VALEANT PHARMACEUTICALS INTERNATIONAL
EXHIBIT 10.5
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>2
<FILENAME>a11504exv10w5.txt
<DESCRIPTION>EXHIBIT 10.5
<TEXT>
<PAGE>
** CERTAIN CONFIDENTIAL MATERIAL CONTAINED IN THIS DOCUMENT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO 17
C.F.R. SUBSECTION 200.80(B)(4) 200.83 AND 230.406**


                                                                    EXHIBIT 10.5




                        DEVELOPMENT AND LICENSE AGREEMENT

                                     BETWEEN

                          METABASIS THERAPEUTICS, INC.


                                       AND


                            ICN PHARMACEUTICALS, INC.















                           DATED AS OF OCTOBER 1, 2001
<PAGE>
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            PAGE
<S>                                                                         <C>
ARTICLE I DEFINITIONS AND INTERPRETATION...................................   1

         1.1      Definitions..............................................   1
         1.2      Interpretation...........................................   6

ARTICLE II LICENSE.........................................................   6

         2.1      License..................................................   6
         2.2      Sublicense...............................................   6
         2.3      Exclusivity..............................................   7
         2.4      Provision of Information.................................   7
         2.5      Limits on the Use of Licensed Compound by Metabasis......   7
         2.6      Optimization of Licensed Compound........................   7
         2.7      Non Competition..........................................   8

ARTICLE III SUBSTITUTE COMPOUND............................................   8


ARTICLE IV COMPENSATION....................................................   9

         4.1      License Fee..............................................   9
         4.2      Milestone Payments.......................................   9
         4.3      Royalties................................................  10
         4.4      Duration of Royalty Obligations..........................  11
         4.5      Payment Terms............................................  11
         4.6      Taxes....................................................  11
         4.7      Reports..................................................  12
         4.8      Records..................................................  12
         4.9      Sales in Foreign Currencies..............................  13

ARTICLE V DEVELOPMENT STEERING COMMITTEE...................................  14

         5.1      Appointment and Administration of the Development
                  Steering Committee.......................................  14
         5.2      Responsibility and Authority of the Development Steering
                  Committee................................................  14

ARTICLE VI DEVELOPMENT AND MARKETING OBLIGATIONS...........................  15

         6.1      Commercial Development Obligation........................  15
         6.2      Use of Name..............................................  16

ARTICLE VII FUTURE COLLABORATION...........................................  16

         7.1      New Products.............................................  16
         7.2      [REDACTED] Prodrug Option................................  17
         7.3      Discovery of New Hepatitis B Drugs.......................  18
</TABLE>


                                       i
<PAGE>
<TABLE>
<S>                                                                         <C>
ARTICLE VIII INTELLECTUAL PROPERTY.........................................  18

         8.1      Patent Prosecution and Maintenance.......................  18
         8.2      Notification of Infringement.............................  19
         8.3      Patent Enforcement.......................................  19
         8.4      Ownership................................................  19
         8.5      Trademarks...............................................  20
         8.6      Defense of Infringement and Invalidity Actions...........  21

ARTICLE IX REPRESENTATIONS, WARRANTIES AND LIMITATION OF LIABILITY.........  21

         9.1      Representations of Metabasis.............................  21
         9.2      Representations of ICN...................................  22
         9.3      Disclaimer of Warranties.................................  22

ARTICLE X INDEMNIFICATION AND INSURANCE....................................  23

         10.1     Indemnification by ICN...................................  23
         10.2     Indemnification by Metabasis.............................  23
         10.3     Obligations of the Party Seeking to Be Indemnified.......  24

ARTICLE XI CONFIDENTIALITY AND PUBLICATION.................................  24

         11.1     Confidentiality..........................................  24
         11.2     Disclosure...............................................  24
         11.3     Publicity................................................  25
         11.4     Scientific Publications..................................  25

ARTICLE XII TERM AND TERMINATION...........................................  26

         12.1     Term.....................................................  26
         12.2     [Intentionally omitted]..................................  26
         12.3     Termination For Cause....................................  26
         12.4     Rights and Obligations Upon Termination for Cause........  27
         12.5     Surviving Provisions.....................................  28

ARTICLE XIII ASSIGNMENT; SUCCESSORS........................................  29

         13.1     Assignment...............................................  29
         13.2     Binding Upon Successors and Assigns......................  29
         13.3     Parties Guarantee Performance of Affiliates..............  29

ARTICLE XIV DISPUTE RESOLUTION.............................................  29

         14.1     Arbitration..............................................  29
         14.2     Pre-Arbitration Dispute Resolution.......................  30
         14.3     Provisional Remedy.......................................  30
         14.4     "Last Offer" Procedure...................................  30
         14.5     Confidentiality..........................................  31
</TABLE>


                                       ii
<PAGE>
<TABLE>
<S>                                                                         <C>
ARTICLE XV GENERAL PROVISIONS..............................................  31

         15.1     Relationship of the Parties..............................  31
         15.2     Excusable Delay..........................................  31
         15.3     Notices..................................................  31
         15.4     Expenses.................................................  32
         15.5     Further Assurances.......................................  32
         15.6     Amendment................................................  33
         15.7     Waiver...................................................  33
         15.8     No Third Party Beneficiaries.............................  33
         15.9     Entire Agreement.........................................  33
         15.10    Construction.............................................  33
         15.11    Incorporation of Exhibits................................  33
         15.12    Counterparts.............................................  33
         15.13    Severability.............................................  34
         15.14    Bankruptcy...............................................  34
         15.15    Remedies Cumulative......................................  34
         15.16    Governing Law............................................  34
</TABLE>











                                      iii
<PAGE>
                        DEVELOPMENT AND LICENSE AGREEMENT


         This Development and License Agreement (this AGREEMENT) is made as of
October 1, 2001 (the CLOSING DATE) by and among Metabasis Therapeutics, Inc., a
Delaware corporation (METABASIS) and ICN Pharmaceuticals, Inc., a Delaware
corporation (ICN).

                                    RECITALS


         A.       Metabasis is engaged in the research and development of
therapeutic products and technologies.

         B.       Metabasis has acquired or possesses the right to license
worldwide proprietary rights to certain HepDirect Compounds for the treatment of
Hepatitis B.

         C.       ICN has expertise in researching, developing, manufacturing
and marketing pharmaceutical products for the treatment of human diseases and
wishes to develop, manufacture, and market Products based on the Licensed
Compound in accordance with this Agreement.

         D.       Metabasis wishes to grant an exclusive license to ICN and ICN
wishes to acquire an exclusive license with respect to, and to develop,
manufacture, and market Products, in accordance with this Agreement.

                                    AGREEMENT

         In consideration of the above and the mutual covenants set forth in
this Agreement and other valuable consideration received by the Parties, the
Parties agree as follows.

                                   ARTICLE I

                         DEFINITIONS AND INTERPRETATION

         1.1      DEFINITIONS

         In this Agreement, capitalized terms have the respective meanings set
forth below.

         ACT means the Federal Food, Drug and Cosmetic Act (21 U.S.C.Section
301, et seq.), including any amendments or supplements.

         ACCOUNTING PERIOD means a calendar quarter commencing on the first day
of an Accounting Period, respectively January 1, April 1, July 1, and October 1,
each being the first day, and finishing the last day of an Accounting Period
respectively on March 31, June 30, September 30 and December 31, each being the
last day.

         ADJUSTED GROSS SALES means the amount of gross sales in the Territory
of Products (whether in active ingredient form, semi-finished form, finished
product form, or otherwise) invoiced by ICN and its Affiliates to Third Parties
less deductions for returns (including allowances actually given for spoiled,
damaged, out-dated, rejected, returned Products sold,
<PAGE>
withdrawals and recalls), rebates (price reductions, rebates to social and
welfare systems, chargebacks, and government mandated rebates), cash and volume
(quantity) discounts, commissions or concessions paid to Third Parties, taxes
(value added or sales taxes, government mandated exceptional taxes and other
taxes imposed on the gross sales amount but excluding income taxes), as reported
on a product by product basis in ICN's worldwide financial reporting system in
accordance with GAAP as measured in U.S. Dollars for the countries concerned,
whereby the amount of such sales in foreign currencies is converted into U.S.
Dollars on a basis consistent with Section 4.9. Notwithstanding the foregoing,
amounts received by ICN and its Affiliates for the sale of Products among ICN
and its Affiliates for resale will not be included in the computation of
Adjusted Gross Sales.

         AFFILIATE of a Party means any corporation or other business entity
that controls, is controlled by, or is under common control with a Party, where
CONTROL means direct or indirect ownership of more than fifty percent (50%) of
the voting interest in a corporation or entity, or such other relationship as,
in fact, constitutes actual control of management.

         AGREEMENT has the meaning set forth in the preamble.

         APPROVAL AUTHORITY means a governmental authority whose approval is
required in a country for any Product Registration.

         BANKRUPTCY CODE means Title 11, U.S. Code.

         BREACHING PARTY has the meaning set forth in Section 12.3.

         BUSINESS DAY means a day when banks are open for business in Los
Angeles, California.

         CLAIMS has the meaning set forth in Section 10.1.

         CLOSING DATE has the meaning set forth in the preamble.

         COMBINED PRODUCT means a pharmaceutical product with two or more active
ingredients, one of which is a Product and one or more of which is not, sold as
a single item for one price.

         COMPASSIONATE SALES means, with respect to a Product in any country in
the Territory, any sale of the Product by ICN or any of its Affiliates or
Sublicensees that is required by a governmental authority to be made to certain
persons or classes of persons in such country, before or after the Product has
been approved for use in such country by the Approval Authority, but before the
price of the Product (or reimbursement for the Product) has been determined by
the applicable governmental authority in such country.

         DEVELOPMENT PLAN means the plan to be prepared and approved by the
Development Steering Committee pursuant to Section 5.2 for development of the
Licensed Compound in accordance with this Agreement, as amended from time to
time by the Development Steering Committee.

         DEVELOPMENT STEERING COMMITTEE has the meaning set forth in Section
5.1.


                                       2
<PAGE>
         EMEA means the European Medicines Evaluation Agency, or any successor.

         EUROPEAN UNION means the amalgamation of European member states created
by the Treaty on European Union (commonly called the Maastricht Treaty)
effective January 1, 1993.

         FDA means the United States Food and Drug Administration, or any
successor.

         FIELD means all human pharmaceutical and diagnostic applications of the
Products.

         FIRST COMMERCIAL SALE means, with respect to a Product in any country
in the Territory, the first arms-length sale to a Third Party purchaser in such
country of commercial quantities of a Product by ICN or any of its Affiliates or
Sublicensees, after Product Registration in such country, which transfers
physical possession and title to the Product, provided, however, that any
Compassionate Sales or sales for pre-marketing, testing, or sampling will not be
a First Commercial Sale.

         GAAP means United States generally accepted accounting principles
consistently applied.

         HANDLE has the meaning set forth in Section 8.1.

         HEPDIRECT COMPOUNDS means all compounds that fall within the scope of
the HepDirect Technology which are owned by Metabasis or to which Metabasis has
rights to grant licenses or to grant other rights under this Agreement.

