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

                                   FORM 10-K/A
                                (AMENDMENT NO. 1)

(MARK ONE)

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

      FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

                                       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: 000-30111

                          LEXICON GENETICS INCORPORATED
             (Exact Name of Registrant as Specified in its Charter)

                DELAWARE                                  76-0474169
     (State or Other Jurisdiction of                  (I.R.S. Employer
       Incorporation or Organization)               Identification Number)

8800 TECHNOLOGY FOREST PLACE
THE WOODLANDS, TEXAS 77381                                 (281) 863-3000
(Address of Principal Executive                  (Registrant's Telephone Number,
   Offices and Zip Code)                              Including Area Code)

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

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                    Common Stock, par value $0.001 per share

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

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

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [ ]

      The aggregate market value of voting stock held by non-affiliates of the
registrant as of the last day of the registrant's most recently completed second
quarter was approximately $198.3 million, based on the closing price of the
common stock on the Nasdaq National Market on June 30, 2003 of $6.60 per share.
For purposes of the preceding sentence only, all directors, executive officers
and beneficial owners of ten percent or more of the registrant's common stock
are assumed to be affiliates. As of June 30, 2004, 63,409,081 shares of common
stock were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

      No documents are incorporated by reference into this Form 10-K/A.

================================================================================

EXPLANATORY NOTE

      We are filing this amendment to our Annual Report on Form 10-K for the
year ended December 31, 2003, originally filed with the Securities and Exchange
Commission on March 12, 2004, solely for the purpose of filing revised versions
of Exhibits 10.14 and 10.15 to disclose certain information for which
confidential treatment had been initially requested. Pursuant to Rule 12b-15
under the Securities Exchange Act of 1934, as amended, we are including Item 15
below. Except as specifically indicated herein, no other information included in
our Annual Report on Form 10-K for the year ended December 31, 2003 is amended
by this Form 10-K/A.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

      (a)   Documents filed as a part of this report:

            1.    Consolidated Financial Statements

                                                           PAGE
                                                           ----
                                                        
Report of Independent Auditors.............................F-1
Report of Independent Public Accountants...................F-2
Consolidated Balance Sheets................................F-3
Consolidated Statements of Operations......................F-4
Consolidated Statements of Stockholders' Equity............F-5
Consolidated Statements of Cash Flows......................F-6
Notes to Consolidated Financial Statements.................F-7

      All other financial statement schedules are omitted because they are not
applicable or not required, or because the required information is included in
the financial statements or notes thereto.

      2.    Exhibits

EXHIBIT NO.                              DESCRIPTION
- -----------                              -----------
            
    3.1   --   Restated Certificate of Incorporation (filed as Exhibit 3.1 to
               the Company's Registration Statement on Form S-1 (Registration
               No. 333-96469) and incorporated by reference herein).

    3.2   --   Restated Bylaws (filed as Exhibit 3.2 to the Company's
               Registration Statement on Form S-1 (Registration No. 333-96469)
               and incorporated by reference herein).

   10.1   --   Employment Agreement with Arthur T. Sands, M.D., Ph.D. (filed as
               Exhibit 10.1 to the Company's Registration Statement on Form S-1
               (Registration No. 333-96469) and incorporated by reference
               herein).

   10.2   --   Employment Agreement with James R. Piggott, Ph.D. (filed as
               Exhibit 10.2 to the Company's Registration Statement on Form S-1
               (Registration No. 333-96469) and incorporated by reference
               herein).

   10.3   --   Employment Agreement with Jeffrey L. Wade, J.D. (filed as Exhibit
               10.3 to the Company's Registration Statement on Form S-1
               (Registration No. 333-96469) and incorporated by reference
               herein).

   10.4   --   Employment Agreement with Brian P. Zambrowicz, Ph.D. (filed as
               Exhibit 10.4 to the Company's Registration Statement on Form S-1
               (Registration No. 333-96469) and incorporated by reference
               herein).

   10.5   --   Employment Agreement with Julia P. Gregory (filed as Exhibit 10.5
               to the Company's Registration Statement on Form S-1 (Registration
               No. 333-96469) and incorporated by reference herein).

   10.6   --   Employment Agreement with Alan Main, Ph.D. (filed as Exhibit 10.1
               to the Company's Quarterly Report on Form 10-Q for the period
               ended September 30, 2001 and incorporated by reference herein).

EXHIBIT NO.                              DESCRIPTION
- -----------                              -----------
            
   10.7   --   Form of Indemnification Agreement with Officers and Directors
               (filed as Exhibit 10.7 to the Company's Registration Statement on
               Form S-1 (Registration No. 333-96469) and incorporated by
               reference herein).

   10.8   --   2000 Equity Incentive Plan (filed as Exhibit 10.8 to the
               Company's Registration Statement on Form S-1 (Registration No.
               333-96469) and incorporated by reference herein).

   10.9   --   2000 Non-Employee Directors' Stock Option Plan (filed as Exhibit
               10.9 to the Company's Registration Statement on Form S-1
               (Registration No. 333-96469) and incorporated by reference
               herein).

  10.10   --   Coelacanth Corporation 1999 Stock Option Plan (filed as Exhibit
               99.1 to the Company's Registration Statement on Form S-8
               (Registration No. 333-66380) and incorporated by reference
               herein).

 +10.11   --   LexVision Database and Collaboration Agreement, dated September
               26, 2000, with Bristol-Myers Squibb Company (filed as Exhibit
               10.1 to the Company's Current Report on Form 8-K dated September
               26, 2000 and incorporated by reference herein).

 +10.12   --   LexVision Database and Collaboration Agreement, dated June 27,
               2001, with Incyte Genomics, Inc. (filed as Exhibit 10.2 to the
               Company's Quarterly Report on Form 10-Q for the period ended June
               30, 2001 and incorporated by reference herein).

 +10.13   --   Therapeutic Protein Alliance Agreement, dated June 27, 2001, with
               Incyte Genomics, Inc. (filed as Exhibit 10.3 to the Company's
               Quarterly Report on Form 10-Q for the period ended June 30, 2001
               and incorporated by reference herein).

*+10.14   --   Amended and Restated Collaboration and License Agreement, dated
               November 19, 2003, with Genentech, Inc.

*+10.15   --   Collaboration and License Agreement, dated December 17, 2003,
               with Bristol-Myers Squibb Company

  10.16   --   Synthetic Lease Financing Facility with First Security Bank,
               National Association, the Lenders and Holders named therein, and
               Bank of America, N.A. (filed as Exhibit 10.12 to the Company's
               Annual Report on Form 10-K for the year ended December 31, 2000
               and incorporated by reference herein).

  10.17   --   Lease Agreement, dated October 21, 1998, between Coelacanth
               Chemical Corporation and ARE-279 Princeton Road, LLC. (filed as
               Exhibit 10.18 to the Company's Annual Report on Form 10-K for the
               year ended December 31, 2001 and incorporated by reference
               herein).

  10.18   --   Lease Agreement, dated May 23, 2002, between Lexicon
               Pharmaceuticals (New Jersey), Inc. and Townsend Property Trust
               Limited Partnership (filed as Exhibit 10.2 to the Company's
               Quarterly Report on Form 10-Q for the period ended June 30, 2002
               and incorporated by reference herein).

   21.1   --   Subsidiaries (filed as Exhibit 21.1 to the Company's Annual
               Report on Form 10-K for the year ended December 31, 2001 and
               incorporated by reference herein).

 **23.1   --   Consent of Ernst & Young LLP

 **23.2   --   Information regarding consent of Arthur Andersen LLP

 **24.1   --   Power of Attorney (contained in signature page)

  *31.1   --   Certification of CEO Pursuant to Section 302 of the
               Sarbanes-Oxley Act of 2002

  *31.2   --   Certification of CFO Pursuant to Section 302 of the
               Sarbanes-Oxley Act of 2002

  *32.1   --   Certification of CEO and CFO Pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002

EXHIBIT NO.                              DESCRIPTION
- -----------                              -----------
            
   99.1   --   Letter to the Securities and Exchange Commission regarding Audit
               Assurances (filed as Exhibit 99.1 to the Company's Annual Report
               on Form 10-K for the year ended December 31, 2001 and
               incorporated by reference herein).

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

*        Filed herewith.

**       Previously filed.

+        Confidential treatment has been requested for a portion of this
         exhibit. The confidential portions of this exhibit have been omitted
         and filed separately with the Securities and Exchange Commission.

         (b)      Reports on Form 8-K:

                  On October 30, 2003, we filed a Current Report on Form 8-K
                  dated October 30, 2003 relating to our issuance of a press
                  release reporting our financial results for the quarter ended
                  September 30, 2003, which press release included our
                  consolidated balance sheet data and consolidated statements of
                  operations data for the period.

                                   SIGNATURES

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

                               LEXICON GENETICS INCORPORATED

Date:  July 16, 2004          By:                *
                                 -----------------------------------------------
                                 Arthur T. Sands, M.D., Ph.D.
                                 President and Chief Executive Officer

Date:  July 16, 2004          By:                *
                                 -----------------------------------------------
                                 Julia P. Gregory
                                 Executive Vice President, Corporate Development
                                 and Chief Financial Officer

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

              SIGNATURE                                    TITLE                                                 DATE
              ---------                                    -----                                                 ----
                                                                                                       
                  *                      President and Chief Executive Officer                               July 16, 2004
- ------------------------------------     (Principal Executive Officer)
Arthur T. Sands, M.D., Ph.D.

                  *                      Executive Vice President, Corporate Development and                 July 16, 2004
- ------------------------------------     Chief Financial Officer
Julia P. Gregory                         (Principal Financial and Accounting Officer)

                  *                      Chairman of the Board of Directors                                  July 16, 2004
- ------------------------------------
C. Thomas Caskey, M.D.

                  *                      Director                                                            July 16, 2004
- ------------------------------------
Sam L. Barker, Ph.D.

                  *                      Director                                                            July 16, 2004
- ------------------------------------
Patricia M. Cloherty

                  *                      Director                                                            July 16, 2004
- ------------------------------------
Robert J. Lefkowitz, M.D.

                  *                      Director                                                            July 16, 2004
- ------------------------------------
Alan S. Nies. M.D.

* By:             /s/ Jeffrey L. Wade
         -----------------------------------
                  Jeffrey L. Wade

Pursuant to powers-of-attorney filed on
March 12, 2004 with the Annual Report on
Form 10-K for the year ended December
31, 2003

                                 EXHIBIT INDEX

EXHIBIT NO.                              DESCRIPTION
- -----------                              -----------
            
    3.1   --   Restated Certificate of Incorporation (filed as Exhibit 3.1 to
               the Company's Registration Statement on Form S-1 (Registration
               No. 333-96469) and incorporated by reference herein).

    3.2   --   Restated Bylaws (filed as Exhibit 3.2 to the Company's
               Registration Statement on Form S-1 (Registration No. 333-96469)
               and incorporated by reference herein).

   10.1   --   Employment Agreement with Arthur T. Sands, M.D., Ph.D. (filed as
               Exhibit 10.1 to the Company's Registration Statement on Form S-1
               (Registration No. 333-96469) and incorporated by reference
               herein).

   10.2   --   Employment Agreement with James R. Piggott, Ph.D. (filed as
               Exhibit 10.2 to the Company's Registration Statement on Form S-1
               (Registration No. 333-96469) and incorporated by reference
               herein).

   10.3   --   Employment Agreement with Jeffrey L. Wade, J.D. (filed as Exhibit
               10.3 to the Company's Registration Statement on Form S-1
               (Registration No. 333-96469) and incorporated by reference
               herein).

   10.4   --   Employment Agreement with Brian P. Zambrowicz, Ph.D. (filed as
               Exhibit 10.4 to the Company's Registration Statement on Form S-1
               (Registration No. 333-96469) and incorporated by reference
               herein).

   10.5   --   Employment Agreement with Julia P. Gregory (filed as Exhibit 10.5
               to the Company's Registration Statement on Form S-1 (Registration
               No. 333-96469) and incorporated by reference herein).

   10.6   --   Employment Agreement with Alan Main, Ph.D. (filed as Exhibit 10.1
               to the Company's Quarterly Report on Form 10-Q for the period
               ended September 30, 2001 and incorporated by reference herein).

EXHIBIT NO.                              DESCRIPTION
- -----------                              -----------
            
   10.7   --   Form of Indemnification Agreement with Officers and Directors
               (filed as Exhibit 10.7 to the Company's Registration Statement on
               Form S-1 (Registration No. 333-96469) and incorporated by
               reference herein).

   10.8   --   2000 Equity Incentive Plan (filed as Exhibit 10.8 to the
               Company's Registration Statement on Form S-1 (Registration No.
               333-96469) and incorporated by reference herein).

   10.9   --   2000 Non-Employee Directors' Stock Option Plan (filed as Exhibit
               10.9 to the Company's Registration Statement on Form S-1
               (Registration No. 333-96469) and incorporated by reference
               herein).

  10.10   --   Coelacanth Corporation 1999 Stock Option Plan (filed as Exhibit
               99.1 to the Company's Registration Statement on Form S-8
               (Registration No. 333-66380) and incorporated by reference
               herein).

 +10.11   --   LexVision Database and Collaboration Agreement, dated September
               26, 2000, with Bristol-Myers Squibb Company (filed as Exhibit
               10.1 to the Company's Current Report on Form 8-K dated September
               26, 2000 and incorporated by reference herein).

 +10.12   --   LexVision Database and Collaboration Agreement, dated June 27,
               2001, with Incyte Genomics, Inc. (filed as Exhibit 10.2 to the
               Company's Quarterly Report on Form 10-Q for the period ended June
               30, 2001 and incorporated by reference herein).

 +10.13   --   Therapeutic Protein Alliance Agreement, dated June 27, 2001, with
               Incyte Genomics, Inc. (filed as Exhibit 10.3 to the Company's
               Quarterly Report on Form 10-Q for the period ended June 30, 2001
               and incorporated by reference herein).

*+10.14   --   Amended and Restated Collaboration and License Agreement, dated
               November 19, 2003, with Genentech, Inc.

*+10.15   --   Collaboration and License Agreement, dated December 17, 2003,
               with Bristol-Myers Squibb Company

  10.16   --   Synthetic Lease Financing Facility with First Security Bank,
               National Association, the Lenders and Holders named therein, and
               Bank of America, N.A. (filed as Exhibit 10.12 to the Company's
               Annual Report on Form 10-K for the year ended December 31, 2000
               and incorporated by reference herein).

  10.17   --   Lease Agreement, dated October 21, 1998, between Coelacanth
               Chemical Corporation and ARE-279 Princeton Road, LLC. (filed as
               Exhibit 10.18 to the Company's Annual Report on Form 10-K for the
               year ended December 31, 2001 and incorporated by reference
               herein).

  10.18   --   Lease Agreement, dated May 23, 2002, between Lexicon
               Pharmaceuticals (New Jersey), Inc. and Townsend Property Trust
               Limited Partnership (filed as Exhibit 10.2 to the Company's
               Quarterly Report on Form 10-Q for the period ended June 30, 2002
               and incorporated by reference herein).

   21.1   --   Subsidiaries (filed as Exhibit 21.1 to the Company's Annual
               Report on Form 10-K for the year ended December 31, 2001 and
               incorporated by reference herein).

 **23.1   --   Consent of Ernst & Young LLP

 **23.2   --   Information regarding consent of Arthur Andersen LLP

 **24.1   --   Power of Attorney (contained in signature page)

  *31.1   --   Certification of CEO Pursuant to Section 302 of the
               Sarbanes-Oxley Act of 2002

  *31.2   --   Certification of CFO Pursuant to Section 302 of the
               Sarbanes-Oxley Act of 2002

  *32.1   --   Certification of CEO and CFO Pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002

EXHIBIT NO.                              DESCRIPTION
- -----------                              -----------
            
   99.1   --   Letter to the Securities and Exchange Commission regarding Audit
               Assurances (filed as Exhibit 99.1 to the Company's Annual Report
               on Form 10-K for the year ended December 31, 2001 and
               incorporated by reference herein).

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

*     Filed herewith.

**    Previously filed.

+     Confidential treatment has been requested for a portion of this exhibit.
      The confidential portions of this exhibit have been omitted and filed
      separately with the Securities and Exchange Commission.

                                                                   EXHIBIT 10.14

CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.

                              AMENDED AND RESTATED

                       COLLABORATION AND LICENSE AGREEMENT

            This Amended and Restated Collaboration and License Agreement (the
"Agreement") is executed as of the 19 day of November, 2003 and made effective
as of the 17 day of December, 2002 (the "Effective Date") between Genentech,
Inc., a Delaware corporation having its principal place of business at 1 DNA
Way, South San Francisco, California 94080 ("Genentech"), and Lexicon Genetics
Incorporated, a Delaware corporation having its principal place of business at
8800 Technology Forest Place, The Woodlands, TX 77381-1160 ("Lexicon"). The
Agreement amends and restates that certain Collaboration and License Agreement
between Genentech and Lexicon dated as of December 17, 2002 (the "Original
Agreement"). Throughout the Agreement, Genentech and Lexicon are sometimes
referred to individually as a "Party" and collectively as "Parties."

                                    RECITALS

            WHEREAS, Genentech is in the business of using human genetic
information to discover, develop, manufacture and market pharmaceutical
products; and

            WHEREAS, Lexicon possesses certain knowledge and experience in the
design, generation, and phenotypic analysis of Knock-Out Mice and ES Cell Lines;
and

            WHEREAS, Genentech desires, on the terms and conditions contained
herein, for Lexicon to generate Knock-Out Mice and ES Cell Lines for Genentech
based on human gene sequences provided by Genentech and then to analyze such
Knock-Out Mice and ES Cell Lines, and Lexicon desires, on the terms and
conditions, and for the consideration, contained herein, to undertake such
activities; and

            NOW THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained in this Agreement, the Parties agree as follows:

                                   ARTICLE 1

                                   DEFINITIONS

Terms defined in this Article 1 and parenthetically elsewhere, including in the
introductory paragraph and recitals, will have the same meaning throughout this
Agreement, unless otherwise specified. Defined terms are capitalized and may be
used in the singular or plural.

1.1   "ACADEMIC COLLABORATOR" means a principal investigator, employed at
a university or other not-for-profit academic research institution that has
entered into a material transfer agreement with Genentech pursuant to Section
5.10, who is performing collaborative research with Genentech involving use of a
Knock-Out Mouse or Progeny.

1.2   "ACTUAL KNOWLEDGE" of a Party means knowledge or awareness of a fact by
any board member or officer of such Party or of an Affiliate of such Party, or
any employee or agent of such Party that a board member or officer would
reasonably consult with regard to a particular fact, in each case after making
reasonable inquiries and investigations.

1.3   "AFFILIATE" of a Party means any person or corporation, joint venture, or
other business entity which directly (or indirectly through one or more
intermediaries) controls, is controlled by, or is under common control with such
Party, as the case may be. For purposes of this definition only, the terms
"controls," "controlled," and "control" mean the direct or indirect ability or
power to direct or cause the direction of the management and policies of an
entity or otherwise direct the affairs of such entity, whether through ownership
of equity, voting securities, or beneficial interest, by contract, or otherwise.
Notwithstanding the foregoing, F. Hoffmann-La Roche Ltd and its affiliates shall
not be considered Affiliates of Genentech for purposes of this Agreement.

1.4   "APPLICABLE LAWS" means all applicable statutes, ordinances, regulations,
rules, or orders of any kind whatsoever of any government authority or court of
competent jurisdiction.

1.5   "BLA" means a Biologics License Application filed with the FDA in the
United States or a corresponding application filed with a governmental authority
in any other country, together with all additions, deletions and supplements
thereto.

1.6   "CALENDAR QUARTER" means a period of three (3) consecutive calendar months
ending on either March 31, June 30, September 30, or December 31.

1.7   "CALENDAR YEAR" means the respective period of a year commencing on
January 1 and ending on December 31.

1.8   "COMMERCIALLY REASONABLE EFFORTS" or "commercially reasonable efforts"
means those diligent efforts consistent with the exercise of prudent scientific
and business judgment, as applied to its own high priority research projects or
pharmaceutical products by the Party in question. With regard to the creation
and generation of Knock-Out Mice for a Project, such efforts shall be deemed to
have been exhausted if Lexicon has [**] and (i) [**] or (ii) [**].

1.9   "CONFIDENTIAL INFORMATION" means Lexicon Confidential Information, Project
Confidential Information and/or Genentech Confidential Information, as
applicable.

                                       2

1.10  "CONTRACT SERVICE PROVIDER" means any Third Person that enters into an
agreement with Genentech providing for the performance of services for
Genentech, on a fee for service basis, relating to the [**].

1.11  "DERIVATIVE PROTEIN" means (i) [**] or (ii) [**].

1.12  "DOLLARS" means United States dollars.

1.13  "EFFECTIVE DATE" has the meaning set forth in the introductory paragraph
of the Agreement.

1.14  "ES CELL LINE" means the embryonic stem cell line used to produce a line
of Knock-Out Mice containing within their genome the corresponding mutated gene.
With regard to ES Cell Lines to be delivered to Genentech pursuant to this
Agreement, the term ES Cell Line, with respect to each Project Gene, shall refer
to [**].

1.15  "FDA" means the U.S. Food and Drug Administration or corresponding
governmental authority in another country.

1.16  "FIELD" means any human or animal healthcare applications including,
without limitation, the diagnosis, prevention and treatment of diseases or
conditions.

1.17  "FIRST PASS PHENOTYPIC ANALYSIS" means the tests, observations, and
analyses listed on Exhibit A that Lexicon will use Commercially Reasonable
Efforts to perform, under Section 3.3, on the Knock-Out Mice of each Project.

1.18  "FORCE MAJEURE" means acts of God, strikes, civil disturbances,
earthquakes, fires, floods, explosions, riots, war, rebellion, sabotage, acts or
failure to act of governmental authority, or any other cause beyond the
reasonable control and without negligence of the defaulting Party, provided that
the Party claiming force majeure has exerted all reasonable efforts to promptly
remedy such force majeure.

1.19  "GAAP" shall mean United States generally accepted accounting principles,
consistently applied.

1.20  "GENENTECH CONFIDENTIAL INFORMATION" means all proprietary discoveries,
trade secrets, inventions (whether or not patentable), data, materials and
information disclosed or provided by, or on behalf of, Genentech to Lexicon or
its designees in connection with this Agreement (including, but not limited to,
Genentech Gene Patents and Know-How) other than Project Confidential
Information, whether provided prior to, or after, the Effective Date and whether
provided orally, electronically, visually, or in writing, except such
discoveries, trade secrets, inventions, data, materials or information that
Lexicon can demonstrate, through its contemporaneous written records:

      (i)   was known to Lexicon or to the public prior to Genentech's
            disclosure hereunder;

                                       3

      (ii)  became known to the public, after Genentech's disclosure hereunder,
            other than through an unauthorized act of Lexicon or of any person
            to whom Lexicon disclosed such information;

      (iii) was subsequently disclosed to Lexicon by a person having lawful
            possession of, and a legal right to disclose without any
            restrictions, such information; or

      (iv)  was developed by Lexicon without use, and independent, of Genentech
            Confidential Information.

1.21  "GENENTECH GENE PATENTS AND KNOW HOW" means (i) all Patents which are
owned, controlled or licensed by Genentech as of the Effective Date or which are
created or acquired by Genentech during the course of this Agreement and which
claim a Project Gene, polypeptides encoded by such genes and/or antibodies
directed toward such polypeptides and/or methods of treatment employing such
genes, polypeptides and/or antibodies (also referred to herein as a "Genentech
Gene Patent") and (ii) all Know-How which is owned, controlled or licensed by
Genentech as of the Effective Date or which is created or acquired by Genentech
during the course of this Agreement which relates to any of the Project Genes
(also referred to herein as "Genentech Gene Know-How"); provided that Genentech
Gene Patents and Know-How shall not include Project Patents and Know-How.
Without limiting the generality of the foregoing, Genentech Gene Know How
includes any Genentech Confidential Information regarding Project Genes [**]
supplied by Genentech to Lexicon hereunder. Except as expressly set forth
herein, Genentech shall have no obligation to transfer Genentech Gene Know-How
to Lexicon.

1.22  "GROSS SALES" means, with respect to a Licensed Product, the gross amount
invoiced by Genentech, its Affiliates and Product Licensees, as applicable, for
sales of such Licensed Product to Third Persons.

1.23  "IND" means an Investigational New Drug Application filed with the FDA in
the United States, or a corresponding application filed with a regulatory agency
in any other country, together with all additions, deletions, and supplements
thereto.

1.24  "KNOCK-OUT MOUSE" means a mouse made by Lexicon pursuant to this Agreement
in which Lexicon has interrupted, disrupted, or deleted a specific gene or
portion thereof, homologous to a Project Gene, to inactivate the function of
such gene in such mouse.

1.25  "KNOW-HOW" means all proprietary information, trade secrets, techniques
and data (including Confidential Information) of a Party that are owned,
controlled or licensed by such a Party as of the Effective Date or thereafter
during the term of this Agreement, including but not limited to, discoveries,
formulae, materials, practices, methods, knowledge, processes, experience, test
data (including pharmacological, toxicological and clinical information and test
data), analytical and quality control data, marketing, pricing, distribution,
cost and sales data or descriptions. Know-How may be

                                       4

made prior to the Effective Date or after the Effective Date whether or not
during the course of, in furtherance of, and as a direct result of the
activities of one or more Parties hereunder. Know-How may be made by employees
of Lexicon, solely or jointly with a Third Person, by employees of Genentech,
solely or jointly with a Third Person, or jointly by employees of Lexicon and
Genentech, alone or together with a Third Person. Know-How does not include
Patents.

1.26  "LEXICON CONFIDENTIAL INFORMATION" means all proprietary discoveries,
trade secrets, inventions (whether or not patentable), data, materials, and
information disclosed or provided by, or on behalf of, Lexicon to Genentech or
its designees in connection with this Agreement (including, but not limited to,
Lexicon Knock-Out Technology), other than Project Confidential Information,
whether provided prior to, or after, the Effective Date and whether provided
orally, electronically, visually, or in writing, except such discoveries, trade
secrets, inventions, materials, data, or information that Genentech can
demonstrate, through its contemporaneous written records:

      (i)   was known to Genentech or to the public prior to Lexicon's
            disclosure hereunder;

      (ii)  became known to the public, after Lexicon's disclosure hereunder,
            other than through an unauthorized act of Genentech or of any person
            to whom Genentech disclosed such information;

      (iii) was subsequently disclosed to Genentech by a person having lawful
            possession of, and a legal right to disclose without any
            restrictions, such information; or

      (iv)  was developed by Genentech without use, and independent, of Lexicon
            Confidential Information.

1.27  "LEXICON KNOCK-OUT TECHNOLOGY" means all Patents and Know How which are
(i) owned, controlled or licensed by Lexicon as of the Effective Date or created
or acquired by Lexicon during the course of this Agreement and (ii) related to a
process or method used in the creation or generation of Knock-Out or transgenic
mice, including the process for creating Knock-Out Mice and Overexpression Mice.
"Lexicon Knock-out Technology" shall also include (A) the Know-How consisting of
the Knock-Out Mice and the Overexpression Mice; the Know-How consisting of ES
Cell Lines; and the Know-How consisting of biological materials (such as nucleic
acid sequences, RNA, DNA, organisms, proteins, polypeptides, plasmids and
vectors) used for the creation of such Knock-Out Mice and Overexpression Mice,
but not the Know-How related to the biological materials and/or sequence
information provided by Genentech to Lexicon or known to Genentech (as evidenced
by written records) prior to the Effective Date; and (B) Patents claiming such
Know How. "Lexicon Knock-Out Technology" shall not include Patents claiming
Know-How to the extent that such Patents claim methods of making or methods of
use of Proteins or nucleic acids encoding such Proteins.

                                       5

1.28  "LEXICON PRE-EXISTING PATENTS AND KNOW-HOW" means all Patents ("Lexicon
Pre-Existing Patents") and Know-How ("Lexicon Pre-Existing Know-How") which are
(i) owned, controlled or licensed by Lexicon as of the Effective Date, or
involve a Project Gene for which Lexicon had already [**] prior to the initial
proposal of such Project Gene by Genentech and (ii) related to a Pre-Existing
Project, a Project Gene, a Protein Candidate or a Licensed Product, provided in
each case that Lexicon Pre-Existing Patents and Know-How shall not include (a)
Lexicon Knock-Out Technology, (b) Genentech Gene Patents and Know How, (c)
Project Patents and Know How, (d) Restricted Rights Project Patents and
Know-How, (e) general Patents that cover inventions that could be used for
products other than products under which Genentech has a license pursuant to
Article 5, including, without limitation, Patents covering manufacturing or
process inventions, or (f) that portion of any such Patent or Know-How which is
beyond the scope of the work performed by Lexicon for Projects other than
Pre-Existing Projects.

1.29  "LICENSED PRODUCT" means a pharmaceutical preparation other than a Small
Molecule Drug that is ready for administration to the ultimate consumer and that
(i) contains as the active pharmaceutical ingredient a Protein Candidate or (ii)
that directly modulates a Protein Candidate, or the gene that encodes a Protein
Candidate.

1.30  "NDA" means a New Drug Application filed with the FDA in the United
States, or a corresponding application filed with a regulatory agency in any
other country, together with all additions, deletions, and supplements thereto.

1.31  "NET SALES" means, with respect to a Licensed Product, Gross Sales of such
Licensed Product less Sales Returns and Allowances for such Licensed Product.

1.32  "NOTE AGREEMENT" shall have the meaning set forth in Section 7.14.

1.33  "OVEREXPRESSION ANALYSIS" has the meaning set forth in Section 3.6.

1.34  "OVEREXPRESSION MOUSE" means a mouse made by Lexicon under this Agreement
in which Lexicon has overexpressed a specific gene or portion thereof,
homologous to a Project Gene, [**], to exaggerate the function of such gene in
such mouse.

1.35  "PATENT" means:

      (i)   a U.S. and corresponding foreign patent application (including
            provisional application, division, refiling, continuation,
            continuation-in-part, reissue and re-examination thereof); and

      (ii)  any patent (including without limitation, any substitution,
            extension, reissue, renewal, re-examination, patent of addition,
            supplementary protection certificate and inventors' certificate)
            that has issued or may issue in the future from any patent
            application described in Subsection (i).

                                       6

1.36  "PHASE III CLINICAL TRIAL" means, as to a specific Licensed Product, a
controlled and lawful study in humans of the efficacy and safety of such
Licensed Product, which is prospectively designed to demonstrate statistically
whether such Licensed Product is effective and safe for use in a particular
indication in a manner sufficient to file a BLA or NDA to obtain regulatory
approval to market and sell that Licensed Product in the United States or
another country for the indication being investigated by the study, as further
defined in Federal Regulation 21 C.F.R. 312.21.

1.37  "PIPELINE PROJECT" means a Project involving a Project Gene for which
Lexicon had already created or begun to create (i.e., to the stage of targeting
vector generation or beyond), prior to the proposal of such Project Gene by
Genentech, a Knock-Out Mouse involving a mouse or human gene sequence, as the
case may be, with [**] to the full length sequence of any Proposed Gene, as
determined at the protein level using [**].

1.38  "PRE-EXISTING PROJECT" means a Pipeline Project involving a Project Gene
for which Lexicon had already [**] prior to the proposal of such Project Gene by
Genentech.

1.39  "PRODUCT LICENSEE" means any Third Person which enters into an agreement
with Genentech or its Affiliates involving the grant to such Third Person of a
license to sell a Licensed Product.

1.40  "PROGENY" means mice, including successive generations thereof, that are
produced or developed by Genentech, its Affiliates or Academic Collaborators by
breeding a Knock-Out Mouse with any other mouse (including, without limitation,
any other Knock-Out Mouse).

1.41  "PROJECT" has the meaning set forth in Section 3.1(e).

1.42  "PROJECT CONFIDENTIAL INFORMATION" means all discoveries, trade secrets,
inventions (whether or not patentable), data, materials, and information created
by either Party, or created jointly by both Parties, in connection with this
Agreement (including, but not limited to, Project Patents and Project Know How)
and that are created during the course of performing the activities contemplated
by this Agreement, and whether provided orally, electronically, visually or in
writing, except such discoveries, trade secrets, inventions, materials, data, or
information that a Party can demonstrate, through its contemporaneous written
records:

      (i)   was known to such Party or to the public prior to its creation
            hereunder;

      (ii)  became known to the public, after its creation hereunder, other than
            through an unauthorized act of such Party or of any person to whom
            such Party disclosed such information;

      (iii) was subsequently disclosed to such Party by a person having lawful
            possession of, and a legal right to disclose without any
            restrictions, such information; or

                                       7

      (iv)  was developed by such Party without use, and independent, of the
            Project Confidential Information.

1.43  "PROJECT GENE" has the meaning set forth in Section 3.1(e); provided that
a Rejected Proposed Gene shall not be a Project Gene.

1.44  "PROJECT MATERIALS" means, with respect to a Project, (i) the Knock-Out
Mice made in the course of such Project, [**], and, if applicable, [**], (ii)
the data from the First Pass Phenotypic Analysis of such Knock-Out Mice, (iii)
the Overexpression Mice, if any, made in the course of such Project and (iv) the
data, if any, from the Overexpression Analysis of such Overexpression Mice.

1.45  "PROJECT PATENTS AND KNOW-HOW" means all Patents (also referred to herein
as "Project Patents") and Know How (also referred to herein as "Project Know
How") (i) created or acquired by either Party during the course of and in
connection with this Agreement and (ii) which are based upon data and other
information reviewed by the Steering Committee related to a Project Gene or
Protein Candidate; provided in each case that Project Patents and Know How shall
not include (A) Lexicon Knock-Out Technology, (B) Genentech Gene Patents and
Know-How, (C) Lexicon Pre-Existing Patents and Know-How, (D) Restricted Rights
Project Patents and Know-How, (E) general Patents that cover inventions that
could be used for products other than a Licensed Product, including, without
limitation, Patents covering manufacturing or process inventions, or (F) any
Patent or Know-How arising from work performed not in relation to this
Agreement. Any Know-How created or acquired by Genentech after a Project Gene
has been designated as a Rejected Project Gene (or Patents claiming any such
Know-How) shall not be included in the definition of Project Patents and
Know-How and shall not be subject to this Agreement.

1.46  "PROPOSED GENE" means a human gene sequence proposed by Genentech under
Section 3.1(a), (i) that Genentech believes is the full-length gene sequence for
a Protein and (ii) for which a patent application owned or controlled by
Genentech has been filed claiming such full-length human gene sequence and the
Protein believed to be produced by such gene.

1.47  "PROTEIN" means a high molecular weight [**], polymer compound composed of
a variety of amino acids joined by peptide linkages, including allelic variants
thereof and post-translationally modified variants thereof (e.g., glycosylated
proteins) that is produced by a Proposed Gene or a Project Gene.

1.48  "PROTEIN CANDIDATE" has the meaning set forth in Section 3.5, and shall
include Derivative Proteins.

1.49  "REGULATORY APPROVAL" means any and all approvals (including pricing and
reimbursement approvals), licenses, registrations or authorizations of any kind
of the FDA (or foreign equivalent) necessary for the marketing and sale of a
Licensed Product in any country or other regulatory jurisdiction. "Regulatory
Approval" shall include,

                                       8

without limitation, approval granted with respect to any BLA, NDA or other
foreign equivalent.

1.50  "REJECTED PROJECT GENE" means a Project Gene whose Protein is not
designated as a Protein Candidate under Section 3.5(c).

1.51  "REJECTED PROPOSED GENE" means a Proposed Gene (i) that is rejected under
Section 3.1(b), (c) or (d), (ii) that is removed from the collaboration under
Section 3.1(f), (iii) that is deemed a Rejected Gene pursuant to Section 3.2(a),
(iv) for which the Steering Committee does not vote, under Section 3.2(b), to
proceed or (v) that is designated a Rejected Proposed Gene under Section 3.3(a).

1.52  "RESTRICTED RIGHTS PROJECT" means a Project involving a Project Gene which
is subject to [**] prior to the initial proposal of such Project Gene by
Genentech.

1.53  "RESTRICTED RIGHTS PROJECT PATENTS AND KNOW-HOW" means all Patents (also
referred to herein as "Restricted Rights Project Patents") and Know How (also
referred to herein as "Restricted Rights Project Know How") which are (i) owned,
controlled or licensed by Lexicon as of the Effective Date or created or
acquired by Lexicon during the course of and in connection with this Agreement
and (ii) which are based upon data and other information reviewed by the
Steering Committee related to a Project Gene or Protein Candidate in connection
with a Restricted Rights Project; provided in each case that Restricted Rights
Project Patents and Know How shall not include (A) Lexicon Knock-Out Technology,
(B) Genentech Gene Patents and Know-How, (C) general Patents that cover
inventions that could be used for products other than a Licensed Product,
including, without limitation, Patents covering manufacturing or process
inventions, or (D) any Patent claims or Know-How arising from work performed not
in relation to this Agreement.

1.54  "SALES RETURNS AND ALLOWANCES" means, with respect to a Licensed Product,
the sum of (a) and (b), where: (a) is a provision, [**] for sales of such
Licensed Product under GAAP as provided hereinabove for (i) cash and quantity
discounts or rebates on such Licensed Product (other than price discounts
granted at the time of invoicing and which are included in the determination of
Gross Sales), (ii) credits or allowances given or made for rejection or return
of previously sold Licensed Product or for retroactive price reductions
(including Medicare and similar types of rebates and chargebacks), (iii) sales
taxes, duties or other governmental charges levied on or measured by the billing
amount for such Licensed Product, as adjusted for rebates and refunds, (iv)
charges for freight and insurance directly related to the distribution of such
Licensed Product, to the extent included in the invoice to the customer, and (v)
credits for allowances given or made for wastage replacement, indigent patient
and any other sales programs agreed to by the Parties for such Licensed Product;
and (b) is a periodic adjustment of the provision determined in (a) to reflect
amounts actually incurred by Genentech, its Affiliates and Product Licensees, as
applicable, for items (i), (ii), (iii), (iv) and (v) in clause (a).

                                       9

1.55  "SMALL MOLECULE DRUG" means any pharmaceutical compound for the treatment
of any human or animal disease or condition, the active ingredient of which is a
synthetically prepared, or a naturally derived chemical compound [**]; provided,
however, that "Small Molecule Drug" specifically excludes any compound which
consists of or incorporates as an active ingredient a Protein, a Derivative
Protein, a nucleic acid oligomer, or an antibody or any fragment thereof.

1.56  "STEERING COMMITTEE" means the committee established and described in
Article 2.

1.57  "THIRD PERSON" means any person or entity other than Lexicon, Genentech or
any Affiliate of Lexicon or Genentech.

                                   ARTICLE 2

                             GOVERNANCE OF RESEARCH

2.1   CREATION OF A STEERING COMMITTEE. Within [**] of the Effective Date, the
Parties shall establish a Steering Committee to oversee the Parties' activities
under Article 3 of this Agreement. The Steering Committee shall be comprised of
[**], but each Party may change its Steering Committee members at any time by
giving prior written notice to the other Party.

2.2   STEERING COMMITTEE RESPONSIBILITIES. The Steering Committee shall have the
following responsibilities, as well as any additional responsibilities expressly
set forth in this Agreement:

      (i)   receiving and reviewing reports and data received from a Party from
            time to time as set forth herein, including without limitation the
            submission of Proposed Genes, data related to the murine homology of
            Proposed Genes, results of the First Pass Phenotypic Analysis and
            Overexpression Analysis;

      (ii)  receiving notices from the Parties as set forth herein, including
            without limitation notices of delays or stalled research pursuant to
            Section 3.3(a);

      (iii) the designation of Project Genes and Protein Candidates under
            Sections 3.1 and 3.5, respectively;

      (iv)  coordinating the activities of the Parties hereunder;

      (v)   developing and implementing a publicity strategy and policy for the
            review and approval of press releases and publications in accordance
            with Section 9.4;

                                       10

      (vi)  settling disputes or disagreements that arise between the parties as
            set forth in Article 13; and

      (vii) performing such other functions as appropriate to further the
            purposes of this Agreement, as determined by the Parties.

2.3   STEERING COMMITTEE DECISIONS. All Steering Committee decisions will be
made by [**] of all the Steering Committee's members, except as expressly stated
otherwise in this Agreement. Each Steering Committee member will have one vote,
and a Steering Committee member need not be present in order to vote; the
Steering Committee member(s) of a Party that are present for, or participating
in, a decision shall have the authority to vote on behalf of the Steering
Committee member(s) of such Party who are not present for, or participating in,
such decision.

2.4   STEERING COMMITTEE MEETINGS. Within [**] after the Effective Date, the
Steering Committee will hold an in-person organizational meeting to establish
the Committee's operating procedures. After such initial meeting, the Steering
Committee will meet at such other times as are unanimously agreed to by the
Steering Committee members, but no less than once each Calendar Quarter. Such
meetings may be in-person, via videoconference, or via teleconference, provided
that at least one meeting per Calendar Year shall be held in person. The
location of in-person Steering Committee meetings will alternate between South
San Francisco, California and The Woodlands, Texas. Each Party will bear the
expense of its respective Committee members' participation in Steering Committee
meetings. Minutes will be kept of all Steering Committee meetings.
Responsibility for keeping minutes will alternate between the Parties, beginning
with Genentech. Meeting minutes will be sent to each member of the Steering
Committee for review as soon as practicable after a meeting.

2.5   DISSOLUTION OF THE STEERING COMMITTEE. Upon the expiration of [**] after
all of the activities of Lexicon that have been approved by the Steering
Committee have been completed, the Steering Committee will have no further
responsibilities or authority under this Agreement and will be considered
dissolved by the Parties.

                                   ARTICLE 3

                             KNOCK-OUT MICE PROJECTS

3.1   GENENTECH SUBMISSION OF PROPOSED GENES.

      (a)   Initial Submission of Proposed Genes. Genentech, within [**], will
provide the Steering Committee with a written list of up to five hundred (500)
Proposed Genes, together with the date of Genentech's initial Patent filing with
regard to each such Proposed Gene.

                                       11

      (b)   Delivery of Notice by Lexicon. Within [**] of the delivery by
Genentech of the list of Proposed Genes (or, with respect to replacement
Proposed Genes proposed by Genentech under Section 3.1(b), (c) or (f) or Section
3.2(a), within [**] of the delivery by Genentech of notice to the Steering
Committee of such replacement), Lexicon will notify the Steering Committee in
writing as to whether or not: (i) to Lexicon's Actual Knowledge, Lexicon's
conducting the activities contemplated by this Agreement with regard to such
Proposed Gene would infringe patents or other intellectual property rights under
which Lexicon is not licensed through this Agreement or otherwise; or (ii)
Lexicon is working (or under contractual obligation to begin work) for, or on
behalf of, any other person or entity or for itself involving a mouse or human
gene sequence, as the case may be, with [**] to any Proposed Gene, as determined
at the protein level using [**]. If so, Lexicon shall additionally notify
Genentech which Proposed Gene(s) are the subject of such patents or intellectual
property rights or such work, as the case may be, and whether such work is under
an exclusive or non-exclusive license or arrangement for any Proposed Gene. Any
Proposed Gene for which Lexicon is working for a Third Person under an exclusive
license or arrangement shall automatically be deemed a Rejected Proposed Gene;
provided, however, that Genentech may propose [**], in which case Lexicon will
[**] and, if the Steering Committee elects to [**], the Parties will [**]. In
the event Genentech does not [**], Genentech shall have the sole right, but not
the obligation, to propose another Proposed Gene in the place of such Rejected
Proposed Gene for the Steering Committee's review and approval, by notice to the
Steering Committee within [**] of Lexicon's notice.

      (c)   Rejection of Proposed Genes by Lexicon; Proposal of Replacement
Proposed Genes by Genentech. Lexicon shall not be obligated to develop, produce
or deliver a Knock-Out Mouse related to a Proposed Gene where Lexicon reasonably
believes, with the advice of its counsel and the Steering Committee, that such
action would infringe the intellectual property rights of a Third Person. Such
Proposed Gene shall become a Rejected Proposed Gene and the Steering Committee
shall adopt an acceptable solution including, but not limited to, the
identification by Genentech of an alternative Proposed Gene. Lexicon shall
further have the sole right, but not the obligation, to reject any Proposed Gene
for which Lexicon reasonably believes, with the advice of its counsel and the
Steering Committee, that Genentech was not the first to file a patent
application, but only in cases where the Steering Committee reasonably believes
[**], by notice to the Steering Committee within the period specified in Section
3.1(b), in which case Lexicon shall have the right to designate such Proposed
Gene as a Rejected Proposed Gene. In such event, Genentech shall have the sole
right, but not the obligation, to propose another Proposed Gene in the place of
such Rejected Proposed Gene for the Steering Committee's review and approval, by
notice to the Steering Committee within [**] of Lexicon's notice.

