<PAGE>

                                                                   EXHIBIT 10.16

                              *** CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN
                              THIS DOCUMENT (INDICATED BY ASTERISKS) HAS BEEN
                              OMITTED AND FILED SEPARATELY WITH THE SECURITIES
                              AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
                              CONFIDENTIAL TREATMENT UNDER 17 C.F.R. SECTIONS
                              200.80(B)(4), 200.83 AND 230.406.

                                    AGREEMENT

This Agreement effective as of August 7, 2002 ("Effective Date") is made between
Anadys Pharmaceuticals, Inc. having a place of business at 9050 Camino Santa Fe
San Diego, CA 92121 ("Anadys") and Hoffmann-La Roche Inc. having a place of
business at 340 Kingsland Street, Nutley, New Jersey 07110 ("Roche").

WHEREAS, Anadys has expertise in designing, synthesizing, and optimizing small
molecule inhibitors of targets;

WHEREAS, Roche has expertise in pharmaceutical research and development,
including in vitro and in vivo testing of inhibitors [...***...];

WHEREAS, Roche has discovered and synthesized certain lead molecules that are
small molecule inhibitors of [...***...]; and

WHEREAS, Anadys and Roche desire to enter into an agreement for Anadys to design
and synthesize molecules optimized for inhibition of [...***...] based on the
lead molecules provided by Roche and input obtained from the in vitro and in
vivo testing of the molecules to be synthesized by Anadys as inhibitors of
[...***...];

NOW, THEREFORE, the parties agree as follows:

1.       TARGET. The target that is to be inhibited is [...***...] ("Target").

2.       LEAD MOLECULES. Roche shall provide Anadys with lead molecules that
         will be used by Anadys to design and synthesize molecules optimized for
         inhibition of the Target.

                                             ***CONFIDENTIAL TREATMENT REQUESTED
<PAGE>

Roche - Anadys Agreement
Page -2-

3.       PLAN AND MOLECULES. Anadys and Roche have agreed on an initial research
         plan ("Plan") under which Anadys shall use commercially reasonable
         efforts to design, synthesize and deliver molecules that are optimized
         for inhibition of the Target ("Molecules") based on the lead molecules
         provided by Roche. A final version of the Plan will be memorialized in
         writing before Roche makes the first payment for research funding to
         Anadys, although the Plan may be later revised by the JRC, as defined
         in Paragraph 4. Once Molecules have been synthesized by Anadys, they
         will be subject to in vitro screening by Anadys to determine the extent
         to which such Molecules inhibit the Target. Thereafter, the Molecules
         that meet certain minimum requirements in the in vitro screening, as
         determined by the JRC, will be delivered by Anadys to Roche for testing
         via cell-based assays, ADME in vitro screens, pharmacokinetic ("PK")
         experiments, in vivo studies and/or toxicology work. Such Molecules
         shall be initially provided to Roche in amounts between [...***...]
         milligrams ([...***...] mg) and [...***...] milligrams ([...***...]
         mg). Anadys shall provide Roche with the structure of each Molecule and
         any information about the Molecule that is available to Anadys. If the
         JRC determines that one or more Molecules are suitable for further
         development, then such Molecules may serve as lead molecules and be
         used to design and synthesize additional Molecules that are further
         optimized for inhibition of the Target as above. All activities
         referred to above shall constitute the "Project." To aid in
         understanding the goal of the Project, the desired attributes of
         Molecules are as follows:

         POTENCY: in cell-based assays, [...***...] ~[...***...] (mu)M,
         Selectivity >[...***...] ([...***...]/[...***...])

         IN VITRO ADME PROPERTIES:

         Solubility: > [...***...] mg/ml and can be formulated relatively
         easily. Permeability: [...***...] (for both oral bioavailability and
         cell permeability).

                                             ***CONFIDENTIAL TREATMENT REQUESTED
<PAGE>

Roche - Anadys Agreement
Page -3-

         [...***...] incubation stability: >[...***...]% remaining at
         [...***...]. [...***...] and [...***...] inhibition: [...***...].