         HEPDIRECT TECHNOLOGY means all proprietary information, and all
patentable and non-patentable inventions, discoveries, experience, disclosure
claims, formulas, processes, procedures, compositions of matter, specifications,
methods, techniques, trade secrets, technologies, data, know-how, results
(including physical, chemical, biological, toxicological, pharmacological,
pre-clinical and clinical data, product forms and formulations of the Licensed
Compound) which are owned, possessed, developed, conceived, acquired by, or
licensed to Metabasis that are useful for making prodrugs that are metabolized
to an active compound primarily in the liver, and generally set forth in the
specifications or supporting any of the claims in any of the WO/99/45016
publication dated 10 September 1999, the WO/00/52015 publication dated 8
September 2000, or the WO/01/18013 dated 15 March 2001 regardless of whether any
such claims eventually issue in a patent in the United States or elsewhere.

         ICN has the meaning set forth in the preamble.

         INDEMNIFIED PARTY has the meaning set forth in Section 10.3.

         INDEMNIFYING PARTY has the meaning set forth in Section 10.3.

         LICENSED COMPOUND means all forms of MB6866 including all salts and
prodrugs thereof, or any Substitute Compound substituted in accordance with
Article III, and its various forms including salts and prodrugs.


                                       3
<PAGE>
         LICENSED PATENTS means rights under patents and patent applications, as
well as corresponding certificates of invention or certificates of protection,
substitutes, extensions, supplementary protection certificates, renewals,
continuations-in-part, divisions, patents of addition (re-examination or
re-issue), to which Metabasis has the right to grant licenses or sublicenses
without breach of other agreements to which Metabasis is a party on the Closing
Date, in any country of the Territory, which (a) but for this Agreement would be
infringed by the developing, making, having made, marketing, importing, using,
offering for sale or sale by ICN, its Affiliates or Sublicensees of Products in
the Field and (b) are owned by, or licensed to, Metabasis as of the Closing Date
or during the Term, to the extent such rights are legally necessary to develop,
make, have made, market, import, use, offer for sale or sell a Product in the
Field in the Territory. Licensed Patents include, without limitation, the
patents and patent applications set forth on Schedule A.

         LICENSED TECHNOLOGY means all HepDirect Technology to which Metabasis
has the right to grant licenses or sublicenses hereunder, without breach of
other agreements to which Metabasis is a party, on the Closing Date or during
the Term, which are useful to develop, make, have made, market, import, use,
offer for sale or sell a Product in the Field in the Territory. By way of
clarification,Licensed Technology includes all HepDirect Technology conceived or
acquired in whole or in part by Metabasis on or after the Closing Date including
without limitation the items set forth in Section 8.4(a) below.

         MAJOR MARKET COUNTRY means each of the following countries and its
territories and possessions: the Benelux countries, France, Germany, Italy,
Japan, Spain, the United Kingdom, and the United States.

         METABASIS has the meaning set forth in the preamble.

         MILESTONE means any event relating to the development and
commercialization of Products set forth in Section 4.2.

         MILESTONE PAYMENT means any of the payments required under in Section
4.2.

         NDA means a New Drug Application filed with the FDA for marketing
approval for a drug pursuant to the Act and the Regulations.

         NET SALES means the amount calculated by subtracting from the amount of
Adjusted Gross Sales a lump sum deduction of [REDACTED] of Adjusted Gross Sales
in Major Market Countries and [REDACTED] of Adjusted Gross Sales in countries
other than Major Market Countries, in lieu of any other deductions (including
deductions which are not accounted for on a product by product basis, such as
outward freight, postage charges, transportation, insurance, packaging materials
for dispatch of goods, custom duties, bad debt, discounts granted later than at
the time of invoicing and other direct sales expenses).

         NEW PRODUCT has the meaning set forth in Section 7.1(a).

         NON-BREACHING PARTY has the meaning set forth in Section 12.3(a).

         PARTY means each of Metabasis and ICN.


                                       4
<PAGE>
         PHASE I CLINICAL TRIAL means the initial introduction of an
investigational new drug into humans primarily designed to determine the
metabolism and pharmacologic actions of the drug in humans, the side effects
associated with increasing doses, and, if possible, to gain early evidence on
effectiveness, and also may include studies of drug metabolism,
structure-activity relationships, and mechanism of action in humans, as well as
studies in which investigational drugs are used as research tools to explore
biological phenomena or disease processes.

         PHASE II CLINICAL TRIAL means a controlled clinical study conducted
primarily to evaluate the effectiveness of a drug for a particular indication or
indications in patients with the disease or condition under study and to
determine the common short-term side effects and risks associated with the drug.

         PHASE III CLINICAL TRIAL means an expanded controlled and uncontrolled
clinical trial performed after preliminary evidence suggesting effectiveness of
a drug has been obtained, primarily in order to gather the additional
information about effectiveness and safety that is needed to evaluate the
overall benefit-risk relationship of the drug and to provide an adequate basis
for physician labeling.

         PRODUCT means any human pharmaceutical product containing, in whole or
as a component, the Licensed Compound.

         PRODUCT PERCENTAGE means the proportion of a Combined Product
attributable to a Product, as agreed by the Parties after consideration of (i)
the respective contribution of each active ingredient to the overall efficacy of
the Combined Product, (ii) the respective market value of the Licensed Compound
used alone and the other active ingredients used alone, (iii) the respective
cost of goods for the Licensed Compound and the other active ingredients, and
(iv) other factors customarily used in the pharmaceuticals industry to apportion
value to active ingredients of pharmaceutical products.

         PRODUCT REGISTRATION means with respect to a particular country all
government approvals required by any government or regulatory authority to
permit the sale of Products in such country.

         RECIPIENT has the meaning set forth in Section 11.2(a).

         REGULATIONS means the regulations made under the Act, as amended or
supplemented.

         [REDACTED] PRODRUG means a HepDirect Compound that is metabolized into
[REDACTED] in humans.

         ROYALTY OBLIGATION PERIOD has the meaning set forth in Section 4.4.

         SUBLICENSEE means each person to whom ICN has granted a sublicense
under Section 2.2.

         SUBSTITUTE COMPOUND means a HepDirect Compound provided to ICN pursuant
to Article III.

         TERM means the term of this Agreement, as set forth in Section 12.1.


                                       5
<PAGE>
         TERRITORY means all the countries of the world and their territories
and possessions.

         THIRD PARTY means any person other than Metabasis, ICN, or any of their
Affiliates.

         UNITED STATES means the United States of America and its territories
and possessions.

         1.2 INTERPRETATION

         In this Agreement, unless the context requires otherwise

                  (a)      the singular includes the plural and vice versa;

                  (b)      words denoting persons include corporations,
partnerships and other legal persons;

                  (c)      a reference to a specified section, paragraph or
schedule is a reference to that specified section, paragraph or schedule of this
Agreement;

                  (d)      the article and section headings and the Table of
Contents are for convenience only and do not affect the interpretation of this
Agreement;

                  (e)      "including" means including without limitation; and

                  (f)      a reference to a Party includes its successors and
permitted assigns.

                                   ARTICLE II

                                     License

         2.1      LICENSE

         Subject to the terms and conditions of this Agreement and effective as
of the Closing Date, Metabasis grants to ICN, and ICN accepts, the right and
license under the Licensed Patents and the Licensed Technology within the Field
throughout the Territory (with the right to grant sublicenses in accordance with
Section 2.2), to develop, manufacture, have manufactured, market, import, use,
offer for sale, and sell Products. The license is exclusive (even as to
Metabasis) with respect to the Licensed Patents and with respect to the Licensed
Technology. This Section 2.1 does not prevent Metabasis from granting licenses
to Third Parties with respect to products that do not fall within the definition
herein of Products.

         2.2      SUBLICENSE

                  (a)      Subject to Sections 2.2(b), 6.1 and 12.4, ICN has the
sole and exclusive right to grant sublicenses under the Licensed Patents, and to
grant sublicenses under the Licensed Technology, in each case within the Field
throughout the Territory, to any Affiliate or Third Party (as such, a
SUBLICENSEE), to develop, manufacture, have manufactured, market, import, use,
offer for sale, and sell Products.


                                       6
<PAGE>
                  (b)      In the case of any sublicense to an Affiliate of ICN,
ICN will send written notice to Metabasis disclosing the identity of such
Affiliate and the scope and other terms of such sublicense. In the case of any
proposed sublicense to a Third Party, ICN must obtain the written consent of
Metabasis prior to the grant of any such sublicense under this Agreement. ICN
will request such consent from Metabasis by written notice to Metabasis
disclosing the identity of the proposed Third Party Sublicensee and the proposed
scope and other terms of the sublicense. Metabasis will not unreasonably
withhold or delay such consent.

                  (c)      ICN shall remain responsible for ensuring compliance
with the terms of this Agreement by Sublicensees.

                  (d)      Any sublicense granted by ICN other than in
conformity with the provisions of this Section 2.2 shall be null and void.

         2.3      EXCLUSIVITY

         Except as provided in Section 2.1 and as permitted by Sections 6.1,
12.3 and 12.4, Metabasis will not license or otherwise grant any rights under
the Licensed Patents or the Licensed Technology to develop, manufacture, have
manufactured, market, import, use, offer to sell, or sell Products during the
Term in the Territory within the Field.

         2.4      PROVISION OF INFORMATION

         During the Term, as soon as practicable after it becomes available and
upon ICN's request, Metabasis will disclose and provide information relating to
the Licensed Patents and the Licensed Technology to ICN to the extent necessary
or useful to enable ICN to perform its obligations under this Agreement,
including, to the extent reasonably available to Metabasis, information relating
to manufacturing, clinical data, any agreements in respect of the Licensed
Compound, and any related correspondence with the FDA. Such information is
subject to the confidentiality provisions of Article XI hereof.

         2.5      LIMITS ON THE USE OF LICENSED COMPOUND BY METABASIS

         From the Closing Date, Metabasis and its Affiliates will not develop,
manufacture, have manufactured, market, import, use, offer for sale, or sell the
Licensed Compound, other than as contemplated by this Agreement. The rights
granted hereunder are to the exclusion of Metabasis, except as otherwise set
forth in this Agreement.

         2.6      OPTIMIZATION OF LICENSED COMPOUND

         ICN will be responsible for, but Metabasis will supply reasonable
assistance at ICN's request, in the form of advice, consultation, review and
communication of data to the extent reasonably available to Metabasis,
concerning all chemistry efforts to optimize the Licensed Compound with respect
to its desired efficacy, metabolic profile, bio-availability, scale-up
synthesis, physiological clinical properties and cost of goods considerations,
and in particular to optimize the yield of the chemical synthesis for the
scale-up production. In addition, with respect to the selected compound MB6866,
Metabasis will supply at its expense a sufficient amount of such compound for
preclinical and development studies, currently estimated to be [REDACTED]


                                       7
<PAGE>
[REDACTED]. In addition, Metabasis will also provide [REDACTED] to ICN for the
control experiments. With respect to any Substitute Compound, Metabasis will
provide the same assistance as referred to above concerning MB6866 as well as an
initial supply of [REDACTED] of any such Substitute Compound for initial
preclinical studies, and the technical documentation and expertise and support
to make any such Substitute Compound. Metabasis represents and warrants that all
chemistry efforts and studies which Metabasis is required to provide under this
Agreement for an IND filing with respect to the Licensed Compound have been or
will be conducted in accordance with the agreed IND and NDA timetables
determined by the Development Steering Committee.

