LICENSE AGREEMENT

EXHIBIT 10.7

LICENSE AGREEMENT

BETWEEN

DR. CRAIG HILL,

DR. RAYMOND SCHINAZI

AND

PHARMASSET, LTD.

Certain portions of this Exhibit have been omitted pursuant to a request for confidentiality. Such omitted portions, which are marked with brackets and asterisks [***], have been separately filed with the Commission.

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LICENSE AGREEMENT

THIS LICENSE AGREEMENT is made by and between Pharmasset Ltd., a corporation organized under the laws of Barbados (“Pharmasset”), Dr. Craig L. Hill an individual residing in the State of Georgia, USA (“Dr. Hill”) and Dr. Raymond Schinazi, an individual residing in the State of Georgia, U.S.A. (“Dr. Schinazi”).

WITNESSETH :

WHEREAS, Dr. Hill and Dr. Schinazi are the co-inventor and owner of certain intellectual property rights, including U.S. and European patents and application listed in Exhibit A, on different proprietary and uses of polyoxometalates and have the right to grant licenses to this intellectual property.

WHEREAS, Pharmasset is a company dedicated to the development and production of antiviral compounds and desires to obtain a license to the patent application referenced above, and all U.S. and corresponding foreign patents issuing therefrom.

NOW, THEREFORE, in consideration of the mutual covenants and promises contained in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Pharmasset, Dr. Hill, and Dr. Schinazi agree as follows:

ARTICLE 1. DEFINITIONS

The following terms, whether used in the singular or plural, shall have the following meanings:

1.1 “ Affiliate ” shall mean any corporation, partnership, or other business entity which is directly or indirectly controlled by Pharmasset or any entity which directly or indirectly

controls Pharmasset. “Controls” as used herein means owns directly or indirectly at least thirty percent (30%) of the outstanding voting securities.

1.2 “ Agreement ” or “ License Agreement ” shall mean this Agreement, including all Exhibits attached to this Agreement.

1.3. “ Effective Date ” means the later of (i) the date on which Pharmasset executes this Agreement, (ii) the date on which Dr. Hill executes this Agreement, or (iii) the date on which Dr. Schinazi executes this Agreement.

1.4. “ Field of Use ” shall mean all human antiviral (including HIV) applications and uses.

1.5. “ First Commercial Sale ” means, with respect to each Licensed Product, the first commercial sale by Pharmasset, its Affiliates, sublicensees and/or distributors of such Licensed Product, other than for clinical trial purposes or compassionate use.

1.6. “ IND ” means an Investigational New Drug Application filed with the United States Food and Drug Administration (“FDA”) in respect of the Licensed Technology.

1.7. “ Indemnitees ” shall mean Dr. Hill and Dr. Schinazi, and their heirs, executors, administrators, legal representatives.

1.8. “ Licensed Patents ” means all patents and patent applications listed in attached Exhibit A (which shall be updated as additional patents or patent applications are added to this Agreement by mutual agreement of the Parties) throughout the world, including any substitutions, extensions, reissues, reexaminations, renewals, divisions, continuations or continuations-in-part, which Dr. Hill and Dr. Schinazi own, or otherwise has the right to grant licenses under.

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1.9. “ Licensed Product ” means a product which, or the manufacture, use or sale of which is covered by a Valid Claim of any of the Dr. Hill and Dr. Schinazi Patent Rights in the country where the product is manufactured, used or sold.

1.10. “ Licensed Technology ” shall mean all designs, technical information, know-how, knowledge, data, specifications, test results and other information, whether or not patented, which is known to Dr. Hill and Dr. Schinazi on the date of this Agreement and is useful for the manufacture, use or sale of any Licensed Product.

1.11. “ NDA ” means a New Drug Application filed with the FDA relating to the Licensed Technology.