         SINGLE DOSE PK:

         [...***...] PK - can deliver the drug at [...***...] > [...***...] x
         [...***...] at dose <[...***...] mg/kg within a reasonable period of
         time ([...***...]-[...***...] hours) via [...***...] route. No
         significant change in exposure with continued dosing over
         [...***...]-[...***...] days.

         TOXICITY:

         Maximum tolerated dose significantly higher than therapeutic doses. No
         potential drug-drug interaction.

         EFFICACY: [...***...] inhibition (>[...***...]%) in at least
         [...***...] models

         CHEMICAL TRACTABILITY:

         Molecules stable and reasonable to synthesize.
         Molecules can be patented.

         Terms used above are further described in the Plan.

4.       JOINT RESEARCH COMMITTEE. Roche and Anadys shall establish a joint
         research committee ("JRC") to oversee, review, manage and direct the
         activity under the Plan. The responsibilities of the JRC shall include:
         (i) monitoring and reporting the progress of the activity of the
         Project, (ii) revising the Plan as necessary, and (iii) resolving any
         conflicts between the parties. The JRC shall include three (3)
         representatives of each party that are selected by that party. Roche
         representatives can include representatives that are employees of an
         Affiliate. "Affiliate" means (i) a business entity which owns a
         controlling interest in Roche, (ii) a business

                                             ***CONFIDENTIAL TREATMENT REQUESTED
<PAGE>

Roche - Anadys Agreement
Page -4-

         entity which is owned by Roche, or (iii) a business entity, the
         majority ownership of which is common to the majority ownership of
         Roche. Each party may replace its representatives at any time, upon
         written notice to the other party. During the Collaboration Term (as
         defined below), unless otherwise agreed to by the Parties, the JRC
         shall meet at least quarterly, at such locations or by such
         teleconferencing means as the parties may decide. Each party shall be
         responsible for all of its expenses associated with attending the JRC
         meetings. Anadys shall prepare written minutes of each JRC meeting and
         shall prepare a written record of all JRC voting and decisions, whether
         made at a JRC meeting or otherwise. Anadys shall submit the written
         minutes of each JRC meeting and the written record of all JRC voting
         and decisions to Roche for review within one (1) week after the JRC
         meeting, and upon signature by Roche, the minutes and written voting
         and decision record shall become final. Decisions of the JRC shall be
         made by unanimous vote, with each Party having a single vote. If there
         is a dispute between the parties with respect to a specific matter that
         cannot be resolved by the JRC, such matter shall be referred for
         resolution to an officer of each party, then if still unresolved, Roche
         shall make the final decision.

5.       TERM. The term of the Project shall begin on the Effective Date and
         continue until the one (1) year anniversary of Roche making the first
         research funding payment, unless mutually extended by the Parties
         ("Collaboration Term"). The term of the Agreement shall begin on the
         Effective Date and continue until the latter of (i) the date on which
         the Collaboration Term ends or (ii) the date on which no payments are
         due under this Agreement.

6.       EXCLUSIVITY. For a period beginning on the Effective Date and
         continuing until a date [...***...] following the date on which the
         Collaboration Term

                                             ***CONFIDENTIAL TREATMENT REQUESTED
<PAGE>

Roche - Anadys Agreement
Page -5-

         ends, Anadys will not work on the Target and the Molecules (other than
         as permitted pursuant to Section 7) except as a part of the Project.

7.       OWNERSHIP AND LICENSES. Roche shall own all Molecules and all
         intellectual property related to the Molecules. Anadys shall promptly
         assign to Roche all such intellectual property and shall ensure that
         all persons working for Anadys and on the Project have such an
         obligation to assign all intellectual property to Roche. Any invention
         that is conceived and reduced to practice during the Project but is not
         related to the Molecules shall be owned by the party that made the
         invention or, in the case of a joint invention, by both parties.
         Inventorship shall be determined in accordance with U.S. patent law.
         Anadys grants to Roche a non-exclusive, worldwide, fully paid up,
         royalty-free, license under any other intellectual property that is
         created before or during the Collaboration Term that it may own or
         control to the extent necessary for Roche to make, have made, use,
         sell, offer for sale, and import the Molecules or Compounds. Anadys
         shall have the right to use the Molecules for screening purposes,
         except against the Target. Roche grants to Anadys a non-exclusive,
         worldwide, fully paid up, royalty-free, license under the intellectual
         property generated during the Project to the extent necessary for
         Anadys to use the Molecules for screening purposes, except against the
         Target.

