CO-PROMOTION AGREEMENT AND LICENSE


     THIS  CO-PROMOTION  AGREEMENT AND LICENSE (the "Agreement") is entered into
as of  February  14,  1997  between  Aphton  Corporation  ("Aphton"),  a company
organized  under the laws of  California  with its principal  business  place in
Woodland,  California,  and Connaught  Laboratories  Limited ("CLL"),  a company
incorporated under the laws of Ontario,  with its principal place of business in
North York, Ontario, Canada.


     WHEREAS:

     1. Aphton is currently developing its Gastrimmune(TM) product for all human
cancer  indications,  including gastric cancer,  pancreatic  cancer,  colorectal
cancer and hepatic cancer;

     2. CLL desires to enter into this Co-Promotion Agreement and License on its
own  behalf  and on  behalf of its  Affiliates  (collectively  known as  Pasteur
Merieux Connaught or PMC);

     3. Aphton and PMC desire to collaborate in co-promoting, marketing, selling
and distributing the Gastrimmune(TM)  product in North America and Europe on the
terms and subject to the conditions set forth herein.

     NOW, THEREFORE, the parties hereto hereby agree as follows:


                                   ARTICLE 1
                                   DEFINITIONS

     Unless otherwise  defined,  capitalized  terms used in this Agreement shall
have the meanings set forth below:

     "Affiliate" shall mean, with respect to any Person,  any other Person which
directly or indirectly  controls,  is controlled  by, or is under common control
with, such Person. A Person shall be regarded as in control of another Person if
it owns, or directly or indirectly controls, at least fifty percent (50%) of the
voting stock or other ownership  interest of the other Person, or if it directly
or  indirectly  possesses  the power to direct  or cause  the  direction  of the
management and policies of the other Person by any means whatsoever.

     "Aphton  Know-How"  means any  biological  materials,  and any research and
development information,  inventions, know-how, pre-clinical, clinical and other
technical  data  relating to the Product,  in each case which are not  generally
known or available, which are owned, licensed or otherwise held by Aphton or its
Affiliates  with the rights to license or  sublicense  the same to PMC and which
are  necessary  or useful for the  making,  using or  selling of the  Product as
provided in this Agreement.


<PAGE>


     "Aphton  Patents"  shall mean (a) all  patent  applications  heretofore  or
hereafter  filed or having legal force in any country within the Territory owned
by or licensed to Aphton or its Affiliates  within the Territory to which Aphton
otherwise  acquires  rights  relating to the Product,  (b) all patents listed in
Schedule  A hereto  that have  issued or in the  future  issue  from the  patent
applications, including, without limitations, utility, model and design patents,
and  certificates  of invention,  and (c) all foreign  counterparts,  additions,
continuations,    continuations-in-   part,   divisions,   reissues,   renewals,
supplementary protection certificates and extensions thereof.

     "Aphton Supply  Contract"  shall mean the supply contract in respect of the
Product in  Finished  Form or in respect to a  component  or  components  of the
Product to be entered into between Aphton and PMC pursuant to this Agreement.

          "Commercial  Failure"  shall mean the  circumstances  under  which the
quarterly Net Sales of the Product  decline by  [Redacted]*;  provided,  however
that such decline is not caused by (i) a significant change in market conditions
(including,  without  limitation,  the introduction of a Competing  Product by a
Third  Person  or  governmentally-mandated  price  reductions),  (ii)  change of
existing  laws or  regulations,  or adoption of new laws or  regulations,  (iii)
Force Majeure Events, (iv) safety and efficacy reasons as reasonably  determined
by the Steering  Committee  after  discussion  with the  appropriate  regulatory
authority,  (v) change of marketing strategy (including,  without limitation,  a
reduction of price) approved by the Steering Committee, and (vi) availability of
Product.

     "Commercial  Launch" shall mean the first commercial sale of the Product in
Finished Form.

     "Company  Information"  shall mean the information or materials provided by
either Aphton or PMC to the other party,  whether  furnished before or after the
execution of this Agreement,  in relation to research,  development,  promotion,
marketing,  distributing and selling the Product hereunder,  including,  without
limitation,   the   information  or  materials  on   substances,   formulations,
techniques,  technology, equipment, data, reports, know-how, sources for supply,
patent position and business plans.

     "Competing Product" shall mean any product which is designed,  licensed for
use and put to use for the treatment of one or more  Indications,  for which the
Product is currently developed.

     "DT" shall mean PMC's diphtheria toxoid.

     "Executive  Officers"  shall mean the corporate  officers of Aphton and PMC
appointed respectively by Aphton and PMC, with notice to the Steering Committee,
to review the  actions of the  Steering  Committee  as set forth in Section  5.3
hereof.

     "Finished  Form" shall mean a finished  pharmaceutical  form,  packaged and
labeled for marketing in the Territory.

     "Force  Majeure  Events"  shall  have the  meaning  set forth in Article 12
hereof.

------------------------
*    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.

                                      -2-

<PAGE>


     "Indication"  shall mean a treatment regimen for any human cancers on which
regulatory  approval  is  obtained  for the  Gastrimmune  products.  The initial
Indications  for which  regulatory  approval is initially  being  considered are
gastric cancer, pancreatic cancer, colorectal cancer and hepatic cancer.

     "Internal  Accounts"  shall have the  meaning  set forth in Section  6.2(b)
hereof.

     "Marketing Plan" shall have the meaning set forth in Section 4.2 hereof.

     "Net Profits" shall mean, for each calendar quarter, the excess, if any, of
Net Sales over Product Costs and Expenses for such quarter.

     "Net Sales" shall mean the invoiced price of a Product charged by PMC to an
unaffiliated  customer  less the sum of (a) credits,  allowances,  discounts and
rebates to, and chargebacks from the account of, such unaffiliated customers for
spoiled,  damaged,  outdated and returned Product,  (b) actual packaging freight
and insurance costs incurred in transporting  such Product in final form to such
customers, (c) trade discounts, cash discounts,  quantity discounts, rebates and
other price  reduction  programs  customary to the trade or required by law, (d)
sales,  valued-added  and other direct  taxes,  (e) sales  commissions  to third
person independent agents, (f) customs duties, surcharges and other governmental
charges, and (g) commercially  reasonable write offs for doubtful accounts,  all
in connection with the distribution and selling of the Product.

     "Operating  Plan"  shall mean the  operating  plan set forth in Section 6.3
hereof.

     "Person"  shall  mean  an  individual,  corporation,   partnership,  trust,
business  trust,   association,   joint  stock  company,  joint  venture,  pool,
syndicate,  sole  proprietorship,   unincorporated  organization,   governmental
authority or any other form of entity not specifically listed herein.

     "P/L Account" shall have the meaning set forth in Section 6.2 hereof.

     "PMC Supply  Contract"  shall mean the supply contract in respect of DT and
TT entered into between Aphton and PMC pursuant to this Agreement.

     "Product" shall mean the Gastrimmune(TM)  product currently being developed
by  Aphton  for the  treatment  of each  Indication,  as it may be  improved  or
modified during the term of this Agreement.

     "Product Costs and Expenses" shall mean (a) with respect to Aphton,  direct
costs  incurred by Aphton in  connection  with  promoting  and  marketing of the
Product, as such costs are customarily and reasonably  allocated thereto and (b)
with  respect to PMC,  direct  costs  incurred by PMC in  promoting,  marketing,
distributing and selling the Product pursuant to this Agreement. For the purpose
of this  definition,  the direct costs shall include,  without  limitation,  the
direct  overhead  expenses  and  out-of-pocket   expenses  attributable  to  the
marketing,  sales, distribution,  packaging and shipping of the Product. Product
Costs and Expenses  shall not include any indirect costs incurred by a party and
no markup shall be included in determining the Product Costs and Expenses.


                                      -3-

<PAGE>


     "Product Packaging" shall mean the packaging and trade dress of the Product
as agreed by the Parties  pursuant to this Agreement  including the  proprietary
marks of the Products.

     "Profitability  Report"  shall have the  meaning  set forth in Section  6.5
hereof.

     "Regulatory  Jurisdiction" shall mean any jurisdiction within the Territory
in  which  regulatory   approval  for   manufacturing,   promoting,   marketing,
distributing and selling the Product is required.

     "Steering  Committee"  shall  have the  meaning  set forth in  Article  5.2
hereof.

     "Territory" shall mean North America (the United States, Canada and Mexico)
and Europe, including the CIS.

     "Third  Person"  shall  mean any Person  other than  Aphton or PMC or their
respective Affiliates.

     "TT" shall mean PMC's tetanus toxoid.

