(s) and Drug Product(s), if any; OR

(c) In the event that TaiGen has not filed an IND with a Regulatory Agency for a Drug Product AND the Drug Product has not been introduced into at least one(1) human volunteer prior to the expiration of six (6) years from the receipt of the corresponding TaiGen Selected Receptor from Arena, Arena shall have the unilateral right to request that TaiGen return any TaiGen Selected GPCR, CART Identified Compound(s), Drug Product(s), if any, and related Technical Information, and TaiGen warrants and represents that it shall be obligated to comply with such request within thirty (30) days

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thereof; in such event, the provisions of: (i) Section 5.1 of this Agreement shall be null and void with respect to any TaiGen Selected GPCR(s), with all such rights automatically reverting back to Arena, and (ii) Article IX shall apply with respect to any such Drug Product.

ARTICLE VIII

TAIGEN ROYALTY PAYMENTS

8.1 ROYALTY PAYMENT. In consideration of the right and license granted to TaiGen hereunder with respect to each TaiGen Activated Receptor, TaiGen shall provide Arena with a royalty payment based on Annual TaiGen Licensing Revenue and/or Drug Product Revenue derived from EACH TaiGen Selected Receptor as set forth below for a period ending upon the expiration of twenty (20) years from the Effective Date or the date of expiration of the last to expire patent with claims covering the CART Identified Product(s) and/or Drug Product(s) derived from such TaiGen Selected Receptor, whichever is longer; such royalty payment shall be made within three (3) months of December 31 for the Annual period to which the Annual TaiGen Licensing Revenue applies:

(a) [**********] ([**]%) of Annual TaiGen Licensing Revenue when the effective date of a license agreement between TaiGen and a Third Party is prior to initiation of Phase 1 Clinical Study of a CART Identified Compound.

(b) [**********] ([**]%) of Annual TaiGen Licensing Revenue when the effective date of a license agreement between TaiGen and a Third Party is after initiation of Phase 1 Clinical Study and prior to completion of a Phase 2 Clinical Study of a CART Identified Compound.

(c) [**********] ([**]%) of Annual TaiGen Licensing Revenue when the effective date of a license agreement between TaiGen and a Third Party is after initiation of Phase 2 Clinical Study and prior to completion of a Phase 3 Clinical Study of a CART Identified Compound.

(d) [**********] ([**]%) of Annual TaiGen Licensing Revenue when the effective date of a license agreement between TaiGen and a Third Party is after completion of a Phase 3 Clinical Study of a CART Identified Compound.

(e) [**********] ([**]%) of Annual Drug Product Revenue.

8.2 AUDIT. In order to verify the completeness and correctness of TaiGen Licensing Revenue and/or Drug Product Revenue, TaiGen shall maintain up to date books and records and Arena shall have the right to conduct, through independent certified public accountants, at its own cost and at any reasonable time during business hours, not more often than once each Annual period for not more than
[**] ([*]) previous years, and upon reasonable prior notice, an audit of the accounting procedures and records of TaiGen in computing and calculating royalty payment for Annual TaiGen Licensing Revenue and/or Drug Product Revenue due hereunder. The auditor shall make available

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to TaiGen and Arena a report enumerating the period covered by the audit of TaiGen Licensing Revenue and/or Drug Product Revenue computed and calculated by the auditor. The costs of such audit shall be borne by TaiGen in the event that a discrepancy of more than [****] per cent ([**]%) is discovered through such audit.

ARTICLE IX

ARENA ROYALTY PAYMENTS

9.1 ROYALTY PAYMENT. In the event that Arena secures any CART Identified Compound and/or Drug Product from TaiGen in accordance with the terms and conditions of Article VII of this Agreement, then for each such CART Identified Compound and/or Drug Product derived from each TaiGen Selected GPCR, Arena shall provide TaiGen with a royalty payment based on Annual Arena Licensing Revenue for a period ending upon the expiration of twenty (20) years from the Effective Date or the date of expiration of the last to expire patent with claims covering the CART Identified Product(s) and/or Drug Product(s) derived from such TaiGen Selected Receptor, whichever is longer; such royalty payment shall be made within three (3) months of December 31 for the Annual period to which the Annual Arena Licensing Revenue applies:

(a) [********] ([**]%) of Annual Arena Licensing Revenue when the effective date of a license agreement between Arena and a Third Party is prior to initiation of Phase 1 Clinical Study of a CART Identified Compound.

(b) [********] ([**]%) of Annual Arena Licensing Revenue when the effective date of a license agreement between Arena and a Third Party is after initiation of Phase 1 Clinical Study and prior to completion of a Phase 2 Clinical Study of a CART Identified Compound.

(c) [********] ([**]%)of Annual Arena Licensing Revenue when the effective date of a license agreement between Arena and a Third Party is after initiation of Phase 2 Clinical Study and prior to completion of a Phase 3 Clinical Study of a CART Identified Compound.

(d) [********] ([**]%) of Annual Arena Licensing Revenue when the effective date of a license agreement between TaiGen and a Third Party is after completion of a Phase 3 Clinical Study of a CART Identified Compound.

(e) [**********] ([**]%) of Annual Drug Product Revenue.

9.2 AUDIT. In order to verify the completeness and correctness of Arena Licensing Revenue and/or Drug Product Revenue, Arena shall maintain up to date books and records and TaiGen shall have the right to conduct, through independent certified public accountants, at its own cost and at any reasonable time during business hours, not more often than once each Annual period for not more than [**] ([*]) previous years, and upon reasonable prior notice, an audit of the accounting procedures and records of Arena in computing and calculating royalty payment for Annual Drug Product Revenue due

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hereunder. The auditor shall make available to TaiGen and Arena a report enumerating the period covered by the audit of Arena Licensing Revenue and/or Drug Product Revenue computed and calculated by the auditor. The costs of such audit shall be borne by Arena in the event that a discrepancy of more than [**] per cent ([**]%) is discovered through such audit.

ARTICLE X

PAYMENT ARRANGEMENT

The Parties acknowledge and agree that any and all payments to be made by TaiGen or Arena to the other under this Agreement are to be (i) in United States Dollars and (ii) in full as indicated; any income or other tax which one party is required to pay or withhold on behalf of the other party with respect to payments payable to other party hereunder shall not be deducted from the amounts of such payments.

ARTICLE XI

CONFIDENTIALITY

11.1 Each party shall neither disclose to any Third Party any and all of the information disclosed by the other Party hereunder ("Information"), nor permit any such Third Party to have access to such Information, nor use such Information for any purpose other than for purpose of this Agreement, without the prior written consent of the other Party.

11.2 The receiving Party's obligations under Section 11.1 hereof shall not apply, with respect to any of such Information to the extent that the receiving Party can establish by competent proof that such Information:

(a) is published, known publicly, or is already in the public domain at the time of receipt of it by the receiving Party;

(b) is published, becomes known publicly or becomes a part of the public domain by publication or otherwise after the time of receipt of it by the receiving Party, except by breach of this Agreement by the receiving Party;

(c) is obtained from a Third Party after the receipt of it by the receiving Party, provided, however, that said Third Party has not obtained it directly or indirectly from the disclosing Party;

(d) is in the receiving Party's possession on the date of the receipt of it and was not acquired directly or indirectly from the disclosing Party; or

(e) is subsequently developed by the receiving Party independent of the information received hereunder, as evidenced by competent written records established by the receiving Party.

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11.3 Notwithstanding anything to the contrary in this Agreement, the receiving Party shall be entitled to disclose such Information (i) to the extent required by applicable law or court order provided that the receiving Party furnishes the disclosing Party with written notice of such request, in advance of any such disclosure of the Information; (ii) to a government agency, regulatory authority, clinical research organization, clinical investigator or other Third Party to whom disclosure is necessary for development of the CART Identified Compound in connection with drug development, approval or registration of the CART Identified Compound and/or Drug Product; or (iii) to the extent required to comply with the reporting requirements of any governmental agency, including, but not limited to, the U.S. SEC or NASDAQ Stock market rules, provided that the receiving Party furnishes the disclosing Party with Notice of such compliance requirement, in advance of any such disclosure of the Information.