8.       RESEARCH FUNDING. Roche shall fund [...***...] full time equivalents
         (FTEs) at $[...***...] per FTE to work exclusively on the Project:

<TABLE>
<CAPTION>
Functional Area   Initial Number of FTEs    Number of FTEs w/assay
---------------   ----------------------    ----------------------
<S>               <C>                       <C>
Chemistry *             [...***...]               [...***...]
Biochemistry            [...***...]               [...***...]
</TABLE>

                                             ***CONFIDENTIAL TREATMENT REQUESTED
<PAGE>

Roche - Anadys Agreement
Page -6-

         * Chemistry includes synthetic chemistry, structural chemistry and
         computational chemistry. "W/assay" refers to the portion of the
         Collaboration Term after a screening assay has been put in place by
         Anadys.

         It is envisaged that the FTEs will be from the functional areas
         designated above. However, the final selection of functional areas is
         subject to the discretion of the JRC. Funding for the FTEs shall be on
         a quarterly basis, payable in advance. The first payment for research
         funding by Roche to Anadys shall be made within [...***...] after the
         Effective Date. Anadys shall provide Roche with an invoice for each
         payment due and Roche shall pay Anadys within thirty (30) days after
         receiving such invoice.

9.       MILESTONE PAYMENTS.

         "Product" means a pharmaceutical product that contains (i) a Molecule
         (or any salt, ester, acid, base, or pro-drug of a Molecule) or (ii) a
         compound (or any salt, ester, acid, base, or pro-drug of a compound)
         that is conceived as a part of the Project, considered by the JRC for
         synthesis as a Molecule, and which could have been reduced to practice
         by Anadys but for the Project ending ("Compound"). If a Product is
         being developed by Roche, an Affiliate or a sub-licensee and reaches a
         following milestone event ("Milestone Event"), then Roche shall pay to
         Anadys within thirty (30) days after receiving an invoice from Anadys
         the corresponding milestone payment:

         Start Phase I                       US$ [...***...]
         Start Phase II                      US$ [...***...]
         Start Phase III                     US$ [...***...]

         NDA Filing                 USA      US$ [...***...]
                                    EU       US$ [...***...]

                                             ***CONFIDENTIAL TREATMENT REQUESTED
<PAGE>

Roche - Anadys Agreement
Page -7-

         First Commercial Sale      USA      US$ [...***...]
                                    EU       US$ [...***...]

         The terms "Phase I," "Phase II," and "Phase III" have the meaning
         ascribed in 21 C.F.R. Section 312.21(a), (b), and (c), respectively, as
         may be amended. "Start" with reference to Phase I, Phase II or Phase
         III means the dosing of the first patient in that phase's first
         clinical trial. "NDA" means a New Drug Application having the meaning
         ascribed in 21 C.F.R. Section 314.50 or its equivalent in the European
         Union. "First Commercial Sale" means the first sale of a Product by or
         on behalf of Roche after receiving approval from the U.S. Food and Drug
         Administration or its equivalent in the European Union.

         Roche shall have no obligation to commercialize or otherwise pursue any
         Molecule or Product. However, if Roche develops Product that reaches a
         Milestone Event, then Roche shall notify Anadys promptly after the
         occurrence of such Milestone Event.

10.      ROYALTIES. If a Product is sold by or on behalf of Roche, then Roche
         shall pay to Anadys during the Royalty Term a royalty on Net Sales of
         any such Product, calculated on a country by country basis, as follows:

         Net sales ($ million)              Royalty rate (%)

         [...***...]                            [...***...]
         [...***...]                            [...***...]

