AMENDMENT
      NO. 1 TO

    SECURITIES
      PURCHASE AGREEMENT

     

    This
      AMENDMENT NO. 1 TO SECURITIES PURCHASE AGREEMENT (the “Amendment”), dated as of
      27 July 2006, is between PSIVIDA LIMITED, an Australian company (the “Company”),
      and Australian IT Investments Limited (“All”),
      a
      company
incorporated
      in Nevis, with registered offices located at Meridian Trust Company, Hunkins
      Waterfront Plaza, Main Street, Memorial Square, Charlestown, Nevis, British
      West
      Indies and with executive offices located at Trident Trust Company, 11 Bath
      Street, St. Helier, Jersey JE4 8UT, Channel Islands and funds advised by
      Absolute Capital Management (Spain) S.L.,
      located
      at
      Edificio Reina Constanza, Porto Pi 8 Planta 10 A, 07015 Patina de Mallorca.,
      and
      Absolute Octane
      Fund (“AOF”),
      a
      company
      incorporated in the Cayman Islands, located at 215 North Church
      Street, PO Box 10630 APO, Grand Cayman, 10630, Cayman Islands (the
“Buyers”).

    


    WHEREAS,
      All purchased, pursuant to the Securities Purchase Agreement, dated August
      17, 2005, between the Company and All (the “Original All Agreement”) (i) 400,000
      American Depositaiy Shares of the Company (“ADSs”),
      each
      representing ten (10) ordinary shares
      of
      the Company (the “All Shares”), for US$6.50 per ADS and (ii) a warrant (the “All
Warrant”)
      to purchase 40,000 ADSs (the “All Warrant Shares”) for US$12.50 per
      ADS.

    


    WHEREAS,
      AOF purchased, pursuant to the Securities Purchase Agreement, dated August
      5,
      2005, between the Company and AOF (the “Original .AOF Agreement” and
collectively
      with the Original All Agreement, the “Original Agreements”) (i) 150,000 ADSs
      (the “AOF
      Shares” and collectively with the All Shares, the “Shares”) for US$6.50 per ADS,
      and (ii) a
      warrant
      (the “AOF Warrant” and collectively with the All Warrant, the “Warrants”) to
      purchase 15,000 ADSs (the “AOF Warrant Shares” and collectively with the All
      Warrant Shares,
      the “Warrant Shares”) for US$12.50 per ADS.

    


    The
      Company and the Buyers wish to amend the Original Agreements as set forth herein
      and provide for certain payments to the Buyers and to extend the date by which
      the Company is required
      to register the Shares and Warrant Shares under the Original
      Agreements.

    


    NOW,
      THEREFORE, in consideration of the foregoing and for other good and valuable
      consideration, the receipt and sufficiency of which are hereby acluiowledged,
      the parties hereto hereby
      agree as follows:

    


    1.    Registration
      Deadline Extension. Section
      5(b)(i)
      of each of the Original Agreements is hereby amended by deleting such section
      and replacing it in its entirety with the following:

    


    “(i) the
      Company shall use
      reasonable efforts to promptly prepare and file a registration statement on
      an
      appropriate form covering the sale by all holders of Registrable Securities
      of
such
      Registrable Securities (the ”Initial Registration Statement“) and cause that
      registration statement to become effective as soon as commercially
      reasonable;”

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    2.    Payments.

    


    (a)    No
      Payments Due Under Original Agreements. Section
      5(c) of each of the
      Original Agreements is hereby amended by deleting such section in its entirety.
      The Buyers agree
      and
      acknowledge that no payment is or shall be due under Section 5(c) of the
      Original Agreements.

    


    (b)    All
      Payment. The
      Company shall pay All as final liquidated damages for any and all damages
      suffered by each of the Buyers and both of them as a result of the Initial
      Registration Statement (as defined in the Original Agreements) not having been
      declared effective by the SEC on or prior to the Target Date (as defined in
      the
      Original Agreements) under
      either of the Original Agreements, notwithstanding that such delay may have
      been
      pursuant to Section 5(c) of the Original Agreements, an amount equal to five
      hundred thousand dollars
      (US$500,000). Such payment shall be made to All by wire transfer in immediately
      available
      funds to such account as shall be designated in writing by All. AOF hereby
      consents to
      and
      acknowledges such payment and the value to AOF of such payment being made to
      All.