11.4 All information provided by TaiGen to Arena, including without limitation, the information provided by TaiGen under Section 4.3, is designated as "CONFIDENTIAL" by TaiGen; all information provided by Arena to TaiGen under Sections 2.1, 2.2, 2.5 and Article III is designated as "CONFIDENTIAL" by Arena.

11.5 The foregoing obligations of confidentiality shall survive for five
(5) years after any termination or expiration of this Agreement.

ARTICLE XII

PATENT INFRINGEMENT AND ENFORCEMENT

12.1 NOTIFICATION OF INFRINGEMENT. Each Party shall promptly provide Notice to the other of any infringement (of which it becomes aware) of the intellectual property rights including patent rights on any TaiGen Activated Receptor(s) and/or Screening Assay(s) and/or CART Identified Compound(s) and/or Drug Product(s) by any Third Party and shall provide the other with any available evidence of such infringement of which the Party is aware.

12.2 SUIT FOR INFRINGEMENT.

(a) During the Term of this Agreement, Arena shall be responsible for enforcement of the Arena Patent Rights including, but not limited to, the bringing of an action for patent infringement, selection of the forum for such action, and counsel, settlement of any such action, and the costs devoted to such action. TaiGen agrees to provide reasonable assistance except for financial assistance to Arena in the enforcement of Arena Patent Rights and TaiGen may join such action as initiated by Arena with counsel at its own expense and seek its own damages and other relief. If, within ninety (90) days of TaiGen's giving notice to Arena of a Third Party infringement in the Territory, Arena fails to institute the infringement suit that TaiGen reasonably feels is required, TaiGen may institute such infringement proceedings against said Third Party at its expense and TaiGen shall have the right to receive all the amounts payable by said Third Party as a result of such proceedings.

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(b) In the event a claim of patent infringement is made against TaiGen by a Third Party in the Territory by reasons of TaiGen's commercial activities hereunder, TaiGen and Arena shall meet to analyze the infringement claim and avoidance of the same. If it is necessary to obtain an appropriate license from such a Third Party, the Parties shall, in negotiating such a license, make every efforts to minimize the amount of license fees and/or royalties payable to such Third Party and (i) in case that such license is related to Arena Activation Technology, Arena shall be responsible for such license fees and/or royalties,
(ii) in case that such license is related to TaiGen Selected GPCR and/or TaiGen Activated Receptor and/or Screening Assay, and/or CART Identified Compound, and/or Drug Product, TaiGen shall be responsible for such license fees and/or royalties.

ARTICLE XIII

REPRESENTATIONS

13.1 REPRESENTATIONS AND WARRANTIES OF TAIGEN. TaiGen represents and warrants to Arena as follows:

(a) The execution and delivery of this Agreement have been duly and validly authorized, and all necessary action has been taken to make this Agreement a legal, valid and binding obligation of TaiGen enforceable in accordance with its terms.

(b) The execution and delivery of this Agreement and the performance by TaiGen of its obligations hereunder will not contravene or result in the breach of the Articles of Incorporation of TaiGen or result in any material breach or violation of or material default under any material agreement, indenture, license, instrument or understanding or, to the best of its knowledge, result in breach of any law, rule, regulation, statute, order or decree, to which TaiGen is a party or of which it or any of its property is subject.

13.2 REPRESENTATIONS AND WARRANTIES OF ARENA. Arena represents and warrants to TaiGen as follows:

(a) The execution and delivery of this Agreement have been duly and validly authorized, and all necessary action has been taken to make this Agreement a legal, valid and binding obligation of Arena enforceable in accordance with its terms.

(b) The execution and delivery of this Agreement and the performance by Arena of its obligations hereunder will not contravene or result in the breach of the Certificate of Incorporation or Bylaws of Arena or result in any material breach or violation of or material default under any material agreement, indenture, license, instrument or understanding or, to the best of its knowledge, result in breach of any law, rule, regulation, statute, order or decree, to which Arena is a party or of which it or any of its property is subject.

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ARTICLE XIV

INDEMNITY

14.1 INDEMNIFICATION BY TAIGEN. TaiGen will indemnify and hold harmless Arena and its Affiliates, employees, officers, directors, shareholders and agents (an "Arena Indemnified Party") from and against all liability, loss, damages, costs and expenses (including reasonable attorneys' fees) which Arena Indemnified Party may incur, suffer or be required to pay resulting from or arising in connection with (i) the breach by TaiGen of any agreement, covenant, representation or warranty of TaiGen obtained in this Agreement, or (ii) negligence or omission of TaiGen.

14.2 INDEMNIFICATION BY ARENA. Arena will indemnify and hold harmless TaiGen and its Affiliates, TaiGen's Licensees, employees, officers, directors, shareholders and agents (an "TaiGen Indemnified Party") from and against all liability, loss, damages, costs and expenses (including reasonable attorneys' fees) which TaiGen Indemnified Party may incur, suffer or be required to pay resulting from or arising in connection with (i) the breach by Arena of any agreement, covenant, representation or warranty of Arena obtained in this Agreement, or (ii) negligence or omission of Arena.

14.3 CONDITIONS TO INDEMNIFICATION. The obligations of the indemnifying Party under Sections 14.1 and 14.2 of this Agreement are conditioned upon the prompt Notice to the indemnifying Party of any of the aforementioned suits or claims in writing within fifteen (15) days after receipt of notice by the indemnified Party of such suit or claim. The indemnifying Party shall have the right to assume the defense of any such suit or claim unless, in the reasoned judgment of the indemnified Party, such suit or claim involves an issue or matter which could have a materially adverse effect on the business, operations or assets of the indemnified Party, in which event the indemnified Party may participate in the defense of such suit or claim at its sole cost and expense. The provision for indemnification shall be void and there shall be no liability against a indemnified Party as to any suit or claim for which settlement or compromise or an offer of settlement or compromise is made without the prior consent of the indemnifying Party.

ARTICLE XV

TERMINATION AND DURATION

15.1 BREACH. Failure by either Party to comply with any of its material obligations contained in this Agreement shall entitle the other Party to give Notice to the Party in default specifying the nature of the default and requiring it to cure such default. If such default is not cured within two (2) months after receipt of such Notice, the notifying Party shall be entitled, without prejudice to any of its other rights conferred on it by this Agreement, to terminate this Agreement and the licenses granted to the breaching Party hereunder with immediate effect by giving notice to such termination. The right of either Party to terminate this Agreement as herein provided shall not be affected in any way by its waiver of, or failure to take action with respect to, any previous default.

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15.2 DURATION OF THIS AGREEMENT.

(a) This Agreement shall become effective from the Effective Date and continue to be in effect until expiration of TaiGen's obligation of royalty payments under Article VIII, or Arena's obligation of royalty payment, if any, under Article IX, whichever is longer ("Term"). Thereafter, all licenses or sublicenses granted hereunder shall become fully paid-up irrecoverable license.

(b) Either Party shall be entitled to terminate this Agreement in the event of

(1) insolvency of the other Party or commencement of bankruptcy proceedings by such Party; or

(2) dissolution of the other Party by that Party, or liquidation of such Party by that Party.

(c) The Parties agree that in the event that TaiGen sublicenses any of the rights granted to it under this Agreement to a Third Party, such sublicense shall include provisions whereby if such sublicensee(s) becomes insolvent, commences bankruptcy proceedings, dissolves, and/or liquidates its assets, any and all rights granted by TaiGen to such sublicensee(s) shall automatically revert back to TaiGen.

15.3 ACCRUED RIGHTS; SURVIVING OBLIGATIONS. Termination or expiration of this Agreement for any reason shall be without prejudice to any rights that shall have accrued to the benefit of either Party prior to such termination or expiration, nor shall such termination or expiration relieve either Party from obligations that are expressly indicated to survive termination or expiration of this Agreement.

ARTICLE XVI

RELATIONSHIP OF THE PARTIES

Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency, employer-employee, or joint venture relationship between the Parties. All activities by each Party hereunder shall be provided as an independent contractor. No Party shall incur any debts or make any commitments for the other, except to the extent, if at all, specifically provided herein.