         2.7      NON COMPETITION

         Metabasis agrees that for so long as ICN is engaged in the development
of, or manufactures, has manufactured, markets, imports, uses, offers for sale
or sells, a Product during the Term pursuant to the Agreement, Metabasis and its
Affiliates will not engage in the development of, or manufacture, have
manufactured, market, import, use, offer for sale or sell, any product
containing HepDirect Compounds of PMEA, or license, assign, permit or otherwise
assist, Third Parties to engage in any of such activities.

                                  ARTICLE III

                               SUBSTITUTE COMPOUND

         If ICN, after consultation with the Development Steering Committee,
reasonably determines that the further development of the Licensed Compound is
not desirable because it will not be successful, will violate any Third Party
patent, or for a comparable reason decides not to pursue such development, ICN
will provide written notice of such determination to Metabasis. Metabasis will
then promptly and in good faith provide to ICN a complete list of all prodrugs
of PMEA which Metabasis has the right to license and all other HepDirect
Compounds which, based on the information available to Metabasis at the time
such list is prepared, a reasonable person would expect to have potential for
use in the treatment of Hepatitis B in humans, on which list Metabasis will
identify those compounds determined by Metabasis to have the greatest likelihood
of success for use in the treatment of Hepatitis B in humans. ICN will have a
period of sixty (60) days from the date it receives the list from Metabasis to
evaluate the listed HepDirect Compounds, and to select one of them for
development by written notice to Metabasis (the SUBSTITUTE COMPOUND). Any
additional research and development costs required to provide the Substitute
Compound will be paid by ICN. From the date when the selection of the Substitute
Compound is made by ICN, the Substitute Compound will be deemed to be the
Licensed Compound for the purposes of this Agreement, the compound it replaces
will cease to be the Licensed Compound and Metabasis will recover the rights to
the compound it replaces. The substitution rights of ICN under this Article III
shall continue during the time in which a Product is in the development stage
and may be exercised more than once until the First Commercial Sale of a
Product. It is understood and agreed that the license fee provided for in
Section 4.1 and the milestone payments provided for in Section 4.2 will not be
paid more than once under this Agreement regardless of the substitution of a
compound or compounds for the original Licensed Compound hereunder.


                                       8
<PAGE>
                                   ARTICLE IV

                                  COMPENSATION

         4.1      LICENSE FEE

         ICN will pay to Metabasis an initial nonrefundable license fee in the
amount of Two Million Dollars ($2,000,000), One Million Dollars ($1,000,000) of
which will be payable on the Closing Date; Five Hundred Thousand Dollars
($500,000) of which will be payable six (6) months after the Closing Date; and
the remaining Five Hundred Thousand Dollars ($500,000) of which will be payable
twelve (12) months after the Closing Date. Notwithstanding any contrary
provision of this Agreement, ICN's obligations under this Section 4.1 shall be
unconditional, shall survive any termination of this Agreement and shall not be
subject to any offset or other reduction.

         4.2      MILESTONE PAYMENTS

                  (a)      In addition to the license fee payable under Section
4.1

                           (i)      upon the initiation of the first [REDACTED]
         Clinical Trial for the first Product for which [REDACTED] Clinical
         Trials are undertaken by ICN or any of its Affiliates or any
         Sublicensee, ICN will make a one-time payment to Metabasis in the
         amount of [REDACTED];

                           (ii)     upon the initiation of the first [REDACTED]
         Clinical Trial for the first Product for which [REDACTED] Clinical
         Trials are undertaken by ICN or any of its Affiliates or any
         Sublicensee, ICN will make a one-time payment to Metabasis in the
         amount of [REDACTED];

                           (iii)    upon the filing of the first [REDACTED] for
         the first Product for which an [REDACTED] by ICN or any of its
         Affiliates or any Sublicensee, ICN will make a one-time payment to
         Metabasis in the amount of [REDACTED];

                           (iv)     upon the first approval by the [REDACTED]
         for the first Product in respect of which an [REDACTED], ICN will make
         a one-time payment to Metabasis in the amount of [REDACTED]; and

                           (v)      upon the [REDACTED] of a Product by ICN or
         any of its Affiliates or any Sublicensee in a Major Market Country, ICN
         will make a one-time payment to Metabasis in the amount of [REDACTED].

                  (b)      Each Milestone Payment due under Section 4.2(a) will
be due only once for the first Product in respect of which the indicated
Milestone occurs, regardless of the substitution for the Licensed Compound of a
Substitute Compound pursuant to Article III. ICN will promptly notify Metabasis
in writing of the occurrence of each Milestone and make all Milestone Payments
within thirty (30) days after the occurrence of the Milestone. The subsequent
occurrence of any similar event in respect of any Product will not give rise to
any


                                       9
<PAGE>
additional obligation of ICN to make a Milestone Payment with respect to such
subsequent event.

         4.3      ROYALTIES

                  (a)      In addition to the amounts payable under Sections 4.1
and 4.2, ICN will pay Metabasis, in any calendar year during the Royalty
Obligation Period, a royalty in an amount equal to [REDACTED] on the first
[REDACTED] of Net Sales of each Product and [REDACTED] on Net Sales of each
Product in excess of [REDACTED]. If a Product is included in a Combined Product,
the royalty on the Product will be calculated as the applicable percentage of
Net Sales of the Combined Product as determined above in this Section 4.3(a),
multiplied by the Product Percentage. The Parties will use their best efforts to
agree upon the Product Percentage for a Combined Product prior to the first
launch of that Product.

                  (b)      Royalties on Net Sales will be calculated quarterly
as of March 31, June 30, September 30 and December 31 (each being the last day
of an Accounting Period) and will be paid by ICN quarterly within sixty (60)
days after the end of each Accounting Period in which such Net Sales occur,
commencing with the calendar quarter in which the First Commercial Sale of any
Product is made by ICN, any of its Affiliates or any Sublicensee.

                  (c)      ICN may, with the consent of Metabasis which may not
be unreasonably withheld or delayed, obtain a license under any issued patent
from one or more Third Parties which patent, but for such license, would be
infringed by the development, manufacture, having manufactured, marketing,
importing, use, offering for sale or sale of Products in the Territory. In such
a case, ICN may reduce the royalties otherwise due to Metabasis hereunder by an
amount equal to [REDACTED] of the total cumulative consideration paid by ICN to
such Third Party or Third Parties, including any upfront payments, milestone
payments and royalties, provided, however, that such reduction shall not cause
the royalties due to Metabasis in any calendar year to fall below one half of
the royalties which would otherwise be due to Metabasis in such year. Any
portion of such reduction which is unused in any year because of the foregoing
proviso may be applied by ICN in one or more subsequent years.

                  (d)      If a Third Party sells a product which is generically
equivalent to a Product in any country in which ICN, an Affiliate or Sublicensee
is selling such Product, the royalty payable by ICN to Metabasis under this
Agreement with respect to such Product in each such country will be reduced to
[REDACTED] of Net Sales. For the purposes of this Section 4.3(d), generic
equivalence will be as understood by the Approval Authority or other applicable
authority in the particular country.

                  (e)      If an Approval Authority imposes a price limitation
for specific indications or patients, and ICN claims that such limitation
significantly adversely affects its profitability for a Product in such country,
there will be an appropriate reduction in the applicable royalty to reflect the
diminution in profitability for the affected Product, which reduction will apply
for so long as such price limitation continues to have such effect. If the
Parties fail to promptly agree to the amount of the reduction in the royalty,
the matter will be referred to arbitration pursuant to Article XIV and the
amount of such reduction will be


                                       10
<PAGE>
definitively determined by an arbitrator in accordance with the "last offer"
procedure referred to in Section 14.4. ICN will use reasonable commercial
efforts to resist the imposition or continuation of any such price limitation.

                  (f)      With respect to sublicenses entered into by ICN with
a Third Party in a country in the Territory, ICN will pay to Metabasis
consideration, if, when, and as received by ICN, equal to [REDACTED] of the
amount of any license fees, milestones, or other cash consideration and/or
[REDACTED] of the value of any non-cash consideration in respect of such
sublicense agreement received by ICN. For a period of ten (10) years from the
Closing Date or the life of the longest running patent that covers the
manufacture, use or sale of the Product in such country, whichever is greater,
Metabasis will also receive, in lieu of receiving a royalty on sales by the
Sublicensee, the lesser of (i) the royalty set forth in Section 4.3(a) as
applied to the Sublicensee's Net Sales or (ii) [REDACTED] of any royalty or
similar payments received by ICN under the sublicense agreement.

         4.4      DURATION OF ROYALTY OBLIGATIONS

         The period during which ICN is required to pay the royalty under
Section 4.3 with respect to each Product (the ROYALTY OBLIGATION PERIOD) will
terminate in each country in the Territory upon the occurrence of the later of:

                  (a)      the expiration or invalidation in such country of the
last to expire or be invalidated Licensed Patent which but for this Agreement
would be infringed by the manufacture, use or sale of such Product in such
country; and

                  (b)      ten (10) years after the First Commercial Sale in
such country of such Product.

         4.5      PAYMENT TERMS

                  (a)      ICN will make all payments required under this
Agreement in United States Dollars to Metabasis by wire transfer of immediately
available funds to a bank account of Metabasis designated by Metabasis from time
to time in accordance with this Agreement.

                  (b)      In the event that any payment due hereunder,
including any upfront payment, royalty payment and milestone payment, is not
made when due, the payment shall accrue interest from the date due at the 30-day
LIBOR in effect on the date such payment was due plus three percentage points,
provided, however, that in no event shall such rate exceed the maximum legal
annual interest rate. The payment of such interest shall not limit a party from
exercising any other rights it may have as a consequence of the lateness of any
payment.

         4.6      TAXES

         All amounts owed under this Agreement will be reduced and paid after
deduction as required by law for all applicable taxes, fees, and other charges
on such amounts except taxes imposed with respect to or based on a Party's net
income. In particular, any tax required to be withheld by ICN under the laws of
any country for the account of Metabasis (withholding taxes) will be promptly
paid by ICN for and on behalf of Metabasis to the appropriate governmental


                                       11
<PAGE>
authority, and ICN will furnish Metabasis with proof of payment of such tax. All
such tax actually paid on Metabasis' behalf will be deducted from royalty
payments due Metabasis or promptly reimbursed to ICN if no further payments are
due Metabasis. ICN will reasonably assist Metabasis in minimizing the
withholding taxes applicable to any payment made by ICN and in claiming tax
refund at Metabasis' request. Each Party agrees to reasonably assist the other
Party in claiming exemption from such withholding of taxes of any type under
double taxation or similar agreement or treaty from time to time in force and in
minimizing the amount required to be so withheld or deducted.

         4.7      REPORTS

                  (a)      Not more than sixty (60) calendar days after the end
of each Accounting Period, ICN will give Metabasis a written report estimating
the Net Sales, if any, for such Accounting Period (unless ICN makes the royalty
payment required by Section 4.3 within such sixty (60) day period in which case
Section 4.7(b) shall apply), and summarizing any Milestones met during such
Accounting Period or certifying that no Milestones were met during such
Accounting Period.