      (d)   Removal of Proposed Genes by Genentech. Within [**] of Genentech's
receipt of Lexicon's notice under Section 3.1(b), Genentech shall inform Lexicon
which, if any, of the Proposed Genes referenced in Lexicon's notice (and not
automatically deemed a Rejected Proposed Gene under Section 3.1(b)) Genentech
elects to remove

                                       12

from the collaboration and, thereafter, all such removed
Proposed Genes shall constitute Rejected Proposed Genes. Genentech shall have no
right to propose a replacement Proposed Gene for any Proposed Gene that it
elects to remove from the collaboration under this Section 3.1(d).

      (e)   Designation of Project Genes. Following Genentech's notice pursuant
to Section 3.1(d), the remaining Proposed Genes shall constitute "Project Genes"
(and the work performed hereunder with regard to such Project Gene shall be
deemed a corresponding "Project"), and be deemed to be submitted to the
collaboration for Lexicon to begin determining, as fully described in Section
3.2(a), the murine gene that is homologous to each such Project Gene. Except as
set forth in this Section 3.1, Lexicon, acting through the Steering Committee or
otherwise, shall not have the ability to prevent the submission of a Project
Gene to the collaboration for Lexicon to conduct its activities under Section
3.2(a) regarding such Project Gene. To the extent that the total number of
Project Genes is less than (i) 500 minus (ii) the number of Proposed Genes
removed by Genentech under Section 3.1(d), Genentech shall have the right,
during the period ending [**], to propose up to [**] additional Proposed Genes,
until the aggregate number of Project Genes is (x) 500 minus (y) the number of
Proposed Genes removed by Genentech under Section 3.1(d). Within [**] following
each designation of Proposed Genes as Project Genes hereunder, Lexicon shall
provide Genentech with a list of the Projects, if any, that are Pipeline
Projects and/or Pre-Existing Projects, and the stage of each such Pipeline
Project or Pre-Existing Project, as the case may be.

      (f)   Removal and Replacement of Project Genes by Genentech. At any time
prior to [**], Genentech shall have the sole right, but not the obligation, to
remove such Project Gene and/or propose another Proposed Gene for the Steering
Committee's review and approval, by delivering notice thereof to the Steering
Committee; provided, however, that Genentech shall not be permitted to remove
more than [**] Project Genes pursuant to this Section 3.1(f); and provided,
further, that Genentech shall reimburse Lexicon for all reasonable costs and
expenses, including allocable overhead, incurred by Lexicon under this Agreement
prior to the date of Genentech's notice under this subsection 3.1(f) in respect
of the Project Gene being removed (for purposes of which, "allocable overhead"
shall mean costs incurred by Lexicon or for its account which are attributable
to its supervisory functions, services functions, occupancy costs, corporate
bonus (to the extent not charged directly to departments), and its payroll,
information systems, human relations or purchasing functions and which are
allocated to company departments based on space occupied or headcount or other
activity-based method, but shall not include any costs attributable to [**]. Any
such removed Project Gene shall be considered a Rejected Proposed Gene for
purposes of this Agreement.

3.2   LEXICON IDENTIFICATION OF HOMOLOGOUS MURINE GENE; STEERING COMMITTEE
REVIEW AND APPROVAL OF PROJECTS.

      (a)   Lexicon Efforts to Determine Homologous Murine Gene. For each
Project Gene submitted to the collaboration under Section 3.1(e), Lexicon will
use Commercially Reasonable Efforts to identify the homologous murine gene as
soon as

                                       13

practicable, and in any event within [**], after such Project Gene was submitted
to it, and will provide Genentech with [**] reports regarding its efforts. To
identify the homologous murine gene, Lexicon will use its standard resources
and, if applicable, [**]. Upon identifying what it believes to be the homologous
murine gene(s) for a Project Gene, Lexicon will provide the Steering Committee
with written evidence of such gene's (or, if applicable, genes') homology. If
Lexicon is unable to identify a homologous murine gene for a Project Gene,
Lexicon will report all of the results related to such Project Gene obtained
during the course of its search to the Steering Committee as well, and such
Project Gene shall thereafter be deemed a Rejected Proposed Gene under this
Agreement. Genentech shall have the sole right, but not the obligation, to
propose another Proposed Gene in the place of such Rejected Proposed Gene for
the Steering Committee's review and approval, by notice to the Steering
Committee within [**] of Lexicon's report of its failure to identify a
homologous murine gene.

      (b)   Steering Committee Review and Approval of Projects. The Steering
Committee will review the information provided by Lexicon under Sections 3.2(a)
with respect to a Project Gene and will confirm that Lexicon has identified the
homologous murine gene, and therefore to proceed with such Project Gene under
Section 3.3 hereof. If the Steering Committee determines that Lexicon has not
identified a homologous murine gene for a Project Gene, such Project Gene shall
thereafter be deemed a Rejected Proposed Gene under this Agreement.

      (c)   Project Development Plan. Concurrently with its delivery of the
information contemplated by Section 3.2(a), Lexicon will provide the Steering
Committee (i) for Pipeline Projects, information (as set forth in Exhibit A)
regarding [**], and (ii) for Projects other than Pipeline Projects, [**]. With
regard to Pipeline Projects involving the use of an ES Cell Line generated
through Lexicon's gene trapping technology in the creation of a Knock-Out Mouse,
[**], Lexicon will [**]; provided that [**]. For all Projects that are not
Pipeline Projects, Lexicon will [**]

3.3   LEXICON'S CREATION AND TESTING OF KNOCK-OUT MICE AND ES CELL LINES.

      (a)   Activities Performed by Lexicon. Once the Steering Committee
approves proceeding with a Project Gene under Section 3.2(b), Lexicon, in
accordance with the recommendation from Genentech as to desired priority, will,
at Lexicon's sole expense, use Commercially Reasonable Efforts to perform the
following activities on such Project: (i) create and generate, [**] Knock-Out
Mice using the Project Gene's homologous murine gene; (ii) conduct a First Pass
Phenotypic Analysis of such Knock-Out Mice; and (iii) if requested by the
Steering Committee pursuant to Section 3.6, create Overexpression Mice for some
or all Project Genes corresponding to Protein Candidates. Lexicon agrees to use
Commercially Reasonable Efforts to perform and complete such activities on a
Project within [**] after the approval of a Project Gene by the Steering
Committee under Section 3.2(b). If a Project is delayed or stalled due to
technological or scientific difficulties, Lexicon will so notify Genentech and
the Steering Committee. The Parties will consult with each other to determine
whether such difficulties can be resolved or remedied. The Steering Committee
shall decide, based on input from Lexicon,

                                       14

whether such Project's problems can be remedied within the scope of commercially
reasonable efforts for such Project or whether to terminate such Project and
designate such Project Gene a Rejected Proposed Gene. Genentech shall have the
right to terminate this Agreement under certain circumstances, as set forth in
Section 10.2.

      (b)   Reports; Consultation and Site Visits. Within [**] after the end of
[**], Lexicon will provide each Steering Committee member with a written report
describing the status of its work on each Project, and, [**], Lexicon will
provide a Genentech Steering Committee member with the same [**] report
generated for Lexicon's internal purposes. Upon reasonable advance written
notice from the Steering Committee or Genentech, Lexicon will make persons
working on its behalf on a Project available during normal business hours for a
reasonable number of consultations with the Steering Committee or Genentech
regarding such Project. Such consultations will either be in-person at such
person's place of employment or via videoconference or teleconference. Upon
reasonable notice, Genentech representatives may visit during normal business
hours the facilities where Lexicon is performing services on Projects. All
Genentech representatives will be advised of, and be bound by, Genentech's
confidentiality obligations in Article 9 and will follow such security and
facility access procedures as are reasonably designated by Lexicon. Lexicon may
require that at all times the Genentech representatives be accompanied by a
Lexicon representative.

3.4   SAFEGUARDS TO PROTECT CONFIDENTIALITY OF PROJECTS.

      (a)   Lexicon hereby agrees that each person working on a Project on its
behalf (whether as an employee, subcontractor, or otherwise) has or will, prior
to commencing work on a Project, have executed an instrument:

      (i)   assigning to Lexicon all of his, her, or its rights, title, and
            interest in inventions or intellectual property arising during the
            course, and as a result, of his, her, or its association with
            Lexicon; and

      (ii)  agreeing to abide by confidentiality and non-use restrictions
            regarding Confidential Information and the existence and terms of
            this Agreement no less stringent than Lexicon's confidentiality and
            non-use obligations under Article 9.

Lexicon also agrees to maintain appropriate security measures no less stringent
than measures that are customary in the industry.

      (b)   Genentech hereby agrees that each person working on a Project on its
behalf (whether as an employee, subcontractor, or otherwise) has or will, prior
to commencing work on a Project, have executed an instrument:

      (i)   assigning to Genentech all of his, her, or its rights, title, and
            interest in inventions or intellectual property arising during the
            course, and as a result, of his, her, or its association with
            Genentech; and

                                       15

      (ii)  agreeing to abide by confidentiality and non-use restrictions
            regarding Confidential Information and the existence and terms of
            this Agreement no less stringent than Genentech's confidentiality
            and non-use obligations under Article 9.

Genentech also agrees to maintain appropriate security measures no less
stringent than measures that are customary in the industry.

3.5   REVIEW OF FIRST PASS PHENOTYPIC ANALYSIS; DESIGNATION OF PROTEIN
CANDIDATES.

      (a)   Review of First Pass Phenotypic Analysis. Once Lexicon completes the
First Pass Phenotypic Analysis on each of the Project Genes, it will submit to
Genentech, through the Steering Committee, the data from such Projects. After
reviewing this information from a Project, the Steering Committee will determine
by [**], within [**] following the submission of the First Pass Phenotypic
Analysis on such Project, whether Lexicon has [**] for such Project Gene.

      (b)   Designation of Protein Candidates. The Protein produced by each such
Project Gene for which the Steering Committee [**] votes that Lexicon has [**]
shall be designated as a "Protein Candidate." In the event that the Steering
Committee designates [**] Proteins produced by Project Genes as Protein
Candidates, then Lexicon shall have the right to designate an additional number
of Proteins produced by Project Genes as Protein Candidates, so that there are a
total of [**] Protein Candidates; provided that Lexicon shall make such
designations no later than [**] following the submission to the Steering
Committee of the last First Pass Phenotypic Analysis to be submitted under this
Agreement. Genentech shall have the rights and obligations set forth in Article
4 and 6 with regard to such Protein Candidates.

      (c)   Rejected Project Genes. Any Project Gene the Protein product of
which has not been designated as a Protein Candidate pursuant to subsection (b)
above, shall be deemed a Rejected Project Gene for purposes of this Agreement.
Genentech shall have the rights and obligations set forth in Articles 5 and 6
with regard to such Rejected Project Genes.

3.6   CREATION OF OVEREXPRESSION MICE; OVEREXPRESSION ANALYSIS. With respect to
a Protein Candidate that is designated by the Steering Committee or Lexicon in
accordance with Section 3.5, the Steering Committee may elect to have Lexicon
produce an Overexpression Mouse which overexpresses the Project Gene
corresponding to such Protein Candidate for further testing, by voting to make
such election no later than [**] following the designation of such Protein
Candidate. Lexicon agrees, at its own expense, to promptly use Commercially
Reasonable Efforts to create such Overexpression Mouse, and to promptly perform
phenotypic tests, observations, or analyses ("Overexpression Analysis") for up
to [**] Protein Candidates similar to those performed in the First Pass
Phenotypic Analysis for such Project Genes. Alternately, Genentech may elect to
perform Overexpression Analysis on any Overexpression Mouse

                                       16

itself. Once Lexicon or Genentech, as the case may be, has completed such
Overexpression Analysis on a Project, it will submit to the Steering Committee
for the Steering Committee's review of the Project the data from such
Overexpression Analysis. The Party performing such Overexpression Analysis shall
use Commercially Reasonable Efforts to complete such Overexpression Analysis no
later than [**] after the creation of such Overexpression Mouse, subject to
unanimous decision by the Steering Committee for any subsequent extension of
time, but in any event will submit to the Steering Committee all available data
related to such Overexpression Analysis, whether complete or not, within such
time period.

                                   ARTICLE 4

                                LICENSED PRODUCTS

4.1   GENENTECH'S EXCLUSIVE RIGHT TO DEVELOP AND COMMERCIALIZE LICENSED
PRODUCTS. Genentech shall have the sole right and responsibility for, and
control over, developing and commercializing Licensed Products; provided,
however, that with regard to Restricted Rights Projects, nothing in this Section
will be deemed to grant Genentech rights beyond the scope of the licenses
granted to Genentech (or limit the rights of Lexicon, its collaborators or
licensees) with regard to such Restricted Rights Project.

4.2   TRANSFER TO GENENTECH OF LEXICON PRE-EXISTING KNOW-HOW AND PROJECT
KNOW-HOW RELATED TO PROTEIN CANDIDATES. Within [**] after designation of a
Protein Candidate pursuant to Section 3.5, Lexicon will provide Genentech, to
the extent not previously provided, with a copy of all Lexicon Pre-Existing
Know-How, Project Know-How and Restricted Rights Know-How related to such
Protein Candidate in Lexicon's possession or control.

4.3   GENENTECH RESPONSIBLE FOR DEVELOPMENT COSTS. Genentech shall bear all
costs and expenses associated with, and shall have sole control over, developing
and commercializing Licensed Products.

4.4 PRODUCT LICENSEES. Genentech agrees to notify Lexicon promptly of any
(sub)license that it enters into with a Product Licensee, and Genentech further
covenants that any such (sub)licence shall contain terms and conditions
consistent with Genentech's obligations under this Agreement.

                                   ARTICLE 5

                             GRANT OF LICENSE RIGHTS

5.1   EXCLUSIVE LICENSE UNDER LEXICON PRE-EXISTING PATENTS AND KNOW-HOW AND
RESTRICTED RIGHTS PROJECT PATENTS AND KNOW-HOW FOR THE RESEARCH, DEVELOPMENT AND
COMMERCIALIZATION OF LICENSED PRODUCTS. Subject to the terms of this Agreement,
Lexicon hereby grants to Genentech (i) an exclusive (even as to Lexicon),
world-wide

                                       17

right and license under the Lexicon Pre-Existing Patents and Know-How and (ii),
to the extent specified in the Parties' designation(s) of Restricted Rights
Project(s), an exclusive (even as to Lexicon) or non-exclusive, world-wide right
and license under the Restricted Rights Project Patents and Know-How, in each
case to research, develop, make (or have made), use, sell, offer for sale, and
import Licensed Products in the Field. Such license includes the right to grant
sublicenses of all or part of such rights without Lexicon's consent; provided
that the grant of any such sublicense shall be consistent with the terms and
conditions of this Agreement and that no such sublicense to a Product Licensee
shall relieve Genentech of primary responsibility for all payments and royalties
due to Lexicon under Article 7 with respect to Licensed Product(s) licensed to
such Product Licensee.

5.2   LICENSE UNDER LEXICON PRE-EXISTING PATENTS AND KNOW-HOW AND RESTRICTED
RIGHTS PROJECT PATENTS AND KNOW-HOW FOR THE RESEARCH, DEVELOPMENT AND
COMMERCIALIZATION OF PRODUCTS OTHER THAN LICENSED PRODUCTS IN THE FIELD. Subject
to the terms of this Agreement, Lexicon hereby grants to Genentech a
royalty-free, worldwide right and license under the Lexicon Pre-Existing Patents
and Know-How and, to the extent specified in the Parties' designation(s) of
Restricted Rights Project(s), the Restricted Rights Project Patents and Know-How
to research, develop, make (or have made), use, offer for sale, sell, and import
products (including, but not limited to Small Molecule Drugs) other than
Licensed Products for use in the Field. Such right and license (i) shall be
exclusive (even as to Lexicon) under the Lexicon Pre-Existing Patents and
Know-How with respect to products in the Field other than Small Molecule Drugs,
(ii) shall be exclusive (even as to Lexicon) or non-exclusive under the
Restricted Rights Project Patents and Know-How, to the extent specified in the
Parties' designation(s) of Restricted Rights Project(s), with respect to
products in the Field other than Small Molecule Drugs and (iii) shall be
non-exclusive with regard to Small Molecule Drugs. Lexicon hereby grants
Genentech the right to grant sublicenses under the right and license granted by
Lexicon pursuant to this Section 5.2, on a Project Gene-by-Project Gene basis;
provided, however, that with respect to a Small Molecule Drug related to a
Project Gene, without the prior written consent of Lexicon, no such sublicense
under the Lexicon Pre-Existing Patents or Know-How or Restricted Rights Project
Patents or Know-How may be granted to any Third Person in the absence of (x) a
corresponding license or sublicense of right to a given Small Molecule Drug that
directly modulates the Protein produced by such Project Gene or Derivative
Protein thereof and discovered, researched and under bona fide commercial
development (at least through the stage of the demonstration of preclinical
efficacy in animal studies) by Genentech and (y) the license or sublicense of
Patent rights pertaining thereto owned by, licensed to or controlled by
Genentech.

5.3   LICENSE UNDER PROJECT PATENTS AND KNOW-HOW FOR THE RESEARCH, DEVELOPMENT
AND COMMERCIALIZATION OF SMALL MOLECULE DRUGS IN THE FIELD. Subject to the terms
of this Agreement, Genentech hereby grants to Lexicon a royalty-free,
non-exclusive, worldwide right and license under the Project Patents and
Know-How to research, develop, make (or have made), use, offer for sale, sell,
and import Small Molecule Drugs for use in the Field. Such right and license
shall be exclusive; provided

                                       18

that Genentech retains rights under the Genentech Project Patents and Know How
(i) to research, develop, make (or have made), use, offer for sale, sell, and
import Small Molecule Drugs for use in the Field and (ii) to grant licenses to
Third Persons under the Genentech Project Patents and Know How to research,
develop, make (or have made), use, offer for sale, sell, and import Small
Molecule Drugs for use in the Field in connection with (A) a corresponding
license or sublicense of right to a given Small Molecule Drug that directly
modulates the Protein produced by a Project Gene or Derivative Protein thereof
and discovered, researched and under bona fide commercial development (at least
through the stage of the demonstration of preclinical efficacy in animal
studies) by Genentech and (B) the license or sublicense of Patent rights
pertaining thereto owned by, licensed to or controlled by Genentech. Genentech
hereby grants Lexicon the right to grant sublicenses under the right and license
granted by Genentech pursuant to this Section 5.3, subject to the restrictions,
if any, on Project Materials set forth in Section 5.5.

5.4   NON-EXCLUSIVE RESEARCH LICENSE GRANT UNDER LEXICON KNOCK-OUT TECHNOLOGY TO
KNOCK-OUT MICE AND PROGENY. Subject to the terms of this Agreement and the
restrictions, if any, on Project Materials set forth in Section 5.5, Lexicon
hereby grants to Genentech a worldwide, non-exclusive right and license under
the Lexicon Knock-Out Technology to use, breed, cross-breed and have bred and
cross-bred Knock-Out Mice and Progeny, at the internal research facilities of
Genentech and its Academic Collaborators or Contract Service Providers, for
research directed toward the discovery, identification, selection,
characterization, development or commercialization of products for use in the
Field. Except as provided in Section 5.10, Genentech agrees to use Knock-Out
Mice and Progeny solely for its own internal research purposes in accordance
with the terms and conditions of this Agreement, and not to use any Knock-Out
Mice or Progeny for any purposes for any Third Person, or to transfer, license
the use of or make available to any Third Person any Knock-Out Mice or Progeny.

5.5   EXCLUSIVITY PERIOD FOR PROJECT MATERIALS. Notwithstanding the provisions
of Sections 5.2, 5.3 and 5.4:

      (a)   Lexicon shall not [**] unless [**] (and then only to the extent
permitted under Section 5.5(b) below); and

      (b)   Lexicon shall not provide Project Materials from a Project to any
Third Person before the expiration of (i) [**] following the submission to the
Steering Committee of the data from the First Pass Phenotypic Analysis for such
Project Gene in accordance with Section 3.5(a), for Project Genes that become
Rejected Project Genes, and (ii) [**] following the submission to the Steering
Committee of the data from the First Pass Phenotypic Analysis for such Project
Gene in accordance with Section 3.5(a), for Project Genes that become Protein
Candidates; provided, that no such restriction shall apply to Project Materials
generated in the course of Projects that qualify as Pre-Existing Projects unless
Genentech shall have exercised the option specified below; provided, further,
that the restriction set forth in clause (ii) shall nevertheless apply to a
Pre-Existing Project in the event that, at the time such Project Gene becomes a
Protein

                                       19

Candidate, Lexicon has no obligation to a Third Person with respect to such
Pre-Existing Project or the Project Materials generated in the course thereof..
In addition to the foregoing, for Pre-Existing Projects with respect to which
Lexicon has no obligation to a Third Person, at any time prior to designation of
such Pre-Existing Project as a Protein Candidate, Genentech shall have the
option to obtain the foregoing exclusivity period by delivering notice of such
exercise to Lexicon, together with payment of the option fee specified in
Section 7.3; provided that such option is exercised at a time when Lexicon has
no obligation to a Third Person with respect to such Pre-Existing Project. Such
option fee shall be credited against next performance or milestone payment
payable by Genentech in the event the Project Gene to which such Pre-Existing
Project relates shall be designated as a Protein Candidate. Nothing herein shall
be deemed to restrict, at any time (except as provided in Section 5.6 below),
Lexicon's right to develop for a Third Person a transgenic or Knock-Out mouse
with a mutation in a Project Gene independently requested by such Third Person
or provide such Third Person with phenotypic data derived therefrom; provided,
that [**].

5.6   EXCLUSIVITY PERIOD FOR SPECIFIED PROJECTS. At any time after the initial
designation of Project Genes under Section 3.1(e), Genentech may designate as
[**], by delivering written notice of such designations to Lexicon. Except as
may be independently requested under agreements with Lexicon in effect on [**],
Lexicon shall not [**] prior to the submission to the Steering Committee of the
data from the First Pass Phenotypic Analysis for such Project Gene in accordance
with Section 3.5(a).

5.7   RESERVATION OF RIGHTS. Notwithstanding the non-exclusive rights and
licenses granted to Genentech under Sections 5.2 and 5.4, but subject to the
exclusive rights and licenses granted to Genentech under Sections 5.1 and 5.2
and the restrictions, if any, on Project Materials set forth in Section 5.5 and
on the [**] set forth in Section 5.6:

      (a)   Lexicon reserves the right under the Lexicon Knock-Out Technology to
make and use, and to permit others to use, (i) Project Materials and (ii) other
transgenic and Knock-Out Mice (including, without limitation, transgenic and
Knock-Out Mice with a mutation in the same gene as a Knock-Out Mouse or
Overexpression Mouse) and phenotypic data with respect thereto, including the
right to grant licenses with respect to any applicable intellectual property
rights for such purpose.

(b) Lexicon reserves the right under the Lexicon Pre-Existing Patents and
Know-How and Restricted Rights Project Patents and Know-How (i) to discover,
research, develop, make, have made, import, use, have used, offer for sale, sell
and have sold Small Molecule Drugs and (ii) to grant licenses to Third Persons
to discover, research, develop, make, have made, import, use, have used, offer
for sale, sell and have sold Small Molecule Drugs.

5.8   LIMITED LICENSE TO GENENTECH GENE KNOW-HOW. For each Project Gene,
Genentech hereby grants Lexicon a non-exclusive, royalty-free license under the
Genentech Gene Patents and Know-How related to such Project Gene solely for
Lexicon to perform the following activities under this Agreement:

                                       20

      (i)   identify, under Section 3.2(a), the homologous murine gene;

      (ii)  create, under Section 3.3, Knock-Out Mice with such homologous
            murine gene;

      (iii) test, under Section 3.3 and, if applicable, Section 3.6, such
            Knock-Out Mice;

      (iv)  conduct a First Pass Phenotypic Analysis on such Project Gene under
            Section 3.3(a); and

      (v)   create Overexpression Mice and do additional testing under Section
            3.6.

Lexicon has no right to sublicense under this license grant, which shall be
considered personal to Lexicon. Such license will terminate with regard to a
Project Gene upon the earliest to occur of such Project Gene becoming a Rejected
Proposed Gene, a Rejected Project Gene, a Protein Candidate, or the completion
of Lexicon's activities under this article 5.8.

5.9   NO GRANT OF OTHER TECHNOLOGY OR PATENT RIGHTS. Except as otherwise
expressly provided in this Agreement, under no circumstances shall a party
hereto, as a result of this Agreement, obtain any ownership interest in or other
right to any technology, know-how, patents, patent applications, gene or genomic
sequence data or information, products, or biological materials of the other
party, including items owned, controlled or developed by, or licensed to, the
other party, or transferred by the other party to said party, at any time
pursuant to this Agreement.

5.10  TRANSFERS TO ACADEMIC COLLABORATOR OR CONTRACT SERVICE PROVIDERS.
Genentech shall have the right to transfer a Knock-Out Mouse or Progeny made
pursuant to this Agreement to an Academic Collaborator or Contract Service
Providers, provided that such Academic Collaborator or Contract Service
Providers shall have entered into a material transfer agreement with Genentech
containing terms relating to the transfer of such material that expressly (i)
prohibit the use of such Knock-Out Mice or Progeny thereof for any purpose other
than such Academic Collaborator's collaborative research with, or Contract
Service Provider's service for, Genentech in the Field and (ii) prohibit the
transfer of such Knock-Out Mice thereof by such Academic Collaborator or
Contract Service Provider to any Third Party. Within [**] of entering into any
such material transfer agreement, Genentech shall provide Lexicon with a copy
thereof.

5.11  LICENSE TO LEXICON ISOGENIC TECHNOLOGY. On the Effective Date, Lexicon and
Genentech shall enter into the Sublicense Agreement attached hereto as Exhibit
B.

                                       21

                                   ARTICLE 6

                   REQUEST FOR AND DELIVERY OF KNOCK-OUT MICE

6.1   REQUESTS FOR PROJECT MATERIALS BY GENENTECH. During the period of [**]
following the submission to the Steering Committee of the data from the First
Pass Phenotypic Analysis for a Project Gene in accordance with Section 3.5(a),
Genentech shall have the option, subject to the terms and conditions of this
Agreement, to have Lexicon deliver to Genentech [**] the Knock-Out Mice for such
Project Gene, by delivering written notice of such request to Lexicon. During
the period beginning on the date of the submission to the Steering Committee of
the data from the First Pass Phenotypic Analysis for a Project Gene in
accordance with Section 3.5(a) and ending on [**], Genentech shall have the
option, subject to the terms and conditions of this Agreement, to have Lexicon
deliver to Genentech Project Materials and Project Know-How (to the extent not
already provided), including without limitation [**], for such Project Gene.
Genentech may also have, during such period, [**]. Lexicon shall have no further
obligation to deliver Project Materials to Genentech following such period;
provided that, following such period, Genentech may [**].

6.2   MAINTENANCE OF BACK-UP COLONIES. For a period of at least [**] after the
delivery of a particular Knock-Out Mouse requested by Genentech under Section
6.1, Lexicon shall retain a small back-up colony of [**] such Knock-Out Mice
[**], for the purpose of replacing mice shipped to Genentech under this Article
6 which die or are otherwise unable to breed during or within [**] after
shipment to Genentech hereunder. Thereafter, until the expiration of six (6)
months following the submission to the Steering Committee of the data from the
last First Pass Phenotypic Analysis to be submitted under this Agreement,
Lexicon shall [**], if requested by Genentech. In the event Genentech requests
that Lexicon maintain any such colony for a period of more than [**], Genentech
shall pay Lexicon a storage and maintenance charge of [**] for such requested
line of Knock-Out Mice for each [**] that Lexicon maintains such colony at
Genentech's request.

6.3   DELIVERY TERMS AND CONDITIONS. Lexicon shall be responsible for making
shipping arrangements for all Knock-Out Mice to be shipped to Genentech from
Lexicon; provided that Genentech shall be responsible for (i) paying all
shipment and delivery charges in connection therewith and (ii) obtaining, if
desired, and paying for any insurance for Knock-Out Mice shipped to Genentech
from Lexicon. Genentech shall also be responsible for complying with all
customs, regulations, veterinary handling procedures and protocols, and
obtaining any and all permits, forms or permissions that may be required for
Genentech to accept shipment of Knock-Out Mice from Lexicon. Lexicon shall ship
to Genentech [**] Knock-Out Mice, [**], promptly following its receipt of
written notice that Genentech is prepared to accept shipment. Risk of loss with
respect to any Knock-Out Mice to be transferred under this Section 6.3 shall
pass to Genentech upon delivery thereof to the shipping company designated as
specified herein. If Genentech fails to complete the necessary arrangements to
accept shipment and provide such notice within [**] after delivery of its
request for such Knock-Out Mice

                                       22

pursuant to Section 6.1, Genentech shall pay Lexicon a storage and maintenance
charge of [**] for such requested line of Knock-Out Mice for each week
thereafter until Lexicon receives such notice.

                                   ARTICLE 7

                                    PAYMENTS

7.1   UP-FRONT FEE. As partial consideration for the work to be performed by
Lexicon under this Agreement, Genentech shall pay Lexicon a fee of Nine Million
Dollars (U.S.$9,000,000), which fee shall be payable within ten (10) days of the
Effective Date.

7.2   PERFORMANCE PAYMENTS. Within [**] of achieving each of the research
milestones listed below, Genentech shall pay to Lexicon the following amounts:

      [**]

7.3   OPTION FEE. In the event Genentech exercises its option under Section 5.5
with respect to a Pre-Existing Project, Genentech shall pay Lexicon an option
fee of [**] concurrently with its delivery of its notice exercising such option.

7.4   OVEREXPRESSION FUNDING. To the extent the Steering Committee elects to
have Lexicon produce an Overexpression Mouse for more than [**] Project Genes,
Genentech shall pay Lexicon funding of [**] for each additional Project Gene for
which the Steering Committee elects to have Lexicon produce an Overexpression
Mouse, which funding shall be payable within [**] of such election.

7.5   FEE FOR [**] KNOCK-OUT MICE. In the event Genentech requests, more than
[**] following the submission to the Steering Committee of the data from the
First Pass Phenotypic Analysis for a Project Gene in accordance with Section
3.5(a), that Lexicon [**], Genentech shall pay Lexicon a fee of [**]
concurrently with its delivery of such request.

7.6   FEE FOR DELIVERY OF MATERIALS [**]. In the event Genentech requests, after
the later of (i) the date of submission to the Steering Committee of the data
from the last First Pass Phenotypic Analysis to be submitted under this
Agreement and (ii) [**] following the date of submission to the Steering
Committee of the data from the First Pass Phenotypic Analysis for a Project
Gene, that [**], Genentech shall pay Lexicon a fee of [**] within [**] of
Lexicon's notice that [**].

7.7   MILESTONE PAYMENTS. With respect to the first Licensed Product relating to
a specified Protein Candidate to achieve the following development milestones
listed below, within [**] of achieving each such development milestones,
Genentech shall pay Lexicon the following amounts:

                                       23

                 MILESTONE EVENT                                                          AMOUNT
                 ---------------                                                          ------
                                                                                  
Filing of an IND for such Licensed Product                                           U.S.$       [**]

Commencement (i.e., first patient enrolled) of the first
  Phase III  Clinical Trial for such Licensed Product                                U.S.$       [**]

 Receipt of the first Regulatory Approval of such Licensed Product                   U.S.$       [**]
                                                                                     ----------------
   TOTAL                                                                             U.S.$ 17,000,000

For purposes of clarification, with respect to each Project Gene whose Protein
is designated as a Protein Candidate, Genentech shall only be required to pay
Lexicon for each of the above development milestones once upon the first
occurrence of the respective event. All milestone payments hereunder are to be
made by wire transfer of immediately available funds. Such milestone payments
are non-refundable and non-creditable against any other payments hereunder.
Genentech shall give Lexicon written notice of the achievement of any milestone
event no later than [**] after such achievement.

7.8   ROYALTIES ON LICENSED PRODUCTS. As consideration for its exclusive rights
with respect to Licensed Products and the other rights provided and activities
performed by Lexicon hereunder, Genentech agrees to pay Lexicon a royalty of
[**] of Net Sales of each Licensed Product by Genentech, its Affiliates and
Product Licensees, on a country-by-country basis, during the period commencing
with the first sale for use or consumption by the general public of a Product in
a country after Regulatory Approval in such country and ending on the date that
is [**] from the date of such first commercial sale of such Licensed Product in
such country; provided that, in the event the worldwide Net Sales of such
Licensed Product for which a royalty is payable to Lexicon hereunder exceeds
[**] in any Calendar Year, Genentech shall pay Lexicon a royalty of [**] on that
portion of such Net Sales of such Licensed Product that exceeds [**] in such
Calendar Year. The royalty payable hereunder shall be payable only once with
respect to the same unit of Licensed Product.

7.9   PAYMENT OF ROYALTY; REPORTING; EXCHANGE RATES. Within [**] after the end
of each [**], Genentech will pay (and/or cause its Affiliates and/or Product
Licensees to pay) the royalty owed under this Agreement, if any, on applicable
Net Sales invoiced during such just-ended [**]. Such payment will be accompanied
by the report showing: (i) the Gross Sales and Net Sales of Products sold during
the reporting period and the calculation of Net Sales from such Gross Sales;
(ii) the royalties payable in Dollars which shall have accrued hereunder in
respect of such Net Sales; (iii) withholding taxes, if any, required by law to
be deducted in respect of such royalties; (iv) the dates of the first commercial
sales of Licensed Products in any country during the reporting period, if
applicable; and (v) the exchange rates used in determining the amount of Dollars
payable hereunder. Royalties payable on sales in countries other than the United
States shall be calculated in accordance with the standard exchange rate
conversion practices used by Genentech, its Affiliates or the Product Licensee,
as applicable, for financial accounting

                                       24

purposes. If no royalty or payment is due for any royalty period hereunder,
Genentech shall so report. Genentech shall keep, and shall require its
Affiliates and Product Licensees to keep (all in accordance with GAAP), complete
and accurate records in sufficient detail to properly reflect all gross sales
and Net Sales and to enable the royalties payable hereunder to be determined.

7.10  U.S. CURRENCY; WIRE TRANSFERS. All payments, including any interest
pursuant to Section 7.12, payable by Genentech, its Affiliates and Product
Licensees to Lexicon under this Agreement will be paid in Dollars and will be
made by wire transfer, in immediately available funds, to an account designated
in writing by Lexicon.

7.11  TAXES. Any and all taxes levied on any payments from Genentech to Lexicon
under this Agreement will be the liability of, and paid by, Lexicon. However, if
Applicable Laws require the withholding of such taxes, Genentech will deduct
such taxes from its payment to Lexicon and remit such withheld amount to the
proper tax authority. Genentech will provide proof of payment to Lexicon within
[**] of such payment. This Agreement shall not be considered a partnership for
tax reporting purposes.

7.12  INTEREST ON OVERDUE PAYMENTS. In the event a royalty or other payment
under this Agreement is not made within [**] of when due, such outstanding
payment will accrue interest (from the date such payment is due through and
including the date upon which full payment is made) at the annual rate equal to
the [**]. Payment of accrued interest will accompany payment of the outstanding
payment.

7.13  ROYALTY RECORDS; AUDIT RIGHTS. Genentech will keep, and maintain for a
period of [**] following the end of a Calendar Year, accurate records in
sufficient detail to enable royalties under this Agreement for such Calendar
Year to be determined. Lexicon has the right, upon prior written notice to
Genentech, not more than [**], through an independent certified public
accountant selected by Lexicon and acceptable to Genentech (which acceptance
shall not be unreasonably refused) to have access during normal business hours
to those records of Genentech as may be reasonably necessary to verify the
accuracy of the royalty reports furnished by Genentech under this Agreement for
the previous Calendar Year. Prior to implementing an audit, Lexicon agrees to
submit an audit plan, including audit scope, to Genentech for Genentech's
approval (which shall not be unreasonably withheld). Lexicon's independent
certified public accountant will keep confidential all information obtained
during such audit and will report to Lexicon only the amount of Genentech's
Gross Sales and Net Sales made during, and royalties due for, the Calendar Year
in question. Genentech shall have the right, at its own expense, to have its own
independent certified public accountant review and confirm the results of the
audit performed by Lexicon's accountants. In the event that the Parties'
accountants do not agree as to the results of the audit, the Parties agree that
such accountants shall attempt in good faith to resolve any discrepancies
between their results according to GAAP and the terms of this Agreement.

Lexicon is solely responsible for all the expenses of an audit, unless the
independent certified public accountant's report correctly shows any
underpayment of royalties by

                                       25

Genentech exceeding [**] of the total royalties it owed for the Calendar Year
then being reviewed. If the independent certified public accountant's report
correctly shows that Genentech underpaid its royalties by more than [**],
Genentech is responsible for the reasonable expenses incurred by Lexicon for the
independent certified public accountant's services.

If the independent certified public accountant's report correctly shows any
underpayment of royalties by Genentech, Genentech shall remit to Lexicon within
[**] after the Genentech receipt of such report:

      (i)   the amount of such royalty underpayment;

      (ii)  interest on the amount being paid in (i), which interest shall be
            calculated pursuant to Section 7.12; and

      (iii) if such royalty underpayment exceeds [**] of Genentech's total
            royalties owed for the Calendar Year then being reviewed, the
            reasonable expenses incurred by Lexicon for the independent
            certified public accountant's services.

If the independent certified public accountant's report correctly shows any
overpayment of royalties by Genentech, such overpayment shall be fully
creditable against future royalties payable by Genentech in subsequent royalty
periods.

The calculation of royalties payable with respect to a Calendar Year will be
binding and conclusive on the Parties upon the expiration of [**] following the
end of such Calendar Year, unless (i) an audit of such Calendar Year, initiated
before the expiration of such [**], is on-going or (ii) Lexicon has, in good
faith and through written notice to Genentech, disputed such calculation before
the expiration of such [**] or, if applicable, within [**] after receipt of the
audit report.

7.14  CONVERTIBLE NOTE. Simultaneously with the execution and delivery of
this Agreement, the parties hereto shall enter into a Note Agreement (the "Note
Agreement"), dated as of the date hereof, substantially in the form attached as
Exhibit C hereto. Under the Note Agreement, Genentech shall loan Lexicon Four
Million Dollars (U.S.$4,000,000), on or before December 31, 2002, pursuant to
the terms and conditions set forth in such Note Agreement.

                                   ARTICLE 8

                     INTELLECTUAL PROPERTY RESPONSIBILITIES

8.1   OWNERSHIP.

                                       26

      (a)   Lexicon shall own all Lexicon Knock-Out Technology, Lexicon
Pre-Existing Patents and Know-How and Restricted Rights Project Patents and
Know-How. Genentech shall own all Genentech Gene Patents and Know-How and
Project Patents and Know-How.

      (b)   Lexicon shall assign all right, title and interest in inventions
encompassed within Project Patents and Know-How to Genentech by taking, and
causing its employees and agents to take, all necessary actions and executing,
and causing its employees and agents to execute, all necessary documents to
assign such rights, title and interest to Genentech. Moreover, Lexicon covenants
and agrees to cooperate, and cause its employees and agents to cooperate, with
Genentech to enable Genentech to enjoy to the fullest extent the right, title
and interest herein conveyed in the United States and foreign countries. Such
cooperation shall include prompt production of pertinent facts and documents,
giving of testimony, execution of petitions, oaths, specifications, declarations
or other papers, and other assistance all to the extent deemed necessary or
desirable by Genentech (a) for perfecting the right, title and interest herein
conveyed; (b) for prosecuting any of said applications; (c) for filing and
prosecuting applications for reissuance of any of said patents; (d) for
interference or other priority proceedings involving said invention; and (e) for
legal proceedings involving said invention and any applications therefor and any
patents granted thereon, including without limitation opposition proceedings,
cancellation proceedings, priority contests, public use proceedings,
infringement actions and court actions; provided, however, that the expense
incurred by Lexicon, its employees and agents in providing such cooperation
shall be paid for by Genentech.

8.2   PATENT PROSECUTION OF LEXICON KNOCK-OUT TECHNOLOGY, LEXICON PRE-EXISTING
PATENTS AND RESTRICTED RIGHTS PROJECT PATENTS.

      (a)   Patentable Inventions. Lexicon shall be responsible, at its sole
discretion and expense, for filing, prosecuting, and maintaining Lexicon
Knock-Out Technology, Lexicon Pre-Existing Patents and Restricted Rights Project
Patents; provided that Genentech shall be responsible, at its sole discretion,
for filing, prosecuting, and maintaining Lexicon Pre-Existing Patents and
Restricted Rights Project Patents (to the extent exclusively licensed to
Genentech) claiming Protein Candidates and uses thereof following their
designation as Protein Candidates.

      (b)   Review and Comment. Lexicon shall provide Genentech with a copy of
any patent application (including any provisional applications) within Lexicon
Knock-Out Technology specifically related to a Protein Candidate prior to filing
in any jurisdiction, for review and comment by Genentech. Lexicon shall
reasonably consider comments and suggestions provided in a timely manner by
Genentech. Genentech shall maintain any such applications in confidence.

      (c)   Notice of Decision. If Lexicon decides not to file an application
within Lexicon Knock-Out Technology specifically related to a Protein Candidate
in any country, it shall give Genentech prompt notice to this effect. After such
notice,

                                       27

Genentech may file, prosecute (including any interference), and maintain, at its
own expense, such application in such country, and Lexicon shall execute such
documents and perform such acts as may be reasonably necessary for Genentech to
continue such filing, prosecution, or maintenance.

      (d)   Prosecution and Maintenance. Lexicon agrees to use reasonable
diligence to prosecute and maintain the Lexicon Knock-Out Technology
specifically related to a Protein Candidate it filed and to prosecute any
interference proceedings with respect thereto, unless it provides Genentech
notice under Subsection (c) or (e). Upon Genentech's request, Lexicon shall
provide Genentech with (i) a copy of communications with any patent office with
respect to any Lexicon Knock-Out Technology specifically related to a Protein
Candidate and (ii) the opportunity to review and comment on any or all such
communications. Genentech shall provide its comments on any such communication
within [**] after receipt of such communication, and should no comments be
received by Lexicon on or before the [**], then it shall be deemed that
Genentech has no comment to make on such communication. Lexicon shall reasonably
consider comments and suggestions provided in a timely manner by Genentech.
Genentech shall maintain any such communications in confidence. All such
communications provided to Genentech pursuant to this Section shall be sent to a
person to be designated by Genentech by written notice to Lexicon.

      (e)   Cessation of Prosecution or Maintenance. Lexicon shall give prior
written notice to Genentech of any decision by Lexicon to cease the prosecution
(including any interference) and maintenance of Lexicon Knock-Out Technology
specifically related to a Protein Candidate and, in such case, Genentech shall
have the right at its sole discretion and expense to continue such prosecution
(including any interference) or maintenance. If Genentech continues such
prosecution or maintenance, Lexicon shall execute such documents and perform
such acts as may be reasonably necessary for Genentech to continue such
prosecution or maintenance.

8.3   PATENT PROSECUTION OF GENENTECH GENE PATENTS, PROJECT PATENTS AND LEXICON
PRE-EXISTING PATENTS AND RESTRICTED RIGHTS PROJECT PATENTS CLAIMING PROTEIN
CANDIDATES.

      (a)   Patentable Inventions. Genentech shall be responsible, at its sole
discretion and expense, for filing, prosecuting, and maintaining Genentech Gene
Patents, Project Patents and, following designation of a Protein Candidate, any
Lexicon Pre-Existing Patents and Restricted Rights Project Patents (to the
extent exclusively licensed to Genentech) related to such Protein Candidate.

      (b)   Review and Comment. Genentech shall provide Lexicon with a copy of
any patent application (including any provisional applications) within (i)
Project Patents and (ii) Lexicon Pre-Existing Patents or Restricted Rights
Project Patents relating to Protein Candidates prior to filing in any
jurisdiction for review and comment by Lexicon. Genentech shall reasonably
consider comments and suggestions provided in a timely manner by Lexicon.
Lexicon shall maintain any such applications in confidence.