1.12. “ Net Selling Price ” of Licensed Products shall mean the gross invoiced price paid to Pharmasset, its Affiliates, or sublicensees by a purchaser of a Licensed Product less the following discounts: (a) customary trade, quantity and cash discounts actually allowed and taken; (b) credit actually given for rejected or returned Licensed Products; (c) freight and insurance costs, if separately itemized on the invoice paid by the customer; and (d) custom and excise taxes included in the invoiced amount, and (e) to the extent separately stated on purchase orders, invoices or other documents of Sale, all taxes including VAT and sales or similar taxes. Where a Sale is deemed consummated by a gift, use, or other disposition of Licensed Products for other than a selling price stated in cash, the term “Net Selling Price” shall mean the average gross selling price paid to Pharmasset in consideration of Sales of the same quantity of Licensed Products during the six (6) month period immediately preceding such Sale, without reduction of any kind (other than as provided for in (a) - (d) above). If no Sales of Licensed Products have occurred in the preceding six (6) months, then sales of comparable products shall be used in such determination.

“Net Selling Price” with respect to any Combination Product (a Licensed Product incorporating additional active ingredients) shall be negotiated in good faith by the parties with the intention of agreeing upon a fair and equitable formula; provided, however, that if the parties

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Certain portions of this Exhibit have been omitted pursuant to a request for confidentiality. Such omitted portions, which are marked with brackets and asterisks [***], have been separately filed with the Commission.

are unable to agree upon such definition within a reasonable period of time, Net Selling Price with respect to such Combination Product shall mean the gross sales of such Product paid by independent customers, less all the allowances, adjustments, reductions, discounts, taxes, duties, rebates or other charges referred to in the above definition of Net Selling Price multiplied by a fraction, the numerator of which shall be the average invoice price per gram of compound contained in the most comparable stock keeping unit of Licensed Product having the compound as the sole active ingredient during the applicable royalty period in a country of the Licensed Territory, when such comparable Licensed Product is Sold for the same indication as such Combination Product and the denominator of which shall be the average invoice price per gram of the compound sold alone as described immediately above plus the average invoice price(s) per gram of the other active ingredient(s) contained in such Combination Product in such country during the applicable royalty period when such active ingredients are Sold alone for the same indication as such Combination Product. If there is no average invoice price per gram in a given country for a compound or for one or more of the active ingredients comprising a Combination Product, Net Selling Price with respect to such Combination Product shall be deemed to be [***] Percent ([***]%) of the gross Sales of such Combination Product paid by independent customers, less all the allowances, adjustments, reductions, discounts, taxes, duties, rebates or other charges referred to in the above definition of Net Selling Price.

1.13. “ Party ” means Pharmasset or Dr. Hill or Dr. Schinazi; “ Parties ” means Pharmasset and Dr. Hill and Dr. Schinazi.

1.14. “ Phase II ” means the first controlled FDA approved first controlled clinical trials conducted with a limited number of human patients and are designed to measure the effectiveness of a new pharmaceutical product, that is, the effective dose and regiment for further study in larger clinical trials. Completion of Phase II represents a milestone to then begin the Phase III clinical trials that are pivotal to product approval.

1.15. “ Sale or Sold ” shall mean the sale, transfer, exchange, or other disposition of Licensed Products whether by gift or otherwise, including but not limited to the use of Licensed Products by any person authorized by Pharmasset other than Pharmasset. Neither (a) the

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Certain portions of this Exhibit have been omitted pursuant to a request for confidentiality. Such omitted portions, which are marked with brackets and asterisks [***], have been separately filed with the Commission.

provision of Licensed Products, prior to the approval of Licensed Products in a country and pursuant to a requirement issued by the appropriate governmental agency in that country, for consumption by or administration to persons for humanitarian purposes or compassionate use, (b) the provision of Licensed Products for use in clinical trials, nor (c) the provision of samples in reasonable quantities without charge for promotional purposes shall be deemed a Sale for the purposes of this Agreement. Sales of Licensed Products shall be deemed consummated upon the first to occur of: (a) receipt of payment from the purchaser; (b) delivery of Licensed Products to the purchaser or a common carrier; (c) release of Licensed Products from consignment; (d) if deemed Sold by use, when first put to such use; or (e) if otherwise transferred, exchanged, or disposed of whether by gift or otherwise when such transfer, exchange, gift, or other disposition occurs.

1.16. “ Sublicensee ” means any third party other than an Affiliate granted the right, subject to the terms and conditions of Article 2, to make, use and sell a Licensed Product, but not including a third party that is not granted the right to make such Product but merely purchases such Product in finished form for resale.