                  (b)      With each royalty payment ICN will deliver to
Metabasis a full and accurate accounting of the basis for determining such
royalty payments including supporting documentation and the following
information:

                           (i)      total Adjusted Gross Sales for each Product
         subject to royalty sold (by country) by ICN, its Affiliates and
         Sublicensees; and

                           (ii)     total royalties payable to Metabasis for the
         relevant period.

         4.8      RECORDS

         ICN and its Affiliates will keep, and will require its Sublicensees to
keep, full, true and accurate books of account containing all particulars that
may be necessary for the purpose of calculating all royalties and Milestone
Payments payable to Metabasis with accounting principles consistently applied
from period to period, in accordance with GAAP. Such books of account will be
kept, as the case may be, at ICN's or its Affiliate's or Sublicensee's principal
place of business. From time to time in accordance with this Agreement, a
nationally recognized independent public accounting firm retained by Metabasis
may perform an audit of such books and records of ICN, its Affiliates and
Sublicensees for the period or periods requested by Metabasis for the purpose of
ensuring compliance with the terms of this Agreement by ICN, its Affiliates and
Sublicensees with respect to all Milestone Payments, royalties and other amounts
payable to Metabasis under this Agreement, including the correctness of any
report or payments made under this Agreement. Upon timely request of at least
thirty (30) days' prior written notice from Metabasis, such audit will be
conducted during regular business hours in such a manner as to not unnecessarily
interfere with ICN's normal business activities or those of its Affiliates or
Sublicensees, and will be limited to results in the two (2) calendar years prior
to delivery of such written notice. Such audit will not be performed more
frequently than once per calendar year nor more frequently than once with
respect to any Accounting Period. All information, data documents and abstracts
examined in the audit will be used only for the purpose of verifying


                                       12
<PAGE>
royalty statements or compliance with this Agreement, will be treated by
Metabasis as ICN confidential information subject to the obligations of Article
11 of this Agreement and need not be retained more than one (1) year after
completion of an audit hereof, if an audit has been requested; nor more than two
(2) years from the end of the calendar year to which each pertains; nor more
than one (1) year after the date of termination of this Agreement. Audit work
papers and results will be shared by ICN and Metabasis. If the audit reveals an
underpayment, ICN will promptly make up such underpayment. The failure of
Metabasis to request verification of any royalty calculation within the period
during which corresponding records must be maintained will be deemed to be
acceptance of the royalty reporting. The fees charged by such accountant will be
paid by Metabasis unless the audit discloses that any Milestone Payment was not
paid in accordance with this Agreement or the royalties payable by ICN or its
Affiliates or Sublicensees for the audited period are more than one hundred ten
percent (110%) of the royalties actually paid for such period, in which case ICN
will pay the fees and expenses charged by the accountant. ICN will require each
of its Affiliates and Sublicensees to make reports to ICN to the same extent as
is required of ICN to Metabasis pursuant to this Agreement and to keep and
maintain records of Net Sales made pursuant to such sublicense and to grant
access to such records to Metabasis' independent accountant to the same extent
required of ICN under this Agreement. Any disagreement between Metabasis and ICN
concerning alleged overpayments or underpayments or other disputes arising from
such audits will be resolved by the dispute resolution procedure set forth in
Article XIV.

         4.9      SALES IN FOREIGN CURRENCIES

         Whenever for the purpose of calculating royalties, conversion from any
foreign currency is required, such conversion will be made as follows:

         (a)      for ICN and its Affiliates, when calculating the Adjusted
Gross Sales, the amount of such sales in foreign currencies will be converted
into United States Dollars as computed in ICN's United States Dollars financial
reporting system for the countries concerned, using for internal foreign
currency translation ICN's then current standard practices actually used on a
consistent basis in preparing its audited financial statements in accordance
with GAAP; and

         (b)      for a Sublicensee in a country, when calculating the Adjusted
Gross Sales, the amount of such sales estimate will be reported by the
Sublicensee to ICN within sixty (60) days from the end of an Accounting Period,
after having converted each applicable monthly sales amount in foreign currency
into United States Dollars (or applicable reporting currency) using the average
rate of exchange published in the United States Federal Reserve Releases H.10
and G5 (or some other source agreed upon in writing by the Parties for any
particular country) for each respective month of the applicable Accounting
Period; and

         (c)      when calculating the royalties on Net Sales, such conversion
will be in accordance with ICN's then current standard practices and GAAP.


                                       13


<PAGE>
                                   ARTICLE V

                         DEVELOPMENT STEERING COMMITTEE

      5.1   APPOINTMENT AND ADMINISTRATION OF THE DEVELOPMENT STEERING COMMITTEE

            (a)   As soon as practicable after the execution of this Agreement
and in no event later than thirty (30) days after the Closing Date, the Parties
will establish a four (4) person steering committee to oversee and review the
development of Products, which will include two (2) representatives of each of
Metabasis and ICN (the DEVELOPMENT STEERING COMMITTEE) and will be chaired by
one of the representatives of ICN. At least one member appointed by each Party
will be a senior officer of such Party responsible for product development or a
person with substantial experience in product development for similar products
who is acceptable to the other Party. Each Party, at its sole discretion, may at
any time during the Term of this Agreement replace a member it has the right to
designate upon prior written notice to the other Party. Each Party will use
reasonable efforts to cause its respective representatives to attend all
meetings of the Development Steering Committee. Each Party will bear the travel
and out-of-pocket expenses incurred by its members or representatives in
connection with the Development Steering Committee's meetings.

            (b)   The Development Steering Committee will meet at least once
every calendar quarter, or more or less frequently as the Parties mutually deem
appropriate, on dates and at times and places as agreed by the Parties. The
Development Steering Committee may also convene or be polled or consulted from
time to time by means of telecommunications, video conferences or
correspondence, as deemed by the Parties to be necessary or appropriate.

            (c)   Any disagreement within the Development Steering Committee not
promptly resolved within the Development Steering Committee will be promptly
presented by the representatives on the Development Steering Committee to the
executive of each of Metabasis and ICN who has the principal responsibility for
his respective company's work under this Agreement. Such executives will
promptly meet to discuss each Party's view and to explain the basis for
disagreement. If such executives are unable to resolve such dispute, the matter
will be resolved by the ICN executive who has the principal responsibility for
ICN's work under this Agreement.

            (d)   The Development Steering Committee will exist until the first
approval of a Product by the relevant Approval Authority is obtained in each of
the Major Market Countries, unless otherwise agreed by the Parties.

      5.2   RESPONSIBILITY AND AUTHORITY OF THE DEVELOPMENT STEERING COMMITTEE

      Subject to the other terms of this Agreement, the Development Steering
Committee will be responsible only for all decisions concerning (i) clinical
trials of Products, and (ii) the necessity for and selection of Substitute
Compounds. Promptly after the signature hereof, the Parties will consult with
each other concerning the preparation of the Development Plan pursuant to which
all development with respect to the Licensed Compound will be conducted. ICN
will give serious consideration to all reasonable suggestions made by Metabasis
concerning the


                                       14
<PAGE>
Development Plan. The Development Plan will be subject to the review, comment,
modification, and approval of the Development Steering Committee. The parties
will keep each other informed through the Development Steering Committee as to
the development of Products including contracts relating to their development,
and the formulation used in respect of Products.

                                   ARTICLE VI

                      DEVELOPMENT AND MARKETING OBLIGATIONS

      6.1   COMMERCIAL DEVELOPMENT OBLIGATION

            (a)   ICN will at its sole expense diligently develop,
commercialize, promote and sell Products in each Major Market Country in the
Field, as well as elsewhere in the Territory, as promptly as is reasonably and
commercially feasible. For purposes of this Section 6.1(a), the standard of
commercial feasibility shall mean the standard that ICN and companies comparable
to ICN use for similar products of similar potential at a similar stage of
development on a worldwide basis. Upon a showing of lack of commercial
feasibility with respect to any country in the Territory other than a Major
Market Country, ICN may upon written notice to Metabasis, without being in
violation of its obligations under this Section 6.1(a), elect to cease
developing, commercializing, promoting and selling Products in such country;
provided that such election shall not release ICN from any of its obligations to
Metabasis up to the date of such notice, including payment of all amounts owed
to Metabasis up to such date. If within six months after such written notice ICN
shall not have resumed diligently developing, commercializing, promoting and
selling Products in such country in accordance with Section 6.1, all licenses
granted to ICN pursuant to Section 2 with respect to such country shall become
non-exclusive and ICN shall make available to Metabasis, to the extent they are
available to ICN, all clinical information, data, INDs, NDAs and other Product
Registrations applicable to all Licensed Compounds and Products to the extent
necessary to permit Metabasis and/or its assignees, sublicensees and
distributors to develop, commercialize, promote and sell Products in such
country.

            (b)   Until all of the milestone payments referred to in Section
4.2(a) have been paid, ICN will keep the Development Steering Committee fully
informed on a reasonable basis as to ICN's progress in the development of
Products, including without limitation in respect of all development,
commercialization and marketing efforts undertaken by ICN, its Affiliates and
Sublicensees, as applicable, with respect to the Licensed Compound and Products,
by providing a written report of such efforts on a semiannual basis. Until all
of the milestone payments referred to in Section 4.2(a) have been paid,
Metabasis may request, no more often than once every calendar quarter, a meeting
at which Metabasis may meet with the principal ICN individuals responsible for
such development, commercialization and marketing. ICN agrees to arrange such a
meeting promptly following such request. At such meeting the ICN representatives
will discuss ICN's commercialization efforts for Products, including answering
Metabasis' questions regarding such efforts. ICN may satisfy its obligation to
meet with Metabasis under this Section 6.1(b) through meetings of the
Development Steering Committee.



                                       15
<PAGE>
            (c)   If ICN fails to meet a material obligation under this Section
6.1, then Metabasis may terminate this Agreement pursuant to Section 12.3.

      6.2   USE OF NAME

      Metabasis may not use the name of ICN or any of its Affiliates or any
variant thereof, and ICN may not use the name of Metabasis or any variant
thereof, in each case in connection with the advertising or sale of any Product,
without the prior written consent of the other.

                                   ARTICLE VII

                              FUTURE COLLABORATION

      7.1   NEW PRODUCTS

            (a)   For a period of five (5) years following the Closing Date, if
Metabasis determines to develop or otherwise exploit with a Third Party a
particular HepDirect Compound for the treatment of Hepatitis B in humans that is
not subject to the license under Section 2.1 (a NEW PRODUCT), Metabasis will,
before entering into negotiations with a Third Party, first offer to ICN the
opportunity to participate in such development or exploitation by written notice
to ICN setting forth in reasonable detail the proposed development or
exploitation. ICN will have a period of [REDACTED] from receiving such notice to
notify Metabasis in writing whether it wishes to participate. If ICN elects to
participate, the Parties will negotiate in good faith the terms and conditions
for such participation, which will include without limitation provision for the
following payments to the extent they are in concept consistent with industry
practice then applicable:

                        (i)   upon execution of a definitive agreement, ICN will
      pay [REDACTED];

                        (ii)  ICN will pay Metabasis [REDACTED] upon initiation
      of [REDACTED] Clinical Trials of the New Product;

                        (iii) ICN will pay Metabasis [REDACTED] upon approval by
      the [REDACTED] relating to the New Product;

                        (iv)  ICN will pay Metabasis [REDACTED] upon the
      [REDACTED] of the New Product in a Major Market Country other than the
      United States by ICN or any of its Affiliates or any Sublicensee; and

                        (v)   ICN will pay a royalty to Metabasis of [REDACTED]
      on Net Sales of the New Product.