                                       28

      (c)   Notice of Decision. If Genentech decides not to file an application
within (i) Project Patents related to a specific Project or (ii) Lexicon
Pre-Existing Patents or Restricted Rights Project Patents related to a Protein
Candidate in any country, it shall give Lexicon prompt notice to this effect.
After such notice, Lexicon may file, prosecute (including any interference), and
maintain, at its own expense, such application in such country, and Genentech
shall execute such documents and perform such acts as may be reasonably
necessary for Lexicon to continue such filing, prosecution, or maintenance.

      (d)   Prosecution and Maintenance. Genentech agrees to use reasonable
diligence to prosecute and maintain (i) Project Patents and (ii) Lexicon
Pre-Existing Patents and Restricted Rights Project Patents related to Protein
Candidates it filed and to prosecute any interference proceedings with respect
thereto, unless it provides Lexicon notice under Subsection (c) or (e). Upon
Lexicon's request, Genentech shall provide Lexicon with (i) a copy of
communications with any patent office with respect to any (A) Project Patents
and (B) Lexicon Pre-Existing Patents and Restricted Rights Project Patents
related to Protein Candidates and (ii) the opportunity to review and comment on
any or all such communications. Lexicon shall provide its comments on any such
communication within [**] after receipt of such communication, and should no
comments be received by Genentech on or before the [**], then it shall be deemed
that Lexicon has no comment to make on such communication. Genentech shall
reasonably consider comments and suggestions provided in a timely manner by
Lexicon. Lexicon shall maintain any such communications in confidence. All such
communications provided to Lexicon pursuant to this Section shall be sent to a
person to be designated by Lexicon by written notice to Genentech.

(e) Cessation of Prosecution or Maintenance. Genentech shall give prior written
notice to Lexicon of any decision by Genentech to cease the prosecution
(including any interference) and maintenance of (i) Project Patents related to a
specific Project or (ii) Lexicon Pre-Existing Patents or Restricted Rights
Project Patents related to a Protein Candidate and, in such case, Lexicon shall
have the right at its sole discretion and expense to continue such prosecution
(including any interference) or maintenance. If Lexicon continues such
prosecution or maintenance, Genentech shall execute such documents and perform
such acts as may be reasonably necessary for Lexicon to continue such
prosecution or maintenance.

8.4      INFRINGEMENT AND MISAPPROPRIATION.

(a) Notice. Each Party shall promptly notify the other Party in writing of any
alleged infringement or misappropriation, of which it becomes aware, by any
person of any intellectual property licensed or sublicensed to a Party under
this Agreement.

(b) Infringement of Lexicon Knock-Out Technology, Project Patents and Lexicon
Pre-Existing Patents involving Small Molecule Drugs, and Restricted Rights
Project Patents. Lexicon shall have the sole right, but not the obligation, to
take appropriate steps to remove the infringement or alleged infringement of (i)
Lexicon Knock-Out Technology, (ii) Project Patents and Lexicon Pre-Existing
Patents involving

                                       29

infringement or alleged infringement of a Small Molecule Drug, and (iii)
Restricted Rights Project Patents (except to the extent exclusively licensed to
Genentech), including, without limitation, by initiation, prosecution and
control, at its own expense, of any suit, proceeding or other legal action by
counsel of its own choice. Any damages or other monetary awards recovered by
Lexicon shall be owned by Lexicon.

      (c)   Notwithstanding the above, if the infringement or alleged
infringement relates to Lexicon Knock-Out Technology specifically related to a
Protein Candidate or to Project Patents and Lexicon Pre-Existing Patents
involving infringement or alleged infringement of a Small Molecule Drug, Lexicon
shall have the first right, but not the obligation, to take appropriate steps to
remove the infringement or alleged infringement, including, without limitation,
by initiation, prosecution and control, at its own expense, of any suit,
proceeding or other legal action by counsel of its own choice, provided that
Lexicon keeps Genentech reasonably informed of the progress of such suit,
proceeding or legal action and provides Genentech with copies of any substantive
documents related to such suit, proceeding or legal action and reasonable notice
thereof. Lexicon shall notify Genentech of its decision to exercise its right to
enforce Lexicon Knock-Out Technology specifically related to a Protein Candidate
or to Project Patents and Lexicon Pre-Existing Patents involving infringement or
alleged infringement of a Small Molecule Drug not later than [**] following its
discovery or notice of alleged infringement of Lexicon Knock-Out Technology
specifically related to a Protein Candidate or to Project Patents and Lexicon
Pre-Existing Patents involving infringement or alleged infringement of a Small
Molecule Drug. Genentech shall have the right, at its own expense, to be
represented in any such action by counsel of its own choice. If Lexicon decides
not to institute an infringement suit, proceeding or other legal action that
Genentech feels is reasonably required to protect such Lexicon Knock-Out
Technology specifically related to a Protein Candidate or to Project Patents and
Lexicon Pre-Existing Patents involving infringement or alleged infringement of a
Small Molecule Drug, Genentech shall have the right, at its sole discretion, to
institute such suit, proceeding or other legal action and Lexicon shall have the
right to be represented in such suit, proceeding or legal action, at its own
expense, by counsel of its own choice. For this purpose, the Party not bringing
the suit shall execute such legal papers necessary for such suit as may be
reasonably requested by the Party bringing suit.

In the case of infringement or alleged infringement of a Project Patent,
Genentech in its sole discretion, may elect to assign such a Project Patent to
Lexicon so that Lexicon may maintain such suit, proceding or legal action in its
own name. In such event, the licenses to Genentech under such a Project Patent
shall remain unaffected.

If Lexicon brings an action under this Subsection, any damages or other monetary
awards recovered by Lexicon shall be applied proportionately first to defray the
unreimbursed costs and expenses (including actual and reasonable attorneys'
fees) incurred by the Parties in the action. If any balance remains, such
balance shall be the property of Lexicon. If Lexicon fails to bring an action
under this Subsection, but Genentech brings an action, any damages or other
monetary awards recovered by Genentech shall be applied first to defray the
costs and expenses (including actual and reasonable attorneys'

                                       30

fees) incurred in the action by the Parties. The balance that remains shall be
the property of Genentech

      (d)   Infringement of Genentech Gene Patents and Know-How, Project Patents
and Know-How, and Lexicon Pre-Existing Patents and Know-How and Restricted
Rights Project Patents related to Protein Candidates. Genentech shall have the
sole right, but not the obligation, to take appropriate steps to remove the
infringement or alleged infringement of (i) Genentech Gene Patents and Know-How,
and (ii) (A) Project Patents and Know-How and (B) Lexicon Pre-Existing Patents
and Know-How (except to the extent such infringement or alleged infringement
relates to the development of Small Molecule Drugs, which shall be controlled by
subsection (c) above) and Restricted Rights Project Patents and Know-How (to the
extent exclusively licensed to Genentech) related to Protein Candidates,
including, without limitation, by initiation, prosecution and control, at its
own expense, of any suit, proceeding or other legal action by counsel of its own
choice. Any damages or other monetary awards recovered by Genentech shall be
owned by Genentech.

      (e)   If Genentech brings action under Subsection (d) above with respect
to (i) Project Patents and Know-How or (ii) Lexicon Pre-Existing Patents and
Know-How or Restricted Rights Project Patents and Know-How (to the extent
exclusively licensed to Genentech) related to Protein Candidates, any damages or
other monetary awards recovered by Genentech shall be applied proportionately
first to defray the unreimbursed costs and expenses (including actual and
reasonable attorneys' fees) incurred by the Parties in the action. If any
balance remains, Lexicon shall retain as its own property an amount of
compensatory damages equal to the royalty that Lexicon would otherwise be
entitled to under this Agreement if such remaining balance was treated as
Genentech Net Sales. If any balance remains after Lexicon's retained amount,
such balance shall be the property of Genentech.

8.5   NOTICE OF INFRINGEMENT BY A PARTY. If the making, using, importing, offer
for sale, or selling a Licensed Product results in a claim against a Party of
patent infringement by any Third Person, the Party first having notice of that
claim shall promptly notify the other Party in writing. The notice shall set
forth the facts of the claim in reasonable detail.

If any notice of infringement is received by, or a suit is initiated against,
either Party with respect to any Licensed Product, the Parties shall consult in
good faith regarding the best response.

Notwithstanding the foregoing, if the claim involves an allegation of a
violation of the trade secret rights of a Third Person, the Party accused of
such violation shall have the obligation to defend against such claim and shall
indemnify the other Party against all costs associated with such claim.

                                       31

8.6   LITIGATION EXPENSES. Each Party shall assume and pay all of its own
out-of-pocket expenses incurred in connection with all litigation described in
this Article 8, including without limitation, the fees and expenses of that
Party's counsel.

8.7   SETTLEMENT APPROVAL. No settlement, consent judgment or other voluntary
final disposition of a suit being prosecuted by a Party under this Article may
be entered into without the consent of the other Party if such settlement,
consent judgment or other voluntary final disposition would alter, derogate, or
diminish such other Party's rights under the Agreement, which consent will not
be unreasonably withheld or delayed.

8.8   PATENT TERM EXTENSIONS. When appropriate, the Parties shall cooperate with
each other in gaining patent term extension. All filings for such extension
shall be made by the Party that is the owner of the patent

8.9   AUDIT RIGHTS REGARDING INVOICES. In the event there is a good faith
dispute over an amount owed by a Party under this Article, the disputed payment
may be delayed, and such payment will not be considered delinquent pending a
resolution of the Parties' dispute. Section 7.13 (i.e., "Royalty and Reasonable
Expenses Records; Audit Rights") is applicable with regard to all invoices
submitted by a Party to the other Party under this Article.

                                    ARTICLE 9

                                 CONFIDENTIALITY

9.1   OBLIGATIONS. Except upon obtaining the other Party's prior written consent
to the contrary, each Party agrees that it will, for a period of [**] after the
expiration or early termination of the entire Agreement:

      (i)   maintain in confidence, and not disclose to any person (except as
            provided in Section 9.2), the other Party's Confidential Information
            or any Project Confidential Information; and

      (ii)  not use such Confidential Information for any purpose except as
            contemplated in this Agreement.

9.2   AUTHORIZED DISCLOSURES OF CONFIDENTIAL INFORMATION.

      (a)   Permitted Persons. Each Party may disclose Confidential Information
of the other Party or Project Confidential Information, without such other
Party's prior written consent, to its and its Affiliates' (or the other Party's
and its Affiliates') directors, employees, agents, consultants, permitted
(sub)licensees, suppliers, and other Third Persons who:

                                       32

      (i)   need to know such Confidential Information to assist the Party in
            fulfilling its obligations or exploiting its rights hereunder (or to
            determine their interest in providing such assistance); and

      (ii)  are bound by written confidentiality and non-use obligations no less
            stringent than those contained herein.

      (b)   Legally Required or Necessary. Each Party may also disclose the
Confidential Information of the other Party or Project Confidential Information,
without such other Party's prior written consent, to any person or to a
government or regulatory authority to the extent that such disclosure is:

      (i)   required by Applicable Law; or

      (ii)  otherwise necessary for filing a patent application, prosecuting,
            maintaining, or enforcing a patent, obtaining or maintaining
            authorizations to conduct pre-clinical or clinical studies regarding
            a product, or obtaining or maintaining a registration regarding a
            product (provided such Party is entitled at the time to engage in
            such activities under this Agreement).

Prior to disclosing the other Party's Confidential Information or Project
Confidential Information under this Subsection (b), the disclosing Party, to the
extent practicable, will give the other Party a copy of the Confidential
Information to be disclosed and provide such Party a reasonable opportunity to
comment on the necessity and the text of the proposed disclosure. The disclosing
Party agrees to consider such comments in good faith and to reasonably avail
itself of available means under the applicable law to minimize the disclosure of
such Confidential Information.

      (c)   Court Orders. Each Party may also disclose the Confidential
Information of the other Party or Project Confidential Information, without such
other Party's prior written consent, pursuant to an order of a regulatory
authority or court of competent jurisdiction, provided that it promptly notifies
the other Party of the required disclosure in order to provide such Party an
opportunity to take legal action to prevent or limit such disclosure and, if
asked, reasonably assists the other Party in pursuing such action.

      (d)   Legal Actions. Each Party may also disclose the Confidential
Information of the other Party or Project Confidential Information, without such
other Party's prior written consent, as is necessary to pursue or defend against
a legal or regulatory action related to this Agreement.

9.3   DISCLOSURE OF THE TERMS OF THE AGREEMENT. Each Party agrees that it will
maintain in confidence, and not to disclose, the terms of this Agreement without
the prior written consent of the other Party, except as authorized under
Subsections (a), (b), (c), or (d) of Section 9.2. In addition, if a Party
receives a request from an authorized representative of a U.S. or foreign tax
authority for a copy of the Agreement, that Party may provide a copy of the
Agreement to such tax authority representative without

                                       33

advance notice to or the consent or cooperation of the other Party, but the
disclosing Party must notify the other Party of the disclosure as soon as
practical.

9.4   PUBLICITY ABOUT THE AGREEMENT. If a Party desires to issue a press release
or other public statement or announcement concerning this Agreement, the subject
matter hereof, or the research, development or commercial results of the
products hereunder, it must first obtain the other Party's written approval of
the proposed release or announcement; provided that such approval shall not be
unreasonably withheld if required pursuant to the disclosure requirements of the
Securities and Exchange Commission ("SEC") or the national securities exchange
or other stock market on which such Party's securities are traded ("Exchange").
All press releases and other publicity will conform to the publicity strategy
and policy developed by the Steering Committee in accordance with Section
2.2(v). Without limiting the generality of the foregoing, each Party agrees that
the other Party will have no less than [**] to review and provide comment
regarding any such proposed press release or publicity, unless a shorter review
time is agreed to by both Parties. Neither Party may use any trademarks, logos,
or symbols associated with the other Party without the prior written permission
of such other Party. In the event that one Party reasonably concludes that a
given disclosure is required by law and the other Party disagrees with the
substance or extent of the disclosure, then the Party seeking such disclosure
shall either (i) limit said disclosure to address the concerns of the other
Party, or (ii) provide a written opinion from counsel stating that such
disclosure is indeed required by law. With respect to complying with the
disclosure requirements of the SEC, in connection with any required SEC filing
of this Agreement, the filing Party shall seek confidential treatment of
portions of this Agreement from the SEC and the other Party shall have the right
to review and comment on such an application for confidential treatment prior to
its being filed with the SEC. The non-filing Party shall provide its comments,
if any, on such application as soon as practicable and in no event later than
[**] after such application is provided to the non-filing Party. Notwithstanding
the foregoing, Genentech shall not be prohibited from making a statement
regarding the development or commercialization of a Protein Candidate, Licensed
Product or Small Molecule Drug and Lexicon shall not be prohibited from making a
statement regarding the development or commercialization of a Small Molecule
Drug.

9.5   PUBLICATIONS. Genentech and Lexicon (as applicable, the "Publishing
Party") may each publish or present data and/or results generated by or on
behalf of such Publishing Party utilizing Knock-Out Mice or Progeny, subject to
the prior review of the proposed disclosure by the other Party (the "Reviewing
Party") solely to determine (i) whether the proposed disclosure contains
Confidential Information of the Reviewing Party or Project Confidential
Information or (ii) whether information contained in the proposed disclosure
should be the subject of a patent application to be filed by Lexicon or
Genentech prior to such disclosure. The Publishing Party shall provide the
Reviewing Party with the opportunity to review any proposed abstract, manuscript
or presentation which discloses the results of research conducted utilizing the
Knock-Out Mice or Progeny by delivering a copy thereof to the Reviewing Party no
less than [**] before its

                                       34

intended submission for publication or presentation. The Reviewing Party shall
have [**] from its receipt of any such abstract, manuscript or presentation in
which to notify the Publishing Party in writing of any specific objections to
the disclosure, based on either the need to seek patent protection or concern
regarding the specific disclosure of the Confidential Information of the
Reviewing Party or Project Confidential Information. In the event the Reviewing
Party objects to the disclosure, the Publishing Party agrees not to submit the
publication or abstract or make the presentation containing the objected-to
information until the Reviewing Party is given a reasonable additional period of
time (not to exceed an additional [**]) to seek patent protection for any
material in the disclosure which the Reviewing Party believes is patentable
(subject, in all events, to Article 8) or, in the case of Confidential
Information of the Reviewing Party, to allow the Publishing Party to delete any
Confidential Information of Reviewing Party from the proposed disclosure. Each
Party agrees to delete from the proposed disclosure any Confidential Information
of the Reviewing Party upon request. Notwithstanding the foregoing, publication
of Patent applications shall not be subject to this Section 9.5

                                   ARTICLE 10

                        TERM AND TERMINATION OF AGREEMENT

10.1  TERM. This Agreement commences on the Effective Date and will remain in
full force and effect, unless earlier terminated as provided in this Article 10,
until the later of: (i) [**] after the last Project Gene becomes a Rejected
Project hereunder; or (ii) the expiration of all royalty obligations under this
Agreement between the Parties.

10.2  GENENTECH'S UNILATERAL RIGHT TO TERMINATE.

      (a) In the event that: (I) less than two hundred twenty-five (225) Project
Genes reach chimeric mouse stage within twenty-four (24) months of designation
of Project Genes under Section 3.1(e), or (II) less than sixty-six percent (66%)
of Project Genes have completed First Pass Phenotypic Analysis within thirty-six
(36) months of designation of Project Genes under Section 3.1(e), then in either
case, Genentech shall have the right to terminate this Agreement, and

      (i)   Lexicon will provide Genentech, to the extent not previously
            provided, with a copy of all Project Patents and Know-How, Lexicon
            Pre-Existing Patents and Know-How and deliver Project Materials (to
            the extent not previously provided) related to such Projects;

      (ii)  Lexicon shall refund Genentech a portion of the upfront payment paid
            to Lexicon under Section 7.1 in an amount equal to 1/36th of such
            up-front payment for each month fewer than 36 months after the
            Effective Date have elapsed at the time of such termination, and
            Lexicon shall repay all amounts drawn down under the Note Agreement;

      (iii) all licenses granted by Genentech to Lexicon shall terminate;

                                       35

      (iv)  all rights and licenses granted by Lexicon to Genentech shall
            continue; and

      (v)   Genentech shall have no further payment obligations to Lexicon under
            this Agreement with respect to milestone payments, royalties or
            otherwise (notwithstanding the continuation of Genentech's rights
            and licenses hereunder).

      (b) In the event that at least sixty-six percent (66%) but less than
eighty percent (80%) of Project Genes have completed First Pass Phenotypic
Analysis within thirty-six (36) months of designation of Project Genes under
Section 3.1(e), then Genentech shall have the right to terminate this Agreement,
and

      (i)   Lexicon will provide Genentech, to the extent not previously
            provided, with a copy of all Project Patents and Know-How, Lexicon
            Pre-Existing Patents and Know-How and deliver Project Materials (to
            the extent not previously provided) related to such Projects;

      (ii)  Lexicon shall repay all amounts drawn down under the Note Agreement;
            and

      (iii) all licenses granted by Genentech to Lexicon shall terminate;

      (iv)  all rights and licenses granted by Lexicon to Genentech shall
            continue; and

      (v)   Genentech shall have no further payment obligations to Lexicon under
            this Agreement with respect to milestone payments, royalties or
            otherwise (notwithstanding the continuation of Genentech's rights
            and licenses hereunder); provided that Lexicon shall have the right
            to select up to ten (10) Protein Candidates for which First Pass
            Phenotypic Analysis has been completed and Lexicon Pre-Existing
            Patents or Project Patents have been filed for which Genentech shall
            have royalty obligations under Section 7.8.

10.3  TERMINATION FOR INSOLVENCY OR BANKRUPTCY. Either Party may, by written
notice, terminate this Agreement with immediate effect if the other Party:

      (i)   makes a general assignment for the benefit of creditors;

      (ii)  files an insolvency petition in bankruptcy;

      (iii) petitions for or acquiesces in the appointment of any receiver,
            trustee or similar officer to liquidate or conserve its business or
            any substantial part of its assets;

                                       36

      (iv)  commences under the laws of any jurisdiction any proceeding
            involving its insolvency, bankruptcy, reorganization, adjustment of
            debt, dissolution, liquidation or any other similar proceeding for
            the release of financially distressed debtors; or

      (v)   becomes a party to any proceeding or action of the type described
            above in (iii) or (iv), and such proceeding or action remains
            undismissed or unstayed for a period of more than sixty (60) days.

All rights and licenses granted under or pursuant to this Agreement by each
Party as a licensor or sublicensor are, and shall otherwise be deemed to be, for
purposes of Section 365(n) of Title XI, U.S. Code (the "Bankruptcy Code"),
licenses (or, if applicable, sublicenses) of rights to "intellectual property"
as defined under Section 101(35A) of the Bankruptcy Code. The Parties agree that
each licensee (or, if applicable, sublicensee) of such rights under this
Agreement shall retain and may fully exercise all rights and elections it would
have in the case of a licensor (or sublicensor) bankruptcy under the Bankruptcy
Code. Each Party agrees during the term of this Agreement to create or maintain
current copies, or if not amenable to copying, detailed descriptions or other
appropriate embodiments, of all such intellectual property licensed or
sublicensed to the other Party.

10.4  SURVIVING OBLIGATIONS. The rights and obligations of the Parties under
Article 1 (Definitions), Article 9 (Confidentiality), Article 11 (Disclaimers,
Representations and Warranties), Article 12 (Indemnification), and Article 13
(General Provisions) survive the termination or expiration of this Agreement.
Also, termination or expiration of the Agreement shall not affect the rights and
obligations of the Parties that by their nature survive, including, but not
limited to, those in Article 8 (Intellectual Property Responsibilities) and, to
the extent applicable, the effects of termination contained in Sections 10.2
through 10.4. The provisions of Sections 7.8 through 7.13 shall survive
termination of this Agreement under Section 10.2(b) with respect to the Protein
Candidates specified therein. The provisions of Sections 7.7 through 7.13 shall
survive termination of this Agreement under Section 10.3. Finally, except as
specifically provided to the contrary in this Agreement, termination or
expiration of the Agreement shall be without prejudice to any rights that shall
have accrued to the benefit of either Party prior to such termination or
expiration and shall not relieve the Parties of any obligations accrued
hereunder prior to such termination or expiration. This Section survives the
termination or expiration of this Agreement for any reason.

                                   ARTICLE 11

                  DISCLAIMERS, REPRESENTATIONS, AND WARRANTIES

11.1  CORPORATE EXISTENCE AND AUTHORITY. Each Party represents and warrants to
the other Party that:

                                       37

      (i)   it is a corporation or entity duly organized and validly existing
            under the law of the state or country of its incorporation; and

      (ii)  it has the full authority to enter into and perform all of the
            duties and obligations contemplated under this Agreement.

11.2  AUTHORIZED EXECUTION; BINDING OBLIGATION. Each Party represents and
warrants to the other Party that its execution, delivery, and performance of
this Agreement have been duly authorized and approved by all necessary corporate
action and that this Agreement is binding, upon and enforceable against it in
accordance with the Agreement's terms (subject to bankruptcy and similar laws
affecting the rights of creditors generally).

11.3  NO CONFLICTS. Each Party represents and warrants that its execution,
delivery, and performance of this Agreement:

      (i)   does not, except as otherwise described in this Agreement, require
            the approval or consent of any Third Person, which has not already
            been obtained;

      (ii)  does not, to the best of its knowledge, contravene any Applicable
            Law; and

      (iii) does not contravene the provisions of, nor constitutes a default
            under, its Certificate of Incorporation or bylaws or any indenture,
            mortgage, contract or other agreement or instrument to which it is a
            signatory.

11.4  NO DEBARMENT. Each Party represents and warrants to the other that it is
not debarred under the Generic Drug Enforcement Act of 1992 (the "Act") and is
in compliance with the provisions of such Act. Each Party also covenants that,
while this Agreement is in effect, it will comply with such Act, will not become
debarred under the Act, and will not use in connection with this Agreement the
services of any person debarred under such Act. Finally, upon request by the
other Party, a Party will certify its compliance with the Act and this Section
in writing to such other Party. If, at any time, a Party breaches a covenant
under this Section, the breaching Party shall immediately notify the other Party
of such fact.

11.5  REPRESENTATIONS AND WARRANTIES REGARDING LICENSES. With regard to each
license granted under this Agreement, the Party granting such license (the
"Granting Party") will be deemed to represent and warrant to the other Party, at
the time any such license is granted, that, to the Granting Party's Actual
Knowledge:

      (a)   the Granting Party's grant of such license does not require the
approval or consent of any person or entity, which has not already been
obtained;

                                       38

      (b)   the Granting Party's grant of such license does not contravene any
Applicable Law;

      (c)   the Granting Party's grant of such license does not contravene the
provisions of, nor constitutes a default under, the Granting Party's Certificate
of Incorporation or bylaws or any indenture, mortgage, contract or other
agreement or instrument to which the Granting Party is a signatory;

      (d)   the Granting Party has the ability and right to grant the other
Party such license;

      (e)   except as previously identified in a written notice, the Granting
Party has not received, nor been made aware of, any communications alleging that
its practice of the licensed intellectual property rights has infringed or
misappropriated (or that it, or the other Party, will infringe or misappropriate
in carrying out such license) the intellectual property rights of any person or
entity;

      (f)   except as previously identified in a written notice, there have been
no claims made against the Granting Party asserting the invalidity, abuse,
misuse, or unenforceability of the licensed intellectual property rights; and

      (g)   there are no outstanding encumbrances on, licenses under, or
covenants-not-to-sue with respect to the licensed intellectual property rights,
which, in the case of licenses or covenants not-to-sue, would conflict with the
rights granted herein.

11.6  DISCLAIMER OF IMPLIED WARRANTIES. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, STATUTE, OR OTHERWISE, AND EACH
PARTY SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED OR STATUTORY WARRANTIES
INCLUDING WARRANTIES OF MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE.

11.7  LIMITATION OF LIABILITY. NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY
FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, OR SPECIAL DAMAGES INCLUDING, BUT NOT
LIMITED TO, LOST PROFITS ARISING FROM OR RELATING TO ANY BREACH OF THIS
AGREEMENT, REGARDLESS OF ANY NOTICE OF THE POSSIBILITY OF SUCH DAMAGES. HOWEVER,
NOTHING IN THIS SECTION IS INTENDED TO LIMIT OR RESTRICT THE INDEMNIFICATION
RIGHTS OR OBLIGATIONS OF ANY PARTY.

                                       39

                                   ARTICLE 12

                                 INDEMNIFICATION

12.1  INDEMNIFICATION OBLIGATIONS.

      (a)   Genentech's Obligation. Genentech will defend, indemnify, and hold
harmless Lexicon, its Affiliates and their respective directors, officers,
shareholders, employees, and agents ("Lexicon Indemnitees"), from and against
any and all liabilities, damages, losses, penalties, fines, costs, interest, and
expenses, including, without limitation, reasonable attorneys' fees ("Damages"),
arising from or occurring as a result of a Third Person's claim, action, suit,
judgment, or settlement against a Lexicon Indemnitee that is due to or based
upon:

      (i)   any breach of a representation, warranty, covenant, obligation, or
            agreement of Genentech under this Agreement;

      (ii)  any grossly negligent or more culpable act of Genentech or a
            Genentech Affiliate or sublicensee, or their respective directors,
            officers, shareholders, employees, and agents related to this
            Agreement; or

      (iii) the development, manufacture, marketing, sale or other disposition,
            offer to sell, use, importation, or exportation of a Licensed
            Product, Protein Candidate or other product in the Field by
            Genentech or Genentech's Affiliates, sublicensees, subcontractors,
            or customers, or the customers of Genentech's Affiliates and
            sublicensees (any of clauses of (i) through (iii), a "Lexicon Third
            Person Claim").

However, Genentech shall not indemnify or hold harmless Lexicon Indemnitees from
Damages from a Lexicon Third Person Claim to the extent that such Damages are
finally determined to have resulted from the acts or omissions of a Lexicon
Indemnitee or Third Person. Genentech's obligations under this Subsection shall
survive the expiration or termination of this Agreement for any reason.

      (b)   Lexicon's Obligation. Lexicon will defend, indemnify, and hold
harmless Genentech, its Affiliates and their respective directors, officers,
shareholders, employees and agents ("Genentech Indemnitees"), from and against
any and all Damages arising from or occurring as a result of a Third Person's
claim, action, suit, judgment, or settlement against a Genentech Indemnitee that
is due to or based upon:

      (i)   any breach of a representation, warranty, covenant, obligation, or
            agreement of Lexicon under this Agreement;

      (ii)  any grossly negligent or more culpable act of Lexicon or a Lexicon
            Affiliate or sublicensee, or their respective directors, officers,

                                       40

            shareholders, employees, and agents related to this Agreement (any
            of clauses (i) through (ii), a "Genentech Third Person Claim"); or

      (iii) the development, manufacture, marketing, sale or other disposition,
            offer to sell, use, importation, or exportation of a Small Molecule
            Drug by Lexicon or Lexicon's Affiliates, sublicensees,
            subcontractors, or customers, or the customers of Lexicon's
            Affiliates and sublicensees.

However, Lexicon shall not indemnify or hold harmless Genentech Indemnitees from
Damages from a Genentech Third Person Claim to the extent that such Damages are
finally determined to have resulted from the acts or omissions of a Genentech
Indemnitee or Third Person. Lexicon's obligations under this Subsection shall
survive expiration or termination of this Agreement for any reason.

12.2  INDEMNIFICATION PROCEDURES.

      (a)   Notice. Promptly after a Genentech Indemnitee or a Lexicon

Indemnitee (each, an "Indemnitee") receives notice of a pending or threatened
Lexicon Third Person Claim or Genentech Third Person Claim, as the case may be
(an "Action"), such Indemnitee shall give written notice of the Action to the
Party to whom the Indemnitee is entitled to look for indemnification pursuant to
this Article 12 (the "Indemnifying Party"). However, an Indemnitee's delay in
providing or failure to provide such notice shall not relieve the Indemnifying
Party of its indemnification obligations, except to the extent it can
demonstrate prejudice due to the delay or lack of notice.

      (b)   Defense. Upon receipt of notice under Subsection (a) from the
Indemnitee, the Indemnifying Party will have the duty to either to compromise or
defend, at its own expense and by counsel (reasonably satisfactory to
Indemnitee), such Action. The Indemnifying Party will promptly (and in any event
not more than [**] after receipt of the Indemnitee's original notice) notify the
Indemnitee in writing of its intention to either compromise or defend such
Action. Once the Indemnifying Party notifies the Indemnitee of its election to
assume the defense of an Action, the Indemnifying Party is not liable to the
Indemnitee for the fees of other counsel or any other expenses subsequently
incurred by the Indemnitee in connection with such defense, other than the
Indemnitee's reasonable costs of investigation and cooperation. However, the
Indemnitee shall have the right to employ separate counsel and to participate in
the defense of an Action (and the Indemnifying Party shall bear the reasonable
fees, costs, and expenses of such counsel) if:

      (i)   the use of the counsel chosen by the Indemnifying Party would
            present such counsel with a conflict of interest;

      (ii)  the actual or potential defendants in, or targets of, such Action
            include both the Indemnifying Party and the Indemnitee, and the
            Indemnitee reasonably concludes that there may be legal defenses
            available to it that are different from or additional to those
            available to the Indemnifying

                                       41

      Party (in which case the Indemnifying Party shall not have the right to
      assume the defense of such Action on the Indemnitee's behalf);

      (iii) the Indemnifying Party does not employ counsel satisfactory to the
            Indemnitee to represent the Indemnitee within a reasonable time
            after the Indemnitee's notice of such Action;

      (iv)  the Indemnifying Party denies or fails to timely admit its
            obligation to defend and indemnify the Action; or

      (v)   in the reasonable opinion of counsel to the Indemnitee, the claim
            could result in the Indemnitee becoming subject to injunctive relief
            or relief other than the payment of Damages that could have a
            materially adverse effect on the ongoing business of the Indemnitee.

      (c)   Cooperation. The Indemnitee shall cooperate fully with the
Indemnifying Party and its legal representatives in the investigation and
defense of an Action. The Indemnifying Party will keep the Indemnitee informed
on a reasonable and timely basis as to the status of such Action (to the extent
the Indemnitee is not participating jointly in the defense of such Action) and
conduct the defense of such Action in a prudent manner.

      (d)   Settlement. If an Indemnifying Party assumes the defense of an
Action, no compromise or settlement of such Action may be effected by the
Indemnifying Party without the Indemnitee's written consent (which consent shall
not be unreasonably withheld or delayed), unless (i) there is no finding or
admission of any violation of law or any violation of the rights of any person
and no effect on any other claims that may be made against the Indemnitee, (ii)
the sole relief provided is monetary damages that are paid in full by the
Indemnifying Party, and (iii) the Indemnitee's rights under this Agreement are
not adversely affected. In any event, the Indemnitee shall have no right to
settle any such Action without the prior written consent of the Indemnifying
Party, unless (i) there is no finding or admission of any violation of law or
any violation of the rights of any person and no effect on any other claims that
may be made against the Indemnifying Party, (ii) the sole relief provided is
monetary damages that are paid in full by the Indemnitee, and (iii) the
Indemnifying Party's rights under this Agreement are not adversely affected; any
settlement under this Subsection (d) without the prior written consent of the
Indemnifying Party shall relieve the Indemnifying Party of its obligations under
this Article 12.

12.3  INSURANCE.

      (a)   During the term of this Agreement, each Party shall maintain an
ongoing basis, Commercial General Liability ("CGL") insurance, including
contractual liability, in the minimum amount of [**] per occurrence and [**]
annual aggregate combined single limit for bodily injury and property damage
liability; provided that Lexicon may satisfy such requirement by maintaining a
combination of CGL insurance and umbrella insurance in such combined per
occurrence and aggregate amounts. Within [**] of the

                                       42

Effective Date, the Parties shall provide one another with their respective
certificates of such insurance. The aggregate deductible under CGL shall be
reasonably satisfactory to the other Party. The insurance policy shall be an
occurrence or claims-made form, but if only on a claims made form, the insurance
coverage shall be maintained for at least [**] following completion of the work
performed under this Agreement.

      (b)   Commencing not later than [**] prior to the first use in humans of
the first potential Licensed Product and thereafter for the period of time
required below, Genentech shall obtain and maintain on an ongoing basis Products
Liability insurance (including contractual liability), with a reputable carrier,
in the amount of at least [**] per occurrence and annual aggregate combined
single limit for bodily injury and property damage liability. No later than [**]
prior to the first use in humans of the first potential Licensed Product with
respect to the Product Liability insurance coverage, Genentech shall provide to
Lexicon a certificate evidencing all such coverage required hereunder.
Thereafter Genentech shall maintain such Products Liability insurance coverage
without interruption during the term of this Agreement and for a period of at
least [**] after the expiration or termination of the term, except as provided
under the next paragraph below.

      (c)   In addition, the Parties agree with respect to (a) and (b) above
that:

      (i)   The Parties shall use Commercially Reasonable Efforts to name each
            other as additional insureds under their respective CGL and Products
            Liability insurance;

      (ii)  Each of the above insurance policies shall be primary insurance as
            respects each Party's participation under this Agreement; and

      (iii) Each of the above insurance coverage shall be maintained with an
            insurance company or companies having an A.M. Best rating of "A" or
            better.

                                   ARTICLE 13

                               DISPUTE RESOLUTION

13.1  INTERNAL RESOLUTION. The Parties shall attempt to settle any dispute,
controversy or claim arising out of or relating to the validity, enforceability
or performance of this Agreement, including disputes relating to alleged breach
or termination of this Agreement but excluding any determination as to the
validity of the Parties' patents (hereinafter, the "Dispute"), in accordance
with the provisions of this Section 13.1. The Parties have entered into the
Agreement in good faith and in the belief that it is mutually advantageous to
them. It is with that same spirit of cooperation that they pledge to attempt to
resolve any Dispute amicably. Accordingly, the Parties agree that if any Dispute
should arise, it shall be referred to a member of senior management from each of
the Parties and from any sublicensee (if any).

                                       43

13.2  ARBITRATION. Should the senior management be unable to resolve the
dispute, any controversy, dispute or claim which may arise out of or in
connection with this Agreement, or the breach, termination or validity thereof,
shall be settled by final and binding arbitration pursuant to the Arbitration
Rules of the American Arbitration Association as hereinafter provided:

      (a)   The arbitration tribunal shall consist of three arbitrators. Each
party shall nominate in the request for arbitration and the answer thereto one
arbitrator and the two arbitrators so named will then jointly appoint the third
arbitrator as chairman of the arbitration tribunal. If one party fails to
nominate its arbitrator or, if the parties' arbitrators cannot agree on the
person to be named as chairman within [**], the President of the American
Arbitration Association shall make the necessary appointments for arbitrator or
chairman.

      (b)   The place of arbitration shall be in a neutral location (i.e., not
California or Texas) to be decided by the Party not initiating such arbitration,
and the arbitration proceedings shall be held in English. The procedural law of
the State of Delaware shall apply where the said Arbitration Rules are silent.

      (c)   The decision of the arbitration tribunal must be in writing and must
specify the basis on which the decision was made, and the award of the
arbitration tribunal shall be final and judgement upon such an award may be
entered in any competent court or application may be made to any competent court
for juridical acceptance of such an award and order of enforcement.

                                   ARTICLE 14

                               GENERAL PROVISIONS

14.1  COMMON INFORMATION TECHNOLOGY. In order to facilitate efficient
communication between Genentech and Lexicon regarding the Projects, the Parties
agree to establish and maintain a secure communication link between Genentech
and Lexicon and work together to identify and support hardware, software, and
services, in accordance with Genentech's platforms and technology architecture,
appropriate for the sharing of Project information. Each Party shall bear its
own costs identifying, acquiring, operating, and maintaining such hardware,
software, and services.

14.2  LEGAL COMPLIANCE. Each Party will comply with all Applicable Laws in the
performance of its obligations or the exercise of its rights hereunder.

14.3  ASSIGNMENT. (a) Neither Party may assign this Agreement (nor any part
thereof) without the prior written consent of the other Party. Notwithstanding
the foregoing, if either Party is a party to a merger and it will not be the
surviving entity of such transaction, such Party may assign, without the other
Party's prior written consent (but

                                       44

with [**] prior written notice to the other Party) all of its rights and
obligations hereunder to the surviving or new entity resulting from such merger
so long as the surviving or new entity expressly agrees in writing to assume all
obligations of such Party under this Agreement.

      (b)   Any attempted assignment of this Agreement, other than as allowed in
this Section, will be of no force or effect. Subject to the provisions set forth
in this Section, this Agreement will be binding upon and will inure to the
benefit of the successors and permitted assigns of the Parties.

14.4  INDEPENDENT CONTRACTORS. It is understood and agreed that the Parties are
independent contractors and are engaged in the operation of their own respective
businesses, and neither Party is to be considered the agent of the other Party
or to have a fiduciary responsibility to such other Party for any purpose
whatsoever. The rights and obligations of each Party under this Agreement do not
constitute the formation of a partnership for federal, state, or any other tax
purpose. Each Party shall file all income tax returns consistent with that
position. Neither Party will have any authority to enter into any contracts or
assume any obligations for the other Party nor make any warranties or
representations on behalf of that other Party.

14.5  GOVERNING LAW. This Agreement and all amendments, modifications,
alterations, or supplements hereto, and the rights of the Parties hereunder,
will be construed under and governed by the laws of the State of Delaware
exclusive of its conflicts of laws principles.

14.6  ENTIRE AGREEMENT. This Agreement, including all Exhibits, Schedules and
attachments hereto, constitutes the entire agreement between Lexicon and
Genentech with respect to the subject matter hereof, and all previous or other
negotiations, representations and understandings with respect to the subject
matter hereof between Lexicon and Genentech, including without limitation, the
Origianl Agreement, are superceded as of the Effective Date. This Agreement has
been prepared jointly and will not be strictly construed against either Party.

14.7  SEVERABILITY. All rights and restrictions contained herein may be
exercised and will be applicable and binding only to the extent that they do not
violate any applicable laws and are intended to be limited to the extent
necessary so that they will not render this Agreement illegal, invalid or
unenforceable. If any provision or portion of any provision of this Agreement,
not essential to the commercial purpose of this Agreement, will be held to be
illegal, invalid or unenforceable by a court of competent jurisdiction, it is
the intention of the Parties that the remaining provisions or portions thereof
shall constitute their agreement with respect to the subject matter hereof, and
all such remaining provisions, or portions thereof, will remain in full force
and effect. To the extent legally permissible, any illegal, invalid or
unenforceable provision of this Agreement will be replaced by a valid provision
which will implement the commercial purpose of the illegal, invalid, or
unenforceable provision. In the event that any provision essential to the
commercial purpose of this Agreement is held to be illegal, invalid or

                                       45

unenforceable and cannot be replaced by a valid provision which will implement
the commercial purpose of this Agreement, the Parties will promptly negotiate a
suitable resolution (potentially even termination of the Agreement) in good
faith.

14.8  FORCE MAJEURE. Any delays in, or failure of, performance of any
obligations of a Party will not constitute a default hereunder or give rise to
any claim for damages, if, and to the extent, caused by Force Majeure. The Party
asserting this Section will promptly notify the other Party of the event
constituting Force Majeure, of all relevant details of the occurrence, and an
estimate of how long such Force Majeure event shall continue. The affected Party
will also take reasonable and diligent actions to cure such cause, and the
Parties will consult with each other in order to find a fair solution and shall
use all reasonable endeavors to minimize the consequences of such Force Majeure.

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

14.10 NOTICES. All notices, statements, and reports required to be given under
this Agreement will be in writing, delivered in person, via registered or
certified mail postage prepaid, or through a professional courier service (e.g.,
FedEx or DHL), and addressed as follows:

            To Lexicon:          Lexicon Genetics Incorporated
                                 8800 Technology Forest Place
                                 Woodlands, TX 77381-1160
                                 Fax: (281) 863-8088
                                 Phone: (281) 863-3000
                                 Attn: President, CEO

            With a copy to:      General Counsel

            To Genentech:        Genentech, Inc.
                                 1 DNA Way
                                 South San Francisco, California  94080
                                 Fax: (650) 952-9881
                                 Phone: (650) 225-1000
                                 Attn: Corporate Secretary

            With a copy to:      Vice President, Research

Notice will be deemed to have been given when delivered if personally delivered
on a business day, on the [**] after dispatch if sent by a professional courier,
and on the [**] following the date of mailing if sent by registered or certified
mail. A Party may change the address to which notices to such Party are to be
sent by giving written notice to the other Party at the address and in the
manner provided above. Any notice may be given, in addition to the manner set
forth above, by facsimile or e-mail, provided that the Party

                                       46

giving such notice obtains acknowledgment by facsimile or e-mail that such
notice has been received by the Party to be notified. Notices made in this
manner will be deemed to have been given when such acknowledgment has been
transmitted.

14.11 WAIVER. The failure of either Party to enforce any provision of this
Agreement at any time will not be construed as a present or future waiver of
such provision or any other provision of this Agreement. The written waiver by
either Party, pursuant to this Section 14.11, of any provision or requirement
hereunder will neither be deemed nor operate as a future waiver of such or any
other provision or requirement.

14.12 MODIFICATIONS. No amendment, waiver or modification of this Agreement will
be valid or binding on either Party unless made in writing and signed by duly
authorized representatives of both Parties.

14.13 HEADINGS. All headings and captions used in this Agreement are for
convenience only, and are not intended to have any substantive effect.

14.14 NO IMPLIED LICENSES. Except as specifically provided for in this
Agreement, neither Party grants, expressed or implied, any license to the other
Party under this Agreement.

14.15 NO THIRD PARTY BENEFICIARIES: Except as expressly provided herein, this
Agreement shall not confer any rights or remedies upon any Third Person other
than the Parties and their respective successors and permitted assigns.

14.16 R&D TAX CREDITS. To the extent permitted by Applicable Law, Genentech will
be entitled to any tax credits due on account of research and development
expenses it pays to Lexicon under this Agreement.

14.17 RESPONSIBLE FOR SUBLICENSEES. If a Party sublicenses to another person any
of the rights it received under this Agreement from the other Party, such Party
agrees to remain responsible to other Party for the performance and compliance
of such sublicensee with all obligations under this Agreement that apply to such
sublicensee.