     "Work Report"  shall mean the report  prepared by each party on a quarterly
basis or on some other  timely basis as decided by the  Steering  Committee  and
submitted to the Steering  Committee  setting  forth the work  performed by each
party in the previous  quarter in  furtherance of the goals of the Agreement and
setting  out a proposed  plan for future work to be  performed  by that party as
requested by the Steering Committee.


                                   ARTICLE 2
                          LICENSE GRANT; CO-PROMOTIONS

     2.1 License  Grant.  The parties  hereby agree to collaborate in promoting,
marketing,  selling  and  distributing  the  Product  pursuant  to the terms and
conditions set forth herein.  In connection  therewith,  Aphton hereby grants to
PMC effective upon  execution  hereof (except as to Aphton's right to co-promote
in accordance with Section 2.2) a non-exclusive  license to make the product and
to have the Product  made solely for the  purposes of this  Agreement  under the
Aphton Patents and the Product  Trademarks  selected by the parties  pursuant to
Section 5.2(d) hereof.  PMC shall not sub-grant,  sub-license,  permit to use or
otherwise  transfer  the rights or benefits  granted to it  hereunder to a Third
Person without obtaining a prior written consent of Aphton. During the period in
which PMC holds exclusive  rights pursuant to this Section 2.1, all sales of the
Product will be recorded by PMC.

     2.2 Co-promotion Right. As provided in Section 2.1, Aphton hereby expressly
reserves the right to co-promote,  market, distribute and sell (collectively for
this section, "Co-Promote") the Product either independently or in collaboration
with PMC.  Aphton shall also have the right to withdraw the exclusive  right and
license  granted  to  PMC  hereunder  in  any  Regulatory  Jurisdiction  and  to
Co-Promote  with a Third Person in such  Regulatory  Jurisdiction  on sixty (60)
days notice to PMC if: (a) within ninety (90) days after the date established by
the Steering  Committee for Commercial  Launch of the Product in such Regulatory
Jurisdiction,  PMC  does  not use  commercially  reasonable  diligence  to begin
promoting  and marketing the Product in such  Regulatory  Jurisdiction,  (b) PMC


                                      -4-

<PAGE>


ceases  any  significant  efforts  to  continue  marketing  the  Product in such
Regulatory  Jurisdiction for period of 180 days, (c) a Commercial Failure of the
Product in such Regulatory  Jurisdiction  occurs,  or (d) a Competing Product is
introduced  by PMC in such  Regulatory  Jurisdiction  which  causes  a  material
reduction of sales of the Product.


                                   ARTICLE 3
                               INITIAL OBLIGATIONS

     3.1 Of PMC. PMC shall enter into the PMC Supply  Contract for the supply of
DT and/or TT to Aphton on arm's length terms.

     3.2 Of Aphton.  Aphton shall enter into the Aphton Supply  Contract for the
supply of Product to PMC on arm's length terms.


                                   ARTICLE 4
                         RESPONSIBILITIES OF THE PARTIES

     4.1 Aphton's Responsibility.  Aphton shall be responsible for and shall use
commercially reasonable efforts to: (a) research and develop the Product for all
Indications,  and (b) apply  for and  obtain  licenses,  permits,  approvals  or
registrations   (collectively   "applications")   as   may   be   required   for
manufacturing, promoting, marketing, distributing and selling the Product in any
Regulatory Jurisdiction within the Territory,  provided that Aphton will only be
required to fund the costs  associated with such  applications in the Regulatory
Jurisdictions  of the United States,  the European Union,  Canada and Mexico and
absorb the costs thereof.  The costs expended by Aphton on all other  Regulatory
Jurisdictions  within the  Territory  will be  applied by Aphton to the  Product
Costs and  Expenses  and fully  reimbursed  to  Aphton  in  accordance  with the
provisions of Art. 6 herein.

     4.2  PMC's  Responsibility.  PMC  shall be  responsible  for and  shall use
commercially  reasonable  efforts to (a) prepare the Marketing Plans, (b) market
and  commercialize  the Product for all Indications in the Territory and funding
the costs  thereof  subject to the  reimbursement  provisions  of Art. 6 herein,
including,  without limitation,  formulating and developing marketing strategies
on  a  country-by-country  basis  and  performing  all  distribution  and  sales
functions,  such as order taking and  processing,  etc., (c) deliver and process
the  sales of the  Product,  and (d)  cooperate  with  Aphton  to  maintain  the
effectiveness  of any licenses,  permits  approvals or registration  obtained in
connection with the performance of this Agreement.


                                   ARTICLE 5
                           OPERATION OF THE AGREEMENT

     5.1  Collaboration  of the Parties.  The parties shall  collaborate in good
faith under this Agreement.  For the purpose thereof,  each party shall, subject
to  the  conditions  set  forth  in  Article  10  hereof,  provide  any  Company
Information to the other party and to the Steering Committee as such other party


                                      -5-

<PAGE>


reasonably  requires to  effectively  operate under this  Agreement.  Each party
shall prepare its Work Report on a quarterly basis which will be reviewed by the
Steering  Committee.  PMC shall  prepare  (with input from Aphton) the marketing
plan (the "Marketing Plan"), which shall include promotion and advertising, on a
quarterly basis which will be reviewed and approved by the Steering Committee.

     5.2 Steering Committee. (a) A steering committee (the "Steering Committee")
shall be  established to supervise the  performance  of the parties  pursuant to
this  Agreement.  The Steering  Committee  shall have an equal number of members
appointed by each party and shall be  initially  comprised of a total of six (6)
members.  The total number of Steering  Committee  members may be changed by the
Steering Committee from time to time as appropriate with the proviso that in all
cases it will be comprised  of an equal number of members from each party.  Each
party may substitute its representatives  from time to time and the substitution
is effective upon notice to the other party.

     (b) The  Steering  Committee  shall meet as often as required to ensure the
effective  operation of this  Agreement  but in no event less than  quarterly on
such date and at such place as to be agreed upon between the  parties;  provided
that (i) all meetings of the Steering Committee, shall take place outside of the
United States,  its  possessions  and  territories,  and (ii) a majority of such
meetings  shall  take place in Canada  provided  that  members  of the  Steering
Committee  will be  permitted  to  attend  such  meetings  by  electronic  means
(telephonic,  E-mail,  videoconference,  etc.).  The  meetings  of the  Steering
Committee may be held in person or in any other  reasonable  manner,  including,
without  limitation,  by  telephone,  video  conference  or E-mail.  Each of the
Steering  Committee  members  shall have one vote and all the  decisions  of the
Committee must be made by a majority vote. It is  contemplated  that  additional
representatives  of the  parties  may attend  and  participate  in the  Steering
Committee  meetings,  however,  such  additional  representatives  will  not  be
entitled to participate in the voting process. As a first order of business, the
Steering  Committee will draft procedures which will govern the operation of the
Steering  Committee and its decision making process and the specific criteria to
be used in the determinations set forth in Section 5.2(c) below.

     (c) The  Steering  Committee  shall be  responsible  for (i)  planning  and
reviewing clinical trial and regulatory strategies, (ii) review of manufacturing
arrangements  to ensure  consistency of supply and product and  compliance  with
regulatory  requirements and Good  Manufacturing  Practice,  (iii) examining and
approving the joint quarterly Marketing Plans for each Indication,  the first of
which must be formulated in advance of the  conclusion of the Phase III clinical
trial for such Indication (iv) reviewing the quarterly Work Reports submitted by
each party, (v) approving the Product  Trademarks  (except that the final choice
of the Product Trademark will be made by Aphton,  which choice will be made with
PMC's input but will not be subject to the  provisions  of Sections  5.3 and 5.4
herein), labels and packaging selected by the parties, (vi) pricing the Product,
(vii) reviewing and approving the accounting  principles and methodology adopted
by each party pursuant to Section 6.1 hereof, (viii) reviewing and approving the
Internal  Accounts  of each party with  respect to the  determination  of profit
sharing,  (ix)  reviewing  manufacturing   arrangements  for  the  Product,  (x)
establishing  the  criteria  for and the date of the  Commercial  Launch  of the
Product,  (xi)  developing  an  Operating  Plan as set forth in Section 6.1, and
(xii)  calculating  and  determining  according to the Profit Sharing ratios set
forth in Section  6.4(d),  the Net  Profits  to be  distributed  to the  parties
provided that in no event will the Steering  Committee  reconsider or adjust the


                                      -6-

<PAGE>


Profit  Sharing  ratios  set  forth  in  Section  6.4(d).   Notwithstanding  the
foregoing,  during the period in which PMC's rights are no longer exclusive in a
Regulatory  Jurisdiction  pursuant  to Aphton's  exercise  of its co-  promotion
rights with a Third Person under Section 2.2 hereof, the Steering Committee will
no longer be responsible for the items described in the foregoing clauses (iii),
(iv) and (vi) with respect to such Regulatory Jurisdiction.