            Metabasis may offer participation in the development or exploitation
of the New Product to a Third Party, or entertain offers from and, subject to
Section 7.1(b), enter into an agreement with a Third Party to develop or exploit
the New Product, if (i) ICN does not notify Metabasis during such [REDACTED]
period that it wishes to participate in the development or exploitation of the
New Product, (ii) ICN notifies Metabasis during such period that it does not


                                       16
<PAGE>
wish to participate, or (iii) after good faith negotiation, ICN and Metabasis
are unable to reach agreement on the terms and conditions for ICN's
participation in the development or exploitation of the New Product within
[REDACTED] from the date on which ICN notifies Metabasis that it wishes to
participate.

            (b)   Neither Metabasis nor any of its Affiliates will enter into a
binding agreement with a Third Party concerning the development or exploitation
of the New Product on terms substantially better as a whole (for the Third
Party) than those offered to ICN under Section 7.1(a) unless Metabasis provides
ICN with written notice setting forth the material terms and conditions upon
which Metabasis or its Affiliates proposes to enter into an agreement with such
Third Party (the THIRD PARTY CONDITIONS) and ICN fails within [REDACTED]
from receiving such notice of the Third Party Conditions to commit to enter into
an agreement with Metabasis on the Third Party Conditions. If ICN so commits
during such [REDACTED]  period, the Parties will promptly document an
agreement setting forth such terms and conditions, and other terms and
conditions within customary industry parameters. If the Parties do not agree on
all terms and conditions of the participation of ICN in the development and
exploitation of the New Product, arbitration, pursuant to Article XIV, will
definitively determine, in accordance with the "last offer" procedure referred
to in Section 14.4, such terms and conditions upon which the Parties do not
agree. If ICN does not so commit during such period, then Metabasis may within
[REDACTED] thereafter enter into such agreement with such Third Party on
terms and conditions not substantially better as a whole (for the Third Party)
than those included in Metabasis' notice to ICN of its proposal to enter into an
agreement with such Third Party. Notwithstanding the above, if Metabasis has not
entered into a binding agreement with a Third Party [REDACTED] of the
expiration of the later of (i) the [REDACTED] period following Metabasis'
written notice to ICN referred to in Section 7.1 (a), or (ii) the termination of
the negotiation referred to in Section 7.1(a) (which negotiation may be
terminated by written notice sent by either Party to the other Party), Metabasis
will again offer participation concerning such New Product to ICN in accordance
with this Section 7.1.

      7.2   [REDACTED] PRODRUG OPTION

      For a period of [REDACTED] years after the Closing Date, ICN will have the
exclusive option to obtain an exclusive (even as to Metabasis) license to
develop, manufacture, have manufactured, market, import, use, offer for sale and
sell any [REDACTED] Prodrug which Metabasis owns or controls or to which
Metabasis has rights to grant licenses or sublicenses. If ICN exercises such
option, the Parties will negotiate in good faith a collaborative agreement on
commercially reasonable terms which will in no event be less favorable to ICN
than those set forth in Section 7.1. If any of such terms cannot be agreed to by
the Parties, the matter will be referred to arbitration pursuant to Article XIV
and the determination of such terms will be made in accordance with the "last
offer" procedure referred to in Section 14.4. Notwithstanding anything to the
contrary contained in this Agreement, this Agreement does not and shall not at
any time in the future grant any rights to Metabasis with respect to [REDACTED]
or any [REDACTED] Prodrug.



                                       17
<PAGE>
      7.3   DISCOVERY OF NEW HEPATITIS B DRUGS

      For a period of five (5) years after the Closing Date, ICN will have the
right to enter into an additional collaborative arrangement with Metabasis to
apply the HepDirect Technology to the extent Metabasis has the right to grant
licenses or sublicenses hereunder to compounds which ICN has the right to
commercialize for the discovery of new pharmaceutical products for the treatment
of Hepatitis B. If ICN exercises such right, the Parties will negotiate in good
faith a collaborative agreement on commercially reasonable terms.

                                  ARTICLE VIII

                              INTELLECTUAL PROPERTY

      8.1   PATENT PROSECUTION AND MAINTENANCE

            (a)   PATENTS COVERING INVENTIONS OWNED BY METABASIS. Metabasis will
at its own expense, (i) prepare, file, prosecute and maintain (collectively,
HANDLE) all Licensed Patents and any other patents covering inventions owned by
Metabasis pursuant to this Agreement (such Licensed Patents and other patents
being hereinafter collectively referred to as METABASIS PATENTS), (ii) consult
with ICN as to the Handling of such Metabasis Patents in Major Market Countries
as such Metabasis Patents relate to Products, and (iii) furnish to ICN copies of
all documents relevant to any such Handling. Metabasis will furnish such
documents and consult with ICN in sufficient time before any action by Metabasis
is due to allow ICN to provide comments thereon, which comments Metabasis must
consider. At Metabasis' expense and reasonable request, ICN shall cooperate, in
reasonable ways in connection with the preparing, filing, prosecution and
maintenance of all Metabasis Patents. Should Metabasis decide that it does not
desire to Handle a patent or patent application within the Metabasis Patents in
a country in the Territory, as it relates to Products, it will promptly advise
ICN thereof. In such circumstances, ICN may, but is not obligated to, Handle the
same at ICN's own cost, to the extent that ICN desires to do so.

            (b)   PATENTS COVERING INVENTIONS OWNED BY ICN. ICN will, at its own
expense, (i) Handle all patents or patent applications covering inventions owned
by ICN, which claim the manufacture, formulation, use or sale of Products (other
than Metabasis Patents) (the ICN PATENTS), (ii) consult with Metabasis as to the
Handling of such ICN Patents in Major Market Countries as such patents relate to
Products, and (iii) furnish to Metabasis copies of all documents relevant to any
such Handling. ICN will furnish such documents and consult with Metabasis in
sufficient time before any action by ICN is due to allow Metabasis to provide
comments thereon, which comments ICN must consider. At ICN's expense and
reasonable request, Metabasis shall cooperate, in reasonable ways, in connection
with the preparing, filing, prosecution and maintenance of all ICN Patents.
Should ICN decide that it does not desire to Handle a patent or patent
application within the ICN Patents in a country in the Territory, as it relates
to Products, it will promptly advise Metabasis thereof. In such circumstances,
Metabasis may, but is not obligated to, Handle the same at Metabasis' own cost
and expense, to the extent that Metabasis desires to do so.



                                       18
<PAGE>
            (c)   COOPERATION OF THE PARTIES. Each Party agrees to cooperate
fully in the preparation, filing, prosecution and maintenance of any patents or
patent applications under this Agreement. Such cooperation includes, but is not
limited to:

                        (i)   executing all papers and instruments, or requiring
      its employees or agents to execute all such papers and instruments, so as
      to effectuate in accordance with this Agreement the ownership of
      inventions, patents and patent applications set forth in Sections 8.4(a) -
      8.4(b) herein, and to enable the other party to apply for and to prosecute
      patent applications in any country; and

                        (ii)  promptly informing the other Party of any matters
      coming to such Party's attention that may affect the preparation, filing,
      prosecution or maintenance of any such patent applications or patents.

      8.2   NOTIFICATION OF INFRINGEMENT

      If a Party learns of infringement or threatened infringement or
misappropriation by a Third Party of any Licensed Patent, non-Licensed Patent or
Licensed Technology relating to Products within the Territory, it will promptly
notify the other Party and provide the other Party with all available evidence.

      8.3   PATENT ENFORCEMENT

      ICN shall have the first right to bring and control any action or
proceeding with respect to infringement of any patent claiming or otherwise
related to the use, manufacture or sale of Products at its own expense and by
counsel of its own choice, and Metabasis shall have the right, at its own
expense, to be represented in any such action by counsel of its own choice. If
ICN fails to bring an action or proceeding within (a) sixty (60) days following
the notice of alleged infringement or (b) ten (10) days before the time limit,
if any, set forth in the appropriate laws and regulations for the filing of such
actions, whichever comes first, Metabasis shall have the right to bring and
control any such action at its own expense and by counsel of its own choice, and
ICN shall have the right, at its own expense, to be represented in any such
action by counsel of its own choice. In the event a Party brings an infringement
action, the other Party shall cooperate fully, including if required to bring
such action, the furnishing of a power of attorney. Any settlement or other
action by a Party which requires payment or other action by the other Party,
subjects the other Party to liability or otherwise adversely affects the other
Party will require the other Party's prior written consent, which will not be
unreasonably withheld or delayed. The Party which actually brings the action
shall be entitled to any damage award and other recoveries resulting therefrom,
provided that to the extent that any such damage award or other recovery
realized by ICN constitutes compensation for lost sales, the excess of such
award or recovery, net of the litigation and related expenses of obtaining such
award or recovery, shall be treated as Net Sales hereunder with respect to which
royalties shall be payable pursuant to Section 4.3 of this Agreement.

      8.4   OWNERSHIP

            (a)   METABASIS OWNED INVENTIONS. As between Metabasis and ICN,
Metabasis shall own all rights in and to any and all inventions made by or on
behalf of Metabasis


                                       19
<PAGE>
or ICN during the Term of this Agreement with respect to HepDirect Technology
including, without limitation, any and all patents, patent claims or patent
applications claiming any of the foregoing, but excluding all items set forth in
Section 8.4 (b)(i) below.

            (b)   ICN OWNED INVENTIONS. As between Metabasis and ICN, ICN shall
own all rights in and to any and all inventions made solely by or on behalf of
ICN during the Term of this Agreement with respect to any of the following:

                        (i)   the manufacture (including scale-up), formulation,
      use or sale of Products,

                        (ii)  any liver delivery technology or any compound that
      does not involve the HepDirect Technology,

including, without limitation, any and all patents, patent claims or patent
applications claiming any of the foregoing. ICN will grant to Metabasis a right
to practice any such invention which is made with respect to Section 8.4(b)(i)
above, together with a right to sublicense such right, on the basis of a royalty
and other terms that are commercially reasonable (which royalty and other terms
will be determined by arbitration pursuant to Article XIV in accordance with the
"last offer" procedure referred to in Section 14.4 if the Parties cannot reach
agreement thereon after good faith negotiation between them), so long as such
right to practice and such sublicense does not enable Metabasis or such
sublicensee to compete with any of the Products manufactured, used or sold by
ICN.

            (c)   ASSIGNMENT OF INVENTIONS. ICN agrees to assign, and hereby
does assign all intellectual property rights in and to any and all inventions
addressed in sections 8.4(a) herein, as is necessary to vest ownership of such
inventions as set forth in sections 8.4(a). If the foregoing assignment would
be void or impermissible in a given country, then the assigning Party
automatically shall be deemed to have granted to the other Party the exclusive
(co-exclusive with respect to jointly owned inventions) perpetual, irrevocable,
fully paid-up, freely sublicensable license to use and practice such invention,
and all intellectual property rights related thereto, in such country for any
and all purposes consistent with this Agreement, and which license shall survive
any expiration or termination of this Agreement.