                        [The rest of this page is blank]

                                       47

14.18 FURTHER ACTIONS. Each Party agrees to execute, acknowledge, and deliver
such further instruments, and to do all other acts, as may be necessary or
appropriate to carry out the purposes and intent of this Agreement.

            IN WITNESS WHEREOF, each Party has executed this Agreement by its
respective, duly authorized officer as of the day and year herein written.

GENENTECH, INC.                         LEXICON GENETICS INCORPORATED

/s/ Arthur D. Levinson                  /s/ Arthur T. Sands
- -------------------------------------   ----------------------------------------
By: Arthur D. Levinson                  By: Arthur T. Sands
Title: CEO                              Title: President and CEO

                                       48

                                    EXHIBIT A

        Comprehensive Therapeutic Protein Discovery & Validation Program

                 FIRST Pass Phenotypic Analysis of Project Genes

                                      [**]

                                    EXHIBIT B

                              SUBLICENSE AGREEMENT

      THIS SUBLICENSE AGREEMENT (this "Agreement") is made and entered into this
seventeenth (17th) day of December, 2002 (the "Effective Date") by and between
LEXICON GENETICS INCORPORATED, a Delaware corporation ("Lexicon"), and
GENENTECH, INC., a Delaware corporation ("Genentech").

                                    RECITALS:

      WHEREAS, Lexicon holds a license from GenPharm International Inc.
("GenPharm") under certain Patent Rights (as defined herein) relating to the use
of "isogenic DNA constructs" in gene targeting for the generation of transgenic
and knock-out mice, and has the right to grant sublicenses under said Patent
Rights; and

      WHEREAS, Genentech desires to obtain from Lexicon, and Lexicon desires to
grant to Genentech, a sublicense under the Patent Rights in the Field of Use
upon the terms and conditions hereinafter set forth;

      NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:

      1.    DEFINITIONS. For the purposes of this Agreement, the following words
and phrases shall have the following meanings:

            1.1   "Academic Collaborator" shall mean a principal investigator,
      employed by a university or other not-for-profit academic research
      institution, who is performing collaborative research with or sponsored
      research for Genentech involving use of a Mutant Mouse or Progeny.

            1.2   "Contract Service Provider" shall mean any Third Party that
      enters into an agreement with Genentech providing for the performance of
      services for Genentech, on a fee-for-service basis, relating to [**] of
      Mutant Mice or Progeny.

            1.3   "Field of Use" shall mean (i) the generation and development
      of Mutant Mice by Genentech at its internal research facilities and (ii)
      the use of Mutant Mice and Progeny, including the breeding thereof, by
      Genentech and, subject to the terms and conditions of Sections 2.2 and
      2.3, by Genentech's Academic Collaborators and Contract Service Providers,
      at the internal research facilities of Genentech, such Academic
      Collaborators or Contract Service Providers, in each case for research
      purposes only, including research directed toward the discovery,
      development and commercialization of human therapeutic and diagnostic
      products. The Field of Use shall specifically exclude (i) the development
      of a library of mouse embryonic stem cells, (ii) the sale, lease or other
      transfer for consideration of any Mutant Mouse or Progeny, (iii) the use
      of any

      Mutant Mouse or Progeny for consideration (including, without limitation,
      use of any Mutant Mouse or Progeny in contract testing services) and (iv)
      the generation, development, manufacture or importation of any Mutant
      Mouse or Progeny for any of the foregoing. The Field of Use shall further
      exclude the generation, development and use of (i) any transgenic mouse
      containing unrearranged human immunoglobulin DNA or inactivated murine
      immunoglobulin DNA, (ii) any mouse as a model for Alzheimer's disease
      based upon (beta)-amyloid precursor protein coded for by the App gene or
      mutated forms thereof, (iii) any immunomodified mouse model for the study
      of transplanted human cells or (iv) any transgenic immunomodified mouse
      for use in studies of human allergenicity of non-therapeutic proteins or
      peptides and in research directed toward the development of
      non-therapeutic proteins or peptides that demonstrate a reduction in human
      allergenicity (for purposes of which, "non-therapeutic proteins or
      peptides" shall mean proteins or peptides for use in cosmetic, cleaning
      and other non-therapeutic consumer products).

            1.4   "Mutant Mouse" shall mean any mouse cell or mouse generated or

      developed by Genentech through use of any product or process covered by a
      Valid Claim of the Patent Rights. As used herein, a "line of Mutant Mice"
      shall mean all mouse cells and mice with a mutation in the same gene.

            1.5   "Patent Rights" shall mean all of Lexicon's rights and
      interests in and to [**] (i) the United States patents and patent
      applications listed in Exhibit A, (ii) any patents issuing from such
      patent applications, (iii) any continuations, continuations-in-part,
      divisionals, reissues, reexaminations or extensions of any of the
      foregoing, and (iv) all foreign counterparts of any of the foregoing.

            1.6   "Progeny" shall mean any mouse cells or mice, including
      successive generations thereof, that are produced or developed by
      Genentech, its Academic Collaborators or Contract Service Providers by
      breeding a Mutant Mouse with any other mouse (including, without
      limitation, any other Mutant Mouse); provided, however, that Progeny shall
      not include, and the rights and licenses granted under this Agreement
      shall not extend to, any mouse cell or mouse that is produced or developed
      by breeding a Mutant Mouse with any mouse, other than another Mutant
      Mouse, that contains a mutation in its genome which was generated or
      developed, or whose progenitors include a mouse containing such mutation
      which was generated or developed, through use of any product or process
      covered by a Valid Claim of the Patent Rights.

            1.7   [**] shall mean any [**]; provided, however, that [**]
      specifically excludes [**].

            1.8   "Third Party" shall mean any person or entity other than
      Lexicon and Genentech.

            1.9   "Valid Claim" shall mean a claim of an issued and unexpired
      patent which has not been held permanently revoked, unenforceable or
      invalid by a decision of a court

      or other governmental agency of competent jurisdiction, unappealable or
      unappealed within the time allowed for appeal.

2.    GRANT OF SUBLICENSE AND RELEASE.

            2.1   Subject to the terms and conditions of this Agreement, Lexicon
      hereby grants to Genentech, during the term of this Agreement, a
      worldwide, royalty-free, non-exclusive right and sublicense under the
      Patent Rights in the Field of Use, to the extent not prohibited by other
      patents, (i) to make (but not have made) up to a total of [**] lines of
      Mutant Mice per calendar year during the term of this Agreement, and (ii)
      to breed and use such Mutant Mice and Progeny. Nothing in this Agreement
      shall be construed to confer upon Genentech any rights under the Patent
      Rights outside the Field of Use.

            2.2   Genentech shall have the right to transfer Mutant Mice and
      Progeny to Academic Collaborators subject to the terms and conditions of
      this Section 2.2. Any such transfer shall be made pursuant to a material
      transfer agreement or other agreement containing terms relating to the
      transfer of such material that expressly (i) prohibit the use of such
      Mutant Mice and Progeny thereof for any purpose other than such Academic
      Collaborator's collaborative research with Genentech in the Field of Use
      and (ii) prohibit the transfer of such Mutant Mice or Progeny thereof by
      such Academic Collaborator to any Third Party.

            2.3   Genentech shall have the right to transfer Mutant Mice and
      Progeny to Contract Service Providers subject to the terms and conditions
      of this Section 2.3. Any such transfer shall be made pursuant to a
      material transfer agreement or other agreement containing terms relating
      to the transfer of such material that expressly (i) prohibits the use of
      such Mutant Mice and Progeny thereof for any purpose other than such
      Contract Service Provider's performance of services for Genentech, on a
      fee-for-service basis, relating to [**] of Mutant Mice or Progeny, (ii)
      prohibits the transfer of such Mutant Mice or Progeny thereof by such
      Contract Service Provider to any Third Party, and (iii) obligates such
      Contract Service Provider to return or destroy such Mutant Mice or Progeny
      upon the completion of its services for Genentech.

            2.4   Genentech shall not assert or enforce against Lexicon any
      claims of an issued patent arising from the use by Genentech, its Academic
      Collaborators or Contract Service Providers of a Mutant Mouse or Progeny,
      to the extent, but only to the extent, any such assertion or enforcement
      would, absent a license from Genentech, prevent Lexicon from using or
      permitting others to use, [**] for research purposes directed towards the
      discovery, identification, selection or characterization of [**], any
      transgenic or knockout mouse or phenotypic data derived therefrom.

            2.5   Nothing in this Agreement shall be construed to confer upon
      Genentech any rights, by implication, estoppel or otherwise, to any
      patent, technology or intellectual property of Lexicon or any other entity
      other than the Patent Rights, regardless of whether such intellectual
      property rights shall be dominant or subordinate to any Patent Rights.

            2.6   Genentech shall be responsible for all development activities
      related to the generation of Mutant Mice and use of the Patent Rights,
      including the compliance with Third Party patent rights.

3.    LICENSE FEE.

            3.1   For the rights, privileges and sublicense granted hereunder,
      Genentech shall pay Lexicon a license fee of [**], payable within [**] of
      the Effective Date.

            3.2   All payments due hereunder shall be paid in full, without
      deduction of taxes or other fees that may be imposed by any government.

            3.3   Any payments by Genentech to Lexicon that are not paid on or
      before [**] the date such payments are due under this Agreement shall bear
      interest, to the extent permitted by applicable law, at one and one half
      percent (1.5%) per month, calculated on the total number of days payment
      is delinquent.

            3.4   Payments to be made by Genentech to Lexicon under this
      Agreement shall be payable in United States dollars and shall be paid by
      check delivered to Lexicon at its principal office at The Woodlands, Texas
      or bank wire transfer in immediately available funds to such bank account
      in the State of Texas as is designated in writing by Lexicon from time to
      time.

      4.    REPORTS AND RECORDS. Within thirty (30) days after the end of each
calendar year, Genentech shall deliver to Lexicon a true and accurate written
report listing the number of lines of Mutant Mice made by Genentech during such
year, and certifying that Genentech has complied with its obligations under this
Agreement.

      5.    INFRINGEMENT OF PATENT RIGHTS. Lexicon shall have the exclusive
right, but shall not be obligated, to prosecute any infringements of the Patent
Rights. The total cost of any such infringement action commenced or defended by
Lexicon shall be borne by Lexicon, and Lexicon shall keep any recovery or
damages for past infringement derived therefrom.

      6.    INDEMNIFICATION AND LIMITATION OF LIABILITY.

            6.1   Genentech shall at all times during the term of this Agreement
      and thereafter, indemnify, defend and hold Lexicon and its directors,
      officers, employees and affiliates harmless from and against all claims,
      proceedings, demands, liabilities and losses of any kind whatsoever that
      are brought by a Third Party, including legal expenses and reasonable
      attorneys' fees, arising out of, based upon or resulting from the use of
      the

      Patent Rights hereunder [**] or the use, testing, marketing or sale of
      human therapeutic or diagnostic products by Genentech, its Academic
      Collaborators or Contract Service Providers, except to the extent that
      such claims, proceedings, demands, liabilities and losses result from
      Lexicon's gross negligence or willful misconduct.

            6.2   Indemnification Procedures.

                  (a)   Notice. Promptly after a Genentech Indemnitee or a
            Lexicon Indemnitee (each, an "Indemnitee") receives notice of a
            pending or threatened Lexicon Third Person Claim or Genentech Third
            Person Claim, as the case may be (an "Action"), such Indemnitee
            shall give written notice of the Action to the Party to whom the
            Indemnitee is entitled to look for indemnification pursuant to this
            Article 12 (the "Indemnifying Party"). However, an Indemnitee's
            delay in providing or failure to provide such notice shall not
            relieve the Indemnifying Party of its indemnification obligations,
            except to the extent it can demonstrate prejudice due to the delay
            or lack of notice.

                  (b)   Defense. Upon receipt of notice under Subsection (a)
            from the Indemnitee, the Indemnifying Party will have the duty to
            either to compromise or defend, at its own expense and by counsel
            (reasonably satisfactory to Indemnitee), such Action. The
            Indemnifying Party will promptly (and in any event not more than
            twenty (20) days after receipt of the Indemnitee's original notice)
            notify the Indemnitee in writing of its intention to either
            compromise or defend such Action. Once the Indemnifying Party
            notifies the Indemnitee of its election to assume the defense of an
            Action, the Indemnifying Party is not liable to the Indemnitee for
            the fees of other counsel or any other expenses subsequently
            incurred by the Indemnitee in connection with such defense, other
            than the Indemnitee's reasonable costs of investigation and
            cooperation. However, the Indemnitee shall have the right to employ
            separate counsel and to participate in the defense of an Action (and
            the Indemnifying Party shall bear the reasonable fees, costs, and
            expenses of such counsel) if:

                  (i)   the use of the counsel chosen by the Indemnifying Party
                        would present such counsel with a conflict of interest;

                  (ii)  the actual or potential defendants in, or targets of,
                        such Action include both the Indemnifying Party and the
                        Indemnitee, and the Indemnitee reasonably concludes that
                        there may be legal defenses available to it that are
                        different from or additional to those available to the
                        Indemnifying Party (in which case the Indemnifying Party
                        shall not have the right to assume the defense of such
                        Action on the Indemnitee's behalf);

                  (iii) the Indemnifying Party does not employ counsel
                        satisfactory to the Indemnitee to represent the
                        Indemnitee within a reasonable time after the
                        Indemnitee's notice of such Action;

                  (iv)  the Indemnifying Party denies or fails to timely admit
                        its obligation to defend and indemnify the Action; or

                  (v)   in the reasonable opinion of counsel to the Indemnitee,
                        the claim could result in the Indemnitee becoming
                        subject to injunctive relief or relief other than the
                        payment of Damages that could have a materially adverse
                        effect on the ongoing business of the Indemnitee.

                  (c)   Cooperation. The Indemnitee shall cooperate fully with
            the Indemnifying Party and its legal representatives in the
            investigation and defense of an Action. The Indemnifying Party will
            keep the Indemnitee informed on a reasonable and timely basis as to
            the status of such Action (to the extent the Indemnitee is not
            participating jointly in the defense of such Action) and conduct the
            defense of such Action in a prudent manner.

                  (d)   Settlement. If an Indemnifying Party assumes the defense
            of an Action, no compromise or settlement of such Action may be
            effected by the Indemnifying Party without the Indemnitee's written
            consent (which consent shall not be unreasonably withheld or
            delayed), unless (i) there is no finding or admission of any
            violation of law or any violation of the rights of any person and no
            effect on any other claims that may be made against the Indemnitee,
            (ii) the sole relief provided is monetary damages that are paid in
            full by the Indemnifying Party, and (iii) the Indemnitee's rights
            under this Agreement are not adversely affected. In any event, the
            Indemnitee shall have no right to settle any such Action without the
            prior written consent of the Indemnifying Party, unless (i) there is
            no finding or admission of any violation of law or any violation of
            the rights of any person and no effect on any other claims that may
            be made against the Indemnifying Party, (ii) the sole relief
            provided is monetary damages that are paid in full by the
            Indemnitee, and (iii) the Indemnifying Party's rights under this
            Agreement are not adversely affected; any settlement under this
            Subsection (d) without the prior written consent of the Indemnifying
            Party shall relieve the Indemnifying Party of its obligations under
            this Article 12.

            6.3   Lexicon warrants to Genentech that it has the lawful right to
      grant the rights and licenses set forth in this Agreement. EXCEPT AS
      OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, LEXICON AND ITS
      DIRECTORS, OFFICERS, EMPLOYEES, AND AFFILIATES MAKE NO REPRESENTATIONS AND
      EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT
      NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
      PURPOSE, VALIDITY OF

      PATENT RIGHTS CLAIMS, ISSUED OR PENDING, AND THE ABSENCE OF LATENT OR
      OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. NOTHING IN THIS AGREEMENT
      SHALL BE CONSTRUED AS A REPRESENTATION MADE OR WARRANTY GIVEN BY LEXICON
      THAT THE PRACTICE BY GENENTECH OF THE SUBLICENSE RIGHTS GRANTED HEREUNDER
      SHALL NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD PARTY. IN NO EVENT SHALL
      EITHER PARTY OR ITS DIRECTORS, OFFICERS, EMPLOYEES AND AFFILIATES BE
      LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING
      ECONOMIC DAMAGE OR INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF
      WHETHER THEY SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT
      SHALL KNOW OF THE POSSIBILITY OF THE FOREGOING.

      7.    TERM AND TERMINATION.

            7.1   This Agreement shall become effective on the Effective Date
      and shall remain in effect until the expiration of the last-to-expire
      patent included within the Patent Rights.

            7.2   Upon any material breach or default of this Agreement by
      Genentech (including, but not limited to, breach or default under Section
      2.1 or use of the Patent Rights outside of the Field of Use), Lexicon
      shall have the right to terminate this Agreement and the rights,
      privileges and sublicense granted hereunder, effective on [**] written
      notice, unless Genentech shall have cured any such material breach or
      default prior to the expiration of such [**] period.

            7.3   If Genentech shall liquidate, dissolve, file a voluntary
      petition in bankruptcy, be adjudicated a bankrupt, make a general
      assignment for the benefit of creditors, admit in writing that it is
      insolvent or fail to discharge within [**] an involuntary petition in
      bankruptcy filed against it, this Agreement shall terminate upon written
      notice by Lexicon.

            7.4   No termination of this Agreement shall be construed to release
      either party from any obligation that matured prior to the effective date
      of such termination. The provisions of Sections 2.4, 2.5, 4, 5, 6, 7.4, 9,
      11, 12 and 13 shall survive any termination of this Agreement.

      8.    EXPORT CONTROLS. Genentech acknowledges that it is subject to United
      States laws and regulations controlling the export of technical data,
      computer software, laboratory prototypes and other commodities (including
      the Arms Export Control Act, as amended and the United States Department
      of Commerce Export Administration Regulations). The transfer of such items
      may require a license from the relevant agency of the United States
      Government and/or written assurances by Genentech that Genentech shall not
      export data or commodities to certain foreign countries without prior
      approval

      of such agency. Lexicon does not represent that a license shall not be
      required nor that, if required, it shall be issued.

      9.    CONFIDENTIALITY OF TERMS; PUBLICITY. The terms of this Agreement
      shall be treated as confidential and shall not be disclosed to anyone
      except for the parties' respective employees, consultants, agents and
      attorneys assisting in the review and negotiation of this Agreement who
      have a need to know the terms of this Agreement and have an obligation to
      keep such terms confidential, or such other attorneys or agents who are
      performing due diligence on either party and who are under an implied
      obligation of confidentiality, without the written permission of the other
      party; provided that each party may disclose that Genentech has obtained a
      sublicense under the Patent Rights hereunder. If either party desires to
      release a public announcement relating to this Agreement, it shall first
      allow the other party to approve in writing such proposed announcement;
      provided that such approval shall not be unreasonably withheld or delayed.

      10.   ASSIGNMENT. This Agreement may not be assigned or otherwise
      transferred by either party without the written consent of the other
      party; provided, however, that Lexicon may, without such consent, assign
      its rights and obligations under this Agreement (i) to any affiliate or
      (ii) in connection with a merger, consolidation or sale of its assets to a
      Third Party; provided, however, that Lexicon's rights and obligations
      under this Agreement shall be assumed by its successor in interest in any
      such merger, consolidation or sale of assets transaction and shall not be
      transferred separate from all or substantially all of its other business
      assets, including those business assets that are the subject of this
      Agreement. Any purported assignment in violation of the preceding sentence
      shall be void. Any permitted assignee shall assume all obligations of its
      assignor under this Agreement.

      11.   DISPUTE RESOLUTION. If any controversy or claim should arise under
      this Agreement, the matter shall be referred to an individual designated
      by the Chief Executive Officer (or equivalent position) of Lexicon and an
      individual designated by the Chief Executive Officer (or equivalent
      position) of Genentech (the "Representatives"), who will attempt in good
      faith to resolve such controversy or claim promptly by negotiations. If
      the matter has not been resolved within [**] of the first meeting of the
      Representatives of the parties (which period may be extended by mutual
      agreement) concerning such matter, the parties shall be free to pursue all
      available recourse both at law and in equity.

      12.   PAYMENTS, NOTICES AND OTHER COMMUNICATIONS. Any payments, notice or
      other communication pursuant to this Agreement shall be sufficiently made
      or given on the date of mailing if sent to such party by certified first
      class mail, return receipt requested, postage prepaid, addressed to it at
      its address below or as it shall designate by written notice given to the
      other party:

      In the case of Genentech:

      Genentech, Inc.
      1 DNA Way
      South San Francisco, California 94080
      Attention: Corporate Secretary
      cc: Vice President of Research

      In the case of Lexicon:

      Lexicon Genetics Incorporated
      8800 Technology Forest Place
      The Woodlands, Texas 77381
      Attention: President
      cc: Vice President, Intellectual Property

      13.   MISCELLANEOUS.

            13.1  Entire Agreement. The parties hereto acknowledge that this
      Agreement sets forth the entire Agreement and understanding of the parties
      hereto as to the subject matter hereof, and shall not be subject to any
      change or modification except by the execution of a written instrument
      signed by the parties.

            13.2  Severability. The provisions of this Agreement are severable,
      and in the event that any provisions of this Agreement shall be determined
      to be invalid or unenforceable under any controlling body of the law, such
      invalidity or unenforceability shall not in any way affect the validity or
      enforceability of the remaining provisions hereof. The parties shall
      thereafter in good faith amend this Agreement to provide for an acceptable
      provision to replace such invalid or unenforceable provision.

            13.3  No Waiver. The failure of either party to assert a right
      hereunder or to insist upon compliance with any term or condition of this
      Agreement shall not constitute a waiver of that right or excuse a similar
      subsequent failure to perform any such term or condition by the other
      party.

            13.4  Governing Law. All disputes arising out of or related to this
      Agreement, or the performance, enforcement, breach or termination hereof,
      and any remedies relating thereto, shall be construed, governed,
      interpreted and applied in accordance with the laws of the State of
      Delaware, U.S.A., except that questions affecting the construction and
      effect of any patent shall be determined by the law of the country in
      which the patent shall have been granted.

            13.5  No Trademark Rights. Except as otherwise provided herein or
      agreed to in advance in writing, no right, express or implied, is granted
      by this Agreement to a party to use in any manner the names "Lexicon" or
      "Genentech," or any other trade name or trademark of a party or the names
      of any employees thereof, for any purpose.

            13.6  Captions. The captions to this Agreement are for convenience
      only, and are to be of no force or effect in construing or interpreting
      any of the provisions of this Agreement.

            13.7  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.

            13.8  Independent Contractors. The relationship between Lexicon and
      Genentech is that of independent contractors. Lexicon and Genentech are
      not joint venturers, partners, principal and agent, master and servant,
      employer or employee, and have no other relationship other than
      independent contracting parties. Lexicon shall have no power to bind or
      obligate Genentech in any manner, other than as is expressly set forth in
      this Agreement. Likewise, Genentech shall have no power to bind or
      obligate Lexicon in any manner other than is expressly set forth in this
      Agreement.

      IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the Effective Date.

                                 "GENENTECH"

                                 GENENTECH, INC.

                                 By: ___________________________________________
                                     Arthur D. Levinson
                                     Chief Executive Officer

                                 "LEXICON"

                                 LEXICON GENETICS INCORPORATED

                                 By: ___________________________________________
                                     Arthur T. Sands, M.D., Ph.D.
                                     President and Chief Executive Officer

                                   APPENDIX A

                                  PATENT RIGHTS

ISOGENIC DNA

U.S. Patent No. 5,789,215 issued August 4, 1998 entitled "Gene Targeting in
Animal Cells Using Isogenic DNA Constructs"

                                    EXHIBIT C

                                 NOTE AGREEMENT

THIS NOTE AGREEMENT is entered into as of December 17, 2002 (this "Note
Agreement"), between LEXICON GENETICS INCORPORATED, A Delaware corporation
(herein called "Borrower"), and GENENTECH, INC., a Delaware corporation (herein
called "Lender").

      1.    COMMITMENT. Subject to all the terms and conditions of this Note
Agreement and prior to the termination of its commitment as hereinafter
provided, Lender hereby agrees to make a loan (the "Loan"), up to an aggregate
principal amount not to exceed $4,000,000, pursuant to Article 7.14 of the
Collaboration and License Agreement dated as of the date hereof, between
Borrower and Lender (the "Collaboration Agreement"). The Loan shall become
available to Borrower on or before December 31, 2002. The Loan shall be
evidenced by a convertible promissory note, in the form of the Convertible
Promissory Note attached as Exhibit A hereto and incorporated herein by this
reference (the "Note"), which Note shall reflect the date of payment of the Loan
(the "Effective Date"). The Loan will be advanced to Borrower in immediately
available funds by wire transfer to a deposit account of Borrower in accordance
with the wire transfer instructions set forth beneath Borrower's signature to
this Agreement (as the same may be amended by written notice from Borrower to
Lender).

      2.    LOAN.

            A. MATURITY DATE. Borrower promises to pay to Lender the entire
outstanding principal balance (and all accrued interest thereon) of the Loan on
or before the date (the "Maturity Date") that is the earlier of (i) December 31,
2005, (ii) six (6) months after the termination of the Collaboration Agreement
or (iii) the date of an Event of Default as set forth in Section 8 below.

                  (1) PAYMENT IN NOTE SHARES. At Borrower's option, subject to
the limitations set forth in Section 2.A.(3), on the Maturity Date, Borrower may
elect to pay the outstanding principal balance (and all accrued interest
thereon) of the Loan in (a) shares of Borrower's common stock, par value $0.001
per share (the "Common Stock"), pursuant to the Note (the "Note Shares"), (b)
immediately available funds, or (c) a combination of Note Shares and immediately
available funds.

                  (2) OPTIONAL PREPAYMENT. At Borrower's option, subject to the
limitations set forth in Section 2.A.(3), Borrower may at any time, upon fifteen
(15) days written notice to Lender, prepay all or any portion of the outstanding
principal balance (and all accrued interest on the principal amount so prepaid)
of the Loan in (a) Note Shares pursuant to the Note, (b) immediately available
funds, or (c) a combination of Note Shares and immediately available funds.

                  (3) LIMITATIONS ON PAYMENT IN NOTE SHARES. (a) Borrower shall
have no right to pay in Note Shares any amounts in respect of principal
outstanding under the Loan and accrued interest in respect thereof to the extent
that the number of such Note Shares, calculated pursuant to Section 3 of the
Note, would, when added to all other shares of Common Stock of Borrower then
owned by Lender or issuable to Lender pursuant to the terms of any convertible
securities of Borrower then owned by Lender, cause Lender to own, in the
aggregate, shares of Common Stock equal to more than 15% of Borrower's issued
and outstanding Common Stock plus the Note Shares so contemplated to be issued,
calculated at the time such payment in Note Shares is contemplated. In such
event, then Borrower shall pay in Note Shares only up to such amount as, in
Lender's good faith opinion, based on the advice of legal counsel, would not
exceed 15% of Borrower's issued and outstanding Common Stock plus the Note
Shares so issued unless Lender elects, in its sole discretion, to receive
payment of the entire amount due under the Loan in Note Shares, notwithstanding
the foregoing limitation on repayment in Note Shares. Any remaining balance
payable to Lender in respect of the Loan shall be paid in immediately available
funds. (b) Borrower may make payments in Note Shares only to the extent that
Borrower then has in reserve and available sufficient of its authorized but
unissued shares of Common Stock to effect such payment in Note Shares.

            B. INTEREST ON LOAN. Interest shall accrue on the sum of the daily
unpaid principal balance of the Loan outstanding on each day in lawful money of
the United States of America from the Effective Date until all such principal
amounts shall have been paid in full, which interest shall accrue at a rate
equal to eight percent (8%) per annum. Interest shall be compounded quarterly
and computed at the above rate on the basis of the actual number of days elapsed
year of 365 days; provided, however, that in no event shall Borrower be bound to
pay for the use or forbearance of the money loaned pursuant hereto, interest of
more than the maximum rate permitted by law to be charged by Lender; the right
to demand any such excess being hereby expressly waived by Lender. All accrued
and unpaid interest attributable to the principal amount of the Loan then being
paid shall be payable concurrently with such payment of principal, whether in
connection with any prepayment, on the Maturity Date or otherwise.

            C. USE OF PROCEEDS. The Loan may only be used for the generation and
phenotypic analysis of knock-out mice and Over-Expression Mice for Project Genes
(as such terms are defined in the Collaboration Agreement).

      3.    DELIVERY AND APPLICATION OF PAYMENTS. Payment to Lender of all
amounts due hereunder shall be made in immediately available funds on the date
when due by wire transfer to a deposit account of Lender in accordance with the
wire transfer instructions set forth beneath Lender's signature to this
Agreement (as the same may be amended by written notice from Lender to
Borrower). Payment to Lender of all amounts due hereunder payable in Note Shares
shall be made by delivery of an appropriate stock certificate within two
business days after the Maturity Date (in the case of a payment pursuant to
Section 2.A.(l)) or two business days after the effective date of an election by
Borrower to prepay (in the case of a prepayment pursuant to Section 2.A.(2)), to
the office of Lender at I DNA Way, South San Francisco, California 94080,
Attention: Treasurer, or at such other place as may be designated in writing by
Lender from time to time. If any payment date falls on a day that is not a
business day, the payment due date shall

be extended to the next business day. Any payment or prepayment received or
deemed received in respect of the Loan shall be applied first, to accrued and
unpaid interest, and then, to the outstanding principal balance of the Note.

      4.    BORROWER REPRESENTATIONS AND COVENANTS. Borrower hereby represents,
warrants and covenants to Lender as follows:

            A. AUTHORITY. Borrower has full right, power, authority and capacity
to enter into this Note Agreement and the Note (collectively, the "Loan
Documents") and to consummate the transactions contemplated hereby and thereby.
Upon due execution and delivery by Borrower, the Loan Documents will constitute
a legal, valid and binding obligation of Borrower enforceable in accordance with
its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies.

            B. GOOD STANDING. Borrower is qualified to do business and is in
good standing in the State of Delaware and each jurisdiction in which the
failure to so qualify would have a material adverse effect on the business,
operations, financial condition or results of operations of Borrower and its
subsidiaries, taken as a whole.

            C. CONSENTS. The execution and delivery of the Loan Documents, and
performance by Borrower of its obligations hereunder and thereunder, have been
duly authorized by all necessary corporate action on the part of Borrower. No
consent, approval, order or authorization of any federal, state or local
governmental authority on the part of Borrower is required in connection with
the consummation of the transactions contemplated by this Note Agreement.

            D. COMPLIANCE WITH SECURITIES LAWS. Assuming the accuracy of the
representations made by Lender in Section 5 hereof, the Note Shares issuable
upon conversion of any portion of the Note will be issued to Lender in
compliance with (i) the registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the registration
and qualification requirements of all applicable securities laws of the states
of the United States or (ii) applicable exemptions therefrom.

            E. NO CONFLICTS. The execution and delivery by Borrower of the Loan
Documents and consummation of the transactions contemplated thereby do not and
will not (i) violate the Certificate of Incorporation or Bylaws of Borrower or
any material judgment, order, writ, decree, statute, rule or regulation
applicable to Borrower; (ii) violate any provision of, or result in the breach
of, any material mortgage, indenture, agreement, instrument, contract, judgment
or decrees to which Borrower is a party or by which it is bound; or (iii) result
in the creation or imposition of any lien upon any property, asset or revenue of
Borrower or the suspension, revocation or nonrenewal of any material permit,
license, authorization or approval applicable to Borrower, its business or
operations, or any of its assets or properties.

            F. DISCLOSURE. No representation or warranty of Borrower contained
in the Loan Documents, the Collaboration Agreement or any other documents,
certificate or statement furnished to Lender by or on behalf of Borrower in
connection with the transactions contemplated hereby or thereby contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statement contained herein or therein nor misleading. To the best of
Borrower's knowledge, there is no fact known to Borrower that materially
adversely affects the business, operations, property, assets, condition or
prospects of Borrower that has not been disclosed in any filing with the
Securities and Exchange Commission.

      5.    LENDER REPRESENTATIONS AND COVENANTS. Lender hereby represents,
warrants and covenants to Borrower as follows:

            A. AUTHORITY. Lender has full right, power, authority and capacity
to enter into this Note Agreement and to consummate the transactions
contemplated hereby. Upon due execution and delivery by Lender, this Note
Agreement will constitute a legal, valid and binding obligation of Lender
enforceable in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.

            B. INVESTMENT EXPERIENCE; INVESTMENT INTENT; ETC. (i) Lender is
knowledgeable, sophisticated and experienced in making, and is qualified to
make, decisions with respect to investments in shares presenting an investment
decision like that involved in the purchase of the Note and the Note Shares that
may be issued in payment thereof (collectively, the "Securities"); (ii) Lender
has received all the information it considers necessary or appropriate for
deciding whether to purchase the Securities; (iii) Lender is acquiring the
Securities in the ordinary course of its business and for its own account solely
for investment and with no present intention of distributing any of such
Securities, except in accordance with an effective Registration Statement or
otherwise pursuant to an available exemption from registration under the
Securities Act, and no arrangement or understanding exists with any other person
regarding the distribution of such Securities; (iv) Lender will not, directly or
indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit
any offers to buy, purchase or otherwise acquire or take a pledge of) the
Securities except in compliance with the Securities Act, and the rules and
regulations promulgated thereunder; and (v) Lender is an "accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act.

            C. LENDER UNDERSTANDING AND AGREEMENTS. Lender acknowledges and
agrees that it will acquire the Securities being purchased by it in transactions
not involving a public offering and that such Securities are subject to certain
restrictions as to resale under the federal and state Securities laws. Lender
agrees and understands that each certificate representing Note Shares issued in
payment of the Note delivered on transfer of or in substitution for any such
certificate, shall bear a legend in substantially the following form:

                  THE SECURiTIES REPRESENTED BY THIS CERTIFICATE
                  ARE SUBJECT TO RESTRICTIONS IMPOSED BY THE

                  SECURITIES ACT OF 1933, AS AMENDED, AND
                  APPLICABLE STATE SECURITIES LAW. THE SHARES MAY
                  NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
                  REGISTRATION OR AN EXEMPTION THEREFROM UNDER
                  THE SECURITIES ACT OF 1933 AND ANY APPLICABLE
                  STATE SECURITIES LAWS.

      Lender agrees that it will not sell, pledge, assign, transfer or otherwise
dispose (collectively, "Transfer") of any Securities unless the Transfer will be
made pursuant to an exemption from the registration requirements of the
Securities Act or pursuant to an effective registration statement under the
Securities Act and pursuant to an exemption from any applicable state securities
laws or an effective registration or other qualification under any applicable
state securities laws.

            D. CONSENTS. The execution and delivery of this Note Agreement, and
performance by Lender of its obligations hereunder, have been duly authorized by
all necessary corporate action on the part of Lender.

      6.    CONDITIONS TO MAKING OF LOAN. Lender's obligation to make the Loan
to Borrower under the Loan Documents is subject to satisfaction of each of the
following conditions as of the date the Loan is to be made, any of which may be
waived in whole or in part by Lender:

            A.    REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Borrower in Section 4 hereof shall be true and correct as of
the date the Loan is to be made, except that to the extent any representation or
warranty is made as of a specified date, it shall have been true and correct as
of such date.

            B.    NO DEFAULTS. No Event of Default or event which, with notice
or lapse of time or both would become an Event of Default, shall have occurred
and be continuing under the Loan Documents, and no breach shall have occurred
and be continuing under the Collaboration Agreement.

      7.    SUBORDINATION. The indebtedness evidenced by the Note is hereby
subordinated, only in right of payment to the prior payment of (a) the
indebtedness of Borrower outstanding as of the date of this Note Agreement to
banks or commercial finance or other lending institutions regularly engaged in
the business of lending money, whether or not secured ("Senior Indebtedness")
and (b) any indebtedness or debentures, notes or other evidences of indebtedness
issued in exchange for Senior Indebtedness.

      8.    DEFAULT AND REMEDIES. The occurrence of any one or more of the
following shall constitute an "Event of Default": (a) default in the payment of
any obligation by Borrower under the Note within five (5) business days after
the date the same became due and payable; (b) any representation or warranty
made by Borrower in Section 4 of this Note Agreement shall prove to

have been untrue in any material respect when made or deemed made; (c) except
for any failure to pay as described in clause (a) above, breach of any covenant
contained in the Loan Documents if such breach shall not have been cured to the
reasonable satisfaction of Lender within sixty (60) days after Borrower shall
have received written notice thereof from Lender; (d) Borrower files any
petition or action for relief under any bankruptcy, reorganization, insolvency
or moratorium law or any other law for the relief of, or relating to, debtors,
now or hereafter in effect, or makes any assignment for the benefit of creditors
or takes any corporate action in furtherance of any of the foregoing; (e) an
involuntary petition is filed against Borrower (unless such petition is
dismissed or discharged within sixty (60) days) under any bankruptcy statute now
or hereafter in effect, or a custodian, receiver, trustee, assignee for the
benefit of creditors (or other similar official) is appointed to take
possession, custody or control of any property, of Borrower (provided that no
Loan will be made prior to the dismissal of such proceeding); (f) Lender
terminates the Collaboration Agreement pursuant to Article 10.2 of the
Collaboration Agreement; or (g) failure to pay when due any amount in respect of
Senior Indebtedness, or occurrence of any other default in respect of Senior
Indebtedness that pursuant to which the holder thereof accelerates the due date
thereof. Upon the occurrence and during the continuance of an Event of Default,
Lender may, at its option, upon notice to Borrower, do any one or more of the
following: (i) terminate its obligation to make the Loan to Borrower as provided
in Section 2 hereof if such Loan has not yet been made; provided that in the
case of an Event of Default pursuant to clause (d) or (e) above, Lender's
obligation to make the Loan to Borrower as provided in Section 3 hereof shall
automatically terminate, without notice to Borrower, if such Loan has not yet
been made; (ii) declare all sums evidenced hereby immediately due and payable;
provided that in the case of an Event of Default pursuant to clause (d) or (e)
above, all sums evidenced hereby shall be automatically and immediately due and
payable, without notice to or demand on Borrower; or (iii) exercise any remedies
of an unsecured creditor under applicable law.

      9.    GOVERNING LAW. This Agreement shall be deemed to have been made in
the State of California and the validity, construction, interpretation, and
enforcement hereof, and the rights of the parties hereto, shall be determined
under, governed by, and construed in accordance with the internal laws of the
State of California, without regard to principles of conflicts of law.

      10.   MISCELLANEOUS PROVISIONS.

            A.    Nothing herein shall in any way limit the effect of the
conditions set forth in any other security or other agreement executed by
Borrower, but each and every condition hereof shall be in addition thereto.

            B.    No failure or delay on the part of Lender, in the exercise of
any power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof.

            C.    All rights and remedies existing under this Note Agreement or
any other Loan Document are cumulative to, and not exclusive of, any rights or
remedies otherwise available.

            D.    All headings and captions in this Note Agreement and any
related documents are for convenience only and shall not have any substantive
effect.

            E.    This Note Agreement may be executed in any number of
counterparts, each of which when so delivered shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. Each
such agreement shall become effective upon the execution of a counterpart hereof
or thereof by each of the parties hereto and telephonic notification that such
executed counterparts has been received by Borrower and Lender.

            F.    Neither party shall assign any of its rights or obligations
hereunder except: (a) as incident to the merger, consolidation, reorganization
or acquisition of stock or assets affecting substantially all of the assets or
voting control of the assigning party; (b) to any wholly-owned Affiliate of such
party; provided, however, that such assignment shall not relieve the assigning
party of its responsibilities for performance of its obligations under this Note
Agreement; or (c) with the prior written consent of the other party (in its sole
discretion). This Note Agreement shall be binding upon the successors and
permitted assigns of the parties, and the name of a party appearing herein shall
be deemed to include the names of such party's successor's and permitted assigns
to the extent necessary to carry out the intent of this Agreement. Any
assignment not in accordance with this section shall be null and void.

                            (Signature page follows)

      IN WITNESS WHEREOF, the parties hereto have caused this Note Agreement to
be executed as of the date first written above.

LENDER:                                    BORROWER:

GENENTECH, INC.,                           LEXICON GENETICS INCORPORATED,
a Delaware corporation                     a Delaware corporation

By:  ________________________________      By: _________________________________
                                           Name: _______________________________
Name: Thomas T. Thomas                     Title: ______________________________

Title: Treasurer

Wire Transfer Instructions:                Wire Transfer Instructions:

Account Name:   Genentech, Inc.
Account Number: 040-1699
Bank Name:      Mellon Bank, Pittsburgh, PA
ABA Number:     043-000-261

                                    EXHIBIT A

                       FORM OF CONVERTIBLE PROMISSORY NOTE

THIS CONVERTIBLE PROMISSORY NOTE IS SUBJECT TO RESTRICTIONS IMPOSED BY THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAW. THIS
NOTE MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN
EXEMPTION THEREFROM UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE
SECURITIES LAWS.

                           CONVERTIBLE PROMISSORY NOTE

$4,000,000.00                                                          [DATE]

      FOR VALUE RECEIVED, LEXICON GENETICS INCORPORATED, a Delaware corporation
("Borrower"), hereby promises to pay to the order of GENENTECH, INC., a Delaware
corporation ("Lender"), in lawful money of the United States of America and in
immediately available funds, the principal sum of $4,000,000.00 or such lesser
amount as shall have been advanced by Lender and shall remain outstanding (the
"Loan"), together with accrued and unpaid interest thereon, due and payable on
the date and in the manner set forth below.

      This Convertible Promissory Note ("Note") is the note referred to in and
is executed and delivered in connection with the Note Agreement dated as of
December 17, 2002, between Borrower and Lender (the "Note Agreement").
Additional rights and obligations of Lender and Borrower are set forth in the
Note Agreement. All capitalized terms used herein and not otherwise defined
shall have the respective meanings given to them in the Note Agreement.

      1.    MATURITY DATE. Subject to Section 3 below, all amounts payable
hereunder shall be due and payable on the Maturity Date. This Note may be,
prepaid in whole or in part at any time without penalty, in accordance with the
terms of the Note Agreement.

      2.    INTEREST RATE AND PAYMENT. Borrower further promises to pay interest
on the outstanding Loan amount, which interest shall accrue from the date hereof
and shall be added to the principal balance of the Loan. Interest shall accrue
on the sum of the daily unpaid principal balance of the Loan outstanding on each
day in lawful money of the United States of America, from the Effective Date
until all such principal amounts shall have been paid in full, which interest
shall accrue at a rate equal to eight percent (8%) per annum. Interest shall be
compounded quarterly and computed at the above rate on the basis of the actual
number of days elapsed year of 365 days; provided, however, that in no event
shall Borrower be bound to pay for the use or forbearance of the money loaned
pursuant hereto, interest of more than the maximum rate permitted by law to be
charged by Lender; the right to demand any such excess being hereby expressly
waived by Lender. All accrued and unpaid interest attributable to the principal
amount of the Loan then being paid shall be payable concurrently with such
payment of principal, whether in connection with any prepayment, on the Maturity
Date or otherwise.

      3.    PAYMENT. At Borrower's sole option and subject to the limitations
contained in Section 2.A.(3) of the Note Agreement, (a) on the Maturity Date,
the outstanding principal balance of, and accrued interest on, this Note shall
be payable in (i) shares of Borrower's Common Stock, (ii) immediately available
funds, or (iii) a combination of Common Stock and immediately available funds;
and (b) on any date upon which Borrower desires to prepay all or any portion of
the outstanding principal balance of, and accrued interest on the amount so
prepaid, such prepayment shall be payable in (i) Common Stock, (ii) immediately
available funds, or (iii) a combination of Common Stock and immediately
available funds. The number of shares of Common Stock which shall be issuable to
make any payment under this Note, including, without limitation, any optional
prepayment amount, which may be made by Borrower shall be determined by dividing
the amount of such payment by the Fair Market Value. "Fair Market Value" shall
mean the average of the closing prices for Borrower's Common Stock as reported
in The Wall Street Journal (Western Edition) for the twenty (20) trading days
immediately preceding the Maturity Date or the date upon which an optional
prepayment amount is paid, as the case may be.

