<PAGE>

                                                                   Exhibit 10.12

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

                              DEVELOPMENT AGREEMENT

      THIS DEVELOPMENT AGREEMENT ("Agreement") is entered into and made on June
      29, 2001, by and between

      SUMITOMO PHARMACEUTICAL CO. LTD., a company organized and existing under
      the laws of Japan, with its principal place of business at 2-8, Doshomachi
      2-chome, Chuo-ku, Osaka, Japan (hereinafter "SUMITOMO") and

      NOVIRIO B.V., a company organized and existing under the laws of The
      Netherlands with its principal place of business at Locatellikade 1, 1076
      AZ Amsterdam, The Netherlands (hereinafter "NOVIRIO").


                                    RECITALS

      NOVIRIO, together with its affiliates Novirio Pharmaceuticals Limited,
Novirio Pharmaceuticals, Inc. and Novirio SARL, has developed the hepatitis B
drug candidate referred to by NOVIRIO as LdT ("LdT"), which is intended to be
used for indications relevant to the treatment of hepatitis B and is covered by
one or more patents, patent applications, know-how and other proprietary
technology.

      Pursuant to a license agreement between Novirio Pharmaceuticals Limited
and NOVIRIO dated as of May 25, 2001, NOVIRIO has licensed from Novirio
Pharmaceuticals Limited the exclusive rights to LdT with the right to grant
sublicenses for the use of LdT for the treatment of hepatitis B in humans (such
sublicenses as they relate to those to be granted to SUMITOMO hereunder shall be
referred to as "Licenses" for convenience sake).

      SUMITOMO is interested in sharing in the development and potential
commercialization of LdT.

      NOVIRIO desires to grant SUMITOMO rights to share in the development and
potential commercialization of LdT in accordance with the terms and conditions
set forth herein.

      In consideration of the Recitals and the mutual covenants set forth in
this Agreement, the Parties agree as set forth below.
<PAGE>
ARTICLE I. DEFINITIONS.

      I.1 "Affiliate" means any corporation, company, partnership, joint venture
and/or firm which controls, is controlled by, or is under common control with a
Party. For purposes of this paragraph I.1, "control" shall mean (a) in the case
of corporate entities, direct or indirect ownership of at least fifty percent
(50%) of the stock or shares having the right to vote for the election of
directors, and (b) in the case of non-corporate entities, direct or indirect
ownership of at least fifty percent (50%) of the equity interest with the power
to direct the management and policies of such non-corporate entities.

      I.2 "Approved Product" means an LdT Drug Product for which Regulatory
Approval has been obtained in the Territory.

      I.3 "Commercially Reasonable Efforts" means efforts and resources normally
used by a Party for a compound or product owned by it or to which it has rights,
which is of similar market potential at a similar stage in its product life,
taking into account the competitiveness of the marketplace, the proprietary
position of the compound or product, the regulatory structure involved, the
potential profitability of the applicable products, and other relevant factors.
It is anticipated that the level of efforts and resources may change at
different times during the product life cycle of a compound or product.

      I.4 "Commercialization Agreement" means one or more Commercialization
Agreement(s) relating to the manufacture, commercialization and sale in the
Territory of the Approved Product, which is to be executed and delivered by the
Parties in accordance with the Article II.9 below.

      I.5 "Confidential Information" means all Know-How, Technical Information
(as hereinafter defined) or other information (whether or not patentable),
including, without limitation, proprietary information and materials (including
tangible manifestations thereof) constituting to the extent applicable or
regarding a Party's technology, products, business information or objectives,
which is designated as confidential in writing by the disclosing Party, whether
by letter or by the use of an appropriate stamp or legend, prior to or at the
time any such material, trade secret or other information is disclosed by the
disclosing Party to the other Party. Notwithstanding the foregoing to the
contrary, materials, Know-How or other information which is disclosed by a Party
in tangible, oral, electronic, optical or other form, or is disclosed in writing
without an appropriate letter, stamp or legend, shall constitute Confidential
Information of a Party if the disclosing Party, within thirty (30) Days after
such disclosure, delivers to the other Party a written document or documents
describing the materials, Know-How or other information and referencing the
place and date of such oral, visual, electronic, optical, written or other
disclosure and the names of the persons to whom such disclosure was made.
Notwithstanding the foregoing, the Parties expressly agree that all information
and data relating to LdT Drug Product, results of Non-clinical Studies and
clinical studies of LdT Drug Product and all information contained in
submissions to the Regulatory Authorities shall for all purposes hereof be
deemed to be Confidential Information.


                                      -2-
<PAGE>
      I.6 "Control" or "Controlled" in the context of intellectual property
rights means rights to intellectual property sufficient to allow a grant of
rights without any obligation to any Third Party.

      I.7 "Days" means days on which banks are open for business in both the
United States and Japan.

      I.8 "Development Plan" means the global clinical development plan of LdT
Drug Product.

      I.9 "Development Program" means the implementation of the Development
Plan, involving SUMITOMO and NOVIRIO working collaboratively and cooperatively
to optimize the design and performance of the Non-clinical and clinical trials
for the LdT Drug Product in the Territory and globally under the standards of
the International Conference on Harmonization (ICH).

      I.10 "Effective Date" means the execution date of this Agreement.

      I.11 "Executive Officers" means the Director, General Manager, Business
Development and Licensing Office of SUMITOMO and the Chief Executive Officer of
NOVIRIO.

      I.12 "Field" means the use of the LdT Drug Product for the treatment of
hepatitis B in humans.

      I.13 "Know-How" means any information, data and materials, including,
without limitation ideas, formulas, methods, procedures, compositions, compounds
and inventions, that are owned or otherwise Controlled by a Party relating to
the LdT Drug Product.

      I.14 "LdT Drug Product" means drug substance, formulation intermediate or
a product prepared from [**] including but not limited to finished dosage form
ready for administration to a patient as a pharmaceutical product.

      I.15 "Non-clinical Studies" means all studies other than clinical studies,
including but not limited to studies in relation to chemistry, pharmacology,
toxicology, ADME.

      I.16 "NOVIRIO Patent Rights" means all Patent Rights listed on the
attached Exhibit B (together with any subsequent modifications, amendments or
supplements thereto) relating to the LdT Drug Product, covering or relating to
NOVIRIO Technology, which NOVIRIO either owns or to which NOVIRIO otherwise has
the right to grant licenses during the Term that claim the LdT Drug Product or
its manufacture or method of use, respectively.

      I.17 "NOVIRIO Technology" means all Know-How which (a) NOVIRIO either
owns, Controls, or to which NOVIRIO otherwise has the right to grant a license,
whether patentable or otherwise, and (b) is either listed on Exhibit B to this
Agreement (together with any subsequent modifications, amendments or supplements
thereto) or is actually used by NOVIRIO in the course of the Development
Program.


                                      -3-
<PAGE>
      I.18 "Party" means SUMITOMO or NOVIRIO; "Parties" means SUMITOMO and
NOVIRIO.

      I.19 "Patent Right" means a United States and/or foreign patent or patent
application listed on Exhibit B hereto (together with any subsequent
modifications, amendments or supplements thereto) and the patents issuing from
the pending applications, and any patent applications filed hereafter relating
to the LdT Drug Product, and all continuations, continuations-in-part,
divisions, reissues, reexaminations or extensions thereof.

      I.20 "Pharmaceutical Laws" means, with respect to the United States, the
United States Food, Drug and Cosmetic Act of 1938, as amended from time to time,
and the regulations and guidelines promulgated thereunder, and with respect to
any other governmental unit in the Territory (whether federal, state, municipal
or other), the laws, regulations and guidelines of such governmental unit
pertaining to pharmaceuticals, including the development, exportation,
importation, use, manufacture, distribution, marketing and/or sale thereof.