     (d) The Steering Committee shall,  within a reasonable time so as to permit
an  expeditious  Commercial  Launch of the Product,  select the trademarks to be
used (the "Product  Trademarks") with the Product in the Territory.  The Product
Trademarks so selected  shall be applied for and maintained by Aphton at its own
expense and shall be owned solely by Aphton  during and after the  expiration of
the term of this Agreement.  The Steering Committee shall also select labels and
packaging  of the  Product  identifying  both  parties,  displaying  the Product
Trademarks and identifying  trademarks and logos of each of the parties.  In the
event that the parties cannot reach  agreement on the expansion of the marketing
rights accorded to PMC as contemplated by Section 14.17 hereof,  Aphton will not
use or license  another  Person to use the  Product  Trademark  for the  Product
outside the Territory without the prior approval of PMC.

     5.3 Executive Officers.  In the event that the Steering Committee is unable
to  make a  decision  due to a  deadlock,  it  shall  submit  the  matter  being
considered  to the  Executive  Officers for a joint  decision.  If the Executive
Officers  are also  unable to reach a  decision,  the matter will be resolved in
accordance with the dispute  resolution  procedure of Section 5.4 below,  unless
the  dispute  relates  solely to clause (i) of Section  5.2(c),  in which  event
Aphton shall have the right to make the final determination.

     5.4 Dispute Resolution.  (a) The parties hereby agree that deadlocks within
the  Steering  Committee  (other  than a deadlock  as to the matter set forth in
Section 5.2(c)(i)), which are not resolved by the Executive Officers pursuant to
Sections 5.2 and 5.3 hereof,  will be  submitted  to a mediator  for  resolution
pursuant to the following mechanism:

     (b)  Mediation.  If a party  intends  to begin a  mediation  to  resolve  a
deadlock of the Executive  Officers,  such party shall provide written notice to
the other party informing the other party of such intention and the issues to be
resolved.  Within ten (10) business  days  following the receipt of the original
notice ("Notice Date"), the Steering Committee shall select a mediator who shall
be a single  individual  presiding in  resolution  of the  disputes  between the
parties. The mediator selected shall not be an employee, director or shareholder
of either party or of an Affiliate of either party.

     (c) (i) No later than ten (10) business days after selection,  the mediator
shall hold a hearing to resolve each of the issues submitted for mediation which
may include a request by a party to amend this  Agreement so as to implement the
resolution of any issue submitted for mediation.

          (ii) Twenty-four hours prior to the hearing, each party must submit to
the mediator and serve on the other party a proposed  ruling on each issue to be
resolved.  Such writing shall be limited to presenting the proposed rulings, and
may contain a limited  argument  on or  analysis  of the facts or issues,  which


                                      -7-

<PAGE>


shall be limited  so that the entire  submission  is no more than  fifteen  (15)
pages.

          (iii) The mediator  shall not require nor shall there be any discovery
by any means, including depositions, interrogatories or production of documents.

          (iv) Each party  shall be  entitled  to no more than four (4) hours of
hearing to present testimony,  documentary or other demonstrative  evidence. The
testimony of both parties shall be presented  during the same calendar day. Such
time limitation shall include any direct, cross or rebuttal testimony,  but such
time limitation  shall only be charged against the party conducting such direct,
cross or rebuttal  testimony.  It shall be the responsibility of the mediator to
determine  whether  the  parties  have had the four (4) hours to which  they are
entitled.

          (v) Each party shall have the right to be represented by counsel.  The
mediator  shall have sole  discretion  with regard to the  admissibility  of any
evidence.

          (vi) The mediator  shall rule on each  disputed  issue within 24 hours
following the  completion  of the  testimony of both parties.  Such ruling shall
adopt in its entirety the proposed ruling of one of the parties on each disputed
issue.

          (vii) The  mediation  shall  take  place at a  location  agreed by the
parties  or if the  parties  are  unable to  agree,  then as  designated  by the
mediator.  All costs incurred for the mediation  shall be shared equally between
the parties.

          (viii) The  mediator  shall be paid a  reasonable  fee plus  expenses,
which fees and expenses shall be shared equally by the parties.

     (d) A decision by the mediator shall be binding on both parties.

     (e) Each party shall bear its own costs in any mediation procedure.

     (f)  Failure to comply by either  party with the strict  time limits in the
mediation procedure for good cause, as determined by the mediator,  shall not be
deemed a breach of the agreement and shall not result in a finding of default in
the mediation procedure against the party so failing to comply.

     (g) All other disputes  between the parties relating to matters outside the
Steering  Committee's  responsibilities   (including,   without  limitation,  an
assertion  of a right to  terminate  the  Agreement  for a  material  breach  in
accordance  with  Section  13.2(b)  hereof)  shall  be  resolved  by a court  of
competent  jurisdiction.  In  furtherance  thereof,  each  party  hereto  hereby
consents to the exclusive  jurisdiction  of the courts of the State of New York,
located in the City of New York and the United States Federal District Court for
the Southern District of New York and waives any claims of forum  non-conveniens
or objections to the laying of venue in any of such courts.


                                      -8-

<PAGE>


                                   ARTICLE 6
                               COMPENSATION TERMS

     6.1 Upfront License Fee. In  consideration  of the exclusive rights granted
by Aphton to PMC under Article 2 hereof and any other benefits  provided herein,
PMC hereby agrees to provide to Aphton  consideration of US$10 million. PMC will
provide such consideration to Aphton as set forth in a) and b) below:

          (a) make a payment to Aphton of US$ 1 million  in cash upon  execution
     of this Agreement,

          (b)  provide to Aphton  US$ 9 million  of DT and/or  TT,  (hereinafter
     referred to as "Art. 6 DT/TT" valued at  US$[Redacted]*  per gram (Canadian
     Producer Price Index-adjusted) for DT and US$[Redacted]* per gram (Canadian
     Producer Price Index-adjusted) for TT, to be provided to Aphton in lots and
     at times  designated  by Aphton in  accordance  with the order and delivery
     provisions  of the PMC  Supply  Contract  but not  subject  to the  payment
     provisions  of the PMC Supply  Contract;  with the proviso that Aphton will
     not sell,  supply,  transfer or  otherwise  provide to any Third Person any
     Art. 6 DT/TT  provided to Aphton under this Section 3(b) unless such Art. 6
     DT/TT is to be used in a research and  development  program  relating to an
     Aphton  product  or is to be  incorporated  into a product  (including  the
     Product) developed by Aphton.

     6.2 Royalties.  Commencing in the year in which  Commercial  Launch occurs,
PMC shall pay to Aphton royalties as follows:

          (a) a royalty (the "Base Royalty") of [Redacted]*% on Net Sales of the
     Product,  subject to payment of a minimum  annual  royalty of  $[Redacted]*
     (which shall be pro-rated for the year in which Commercial  Launch occurs);
     and

          (b) in the event that there are Net Profits on sales of the Product, a
     supplemental  royalty  (the  "Supplemental  Royalty") in an amount equal to
     positive  difference  (if any) between the Base  Royalty  paid  pursuant to
     Section 6.2(a) hereof and the amount which is determined in accordance with
     the following profit allocation principles:

               (i) General.  Subject to clause (ii) of this Section 6.2(b),  Net
          Profits  for  any  calendar  year  will  be  computed  on  a  running,
          cumulative basis and the Supplemental  Royalty payable to Aphton shall
          be determined based on the profit sharing ratios below, with reference
          to the applicable level of running annual Net Sales:

   Net Sales Levels                         Aphton                 PMC
   (US$ million/
   calendar year)
   [Redacted]*                              [Redacted]*            [Redacted]*

   [Redacted]*                              [Redacted]*            [Redacted]*

------------------------
*    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.

                                      -9-

<PAGE>


     The foregoing  sales levels are  incremental,  and the monthly  payments of
Supplemental  Royalties  (if any) will  change in  relation  to the level of Net
Sales  achieved  in a  calendar  year  (e.g.,  if Net Sales of the  Product  are
[Redacted]*,  the  Supplemental  Royalty  due  would  be  the  sum  of  (X)  (i)
[Redacted]*  of the Net Profits  attributable  to the first  [Redacted]*  of Net
Sales, (ii) [Redacted]* of the Net Profits  attributable to the next [Redacted]*
of Net Sales,  and (iii)  [Redacted]*  of Net Profits  attributable  to the next
[Redacted]*  of Net Sales),  less (Y) the amount of the Base Royalty  payable to
Aphton in respect of the applicable  period.  In addition,  the Net Sales levels
set forth above will be indexed  for  inflation  or  deflation  by the  Steering
Committee in accordance  with the U.S.  Department of Commerce,  Consumer  Price
Index  or its  successor  index,  beginning  in the  first  full  calendar  year
following one year after the first Commercial  Launch of the Product or the year
2002, whichever is earlier.

