[LETTERHEAD]

PASTEUR MERIEUX CONNAUGHT CANADA
1755 STEELES AVENUE WEST
TORONTO, ONTARIO, CANADA M2R 3T4
TELEPHONE: (1) 416-667-2701  FAX:  (1) 416-667-0313


IN QUADRUPLICATE



August 25, 1998



Aphton Corporation
World Trade Centre
80 SW 8th Street
Miami, Florida USA  33130

Attention:        Mr. Philip C. Gevas
                  Chairman, President and Chief Executive Officer

RE:  Letter Agreement relating to conjugate product,  between Aphton Corporation
     ("Aphton") and Connaught  Laboratories Limited, a Pasteur Merieux Connaught
     company ("PMCC")


     This  letter  sets forth our  agreement  with  respect  to certain  lots of
conjugate  product  (the  "Conjugate")  which,  at  Aphton's  request,  PMCC has
produced and shipped to Aphton or Aphton's designated agents and contractors:

1. We have informed you that the  Conjugate  contained in Lot 2 was prepared for
research  purposes only and that Lot 2 was not prepared in accordance  with Good
Manufacturing  Practices. We have also informed you that the Conjugate contained
in Lot 3 has been prepared in accordance with Good  Manufacturing  Practices and
will be released  accordingly in due course.  Aphton  acknowledges  and accepts:
(i) that the vast majority of the equipment used to process Lot 3 was dedicated;
(ii) that some small glassware used to mix reagents, which was then added to the
main process  equipment  (amicon),  was not dedicated;  (iii) that  twenty litre
bottles used to hold buffers which were then added to the main process equipment
were validated for cleaning;  and (iv) that the SDS PAGE method  validation will
not be  completed by or prior to the release of Lot 3.  It is our  understanding
that  Aphton  intends to use a portion  of the Lot 3  Conjugate  to produce  the
Product (as defined in the Co-Promotion  License dated as of February 14,  1997,
hereinafter the "License") to be used in connection with certain clinical trials
which Aphton is conducting.

<PAGE>


Letter Agreement between                                         Page 2
Aphton and PMCC                                                  August 25, 1998


2. Except as expressly set forth  herein,  PMCC makes no warranties of any kind,
express or  implied,  written  or oral,  including  any  implied  warranties  of
merchantability or fitness for a particular purpose. For purposes of this Letter
Agreement,  risk of loss to  Conjugate  shall pass to Aphton  upon  delivery  to
Aphton,  DDP at a point or points of destination  selected by Aphton.  Except as
provided  in the next  paragraph,  PMCC shall have no  liability  whatsoever  in
respect of such  Conjugate or of its use  howsoever or in respect of the Product
or of any product which contains any such Conjugate. Aphton agrees that it shall
not use the Lot 3 Conjugate in connection  with human clinical trials until such
Conjugate is released by PMCC.

3. For good and valuable consideration,  PMCC hereby agrees to indemnify, defend
and hold harmless Aphton,  its affiliates,  officers,  directors,  employees and
agents  from and against  any  liabilities,  claims,  damages,  costs,  expenses
(including  reasonable  attorney's fees) or judgments  (collectively  "Damages")
arising out of, based upon or resulting  from the failure by PMCC to prepare the
Lot 3  Conjugate  in  accordance  with the  specifications  attached  hereto  as
Schedule "A", except to the extent any such Damages arise out, are based upon or
result from the negligence or willful misconduct of Aphton or the failure of any
material (including without limitation, peptides) supplied by Aphton to PMCC for
use in preparing the Conjugate to conform to the specifications attached hereto.
PMCC warrants that Lot 3 Conjugate,  when delivered to Aphton in accordance with
clause 2 hereof, shall meet the specifications.

4. In  consideration  for PMCC's  shipment of the  Conjugate  to Aphton,  Aphton
hereby  agrees to  indemnify,  defend and hold harmless  PMCC,  its  affiliates,
officers,  directors,  employees  and agents from and  against any  liabilities,
claims,  damages,  costs,  expenses  (including  reasonable  attorneys' fees) or
judgments (collectively ("Damages") arising out of, based upon or resulting from
(i) the negligence or willful  misconduct of Aphton or its directors,  officers,
employees,  agents or contractors,  (ii) the possession,  processing,  shipment,
storage or disposal of any  Conjugate  delivered  hereunder,  from and after the
time such  Conjugate  is  delivered  to a carrier for shipment to Aphton (or its
designee),  or (iii) the  possession,  manufacture,  sale, use (including in any
clinical trial), administration,  distribution, processing, shipment, storage or
disposal of the Product or of any product by Aphton or any of Aphton's agents or
contractors, whether or not any of the Conjugate is incorporated therein. Aphton
agrees to obtain and to  maintain  comprehensive  general  liability,  including
product  liability and clinical  trial  liability  insurance  (with PMCC and its
affiliates named as additional insureds), with an insurer rated "A" or better by
A.M. Best, with coverage of US$[Redacted]*  per occurrence and in the aggregate.
Such insurance may not be cancelled or terminated  except upon thirty (30) days'
prior written notice to PMCC. Such insurance shall be obtained and maintained at
Aphton's  sole cost and  expense.  From time to time,  at the  request  of PMCC,
Aphton  will  cause  certificates  of  such  insurance  to be  supplied  to PMCC
evidencing  compliance with the obligations set forth herein. The procedures for
such indemnification shall be as set forth in the License. Aphton further agrees
that the  confidentiality  provisions of the License shall apply equally to this
Letter Agreement. This Letter Agreement shall be governed by New York law.

     If the  foregoing  accurately  sets forth  Aphton's  understanding  of this
transaction and its (and PMCC's)  responsibilities and liabilities in respect of

------------------------
*    The redacted  portions of this  document  have been  omitted  pursuant to a
     request for  confidential  treatment and such  redacted  portions have been
     filed separately with the Securities and Exchange Commission.

<PAGE>


Letter Agreement between                                         Page 3
Aphton and PMCC                                                  August 25, 1998


the Conjugate  and of the Product or of any product  containing  the  Conjugate,
please sign the duplicate of this letter to evidence your agreement to the terms
contained  herein and return the duplicate to the  undersigned  at your earliest
convenience.






Yours very truly,
CONNAUGHT LABORATORIES LIMITED



By /s/ J. Mark Lievonen
  -----------------------------------
   J. Mark Lievonen
   Senior Vice President, and General Manager, Oncology Business Unit




By /s/ Dr. Raafat Fahim
  -----------------------------------
   Dr. Raafat Fahim
   Vice President, Industrial Operations





Accepted and Agreed:
APHTON CORPORATION




By /s/ Philip C. Gevas
  -----------------------------------
   Philip C. Gevas
   Chairman, President and Chief Executive Officer


<PAGE>


Letter Agreement between                                         Page 4
Aphton and PMCC                                                  August 25, 1998



                                  SCHEDULE "A"
               to the Letter Agreement between Aphton Corporation
            and Connaught Laboratories Limited, dated August 25, 1998



                        Specifications of Lot 3 Conjugate




                      [Omitted pursuant to Regulation S-K]

<PAGE>


                               APHTON CORORATION

                           26 Harter Avenue, Suite 14
                               Woodland, CA 95776

                 Specification for Gastrimmune(R) Conjugate (GDT)

Test                                                               Specification

                      [Omitted pursuant to Regulation S-K]