      I.21 "Program Director" means an executive appointed by each Party to
serve as such Party's principal coordinator and liaison for the Development
Program. The Program Director appointed by SUMITOMO is referred to as the
"SUMITOMO Program Director," and the Program Director appointed by NOVIRIO is
referred to as the "NOVIRIO Program Director."

      I.22 "Regulatory Approval" means the approval of the data submitted in the
original New Drug Application in Japan, or the equivalent application or filing
in other countries in the Territory, by or from the relevant Regulatory
Authority, which is necessary as a prerequisite for marketing the LdT Drug
Product for any indication relevant to the treatment of hepatitis B in a
particular country in the Territory.

      I.23 "Regulatory Authority" means the United States Food and Drug
Administration and any successor agency of the United States government ("FDA"),
and any other governmental authority (whether federal, state municipal or other)
regulating the development, exportation, importation, use, manufacture,
distribution, marketing and/or sale of pharmaceuticals in the United States or
any governmental regulatory authority in any country in the Territory
responsible for granting Regulatory Approval.

      I.24 "Regulatory Documents" means all regulatory submissions and
Regulatory Approvals.

      I.25 "Technical Information" means (a) techniques and data, including
ideas, inventions (including patentable inventions), practices, methods,
knowledge, Know-How, trade secrets, skill, experience, documents, apparatus,
clinical and regulatory strategies, test data, including pharmacological,
toxicological and clinical test data, analytical and quality control data,
manufacturing, patent data or descriptions relating to the LdT Drug Product, and
(b) chemical formulations, compositions of matter, product samples and assays
relating to the LdT Drug Product.

      I.26 "Term" means the period during which this Agreement is in effect.


                                      -4-
<PAGE>
      I.27 "Territory" means the countries of Japan, Republic of Korea (South
Korea), Republic of China (Taiwan) and People's Republic of China (China,
including Hong Kong and Macau).

      I.28 "Third Party" means any Person other than a Party to this Agreement
or an Affiliate of a Party to this Agreement.

      I.29 "$" and "USD" means United States dollars.

      I.30 "Valid Claim" means a claim under Novirio Patent Rights that has not
been irrevocably abandoned or been held invalid in an unappealable decision of a
court or patent office.

ARTICLE II. JOINT DEVELOPMENT OF PRODUCT.

      II.1 Joint Development Committee. The Parties shall establish a Joint
Development Committee, comprised of two (2) representatives of NOVIRIO and two
(2) representatives of SUMITOMO. Each Party shall designate its initial
representatives prior to the Effective Date. Each Party may change any one or
more of its representatives to the Joint Development Committee at any time upon
notice to the other Party.

            (a) Responsibilities. The Joint Development Committee shall meet to
(i) review the efforts of the Parties in the conduct of the Development Program,
(ii) review and approve amendments to the Development Plan, (iii) address such
other matters as either Party may bring before the Joint Development Committee,
and (iv) attempt to resolve any disputes relating to this Agreement that may
arise between the Parties.

            (b) Meetings. The Joint Development Committee shall meet within
forty-five (45) Days after the Effective Date and, thereafter, not less than two
times each year, during the course of the Development Program. The location of
such meetings of the Joint Development Committee shall alternate between
NOVIRIO's principal place of business and SUMITOMO's principal place of
business, or as otherwise agreed by the Parties. The Joint Development Committee
may also meet by means of a telephone or video conference call. If a
representative of a Party is unable to attend a meeting, such Party may
designate an alternate to attend such meeting in place of the absent
representative, which alternate will have full authority to participate in and
discuss matters presented at the meeting. In addition, each Party may, at its
discretion, invite other employees, and, with the consent of the other Party,
consultants or scientific advisors, to attend the meetings of the Joint
Development Committee to, among other things, review and discuss the Development
Program, as the case may be, and its results. Either Party may propose a meeting
of the Joint Development Committee when deemed necessary, for example, for the
purpose of resolving disputes.


                                      -5-
<PAGE>
            (c) Decision Making. The goal of all decision-making shall be to
achieve consensus. Decisions of the Joint Development Committee shall be made by
discussion in good faith by the Joint Development Committee; provided, however,
that in such discussion at the Joint Development Committee, due consideration
shall be paid to Sumitomo's view with respect to matters concerning the
Territory. If the Joint Development Committee is unable to reach agreement on
any matter within ten (10) Days after the matter is first referred to it, such
matter shall be referred for resolution to the Executive Officers. If the
Executive Officers are unable to resolve a matter referred to them under this
Section II.1(c) within thirty (30) Days after the matter is referred to them,
then the Dispute Resolution provisions of Article IX shall apply.

            (d) Term. The Joint Development Committee shall function from the
Effective Date until a date thirty (30) Days after the date on which Regulatory
Approval is obtained in the country within the Territory which is the last to
grant such approval.

      II.2 Management of Development Program.

            (a) Program Directors. NOVIRIO and SUMITOMO shall each appoint a
Program Director prior to the Effective Date. Each Party shall have the right,
after notice to the other Party, to designate a different Program Director. The
Program Directors shall jointly oversee the conduct of the Development Program,
shall report to the Joint Development Committee and shall be responsible for
recommending to the Joint Development Committee any changes to the Development
Plan.

            (b) Dispute Resolution. The Program Directors shall decide matters
appropriate to the scope of their responsibilities on a consensus basis. In the
event that the Program Directors are unable to reach agreement on any matter
within fifteen (15) Days after the matter is first considered by them, the issue
may be referred by either Program Director for resolution to the Joint
Development Committee.

      II.3 Development Plan. The Parties will enter into a good faith discussion
to formulate the initial version of the Development Plan, as quickly as
possible, using the proposal by Novirio as attached hereto as Exhibit A, as a
reference to start with. The Development Plan may be amended from time to time
by mutual consent of the Parties. Amendments to the Development Plan proposed by
NOVIRIO or, to the extent directly relevant to obtaining Regulatory Approval in
the Territory, by SUMITOMO will become incorporated in the Development Plan
within thirty 30 Days of formal proposal unless the other Party makes a
reasonable objection within thirty 30 Days of such formal proposal to the
inclusion of such amendment to the Development Plan; provided, however, that
upon request of the party who received the amendment proposal of the Development
Plan, such period of review by the Party who received the amendment proposals of
the Development Plan may be extended by another ten (10) Days. In the event of
such objection, the Parties will request that a meeting of the Joint Development
Committee be convened in an effort to resolve the objection by consultation.


                                      -6-
<PAGE>
            (a) NOVIRIO Responsibilities. Subject to the oversight of the Joint
Development Committee, NOVIRIO agrees to use Commercially Reasonable Efforts to
(i) undertake the responsibilities assigned to it in the Development Plan, and
(ii) make available to SUMITOMO those resources set forth in the Development
Plan, which efforts shall include, but not be limited to:

                  (i) working collaboratively and cooperatively with SUMITOMO to
optimize the design and performance of the clinical studies for the LdT Drug
Product in the Territory and globally under the standards of the International
Conference on Harmonization (ICH), including the use of contract research
organizations or other clinical contractors; provided, that (x) SUMITOMO alone
shall be the contract party in cases where agreements with contract research
organization or other clinical contractors relate to clinical studies conducted
solely within the Territory; (y) NOVIRIO alone shall be the contract party in
cases where such agreements relate to clinical studies conducted solely outside
the Territory; and (z) in the case of global clinical studies involving sites
both within and outside the Territory, each of NOVIRIO and SUMITOMO shall be
contract parties to such agreements;

                  (ii) conducting clinical and Non-clinical studies outside the
Territory which are required to obtain Regulatory Approval of LdT Drug Product
in the Territory as part of the ICH global registration of the LdT Drug Product
in such a way as to satisfy the requirements of the Pharmaceutical Laws in the
Territory;

                  (iii) determining the nature and content of any submissions to
the Regulatory Authority which are necessary to obtain regulatory approval of
the LdT Drug Product outside the Territory and the preparation and filing of any
such submissions; provided that SUMITOMO, to the extent commercially reasonable,
shall have an opportunity to review in advance all regulatory submissions to be
made by NOVIRIO and shall be permitted to attend all preparatory and regulatory
meetings with the relevant Regulatory Authority concerning such submissions;

                  (iv) [**] SUMITOMO [**] and notifying SUMITOMO in advance of
meetings and interactions with relevant regulatory authorities; and

                  (v) making Commercially Reasonable Efforts to obtain Valid
Claims regarding the LdT Drug Product.