          (ii) Special Rules for Market Increases.  If, during any calendar year
          after the calendar year in which  Commercial  Launch  occurs,  Current
          Year Net Sales of the Product exceed the applicable Baseline Net Sales
          (the amount by which Current Year Net Sales exceeds Baseline Net Sales
          is referred to herein as the "Delta Net Sales"),  then in  determining
          the Supplemental  Royalty due to Aphton [Redacted]* of the Net Profits
          attributable to the Delta Net Sales shall be allocated  [Redacted]* to
          Aphton and [Redacted]* to PMC, and the allocation principles set forth
          in clause (i) of this  Section  6.2(b)  shall apply to all Net Profits
          earned on Net Sales equal to the amount of the  Baseline  Net Sales in
          such calendar year. In the event that the Baseline Net Sales declines,
          PMC  shall  have  the  right to  qualify  for the  special  allocation
          principles set forth herein no more than one (1)  additional  time for
          an increase  in Net Sales to the amount of  Baseline  Net Sales as has
          been previously reached.

          (iii)  Certain  Examples.  If, in Year 1,  Baseline  Net  Sales  equal
          [Redacted]*,  and by June 1 in Year 2  Current  Year  Net  Sales  have
          reached  [Redacted]*,  Aphton  will be  entitled  to  receive  royalty
          payments equal to, in the aggregate, (w) [Redacted]*of the Net Profits
          attributable  to Net Sales up to  [Redacted]*,  (x) [Redacted]* of Net
          Profits attributable to Net Sales between [Redacted]* and [Redacted]*,
          and (y)  [Redacted]* of Net Profits  attributable  to all Net Sales in
          excess of [Redacted]*,  less (z) the amount of the Base Royalty. If in
          Year 5, Baseline Net Sales are [Redacted]*, and Current Year Net Sales
          reach [Redacted]*, Aphton will be entitled to receive royalty payments
          equal to (w) [Redacted]* of the Net Profits  attributable to Net Sales
          up to [Redacted]*,  (x) [Redacted]*of Net Profits  attributable to Net
          Sales between  [Redacted]*  and  [Redacted]*,  (y)  [Redacted]* of the
          Delta Net Sales, which in Year 5 is the difference between [Redacted]*
          and [Redacted], less (z) the amount of the Base Royalty. If in Year 7,
          Baseline Net Sales are once again [Redacted]*,  and Current Year Sales
          reach  [Redacted]*,  PMC will not be  entitled  to retain the  special
          allocation in relation to the increase from [Redacted]* to [Redacted]*
          but will be entitled to receive the special  allocation of profit from
          [Redacted]* to [Redacted]*.

          (iv) Certain  Definitions.  As used in this Section  6.2(b),  the term
          "Baseline  Net Sales"  means the Net Sales of the  Product  during the
          calendar  year  immediately  preceding  the calendar year in which the
          determination is made, and the term "Current Year Net Sales" means the
          Net  Sales  of  the  Product  in  the  calendar   year  in  which  the
          determination is made.


------------------------
*    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.

                                      -10-


<PAGE>


     6.3 Calculation of Royalties.

          (a) Profit and Loss  Account.  In order to permit  calculation  of the
Supplemental  Royalty,  PMC hereby agree to maintain a profit and loss  account,
which shall  include  PMC's and Aphton's  Product  Costs and Expenses  (the "P/L
Account") for the purpose of  determining  Net Profits.  The Steering  Committee
will develop an operating plan (the  "Operating  Plan") to be implemented by the
parties  prior to  Commercial  Launch  which  will set forth the  mechanism  for
allocation  of costs and  expenses to the P/L Account and the  reimbursement  of
costs to each party.  The Steering  Committee will be responsible  for approving
the P/L Account  based on the approved  Internal  Accounts of each party and the
invoices  of Net  Sales  submitted  by PMC.  Except  for the  Product  Costs and
Expenses entered into the P/L Account, all other costs and expenses,  including,
without limitations,  any indirect costs and expenses,  incurred by either party
in connection  with the promotion,  marketing,  distribution  and selling of the
Product shall be borne solely by such party..

          (b) Internal Accounts; Accounting Methodology.
          (i)  Each  party  shall  initially   apply  its  internal   accounting
          principles  and  methodology  in  determining  its  Product  Costs and
          Expenses.  The internal accounting  principles and methodology must be
          consistent with U.S. Generally Accepted  Accounting  Principles and be
          reviewed  and  approved  by  the  Steering   Committee  prior  to  the
          Commercial Launch of the Product.  If the Steering Committee disagrees
          as to the accounting  principles or methodology adopted by a party, it
          shall request such party to make necessary changes or adjustments.  If
          the party objects to such changes or adjustments,  the matter shall be
          submitted to the  Executive  Officers  pursuant to Section 5.3 and, if
          necessary,  Section 5.4 hereof for decision. The accounting principles
          and methodology of any party approved by the Steering Committee or the
          Executive  Officers,  as the case may be, shall be applied  during the
          term of this  Agreement,  unless changes are made  thereafter in which
          case a separate approval must be obtained from the Steering  Committee
          with respect to such changes.

          (ii) The internal accounts (the "Internal  Accounts") prepared by each
          party applying its internal accounting principles and methodology,  as
          approved by the Steering Committee,  must be submitted to the Steering
          Committee  for  approval  on a quarterly  basis  after the  Commercial
          Launch.  If a party  objects to any changes to its  Internal  Accounts
          proposed by the Steering  Committee,  the matter shall be submitted to
          the  Executive  Officers  pursuant to Section  5.3 and, if  necessary,
          Section 5.4.

          (c) Sales and Payment.

          (i)  During  the  period  in which  PMC's  rights  to  co-promote  are
          exclusive (but for Aphton), PMC shall process the sales of the Product
          by PMC and Aphton on its Internal Accounts.

          (ii) PMC  (subject to the approval of the  Steering  Committee)  shall
          prepare a quarterly profitability report (the "Profitability Report"),
          setting  forth the amount of actual Net Sales and Net Profit,  and the
          actual  amount of any  Supplemental  Royalty  due to  Aphton  for such


                                      -11-

<PAGE>


          quarter,  and estimated Net Sales, Net Profit and Supplemental Royalty
          due to Aphton for the quarter next commencing after preparation of the
          report.  Each party  shall be entitled to receive out of Net Sales all
          of its allowed  Product Costs and Expenses (to the extent  included in
          the P/L Account), following payment of the Base Royalty to Aphton. The
          parties agree that the  Operating  Plan will provide that in the event
          that Net Sales in any quarter are not  sufficient  to  reimburse  both
          parties  their   respective   Product  Costs  and  Expenses  that  the
          reimbursements  will  be  made  in a  manner  which  will  ensure  the
          long-term  efficient  operation  under this  Agreement and reflect the
          cash flow needs of the parties,  and that  Product  Costs and Expenses
          which are not  reimbursed in any such quarter will be carried  forward
          to subsequent  quarters and fully  reimbursed prior to any payments in
          respect of Net Profit.

          (iii) All payments due to Aphton  hereunder shall be made on a monthly
          basis, based on projections of quarterly Net Sales,  Product Costs and
          Expenses and Net Profits.  At the end of each  calendar  quarter,  any
          overpayment  or  underpayment  (as  determined  by actual  Net  Sales,
          Product Costs and Expenses and Net Profits in the applicable  quarter)
          shall be deducted  from or added to (as  applicable)  the next monthly
          payment.

          6.4 Method and Timing of payment; Withholding Taxes.

          (a) Any payment made by PMC to Aphton  hereunder shall be made by wire
transfer in US dollars to the account designated by Aphton. Payment by PMC shall
be deemed to have been made as of the day on which such  payment is  received at
the account designated by Aphton. Unless otherwise specified herein, all monthly
payments  under this  Agreement will be due no later than the first business day
after the  fifteenth  (15th) day of the  subject  month.  If PMC fails to make a
timely  payment due under this  Agreement,  interest at a per diem rate equal to
the then-current  U.S. prime rate shall accrue on the amount of payment for each
date such  payment is overdue,  provided  that such  interest  shall in no event
exceed the maximum rate permitted by applicable law.