         "Royalty Term" means, in the case of any Product, in any country, the
         period of time commencing on the First Commercial Sale of such Product
         in such country and ending upon the later of (a) [...***...] years
         after the

                                             ***CONFIDENTIAL TREATMENT REQUESTED
<PAGE>

Roche - Anadys Agreement
Page -8-

         date of First Commercial Sale in such country, and (b) the expiration
         of the last to expire of the patent rights claiming the Molecule or
         Compound per se contained in such Product, either specifically or
         generically, in such country.

                  a. NET SALES "Net Sales" means (i) the amount of gross sales
         of the Product invoiced by Roche, its Affiliates and its sub-licensees
         to independent third parties less deductions of returns and return
         reserves (including allowances actually given for spoiled, damaged,
         out-dated, rejected, returned Product sold, withdrawals and recalls),
         rebates (price reductions, rebates to social and welfare systems,
         charge backs or reserves for chargebacks, cash sales incentives,
         government mandated rebates and similar types of rebates, e.g.
         Pharmaceutical Price Regulation Scheme, Medicaid), volume (quantity)
         discounts, taxes (value added or sales taxes, government mandated
         exceptional taxes and other taxes directly linked to the gross sales
         amount) ("Adjusted Gross Sales") minus (ii) a lump sum deduction of
         [...***...] percent ([...***...]%) of Adjusted Gross Sales in lieu of
         those sales related deductions which are not accounted for within Roche
         on a product by product basis (e.g. outward freights, postage charges,
         transportation insurance, packaging materials for dispatch of goods,
         custom duties, bad debt, discounts granted later than at the time of
         invoicing, and cash discounts). Notwithstanding the foregoing, amounts
         received by Roche, its Affiliates and sublicensees for the sale of
         Product among Roche, its Affiliates or sublicensees for resale shall
         not be included in the computation of Adjusted Gross Sales and Net
         Sales.

                  b. COMBINATION PRODUCT If the Product, in addition to the
         Molecule, contains other pharmaceutically active agent(s) ("Combination
         Product"), then the parties shall meet approximately one (1) year prior
         to commercial launch of such Combination Product to negotiate in good
         faith

                                             ***CONFIDENTIAL TREATMENT REQUESTED
<PAGE>

Roche - Anadys Agreement
Page -9-

         and agree to an appropriate adjustment to Net Sales to reflect the
         relative significance of the Molecule and the other pharmaceutically
         active agent(s) contained in the Combination Product.

                  c. CALCULATION Roche shall calculate royalties on Net Sales
         quarterly as of March 31, June 30, September 30, and December 31 (each
         being the last day of an "Accounting Period") and shall pay royalties
         on Net Sales quarterly within the ninety (90) days after the end of
         each Accounting Period in which such Net Sales occur. "Accounting
         Period" means a calendar quarter commencing respectively on January 1,
         April 1, July 1, and October 1, each being the first day of an
         Accounting Period, and finishing respectively on March 31, June 30,
         September 30, and December 31, each being the last day of an Accounting
         Period.

                  d. CURRENCY Royalties on Net Sales shall be paid by Roche in
         U.S. Dollars. Whenever calculating royalties requires conversion from
         any currency, Roche shall make such conversion as follows:

         When calculating the Adjusted Gross Sales for countries other than the
         United States of America, Roche shall convert the amount of such sales
         in currencies other than Swiss Francs into Swiss Francs as computed in
         Roche's central Swiss Francs Sales Statistics for the countries
         concerned, using for internal foreign currency translation Roche's then
         current standard practices actually used on a consistent basis in
         preparing its audited financial statements. Upon converting the amount
         of Adjusted Gross Sales into Swiss Francs, Roche shall convert into US
         Dollars (or other currency), using the daily rate (Reuters) at the last
         working day for the applicable period.
<PAGE>

Roche - Anadys Agreement
Page -10-

                  e. REPORTS With each payment Roche shall provide in writing
         for the relevant Accounting Period at least the following information
         split by U.S. and rest of world:

                  (i)      Adjusted Gross Sales;