            (b) SUMITOMO Responsibilities. Subject to the oversight of the Joint
Development Committee, SUMITOMO agrees to use Commercially Reasonable Efforts to
(i) undertake the responsibilities assigned to it in the Development Plan, and
(ii) make available to NOVIRIO those resources set forth in the Development
Plan, which efforts shall include, but not be limited to:


                                      -7-
<PAGE>
                  (i) working collaboratively and cooperatively with NOVIRIO to
optimize the design and performance of the clinical studies for the LdT Drug
Product in the Territory and globally under the standards of the International
Conference on Harmonization (ICH), including the use of contract research
organizations or other clinical contractors; provided, that (x) SUMITOMO alone
shall be the contract party in cases where agreements with contract research
organizations or other clinical contractors relate to clinical studies conducted
solely within the Territory; (y) NOVIRIO alone shall be the contract party in
cases where such agreements relate to clinical studies conducted solely outside
the Territory; and (z) in the case of global clinical studies involving sites
both within and outside the Territory, each of NOVIRIO and SUMITOMO shall be
contract parties to such agreements;

                  (ii) determining the nature and content of any submissions to
the relevant Regulatory Authorities which are necessary to obtain Regulatory
Approval of the LdT Drug Product in the Territory and the preparation, filing
and prosecution in the name of SUMITOMO of submissions necessary to obtain
Regulatory Approval in the Territory; provided that NOVIRIO, to the extent
commercially reasonable, shall have an opportunity to review in advance all
regulatory submissions to be made by SUMITOMO and shall be permitted to attend
all preparatory and regulatory meetings with the relevant Regulatory Authority
concerning such submissions;

                  (iii) conducting clinical trials and Non-clinical studies in
the Territory to obtain Regulatory Approval of LdT Drug Product in the
Territory;

                  (iv) assisting and supporting to a commercially reasonable
extent harmonized global registration of the LdT Drug Product outside the
Territory;

                  (v) [**] NOVIRIO [**] and notifying NOVIRIO in advance of
meetings and interactions with Regulatory Authorities.

            (c) Development and Registration Costs.

                  (i) [**] shall bear: (x) all costs relating to [**] LdT Drug
Product; and (y) all costs, including costs incurred prior to the Effective
Date, relating to [**] by or on behalf of either NOVIRIO or SUMITOMO or their
respective Affiliates; provided, however, that the costs [**] hereunder shall
not include [**] any portion of the costs [**].

                  (ii) [**] shall bear: (x) all costs relating [**] LdT Drug
Product ; and (y) all costs relating to [**] LdT Drug Product, [**]

                  (iii) Each Party can use [**] the LdT Drug Product [**]

                  (iv) SUMITOMO will reimburse NOVIRIO for costs actually
incurred by NOVIRIO in connection with the manufacture and supply of LdT Drug
Product for the conduct of clinical trials of LdT Drug Product in the Territory,
including costs actually incurred by or on behalf of NOVIRIO in connection with
the manufacture and supply of LdT Drug Product or the active ingredient therein
to SUMITOMO prior to the Effective Date; provided, however, that such costs to
be reimbursed by SUMITOMO to NOVIRIO hereunder shall not include any allocation
of overhead of NOVIRIO, nor any portion of the costs incurred due to the causes
reasonably attributed to NOVIRIO's material misconduct.


                                      -8-
<PAGE>
                  (v) The Parties shall share actually incurred costs, including
those relating to the manufacture and supply of LdT Drug Product and those
actually incurred prior to the Effective Date, [**] for Non-clinical studies
which are necessary for the registration of the LdT Drug Product excluding,
unless NOVIRIO or its Affiliates transfers to SUMITOMO LdT formulation
technologies, those Non-clinical Studies relating to development of
manufacturing processes or formulation technologies; provided, however, that the
costs of such Non-clinical studies to be shared equally by SUMITOMO and NOVIRIO
hereunder shall not include any allocation of overhead of either Party, nor any
portion of the costs incurred due to the causes reasonably attributed to either
Party's material misconduct.

            (d) Compliance with Pharmaceutical Laws. Each Party agrees to use
Commercially Reasonable Efforts to carry out all work assigned to such Party in
the Development Plan in material compliance with all ICH guidelines and
Pharmaceutical Laws.

            (e) Disclosure of NOVIRIO Technology. Commencing on the Effective
Date and continuing during the Term, NOVIRIO (consistent with its applicable
confidential disclosure obligations, if any) shall disclose to SUMITOMO (i) all
NOVIRIO Technology specified in the Development Plan, and (ii) all NOVIRIO
Technology not specified in the Development Plan which NOVIRIO reasonably
believes to be pertinent to the Development Program.

      II.4 Manufacturing and Supply. NOVIRIO shall have the responsibility, and
shall use Commercially Reasonable Efforts, to manufacture and supply to
SUMITOMO, the LdT Drug Product to be used by SUMITOMO, its Affiliates and
sublicensees for all Non-clinical and clinical and other development purposes in
connection with the efforts of SUMITOMO to obtain Regulatory Approvals.

      II.5 Product Labeling. Within the Territory, all LdT Drug Products will
bear the SUMITOMO name and logo. And, unless otherwise requested by NOVIRIO and
to the extent legally permitted, the NOVIRIO name and logo (or any successor
name and logo) shall be incorporated on the product label, as the manufacturer
of L-dT Drug Products. SUMITOMO shall, in its reasonable discretion, determine
how the NOVIRIO name and logo shall be incorporated on the label. All written
materials associated with each LdT Drug Product will indicate that the LdT Drug
Product was developed with the use of NOVIRIO Technology. NOVIRIO and Sumitomo
shall have the right, prior to the first usage, to review the product labeling
and thereafter to monitor the LdT Drug Products.

      II.6 Progress Reports. Within [**] Days after the end of each calendar
quarter, each Party shall provide to the other Party a written report
summarizing the activities undertaken by such Party during the preceding
calendar quarter in connection with the development and registration of the LdT
Drug Product.

      II.7 Inspections.

            (a) Each Party shall have the right to arrange for its employees and
outside consultants involved in the development and registration of LdT Drug
Products to visit and audit the other Party at its offices and laboratories as
well as contractors, in the event clinical or


                                      -9-
<PAGE>
Non-clinical studies or manufacturing are outsourced, and to discuss the
Development Program and its results in detail, as well as matters relating to
the registration of LdT Drug Products, with the technical and business personnel
and consultants of the other Party, provided that such visits shall be during
normal business hours and shall not unreasonably interrupt the operations of the
other Party, and further provided that all such employees, consultants and
contractors shall have existing obligations to maintain confidentiality as
provided in Article VII.4 herein.

            (b) In the event onsite inspections or submission of documents or
information relevant to Regulatory Documents or any other actions are requested
by a Regulatory Authority, the Party in contact with such Regulatory Authority
will, to the extent commercially practicable, prior to initiating the compliance
with the request of the Regulatory Authority, notify the other Party of such
request of the Regulatory Authority, and to the extent relevant to the
Non-clinical and clinical trials for which such other Party is responsible under
this Agreement, such other Party will accommodate such request by the Regulatory
Authority.