          (b) Any  withholding  or other taxes that PMC or any of its Affiliates
are  required by law to withhold or pay on behalf of Aphton with  respect to the
payments to Aphton under this Agreement  shall be deducted from such payments to
Aphton and paid  contemporaneously  with the  remittance  to  Aphton;  provided,
however,  that in regard to any tax so deducted  PMC shall  furnish  Aphton with
proper  evidence of the taxes paid on its behalf.  Aphton will  furnish PMC with
appropriate  documents  to  secure  application  of the most  favorable  rate of
withholding tax under applicable tax treaties.

                                   ARTICLE 7
                      BOOKS, RECORDS AND INSPECTION RIGHTS

          Each party shall  maintain  complete and accurate books and records in
connection  with its  promotion,  marketing,  distribution  and  selling  of the
Product  and, in the case of Aphton,  its  production  costs.  Upon a reasonable
written  request of one party,  the other party shall  permit the first party to


                                      -12-

<PAGE>


inspect or to use an independent  accounting  firm to audit, in each case at the
first party's own expense,  the Internal  Accounts of the second party. If there
is a disagreement between the parties as to any Internal Account of a party, the
disagreement must be submitted to the Steering Committee pursuant to Section 5.2
hereof for resolution.

                                   ARTICLE 8
                         REPRESENTATIONS AND WARRANTIES

          8.1 Due Organization,  Valid Existence and Due Authorization.  Each of
Aphton and CLL hereby  represents  and  warrants  to the other party that on the
date  hereof (a) such party is duly  incorporated  and validly  existing  and/or
registered as applicable under the laws of the relevant jurisdiction and (b) has
the full  power and  authority  (i) to own and  operate  its  properties  and to
conduct its business as described  in its  articles of  association  and (ii) to
execute, deliver and perform this Agreement.

          8.2 Approvals.  Binding Obligations and No Violations.  Each of Aphton
and PMC  hereby  represents  and  warrants  to the other  party that on the date
hereof such party has taken all  requisite  actions and obtained  all  consents,
approvals,  authorizations and permits necessary for the execution, delivery and
performance of this Agreement.  This Agreement  constitutes the legal, valid and
binding  obligation of each of Aphton and CLL enforceable  against such party in
accordance  with its terms.  The  execution,  delivery and  performance  of this
Agreement  will not violate (a) such party's  articles of  association,  (b) any
other  agreements or  obligations  of such party or (c) any currently  effective
laws,  regulations  or  decrees  of the  United  States  or any  other  relevant
jurisdiction.

          8.3 Patents and Patent Applications. Aphton warrants and represents to
PMC that (a) it owns  all the  patents  and has  proprietary  rights  to all the
patent  applications  listed in  Schedule  A  attached  hereto,  (b) to its best
knowledge,  there are no actual or  threatened  claims by a third party  against
Aphton's  ownership  of,  or  proprietary  rights  to,  such  patents  or patent
applications  and  (c) to the  best  knowledge  of  Aphton  on the  date of this
Agreement, neither the manufacturing of the Product (as currently formulated) by
Aphton  nor the  promotion,  marketing  and sale of the  Product  (as  currently
formulated) by PMC will infringe upon any rights of any other Person.

          8.4  Third  Party  Agreements.  Aphton  has  provided  to PMC a  true,
complete and correct copy  (including any amendments  thereto) of each agreement
pursuant  to which  Aphton has  acquired  or  licensed  from a Third  Person any
intellectual   property  rights  relating  to  the   manufacturing,   promotion,
marketing,  distribution  and sale of the  Product  (as  currently  formulated).
Schedule B contains a true,  complete  and correct  list of all such Third Party
Agreements (collectively,  "Third Party Agreements) and all agreements currently
being negotiated by Aphton for the acquisition or license from a Third Person of
any such  intellectual  property rights.  All Third Party Agreements are in full
force and effect and Aphton has neither  received  nor  delivered  any notice of
default thereunder nor does Aphton know of any circumstances  which, with notice
or lapse of time or both,  could result in a default  thereunder.  Aphton hereby
covenants and agrees to use all reasonable efforts to keep each such Third Party
Agreement in full force and effect during the term of this Agreement.


                                      -13-

<PAGE>


          8.5 DT/TT. CLL warrants that it currently has all necessary  approvals
to  manufacture DT and TT in Canada,  and that it maintains  Good  Manufacturing
Practice in the manufacture of DT and TT. CLL warrants that to the best of CLL's
knowledge,  the  manufacture,  use and sale of the DT and TT  provided to Aphton
will not infringe upon rights of any other Person.

          8.6 Product.  Aphton warrants that all  pre-clinical and clinical data
relating to the Product (as  currently  formulated)  requested by PMC in its due
diligence has been made available to PMC.

          8.7  Disclaimer.  Except as expressly set forth herein,  neither party
makes any express or implied warranties,  statutory or otherwise, concerning the
value, adequacy,  freedom from fault of, other quality,  efficiency,  stability,
characteristics or usefulness of, or merchantability of fitness for a particular
purpose  of,  the  Product  (in the case of Aphton) or the DT or TT (in the case
PMC); provided, however, nothing contained in this Section 8.7 shall be deemed a
waiver of, or be deemed to limit, the obligations of each party hereunder.

                                   ARTICLE 9
                             INTELLECTUAL PROPERTIES

9.1      Product Trademarks; No Contest.
          (a) PMC hereby  acknowledges that all rights arising from usage of any
Product Trademarks, brand names, trade names, labels, markings, know-how, except
PMC's proprietary marks (collectively for this section,  the "Product Trademarks
and other  intellectual  property  rights")  shall  inure to Aphton and that PMC
shall not, by use thereof, create any right, interest, title in any such Product
Trademarks and other  intellectual  property rights except as expressly provided
herein.  Solely for the purposes of performing its rights and obligations  under
this Agreement,  Aphton hereby grants to PMC a non-exclusive  license to use its
Product Trademarks and other  intellectual  property rights subject to the terms
of this Agreement. PMC hereby undertakes to use, and cause its employees, agents
or any other person under its  authorization  to use,  such Product  Trademarks,
patents and other  intellectual  rights  solely based on the standards set up by
the Steering  Committee and, to the extent  permitted by applicable  law, not to
contest  Aphton's  ownership of or right to such Product  Trademarks,  and other
intellectual property rights.

          (b) PMC will own all  intellectual  property which is developed solely
by PMC  (including,  without  limitation,  marketing and sales  information  and
customer  lists)  relating to the marketing,  promotion and sales of the Product
hereunder,  and Aphton shall have no right to use any such intellectual property
unless expressly agreed in writing by PMC. All intellectual property relating to
marketing, promotion and sales developed jointly by PMC and Aphton will be owned
jointly by PMC and Aphton.

          (c) PMC shall  cooperate  with Aphton in protecting  Aphton's  Product
Trademarks  and  other  intellectual   property  rights  by,  including  without
limitation, notifying Aphton in writing of any claims or allegations relating to
the validity or legality of such Product  Trademarks and  intellectual  property
rights,  executing  all lawful  papers and  instruments  and taking all rightful
oaths and declarations as may be necessary in the arbitral or legal proceedings.


                                      -14-

<PAGE>


          9.2 Aphton Intellectual Property; Infringement.

          (a) In the event that either party becomes aware of an infringement of
any of the Aphton  Patents or of any action by a third person for a  declaration
that any of the Aphton Patents are invalid or  unenforceable or any infringement
of the Product Trademarks or any infringement of PMC's rights to sell hereunder,
it shall promptly notify the Steering Committee in writing for its determination
of the  appropriate  action to be taken  against the third  party.  The Steering
Committee within 30 days of such  notification  must decide whether an action in
Aphton's  name  will be  jointly  undertaken  by the  parties.  In the event the
Steering Committee does not agree to undertake a joint action,  Aphton may bring
an action at its sole  discretion  and  expense;  provided  if the  infringement
relates to  intellectual  property rights owned by PMC, PMC may try an action at
its sole discretion and expense.  The parties shall cooperate
with each other and provide all  necessary and  reasonable  assistance in any of
such actions.

          (b) Aphton shall select the outside  counsel to represent  the parties
in an infringement or other action,  unless it relates to PMC's rights, in which
event PMC shall  select  outside  counsel.  Each  party may also  retain its own
outside counsel at its own expense.

          (c) If  any  infringement  or  other  appropriate  action  is  jointly
instituted  pursuant  to this  section,  Aphton  and PMC each shall bear its own
out-of-pocket expenses and share litigation costs and legal fees equally. In the
event of such a joint action,  the parties will share equally in any recovery of
damages or amounts paid in settlement. In the event that either party institutes
action independently  pursuant to this Section,  such party shall be entitled to
retain all recoveries or settlements in connection therewith.