      8.5   TRADEMARKS

      ICN will own all trademarks associated with or used in connection with the
manufacture, marketing and sale of any Products, together with associated
goodwill, excluding the mark "HepDirect" and any variants thereof and any
goodwill associated therewith which shall be owned by Metabasis. ICN will be
responsible for obtaining, maintaining and protecting all applicable trademarks
in connection with the manufacture, marketing and sale of any Products.



                                       20
<PAGE>
      8.6   DEFENSE OF INFRINGEMENT AND INVALIDITY ACTIONS

            (a)   Each Party shall promptly notify the other in writing of any
allegation by a Third Party that the activity of either of the parties pursuant
to this Agreement infringes or may infringe the intellectual property rights of
such Third Party.

            (b)   ICN will have the first right and, if exercised, will have
primary responsibility for and control over the defense of any legal action
brought by any Third Party in which ICN, any of its Affiliates or Sublicensees
is or becomes a defendant and which is related to alleged infringement of a
Third Party patent, as a result of the development or sale of Products, and
Metabasis shall have the right, at its own expense, to be represented in any
such action by counsel of its own choice. Metabasis will reimburse ICN for
twenty-five percent (25%) of the costs reasonably incurred by ICN in connection
with such defense, settlement, and/or damage award, if, when and as incurred. If
ICN fails to proceed in a timely fashion with regard to such defense, Metabasis
shall have the right to control any such defense, and ICN shall have the right,
at its own expense, to be represented in any such action by counsel of its own
choice. In such case, ICN will reimburse Metabasis for seventy-five percent
(75%) of the costs reasonably incurred by Metabasis in connection with such
defense, settlement, and/or damage award, if, when and as incurred. The
defending Party will at all times keep the other Party reasonably informed as to
the status of any such action. Any settlement or other action by a Party which
requires payment or other action by the other Party, subjects the other Party to
liability or otherwise adversely affects the other Party will require the other
Party's prior written consent, which will not be unreasonably withheld or
delayed.

                                   ARTICLE IX

             REPRESENTATIONS, WARRANTIES AND LIMITATION OF LIABILITY

      9.1   REPRESENTATIONS OF METABASIS

      Metabasis represents and warrants to ICN as follows.

            (a)   Metabasis is a corporation duly organized under the laws of
the State of Delaware, and has all requisite legal and corporate power and
authority to carry on its business and to perform its obligations under this
Agreement. All action on the part of Metabasis necessary for the execution and
delivery of this Agreement and the performance of Metabasis' obligations under
this Agreement has been taken. The person(s) executing this Agreement on behalf
of Metabasis have all necessary corporate powers and have been duly authorized
by Metabasis to execute, and deliver this Agreement on its behalf. This
Agreement constitutes a valid and binding obligation of Metabasis, enforceable
in accordance with its terms. Except as have been or will be obtained by
Metabasis and except for Product Registration, no permit, consent, approval or
authorization of, or declaration to or filing with, any person, party or
governmental authority is required in connection with the delivery,
consummation, or performance by Metabasis of this Agreement.

            (b)   The execution, delivery and performance of this Agreement by
Metabasis will not, with or without notice or the passage of time or both,
result in any violation of, be in


                                       21
<PAGE>
conflict with or constitute a default under any material contract, obligation or
commitment to which Metabasis is a Party or by which it is bound, or, to the
best knowledge of Metabasis, any statute, rule or governmental regulation
applicable to Metabasis.

            (c)   To the best knowledge of Metabasis, Metabasis owns, and will
own, all right, title and interest in and to the Licensed Patents and Licensed
Technology as they exist from time to time during the Term. There are no adverse
actions, suits, or claims pending or threatened against Metabasis in any court
or by or before any governmental body or agency with respect to the Licensed
Technology or the Licensed Patents and, to the best knowledge of Metabasis,
there are no Third Party patents which would reasonably be expected to give rise
to such actions, suits or claims.

            (d)   Metabasis has not granted a license to any Third Party or
Affiliate covering any PMEA prodrugs or any other part of the HepDirect
Technology that would prevent ICN from fully benefiting from this Agreement and
has shown ICN all Metabasis compounds that Metabasis has tested, or as to which
Metabasis has acquired data, which indicate potential usefulness against
Hepatitis B.

      9.2   REPRESENTATIONS OF ICN

      ICN represents and warrants to Metabasis as follows.

            (a)   ICN is a corporation duly organized under the laws of the
State of Delaware. ICN has all requisite legal and corporate power and authority
to carry on its business and perform its obligations under this Agreement. All
action on the part of ICN necessary for the execution and delivery of this
Agreement and the performance of ICN's obligations under this Agreement has been
taken. The person(s) executing this Agreement on behalf of ICN have all
necessary corporate powers and have been duly authorized by ICN to execute this
Agreement on its behalf. This Agreement constitutes a valid and binding
obligation of ICN, enforceable in accordance with its terms. Except as have been
or will be obtained by ICN and except for Product Registration, no permit,
consent, approval or authorization of, or declaration to or filing with, any
person, party or governmental authority is required in connection with the
delivery, consummation or performance by ICN of this Agreement.

            (b)   The execution, delivery and performance of this Agreement by
ICN will not, with or without notice or the passage of time or both, result in
any violation of, be in conflict with or constitute a default under any material
contract, obligation or commitment to which ICN is a party or by which it is
bound, or, to the best knowledge of ICN, any statute, rule or governmental
regulation applicable to ICN.

      9.3   DISCLAIMER OF WARRANTIES

      EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THE LICENSED COMPOUND, THE
LICENSED TECHNOLOGY AND PRODUCTS LICENSED BY METABASIS TO ICN UNDER THIS
AGREEMENT ARE PROVIDED "AS IS," AND METABASIS EXPRESSLY DISCLAIMS ANY AND ALL
OTHER WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION
THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR


                                       22
<PAGE>
PURPOSE, AND NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES. Without limiting the generality of the foregoing, Metabasis expressly
disclaims any warranty of (a) the success of any study or test commenced
pursuant to this Agreement, or (b) the safety or usefulness for any purpose of
the Licensed Compound, the Licensed Technology or Products.

                                    ARTICLE X

                                INDEMNIFICATION

      10.1  INDEMNIFICATION BY ICN

      ICN will at all times, during and after the Term, indemnify, defend and
hold harmless Metabasis, its Affiliates, and its directors, officers, employees,
and agents against any and all claims, demands, actions and liabilities,
including reasonable attorneys' fees and costs (collectively, CLAIMS), arising
out of or relating to (i) any breach of any representation, warranty or covenant
of ICN under this Agreement or (ii) the possession, storage, transport,
manufacture, use, administration, sale, distribution or other disposition of the
Licensed Compound or Products by or on behalf of ICN or its Affiliates or
Sublicensees. This indemnity obligation will not apply to:

            (a)   any Claim indemnifiable by Metabasis under Section 10.2; or

            (b)   to the extent that any claim, loss, damage, liability or Third
Party claim or suit is the result of any grossly negligent act or willful
misconduct of Metabasis, its Affiliates, or its Sublicensees, or their
directors, officers, employees or agents.

      10.2  INDEMNIFICATION BY METABASIS

      Metabasis will at all times, during and after the Term, indemnify, defend
and hold harmless ICN, its Affiliates, and its Sublicensees and their respective
directors, officers, employees and agents against any and all Claims arising out
of or relating to any breach of any representation, warranty or covenant of
Metabasis under this Agreement. This indemnity obligation will not apply with
respect to:

            (a)   any claims against ICN or its Affiliates that are for personal
injury or death based on or relating to the Licensed Compound sold or Products
sold by or on behalf of ICN, its Affiliates or its Sublicensees.

            (b)   any Claim indemnifiable by ICN under Section 10.1; or

            (c)   to the extent that any claim, loss, damage, liability or Third
Party claim or suit is the result of any grossly negligent act or willful
misconduct of ICN, its Affiliates, or its Sublicensees, or their directors,
officers, employees or agents.



                                       23
<PAGE>
      10.3  OBLIGATIONS OF THE PARTY SEEKING TO BE INDEMNIFIED

      If any party entitled to indemnity under this Article X (in each case, an
INDEMNIFIED PARTY) desires to seek indemnity under this Agreement from Metabasis
or ICN, as the case may be (in each case, an INDEMNIFYING PARTY), the
Indemnified Party will as soon as reasonably practicable give notice to the
Indemnifying Party, including full particulars of any Claim to the extent known
to the Indemnified Party. Failure to give timely notice to the Indemnifying
Party will not release the Indemnifying Party from any liability to the
Indemnified Party except to the extent that the Indemnifying Party is injured by
such delay. The Indemnifying Party will have the right, by prompt notice to the
Indemnified Party, to assume the defense of the matter at the cost of the
Indemnifying Party. If the Indemnifying Party does not assume the defense of the
claim or, having done so, does not pursue the defense, the Indemnified Party may
assume the defense, with counsel of its choice, but at the cost and for the
account of the Indemnifying Party. If the Indemnifying Party so assumes such
defense, the Indemnified Party may participate through counsel of its choice,
but the cost of such counsel will be for the account of the Indemnified Party.
The Party not assuming the defense of the claim will render all reasonable
assistance to the Party assuming the defense, and all out-of-pocket costs of
such assistance will be for the account of the Indemnifying Party. No such claim
will be settled other than by the Party defending the claim, and then only with
the consent of the other Party, which will not be unreasonably withheld. In the
event that the Indemnified Party is an Affiliate, director, officer, employee or
agent of a Party to this Agreement, such Indemnified Party's rights to
indemnification shall be pursued through and such Indemnified Party shall be
represented for such purposes by such Party to this Agreement.

                                   ARTICLE XI

                         CONFIDENTIALITY AND PUBLICATION

      11.1  CONFIDENTIALITY

      Subject to Section 11.2, during the Term and for five (5) years after the
Term, each Party will maintain in confidence, to the same extent to which such
Party maintains its own proprietary information, all information and materials
disclosed by the other Party, including Licensed Patents and Licensed
Technology, whether provided prior to or after the Closing Date, and will not
use such information or materials for any purpose except as permitted by this
Agreement, and will not disclose such information and materials to anyone other
than those of its Sublicensees, Affiliates, potential Sublicensees, employees,
consultants, agents or subcontractors as are necessary in connection with such
Party's activities pursuant to this Agreement. Each Party will obtain a written
agreement from its Sublicensees, potential Sublicensees, consultants, agents and
subcontractors (if any), prior to disclosure, to hold in confidence and not make
use of such trade secrets or other proprietary information for any purpose other
than as permitted by this Agreement.