      II.8 Accounting and Internal Controls. SUMITOMO and NOVIRIO shall each
conduct the Development Program in accordance with high standards of business
ethics and maintain accounts in accordance with generally accepted accounting
principles consistently applied in Japan or in the United States, as the case
may be, and, specifically, shall: (a) maintain full and accurate books, records
and accounts which shall, in reasonable detail, accurately and fairly reflect
all transactions relating to the Development Program; (b) devise and maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with general or
specific authorizations, and (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally accepted
accounting principles in Japan or in the United States, as the case may be, and
as otherwise required to comply with all tax statutes, and to maintain
accountability for assets; and (c) promptly provide such records as may be
reasonably requested by the other Party in connection with periodic audits or
other financial matters.

      II.9 Exchange of safety and adverse event information. NOVIRIO and
SUMITOMO shall collaborate in the exchange and reporting to Regulatory Authority
of safety information and adverse event information relating to the LdT Drug
Product in accordance with a customary agreement to be separately agreed by the
Parties.

      II.10 Good Manufacturing Practice(GMP). NOVIRIO and SUMITOMO shall
manufacture and store LdT Drug Product to the GMP standard in accordance with an
customary agreement to be separately agreed by the Parties.

      II.11 Commercialization. The Parties shall make all reasonable efforts to
negotiate, execute and deliver the Commercialization Agreement(s) as quickly as
practically possible after the Effective Date, aiming to do so within [**] after
the Effective Date.

ARTICLE III. GRANT OF LICENSE.

      III.1 Grant by NOVIRIO of License.

            (a) Development License. Subject to the terms and conditions of this


                                      -10-
<PAGE>
Agreement, and for the Term of this Agreement, NOVIRIO hereby grants to SUMITOMO
and its Affiliates an exclusive License in the Territory, without the right to
grant sub-Licenses except as provided in Article III.1(b), below, to the LdT
Drug Product for use in the Field under the NOVIRIO Technology and NOVIRIO
Patent Rights in the course of the Development Program.

            (b) Sub-License Rights. SUMITOMO shall have the right to enter into
sub-Licenses relating to the License- granted in Article III.1(a), above, with
Third Parties with which SUMITOMO has agreed to collaborate with respect to the
development and/or registration of LdT Drug Product. Each such sub-License shall
be subject and subordinate to, and consistent with, the terms and conditions of
this Agreement, and shall provide that any such sub-Licensee shall not further
sub-License except on terms consistent with this Article III.1(b). SUMITOMO
shall provide NOVIRIO with a copy of any sub-License granted pursuant to this
Section within [**] after the execution thereof. SUMITOMO shall remain
responsible for the performance of its sub-Licensees, and shall ensure that any
such sub-Licensees comply with the relevant provisions of this Agreement. In the
event of a material default by any sub-Licensee under a sub-License agreement,
SUMITOMO will inform NOVIRIO and take such action, after consultation with
NOVIRIO, which in SUMITOMO's reasonable business judgment will address such
default.

      III.2 Retained Rights. The rights of NOVIRIO to the LdT Drug Product,
NOVIRIO Technology and the NOVIRIO Patent Rights which are not specifically
Licensed to SUMITOMO will be retained by Novirio Pharmaceuticals Limited, and
nothing contained in this Agreement shall be interpreted to grant to SUMITOMO
any rights to the NOVIRIO Technology and NOVIRIO Patent Rights other than the
rights and License granted to SUMITOMO under this Article III.

      III.3 Developments and Discoveries. All developments, inventions and
discoveries relating to the NOVIRIO Technology and improvements to the NOVIRIO
Patent Rights ("Novirio Developments"), [**] shall be [**]. The Parties agree
that Novirio Developments will be deemed to be a part of the NOVIRIO Technology
and NOVIRIO hereby grants to SUMITOMO a paid-up License in the Territory to such
NOVIRIO Developments for use in the Field and a right to sub-License in
accordance with the provisions set forth in this Article III. Notwithstanding
the foregoing, the Parties agree that the License granted hereby to the NOVIRIO
Developments does not include any substances, compounds or drug products other
than the LdT Drug Product. All development, inventions and discoveries relating
to the NOVIRIO Technology and improvements to the NOVIRIO Patent Rights, [**]
shall be owned jointly by SUMITOMO and NOVIRIO (such developments etc. are
referred to as "Jointly-owned Developments"), and it is agreed by the Parties
that SUMITOMO and NOVIRIO may utilize such Jointly-owned Developments, including
filing of patent applications, in the Territory and outside of the Territory,
respectively.

ARTICLE IV. FINANCIAL PROVISIONS.

      IV.1 License Payment. In consideration of the grant by NOVIRIO of the
Licenses set forth in Article III above, SUMITOMO shall pay NOVIRIO a
non-refundable, non-creditable License fee of [**] USD ($[**]) on the Effective
Date.


                                      -11-
<PAGE>
      IV.2 Milestone Payments. SUMITOMO shall make the following non-creditable
milestone payments to NOVIRIO upon the achievement of the following milestones,
subject to the reduction mechanism and penalty payments as set forth below:

<TABLE>
<CAPTION>
               Milestone                           Payment Due Upon
                                               Achievement of Milestone
--------------------------------------------------------------------------------
<S>                                            <C>
a) [**].                                              $[**] USD


b) [**].                                              $[**] USD


c) [**]                                               $[**] USD


d) [**].                                              $[**] USD



e) [**]                                               $[**] USD



f) [**]                                               $[**] USD
</TABLE>


Each milestone payment shall be deemed earned as of the date of achievement of
the related milestone and shall be paid by SUMITOMO within [**] after the date
of achievement of such milestone. Notwithstanding the foregoing,

      i) with regard to the basic milestone payment in the above a), in the
      event that [**] in any of the countries in the Territory, [**] will be
      made if the milestone is unpaid at the time [**], and if the milestone
      payment has already been made [**], [**] the milestone payment already
      made to NOVIRIO.

      ii) with regard to each of the country-specific milestone payments in the
      above b) through f), in the event that [**] in a country of the Territory,
      all unpaid milestone payments relevant to such country will be [**] and if
      milestone payments relevant to such country have already been made [**]
      the total milestone payments relating to such country which have been
      previously received by NOVIRIO.

      IV.3 Development Costs Payments. Within [**] of the Effective Date,
NOVIRIO shall provide SUMITOMO with an invoice, and a detailed statement, of the
development costs


                                      -12-
<PAGE>
which are to be borne by SUMITOMO according to Article II.3 (c) above which
NOVIRIO or its Affiliates have incurred as of the Effective Date. Thereafter,
NOVIRIO and SUMITOMO shall invoice, and a detailed statement, the other Party
quarterly for such costs which are to be borne by the other Party in accordance
with Article II.3. Payment by SUMITOMO or NOVIRIO of the invoiced amount of
costs will be due and payable within [**] of the date of the invoice.

      IV.4 Currency and Method of Payments. All payments under this Agreement
shall be made in United States dollars by electronic funds transfer to such bank
account as NOVIRIO or SUMITOMO, as the case may be, may designate from time to
time within no more than [**] of invoice or when such payment is due in
accordance with the provisions of this Agreement.

      IV.5 Late Payments and Interest. To the extent payments due under this
Agreement are not paid within the specified time period and are not timely, such
outstanding sums shall accrue interest from the date due. Interest shall be
computed on any sums that are late and outstanding on the last day of each
month, at the prime or other equivalent rate of Citibank N.A. or another
mutually acceptable bank as of the last day of the month immediately preceding
the current month, plus three percent (3%) (or the highest interest rate
permissible under applicable law, whichever is lower), compounded on a monthly
basis.

      IV.6 Tax Withholding. Either Party and its respective Affiliates shall use
all reasonable and legal efforts to reduce tax withholding on payments made to
the other Party hereunder. Notwithstanding such efforts, if either Party
concludes that tax withholdings under the laws of any country are required with
respect to payments to the other Party, such paying Party shall withhold the
required amount and pay it to the appropriate governmental authority. In such a
case, the paying Party will promptly provide the other Party with original
receipts or other evidence reasonably desirable and sufficient to allow the
other Party to document such tax withholdings adequately for purposes of
claiming foreign tax credits and similar benefits.