            A.    MECHANICS AND EFFECT OF PAYMENT IN COMMON STOCK. No fractional
shares of Common Stock shall be issued in payment of this Note. In lieu of
Borrower issuing any fractional shares to Lender upon payment of this Note (or
any amount thereof) in Common Stock, Borrower shall pay to Lender in cash the
amount of any such payment that is not so paid in Common Stock, such payment to
be in the form provided below. Upon payment of this Note in full pursuant to
this Section 3, Lender shall surrender this Note, duly endorsed, at the
principal office of Borrower. The payment in Common Stock shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of this Note or the date any optional prepayment amount is paid, as
the case may be, and the person or persons entitled to receive the shares of
Common Stock issuable upon such payment shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date.
Borrower shall, in accordance with Section 2 of the Note Agreement, issue and
deliver to Lender at such principal office a certificate or certificates for the
number of shares of Common Stock to which Lender shall be entitled upon such
payment bearing such legends as are required by applicable state and federal
securities laws and pursuant to Section S.C. of the Note Agreement, together
with any other securities and property to which Lender is entitled upon such
payment under the terms of this Note, including a check payable to Lender for
any cash amounts payable as described above.

      4.    SUBORDINATION. The indebtedness evidenced by this Note is hereby
subordinated, only to the extent set forth in Section 7 of the Note Agreement,
in right of payment to the prior payment of the Senior Indebtedness.

      5.    PLACE OF PAYMENT. All amounts payable hereunder shall be payable in
accordance with terms of the Note Agreement, unless otherwise specified in
writing by Lender.

      6.    APPLICATION OF PAYMENTS. Payment on this Note shall be applied first
to accrued interest, and thereafter to the outstanding principal balance hereof.

      7.    DEFAULT. The occurrence of an "Event of Default" under and as
defined in the Note Agreement shall constitute an "Event of Default" hereunder.
Upon the occurrence of an Event of

Default, Lender shall have such rights and remedies as are provided under the
Note Agreement or by law.

      8.    GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.

      9.    SUCCESSORS AND ASSIGNS. Subject to the limitations of Section 10.F.
of the Note Agreement, the provisions of this Note shall inure to the benefit of
and be binding on any successor to Borrower and shall extend to any holder
hereof.

                                 BORROWER:

                                 LEXICON GENETICS INCORPORATED

                                 By: ___________________________________________

                                 Printed Name: _________________________________

                                 Title: ________________________________________

                                                                   EXHIBIT 10.15

Confidential materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

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

                       COLLABORATION AND LICENSE AGREEMENT

                                     between

                          LEXICON GENETICS INCORPORATED

                                       and

                          BRISTOL-MYERS SQUIBB COMPANY

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

                      COLLABORATION AND LICENSE AGREEMENT

      THIS COLLABORATION AND LICENSE AGREEMENT (this "Agreement") is dated as of
December 17, 2003 (the "Effective Date") and is made by and between LEXICON
GENETICS INCORPORATED, a Delaware corporation ("Lexicon"), and BRISTOL-MYERS
SQUIBB COMPANY, a Delaware corporation ("BMS"). Lexicon and BMS are sometimes
referred to herein individually as a "party" and collectively as the "parties."

                                R E C I T A L S

      WHEREAS, Lexicon and BMS are each in the business of discovering,
developing and commercializing pharmaceutical products; and

      WHEREAS, Lexicon is engaged in the identification and validation of
targets for use in the discovery of compounds potentially useful to prevent or
treat diseases and conditions of the central nervous system;

      WHEREAS, Lexicon and BMS are interested in collaborating in the discovery,
development and commercialization of compounds for use in the prevention or
treatment of such diseases and conditions;

      NOW, THEREFORE, in consideration of the premises and of the covenants
herein contained, the parties hereto mutually agree as follows:

                             ARTICLE 1. DEFINITIONS

      The terms in this Agreement with initial letters capitalized, whether used
in the singular or the plural, shall have the meaning set forth below or, if not
listed below, the meaning designated in places throughout this Agreement.

      1.1 "Affiliate" means any corporation, company, partnership, joint venture
and/or firm that controls, is controlled by or is under common control with a
party to this Agreement. For purposes hereof, "control" means (a) in the case of
corporate entities, direct or indirect ownership of more than fifty percent
(50%) of the stock or shares entitled to vote for the election of directors; and
(b) in the case of non-corporate entities, direct or indirect ownership of more
than fifty percent (50%) of the equity interest with the power to direct the
management and policies of such non-corporate entities.

      1.2 "Agreement" means this Collaboration and License Agreement, including
all Exhibits hereto.

      1.3 "Alliance Manager" has the meaning set forth in Section 3.12.

      1.4 "Annual Research Plan" means the plan to be developed by the Joint
Scientific Committee and approved by the Joint Management Committee for each
Contract Year, to be updated as necessary during each Contract Year, setting
forth, among other things, a master plan for the Research Program during the
Research Program Term and the matters described in Section 2.7 hereof.

      1.5 "Background Materials" means BMS Background Materials and Lexicon
Background Materials.

      1.6 "Background Technology" means BMS Background Technology and Lexicon
Background Technology.

                                       1

      1.7 "Back-up Compound" means a Program Compound acting through the same
Selected Target as a Development Candidate and designated by the Joint
Management Committee as a back-up for such Development Candidate, including,
without limitation, any Program Compound for which the Joint Management
Committee authorizes the conduct of preclinical work sufficient to support the
filing of an IND.

      1.8 "Blended Rate" means (a) the total amount of royalties (stated in U.S.
dollars) that would be payable in a Contract Year with respect to a Product
under Section 5.5.1 or 5.5.2, as applicable, [**] divided by (b) the total Net
Sales (stated in U.S. dollars) of such Product in that Contract Year, expressed
as a percentage.

      1.9 "BMS" means Bristol-Myers Squibb Company and its Affiliates.

      1.10 "BMS Background Materials" means any compounds, assays or other
materials that are (a) necessary or useful for the conduct of the Research
Program, (b) Controlled by BMS, (c) utilized in the Research Program (but only
to the extent so utilized) and (d) either in BMS's or any of its Affiliates'
possession as of the Effective Date or are discovered or acquired by BMS or any
of its Affiliates during the Research Program Term but outside of the conduct of
the Research Program. BMS Background Materials excludes Selected Targets and
Program Compounds.

      1.11 "BMS Background Technology" means any inventions, information,
methods, know-how, trade secrets or data that (a) are necessary or useful for
the performance of the Research Program, (b) are Controlled by BMS, (c) are
utilized in the Research Program (but only to the extent so utilized) and (d)
either are in BMS's or any of its Affiliates' possession as of the Effective
Date or are discovered or acquired by BMS or any of its Affiliates during the
Research Program Term but outside of the conduct of the Research Program.

      1.12 "BMS Development Compound" means any and all of the following:

            (a) a Development Candidate for a BMS Target that is so designated
      under Section 2.5 hereof; and

            (b) any Back-up Compound(s) designated for such Development
      Candidate; and

            (c) any other Small Molecule Compound that acts through the same BMS
      Target:

                  (i) that is made in the course of performing medicinal
            chemistry on or optimizing such Development Candidate and Back-up
            Compound(s), or performing structure activity relationship
            activities using such Development Candidate, Back-up Compound(s) or
            other Program Compounds active against such BMS Target; provided
            that such Small Molecule Compound [**]; or

                  (ii) that is Covered by a Valid Claim of any Program Patent
            Rights; and

            (d) any salts of any of the foregoing.

      1.13 "BMS Inactive Selected Target" has the meaning set forth in Section
2.3.4.4.

      1.14 "BMS Product" means a pharmaceutical product containing a BMS
Development Compound as an active ingredient.

                                       2

      1.15 "BMS Target" means a Selected Target that is so designated under
Section 2.5 hereof.

      1.16 "CNS Field" means the prevention, palliation, control or treatment in
humans of (a) depression, schizophrenia, bipolar disease, dementia, anxiety,
attention deficit hyperactivity disorder, anorexia nervosa and other affective
disorders, (b) Alzheimer's disease and other cognitive disorders, (c)
Parkinson's disease, amyotrophic lateral sclerosis and other neurodegenerative
disorders, (d) pain, (e) epilepsy, (f) insomnia, narcolepsy and other sleep
disorders, (g) substance abuse and (h) migraine.

      1.17 "Compound Library Screening" means screening of compound libraries to
identify Small Molecule Compounds that are active against a Selected Target
using an assay that meets requirements (for example, with respect to throughput)
established by, or the use of which is otherwise approved by, the Joint
Scientific Committee. For purposes of this Agreement, "commencement of Compound
Library Screening" for a Selected Target means the initiation of Compound
Library Screening for such Selected Target, following Joint Management Committee
authorization, by either BMS or Lexicon.

      1.18 "Confidential Information" means any information and data received by
a party (the "Receiving Party") from the other party or its Affiliates (the
"Disclosing Party") in connection with this Agreement (including, without
limitation, all information disclosed by the parties under Article 2 hereof and
any research, testing, clinical, regulatory, marketing or other scientific or
business information, plans, or data pertaining to any Product of the Disclosing
Party). Notwithstanding the foregoing, Confidential Information shall not
include any part of such information or data that:

            (a) is or becomes part of the public domain other than by
      unauthorized acts of the Receiving Party or its Affiliates;

            (b) can be shown by written documents to have been already in the
      possession of the Receiving Party or its Affiliates prior to disclosure
      under this Agreement, provided such information or data was not obtained
      directly or indirectly from the Disclosing Party under an obligation of
      confidentiality;

            (c) can be shown by written documents to have been disclosed to the
      Receiving Party or its Affiliates by a Third Party, provided such
      information or data was not obtained directly or indirectly from the
      Disclosing Party under an obligation of confidentiality; or

            (d) can be shown by written documents to have been independently
      developed by the Receiving Party or its Affiliates without use, aid or
      application of Confidential Information of the Disclosing Party.

Specific Confidential Information of a Disclosing Party shall not be deemed to
come under the foregoing exceptions merely because it is embraced by more
general information that is or becomes part of the public domain, or is known
by, disclosed to or independently developed by the Receiving Party.

      1.19 "Contract Year" means (a) with respect to the first Contract Year,
the period beginning on the Effective Date and ending on December 31, 2004 (the
"First Contract Year"), and (b) with respect to each subsequent Contract Year,
the twelve (12) month period beginning on the day following the end of the First
Contract Year and each succeeding twelve (12) month period thereafter during the
term of the Agreement (except that the last Contract Year shall end on the
effective date of any termination or expiration of this Agreement). Each
Contract Year (other than the First and last Contract Year) shall be divided
into four (4) "Contract Quarters" comprised of successive three (3) month
periods. In the First Contract Year, the first Contract Quarter shall begin on
the Effective Date and end on March 31, 2004,

                                       3

and in the last Contract Year, the last Contract Quarter shall end on the
effective date of any termination or expiration of this Agreement.

      1.20 "Control" or "Controlled" means, with respect to any (a) material,
document, item of information, method, data or other know-how or (b) Patent
Right or other intellectual property right, the possession (whether by ownership
or license, other than by a license granted pursuant to this Agreement) by a
party or its Affiliates of the ability to grant to the other party access,
ownership, a license and/or a sublicense as provided herein under such item or
right without violating the terms of any agreement or other arrangement with any
Third Party as of the time such party would first be required hereunder to grant
the other party such access, ownership, license or sublicense.

      1.21 "Cover," "Covered" or "Covering" means, with respect to a Patent
Right, that, but for rights granted to a person or entity under such Patent
Right, the practice by such person or entity of an invention claimed in such
Patent Right would infringe a Valid Claim included in such Patent Right, or in
the case of a Patent Right that is a patent application, would infringe a Valid
Claim in such patent application if it were to issue as a patent.

      1.22 "Development Candidate" means a Program Compound that has been
selected by the Joint Management Committee for full preclinical development in
preparation for the commencement of a Phase 1 Trial and that has been designated
by the Joint Management Committee as a "Development Candidate" in accordance
with Section 3.4, including, without limitation, any Program Compound for which
the Joint Management Committee authorizes the commencement of a Phase 1 Trial.

      1.23 "Development Compound" means a BMS Development Compound or a Lexicon
Development Compound.

      1.24 "Diligent Efforts" means the carrying out of obligations or tasks by
a party in a sustained manner using good faith commercially reasonable and
diligent efforts, which efforts shall be consistent with the exercise of prudent
scientific and business judgment in accordance with the efforts such party
devotes to products or research, development or marketing projects of similar
scientific and commercial potential. Diligent Efforts requires that the party:
(a) promptly assign responsibility for such obligations to specific employees
who are held accountable for progress and monitor such progress on an on-going
basis, (b) set and consistently seek to achieve specific and meaningful
objectives for carrying out such obligations, and (c) consistently make and
implement decisions and allocate resources designed to advance progress with
respect to such objectives.

      1.25 "Disclosing Party" has the meaning specified in Section 1.18 hereof.

      1.26 "Effective Date" means the date specified in the initial paragraph of
this Agreement.

      1.27 "Escrow Agent" means an independent Third Party consultant to the
parties with whom BMS shall deposit a list of Excluded Targets and who shall
notify Lexicon which, if any, Targets submitted in accordance with Section 2.2.4
are Excluded Targets.

      1.28 "Excluded Target" means a Target that BMS has elected to exclude from
consideration for the Research Program. A list of such Excluded Targets shall be
provided to the Escrow Agent who shall notify Lexicon which, if any, Targets
submitted in accordance with Section 2.2.4 are Excluded Targets. [**].

      1.29 "First Commercial Sale" means the first sale for use or consumption
by the general public of a Product in a country after Regulatory Approval has
been obtained in such country. For clarity, First

                                       4

Commercial Sale shall not include the sale of any Product for use in clinical
trials or for compassionate use prior to the approval of an NDA.

      1.30 "FDA" means the United States Food and Drug Administration, or the
successor thereto.

      1.31 "Full Phase Program" means a full medicinal chemistry and supporting
biology program involving the commitment of resources of the scope and nature
described in Exhibit A. For purposes of this Agreement, "commencement of a Full
Phase Program" means the authorization by the Joint Management Committee of the
commencement of activities for the first Full Phase Program for a given Selected
Target.

      1.32 "FTE" means the equivalent of one employee working on a dedicated
full time basis for one year (consisting of [**] hours per year of dedicated
effort) performing scientific, technical or managerial work on or directly
related to the Target Discovery Program or the Research Program, as applicable.
Any person who [**], calculated in accordance with standards that shall be
consistent for both parties (as determined and monitored by the Joint Management
Committee), shall be [**].

      1.33 "Inactive Selected Target" has the meaning specified in Section 2.3.4
hereof. Any BMS Inactive Selected Target or Lexicon Inactive Selected Target
shall remain an Inactive Selected Target unless and until it becomes a BMS
Target or Lexicon Target.

      1.34 "Indemnitee" has the meaning specified in Section 10.4 hereof.

      1.35 "Indemnitor" has the meaning specified in Section 10.4 hereof.

      1.36 "IND" means an Investigational New Drug application filed with the
U.S. Food and Drug Administration or a similar application for the clinical
testing of a Product in human subjects filed with a foreign regulatory
authority.

      1.37 "Joint Management Committee" has the meaning specified in Section
3.1.1 hereof.

      1.38 "Joint Program Inventions" has the meaning specified in Section
7.1.3.3 hereof.

      1.39 "Joint Research Project Team" has the meaning specified in Section
3.1.2 hereof.

      1.40 "Joint Scientific Committee" has the meaning specified in Section
3.1.2 hereof.

      1.41 "Laws" means all laws, statutes, rules, regulations, ordinances and
other pronouncements having the effect of law of any federal, national,
multinational, state, provincial, county, city or other political subdivision,
domestic or foreign.

      1.42 "Level 1 Phenotypic Analysis" means the analyses of the phenotypes of
Mutant Mice described in Exhibit B.

      1.43 "Level 2 Phenotypic Analysis" means any one or more of the analyses
of the phenotypes of Mutant Mice described in Exhibit C. The Level 2 Phenotypic
Analysis for a given Target shall be as determined by the Joint Scientific
Committee as set forth in Section 3.5.

      1.44 "Lexicon" means Lexicon Genetics Incorporated and its Affiliates.

      1.45 "Lexicon Background Materials" means any compounds, assays or other
materials that are (a) necessary or useful for the conduct of the Research
Program, (b) Controlled by Lexicon, (c)

                                       5

utilized in the Research Program (but only to the extent so utilized) and (d)
either in Lexicon's or any of its Affiliates' possession as of the Effective
Date or are discovered or acquired by Lexicon or any of its Affiliates during
the Research Program Term but outside of the conduct of the Research Program.
Lexicon Background Materials excludes Selected Targets and Program Compounds.

      1.46 "Lexicon Background Technology" means any inventions, information,
methods, know-how, trade secrets or data that (a) are necessary or useful for
the performance of the Research Program, (b) are Controlled by Lexicon, (c) are
utilized in the Research Program (but only to the extent so utilized) and (d)
either are in Lexicon's or any of its Affiliates' possession as of the Effective
Date or are discovered or acquired by Lexicon or any of its Affiliates during
the Research Program Term but outside of the conduct of the Research Program.

      1.47 "Lexicon Development Compound" means any and all of the following:

            (a) a Development Candidate for a Lexicon Target that is so
      designated under Section 2.5 hereof; and

            (b) any Back-up Compound(s) designated for such Development
      Candidate; and

            (c) any other Small Molecule Compound that acts through the same
      Lexicon Target:

                  (i) that is made in the course of performing medicinal
            chemistry on or optimizing such Development Candidate and Back-up
            Compound(s), or performing structure activity relationship
            activities using such Development Candidate, Back-up Compound(s) or
            other Program Compounds active against such Lexicon Target; provided
            that such Small Molecule Compound [**]; or

                  (ii) that is Covered by a Valid Claim of any Program Patent
            Rights; and

            (d) any salts of any of the foregoing.

      1.48 "Lexicon Inactive Selected Target" has the meaning set forth in
Section 2.3.4.4.

      1.49 "Lexicon Product" means a pharmaceutical product containing a Lexicon
Development Compound as an active ingredient.

      1.50 "Lexicon Target" means a Selected Target that is so designated under
Section 2.5 hereof.

      1.51 "LexVision Agreement" means the LexVision Database and Collaboration
Agreement dated September 26, 2000 between Lexicon and BMS, as amended.

      1.52 "LG617 Compound" means a Small Molecule Compound acting through the
LG617 Target.

      1.53 "LG617 License" has the meaning specified in Section 4.4 hereof.

      1.54 "LG617 Negotiation Period" has the meaning specified in Section 4.4
hereof.

      1.55 "LG617 Option Period" has the meaning specified in Section 4.4
hereof.

      1.56 "LG617 Target" means the Target designated by Lexicon as LG617.

                                       6

      1.57 "Listed Target" means the Targets for which Lexicon has completed
[**] and that have been separately identified to BMS prior to the Effective Date
by their Lexicon designation, and are listed as follows: [**].

      1.58 "MAA Approval" means the final marketing authorization approval,
including full marketing, pricing and reimbursement approval, for the applicable
Product, in [**].

      1.59 "MAA Filing" means the filing of a marketing authorization
application or other application for marketing approval for the applicable
Product filed (a) in [**] or (b) in the European Medicines Evaluation Agency
under the centralized European procedure.

      1.60 "Mid-Phase Program" means a mid-phase medicinal chemistry and
supporting biology program involving the commitment of resources of the scope
and nature described in Exhibit D.

      1.61 "Mutant Mouse" means mouse cell or mouse containing a selected
mutation in the murine ortholog of a Target that is made or produced by Lexicon.
A "line of Mutant Mice" means Mutant Mice having the same selected mutation.

      1.62 "NDA" means a New Drug Application filed with the FDA required for
marketing approval for the applicable Product in the U.S.

      1.63 "NDA Approval" means the final approval of an NDA by the FDA for the
applicable Product in the U.S.

      1.64 "NDA Filing" means the acceptance by the FDA of the filing of an NDA
for the applicable Product.

      1.65 "Net Sales" means, with respect to a Product, the gross amount
invoiced by BMS, Lexicon, Sublicensees of BMS or Lexicon, and their respective
Affiliates for sales of such Product to customers which are not Affiliates (or
which are Affiliates but are end users of such Product), less:

      (a) trade, quantity and cash discounts actually allowed;

      (b) discounts, refunds, rebates, chargebacks, retroactive price
adjustments, billing errors and any other allowances (including, without
limitation, government-mandated and managed health care-negotiated rebates)
actually granted which effectively reduce the net selling price;

      (c) product returns credits and allowances actually granted;

      (d) any tax imposed on the production, sale, delivery or use of the
product (excluding federal, state or local taxes based on income);

      (e) freight, postage, shipping, customs duties, excises, tariffs,
surcharges, other governmental charges (excluding federal, state or local taxes
based on income) and insurance charges actually allowed or paid for delivery of
Products;

      (f) payments or rebates paid with respect to such Product in connection
with state or federal Medicare, Medicaid or similar programs in the United
States or in connection with similar programs in other countries in which there
are sales; and

                                       7

      (g) amounts repaid, credited or written off by reason of uncollectible
debt, and amounts written off on account of factoring of receivables to the
extent consistent with the selling party's normal business practices.

Such amounts shall be determined from the books and records of BMS, Lexicon,
Sublicensees of BMS or Lexicon, and their respective Affiliates, as the case may
be, maintained in accordance with U.S. generally accepted accounting principles,
consistently applied.

      In the event the Product is sold as part of a Combination Product (as
defined below), the Net Sales from the Combination Product, for the purposes of
determining royalty payments, will be determined by multiplying the actual Net
Sales of the Combination Product by the fraction A/(A+B) where A is the average
sale price of the Product when sold separately in finished form and B is the
total average sale price of the other active ingredient or ingredients in the
Combination Product sold separately in finished form.

      In the event that the average sales price of both the Product and the
other active compounds or ingredients in the Combination Product cannot be
determined, the adjusted Net Sales of the Combination Product for the purpose of
determining royalties shall be negotiated by the parties in good faith and in an
equitable manner consistent with the intent of this Agreement.

      The Net Sales price for a Combination Product in a given country will be
calculated once each Contract Year and such price will be used during all
applicable royalty reporting periods for the entire Contract Year for such
country, absent extraordinary conditions or events. When determining the average
sale price of a Product or the other active compounds or ingredients in the
Combination Product, the average sale price will be calculated using data
arising from the twelve (12) months preceding the calculation of the Net Sales
price for the Combination Product. As used above, the term "Combination Product"
means any Product sold in conjunction with any other active component(s)
(whether packaged together or in the same therapeutic formulation).

      If BMS, Lexicon, Sublicensees of BMS or Lexicon, or any of their
respective Affiliates sells any Product to a customer which also purchases other
products or services from such seller or any of its Affiliates in a bundled,
combination or capitated transaction (a "Bundled Transaction"), and such seller
discounts the sales price of the Product to a greater degree than such seller or
its Affiliates generally discount the price of its other products to such
customer, then the aggregate amount received with respect to such Bundled
Transaction shall be allocated to Net Sales pursuant to the formula set forth in
Exhibit E hereto. For purposes of the foregoing, "discounting" includes
establishing the list price at lower than the seller's normal pricing level.

      Free samples of Product and/or the disposition of Product for, or the use
of Product in, pre-clinical or clinical (Phase 1 - 3) trials or other
market-focused (Phase 4) trials in which Product is provided to patients without
any payment shall not result in any Net Sales.

      1.66 "Patent Prosecution" has the meaning specified in Section 7.2.1
hereof.

      1.67 "Patent Rights" means all existing patents and patent applications
and all patent applications hereafter filed and patents hereafter issued,
including, without limitation, any continuations, continuations-in-part,
divisions, provisionals or any substitute applications, any patent issued with
respect to any such patent applications, any reissue, reexamination, renewal or
extension (including any supplemental protection certificate) of any such
patent, and any confirmation patent or registration patent or patent of addition
based on any such patent, and all foreign counterparts of any of the foregoing.

                                       8

      1.68 "Phase 1 Trial" shall mean a human clinical trial [**] that is
intended to initially evaluate the safety, pharmacokinetic and/or
pharmacological effect of a Product in subjects in accordance with or otherwise
in satisfaction of the requirements of 21 CFR 312.21(a). For purposes of this
Agreement, "commencement of a Phase 1 Trial" for a Product shall mean the first
dosing of such Product into a human patient in a Phase 1 Trial.

      1.69 "Phase 2 Trial" means a human clinical trial [**] that is intended to
initially evaluate the dosing and effectiveness of a Product for a particular
indication or indications in patients with the disease or indication under study
in accordance with or otherwise in satisfaction of the requirements of 21 CFR
312.21(b). For purposes of this Agreement, "commencement of a Phase 2 Trial" for
a Product shall mean the first dosing of such Product into a human patient in a
Phase 2 Trial.

      1.70 "Phase 3 Trial" means a pivotal human clinical trial [**] the results
of which could be used to establish safety and efficacy of a Product as a basis
for an NDA in accordance with or otherwise in satisfaction of the requirements
of 21 CFR 312.21(c). For purposes of this Agreement, "commencement of a Phase 3
Trial" for a Product shall mean the first dosing of such Product into a human
patient in a Phase 3 Trial.

      1.71 "Post Opt-out Product" has the meaning set forth in Section 2.5.3.3.

      1.72 "Pre-existing Obligations" means:

            (a) with respect to [**], the obligations of Lexicon existing under
      agreements in effect prior to the Effective Date and separately disclosed
      to BMS prior to the Effective Date; and

            (b) with respect to any [**], the obligations of Lexicon or BMS, as
      may be applicable, existing under agreements in effect prior to [**], for
      any [**] that (i) is in such party's or any of its Affiliates' possession
      as of the Effective Date or (ii) is discovered or acquired by such party
      or any of its Affiliates during the Research Program Term but outside of
      and independently of the conduct of the Research Program and without
      breach of any obligation of such party under this Agreement.

      1.73 "Product" means a BMS Product or a Lexicon Product.

      1.74 "Product Licensee" means (a) with respect to a BMS Product, BMS, and
(b) with respect to a Lexicon Product, Lexicon.

      1.75 "Product Licensor" means (a) with respect to a BMS Product, Lexicon,
and (b) with respect to a Lexicon Product, BMS.

      1.76 "Program Committee" means the Joint Management Committee or the Joint
Scientific Committee.

      1.77 "Program Compound" means a Small Molecule Compound that:

            (a) (i)    is selected by the Joint Scientific Committee for
            optimization, characterization and/or preclinical evaluation in the
            conduct of the Research Program,

                (ii)   is Controlled by a party,

                                       9

                (iii)  either is in a party's or any of its Affiliates'
            possession as of the Effective Date or is discovered or acquired by
            either or both parties or any of their respective Affiliates during
            the Research Program Term but outside the conduct of the Research
            Program, and

                (iv)   inhibits, agonizes or otherwise modulates (i.e., acts
            through) a Selected Target; or

            (b) is first [**] in the conduct of the Research Program; or

            (c) is Covered by any Valid Claim of a Program Patent Right; or

            (d) is otherwise designated a Program Compound by the Joint
      Management Committee;

provided, however, that in no event shall [**] become a Program Compound unless
such designation is affirmatively agreed to by the Joint Management Committee.

      1.78 "Program Director" has the meaning specified in Section 3.2 hereof.

      1.79 "Program Intellectual Property" means Program Patent Rights and any
other proprietary rights in Program Material and Program Technology.

      1.80 "Program Invention" has the meaning specified in Section 7.1.3.3
hereof.

      1.81 "Program Material" means (a) any Program Compounds and (b) any
material first identified or discovered in the conduct of the Research Program.

      1.82 "Program Patent Rights" means any Patent Rights that are Controlled
by one or both parties and that Cover any Program Technology or Program
Materials. For clarification, such Program Patent Rights include the entire
scope of all of the claims contained in such Patent Rights.

      1.83 "Program Technology" means any invention, information, methods,
know-how, trade secrets or data that (a) is Controlled by a party or jointly by
the parties and (b) either (i) relates to the use in the CNS Field of Small
Molecule Compounds acting through a Selected Target, or the use in the CNS Field
of a Selected Target to identify Small Molecule Compounds acting through such
Selected Target, or (ii) is first identified or discovered in the conduct of the
Research Program. Program Technology specifically includes any invention,
information, methods, know-how, trade secrets or data with respect to the [**].
Program Technology excludes any invention, information, methods, know-how, trade
secrets or data with respect to the [**], or the [**] acting through such
Selected Target, in each case that is first identified or discovered by a party
outside of the conduct of the Research Program; provided, however, that, [**].
In addition, Program Technology excludes Program Materials.

      1.84 "Proposed Target" means a Target proposed for designation as a
Selected Target in accordance with Section 2.3.1 hereof

      1.85 "Receiving Party" has the meaning specified in Section 1.18 hereof.

      1.86 "Regulatory Approval" means any and all approvals (including any
applicable governmental price and reimbursement approvals), licenses,
registrations, or authorizations of any federal, national, multinational, state,
provincial or local regulatory agency, department bureau or other

                                       10

governmental entity that are necessary for the manufacture, use, storage,
import, transport, promotion, marketing and sale of a Product in a country or
group of countries.

      1.87 "Released Target" means [**] or a Target designated as a Released
Target in accordance with Section 2.3.2 hereof.

      1.88 "Research Program" has the meaning specified in Section 2.1.1 hereof.

      1.89 "Research Program Activities" has the meaning specified in Section
2.1.1 hereof.

      1.90 "Research Program Term" has the meaning specified in Section 2.1.2
hereof.

      1.91 "Research Program Costs" means the FTE costs and out-of-pocket
expenditures that are incurred after the Effective Date by a party in performing
activities approved by the Joint Management Committee in support of the Research
Program, for purposes of which the cost of an FTE shall be [**] per FTE per
year. Research Program Costs shall not include [**]. In addition, Research
Program Costs shall not include [**].

      1.92 [**] has the meaning specified in Section 2.3.3 hereof.

      1.93 "Reviewing Party" has the meaning specified in Section 8.4 hereof.

      1.94 "Selected Target" means any Target that is selected for research by
the Joint Management Committee in accordance with Section 2.3.2 hereof.

      1.95 "Selected Target Inventions" has the meaning specified in Section
7.1.3.2 hereof.

      1.96 "Small Molecule Compound" means a chemical compound having a
molecular weight of less than 1,000 Daltons, [**]. For clarity, Small Molecule
Compound specifically excludes any compound that consists of or incorporates as
an active ingredient [**] (a) a protein, (b) an antibody or any fragment
thereof, (c) an antisense product or (d) an oligonucleotide.

      1.97 "Sole Program Inventions" has the meaning specified in Section
7.1.3.3 hereof.

      1.98 "Sublicensee" means (a) in the case of a BMS Product, any Third Party
which is licensed by BMS to market and sell such BMS Product, and (b) in the
case of a Lexicon Product, any Third Party which is licensed by Lexicon to
market and sell such Lexicon Product.

      1.99 "Submitting Party" has the meaning specified in Section 8.4 hereof.

      1.100 "Target" means a human gene and the products encoded by such gene,
including, without limitation, (a) any [**] from such gene [**], (b) any [**]
encoded by any such gene, and/or (c) any [**] encoded by any such gene. Each
Target shall be identified by the full length cDNA and/or amino acid sequence of
the gene or, in the event the gene has more than one splice variant form, by the
full length cDNA and/or amino acid sequence of at least one splice variant form
of such gene.

      1.101 "Target Discovery Program" has the meaning specified in Section
2.1.1 hereof.

      1.102 "Target Discovery Program Term" has the meaning specified in Section
2.2.2 hereof.

      1.103 "Territory" means all countries and jurisdictions throughout the
world.

                                       11

      1.104 "Third Party" means any person or entity other than Lexicon, BMS and
their respective Affiliates.

      1.105 "Third Party Opportunity" has the meaning specified in Section 2.11
hereof.

      1.106 "Valid Claim" means either (a) a claim of an issued and unexpired
patent which has not been held permanently revoked, unenforceable or invalid by
a decision of a court or other governmental agency of competent jurisdiction,
unappealable or unappealed within the time allowed for appeal and that is not
admitted to be invalid or unenforceable through reissue, disclaimer or
otherwise, or (b) a claim of a pending patent application that has not been
[**], provided, however, that (x) Valid Claim shall exclude any such pending
claim that has not been granted within [**] following [**] (unless and until
such claim is granted) and (y) [**].

                          ARTICLE 2. RESEARCH PROGRAM

      2.1 General.

          2.1.1 Objectives. The parties intend to carry out a research program
      (the "Research Program") in which Lexicon and BMS will collaborate to
      identify, characterize and carry out the preclinical development of Small
      Molecule Compounds that act through Selected Targets for use in the CNS
      Field, consistent with the objectives set forth in and the resources
      allocated to such activities in the then-current Annual Research Plan
      ("Research Program Activities"). It is intended that the Research Program
      will be conducted as a unified collaborative effort with activities by the
      parties carried out primarily at each party's respective facilities, and
      this intent shall be reflected in the Annual Research Plans. It is further
      intended that each party shall contribute to fifty (50%) of the Research
      Program Costs, and the Annual Research Plans will be consistent with and
      provide for such equal contribution. In support of the Research Program,
      Lexicon will continue its efforts, using its technology for the generation
      and analysis of the phenotypes of Mutant Mice, to identify and validate
      Targets with potential utility in the CNS Field (the "Target Discovery
      Program").

          2.1.2 Research Program Term. The Research Program shall commence on
      the Effective Date and continue during the Target Discovery Program Term
      and thereafter until all Selected Targets have become BMS Targets, Lexicon
      Targets or Inactive Selected Targets and thereafter for so long as the
      parties continue to conduct Research Program Activities with respect to
      any BMS Targets or Lexicon Targets (the "Research Program Term").

      2.2 Target Discovery Program.

          2.2.1 Generation and Analysis of Mutant Mice. In the Target Discovery
      Program, Lexicon shall complete (a) the development and Level 1 Phenotypic
      Analysis of [**] lines of Mutant Mice and (b) Level 2 Phenotypic Analysis
      of such lines of Mutant Mice, from the first [**] lines of Mutant Mice for
      which Level 1 Phenotypic Analysis was completed, that displayed a
      phenotype suggestive, as determined by [**], of the potential utility of
      the corresponding Target in the CNS Field. All lines of Mutant Mice
      developed by Lexicon [**] shall be [**]. Lexicon shall use Diligent
      Efforts to complete such work by the end of the third Contract Year of the
      Research Term and, if necessary, shall continue to use Diligent Efforts
      thereafter until such work is complete, [**]. The Target Discovery Program
      Term shall continue until such work is complete.

                                       12

          2.2.2 Target Discovery Program Term. The Target Discovery Program
      shall continue until the end of the third Contract Year of the Research
      Program Term (and thereafter until the work set forth in Section 2.2.1 is
      completed) (the "Target Discovery Program Term"); provided that BMS shall
      have the option to extend the Target Discovery Program Term for an
      additional two Contract Years (which two-year period may be further
      extended as set forth below) on the terms set forth below:

                (a) BMS may extend the Target Discovery Program to include the
          completion by Lexicon in the Target Discovery Program of (i) the
          development and Level 1 Phenotypic Analysis of [**] lines of Mutant
          Mice (to the extent not already completed by the end of the third
          Contract Year of the Research Program Term) and (ii) Level 2
          Phenotypic Analysis of such lines of Mutant Mice, from such [**] lines
          of Mutant Mice, that displayed a phenotype suggestive, as determined
          by [**], of the potential utility of the corresponding Target in the
          CNS Field. Lexicon shall use Diligent Efforts to complete such work by
          the end of the fifth Contract Year of the Research Term and, if
          necessary, shall continue to use Diligent Efforts thereafter until
          such work is complete, [**]. The Target Discovery Program Term shall
          continue until such work is complete.

                (b) BMS may extend the Target Discovery Program to include the
          completion by Lexicon in the Target Discovery Program of (i) the
          development and Level 1 Phenotypic Analysis of [**] lines of Mutant
          Mice and (ii) Level 2 Phenotypic Analysis of such lines of Mutant
          Mice, from such [**] lines of Mutant Mice, that displayed a phenotype
          suggestive, as determined by [**], of the potential utility of the
          corresponding Target in the CNS Field. Lexicon shall use Diligent
          Efforts to complete such work by the end of the fifth Contract Year of
          the Research Term and, if necessary, shall continue to use Diligent
          Efforts thereafter until such work is complete, [**]. The Target
          Discovery Program Term shall continue until such work is complete.

      BMS may exercise the foregoing option by delivery to Lexicon of written
      notice of such exercise (specifying the subsection above under which such
      option is being exercised) no fewer than [**] days before the end of the
      third Contract Year of the Research Program Term.

          2.2.3 Reporting and Oversight of Target Discovery Program Progress.
      Lexicon shall keep the Joint Scientific informed of the progress of its
      activities under this Section 2.2. At a minimum, within [**] days
      following [**] during the Target Discovery Program Term, Lexicon shall
      prepare, and provide to the Joint Scientific Committee, a reasonably
      detailed written summary report which shall describe (a) the work
      performed by Lexicon during the preceding [**], including, without
      limitation, the status of Lexicon's development of Mutant Mice and the
      conduct of Level 1 Phenotypic Analysis and Level 2 Phenotypic Analysis (or
      only Level 1 Phenotypic Analysis if Level 2 Phenotypic Analysis has not
      been performed) of such Mutant Mice, and (b) identify phenotypes
      identified through such Level 1 Phenotypic Analysis and Level 2 Phenotypic
      Analysis that are suggestive, in Lexicon's good faith scientific judgment,
      of the potential utility of the corresponding Targets in the CNS Field. In
      addition, Lexicon shall provide the Joint Scientific Committee with access
      to [**], in each case promptly following the generation thereof, so as to
      enable the Joint Scientific Committee to [**]; provided, that Lexicon
      shall not be required to disclose to BMS the identity of such Target (by
      sequence or otherwise in a manner that would reveal the identity of the
      Target) except in accordance with Section 2.2.4 below. Following the
      receipt of such information by the Joint Scientific Committee, the Joint
      Scientific Committee may request that [**]. The parties shall at all times
      exercise good faith scientific judgment in making the determinations
      contemplated by this Section 2.2.3.

                                       13

          2.2.4 Disclosure of Target Identity. Prior to first disclosing to BMS
      the identity of any Target (by sequence or otherwise in a manner that
      would reveal the identity of the Target), Lexicon shall submit the
      identity of the Target to the Escrow Agent, who will notify Lexicon
      whether such Target matches any Excluded Target. Lexicon shall not submit
      the Target to the Escrow Agent until Lexicon has first (a) [**] and (b)
      [**]. In the event a Target matches an Excluded Target, as determined by
      the Escrow Agent, Lexicon shall promptly notify BMS of such fact and, if
      requested by BMS within [**] days thereafter, shall provide BMS with the
      phenotypic data relating to the corresponding line of Mutant Mice and such
      additional information with respect to any Target (without disclosing the
      identity of such Target) that is [**]. In such event, BMS shall have the
      right, within [**] days after receiving such information, to submit to the
      Escrow Agent a second list of Excluded Targets, in which case the Escrow
      Agent shall determine whether the Target in question matches any Target on
      the second list of Excluded Targets. If the Target in question does not
      match any Target on the second list of Excluded Targets, the Escrow Agent
      shall so notify Lexicon and BMS, and such Target shall not be considered
      an Excluded Target and may be considered for proposal as a Proposed
      Target. BMS shall not be entitled to designate a Target as an Excluded
      Target following Lexicon's disclosure to BMS of the identity of such
      Target in accordance with this Section 2.2.4. The parties may mutually
      agree in writing to redesignate any Excluded Target as a non-Excluded
      Target that may be considered for proposal as a Proposed Target.

          2.2.5 BMS's Option to Obtain Mutant Mice [**]. Within [**] following
      Lexicon's delivery to the members of the Joint Scientific Committee of the
      results contemplated by Section 2.2.3 with respect to the phenotype of a
      line of Mutant Mice, BMS shall have the option, exercisable by delivery to
      Lexicon of a signed material transfer agreement in the form attached
      hereto as Exhibit F, to obtain Mutant Mice displaying a phenotype
      suggestive, [**], of the potential utility of the corresponding Target in
      the CNS Field, on the terms contemplated by such material transfer
      agreement [**]. For each line of Mutant Mice so requested, Lexicon shall
      provide to BMS with such [**]. BMS shall [**]. Notwithstanding any
      provision of this Agreement to the contrary, [**]; provided that, unless
      otherwise specifically agreed by [**].

      2.3 Target Selection.

          2.3.1 Proposal of Targets. Following Lexicon's completion of Level 2
      Phenotypic Analysis of a line of Mutant Mice corresponding to a Target
      [**], BMS and Lexicon shall each have the right to propose such Target for
      inclusion in the Research Program as a Selected Target. Within [**]
      following the proposal by either party that such Proposed Target be
      considered for designation as a Selected Target [**], BMS and Lexicon
      shall provide the Joint Scientific Committee with the following
      information:

                (a) all relevant scientific data in BMS's possession (and which
          BMS has the right to disclose to Lexicon) and all relevant scientific
          data in Lexicon's possession (and which Lexicon has the right to
          disclose to BMS) relating specifically to such Proposed Target,
          including, without limitation, any bioinformatics and expression
          analyses conducted by BMS or Lexicon with respect to such Proposed
          Target, and any phenotypic data with respect to mice (including,
          without limitation, Mutant Mice) with a mutation in the murine
          ortholog of such Proposed Target;

                (b) the results of genomic analysis and druggability assessment
          with respect to such Proposed Target by BMS and/or Lexicon;

                (c) whether (and, if so, to what extent) such Proposed Target is
          [**]; and

                                       14

                (d) whether BMS or Lexicon, respectively, has [**] and, in the
          event BMS or Lexicon, respectively, has [**], such party shall [**].

          2.3.2 Designation of Proposed Targets as Selected Targets or Released
      Targets. Within [**] following receipt by Joint Scientific Committee of a
      complete package of all of the information set forth in Section 2.3.1 for
      a Proposed Target, the Joint Scientific Committee shall make a
      recommendation to the Joint Management Committee as to whether to
      designate such Proposed Target as a Selected Target or a Released Target.
      If the Joint Scientific Committee determines that [**] before a Proposed
      Target should be considered for designation as a Selected Target or
      Released Target, the parties shall [**], before it is reconsidered for
      designation as a Selected Target or Released Target. In the event the
      members of the Joint Management Committee are unable to reach agreement by
      consensus regarding such designation within [**] following its receipt of
      the Joint Scientific Committee recommendation, [**].

          2.3.3 [**]. Upon recommendation by the Joint Scientific Committee, the
      Joint Management Committee may, by agreement, designate one or more
      Selected Targets that are associated with another Selected Target as being
      [**]. During the period in which they are designated as [**] by the Joint
      Management Committee [**].

          2.3.4 Inactive Selected Targets.

                2.3.4.1 A Selected Target shall become an "Inactive Selected
          Target" upon the occurrence of any of the following: (a) at such time
          that there has been no material activity by either party with respect
          to studies to further evaluate the utility of such Selected Target or
          the development of assays or the discovery or development of Program
          Compounds acting through such Selected Target for a period of [**],
          and [**]; (b) upon the election of a party that does not wish to
          proceed with the discovery or development of Program Compounds acting
          through a Selected Target, when the other party does wish to proceed,
          such that such other party could proceed with the discovery or
          development of Program Compounds acting through such Inactive Selected
          Target, without the participation of the party making such election
          (and, in accordance with Section 2.4.7, upon such election, the party
          making such election shall notify the Joint Management Committee if it
          wishes to [**]; or (c) upon the election of the Joint Management
          Committee, in order to equalize each party's participation in the
          Research Program (measured by Research Program Costs), such that one
          party could proceed with the discovery or development of Program
          Compounds acting through such Inactive Selected Target, without the
          participation of the other party.

                2.3.4.2 The Joint Management Committee shall determine how the
          parties shall proceed with respect to the Inactive Selected Target;
          provided that, in the event that one party desires to proceed with the
          discovery or development of Program Compounds acting through such
          Inactive Selected Target, and the other party does not wish to proceed
          with such discovery and development efforts in the Research Program
          (or if one party has been given the opportunity to pursue the
          discovery or development of Program Compounds acting through such
          Inactive Selected Target under Section 2.3.4.1(b) or (c) above), such
          party may elect to proceed with such discovery or development for its
          own account (using Diligent Efforts), without participation of the
          other party. In such case, (a) the other party shall reasonably
          cooperate with the party electing to proceed with the discovery and
          development of Program Compounds acting through such Inactive Selected
          Target, at the developing party's expense, in transitioning such
          activities to such developing party (including, without limitation,
          the transfer of relevant Program

                                       15

          Material) and (b) upon the commencement of a Phase 1 Trial for a
          Program Compound acting through such Inactive Selected Target (and
          notwithstanding anything to the contrary in Section 2.5), such
          Inactive Selected Target shall then be designated as and treated as a
          BMS Target or Lexicon Target (depending on the party that proceeds
          with such discovery and development) for all purposes, except that the
          milestone payments and royalties payable with respect to BMS Products
          (under Sections 5.4.1 and 5.5.1) or Lexicon Products (under Sections
          5.4.2 and 5.5.2), as the case may be, shall be [**] of those otherwise
          payable. Prior to the commencement of a Phase 1 Trial for a Product
          acting through an Inactive Selected Target, such Inactive Selected
          Target shall remain designated as an Inactive Selected Target.

