Employment Letter Agreement Between Panacos Pharm., Inc. And Graham P. Allaway

Exhibit 10.1 July 10, 2006

Graham P. Allaway, Ph.D.

14205 White Water Way Darnestown, MD 20878

Dear Graham,

On behalf of Panacos Pharmaceuticals, Inc. (" Panacos" or the " Company" ), I am very pleased to confirm the terms of your promotion to President. The following summarizes the terms of your compensation in your new position and sets forth other terms and conditions of your promotion. Of course, not all of the terms and requirements of your employment can be set forth in this letter, and I encourage you to contact Stephen Andre or me with any questions you may have.

1. Position : Your position will be as President and Chief Operating Officer, reporting to the CEO or Acting CEO. We expect that you will perform any and all duties and responsibilities associated with this position, as determined by the CEO or Acting CEO, in a satisfactory manner and to the best of your abilities at all times.

2. Effective Date/Nature of Relationship: You will assume the role of President on July 10, 2006. No provision of this letter shall be construed to create an express or implied employment contract, or a promise of employment for any specific period of time. Your employment at Panacos continues to be at-will employment, which may be terminated by you or Panacos at any time for any reason with or without advance notice.

3. Compensation/Benefits: Your Base Pay as President shall be annualized at $275,000 minus customary deductions for federal and state taxes and the like, and shall be paid in accordance with the Company' s usual payroll practices. This Base Pay shall take effect as of June 14, 2006. You will also be eligible to receive an Annual Cash Bonus each calendar year, targeted at 35% of your annual Base Pay, provided that you must be employed by the Company at the time of payment. The award and amount (which may be less than or greater than the target amount) of any Annual Cash Bonus shall be determined at the sole discretion of Panacos, and shall be based on the Company' s assessment of your achievement of mutually agreed upon performance goals (both individual and Company) and your continued employment with the Company. Any Annual Cash Bonus will be paid within sixty (60) days following the end of the calendar year to which it relates.

In connection with your promotion, and subject to the approval of the Panacos Board of Directors, you will be granted 60,000 shares of Panacos restricted common stock, pursuant to the terms of Section 5 below and a formal restricted stock agreement and subject to the applicable stock plan. Neither the formal restricted stock agreement nor any applicable Panacos stock plan creates any obligation on the Company' s part to employ you for any particular period of time. The restrictions on the restricted stock will lapse on May 31, 2007, provided that you must be employed as of that date. In addition, all then-unvested stock options granted to you on June 1, 2004 (totaling 70,534 shares) shall vest on May 31, 2007, subject to your continued employment on that date.

In addition to your compensation, you may continue to take advantage of various benefits offered by the Company, including Panacos' s medical, disability and life insurance, dependent care and medical flexible spending plans, 401(k) plan, and paid vacation and holiday time. These benefits, of course, may be modified or discontinued from time to time at the sole discretion of the Company. Where a particular benefit is subject to a formal plan (for example, medical insurance or life insurance), eligibility to participate in and receive any particular benefit is governed solely by the applicable plan document. Vacation and holidays are governed by Company policy.

4. Confidentiality : This promotion is contingent on your execution of the attached Employee Non-Disclosure, Non-Competition and Inventions Agreement. This Agreement is necessary to protect the Company' s trade secrets, confidential information and/or good ...