1.17. “ Sublicense Payments ” means sublicense fees, milestone payments and other cash consideration (excluding royalties) received by Pharmasset from a Sublicensee, provided that in no event shall Sublicense Payments include any funds provided by a Sublicensee to fund research, development, and clinical trials, to reimburse Pharmasset for research, development, and clinical trial expenses or to purchase equity securities of Pharmasset.

1.18. “ Sublicense Royalties ” means royalties on sales of Licensed Product received by Pharmasset from a Sublicensee.

1.19. “ Valid Claim ” means a claim which (i) in the case of any unexpired United States or foreign patent, shall not have been donated to the public, disclaimed, nor held invalid or unenforceable against the other Party by a court of competent jurisdiction in an unappealed or unappealable decision, or (ii) in the case of any United States or foreign patent application, shall not have been cancelled, withdrawn, abandoned nor been pending for more than [***] ([***]) years.

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ARTICLE 2. GRANT OF LICENSE

2.1. License Grant from Dr. Hill . Dr. Hill hereby grants to Pharmasset, and Pharmasset hereby accepts, an exclusive sublicense, including the right to grant further sublicenses pursuant to Section 2.4, under the Licensed Patents in Exhibit A to make, have made, use, import, offer for sale, and sell Licensed Products covered by such Licensed Patents only and to practice Licensed Technology with respect to such Licensed Patents only for the Field of Use during the term of the Agreement.

2.2. License Grant from Dr. Schinazi . Dr. Schinazi hereby grants to Pharmasset, and Pharmasset hereby accepts, an exclusive license, including the right to grant sublicenses pursuant to Section 2.4, under the Licensed Patents in Exhibit A to make, have made, use, import, offer for sale, and sell Licensed Products covered by such Licensed Patents only and to practice Licensed Technology with respect to such Licensed Patents only for the Field of Use during the term of the Agreement.

2.3. Retained License . Left blank intentionally.

2.4. Sublicense Rights . Pharmasset shall have the right to grant sublicenses under the sublicense granted pursuant to Section 2.1 above and under the license granted pursuant to Section 2.2 above to parties with whom Pharmasset has agreed to jointly develop and/or commercialize Licensed Products; provided that any sublicense granted by Pharmasset under this Agreement shall be subject and subordinate to, and consistent with, the terms and conditions of this Agreement, and shall provide that any such sublicensee shall not further sublicense except on terms consistent with this Section 2.4. Pharmasset shall provide Dr. Hill and Dr. Schinazi with a copy of any sublicense granted pursuant to this Section 2.4 within one (1) month after the execution thereof. Such copy may be redacted to exclude confidential scientific information and other information required by a sublicensee to be kept confidential, provided that all relevant financial terms and information shall be retained therein. In the event of a material default by any sublicensee under a sublicense agreement, Pharmasset will inform Dr. Hill and Dr. Schinazi

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and take such action, after consultation with Dr. Hill and Dr. Schinazi, which in Pharmasset’s reasonable business judgment will address such default.

2.5. Diligence and Commercialization . Pharmasset shall use its reasonable best efforts, either directly or through Affiliates or sublicensees, throughout the term of this Agreement to bring Licensed Products to market through a thorough, vigorous, and diligent program for exploitation of the right and license granted in this Agreement to Pharmasset and to create, supply, and service as extensive a market as possible. In no instance shall Pharmasset’s reasonable best efforts be less than efforts customary in Pharmasset’s industry.

2.6. Lack of Diligence . If Dr. Hill and Dr. Schinazi conclude that Pharmasset is not diligent in development or Sales of Licensed Products pursuant to Article 2.5 for any reason other than (a) the withholding by a regulatory agency or marketing approval despite Pharmasset’s diligent effort to obtain such approval; (b) unanticipated technical or scientific problems which have been promptly reported to Dr. Hill and Dr. Schinazi in writing; or (c) other causes beyond the reasonable control of Pharmasset which have been promptly reported to Dr. Hill and Dr. Schinazi in writing; then Dr. Hill and Dr. Schinazi may give notice to Pharmasset stating the basis for its conclusion and, upon the request of Dr. Hill and Dr. Schinazi, Pharmasset shall show cause why the license granted hereunder should not be terminated. If within ninety (90) days after Pharmasset’s receipt of said notice, the parties have not resolved the matter through good faith negotiations in a mutually acceptable manner, the parties shall submit the dispute to arbitration under the provisions of Article 13 of this Agreement.