                2.3.4.3 If neither party elects to proceed with such discovery
          and development of Program Compounds acting through such Inactive
          Selected Target for its own account, Lexicon shall have the right to
          pursue the out licensing of such Inactive Selected Target, provided
          that BMS and Lexicon shall [**] with respect to such out licensing,
          after Lexicon and BMS have first been reimbursed from such
          consideration for [**].

                2.3.4.4 An Inactive Selected Target for which BMS proceeds with
          the discovery and development of Program Compounds acting through such
          Inactive Selected Target, without the participation of Lexicon, as set
          forth above, shall be designated as a "BMS Inactive Selected Target."
          An Inactive Selected Target for which Lexicon proceeds with the
          discovery and development of Program Compounds acting through such
          Inactive Selected Target, without the participation of BMS, as set
          forth above, shall be designated as a "Lexicon Inactive Selected
          Target."

      2.4 Conduct of Research Program.

          2.4.1 Scope. Following the designation of a Selected Target, the
      parties will use Diligent Efforts, under the  direction of the Joint
      Management Committee and Joint Scientific Committee, to carry out the
      following principal activities with respect to the Selected Target: (a) to
      carry out studies to further evaluate the biology and the utility of the
      Selected Target ([**]), (b) to develop assays for such Selected Target
      amenable to Compound Library Screening, (c) to conduct Compound Library
      Screening against such Selected Target, (d) to carry out a Mid-Phase
      Program to develop lead compounds suitable to chemically recapitulate the
      phenotype seen in the Mutant Mice for the Selected Target, (e) to carry
      out a follow-up Full Phase Program with the objective of identifying
      Program Compounds meeting the criteria required for designation as
      Development Candidates that are suitable for further development, and (f)
      to carry out preclinical work on selected Development Candidates and
      Back-up Compounds in preparation for Phase 1 Trials. The parties will
      carry out other specific activities in support of these principal
      activities.

          2.4.2 Efforts. The Joint Management Committee shall adopt project
      progression guidelines, including criteria for the selection of Program
      Compounds, Development Candidates and Back-up Compounds for the Research
      Program. The criteria established by the Joint Management Committee for
      the selection of Development Candidates shall [**]. The parties shall
      conduct the Research Program in good scientific manner in accordance with
      such project progression guidelines and in compliance with applicable
      Laws. Each party shall use Diligent Efforts to conduct the activities of
      the Research Program that are assigned to it in the then-applicable Annual
      Research Plan, and each shall devote sufficient resources to timely
      perform such respective activities. While the parties acknowledge and
      agree that neither party guarantees the success of the Research Program or
      any individual task undertaken thereunder, each party

                                       16

      agrees that it will perform the activities assigned to it under the
      Research Program in a professional manner in accordance with the highest
      industry standards.

          2.4.3 Resources. Over the course of the Research Program, tasks under
      the Research Program will be allocated between the parties with the goal
      that each party's participation in the Research Program (based on FTE
      utilization and out-of-pocket expenditures) and Research Program Costs
      will be substantially equal. Particular tasks and responsibilities shall
      be assigned in a manner consistent with each party's respective
      capabilities, capacity and expertise. For purposes of this Agreement,
      "out-of-pocket expenditures" includes, but is not limited to, the cost of
      subcontractors related to the Research Program, but specifically excludes
      the cost of laboratory supplies, laboratory space and capital equipment.
      Either party may at its sole discretion reduce its required contribution
      to the Research Program Costs by designating one or more Selected Targets
      as Inactive Selected Targets that may be pursued by the other party as
      contemplated in Section 2.3.4.

          2.4.4 FTE Levels. The parties anticipate that the combined total
      personnel the parties will commit to the Research Program will start at an
      average of [**] FTEs for the First Contract Year and will escalate to an
      average of [**] FTEs for the Second Contract Year, [**] FTEs in the Third
      Contract Year and [**] FTEs for the Fourth Contract Year (i.e., these are
      the expected number of FTEs to be included in the Research Program Costs).
      For clarification, the number of FTEs referenced in the previous sentence
      shall not include Lexicon FTEs working on the Target Discovery Program,
      except as set forth in Section 2.2.5. Each party agrees in good faith to
      expedite the hiring and utility of such FTEs as early in the applicable
      Contract Year as possible. In the event that the Research Program
      generates more projects that qualify for lead optimization than are
      contemplated by the foregoing resource commitment, the parties agree to
      discuss in good faith a possible increase in the number of FTEs devoted to
      the Research Program, and may discuss changes in the allocation of
      Research Program Costs; provided that any such increase in the number of
      FTEs or change in the allocation of Research Program Costs shall be
      subject to the mutual agreement of the parties. The Annual Research Plans
      shall set forth specific FTE levels for each Contract Year to be assigned
      to specific activities.

          2.4.5 Subcontractors. In accordance with Section 2.4.3, the parties
      will endeavor to optimize the allocation of their resources for the
      conduct of the Research Program. As necessary and in furtherance of the
      Research Program, however, either party may enter into research-related
      agreements or subcontracts in accordance with this Section 2.4.5; provided
      that (a) none of the rights of the other party hereunder are diminished or
      otherwise adversely affected as a result of such subcontracting, (b) such
      party obtains the written approval of the other party prior to engaging
      any subcontractor, which approval shall not be unreasonably withheld or
      delayed, (c) the subcontractor undertakes in writing obligations of
      confidentiality and non-use regarding the other party's Confidential
      Information that are substantially the same as those undertaken by BMS and
      Lexicon pursuant to Article 8 hereof, and (d) where possible, the
      subcontractor agrees in writing to assign to the party inventions made by
      such subcontractor in performing services for the party. In the event a
      party performs one or more of its obligations under the Research Program
      through a subcontractor, then such Party shall at all times be responsible
      for the performance of such subcontractor. The Joint Management Committee
      shall decide whether the cost of such agreement shall be shared equally
      between the parties or if the cost is to be borne by one party and whether
      it can be allocated to offset obligations with respect to FTE levels as
      set forth in Section 2.4.4 of this Agreement.

          2.4.6 Reports. Each party shall submit [**] reports to the Joint
      Management Committee, and additional reports as may be required by the
      then-current Annual Research Plans,

                                       17

      detailing its activities under the Research Program. The Joint Management
      Committee shall use such [**] reports to monitor the parties' respective
      contributions to the Research Program. The Joint Management Committee may
      amend the Annual Research Plan as necessary to maintain substantial
      equality in resources devoted and participation by the parties over the
      course of the Research Program, as measured by Research Program Costs.

          2.4.7 Adjustments. If either party believes that the parties are not
      devoting substantially equal resources and participation to the Research
      Program, measured by the aggregated Research Program Costs incurred by
      each party, such party may submit the matter to the Joint Management
      Committee in writing, providing a reasonably detailed description of its
      reasons for such belief. Taking into account historical and prospective
      participation and resource devotion of the parties during the current
      Contract Quarter and the immediately following Contract Quarter, the Joint
      Management Committee shall take such steps as may be reasonably necessary
      to ensure substantial equality in resources devoted to and participation
      by the parties in the Research Program including, with respect to any
      out-of-pocket expenditures, a reimbursement by one party to the other
      party. In addition or as an alternative to taking steps to reallocate
      resources and participation in the Research Program, the Joint Management
      Committee may, by agreement, take one or more of the following actions in
      order to equalize each party's participation in the Research Program
      (measured by the aggregated Research Program Costs): (a) designate a
      Selected Target as an Inactive Selected Target, such that one party could
      proceed with the discovery or development of Program Compounds acting
      through such Inactive Selected Target, without the participation of the
      other party (and such that the developing party's activities with respect
      to such Inactive Selected Target would no longer be included in the
      Research Program Costs) or (b) provide for the payment by one party to the
      other party of one-half of the Research Program Costs attributable to
      unmatched FTEs provided by such other party in support of Research Program
      Activities. In addition, a party may elect to designate a Selected Target
      as an Inactive Selected Target to be pursued by the other party as set
      forth in Section 2.3.4.1(b), and upon such election, the party making such
      election shall notify the Joint Management Committee if it wishes to
      maintain the level of its FTE contribution to the Research Program Costs
      by allocating FTEs to another Selected Target or to reduce the total
      number of FTEs the party contributes to the Research Program Costs. At the
      request of a party, the other party shall permit an independent, certified
      accountant appointed by the requesting party and reasonably acceptable to
      the other party, at reasonable times and upon reasonable notice but no
      more than [**], to examine, at the sole cost of the requesting party, the
      records of the other party to verify the accuracy of any reports submitted
      by the other party to the Joint Management Committee regarding the
      Research Program Costs devoted to the Research Program by such party.

      2.5 Development and Commercialization of Products.

          2.5.1 Designation of BMS Targets and Lexicon Targets. Upon the
      commencement of a Phase 1 Trial for the first pharmaceutical product
      acting through a given Selected Target that contains a Development
      Candidate as an active ingredient, BMS will have the first option,
      exercisable by written notice to Lexicon, to obtain exclusive rights under
      Section 4.1.1.3 and Section 4.2.1 with respect to such Selected Target,
      upon the exercise of which option (a) such Selected Target shall be
      designated as a "BMS Target," (b) BMS shall then be the Product Licensee
      with respect to such BMS Target and (c) the exclusive licenses granted to
      BMS under Section 4.1.1.3 and Section 4.2.1 shall apply to such BMS
      Target. BMS shall deliver written notice to Lexicon within [**] days of
      the commencement of such Phase 1 Trial of its election whether or not to
      be the Product Licensee for such Selected Target. If BMS fails, within
      such [**] period, to deliver written notice to Lexicon of its election
      whether or not to be the Product Licensee for such Selected Target,
      Lexicon shall provide notice to BMS advising BMS that such

                                       18

      notice by BMS is required. If BMS does not remedy such failure within [**]
      days following Lexicon's notice, then Lexicon shall have the option to
      obtain exclusive rights under Section 4.1.2.3 and Section 4.2.2 with
      respect to such Selected Target, upon the exercise of which option (a)
      such Selected Target shall be designated as a "Lexicon Target," (b)
      Lexicon shall then be the Product Licensee with respect to such Lexicon
      Target and (c) the exclusive licenses granted to Lexicon under Section
      4.1.2.3 and Section 4.2.2 shall apply to such Lexicon Target.

          2.5.2 Responsibility for Development and Commercialization Activities.
      From and after the time that a party is designated as the Product Licensee
      with respect to a Selected Target, such party shall then have full
      responsibility (including responsibility for funding, resourcing and
      decision-making) for all research, development and commercialization
      activities relating to Development Compounds and Products that act through
      such Selected Target, subject to the provisions of Section 2.5.3 and
      Article 6 hereof.

          2.5.3 Continuation of Research Program Activities.

                2.5.3.1 The party that is designated as the Product Licensee
          with respect to a Selected Target may, at its option, request that
          Research Program Activities (including but not limited to work on
          Back-up Compounds) continue following the designation of such Selected
          Target as a BMS Target or Lexicon Target, as applicable. In such
          event, the parties shall continue to carry out such Research Program
          Activities with respect to such Selected Target as may be reasonably
          requested by the Product Licensee (with the allocation of
          responsibilities determined by the Joint Management Committee and
          reflected in the Annual Research Plans) until the earlier of (a) the
          first NDA Approval or MAA Approval of a Product acting through such
          Selected Target or (b) the Product Licensor notifies the Product
          Licensee of its election to discontinue further Research Program
          Activities with respect to such Selected Target.

                2.5.3.2 In the event the Product Licensor notifies the Product
          Licensee of its election to discontinue further Research Program
          Activities with respect to such Selected Target, (a) the Product
          Licensor shall have no further obligation with respect to further
          Research Program Activities related to such Selected Target other than
          to reasonably cooperate with the Product Licensee, at the Product
          Licensee's expense, in transitioning such activities to the Product
          Licensee (including, without limitation, the transfer of relevant
          Program Material), (b) no further activities of the Product Licensee
          related to such Selected Target shall be considered Research Program
          Activities for purposes of the parties' participation in the Research
          Program or Research Program Costs and (c) the milestone payments and
          royalties with respect to BMS Products (under Sections 5.4.1 and
          5.5.1) or Lexicon Products (under Sections 5.4.2 and 5.5.2), as the
          case may be, that are Post Opt-out Products (as defined below) shall
          be [**].

                2.5.3.3 As used in this Agreement, a "Post Opt-out Product"
          shall mean a Product acting through a Selected Target for which the
          Product Licensor has elected to discontinue further Research Program
          Activities under this Section 2.5.3, which Product does not contain as
          an active ingredient a Development Candidate or Back-up Compound for
          which [**].

                2.5.3.4 The milestone payments and royalties with respect to BMS
          Products (under Sections 5.4.1 and 5.5.1) or Lexicon Products (under
          Sections 5.4.2 and 5.5.2) (a) that are Post Opt-out Products and that
          contain [**] as an active ingredient shall be [**]

                                       19

          and (b) that are Post Opt-out Products and that do not contain [**] as
          an active ingredient shall be [**].

      2.6 Exclusivity.

          2.6.1 During the Research Program Term, each party shall work
      exclusively with the other party under the terms of the Agreement with
      respect to discovery and development activities directed to identifying
      and developing Small Molecule Compounds that act through Selected Targets,
      on a Selected Target-by-Selected Target basis, until the later to occur
      of:

                (a) such time as the applicable Selected Target either:

                    (i)    becomes an Inactive Selected Target, or

                    (ii)   is designated as a BMS Target or a Lexicon Target and
                either (A) the Product Licensee has obtained an NDA Approval or
                MAA Approval of a Product acting through such Selected Target or
                (B) the Product Licensor has notified the Product Licensee of
                its election to discontinue further Research Program Activities
                with respect to such Selected Target; or

                (b) such time as the specific and substantial medical utility of

          such Selected Target in the CNS Field is or becomes (through no
          wrongful act of a party) available in the public domain through:

                    (i)    publication of [**];

                    (ii)   publication of [**];

                    (iii)  publication of [**];

                    (iv)   publication of [**];

                    (v)    publication of [**];

                    (vi)   publication of [**];

                    (vii)  publication in a single reference of [**]; or

                    (viii) public disclosure that [**]; or

          information with respect to such Selected Target of the nature set
          forth above (but that is not in the public domain) that BMS or Lexicon
          can show by written documents or other tangible evidence is disclosed
          to BMS or Lexicon by a Third Party with the lawful right to disclose
          such information to BMS or Lexicon.

      The expiration or termination of the parties' exclusivity obligations with
      respect to a Selected Target under this Section 2.6.1 shall not be
      construed as granting any right or license under any Background Materials,
      Background Technology or Program Intellectual Property related thereto.

          2.6.2 During the Target Discovery Program Term, Lexicon shall work
      exclusively with BMS and shall not enter into discussions with any Third
      Party with respect to activities directed

                                       20

      to the identification of novel Targets for the identification and
      development of Small Molecule Compounds for use in the CNS Field, provided
      that Lexicon may pursue discussions with third parties with respect to
      Released Targets and Inactive Selected Targets that the parties have
      agreed to out-license. During the Target Discovery Program Term, Lexicon
      shall work exclusively with BMS under the terms of the Agreement with
      respect to all Targets identified by Lexicon as of the Effective Date and
      thereafter as having potential utility in the CNS Field, with the
      exception of Lexicon's LG617 Target (which is subject to Section 4.4) and
      Released Targets.

          2.6.3 Except as otherwise provided for in this Agreement, and without
      granting any right or license under any Lexicon Background Materials or
      Lexicon Background Technology with respect thereto, for a period of [**]
      years following the proposal that a Proposed Target be considered for
      designation as a Selected Target under Section 2.3.2, BMS shall not,
      unless such Proposed Target was so designated, research, develop or
      commercialize any pharmaceutical product for any indication within the CNS
      Field that specifically targets such Proposed Target. For the avoidance of
      doubt, the parties agree that this covenant not to compete is not meant to
      restrict BMS from researching, developing and/or commercializing
      pharmaceutical products that do not specifically target a Proposed Target
      but that nevertheless bind to such Proposed Target; provided that such
      pharmaceutical products specifically target, and achieve their intended
      physiological effects by binding to, a Target other than the Proposed
      Target. Without granting any right or license, BMS's obligations under
      this Section 2.6.3 with respect to a Proposed Target shall terminate on
      the earlier of:

                (a) the medical utility in the disclosed indication of such
          Proposed Target is or becomes (through no wrongful act of BMS)
          available in the public domain through:

                    (i)    publication of [**];

                    (ii)   publication of [**];

                    (iii)  publication of [**];

                    (iv)   publication of [**];

                    (v)    publication of [**];

                    (vi)   publication of [**];

                    (vii)  publication in a single reference of [**]; or

                    (viii) public disclosure that [**]; or

                (b) information with respect to such Proposed Target of the
          nature set forth above (but that is not in the public domain) that BMS
          can show by written documents or other tangible evidence, (i) is in
          the possession of BMS prior to the Effective Date; (ii) is disclosed
          to BMS by a Third Party with the lawful right to disclose such
          information to BMS; or (iii) is independently developed by or on
          behalf of BMS without use of Confidential Information disclosed by
          Lexicon to BMS pursuant to this Agreement.

                                       21

      2.7 Annual Research Plan.

          2.7.1 The Joint Scientific Committee shall prepare and the Joint
      Management Committee shall approve the Annual Research Plan for every
      Contract Year (other than the First Contract Year) at least [**] prior to
      the commencement of such Contract Year. The Annual Research Plan for the
      First Contract Year shall be prepared by the Joint Scientific Committee
      and approved by the Joint Management Committee within [**] after the
      Effective Date.

          2.7.2 The Joint Management Committee shall update and amend, as
      appropriate, the then-current Annual Research Plan from time to time.

          2.7.3 Each Annual Research Plan shall contain the specific research
      objectives to be achieved during the relevant Contract Year, the specific
      activities to be performed under the Research Program during such year and
      the timeline for performing such activities, and shall designate which
      party shall be responsible for performing each of such activities.

          2.7.4 Each Annual Research Plan shall be consistent with the other
      terms and conditions of this Agreement, including without limitation the
      objectives set forth in Section 2.1.1 and the terms and conditions set
      forth in Section 2.4, and each Annual Research Plan for Contract Years
      after the First Contract Year shall be substantially the same in form,
      including the items itemized in, the Annual Research Plan for the First
      Contract Year.

      2.8 Research Program Records.

          2.8.1 All work conducted by each party in the course of the Research
      Program shall be completely and accurately recorded, in reasonable detail
      and in good scientific manner, in separate laboratory notebooks. On
      reasonable notice, and at reasonable intervals, each party shall have the
      right to inspect and copy all such records of the other party reflecting
      Program Technology or work done under the Research Program, to the extent
      reasonably required to carry out its respective obligations and to
      exercise its respective rights hereunder. The parties acknowledge and
      agree that neither party guarantees the success of the Research Program
      tasks undertaken hereunder.

          2.8.2 In order to protect the parties' Patent Rights under U.S. law in
      any inventions conceived or reduced to practice during or as a result of
      the Research Program, each party agrees to maintain a policy that requires
      its employees to record and maintain all data and information developed
      during the Research Program in such a manner as to enable the parties to
      use such records to establish the earliest date of invention and/or
      diligence to reduction to practice. At a minimum, the policy shall require
      such individuals to record all inventions generated by them in standard
      laboratory notebooks or other suitable means that are dated and
      corroborated by non-inventors on a regular, contemporaneous basis.

      2.9 Disclosure of Research Program Results. Subject to restrictions
imposed by a party's confidentiality obligations to any Third Party with respect
to Background Materials or Background Technology, each party will disclose to
the Joint Scientific Committee all Program Technology that is discovered,
invented or made by such party during the course of the Research Program and
that is useful in or relates to the Research Program, including, without
limitation, information regarding Selected Targets, Small Molecule Compounds
identified in the Research Program through the use of Selected Targets,
activities of such Small Molecule Compounds, derivatives and results of in vitro
and in vivo studies, assay techniques and new assays. Such Program Technology
will be promptly disclosed to the Joint Scientific Committee, with meaningful
discoveries or advances being communicated as promptly as

                                       22

practicable after such information is obtained or its significance is
appreciated. Upon written request by any member of the Joint Scientific
Committee, each party will provide the other with copies of the raw data
generated in the course of the Research Program, if reasonably necessary to the
other party's work under the Research Program. Any information disclosed
pursuant to this Section 2.9 may be used by the other party solely for the
purposes of the Research Program or as otherwise expressly permitted in this
Agreement.

      2.10 Material Transfer. In order to facilitate the Research Program,
either party may provide to the other party certain Program Materials and
Background Materials Controlled by the supplying Party for use by the other
party in furtherance of the Research Program. All such Program Materials shall
be considered the Confidential Information of both parties and shall be subject
to the restrictions in Article 8. All Background Materials shall be considered
the Confidential Information of the supplying Party and shall be subject to the
restrictions in Article 8. Except as otherwise provided under this Agreement,
all such Program Materials and Background Materials delivered to the other party
shall remain the sole property of the supplying party, shall be used only in
furtherance of the Research Program and solely under the control of the other
party and its Affiliates, shall not be used or delivered to or for the benefit
of any Third Party without the prior written consent of the supplying party and
shall not be used in research or testing involving human subjects. The Program
Materials and Background Materials supplied under this Section 2.10 must be used
with prudence and appropriate caution in any experimental work, since not all of
their characteristics may be known. THE PROGRAM MATERIALS AND BACKGROUND
MATERIALS ARE PROVIDED "AS IS" AND WITHOUT ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR PURPOSE OR ANY WARRANTY THAT
THE USE OF THE MATERIALS WILL NOT INFRINGE OR VIOLATE ANY PATENT OR OTHER
PROPRIETARY RIGHTS OF ANY THIRD PARTY.

      2.11 Third Party Opportunities. In the event that a party is presented
with an opportunity to obtain a license from a Third Party for the development
and commercialization of a Small Molecule Compound acting through a Selected
Target (a "Third Party Opportunity"), then the party may pursue such Third Party
Opportunity, but only in the manner provided in this Section 2.11. For purposes
of Third Party Opportunities, Section 2.6.1(a) shall not apply with respect to
the parties' rights and obligations under this Section 2.11 and, accordingly,
either party shall have the right to pursue any Third Party Opportunity, and
enter into an agreement with a Third Party with respect to such Third Party
Opportunity, in accordance with this Section 2.11 provided that Section 2.6.1(b)
alone is satisfied.

            2.11.1 Third Party Opportunities for Selected Targets. In the event
      that a party is presented with a Third Party Opportunity for the
      development and commercialization of a Small Molecule Compound acting
      through a Selected Target that has not been previously designated as an
      Inactive Selected Target, a BMS Target or a Lexicon Target, then the party
      may pursue such Third Party Opportunity, but only in the manner provided
      in this Section 2.11.1. The party shall present the Third Party
      Opportunity, including all relevant terms and conditions relating thereto
      (subject to any confidentiality obligations to the Third Party), to the
      Joint Management Committee. In the event that the Joint Management
      Committee elects to pursue such Third Party Opportunity, then the parties
      shall negotiate (with one another and with the Third Party, as
      appropriate) in a good faith effort to reach an agreement whereby the
      Third Party Opportunity can be included as a Product under the Agreement.
      In the event that the parties and the Third Party reach an agreement to
      include such Third Party Opportunity as a Product under the Agreement,
      then (a) the Third Party Opportunity shall be included as a Product under
      the Agreement, subject (unless otherwise agreed to by the parties) to
      [**], and (b) the payments and royalties payable to such Third Party in
      consideration for such Third Party Opportunity shall be treated [**]. In
      the event that the Joint Management Committee does not elect to pursue
      such Third Party

                                       23

      Opportunity, then, subject to the parties' obligations under Section
      2.6.1(b) and Article 8, either party shall have the right to pursue such
      Third Party Opportunity and, upon completion of an agreement with such
      Third Party for such Third Party Opportunity, shall, by notice to the
      other party, either (i) include such Third Party Opportunity as a Product
      under this Agreement, [**], or (ii) designate such Selected Target as an
      Inactive Selected Target to be pursued by the other party.

            2.11.2 Third Party Opportunities for Inactive Selected Targets, BMS
      Targets or Lexicon Targets. In the event that a party is presented with a
      Third Party Opportunity for the development and commercialization of a
      Small Molecule Compound acting through a Selected Target that has been
      previously designated as an Inactive Selected Target, a BMS Target or a
      Lexicon Target, then the party may pursue such Third Party Opportunity,
      but only in the manner provided in this Section 2.11.2 and subject to the
      parties' obligations under Section 2.6.1(b) and Article 8.

                  2.11.2.1 If the party pursuing such Third Party Opportunity
            [**], the party shall present the Third Party Opportunity, including
            all relevant terms and conditions relating thereto (subject to any
            confidentiality obligations to the Third Party), to the Joint
            Management Committee. In the event that the Joint Management
            Committee elects to pursue such Third Party Opportunity, then the
            parties shall negotiate (with one another and with the Third Party,
            as appropriate) in a good faith effort to reach an agreement whereby
            the Third Party Opportunity can be included as a Product under the
            Agreement. In the event that the parties and the Third Party reach
            an agreement to include such Third Party Opportunity as a Product
            under the Agreement, then (a) the Third Party Opportunity shall be
            included as a Product under the Agreement, subject (unless otherwise
            agreed to by the parties) to [**], and (b) the payments and
            royalties payable to such Third Party in consideration for such
            Third Party Opportunity shall be treated [**]. In the event that the
            Joint Management Committee does not elect to pursue such Third Party
            Opportunity, then, subject to the parties' obligations under Section
            2.6.1(b) and Article 8, [**] shall have the right to pursue such
            Third Party Opportunity. If the party pursuing such Third Party
            Opportunity holds exclusive rights under Article 4 with respect to
            such Selected Target, upon completion of an agreement with such
            Third Party for such Third Party Opportunity, such party shall, by
            notice to the other party, either (i) include such Third Party
            Opportunity as a Product under this Agreement, subject to [**], or
            (ii) [**].

                  2.11.2.2 If the party pursuing such Third Party Opportunity
            [**], the party to whom the Third Party Opportunity is presented
            shall have the right, at its sole discretion, but subject to its
            obligations under Section 2.6.1(b) and Article 8, to [**]; provided
            that [**].

                  2.11.2.3 In the event the Product Licensee for a Selected
            Target (or the holder of exclusive rights under Section 4.1 with
            respect to an Inactive Selected Target) enters into an agreement for
            a Third Party Opportunity [**], such party shall [**]. In the event
            such party [**], the party entering into the agreement for such
            Third Party Opportunity shall [**], and the other party shall [**].

                                       24

                      ARTICLE 3. COLLABORATION MANAGEMENT

      3.1 Program Committees.

            3.1.1 Joint Management Committee. As soon as practicable after the
      Effective Date, BMS and Lexicon shall establish a Joint Management
      Committee (the "Joint Management Committee") comprised of [**]
      representatives designated by BMS and [**] representatives designated by
      Lexicon, each of whom shall have experience and seniority sufficient to
      enable him or her to make decisions on behalf of the party he or she
      represents; provided that BMS and Lexicon may, by mutual agreement,
      designate an appropriate number of additional representatives from time to
      time.

            3.1.2 Joint Scientific Committee. As soon as practicable after the
      Effective Date, BMS and Lexicon shall establish a Joint Scientific
      Committee (the "Joint Scientific Committee") comprised of [**]
      representatives designated by BMS and [**] representatives designated by
      Lexicon, each of whom shall have experience and seniority sufficient to
      enable him or her to make decisions on behalf of the party he or she
      represents; provided that BMS and Lexicon may, by mutual agreement,
      designate an appropriate number of additional representatives from time to
      time. From time to time during the Research Program Term, the Joint
      Scientific Committee may establish one or more Joint Research Project
      Teams (each, a "Joint Research Project Team") to implement various aspects
      of the Annual Research Plan. Such teams shall be governed in the same
      manner and subject to the relevant requirements as set forth herein for
      the Joint Scientific Committee.

      3.2 Program Directors. Each party shall appoint one of its designees on
the Joint Management Committee or the Joint Scientific Committee to serve as a
program director (each, a "Program Director") with responsibility for overseeing
the day-to-day activities of the parties with respect to the Research Program
and for being the primary point of contact between the parties with respect to
the Research Program.

      3.3 Replacement of Program Committee Representatives and Program
Directors. Each party shall be free to replace its representative members of any
Program Committee and its Program Director with new appointees who have
authority to act on behalf of such party, on notice to the other party.

      3.4 Responsibilities of Joint Management Committee. The Joint Management
Committee shall be responsible for overseeing and directing the parties'
interaction and performance of their respective obligations under this
Agreement. Without limiting the generality of the foregoing, its duties shall
include, and it shall be responsible for decisions with respect to, the
following:

            (a) designation of Selected Targets and Released Targets in
      accordance with Section 2.3.2 hereof;

            (b) review and approval of Annual Research Plans;

            (c) oversight of the implementation of Annual Research Plans and
      allocation of resources and other activities in support of the Research
      Program, including the matters contemplated by Section 2.4 hereof;

            (d) designation of Selected Targets as [**] in accordance with
      Section 2.3.3 hereof;

                                       25

            (e) classification of Selected Targets as Inactive Selected Targets
      in accordance with Section 2.3.4 hereof;

            (f) authorization of the commencement of Compound Library Screening
      for a Selected Target;

            (g) determination as to which Selected Targets should be pursued
      with a Mid-Phase Program and which party should perform such Mid-Phase
      Program;

            (h) determination as to which Selected Targets should be pursued
      with a Full Phase Program and which party should perform such Full Phase
      Program;

            (i) establishment of criteria for designation of Development
      Candidates (for purposes of which [**]) and Back-up Compounds;

            (j) designation of Development Candidates (for purposes of which
      [**]) and Back-up Compounds;

            (k) decisions with respect to the preclinical development of
      Development Candidates and Back-up Compounds leading to the commencement
      of a Phase 1 Trial;

            (l) prioritization of programs and activities where resources are
      constrained;

            (m) resolving matters within the responsibilities of the Joint
      Scientific Committee as to which the members of the Joint Scientific
      Committee are unable to reach a consensus; and

            (n) addressing scientific issues and resolving differences that may
      arise between the parties related to the performance of the Target
      Discovery Program or the Research Program.

The Joint Management Committee shall not have the power to amend or waive
compliance with this Agreement.

      3.5 Responsibilities of Joint Scientific Committee. The Joint Scientific
Committee shall be responsible for preparing for approval by the Joint
Management Committee and implementing the Annual Research Plans, allocation of
resources and other activities in support of the Research Program, with the
objective of expeditiously identifying Selected Targets and identifying
compounds meeting the criteria for designation as Development Candidates.
Without limiting the generality of the foregoing, its duties shall include (a)
establishing requirements (including, for example, with respect to throughput)
for, or otherwise approving the use of, assays for Compound Library Screening,
(b) selecting Small Molecule Compounds for optimization, characterization and/or
preclinical evaluation in the conduct of the Research Program, (c) monitoring,
reviewing and reporting on the progress of the Research Program, and (d) setting
the agenda for the Joint Management Committee for scientific and technical
matters relating to the Research Program and recommending actions by the Joint
Management Committee. The Joint Scientific Committee shall further have
responsibility during the Target Discovery Program Term for (i) determining,
promptly following the completion of Level 1 Phenotypic Analysis of a line of
Mutant Mice, whether [**] and [**] (provided that no affirmative action of the
Joint Scientific Committee shall be required to effect such determination if
[**]) and (ii) monitoring and reviewing the progress of the Target Discovery
Program. The Joint Scientific Committee shall not have the power to amend or
waive compliance with this Agreement. As appropriate, the Joint Scientific
Committee shall establish subcommittees and working groups, having an equal
number of representatives of Lexicon and BMS, which will work closely and meet
frequently to further the objectives of this Agreement.

                                       26

      3.6 Meetings of Program Committees. Each Program Committee shall meet at
least [**], and more frequently as the parties deem appropriate, on such dates
and at such times as the parties shall agree, on [**] days' written notice to
the other party unless such notice is waived by the parties. The first meeting
of the Joint Management Committee shall take place within [**] days after the
Effective Date, at Lexicon's facility in The Woodlands, Texas. Each Program
Committee may convene or be polled or consulted from time to time by means of
telecommunications, videoconferences or correspondence, as deemed necessary or
appropriate by the parties. To the extent that meetings are held in person, they
shall alternate between the offices of the parties unless the parties otherwise
agree.

      3.7 Decisions.

            3.7.1 Quorum; Voting. A quorum for a meeting of a Program Committee
      shall require the presence of at least one Lexicon member (or designee)
      and at least one BMS member (or designee) in person or by telephone. All
      decisions made or actions taken by a Program Committee shall be made
      unanimously by its members, with the Lexicon members cumulatively having
      one vote and the BMS members cumulatively having one vote; provided that,
      in the event the members of the Joint Management Committee are unable to
      reach unanimity as to a decision under Section [**], [**]; and provided
      further, that at such time that a party is designated as a Product
      Licensee with respect to a Selected Target under Section 2.5, such Product
      Licensee shall then have final decision-making authority with respect to
      decisions concerning all further research and development activities with
      respect to such Selected Target.

            3.7.2 Dispute Resolution.

                  3.7.2.1 In the event that unanimity cannot be reached by the
            Joint Scientific Committee with respect to a matter that is a
            subject of its decision-making authority, then the matter shall be
            referred for further review and resolution to the Alliance Managers
            and the Joint Management Committee. Except as provided in Section
            3.7.1, in the event that unanimity cannot be reached by the Joint
            Management Committee with respect to a matter that is a subject of
            its decision-making authority, then the matter shall be referred for
            further review and resolution to [**]. The designated officers of
            each party shall use reasonable efforts to resolve the matter within
            [**] days after the matter is referred to them.

                  3.7.2.2 If the designated officers cannot resolve any matter
            described in Section 3.4 within such [**] period, the matter shall
            be referred to a Third Party arbitrator or arbitrators, in
            accordance with the following procedures, whose decision shall be
            [**]. In such event, the parties shall attempt to mutually agree
            upon a single independent Third Party arbitrator, who shall be a
            scientific professional with appropriate experience in the subject
            matter at issue in such disagreement, within [**] days after the
            initial referral of such matter to the designated officers. If the
            parties are unable to mutually agree upon one such person, then each
            party shall appoint one independent Third Party scientific
            professional with appropriate experience in the subject matter at
            issue in such disagreement prior to the expiration of such [**]
            period, and within [**] days after the initial referral of such
            matter to the designated officers, such person(s) shall select a
            single independent Third Party arbitrator, who shall be a scientific
            professional with appropriate experience in the subject matter at
            issue in such disagreement. Each party shall present all information
            presented to the Joint Management Committee and all other
            information as such party reasonably desires regarding such
            disagreement. Within [**] days after the initial referral of such
            matter to the designated officers, the arbitrator shall

                                       27

            provide written notice to the parties regarding his or her
            determination regarding such disagreement.

      3.8 Administration. The chairperson of each Program Committee shall be
designated annually on an alternating basis between the parties. The initial
chairperson shall be selected by BMS. The party not designating the chairperson
shall designate one of its representative members as secretary to such Program
Committee for such year. The chairperson shall be responsible for calling
meetings of such Program Committee, sending notices of meetings to all members
and for leading such meetings.

      3.9 Minutes. Within [**] days after each Program Committee meeting, the
secretary of such Program Committee shall prepare and distribute minutes of the
meeting, which shall provide a description in reasonable detail of the
discussions had at the meeting and a list of any actions, decisions or
determinations approved by such Program Committee. The secretary shall be
responsible for circulation of all draft and final minutes. Draft minutes shall
be first circulated to the chairperson, edited by the chairperson and then
circulated in final draft form to all members of such Program Committee
sufficiently in advance of the next meeting to allow adequate review and comment
prior to the meeting. Minutes shall be approved or disapproved, and revised as
necessary, at the next meeting. Final minutes shall be distributed to the
members of such Program Committee.

      3.10 Term. The Joint Scientific Committee and the Joint Management
Committee shall exist until the termination or expiration of the Research
Program Term and for such longer period as necessary to perform the
responsibilities assigned to it under this Agreement.

      3.11 Expenses. Each party shall be responsible for all travel and related
costs for its representatives to attend meetings of, and otherwise participate
on, the Joint Scientific Committee and the Joint Management Committee.

      3.12 Alliance Managers. Each party shall appoint one senior representative
who possesses a general understanding of the scientific and business issues
relevant to this Agreement to act as its respective alliance manager (each, an
"Alliance Manager") for the relationship of the parties under this Agreement.
Each party may change its designated Alliance Manager from time to time upon
notice to the other party. Any Alliance Manager may designate a substitute to
temporarily perform the functions of that Alliance Manager. Each Alliance
Manager shall be charged with creating and maintaining a collaborative work
environment within and among the Joint Management Committee and Joint Scientific
Committee and any other committees or working groups that may be formed pursuant
to this Agreement. Each Alliance Manager will also:

            (a) be the point of first referral in all matters of conflict
      resolution;

            (b) provide a single point of communication for seeking consensus
      both internally within the respective parties organizations and together
      regarding key strategy and plan issues;

            (c) plan and coordinate cooperative efforts and internal and
      external communications; and

            (d) take responsibility for ensuring that governance activities
      occur as set forth in this Agreement, in particular ensuring that Joint
      Scientific Committee and Joint Management Committee meetings occur, and
      that minutes are developed from such meetings, in accordance with this
      Agreement, and that action items determined at such meetings are
      appropriately carried out or otherwise addressed.

                                       28

      The Alliance Managers shall be entitled to attend meetings of any of the
Joint Scientific Committee and Joint Management Committee and other committees
that may be formed, but shall not have, or be deemed to have, any rights or
responsibilities of a member of any committee. Each Alliance Manager may bring
any matter to the attention of any committee where such Alliance Manager
reasonably believes that such matter requires such attention.

      Any dispute between the parties arising under this Agreement shall be
brought to the attention of the Alliance Managers for resolution. The Alliance
Managers will endeavor to propose and define mutually acceptable solutions and
facilitate communications in an attempt to bring the dispute to a mutually
agreeable resolution. If the Alliance Managers cannot find an acceptable
solution to a dispute and if the Joint Management Committee cannot resolve any
matter properly referred to it, such dispute shall be resolved as set forth in
Section 3.7.2 or Section 12.6, as applicable.

                          ARTICLE 4. GRANTS OF RIGHTS

      4.1 Grants of Research Licenses.

            4.1.1 By Lexicon.

                  4.1.1.1 Selected Targets. Subject to the terms of this
            Agreement and any applicable [**], during the Research Program Term,
            Lexicon hereby grants to BMS and its Affiliates, within the
            Territory, (a) a non-exclusive right and license (without any right
            to sublicense, except as set forth below) under Lexicon's rights in
            the Lexicon Background Materials and the Lexicon Background
            Technology and (b) a co-exclusive right and license (without any
            right to sublicense, except as set forth below) under Lexicon's
            rights in the Program Intellectual Property to (i) identify and
            validate Selected Targets (other than Selected Targets that have
            become BMS Inactive Selected Targets, Lexicon Inactive Selected
            Targets, BMS Targets or Lexicon Targets) for the identification,
            evaluation and optimization of Small Molecule Compounds that are
            active against such Selected Targets for use in the CNS Field, (ii)
            identify Small Molecule Compounds that are active against such
            Selected Targets through the use of such Selected Targets and (iii)
            undertake preclinical research and evaluation of Program Compounds,
            in each case in the conduct of the Research Program. Such right and
            license shall include the right to grant sublicenses to Third
            Parties that are approved by the Joint Management Committee.

                  4.1.1.2 BMS Inactive Selected Targets. Subject to the terms of
            this Agreement and any applicable [**], Lexicon hereby grants to BMS
            and its Affiliates, within the Territory, (a) a non-exclusive right
            and license (without any right to sublicense, except as set forth
            below) under Lexicon's rights in the Lexicon Background Materials
            and the Lexicon Background Technology and (b) an exclusive right and
            license (without any right to sublicense, except as set forth below)
            under Lexicon's rights in the Program Intellectual Property to (i)
            validate BMS Inactive Selected Targets for the identification,
            evaluation and optimization of Small Molecule Compounds that are
            active against such Selected Targets for use in the CNS Field, (ii)
            identify Small Molecule Compounds that are active against such BMS
            Inactive Selected Targets through the use of such BMS Inactive
            Selected Targets and (iii) undertake preclinical research and
            evaluation of Small Molecule Compounds that are active against such
            BMS Inactive Selected Targets. Such right and license shall include
            the right to grant sublicenses to Third Parties in connection with,
            and incident to, a sublicense granted to such Third Party under the
            rights and licenses granted under Section 4.2.1. The rights and
            licenses granted under this Section

                                       29

            4.1.1.2 shall be in effect during the Research Program Term and
            thereafter so long as BMS is using Diligent Efforts in exercising
            its rights under this license.

                  4.1.1.3 BMS Targets. Subject to the terms of this Agreement
            and any applicable [**], Lexicon hereby grants to BMS and its
            Affiliates, within the Territory, (a) a non-exclusive right and
            license (without any right to sublicense, except as set forth below)
            under Lexicon's rights in the Lexicon Background Materials and the
            Lexicon Background Technology and (b) an exclusive right and license
            (without any right to sublicense, except as set forth below) under
            Lexicon's rights in the Program Intellectual Property to (i)
            identify Small Molecule Compounds that are active against BMS
            Targets through the use of such BMS Targets and (ii) undertake
            preclinical research and evaluation of Small Molecule Compounds that
            are active against such BMS Targets. Such right and license shall
            include the right to grant sublicenses to Third Parties in
            connection with, and incident to, a sublicense granted to such Third
            Party under the rights and licenses granted under Section 4.2.1.

            4.1.2 By BMS.

                  4.1.2.1 Selected Targets. Subject to the terms of this
            Agreement and any applicable [**], during the Research Program Term,
            BMS hereby grants to Lexicon and its Affiliates, within the
            Territory, (a) a non-exclusive right and license (without any right
            to sublicense, except as set forth below) under BMS's rights in the
            BMS Background Materials and the BMS Background Technology and (b) a
            co-exclusive right and license (without any right to sublicense,
            except as set forth below) under BMS's rights in the Program
            Intellectual Property to (i) identify and validate Selected Targets
            (other than Selected Targets that have become BMS Inactive Selected
            Targets, Lexicon Inactive Selected Targets, BMS Targets or Lexicon
            Targets) for the identification, evaluation and optimization of
            Small Molecule Compounds that are active against such Selected
            Targets for use in the CNS Field, (ii) identify Small Molecule
            Compounds that are active against such Selected Targets through the
            use of such Selected Targets and (iii) undertake preclinical
            research and evaluation of Program Compounds, in each case in the
            conduct of the Research Program. Such right and license shall
            include the right to grant sublicenses to Third Parties that are
            approved by the Joint Management Committee.

                  4.1.2.2 Lexicon Inactive Selected Targets. Subject to the
            terms of this Agreement and any applicable [**], BMS hereby grants
            to Lexicon and its Affiliates, within the Territory, (a) a
            non-exclusive right and license (without any right to sublicense,
            except as set forth below) under BMS's rights in the BMS Background
            Materials and the BMS Background Technology and (b) an exclusive
            right and license (without any right to sublicense, except as set
            forth below) under BMS's rights in the Program Intellectual Property
            to (i) validate Lexicon Inactive Selected Targets for the
            identification, evaluation and optimization of Small Molecule
            Compounds that are active against such Selected Targets for use in
            the CNS Field, (ii) identify Small Molecule Compounds that are
            active against such Lexicon Inactive Selected Targets through the
            use of such Lexicon Inactive Selected Targets and (iii) undertake
            preclinical research and evaluation of Small Molecule Compounds that
            are active against such Lexicon Inactive Selected Targets. Such
            right and license shall include the right to grant sublicenses to
            Third Parties in connection with, and incident to, a sublicense
            granted to such Third Party under the rights and licenses granted
            under Section 4.2.2. The rights and licenses granted under this
            Section 4.1.2.2 shall be in effect during the Research Program Term
            and

                                       30

            thereafter so long as Lexicon is using Diligent Efforts in
            exercising its rights under this license.

