[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$10,000,000  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
<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]