ARTICLE XVII

MISCELLANEOUS PROVISIONS

17.1 LIMITATIONS ON ASSIGNMENT. Neither this Agreement nor any interest hereunder shall be assignable or transferable by TaiGen without the prior written consent of Arena, which consent may be unilaterally withheld in the sole and exclusive discretion of Arena, except that Arena agrees that TaiGen may assign and transfer this Agreement and any interest hereunder to its Affiliate Active Capital.

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17.2 FURTHER ACTS AND INSTRUMENTS. Each Party hereto agrees to execute, acknowledge and deliver such further instruments and to do all such other acts as may be necessary or appropriate to carry out the purpose and intent of this Agreement.

17.3 ENTIRE AGREEMENT. This Agreement constitutes and contains the entire agreement of the Parties and supersedes any and all prior negotiations, correspondence, understandings, Letters of Intent and agreements between the Parties respecting the subject matter hereof. This Agreement may be amended or modified or one or more provisions hereof waived only by a written instrument signed by the Parties.

17.4 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision were so excluded.

17.5 CAPTIONS. The captions to this Agreement are for convenience only and are to be of no force or effect in construing and interpreting the provisions of this Agreement.

17.6 FORCE MAJEURE. Neither Party shall be liable to the other for loss or damages, or have any right to terminate this Agreement for any default or delay, attributable to any act of God, flood, fire, explosion, breakdown or plant strike, lockout, labor dispute, casualty, accident, war, revolution, civil commotion, act of a public enemy, blockage, embargo, injunction, law, order, proclamation, regulation, ordinance, demand or requirement of any government or subdivision, authority or representative of any government, or any other cause beyond the reasonable control of such Party.

17.7 NO TRADE NAME OR TRADEMARK LICENSE.

(a) No right, express or implied, is granted by this Agreement to TaiGen, TaiGen collaborators or TaiGen's Licensees to use in any manner the name "Arena," "Arena Pharmaceuticals," "CART" or any trade name or trademark of Arena in any business dealing which is not directly connected with the performance of this Agreement; provided, however, that TaiGen shall have the right to use or disclose the name Arena only to the extent and the manner as may be required by law.

(b) No right, express or implied, is granted by this Agreement to Arena, Arena collaborators or Arena licensees to use in any manner the name "TaiGen" or any trade name or trademark of TaiGen in any business dealing which is not directly connected with the performance of this Agreement; provided, however, that Arena shall have the right to use or disclose the name TaiGen only to the extent and the manner as may be required by law.

(c) During the term of this Agreement, the Parties may issue a press release regarding the acceptance of this Agreement by the Parties with prior written consent of the other Party on the contents of such release, which consent shall not be unreasonably withheld (it is not necessary to obtain the consent of the other Party for

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disclosing the information regarding this Agreement which a Party is required by law to disclose).

17.8 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be governed by and construed under applicable federal law of the United States of America and the laws of the State of California, excluding any conflict of law provisions. Each Party hereto hereby voluntarily and irrevocably waives trial by jury in any action or proceeding brought in connection with this Agreement, any of the other transaction documents or any of the transactions contemplated hereby or thereby. Each Party hereby expressly waives any and all rights to bring any suit, action or other proceeding in or before any court or tribunal other than arbitration court following the rules of arbitration of the International Chamber of Commerce and covenants that it shall not seek in any manner to resolve any dispute other than as set forth in this Section 17.8 or to challenge or set aside any decision, award or judgment obtained in accordance with the provisions hereof. Each Party hereby expressly waives any and all objections it may have to venue, including, without limitation, the inconvenience of such forum, in any of such courts. In addition, the service of process regarding the arbitration shall be subject to the rules of arbitration of the International Chamber of Commerce or applicable laws. The Parties further agree that any dispute resolution initiated by TaiGen under this Section 17.8 shall take place in San Diego, California (U.S.A.) and any dispute resolution initiated by Arena under this Section 17.8 shall take place in Taiwan, and in both situations, the proceedings shall be conducted in the English language.

17.9 EXPENSES. Except as otherwise provided herein, each Party hereto shall bear its legal and other expenses incurred in connection with the negotiation, execution, delivery and performance of this Agreement.

17.10 COUNTERPARTS. This Agreement shall be executed in two counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

17.11 NOTICE. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the Party to be notified or upon deposit with the registered or certified mail in the country of residence of the Party giving the notice, postage prepaid, or upon deposit with an internationally recognized express courier with proof of delivery, postage prepaid and addressed to the Party to be notified at the address or addresses indicated below, or upon the date of fax transmission of such notice (with proof of such fax transmission established by the sender's fax receipt) using the fax numbers listed below, or at such other address or fax number as such Party may designate by ten (10) days' advance written notice to the other Party with copies to be provided as follows:

[THE REST OF THIS PAGE IS INTENTIONALLY BLANK]

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IF TO ARENA, ADDRESSED TO:

Arena Pharmaceuticals, Inc.
6166 Nancy Ridge Drive
San Diego, CA 92121 USA
Attention: Jack Lief
President & CEO
Fax: (858) 677-0065
With a copy to: General Counsel (at the same address)

IF TO TAIGEN, ADDRESSED TO:

TaiGen Biotechnology Co., Ltd.
9F, 25 Tung-Hwa South Road, Section 1
Taipei, Taiwan, 105
R.O.C.
Attention: Dr. Ming-Chu Hsu

Fax: 886-2-2570-3107

With a copy to:   Jacqueline Fu, Counsel to TaiGen

                  International Trade Building
                  Suite 2009, 20th F
                  333 Keelung Road, Section 1
                  Taipei, Taiwan 110
                  R.O.C.

17.12 SURVIVING RIGHTS AND OBLIGATIONS. The following Articles and Sections shall survive any termination or expiration of this Agreement: Article I (Definitions); Article VI (No Warranties); Article X (Payment Arrangement); Article XI (Confidentiality); Article XII (Patent Infringement and Enforcement); Article XIII (Representations); Article XIV (Indemnity); Sections 5.3, 5.4(d), 17.8 and 17.11; and any payment otherwise subsequently or otherwise due under Articles VIII and/or IX. Upon expiration of TaiGen royalty obligation under this Agreement, all licenses and rights granted to TaiGen hereunder shall become fully paid-up irrecoverable license.

[SIGNATURES ON NEXT PAGE]

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WHEREUPON, the Parties have caused this Agreement to be executed by their duly authorized agents, as of the dates listed below.

ARENA PHARMACEUTICALS, INC. TAIGEN BIOTECHNOLOGY CO., LTD.

By:      /s/  Jack Lief                     By:      /s/  Ming-Chu Hsu
    ----------------------------                   ----------------------

Name:   Jack Lief                           Name:   Ming-Chu Hsu
Title:  President & CEO                     Title:  Chairman

Date:   June 28, 2001                       Date:   June 29, 2001

**************************

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APPENDIX A

TAIGEN SELECTED GPCRS

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APPENDIX B

ARENA PATENT RIGHTS

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EXHIBIT 10.20
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
FOR THE PORTIONS MARKED [***]

CONFIDENTIAL

AGREEMENT BY AND BETWEEN
IMPERIAL CHEMICAL INDUSTRIES PLC
AND
ARENA PHARMACEUTICALS, INC.

TABLE OF CONTENTS

                                                                            PAGE
Article I.        Definitions                                                 1
Article II.       Feasibility Study                                           4
Article III.      Exclusivity                                                 5
Article IV.       Payments to Arena                                           6
Article V.        Utilization of Data                                         7
Article VI.       Technology License                                          7
Article VII.      Royalty Payments                                            8
Article VIII.     Confidentiality                                            10
Article IX.       Patent Infringement And Enforcement                        11
Article X.        Representations And Warranties                             12
Article XI.       Indemnity                                                  12
Article XII.      Termination                                                13
Article XIII.     Relationship of the Parties                                14
Article XIV.      Miscellaneous Provisions                                   14
Signature Blocks                                                             18
Appendices                                                      A-1 through A-5

--PLEASE NOTE--

Provisions Within This Agreement Are Deemed "CONFIDENTIAL" In Accordance With The Terms of Article VIII.