          (d) In the event of an  infringement  relating to an  Indication  by a
third person of the Aphton  Patents  within the  Territory  wherein the Steering
Committee  has not agreed to a joint  action and  Aphton has  neither  sued such
third  party nor  notified  PMC in writing of its intent to promptly  sue,  take
action to respond and terminate such infringement,  within sixty (60) days after
notice to the Steering Committee of the alleged infringement, PMC shall have the
right to  commence such action or defense in its own name as exclusive  licensee
for  such  Indicatiions  at  its  own  expense  and  shall  be  entitled  to all
recoveries.

          9.3 Ownership of Registrations.  The parties hereby agree that any and
all licenses,  permits, approvals or registrations obtained on the Product shall
be owned  exclusively  by Aphton  during and upon the  expiration of the term of
this Agreement (provided,  that in the event that, under the laws or regulations
of any Regulatory  Jurisdiction,  PMC needs regulatory  authorization to perform
its  obligations  under  this  Agreement,  all  such  authorizations,  licenses,
permits,  registrations  or approvals  (collectively  "permits") will be applied
for, owned and maintained by PMC until the expiration of this Agreement at which
time PMC will terminate such permits).

                                   ARTICLE 10
                                 CONFIDENTIALITY

          10.1 Company Information.
          (a)  Each  of  Aphton  and  PMC  acknowledges  that  all  the  Company
Information  provided by the other party is confidential  and proprietary to the
other party and agrees to (a) maintain such information in confidence during the
term of this  Agreement and for a period of 5 years  thereafter and (b) use such
information  solely for the purpose of  performing  its  respective  obligations
hereunder.  Each of Aphton and PMC covenants that it shall not disclose any such
information  to a Third  Person  except  to its  employees,  agents or any other
person  under  its  authorization,  on a  need  to  know  basis,  provided  such
employees,  agents or person under its  authorization  are subject in writing to
the same  confidentiality  obligations  as either Aphton or PMC, as the case may
be.

          (b) Notwithstanding anything provided above, the restrictions provided
in this section  shall not apply to the  information  that is (x) already in the
public  domain as of the date of  execution of this  Agreement,  (y) received by

                                      -15-

<PAGE>


either Aphton or PMC on an unrestricted basis whereby the receiving party has no
duty of  confidentiality  to the  party  providing  such  information  or (z) is
required to be disclosed to a governmental or other regulatory  authority to the
extent that such is required by applicable laws,  regulations or court orders of
the applicable  jurisdiction,  in which case the disclosing party shall promptly
notify the other party of such disclosure.

          10.2  Information  Developed  during  Collaboration.  The  information
developed by either or both  parties  during the term of this  Agreement,  which
relates to the research, development, marketing or sales of the Product shall be
treated  as  Confidential  Information.  Both  parties  hereby  agree  that such
information  which  relates  solely to the  development  and  production  of the
Product shall be proprietary  solely to Aphton,  and that such information which
was  developed by PMC and relates  solely to marketing  and  promotion  shall be
proprietary solely to PMC. Any information which relates solely to marketing and
promotion  jointly developed by PMC and Aphton shall be owned jointly by PMC and
Aphton.  Both  parties  hereby  agree that in the event that the parties  cannot
agree on the expansion of the marketing  rights  accorded to PMC as contemplated
by  Section  14.17  hereof,  neither  party  shall  use any such  jointly  owned
information in its independent business during the term of this Agreement.

          10.3 Injunctive Relief. Each party acknowledges that damages resulting
from  disclosure of the Company  Information  would be an inadequate  remedy and
that in the event of any such  disclosure,  the other party shall be entitled to
seek  injunctive  relief or other  equitable  relief in  addition to any and all
remedies  available at law or in equity,  including  the recovery of damages and
reasonable attorneys' fees.

                                   ARTICLE 11
                                    INDEMNITY

          (a)  Each  party  shall  indemnify  and hold  the  other  party or its
Affiliates harmless,  and hereby forever releases and discharges the other party
or its Affiliates,  from and against all claims, demands,  liabilities,  damages
and expenses,  including  attorney's fees and costs  (collectively,  "Damages"),
arising  out of the  negligence,  recklessness,  intentional  wrongful  acts  or
omission of the  indemnifying  party or its  Affiliates in  connection  with the
manufacturing,  promotion,  marketing,  distribution  and  sale of the  Products
during the term of this  Agreement,  except to the extent that such  negligence,
recklessness  or  intentional  wrongful  acts or omissions  are committed by the
other party or its Affiliates.

          (b) In addition,  Aphton hereby  agrees to indemnify,  defend and hold
harmless PMC, its Affiliates, officers, directors, employees and agents from and
against any Damages arising out of, based upon or resulting from the manufacture
by Aphton or on behalf of Aphton of the Product in Finished Form which is not in
compliance with the  specifications  of the Product and the conditions set forth
in the approval for manufacturing and sale required by the applicable Regulatory
Jurisdiction, except to the extent any such Damages arise out of, are based upon
or result from the failure of any DT or TT to meet the  specifications  therefor
at the time of delivery to Aphton or its designee.


                                      -16-

<PAGE>


          (c)  Aphton  will  maintain  product  liability   insurance  to  cover
liabilities  related to the  manufacture,  sale and use of the Product  with PMC
named  as  an  additional  insured  at a  commercially  reasonable  level  to be
determined  by the Steering  Committee and subject to the  availability  of such
insurance on commercially  reasonable  terms. The parties agree that the cost of
such product liability insurance will be a direct Product Cost and Expense fully
reimbursable to Aphton pursuant to Art. 6 herein. The parties further agree that
they will consider  alternative  arrangements  for obtaining  such  insurance in
order to minimize Product Costs and Expenses, including obtaining such insurance
in PMC's name or including Aphton as an additional  insured under PMC's existing
insurance arrangements.

          (d) Aphton  agrees to  indemnify,  defend and hold  harmless  PMC, its
Affiliates,  officers,  directors,  employees  and agents  from and  against any
Damages  arising out of, based upon or  resulting  from the  manufacture  of the
Product by or for Aphton  which  occurred  prior to the  effective  date of this
Agreement.

          (e) PMC and Aphton  acknowledge  that Aphton is currently  involved in
negotiations  with  Societe d'Exploitation  de  Produits   pour  les  Industries
Chimiques  (S.E.P.P.I.C.)  regarding  supply of a component of the Product which
S.E.P.P.I.C.  maintains  may be  subject  to  intellectual  property  rights  of
S.E.P.P.I.C.  In the event that Aphton is  unsuccessful in obtaining a supply of
such component  (along with the right to use such component in the production of
the  Product),  Aphton  will  indemnify,  defend  and  hold  harmless  PMC,  its
Affiliates,  officers,  directors,  employees  and agents  from and  against any
Damages  arising out of, based upon or resulting from any claim by  S.E.P.P.I.C.
(its Affiliates, assignees or licensees) in connection with the manufacturing of
the Product by Aphton and/or the promotion, marketing and sale of the Product by
PMC.

          (f) PMC hereby agrees to indemnify,  defend and hold harmless  Aphton,
its Affiliates,  officers, directors,  employees and agents from and against any
Damages arising out of, based upon or resulting from the failure of any DT or TT
to meet the  specifications  therefor  at the time of  delivery to Aphton or its
designee.

                                   ARTICLE 12
                                  FORCE MAJEURE

          Neither party shall be held liable or  responsible  to the other party
or be deemed to have breached or defaulted  under this  Agreement for failure or
delay in performing  its  obligations  hereunder to the extent,  and as long as,
such failure or delay is caused by or results from causes beyond the  reasonable
control of the affected party,  including,  without  limitation,  fire,  floods,
embargoes,  war, insurrections,  riots, civil commotions,  strikes,  lockouts or
other  labor  disturbances,  acts of God,  omissions  or delays in acting by any
governmental  authority ("Force Majeure Events").  In the event of occurrence of
the foregoing,  either party must use reasonable efforts to mitigate the adverse
consequence of such force majeure.


                                      -17-

<PAGE>


                                   ARTICLE 13
                              TERM AND TERMINATION

          13.1  Term of this  Agreement.  The  term of this  Agreement  shall be
twenty years,  which can be extended  upon the written  agreement of the parties
hereto for an additional five-year period.

          13.2  Termination  by  Either  Party.  Upon  occurrence  of any of the
following,  each party may terminate this  Agreement,  in whole or in part, with
respect  to the  Product:  (a) mutual  agreement,  (b)  material  breach of this
Agreement provided that the non-breaching  party notifies the breaching party in
writing of such breach and the  breaching  party does not cure the breach within
60 days after receiving the notice and (c) liquidation, dissolution, winding-up,
insolvency,  bankruptcy,  or filing  any  petition  therefor,  appointment  of a
receiver,  custodian or trustee, or any other similar  proceeding,  by or of any
party.