      IV.7 Blocked Payments. In the event that, by reason of applicable laws or
regulations in any country, it becomes impossible or illegal for either Party or
its Affiliates or sub-Licensees, to transfer, or have transferred on its behalf,
payments to the other Party, such payments shall be deposited to the extent
possible in USD (or in the absence of availability of USD, local currency) in
the relevant country to the credit of the Party to which the amount is due in a
recognized banking institution designated by the Party to which the amount is
due or, if none is designated by the Party to which the amount is due within a
period of [**], in a recognized banking institution selected by the paying
Party, as the case may be, and identified in a notice in writing given to the
Party to which the amount is due.

ARTICLE V. OPTIONS AND RIGHT OF FIRST REFUSAL.

      V.1 Option for Commercialization Rights to NOVIRIO's [**] Hepatitis B Drug
Candidates. NOVIRIO grants to SUMITOMO the [**] agreements with NOVIRIO
relating, as the case may be, to the development and commercialization in the
Territory of [**] NOVIRIO and/or its Affiliates' [**] which right may be
exercisable on the terms and conditions set forth below by SUMITOMO during the
period within which NOVIRIO and SUMITOMO are parties to any Development or
Commercialization Agreement relating to the development or


                                      -13-
<PAGE>
commercialization of NOVIRIO drug candidates in the Field. NOVIRIO will offer
such option to SUMITOMO in writing after NOVIRIO is in receipt of data from a
Phase I/II dose escalating or similar clinical trial of such hepatitis B drug
candidates. NOVIRIO shall [**] with respect to these drug candidates in the
Territory [**], SUMITOMO shall have [**] and [**] thereafter to finalize
definitive agreements relating to such transaction. If SUMITOMO does not
communicate [**] in writing within such initial [**] period, SUMITOMO shall be
deemed [**]. In that instance, NOVIRIO may, [**] in the Territory.

      V.2 Right of First Refusal for [**] Drug Candidates. NOVIRIO grants to
SUMITOMO, on and in accordance with the terms and conditions set forth in this
Section V.2, and in a good faith efforts to explore collaborative arrangement
with SUMITOMO in [**] field, [**] relating to the development and
commercialization of NOVIRIO's and/or its Affiliates' [**] drug candidates in
the Territory. NOVIRIO will provide a written notice (the "[**] Notice") to
SUMITOMO detailing the [**] development and commercialization [**] the
transaction, [**] drug candidate. SUMITOMO shall have [**] after receipt from
NOVIRIO of a [**] Notice to [**] NOVIRIO the [**] drug candidate [**] set forth
in the [**] Notice. If SUMITOMO does not communicate [**] in writing within such
period, SUMITOMO shall be deemed [**]. If SUMITOMO does [**], NOVIRIO shall [**]
drug candidate on [**] to NOVIRIO than the [**]drug candidate in any manner it
determines [**] drug candidates to SUMITIOMO. To the extent [**] pursuant to
which it [**] drug candidate, NOVIRIO shall, on terms and conditions similar to
those set forth in this Section V.2, [**] drug candidate [**].

ARTICLE VI. CONFIDENTIALITY.

      VI.1 Disclosure and Use of Confidential Information. Except as otherwise
provided herein, unless the party receiving the Confidential Information (the
"Receiving Party") has obtained the prior written consent of the party (the
"Disclosing Party") disclosing or on whose behalf Confidential Information is
disclosed, the Receiving Party will hold in confidence and not disclose any
Confidential Information. Further, the Receiving Party agrees to use the
Confidential Information only for the purpose of this Agreement or the
Commercialization Agreement and will not use or exploit the Confidential
Information, either directly or indirectly, for its own benefit or the benefit
of another without the prior written consent of the Disclosing Party. These
obligations of confidentiality and non-use shall continue during the Term, the
term of the Commercialization Agreement and for a period of five (5) years after
the termination of the Commercialization Agreement.

Notwithstanding the foregoing, these mutual obligations of confidentiality shall
not apply to any information to the extent that such information is:

                  (i) independently developed by such party as documented by
prior written records outside the scope and not in violation of this Agreement;

                  (ii) legally in the public domain at the time of its receipt
or thereafter legally becomes part of the public domain through no fault of the
Receiving Party;

                  (iii) received without an obligation of confidentiality from a
Third Party having the right to disclose such information;


                                      -14-
<PAGE>
                  (iv) released from the restrictions of this Article VI6 by the
prior written consent of the Disclosing Party; or

                  (v) as may be required for securing Regulatory Approval, as
may be required to be disclosed to a Regulatory Authority, or as otherwise
required by a court order or any law or regulation (including as may be required
in connection with any filings made with the Securities and Exchange Commission
or by the disclosure policies of a major stock exchange on which the securities
of the Receiving Party are or may be reasonably expected to be traded);
provided, however, that, at the Disclosing Party's request, the Receiving Party
shall request that the relevant legal or Regulatory Authority or major stock
exchange treat as confidential any Confidential Information of either party
included in any such disclosure and generally use diligent efforts to seek
confidential treatment where available.

      VI.2 Scope of Confidentiality. Unless the prior written consent of the
Disclosing Party has been received, each of NOVIRIO and SUMITOMO agree to limit
the disclosure of any Confidential Information received hereunder to such
Affiliates, employees, consultants and distributors as is necessary to carry out
the provisions of this Agreement and who are likewise bound by provisions
equivalent to this Article VI and to those Affiliates, employees, consultants or
third parties as may be required in connection with corporate financing
activities undertaken by or on behalf of the Receiving Party. The parties shall
take reasonable measures to assure that no unauthorized use or disclosure is
made by persons to whom access to such Confidential Information is granted.
Unauthorized use or disclosure by any person who has been given access to
Confidential Information by a Receiving Party hereunder shall be deemed to be
unauthorized use or disclosure by such Receiving Party, and the Receiving Party
shall be responsible to the Disclosing Party hereunder. The Receiving Party will
promptly report to the Disclosing Party any actual or suspected unauthorized use
of the Confidential Information of the Disclosing Party and the Receiving Party
will take all reasonable further steps requested by the Disclosing Party to
prevent, control or remedy any such violation.

ARTICLE VII. REPRESENTATIONS AND WARRANTIES.

      VII.1 Representations of Authority. SUMITOMO and NOVIRIO each represents
and warrants to the other that as of the Effective Date it has full right, power
and authority to enter into this Agreement and to perform its respective
obligations under this Agreement. NOVIRIO represents and warrants to SUMITOMO
that it has the right to grant to SUMITOMO the Licenses and such sub-Licenses as
may be granted pursuant to this Agreement, and that it has, as of the Effective
Date, access to and the right to use the technology necessary to perform its
obligations hereunder.

      VII.2 Consents. SUMITOMO and NOVIRIO each represents and warrants that all
necessary consents, approvals and authorizations of all government authorities
and other persons, including all requisite corporate approvals, required to be
obtained by such Party in connection with the execution, delivery and
performance of this Agreement have been obtained.

      VII.3 No Conflict. SUMITOMO and NOVIRIO each represents and warrants that,
the execution and delivery of this Agreement, the performance of such Party's
obligations


                                      -15-
<PAGE>
hereunder and the conduct of the Development Program (a) do not conflict with or
violate any requirement of applicable laws or regulations and (b) do not and
will not conflict with, violate or breach or constitute a default or require any
consent under, any contractual obligations of such Party, except such consents
as shall have been obtained prior to the Effective Date.

      VII.4 Employee Obligations. SUMITOMO and NOVIRIO each represents and
warrants that all of its employees, officers, and consultants have executed
agreements or have existing obligations under law requiring, in the case of
employees and officers, assignment to such Party of all inventions made during
the course of and as the result of their association with such Party and
obligating the individual to maintain as confidential such Party's Confidential
Information as well as confidential information of a Third Party which such
Party may receive, to the extent required to support such Party's obligations
under this Agreement.

