NON-EXCLUSIVE SUBLICENSE AGREEMENT

EXHIBIT 10.5

NON-EXCLUSIVE SUBLICENSE AGREEMENT

Between

Apath, L.L.C.

And

Pharmasset, Inc.

For

HCV REPLICON

And

RELATED INTELLECTUAL PROPERTY

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.

NON-EXCLUSIVE SUBLICENSE AGREEMENT

THIS NON-EXCLUSIVE SUBLICENSE AGREEMENT (“ Agreement ”) is made and entered into August 26, 2005 (the “ Effective Date ”) by and between Apath, L.L.C., a limited liability company of the State of Missouri, with a business address at 893 N. Warson Road, St. Louis, Missouri 63141 (“ Apath ”); and Pharmasset, Inc., a Delaware company, with a business address at 303A College Road East, Princeton, New Jersey 08540 (“ Pharmasset ”). Apath and Pharmasset are hereinafter referred to individually as a “ Party ” or collectively as “ Parties .”

WHEREAS, Apath has obtained from Washington University in St. Louis (“ WU ”) exclusive commercial license rights, with the right to grant sublicenses, to certain Intellectual Property and Tangible Property (as those terms are subsequently defined in this Agreement) relating to the Hepatitis C virus (“HCV”) under a license agreement dated October 31, 1997, as amended pursuant to amendments with effective dates of January 15, 2003 and August 11, 2003 (collectively, the “Primary WU License Agreement”);

WHEREAS, the Parties had entered into a License Agreement dated October 18, 2000 and subsequently amended on January 30, 2004 (collectively, the “10/18/2000 License Agreement”) whereby non-exclusive sublicense rights to the Intellectual Property and Tangible Property had originally been granted by Apath to Pharmasset;

WHEREAS, Apath wishes to allow Pharmasset to continue laboratory research and screening using the Intellectual Property and Tangible Property, and for other drug discovery and development purposes, upon the revised terms and conditions hereinafter set forth in this Agreement (and with the resulting termination of the 10/18/2000 License Agreement), and is willing to grant a sublicense for such use; and

WHEREAS, Pharmasset desires to maintain its sublicense for continued use the Intellectual Property and Tangible Property for its own laboratory research and screening use, and for other drug discovery and development purposes upon the revised terms and conditions hereinafter set forth in this Agreement (and with the resulting termination of the 10/18/2000 License Agreement).

NOW THEREFORE, in consideration of the above premises, the mutual promises and covenants contained herein, and other good and valuable consideration, the receipt and legal sufficiency of which is acknowledged by both Parties, the Parties hereto agree as follows:

1. Termination of the 10/18/2000 License Agreement.

(a) Upon the full execution of this Agreement by the Parties hereto, the 10/18/2000 License Agreement shall terminate in favor of this Agreement and shall be of no further force or effect. The Parties expressly agree that the termination of the 10/18/2000 License Agreement shall be comprehensive and, notwithstanding any provision contained therein, shall not result in the survival of any rights or obligations of either Party. Further, the Parties expressly waive the provisions of Section 10.5 of the 10/18/2000 License Agreement requiring three (3) month’s written notice prior to termination.

(b) The Parties agree that, as of the Effective Date, (i) each Party is in full compliance with the terms and conditions of the 10/18/2000 License Agreement, (ii) neither Party is aware of any claim it may have against the other for breach of any provision of the 10/18/2000 License Agreement, and (iii) each Party hereby waives any right to bring suit or other action against the other under the 10/18/2000 License Agreement.

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.