ARTICLE 3. PAYMENT OBLIGATIONS

3.1. License Fee . In consideration of the rights granted to Pharmasset under this Agreement, Pharmasset shall pay to Dr. Hill and Dr. Schinazi the following non-refundable, non-creditable license fee on the Effective Date:

(a) To Dr. Hill: 35,000 Common Stock Options at US$1.00 and,

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Certain portions of this Exhibit have been omitted pursuant to a request for confidentiality. Such omitted portions, which are marked with brackets and asterisks [***], have been separately filed with the Commission.

(b) To Dr. Schinazi: 35,000 Common Stock Options at US$1.00

Options will be exercisable for a period of 10 years starting from March 1, 1999.

3.2. Reimbursement of Patent Expenses . Pharmasset will forgive $20,000 of the obligation of Dr. Schinazi under that certain Promissory Note, dated January 29, 1999, made by Dr. Schinazi to Pharmasset in the original principal amount of $320,500 in partial reimbursement of patents costs associated with the technology listed in Exhibit A. Within thirty (30) days after the end of each calendar quarter, Dr. Hill and Dr. Schinazi shall provide Pharmasset with an invoiced accounting of all patent related expenses incurred by them, as described in Section 4.1, below, during such calendar quarter. Pharmasset shall reimburse all such invoiced patent related expenses within one (1) month after receipt of such accounting.

3.3. Milestone Payments . Within thirty (30) days after the occurrence of the milestones specified below, Pharmasset shall make the following non-refundable, non-creditable payments to Dr. Hill and Dr. Schinazi:

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Certain portions of this Exhibit have been omitted pursuant to a request for confidentiality. Such omitted portions, which are marked with brackets and asterisks [***], have been separately filed with the Commission.

The milestone payments in this Section 3.3 shall be payable only once, for each significant disease indication for which the milestones are applicable.

3.4. Royalties .

(a) Pharmasset shall pay to Dr. Hill and Dr. Schinazi, according to the payment schedule described in subsection (b), during the applicable term described in subsection (c), earned royalties at the rate of (i) [***] percent ([***] %) of Net Sales of a Licensed Product covered by a Valid Claim in the country of sale included in the Licensed Patents and (ii) [***] percent ([***] %) of Net Sales of a Licensed Product not covered by such a Valid Claim in the country of sale, provided that in no event shall more than one royalty be due Dr. Hill and Dr. Schinazi for the sale of any Licensed Product.

(b) The earned royalties described in subsection (a) above shall be paid to Dr. Hill and Dr. Schinazi according to the following schedule:

(i) To Dr. Hill: [***] percent ([***]%) of the earned royalties, and,

(ii) To Dr. Schinazi: [***] percent ([***]%) of the earned royalties.

(c) Pharmasset shall be obligated to pay royalties at the rate set forth in subsection (a) (i), on a country by country basis, so long as there continues to be a Valid Claim included in the Licensed Patents that cover the applicable Licensed Product in such country. Pharmasset shall be obligated to pay royalties at the rate set forth in subsection (a) (ii), on a country by country basis, on Net Sales of a Licensed Product not covered by a Valid Claim (including a Licensed Product which previously was covered by a Valid Claim) until the [***] anniversary of the First Commercial Sale of such Licensed Product in such country.

(d) Pharmasset shall pay to Dr. Hill and Dr. Schinazi [***] percent ([***]%) of Sublicense Payments.

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Certain portions of this Exhibit have been omitted pursuant to a request for confidentiality. Such omitted portions, which are marked with brackets and asterisks [***], have been separately filed with the Commission.

(e) Pharmasset shall pay to Dr. Hill and Dr. Schinazi [***] percent ([***]%) of Sublicense Royalties.

(f) Notwithstanding the foregoing, Pharmasset may deduct from royalties otherwise owed under subsections (a) and (d) [***] percent ([***]%) of any royalties or other payments required to be paid for licenses under intellectual property rights of third parties.

ARTICLE 4. REPORTS AND PAYMENTS

4.1. Payments . Unless otherwise specified, all payments required