      VII.5 Intellectual Property. To the knowledge of NOVIRIO, except as
disclosed in writing by NOVIRIO to SUMITOMO, as of the Effective Date, the
conduct by NOVIRIO of the Development Program in accordance with the Development
Plan does not and will not infringe or conflict with the rights of any Third
Party in respect of Know-How or issued patents or published patent applications
owned by such Third Party, except where such infringement or conflict would not
materially affect the ability of NOVIRIO to conduct the Development Program in
accordance with the Development Plan. To the knowledge of NOVIRIO, as of the
Effective Date, the NOVIRIO Technology that is expected to be utilized by
NOVIRIO in the Development Program in accordance with the Development Plan is
not being infringed by any Third Party, except where such infringement would not
materially affect the ability of NOVIRIO to conduct the Development Program in
accordance with the Development Plan. As of the Effective Date, there is, to the
knowledge of NOVIRIO, no claim or demand of any person pertaining to, or any
proceeding which is pending or threatened, that challenges the rights of NOVIRIO
in respect of NOVIRIO Technology or NOVIRIO Patent Rights, except where such
claim, notice, demand or proceeding would not materially adversely affect the
ability of NOVIRIO to conduct the Development Program in accordance with the
Development Plan.

      VII.6 No Warranties. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN, THE
PARTIES MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER
EXPRESS OR IMPLIED, AND PARTICULARLY THAT PRODUCTS WILL BE SUCCESSFULLY
DEVELOPED HEREUNDER, AND IF DEVELOPED, WILL HAVE COMMERCIAL UTILITY OR
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

ARTICLE VIII. TERM AND TERMINATION.

      VIII.1 Term. This Agreement shall become effective as of the Effective
Date, until the end of SUMITOMO's obligations for payment of milestone and
development cost amounts as set forth in Article IV.

      VIII.2 Termination By SUMITOMO. On not less than sixty (60) Days prior
notice, SUMITOMO may discontinue support of clinical development and/or
Non-clinical studies and terminate its rights and obligations under this
Agreement at any time when, in good faith: (a)


                                      -16-
<PAGE>
SUMITOMO believes that the scientific data developed in clinical trials and/or
Non-clinical studies does not support further commercial development of LdT Drug
Product (including but not limited to conclusive evidence that the LdT Drug
Product cannot be proven effective against [**]); (b) SUMITOMO believes, after
consultation with Regulatory Authorities, that the opportunities for
commercialization of LdT Drug Product are substantially limited in the
Territory; or (c) SUMITOMO determines that NOVIRIO Patent Rights do not
constitute Valid Claims. In the event of termination by SUMITOMO, the License
granted to SUMITOMO by NOVIRIO pursuant to Article III of this Agreement will be
automatically terminated and SUMITOMO will waive any and all other rights
SUMITOMO, its Affiliates or sub-Licensees may then have to the LdT Drug Product
or any Novirio Developments. Notwithstanding the foregoing, SUMITOMO will not be
relieved of the obligation to pay for: (i) milestones achieved prior to
termination; (ii) costs incurred prior to and/or (iii) noncancellable
obligations existing at the time of termination of this Agreement.

      VIII.3 Termination For Material Breach. Upon any material breach of this
Agreement by either Party, the nonbreaching Party may terminate this Agreement
by providing forty-five (45) Days written notice to the breaching Party
specifying the material breach. The termination shall become effective at the
end of the forty-five (45) Day period unless (a) the breaching party cures such
breach during such forty-five (45) Day period, or (b) if such breach is not
susceptible to cure within forty-five (45) Days of the receipt of written notice
of the breach, the breaching party is diligently pursuing a cure (unless such
breach, by its nature, is incurable, in which case the Agreement may be
terminated immediately) and effects such cure within an additional sixty (60)
Days after the end of such forty-five (45) Day period. In the event of
termination by NOVIRIO in accordance with this Section VIII.3, the License
granted to SUMITOMO by NOVIRIO pursuant to Article III of this Agreement will be
automatically terminated and SUMITOMO will waive any and all other rights
SUMITOMO, its Affiliates or sub-Licensees may then have to the LdT Drug Product.
Notwithstanding the foregoing, the breaching Party will not be relieved of the
obligation to pay for: (i) milestones achieved prior to termination, in the case
where SUMITOMO is the breaching Party, (ii) costs incurred prior to and/or (iii)
noncancellable obligations existing at the time of termination of this
Agreement.

      VIII.4 Transfer of Documents. In the event that either NOVIRIO or SUMITOMO
terminates this Agreement and unless such termination is caused by NOVIRIO's
breach, NOVIRIO shall have the right to utilize any and all data generated prior
to such termination in the development of a LdT Drug Product without payment to
SUMITOMO, and, upon the written request of NOVIRIO, SUMITOMO shall transfer to
NOVIRIO any and all data as it relates to the LdT Drug Product and any Novirio
Developments and transfer and assign to NOVIRIO all Regulatory Documents
relating to the LdT Drug Product and any Novirio Developments. In the event that
no such assignment may legally be made in any country in the Territory, SUMITOMO
shall continue to maintain such Regulatory Documents and shall provide to
NOVIRIO and/or NOVIRIO's Affiliates and/or their designees the right to
cross-reference and rely upon all such Regulatory Documents.

      VIII.5 No Damages upon Expiration or Termination. Except as otherwise set
forth in this Agreement and without limiting either Party's claim for equitable
relief or damages incurred as a result of a material breach of the terms of this
Agreement, neither Party shall be entitled to any compensation, fees or damages
as a result of the expiration or termination of this


                                      -17-
<PAGE>
Agreement for reason other than material breach.

      VIII.6 Survival. Upon expiration or termination of this Agreement for any
reason, nothing in this Agreement shall be construed to release either Party
from any obligations that matured prior to the effective date of expiration or
termination; and the following provisions shall expressly survive any such
expiration or termination: Articles I, V (except for the case where this
Agreement is terminated by NOVIRIO pursuant to VIII.3 ), VI, IX, X and Sections
IV.2 and this Article VIII.6.

ARTICLE IX. DISPUTE RESOLUTION.

      IX.1 General. Any controversy, claim or dispute arising out of or relating
to this Agreement shall be settled, if possible, through good faith negotiations
between the Parties. If, however, the Parties are unable to settle such dispute
after good faith negotiations, the matter shall be referred to the Executive
Officers to be resolved by negotiation in good faith as soon as is practicable
but in no event later than thirty (30) Days after referral. Such resolution, if
any, of a referred issue shall be final and binding on the Parties.

      IX.2 Failure of Executive Officers to Resolve Dispute. If the Executive
Officers are unable to settle the dispute after good faith negotiation in the
manner set forth above, then the dispute shall be resolved in accordance with
Article IX.3 below, which resolution shall be final and binding upon the
Parties.

      IX.3 Alternative Dispute Resolution. If the dispute has not been resolved
by the Executive Officers within thirty (30) Days of referral in accordance with
Article IX.1, or if the Executive Officers fail to meet within such thirty (30)
Days, a Party may seek resolution of the dispute by initiating arbitration in
accordance with the following provisions.

            (a) All disputes arising out of this Agreement and referred to
arbitration pursuant to this Article IX shall be finally resolved by arbitration
conducted in English in accordance with the rules of the ICC not inconsistent
with the terms of this Agreement. The place of arbitration shall be Tokyo,
Japan, if arbitration is brought by NOVIRIO, or, Amsterdam, The Netherlands, if
arbitration is brought by SUMITOMO. The parties hereby irrevocably consent to
the jurisdiction, venue and convenience of such forum for the arbitration and
any judicial action to enforce the arbitration panel's award.