Reviewers are advised to confirm with their attorney as to any obligations and/or requirements regarding review of this Agreement.


CONFIDENTIAL

AGREEMENT

This Agreement ("Agreement") is effective as of June 15, 2001 ("Effective Date") by and between IMPERIAL CHEMICAL INDUSTRIES PLC, having a place of business at London SWIP 3JF, United Kingdom ("ICI") and ARENA PHARMACEUTICALS, INC., having a place of business at 6166 Nancy Ridge Drive, San Diego, California, 92121 USA ("Arena").

WHEREAS, ICI is a company which produces specialty products including fragrances, flavors and food ingredients;

WHEREAS, Arena is a biopharmaceutical organization focused on the development and use of its proprietary technology for discovery of modulators of G protein-coupled receptors;

WHEREAS, ICI desires to collaborate with Arena to identify broad-spectrum modulators of specific G protein-coupled receptors to enhance the discovery processes in the fragrances, flavors and food industry;

WHEREAS, Arena and ICI each desire to enter into this Agreement on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, ICI and Arena hereby agree as follows:

ARTICLE I
DEFINITIONS

Unless otherwise specifically provided herein, the following terms shall have the following meanings:

"AFFILIATE" when used with reference to a specified person, any person or entity directly or indirectly controlling, controlled by or under common control with the specified person, means the direct or indirect ownership of at least 50% of the outstanding voting securities of an entity.

"ANNUAL" means the period between January 1 and December 31, inclusive.

"ARENA" means Arena and its Affiliates, excluding Aressa Pharmaceuticals, Inc.

"ARENA ACTIVATION TECHNOLOGY" means an Arena proprietary approach to altering a region of a G Protein-Coupled Receptor to cause, enhance or stabilize constitutive activation of the altered receptor.

"ARENA PATENT RIGHTS" means all present and/or future patents (including inventor's certificates) and all present and/or future applications (including provisional applications) therefor throughout the world as the case may be, and substitutions, extensions, reissues,

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renewals, divisions, continuations, or continuation-in-part thereof or therefor, owned or controlled (either fully or partially) by Arena, or under which Arena may grant licenses or sublicenses, to the extent they are directed to (1) Arena Activation Technology and/or (2) CART Activated Receptor(s) and/or (3) Screening Assay(s) and/or (4) CART Identified Ingredient(s). It is understood that ICI Patent Rights shall be excluded from the scope of Arena Patent Rights. A list of Arena Patent Rights shall be attached hereto as APPENDIX B1 as of the Effective Date and Arena shall update APPENDIX B1 from time to time during the terms of this Agreement by sending ICI such updated APPENDIX B1 and also the updated APPENDIX B1 as of the end of December in each year within one (1) month after such date.

"BEST REASONABLE COMMERCIAL EFFORTS" means efforts to achieve a designated objective, which efforts are based upon reasonably prudent business factors and considerations.

"CART ACTIVATED RECEPTOR(S)" means a Sensory GPCR to which Arena Activation Technology has been applied, and which has reached a level of activity such that its use in an assay results in a signal to noise ratio that predicts its utility in an Enabled Screening Assay.

"CART IDENTIFIED INGREDIENT(S)" means an ingredient, and/or a Derivative of a CART Identified Ingredient, that has been identified from ICI Library Ingredient(s) as a modulator of a CART Activated Receptor(s).

"INGREDIENT DISCOVERED DURING THE FEASIBILITY STUDY" or "INGREDIENT DISCOVERED
DURING THE EXCLUSIVITY PERIOD" means a CART Identified Ingredient.

"DERIVATIVE" and "DERIVATIVES" of a first ingredient means an ingredient having the same core structure as the first ingredient.

"EC50 Value" means the concentration of an ingredient that inhibits 50% of measured second messenger signal of a receptor.

"ENABLED SCREENING ASSAY" means an Arena assay approach for Screening that has been validated based upon Successful Screening of a CART Activated Receptor.

"ENDOGENOUS" means naturally occurring.

"FIELD" means the [************************************************] uses of CART Identified Ingredients for modulation of Sensory GPCRs; for purposes of clarity, the definition of Field includes, but is not limited to,
[**********************].

"G PROTEIN-COUPLED RECEPTOR" and "GPCR" and "GPCRS" each mean Endogenous, human cell-surface receptor defined by having three (3) intracellular loops, three (3) extracellular loops, an amino terminus and a carboxy terminus.

"GUSTATORY GPCRS" means GPCRs primarily expressed within the human mouth, throat and stomach.

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"IC50 VALUE" means the concentration of an ingredient that inhibits 50% of ligand binding to the receptor.

"ICI" means ICI and its Affiliates.

"ICI LIBRARY INGREDIENTS" shall mean chemical compounds that shall be provided to Arena by ICI during the term of this Agreement and in accordance with the requirements set forth in APPENDIX A.

"ICI PATENT RIGHTS" means all present and/or future patents (including inventor's certificates) and all present and/or future applications (including provisional applications) therefor throughout the world as the case may be, and substitutions, extensions, reissues, renewals, divisions, continuations, or continuation-in-part thereof or therefor, owned or controlled (either fully or partially) by ICI, or under which ICI may grant licenses or sublicenses, to the extent they are directed to ICI Library Ingredients It is understood that Arena Patent Rights shall be excluded from the scope of ICI Patent Rights. A list of ICI Patent Rights shall be attached hereto as APPENDIX B2 as of the Effective Date and ICI shall update APPENDIX B2 from time to time during the terms of this Agreement by sending Arena such updated APPENDIX B2 and also the updated APPENDIX B2 as of the end of December in each year, within one (1) month after such date.

"MEASURED RESPONSE" as used in the phrase "Successful Screening" means a signal measure based upon an assay end-point used to assess the signal.

"OLFACTORY GPCRS" means GPCRs primarily expressed within the olfactory region of a human.

"PARTY" means either Arena or ICI, as the case may be; "Parties" means both Arena and ICI.

"REVENUE" means [******************************************************** ******************************************************************].

"SCREENING ASSAY" or "RECEPTOR SCREENING ASSAY" means the process of contacting a chemical compound with a CART Activated Receptor.

"SENSORY GPCRS" means Olfactory GPCRs and Gustatory GPCRs.

"SUCCESSFUL SCREENING" means that the results of the Screening have been positive whereby at least one molecule from ICI Library Ingredients that has been Screened reduces or enhances the Measured Response of the CART Activated Receptor by at least [******************] from the mean response of a screening plate that includes that compound.

"ARENA TECHNICAL INFORMATION" means all information, trade secrets, know-how, methods of manufacture, processes, documents and materials (excluding CART Activated Receptor(s) and Screening Assay(s)), related to CART Activated Receptor(s) and/or Screening Assay(s), and other proprietary information, whether patentable or unpatentable, including but not

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limited to, improvements, that are owned or possessed by Arena, whether now existing or hereafter developed.

"ICI TECHNICAL INFORMATION" means all information, trade secrets, know-how, methods of manufacture, processes, documents and materials and other proprietary information, whether patentable or unpatentable, including but not limited to, improvements, that are owned or possessed by ICI, whether now existing or hereafter developed, directed to ICI Ingredients.

"TERRITORY" means the world.

"THIRD PARTY" means any person or entity other than ICI, ICI's Licensee(s) and Arena.

ARTICLE II
FEASIBILITY STUDY

2.1 FEASIBILITY STUDY.

(a) Subject to the terms and conditions of this Agreement, Arena agrees to initiate a Feasibility Study within five (5) days after the date that ICI has made the Initial Payment in accordance with Section 4.1 of this Agreement. The Feasibility Study shall consist of the activities described in Sections 2.2 through 2.5 of this Agreement ("Feasibility Study"). The Feasibility Study will last for a period of six (6) months from the date the Feasibility Study is initiated by Arena ("Feasibility Period").

(b) Except as expressly provided for in Article VI, ICI acknowledges and agrees that nothing in this Agreement provides any right, express or implied, to ICI to make, have made, use, have used, sell and/or have sold any CART Activated Receptor(s), any material covered by Arena Patent Rights and/or any process covered by Arena Patent Rights.