                  (ii)     Net Sales; and

                  (iii)    Total Royalty payable.

                  f. TAXES Anadys shall pay all sales, turnover, income,
         revenue, value added, and other taxes levied on account of milestones,
         royalties and any other payments accruing or made to Anadys under this
         Agreement. If provision is made in law or regulation of any country for
         withholding of taxes of any type, levies or other charges with respect
         to any royalty or other amounts payable under this Agreement to Anadys,
         then Roche shall promptly pay such tax, levy or charge for and on
         behalf of Anadys to the proper governmental authority, and shall
         promptly furnish Anadys with receipt of payment. Roche shall be
         entitled to deduct any such tax, levy or charge actually paid from
         royalty or other payment due Anadys or be promptly reimbursed by Anadys
         if no further payments are due Anadys. Each party agrees to assist the
         other party in claiming exemption from such deductions or withholdings
         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.

                  g. RECORDS Roche and its Affiliates shall keep, and shall
         require its licensees and sublicensees to keep, full, true and accurate
         books of account containing all particulars that may be necessary for
         the purpose of calculating all royalties payable under this Agreement.
         Such books of accounts shall be kept at their principal place of
         business. At Anadys' expense, Anadys has the right to engage Roche's
         officially
<PAGE>

Roche - Anadys Agreement
Page -11-

         appointed worldwide independent public accountant to perform, on behalf
         of Anadys an audit, conducted in accordance with international
         accounting standards (IAS), of such books and records of Roche and its
         Affiliates, its licensees and sublicensees, that are deemed necessary
         by Roche's independent public accountant to report on Net Sales of
         Product for the period or periods requested by Anadys and the
         correctness of any report or payments made under this Agreement.

                  h. AUDIT Upon timely request and at least sixty (60) working
         days' prior written notice from Anadys, such audit shall be conducted
         as an additional audit work during Roche's annual audit of the
         countries specifically requested by Anadys, during regular business
         hours in such a manner as to not unnecessarily interfere with Roche's
         normal business activities, and shall be limited to results in the two
         (2) calendar years prior to audit notification. Such audit shall be an
         Anadys' cost and shall not be performed more frequently than once per
         calendar year nor more frequently than once with respect to records for
         a particular Product covering any specific period of time. All
         information, data documents and abstracts herein referred to shall be
         used only for the purpose of verifying royalty statements or compliance
         with this Agreement, shall be treated as Roche Confidential Information
         subject to the obligations of this Agreement and need neither 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 shall pertain; nor more than one (1)
         year after the date of termination of this Agreement. Audit results
         shall be shared by Roche and Anadys. If the audit reveals an
         overpayment, Anadys shall promptly reimburse Roche for the amount of
         the overpayment. If the audit reveals an underpayment, Roche shall
         promptly make up such underpayment. If the audit reveals that the
         royalties owed by Roche to Anadys for the countries specifically
         requested and for any calendar year in total have been understated by
<PAGE>

Roche - Anadys Agreement
Page -12-

         more than [...***...] percent ([...***...]%), Roche shall, in addition,
         pay the reasonable costs of such additional audit worK. The failure of
         Anadys 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.

11.      INTELLECTUAL PROPERTY. Since (i) Roche owns all intellectual property
         related to the Molecules and (ii) Anadys must assign to Roche all such
         intellectual property, Roche shall have the sole and exclusive right to
         obtain and defend any such intellectual property at its sole
         discretion. Anadys shall use commercially reasonable efforts assist
         Roche, at Roche's cost, by executing documents related to such
         intellectual property and providing a reasonable amount of technical
         input as may be requested by Roche.

12.      TERMINATION. This Agreement shall remain in effect for the Term, except
         in the event of material breach or bankruptcy, in which case the
         non-breaching/non-bankrupt party shall notify the breaching party in
         writing. If the breach/bankruptcy is not corrected within ninety (90)
         days after receipt of such notice, then the non-breaching party may
         terminate the Agreement. In addition, during the Collaboration Term,
         Roche may terminate the Project at will, provided that Roche pays to
         Anadys an amount equal to [...***...] dollars (US$[...***...]) minus
         the amount of research funding payments previously made By Roche to
         Anadys under the Agreement. Termination of the Project during the
         Collaboration by Roche shall not impact upon the other terms and
         conditions of the Agreement, which shall remain in effect. Termination
         of this Agreement shall not relieve the parties of any obligation
         accruing prior to such expiration or termination, including the payment
         of milestones and royalties.