      The arbitration shall be heard within sixty (60) Days of one Party's
notice to the other Party of the inability to reach resolution on a matter in
dispute and demand for arbitration. There shall be no mandatory discovery prior
to the arbitration and no formal rules of evidence other than those as the
arbitrators may promulgate in their sole discretion by majority vote. The
arbitration shall consist of each party submitting their statement in a document
not longer than 20 pages of the facts of the dispute, a proposed resolution and
the grounds for such resolution. The arbitration will be held on one day's
hearing before the arbitration panel starting at 9:00 A.M. and concluding at
4:00 P.M., with the losing Party paying the full costs of the arbitration and
the reasonable costs and expenses of the prevailing Party including reasonable
attorney's fees and costs and the costs of the arbitrators. The arbitration
shall be resolved by the majority of the arbitration panel selecting one of the
two proposed resolutions as superior within two


                                      -18-
<PAGE>
hours of the close of the day's arbitration hearing. Upon selection of one of
the proposed resolutions, such selected resolution shall be the final and
binding award of the arbitration regarding the dispute. Such award shall be
immediately enforceable as the final and binding arbitration of the matter both
at the place of arbitration and any place of business or ownership of assets of
either of the Parties. Each of the Parties irrevocably waive to the extent
permitted by applicable law, any legal action for stay, review, injunction,
setting aside, appeal or other form of judicial challenge to the full faith and
credit recognition and full enforcement of all of the terms of such arbitration
award in whatever court in whatever jurisdiction such enforcement of the
arbitration award judgment may be sought.

      Any arbitration shall be conducted by an arbitration panel consisting of
three (3) members, one appointed by each party and the third appointed by the
first two members. Each Party shall, at its discretion, appoint one arbitrator
whose reputation for ethics, professionalism and knowledge of commercial dispute
resolution cannot be reasonably objected to by either Party and who are not in
conflict of interest with either Party.

            (b) The arbitrators shall be paid reasonable fees plus expenses
agreed to prior to the arbitration.

ARTICLE X. MISCELLANEOUS PROVISIONS.

      X.1 Indemnification.

            (a) SUMITOMO. SUMITOMO agrees to defend NOVIRIO and its Affiliates
at its cost and expense, and will indemnify and hold NOVIRIO and its Affiliates
and their respective directors, officers, employees and agents (the "NOVIRIO
Indemnified Parties") harmless from and against any losses, costs, damages, fees
or expenses (including to the extent applicable reasonable attorney's fees and
costs) arising out of any claim or Third Party action or proceeding relating to
any breach by SUMITOMO of any of its material representations, warranties or
obligations pursuant to this Agreement. In the event of any such claim or Third
Party action or proceeding against the NOVIRIO Indemnified Parties, NOVIRIO
shall promptly notify SUMITOMO in writing of the claim and SUMITOMO shall, at
its option have the right to manage and control, at its sole expense, the
defense of the claim and its settlement. The NOVIRIO Indemnified Parties shall
reasonably cooperate with SUMITOMO and may, at their option and expense, be
represented in any such action or proceeding. SUMITOMO shall not be liable for
any litigation costs or expenses incurred by the NOVIRIO Indemnified Parties
without SUMITOMO's prior written authorization, provided however that a NOVIRIO
Indemnified Party shall have the right to retain its own separate legal counsel
at the expense of SUMITOMO if: (i) SUMITOMO does not employ counsel reasonably
satisfactory to the NOVIRIO Indemnified Party to take charge of the defense of
such indemnifiable claim within a reasonable time after notice of commencement
of the action; or (ii) representation of both SUMITOMO and the NOVIRIO
Indemnified Party by the same counsel would be inappropriate due to actual or
potential conflicting interests in which case, when the NOVIRIO Indemnified
Party notifies SUMITOMO, SUMITOMO shall not have the right to assume defense of
the such action on behalf of the NOVIRIO Indemnified Party. SUMITOMO shall not
be responsible for the indemnification of any NOVIRIO Indemnified Party arising
from any negligent or intentional acts by such Party, or as the result of any


                                      -19-
<PAGE>
settlement or compromise by the NOVIRIO Indemnified Parties without SUMITOMO's
prior written consent, which shall not be unreasonably withheld.

            (b) NOVIRIO. NOVIRIO agrees to defend SUMITOMO and its Affiliates at
its cost and expense, and will indemnify and hold SUMITOMO and its Affiliates
and its respective directors, officers, employees and agents (the "SUMITOMO
Indemnified Parties") harmless from and against any losses, costs, damages, fees
or expenses (including to the extent applicable reasonable attorney's fees and
costs) arising out of any claim or Third Party action or proceeding relating to
(i) any breach by NOVIRIO of any of its material representations, warranties or
obligations pursuant to this Agreement or (ii) personal injury from the
development, manufacture, use, sale or other disposition of any LdT Drug
Products. In the event of any such claim or Third Party action or proceeding
against the SUMITOMO Indemnified Parties, SUMITOMO shall promptly notify NOVIRIO
in writing of the claim and NOVIRIO shall, at it option, have the right to
manage and control, at its sole expense, the defense of the claim and its
settlement. The SUMITOMO Indemnified Parties shall reasonably cooperate with
NOVIRIO and may, at their option and expense, be represented in any such action
or proceeding. NOVIRIO shall not be liable for any litigation costs or expenses
incurred by the SUMITOMO Indemnified Parties without NOVIRIO's prior written
authorization provided however that a SUMITOMO Indemnified Party shall have the
right to retain its own separate legal counsel at the expense of NOVIRIO if: (i)
NOVIRIO does not employ counsel reasonably satisfactory to the SUMITOMO
Indemnified Party to take charge of the defense of such indemnifiable claim
within a reasonable time after notice of commencement of the action; or (ii)
representation of both NOVIRIO and the SUMITOMO Indemnified Party by the same
counsel would be inappropriate due to actual or potential conflicting interests
in which case, when the SUMITOMO Indemnified Party notifies NOVIRIO, NOVIRIO
shall not have the right to assume defense of the such action on behalf of the
SUMITOMO Indemnified Party. NOVIRIO shall not be responsible for the
indemnification of any SUMITOMO Indemnified Party arising from any negligent or
intentional acts by such Party, or as the result of any settlement or compromise
by the SUMITOMO Indemnified Parties without NOVIRIO's prior written consent,
which shall not be unreasonably withheld.

            (c) The failure by an indemnified Party to comply with any provision
of this Article X.1 shall not relieve an indemnifying Party of their respective
obligations arising pursuant to this Article X.1 except to the extent the
indemnifying Party is adversely affected by such noncompliance.

      X.2 Governing Law. This Agreement shall be construed and the respective
rights of the Parties hereto determined (including in any arbitration proceeding
under Article IX, above) according to the substantive laws of Japan, except
matters of intellectual property law which shall be determined in accordance
with the national intellectual property laws relevant to the intellectual
property in question.

      X.3 Assignment. Neither NOVIRIO nor SUMITOMO may assign this Agreement in
whole or in part without the consent of the other, except, that NOVIRIO may
assign its rights and delegate its obligations pursuant to this Agreement in
whole to any of Novirio Pharmaceuticals, Inc., Novirio Pharmaceuticals Limited
or Novirio SARL, in such case NOVIRIO shall promptly notify SUMITOMO in writing
to that effect.


                                      -20-
<PAGE>
      X.4 Amendments. This Agreement constitutes the entire agreement between
the Parties with respect to the subject matter hereof, and supersedes all
previous arrangements with respect to the subject matter hereof, whether written
or oral, except for the continuing obligations of the Parties under that certain
Confidentiality Agreement dated November 30, 2000 by and between the Parties.
Any amendment or modification to this Agreement shall be made in writing signed
by both Parties.

      X.5 Notices.