2.2 ARENA TO SELECT SENSORY GPCRS AND DEVELOP CART ACTIVATED RECEPTOR(S). Arena, in consultation with ICI, agrees to use Best Reasonable Commercial Efforts to select at least [******] different Sensory GPCRs ("Selected Receptors") within thirty (30) days of receipt of the Initial Payment; to use Best Reasonable Commercial Efforts to apply Arena Activation Technology to Selected Receptors; and to use Best Reasonable Commercial Efforts to establish at least [***************************] for each of at least [*******] Selected Receptors.

2.3 DEVELOPMENT OF SCREENING ASSAYS. Arena agrees to use Best Reasonable Commercial Efforts to develop at least [*******] different Screening Assays with each Screening Assay incorporating at least [***************************] corresponding to each Selected Receptor ("Enabled Screening Assay").

2.4 SCREENING ICI LIBRARY. For each Enabled Screening Assay, Arena shall use Best Reasonable Commercial Efforts for screening up to, but not exceeding,
[*** ****************] ICI Library Ingredients. Arena agrees that it will not attempt to determine the chemical structure of any ICI Library Ingredients.

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2.5 CART IDENTIFIED INGREDIENT. For each CART Activated Receptor subject to screening, Arena shall use Best Reasonable Commercial Efforts to identify at least [** *****************************] and to determine the IC50 Value and/or EC50 Value, whichever is applicable, with respect to such CART Identified Ingredient. Upon identification of each such CART Identified Ingredient, Arena shall provide Notice to ICI ("Identified Ingredient Notice").

2.6 TECHNICAL INFORMATION TRANSFER. For each CART Activated Receptor that has been screened in accordance with Section 2.3 of this Agreement, Arena shall transfer to ICI a copy of all Arena Technical Information owned or possessed by Arena then applicable to ICI Library Ingredients subjected to a Screening Assay and/or with respect to any CART Identified Ingredient of Section 2.5. Arena agrees that the transfer of such Arena Technical Information to ICI under this
Section 2.6 shall be accomplished within thirty (30) days of each Identified Ingredient Notice.

ARTICLE III
EXCLUSIVITY

3.1 EXCLUSIVITY PERIOD.

(a) For a period of [*****************************] ("Exclusivity Period"), beginning on the day after the end of the Feasibility Period, ICI shall have the exclusive right to request that Arena, in consultation with ICI, select up to, but not exceeding, an additional [******] different Sensory GPCRs for application thereto of the Arena Activation Technology ("Additional Selected Receptors"). In addition, during both the Feasibility Period and the Exclusivity Period, ICI shall have a right of first refusal on Arena projects to develop new Screening Assays for Sensory GPCRs within the Field, exercisable by sending written Notice to Arena ("Acceptance Notice") within [*********] days of the date that Arena gives Notice to ICI of any such projects.

(b) Except as expressly provided for in Article VI, ICI acknowledges and agrees that nothing in this Agreement provides any right, express or implied, to ICI to make, have made, use, have used, sell and/or have sold any CART Activated Receptor, any material covered by Arena Patent Rights, and/or any process covered by Arena Patent Rights.

3.2 ARENA TO SELECT SENSORY GPCRS AND DEVELOP CART ACTIVATED RECEPTOR(S). Arena, in consultation with ICI, agrees to use Best Reasonable Commercial Efforts to select the Additional Selected Receptors, within sixty (60) days after the commencement of the Exclusivity Period; to use Best Reasonable Commercial Efforts to apply Arena Activation Technology to each Additional Selected Receptor; and to use Best Reasonable Commercial Efforts to establish at least [*****************************] for each Additional Selected Receptor.

3.3 DEVELOPMENT OF SCREENING ASSAYS. Arena agrees to use Best Reasonable Commercial Efforts to develop at least [*******] different Screening Assays with each Screening Assay incorporating at least [***************************] corresponding to each Additional Selected Receptor ("Additional Enabled Screening Assay").

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3.4 SCREENING ICI LIBRARY. For each Additional Enabled Screening Assay, Arena shall use Best Reasonable Commercial Efforts for screening up to, but not exceeding, [*****************] ICI Library Ingredients. Arena agrees that it will not attempt to determine the chemical structure of any ICI Library Ingredients.

3.5 CART IDENTIFIED INGREDIENT. For each CART Activated Receptor subject to screening, Arena shall use Best Reasonable Commercial Efforts to identify at least [** *****************************] and to determine the IC50 Value and/or EC50 Value, whichever is applicable, with respect to such CART Identified Ingredient. Upon identification of each such CART Identified Ingredient, Arena shall provide Identified Ingredient Notice to ICI.

3.6 TECHNICAL INFORMATION TRANSFER. For each CART Activated Receptor that has been screened in accordance with Section 3.4 of this Agreement, Arena shall transfer to ICI a copy of all Arena Technical Information owned or possessed by Arena then applicable to ICI Library Ingredients subjected to a Screening Assay and/or with respect to any CART Identified Ingredient of Section 3.5. Arena agrees that the transfer of such Arena Technical Information to ICI under this
Section 3.6 shall be accomplished within thirty (30) days of each Identified Ingredient Notice.

ARTICLE IV
PAYMENTS TO ARENA

4.1 INITIAL PAYMENT. Within ten (10) days of the Effective Date, ICI shall pay to Arena a non-creditable, non-refundable fee in the amount of [********* **********************] ("Initial Payment").

4.2 THREE INSTALLMENT PAYMENTS. ICI agrees that it shall pay to Arena three (3) non-creditable, non-refundable installment payments in the amount of [******* *********************] each on the following monthly anniversary dates:

(a) the [******************] after the Effective Date;

(b) the [**********************] day after the Effective Date; and

(c) the [*************************] after the Effective Date.

In the event that any of the foregoing anniversary dates falls on a Saturday, Sunday or federal holiday ("Non-Business Day"), payment shall be made on the business day following such Non-Business Day.

4.3 EXCLUSIVITY PERIOD COSTS. ICI shall fully reimburse Arena for the cost, including overhead at the rate of [**********************] of costs, ("Reimbursement Fees") associated with all the activities described in Article III that are performed on behalf of ICI during the Exclusivity Period. ICI shall make payments to Arena quarterly for such Reimbursement Fees within thirty (30) days of the receipt of an invoice from Arena for the previous calendar quarter's Reimbursement Fees.

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4.4 ACCOUNTING. Arena shall maintain records in reasonable detail of all monies paid by Arena for work performed on behalf of ICI during the Exclusivity Period and shall provide ICI, within thirty (30) days of the end of Exclusivity Period, with a report stating the expenditures made by Arena to complete the activities defined in Article III, using Arena's standard project accounting procedures.

ARTICLE V
UTILIZATION OF DATA

5.1 ICI'S UTILIZATION. ICI shall have the exclusive right, excepting Arena, to use all data in the Field derived from the Feasibility Study and, when applicable, during the Exclusivity Period. ICI shall exclusively have and exclusively retain full right, title and interest in any and all patent rights to the inventions and/or discoveries in the Field related to the ICI Library Ingredients, including, but not limited to, CART Identified Ingredient(s).

5.2 ARENA'S UTILIZATION. Arena shall exclusively have and exclusively retain the full right, title and interest in any and all data as well as any patent right to the inventions and/or discoveries derived from the Feasibility Study and/or during the Exclusivity Period including, but not limited to, Arena Activation Technology, CART Activated Receptors, Screening techniques and novel compounds discovered using these techniques.

ARTICLE VI
TECHNOLOGY LICENSE

6.1 ARENA LICENSE. In consideration for the agreement by ICI to make all applicable payments to Arena pursuant to Article IV, and conditioned upon the receipt by Arena of all applicable payments under Article IV, Arena grants to ICI with respect ONLY to the CART Identified Ingredients referred to in Sections 2.5 and 3.5, an exclusive right and license, exclusive even as to Arena, to make, have made, use, have used, further develop, improve and otherwise exploit in any manner, including the right to sub-license, the CART Identified Ingredients within the Field. IN the event that ICI sub-licenses any right hereunder , such sub-licensee shall agree to be subject to and bound by the terms and conditions of this Agreement, and ICI shall be responsible for ensuring that any such sub-licensee is subject to and bound by the terms and conditions of this Agreement.