                  4.1.2.3 Lexicon Targets. Subject to the terms of this
            Agreement and any applicable [**], BMS hereby grants to Lexicon and
            its Affiliates, within the Territory, (a) a non-exclusive right and
            license (without any right to sublicense, except as set forth below)
            under BMS's rights in the BMS Background Materials and the BMS
            Background Technology and (b) an exclusive right and license
            (without any right to sublicense, except as set forth below) under
            BMS's rights in the Program Intellectual Property to (i) identify
            Small Molecule Compounds that are active against Lexicon Targets
            through the use of such Lexicon Targets and (ii) undertake
            preclinical research and evaluation of Small Molecule Compounds that
            are active against such Lexicon Targets. Such right and license
            shall include the right to grant sublicenses to Third Parties in
            connection with, and incident to, a sublicense granted to such Third
            Party under the rights and licenses granted under Section 4.2.2.

            4.1.3 Restrictions on Clinical Development of Products. Neither
party nor their respective Affiliates shall administer to humans any Product
that incorporates or is derived from any Program Compound, unless and until (and
then only to the extent that) such party has received Joint Management Committee
approval or has received a license under Section 4.2 for the clinical
development and commercialization of such Product.

4.2 Grants of Development and Commercialization Licenses.

            4.2.1 By Lexicon. Subject to the terms of this Agreement and any
applicable [**], Lexicon hereby grants to BMS and its Affiliates, within the
Territory, an exclusive right and license, with the right to sublicense, under
Lexicon's rights in the Program Intellectual Property to develop, make, have
made, import, use, have used, offer for sale, sell and have sold BMS Development
Compounds and BMS Products. Any sublicense under this Section 4.2.1 shall be set
forth in a written agreement containing confidentiality, non-use, ownership of
intellectual property and audit provisions consistent with and no less
restrictive than those contained herein, shall be subject and subordinate to the
terms and conditions of this Agreement, and shall obligate the Sublicensee to
make the milestone and royalty payments required hereunder; provided that BMS
shall remain responsible for all payments due to Lexicon hereunder. BMS shall
provide Lexicon with an [**] copy of each sublicense agreement promptly after
executing the same; provided, however, that subject to the exceptions set forth
in Section 1.18, each such sublicense agreement shall be Confidential
Information of BMS.

            4.2.2 By BMS. Subject to the terms of this Agreement and any
applicable [**], BMS hereby grants to Lexicon and its Affiliates, within the
Territory, an exclusive right and license, with the right to sublicense, under
BMS's rights in the Program Intellectual Property to develop, make, have made,
import, use, have used, offer for sale, sell and have sold Lexicon Development
Compounds and Lexicon Products. Any sublicense under this Section 4.2.2 shall be
set forth in a written agreement containing confidentiality, non-use, ownership
of intellectual property and audit provisions consistent with and no less
restrictive than those contained herein, shall be subject and subordinate to the
terms and conditions of this Agreement, and shall obligate the Sublicensee to
make the milestone and royalty payments required hereunder; provided that
Lexicon shall remain responsible for all payments due to BMS hereunder. Lexicon
shall provide BMS with an [**] copy of each sublicense agreement promptly after
executing the same; provided, however, that subject to the exceptions set forth
in Section 1.18, each such sublicense agreement shall be Confidential
Information of Lexicon.

                                       31

      4.3 No Grant of Other Technology or Patent Rights. Except as otherwise
expressly provided in this Agreement, under no circumstances shall a party
hereto, as a result of this Agreement, obtain any ownership interest in or other
right to any technology, know-how, patents, patent applications, gene or genomic
sequence data or information, products, or biological materials of the other
party, including items owned, controlled or developed by, or licensed to, the
other party, or transferred by the other party to said party, at any time
pursuant to this Agreement.

      4.4 Right of First Offer for LG617 Target Collaboration. Lexicon agrees
that, during the period beginning on the Effective Date and ending on the later
of (a) the expiration of the Target Discovery Program Term or (b) the
commencement of a Phase 1 Trial in the U.S. for an LG617 Compound (the "LG617
Option Period"), BMS shall have the following right of first offer. During the
LG617 Option Period, Lexicon shall not grant any license or otherwise transfer
rights to any Third Party for the development or commercialization of any LG617
Compound (any such arrangement being referred to herein as an "LG617 License"),
[**] unless and until [**]. In the event that, at any time during the LG617
Option Period after an LG617 Compound [**], Lexicon desires to enter into an
LG617 License (or after the LG617 Option Period, if Lexicon has not previously
notified BMS of such desire), [**], Lexicon shall first notify BMS of its desire
to enter into an LG617 License and, if requested by BMS within [**] days of such
notice, shall enter into good faith negotiations with BMS with respect to an
LG617 License for a period of [**] days following such notice (the "LG617
Negotiation Period"). In the event Lexicon and BMS do not enter into an LG617
License within such LG617 Negotiation Period, Lexicon will be free, at any time
thereafter, to enter into negotiations with respect to an LG617 License with any
Third Party; provided that, during the LG617 Option Period (but not thereafter),
[**], Lexicon shall [**]. Notwithstanding the foregoing, in the event that [**],
Lexicon shall not [**] unless it shall have [**]. Lexicon shall likewise [**],
but shall have no obligation to [**].

                              ARTICLE 5. PAYMENTS

      5.1 Upfront Payment. In consideration of the rights granted to BMS under
this Agreement, BMS shall pay to Lexicon an upfront payment of thirty-six
million dollars (U.S. $36,000,000), which shall be due and payable within ten
(10) business days of the Effective Date, but in no event later than December
31, 2003.

      5.2 Target Discovery Program Payments. Subject to the other terms and
conditions of this Agreement, in consideration for and as a contribution toward
the Lexicon's costs of development and analysis of Mutant Mice in the Target
Discovery Program, BMS shall make the following payments to Lexicon on the
following schedule:

            (a) annual research payments of ten million dollars (U.S.
      $10,000,000) for each of the first three Contract Years of the Target
      Discovery Program Term, which annual research payments shall be payable
      [**];

            (b) in the event BMS elects to extend the Target Discovery Program
      Term under Section 2.2.2(a), annual research payments of [**] for each of
      the fourth and fifth Contract Years of the Target Discovery Program Term,
      which annual research payments shall be payable [**]; and

            (c) in the event BMS elects to extend the Target Discovery Program
      Term under Section 2.2.2(b), annual research payments of [**] for each of
      the fourth and fifth Contract Years of the Target Discovery Program Term,
      which annual research payments shall be payable [**].

                                       32

      5.3 Research Program Milestone Payments. BMS shall pay Lexicon the
following Research Program milestone payments within [**] days of the occurrence
of the event giving rise to such payment:

            (a) after Compound Library Screening has been first commenced for a
      total of [**] Selected Targets [**], BMS shall pay Lexicon [**] for each
      subsequent Selected Target for which Compound Library Screening is first
      commenced [**];

            (b) during the Target Discovery Program Term, after a Full Phase
      Program has been first commenced for [**] Selected Target [**], BMS shall
      pay Lexicon [**] for each subsequent Selected Target [**] for which a Full
      Phase Program is first commenced; and

            (c) during the period beginning after the Target Discovery Program
      Term, after Full Phase Programs have been first commenced for a total of
      [**] Selected Targets in the Research Program (a total of [**] Selected
      Targets in the event BMS elected to extend the Target Discovery Program
      Term under Section 2.2.2), BMS shall pay Lexicon [**] for each subsequent
      Selected Target for which a Full Phase Program is first commenced;

provided that [**]. The Research Program milestone payments payable under this
Section 5.3 shall not be considered part of, or included in the calculation of
the Research Program Costs contributed by BMS to the Research Program. For
clarification, for purposes of determining the above Research Program milestone
payments, [**].

      5.4 Product Development Milestone Payments.

            5.4.1 BMS Products. For each BMS Target, BMS shall pay Lexicon the
      following milestone payments for [**]:

                                                       PAYMENTS FOR BMS        PAYMENTS FOR BMS
             MILESTONE EVENT                         TARGET FOR WHICH [**]   TARGET FOR WHICH [**]
- -----------------------------------------            ---------------------   ---------------------
                                                                       
IND filing                                              U.S. $      [**]        U.S. $      [**]
Commencement of a Phase 2 Trial                                     [**]                    [**]
Commencement of a Phase 3 Trial                                     [**]                    [**]
NDA Filing                                                          [**]                    [**]
MAA Filing                                                          [**]                    [**]
NDA Approval or MAA Approval (upon the
first to occur)                                                     [**]                    [**]
                                                        ----------------        ----------------
           TOTAL                                        U.S. $50,000,000        U.S. $76,000,000

      Subject to Section 5.4.3, BMS shall pay Lexicon milestone payments for
      [**]. For each BMS Product that is a Post Opt-out Product, milestone
      payment [**] as set forth in Section 2.5.3.4. For each BMS Product that
      acts through a BMS Target that was designated from a BMS Inactive Selected
      Target, the milestone payment [**] as set forth in Section 2.3.4.2.

                                       33

            5.4.2 Lexicon Products. For each Lexicon Target, Lexicon shall pay
      BMS the following milestone payments for [**]:

                                                                        PAYMENTS FOR LEXICON
                   MILESTONE EVENT                                             TARGET
- -----------------------------------------------------                   --------------------
                                                                     
IND filing                                                                U.S. $      [**]
Commencement of a Phase 2 Trial                                                       [**]
Commencement of a Phase 3 Trial                                                       [**]
NDA Filing                                                                            [**]
MAA Filing                                                                            [**]
NDA Approval or MAA Approval (upon the first to occur)                                [**]
                                                                          ----------------
          TOTAL                                                           U.S. $25,000,000

Subject to Section 5.4.3, Lexicon shall pay BMS milestone payments for [**]. For
each Lexicon Product that is a Post Opt-out Product, milestone payment [**] as
set forth in Section 2.5.3.4. For each Lexicon Product that acts through a
Lexicon Target that was designated from a Lexicon Inactive Selected Target, the
milestone payment [**] as set forth in Section 2.3.4.2.

      5.4.3 Milestone Conditions. The milestone payments payable under Sections
5.4.1 and 5.4.2 with respect to Products acting through a given BMS Target or
Lexicon Target, as the case may be, shall be subject to the following
conditions.

                  (a) Only one set of milestone payments will be paid for all
      Products containing a given Development Compound (including all forms and
      formulations of Products containing such Development Compound) upon the
      first occurrence of the milestone event for a Product containing that
      Development Compound, regardless of the number of times a milestone event
      may be achieved for Products containing such Development Compound (for
      example, regardless of the number of Phase 3 Trials and NDA Filings and
      Approvals that may be obtained for Products containing such Development
      Compound).

                  (b) Each milestone payment shall be payable upon the first
      achievement of the milestone event for a given Development Compound;
      provided, however, for each subsequent Product containing a different
      Development Compound, the milestone payments for such subsequent Product
      shall [**]. Once [**], any [**]; provided that, [**], any milestone
      payments made for such Product shall be [**]. As [**], [**] milestone
      payments will be paid consistent with the foregoing principles.

                  (c) Subject to the foregoing provisions of this Section 5.4.3,
      if any milestone event for a Product is achieved prior to or in the
      absence of the achievement of any preceding milestone event for such
      Product (e.g., an NDA filing for a Product without a Phase 3 Trial) then,
      effective upon achievement of any such milestone event, all previously
      unpaid payments for any such preceding milestone event(s) shall also
      become due and payable.

      5.4.4 Notice of Milestone Achievement. Each Product Licensee shall
promptly notify the Product Licensor of the first occurrence of any milestone
with respect to each Selected Target, and milestone payments shall be made
within [**] days after such occurrence. Such milestone payments shall be
non-refundable and shall not be credited against royalties payable to the
Product Licensee under this Agreement, subject to Section 6.2.

                                       34

5.5      Product Royalties.

      5.5.1 BMS Products. For each BMS Product, BMS shall pay to Lexicon the
following royalties on aggregate annual Net Sales in the Territory of such BMS
Product:

                                                                ROYALTY ON NET
                                                                SALES FOR BMS         ROYALTY ON NET
                                                                PRODUCT ACTING         SALES FOR BMS
                                                                THROUGH A BMS         PRODUCT ACTING
                                                                TARGET THAT IS         THROUGH A BMS
          AGGREGATE ANNUAL WORLDWIDE                             NOT A LISTED        TARGET THAT IS A
  NET SALES OF BMS PRODUCT IN CONTRACT YEAR                         TARGET             LISTED TARGET
- ----------------------------------------------                ------------------     -----------------
                                                                               
Under U.S. $[**]                                                    [**]%                   [**]%
From U.S. $[**]to U.S. $[**]                                        [**]%                   [**]%
Above $[**]                                                         [**]%                   [**]%

By way of example, in a given Contract Year, if the aggregate annual worldwide
Net Sales of a given BMS Product acting through a BMS Target that is not a
Listed Target is [**], the following royalty payment would be payable under this
Section 5.5.1: [**]. For BMS Products which are Post Opt-out Products, the
foregoing royalty payment amounts [**] as provided in Section 2.5.3.4. For BMS
Products that act through a BMS Target that was designated from a BMS Inactive
Selected Target, the above royalty payment amounts shall be reduced as set forth
in Section 2.3.4.2.

      5.5.2 Lexicon Products. For each Lexicon Product, Lexicon shall pay to BMS
the following royalties on aggregate annual Net Sales in the Territory of such
Lexicon Product:

             AGGREGATE ANNUAL WORLDWIDE                            ROYALTY ON NET
    NET SALES OF LEXICON PRODUCT IN CONTRACT YEAR                       SALES
- -----------------------------------------------------          -----------------------
                                                            
Under U.S. $[**]                                                            [**]%
From U.S. $[**] to U.S. $[**]                                               [**]%
Above $[**]                                                                 [**]%

By way of example, in a given Contract Year, if the aggregate annual worldwide
Net Sales of a given Lexicon Product is [**], the following royalty payment
would be payable under this Section 5.5.2: [**]. For Lexicon Products which are
Post Opt-out Products, the foregoing royalty payment amounts [**] as provided in
Section 2.5.3.4. For Lexicon Products that act through a Lexicon Target that was
designated from a Lexicon Inactive Selected Target, the above royalty payment
[**] as set forth in Section 2.3.4.2.

      5.5.3 Royalty Term. Royalties shall be payable, on a Product-by-Product
and country-by-country basis, on Net Sales of Products for the longer of (a) the
term of any Patents Rights Controlled by a party with a Valid Claim Covering the
composition of matter or therapeutic use of such Product and providing marketing
exclusivity for such Product in such country or (b) [**] years after the First
Commercial Sale of such Product in such country.

      5.5.4 Royalty Reduction. The royalty amounts set forth above shall be
reduced by [**] on a country by country basis at any such time that [**], and
[**] shall be reduced by [**] on a country by country basis at any such time
that [**]. For such purposes, the reduction will be calculated assuming that the
royalty rate in such country is the Blended Rate (e.g., the reduced royalty rate
for such country shall be [**] of the Blended Rate, as applicable). In no event
shall the royalty amounts payable in any such country be reduced below [**] of
the amount otherwise

                                       35

payable with respect to such Product under Section 5.5.1 or 5.5.2, as
applicable. As used in this Section 5.5.4, [**].

      5.5.5 Third Party Patents. If the Product Licensee, in its reasonable
judgment, is required to obtain a license from any Third Party under any patent
in order to [**], and if the Product Licensee is required to pay to such Third
Party a royalty under such license calculated on sales of a Product, and the
infringement of such patent cannot reasonably be avoided by the Product
Licensee, or if the Product Licensee is required by a court of competent
jurisdiction to pay such a royalty to such a Third Party (and the infringement
of such patent cannot reasonably be avoided by the Product Licensee), then the
Product Licensee's obligation to pay royalties under Section 5.5.1 and 5.5.2
hereof shall be reduced by [**] of the amount of the royalty paid to such Third
Party, provided however, that the royalties payable under Section 5.5.1 and
5.5.2 hereof shall not be reduced in any such event below [**] of the amounts
set forth in Section 5.5.1 and 5.5.2. In addition, if the Product Licensee is
required to pay upfront payments or milestone payments to such Third Party in
consideration for such license, or if the Product Licensee is required by a
court of competent jurisdiction to pay a similar such payment, then the
royalties payable under Section 5.5.1 and 5.5.2 shall be reduced by [**] of the
amount of such upfront payments or milestone payments paid to such Third Party,
provided however, that the royalties payable under Section 5.5.1 and 5.5.2 shall
not be reduced in any such event below [**] of the amounts set forth in Section
5.5.1 and 5.5.2. The Product Licensee shall use its commercially reasonable
efforts to minimize the amount of any of the foregoing payments owed by the
Product Licensee to a Third Party. Prior to the Product Licensee exercising its
reasonable judgment under this Section 5.5.5, the Product Licensee shall provide
the Product Licensor with written notice of a potential need to obtain any
license from Third Parties. The parties shall discuss the best course of action
to resolve such potential license requirement(s), provided that such discussions
shall not limit the Product Licensee's right to exercise its reasonable
judgment.

      5.5.6 Royalty Conditions. The royalties under Section 5.5.1 and 5.5.2
shall be subject to the following conditions:

            (a) that only one royalty shall be due with respect to the same unit
      of Product;

            (b) that no royalties shall be due upon the sale or other transfer
      among Product Licensee, its Affiliates or Sublicensees, but in such cases
      the royalty shall be due and calculated upon Product Licensee's or its
      Affiliate's or Sublicensee's Net Sales of Product to the first independent
      Third Party; and

            (c) no royalties shall accrue on the disposition of Product in
      reasonable quantities by Product Licensee, its Affiliates or Sublicensees
      as part of an expanded access program or as bona fide samples or as
      donations to non-profit institutions or government agencies for
      non-commercial purposes, provided, in each case, that neither Product
      Licensee, its Affiliate or Sublicensees receives any payment for such
      Product.

      5.5.7 Royalty Reports; Exchange Rates. During the term of this Agreement
following the First Commercial Sale of any Product, the Product Licensee shall
provide Product Licensor, within [**] days after the end of each Contract
Quarter, an initial quarterly royalty report in a manner sufficient to enable
Product Licensor to comply with its reporting requirements. Within [**] days
after each Contract Quarter, Product Licensee shall furnish to the Product
Licensor a written quarterly report showing, on a Product-by-Product basis:

                                       36

            (a) the gross sales and Net Sales of Products sold by such Product
      Licensee, its Sublicensees and their respective Affiliates during the
      reporting period and the calculation of Net Sales from such gross sales;

            (b) the royalties payable in United States dollars which shall have
      accrued hereunder in respect of such Net Sales;

            (c) withholding taxes, if any, required by applicable Law to be
      deducted in respect of such royalties;

            (d) the dates of the First Commercial Sales of Products in any
      country during the reporting period; and

            (e) the exchange rates used in determining the amount of United
      States dollars payable hereunder.

Royalties payable on sales in countries other than the United States shall be
calculated in accordance with the standard exchange rate conversion practices
used by the Product Licensee for financial accounting purposes. If no royalty or
payment is due for any royalty period hereunder, the Product Licensee shall so
report. Each Product Licensee shall keep, and shall require its Sublicensees to
keep (all in accordance with generally accepted accounting principles,
consistently applied), complete and accurate records in sufficient detail to
properly reflect all gross sales and Net Sales and to enable the royalties
payable hereunder to be determined.

      5.5.8 Audits. Upon the written request of a Product Licensor, the Product
Licensee shall permit an independent certified public accountant selected by the
Product Licensor and acceptable to the Product Licensee, which acceptance shall
not be unreasonably withheld, to have access, at reasonable times and during
normal business hours, to such records of the Product Licensee as may be
reasonably necessary to verify the accuracy of the royalty reports described
herein, in respect of any fiscal year ending not more than [**] prior to the
date of such request. The Product Licensor and the Product Licensee shall use
commercially reasonable efforts to schedule all such verifications within [**]
days after the Product Licensor makes its written request. All such
verifications shall be conducted not more than [**]. The report of the Product
Licensor's independent certified public accountant shall be made available to
both parties. Subject to the Product Licensee's rights under Section 12.6, in
the event the Product Licensor's independent certified public accountant
concludes that additional royalties were owed to the Product Licensor for such
period, the additional royalty shall be paid by the Product Licensee within [**]
days of the date the Product Licensor delivers to the Product Licensee such
independent certified public accountant's written report so concluding, unless
such report contains manifest error. In the event the Product Licensor's
independent certified public accountant concludes that there was an overpayment
of royalties to the Product Licensor during such period, the overpayment shall
be repaid by the Product Licensor within [**] days of the date the Product
Licensor received such independent certified public accountant's written report
so concluding, unless such report contains manifest error. The fees charged by
such independent certified public accountant shall be paid by the Product
Licensor unless such audit discloses an underpayment of more than [**] of the
amount due under this Agreement for the period in question, in which case the
Product Licensee will bear the full cost of such audit. The Product Licensee
shall include in each agreement with each applicable Sublicensee a provision
requiring such Sublicensee to make reports to the Product Licensee, to keep and
maintain records of sales made pursuant to such agreement and to grant access to
such records by the Product Licensor's independent certified public accountant
to the same extent required of the Product Licensee under

                                       37

      this Agreement. The Product Licensor agrees that all information subject
      to review under this Section 5.5.8 or under any agreement with a
      Sublicensee of the Product Licensee is confidential and that the Product
      Licensor shall cause its independent certified public accountant to retain
      all such information in confidence. The Product Licensor's independent
      certified public accountant shall only report to the Product Licensor as
      to the computation of the royalties and other payments due to the Product
      Licensor under this Agreement and shall not disclose to the Product
      Licensor any other information of the Product Licensee or its Sublicensee.

            5.5.9 Royalty Payment Terms. Royalty payments for each Contract
      Quarter shall be due at the time the Product Licensee's report under
      Section 5.5.7 for such Contract Quarter shall be due.

      5.6 Withholding Taxes. In the event that any royalties or other payments
due to a Product Licensor are subject to withholding tax required by applicable
Law to be paid to the taxing authority of any foreign country, the amount of
such tax may be withheld from the applicable royalties or other payment due the
Product Licensor. The Product Licensee shall promptly pay such tax on behalf of
the Product Licensor and shall furnish the Product Licensor with a certificate
of withholding tax so deducted for the Product Licensor's avoidance of duplicate
taxation in United States. The Product Licensee may not deduct any other
withholding or any other governmental charges from the payments agreed upon
under this Agreement, except to the extent same are paid on behalf of, or for
the benefit of, the Product Licensor. The Product Licensee shall maintain
official receipts of payment of any such withholding taxes and shall forward
such receipts to the Product Licensor.

      5.7 Blocked Currency. If by applicable Law or fiscal policy of a
particular country, conversion into United States dollars or transfer of funds
of a convertible currency to the United States is restricted or forbidden, the
Product Licensee shall give the Product Licensor prompt written notice and shall
pay the royalty due under this Article 5 through such means or methods as are
lawful in such country as the Product Licensor may reasonably designate. Failing
the designation by the Product Licensor of such lawful means or methods within
[**] days after such written notice is given to the Product Licensor, the
Product Licensee shall deposit such royalty payment in local currency to the
credit of the Product Licensor in a recognized banking institution designated by
the Product Licensor, or if none is designated by the Product Licensor within
the [**] period described above, in a recognized banking institution selected by
the Product Licensee and identified in a written notice to the Product Licensor
by the Product Licensee, and such deposit shall fulfill all obligations of the
Product Licensee to the Product Licensor with respect to such royalties.

      5.8 Interest on Late Payments. A Product Licensor shall have the right to
seek to collect interest on any payments that are not paid on or before [**]
days after the date such payments are due under this Agreement at a rate equal
to [**], calculated on the total number of days payment is delinquent.

      5.9 Manner of Payment. Except as provided in Section 5.7, payments to be
made by a Product Licensee to the Product Licensor under this Agreement shall be
payable in United States dollars and shall be paid by check delivered to the
Product Licensor at its principal office at the address for notice indicated in
this Agreement or bank wire transfer in immediately available funds to such bank
account in the state in which such principal office is located as is designated
in writing by the Product Licensor from time to time.

                    ARTICLE 6. PRODUCT DEVELOPMENT DILIGENCE

      6.1 Diligence Obligations. Each Product Licensee shall use Diligent
Efforts to pursue the research and development of, and to obtain Regulatory
Approvals in major markets throughout the world

                                       38

as expeditiously as possible for, at least one Product that acts through each
Selected Target for which such Product Licensee holds a license under Section
4.2 and, following such Regulatory Approvals, to maximize Net Sales of such
Product(s), in each case in a manner consistent with the efforts such party
devotes to products or research, development or marketing projects of similar
market potential, profit potential or strategic value resulting from its own
research efforts, based on conditions then prevailing, without any diminution on
account of any interest of such Product Licensee in any competitive product in
development or being marketed for the same indication(s).

      6.2   Effect of Failure to Satisfy Diligence Obligations.

            6.2.1 With respect to each Selected Target for which the Product
      Licensee fails to satisfy its Product diligence obligations under Section
      6.1 above, at the option of the other party as its sole and exclusive
      remedy therefor, (a) the commercial licenses granted under Section 4.2
      with respect to such Product(s) and related Selected Target shall
      terminate and (b) the Product Licensee shall deliver to the other party
      [**]; provided, however, that Product Licensee's exclusive rights under
      Section 4.1 and 4.2 shall not terminate as set forth above and Product
      Licensee shall not be required to deliver [**] unless (i) Product Licensee
      is given [**] days' prior written notice by Product Licensor of Product
      Licensor's intent to terminate such licenses, stating the reasons and
      justification for such termination and recommending steps which Product
      Licensee should take, and (ii) Product Licensee, or any Sublicensee, has
      not used Diligent Efforts during such [**] period to pursue the research
      and/or development of, and/or to obtain Regulatory Approvals for, Products
      with respect to such Selected Target. The Product Licensor shall have the
      right, within the period of [**] days following the Product Licensee's
      delivery of [**], to obtain [**] by delivering written notice thereof to
      the Product Licensee, subject to the obligation (A) to [**] and (B) to
      [**]..

            6.2.2 With respect to each Selected Target and related Products and
      Development Compounds for which a party exercises its right, under Section
      6.2.1, to obtain [**], the other party promptly shall deliver to such
      party [**], and shall [**] relating to such Product and related
      Development Compounds.

      6.3 Research and Development Reports. Each party shall keep complete and
accurate records of its activities conducted under this Agreement and the
results thereof. Within [**] after the end of each [**] following the end of the
Research Program Term, each party shall prepare and provide the other party with
a reasonably detailed written report of the activities conducted under this
Agreement, and the results thereof, through such date with respect to the
development and/or commercialization of Products.

                        ARTICLE 7. INTELLECTUAL PROPERTY

      7.1   Ownership of Intellectual Property.

            7.1.1 Ownership by BMS of the BMS Background Materials and BMS
      Background Technology. Subject to the rights and licenses granted under
      this Agreement, BMS (and its licensors, as applicable) shall own and
      retain all rights to the BMS Background Materials and BMS Background
      Technology.

            7.1.2 Ownership by Lexicon of the Lexicon Background Materials and
      Lexicon Background Technology. Subject to the rights and licenses granted
      under this Agreement, Lexicon (and its licensors, as applicable) shall own
      and retain all rights to the Lexicon Background Materials and Lexicon
      Background Technology. Without limiting the foregoing,

                                       39

      subject to the rights and licenses granted under this Agreement, Lexicon
      shall own and retain all rights to (a) all Mutant Mice and progeny thereof
      and any cells or other materials derived by Lexicon therefrom and (b) any
      invention or discovery that is conceived or first reduced to practice by
      Lexicon or any of its Affiliates during the course of any analysis of
      Mutant Mice performed in the Target Discovery Program.

            7.1.3 Ownership of Program Intellectual Property.

                  7.1.3.1 Inventorship. Inventorship for patentable inventions
            and discoveries conceived or reduced to practice during the course
            of the performance of activities pursuant to this Agreement shall be
            determined in accordance with U.S. patent laws for determining
            inventorship. In the event of a dispute regarding inventorship, if
            the parties are unable to resolve such inventorship dispute, the
            Joint Management Committee shall establish a procedure to resolve
            such dispute, which may include engaging a Third Party patent
            attorney jointly selected by the parties to resolve such dispute,
            which resolution by such patent attorney shall be binding upon the
            parties.

                  7.1.3.2 Ownership of Program Technology and Program
            Intellectual Property for Selected Targets. Subject to the rights
            and licenses granted under this Agreement, Lexicon shall own all
            Program Technology and Program Intellectual Property that directly
            relates to (a) [**], (b) [**], (c) [**] or (d) [**] ("Selected
            Target Inventions"), whether such Selected Target Invention was
            invented or discovered by employees, Affiliates, agents, independent
            contractors or consultants of BMS, Lexicon or both parties;
            provided, however, that Selected Target Inventions shall not include
            Program Technology and Program Intellectual Property that relates to
            [**]. In the event BMS would otherwise be deemed to be an owner or
            joint owner of any such Selected Target Invention, then BMS shall
            assign to Lexicon its entire right, title and interest in such
            Selected Target Invention.

                  7.1.3.3 Ownership of Other Program Technology and Program
            Intellectual Property. Except as set forth in Section 7.1.3.2, title
            to all Program Technology and Program Intellectual Property shall be
            based upon the inventorship for such Program Technology and Program
            Intellectual Property. Except as set forth in Section 7.1.3.2,
            Lexicon shall own, Program Technology and Program Intellectual
            Property invented solely by employees, agents, consultants and/or
            contractors of Lexicon or a Lexicon Affiliate ("Lexicon Sole Program
            Inventions"). Except as set forth in Section 7.1.3.2, BMS shall own,
            Program Technology and Program Intellectual Property invented solely
            by employees, agents, consultants and/or contractors of BMS or a BMS
            Affiliate ("BMS Sole Program Inventions"). Lexicon and BMS shall
            jointly own Program Technology and Program Intellectual Property
            invented jointly by employees, agents, consultants and/or
            contractors of both Lexicon and BMS or Affiliates of Lexicon and BMS
            ("Joint Program Inventions"). All Joint Program Inventions, BMS Sole
            Program Inventions, Lexicon Sole Program Inventions and Selected
            Target Inventions shall be collectively the "Program Inventions."
            Each party shall disclose to the other party promptly any Program
            Inventions made by such party's Affiliates, employees, agents or
            consultants.

      7.2   Prosecution and Maintenance of Program Patent Rights.

            7.2.1 Primary Prosecution Rights. The responsibility for (a)
      preparing, filing and prosecuting patent applications (including, but not
      limited to, provisional, reissue, continuing, continuation,
      continuation-in-part, divisional, and substitute applications and any
      foreign

                                       40

      counterparts thereof) Covering a Program Invention; (b) maintaining any
      Program Patent Rights; and (c) managing any interference or opposition or
      similar proceedings relating to the foregoing ((a) through (c),
      collectively, "Patent Prosecution") shall be the responsibility of the
      party owning such Program Invention; provided, however, that with respect
      to any Joint Program Inventions, such responsibility shall be assigned by
      the Joint Management Committee on a case-by-case basis. In determining
      which party shall be responsible for Patent Prosecution of a jointly owned
      patent application, the Joint Management Committee shall consider, among
      other factors, the relative contribution of each party to the claimed
      subject matter and the relatedness of the claimed subject matter to that
      in other patent applications being prosecuted by each party. Each party
      shall bear all Patent Prosecution expenses, including attorneys' fees,
      incurred by such party in the performance of Patent Prosecution, except
      that, unless the parties agree otherwise the Patent Prosecution expenses,
      including attorneys' fees, for Joint Program Inventions shall be shared
      equally by the parties.

            7.2.2 Secondary Prosecution Rights. If the prosecuting party elects
      not to continue pursuing Patent Prosecution for Program Inventions (and
      the other party has joint ownership of or a license under such Program
      Patent Rights pursuant to this Agreement), then the prosecuting party
      shall notify the other party in writing of such election at least [**]
      days prior to the last available date for action to preserve such Program
      Patent Rights. If such other party elects to continue Patent Prosecution,
      it may do so at its own expense. The party taking over Patent Prosecution
      responsibility will not be liable to the other party in any way with
      respect to its handling of, or the results obtained from, such Patent
      Prosecution. The other party will provide the party taking over Patent
      Prosecution with such assistance and execute such documents as are
      necessary to continue or permit such Patent Prosecution.

            7.2.3 Cooperation. Each party hereby agrees:

                  (a) to take all reasonable additional actions and execute such
            agreements, instruments and documents as may be reasonably required
            to perfect the other's ownership interest in accordance with the
            intent of this Agreement;

                  (b) to make its employees, Affiliates, agents, independent
            contractors and consultants reasonably available to the other party
            (or to the other party's authorized attorneys, agents or
            representatives), to the extent reasonably necessary to enable the
            prosecuting party to undertake Patent Prosecution;

                  (c) to provide the other party with copies of all material
            correspondence with the U.S. Patent and Trademark Office or its
            foreign counterparts;

                  (d) to cooperate, if necessary and appropriate, with the other
            party in gaining patent term extensions wherever applicable to
            Program Patent Rights for Program Inventions; and

                  (e) to endeavor in good faith to coordinate its efforts with
            the other party to minimize or avoid interference with the Patent
            Prosecution of the other party's patent applications related to
            Program Inventions.

      7.3 Patent Term Extension. The Product Licensor shall cooperate with the
Product Licensee in obtaining patent term extension or supplemental protection
certificates or their equivalents in any country with respect to the Program
Patent Rights. In the event that elections with respect to obtaining such patent
term extension, supplemental protection certificates or their equivalents are to
be made, the

                                       41

Product Licensee shall have the right to make the election and the Product
Licensor agrees to abide by such election, provided that such election by the
Product Licensee will be made so as to maximize the period of marketing
exclusivity for the Product.

      7.4   Enforcement of the Program Patent Rights.

            7.4.1 Notices of Third Party Infringement. Each Party shall promptly
      provide the other Party with written notice reasonably detailing any known
      or alleged infringement of Program Patent Rights by a Third Party.

            7.4.2 Hatch-Waxman Notifications. Each party shall provide to the
      other party copies of any allegations of alleged patent invalidity,
      unenforceability or non-infringement of a patent or patents with respect
      to Program Technology, Program Materials or Products pursuant to a
      Paragraph IV Patent Certification by a Third Party filing an Abbreviated
      New Drug Application (i.e., an action under the Hatch-Waxman Act). Such
      copies shall be provided promptly after receipt of such certification.

            7.4.3 Other Notifications. Each party shall provide to the other
      party copies of any notices it receives from Third Parties regarding any
      patent nullity actions, any declaratory judgment actions, any alleged
      infringement of Program Patent Rights or any alleged misappropriation of
      intellectual property with respect to Program Technology, Program
      Materials or Products. Such copies shall be provided promptly following
      receipt thereof.

            7.4.4 Product-Related Infringement.

                  7.4.4.1 The Product Licensee for a Product shall have the sole
            right, but not the obligation, to institute and direct legal
            proceedings against any Third Party believed to be infringing the
            Program Patent Rights of either party (including, without
            limitation, the Program Patent Rights Claiming Selected Target
            Inventions related to the Selected Target through which such Product
            acts) by the manufacture, use, importation, offer for sale or sale
            of a product competitive with such Product (whether a clinical or
            commercial product). Each party will bear its own costs, including
            attorneys' fees, relating to such legal proceedings; provided that
            the Product Licensee shall bear the Product Licensor's out-of-pocket
            expenses, including attorneys' fees, incurred in complying with
            requests for cooperation made by the Product Licensee. Any recovery
            in connection with such suit or proceeding will first be applied to
            reimburse the parties for their out-of-pocket expenses, including
            attorney's fees. All recoveries resulting from such legal
            proceedings that are in excess of the parties' costs of bringing or
            participating in such action, including attorney's fees, shall be
            allocated fifty percent (50%) to BMS and fifty percent (50%) to
            Lexicon; provided, however, that, in the event the [**], the Product
            Licensee shall [**]. The Product Licensee and the Product Licensor
            shall share in any enhanced damages due to willful infringement in
            proportion to their entitlement to actual damages.

                  7.4.4.2 In the event that a Product Licensee takes action
            under this Section 7.3.2, the other party shall cooperate to the
            extent reasonably necessary at the sole expense of the Product
            Licensee. Upon the reasonable request of the Product Licensee, the
            other party shall join the suit and shall be represented in any such
            legal proceedings using counsel of its own choice. Neither party
            shall settle any claim or proceeding relating to Program Patent
            Rights Controlled in whole or in part by the other party or licensed
            under this Agreement to the other party without the prior written
            consent of such other party, which consent shall not be unreasonably
            withheld.

                                       42

            7.4.5 Non-Product-Related Infringement. Each party shall have the
      sole right, but not the obligation, to institute and direct legal
      proceedings against any Third Party believed to be infringing the Sole
      Program Patent Rights of such party other than infringement relating to a
      Product. All costs, including attorneys' fees, relating to such legal
      proceedings shall be borne by the party instituting such legal
      proceedings, and all recoveries resulting from such legal proceedings
      shall be retained by such party. The parties shall consult with each other
      regarding the institution, prosecution and control of any action or
      proceeding with respect to infringement of any of the Joint Program Patent
      Rights other than infringement relating to a Product.

      7.5   Notices of Other Proceedings.

            7.5.1 Each party shall notify the other in writing of any
      allegations it receives from a Third Party that the manufacture, use,
      sale, offer for sale or import of Program Technology, Program Materials or
      any Product infringes the intellectual property rights of such Third
      Party. Such notice shall be provided promptly following receipt of such
      allegations.

            7.5.2 In the event that a party receives notice that it or any of
      its Affiliates have been individually named as a defendant in a legal
      proceeding by a Third Party alleging infringement of a Third Party patent
      or other intellectual property right as a result of the manufacture, use,
      sale, offer for sale or import of Program Technology, Program Materials or
      a Product, such party shall immediately notify the other party in writing
      after the receipt of such notice. Such written notice shall include a copy
      of any summons or complaint (or the equivalent thereof) received regarding
      the foregoing.

                           ARTICLE 8. CONFIDENTIALITY

      8.1   Nondisclosure Obligations.

            8.1.1 General. Except as otherwise provided in this Article 8, each
      Receiving Party shall maintain the Confidential Information of each
      Disclosing Party in confidence and use it only for purposes specifically
      authorized under this Agreement. Except as otherwise specifically provided
      in this Article 8, each party shall disclose Confidential Information of
      the other party only to those employees, representatives and agents
      requiring knowledge thereof in connection with fulfilling the party's
      obligations under this Agreement, and not to any other Third Party. Each
      party further agrees to inform all such employees, representatives and
      agents of the terms and provisions of this Agreement relating to
      Confidential Information and their duties hereunder and to have obtained
      their prior written agreement to keep such Confidential Information in
      confidence under terms and conditions no less restrictive than those
      contained herein. Each party shall exercise the same standard of care as
      it would itself exercise in relation to its own confidential information
      (but in no event less than a reasonable standard of care) to protect and
      preserve the proprietary and confidential nature of the Confidential
      Information disclosed to it by the other party. Upon termination or
      expiration of this Agreement, each party shall promptly, upon request of
      the other party, use good faith commercially reasonable efforts to return
      or destroy (as requested by the disclosing party) all documents and any
      copies thereof containing Confidential Information belonging to, or
      disclosed by, such other party, save that it may retain one copy of the
      same solely for the purposes of ensuring compliance with this Section 8.1.
      Any breach of this Section 8.1 by any person to whom Confidential
      Information is disclosed by a party is considered a breach by the party
      itself.

            8.1.2 Limitations. To the extent it is reasonably necessary or
      appropriate to fulfill its obligations or exercise its rights
      under this Agreement and subject to advance written notification

                                       43

      to the Disclosing Party: (a) a party may disclose to Third Parties
      Confidential Information it is otherwise obligated not to disclose under
      this Section 8.1, to its Affiliates, Sublicensees, consultants, outside
      contractors and clinical investigators, on a strict need-to-know basis for
      the purposes contemplated by this Agreement and on the condition that such
      entities or persons agree to keep the Confidential Information
      confidential for the same time periods and to the same extent as such
      party is required to keep the Confidential Information confidential
      hereunder; and (b) a party or its Sublicensees may disclose, using
      appropriate measures to preserve confidentiality, such Confidential
      Information to government or other regulatory authorities to the extent
      that such disclosure is reasonably necessary to obtain authorizations to
      conduct clinical trials of, and to commercially market, Products pursuant
      to this Agreement. Furthermore, a Receiving Party may request permission
      from the Disclosing Party to disclose such Confidential Information to the
      extent that such disclosure is [**].

            8.1.3 Required Disclosure. A Receiving Party may disclose
      Confidential Information pursuant to interrogatories, requests for
      information or documents, subpoena, civil investigative demand issued by a
      court or governmental agency or as otherwise required by Law; provided,
      however, that the Receiving Party shall notify the Disclosing Party
      promptly upon receipt thereof, giving [**] the Disclosing Party sufficient
      advance notice to permit it to oppose, limit or seek confidential
      treatment for such disclosure; and provided, further, that the Receiving
      Party shall furnish only that portion of the Confidential Information
      which it is advised by counsel is legally required whether or not a
      protective order or other similar order is obtained by the Disclosing
      Party.

            8.1.4 Securities Filings. In the event either party proposes to file
      with the Securities and Exchange Commission or the securities regulators
      of any state or other jurisdiction a registration statement or any other
      disclosure document which describes or refers to this Agreement under the
      Securities Act of 1933, as amended, the Securities Exchange Act, of 1934,
      as amended, or any other applicable securities law, the party shall notify
      the other party of such intention and shall provide such other party with
      a copy of relevant portions of the proposed filing not less than ten (10)
      business days prior to such filing (and any revisions to such portions of
      the proposed filing a reasonable time prior to the filing thereof),
      including any exhibits thereto relating to the Agreement, and shall [**]
      to obtain confidential treatment of any information concerning the
      Agreement that such other party requests be kept confidential, and shall
      only disclose Confidential Information which it is advised by counsel is
      legally required to be disclosed. No such notice shall be required under
      this Section 8.1.4 if the substance of the description of or reference to
      this Agreement contained in the proposed filing has been included in any
      previous filing made by the either party hereunder or otherwise approved
      by the other party.

      8.2 Terms of Agreement. The existence and the terms and conditions of the
Agreement that the parties have not specifically agreed to disclose pursuant to
Section 8.1.4 and Section 12.8 shall be considered Confidential Information of
both parties. Either party may disclose such terms to bona fide potential
Sublicensee, investor, investment banker, acquiror, merger partner or other
potential financial partner, and their attorneys and agents, provided that each
such person to whom such information is to be disclosed is informed of the
confidential nature of such information and has entered into a written agreement
with the party requiring such person to keep such information confidential.

      8.3 Injunctive Relief. The parties hereto understand and agree that
remedies at law may be inadequate to protect against any breach of any of the
provisions of this Article 8 by either party or their employees, agents,
officers or directors or any other person acting in concert with it or on its
behalf.

                                       44

Accordingly, each party shall be entitled to the granting of injunctive relief
by a court of competent jurisdiction against any action that constitutes any
such breach of this Article 8.

