Exhibit 10.1

***Text Omitted and Filed Separately
with the Securities and Exchange Commission.
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4)
and 240.24b-2.

May 1, 2006

Metabasis Therapeutics, Inc.
11119 North Torrey Pines Road
La Jolla, CA 92037

Re:                             Exclusive License and Research Collaboration
Agreement dated as of December 23, 2003, as amended from time to time prior to
the date hereof (as so amended, the ”Collaboration Agreement”) between Merck &
Co., Inc. (“Merck”) and Metabasis Therapeutics, Inc. (“Metabasis”)

Ladies and Gentlemen:

This Letter (this “Letter”) will confirm the understanding of Merck and
Metabasis regarding certain matters relating to the Collaboration Agreement and
is intended to be legally binding on both parties.  Capitalized terms used but
not otherwise defined in this Letter shall have the meanings provided in the
Collaboration Agreement.  Whereas the Research Program Term under the
Collaboration Agreement was scheduled to have terminated on December 23, 2005
and the Parties have extended the Research Program Term under the terms and
conditions specified in this Letter.

The Parties hereby acknowledge and agree to perform additional research of
Collaboration Compounds and amend the Collaboration Agreement as follows:

1.                                      Pursuant to Section 2.7.1 of the
Collaboration Agreement, the Research Program Term has been extended from
December 23, 2005 until May 31, 2006 (such extended time period being referred
to herein as the “Extended Research Period”). Notwithstanding anything to the
contrary in Section 2.4 of the Collaboration Agreement, the Committee is not
required to meet during the Extended Research Period unless mutually agreed by
the Parties.

2.                                      Notwithstanding anything to the contrary
in Sections 2.3, 2.7 and/or 5.2 of the Collaboration Agreement, during the
Extended Research Period [***], and [***].

3.                                      The Research Plan has been modified and
is fully set forth in its entirety in its current form in Exhibit A to this
Letter (provided that Schedules I, II, III, IV and V to the Research Plan shall
remain in the forms in effect immediately prior to the effective date of this
Letter).

4.                                      The term “MB09084” shall mean that
certain Collaboration Compound designated as MB09084, the structure of which is
set forth in the Research Plan[***].

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5.                                      During the Extended Research Period,
Metabasis agrees to perform the research activities with respect to MB09084
described in the Research Plan under the heading Research to Be Performed by
Metabasis During the Extended Research Period (the ”Extended Research”), which
shall include, without limitation, [***].  On or before April 30, 2006,
Metabasis shall deliver to Merck [***] (the ”Deliverable”) which shall [***].

6.                                      As promptly as commercially reasonable
after Merck’s receipt of the Deliverable [***] from Metabasis, Merck shall
initiate the series of studies of MB09084 described in the Research Plan under
the heading Research to Be Performed by Merck Upon Receipt of Deliverable (each,
a ”Merck Study” and collectively, the ”Merck Studies”); provided that Merck is
not required to [***].  If the results of a Merck Study meet or exceed the
applicable success criteria for such Merck Study as set forth in the Research
Plan, Merck shall promptly initiate the next Merck Study specified in the
Research Plan, and provided that each preceding Merck Study meets or exceed the
applicable success criteria as set forth in the Research Plan, Merck shall
[***].  Promptly following completion of each Merck Study that Merck conducts,
Merck shall disclose to Metabasis in writing a report of the results of such
Merck Study.

7.                                      Merck shall pay Metabasis the amount of
[***] only in the event that: (a) the Deliverables satisfy the Deliverable
Specifications; and (b) (i) the results of all of the Merck Studies meet or
exceed the applicable success criteria set forth in the Research Plan, (ii)
Merck [***], or (iii) Merck [***]. This Paragraph 7 shall be Merck’s only
obligation to reimburse Metabasis for its FTE work during the Extended Research
Period.

8.                                      For purposes of Section 11.4 of the
Collaboration Agreement, Metabasis’ address for delivery of notices shall be
amended as follows:

Metabasis Therapeutics, Inc.
11119 North Torrey Pines Road
La Jolla, CA 92037
Attention: Chief Executive Officer
Facsimile No.: (858) 587-2770

9.                                      For the purposes of clarity (a) Merck
acknowledges that its diligence obligations under Section 3.3 of the
Collaboration Agreement apply to MB09084 as they would to any other
Collaboration Compound, and (b) Merck and Metabasis each acknowledge and agree
that the initiation, performance and/or completion of any and/or all of the
Merck Studies shall [***].

This Letter shall become effective as of December 23, 2005.  Except as amended
by this Letter, together with the Schedules and Exhibits attached hereto, the
terms and conditions of the Collaboration Agreement shall remain in full force
and effect in all other respects, unless further amended by written agreement in
accordance with Section 11.7 of the Collaboration Agreement.  On and after the
effectiveness of this Letter, each reference in the Collaboration Agreement to
“this Agreement”, “hereunder”, “hereof”, “herein” or words of like import
referring to the Collaboration Agreement shall mean and be a reference to the
Collaboration Agreement as amended by this Letter.  The Parties hereby further
agree that the terms and conditions set forth in Article 11 of the Collaboration
Agreement, including without limitation the Assignment and Change of Control
provisions of Section 11.2, the Applicable Law provisions of Section 11.5

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and the Dispute Resolution provisions of Section 11.6, shall apply to this
Letter as if fully set forth herein;

This Letter may be executed (including, without limitation, by facsimile
signature) in two counterparts, each of which shall be deemed an original, but
both of which together shall constitute one and the same instrument.

If the foregoing is acceptable to you, please sign this Letter in the space
provided below and return it to me.

 

Sincerely,

 

 

 

MERCK & CO., INC.

 

 

 

 

 

By:

/s/ M. J. Turner, Ph.D.

 

 

Name:

M. J. Turner, Ph.D.

 

 

Title:

Senior Vice President Worldwide

 

 

Licensing and External Research

 

 

Agreed to and accepted as of the date first set forth above:

METABASIS THERAPEUTICS, INC.

 

 

By:

/s/ Paul K. Laikind

 

Name:

Paul K. Laikind

 

Title:

President and Chief Executive Officer

 

 

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EXHIBIT A

Amended Research Plan

The Research Plan may be revised to include a similar series of experiments with
other Merck-owned or controlled compounds, subject to mutual agreement by the
Parties and subject to availability of FTEs within the Research Program as
described in the Collaboration Agreement.

[***] of the Research Program significant progress has been made in the [***].
In summary, [***].

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

The achievement of [***]

An important [***]

Research to Be Performed by Metabasis During the Extended Research Period

MTI has [***]

[***]

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Research to Be Performed by Merck Upon Receipt of Deliverable

Activities [***]

[***]

[***]

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