          13.3  Termination  by PMC. PMC shall have the right to terminate  this
Agreement,  upon one hundred  eighty (180) days prior  notice to Aphton,  in the
event that it determines,  following  completion of Phase III clinical trials of
the Product (and receipt by PMC of the results and  supporting  data obtained in
such  trials),  that  for  safety  or  efficacy  reasons  it  does  not  wish to
co-promote, market or sell the Product. In such event, PMC shall have no further
obligation to Aphton,  except as provided in Section 13.4 hereof. The PMC Supply
Agreement shall survive termination under this Section.

          13.4 Effect of Termination. Upon the expiration or termination of this
Agreement,  except to the extent  provided in Section  13.5(a) (ii) for material
breach,  (a) PMC shall cease to have the right to promote,  market,  distribute,
sell,  or  otherwise  to  commercialize  the  Products  in any  manner,  (b) all
requisite  approvals,   permits,  licenses,   filings,   registration,   or  any
application  thereof,  or any other regulatory records obtained pursuant to this
Agreement,  shall be returned to and exclusively owned by Aphton,  (c) PMC shall
cease to use,  either  directly or  indirectly,  the Product  Trademarks,  brand
names, trade names, labels, markings, patents, know-how related to the Products,
and (d) cease to use the Company  Information.  The  obligations of Section 6(a)
and (b), Article 10, Article 11 and Article 12 hereof, however, will survive any
termination of the Agreement.

          13.5 (a) Remedies Upon Material Breach. Subject to the cure provisions
in Section  13.2(b) above,  in the event of a material breach as determined by a
court of competent  jurisdiction,  the parties agree that the following remedies
will apply and consent to the entry of preliminary  and permanent  court ordered
injunctions to effect the same:

               (i) In the event this Agreement terminates due to material breach
by PMC, all rights of PMC with respect to the Product are terminated as provided
in  Section  13.4,  provided  that all  payments  hereunder  and the PMC  Supply
Contract will survive such  termination.  PMC hereby  consents to the entry of a
court order for specific  performance ordering performance of its obligations to
Aphton pursuant to the PMC Supply Contract.

               (ii) In the  event  this  Agreement  terminates  due to  material
breach by Aphton,  PMC shall have the right to obtain from Aphton a co-exclusive


                                      -18-

<PAGE>


license  under the Aphton  Patents  and the Aphton  Know-How  in the  Territory,
co-extensive with the full term of this Agreement, which are necessary or useful
to make, use, have made, offer to sell and sell the Product for all human cancer
indications in the Territory, without the right to sublicense, at a royalty rate
of [Redacted]*% of Net Sales.  Such a co-exclusive  license will be co-exclusive
in all cases with Aphton  either alone or jointly  with one other Person  (which
may be a  different  Person  in  each  of the  Regulatory  Jurisdictions  in the
Territory).  In the event that PMC exercises its rights hereunder,  Aphton shall
promptly  transfer to PMC (at no cost to PMC) any and all Aphton  Know-How which
is  necessary  to or useful  for the  manufacture,  use or sale of the  Product.
Aphton shall also authorize PMC to rely on any product registrations or licenses
relating to the Product then in effect in the  Territory  for PMC's own sales of
the  Product and enter into a trademark  license  agreement  with PMC which will
contain the customary trademark license provisions of quality control, inurement
of goodwill,  etc. for the non-exclusive  use by PMC of the Product  Trademarks.
PMC acknowledges that the Aphton Know-How is Company  Information subject to the
provisions of Article 10 hereof.  Aphton hereby consents to the entry of a court
order for specific  performance of its  obligations  under this Section  13.5(a)
(ii) and the Aphton  Supply  Agreement  at arms length  commercially  reasonable
terms for a limited but  commercially  reasonable time so as to provide PMC with
Product in the interim  period prior to PMC's  beginning its own  manufacture of
the Product.

               (b)  Remedies   Non-Exclusive.   Termination  of  this  Agreement
provided in the previous  sections shall not prejudice the right of either party
hereto to pursue other remedies available at law or in equity, including without
limitation, specific performance, rescission of the contract and damages.

                                   ARTICLE 14
                                 MISCELLANEOUS

          14.1  Effectiveness  of  this  Agreement.   This  Agreement  shall  be
effective  as  of  the  date  of  execution   hereof  by  the  duly   authorized
representatives of Aphton and PMC.

          14.2 Governing Law. This Agreement  shall be governed by and construed
in accordance  with laws of New York without  giving effect to the principles of
conflict of law thereunder (other than Section 5-1401 of the General Obligations
Law).

          14.3 Notices.  Any notice or other  communication  that is required or
that may be  delivered  hereunder  shall be in  writing  and shall be  delivered
personally  (including by courier) and by facsimile to the other party hereto at
the address of such other party set forth in the introductory  paragraph of this
Agreement and to the facsimile number of the other party.

          14.4 No Third Party  Beneficiary.  Nothing herein expressed or implied
is  intended  to or shall be  construed  to confer upon or give to any person or
entity other than the parties hereto and their successors and permitted  assigns
any rights or remedies under or by reason of this Agreement.

          14.5 Integration.  This Agreement  constitutes the entire agreement of
the parties hereto  regarding the subject matter hereof and supersedes all prior
agreements with respect thereto.


------------------------
*    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.

                                      -19-

<PAGE>


          14.6 Amendments. No provision in this Agreement shall be supplemented,
deleted or amended except in a writing executed by Aphton and PMC or as a result
of a Dispute Resolution ruling pursuant to Section 5.4.

          14.7 No  Assignment  and Binding  Effect.  Neither  Aphton nor PMC may
assign this  Agreement or any of its rights,  interests,  duties or  obligations
hereunder  without the prior  written  consent of the other party which  consent
will not be unreasonably withheld,  provided,  however, that CLL may assign this
Agreement to Pasteur  Merieux  Serums & Vaccins S.A. or Connaught  Laboratories,
Inc. without Aphton's consent. This Agreement shall be binding upon and inure to
the benefit of the  successors  and permitted  assigns of Aphton or PMC.  Aphton
agrees not to assign, transfer or convey the entire right, title and interest to
the Aphton  Patents to any person who does not  succeed as an  assignee  to this
Agreement.

          14.8 Headings.  The headings in this Agreement are for  convenience of
reference and shall not affect the meaning or  interpretation  of the provisions
hereof.

          14.9 Severability and No Waiver. If any provision herein shall be held
invalid  or  unenforceable  by  a  court  of  competent  jurisdiction  or  other
authority, the remainder of the provisions herein shall remain in full force and
effect and shall not be affected  thereby.  Nothing  contained in this Agreement
shall cause the failure of either party hereto to insist upon strict  compliance
with any other  provision  hereof by the other party to operate as a waiver with
respect to such provision, unless such waiver is in writing and delivered to the
other party hereto in accordance with Section 15.3 hereof.

          14.10  Originals.  Aphton and PMC shall  execute two originals of this
Agreement.  Each party hereto shall retain one original.  Each original shall be
equally valid.

          14.11   Bankruptcy   Acknowledgment.   Each  of  the  parties   hereto
acknowledges  and  agrees  that this  Agreement  (i)  constitutes  a license  of
Intellectual  Property (as such term is defined in the United States  Bankruptcy
Code,  as  amended  (the  "Code")),  and  (ii) is an  executory  contract,  with
significant  obligations to be performed by each party hereto. The parties agree
that each may fully  exercise  all of its  rights and  elections  under the Code
following  any event of  bankruptcy  affecting  the  other,  including,  without
limitations, those set forth in Section 365(n) of the Code.

          14.12  Quality  Assurance.  Aphton shall retain batch data records and
quality control  certificates for each batch of the Product and, if requested by
PMC,  will  provide  such  information  to PMC,  and PMC shall retain batch data
records and quality control certificates for each batch of DT or TT of which any
portion is shipped to Aphton and, if  requested  by Aphton,  will  provide  such
information  to Aphton.  In each case,  such  records  shall be retained for the
longest period required by any Regulatory Jurisdiction in the Territory.