6.2 ARENA TECHNOLOGY. Subject to the terms and conditions of this Agreement, both Parties acknowledge and agree that Arena has exclusive ownership of the Arena Patent Rights and Technical Information as of the Effective Date and any improvement thereof hereafter discovered or developed by Arena.

6.3 ICI TECHNOLOGY. Subject to the terms and conditions of this Agreement, both Parties acknowledge and agree that ICI has exclusive ownership of the ICI Patent Rights and ICI Technical Information as of the Effective Date and any improvement thereof hereafter discovered or developed by ICI.

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ARTICLE VII
ROYALTY PAYMENTS

7.1 ROYALTY PAYMENT.

(a) Subject to the provisions of Section 7.1(d), ICI shall pay to Arena for any and all CART Identified Ingredient(s) of ICI, or any Licensee of ICI, that incorporates an Ingredient Discovered During the Feasibility Study or an Ingredient Discovered During the Exclusivity Period, a royalty payment based on Annual Revenue of such CART Identified Ingredient(s) in the aggregate as set forth below; such royalty payment shall be made within three (3) months of December 31 for the Annual period to which the Annual Revenue applies:

(1) [**************] of the portion of Annual Revenue between
[*******] and [********]; and

(2) [**************] of the portion of Annual Revenue between
[********] and [********]; and

(3) [****************] of the portion of Annual Revenue between
[********] and [*********]; and

(4) [***************] of the portion of Annual Revenue between
[*********] and [*********]; and

(5) [***************] of the portion of Annual Revenue between
[*********] and [*********]; and

(6) [**************] of the portion of Annual Revenue between
[*********] and [*********].

The Parties agree that prior to the completion of the Feasibility Study, the Parties shall meet and shall determine, in good faith, reasonable royalty payments with respect to (i) Annual Revenue derived form the sale of a CART Identified Ingredient(s) by ICI to an organization owned and/or controlled by ICI, including, but not limited to, an ICI Affiliate, and (ii) Annual Revenue derived form the sale of a product containing a CART Identified Ingredient(s) by ICI to a Third Party and/or an organization owned and/or controlled by ICI, including, but not limited to, an ICI Affiliate.

(b) ANNUAL REVENUE OVER [*********]. The Parties agree to negotiate in good faith a royalty to be paid by ICI to Arena which will apply to the Annual Revenue which exceeds [*********] in the aggregate.

(c) REDUCED ROYALTY FEES. The royalty payment set forth in Section 7.1(a) shall be reduced by [***************] for any Ingredient Discovered During the Feasibility Study or Ingredient Discovered During the Exclusivity Period when such

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ingredient was (i) in ICI development as of the Effective Date, and (ii) set forth on APPENDIX C.

(d) CERTAIN INGREDIENTS NOT SUBJECT TO ROYALTY FEES. The royalty payment set forth in Section 7.1(a) shall not apply to ICI's existing ingredients which are listed on APPENDIX D, unless such an ICI existing ingredient listed on APPENDIX D becomes the subject of a pending or issued patent that includes Arena Technical Information. In that case, the royalty payment would be on sales above the existing level at the time of the patent application was filed.

7.2 MINIMUM CUMULATIVE SALES. No ICI product that incorporates an Ingredient Discovered During the Feasibility Study or Ingredient Discovered During the Exclusivity Period shall be included in calculating the Annual Revenue until the cumulative sales of such product exceeds
[****************************].

7.3 ADJUSTMENT OF ROYALTY PAYMENTS. Arena intends that ICI shall not be commercially disadvantaged from its competitors using similar functional ingredients arising from parallel technologies or developments as a result of royalty fee payments to Arena on particular CART Identified Ingredients, and that the annual ICI Trading Profit on the ingredient shall never be less than the annual Arena royalty fee on the ingredient.

In the event that ICI believes in good faith that the royalty provisions herein puts ICI at a commercial disadvantage by virtue of their competitors selling a similar functional ingredient to a particular CART Identified Ingredient, ICI may notify Arena and Arena will be open to discussing this issue on a case by case basis.

7.4 ROYALTY TERM. ICI shall have a continuing obligation to make all payments set forth in this Article VII until the later expiration of (i)
[******] years from the date that the cumulative sales by ICI exceeds
[***********************] or (ii) the date that the last patent expires on an Ingredient Discovered During the Feasibility Study or Ingredient Discovered During the Exclusivity Period. This Section 7.4 shall survive the earlier termination of this Agreement.

7.5 CHANGE OF CONTROL. In the event that ICI or one of its subsidiaries, disposes of all or part of one of its subsidiaries, businesses, or divisions, ICI and/or its successor shall guarantee the obligation of ICI and ICI's Licensee(s) to continue to make the payments to Arena specified under this Agreement.

7.6 AUDIT. In order to verify the completeness and correctness of Revenue, ICI and any ICI Licensee(s) shall maintain up to date books and records and Arena shall each have the right to conduct, through independent Certified Public Accountants, at its own cost and at any reasonable time during business hours, not more often than once each Annual period for not more than [******] previous years, and upon reasonable prior Notice, an audit of the accounting procedures and records of ICI and any ICI Licensee(s) used in computing and calculating the royalty payment for Annual Revenue due hereunder. The auditor shall make available to ICI and Arena a report enumerating the period covered by the audit of Revenue computed and calculated by the auditor. The costs of such audit shall be borne by

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ICI in the event that a discrepancy of more than [** **********] is discovered through such audit.

7.7 NEITHER PARTY MAKES ANY REPRESENTATION TO THE OTHER THAT ANY CART IDENTIFIED INGREDIENT AND/OR PRODUCT WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK OR OTHER PROPRIETARY RIGHT OF ANY OTHER PERSON. NEITHER PARTY MAKES ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED, TO THE OTHER WITH RESPECT TO ANY CART IDENTIFIED INGREIDIENT AND/OR PRODUCT.

ARTICLE VIII
CONFIDENTIALITY

8.1 CONFIDENTIAL DISCLOSURE AGREEMENT. Each Party shall neither disclose to any Third Party any or all of the information disclosed by the other Party hereunder or any and all of the information ("Information") disclosed by the other Party under the "Agreement for the Disclosure of Confidential Information" effective on the 1st day of August, 2000 between Arena and ICI, nor permit any such Third Party to have access to such Information, nor use such Information for any purpose other than for the purpose of this Agreement, without the prior written consent of the other Party.

8.2 EXCEPTIONS TO CONFIDENTIAL DISCLOSURE AGREEMENT. The receiving Party's obligations under Article 8.1 hereof shall not apply, with respect to any of such Information to the extent that the receiving Party can establish by competent proof that such Information:

(a) is published, known publicly, or is already in the public domain at the time of receipt of it by the receiving Party;

(b) is published, becomes known publicly or becomes a part of the public domain by publication or otherwise after the time of receipt of it by the receiving Party, except by breach of this Agreement by the receiving Party;

(c) is obtained from a Third Party after the receipt of it by the receiving Party, provided, however, that said Third Party has not obtained it directly or indirectly from the disclosing Party;

(d) is in the receiving Party's possession on the date of the receipt of it and was not acquired directly or indirectly from the disclosing Party; or

(e) is subsequently developed by the receiving Party independent of the Information received hereunder, as evidenced by competent written records established by the receiving Party.

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8.3 EXCEPTIONS TO CONFIDENTIALITY. Notwithstanding anything to the contrary in this Agreement, the receiving Party shall be entitled to disclose Information (i) to the extent required by any applicable law or court order provided that the receiving Party furnishes the disclosing Party with written Notice of such request, in advance of any such disclosure of the Information, or (ii) to a government agency, or (iii) to a regulatory authority or other Third Party to whom disclosure is necessary for development of the CART Identified Compound in connection with product development, approval or registration of the CART Identified Compound and/or Product or (iv) to the extent required under the U.S. securities laws, NASDAQ Stock Market rules or stock exchange requirements.