      8.4 Publication. BMS and/or Lexicon (each, a "Submitting Party") may each
publish or present data and/or results relating to a Product for which the
Submitting Party holds a commercial license, subject to the prior written
approval of the other party and the prior review of the proposed disclosure by
the other party (each, a "Reviewing Party"), solely to determine (a) whether the
proposed disclosure contains the Confidential Information of the Reviewing Party
or (b) whether the information contained in the proposed disclosure should be
the subject of a patent application to be filed prior to such disclosure. The
Submitting Party shall provide the Reviewing Party with the opportunity to
review any proposed abstract, manuscript or presentation which discloses the
results of research relating to the Product by delivering a copy thereof to the
Reviewing Party no less than [**] days before its intended submission for
publication or presentation. The Reviewing Party shall have [**] days from its
receipt of any such abstract, manuscript or presentation in which to notify the
Submitting Party in writing of any specific objections to the disclosure, based
on either the need to seek patent protection or concern regarding the specific
disclosure of the Confidential Information of the Reviewing Party. In the event
the Reviewing Party objects to the disclosure, the Submitting Party agrees not
to submit the publication or abstract or make the presentation containing the
objected-to information until the Reviewing Party is given a reasonable
additional period of time (not to exceed an additional [**] days) to seek patent
protection for any material in the disclosure which the Reviewing Party believes
is patentable (subject, in all events, to Section 8.3) or, in the case of
Confidential Information, to allow the Submitting Party to delete any
Confidential Information of the Reviewing Party from the proposed disclosure.
The Submitting Party agrees to delete from the proposed disclosure any
Confidential Information of the Reviewing Party upon request.

                   ARTICLE 9. REPRESENTATIONS AND WARRANTIES

      9.1   Representations, Warranties and Covenants of Lexicon. Lexicon
represents and warrants to and covenants with BMS that:

            9.1.1 Lexicon is a corporation duly organized, validly existing and
      in corporate good standing under the Laws of the state of Delaware;

            9.1.2 Lexicon has the corporate and legal right, authority and power
      to enter into this Agreement, and to extend the rights and licenses
      granted to BMS in this Agreement;

            9.1.3 Lexicon has taken all necessary action to authorize the
      execution, delivery and performance of this Agreement;

            9.1.4 upon the execution and delivery of this Agreement, this
      Agreement shall constitute a valid and binding obligation of Lexicon,
      enforceable in accordance with its terms, except as enforceability may be
      limited by applicable bankruptcy, insolvency, reorganization, moratorium
      or similar Laws affecting creditors' and contracting parties' rights
      generally and except as enforceability may be subject to general
      principles of equity (regardless of whether such enforceability is
      considered in a proceeding in equity or at law);

            9.1.5 the performance of Lexicon's obligations under this Agreement
      will not conflict with its charter documents or result in a breach of any
      agreements, contracts or other arrangements to which it is a party; and

                                       45

            9.1.6 Lexicon will not after the Effective Date enter into any
      agreements, contracts or other arrangements with others that would be
      inconsistent with or in conflict with or in derogation of BMS's rights and
      licenses under this Agreement or Lexicon's obligations under this
      Agreement;

            9.1.7 except as otherwise disclosed to BMS prior to the Effective
      Date, Lexicon is not aware of any legal obstacles, including the patent
      rights of others, that are likely to prevent it from carrying out the
      provisions of this Agreement;

            9.1.8 Lexicon has enforceable written agreements with all of its
      employees who receive Confidential Information under this Agreement
      assigning to Lexicon ownership of all intellectual property rights created
      in the course of their employment;

            9.1.9 except for Pre-existing Obligations disclosed to BMS prior to
      the Effective Date, no other person or organization presently has [**];

            9.1.10 Lexicon has not granted or permitted to be attached any lien
      or security interest with respect to the Lexicon Background Technology
      and/or Lexicon Background Materials that is licensed to BMS under this
      Agreement; and

            9.1.11 except for [**], the [**] are not subject to Pre-existing
      Obligations as of the Effective Date [**], in each case that would [**].

      9.2   Representations, Warranties and Covenants of BMS. BMS represents and
warrants to and covenants with Lexicon that:

            9.2.1 BMS is a corporation duly organized, validly existing and in
      corporate good standing under the Laws of the state of Delaware;

            9.2.2 BMS has the corporate and legal right, authority and power to
      enter into this Agreement, and to extend the rights and licenses granted
      to Lexicon in this Agreement;

            9.2.3 BMS has taken all necessary action to authorize the execution,
      delivery and performance of this Agreement;

            9.2.4 upon the execution and delivery of this Agreement, this
      Agreement shall constitute a valid and binding obligation of BMS
      enforceable in accordance with its terms, except as enforceability may be
      limited by applicable bankruptcy, insolvency, reorganization, moratorium
      or similar Laws affecting creditors' and contracting parties' rights
      generally and except as enforceability may be subject to general
      principles of equity (regardless of whether such enforceability is
      considered in a proceeding in equity or at law);

            9.2.5 the performance of its obligations under this Agreement will
      not conflict with BMS's charter documents or result in a breach of any
      agreements, contracts or other arrangements to which it is a party; and

            9.2.6 BMS will not after the Effective Date enter into any
      agreements, contracts or other arrangements with others that would be
      inconsistent with or in conflict with or in derogation of its obligations
      under this Agreement;

                                       46

            9.2.7 except as otherwise disclosed to Lexicon prior to the
      Effective Date, BMS is not aware of any legal obstacles, including the
      patent rights of others, that are likely to prevent it from carrying out
      the provisions of this Agreement;

            9.2.8 BMS has enforceable written agreements with all of its
      employees who receive Confidential Information under this Agreement
      assigning to BMS ownership of all intellectual property rights created in
      the course of their employment; and

            9.2.9 except for [**], the [**] are not subject to Pre-existing
      Obligations as of the Effective Date [**], in each case that would [**].

      9.3 Warranty Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY WITH RESPECT TO ANY PRODUCT, PATENT
RIGHTS, GOODS, SERVICES, PROGRAM MATERIALS, BACKGROUND MATERIALS OR ANY OTHER
SUBJECT MATTER OF THIS AGREEMENT, AND EACH PARTY HEREBY DISCLAIMS WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT WITH
RESPECT TO ANY AND ALL OF THE FOREGOING.

      9.4 Limited Liability. EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT,
NEITHER LEXICON NOR BMS WILL BE LIABLE WITH RESPECT TO ANY MATTER ARISING UNDER
THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL
OR EQUITABLE THEORY FOR ANY PUNITIVE, EXEMPLARY, INCIDENTAL OR CONSEQUENTIAL
DAMAGES OR LOST PROFITS.

                             ARTICLE 10. INDEMNITY

      10.1 BMS Indemnity Obligations. BMS agrees to defend, indemnify and hold
Lexicon, its Affiliates and their respective employees and agents harmless from
all claims, losses, damages or expenses (including reasonable attorneys' fees
and costs of litigation) in connection with any claims made or suits brought
against Lexicon by a Third Party relating to this Agreement arising as a result
of: (a) actual or asserted violations of any applicable Law by BMS, its
Sublicensees and their respective Affiliates by virtue of which any BMS Products
manufactured, distributed or sold hereunder shall be alleged or determined to be
adulterated, misbranded, mislabeled or otherwise not in compliance with any
applicable Law; (b) claims for bodily injury, death or property damage
attributable to the manufacture, distribution, sale or use of any BMS Products
by BMS, its Sublicensees and their respective Affiliates; (c) a BMS Product
recall ordered by a governmental agency or required by a confirmed BMS Product
failure as reasonably determined by the parties hereto; (d) BMS's breach of any
of its representations, warranties or covenants hereunder; or (e) the negligence
or willful misconduct of BMS, its officers, employees or agents.

      10.2 Lexicon Indemnity Obligations. Lexicon agrees to defend, indemnify
and hold BMS, its Affiliates and their respective employees and agents harmless
from all claims, losses, damages or expenses (including reasonable attorneys'
fees and costs of litigation) in connection with any claims made or suits
brought against BMS by a Third Party relating to this Agreement arising as a
result of: (a) actual or asserted violations of any applicable Law by Lexicon,
its Sublicensees and their respective Affiliates by virtue of which any Lexicon
Products manufactured, distributed or sold hereunder shall be alleged or
determined to be adulterated, misbranded, mislabeled or otherwise not in
compliance with any applicable Law; (b) claims for bodily injury, death or
property damage attributable to the manufacture, distribution, sale or use of
any Lexicon Products by Lexicon, its Sublicensees and their respective
Affiliates; (c) a

                                       47

Lexicon Product recall ordered by a governmental agency or required by a
confirmed Lexicon Product failure as reasonably determined by the parties
hereto; (d) Lexicon's breach of any of its representations, warranties or
covenants hereunder; or (e) the negligence or willful misconduct of Lexicon, its
officers, employees or agents.

      10.3 Limitation on Indemnity Obligations. Neither party, its Affiliates or
their respective employees and agents shall be entitled to the indemnities set
forth in Sections 10.1 or 10.2, respectively, to the comparative extent the
claim, loss, damage or expense for which indemnification is sought was caused by
the negligence, willful misconduct, reckless or intentional act or omission or
material breach of this Agreement by such party, its directors, officers,
employees or authorized agents.

      10.4 Procedure. If a party or any of its Affiliates or their respective
employees or agents (collectively, the "Indemnitee") intends to claim
indemnification under this Article 10, the Indemnitee shall promptly notify the
other party (the "Indemnitor") of any loss, claim, damage, liability or action
in respect of which the Indemnitee intends to claim such indemnification, and
the Indemnitor shall assume the defense thereof with counsel selected by the
Indemnitor and reasonably acceptable to the Indemnitee, provided, however, that
an Indemnitee shall have the right to retain its own counsel, with the fees and
expenses to be paid by the Indemnitee, if representation of such Indemnitee by
the counsel retained by the Indemnitor would be inappropriate due to actual or
potential differing interests between such Indemnitee and any other party
represented by such counsel in such proceedings. The Indemnitor shall have the
right to settle or compromise any claims for which it is providing
indemnification under this Article 10, provided that the consent of the
Indemnitee (which shall not be unreasonably withheld or delayed) shall be
required in the event any such settlement or compromise would adversely affect
the interests of the Indemnitee. The indemnity agreement in this Article 10
shall not apply to amounts paid in settlement of any loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Indemnitor. The failure to deliver notice to the Indemnitor within a reasonable
time after the commencement of any such action, if prejudicial to the
Indemnitor's ability to defend such action, shall relieve such Indemnitor of any
liability to the Indemnitee under this Article 10, but the omission so to
deliver notice to the Indemnitor will not relieve it of any liability that it
may have to any Indemnitee otherwise than under this Article 10. The Indemnitee
under this Article 10, its employees and agents, shall cooperate fully with the
Indemnitor and its legal representatives in the investigation of any action,
claim or liability covered by this indemnification.

      10.5 Insurance. Each party shall maintain appropriate product liability
insurance (and/or self-insurance) with respect to development, manufacture and
sale of Products by such party in such amount as such party customarily
maintains with respect to sales of its other products. Each party shall maintain
such insurance for so long as it continues to manufacture or sell Products, and
thereafter for so long as such party customarily maintains insurance with
respect to sales of its other products.

                     ARTICLE 11. EXPIRATION AND TERMINATION

      11.1 Term of Agreement. The term of this Agreement shall commence on the
Effective Date and shall continue, unless earlier terminated under Section 11.2,
until the later of (a) the expiration of the obligations of both parties to pay
royalties under this Agreement and (b) the expiration or termination of the last
to expire of any Valid Claim included in the Program Patent Rights. The
expiration or termination of the Target Discovery Term and Research Program Term
shall not affect the term of this Agreement.

      11.2 Termination for Material Breach.

                                       48

            11.2.1 If either party believes that the other is in material breach
      of this Agreement, then the non-breaching party may deliver notice of such
      breach to the other party. In such notice, the non-breaching party shall
      identify the actions or conduct that such party would consider to be an
      acceptable cure of such breach. For any breach arising from a failure to
      make a payment set forth in Article 5, the allegedly breaching party shall
      have [**] days to cure such breach, unless such payment is in dispute. For
      all material breaches other than a failure to make a payment set forth in
      Article 5, the allegedly breaching party shall have [**] days to either
      cure such breach or, if cure cannot be reasonably effected within such
      [**] period, to deliver to the other party a plan for curing such breach
      that is reasonably sufficient to effect a cure. Such a plan shall set
      forth a program for achieving cure as rapidly as practicable. Following
      delivery of such plan, the breaching party shall use Diligent Efforts to
      carry out the plan and cure the material breach.

            11.2.2 If the party receiving notice of material breach fails to
      cure such breach within the [**] period or [**] period (as applicable),
      the party originally delivering the notice shall have the right, at its
      option exercisable in its sole discretion, in addition to any other rights
      or remedies available to it at law or in equity and subject to the
      limitations set forth in Sections 3.7.2, 9.4 and 12.6 hereof, to terminate
      this Agreement upon [**] days' notice thereof to the other party, in which
      case the licenses granted to the defaulting party pursuant to Article 4
      shall terminate; provided that such termination shall apply to the rights
      and licenses granted to the defaulting party under Section 4.2 with
      respect to a Selected Target and related Products and Development
      Compounds only in the event, and to the extent, that such default relates
      to such specific Selected Target and related Products and Development
      Compounds. The provisions of Sections 5.3 through 5.9 hereof and Article 6
      shall survive any such termination of this Agreement. The rights and
      licenses granted to the defaulting party under Section 4.2 with respect to
      any Selected Target and related Products and Development Compounds with
      respect to which no default has occurred shall, subject to such party's
      obligations to pay milestones and royalties pursuant to Article 5,
      continue.

      11.3 Effect of Expiration or Termination of Agreement. The expiration or
termination of this Agreement shall not relieve the parties of any obligation
accruing prior to such expiration or termination. The provisions of Articles 7,
8, 9, 10 and 11, and Sections 12.2 through 12.6 hereof shall survive the
expiration or termination of this Agreement. The provisions of Sections 5.3
through 5.9 hereof and Article 6 shall survive any termination of this Agreement
under which a party, its Sublicensees or their respective Affiliates retains the
right to sell Products until such time as all royalty payment obligations
applicable to such Products under Section 5.5 have expired in accordance with
their terms.

                           ARTICLE 12. MISCELLANEOUS

      12.1 Force Majeure. Neither party shall be held liable or responsible to
the other party nor be deemed to have defaulted under or breached this Agreement
for failure or delay in fulfilling or performing any obligation under this
Agreement when such failure or delay is caused by or results from causes beyond
the reasonable control of the affected party, including but not limited to fire,
floods, embargoes, war, acts of war (whether war is declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, acts of God or acts, omissions or delays in acting by any
governmental authority; provided, however, that the party so affected shall use
reasonable commercial efforts to avoid or remove such causes of nonperformance,
and shall continue performance hereunder with reasonable dispatch whenever such
causes are removed. Either party shall provide the other party with prompt
written notice of any delay or failure to perform that occurs by reason of force
majeure. The parties shall mutually seek a resolution of the delay or the
failure to perform as noted above.

                                       49

      12.2 Assignment. This Agreement may not be assigned or otherwise
transferred, in whole or in part, by either party without the consent of the
other party; provided, however, that either Lexicon or BMS may, without such
consent, assign its rights and obligations under this Agreement (a) to any
Affiliate, or (b) in connection with a merger, consolidation or sale of all or
substantially all of its business assets to an unrelated Third Party; provided,
further, that such party's rights and obligations under this Agreement shall be
assumed by its successor in interest in any such transaction and shall not be
transferred separate from all or substantially all of its other business assets,
including those business assets that are the subject of this Agreement. Any
purported assignment in violation of the preceding sentence shall be void. Any
permitted assignee shall assume all obligations of its assignor under this
Agreement, unless the parties otherwise agree.

      12.3 Severability. Each party hereby agrees that it does not intend to
violate any public policy, statutory or common laws, rules, regulations, treaty
or decision of any government agency or executive body thereof of any country or
community or association of countries. Should one or more provisions of this
Agreement be or become invalid, the parties hereto shall substitute, by mutual
consent, valid provisions for such invalid provisions which valid provisions in
their economic effect are sufficiently similar to the invalid provisions that it
can be reasonably assumed that the parties would have entered into this
Agreement with such valid provisions in lieu of such invalid provisions. In case
such valid provisions cannot be agreed upon, the invalidity of one or several
provisions of this Agreement shall not affect the validity of this Agreement as
a whole, unless the invalid provisions are of such essential importance to this
Agreement that it is to be reasonably assumed that the parties would not have
entered into this Agreement without the invalid provisions.

      12.4 Notices. Any consent, notice or report required or permitted to be
given or made under this Agreement by one of the notification parties hereto to
the other shall be in writing, delivered personally or by facsimile (and
promptly confirmed by telephone, personal delivery or courier) or courier,
postage prepaid (where applicable), addressed to such other party at its address
indicated below, or to such other address as the addressee shall have last
furnished in writing to the addressor and shall be effective upon receipt by the
addressee.

      If to Lexicon:        Lexicon Genetics Incorporated
                            8800 Technology Forest Place
                            The Woodlands, Texas 77381
                            Attention:   President and Chief Executive Officer
                            Telephone:   (281) 863-3000
                            Facsimile:   (281) 863-8095

      With a copy to:       Lexicon Genetics Incorporated
                            8800 Technology Forest Place
                            The Woodlands, Texas 77381
                            Attention:   General Counsel
                            Telephone:   (281) 863-3000
                            Facsimile:   (281) 863-8010

      If to BMS:            Bristol-Myers Squibb Company
                            P.O. Box 4000
                            Route 206 & Province Line Road
                            Princeton, New Jersey 08543-4000
                            Attention:   Vice President, External Science,
                                         Technology & Licensing
                            Telephone:   609-252-4712
                            Facsimile:   609-252-7212

                                       50

      With a copy to:       Bristol-Myers Squibb Company
                            P.O. Box 4000
                            Route 206 & Province Line Road
                            Princeton, New Jersey 08543-4000
                            Attention:   Vice President & Senior Counsel,
                                         Corporate Development
                            Telephone:   609-252-4311
                            Facsimile:   609-252-4232

All such communications shall be effective upon receipt.

      12.5 Applicable Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Delaware, without reference to the
conflicts of law principles thereof.

      12.6 Dispute Resolution. Subject to Section 3.7.2, the parties hereby
agree that they will first attempt in good faith to resolve any dispute arising
out of or relating to this Agreement promptly by negotiations. Any such dispute
shall be brought to the attention of the Alliance Managers for resolution. The
Alliance Managers will endeavor to propose and define mutually acceptable
solutions and facilitate communications in an attempt to bring the dispute to a
mutually agreeable resolution. If after discussing the matter in good faith and
attempting to find a mutually satisfactory resolution to the issue, the parties
are unable to resolve such dispute, the matter shall be referred to the [**]
(the "Representatives"). If the matter has not been resolved within [**] days of
the first meeting of the Representatives of the parties (which period may be
extended by mutual agreement) concerning such matter, the parties shall be free
to pursue all available recourse both at law and in equity, subject to the
following. Any dispute between the parties arising out of or relating to the
validity or interpretation of, compliance with, breach or alleged breach of or
termination of this Agreement that is not finally resolved by the Joint
Management Committee or executive officers as described above will be resolved
through binding arbitration as set forth below. Any such binding arbitration
shall be conducted in accordance with the then current Commercial Arbitration
Rules of the American Arbitration Association. To the extent the parties cannot
agree on a single arbitrator, each party shall have the right to designate one
arbitrator, who shall have no prior or existing personal or financial
relationship with the designating party, and the two (2) arbitrators shall
designate a third arbitrator. If the two (2) arbitrators cannot agree on the
designation of the third arbitrator, the American Arbitration Association shall
designate the third arbitrator. Unless otherwise agreed by the parties, any
arbitration initiated by BMS shall be conducted in Houston, Texas and any
arbitration initiated by Lexicon shall be conducted in New York, New York. In
any such arbitration proceeding, the parties shall be entitled to all remedies
to which they would be entitled in a United States District Court and to full
discovery to the same degree permitted under the Federal Rules of Civil
Procedure. Any such arbitration shall be completed and an award rendered within
[**] days of the notice of dispute. The arbitrator shall render a "reasoned
decision" within the meaning of the Commercial Arbitration Rules which shall
include findings of fact and conclusions of law. For avoidance of doubt, the
decisions set forth in Section 3.4 shall not be subject to arbitration under
this Section.

      12.7 Entire Agreement. This Agreement, together with the exhibits and
appendices hereto and any confidentiality agreement(s) executed in contemplation
of this Agreement, contains the entire understanding of the parties with respect
to the subject matter hereof. All express or implied agreements and
understandings, either oral or written, heretofore made are expressly merged in
and made a part of this Agreement. This Agreement may be amended, or any term
hereof modified, only by a written instrument duly executed by both parties
hereto. Notwithstanding the foregoing, the LexVision Agreement shall remain in
full force and effect in accordance with its terms.

      12.8 Publicity. Upon execution of this Agreement, the parties shall issue
the press release announcing the existence of this Agreement in the form and
substance previously agreed to by the parties.

                                       51

Any announcements or similar publicity with respect to this Agreement shall be
agreed upon between the parties in advance of such announcement. The parties
understand that this Agreement is likely to be of significant interest to
investors, analysts and others, and that the parties therefore may make such
public announcements with respect thereto, subject to the remainder of this
Section 12.8. The parties agree that any such announcement will not contain
confidential business or technical information and, if disclosure of
confidential business or technical information is required by Law, the parties
will use reasonable efforts to minimize such disclosure and obtain confidential
treatment for any such information which is disclosed to a governmental agency.
Each party agrees to provide to the other party a copy of any public
announcement regarding this Agreement or the subject matter thereof as soon as
reasonably practicable under the circumstances prior to its scheduled release.
Except under extraordinary circumstances, each party shall provide the other
with an advance copy of any such announcement at least [**] prior to its
scheduled release. Each party shall have the right to expeditiously review and
recommend changes to any such announcement and, except as otherwise required by
Law, the party whose announcement has been reviewed shall remove any information
the reviewing party reasonably deems to be inappropriate for disclosure. The
contents of any announcement or similar publicity which has been reviewed and
approved by the reviewing party can be re-released by either party without a
requirement for re-approval.

      12.9 Headings. The captions to the several Articles and Sections hereof
are not a part of this Agreement, but are merely guides or labels to assist in
locating and reading the several Articles and Sections hereof.

      12.10 No Partnership. It is expressly agreed that the relationship between
Lexicon and BMS shall not constitute a partnership, joint venture or agency.
Neither Lexicon nor BMS shall have the authority to make any statements,
representations or commitments of any kind, or to take any action, which shall
be binding on the other, without the prior consent of the other party to do so.

      12.11 Exports. The parties acknowledge that the export of technical data,
materials or products is subject to the exporting party receiving any necessary
export licenses and that the parties cannot be responsible for any delays
attributable to export controls which are beyond the reasonable control of
either party. Lexicon and BMS agree not to export or re-export, directly or
indirectly, any information, technical data, the direct product of such data,
samples or equipment received or generated under this Agreement in violation of
any applicable export control Laws. Lexicon and BMS agree to obtain similar
covenants from their Sublicensees and contractors with respect to the subject
matter of this Section 12.11.

      12.12 Interpretation.

            12.12.1 In the event an ambiguity or a question of intent or
      interpretation arises, this Agreement shall be construed as if drafted
      jointly by the parties and no presumption or burden of proof shall arise
      favoring or disfavoring any party by virtue of the authorship of any
      provisions of this Agreement.

            12.12.2 The definitions of the terms herein shall apply equally to
      the singular and plural forms of the terms defined. Whenever the context
      may require, any pronoun shall include the corresponding masculine,
      feminine and neuter forms. The words "include", "includes" and "including"
      shall be deemed to be followed by the phrase "without limitation". The
      word "will" shall be construed to have the same meaning and effect as the
      word "shall". The word "any" shall mean "any and all" unless otherwise
      clearly indicated by context.

            12.12.3 Unless the context requires otherwise, (a) any definition of
      or reference to any agreement, instrument or other document herein shall
      be construed as referring to such agreement, instrument or other document
      as from time to time amended, supplemented or

                                       52

      otherwise modified (subject to any restrictions on such amendments,
      supplements or modifications set forth herein or therein), (b) any
      reference to any laws herein shall be construed as referring to such laws
      as from time to time enacted, repealed or amended, (c) any reference
      herein to any person shall be construed to include the person's successors
      and assigns, (d) the words "herein", "hereof" and "hereunder", and words
      of similar import, shall be construed to refer to this Agreement in its
      entirety and not to any particular provision hereof, and (e) all
      references herein to Articles, Sections, Appendices or Schedules, unless
      otherwise specifically provided, shall be construed to refer to Articles,
      Sections, Appendices and Schedules of this Agreement.

            12.12.4 References to sections of the Code of Federal Regulations
      and to the United States Code shall mean the cited sections, as these may
      be amended from time to time.

      12.13 Waiver. The waiver by either party hereto of any right hereunder or
the failure to perform or of a breach by the other party shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
other party whether of a similar nature or otherwise.

      12.14 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.

                                      * * *

                            [signature page follows]

                                       53

      IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute and deliver this Agreement as of the Effective Date.

LEXICON GENETICS INCORPORATED

By:     /s/ Arthur T. Sands                        Date:  December 17, 2003
    -----------------------------------------
        Arthur T. Sands, M.D., Ph.D.
        President and Chief Executive Officer

BRISTOL-MYERS SQUIBB COMPANY

By:     /s/ James B. D. Palmer                     Date:  December 17, 2003
    -----------------------------------------

Name:   James B. D. Palmer

Title:  President, Research and Development

                                       54

                                    EXHIBIT A

              DESCRIPTION OF FULL PHASE PROGRAM (SEE SECTION 1.31)

OBJECTIVE:                              Optimization and characterization of
                                        lead Program Compounds with the
                                        objective of identifying Development
                                        Candidate(s) and Back-up Compound(s)
                                        acting through a Selected Target for
                                        full pre-clinical and clinical
                                        development.

ESTIMATED ANNUALIZED FTE COMMITMENTS:   [**]

                                       55

                                    EXHIBIT B

          DESCRIPTION OF LEVEL 1 PHENOTYPIC ANALYSIS (SEE SECTION 1.42)

      Level 1 Phenotypic Analysis is an initial screen designed to identify
primary characteristics resulting from selected mutations in Mutant Mice. Level
1 Phenotypic Analysis currently includes the following assays, which may be
changed from time to time (a) by the Joint Scientific Committee, at the Joint
Scientific Committee's reasonable scientific discretion, for assays employed in
behavioral analysis, and (b) at Lexicon's reasonable scientific discretion, for
assays in other categories.

      [**]

                                       56

                                    EXHIBIT C

          DESCRIPTION OF LEVEL 2 PHENOTYPIC ANALYSIS (SEE SECTION 1.43)

      Level 2 Phenotypic Analysis involves one or more of the following
analyses, as appropriate, of the effects of selected mutations in Mutant Mice.

      [**]

                                       57

                                    EXHIBIT D

               DESCRIPTION OF MID-PHASE PROGRAM (SEE SECTION 1.60)

OBJECTIVE:                             Identification and characterization of
                                       Program Compounds with the objective of
                                       identifying lead Program Compounds that
                                       justify optimization efforts in a Full
                                       Phase Program and that can be used to[**]

ESTIMATED ANNUALIZED FTE COMMITMENTS:  [**]

                                       58

                                    EXHIBIT E

        ALLOCATION OF NET SALES IN BUNDLED TRANSACTION (SEE SECTION 1.65)

      With respect to Products sold in a Bundled Transaction in which BMS,
Lexicon or any of their respective Affiliates or Sublicensees discounts the
sales price of the Products to a greater degree than BMS, Lexicon, their
Affiliates or Sublicensees, respectively, generally discounts the price of its
other products to such customer, the amount to be included in Net Sales of such
Products shall be calculated in accordance with the following formula:

                        (ASP-P) x (N-P)
      NS-P  = ----------------------------------------- x BTF
              (SIGMA)m=(1) (ASP-p(i)) x (N-p(i)) + (ASP-P) x (N-P)

      Where:

            NS-P      =  Amount allocated to Net Sales of the Product

            ASP-P     =  Average Selling Price (as defined below) per unit,
                         during the applicable period, of the Product when sold
                         alone

            ASP-p(i)  =  Average Selling Price per unit, during the applicable
                         period, of each product, other than a Product, in the
                         Bundled Transaction when sold alone

            N-P       =  Total number of units of Product included in the
                         Bundled Transaction during the applicable period

            N-p(i)    =  Total number of units (i.e., corresponding to the same
                         ASP-pi) of each product, other than a Product, included
                         in the Bundled Transaction during the applicable period

           (SIGMA)=(1)=  The sum of the products of the formula (ASP-p(i)) x
                         (N-pi) for each and every product, other than a
                         Product, included in the Bundled Transaction during
                         the applicable period

            BTF       =  The aggregate amounts paid to the seller for the
                         Bundled Transaction during the applicable period

      The Average Selling Price shall be based on the actual average selling
price of the applicable Product or product other than a Product, as the case may
be, determined for the applicable period.

      If a Product or other product is not sold separately, the Average Selling
Price with respect thereto shall be the bona fide list price.

      If a Product or other product is not sold separately and no bona fide list
price exists for such Product or other product, the Parties shall agree upon an
imputed bona fide list price for such Product or other product, and the Average
Selling Price with respect thereto shall be based on such imputed list price.

                                       59

                                    EXHIBIT F

     FORM OF MATERIAL TRANSFER AGREEMENT FOR TRANSFER OF MUTANT MICE TO BMS
                              (SEE SECTION 2.2.5)

                           MATERIAL TRANSFER AGREEMENT

      THIS MATERIAL TRANSFER AGREEMENT (this "Agreement") is entered into
effective as of the last date set forth on the signature page hereof (the
"Effective Date") by and between Lexicon Genetics Incorporated, a Delaware
corporation ("Lexicon"), and Bristol-Myers Squibb Company, a Delaware
corporation ("BMS").

                                 R E C I T A L S

      WHEREAS, Lexicon and BMS are parties to that certain Collaboration and
License Agreement dated December 17, 2003 (the "Collaboration Agreement");

      WHEREAS, BMS has the right under Section 2.2.5 of the Collaboration
Agreement to obtain certain Mutant Mice;

      WHEREAS, BMS desires to exercise such option with respect to the line of
Mutant Mice specified in Appendix A;

      NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, BMS agrees with Lexicon as follows:

1.    DEFINITIONS

      1.1 "Materials" means the Mutant Mice provided to BMS under this
Agreement, any Progeny of such Mutant Mice and any cells, tissues and other
biological materials derived from any of the foregoing.

      1.2 "Progeny" means mice, including successive generations thereof, that
are produced or developed by BMS by breeding Mutant Mice with other Mutant Mice
or any other mice; provided that Progeny shall not include any mouse that does
not contain the same Selected Mutation as the Mutant Mice provided to BMS under
this Agreement.

      1.3 "Research Field" means use by BMS, at the internal research facilities
of BMS, solely for the purposes of conducting research in support of the efforts
of the parties under the Collaboration Agreement.

      Capitalized terms used without definition in this Agreement shall have the
meanings given to such terms in the Collaboration Agreement. Capitalized terms
defined in both this Agreement and the Collaboration Agreement shall have the
meanings given to such terms in this Agreement.

2.    REQUEST FOR AND DELIVERY OF MUTANT MICE

      2.1 Request for Mutant Mice. BMS hereby requests, pursuant to the
provisions of Section 2.2.5 of the Collaboration Agreement and subject to the
terms thereof, that Lexicon deliver the Mutant Mice specified in Appendix A on
the terms specified in this Agreement.

                                       60

      2.2 Processing and Delivery of Mutant Mice. Upon Lexicon's receipt and
acceptance of an executed copy of this Agreement, and subject to the terms of
this Agreement, Lexicon will deliver the quantity Mutant Mice and wild-type
littermates specified in Appendix A, in accordance with the determination of the
Joint Scientific Committee.

      2.3 Delivery Conditions for Mutant Mice. Lexicon shall be responsible for
making shipping arrangements for the Mutant Mice to be delivered to BMS under
this Agreement; provided that BMS shall be responsible for (a) paying all
shipment and delivery charges in connection therewith, (b) obtaining, if
desired, and paying for any insurance relating thereto, and (c) complying with
all customs, regulations, veterinary handling procedures and protocols, and
obtaining any and all permits, forms or permissions that may be required for BMS
to accept shipment of Mutant Mice from Lexicon. Lexicon shall ship Mutant Mice
promptly following its receipt of written confirmation that BMS is prepared to
accept such shipment. If BMS fails to provide such written confirmation within
thirty (30) days after the Effective Date, BMS shall pay Lexicon a storage and
maintenance charge of Five Thousand Dollars ($5,000) for each month or partial
month thereafter until Lexicon receives such written confirmation. If BMS fails
to provide such written confirmation within three (3) months after the Effective
Date, Lexicon shall have no further obligation to maintain Mutant Mice for
delivery to BMS under this Agreement and may dispose of such Mutant Mice at its
discretion

3.    USE OF THE MATERIALS

      3.1 Non-Exclusive License Grant to Materials. Subject to the terms and
conditions of this Agreement, Lexicon hereby grants to BMS and its Affiliates a
non-transferable, non-exclusive right and license to use the Materials in the
Research Field. BMS agrees to use the Materials solely for purposes of
conducting research, at the internal research facilities of BMS, in accordance
with the terms and conditions of this Agreement, and not to use the Materials
for any purposes for any Third Party or to transfer to or license the use of or
make the Materials available to any Third Party.

      3.2 No Further Rights. Except as expressly provided herein, no right,
title or interest is granted hereunder by Lexicon in, to or under any Lexicon
Background Materials, Lexicon Background Technology or any other inventions,
information, methods, know-how, trade secrets or data. Without limiting the
foregoing, (a) nothing in this Agreement shall be deemed to restrict Lexicon's
rights to use any Materials or, subject to the nonexclusive rights and licenses
granted to BMS hereunder and the exclusivity obligations of Lexicon under the
Collaboration Agreement, to sell, license or otherwise transfer any Materials to
Third Parties, and (b) nothing in this Agreement shall be deemed to modify any
of the rights and obligations of the parties under the Collaboration Agreement.

4.    INTELLECTUAL PROPERTY RIGHTS AND OWNERSHIP

      4.1 Ownership of the Materials. Subject to the non-exclusive rights and
licenses granted to BMS hereunder, Lexicon shall own and retain all rights to
the Materials, including, without limitation, rights to use, produce, breed,
sell and license Mutant Mice.

      4.2 Ownership of the Results of Research Using Materials. Subject to the
non-exclusive rights and licenses granted hereunder and the rights and licenses
granted by Lexicon in the Collaboration Agreement, as between the parties, the
rights of Lexicon and BMS with respect to inventions, information, methods,
know-how, trade secrets or data discovered, conceived, made, developed and/or
reduced to practice through the use of Materials shall be governed by the
provisions of the Collaboration Agreement.

                                       61

5.    TERM AND TERMINATION

      5.1 Term. The term of this Agreement shall commence on the Effective Date
and shall remain in effect until the expiration of the last-to-expire Valid
Claim of any Patent Rights Controlled by Lexicon that Cover any Materials,
unless earlier terminated as set forth herein.

      5.2 Termination for Default. An event of default (an "Event of Default")
shall have occurred upon the occurrence of a material breach of this Agreement
if the breaching party fails to remedy such breach within sixty (60) days after
written notice thereof by the non-breaching party.

      5.3 Effect of an Event of Default.

            (a) Remedies Available to Lexicon. If an Event of Default occurs
      relating to BMS, and BMS fails to cure such default during any applicable
      cure period, then Lexicon shall have the right, at its option exercisable
      in its sole discretion, in addition to any other rights or remedies
      available to it at law or in equity, to terminate this Agreement upon
      notice thereof to BMS, in which case (i) the licenses granted to BMS
      pursuant to Section 3 shall terminate, (ii) BMS shall return to Lexicon,
      or, upon Lexicon's written instruction, destroy all information, materials
      or documentation provided or made available by Lexicon pursuant to this
      Agreement, and any copies thereof (including electronic copies), and (iii)
      BMS shall return to Lexicon, or, upon Lexicon's written instruction,
      destroy any Materials.

            (b) Remedies Available to BMS. If an Event of Default occurs
      relating to Lexicon, and Lexicon fails to cure such default during any
      applicable cure period, then BMS shall have the right, at its option
      exercisable in its sole discretion, in addition to any other rights or
      remedies available to it at law or in equity and subject to the
      limitations set forth in Section 6, to terminate this Agreement upon
      notice thereof to Lexicon.

      5.4 Effect of Expiration or Termination of Agreement. The expiration or
termination of this Agreement shall not relieve the parties of any obligation
accruing prior to such expiration or termination. The provisions of Sections 1,
3.2, 4, 6 and 7 hereof shall survive the expiration or termination of this
Agreement.

6.    DISCLAIMER OF WARRANTIES AND LIMITATION OF LIABILITY

      6.1 Disclaimer of Warranties. THE MUTANT MICE AND OTHER MATERIALS ARE
BEING SUPPLIED TO BMS WITH NO WARRANTIES, EXPRESS OR IMPLIED. LEXICON HEREBY
DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
LEXICON MAKES NO REPRESENTATION OR WARRANTY THAT THE USE OF THE MATERIALS OR THE
CONDUCT OF RESEARCH WITHIN THE RESEARCH FIELD HEREUNDER WILL NOT INFRINGE ANY
PATENT OR OTHER PROPRIETARY RIGHTS OF THIRD PARTIES.

      6.2 Experimental Nature of Materials. THE MATERIALS ARE EXPERIMENTAL IN
NATURE AND SHOULD BE USED WITH CAUTION SINCE ALL OF THEIR CHARACTERISTICS ARE
NOT KNOWN. BMS AGREES TO COMPLY WITH ALL FEDERAL, STATE AND LOCAL STATUTES,
RULES AND REGULATIONS RELATING TO THE USE, HANDLING AND STORAGE OF THE
MATERIALS.

      6.3 Limitation of Liability. Lexicon shall in no event be liable for any
use by BMS of the Materials or any loss, claim, damage or liability, of whatever
kind or nature, which may arise from or in

                                       62

connection the use, handling or storage of the Materials by BMS. NOTWITHSTANDING
ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE TO THE CONTRARY, NEITHER LEXICON
NOR BMS WILL BE LIABLE WITH RESPECT TO ANY MATTER ARISING UNDER THIS AGREEMENT
UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE
THEORY FOR (A) ANY PUNITIVE, EXEMPLARY, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR
LOST PROFITS OR (B) COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR
SERVICES.

7.    INDEMNIFICATION

      Except to the extent prohibited by law, BMS shall assume all liability
for, and shall defend, indemnify and hold Lexicon, its Affiliates and their
respective employees and agents harmless from, all claims, losses, damages or
expenses (including reasonable attorneys' fees) arising as a result of the use
by BMS or its Affiliates of the Materials, except for and to the extent that any
such liability results from the gross negligence or willful misconduct of
Lexicon.

8.    MISCELLANEOUS

      8.1 Entire Agreement. This Agreement, together with the Collaboration
Agreement, constitutes the entire and exclusive agreement between the parties
with respect to the subject matter hereof and, with respect to any conflicting
terms from prior agreements between the parties, supersedes and cancels such
conflicting sections from all previous registrations, agreements, commitments
and writings in respect thereof. This Agreement may be amended, or any term
hereof modified, only by a written instrument duly executed by both parties
hereto.

      8.2 Assignment and Waiver. This Agreement may not be assigned or otherwise
transferred by either party without the consent of the other party; provided,
however, that Lexicon or BMS may, without such consent, assign its rights and
obligations under this Agreement to a permitted assignee under the Collaboration
Agreement; provided, however, that such assigning party's rights and obligations
under this Agreement shall be assumed by such permitted assignee shall not be
transferred except in connection with an assignment of the assigning party's
rights and obligations under the Collaboration Agreement. Any purported
assignment in violation of the provisions of this Section 8.2 shall be void. The
waiver by either party hereto of any right hereunder or the failure to perform
or of a breach by the other party shall not be deemed a waiver of any other
right hereunder or of any other breach or failure by said other party whether of
a similar nature or otherwise.

      8.3 Force Majeure. Neither party shall be held liable or responsible to
the other party nor be deemed to have defaulted under or breached this Agreement
for failure or delay in fulfilling or performing any obligation under this
Agreement when such failure or delay is caused by or results from causes beyond
the reasonable control of the affected party, including but not limited to fire,
floods, embargoes, war, acts of war (whether war is declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, acts of God or acts, omissions or delays in acting by any
governmental authority or the other party; provided, however, that the party so
affected shall use reasonable commercial efforts to avoid or remove such causes
of nonperformance, and shall continue performance hereunder with reasonable
dispatch whenever such causes are removed. Either party shall provide the other
party with prompt written notice of any delay or failure to perform that occurs
by reason of force majeure. The parties shall mutually seek a resolution of the
delay or the failure to perform as noted above.

      8.4 Applicable Law. This Agreement shall be governed by, construed, and
interpreted in accordance with, the laws of the State of Delaware, United States
of America, without reference to conflict of laws principles.

                                       63

      8.5 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but both of which together shall constitute
one and the same instrument.

      8.6 Severability. Each party hereby agrees that it does not intend to
violate any public policy, statutory or common laws, rules, regulations, treaty
or decision of any government agency or executive body thereof of any country or
community or association of countries. Should one or more provisions of this
Agreement be or become invalid, the parties hereto shall substitute, by mutual
consent, valid provisions for such invalid provisions which valid provisions in
their economic effect are sufficiently similar to the invalid provisions that it
can be reasonably assumed that the parties would have entered into this
Agreement with such valid provisions. In case such valid provisions cannot be
agreed upon, the invalidity of one or several provisions of this Agreement shall
not affect the validity of this Agreement as a whole, unless the invalid
provisions are of such essential importance to this Agreement that it is to be
reasonably assumed that the parties would not have entered into this Agreement
without the invalid provisions.

      IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute and deliver this Agreement as of the Effective Date.

BRISTOL-MYERS SQUIBB COMPANY

By:
      ____________________________________________________
         (Signature of Authorized Representative)

Printed Name:
            ______________________________________________

Title:
      ____________________________________________________

Date:
      ____________________________________________________

LEXICON GENETICS INCORPORATED

By:
      ____________________________________________________
         (Signature of Authorized Representative)

Printed Name:
            ______________________________________________

Title:
      ____________________________________________________

Date:
      ____________________________________________________

                                       64

                                   APPENDIX A

                                   MUTANT MICE

1.    Identity of the line of Mutant Mice to which this Agreement relates:
      ___________________

2.    Numbers of mice to be delivered:

      a.    Male Mutant Mice homozygous for the selected mutation: ____

      b.    Female Mutant Mice homozygous for the selected mutation: ____

      c.    Male wild-type littermates: ____

      d.    Female wild-type littermates: ____

                                       65

                                                                    EXHIBIT 31.1

                                 CERTIFICATIONS

I, Arthur T. Sands, certify that:

      1.    I have reviewed this annual report on Form 10-K, as amended, of
            Lexicon Genetics Incorporated; and

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report.

Date: July 16, 2004

                                          /s/ Arthur T. Sands
                                          --------------------------------------
                                          Arthur T. Sands, M.D., Ph.D.
                                          President and Chief Executive Officer

                                                                    EXHIBIT 31.2

                                 CERTIFICATIONS

I, Julia P. Gregory, certify that:

      1.    I have reviewed this annual report on Form 10-K, as amended, of
            Lexicon Genetics Incorporated; and

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report.

Date: July 16, 2004

                                          /s/ Julia P. Gregory
                                          -------------------------------------
                                          Julia P. Gregory
                                          Executive Vice President,
                                          Corporate Development and Chief
                                          Financial Officer

                                                                    EXHIBIT 32.1

                                  CERTIFICATION

      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350,
as adopted), Arthur T. Sands, M.D., Ph.D., Chief Executive Officer of Lexicon
Genetics Incorporated ("Lexicon"), and Julia P. Gregory, Chief Financial Officer
of Lexicon, each hereby certify that:

      1.    Lexicon's Annual Report on Form 10-K for the year ended December 31,
            2003, as amended, and to which this Certification is attached as
            Exhibit 32.1 (the "Periodic Report"), fully complies with the
            requirements of section 13(a) or section 15(d) of the Securities
            Exchange Act of 1934, and

      2.    The information contained in the Periodic Report fairly presents, in
            all material respects, the financial condition and results of
            operations of Lexicon.

      IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the
16th day of July, 2004.

                                           By: /s/ ARTHUR T. SANDS
                                               ---------------------------------
                                               Arthur T. Sands, M.D., Ph.D.
                                               President and
                                               Chief Executive Officer

                                           By: /s/ JULIA P. GREGORY
                                               ---------------------------------
                                               Julia P. Gregory
                                               Executive Vice President,
                                               Corporate Development
                                               and Chief Financial Officer