2. Definitions . For the purposes of this Agreement, the following words and phrases shall have the following meanings:

(a) “ Affiliate ” of a Party means any person, organization, or entity that is, directly or indirectly, controlling, controlled by, or under common control with the Party. The term “control” (including, with correlative meaning, the terms “controlled by” and “under common control with”), as used with respect to any person, organization, or entity, means the possession, directly or indirectly, of the power to direct, or cause the direction of, the management and policies of such person, organization, or entity, whether through the ownership of voting securities, or by contract or court order, or otherwise. The ownership of voting securities of a person, organization, or entity shall not, in and of itself, constitute “control” for purposes of this definition, unless said ownership is of a majority of the outstanding securities entitled to vote of such a person, organization, or entity.

(b) “ Compound ” means any inhibitor of HCV viral function made by or for Pharmasset in the course of a research and/or development program for the purpose of finding a therapeutic or prophylactic agent for the treatment of HCV, and which inhibitor or any precursor thereto is identified or validated by means of the Covered Technology.

(c) “ Field of Use ” means, subject to the exclusion which follows, Pharmasset’s own drug discovery, screening, research and development programs undertaken with respect to any Compound. Without in any way limiting the foregoing, “Field of Use” shall include (i) developmental activities such as use in conjunction with research on a Compound before its commercial launch, and (ii) laboratory research and screening intended to identify or validate a Compound.

“Field of Use” does not include any laboratory testing and/or research services of the type set out above or otherwise, the primary purpose of which is intended to or reasonably appears to be intended to identify or develop information to support any regulatory filings needed to make, use or sell a [***] Inhibitor.

(d) “ Insurance Minimum Amounts ” means minimum annual limits of USD $2,000,000 per claim and USD $5,000,000 in the aggregate.

(e) “ Intellectual Property ” means all know-how (including laboratory methodology), research or technical data and Licensed Patent Rights that are licensed (with right to grant sublicenses) to Apath from WU under the Primary WU License Agreement.

(f) “ Licensed Patent Rights ” means (i) U.S. Patent Application Serial Nos. [***], all U.S. and ex-U.S. patent applications based or claiming priority thereon or relating thereto, and all patents issuing therefrom, including, but not limited to, U.S. Patent Nos. [***]; and (ii) any other Patent Rights claiming or encompassing manufacture, use, sale, distribution and/or practice within the Field of Use that are licensed from WU to Apath under the Primary WU License Agreement or any amendments thereto.

(g) “ Patent Rights ” means all patent applications filed anywhere in the world, and continuation-in-part, continuation, divisional, and continued-prosecution applications of such patent applications, any patents granted on any aforesaid applications, and any renewals, extensions, patents of addition, revivals, re-examinations, and reissues thereof, and any patents which may issue therefrom.

(h) “ [***] Inhibitor ” means a HCV viral inhibitor with a primary mechanism of action derived from interfering with the function of the [***] element of the HCV genome.

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.

(i) “ Covered Technology ” means any Intellectual Property used by Pharmasset (including Tangible Property and Tangible Property Improvements) within the Field of Use that (i) in the absence of a license from Apath, would infringe a Valid Claim of Licensed Patent Rights and/or (ii) involves a use thereof permitted to Pharmasset under this Agreement. For the purpose of this Agreement, “ Valid Claim ” means a patent claim in an issued patent included within the Licensed Patent Rights which has not been disclaimed or canceled; provided, however, that in the event any claim of a patent that falls within the Licensed Patent Rights hereunder shall be held invalid or not infringed by a court of competent jurisdiction in a final decision from which an appeal cannot be or is not taken, or certiorari cannot be granted, then, for the purposes of this Agreement, effective as of the date of such final decision, such claim held invalid shall be considered canceled from such patent and any such claim held not infringed shall be considered limited in scope in accordance with such final decision.

(j) “ Tangible Property ” means:

3. Grant . Subject to the terms and conditions of this Agreement, Apath hereby grants to Pharmasset, and Pharmasset hereby accepts, a non-exclusive, non-transferable sublicense (without the right to sublicense others) under the Intellectual Property to make (i.e., replicate), use (but not sell or for any other commercial purpose) and practice Covered Technology encompassed by the Intellectual Property. This grant shall be retroactive to Pharmasset’s first use of Covered Technology that would require the grant of rights under the Intellectual Property as contemplated herein. Notwithstanding the foregoing, Apath grants Pharmasset no license or sublicense under the Intellectual Property, and the sublicense granted hereunder specifically excludes, any rights not included within the definition of the term “Covered Technology”.