The foregoing obligations of confidentiality shall survive for five (5) years after any termination or expiration of this Agreement. All terms and conditions of Article II, Article III, Article IV, Article V Article VI and Article VII of this Agreement are designated CONFIDENTIAL by Arena and ICI.

ARTICLE IX
PATENT INFRINGEMENT AND ENFORCEMENT

9.1 NOTIFICATION OF INFRINGEMENT. Each Party shall promptly provide Notice to the other of any infringement (of which it becomes aware) of the intellectual property rights contemplated by this Agreement, including patent rights on any CART Activated Receptor(s) and/or Screening Assay(s) and/or CART Identified Compound(s) and/or Product(s) by any Third Party and shall provide the other Party with any available evidence of such infringement of which the Party is aware.

9.2 SUIT FOR INFRINGEMENT.

(a) During the term of this Agreement, Arena shall be responsible for enforcement of the Arena Patent Rights including, but not limited to, the bringing of an action for patent infringement, selection of the forum for such action, counsel, settlement of any such action, and the costs devoted to such action. ICI agrees to provide reasonable assistance, except for financial assistance to Arena, in the enforcement of Arena Patent Rights and ICI may join such action as initiated by Arena with counsel at its own expense and seek its own damages and other relief. If within ninety (90) days of ICI's giving Notice to Arena of a Third Party infringement in the Territory Arena fails to institute the infringement suit that ICI reasonably feels is required, ICI may institute such infringement proceedings against said Third Party at its own expense and ICI shall have the right to receive all the amounts payable by said Third Party as a result of such proceedings.

(b) In the event a claim of patent infringement is made against ICI by a Third Party in the Territory by reasons of ICI's commercial activities hereunder, ICI and Arena shall meet to analyze the infringement claim and avoidance of the same. If it is necessary to obtain an appropriate license from such a Third Party, the Parties shall, in negotiating such a license, make every effort to minimize the amount of license fees and/or royalties payable to such Third Party and (i) in case that such license is related to Arena Activation Technology, a CART Activated Receptor and/or an Enabled Screening Assay,

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Arena shall be responsible for such license fees and/or royalties, (ii) in case that such license is related to a CART Identified Compound, and/or Product, ICI shall be responsible for a for such license fees and/or royalties.

ARTICLE X
REPRESENTATION AND WARRANTIES

10.1 REPRESENTATIONS AND WARRANTIES OF ICI. ICI represents and warrants to Arena as follows:

(a) The execution and delivery of this Agreement have been duly and validly authorized, and all necessary action has been taken to make this Agreement a legal, valid and binding obligation of ICI enforceable in accordance with its terms.

(b) The execution and delivery of this Agreement and the performance by ICI of its obligations hereunder will not contravene or result in the breach of the Corporate Charter or Bylaws of ICI or result in any material breach or violation of or material default under any material agreement, indenture, license, instrument or understanding or, to the best of its knowledge, result in any violation of law, rule, regulation, statute, order or decree, to which ICI is a party or by which it or any of its property is subject.

10.2 REPRESENTATIONS AND WARRANTIES OF ARENA. Arena represents and warrants to ICI as follows:

(a) The execution and delivery of this Agreement have been duly and validly authorized, and all necessary action has been taken to make this Agreement a legal, valid and binding obligation of Arena enforceable in accordance with its terms.

(b) The execution and delivery of this Agreement and the performance by Arena of its obligations hereunder will not contravene or result in the breach of the Certificate of Incorporation or Bylaws of Arena or result in any material breach or violation of or material default under any material agreement, indenture, license, instrument or understanding or, to the best of its knowledge, result in any violation of law, rule, regulation, statute, order or decree, to which Arena is a party or by which it or any of its property is subject.

ARTICLE XI
INDEMNITY

11.1 INDEMNIFICATION BY ICI. ICI will indemnify and hold harmless Arena and its Affiliates, employees, officers, directors, shareholders and agents (an "Arena Indemnified Party") from and against all liability, loss, damages, costs and expenses (including reasonable attorneys' fees) which an Arena Indemnified Party may incur, suffer or be required to pay resulting from or arising in connection with (i) the breach by ICI of any agreement, covenant, representation or warranty of ICI contained in this Agreement, or (ii) negligence or omission of ICI.

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11.2 INDEMNIFICATION BY ARENA. Arena will indemnify and hold harmless ICI and its Affiliates, employees, officers, directors, shareholders and agents (an "ICI Indemnified Party") from and against all liability, loss, damages, costs and expenses (including reasonable attorneys' fees) which an ICI Indemnified Party may incur, suffer or be required to pay resulting from or arising in connection with (i) the breach by Arena of any agreement, covenant, representation or warranty of Arena contained in this Agreement, or (ii) negligence or omission of Arena.

11.3 CONDITIONS TO INDEMNIFICATION. The obligations of the indemnifying Party under Sections 11.1 and 11.2 of this Agreement are conditioned upon the prompt Notice to the indemnifying Party of any of the aforementioned suits or claims in writing within fifteen (15) days after receipt of notice by the indemnified Party of such suit or claim. The indemnifying Party shall have the right to assume the defense of any such suit or claim unless, in the reasoned judgment of the indemnified Party, such suit or claim involves an issue or matter which could have a materially adverse effect on the business, operations or assets of the indemnified Party, in which event the indemnified Party may participate in the defense of such suit or claim at its sole cost and expense. The provision for indemnification shall be void and there shall be no liability against a Party as to any suit or claim for which settlement or compromise or an offer of settlement or compromise is made without the prior consent of the indemnifying Party.

ARTICLE XII
TERMINATION

12.1 BREACH. Failure by either Party to comply with any of its material obligations contained in this Agreement shall entitle the other Party to give Notice to the Party in default specifying the nature of the default and requiring it to cure such default. If such default is not cured within one (1) month after receipt of such Notice, the notifying Party shall be entitled, without prejudice to any of its other rights conferred on it by this Agreement, to terminate this Agreement and the licenses granted to the breaching Party hereunder with immediate effect by giving Notice of such termination. The right of either Party to terminate this Agreement as herein provided shall not be affected in any way by its waiver of, or failure to take action with respect to, any previous default.

12.2 DURATION OF THIS AGREEMENT.

(a) This Agreement shall become effective from the Effective Date and continue to be in effect until expiration of ICI's obligation of royalty payment hereunder. Thereafter, all licenses or sublicenses granted hereunder shall become fully paid-up irrecoverable license.

(b) Either Party shall be entitled to terminate this Agreement in the event of:

(1) insolvency of the other Party or commencement of bankruptcy proceedings by such Party; or

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(2) dissolution of the other Party by that Party, or liquidation of such Party by that Party.

(c) The Parties agree that in the event that ICI sublicenses any of the rights granted to it under this Agreement to a Third Party, such sublicense shall include provisions whereby if such sublicensee(s) becomes insolvent, commences bankruptcy proceedings, dissolves, and/or liquidates its assets, any and all rights granted by ICI to such sublicensee(s) shall automatically revert back to ICI.

12.4 ACCRUED RIGHTS; SURVIVING OBLIGATIONS. Termination or expiration of this Agreement for any reason shall be without prejudice to any rights which shall have accrued to the benefit of either Party prior to such termination or expiration, nor shall such termination or expiration relieve either Party from obligations which are expressly indicated to survive termination or expiration of this Agreement.

ARTICLE XIII
RELATIONSHIP OF THE PARTIES

Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency, employer-employee, or joint venture relationship between the Parties. All activities by each Party hereunder shall be provided as an independent contractor. No Party shall incur any debts or make any commitments for the other, except to the extent, if at all, specifically provided herein.

ARTICLE XIV
MISCELLANEOUS PROVISIONS

14.1 The Parties acknowledge and agree that any and all payments to be made by ICI to Arena under this Agreement are to be (i) in United States Dollars and
(ii) in full as indicated. The Parties acknowledge and agree that the Product Revenue rates and terms in Article VII under this Agreement are in terms of United States Dollars.