                                             ***CONFIDENTIAL TREATMENT REQUESTED
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Roche - Anadys Agreement
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13.      CONFIDENTIALITY AND PUBLICATION. During the Collaboration Term and for
         [...***...] years thereafter, the receiving party shall not publish or
         otherwise disclose to a third party, other than an Affiliate, and shall
         not use for any purpose other than as expressly provided for in this
         Agreement any Information furnished to it by the other party through
         the end of the Collaboration Term (collectively, "Confidential
         Information"). For the purpose of this Section 13, the term "receiving
         party" with respect to Roche shall include Affiliates that agree to be
         bound by the terms and conditions of this Agreement. Each receiving
         party may use Confidential Information of the other party only to the
         extent required to accomplish the purposes of this Agreement. Each
         receiving party will use at least the same standard of care as it uses
         to protect proprietary or confidential information of its own to ensure
         that its employees, agents, consultants and other representatives do
         not disclose or make any unauthorized use of the other party's
         Confidential Information. Confidential Information shall not include
         information which the receiving party can prove by competent tangible
         evidence: (i) is now, or hereafter becomes, through no act or failure
         to act on the part of the receiving party, generally known or
         available; (ii) is known by the receiving party at the time of
         receiving such information, as evidenced by its tangible records; (iii)
         is hereafter furnished to the receiving party by a third party, as a
         matter of right and without restriction on disclosure; (iv) is
         independently discovered or developed by the receiving party without
         the use of Confidential Information of the disclosing party; or (v) is
         the subject of a written permission to disclose provided by the
         disclosing party. The terms of this Agreement shall be considered
         Confidential Information, except to the extent that the parties
         authorize otherwise. Notwithstanding the foregoing, (i) each Party
         shall have the right to disclose the material terms of this Agreement
         in confidence to any bona fide potential investor, investment banker,
         acquirer, merger partner or other potential financial partner, and
         where

                                             ***CONFIDENTIAL TREATMENT REQUESTED
<PAGE>

Roche - Anadys Agreement
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         reasonably practicable, hall obtain an adequate agreement of
         confidentiality consistent with the terms of this Agreement, and (ii)
         if a Party is required to make a disclosure of this Agreement in a
         regulatory filing, then it will be permitted to do so, provided that it
         gives reasonable advance notice to the other Party of such disclosure
         and endeavors in good faith to secure confidential treatment of
         sensitive information or a protective order related to such
         information. The parties agree that the press release attached hereto
         is an authorized disclosure.

         Roche may disclose Anadys Confidential Information to the extent such
         disclosure is reasonably necessary for (i) filing or prosecuting
         patents in accordance with this Agreement or (ii) complying with
         applicable court orders or governmental regulations.

14.      WARRANTIES AND INDEMNIFICATION. The parties warrant and represent that
         they have the full right and authority to enter into this Agreement and
         that they have no obligations or commitments inconsistent with this
         Agreement. Anadys warrants and represents that its FTEs have the
         training and expertise required to conduct the activities set forth in
         the Plan and will do so in a professional manner. Each party
         ("Indemnitor") shall indemnify and hold harmless the other party
         ("Indemnitee") from any and all losses, costs, claims, demands,
         judgments and liability, including reasonable attorney fees
         (collectively, "Losses") to which the Indemnitee may become subject as
         a result of any claim, demand, action or other proceeding by any third
         party to the extent such Losses result from the Indemnitor's
         performance under this Agreement, except to the extent that such
         losses, costs, claims, demands, judgments or liability are due to the
         negligence or wrongful act(s) of the Indemnitee.

         NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY
         SPECIAL, INCIDENTAL, CONSEQUENTIAL OR
<PAGE>

Roche - Anadys Agreement
Page -15-

         PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT OR ANY LICENSE
         GRANTED HEREUNDER.

15.      ASSIGNMENT. The services to be provided by Anadys cannot be assigned or
         transferred by Anadys without the prior written consent of Roche,
         except that an Affiliate of Anadys may perform all or a portion of the
         services to be provided by Anadys, upon Roche's prior written consent,
         which shall not be unreasonably denied.

16.      COMPLIANCE WITH LAWS. It is the policy of both parties to comply with
         all applicable laws, regulations, permits and consent orders and to act
         in a proper and ethical manner. Accordingly, in connection with the
         services provided hereunder each party agrees to comply with all
         applicable laws, regulations, permits and consent orders.

17.      SEVERABILITY AND WAIVER. The provisions of this Agreement are
         severable, and any judicial determination that one or more such
         provision is invalid or unenforceable shall not affect the validity or
         enforceability of any other provision, but rather shall cause this
         Agreement first to be construed in all respects as if such invalid or
         unenforceable provision(s) were modified to terms which are valid and
         enforceable and provide the greatest temporal, geographic and other
         protection to Roche's business interests; but if necessary, shall cause
         this Agreement to be construed as if such invalid or unenforceable
         provision(s) were omitted. No failure to exercise any right or demand
         performance of any obligation under this Agreement shall be deemed a
         waiver of such right or obligation.

18.      INDEPENDENT CONTRACTORS. Anadys understands and agrees that, in its
         relationship with Roche under this Agreement, Anadys is acting in the
         capacity of an independent contractor and that it has no authority to
         represent or act on behalf of Roche without Roche's prior consent.
<PAGE>

Roche - Anadys Agreement
Page -16-

         Nothing in this agreement should be construed to create an
         employee/employer relationship between Roche and Anadys or any of its
         employees, agents, principles or other individuals providing services
         to Roche on behalf of Anadys.

19.      ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
         between Roche and Anadys with respect to the services contemplated
         herein and supersedes all previous negotiations, commitments and
         writings. No modifications or amendments hereof shall be effective
         unless made in writing and signed by Anadys and an authorized
         representative of Roche.

20.      CHOICE OF LAW. This Agreement shall be governed by the laws of the
         State of New Jersey, without giving effect to New Jersey's choice of
         law principles.

21.      NOTICES. Official notices shall be in writing and delivered in person,
         by mail (postage prepaid), by overnight courier or by facsimile as
         follows:

                  If to Anadys:         Anadys Pharmaceuticals, Inc.
                                        9050 Camino Santa Fe
                                        San Diego, CA 92121
                                        Tel: [...***...]
                                        Fax: [...***...]
                                        Attn: Vice President, Corporate
                                        Development and Strategy, with a copy to
                                        Director of Legal Affairs

                  If to Roche:          Hoffmann-La Roche Inc.
                                        340 Kingsland Avenue
                                        Nutley, New Jersey 07110
                                        Attn.:  Corporate Secretary
                                        Fax:  [...***...]

         Invoices shall be sent to: Hoffmann-La Roche Inc.

                                             ***CONFIDENTIAL TREATMENT REQUESTED
<PAGE>

Roche - Anadys Agreement
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                                            340 Kingsland Street
                                            Nutley, New Jersey 07110
                                            Attention: Corporate Accounting
                                            Fax: [...***...]

22.      COUNTERPARTS. This Agreement may be executed in any number of
         counterparts, each of which shall be deemed an original document, and
         all of which together shall be deemed one instrument.

IN WITNESS WHEREOF, the parties hereto, intending to be bound hereby, have
caused this Agreement to be executed as of the dates indicated here:

HOFFMANN-LA ROCHE INC.                  ANADYS PHARMACEUTICALS, INC.

By _____________________________        By _____________________________________

Name____________________________        Name____________________________________

Title___________________________        Title___________________________________

Date____________________________        Date____________________________________

                                             ***CONFIDENTIAL TREATMENT REQUESTED