      11.2  DISCLOSURE

      The obligation of confidentiality in this Agreement does not apply to the
extent that



                                       24
<PAGE>
            (a)   either Party (as such, the RECIPIENT) is required to disclose
information by order or regulation of a governmental agency or a court of
competent jurisdiction, or under the securities laws of any jurisdiction or in
connection with any filing of information with the U.S. Securities and Exchange
Commission or any stock exchange upon which its securities are listed, except
that the Recipient will not make any such disclosure (other than as required
under the securities laws of any jurisdiction or in connection with any filing
of information with the U.S. Securities and Exchange Commission or any stock
exchange upon which its securities are listed) without first notifying the other
Party and allowing such other Party a reasonable opportunity to seek injunctive
relief from (or protective order with respect to) the obligation to make such
disclosure;

            (b)   the Recipient can demonstrate that (i) the disclosed
information was at the time of such disclosure to the Recipient already in (or
later enters) the public domain other than as a result of actions of the
Recipient, Recipient's Affiliates, employees, Sublicensees, agents or
subcontractors in violation of this Agreement; (ii) the disclosed information
was rightfully known by the Recipient or its Affiliates (as shown by its written
records) prior to the date of disclosure to the Recipient in connection with the
negotiation, execution or performance of this Agreement or independently
generated by the Recipient or its Affiliates at any time; or (iii) the disclosed
information was received by the Recipient or its Affiliates on an unrestricted
basis from a source unrelated to either Party to this Agreement and not under a
duty of confidentiality to the other Party;

            (c)   disclosure is made to a government regulatory agency as part
of such agency's product license approval process, provided, however, that the
Recipient will notify the other Party, limit the disclosure to the extent
permitted and, where appropriate, seek confidential treatment; or

            (d)   disclosure is necessary to obtain or secure patent protection
of any Licensed Patents or Licensed Technology, provided, however, that the
Recipient will notify the other Party, limit the disclosure to the extent
permitted and, where appropriate, seek confidential treatment.

      11.3  PUBLICITY

      Except as otherwise provided in this Agreement (including without
limitation Section 11.2) or required by law or regulation, no Party will
originate any publication, news release or other public announcement, written or
oral, whether in the public press, stockholders' reports or otherwise, relating
to this Agreement or to any sublicense under this Agreement, or to the
performance under this Agreement or under any sublicense under this Agreement,
without the prior written approval of the other Party, which approval will not
be unreasonably withheld or delayed.

      11.4  SCIENTIFIC PUBLICATIONS

      ICN and Metabasis will seek to arrive at a consensus as to the publication
of scientific articles concerning the Licensed Compound or Products. Absent such
a consensus, ICN shall be free to publish scientific articles about the Licensed
Compound or Products in scientific


                                       25
<PAGE>
publications but Metabasis may only do so with the consent of ICN, which consent
may not be unreasonably withheld or delayed. Notwithstanding the immediately
preceding sentence, Metabasis shall be free to publish scientific articles
concerning the HepDirect Technology generally and concerning a compound which
may become a Substituted Compound but only prior to its becoming a Substituted
Compound, provided, however, that ICN is given thirty (30) days advanced written
notice by Metabasis of any such proposed publication concerning the HepDirect
Technology generally or concerning a compound which may become a Substituted
Compound.

                                   ARTICLE XII

                              TERM AND TERMINATION

      12.1  TERM

            (a)   The Term of this Agreement (the TERM) commences as of the
Closing Date and, unless sooner terminated in accordance with this Agreement,
will expire in each country in the Territory with respect to a Product upon the
occurrence of the later of

                        (i)   the expiration or invalidation of the last to
      expire or be invalidated of the Licensed Patent(s) which but for this
      Agreement would be infringed by the sale of such Product using such
      Licensed Patents in such country, including any extension of such Licensed
      Patents; and

                        (ii)  ten (10) years after the First Commercial Sale in
      such country of such Product.

            (b)   Upon expiration of the Term in a country with respect to any
Product, ICN will have a perpetual, fully paid-up, royalty free, non-exclusive
license within the Field in such country (with the right to grant sublicenses in
accordance with Section 2.2) to develop, manufacture, have manufactured, market,
import, use, offer for sale, and sell such Product.

      12.2  [INTENTIONALLY OMITTED]

      12.3  TERMINATION FOR CAUSE

            (a)   Either Party (as such, the NON-BREACHING PARTY) may terminate
this Agreement if

                        (i)   the other Party (as such, the BREACHING PARTY)
      does not comply with any of its material obligations in this Agreement;

                        (ii)  the Non-Breaching Party gives notice to the
      Breaching Party specifying the nature of the default, requiring the
      Breaching Party to cure the default, and referring to the Non-Breaching
      Party's right to terminate this Agreement pursuant to this Section 12.3;



                                       26
<PAGE>
                        (iii) the Chief Executive Officer of Metabasis and the
      head of Research and Development and/or Executive Vice President of
      Strategic Planning of ICN have met and been unable to resolve any dispute
      arising from the alleged default within the thirty (30) days following the
      notice referred to in Section 12(a)(ii) (each of the Parties hereby
      agreeing to cause such individuals to meet promptly); and

                        (iv)  the default is not cured within sixty (60) days
      after the receipt of such notice (or, in the event that cure cannot be
      effected within such sixty (60) day period, reasonable efforts by the
      Breaching Party are not commenced and continuing throughout such period
      and the default is not finally cured within one hundred and twenty (120)
      days after the receipt of such notice).

            (b)   Upon the occurrence of any event under Section 12.3(a) that
entitles a Party to terminate this Agreement, such Party may deliver to the
other Party written notice of termination of this Agreement, and the termination
will be effective upon delivery of such notice. The right to terminate will be
in addition to and not in substitution for any other available remedy.

            (c)   If Metabasis has the right to terminate this Agreement under
Section 12.3(a), Metabasis at its option, instead of terminating this Agreement,
may by written notice to ICN convert the license granted under Section 2.1
(including the right to sublicense under Section 2.2) into a non-exclusive
license. All other provisions of this Agreement will otherwise remain in effect.

            (d)   A Party entitled to terminate this Agreement, or convert the
license under this Agreement, under this Section 12.3 may elect to terminate or
convert with respect to a particular country or countries in the Territory
rather than the entire Territory by giving written notice of such election in
the notice of intent to terminate or convert the license. If a Party elects to
terminate with respect to a particular country, the licenses and other rights
granted to ICN pursuant to Article II with respect to that particular country
will terminate.

            (e)   Notwithstanding Section 12.3(a), if the default of the
Breaching Party giving rise to the Non-Breaching Party's right of termination is
of a non-financial nature and is limited to a particular country or countries,
other than a Major Market Country, and the results of that default extend only
within that country or countries, the Non-Breaching Party may terminate or
convert the license only with respect to the country or countries where such
default has occurred. Nothing in this Section 12.3 shall limit any remedies
otherwise available to either Party.

            (f)   Waiver by either Party of any event or succession of events
giving rise to the right of termination will not deprive the waiving Party of
the right to terminate this Agreement under this Section 12.3 on the basis of
any subsequent event giving rise to such right.

      12.4  RIGHTS AND OBLIGATIONS UPON TERMINATION FOR CAUSE

      Upon any termination by Metabasis under Section 12.3 with respect to a
particular country or countries, all licenses and other rights granted to ICN
pursuant to Article II will terminate with respect to such country or countries.
Upon such termination of all licenses and


                                       27
<PAGE>
rights, Metabasis will have an option, executable for a period of [REDACTED]
commencing on the effective date of the termination, to acquire ICN's clinical
information and data generated with respect to its development activities for
the Licensed Compound and Products, all INDs, NDAs and other Product
Registrations applicable to all Licensed Compounds and Products, with respect to
such country or countries, so as to enable Metabasis or its assignees,
sublicensees or distributors to continue to develop, manufacture, market and
sell the Products in such country or countries. If Metabasis elects to exercise
its option, it will give notice to ICN of such exercise together with the notice
of termination and a proposed purchase price and ICN will make the items
referred to in the immediately preceding sentence promptly available to
Metabasis. The Parties will then negotiate in good faith the price and other
terms of the acquisition and consummate the transaction within the [REDACTED]
following such notice to ICN. If the Parties do not consummate the purchase and
sale of the above referenced ICN product rights within such [REDACTED] period,
the matter will be referred to arbitration in accordance with Article XIV and
the price and other terms of the acquisition will be determined in accordance
with the "last offer" procedure referred to in Section 14.4. The price of such
acquisition shall be paid by Metabasis to ICN or, at Metabasis' option, credited
against the amount of damages, if any, ultimately determined to be due to
Metabasis as a result of the default giving rise to such right of termination.
In the event that such credit exceeds the amount of such damages, then, until
such excess has been reimbursed to ICN, Metabasis shall pay ICN the amount of
such excess either by

            (a)   paying over to ICN, as and when received by Metabasis, all
license fees, milestones or other cash considerations and/or the value of
non-cash considerations, if Metabasis grants a license or licenses to Third
Parties with respect to the Products; or

            (b)   paying to ICN a royalty equal to [REDACTED] on the first
[REDACTED] of Net Sales of each Product and [REDACTED] on Net Sales of
each Product in excess of [REDACTED], if Metabasis or its Affiliates sell the
Products.

      12.5  SURVIVING PROVISIONS

      The Parties' rights and obligations under Sections 4.8, 11.1, 11.2, 11.3
and Articles VII (except in the case of a termination for cause under Section
12.3 where ICN is the Breaching Party), X, XII, XIII and XIV will survive any
termination and expiration of this Agreement. Termination or expiration of this
Agreement for any reason will be without prejudice to any rights accrued to the
benefit of either Party prior to termination or expiration and will not relieve
either Party from obligations expressly indicated to survive termination or
expiration of this Agreement. Termination or expiration of this Agreement will
not terminate ICN's obligation to pay all royalties accrued. Any other
provisions of this Agreement required to interpret and enforce the Parties'
rights and obligations under this Agreement will also survive to the extent
required for the full observation and performance of this Agreement by the
Parties.



                                       28
<PAGE>
                                  ARTICLE XIII

                             ASSIGNMENT; SUCCESSORS

      13.1  ASSIGNMENT

            (a)   Subject to Section 13.1(d), neither this Agreement nor any
interest under this Agreement may be assigned by ICN without the prior written
consent of Metabasis.

            (b)   Subject to Section 13.1(d), neither this Agreement nor any
interest under this Agreement may be assigned by Metabasis without the prior
written consent of ICN.

            (c)   No assignment or sublicense will release ICN, its Affiliates
or its Sublicensees from any liability under this Agreement.

            (d)   Each of ICN and Metabasis may assign this Agreement or any
rights or performance obligations under this Agreement to any wholly owned
Affiliate or to any successor by merger, consolidation or sale of substantially
all of the assets used in the business which is the subject of this Agreement.

            (e)   Any assignment not made in accordance with this Section 13.1
will be void.

      13.2  BINDING UPON SUCCESSORS AND ASSIGNS

      Subject to the limitations on assignment under Section 13.1, this
Agreement binds all successors in interest and assigns of Metabasis and ICN. Any
successor or assignee of ICN's or Metabasis' interest will expressly assume in
writing the performance of all the terms and conditions of this Agreement to be
performed by ICN or Metabasis, as the case may be.

      13.3  PARTIES GUARANTEE PERFORMANCE OF AFFILIATES

      Each Party shall remain responsible for and shall guarantee the
performance of this Agreement by its Affiliates to which this Agreement has been
assigned, and shall cause such Affiliates to comply with the provisions of this
Agreement in connection with such performance. Each Party hereby expressly
waives any requirement that the other Party exhaust any right, power or remedy,
or proceed against an Affiliate, for any obligation or performance hereunder
prior to proceeding directly against such Party.