14.2 LIMITATIONS ON ASSIGNMENT. Neither this Agreement nor any interest hereunder shall be assignable or transferable by ICI without the prior written consent of Arena, which consent shall not be unreasonably withheld.

14.3 FURTHER ACTS AND INSTRUMENTS. Each Party hereto agrees to execute, acknowledge and deliver such further instruments and to do all such other acts as may be necessary or appropriate to carry out the purpose and intent of this Agreement.

14.4 ENTIRE AGREEMENT. This Agreement constitutes and contains the entire agreement of the Parties and supersedes any and all prior negotiations, correspondence, understandings, letters of intent, term sheets and agreements between the Parties respecting the subject matter hereof. This Agreement may be amended or modified or one or more provisions hereof waived only by a written instrument signed by the Parties.

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14.5 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded.

14.6 INTERPRETATION. The Parties expressly and intentionally waive all rights and benefits which they now have or in the future may have under the principle of contra proferentem, which provides that "the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist," as stated in California Civil Code Section 1654. Moreover, the Parties agree that this entire Agreement, and each provision hereof, shall be deemed to have been drafted jointly by the Parties. This contract shall be construed as a whole and in accordance with its fair meaning. In interpreting this Agreement, any gender shall be deemed to include the other gender, the singular includes the plural, and vice versa, as the context may require. The headings and captions to this Agreement are for convenience only and are to be of no force or effect in construing or interpreting the provisions of this Agreement.

14.7 FORCE MAJEURE. Neither Party shall be liable to the other Party for loss or damages, or have any right to terminate this Agreement for any default or delay, attributable to any act of God, flood, fire, explosion, breakdown or plant strike, lockout, labor dispute, casualty, accident, war, revolution, civil commotion, act of a public enemy, blockage, embargo, injunction, law, order, proclamation, regulation, ordinance, demand or requirement of any government or subdivision, authority or representative of any government, or any other cause beyond the reasonable control of such Party.

14.8 NO TRADE NAME OR TRADEMARK LICENSE.

(a) No right, express or implied, is granted by this Agreement to ICI, ICI collaborators or ICI's Licensees to use in any manner the name "Arena," "Arena Pharmaceuticals," "CART" or any trade name or trademark of Arena in any business dealing which is not directly connected with the performance of this Agreement; provided, however, that ICI shall have the right to use or disclose the name Arena only to the extent and the manner as may be required by law.

(b) No right, express or implied, is granted by this Agreement to Arena, Arena collaborators or Arena licensees to use in any manner the name "ICI" or any trade name or trademark of ICI in any business dealing which is not directly connected with the performance of this Agreement; provided, however, that Arena shall have the right to use or disclose the name ICI only to the extent and the manner as may be required by law.

(c) During the term of this Agreement, the Parties may issue a press release regarding the acceptance of this Agreement by the Parties with prior written consent of the other Party on the contents of such release, which consent shall not be unreasonably withheld (it is not necessary to obtain the consent of the other Party for disclosing the information regarding this Agreement which a Party is required by law to disclose).

14.9 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be governed by and construed under applicable federal law of the United States of America and the laws of the State of California, excluding any conflict of law provisions. Each Party consents to

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the service of process by personal service or any manner in which Notices may be delivered hereunder in accordance with Section 14.12. The Parties further agree that any dispute resolution under this Section 14.9 shall take place in San Diego, California (U.S.A.). Each Party hereby expressly waives any and all objections it may have to venue, including, without limitation, the inconvenience of such forum, in any of such courts.

14.10 EXPENSES. Except as otherwise provided herein, each Party hereto shall bear its legal and other expenses incurred in connection with the negotiation, execution, delivery and performance of this Agreement.

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

14.12 NOTICE. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the Party to be notified or upon deposit with the United States Post Office registered or certified mail, postage prepaid, or upon deposit with an internationally recognized express courier with proof of delivery, postage prepaid and addressed to the Party to be notified at the address or addresses indicated below, or upon the date of fax transmission of such notice (with proof of such fax transmission established by the sender's fax receipt) using the fax numbers listed below, or at such other address or fax number as such Party may designate by ten (10) days' advance written notice to the other Party with copies to be provided as follows:

IF TO ICI, ADDRESSED TO:
Imperial Chemical Industries PLC

ICI Group Headquarters London, SWIP 3JF, UK
Attention:

Fax: (202) 293-4198

with a copy to:
Address:

Fax:

[THE REST OF THIS PAGE IS INTENTIONALLY BLANK]

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IF TO ARENA, ADDRESSED TO:
Arena Pharmaceuticals, Inc.
6166 Nancy Ridge Drive
San Diego, CA 92121 USA

Attention: Jack Lief President & CEO Fax: (858) 453-7210
with a copy to: General Counsel Address: same as above Fax: same as above

14.13 APPENDICES AND EXHIBITS. All appendices and exhibits to which reference is made are deemed incorporated in full in this Agreement, whether or not actually attached.

14.14 SURVIVING OBLIGATIONS. The following Articles and Sections shall survive any termination or expiration of this Agreement: Article I (Definitions); Article V (Utilization of Data) Article VIII (Confidentiality); Article IX (Patent Infringement and Enforcement); Article X (Representations and Warranties); Article XI (Indemnity); and Sections 6.2, 7.4, 7.7, 14.2, 14.3, 14.8, 14.9, 14.12 and 14.14.

[THE REST OF THIS PAGE IS INTENTIONALLY BLANK]

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WHEREUPON, the Parties have caused this Agreement to be executed by their duly authorized agents, as of the dates listed below.

------------------------------------------------- -------------------------------------------
IMPERIAL CHEMICAL INDUSTRIES PLC                        ARENA PHARMACEUTICALS, INC.
------------------------------------------------- -------------------------------------------
By:  /s/ Robert Wynne Toleman Turner                    By:   /s/ Richard P. Burgoon, Jr.
     -------------------------------                          --------------------------
Name:    Robert Wynne Toleman Turner                    Name:     Richard P. Burgoon, Jr.
Title:   Duly Authorized Signatory                      Title:    Sr. Vice President, Operations
                                                                  General Counsel & Secretary

Date:  24 May 2001                                      Date:  13 June 2001
       -----------                                             -------------

------------------------------------------------- -------------------------------------------

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APPENDIX A
ICI LIBRARY INGREDIENTS REQUIREMENTS

A-1
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A-2
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APPENDIX B1
ARENA PATENT RIGHTS

ATTACHED

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CONFIDENTIAL

ARENA PATENT RIGHTS

US SERIAL NO.                       FILING DATE               PUBLICATION

09/060,188                          4/14/98                   WO 98/46995

09/170,496                          10/13/98                  WO 00/22129

09/364,425                          7/30/99                   WO 00/06597



U.S. PATENT NO.                     FILING DATE               ISSUE DATE

5,462,856                           7/16/91                   10/31/95

5,601,992                           9/9/94                    2/11/97

6,051,386                           6/7/95                    4/18/00



EP PATENT NO.                       FILING DATE               ISSUE DATE

0539518                             7/17/91                   3/21/01

A-4
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APPENDIX B2
ICI PATENT RIGHTS

ATTACHED

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CASE #                 FILE DATE          PATENT NUMBER*
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]

A-6

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[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]

A-7

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CONFIDENTIAL

[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]
[*******]        [*****************]           [***************]

* Priority filing with equivalents in other countries

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APPENDIX C
ICI LIBRARY INGREDIENTS IN DEVELOPMENT
AS OF THE EFFECTIVE DATE

ATTACHED

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[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************* ******]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************* **************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]

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[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]

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[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[****************************************** *******************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]

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[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]
[******************************************]

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APPENDIX D
ICI INGREDIENTS

ATTACHED

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CONFIDENTIAL

[*********************************************************]

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CONFIDENTIAL

o [******************************************]
o [*********************************************]
o [****************************************************]
o [************************************************************* *******************]
o [**********************************************************************]
o [******************************************]****************************

     *******************************************************]
o   [***********************************************************************
     *************************************************]

The terms on this page shall have the same meanings as they have in the Agreement.

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