4. Restrictions on Grant . The sublicense grant set forth in this Agreement is subject to the following conditions and restrictions, in addition to the other terms of this Agreement:

(a) The sublicense granted hereunder shall not be construed to confer any rights upon Pharmasset by implication, estoppel, or otherwise as to any other technology of WU or of Apath, except as expressly set forth in this Agreement;

(b) As between Pharmasset and Apath, title to Intellectual Property and Tangible Property shall remain in WU and/or Apath, and no rights are to be transferred to Pharmasset hereunder other than as specifically set forth herein; additionally, the transfer of Tangible Property to Pharmasset by Apath is not to be considered a conditional or unconditional sale of goods; provided, however, that Pharmasset will own all rights, including all intellectual property rights, inventions, ideas, know-how, trade secrets, discoveries and other subject matter

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.

conceived and reduced to practice solely by Pharmasset’s employees, by third parties retained by Pharmasset or by such Pharmasset employees and third parties working together;

(c) Pharmasset shall not distribute Intellectual Property and/or Tangible Property and Tangible Property Improvements (as defined in Section 5 below) to any third party (including any Affiliate) without obtaining the prior written consent of Apath. Once the consent of Apath is granted (which consent shall not be unreasonably withheld or delayed), Pharmasset shall be entitled to distribute the Intellectual Property and/or Tangible Property and Tangible Property Improvements to its Affiliates, who shall be bound by the terms of this Agreement by accepting such Intellectual Property and/or Tangible Property or Tangible Property Improvements. Prior to providing the Tangible Property or Tangible Property Improvement to any Affiliate, Pharmasset shall notify Apath of the identity of such Affiliate, and Pharmasset shall provide such Affiliate with the terms and conditions of this Agreement and take reasonable measures to ensure that the terms are understood by such Affiliate. Pharmasset shall guarantee the full and complete performance of all duties and obligations hereunder by any such Affiliate.

(d) If through the course of research within the Field of Use conducted by Pharmasset, a candidate for pharmaceutical products for treatment or prophylaxis of HCV is discovered to act as a [***] Inhibitor, such research on such a [***] Inhibitor must immediately cease unless Pharmasset obtains a further grant of rights therefor.

(e) Use of the Tangible Property and Tangible Property Improvements is subject to United States laws governing the export of technical data, computer software, laboratory prototypes and other commodities. Pharmasset shall be responsible for complying with all applicable laws and regulations regarding its use of the Tangible Property and Tangible Property Improvements.

5. Rights to Improvements . Apath agrees that use by Pharmasset of the licensed Tangible Property as provided herein within the Field of Use shall not give rise to any claim by Apath against Pharmasset with respect to Pharmasset’s intellectual property, including Pharmasset’s pharmaceutical product candidates and products, subject to the following: (i) so long as such pharmaceutical product candidates and products do not include any biological material containing, in whole or in part, Tangible Property or Tangible Property Improvements, as defined below; (ii) so long as such candidates and products do not include a [***] Inhibitor; and (iii) except for Tangible Property Improvements. The parties acknowledge that Pharmasset may discover or develop progeny, derivatives and modifications to the licensed Tangible Property (“ Tangible Property Improvements ”). In the event that Pharmasset wishes to commercialize such Tangible Property Improvements, then Pharmasset shall notify Apath in a timely way, under the Confidentiality provisions agreed to herein, of the discovery or development thereof specifying the biological nature and composition thereof as well as the process for making such Tangible Property Improvements. (In the preceding sentence, “commercialize” shall include the sale or license of the Tangible Property Improvement to a third party, or other com