    


    3.    Release.

    


    (a)    Except
      for any rights, remedies, obligations and liabilities arising out of or related
      to this Amendment, upon the execution of this Amendment, each of the Buyers
      individually and collectively, on behalf of themselves and their predecessors,
      successors and assigns,
      (the “Releasing
      Parties”)
      intending to be legally bound hereby, do hereby absolutely fully
      and
      forever release, relieve, remise and discharge (the “Release”) the
      Company, its predecessors
      and successors, and past and present assigns, representatives, subsidiaries,
      divisions, affiliates, parents, partners, and all of their officers, directors,
      agents, employees, insurers,
      and attorneys, both past and present (hereinafter “Released
      Parties”), of
      and
      from any and
      all
      manner of claims, demands, actions, causes of action, suits, damages, promises,
      debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties,
      covenants, contracts, controversies, agreements, variances, trespasses,
      judgments, extents, executions, compensation, losses, obligations, costs,
      expenses and other liabilities of any kind or nature whatsoever, whether
      in law or equity, whether known or unknown which against any or all of them
      the
Releasing
      Parties ever had, now have or hereinafter can, shall or may have, from the
      beginning of the world to the date hereof arising from or relating to the
      transactions contemplated by the Original
      Agreements (“Claims”).

    


    (b)    Without
      limiting in any way the scope of the Release contained herein, it is expressly
      understood by each of the Buyers that the payment provided for in Section 2
      of
      this Amendment shall fully satisfy any and all obligations of the Released
      Parties to the Buyers relating to or in connection with any liability of the
      Company under the Original Agreements.

    


    (c)    The
      Releasing Parties covenant and agree not to institute, maintain, collect
or
      proceed against Released Parties on any Claims (“Covenant
      Not to Sue”).

    


    (d)    The
      parties accept and assume the risk that if any fact or circumstance is found,
      suspected, or claimed hereafter to be other than or different from the facts
      or
      circumstances now believed to be true, the Release and Covenant Not to Sue
      contained herein shall be and remain in effect notwithstanding any such
      difference in any such facts or circumstances.

    


    
      
         

      

      
         

        
          

        

      

      
         

      

    

    


    (e)    The
      Buyers agree to take all such further action(s) as may reasonably be
necessary
      and requested by the Company to carry out and consummate the provisions of
      this
      Section 3 as soon as reasonably practicable after any such request.

    


    4.    Continued
      Effectiveness of Original Agreements.
      Except
      as expressly amended hereby,
      the Original Agreements shall remain in full force and effect in accordance
      with
      their respective terms. In the event of a conflict between the terms of this
      Amendment and the terms of the Original Agreements, the terms of this Amendment
      shall control. Unless and until All, AOF
      and
      Absolute European Catalyst Fund invest six million five hundred thousand dollars
      (US$6,500,000) as set forth in the term sheet dated as of the date hereof,
      this
      Amendment shall be
      of no
      force or effect.

    


    5.    Governing
      Law; Miscellaneous. The
      laws
      of the State of New York govern all matters
      (including without limitation all tort claims) arising out of this
      Amendment.

    


    IN
      WITNESS WHEREOF, the parties have executed this Amendment as of the date and
      year
      first written above.

    


    
      	PSIVIDA LIMITED 	 	AUSTRALIAN IT INVESTMENTS
              LEVHTED
	 	 	 
	
              By: /s/
                Michael J. Soja

              Title:
                Authorized
                Signatory

            	 	
              
                By:
                  /s/ J.M. Spittal

                Name:
J.M. Spittal

              

              Title:
Director

            
	 	 	 
	 	 	ABSOLUTE OCTANE
              FUND
	 	 	 
	 	 	
              By:
                /s/ illegible

              Name:
                

              Title:
                Authorized
                Signatory