                                   ARTICLE XIV

                               DISPUTE RESOLUTION

      14.1  ARBITRATION

      Subject to Section 14.2, any dispute, controversy or claim arising under,
out of or in connection with this Agreement, or the breach thereof, including
any subsequent amendments, will be referred to and finally settled by the
American Arbitration Association ("AAA") in


                                       29
<PAGE>
accordance with the Commercial Arbitration Rules in force on the date of
commencement of the arbitration. The arbitration will be binding and judgment
upon the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. There will be three arbitrators, one arbitrator selected
by Metabasis and one arbitrator selected by ICN, which arbitrators will then
jointly select the third arbitrator. If either party fails to nominate an
arbitrator within thirty (30) days from the date of notification made to it of
the other Party's request for arbitration, then the AAA will appoint the
arbitrator in accordance with its rules. The place of the arbitration will be
Los Angeles, California and California law will be applied. Each of the
arbitrators will have at least 10 years experience in commercial transactions.
The arbitration will commence within thirty (30) days after appointment of the
arbitrators and will continue uninterrupted, unless otherwise suspended by the
arbitrators for good cause, for not longer than one hundred and twenty (120)
days (including without limitation any discovery permitted by the arbitrators).
The arbitrators will, within such one hundred and twenty (120) day period,
render a written decision with findings of fact and conclusions of law and
deliver such decision to the Parties. The decision of the arbitrators will be
final and non-appealable and binding upon the Parties, and may be entered and
enforced in any court having jurisdiction.

      14.2  PRE-ARBITRATION DISPUTE RESOLUTION

      No dispute under this Agreement will be referred to arbitration under
Section 14.1 until the following procedures have been satisfied. The Chief
Executive Officer of Metabasis and the head of the Research and Development
and/or Executive Vice President of Strategic Planning of ICN will meet to review
any dispute with respect to the interpretation of any provision of this
Agreement or with respect to the performance of either Party under this
Agreement. Such review will be initiated by one Party sending written notice of
the dispute to the other Party, and as soon as practicable, but in any event
within 30 days of such notice, the designated representatives of the Parties
will meet for attempted resolution by good faith negotiations. If such
representatives are unable to resolve such dispute within thirty (30) calendar
days after a meeting to discuss the dispute, either Party may at any time
provide written notice to the other Party specifying the terms of the dispute in
reasonable detail and notifying the other Party of its decision to institute
arbitration proceedings under Section 14.1.

      14.3  PROVISIONAL REMEDY

      Nothing in this Agreement limits the right of either Party to seek to
obtain in any court of competent jurisdiction any interim relief or provisional
remedy, including injunctive relief. Seeking or obtaining any interim relief or
provisional remedy in a court will not be deemed a breach or waiver of this
agreement to arbitrate.

      14.4  "LAST OFFER" PROCEDURE

      In the case of any dispute as to which this Agreement calls for the "last
offer" procedure to be applicable, each Party will submit to the arbitrators and
exchange with the other Party in advance of the hearing its last, best offer.
The arbitrators will be limited to awarding only one or the other of the two
amounts and/or submissions.



                                       30
<PAGE>
      14.5  CONFIDENTIALITY

      Subject to Article 11 or as otherwise required by law, the existence of
the dispute, any settlement negotiations, the arbitration hearing, any
submissions (including exhibits, testimony, proposed ruling, and briefs), and
the rulings of the arbitrators will be deemed Confidential Information. The
arbitrators will have the authority to impose sanctions for unauthorized
disclosure of Confidential Information.

                                   ARTICLE XV

                               GENERAL PROVISIONS

      15.1  RELATIONSHIP OF THE PARTIES

      For purposes of this Agreement, the relationship of Metabasis to ICN is
that of an independent contractor. Metabasis and ICN are not joint venturers,
partners, principal and agent, master and servant or employer and employee. With
respect to the subject matter of this Agreement, Metabasis and ICN have no power
to bind or obligate each other in any manner, other than as expressly set forth
in this Agreement. A change of this relationship is not excluded by this
Agreement.

      15.2  EXCUSABLE DELAY

      The failure or omission by a Party in the performance of any obligation
under this Agreement will not be deemed a breach of this Agreement or create any
liability if it arises from any cause or causes beyond the control of the Party,
such as strikes, riots, war, acts of God, invasion, fire, explosion, floods,
delay of carrier, shortage or failure in the supply of materials, energy
shortage and acts of government or governmental agencies or instrumentalities.
If due to such an event either Party is delayed or hindered in or prevented from
the performance of its duties or doing acts required under the terms of this
Agreement, the performance of such act will be excused for the period of the
delay not to exceed ninety (90) days. A Party subject to such an excusable delay
will take all reasonable steps to resolve any condition forming the basis of the
delay.

      15.3  NOTICES

      All notices, consents, requests, waivers and other communications required
or permitted under this Agreement:

            (a)   must be in writing, signed by an authorized officer of the
sender , and sent by personal delivery, fax (with confirmation copy),
internationally recognized courier, or certified or registered mail, postage
prepaid (airmail where applicable);

            (b)   will be deemed to be given when actually received; and

            (c)   must be sent to the receiving Party at the address or fax
number, as applicable, set forth below, or any replacement address or fax number
notified to the sender by notice actually received by the sender:



                                       31
<PAGE>
                        if to Metabasis, to:

                        Metabasis Therapeutics, Inc.
                        9390 Towne Centre Drive
                        San Diego, California  92122
                        Attention:  Chief Executive Officer

                        with a copy to:

                        Thomas A. Coll, Esq.
                        Cooley Godward LLP
                        4401 Eastgate Mall
                        San Diego, California  92121

                        if to ICN, to:

                        ICN Pharmaceuticals, Inc.
                        3300 Hyland Avenue
                        Costa Mesa, California  92626
                        Attention:  Head of Research and Development
                        Fax:  (714) 641-7207

                        with a copy to:

                        ICN Pharmaceuticals, Inc.
                        3300 Hyland Avenue
                        Costa Mesa, California 92626
                        Attention:  General Counsel
                        Fax:  (714) 641-7207


      15.4  EXPENSES

      Except as expressly provided otherwise in this Agreement, all legal and
other costs and expenses incurred in connection with the negotiation and
entering into of this Agreement and the transactions contemplated by this
Agreement will be paid by the Party incurring such costs or expenses.

      15.5  FURTHER ASSURANCES

      Except as expressly provided elsewhere in this Agreement, each Party will
at its expense promptly execute and deliver any further instruments and
documents and take any further action as the other Party may reasonably request
in order to give effect to the transactions contemplated by this Agreement.



                                       32
<PAGE>
      15.6  AMENDMENT

      This Agreement may not be altered or otherwise amended except by an
instrument in writing signed by each of the Parties.

      15.7  WAIVER

      A Party may, by written instrument executed by such Party, extend the time
for the performance of any obligations of the other Party, waive any
inaccuracies and representations by the other Party in this Agreement or in any
document delivered pursuant to this Agreement or waive compliance by the other
Party with any of the covenants, conditions or performance of any of its
obligations under this Agreement. Any such waiver or failure to insist upon
strict compliance with such covenant, condition or obligation will not operate
as a waiver of, or estoppel with respect to, any subsequent or other failure.

      15.8  NO THIRD PARTY BENEFICIARIES

      This Agreement does not confer any rights, remedies, agreements,
undertakings, obligations or liabilities on any person other than the
successors-in-interest and permitted assigns of each Party.

      15.9  ENTIRE AGREEMENT

      This Agreement constitutes the entire agreement between the Parties with
respect to its subject matter and supersedes all prior discussions,
negotiations, correspondence, agreements, and understandings, both oral and
written, between the Parties with respect to its subject matter, including
without limitation that certain letter of intent dated August 3, 2001 between
ICN and Metabasis as amended.

      15.10 CONSTRUCTION

      The Parties have participated jointly in the negotiation and drafting of
this Agreement. If a question of intent or interpretation arises, this Agreement
will be construed as if drafted jointly by the Parties and no presumption or
burden of proof will arise favoring or disfavoring a party because of the
authorship of any provision of this Agreement.

      15.11 INCORPORATION OF EXHIBITS

      All Exhibits identified in this Agreement are incorporated by reference
and made a part of this Agreement.

      15.12 COUNTERPARTS

      This Agreement may be executed in any number of counterparts and by
facsimile, each of which will be deemed to be an original and all of which
together will constitute one and the same agreement.



                                       33
<PAGE>
      15.13 SEVERABILITY

      If any provision of this Agreement is finally determined to be invalid,
unlawful or incapable of being enforced in a jurisdiction, (i) it will be deemed
to be severed from this Agreement in such jurisdiction, (ii) every other
provision of this Agreement will remain in full force and effect in such
jurisdiction, (iii) the Parties will negotiate in good faith to modify this
Agreement so as to achieve the original intent of the Parties as closely as
possible in an acceptable manner with respect to such jurisdiction and (iv) such
invalidity, unlawfulness or unenforceability will not affect the interpretation
or enforcement of this Agreement in any other jurisdiction.

      15.14 BANKRUPTCY

      All rights and licenses granted under or pursuant to this Agreement by
Metabasis to ICN are, and will otherwise be deemed to be, for purposes of
Section 365(n) of the Bankruptcy Code, licenses of rights to "intellectual
property" as defined under Section 101(35A) of the Bankruptcy Code. ICN, as a
licensee of such rights under this Agreement, will retain and may fully exercise
all of its rights and elections under the Bankruptcy Code.

      15.15 REMEDIES CUMULATIVE

      The rights and remedies of the Parties under this Agreement are in
addition to any other rights available to them at law or in equity. The use of
any right or remedy by a Party does not preclude or waive the right to use any
other remedies. This Section 15.15 does not limit the obligations of the Parties
under Section 14.1 and Section 14.2.

      15.16 GOVERNING LAW

      This Agreement will be governed by and construed in accordance with the
laws of the State of California without regard to its principles regarding
conflicts of law.

      IN WITNESS WHEREOF, the Parties have executed this Agreement by their duly
authorized representatives as of the date set forth above.


                        METABASIS THERAPEUTICS, INC.


                        By: /s/ Paul Laikind
                            ------------------------------------------
                        Name: Paul Laikind
                        Title: Chairman, Chief Executive Officer and President


                        ICN PHARMACEUTICALS, INC.


                        By: /s/ Bill A. MacDonald
                            ------------------------------------------
                        Name: Bill A. MacDonald
                        Title: Executive Vice President, Strategic Planning





                                       34
<PAGE>
                                   SCHEDULE A

                                  CONFIDENTIAL
                                  ------------


[Redacted]

U.S. (CIP2)    09/392,352         9/8/99       Issued (pd. NOA on 8/1/01)

PCT            PCT/US99/04908     3/6/98       Published 9/10/99 as WO99/45016

[Redacted]

Europe         99912300.3         3/6/98       Published 12/20/00 as No. 1060182

Hong Kong      01102253.7         3/6/98       Published 6/15/01 as No. 1031386A

[Redacted]
[Redacted]

PCT            PCT/US00/05672     3/5/99       Published 9/8/00 as WO00/52015

[Redacted]

                                  CONFIDENTIAL
                                  ------------
[Redacted]

PCT            PCT/US00/24693     9/8/99       Published 3/15/01 as WO01/18013



                                       2
</TEXT>
</DOCUMENT>