Notices to NOVIRIO shall be addressed to:

      NOVIRIO B.V.
      Locatellikade 1
      1076 AZ Amsterdam
      The Netherlands
      Attention:  Ms. Roos Matzinger
      Facsimile No.:31 - 20 - 67 - 30 - 016

with a copy to:

      Novirio Pharmaceuticals, Inc.
      125 CambridgePark Drive
      Cambridge, MA 02140
      Attention: Sr. V.P. Business Development
      Facsimile No.: 617 - 250 - 3101

Notices to SUMITOMO shall be addressed to:

      SUMITOMO
      2-8, Doshomachi 2-chome,
      Chuo-ku, Osaka, Japan
      Attention: Director, General Manager, Business Development &
                 Licensing Office
      Facsimile No.: +81-6233-2288

with a copy to:

      SUMITOMO
      2-8, Doshomachi 2-chome,
      Chuo-ku, Osaka, Japan
      Attention: Director, General Manager, Product Development Divsion
      Facsimile No.: +81-6233-2399

Any Party may change its address by giving notice to the other Party in the
manner herein provided. Any notice required or provided for by the terms of this
Agreement shall be in


                                      -21-
<PAGE>
writing and shall be (a) sent by registered or certified mail, return receipt
requested, postage prepaid, (b) sent via a reputable overnight courier service,
or (c) sent by confirmed facsimile transmission, in each case properly addressed
in accordance with the paragraph above. The effective date of notice shall be
the actual date of receipt by the Party receiving the same.

      X.6 Exports. The Parties acknowledge that the export of technical data,
materials or products is subject to the exporting Party receiving any necessary
export licenses and that the Parties cannot be responsible for any delays
attributable to export controls that are beyond the reasonable control of either
Party. SUMITOMO and NOVIRIO agree not to export or re-export, directly or
indirectly, any information, technical data, the direct product of such data,
samples, compounds or equipment received or generated under this Agreement in
violation of any governmental regulations that may be applicable. SUMITOMO and
NOVIRIO agree to obtain similar covenants from their Affiliates, sublicensees
and contractors with respect to the subject matter of this Section.

      X.7 Force Majeure. No failure or omission by the Parties hereto in the
performance of any obligation of this Agreement shall be deemed a breach of this
Agreement or create any liability if the same shall arise from any cause or
causes beyond the control of the Parties, including, but not limited to: acts of
God; acts or omissions of any government; any rules, regulations or orders
issued by any governmental authority or by any officer, department, agency or
instrumentality thereof; fire; storm; flood; earthquake; accident; war;
rebellion; insurrection; riot; and invasion and provided that such failure or
omission resulting from one of the above causes is cured as soon as is
practicable after the occurrence of one or more of the above-mentioned causes.

      X.8 Press Release. The content and timing of any press release or similar
publicity with respect to the execution of this Agreement shall be agreed upon
by the Parties in advance of such announcement. Each Party understands that this
Agreement is likely to be of significant interest to investors, analysts and
others, and that either Party therefore may make such press release with respect
thereto. The Parties agree that any such press release will not contain
Confidential Information and, if disclosure of Confidential Information is
required by law or regulation, will make reasonable efforts to minimize such
disclosure. Each Party agrees to provide to the other Party a copy of any press
release as soon as reasonably practicable under the circumstances prior to its
scheduled release. Except under extraordinary circumstances, each Party shall
provide the other with an advance copy of any press release at least five (5)
Days prior to the scheduled disclosure. Each Party shall have the right to
expeditiously review and recommend changes to any announcement regarding this
Agreement or the subject matter of this Agreement, provided that such
announcement shall be advanced to the other Party at least two (2) Days before
the scheduled disclosure. Except as otherwise required by law, the Party whose
press release has been reviewed shall remove any information the reviewing Party
reasonably deems to be inappropriate for disclosure.

      X.9 Independent Contractors. It is understood and agreed that the
relationship between the Parties hereunder is that of independent contractors
and that nothing in this Agreement shall be construed as authorization for
either NOVIRIO or SUMITOMO to act as agent for the other. The Program Directors
shall remain employees of SUMITOMO or NOVIRIO, as the case may be.


                                      -22-
<PAGE>
      X.10 No Strict Construction. This Agreement has been prepared jointly and
shall not be strictly construed against any Party.

      X.11 Headings. The captions or headings of the sections or other
subdivisions hereof are inserted only as a matter of convenience or for
reference and shall have no effect on the meaning of the provisions hereof.

      X.12 No Implied Waivers; Rights Cumulative. No failure on the part of
NOVIRIO or SUMITOMO to exercise, and no delay in exercising, any right, power,
remedy or privilege under this Agreement, or provided by statute or at law or in
equity or otherwise, shall impair, prejudice or constitute a waiver of any such
right, power, remedy or privilege or be construed as a waiver of any breach of
this Agreement or as an acquiescence therein, nor shall any single or partial
exercise of any such right, power, remedy or privilege preclude any other or
further exercise thereof or the exercise of any other right, power, remedy or
privilege.

      X.13 Severability. If any provision hereof should be held invalid, illegal
or unenforceable in any respect in any jurisdiction, then, to the fullest extent
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intentions of the Parties as nearly as may be possible and (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of such provision in any other jurisdiction. To the
extent permitted by applicable law, NOVIRIO and SUMITOMO hereby waive any
provision of law that would render any provision hereof prohibited or
unenforceable in any respect.

      X.14 Execution in Counterparts. This Agreement may be executed in
counterparts, each of which counterpart, when so executed and delivered, shall
be deemed to be an original, and all of which counterparts, taken together,
shall constitute one and the same instrument.

      X.15 English Version. In the event that this Agreement is translated into
a language other than English, the English version of this Agreement shall
control all questions of interpretation with respect thereto.

      IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first set forth above.

                                    NOVIRIO B.V.


                                    By:   /s/Jean-Pierre Sommadossi
                                        ----------------------------------------
                                             Jean-Pierre Sommadossi, Ph.D.
                                    Title:   Authorized Signatory

                                    SUMITOMO PHARMACEUTICALS CO. LTD.


                                      -23-
<PAGE>
                                    By:   /s/ Masaaki Yokotsuka
                                        ----------------------------------------
                                              Masaaki Yokotsuka

                                    Title:    President
                                           -------------------------------------


                                      -24-
<PAGE>
                                    EXHIBIT A

                   GLOBAL CLINICAL DEVELOPMENT PROGRAM FOR LDT

REGULATORY GOAL:

International registration of L-dT for treatment of adults with chronic
hepatitis B and evidence of viral replication [**], all disease stages including
[**]

[**] PHASE II & III TRIALS SUPPORTING LDT REGULATORY DOSSIERS BY [**] Study [**]
[**]chronic hepatitis B[**] Trial [**]
[**]chronic hepatitis B[**]

[**] Trial [**]
[**] Trial [**]
[**]

[**] chronic hepatitis B[**]
[**] study [**] hepatitis B[**] may also be necessary.

                      [**] STUDY [**][**] MAY BE NECESSARY.


                                      -25-
<PAGE>
                                    EXHIBIT B

                              NOVIRIO PATENT RIGHTS

<TABLE>
<CAPTION>
TITLE               COUNTRY       FILING      SERIAL       PATENT       STATUS
                                  DATE        NUMBER       NUMBER
--------------------------------------------------------------------------------
<S>                 <C>           <C>         <C>          <C>          <C>
[**]                [**]          [**]        [**]         [**]         [**]
[**]                [**]          [**]        [**]         [**]         [**]
                    [**]          [**]        [**]                      [**]
                    [**]          [**]        [**]                      [**]
                    [**]          [**]        [**]                      [**]
                    [**]          [**]        [**]                      [**]
                    [**]          [**]        [**]                      [**]
                    [**]                      [**]                      [**]
                    [**]          [**]        [**]                      [**]
                    [**]          [**]        [**]                      [**]
                    [**]          [**]        [**]                      [**]
                    [**]          [**]        [**]                      [**]
                    [**]          [**]        [**]                      [**]
                    [**]                      [**]                      [**]
[**]                [**]          [**]        [**]                      [**]
[**]                [**]          [**]        [**]                      [**]
</TABLE>


                                      -26-