          14.13 Product  Recalls.  Aphton and PMC shall observe at all times all
legal  requirements in order to maintain an effective system for the recall from
the market of the Product.  Notwithstanding  anything herein to the contrary, if
PMC or Aphton deems it  necessary  to effect a recall of the  Product,  it shall
notify the Steering Committee using reasonable notice under the circumstances of
such intended  recall and allow the Steering  Committee an  appropriate  time to


                                      -20-

<PAGE>


discuss and agree on such intended recall. In the event that agreement cannot be
reached by the  Steering  Committee  on  effecting  the recall  within  five (5)
business days, the party who desires, in its reasonable judgment,  to effect the
recall may do so,  provided  that all costs of the recall  shall be paid by such
party.  The other  party  shall take no action  contrary to the recall and shall
cooperate fully with the party effecting the recall.

          14.14 GMP Compliance and Inspection of Facilities.

          (a) The  parties  undertake  to  comply  with all  regulations  of any
Regulatory  Authority  having  jurisdiction  over  the  manufacturing,  storage,
handling or sale of the Product in effect  related to obtaining and  maintaining
legal approval for the marketing and sale of the Product.

          (b) Upon reasonable request by either party (the "Inspecting  Party"),
the other  party  (the  "Other  Party")  shall  permit  (or  cause its  contract
manufacturer to permit) duly authorized  employees of the Inspecting  Party and,
with the consent of the Other  Party (not to be  unreasonably  withheld),  other
representatives  of the Inspecting  Party,  to inspect the Other Party's (or its
contract  manufacturer's)  facilities,  procedures  and  capabilities  to ensure
continued  compliance  with this  Agreement and applicable  legal  requirements,
provided  that the Other  Party  may,  in its sole  discretion,  refuse to grant
access to any areas of its  facilities or  manufacturing  records if such access
could  jeopardize the  confidentiality  of any of the Other Party's  proprietary
technology.

          14.15 Adverse Experience Reporting. During the term of this Agreement,
each party shall  notify the other  immediately  of any  information  (howsoever
obtained  and from  whatever  source)  concerning  any  unexpected  side effect,
injury,  toxicity or sensitivity reaction, or any unexpected incidence,  and the
severity thereof,  associated with the clinical uses,  studies,  investigations,
testing and  marketing  of the  Product  within or outside  the  Territory.  For
purposes of this Section 14.16,  "unexpected"  shall mean (x) for a non-marketed
product,  an experience that is not identified in nature,  severity or frequency
in the current clinical  investigator's  confidential  information brochure, and
(y) for a marketed  product,  an  experience  which is not listed in the current
labeling for such product, and includes an event that may be symptomatically and
pathophysiologically related to an event listed in the labeling but differs from
the event  because of increased  frequency or greater  severity or  specificity.
Each  party  shall  further  notify  the other  immediately  of any  information
received regarding any threatened or pending action by any regulatory  authority
which may affect the safety and efficacy claims of the Product.  Upon receipt of
any such information,  the parties shall consult with each other in an effort to
arrive  at a  mutually  acceptable  procedure  for  taking  appropriate  action;
provided,   however,  that  nothing  contained  herein  shall  be  construed  as
restricting  either  party's right to make a timely report of such matter to any
regulatory  authority  or take other action that it deems to be  appropriate  or
required by applicable law or regulation.

          14.16  Publicity.  Neither  party  shall,  without  the prior  written
consent of the other  party,  issue any press  release or make any other  public
announcement or furnish any statement to any Third Person (except as required by


                                      -21-

<PAGE>


law,  including the  requirement to reasonably  comply with all related laws and
regulations,  without  limitation,  any  offering  materials,  filings  with any
securities  regulatory authority or any securities  exchange,  proxy statements,
annual  reports or other  communications  with its  stockholders),  which  makes
reference to this  Agreement,  any of the  transactions  contemplated  hereby or
thereby or the other party or its Affiliates. Each party shall provide drafts of
any of the  aforementioned  documents  containing any such reference  (including
without limitation,  a copy of this Agreement or any excerpt hereof, proposed to
be filed with any securities regulatory authority or any securities exchange) to
the other party and its counsel in sufficient time for review such documents. In
the event any party objects to any such reference,  the applicable document will
be modified to such party's reasonable satisfaction. If a party does not deliver
its written  comments on such documents within five (5) Business Days of receipt
thereof,  such party shall be deemed to have  consented  to any such  references
therein.  When a party has  obtained  the  other  party's  consent  for a public
announcement,  it will not be required to obtain the other party's consent for a
subsequent  public  announcement  of the  same  subject  matter  which  does not
disclose any additional or different  information  concerning the other party or
the  transactions  contemplated  hereby from that  contained  in any  previously
approved disclosure.  Nothing herein contained shall be construed to impose upon
any party any  liability  or other  obligation  (to the other party or any other
Person) in respect of any such references in any such documents. In the event of
a dispute as to whether the proposed disclosure is required to be made by Aphton
under  applicable  securities  legislation or stock exchange  requirement,  such
dispute  if not  resolved  by  corporate  counsel  to Aphton  and PMC,  shall be
resolved in accordance  with the legal opinion  received from a law firm that is
reasonably  acceptable to the parties and has no material  relationship with any
of the parties or their Affiliates, with the fees to such law firm to be paid by
the party seeking to withhold information from publication.

          14.17  Expansion  of  Relationship.  PMC and  Aphton  have  agreed  in
principle  that an expansion of their  relationship  would be desirable for both
parties. While there are many potential opportunities for further collaboration,
the parties have agreed that marketing rights for the Product in [Redacted]* are
a top priority.  To that end, within [Redacted]* following execution hereof, PMC
will provide to Aphton a comprehensive  Business Plan (the "Business  Plan") for
[Redacted]*.  The  Business  Plan will  include  PMC's  plans for:  [Redacted]*.
Following such delivery,  PMC and Aphton will meet and discuss in good faith the
possible expansion of their relationship to encompass [Redacted]*, and the terms
and conditions of PMC's marketing in such  territory.  Until such time as Aphton
and PMC have had an opportunity to meet and discuss an expansion of PMC's rights
to market the Product in [Redacted]*, Aphton agrees not to take any action which
could impair PMC's ability to obtain  exclusive  rights to market the Product in
[Redacted]*.

          In  addition,   the  parties  have  agreed  to  explore  collaboration
opportunities  with respect to other diseases and cancers  (e.g.,  [Redacted]*),
other products (e.g.,  [Redacted]*) and other territories  (e.g.,  [Redacted]*),
and an  expansion  of the  supply  arrangements  relating  to  PMC's  DT and TT.
Finally,  the  parties  have agreed in  principle  that they will  consider  the
possibility  for PMC to conduct as much of the  manufacturing  of the Product as
feasible,  provided PMC has the necessary  capabilities and capacity to do so in
an efficient, competitive and commercially reasonable manner. Representatives of
PMC  and  Aphton  will  meet as soon as  possible  following  execution  of this
Agreement to discuss in good faith such manufacturing  responsibility.  However,
the parties  agree that there is no  obligation on Aphton or PMC with respect to
these additional possible collaborations.


------------------------
*    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.

                                      -22-

<PAGE>


          14.18 Tax Issues.  The parties  acknowledge that it is in their mutual
interest to ensure that the transactions  contemplated  hereunder are structured
in the most tax-efficient  manner. In the event that a party believes that these
transactions  can be  restructured  in order to  achieve  a more  efficient  tax
outcome for one or both parties, the parties agree to work together to implement
such restructuring, provided that such new structure respects the economic terms
(disregarding tax effects) of the relationship.

          14.19 No Partnership or Agency.  The parties hereby  acknowledge  that
nothing  provided  in this  Agreement  is  intended  or may be  deemed to form a
partnership,  agency,  joint venture or any other similar  relationship  between
Aphton and PMC.


                                      * * *



                                      -23-

<PAGE>




          IN WITNESS  WHEREOF,  Aphton and PMC have caused this  Agreement to be
executed in duplicate by their duly authorized representatives as of the day and
year first above written.


APHTON CORPORATION                        CONNAUGHT LABORATORIES LIMITED



By:    /s/ Philip C. Gevas                By:      /s/ Georges Hibon
   ---------------------------------         -----------------------------------
   Name:  Philip C. Gevas                    Name:  Georges Hibon
   Title:  Chairman, President               Title:  Chairman of the Board
            and Chief Executive                       and Chief Executive
            Officer                                   Officer








                                          By:        /s/ J. Mark Lievonen
                                             -----------------------------------
                                             Name:  J. Mark Lievonen
                                             Title:  Senior Vice President,
                                                      Commercial Operations






                                      -24-

<PAGE>


                                   SCHEDULE A
                                   ----------
                           [Intentionally left blank]

<PAGE>


                                   SCHEDULE B
                                   ----------

License  Agreement  between  [Redacted]* and Aphton  Corporation dated August 4,
1994.















--------------------------
* 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.